BiggerPockets Money Podcast Summary

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

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.