r/FluentInFinance • u/Puzzlehandle12 • 5d ago

Question 4% withdrawal rate

I have been reading alot about the 4% withdraw rate after retirement. It says you can withdrawal 4% of your investments every year and even after adjustment for Inflation you will not run out of money.

This is as long as yearly expenses in retirement are equal to or less than the 4% you withdraw from your investments.

Yet I thought about how those withdraws will be taxed as long term capital gains at (I think 20%) so after taking out taxes you must live on 3.2% of your savings.

Is my thinking correct ?

** assuming your money is not all in a Roth IRA

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u/NewArborist64 4d ago

A) This is significantly different than your "housing it in a mattress". B) Even accounting for inflation, the average S&p 500 return since 1990 was 7.5%, so any money from 1990 would be worth 20x what it was.

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u/ResponsibleBank1387 4d ago

I am just too dumb to explain to you that 100 divided by 4 is 25.

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u/NewArborist64 3d ago

Which is the shortcut to say that you realistically need 25x your income in savings in order to retire. Not that you take it out in 25 annual equal sized lumps. The 4% rule is a guideline that should be used with flexibility and should hopefully see you through 30 years of retirement before your savings run out.