The difference between 2% and 3% is huge.goodyear35 wrote:Point taken. 2% SWR seems a little low to me (unless you are not willing to eat into the principal balance, but 3% seems conservative enough. Just my thoughts, I am sure everyone will have a different opinion on this.)Valuethinker wrote:At current interest rates, real returns after tax are negative.obgyn65 wrote:To the OP : if you google this website, you will see that many participants (me included) believe that 4% SWR at age 38 is too high. I would go for 2 or 3% SwR. It does mean that you cannot retire, just try to reduce expenses a bit if you want to have enough until the age of 95 for example.
4% SWR is therefore a nonsense (it's a nonsense at 65 too, in fact at current interest rates and projected rates of return).
OP should look at 2% SWR *or less*. 60 years is a very long time to live off a lump sum of capital. Remembering OP won't even get full Social Security?
Americans also do not have universal state medical insurance? Therefore there's always the risk of some titanic medical bill for self or family.
Look over 60 year periods in history and what can happen-- inflation, depression, stagflation. Imagine retiring at 38 in 1968 and where you would have been in 1980 with stocks and bonds both returning c. -40% in real terms? At 4% SWR you would have eaten your capital (unless you kept taking out a fixed 4% nominal and therefore had a declining standard of living over much of the period).
I agree with Valuethinker: your planning number should not be higher than 2%. It's not a matter of spending or not spending the principal, but a matter of having your money last for 60 years. Withdrawal rates are based on certain asset allocation assumptions, and in retirement your allocation to stocks should be on the low side. Interest rates will fluctuate, stock dividends will be cut, and unexpected expenses will happen. Even if you buy a brand new house now, it will require some capital repairs in the next 60 years. Also, your Social Security payments will be lower than of those who retire at a later age.