Quote from @Bill B.:
@Paul Vail did they ever test that 4% withdrawal for longer retirements?
I got a late start (35), so I didn’t retire until I was 40. But that’s 20 years longer than every test I see of the 4% rule. Disregarding the fact that 4% of even $2million isn’t a lot today and it would be half that in 20 years and 1/4th of it in 40 years. I wouldn’t want to try to survive on the equivalent of $40k or $20k. I also won’t get much social security if any because I quit so early.
Bill, may I suggest you play with the tool within my link. Yes, the Monti Carlo simulations can be used for many situations -- the statistical math model is pretty sound. Your values above suggests you may be overlooking the ongoing gains made by the various investment vehicles during the continuing timeframe. The nest egg is not drawn down -- the balance persists and experiences compound growth in most model runs. That compounding effect offsets the withdrawal rate and then some; hence you'll see survival probability when using the tool. If you are suggesting the buying power of a set withdrawal sum declines (due to inflation), you're quite right. Rule of 72 with an expected inflation rate of 4%/y-y would halve the buying power every 18 years. However, inflation rates are non-uniform across expense categories. Consider gasoline. Even at $3.50/gal in my neighborhood, I'm paying less on an adjusted basis than I was during W's tenure, or even when I started driving in 1979. Beer and many food items are similarly cheaper, as are electronics. OTOH, the three H's (healthcare, housing, higher-ed) have skyrocketed. Only healthcare in this country (US) will bankrupt most of us. :(
Note that the tool in that link allows you to change variables for inflation, stock gains, bond gains, cash and such. Conservatively, I use 7% stock gains, 3% bonds, 2%cash, and 4% inflation with your numbers ($1mil, retire at 40, no additional deposits) on a 50/30/20 portfolio. Result: 84.56% of scenarios survived until age 110. Half of the country earners presently subsist on $44k/yr before taxes, for context. BTW -- my 7% stock gains BEFORE inflation is MY guess. I do not expect the 10-12% gains we've been seeing for the last decade - cheap money bills have to be paid sometime. It may be of interest: the y-o-y stock market average since 1972 of 10.5% y-y before inflation or 6.2 after (using VTI as a yardstick).
You'll likely do fine with real estate. I know some folks who were multimillionaire property owners in 2006 and bankrupt toast by '09. Others prevailed. RE goes through its cycles, too. I suspect folks who are in both paper investments AND RE will have the best outcomes in the long-haul. But that's just my opinion.
