The Proper Safe Withdrawal Rate: 4 Percent Rule Is Outdated

For those of you without cushy pensions, I'm sorry folks. The 4 percent rule is outdated. The rule was popularized in the 1990s. It is now unwise to follow the 4 percent rule as a proper safe withdrawal rate in retirement, especially if you are part of the FIRE movement.

Instead, I highly recommend lowering your safe withdrawal rate for the first year or two after you retire, especially if you retire early. Retirement life will likely be much different than you expect. You may be filled with uncertainty and doubt. As a result, the proper safe withdrawal rate should be more conservative.

The idea of having a low safe withdrawal rate once you retire is to train you to live off less. The first couple years is a big adjustment period. By lowering your safe withdrawal rate, you will also be encouraged to do things you enjoy that may generate supplemental retirement income.

I “fake retired” in 2012 at age 34 with about $80,000 in passive income investments. However, after a year of traveling and wondering whether this was all to life, I went back to work growing Financial Samurai. Early retirement life was not for me. I needed purpose.

Today, I still don't have a day job. But I am still writing on Financial Samurai. I'm paying $2,350/month for unsubsidized healthcare. Further, I have a couple young children to raise in San Francisco. In other words, I'm sharing with you firsthand experience of life after work, during retirement, and post retirement.

I'm not pontificating what retirement life is like as a gainfully employed employee. Instead, I'm living this reality every day as a practitioner.

The Proper Safe Withdrawal Rate

If there's one thing to remember from this article, it's this Financial Samurai Safe Withdrawal Rate (FSSWR) formula: 10-year bond yield X 80%.

For those of you who want to leave a legacy after you are gone, the FSSWR is the way to go. Conversely, for those of you looking to spend all your money before you die, feel free to increase your safe withdrawal rate closer to the traditional 4% or maybe even higher.

The right safe withdrawal rate in retirement will depend on your risk tolerance, any supplemental income you earn, your investment returns, and your life expectancy.

The Proper Safe Withdrawal Rate Is Dynamic

Due to a record amount of stimulus created in a record short amount of time, interest rates dropped faster than a cement block tied to a dead body thrown off a boat in the middle of Lake Tahoe by one of Capone's capos.

The 10-year bond yield (risk-free rate of return) fell to a low of 0.56% in 2020. Then stocks started to crash by 32% in March 2020. To follow a 4% safe withdrawal rate would have been foolish at the time. Instead, it was better to save or invest.

Although 2020 and 2021 ended up as great years in the stock market and real estate market, 2022 turned into a bear market, followed by a bull market in 2023. Hence, the proper safe withdrawal rate is dynamic. Change your safe withdrawal rate to change with the times. And the easiest economic figure to follow is the 10-year bond yield.

At a 4% risk-free rate of return, $1 million will only generate $40,000 a year in risk-free, pre-tax income. As a result, you need a lot more capital today to retire than you did in the 1990s when the 10-year bond yield was between 5% – 6%.

The Amount Of Retirement Capital Increases As Rates Decrease

Below is a chart that illustrates the sad drop in risk-free income from $1 million over the years. At least the 10-year bond yield has rebounded from a low of 0.51% in August 2020.

Proper safe withdrawal rate: 0.5 Percent

If you've got your home paid off, your health insurance covered, and your kids all grown up and independent, $17,000 + Social Security will provide for a very simple retirement lifestyle.

Even if you got the maximum Social Security monthly payment of about $2,900 a month or $34,800 a year, you've only got $51,800 a year in income. You're not popping Cristal off your yacht with only a $1 million net worth. You're living a comfortable life without debt. But you must watch your dollars.

Unfortunately, the average Social Security payment is closer to $1,850 a month instead. Therefore, we're really talking about an average annual Social Security benefit of $22,000. At least Social Security COLA keeps up with inflation, making traditional retirement more attractive.

Once you've reached financial independence or retirement, your risk profile goes way down. This is why using a safe withdrawal rate closer to a risk-free rate of return makes sense.

Assets Returns Are Intertwined With The 10-Year Yield

Returns in the stock market, bond market, and real estate market are all relative to the risk-free rate of return. If the risk-free rate of return declines, so do overall returns for risk assets ceteris paribus.

Please also be aware that if interest rates stay too low for too long, asset bubbles may form and explode. Therefore, in our current low interest rate environment, investors should take extra precaution as well.

No matter how you want to construct your retirement portfolio (60/40, 50/50, 30/70, etc), returns are likely going to be structurally lower going forward. If you don't believe me, you can check out Vanguard's return assumptions for stocks and bonds over the next 10 years.

Let me share some examples of how asset returns are connected to the risk free rate:

Example #1: A company looking to raise money to fund operations isn't going to issue a corporate bond that pays 8%, unless it's in dire straits. Instead, a company will probably discover that adding a 2% – 3% interest rate premium to the 10-year bond yield will garner enough demand. A company's goal is to raise capital as inexpensively as possible.

Example #2: A company has historically paid a 60% dividend payout ratio. During the ups and downs, the company's dividend yield has range between 3% – 4%. The company has always wanted its shareholders to earn at least a 1% premium to the 10-year bond yield. With the 10-year bond yield down below 1%, the company can now cut its dividend payout ratio and provide closer to a 2% yield. The company can then keep more retained earnings for growth and operations.

Example #3: Let's say you want to take advantage of potential distressed asset opportunities in commercial real estate. One common way commercial real estate professionals measure is the spread between cap rates versus the 10-year bond yield. The wider the spread compared to the historical average, the more profit potential there is.

Distressed Commercial Real Estate Looks Attractive

The current office cap rate vs. 10-year treasury yield spread is at its highest in history. As a result, you can sign up for CrowdStreet for free, one of the top real estate marketplaces to get alerts on any upcoming deals to take advantage. However, before investing in deals, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

CrowdStreet and sponsors are actively looking for distressed deals for you before they are profit-seeking like you.

The proper retirement withdrawal rate has declined

Plan Financially Beyond Yourself

Using the 10-year bond yield as a barometer for retirement income generation is conservative. However, I also believe the ideal withdrawal rate in retirement doesn't touch principal so long as your estate is below the estate tax threshold.

One of the big reasons why Americans are in so much financial trouble is because most only plan for themselves. When you start planning for your children, you are forced to at least put on your oxygen mask before helping others. The FSSWR is mainly for those if you who are planning beyond your short lifetime.

If your estate is above $13.6 million per person (2024 estate tax threshold limit), feel free to increase your withdrawal rate to whatever you want. Paying a 40% death tax rate on every dollar above the estate tax threshold is a crying shame. With Joe Biden as president, he will likely try to cut the estate tax threshold in half.

Why The 4 Percent Rule Is Outdated

The 4 percent rule was first published in the Journal Of Financial Planning in 1994 by William P Bengen. It was subsequently made popular by three Trinity University professors in 1998 called the Trinity Study. Inflation and interest rates were much higher and pensions were common. The 4 percent rule is the most common safe retirement withdrawal rate cited.

Some like to naively claim that they are financially independent once they achieve a net worth equal to 25X their annual expenses. But if you think logically, there's a big problem with the 4 percent rule.

Let's look at where the 10-year bond yield was back when the Trinity Study was published in 1998.

In 1998, the 10-year bond yield was between 4.41% to 5.6%. Let's say the average 10-year yield rate was 5% in 1998.

Therefore, of course you'd likely never run out of money in retirement following the 4 percent rule. Back then, you could earn 1 percent more on average risk-free! And if you looked at the 10-year bond yield in 1994, it was even higher.

The 1990s Was A Different Time Period

If you had a classic 60/40 stock/bond portfolio, the historical return was about 8%. You were golden. Going forward, I'm not so sure with both bonds and stocks at all-time highs. Valuations for both asset classes are expensive.

See the historical chart of the 10-year bond yield below.

Proper safe withdrawal rate - historical 10-year bond yield

I really hope people who blindly follow the 4 percent rule or the 25X expenses rule realize this very important point. Everything is relative when it comes to finance. To use a rule today that was created when the 10-year bond yield was much higher is irresponsible.

Instead, it is much better to use a dynamic safe withdrawal rate like the FS Safe Withdrawal Rate Formula to guide you in retirement. If you are dynamic, you rationally change with the times.

20X Gross Income Net Worth Target

If you want to follow a more reasonable net worth target goal, then try to amass a net worth equal to 20X gross income. Only then, do I believe you might be able to declare yourself financially independent.

With my 20X gross income rule, you can't cheat by simply lowering your annual expense budget. The 20X gross income rule forces you to accumulate more wealth as your income grows. It also makes you better decide whether you want to continue your way of life.

That said, even the 20X gross income rule may still not be high enough if you want to ensure that you don't run out of money in retirement.

The New Safe Withdrawal Rate To Follow

If you provide a similar 9% to 28% discount to the 10-year bond yield to come up with a safe withdrawal rate back in 1998, then the safe withdrawal rate in today is equal to 10-year bond yield X 72% – 90%.

In other words, the new safe withdrawal rate in today is even lower than just withdrawing based on the 10-year bond yield rate. And you thought my withdrawal rate was too conservative.

When the 10-year bond yield was at ~0.7%, a safe withdrawal rate was actually closer to 0.5% – 0.63%. When the 10-year bond yield was at its low of 0.51%, the safe withdrawal rate was equivalent to 0.36% – 0.46%.

To make things simple, the new safe withdrawal rate equals the 10-year bond yield X 80%.

We can call this the Financial Samurai Safe Withdrawal Rate (FSSWR) if you'd like. This is my proprietary methodology of estimating a proper safe withdrawal rate.

We'll use an average 20% discount to the 10-year bond yield to come up with the safe withdrawal rate. The 20% can be viewed as a buffer in case of financial emergencies. Sometimes there are bear markets every 10-15 years. Other times, we have poor spending habits. You just never know.

Thanks to a steady decline in interest rates, the 4 percent rule from the 1990s has declined by over 85%. In other words, we should change the name of the 4 percent rule to FSSWR.

As a rational believer in the new safe withdrawal rate percent rule, you have a desire to not run out of money in retirement. You also want t leave some of your wealth to your kids and various charitable institutions.

If you’re OK with spending all your money and leaving nothing, then the 20X gross income rule as a net worth target before retiring is probably good enough. If not, carry on reading.

Proper Safe Withdrawal Rates

To make things easy, I've put together the proper safe withdrawal rates in retirement. Given the 4 percent rule was popularized when the 10-year bond yield averaged 5 percent in 1998, we can multiply various 10-year bond yield rates by 80% to come up with an appropriate safe withdrawal rate.

Realistically, we are likely never going to see a 10-year bond yield above 5% in our lifetimes.

Proper safe withdrawal rates in retirement - 4 percent rule is outdated

The New Safe Withdrawal Rate Rule Is The Reality

Although the new safe withdrawal rate rule may sound extreme, it is based on financial reality today. 2024+ is a very different time than 1998. Inflation is lower and risk asset returns may likely be structurally lower for a while as well.

Further, you've got to account for a potential bear market after such tremendous growth. Believe it or not, stocks do go down or nowhere for years e.g. the 1970s and 2000s. Have we all already forgotten what happened in March 2020?

We can certainly take more risk by investing in riskier assets with higher potential yields. However, once again, if you are close to financially independent or financially independent, you should invest more conservatively. Going financially backwards is terrible because time is so precious.

Thankfully, none of us are zombies. We don't aimlessly follow a safe withdrawal rate rule until we die. Instead, we adjust based on economic conditions.

If we feel more risk-averse, we will lower our withdrawal rate. We will also save more money or figure out ways to make more money. If we feel like sticking our heads in the sand and ignoring logic, we can stick to a 4 percent withdrawal rate. We can also choose to work for life.

There is not a better chart that shows we can change if we want to change than the chart below. All it took was a global pandemic for the typical American to finally save over 30%! We are adaptable.

The New Safe Withdrawal Rate Rule Provides A Net Worth Stretch Target

With the 4 percent rule, you multiply your annual expenses by 25 to get a target net worth. With the new safe withdrawal rate rule, you adjust.

Let's say the 10-year bond yield is at 0.7%. Then the new safe withdrawal rate is 0.5%. You would then multiply your annual expenses by 200 to get a target net worth. This is a task not possible for most people to achieve. However, it is likely only a temporary target as the 10-year bond yield returns. Use it simply as a guide to ratchet down saving and ratchet up investing.

Following the new safe withdrawal rate rule to obtain financial independence is difficult. For example, I've challenged myself to generate $300,000 a year in passive income. The goal of $300,000 has been carefully calculated to pay for ~$240,000 a year in after-tax expenses.

Therefore, in order to proclaim true financial independence using 0.5 percent as a safe withdrawal rate, I would need to amass a net worth of between $30 – $40 million ($150,000 – $200,000 in annual expenses X 200).

As two unemployed parents, amassing a $30 – $40 million net worth appears next to mission impossible. We've only got Financial Samurai to help us generate active income at the moment. However, at least I have a stretch net worth target to shoot for.

Net Worth Target Is Also Dynamic

Of course, as rates increase, your net worth target decreases. You can then take a step back and rethink your life.

Back when interest rates were so low, we had to figure out whether it's worth both of us trying to find day jobs again and forsake our kids all day for more wealth. It might be worthwhile given there should be more work from home opportunities. But it's hard to go back to the salt mines after being away from work since 2012.

I suggest calculating your financial independence number using the FS Safe Withdrawal Rate as well. Divide your annual expenses by 80% X 10-year bond yield to come up with your net worth stretch goal.

Now that you have your net worth stretch goal, you will be more proactive in figuring out ways to accumulate more wealth. Below is a another chart that highlights how much more capital you need as interest rates decline.

How much capital you need to generate $50,000/year - 4 percent rule is dead
Please pay attention to how interest rates have recently dropped

The #1 Way Around The New Safe Withdrawal Rate Rule: Supplementary Retirement Income

If you find the FS Safe Withdrawal Rate to be unreasonable, then all you've got to do is earn supplemental retirement income. Your supplemental retirement income fills in your income shortfall. This is what I plan to do after blowing up my passive income after buying a forever home in 4Q2023.

For example, let's say you want to live off $100,000 a year in retirement income. This would equate to having a $5 million net worth if the FSSWR was 2%. Unfortunately, you've been blindly following the 4 percent safe withdrawal rule. Therefore, you thought accumulating $2.5 million was enough.

You now realize the 4 percent rule was developed in the 1990s when the 10-year bond yield averaged 5%+. After cursing out the Federal Reserve and the Central Government, you calm down and figure out the gap.

Your $2.5 million can only safely generate $12,500 a year in passive income using the FSSWR. Therefore, your retirement income shortfall is $87,500 ($100,000 desired retirement income – $12,500 your true retirement income).

Since you don't think you'll ever get to a $5 million net worth, you need to find a way to make $87,500 a year in supplemental retirement income. Thankfully, there are multiple ways to make money from home nowadays.

Even William Bengen, the man who first published about the 4 Percent Rule has admitted in the comments section below that he is earning supplemental income as a writer and consultant post-retirement.

Depending on how much supplemental income you’re earning, your withdrawal rate could increase by a tremendous amount and your nest egg would still be fine.

Another Way To Use The New Safe Withdrawal Rate Rule

A less onerous way to calculate your retirement net worth goal is to add up how much retirement income you already have and subtract it from your desired retirement income. Just know there is always a risk your existing retirement income may decline.

For example, my current retirement income is about $250,000 a year. My goal is to have retirement income of $300,000 a year. Therefore, I'm $50,000 short.

Using a two percent safe withdrawal rate, I would need to amass another $2.5 million in net worth to generate $50,000 at 2%.

Or, I can simply find a way to make an additional $50,000 a year in active income to live the life that I want. Ideally, you want to create active income after your career in an enjoyable way.

Loved Earning In Different Ways

If it wasn't for Financial Samurai, I would try to make at least $50,000 a year teaching tennis. If for some reason I couldn't teach tennis, I'd self-publish another book or try and get a book deal with a traditional publisher. Tennis and writing are my two favorite hobbies.

Thanks to the dramatic decline in interest rates, the days of retiring and doing nothing all day are over. And this is not a bad thing. It's great to stay active in retirement.

Your goal is to try and make income from things you enjoy doing. One of the key reasons why I've consistently published three new articles a week since 2009 is because it's fun to help people see what's financially possible.

Find something you'd be willing to do for free to have a wonderful post-career life. If not, you run the risk of running out of money and feeling empty.

Reach Your Target Net Worth, Then Choose Whatever Withdrawal Rate You Like

Let's say you still think my new safe withdrawal rate rule of 80% X 10-year bond yield is absolutely unreasonable. You have the right to do nothing in retirement! Not only do you want to spend all your money before you die, you don't want to leave any money to your children or to charity.

Therefore, don't use my new safe withdrawal rate rule as a withdrawal rate. Use the rule only as a net worth target. Once you've reached your net worth target based on the new safe withdrawal rate rule, then you can change your safe withdrawal rate as you see fit.

For example, let's say you are happy living off $50,000 a year in retirement. You don’t have a pension or any passive income. You're also not including Social Security in your calculations. A 2 percent withdrawal rate says that you will need to amass a $2.5 million net worth. Let's say you succeed in getting to $2.5 million by age 70 and expect to live until age 90.

With an expected 20 years left to live, you could divide your $2.5 million by 20 and safely withdraw $125,000 a year. Withdrawing $125,000 a year is equivalent to a 5 percent withdrawal rate. If there is a bear market or big unexpected expense during this time, you can adjust your withdrawal rate accordingly.

You Could Take More Risk And Reach For Higher Yields

What lower interest rates have done is “force” investors to reach for yield. Since it's too hard for most retirees to live only off my new safe withdrawal rate rule, most retirees don't. To be able to sustain a higher withdrawal rate, the retirement portfolio must either generate higher yields, higher returns, or both.

Investors have been fortunate to make solid returns in the stock market, bond market, and real estate market since 2009. Will we be as lucky going forward? I have my doubts. Energy prices are surging. Inflation is elevated. There’s a war in Ukraine,

Ideally, if you don’t make supplemental retirement income, you want to have a portfolio that yields your desired withdrawal rate or higher.

Therefore, reaching for yield may consist of:

  • Investing in a REIT ETF like VNQ, which has a yield of ~3%
  • Investing in individual REITs like O, which has a yield of ~4.5%
  • Investing in private eREITs (what I’ve been investing in recently) that have historically provided a ~9% return, even when the stock market is down
  • Investing in individual dividend-paying stocks like AT&T with a forward yield of ~6.95%
  • Investing in a dividend ETF like VYM with a ~3.75% yield
  • Buying rental property
  • Lending out hard money
  • Buying an annuity

More Risk Means Greater Potential For Loss

However, when you reach for yield, your risk of losing money increases. If you were born in 1980 or later, please try not to confuse brains with a bull market or artificial support from the Fed. Risk assets do go down sometimes, which is what many opponents of the 0.5 Percent Rule seem to forget.

And to be clear, my new safe withdrawal rate rule encapsulates owning risk assets like stocks and real estate, and not just treasury bonds. It includes various retirement portfolio permutations such as a 60/40 or 50/50 stock/bond portfolio.

Remember, the 10-year bond yield is intertwined with all assets. It is the opportunity cost used to calculate the required premium necessary to own other assets. Only you can decide how much more risk you would like to take.

Retirement Life Will Be Different Than What You Imagine

As someone who left his day job in 2012 at 34, I'm providing you some firsthand retirement perspective. It is very easy to pontificate about the proper safe withdrawal rate in retirement while working.

But I assure you, only when you and your partner no longer have a steady paycheck will you genuinely experience all the emotions that comes with being unemployed. There's a lot of attention on the positives. However, there are also some negatives as well.

Until this day, I have yet to meet an early retiree who isn't generating some sort of supplemental income. Some will end up generating a massive amount of supplemental retirement income. While some may just earn an extra few bucks here and there.

Going from aggressively saving and investing for years to suddenly withdrawing is an anathema. Therefore, the tendency is to not do so. There is a reason why William P Bengen admitted in my comments section, “I'm on my 4th career as a novelist/4% researcher.” Not even the creator of the 4% Rule is following his own rule.

Listen to anyone espousing the 4 percent rule with a grain of salt. Ask them these questions: Are they making a significant amount of supplemental retirement income? Are they telling you the truth about how much they are actually spending a year? Ask are they actually withdrawing 4 percent a year?

0 Percent Withdrawal Rate

Once I left work, I challenged myself to not withdraw any money from my retirement accounts. In other words, I enacted a 0 percent withdrawal rate. Instead, my goal was to allow my retirement accounts to compound as much as possible during a bull market. To survive, I would live off my severance package and supplemental active income.

I wasn't comfortable withdrawing principal when I was already giving up a healthy salary. Many retirees feel the same way. Old habits die hard.

Today, I'm trying to consumption smooth and spend more money on a better life. I'd like to supplement my passive retirement income with consulting income once my daughter goes to school full-time starting September 2024.

With 40 hours a week of free time again, there will be a void to fill after being a stay at home dad for over seven years. Doing part-time consulting is a good solution.

It is easy to come up with financial models to govern your future retirement. However, as an emotional human being, I promise you that your actions in retirement will be different from what you imagined.

Use The New Safe Withdrawal Rate Rule As A Guide

Don't be mad at my new safe withdrawal rate rule. Be dynamic and change with the times. The Financial Samurai Safe Withdrawal Rate is mainly a safe withdrawal rate guide. It is not a practical net worth target guide to shoot for before retiring. In retirement, you should have active supplemental retirement income, Social Security, or maybe even a pension.

The new safe withdrawal rate rule (80% X the 10-year bond yield) is just a net worth and safe withdrawal rate guide in this ever-changing interest rate environment. Depending on how much of your wealth you want to pass on and how much risk you want to take, my new safe withdrawal rate formula may be too aggressive or too conservative. Only you can decide.

The best way I've found to follow my new safe withdrawal rate formula is to build enough passive income. As soon as you can build enough passive income to cover your desired living expenses, you won't even need to touch principal if you don't want to.

Think Logically And Differently

At the minimum, I hope most of you will at least agree that the 4 percent rule is obsolete.

Coming up with the 4 percent rule when you could earn 4.4% – 7.8% risk-free from 1994-1998 is as profound as saying the sun is hotter than the moon. It is as risky as saying Elon Musk's children won't starve to death. It is as deep as saying all organization charts look alike.

We don't live in the 1990s any more. Lower your safe withdrawal rate percentage or shoot for a higher net worth target before retiring or declaring yourself financially independent. Alternatively, learn to live happily on less or find ways to make supplemental retirement income.

Finally, if you don't believe me that returns could be lower in the future, Vanguard recently came out with its future 10-year expectations forecasts for U.S. stocks, bonds, and inflation.

Vanguard future returns forecast for U.S. stocks, bonds, and inflation

If you have a blended retirement portfolio consisting of 70% stocks, 30% bonds, your annual return would be about 3.19%. Therefore, withdrawing at 4% would be too aggressive.

At the very least, I would conservatively follow the Financial Samurai Safe Withdrawal Rate formula for the first couple of years in retirement. After that, adjust accordingly.

Recommendations To Build Wealth

1) Track your net worth. If you now plan to boost your net worth further using the 0.5 percent rule, then I suggest tracking your finances for free with Empower's award-winning financial app. The more you can stay on top of your finances, the more you can optimize your wealth.

I've used Empower's free app since 2012 and have seen my net worth skyrocket since. The more you can track your finances, the better you can optimize your finances.

2) Invest in real estate for more retirement income. Real estate is my favorite asset class to build wealth. It generates higher-than-average income, provides shelter, and is less volatile. Real estate currently generates roughly half of my estimated $340,000 annual passive retirement income.

I recommend checking out Fundrise, my favorite real estate investment platform. The company manages over $3.3 billion and invests predominantly in single-family and multi-family homes in the Sunbelt. The Sunbelt has cheaper homes and higher cap rates. Investing in a private real estate fund is an easier way to earn 100% passive real estate income.

How To Feel Rich If You Can't Get Rich (a follow to address and help folks who are upset about the new FS SWR)

The New Three-Legged Stool In Retirement

No Need To Win A Financial Argument, Just Win By Getting Rich Instead

The Best Reason To Retire Early: Greater Happiness For Longer!

Readers, do you think the 4 percent rule is outdated? What do you think about my FSSWR formula? What do you think is the proper safe withdrawal rate in retirement? Why do we accept a safe withdrawal rate from working professors in the past who have never retired? Why do some get so angry that I suggest people be more conservative?

For more nuanced personal finance content, join 65,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

386 thoughts on “The Proper Safe Withdrawal Rate: 4 Percent Rule Is Outdated”

  1. Buddhist Slacker

    Thank you so much for the rules of thumb! I always thought the arbitrary 4% rule was crazy and I think it’s obvious that flexibility is key. I’m trying for zero drawdown on principal and basically using the principal as a giant “omg who could have seen that one coming” emergency fund. Not as a normal, year to year, “I need a new hybrid battery” emergency fund of course.

  2. Hey Sam, been listening/following for a while and I like the FSSWR. Only thing I may have missed or don’t see it explained is, since the 10 year yeild % moves up and down often throughout any given year how does one withdrawal following the 80% rule?

    This is only for $ in the stock market/ mutual funds.. Do I go to my nest egg once a month and withdrawal 80% of the 10 year yield %?

    Thanks and Happy New Year!

  3. Bill Bengen is 70% in cash and continues to make money as a consultant.

    For those of you who follow the 4% rule, do you feel like suckers yet?

  4. A deferred fixed annuity is looking very attractive to me these days for a good chunk of income to supplement my SS and in a way that I”m guaranteed not to outlive. I’m 63 and retired and living off of savings until 70 when I will get about 50K per year in SS. If I put 500k in a deferred fixed annuity soon and take that income also at 70 I think I could have a pretty decent income to live off of assuming I own my residence. I just don’t feel comfortable that rates will ever get very high again for fixed income even though they are currently going to get raised and everything else is in an asset bubble. So I guess my summary is the vanguard 10 year outlook makes a lifetime annuity look pretty good relatively speaking for peace of mind. I’ve thought of also taking a lower rate on the annuity so it could have a 3% cola lifetime and then both my SS and annuity are inflation protected even though I know most people don’t do the cola protected annuities just the fixed ones. Thoughts?

  5. Once again, your advice is spot on. People don’t know how they will feel in retirement until they actually retire. All these people from the peanut gallery who still have day jobs talking about how much they think they need and how much they should withdraw and will withdraw, simply have no idea.

    Are you guys really going to withdraw at a 4% rate when your stocks are taking a 20% beating or more? Are you really going to retire early with only 25 times your annual expenses when your net worth has just taken a 10% hit.

    Wake up people. The world is fraught with danger and uncertainty.

  6. Douglas Barnett

    I may have read through the comments too quickly, but I would add another option to the toolkit of helping stretch out retirement income assets. If (a big “IF’) your passive income is not tied up in local rental real estate (or you can hire a reputable property management company), family ties are not strong or a lot of relatives don’t live near you, simply moving from a high cost region (like the SF Bay Area) to a lower cost one can positively impact the budget in significant ways.

  7. Hi Sam, Recent new follower of your blog and podcasts. I am working my way through older posts and episodes and I appreciate your angle that is on the other side of the spectrum from lean fire.

    I’ve now read countless posts and articles about SWR and 4% rule etc. I find it very perplexing that very few of these articles actually addresses the underlying portfolio allocation. Maybe I am missing it and everyone is automatically assuming the 60/40 in index funds allocation. I am not convinced that is the case, but can’t be sure because the focus usually seems to be The Net Worth Number and the withdrawal rate, without discussing the actual investments.

    Which brings me to my question about SWR and specifically your FSSWR. My understanding is that your portfolio is complex, including real estate etc. So, for the point of 10-year bond rate x 80% – are you suggesting the entire portfolio could/should be in 10 yr bonds? Because in that case why not? You won’t need to take any risk if you withdraw below those returns. (And presumably that % stays consistent with the fluctuation of rates, unlike the fixed 4% of starting portfolio).

    Sorry if this has been answered somewhere already. I’ve not found it.

    1. Hi Johanna,

      No, I’m not suggesting a retiree puts their entire portfolio into bonds. I recommend following one of my asset allocation models by age.

      My FSSWR is a recommendation for the first couple years post work. It is conservative because a lot of people go into a sort of shock after spending their whole lives working. It is a time of rediscovery, which may include some supplemental retirement income or various spending desires.

      Please check out: The Negatives of early retirement nobody likes talking about.

      Welcome to Financial Samurai! It’s always nice to have new readers. Sign up for my free newsletter too.


  8. So, let me get this straight, last year I needed a trillion dollars to retire, this year I only need half a trillion. Okay that may be a bit hyperbolic but at 1% SWR I need ten million dollars. In other words, I have to be in the top 1% of net worth to be able to retire. I don’t have multiple streams of passive income. I will tell my children, “Hey Kids, your poor dad had to work until he was 95 years of age because he didn’t want to touch his sacrosanct principal just so he could give it all to you.”

    I am 67 years, net worth 5.5 million, a million is the house which means I am only in the top 4 percentile in the United States, not enough to retire according to this post and that FED wants me to work forever.

    While this post did cause me to pause and think I will take a halfway approach. You say SWR 1% don’t touch principal. Wade Pfau says 3% (fixed spending no growth) with a conservative portfolio (30% stocks /70% bonds allocation) which is where I am. I don’t need to account for inflation because I figure when I take social security at age 70 that will take care of that.

    Wade states I have a 95% chance of not falling below 20% of my initial level by age 35 with that approach. This is good enough for me.

    So, I will take your 1% and Wade’s 3%, and take the average, so 2%, and I can live on that.

    1. Sounds good to me. And remember, Wade is gainfully employed and will likely retire with a huge pension. He can withdraw at a much, much higher rate if he wishes.

      Use my formula for the initial years of retirement when you’re figuring out the new stage of life. It may be more jolting than you think.

      It’s important to choose your fighter, and then act according to the lifestyle you desire.

      Btw, a year after this post, Vanguard slashed its stock and bond assumptions by over 60%.

  9. Hi Folks,

    If you aren’t aware, Vanguard came out with its 10-year forecast for stocks, bonds, and inflation in August 2021, a year after I originally published this post.

    Their forecasts call for about 60% lower returns than historical average. Therefore, this is another reason why you may want to stay conservative on your withdrawal rate or accumulate more capital before retiring.

    Here’s my analysis:


  10. Thought provoking article for sure. Thanks Sam. As we approach retirement, my wife and I are targeting 2% as a safer number. We expect to be at 3 – 3.5 mil in 3 years. (Note: this is Canadian Monopoly money). We have other sources of about 55k so that puts us at 140k a year, similar to our current income. What I failed to follow was tying my withdrawal rate to the bond rate when I am invested in real estate instead. We got in early and thanks to leveraging, have made over 25% some years. No intention of selling those. This should leave a legacy for sure. My hope is to elevate the family where every grandkid goes to good schools without burden.

  11. I like the article, but you are operating on the fallacious assumption that the govt’s “debt” must be paid back in taxes or reduced spending. Neither of these things is true.

    Raising taxes is a great way for a politician to lose his job. Neither party will support tax hikes on working people, under any circumstances. You can tax the rich, but even with that money, you’ll still come up short.

    Austerity is likewise unwise. It will result in mass riots by all the welfare leeches. Then the govt will be forced to turn the welfare back on or mass arrest people.

    What will actually happen is they will print more money, so we will pay for the “debt” in inflation. We pay every day that we buy something.

    The secret, and the reason I put debt in quotes, is that the federal reserve is actually part of the govt. So they print money and lend it to the treasury, so really the govt is lending the money to themselves. The $27 trillion is not actually debt, but really just represents how much money we have printed. One arm of the govt. “owes” the money to another, so it’s really just an accounting gimmick. The govt. does this, and allows the public to think that the fed is private, in order to keep public wrath focused on the big banks and corporations.

    See, raising taxes gets people mad at the govt. Cutting welfare gets people mad at the govt. Printing money to fund “free stuff” causes prices to rise, but 95% of the public doesn’t understand how this works behind the scenes so they simply believe that the “evil corporations are raising prices out of greed”.

  12. It’s important to remember that the “4% rule” is based on total return (equity and fixed income) of the portfolio, not bond return alone.

    It also allows complete portfolio depletion…so if you die with $0 it’s a “success”…though if you want to leave a legacy there are plenty of retirement calculators that allow you to specify a minimum (in real terms) remaining portfolio balance.

    As Bengen himself remarks, those who retired before periods of high inflation (e.g. late 1960s) suffered the most.

    E.g. consider a widow who had invested only in “safe” bonds paying 6-8% before being hit with the double-digit inflation of the 1970s…that’s why any retirement portfolio also must include equities.

    1. Indeed, and I would think it is hard to make such returns and such a low interest-rate environment where a valuations are also really high.

      Bengen is on his fourth career And making a lot of money as a consultant and author. Therefore, he can choose to withdraw at a low rate or he can choose to withdraw at a high rate. When you’re still working, it doesn’t really matter.

      1. The 4% rule doesn’t depend on whether or not one keeps working, though, again, it allows for complete portfolio depletion.

        And except for a relative handful of starting years it’s really more like 5%.

        Equity valuations have been high before & the above still worked…again, high inflation (historically, double-digit) in the first few years after retirement has been the biggest risk for failure.

        1. The thing I realized where I have perhaps a cultural difference is on the complete portfolio depletion.

          Nobody I know, including myself, plans to deplete their portfolio by death. Instead, we all want to leave a perpetual giving machine for our children and charities. We want to make our legacy last for as long as possible.

          Perhaps I should elaborate in a post as this is a big realization.

          Just wrote this post that targets people who think the same way: 10 Million Dollars: The Ideal Amount Of Wealth To Retire?

          1. I have no intention to leave my children a big pile of money. I view it as a failure of me bringing them up if they expect a big inheritance from me. They need to work hard to make it on their own.


                1. Based on the author’s replies, it just feels like there should be a huge disclaimer to state that first and foremost that this article’s suggestions were all based on his own perspective and his perceived way of living. I was very confused reading it, then it turns out so many standards and benchmarks used in the article were not on the same level of the studies published – basing just on bonds, or basing the fact that we should not deplete the savings to 0 and must leave a legacy etc. These were not even in considered in the study! It’s honestly quite misleading.

  13. Orhan Yilmaz

    I don’t understand many of the points in your article. Once retired people are not “obligated” to withdrawing the same amount of money. If the market is down, you stretch your dollars, when it is up, you relax. Also, what is the deal with 60/40 distribution? The longest dip in the stock market took 3 years. To me, if I have cash for 2-2.5 years, I can afford to have the rest in high risk/high yield stocks. It is not a percentage, it is the breadth of how long you can hold without touching your risky investments.

    The average return of Dow Jones for the last 10 years is 15% and for last 20 somewhere near 7%. Not to mention Nasdaq. The .7 makes no sense.

    According to your calculation people will retire in their graves.

    1. What has your withdrawal rate been in retirement these past several years? Everybody has their own paths to take.

      The way the Fed has cut rates, working for longer is a key message in this article. Thx

  14. I think this is crazy. Look at your portfolio return over the last 10 years. Have you ever made on .5 percent?

    It’s crazy to say don’t use principal.

    It’s crazy to say your net worth needs to be X. You can’t live off your home.

    Example: I‘m 55. I live off my assets. $13MM equities and bonds. $7MM real estate. Portfolio generates $500k annually from interest, divided, capital gains and rent. .5% is only $100k a year. That is ridiculous for this portfolio. In this example if I spent $500k a year (2.5%), I’m still super conservative. Heck I could go 26 years with no return.

    I don’t agree that you should never touch Principal. I think claiming.5% is ridiculously low. At 55 I can weather some ups and down. I do not need to move all my money in to long term government bonds. I can follow the market.

    4% might still work, but I think it’s better to be more conservative and use 3% as a rule. As stated in down turns people tighten there belt.

    Some far all these examples fit the 1%. Most people don’t have $10MM dollars. Most people aren’t avoiding estate tax. Most people can’t afford to not touch principal. Most children want there parents to spend their money and enjoy life instead of living it to their children.

    You want to be wealthy- live within your means.

    You want to know how much you can spend in retirement- run the numbers. If it only works by stretching the numbers (estimate returns of 12%).

    Bottom line .5% is just a crazy way to look at healthy financial planning.

  15. How did you get .05%? What formula did you use? Say I have $2.5 million to retire with. My son, the financial analyst says $2.5mill/$12,500 = 200 years. Then there’s principal appreciation even if dividends go down.

    Something is wrong here.

    Vanguard’s high div fund VYM yields 3.55% TTM. That will undoubtedly decrease. But in any case it affords you more that .05% a year.

  16. Tyler Yates

    Retirement is (sort of) a myth. You either amass wealth and slowly ease into an independent, entrepreneurial or investor style of living, or you work until you can’t.
    That’s the mindset and truth you need.
    Even people who are “retired” are still either managing money/investments or doing some sort of work… Just not the same they did before. Those who do nothing, die early.

  17. Sam,

    If this is true, wouldn’t it be advantageous for people to look at buying an annuity to support their lifestyle like a fixed pension? Those would be undervalued by the companies as well and therefore a GREAT deal. I was trying to estimate my pending military retirement pay using these and if the numbers are to be believed you could get something to support a lifestyle for 1/5 of the savings you are advocating. Though you would give up a level of control some may not be comfortable with, but fidelity (or similar) is likely to big to fail because of the original premise which is the fed will continue to prop them up with taxes.

    1. Yes, an annuity is definitely one solution to boost retirement income and ensure retirees not run out of money. I do mention annuities as one solution towards the end of the post.

      Just have to run the numbers and expected life expectancy.

  18. This is an excellent analysis and overview. This is the first time EVER I’ve seen someone point out that the risk free rate was 1% HIGHER than the proposed 4% withdrawal rate.

    Further, it is kind of funny that even Bill Bengen is on his fourth career and still making lots of money in retirement and not following his own rule.

    Well done thinking differently.

    1. Thanks. Yes, when the person who helped popularize the 4% rule is not following his rul and still making money, I hope people realize this inconsistency.

  19. Good article. For any of your readers who are lucky enough to have a defined benefit pension plan, this article should make complete sense!

    If one assumes low interest rate environments for the foreseeable future, the value of pensions have increased dramatically!!! It takes a much larger amount of assets now to generate the equivalent income people are getting from their pensions.

  20. These comments are fascinating. What do you think is the reason why people who are not retired or financially independent, think they know better than people who are financially independent and retired?

    Are Americans really that ignorant, arrogant, and stupid? I’ve heard reports that Americans are not very financially savvy and most Americans don’t have passports or speak another language. This is so strange to me living in Germany.

    But from many of these responses, I can see why average Americans are not doing well. Thanks for sharing your thoughts and logical analysis.

    The saddest thing is, the people who follow a rule from the 1990s might end up being very worse off. But they won’t be able to rewind time once they’re in their 60s and 70s.

    As the saying goes, “shoulda, coulda, woulda, but didn’t.”

    1. I think it’s just human nature to think we know more than we really know. It happens at all stages. Therefore, we need to be vigilant and always check our attitude and our assumptions.

      If the stock market tanks by 50%, I’m pretty sure many more people will be accepting of my 0.5% withdrawal rate proposal. The likelihood of a 50% drop is small, but it is not zero.

      Finally, when you’re constantly trying to anticipate the future, people will find it uncomfortable. It’s why CNBC will bring on a bullish person when stocks are going up and a bearish person when stocks are going down.

      Human nature. Bottom line: you’re either outperformer or not. That’s what matters for personal finance.

  21. Just got around to reading this. at first I thought it was clickbate but now I see it’s actually well thought out…theoretically. The issue I have with the general premise is that it’s not practically helpful for 99.9% of people out there saving for a retirement. Nearly nobody will be able to “multiply your annual expenses by 200 to get a target net worth.” say I was making the average household income of $75k a year, I’d need to have a $15M net worth, under this premise. Thats utterly rediculous for someone in that income level. Literally nobody will be able to follow this advice making the entire article theoretical and practically pointless. Sorry brotha, love your stuff generally but this article was a miss.

    1. No worries. Check out the other ways you can use the 0.5% rule provided at the end of the post.

      And if none of the various ways to use the rule makes sense to you, feel free to do what you want to do. That’s the beauty of personal finance.

  22. Hey FS,

    What would happen if the estate tax threshold goes back to the level it was in the Obama years – around 5 million or so max (I think it was 5.28 million for single taxpayer and 10.56M for couples) before being charged the estate tax on anything over? I know that it has since doubled to 11.58 per taxpayer since Trump took office.

    The fed can change this law anytime they want, so as you mentioned, would SWR change to be slightly higher than .5% if this law changed and reduced the threshold, since one would want to avoid paying an estate tax and giving needless money to the government if at all possible, so it’s probably better to spend it?


  23. 4% includes a depletion of capital over the 30 years. I think your examples are on the assumption of no capital being spent?

    A side income is fantastic, perhaps the FED does want everyone to work forever, it is definitely one way of resolving the coming pension crisis. Europe too.. can’t have everyone on pension for 30 years and taxes can’t go up forever.

    One other area to reach for yield is to to acquire bonds from other countries. I’m in a developing market and our 10year bond yield is still 10%. The risk is default by our sovereign (a real risk), and currency depreciation of 6% per annum vs the USD (also a real risk, since beginning of 2020 we are 33% lower during a flight to safety of USD). However, I live here and spend in this currency, so am still able to acquire safe haven assets (USD and CHF) and then lend money to the government at 10% for my safe withdrawal rate of 3%. The rate and the devaluation of the currency is also due to capital flight, so there I’m one of the only buyers it seems…
    I’ll spend the excess on taxes and inflation, but I still have a real yield that will get reinvested into diversified assets.

    I can send you the country bond if you’re interested but there are some interesting dynamics at play in the world at the moment that have destabilized the markets significantly.

  24. On September 3, 2020, the NASDAQ decline by 5% and the Dow close down by 3%.

    Thanks for the reminder Sam that risk assets sometimes go down. And when they go down, withdrawing any type of money is painful to live.

  25. Why do you think some people are still confused and think you’re recommending retirees invest all their investments in a Treasury bond portfolio instead of in whatever investment portfolio you’re comfortable with in retirement? You’ve clearly said that the risk-free rate affects all risk asset returns and gave three examples.

    It’s fascinating to see such dogmatic approaches and I do like your follow up post highlighting how there are so many dogmatic 4 percent rule followers who don’t even follow their own beliefs.

    Hello, Willian Began said he is on his 4th career and makes money as a consultant and book writer!

    1. Not sure. Probably because this article is really long and not many people have the attention span to read 4,000+ words unless they are really, really into the subject.

      I should probably do a “Key Points” wrap up in the beginning or end.

      Yes, for early retirees, most continue to make supplemental income and are not following the 4% Rule/Guide. For many traditional retirees, many have pensions.

      I hope more people can recognize the changes in the economic environment. We all feel like rich geniuses making so much money in stocks and real estate.

  26. Jason Conroy

    I’m sure you are aware of the analysis of your 0.5% SWR on Big ERN’s site by now. He basically says your are completely wrong and proves why. I would love to see either your rebuttal of his points or for you to take down this post which many people consider to be a misleading and even dangerous.

    1. Is Big ERN the quirky academic who got pushed out of his job and from San Francisco, and had to relocate to Washington with no roots bc he didn’t have enough money to retire?

      If so, the guy is stuck in his ways and is an academic. People are academic for a reason. Those who can’t, teach.

      I’d rather evolve and learn from operators in the real world.

      1. Yes, he was an Economist on the buy side, which is one of the biggest jokes in finance. Nobody has any respect for economists or takes them seriously because they are always wrong. They also don’t have any skin in the game.

        Whenever I see a white American guy marry a Southeast Asian woman, I cringe. The guy is generally too awkward and too much of an oaf to find someone in America. But that’s what many academics are like.

        Another weirdo white guy in the FIRE movement. Creepy guy.

      2. Jim and Abishek. That is an ad hominem error. Jason asked to review the logic and reason on his rebuttal to the original post which is completely reasonable. Attacking the person rather than his argument makes no sense. It has nothing to do with logically attacking the reasoning in his rebuttal.

  27. Since 1932, over seventy one rolling 20 year periods, a portfolio consisting of large cap “value” stocks was subject to a 7% annual inflation adjusted withdrawal rate (1). At the end of 82% of the periods, the ( nominal ) value of the portfolio value was higher, and at the end of 15% of the periods, the value of the portfolio ended at zero ( failure ). See chart 1 *
    However, with a simple tweak, the failure periods were eliminated / improved, and in just a handful of periods, the portfolio value ended the periods slightly lower than where it “started”. See chart 2 *. And the average annual withdrawal rate over the 20 year periods was 6.5%, this being dependent on when the investor started their withdrawal sequence ( major market “tops” such as 1968, 1973, 1999, 2000, 2001 reduced the annual withdrawal rate as per the tweak criteria ).
    This data shows that the potential upside of (value) stocks is unlimited over history, where as the coupon component of bonds / treasuries total return is “capped” at “0%” ( nominal ), creating an unique circumstance of “negative” return.

    The pandemic has yet to prove to be a major blow to the returns and income that stocks produce, and portfolio appreciation and income withdrawal has survived a World war, inflationary recession, deflationary tech bubble and financial crisis recessions, etc.

    (1) sale of shares, dividends reinvested


  28. With expected returns below the interest rate on a mortgage, the best investment could be to own your home outright. While the current yearly residential real estate appreciation rate is way above investent yields, that situation won’t last for long as people rush to buy residential real estate as an investment vehicle until the appreciation rate of homes matches the rate of investment returns. The Fed has signaled an implicit 0.7% return for four or more years, so this hyperinflation of real estate values in the near term followed by stagnation in the medium term is currently in the process of ramping up. Since home prices are asset prices, they do not appear in CPI directly, so it will take a while for CPI to rise enough through “owner equivalent rent” for the Fed to react.

    1. Yes- anyone remotely buying into Sam’s madness here should prioritize paying off any mortgage, even if the math says it makes more sense to invest capital than to pay down a 2.75% fixed loan. The rest of us should just look at the bucket models over a simple withdraw rate.

      But let’s be serious – any change in market return that makes 40x expenses inadequate, is so severe that we’re all screwed anyway. Sam’s life expectancy is ~45 years, and at a stretch, maybe 60. But hustling for more money even when one has 60x seems like a sad existence. Enjoy retirement when your body is strong enough to run about the world.

      On the other side, you have the FIRE nuts who think they can live as a family of 4 on 40k/year from their 20s. They will be going back to work, and not enjoying it one bit.

        1. If anything of what you say is true, the stock market will provide a retirement for less than 1% of the population and we are all screwed. Getting 20M+ is not an option for anybody so lets not worry; Bread lines for everyone.
          The trinity study was recently updated to actually increase the 4% rule, wasn’t it?

          Personally, at 40 yrs old I am at a net worth of 1.6M, with a goal of 3M to retire with a SWR of 3.5% and I want to retire by 50. On the side I’m trying to get a food blog off the ground to hopefully provide something to supplement to reduce the SWR as much as possible. I think my SWR should provide for 50k in annual expenses, 24k annual in medical until age 65, and 6k annual in vacation with some cushion.

          I believe in investing in good quality companies and a proper diversification of asset and sector classes. 80 stock/10 bond/10 alternative with a good allocation of large/mid/and small caps.

          Good luck to you sir.

  29. Two points:
    1. 30 to 40 million? Who says there is no inflation?

    2. People who comment here write full on articles. My god.

    Thanks for the info

  30. I disagree with 0.5%. Maybe 4% is not conservative enough and we have to look at 3%. But 0.5% and corresponding 8mil in assets is not viable for 99.99% of citizens. That would mean you can never retire.
    I can give one example how it would work easily with 3-4%. I retired at 43 with wife and family assets around AUD2.5mil. We live on about 50k a year mostly provided by rental income. Most of well purchased real estate SHOULD give you 3% net income. Especially in USA..
    I agree that economy changed and governments would like us to work and spend until we drop dead. FIRE will be different but is not dead.
    I write on Whyninetofive blog about journey towards early retirement and life in retirement.
    Good luck

  31. Sorry if someone already mentioned (too many comments above) – if 0.5% withdraw implies no inflation, then you can simply withdraw 2% for 50 years.

    It seems to be the case for Japan in the last 2 decades anyway. Everything stays flat or get a little cheaper every year.

  32. what the heck .5% I need 70K a year thats after subtracting my social security (wife will receive at age 70, 5 years away). That means I would have to have a 14 million dollar nest egg. I am 10 million short, and age 65 no means of passive income. There is no way I can live on .5%, when it was at 2%, that was doable, but really .5%. and what happens if interest rates go negative. You say they won’t, the Fed says they won’t. Trump likes the idea, and I never thought we would be in the position we are today. Never say never. We have turned into Japan.

  33. Hmmm, someone forgot about RMD’s which the IRS forces everyone to follow over the age of 70 and it starts at 3.6% of your 401k+non Roth IRA assets. The 0.5% rule is ludicrous and cannot be taken seriously.

    RMD at age 70 is 3.6%, age 75 is 4.4% age 80 is 5.3% ……

  34. US Stocks pay a dividend of about 2%. Even during the Great Depression, Dividends were only cut in half. So a 100% stock portfolio (extremely risky) should support a 1% withdrawal rate (the current 2% cut in half during a financial collapse). That is twice the rate recommended here.

  35. The premise of your article is flawed. The 4% withdrawal rate is not based on the a 100% bond allocation, as you suggest. Instead, it’s based on a 60/40 stock/bond split.

    I wonder what you’ll do if the 10-year bond goes negative.

      1. Hi Sam,
        I really enjoyed the article and I didn’t consider the change in treasury bonds yields affecting the 4% rule.

        I noticed you did mention having a stocks/bonds mixed in the article.

        However, the only math example you used has the treasury bond with a .7 % return.

        Then you added social security to that amount for the total income .

        If you added stocks that have a very solid dividend and a mix of bonds with much higher yields then just a treasury bond, wouldn’t this allow you to withdrawal a much higher amount then .5 in your opinion?

      2. Yes Sam, you do say in the article that the US government bond (real) returns have been severely suppressed, you do also say that this logically and inevitably drags down all other returns (thus increasing the risk/reward curve on all investments across the board).

        But beyond that you have provided very scant information on how you came up with 0.5% being the non-capital depleting withdrawal ratio, as opposed to say 1.5% or 2.5% other than some direct derivation based on the 10y bond yield alone. Perhaps you can add more information in future posts, as well as revise, though my advice will be to not dig your heels on the 0.5% figure. You will end up having trouble defending it. Yes revise the 4% rule downwards but not to 0.5%

        Your article is good as it prompts everyone, naive or savvy and everything in between, to reconsider the expected long term return of their investments, the non-capital depleting withdrawal ratio, the Safe withdrawal ratio (at normal retirement age), the now dismal probabilities of being able to retire early on modest pre 2008 net worths, the even more dismal prospects of leaving your capital to your descendants or to a perpetually giving charity endowment.

        This reconsideration was long due as the main financial repression started in 2008. I personally waited until about 2011 to revise my 4% rule down to 3%. It took me three years to convince myself that this repression was not temporary but a now permanent policy in an attempt to have savers investors and other prudent people who partake in delayed gratification pay a portion of the massive accumulating cost of permanent government programs that voters had been piling up on government at the polls. In other words investors will pay for a portion of (they can only pay a portion since the need voters have creating and continue to create is colossal) the ongoing transition of the US into a slow growth European welfare state. This process is electorally unstoppable and seems to have now accumulated into a new phase, the coronavirus is only a small and temporary part of it most of the changes to negative real safe returns are permanent and represent the Japanification and/or Europeanization of the US.

        Given this new latest intensification of what seems to have become permanent financial repression, I’m considering dropping the non-capital eroding withdrawal ratio to 2.5%. I’ve also already taken a big chunk of my net worth outside the US and all other slow growth countries engaging in financial repression. You see, in the end investors are sitting ducks. In essence all they have is paper promises which say that something is owed to them for delayed gratification for work they once performed and for which they have not yet been rewarded (hence delayed gratification). It is the easiest thing for a demanding majority at the polls to force government into a corner whereby one of the few remaining options is reneging such a promise to investors. Thus people who stay invested in various combinations of US only stocks/bonds expecting 4% safe withdrawal rules are these naive sitting ducks in my view. Japanification (high debt low growth) or Eurpeanization (high taxes low growth) is the inevitable future of the US being painted into a corner by an ever more pushy electorate demanding benefits representing unearned goodies (which of course they think they are entitled to). Once voters start treating the ballot box as an ATM such future becomes inevitable. There is nothing that will save America from that and, in my view, the sooner investors and FIRE hopefuls realize it the better.

        It’s time for investors to hunker down or hunker out of plans that depend on the vibrant world leading US economy they are accustomed to. Their electoral behavior is now incompatible with such investment dreams. Also, things will get worse. As the slow growth of Europeanization takes hold on the US too, voters will react to the economic distress by asking for even more government “help” ie redistribution from investors, savers and other sitting ducks. This will trigger a vicious spiral of decline which could very well end with the US having reconverted into the group of middle-income countries by say 2060, by virtue of the fact that the rest of the faster non-western world will have caught up to the US and Europe. This tectonic shift will of course come much sooner for Europe which has already completed several iterations of this vicious cycle over the last four or so decades.

        Even in the US, the fact that voters have reacted by demanding more government help in reaction to the 2008 crisis and 2020 corona crisis are two strong indicators of this vicious cycle. These are the symptoms. Voters demanding unearned benefits and treating the ballot box as an ATM are the main driving force. See the forest, not the tree, and your investing horizons will open up.

        But you don’t have to take my advice. Everyone will develop their own narrative and act accordingly.

        1. Sure, writing about how risk asset returns are intertwined with the risk-free rate is another post I can write.

          In this post on buying distressed assets, there’s a great chart highlighting the spread differential between the cap rate and the risk-free rate.

          My mistake was assuming that people realized the importance of the risk free rate and its relation to other asset class returns.

          So one idea I can take action on is write educational posts about financial terms like Investopedia does. They will be pretty boring, but at least I can help educate Rieder’s link back to them in new articles.

          Example in post:

          A company looking to raise money to fund operations isn’t going to issue a bond that pays 8%, unless it’s in dire straits. Instead, a company will probably discover that adding a 2% – 3% interest rate premium to the 10-year bond yield will garner enough demand.

          Also listen to my podcast on the dividend payout example.

          Finally, I’ve added a total of three examples in the Assets Are Intertwined section for readers to review on the importance of the 10-year bond yield.

  36. Almost Every American: Oh my gosh! When I don’t go to restaurants, bars, coffee shops, nor expensive vacations you can save most of your money.
    Me and everyone like me: *Groan and roll eyes because we have been telling everyone that for almost a century*

  37. Love when you ruffle the feathers, Sam. The first time I found your site, I thought, “my god, I’ll never attain the networth numbers you prescribe”.
    As the goal posts move, it forces me from my comfort level and that is great!!!

  38. Isn’t a more sound estimate of the savings needed for retirement the net present value (NPV) of all future net expenses?

    1. NPV is based on a discount rate. FS is suggesting a more rational discount rate for planning purposes. Any projections relying upon a 4% or greater discount rate in the future are wrong.

  39. Sam

    The post makes a lot of sense. We have to change with times – nothing is absolute as you always say. In the spirit of a stable/consistent stream of income, what is your and everyone’s thoughts on the price of bonds currently? Specifically MUB, IEF, HYD, PCY. They have not moved much in the past couple years (stability) and consistently produce a yield 5-7X risk free rate. 10 yr T has inched up, but likely not much more (more chance coming down I believe), which should preserve or increase the value of the bonds I mentioned.

    Interested in everyone’s thoughts. I am at a point where a small (as long as above inflation/risk free) return is acceptable as long as volatility is minimized.

    Look forward to your thoughts


    1. Essentially a 2.5% after inflation return together with the risk associated with below investment grade bonds, plus the interest rate/inflation risk of long term bonds. The entire reward/risk curve has been compressed…

      1. How are you getting 2.5% net of inflation. The yield say on MUB is 3.5% if you gross is up for taxes (no tax on muni bond interest). That is 1% above inflation (assuming NAV does not rise). I agree with investments in many munis that are below investment grade.

        1. I saw a raw yield of about 4.5% in the mix you listed (perhaps hasty on my part) and assumed 2% inflation.

  40. I’m shocked at how many commenters are taking their anger out on Sam when it is the federal reserve in the central government that has pushed down rates and caused massive debt to be incurred by future generations. Did nobody read the introductory part of the post that highlighted the rage of the commentor?

    Does nobody recognize the drastic decline in the risk-free rate and subsequent risk acid returns?

    As soon as the stock market goes down by 30% over a couple year period, you’re not gonna feel so smart about withdrawing 4% anymore.

    Why does everybody think they know what retirement is like if they are still working? There are some really stubborn readers on here who would be terrible intellectual conversationalists.

    1. Lakshmi Jagannathan

      I think we need to perhaps revisit what we view as “risk”.
      Short term “volatility” isn’t the same as true “risk”, IMHO.
      If you panic react to volatility…that is the real risk.
      This behavioral aspect is what caused the TBond to be viewed as “risk free”.
      Dividends have some implicit inflation protection(higher prices are paid to the companies, right?).
      So perhaps SP500 dividend yield would be a “floor” for safe withdrawal rate….which is now 2%.
      Then on top of that “floor”, you can add some additional amount based on your comfort level.
      I personally feel that 3% is still pretty safe…assuming 2 years of expenses is in cash(reduce drawdowns in “bad” years).
      I will continue to have 0% allocation in TBonds.

      1. I could not agree more. In my opinion you have a solid understanding of investments. To me risk is not volatility with 1-5 year frequencies but more like a Japan situation with no return for 30 years or, even worse, a Weimar Republic fate of financial gimmicks that wipes most people out. No portfolio can survive such events and these are things that have happened to developed countries not basket case banana republics.

        I use 3% too but with large exposure to high growth economies worldwide and very few bonds as I explained in my other comments. I think that is still quite sustainable — probabilistically — especially if coupled with shrinking expenses down to dividends only in down years.

        I plan on holding truly passive low liability assets so I don’t think I’ll expand much in real estate. Yes, higher returns in real estate but a lot more headache, not truly passive. I find the stress of a 20% down year on equities much less than a trouble tenant who finally leaves trashing your house or, worse, files a California lawsuit.

        1. Another way to argue against the “0.5% rule”:
          Why save 200X of your expenses if you don’t expect to live 200 years?

          I think even for the most paranoid/conservative person, the SP500 dividend rate(2%) should be an absolute floor.
          3% still seems pretty solid to me.

  41. I think this is a great example of why monetary velocity is dropping and has been dropping since the first round of QE under Bernanke.

    I am not and never will pursue a lean FIRE retirement, but it clear to anyone paying attention that the cost of buying retirement income has shot up since the GFC and massively failed response to it. Usually given a choice between spending my money or saving it for retirement, I save it. I save about 60% of my after-tax earnings.

    I save that money because I know the Fed’s terrible policies have destroyed ROI for investors. This will only get worse as the baby boomers are forced to reduce their spending due to abysmal returns on their retirement savings. I would like to spend more of my earnings, but I know I have to buy retirement income, if I want to support myself in retirement.

    The only way I can spend more money today is to be able to invest in quality, secure investments with a reasonable rate of return today that will provide for me in retirement twenty plus years from now.

    If long-term interest rates were higher, I would spend more, since I would be earning more for retirement. The Federal Reserve is destroying this country.

  42. The real issue is that the 60/40 portfolio is outdated

    You can partially replace bonds with a mix of gold / tips but they don’t have the same protective properties in a crisis.
    Gold for example gives you similar hedge but only in the long term. And for that you need to avoid reacting during a major sell off. Not easy.

    The other option is to increase equity allocation and keep calm during a crisis. Only works for younger folks, though.

  43. I too find this article completely hyperbolic. What others have mentioned is that they think Sam is trying to tell us that we should complement our retirement with passive income.

    For me at least, this is not what retirement is. I want to retire so that I can stop stressing out about how to earn money and keep new cash coming in. That’s what work is for.

    Side hustles, real estate, vlogs, etc all require active “work” and management to sustain. That is not retirement. Furthermore as you age, your mental acuity and capabilities diminish making it harder to maintain your “side” gigs.

    I’m tired of hearing that the best way to retire early is to come up with passive income streams. It’s not in the cards for me, when I retire, I don’t want to do anything other than focus on enjoying my free time and my family.

    For perspective, I’m 46, have $2,000,000 in savings, ~$1,000,000 in my home equity, and have a retirement savings goal of $4,000,000 (I’m half-way there) so that I can use the safe-withdraw rate of 4% to take out around ~$150,000 a year or so. I consider that modest.

    1. That is a correct takeaway. Let’s try to make as much passive income as possible to provide for a happy retirement.

      The issue that you may find is that when it is finally time for you to give up your paycheck, you will find it VERY difficult to start withdrawing any amount of money from you portfolio for the first several years.

      It’s very hard to make the switch from aggressively saving and earning to withdrawing. This is what pontificators of withdrawal rates who haven’t yet retired haven’t been able to get right in their models. It is much easier to say you’ll withdraw $150,000 a year than actually doing it.

      When you get there, I’d love for you to revisit this post and let me know how it goes.


      1. I would also add there is likely more free time than you can imagine once you lose the J.O.B. While, I can’t speak from my own experience as I’m not there, I have seen numerous others kind of regret leaving work too early. The idea of freedom sounds great but sometimes you enjoy the free time outside of work because it is limited.

        If the days of the week no longer matter, I would expect you lose purpose. Add that to your decline (whether planned or not) of your net egg, and it could lead to a depressing time.

        Not to mention your family may still be busy working and balancing their lives, even if you are free to do whatever. cue up the cat stevens – cats in the craddle…

        With all that said, it might be a good idea to at least have something to help with your time, and if it makes some money for you all the better.

        1. Yeah for me the trick is to find a “job” in retirement that I can do at will (spend as much or as little time per week as I choose). That doesn’t work for having your own business even if its creating videos or blog posts (you eventually lose your audience if you dont produce consistently). And it obviously doesn’t work for traditional employment. Haven’t come up with anything yet so am likely to err on the side of quit work completely.

          1. I’d suggest volunteering then. If your money is squared away, and it’s time you need to fill, you could always go that route. You may even find while volunteering that an opportunity presents itself, where you could start a side gig making additional funds to help the cause. I have a few in mind, but you would need to be handy with tools and such to do it. Then again, I suppose with your parameter you could just become an Uber driver or something similar. Work when you feel like it.

    2. Im 52, and retired 5 years ago after close to 28 years in the U.S. Army. I have 5 homes w/4 rental properties in an above average high cost of living area. I also flip real estate w/cash when the opportunity presents itself. Retirement can be defined by the individual. Work is defined by the individual. I don’t consider my rentals or house flips as “work” I love and enjoy real estate and the rentals I own. I have property management but I make decisions. We all make decisions each day whether your retired or not. so I guess we never fully retire. My point is that retirement is defined by the individual. I don’t “work” for a living and for people who still have a job they enjoy or love pretty much consider themselves retired as well. Big props to your ability to develop a real nice net worth. Did you build it from the ground up or inherit a portion?

    3. Lakshmi Jagannathan

      Even when the 4% rule was conceived, the model retirement portfolio was never 100% bonds. It was 60/40(I believe), and dividend yields in the late 80s and early 90s(30+ years ago) was 4% or so, BUT INFLATION WAS ALSO about 4-5%.
      Let us not forget that a big chunk of cash returned to shareholders is now via buybacks(that drive stock price up).
      So composite view: Dividend yield, bond yield, Sp500 market returns, lower inflation, the 4% rule may still be fine(inflation is lower, dividend yields are still decent).
      Companies are still returning huge amounts of cash to shareholders one way or the other!(dividends and buybacks).

      1. Lakshmi Jagannathan

        One more point:
        Dividends have some implicit inflation protection(higher prices are paid to the companies, right?).
        So perhaps SP500 dividend yield would be a “floor” for safe withdrawal rate….which is now 2%.
        Then on top of that “floor”, you can add some additional amount for slow(if ever needed) principal withdrawal.
        I think 3% may be pretty safe…maybe 4% is OK if you kept a few years cash to avoid drawdowns in bad years.
        But I would argue against holding any TBonds at this point in time.

  44. I’ve been following along the blog and email newsletters for a while now. Interesting information presented but this post is full of fear. Unnecessary at this time when there is enough concern for those working towards FIRE. I’m not suggesting we ignore potential threats but this seems overly dark. I tend to be a sky is falling person but this blog post is over the top! My situation is that I’m 45 and have amassed $3.5 mil CDN. About $1m in pure equity, 1.2m in real estate and 1.3 in bonds and cash. Basically, a conservative portfolio. No liabilities and a fairly modest lifestyle. My once secure job is coming to an end so I’ll be FIRE whether I like it or not! To suggest I better start hitting the pavement because I’ll only be looking at .05 return is depressing. It really bothered me for a few days but the more I think about it and reading others in the comments, I’m thinking your pessimism is toxic and not based in reality. I respect what you are trying to do with the blog and I wish you the best on your journey but this is where I get off the FS train.

    1. Congrats! And best of luck to you in retirement. Not a bad ride since the ticket was free right?

      I’m always an optimistic person, and I didn’t agree with the pessimistic view That I quoted in the beginning of the article. But I always like to see the other side, so I continued along his train of thought and came up with the 0.5 percent rule. It feels good to accept the bearish side of the Fed’s stimulus as the newsletter reader believes.

      In 6-12 months, if you’re still unemployed, let me know whether it was harder than you thought to withdraw money from your portfolio after 20 years of saving and investing.

      Thanks and GL!

      1. I rather enjoy these type of responses… “…since the ticket was free.”

        It amazes me with all of the information exchange from your posts and the comment sections that people still complain. I find that I often get as much if not more information from the comments, as I do from the initial posts. The post short of sets the direction, but then the masses drive the various courses. Either way it’s a Win-Win. Information is shared, and I can choose which to believe and follow for my given situation.

        In the end… people are willingly looking at your page, and reading FREE content. Why all of the hostility? People disagree all the time. Why does it have to be an agree with me all the time site. Imagine how boring life would be if everyone just always thought the same way. We would literally have zero progress, because everyone would just accept things as they are. Imagine that!

        Anyway, too funny that people write a comment just to tell you that they are no longer going to be looking at your site. With over 1 million organic views a day… does it really matter if they leave your free to view site? I suppose if they got another 999,999 to do the same it might hurt but what is the likelihood of that. I actually would bet they will be back too. Why post a comment if they weren’t planning to look again…
        I wonder if they have the integrity to post again that they have returned to your free wealth of knowledge once they realize the value of the free information they are no longer receiving.

  45. Tony Ferguson

    Given that the expectation is for interest rates to be low long term and that pushing up rates seems almost impossible given the levels of debt in the US and around the world how do you view the prospect of inflation given the amount of money printing around the world? Should everyone have a proportion of their wealth in gold or gold stocks?

    1. I dont like the idea of holding gold, but decided a while back to structure my portfolio along the lines of the “permanent portfolio” which is 25% each of stocks, long term bond, short term bonds and gold. If nothing else, historically, it has provided smoother returns with less sequence of returns risk (which is the main thing that jeopardizes retirement in stock heavy portfolios).

  46. Yishai Kagan

    The article shows a total ignorance of the studies that the 4% rule was the conclusion of, is extremely misleading, and the conclusions are demonstrably incorrect.
    The original study was for a 60% equity, 40% bonds portfolio, withdrawing 4% per year based on the beginning balance and adding inflation to that every year. At 4% it was shown that the portfolio (principal + interest) will last at least 30 years.
    What the author wants is to have his long term portfolio invested in 10 year treasuries and live off interest only, based on “the FED is bad” cult of the fast growing economically illiterate crowd. This is kind of an “end of the world” scenario.
    If you believe in the long term strength of the US economy don’t pay attention. If you don’t, see if you can save $8,000,000 dollars while not believing in the FED who stands behind those bonds.

  47. The 0.5% rule makes sense if you are trying to be the richest guy in the graveyard. For a 65+ to not touch the principal in a multi-million dollar holding, and rely only on fixed income earnings is a very short sighted viewpoint.

  48. Calm down people. What the “Nay Sayers” do not realize is that Sam is talking about is the withdrawal rates from retirement accounts. What does Sam preach a lot about? Passive income. Not just set up your 401K and hope it works out. Passive income that will continue to provide. You must take into consideration there are other streams of income you can still earn income from in retirement, whether you “FIRED” at 30 or retired at 65. Many different examples of other streams are rental income from real estate, be it owning multi-family, single family, government pensions (not a 401K) a cash hoard stored away, CD’s, a business that generates income with little over watch such as storage units, etc, etc..

    He never once mentioned in the article to stop earning from passive income streams you have and just live off a .5 withdrawal rate. That’s what passive income is for, to continue feeding the beast!

  49. 1/2 percent withdrawal rate? That = 120 times annual expenses.

    Simple solution: Buy a bunch of tips ladder style. 30 years needs 30x expenses.

  50. As a Data Analyst by profession, I can only marvel at the bizarro world this article seems to have sprung from. Amassing $30 million in cash alone would provide you with $500,000 per year, every year, for 60 years! Even accounting for inflation this would be far more than almost anyone would possibly need, never mind Social Security added on top.

    And who said you should never touch principal? Or that you should put all of your net worth into fixed income? Bill Bengen’s study (which I’ve read) was based on a 50/50 split over a 30-year period and withdrawals that began at 4% in the initial year of retirement and then adjusted for inflation each year thereafter, including tapping into principal. The math in this article is pointless because there is no possibility that a 50/50 diversified portfolio will only return 0.5% over the next 30 years (or more). THAT HAS NEVER HAPPENED IN THE HISTORY OF THE WORLD. Those who think that is even a remote possibility are selling themselves short and forgetting history. They are like doomsday preppers who spend all their time waiting for a doomsday that will never come.

    In summary, remain calm, all is well! Stay diversified, rebalance periodically, and save as much as you can until you have 25X-33X of your needed income saved for retirement. Then you can safely cut the cord. Please consult with a qualified financial advisor on the best approach for you, of course.

    Perhaps this is Sam trolling us all???

    1. “because there is no possibility that a 50/50 diversified portfolio will only return 0.5% over the next 30 years (or more).”

      You must not be familiar with the Japanese stock market. From 1989 to today total return with dividend reinvestment is -23% or -35% if you adjust for inflation.

      No retirement or FIRE plan can survive that.

      I think that Sam and his readers are finally and belatedly opening up to the possibility that this may happen to their own country as the US FED is forced into following the Bank of Japan into the financial repression of zero risk free investment returns which are necessary to sustain government spending. A government spending demanded by voters at the ballot box (the coronavirus is only a minor part of that spending in the big long term scheme of things). There is no free lunch and everything must eventually be paid off, yes, even government spending. And one of the first few ways it will start being paid of is the wiping out of FIRE dreams for the majority of Americans who once hoped. That is the initial cost, there will be other much more massive payments because massive are also the expenditures demanded by unrestrained voters at the ballot box. There is little that can go well when a democracy descends into redistributive pitchfork rule where a supermajority of voters start using the ballot box as an ATM to override meritocracy. That lesson should have been learned from history but the siren song is irresistible.

      That being said I believe that a sudden readjustment from 4% to 0.5% is an exaggeration and the safe withdrawal rate should be readjusted downwards at 2-3% as I mentioned in my other comments. Still with a readjustment from 4% to 2% the FIRE dreams of most people who once aspired are wiped out. As I have said many times, there are very few FIRED people in Europe and that is no coincidence, especially self made FIRED people. One should first see how paradise looks like before buying into it…

      One of the fundamental rules of successful investing is to understand the main forces driving things.

      1. Japanese bonds returned 6% per year during that period. A 50/50 portfolio would have a SWR of like 2.5%. Also Japan’s Shiller CAPE at the time was over 80, our current bubble is actually a lot smaller, with a Shiller CAPE of ~22.

        1. I don’t see these high yields. I see the Japanese 10y bond indeed started at a peak of 7% in 1990 but then soon after the money tree monetary gimmicks started, the Japanese government 10Y yield had tanked to 1.5% by 1998 (below inflation ie negative real return) and has been repressed by BOJ ever since.

          So a 50/50 Japanese stock/bond portfolio would have had a continuous negative after inflation return to our day.

          Yes, Japan’s CAPE ratio bubble of 80 was much greater than today’s US Shiller CAPE ratio of 30. Yet, 30 means pretty much a fundamentally modest 1/30 = 3.3% long term target return (real return ie post inflation) and that is if CAPE ratios remain at 30. You could, of course gamble on an even bigger bubble of sustained even higher CAPE ratios. But even a sustained CAPE ratio of 30 while your country walks the walk down to a European low growth welfare state is, in my view, unlikely.

          But everyone will ultimately make their own bets.

  51. Ms.Conviviality

    It’s always good to see different perspectives regarding how to prepare for retirement and juxtaposing it against my own retirement plan. Your low withdrawal rate isn’t very different from the way we had planned on funding our retirement. We plan on owning at least 7 rental units that will all be paid off by the time we retire. In a way, we aren’t touching the “principal” since we will be living off the rental income. Of course, we also have stocks/403(b)/pension for back-up. While the pension will be a big boost to our retirement income, I plan on retiring early so the pension benefits won’t start until age 62. I also have the option of working until age 52 and receiving full retirement benefits but I’m challenging myself to accumulated 7 units so I can retire early.

  52. Oh great now I need to save more than $20 million to retire which probably means my daughter will need to save $100 million.

  53. The Trinity Study had pretty much nothing to do with Treasury yields in 1998. It was essentially a simulation of how likely it was that a 50/50 Large cap stock/long-term corporate bond portfolio would survive any 30 year period from 1926-1995. The portfolio was determined to have a 95% probability to survive any 30 year draw-down of 4% of the initial value. This article comes across as some kind of joke. Either that or you don’t understand the reasoning behind the 4% rule.

    1. Dan,

      This is the Financial Samurai study and methodology, not the Trinity study. The FS study was created after working in finance for 13 years, writing over 2,000 posts in personal finance since 2009, and experiencing firsthand retirement lifestyle since 2012.

      It’s easy to pontificate about post-work life while you’re still working and have a steady paycheck and benefits. But I assure you that post work life is different from what researchers think once they are retired.

      Coming up with the 4 percent rule when you could earn 4.4% – 7.8% risk-free from 1994-1998 is as profound as saying the sun is hotter than the moon. It is as risky as saying Elon Musk’s children won’t starve to death. It is as deep as saying all organization charts look alike.

      We don’t live in 1998 any more. I recommend people lower their safe withdrawal rate percentage below 4% or shoot for a higher net worth target before retiring or declaring yourself financially independent. Alternatively, learn to live happily on less or find ways to make supplemental retirement income.

      Feel free to read my Retirement category archives here:



      1. Your answer to Dan’s comment seems to reinforce his suggestion that, “you don’t understand the reasoning behind the 4% rule.” (Actually, I’m sure you are well-read on the subject to know the reasoning, but maybe you need to take a step back and get some perspective.) In answering him, you said in reference to the Trinity study: “Coming up with the 4 percent rule when you could earn 4.4% – 7.8% risk-free from 1994-1998 is as profound as saying the sun is hotter than the moon… We don’t live in 1998 any more.” These sentences come across as saying that overall market conditions (especially the 10-year bond yield) in 1998, is what made a 4% withdrawal safe. But the basis for the 4% rule was NOT the economic conditions of 1994-1998 alone. The basis for the 4% rule was that if you went back to ALL possible years of retirement from 1925 to 1998, a 4% withdrawal rate would have been safe. So with your blog, you are asserting not just that overall market returns will be so much lower now compared to 1998 as to make 4% withdrawal rate way too high, but that market returns will be so much lower than ALL periods of market history from 1925-1998, as to make 4% way too high. Just so we don’t miss the forest for the trees (by focusing only on the 10-year bond yield), we should remind ourselves that market history from 1925-1998 includes U.S. involvement in two World Wars, the Great Depression, double-digit inflation for several years in the 1970s, etc. If 4% was a safe withdrawal rate despite all these other calamitous things in US history, then perhaps the market can also survive a low 10-year bond yield in a more robust way than you think it can.

        You further criticized the Trinity study as, “It’s easy to pontificate about post-work life while you’re still working and have a steady paycheck and benefits. But I assure you that post work life is different from what researchers think once they are retired.” – Financial Samurai, this sounds a good bit defensive on your part. “Pontificating” about market returns using the rationality of market history is, for example, what saves people from withdrawing all their money from equities when the equity market is low (like early 2009) because one panics, and thus missing out on the market recovery. We need studies like the Trinity study, not to dismiss it as “pontification”. I just wonder if there is something about your own situation post-retirement which has led you to a bit of panic of your own in coming up with an argument for a 0.5% withdrawal rate. I’m not saying this to bash you, but as something for you to consider by way of (hopefully) constructive criticism. I have enjoyed many of your blog posts in the past; but like several other commenters, I think you have lost your way on this post. I realize you are on your own retirement journey too, and I wish you the best as you seek to continue it.

        1. Hi Glen,

          Thanks for the feedback on sounding panicked. I did not realize I sounded this way and don’t mean to sound panicked. Could you point to me the lines or paragraph that demonstrate this? I’m always working on my messaging.

          Do you also mind having a listen to the podcast at the end of the post as well and letting me know if there is panic in my voice?

          I was trying to capture the rage one newsletter emailer had against the Fed even though I believe the Fed has helped save us.

          Although I disagree the Fed is bad for us, I tried to see the person’s point of view And go deeper. The result was the Fed has made retiring and staying retired much more difficult.

          I’m always trying to look forward to what might be so readers can better prepare for the future. It is no different with the 0.5 percent rule.

          Here are some relevant posts about forward thinking. Thx

    2. Yes, you are correct. But Sam is also correct in that a decrease in the baseline 10y bond from 5-6% to 0.7% drags all returns down with it, and most people’s dreams of retiring early.

      Let me try another way. The FIRE community (as well as a majority of voters) keep asking for “free” healthcare so that they can retire early. They are getting and will eventually get that free healthcare but to pay for it they will also get the financial repression of no return on risk free investments. Yes healthcare will be free but you will need 7 million instead of 2 million to retire. Yes you get “free” healthcare but the overall prospect of retiring early got much much more difficult. This process is unstoppable. Essentially the voters’ demand will rob Peter, give three quarters of the money to feed government and with the remainder pay Paul. Of course, most voter naives believe that early retirement dreams in the FIRE community (which they hate anyway) is the only thing that will be wiped out. Oh no, not by far, much much more prosperity will go down the drain.

      1. I don’t see what free healthcare and the treasury yield has to do with each other but I’m not an expert. I won’t be learning about it from HB in a comment section either.

        If Sam had shown how the 95% survivability of the SWR looks like it has been reduced in the years since 1998 I would have no issue with his blog post and wouldn’t even bothered to comment. Sam seems to be a “finance” guy but I don’t think he’s much of a “numbers” or statistics guy. You two are more than free to amass a 200 year retirement because the risk free yield is low right now.

        By all means my friend, save away.

        1. If you see no correlation between accumulating entitlements and the need to keep the risk free rate of return to near zero then feel free to use the 4% rule and hope to preserve your capital on a 50/50 US stock/bond portfolio as your country becomes a European style welfare state.

  54. I definitely think that more money is always best when hitting retirement. There are many unforeseen expenses that could deplete a portfolio mainly healthcare / long term care/ nursing homes if both spouses end up there / home health/ bear markets, etc… so the focus for those who have not hit retirement should be to accumulate and put away as much money as possible.

    Now once retirement hits and withdrawing from a portfolio, I will probably take more than 0.5 percent. Maybe 2-3% just depends on expenses in retirement.

    Interesting analysis, Sam. I do not think that you should kill yourself to amass $30-$40 million to generate 0.5% in retirement. Enjoy your kids and wife now. Because your kids are only young once. Maybe when they get older and out of the house, will you then focus on reaching $30–40 mil. Keep doing what your doing and the pieces will fall in the right place.

    Take care

  55. Financial Ronin

    Really poor advice, this is at once both too simplistic and so overly complicated as to confuse anyone without a good education in finance. Describing in definitive terms how 0.5% is the new target rate and then describing too much optionality, without a hint of insight as to what a good decision or outcome could be.

    The assumption that a normal human would intentionally save so much capital that they would never touch the principal is stupid and not worth very much. Most people would make assumptions for length of retirement, a safety factor, growth rate, and calculate out the pv needed at retirement. As reality diverges fro your assumptions you change the other variables.

    1. Sounds good. Please feel free to elaborate on how one should think about retirement savings and retirement spending. I’m always eager to hear new perspectives. Whenever you see something you disagree with, it’s always best to offer a solution in its place, otherwise, what’s the point?

      I’d also love to know how you’ve been specifically withdrawing your funds in your retirement. How long have you not had a day job income and what were some surprises and changes in assumptions you had along the way.


  56. Reverse The Crush

    I am a big fan of your blog and financial advice, Sam. But the more I read your blog, the more it seems like you are a real estate investor and not a stock investor. You seem to fear the market swings rather than view investing in equities as a long term way to grow money. Stocks should be held for a minimum of 5 years.

    At one point in my career, I worked as a mutual fund advisor for a large Canadian bank. I used to complete risk tolerance reviews with clients and recommend mutual funds. You would fall under a conservative or risk free investor with a short term time frame by the sounds of it. I know it’s not Goldman Sachs, but maybe it has been a while since you worked in the industry?

    Not trying to be rude, I really respect what you do. I agree that things have changed and maybe the 4% should be adjusted slightly… but .5%… really?

    Maybe you prefer to build wealth through hard work and by investing it conservatively after instead of building wealth through stocks.

    Historically, investing in the S&P 500 would allow for a higher withdrawal rate if you invest for long enough and if you invest enough money. Of course, there needs to be a balance between stocks and other assets as we get older. But if you can’t earn more than .5% on your money, you shouldn’t really be giving investment advice.

    I get that you are comparing the 10 year treasury bond. But maybe worry more about income streams instead of status and a net worth figure. Add a higher percentage of equities to your portfolio and don’t worry about the short term fluctuations. Then you can withdraw more.

    Just my thoughts, but of course, I am not managing as much wealth as you, and I never worked for GS. Maybe there is something I’m missing. Thanks for the article.

    1. Yes, I prefer real estate and I am a conservative investor with about 20% of my net worth in equities. As two parents without jobs, I hope my allocation is OK for you.

      If not, how would you prefer me to invest? I’m open to a net worth allocation suggestion.

      Or do you prefer that I write more about equities, what I’m buying, selling, and so forth?

      I think I did a pretty good job with this post:

      If you have found similar post with similar levels of analysis that made a similar call, I’d love to read it.

      Finally, if you want to read more about stocks, why not just read more stock focused blogs? You’re the first person to garner from this post that I’m all about real estate. So that’s interesting and good feedback.

      One thing I recommend for you is that if you want to grow your site, You need to be true to yourself and write what you want to write and not what everybody else wants you to write. If you do that, you will burn out and you will lose interest.

      There’s a great saying, “It’s easier to wear shoes than carpet the world.”

        1. Real estate is much more passive than working. But yes, it is not as passive as equities. A few trouble tenants are a stark reminder of that. Liability is much higher too. In places like California too, politics and legislation are entering landlord-tenant relationships. Legislations that may wipe out a big part of the returns hoped for by those who will flock to real estate as a last source of safe returns. We may also see legislative action on that front at the federal level with the next administration.

          Stay mobile. Mobile worldwide that is. Especially keep your money mobile on a worldwide basis. That is my advice.

      1. Lakshmi Jagannathan

        Sam, Is the real learning here possibly to NOT be under invested in equities?
        If you had been 50 or 60% equities instead of 20%….wouldn’t that have been a very different situation now?
        (The Trinity study and 4% rule assumed 60/40 I believe)
        I do not believe low equity exposure is necessarily “conservative”.
        If you internalize the notion that “volatility” and long term risk(like running out of money after 20 years) are NOT the same thing…I think it fundamentally changes your view on equities.
        My personal preference/plan:
        Be high on equity exposure…but stick to big indices like SP500 etc.
        Plan for lower withdrawal rate like 3%(save more before retiring).
        Be prepared to live on 2-2.5% in really bad years(if needed)…2% is the current sp500 dividend rate.
        Keep 2(maybe 3) years of expenses as cash on hand to avoid panic/stress during “volatility” or bad years….maybe invest portion of it back if the drops are spectacular…or not…that’s fine too.

        1. Possibly. I had a much larger waiting in equities while I was working. I even leverage my career to equities by working in equities for 13 years. Then I “Retired” in 2012 and changed my allocation to focus on building business equity. I’ll leveraged are you to equities?

          My business equity has blown away the annual returns of the S&P 500 every year since 2012. I’m talking a factor of more than 10X. Real estate in San Francisco has done pretty well since then as well.

          What type of withdrawal rate have you been taking out in your retirement? And how is your net worth diversified?

          1. SFO home values have done very well indeed. My sister’s house doubled since 2012(the year she bought it). If your RE investments are in the SFO area and coupling that with your FS equity(done very well too)…at a high level, I don’t see how you would/should have anything to be concerned about.

            I am not yet retired, and I probably will keep going till I am 50. I think that is a nice round number, so I have a few more years to go.
            I have been 85% equities, and rest in cash.
            (I do not include my home equity as part of savings)

            Based on all the data I have seen(like estate tax data which is interesting), and all the various studies and Monte Carlo simulations, like Fidelity(which is more conservative), I think planning for 3% withdrawal is pretty solid. 35-40% of my planned expenses are discretionary, so there is room to scale down in bad years(if needed).
            I actually don’t think I will spend that much consistently, but planning for a larger annual spend and a larger multiplier(33x) is how build in some conservatism(not by reducing equity exposure).
            And given 3% is not far away from the sp500 2% dividend yield, I don’t think I should have to worry about sequence of returns risk.
            My Fidelity worst case simulation still shows more money(inflation adjusted) at end of retirement than what I start off with.

            Given such few people(based on estate tax data) start retirement with similar amounts, I think it is interesting that folks retiring with 3, 4 or 5 Million still fret so much. What about the other 99.8%?
            That is another way to look at it…..

            I do not plan for a Hybrid retirement(like side hustle/blog etc). But I do have the benefit of several years of deferred compensation that will greatly reduce withdrawals in the first few years..and I think that is a great overall risk reducer, since Sequence of Returns risk will largely be offset with initial lower withdrawal rates.
            One can also hold 2-3 years expenses in cash as another way to reduce the sequence of returns risks.

            1. Sounds good. Hope your plans work out. And do let me know if you actually follow through on withdrawing at a 3% rate in retirement. I’ve noticed that in my 8+ years of being unemployed, seldom to retirees actually withdraw the amount they plan to withdraw. Old habits die hard.

              Also, I’m not that concerned. Another commenter said I was panicked and super bearish. I think you and others who think I’m panicked and concerned are confusing me with the original commenter at the beginning of the post who thinks the Fed is terrible for us and we’re all screwed. Risk assets are at all-time highs again!

              I’ve simply gone ahead and connected more dots with what the commenter said about the Fed and how it relates to financial planning going forward, since we eventually have to pay back all the spending.

              1. “Old Habits die Hard”: I couldn’t agree more.
                This is why my current plan for retirement withdrawals exceeds my current expenses.

                I think today’s issues are more tied people’s willingness to fund US treasury borrowing at record low interest rates, than the FED itself.
                Yes, FED has a few Trillion on it’s “Balance sheet”, but that dwarfs the borrowing US Treasury is doing….all on the open market.
                Keep in mind that even at 0.7% interest rates…..10yr Bond auctions are still over-subscribed by almost 3x. In other words, there is record amount of savings in the world…that is being tapped by the US treasury at these record low rates. People are doing this willingly…I wouldn’t…but Bond auction data is pretty clear.

              2. “I’ve noticed that in my 8+ years of being unemployed, seldom do retirees actually withdraw the amount they plan to withdraw.”

                I’m curious, what do they withdraw? More or less? Do they finally feel the anxiety of not having a paycheck and become more cautious or are they not able to control spending?

                1. What I’ve noticed is that earlier than normal retirees can’t touch principal as it feels too painful, and will decide to earn supplemental retirement income and cut costs.

                  They’ll/we’ll do this for as long as possible until we can’t. Or maybe until we can tap our 401k and/or be eligible for SS, which all feels like funny money.

              3. Sam,
                I’ve read your blog for years now and it helped inspire my own FIRE (before I even knew the term was a thing). The content has been very good for the most part. I never commented before but I thank you for all the free reading.

                I do share the concern with many commenters on this post because I also think it is overly pessimistic. I fear it can be misleading to less sophisticated folks who now think they can’t FIRE.

                Also I’ve started to notice a pattern of more sensationalistic-type of articles….more extreme views, more provocative titles. I hope you don’t go that route to try to drive traffic because it would be disappointing to those who seek great content from experienced finance-geeks, because this is rare in the blogosphere.

                Felt compelled to comment also because I “retired” a few years ago at 40, so I feel your pain of withdrawing retirement assets. It is unnatural to us savers and investors to be in drawdown mode when our default and successful mode was wealth-building for many years. I will point out that this “pain” is an emotional response, and while still important practically, it should be guarded against when making financial decisions. Emotions should be counterbalanced with cold hard data…which the Trinity study gives (and subsequent other studies have confirmed the 4% Rule is generally in the right ballpark).

                I fight my own “pain” of drawing down assets by knowing quantitatively that a 4% withdrawal rate is generally safe, 3% even safer, 2.5% probably as safe as needed. A 0.5% is a like a “10 standard deviation event” overkill.

                1. Thanks.

                  Thoughts on the fed and the appropriate withdrawal rate?

                  Have you been actually withdrawing at a 4% rate in retirement? If not, what have you been doing?

                  This title is a pretty Unprovocative title IMO. It’s descriptive.

                  Finally, i’m learning that it might be easier to just write what the majority think and not think beyond the present.

                  For example, if it’s a bull market write about bull market things. If it’s a bear market, right about how bad things are. This is what I big financial media outlets do.

                  It is too hard for many to change their thinking or even consider change.

                  I’d love you to share your early retirement experience more. Thx

            2. Real estate appreciation in SF and Silicon Valley in general has been very high due to anti-growth building restrictions associated with environmentalism (the children of environmentalists are now paying me the sweetest $8000 rent checks, but that is another story about fundamental forces and useful i…..). However rental returns and ROEs are dismal in many Silicon Valley locations (eg. Palo Alto) as rents barely amount to a 1% yearly ROE after taxes and expenses. Most rental homeowners in Silicon Valley are this essentially counting on more environmentalism fueled restrictions and appreciation whether they realize it or not. There is bubble risk in that.

              1. I am not a fan of RE investing for the following reasons:

                A. You can’t “compound” RE very easily. If you had a 7% return, you can’t buy 7% of another house can you?

                B. Returns after property taxes, maintenance are not that great..unless you timed the RE market….but market timing can be done in any market.

                C. Slow to enter and exit any “position”. 1-2 months even in “hot” RE markets due to escrow/inspections etc.

                D. All rental income is taxed at regular income tax rates…lowering the effective rate of return even further.

                As long as you can find a way(for yourself) to deal with stock market “volatility” or better yet, make it work for you(opportunistically), I think the SP500 is a better overall long term investment.

                I haven’t even got to the “tenant from hell” risk…that can ruin everything…the “Black Swan” of RE investing.
                That is actually probably a higher risk of encountering than any Stock Market “Depression”.

        2. Keeping 2-3 years cash to smooth out rates of return is a great suggestion. Also, reducing spending to dividends only in down years is an even better suggestion.

          Hopefully we do not get a 30 year period of no returns like Japan, though most indications are that we are turning into Japan as the FED is now following in BOJ’s footsteps. Perhaps even more ominous, we will continue to converge into a slow growth European welfare state, a process that started some time ago but we now seem poised to take a big step towards it starting next year. So a sustained bubble of CAPE ratios at 30 (ie even the modes 1/30=3.3% baseline long term return) looks iffy with US stocks.

          1. I don’t think the US will become Japan.
            Japan’s problem is demographics.
            USA *could* become Europe over time….that is possible.
            One big difference..Europeans have some “conviction” in their socialism…..the top tax rates in Europe kick in at much lower income levels:
            40% tax rate in Ireland at 40-50K Euro.
            Similar level of ~40% kicks in UK/France at 150K or so.
            In Europe…everyone “chips in”…unlike what USA’s socialist party is peddling: Everything will be free…but don’t worry about who pays for it. We will tax “Evil rich people” and they will be dumb enough to keep working at 70% tax rates….never gonna happen. I think they know it, but they are counting on their Art History graduates to behave like lemmings.

            1. Japan’s problem is demographics but it is also primarily debt. We will not mimic the demographics part but we are mimicking the debt. There are only two options once voter demands overwhelm the system: Become a high debt slow growth Japan style nation or become a high tax slow growth European welfare state. In either case it is slow growth so financially savvy people should readily recognize the longer term outcome difference between a European welfare state compounding growth at 1% annually and a rest of the world that is compounding growth at 4% annually. It basically means that Europe will be a middle income region on a worldwide basis by 2050.

              “Everything will be free…but don’t worry about who pays for it. We will tax “Evil rich people” and they will be dumb enough to keep working at 70% tax rates….never gonna happen.”

              As someone who has lived through Europe’s transformation into states that consume 60% of GDP (and have permanent structural growth rates of 1% surrounded by a world that is on a 4% growth trendline, that is a deterministic trajectory to decline in just a few decades) I can assure you that this is how increasingly high taxes were sold in Europe too. First they hit the ultra rich. When it turns out that what appears as a few billionaires amount only to a couple of hundred dollars per capita once their taxes are distributed to the general population then they inevitably go for the rich and then when that proves also not enough then they inevitably go for the middle and lower class. That cycle has completed on Europe and that is why virtually all of Europe has a VAT tax of 20-25% on virtually everything you buy and the VAT rate continues to grow. VAT is thus a tax paid primarily, as a percentage, by the lower and middle class. The monster of redistribution that voters create eventually has to eat them too because the rich are simply not enough food relative to the redistribution demands at the ballot box. Especially when wealth becomes more scarce due to the high taxation, a vicious cycle.

              But you don’t have to look to Europe to see how it is routine to introduce taxes as affecting the rich only first and then have them inevitably expand.

              Congress enacted an income tax in October 1913 as part of the Revenue Act of 1913, levying a 1% tax on net personal incomes above $3,000, with a 6% surtax on incomes above $500,000. The tax affected approximately three percent of the population. Then taxes were gradually increased and the tax basis expanded to include an ever larger proportion of the population. Every increase was modest, it was “only wafer thin” as John Cleese would have said (beware!, grossest video clip ever made in my view).

              Income tax in California was also initially introduced at the 2.5% rate. The history of virtually all taxation is the same: Grow government by first taxing a rich minority then both the tax basis as well as the rate expand.

              Betting that somehow Americans are insulated from this kind of narrative and electoral dynamics is a naive gamble in my view.

              Therefore, to the point, betting that 4% will continue to be a safe withdrawal rate on a 50/50 portfolio of US stocks/bonds as your country continues its conversion into a European welfare state is a very very risky gamble.

              1. Pretty Deep Analysis! :)
                Depressing in way….if you think USA is at risk of heading down the European route…but I see your point.
                I will hold out hope that America stays America!
                I agree that 4% may be too aggressive….I am going with 3%, or a 33x multiplier(of expenses). 30x is invested and 3x (3yrs of expenses) is in cash(to avoid withdrawals in down years).

                1. Thanks. I’ve been going with 3% too since about 2011 when I realized that financial repression was no longer the temporary Keynesian reaction it was supposed to be (and even that is debatable) but rather a permanent thing. Now corona inspired further mandatory financial repression pretty much cements that. With the new even heavier corona repression I am thinking of revising to 2.5% which also happens to be close to the stock dividend rate. So far the voter demand instigated balloon squeezing done by the FED has pushed up and inflated assets, benefiting investors and clobbering the foolish middle class which is oblivious to the general narrative. But I think these times of asset inflation are coming to an end, or at least involve ever higher risk in an economy poised to become a 1% growth European welfare state.

                  Good luck to your hope of America staying America. It is my hope too, especially because I already immigrated here from Europe, I was not born here, so I believe I have more insight into the fundamental differences and convergence. Being surrounded by entousiastic Americans excited to be converging into a 1% growth European welfare state is obviously depressing and foolish to me but I cannot change that, only react to it and take the next best action. I’m obviously not optimistic but I don’t want to emigrate again, though a significant portion of my net worth has already emigrated outside the US into countries more poised to sustain high growth or at least growth that matches the 4% non-western world average.

                  Summary: Using 3%, likely going down to 2.5%, shifting assets out of an irrationally exuberant US population that thinks it can maintain CAPE ratios of 30 while transitioning down to a 1% annual growth European welfare state. May take some years for the complete transformation (though we are already seeing some of the severe side effects) which hopefully gives me time to complete the shift. These things logistically take time as one may have to handle capital gains taxes. But I’m well on my way.

                  Wish you best of luck.

      2. Thanks for responding to my comment, Sam! I really respect your financial advice and appreciate what you do, especially your consistent writing. FS is one of my favourite blogs to read, so thank you for continuing to write.

        Sorry to come off like I am telling you how to allocate your wealth. Risk tolerance is definitely a personal thing. And based on your level of passive income, you are clearly better at allocating wealth than me. Your allocation is more than fine, and obviously you have enough wealth to afford less risk.

        I guess what irked me about the suggestion is that it came off as impossible for the average person to achieve. Since FS is such a respected and trusted site, it could scare off the average person from investing. Plus you could probably multiply your wealth much more with more by taking slightly more risk. But you are totally right, risk tolerance is completely personal, and you are entitled to manage your wealth as you please.

        Regarding your asset allocation, I don’t know enough about your overall financial situation to make that call. If you are at 20% equities, perhaps you could bring that a little higher. With your level of wealth, owning stocks that are rapidly growing earnings could leave your children with a lot more than the risk free approach, unless the economy as we know it is really is coming to an end. It’s about properly managing risk. But again it does come down to risk tolerance.

        Since I am personally interested in equities, I would love to hear more of your insights. I would enjoy it if you published more about equities, but like you said, you have to enjoy what you write about. I really enjoyed that post about predicting the bottom. I don’t think I’ve come across a similar post.

        And I probably overstated that you are all about real estate. You have amazing content on investing, real estate, and starting an online business. I have learned a lot from your blog. I guess it just seems like real estate has been more of a focus recently. I do enjoy those posts too, as I am starting to save for a down payment.

        That is good advice about growing your site. I totally agree that it’s important to be true to yourself. I have started to write more about what people are searching for, but I try to stick to topics I understand or have experience with. Enjoying it is really important.

        Thanks for the thought provoking post, Sam. Sorry I responded so harshly in my previous comment.

        1. Thanks. I really think you’ve got to find what works for you. I spent 13 years working in equities and during that time I saw a couple huge bear markets. Hence, I have some scarring to work through.

          If you want to allocate more of your wealth equities, you should feel free to do so.

          Based on your feedback about real estate, I’m actually going to start writing more about real estate. Because if you think this post on the proper withdrawal rate is about real estate, then You are really seeing what you want to see. Therefore, I might as well write more about real estate if you and others think I mostly write about real estate.

          Perhaps it’s just me, but I don’t get discouraged when I see hard things. I get motivated to find ways to make it happen. I love challenges and I love thinking things through and problem solving.

          I really like living the reality instead of talking about the reality. Living the reality provides for so many more nuances that cannot be captured through mathematical models and guesswork.

          You should really go and search for similar articles on the one I wrote about how to predict the stock market bottom. And really dig deep and read those people’s work. Please find them and let me know because I want to learn from them as well. Thanks

  57. Steve Thomas

    This whole piece is ridiculous. Most will never come close to having $8,000,000, never mind $2,000,000 by retirement age.
    You don’t need $8 million to retire. For so many reasons. Also, why the emphasis on never drawing down your portfolio? Isn’t that why you accumulated it in the first place? Didn’t you work and save you would have assets to live off of in retirement?
    If you have $1 million dollars under your mattress, you could take $40,000 a year and it would last 25 years. Add that to whatever social security income you got. $2 million would give you $50,000 for 40 years. But properly investing your assets will get you some earnings each year, on average. Even if you only earned 1% from a portfolio of stocks, bonds, and REIT’s worth $2,000,000, you’d earn $20,000 and would need to only draw down the rest from your portfolio. If you insist on never spending a dime from your portfolio, I can only ask why you would put yourself through that angst?
    If you have your house paid off by retirement your fixed expenses would be hard pressed to be more than $30,000 a year. I live in an expensive northeastern state in a million dollar home with high taxes and my fixed expenses are less than $30,000. I have 2 Lexus cars as well, and my fixed expenses include the insurance on these. My wife’s and my social security covers my fixed expenses. But even if you want to cut out SS, as some will say it won’t be there, modest market earnings combined with spending some principal more than covers that.
    I agree the 4% rule is obsolete. I think the flexible withdrawal rate makes more sense. Take out a less % when there are smaller or no earnings, and take out more when earnings are up.
    In conclusion, I think a suggestion of accumulating $8,000,000 to take out a .5% rate is unrealistic, and a waste of space and time.

    1. Primarily because this is (or perhaps used to be) a FIRE at 30 or 40 website, not an accumulate money in a piggy bank, retire at 67, deplete the piggy bank by 85 website.

      What this website is saying now is that because of the FED actions forget early retirement, just retire like people have always had, work until 67 then rely mostly on social security and deplete your savings if you are lucky to live long enough.

      My interpretation of what Sam is now saying is that early retirement for most of his readers who once hoped is now caput.

      I disagree, I think sure early retirement for about half his readers has been going caput for the last decade or so as the fed imposed virtually permanent near zero risk free returns but I think that the 0.5% withdrawal rate is a hyperbole as I pointed out in my other comments.

    2. Lakshmi Jagannathan

      If you look at IRS estate tax data(available as excel files on, you will see that only about 5000 estates pay any estate tax in any given year.
      That is 5000 out of 2.7 Million decedents(yearly average deaths in US).
      So…only 0.2% of decedents had ~10M(married) or ~5M(single) at time of death.
      These folks would have been retired for 15-20 years, so these “top 0.2%” probably entered retirement with maybe 3-4 Million or so.
      Remember….only the uber rich use GRATs etc….most folks(who I know of) in the 10-20Mil range hold onto their wealth in old age.
      If the 0.5% rule was correct(needing 8-10-16M to retire)….only 0.01% of Americans could ever retire!

      The 4% rule was never conceived as a “don’t touch principal” method…so this new 0.5% rule is not apples to apples to begin with.
      It’s fair to say 4% may not be best now….but 0.5% is a bridge too far…ESPECIALLY if you are 50-60-70% equities.
      If you are very low on equities….that may be a different matter altogether.

  58. Why do you think that the level of the 10yr treasury is a good predictor of the return of a 60/40 balanced portfolio?

    That’s what I think you’re missing here. You’re confusing the level of rates with the overall return on a 10yr bond (remember your friend duration?) We’ve gone through a number of interest rate regimes (both high and low) and the returns on equity have more than offset the low ‘yield to maturity’ on the 10yr treasury.

    Mark my words. The 4% rule is alive and well. Maintain your equity exposure and rebalance.

  59. So, for all the flack that Suze Orman received from the FIRE movement, she was right after all, though perhaps not for the reasons she stated. Actually even her 5 to 6 million capital requirement to FIRE seems way too low if 0.5% were indeed the new safe withdrawal rate.

    Personally I think that the new capital preserving withdrawal rate is along the lines of 2.5-3% as I have mentioned in my other comments. So, yes, 4% has been revised downwards for the last 10 years (as I have often commented to reluctant FIRE optimists) but not down to 0.5%.

  60. Once again another great article, just wanted to say thank you for the insight and keep up the great work!

    1. Yes, great article. I plan on a 200 year retirement with a 0.5% Proper Safe Withdrawal Rate.


  61. A single person in most Asian countries can be quite ok with USD 2000 a month. So assuming a 45 year old guy has another 55 years to go by and assuming a monthly expense of USD 2000, a capital base of say USD 5000 per month X 55 years X 12 months i.e. USD 3.3 million would allow you to have a withdrawal rate of 0.73%.

    Even with just USD 1.5 million in retirement funds, withdrawal rate would be 1.6% only.

    And yes for inflation purpose (though the Central banks all over say there is no inflation!!!), assumed a base of USD 5000 a month of spending instead of USD 2000 a month of actual spending.

    So the point is why stay in expensive western countries when you can head to Asia and be more stress free!! :D

    1. That is a good option for a 30 or 40 year old. At a later age it starts to become difficult for an old dog to leave behind friends and family and learn the new tricks of living in a different country. That being said, with the Fed severely curtailing retirement, many will adapt and emigrate to lower cost countries for retirement, leaving developed world millennial US voters with even less to support their economies and their ever more demanding government programs. All this is already happening in Europe, that is why the entire continent is shrinking at an unprecedented peacetime rate of economic marginalization and decline on the world stage.

      In 1970 Europe represented 35% of world GDP, today it represents 16% and on its current low growth trajectory by 2050 Europe will have shrunk to 7% of world GDP. Most US voters seem to want to follow that trajectory, but hope to be able to FIRE on a 4% rule investing in US stocks and bonds. They are in for very big surprises.

  62. Jerry Staton

    Sorry, but this is complete BS.
    You don’t invest in treasuries, so don’t complain about the low rates. Put your money on a savings account at over 1%, that alone kills your theory.
    In addition, you are a rich millionaire, investing in stocks and real ease, so you are making 20+% yearly. You have access to deals that 99% of the people don’t.

    1. Hi Sam
      I’m the Dan that previously stated your article was a “bit of click bait”.
      Maybe slap in the face would be a better way to put it, as in you were looking to make sure the message got out there by invoking a provocative title.
      I’m commenting again because I agree with your assessment. Maybe not to the degree, but certainly in the current environment it’s prudent to be more conservative with ones SWR. Powell’s speech yesterday should be a further wake up call, long term interest rates will be lower for longer and its time to accept we will be more like Japan and EU than USA circa 1998.
      A more pragmatic approach is to save FU money and then design a lifestyle that includes a lower income job that offers more flexibility and time to do other things. This will hedge against lower returns while still allowing one to realize the benefits of FI.
      Thanks for throwing a little cold water at us…

      1. Thanks for reaching out. It’s pretty interesting that the Fed chair came out with his statements A week or so after my post. It’s as if he read the post And realized that Uh oh, the world is waking up to what they have done. So Powell is finally admitting it and changing his guidance on inflation and interest-rates.

        I do wonder if anybody else paid attention to his statement this week. Or whether the ardent supporters of the 4% rule we’re going to stick with it no matter what the federal reserve chairman says.

        Maybe if I were to have published this post after what the Federal Reserve Chairman said, it wouldn’t have received as much backlash. But as I’ve said time and time again, it’s important to think into the future not delve on the present when it comes to your finances.


  63. I’ve read this article three times trying to figure out what your trying to teach us. I keep coming back to passive income. If you have enough passive income your withdrawal rate can be zero.

    1. This sounds right to me, too. That if you have enough passive income to cover all expenses, your withdrawal can be zero. I read the article a couple of times and that is my conclusion.

  64. I you want to retire early, take no risk and draw a large income, then you need a huge sum of money. Surprise. However, when you combine a long time horizon (when you retire early), balanced risk in a growth/yield portfolio and adjust your withdrawal rate to 2 or 3% or so to meet your income needs and time horizon, you can easily make it. Point is, there is nothing wrong with a 4% withdrawal rate (which is a straight 25 years ignoring any inflation or return) and that model has nothing to do with the unique objectives of the author. Another way of looking at the ‘legacy’? Put 500k in an S&P500 index now and let it rip for 40 years. I you are worried about the future outlook, then maybe this is the downside of FIRE.
    Financially Independent – Not Retired.

  65. This is total nonnense. With a $ 2.000.000 capital you can buy long-term AA or A US Corporate bonds that will give you a return of about 5% or $ 100.000 a year without having to withdraw anything of the capital that will then go to your children as you would be dead at the expiration of the bonds. No headache, no withdrawal, no worries.

      1. Not only that but you have to cover 2% inflation too if you don’t want to erode capital.

        Eroding capital is not an option if one is retiring early ((FIRE).

        Eroding capital is only for those who retire at normal age of 65 and don’t care much about leaving anything to their children — Not me, I care more about my children than myself. If it were just me a low productivity spartan life would have been fine.

      2. I agree. It’s delusion or fantasy to think that such opportunities exist now. Clearly not an active investor.

  66. For folks whining about capital preservation being stupid this IS a FIRE site…there’s another 30 years AFTER the first 30 years of FIRE.

    You did not FIRE if you retired at $1M and used a 4% SWR if you have to work as a Walmart greeter at age 70 to make ends meet because you ran out of money and your SS benefits are fairly minimal because you stopped working so long ago.

    While 0.5% is way to low but under 2% (depending on AA) is about right.

    Someone with $2-3M can safely retire at any age and have a modest lifestyle. $50-55Kish and even higher if the first 10 years have great returns.

  67. Interesting perspective but with various assumptions that don’t really make sense as others have commented above. One issue that really comes to mind is the thought that you need to keep your wealth for your kids. Assuming that I live up to 88 (as per current statistics) my kids will be almost 60 when I die. In that age they are close to normal retirement and hopefully financially independent themselves.
    I agree that it would be nice to be able to have money left after my death but I consider that a best case scenario.

    So simply said, it depends on your priorities.
    If you want to retire early, you plan for a worst case scenario of having 0 $ left at time of death, assuming to consume your funds over the remaining years of life expectancy. (e.g. 40 years times 150’000$ (assuming 50k $ pension resulting in living cost of 200k $ per year) equals to 6 Mio $ required funds at age of 48. Inflation should be covered by low risk returns.
    If you want to maximize your inheritage, you work until you die! Who is saying the amount must be 50 times your cost of living?

    1. Bingo. It depends on you priorities and desires in your current life and after life.

      Some have to work until they die thanks to the Fed, low rates, difficult circumstances, etc.

      Some want to establish foundations to help people long after they are gone.

      Even though the average retiree is technically a millionaire in America, the median person isn’t doing so hot with their finances. The last thing I want is for the FS community to be median.

      But I have to admit, it is kind of entertaining to see some get all huffed up because I’ve suggested a different way of planning.

      1. It is impossible to establish a perpetually giving foundation on a 0.5% withdrawal rule.

        Also, you have not simply suggested a different way of planning but are suggesting with relative confidence that about 95% of the people who could previously FIRE (or were poised to succeed in FIREing) now they cannot.

        I actually agree with you that this is indeed the case, and that the 4% rule is no longer sustainable (has not been obsolete for at least 10 years in my calculations), though I would not put the new safe withdrawal rate down to 0.5% but more around 2-3%. The main reason being that risk free returns may be down but returns with some risk may be up because the world as a whole (all of Homo sapiens) is now developing faster WORLDWIDE than ever as evidenced by long term worldwide growth of 4%, unprecedented in human history. But you probably have to seek equities with lower CAPE ratios in fast developing countries, perhaps even odious authoritarian regimes (not the developed world where voters have treated the ballot box as an ATM) to get the higher returns. Yes those who rely on a 4% rule with US stocks and bonds as the US joins the electoral trajectory of low growth European welfare states will fail.

        1. Yes you can establish a perpetually giving non-profit foundation at 0.5% WR.

          It just isn’t tax advantaged.

          What is a SWR moving forward depends heavily on AA. ERNs backtesting shows 3% as viable at 100/0 or even 75/25. At the “traditional” 60/40 or 40/60 not so much.

          I guess if you do global market weight for 100/0 it’s safe enough even for a nikkei type event in one country.

          Whether we would see a global nikkei event is debatable. Not so likely in my lifetime but maybe in my kids.

          I’m pretty sure economies and markets will be significantly impacted if all the dire climate change predictions occur…many of the existing exchanges would be literally under water…

          But that’s not really actionable in 2020 so that risk isn’t worth worrying about yet.

          1. Not sure I understand this. What is AA? And what is ERN?

            I’m also curious, how can you back test against something that has never happened? Zero interest rates are a new unprecedented global phenomenon of democracies where voters have used the ballot box as an ATM for too long creating huge expense demands on governments.

            A global Nikkei event is a truly black swan and ever more likely in the group of advanced democracies as decreasing growth (due to debt or taxes) will prompt even more demands for spending at the ballot box —essentially a vicious cycle.

            I’d relax about climate change. 4% global growth, ie $750.000 average annual per capita income in 100 years and all the technology for that to happen, no cancer, the mechanism of aging decoded tampered with and defeated (I’d like to see haw that affects the 4% rule!) it’s time to cheer up about the wonderful future awaiting our children.

  68. Following the 0.5% rule your $250000 income means you have $50 million in assets. You need another $10 million. That’s only 20%. Since you are not touching principal you should have at least 20% gains after the past 3 to 5 years and the stock market has gained about 50% since march. Another 20% gain seems very likely in the next few years and a little belt tightening will all but guarantee it. I suggest cutting about 10% ($25000) off your expenses to add to your investments every year. Maybe while learning about linear extrapolation vs. monte carlo simulation, backtesting, and the pitfalls of clickbait. Or perhaps you need to reasses your current income potential to realize that the 0.5% rule means you have nowhere near $250000 income and need to accumulate far more than $10 million more while learning.

  69. Hi there!

    Reading this article… I felt like you had taken a lot of heat for your writing lately, so thought I’d reach out with a quick note of encouragement. I don’t really comment on blog sites, as I rarely have time to browse the web but I religiously read your newsletter whenever it hits my inbox.

    I work in financial advisory services and was formerly a management consultant… And I find your line of thinking gloriously refreshing from the archaic thought processes that dominate this industry.

    You do a phenomenal job and I really appreciate everything you’re doing with your research, your blog, and the newsletter.

    The goals in the above are fantastic – where else are you going to get stretch goals like that? And, this year marked the turning point – the industry as a whole has started to look at the 60/40 portfolio split as “dead.” The 4% rule does not exist in the same fashion as it did when it was implemented, whether or not people like it…

    So: all that to say – thank you for everything you do! I really appreciate it and find your articles of immense impact. Keep up the excellent work :)


  70. Your analysis is excellent and pertinent in the real world. I’ve never read about the 4 percent rule in as logical and helpful a fashion as this article.

    It makes so much sense comparing the 4 percent rule to the risk-free rate at the time. I’m actually surprised nobody has done this before. Or have they, and I just missed it?

    Coming up with a 4 percent withdrawal rate when you could make more risk free is like going into all cash in retirement – a ultra conservative take.

    I bet the people who vehemently object the 0.5 percent rule are nowhere near financial independence.

    Also good to see Bill Bergen admit he’s making money in retirement, exactly what you suggested in your Supplemental Retirement Income section.

    Well done.

  71. I mean why even look at bonds in the first place? Who cares about “risk free return”? it’s nonsensicial especially when you consider the CAGR of the sp500 over the last 100 years or so (roughly 8-10%). When you consider that, and the long terms trends of the stock market an article like this just shows itself for what it is – a media ploy attempting to generate an emotional response.

  72. Just as other readers have said, what is the point of even reading financial blogs, saving, investing if the only SWR is .5%? You are in a financial situation that is better than 99.9999% of Americans and your goal of $300,000 a year seems pretty far fetched at that rate.
    Now I won’t knock you for just stating the truth, but you do realize what your saying is that basically we all need to work until we die no matter how smart we are with our money. Because at a 0.5% rate, there is probably no time in history where a person with say a 50% savings rate (impossible for most people as well but just an example) invested in the market could realistically reach a livable income stream off of a .5% SWR. The one caveat is if your are a high income earner. In which case, it goes back to the common theory “Investing is only for the rich”.

  73. Best part?…hearing from William P Bengen in the comments. It’s also nice knowing that I conservatively worked out my withdrawal rate to below 2% considering that about 50% of my total monthly expenses and 100% of my monthly fixed expenses are covered by pension and SS.

  74. Hi Sam,

    If interest rates remained at close to 0% or negative for the next 30-40 years, doesn’t that mean the US Government can borrow almost unlimited new funds for free so they can cut taxes, double social security, triple defense spending, provide free health care and college at almost no real cost. I’m probably misunderstanding a key macro-economic relationship. However, the upside to low rates forever has to be cheap funding for the Government. Right? The counter argument would be this would then debase the dollar, create higher inflation, and I would have thought ultimately lead to higher interest rates.

  75. As interest rates decline, the value of your other (equity) assets should increase. The opposite will hold true as well, if/when interest rates were to increase, the value of your equity assets would thereby drop as more money is moved into safer interest bearing assets. In the end, it’s all a wash, but we’ve seen all this before throughout our history. A 3-4% SWR should work regardless of whether we are in a high or low interest rate environment. It’s all just a matter of finding your comfort zone between 25-75% equities, and the opposite in intermediate-term bonds.

  76. I just want to say that logically, you make a lot of sense. If the risk-free rate is going down, structurally, returns will go down for other risk assets as well. We are seeing that happen all over the place in the debt world.

    My friends and I also want to leave money for our children and organizations we care about. I think it’s quite selfish that people are only focused on themselves and not trying to use their knowledge and well to provide for others.

    But that’s America for you. Every man and woman for himself. In other words, most people are selfish. They can’t look behind their 2 feet. Is there any wonder why people are so angry at challenging the 4% rule?

  77. Fed and other govt officials should recieve pensions based on financial repression they think is so necessary for everyone else. I suggest Jerome Powell recieve the equivalent of a 8 million dollar pension at 0.5% interest

  78. I generally like your stuff, but this one misses the mark by a mile. I don’t think the premise that a 4% withdrawal rate may not be sustainable is anything controversial (or new), so that’s not the issue. The issue I have with this is a premise you alluded to which is for the average person completely unnecessary and, if following it requires you to abandon any hope of a retirement, totally inappropriate to advocate. It’s this comment:

    “But I also believe the ideal withdrawal rate in retirement doesn’t touch principal so long as your estate is below the estate tax threshold.”

    Really? A retirement portfolio is expected to fully fund your retirement for decades AND not see its principal touched? That is a goal that is inappropriate for all but the mega-rich. This column essentially encourages people to give up their hopes of retirement (certainly any thought of early retirement) in order to preserve their account balances for future generations. That’s idiotic.

    While I would love to inherit a nice fat retirement portfolio from my parents, if the only way for them to do this for me would be to have them sacrifice any meaningful retirement of their own, I’d be mortified if they did it.

    But here’s the other problem I have with this: if your position is that you’re basically going to hold onto your money until you die, then tying your money up in the lowest yielding asset for several decades is ridiculous. If you want to leave your kids a nice chuck of change, take some portion (FAR less than half) of your portfolio and stick it in an S&P 500 fund and just leave it alone forever. Your kids will inherit as much or more as they would under your plan, and you’ll be free to withdraw far more than 0.5% of your overall account value from the remainder of your funds.

    Put it this way, if you’re telling me that a $4 million portfolio at, say, age 60 is not enough to retire on because I should only withdraw $20k per year so my kids (or whoever) can inherit $4 million, I would say you are objectively out of your mind. Instead of this crazy plan, I could take $1 million of my portfolio and stick it in an S&P 500 fund–earmarked for my heirs. It could dramatically underperform it’s historical performance and still double every 10 years.

    That means in 20 years the heirs’ portion would be $4 million (and inflation should not be an issue here if you’re assuming 0.5% yields on treasuries for that whole time–because those yields will only exist in a near-zero inflation environment). If I live another decade longer (to the age of 90), my heirs will inherit $8 million. Double what you plan called for them to get. Meanwhile, I could safely draw down nearly $10k per month for 30 years, producing nearly six times the income that your plan called for.

    Before you dismiss those projected S&P gains, understand that they could be cut in HALF and those heirs would still end up with the same $4 million that you want me to leave them–except under your plan I’d essentially never retire and under my plan I’d enjoy a comfortable 30 year retirement.

    TLDR: if your goal is to leave your entire retirement account balance to your heirs and you choose to work til you drop while investing those funds in the lowest producing asset class for decades, you’ve basically wasted your entire life and squandered decades of happiness in the process. This is an irresponsible suggestion.

    1. I couldn’t agree more with your response. I was shocked and saddened to read this piece. I would say that most people will never ever see the kinds of money required for what is talked about here. It makes having $1M seem like an insignificant amount, which takes a virtual $hit on most people who have to work for a living.

      1. Not to worry in this instance Sam is a fool. You don’t need anywhere near 8 million. This is ridiculously sad. If you are an investor, you are an investor and wealth creator for your entire life. It’s doesn’t some how magically end when you retire and start drawing down your assets. There is ALWAYS multiple avenues to invest and make money in. This is a liquid situation that never dies. Only the lazy mind would think that you need so much for just one third of your life. High dividend high yield stocks will always exist. Anyways don’t fret this is the biggest steaming pile of garbage I’ve read in quite a long time.

      2. Why would you let some random guy on the internet dictate what you can and cannot do with your money? The only thing that matters is whether your plan works for you and whether you are heading in the right direction.

        Don’t let me or anybody tell you how to live or plan your life. The 0.5 percent rule is something to think about. If you don’t believe it, that’s totally fine. Do what you think works best for you.

        1. Ok, first let’s dispense with the straw man argument. Nobody is saying you are “dictating” what they can or cannot do with their money.

          You write a finance blog whose stated purpose is to provide information to your readers “so we can all achieve financial independence sooner, rather than later.”

          I think you generally do a good job of that, which is why this particular article stood out–because it does the opposite of your stated purpose. I’m fairly confident you don’t have many readers who will be able to accumulate a retirement account large enough to fund a desired retirement through only 0.5% withdrawals.

          If we’re being honest, you’re advocating an approach based on a goal that is highly questionable (leaving your entire retirement savings to your heirs and living only off principle), but even for those who share that goal there is, as my comment above alluded to, a much better way to put that same amount of money into those heirs’ hands without having to give up your dream of retirement.

          Another angle: unless your kids are jerks they would probably prefer to have had more time with you when you were still here than to inherit some additional amount of money made possible only by you sacrificing time with them in exchange for more years of work.

          I’m not trying to force my views onto anyone else, and if there are people here who are willing to continue to work at a job they don’t have to work at for the sole purpose of gifting even more money to heirs, that’s their prerogative. It is, I would suggest, a privilege limited only to those who absolutely love their jobs though, because staying in a career you have grown tired of for years or decades longer than you have to is an act of self-sabotage that I can’t imagine taking on.

          The topic of safe withdrawal rates is a fantastic and relevant one, and that’s what drew me to this particular post. I just think one more rooted in practicality would be more helpful. You definitely raised a topic that caught peoples’ attention, that’s for sure….

          1. Not a problem. Please feel free to elaborate how one should think about retirement savings and retirement spending. I’m always eager to hear new perspectives.

            I’d also love to know how you’ve been specifically withdrawing your funds in your retirement. How long have you not had a day job income and what were some surprises and changes in assumptions you had along the way.


            1. So, to be clear, I am not retired yet (probably why I reacted so strongly to a plan that would probably mean that I never could…).

              My plan is a bit different than most, and although I work with a financial advisor I have yet to find one who looks at things the same way I do (I think the ultimate goals and plans are essentially in alignment, but I find it easier to look at retirement a certain way that seems different than any advisor I’ve talked to).

              Specifically, I am looking at retirement as a three step process, each with different funding sources or allocations, which I think of as “buckets”:

              Step 1: “Early retirement.” This phase will be the first 5-10 years of my retirement, and the plan is to fund this period solely from funds sitting in my checking account (the account type doesn’t matter, obviously, but I distinguish these funds from my “retirement accounts” that are held by a financial institution and managed by an advisor). Needless to say, these funds are either not invested, or invested in only the safest possible asset.

              Step 2: “Normal Retirement Phase 1.” This phase is designed to kick in at age 60, and to last until age 70. This decade will be one where my expenses are funded solely from my traditional retirement accounts (taxable, IRA, 401k). My goal is not to exhaust these accounts, of course, but to draw them down at a withdrawal rate of around 5% or so per year (maybe more), with the idea being that when I turn 70, I will still have funds in these accounts–but the balance will be 50% to 75% of what it was when I was 60. I intend for these funds to continue to be invested in diversified portfolio with a goal of an annual return in the 6% to 7% range.

              Step 3: “Normal Retirement Phase 2.” This phase begins at age 70. Why? Because this is the age where I intend to draw my maximum Social Security benefit and my wife’s pension. Through these income sources, my reliance on my retirement accounts will be reduced, allowing for me to lower my withdrawal rate in a manner that I (with the help of an advisor) deem to be prudent for a 70 year old to ensure that I don’t run out of money.

              I do not count on any sort of an inheritance, but realistically between my wife and me we have a fairly good chance of inheriting somewhere between $500k to $1M. Those funds, should they materialize, would likely be used to upgrade our standard of living in retirement–but the plan described above is one intended to allow us to enjoy a retirement income sufficient to afford a very comfortable standard of living for the rest of our lives. We won’t be flying 1st class to Paris three times a year, but that’s a tradeoff we can make without any issue.

              As you may have picked up on from some of my other comments here, I do not have children that I need to provide for via inheritance, but I do have family members I’d like to help, as well as organizations I’d like to contribute to. But in complete candor, those priorities are more of a “nice to have” than a “need to have”, and as one who hates his job I will not be spending any more time on the job in order to fund that “nice to have” goal.

              1. Sounds like a great plan to me! I hope you can execute the plan and everything comes true. At what age or when do you plan to start with step 1?

                I’ve written a lot about the difficulty of actually trying to retire early and staying retired. I truly believe you will find there to be a huge difference between what do you think retirement life will be like and what it actually is. It’s very hard to explain and only once you experience it yourself will you truly know.

                Here’s an example:

                1. Thanks. Step 1 will begin as soon as I have enough non-retirement account savings to be able fund my current expenses until the age of 60 (I’m 50 now).

                  I recently bought a new home and that set me back by probably 5 years. I had been planning to retire at 51, and now it is looking like it’ll be more like age 56. I am not thrilled about that, but basically the tradeoff was to get out of a home I didn’t like and get into what is hopefully a forever home at the cost of 5 extra years of work.

                  I won’t pretend to not having had some moments of regret, but particularly during a pandemic lockdown I am happy to be in a home that my wife and I feel comfortable in for the long term, since that wasn’t the case in our previous place.

                  I’ve heard from others that all the planning in the world won’t stop you from re-thinking retirement once you’re in it. I know that won’t happen because of a lack of stimulation, but easily see how a desire for more spending than what I’d planned may arise.

                  My “protection” against that is that I hope to be able to secure part-time work if I really want to spend more money, and hopefully that part-time income will provide all the extra spending money I might want.

                  Part of why I feel like my projected budget is manageable is that it was based on an assumed retirement lifestyle that included a fair amount of travel–and with an elderly father that I need to care for, I now see that I will not be traveling anywhere near as much as I had hoped (until he passes or is institutionalized…).

                  Thanks for the additional link.

      3. That was my take as well, and that’s why I replied as I did. I don’t like to crap on someone’s work on a free site, but I feel like we already have a savings crisis in this country and when people start to say stuff like this, I think it just perpetuates the idea of “why bother?”. I mean, if I can’t retire until I have enough savings to live on only 0.5% per year, you’ve basically told me I can’t retire–and if I can’t retire, I sure as hell am not going to worry about saving money.

        Maybe I’m unusually cold-hearted or dislike working more than most, but the notion that my labor is not for my own financial security but for the security of people who outlive me just doesn’t resonate. Of course I’d love to leave money to people and causes that I value, but that will always be a distant second to actually achieving the freedom to comfortably retire. Kudos to those who can do both, but using the metric suggested here, I’m guessing that’s next to nobody….

    2. “It could dramatically underperform it’s historical performance and still double every 10 years.”

      No that is the average historical underperformance. Underperformance is something like Japan, that is, no returns in the last thirty years. Very few retirement portfolios can outlast that.

      1. My response to that scenario: sorry, heirs, but it looks like you won’t be inheriting millions and millions of dollars for doing nothing because I was selfish enough to want to retire after decades of hard work. Live with it.

        P.S. In my example the S&P could return as little as 3.5% a year for decades and those heirs still end up with the same amount as they would under the awful plan being promoted here.

    3. Generally agree with this comment. 4% never was a “risk free” proposition, you were always vulnerable to inflation. The risk comparison should be made to Real Interest rates, not Nominal. Inflation in 1998 was roughly 2% and that would devastate purchasing power over a 20-30 year retirement, so assets that grow with inflation, like stocks and Real estate have always been a key to long term safety as they are today. Thinking a ratio must be maintained to nominal 10 year treasury rates is an unsophisticated understanding of what the 4% rule ever was and does not provide a sensical implication for investors today.

    4. You said it exactly! Why is the goal to never touch the principle?!?! That’s the primary fallacy right there.

      On top of that, by the time I die and my kids get whatever inheritance they’ll get, they’ll be at retirement age themselves! So then what? They don’t get to touch the principle either? Who are we leaving this for?

      Most people will live about 20 years in retirement. First order approximation you can take out roughly 5% per year assuming your investment returns minus taxes roughly equal inflation.

    5. Believe it or not, a lot of people want to leave money for their children and charitable organizations to help society. It makes people feel happy that their legacy will live on. And it also feels good in general to help other people.

      But if you want to spend all your money and leave nothing to anybody, that is totally fine too. Use a higher SWR. It’s all good.

      1. But to say you need to accumulate 8 million to provide for a 40k income is beyond asinine. You could put that in cash and not run out of money for TWO HUNDRED YEARS.

        If you accumulated 8 million, and put it in cash, you could spend $160k/year for 50 years before running out of money. AND even if you only averaged 2% a year, you would still have your 8 million at the end of it.

        Your analysis is totally flawed

        1. Putting all 8 million in cash is something to consider if one gets to that point. After all, there is a risk of retirees losing money. But how many do that? Whenever the markets go down, you’ll read plenty of articles about retirees losing their life savings.

          200 years is two lifetimes. Why does providing income/wealth for 100-200 years after you are gone a flawed analysis? Foundations are created to give back to society. Try to look beyond yourself and think about other people.

          1. “Try to look beyond yourself.”

            Is this the same guy who wrote “Realistically, thanks to the dramatic decline in interest rates, the days of retiring and doing nothing all day are over. And this is not a bad thing. It’s great to stay active in retirement”?

            “stay active in retirement”??? Look up “retire”, it means “cease to work”, some people think a fake retirement with no retirement in it IS a bad thing, but you never try to look beyond yourself.

            And did you write we should “curse the Federal Reserve and the Central Government” because rates are low? But I thought interest rates being low are “not a bad thing. It’s great to stay active in retirement.”

            This whole post is madness, I see why it got in the news, I don’t see why people read your advice. “I make $250,000 in passive income and I’m thinking of going back to work full-time.” Good lord.

          2. “Try to look beyond yourself” is some top shelf condescension.

            Here’s my counterpoint: try to look beyond money. Donald Trump is the most vile and disgusting (and unhappy) person I have ever seen. He also inherited more wealth than any person could ever need. You know what he didn’t have (and what he in turn doesn’t give)? The love, affection, and time of a father.

            Perhaps instead of inferring that your readers are being selfish for not wanting to work decades longer than necessary so they can fund a 100-200 year “foundation,” maybe consider that with the free time obtained from exiting a career decades sooner than your plan would allow for, people could give back to their families and communities in ways that add more value than through some financial contribution.

            1. I can see how you think looking beyond yourself and think about other people is condescending. Noted for my next responses and I’ll be more careful.

              I hear you loud and clear about not wanting to work for decades longer. But this may be very well what the Fed and the Central Gov’t wants or the unintended consequences of trillions in stimulus to save the economy.

              My wife and I both decided to forsake trying to make more money so we can be stay at home parents and spend more time helping the community. W/ the 0.5 percent rule, we’re wondering whether we should go back to work and pursue money.

              I’d love to hear your stories and suggestions as I’ve already shared mine. It gives me a better idea of where you’re coming from. Thx

              I think you’ll enjoy these posts:

              The Desire For Money And Prestige Is Ruining Your Life

              Scraping By On $500,000 A Year: Why It’s So Hard For High-Income Earners To Escape The Rat Race


              1. Thank you for the response, and for those links. I will be sure to check them out. I want to be clear that I really appreciate your stuff. I’m picking nits on this piece, but that doesn’t mean I haven’t thoroughly enjoyed most of your other stuff–and even this one forces a discussion and a thought-exercise that I think is valuable.

      2. Great topic to dwell on, though everything involves risk – even supplemental income and the market is probably more predictable than most. Understanding the variance is key to retirement planning.

        Specific to this comment – leaving money to children and charities is a worthy goal – but for children (and society in general) beware the risks of entitlement and how devastating an impact that can have when the individuals do not already have a solid understanding of themselves and a corresponding work ethic. Enablement, not entitlement should be the mantra.

          1. Great link – very articulate and well written. Yes – hopefully once they have a solid foundation a large influx of wealth won’t ruin their lives. Great advice to mindful of the impact it can have and I really appreciate the focus on education and communication. We just started custodial roths for my 12 and 16 year olds… hands on experience is irreplaceable.


      3. It feels like your argument started off in one place (because interest rates are lower that has implications on the 4% rule) but ended up someplace else (you need a lower withdrawal rate if you want to pass on assets when you die). Both of these are valid things to consider, but the 4% rule was never designed to preserve assets to pass them on, so I don’t think the fact that it doesn’t do that should really be a criticism that it doesn’t do what what it was designed to do. I have a Honda Fit. Some people like to go off-roading. The Honda Fit is a bad car because it is terrible at off-roading. And then some of your commentators: people who don’t want to go off-roaring are selfish and bad people, because they should want that.

      4. Interesting perspective, Sam. Are you now targeting $60M now? ($300k needed to live in SF and a .5% SWR) I guess given that you’ve been mostly in bonds during the last 10 years, .5% makes sense.

        1. Probably not. $300K is my yearly passive retirement income goal.

          Our annual spending goal is $150K – $200K. Let’s just say $200K to be conservative. Therefore, my target net worth goal would be $40 million. But I plan to continue making supplemental income like Bill Bergen is.

          I’ve actually mostly been in real estate and stocks for the past 10 years. 10 years ago, I was 33 and still had good risk appetite. You can see more here:

      5. That’s another straw man. Pretty sure you realize there are other options between leaving your heirs 100% of your retirement portfolio (before you drew from it) and “leaving nothing to anybody.” Come on, man.

    6. +1
      Just 3 points to complement:

      a) I believe one needs to first decide how much of his assets he plans to leave to the kids and then plan based on that. Of course, if Sam plans to leave all his accumulated assets to the kids and live with 0.5% withdrawal rate until the last day – it is his choice and, hopefully, also good for the kids. I does not seem to make sense from my perspective but as said, his choice. In that case, however, I see no point of investing into super conservative assets, as the investment period is not limited to his lifetime but (assuming his kids will follow the same pattern) is forever…

      b) The relationship between treasury bond yields and stock valuations is often adverse. To claim that low yield means automatically low stock valuation is quite a simplification. In any case, it is not impossible that the yields can go to 0 or even negative as is the case in Europe for quite some years now. What would be, based on Sam’s logic, the SWR then? Negative as well?

      Sam, I like your blog, it is often an interesting read. You seem to be a very prudent person, hating to “ride the storm”, which is much better than the opposite. I do believe you have raised an interesting topic (again), having quite an extreme view. Unsurprisingly you are getting some strong pushback. Given your 10 years experience with FS, I am sure you are not surprised and I hope neither upset. You have definitely started a good discussion and you can be proud of it!

  79. Sam, I found your article provocative but would generally agree that directionally it was correct given the state of the financial markets, ballooning federal deficits and forthcoming tax rate increases for both individuals and corporates. While I have always thought the 4% theme for a safe withdrawal rate was the incorrect approach, I profoundly found your suggestion of a .5% SWR as much too conservative, borderline run for the hills and never invest in the market again. I also found it humorous at your suggestion of using supplemental retirement income as a bridge to get to the .5% SWR – I think that is just another way of saying that you really are not retired. I am retired and do not have any supplemental retirement income.

    The industry has incorrectly been using the 4% withdrawal rate for years. It coincidentally has worked under a fairly optimal financial situation over the last 20-30 years (perhaps a false positive?), so people have used it as a proxy. I used it when I was younger as a simplified tool/benchmark to quickly give me a reasonable assessment of my financial state as I was building my retirement fund. But as I approached retirement I switched over to a cash flows approach as it gave me greater granularity and clarity as to what cash flows come in and what cash flows go out.

    Under the cash flow approach, I think of my portfolio as generating cash inflows so the withdrawal rate is a function of the earnings rate of the portfolio. As I am retired now, I have great insight as to what my annual expenditures (readily identifiable) are as well as the dividends and interest (also readily identifiable) that I receive from my portfolio holdings. With this approach, I can determine the withdrawal rate by netting the cash inflows from the portfolio with the cash outflows that are needed to fund my annual expenses. To the extent that cash outflows are greater than cash inflows, that is essentially the withdrawal rate. And to the extent that cash inflows are greater than cash outflows, you would be a net saver. For further refinement, you will need to add in social security payments, pension payments, and any other cash flows as cash inflows before figuring out your final withdrawal rate. To be sure, the withdrawal rate will be a reduction against the “principal” of your portfolio. My experience with this approach has yielded about an average 2% withdrawal rate annually. You should be able to use this approach as you are closer to retirement and in retirement as well but if you want something more useable before retirement, I would suggest using a financially relevant model.

    Assuming a 60/40 portfolio with an earnings rate of 4% for equities and .7% for fixed income, the earnings rate for the portfolio would be 2.68%. This approach is much more rational than just assuming a surrogate 10 year UST risk free rate of .5% (after taking 80% of the UST .7% rate). What’s wrong with using the risk free rate is that you assume that your portfolio is 100% in fixed income. If you really wanted to be conservative, I would suggest using an all together different thought process that I have termed the “mattress approach.” That would be the ultimate risk free approach – at least relating to financial markets. Under the mattress approach, you place all of your cash holdings in a mattress of your choice. Do not invest in the market so just a pile of cash. When you need money, you would go to the mattress and make a withdrawal. So if you took out 4% annually, the money in the mattress would be exhausted after 25 years. And if you wanted to be more conservative, you would take out 3% annually and the money would be good for 33 years.

    I do not have a disagreement that the 4% withdrawal rate has to come down significantly but I would think it is more like something around 2.68%. But even at 2% (assuming a 50/50 portfolio allocation), that is significantly different than the .5% SWR that you are suggesting. 2% SWR is defensible, math and fact based and a much more rational approach than using the risk free rate (more importantly, it would resemble what you are actually holding in your financial portfolio). In the end, if you really wanted risk free investing then you should just simply buy UST’s and live off the interest if you can (you would need at least $20-30MM in investable funds).

    Finally, as it relates to the notion that you should not withdraw principal (where does this concept come from?) – I also think this is silly and impractical…..unless again you had $20-30MM of investable funds. I think it is quite reasonable to have a 2-2.5% principal withdrawal rate. At the end of 25 years, what you would still leave behind to your heirs will still be very significant – almost 50% of your portfolio value. This approach should certainly help you stay below the estate exemption level as well. With an amount like that, your heirs will still be motivated to earn a living and a have a meaningful and purposeful life. And since we have only been talking about financial investable assets…you can leave your heirs your house and other real property…..And that would be rather significant!

    1. Well said. I tried to make a similar point but you did so very eloquently. I’ve noticed that many retirement blogs get overly focused on dividend income, which as you point out, can be a bit silly. I hope FS invites you to be a guest blogger!

      1. I’m always looking for gas bloggers who will write great arguments and different perspectives. It’s just a nobody actually takes the time to write some thing because it’s not as easy as people think.

  80. Wow. Lots of feedback on this one. Honestly – I took a day to digest this one as it was threatening to the level of success I like to think I have attained. Not to mention feeling like I took a major step backward in assessing how close I am to FIRE.
    After thinking it over for a day, I realized this is the same feeling I had when I came across your blog 10 years ago. It seemed like everyone was making 3-4x what I was and your savings targets were unrealistic. 10 years later I am glad I kept reading and keeping eyes on he prize as I have been able to achieve most of the goals that seemed unachievable not that long ago.
    Thinking about a .5% withdrawal rate is definitely a scary proposition but at 41 and will take some time to fully accept but thanks for always raising the bar and backing your opinions with strong arguments.
    There will be a time when I step off the gas and decide enough is enough but until then keep us thinking and challenging our assumptions

  81. William P Bengen

    Thanks for your very interesting article. First, a correction. The “4% rule” is not based on the Trinity study. My research, which specified a 4% withdrawal rate for a 30-year tax-deferred portfolio, was published in the Journal of Financial Planning in October of 1994, years before the Trinity Study. By the time they published, I already had published several additional articles in the Journal. Not sure why they never acknowledged my work.

    It remains to be seen if something as draconian as a 0.5% withdrawal rate will be required. Actually, in this low-inflation environment, historically 5% to 5.5% could have been safely withdrawn. 4.5% applied to an environment which experienced high inflation (the 1970’s).

    Just the same, I welcome your contribution, as it makes us all re-examine our assumptions, and take nothing for granted. I suspect, though, that those who adopt a 0.5% withdrawal rate will end up very rich at retirement. Maybe not great for them, but wonderful for their heirs!

    1. Hi Bill!

      Great to have you. First of all, thanks for publishing your paper. It has helped many people think about retirement over the years.

      I’ve edited my post to mention your work. Credit always needs to be given where credit is due. The Trinity Study helped popularize the “4 Percent Rule,” but that’s a shame they didn’t give you credit.

      Inflation is a curious thing. A low stated rate of 1% may allow for a higher withdrawal rate if your assets proceed to inflate at a higher rate given the search for yield. At the same time, a low state rate of inflation means that yields on various investments will subsequently decline.

      I’d love to hear more about you. Mainly:

      * Did you have a pension and still have a pension?
      * Where were you on your financial journey in the late 1990s? If you were still working, when did you retire?
      * How have your views about SWR and retirement changed in retirement or years into retirement?
      * How would you suggest risk-averse retirees find more yield?
      * What would you have done different or conjectured differently knowing what you know now?
      * Back in the late 1990s, what was your realistic assumption of where the 10-year bond yield would go and stock market and bond market return assumptions?

      0.5 percent is extreme, however, I think more people who seeking happiness are discovering that they’d like to provide a legacy for their children and various institutions they care about long after they’re gone. The ideal duration to provide is infinity. But 200 years may just have to do.



      1. William P Bengen

        Hi Sam,

        Thanks for the credit in your article.

        Lost of questions, I will do my best to answer.
        1. No pension
        2. I retired in 2013, now in my fourth career as a novelist/4% rule researcher. I just discovered a way to take advantage of withdrawal rates as high as 13%, should the right circumstances present themselves (they aren’t even close now). Will be published in October issue of Financial Advisor magazine.
        3. My original research, enhanced over time, appears to have stood up. I computed that the 4/1/2009 retiree (bottom of the bull market) could withdraw at 6.5%, and it looks as if that will work out. Not sure what will happen in a low-return environment like this one. I manage my portfolio actively for market risk, so I don’t expect to be caught fully invested in a big bear market (I was only 10% equities in February when the last one started). BUy on the way down, sell on the way up, easy to say, hard to to, but I have my discipline. I don’t believe in exposing my full capital to the fury of these Fed-induced market bubbles.
        4. Yield right now is very tough. After the next big bear market, if interest rates stay this low, I may end up with a very high stock allocation- perhaps 80%, with much of it in high-dividend-paying stocks. If you buy stocks cheaply enough, historically they have been pretty safe investments for a number of years.
        5. In 2009, known what I know now, I would have moved much more aggressively back into stocks (I was nearly zero stocks in early 2009). I applied that lesson to 2020 and it worked pretty well. Stocks just never got cheap enough in March to entice my to get fully invested, but I did more than double my equity allocation as stocks fell.
        6. I try not to forecast returns. Stocks were obviously overvalued in the late 90’s (but not all- there were pockets of value in REIT’s, emerging markets, small caps, which don’t exist today.) Thus, I reduced my stock allocation sharply going into the 2000-02 bear market. For me, it’s all about value, but you need a long time frame to make it work- not just a few years. I don’t mind sitting in cash and bonds and gold for ten years if stocks are crazily valued. They have always returned to attractive valuations. Always. Hopefully, I will live long enough to see the next opportunity. On my gravestone, they can carve “He was patient.”

        Hope I answered your questions.

        Best regards,

        Bill Bengen

        1. Wonderful! Enjoy your 4th career and supplemental retirement income to help boost your SWR.

          I hope other retirees who fret about a lower safe withdrawal rate realize how common it is for retirees to make supplemental income. The opportunities to make income are much more prevalent now thanks to the Internet. Take advantage.

          You’ve been very cordial Bill. If you ever get an urge to pick a part my thesis, feel free. I really enjoy constructive criticism so I can gain new perspectives and learn more things.


          1. Really cool to have the Bill Bengen join the conversation here (and I’m assuming it’s really him!) Haha, Bill is a legit celebrity — the Brad Pitt — of the personal finance world. We read Bill’s original article from 1994 in one of the classes I’m taking for a CFP designation at UC Berkeley Extension — so, Bill, you’re getting the credit you deserve for your seminal research. Two things I remember from the article: 1) It assumes an equity allocation of 50% to 75% over 30-year retirement period, and 2) it analyzes historical returns dating back to the 1920s. Oh yeah, and Bill never claimed it was a “rule.”
            It’s a great topic to discuss in today’s low-interest rate environment, even if Sam’s extreme take caused a few heads to explode. Keep firing fastballs, both of you!

            1. Damn, I thought I was the Brad Pitt of the PF world?! OK, how about Keanu Reeves then? I’m good with that.

              Good luck with your CFP. Make sure challenge some assumptions and the instructors!

  82. Kevin Halkola

    Seems funny that with $8,000,000 and no return on his money at $40k/year he could only survive 200 years. Or 80 years on $100k/year.

  83. Well, I think I’ll join the military at this point. Can join at 18, retire at 38 and get 60k a year forever. Politics aside, maybe it’s the fastest way to FIRE.

    1. ProfitOverLife

      From the statistics I’ve seen, being in the military, at least enlisted if you haven’t gone to college, is the fastest way to become HOMELESS, mentally ill, addicted, unemployable, and impoverished. The fastest growing group of FOOD STAMP recipients during the Bush years and 2008 economic ditch was…VETERANS coming home from the Bush Wars–veterans on food stamps QUINTUPLED in number during those years.

  84. You’re right the 4% rule gets manipulated. It makes sense for a 30 year horizon with near zero expected terminal value, with a balanced portfolio.

    But for the 10 year rate rule you’re missing inflation from the picture.

    ‘Real’ rates (nominal rate less inflation) are low – about as low as they were in 2012-2013, and not nearly as low as they were during periods of the mid 1970s when inflation was high, but rates weren’t caught up while the Fed was being accommodative. Back in 1994 nominal rates were higher, but inflation was too.

    Most of the ‘golden’ 1950s had fairly low ‘real’ rates though closer to 1% than 0.

    For ‘perpetual’ withdrawal, that leaves all or most of the principal intact inflation adjusted after 40, 50 years, withdrawals in the 2-3% range have held up for just about every cycle the last 100 years or so – both periods of relatively high ‘real’ rates, and relatively low, as well as ‘expensive’ equity markets.

    2-3% is a big change for someone expecting 4%.

    1. Yep. And the biggest thing that affects safe withdrawal rates is sequence of returns risk. Getting clobbered the first several years of retirement can be hard to recover from. Lots of strategies that people have come up with to try and predict or mitigate that (CAPE ratio, more diversification, etc) but I dont think it has much to do with the current nominal 10 year rates.

      1. William P Bengen

        Actually, “sequence-of-inflation” is just about as important as “sequence-of-returns”. The high inflation of the 70’s turned a 5.25% withdrawal rate into 4.5%.

        1. How about we call it “sequence of real returns risk”. ;)

          For some reason, I’ve noticed that FS doesn’t like to talk about inflation or consider nominal vs real returns. When I’ve brought it up in comments in past articles he gets kind of huffy about it.

          1. Feel free to elaborate what you mean regarding sequence of real returns risk and how inflation affects the SWR. Examples are always great. It’s a safe space, so go on. If you can share something about how you are withdrawing/earning/spending in retirement, that would be great too. thanks

            1. ok… in a nutshell…

              Well, for one, typically SWR refers to picking an amount to start with and then indexing it for inflation each year. Another way of saying that is you’re trying to achieve a “real withdrawal rate” of x% based on the starting amount of your portoflio. Sequence of returns risk refers to the risk that you have a seqeunce of bad years at the beginning of your retirement. If that happens and you keep withdrawing that same inflation adjusted amount, your portfolio could get to the point where later positive returns aren’t enough to make up for it. The lower your withdrawal rate the more you lower this risk. Another way to lower the risk is with greater diversification. Now, in theory, a “bad year” could involve a seemingly positive nominal return but combined with high inflation. Hasn’t happened recently but did in the 70s. Anyway that’s what I meant by “Sequence of real returns”.

              So as long you’re not planning on just buying bonds and trying live off the interest, current interest rates matter less than sequence of returns. And if you are trying to purely live off bond interest you’ll also face inflation risk. So even that .5% bond return would likely result in negative real returns. For anything involving stocks, it’s the sequence of returns that is likely going to be the biggest predictor of whether your withdrawal rate is sustainable.

              I’m too lazy to come up with examples but there are tons of resources online if you google sequence of returns risk.

              WHen I decide to pull the trigger on retirement, I’ll likely choose a withdrawal rate under 3%. Achieving it will involve periodic selling of assets and rebalancing, not just living off dividends and interest.

              1. Sounds good. When do you plan to pull the trigger? Please let me know after you pull the trigger when are you actually do withdraw 3% or figure out some ways to make supplemental income and not touch your principal.

                Touching principle is an anathema for many retirees after decades of saving and investing. So as a result, a lot of retirees just end up doing some side work to make extra money.

                Touching principle is an anathema for many retirees after decades of saving and investing. So as a result, a lot of retirees just end up doing some side work to make extra money.

                Depending on the age of your retirement, maybe you’ll be different. Thanks

                1. Yep I can see how selling assets can be tough after years of savings. I actually remember talking to someone a while ago who had just retired and was talking about how hard it was to start withdrawing money.

                  One thing that I think will make it a little easier is that I’ve divided my portfolio into 5 asset classes which require periodic rebalancing. Rebalancing sometimes requires selling assets that have risen higher relative to others (did the recently with my large cap stock index fund).

                  One of those asset classes is cash (well short term treasuries to be precise). So its likely that for several years i’ll be drawing down the cash and then selling other assets periodically to rebalance. And the asset class I’m selling will be one that has liekly outperformed the others–meaning it will feel good to take some money off the table (just as in the recent stock market run up). All this to say that I think getting in the habit of rebalancing might make drawing down psychologically easier in retirement.

                  I’m not averse to working and making extra income in retirement but I dont want to base my plan around needing extra income.

  85. The premise of the article is wrong. The 4% rule was not derived from a risk-free yield on the 10yr Bond. It is based on average return of a diversified portfolio, assuring a good probability to outlive a portfolio over 25 years. Thus, the whole point of 0.5% is nonsense. When rates are this low the stock market multiples are justifiably higher, and you get your returns in growth, not yield. The key is a diversified portfolio. The rule was not intended for a risk-free “do not touch principle” approach. The current rate environment proves that this approach does not work.

    1. Correct. This is the Financial Samurai Safe Withdrawal Rule using the 10-year bond yield as a barometer. I believe the 10Y yield is one of the most important, if not most important financial figure that tells us much about the state of the economy, debt levels, risk levels, risk asset returns and so forth.

      Folks are free to follow the 4 percent rule created in 1998 by three professors who likely had tenure and a safe paycheck. I just wanted to create a new rule for 2020+ in a new economic environment and based on my experience being out of the workforce since 2012.

      1. The only people for whom a 0.5% withdrawal rate makes sense are those that will live for more than 200 years. Not sure we’ve seen one of them yet. for younger FIRE’s, you could probably make the case that you need 80x your desired income but not 200x.

        1. What about people who want to leave Wealth for a couple generations? Or those people who want to set up a trust to help charitable organizations and so forth? Not everybody just thinks about themselves. Some have children and people who depend on them.

          Some are lucky enough to also want to help people and organizations after they are gone because they were able to generate more wealth than they need.

          Different people have different goals. Let’s be more accepting of others.

          1. Who are these people that want to leave exactly their principal amount when they retire to charity? Are they going to hell if they only leave 50% of it? If you are truly that interested in donating as much as possible then just keep working until you’re physically not able to anymore, otherwise think of all the charities you are shortchanging with your slacker lifestyle!

      2. Thank you for a terrific and provocative post. Just two comments. First, a lower 10 year Treasury rate not only reflects the Fed’s massive QE, it also means there are plenty of investors willing to buy those bonds at very low yields. What does that say? One thing it says is that investors are afraid of risk. So to hold assets with risk, they require higher returns. So your premise that the risk premium is constant may be quite wrong. Second, as has been previously pointed out, your assumption of not using capital at all is rather extreme. It brings back the era of wealthy aristocrats living off only the rents from their lands. The future is always brighter, future generations will be undoutably better off, as we have enjoyed higher standards of living from our great grandparents.

        1. No problem. That means that the world is full of uncertainty. People are afraid to take excess risk, but that is exactly what people are doing given the opportunity cost to hold a risk-free asset is so low now.

          Plenty of investors are getting richer in stocks and real estate and Barnes right now. But if and when things turn again, a lot of people would rather learn no money in a savings account then lose 30% in the stock market.

      3. The 10y yield has never been much above inflation — certainly not 4% above inflation to ever imply a 4% safe withdrawal rule based on the 10y yield. In that I agree with those who say that using the 10y yield as a basis for whatever safe withdrawal rate rule is extremely conservative.

        That being said, sure, the risk free return is now severely distorted towards negative (after inflation) and consequently the entire reward/risk curve has been inevitably compressed. The risk free return of a 50/50 portfolio is now probably around 1.5-2% based on 10y CAPE ratios.

        That is why I’ve transitioned to the next best thing, an all stock portfolio (perpetual giving machine) with significant proportion invested internationally in high growth countries with low CAPE ratios which, I think, will still sustain a 3% capital preserving return long term. However, most people will continue to expect great US stock investment returns as we transition into a low growth European welfare state. I think they will be severely disappointed, but such predictions are by nature speculative. Let them decide for themselves.

        Another moral benefit of going international with your investments is: why reward voters in your country with the growth benefit of your investments when these voters are essentially the ones that caused the closing of the FIRE door through their treatment of the ballot box as an ATM? At some point, surrounded by such voters in your own country, even China starts looking not quite as unethical.

        1. Well that’s the thing. The 10 year bond yield should yield more than inflation, If the government is going to be able to raise debt from investors, domestic and foreign alike.

          So with the 10YBY at under 0.7%, inflation is likely to be even lower.

  86. This article is getting crushed on MarketWatch as it should. It is preposterous to expect folks to live off .5% of their investments.

    But I am unwilling to offer a solution and address the current state of the finance and the economy because that’s beyond me.

    1. Of course people are going to be upset when they have been planning on retiring at 40 on a portfolio of 60% us bonds and 40% us stocks and a withdrawal rate of 4%, and now they realize (they did not ask me in the last decade) that that is way too optimistic. Not only it is optimistic but retirement on investment returns (any returns as a matter of fact) is just impossible if the real safe withdrawal ratio is 0.5%. In other words, the only way to retire is by eroding capital.

      But that is essentially what voters voted for all these years when they viewed the ballot box as an ATM, a perpetual giving machine indeed, of government goodies and eternal debt.

      1. ProfitOverLife

        You’re exactly right, the average American can NO LONGER AFFORD to vote REPUBLICAN any more.

        With the 21st century global economic competition, plus China becoming a FIRST world country and America becoming an undereducated, addicted, fascist-oppressive, post-Democracy, post-arrogant empire emerging THIRD WORLD POOR COUNTRY, we can NO LONGER AFFORD to VOTE for the perpetual GIFTING of MIDDLE CLASS WEALTH to the RICHEST few percent; we can no longer afford the government MILITARY GOODIES, and the SOARING perpetual debt of REAGAN, BUSH and TRUMP, each of whom DOUBLED or TRIPLED the annual deficits within a few years, while Clinton and Obama CUT the REPUBLICAN deficits they INHERITED, despite being left with economies in SHAMBLES.

        As you are indicating, people ARE going to be UPSET when they realize that, making sure that the RICHEST few percent have MORE money, means everyone ELSE has LESS money. That’s how MONEY WORKS. And Since Reagan Republicans declared WAR on WORKERS in the early 80s, the Republican policies have been VERY effective in transferring HALF the middle class share of wealth, as a percentage of total wealth, to the RICHEST–middle class share went from 40 percent to 20 percent, and the middle class will be GONE by 2050, or probably SOONER now with the Trump Flu pandemic bankrupting families and companies, to add to the expenses for the DUMB BUSH WARS designed NEVER to be WON, plus a winner take all HEALTHCARE system, plus the coming SOARING cost of CLIMATE CHAOS.

        From Pearl Harbor to Sputnik to the Bush housing crash to the Trump Pandemic, Americans ALWAYS oversleep the crisis alarm, and people need to WAKE UP and realize the GOAL of Republicanism is for an END to the MIDDLE CLASS, the rise of a PERMANENT underclass of desperate, destitute, over-the-barrel CHEAP SLAVE LABOR, clinging to their POVERTY WAGE JOBS for the HEALTHCARE, unable to EVER RETIRE. All for the benefit of the FEW PERCENT. That’s the Republican GOAL. The Republican PLAN. That’s the SYSTEM. There’s a REASON Republicans call programs like Social Security ENTITLEMENTS–they believe the RICH are ENTITLED to all that money eventually! It’s why Republicans in Washington CELEBRATED with $700 champagne when they RAISED taxes on homeowners, teachers, sick people, disaster victims, and people who buy their own uniforms and tools for work, and TRIED to SOAR taxes on students, retirees and 401k savers, all in order to fund the tax CUTS for PRIVATE JET OWNERS. Heck, Republicans also ATTACKED Veteran’s healthcare, instituting a YEARS LONG BACKLOG of healthcare for that group, and now, this week, they are GOING AFTER THE POST OFFICE! Let’s have a years long backlog of MAIL, too!

        All this blogger is saying is, we’re ALMOST to the REPUBLICAN Die With Your Work Clothes On UTOPIA, which, when the END of most RETIREMENTS is combined with ABORTION BANS, will be GREAT for creating the OVERSUPPLY of LABOR and CRASHED wages that Republicans have DREAMED of since that SOCIALIST President, Roosevelt, BUILT the middle class less than 100 years ago from the ashes of THAT era’s REPUBLICAN TRADE WAR PRESIDENT! Republicans STILL worship the SLAVER’S FLAG and the HEROES of the SLAVER’S WAR, and THIS time, the SLAVES won’t just be BLACK people, and the slave OWNERS will NOT be paying ROOM AND BOARD for the slaves!

        1. Great insight into the voter thinking that got us where we are and where we are going. I’m actually an immigrant from Europe, know the story well, have seen this movie already. I have planned accordingly.

        2. Omg!!! Put the crack pipe down!!!

          I immigrated to this country as a child and my parents busted their asses to provide for us.

          They NEVER were on welfare or any government subsidies!

          Both worked in factories and put food on the table and a roof over our head.

          They retired with over a million dollars and have a paid off house and condo in Florida.

          I’m 50 and my wife and I have amassed over 2M with regular jobs!

          And you’re advocating for Democrats who will want to confiscate my wealth THAT I EARNED! That my parents EARNED!

          Why don’t you consider making as many voluntary contributions to the treasury Dept! Last time I checked they’re accepting donations!

          In the mean time keep your hands out of my pockets!

        3. I tend to avoid making political statements but I have to agree with this. As a lifelong capitalist (used to call this republican but now I’m just a capitalist) I believe in regulated market forces (emphasis on regulated since unregulated is no different from robbery) as the best way to drive progress but not when it devolves into fiscal stupidity. After 42 years I am no longer a registered republican. I want fiscal responsibility again.

  87. While this view is pretty depressing for those of us that have plans to retire significantly before the traditional retirement age, I appreciate the explanations and thought-provoking content here.

    It also should not be a surprising view since Sam has previously told us that “The Ideal Withdrawal Rate For Retirement Does Not Touch Principal”. The huge drop in interest rates over the last 2 decades also cannot just be ignored.

    I’m thinking with a more aggressive portfolio than the “risk free rate of return” and less actual retirement spending than people plan for, the SWR could be higher than 0.5% for most people, but it is important to not just assume 4% is great for everyone.

    I’ll definitely go back and look at my plans again with this in mind. I will add though that my spending during this pandemic has been really low. Maybe we don’t need as much as we thought?

  88. Sam–love the article and the argument is mathematically excellent. But it is emotionally demoralizing for the financially illiterate. Imagine learning that you need 25x your income to retire and thinking, “Wow, that is gonna be really hard!” Then along comes super low US Treasury rates and new analysis that says, “Opps, not 25x but now 200x!”

    OMG, most people would just give up…

    To that, prognosticating a withdrawal rate really is academic fairy dust–no way to fully predict the future of an economy based on past performance. I’ve found the most successful, least-stressed retirees make annual adjustments to their withdrawal rates based on what they think they will need in the next year or two. I’m still stunned how little we spend now that we’re retired. This Pandemic thing is saving us a tonne of money!

    1. I don’t think most people give up. I think most people rationally think things through and take action to find a solution based on what they want.

      This is America, were so much is possible given there is so much opportunity.

      I see the 0.5% rule as motivation, and a nice stretch goal for net worth. If I don’t get there, it’s not the end of the world. But I’ll be fun to figure out ways to try. Even if nobody gets to 200 times their annual expenses, and they take the time to understand the thesis of this post and to work on their net worth, they are going to build a much larger net worth that if they do not.

  89. Hahaha man Sam, as soon as I read the snippet in my email describing a 0.5% rate, I felt bad for you. I knew you were going to catch some SERIOUS heat on this post :) Then I immediately looked to see how many comments were there (over 100 just 2 days in to the post) and I knew people were losing it on you without even reading the comments. I’ve since read through the comments and my suspicions were confirmed – people are livid that you challenged a sacred cow of personal finance. All of that being said, my expertise in finance is certainly lower than yours, but for a while I’ve figured a 2% withdrawal rate is safe for early retirement. This post didn’t convince me that 0.5% is ideal but it did confirm my suspicions that 4% is overly generous. If anything I’m more convinced that 2% is probably safe for me personally. Additionally I also have faith that after retiring I could probably find another way to keep making some money. But anyway, nice job on creating a post that is controversial – this one is sure to go viral or semi-viral since it evokes such strong emotions from people. I’m not personally sure why people get so upset, if they don’t agree with it then just move on. Anyway thanks for continuing to pump out free content ;)

    1. And that’s great! If a 2% withdrawal rate is good for you, then that’s all that matters. You can adjust your withdrawal rate and make more money, accordingly if you need to.

  90. The 4% rule is outdated, but it’s still a good starting point. Most people will take years to get there. If you set the goal too high, people won’t even try. Accumulating 200x your annual spending is almost impossible for a regular worker. 25x is difficult, but most of us can do it.

    Also, I think the 4% rule is okay when you’re older. If you’re 65, then it probably will work just fine. There is a good chance you’ll die before you run out of money. It won’t work as well if you retire by 40. The future is too uncertain. You need to make some income and preserve your capital. So yes to working a bit after early retirement. That’s the way to go.

  91. Interesting take. My gut is telling me that the 0.5% withdrawal rule is ultra conservative; and impractical for 99.999% of the population. But I think there is merit to a 0.5% withdrawal rate for the likes of Jeff Bezos and the $10 billion+ net worth crowd ($50mm/year) though. Even a billionaire at 0.5% withdrawal of $5 million seems like a shortchange of lifestyle.

    I say use the low interest rate environment to your advantage. Inflation is low if Treasury is yielding nothing. That helps with reducing the total return needed. One can be more conservative with investments.

    Financing is cheap. Head into asset classes which utilize leverage such as real estate and PE Funds.

    At the end of the day, I believe the risk of significantly shortchanging one’s retirement lifestyle (ie. withdrawing too low of an amount to enjoy retirement each year) is worse than dipping into retirement principal.

  92. So what is the point in leaving money for your descendants? At a 0.5% withdrawal rate a capital that must be preserved without decreasing is essentially worthless in providing the living expenses of financial independence. So any capital left to descendants will be worthless to them… and it is essentially worthless to you as well since it cannot provide living expenses without being eroded away. And the option of amassing 30-40 million, even if possible, puts you way above the inheritance tax established by pitchfork rule. Not to mention that voters are poised to lower the estate tax exemption in the future, perhaps even immediate future.

    So the conclusion is (or will eventually be) that saving for financial independence’s worthless, and people will stop saving. I’m afraid that will become the inevitable conclusion at which point the order of things as we knew it will collapse.

    More generally,

    In capitalism there were two components to one’s reward for saving. The first component was a reward for delayed gratification without risk, that is the so called safe investment rate of return. Without such a reward why wait twenty years to buy a porche in a finite lifetime if after twenty years all you can buy is just one porche because there is no safe investment return? This reward for delayed gratification has been completely expunged by our economic masters.

    The second component of investment reward was reward for taking risk. That second component still exists, but as you point out, the risk/reward ratio has been blown out of proportion since our economic masters have set the rate of return well below inflation. This has driven stock prices to CAPE ratios of 30 which does not bode well for future returns. Essentially a CAPE ratio of 30 implies a 3% long term (real) return. A sustained CAPE ratio of 30 would require unfettered capitalism to yield any returns in the best of cases. Yet that does not seem like the direction the country is headed. An institutionalized slow growth European welfare state seems the more likely outcome. Think also reruns in Japan for the last thirty years.

    So what is happening in the big scheme of things? Essentially our economic masters have completely expunged the reward for delayed gratification and only left a highly inflated risk/reward curve… so that they can feed the massive debt created by voters who see the ballot box as an ATM. Seems like the US (unlike most of the rest of the world) had been spared this pitchfork rule fate and achieved great prosperity. It does not look like this trajectory will be sustained. Looks like these times are over.

    So what does this all mean?

    It means act accordingly and stay mobile. Keep your capital mobile and you yourself stay mobile. Counting on the fact that the US will continue to be the most prosperous country in the world under a European voter mindset is, I think, suicidal. There are very few financially independent people in Europe (most are old money not self made anyway) and that is no coincidence.

    You have been forewarned…

    1. The most consistent feedback I’ve received from high net worth individuals is to build up enough wealth to leave a perpetual giving machine. Some would call this being able to leave a legacy. Others would say to build up enough wealth to help those issues one cares most about.

      Dying with little to nothing is fine. But so is trying to help as much as possible.

      1. How can a machine that yields a paltry near zero 0.5% return ever be a perpetual giving machine to anything? The moment it is tapped to “give”, whether by descendants or charity, its capital starts eroding and thus cannot be, by definition, perpetually giving.

        BTW, I use the 3% rule and have a nearly 100% stock portfolio. Since the capital is intended to perpetually pass on from generation to generation, it is invested according to the time horizon of my children and yet unborn grandchildren and beyond, not according to the simplistic boiler plate advice to be conservative as you reach retirement. That boiler plate advice is for those who plan to more or less deplete their savings by death, or at least significantly erode their capital as opposed to sticking with the safe withdrawal ratio.

        My 3% safe withdrawal rule comes from the inverse of the CAPE ratio, 1/30 ~ 3%. I also invest heavily in international markets (no not Europe, there are no prospects for long term growth there) with lower CAPE ratios to add some long term safety margin to my portfolio’s return, admittedly at the expense of shorter term volatility, but who cares about that if you are building a perpetual giving machine indeed.

        1. The bottom line is why invest into anything if the return is 0% or a paltry near zero 0.5%? Just keep the money in a safe deposit box, or better yet, park it in gold so that you are at least protected against any inflation surprises. All investment essentially stops, so does economic growth, indeed Japan for the last three decades.

  93. I think I don’t need to go into the 4% vs 0.5% as many people have hit many nails on that head. I personally think that even if it is 3% (inflation, lack of returns in a 50/50 stock/bonds mix, etc.) then that is much better than the 0.5%.

    I will comment that I wonder how the Trinity study holds up vs the Japanese economy. They have been in an inflation/bond yield stand still for over a decade. How does that work out for them?

    At the end, I think if you own your home, limit your expenses, and have an adequate amount of money you should be in good shape to do what you want in retirement. I plan on SS being a bonus, not a requirement, and go on from there.

  94. Bonds are paying a negative real return these days. Subsequently the 4% rule and the 60/40 stock/bond allocation no longer work for retirees. Need stocks for growth, but the new bonds are “alternative” investments, namely single family rentals. I’m not sure why investment real estate is considered alternative, but I digress. More effort, but get you your supplemental income and higher yield to pay for your lifestyle. Swings the 4% rule back in your favor.

    1. Unlike Sam’s assumptions, the 4% rule allows for complete depletion of the portfolio.

      It is not reliant on current bond yield.

      The closest it comes to failing historically is for those retiring just prior to years of high inflation…e.g. late-1960s retirees.

      So early retirees still must keep a significant portion (~30%) of their portfolio in equities to allow their portfolio to survive higher future inflation they’re likely to experience based on history.

  95. Wow. This is an incredibly depressing post to read.

    With a SWR of 0.5% I really don’t think anyone could retire early unless you win the lottery, have a large inheritance, or get a lucky break in business.

    I thought I was being conservative shooting for a 3.33% SWR to retire early at age 53 (I’m 49 now). It is highly improbable I would get into the decamilliomaire club by then which I would require if I use the 0.5% rule.

  96. Albert W Lietz

    No one could ever retire at the .05 rule.
    So why read your web page anymore. We just work till we die. Thank you professor

    1. That might be the point. To pay for the massive stimulus, the Fed and the a central government want more Americans to work longer in order to pay more taxes.

      Pay now or pay later.

    2. ProfitOverLife

      Of course most people are supposed to work until they die! Providing as much PRODUCTIVITY, for as LITTLE PAY, as possible!

      There’s a WORD for this economic system! It’s called CAPITALISM!

      And the extreme version of it, where NOBODY gets any kind of pension, old age benefits, disability protection, or ONE BIT of HEALTHCARE unless you are WORKING, and MOST people don’t get healthcare even WHILE working, also has a name.

      It’s called REPUBLICANISM.

      If we don’t make MOST of the country POOR, how do the RICH get RICHER???? Isn’t that tradeoff how MONEY WORKS? One person gets MORE, someone ELSE has LESS?

      Why do you think the middle class has LOST HALF its share of total wealth since the Reagan Revolution of the early 80s?? It’s IN THE PLAN! EVERY Republican policy is DESIGNED to create a desperate, destitute, undereducated, over the barrel SLAVE LABOR WORKFORCE that can NEVER retire! Even banning ABORTION is DESIGNED to vastly OVERSUPPLY the unskilled laborforce!

      We are moving out of the era where college and vacation homes are only for the RICH, and passing through the era where decent HOUSING and HEALTHCARE and RETIREMENT are only for the RICH–soon we will be in the era where decent CAR OWNERSHIP and a nutritious DIET are ONLY FOR THE RICH.

      All part of the REPUBLICAN/CAPITALIST PLAN!!!

  97. I find this post a bit elitist as it is well know that most of us won’t be able to achieve such a level of assets in order to have a SWR = .5%. I would rather Sam had provided some specific, more realistic scenarios that can help us make the tradeoffs necessary. I recommend Big ERNs safe withdrawal rate series – it is a 39 part series that provide a lot of details.

    1. Not sure if a decline in interest rates and returns cares. Also not sure posting 39 posts about safe withdrawals is working if few read it. Can you say snooze fest?

      The reality is that generating income in retirement is more difficult now. But it’s up to you to adapt or not.

  98. My parents were dead by the time I was 21 and for me getting to a net worth of $220K+ in my 30’s is pretty impressive. I highly recommend making passive income a priorty and developing skills that are relavent to avoid the withdrawal rule.

  99. This withdrawal rate to me makes for a really shitty retirement. Say I have $10 million saved up by the time I hit 68 years old. At .05% withdrawal rate that’s $50k per year to live off of plus SS? If I lived another 25 years at a 4% withdrawal rate, that’s $400k per year til I’m 93. Unless I’m buying dumb stuff like a fleet of Rolls Royces and Ferraris, or even worse a yacht, I could never see myself spending $400k annually in retirement. Probably more like $150k if that.

    I’d much rather enjoy my retirement helping my Son buy his first home, spoiling my grandkids if I’m lucky, and traveling the world. I’ve know too many friends, and a few family members waiting around their whole lives for someone else to make them rich (inheritance). I would consider myself a failure as a Father if my Son were like that.

    Why spend your working years being overly frugal only to continue doing so in retirement? Enjoy the fruits of your labor!

    1. What a dream to be able to have grandkids to spoil. I agree! If we are lucky enough to build a 8-figure net worth, we should do more to spend it. (see last portion of the article).

      The next question is, how much money should we leave our children? A topic of a new post!

      1. That’s a great topic to cover. The best thing my Father ever did for me besides paying my college tuition was to put his foot down with my Mom and throw me to the wolves to survive on my own 500 miles from home at an out of state university.

        I’ll never forget this line when I was listening in on my parents conversation about living expenses while I was getting ready to leave for college…”I want him living like a beggar and a pauper!”. Tuition and some help with rent and that was it. I had to pay for my meals, utilities, car, gas, maintenance, entertainment, insurance, etc.

        First thing I did when I got to college was land a part-time job. I made $430/mo after taxes (circa 1995). I was so poor I had to bring a calculator to the grocery store to make sure I didn’t exceed $33 a week for groceries. I squeezed every drop of fuel for gas and even rolled into the gas station once to have my car die right at the pump because it ran out of gas, lol. I lived off of oatmeal, canned tuna, frozen vegetables, beans, rice and various other staples. For a treat I bought a box of Lucky Charms every now and then.

        If I wanted to go on spring break me and a couple other buddies would carry up sheet rock and lumber at construction sites for a couple hundred bucks to cover our beer money and street tacos for a week in Mexico. Summers were spent back at home working full time to save for rent the following school year.

        Once I graduated I vowed never to be in that kind of dire financial position again. 20 years later that has never happened and I own a business that has me in the 1% of income earners. By forcing me to survive, it taught me how to survive. My Dad provided me the tool (college) but left it to me to decide how to use it.

        Best thing he ever did for me

    2. james murray

      This was the stupidest article I have ever read. To believe getting a 0.5 return on your savings is the safest way to go is ridiculous. How about spreading your investments in vehicles such as annuities from quality insurance companies paying guaranteed 4% for life, or high quality short term bonds paying 3% , or investing in high quality companies such as Verizon paying 4.5% .

      1. I’m glad to win that honor!

        0.5% takes into consideration returns for all risk assets, including negative returns.

        I wonder if the past 11 years has created a generation of investors who only believe risk assets go up.

    3. Yep. A friends brother (no kids) was very frugal. The brother is not healthy and his money will go to his nephew who was educated by his parents to take handouts. Once he gets a hold of that money what do you think he will do? Invest? pfft nope. The brother should have enjoyed life even just a little, instead his nephew will until it’s all spent and not a thing learned.

      1. Personally I see any significant effort towards investment worthwhile only if you have kids — and you can pass that wealth over to them. Otherwise 1-2M is enough, just accumulate it over your working years and then deplete it over a 30 year retirement.

  100. The 4% rule is just sort of a target to shoot for. I think it’s rare for anyone who actually “retired” in his 30s or 40s to just sit back and relax. For me the 4% rule means I can take a step back, maybe relax a bit and then work on things I really want to. I never saw it as a be all end all to retiring unless you are in your 70s.

    Targeting a 0.5% SWR would mean I need to continue working my high paying corporate job for a very long time. No thank you :)

  101. walter onyebuchi

    Your essay was not targeted to those regular guys who earns around $35,000 and upward of $130,000 with 4 kids. There’s just no way anybody can earn as much as your projections and survives on 0.5% withdrawal rate. By retirement average person in America has saved less than $100,000 in there 401k/IRA savings. Your article is profoundly disingenuous and if anything would encourage suicide to those you’ve implicitly told that they are the scrums of the society for not being able to save $300,000 in their retirement account. You should withdraw this article if possible and dump it in the dust bin.I have every reason to believe that you’re a Trumpzombie who does not exist real world. Your next essay should tow a more practical approach to practical matters.

    1. If you’re struggling to continue life, please find someone who loves you to talk to you. It’s not worth committing suicide because it’s harder to generate income in retirement now.

  102. I think it’s important to remember that SWR does not equal PWR (perpetual withdrawal rate). The Trinity study was just focused on achieving a high probability that your wealth would last 30 years. And “success” meant that in year 30 you might only have enough left for one more year– not that the principal is still intact. And even then it failed 5% of the time in historical simulations. Any “safe withdrawal rate” always assumes that you will have to sell some assets each year in addition to any interest/dividends in order to achieve the target.

    The early retirement community (*cough* money moustache) has co-opted that study and basically claimed that you can retire at any age as long as you’ve amassed 25x your expenses. Wasn’t necessarily true back then and its still not true now. There are a lot of ways to argue against 4% as a long term withdrawal rate and I think you’ve chosen a method that is very easy to understand without monte carlo simulations, CAPE ratios, etc.

    With your acknowledgment toward the end of the article that with 20 years to live you can basically divide up your principal by 20 and spend that amount each year, Im guessing this article is primarily targeted at those who are hoping to live for 50+ years on 4% (+ inflation adjustmnets) of their current nest egg. Similarly, your point amount early retirees being more likely and able to supplement their income by working was just as true then as now. It’s just that “early retirmenet” had not yet become a thing except in rare cases of windfall wealth.

    1. MMM was smart to speak to the lowest common denominator and just focus on saving and budgeting. It attracts more people and is easier.

      While he claims he only spends $25K a year, he makes $500K+ from his site and secretly spends much much more.

      Like other men who grow in fame and wealth, he then divorces his wife who has been there since the beginning and causes psychological trauma to their child.

      I like how Sam has clearly stated to focus on making more money and that he has not touched his retirement principal since retirement due to his active online income and strong growth in the stock market and real estate market.

      Keeping it real is the way to go. Not creating some type of homogenous cult for money and fame.

      1. Rachel,

        How can you possibly know these things about MMM? I’m not doubting you (especially the part creating a whitebread cult), but how do you know? My understanding was that his wife left him for whatever reason.

        1. MMM is good for white men living in MAGA country. It’s totally fine, but it’s a very homogenous environment. Always be afraid of cults.

          I worked at one of his advertisers and we paid him more than $10,000 a month alone. He has many advertisers. We also know he spends way more than his claimed spend.

          Divorce is common, but for a guru who constantly brags about living a good life, he is a failure for divorcing his wife and creating emotional stress in his son.

          But at least he is a white male, and by definition, has the most number of people in the U.S. population he can appeal to.

      2. All true. I guess it’s a truism that the simpler you can make something seem (in this case early retirement) while at the same time promising that its panacea (your life will be better in every way), the more likely it will grow into a cult. MMM was certainly brilliant in that regard.

      3. Seems spot on Rachel. I don’t know why people don’t seem to grasp that most of the FIRE folks are successful bloggers I.E. they never retired early. It’s a cult of personality. Although I disagree with this article the samurai does a great job keeping it real and showing people that it really does take a good chunk of money to make something work. The samurai has had articles before showing that most well to do have business equity or real estate, with paper investments being a smaller piece of the pie. So keep the money there.

    2. Yes, good point. I should probably emphasize in the post the focus on leaving an inheritance, setting up a foundation to help others, or leaving money to charities.

      I like the idea of creating a perpetual giving machine once I’m gone.

      1. maynardGkeynes

        Yes, you should have. If you mentioned it at all, I missed it. At the very least, a person of age 70 with let’s say $1M, could buy a thirty years TIPS and divide by 40 to play safe, and get $20-25K in real dollars per year. Back of envelope, that plus Social Security might be $40-50K pre-tax. Not great, but better than .5%

  103. Awww….I thought I was being so conservative in retirement! I withdraw 2.5% of my portfolio every year (stocks/bonds/reits). According to your article, this may mean that my heirs and charities will get nothing when I kick cuz there’s no way I can live off of 0.5% in the Bay Area or go back to work! It’s a thought-provoking concept you put forth, though. I think it’s too aggressive for most people even if you want to pass along some of your wealth.

  104. The negative real return in bond yields is one it the big reasons we’re seeing investors piling into stocks indiscriminately. If you hold a diversified pile of inflation safe dividend stocks (utilities, banks, consumer staples, defense, industrial, and Sin stocks, etc) you gotta think this will give you a better return and a safer protection of principal over time than bonds especially considering the coming inflation / devaluation wave.

    1. Indeed. Investors are “forced” to seek yield and pile into more risk assets. This may or may not end badly. But this is an uncomfortable position to be in if you’ve been solely relying on your retirement income to survive.

      This is why everybody I know who retired from traditional work is also generating some sort of supplemental income in retirement. Some generate more than others.

  105. I’m missing something with this article. I thought the Trinity used a Stock & bond mix. This article goes 100% bonds. The Trinity study was only 35% successful at 100% bonds. You need a more diversified portfolio of asset types such as stocks, real estate and metals to increase your SWR.

    1. I’m using bonds as an example. 0.5 percent takes into account the potential returns of stocks as well. Everything is intertwined. Equity risk premiums expand and contract. The risk-free rate of return is the most important figure to track to make appropriate bets on all other asset classes. Th risk-free rate tells a complicated picture.

  106. I call foul. Even if you earned zero interest you could pull 0.5% out for two hundred years before you hit zero. That doesn’t count inflation but high inflation won’t happen at low interest rates. The 4% rule is only supposed to insure you don’t go below zero for 30 years. You can pull 3% for 33 years as long as risk return stays on par with inflation. .5% is purely imaginary. That’s higher than my actual withdrawal rate but no need to scare everybody else.

    1. Actually, it’s more like 3.5% (increased by inflation annually) for years in retirement = 50!

      The problem with Sam’s analysis is that he doesn’t understand the need for equities (minimum ~30%) to compensate for future inflation, which you can bet will be significantly higher than the lows we’ve seen recently.

      1. When you say I don’t understand the need for equities, what do you mean?

        The 0.5 Percent rule takes into consideration a boring 60/40 or 50/50 stock/bond portfolio. All returns are intertwined.

        Stocks do go down too you know. There was no money made in the NASDAQ or S&P 500 from 2000 to about 2011.

  107. Sam,
    I have two critiques for you; 1) the first will be on the problems I see with what you proposed and 2) the second is on the quality of the post and the standards your station (as a leading blogger in finance) requires of you.

    1) I will start out by saying I am no expert. Much of what I have come to know about withdrawal rates and sequence of return risks has come from podcasts, financial blogs like yours and Early Retirement Now (who has a whole series on safe withdrawal rates [39 posts to be exact]), and forums across the web. This is a complex topic, and many of us look to “appeal to authority” on what kind of safe withdrawal rate (SWR) or perpetual withdrawal rate (PWR) we should be using, especially since it often is the answer to the ultimate question of “when can I retire?”.

    Now, because of this familiarity, I am somewhere in the middle of the Dunning-Kruger curve. I place you, with your familiarity with finances, on the right side of the curve for most things finance. Now, what set off all the alarm bells, was that what you posted today appears to be on the left side of the Dunning-Kruger curve. You failed to acknowledge so many problems with what you were proposing that it shook my confidence in your credibility (see point 2)).

    Here is a list of the obvious things a non-expert can pick out as problems with what you proposed.
    A. Yield rates on bonds are constantly changing, how is one supposed to plan their retirement on a number that changes yearly? If someone retires with bond yields today and a 0.5% SWR and then interest rates go to 0, are they supposed to join the work force again? What about negative bond yields, how do they adjust? What about the people who retired in ‘98 when the yields were 5%? This method doesn’t seem like a reliable one if the target is constantly moving.
    B. Why do you ONLY consider bond yields in determining how much one needs to retire? It’s usually a minority of ones portfolio. Some people might not even have any bonds in their portfolio (PMs ultimate buy and hold portfolio). When has anyone been able to predict the future success rate of someone’s retirement portfolio based solely on the bond yield? Sure if you say the SWR is low enough your chance of success is going to reach 100%. But that’s not helpful to anyone and doesn’t provide any REAL SWR, just an impossibly conservative one.
    C. You don’t address the real way the trinity study came to 4%. You reference the 4% in relation to bond yield at the time (5%) and seem to make that 80% less than bond yield jump to present day, but do you really think that is sound enough advice to give out to people. On face value it doesn’t even seem reasonable to conclude that as a number people should shoot for.
    D. Why is your method any better than a Monte Carlo simulation? One may argue the MC uses historical data, but your method is just as dependent on time as it is changing yearly (if not more frequently), never really giving you a definitive answer. At best you will have confidence for 10 years in that bond rate, then everything is up to future bond rates (in the same way MC eventually has to rely on future returns which are unknown).
    E. Why do you not address returns on equities which play a significant part (usually more than bonds) in peoples retirement portfolios. You mentioned in a comment that bonds are intertwined with stocks and dividends, but are you really suggesting that a TSM index of SP500 index is really going to average 0.5%? Truly you cant be suggesting that for the duration of someone’s retirement.
    F. Despite bond yields going down, many stocks have been increasing their dividend payout. Some have been doing it for more than 25 years. Their dividends are much larger than the bond yield in the 2% range. Even the S&P500 has a dividend yield. How do you account for this? Do you propose dividends will go away?
    G. If your guiding rule is 200x your living expenses then no one will ever be able to retire as even if you are saving 50% of you paycheck you would have to save for 200 years before you could have a nest egg capable of sustaining your SWR.

    2) This brings me to the second critique I have. Hopefully you foresaw these red flags in what you were proposing and have good responses. If you have responses, I look forward to detailed explanations to restore my confidence in your reasoning (and also why didn’t you articulate or use this in your original post).

    If you have not, then maybe it would be worth considering taking down the post so you don’t harm anyone with advice that was not thoroughly considered. The harm caused can be real with a post like this. Even if it is merely anxiety to those who were looking fondly at retiring who now feel uneasy about it, or worse it could be people continue working unnecessarily rather than spending time with their family or loved ones if they were already at a SWR portfolio.

    Your posts have real consequences to how people act, and because of this you have a responsibility to make sure you have thoroughly vetted something like this before laying it out as a guide for people to use in their future. To be frank, I have doubts about your ability to justify this rule when you take into account the complexities of what we are discussing and the way in which you came to your conclusion. While it is nice to package information in small digestible pieces for people, it is also important to address the complexities or obvious pitfalls you left out.

    It is for this reason that it brings into question your motives for writing a piece like this. While technically not “clickbait”, it does appear suspect given the radical recommendation and lack of thorough justification. You really just picked a fudge-factor and applied it to the 10 year bond rate. You didn’t test it out historically. It honestly feels like a troll post, or a post designed for some secondary gain. Maybe the revenue from your site is dependent on articles being seen/shared and your motivations have moved away from helping people to focusing more on creating controversial posts to increase traffic. I do not know the real answer, but my confidence is diminished.

    If this post is truly there to help people along their financial journey, I look forward to your explanations.

    1. You’ve got to do what’s right for yourself. Read different perspectives, think things through, and make a decision. Take responsibility.

      You told me in an email that you’re still working and striving for financial independence. Enjoy the journey. Maybe you will have a different perspective once you get there.

      I’m just sharing my perspective after more than 8 years of not having a paycheck. I thought differently about retirement and financial independence while I was working.

      1. I love that everyone hates your article, this tells me everyone is conditioned to assume the markets for bonds and stocks always go up.

        In the USA we have been blessed with our equity and bond markets with their continual march higher every year since 2010. What happens if the next 30 years are like Japan? Where no one makes money on equities, bonds, and cash. It’s not outside of the realm of probabilities with us hitting the zero bound on rates. People that understand finance are worried we are in a bubble. Look at Buffet increasing his cash position, Ray Dallio is increasing his gold positions, Howard Marks is saying the FED saved us but he wouldn’t buy at these prices, and Stan Drunkmiller doesn’t even know what is happening right now. We are truly in the euphoria stage of the market. The problem is the tulip bulbs can increase in value for a long time before the party ends.

        My take away from your article is that over the next decade investors who want to achieve financial independence are going to have to save more and hustle more to accumulate wealth. Stock index returns won’t take us there like they have the last decade. Thank you for the article and thinking outside the box.

        1. You’re welcome. What brought us here may not get us there in the future.

          It’s so easy to think that the good times can last forever after 11 years of bull markets.

          We even had a violent 32% correction in March 2020 and people forget. It it wasn’t for artificial support, we’d be much lower.

          I’m not sure why there is so much anger at me for encouraging people to be more prudent on their journey. Perhaps it’s better to be more cheerleading and tell everyone what they’re doing is great, regardless of what happens.

      2. Rudra Narayan


        I’ve enjoyed your blog for years, learned from it, have reset my retirement goals and am better off for it. So a sincere thank you for the free “thought provoking” content. What distinguishes your articles from a number of PF blogs are the personal examples and authenticity.

        To keep things authentic, you might consider getting rid of the constant “more than ‘x’ years of not having a paycheck”. While technically correct, since you chose to quit your job and don’t get a check from an employer, for all practical purposes you’ve chosen a new career and operate one of the largest independently run personal financial sites which I’m guessing is a legally registered entity. Neither your income through this platform or the time you invest in it is trivial and the income has become something you depend on. If this is not the case, please confirm that the purpose of this blog is for pleasure making it a hobby v/s generating an income. The way your retirement story is seen might change with this simple clarification. It’ll also probably show that you are living off income and not SWRs. This will also provide a better context to avid readers like me when you choose to challenge truly retired people on their SWRs while providing yourself as an example.

        On a side note, it was nice to see Prof. Bengen describe what he is doing now as a new career, which was a honest description since it was for profit.

        1. Hi Rudra,

          Fair point. I did mention in this post that when I retired in 2012, I had a goal of following a 0% withdrawal rule because I wanted to give my investments the most room to run. At the time, it did feel like things were getting better in the economy.

          To follow a 0% withdrawal rate, which I have done since 2012, I needed to live off my ~$80,000 in passive income and severance package. Further, I had to find ways to build more supplemental retirement income to then boost more passive income.

          These are all key points in this post. I’m not aware of anybody who retired early who follows a 4% withdrawal rate and who doesn’t make supplemental retirement income.

          Real life is very different from models of people who are still working. The decades you spend building up your capital becomes sacred. And yes, Bengen is still making a lot of supplemental retirement income, which supports an even higher safe withdrawal rate if he wants.

          It is nice to know there is a more calm review about a 0.5% withdrawal rate now that the markets are selling off again. I hope people can stay humble when they approach their investments. I’ve also updated the post with an updated government spending chart. It’s very eye-opening.


          1. Rudra Narayan

            Thanks for responding, Sam. However, you sidestepped the main issue; the recommendation being made in this article for safe withdrawal rates is for retired people (FIRE or others) and in case of people at or close to SSA retirement ages, the recommendations are puzzling. Since you provide your own example, let’s look at it. In your case, per your income update on this blog, in addition to passive income (your definition), your income sources include consulting, freelancing, asset sales (stocks, bonds, real estate, baseball cards etc), and business income. You’ve even referred to some income as a contracting salary. Your taxes include business deductions for your expenses since you are a business owner. So whether you are gainfully employed or part-time employed, your situation is more of that of a freelancer/entrepreneur and does not equate to a traditionally retired person. You however choose to cite your own example and justify a 0.5 SWR which could be seen as disingenuous especially because you attempt to project that on traditionally retired individuals who mainly have passive income and are probably counting on or already drawing SS. You definitely have the FI part nailed down and hats off to you for that.

            Your point on retired people being very hesitant to touch their principal is absolutely correct with a certain context. Retired people don’t want their means to run out during their lifetimes. However, like life insurance amounts that are adjusted as we age, retirement principal balances are also looked at differently. You might want to re-read your article from last year where you write that the fear of running out of money in retirement is overblown, and contrast that with 200x saved for retirement. You also had a different view of leaving a legacy v/s enjoying retirement. These articles gave people hope and helped set higher goals. With your more recent posts, I guess your thoughts and goals have evolved.

            1. For sure. There’s always gonna be hope and solutions to help on achieve financial freedom. We just have to adapt to the times.

              Tell us about your situation as that is much more interesting. What is your withdrawal rate? Or if you are not yet done with work, what is the net worth you’re shooting for? My hope is that more people share their experiences so we can all learn from them. Thanks

              1. Rudra Narayan

                While FIRE was something I wanted for myself a long time ago, turned out that it wasn’t an option for me once my child child was diagnosed with special needs (and associated insurance requirements). When I do retire (<20% active income), I am looking at a 2.5% ish draw rate, which might vary based on dependent medical necessities and prevailing economic conditions. Shortfalls if any will be made up from my pre-retirement accounts. Based on my longevity, and residual amounts, I fully expect to draw from my principal in my later years. I will continue to fund a SNT during my retirement years and when I pass on all my assets will go into it.

                1. Got it. Bless your child. I used to volunteer at a foster home and was about to start volunteering at a disability rehab center before Covid began.

                  When you retire, please revisit this post and let us know whether your withdrawal rate plans match your target.


  108. studentofthemarkets

    Great article! Question for you: in Germany, the 10 year bond yield is negative -0.42%. By your article, if I were German, my SWR would be negative -0.34%? So my implied net worth required to retire is NEGATIVE -$29mm (in debt)? And what about if rates are simply zero? then I need infinite money in order to retire and no one could ever retire? Surely there is something missing with the “80% of 10yr rates” rule of thumb…

    1. Yes. In negative rate scenarios, the rule doesn’t work as well. You Gotta make a decision whether it’s OK to lose money holding a German bond or investing in a different asset that will provide you a positive return. Then you’ve got to decide whether it’s best to spend your money now or lose money.

      I would invest elsewhere. Or invest in a different asset like real estate where the return should be positive.

  109. If you are at or near the point of retirement, one option is to purchase an annuity. Buy enough, that when combined with other retirement income (social security, pensions), you have enough coming in to cover your living expenses. Beyond that, invest in a diversified portfolio of stocks and bonds that will fund your lifestyle. No more worries about the SWR.

    1. The big risk of annuities is what happens if the insurance company fails. I guess you can get policies with more than one company…

        1. ProfitOverLife

          Except that all states don’t have bottomless pockets, and many states will be bankrupt too, just like the federal government, as the 21st century global economy (the China Century) unfolds and so does climate chaos.

          Pensions are going to blow up, and so will annuities if there is ever a medical miracle that purports to raise everyone’s life expectancy 20 to 50 years, like they sometimes predict.

          In the recent past, when pensions HAVE blown up, pensioners have found themselves with PENNIES on the dollar. Sometimes after months or YEARS of waiting and fighting too, I imagine.

  110. I’m with you on this one. I like your last point about hitting your target NW number then dividing by life expectancy to get a better feel for what you can really spend. This doesn’t quite take into account a well diversified strategy of owning income producing real estate and other passive income streams but overall it’s a good way to think about it.

    I’m on a reverse glide path, I figure stay conservative in your spend until you hit 60, then just let the spending loose, there’s significantly greater odds you’ll be dead by 75 than broke by 90.

    1. Cool. Only maybe one of two or three people Who’s see the the merit in the 0.5 percent rule.

      I like staying conservative until 630 and then spending whatever you want within reason.

      Or just spend a little more each year because each year you live is one year left you have to live. So the risk of running out of money declines bit by bit.

      Dying with too much is a travesty. But I also think that it would be a shame not to be able to leave money to people who need it the most for who you love the most. I want to create a perpetual giving machine long after I’m gone.

  111. For my the big question is: How did you archieve having a 300000$ in passive income working only 13 years in your life ? You should have a Portolio of several Millions $ to generate that passive income. I imagine you should had a gross salary back in you working days off 500000$ o more than 1 Million $ a year. Were you a CEO of big company or hedge fund manager in your workings days or something like that ?

    Great blog and ideas anyway, the only thing is your numbers seems massive based on only 13 years work period.

    Many Thanks

    1. Thanks for your question. It took me 13 years to get to ~$80,000 in 2012 of passive income. I worked in finance (equities/investment banking) See:

      That is when I decided it was time to leave work behind. But the catalyst was negotiating a severance that paid for 5-6 years of normal living expenses.

      In that time, the stock market and real estate market kept going higher. Then this site continued to grow. I’ve plowed back over 50% of all supplemental retirement income (online income, tennis teaching, Uber driving etc) into investments to try generate more passive income.

      The thing I want many people to realize is that if you retire on the younger side, you don’t end up doing nothing. Instead, you start doing things you REALLY LOVE TO DO. I love to write. There is no way someone could write this post and think about all these issues on a Friday night/Saturday early morning if they didn’t love to write, learn, and interact with others.

      Responding to comments takes lots of time too. I could do what most sites my size due and just ignore everyone b/c it’s easier, it’s mad up of multiple writers, and they don’t care. But I just like what I do. So for that, I’m grateful.

      The true gift of financial independence is having the choice to mainly do the things you want to do.


      Related: Your Wealth Is Mostly Due To Luck: Be Grateful!

      1. The average person negotiating a severance might get 2-3 weeks pay per year if you’re not senior management. You were able to get 5-6 times that. Good for you but no way you’re getting that in corporate America, absent some discrimination claim if you’re minority and have something to back it up. That would be a horrible and unaffordable precedent. You obviously worked for a boutique investment firm with huge margins and a small number of employees so they don’t care about precedent. Trust me as I’ve been responsible for negotiating severances for managers for years.

        1. Sure, happy to trust you. And I’m happy to share my experience as well. I was with my friend for 11 years and got three weeks of pay per year.

          But I got three years of all my deferred cash on star compensation paid out on a normal vesting schedule. And then I had and investment we were forced to make in 2010 during the financial crisis, pay off completely in 2017.

          All severance packages are different. However, if you’re going to quit your job anyway, you have no downside to trying to negotiate a severance.

  112. I don’t know if I follow your rule Sam. It sounds interesting but at the end of the day, one can modify one’s lifestyle in retirement to accommodate whatever passive income you are generating. Plus, in my opinion, it is perfectly fine to use part of the capital of your retirement assets. With your model, if I understand it correctly, you are living from the passive income only. Plus, the average American will not be able to save not even 5x their annual expense (of course Economy Chief and all your readers will save 30x+ that and we are far from being average Americans.) A $2M account can easily generate an average of $6% income from stocks, bonds and real estate. $120k before taxes. Then you throw social security in the mi, say another 30k a year. That is $150k/year. Furthermore, when you are old you become more conservative and spend less even if you have the means to live well. It’s human nature. Just my two cents. Thanks for another great post.

    The Economy Chief

  113. Interesting perspective on the negative side effects of the Fed printing money with reckless abandon. The alternative might have been far worse though. I guess it’s a matter for debate though. I personally was hoping for a massive drop in stocks, well over 50% so I could buy in like a vulture. The fed shirt circuited that which is what makes me the most angry.

    1. I think were many people don’t realize, or forget, is the Stocks another risk assets do go down or do go nowhere for years. Between 2000 and 2010, it was tough to make any money in stocks, especially in the NASDAQ.

      But when we’ve made money hand over fist over the past 10 years, we turn to start confusing brains with a bull market.

  114. it all depends on the lifestyle you have. 0.5% is too far-fetched. For you living in SF ,maybe but not in other parts of the country or even in other countries.

  115. I think you write outrageous stuff just to provoke a reaction.

    You can buy EE bonds. They currently pay 0.1% APY but there two major benefits.

    1) The Treasury guarantees you can redeem the bond for its face value after 20 years regardless of what the interest rates were during that 20 year period. Since you purchase the EE bond for 50% of the face value, it works out to approx. 3.45% APY guaranteed if you redeem at the 20 year mark.

    2) Interest from EE Bonds is exempt from state & local income taxes which makes the effective yield even higher depending on your residence.

  116. MacArthur ROTH IRA Wheeler

    I’d love to see Schwab, Vanguard or Fidelity explaining to a client with 2,000,000 in accounts that they only need another 10,000,000 to retire safely. Time to buy pork belly’s and Lotto tickets!

    At least inflation will be effectively 0. I would think paid for real estate would be the income producing asset people would exploit. Hard asset generating cash with tax breaks. That’s my plan.

    There is always an option.

    1. I know right? If there is is one type of institution that would love to adopt the 0.5% Rule, it’s the money managers! More, more, more! If only I was the CMO of a money management firm, I would be rich!

      I do like real estate as a hard asset and hedge against potential inflation. Rents are sticky on the way down.

      1. “If only I was the CMO of a money management firm, I would be rich!”

        Would be rich? You are already rich. According to this post, “When Sam retired from Corporate America in 2012, his estimated net worth was about $3,000,000…Given San Francisco real estate prices are up about 80% since 2012, and given the S&P 500 is up about 120% since the same period, Sam’s net worth has certainly increased since he retired as well.”

        As of 2017 (the latest year I can find data for), a net worth of >= $2,377,985.22 puts you into the 95th percentile. You are well above that. I suspect you are closer to the 99th percentile than the 95th percentile. How much more do you need to have to consider yourself wealthy?

  117. John Weeder

    .5% is ridiculous.

    I could bury cash in a hole in the ground and dig up an inflation adjusted amount each year and a 0.5% SWR would last 72 years at today’s inflation rate. A 2% SWR lasts 30 years. And this is CASH BURIED IN A HOLE!!!

    If I simply go in 100% bonds and all I _ever_ get is .7% on those bonds, then a .5% SWR lasts 86 years and a 2% SWR lasts 36 years and a 3% SWR lasts 26 years.

    And these are all basically zero risk strategies.

    I used a 2.5% inflation rate even though current is 1%. I mean if you’re gonna focus on this year’s bond yields, maybe we should use this year’s inflation rate too?

    I’ll go out on a limb here and say that – based on historical simulations – no 2% SWR would have failed at any point in the last 150 years of data. And there is really no reasonable scenario where even a 2% SWR would fail in the next 30 years.

    1. I agree. I think this is a bit of click bait. FS is correct in saying the 4% rule doesn’t apply today as well as it did back when it was published. I guess some people had not realized that yet. But 0.5% is ridiculous…

      But I get that everyone has to tailor FI to their situation and risk tolerance.

      1. I’m not sure if you understand what Clickbait is. Clickbait articles have very sensational titles, and then once you click on the article the article is very thin with not a lot of content or analysis or charts or details. This article has a boring and descriptive title, and is about 2800 words long with good charts and plenty of detail to come up with the analysis.

        But I do wonder whether if you think this is Clickbait, others might think this is Clickbait. If so, I might as well write truly Clickbait articles and see how they go.

        Let’s see what clickbait titles i could have used:

        Why The 4 Percent Rule Will Make You Go Bankrupt!

        The Government’s Secret Plans For Making You Work Forever To Pay For All The Stimulus

        Coming up with Clickbait titles actually could be a lot of fun. I can then test the results and also save a lot of time by not writing a lot of analysis. It could be good!

        1. Sam,

          Why not mix it up and have occasional clickbait titles? You could have Clickbait Wednesday, for example, so veteran readers would know what to expect, while attracting new readers. Whether the new readers stick around is another issue…

          For this article, I would’ve used “One Simple Rule to Keep the Government from Destroying your Retirement!”

    2. Hi John,

      Thanks for your feedback. I hope for two main things:

      1) For people to not blindly follow some rule, especially when it was created over 22 years ago in a different economic environment. When the 10 year bond yield is averaging 5%, seeing a safe withdrawal rate of 4% as easy as pie. Times have changed and I wanted to use one commenters angst against the federal reserve as some perspective.

      2) To find your own safe withdrawal rate. It is very easy to pontificate all day long with the safe withdrawal rate should be in retirement when someone is not retired and not going through the many emotions and intricacies of retirement. I’m sharing my perspective as someone who has been “retired” since 2012 and decided to generate supplemental retirement income instead of withdraw money so far.

      I’m not sure why there is not more recognition from some readers that times have changed. Let us not always assume that we’re going to make money hand over fist in the stock market either.

    3. I regret the tone I took in this post. While I feel .5% is overly conservative, please forgive my rather uncivil reply.

      1. No worries John. Civil discourse is great. I always say that we should write online the way we speak to someone face to face.

        I’m glad you no longer think my math is terrible.

  118. EightDigitFI

    Perhaps the historical “4% rule” is too high in today’s lower yield environment but I also believe your 0.5% is simply way too pessimist since you base your conclusion primarily on bond yields, which are terrible.

    There are other forms of ‘relatively’ safe investments which return much higher. The stock market (S&P500) has been yielding around 2% give or take for quite some time and most real estate investors won’t touch anything less than a 6% Cap. And, there are ways to participate in the real estate market without active management (like CrowdStreet).

    So, as a whole I believe the 4% rule could still work but 2.5% is probably safer. And, $10Mil is my definition of the new “Millionaire” = point at which one is able to live a life of relatively luxury and not having to worry about market fluctuations. You are not buying yachts and Lear jets at this level but you can have multiple houses, luxury vacations, sizable charitable, goals, etc. at this level. *Also an interesting but appropriate correlation is that a ‘Millionaire’ just after WWII, adjusted for inflation in today’s dollars equates right around $10Mil today.

    Having made the above point, it really depends on your desired lifestyle budget. Mine is a 250K/yr target which, at 2.5%, means a net estate value of at least $10Mil. Actual Data Point: I have been FIRED now for about three years and with a mix of 2/3 real estate holdings and 1/3 stock (no bonds). From this mix, I am actually generating closer to $400k/yr in income which I believe to be relatively safe as I am also not consuming any assets which are generating the cash…

    1. >>[A]n interesting but appropriate correlation is that a ‘Millionaire’ just after WWII, adjusted for inflation in today’s dollars equates right around $10Mil today.<<

      Better do your math again — $1,000,000 in 1945 is equal to about $14.5 million today.

      1. EightDigitFI

        Thanx Zen Master,

        Point is noted. Honestly, I did do that calc at some point in the past but way off. Regardless, don’t see how your comment effects the key points of my post. If fact, a higher number only reinforces my points.

        Folks claiming that the “new Millionaire” is 3 or 4mil target are way under-estimating the asset base needed to live a life of “relative luxury” and without worry of market trends. –> Most targeted budgets for ‘luxury retirement’ require far in excess of 3-4Mil in assets.

        Also that FS’s proposed SWR of 0.5% is way too conservative given most asset classes and their long term return rates… –> Given a reasonable asset allocation that most high net worth individuals would have, returns would be notably higher than 1% and a SWR would be much larger than 0.5% (I would be super pissed and super motivated to do better if I got anywhere close to 5% or lower long term). Meaning something in the 2-2.5% is plenty conservative.

        1. The higher number does, indeed, reinforce your point–if your point is to show that “multi-millionaire status” today is not the same as it was in 1945. Of course, in 1945 there were less than 15,000 millionaires in the United States (0.0001% of the population), whereas today the United States is home to almost 19 million millionaires (6% of the population). So it’s safe to say the status of the word “millionaire” has changed.

          That said, “millionaire” still meant “rich,” at least through the 70s, when there were fewer than 250,000 millionaires in the United States. It changed in the 80s and beyond when inflation exploded and the number of millionaires skyrocketed.

          All that said, my personal view is that even $15 million is *still* not the same today as it must have been in 1945. Consider the very-high-net-worth (VHNW) population. VHNW is defined as people between $5 and $30 million in net worth. There are currently roughly 1 million of them in the United States (0.003% of the population), so they’re actually more prevalent now than millionaires in 1945.

          Now, to be clear, I have $15 million (more, actually). But it’s weird, I don’t feel like I’m in the 1%, let alone the 0.003%. I fly commercial (coach), I buy second-hand- clothes, drive a ’15 vehicle with 60K miles on it, and am constantly battling with my children not to turn down the air conditioning below 78 degrees. There’s no way in hell I’d charter private airplanes and there’s no way I’d pay for private schools. We live in a nice house, but it’s not terribly fancy or new and it’s not nearly the most expensive house in the neighborhood (admittedly, it’s a wealthy neighborhood).

          Our family (of 6) lives off of $280K per year, and with that we do a lot of traveling (at least, we did), but we’re not eating at fancy restaurants (besides special occasions) or living a life that one would imagine if they were privileged enough to be in the 1% (or more rarified) class. We watch our expenses and there’s no real “luxury” compared to what we normally expect from “rich people.” We have friends with very modest means and we live life somewhat similar to them (our house is bigger and we buy lots of booze for our friends, but you know what I mean).

          Anyway, I’m rambling. I also agree that Sam’s 0.5% is both proactive (in a good way) and not realistic. But, I’ll also suggest that amassing $15 million or more (in today’s dollars) will not make you feel as wealthy as you might think, and that’s okay too. I don’t think people have to kill themselves stretching for a brass (or gold) ring to have a happy retirement or what-have-you. I think it can be done with far less (I actually know it can), and you can still live very, very comfortably. And I think that’s what is most comforting to me–knowing that I have more than enough to live comfortably (as opposed to feeling the need to live a life of luxury). My 2 cents, anyway.

          1. If you have more than $15 million net worth you are in the 1% (10 million +) and you should be to afford private school if you think it makes sense and even fly business class. $280k a year is a high level of spending. So, what are you spending it on?

            1. Moom –

              It’s not about what I can afford, it’s about what I’d feel comfortable spending money on and/or the value of the expense. In terms of both business class and private schools, I don’t feel comfortable spending several times coach or public school for the relative value of the experience or education.

              As for what we spend out money on, it’s mostly our four children (~$60K annually) and home upkeep (~$60K annually, our house is not fancy, but it’s large and costs a lot of money to keep–and it’s paid off, so none of this is mortgage). The next expense is travel/vacations (~$50K) and food (~$40K). The rest is clothing, automotive, property taxes, professional fees,, etc. It adds up!

              Pro Tip: Children are expensive AF.