Is 4% dead?

[jacob]

Here's the Fish diagram: viewtopic.php?p=197249#p197249 ... the contour lines refer to "time to FI". More detailed explanations in the thread.

Since time to FI is a ratio between income and spending, I implicitly posit that the "level of difficulty" is set by how hard you can push the ratio. As such ERE and Frugalwoods are equally "difficult". Lets say your point of reference is MMM, that is, above average income and below average spending but nothing too extreme. You can then ask whether it's easier to develop a 300k household income (FW) or a 14k household budget (ERE). Probably depends on where/what you work on, no?

Note that the "frugality percentile" is relative to income. It's obviously easier to save 80% on a median income than 80% on minimum wage, due to hard absolute limits.

[Qazwer]

Yes and effort and capabilities matter (individual, familial, societal etc.)
‘It is most efficient to move perpendicular to the gradient of the contours, presuming return on effort is linear and equal in both dimensions. It is not, but it is still insightful to assume it is.’
The only thing I am not sure of was Fish’s point in using the model. This rightfully contradicts the point of it is easier to cut expenses at some points and easier to raise incomes at others. Income and spending are massively non-linear and discontinuous. One can go from spending in a time frame much shorter 100k to 25k - see multiple journals here then from 25k to 100k income - see multiple BS self help books and years of education and the more reasonable skill acquisition time it takes. I think I also agree with the point from the book in its relevant domain of spending/income function vs time spent. But that functional form differs for ERE, Frugalwoods, and maybe even lean fire. It definitely varies for Fatfire (points on Fish curve 2.0)

I wonder if that is why semiERE, dirtbagERE etc make sense - the non-linearity of saving and income changes as function of effort at different points on the Fish diagram.

[7Wannabe5]

Note that the "frugality percentile" is relative to income. It's obviously easier to save 80% on a median income than 80% on minimum wage, due to hard absolute limits.

Yeah, I misremembered, the Fish chart isn’t about what I was considering. What I was considering was how the market often sets prices of common goods to meet the needs of those with median income. So, if your income/spending is already lower than the median and you manage to further eliminate any given category of priced-to-median-market-good, this tactic will represent larger percentage drop to your spending- all other things being the same. Another example being that poor people spend higher percentage of their take home on car expenses than rich folk, even accounting for beater vs luxury mobile.

@Qazwer:

Quadrupling in a year is a bit more than .3% increase per day. So, one could attempt grains of rice on checkerboard type challenge and observe friction points. My suspicion would be that leveraging other people’s money, expertise, labor and technology/automation would likely have to come into play around September 23rd.

Your note about very small businesses is spot on. That’s how/why Amazon also makes money lending money to 3rd party dealers.

[WFJ]

The full quote is as follows:



The 4000 vs 400000 range was chosen arbitrarily but reasonably. As 7wb5 said, the problem is that under $5k/year you begin to run into mandatory hard limits like "head taxes" lest you live outside society.

It is conceivable that it's just a matter of skill. Show me a budget beyond $40,000/year and I'll show you how to take it down to $10,000 in 5 minutes. I would not similarly be able to raise your income from, say, $40k to 160k by telling you what to do in 5 minutes.

This was the segment from the book (read it in 2014). It is not fair and counter-intuitive, but most individuals making $400/hour can snap their finger and make $500 an hour with a change in services offered 'keeping all else equal' (tax attorney taking more complex cases, doctor doing more complex surgeries, taking longer term projects, etc...) while one making $20/hour may need years to scale their income to $25 an hour (without a change in government policy incentivizing people making $20 hour not working). If one at $400/hour is topped out, they can also easily increase their days worked from 5 to 6 and increase earnings by 20%, again with almost a snap of a finger while those at $20/hour are less likely to have this option. The reasons for this divergence are not well defined and kind of a mystery but present across time and fields. If one could collect the accurately collect data for changes in income among these different groups (unlikely), I suspect the relationship is disconnected nonlinear parabolic function. Conversely, it may be easier for one spending $100k/year to reduce their spending by 75% than one spending $400k/year (fixed cost assets, spouses, legacy payments, professional related debt).

An ERE plan would probably have to include some awareness where one finds themselves on the income and spending spectrum and if it will likely change over their retirement horizon. An engineer who can make $200 an hour today may have limited or no marketable skills in 5 years while an eye surgeon (professions which benefit from a change in demographics) value may double in 5 years without any additional investment/education.

[ducknald_don]

I'm not sure it's as easy as snapping their fingers. After all if they could have done that then they almost certainly would have already. When you are looking at professional services the number of opportunities shrinks with every step up the ladder. Maybe it's different for people that run their own business but I'm not even sure about that. The great majority of business people earn a somewhat similar wage to what they would in employment (http://reactionwheel.net/2019/01/schump ... ategy.html).

[WFJ]

This is regarding self-employed technical/professional workers who in my experience, rarely drift much above 1,000 billable hours a year. Most can double their income, but will quadruple work related stress. Normal corporate wage earners are much closer to topping out at all times.

[FRx]

In medicine we have rules and algorithms and they are good to give you a rough estimate. I don't think 4% was ever a rule or anything concrete. I think OP is asking if 4% from the 90's is different now in 2021. I think you use the 4% rule until you come across something more sophisticated that you have more control over. I suspect that's why many will branch out from index funds to things like real estate, becoming self-sufficient, P2P lending, building their own businesses, and finding work which they enjoy doing enough that they aren't trying to run away from it.
It shouldn't take too long to graduate beyond rules and terms like FIRE, ERE, freedom, etc. But you could also turn the other way and double down and have lean FIRE, financial freedom, etc.
If I had to solely depend on a percent rule I would still start with 4% and as my net worth grew I would see if I can move to 3.9 or 3.75. I'm not sure I'd hack off a whole 25% from 4 down to 3 just because I'm afraid I might be homeless. In fact, if that's my fear I'd learn to live in a tent.

[zbigi]

In fact, if that's my fear I'd learn to live in a tent.

For most people it's not a matter of "learning". Dealing with discomfort is not a matter of learning and, for most people, living in a tent just sucks, and the discomfort caused by it is far greater than the discomfort of a couple extra years at work.

[unemployable]

Funny, nowadays I don't feel like I'm really living unless I'm spending the night in a tent or in my car.

[zbigi]

Funny, nowadays I don't feel like I'm really living unless I'm spending the night in a tent or in my car.

I'd be sort-of-interested in that, but unfortunately my body is terrible for that (it gets sick easily and has trouble regulating body temperature) which make camping a viable option only in a narrow, nice-enough temperature range. For most other people, I'm guessing health problems and decrease of function will start kicking in sooner or later. I can't see many people at say 75 being happy with living in a tent, even if they were before when they were younger - metabolism slows down with age so you get colder more easily, respiratory infections are harder to stave off and become more dangerous, general decline in energy will make the daily chores more unpleasant.