What Would They Tell You?, Is the 4% Rule Too Risky? plus Community Wins | FI Weekly

What Would the Audience Tell You To Do?

I love thought experiments that help you critically look at your life and see more clearly if you’re aligned with what you say you want in life.

Here’s a great one I heard on the Modern Wisdom podcast recently:

What are the most important things in my life right now? Are my actions on a daily basis aligned with those things? If you were the main character in a movie of your life, what would the audience be screaming at you to do right now? What is that thing? Create the space in your life to actually think about what that thing is and then change accordingly.

• Sahil Bloom

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Here’s your weekly reminder that we’re moving our community off of Facebook and onto the incredible platform that Jonathan built for our community on our site.

You’ll see right on the homepage where to ‘Create Your Free Account’ and how to log back in the next time you visit the community.

This is where the local groups will live, plus where you’ll be able to ask questions of the community and our incredible friends and colleagues who are world-class experts.

This is what we’ve dreamed of for 7+ years and it’s finally a reality.

Join today, get in there and help us make it a vibrant place! And since Jonathan is building it in public (daily updates on what he’s fixing and working on), you get to help shape what this will look like for the FI Community.

Is the 4% Rule Too Risky?

Jesse Cramer put out an article called “Is the “4% Rule” Too Risky?” that I found of great interest, as his conclusion was that it was too risky, but the risk isn’t what we normally consider.

In Jesse’s view, it’s entirely too risky because you likely should be withdrawing more than 4% from your portfolio each year in retirement.

While I found the entire article worth reading, here is the crux of it from Jesse:

Out of the 123 unique 30-year periods we can observe, only one of them leads to “failure.” It ran out of money in Year 28 (barely a failure, at that).

The median result not only supported our retiree’s lifestyle, but also left them with $2.8 million at death. Again – that’s the median result. 30 years worth of withdrawals, and still another $2.8 million leftover. That’s overkill!

We’ve made a trade-off using the 4.0% rule. That trade-off is: in order to avoid a ~1% chance of retirement failure, are you willing to accept the 50% chance that you underspend in retirement so severely that you end up with 3x the assets at death as when you retired?

That’s what we’re talking about here. Severe underspending. Severely not enjoying the fruits of your labor. It’s worth thinking about that trade-off. Personally, I don’t think it’s worth it. I don’t mind increasing my “failure odds” above 1% if it means I get to spend a bit more.

“My big takeaway from this fun experiment: I plan on starting higher than 4.0%, and adjusting as I go.”

ChooseFI Community Taking Action This Week

My 1% better this week is actually about my 19-year-old son. Ever since I learned about Choose FI a little over a year ago, I've been talking to him about financial independence. He is now a college freshman at a Florida University, which is actually cheaper than the school he got into in our home state of Virginia! Since we don't qualify for any financial aid, we are cash flowing his room, board, and tuition. Luckily, we've been setting aside money for him for many years. However, he went to school bringing 18 college credits that he earned in high school through dual enrollment and AP testing. Because of that, and working with his advisor at school, he realized that he is on track to graduate in 3 years if he did a few classes in summer school one summer. He has decided this is what he wants to pursue to save a year of college expenses! He also just got a part-time job, so he could move out into his own apartment for next year. He researched apartments near him, created a spreadsheet to keep track of the comparisons, visited the top three apartment complexes in which he was interested, and is ready to make a decision if he does not get space in an on-campus dorm in a few months. He's actually really leaning toward this option, because he said, and I quote, "this is the best way for me to hack college, other than graduating a year early." Plus, he said that he wants to pay for his rent and living expenses himself with his part time job so that my husband and I can concentrate on saving more for retirement. Wow! We never talked much about money with our older two sons, so I've been determined to NOT make that mistake with our baby. We could not be more proud of him and his maturity with money so far!

• Ann

Our 1% better this week is relinquishing the timeshare we've had since 2007 and defending against another predatory timeshare presentation. We purchased back in the day out of naivete and hope for value of prepurchased vacation; however, maintenance fees and economic factors ultimately outweighed the value. Furthermore, the business model isn't a great investment (seeing as how it relies on said fees and capturing costlier purchases each year). We powered through the "sunk-cost" fallacy and are saving an average of $1500/year (based on cost-basis) toward vacations/investments that we are more wisely aware of. -Fred & Elaine

My 1% better this month - our family is officially debt free, after paying our last mortgage payment. I've immediately set the same monthly amount to auto invest (to fund our yearly family vacation).

• Itay

My 1% win is my wife and I started off the new year by listing all our expenses and we cross-referenced this with the FIRE calculator and have determined that we are now at FI (with an anticipated 3.1% withdrawal rate). Digging into all of these FIRE calculations gave me the motivation to release another YouTube video about Financial Independence to spread the word about FI to a broader audience. I'd love to get any feedback that the Choose FI community has about this video.

• Anand

My 1% better this week was getting promoted! I was very thankful and happy to be offered the promotion however it was only a 8% increase which counting for inflation after close to two years of no bonuses and no raises for managers, was a little underwhelming. I thought of you and the community and asked myself what would 1% better would be & ask for more. I did and got an additional 4%! One slightly awkward conversation netted an extra 5K a year - totally worth it!

• Leia

My 1% better for this week is that after hearing about the ssa.tools website as well as Big ERN's SWR Toolbox on various episodes of ChooseFI, I pulled up both tools and started to experiment. I calculated that my wife and I would receive almost $5,000 per month in benefits when we start collecting SS, and at age 70 with a paid-off house it is hard to imagine spending even that much. Then I went to Big ERN's spreadsheet and calculated our CAPE-adjusted withdrawal rate. With a horizon reflecting our full life expectancy it came out around 4%, but if I made the time horizon only between now and the onset of Social Security, it bumped it up over 5%! (So it's a 1% additive improvement but a 20% relative one for the math nerds out there :) That gives us more confidence to budget in more of the post-FIRE travel we want to do, so just last night I went online, found flights on sale and booked a mini-trip to Puerto Rico!

• Roger

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Click HERE and let me know what you did to make your life 1% better this week!