Getting StartedSafe Withdrawal Rate
The Safe Withdrawl Rate determines the amount of savings you will need in order for your financial independence goals to be successful.
For example, if you wish to withdrawal 4% per year you will need more savings than if you withdrawal 3.5%
In reverse, this figure may be used to determine how much savings you will need. Generally, a safe withdrawal rate of 4% is used for most retirees however I encourage you to do more research to determine what works best for you.
With a safe withdrawal rate of 4% per year, you will need 25x your annual expenses in savings investments.
This 4% figure stems from a 1994 study which used historical data to determine what the highest safe withdrawal rate is that would hold up for 30 years over any period.
This means if you are lucky enough to retire at a very young age you may need to adjust this figure to take into account more savings.
Keep in mind this study was based purely on the US stock market which isn’t entirely applicable here in Australia. While we can easily invest in the same stock market, currency fluctuations will determine the outcome.
A Morningstar Report suggests a rate closer to 2.5% for Australia, however, this also included active management fees of approximately 1% which is quite high.
Other third-party research by bloggers suggests a rate of around 3.5% is a relatively safe compromise.