I read a few research about FIRE. seems all theory and just several stories on youtube/ websites to get visits and sell ads. In reality, is the 4% rule still valid? Fed has printed money like crazy who will know jow expensive a meal will be next decade. Buy and hold stock assumes US index funds keep rising over long term. Will the bubble burst? Look at Japan market.
In the past when Fed has printed money assets (stocks, real estate) have appreciated in value faster than the rate of inflation. This might not hold forever but I doubt that returns on risk assets would be lower than inflation for a prolonged period.
Diversity internationally. Also, the 4% number isn't necessarily applicable to FIRE since it was used for a 30 year retirement period. You can use 4% if you are willing to modify spending habits in downturns or pick up jobs to supplement savings. Otherwise a more conservative 3% might be better. You could go at high as 5% if you are really flexible with income and spending
What is FIRE and what is 4% rule? I am new to blind.
FIRE stands for Financial Independence Retire Early. Basically, your investment/net worth is enough for the rest of your life. Based someone's research (I forgot who), he calculated that the amount you need to achieve FIRE is basically 4% of your savings each year. For example if your savings is 100k that means you could only take 4% aka 4k each year and the rest will be invested according to the interest rate. The 4 % afaik is with assumption 30 years of time between the time of retirement and the time of death.
Thank you!!
4% rule works but the investment mixture including bonds doesn't to get the 9% yield/yr to maintain the withdraw rate. When the rule was created, I think bonds were yielding around 3-7%. Bonds yield next to nothing now because of the low interest rates.
That makes no sense. If the necessary yield / yr was even 8%, and you withdrew at 4%, you could live forever and never run out of money... your net worth would always be increasing.
That's the point. It's suppose to support you indefinitely so you don't run out. You should read more on FIRE. You can even model it using a spreadsheet to see how long you last without investing vs investing with a specific yield.
Its closer to 7-10% given recent market returns.
What kind of answer do you expect to get here? There is some serious research behind this. Not just YouTube videos and the such (you can look it up). The rule is based on looking at the past 120 years through world wars, the great depression, etc. This makes it pretty solid. BUT - who can predict the future? Maybe 2021 is the start of the end. That being said, the fed printing money doesnt sound like such a dramatic event compared to.some of what the world has been through in the 20th century.
Some conditions: This law works for a few countries like US, Canada etc only. This was based on notion of retiring in 60. If one needs to retire at 40. 3.3 Withrawal rate is better. See benfelix video on the same.
Yep - I'm aware of that and I agree. I was responding directly to whether the rule still applies and it probably does. It was originally assessed for a 30 year retirement. (Btw, it's for investment in these markets, not for people living there)
Thats why you invest some in domestic stocks and some in international stocks. I recommend at least investing 20% in VTIAX based on a research paper by Vanguard. But 40% is what Vanguard uses in TDF. I know that doesn’t answer your question but wanted to say that.