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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35363  
Subject: Re: Income Investing: 5.5% goal possible? Date: 6/24/2011 11:22 AM
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I seem to recall the studies show the safe rate is an inflation-adjusted 4%. So the OP is fortunate that their needs are achievable.

IIRC, the 4% rate takes inflation into account when adjusting (increasing) the withdrawals in subsequent years. I *think* that's that same as what you said.

But, IIRC, they used something like Monte-Carlo, and used the actual historical inflation rates. They didn't use an arbitrary fixed rate like the 1.5% the OP assumed.

FWIW, I think that assuming 1.5% is much too low and completely unwarranted. The SSA annual Cola rate, averaged 1975 thru 2010 is 4.2%. 'course that included the Carter years of double-digit inflation (1980/81). The average of 1982-2010 is 2.9%. And that includes two years of zero (2009/10) which will likely never occur again.

I recall reading somewhere that the SSA rule-of-thumb is 2.2% inflation rate.

I prefer for my finanical surprises to be of the "Wow! We can go to the French Riviera this year." category rather than "We'd better learn to like Alpo."

All it takes is one 11.2% year (like 1981) when you are depending on 1.5% and you are well and truly screwed.
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