BiggerPockets Money Podcast Summary
Episode: If No One Follows the 4% Rule, What IS the Right Withdrawal Rate?
Release Date: May 23, 2025

1. Introduction: Rethinking the 4% Rule

In this episode, hosts Mindy Jensen and Scott Trench delve into the sustainability of the traditional 4% withdrawal rule amidst today's economic volatility. Mindy sets the stage by questioning the reliability of the 4% rule in the face of rising inflation and market instability.

Mindy Jensen [00:00]: "With inflation surges, market volatility and economic uncertainty dominating headlines, the traditional 4% rule for retirement withdrawals may be more myth than math."

2. Guest Insight: Carsten Jesker on Safe Withdrawal Rates

The hosts are joined by Carsten Jesker, also known as Big Earn, an expert on safe withdrawal rates and portfolio theory. Carsten shares his motivation for focusing on safe withdrawal rates, stemming from his personal retirement planning and mathematical approach to finance.

Carsten Jesker [01:01]: "I wrote a lot about safe withdrawal rates because I was planning to retire and I wanted to do the hard work and see how to do it right."

3. The Limitations of the 4% Rule in a Changing Economy

Carsten challenges the adequacy of the 4% rule, especially for early retirees with extended retirement horizons. He emphasizes that while the 4% rule might hold in standard scenarios, longer retirement periods require a more conservative approach to withdrawal rates.

Carsten Jesker [03:38]: "Some people say, well, 25x annual spending might be too aggressive... You don't want to be too conservative and you don't want to be too cautious because it's a huge opportunity cost for not retiring."

Mindy probes further into what constitutes an "aggressive" withdrawal rate, prompting Carsten to explain the historical contexts where the 4% rule might falter, such as during the Great Depression or volatile decades like the 1960s and 70s.

Mindy Jensen [03:38]: "So you just said, don't be too aggressive with your safe withdrawal rate. What does too aggressive mean to you?"

Carsten Jesker [03:44]: "The 4% rule would have worked most of the time, but in some of the worst cohorts, it looked really shaky."

4. Personalizing Withdrawal Strategies with Additional Income Sources

Scott highlights a common issue in the Financial Independence (FI) community: many retirees exceed the 4% rule due to additional income streams like rental properties or ongoing employment. Carsten agrees, advocating for personalized withdrawal strategies that account for supplemental income without over-relying on it.

Scott Trench [12:44]: "Few will actually retire early unless they're able to generate harvestable, spendable... cash flow from their portfolios and spend a minority or at least substantially less than the cash flow generated by their portfolio."

Carsten Jesker [17:29]: "Factor in these additional streams from side gigs and corporate gigs... but don't take them for granted."

5. The Role of Real Estate in Retirement Portfolios

The discussion transitions to real estate as a valuable component of retirement portfolios. Scott shares his personal strategy of balancing stock investments with paid-off real estate to generate inflation-adjusted income. Carsten supports this approach, highlighting real estate's ability to provide steady cash flows and appreciation aligned with inflation.

Scott Trench [27:57]: "A paid-off property that generates a 5% net operating income should appreciate with inflation and the income stream should grow with inflation."

Carsten Jesker [30:21]: "Rental inflation has always run a little bit hotter than the CPI... just having real estate adds a valuable layer to your portfolio."

6. Behavioral Challenges: Avoiding Principal Liquidation

A significant portion of the conversation addresses the human tendency to reluctance in selling investment principals to fund retirement, despite mathematical models suggesting such actions. Both Scott and Carsten admit their personal challenges in liquidating equities, underscoring a common barrier in practical application of safe withdrawal strategies.

Scott Trench [49:41]: "I probably will never liquidate. It's really hard for me mentally to do that as an investor."

Carsten Jesker [51:42]: "If I didn't have that additional income from trading options, I probably would have taken money out of actual investments."

7. Mortgage Considerations in Retirement Planning

The episode also explores how mortgages intersect with retirement withdrawal strategies. Carsten explains that mortgages are non-inflation-adjusted liabilities that diminish over time, contrasting them with inflation-adjusted withdrawals. He advises that mortgages can often be managed with a smaller investment portfolio than required to cover equivalent fixed withdrawals.

Carsten Jesker [56:28]: "Your mortgage payments don't go up inflation adjusted... they will die out pretty quickly."

Scott Trench [53:33]: "If you're going to buy a house right now with 7% and take on a mortgage... how do you think through that problem?"

8. Conclusion: Integrating Theory with Real-World Applications

The hosts conclude by reflecting on the disparity between theoretical financial models and real-world behaviors. They emphasize the importance of balancing mathematical strategies with personal comfort and practical income generation to achieve financial independence.

Scott Trench [60:36]: "The spending of the portfolio cash flow is the challenge to grapple with."

Mindy Jensen [61:20]: "Email Scott@BiggerPockets.com or Mindy@BiggerPockets.com if you've ever sold an investment to fund consumption on a continuous basis in a non-emergency."

Key Takeaways

• Reevaluate the 4% Rule: Given current economic conditions, traditional withdrawal rates may need adjustment, especially for early retirees.

• Personalization is Crucial: Safe withdrawal strategies should be tailored to individual circumstances, including additional income sources and lifestyle choices.

• Incorporate Real Estate: Adding real estate to retirement portfolios can provide inflation-adjusted income and diversification.

• Behavioral Barriers Exist: Investors often struggle with the discipline required to sell investment principals, highlighting the need for strategies that align with personal comfort.

• Manage Mortgages Wisely: Understanding the impact of mortgage payments and their relationship with investment withdrawals is essential for effective retirement planning.

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