BiggerPockets Money Podcast Summary
Episode: The 4% “Rule” is Wrong for FIRE—Here’s a Better Alternative
Release Date: May 6, 2025
Hosts: Mindy Jensen & Scott Trench
Guest: Tyler Gardner

Introduction

In this follow-up episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench welcome back Tyler Gardner, a former financial advisor known for challenging conventional financial independence principles. The trio delves deeper into the nuances of the FIRE (Financial Independence, Retire Early) movement, specifically scrutinizing the widely-accepted 4% rule.

Mindy Jensen introduces the conversation by highlighting the shift from their previous discussion on the psychological drivers of early retirement to a more technical exploration of portfolio management and withdrawal strategies.

[00:00] Mindy Jensen: "We are so excited to be joined by Tyler Gardner again for a follow-up episode... It's a conversation you will not want to miss."

The 4% Rule as a Guideline

Tyler Gardner begins by critiquing the terminology of the "4% rule," emphasizing that labeling it as a rigid "rule" can lead to unrealistic expectations. Instead, he advocates for viewing it as a guideline that should adapt to varying financial landscapes and personal circumstances.

[02:15] Tyler Gardner: "There is an inherent problem with the word rule... It can be incredibly and wonderfully dynamic."

He highlights that the original 4% rule was derived from a study by three Texas professors aiming for a formulaic outcome over a 30-year retirement horizon. However, Gardner argues that the rigid application ignores year-to-year market fluctuations and individual needs.

[03:56] Scott Trench: "If there's not rules, it's the wrong word. But are there guidelines that you would have for responses?"

Cash Reserves and Sequence of Returns Risk

The conversation shifts to the importance of maintaining cash reserves to mitigate sequence of returns risk, which refers to the danger of withdrawing funds during market downturns.

Mindy Jensen references advice from Emma Von Wisey, a CFP featured in their Life After Fire video series, who recommends having two years' worth of expenses in liquid cash to navigate market volatility.

[07:09] Mindy Jensen: "She's awesome. She, her, her wisdom belies her years."

Tyler Gardner concurs, reiterating that having a cash cushion allows retirees to maintain a more aggressive investment strategy without the constant fear of market downturns depleting their portfolio.

[07:50] Tyler Gardner: "Yes, a two-year safety margin tends to be enough for those who are relatively well off."

Portfolio Allocation and the New FIRE Number

The discussion advances to portfolio allocation, with Gardner proposing that a $2.5 million portfolio might be the new benchmark for FIRE in 2025, doubling the traditional $1 million target to account for factors like inflation and healthcare costs.

[18:24] Tyler Gardner: "2.5 million is the new million... which provides a genuine margin for error."

Scott Trench shares insights from a community poll indicating that $2.5 million is the median FIRE number among listeners, reflecting the growing recognition of increased financial needs.

[19:40] Tyler Gardner: "If your goal is to protect this 2.5 million at all costs... you might opt for a more conservative allocation."

Gardner discusses the balance between growth assets and fixed income, emphasizing that while bonds can offer stability, growth assets like stocks are essential to outpace inflation.

[22:02] Scott Trench: "Is there any price to earnings multiple... that would change that allocation?"

Target Date Retirement Funds: Pros and Cons

The hosts and Gardner explore the relevance of target date retirement funds within the FIRE community. These funds automatically adjust the asset allocation as one approaches retirement age. However, Gardner points out that the one-size-fits-all approach based solely on age can be problematic.

[24:26] Tyler Gardner: "They're a very good idea... but they are a one size fits all based on age. That is highly problematic."

Scott Trench critiques the reliance on these funds, arguing that FIRE adherents typically seek more aggressive growth than what target date funds offer.

Alternative Income and Skills as Portfolio Diversifiers

A significant portion of the discussion centers on the necessity of having alternative income streams or developing skills that can generate income independently of one's primary portfolio. Gardner emphasizes that diversification should include not just investment assets but also personal skills that can provide income irrespective of market conditions or age-related employment challenges.

[44:02] Tyler Gardner: "I think it's important just for everyone to think... what is the skill you have that can be exchanged for money at any time."

Mindy Jensen and Scott Trench share personal anecdotes about maintaining income streams post-retirement, such as part-time jobs or side businesses, highlighting the practical application of Gardner's advice.

Addressing Common Drawdown Detriments

Beyond investment strategies, the hosts and Gardner discuss other factors that can undermine retirement plans, such as healthcare expenses and the psychological impact of leaving the workforce. They stress the importance of preparing for unexpected life changes and ensuring that one’s lifestyle remains fulfilling without the constraints of a traditional job.

[57:37] Mindy Jensen: "What is my unfair advantage? What is my asymmetry in the hole?"

Conclusion

The episode wraps up with reflections on the complexity of achieving financial independence. Gardner advocates for a personalized approach that goes beyond standard financial rules, incorporating diversified income sources and adaptable investment strategies to ensure long-term sustainability and fulfillment.

[64:29] Tyler Gardner: "I'm using that language going forward with people because I do think it's important just for everyone to just think..."

Mindy Jensen and Scott Trench agree on the need for flexibility and continual reassessment of financial strategies to align with personal goals and changing circumstances.

[68:12] Scott Trench: "The portfolio theory stuff like I'm going down the rabbit hole big time."

The episode emphasizes that while foundational rules like the 4% guideline offer a starting point, true financial independence requires a dynamic, tailored approach that considers individual risk tolerance, income diversification, and proactive portfolio management.

Notable Quotes:

• Tyler Gardner [02:15]: "There is an inherent problem with the word rule... It can be incredibly and wonderfully dynamic."
• Mindy Jensen [07:09]: "She's awesome. She, her, her wisdom belies her years."
• Tyler Gardner [18:24]: "2.5 million is the new million... which provides a genuine margin for error."
• Scott Trench [22:02]: "Is there any price to earnings multiple... that would change that allocation?"
• Tyler Gardner [24:26]: "They're a very good idea... but they are a one size fits all based on age. That is highly problematic."
• Tyler Gardner [44:02]: "I think it's important just for everyone to think... what is the skill you have that can be exchanged for money at any time."
• Mindy Jensen [57:37]: "What is my unfair advantage? What is my asymmetry in the hole?"

This episode provides a critical examination of the FIRE movement's foundational principles, urging listeners to adopt a more nuanced and personalized approach to financial independence. By challenging the rigidity of the 4% rule and advocating for diversified income streams, the discussion equips listeners with a deeper understanding of sustainable retirement planning.