[DespotInExile]

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ANy of you guys students of the markets? Do you realize that between 1966 and 1982 (that is almost a lifetime for many on these boards) the dow was FLAT in nominal terms and DOWN 40% in real terms? That is was down 90% (yes, that is not a typo) from 1929-1933? That the NDX was down 80% 00-mid 03? That long bonds were down 20-25% in 1994? Anyone here actually had to manage a portfolio and LIVE on it? Models don't pay bills. And drawdowns are MAJOR problems when you are living off the cash flow. Retiring and NEEDING 8% per year to hit your spending is insane. And people are way underreserving for inflation -- its at least 3% of whatever return you are getting. Education and healthcare, 2 major expenses, have gone up much faster than that for years.

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Scorpion is so right in this post. The 4% rule is just a rule of thumb, and whether you make it to death with your nest egg is essentially a function of whether the volatility that hits you (particularly early in your retirement) is upside or downside. The 4% "rule" is a rule based on monte carlo simulations of market volatility for somebody who retires more or less at the standard retirement age. For people who retire earlier, it doesnt apply as well.

I also agree that you are all discounting the pernicious effect of inflation. I think 3% is too high, since historically US inflation has fluctuated between 2% and 2.5%, but it isn't far off. The other corrosive effect to consider is taxes--money in a tax deferred account (e.g., 401k) needs to be considered in after-tax dollars. Additionally, you need to consider the possibility that the marginal tax rates you will face in the future will be much higher than what you currently have, or that federal entitlement programs will be means tested (so in effect, income withdrawn from a 401k is offset by reduced social security or Medicare benefits). And of course, there's the problem that tax deferred money is illiquid due to the lockup until 59 1/2, so it can't be drawn down for ordinary spending in the interim.

Despite all of this, I fully realize how ridiculous it is for me to set the retirement nut at $5-$10M, since most American will never have their lifetime earnings--let alone their net worth--anywhere near this ballpark. However, I've done the math, and determined that, this is what is required to live an upper middle class retirement in most major metro American cities. (By the way, I dont think the $5M number works in the high cost cities like NY or SF, and our own retirement scenario contemplates living in a lower cost tax haven like Texas or Nevada).

I also see Scorpion's point, though about how the retirement nut is a moving target--the moment you get within a stone's throw of the low end, you just lift the bar. There's some truth to that for our own situation, since I expect that we'll hit the low end of the range in a few years, independent of how the market performs. That said, there's no point in working forever if you dont have to and you dont love your work. My wife and I enjoy our jobs, but we enjoy each other and our family time more.