I had a thought today and would like to share it. Nothing scientific, just a thought about the 4% rule.
You can make a retirement plan based on the 4% rule more reliable by adding multiple "safety nets" which could save you even if if the plan failed. In fact, I am sure that many of us already have a number of safety nets in place, we just don't realize it.
Examples of safety nets:
Bonds and other fixed income assets in your portfolio. By definition, you start with 25X your annual expenses if you use the 4% rule. If you have 20% in Bonds + CDs + Cash, you can just keep spending that part of your portfolio if tomorrow the stock market crashes 50% or more. E.g. your fixed income part becomes 40% in this case, keep spending it until it goes back to 20%. By that time chances are the stocks will have recovered from the crash. This assumes that bond and stock prices don't fall at the same time which is unlikely over longer time periods.
Cutting discretionary expenses. For example, 1/4 of your planned expenses include travel, luxuries and other discretionary expenses. If the market drops significantly, you just cut back that 1/4 for as long as you have to and boom, your are spending at 3% of the initial retirement amount. The 3% rule is pretty much bullet proof. OK, you won't be flying to Ibiza popping bottles or whatever, just hike for free locally and go to Planet Fitness instead, it's better for your health anyway.
Being able to go back to work or do temporary jobs or start a little business, e.g teach English online for $20 per hour. This option has been discussed a lot on the forum. The main point here is that you don't actually need that much money to beef up your savings and get back on track. Therefore, it doesn't have to be a high paying job or even a full time job. It's not that hard to find either.
Healthcare costs safety nets: there's Obamacare, Medicaid etc. at least for now. There is Medicare for those over 65. There are more liberal states which are likely to offer free or affordable health care options to lower income people regardless of federal rules. There are countries with free or cheaper health care where you may qualify for citizenship by ancestry, or your spouse may be from one of those countries. Nobody is 100% safe when it comes to health care and its costs, but my point is it's not as scary as it seems if you are willing to explore different options.
Your pensions, social security etc. While I wouldn't include social security or small pensions in retirement calculations, especially for younger retirees who may have their benefits reduced by the time they are old enough to use them, It's something that will likely provide some extra safety when you are older.
Worst case scenarios and additional safety nets
Let's say your portfolio fails and all those previous safety nets somehow fail as well which is very, very unlikely. Two additional options which may be somewhat unethical for those who have money, but if you are broke they are sill available for you.
-Government benefits. It sucks having to rely on them, but they are available and a lot of people use them. It's not like people starve to death out there, at least not in the US. Google videos and blog posts about cooking at home on food stamps budget, for example.
-Credit cards and other loans. What's your total credit limit? If you, like many Mustachians, have been opening cards to get sign up bonuses, it's probably in the high 5 - low 6 figures. That's your last safety net, my friend. Of course, it's unethical to borrow money you can't pay back, but if you are broke there is that option. You'll pay them back if you get back on your feet.
I would never use the last options unless I really had to. I think it would be unethical to do so. The point I am trying to make is that even if you somehow completely screw up your retirement, you are not going to die on the street. There are always options.
