Hi there, Mrs. 1500 today, tag-teaming with the Mr. to ask Do you believe in the 4% rule?
But first, let’s talk about last week’s question and answers: How do you interact with people who are the exact opposite?
When I asked this question, we had just spent a very long weekend with some family who had been in town. They like to spend money, and consider almost any occasion a reason to go out to dinner rather than eat at home. They prefer the gift shop to the visitor center at any destination, and cannot wait to part with their money for trinkets they will inevitably lose or break. We had a difficult time finding things to do with them, because we would prefer to do free things.
Chattanooga Cheapster says he doesn’t act any differently around people who do not share his way of thinking. I try, but one can only repeat the same things so many times before exploding… I keep getting the same response when I say we would rather stay home to eat: “Well, it’s a special occasion.” No, it isn’t. And I am a good cook. Really. (Mr. 1500 once told me about the time he ate spaghetti at a friends house — his wife made spaghetti sauce out of ketchup! I cannot imagine how horrible that tasted…
FI Pilgrim hits it on the head by saying “…you don’t want to come across as arrogant.” He is lucky, in that he has a family who thinks very similarly to him. I don’t want to come across as arrogant, and this is my struggle, because I feel like I do come across as holier-than-thou or snotty when I say I don’t want to go out to dinner. It just makes for an uncomfortable visit all the way around… (PS: Congratulations on a darling brand new baby girl, FI Pilgrim!)
Mrs. PoP from Planting our Pennies redirects the conversation back to them, by asking “Tell me about your new X.” Great idea. Now I just have to remember it.
Even Steven recommends just keeping quiet. MUCH easier said than done, my friend. I am really bossy, and I think my heart believes that if I just keep saying it, eventually I will bring them to my way of thinking. Totally arrogant, totally wrong. My head knows that…
Now, I turn this post over to Mr. 1500.
The 4% rule is based on the Trinity Study which attempted to determine a safe withdrawal rate in retirement. I won’t go into the details here, but MMM has a really good post on it. Please read it if you need a primer.
The 4% rule is the cornerstone of my early retirement/financial independence dreams, but I admit that I question it at times. Here are some random thoughts that I have:
Why I worry about the 4% rule
- The world is a much more volatile place: The proliferation of horrific weapons, the destabilization of the Middle East and the rise of various terrorist groups make the world a much more dangerous place. 9/11 wreaked havoc on the world economy, but the potential for an attack much, much worse certainly exists. Some say that it’s only a matter of time.
- 4% rule is based on historical modeling: Every investment in the world warns that ‘past returns are not indicative of future gains.’ One may argue that stock appreciation won’t continue as it did in the past.
- The rule only accounts for the next 30 years: In 30 years, I’ll be 70. I plan on living much longer than that.
Why I’m OK with the 4% rule
- The rule is extremely conservative: In many of the historical models, one could have drawn a lot more than 4% and been just fine. I highly recommend you check out the FIRECalc and run some simulations for yourself.
- The rule assumes no future income: I expect social security to still be around, although probably in diminished form when I hit eligibility. I also expect to earn some money in random work post FI.
So, what are your thoughts? Do you believe in the 4% rule? Why or why not?
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