The 5% growth in "yield"--I'm actually wondering if you didn't mean "earnings" for SP500
I meant what I said... I'm wondering if you're confusing earnings yield and earnings growth? I didn't say anything about earnings growth or "growth in yield".
Earnings yield is the inverse of the forward P/E ratio, or if you like the 'E/P' ratio. As an accountant and also a believer of evidence, I believe that accounting earnings is the least bad approximation of the flow of economic value (out of the set of earnings, dividends, buybacks, free cash flow), so the earnings yield is sort of the appropriate hurdle to compare against other projects.
The P/E of the S&P today is 16.6 so the earnings yield of the S&P 500 today is 6% pretax, which is 4.5-5% after tax if you're talking about taxable money at a 15-25% marginal income tax rate.
The safe withdrawal rate of 4%
That's just a rule of thumb in this context, although for me I think it will be pretty close to appropriate in the end. To my thinking the 4% safe withdrawal rate is also kind of like a hurdle rate or opportunity cost.
It matters here because if I could add 24 dollars to my stache but increase my expenses by a dollar a year, it would be a net negative, but if I could add 26 dollars to my stache for a dollar cost per year it would be net
negative positive. A 2.5% mortgage rate, being lower than 4%, can help you because you can add $100k of VTSAX to the pile for $2500 more annual interest (ties up just $62,500 of your stache), while a 7.5% interest rate, being higher than 4%, can hurt you ($100k of VTSAX and foregone mortgage paydown requires $7500 more annual interest and ties up $187.5k of math under the 4% rule).
One other one I'd offer as an alternative is some consideration of your baseline savings rate.
Not sure what this has to do with anything? Can you expand what you mean here?