Author Topic: Stop worrying about the 4% rule  (Read 452256 times)

cerat0n1a

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Re: Stop worrying about the 4% rule
« Reply #1350 on: February 26, 2018, 01:18:20 AM »
Looks like the probability of being dead between the ages of 70 and 100 is unacceptably high...:)
 
Looking for suggestions to mitigate the risk.
You won't be surprised to hear that there's communities on the internet talking about life extension and using themselves as guinea pigs by taking various supplements that have been shown to work on rats etc.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1351 on: February 26, 2018, 06:06:02 AM »
Looks like the probability of being dead between the ages of 70 and 100 is unacceptably high...:)
 
Looking for suggestions to mitigate the risk.
You won't be surprised to hear that there's communities on the internet talking about life extension and using themselves as guinea pigs by taking various supplements that have been shown to work on rats etc.

google's futurist predicts the millenial generation will be the first to have to decide to die, we will reach a point where we can fix most mental failures and physical failures that people can continue good quality of life more or less indefinitely.  So either the govt or individuals will have to set life limits on human life.

DavidAnnArbor

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Re: Stop worrying about the 4% rule
« Reply #1352 on: February 26, 2018, 06:35:54 AM »
"more pot pies!"

- Sweeney Todd

nereo

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Re: Stop worrying about the 4% rule
« Reply #1353 on: February 26, 2018, 08:09:18 AM »
Looks like the probability of being dead between the ages of 70 and 100 is unacceptably high...:)
 
Looking for suggestions to mitigate the risk.
You won't be surprised to hear that there's communities on the internet talking about life extension and using themselves as guinea pigs by taking various supplements that have been shown to work on rats etc.

google's futurist predicts the millenial generation will be the first to have to decide to die, we will reach a point where we can fix most mental failures and physical failures that people can continue good quality of life more or less indefinitely.  So either the govt or individuals will have to set life limits on human life.
...well there's always the SciFi idea of the 'Singularity' - uploading our consciousness into a computer to live in perpetuity...

sol

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Re: Stop worrying about the 4% rule
« Reply #1354 on: February 26, 2018, 08:34:36 AM »
...well there's always the SciFi idea of the 'Singularity' - uploading our consciousness into a computer to live in perpetuity...

Yea, nobody wants me around forever.  Society stops evolving the moment individuals stop dying.  I loved my grandfather, but he was a born and raised a racist and the world is better off with his generation moved on.  I'm sure future generations will say something similar about me.

And besides, the singularity isn't exactly a FIRE utopia either.  Just think of all of the problems around maintaining a SWR in a virtual world.  Who's going to pay all of the maintenance workers who keep the servers running?  Where does the electricity come from, and who maintains that infrastructure?  How does asset ownership in the physical world translate into income streams in the virtual world?

Personally I think the whole idea is a hoax.  By the time we have generalist AI capable of indistinguishably reproducing my forum personality, that AI will also be capable of simultaneously reproducing every other forum member's personality too, and all of those digital representations of long-dead individuals will exist together in a hive mind.  In that situation, I think it would be pretty clear that fencing off one little personality (mine, yours, MMM's) as distinct from the others is sort of inefficiently redundant.  Why keep sol alive as a forum bot?  Just to amuse the other forum bots?  Can bots even be amused?  The hive mind would surely have to recognize that sol is kind of a dumb ass, on 99% of the possible topics of discussion, so why devote resources to letting him continue to be stupid when there are other parts of the hive mind that can do better? 

The singularity proponents want to live forever, but I'm pretty sure that digital superintelligence will have better things to do than play Renaissance Faire all day with the personalities of stupid racist dead people who are only holding the world back. 
« Last Edit: February 26, 2018, 10:58:20 AM by sol »

MasterStache

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Re: Stop worrying about the 4% rule
« Reply #1355 on: February 26, 2018, 09:05:27 AM »
Looks like the probability of being dead between the ages of 70 and 100 is unacceptably high...:)
 
Looking for suggestions to mitigate the risk.

Retire and enjoy life!

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1356 on: February 26, 2018, 09:36:35 AM »
We could all be brains in a jar in any case... The brain only knows about its surroundings (i.e outside the skull) because of electrical impulses provided by sensors.

If a computer is providing all that stimulation it would be indistinguishable from the "real" world.

So maybe we already are immortal...:)

tyort1

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Re: Stop worrying about the 4% rule
« Reply #1357 on: February 26, 2018, 09:48:34 AM »
...well there's always the SciFi idea of the 'Singularity' - uploading our consciousness into a computer to live in perpetuity...

Yea, nobody wants me around forever.  Society stops evolving the moment individuals stop dying.  I loved my grandfather, but he was a born and raised a racist and the world is better off with his generation moved on.  I'm sure future generations will say something similar about me.

And besides, the singularity isn't exactly a FIRE utopia either.  Just think of all of the problems around maintaining a SWR in a virtual world.  Who's going to pay all of the maintenance workers who keep the servers running?  Where does the electricity come from, and who maintains that infrastructure?  How does asset ownership in the physical world translate into income streams in the virtual world?

Personally I think the whole idea is a hoax.  By the time we have generalist AI capable of indistinguishably reproducing my forum personality, that AI will also be capable of simultaneously reproducing every other forum member's personality too, and all of those digital representations of long-dead individuals will exist together in a hive mind.  In that situation, I think it would be pretty clear that fencing off one little personality (mine, yours, MMM's) as distinct from the others is sort of inefficiently redundant.  Why keep sol alive as forum bot?  Just to amuse the other forum bots?  Can bots even be amused?  The hive mind would surely have to recognize that sol is kind of a dumb ass, on 99% of the possible topics of discussion, so why devote resources to letting him continue to be stupid when there are other parts of the hive mind that can do better? 

The singularity proponents want to live forever, but I'm pretty sure that digital superintelligence will have better things to do than play Renaissance Faire all day with the personalities of stupid racist dead people who are only holding the world back.

Maybe the computer super AI only allows the top 4% of humanity to upload to singularity status.  Then we'll have a whole 'nother 4% rule to worry about! 

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1358 on: February 26, 2018, 10:34:39 AM »
In support of EV I will point out that the "full freight" cost of our shitty HC plan is currently $1100/month.. I don't know what that was say 5 years ago but its currently the cost for a mid to late 50"s couple on a Bronze plan is $13k per year in premiums alone, add to that the OOP costs ($13k if you both had pre-existing conditions, or developed something).

So thats up to $26k/year today. How will costs increase and will the ACA subsidies be there for much longer?

So while I agree 4% works, that 4% could be over half a million bucks more than the days when your employer paid almost all your HC costs. And thats assuming you don't have kids.

4% works only if your $26K health cost increases at regular inflation rates. If we think health care costs will rise faster than normal inflation (I do) then we have to account for that in our expenses estimate. The same methodology that gave us the 4% rule still works, but because of the extra rising costs we end up with a somewhat lower SWR.

I used $28K for healthcare inflated at 13% till we reach medicare age. For a 95% success rate in cFIREsim I get a 3.5% initial WR. Everyone's answer will be different, of course.


nereo

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Re: Stop worrying about the 4% rule
« Reply #1359 on: February 26, 2018, 10:47:30 AM »
In support of EV I will point out that the "full freight" cost of our shitty HC plan is currently $1100/month.. I don't know what that was say 5 years ago but its currently the cost for a mid to late 50"s couple on a Bronze plan is $13k per year in premiums alone, add to that the OOP costs ($13k if you both had pre-existing conditions, or developed something).

So thats up to $26k/year today. How will costs increase and will the ACA subsidies be there for much longer?

So while I agree 4% works, that 4% could be over half a million bucks more than the days when your employer paid almost all your HC costs. And thats assuming you don't have kids.

4% works only if your $26K health cost increases at regular inflation rates. If we think health care costs will rise faster than normal inflation (I do) then we have to account for that in our expenses estimate. The same methodology that gave us the 4% rule still works, but because of the extra rising costs we end up with a somewhat lower SWR.

I used $28K for healthcare inflated at 13% till we reach medicare age. For a 95% success rate in cFIREsim I get a 3.5% initial WR. Everyone's answer will be different, of course.

I get what you are saying, but the SWR doesn't change - only your expenses do. On one hand that may seem like splitting grapes, but 4% doesn't stop working and lead to increased portfolio failures, rather more of your budget will go towards health insurance/care.  Ultimately this may require you have a larger portfolio to provide for bigger annual withdraws, but how you plug the numbers in matters when planning.

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1360 on: February 26, 2018, 11:19:04 AM »
In support of EV I will point out that the "full freight" cost of our shitty HC plan is currently $1100/month.. I don't know what that was say 5 years ago but its currently the cost for a mid to late 50"s couple on a Bronze plan is $13k per year in premiums alone, add to that the OOP costs ($13k if you both had pre-existing conditions, or developed something).

So thats up to $26k/year today. How will costs increase and will the ACA subsidies be there for much longer?

So while I agree 4% works, that 4% could be over half a million bucks more than the days when your employer paid almost all your HC costs. And thats assuming you don't have kids.

4% works only if your $26K health cost increases at regular inflation rates. If we think health care costs will rise faster than normal inflation (I do) then we have to account for that in our expenses estimate. The same methodology that gave us the 4% rule still works, but because of the extra rising costs we end up with a somewhat lower SWR.

I used $28K for healthcare inflated at 13% till we reach medicare age. For a 95% success rate in cFIREsim I get a 3.5% initial WR. Everyone's answer will be different, of course.

Sounds like a reasonable guesstimate. This would have HC costs doubling every 4 to 5 years.. So roughly $80k by the time I get to Medicare in 8 years time (assuming its $20k today).

Of course one would hope (hahaha) that as that rate of growth will make HC simply un-affordable for the majority of Americans, that those of kind of price increases will have to subside to something that at least half the population can afford.

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1361 on: February 26, 2018, 01:11:01 PM »
Yup. I don't see "you may be wrong about your estimated expenses" as an issue with the math about the 4% SWR. It's a separate question of "how accurate are the numbers you're plugging into the 4% SWR formula to figure out how much you need to save." Like nereo I realize this may sound like an academic distinction, but I think it reduces confusion for newbies reading the thread if we avoid confounding problems with the SWR rate math itself and problems with accurately estimating the variables an individual person plugs into that SWR math when they're deciding how much they need to save before they consider themselves FI.

With regards to the higher rate of healthcare inflation, remember that healthcare in already a component of the CPI and the higher inflation for healthcare also pulls the overall CPI number up so if you pull it out and look at a higher inflation rate for it specifically, it also means you should adjust your assumptions about overall inflation for the rest of your spending downwards.

It still may make sense to split them out, because the proportion of total spending which goes to healthcare for a FIREd individual may be substantially higher than the proportion in the overall population, but assuming healthcare will inflate at a higher rate and all your other expenses will inflate at a rate that includes the higher rate of healthcare is double counting pessimism.

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1362 on: February 26, 2018, 01:35:33 PM »
But @maizeman, I thought you were an anxious individual like me.. What is this "don't worry because its double counting pessimism" stuff..:)

I have saved to the point of ridiculousness, with a WR of about 0.4%.. Just to make sure I have some cushion you see!

You are right of course this does not invalidate the math of the 4% rule one bit.

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1363 on: February 26, 2018, 01:42:29 PM »
Oh absolutely do worry!

Just find one best home in your calculations for each terrible thing which could possibly go wrong. Then if you're tempted to worry about it somewhere else and correct for the same risk a second time, just remember: "Hey I've taken into account (radical healthcare inflation/the odds of living to 120/a big uptick in inflation/minor nuclear war/the odds I'll start a harem at 85 and having to send a dozen kids to college when I'm in my early 100s) in my math already."
« Last Edit: February 26, 2018, 01:47:34 PM by maizeman »

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1364 on: February 26, 2018, 11:51:21 PM »
I don't intend to post as a pessimist when I post my 'wait, but what about' posts;  hopefully I provide food for thought.

I'm very skeptical of headline inflation - even chained-CPI is very different from what a young 'individual' would expect.  To ignore inflation, or say that inflation is counted in the 4% SWR literature is to read one thing superficially and not start studying it as it pertains to your own situation.  My hope would be that folks continue to educate in this forum as to things like the good starting point and yet potential pitfalls of the 4% rule.

One last point, there was a comment against my statement that 95% success means you get to 75+ yo and then struggle.  I made my comment about those 55 - 65 y.o. ER's in 2007 that then hit 2008-2009 and lost 37% or more (sometimes painfully more) of their nest egg.  Most of them bailed out as they "played chicken" with Wall St. and pulled right.  They are doing OK today, but nothing like if they had either been more conservative before the crash or still been in the accumulation phase and benefiting from depressed stock price opportunity. 

But here we are.  As long as we are aware of the nuances of the basis of our decisions, then we should be ready for what comes in the foreseeable future.  Sadly, 30+ years includes many things that cannot possibly be foreseen.  But if you are willing to make it work and aware of what mistakes you might be making, then that shouldn't worry us.

Hopefully that clarifies my position on the somewhat outdated Trinity Study.

   

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1365 on: February 27, 2018, 12:36:43 AM »
Not at all..

In fact I am very skeptical of the "religion of 4%" or any other doctrine we hold to be true, especially as its all based on historical data which may or may not hold true going forwards.

Heck I did mention my 0.4% WR right?..:).. That mostly happened by happy accident.

2008 for me was a valuable learning experience.. I'd lost so much I figured I'd just keep buying. I mean what else did i have to lose?

Now in retirement I have enough bond funds to last roughly 10 years plus pensions to draw on if things got really bad.

So pessimism is not a bad thing to me, if I end up with a huge pile o money that I can't possibly spend before I die.. Well then I was over pessimistic.. so bite me..:)


matchewed

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Re: Stop worrying about the 4% rule
« Reply #1366 on: February 27, 2018, 05:17:35 AM »
I don't intend to post as a pessimist when I post my 'wait, but what about' posts;  hopefully I provide food for thought.

I'm very skeptical of headline inflation - even chained-CPI is very different from what a young 'individual' would expect.  To ignore inflation, or say that inflation is counted in the 4% SWR literature is to read one thing superficially and not start studying it as it pertains to your own situation.  My hope would be that folks continue to educate in this forum as to things like the good starting point and yet potential pitfalls of the 4% rule.

One last point, there was a comment against my statement that 95% success means you get to 75+ yo and then struggle.  I made my comment about those 55 - 65 y.o. ER's in 2007 that then hit 2008-2009 and lost 37% or more (sometimes painfully more) of their nest egg.  Most of them bailed out as they "played chicken" with Wall St. and pulled right.  They are doing OK today, but nothing like if they had either been more conservative before the crash or still been in the accumulation phase and benefiting from depressed stock price opportunity. 

But here we are.  As long as we are aware of the nuances of the basis of our decisions, then we should be ready for what comes in the foreseeable future.  Sadly, 30+ years includes many things that cannot possibly be foreseen.  But if you are willing to make it work and aware of what mistakes you might be making, then that shouldn't worry us.

Hopefully that clarifies my position on the somewhat outdated Trinity Study.

Well the inflation discussion has been had before as well. Every individual's personal inflation will be different (regardless of youthfulness). I don't think anyone is "ignoring" inflation, just stating that you have to incorporate it into your spending plan. As others pointed the actions you take to mitigate particular inflationary risks depends on what is inflating. I haven't seen anyone say ignore inflation or to say that inflation is not a risk. Just that as it pertains to the 4% rule it is in fact incorporated into the model and that it is still just a model and you as an individual will have to adjust accordingly.

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1367 on: February 27, 2018, 05:46:31 AM »
Well the inflation discussion has been had before as well. Every individual's personal inflation will be different (regardless of youthfulness). I don't think anyone is "ignoring" inflation, just stating that you have to incorporate it into your spending plan. As others pointed the actions you take to mitigate particular inflationary risks depends on what is inflating. I haven't seen anyone say ignore inflation or to say that inflation is not a risk. Just that as it pertains to the 4% rule it is in fact incorporated into the model and that it is still just a model and you as an individual will have to adjust accordingly.

You speak very well for yourself, but do you represent everyone?  And I'm still not sure you get just how tough higher than expected  inflation might get on a fixed income.

Also, most ER bloggers have around 2M and 30k or more blog income (Root of Good, Rb40, MrTako, MMM, 1500days) so it's not unreasonable to say many folks that ER intentionally do so very conservatively.
« Last Edit: February 27, 2018, 05:58:55 AM by EscapeVelocity2020 »

nereo

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Re: Stop worrying about the 4% rule
« Reply #1368 on: February 27, 2018, 05:55:26 AM »
Well the inflation discussion has been had before as well. Every individual's personal inflation will be different (regardless of youthfulness). I don't think anyone is "ignoring" inflation, just stating that you have to incorporate it into your spending plan. As others pointed the actions you take to mitigate particular inflationary risks depends on what is inflating. I haven't seen anyone say ignore inflation or to say that inflation is not a risk. Just that as it pertains to the 4% rule it is in fact incorporated into the model and that it is still just a model and you as an individual will have to adjust accordingly.

You speak very well for yourself, but do you represent everyone?  And I'm still not sure you get just how tough higher than expected  inflation might get on a fixed income.

I don't think its just @matchewed - inflation and CPI has been discussed at length over this thread and others.  Bottom line - yes the CPI is factored into the 4% guideline, and yes an individual's inflationary risks may differ from that.  Each person needs to do their due diligence and determine where their risks lie.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1369 on: February 27, 2018, 06:06:10 AM »
regardless of inflation of one service or another in ones life one can blindly follow the 4% rule with a larger equity stake and assuming the future is like the past - which no matter what your plan is if you're going to stop earning money and live off your assets you have to assume this to some level.  that person is very likely to live a long happy retirement and never worry about money - infact they are more likely to die with multiple millions more than they started with than to have to worry about running out of money. 

But around here there is mostly an understanding that flexiblity is key the larger the withdrawal rate becomes.  and thru cutting spending or earning some money hustling in FIRE a retiree can make themselves extremely safe. 

you can continue to try to put out random what ifs and site some data that its been increasing faster but to that end you should never FIRE b/c what if capitalism falls apart and all the markets tank or we're stuck in hyper inflation for 50 years.  We dont know what the future will bring but we can be optimistic it will be like the past and choose to not do the one guaranteed thing that working longer brings you - you're closer to dieing than you were the day before.

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1370 on: February 27, 2018, 06:49:18 AM »
Yup. I don't see "you may be wrong about your estimated expenses" as an issue with the math about the 4% SWR. It's a separate question of "how accurate are the numbers you're plugging into the 4% SWR formula to figure out how much you need to save." Like nereo I realize this may sound like an academic distinction, but I think it reduces confusion for newbies reading the thread if we avoid confounding problems with the SWR rate math itself and problems with accurately estimating the variables an individual person plugs into that SWR math when they're deciding how much they need to save before they consider themselves FI.

Fair enough. 25 times 'X' is a fine rule of thumb.

Quote
With regards to the higher rate of healthcare inflation, remember that healthcare in already a component of the CPI and the higher inflation for healthcare also pulls the overall CPI number up so if you pull it out and look at a higher inflation rate for it specifically, it also means you should adjust your assumptions about overall inflation for the rest of your spending downwards.

It still may make sense to split them out, because the proportion of total spending which goes to healthcare for a FIREd individual may be substantially higher than the proportion in the overall population, but assuming healthcare will inflate at a higher rate and all your other expenses will inflate at a rate that includes the higher rate of healthcare is double counting pessimism.

Yes, I'm double counting, but that hardly makes a difference (13% vs about 2%). It's going to be more than CPI, simply because each year we're one year older. I used 13% and got an answer that was pleasing. It seems sufficiently conservative, some would say ridiculously over the top, but it works for me (the stash is big enough) so it's not an issue. YMMV.

I thought the CFIREsim extra expenses method was a good one. You could do a present value calculation, but whatever method you use, it's going to result in a higher starting 'X'. Unless you just ignore healthcare inflation.

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1371 on: February 27, 2018, 07:30:15 AM »
Yes, I'm double counting, but that hardly makes a difference (13% vs about 2%).
It actually in many scenarios it will make a significant difference because the lower inflation number is applied to the majority (hopefully) of your spending so smaller changes in that number will have an outsized effect on overall spending growth.

Quote
It's going to be more than CPI, simply because each year we're one year older.

I've never though of this as part of inflation, but you're certainly right that every year you're statistically more likely to need more healthcare than the year before. I haven't tried to put a number on that before. I found this paper* which claims the average 20 year old will consume $1,448 in healthcare spending, while the average 85 year old will consume $17,071 dollars.** That works out to a CAGR in healthcare spending of 3.86% independent of (and on top of) overall healthcare cost inflation.

Now that's a bit pessimistic because it is looking at total medical expenditures, not out of pocket spending. The ACA has a lot of wealth transfers from healthy young people to less healthy older people built into it, which slow down the rate of out of pocket spending growth relative to total healthcare expenditure growth by raising your total spending when you're young, and lowering it when you're old. And of course after one ages out of ACA and into medicare, a big chunk of the total costs are picked up by the taxpayer (or by your own previous medicare tax payments if you prefer), but either way aren't being paid out of your stash.

Now regular healthcare cost inflation has been running 2-5% in recent years when regular inflation was 0.5-2%. So I think one could make a reasonably convincing case for inflating the cost of healthcare in your simulation by as much as 7% above base inflation (up to 3% inflation premium for healthcare above regular inflation, plus up to 4% annual healthcare spending growth from being a year older each year).

* https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/

** I should also mention these are inflation adjusted 2000 dollars, so the numbers would be higher today, but the ratio between the two is the same.

Quote
I used 13% and got an answer that was pleasing. It seems sufficiently conservative, some would say ridiculously over the top, but it works for me (the stash is big enough) so it's not an issue. YMMV.

I think this statement is a good example of the root cause of many disagreements about the 4% rule. You've got more than enough money given regular assumptions, so when you do the math you're trying to to figure out how crazy things can get and you'd still be okay. In your shoes I'd probably do the same thing, because it seems like it would help a person sleep better at night. Others who are still in the accumulation phase are often just trying to figure out what a good set of regular assumptions to use are.

The first task obviously calls for a much more pessimistic set of assumptions than the second one, yet people mix the two discussions together without usually specifying which task they're currently working on themselves (although in this case you did explicitly explain what was motivating your assumptions, which was quite helpful, thanks).

tooqk4u22

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Re: Stop worrying about the 4% rule
« Reply #1372 on: February 27, 2018, 08:07:29 AM »
Just to be clear on the inflation thing.....CPI is fundamentally BS.   It excludes food and energy, it makes up a figure for housing via imputed rent that is not based on any current information, it excludes government and employer funded health care, and on and on.  Some of these things will be very meaningful or less meaningful to a FIREe.

Adrian is right to be thinking about it though and the numbers seem about right without subsidies.

a lot of the items can be mitigated with substitutes, cutting back, moving, etc but health care is completely unknown, unpredictable, and CAN be a significant part of ones budget especially for the lower spending FIREe....I mean an extra $10k on a $40k budget would be crippling or massive deterioration in desired lifestyle.  So there are three FIRE issues for HC - (1) real inflation of it that typically exceeds CPI, (2) inflation due to aging/becoming less healthy, and (3) loss of subsidies.  HC is certainly one of my fears.   


nereo

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Re: Stop worrying about the 4% rule
« Reply #1373 on: February 27, 2018, 08:48:08 AM »
Just to be clear on the inflation thing.....CPI is fundamentally BS.   It excludes food and energy, it makes up a figure for housing via imputed rent that is not based on any current information, it excludes government and employer funded health care, and on and on.  Some of these things will be very meaningful or less meaningful to a FIREe.


No.
You can read about the CPI here:
https://www.bls.gov/cpi/#

Note that the data they collect is publicly available and broken down into individual categories and by region. As everyone's situation in retirement may be different, you can look at which categories and regions matter most to you and use that to adjust your WR and strategy.

The BLS calculates inflation both with and without food and energy prices, and there's good reason for doing so.  It also distinguishes between urban and rural consumers. There is no 'made up' information un-grounded in 'current information'.

here's a good article which goes into detail the misperceptions people have about the CPI.

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1374 on: February 27, 2018, 09:56:19 AM »
The first task obviously calls for a much more pessimistic set of assumptions than the second one, yet people mix the two discussions together without usually specifying which task they're currently working on themselves (although in this case you did explicitly explain what was motivating your assumptions, which was quite helpful, thanks).

Thanks for the post, Maizeman. Very good.

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1375 on: February 27, 2018, 10:16:36 AM »
...the one guaranteed thing that working longer brings you - you're closer to dieing [sic] than you were the day before.

You (and Maizeman, and many other ER bloggers) bring this up frequently.  As a counterpoint, there is also plently of correlation between wealth and longevity.  Of course, if working is more stressful than poverty, then I agree that you're better of ER'ing.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1376 on: February 27, 2018, 10:22:01 AM »
...the one guaranteed thing that working longer brings you - you're closer to dieing [sic] than you were the day before.

You (and Maizeman, and many other ER bloggers) bring this up frequently.  As a counterpoint, there is also plently of correlation between wealth and longevity.  Of course, if working is more stressful than poverty, then I agree that you're better of ER'ing.

having a pile of money you can live off of in the bank that allows you to FIRE i would say your situation linked describes exactly what a FIREe at 4% SWR would be on the wealthy not poor side of that equation.  the chance of ending up in poverty are greatly over blown in most of your statements and its not really mitigated too well by just accruing more assets.

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1377 on: February 27, 2018, 12:23:29 PM »
You (and Maizeman, and many other ER bloggers) bring this up frequently.  As a counterpoint, there is also plently of correlation between wealth and longevity.  Of course, if working is more stressful than poverty, then I agree that you're better of ER'ing.

I couldn't find the study in the Lancet that that article is talking about. Based on the effect sizes reported though it sounds like the conclusions were a lot like those from this JAMA paper* which found at "The gap in life expectancy between the richest 1% and poorest 1% of individuals [based on household income not net worth] was 14.6 years (95% CI, 14.4 to 14.8 years) for men and 10.1 years (95% CI, 9.9 to 10.3 years) for women." One thing you have to keep in mind though is that causality potentially runs in both directions. The JAMA study at least is looking at income and risk of death in the same year using anonymized tax return data. Generally very sick people who are the most likely to die in the next year are going to have extremely low incomes because they are sick and therefore cannot work.

In addition, being wealthy can be a double edged sword in the modern american healthcare system. Wealthy patents tends to correlate with receiving more medical procedures because people who experience more medical procedures report higher levels of patient satisfaction, and hospitals want to nurture potential donors (see "Red Blanket Patients"). But at the same time patients who receive more treatments, and hence are happier with their medical care, may actually have worse outcomes (ie die more often) than patients whose treatment decisions aren't influenced by trying to optimize patient satisfaction.**

Now that said, I don't doubt that being wealthy -- or at least not poor -- also does some good things for your lifespan by reducing stress and make sure you do have access to healthcare if and when you need it so my estimates of how fast people are likely to die, taken from the SSAs mortality tables, are likely to be a bit optimistic for the average FIREee who will have a lower stress lifestyle (if optimistic is the right word for thinking people will die faster and hence be less likely to live long enough to have to worry about having enough money). I remain on the look out for a data source on mortality/life expectancy that would be even more representative of the folks on this forum.

* Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586/

** Source: https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/1108766

TempusFugit

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Re: Stop worrying about the 4% rule
« Reply #1378 on: February 27, 2018, 01:40:33 PM »
You (and Maizeman, and many other ER bloggers) bring this up frequently.  As a counterpoint, there is also plently of correlation between wealth and longevity.  Of course, if working is more stressful than poverty, then I agree that you're better of ER'ing.

...at the same time patients who receive more treatments, and hence are happier with their medical care, may actually have worse outcomes (ie die more often) than patients whose treatment decisions aren't influenced by trying to optimize patient satisfaction.**


I heard a story on Radiolab, I believe that referenced a study done that compared outcomes on patients who went to the emergency room for heart attacks / symptoms of, and the comparison was related to the seniority of the doctors at the hospital during those days.  I can't recall the details of why it was less experienced doctors, perhaps something about holidays or conference season when so many senior cardiologists are travelling.  In any regard, the conclusion was that you had a better chance of a good outcome if you had the rookie doctors rather than the senior doctors because the less experienced doctors were less likely to use more invasive treatments.  In other words, just as you say, oftentimes the best treatment is no treatment or very mild treatments such as meds rather than procedures.

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1379 on: February 27, 2018, 01:56:22 PM »
I bet the story you heard was based on was this study: "The Startling Benefit of Cardiology Meetings." A really clever approach to analyzing the data and a fascinating -- if rather worrying -- result.

Quote
Sixty percent of patients with cardiac arrest who were admitted to a teaching hospital during the days when cardiologists were at scientific meetings died within 30 days, compared to 70 percent of patients who were admitted on non-meeting days.

News article: https://hms.harvard.edu/news/startling-benefit-cardiology-meetings
Original article: https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2038979

TempusFugit

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Re: Stop worrying about the 4% rule
« Reply #1380 on: February 27, 2018, 02:14:48 PM »
I bet the story you heard was based on was this study: "The Startling Benefit of Cardiology Meetings." A really clever approach to analyzing the data and a fascinating -- if rather worrying -- result.

Quote
Sixty percent of patients with cardiac arrest who were admitted to a teaching hospital during the days when cardiologists were at scientific meetings died within 30 days, compared to 70 percent of patients who were admitted on non-meeting days.

News article: https://hms.harvard.edu/news/startling-benefit-cardiology-meetings
Original article: https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2038979

Yep, that's the one. 

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1381 on: February 27, 2018, 02:15:49 PM »
I bet the story you heard was based on was this study: "The Startling Benefit of Cardiology Meetings." A really clever approach to analyzing the data and a fascinating -- if rather worrying -- result.

Quote
Sixty percent of patients with cardiac arrest who were admitted to a teaching hospital during the days when cardiologists were at scientific meetings died within 30 days, compared to 70 percent of patients who were admitted on non-meeting days.

News article: https://hms.harvard.edu/news/startling-benefit-cardiology-meetings
Original article: https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2038979

this all sounds like data that needs to be dumped into a computer and run against algorithms to determine what optimal treatment is. i hope they are recording everything in a easily manageable way so it can be processed by machines later

PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1382 on: April 03, 2018, 06:41:50 PM »
...well there's always the SciFi idea of the 'Singularity' - uploading our consciousness into a computer to live in perpetuity...

Yea, nobody wants me around forever.  Society stops evolving the moment individuals stop dying.  I loved my grandfather, but he was a born and raised a racist and the world is better off with his generation moved on.  I'm sure future generations will say something similar about me.

And besides, the singularity isn't exactly a FIRE utopia either.  Just think of all of the problems around maintaining a SWR in a virtual world.  Who's going to pay all of the maintenance workers who keep the servers running?  Where does the electricity come from, and who maintains that infrastructure?  How does asset ownership in the physical world translate into income streams in the virtual world?

Personally I think the whole idea is a hoax.  By the time we have generalist AI capable of indistinguishably reproducing my forum personality, that AI will also be capable of simultaneously reproducing every other forum member's personality too, and all of those digital representations of long-dead individuals will exist together in a hive mind.  In that situation, I think it would be pretty clear that fencing off one little personality (mine, yours, MMM's) as distinct from the others is sort of inefficiently redundant.  Why keep sol alive as a forum bot?  Just to amuse the other forum bots?  Can bots even be amused?  The hive mind would surely have to recognize that sol is kind of a dumb ass, on 99% of the possible topics of discussion, so why devote resources to letting him continue to be stupid when there are other parts of the hive mind that can do better? 

The singularity proponents want to live forever, but I'm pretty sure that digital superintelligence will have better things to do than play Renaissance Faire all day with the personalities of stupid racist dead people who are only holding the world back.
Great post! 

Our personality bots can simulate retirement and safely make 4.5% fewer posts per year until we fade away into the obscurity.

2lazy2retire

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Re: Stop worrying about the 4% rule
« Reply #1383 on: April 09, 2018, 08:27:11 AM »
Looks like the probability of being dead between the ages of 70 and 100 is unacceptably high...:)

Maybe if you cut back on living in your 50's/60's - there will be less chance of running out of life in your 70's/80's :)

honeyfill

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Re: Stop worrying about the 4% rule
« Reply #1384 on: April 09, 2018, 11:12:39 AM »
Looks like the probability of being dead between the ages of 70 and 100 is unacceptably high...:)

Maybe if you cut back on living in your 50's/60's - there will be less chance of running out of life in your 70's/80's :)

I've taken the opposite approach to making my money last longer than I do.  Instead of trying to make my money last longer, I've taken up smoking and drinking, this improves my chances of not running out of money before I die.   

tyort1

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Re: Stop worrying about the 4% rule
« Reply #1385 on: April 09, 2018, 12:36:25 PM »
Looks like the probability of being dead between the ages of 70 and 100 is unacceptably high...:)

Maybe if you cut back on living in your 50's/60's - there will be less chance of running out of life in your 70's/80's :)

I've taken the opposite approach to making my money last longer than I do.  Instead of trying to make my money last longer, I've taken up smoking and drinking, this improves my chances of not running out of money before I die.

AND it makes the time you are alive, more interesting.  Maybe not better, but definitely more interesting.

PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1386 on: April 14, 2018, 09:44:58 AM »
Some useful discussion here:

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=247050&newpost=3880684

Will not comment, but good points on understanding conclusions and limitations of Trinity study(basis for most SWR assumptions).
« Last Edit: April 16, 2018, 10:08:47 AM by PizzaSteve »

sol

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Re: Stop worrying about the 4% rule
« Reply #1387 on: April 14, 2018, 10:54:52 AM »
Noted is that study us for a 30 yr retirement, not longer and assumptions should be adjusted accordingly for longer plans (like mine :-)).

Have you read this thread?  There are thousands of words of analysis on the impacts of changing the SWR vs changing the withdrawal period, with charts and graphs, contained in the earlier pages of this very thread. Including second order analysis of the analyses.

I've found the BH forums to be incredibly helpful for people who are just starting out and trying to wrap their heads around basic concepts, but the depth of the analysis there is sometimes lacking.  There are some incredibly smart people over there, who unfortunately don't write very clearly and often muddle their insights and so the most complex analyses goes unrecognized.  Many of the nuances discussed in this thread, for example, are things I have never seen openly discussed on bogleheads.

MissNancyPryor

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Re: Stop worrying about the 4% rule
« Reply #1388 on: April 24, 2018, 06:49:25 PM »
Hey MMMers, remedial question here:

Do you consider the value of your paid-for house in the net worth upon which your initial SWR is calculated?  Or do you consider it a buffer that you could convert to some cash later if needed? 

For simple math, if I have $1M net worth including a $200K house, initial 4% SWR would be $40K and I should set that as my ongoing retirement number.   

If I only consider $800K that means I should set $32K as my number, but I know I have the house on the side (growing in value hopefully) that I can tap into by downsizing or becoming a renter if I need to.

In each case I can give myself inflationary raises of 2-3% a year and should monitor things to adjust spending if shit hits the fan in the economy, so we can disregard those distractions for this question. 

Which is the traditional way to calculate things?  I realize that the ultra conservative thing to do is to not include the house and to only pull 3% as the SWR, a bulletproof method that will make my heirs very rich.  I am wondering what the 'standard' guidance is or what the original theory suggests.       

(I word-searched all 29 pages of this thread manually and hit deborah's journal a bunch of times and learned steveo is considering downsizing, but this question is not answered.  Sending up a balloon, thanks!)

MDM

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Re: Stop worrying about the 4% rule
« Reply #1389 on: April 24, 2018, 07:14:47 PM »
1. Do you consider the value of your paid-for house in the net worth upon which your initial SWR is calculated?

2. Which is the traditional way to calculate things?
1. No, because
2. The studies from which the 4% number comes considered only stocks and bonds.

See Determining withdrawal rates using historical data and
Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable.
The latter article is often called the "Trinity study" because the authors were professors of finance at Trinity University.

MissNancyPryor

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Re: Stop worrying about the 4% rule
« Reply #1390 on: April 24, 2018, 09:20:26 PM »
Perfect, thanks! 

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1391 on: April 25, 2018, 10:46:25 AM »
I don't count it either. You have to live somewhere and no doubt if we chose to live somewhere else we would either buy or rent (duh!), so the proceeds of selling would ultimately be used to pay for the new digs.

I also assume that when we are old we might live in a nursing home.. well, once again thats where the proceeds of the house sale would go.

Bottom line is it really isn't "real money" in the sense that it doesn't provides income upon which you can live.

nereo

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Re: Stop worrying about the 4% rule
« Reply #1392 on: April 25, 2018, 11:28:45 AM »
ditto - with the caveat that one may consider the value of their house IF they are planning on selling it and moving (e.g. downsizing, relocating) early on in FI.  If rented out (partially or in full) that income would go into your calculations.

Thankfully simulators like cFIREsim allow you to estimate the effects of a lump-sum input (in this case the sale of a home) at any point during your retirement.  Obviously the uncertainty of how much a home might sell for should be considered.

steveo

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Re: Stop worrying about the 4% rule
« Reply #1393 on: April 25, 2018, 05:24:10 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.


Le Barbu

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Re: Stop worrying about the 4% rule
« Reply #1394 on: April 25, 2018, 06:32:27 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.

My home equity is included in my NW but not in my FI stash

steveo

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Re: Stop worrying about the 4% rule
« Reply #1395 on: April 25, 2018, 09:14:51 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.

My home equity is included in my NW but not in my FI stash

This is just semantics though. When I talk about my net worth I am stating my stash. You can definitely use home equity as part of your stash assuming you can convert that equity to investment funds - i.e. downsize your house and put the difference into your investment portfolio.

So in my case if I'm confident I will sell my house and pocket say $500k I would consider that part of my stash.

seattlecyclone

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Re: Stop worrying about the 4% rule
« Reply #1396 on: April 26, 2018, 02:12:34 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.

My home equity is included in my NW but not in my FI stash

This is just semantics though. When I talk about my net worth I am stating my stash. You can definitely use home equity as part of your stash assuming you can convert that equity to investment funds - i.e. downsize your house and put the difference into your investment portfolio.

So in my case if I'm confident I will sell my house and pocket say $500k I would consider that part of my stash.

I don't think there's such a thing as "just semantics." Words have meanings. "Net worth" is the sum of everything you own minus everything you owe. You may decide for whatever reason to exclude a portion of your assets from the part you expect to provide your retirement spending, in which case the "stash" is clearly a different thing from the "net worth."

bluebelle

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Re: Stop worrying about the 4% rule
« Reply #1397 on: April 26, 2018, 03:34:20 PM »
Do you consider the value of your paid-for house in the net worth upon which your initial SWR is calculated?  Or do you consider it a buffer that you could convert to some cash later if needed? 
I include it in my total net worth, but it is not part my FI net worth (ie assets used to determine SWR).  I do factor it back in around age 90.  I know the house will get sold and I'll move into some kind of senior's condo or retirement home by then (probably sooner - since our retirement home is outside of town - depends on how soon self driving cars become a reality for the average person). 

Eucalyptus

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Re: Stop worrying about the 4% rule
« Reply #1398 on: April 27, 2018, 07:17:56 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.


Steveo; I think the ultimate stash back up for all us Aussie MMM's is we all sell our houses then live a life of luxury in our own little community more than 100km from the nearest "city". We can all have big non-moustachian cars to get around. Won't matter, relatively.


For me, I'm going to start FIRE much higher than 4%. The house is definitely one of the backups. I can live in a van if I have to, or just go hiking for a year. I can go back to work if I have to easily enough; I LOVE my work (I'll actually keep working, unpaid, on exactly what I want to research; that's one of my main FIRE goals), when I get to choose what I do (research). Its not hard for me to pick up small research contracts, bits of teaching, etc. My FIRE portfolio will be quite diverse, not just a 60/40 like the Trinity Studies (if i remember correctly). It will be agressive on stocks, with glidepaths to the FIRE date, and rising equity glide path after FIRE. The 4% rule doesn't scare me at all.

steveo

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Re: Stop worrying about the 4% rule
« Reply #1399 on: April 28, 2018, 06:32:06 PM »
Your house can definitely be counted as part of your stash assuming that you are prepared to downsize within a certain time frame and you have realistic expectations of the bump to your stash of downsizing.

I live in a HCOL area. My house is probably worth 1.3 million. We could probably buy a house for anywhere between 400k - 800k. The difference could definitely be part of our stash.

In stating that at the moment I'm not including my house in my net worth because I'm not 100% sure we will move.


Steveo; I think the ultimate stash back up for all us Aussie MMM's is we all sell our houses then live a life of luxury in our own little community more than 100km from the nearest "city". We can all have big non-moustachian cars to get around. Won't matter, relatively.


For me, I'm going to start FIRE much higher than 4%. The house is definitely one of the backups. I can live in a van if I have to, or just go hiking for a year. I can go back to work if I have to easily enough; I LOVE my work (I'll actually keep working, unpaid, on exactly what I want to research; that's one of my main FIRE goals), when I get to choose what I do (research). Its not hard for me to pick up small research contracts, bits of teaching, etc. My FIRE portfolio will be quite diverse, not just a 60/40 like the Trinity Studies (if i remember correctly). It will be agressive on stocks, with glidepaths to the FIRE date, and rising equity glide path after FIRE. The 4% rule doesn't scare me at all.

Yep. I think 5% is fine for me to retire one but atm I am aiming a little lower than that but only because I want to have a high probability of making it to Super. So my plan is to get to Super which will mean that I have a 5% or lower WR and be prepared to sell the house.