Episode 119: The 4% Rule and How 4% Became the Safe Withdrawal Rate for Retirement

Send us Fan MailYou may have heard that your retirement portfolio should be 25 times your spending or your income for you to retire. This is actually derived from The 4% Rule, which is the commonly held belief that you an safely withdrawal 4% from your retirement portfolio invested in stock and bonds and not run out of money before you die. In this episode, I look at the original published research where the 4% rule originated, which has been nicknamed the Trinity Study. I also talk about the paper published by William Bengen, who inspire the authors of the Trinity Study.   The key take home points are:1.      If you withdrawal 4% of your retirement portfolio in your first year of retirement, and then withdraw that amount adjusted for inflation in each subsequent year, then there is a 95% chance your portfolio will last at least 30 years. This assumes a portfolio that is invested at least 50% in an S&P 500 Index fund with the rest invested in long-term high-grade corporate bonds. 2.      Have at least 50% of your stock and bond portfolio invested in stocks. A portfolio of 75% stocks and 25% bonds results in more upside with no significant downside compared to investing 50% stocks and 50% bonds. A portfolio of 100% stocks does have the possibility of significant downsides compared to a 75/25 stock/bond portfolio.  The original papers:Cooley, Phillip L., Carl M. Hubbard, and Daniel T. Walz. (1998). "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable." AAII Journal, 20(1), 10-14.https://www.aaii.com/journal/199802/feature.pdf Bengen, William P. (1994). "Determining Withdrawal Rates Using Historical Data." Journal of Financial Planning, 7(4), 17-26.Please subscribe and leave a review on your favorite Podcasting platform. Get 12 Financial Mistakes that Keep Physicians from Building Wealth at https://www.growyourwealthymindset.com/12financialmistakesIf you want to start your path to financial freedom, start with the Financial Freedom Workbook. Download your free copy today at https://www.GrowYourWealthyMindset.com/fiworkbookDr. Elisa Chiang is  a physician and money coach who helps other doctors reach their financial goals by mastering their money mindset through personalized 1:1 coaching .You can learn more about Elisa at her website or follow her on social media.Website: https://ww.GrowYourWealthyMindset.comInstagram https://www.instagram.com/GrowYourWealthyMindsetFacebook https://www.facebook.com/ElisaChianghttps://www.facebook.com/GrowYourWealthyMindsetYouTube: https://www.youtube.com/c/WealthyMindsetMDLinked In: www.linkedin.com/in/ElisaChiang Disclaimer: The content provided in the Grow Your Wealthy Mindset Podcast...