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Originally Posted by LuxLiving
Do tell us more about the trinity study. I will go google it after lunch!
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Trinity study- often referred to by Scott Burns in some articles. Someone (forgot their name) did a Monte Carlo analysis (which uses past performance to determine/predict future returns and success rates of investment strategies) of various asset allocations.
My understanding was the study looked at portfolios like 100% equity, 80% equity-20% bonds, 60-40, 40-60, 20-80 and 0-100 type allocations, then back tested these (using Monte Carlo) using various withdraw percentages (2%, 3%, 4%, 5%, 6%, 7%...) to determine an optimal draw down portfolio.
The end conclusion was a 60-40 portfolio with a 4% withdraw rate (starting withdraw rate), increase 3% each year for inflation would last 30 years in around 95% of the 30 year periods tested.
Since then numerous calculators and web sites have come up with similar strategies which generally preach it's the 4% number which is the measure an investor shoots for to retire. Some calculators allow this to be higher because SS will kick in something once past age 67 or 68, and there are other techniques to make the portfolio last longer (do not draw down in a down year, or do not take inflation adjustment in a down year).
I have read similar studies since then which tweaked the 4% rule as well.