“the market” returns “8% on average over time” why is the withdrawl rate to make my retirement last 30 years only 4% ? Seems like it should last forever at 4%
In: Mathematics
Well a) when you’re in the withdraw phase, you won’t be invested fully in assets that return an average of 8%. You’ll be in assets that are less volatile, but with lower growth.
And b) 30 years is a long time. There will be ups and downs. There will be some years where you take out less than you earned, and some years where you take out more. Since it’s your only source of income, you have no choice but to make withdrawals during those down years, even if doing so drains your portfolio. So the math guys did the math, and founs that 4% is a “safe” rate that will make it very likely that, even with down years, your portfolio will still last 30 years. Which, if you retire at 67, is probably long enough to outlive you.
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