Think about it. When we use statistics to suggest having more money is meaningless, we are crossing over a line of what a statistical model is meant to represent in terms of guidance value.
Let me be clear: I'm definitely
not saying there is zero utility in having more money. I'm talking about the definition of "safe." Specifically, when we talk about "safe" withdrawal rates, by "safe" we mean the portfolio won't run out of money. The implied fear is that if we run out of money, we have to go back to work, thereby shortening our retirements. So to avoid the possibility the future will be worse than the past, we work extra years before retiring--thereby shortening our retirements. Either way, you have a shorter retirement, so there is no additional "safety." In both cases all you are doing is reducing the withdrawal period.
Obviously, if there is some big life crisis like a medical emergency that requires money, you are better off having more money. But those events aren't included in the SWR studies. The "safe" in SWR only knows about what happened in the past.
But the 4% rule also implies a precision that doesn't exist in the data. We don't have very much data, and the data aren't very good. Let me explain what I mean by that. First we only have three or so unique 30-year periods. Next we are using past conditions to as a comparison for the future. Let's look at the two worst starting dates, 1929 and 1966. In 1929, there was a widespread nationwide banking failure followed by deflation and a long, deep, depression. Economics wasn't as well understood back then, and it took years before the government started taking active measures to fix the economy. In 2007, there was a major banking failure, which was contained fairly quickly. Faltering banks were quickly shored up, there was almost no deflation, and the economy began recover quickly, in part bolstered by a robust safety net that didn't exist in 1929. In short, I don't think we'll see a 1929 style crisis in the future.
1966 was a poor year to start because it was characterized by stagnant stock market returns followed by a period of usually high inflation which the Fed (led by the bumbling Arthur Burns) failed to keep in check. The Fed now has an inflation target in the low single digits. I find it unlikely we'll see inflation that high ever again. So 1929 and 1966 aren't directly comparable to 2017. The world is a much different place now. Can we use those data to form opinions about the future? We have to. We don't have anything else.
But if we do see 1977 style inflation, a good hedge is to simply have a mortgage. That way your housing expenses are fixed (for the most part), with allows you to withdraw fewer inflation-adjusted dollars. And there are lots of hedging strategies, which most people are probably already using or could easily use. Owning rental real estate, having an income producing hobby, relying on Social Security for a supplemental income, reducing withdrawal rate, etc. So if "safe" means "not running out money" there are lots of common sense mid-course corrections available to most people--without shortening your retirement years which is what "safe" means in this context.
As arebelspy points out, (wildly paraphrasing) nobody ever got hit by the bus they saw coming. We're not going to have a 1929 style meltdown, and we won't have 1970s style inflation. The next thing will be something nobody anticipates, and if the 4% rule won't save us, then 3.3% rule probably won't either. In that case, we'll all have to fall back on hedging strategies--which most of us are already planning on doing. To put it another way, if the future really is worse than the past, no one can quantifiably say a 3.3 WR is "safer" than 4.0. The data aren't good enough to make that fine a distinction.
So, IMO, stop worrying about the 4% rule.
