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Author: eldynamite Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75625  
Subject: Re: safe withdrawal rates (again!) Date: 3/18/2000 5:43 PM
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>> I know this subject has been rehashed over and over here. But I'm still confused (and alarmed). I hope to retire at 62 in 2 yrs.
By then, if the market stops testing the bottom of the tank, I may have $550K or a little more in my IRA. I will get
$11-12K/yr SS. If I can only withdraw 4% safely, I will only have about $34K tops to live on. Frankly, that's not enough.

My question: if I shoot for having enough $$ to make it through 30 yrs., can I take out maybe 6-7% instead? (Depending on
market conditions, of course.) My wife is 12 yrs. younger than I, so I don't want to leave her destitute. But my kids can fend
for themselves (I did). Btw, I have used the Safe Withdrawal Calculator on the Early Retirement web page, but I'm still a little
confused about this. Thanks for whatever help you can offer, fellow fools. <<

The numbers you quote are based on the Trinity study. IMHO, the study is somewhat misleading, since it seems to assign a probability that a portfolio will survive based on a withdrawal rate. But the data are purely historical, and have no particular predictive value. "Past performance is no guarantee of future results."

But the greatest weakness in the study is the assumption that you will continue your original withdrawal rate no matter how bad the market is. But if a real bear market comes, the Foolish retiree would certainly find ways to reduce his/her withdrawal rate. Indeed, one adviser recommends withdrawing a constant percentage from your portfolio rather than a constant amount. Obviously, you won't go to zero this way!

There is one strategic advantage in taking early retirement (as you are planning): you can go back to work for a year or two if the market turns sour. Better yet, if your profession permits this, you might consider working part-time for a year or three. You can earn $10,000+ without affecting SS benefits, and this also keeps you active in the employment market. Given a good year or two in the market, your portfolio could grow dramatically while you are basically 70% or 80% retired. In the best scenario, you might even be able to keep your health coverage with your employer, which doesn't count against SS benefits.

In any event, it seems to me that in your situation (which happens to be similar to mine), a reasonable plan is to shoot for 7% keeping in mind that you might need to cut back a bit during bad years.


Good luck!


Tim

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