4% rule, early retirement and why the failure rate is higher

[xtc]

I use the 4% rule and firecalc myself, but there is one problem with the assumption and early retirement.

Food for thought

Are you going to retire in a down year or even years that are less then inflation? 1975 had 39% returns but you was still down 17% for the 1973 year end. 

It works when retiring at normal/forced retirement age, but understated when picking your retirement age.

Suppose you have set your "number" and going to give notice once it is hit.

You check firecalc for 40 years out and it gives you 2 failures out of 39 results  (1937-1978? data)

Out those 39 results 14 of them are down years for the dow.

So is the real life lean failure rate 2 in 25 (92%) instead of 2 in 39. (95%)

 - I didn't look at real returns ( bond + inflation )
 - assumed you weren't putting in more then your lost in the market.


Thanks for the poster who merged the still alive % and failure rate % data.

If retiring in a down year I would use about 3.4% of peak funds since that is 100% of past success rate in firecalc. (high stock asset mix)

[nereo]

We should really have a stickie on the 4% rule

Oh, wait... we already do?

... never mind...

[FiveSigmas]

There are some other good discussions of this here:

https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/
https://forum.mrmoneymustache.com/ask-a-mustachian/firecalc-and-cfiresim-both-lie/

Edited: forgot Sol’s earlier thread.

[jlcnuke]

Hey ya'll, has anyone ever talked about the 4% rule and long-term early retirement before? ...... oh yeah, nm, I guess we don't need to beat that dead horse anymore.

[BTDretire]

I'm an older retiree, but I think having a cushion of more money is a good thing. Unless you are just having so much trouble in your work life, it is better to continue to accumulate.
 Many here would say I was FI by the end of 2011, however from the start of 2012 to the end of 2017 we doubled our nest egg. That addition 6 years makes a huge difference in our retirement.
  It did two things, I'm 6 years closer to SS and we don't need to even approach withdrawing 4%.
You don't need to double your money, but for many an addition 3 or 4 years to have an extra 40% or 50%
is worthwhile. If the market is bad during these years, you may not get 40% or 50%, but then you should be glad you didn't retire in those down years!
 If you hate your job, well that's another thing.
 Just my 2 cents.

[nereo]

I'm an older retiree, but I think having a cushion of more money is a good thing. Unless you are just having so much trouble in your work life, it is better to continue to accumulate.
 Many here would say I was FI by the end of 2011, however from the start of 2012 to the end of 2017 we doubled our nest egg. That addition 6 years makes a huge difference in our retirement.
  It did two things, I'm 6 years closer to SS and we don't need to even approach withdrawing 4%.
You don't need to double your money, but for many an addition 3 or 4 years to have an extra 40% or 50%
is worthwhile. If the market is bad during these years, you may not get 40% or 50%, but then you should be glad you didn't retire in those down years!
 If you hate your job, well that's another thing.
 Just my 2 cents.

It's all mental gymnastics.  Saying it's good to have 40% (above your FI number, I assume) sounds good, but what you are really talking about is having a WR of 2.8% instead of 4%.  That's crazy-conservative... in the realm of "that level has never failed under any modern scenario, and has only resulted in much larger portfolio 30 years later".

Trick is when to say you have 'enough'.  When you hit 4% with a few layers of safety built-in?  3.8%?  3.0%?  Ultimately, once you get below 4% I believe the big threats to any retirement isn't the $ amount in your stache, but having some adaptability.

[erutio]

Everyone talks about lowering your risk by working more, increasing your 'stache, and having a lower WR%. 

But what no one talks about is that you are marginally lowering your risk of running out of money, while taking on 100% of the risk of losing years of your life to work.