Is the 4% Rule Dead?

Summary

BiggerPockets Money Podcast Summary

Episode Title: Is the 4% Rule Dead?
Release Date: March 21, 2025
Hosts: Mindy Jensen and Scott Trench

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Introduction

The episode kicks off with Mindy Jensen posing a critical question to Scott Trench: "Hey Scott, is the 4% rule dead?" Scott promptly responds, "Nope." This sets the stage for an in-depth exploration of the 4% rule, its relevance in today's financial landscape, and its application within the FIRE (Financial Independence, Retire Early) community.

---

Understanding the 4% Rule

[00:48] Scott Trench:
Scott provides a comprehensive explanation of the 4% rule, highlighting its origins and historical validity:

"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?... Historically, a portfolio with a 60/40 stock-bond allocation has never run out of money over a 30-year period."
(00:48)

He emphasizes that despite economic downturns like the Great Depression and inflationary periods in the 60s-80s, the rule has consistently proven reliable. Scott also mentions recent updates by William Bengen, the father of the 4% rule, who suggests that under certain conditions, withdrawals could be as high as 5%.

---

Historical Context and Current Relevance

[02:43] Mindy Jensen:
Mindy reflects on the historical research of Bill Bengen and Michael Kitces, noting the robustness of the 4% rule despite varying market conditions:

"Bill Bengen originally did this research in 1994 or 1996... Michael Kitces came in and ran the numbers where Bengen left off."
(02:43)

Scott concurs, reinforcing that the mathematical foundation of the 4% rule remains sound, even amidst the challenging economic climate of early 2025.

---

Paradoxes Within the FIRE Community

[06:25] Scott Trench:
Scott introduces two primary paradoxes affecting the adoption of the 4% rule among the FIRE community:

1. Lack of Pure Adherence:

   "We have yet to meet a true retired at exactly the 4% rule and have nothing else going on out there."
   (06:25)
   Most individuals cited by Scott supplement their portfolios with real estate, rental income, or cash reserves, indicating that pure adherence to the 4% rule is rare.

2. Shift in Investment Strategies:

   "Bill Bengen... announced that he was going 70% to cash and was like 30% in stocks and bonds out there for fear of market conditions."
   (06:25)
   This shift highlights a growing skepticism towards traditional stock-bond allocations, even from the rule's original proponents.

Scott also shares personal insights, revealing his diversified investment approach that extends beyond the conventional 60/40 portfolio, including real estate and private lending.

---

Market Trends and Portfolio Allocation

[12:01] Scott Trench: (Note: This segment contains advertisements and is skipped in the summary.)

[29:39] Scott Trench:
Post-ad break, Scott discusses recent market volatility, particularly focusing on a significant drop caused by geopolitical tensions and economic policies:

"Yesterday there was a 900-point drop... today there is an additional drop based on double tariffs on Canadian steel."
(29:41)

He attributes the turmoil to high historical price-to-earnings ratios and uncertainty stemming from the new Trump administration's policies. This environment has heightened anxiety among investors, prompting a reevaluation of heavy stock allocations.

---

Adapting the 4% Rule in a Volatile Market

[32:14] Scott Trench:
Scott offers strategies to mitigate risks associated with the 4% rule in uncertain markets:

1. Diversification Beyond Stocks and Bonds:

   • Real Estate:
     "Real estate is a clear area that I'm comfortable with and have feel like I have some skill in private lending."
   • Private Lending and Syndications:
     Scott plans to invest in distressed markets through multifamily and office syndications, emphasizing the importance of alternative investments to bolster the traditional portfolio.

2. Maintaining a Cash Cushion:

   • Large Cash Reserves:
     "I also have a large pile of cash which I'll put into private lending and that one in the hard money space."
     This provides liquidity and flexibility to navigate market downturns without dipping into retirement funds.

3. Building Income through Side Ventures:

   • Side Businesses:
     "Starting some kind of side business... there's so many different ways to begin doing that."
     Additional income streams can offset portfolio withdrawals, reducing reliance on the 4% rule alone.

[37:57] Scott Trench:
Scott underscores the importance of controlling expenses to enhance portfolio resilience:

"How little you spend, the less you spend, the easier all of this gets."
(37:57)

He advocates for reducing fixed costs, such as housing and utilities, to decrease financial pressures during retirement.

---

Challenges and Considerations in Early Retirement

[40:45] Mindy Jensen:
Mindy emphasizes the importance of expense management and strategic financial planning:

"If you can control, adjusted for inflation, the costs to commute, the costs to live in your house, your food costs... you can get really extreme with this stuff."
(40:45)

She highlights practical measures like:

• Fixed Housing Expenses: Locking in mortgage payments or optimizing rental income.
• Energy Efficiency: Installing solar panels or growing a personal garden to reduce costs.
• Tax Optimization: Managing taxes effectively to preserve portfolio value.

---

Conclusion and Call to Action

The hosts conclude by inviting listeners to engage with their community:

"What do you think of the 4% rule? Are you still excited about it? Are you in at 100% stocks? Have you adjusted your FIRE plans in response to the recent market conditions?"
(40:45)

They encourage feedback through comments on YouTube, Facebook groups, or direct emails, fostering a collaborative environment for financial growth and strategy refinement.

---

Notable Quotes

• Scott Trench ([00:48]):
  "The math still holds, even here in the scary conditions at the start of 2025."

• Mindy Jensen ([02:43]):
  "Bill Bengan originally did this research in 1994 or 1996... It's fascinating he ran this."

• Scott Trench ([06:25]):
  "If you are 100% in stocks, you are not fire. You can fall out of fire with that."

• Scott Trench ([37:57]):
  "How little you spend, the less you spend, the easier all of this gets."

• Mindy Jensen ([40:45]):
  "You can get really extreme with this stuff... but that framework puts less and less pressure on your overall portfolio."

---

Key Takeaways

1. Robustness of the 4% Rule:
   Despite historical and current market fluctuations, the 4% rule remains a viable strategy for retirement planning, though it often requires supplementation through other income streams or investments.

2. Diversification is Crucial:
   Relying solely on a 60/40 stock-bond portfolio may not be sufficient or practical for many in the FIRE community. Incorporating real estate, private lending, and other alternative investments can provide additional security and income.

3. Expense Management Enhances Financial Stability:
   Controlling and reducing living expenses can significantly extend the longevity of retirement portfolios, making the 4% rule more sustainable.

4. Adaptability to Market Conditions:
   In volatile markets, maintaining a diversified portfolio, building cash reserves, and seeking additional income sources are essential strategies to safeguard against downturns.

5. Community Engagement:
   Engaging with financial communities and seeking diverse perspectives can aid in refining retirement strategies and adapting to changing economic landscapes.

---

This episode of the BiggerPockets Money Podcast offers a thorough examination of the 4% rule's applicability in today's financial environment, emphasizing the importance of diversification, expense management, and adaptability for those pursuing financial independence and early retirement.

Transcript

[Mindy Jensen]

Hey Scott, is the 4% rule dead?

[Scott Trench]

Nope.

[Mindy Jensen]

All right, that wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Eddie 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.

[Scott Trench]

Thanks Mindy, great to be here. As always, great timing with your intro. BiggerPockets has a 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.

[Mindy Jensen]

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. Scott, for those who are not familiar with the 4% rule, what is the 4% rule? What are we talking about here?

[Scott Trench]

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 5050 stock bonds, a portfolio invested that way in major index fund investments, for example, 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 or right before certain major events like the inflationary period in the 60s, 70s and 80s in there. And so it back tests every historical period that we have great data for in modern history in a 30 year look back. So while there's an endless debate about whether there could be a future situation where the 4% rule does not hold up 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 and at the end of the 30 year period than when they began. So it's an answer to that question, how much money do I need to retire early?

[Mindy Jensen]

I love that description, Scott. That was a really great description. Bill Bengan 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 Bengan left off. So Bengan did it in the mid-90s. Michael Kitces did it in 2018 and ran them. I'm looking at Michael Kitces chart on starting principle 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.

[Scott Trench]

Yeah, 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 Bangan 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 in the coming months here. So that's the Update on the 4% rule in a sense that 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 caveat that first we've interviewed a lot of folks in the FHIR community. We have met very few, maybe none so far still who have truly retired at a 4% role allocation. We had a couple of folks reach out who said I retired at the 4% role. And 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 retired and not working on a mostly stock bond portfolio. So that's the first paradox is we still have yet to meet a true retired at exactly the 4% rule and have nothing else going on out there. Most people are well beyond the 4% rule or have some sort of cushion there. The second paradox here is Bill Bangin, the father of the 4% rule, who just came out with that research, who we're going to interview shortly here, two years ago announced that he was going 70% to cash and was like 30% in stocks and bonds out there for fear of market conditions here. I am the biggest proponent of the 4% rule in the math the way I introduced this today and I am not holding a 4% rule, 60, 40, 70, 30 or anything close to 5050 stock bond portfolio. I am heavily allocated to other things like real estate for example and private lending will be a part of my portfolio in the next few months. These paradoxes all exist in the context of the 4% rule, 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.

[Mindy Jensen]

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.

[Scott Trench]

Oh my gosh, this has been an incredible bull run for the last 12, 15 years essentially. And people have made an incredible amount of money 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 with those investments.

[Mindy Jensen]

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 last big low. So 2008 to 2025. Scott, do that math really quick. How long is that?

[Scott Trench]

That is 2, 5.

[Mindy Jensen]

17.

[Scott Trench]

17 years.

[Mindy Jensen]

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 Those same last 17 years, what have bond yields been? They've been fairly low. Right. Like I'm getting 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 4. 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. But the 4% rule is what I based my early retirement number on, and I am not in a 6040 portfolio. And that is what the 4% rule is based on. How many people do you think are in a 6040 portfolio who are fire fire ing in the next year, plans to fire in the next year, or have fired recently?

[Scott Trench]

I think less than 10% of the people who listen to BiggerPockets Money are in a 6040 stock bond portfolio, and it may be less than 5%. Let's review the data here. So here's Mindy Smiling Face and Infant Mirror. And now here's. 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 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 6040 stock bonds. So what we have here, more Infinite Mirror, is a dynamic of the, 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. Eight, maybe more on there. Well, I guess 17 years exactly, with 2008 being the bottom. 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, for example, has a yield to maturity of 4.3% and an income yield of 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 in 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 the way that the 4% rule has been historically discussed. The 4% rule you are not FIRE. If you need 2 1/2 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 two and a half million dollar portfolio 6040 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 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 Minda Jensen.

[Mindy Jensen]

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[Mindy Jensen]

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[Scott Trench]

Mindy sends this to all of her friends. So yes, I have read this.

[Mindy Jensen]

I do, I do. It's a really long article. If you want to read it, email mindy biggerpockets.com and I will send you a copy because it can be a little bit difficult to find online. It was not an online publication when it first came out. 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.

[Scott Trench]

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 do this particular, this kind of crazy thing to defray costs on this part. Like they all have something going on. Nobody does this with the 4% rule. Even though, again, like you're asking me, is a 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 that makes, that makes this job so interesting. Right? If it was just a 4% rule, every path would be the same for it, but it's not. It doesn't work that way in practice, doesn't work that way 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.

[Mindy Jensen]

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 affecting as when you've got a ten year window.

[Scott Trench]

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 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 do that again today. The issue is if you continue that 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 one answer to the question is just keep going for many, many more years than you really need to and amass 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 driving cash flow. And Mindy, I'd argue that you're kind of maybe in that situation to a little bit of a degree. Right. Like 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 the technical best practices in optimizing the portfolio component. Is that fair?

[Mindy Jensen]

I, as you were saying that I'm like, oh, that's me, Scott. 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 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. 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.

[Scott Trench]

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, but, but that, that there is a cost to that you're not Retiring at the optimal point, if that's your, your particular, your specific goal there. So that's, that's one answer to the question. The second way I think to really maximize that early retirement here 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 seven to 10 years, grind away, increase their income, begin amassing a slow but surely compounding pile of assets and then stop 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 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?

[Mindy Jensen]

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. 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 or the next five years, I guess, 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. I know so little about bonds because I'm not in them at all. 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 60ish 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 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 the 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? 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. But I wonder what other kinds of investments are acting like a bond. Like is gold. Gold is an inflation hedge.

[Scott Trench]

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. Obviously, I think bitcoin's going to zero. I've made that point very clear and multiple things there. You can go beat me up in the comment section as the 930 to a thousandth comment disagreeing with me in my video the rational investors case against bitcoin here on the bigger pockets money YouTube channel. Gold, by the way, is another one on there. Gold has been pacing the s and P500 for the last six years.

[Mindy Jensen]

Really?

[Scott Trench]

It's gone up to 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 the store of value, it has gone up in value way faster than the money supply.

[Mindy Jensen]

So I am looking at the historic gold prices again on macro trends dot net. They've got some really great, really great 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.

[Scott Trench]

So the real return for gold from 2000 has been what, like 5x? It's unbelievable, right? Inflation is not. This is real. This is inflation adjusted.

[Mindy Jensen]

This is inflation adjusted.

[Scott Trench]

But it's incredible how expensive gold is in terms of its historical value. I mean, investors are fearing the market right now. Multiple talk about that 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.

[Mindy Jensen]

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 biggerpockets money and make sure you are subscribed to this channel. Stay tuned after the break for more. It's a new year and you're probably thinking about one Taxes did you know that with the right investment strategy, you can receive strategic tax benefits for your situation while setting yourself up for long term success? This year at BiggerPockets, we're excited to share how BAM Capital's multifamily real estate investments can help accredited investors like you achieve tax efficiency and build wealth with top tier properties. BAM Capital helps maximize passive income while offering significant tax advantages through strategies like depreciation and cost segregation. Start the year brighter. Visit bamcapital.com biggerpool pockets today to learn about their offerings to help you keep more of what you earn and make 2025 a year of financial growth, your.

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[Mindy Jensen]

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[Scott Trench]

Thanks for sticking with us.

[Mindy Jensen]

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 commentary from the administration. Today there is a, an additional drop. I haven't even seen how much yet because I've been working, but it is based on double tariffs on Canadian steel.

[Scott Trench]

Look, 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. 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 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 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 that'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. And so I got out of the.

[Mindy Jensen]

Kitchen and where did you go?

[Scott Trench]

I put it into real estate. I have a I rebalanced my 401k and HSA accounts to 6040 stock bond portfolios. My bond fund of choice is VBTLX. I also have a large pile of cash which I'll put into I'll go back to private lending and that and 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 multifamily and or a sprinkling of office.

[Mindy Jensen]

If you don't want to rely on the 4% rule anymore or you don't want to rely on the 60, 44% rule, what options do you have?

[Scott Trench]

SCOTT well, look, I think, I think let's, let's go back to the 4%. Let's just, let's, 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 rule is held up second and it's all adjusted for inflation on the 4% rule. Math second. That 4% rule assumes that you will never decrease your spending in the event of a market catastrophe. It assumes that you will never assumes that you will never earn another dollar of any type with any work whatsoever in the event of a downturn. You could get a part time job, for example, to defray some of those expenses or offset components of it. It assumes you'll never get Social Security or other forms of benefits 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 inflation environment, when eggs get expensive to eat oats for breakfast instead for a while, it makes none of those assumptions. So all of those are ways to defray the risks. 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 on this. Like this is. This is a clear area that I'm comfortable with and have feel like I have some skill in private lending is another one 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. For example, like we had that Christmas lights guy kid come on the show kid. He was 25, but we had this Christmas lights man that was doing that making almost six figures in a couple of months at the end of the year. 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 passiveness of stocks and bonds, keep your formula and go hit it and then layer on you have likely many years between now and Trufire 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 discomfort in the pit of your stomach with the 4% rule as your only backstop 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 it, when, when a decision comes to actually pull the trigger and.

[Mindy Jensen]

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 $1 million 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 thirteen hundred dollars a month. 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. 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. And now these prices aren't available. It's been five years, we've had that market run up. If you are a renter, your rents are probably going to go up over the next 30 years.

[Scott Trench]

Yeah, that's a bet. 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 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 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 talking to people from high cost 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, 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 in some of those. 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 not have to worry about material inflation adjusted costs to my, to my living outside of my taxes and insurance and maintenance, I guess.

[Mindy Jensen]

Oh, and taxes and insurance. That's a great conversation that we'll have Another time. But yeah, I'm hearing that insurance, homeowners insurance is going up.

[Scott Trench]

Got a 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.

[Mindy Jensen]

Yes.

[Scott Trench]

Things.

[Mindy Jensen]

Absolutely. Shop it around. And if your property taxes go up exponentially, even if your property taxes go up just a little bit, 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.

[Scott Trench]

Yeah, I plan to shop all of my rental property insurance policies and my, my, my assessed values, my rental properties this year. I got a feeling that I've been neglecting that. And I got like a good 10,000 to $15,000 in cost savings things annually in that exercise for me.

[Mindy Jensen]

So they reassess on the odd year. So they're going to reassess this year and you will probably see an increase next year.

[Scott Trench]

Yeah, well, I guess. Well, well, well. Look, I think there's a case that my properties are down value because we got a buyer's market in the commercial side on some of these. So we'll see.

[Mindy Jensen]

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.

[Scott Trench]

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 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 cost fixed outside of your taxes, insurance and maintenance, to extreme installing solar panels, for example, to mitigate your electricity bill for the foreseeable future, to planting a garden to grow much of your own produce. You can get really extreme with this stuff. But that framework, as you apply it, puts less and less pressure on your overall portfolio and makes that margin of safety in the 4% rule safer and safer and safer and safer. 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 that generates 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 again, that's not accounted for in the 4% rule if you put in conservative expense estimates up front. So those are all things you can do. And then again, there's always the world of alternatives out there.

[Mindy Jensen]

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? Have you adjusted your fire plans in response to the recent market conditions? Please leave a comment below. Leave a comment on your 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 plans and what are your impressions of the 4% rule today? You can also email mindyggerpockets.com or Scott 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.

[Scott Trench]

Yeah, this was fun. Mindy, thanks so much for joining me today. And I'm glad we didn't have a 15 second episode.

[Mindy Jensen]

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.