The Required Retirement Savings table on page 189 in the section “How Much Do You Need?” — showing an inverse relationship between the withdrawal % and savings — has confused some readers.
The table is correct. In any row of the table, the amount being withdrawn is fixed: the variables are the savings and the withdrawal rate. And the higher your annual withdrawal rate, the less overall savings you need to support those withdrawals. But it’s riskier: there is more chance of damaging your portfolio, because you’re withdrawing from it at a higher rate. The lower withdrawal rates are safer.
So, for example, $2,000/month would be $24,000/year. Divided by 3% that makes $800,000 in savings required: So if you were only going to pull at a relatively safe 3%, then you would need a full $800,000 in savings to generate the $24,000 annually. On the other hand, $24,000 divided by 5% makes $480,000 in savings required: So if you were going to pull at a riskier 5%, then you would need only $480,000 in savings. But the chances of exhausting those assets would be higher.
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