Editor: Crass Cash
Not sure what these camels have to do with 1% but it's funny.
If you follow retirement planning at all there's a great debate over the withdrawal rate of 3% and 4%. It's only 1%, what's the big fucking deal??
Well as it turns out a lot. The standard withdrawal rate of 4% of your assets each year was the standard for financial planners for decades. If you have $1,000,000 in investable assets you could withdrawal $40,000 each year for the rest of your life and you'd be fine. This theoretically would protect you from inflation and market volatility. However, this is no longer suitable.
Two things have changed. First, interest rates aren't what they used to be. You're no longer getting 4-6% on your 10 year treasuries, you're getting 2% and the bond market is in a bubble. Savings accounts are paying next to nothing. The parked money is just losing ground to inflation, which is still running at around at least 2%. Secondly, if you want to retire before the age of 65 you face a lot more uncertainty. You'll go through more bear markets, possibly more kids, etc. More time equals more uncertainty. It's a fact of life. As a result you need to be more conservative.
This is why you need to be in the 3% category in my opinion. So how much of a difference does it make? Well if you want to live off of that same $40,000 above and you withdrawal 3% instead of the 4% you're going to need to have $1,333,333 in investable assets instead of the $1,000,000. That's over a 33% increase!
The good news is that you are almost guaranteed (at least in test simulations) of not running out of money regardless of how long you live. The reason being is because you're not touching the principle and pretty much just living off of the interest. Both the principle and interest should increase over time to match inflation. That 1% could be the difference between being broke or flush in your old age.
If you follow retirement planning at all there's a great debate over the withdrawal rate of 3% and 4%. It's only 1%, what's the big fucking deal??
Well as it turns out a lot. The standard withdrawal rate of 4% of your assets each year was the standard for financial planners for decades. If you have $1,000,000 in investable assets you could withdrawal $40,000 each year for the rest of your life and you'd be fine. This theoretically would protect you from inflation and market volatility. However, this is no longer suitable.
Two things have changed. First, interest rates aren't what they used to be. You're no longer getting 4-6% on your 10 year treasuries, you're getting 2% and the bond market is in a bubble. Savings accounts are paying next to nothing. The parked money is just losing ground to inflation, which is still running at around at least 2%. Secondly, if you want to retire before the age of 65 you face a lot more uncertainty. You'll go through more bear markets, possibly more kids, etc. More time equals more uncertainty. It's a fact of life. As a result you need to be more conservative.
This is why you need to be in the 3% category in my opinion. So how much of a difference does it make? Well if you want to live off of that same $40,000 above and you withdrawal 3% instead of the 4% you're going to need to have $1,333,333 in investable assets instead of the $1,000,000. That's over a 33% increase!
The good news is that you are almost guaranteed (at least in test simulations) of not running out of money regardless of how long you live. The reason being is because you're not touching the principle and pretty much just living off of the interest. Both the principle and interest should increase over time to match inflation. That 1% could be the difference between being broke or flush in your old age.
RSS Feed
