Someone needs to provide the contrarian perspective here.
While Jordan makes many great points (I agree with much of what he said and have recommended The Purpose Code to several people!), a couple counterpoints need to be said:
1) Risk tolerance differs from person to person, and needs to be factored into how safe an option is appropriate for that individual. Based on Jordan's writing, it is obvious that he has a somewhat high risk tolerance for financial security. It is presumptuous to declare that higher risk tolerance is appropriate for everyone. I don't mean 100% guarantees either - it is a sliding scale.
2) While I agree that several layers of backup plans may be paranoid, one or two backup layers is reasonable for someone with a low financial risk tolerance. Historical Safe Withdrawal Rates (SWR) are far from the worst possible case. They just happened to be the worst case seen in the US over a hundred years or so. Most countries have far worse SWRs than the US (the US is not immune to some of those reasons) and Monte Carlo simulations will show higher failure rates than historical backtesting with the same historical dataset (real risk is likely between backtest and Monte Carlo, as "past performance is not a guarantee of future results" but Monte Carlo can generate crazy sequences that are exceedingly unlikely to happen).
Bottom line: Jordan is far more knowledgeable on the psychological considerations (as a Hospice Doctor) but far less on the econometrics (not his expertise, though he does say he is mathematically inclined) needed to determine the econometric risks to an SWR strategy. This post is good food for thought, but shouldn't necessarily be blindly followed by someone with a low financial risk tolerance.
Fantastic post thank you! Definitely agree that it’s easy to layer so many safety nets into your SWR / plan that you’re not really following the plan at all…
Spot on! Mastering uncertainty isn’t about having all the answers. It’s about knowing how to weigh the possibilities. Having doubts about your choice can be uncomfortable, but being 'certain' is only fooling yourself.
I've been advocating a better system than using the 4% rule no matter what current equity valuations are. I propose that look through earnings tell us more about a safe spending rate than valuation agnostic withdrawal rates.
While I’m 7-8 years away from retirement, I’ve always just held the 4% rule as gospel, and honestly, I’ve never heard much of an argument against it until this article. I’m no terribly sophisticated and don’t have a plan to protect the 4% SWR, other than simply reducing my expenses (my mortgage is already paid off), and living comfortably on $60k-$80K per year, which is still 2x the median income of my State. This article is great, because it tells me I can pull a bit more when we have plans to travel or a if we choose to buy an RV or other large expense.
This is a good reminder that understanding safe withdrawal rates is just the beginning. The real challenge lies in aligning our beliefs with our actions. Many fear making the leap to financial independence, but embracing a minimalist lifestyle can provide the clarity and "tools" needed to understand where spending is really necessary. It’s about minimizing distractions and maximizing intentionality.
Well said. Another ultrasafe feature of the SWR is it assumes constant inflation adjusted withdrawals regardless of market conditions. It is basically the worse case rate for a "set it and forget it"withdrawal rate, which most real world investors would not do, especially during periods of poor market returns. Bengen does model many of these strategies in his new book, which results in SWR rates north of 5 & 6%.
Great points. I prefer developing adaptability in myself to deal with an unknowable future than layers of systems that bulletproof but also severely constrain my retirement.
Someone needs to provide the contrarian perspective here.
While Jordan makes many great points (I agree with much of what he said and have recommended The Purpose Code to several people!), a couple counterpoints need to be said:
1) Risk tolerance differs from person to person, and needs to be factored into how safe an option is appropriate for that individual. Based on Jordan's writing, it is obvious that he has a somewhat high risk tolerance for financial security. It is presumptuous to declare that higher risk tolerance is appropriate for everyone. I don't mean 100% guarantees either - it is a sliding scale.
2) While I agree that several layers of backup plans may be paranoid, one or two backup layers is reasonable for someone with a low financial risk tolerance. Historical Safe Withdrawal Rates (SWR) are far from the worst possible case. They just happened to be the worst case seen in the US over a hundred years or so. Most countries have far worse SWRs than the US (the US is not immune to some of those reasons) and Monte Carlo simulations will show higher failure rates than historical backtesting with the same historical dataset (real risk is likely between backtest and Monte Carlo, as "past performance is not a guarantee of future results" but Monte Carlo can generate crazy sequences that are exceedingly unlikely to happen).
Bottom line: Jordan is far more knowledgeable on the psychological considerations (as a Hospice Doctor) but far less on the econometrics (not his expertise, though he does say he is mathematically inclined) needed to determine the econometric risks to an SWR strategy. This post is good food for thought, but shouldn't necessarily be blindly followed by someone with a low financial risk tolerance.
What people really want is control and certainty. They’ll never get it.
Fantastic post thank you! Definitely agree that it’s easy to layer so many safety nets into your SWR / plan that you’re not really following the plan at all…
Spot on! Mastering uncertainty isn’t about having all the answers. It’s about knowing how to weigh the possibilities. Having doubts about your choice can be uncomfortable, but being 'certain' is only fooling yourself.
Yes please Jordan, you have more than enough to not have to fill your podcast with inane ads.
If you believe in safe withdrawal rates, it's time to act like it.
Stop Chickening Out
I've been advocating a better system than using the 4% rule no matter what current equity valuations are. I propose that look through earnings tell us more about a safe spending rate than valuation agnostic withdrawal rates.
While I’m 7-8 years away from retirement, I’ve always just held the 4% rule as gospel, and honestly, I’ve never heard much of an argument against it until this article. I’m no terribly sophisticated and don’t have a plan to protect the 4% SWR, other than simply reducing my expenses (my mortgage is already paid off), and living comfortably on $60k-$80K per year, which is still 2x the median income of my State. This article is great, because it tells me I can pull a bit more when we have plans to travel or a if we choose to buy an RV or other large expense.
This is a good reminder that understanding safe withdrawal rates is just the beginning. The real challenge lies in aligning our beliefs with our actions. Many fear making the leap to financial independence, but embracing a minimalist lifestyle can provide the clarity and "tools" needed to understand where spending is really necessary. It’s about minimizing distractions and maximizing intentionality.
Well said. Another ultrasafe feature of the SWR is it assumes constant inflation adjusted withdrawals regardless of market conditions. It is basically the worse case rate for a "set it and forget it"withdrawal rate, which most real world investors would not do, especially during periods of poor market returns. Bengen does model many of these strategies in his new book, which results in SWR rates north of 5 & 6%.
Great points. I prefer developing adaptability in myself to deal with an unknowable future than layers of systems that bulletproof but also severely constrain my retirement.