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Reaching the 4 Percent Rule

It’s been a year since I’ve provided an update on our path to Financial Independence.  The world has continued to move forward as have we.  Our situation has changed considerably in that time.  As you’ll see the 4 Percent rule becomes a major question as does my opinion of it.

Rewinding the Clock to Former Financial Independent Updates

That last post from April 2017 asked if we were financially independent.    At that time we had 17x expenses in non housing assets.  Our house would have  added another 5x annual expenses if I sold it.  In other words we weren’t financially independent  (FI) via the 4 percent rule without some major changes in our lives.  Since I believe our life is currently tuned to what we value obviously making these changes is not something we should consider.  So at least at the time of that post we weren’t truly in a scenario where the 4 percent rule was real.

Our Current Financial Independence Status

Things have changed since then.  We now hold about 21x expenses in non housing assets.  Furthermore we hold another 6x expenses in our house.    Together that is 27x expenses, significantly more than the 4% rule. Now I will denote I have no intention of selling my house any time soon.  This further emphasizes why I don’t consider our home as truly part of our net worth.  So in some ways we are not truly meeting the 4 percent rule, yet..

Near Financially Independent

However sometime early next year we will pay off our home.  The reduction of costs from that step alone will mean our non housing assets will then meet or exceed 25x expense, or 4 percent.  So while I can’t say, based on my own measurements, we are FI from a 4 percent rule perspective, I can say with pretty much assurance we will be in a few months.

Our Plans Post Financial Independence

So will we revise forward our retirement date from 55 because we will soon be 4 percent rule Financially independent?  In short, no.   To understand the answer you must first read about my take on retirement and how I feel about my job.  I still enjoy my job and am in no rush to leave work.  I also still view retirement as not working.  So if I were to retire with the 4% rule, I mean truly retire by my definition, I’d have to completely stop working.

Few Test the 4 Percent Rule

Many other bloggers talk about being retired per the 4% rule.  But let’s be honest.  Most of these people are not retired in respect to not working.  They are retired from their career to finding new job opportunities where income is less important.  They are not testing the 4% rules effectiveness.  There is good reason for this.  

The 4 Percent Rule Only Applies to 30 Year Periods

The 4% rule is tested statistically against history to last 30 years.  That being said there is no guarantee anything is left after 30 years.  At 35 I have a potential retirement of 60 some years.  That means at 30 years I have another 30 year stretch to  support.  So imagine them as mutually exclusive terms.  In that case after 30 years you have to have enough left in your accounts to support 4% from there.    The reality is the 4% rule will have a  success rate somewhere below 89% , perhaps far worse depending on your allocation, based on Early Retirement Now’s research.     I don’t know about you but I wouldn’t stop working now with a 10% risk I’d end up eating dog food in retirement.

Small Data Set for FI at 4 Percent

Even worse, the 4 percent rule itself is based on just 118 prior periods of the American stock market.  It’s a common statement in finance, past performance does not guarantee future performance.  There are many possible scenarios where the 4% rule may not even hold.  Low likelihood, but still very much possible.

I Enjoy My Job and Do Not Plan to Leave It

But back to my point about other bloggers.  While they don’t meet my definition of retirement*, as noted prior the money becomes less important so they retire from their career.    This implies they want to leave their career to find something else.  I’ll be honest I enjoy what I do and don’t want to do anything else currently.  So you won’t see me declaring myself as this form of retirement any time soon.

The Power of the 4 Percent Rule

However, while I’m not shutting down my career I do recognize the milestone.  The reality is in most scenarios the 4% rule is sufficient to see you through over the next 30 years.  That means even if it’s not enough to pull the plug completely, there are  very few scenarios where we have anything truly to fear financially.    Job loss?  I’d have 30 years to figure it out.  

Locational Independence and Financial Independence

This is why you’ve seen our recent movements towards locational independence.  In a way this is the same thing as other bloggers leaving their careers, just in a different way.   I don’t want to leave my career, but I want to hit the road.  My place on the financial independence scale allows me to take on the risk of combining both my existing career and location independence.  I am taking some steps in the interim to get there.  My recent job change?  All about getting into a role that is more able to support being mobile.  It does this in a few ways:

  • Most of the people I will interact with are not local.  Even those who are local work remotely a few days a week.
  • The skill set is easily transferable to post W-2 consulting should my employer ever disappear.
  • And of course most importantly the work can be done from anywhere with nothing more then a computer, internet connection, and my brain.

More On Our Location Independence Plans

Beyond that we have decided the first phase of our locational independence will involve purchasing a small travel trailer.  Something short in the 15-16 foot range at a moderate price point.  Not to disappoint but unlike some truly inspiring bloggers we won’t be going on tour.  Instead we intend to pick a few areas and stick to more populated campgrounds.  More expensive true, but that will solve the electricity and internet issues required for me to keep up my full time career.    

The Beginning of a Journey

We have a long way to go in the planning stages.  We’re still shooting for next summer, but in order to do this right we need to pay off our home, buy a trailer, and a tow vehicle out of income.    It’s a stretch goal for sure, but I like stretch goals.  

*Disclaimer: I begrudge no one their own definition of retirement.  You can call yourself retired, working, or Harry Houdini for all I care.  I respect your choice, but this is a piece about my situation so hence my definition 😉  


  1. Xrayvsn
    Xrayvsn September 20, 2018

    Thanks for sharing your journey.

    I too do not really include my house value in my “useable net worth,” although I do calculate that when I want to get total net worth.

    I feel the 4% rule is good but the circumstances when it was created is different from the current climate and not sure if it will get back (bond rates were much higher so their 60/40 split lasted due to the high bond yields they were able to get).

    Personally I am trying to do as close to 3% as possible to be more conservative (and as you mentioned try to support a longer retirement period). I do plan to retire in my early 50’s (shooting 53 or so, so most likely a 30 yr would suffice, but who knows, 40 or 50 yrs within realm of possibility especially for surviving spouse.

    Another thing I am attempting is to build a good passive income stream that would keep churning out money without raiding the capital. If I can get it to a level where basic needs are met purely on passive income then all the % rules can be thrown out the door.

    • FullTimeFinance
      FullTimeFinance September 20, 2018

      Sounds like you have a good plan in hand. There is certainly an aspect of expected future returns are lower then the past. Then again the key word is expected. You never know what the future may bring.

  2. Shawn @ The Smart FI
    Shawn @ The Smart FI September 21, 2018

    Great post, fulltimefinance. I think many people that are new to the FI space consider the 4% rule as gospel. Your post does a great job of making people rethink what they thought they knew about the rule. I am moving toward not including my home in my net worth as you have done. I will always need a place to live unless I plan to arbitrage to a tiny house or trailer.

    • FullTimeFinance
      FullTimeFinance September 21, 2018

      Thanks Shawn. What’s your target retirment?

      • Shawn @TheSmartFi
        Shawn @TheSmartFi September 23, 2018

        I’m 40 years old currently. I would like to retire from my Registered Nurse job in the next 5-10 years. Ive saved about 10x earnings (not including home equity) so I have a ways to go to get to 25X. My wife and I are making great progress this year saving about 45% of income. We had a goal of saving 50% but have fallen short. I treat FI a a marathon not a sprint.

        • FullTimeFinance
          FullTimeFinance September 23, 2018

          Slow and Steady wins the race, kind of like the tortoise and the hare in a way.

  3. Mr. 39 Months
    Mr. 39 Months September 25, 2018

    Thanks for continuing your posts on your journey. Like you, I’m not there yet, but getting close. Slow and Steady, like you said.

    I also feel that I’ll continue to work even after hitting FI, but will try and set it up so it is work that I enjoy.

  4. Frogdancer Jones
    Frogdancer Jones September 28, 2018

    I would have well overshot the mark of the 4% Rule if I included my house in my net worth, but I think that’s not a sensible thing to do. I believe that the 4% Rule should be in liquid assets and should also be used as a guideline, not as the be-all-and-end-all when thinking about retirement.
    Like you, I enjoy my job, (most of the time), so until I’m comfortable with my nest egg I’m going to keep turning up.
    Like you, once I pull the pin I don’t want to have to go back to paid employment.

    • FullTimeFinance
      FullTimeFinance September 28, 2018

      Sounds like we are on similar paths.

  5. Your Money Blueprint
    Your Money Blueprint September 28, 2018

    Good realistic analysis of your situation. Sounds like you have a solid plan and are under no false allusions and I appreciate you putting that in words. It is dangerous when the 4% rule is treated as gospel.

    I plan to pull the plug on full time work at age 45. I’m currently 37 and 13 x expenses (not including the house). We are saving 50% a year and by 45 we should be 30 x expenses.

    A potential 50 year retirement with a wife and kids, I also don’t want to risk the 10% chance of the 4% rule not working. If it was just me, maybe. Once a wife and kids are in the picture, it is so important to realise you are not resposnible for just yourself and all risk should be avoided.

    Great post

    • FullTimeFinance
      FullTimeFinance September 28, 2018

      Very true, family makes the risk of failure all the more real.

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