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

[jacob]

I honestly don't know what to say to someone who perceives employment as life wrecking, especially if that combines with a relatively conservative financial temperament and some rigidity in lifestyle. For the subset of those who happen to be natural improvisers, pursuing one of the forms of quasi-retirement people here enjoy is a great option. I think something that is underappreciated by many with that type of temperament is the difficulty of that for people who don't possess it in their nature. Telling them to just go freewheel for the next 2, 3, 4 decades isn't any more palatable than telling them to just buck up and find away to enjoy or at least neutrally accept your job, and put their shoulder to the wheel for a fraction of that time to improve the math. And for a lot of people even the math is meaningless. I think for a given individual one route might be better than another, but across the continuum of personalities and situations, I don't see any of the options being inherently superior. I did what I did and it's to late to undo it (not that I would). I (repeatedly) share my experience because I think it can be valuable to think about more than a single number in isolation (and/or pushing it in one direction or another), not to promote my solution.

Yes! I'm pretty sure that a lot of these "stands" depend on where people sit individually, temperamentally, income/savings, etc.

What I do know is that one's attitude can change drastically and quite possibly in ways that are inconceivable from where one currently sits.

Jacob in 2005: "I'm so glad I'm doing this kind of computational research. Even if I wasn't paid, it is something I could do for the rest on my life as long as I have a computer."
Jacob in 2008: "I don't think I can do this for much longer. Every day at work, I'm just waiting to go home and focus on more important things."
Jacob in 2014: "If you want my old code, you'd have to contact XYZ. IIRC, the important isotopes are A, B, and D."
Jacob in 2020: "Thanks for reaching out. I barely remember anything of this. Would be cool if you had a picture of a simulation."
Jacob in 2025: "I haven't thought about this in years. Do people still do this?"

I really have no idea to which extent I could pick up physics again. In 2012 when I found myself in quant-world, I remember being surprised that I had forgotten how to integrate even simple polynomials by hand. I relearned quickly but still not to the performance I could crank them out in HS. Clearly I was rusty then. These days, I don't know if I'm merely rusty or completely corroded. Probably closer to rusty though. A few years ago I made some controllers based on Arduino. I didn't really struggle writing up the sufficiently "robust" C++ code. I don't really see anyone wanting to hire me as a researcher though. However, perhaps the bar to become a tutor is much lower. Not really something I'd be enthusiastic about now but maybe I'll rediscover the joy of physics and change my attitude. So far it hasn't happened.

As such there's a potentially unknown balance between "can you do it" and "will you do it" whether it's physics or schlepping stuff in warehouse. This is the source of my concern for other people's "if I run out of money, I'll just go back to my old career"-strategy. Slightly different from "ditto, I'll get a job at walmart" but not much.

[7Wannabe5]

@jacob:

At some level this is just the result of not including a human resource capital depreciation schedule in one's spreadsheet. This is also relevant to the discussion on the elder care thread, because of the likelihood of dipping into the negative. IOW, if you could purchase an identical humanoid robot version of you and put it to work, what would be its current value as a productive asset? Your willingness to perform a task at the margin might be represented by Recharge/Recovery Time/Expense required and Risk entailed. For example, like most females, my highest hourly wage at the margin would likely be from sex work, but as we learned from "An Economist Walks Into a Brothel", it is the Risk that renders the occupation less popular than working at WalMart for 20X less $/hr. Recharge/Recovery would likely take various forms depending upon whether the task was physically grueling, boring, emotionally demanding, or morally reprehensible to the extent that time performing penance might be required to regain equilibrium of humanoid system. etc. etc. etc.

[suomalainen]

Late to this party and this train has obviously taken a spur, but let me add some thoughts to the OP:

I see the 4% rule not as "the end" as in "now I don't have to work any more forever", but more as "the start" as in "now I can start to think about how to live without working for money being a primary consideration". In other words, it's most useful for someone just starting out. It doesn't answer any question whatsoever other than "about how much do I need before I can start thinking about how to phase out working for wages"? As @iD points out, the other questions ("what do I want out of life? what do I enjoy doing with my time?" etc) can all begin to be answered no matter your financial status.

Once you get to that point of optionality, however, I get a little confused by people who try to draw bright distinctions between freedom-from and freedom-to, and this is because of hedonic adaptation. Let's say you have a burning desire to have the freedom-to do Thing X. For most people, Thing X is not going to sustain them for the rest of their lives. So unless they have another vine to swing to, they will (quickly) circle back to freedom-from (i.e., the only benefit of being retired is not having to work). But then, even if they do have another freedom-to to swing to, isn't it really just a specific expression of freedom-from? In other words, aren't they just two sides of the same coin? I can only have the freedom-to [either have general optionality or pursue specific Passion X] if I have the freedom-from [the non-optionalilty or requirement of working for life sustenance].

In this sense and in sum, I'm looking forward to reaching 4% so that I have the freedom-from limited financial options and the freedom-to expand the possibilities of how to plan my financial life given the state of the world at the time I reach 4%, while also having the option to have freedom-from work and its related stresses so I have the mental and emotional space to fill it with (one or more) freedom-tos.

[IlliniDave]

...
Once you get to that point of optionality, however, I get a little confused by people who try to draw bright distinctions between freedom-from and freedom-to, and this is because of hedonic adaptation. Let's say you have a burning desire to have the freedom-to do Thing X. For most people, Thing X is not going to sustain them for the rest of their lives. So unless they have another vine to swing to, they will (quickly) circle back to freedom-from (i.e., the only benefit of being retired is not having to work). But then, even if they do have another freedom-to to swing to, isn't it really just a specific expression of freedom-from? In other words, aren't they just two sides of the same coin? I can only have the freedom-to [either have general optionality or pursue specific Passion X] if I have the freedom-from [the non-optionalilty or requirement of working for life sustenance].

...

I'm guilty of using that terminology frequently so I'll explain what I meant.

When I say "freedom-from" I mean a primary underlying motivation to "retire" that is essentially, "I just want to quit having to work because I hate working/this job/everyone here, and I'll be happy once I don't have to do it any more." When I say "freedom-to" I mean a primary underlying motivation that says "I have these other specific things I would like to spend more time pursuing, so how can I make that happen?" Of course those freedoms tend to frequently manifest as a pair. I consider myself of a "freedom-to" mindset, but I also have freedom from having to go to work. You can also expand "freedom-to" without actually gaining "freedom-from", and vice versa. Truly fortunate people who are able to make a living following their true calling in life may never want freedom from that.

I was greatly influenced by a couple of books that emphasized that it's best not to retire into a void, much more so if you are retiring early and male. So somewhere I've got a bunch of fishbone diagrams and lists of things I might want to do/take up, or see, etc., that I spent a couple of years putting together, along with a plan to revisit the list every three years or so after retiring to decide if it was time to rotate or something. It was overkill but it was specifically intended to address the situation of a Thing X turning out to be less fulfilling or enduring as I thought it might. Also, much of my first wave of things require some amount of physical capacity, and I knew it stands to reason that those will sunset as I get old. The number one challenge I got from friends and colleagues when I talked about ER was, "What will you do with yourself? Boredom will put you in an early grave!"

It's really just a mental framing. To me pursuing a positive future vision draws energy from a positive place, and running from a bad situation draws on energy from a negative place. I do much better with a head full of dreams than immersed in a world of stress.

[suomalainen]

When I say "freedom-from" I mean a primary underlying motivation to "retire" that is essentially, "I just want to quit having to work because I hate working/this job/everyone here, and I'll be happy once I don't have to do it any more."

Yeah, I guess for me it’s the last clause that seems problematic. Like a lack of self-exploration and -knowledge combined with various cognitive distortions like overgeneralizing, mental filtering and labeling. One can overemphasize the benefits of the void without having put in the work to know what you’d do with it. And then the void swallows you. Seems to happen to those who have become “institutionalized” as Red says. i think a page or two up ego amd jacob are talking about that.

[Ego]

Let's say you have a burning desire to have the freedom-to do Thing X. For most people, Thing X is not going to sustain them for the rest of their lives. So unless they have another vine to swing to, they will (quickly) circle back to freedom-from (i.e., the only benefit of being retired is not having to work). But then, even if they do have another freedom-to to swing to, isn't it really just a specific expression of freedom-from? In other words, aren't they just two sides of the same coin? I can only have the freedom-to [either have general optionality or pursue specific Passion X] if I have the freedom-from [the non-optionalilty or requirement of working for life sustenance].

In this sense and in sum, I'm looking forward to reaching 4% so that I have the freedom-from limited financial options and the freedom-to expand the possibilities of how to plan my financial life given the state of the world at the time I reach 4%, while also having the option to have freedom-from work and its related stresses so I have the mental and emotional space to fill it with (one or more) freedom-tos.

Vine swinging takes strength and courage along with the ability to identify and anticipate subsequent vines. These are use-it-or-lose-it skills. Most people abruptly stop their vine swinging the day they get their first job. They shift their focus from swinging to earning, and never swing again. Some rare people pause vine swinging for a short period and reach 4% so quickly that the muscle memory to swing is still there. They can pick it up again and relearn the few skills they lost in the down time. On the other hand, most 4%ers retire, grasp the vine, swing out, but never look for the next vine and find themselves dangling over the abyss until they die. This happens because the first part of a new swing can be extremely uncomfortable, so retirees are tempted to cling tightly to their current vine, never reaching for something new.

One of the reasons I am so impressed with iD's example is because I thought for sure he would make that first swing and then just cling to the vine. He didn't. He is swinging like Tarzan! This is an exceedingly rare.

[7Wannabe5]

I also think it is possible that one human's vine swinging can look like dangling to another human, because for some humans an activity might be just a means to an end, whereas for other humans it is their end purpose or one of their end purposes. That's why following Jacob's example is going to peter out for most of us eventually. I mean, ERE would just be a sort of Ponzi scheme if we all retired early with the primary motivation of helping other's retire early.

For example, finance and fitness and minimalism (or any other form of housework/organization) are just means to some other purposeful ends for me, so when I observe other humans still primarily focused on these pursuits after retirement, I think "What for? What are you going to do with that money, that tidy space, and those muscles?" OTOH, I've also noticed that this is the perspective others hold on some of my towards core pursuits such as reading or even gardening. It's also easy for those of us who are true generalists to stay busy in retirement than it might be for those who tend towards pursuing serial mastery. There are at least 5 or 6 different interests or purposes I have been juggling at least since early adulthood if not childhood (reading, gardening, early childhood development, math, tiny entrepreneurial hustles, sexuality, etc.), and it's likely not even that noticeable to others when I pick up a 7th or 8th ball or renovate one of the original 5 or 6. Therefore, it seems very easy to me to pick from multiple options in alignment with one or two of my purposes/interests which would also happen to earn a small part-time income for me, so I guess I don't core grok the fuss attached to the need to absolutely ensure a completely open field of time to pursue next major mastery. Kind of like the difference between going through a major divorce with the intent to marry again vs. maybe finding a 4th polyamorous partner the month before you break up with your second polyamorous partner. Financial independence doesn't necessarily solve the "work" or "purpose" problems any more than marriage solves the "sex" or "love' problems. It doesn't even fully solve the "survival" problem." All it really solves is whatever level of "head tax" problem you have, so to the extent that you are cool with possibly being labeled or jailed for vagrancy within your definition of "independence", it's not even necessary to make use of finance.

[Stasher]

There are a number of journals on here with examples of people who left work and returned, left and picked up incidental income, left and started consulting, or left and cut expenses through some creative lifestyle decisions like geographical arbitrage, volunteering, workaway, or housesitting.

If I would have started journaling here in 2017 when I left work, this would write out my journey and especially moreso if I jumped back to 2013 and went full geo-arbitrage to kick start the journey. ERE allows robust perspective, skillset and organic flow with a strong foundation to tackle anything that comes our way.

[J_]

For example, finance and fitness and minimalism (or any other form of housework/organization) are just means to some other purposeful ends for me, so when I observe other humans still primarily focused on these pursuits after retirement, I think "What for? What are you going to do with that money, that tidy space, and those muscles?"

See:
https://www.theguardian.com/wellness/20 ... h-training

To keep vine swinging and do interesting things those things are the basis for one’s chosen balls or to start new ones.

[7Wannabe5]

@J:

Yes, I agree that all of those increase optionality, but eventually you have to exercise your options in order to create meaning or experience a life of purpose and consequence. The point I was trying to make is that one human's instrumentality towards optionality might look a lot like another human's purpose. For example, you can read books in order to help you make money, or you can make money in order to read books, but ultimately, at the level or the moment of self-actualization or self-transcendence, you are putting something of yourself out into the world for the benefit of other humans or other complex entities.

We're not in here to eat mozzarella and go to Tuscany. We're not in here to accumulate money. We're in here mostly to sacrifice, to do something. The way you do it is by taking risks.

-Nassim Taleb

Hoarding Options Indefinitely Is For Cowards

It's always wise to maintain some level of personal optionality, but the endgame is to deliberately sacrifice it on a worthy altar. That means using our positions to unlock the capabilities of those who have been less fortunate, or to take risks on behalf of the collective.

This is not an obligation, but the natural consequence of pursuing our own self-interest: anything else will eat us alive.

- "Optionality"- Richard Meadows.

IOW, to the extent or within the realms that we can't take risks or behave generously, we clearly haven't completed our own work in alignment with our own self-interest. Either you have more zucchinis then you need or you don't, and there is no collections of metrics out there that is going to definitively make you feel secure enough to take the leap on a bold new recipe or share the bounty with your green thumb impaired neighbor.

[zbigi]

We're not in here to eat mozzarella and go to Tuscany. We're not in here to accumulate money. We're in here mostly to sacrifice, to do something. The way you do it is by taking risks.
-Nassim Taleb

He really strikes me as the "mozarella and reading books all morning" kind of guy, rather than someone who's heavily into sacrifice. Perhaps that's just his public image, as he likes being a contrarian.

[IlliniDave]

See:
https://www.theguardian.com/wellness/20 ... h-training

To keep vine swinging and do interesting things those things are the basis for one’s chosen balls or to start new ones.

Thanks for linking that, J_. The Guardian is not a publication I would normally turn to for anything, much less in search of something on the topic of healthy aging. I'm surprised that study has not been more widely publicized among the healthy aging evangelists I tend to follow. Maybe it's very new. I see a good amount of discussion on the topic of the strength building and maintenance in the age 50-70 cohort, but not much extending to ages beyond that aside from observations that both muscle strength and muscle mass (and VO2 max, of course) among older folks are positively correlated with better health outcomes when you look at it from an epidemiological vantage. It's good to know that even the oldest cohort can benefit.

[7Wannabe5]

He really strikes me as the "mozarella and reading books all morning" kind of guy, rather than someone who's heavily into sacrifice. Perhaps that's just his public image, as he likes being a contrarian.

Well, I think the general point is not "mozzarella and reading" vs. "sacrifice and risk", but more towards "mozzarella and reading" and 'sacrifice and risk" within cycle. Taleb does have a couple kids, so likely not a stranger to at least common garden variety "sacrifice" towards "meaning/fulfillment." It's also the case that when you have kids relatively early in adult life, like suo, IlliniDave, and I did, it can feel like you are never going to get to a clear patch of "mozzarella and reading books" again, so when you do finally manage to get there, you might need a relatively longer phase of "relaxation and indulgence" and/or "work towards opening up other options" before you are primed to take on another "sacrificial" challenge. And, I think this is also true for those who devote or "sacrifice" a good deal of life energy to problems such as climate change, eco-system health, animal rescue, working with disadvantaged kids, etc.

Generally, I would tend towards associating "taking risks" more with "self-actualization" and "making sacrifice" more with "self-transcendence", but only within or beyond the context of "self-authoring" or self-aware choice. So, for example, choosing to write books, as Taleb did, that are inclusive of some degree of self-expression is a form of risk-taking, and also towards self-actualization. Choosing to make the sacrifices necessary to raise a child is likely more inclusive of moments of "self-transcendence" than the simple instinct exhibited by most mammals, although usually "self-transcendence" would hold the connotation of a perspective larger than one's own family or community. I always found it interesting that the "identical twins separated at birth" studies found that one of the outcomes most influenced by parents was simple manners, but just think how the simple manners we are taught as toddlers, "Say, excuse me.", "Share with your friends", "If it's yellow, let it mellow. If it's brown, flush it down." can reverberate through a system from bottom to top and/or top to bottom.

[guitarplayer]

per se

This is so pedantic so apologies but I much appreciate how you (who I know is a native English speaker) write it the right way rather than the 'per say' (of many native English speakers).

[jacob]

This is so pedantic so apologies but I much appreciate how you (who I know is a native English speaker) write it the right way rather than the 'per say' (of many native English speakers).

Also see: https://en.wikipedia.org/wiki/Eggcorn

[guitarplayer]

DW and I have found myself in the (within reason) money hose situation these days so looking at 4%, 3%, tax optimisation, withdrawal ladders, all that, became viable. I looked at quite a few of these things and mulled over them. It was against the grain as looking at the forum's writings I gravitate more towards attitudes of @Ego or @7w5 than @iDave or @jacob.

Despite this sort of extreme approach of engaging 100% with things or totally cold turkey, like 'no more following physics ever again' or 'money is completely out of equation', which are temperament driven, the ere book author is pretty liberal with giving many options in the original book to accommodate for different temperaments.

In my view, the 4% rule is such a phenomenally crude yardstick it can only be an approximation of 'enough, for ever' like approximation of y=sin(x) to y=0. Though equally, it is a huge pile of cash or other more or less liquid assets.

Like pointed above, low outgoings (which contribute to high savings rate) is key, I think this point cannot be hammered strong enough.

The above mentioned kids have no outgoings. Someone has to feed them and get them clothes, think 4% can do it, I bet 2% also.

Would be interesting to hear what sparked the OP, which is by @jacob in some past incarnation. My guess would be it was about waking up critical thinking in folk, like a wake up call.

[guitarplayer]

Also see: https://en.wikipedia.org/wiki/Eggcorn

"ex-patriot" for "expatriate"

I prefer to appreciate when people use these right than the opposite, don't wanna be a hypocrite I am sure I'm guilty of some of this too.

[chenda]

This is so pedantic so apologies but I much appreciate how you (who I know is a native English speaker) write it the right way rather than the 'per say' (of many native English speakers).

I've actually never seen anyone write per se phonetically, but there's a hair salon near me called Le Salon and the staff bless them pronounce it Lee Salon. Which would kinda work if it was in Lee-on-the-Solent, which is actually pronounced Leon-Solent. But it isn't.

[jacob]

Would be interesting to hear what sparked the OP, which is by @jacob in some past incarnation. My guess would be it was about waking up critical thinking in folk, like a wake up call.

Yes, and pouring some cold water on the infectious but naive optimism that various lifestyle bloggers and youtubers were heavily promoting to what was at the time a new mainstream audience. See viewtopic.php?p=120055#p120055

In some sense the widely misunderstood idea that "a diversified portfolio of stocks pay 4% in interest each year" was actually pretty benign compared to more harebrained "I did it and so can you"-promoters saying things like "my growing youtube channel is better than a retirement account" or "if you need extra cash, you can always start a blog". This may sound naive to most people now, but that's only due to the benefit of hindsight and not due to superior analysis. Naive can-do optimism (=it won't work for a large number of people) still carries a lot of influence because humans gotta human.

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 wrote that post 8 years ago. I could have written exactly the same today. The only thing that has changed is that I don't really struggle with this anymore. I've accepted that there's nothing I can do. Live and let die.

[thef0x]

One mistake to being so attached to the 4% rule is that people use it as a goalpost from which to transition to a new way of living their lives. This is bad because time is spent no matter what, and waiting until 4% or 3.5% or 5.5% to live the life you want to live is literally a waste.

ERE helps folks realize that reflection, resilience, and skill development do not begin at a 4% SWR. A good life / your WoG does not wait until "retirement".

I've seen a lot of MMM types forgo asking themselves simple questions like "what do I want my life to look like even if I never 'retire'?"

If you're waiting to answer "now what?" until an arbitrary 4% SWR, coupled with the confidence that you'll never had to assess financial questions again, IDK, just seems like a genuine lack of self reflection.

I like the forumites for this very reason: most everyone here is thinking big, wide, and deep about their best lives, and they started doing so yesterday.