Originally Posted by
whomever
"In the late 2000s I added a tab to my investment asset allocation spreadsheet where I calculated what size investment portfolio my wife and I would need to supply ~$80k per year of ~2008 purchasing power based on the 4% "safe" withdrawal rate. I assumed 3% inflation and 7% or 8% annual returns. Turns out that's a pretty big number. We basically need about $4,000,000 according to this calculation."
Just a word on where the "4% rule" comes from: it was from a study where they assumed some basket of investments (60% SP500, 40% treasury bonds or something like that). Then they took historical figures for the investment returns and for inflation and worked out what would have happened to someone who retired in, say, 1920, with $100K. In 1920 they spent $4K, then take the remaining $96K, add whatever the stock/bond returns were for 1921, then adjusted the $4k for 1921's inflation (to, say $4200), subtracted that, then went on to 1922, added that year's investment returns, ..., for 30 years. Then they ran the same calculation, but for 30 years starting in 1921, then starting in 1922, ..., up to starting 30 years ago today.
And for all those together, none of the 30 year periods had the theoretical retiree running out of money (or to put it another way, the worst 30 year period had the retiree running out of money in year 31).
The take home here is that you don't have to add in assumptions about inflation or returns - those are already baked into the rule. It says that, historically, it takes $2M to reliably supply an inflation adjusted $80K for 30 years. N.b. that actual outcomes have a lot of variation - when the worst case is running out in year 31, the median retiree will die with lots of money remaining.
There are a couple of web sites (search fro 'firecalc' and 'cfiresim') that will let you play with different lengths of retirement, different investment mixes, adding pensions, yadda, yadda. I think prospective retirees are well served spending some quality time there, not the least because many people don't realize how variable the outcomes can be based on random chance.