400x your expected monthly expenses for retirement

That’s a pretty dumb “rule of thumb”.

$4M portfolio generates $200K annually with only a 5% return (conservative portfolio) which is $80K in excess of spending (before taxes, albeit can typically be quite tax efficient in withdrawals in retirement if well planned).

In this scenario, you would never touch principle, cover all expenses, and probably die with $10M in the portfolio.

Shouldn't your expected monthly expenses decrease when you're retirement ago though? Ideally, no kid expenses and mortgage paid off or downsize to smaller house.

Are you trying to create a plan where principle never gets touched?

If it’s 75% and you are projecting forward 30-40 years, it is assuming no change in behavior along the way. So, it’s under estimating the success profile. As with all things retirement, one can be as conservative as they wish but it does create some relatively high requirements.

x300 (or 25x annual expenses) would align w 4% rule. x400 seems overly conservative but maybe useful for an extended early retirement. You have to account for drawing less than projected annual growth in order to protect against sequence of returns risk. Investments don't go up in a straight line. Inevitably there will be down years and if they hit early you can rapidly deplete your nest egg and never catch up. That's why withdrawal rates much over 4% increase failure risk. 4% safe withdrawal (w annual inflation increase) has ~95% success rate over 30 years.

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but you have to pay more for healthcare.

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and that is what is screwing things up for many with these exorbitant healthcare costs

Eh, you can address the sequence of returns risk based on portfolio allocation where you utilize cash and bonds that are more stable than the market to fund cash flow in the down years. This avoids being required to sell when your stocks are down 30%.

Seems overly conservative. The other thing that people don’t keep in mind is that if you live on a conservative budget and save some of what you don’t spend, you can use that on overly expensive years.

Using the 4% rule of 3 million for $120,000 of income then one year you only spend $110,000 or do well in the stock market now you have a good chunk ‘extra’. It’s not like people that want $120,000 earn exactly that and spend exactly that every year.

If you live 1-2 years behind your market performance financially then it’s very easy to budget. In other words, don’t spend what you are currently earning. Spend what you made in the market last year or 2 years ago. So if you have an expensive year or a down year in the market, you adjust your spend accordingly and don’t dig yourself in a hole.

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Shouldn't your expected monthly expenses decrease when you're retirement ago though? Ideally, no kid expenses and mortgage paid off or downsize to smaller house.

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This part is pretty wild to think about as a 40yo with 3 kids in high school.

I mean just a rough list of expenses is retirement could look like-

car insurance
utilities
Health care (but on medicare)
Food
Travel
Entertainment

But you can live a pretty wild life with no dependents, no mortgage, no car payments!

I am never going to make it.


Dang it