My example to Erik was meant to show that when you apply the more conservative 3% Rule you would need to have saved more than if you are drawing funds at a 4% rate.

In our example of expenses, we felt we need $51,072 a year to pay for our lifestyle. Of this $51,072, we expected that we would earn $5,000 per year doing some part time employment. So I was working from that constant annual expanse amount of $46,072 to arrive at $1,534,198 for 3% ($46,072 x 33.33) with some rounding or $1,151,800 for a 4% withdrawal rate ($46,072 x 25).

The good news is that with either approach, we could afford to leave our employers right now!

]]>We went through the “mental jumping jacks” ourselves when we paid of our home mortgage that we shared in this article. Should we pay off most of the rental real estate debt that has a similar interest rate as the home mortgage and then would free up more cash flow, or do we pay off the personal home mortgage that has too little amount of interest to itemize on our taxes?

Now six months has passed since paying off our home and we hardly think about it anymore!

]]>Again, I understand that you were keeping constant the $40k that you need to live off of per year, but this is just how I read it.

Anyway, another good write up! I like the detail you provide in your posts.

-DP

]]>Thanks for clarifying!

Erik

Thanks for the kudos and I am glad this article was helpful.

]]>Thanks for the feedback on the series and the concern about the math. You got me thinking about it and I believe the math is correct.

Let’s use a different example that it takes $40,000 per year in income to support your lifestyle. Here is the math: $1,000,000 x 4% = $40,000. If you used 3% the math would be: $1,333,200 x 3% = $40,000 (rounded). You can see that using the more conservative 3% withdrawal rate means you need to have saved $333,200 more ($1,333,200 – $1,000,000).

The other approach is to take the 4% rule by multiplying 25 x $40,000 to arrive at a $1,000,000 nest egg needed to retire. The 3% rule is 33.33 x $40,000 to equal $1,333,200.

Please do let me know if my calculations are wrong.

Take care!

Great coverage on a complicated topic! I learned a lot!

]]>Only question I have is, why for the 4% withdrawal scenario is the required amount put away less than the 3%? Shouldn’t this be the other way around? For 4% withdrawal, we should need more…

Thanks, Erik

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