Stop worrying about the 4% rule

[DavidAnnArbor]

The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

[dougules]

The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

3-5 million for a single guy?  You could have a swimming pool full of cash to swim in during your retirement. 

[boarder42]

[Tyson]

The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.

[dougules]

The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.

If the average person in Nicaragua or India had $30k/year they would see it as luxurious, and that's even if you adjusted down for cost of living. 

[Eric]

I'm a big fan of global diversification. Even if it doesn't increase the returns, if it helps to reduce volatility then this is a way to increase the safe withdrawal rate (SWR). It's hard to say the specific improvement because it requires assumptions about returns, volatilities, and correlations between all the asset classes. But as an example, for a case I looked at in my book, broader diversification increased the SWR estimate from 3.34% to 3.61%. WW1 & WW2 created some really bad SAFEMAX outcomes around the world, but even without that there are plenty of cases of withdrawal rates internationally falling well below 4%.

This is a prime example of how experts in any singular field are hyper focused on the area of their expertise.  They are unable to look at the practicalities of situations outside of their hyper focused specialty.

Here is my problem with this sentiment from Pfau.  If I was living in Berlin in 1944, or London in 1940, or Paris in 1941; do you really think I would give two shits about my SWR?  or would I be busy hiding from bombs/Nazis (the real ones, not the political party I disagree with)?  To include data from these areas, during these periods, and come to a conclusion SWR could be worse given bad circumstances is ridiculous, IMO. 

I'm a pessimist by this forums standards.  I think North America has a chance of suffering the same fate as old Europe.  Even as a pessimist, I'd give it maybe a 10% chance of something like a Europe during WWII happening in my lifetime.  However, to assume I would care about my SWR during such a crisis is ridiculous.  I'd be in survival mode, along with the rest of the population.

Saving to a 3 or 2% WR is not going provide me with any additional safety in such circumstances (in the above example, extra shares of VTI won't help me hide from bombs).  I would argue that any intelligent, adaptive investor should lump 4% rule failure risk in with SHTF circumstances and call it a day.  IOW, it may happen, but doubling assets will have little effect in mitigating such a crisis in true S-curve fashion.  One is far better off being generally flexible in life and sticking with a 4%WR.

I think you're mis-reading his answer.  The SAFEMAX in countries involved in the World Wars was somewhere in the neighborhood of .5% or lower.  He's saying that he's excluding those scenarios.  As such, I think this criticism is misplaced.

[TomTX]

Thanks for organizing today, and two great questions! 1) I am concerned about 4% being too high at the present for someone without much flexibility to reduce spending after market downturns. Reasons include: our extremely low interest rates plus high stock valuations have not been tested in the US historical data; the 4% rule has not worked internationally -- only in the US and Canada but not in 18 other countries with data back to 1900; 30 years may not be long enough any more, especially for early retirees; it is hard for investors to earn the underlying index market returns net of fees

Here's another sort of sneaky thing that he does.  Look at the part I bolded above.  If you add in a 1% fee/cost, then yes the 4% WR gets knocked down to 3% pretty quick. 

A more interesting way to phrase the question - what's his view of safe withdrawal rate for people savvy enough to pay very low fees (ala Vanguard VTSAX)?

Right. Wade finds it hard for investors to earn the underlying market returns because he assumes they will only use professional advisors

The actuality is that it is dead simple for the individual investor to achieve extremely close to market returns, net of fees. Buy VTI. Done. If you want to diversify further, buy similar low-cost indexes for bonds, or international or whatever and rebalance every year or two. Done.

The other sneaky thing Wade has done is for historical simulations, assume everything will be 25% worse than ever in history. Great Depression? It's 25% worse. Black Monday? 25% worse. Best day ever in the markets? 25% worse. He first used this tactic on the paper published after I took him to task (via email) for the outrageous management fees he assumed everyone would pay.

[sol]

Thanks for organizing today, and two great questions! 1) I am concerned about 4% being too high at the present for someone without much flexibility to reduce spending after market downturns. Reasons include: our extremely low interest rates plus high stock valuations have not been tested in the US historical data; the 4% rule has not worked internationally -- only in the US and Canada but not in 18 other countries with data back to 1900; 30 years may not be long enough any more, especially for early retirees; it is hard for investors to earn the underlying index market returns net of fees

Here's another sort of sneaky thing that he does.  Look at the part I bolded above.  If you add in a 1% fee/cost, then yes the 4% WR gets knocked down to 3% pretty quick. 

A more interesting way to phrase the question - what's his view of safe withdrawal rate for people savvy enough to pay very low fees (ala Vanguard VTSAX)?

Right. Wade finds it hard for investors to earn the underlying market returns because he assumes they will only use professional advisors

The actuality is that it is dead simple for the individual investor to achieve extremely close to market returns, net of fees. Buy VTI. Done. If you want to diversify further, buy similar low-cost indexes for bonds, or international or whatever and rebalance every year or two. Done.

The other sneaky thing Wade has done is for historical simulations, assume everything will be 25% worse than ever in history. Great Depression? It's 25% worse. Black Monday? 25% worse. Best day ever in the markets? 25% worse. He first used this tactic on the paper published after I took him to task (via email) for the outrageous management fees he assumed everyone would pay.

Sure, Wade's a raging pessimist.  By his own admission he didn't understand this topic very well when he first staked out the doomsayer position that has made his career.  I've long assumed that the collective wisdom of this forum knows twice as much about retirement planning as Wade Pfau does, and we're more responsive to individual questions too.

[CanuckExpat]

Even with noted pessimism, I'll note something in his response (emphasis mine), as ever, flexibility is key.

"For someone with flexibility and capacity to reduce spending as necessary, 4% isn't too high."

"I am concerned about 4% being too high at the present for someone without much flexibility to reduce spending after market downturns...."

"The idea that you can spend consistently from an investment portfolio for 40-50 years is pretty tough to reconcile. The only thing I can really say is to be flexible, either with the idea of cutting expenses as necessary, or of earning more income as necessary, with how things evolve over the next 40-50 years."

"everything I've done points to the idea that flexibility is a lot more important than asset allocation tweaks"

And just a general good reply, to the question advice for young adults planning for retirement:

"-Focus on Financial independence. You may or may not want to retire when the time comes, but with financial independence you will have the freedom to do what you want.
-Make sure you have a plan for how you will spend your time. Wanting to be retired is more important then just not wanting to work. You've got to do something.
-Nothing beats the old: save early and often. The needed savings rate doubles for each 10 years you wait to get started."

[arebelspy]

I think he puts that in because there's no plausible pessimistic answer for flexibility. So you have to have that caveat.

Flexibility adds so much resiliency to FIRE, it's ridiculous.

[TempusFugit]

The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

Well, I'm sure their heirs will be really rich.    They evidently have retire rich as a goal, not retire young.  To each his own,  suppose. 

[cerat0n1a]

The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.

I don't think it's completely crazy of them to point out to someone his age that if you need $30k per year as a single person, you might want to take into account that the future could hold a partner + children and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.

[arebelspy]

The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.

I don't think it's completely crazy of them to point out to someone his age that if you need $30k per year as a single person, you might want to take into account that the future could hold a partner + children and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.

And couldn't you go earn more money at that point?

It seems blatantly obvious to me that if you prepare for one level of spending, and you decide in the future to drastically up that level, you may not be able to support that new, higher level.

There's a bunch of future possibilities I could oversave for.

Maybe I'll want to become a pilot and buy a plane. Maybe I'll get divorced, split half my assets, then fall in love with a broke single mother with six kids.

Should I keep working until I can cover pretty much every contingency? (Let's call it, oh, 100MM or so.)

Or should I understand that I'm quitting now at a certain level and if things change, they change?

I wouldn't assume anyone who figures FIRE out is too dumb to realise expenses in the future might change. Likely they've considered that and are saving for it anyways.

See: Herbert Derp, the most frugal Mustachian, who spends ~5k/yr, but is saving to be able to spend 50k+.

[Retire-Canada]

...and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.

Helping them get PT jobs to contribute to their costs as teenagers sounds like a wonderful learning opportunity for them around work, budgeting and how to deal with changes in life. ;)

[Retire-Canada]

Should I keep working until I can cover pretty much every contingency? (Let's call it, oh, 100MM or so.)

That ^^ is the problem with fear based planning. There are literally an infinite number of "What Ifs?" that can be used to justify a crazy high FIRE $$ Target and infinite OMYs.

[boarder42]

Should I keep working until I can cover pretty much every contingency? (Let's call it, oh, 100MM or so.)

That ^^ is the problem with fear based planning. There are literally an infinite number of "What Ifs?" that can be used to justify a crazy high FIRE $$ Target and infinite OMYs.

This is my personal biggest fear.  that i wont pull the plug.. the largest risk to FIRE we never talk about is continuing to work past when you really need to.

[dandarc]

This is my personal biggest fear.  that i wont pull the plug.. the largest risk to FIRE we never talk about is continuing to work past when you really need to.

Never talk about OMY?

https://www.google.com/search?q=site%3Aforum.mrmoneymustache.com+omy&oq=site%3Aforum.mrmoneymustache.com+omy&aqs=chrome..69i57j69i58.13423j0j4&sourceid=chrome&ie=UTF-8

[cerat0n1a]

There's a bunch of future possibilities I could oversave for.

Maybe I'll get divorced, split half my assets

I think the statistics say that is a much higher probability event for the average westerner than failure of the 4% rule would be - and probably with worse financial implications.

...and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.

Helping them get PT jobs to contribute to their costs as teenagers sounds like a wonderful learning opportunity for them around work, budgeting and how to deal with changes in life. ;)

Well, given the amount my youngest has made from bitcoin/either in the past couple of years, not sure I'm in any position to give financial advice right now. Still, if you know any 14 year olds that can cover the mortgage costs of having an extra bedroom in a HCOL?

[EscapeVelocity2020]

Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

[boarder42]

This is my personal biggest fear.  that i wont pull the plug.. the largest risk to FIRE we never talk about is continuing to work past when you really need to.

Never talk about OMY?

https://www.google.com/search?q=site%3Aforum.mrmoneymustache.com+omy&oq=site%3Aforum.mrmoneymustache.com+omy&aqs=chrome..69i57j69i58.13423j0j4&sourceid=chrome&ie=UTF-8

My point was we never talk about it from a risk to fire standpoint. People always talk about risk of failure due to running out of money but rarely do we discuss risk of failure to fire due to not retiring.

[Exflyboy]

Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Well considering DW and I are going to pay $15/month for HC at 52 and 56 respectively I'd say $30k is plenty to live on, with a paid off mortgage at least.

[Retire-Canada]

Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Wouldn't the older Bogglehead have a much shorter retirement to fund and access to Government/Corporate benefits in short order since they are either at or close to a more typical retirement age?

[Retire-Canada]

Well, given the amount my youngest has made from bitcoin/either in the past couple of years, not sure I'm in any position to give financial advice right now. Still, if you know any 14 year olds that can cover the mortgage costs of having an extra bedroom in a HCOL?

It sounds like your youngest kid might fit that bill. ;) A teenager can certainly contribute towards their portion of the family's expenses. If the parents choose to buy an expensive house in a HCOL area of course that contribution would be less significant, but presumably someone who is smart enough to FIRE at 30yrs old can work out what accommodation they can afford with their partner and make a reasonable choice.

[Monkey Uncle]

Well, given the amount my youngest has made from bitcoin/either in the past couple of years, not sure I'm in any position to give financial advice right now. Still, if you know any 14 year olds that can cover the mortgage costs of having an extra bedroom in a HCOL?

It sounds like your youngest kid might fit that bill. ;) A teenager can certainly contribute towards their portion of the family's expenses. If the parents choose to buy an expensive house in a HCOL area of course that contribution would be less significant, but presumably someone who is smart enough to FIRE at 30yrs old can work out what accommodation they can afford with their partner and make a reasonable choice.

I shared a bedroom with my older brother until he left home around age 20.  Why do parents nowadays think each kid has to have his/her own room?*

*Disclosure: my kid had his own room, but he was an only child.

[EscapeVelocity2020]

Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Well considering DW and I are going to pay $15/month for HC at 52 and 56 respectively I'd say $30k is plenty to live on, with a paid off mortgage at least.

You are certainly an exceptional case EFB!  You must not need HC (I'm guessing your deductible is pretty darn high and pretty much nothing is covered).  Just reading around the forum, quite a few folks are struggling to find anything under $500 - $1500/mo that is comparable to what they had in 2017 or need.  Also, you aren't covering kids that, at least in my case, are notorious for breaking a bone or having an emergency at some point or other.  We have been to the ER, physician, and emergency dental work a few times in the past decade.  Very glad for our coverage!   

[EscapeVelocity2020]

Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Wouldn't the older Bogglehead have a much shorter retirement to fund and access to Government/Corporate benefits in short order since they are either at or close to a more typical retirement age?

Yes, but most folks even here do not want to rely on drawing down their assets in order to generate income.  At $30k/yr, your 4% rule means you start with $750k.  It could've been a close call, even starting at 55, if you have a 2008-style sequence of returns...  of course, you made it to 65 by now and the current healthcare shenanigans are no big deal.  Still, your portfolio did dip to ~415k in that first year (before recovering to 470k) if you stayed in equities.  I know some retired folks that freaked out near the bottom and moved extra to bonds and cash, which got them to 65 but also missed out on some of the bull market.

I'm just pointing out that these are the kinds of things older folks are more likely to have experienced and are commenting from than a younger MMM crowd.  Not saying that they either group are more right or wrong.

[Exflyboy]

Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Well considering DW and I are going to pay $15/month for HC at 52 and 56 respectively I'd say $30k is plenty to live on, with a paid off mortgage at least.

You are certainly an exceptional case EFB!  You must not need HC (I'm guessing your deductible is pretty darn high and pretty much nothing is covered).  Just reading around the forum, quite a few folks are struggling to find anything under $500 - $1500/mo that is comparable to what they had in 2017 or need.  Also, you aren't covering kids that, at least in my case, are notorious for breaking a bone or having an emergency at some point or other.  We have been to the ER, physician, and emergency dental work a few times in the past decade.  Very glad for our coverage!

Yes I should have noted that was for a bronze plan with a $6,500 deductible (and max OOP) each (so it pays nothing up to $6500 then covers everything at 100% in theory)  So yes so far our HC needs have been pretty low even with DW's outrageously priced asthma inhalers.

So yes, pretty much a catastrophic plan, only the two of us and no dental coverage.

[MrMoneySaver]

The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

Geez, I bet the Bogleheads are a barrel of monkeys at parties.

[TomTX]

Geez, I bet the Bogleheads are a barrel of monkeys at parties.

What parties? They have to work all the time to hit that 2%WR on $100K+/yr spend. ;)

Only $100k/year? You poor fellow! How do you keep up with the latest couples Benz purchases? Do you skip Monaco every other year?

[sol]

Like high school anti gay humor.

1.  No one is bashing the income or the savings rate, just the incredibly pessimistic assumptions about SWRs that seem to pervade the culture there.

2.  I have seem far FAR worse denigration of the MMM community on the bogleheads forum than I have ever seen posted here about them. 

[arebelspy]

Your points are valid, Sol, but I agree with PS. We can be better.

[EscapeVelocity2020]

Your points are valid, Sol, but I agree with PS. We can be better.

Honestly, if you kick PizzaSteve and I out of here, then it'll be an echo chamber of 4% is so ridiculously conservative I should've retired at 5% or figured out how to shave off $100 more dollars of recurring expenses (e.g. I know I don't need Netflix to 'survive') ...  And that's a great forum too, but Jacob at ERExtreme beat you to the bottom on that :)

[MrMoneySaver]

comments sound like sour grapes

I am in a home wine making club

I see what you did there.

Anyway, my comment about the Bogleheads at parties wasn't to imply that they're boring, necessarily. It had to do with the way they threw cold water on the 35-year-old's early-retirement plans in the referenced thread.

It boils down to the very low risk tolerance of the BHs. (Which some may see as incompatible with rockin' parties.)

[Retire-Canada]

And that's a great forum too, but Jacob at ERExtreme beat you to the bottom on that :)

I read a thread at ERE Forums this week where Jacob posted that the 4%WR Folks were wildly optimistic and they'd be smart to shoot for 2%WR. As someone shooting for higher than 4%WR that comes off as crazy talk, but I've hung around there enough as a lurker to appreciate they are thoughtful and well intentioned folks even if we don't come to the same conclusions about FIRE. Although I am not interested in achieving ERE levels of spending despite the fact I'd be FIRE like a couple years ago. It's great to see how people live a low spend because I know I could do it as well if necessary and that adds another layer of defence to my FIRE plans.

My take on the BH side of things is not based on hanging out on those forums just the high savings targets and low WR rates that get reported here. I think the assumptions around that approach needs to be challenged because the trade off in time working at the prime of your life is a really high cost to pay. Both for the specific health and relationship impacts on the person working as well as their loved ones and also because of the environmental impacts that affect us all from high spending lifestyles. My party comment about BH was flippant shorthand for over working vs. spending time on relationships. If anyone was offended I apologize and I'll delete the comment.

If you are thinking what about ERE shouldn't those people challenge the typical MMM types who are spending pants long-working in comparison? My answer would be hell yes! I am regularly questioning my assumptions and analyzing their impacts on myself and the people around me. One of the reasons I lurk over at ERE is to gather inputs that not the same as what I already have so that I can consider them and adjust my plans. That has been helpful for me to make changes, which have taken years off my FIRE journey.

[arebelspy]

ERE sometimes takes a bunker mentality. Become self-sufficient in case TSHTF.

MMM's optimism seems unique among the ER crowd, which is why it's such a draw for many of us.

Yes, it means we are rosy about the 4% rule, but it also means if it doesn't pan out, we'll happily get back to work (literally or figuratively) and make adjustments and be fine. :)

[PizzaSteve]

Like high school anti gay humor.

1.  No one is bashing the income or the savings rate, just the incredibly pessimistic assumptions about SWRs that seem to pervade the culture there.

2.  I have seem far FAR worse denigration of the MMM community on the bogleheads forum than I have ever seen posted here about them.

Sol, I am cool with the debate, just dont need the broad based BH bashing and sarcastic comments using false strawmen about lifestyle choices (like BH members are all work, no play so they can buy a Mercedes) targeted at a community that shares many of our goals.  I've seen too many good internet forums be taken over by bullies and become echo chambers, repeating the same thought without dialog (go back to the 80s on the internet).

Thank your stars for the excellent volunteer mods.  But its all good.  I accept the explanation of intent as sincere, and BH members who bash us with their own sophomoric comments will deserve the bad Karma they get.  I genuinely appretiate those who 'go for it.'

Namaste.

[EscapeVelocity2020]

Similar to what ExFlyboy asked earlier (a page ago), but with a twist.  What if Retiree A and B have $1M.  Retiree A calls it quits in 2007 and withdraws his inflation adjusted $40k for 30 years.  Retiree B hangs in a little longer only to suffer the ~37% decline in 2008.   Retiree A has roughly 605k and Retiree B has roughly 630k. 

How much can Retiree B plan to spend for the next 30 years?

[boarder42]

Similar to what ExFlyboy asked earlier (a page ago), but with a twist.  What if Retiree A and B have $1M.  Retiree A calls it quits in 2007 and withdraws his inflation adjusted $40k for 30 years.  Retiree B hangs in a little longer only to suffer the ~37% decline in 2008.   Retiree A has roughly 605k and Retiree B has roughly 630k. 

How much can Retiree B plan to spend for the next 30 years?

Its a fluid situation .  even as retiree A i'd be cutting my spending back or trying to earn a couple extra bucks here and there.  as Retiree B i'd probably end up working an extra couple years. 

As has been talked about many many times in all of these discussions the ability to be flexible is an early retirees greatest asset be it the day after he retires or the day before he retires.

you can consistenly present both sides of this equations with a 2013 fromula too

[MDM]

Similar to what ExFlyboy asked earlier (a page ago), but with a twist.  What if Retiree A and B have $1M.  Retiree A calls it quits in 2007 and withdraws his inflation adjusted $40k for 30 years.  Retiree B hangs in a little longer only to suffer the ~37% decline in 2008.   Retiree A has roughly 605k and Retiree B has roughly 630k. 

How much can Retiree B plan to spend for the next 30 years?

Based on the 4% "rule", 4% of $630K.

Of course, the "4% rule" is not as straightforward as, say, the solution to the quadratic equation.  It is the result of backtesting a simplistic withdrawal strategy.  Perhaps a more convoluted withdrawal strategy could be backtested, such as "use (a + b*X) as the initial withdrawal amount, where X is the CAGR of the previous 3 years for the S&P500 and 'a' and 'b' are fit to the historical data."  But ol' Occam would object, and I think rightly so.

Using 4% (or its inverse, 25X) to determine if one is "in the ballpark" for retirability is reasonable.  Asking for exactitude in predicting the future is not.

[DavidAnnArbor]

Your points are valid, Sol, but I agree with PS. We can be better.

Honestly, if you kick PizzaSteve and I out of here, then it'll be an echo chamber of 4% is so ridiculously conservative I should've retired at 5% or figured out how to shave off $100 more dollars of recurring expenses (e.g. I know I don't need Netflix to 'survive') ...  And that's a great forum too, but Jacob at ERExtreme beat you to the bottom on that :)

No one should be kicked for a healthy debate about these issues.

[Tyson]

Agreed - good debate should be encouraged.  The pushback I see a lot with early retiring is really not about the 4% rule, but rather its about whether a person has estimated/anticipated their expenses correctly. 

And I think that's valid.  It's far more likely that you'll make a mistake with estimating expenses than it is for the 4% rule to fail. 

Here's an example - divorce.  As a 45 year old, employed white male, I have a 7% chance of getting divorced.  That rises to over 20% by the time I am 60.  So my RE is far more likely to fail from divorce than it is for the 4% rule to fail.

http://flowingdata.com/2016/03/30/divorce-rates-for-different-groups/

Its 3x to 5x more likely that divorce will do me in than a 4% rule failure.

[arebelspy]

Your points are valid, Sol, but I agree with PS. We can be better.

Honestly, if you kick PizzaSteve and I out of here, then it'll be an echo chamber of 4% is so ridiculously conservative I should've retired at 5% or figured out how to shave off $100 more dollars of recurring expenses (e.g. I know I don't need Netflix to 'survive') ...  And that's a great forum too, but Jacob at ERExtreme beat you to the bottom on that :)

No one should be kicked for a healthy debate about these issues.

I must have missed it... who proposed banning anyone over anything related to this?

I'm not sure what you are talking about.

[tooqk4u22]

Similar to what ExFlyboy asked earlier (a page ago), but with a twist.  What if Retiree A and B have $1M.  Retiree A calls it quits in 2007 and withdraws his inflation adjusted $40k for 30 years.  Retiree B hangs in a little longer only to suffer the ~37% decline in 2008.   Retiree A has roughly 605k and Retiree B has roughly 630k. 

How much can Retiree B plan to spend for the next 30 years?

Based on the 4% "rule", 4% of $630K.

Of course, the "4% rule" is not as straightforward as, say, the solution to the quadratic equation.  It is the result of backtesting a simplistic withdrawal strategy.  Perhaps a more convoluted withdrawal strategy could be backtested, such as "use (a + b*X) as the initial withdrawal amount, where X is the CAGR of the previous 3 years for the S&P500 and 'a' and 'b' are fit to the historical data."  But ol' Occam would object, and I think rightly so.

Using 4% (or its inverse, 25X) to determine if one is "in the ballpark" for retirability is reasonable.  Asking for exactitude in predicting the future is not.

This is the circular logic that gets missed IMO. 

So in 2008 assuming 2% inflation, Retiree A would pull out $40,800 of the $605,000 but based on 4% SWR they should still have a 96% chance of success for the money lasting them 29 more years.

Retiree B can only take out $25,200 in 2008 but still only has a 96% success probability. 

This is something I can never seem to reconcile. If the odds are the same then Retiree B should be able at least take out as much as Retiree A. 

This is obviously sequence of return risk (Retiree A) and what never gets talked about sequence of returns opportunity (Retiree B).  But to believe in either you must have to also believe in some form of market fundamentals matter or market timing or whatever because it is absolutely certain that the risk profile between the two is drastically different.

[maizefolk]

Agreed - good debate should be encouraged.  The pushback I see a lot with early retiring is really not about the 4% rule, but rather its about whether a person has estimated/anticipated their expenses correctly. 

And I think that's valid.  It's far more likely that you'll make a mistake with estimating expenses than it is for the 4% rule to fail. 

Here's an example - divorce.  As a 45 year old, employed white male, I have a 7% chance of getting divorced.  That rises to over 20% by the time I am 60.  So my RE is far more likely to fail from divorce than it is for the 4% rule to fail.

http://flowingdata.com/2016/03/30/divorce-rates-for-different-groups/

Its 3x to 5x more likely that divorce will do me in than a 4% rule failure.

I went to your link, maybe I'm looking at the wrong graph, but if it's the right one it is labeled "divorced or married more than once" which would sound like it includes both your risk of divorce AND your risk that your spouse passes away and, after an appropriate interval you meet someone else and remarry (which would explain why the risk goes up so much as you get older).

[EscapeVelocity2020]

Similar to what ExFlyboy asked earlier (a page ago), but with a twist.  What if Retiree A and B have $1M.  Retiree A calls it quits in 2007 and withdraws his inflation adjusted $40k for 30 years.  Retiree B hangs in a little longer only to suffer the ~37% decline in 2008.   Retiree A has roughly 605k and Retiree B has roughly 630k. 

How much can Retiree B plan to spend for the next 30 years?

Based on the 4% "rule", 4% of $630K.

Of course, the "4% rule" is not as straightforward as, say, the solution to the quadratic equation.  It is the result of backtesting a simplistic withdrawal strategy.  Perhaps a more convoluted withdrawal strategy could be backtested, such as "use (a + b*X) as the initial withdrawal amount, where X is the CAGR of the previous 3 years for the S&P500 and 'a' and 'b' are fit to the historical data."  But ol' Occam would object, and I think rightly so.

Using 4% (or its inverse, 25X) to determine if one is "in the ballpark" for retirability is reasonable.  Asking for exactitude in predicting the future is not.

This is the circular logic that gets missed IMO. 

So in 2008 assuming 2% inflation, Retiree A would pull out $40,800 of the $605,000 but based on 4% SWR they should still have a 96% chance of success for the money lasting them 29 more years.

Retiree B can only take out $25,200 in 2008 but still only has a 96% success probability. 

This is something I can never seem to reconcile. If the odds are the same then Retiree B should be able at least take out as much as Retiree A. 

This is obviously sequence of return risk (Retiree A) and what never gets talked about sequence of returns opportunity (Retiree B).  But to believe in either you must have to also believe in some form of market fundamentals matter or market timing or whatever because it is absolutely certain that the risk profile between the two is drastically different.

Right, and even more incredible is that Retiree A could use the bulletproof 3% SWR and have $30,600 to spend in 2008, with 100% historic success, and Retiree B still only gets $25,200 with 96% success!

[Tyson]

Agreed - good debate should be encouraged.  The pushback I see a lot with early retiring is really not about the 4% rule, but rather its about whether a person has estimated/anticipated their expenses correctly. 

And I think that's valid.  It's far more likely that you'll make a mistake with estimating expenses than it is for the 4% rule to fail. 

Here's an example - divorce.  As a 45 year old, employed white male, I have a 7% chance of getting divorced.  That rises to over 20% by the time I am 60.  So my RE is far more likely to fail from divorce than it is for the 4% rule to fail.

http://flowingdata.com/2016/03/30/divorce-rates-for-different-groups/

Its 3x to 5x more likely that divorce will do me in than a 4% rule failure.

I went to your link, maybe I'm looking at the wrong graph, but if it's the right one it is labeled "divorced or married more than once" which would sound like it includes both your risk of divorce AND your risk that your spouse passes away and, after an appropriate interval you meet someone else and remarry (which would explain why the risk goes up so much as you get older).

You're right, I was in a hurry and didn't read it as closely as I should have.  This has better data - http://www.pewresearch.org/fact-tank/2017/03/09/led-by-baby-boomers-divorce-rates-climb-for-americas-50-population/

And still, 21% chance of divorce for 40-49 year olds and 10% for 50 and over.  Way higher fail rates than the 4% rule. 

[maizefolk]

Yup. I wasn't disagreeing with your main point, just pointing out the other explanations in that particular dataset.

I agree that there are all sorts of personal disasters (divorce, expensive non-covered medical conditions, or just early death*) and national/civilizational disasters (world wars, nuclear wars, government collapses, etc) which cumulatively are probably much more likely to result in a "failed" retirement than just running out of money when making withdrawals using the 4% method.

*That was the idea behind those death vs bankruptcy graphs I tried making a few months ago.

[secondcor521]

Yup. I wasn't disagreeing with your main point, just pointing out the other explanations in that particular dataset.

I agree that there are all sorts of personal disasters (divorce, expensive non-covered medical conditions, or just early death*) and national/civilizational disasters (world wars, nuclear wars, government collapses, etc) which cumulatively are probably much more likely to result in a "failed" retirement than just running out of money when making withdrawals using the 4% method.

*That was the idea behind those death vs bankruptcy graphs I tried making a few months ago.

Emphasis added.

I love your graphs, but as a side comment I don't consider early death to be a failed retirement.

[arebelspy]

Yup. I wasn't disagreeing with your main point, just pointing out the other explanations in that particular dataset.

I agree that there are all sorts of personal disasters (divorce, expensive non-covered medical conditions, or just early death*) and national/civilizational disasters (world wars, nuclear wars, government collapses, etc) which cumulatively are probably much more likely to result in a "failed" retirement than just running out of money when making withdrawals using the 4% method.

*That was the idea behind those death vs bankruptcy graphs I tried making a few months ago.

Emphasis added.

I love your graphs, but as a side comment I don't consider early death to be a failed retirement.

Depends on a definition, of course. If your definition of early retirement is "X number of years not working," (typically 30 in the normal retirement literature), death sure is a failure. If it's just defined as running out of money, it's not.

In other words, we can look at "lasting 30 years"-- is it just your money? Or you as well?

[secondcor521]

Yup. I wasn't disagreeing with your main point, just pointing out the other explanations in that particular dataset.

I agree that there are all sorts of personal disasters (divorce, expensive non-covered medical conditions, or just early death*) and national/civilizational disasters (world wars, nuclear wars, government collapses, etc) which cumulatively are probably much more likely to result in a "failed" retirement than just running out of money when making withdrawals using the 4% method.

*That was the idea behind those death vs bankruptcy graphs I tried making a few months ago.

Emphasis added.

I love your graphs, but as a side comment I don't consider early death to be a failed retirement.

Depends on a definition, of course. If your definition of early retirement is "X number of years not working," (typically 30 in the normal retirement literature), death sure is a failure. If it's just defined as running out of money, it's not.

In other words, we can look at "lasting 30 years"-- is it just your money? Or you as well?

Sure.  Personally since I don't have absolute control on when I die, my preferred definition is that my money lasted longer than I did.