I know the 4% rule and I should be fine also with maybe 3 or even 2.5%...
You mean that your current stash is sufficient to cover your current expenses at 2.5% withdrawal rate, you're just uncertain whether your future expenses will be as low as your current ones? Or, you are at 4% withdrawal already, and you think you could cut to 2.5% without much pain? Or...
Not sure what "should be fine" means, any clarification will help determine which experiences will be most valuable to offer you.
How are you dealing with the uncertainty and the volatility in the markets, I mean emotionally? Just complete faith in the 4% rule? I'd appreciate if you could share your experiences if you have gone through this already.
Experienced 6 years since leaving job in late 40s, through a chaotic process where I didn't realize I was in FIRE at first. Main strategies to date:
PRACTICAL
1. Measure spending closely enough to make reasonable projections. (Simple summary, 20k to 22k current expenses, net of some complicated housing details.)
2. Studied the historical variance of my diversified portfolio, read about Sequence of Returns Risk (sorry, I'm not an identical case)...I didn't change a lot, just was already close to 50% real estate, 30% stock, 20% bonds/cash, much like today; sharing to avoid false impressions...I didn't diversify further, I studied the historical variances of my portfolio. I live in my house and rent out rooms, I'd rather do that than sell the house and rent while being 100% stock but that's a PERSONAL preference, not something that creates a significant safety difference.**
3. Define reasonable contingencies for spending, and develop contingency plans to meet them
4. Calculate FIRE using various methods to ensure stash is likely adequate, and recognize what spending level I can afford
EMOTIONAL
This varies, but favorites include:
5. Remembering that for now, I have plenty of money - there's no question about this year, only about the distant future
6. Remembering that in the long run, what matters isn't the price of stock this year, it's the price of stock year by year the rest of my life.*
7. See 4... I usually find reviewing the financials calming, even though my margin for error is narrower than many here
8. Noting that there's a 1% to 5% chance of needing to spend less than I planned, but 100% chance of living the life I choose, so savor life
9. Yep, enjoying daily things. Spent today planning/negotiating glorious family joint vacations now that other adult family members are in travel mode.
10. Reading "Top is In" thread for grins
*This point 6 is really important if you're 100% stock, or something close. The only reason stock prices matter this year is that they determine the % of shares I would sell this year to cover any gap between dividends and spending, even if I were at 100% stock portfolio.
So if my dividends are 2.5% of stash and 62.5% of spending (a 4% withdrawal rate), I would sell 1.5% of my stock this year. That would be a normal year for me at 100% stock. If dividends drop next year to 2% of current stash, and I keep spending at the original rate, I will sell enough to stock to cover 2%. If prices are down by 50% at that point, that means I'll be selling 4% of my stock instead of 1.5%. This would reduce apparent stash value to 48% of original value, but I would still own 96% of the original shares. It's only 2.5% different from my plan, even though I'm in the middle of a huge stock crash. Kind of comforting that even a huge crash only affects me by two or three percent a year.
**Note that I don't pick individual stocks, which adds a lot of uncertainty. I use broad indexes, diversified to maximize security rather than return. Both the index and diversification strategies reduce uncertainty. My main diversification axis is US vs international, but if I were all stock, I might also segment by factor and maintain factor percentages (large cap vs small cap) as well to smooth out the ride a little.