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SirTas writes,

The idea, I take it, is that this arrangement would have allowed for a "safe rate of withdrawal" for a thirty year period -- one that may or may not include world wars, depressions, inflation, etc. These thirty year periods are all in the past, but we figure (or hope!) that the future will not be worse than the worst of the past. If all we have to do is put up with things like world wars, the inflation of the 70s, gas shortages, stock market bubbles, etc., then our situation won't be all that much worse than historical situations.

It seems to me that the key to the 4% rule is to keep allowing, each year, for inflation. Thus, for example, if one had taken one's 4% the first year of retirement, and that amounted to $40,000, then, if inflation ran at 5%, one could take $42,000 the next year. (Note that this $42,000 isn't 4% of anything, so the rule is misinterpreted if it is thought of as allowing 4% of something each year.)



Here's a link to the May update of the REHP site showing how the 4% rule fared for several asset allocations over the past 15 years.

If you retired in 1994 like I did, you probably now have more money than you know what to do with. If you retired in 2000, you're closer to testing the minimums that the 4% rule is designed to protect against.

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