Do retirees need to rethink the Trinity 4% SWR rule?

22 thoughts on “Do retirees need to rethink the Trinity 4% SWR rule?”

  1. Great insight. I think 4% SWR is a great baseline. But in years where your investments are down, maybe you need to curb your withdrawals. In my calculations of FI, I’m not planning on earning any income post FI years. But that will most certainly not be the case. Therefore I feel more safe about 4% with the padding coming from any extra income I earn. Flexibility is key!

    1. Hey Fervent,

      Like you, my wife and I aren’t counting on any income post-retirement either, but I would be surprised if that actually turns out to be true. Any income will, of course, help keep your SWR as low as possible, and this is all far, far before social security kicks in.

      Flexibility wins the game, every time. 🙂

  2. Like you, we’re huge believers in staying flexible. I wonder if the hubbub around the 4% rule is more focused on traditional retirees who might think, “I need to know exactly how much I have to spend every year, and I don’t want that amount to decrease.” If you take that approach to the 4% rule, then yes, it’s super risky. But most of us in FIRE land, as you noted, Steve, are optimizers, and aren’t going to blindly cash out the same amount each year (or more, adjusted for inflation) when the markets aren’t performing. In our case, we have a retirement budget amount that we believe will work well for us, and is attainable by the end of 2017 (assuming the markets don’t keep falling!), but we also believe we can cut that by as much as 50% in a year and still be fine. We’ll have to travel less and be careful about things like grocery spending, but we won’t go hungry, and we won’t cease to live an enjoyable existence! So for us, it’s really a range that we hope to live on each year, with an extremely conservative lower end, and an only very slightly aggressive upper end. And you know what — we wouldn’t have had anything to base our plan on without the 4% rule! 🙂

    1. We largely agree – and the 4% rule was the baseline that we used to determine our safe withdrawal rate as well (which stands at about 3.5%). We don’t anticipate the stock market “correction” of this week having a huge impact, but of course, you never know.

      It’s going to be a fun run-up to retirement, I think, for both of us. It would seem that we’re heading into a period of time of “relative” market stability after the correct settles out…let’s hope, anyway.

  3. Isn’t the ideal financial independence plan one that has the ability to earn money doing something you love on the years a 4‰ withdrawal rate might not be a great idea? That’s our current plan. Flexibility as you say, is key.

    1. Maggie,

      Earning an income post-retirement is definitely helpful, yes. Though I do anticipate a little income after my wife and I retire, I am certainly not counting on that as we make our plans for retirement. This more conservative financial plan of our future will help ensure that any additional income that we do see is above and beyond our normal monthly expenses, and will make things that much easier for us to manage once the time comes.

      Thanks for reading. 🙂

  4. You stated…

    “Mr. Todd claims that the 4% rule is gospel within the [early] retirement community, and that people are blindly following the rule as if it were a religious tenant handed down to us by some mystical superpower and, therefore, we are reduced to immovable goblets of mush unable to master our own destinies by using our heads and adjusting to the times.”

    This is completely false and unnecessarily disrespectful. It is cute phraseology and a nice exercise in creative writing, but it’s not accurate and should be retracted.

    You might also want to know a bit about the history of that article before you attack so naively.

    That article was penned back before all the other articles quoted here were penned. At that time, the 4% rule WAS standard fare and rarely challenged thus making that research piece a landmark article. In fact, it was quoted by the Wall Street Journal, Investor’s Business Daily, Smart Money magazine, and other media outlets for it’s authoritative analysis, and it was one of the only non-scholar articles to be published in the academic peer-review research journal in 2012 “Journal of Personal Finance”.

    And this is your review of it??

    You might want to rethink how you try to bring attention to your work. Inaccurately disparaging other people’s work is more a statement of you as a person than the work itself.

    1. Mr. Todd,

      Thanks for commenting and stopping by! A couple quick points:

      I did not “review your article”, nor did I even place judgment on your particular financial position. Instead, my position is your article misses the point by assuming that retirees believe the 4% rule to be a “one-size-fits-all” approach, as stated in your article. What I am saying is, contrary to the assumption that 4% is *THE* safe withdrawal rate fit for “anyone”, this is merely a guideline that many in the retirement community – and especially EARLY retirement community – follow.

      Like I also said, in the end, we are all saying pretty much the same thing – those who adjust will do the best over the long term. I quoted that portion of your article as well.


  5. Steve,

    I enjoyed the summaries of the various viewpoints on the 4% rule. I might have to rethink my post coming out next week using that as basis of retirement planning! 

    On another note, Wade Pfau has made some big waves with his analysis of how exposed to equities we should be at retirement time. If memory serves me correctly, he states to be near 100% stock and then to slowly ease out over the years. This of course is quite contrary toward all the traditional thinking of moving more toward bonds as your retirement date nears. What will all those target date fund managers to do?

    I liked your point with the truck example: we better damn well be flexible or we will get run over!

    Take care,

    1. Hey Bryan!

      Personally, I do tend to be more of a stock-minded person. They are riskier, but the reward is also greater, and my portfolio has historically performed MUCH better with a high proportion of stocks to bonds. Of course, that’s just my position – others may see different results. But in general, I agree – conventional wisdom dictates that the closer to retirement we get, the greater our bond positions should be. This probably also has a little something to do with the age at which you retire as well. The younger that one retires, the greater the likelihood that he or she will be able to adjust with riskier investments.

      But then again, it’s only “conventional wisdom”. I’ve learned in my 34 years on this earth that this so-called “wisdom” isn’t always what it’s cracked up to be. I’ve gone against the grain a lot in my life and, with proper judgment and an ability to adjust, it’s worked out pretty darn good for me.

      Flexibility is key to success in this game. The more flexible we are, the better we position ourselves for success! 🙂

      Thanks, as always, for stopping by Bryan. Hope you’re enjoying things in beautiful red rock country.

  6. Nice piece Steve. Like anything else, we can’t assume. The best we can do is plan for FI and adjust as necessary. There are just too many factors at play to say 4% is the “right” number, but as many others have said in your comments, it’s a good starting point. I can’t help but think of a certain “financial expert” who also claims you’ll be getting ~12% return on your investments. I wonder what he’s saying after stocks got smoked last week.

    1. Hehe, yeah – I’ve never really understood Ramsey’s 12% number either. But hell, I don’t see anything wrong with starting off withdrawing 12% either. I would predict that you’ll be adjusting a little sooner than you may like if you do withdraw that much, but hey, flexibility is key in this game. 🙂

  7. All hail 4%! Hahaha, kidding, but we use it as a baseline. However, we also use the cFiresim calculator and run multiple scenarios only one of which is the straight 4%. Those results are ok, but can be optimized with some tweaking. Like the scenarios where we withdraw enough to live off of based on market fluctuations. Some years it’s $70k, some years it’s $45k, but it’s flexible to the market, and gets WAY better success rates. We also looked into 3% and other variables. My rambly point is that we plan on flexibility and assume no side income. Like you, we will be more than shocked if that’s what actually happens, as we plan on doing something we’re just not sure how consistent the pay will be.
    Great article though and it brings up some great points, the key we’ve found is for us to be successful we just have to be flexible.

  8. I’m basing my plans on the 4% SWR, with a twist.

    I “over invest”. My “main” portfolio will use the 4% SWR. I also put into a separate portfolio solely of income-producing stocks and bonds.

    I should be at FI In 8-10 years. The main portfolio draw at 4%, plus the income from the income portfolio, will cover all my expenses (fixed and discretionary) … and one of the fixed expenses is reinvestment into the income portfolio. 😉 Unspent cash of course also will reinvest there, one hopes into securities yielding more than 4%. Eventually the income portfolio will cover all fixed expenses, so that the main portfolio draw can become purely at discretion.

    1. That sounds like an excellent plan – we used the 4% rule as a base as well and we are very conservatively estimating what our finances are going to look like come retirement time. Anything extra that we earn along the way with odd jobs and whatnot will just be a little more buffer for us. Nothing wrong with buffer!

  9. Each time I see this discussion or debate, I always say to myself inside “it’s not a litteral ‘rule” – it’s a guideline – just as you have outlined. Excellent. 🙂

    With me – there is also the thought of ‘over compensate’ or withdraw less (like the S&P or an arbitrary 3%) – over compensate means, you pick your lifestyle, 30k, 40k, 50k 100k? and push your nest egg so far that you wouldn’t even feel a 30-60% correction… Example; Our favorite Mr. Buffet – I’m sure he adjusts his business when a correction occures, but do yo think his lifestyle is adjusted? I don’t think so, because even with a correction, his investment incomes far exceed his needs.

    Thanks for the article – love it

    Steve (NWOutlier)

  10. Personally I think the 4% is probably fine when you are years away from retirement. It gave me a rough estimate of what I’d need to accumulate to retire. Personally I always considered a rule of thumb….not just a rule.

    As you near retirement, there are very few true “rules” that apply to everyone. What is your age? What is your life expectancy? Married? Kids? Spending plans? Do you have a pension? Are your investments in taxable accounts or IRA’s? You get the point……

    When one is nearing retirement, the rules of thumb need to be replaced with a reality check specific to your situation. For some, 4% may work well. For others, it may be 3%.

    I guess my point is to not put too much stock in any generic rule.

    Great post and discussion!


    1. That’s exactly, 100% spot on, John. The 4% “rule” is a good target to shoot for, but it doesn’t have to be some “be-all-end-all” withdrawal rate to be debated with piles of economic data. Be flexible and we’ll all probably be successful in our early retirement goals. 🙂

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