This isn't really accurate, though. In most cases there is a large margin of error built into the 4% "safe withdrawal rate" - and that is that the investments "on average" do much better than 4% (easily 5-7% after inflation, in many cases much higher) and that you end up with much more than what you need to withdraw 4%.
The notable exception is called a "sequence of returns risk" (SORR) where either something bad happens in the first few years draining a really large portion of your original savings (more than $10k) and/or the market undergoes a recession during the first few years, and if you withdrew the full 4% from your investments while their value was markedly depressed, you would never recover (without additional income). In my opinion, a proper retirement strategy should account for SORR; some padding (i.e. the wants portion of your budget you can reduce during a lean year), reverse-glide strategy where you can draw from cash/bonds instead of equities in case of depressed value equities, etc. In many cases, this scenario happens so early in retirement that anyone retiring at a younger age has relatively good prospects of rejoining the work force to get to the other side, and then will likely be very well prepared for a second retirement with a decreased likelihood of yet another bad sequence of returns occurring before their nest egg has grown well beyond 25 times annual expenses.
And all retirement plans should be flexible - some years where you might spend a bit less than the target, but have room to change that, particularly if your invested assets grow beyond the original necessary funds.
> In most cases there is a large margin of error built into the 4% "safe withdrawal rate"
I don't think that's the case if you're retiring early. The 4% withdrawal rate was based on a 30 year retirement. You need to go a bit lower if you want to have minimal risk of running out of money for a much longer horizon.
Certainly, but with their example of retiring at 40, you have an 8.5% chance of going broke before you die and a 3.4% chance of going broke before you even reach a normal retirement age.
That's a much higher level of risk than I would accept.
The notable exception is called a "sequence of returns risk" (SORR) where either something bad happens in the first few years draining a really large portion of your original savings (more than $10k) and/or the market undergoes a recession during the first few years, and if you withdrew the full 4% from your investments while their value was markedly depressed, you would never recover (without additional income). In my opinion, a proper retirement strategy should account for SORR; some padding (i.e. the wants portion of your budget you can reduce during a lean year), reverse-glide strategy where you can draw from cash/bonds instead of equities in case of depressed value equities, etc. In many cases, this scenario happens so early in retirement that anyone retiring at a younger age has relatively good prospects of rejoining the work force to get to the other side, and then will likely be very well prepared for a second retirement with a decreased likelihood of yet another bad sequence of returns occurring before their nest egg has grown well beyond 25 times annual expenses.
And all retirement plans should be flexible - some years where you might spend a bit less than the target, but have room to change that, particularly if your invested assets grow beyond the original necessary funds.