What is a safe withdrawal rate for early retirement? There is no easy answer to this, as there are many definitions of what early is. There are also varying degrees of what retirement means, since a lot of people stay active doing side work once they leave their full time jobs. But there are a few rules that you can follow to ensure that the money never runs out.
Rule of Thumb
A good rule of thumb is to strive to not draw upon more than 3.25%. A 4% withdrawal rate was a classic rule of thumb, but may need to be reduced, especially during long bear markets. Of course, both of these rules are not one size fit all. You will need to adjust up or down based on multiple factors.
If you are retiring early and have a conservative investment portfolio, then you will want to be on the lower end of the withdrawal rate. If however, you wait to retire, then you should be able to draw upon more of your principal. You may have built substantial passive income sources during your life, and you may never need to touch your principal at all. Building up a portfolio of dividend paying stocks and cash flowing real estate could afford you the ability to maintain a comfortable lifestyle for the remainder of your life.
The point of all this is that you will need to sit down and figure out what retirement will look like for you. Maybe you can take more or less than someone else. Maybe you will want to supplement your retirement income with part time work or a side business.
The Retirement Landscape
With recent market volatility and downturns there has been a shift in the retirement landscape. Some people have gone so far as gone back to work full time because their retirement income wasn’t enough. You may have to wait longer than you want to be able to retire. Or you may have to get creative and create alternate income streams to supplement your income. Today more people than ever are on their own when it comes to retirement. Social Security is often just a supplement, and fewer people have a pension with their employer.
What is a safe withdrawal rate for early retirement? There is no easy answer, but you can follow the rule of thumb of 3.25%. That will give you better than a 90% chance that the money will never run out. Just know that your situation is unique, so you will need to sit down and map out a plan for your retirement. Talking with a professional might not be a bad idea if you aren’t comfortable doing it yourself. With some planning and work you will be able to enjoy a comfortable and prosperous retirement.
Writer and Investor. Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.