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Author: PLabelle One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 745925  
Subject: Re: 4% Date: 1/31/2001 1:39 PM
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Obviously, we're not doing enough to clearly explain the 4% rule.

I think that it is mostly clear, but what confused me the most, at first, is the question: 4% is a percentage of what exactly? If I understand correctly, it's the % of the total principal of the first year. Like 40k with respect to $1 million invetsed. But after a year, one now withdraws 40k plus the inflation rate out of a total investment which may now be larger or smaller than 1 million, depending on the market that year. So, starting the second year, one does not withdraw 4% anymore.

That's what confused me at first. I was wondering if 4% was meant to be used every year. Of course, when you think about 35 years down the road, that does not make any sense. You will most likely have a much smaller amount invested (like $200 000, say), so taking 4% of that would not make much sense. Still, it may be useful to always say something like "the rule is to witdraw 4% of the initial investment , adjusted for inflation.

Correct me (gently!) if I am wrong!

Patrick
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