Trinity study

The most popular one is a so-called 4% rule.

And that's based on research from the 1990s, Bill Bengen, the Trinity study, where they essentially took a look at 30-year timeframes and they said, If we want you to be almost virtually guaranteed of having assets at the end, not depleting your assets over 30 years, what's the rate of return? I believe Bengen's research was originally 4.15%.

So basically, you could spend down 4.15% of your assets, inflation adjusted, assumed a certain portfolio.

And at 30 years, you were virtually guaranteed to not run out of money.

Where does it actually come from?

It originates from a highly influential piece of financial research from the 1990s known as the Trinity Study.

It was originally pioneered by a financial advisor named William Bengen.

OK.

It takes immense foresight.

But here is the reality check that brings this entire conversation crashing back down to earth.

All of these brilliant mathematical formulas, the Trinity study, the 72T tax loopholes, the beautiful 0% dividend tax brackets, all of it is completely useless if your everyday burn rate is simply too high or if a single emergency wipes you out.

That's the hard truth.

No big deal.

It's all part of the, built in to the 4% rule Trinity Study calculations.

Like, that's all covered.

Statistically, you're ahead by doing that over a lifetime, rather than saying, "Hey, I'm gonna outsmart the market and hold a whole bunch of cash," just because in that once in 10 year situation when we get a big crash, then I could be like, "Ha, ha, market, I'm not gonna sell my shares.

And to understand why this works, we really have to look under the hood.

The framework originated from the Trinity study.

Oh, yeah.

Which... back-tested retirement portfolios against basically every market condition.

No, it's deeply rooted in empirical economic research.

The Trinity study.

Yes, conducted by professors at Trinity University in the late 1990s.

What exactly did they do?

Right.

So your baseline annual expense drops from 40,000 to $34,000.

Now, apply the Trinity Study math to that new baseline.

Okay, 34,000 multiplied by 25.

The four percent rule basically states that you can draw down four percent of your portfolio every single year and preserve that portfolio throughout retirement.

So when they did the studies, there's a study called the Trinity Study, where they looked at the four percent rule, and it went through a bunch of different scenarios.

But it looked at a sixty-forty portfolio, which means sixty percent stocks in that portfolio and forty percent bonds.

And they pressure tested this, and they stress tested this through a bunch of different market scenarios, and it came out that this had a very high probability of success.

All right, here's the exact framework.

It's called the 25 times rule, and it's based on something called the Trinity Study that looked at safe withdrawal rates from investment portfolios.

Step one, figure out your actual annual expenses.

not your income, your expenses.