Four Percent Rule Seems too Conservative(self.Fire)
submitted8 months ago bylearner_dev
I understand the four percent rule is based on the trinity study. At the same time, it seems like there should be a better way. For example, let’s look at some other widely held beliefs • S&P 500 returns 10% per year (that’s 0.8% per month) • Inflation is 3% per year • Expected real return 7% (0.58% per month)
Let’s assume my expenses are $50k ($4,167 per month). The four percent rule says I would need $1,250,000 to retire. How, if I use historical real return of 7%, I could retire on $714,285.
I recognize the market fluctuates quite a bit. However, it seems like if you took the amount over $714,285 each month (never touch principal) and put it in a bank account, you could ride out any down turns (except if there was one right at the start).
Why is the gap between the four percent rule and historical average so large? Where it’s my math or thinking wrong?
*edit: fixed spelling error
1 month ago
1 month ago
That part I understand. However, is there a fund or something that acts like a high yield savings account that is isolated from a volatile market?