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

[IlliniDave]

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).

It was Catholic schools. They made us get the Latin right, lol. I do try to be accurate in writing but I often mess up--my fingers often do things phonetically as my brain thinks ahead. It's the usual suspects: to/too/two, their/they're/there. But I do tend to get the "eggcorns" right. The little phrases or compound words tend to stick in my head correctly, it's more the homonyms that mess me up.

[Stasher]

@thef0x I think you did a good job on touching on 2017 for me when I finally left work, life extinguishes in an instant before our eyes and wasting a single precious moment for an arbitrary number that may or may not be realistic is flawed. I was 42 and my Uncle unexpectedly died at 52 and within a month of that my Dad died at 62. It was an immediate F this moment knowing that every minute I waited to stack an extra dollar on the pile was another minute I lost in a finite continuum that is my lifetime.

I may have had maybe 8% SWR accumulated at the time but I knew we would figure it out, that life would go on and I wanted to embrace as much of it as possible. Interestingly enough, I have experienced more places, more people and more activities in the last 8 years than I could have ever imagined. I have worked a fraction of what i did before that realization yet here I sit with 4% SWR accumulated.

[suomalainen]

I may have had maybe 2% SWR accumulated at the time ... yet here I sit with 4% SWR accumulated.

Typo?

[Stasher]

Typo?

yup...good catch, fixed
~Cheers

[jesmine]

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".

ERE is specifically geared towards those with obsessive thoughts and emotions about money. The purpose of ERE is to engage all the excessive thoughts and emotions until it is learned that the mind can be retrained to forget about all the thoughts and emotions related to money and finance insofar as it means "living your best life."

[thef0x]

ERE is specifically geared towards those with obsessive thoughts and emotions about money.

Interesting, maybe it's up to the reader, but given how little information in the book is about what to invest in, how to invest, and general financial tactics and strategy beyond the ability to live off yield, I'm a bit surprised by your strong claim. MMM/FIRE content seems to be more of what you're pointing to, imo, being almost purely about money, investing, tactics, etc.

I can see how different readers would read ERE in a purely financial light, I guess; perhaps one of the powerful parts of this work is that it's multifaceted, with plenty to draw from at different stages of one's personal development.

Even so, I read the ERE thesis as trading a 1D view about freedom for a 3D view, incorporating concepts about skill development, WoG, and the currencies of a good life into a symbiotic strategy, expressed through time, whose ultimate aim is to create abundant freedom through resilience. ERE2, imo, is about applying this 3D view towards ethics, ecology, and our responsibility towards ourselves and others.

^^ This is possibly just a mile-marker of my development more than a reasonable summary of the book.

@Jacob can weigh in, ofc.

[jacob]

I think you're both saying the same thing---just misunderstanding each other.

[jesmine]

I am actually in complete agreement with the post I quoted from thef0x. I'm just adding my two cents. It's a wild guess that most of those who insist that the 4% rule is no longer viable are being subjected to the machinations of their own mind. To these I say, adjust this percentage to whatever your more brilliant mind thinks it should be then and get on with it. yesterday.

[conwy]

Oh boy... this such an interesting thread!

I just want to thank Jacob for setting up this forum/community. There's something about this place (virtual as it is) that both sharpens me up mentally and calms my anxiety.

Update on my situation... I've been quite lucky, but a fair chunk of that luck has been "self-created". Not to pretend I'm some kind of heroic "self made" man. But just ... being resourceful, taking opportunities and calculated risks and exercising some persistence with things like exercise, frugality, investing and skills have really paid off.

I'm stronger and fitter than I think I've ever been (my former teenager self would be shocked).
I have a larger and better social circle than I think I've ever had.
I have better quality accommodation in a better neighbourhood, still priced within my FIRE budget.
I'm better at my job and better able to get work (thanks to proactively and deliberately honing my interviewee / self-sales skills).
I'm much better educated on finance and the world in general (thanks to listening to copious audiobooks on long walks as well as deep thought).
I'm much more mentally strong and stable, thanks to consistent daily meditation and getting deeper into Stoicism and similar ways of thinking.

I'm now in a financial position I never before dreamed of... I can essentially maintain my current lifestyle (all-else-equal) on either 2% of my portfolio or a self-created annuity (ladder of indexed bonds) up to the age of eligibility for government pension.

At this point, my main financial risks are some combination of:
- Lifestyle exceeding CPI
- Government sovereign default
- Stock markets being unable to deliver 2% real returns over the next 30 years

And yet I continue to work. I took a 9 month hiatus, which was delightful. But then a job opportunity came to me that made me genuinely curious and excited, so I'm back into the 9-5. I'm enjoying it a lot.

My feelings about work have evolved a bit. I think the goal is more about independence from salaried work rather than not having to work. I think work of some kind is natural to human beings. Even for someone "retired", the simple daily chores, bodily maintenance, cooking, cleaning, etc. are all fairly normal and give order and stability to life.

This definitely feels different than "one more year syndrome". I think I'm in a very strong financial position for FIRE, all things considered. What's drawing me to continue working is that the job is genuine interesting and a fun challenge. I tend to leave work every evening feeling energised and then proceed to go for a workout, 4 KM walks, etc.

The work I do now is maybe a bit different from the typical office job. It's a moderate intensity 7-8 hour day, involving a fair amount of problem solving, critical thinking, interpersonal / team work, continuous learning and some creativity. I quite enjoy it and feel it enhances my capabilities.

I'm aware this is a temporary situation. My contract has an end date on it. As a long-term contractor, I've "lost my job" many times over, so being out of work is nothing unusual, in fact I quite look forward to it. Nor is having to occasionally take undesirable or unpleasant work. I intend to maintain as humble attitude as possible toward work for the rest of my life, as it is possible I'll have to work occasionally in the future.

But being influenced by my readings on Stoicism, Buddhism and Taoism, I've deliberately been cultivating a kind of disciplined attitude toward pain or challenge. It's not that I'm seeking pain, I still avoid it and pursue pleasure. I look forward to my delicious self-cooked meals every evening. It's more that I'm consciously observing opportunities to challenge myself and taking them where there is a net benefit.

Some examples:
- Waking up earlier
- High intensity exercise first thing in the morning
- Improving quality and challenge of my strength training
- Keeping up outdoor exercise routine during rainy and cold or humid and hot weather
- Keeping calm in crowded spaces where people push and shove and otherwise behave rudely

I would say that my fitness routine has become very core to my life, so that next time I'm out of work, I will have very solid and stable exercise routines that will persist. In a way, keeping fit and healthy has become my new "long-term career", while work has become more of a "short-term" or occasional hobby.

I've come to think that financial independence is a much broader thing than just net worth or drawdown percentages. In fact, in our modern financialised and in many ways artificial world, financial independence is basically akin to "living well".

It encompasses:
- Psychological skills - ability to stick to a plan, be consistent, not panic-sell during downturns, not be overcome by scams and sales pitches, keep spending low, maintain motivation and curiosity which are always assets in any economic environment
- Physical fitness - at least basic mobility and relative independence from the medical system; at most, long-term health, strength, metabolism and steady energy levels throughout the day
- Practical skills - knowing where to get foods, how to store and cook them, how to get accommodation at various price-points, how to maintain clothing and other items
- Financial skills - understanding inflation, risk, asset allocation, diversification, financial history and fundamental drivers of returns (including geopolitical forces) and being able to actually apply that understanding consistently (which intersects over with psychological skills)

To give just one example of the benefits of financial skills/knowledge: the recent inflation surge comes after a long period of unusually low inflation, arguably driven by demographic and geopolitical factors. Understanding the financial history, in my opinion, gives very valuable context to the recent high inflation. I think it helps to explain why stocks generally matched or beat inflation and why inflation is now moderating, at least in most developed economies (can discuss this in more detail, I'm just summarising my understanding here).

Inflation spooked a lot of people who were unprepared, uneducated and underinvested. They saw prices of basic items such as food and housing shoot up, while their salaries didn't budge. Thanks to my financial education, including this forum, I was able to see a bigger picture and not feel too panicked. In this way, financial independence served me well in ways beyond just not having to work.

I see life as a continuous process of learning & discovery, personal growth & evolution and exercise of cleverness & resourcefulness. Financial independence and early retirement is only the beginning of a fascinating journey of discovery of the self and the world. Decoupled from dependence on continuous employment (through both financial and psychological/spiritual means), one experiences life in a richness and colour previously unimagined.

[Stasher]

But being influenced by my readings on Stoicism, Buddhism and Taoism, I've deliberately been cultivating a kind of disciplined attitude toward pain or challenge. It's not that I'm seeking pain, I still avoid it and pursue pleasure. I look forward to my delicious self-cooked meals every evening. It's more that I'm consciously observing opportunities to challenge myself and taking them where there is a net benefit.

Some examples:
- Waking up earlier
- High intensity exercise first thing in the morning
- Improving quality and challenge of my strength training
- Keeping up outdoor exercise routine during rainy and cold or humid and hot weather
- Keeping calm in crowded spaces where people push and shove and otherwise behave rudely

I would say that my fitness routine has become very core to my life, so that next time I'm out of work, I will have very solid and stable exercise routines that will persist. In a way, keeping fit and healthy has become my new "long-term career", while work has become more of a "short-term" or occasional hobby.

Thanks for sharing all of this Conwy , I could quote and appreciate and align with pretty much all your wrote. That being said I just want to focus on this quoted part as the mental and physical growth I have found thanks to the freedom of time & energy offered from the ERE/MMM path. Stoic/Buddhism has strengthened my mind and discovering endurance pursuits from a new love of nature has strengthened my health.

All the best to you and thank you for your reflections.

[conwy]

Thanks for sharing all of this Conwy , I could quote and appreciate and align with pretty much all your wrote. That being said I just want to focus on this quoted part as the mental and physical growth I have found thanks to the freedom of time & energy offered from the ERE/MMM path. Stoic/Buddhism has strengthened my mind and discovering endurance pursuits from a new love of nature has strengthened my health.

All the best to you and thank you for your reflections.

Many thanks and likewise, best to you!

Yes, the freedom and time & energy feels like "getting your life back"!

With Stoicism/Buddhism, I found it transformative in many ways, but just one is: the discoveries and wonder you unpack when you develop the patience and persistence to encounter and appreciate them. And the amazing thing is, they can include thing that were "there" with you all along, but you just didn't notice! Even something simple like smiling at a stranger or noticing a new insect or plant or architectural style in your neighbourhood.

[conwy]

I should apologise, I didn't really write much about the 4% rule itself...

If I want a % rule, it seems the best I can do is to find the most rigorous and unbiased analysis possible from the largest and longest data set possible. The best proxy for the above would probably be the papers and stated findings of Scott Cederberg & co and Dimson, Marsh & Staunton.

The above seem to point to 2.5 - 3.5% + CPI as the safe range for our present economic era.

To get around the problem of inefficient spending, it seems the best approach is to supplement one's income during longer periods of stock drawdowns.

My solution to this, so far, has been a combination of:

• Spending less than the market return and re-investing some of the difference back in the market and some of it into inflation-protected bonds (for example, I did this during the most recent 2024 bull-run)
• Using an inflation-protected bond ladder to provide supplementary inflation-adjusted income for the next 10-20 years (I've implemented this already out to 2050, using a mix of local and foreign inflation-linked bonds)
• Pick up occasional work - part-time, contract or temporary - and use it to top up safe assets and savings accounts
• Maintain a high-interest savings account with ~1 year of expenses

I think safe withdrawal rates and safe assets are very useful tools for planning, even if they're imprecise and noisy.

For example, suppose you consume $10 worth of beans each week. But due to some unpredicted climactic event, trade policy change, etc. the price temporarily goes up to $20 per week. According to your safe withdrawal rate and budget, you should consume half as much beans per week. There could be various approaches to responding to this. You could temporarily substitute the beans for something cheaper and similar, that still costs $10 per week. Or you could simply eat fewer beans and exercise less, to burn fewer calories. Or you could take on some temporary work earning $10,000, which should fund ~19 years' worth of bean consumption, plenty of time for either the price to settle, or for you to adjust your diet, or to find a cheaper supplier of beans, or for positive market returns to compensate, etc.

You would want to also factor CPI into that calculation. So if CPI was 3% in the same year as the bean price went up, then you can really afford to consume $13 worth of beans and only need to make up $7 difference, so your $10,000 savings / employment earnings will actually cover you for ~27 years' of bean consumption.

These numbers admittedly do look a bit absurd. There are probably better ways to organise a FIRE budget. I've been working on building various budgeting tools including a price list spreadsheet. I think one approach I want to explore is to "lock in" quarterly expenses by paying them up-front, such as bulk buying certain non-perishable food items, pre-ordering perishables, etc. This provides time buffers to plan and respond to fluctuations in price. Probably unnecessary and nerdy, but hey, that's just me.

I think with reasonable diligence in tracking expenses, reasonable safety buffers (such as cash and occasional employment) and assuming no major national catastrophe such as nuclear war, it's pretty safe to live off a ~3% rule.

[frommi]

What about owning the company that provides you and others with the beans?

[loutfard]

What about owning the company that provides you and others with the beans?

Or owning a garden directly. That can reduce reliance on the [s]4%[/s] whatever % rule at surprisingly low opportunity cost. You don't actually have to grow food right now. Just be ready to. Access to a little land and water, simple tools gathered for next to nothing, and basic knowledge.

I'm not blind to the inherent hyperlocal risks, but I like how this cuts through layer upon layer of abstraction embedded in the stock market.

Also, not just risk. Serendipity. Being a net food producer could give you quite an edge in times of food hyperinflation or scarcity.

[alex123711]

Even the Bogleheads forum seems to have given up on the 4% rule, most on there seem to aim for around 2% but they are generally over conservative. It does make it harder not having a number to aim for or have in mind as it adds extra uncertainty.

[CzechRetireeWannabe]

If I targeted 2%, I would have never started saving to retire early. Sounds very much like waste of time.

[7Wannabe5]

Well, it might be more cheerful to contemplate that this was bound to be the eventual result if/when everybody got around to doing ERE.

[zbigi]

If I targeted 2%, I would have never started saving to retire early. Sounds very much like waste of time.

Perhaps it would push you to earn more aggressively? I always assumed 0% real returns until I've joined this forum and my stash was already mostly done anyway. This forced me to swich careers to whatever paid the most and was not an absolute misery for me, move to different cities, country, constantly switch jobs, optimize my spending etc.

[Scott 2]

Assuming a 0% real return, a 2% SWR still lasts 50 years. That strikes me as an over correction.

[CzechRetireeWannabe]

Perhaps it would push you to earn more aggressively? I always assumed 0% real returns until I've joined this forum and my stash was already mostly done anyway. This forced me to swich careers to whatever paid the most and was not an absolute misery for me, move to different cities, country, constantly switch jobs, optimize my spending etc.

No, not really. Most sensible plan then would be to get off debt, buy a house buy all kinds if BIFL tools and items and then look to work 2-3 days a week instead.