Retirement: The 4% Rule

Right now I'm doing pretty good. Retired for the last year and a half, I save enough for my vegas (and other places) trips. That doesn't even include social security so I have that to look forward to in 4 1/2 years when I make 66 1/2. I figure to use that as my "just in case" money, usually for health stuff.

I also have rent money from my mom's condo. Right now it is in her trust (she passed away last November) but that is an extra amount I can use/save up when I finish executing the trust.

 

saving early and becoming debt free as quickly as possible is a great recipe for an early retirement. It's surprising how little you can live on well without payments.

 

Not to tell you what to do, but if spending it won't make you happier, you could always find a worthy cause to share it with. Or you could take a round the world cruise and fly there in first class. Good luck finding peace, and congrats on getting to this place.

 

really, and this is an example of where the 4% rule seems geared to over 65s who are already on SS/Medicare..."without payments" is a major variable. If your mortgage is 100k, it may really be "4% of my 401(k) minus 100k" So is access to medical coverage with some subsidy.

 

The 4% rule is based on the Trinity Study, showing returns for a mix of stocks / bonds (60/40).

I retired this month, currently have 33% in Domestic Stocks / International Stocks and Short Term Cash. If the bond market ever starts paying meaningful long term rates, I will shift the cash to bonds, with five years expense always in cash/CDs/Short Term Bonds to minimize risk. I may shift to 30/30/40 soon.

Social Security is worth the equivalent of significant savings as you postpone collecting. It is a good annuity backstop, I will do everything reasonable to postpone until I reach 70.

 

I like the retirement threads.
I have been thinking about posting one myself, but have not had time.
I am on the verge of making a very big decision and it is scary. it is causing me a lot of anxiety.
I know the crew here at VMB would be helpful / supportive. 30 years at the same job is enough, surely!

 

4 vegasdev

 

Still saving as we get more income than we spend each month. That won't change when fully retired as four checks will come in each month and we are not big spenders and very happy with lower cost lodging and dining places. Currently have no big bills coming due or kids to maintain.
Assets are just under a million in CD's, IRA's, 401K and money markets. Value of land and other real estate properties plus worldly goods is near another million .

Even with that we seek out bargains. Examples:
Getting my tires on the 10 year old car rotated and balanced free today due to buying from Discount Tires in 2018.
Oil and filter changes are free on that car and the new 2019 just bought for life from the dealer.
Eat at cracker Barrel and small local place 2 to 3 times a week.
Only stay at casino properties where we can get comped rooms and food.

 

90% of it is earmarked for charities in my will. I don't need to spend it. I literally wake up from a sound sleep with a smile on my face every morning. It's not that I saved so much, it's that I'm happy living with a very low outflow of funds.

 

This... We are 35 & 49 and have been retired for just over a year. No children which certainly helps but we cleared the mortgage ASAP and resisted the urge to upgrade the house to keep up with the Jones’ and focused on saving and investing. Decided life was too short and sold our UK property to move to the Canary Islands. Our current house is bigger, with a swimming pool (which is something we never thought we could own) and cost almost 40% less than our UK property. Our cost of living here is also massively reduced and we have almost year round sunshine. We don’t have a gas bill to pay as no heating. Water and electricity is about the same, council tax bill for the whole year is equivalent to what we paid for a month in the UK. Only 1 car to run between us. Supermarket shopping and petrol are both about 10% cheaper. As residents of the island we also get 75% discount on flights to mainland Spain which allows us to source cheap flights to the US.

We have a modest passive income from a couple of small UK rental properties. I do not envisage either of us will ever work again. Our lifestyle is very modest, we do not want lots of ‘stuff’. Our only desire is to travel and see the world which we manage to do by researching the best deals. I think onlookers probably think we are very rich, the reality is that we are very savvy with money but the lifestyle we have is priceless. We could have worked for another 20 years and completely indulged in retirement but tomorrow isn’t promised to anyone. We just went for it!

 

"tomorrow isn't promised to anyone". How true. And the biggest reason I decided to retire 2 months ago.

I'm not rich but I'll have money to live the way I've always lived: modestly. I consider myself very wealthy in other ways. I have my wife who is more important to me than anything else in the world. And beautiful children and grandchildren who grew up and are growing up into wonderful citizens of this world.

Life is good. I am happy.

 

So - this 4% rule = the % you can withdraw without touching your principle?

By the time I die I will have nobody to leave money to. I'd rather enjoy it now.


so I want to die penniless.

 

No. It is the percent that would have in the past, with a portfolio of between 25% and 75% stocks, given you a 95% chance of not running out of money in 30 years.

 

Yep... that's the idea behind it, anyway.
The 4% (sometimes 3%) is the assumed dividends and gains in a retirement portfolio. Hypothetically, your principal could remain intact "forever" if you only draw on the gains.
I understand the "security" argument with never having to worry about having enough to take you through to a very-elderly death, but I think we can all afford to be a bit more realistic...
I think I'll probably be gone before I turn 80...so my retirement plans assume I'll make it to 85, and will cover my wife through her 100th birthday.
Needing to plan for a nest-egg beyond that?
Might be important to some folks, but not to me.

 

No, the 4% "rule" is not a rule about living only off dividends and gains.

It is about a safe amount to withdraw and not run out of money for a typical longish retirement. The person who calculated it figured that over the worst historical market periods following the rule, money would not have run out in fewer than 33 years. It still isn't amount the money lasting forever.

But it does not take into account things like government benefits and tax treatment of some types of retirement accounts. It is just a simple "take this out and the money will last long enough"

 

Hmmm... so, if one's portfolio is earning 4%+ a year based solely on dividends and guaranteed bond rate returns, I don't see how that's much different.
Obviously, any given dividend can be cancelled, so there's never an iron-clad guarantee, but 4% seems remarkably conservative for a mere 33 years.

I've done my retirement planning based on a continuous average annual return of 5% of any remaining balance of the 401K & IRA accounts. After 5 years, I'll be 70 & the wife & I will both start drawing my maximum SocSec benefit (hers at 32% of mine), and we reduce the 401K & IRA withdrawals by that amount.
That should allow the same amount (plus any increases/COLAs in SocSec) to continue every month for the next 40 years... that will put my wife over 100 and me over 108... we should be ok on that.

Obviously, when talking about "4%" and one's standard of living, how much one has saved is a huge factor... after all, "4% of what?" becomes the question... but if that's comparatively low (as mine is), and one needs to rely on Social Security, leaning more heavily on the 401K/IRA in order to maximize Soc.Sec seems to be prudent.

So, I'll be pulling out roughly 10% per year for 5 years, and then reducing that to about 1% per year for the next 40 years.

 

Yeah, I'm still cheap as hell. Just based on my pension alone I'm probably saving about $1500 a month (even living in Hawaii!), to be used for my vacations and trips. Not even dipping into any retirement accounts. Add another $2400 a month when I start collecting social security and I should be financially comfortable for the rest of my life, unless the feds find a way to cut down on our social security.

I guess I should use some of that money to live in luxury but I'm still a tight ass. Flying economy, looking for bargains, staying downtown instead of the strip, in vegas eating at in n out, having only a $300 a day budget in vegas. Guess my logic is that being cheap allows me to go to vegas (and elsewhere) more often than if I spent and gambled more on each trip.

No heirs but have a brother and sister who are financially secure so I guess I should give some of my estate (when I pass) to charity but I have to create a will sometime soon, just in case. But it shouldn't be too much of a problem, without a will my estate should be split between my bro and my sis. I don't have a lot of high priced assets so shouldn't have to pay any probate stuff when I pass.

 

If your thinking of adopting I'm available immediately.

 

Lets just hope the money don't end up in a nursing home cash box.

 

I won't ever be able to retire.