What Is A Safe Withdrawal Rate For Early Retirement? [Ultimate Guide For 2022]

Do you want to be financially independent or retire early? You will learn everything there is about the safe withdrawal rate for early retirement.

The basis for understanding how to retire early is to explain the safe withdrawal rate (SWR). It is one of the fundamentals of Financial Independence and Retire Early (FIRE).

What Is The Safe Withdrawal Rate?

The Safe Withdrawal Rate (SWR) is used to determine how much money you can withdraw from your accounts yearly and still have a high probability of not running out of money. This means having enough money to live a comfortable life while still having enough for the rest of your life.

How Did They Arrive At 4%?

The Trinity Study concludes that a 4% SWR (adjusted for inflation) is recommended for a 30-year retirement. Also, this is the SWR that is widely adopted around the FIRE community. It is also referred to as the 4% Rule or the Rule of 25.

What About The Recent Crises?

Many people say that the economy will be different in the upcoming decades; the 4% rule will not hold up. While there are no guarantees based on historical returns, the Trinity Study found that: – Over 90% of retirees end up with more than their starting capital.

What About A Longer Retirement?

Kitces mentions that an increasing time horizon from 30 to 45 years reduces the SWR from 4.1% to 3.5%. He also states that, given the available data, the SWR does not decline below this 3.5%. If your time horizon extends beyond 45 years, the 3.5% will hold.

What About Asset Allocation?

According to Bengen, your portfolio should consist of 50-60% stocks and 40-50% bonds if your retirement horizon is 30 years. If your retirement horizon exceeds 45 years, 60-65% investing in stocks and 35-40% in bonds is advised.

What About Other Safe Withdrawal Rates?

What is the risk with a higher SWR? The risk is that you run out of money later in your (early) retirement. The higher your safe withdrawal rate, the higher the risk of running out of money later.