Author Topic: Stop worrying about the 4% rule  (Read 451294 times)

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1600 on: October 19, 2018, 08:39:10 AM »
Except for the spectre of approaching death.

Let's face it people shooting for 2%WR or lower a secretly using the "if I die at my desk" strategy as a way to ensure they never have to worry about running out of money and perhaps even better "if I die at my desk I never have to face the scary possibility of actually having to stop working!" So I don't think death holds the same concern for them as it does for folks who are eager to retire and get off the hamster wheel. ;-)

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1601 on: October 19, 2018, 09:18:19 AM »
The other item people forget to think about is the spending aspect of a WR. Spending is not a constant over 50 years.

When talking about %WRs spending is assumed to be appropriately budgeted. If you are at 2%WR and don't have a budget you can live with or you are at 8%WR and have 300% luxury spending built in than there is no point trying to even compare the two.

Before you bother working out a withdrawal rate you need to determine how much annual budget you need for your retirement. If you fail at that step nothing you do further down the planning process is going to be reliable.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1602 on: October 19, 2018, 09:32:04 AM »
This is an over generalization and not true for everyone.

Nothing is true for everyone. People are very creative and will come up with all manner of reasons to OMY.

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1603 on: October 19, 2018, 09:36:11 AM »
Yeah the budgeting step is interesting. We went from $30k/year prior to RE to something more like $45k after RE. Why? Well we are not exactly sure yet (this is the first year of no real employment for either of us), nor are we sure of what our actual spend is yet.

I know we did a few things around the house, such as installed a new deck plus bought a fancy large fridge but that would only account for about half the extra spend.

Part of the issue is that 2% WR is about $60k for us so in some ways the extra spend really doesn't matter.. Good problem to have/hedonistic adaption perhaps?

PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1604 on: October 19, 2018, 09:57:39 AM »
Agreed.  Thats why I get so annoyed about the mortgage debates.  It's really all about spending management, with investment returns really secondary.  Any decent investment strategy will do, ETFs, being debt free, individual stocks, rentals, even bonds or CDs are fine, assuming you live honestly and without that need to consume.

So much focus on x% withdraw rates misses the big picture. The models are just a tool/framework.  Lifestyle and savings are what matters, whether at a 2% or an 8% withdraw rate.  If you can manage yourself, track your status and be flexible, you will be fine.

Investment optimization threads are all fine, but secondary IMHO.

Well the underlying what you're invested in still matters a great deal. There are probably more unsuccessful investment to SWR mixes than successful ones.
Yes, but lets analyze what an 8% 'failure' looks like.

8% YOLO failure..
1) Focused young on doing your dreams.
2) Lived well, for maybe 30 years during your youth traveling, doing your thing.
3) In your senior years your stash looks something like the typical person at retirement (e.g. not much).
4) So you live frugally on social security or the local equivalent, cause you ran out of money.  Welcome to the world of most people.  However, you also have awsome life skills from your experience living off savings.  Likely you know how to make a thin income awsome.  You walk daily (because you have a healthy body from a lifetime of having time to exercise and with low stress).  Maybe some successful friends you made while retired help out with free vacations at their home, etc)

Meanwhile, 2% 'success' may mean...
1) Working much longer, perhaps another 10 years until traditional retirement age
2) Having more money than you need so you get some luxuries at old age (not to be under estimated)
3) Never pursued those thing you wanted to do while young enough to do it (e.g. mountain climbing, extreme sports, etc)

I am not advocating 8%, just saying it might be a good plan for someone really not materialistic, and with very specific goals like wanting time with kids during their youth, assuming they understand the consequences.  Often an 8% er inherits some cash when they run out, not that that is a good plan.  aive seen many very poor savers bailed out at 60 by a parents bequest.

The deciding factor may just be how much one likes their income generating life phase.  We oversaved more because we had good jobs we enjoyed and a good lifestyle while earning, than because we feared a lack of money after early retirement.  So it worked for us.

@Exflyboy We struggle a bit with giving ourselves permission to spend, having also saved to 2%ish.  A life of frugal habits is good, but can get in the way.  Nothing is wrong with the occasional deck or fancy fridge, well deserved. Better to get it when you will enjoy it for decades than hoard money.
« Last Edit: October 19, 2018, 10:09:55 AM by PizzaSteve »

steveo

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Re: Stop worrying about the 4% rule
« Reply #1605 on: October 19, 2018, 05:31:52 PM »
Before you bother working out a withdrawal rate you need to determine how much annual budget you need for your retirement. If you fail at that step nothing you do further down the planning process is going to be reliable.

This is the most important point and it gets missed in these maths type debates. Unless you get your estimated spending right it's going to be shot in the dark. That in all reality is probably a variable spending idea. You need to have an idea though of what you can live off but it's probably going to be I'd like to live on x but I can live off y for a period of time if things go bad so that I can quit earlier.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1606 on: November 03, 2018, 11:01:16 AM »

-snip-

Part of the issue is that 2% WR is about $60k for us so in some ways the extra spend really doesn't matter.. Good problem to have/hedonistic adaption perhaps?

2 % is a 50 X multiplier.

$60,000 X 50 = $3,000,000

It would take 30 years to spend that down at 100 K a year without any return.  You are definitely in a position where you do not have to worry about the 4 per cent rule.

Is health care a valid reason for OMY?  It seems rather unpredictable.  The 4 percent is fine other than that.

dude

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Re: Stop worrying about the 4% rule
« Reply #1607 on: December 04, 2018, 09:48:49 AM »
 This may have been posted here before (hell, I might have posted it previously!), but it gives me great comfort every time I read it:

https://www.kitces.com/blog/consumption-gap-in-retirement-why-most-retirees-will-never-spend-down-their-portfolio/