"The Trinity Study baseline, which most retirement software still uses, assumes inflation around 2.5%. Under those conditions, a $2 million portfolio with $80,000 inflation-adjusted withdrawals lasts 30 years with a 92% success rate."
"Push the assumption to 4.0% inflation, and the same portfolio lasts 25 years with a 78% success rate. At 4.5%, it falls to 24 years and 72%. For a 62-year-old planning to 92, that is the difference between comfortable and broke at 86."
"Headline CPI sits at 330.3, a 12-month high. Core PCE, the Fed's preferred gauge, is running at about 3% year over year, and services inflation, the category that captures housing, healthcare, and insurance, is just above 3%."
A 62-year-old couple with $2 million plans to withdraw $80,000 annually, following the 4% rule. If inflation exceeds 4%, their portfolio may only last 25 years instead of 30. The Trinity Study's assumptions of 2.5% inflation lead to a 92% success rate, but at 4% inflation, the success rate drops to 78%. Current inflation indicators show a concerning trend, with core PCE and services inflation remaining above 3%, impacting retirement planning for many individuals.
Read at 24/7 Wall St.
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