4% Rule

Your typical Trinity Study / 4% Rule style portfolio longevity analysis requires a full 30+ year period to determine retirement success. If the portfolio value was still positive after 30 years of spending, you passed. If you ran out of money, you didn’t…amongst other things.

Since we don’t have a full 30 years’ worth of data for people retiring in 2000 or 2008, the most recent scary dates, these periods are left out of the pass/fail statistics of the most common retirement calculators. [The most recent possible start date is 1989 (1989 + 30 = 2019)]

This dearth of data is exacerbated for early retirees since we expect our retirements to be much longer than 30 years. [The most recent start date for a 50 year period is 1969 (1969 + 50 = 2019.)]

But let’s see how these retirees would be doing mid-stream, and compare to other difficult times in history.

How are the 2000 and 2008 retirees doing?

In the US historical record, the worst times to retire were 1929, 1965 (+/- a few years), and it turns out 2000 (not so much 2008.) These periods either faced a significant stock market drop right out of the gates or were hit with the double whammy of high inflation and a stock market plunge mid-stream.

Without further ado, let’s look at a couple of charts.

Each of these charts shows the portfolio value over time for a $1 million 90% stock / 10% bond portfolio. The first chart shows nominal values and the second is adjusted for inflation.

Nominal pricing charts are interesting to look at in the short term – if I’m just looking at our portfolio value in Personal Capital (affiliate link) or at my brokerage, this is what I see… it takes a bit of mental gymnastics to determine the actual purchasing power of the portfolio / adjust for inflation.

Case in point, if we retired in 2008 (Blue line in the charts) we would have experienced a significant drop in portfolio value followed by a rapid recovery. If I logged into my account in Year 5 it would show me that I had about the same amount of money that we started with. But, that same amount of money would purchase only about 90% of what it would have a few years earlier (see second chart below.)

Inflation-adjusted data is easier to comprehend over the long term. If we just look at the nominal values, a 1965 retiree (Orange line) is looking pretty good at the 20-year point with a portfolio worth 80% of the starting value. But due to incredibly high inflation, those dollars purchase only 20% of what they used to (ouch!) which explains the rapid drop to zero in the nominal chart.

To make it easier to reconcile the short-term nominal values and long-term inflation-adjusted numbers, I find it helpful to simultaneously look at an inflation chart. Here we can see the obvious deflationary period of the Great Depression that followed the 1929 crash and the ridiculous inflation of the 1970s. The steady and predictable inflation from 2000-present look tame by comparison.

So… how are the 2000 and 2008 retirees doing?

The 2008 retiree is looking rock solid. The portfolio recovered quickly from the Great Financial Crisis and is now worth about 20% more than the starting value, inflation-adjusted. Assuming they made it through the recovery unscathed psychologically this cohort of retirees is sitting pretty.

The 2000 cohort is also looking ok with a portfolio worth 10x the annual spend, 15% more than a 1929 retiree at the same stage and 50% more than a 1965 retiree (inflation-adjusted/2nd chart.)

Going forward from here, spending $40k/year from a $400k portfolio could be tough… A 10% withdrawal rate doesn’t have a great long-term success rate (Although if you retired in 1982 you could have spent 9.5% every year.)

But, consider…

– In the 20th year of retirement (2019) inflation is tame, the stock market is up 20%, and the bond market is up 10%, which increases the portfolio ~15% gain even after spending $40k.

– Social Security income is nigh (as is Medicare enrollment for US residents.) Case in point, I will be eligible for early SS at the 24-year mark. The addition of an SS income stream at that point will increase the portfolio value at the 30-year point by $100k+ (a 20-25% boost at this point.)

– Had this theoretical retiree followed my cornerstone suggestion (spend less in the early years (Front-load frugality!) while hacking your taxes) then the portfolio would be worth 30% more after 20 years (end of 2019) –> $575k vs $425k (modeled here as 3% for first 5 years.)

– Average SS income will provide half of a $40k/year budget. (Yes, even for early retirees.)

– Mediocre inflation-adjusted returns of 4%, combined with SS, will result in a portfolio worth $500k at year 30. This supports $40k annual spending for at least another 30 years (SS = $20k, 4% of $500k = $20k, Total = $40k.)

4% rule Y2K projection

In other words, barring imminent disaster the portfolio will most likely last 50+ years… even in the worst of times a 4% inflation-adjusted withdrawal seems to work (which is why it is called the 4% rule and not the 5% rule.)

NOT BAD for the worst case! It is incredibly robust.

For details on how it worked out in the other terrible times, I recently explored the 1929 scenario and took a deeper look at the 1965 cohort in the post, The Worst Retirement Ever.

(Others have done a similar analysis, most recently (I think) by Michael Kitces about 4 years ago. Differences here include data from the additional 4 years, the use of inflation-adjusted numbers and an exploration of cumulative inflation, and a more early retirement leaning portfolio (higher stock allocation.))


How are the 2000 and 2008 retirees doing? The 2008 cohort is doing great, and the 2000 cohort is doing better than other terrible times in history but still at the low end. Social Security will come to the rescue.

Me: The 4% Rule is incredibly robust

Them: But whutabout 1929, 1965, 2000, and 2008!? Etc…

Me: waves vaguely in the direction of the text and charts above then goes for a bike ride

How would you feel as a 2000 or 2008 retiree?