One of the primary reasons people invest is to build up a retirement nest egg. But retirement is still a fairly new concept in the context of American history. That's what Morgan Housel told Matt Trogdon in the most recent edition of Out On a Limb. Retirement has only become prominent in the American psyche in the last 50 or 60 years, said Housel.
As the concept of retirement spread, the idea of early retirement followed. Now, early retirement is a goal shared by millions of Americans, though few of them are certain how to achieve it. So Housel and Trogdon considered the question of how much someone might need in order to retire early.
"What it gets into is how much money do you need to have a perpetual income that you can rely on ... into perpetuity without ever draining it down," Housel said.
Historically, Housel noted, the safe withdrawal rate from a balanced portfolio has been 4% a year. If that number held, an investor with $1 million saved up would be able to withdraw $40,000 per year without whittling down their portfolio principle. Given today's low interest rates, Housel warned that 3% might be a safer withdrawal number.
Click play on the video below for more of the discussion.