Best of BiggerPockets Money: Ben Felix on the 4% Rule
Summary
Ben Felix challenges the 4% rule for early retirees, arguing that a lower withdrawal rate of 3-3.5% is safer due to sequence of returns risk and the underperformance of international markets. He advocates for an all-equity portfolio paired with flexible spending rather than complex asset diversification or bond ladders. The discussion highlights the psychological importance of risk tolerance and suggests that dynamic spending strategies can mitigate the need for conservative fixed withdrawal rates.
Topics discussed
Introduction: The 4% rule and early retirement risks
The gray zone: Portfolio strategy while still working
Stocks vs. Bonds: Long-term risks and inflation
Psychological risk tolerance and market downturns
Capacity to take risk and sequence of returns
Mitigating risk through flexible spending
Defining risk: Volatility vs. long-term outcomes
FIRE community bond aversion and real estate alternatives
Critique of real estate: Idiosyncratic risk and management
Sponsors: Northwest, Angie Hicks, and Bilt
Solutions: TIPS ladders vs. flexible equity spending
Case study: Mindy's equity-only portfolio success
The case for simplicity: All-equity portfolios
Skepticism of backtested multi-asset withdrawal rates
Safe withdrawal rates: 3-3.5% vs. 4%
The psychological pain of portfolio depletion
Expert consensus: Low spending and flexibility
Reviewing Bengen's 4% rule failure rates
Limitations: US-centric data and 30-year horizons
International data and lower global withdrawal rates
Sponsors: Ethos Life Insurance and Monarch
Bootstrap simulation and global equity portfolios
Valuation-based analysis: CAPE ratios and Karsten Jeske
Amortization-based spending vs. fixed withdrawal rates
Conclusion: Flexibility makes 4% reasonable
Outro and Sponsors: FIPRO, Ethos, and Monarch
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