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

[Henry]

I saw this video feature on this 90 year old woman who worked at the Home Depot. Everyone's like wow, look at great grandma in the orange smock helping people out in the garden center. So they asked her why she still works. Her answer "I'm alone and I hate myself." When you get old, you are old. When you retire, you are retired. It's not a different person getting old or retiring. And in the continuity/discontinuity dichotomy, way more continuity than discontinuity. The loss of a car payment or work wardrobe is way less significant than the constancy of waking up to the same self. If you're on this forum, chances are you'll end up with enough money when your usefulness is no longer able to be monetized or you become tired of monetizing your usefulness. 4% is a yardstick for the fiscally unwashed. The no spend year to me is fucking ridiculous. I would propose the spend like a 90 year old woman who is alone and hates herself year. Don't silo the money side. That's not how it works.

[7Wannabe5]

The no spend year to me is fucking ridiculous. I would propose the spend like a 90 year old woman who is alone and hates herself year. Don't silo the money side. That's not how it works.

So, you basically agree with Jin+Guice's assertion that it's difficult/impossible to self-actualize in retirement, even if you have security and survival nailed, if you don't also have love&belonging and self-esteem nailed. As a 60 year old female with far less financial security than average forum member and a lingering chronic illness, but plentiful companionship& community, and fairly bouncy core of "I like me!" , I co-sign. I would also note that for most older/retired introverted men, simply having a wife/SO will often cover their love&belonging needs, but the same doesn't hold true for most women, for whom more-or-less than husband/SO more often applies. So, for example, not having children is much more of a problem for women in old age than men (who tend to die before their younger wives.)

Also, Home Depot is a terrible place to work in old age, because cement flooring.

[chenda]

I saw in the care home yesterday an elderly man visiting his elderly wife. Only it turned out it wasn't her husband but her son in his 70s visiting his 90ish mummy. I don't know why but I found it vaguely upsetting and melancholic.

Interestingly eunchs have a similar life expectancy to women, so there's a simple solution for any man wanting to outlive the competition.

[ducknald_don]

Interestingly eunchs have a similar life expectancy to women, so there's a simple solution for any man wanting to outlive the competition.

The difference in life expectancy between men and women is mostly due to lifestyle choices, no need to get that rusty scythe out of my shed yet.

[chenda]

The difference in life expectancy between men and women is mostly due to lifestyle choices, no need to get that rusty scythe out of my shed yet.

It appears to be a matter of debate. Not that I'm trying to encourage the use of the scythe...

https://www.topdoctors.co.uk/medical-ar ... ta-tell-us

[alex123711]

Is there a generally accepted update to the 4% rule? Seems most people are using 3% now?

[sky]

The 4% rule is a rule of thumb. It was never a hard and fast rule. 4% is just a target number when you are starting out, as you get closer to FI you will need to adjust your withdrawal based on your actual results and your level of paranoia about the future.

[7Wannabe5]

I think the generally accepted "upgrade" to the 4% rule should be gaining a comprehension of how/why it works/worked mathematically. Because, for example, if you add just a tiny bit of intelligently dispersed earned income to your plan, the "rule" becomes much more resilient/robust. And, if your spending is also very low, maybe approaching 1.5 jacobs/year, you might discover that you can safely semi-retire much earlier. In fact, you can make the rule any proper % you prefer if you simply add the rule that you will cover your current expenses with earned income during any defined period your balance falls below your initial balance. And the shorter you are able to make your time periods, because the components of your model are flexible/modular, the more efficient your plan will become.

IOW, there are some pretty arbitrary assumptions baked into the cake of the model. It's pretty easy to construct a fairly similar model based on hobo who spends $x at the liquor store each day, bets $f(y)* at a:b odds on the ponies each day, and then follows a rule requiring him to gather g(y) worth of returnable cans and bottles before he beds down for the night on the park bench that will "guarantee" that he will always be able to afford his next morning bottle. (A model describing the cash-flow survival of a small business, especially one that involves some random luck within the bounds of a known field such as my rare book business, is also similar. So, for example, somebody who backs up the highly variable return of one small business or flow of income/return with the more steady or reliable return of another small business or flow of income/return will have created something towards a barbell strategy which protects from "ruin" (however defined within the model) on the downside, but also tends more towards maximizing upside, whether in terms of stock of funds or free time.)

The most critical bit to understand here is that if you believe the market will always eventually correct, you will never have to work more than enough to cover your current expenses that year, and even making a rule such as "If my balance is below my initial balance, I will cover 1/3 of my current expense through earned income that year (IOW, only withdraw 2/3 of yearly allotment)." will either add a great deal more resilience to the model or allow you to retire at % higher than 4%. The fact that the 4% model runs "as if you were dead" oddly renders it both unnecessarily fragile and err on the side of overkill. So, I would suggest that instead of just feeling "I'm scared, so I will adjust down to 2.5%", you should think "I'm not actually going to be dead to any/all informed financial decision-making after I choose to exit my current full-time employment." Following any rule is the equivalent of behaving as though you have no options and options are always valuable, so if you aren't profiting from recognizing and exercising your options, then somebody else with a cooler hand** likely will be. Of course, in the likely case of 4% rule being towards overkill, the options you managed to maintain will likely be exercised by your heirs within the course of two generations.

*y= cash in pocket

** in fact, it could even be argued that an irrationally conservative investment strategy is a form of consumerism, because it wastes resources by gifting them to the less risk-averse. IOW, it's like being the little pig who wastes bricks by building a brick house within a brick house.

[Henry]

So, you basically agree with Jin+Guice's assertion that it's difficult/impossible to self-actualize in retirement, even if you have security and survival nailed, if you don't also have love&belonging and self-esteem nailed.

I don't believe in the concept of self-actualization, so I don't believe it's achievable at any stage of a human's life. And as far as love/belonging/self-esteem being necessary in retirement, I think Flossie Dickey dispelled that theory.

[7Wannabe5]

It has also been my experience that when a woman, such as Flossie Dickey, does even the median level of care-for-others work the median woman was likely to perform prior to most recent era, she will likely be more than covered for "love and belonging." For example, I have spent 14 hours over the last 2 days interacting with 15 disadvantaged three-year old children, and I received enough hugs to last me a couple months, and even an "I love you" from a little guy I worked with 1 on 1 for around 20 minutes. And today, my lovely adult daughter is taking me out for lunch.

Since as my genetic test results recently verified, I am competitive but not ambitious , I find that I can also rather easily meet my self-esteem needs at Level Modern by flashing a metric such as my GRE scores (2370 old school!) rather than my income or house size, and my waist-to-hip ratio (like a voluptuous 37 year old from the neck down if recent reviews from those inclined towards exact numbers such as 37 are to be believed ) rather than my VO2 max or designer shoe collection. Although, of course, I also tend towards believing that Level Orange/Modern might not be best level at which to derive core self-esteem , and maybe that was also true for Flossie. Just pick a couple metrics and then move on with your life.

I also believe that self-actualization absolutely is possible, because I have experienced it to some extent and have definitely witnessed it in others. It's not all that rare once you find yourself in the most affluent/educated 10% in Modern/Post-Modern setting. In fact, although I do not know you well enough to verify, I would bet that you are to some extent self-actualized, but your distinct style of self-actualizing does not align with this recognition. Kind of like how Jesus wouldn't describe himself as Level Green.

[Henry]

Also, Home Depot is a terrible place to work in old age, because cement flooring.

I don't think they make the old people carry the cement flooring.

Another thought. When I was a freshman in college, I bagged my first truly hot chick. Hands down, no debate, a grade A bona fide smoking hot woman. Everyone was like look at Henry finally making the show. I was strutting on air. But that was as short lived as a baby midget born with terminal brain cancer. Because all the other guys start thinking "Hold up, if Henry can bag that chick, why can't I?" So now I got to fight to keep this hot chick. Not only my scumbag friends, and I'm talking about guys who drop Acid and face paint themselves like Marcel Marceau when we invite the administration to our fraternity party, but the entire fucking basketball team, every member of the future douchebag lawyers of America club, as well as the militant Malcolm X motherfuckers of the African American fraternity house are now sizing us up as I walk around campus with this hot woman. And now I got furies buried deep within my psyche that I had no idea I possessed letting loose like demonic pigs running out of a heretic in the face of Jesus and I find myself in throes of like a fucking mania. Nobody had warned me about this fucking part. So I just self-destruct under the pressure, and the shit blows up and no more hot chick. So my point is, retirement is like bagging your first hot chick.

[Scott 2]

Is there a generally accepted update to the 4% rule? Seems most people are using 3% now?

Are you looking for a new study, or in practice examples. I haven't seen the former.

About four years since I pulled the plug. Some observations:

1. A single percentage is far too crude when it comes time to plan your N of 1. Drawdown is more complicated. Relative valuations, glide paths, tax optimization, etc.

2. Nobody blindly continues pulling the same amount of money when their net worth falls. They adjust.

3. Expenses drop with retirement. It's easier to get better with money.

4. Anyone who can hit 25x or 33x or whatever inevitably gets into something for more money. They can't handle watching that number draw down.

5. Or they die. Especially traditional retirees. Not too many hit 90. And when you're old, it's hard to spend that money on anything good.


I think 4% is a fine starting point, as one's rule of thumb. Any single number is a terrible answer for the final metric.

IMO the tragic path for someone into this stuff isn't outliving their money. It's wasting their life waiting for a magic number, when everything will be different. Moving that bar even further out feels like a mistake.

Acknowledging - these are my qualitative observations. They have little to do with the math of the study. I spent a bunch of time on the portfolio charts website, chasing my anxiety, before learning it was the wrong set of questions.

[IlliniDave]

The best I can say about the "4% rule" is that it's one way to look at one path through the latter part of life from one perspective. Since it was a simple exercise mathematically, I tracked it through my retirement planning (full disclose, I used the 3% version as one metric among several, which is not really relevant) but it never drove any decisions.

Many people don't have my drive when it comes to the amount of effort dedicated to retirement planning. I wrote my own simulation with two versions, one in MATLAB and one in a spreadsheet and ran countless Monte Carlo trials (not entirely dissimilar to Firecalc, if that's still around).

If you do want to keep things very simple, and do want your own financial assets to cover the bulk of needs (housing, food, utilities, medical stuff, and some amount of recreation and hobbies), it's probably fine. You can range from 25X up to even 50X (4% down to 2%) depending on your temperament.

But if you go that route the real work is in figuring out what X is. Just looking at your current bills and using that for X is probably insufficient. You need to figure out an X that balances your lifestyle contentedness with presumably a desire to get to some form of ER or FI ASAP. That's worthy of 90% of your effort. I went through a series of exercises to see how I reacted to shedding various aspects of lifestyle. Trivial example is that I learned I could be just as content (and probably better off health wise) if I went from eating out a half dozen times per week (split between lunch and supper) to 1-2 times per year. Cable TV wound up coming back, much to my chagrin, because I do like watching certain sports that are only broadcast on TV (I did learn that listening to streamed radio broadcasts was maybe 60% as satisfying for a fraction of the cost, but now that I'm back "in market" for my favorite teams, I can literally listen to the radio for free). But I decided I was more content with the other 40%. Emerging from some health woes taught me that coughing up a premium for top flight nutrition, including supplements where advantageous, is well worth the cost. YMMV of course, those are just examples of what I played around with in an effort to optimize X.

Others obviously adopt visions that make X irrelevant, or nearly so. And more power to those folks. That's too difficult a road for me.

Despite all my planning I've actually spent under expectations so far. at the equivalent of a 2.1% withdrawal rate where I figured to be right around a burn rate equivalent to 3-3.5% withdrawal rate. The biggest reason is that my appetite for adventure turned out to be a little simpler than anticipated. But I'm only 3.5 years into it so much remains to be seen.

[7Wannabe5]

I don't think they make the old people carry the cement flooring.

I worked part-time at a Home Depot during the garden-rush period when I was in my early 50s and had given myself some kind of multiple flows of income without owning a car challenge, and constantly walking across cement covered acreage will make you sore in new places even if you are in the habit of transporting yourself by walking.

So my point is, retirement is like bagging your first hot chick.

I agree this is a valid analogy. However, the first or second or maybe third rule of dating is "Know your level." So, in terms of investing, I was suggesting that given the skillz-centered perspective of this forum, it might make sense to focus on improving investment skillz/knowledge before lowering/securing expectations. One of my first great failures at offering sex/dating advice to others was when I suggested to a good friend in high school who was tired of being dumped by hawt players that she ought to seriously lower her aim. She then focused her attention on one of the seriously not very conventionally attractive nerdy boys in our A.P. Chemistry class, and then he outright rejected her advances! Self-esteem demolished! Thus, by analogy, I would suggest that deciding to lower your expectations to 2% rather than attempting to first gain more knowledge/skillz in the market/field (such as why chasing boys of any level of hawtness rarely works out well) should be referred to as False-Safety-Pick FIRE.

[Henry]

I agree this is a valid analogy. However, the first or second or maybe third rule of dating is "Know your level."

Young Henry on a great day took a shot with hot chick on a bad day and Shazam, drunken stars align. Better to have loved and lost than not loved at all? Yes. I remember the good day. Or well, the good hour. Or to be perfectly honest, the good 15 minutes. So now you got this retirement thing and you got 1MM in the coffers. You're a fucking millionaire. Yes, but you also might live three more decades so you really only have $3,333.33 to spend this month. That's a large spread of level. And you occupy every square inch within that spread, as you always have lived within some spread. And guess what, somewhere you're the same person who bagged the hot chick 40 years ago. More so than you realized. I would argue the retirement years, those between remaining youthful vigor and get this fucking great grandchild off my damn lap before he shits on my afghan, are as replete with danger as any.

[DutchGirl]

Interestingly eunuchs have a similar life expectancy to women, so there's a simple solution for any man wanting to outlive the competition.

You don't see that as a suggestion in the book "Outlive", do you?

That said, I feel that the 4% rule is the 4% rule of thumb and just a good starting point. I must say when I started out, having 25 times your annual expenses in savings and investments seemed an insane idea, but yeah, one can do it (with some nice income, not too spendy expenses, and some time). In general, by the time that you've managed to get to say 20 times your annual expenses, you may have some knowledge and experience about how to adapt the plan to your own personal circumstances, time, and wishes.

[zbigi]

constantly walking across cement covered acreage will make you sore in new places even if you are in the habit of transporting yourself by walking.

That may be fixable with the right shoes? There are running shoes with soles that are basically multiple inches of some form of compressible foam. They feel very soft even on concrete.

[7Wannabe5]

So now you got this retirement thing and you got 1MM in the coffers. You're a fucking millionaire. Yes, but you also might live three more decades so you really only have $3,333.33 to spend this month. That's a large spread of level. And you occupy every square inch within that spread, as you always have lived within some spread. And guess what, somewhere you're the same person who bagged the hot chick 40 years ago.

I don't disagree. That's why (as I indicated above), you also have to consider the third primary leg of your stool towards spread which is your continuing ability to earn flexible income on the fly. And, this is MUCH, MUCH, easier if your reasonably happy/fulfilled lifestyle spread is more like $200,000 in the coffers and $666.66 to spend this month, because you can cover your butt with as little as 8 hours/week worked at as little as $20/hr or alternatively just working 2.4 months that year. OTOH, in order to cover $3333/month with on the fly earnings of $20/hour, you would have to go back to working for the man 40+ hours per week. And, it's also not very difficult to find a variety of work activities for which you can earn $20/hour which you might have even alternatively volunteered to do for free for just 8 hours/week. For example, I am happy to tutor math to disadvantaged kids for 8 hours/week on average flexible basis until death or dementia prohibits the activity. I am also happy to care for babies, sit with old people, work in a garden/nursery with humane flooring, work in a co-op grocery or bakery, deal books, or engage in wide variety of intellectual, creative or community work for 8-10 hours/week at $15-$20/hour rate, so I am set! My biggest problem is maintaining my boundaries, because everybody wants me to work for them or barter with them for more hours than I would prefer. Also, I'm not yet quite down to a rolling $25/day expenses (again )yet, which is both my happy/easy-to-earn-on-fly level AND my likely early-withdrawal social security income, but I am very close.

[IlliniDave]

That may be fixable with the right shoes? There are running shoes with soles that are basically multiple inches of some form of compressible foam. They feel very soft even on concrete.

I generally wear so-called "barefoot" shoes for a large fraction of my walking. Not the ones that have an individual sleeve for each toe, but rather have a very wide toe box, no arch support, zero heel lift, no padding, and hard rubber soles. Xero is the brand. It might not be quite the same compared to polished concrete in a big box store, but once I got used to them, I can walk indefinitely long on asphalt-paved trails in them. It did take some getting used to. However, the first winter of my retirement I was struggling on the paved trails so before the barefoot-style shoes I bought some fancy running shoes (I want to think Altra is the brand, can check if anyone is interested) that have minimal heel lift, no arch support, softer rubber soles, and a ton of padding. I still wear them occasionally for street or paved trail walking (don't like them for overland hikes because the padding throws off my sense of contact with the ground and thereby my sense of balance and stability). And I have to admit they feel dreamily soft and light but if the walk is north of 3 miles my lower legs get a little achy. That doesn't have much to do with the 4% rule other than one of the realms where I'll spare no expense is footwear, and having a few of those categories led me down the FatFire path. Those Altra's cost about $140/pair, and the Xeros about the same.

[IlliniDave]

... IMO the tragic path for someone into this stuff isn't outliving their money. It's wasting their life waiting for a magic number, when everything will be different. Moving that bar even further out feels like a mistake.

Acknowledging - these are my qualitative observations. They have little to do with the math of the study. I spent a bunch of time on the portfolio charts website, chasing my anxiety, before learning it was the wrong set of questions.

Great points here from Scott 2. I mentioned doing parametric studies of sorts to arrive at an understanding of my "X". I also bought my hideout 7 years before retiring. Both served multiple purposes. They were partial auditions of my thought-experiment envisioned retirement lifestyle, and to buy the hideout I pulled money out of the stash because I anticipated some resistance to doing that once the salary spigot quit spraying money into my pocket. Because of the way I backed into my ER plan I spent a lot of time trying to "guess" how little I could get by on. When it transformed from a reactive survival plan to a proactive ER plan I had more options in the lifestyle level I could select. And my engineer brain encouraged me to test things to the extent I could. It turns out I was woefully naive and overly optimistic on the low side with what I thought I could get by on over the long haul. But I arrived at a planning figure that was drastically below what the conventional wisdom dictated, and so far I've come in below expectations.

Because I retired in mid-2021 I got the opportunity to watch my stash dwindle for roughly the first two years. Although I had anticipated a dwindling stash causing a lot of stress, especially early on, I barely noticed that it was happening. I attribute that to having done a decent job in determining my X+, the "+" denoting the part of my retirement lifestyle that could not be captured in financial numbers and graphs. During my work years I was sort of trapped in a lifestyle built around work (which for me wasn't a terrible life at all) and playing around with numbers seemed to fall naturally into that for reasons I don't fully understand. One of the bigger surprises after pulling the plug is that being Steward of the Stash has fallen way down my list of priorities. In hindsight it seems like my quasi-obsession with the numbers was a way of wringing my hands because retiring somewhat early entailed some risk. The numbers are part of it, but at the end of the day I don't think they are the biggest part.

When it came to sizing the stash I tried to find a sweet spot where I had room to adjust in both directions. I wanted to find a point where my finances adequately supported a lifestyle I could adjust downward if times got tough, but adjust upward if I began to feel constrained and YOLO/FOMO started creeping in. The nature of my personality is that once I pulled the plug, I had zero desire to ever go back to chasing a paycheck. When those last gays approached and I had what I considered my final plan, I could recast it in SWR-speak and as I mentioned above it seemed to fall in the 3% ballpark. Reality has put me at 2.1%.

So I see now I probably worked ~2 years longer than necessary. One of my main targets initially was to try to retire while both my parents were living. That intensified once my mom became ill, but I couldn't pull it off--mostly because I waited until I was around 50 before getting serious about ER (I'd been saving since the beginning). Once Mom passed (Dad was still in good health) the urgency waned. The point being that I found the "one more year" trap to be extremely alluring. I believe the only thing that saved me form still sitting behind a desk today was having a vision for a future that I could sit down and put into words with a lot more specificity than saying, "Retirement means I don't have to go to work every day."

Which after many words leads me to saying that I think framing retirement as retirement to [something] rather than retirement from [something] is important at least for anyone whose psyche is like mine.