The Many Faces of the Four Percent Rule

If you are a fan of early retirement and financial independence, then you have probably heard of the four percent rule.  And if you haven’t, then welcome to the Club and allow me to explain more.

The four percent rule as developed in the “Trinity Study” way back in 1998 says:

a portfolio of stocks and bonds can support four percent annual withdrawals, adjusted for inflation each year, for a period of thirty years with very little chance of running out of money during that period of time.

The four percent rate of withdrawal is often called the safe withdrawal rate because the retirement portfolio didn’t run out of money in 95% to 98% of overlapping thirty year periods of past investment returns dating back almost a hundred years.

The four percent rule says that in the past, four percent was a safe amount to withdraw in almost every case.  The inference from the Trinity Study is that if the future is no worse than the past, then it’s likely that four percent will continue to be safe going forward.  The Trinity Study didn’t try to predict future returns, but rather came to a conclusion of what would have been safe in the past based on many decades of returns including some horrible periods of twentieth century financial history.


The Four Percent Rule – Fixed Withdrawals Plus Inflation Method

In its classical form, the four percent rule provides a level withdrawal amount each year in real terms.  As inflation goes up, your annual withdrawal goes up as well, but only enough to cover inflation.  In other words, you’ll have the same purchasing power in year one of retirement as you will in year thirty (and every year in between).

The good:

  • Consistent withdrawals year after year maintain a steady standard of living
  • No need to cut spending during an economic downturn or consider altering one’s lifestyle to reflect poor market returns

The bad:

  • No feedback mechanism in the spending rule means no upward adjustment when the portfolio value increases significantly and no downward adjustment in down markets to conserve assets
  • Not a realistic reflection of how retirees actually spend money. Who would feel comfortable spending tons in the face of a market crash?  Who wouldn’t spend more after years of sustained portfolio growth?
  • “Success” means having $1 or more left at the end of the 30 year retirement spending period (what happens if you live 31 years?).  Having only $1 to my name at any point in my retirement would be incredibly scary and I wouldn’t consider that a success in practical terms.

I have always viewed this classical statement of the four percent rule as a useful long term planning tool rather than a form of prescriptive withdrawal strategy to be used faithfully and relentlessly during retirement.

Flip the four percent rule upside down and you get a quick and dirty rule of thumb that tells how much to save for retirement.

Portfolio amount x 0.04 = annual spending/withdrawals

Rearrange the equation and solve for portfolio amount and you get:

Portfolio amount = annual spending / 0.04 = 25 x annual spending

Portfolio amount = 25 x annual spending

You need twenty five times your annual spending in your investment portfolio to have “enough” to retire using the four percent rule.  That 25x multiplier is a great way to put the four percent rule to use for planning purposes.  Want to spend $40,000 per year in retirement?  You need 25 x $40,000 = $1,000,000!


The Other Four Percent Rules – Percent of Portfolio or Variable Percentage Withdrawal Methods

I look at the classical four percent rule with its fixed annual withdrawals (plus inflation) as being more bad than good.

Look, I’m hard core.  I’ve got the battle hardened skin to weather a massive blizzard of hurt that the market occasionally snows down on us.  In the past year you’ve seen my stoic posts on losing $36,000, $64,000, and even $74,000 in a single month.  I just don’t care.

But if those kinds of losses showed up month after month without reprieve (as they did in the 2007-2009 period), I wouldn’t be blindly following the “spend 4% of your initial portfolio value adjusted for inflation” rule.  I would be looking for ways to cut spending in order to conserve what’s left of my portfolio.  That’s human nature.

The percent of portfolio method and the variable percentage withdrawal method are variations of the traditional 4% rule’s fixed plus inflation withdrawals.

Under the percent of portfolio method, each year you spend a certain percentage of the current value of the portfolio.  A safe percentage is 4% for this method.  A 4.5-5% withdrawal rate is also acceptable in many cases for older early retirees.  For the 4% “percent of portfolio” withdrawal on a portfolio starting at $1,000,000, the annual withdrawal would equal $40,000.  If the portfolio goes up to $1,200,000 next year, the annual withdrawal would be $48,000 ($1,200,000 x 0.04 = $48,000).  If the portfolio drops to $900,000, the annual withdrawal would be $36,000 ($900,000 x 0.04 = $36,000).  It’s simple – the market goes up and you can spend more.  The market goes down and you spend less.  Under the percent of portfolio method, the annual withdrawal is informed by the actual portfolio value each year unlike the fixed withdrawals plus inflation method which keeps the spending constant in real terms (after inflation).

The variable percentage withdrawal method, a variation on the percent of portfolio method, was developed by the geniuses (I mean that in a non-sarcastic sense) at the Bogleheads site.  Instead of using a fixed 4% or 5% withdrawal rate, the percentage withdrawal rate increases each year as you get older to account for a shortened life span (sadly enough, as you get older your life expectancy decreases).  A 35 year old’s withdrawal percentage is 4% whereas a 65 year old’s withdrawal percentage is 5% (based on a 60%/40% stock to bond asset allocation).  In the intervening years, the percentage withdrawal rate creeps up from 4% to 5% by a tenth of a percent every few years.  The variable percentage withdrawal method has the same year to year volatility that comes with the percent of portfolio method, but increases the withdrawal percentage rate over time as the retiree gets older.

There are pros and cons to these portfolio withdrawal methods that reset each year based on the then-current value of the portfolio.

The good:

  • There is a feedback mechanism to increase spending during good years and decrease spending in bad years
  • This change in spending provides psychological comfort.  You’re “doing something” to prevent running out of money in a bad market and you’re enjoying the largesse during good times.
  • Impossible to run out of money (there will always be 4% of whatever is left in your portfolio, but it might be painfully small)
  • You can withdraw a higher starting percentage (at age 35, around 4% versus perhaps 3.25% or so for the fixed plus inflation method)

The bad:

  • As a trade off for being able to spend a higher rate initially, spending may get cut in some years, perhaps drastically
  • Unpredictable.  Say goodbye to that trip around the world next year if the market tanks tomorrow.
  • Annual spending may not keep up with inflation over the intermediate term (in a weak market)


Comparing 4% Fixed Plus Inflation Versus 4% of Portfolio Each Year

Here’s a simple illustration of actual withdrawals someone retiring ten years ago in 2006 would have experienced.

For investment returns, I copied the Vanguard Lifestrategy Growth Fund (VASGX) annual returns.  This fund consists of a growth oriented mix of 80% US and international equities and 20% bonds.  It’s representative of a typical asset allocation chosen for those investors focused on long term growth.

The ten year period from 2006 to 2015 is a good representative sample of a typical decade of investing.  There were a couple of bad years with slightly negative returns, one year of horribly negative returns (down 34% in 2008!), with the remaining years ending in the positive.  The market returned an annual average of 5.4% during this ten year period.  Inflation was tame at an average of 1.86% per year.  In other words, not the best ten year period and not the worst ten year period, but pretty typical as far as decades go in the investing world.

We start with an initial portfolio of a million dollars.  Under the fixed plus inflation withdrawal method, the withdrawal in the first year is 4% of one million dollars, or $40,000.  In subsequent years, the withdrawal is increased by inflation each year.  The 2007 withdrawal is 2.5% higher than the 2006 withdrawal due to the 2.5% CPI-U inflation during 2006.  Mathematically, the 2007 withdrawal is $40,000 x (1+ 0.025) = $41,000.  In 2008, the portfolio withdrawal is 4.1% higher than 2007 due to the 4.1% CPI-U inflation during 2007.

It’s worth noting that in real terms (after inflation), the withdrawal remains $40,000 per year while the nominal value increases every year to match inflation, ultimately ending at $47,730 in the tenth year.  That $47,730 withdrawal in 2015 has the same purchasing power as the $40,000 withdrawal in 2006.

Under the percent of portfolio method, there is no guaranteed increase for inflation each year because the withdrawal amount resets each year based on the portfolio value each year.  The initial withdrawal in 2006 is 4% of $1,000,000 or $40,000, leaving $960,000 in the portfolio.  Since the market had a banner year in 2006, the $960,000 remaining in the portfolio generated a 16.13% return bringing the account balance to $1,114,848 at the start of 2007.

The 2007 annual withdrawal is 4% of $1,114,848, which equals $44,594.  In subsequent years, the annual withdrawal amount is 4% of whatever is left in the portfolio each year.  In the early years of 2007 and 2008, the annual withdrawal increases significantly in lock step with the rising value of the portfolio.  However after a horrible 34.39% market crash in 2008, the portfolio balance drops to $724,394 and upon calculating the 2009 annual withdrawal, we see the early retiree can only withdraw $28,976!

For the five years from 2009 to 2013 the retiree following the percent of portfolio method actually withdraws less than the $40,000 initial withdrawal back in 2006.  However, by 2015 the percent of portfolio method results in a $47,360 withdrawal which is within a few hundred dollars of the 4% fixed plus inflation withdrawal.


Can You Limbo?

How flexible are you?  Those middle years from 2009 to 2014 might be troubling if you absolutely have to have $40,000 (in real dollars) to survive every year.  However, if you’re okay with the concept of cutting expenses during bad years, possibly even six straight bad years, then you will be okay.

Alternatively, you might not want to cut expenses drastically but instead prefer to earn a little income on the side to support your living expenses.  For example, in the worst year of 2009, $7,000 of income from a part time gig or a hobby business will get you to within 10% of the starting $40,000 withdrawal.  That plus some minor cost cutting or spending deferral would get you through the worst parts of the recession.  I’ve talked about this concept previously when I discussed why I don’t think we’ll ever run out of money in early retirement.

When you limbo, it’s all about how low can you go.  For retirement spending, it’s all about your core expenses which is how low your spending can go.  For our household, I identified around $24,000 per year in core living expenses.  That’s not to say we would prefer to live on $24,000 per year or that we could even do it for many years in a row.  That level of spending means no vacations, no new car purchases, and no major repairs to the house (more DIY?).

When I developed my first early retirement budget, I allocated an extra $8,000 per year mainly to cover discretionary spending above the austere $24,000 per year core expenses.  In other words, I added the fun and the fun costs $8,000 per year.

More recently as our portfolio grew, I increased our 2016 retirement budget to $40,000 which gets us close to a 4% annual withdrawal rate.  Those core $24,000 in expenses are still there, but there’s even more fun in the mix mainly in the form of a fattened travel budget.  We may not spend that much this year, but it’s okay if we do.

For planning purposes, you have to establish what your core expenses are and what your ideal budget would be.  Those two numbers can help you determine how flexible your annual withdrawals can be.  If you aren’t already tracking your expenses, then consider using the free income and expense tracking tools from Personal Capital.  That’s how we keep track of our monthly spending.


If you can cut your spending almost in half like we could, then the percent of portfolio or variable percentage withdrawal methods would probably generate higher average withdrawals over many decades without taking on too much risk of depleting your portfolio.

If, in contrast, you have a lot of fixed expenses or don’t want to cut your standard of living in down market years, then the fixed withdrawal plus inflation method would make more sense for your desired lifestyle.  It might also mean you need to save more money if you’re planning on retiring in your 30’s or 40’s and planning for five or six decades of retirement.  Remember that the classical 4% rule says you can withdraw 4% plus inflation every year for 30 years with a high probability of not running out of money.  Extend the withdrawal period to 50-60 years and you’re looking at a safe withdrawal rate closer to 3.25-3.5%.

So far I’ve presented these withdrawal methods as mutually exclusive options.  The truth about withdrawal strategies is that they are nothing more than general guidelines for what should work in the future based on past history.  In reality, you could choose the fixed plus inflation method to get you through the first five or ten years of early retirement, and then if your portfolio keeps growing, you could switch to a percent of portfolio method to convert some of that portfolio growth into spendable liquid cash and increase your standard of living.

Me not stressing over withdrawal rates


How Do You Actually Withdraw 4% Per Year?

I get asked this question a lot on the blog and in my Early Retirement Lifestyle Consulting sessions, so it’s probably worth covering the mechanics of actually pulling the 4% per year from your investments.

It’s easy to say 4% of a million dollar portfolio yields $40,000 per year in withdrawals.  But how do you turn a small chunk of your portfolio into spendable cash in your hand (or checking account)?

Here’s how to create a $40,000 annual withdrawal from a $1 million portfolio that consists of $300,000 in a taxable brokerage account and $700,000 in 401k’s and IRAs:

  • $7,500 in dividends/interest from the taxable brokerage account (2.5% dividend/interest yield on the $300,000 account balance).  Have these dividends and interest pay to your cash account or transfer to your checking account.
  • $32,500 sale of investments.  Place an order to sell and transfer the sales proceeds to your checking account.

If you’re under age 59.5 then you should figure out how to access the 401k and IRA funds without paying a penalty.  The Roth IRA Conversion Ladder can help you.   In this example, the $32,500 sale of investments will probably generate somewhere around $5,000 to $20,000 of capital gains.  That amount plus your $7,500 dividend income will put your total income for the year at a level that won’t generate much of a tax bill.  You can convert traditional IRA assets to Roth assets without incurring a huge tax liability (but beware falling off the Affordable Care Act subsidy cliff!).

If you choose the Roth IRA Conversion Ladder strategy, as you spend down your $300,000 taxable brokerage account, you’ll be converting traditional IRA assets to Roth IRA assets.  Once the taxable brokerage account is substantially depleted, you should have a decent balance built up in Roth IRAs.  To fund your future $40,000 annual withdrawals after depleting the taxable brokerage account, you can initiate a withdrawal from your Roth IRA account tax free and penalty free (and keep on converting traditional to Roth).


More on withdrawal strategy and retirement calculators

In case I haven’t quenched your thirsty desire for knowledge of the four percent rule, I’ll refer you to Jeremy at Go Curry Cracker, Mr. Money Mustache, Mad FIentist, and JL Collins who have all done a great job exploring the four percent rule and its workings at their own blogs.

In the coming months I hope to review the major retirement calculators popular in the financial independence / retire early community.  Here are those calculators if you can’t wait:



Have you considered a withdrawal strategy for your retirement?  Are you a fan of fixed plus inflation or one of the methods based on a percentage of the portfolio balance each year?



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  1. Excellent summary of the other Golden Rule, the 4% SWR.

    Having the ability to make some extra income in down years is crucial if you’re going to retire early with 25x expenses. Cutting expenses from $40,000 to $26,000 according to the 4% of portfolio rule would be a hardship for many.

    I’m working towards a significantly higher number (40x to 50x), mostly because I can. If it would take ten or fifteen years to do it, I would settle for a lower number, say 33x.

    As it is, I’m on track to meet the loftier goal in about 5 years, a time when I would be more comfortable retiring for a variety of reasons. Then I’ll have a supersafe withdrawal ratio (SSWR?) of 2% to 2.5%.

    1. Anything beyond 40x expenses is just running up the score. 😉

      At 50x expenses, you should have no problem living off dividends and letting the portfolio continue to grow. I’m curious if you have thought about when or whether to increase your spending percentage as you get older? In the Variable Percent Withdrawal method I mentioned, the withdrawal percentage creeps up slowly over time to account for a shorter remaining life expectancy (ie less years to fund from your portfolio).

      1. Running up the score 🙂 Are you watching basketball today, too?

        Good analogy and great question. I have considered the fact that I may someday want to spend more. I’ve found that my priorities change with the years, and the fifty-year old me may have different wants and need than the current forty-year old me.

        I want my boys to be raised without the silver spoon, so I will wait until they are on their own before making any grand changes (boys are now 5 & 7).

        The oversized nest egg will be a form of insurance that covers lifesyle inflation, if that’s something that appeals to us. If we continue our relatively frugal ways, we’ll have that much more for charity, heirs, etc…

        1. Ha ha, no sports for me. I’m blessed to not have much interest in watching sports. I didn’t realize the big tournament started already but I guess it’s getting toward the end of March. Instead I’m sitting here watching the very unmanly anti-sport: series finale of Downton Abbey. 🙂

          I’ve talked a little about “having more than we need” and face the same quandary with when to ramp up spending. At our current rate from the past 2 years we’re only spending about 2.25% of our portfolio. Add in my blog income and the spending rate is painfully close to zero.

          But I figure the 50 year old me, as you say, might want or need different things than the 35 year old me wants. I just reshingled a large section of roofing that tore off in the last storm. As I was up there on the second story, I kept thinking there will be a day when I won’t want to do that or don’t want to do it and risk falling. I know I felt like I was 50 or 60 the next day!

          That’s a good point about the kids – we don’t plan on ramping up the lifestyle inflation any time soon either.

          1. I’ve noticed the impressive difference between the size of the nest egg and the annual spending in your posts. Your withdrawal rate of 2.25% is definitely a SSWR.

            Having blog income to offset the spending makes it even easier to start spending more if and when you have the desire. But enough about our decidedly first world problems. Keep putting out quality posts like this one and the “problem” will only get worse.

            Now excuse me while I check my brackets… Michigan State did what?!?

  2. Nice post! What are your thoughts about going against conventional wisdom/advice to withdraw from Roths’ last?

    1. It might make sense in some situations if you want to keep your AGI low today but don’t mind it being higher in the future. Otherwise, everything I’ve seen and my own analysis says to let assets grow tax free in the Roth since those gains are tax free too.

  3. Is there any real difference in your mind between cashing out your dividends and selling shares? (Is there a different tax treatment?) Since our dividends are currently being automatically re-invested, in my mind they just feel like additional appreciation when looking at the account as a whole, so doing one or the other seems like it would feel pretty similar, but I don’t know if they are qualitatively different.

    1. I think asset allocation, taxes, and simplicity are valid reasons to take dividends as cash instead of auto-reinvesting. But financially there’s no difference between taking divs as cash compared to letting them auto reinvest and then selling them a few months later to raise cash for living expenses (other than the brief additional time they spend in the market which could help or hurt depending on which way the market goes).

      I reinvested divs while working since I didn’t need the cash flow, and now I’m taking divs as cash since I need the cash flow. Taking them as cash also reduces my record keeping since I don’t have to record a bunch of small tax lots.

      1. I tend to agree, if you let the dividends pile up rather than auto-reinvesting them you can put them to work in sectors which are undervalued. It’s a bit my micromanaging but I find that you can squeeze out a bit more value that way. If you do auto-reinvest and you decide to sell some shares but not all it can be a bit of a tax nightmare. Luckily if you use tax software like H&R Block or Turbotax, it shouldn’t be an issue.

        In regards to Mrs. PoP about selling shares, you have to pay a capital gain on any shares sold if you made a profit. Those shares are taxed at a higher rate than a qualified dividend.

    2. Qualified dividends and LONG-TERM capital gains have similar – and preferential – tax treatment. Short-term capital gains are taxed as ordinary income (in other words, without the preferential tax treatment). So if you’re selling shares for living expenses – and you are selling them with a gain – make sure you’ve owned them longer than one year.

      I prefer the total return approach to the high-dividend yield approach. I can control the timing of my income better, so I have more control over my taxes. Plus I’m not limited to investing in higher yielding instruments.


  4. Good article. The main challenge as I see it is the ACA. With the ACA, you NEED to generate taxable income above the FPL threshold in order to qualify for subsidies. So what happens after you spend down your taxable account and run out of traditional IRAs to rollover? Once its all in Roth, generating enough TAXABLE income will be a challenge…

    1. I’d just report my “gambling earnings” wink wink nod nod to hit the AGI threshold. 😉

      In my situation, I’m planning on converting a relatively small amount from traditional to Roth each year (probably $25-30k) and have somewhere around $800,000 in tax deferred accounts. If I get 4%+ returns per year, my tax deferred portfolio will grow at a faster rate than I’ll be able to convert. My expectation (unless I up my Roth conversions) is that my tax deferred accounts will be larger at age 59.5 than they are today.

      1. Just joined personal capital two days ago. Thanks for the rec. Loving it. On another topic, can a person convert traditional 401K’s to ROTH IRA’s?

        1. It’s a two-step. 401k to traditional IRA to Roth IRA. Remember you’ll pay taxes when you convert to Roth.

        2. I googled around and it appears you can roll straight from 401k to Roth IRA (assuming you’ve left your employer or their rules otherwise allow employees to roll over). Vanguard was one of those sources I found (so it must be true, right? 🙂 )

  5. Thanks for the run-down of several strategies. I think it’s important to remain flexible in the ways you’ve pointed out, unless perhaps someone has enough saved so that their withdrawal rate is lower than the standard 4%. Even then, we never know what the future holds! Flexibility and adaptability is what makes humans survive and thrive. 🙂

    In addition to the three other blog posts you mentioned, I also liked the Safe Withdrawal Rate article from Mad Fientist. He explains how 3.5% is the rate that would survive any length of retirement, which was an interesting tidbit:

    1. Flexibility is key, especially for the youngest early retirees in their 30’s.

      Thanks for reminding me about that Mad Fientist article. I’ll add it to the body of my article. It’s definitely worth a read.

  6. Ok, maybe I don’t get it. The advantages of the “Percent of Portfolio” method. With the “Percent of Portfolio” method, the portfolio balance at the end of the 10 years is $68,240 more than with the 4% Fixed Withdrawal+Inflation. Also, for 7 of the 10 years, retirement has been “lean” with the “Percent of Portfolio” method. Why have a lean retirement 70% of the time and end up with an additional $68K in a retirement account?

    1. $68k is a lot of money. That would support almost $3k additional spending indefinitely (using the 4% rule). In terms of portfolio survivability, the first ten years are the most important, and spending down the portfolio during that period can inflict long term damage to the size of the remaining portfolio. This hypothetical retiree didn’t know in 2009 (just like all of us!) what the future would hold for investment returns. If the market didn’t recover as quickly as it did, but went sideways instead, the 4% fixed method would have taken much more out of the portfolio than the 4% percent of portfolio method.

      Another point that I didn’t really address in depth in the article is that 4% for the percent of portfolio method will generate a higher initial withdrawal than the 3.25-3.5% rate you should be using at the same age if you’re using the fixed + inflation withdrawal method.

      If you replace 4% fixed plus inflation with 3.25% fixed plus inflation, and compared the annual spending to the 4% of portfolio method, you would see that the % of portfolio method actually generates higher annual spending in 7 of 10 years, slightly lower spending in 2 years, and only a major shortfall in 2009. An easy way to compare by looking at the chart is to look at the right-most column with the % of portfolio annual withdrawals expressed in constant 2006 dollars. For the 3.25% fixed plus inflation, you’re always drawing $32,500 per year in real terms (2006 dollars in this case). The upside of the 3.25% fixed plus inflation is the terminal portfolio value after 10 years is higher by a few ten thousand $ (but under the withdrawal rules, if you adhere strictly, you don’t get to enjoy any of the surplus!).

      If you want to have a very safe 95%+ chance of having your nest egg last for 50-60 years then 3.25% is roughly the withdrawal you should use for fixed plus inflation. That would mean you need a $1,230,000 initial portfolio to generate the same $40,000 per year that you could get under the 4% Percent of Portfolio method (with the risk of shortfalls in the middle years of the model as noted). As always, it’s a trade off between saving for a larger portfolio and buying yourself more safety that you can withdraw a higher amount in spite of poor market returns, versus retiring with a smaller portfolio and taking your lumps as they come.

  7. Excellent post, Justin…

    ..and now linked to in Addendum 7 of my own post on the subject (which you were kind enough to link to in yours above)

    Especially loved the picture of you not stressing over it!

  8. That was a good article. I’ve always felt that most people should use a withdrawal strategy that has a ‘floor’ withdrawal amount representing the absolute least possible amount of spending and ‘ceiling’ amount representing some reasonable assessment what can safely be removed from the portfolio at the time. Retiree’s that used to be in sales or who ran a business probably have an easier time with this type of system because they’ve already developed good coping mechanisms to the volatility inherent to capitalism.

    This academic paper (good readability for the most part) provides an excellent overview of the 4% rule, its drawbacks and improved techniques for withdrawing from the portfolio:

    1. The percent of portfolio with a floor is more like what we will actually do. In 2009 in my example chart I might pull out $28-30k in real terms for example, even though that would be slightly above 4%. Assuming we need that amount of money to survive and have a little fun. I’m planning on getting into to floors/ceilings in the article on the cFIREsim calculator, which makes analyzing those floors and ceilings very easy.

  9. Once I get to FIRE I’ll definitely be using a variable withdrawal strategy. I also don’t plan on earning $0 income. If I retire with $1m and want to spend $40k a year, I can see myself earning $10k and then only having to draw 3%. But maybe some years I earn no income. As you noted being flexible most likely makes the “4% rule” almost a 99.9% certainty.

    1. Just a tiny bit of recurring income makes the 4% rule much more successful. $4,000 per year income reduces the withdrawal from $40,000 to $36,000 which translates to a 3.6% withdrawal rate instead of 4% (for example). I’m pretty sure I could make $4,000 by craigslisting junk picked up off the side of the road (for example).

  10. Great stuff man. I think a combination of these withdrawal method makes sense. Being flexible and keep your expenses low are the key IMO.

    1. Flexibility is grossly underrated when it comes to retirement. I’ve embraced flexibility and have no problem postponing huge discretionary expenses if the market tanks.

  11. Nice writeup Justin. I’m glad you pointed out that for longer retirement time periods (50 to 60 years) a number less than 4% is probably a lot safer.

    Rather than call it the 3.5% or 3.25% rule, I just call it the ‘3% rule’. It appears to work in periods of slower growth than what the Trinity study saw, and for longer time periods of course. That’s one of the big problems with the Trinity study…it was actually done using time periods of great economic growth (1925 to 1995).

    I did a writeup on a recent post over at my site.

    That’s what I’m banking on…but you never can predict future returns. There’s always the Japan doomsday scenario of no returns for 20 years.

    1. I’ll check out that post. 3% is definitely safer than 3.25% or 3.5%, but at some point you’re going to experience huge portfolio growth under most scenarios (unless the future is much more austere than the past as you suggest might happen).

      Regarding Japan, it hasn’t been so bad if you start the measuring stick just before the market quadrupled in the late 1980’s. After inflation and dividends, there has been some real growth (though nothing like the US’s growth, that’s for sure!). I also understand many Japanese investors are heavily invested in JGB bonds moreso than US investors who are mostly in stocks it seems.

      1. After the crash in the 1980’s, many Japanese investors stuck to cash or in JGB bonds. That’s definitely true. They’ve been extremely risk averse since the crash.

        Real GDP growth has averaged about 1% in recent years:

        Interest rates are now negative there…the investors I know in Japan expect even lower returns in the future.

        I don’t things will get that bad here, but the era of 3-6% growth is probably gone.

    2. I believe I’ve read that there is little statistical difference between a 30-year retirement and a 50+year retirement under the SWR.

      Check my thinking: the 4% Rule guards against shocks. In any 30-year period, there will be downturns, but in the context of a 50-year period, those same shocks would have a relatively smaller effect. You extend your time horizon, and unless there’s a total market failure or fundamental change in how money works (under either scenario, your nest egg might not be the biggest concern you have…), the power of compounding would begin to make a real difference. All this goes to say that I wouldn’t be surprised if, for a longer-than-30-years retirement, the SWR is higher than 4%.

      1. The main difference between a 30 year withdrawal period and 50 years is that a 30 year withdrawal is “successful” even if you’re approaching zero portfolio balance in the last few years of the 30 year plan, whereas you’ll probably fail in years 31-40 in those same initial year scenarios for the 50 year withdrawals. The conclusion I’ve seen is that 4% is safe for 30 years but a slightly smaller number (3.25-3.5%) is safe for 40-60 year periods.

        I think your line of reasoning is more sound the further out you go. A 60 year vs 70 year withdrawal rate is probably about the same. If it works for the first 60 years then it’s very likely to work for the next ten since it’s usually in the first 10-15 years that you either get on a portfolio curve pointing up (positive real growth over time) or pointing down (early exhaustion of portfolio and there failure!).

    3. I like the variations that people have come up with. Don’t forget that you have to take taxes into account unless you’re 100% using Roth assets, so it’s not exactly 25x expenses: something like 25*(expected expenses + expected taxes). Personally, I have no intention of following the 4% rule (at least not intentionally), but I recommend it to everybody because it leads to good saving and planning behaviors.

      Pension plan design is my forte, and I realized a long time ago that it’s possible to design your 401(k) drawdown phase like it’s a pension with a cost of living adjustment. It ends up looking like the 4% rule at the beginning, but quickly diverges. If my calculations are correct, it can turn into infinite growth if you use dividends to pay the COLA. Either way, it takes what most FIRE people would probably classify as massive over-saving, since you’re basically self-insuring your own income. We’ll see how my model holds up over time, but as of today I’m ahead of schedule.

      1. I’ve always budgeted for taxes in retirement as just another line item in the budget. For most of the $40,000/yr retirees that seem to be very common, taxes are usually very modest (but non-negligible!).

  12. It is always nice to see how others plan to live off their nest eggs. In your case, you have a solid margin of safety built in because you can theoretically live on 2% of your assets ( though as you state, you would prefer possibly 3%). While expenses fluctuate from month to month, they are usually rather stable from year to year per my observations. So having a margin of safety is an added bonus, so that it is not feast or famine in the ROG Household, no matter what that crazy Mr Market does.

    Plus if your ROG site becomes 1/10th as successful as the MMM site, you will be able to postpone dipping into your stash for a while…

    I plan on just spending the dividend in retirement- average portfolio yield is between 3% – 3.25%, and historically, dividends have mostly gone up. So if my portfolio were $1M today, and earned $30-32.5K, I would likely try to spend the whole amount. Unfortunately, my spending is in the range of $18K – $24K/year. So I have some margin of safety built up just in case.

    1. I’m closing in on that magical 1/10th of Mr Money Mustache’s success. Can I close the gap? 🙂

      Your div yield is a great spending target, and also lines up with a very safe 3-3.25% withdrawal rate. Sounds like you’ve got a nice margin of safety built in too whenever you do pull the plug (if you hit a million).

  13. Another minor variation on the 4% rule/technique would be to start at 4% and then not adjust for inflation for a couple of years until you start to feel the pinch. Then adjust upwards. Won’t work well with a bare bones budget, but would with a moderate budget with some fat/flexibility.

  14. Great summary. I’m a fan of the limbo method, where all basic expenses are covered and anything above a certain % is spent on travel/experiences.
    A problem in Australia is that to access your retirement money tax free (and go into ‘pension mode’), you have to take a MIMIMUM of 5% and that % increases over time. So adds to the complexity …

    1. Interesting re: the 5%. Could you take the extra $ and stick it in your taxable brokerage account (or a savings account)? You’ll incur tax liability on subsequent growth but otherwise, might work?

      Our 72t rule in the US allows withdrawals penalty free and the percentage also ratchets up as you get older (shorter lifespan = must withdraw a higher percentage each year). It’s based on interest rates though, and right now the withdrawal rates are below 5% I believe.

    1. Yes, it’s pretty simplistic. 🙂 I would disregard the article as largely irrelevant.

      I didn’t fact check all the numbers against his, but the 40% decline in 2008 looks suspicious. A 100% stock portfolio in SP500 index fund would have dropped 37%. Using the Vanguard Lifestrategy Growth Fund as I did in this article’s example, it only dropped 34% and it’s an 80/20 mix of global stocks and bonds. The other annual return numbers might be similarly suspect. Maybe he’s using crappy expensive actively managed funds that did perform a few percent worse? His inflation numbers are also overstated. In my example from 2006-2015, inflation averaged 1.86% per year. It was a little higher in the early 2000’s but the whole decade averaged 2.5%. So make your returns worse by a few percent and add in an extra 0.5-1% inflation and sure, you’re gonna have a rough go at it.

      I decided to run the same 2000 to present early retiree model through the same spreadsheet I included in this article. I used the Vanguard Lifestrategy Growth Fund #s and actual CPI data. The 4% fixed plus inflation method bottomed out at $480,000 value at the end of 2002 and again at end of 2008. By 2015 the portfolio balance was back up to $527,000. That sounds scary – to lose half your investment portfolio, but you’ve also just lived 16 years off your portfolio! Mission half way accomplished with only 14 more years to go to hit the 30 year retirement withdrawal period that the 4% rule covers. Shouldn’t be impossible to get 14 more years out of $527,000 I would think (6.8% real rate of return required though – so not easy).

      I also calculated the 4% “percent of portfolio” method of withdrawal since 2000. The 2015 portfolio value is a lot better at $991,000 (still below the initial $1,000,000 and that’s before including the impact of 41% inflation since 2000). Not great but much better than the $527,000 you have under the 4% fixed plus inflation method. Annual withdrawals now are around $40,000 per year ($28,000 after inflation). However, there were some tough years in the model run. After inflation, there were two years at $18-19k and almost all years were under $30k (after inflation). I would be okay with those results and consider it a somewhat successful early retirement. This also illustrates why I like the 4% “percent of portfolio” method – it forces you to cut spending in down years and the result is portfolio preservation.

      As for his thesis, don’t buy and hold, but rather buy, hold, and sell – good luck with that. How do you know when to sell? When do you buy back into the market? How will you produce inflation beating long term returns over decades? He’s also cherry picking retirement years. Next time retire in 1999 or 2001 (or any other year almost!) and you’ll have a lot better results. 🙂 Remember, the 4% rule is 95% safe, not 100%. 1 out of 20 starting years results in failure, and another 1-2 out of 20 look very ugly throughout the 30 years.

      1. Yeap, if I was selling, I’d sold last September when we saw that big dip and probably would have gotten back in at the wrong time. Timing the market is tough because you need to be right twice – when to sell and when to buy.
        Anyway, that’s why you should have some bonds in your portfolio. You can sell bonds for a few years while the market recovers.

  15. A very “mathy” post from you!

    I have a different view. Keep your expenses as low as you can without inducing misery. If that results in an uncomfortable rate of withdrawal during lean years because of depressed portfolio value…get a part time job. So far, no part time work needed.

    1. Yeah, very “mathy” 🙂

      Let’s hope neither of us has those very lean years any time soon. I guess I already have the equivalent of a part time job (this blog; lifestyle consulting) so I’ll be good if I keep these two side hustles going.

  16. Hi Justin,
    I’m glad you wrote this article. I haven’t read any posts lately, after dealing with a personal loss, and yours inspired me to click and comment. There’s been a lot of debate on whether the 4% withdrawal rate can support the lifestyle of an early retiree (think a 30 year old retiring). I always tell my peers that you can continue to work on the side and add more income to your portfolio since early retirement really means having options and getting away from having to go to a job that you dislike. It’s about doing meaningful work.
    As we continue to build our early retirement stash, I realize that our core expenses are covered and the rest of the funds are really for the fun (travel) budget.
    Too bad that when the economy goes down and everything is on sale, so are stocks! Otherwise I’d be spending more when times are bad and holding cash when the economy is strong. I guess it makes more sense to tighten the budget when the times are bad and pump the money into your investment portfolio.

    1. I know what you mean – all those cheap travel deals that popped up during the last recession were oh so tempting. We took a cruise back in 2008 and it was ridiculously cheap. Maybe I could sell plasma to fund our travel addiction during the really rough times? #sortofkidding

      I don’t have a good solution to that quandary. I know if the market dropped 40-50% we would try to conserve assets and cash and keep discretionary spending to a minimum. Would that mean zero discretionary spending? Probably not. We also keep a good cash reserve on hand that would get us through the first part of a recession.

      1. This is the issue I came down here to comment on. Discretionary spending items (travel, entertainment, lobster) tend to be a more volatile reflection of the economy as a whole, so downturns offer so many bargains. Plus, obviously, it’s harder to pick up extra work when more people are unemployed and competing with you. You actually come out ahead by being contrarian in such situations.

        I wonder if a solution would be to decouple discretionary and baseline spending… in your case, something like “I’ll spend my floor of $24K every year, plus 1% of portfolio.” This also has the advantage of smoothing your discretionary income, but not as much as the straight 4% rule. Right now, your percent of portfolio method would have you spending four times as much on fun in good years as in bad ones, and probably overpaying in those good years!

        1. My simplistic, non-analytical answer is that I have some cash on hand to keep spending in a flat to moderately down recessionary market. I wouldn’t keep spending if the market drops by half, but we could still take advantage of some travel deals in a recessionary dip.

  17. Do you have any pros and cons of withdrawing what you need to live on for the year all at once vs. withdrawing money every month, etc.? For ex., withdrawal fees, opportunity cost of your money not being in the market for the remainder of the year, and so on? Those are the only two I can think of. Can you think of anything else to take into consideration? What do y’all plan to do? Thanks!

    1. I don’t have a fixed plan as to when to sell. Some withdraw a whole year’s worth of living expenses on Jan 1. Others do it quarterly. Others top up their cash accounts as needed. We’re planning on selling when it makes sense to keep the cash accounts well funded.

    2. I can’t speak to how others do it, obviously, but we set aside a year’s worth of expenses before Jan 1 of each year. Each month, 1/12th is auto-transferred to our checking account to pay the bills. Then during that year, we slowly collect cash to be used for the following year. Maybe a little freelance/contract work, maybe interest/dividends from the taxable portfolio, maybe it’s proceeds from selling items around the house (we’re starting the slow downsizing process). Whatever the cash shortfall for the following years expenses, we’ll withdraw the necessary funds from our taxable account when we re-balance our investments near year end. And the whole things starts all over….

      We also keep another year’s worth of expenses in a separate cash account. We’d tap into it if there was a severe downturn in the market (in lieu of having to sell during a bear market). The returns are pretty low, but we look at it as “insurance” not an investment. While painful, historically most bear markets are relatively short, so these funds will help prevent (or reduce) selling after a big market drop.

      Yes, there is some potential opportunity cost of having the cash uninvested, but we are conservative and I rest better knowing that we don’t have to sell every month or quarter, or into the teeth of a bear market. We also have a portion of our investment portfolio in bonds, so we have funds available to reinvest into stocks when a correction occurs (and you know it will eventually!).


  18. Good stuff. I plan to withdraw 4% of the portfolio. I imagine putting a ceiling in there for the early years would be good. You don’t want to withdraw too much too early.
    When we get older, I’d probably more relaxed about withdrawal.

    1. That’s kind of our plan too. If the market goes up double digits the next few years I doubt we’ll try to increase our spending much beyond $40k per year.

  19. I believe the 4% rule has helped many people immensely over the years, particularly those that need a target to shoot for. Personally I am comfortable with a lower % than that, somewhere in the 2.5-3.0% range, but that is just a personal preference. For a 30 year window any # up to, but not exceeding 4%, should be adequate.

    Have used all the calculators on your list over the years. Another good one that is free is Vanguard’s; simple and to the point:

      1. Yes this is the calculator I like to use for a quick crunch of the numbers. So using the 3.5 to 4% rule etc etc etc …. you would need 2 million to pull in 70,000 to 80,000 …. you could probably even buy a new house on that income in some places like Southern Ontario …. etc etc etc …. God Bless, Beijing, China

  20. Great post as always. I’d be interested in your perspective on the 1% expense ratio assumption in the Trinity study. Since most early retirees are invested in very low expense ratio funds < 0.1%, I think a 4-4.5% withdrawal rate would still be easily manageable with low cost funds. Keeping the withdrawal rate at 4% provides a bit of cushion in the early years if the sequence of returns goes against you.

    1. My understanding is that the 4% rule in the Trinity study is before fees. That is, the expense ratio and management fees has to come out of the 4% withdrawal. It’s almost negligible when you’re paying 0.10-0.15% but definitely not negligible at 1%+.

  21. My mom always said “never touch your principal” so that is what I do. Not interested in seeing when I have to die.

    1. That’s certainly an approach that will let you have plenty of spending money over the years without risking complete portfolio failure. It might require saving up more than you really have to or not permitting you to spend all that you could, but there’s something non-quantitatively valuable about peace of mind and being able to sleep at night. 🙂

  22. Good article Justin. The 4% rule is not well understood, having no house payment certainly helps….What was your time frame or your goal on paying off your home early?

    1. We always wanted to have the house paid off around the time we retire early (which meant paying it off in about 10-12 years). We paid it off in spring of 2015 (about 18 months after I retired and 12 months before Mrs. RoG retired).

      Mathematically I’ve seen plenty of examples of how holding a mortgage into retirement is optimal in terms of total long term return. For us, we sleep well at night knowing we have a paid off house that’s ours (other than the $1600/yr property tax bill). Not needing to generate cash flow to cover a mortgage payment every month is reassuring. However we might cash out refi if the market ever crashes severely. Not sure what our appetite for risk will be later on in life.

    1. Another good tool I stumbled upon in the past year. 🙂

      When I put in my asset allocation, I’m getting successful 5-6% withdrawals for 30+ years. That’s probably due to recent success in the periods covered in Portfolio Chart’s tool.

  23. Our strategy is simple:
    1. Save as much as we can: live modestly, cultivate cheap fun habits, and avoid debt.
    2. Discontinue full-time paid employment as soon as we can; earn money engaged in part-time, mostly self-employed pursuits that interest us.
    3. Repeat until we’re no longer physically or mentally able.

    I think artifices like the 4% rule have a little bit of value in helping people gauge roughly how large a nest egg is needed to support a specific lifestyle (i.e., cost of living). But so many assumptions and variables are involved, I’d never consider the 4% rule a plan to live by. Too risky!

    Thanks for another great post Justin!

  24. Excellent post, Justin. I’m at least a decade away from worrying about it, but I’m inclined to use SEPP to get at IRA funds if I run out of taxable funds before 59 1/2, instead of tapping my Roth IRA contributions. That allows me to withdrawal Roth last to squeeze out every last tax benefit that Roth provides. Why do you prefer the Roth ladder?

    1. Roth ladder is essentially doing the same thing as SEPP from traditional IRAs (just with the five year delay of converting to Roth then withdrawing).

      I don’t like the rigid withdrawal rules with the SEPP since they would lock me into recurring annual withdrawals whether I needed the money or not. I’m not certain how much earned income I’ll have each year going forward. I never anticipated making much of anything from this blog for example. I don’t know if I’ll still have solid income from this blog in another 2-5 years but if not, I might have some income from something else.

  25. The % Portfolio would be my preferred method of the two although I think in that scenario you would need a much larger margin of safety if that was your sole source of income. Many people can cut expenses in the short term but very few can probably cut $16.6k in expenses from one year to the next. That’s a 38% decline in the example returns you used. Another possibility would be kind of a combination of the two but limiting yourself in the good years so you don’t have to take as big of a cut in the bad years. Maybe something like cap the good year withdrawals to a max of a 5% increase from the prior year or maybe only withdraw the excess returns above a certain cutoff %. It’d be interesting to see the % Portfolio method run through the same time periods covered in the Trinity study.

    On a side note: The funny thing about life expectancy is that you’re simultaneously more likely to die but less likely to die as well. More because of the obvious issues of declining health…but also less because 100% of 85 year olds saw their 84th birthday. There’s a higher likelihood that an 84 year old will make it to 85 compared to an average 30 year old. But since none of us know when our time will end it’s best to prepare for a long retirement with multiple layers of safety.

    1. There must be dozens of variations on withdrawal rules beyond the fixed+inflation and % of portfolio rules. The ones you mentioned make sense too – capping the increase of annual withdrawal and limiting the reduction in down years (the “95% rule” some have called it).

      I’ve also explored essentially dividing the portfolio in 2 on paper and taking 4% fixed + inflation from half and 4% of portfolio value each year (adjusted annually). Or to state a different way, of the total portfolio, take 2% of the total fixed + inflation and 2% variable adjusted each year. My thinking is the 2% fixed covers most of my core expenses while the 2% variable would cover the fun stuff. This latter rule would dampen the increases and decreases and rarely cut spending to the point of bare subsistence while also allowing more spending if one ends up on an upward sloping portfolio trajectory.

  26. Wow. This is insane to me. I am at the beginning of my journey, so changes in the market do not affect my tiny pool of investments so much, but it is insane for me to see the examples you provided!
    I definitely admire your risk tolerance

  27. Justin, this post is really useful. I have spent a lot of time reading your posts over the last few months but this is the first time I’m posting a comment. I am currently working out strategies to secure my family’s future financial independence, and this post really helped. Thank you

  28. I like the dynamic rule of adjusting the SWR every year in line with the portfolio value. You are less likely to run out of money. But the volatility of withdrawals is nasty. A compromise is to use a withdrawal rate based on US equity earnings (check out cFIRESim, option “Variable CAPE”). You will not run out of money and the volatility is much lower than under the 4% rule adjusted every year. I did a comparison of the different withdrawal on my own blog.

  29. I retired at 46 and previous to that I had a rental property and bought a second one cash from great increases in portfolio profits in 2013. I really didn’t think how I would withdrawal from the remaining balance of my portfolio. The rental properties account for 20% of my net worth and replace 87% of my full time pay. Paul Merriman did some studies on Flexible withdrawal strategies and how to diversify your portfolio. Check out his website. I really don’t really need any distros from my portfolio but also realize that i don’t want to not enjoy the fruits of my labor. I think that cash flow is the most important thing when you retire. I do work 6 days a month just to put cash in the wallet. I refuse to save that money even though ACA health insurance requires me to max out retirement plans. ( 401k and IRA) I can pull from portfolio with not using any %. Rental is a little work but I get other people to do repairs etc. So I wouldn’t pull any money if markets go into a bear market like 2008.

    1. That sounds like a very ideal strategy with the rentals if it’s working out for you. If I ever want/need more income, I’d certainly consider getting into rentals (and outsource most of the labor!). So far I get tempted, run the numbers, then scare myself away. 🙂

  30. i know rentals arent made for most people but, if you buy with 20% to 25% down on a rental property you still get the benefits of 100% value of such properties. To make make a quick comparison (obviously its more work but 10x as rewarding) kets say you have 1 million dollars to invest , in the markets you will get 8% if lucky after fees etc…
    1 million in rentals putting down about 25% down each time you buy. lets say we use 800k and leave the rest in stocks just in case you need quick money for repairs etc. 800k for a quick sample not counting closings fees and others will get you around 30 rentals with each having a value of less than 100k each. that would mean you will have 3 millions playing for you, inflation, appreciation etc… plus 30 x$300 montly cash flow its about 30k a year been conservative because i know there would be rapairs in a lot of properties. those homes in 20 years should be value 2x at least due to inflation and probably most of the principal would be paid off, then if you sell the nest egg should be at least 5 to 6 million..
    this is not well thought out comment so obviously i would have missed a lot if info, also commenting from a cellphone. like i say at the beginning, rentals arent for most people.

    1. also, i understand that over 10 properties it gets harder to find loans. (private loans) i know reg banks will make it hard on property 4…plus

    2. I agree with your main premise but might argue some of the numbers. 🙂 But point taken – rentals can be a big source of net worth growth if you take the time to manage them (or manage the manager that’s managing them).

  31. I think that including charitable giving in the “non-core” expenses is a great option for early retirees. In most scenarios, the charities you support will benefit over time as your retirement portfolio grows faster than your SWR. However, realistically, if another 2008 market crash happens, both you and the organization you support will be better off in the long run if you leave the money in the market a bit longer.

    1. That’s my general philosophy on charitable giving. I don’t know whether I’ll need all the money I have now, because I have many decades left to live with a lot of uncertainty. Plus 3 kids to raise, one of which hasn’t even started school yet!

      If we end up with $3 or $4 million in 10 years then I’ll feel a lot more comfortable loosening the purse strings assuming we don’t need the surplus withdrawals that the higher portfolio enables (college? aging parents?).

  32. Hi Justin, great post! I just wanted to know, then, you mentioned withdrawing 4%, are you counting 4% of your 1 million or the 300k? I know since the bulk of your nest egg is in pre-tax how you’re going to determine how much you withdraw. Thank again for writing, gives me hope!

    1. I’m using 4% of the whole portfolio ($1.2 to $1.4 million depending on how the markets are doing). I’ll be withdrawing from the $300k or so taxable accounts first, but it’ll be 4% of the whole thing.

  33. Love your site, and you are indeed a gifted writer. I hope to be a retiree soon as well!

    I have been doing some mathematical musings on early retirement (but not as early as you as I am 53). Because I am older, I have been looking at how to spend to a certain age, with the aim of running down my capital (I am very overweight in cash at the moment, and will be doing some modelling on investing in shares shortly).
    Here in Australia housing can be very expensive, at least in the capital cities, and this makes quite a difference as most of your youth is spent on paying off your house!
    I am planning on selling up when I get older and live in the country in order to free up some capital. We also have a different social security system, which is more complicated than in the US.

    Anyway, my musings are here:

    Hope this helps or is interesting!

    1. Well good luck! I’ve heard about your property market. Crazy high from what I hear. In a way we are fortunate that property hasn’t gone up too much here in Raleigh. My kids can actually afford to buy a decent sized house straight out of college if they stick around here (and things don’t go crazy in the next decade).

  34. Thanks for all of the good info, this is great.

    One question I have is for a little guidance about getting started. This year will be the first year I can put a substantial amount of money into an investment ($40K), what is the first account I should throw that into? Taxable brokerage account? IRA? Roth IRA? I am 31 and can potentially save 40-50k a year for the next 13 years with a retirement goal of 45ish. I don’t want to make a withdrawal until I’m closing in on that 25-30x expenses number. So obviously I will be reinvesting dividends and capital gains right back into whichever account. JLCollins talks about having different accounts, but where do I need to start building my retirement? What is my first step?

    Thanks a million!

  35. Good info. I’m wondering if you can start a SEPP 72t withdrawal on one IRA one year then start again on another IRA and have staggered extractions over the years. Can’t find any info that says you can or can’t, but will keep looking.

    I have a pension that I may cash out and roll that into a separate IRA and tap that one also after the rollover. Will go through the IRS documentation again. I’m sure it would make taxes a lot more complicated when they wonder why your amounts change year over year to fill in that one (?) box for withdrawal.

    1. I believe you can do 72t from one IRA then start it from another IRA in a later year, as long as you keep track of them properly. Might be worth an hour or two of talking to an accountant to verify that since the penalty for messing up 72ts is pretty severe.

  36. Great post.
    When I analyze the performance of VASGX, it shows a dip of -50% in 2008 instead of -34% in the chart you have. How do you get to -34% in 2008? Otherwise the whole argument is completely different with a -50% drop.

  37. Hi Justin

    Another great read!

    If one wanted to follow the balanced portfolio of 60% stocks and 40% bonds or indeed 80/20. Would you use one index fund that provides that allocation or would you have say, several stock indexes and several bond indexes?

    This would then lead to the question of when selling a portion, which fund would you sell? Or an even amount across all of them?

    Just wondered if you had any insights on this part?

    Many thanks for your posts.

    1. I would probably hold separate stock and bond funds so you can control taxes if you need to rebalance. Ex: 60% VTI and 40% BND. I think you’re outside the United States so not sure of best place to hold those for tax purposes.

      To rebalance, you would want to keep in mind taxes when you go to sell one fund to buy the other. Or even smarter, just focus your new investment dollars contributed to your portfolio toward the investment that is the most underbalanced. That way you don’t have to sell anything and pay tax on gains.

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