September 14, 2015
One problem: Those formulas rely on historical market returns and don't reflect future returns, which are likely to be lower. To avoid lowering your living standard and to keep from running out of money, you'd have to save 33 times preretirement expenses (rather than 25) and drop your initial withdrawal rate to 3% or less, according to a 2013 study by Blanchett, Pfau, and Michael Finke, a professor at Texas Tech University. For instance, if your annual gap between income and expenses is $24,000, you'd need $600,000 ($24,000 x 25) to cover the gap at the 4% withdrawal rate and $792,000 ($24,000 x 33) to cover it at the 3% rate.
Read the story here.