Stop worrying about the 4% rule

[TomTX]

Make some friends.

But, Dude, they keep dying.

Hey, Tom; would you be my friend.  It's probably all just coincidence.

Well, stop picking friends based on how quickly they get to the front of the line at the ER!

[lauren_knows]

Does anybody know if it is possible to get a CSV of all the terminal portfolio values in a simulation run?

I looked at cFIREsim and there is a checkbox for Create CSV file with output stats in the right column.  Then, once you get the results plot there is a Download Simulation Data link at the bottom of the page.  However, the CSV file was weird.  I did the default simulation for 2015-2045 retirement and the CSV file only has rows for 1956-1985.  The CSV file does have ending portfolio value with and w/o inflation adjust.  So, it seems to have a bug in the CSV file generator.

It picks a retirement year for you (in this case 1956). I haven't been able to figure out how to get it to run a specific year you are interested in.

This is my problem. I want all the output data, not just a subset.

Yes, I know, cFIREsim is a great resource that's provided for free, and I should be happy that I even have access to such a tool in the first place.

I'll look into this.  It SHOULD be giving ALL of the data.

I admittedly have not been paying attention to cFIREsim as of late.  I made a big push at the end of last year to get a new job, and the last month I've been ramping up to learn more at this new job.

I'll report back when I can.

[2lazy2retire]

Which is why you have a (mobile) phone bill with that address on it and your name, and your driver's license has that address, etc.

By investigate, I mean that they actually do that.  As in, knock on the front door as ask to see the child's bedroom, kind of investigate.  Seriously, I live in one of the most desired public school districts in the state, and it's a criminal misdemeanor to claim a child lives in the home, when they do not.  It's really asking too much of anyone.

 "I live in one of the most desired public school districts in the state" << everyone thinks this LOL. Anyway I doubt the local school reps have authority to inspect anyone's bedroom?

[MoonShadow]

Which is why you have a (mobile) phone bill with that address on it and your name, and your driver's license has that address, etc.

By investigate, I mean that they actually do that.  As in, knock on the front door as ask to see the child's bedroom, kind of investigate.  Seriously, I live in one of the most desired public school districts in the state, and it's a criminal misdemeanor to claim a child lives in the home, when they do not.  It's really asking too much of anyone.

 "I live in one of the most desired public school districts in the state" << everyone thinks this LOL. Anyway I doubt the local school reps have authority to inspect anyone's bedroom?

That's was hyperbole, but they do have the authority to go to some rather great lengths to make certain that the child actually does live in the district.  It is a very good school district, and there have been cases of some people claiming that their grandchildren live in their home, while the parents live in another district.  They pretty much accept this on faith; but if they are never riding the bus, but always dropped off at the school by their parents instead of the grandparents, they will grow suspicious.  More than one family has been caught doing this kind of nonsense.  The practical consequences are low, however, as they usually just end up with a court order to transfer their kid at the end of the school year.  I'm not sure if some kind of fine has ever been imposed.

[retiringearly]

in

[AZryan]

-I live in one of the most desired public school districts in the state-

There are 'desired school districts' in KY?

Wow... I did not know that.

heh... I kid

[MoonShadow]

-I live in one of the most desired public school districts in the state-

There are 'desired school districts' in KY?

Wow... I did not know that.

heh... I kid

http://www.zillow.com/ky/districts/oldham-county-school-district-441396/#/ky/districts/oldham-county-school-district-441396/level=elem%2Cmid%2Chigh&type=public

This is the school district ranking page on Zillow.  The overall average ranking (1 to 10) is a 9, I don't know why the box on the upper right displays a 1.  All of the surrounding districts, except Anchorage, are lower.  Most are much lower.  I think that it would be pretty cool to find out what Zillow thinks of other member's school districts around the country.  If you lived in nearby Jefferson County (where the city of Louisville is identical to the county in size & borders; so this averages both the inner city & suburban schools) is a 5, you can see why there is some motivation to fake an Oldham county residence.

[2lazy2retire]

-I live in one of the most desired public school districts in the state-

There are 'desired school districts' in KY?

Wow... I did not know that.

heh... I kid

Best school district in KY,  I guess everything is relative ;)

[MoonShadow]

-I live in one of the most desired public school districts in the state-

There are 'desired school districts' in KY?

Wow... I did not know that.

heh... I kid

Best school district in KY,  I guess everything is relative ;)

A pox upon all your houses.  Next you uppity yankees are going to insist that a education requires shoes.

[2lazy2retire]

-I live in one of the most desired public school districts in the state-

There are 'desired school districts' in KY?

Wow... I did not know that.

heh... I kid

Best school district in KY,  I guess everything is relative ;)

A pox upon all your houses.  Next you uppity yankees are going to insist that a education requires shoes.

:) :)

[AdrianC]

Is 4.5% WR still safe?

For the 2000 and 2008 retiree Bengen says yes.

http://www.fa-mag.com/news/is-4-5---still-safe-27153.html?section=47

[Livewell]

Is 4.5% WR still safe?

For the 2000 and 2008 retiree Bengen says yes.

http://www.fa-mag.com/news/is-4-5---still-safe-27153.html?section=47

Thanks for posting! 

I think the answer remains aim for 4% and keep yourself flexible (especially in the first 10 years) and everything will work out.  It's good to read this type of data to back up that hypothesis!

[thinkinahead]

How does 4% withdrawal rule hold up with someone who retire in Japan around 1990ish?

[DrF]

depends on if they were invested in Japanese stocks or US stocks (or other). I wonder what landlording has looked like in Japan over the last ~25-30 years. My guess is on an island, probably not too bad.

[MoonShadow]

depends on if they were invested in Japanese stocks or US stocks (or other). I wonder what landlording has looked like in Japan over the last ~25-30 years. My guess is on an island, probably not too bad.

Don't assume that.  Japan is the the only country on Earth that has a 3 generation mortgage period. (100 years)  If such a term is required, then the odds are high that rent wouldn't cover a 30 year note payment.

[forummm]

How does 4% withdrawal rule hold up with someone who retire in Japan around 1990ish?

If they were (foolishly IMO) 100% Japanese stocks, then probably not great. But you can google for that. But if they were cap-weight globally diversified, they probably did OK.

[k9]

How does 4% withdrawal rule hold up with someone who retire in Japan around 1990ish?

If they were (foolishly IMO) 100% Japanese stocks, then probably not great. But you can google for that. But if they were cap-weight globally diversified, they probably did OK.

forummm, do you think US investors that are almost-100% stocks are foolish, too? If not, what makes them different? (hint: in the 80s, there were Japanese stocks investors that believed stocks always go up on the long run, as it always did historically, so don't panic, stay the course and you'll be fine).

Anyway, according to portfoliocharts.com, a 50% pacific / 50% total bond investor (remember those studies are made on a 50/50 portfolio) has a... 4.4% SWR, which is better than 100% US stocks (4.2%). But a 100% pacific investor (sic) has a 2.3% SWR.

[forummm]

How does 4% withdrawal rule hold up with someone who retire in Japan around 1990ish?

If they were (foolishly IMO) 100% Japanese stocks, then probably not great. But you can google for that. But if they were cap-weight globally diversified, they probably did OK.

forummm, do you think US investors that are almost-100% stocks are foolish, too? If not, what makes them different? (hint: in the 80s, there were Japanese stocks investors that believed stocks always go up on the long run, as it always did historically, so don't panic, stay the course and you'll be fine).

Anyway, according to portfoliocharts.com, a 50% pacific / 50% total bond investor (remember those studies are made on a 50/50 portfolio) has a... 4.4% SWR, which is better than 100% US stocks (4.2%). But a 100% pacific investor (sic) has a 2.3% SWR.

Do you mean 100% US stocks? Yes, I think that's foolish if you have a decent NW (if you are just starting out, it's totally fine). The US is the only market where that's more forgivable because we are pretty interlinked with much of the rest of the world. But I wouldn't be too reliant on long term performance of any one country. If you live in the US you will already have so much of your life reliant on the economy here anyway (SS, MC, availability of jobs, cost of goods, cost of healthcare, inflation, growth, etc). Why throw 100% of your savings into that mix as well? I'm ~50/50 US/Intl (like the market cap).

[k9]

So we pretty much agree. Thanks for your answer.

[AdrianC]

Reading Bill Bernstein's "The Investor's Manifesto" - great book BTW - page 45:

"When all is said and done, I still know of no better risk analysis tool for retirees under the age of 70 than this simple arithmetic: At a 2% withdrawal rate, your nest egg will survive all but catastrophic institutional and military collapse; at 3%, you are probably safe; at 4%, you are taking real chances; and at 5% and beyond, you should consider annuitizing most, if not all, of your nest egg".

Bernstein is on the pessimistic side of future return forecasting:
https://www.bogleheads.org/wiki/Historical_and_expected_returns#William_Bernstein

U.S. Large-Cap Stocks 2% real
Treasury Bills, Notes, and Bonds -1% real

[AdrianC]

Mad Fientist on the 4% SWR:
http://www.madfientist.com/safe-withdrawal-rate/

"As you can see, there is actually a strong correlation between the two so you can use the Shiller P/E 10 (a.k.a. Shiller CAPE) to predict safe withdrawal rates!

This exciting realization prompted me to use my programming skills to create a new Safe Withdrawal Rate indicator for the FI Laboratory. Now, you can log in at any time and see an up-to-date safe withdrawal rate estimate based on the most-recent Shiller CAPE value!"

Current SWR estimate: 3.8 - 3.9%

"Calculated using the 05/01/2016 Shiller CAPE Ratio of 25.49"

[Systems101]

An interesting perspective ("The “Feel Free” Retirement Spending Strategy"):
http://www.investmentnews.com/assets/docs/CI105854622.PDF

It simple, but I would like to see a lot more math behind it and how the extra buffer addresses the one time events/tail risk (which is basically what is addressed by going below 4%)

[arebelspy]

An interesting perspective ("The “Feel Free” Retirement Spending Strategy"):
http://www.investmentnews.com/assets/docs/CI105854622.PDF

It simple, but I would like to see a lot more math behind it and how the extra buffer addresses the one time events/tail risk (which is basically what is addressed by going below 4%)

Making up numbers is fun, but pretty pointless.

His range is take your age, divide by 10-20, and that's your range of spending, in percent.  So a 70 year old can spend between 70/20 = 3.5% and 70/10 = 7%.

A 40 year old?  Between 2 and 4%. 

And he really harps on the "feel free" part of it (see, for example, the conclusion).  Having a 40 year old spend 2%, a 60 year-old spend 3%, and a 70 year old 3.5% is quite low. This method leaves one to over-save, and work longer than necessary, IMO.  It's overly simplistic, which makes it mostly useless.

If you want more precise than a broad rule you try to apply to everyone, regardless of age, circumstance, etc., run cFIREsim calcs with variable spending and floors/ceilings.

This whole thread gives reasons why you can stop worrying about the 4% rule, and go with it.  Taking this more conservative "divide by 20" idea is the opposite of what this thread is advocating.  :)

[EscapeVelocity2020]

These 'retirement age' comments remind me of an article I read the other day - https://assetbuilder.com/knowledge-center/articles/to-live-well-you-need-lots-of-money

Basically, you can retire whenever you want and live very well with no possiblity of running out of money (living on today's ~2% dividend and bond yield) if you have 4 - 5 MM.  You can use a 4% SWR to bring that requirement down to $2MM (if you believe high CAPE + low yield environment will not influence the 4% rule eligibility going forward).  And finally, as you get closer to SS eligibilty, savings required come down dramatically due to having a new source of supplemental COLA'ed lifetime income.

For Mustachians, you can also live on less than the 'life of Riley' top 25th percentile income ($77,824) which reduces all of the figures proportionately. Even if you don't agree with the numbers per se, the anaylsis is interesting and can be tailored to fit your own scenario if you play with the table at the end of the article.

[arebelspy]

That article basically confirms our numbers.

His premise is to live what he calls the Life of Riley, you need ~$77,824/yr.  IMO, a Mustachian can easily live just as well as most people spending that much, but while spending half that, simply due to optimization and efficiency.

His article notes:

Suppose you take a regular safe withdrawal rate of 4 percent from your portfolio? You’d need ... $1,945,600

Now cut that in half, and you're just under 1MM.  Seems like what many here are shooting for.  Perfect.

[EscapeVelocity2020]

Which is exactly how I'd expect you to comment ARS.  I re-wrote my initial post about 10x so that it wasn't too easily dismissed as having flawed assumptions, so I'm glad you made it sound acceptable.  Glad to have the real IRP back commenting on everything :) 

[arebelspy]

I read that twice, and have no idea what you're talking about. :)

Sent from my Nexus 5X using Tapatalk

[EscapeVelocity2020]

https://www.youtube.com/watch?v=u7Mi6N5ZoN0 :)

[arebelspy]

Admittedly, I skipped around after about 20 seconds, but that didn't clarify anything. :)

[TomTX]

Mad Fientist on the 4% SWR:
http://www.madfientist.com/safe-withdrawal-rate/

"As you can see, there is actually a strong correlation between the two so you can use the Shiller P/E 10 (a.k.a. Shiller CAPE) to predict safe withdrawal rates!

This exciting realization prompted me to use my programming skills to create a new Safe Withdrawal Rate indicator for the FI Laboratory. Now, you can log in at any time and see an up-to-date safe withdrawal rate estimate based on the most-recent Shiller CAPE value!"

Current SWR estimate: 3.8 - 3.9%

"Calculated using the 05/01/2016 Shiller CAPE Ratio of 25.49"

The problem is that the calculation of  "earnings" shifted quite significantly with Sarbanes Oxley, likely in a pessimistic direction.  This makes Shiller CAPE likely too pessimistic as well.

[k9]

Hey, I read a very interesting (and very old) post on Bogleheads yesterday, and wanted to share it with you, but I can't find it anymore :(, so apologies to author but I can't link to it. However, here's the general idea.

We have 2 mustachians (let's call them M1 and M2) on their path to FIRE. They have the very same age (they can even be twins, if you like). M1 had a huge downfall, and suddenly owns $ 1 million. Cool, that's even more than he needs, so he retires, and SWR states he can spend $ 40 000 (4%) per year. $ 30 000 (3%) would be quite conservative, and $ 50 000 (5%) would be quite risky. M1 is conservative, and he didn't expect having so much money in the first place, so he goes for 3%.

Five years later, the market fell and M1's portfolio is now worth $ 700k, but that's okay, the rule states he can still spend inflation-adjusted $ 30 000 (let's say 35 000 in today's dollars) and it was a conservative choice in the first place, so let's keep on tracks. Well, it happens M2 saved agressively these last 5 years, and now owns 700k, too, which allows him to FIRE. The 4% SWR rule states he can spend $ 28 000 per year, with $21k (3%) being very conservative and $35k (5%) being quite risky. M2 loves risk (after all, he has a lot of safety margins), so he goes for 5%.

No, here's the question. M1 and M2 both have the very same life expectancy, both have the very same net worth, the very same asset allocation and both spend $35k per year. How on earth can a spending pattern be very conservative and very aggressive at the same time ???

Sounds like a riddle of the Sphinx. Enjoy.

[MDM]

M1 and M2 both have the very same life expectancy, both have the very same net worth, the very same asset allocation and both spend $35k per year. How on earth can a spending pattern be very conservative and very aggressive at the same time ???

For one thing, the SWR calculation is built on a 30 year assumption.  M1 has used 5, so has only 25 to go, while M2 has to last the full 30.

[2Birds1Stone]

M1 and M2 both have the very same life expectancy, both have the very same net worth, the very same asset allocation and both spend $35k per year. How on earth can a spending pattern be very conservative and very aggressive at the same time ???

For one thing, the SWR calculation is built on a 30 year assumption.  M1 has used 5, so has only 25 to go, while M2 has to last the full 30.

Great answer MDM

[tooqk4u22]

M1 and M2 both have the very same life expectancy, both have the very same net worth, the very same asset allocation and both spend $35k per year. How on earth can a spending pattern be very conservative and very aggressive at the same time ???

For one thing, the SWR calculation is built on a 30 year assumption.  M1 has used 5, so has only 25 to go, while M2 has to last the full 30.

That has no bearing on this as both have a current portfolio of $700k.  The answer is in the sequence of returns risk/benefit.   While there is no way to predict what the markets will do with any certainty it is fairly easy and reasonable to assume that after a 30% drop in the market from $1mil to $700k (or much much more if it was a balanced portfolio) you can be more aggressive.  The opposite (Risk) is also true, after a long/large run up that there is more risk of the portfolio declining than climbing at least in the near to intermediate term.

If I had enough to FIRE in 2009 then 4% or higher WR would make sense, but in 2006 or even now I don't think so and am more in the 3-3.5% WR view. 

[brooklynguy]

M1 and M2 both have the very same life expectancy, both have the very same net worth, the very same asset allocation and both spend $35k per year. How on earth can a spending pattern be very conservative and very aggressive at the same time ???

Sounds like a riddle of the Sphinx. Enjoy.

The two identical spending plans (inflation-adjusted $35k per year for the next X years using a $700k portfolio commencing on the same date) obviously have identical risk profiles.  In characterizing one as conservative and the other as aggressive, you're just ignoring all of the context that serves as a frame of reference.

Here's a similar story:  M1 lives on a remote, isolated island where the average height of the population is 5 feet, and the tallest individual on the island is 5 feet 8 inches.  M1 is 5 feet 6 inches tall, and consequently considers himself quite tall.  M2 lives on a different remote, isolated island where the average height of the population is 6 feet, and the shortest individual on the island is 5 feet 4 inches.  M2 is 5 feet 6 inches tall, and consequently considers himself quite short.

Now, here's the question.  M1 and M2 are both exactly the same height.   How on earth can a given height be quite short and quite tall at the same time???

The approach of using historical SWRs to forecast the likelihood of future portfolio success deliberately ignores all current context, implicitly assuming that every retirement start date has an equal likelihood of success regardless of then-existing market conditions.  In the real world, we all know this assumption is not true.  In your example, an X% spending plan using a $700k portfolio is necessarily more likely to succeed starting on M2's retirement start date (after the market dropped) than on M1's start date (before the market dropped).

[MDM]

For one thing, the SWR calculation is built on a 30 year assumption.  M1 has used 5, so has only 25 to go, while M2 has to last the full 30.

That has no bearing on this as both have a current portfolio of $700k.  The answer is in the sequence of returns risk/benefit.

The 30 year assumption is one thing, and the sequence of returns is yet another.  No need to argue - both have a bearing.

[tooqk4u22]

For one thing, the SWR calculation is built on a 30 year assumption.  M1 has used 5, so has only 25 to go, while M2 has to last the full 30.

That has no bearing on this as both have a current portfolio of $700k.  The answer is in the sequence of returns risk/benefit.

The 30 year assumption is one thing, and the sequence of returns is yet another.  No need to argue - both have a bearing.

Sure when you start out in the context of the 4% rule, but in the context of the actual question the timeframe doesn't matter.  As Brooklynguy said:

The two identical spending plans (inflation-adjusted $35k per year for the next X years using a $700k portfolio commencing on the same date) obviously have identical risk profiles.   

[k9]

For one thing, the SWR calculation is built on a 30 year assumption.  M1 has used 5, so has only 25 to go, while M2 has to last the full 30.

Sure, but it keeps being used in FIRE communities where retirements are supposed to last much longer than 30 years.

That has no bearing on this as both have a current portfolio of $700k.  The answer is in the sequence of returns risk/benefit.

Yes, precisely. M1 and M2 will face the same sequence of returns from that point, and SWR theory just ignores that.

The approach of using historical SWRs to forecast the likelihood of future portfolio success deliberately ignores all current context, implicitly assuming that every retirement start date has an equal likelihood of success regardless of then-existing market conditions.  In the real world, we all know this assumption is not true.

My point exactly. I think that SWR thing is overrated. I agree 25 x annual expenses (which is just SWR^-1) is a good approximate target for people hoping to FIRE (or just to retire at "regular" age), but that's about it.

Anyway, I'm pretty sure nobody on earth ever used this rule unmodified from the day they retired until their death. So, stop worrying about the 4% rule: it's not even a rule, it's just a raw indication of how much net worth you should target before you can retire.

[AdrianC]

If I had enough to FIRE in 2009 then 4% or higher WR would make sense, but in 2006 or even now I don't think so and am more in the 3-3.5% WR view.

Be careful. With that kind of rational thought you'll get labeled as a doomer-gloomer.

[tooqk4u22]

If I had enough to FIRE in 2009 then 4% or higher WR would make sense, but in 2006 or even now I don't think so and am more in the 3-3.5% WR view.

Be careful. With that kind of rational thought you'll get labeled as a doomer-gloomer.

Reason, logic, risk calibration are terrible things....much better to be a lemming and follow the masses blindly. 

[fattest_foot]

Or do what a rational early retiree would do, and adjust spending when the market has tanked. Market is down 30%? Maybe stop blindly following the 4% rule and pare back a bit. When it comes back up, maybe you start to draw 4% again, or go crazy and draw 5% or more?

[brooklynguy]

M1 and M2 will face the same sequence of returns from that point, and SWR theory just ignores that.

But "SWR theory" deliberately ignores that, and compensates for its blindness to then-existing market conditions by setting the clearance hurdle at history's worst case or near-worst case scenarios (or whatever specific alternative threshold you opt for that makes you comfortable).  It always remains true that at any given time, if you're using a SWR with an X% historical success rate, the future would have to be as bad as or worse than the worst 100-X% of cases in history [edited to add:] for your spending plan to fail.

[tooqk4u22]

Or do what a rational early retiree would do, and adjust spending when the market has tanked. Market is down 30%? Maybe stop blindly following the 4% rule and pare back a bit. When it comes back up, maybe you start to draw 4% again, or go crazy and draw 5% or more?

That would work as well but you need to have the flex to spend less, and most people assume more than bare bones spending for FIRE by including travel, good food, etc so therefore have that flex. 

[tooqk4u22]

M1 and M2 will face the same sequence of returns from that point, and SWR theory just ignores that.

But "SWR theory" deliberately ignores that, and compensates for its blindness to then-existing market conditions by setting the clearance hurdle at history's worst case or near-worst case scenarios (or whatever specific alternative threshold you opt for that makes you comfortable).  It always remains true that at any given time, if you're using a SWR with an X% historical success rate, the future would have to be as bad as or worse than the worst 100-X% of cases in history [edited to add:] for your spending plan to fail.

That is why it is good to evaluate if when you FIRE you are in a period that resembles one of those 100-x% times - its not about focusing on things being worse than they ever have, its about the periods that failed - x%.   

[MDM]

For one thing, the SWR calculation is built on a 30 year assumption.  M1 has used 5, so has only 25 to go, while M2 has to last the full 30.

That has no bearing on this as both have a current portfolio of $700k.  The answer is in the sequence of returns risk/benefit.

The 30 year assumption is one thing, and the sequence of returns is yet another.  No need to argue - both have a bearing.

Sure when you start out in the context of the 4% rule, but in the context of the actual question the timeframe doesn't matter.

The actual question included

SWR states he can spend...4% per year...3% would be quite conservative, and...5% would be quite risky.
...
The 4% SWR rule states he can spend $ 28 000 per year, with ...3% being very conservative and ...5% being quite risky.
...
How on earth can a spending pattern be very conservative and very aggressive at the same time ???

One is free to interpret whether the question (let alone the thread) is in the context of the "4% rule" - but that's how I interpreted it.

[k9]

But "SWR theory" deliberately ignores that, and compensates for its blindness to then-existing market conditions by setting the clearance hurdle at history's worst case or near-worst case scenarios (or whatever specific alternative threshold you opt for that makes you comfortable).  It always remains true that at any given time, if you're using a SWR with an X% historical success rate, the future would have to be as bad as or worse than the worst 100-X% of cases in history [edited to add:] for your spending plan to fail.

Yep, but you have to see the other side of the coin, too. Since SWR is so paranoïd (worst-case focused), more often than not, you end up with an absurd amount of wealth at your death. Sure, that's good news for your heirs, but that also means either you end up having worked too much in your life, or you have restreined yourself too much regarding spending. You're a 1961 mustachian, you're FI since 1933 and you're starting to get old (about 65-70). Your net worth is now an incredible 8 million bucks, while you started at 1 million. Couldn't you afford that wonderful trip around the world you delayed for so long ? Could you go to that very expensive but *amazing* restaurant you've heard about in France ? Just once in your lifetime ? Nope, 'coz SWR says you should only spend 40 000 (inflation adjusted) this year, again and again.

Practical consequence, for instance : maybe FIREing earlier, at 20 years of expenses (5% SWR) *and* being ready to work part-time unless the markets are friendly in the first years of your retirement is a viable strategy, I dunno, but that would mean that, on average, you can work even less that advised. Don't try this at home though, I'm just thinking out loud.

[Monkey Uncle]

But "SWR theory" deliberately ignores that, and compensates for its blindness to then-existing market conditions by setting the clearance hurdle at history's worst case or near-worst case scenarios (or whatever specific alternative threshold you opt for that makes you comfortable).  It always remains true that at any given time, if you're using a SWR with an X% historical success rate, the future would have to be as bad as or worse than the worst 100-X% of cases in history [edited to add:] for your spending plan to fail.

Yep, but you have to see the other side of the coin, too. Since SWR is so paranoïd (worst-case focused), more often than not, you end up with an absurd amount of wealth at your death. Sure, that's good news for your heirs, but that also means either you end up having worked too much in your life, or you have restreined yourself too much regarding spending. You're a 1961 mustachian, you're FI since 1933 and you're starting to get old (about 65-70). Your net worth is now an incredible 8 million bucks, while you started at 1 million. Couldn't you afford that wonderful trip around the world you delayed for so long ? Could you go to that very expensive but *amazing* restaurant you've heard about in France ? Just once in your lifetime ? Nope, 'coz SWR says you should only spend 40 000 (inflation adjusted) this year, again and again.

Practical consequence, for instance : maybe FIREing earlier, at 20 years of expenses (5% SWR) *and* being ready to work part-time unless the markets are friendly in the first years of your retirement is a viable strategy, I dunno, but that would mean that, on average, you can work even less that advised. Don't try this at home though, I'm just thinking out loud.

As someone else said above, SWR theory just produces a reasonable estimate of the stash size you need to pull the plug.  When you reach that number, retire.  Run cFiresim every year on January 1 to determine how much you get to spend that year.  If your stash keeps growing, your spending number will go up.  If your stash is shrinking, your spending number may go down or stay the same, depending on how much your stash has shrunk relative to the time you have left.  That way you get to take advantage of good market returns without taking on the risk of spending too much when you start out.

[Retire-Canada]

Sure, that's good news for your heirs, but that also means either you end up having worked too much in your life, or you have restreined yourself too much regarding spending.

This ^^^ is the part that bothers me about the 4% freak out as I'll call it. Going to a 3% WR is a huge difference in time at the prime of your life spent working. That opportunity cost rarely gets mentioned because it's not a dollar figure.

Practical example:

- I have $550K saved invested
- I would like to FIRE with $40K/yr
- I can save $40K/yr
- over the short-term my returns are 5% after inflation
- to hit 4% WR [$1M] takes me ~6yrs
- to hit 3% WR [$1.33M] takes me ~9.5yrs

I could spend that extra 3.5yrs working FT saving/investing or I could stop working that much earlier and enjoy my freedom while I was younger.

Add in the fact nobody knows how long they'll live and it seems to me 3.5yrs at prime health is pretty valuable. Therefore the cost of working the additional time because you think the next 30yrs will be worse than the years covered by the Trinity study is not insignificant.

In reality I wouldn't even work the 6yrs FT to hit 4% WR. I'd downshift to PT by $600K after ~1yr and take a bunch of freedom now while I am healthy and let my 'stach grow on its own to the desired size.

I'm with the posters above who note that flexibility is a powerful tool in the FIRE toolbox to deal with risks. A tool that is much better in my opinion than simply working more for a huge 'stach. It's not like we are loading up a spaceship and heading to colonize Mars with no shot at resupply.

[Telecaster]

But "SWR theory" deliberately ignores that, and compensates for its blindness to then-existing market conditions by setting the clearance hurdle at history's worst case or near-worst case scenarios (or whatever specific alternative threshold you opt for that makes you comfortable).  It always remains true that at any given time, if you're using a SWR with an X% historical success rate, the future would have to be as bad as or worse than the worst 100-X% of cases in history [edited to add:] for your spending plan to fail.

Yep, but you have to see the other side of the coin, too. Since SWR is so paranoïd (worst-case focused), more often than not, you end up with an absurd amount of wealth at your death. Sure, that's good news for your heirs, but that also means either you end up having worked too much in your life, or you have restreined yourself too much regarding spending. You're a 1961 mustachian, you're FI since 1933 and you're starting to get old (about 65-70). Your net worth is now an incredible 8 million bucks, while you started at 1 million. Couldn't you afford that wonderful trip around the world you delayed for so long ? Could you go to that very expensive but *amazing* restaurant you've heard about in France ? Just once in your lifetime ? Nope, 'coz SWR says you should only spend 40 000 (inflation adjusted) this year, again and again.

Practical consequence, for instance : maybe FIREing earlier, at 20 years of expenses (5% SWR) *and* being ready to work part-time unless the markets are friendly in the first years of your retirement is a viable strategy, I dunno, but that would mean that, on average, you can work even less that advised. Don't try this at home though, I'm just thinking out loud.

Interesting article from Kitces this week (emphasis original:).

As the chart reveals, the decision to follow a 4% initial withdrawal rate makes it exceptionally rare that the retiree finishes with less than what they started with, at the end of the 30-year time horizon; only a small number of wealth paths finish below the starting principal threshold. In fact, overall, the retiree finishes with more-than-double their starting wealth in a whopping 2/3rds of the scenarios, and is more likely to finish with quintuple their starting wealth than to finish with less than their starting principal!

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

[Telecaster]

As someone else said above, SWR theory just produces a reasonable estimate of the stash size you need to pull the plug.  When you reach that number, retire.  Run cFiresim every year on January 1 to determine how much you get to spend that year.  If your stash keeps growing, your spending number will go up.  If your stash is shrinking, your spending number may go down or stay the same, depending on how much your stash has shrunk relative to the time you have left.  That way you get to take advantage of good market returns without taking on the risk of spending too much when you start out.

You can do that, but the place were the 4% rule really gives you protection is if you get a bad set of years early on in the sequence.  Let's say the market goes up for the first three years of your retirement and you dutifully increase your spending, then down or sideways for the next ten.  Now you are in the situation where your standard of living is decreasing for maybe 10 years in a row.  That's a lot of belt tightening.  Or you can just trust the 4% rule and everything will be fine.