|
Thumb of Michigan | billybob - 1/30/2026 09:04 I have tried reading about the 4% rule, but still have questions. Am I thinking correctly in this example. I have 1,000,000 in savings. I am making about 3-4% return in conservitive investments. I can withdraw 4% of 1,000,000 or $40,000 the first year and from this I pay taxes, ect. all living expenses. Next year I can withdraw 4% + inflation of 4% = $41,600 (40000 x .04 = 1,600) 40,000 +1,600 = 41,600. Next year it would be 41,600 x .04 = 1.664. thus. 41,600 + 1,664 = 43,264. Right or wrong ?? At this rate my savings should last 30 years. ??
Yes, you understand it correctly.
Here's MorningStar word for word:
Morningstar calculates the safe initial-withdrawal rate each year. This year's rate is up 20 basis points from last year's 3.7%. It was just 3.3% in 2021. It bears emphasizing that Morningstar's 3.9% rate isn't for anyone at any point in their retirement: It's an initial withdrawal rate for someone just starting to tap a portfolio in 2026, and then planning to increase subsequent withdrawals by the previous year's inflation rate. For example, someone with a million-dollar portfolio would take $39,000 out in the first year. Let's say price-inflation in 2026 is 5%. Next year's withdrawal would be $39,000 x 1.05, or $40,950.
This is why MorningStar would not have all fixed investments, using all fixed investments the withdraw amount would even be lower. This not to be used IF you're already in the retirement withdraw stage. Key word was INITIAL withdraw. For folks staring last year the number to start with was 3.7%, whereas it was 3.3% in 2021 (inflation goes on top of those numbers each year).
To try to make it simpler understand using say a farmer growing corn, what MorningStar does is plants multiple varies, maturity dates, of corn on numerous fields, different amounts of rain/etc. Then taking the overall results and make chart those numbers, then look at the top 90% land. Hence, where they mention a 'probability' of 90 percent success rate. | |
|
Safe withdrawal rate for retirement