Wow that was bad. I've never seen this guy before. Is he really ignorant of the facts or is he trying to mislead his audience? Reading the 4% sticky on this board in the investment area would provide much better coverage of the issues around the 4% rule of thumb. Just to pick out a few of the worst sections of the video:
*Note* my phone dropped its connection partway through the video. I think I picked up in the same spot, but there's a chance I missed him reference something (like the earnings rules changes or a mention of S.S.) that I called out below. If so please let me know and I'll modify my post.
1. He spends a good deal of time on CAPE and earnings yield, but unless I missed it he doesn't talk about the change in the earning rules around the late 1990s. This means the definition of the denominator of CAPE - earnings - was redefined. As a result, we would expect to see higher CAPE values following the change. And, lo and behold that's exactly what the data show. It's a little like if a soccer coach took 100+ years of historical data on when and where to take a shot on goal and taught her players not to shoot outside that range. If the net size had been doubled around 2000 and tons of goals had been scored during the past 20 years from places that were formerly bad shots and she told her players not to adjust because historically (when the net was smaller) those shots wouldn't have gone in she would be fired. That's what this guy is saying in financial terms. Either he doesn't know this, in which case he's ignorant of very basic facts, or he does know it but he's intentionally misleading his audience. Either way, that's strike #1.
2. What would you think of someone who talks about retirement and doesn't mention Social Security? Seriously? I'm assuming that this guy is based in the U.S. based on his accent, and I suspect other countries that have audiences for this type of video have something similar. Most people who retire early can expect something from S.S., and I suspect that people who FIRE really early generally made significant money while working and are going to get a substantial amount. I FIREd at 42 and if S.S. pays out 100% to me then at about age 67 all of my planned budget will be covered by S.S. alone. I expect changes to S.S. before then so I'm only planning on getting about 2/3 of my currently forecast benefit, but that's still a huge chunk of money that will arrive well before 30 years are up. Even if he's assuming that S.S. can't be relied upon at all, that's a very substantial assumption that should be called out explicitly. Either way, completely ignoring Social Security in a post about retirement is really appalling. For most people (and I think most U.S. FIREes fall into this category) S.S. is very likely to provide a substantial portion of their income well within the first 30 years of retirement. Strike #2.
3. He makes the very, very common error of conflating two different concepts - planning for an amount to support FIRE and withdrawal strategies. The 4% rule was never intended to provide a guide to withdrawals. It was intended as a rule of thumb (a term he does use at the beginning) to get potential retirees into the ballpark with a bunch of assumptions baked in. I have never heard anyone knowledgeable suggest blindly following the 4% "rule" for actual withdrawals. The error here is essentially mistaking the map for the route. If I plan a road trip, I certainly will look at a map to plan where I'm going to drive. But if I find traffic, want a cup of coffee, or see an interesting roadside attraction I'm going to change it up. People who make the error of thinking of the 4% "rule" as a withdrawal guide are like a driver who tapes the map to the inside of their windshield when they set out on a road trip. Strike 3.
There are a bunch of other problems with this video, but those 3 struck me as the most egregious.
