randomguy wrote: ↑Fri Jun 17, 2022 9:51 am
nigel_ht wrote: ↑Fri Jun 17, 2022 8:52 am
Glenn wrote: ↑Thu Jun 16, 2022 8:06 pm
I think such hypothetical discussions of the "4% rule" are worthless. That guideline is useful to try to figure out if you likely have enough to retire on, but does anyone actually follow it mindlessly? I used it as a guideline when I retired 13 years ago, but never expected to simply withdraw an inflation-adjusted 4% automatically, year-after-year, even as my portfolio tanked. Has anyone?
In retirement, do what you presumably did pre-retirement: stay flexible. Thinking you're going to simply take 4%, inflation-adjusted, in the face of ever-changing financial conditions, is just foolish.
Some folks need all of that 4% to meet expenses…so success or failure of the 4% rule is relevant to them.
Knowing when and how something fails is a good thing. It’s still a good planning rule of thumb and there are many safety factors built in for folks that use them:
1) many folks pad their expenses with discretionary. That gives then a little flexibility if things are really bad.
2) even with the discretionary added in many BHer don’t need to spend the full 4% every year.
3) social security isn’t factored in. This has a huge impact on portfolios under a couple million.
4) often the EF isn’t part of the portfolio used for SWR calculations
5) many BH folks will own their own home by the time they retire. That’s not part of the SWR calculation.
I’m too lazy to retype the OPs spreadsheet but I bet the 4% rule doesn’t fail given even a couple of these common safety factors.
SS is factored in. It is why you need 40k instead of 80k.
Owing a house is factored in. It is why you need 80k instead of 100k.
Eh, depends on how you do it but I haven't seen SS and home ownership factored in very often. Its usually something like "I have a $2M portfolio and I'm going to live on $80K gross".
You can do so in cFIRESim. Well the social security part anyway.
Your EF giving you 6 more months doesn't really move the needle.
Some folks have more than 6 months EF. Some folks have none because their portfolio is their EF.
And yes if you have a 3.5% SWR, it doesn't matter if the 4% rule fails. So now we are left talking flexibility. No doubt cutting spending is the answer to poor returns. The question is by how much and for how long.
It is easy to say be flexible. But it is March 2009, how flexible do you need to be? Are you going to make a 10k cut by skipping that vacation or are you going to make a 10k/year cut by selling your house? And when do you do you make that choice? If the actual SWR over the next 30 years is 2%, I probably need to sell my house in order to optimize my use of my money. In my 120k budget (80k from investments, 40k from SS), I would have to cut too much to live on 80k/year for 20+ years with my current level of house. I would want to cut the amount of assets dedicated to house by quite a bit. I like those extra bedrooms/space I have more than taking 5 trips/year instead of 4. I don't like them more than taking 2 trips instead of 0.....
If you are depending on SS to make ends meet what were you doing until SS kicked in? Were you simply spending $120K instead of $80K the first N years? That's not really following 4% SWR...
But lets run it in CFireSim
https://www.cfiresim.com/66bd4643-4457- ... 26d8f2367d
SWR with $40K SS starting 5 years after retirement allows you to have a $110,852 spend. Your $120K spend is historically over budget if you want 100% success rate.
A $120K spend rate has only an 84% success rate:
https://www.cfiresim.com/94b647f7-9210- ... 42fa7eba61
The 2% outcome is sufficiently unlikely that I don't specifically plan for it. It's in the general bucket of "Something has gone terribly wrong...see if any of the exit strategies still work".
Keeping a separate go-go budget is how I intend to avoid needing to decide if we need to cancel travel in the early years if we hit SORR. Then, if I can LBYM on the income that my portfolio has historically been able to generate - some safety fudge factor, I'm unlikely to ever need to be flexible.
That probably means I can't afford a $120K lifestyle or I need to save more to afford a $120K lifestyle.
What I don't like about the "be flexible" mindset is generally it means "spend what you want now and be flexible later if you need to be" where nobody really expects to actually need to cut back later. And I get it since the odds are you don't need to cut back later...but I'm still pretty tired of folks who want to tell me that I still need to be flexible with 100% historical success rate + fudge factor + SS + home equity.
Nope. The plan has enough redundancy to the point that if I actually need flexibility the "be flexible" folks are really screwed.