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4% rule in Academia – Refining the Failure Rate

The Fire Fellow caught wind of an academic paper published by IESE Business School in Barcelona, Spain, titled “Refining the Failure Rate”. Of course the failure rate here refers to the typical 4% withdrawal rate often discussed within the financial independence world.

More specifically, the paper examined the difference between the 30 year period failing at different time frames, while also looking at a US portfolio vs. global portfolios.   One of the most interesting results was that at a 4% withdrawal rate, a Canadian portfolio failed only 1.2% of the time, while the US portfolio failed 4.7%. Astoundingly, a global portfolio failed 23.3% of the time!  Digging more closely though, the failure of the global portfolio largely occurred during the 1929-1946 years, where there was a World War.

Regardless of whether you are a sceptic of the 4% rule or live by it, keep it mind that it is one of many tools to ESTIMATE the success rate of your retirement portfolio, and that’s all that is.

As usual, if you have any questions, Ask the Fellow!


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