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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Re: Retirement Funding Date: 2/29/2012 1:11 PM
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...This has worked out well; I had to work to age 75 to get my number but now at 80, I have lived on my RMD for 5 years and have not reduced my principal. ...

Another strategy for withdrawing money in retirement is to start out spending a certain percent of your money each year then to adjust it each year for inflation. This is called a "safe withdrawal rate" (aka SWR) (Google this) and 4% is often mentioned as being a good starting point in order to likely have your money last for 30 years of retirement.

Here are some links with some info on safe withdrawal rates;

http://en.wikipedia.org/wiki/Trinity_study

http://www.retireearlyhomepage.com/safesum.html

With the current low interest rates some people suggest that starting out at a bit less than 4% might be a good idea.

Starting with a 3.6% RMD at the age of 70 is right in this ballpark of what the SWR would be if the goal is to have your money last until you are 100.

Your method of using the RMD as your withdrawal rate is initially very close to what you would do with the SWR method which is good but this could be a coincidence. The big differenc is that the RMD does not take inflation into account.

I would be extremely concerned that between future inflation and how the RMD requirements changes as you get older that the RMD rate and the theoretical SWR rate will diverge and that there is a 50/50 chance that you will eventually start withdrawing and spending more that it is theoretically safe to spend each year. It would be good to crunch the numbers to see just into how these rates will differ as the RMD goes up when you get older.
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