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qeorge

Mr Money Mustache has a great take on this:

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...

Simple rule of thumb: 25x your yearly expenses is enough to live off your savings.

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Yikes, that's about twice my calculations. Mr. Money Mustache must not be earning very much on his investments.

25x (or 4%) is widely accepted as a safe withdrawal rate for retirement assets. It leaves enough that your investments can still grow over the long term to keep pace with inflation. If your investments have been doing better than that in the short term then bully for you. I wouldn't count on it in the long term however.

4% interest is about what one can reliably get through all scenarios. Sure, a hot stock may give you 20% this year; but it could also give -20% next. No one wants to take that much risk.

If you're ahead of the market for a short time then that's great but it usually means you just simply haven't been running your program long enough to average out the ups and downs. The guy running mr Moneymustache is pretty savvy and has already weathered a couple of fairly bad storms in his personal finances without losing too much speed.

If you're consistently earning on the order of 10% after inflation then you're doing spectacularly well, way better than the 5% that most people assume.

This means you're investing either in a high risk high return asset classes or you have an error in your math somewhere, in that case better be careful!

Long run return of the US stock market is a tad under 7%, accounting for inflation and dividends. Expecting 8% is unrealistic, although I suppose you could be invested in real estate directly.

I agree that 8% is unrealistic, but it's what many pension plans are using. [1]

The article I linked to (found via a quick Google) discusses using values of 6.25% to 6.75%. But IMO even that is unlikely, because one of the traditional investment pillars for pension funds is "fixed income" aka bonds, and those are way under that. Thirty yr US Treasury paper is just over 3%. A moderately risky company I follow (low investment grade) recently issued thirty year paper for 5.75%. [2]

[1] http://www.foxbusiness.com/economy-policy/2014/04/17/public-... [2] http://www.enscoplc.com/Newsroom/Press-Releases/Press-Releas...

25x is another way of stating the commonly-cited 4% Safe Withdrawal Rate. It wasn't invented by MMM, it's from the well-researched Trinity Study[1].

If you're planning on a higher withdrawal rate you're probably heading for trouble. One big market downturn and you'll end up eating so much capital that you won't be able to recover. It's sort of like playing blackjack without a sufficiently large bankroll - if you hit one bad run of luck you're done even if you should've won according to the averages. A good way of visualizing this is playing with numbers at FireCalc[2].

[1] - http://en.wikipedia.org/wiki/Trinity_study [2] - http://www.firecalc.com

Thanks for Firecalc! Saves me from having to build it myself.

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