No. of Recommendations: 2
To anyone who wonders why 4% is the oft-quoted withdrawl rate. That came from something done in 1998 known as the Trinity Study. Some finance professors at Trinity University back-tested the stock market and bond market, putting a sum into each with different percentages, and then coming up with a chart predicting how likely it was your money would last. For instance, a portfolio of 100% stocks at a 4% withdrawal rate had a 98% chance of lasting 30 years, whereas a 12% withdrawal had only a 33% chance of lasting. Scroll down to page 5 for charts, and formulas are included on other pages:

As for “where did the 2% withdrawal rate idea come from” – that is from something called the Life of Riley Index, which assumes you drop half your money into the S&P 500, half into government bonds and tells you what percentage yield you’re likely to get. Then it assumes you want to live at about the 75% percentile and tells you how much it would take, in savings, to sustain that level of income, to live the “life of Riley”. It topped $3M in 2012.

Obviously, Your Mileage May Vary in all retirement theories and scenarios.
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