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May 11, 2015

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June Campbell

So glad you got to go to the Derby. Hope you attended the Oaks day too - that's when the locals go. Really appreciate all your posts, Syd!

Retired Syd

Thanks June. Actually we really attended Oaks day, not Derby day. But I didn't think most people would even know what that is. That's why the pink hat. You must be a local! (We were doing the Urban Bourbon trail on Derby day. . . .)

Angela

Thanks for making us all feel better, Sydney! So refreshing amongst all the doom and gloom! I'm looking forward to hearing your thoughts on what types of fixed income assets we should hold. Also, do you know how long it took for portfolios to recover after the Great Depression? That might give people an idea how much cash to keep on hand, for absolute worst case scenarios. I hear from fearful family and friends who are waiting for this current bubble to burst. Will definitely share your post with them to help them feel better. Thanks! Oh, and love your pink hat!

Retired To Win

I have to admit to completely ignoring the 4% Rule. I base my available income calculations on the dividend and interest income that is generated by my investment portfolio. Luckily for me, I've driven my basic living expenses down (while still feeling I've sacrificed nothing I value) to the point that those expenses are more than well covered by my passive dividend-and-interest income stream. As to what I'll do with the investment principal if I don't ever draw it down, that's a question I intend to more seriously address when I get closer to 80. (Seriously.)

All that being said, your post is a smashing analysis. Well done.

Kathryn J

I enjoyed this post Syd, thank for the information and highlighting the 4% guiding rule. In Australia the Superannuation rules include a sliding scale of minimum amount that can be withdrawn based on age e.g. once a person turns 65 years 5% must be taken from Super each year. I will read the related posts and also look forward to reading your next post with ideas to build a resilient retirement. I love your pink hat. It looks like you had a great day at the Kentucky Derby.

dgpcolorado

Good analysis Syd. Your accounting background shows!

Another thing that doom-and-gloom retirement types don't consider, when wringing their hands over not having enough money for every possible contingency, is that one can adjust spending when times get tough. Most people have some discretionary items in their budgets that can be cut back for a year or two, if needed.

The main purpose of the 4% rule, in my judgment, was to give those still working a rough answer to the question "how much is enough?" 25X the budget expenses not covered by other sources of income, such as Social Security, is a good retirement savings goal. And that gives people something to shoot for. It also gives we early retirees some confidence that we can, indeed, leave the work-a-day world behind and still make ends meet over many years. So far, so good, in year seventeen for me!

Fervent Finance

I went to the derby a few years back and had a blast (even though it poured the whole time and was no more than 50 degrees). I don't think the 4% rule is dead (at least I hope not), but no one can predict the future. Will the S&P 500 return 10-12% annualized like it has been known to do for 30+ years? Maybe not... But that definitely doesn't mean the 4% rule is dead. I look forward to the next 10, 20, 30 years to see what comes, and am willing to be flexible if things don't go 100% according to plan.

Retired Syd

dpg: Exactly! (More on that in my next post). Seventeen years--I think we can all take comfort in that!

Fervent: We got really lucky on the weather--72 degrees and sunny Fun, but six hours for six minutes of action--wouldn't be worth it without all the cool hats and outfits to watch go by between races. Oh yeah, ad the mint juleps.

On your 10-12% comment. Actually, that's a situation where the 4% rule would wind you up with a huge stash of cash when you died. In other words, that's the best case scenario, not the worst. The one in which you COULD have spent more during your lifetime than the 4% ruled allowed for. Not a bad adjustment to make if it worked that way. . .

Stevie Wonders

Here is a rebuttal to the 4% naysayers:

https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/

Michael argues it accounts for worst case scenarios, which includes today's low return environment.

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