The Ultimate Guide to Safe Withdrawal Rates – Part 22: Can the “Simple Math” make retirement more difficult?

This post has been on my mind from day one and it’s also been a topic that was requested by readers in response to previous installments in the Safe Withdrawal Rate Series (click here for Part 1):

Is the FIRE (Financial Independence Retire Early) community setting itself up for failure by making retirement conditional on having reached a certain savings target?

If we specify a certain savings target, say 25x annual expenditures, as in Mr. Money Mustache’s legendary “Simple Math” post, we are more likely to retire after an extended equity bull run. And potentially right before the next bear market. Very few savers would have reached that goal at the bottom of a bear market! Don’t believe me? Let’s look at some of the calculations from my post from a few weeks ago: The Shockingly Simple/Complicated/Random Math Behind Saving For Early Retirement. Specifically, let’s assume that every month, starting in 1871, we had sent off a new hypothetical generation on their path to FIRE. They start with zero savings, then save 50% of their income (adjusted for CPI-inflation), invest in a 100% equity portfolio and retire when they reach 25-times annual spending. Even though the starting dates are perfectly spread out, one each month, the retirement dates are not. They follow the big bull markets with extended gaps in between, see the chart below. The endogenous retirement dates are in red. Using the Mr. Money Mustache Simple Math method, you’ll mostly retire during a bull market, and often during the last part of the bull market, right before the peak and the next bear market!

Retirement dates when using a 50% savings rate, 100% equity portfolio, 25x savings target. Simulated retirement dates in red. Using the Mr. Money Mustache Method, you’ll only retire during a bull market!

How much of an impact will this have on Safe Withdrawal Rates? That’s the topic of today’s post…

Before we take a deep-dive into the numbers, let me again show why this clustering of retirement dates occurs. This is a chart from the post from a few weeks ago (slightly different assumption because of the 60% savings rate, but the intuition is the same). Two neighboring cohorts, one starting their FIRE savings path in October 1992 one in November 1992 retire over four years apart! How is that possible? Well, the first cohort just barely reached their target in the Summer of 2000 and retired exactly when the market peaked. The cohort behind it just fell short, then saw its portfolio drop to only slightly above 15x annual expenses. With the help of the additional contributions and the market recovery this cohort eventually reached the savings goal in 2004. Of course, maybe that second cohort would have retired in 2000, too, because they came so close to the savings goal. Well, it doesn’t really matter where we set the cutoff. At 25x or 24.99x or 24.9x. Some cohort, maybe the December 1992 or January 1993, would have been forced to retire after the Dot-Com bust. There will always be a clustering of new retirees in 2000, then no retirees for a while and a new cluster starting in 2004.

ShockinglyComplicatedMath Chart07
Two different start dates in October and November 1992 reach FI over four years apart!

Endogenous retirement timing vs. Safe Withdrawal Rates

Let’s see how that clustering of retirement dates messes with the Safe Withdrawal Rates and failure probabilities. Let’s plot the same cumulative S&P500 chart again (top panel). In the bottom panel is the time series of Safe Withdrawal Rates (60Y horizon with capital depletion, 80/20 portfolio). The blue line represents the SWR that would have exactly exhausted the portfolio over a 60-year horizon. (Just for the record, this requires some extrapolation of returns beyond 2017. Please check Part 1 for the simulation details.)

The effect of retiring only during bull markets: Lower Safe Withdrawal Rates!

With the red dots, I mark the SWRs that were attainable in the months when FIRE savers actually reached their goal. Just eyeballing this chart, it’s obvious that the SWRs are lower for the FIRE crowd with the endogenous retirement timing than for the retirees that would have picked a random retirement date along the blue line. The red dots always coincide with the troughs of the blue line, which occur exactly at each of the equity market peaks. But none of the peak safe withdrawal rates are ever feasible for the early retirees. That’s because they occur when the market is depressed and nobody can afford to retire, like 1932, 1949, 1982, 2002 and 2009.

Why is this important? Sometimes I read that the 4% Rule is way too conservative because one can show that for some past retirement cohorts the portfolio would have grown to some exorbitant amount after 30 years. Of course, as I have pointed out before, looking at the best possible outcomes or even the median outcomes after 30 years is not very helpful because the whole idea of calibrating the SWR is to hedge against a tail risk. To use the airport analogy again (inside joke, please listen to ChooseFI episode 35), when I budget my driving time to the airport I like to be 99% sure I catch my flight. Not 50% sure (median). And certainly not 1% sure (fastest possible driving time). Then why people look at the best possible outcomes in Safe Withdrawal exercises is completely beyond me.

But today’s research taught me that there is an additional reason to ignore the best possible outcomes. Of course, one can find examples where even with a 4% withdrawal rate the portfolio would have grown to five 5+ times its initial value (inflation-adjusted!!!) after 30 years. The only problem: that would have been the cohorts starting retirement in 1932 or 1982, at the bottom of some of the worst recessions and bear markets. Nobody following the “Simple Math” method would have ever retired back then!

Failure Rates for different equity weights

So, how much of a difference does the endogenous retirement decision make on the failure rates of different SWRs? It’s easy to compute, we just check what’s the share of the blue line and the red dots below a certain target SWR. Let’s plot the failure probabilities of two Safe Withdrawal Rates: 1) the often quoted 4% Rule and 2) the 3.25% Rule, which is what I would endorse in the absence of any future supplemental cash flows (pensions, Social Security). With that additional income, I would increase my personal SWR to 3.5%, but for the purpose of this exercise let’s assume there is no future income.

In the chart below is the failure probability in percent of the 4% Rule (blue) and the 3.25% Rule (red) as a function of the equity weight during retirement (just to be sure, for the FIRE savers, I always assume 100% equities in the accumulation phase!). The solid line is the failure probability the way it’s normally constructed, i.e., for all retirement cohorts between 1871 and 2015, while the dashed line is for the cohorts that retired when they reached their 25x savings target.

Retiring after reaching a certain savings target will increase the failure rate by several percentage points when using the 4% Rule. If the SWR is lower there is only a negligible impact from the endogenous retirement decision, at least for equity weights above 70%.

As expected, endogenous retirement timing increases the failure probabilities. But not by a lot. Somewhere around 2-4 percentage points for the 4% Rule and less than 1 percentage point for the 3.25% withdrawal rate (at least for the high equity weights). The 4% Rule becomes a little bit less appealing than it already is but not by much. The 3.25% Rule doesn’t seem to be impacted much at all! I was very surprised by those numbers. I would have thought that the endogenous retirement timing would have made more of a difference. There is certainly a noticeable and significant impact, but a few percentage points in the failure rate don’t make or break a SWR. For us personally, the 4% Rule is toast with or without endogenous retirement and the 3.25% Rate is safe either way. I guess there are (at least) two reasons for the relatively small impact:

  1. Nobody retires during the first few months after the market peak when the Safe Withdrawal Rates were still high. In that sense, the savings target actually provides some protection against retiring when the SWR is low.
  2. A lot of cohorts that just barely missed the previous market peak (e.g., August 2000) will likely retire early during the next bull market (e.g., late 2004) when equity valuations are still reasonable and SWRs are still high.

Of course, endogenous retirement timing still raises the failure probability, just not by that much!

Some caveats

Of course, not everybody follows the Mr. Money Mustache “Simple Math.” Some may have actually retired at the bottom of a bear market. Maybe by choice because they got a large cash infusion (inheritance, the sale of a business, etc.) or involuntarily because of a job loss. Some may become eligible for a generous (government) pension and can afford to retire even with a decimated portfolio. Good for you, but it’s not the norm. All I’m saying here is that if we pick a random start date for your FIRE journey, then follow the Mr. Money Mustache Simple Math Method and save until we hit 25x annual spending (or any other pre-determined spending multiple), we’re more likely to face higher failure rates in retirement.

Does the market follow a Random Walk?

Notice that none of what I wrote today should have any significance if we were to assume that financial markets follow a strict Random Walk assumption, i.e., past returns have zero influence on future returns. But the Random Walk assumption doesn’t really work with financial data. Even the heavy hitters in the passive investing world, namely, Professor Burton Malkiel (“A Random Walk Down Wall Street”) and Jack Bogle (Vanguard Founder) pointed out that expected equity returns are not exactly identical all the time because of mean-reversion of equity valuations:

“You take that 6 percent return and maybe knock it off a couple of points perhaps for a lower valuation, slightly lower valuation over a decade and you’re talking about a 4 percent nominal return on stocks.”    Jack Bogle on CNBC.


I’m not a big fan of the 4% Rule, as you may know by now. Even when calculating the failure probabilities as in the Trinity Study, a 4% withdrawal rate would have unpleasantly high failure probabilities. I’m happy to report that with endogenous retirement timing, which is more realistic for the FIRE crowd, the failure probabilities do not increase by all that much. But they still increase. Picking a lower, more conservative safe withdrawal rate is even more important for us in the FIRE crowd. We should also consider equity glidepaths (See Part 19 and Part 20), to hedge higher the higher risk of retiring right before the next bear market!

Thanks for stopping by today! Please leave your comments and suggestions below! Also, make sure you check out the other parts of the series, see here for a guide to the different parts so far!

112 thoughts on “The Ultimate Guide to Safe Withdrawal Rates – Part 22: Can the “Simple Math” make retirement more difficult?

  1. Big ERN I love all your stuff and am planning to go back to the beginning and read all of it when I have a few hours free. I don’t think the 4% “rule” should be taken for granted. Once you are ready to retire, it’s time to do the complicated math. To me, 25x is just a goal. I’m about 10 years from FI and having “a number” helps put the journey in context. If I get to 25X, I know I’m in pretty good shape. Anything can happen after that. Huge unexpected expenses. A market crash. Or something else. On the other hand, if I FIRE with 25X there is nothing stopping me from making some money in the future. My personal goal is to get to 25X so I can focus my time as I please. A good bit of that time will make some income even if it does not have the earning power I have today.

    1. Yeah, 25x is a good rule of thumb. Especially for a retirement 10Y in the future when we have no idea what equity valuations will look like I would also shoot for 25x. But it’s not a physics constant. 🙂
      Best of luck!!!

  2. You touch on something indirectly here and in other posts without quite saying it. Much of the blogging FIRE community has retired at the very earliest opportunity (or plans to) based on the expected safety of the 4% rule or other parameter. They have done this following one of the longest and largest run ups in history for the stock market following the 2008 melt down. One of the reasons I continue to read many of these bloggers (aside from you whose mathematical rigor is always informative) is to see what happens to them over time and how many of them fail in their plans. I wish them the best but the very early retirees seem to me to be under appreciating the things that can happen to a portfolio or in life to wreck such optimistic plans. I have been very conservative in my planning and I hope the ones I refer to prove that I am wrong and that I can spend more liberally!

    1. thanks for the compliment!!!
      Well, if someone retired in 2011 or even all the way to 2016, they might be out of the woods. But the more recent equity valuations are a bit scarier. Hope it all goes well for us in the FIRE community!

  3. Thanks for this, this is great analysis of the increased sequence of return risk in the real world. Though I will admit that as I read through the text, I expected the impact to be bigger than the charts show.

    That said I think the bigger risk for many planning for early retirement is underestimating future expenses, especially healthcare.

    1. Quite surprising that the impact was small. Conditioning on the CAPE has more impact on the failure rates (see Part 3).
      And all of this doesn’t even take into account the uncertain health expenses! Good point!

  4. This is really helpful and something the FIRE community definitely needs to be aware of. It would be nice if sites like cFIREsim would let you use CAPE ratios to more accurately project failure rates via more selective historical analysis. Good point that equity glide paths pre-retirement would alleviate some of these concerns, and by nature of not benefiting as much from a strong bull run near retirement (given the higher bond ratio) perhaps delay some people from hitting the magic 25x multiple too early.

  5. I agree with you. The blogger community that writes about this suffers from severe selection bias. They are either ones who have succeeded and wish to tell us about it or those very optimistic about their chances. The majority of people considering early retirement are not blogging and how many of those fail is something we cannot know. Broader dissemination of the risks of retiring at the end of a bull market might help protect some people from disappointment.

    1. Ha, great point. I could sleep much easier with the 4% SWR if I had a blog bringing in thousands every month. But that’s not the norm. Research on the SWR should always conservatively assume we don’t bring in additional passive income. (for full disclosure, I make nothing with this blog)

  6. Awesome analysis!!! I’d love to see how the last graph changes with different assumptions for savings rate and retirement duration. Any chance you could share the files you use to do the analysis? Are they in excel or some more powerful software? Great work! Fascinating stuff! I have wondered about this concept for some time while using Firecalc.

    -Kevin Eichinger (33) Houston, TX


    1. Great suggestion!
      I run this in Matlab (to be precise, the free GNU version call Octave). Not something that’s easy to share. It requires more computation that Excel can’t handle so easily. But in Matlab its very few lines of code using simple matrix algebra. 🙂
      Qualitatively it’s all the same. As a rule of thumb, the clustering becomes more extreme with lower savings rates. Example, for a 30% savings rate, the 4% failure rates shift up by around 6-7%.
      WIth a 70% savings rate there is less clustering (makes sense) and the 4% failure rates go up by around 3%. For 70% equity weights. For 100% equity weight the failure probability is only about 0.5 percentage points higher.

  7. Fascinating how pre-retirement investment experience directly impacts on post-retirement solvency risk! I had not considered that; but as you rightly point out, the mean-reversion of equities leads you to this conundrum.
    I wonder whether flexing the pre-retirement investment strategy and using something like a Kitces Bond Tent instead of 100% equities might mitigate this, since it would smooth out the pre-retirement boom and post-retirement bust on your portfolio. But honestly, given the size of the probability impact you’ve derived, I’m not sure it’s worth the hassle.

    Now if you could repeat the same analysis with an investment strategy of 100% Bitcoin then I think we would really see a big probability difference! 😉

    1. Thanks!
      That’s why I mentioned the glidepath in retirement. So I would certainly agree with the right portion of the Kitces bond tent. But I differ with Kitces on the final equity weight. I think the equity glidepath in early retirement should finish at 100%. He’s much lower (60-70%)
      Not sure if the left portion of the bond tent makes sense for the FIRE community. I would suspect that if you like to achieve FIRE as quickly as possible 100% equities during accumulation is the way to go.

      Hey, now you can buy Bitcoin via futures on the CBOE. Maybe I will dip my toes now!

  8. Oh, this is so timely! I’ve actually been thinking on and struggling with this myself. Selecting a retirement date almost feels like attempting to time the market. Just because I’m at 30x (or whatever) of my expenses today doesn’t mean that NEXT MONTH the market won’t crash and leave me with 15x (or whatever – some lesser amount) of my expenses…so in this hypothetical, if I RE this month, my 30x number says I’m good…but if I waited and RE’d next month, it’s a problem based on the same original numbers! It ends up feeling a bit random. Seeing that 3.25% makes it regardless is reassuring for those who may be retiring imminently. Thanks for sharing this. Informative, as always.

  9. Again an excellent post. It’s nice to have the hard data now on something that I think many of us have ball-parked. Any chance you could run the same with a total inflation-adjusted capital preservation and 60y timeframe? That’ll likely land the SWR somewhere around 2.7% – 2.8% on a 80/20 portfolio?

    1. With 60Y, 80/20, the failure probabilities are:

      4% SWR, baseline: 17.77%
      4% SWR, endog. retirement: 20.46%
      3.25% SWR, baseline: 0.92%
      3.25% SWR, endog. retirement: 2.24%

      The 3.25% SWR is low enough that it should sustain even a 60Y horizon with capital preservation. It doesn’t look like one needs to go below 3%.


  10. “…save until we hit 25x annual spending (or any other pre-determined spending multiple), we’re more likely to face higher failure rates in retirement.”

    An important message, at an appropriate time. Incredible analysis, Big ERN. I’m in awe at the stuff you come up with! This is groundbreaking stuff, and I’m glad you’re getting noticed. Keep up the good work! (For the record, we’re targeting a 3.25% SWR when we FIRE in June 2018, and I’ve got a healthy pension as a backstop. I’m with you on the need to plan conservatively, especially at times of elevated market valuations).

  11. Great post! I do think saving 25x your expenses is a good starting target but I don’t think it’s as simple as that to ensure a fail proof retirement. You’ve touched on a topic that’s on my mind more frequently now that I’m a year away from RE. Even though I may have 40x my expenses, I am in fear of retiring right when the market starts going down and not knowing how long it’ll last. Keep up the awesome analysis you do!

  12. You never seize to amaze me with these solid analysis, love it!
    That being said, and granted this might be a more European thing, flexibility is key in the sense that you can always get some part-time work to cover the periods when things get rough on the stock market.
    Correct me if I’m wrong, but many FIRE-y folks seem to still like to do some “work” or side hustle when they are FI, adding to the stash and increasing the buffer. You are correct in saying that the 4% rule is far from save, subject to when you exit the workforce. But with a side hustle or part time job, the 4% rule might prevent you from working a job you don’t particularly like. That being said, you have to be flexible!

    1. Thanks, CF! Yes, that’s true. Lot’s of folks will do a side hustle. There are ways to factor that into the SWR. But my suspicion is that unless you put in a lot of hours for multiple years the impact on the SWR is not that great.
      Should be a topic for a future post!

  13. Hi ERN

    Thanks again for your usual thorough analysis, and for the service you provide for your readers. Fabulous work!

    While I (like others) was eager to read your thoughts on this topic, in retrospect, we should not have been too surprised by the results reported in this installment. This analysis shows that retiring with a desired multiple (25x or whatever) is close to a worst-case assumption of when to retire, near a market peak. But the SWR calculations you have already done are also focused on the tail end, worst case assumptions.

    I’m not a math wizard, but it seems to me that your previous work on safe withdrawal rates had already considered these very same worst-case retirement timing scenarios. So the results today *should have* reproduced your previous recommendation of a 3.25% SWR.

    Unless I’m missing something … : )

    In any case, please keep up the great work you do here!

    1. Thanks, Dave! No, you’re spot on! This is another way of saying that retiring when the CAPE is high you’d be more cautious. In case some folks don’t trust the CAPE, I showed that even ignoring the CAPE and doing the retirement timing endogenously one should be more cautious.

  14. It is good to see here something that I intuitively thought was true – That a low withdrawal rate (<3.5%) is the best safety net irrespective of retirement start date in the market cycle.

    Practice of course will be the true test of our SWR. Specifically not being tempted to loosen the "WR strings" too much in years where equities are on a significant upward trajectory.

  15. This is why I really like your spreadsheet that calculates sequence of returns risk with varying CAPE. You don’t know where on the stock market curve you’ll retire. Everyone would ideally like to retire during the best of times, but what if you retire 6-9 months into a bear market. Can I make it? Your spreadsheet helps to answer that question.

    Thank you for making that spreadsheet, ERN. I use it all the time.

  16. An important post for many of us at the moment. My wife FIRED’d herself in Feb ‘17 and I’m looking at mid ‘18. Thank you for your stellar efforts. Although it seems the conclusion could have been intuited (broadly at least) one benefit of research is to protect ourselves from “what we know that ain’t so” by actually doing the math, right? Very grateful you are willing to share your work like this.

    We’ve ridden the market gains past our number, and have somewhat overfunded out of caution. We have confidence in the withdrawal rate math, but much less confidence in modeling healthcare costs going forward. My fear isn’t a bad market any more, at least not a bad market within historic markers. It’s a bad market simultaneous with a disproportionate rise in healthcare expense. That’s really what’s driven our thinking around lowering our initial WR and leaving some reserve headroom.

    Time to accept this as a form of residual risk and move ahead. Saw your post on the Grand Canyon R2R. Great stuff, and yep, that’s high on my “experience” list too! :-).

    1. Thanks! Agree that there are many more uncertainties. Health care is on the top of our list of concerns. The market will recover again eventually. Health care will probably only get worse.
      Yup, Grand Canyon hike was awesome. In retirement, I will do the hike in reverse direction! Can’t wait!!!

  17. This is such an obvious concept OF COURSE we all knew it already.

    But we actually didn’t. So thanks for pointing it all out!

    Whenever I hear “The 4% Rule works x% of the time”, I remember a great quote from my junior high shop teacher: “Statistics are like bikinis. The show you quite a bit, but can cover up some very important things!”

  18. I think it’s very possible to FIRE shortly after a correction. High savings rates + dividends + rising bonds would do the trick.

    I wonder if setting stop orders or buying protective puts / collars could mitigate the risk of retiring at an economic peak.

    1. Well, if you were ready to retire before the stock market drop and had a big cushion in addition and you just delayed by a bit and then retired during the bear market, then maybe.
      But if you were not ready to retire at the peak, the dividend income, contributions and your bond portfolio will not be enough to overcome a 20-30% drop in the stock market. It’s mathematically impossible.

      Protective puts are expensive. I sell them and make way too much money with them. Stop orders: dangerous. You could get whipsawed. I know folks who sold equities in February 2016 (S&P down to 1810) and never got back in.

      1. Big ERN, I think there’s two ways of looking at that. If you’re using an SWR rule, then it is indeed practically impossible. But if you’re relying on only taking dividends and bond interest, the only obstacle would be reduced dividends or bonds defaulting due to companies struggling. The market and investment values themselves would have no bearing on that plan working. Chris’ actual plan was a little vague, though.

      2. Protective puts are kind of like a dice game where you lose all your money if it rolls 1-5 but earn 5X your investment if it rolls a 6. The vast majority of the time, a put buyer loses to the put seller, but when the put buyer wins – they win big. The put buyer might have a losing streak much longer than 5 rolls, of course (current streak: 8 years), but if markets are efficient and transactions occur between the bid-ask, the long term expected value of the trade is supposed to be zero. SPY LEAPS puts with 2Y expirations, at the money, currently cost 4% per year. Some years, that is a great deal. Most years it is dead weight.

        At some price, puts would be a bargain. With volatility so low, now might be the time.

        What I wonder is this:
        Are there market signals such as PE ratios, increases of X% in Y time, X years since a drawdown, or similar that would signal when the insurance is, statistically speaking, a good deal at price=x? Recent experience suggests that market returns are trend-reverting rather than dartboard random. Not sure how to guide you on this analysis, ERN, but maybe look at a table of historical 1Y SPY returns and count the number of years an ATM put costing 4% of the underlying would have saved the investor from a loss. Then analyze the characteristics of those years compared to the mean (valuation, previous performance, interest rate changes, etc.). Then maybe add up the value of the savings in down years and come up with an expected value of a put in any given year, or in years with a certain property such as PE’s above 17. I think there are many avenues to explore here.

        1. “but if markets are efficient and transactions occur between the bid-ask, the long term expected value of the trade is supposed to be zero.”

          No. The put seller is taking on equity risk and has to be compensated for an equity-style risk premium. The put seller has to make more money than zero on average.

          “SPY LEAPS puts with 2Y expirations, at the money, currently cost 4% per year. Some years, that is a great deal. Most years it is dead weight.”

          That’s a function of today’s low VIX. As a protective strategy, it may not be a bad idea to buy some protection now that implied vol is so low.

          I’ve been wondering about “market signals” like that. It should be a topic for a future post, but I figure it should take into account (at least) four components:
          1: Valuation
          2: Trend/Momentum
          3: Volatility
          4: other signals, mostly macroeconomic, such as unemployment claims, PMI, etc.

  19. Interesting that the failure rates are similar. I bet that the ending portfolios amounts may reflect a big difference. Do you have the numbers on the differences of average value of the portfolio?

    1. I don’t like to display the final portfolio values very much. People get carried away when they see that the median final value is in the millions. But that’s not very meaningful. I’m interested in the tail risk. If the actual SWR is 3.25% and someone withdraws 4% then the final value will be millions below zero.
      But if you like, check out the SWR series Part 7:
      The Google Sheet has a tab that calcuates the final values (column F in tab “SWR time series”).

  20. Thanks. I will have to read your other posts too.
    I agree that many misuse the 4% rule. Especially since it assumed a thirty year retirement. Those that FIRE will have a longer horizon.

    I’ve also noticed many assume an 8% return on investments going forward. I would assume the same math would show that expected return rates are less at the peaks as well.

    I will look through your posts. I’d like to see your evaluation of allocation. I may be too loss adverse. I was happily 100% equities while working, but now keep several years of expenses out of the equity market. I think a large drop that I can’t make up is more harmful to me than missing the stock run up. Maybe there is a middle ground.

    1. Thanks! Yes, I completely agree with you! That 8% return assumption is a little too optimistic especially when retiring in a high-CAPE environment. And to reuse one of my other favorite phrases: the only thing more offensive than the 8% part is the word ‘expected’
      That’s because the expected return is less relevant than the downside tail events. And the negative surprises are more common when retiring at the peak. Even if the “expected”or mean return isn’t even that much lower. 🙂

  21. Bravo! I think the 4% rule is nonsense.

    First it assumes history predicts the future. It does not. Who from a historical perspective would have predicted Amazon, Google, Bit Coin, NetFlix, Face Book? Yet something like 20% of the recent S&P gains are due to FANG. In the past owning that brownstone in NYC paid off, now it’s a 1% drag on the portfolio. In the past you could make a supplemental living flipping burgers as a side gig… Meet Mr burger flipping robot. The point of creative destruction is to destroy the past. You may wind up like these folks:

    Second as your articles points out sequence of return risk is important but there also un-encountered anomalies like this period where credit, bonds and stocks are at 90% from the mean. This has never happened before. I have seen projections for real economic growth from several sources to be in the 2.5% range for a decade until those averages normalize. This could mean a decade of poor sequence of return risk. Bad news for a 4% WR

    2 things I never see mentioned are SS and taxes. They are not easy simple math, so they get ignored. I find the Big ERN spreadsheet to be excellent at including these in the database with some massaging of the data. I’m in the middle of figuring out cost/benefit of Roth conversion and I ran the numbers as both married filing jointly and as single in case one of us dies. It completely changed my conclusion which is to Roth convert essentially ALL of my IRA. (At least in my case not suggesting it for everyone). When a spouse dies you loose half your deduction so you suddenly jump from the 12% bracket to the 24% bracket when a spouse dies. This is not trivial to the longevity of a portfolio. To Roth convert the portfolio means you need to have pre-planned the cost of doing the conversion. Easily doable pre-retirement while you still have a job, nearly impossible post retirement if you’re doing 4% WR.

    Another problem is the proliferation of calculators without understanding the implicit risk. “Well damn!!” doesn’t help when you FIREcalc your future 30,000 times but you run out of money because the program told you it was safe.

    This is one of the most important FIRE posts I’ve ever read

    1. Oh, wow, thanks for the compliments! I agree, the future will work out very differently from what we’ve seen inthe past. I wouldn’t rely on Lyft/Uber side gigs, they will be replaced with self-driving cars. Social Security will slowly become less generous. Taxes are unpredictable and all sorts of tax-schemes can go away witha simple majority vote and a president’s signature.
      Good move on the Roth conversion. I think it’s not a bad idea to do all the conversions up to the upper end of the 12% married-fililing-jointly bracket!
      Cheers and Happy New Year!

  22. Oh yea two more things Inflation, Stagflation. The “worst recession since the great depression” was very nearly deflationary, suppose where we would be if it had been stagflationary.

    1. Agree 100%! I think for the early retirement community, a repeat of the 2008/9 episode would not be the worst outcome. At least bonds were a diversifier. And stocks recovered so fast, it make your head spin.
      Stagflation a la 1973-1982 and a long equity sideways/downside move would be much more damaging!

  23. I tend to be overly cautious. As FI moves closer into my line of sight I often get nervous about huge market shocks to my burgeoning portfolio. You are right that many people’s equity positions are based on bull markets and the calculations go bust in a downturn.
    What helps me feel more comfortable about 25X is adding a whole lot of cushion to the X. While it’s great to lower expenses, I always estimate higher just in case. I’ve always been like this. I keep multiple bank accounts for different purposes and always overseed them in case something changes. I’ve never regretted the extra cushion.

  24. Just found this via the rockstar finance website. It’s a pretty interesting series and I hope to get through all the posts soon. From reading this one post, is it right to assume you ran this via a Monte Carlo simulation rather than a closed end approach?

    1. Oh, thanks. Glad I could sign up a new fan of the series (thanks ESImoney/RockstarFinance for linking the article!!!).
      I do my simulations backtesting past equity/bond returns. I don’t trust Monte Carlo simulations because they would miss importatnt features of the financial return characteristics. I detailed in Part 20 why I don’t like Monte Carlo (, see section “Why do I get different results than Michael Kitces and Wade Pfau?”

      1. Ah, gotcha. I’ll have to circle back once I’ve read this entire series with more questions.

        2 more thoughts:
        Why are there no ads? I’d gladly click a bunch for fun so you can monetize this series, haven’t seen such an academic breakdown of SWR on another website. Really shows some of the pitfalls of the 4 % rule so often quoted.
        And second, do you plan on publishing a paper on this? At this point, it’s like a phd thesis!

  25. A minor correction, I believe: in the first paragraph after “Failure Rates for different equity weights” the last sentence should state “for the purpose of this exercise let’s assume there is NO future income.” [Adding the word “no”.]

  26. I’ve always been interested in the idea of “re-retiring”: If I retire on a 30x multiplier, and then in 3 months my assets are up 5%, why not “forget” I retired, retire anew and according to the simple multiplier goal, I now have 5% more income for life 🤨 I wonder what the SWR for a greedy, forgetful person like this is?

    1. Sounds tempting! You would slowly ratchet up your withdrawals. But here’s one concern: You’d eventually reach the market peak and lock in a 3.33% WR at that peak. There have been occasions in the past where 3.33% was not a safe WR!
      I’d rather use a variable rule like the CAPE-based rule (see part 18). It would also walk up the withdrawals when the market does well. But not 1-for-1. 🙂

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