The continued viability of the 4% rule in the US in the 21st century

[ThisDinosaur]

Is that a shot at preppers not being self aware, or at my residual social-leftist vocabulary?

[BRUTE]

brute identifies with the latter

[Matty]

With a frugal lifestyle, the worst-case scenario for ERE-failure is returning to a less than ideal job. A distasteful yet temporary situation that isn’t so bad in the scheme of human problems. Compare that to the risk of death before you had a chance to do what you really wanted to do in life because you spent too long working/saving to get that <3% WR. Although the likelihood is quite low for a younger person, the consequence is very severe and permanent (although one could argue you don’t care if you’re dead).

When I consider this it makes me happy to gamble on the side of too little rather than too much. I’ll also stack the odds in my favour through the contingency elements mentioned in the MMM article.

In addition, I tend to laziness and feel a fine financial margin will keep me active and engaged in providing value to others in a healthy way. With a WR of 2% I could travel the world and play video games all day. But what’s the point?

I agree a set and forget SWR (4% or otherwise) is too simplistic for ERE and likely to lead to disappointment (but not catastrophe) in the long run if other ERE elements are not considered.

[ThisDinosaur]

Twenty five years worth of F U money is nothing to sneeze at. I think the issue here is that assuming you are "set for life" could be problematic if you have to reenter the workforce. Obsolete education and skills plus a three decade fugue space in your resume will severely limit job prospects.

Optimists will say that twenty five years is plenty of time to find a source of livable income that you enjoy. But do you want to reenter the work force just as your peers are starting to leave it?

Stoic philosophy has been discussed in both MMM and ERE. Seneca might say we should plan for the worst and be pleasantly surprised if the world doesn't end.

[7Wannabe5]

ThisDinosaur said: Seneca might say we should plan for the worst and be pleasantly surprised if the world doesn't end.

Right, but planning for the worst doesn't mean prepping for the worst. In fact, prepping is inclusive of the notion that the worst can be avoided. If you acknowledge that no matter how thoroughly you prep, unexpected change leading to unexpected loss, may occur, then you can more rationally make judgment about maximizing utility of prep. Otherwise, it's like spending 30 minutes preparing for everything that can go wrong on a 15 minute bike ride.

It has been my, perhaps very personal, experience that I am unlikely to be able to predict some pretty major circumstances in the course of my life, or the world in general, more than about 7 years out. Therefore, although I am in philosophical alignment with most of the practices of most of the members of this forum, I think it might even be rational planning to go for broke on a 7 year cycle. Also, living your financial life with too much emphasis on employ-ability is like making a home with too much emphasis on maximizing market value or living your romantic life with too much emphasis on marriage-ability. It's dead boring, and sometimes doing the opposite will work even better.

[BRUTE]

25 years of FU money. after 5-10 years, humans should check their accounts and see if they're still on track or if they've lost a lot of principal. then, they have 15-20 years to find another strategy. find another job, live more cheaply, whatever.

[Eureka]

living your financial life with too much emphasis on employ-ability is like making a home with too much emphasis on maximizing market value or living your romantic life with too much emphasis on marriage-ability. It's dead boring, and sometimes doing the opposite will work even better.

+1
I am very new to the ERE concept, but my intention to reach FI is definitely to be able to do exactly what I want to do with my time. Over the years I haven't really been employed that much, but gained new skills out of passion, learned languages, grown veggies, studied online courses on molecular genetics, done yoga, gone hiking, read tons of books ... Too much planning or too much thinking about the future would've kill me.

Usually, jobs came to me before I needed the money and I left them again when I wanted to move on with my life. And the jobs have been highly skilled jobs, either from day 1 or shortly thereafter as they discovered my many talents. Reading about the insecurity of long term financial investments and no guarantee for anything anyway makes me think I will just continue as I have done so far; only, I'd start to learn about finance and investments in order not to leave all my money in the bank any longer.

[SimpleLife]

Yep, too many forget it was for 30 years not forever....

[ducknalddon]

Yep, too many forget it was for 30 years not forever....

According to the actuarial tables that's about what I've got

[vezkor]

... there are a lot more people who can/will put together a simple plan based on a few ingredients---4% rule, expat-living, guest post blogging---than there are people who can/will put together all the factors required for FIRE blogging rockstardom. Maybe I "misunderstimate" people, but maybe I don't?

I don't think the Renaissance ideal has fully penetrated/been adopted on ERE and even less so on MMM. Many are still focusing primarily on a financial/consumer/lifehack solution to early retirement. This is my main concern!!

There's no dominant "Emergent Renaissance Ecology" to be found (yet?)

The question I struggle with is exactly how stupid people have to be before I refuse to, metaphorically speaking, hand over an assault rifle or the keys to a Ninja 650 or the 4% rule? Is there any kind of fiduciary duty towards potential readers or is it all on them if anyone proceeds to screw up their life?

I don't know the exact answer to that. I have, however, lived by this mantra for the past two decades:

The Master said: "I never try to make people open up [to the world of learning] unless they already have a pent up excitement about it. Then if I give them one corner [of a problem or point of study], if they do not come back to me with the other three corners I will not involve myself with them again."

This is also why I'm mostly being intentionally vague when it comes to dangerous stuff like specific numbers or investment strategies.

I admit, I hadn't seen FIRE in that light for myself because my goals are very different for early retirement. You've seen a lot more than I have, and especially concerning the expat example, I have to agree wholeheartedly.

The Renaissance man ideal is at the center of my personal ER strategy, and a day spent where I don't learn/progress/get more efficient always feels like a day wasted. In light of the interest of saving the lifehacker addicts from themselves, I agree completely that "the 4% rule" can only lead to more ruin than riches in the long run. For people who take the class to "learn how the world works" instead of the majority who take the class to "pass the test", ERE is robust enough to where they will survive just fine in times of turmoil. The other guy.... not so much.

Thanks for the insight, Jacob!

[OxtheTank]

But, I'm becoming more interested now in a permaculture + means of production + antifragile type approach for my long term plan. Diversification of strategies, as well as assets.

What seems to set ERE apart from other FIRE communities I've found is that ERE is about Independence FROM the money economy rather than independence through it. This seems more realistic, grounded, and consistently useful historically than relying on what would have worked for 20th century American retirees with perfect foresight.

Hey me too! Learning/practicing being a producer (however meager returns I can get out of a small plot/apartment living) is a way to reduce my reliance on money. Defensive investments I want to look into once don't live in an apartment would be solar panels, larger gardens, ect.

If the US economic party stops/slows you want to be the one with a broad set of skills and sources of value.

[almostthere]

@ Jacob - thank you for the link to the PIAAC. I was very interested in the numeracy at the 4/5 level. As a father, I am constantly looking for benchmarks to make sure that my children can function at a high level in the current world as it relates to numbers. To gain a 4 or 5 on numeracy in that assessment, one would need a very good grasp of descriptive statistics. Even though I have an MBA from a reasonable university, I never had those skills until I took upon myself to learn them.

As it relates to the thread, I have been FI at around the 2% level for about three years, and I see very easily how my mistakes could end my current FI status. At four percent or five percent (and then hope for the best), there is very ample room for easily losing FI status for one who is not constantly vigilant for bad luck and human error.

[jennypenny]

@almostthere--Are you still looking at/using income funds and CEFs to reach your target? As we approach retirement, I'm struggling with trying to decide whether I want to use a barbell approach using income funds with higher yields, or go with something like a golden butterfly applied to all of our money. I wish I could put it all under the mattress and drawdown 2% each year, but I'm not comfortable with that--I'd like to avoid a drawdown if possible.

[almostthere]

@jennypenny I know you are an experienced investor who is aware of her strengths and weakness, so I hope my reply does not come across as trite or superior sounding.
I'd pick the strategy that maximizes your behavioral strengths as an investor and minimizes the behavioral errors you are most prone to make. How much money it could make in theory or its elegance intellectually matters little if you can not implement it well over 40+ years.
For me, the CEF strategy that I felt most comfortable with allowed me to utilize certain strengths, but left me open to some of my major behavioral errors.
My goal now, for 95% of all my money, is a mostly beta equity index portfolio paying about a 2.5% dividend yield. This would maximize my personal strengths and keep me from making major errors.
PM me if you want me to elaborate on my experience with CEFs or any other point. If I write anymore, I will likely bore most forum readers b/c it will be about my personal behavioral issues.

[BRUTE]

brute for one would be interested in learning about behavioral issues, if they can be learned from. likely other humans have similar or even the same patterns.

[tommytebco]

IMHO, the influence of the FED in repressing interest rates to artificial lows, forces investors towards higher risk investments.

I know this is true in my case. I wanted to invest in bonds, now that I'm in the withdrawing stage of my life. But, with less than 1% return available, I couldn't do it (bring myself /force myself / settle for it??) and remain invested in the general stock market. (via broad market funds) hoping the expertise of the fund administrators will get us out in a timely fashion, should TSHTF.

[GandK]

brute for one would be interested in learning about behavioral issues, if they can be learned from. likely other humans have similar or even the same patterns.

Me too. The math that points to the best strategy on paper always fails to take into account that decisions implemented off the page tend to have non-numerical consequences.

[IlliniDave]

The behavioral trait I try to squelch is thinking I'm so exceptional I can outsmart the rest of the world. In other words, overconfidence. It's a well-known foible that appears to go hand-in-hand with highly educated male investors as a group tending to under-perform in retirement investment accounts by the greatest margin. So, similar to almostthere, 90% of my investing is simply trying to corral the long-term returns provided by the markets I select to invest in at the lowest cost. I'm the "dumb money" out there. The other 10% of my investing is a small collection of medium- to long-term contrarian plays where I sort of let myself pretend that I'm brilliant and see how I do.

[BRUTE]

thinking I'm so exceptional I can outsmart the rest of the world

brute doesn't have this problem, as he is extremely humble.

but even admitting he doesn't know enough to even try and outsmart "Mr. Market", brute isn't very confident in what strategy to use instead. there doesn't seem to be a clear optimal strategy even in face of humility.

options brute is considering, roughly equally:

1) 70/30 domestic stocks/bonds in Vanguard-type index funds
2) Global Market Portfolio (index everything in the world for maximum diversification)
3) Golden Butterfly (historically inversely correlated asset classes)

but now brute has to decide between them, which again is a decision that would require brute to be smart..

[Tyler9000]

there doesn't seem to be a clear optimal strategy even in face of humility.

Sometimes it helps to think about what is "sufficient" rather than what is "optimal".

What is the most simple and personally sustainable solution sufficient to meet your needs?