Originally Posted by
dera
That's an extremely conservative number, less than half of historic S&P500 return. The Trinity Study (where the 4% comes from) has been widely criticized and they did use a somewhat odd portfolio as their data set.
The formula is based on depleting principle, not just living on the growth and dividends. So the investment returns shrink over time with the principle. Idea being, it's a minimum number on which you can reasonably rely based on history. It doesn't leave much for heirs if you live a long life, and you might even run out (although presumably you'd taper your spending along the way if you were headed there).
If you want to live off returns and dividends, it will likely require a much larger principle nest egg. You are of course free to save more, if you have the means.
That said, nobody has a crystal ball, so there's always a variety of risks not accounted for in any such plan. It's a tradeoff between:
1) Cost (money you could be spending on boats, hookers and blow in your youth) vs
2) Personal risk tolerance.