Well, let OldPro speak for himself.
First, Eric, do not assume I am referring to 'dividends'. I am not, I am referring to income from investments. In my case that includes no dividends whatsoever.
Second, another rule I have is NOT investing in the stock market in retirement. That's what got so many in trouble in the recent 08/09 recession. The recession did not affect my income at all. It did however affect my capital's value. It did indeed take a dip but it continued to produce the same income. Capital value is not what matters though, income is what matters. Don't make the mistake of tying the two together, that is not always the case. Simple example, a rental property might take a dip in capital value while rental income remains the same. On the other hand another example is exchange rates. My wife has some income subject to exchange rates and it has fluctuated by as much as 25% in the last 9 years. The capital value (held in a different currency) did not drop but the income (in local currency) did. Trying taking a 25% hit on your income using the 4% 'rule'.
Next, let's look at the Rule of 3s as it applies to my own case. We have an income of around $65k (this year) and our actual expenses are around $25k. To that we add $20-25k discretionary spending and $15-20k savings that can be invested. Fits what I am suggesting pretty well.
But I did not start out with $65k of income and expect to maintain it for the next 50 years. I started out with $20k of income derived from $200k of capital invested and expected to grow both the capital value and income over time. At that time, I figured I could live (single guy) on $12k per year from that $20k income and in fact did so for some years and for as little as zero in a few years along with also supplementing income sometimes for short periods.
You immediately jump to believing I am saying you need to have $6mil Eric. Why? You need to have whatevever amount you need to START your RE with the income you want. Then over time, you need to continue to grow your income as required and also hopefully your capital value although that isn't strictly necessary.
There is a fundamental difference there in how I looked at it. I saw retirement as no different than working. You still need to continue to grow your income and you still need to put something aside for 'a rainy day'. Looking at it as being 'fixed', you FIRE with 4% ROI forevermore is YOUR thinking, not mine. Do you see that you are saying you are trying to determine what your income 40 years from now will be by 'fixing' it at 4%?
If I had FIREd with $200k capital and $20k income(10% ROI) 26 years ago (which I did) expecting to maintain that $20k(adjusted for inflation) ROI forevermore just by sitting the money in stocks and collecting dividends, there is no doubt I would be broke today. But things change. You cannot know what those changes will be down the road. All you can know is you have enough to live on today if you FIRE and from then on, you are going to have to change and adapt as necessary. Just like you do before you FIRE. The 4% Rule is not a rule, it's a joke.
If the 4% 'Rule' was indeed a rule that worked, then how come so many of those using it had to go back to work after the 08/09 recession? It sure wasn't working for them any more. Why? Because as soon as their income dipped below the 4% average, they did not have enough income to cover their expenses. Their 'plan' didn't have enough cushion in it. I actually find that somewhat hard to believe and yet I know it is true. Those people must not have had even much of a discretionary spending cushion to work with and had their income tied too directly to their capital value. Like I said, the 'closer to the bone' you live the more imporant a cushion becomes.
SwordGuy, you seem to be on the right track. I would add this. You can FIRE when you have enough passive income from investments for next year. In that regard, I have no problem at all with the 4% 'rule'. It's a reasonable number to use today to figure out if you can FIRE. Just as 10% was a reasonable number to use when I FIREd. Beyond next year you must adjust your tactics each year as required. I don't know why people cannot understand that you cannot predict 25-50 years down the road without a working crystal ball. I don't care what any 'calculation' shows them, it's just a guess.
I can tell you that in the 26 years since I FIREd, there have been changes in my life that I couldn't have even guessed at 26 years ago. To think the same will not be true for someone who FIREs today, is ludicrious as far as I am concerned. To think they can just assume 4% ROI and sit back is ridiculous as the 08/09 fiasco shows us. To think I could have just sat back from 1989 and assumed a 10% ROI would have been equally ridiculous. What I have done financially over those 26 years has varied a great deal from year to year. It only makes sense to me that it would have to. As Spock would say to think otherwise would be 'illogical'.