Hacker News Reader

Comment by dmoy | Hacker News Reader

Cool general idea, some of the specifics around $$ numbers are a bit... off

> Big investments generate quite a lot of money — you can draw off about 4% of an investment every year without depleting the principal, because you get back that much or more in interest.

That is not at all what the 4% rule they linked is talking about. The 4% rule means, roughly, from the original source, "95% of the time you won't completely run out of money in 30 years". Indefinite withdrawal from an endowment is a very different problem.

View on HN

Arguably, that's better than aiming for a perpetuity. By economizing on starting capital, you can set up substantially more of these, and you avoid the pathologies of perpetuities (eg. the Hershey trust): if after 30 years a charter house actually does completely run out of money and it can't fix its finances, then maybe its time has come and it's a good thing it can't simply be a trust fund baby rentier.

Given how many communes or nonprofits go bad, it's good to have some sort of accountability to outsiders in the form of 'needing money'. (The recurrent debates over the Wikimedia Foundation's ever expanding budget being a good case in point. Are you impressed by what they have done with the many millions of dollars they've gotten in the past half-decade or so? No? Then it doesn't seem likely they're going to impress you very much more if they become so wealthy that they can operate forever off interest and have to care even less what any donators think...)

I’m not sure they’re considering inflation as well.

A safe withdrawal rate would be like annual rate of return - annual inflation - 1% safety buffer.

So 4% - 2% (target inflation rate) - 1% (buffer) = 1%.

If you don’t include the 1% buffer here you have no margin of safety for a market downturn.

The 4% figure comes from something called "The Trinity Study" and most definitely considers inflation.

For more information about safe withdrawal rates then you probably want see https://earlyretirementnow.com/safe-withdrawal-rate-series/

Reply on news.ycombinator.com