Is the 4% Rule Dead?

Hey Scott, is the 4% Rule dead?
Nope.
All right, that wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, see you later, alligator. Or saying, haha, just kidding. We actually have a lot more to talk about about this.

Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and with me as always is my market conscious co-host, Scott Trench.
Thanks, Mindy. Great to be here. As always, great timing with your intro. BiggerPockets is the goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe financial freedom at the 4% rule is attainable for everyone, no matter when or where you’re starting, and the math still holds even here in the scary conditions at the start of 2025.
Scott, that intro was a little reminiscent of our show with Michael Kitces way back in the very beginning of COVID in March of 2020 where we asked him that same question, is the 4% rule dead? And he said, no. Uh, Scott, for those who are not familiar with the 4% rule, what is the 4% rule? What are we talking about here?
Sure. So the 4% rule is an attempt by a deep body of financial analysis to answer the question, how much money do I need in order to retire? And the idea is that a portfolio that is invested a specific way with a, for example, 60-40 stock bond allocation, although that range can vary between 70-30 and 50-50 stock bonds. Um, a portfolio invested that way in major index fund investments, for example, um, historically has never run out of money over a ensuing 30 year period. And that includes periods with massive economic pain like a portfolio where someone retired right before the great depression in 1929, um, or right before, you know, certain major events like the inflationary period in the 60s, 70s and 80s um in there. And so that it cover it back tests every um historical period that we have great data for in modern history, um, in a 30-year look back. So while there’s all an endless debate about whether there could be a fusion situation where the 4% rule does not hold up in a technical in a technical sense, it has held up in every historical period. Although it is true, in some periods, a portfolio that starts out at a million dollars may decline in value. In most 30-year periods, someone who is withdrawing 4% of their portfolio, who starts with a million dollars, would actually end up with more wealth at the end of the 30-year period than when they began. So it’s it’s an answer to that question. How much money do I need to retire early?
I love that description, Scott. That was a really great description. Um, Bill Bengen originally did this research in 1994 or 1996. I always get those dates mixed up in my head. But either way, it was a long time ago. Michael Kitces came in and ran the numbers where Bengen left off. So Bengen did it in the mid ’90s. Michael Kitces did it in 2018 and ran them. I’m looking at Michael Kitces’ chart on uh starting principal over the course of 30 years. There are some wild numbers. I think the most it gets up to is 9.5 million and the lowest it gets to is not quite zero at year 30. In fact, if he if you continue on, this person loses their money and goes to zero at year 31. This is every scenario up until 2018 when he ran this this report.
Yeah. And in in the vast majority of cases, that chart shows you end up with more wealth after pulling 4% out of your portfolio every year adjusted for inflation at the end of 30 years than when you began. And in a couple of situations, you end up with less wealth. But in no situation do you end up with zero wealth and truly run out of money over a 30-year period, right? So that’s the 4% rule and the math has not changed. In fact, the guy William Bill Bengen actually came out with an update saying that you could actually withdraw as high as 5% with certain portfolios in new research this year. I believe he has a new book on that topic and we will certainly be inviting him to discuss this new research onto the BiggerPockets Money podcast uh in the coming months um here. So that that’s the that’s the update on the 4% rule in the sense that does it does it cover, does it does it still work? Does it still uphold? Yes, we have no mathematical evidence that the 4% rule does not hold up. Now, let’s talk about a couple of paradoxes here, Mindy, with that with that caveat that. First, we’ve interviewed a lot of folks in the fire community. We have met very few, um maybe none so far still who have truly retired at a 4% rule allocation. We had a couple of folks reach out who said, I retired at the 4% rule, and then it’s like, well, they also have a rental property and they also have a paid-off house and they also have a large cash position and those types of things. There’s always a defense mechanism in play well beyond the 4% rule for many of the folks that we talk to that actually spend Tuesday, um, uh, retired and not working, um, on a on a on a mostly stock bond portfolio. Um, so that that’s the first, that’s the first paradox is we still have yet to meet a true, I a retired at exactly the 4% rule and have nothing else going on on. I’m out there. Most people are well beyond the 4% rule or have some sort of cushion on there. The second, um, paradox here is Bill Bengen, the father of the 4% rule who just came out with that research who we’re going to interview shortly here, uh, two years ago announced that he was going 70% to cash. Uh and and was like 30% in stocks and bonds out there uh for fear of of market conditions here. I am the biggest proponent of the 4% rule in the math and I in the way I introduced this today, and I am not holding a 4% rule, 60 40, 70 30 or anything close to 50 50 stock bond portfolio. I’m heavily allocated to other things like real estate for example and private loan private lending will be a part of my portfolio in the next few months. So these paradoxes all exist in the context of the 4% role, even though the math is very sound and it is an excellent answer to the question of how much do I need to retire early.
All right. So, Scott, one thing that I have noticed, I don’t know if you have noticed, but since about 2012, the market has been fairly up and to the right.
Oh my gosh, this has been, this has been an incredible bull run for the last, you know, 12, 15 years essentially, and people have made an incredible amount of money in the in the stock market in particular, and they’ve done nothing. They just sit there and dollar cost average into it and they’ve been rewarded to degrees unprecedented in history um with those investments.
So, I actually looked it up on macro trends.net. They have a 100-year historical chart of the Dow Jones and December 2008 is when it hit the bottom and started climbing. There have been dips since then, but that is the last time it has been like the the last big low. So, 2008 to 2025, Scott, do that math really quick. How long is that?
That is uh two, five,
17 years.
17 years. Yeah.
17 years of up and to the right. So if I was in the stock market for the last 17 years, which I was, and I kept seeing it go up and to the right with some small dips, I would not be tempted to go into bonds in any significant capacity because bonds have traditionally or in those those same last 17 years, what have bond yields been? They’ve been fairly low, right? Like I’m getting Yeah. 12, sometimes 15% returns in the stock market and bonds are giving you like 3 or 4%. I like 15 a whole lot more than I like four. So my current bond portfolio is I believe $0 and I’m okay with that. I’m okay with the risk because I am with great risk comes great reward, potential reward, and my portfolio has gone up significantly. Um, but the 4% rule is what I based my early retirement number on and I am not in a 60-40 portfolio and that is what the 4% rule is based on. How many people do you think are in a 60/40 portfolio who are fire, fireing in the next year, plans to fire in the next year or have fired recently?
I think less than 10% of the people who listen to BiggerPockets Money are in a 60/40 stock bond portfolio and it may be less than 5%. Let’s review the data here. So here’s Mindy’s smiling face in Infinite Mirror. And now here is I I do a poll all the time on BiggerPockets Money. It’s one of my favorite things. Thank you so much to everyone who watches the YouTube channel and responds to these polls. There’s a wealth of really good information here that I just love endlessly collecting and then discussing on this. So, let’s look at this one right here. Okay, do you actually invest with the classic 60/40 stock bonds portfolio? 680 people responded. 90%, 89% said, no, I own essentially no bonds with less than 10% of my portfolio. 4% said, yes, excluding real estate or cash, my investments are 60/40 stock bonds. So, what we have what we have here, more infinite mirror, is a dynamic of the of at least in the FIRE community of people who are heavily concentrated in stocks. And that is both a function, I believe of the extraordinary bull run we’ve had for the last 17 years, maybe more, um on there, well, I guess 17 years exactly with 2008 being the bottom. Um uh we’ve had an extraordinary bull run for that period of time and the very low yield that bonds are delivering right now. Like VBTLX, Vanguard’s bond index fund, um for example, has a yield to maturity of 4.3% and an income yield of in the something in the threes. So that’s just not very attractive to many investors out there, especially folks who are personal finance nerds. And that I think has resulted in heavily concentrated portfolios. And the risk I see for the FIRE community and many, maybe tens or maybe hundreds of millions of American households is that because of this dynamic of huge returns in the stock market and all incremental dollars going into stocks with very little bond exposure, this is a community that is not ready for a market pullback and does not have portfolios that are allocated in a in the in the way that the 4% rule has been historically discussed, right? The 4% rule, you are not fire if you need 2.5 million dollars to generate $100,000 a year in spending and you are 100% in stocks. You are not FIRE. You can fall out of fire with that. Now, if you have that $2.5 million portfolio 60/40 allocated to stocks and bonds, then you are meeting the 4% rule and you have at least in history, never run out of money in a historical simulation calculator. It could be that this time is different, but I’m willing I would be willing to personally bet that on a 60/40 stock bond portfolio that there will not be a reduction to zero over a 30-year period going forward. We have to take a quick ad break. But want to know what you can do while we’re away? Subscribe to our brand new BiggerPockets Money newsletter. Go to biggerpockets.com/moneynewsletter to subscribe. On your very first rendition of this newsletter, you’ll be greeted with a very friendly hello, hello, hello from the one and only. Yes, you will.
I’m skeptical of a lot of financial products but life insurance isn’t one of them, at least not term life. For the vast majority of you listening, term life is simply the right answer, and the smartest way to buy it isn’t one big policy, it’s a ladder. Your need for coverage isn’t flat, it declines over time. You’ve got a 30-year mortgage, a couple of young kids, maybe a spouse mid-career. In 15 years, the mortgage is going to be smaller and the kids are almost launched. So instead of buying one giant 30-year policy you’ll overpay for, you stack a few, say a 10-year, a 20-year, and a 30-year layer, so your total coverage steps down as your actual obligations step down. You only pay for what you actually need when you need it. Ethos is a platform that helps you find life insurance 100% online. You can get a quote in seconds and apply in minutes. There’s no medical exam, you just answer a few health questions online. You can get up to 3 million in coverage. Some policies are as low as $30 a month. That makes building a ladder genuinely fast. Get your free quote at ethos.com/bpmoney. That’s ETHOS.com/bpmoney. Application times may vary and rates may vary.
When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one: a business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the U.S. with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email, and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
When spring hits, some people suddenly just want to declutter the garage, clean out the closets, and get everything all organized. Whether or not that hits you, Monarch will do your financial spring cleaning for you. One dashboard gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property, and more, all in one place. One of my favorite parts is the Sankey diagram. Every month, I open it up and literally watch the flow of money. It shows exactly where every dollar is going from income to all of my spending categories. It makes it so much easier to spot what’s working and what needs tweaking. Get your first year of Monarch for half off, just $50 with the promo code POCKETS. Use the code POCKETS at monarch.com to get your first year half-off at just 50 bucks. That’s 50% off your first year at monarch.com with the code P-O-C-K-E-T-S.

Welcome back to the show. So, Bill Bengen’s original study was based on traditional retirement. He didn’t take into account the concept of retiring early because that wasn’t a thing back when he did this in the early ’90s. It was like, well, it’s still weird, but it was like even more weird back then. Uh we didn’t have podcast and internet to talk about it. Uh I think that it’s a lot easier to get yourself to a 60/40 portfolio when you are older and you’re retiring at 65. Once you hit 60, you start to think, oh, maybe I don’t want to risk all this money. But you have really compressed your investment timeline into to fit into your fire goals. So I can I see both sides. Yes, Bill Bengen said 60/40, and the Trinity group ran the numbers and they said, yep, he’s right. And Michael K ran them and he said he’s right. And Wes Moss read that ran them and said, yep, Bengen’s right. So all these very, very smart people are looking at all of this historical data and past performance is not a degree of a future games. But they’re looking at all this historical data. They didn’t just make this up. They said with this stock portfolio. and I mean have you read the original report or the original article that Bill published in the journal of financial planning way back when? It’s so fascinating. He ran this I sent it to all of our friends. So yes, I have read this. I do, I do. It’s a really long article. If you want to read it, email Mindy at biggerpockets.com and I will send you a copy because it can be a little bit difficult to find online. Uh it was not an online publication when it first came out. Um, but it’s he ran all these different scenarios. He didn’t just come up with this and say, you know what, this sounds good. He was a, somebody sent me a note to say that he was not a rocket scientist. He worked for NASA or he did something with rockets and and he’s very, very, very smart. And then he decided to be a financial planner after he was done with that career. And he he really looked at this from all angles and and ran the numbers in all sorts of different ways. So I I do believe that it is still valid. I am still basing my retirement ideas on it, but I am not following it correctly. So if I run out of money, first, I will be very shocked. But if I run out of money, it’s my own fault because I’m not following the rules in the first place. And that seems rather harsh. I’m saying that about me. I hope that nobody runs out of money. You you yours is true of everyone I have met in the FIRE community, right? There is a tiny fraction, less than 5% of people who will tell you that they retired on the 4% rule with nothing else, and then when you actually talk to them, oh, there’s my rental, there’s my large cash position, there’s this other thing that I’m doing here. I I uh do this particular this kind of crazy thing to defray costs on this part. Like they they all have something going on. Nobody does this with the 4% rule, even though again, like you’re asking me is the 4% rule still sound? Does the math still work? Yes. Is it dead? Nope. Do ordinary people, the people we are trying to serve here on BiggerPockets Money, actually retire on the 4% rule and nothing else? No. And that’s where we need to address it head-on in order to help the folks in this community actually see Tuesday afternoon in their 30s or 40s the way that they wanted to do it. And I think that’s the the fun challenge about this um that makes that makes this job so interesting, right? If it was just a 4% rule, every path would be the same um for it. But it’s not, it doesn’t work that way in practic, it doesn’t work that way in in people’s actual psyche, and we have to address that in order to actually achieve our mission of helping people build enough wealth and then stop and enjoy their lives.
How do you approach market downturns if you’re getting ready to retire? If you’re retiring in your 30s or 40s instead of, you know, when you’ve got a 40-year horizon to save your money, a market downturn isn’t as effecting as when you’ve got a 10-year window.
Well, look, I think I think there’s a couple of ways to go about it, right? The first one, and I think that the right answer is to say, there is a an approach that makes sense when you’re starting out for all out aggression, right? Like when I got started, all out aggression, highly leveraged, house hack, everything was going into stocks. I would do that again today. The issue is if you continue that in infinitely, then you will end up at 65 with an enormous pile of wealth in most historical situations that is far more than you ever needed and you’ll miss that 30s, 40s, 50s fire retirement that you said to yourself was the original goal, right? So that’s the problem. That’s one. So what one answer to the question is just keep going for many, many more years than you really need to and have asked so much money that it’s so far beyond what you actually need to retire that you don’t have to make decisions based on on driving cash well. And Nindy, I’d argue that you’re kind of maybe in that situation to a little bit of a degree, right? Like you you guys went so far beyond, you have so much more wealth than what was required for the 4% rule that it allows you to not really have to worry about um a the the the technical best practices and optimizing the portfolio component. Is that is that fair?
I, as you were saying that, I’m like, “Oh, that’s me, Scott.” Uh yes, and not only that, I still work. I have this job. I am a real estate agent and I I want to say I made $200,000 last year as a real estate agent working very little. I I had a couple of really whopper of a deal properties, but I generate a lot of income and I don’t spend $200,000 a year, except this year when we’re building the house. Um I generate a lot of income in a way that I’m really not reliant on my portfolio. Right now, I have the confidence that my portfolio will eventually recover because I’m not pulling anything out of it right now.
Yep. And and Mindy, guess what? I’m in the same boat here on that front, right? I find myself having started out attempting to achieve fire so I could play video games on Tuesday and now I run an enormous or a fairly large company here, do this podcast and work harder than ever on that front. So you know, that’s one answer to the question and that is frankly the answer that you and I both chose and it’s not not not a terrible one for for many folks on there, but it’s not, you know, like let let that there is a cost to that. You’re not retiring at the optimal point if that’s your your your your specific goal there. So that’s that’s one answer to the question. The second way, I think to to really maximize that uh uh early retirement here is is to say, I’m going to be in this all-out aggressive accumulation mode. and then I’m going to stop and I’m going to flip the switch to something much more conservative in the years building up to true early retirement. And it’s very hard, I think for folks to do that for 7 to 10 years, grind away, uh increase their income, begin amassing a slow but surely compounding pile of assets and then stop and and move it all into a conservative portfolio that is 60/40 stocks bonds and then begin enjoying it. That’s the right answer, I think. I think that that’s the technically the right way to do this is to go all aggressive and then shift it either gradually as we approach three, four, five years, seven years out from retirement, or do it all at once at towards the end. But I think very few people will do that in practice even though that’s the right theory, I think. What what’s your reaction to those two answers to the question here?
I don’t think that going all out and then retiring and moving it into the conservative portfolio is the recommended, is what I would recommend. Um it seems like you are running just as much risk as if you didn’t do that at all. I would suggest if you are retiring in the next, I don’t know, three to five years, uh or the next five years, I guess, um start instead of allocating your money to the stock market, keep what you’ve got there and then start allocating bonds, start buying bonds, start buying bond funds. Um I I I know so little about bonds because I’m not in them at all. Um I’ve never I’ve never really studied them because for 17 years or 16 years, we have had such a growth market that bonds didn’t really make a lot of sense. I mean, they still make sense. They always make sense because you’re hedging against other things. I wonder, Scott, do another poll. How many people are in a not in a 60-40 stock bond portfolio, but are 60-ish stocks and 40% something else? You just recently brought that real estate property that is acting as a bond for you. It’s not going to be generating all of these uh giant returns that a stock market would, a good stock market, not the current stock market, but it’s also fairly safe. It’s a, it’s a kind of property that is always going to have tenants in it. It’s a fourplex, so it’s not like your tenants leave and then all of a sudden you’re like, oh, shucks, now what? Um, you’re you’ve got three other tenants to help you pay that mortgage until you get that fourth tenant in place. So the the vacancy is not a big hit. Um, but I wonder what other kinds of investments are acting like a bond, like is gold gold is an inflation hedge?
Yes, I think that the headline is every asset class has exploded over the last six years from January 2019, which is my favorite look back period in the current climate, to January 2025 except commercial real estate and then residential real estate has basically paced in price with the increase in the money supply. So I think that there’s plenty of risk in residential real estate, but that other asset classes are at extreme risk. Um obviously, I think Bitcoin’s going to zero. I made that point very clear in multiple things there. you can go beat me up um in the comment section as the 900th to a thousandth comment disagreeing with me in my video, the rational investor’s case against Bitcoin uh here on the BiggerPockets Money YouTube channel. Gold, by the way, is another one on there. Gold has been pacing the S&P 500 for the last six years.
Really?
It’s gone up two almost like, yeah, 2.3 2.3-ish X over the last couple of years. I think it might have pulled back recently a little bit, but gold is all gold is, whatever gold was as this store of value, it has gone up in value way faster than the money supply.
So, I am looking at the historic gold prices. again on macro trends.net, they’ve got some really great, um, really great uh charts here. And I want to show you this. This is inflation adjusted. So, look at this. inflation adjusted in 1980, it was $2,700. Now it’s $2,800.
Yeah. So the real return from gold for 2000 has been what like 5x. It’s unbelievable, right? inflation’s not uh it’s not I mean well this is this is real. This is inflation adjusted. This is inflation adjusted. But it’s it’s incredible how how expensive um gold is uh in in in terms of its historical value. I mean, investors are are fearing the market right now and we’ll talk about that um a little bit in a few minutes here as well. Or maybe that’s a good transition point here to talk about what is going on in the stock market right now.
All right, my dear listeners, we want to hit 100,000 subscribers on YouTube and we need your help. While we take a quick ad break, please hop on over to youtube.com/biggerpocketsmoney and make sure you are subscribed to this channel. Stay tuned after the break for more.

If you’ve been putting off life insurance, I get it. The old process was miserable: phone calls with an agent, a nurse coming to your house for a blood draw, then waiting weeks to find out what you’d pay for. That friction is exactly why so many people who should have coverage, don’t. Here’s what I believe: most BP Money listeners need term life, and the right move is to build a ladder, a few term policies of different lengths stacked together, so your coverage steps down as your mortgage shrinks and your kids get closer to being financially independent or you get closer to hitting your financial independence number. The thing that makes that practical now is Ethos, a platform that helps you find life insurance all 100% online. Same-day coverage, no medical exam, you just answer a few health questions online. Up to $3 million in coverage, some policies as low as $30 a month. So building a two or three-layer ladder that used to take a month of appointments is something you can knock out before your coffee gets cold. Get your free quote at ethos.com/bpmoney. That is ETHOS.com/bpmoney. Application times may vary and rates may vary.
When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one: a business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the U.S. with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email, and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
When the change in season hits, some people suddenly just want to declutter the garage, clean out the closets, and get everything all organized. And that’s great. If that’s you, or if it’s not you, either way, let Monarch do the financial spring cleaning this year for you. One dashboard gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property, and more, all in one place. Another feature I love about Monarch is the weekly AI recap. It catches spending spikes before they become problems and flags big net worth shifts or upcoming expenses. It’s like having a quick personal check-in every week so nothing sneaks up on me. Get your first year of Monarch for half off, just 50 bucks with the promo code POCKETS. Use the code POCKETS at monarch.com to get your first year half-off at just $50. That’s 50% off your first year at monarch.com with the code POCKETS, P-O-C-K-E-T-S.
You guys heard our recent episode with David Jackson, and I’ll be honest, even as somebody who lives and breathes this stuff, having a pro like David pressure test my plan was a game changer. Domain Money is different because they don’t try to take over your accounts. They provide a flat-fee service where a dedicated CFP analyzes your entire financial life with no stone left unturned. No hidden fees, no commissions, just clear, actionable strategy. Go to biggerpocketsmoney.com/cfp and book a free strategy session to see how they can help you reach FIRE faster. This is a promotion for Domain Money, a registered investment advisor with the SEC. BiggerPockets Money may receive compensation if you choose to work with Domain Money as a client. I, Scott Trench, am a current client of Domain Money and received non-cash compensation related to this promotional activity. This is not personalized investment advice. For the full disclosures, visit biggerpocketsmoney.com/cfp.

Thanks for sticking with us. Okay, Scott, what’s going on in the stock market right now? A whole lot of down. Yeah. We are recording this on March 11th. Yesterday, there was a 900 point drop based on uh commentary from the administration. Today there is a an additional drop. I haven’t even seen how much yet because I’ve been working. Uh but it is based on double tariffs on Canadian steel.
Look, I I I think I think the problem that I saw that I see and saw what is just historically high price to earnings ratios on a real or inflation adjusted basis. So we discussed that at length in a previous episode here. Um that was the risk factor in here. and I think what is causing this problem is very simple. There’s a large body of activity coming from the new Trump administration, and that activity is causing uncertainty and some could use the word chaos, um uh that is confusing markets and individuals. And I think several hundred million Americans are asking themselves the question, am I comfortable having most or all of my financial portfolio and investment portfolio in stock market funds that are disproportionately allocated to the United United States in the context of the current environment. and increasingly, more of the more and more of those people are saying, no, I’m not comfortable with that. And Mindy, that scares the heck out of me. We can talk about the 4% rule all day long on this and how it works, but I’m just not comfortable allocating huge percentages of my net worth to stock market index funds given that risk. I think it’s a real risk and that we could have a lot more pain to come. It can go every way, right? Who knows what the market’s going to do with all this stuff. I just can’t handle the heat, so I got out of the kitchen.
And where did you go?
I put it into real estate. I have a I rebalanced my 401k and HSA accounts to 60/40 stock bond portfolios of my bond fund of choice is VBTLX. I also have a large pile of cash, which I will put into go back to private lending, um in that in that one in the hard money space and I will likely buy another rental property in the later later on in this year and I will likely make several syndication investments in the most distressed markets around the country, probably mostly here in Denver, in multi-family and or single-family office.
If you don’t want to rely on the 4% rule anymore, or you don’t want to rely on the 60/40 4% rule, uh what options do you have, Scott?
Um well look, I think I think let’s let’s go so let’s go back to the 4%. Let’s just let let’s pretend we’re retiring with a million or two and a half million dollar portfolio in the 4% rule. And let’s let’s begin to alleviate our fears, right? Even if there’s a crash as bad as the Great Depression or an inflationary environment as bad as the 70s and 80s, this this role has held up. Second, and it’s and it’s all adjusted for inflation on the 4% role math. Second, that is that 4% rule assumes that you will never decrease your spending in the event of a market catastrophe. It assumes that you will never um it assumes that you will never earn another dollar of any type with any work whatsoever, um in the event of a downturn, you could get a part-time job, for example, to defray some of those expenses or offset um components of it. It assumes you’ll never get social security or other forms of benefits um in there. It assumes that you’ll never start a business. It assumes that you’ll never swap certain spending for other things in an inflationary adjusted in an inflation environment when eggs get expensive, do you eat oats uh for breakfast instead for a while? Uh it makes none of those assumptions. So all of those are ways to defray the risks of the 4% rule before we get into even get into alternatives. Once we get into alternatives, there are plenty of options. Obviously, one of the ones I’m most comfortable with is real estate. I’ve been doing bigger pockets for the last 11 years um on this. Like this is this is a a clear area that I’m comfortable with and have feel like I have some skill in. Um private lending is another one uh that you can get into on this. Building a bigger cash position is another one. Starting some kind of side business, even one that’s seasonal, uh for example, we had that Christmas lights guy kid, uh come on the show kit, he’s like 25. Um but we had this Christmas light light light man that that was doing that and making almost six figures in a couple of months at the end of the year. Like there’s so many different ways to begin doing that, but I think that having one or two of those alternatives layered into your portfolio, keep your formula if you’re like the 4% rule and you like the passive ness of stocks and bonds. Keep your formula and go hit it. and then layer on, you have likely many years between now and true fire. Every year or two, maybe every six months if you’re like me every 90 days, layer in some side bets that can begin to compound because you just need one or two, I believe for most people to really defray the risks, the the the the discomfort and the pit of your stomach with the 4% rule as your only back stop in your portfolio. Just have a build a couple of those over time and that will that should put you more than over the edge when I when when the decision comes to actually pull the trigger and retire early.
The end result, there’s still, I want to say it’s 12 times that you would have ended up with less than a million dollars at the end. And that is, you know, that’s that’s all past information. But I think that a $1 million portfolio is going to be enough for people who have a paid-off house or a very low mortgage. My mortgage is $1,300 a month. Um I’m not going to pay it off very fast at all. I am I can just build that into my numbers to make that an expense. Um I think that if you I I’m in a I’m not in a low cost of living area, but my cost of living is low because I bought a house in 2019 for very little money compared to what I could get if I sold it. Um and now these prices aren’t available. It’s been five years, we’ve had that market run up. Um if you are a renter, your rents are probably going to go up over the next 30 years.
Yeah. That’s a bet but that’s a that’s a key bet too that that informs parts of my portfolio, right? I mean, there’s a lot of math that suggests that renting is better than buying right now, um with historical averages, but I believe that while 2025 will not see significant rent growth, I believe we’ll see rents rise dramatically in 2026 and 2027 across this country, um because a large amount of the supply that’s going on like multifamily construction will start to abate and if interest rates stay high, that should continue to push up demand for rentals because the alternative to renting, buying a home is is up there. So I think that buying is a great way to defray risk of a 4% rule portfolio because you lock in your housing expense adjusted for inflation, whether you use a mortgage or not on there. So there is there is some something to be said for buying a home, especially like like one of my favorite tactics that’s coming up is I’m talking to people from high cost of living areas and they’ve got like a million dollars in equity in their homes in certain parts of California or the East Coast. And those markets are also great because if you have a house like that and you’re dead set on staying there but you want to travel, many of those markets offer things like you can rent out your house 25% of the time on short-term rentals only if you’re an owner occupant. That’s an awesome way to defray early retirement expenses by the way. So I think that there’s lots of there’s options that come with homeownership that are not available to renters where you just know your portfolio has to cover the renter’s expense. Um and so it is. so it’s not it’s not black and white in that yes, the math leans if you don’t have any of these side bets in place towards renting over buying right now. But it is nice to just have it locked in. No, I can stay here for 20 years and I don’t have to worry about material inflation adjusted costs to my um to my living outside of my taxes and insurance.
And maintenance, I guess.
Oh, and taxes and insurance. That’s a great conversation that we’ll have another time. But yeah, if I’m hearing that insurance, homeowner’s insurance is going up.
Yeah, 90% quote quote for a 90% increase in my home insurance. Then I shopped it around and my premium will decrease by 50%. So shop around guys because some of these carriers are wildly different.
Yes. Absolutely shop it around. And if your property taxes go up exponentially, even if your property taxes go up just a little bit, uh protest them. Go figure out how your city will have a a detailed way for you to protest your tax increase and protest it every single time. I have never protested and not gotten a reduction.
Yeah, I plan to shop all of my rental property insurance policies and my um my my assessed values, my rental properties this year. I got a feeling that I’ve been neglecting that and I’ve got like a good 10,000 to $15,000 in cost savings annually in that exercise for me. So,
They reassess on the odd year. So they’re going to reassess this year and you will probably see an increase next year.
Yeah, well, we’ll get well, well, well, look, I think there’s a case that my properties are down in value because we got a buyer’s market in the commercial side on some of these. So, we’ll see. Yeah.
Yeah. I mean, you yeah, you have to do some research in order to do the protest, but I have always had it be well worth it for me to protest my tax increases.
Yeah, going back to the 4% rule piece there though. This is a key concept because how little you spend, the less you spend, the easier all of this gets. So if you can control adjusted for inflation, the costs to commute, the costs to uh live in your house, your food costs, those types of things. You can get all you can go from anywhere from reasonable, like paying off a mortgage and having your housing costs fixed outside of your taxes, insurance and maintenance, to extreme, installing solar panels, for example, to uh mitigate your electricity bill for the foreseeable future, to planting a garden to grow much of your own produce. Like you can get really extreme with this stuff, but the but that framework, as you apply it, puts less and less pressure on your overall portfolio and makes that makes that margin of safety in the 4% rule safer and safer and safer and safer. And that’s a luxury I think that a lot of folks who do actually pull the trigger will have is is not only is there these opportunities to earn more money, not only will you probably not do nothing for 30 years to generate an income, but you’ll also be able to tackle the projects that control expenses in your portfolio, do your own taxes, those types of things, to defray costs, which can make your portfolio stretch longer and then again that’s not accounted for in the the the 4% rule, um if you put in conservative expense estimates up front. So those are all things you can do. Um and then again, there’s always the world of alternatives out there.
That sounds like a show for another day, Scott. I want to hear from our listeners. What do you think of the 4% rule? Are you still excited about it? Are you in at 100% stocks? Uh have you adjusted your fire plans in response to the recent market conditions? Please leave a comment below. Leave a comment on your uh if you’re watching this on YouTube, leave a comment below. We will also post this in our Facebook group. So we would love to hear from you. What are your fire uh plans and what are your impressions of the 4% rule today. You can also email Mindy at biggerpockets.com or Scott at biggerpockets.com to give us your opinion as well. All right, Scott. I think this is a very lively discussion. I can’t wait till the comments start coming in.
Yeah, this is fun, Mindy. Thanks so much for for uh joining me today. And uh I’m glad we didn’t have a 15 second episode after all.
Anybody who has ever met me knows that I cannot talk for only 15 seconds. All right, that wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench. I am Mindy Jensen. Now saying, see you later, alligator. And yes, Jason, that’s for you.
When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one. A business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the U.S. with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email, and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.