A year becomes unsafe is the current withdrawal rate is higher than the known safe withdrawal rate for the length of retirement remaining. It might be easiest to understand if I use an ERN’s 3.25% “safe” rate in an example.

Let’s say you retire in 1909 and you used ERN’s 3.25% safe rate and plan on a 40-year retirement.

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unsafe years for a 1909 retirement

After 10 years, when you have 30 years left to go…you are withdrawing 5.9% of your portfolio. (Row 10 on the table above.)

But wait! The safe withdrawal rate for 30 years — as everyone knows — is 4%. Why are you withdrawing 5.9%?!

How can we call 3.25% for 40-years “safe” when it results in us withdrawing 5.9% for a 30-year retirement?

Or the same thing but someone who retired in 1940.

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unsafe years for a 1940 retirement

Again, we started out with a “safe” 3.25%. But after 10 years it has grown to a 4.4% retirement. Yet we know 4.4% withdrawals for a 30-year retirement isn’t “safe”.

Learn how to enjoy early retirement in Vietnam. With charts and graphs.

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