Use 3% or 4% Rule if I Want to Retire at Age 50

Hello everybody,

I'm currently 26 years old and did the current math and when I get to 50 years old, there's a possibility of my net worth being at about 3.37 Mil or 2.1 Mil after inflation. (Assuming 3% inflation every year for the next 24 years).

If I use the 3% rule, I can live off 63k a year or 5.25k a month of todays money. With the 4% rule, I can live off 84k a year or 7k a month of today's money.

I've heard when you're retiring earlier than the usual retirement age, to use the 3% rule as a precaution, but I'm not sure when they say retire early, how early they mean?

Any answers or clarification needed from my post would be greatly appreciated! Love reading all the stories of people trying to reach FIRE as well and it just motivates me like nothing else!!

in Fireby HeftyLevel3708

85%

20d

Eltex

226

20d

Here is the deal: it’s too early to focus on something that will change 20 times before you are 50. Focus on saving smartly and controlling your expenses. That part doesn’t change. Housing and healthcare will change so much before you hit 50. Saving and spending are the things you can control.

WallowOuija

20d

Glad this is the top comment because I feel like I’ve seen this thread 1000x and rarely is this a upvoted response. Maybe OP has his life all set and is truly in the “boring middle” where he will coast out his days here. But given they are 26, didn’t mention anything about a partner, family, etc. and are trying to project for retirement in 2 and a half decades this is the only reasonable response. Maybe they meet someone and their savings rate doubles or triples, have a kid and the savings take a beating, get into a more expensive hobby, find that they want to be a total minimalist. One guarantee is that taxation and social security will have changed in the next 24 years.

OP will likely change roles or even careers many times over, the only real steps to be had with a timeline like this is do your best to keep expenses in check and save as much as you can reasonably. Having a rough number in mind is wise but just really something to say as I start approaching x I should run the numbers again and see if that still holds up.

FWIW OP. I think either 3 or 4% is likely good enough at 50 but I’d probably err to the 3.5 side personally. If (US based and) social security is still robust and moving, how much of your expenses will your benefit cover when you claim it is a question you can ask your self as the timeline gets closer? 4% that gets cut down to 1% after 12 years is much different than truly needing relying on classic trinity study math

ImpressiveCitron420

20d

Agreed! As a thought exercise, think about what the world was like 25 years also! How many peoples predictions would have been correct? Either good or bad. As in they were either overly conservative and could’ve retired sooner or with more budget or overly aggressive and they ended up with less than expected. Very few if any. This is the random walk.

Stock_Advance_4886

19d

Agree with both of you. I would go even further by asking - how can we be so sure for about these precise numbers (be it 3 or 4%) for something that will happen in 30, 40, 50 years? I think we should be aware that the stock market is volatile and the life on planet in general, we should add some kind of deviation to this rule of, at least +- 5 or 10. Like - you can expect anything from, -5% to +10% return. I know that nobody wants to hear that the market could be negative, but one should be aware that everything is possible, these are not government treasuries with fixed yield.

ImpressiveCitron420

19d

I disagree with this because of modeling thats been done on SWRs.

I’ve yet to see modeling done for how a specific individuals life will go and what decisions they will make.

Stock_Advance_4886

19d

Too many variables, that's for sure. And many of them are very uncertain. Not to mention that every calculation and prediction (be it Monte carlo model, or any other) is mainly based on past performance. which is questionable parameter on its own.

MattyDelux

20d

This is the way. Also, you’ll end up playing your withdrawal rate as the market demands. You retire and the market rocks for a decade? You take 6% and are probably a-ok. You retire and the market shits 25%? You cut your expenses in half and get a part time job for a couple years :). Tis’ reality.

HeftyLevel3708

20d

This is probably something I really needed to hear. I always lived within my means and just saved as much as I could. Just recently I really started getting into actually understanding investing and saving and budgeting, and I think I've been too focused on it as of late. Appreciate everybodies feedback on this :)

Distinct_Plankton_82

20d

I am about to retire at 50 and honestly what I wanted, how much I thought I needed and what I think my SWR should be have changed at least 3 times since I was 40, so yeah, don't sweat this stuff at 26.

Ask yourself what you're going to do differently in the next 12 months if the answer is 3% or 4%. Are you going to work a different job? Are you going to save differently? Are you going to spend differently? No? Then why spend any mental energy on something you don't need to think about for another 15 years.

onlyfreckles

20d

Try to live below your means so you have consistent money to invest monthly in low cost index funds in your retirement account, RothIRA account, taxable account and emergency account.

phuocsandiego

19d

That’s understandable. You’re starting something new so of course you’re going to get excited about learning as much about it as you can and optimizing what you do (trying to be more aggressive in savings and perfecting your asset allocation). Then you get to that boring middle, which is long and indeed boring, before you get near the finish line. We’ve all been there and done (most) of that.

A couple of points to think about:

Think in terms of your FI number not your net worth. That includes every asset and you may have a home later and that’s usually not included in figuring out your FI number.
Make sure you account for taxes. I see a lot of people just completely ignoring this and it can be significant. They just say I need to save up 25 times my annual expenses and then I’m good. You’ll need to gross it up. No need to get super accurate; just a rough guideline would be fine. If you’re thinking taxes will eat up 20% then to get $80K, you’ll need about $100K (that’s $2.5M vs. $2M @ 4%).
Use a heuristic to help you figure out a SWR to target for the age you’re going to retire. 4% is 25x your expenses and 3% is 33x your expenses. That means either 25 years or 33 years of covering your expenses if you just keep cash. Of course you’ll lose to inflation and equities can go down, but if you select an allocation at retirement to give you a real return after inflation, you’ll be OK. This is where the heuristic can help be a rough guideline.
You’re 26. Things will change. Your lifestyle will creep. I’ve not met one person where this wasn’t true. At the very least you’re going to want more creature comforts as you age. What you can put up with at 25 is very different when you’re 45. Myself included. I thought I was going to retire at age 30 when I was 18. That became age 40 in my late 20’s. Now it’s looking like 55 at age 49. The distance between current age and retirement gets close & closer as you age and hone into what works for you.

As others have said, you can control your income, savings, and expenses right now. The other things are too far away to think too much about them. But it’s an exciting time… good luck to you!

Signal_Dog9864

19d

Everyone looks at 401k and roth ira in this sub.

Look at other income streams a business, real estate investments, etc.

This is how you retire early

mmrose1980

20d

I suggest you play with https://firecalc.com/ or ERN’s spreadsheet and put in your anticipated social security. If you work till 50, it’s not going to be zero. ERN’s data pretty much shows that a 3.25% SWR is safe pretty much indefinitely, but with social security you may be able to bump that up some.

One-Mastodon-1063

20d

When you are projecting things 24 years into the future, there’s such a massive range of possible outcomes that it’s simply not adding any value to try and fine tune these things. Spreadsheets that assume straight line appreciation for 24 years will never mirror reality (sequence of returns matters during accumulation, too), and in addition to market returns you just can't predict things like promotions, raises, bonuses, job changes, job losses, moves, marriages/divorces, kids, deaths/inheritances etc. 24 years out.

So 4% is fine to keep in mind as a ballpark for the time being. What matters now is not coming up with precise estimates 24 years into the future, it’s building the habit of consistently saving, investing, and avoiding lifestyle creep. Do that for the next 20+ years and as you get within say 3-5 years of reaching FI based on the 4% ballpark, that is the time to start digging deeper into SWRs and fine tuning the SWR you are comfortable with at that time taking into account the lifestyle you want or need at that time.

AlgoTradingQuant

20d

https://ficalc.app is the best resource for this type of question.

tjguitar1985

20d

...not when you are talking about retiring 25 years in the future

Oroku_Sak1

20d

Split the difference and do the math with a 3.5% withdrawal rate.

ComprehensiveArm4739

19d

Same. Using 3.5%.

seanodnnll

18d

Yep 3.5% should be more than conservative enough for all but the worst historic scenarios.

RandomLazyBum

20d

I made up my own rule to subtract .25% every 5 years you retire before 65.

So for you 65-50=15 which is .75%, so your draw is 3.25%.

What is it backed by? Thoughts and feels.

RocktownLeather

19d

Decent concept but probably needs a hard stop. I think 3% has never failed in modern history if I recall. So theoretically there isn't much difference between retiring at 30 vs 40 vs 45. No point in them going below 3%.

RandomLazyBum

19d

Maybe .125% instead of .25% for every 5 years. Who knows, not me.

One-Mastodon-1063

-9

20d

That’s not how the math works. You could retire at conception at 3.25% and never run out of money.

RandomLazyBum

20d

What is it backed by? Thoughts and feels.

You: "THats NoT HOw MaTh WoRKs"

Thanks, bud.

j_phys

20d

https://earlyretirementnow.com/safe-withdrawal-rate-series/

He’s right though.

ImpressiveCitron420

20d

Not sure why you’re downvoted and they’re so upvoted. Just commenting to show support.

EzraMae23

20d

Because it was a joke?

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One-Mastodon-1063

20d

The risk is not linear with time frame like that. That’s not a matter of different assumptions, it’s a matter of fact.

PurpleOctoberPie

20d

Ditto the fire calc recommendations. Last time I played around with it, I landed on 3.5% for my risk tolerance starting retirement in late 40s/50s.

Kindly_Vegetable8432

19d

at your stage... just stack away what you can...

learn about personal finance... watch your spending.... dont marry the wrong person.

have fun...

uniballing

20d

Have you considered making a detailed model of your lifelong expenses and having a dynamic withdrawal rate? Seems a whole lot smarter than mindlessly drawing your investments down to zero

Strong-Piccolo-5546

20d

use karstens safe withdrawal rate toolbox to figure out your withdrawal rate. this should be stickied on the side.

SnooChocolates4203

20d

Two dimensions to figuring out your SWR: reconciling your desired spend with your anticipated portfolio value and your tolerance for risk.

On the former - how much do you feel like you need? Is $5k/mo enough to satisfy you? Remember, FIRE isn’t an obligation to spend; it’s about enabling you to spend what you want/need to (relatively) worry-free.

On the latter - how much cushion do you want to feel comfortable? Every 1% added to your but it increases the risk of running out of money; this means you can shorten your time frame to achieving FI. Also, to what extent do you believe that past results are indicative of future returns? I’ve talked on here about why that might not be the case going forward before, but this is a risk a lot of FIRE folks seem to either ignore or not be concerned about.

Figure out where you stand and you’ll figure out a SWR that suits you better than a blind catch-all from another redditor.

Slug_Overdose

20d

These "rules" are ultimately just informed guesses based on historical data. Not even the top experts know if 3% or 4% or even 10% will be optimal for your specific retirement, because it's all in the future and there are so many chaotic variables in play. Based on what I've read, I think 3% is more appropriate starting out, but in general, the longer the retirement, the wider the distribution of likely outcomes.

When you play around with something like FIRECalc, long retirements are always like, "Well, you might end up broke or with $450 quadrillion based on a 4% withdrawal rate." As retirements have gotten longer, people are increasingly becoming aware of the fact that constant spending models just aren't very practical for self-funded retirements. They're mostly based on assumptions under traditional pensions which spread the actuarial risk across a wider population, unlike a 401k.

I think you could do a whole lot worse than targeting 3% to start and then increasing spending as appropriate based on market returns. Of course, most people reduce spending in retirement, which is the great irony in all this.

In any case, it's still very early for you to worry about it. These are the sorts of questions you ask yourself when you're at 4% and wondering whether it's worth continuing just a bit longer to reach 3%.

hahdbdidndkdi

19d

FYI if you retired at the peak in 2000 with $2 million and withdrew 6% annually with a 60/40 portfolio your portfolio would be worth ~1.9 million today

At 4% it would be worth over 3 million today.

That's retiring at the peak, and experiencing 2 once in a lifetime crashes in about 10 years after you retire.

4% is fine.

RuggedRobot

19d

don't worry about your future (post inflation) number. FI tools will scale for inflation (assuming we don't have hyperinflation)

fuckaliscious

19d

At 26, just focus on saving as much as you can into diversified low-cost ETFs, while still enjoying life.

If you want to FIRE, shoot for saving 50% of your take-home pay.

Saving 15% won't get you to FIRE, 15% only works if you plan to work until mid to late 60s.

The money you save at 26 will grow so much more than money saved at age 46.

seanodnnll

18d

This is a weird thing in this sub. 3% rule doesn’t exist. Look at your desired asset allocation in retirement and plug it into a firecalc or Monte Carlo simulator, adjust withdrawal rate until you get a success rate you’re comfortable with. 3% is insanely conservative. People don’t seem to realize that going from 4% to 3% is a 25% decrease in spending that’s massive and will result in you having many multiple of your starting balance when you die.

alexunderwater1

20d

3.5% is honestly bullet proof indefinitely from any age, especially so if you allow for some flexibility in spending and occasional side income.

RocktownLeather

19d

FireCalc

Bullet proof is a bit of a strong term for something fails over 3% of the time over a 45 year periods. I guess you could say with flexibility it is pretty bullet proof. But certainly not without some flexibility. With poor timing/luck, it could definitely fail without some intervention.

vinean

19d

cFIREsim fixes bugs in FIRECalc’s algorithm. I personally trust cFIREsim more than FIRECalc.

https://www.reddit.com/r/Fire/comments/j95tv9/comment/ggyvx8m/?utm_source=share&utm_medium=mweb3x&utm_name=mweb3xcss&utm_term=1&utm_content=share_button

Of the three, I trust FIRECalc the least…and not just because of the 1990s site design.

But it doesn’t matter much when the error bars on estimated expenses is probably an order of magnitude larger than the variance of the worst case outcomes of the three tools.

3.5% is safe enough for FIRE purposes even if its not 100% across all models.

seanodnnll

18d

If you look based on 1927 it’s 0% failure though. Curious if the 1800s data is super accurate.

throwmeoff123098765

-7

20d

4% does not last over 30 years so use 3.5-3.25

hahdbdidndkdi

19d

This is simply false.

throwmeoff123098765

-6

19d

https://earlyretirementnow.com/safe-withdrawal-rate-series/?amp . You are welcome to disagree but the 4% rule is designed to deplete after 30 years. See the link if you want more Information on it.

hahdbdidndkdi

19d

It's not designed to deplete. It's actually more conservative, the inventor of the 4% rule said it was designed with the worst case scenario in mind. He even says that it is overly conservative, and follows 4.7% himself now.

In the vast majority of cases, 4% will leave you with a dragon hoard of cash.

Even retiring Jan of 2000, the peak of the dot com bubble, with 2 million in a 60/40 portfolio, today you'd have over $3 million, 24 years later, and through two major crashes.

Unless you're prepping for a 1920s style depression, 4% will be fine.

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