Why We Don’t Live by the 4% Commandment

Our friends at Our Next Life recently got us thinking (as they often do!) about the core tenets of the financial independence movement – the “commandments” of early retirement.

It’s a bit like a religion, isn’t it?

In the beginning, there was the revelation. Through their Word, the Gods of financial independence revealed themselves and their will to the world:

The Book of Dominguez and Robin: “Take back your life by changing the way you relate to money.”

The Book of Charlton: “You don’t need to earn six figures to retire early.”

The Book of Stanley: “The truly wealthy don’t live on Park Avenue; they live next door.”

Then came the prophets – Fisker, Mustache, Collins, and others – whose messages of frugal living and early retirement reached far and wide to the deeply indebted cable-subscribing masses.

Financial Armageddon will come, they preached. Millions of consumer drones will reach retirement age and find themselves with nothing. Will your nest egg be large enough come Financial Judgment Day?

Some rejected the financial gospel, but others saw a brighter future without frivolous spending and were “born again” into a new life of frugality and savings. They swore off sinful habits, like daily lattes and high-interest credit card debt. They opened investment accounts. They grew their incomes.

Denominations emerged among the believers. There were the indexers, the dividend investors, the nomads, the frugal weirdos, and the big spenders. Online houses of worship were formed. Some groups were evangelicals, proselytising to all and scolding the unenlightened:

“Downsize thy suburban dwelling, sinner!”

“Cease thy restaurant dining, glutton!”

“Sell thy luxury SUV, heathen!”

Other communities were more the like Unitarian Universalists of the world, accepting of all lifestyles and believing that “it’s fine to do whatever you want with your money, so long as you are doing it deliberately.”

Regardless of the approach, they all followed a similar set of commandments, including the teaching of the Holy Trinity:

“Thou shalt live by the 4 percent rule.”


By mainstream standards, you might call the FIRE community rebellious, subversive, or against-the-grain. But like so many other groups espousing countercultural values (from hippies to hipsters), we sure tend to think about things the same way.


Early retirement hipster

The 4% safe withdrawal rate might be the best example. Based in the research of the Trinity Study, the rule states that annual withdrawals of up to 4% are extremely unlikely to exhaust a portfolio of stocks and bonds – with a 98% success rate for a 75% stock portfolio over a 30-year period, based on 1926-2014 data.

The rule has become the foundation of early retirement planning. With the exception of those with other meaningful sources of passive income (like pensions or rental properties), it’s at the core of seemingly every early retiree’s financial plan. Some believe 4% is too aggressive in today’s world – interest rates are at historic lows, market valuations are at historic highs, and can the world really sustain the level of growth we’ve seen this past century? – but very few are taking the opposite approach and planning on withdrawing more than 4%. We’re a risk-averse bunch.

Which leads me to my confession – my answer to the question Our Next Life posed about the ways in which we reject the FIRE “commandments”:

We’re not holding ourselves to the 4% rule.

Not right now, anyway.

I’ve written in the past about how I’m financially independent alone, but we may not be as a couple. We could have worked several years more to change that, but we wanted to travel now. We wanted to see the world. There’s a price to being too conservative. So we pulled the plug, 4% rule be damned!

To support our travel spending, I’ve been side-hustling more aggressively, but I recently decided to cut off my biggest source of income. Without that cashflow, I’ll be wading into a new world – finally making the real conversion from “savings mode” to “spending mode.” As we travel over the next few years, my withdrawal rate to cover two people’s expenses might be 5%, 6%, or maybe even more. The horror!

I’m not worried about it.

There’s plenty of reason to be optimistic. If we use the Trinity Study as a baseline, a 5% withdrawal rate was still largely successful (77% over 30 years). 6% withdrawals survived the majority of the time (57%). Even 8% (whoa!) survived one-third of the time. I believe many of the arguments for a lower withdrawal rate in today’s environment, but I still find the historical data encouraging.

More comforting than the Trinity data, though, is the vision we have for the coming decades of our lives. We’ll learn new skills and pursue new hobbies, some of which may generate an income. We’ll take on new side hustles. Daniel will likely work full-time again, at least for a while. We’ll probably settle geographically at some point, reducing our travel spending.

We’ll make it work.

If things really go wrong – if worst really comes to worst – I’ll take an office job again. Is that really so bad as a “worst case” scenario, working for a few more months or years in a cushy professional job? For some people, the answer is “Yes, never again!” – a legitimate response if that’s your preference. To me, it’s an acceptable risk.

In my view, this is greatest upside of pursuing financial independence and early retirement at a young age: I can tolerate more risk.

If I were 20 or 30 years older, I wouldn’t be comfortable with an asset allocation of 75% or more in stocks. A major market crash could wipe out the majority of my savings – an unacceptable scenario at traditional retirement age. Instead, I can invest aggressively now and likely benefit from higher average returns over time.

If I were 20 or 30 years older, the prospect of returning to work 5 or 10 years from now would be daunting. I might not have the energy for it. I might not be able to return at all. Age discrimination is real. Instead, I feel reasonably confident that I’ll have the skills and energy for it, if it really comes down to that.

If I were 20 or 30 years older, I might not have the energy to pursue full-time travel like we’re doing today. I might not have my health. Hell, I might not be alive at all! You name it – cancer, heart disease, diabetes, Alzheimer’s – it all runs in my family.

You know what’s scarier than an 80% portfolio survival rate over the next 30 years? An 80% actual survival rate over the next 30 years. It’s not a pleasant statistic to think about, but there’s a meaningful chance one of us won’t live to traditional retirement age. Instead of saving all our dreams for the future, we’re living some of them today.

The 4% withdrawal rate is a great guideline for estimating a savings target, but for us, it’s far from a commandment that must be followed every month.

How important is the 4% rule in your plan? Are we off-base? Overly optimistic? We’d love to hear your thoughts.


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  1. We’ve been discussing our risk tolerance relative to others a lot in the Bruno household lately. Whenever a post makes its way outside the FIRE bubble, there are the inevitable naysayers. You did a great job summarizing that the 4% rule is just a good jumping off point. If the concept of the SWR is understood, i’m of the opinion that you can have your spending yo-yo on a monthly (or annual?) basis – as long as you’re keeping track. And keeping a loose eye on what the markets are doing (at least annually, if not monthly). I believe you called that being “deliberate” with your money.

    Being flexible is our greatest asset as early retirees, as you mentioned. Having the time to develop new skills that may bring in future income or picking up a for-pay project is not out of the question. The word “retirement” has a certain stigma about it and maybe isn’t the best word for us… whatever this new breed of financially independent youngsters is…

    • That sounds very similar to my approach: it’s fine if spending fluctuates, as long as I’m monitoring my withdrawal rate and keeping it reasonable over time. The 4% rule is supposed to account for the potential downward movements of the market, of course, but I’ll still be watching closely. If we see a major drop in the markets, I’ll certainly be more interested in rebuilding the portfolio through ordinary income for a bit.

  2. The 4% rule is what initially pulled me into the FIRE world. It helped me see that early retirement was possible. Because that was all I knew, I knew of no other way (#deepthoughts). But the more involved I get in the FI world, the more my own financial independence plan deviates from what I initially learned.

    As a married father of 4 living on a single income in a high cost of living city, we’ve got to be flexible with our budget — our plan for financial independence is no different.

    • Totally — same here! Understanding it finally gave me a real target rather than just blindly adding to savings with no goal in mind. Like you said, even if I were taking strict 4% withdrawals, flexibility will be key.

  3. The 4% rule is the current baseline in our planning it is just a guideline. We are still approximately 10-15 years away from FIRE but I’m not planning for 4% to be the hard amount we pull each year. Some years we will pull more, some we will pull less. I plan to build flexibility into our FIRE plan so we can adapt to what life throws at us.

    • That’s how I’m thinking about it, too. Of course, to mitigate sequence risk, it’s better to have those less-than-4% years precede the more-than-4% years, but we have many decades ahead of us to adjust as needed.

  4. It sounds like your plan more than likely requires you to go back to work or at least pursue some sort of profitable entrepreneurship

    I mean, even the name of this blog is “the resume gap”. A gap in the resume implies there will be an attempt to add something to it in the future. It’s rather hard to believe that you can support yourself indefinitely with an unsafe withdrawal rate, especially with a partner who is not also financially independent.

    I don’t share your confidence that you can just slide back into the workforce whenever you like it…especially if it is really going to be 20 or 30 years from now with a 2 to 3 decade gap. I recall a post where you said you were 28…48 and 58 absolutely are ages that could be age discriminated against.

    You’ll more than likely have a great adventure and some awesome stories to tell vs your peers though, and that is something that you can’t put a price tag on.

    Ballsy, and mad respect, but not for me.

    • That sounds about right, TJ. When we settle down geographically again, my partner will very likely go back to work. I should be able to easily sustain my own spending at <4% WR, but I think I'll want to do some type of work in the future regardless -- hence the name of the blog.

      I completely agree on the point about returning to the workforce if it's 20 or 30 years from now. My confidence is based in the assumption that I'll be doing some sort of work again within the next ~5 years. Being 58 with decades of unemployment would definitely make things difficult.

      Thanks for taking the time to comment!

  5. I am with you in that you have to live for the now as who know if there will even be a 20-30 years older version of you to even enjoy all of this hard earned money. I think as long as you are very comfortable with the idea of going back to work if needed in the future then spending a little more now so you can live and explore while you are young and healthy is perfectly OK. Enjoy it!

    • Thanks, Mrs. SFF! The FIRE community seems to mostly embrace the idea of retiring permanently even at a young age, and I especially loved that notion at times when I was unhappy with my job. Stepping away even just for a few months, though, has made me appreciate the idea of “retiring early and often.” Working again for a while — especially doing something new and different — is not the end of the world to me.

  6. Spot on with the article. Kudos for having that mentality and mapping out you worst case. When you look at it like that, it is all very easy going.
    I actually used the worst case analogy as well in my decision process to take on a new job. It puts the things in perspective.

    Especially when your worst case is what you have today (my case) or what you had last year (your case).

    I do think the reasoning makes sense. In your plan, you are willing to go back to a job, in order to have already ow the lifestyle you want. In a few years, it will be less easy to travel the way you travel now. Enjoy the 6pct rule! live now!

    In our planning, the 4pct rule is the firehouse that gives direction to our progress. Otherwise, it is difficult to see progress towards a goal. It would only be the net worth that goes up. Now, it has a goal. By the time we pull the trigger, we will see what to do!

    • You’ll never know what could have been unless you try it, right? At worst, the startup doesn’t work out, and you do something else or go back to what you were doing before.

      I don’t think I’ll win too many fans promoting the 6% rule, haha! Maybe something like “6% for a little while, then 1% for a bit, then 4% for a few more years.” Not quite as catchy.

  7. PhysicianOnFIRE

    June 7, 2016 at 1:14 pm

    I like your style, Matt. I’m guessing you guys will be just fine. I find Lots of talk about portfolio survival possibilities, but rarely does physical survival enter the discussion. Mortality data should absolutely be a consideration for any aspiring early retiree.

    I’ll be retiring with less than a 4% withdrawal rate, mainly because I’m not ready to give up the day / night job just yet. I like the extra security a monetary cushion will give us, and once I leave clinical medicine for a significant length of time, it will be very difficult to jump back in.


    • I think you have a great plan, PoF. If you’re still enjoying work (and with kids in school, not permanently hitting the road anytime soon), I understand why you would stay put and push the WR lower. Thanks for stopping by!

  8. I absolutely LOVE your attitude, Matt. You guys will make it work. Why? Because you want it bad enough. You are flexible enough to navigate the waters of early retirement. You are smart enough financially to ensure that you’re maximizing your happiness with every dollar spent. If it works out, great. If it doesn’t, who cares? You’ll make a little more money and go on with your life, probably with a brand new outlook on work and life in general after all that beautiful travel.

    Love it, Matt. Love it!

    • Very nicely summarized, Steve! I’m an unabashed optimist on these things, within reason. I don’t necessarily think a >4% WR is sustainable long-term, but I do think we’ll find plenty of ways to make things work and even it out over time.

  9. Nice article and it certainly resonates with us. We were all about being conservative yet flexible, and ultimately whatever works for you is what matters. I Like to think that the ‘rules’ and unspoken ‘commandments’ of financial independence are guidelines to get you thinking. something to get you started with some calculations. What follows from there is education, learning and planning. What any one person chooses to take from them is entirely up to them.

    • I love your approach to the “rules,” Mrs. PIE: take them as helpful starting points, learn as much as you can about the pros and cons and counterarguments, then build your own plan.

  10. “Instead of saving all our dreams for the future, we’re living some of them today.”

    I couldn’t love that statement more. I think as a money nerd, I felt that I should follow EVERY rule to earn financial independence early (like following religion to gain eternal life) otherwise I shouldn’t call myself a PF blogger. It’s self-imposed of course but I do need to learn that spending money on my dreams now is more than okay 🙂

    Good on you Matt for creating your own plan 😀 and I do agree that even if you temporarily have to go back to work to “get back on track with your retirement nest egg”, it’s not such a bad thing in exchange for living out your dreams sooner than later!

    • Thanks, Jaymee! I greatly enjoy the variety of approaches across the community. Different strategies, mindsets, and levels of risk tolerance work for different people.

      • Yes you got that right! When I started my FI goal, I thought there was one “general” path to success (the one the includes a college degree and buying a house instead of renting). But I’m realizing I make my own rules 😛 groundbreaking right?

  11. A lot can definitely change given the investment horizon that you are dealing with. We have saved for more than 4%, but will probably just spend more than we had before we were retired on travel and other things we find interesting. I think as long as you are flexible, that is the key. Enjoy your time – Carpe Diem!

    • Agreed — I often think about the rapid acceleration of technology and wonder how different the world will be by the time we’re traditional retirement age. That, along with other political and societal changes, could play out in any number of ways financially. We’ll remain cautiously optimistic 🙂

  12. Gather ye rosebuds while ye may,
    Lest 4% leave ye dreary by day.
    Balance tips, and balance goes,
    As old men share regretful woes;
    This above all else I say to you:
    To thine own self be true.

    Just don’t run out of fucking money. 😉

    • I should like to rise and go
      Where the golden apples grow
      In our silver Caravan
      A retired-early man
      But if our cash runs thin
      In some distant foreign inn
      To our home we shall return
      And our travels we’ll adjourn

  13. I made three big moves fresh out of college- the kind that involve new states and no work lined up. I was slightly worried and my parents were terrified but I learned the first few secrets of adulthood.

    1. You’ll figure out a way to make it work.
    It’s amazing what we can accomplish with the proper motivation. You’ll probably find something awesome you never knew you wanted to do!

    2. No one really knows what they’re doing- even those with a map are on the wrong trail.
    We could plan for everything, or plan for 80% without burning our bridges. ?

    Cheers to you and for letting us tag along vicariously! PDX is one of my favorite places, enjoy!

    • Love your mindset, Pika. There’s plenty of room for improvisation, even with the best laid plan. We had a great time in PDX, as we always do!

  14. I have debated pulling the plug before I reach 25x my expenses and just covering the rest with contract work for a month here and a month there. There is a good chance I actually do this in a few years. Only time will tell.

    • I think there’s a lot to be said for that, if you’re willing to figure it out as you go. Depends on your risk tolerance and how eager you are to leave full-time work, I suppose!

  15. I’ve thought the same thing. I consider myself a hustler and have a resume that would be very employable. I would jump back into a job if I had to. I am tempted to try out a higher % as well (when I get to FI that is!)

    • Totally — I think most people in this community are far smarter, more adaptable, and more flexible than they give themselves credit for.

  16. I, too, have been toying with the idea of a higher withdrawal rate. I’m starting to realize that my journey to FIRE may require me to take a leap of faith before our investments hit 25x our spending. I’d rather get to our freedom point sooner and think about how we can cut back or take on part time work if things hit a rough patch in the middle. It’s so refreshing to hear from the perspective of someone who is also more risk tolerant when it comes to moving up the timeline to freedom.

    • Good to hear from another more risk-tolerant reader. 🙂 I would definitely be hesitant to bank my future on a higher-than-4% withdrawal rate long-term (in fact, there’s good reason to believe in a lower SWR), but that doesn’t mean you can’t start making major life changes before you’ve reached that magical 25x number. Even after just a few months off, I’m starting to feel refreshed and to have a different outlook on work. We’re still young; there’s plenty of opportunity to do a variety of income-producing ventures over the years to come. Thanks for taking the time to comment!

  17. I think even the 4% is already waaaayyyy too optimistic in today’s low-bond-yield, expensive equity valuation world. It can all work out all right, but I don’t think that a 4+% withdrawal rate will have a very good survival probability over a 50+ year horizon. I have written about that issue of success probabilities conditional on the Shiller CAPE ratio above 20 (right now at 26) and they don’t look good for 4% SWR:
    42% failure probability after 50 years, if 100% stocks
    67% failure probability after 50 years, if 80% stocks, 20% bonds
    83% failure probability after 50 years, if 60% stocks, 40% bonds
    Simulated with cFIREsim.
    I haven’t done the 5% or 6% rules but I figure they will be wiped out with significantly greater probability after 50 years, probably even after 30 years.

    • Yeah, I tend to agree with you, ERN. I’m not personally banking our finances on being able to withdraw more than 4% — or even 4%, really. Your analysis only adds to my pessimism on that front!

      What I am banking on is that we’ll be able to be flexible with our lives over the many decades ahead, perhaps spending more than 4% a year for a couple years here, but also probably doing some “work” here and there (but more fun out-of-the-office type things), growing some side hustles, and eventually slowing down and reducing our travel spending — thereby leveling out at a more sane annual withdrawal rate.

      Thanks for taking the time to comment.

      • Good points! Doing some consulting gigs on the side would definitely help if the market doesn’t cooperate. There is also flexibility on the expenditure side, for example relocating to a cheaper location abroad. Whether it’s for relocation or slooowww travel we’ll make sure to consult your blog! 🙂

  18. Excellent post Matt. Glad I discovered your blog. We are definitely aligned on this, and I’ve seen people that are panicking about “only” 90% success rate: http://tenfactorialrocks.com/what-is-enough/

    • Anything above 80 or 90% success rate is false confidence, I think. The world changes rapidly, and those projections are based on just a century or so of data anyway. For me, flexibility is far more important than saving to bump up those numbers by a few more points. Thanks for reading!

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