I want to start collecting some info and opinions from our population sample here, for anybody who's willing. I'm interested in the input of people who are actually living in retirement, or nearing it. I think it's valuable insight to consider, rather than just listening to "experts" and forecasting. I'll probably have several questions in the coming days, weeks, whatever.
For today I just want to talk about the 4% rule. i.e., annually withdrawing 4% from an indexed retirement fund, with the expectation that the value of the fund annually increases an average of 7%, inflation annually increases an average of 3%, so, 4% annual withdrawals maintains the same level of purchasing power, and the fund lasts indefinitely.....in theory.
In the real world, StUhdeEz!!! show that method lasts on average ~30 years until the fund is depleted, and the effectiveness varies based on what the market does in the first few years after retirement, and the particular cycle of the market's highs/lows (when they occur, how sharp they are, etc.).
It seems risk tolerance would play a huge factor there. I know the historical average is exactly that, so it kind of misses the point to worry about the particular market cycle one retires in, but there's something a little unnerving about leaving money you count on in retirement in more volatile assets. OTOH, there's something a little unnerving about parking your money in "safe" assets which don't earn much, and you're essentially just dividing your retirement savings by number of years you think you'll be alive, because they're no longer growing substantially. And you might live a lot longer than you think.
One method is to keep a mix, say, 40-60% in stock-indexed funds, 40-60% in bonds, T-notes, that kind of thing, and 1-2 years of spending in cash on hand or maybe a money market fund. There's a ton of ways to allocate, and there's also more recent research that finds the original 4% rule was designed around "worst case" data, and many beat the 30-yr horizon if they're willing to vary their spending a little bit, based on downturns and upswings. There's a lot more nuance to all that, but I'm sure y'all know more about that anyway.
What I'm interested in here is, what do you think about allocating savings in retirement? About the 4% rule in general? What are you actually doing? How has it worked out? Or as you near retirement, how does it look like it will go? (Obviously, the closer you get, the more accurate forecasts are.) Bear in mind, how much you managed to squirrel away or what level of lifestyle you maintain is not what I'm asking, so I'm not asking you to disclose that. Whatever you saved for retirement and whatever your average expenditures are, I'm just talking about how do you handle ensuring it lasts as long as you need it?
Obviously, someone who saved $5 million and didn't live extravagantly wouldn't really need to grow their wealth any further and could just park it somewhere extremely safe and just withdraw whatever they needed. That's different from someone who retires with, say, $850k and needs to at least beat or outpace inflation. So I guess that does matter some, but anyway, I'm curious to hear from you.
