BiggerPockets Money Podcast: The Mad Fientist’s New Rule To Retire Early Even Sooner
Release Date: December 24, 2024

Introduction and Episode Overview

In this special holiday episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench welcome back a favorite guest, Brandon the Mad Fientist. This encore episode delves into the rigidity of the traditional 4% withdrawal rule commonly used in financial independence (FI) strategies. Brandon presents an evolved approach that challenges the conventional wisdom, offering strategies to retire earlier and enjoy greater financial flexibility.

Brandon’s Personal Update

[06:27] Brandon the Mad Fientist:
"Yeah, thanks for having me back. It's always good to chat to you guys and I can't believe it's been that many episodes."

Brandon shares significant personal milestones since his last appearance, including the birth of his 10-month-old son, purchasing a new home in Scotland, and releasing a musical album. These life changes underscore his commitment to balancing financial independence with personal fulfillment and creativity.

Reevaluating the 4% Rule

Scott Trench provides a concise overview of the 4% Rule, a staple in the FI community:

[01:57] Scott Trench:
"The 4% rule is a rule of thumb that says that for the periods that we have data on market performance for, if you started with a $1 million portfolio and you withdrew 4% of that or $40,000 per year in no historical 30 year period would you have ever fully run out of money."

Brandon introduces his critique of this rule, emphasizing that it was originally designed for standard retirement scenarios, not early retirement. He collaborates with financial expert Nick Maggiuli to explore more flexible withdrawal rates tailored to early retirees' lifestyles.

Introducing Flexible Withdrawal Strategies

Brandon breaks down the 4% Rule by distinguishing between discretionary and non-discretionary spending:

[03:10] Brandon the Mad Fientist:
"This is how it would look. So say you spend $40,000 a year. 50% of that is discretionary. So that means your central spending spending, which is $20,000, that's going to just increase every year with inflation because we figured, you know, this is essential stuff."

He proposes three simple rules to adjust withdrawal rates based on market conditions:

1. Bear Market (20%+ decline):
   [04:47] Mindy Jensen:
   "Withdraw zero for that discretionary spending."

2. Market Correction (10-20% decline):
   [06:49] Brandon the Mad Fientist:
   "If the market is in a correction about 10% below recent highs, then withdraw 50% of that discretionary budget."

3. Stable or Rising Market (Less than 10% decline):
   [09:06] Brandon the Mad Fientist:
   "Otherwise, if the market is not down more than 10%, withdraw your entire discretionary budget."

By implementing these rules, early retirees can potentially increase their withdrawal rate from the traditional 4% to as high as 5.5%, significantly reducing the required retirement portfolio size and accelerating the journey to financial independence.

The Importance of Tracking Spending

Mindy Jensen emphasizes the necessity of meticulously tracking expenses:

[15:00] Mindy Jensen:
"I did have a lot of categories. I did separate out from alcohol and beer at breweries and parties because I have parties in my backyard. But I did that on purpose because those are the things that I can absolutely cut out."

Brandon concurs, highlighting that understanding and categorizing spending allows retirees to adjust discretionary expenses during market downturns, thereby preserving their overall portfolio.

Defining Fixed vs. Discretionary Expenses

[19:00] Brandon the Mad Fientist:
"For me personally, like I mentioned in the article, some things that people would classify as discretionary are non negotiable for me."

Brandon advises listeners to define their own categories of essential and discretionary spending based on personal values and lifestyle choices. This personalization is crucial for effectively implementing a flexible withdrawal strategy.

Personal Experiences with Frugality and Spending

Brandon shares his journey from extreme frugality to a more balanced approach to spending:

[22:12] Brandon the Mad Fientist:
"I have started to spend more and I love it. And as somebody who's supernaturally frugal, spending money meant that I failed in some way."

He discusses how shifting his mindset from viewing all spending as negative to recognizing the value of spending on experiences and items that enhance his life has been transformative. This evolution underscores the importance of not just accumulating wealth but also enjoying it responsibly.

Evolving Beyond Frugality Post-Financial Independence

Scott Trench and Mindy Jensen explore the psychological and lifestyle shifts that accompany achieving FI:

[58:14] Scott Trench:
"The journey to financial independence starts for most people with this pretty extreme bent on frugality... But don't get so wrapped up in that as your identity that at the end you can't evolve to living the lifestyle that you want and make yourself happy."

Brandon agrees, emphasizing the need to transition from a frugal mindset to one that embraces spending on meaningful experiences:

[63:41] Brandon the Mad Fientist:
"Spending is a skill and it is hard to make that very big change. I'm only developing that skill over the last two or three years as I've actually worked on it."

This shift is crucial for long-term happiness and sustainability of the FI lifestyle, ensuring that the pursuit of financial freedom enriches rather than restricts one's life.

Conclusion and Key Takeaways

The episode wraps up with reaffirmations of the importance of flexibility, personalizing financial strategies, and evolving one's relationship with money post-FI. Brandon encourages listeners to view financial independence as a foundation for personal growth and fulfillment, rather than merely a financial milestone.

[66:14] Mindy Jensen:
"It's important to keep track of where your money's going... financial independence is all about flexibility."

[67:24] Scott Trench:
"If you're just reasonably flexible and creative over that period of time, you're probably going to be fine."

Notable Quotes

• Brandon the Mad Fientist [04:47]:
  "These very simple rules might shave off years in the journey to financial independence for many people."

• Mindy Jensen [15:00]:
  "Tracking is the entry point to get in the game at all."

• Scott Trench [58:14]:
  "Don't get so wrapped up in that as your identity that at the end you can't evolve to living the lifestyle that you want and make yourself happy."

• Brandon the Mad Fientist [63:41]:
  "Spending is a skill and it is hard to make that very big change."

Final Thoughts

This episode provides a nuanced perspective on the commonly accepted 4% withdrawal rule, advocating for a more personalized and flexible approach to retirement spending. Brandon the Mad Fientist's insights, backed by data and personal experience, offer valuable strategies for early retirees aiming to balance financial security with a fulfilling lifestyle. Listeners are encouraged to revisit their spending habits, redefine essential and discretionary expenses, and embrace a dynamic withdrawal strategy that adapts to market conditions.

Resources Mentioned:

• Brandon’s Article: Published at themadvietist.com (link available in show notes)
• Just Keep Buying by Nick Maggiuli: Recommended read for further insights
• Brandon’s Music: Available at madfientist.com/album

Connect with Brandon the Mad Fientist:

• Website: madfientist.com
• Social Media: @madfientist on Twitter and Facebook

This summary captures the essence of the podcast episode, highlighting key discussions, insights, and actionable strategies for achieving and enjoying financial independence.