We did the math—looking at history and simulating many potential outcomes—and landed on this guideline: Aim to withdraw no more than 4%–5% from your savings each year to be confident you can enjoy your someday through 20–30 years of retirement.
We went back and looked at what would have happened with a hypothetical
person’s 28-year retirement, basing our calculations on the first day of
each month, beginning with January 1, 1926. In 90% of those retirement
periods, a balanced portfolio (50% stocks, 40% bonds, and 10% cash) with
a 4% withdrawal rate would have lasted for at least 32 years, and a 5%
withdrawal rate would have lasted for at least 22 years. This means that
even with market ups and downs, these withdrawal amounts worked most of
the time—assuming the investors stuck to this balanced investment plan.