Safe Withdrawal Rates: A Guide for Early Retirees (by ERN)

I was browsing through reddit and found an interesting analysis about the safe withdrawal rate for people who retired in 2000.
In there, they use the data from ERN (Early Retirement Now) about the subject.
I went to ERN blog and found out he wrote a full paper with that.


When talking about withdrawal rates in retirement it’s hard to ignore the 4% rule. The origin of this rule goes back to the work of Bengen (1994, 1996, 1997, 2001) and Cooley, Hubbard and Walz (1998, 2011), more commonly known as the Trinity Study. The Trinity Study showed that withdrawing 4% of the portfolio value at the beginning of retirement and subsequently adjusting the withdrawals for inflation, will likely sustain a 30-year retirement in a portfolio comprised of 50-100% stocks and 0-50% bonds. This result is relevant to the average retiree with a horizon of only 30 years and not the typical early retiree with a much longer horizon, though. We perform extensive simulations and case studies targeted at early retirees and show that the longer horizon and today’s expensive equity valuations will likely necessitate a lower initial withdrawal rate.

You can find the full paper (47 pages) here:

Google Sheet with paper’s data:

In order to be able to say if 4% is enough or not, they are backtesting it using historical data. Each year/month is a different starting point and then they see if you will have enough money for the next 30 years. If your portfolio survives in 99% cases, then they say it’s safe enough. So in other words, there is 1% probability (using historical data) that with a 4% withdrawal rate you will run out of cash before 30 years. But in many many scenarios, you just end up a multi-millionaire instead of running our of cash. And these scenarios are based on the assumption that you just never come back to work, no matter what.

What got me thinking, however, was a post from another thread. Let’s say you decide that you will need 3000 CHF per month on your retirement, and that you’re comfortable with a SWR of 3.6%. That means you will work until you reach the wealth of 1’000’000 CHF. Then you start spending. 2% you get from dividends, 1.6% from sold shares, so you don’t get classified as professional investor. However, then comes a big crash, and your portfolio is now only worth 500’000. You still need 3’000 per month, but now it’s 7.2% per year. That means 2% from dividends, 5% form sale of shares (capital gains). So then you get taxed on capital gains? What do you guys think?

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I dont think capital gains only works on “realized” gains but on all capital gains. So it does not matter if you only sell 1.6% if your overall capital gains are 4%+

So both scenarios are not different, at least from a taxation standpoint :slight_smile:

I don’t follow, so let’s use an example. Let’s say you purchase some stock for 1000. One year later, the price goes up to 2000. You also receive dividend of 50 - this will get taxed as regular income. Another 50 you get from selling a portion for stock. The realized capital gains are in this case 50 / 2000 * (2000 - 1000) = 25. Your realized capital gains are lower than your income, so no professional trader. You paid out 100 of 2050, 1950 still remains.

Now what do you understand differently?

It doesn’t matter if you sell you will be taxed on the full amount of 1000 (the amount you gained)

Unless it’s different in CH than in the US

They tax unrealized capital gains in the US? And what if at end of year the price is 2000 and the next year it drops back to 1000. You still haven’t sold anything, you still haven’t made any profit. That would be a total douchebaggery from the tax office if they wanted to tax some imaginary potential profit.

Edit: I had a quick look on the Internet, and they all write about only the realized gains being taxed in the US. Are you sure you haven’t confused something?


Ok so I was reading up on the estate tax earlier so that one works on unrealized gains.

You are right in that case. As long as you only sell a smaller portion than dividends, it works in your way

Estate Tax is probably based on the whole value of the position, not only on gains, or? Swiss Wealth Tax is also calculated on a “mark to market” basis (based on current prices).

My understanding regarding capital gains tax has long been that you’re fine as long as your income (including dividends) is higher than your realized capital gains. So if your shares take a dip and your dividends are small, then you run into the risk of crossing the line. I wonder if anybody here has thought about it.

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I don’t think that’s how the classification to pro investor works. The 5-criteria test just means that if you don’t break any of it, they can’t claim you’re a professional investor (so it gives you certainty). If any of the criteria is not satisfied you don’t get automatically classified, they have to apply jurisprudence etc.

In particular there’s three primary principle: frequency of trade, borrowing of fund and use of derivatives.

You can check the original circular (n°36 from July 27th 2012), or e.g. for an explanation in english.

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Normally no, but well, there’s exit tax if you lived long enough there and decide to take off with your millions elsewhere… no need to sell, they’ll pretend like you’ve sold everything and tax accordingly


Maybe an invalid idea - but perhaps your “cash stash” could be used as a buffer here, for the not so good times?

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I’m reading the article and here you have the excel sheet with the data used in the paper: