Trouble with the 4% Rule

Over the last two years, I’ve been in the unique position to talk with and consult dozens of people who are considering retiring early or are 1-2 years into their early retirement. Not glossy media coverage of how awesome early retirement is, but in-depth and private conversations.  I love that people are seeking Financial Independence! But I have a bone to pick with the 4% rule.

The history of the 4% rule is based on stock market calculations ran in different scenarios. The math is very compelling! No matter when you retire, you are safe to pull 4% from your stock portfolio and run very little risk of ever running out of money. I have 0% issue with the math behind the 4% rule.

Ah, if only life were as simple as math.

Therein lies the trouble with the 4% rule.  It’s all math and doesn’t deal with how we feel when the rubber hits the road: the mindset and emotions.


Here is the typical FIRE path (Financial Independence Retire Early)


Step 1: Experience burnout or overwhelm with a job. Think to yourself “I can’t do this forever, and in fact, I don’t want to.”

Step 2: Hear about FIRE. Learn about the 4% rule.

Step 3: Step up you investing game and reduce expenses. Invest like crazy for 5-15 years.

Step 4: Get close to the 4% rule lump sum needed. Feel hesitant. Start rethinking this whole thing. (Response 1: Increase your number and push out the date.) (Response 2: Email me for help.)


The fundamental problem with the 4% rule


People who achieve FIRE are most often “savers.”

In general, these three things are true:

  1. They enjoy earning money. (Payday is fun!)
  2. They like investing money. (Investing brings joy!)
  3. They love watching those investments grow!

They saved up this large lump sum so they would never have to work again!

But here’s what “never work again” looks like.

  1. They aren’t earning money. (sad face)
  2. They aren’t investing money. (sad face)
  3. They are pulling money from investments causing that balance to shrink. (really sad face)

Going from working full time to not working at all is a HUGE transition. And transitions deregulate us. Every time. It’s why we are stressed when we start a new job, buy a new home, move across the country or try to get all the kids out of the house in the morning.

95% of the time when I mentor people, it’s to help with life transitions. Because that’s when we need help. Especially if the transition is optional. No one is forcing you to do this hard thing, and you can back out at any time.

If your entire plan is based on the 4% rule, it looks like this.

Willingly opt for this huge life transition. While stopping three things you like (earning, investing, growing investments), AND at the same time start three things you don’t like (not earning, not investing, shrinking your investments).

I know people who have spent years doggedly persuing a FIRE plan solely based on the 4% rule only to find out they don’t want to pull 4% a year from their investments.

In my work, I see this being less problematic for people 55-75 years old (Although, have you met the people freaked out about taking mandatory distributions at 70? Yup, it happens!)

For people 30-55, living solely on a 4% withdrawal freaks them the heck out when the rubber hits the road!


Here is the order in which I see people happy about spending money:


(Happiest money spent) Pensions. Earned income. Social Security. Any fixed income. House hacking.
(Tolerable money spent) Rental income. Dividends. Interest payments.
(Unhappy money spent) Cash reserves. Pulling from investments.


What if we make a better (and happier) plan?


You can have 100% confidence in the 4% rule and still not enjoy pulling out 4% a year. (Me: frantically waving my hand!)

So what if you made a different plan? A plan that felt a little more palatable when the time comes to leave your 9-5 job.

If plan A is: amass a huge lump sum and pull 4% a year, what could plan B look like?

Plan B often ends up being the better plan. It’s more customized. It’s more refined to your own goals and values. It’s not one size fits all. It’s a Choose-Your-Own-Adventure plan!

When the off-the-shelf Plan A doesn’t fit, it’s time to look at Plan B. Plan B takes some flexible thinking and some creativity. But in the end, it’s a plan that you will pull the trigger on and enjoy.

In the upcoming posts, I want to talk about what “Flexible FIRE” looks like (um….kind of like my life!) and how we can Choose-Our-Own-Adventure for the space between our full-time job and not being able to work any longer.

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54 thoughts on “Trouble with the 4% Rule

  1. I love the concept of flexible FIRE and that more voices are sharing their stories from this perspective! After crunching the numbers and doing a lot of reflecting on what really makes us happy we backed off from hardcore FI pursuit. We will still get there eventually but we want to create our best life along the way. Plan b is always evolving. Thanks for the perspective.

    • Plan B is often the better plan! It’s more intentional, more thoughtful, and constantly adjusting to what your learning and how life is changing. Taking this mini-retirement was our Plan B! Plan A was: work 5-7 more years and retire “for real.” I’m SO happy we went with Plan B. Life made an amazing left turn when we did. And we ended up with so much more than what I was even looking for. =)

  2. Jillian, what I love about your blog is that you dig deep and focus on the emotions and challenges your readers face and that you speak from experience. Anyone can do the math and figure out how much they need to retire but actually getting there, feeling confident in your choices, and dealing with a change in your lifestyle is something most just gloss over. Looking forward to hearing more about “Flexible FIRE”

    • I think it comes from the fact that we have stepped away from the 9-5 five times now. The basics of personal finance or FIRE don’t take very long to learn. And people almost never seek out coaching or mentoring about the math. Because the math is easy to figure out. The transitions are hard. There is really, really amazing stuff on the other side, but that transition and anxiety around it is enough to cause people to increase their number and push out their time frame. I call it “comfortable procrastination” where people push out the time frame of something that is challenging simply to avoid dealing with all the uncomfortable emotions it stirs up. “I’ll get around to it someday.” Or “Maybe in a year or two, or five.” Just far enough away so they don’t feel anxious or scared or hesitant about what they are hoping to do.

      • I saw this with a former coworker who kept saying he was going to retire in 2-3 years but never did. I get it now because that’s just far enough away that I don’t have to do anything today to prepare for it. If the time frame was 6-12 months you would have to have a list of ducks to get in a row to make it happen

        • It’s one of those things that after you see it so many times, you can’t unsee it. =) I think it often comes down to a persons ability to process and dig into uncomfortable emotions and figure out what’s going on. But some people are so hesitant to actually feel uncomfortable emotions that every time they get close to it, they naturally back away, which in this case looks like pushing the date farther out. 2-3 years feels safe.

          And retirement can stir up a LOT of uncomfortable emotions. Fear about how relationships will change. Insecurity about losing work status and identity. Hesitation about having to actually plan their entire life instead of just show up for work. Or the value they feel from earning and saving money. Or their parents. =) There is almost always something we picked up from our parents that ends up tripping us up on the journey to find our own path. =)

    • Yeah! I think real FIRE often has very real challenges that are hard to fix, so most people fall into flexible FIRE naturally after giving real FIRE a shot (or can’t pull the trigger on real FIRE and use flexible FIRE as the new plan right before they make the leap). If I can help people plan for flexible FIRE, I think they will really start being able to line their life up with their goals, dreams and values much sooner. =)

      • Absolutely. Not to mention, it’s much more practical for the masses. It takes a certain temperament/personality and income level to achieve real fire. And then to maintain that temperament like you talk about is even more difficult. Flexible FIRE is much more practical for most people I think.

        Looking forward to more on this.

  3. Great post, I totally agree that we can’t just ignore the human/emotional side of the equation. Flexible FIRE sounds fun, so I’m looking forward to reading more.

    I do think that people underestimate what they can do with enough newfound time. Just as the people who make it to FIRE generally like to save, invest, and watch their money grow, they are probably people who wouldn’t just sit on the couch during their early retirement.

    My point is, if you are determined enough to make it to your FIRE number, you are determined enough to find a new and more satisfying/interesting way to make money in your early retirement.

    And if watching your account balance shrink is painful (I know it would be for me), you don’t just have to mope about it–you can build up a new income to ease the pain! I know, easier said than done…

    • “you don’t just have to mope about it–you can build up a new income to ease the pain! I know, easier said than done…”

      My hope is that more people will work this plan as earnestly as they do the 4% rule plan. By putting some time and thought into it before they are 7 years into the FIRE 4% rule plan, they could shift their lifestyle much sooner. Honestly, it what most people do with a mini-retirement. They rest, refresh, and they get to work building what they really want to spend the rest of their life doing.

    • I get kind of frustrated when people seem to bash leisure time. Why is there something wrong with wanting to sit on the couch? You don’t have to be some wealth obsessed entrepreneur to chase FIRE. The whole point of FIRE is that it allows you to remove $$$ from your decision making process. If you have a hobby that happens to be lucrative, super, but that’s not going to be the case for the majority of proplr.

      Point being, if it’s okay for a 75 year old to save up and live a leisurely life, there’s no reason why it shouldn’t also be okay for a 35 year old to do the same.

      Passive income is a term that bugs me, people act like they aren’t actually exerting any effort to receive the income they earn. They paint a picture of how they can, in fact, sit on the couch all day and collect $. The irony….

      • I have no problem with leisure time! In fact, I think most people need a lot more of it to be the parents, spouses, friends and employees they want to be. But I also don’t think that all leisure time works out well for most people at 30 or 75. They become irritable, unable to handle normal frustrations, bored, lonely, and start to feel a meaningless drift. I don’t think everyone need to build a huge business but most would benefit from a productive hobby or volunteering for a few hours a day. I’ve just never meet a person who watches TV 12 hours a day and is truly happy.

  4. I love the idea behind this post. You’re absolutely right that the people who figure out how to save enough to FIRE and live on the 4% rule are the same that won’t be happy pulling out investments. This post was a bit of a tease though. I’m looking forward to reading about the Plan B you suggest.

    • Ah, one idea at a time, friend. I could have written a 4,000-6,000 word post, but 1000 word post are easier. =) Plus it gives people some time to let this idea sink in before I go disrupting more ideas. There is only so much we can adjust our thinking/plans in one sitting. =)

  5. excellent analysis of the types of money spent! i’ll be stealing those concepts. even though we hit our “needs” number awhile back we’re down to about 1.33 jobs in the household. we had a bunch of expensive crap to pay for last year and this like a total roof replacement and a paint job for the house. this bit into our fun money bucket so we decided to underfund one of the roths this year as not to feel deprived of living how we want to live but i can attest that spending that cash (not investing it is the same as withdrawing and spending to me) was a hard choice and was not fun.

  6. Interesting article. Agreed, there are various ways you can save for retirement and then draw upon those savings. No one plan will satisfy everyone. Some like to continue to work part time and not touch any of their investments, etc. Accumulating the money based on the 4% rule can give you options, however. If you want to work, continue to save and invest, and not touch the money at all, that’s great. Your nest egg will likely grow more rapidly into later retirement. But what if you suddenly can no longer work due to illness or disability? It’s great to have that cushion! If you want to live on more than 4%, then you can accumulate a bigger nest egg by saving more, deferring retirement, modifying aspects of your lifestyle, etc. There are many options. Also, according to the Trinity study on which the 4% rule is originally based, not only did the portfolios generally not get depleted, but in several cases they grew during retirement. I look forward to the follow up article!

    • I love having the options! I think people put at little more more work into building up other options then when the time came, they could have a few to draw on. All options take some time to build. That flexibility to pivot because one thing doesn’t work out is key!

  7. This is a really excellent point and while I’m not at the point of being ready to use the 4% rule in practice, I fully expect I’d run into this problem of struggling to actually draw down on my pile of investments. Looking forward to the upcoming flexibile FIRE posts!

  8. Great post! I’m in year 3 of early retirement and I’m still at zero withdrawal rate. I have side gigs for entertainment but the truth is I like the fact my investments grow untouched and I’m earning 100% of my spending. And even at that it bugs me a little I’m not saving much anymore!

    • This is so common! This might sound like an odd recommendation to most but you might get this. I often think it’s better to transition 100k too soon and then invest 10k a year during your “FIRE” years. So if the goal number was $800k, save $700 instead and then transition and invest 10k a year. Simply because it’s more enjoyable to invest 10k a year than have an extra 100k in investments. $700k or $800k don’t actually feel that different in daily happiness, but being able to invest $1,000 a month does bring some happiness. =)

  9. Not bringing in more money is one of the big reasons I’m easing into FIRE by going part time now. I’m using the free time to build my side hustles into bigger income streams. I love doing them, so for now I don’t really even consider them work. So my goal is to avoid the sad face of no more paychecks.

    • Part time is great option! And building up work you love provides so much more enjoyment to the whole process. Even if all that money goes towards vacations or fun extras. I think there is joy for most people in the earning. =)

  10. You nailed it here! We spend so much time talking about the math that we often forget the biggest driver of our behavior – our emotions!

    The SWR is great in theory, but everyone is going to experience the transition in their own way.

    • It’s really, really tough to do something constantly that people don’t like or worst causes them fear. It’s like planning to eat broccoli for breakfast every day if you hate broccoli. The trouble with the 4% withdrawal is that people have to do that every month or every year.

  11. Great points here. It’s easy to talk about numbers and all the math but it’s harder to do that in real life… Because we forget about our emotions. It’s just the same like investing on playing money vs your hard earned money.

    • The funny thing is, often when people think they are extremely logical, they can be the most driven by the emotions. Simply because if they are uncomfortable with emotions, they will constantly move away from things that stir up emotion because they don’t feel comfortable or confidant sorting through those emotions. By not moving towards things that are high emotion, that avoidance (which they justified with logic) becomes what makes a lot of their choices.

      Self awareness is key! =)

  12. Cool article, I thought you were going to delve into the maths, but glad you instead went for the emotional side. And you do really need to be mentally and financially ready for FIRE – I’m working on getting myself there in a few years, and making sure my Type A side has projects to keep her busy.

    • I think that is a key driver in the Flexible FIRE path: Really understanding what makes you comfortable and happy and actually basing your plan on that instead of some off the shelf formula. The math can be perfect and it just makes people so scared or miserable they won’t pull the trigger on it.

  13. I like the sound of this! Our plan is to only save enough to cover the basics, and subsidize additional spending by continuing to work on jobs we are actually interested in, even though our earned income likely won’t cover everything. Hopefully that’s what you are going to tell us to do!

    • Well, I’m not great at telling people what to do! =) Maybe it’s my love of Choose-Your-Own-Adventure or maybe it’s from years of mentoring. But Flexible FIRE (and mentoring for me) hinges on asking good questions, asking good follow up questions, finding motivations and hesitations, exploring a bunch of ideas, they creating that custom plan. Off the shelf plans rarely work simply because they isn’t enough buy in.

      10 years ago, part of my job was to write professional development plans for my employees. Except I skipped all those above mentioned steps because it wasn’t part of that companies process. About 90% of the plans failed! =) That constant and repeated failure was a really good teacher. =)

  14. This is so true! We retired at 43. I have saved all my life, now it is time to spend. It is hard to spend!

    For us there was no trouble with our lifestyle transition. We absolutely love the way we are living, but we are barely tapping into our 4%.

    Each time we look at the numbers we realize we really could/should be spending a lot more. We have decided to do one major splurge a year like going to Galápagos or Antarctica. 🙂

    • Congrats on hitting FI and walking away from the 9-5! I think the one-off splurges are often more palatable for people that increasing the overall lifestyle. Either of those would be amazing trips!

  15. You’re on to something. We saved up enough for 4% withdrawal and ER 5 years ago. I haven’t withdrawn anything yet, though. I don’t want to withdraw until later. One way to avoid being sad about withdrawing is to generate passive income. I don’t mind using our dividend at all. Selling stock is another story. Also, making some money after ER is good too. It gives me something to do and help us avoid withdrawal.

    • There seems to be an age where people don’t mind pulling from those investments. I tend to see it around 55-65 it starts to feel more comfortable. And you’re not alone on the dividends! For some reason people generally feel ok spending those. =) I think if people can figure those things out about themselves early on, then they can create a plan to fit that.

      • Of course, spending the dividend is the same as selling… it’s the total return that matters and the dividend is part of that return (like about two percent of it…). Believing there is a difference between selling the stock or spending the dividend is a huge behavioral mistake

        • That’s the trouble. People should feel good about taking 4% out, and yet they don’t. They have saved and saved for years for this plan, but when the time comes it’s too uncomfortable. Sometimes we need to frame things in our mind so they are more palatable to do. Just like it’s often easier to take out one lump sum a year instead of pull money out monthly. Same exact thing, but people feel very different about it. Or setting up a separate checking account to deposit rent checks in and pull money out for repairs….same amount of money going in and out, but it’s more comfortable. We can understand the math but have very different responses to the actions.

  16. We haven’t yet reached the 4%, but I can totally see us doing this. I do this in other areas now – I have trouble redeeming my travel rewards and “vacation” savings for vacation (even though it is specifically earmarked for vacation). I do it with work – I’ll work more hours today with the intention of taking tomorrow off, but still end up working tomorrow (at least some). I wonder…is it a personality trait? A learned behavior? The addictive power of saving? I don’t know…

    Can’t wait for more on the topic! 🙂

    • Oh Amanda, I feel you. I stilled haven’t pulled from out Roth IRA. In fact, I occasionally add a bit of money to it. It’s just so fun and rewarding! =)

  17. Ah, yes, team flexible FIRE all the way! Really great article, especially describing the emotions around earning and spending money and the happiness quotient of spending from different categories. Those have been spot on for us during our transition into our own choose your own adventure scenario 🙂 Looking forward to the rest of the series!

    • I’m always amazed how consistent people’s responses from each category is. Like 80-90% spot on for 90% of people. The sooner people calculate what they will actually feel good about doing, the sooner they can get to work on that plan. =)

  18. I am not a big believer of the 4% rule. But I like to see it as a nice target. Flexible FIRE sounds fun. For me FIRE is not about staying home but its about doing what i like to do. So, FIRO Financial Independence Retirement Optional for me 🙂

  19. I am more than a couple of years away from retirement but I can already anticipate some of the feelings you wrote about in this post. I am definitely a saver by nature, have been since I was young and had my first part-time job. I get satisfaction out of making money even as I’m working part-time right now. And of course with seeing my investments grow over the years. I think I will have some challenges with not having a regular income and with seeing my investments decrease. Anyways, this is years out for me but interesting to think about and talk about!

    • It’s always good to think about the plan ahead of time so there is time to adjust the plan! There are so many options for creating Passion and Passive Income that there is no reason to follow an off the shelf plan.

  20. Well, as far as I can tell, the “trouble” with the 4% “rule” is all the qualifiers get left out: 4% drawn inflation-adjusted from a US stock-heavy portfolio for depletion not earlier than 30 years. Of course this rule of thumb is just a starting point, not an end-point, for us contemplating FIRE: we’ll be FI for far longer than 30 years!

    Right now, I feed the curious US questioner with a more-refined rule of thumb for a “depletion portfolio”: 4% for 30-year FI period or 3.5% for 45-year or 3% for indefinite; minimum 60% stocks; minimum 10% bonds; spend less than you allotted. For other countries, or those not looking to deplete their portfolio: stable dividend stocks to cover your income needs without touching the principal (eg, the ‘rentier’ or ‘aristocrat’ option). My first cut on this is five blue-chips together yielding above 5% as the primary generator.

    • So do you think a 30 year old about to embark on FIRE would be happier about drawing down their investments if they are pulling 3% instead of 4%? I’m not sure it’s the math that makes them uncomfortable as much as it is the pulling of money out of retirement accounts they worked so hard to put it into. Although in my work, people do seem a bit happier if they are only spending 1 or 2%. But happier still if about 50% of their expenses are covered by things other than stocks.

  21. I think of the 4% rule more like the “4% Goal”. When you’re trying to develop a plan towards financial independence, it can be a little tricky to know what number to shoot for. I think you’re right to emphasize flexibility, but it’s good to have a specific goal. “I want to have $3 million by June of 2028” is a much better goal than “I’d like to retire early” because you can track your progress and make adjustments with the former one, and not with the latter.

    It’s not THE magic number, but it’s not a bad place to start.

    • It definitely good to have a goal number! Because some is much better than none. Each person just needs to take an honest look at if they will want to only pull from investments. And if not, it’s better to put some time into diversifying sooner rather than later.