SORR is just one of many, many risks in life, and it's not even close to the most difficult financial risk to manage. SORR did nothing to my investments since I left work in 2020, but the 6 figures in medical bills certainly did.

This point is well made about the diversity of risk factors- the unknown unknown. I am sorry that you have to deal with this- but I believe that the same skill sets that made you successful in career and planning for FIRE made you well qualified to handle this change of plans.  By solving difficult problems, you were prepared to solve more difficult problems when they presented themselves.  The fear that "something might go wrong" is not how to plan- the way to plan is to develop robust strategies to handle things when they DO go wrong- these strategies are also highly effective when things go "right..."

Quote from: bluecollarmusician on July 23, 2024, 01:45:47 PM

Quote from: Metalcat on July 23, 2024, 12:05:38 PM

SORR is just one of many, many risks in life, and it's not even close to the most difficult financial risk to manage. SORR did nothing to my investments since I left work in 2020, but the 6 figures in medical bills certainly did.

This point is well made about the diversity of risk factors- the unknown unknown.

My life is actually substantially better than it was before I became disabled. The biggest benefit I got from discovering MMM was that I spent years learning to truly understand how to make money, time, and energy work for me.

You’re not alone.

Inflation is probably everybody’s #1 nest egg robber, but in retirement healthcare is cited more than anything else. That’s followed by home repairs.

We love to shut our eyes to inflation, claiming we can “beat it”, or convincing ourselves that “real returns” take care of it. Of course you can’t just beat it, but its nice to have equities so you own what’s going up in price.

But as you say, 6-figure healthcare tabs can wake you up.

I imagine some people would wonder if they oversaved if they put aside extra funds for healthcare, home maintenance, and other unknowns. Say $150 in a reasonable 50-50 bucket? Most probably see it as prudent.

Quote from: Ron Scott on July 24, 2024, 03:45:36 PM

Quote from: Metalcat on July 23, 2024, 02:32:31 PM

Quote from: bluecollarmusician on July 23, 2024, 01:45:47 PM

Quote from: Metalcat on July 23, 2024, 12:05:38 PM

SORR is just one of many, many risks in life, and it's not even close to the most difficult financial risk to manage. SORR did nothing to my investments since I left work in 2020, but the 6 figures in medical bills certainly did.

This point is well made about the diversity of risk factors- the unknown unknown.

My life is actually substantially better than it was before I became disabled. The biggest benefit I got from discovering MMM was that I spent years learning to truly understand how to make money, time, and energy work for me.

You’re not alone.

Inflation is probably everybody’s #1 nest egg robber, but in retirement healthcare is cited more than anything else. That’s followed by home repairs.

We love to shut our eyes to inflation, claiming we can “beat it”, or convincing ourselves that “real returns” take care of it. Of course you can’t just beat it, but its nice to have equities so you own what’s going up in price.

But as you say, 6-figure healthcare tabs can wake you up.

I imagine some people would wonder if they oversaved if they put aside extra funds for healthcare, home maintenance, and other unknowns. Say $150 in a reasonable 50-50 bucket? Most probably see it as prudent.

Like $50k for roof and home repairs, $50 for a couple months nursing home care and $50k miscellaneous?

I basically am doing this - I used to have separate slush fund accounts for emergencies, home/car repair/replacement, travel, etc but over time (bc we never took withdrawals when those costs were incurred while working) they got big enough where I consolidated to one account and plan for 3-4% wr for those items on top of the monthly amount that is automatically transferred to that account as part of our budget. 

I imagine it will turn into our long term care fund in the future. 

ptf

Quote from: FIREin2018 on September 30, 2024, 01:26:38 PM

Quote from: Ron Scott on May 15, 2024, 08:32:07 AM

For those who believe Trinity will work in the future, they can take 4% for 30 years and inflate it annually. But SORR can interfere, with people estimating the first 7-10 years as the risk period. Lots of “beliefs” in all this obviously.

So if you retire at 40, is the risk period up to 30 years? Or do you think you’re in the clear by 40?

I never heard of SORR when i FiRED in 2018 at age 47.
I guess ignorance is bliss?

Wasn't worried about COVID because i believed in the 4% rule, which to me meant my portfolio will increase over 30yrs in a total market/total bonds/total intl asset allocation so don't worry about short term.
(Again, ignorance is bliss about SORR)

And now thx to the bull market since Covid, i have more $ now than when i FiRED in 2018.
Spending 6yrs of expenses and i have more $ now... i still can't wrap my head around that. (My expenses are only about $25/yr)

Also, i now think 4% rule is too much. (See my SIG about 5% rule if 60%/40% AA and 6% rule if you're willing to do 75%/25% AA in retirement).

And 6 yrs after I FiRED, i never heard of Trinity. Had to goggle it.
Again, ignorance is bliss?

Ignorance is bliss if the odds work out in your favor.  But over the long run, your luck will tend to average, which means there will be occasions where the odds don't work out.  Knowing that ahead of time and making plans or taking actions to minimize that risk is probably wiser.

I knew about SORR, although not by that name, when I retired.  Like you, I've been fortunate and didn't end up facing that situation.  However, I'm happy I was prepared to deal with it if it arose.

By the way, the 4% rule as generallly understood doesn't mean your portfolio grows.  Roughly, a 4% WR is 95% historically likely to have more than $0 left at the end of a 30 year period.  It is not designed to result in a portfolio that is preserved, let alone one that grows.  Yes, that's what happened in your case and in mine, but those unlucky historical patches (like the late 1960s) would result in depleting or nearly depleting a portfolio with a 4% WR.

60%/40% portfolio avgs 8% over 30yrs.
a 4% swr means i have 25x expenses in the bank/retirement funds.
8% gain more than covers my expenses + inflation with 25x funds so i'm not even touching my principle.

So in down years i'm dipping into my principle but in up years i'm replenishing it and then some.
At least that's my interpretation of doing 4% rule using 60%/40%.
Am i wrong???

60%/40% portfolio avgs 8% over 30yrs.
a 4% swr means i have 25x expenses in the bank/retirement funds.
8% gain more than covers my expenses + inflation with 25x funds so i'm not even touching my principle.

So in down years i'm dipping into my principle but in up years i'm replenishing it and then some.
At least that's my interpretation of doing 4% rule using 60%/40%.
Am i wrong???

Maybe not "wrong" but incomplete.   A 4% SWR as commonly understood is 4% of the initial balance, adjusted annually for inflation.   That method would have survived for 30 years over all the historical periods we have data for (there are different methodologies that wind up with slightly different results, but that's the jist).    However, in some of those scenarios, the balance would have been zero at the end of 30 years.   This is important for early retirees because in many cases the time lines are longer than 30 years.   

As it turns out, in most cases the final portfolio balance at the end of 30 years is multiples of the initial balance.   But it is the rare cases where the balance goes to zero that concern us.  The different between a portfolio going to zero and winding up with a giant pile of money is the sequence of returns early in the retirement period.  Hence the term "sequences of returns risk."   After about 10 years in it should be pretty clear which direction your portfolio is headed. 

As it turns out, in most cases the final portfolio balance at the end of 30 years is multiples of the initial balance.

 But it is the rare cases where the balance goes to zero that concern us. 
The different between a portfolio going to zero and winding up with a giant pile of money is the sequence of returns early in the retirement period.  Hence the term "sequences of returns risk."   After about 10 years in it should be pretty clear which direction your portfolio is headed.

That's an interpretation of the 4% rule, but it's not how the 4% rule was developed and ignores SORR as another poster explained.

As a very short version, you can have multiple down years in a row with high inflation, and taking those larger bites from a shrinking pile means that, if bad enough, the subsequent growth is on a smaller amount such that the pile can't be "replenished and then some".

 If you want the actual explanation in more detail, you can read about it at FIREcalc.com or read the original Trinity study which is on the web somewhere.

Yes, I got multiples of initial amount as well when I did my calcs in 2018 that made me decide to pull the trigger and Fire.

I am so glad I didn't know anything about Sorr.
I probably would have still pulled the trigger even if I did know.
But I would be stressed to death in 2020 when the stock market dropped by 1/3.

Not knowing and believing the 4% rule was bullet proof with my asset allocation easily got me through COVID stress free of financial worries.
Ignorance was BLISS!

I was stressed for my elderly mom during that time though.

Quote from: secondcor521 on September 30, 2024, 02:38:07 PM

<snip>
By the way, the 4% rule as generallly understood doesn't mean your portfolio grows.  Roughly, a 4% WR is 95% historically likely to have more than $0 left at the end of a 30 year period.  It is not designed to result in a portfolio that is preserved, let alone one that grows.  Yes, that's what happened in your case and in mine, but those unlucky historical patches (like the late 1960s) would result in depleting or nearly depleting a portfolio with a 4% WR.

It's not designed to grow it, but it very often does. I believe it's roughly 75% of the time it either grows or at least doesn't decrease. Not disagreeing with the letter of what you said, but the tone feels a little more pessimistic than reality. Yes, the 4% was about being greater than 0, and no, you're not guaranteed to grow, but using the 4% rule, you would have grown your portfolio in many cases. I.e. it's not surprising their portfolio grew or some rare exception.

+1 to @Wolfpack Mustachian 's comment.  While the 4% rule doesn't necessarily mean that your portfolio will grow, it is so incredibly conservative that if you FIRE into just an average economic situation your money will grow.  And if you FIRE into an above average environment it will grow a whole f'ing lot!  Only if you FIRE into the worst 5% or so of environments will your money run out after about 27-30 years or so, and only then if you're completely oblivious to what's happening or unable/unwilling to do anything about it.  If you FIRE into a bad time (but not the worst 5-10% or so times), then you should have close to what you FIRE'd with (in real terms), maybe a little more or a little less.  But at that point it's likely that S.S. will have kicked in to supplement your income.  And in that case you probably either increased your income or cut back on expenses, meaning you probably still have as much in real terms as when you FIREd. 

So while the 4% rule doesn't necessarily say that your 'stache will grow over time, in practice it usually does.  The Rich, Broke, or Dead defaults show that after 30 years there's roughly a 3% chance of having 5x your initial amount (all numbers adjusted for inflation), a 34% chance of having 2-5x your initial amount, and a 22% chance of having between 1-2x your initial FIRE amount.  That's about a 60% chance of having more than you FIREd with, even accounting for the effects of inflation.  For most people (at least in the U.S.), around the time you get to 30 years, S.S. will have kicked in, so even if you have a little less than what you FIREd with your actual income will be the same or higher - and that's even if you didn't make any adjustments to your income or spending as you saw you FIREd into bad times. 

Quote from: Wolfpack Mustachian on September 30, 2024, 08:32:21 PM

Quote from: secondcor521 on September 30, 2024, 02:38:07 PM

<snip>
By the way, the 4% rule as generallly understood doesn't mean your portfolio grows.  Roughly, a 4% WR is 95% historically likely to have more than $0 left at the end of a 30 year period.  It is not designed to result in a portfolio that is preserved, let alone one that grows.  Yes, that's what happened in your case and in mine, but those unlucky historical patches (like the late 1960s) would result in depleting or nearly depleting a portfolio with a 4% WR.

It's not designed to grow it, but it very often does. I believe it's roughly 75% of the time it either grows or at least doesn't decrease. Not disagreeing with the letter of what you said, but the tone feels a little more pessimistic than reality. Yes, the 4% was about being greater than 0, and no, you're not guaranteed to grow, but using the 4% rule, you would have grown your portfolio in many cases. I.e. it's not surprising their portfolio grew or some rare exception.

+1 to @Wolfpack Mustachian 's comment.  While the 4% rule doesn't necessarily mean that your portfolio will grow, it is so incredibly conservative that if you FIRE into just an average economic situation your money will grow.  And if you FIRE into an above average environment it will grow a whole f'ing lot!  Only if you FIRE into the worst 5% or so of environments will your money run out after about 27-30 years or so, and only then if you're completely oblivious to what's happening or unable/unwilling to do anything about it.  If you FIRE into a bad time (but not the worst 5-10% or so times), then you should have close to what you FIRE'd with (in real terms), maybe a little more or a little less.  But at that point it's likely that S.S. will have kicked in to supplement your income.  And in that case you probably either increased your income or cut back on expenses, meaning you probably still have as much in real terms as when you FIREd. 

So while the 4% rule doesn't necessarily say that your 'stache will grow over time, in practice it usually does.  The Rich, Broke, or Dead defaults show that after 30 years there's roughly a 3% chance of having 5x your initial amount (all numbers adjusted for inflation), a 34% chance of having 2-5x your initial amount, and a 22% chance of having between 1-2x your initial FIRE amount.  That's about a 60% chance of having more than you FIREd with, even accounting for the effects of inflation.  For most people (at least in the U.S.), around the time you get to 30 years, S.S. will have kicked in, so even if you have a little less than what you FIREd with your actual income will be the same or higher - and that's even if you didn't make any adjustments to your income or spending as you saw you FIREd into bad times.

I've been familiar with FIRE and the 4% rule and all the statistics you two are quoting for about 30 years.  The "By the way" beginning of my quoted paragraph above was a mostly offhand remark to attempt to clarify the other poster's understanding.  It was also factually accurate as stated, although I left out any discussion of AA and the inherent optimism of the 4% rule in practice, which I also share.

My key point (first paragraph, snipped above) was to advocate against "ignorance is bliss" as a wise strategy.  Know the statistics, then decide, rather than make rough approximations, bury your head in the sand, cross your fingers, and hope everything works out OK.  Although after thinking about it, I suspect it's just a personality difference in terms of "planners" vs "happy go lucky".  And of course I'm glad it worked out for the other poster.

I'm not doubting the veracity, but am genuinely curious as to how people are racking up 6-figure medical bills. Did you need treatment that was not covered by insurance? Did something go wrong with insurance coverage/billing?

Quote from: FIRE 20/20 on October 01, 2024, 12:03:24 PM

Quote from: Wolfpack Mustachian on September 30, 2024, 08:32:21 PM

Quote from: secondcor521 on September 30, 2024, 02:38:07 PM

<snip>
By the way, the 4% rule as generallly understood doesn't mean your portfolio grows.  Roughly, a 4% WR is 95% historically likely to have more than $0 left at the end of a 30 year period.  It is not designed to result in a portfolio that is preserved, let alone one that grows.  Yes, that's what happened in your case and in mine, but those unlucky historical patches (like the late 1960s) would result in depleting or nearly depleting a portfolio with a 4% WR.

It's not designed to grow it, but it very often does. I believe it's roughly 75% of the time it either grows or at least doesn't decrease. Not disagreeing with the letter of what you said, but the tone feels a little more pessimistic than reality. Yes, the 4% was about being greater than 0, and no, you're not guaranteed to grow, but using the 4% rule, you would have grown your portfolio in many cases. I.e. it's not surprising their portfolio grew or some rare exception.

+1 to @Wolfpack Mustachian 's comment.  While the 4% rule doesn't necessarily mean that your portfolio will grow, it is so incredibly conservative that if you FIRE into just an average economic situation your money will grow.  And if you FIRE into an above average environment it will grow a whole f'ing lot!  Only if you FIRE into the worst 5% or so of environments will your money run out after about 27-30 years or so, and only then if you're completely oblivious to what's happening or unable/unwilling to do anything about it.  If you FIRE into a bad time (but not the worst 5-10% or so times), then you should have close to what you FIRE'd with (in real terms), maybe a little more or a little less.  But at that point it's likely that S.S. will have kicked in to supplement your income.  And in that case you probably either increased your income or cut back on expenses, meaning you probably still have as much in real terms as when you FIREd. 

So while the 4% rule doesn't necessarily say that your 'stache will grow over time, in practice it usually does.  The Rich, Broke, or Dead defaults show that after 30 years there's roughly a 3% chance of having 5x your initial amount (all numbers adjusted for inflation), a 34% chance of having 2-5x your initial amount, and a 22% chance of having between 1-2x your initial FIRE amount.  That's about a 60% chance of having more than you FIREd with, even accounting for the effects of inflation.  For most people (at least in the U.S.), around the time you get to 30 years, S.S. will have kicked in, so even if you have a little less than what you FIREd with your actual income will be the same or higher - and that's even if you didn't make any adjustments to your income or spending as you saw you FIREd into bad times.

I've been familiar with FIRE and the 4% rule and all the statistics you two are quoting for about 30 years.  The "By the way" beginning of my quoted paragraph above was a mostly offhand remark to attempt to clarify the other poster's understanding.  It was also factually accurate as stated, although I left out any discussion of AA and the inherent optimism of the 4% rule in practice, which I also share.

My key point (first paragraph, snipped above) was to advocate against "ignorance is bliss" as a wise strategy.  Know the statistics, then decide, rather than make rough approximations, bury your head in the sand, cross your fingers, and hope everything works out OK.  Although after thinking about it, I suspect it's just a personality difference in terms of "planners" vs "happy go lucky".  And of course I'm glad it worked out for the other poster.

I completely agree that what you said was factually accurate. I know you have a ton of knowledge about this stuff from your previous posts. You probably know a lot more about it than I do.

All I was looking to do was to point out that the tone as I read it was that if you follow the 4% rule, in general, it's very possible to come close to running out. Although it was designed to check and make sure you wouldn't run out, the data shows that you have a really good chance to actually break even or make more even while living on it. Ending up even close to zero is a rarity. I just think they needs to be emphasized.

We are approaching 5 yrs since I retired at 50.  Our stache is "only" 27% higher than when I retired.  We plan to sell our townhouse and buy a single family home within the next year.  I suspect we will have to pull some of the stache to make that transition. 

Like many on this forum, we never planned to blindly follow the 4% "rule".  I will probably start collecting my pension next year and I will eventually start collecting SS. These will reduce our withdrawal requirements.  SORR is certainly still a real concern for us. When will we get to the end of SORR risk?  I have no idea, but I certainly don't feel we have reached that milestone yet. 

Do I regret retiring early? Nope.

Is there a reason you're shifting from a townhouse to SFH?

I'm not doubting the veracity, but am genuinely curious as to how people are racking up 6-figure medical bills. Did you need treatment that was not covered by insurance? Did something go wrong with insurance coverage/billing?

Not all insurance includes a max out of pocket cap.  Some insurance has a cap on what they will pay. 

It doesn’t need to be disease or lifestyle related illness either.  In the USA, it’s easier than people realize to “wrong place/wrong time” yourself into a 6 figure bill.  Gunshot wound for example.  Or even a slip and fall head wound that requires a lengthy hospital stay.  Those are a couple instances I’m aware of within my own extended family, and both were over a decade ago so I’m sure would be even more expensive now.

Quote from: secondcor521 on October 01, 2024, 05:23:44 PM

Quote from: FIREin2018 on October 01, 2024, 04:30:03 PM

But 6yrs later and more $ than what I started with, I think I'm passed Sorr.

Maybe.  Based on what, though?  Gut feel?  How things worked out for someone else?  A Tiktok short?

what I've heard bantered around these parts is that once your portfolio doubles and your WR halves, you could easily weather a 50% market drop and that is when you are passed SORR.

Quote

https://www.in2013dollars.com/us/stocks/s-p-500/2018?amount=1000&endYear=2024
Stock market returns since 2018
If you invested $1000 in the S&P 500 at the beginning of 2018, you would have about $2,197.82 at the end of 2024, assuming you reinvested all dividends. This is a return on investment of 119.78%, or 13.06% per year.

Looks like retiring 6 years ago could have double even with withdrawals.

Thx!
I thought 5yrs after Fire to get passed Sorr. Since this is my 6th year, I figured it's no longer a concern.

My portfolio hasn't doubled because it's not 100% sp500.
I have bonds and intl.
But it's up a few years worth of expenses and I'm ecstatic about that

Quote from: mistymoney on October 02, 2024, 09:54:44 AM

what I've heard bantered around these parts is that once your portfolio doubles and your WR halves, you could easily weather a 50% market drop and that is when you are passed SORR.

It turns out that's a good - very conservative but good - rule of thumb.  Personally I think a 3% WR is probably bulletproof depending on the whole context.

I think it's just part of my personality to want to understand the "why?" of things, and to read the original data.  I see great advantages for me with this approach; there are also disadvantages.  The happy go lucky approach (the other poster) and the trust other folks (you) also have advantages, but the disadvantages of those approaches make them non-starters for me.

how am I a trust other folks?

I would hardly describe myself in such terms! I really don't trust anybody, lol.

Quote from: mistymoney on October 07, 2024, 04:32:28 PM

Quote from: secondcor521 on October 02, 2024, 12:47:38 PM

Quote from: mistymoney on October 02, 2024, 09:54:44 AM

what I've heard bantered around these parts is that once your portfolio doubles and your WR halves, you could easily weather a 50% market drop and that is when you are passed SORR.

It turns out that's a good - very conservative but good - rule of thumb.  Personally I think a 3% WR is probably bulletproof depending on the whole context.

I think it's just part of my personality to want to understand the "why?" of things, and to read the original data.  I see great advantages for me with this approach; there are also disadvantages.  The happy go lucky approach (the other poster) and the trust other folks (you) also have advantages, but the disadvantages of those approaches make them non-starters for me.

how am I a trust other folks?

I would hardly describe myself in such terms! I really don't trust anybody, lol.

I made that comment solely on your "what I've heard bantered around these parts" phrase.  I read that to mean that you would rely on that banter rather than, say, read the original Trinity study.  That very well may have been an unfair and/or inaccurate characterization.  If so, I apologize.

FWIW, I don't really trust anybody either. ;-)

I am way trusting.......I trust that everyone has no clue!  LOL

Just catching up on this thread and all I can say is wow!  We finally have a sighting of that previously mythical beast, the person who thought you could just blindly follow the 4% rule :)  Congratulations @FIREin2018, I'm glad it's working out well for you.

Quote from: PhilB on October 14, 2024, 05:13:35 AM

Just catching up on this thread and all I can say is wow!  We finally have a sighting of that previously mythical beast, the person who thought you could just blindly follow the 4% rule :)  Congratulations @FIREin2018, I'm glad it's working out well for you.

I was also surprised by this. I wonder if we should start a census? Or just a "what was your EWR (expected withdrawal rate)/ #x when you retired" poll with a variant both for pre- & for post-FIREees? I would bet most of us had north of 30x (3.33%.)

It is strange that some people will defend the 4% Rule—talk about how well it did in the past, how it weathered a depression and multiple world wars, run their numbers on spinoff sites like firecalc and tell everyone what they found, etc.—and then say, “oh well of course nobody really follows it.” It’s kind of like religious people.

I think the rule, like religion, is silly and don’t follow it.

The 4% rule is useful for planning.  To withdraw on a schedule, no matter the circumstances, is a terrible strategy for retirement, whatever the number is.

"Plans are worthless, but planning is everything" -- Dwight D. Eisenhower

The 4% rule is useful for planning.  To withdraw on a schedule, no matter the circumstances, is a terrible strategy for retirement, whatever the number is.

"Plans are worthless, but planning is everything" -- Dwight D. Eisenhower

^ One of my favorite quotes.   One cool historical anecdote is that after Eisenhower gave the order to proceed with D-Day, he gave no more orders the rest of the day.  There was no need, because all of the short term contingencies had been accounted for--including failure of the invasion.   

If you were to pick the starting order for the World Series, you would start with players who historically had the best OBP and go down the list.   You wouldn't stop there.  You would take into consideration things the stats don't know about, like injuries.   But history would inform your starting position.   And of course as the game develops, the manager may decide to introduce a pinch hitter or pinch runner, or change pitchers, based on current conditions.   

Literally no one expects a players batting average will be the same in each game.   But you can use that information to give your team the best chance to win.  That's why baseball team has an analytics team that does nothing but try to extract trends from historical data. 

I don't understand the mindset that it is wrong or silly to use available information to inform our decisions.  Just a different way of decision making, I suppose. 

Just catching up on this thread and all I can say is wow!  We finally have a sighting of that previously mythical beast, the person who thought you could just blindly follow the 4% rule :)  Congratulations @FIREin2018, I'm glad it's working out well for you.

Wait, people discuss the 4% rule here but don't follow it?!?

And, thx. Like i said above, i got lucky. I had no clue about SORR when i FiRED in 2018.

My absolute steel belief that the 4% rule working out in the long run (30yrs) kept me calm and cool during Covid whereas many around me was popping Xanax like candy as the stock market sank lower and lower

Quote from: PhilB on October 14, 2024, 05:13:35 AM

Just catching up on this thread and all I can say is wow!  We finally have a sighting of that previously mythical beast, the person who thought you could just blindly follow the 4% rule :)  Congratulations @FIREin2018, I'm glad it's working out well for you.

Wait, people discuss the 4% rule here but don't follow it?!?

And, thx. Like i said above, i got lucky. I had no clue about SORR when i FiRED in 2018.

My absolute steel belief that the 4% rule working out in the long run (30yrs) kept me calm and cool during Covid whereas many around me was popping Xanax like candy as the stock market sank lower and lower

The 4% rule is modeled off of a lot of things that need to understood in order to use it effectively, as has already been said, it's a starting point.

First, it's very, very good math based on made up numbers, meanings it's entirely based on your own estimate of how much you will spend decades down the line. That's not really realistic. Also, some people add huge padding to their budgets, while others have really tight budgets.

Second, it assumes that the person will spend *exactly* the same amount every single year plus estimated inflation, year over year, with no change, regardless of what happens in the markets or their personal lives. This makes no sense.

The 4% rule is very good for projecting how your wealth will hold up to market fluctuations, but is absolutely useless for anticipating changes in your lifestyle and spending needs.

So person A could have 500K saved and project an annual spend of 17.5K, or 3.5% withdrawal rate. His spending could be based on his last 7 years of spending because he lives in a rented house-share where he gets reduced rent because he's really good at DIY, with 6 other guys, doesn't own a car, cooks all his food from scratch, and vacations at his parents' cottage. He left work because he was a laborer and is starting to have serious back pain.

Person B could have 3M saved and project and annual spend of 128K, or 4.25% withdrawal rate, but she also has 1.5M equity in her home that she doesn't intend to sell, so she don't use it to calculate her withdrawal rate. She also has massive insurance policies for life/disability/etc. Lets say about half of her annual budget is for international travel, so her spending could easily be cut in half, or diverted elsewhere. She left her career as a dermatologist, but keeps her license and could go back to work part time at any time.

According to the 4% rule, person A has less risk and is less likely to run out of money over 30 years, but that's because the models can't account for individual factors that can and do impact spending, or how realistic someone's estimate spend is over decades, or that person A is a single medical emergency away from total financial collapse, while person B has so much more security and ability to adapt to whatever comes.

That's why the 4% rule is a starting point, because it's only an indicator of how the markets have behaved over the past many decades. It doesn't guarantee anything about future market returns and it predicts absolutely nothing about the many, many factors that could alter your spending over time.

So it's not that no one follows it, it's that virtually no one here considers is a complete strategy for retiring and managing risk.

There are folks who retire on exactly 4% but that's usually because they've done full risk analysis and have figured out their own hedges for their own personal risks.

.
By all means make like an ostrich and continue to blindly believe in the 4% rule though - you'll almost certainly be absolutely fine :)

I FiRED in 2018.
I have more $ now (6yrs later) than when I FiRED.
I think I'm past SORR.

Unless something happens that hasn't happened before, I will believe in the 4% rule.
Things that have happened before:
Great depression, 2 world wars, great recession, a world wide pandemic

So all that's left is nuclear war.
I think radiation fallout affecting my life expectancy will make the 4% rule no longer matter

Edit:
Or AI take over of the world

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Most people who follow the 4% rule end up with far more than they started with.

The problem is if you are one of the few who does not.  If you blindly follow the rule and it fails, it's likely going to be too late for you to make adjustments.

I didn't include social security in my calcs.
If things go South before I turn 70, I'll take it that year

Quote from: tj on October 27, 2024, 11:51:13 AM

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Most people who follow the 4% rule end up with far more than they started with.

The problem is if you are one of the few who does not.  If you blindly follow the rule and it fails, it's likely going to be too late for you to make adjustments.

I didn't include social security in my calcs.
If things go South before I turn 70, I'll take it that year

If SS is enough, that's great. If i retire early, my SS is not going to be a huge number. The closer you are to SS age, the less number of years your portfolio need to fund your whole spending before you claim it.