Is there a rule, how many percent must be added for every year of earlier retirement to a withdrawal rate determined for retirement with
67? Is it more than an additional 1% when it would be 35 instead of 67?Even when there is not the intention to retire now, it is of interest whether it would be possible. Especially this would help with questions of occupational disability or the possibility to take more risk in investment.
People develop rules of thumb after working out the details over and over again. There is no substitute for doing this. People reading this may live in Texas, Callifornia, London or Berlin. Their situations are not in any way the same.
Let's say you retire at 35 and live to 87 (same as retiring at 67 for
20 years). That is 52 years. Let's say you start out wtih $36,000 living expenese at age 35. You will need $162,555 at age 87 assuming 3% inflation. Your total living expenses for 52 years is $4.38 million.On person may think they can earn 12% on stocks and pay no tax because it is all in a Roth IRA. Another person may want to load up on CDs and Tax Free Muni Bonds and earn 5% before 25% federal tax and 9.3% state tax.
The details matter. You have to work out relevant examples over and over before coming up with rules of thumb.
It is life expectancy (and allocation and probability of success) rather than age at retirement that determines the sustainable withdrawal rate.
You can play around with the TRowePrice Retirement calculator.
AN article in the Journal of Financial planning (10/94) showed that a portfolio of 50% stock and 50% bonds indicated that a 3% withdrawal rate would last 59 years, 4% would last 35 years, 5% would last 20 years and
6% would last 6%. The implication is that at age 80 cone could have a larger withdrawal rate than at age 65Remember that this is all based on probability and the assumption that stocks and bonds will continue to behave the way they have in the past.
I couldn't give a % to DECREASE the starting withdraw rate for early retirement, but I know some factors to consider.
1) asset allocation- a portfolio with 50% equities and a portfolio with 80% equities will have different withdraw rates and longevities. The 4% rule was originally from the trinity study, which used 60% equities for the duration of retirement (30-40 years duration). Trinity study was based on past market performance. 2) Taxes. One state might tax 401k withdraws, another might not. One state might tax dividends where as another might not. Some states have no income tax at all. Plus property taxes and federal income taxes. 3) Types of accounts. A person with 100% of portfolio in Roth accounts will need less than a person with 100% of money in 401k/ tax deferred type accounts. In addition if portfolio was dividend paying stocks (meaning dividends accounted for 100% of needed income), I would be confident portfolio could sustain itself, regardless of past market performance. This is probably a 3.5% withdraw rate... dividends tend to keep up with inflation is my interpretation of what I have read on the subject. 4) Sources for income. Similar to 3, if a person had an annuity to cover basic expenses and indexed to inflation, then it's possible they would need less in an equity based account. Maybe person also has real estate holdings or other assets not typically held in equity investing. Art, a business or something else.Here is a whole forum dedicated to such discussions (and people on it are in their 40's and retired- ask them how they did it).
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