Why the 4% rule is not true and can ruin your life.

I don’t like dogma.

Because usually the are not true, or a lie.

Many of Financial Independence Blogs rotate around a dogma:

The 4 percent rule.

Simply said and based on a study called the  Trinity Study

if you have a certain amount of money invested in a mix of stocks and bonds, 4% is roughly the maximum rate at which you can withdraw from the principal and being sure you will not run out of money. 

Based on that  dogma here another truth derives:

If you have  saved 25 times of your annual  spending …


You reached Financial Independence.

(so hurry to give your boss your 2 weeks and your a well deserved Margarita right now!) 

Why this dogma does not work

  1. Life happens (and this is expensive)

The 4% is the max withdrawal rate…and perfectly matching your spending.

What about if you need to spend more? 


   2.  Living in America!!!!

Most of the blogs talking about Financial Independence and Early Retirement are (curiously) based in one of the most unfriendly Countries for Retires: the USA.

Plainly said:

USA is one of the  greatest  place to make money while you are young, healthy and employed.

USA is also one of the greatest place to spend ALL YOUR money if  you are not young, healthy or employed.

If you are sick and not insured (or under insured) in the USA you can easily spend thousands of dollars to treat a small health issue or all your capital…

Yes all of it and I am not the one saying it.

A recent RBC Wealth Management study estimated that a healthy 65-year-old couple today can expect to spend more than $400,000 on health care in retirement.

Why then most of the bloggers retire in the USA?

  • Because they are American and, reasonably,  not considering to leave outside their Country
  • Because they think nothing will happen to them and their great Insurance providers and Government will take care of them 

3. Because it might  not work

I am not an economist, like most of bloggers and readers of Financial Independence topics are not either.

What I want to be sure is that I save enough to have money for my retirement with an ample margin.

Thus when I read this (from Wikipedia)

The Trinity study and others of its kind have been sharply criticized, e.g. by Scott et al. (2008),[5] not on their data or conclusions, but on what they see as an irrational and economically inefficient withdrawal strategy: “This rule and its variants finance a constant, non-volatile spending plan using a risky, volatile investment strategy. As a result, retirees accumulate unspent surpluses when markets outperform and face spending shortfalls when markets underperform.”
Laurence Kotlikoff, advocate of the consumption smoothing theory of retirement planning, is even less kind to the 4% rule, saying that it “has no connection to economics…. economic theory says you need to adjust your spending based on the portfolio of assets you’re holding. If you invest aggressively, you need to spend defensively. Notice that the 4 percent rule has no connection to the other rule—to target 85 percent of your preretirement income. The whole thing is made up out of the blue.”[6]

I become nervous…

Four percent might work…or maybe not…


Now what?

My rule of the thumb is pretty simply.

Align the percentage with the net return of dividend from Index Fund (as of today below 2%).


Because it is safe.

Because no matter what my capital is untouched and I have a good margin.

I am not an economist.

For the same reason why we all should invest in something more predictable with index funds tracking the total market and not  try to invest in single stocks, we need to play with our money and life with a very ample margin.

Think with your head.

Be safe, even if this means retire few years later.

Don’t play with something so serious.





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