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The Rollercoaster Ride of Retirement: How to Survive Market Meltdowns

Today’s post is a guest post from The Wall Street Physician, a former Wall Street trader turned physician who blogs on investing topics pertinent to physicians and high-income professionals like us.

Regular readers of this site should be familiar with the good doctor, as his writings have been featured a number of times in The Sunday Best. His posts have also appeared on KevinMD and The White Coat Investor, and I’m honored to share a post of his here with you today.

Let WSP take you through the scenarios, and stick around for my comments at the end!


Physician on FIRE wrote an excellent post a few months ago discussing the meaning of FI during a bear market. With the current bull market, many people have reached FI well ahead of schedule. But if the market were to fall, these same people may drop below the standard 25x annual expense threshold of FI. Do these people stop being FI in this scenario? Or is it once FI, always FI?

It turns out that your FI number will be different depending on how you would handle the inevitable bear markets that happen during retirement. Let me explain.


A Review of the Trinity University Study and the 4% Safe Withdrawal Rate


The Trinity Unversity study modeled retirement withdrawal rates as a fixed percentage of pre-retirement assets, adjusted for inflation. Using historical market data from 1926-2009, they calculated the probability of your money lasting 30 years assuming various stock/bond asset allocations and withdrawal rates.

Withdrawal Rate




























Because a 4% withdrawal rate has a 96% success rate if you invest in a conservative 50% stocks / 50% bonds portfolio, the “4% rule” has become one of the foundations of retirement planning.

Using the 4% rule, the amount of money you need to save for retirement is 25x your annual spending in retirement.

For example, if you want to spend $120,000 a year in retirement, then you should save $3,000,000 so that you can withdraw 4% of that nest egg, or $120,000, a year.

However, the 4% rule was not designed for the early retiree in mind. It was designed for the 65-year old retiree who was expected to be in retirement for at most 30 years. Many people, including Physician On FIRE, are planning for 50-year or 60-year retirements. Will the 4% rule work for people with longer retirements?

Also, what happens if there’s a big bear market early in your retirement? If the market crashes early in your retirement, should you un-retire and go back to work?


Imagining Your Retirement Failure Rate Over Time


I think a useful exercise to do prior to retirement is to envision various market scenarios, good and bad. A neat property of the Trinity University study is that its results apply whether you just retired or whether you are 10 years into retirement. You just reset the numbers and look at the chart to see your new portfolio success rate.

For each of these scenarios, a 50/50 stock/bond (U.S. Total Stock Market/U.S. Total Bond Market) allocation was used with annual rebalancing. Portfolio return data was taken from Portfolio Visualizer.


Dr. Awesome: The Best-Case Scenario


For example, let’s say Dr. Awesome retired in 2010 with a $3 million nest egg, a 50/50 stock/bond allocation, and a plan to withdraw 4% a year ($120,000) for expenses.

Seven years later, the stock market has risen significantly, and his nest egg is now $4.2 million dollars. After inflation, his annual spending is now approximately $135,000 a year. Therefore, he is currently withdrawing 3.2% ($135,000 / $4,200,000) a year.

Plugging 3.2% into the portfolio success rate table above, we see that his portfolio success rate is now over 99%. He can feel at ease about his retirement withdrawals and good market fortune.


Dr. Badluck: The Worst-Case Scenario


On the other hand, Dr. Badluck retired in 2000 with the same $3 million nest egg. He experienced two tough bear markets at the beginning of his retirement, and his 50/50 stock/bond portfolio in 2017 was only worth $3.16 million.

Because of increased inflation, his initial $120,000 /year lifestyle now costs $172,000. Using the table, he is now withdrawing 5.45% ($172,000 / $3.16 million) a year, which means that his portfolio success rate has fallen from an initial 96% down to 59%. Yikes! Even worse, at the end of 2008, his portfolio success rate had fallen to 40%.


Dr. Badluck


What a rollercoaster ride! I’m not sure Dr. Badluck could have stomached such volatility. Even after the great bull market we’ve had since 2009, his portfolio success rate is currently only 59%.


Is there a way for Dr. Badluck to smooth out his retirement ride? Yes!


To make his rollercoaster ride less bumpy, he should cut spending or work part-time when the market drops and his withdrawal rate rises. For example, in 2003 he was expected to withdraw $128,000 because of inflation on a $2.43 million portfolio (5.30% withdrawal rate = 62.1% portfolio success rate). If he were to instead cut spending to $100,000 a year (or alternatively made $28,000 a year so that he would only need to withdraw $100,000 a year), then he is now only withdrawing 4.1% of his portfolio and his portfolio success rate is back up to 93%.

Now let’s look at Dr. Badluck’s retirement rollercoaster with this one change:


Dr. Badluck Smooth


A much smoother ride! Dr. Badluck’s flexibility in retirement, with the ability to cut spending or work part-time, ensures a much smoother and less anxiety-ridden retirement.

An extreme way to smooth out your retirement ride is to simply withdraw a fixed percentage of your portfolio each year. For example, if your portfolio fell by 25%, then you’d cut your spending by approximately 25% the next year. If the stock market rose by 30%, then you could increase your spending by about 30% the next year.

Using the Trinity University table, this would mean your portfolio success rate would be at least 96% each year. Technically, the portfolio success rate would be 100% because if you withdraw a fixed amount every year, you could never run out of money.

Unfortunately, a fixed percentage withdrawal pattern would require massive swings in your lifestyle (up and down), which most people do not want. A hybrid rule between the constant dollar method in the Trinity University study and the constant percentage method would be a variable percentage withdrawal rate.


Dr. Cern: Starting with a Lower Withdrawal Rate


Dr. Cern, aware of the limitations of the 4% rule for early retirees, decided to instead use a withdrawal rate of 3.25% on his $3,000,000 portfolio in 2000. He did not want to cut spending or work part-time during retirement. Let’s see how his failure rate progressed during the tech crash, financial crisis, and thereafter.




It’s a bumpy ride, but certainly more manageable than Dr. Badluck’s unsmoothed retirement scenario. So another way to make your retirement drawdowns less scary is to only retire when you have enough money to use a lower withdrawal rate.


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  • For most people, retirement is squishy. In worst-case market scenarios, they always have an option to spend less money or work part-time. If you’re willing to smooth out your early retirement journey with spending cuts or part-time work during bear markets, then you can probably retire using a 4% withdrawal rate.
  • However, if you do not want to ever cut spending (remember that the hedonic treadmill is real and it’s hard to cut spending once you’re used to a certain lifestyle) and do not want to ever return to work, then you should strongly consider a 3.5% or even a 3.25% withdrawal rate.
  • When the inevitable bear market occurs during your retirement, use the portfolio success rate table from the Trinity University study to calculate your current portfolio success rate. If you get nervous, adjust your spending or income until the withdrawal rate becomes something you can tolerate.


By keeping a running portfolio success rate calculator in your mind during retirement, you’ll be able to make smarter withdrawal decisions and weather any bear market that may come your way.


[PoF: Excellent analysis and visuals, WSP!

You are spot on with your advice on how to turn the odds back in your favor in the event of a particularly nasty sequence of returns early in retirement. I made similar suggestions in my bear market post, but didn’t have the math or fun graphs to back up my assertions.]

I’d like to add one more tactic to increase your likelihood of success. More stocks.

While a 50 / 50 ratio will certainly “smooth the ride” as JL Collins likes to say, 75% or even 100% stocks may be the answer to higher success rate, particularly over a very lengthy retirement that many of us aspiring early retirees are planning. ]

A certain Ph.D. economist that I like to call Big ERN over at Early Retirement Now has performed an excruciatingly thorough analysis of safe withdrawal rates (in 18 parts and counting) and his results bear this out. (pun intended). His study is the Trinity Study on anabolic steroids training 16 hours a day.


early retirement now swr


Based on his number crunching, using data dating back to 1871, the best ratio among these options for a 30-year retirement is 75 / 25. For a timeframe greater than 30 years, the higher stock allocation (100%) has performed slightly better.

So my recommendation (Big ERN’s recommendation and I’ve borrowed it), is to own a higher percentage of stocks to increase the likelihood your portfolio will survive over the long haul.

Of course, it never hurts to have a “side hustle” to cover some expenses as WSP suggested. If only I could think of some crazy endeavor that could help achieve that goal.]


Thanks again to The Wall Street Physician for his analysis, and to Big ERN for allowing me to display his Technicolor table.



What’s your plan for surviving a market meltdown?


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56 thoughts on “The Rollercoaster Ride of Retirement: How to Survive Market Meltdowns”

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  4. Hi, I love this article, but the math for Dr. Badluck needs to be corrected.

    An inflation calculator for 2000-2007 gives a requirement of $144,489 per year, and a withdrawal rate of 4.57%, not $172,000 and 5.45%.

    My engineering husband figured out that the inflation numbers above for Dr. Badluck were from 2000-2017, not 2000-2007, and I made the additional calculations for an upcoming FIRE presentation. I didn’t know how to calculate portfolio success. Do you/he use FIREcalc for this?

    Wall Street Physician’s point still holds, and I enjoy both your blogs. Thanks for your hard work.

    • That’s a good catch, and a great question. The Wall Street Physician stopped blogging a couple of years ago, so I don’t know that we’ll be able to ask him.

      Thanks fr pointing that out!

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  6. Somehow I missed this piece the first time around. Really great stuff, including the comments.

    I am increasingly drawn to the lower SWRs (3-3.5%), fixed withdrawal, and or indefinite part time or side gigging, at least until age 60.

  7. I plan to use less than 3%. Great analysis. My allocation will be more in line with 25/75 until my wife starts receiving her Social Security in 7 years. I want to be able to sleep at night.

  8. Interesting post

    What I don’t understand is why people assume retirement is some kind of black box ($120K per year for example) reverse of accumulation. Retirement spending is as complicated as every day life is pre-retirement. I also don’t understand WHY TAXES ARE IGNORED. The government has set you up every way possible to clean your clock in retirement with RMD. I also don’t understand why people don’t plan their extravagances. I also don’t understand why rebalancing occurs every year. Finally I don’t understand why people consider money withdrawal as static even when inflation adjusted.

    In my situation I’m a bit older, but my wife is younger so my plan is tailored to her age about 45 years of disbursement. I, with my partners were the group owners so I don’t have pensions etc, I have cash to protect. My annuities are SS for me and SS for my wife when it kicks in. My accounts are a rollover IRA which encompases al pf my SEP and group pretax money and individual IRA. My wife has a SEP IRA and individual IRA. I also have post tax accounts, a MSA account and accounts which hold college money for my kids. So pre-retirement finances ARE complicated. Why should post retirement be any less so?

    1 Fixed expensing.

    What I did for expensing something like college was to turn it into a fixed expense, not a never ending fund. I’m in FL and I bought my kids a FL prepaid tuition. This purchase guarantees my kids 120 hours of tuition fees and expense. It cost $22K at purchase (fixed expense). I had a specific goal to give them a college education with no debt. To fund housing etc I put 20K of BRK.B into a UTMA at age 2 and let it grow. It’s gone up 8x. Another fixed expense. They don’t have the first clue they own this money, but I am doling it out to pay for housing and experiences like summer abroad. One kid spent the summer in Italy the other in Poland. When college is done if any money is left they can get a car or something like that and I may still not tell them about the money till they are 50. By then it may be worth enough they could FIRE who knows. The point is it’s a fixed expense I paid long ago so I don’t worry about it. Note the FL prepay is for 120 hours NOT 4 years. One daughter entered with nearly a year of credit, and my second daughter is trying out community college at $1100 a semester so when she is ready to transfer to the U, she will have plenty of hours if she wants to double major or something.

    The same technique would work if you want to spend half a year in Maui. It’s a fixed expense. Save for it as part of the overhead or retirement. If you want 5 of those extravagances in the next 20 years it’s 5 fixed expenses, make a plan.

    2. Epochs

    I look at retirement as epochs, and each epoch needs to have a funding plan. I FIRE’d and decided I needed to move some dough out of IRA’s and into Roths. To effectively do that I need zero income to maximize Roth conversion at 15% taxes (taxes matter remember?) To fund my life I first created a budget based on actual spending. My budget is tracked using MINT a free online tracking program similar to Personal Capital but I think it tracks every day spending better. I charge virtually everything on a Fidelity Card which pays me back and generates an excellent log of my spending automatically, which is imported into MINT. Some few bills I pay from my bank account and those are also categorized and imported. It makes it dead easy to see where the money goes.

    Over the years, actually decades, I’ve accumulated Long term Cap loss especially during recessions. I have about $500K harvested. I also have the majority of my money in post tax accounts. Marginal taxes have been relatively low for the past 20 years so I just paid them and plowed the cash into the market. I realized RMD was a buzzkill (taxes matter) so I slowed down my pretax donations in favor of a more balanced portfolio from a tax perspective. In this FIRE no income epoch I carved off a total of $650 of dough to cover 5years of living, planning on $120K per year. I had $200Kin cash and sold $450K of post tax stock to bring me up to $650K I countered the sale with LT cap loss, about $90K amd my tax bill for this maneuver is zero (taxes matter)

    This amount includes $50K of buffer for who knows what, like I just had hurricane Irma fly over my head and needed to spend $1000 on yard clean up $500 on a generator and $700 on a new pump for my well, so all of that is covered in the buffer, I don’t worry about it. The money is in VWSUX a short term muni bond fund which pays some tax free interest and gives some insurance against inflation. A CD ladder would be taxed and your stuck if inflation kicks up, so I went this route. I have 5+ years of $10K per month income no matter what the market does, so I don’t worry about it.

    3. Asset mix during my FIRE epoch (0 income Roth conversion)

    The papers I’ve read say portfolio failure tends to happen with too many stocks or too few stocks in early retirement. Bengen did some study and found the optimum range for portfolio viability during early retirement was from 55/45 to 45/55 S/B. Other papers suggest moving to this kind of asset allocation 5 years before and 5 years after retirement for best safety. I was running 80/20 before retirement. My VWSUX move along with moving some assets into Long term TIPS have moved me to just above 55/45 on the bond scale, just where I want to be. TIPS, GLD, Muni’s, alternatives and short term treasury bonds all act as inflation protection, while my 55% stocks act as capital appreciation. My stock portfolio is very tax efficient.

    As I spend down my cash/muni stash my portfolio will automatically rebalance toward about 66/33 (depending on capital appreciation) without me lifting a finger or paying any tax. As you approach old age your chances of outliving your money diminish so a bit more aggressive stocks is permissible. As I fill my Roth accounts I will tend toward less tax efficient investments like dividend payers to better balance my mix.

    3 SS epoch

    I decided to not take SS till 70. It is like paying myself 6.1% on my investment. I decided on this tact since when I croak my wife will get a better benefit and her people live to be OLD. My take at 70 will be $42K per year and when my wife “retires” total SS will jump to $63K per year. I do not believe Congress will have the stones to fix SS so the 63K will be cut by +_ 25% by law bringing me back to about $45K if I’m still alive or my wife will get about $32K if I’m dead. At 70 RMD will also kick in on my pretax money, and will annuitize to maybe $50K per year depending on how much I get out to the Roths. Who knows what taxes will be like then. But no matter what I should be well into middle class income from SS and RMD and I can supplement from either the Roth on the post tax stocks if I want to buy a car or something. I have always done a fair amount of charitable giving so I hope to continue that in my dotage. My favorite is to drill wells and put in pumps for villages that are far from water. If a community has a well then something like dysentery may not be a death sentence.

    4 Heirs

    Money will be left so once I’m convinced my wife is going to be taken care of then comes my kids, my Church, and the charity that plants the wells

    My point is retirement is A LOT more complicated than the traditional wisdom of 120K per year pretends and having a clear understanding of the moving parts of retirement spending broken down into epochs makes a huge difference in how pre-retirement proceeds IMHO.

    That’s my story and I’m sticking to it!


  9. Have funded a fairly large whole life insurance policy – that is roughly 85% cash value available. This means I can take a loan from policy up to 85% of total $ invested thus far. And it takes one simple call to get the cash. ( To avoid starting another discussion on the thread – yes there are steep fees up front in these policies. However after 20 years, fees of policy are much less than a typical 1% fee on your average 1-2 mil 401K/IRA account. Those fees happen every year, whole life fee happens year 1, and then very minimal). Not trying to make a sales pitch for WLI. Just worked for me and family.

    Plan is to simply take a loan from the policy at year end when market has had a very tough year (say greater than a 7% loss). That will leave capital intact to in the IRA/401Ks to experience the eventual rebound. Caveats: We have more than enough money to do this for 8 years straight. Ultimate decision to pay back loan – and time frame is up to you – interest paid to insurance company.

    If you choose not to pay back – ultimately the amount you owe is subtracted from life insurance payout at time of death. Policy loans do not affect actual cash balance in policy – so original amount is still growing at 4-4.5% rate/year and compounding year/year. But plan is obviously to pay back. Yes that would mean the following year withdrawing more than typical 4% out of accounts – but if market is up – that is not a huge deal.

    So in essence, using the policy as a buffer against potential sequence of returns risk. Hopefully will not have to use it at all.

    Will also use part time employment jobs as buffer and naturally pulling back on “variable” expenses during those years.

    Great article.

  10. I have been thinking about swings in the markets during retirement, especially considering how long our current bull run has been. Retirement is still a few years ahead for me, but I am considering an alternative strategy to stay heavily into stocks, but buffer a sharp downturn year or two in the markets. I am planning on parking 50-100k in CDs close to retirement. The purpose will be to save that for a steep downturn, leaving most if not all of the other investments to catch the steep upswing that usually happens earlier than later after a steep decline. This should allow minimal lifestyle changes and avoid the need to work to create an offset during a decline year.

  11. I am with you in preferring a 3.5% SWR, but my version of FIRE is very different from others. I just want to leave one job, and not my business. Until I no longer want to run my business, whenever such a day arrives. With business income, my initial portfolio can be much smaller than it would need to be for true FIRE. Since I plan on the business anyway, I can look at a Bear market and just keep on earning a little while longer.

  12. Great post, thank you! I’m curious to how having significant real estate assets in your portfolio affects your SWR. E.g., say one has 1 million in equity in real estate with a cash flow of $100k/year, and another 1 million in mutual funds. Assume the person is accepting a SWR of 4%, and wants an income of $140k/yr at retirement. Are they there yet with the 10 percent cash flow from the real estate + the 40k from the mutual funds? Or should they wait for 140k x 25=3.5 million net worth? Has this been studied? One has to account for a baseline vacancy rate and the chance that market rates for rent could decrease in an economic downturn, but how much of a buffer is considered “safe”? Rents rise with inflation by definition, so inflation protection is already there.

  13. This is a great summary of clear thinking on the topic. Or at least it is similar to my own thinking…. People are obsessing over a single number. Realistically early retires have the option of working at least part-time for some time period and they often do. It is a normal human reaction to cut back frivolous spending during tough economic times. The few people who take a fixed percent in real life either run out of money or they learn to flex the withdrawals. SoR (Sequence of Return) risk is real. It isn’t easy to explain well though which is why we hear much more about the “4% rule” than any of the finesse like the impact of a market crash at the beginning of the decumulation stage. Some of the dynamic studies show even 4.5% withdrawal may be fine if you are willing to make changes during certain tough times. Great post!

    • I could not agree with you more. I think people get so worried about risk they forget about human nature. A person that is financially savvy enough to accumulate wealth for a comfortable retirement will find it impossible to spend as usual during financial turmoil. This should be especially true for those looking to retire after years of saving with a physician salary.

  14. What is the point of owning a significant amount of bonds? It seems like if you own more than 25% bonds then you decrease your chance of having enough money. I was planning on doing (120-my age) for my bond allocation. But this data seems to be very strong evidence to stop at 25% bonds and leave it there when I turn 45.

    • That’s been my analysis as well. I think you may need more bonds if you are barely scraping by and need to pull 4% out even in a bad year. However, if you have a large pool of retirement assets then I think that having 2-3 years of expenses in CDs/Cash and another few years in bonds is likely enough to provide stability and avoid selling stocks in a down market (aka the “buckets of money approach”). I’m hoping to be able to achieve that with less than 25% in bonds/cash equivalents in my retirement portfolio.

  15. A great start to the morning. Thanks for the read. Retirement still seems quite far away, but I am making progress every day. ERNs analysis has been pretty amazing thus far and it is nice for WSP to break down potential scenarios in easy graphics.

    Low expenses and one or two income streams (that’s not retirement!…says the retirement internet police) lead to a fairly safe life going forward. As for me, right now it is debt pay down and asset accumulation. Then in the future I can figure out a side gig…PoF are you hiring?

  16. For us, low expenses and diversity of income really helps smooth things out. I think it would be a bit stressful if 100% of our income came from a 4% stock draw down. While we don’t mind spending $4-5k a month (with lots of travel), we are also happy gardening at home, hiking and long days at the lake which run about $2k a month. Our rental income is $1200. And $1450 from a pension. Those two numbers help me sleep when stocks bottom out. 🙂

  17. Nice post! And thanks for the multiple mentions!!!
    The year 2000 was a pretty awful year to start retirement, indeed!

    As PoF correctly pointed out, for long retirement horizons you need a high equity share. But that creates too much volatility in the early retirement years when worried about sequence of return risk. I published a post on “Glidepaths” where you start with a lower equity share and then increase the equity percentage in retirement. That seems to help somewhat with the worst-case scenarios:

    • I’m glad you liked it, Dr. CERN!

      The reason I used a 50/50 AA for the post was that the graphs would probably be even more scary for scenarios like 2000 if you used a 75/25 AA. I’m happy to hear that you have proposed a solution to this, and look forward to reading the article!


  18. Great post! Probably all the more reason to save a little more than you think you need to last 30, 40, 50+ years, especially if cutting spending is difficult for you.

  19. Really great article WSP and PoF bringing it all together. We’ll be flexible and adjust withdrawal rates as needed. A side hustle or two will also help.

  20. Check out Big ERN’s latest post (part 19 of the SWR posts) titled Equity Glidepaths in Retirement. This is impressive work, and seems to me to possibly be a great answer for the early retiree.

  21. Enjoyed reading this WSP.

    The SoR beast is for sure a major concern, particularly in the environment of lofty valuations. Of course a low SWR is your best protection here but that is hard to do and may involve putting in even more years at the coal-face, as you have illustrated.

    1. For the not super early retiree (late 40’s / early 50’s), future SS income stream can be a nice tail-wind to your SWR. Even better if both partners have been working for 15-25yrs and there are two SS streams coming. Maximizing that by delaying to late 60’s / 70 will likely add additional benefit.

    2. Dr. ERN just put out a good post on equity glide-path withdrawal strategies (adding to the Pfau/Kitces white paper) and again that can add a nice % to your WR if applied appropriately. 60-70% equities rising in a glide-path over 10 years seems like it can add ~0.2% to an otherwise static equity allocation.

    Combining these two approaches may support an increase in SWR of 0.5% or slightly more. On a $3,000,000 portfolio @ 3.25% conservative SWR ($97,500), that could increase to 3.75% and $112,500 spend. An increase of $15,000! Bingo! That will cover a fine 6-week trip to Europe or Asia with liberal use of travel hacking thrown in.

  22. With the Trinity study I was under the assumption that the percentage chance of failure of your portfolio does not change year to year with market-volatility. If Dr Badluck has a 100% chance of success with his starting retirement safe withdrawal rate (no matter the sequence of returns) then history shows he will not fail in his 30 year retirement if he keeps drawing the same fixed amount each year adjusted for inflation?

    • The study assumes that your retirement length is only 30 years, which makes sense for a 65 year old. For the 40 year old early retiree, the data is only good for the next 30 years. If there is a sharp downturn early in retirement, then he will be withdrawing a higher percentage of his portfolio, but still might need his portfolio to last another 50 years.

  23. These numbers are essentially the same to my planned ER retirement numbers. I think I would prefer starting with a lower withdrawal rate, closer to 3%, and increasing my nest egg number to attain the desired annual income. Knowing myself, I would be more reticent to decrease annual spending once I am mentally committed to a certain budget.

    Great analysis, WSP!

    • The hedonic treadmill is real, but it depends on how much of your retirement spending is discretionary. If cutting back would be not taking that 3rd international trip in a year, then getting off the hedonic treadmill for a year or two if the market is doing poorly might not be that hard.


  24. Great article!

    How does the Trinity study or the ERN analysis address taxation of retirement proceeds?

    Is the implicit assumption that the the retiree needs $120,000 PRIOR to taxes? (I assume it must).

    If so, how does one adjust to the specific location of retirement assets? i.e (401-k, IRA, Profit sharing etc-Taxed at ordinary income rates, Regular non-tax deferred investments- Taxed at capital gains rates and social security-Taxed at ordinary rates.
    If these assumptions don’t take taxation into account, then the assumed spend rates may need to be lowered.
    I assume a combined (not marginal) tax rate of about 20%, so I assume I would need to draw down $150,000 to have a cash spend of $120,000.

    • Taxes always complicate simple economic or financial analyses 🙂

      $1 million in a taxable account is worth more than $1 million in a traditional 401(k). You should take that into account when determining whether you have enough for retirement. Unfortunately, there’s no one size fits all way to account for this since everyone’s tax situations are a little bit different.


      • Let me re-phrase and clarify the question. If a retiree has 3 million dollars in retirement assets and plans on a 3% drawdown, do the Trinity and ERN studies assume this will enable a $90,000 after tax spend or $90,000 before taxes.
        In your article, it
        seems taxes are disregarded and the “spend” is a pre-income tax spend.

        If the rule of thumb (4%) calculates a 25x accumulation , it seems “x” should be your pre-tax needs not your post tax spend.
        And of course, everyone will have a different tax rate depending on where assets are located (Ira , etc) , in post tax accounts ( with embedded capital gains) or variable due to the progressive aspect of the tax system.
        It just seems the studies are too simplistic if taxes are not factored in

        • None of those calculations take taxes into account. But, and this is a huge but, if you managed your finances and taxes property you could easily pull out $90k/yr and pay almost no taxes. There was a great post by livesoft on bogleheads who described pulling $100k/yr from retirement accounts and paying $0 in taxes. LINK

          Just run your numbers via tax caster app and see how making small changes affects your actual taxes. Somethings that help:
          1) Having a sizable Roth Ira from doing backdoor contributions as well as rollovers during your retirement years but before collecting Social Security
          2) Having some tax loss harvesting
          3) Having a taxable account.

          I am positive you will be paying less than 20% in taxes when you retire.

  25. Great article!

    How does the Trinity study or the ERN analysis address taxation of retirement proceeds?

    Is the implicit assumption that the the retiree needs $120,000 PRIOR to taxes? (I assume it must).

    If so, how does one adjust to the specific location of retirement assets? i.e (401-k, IRA, Profit sharing etc-Taxed at ordinary income rates, Regular non-tax deferred investments- Taxed at capital gains rates and social security-Taxed at ordinary rates.
    If these assumptions don’t take taxation into account, then the assumed spend rates need to be lowered.

    • Great question! I always assume that the SWR is pre-tax. You still have to cover the state and federal taxes. For a $120,000 p.a. withdrawal from a 401k, that can be a lot of money. For the average FIRE planner with a $25k to $60k annual withdrawal coming from a range of accounts – Roth, 401k, taxable with high cost basis, etc – it will likely be very little money.
      The reason why the taxation has to be dealt with at the backend is that I don’t know how much of the net worth is in the various types of accounts with different tax treatments (taxable vs. tax-free vs. tax-deferred). PoF himself had a great post on the topic how to discount/haircut tax-deferred account balances due to this tax issue:

  26. Great breakdown! For me, the ability to remain nimble and be able to be flexible with the market is extremely important. I’m not close to being able to retire, but I’d like to imagine that I’ll still hold some sort of income or have a method to bring in income so I don’t have to withdrawal at a high rate. Of course, the point of retirement for some is to stop working, but for me, it’s to stop working on things I care less about and devote more time to value add work to me.

  27. Thanks for the great breakdown!

    Right after reading this I saw a clip on the local news talking about how a new study found that 59% of Americans have less than 1000 in savings and 30 some percent have no savings at all!

    It seems that a lot of people are counting on SS for their retirement, or have no problem working into their 70s.

    I think everyone reading this site, at times, needs to take a minute to put this all into perspective and realize that whether we start with 3 or 4%, we are FAR ahead of what most could only dream about

  28. Excellent run down! We are a ways off from FI/RE, but I think our biggest hope is that we can remain flexible and work with what the market throws at us. We can always cut back a bit, earn extra side income (after quitting the 9-5) or get creative with our plans 🙂

    • It’s never too early to be thinking about withdrawal rates in retirement. Your planned withdrawal rate in retirement will determine how much you’ll need to save.

  29. Many thanks to Physician on FIRE for publishing my guest post! I really enjoyed writing this article (especially making the graphs), and I’m happy it’s able to reach a large audience. I’m looking forward to reading the comments, and I hope that if you liked this article, you head on over to my blog and read some of my other posts.


    • If you have 3 millions dollars and withdrawing 5.4 % with only 13 years to go you have almost 100 % sucesfull rate. I do not understand why you say 40 % sucessful rate, review from Michael Kitces study on retirees in 2000 and 2008 they are doing better than other years when they were withdrawing 10 %, so done sell smoke and be better prepared, there is many people here who read better studies . Thanks.

      • My assumptions and graphs are all for early retirees. Someone who retired at age 40 in 2000 will be 57 in 2017, and (hopefully) is still looking for at least another 30 years of retirement.


        • You need to read the last interview with the father of 4% rule William Bengen , he explains very clear that the rule is 4.5 % if you want your money last for ever is 4% the most important is no how much you withdraw is to be flexible.

    • I don’t know if your calculations are correct. The 4% rule took account the ups and downs of the market and figured that unless something worse than the worst happens you will survive assuming you are following the guidelines.

      So I’m not sure that your calculations are correct. In fact it is possible that in most cases you will end up with more than you started with at a 4% SWR. The study accounted for the bull and bear markets historically.

      • The failure rate of the 4% rule over a 30-year period is low, but not zero. I believe it was about 3% in the Trinity study. ERN’s exhaustive study also shows a very low, but non-zero failure rate. It’s going to depend on the details of the study (Monte Carlo vs. actual returns, what indices, stock / bond ratio, etc….) and you are correct that the median scenario is to end up with 2.7 times as much money after 30 years (Trinity study), but 2000 was a particularly bad time to retire. Also note that having twice as much money after 30 years is like having about the same amount of earning power due to inflation.

        The only instances in which the 4% rule doesn’t hold up is with a particularly poor sequence of returns and / or a very long time horizon.


        • William Bengen just did an interview where he clearly stated that at 4% you will never run out of money if you follow his basic assumption and if there is not a catastrophic event worse than anything we have had till now. That would cover 2000, 2008 and the great depression. It seems like 4% based on the person who came up with it is the PWR at 50/50 asset allocation.

          But if someone is 50 years old and starts at a 4% SWR chances are that at 70 or 75 they will only need 3% even if they don’t account for SS.

          And if you take 4% and put a cushion in there so if things do go really south you can go back to 3% then your back to a 100% change of success.

          But 100% is kinda meaningless. How many things do you know that are 100% guaranteed to succeed except for death and taxes. 😉

          Personally I think if someone is a doctor and give up their license for early retirement they are shooting themselves in the foot. Life has so many ups and downs that don’t happen in the financial world. It’s always nice to have money coming in. A lifestyle change may be a better option.

        • I would disregard the recent research of Bill Bengen. He “optimized” the portfolio that would have outperformed the traditional S&P500 equity and long-term Treasury bond portfolio to generate the highest possible SWR. Nice! But there is no guarantee that his allocation will continue to outperform going forward.

      • Not sure where you read that. The 4% would have run out of money even over 30-year horizons (1965 and 1966 start dates, for example). Even in the cases where the 4% rule “worked” over 30 years, the portfolio would have run out only a few years after. So, 4% is too risky for the early retiree with a 50 or 60-year horizon!

        • Everything can be too risky for someone who has a 50 or 60 year retirement horizon because no one know what will happen and their chances of more things going wrong are greater in 50 years than 30. Even MMM who believes in the 4% SWR forever states that those who use it will have side hustles or other ways to make some money if they need it. So if you still have to work it’s not retirement.

          In my opinion it’s about getting comfortable and having a happy life. So finding that in a career full time or part time may be the better option.

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