Lots of planners and web sites suggest rule of 4% for 30 year retirement.
Also per many sites US average return in stock market is about 6.5 to 7 %.
So is the 6.5-4 = 2.5% is safety margin ? Any specific formula or changes in Excel PMT for this calculation ?
There are many resources explaining the components of the 4% rule, and do note that this is a vague number and can and will differ based on market outcomes and investment strategy.
The basis for the spread between the 4% stated in the rule and the generally higher expected average return of an equity-based investment portfolio is that (1) you need to pay taxes on your income, keeping in mind that traditional IRA/401(k) withdrawals are taxed as income, and (2) your expenses are going to increase due to inflation which has a federally stated target of 2% but can fluctuate and stay high for long periods of time.
After receiving dividend and interest income and selling any assets needed to cover your expenses and pay your tax bills, your portfolio will still need to generate more income on an ongoing basis over time, thus the need to generate a total return that exceeds your expenses by a substantial amount.
