Author Topic: 4% SWR (or 3.x) has never been modeled with current interest rates  (Read 13441 times)

FIRE 20/20

  • Bristles
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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #200 on: October 06, 2019, 01:29:05 PM »
I feel like there's a miscommunication going on in this thread, and I'm not sure how it can be corrected.  I'll try to point out a few places I think it's coming in, but I doubt I'll be able to make myself clear enough to fix the problem. 

Although life is a best guess, I'm not a fan of a do-whatever-your-feelings-tell-you retirement decision-making. In terms of personal finance, feelings = error. That's true for stock trading, car buying, timeshares, expensive broker relationships, and every other way to spend or invest. Why would it not be true for setting a WR? 

I haven't seen anyone advocate for "do-whatever-your-feelings-tell-you retirement decision-making".  This seems to me a major point of miscommunication.  I would argue that there simply is no perfect SWR that applies to everyone, and I think that's the point others are making as well.  For someone who sees any future work or any future cuts to spending as unacceptable, 4% is simply too high a withdrawal rate.  However, not everyone sees returning to work or cutting spending as a problem or a failure.  That doesn't mean they're saying "do-whatever...".  They're saying that's a buffer they built in because they know the 4% rule isn't fool-proof.  I can give some examples from my personal FIRE budget.  My partner and I worked out a series of ordered cuts to our budget if our 'stache falls below a specific level.  First on the list is $1200/year I have for meditation retreats.  I know that if the SHTF I will give those up first.  We both play on a sports team together twice a week.  Dropping to once a week is second on the list.  We have $100/month in our dining out budget - that drops to $30 if we hit our trigger.  Our big cut is #8 on the list - we have a whopping $9k/ year in travel budget.  If we hit our trigger that drops to $6k, then $3k at another trigger.  There is math behind all of this, so it's not just a willy nilly set of cuts.  It's part of the plan and those are things we are willing to give up if needed. 

Also, I'm skeptical about the possibilities to "personalize" one's WR by making assumptions about options that might not exist in the future, such as employability. Consider the 60 year old who retired at 40 but has experienced portfolio depletion and must return to work. Sounds doable in the US with our 3.5% unemployment rate right now, but suppose s/he is in Greece (or a possible future US) where the unemployment rate is over 17% and they have no experience for the past 20 years? Consider the downsizing or moving options for a retiree who owns their home outright, but would have to pay more in rent than the proceeds from the sale of their home could earn them. Consider the retired construction worker with a bad back, who might face disability if they aggravate the injury. Consider the retired tech or healthcare worker whose skills are obsolete/dangerous after 10 years of missed continuing education and lapsed certifications. 

Portfolio failures are typically apparent within the first 5-10 years.  See: https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/  Even then those failure scenarios generally give hints well before you reach the tipping point at 5-10 years.  Anyone with the skills and knowledge to get to a 4% WDR isn't going to be stupid enough to completely ignore high inflation and/or low returns in the first few years of retirement, so the odds of anyone getting to anything close to 20 years in and then encountering a FIRE failure seems spectacularly low to me. 


Yes, there are alternative ways to avoid wage slavery that don't involve FIRE. We need new terminology to describe strategies that are only partially dependent upon investments/pensions and still require the constant input of work or else the finances break down. Flextired? Semi-FIRE? PT-FIRE? Semi-retired? Part FI? The important part is to understand that quitting one's job to pursue one of these strategies is not the same as achieving FIRE. And I adamantly think if one's "FIRE plan" involves probably being forced to go back to work, it is something other than a "FIRE plan".

No, just FIRE plan is good enough - as long as it's part of the initial plan.  Certainly you can argue that someone who FIREs with an explicit plan that they will *need* to work, then sure - don't call that FIRE if you don't like it.  But if someone says they're retiring with a 4% WDR but they'll transition a volunteer activity like tutoring into a paid gig if they suspect they're in one of the rare failure modes - that's just a FIRE plan.  And it's a smart one because they are acknowledging up front that while they probably won't need to work again they have something in place to handle it if they hit the anti-lottery. 
« Last Edit: October 07, 2019, 11:04:27 AM by FIRE 20/20 »