Summary5 min read

Podcast Summary: Optimal Finance Daily, Episode 3564

Title: The 4% Rule and Why We're Not Relying on It
Date: May 18, 2026
Host: Diania Merriam
Blog Source: Kiersten Saunders of Rich & Regular
Main Theme: Rethinking the 4% Rule for Financial Independence and Flexible Retirement

Episode Overview

This episode explores the widely known "4% rule" for financial independence and retirement planning, narrated from Kiersten Saunders’ perspective (Rich & Regular). It dives into why Kiersten and co. choose not to fully rely on the rule, highlighting their flexible, multi-stream approach to income for early retirement. Host Diania Merriam adds further context and critique, offering additional resources and reflection on the nuances and limitations of the rule as applied to modern FIRE (Financial Independence, Retire Early) enthusiasts.

Key Discussion Points & Insights

1. Discovery and Basics of the 4% Rule

Brain Explosion Moment:
Kiersten recounts learning about the 4% rule and the impact it made on her trajectory toward FIRE.
- Quote: "It's safe to say that my brain exploded when I learned about the 4% rule." (00:52)
4% Rule Explained:
In its simplest form:
- If you save 25x your annual expenses, a balanced, low-cost investment portfolio can theoretically allow you to withdraw 4% per year indefinitely without running out of money.
- Quote: "A well-balanced, cost effective portfolio can withstand an annual withdrawal of 4% into perpetuity. That's it." (02:24)
- This approach leverages investment growth (S&P 500 average return ~10%), low living costs, and reinvestment of returns to reach financial independence—"FU fund" status.

2. Why Not Relying on the 4% Rule Alone?

Kiersten and team choose not to “bet the farm” on the 4% rule, prioritizing flexibility and risk mitigation:
- "While we plan on following it, we're not betting the farm on it." (02:09)
- Portfolio Volatility: Sole reliance on market-based income exposes one to the emotional highs and lows of market swings, which are harder to tolerate with age and family/healthcare needs (05:36).
- Mitigation through Diversification:
  - Real Estate: Investing in paid-off rental properties for reliable cash flow, not just stocks and bonds.
  - Additional Income Streams: Building several passive income sources, such as side businesses, consulting, and blog monetization to avoid dependence on one paycheck or investment vehicle.
  - Quote: "Instead, we're diversifying this approach by supplementing our nest egg with other sources of income." (04:36)

3. Retirement Flexibility and Mindset Shift

Business Analogy: Kiersten compares FI to the “breakeven point” of life; everything above your fixed expenses becomes disposable income or “profit” (03:32).
Retirement Flexibility: The aim is to retire to something purposeful, not just from work:
- Continue to earn on their terms post-FI.
Millionaire's Mindset:
- "You can trade in the big old check life to create several smaller checks that produce the same, if not more, income passively." (07:26)
- Control and ownership over time and income are prioritized.

4. Host Reflection: Diania Merriam's Take

Diania contextualizes the 4% rule within FIRE forums as “more a guideline than a rule.” (10:42)
Critiques and Limitations:
- The rule overlooks the flexibility most early retirees have.
- Assumes no future income ever (not accounting for Social Security, side gigs, reduced spending, or Medicare).
- Ignores potential for decreasing expenses and individual inflation rates (especially among frugal retirees)—"for the frugal among us is laughable." (11:31)
Potential Downsides:
- Over-fixation on achieving 4% targets can delay meaningful life changes or cause “moving the goalpost.”

Notable Quotes and Memorable Moments

| Quote | Speaker | Timestamp | |---|---|---| | "My brain exploded when I learned about the 4% rule." | Kiersten Saunders | 00:52 | | "A well-balanced, cost effective portfolio can withstand an annual withdrawal of 4% into perpetuity." | Kiersten Saunders | 02:24 | | "While we plan on following it, we're not betting the farm on it." | Kiersten Saunders | 02:09 | | "We like to think of it as our money making money so we don't have to." | Kiersten Saunders | 03:13 | | "Instead, we're diversifying this approach by supplementing our nest egg with other sources of income." | Kiersten Saunders | 04:36 | | "You can trade in the big old check life to create several smaller checks that produce the same, if not more, income passively." | Kiersten Saunders | 07:26 | | "It's more a guideline than a rule." | Diania Merriam | 10:42 | | "While the 4% rule is very helpful, it can also cause fire enthusiasts to delay making big meaningful changes in their lives or obsess over moving the goal post." | Diania Merriam | 11:37 |

Timestamps for Important Segments

00:52 — Kiersten recalls learning the 4% rule and its initial impact
02:24 — Clear breakdown of the 4% rule’s mechanics
03:32 — The "breakeven point" analogy for FI
04:36 — Rationale for supplementing investments with other income streams
06:36 — Real estate as a hedge against market risk
07:26 — Reframing income: multiple small checks vs. single big paycheck
10:42 — Diania’s critique: “it’s more a guideline than a rule”
11:37 — Potential drawbacks of taking the 4% too literally

Takeaways for Listeners

The 4% rule is a useful benchmark, not an inflexible formula.
Flexibility, diversification of income, and ownership of time are key to a satisfying FIRE path.
Real estate, passive income, and entrepreneurial side streams can all be part of a robust retirement plan.
Early retirees often have—and can expect to have—more adaptable income and expense trajectories than the 4% rule assumes.
Rigid adherence to a “magic number” can be counterproductive; owning your time and knowing your own needs may matter more.

Resources Mentioned

Rich & Regular Blog
Mad Fientist: “The Problem with the 4% Rule (and Why You Could Retire Even Sooner)” (offered for deeper consideration on rule flexibility)

For those pursuing FIRE: Start with the 4% rule as a planning tool, but don’t hesitate to adjust for your personal circumstances and risk tolerance. Consider hybrid strategies for true financial independence and a more enjoyable early retirement!

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This is optimal Finance Daily the 4% rule and why We're Not Relying on It By Kirsten Saunders of richandregular.com I don't remember everything about that day, but it's safe to say that my brain exploded when I Learned about the 4% rule. I don't recall which blogger or financial article introduced me to the concept, but I know I've learned a little from a number of places. I also remember being skeptical, which led me to search for varying explanations from those who might debunk the math as a myth. But I never found it. What I did find was a tribe of adventurous, smart and quirky people in the fire movement who each had their own way of explaining it, and my life hasn't been the same since.
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With a vision for the future, a
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group of online homies cheering me on, and now a formula, I knew exactly what I needed to do shortly after that day. I remember crunching some numbers, reviewing various paths to get there, and challenging myself to be a millionaire by 2020. For a 27 year old grad student, it was exciting and overwhelming at the same time. We referred to our plan to achieve financial independence and retire early, but haven't gone in depth about the underlying math behind this decision.
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This is for several reasons.
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One, we're not financial educators and don't particularly enjoy presenting data this way. We're much more comfortable presenting concepts and applying tolerable doses of math so that our and your brains don't go numb over minutiae and interpretations of data. Secondly, there are plenty of people who have broken the 4% rule down in great detail, so it doesn't make much sense to replicate those bodies of work. Most importantly, while we plan on following it, we're not betting the farm on it. But considering we've built our own humble group of followers, allow me to explain the 4% rule as I understand it. In a nutshell, it goes a little something like A well balanced, cost effective portfolio can withstand an annual withdrawal of 4% into perpetuity. That's it. Put another way, if you can save 25 times what you typically spend in a year and invest that savings into a well balanced and cost effective portfolio, then you can safely withdraw 4% from that fund on an annual basis and never run out of money. This works because you're primarily withdrawing the earned interest or growth and not the principal, your contribution. In absolute simplest terms, if you can live below your means, save up a shit ton of money and invest it well, then you can live off the interest your investments produce. This is possible because on average, The S&P 500 has delivered annual returns of about 10%. Secondly, if you've built a portfolio that isn't saddled with high fees, the growth, if reinvested, remains in your portfolio, further boosting your returns. Combined, those three forces, low cost of living, steady growth, and low investment fees allow your portfolio to withstand a modest withdrawal continually. When you reach that point, you're considered financially independent or fi because you can live off the money your investments produce. We like to think of it as our money making money so we don't have to. This fund is also commonly referred to as your FU fund. I'm sure you can see why, though this is a personal finance blog. I also like to think of the 4% rule in business terms. In that sense, I define financial independence as the breakeven point of life, or the point where your fixed cost of living is covered. Any earnings above and beyond that point is pure profit, or in personal finance terms, disposable income. That's key, because while we do have our eyes set on opting out of work, we will certainly continue to earn money, the difference being it will be on our terms. So what are we going to do? In general, our goal is to pour as much of our disposable income into a portfolio that will allow us to withdraw 4% from it so that we can opt out of required work if we wanted to. But what makes our situation a bit more interesting is we're not completely hitching our wagon to a portfolio in the market to produce income for us. Instead, we're diversifying this approach by supplementing our nest egg with other sources of income. Think about it this way. On one hand, we could build a giant nest egg of low cost index funds and bonds and slowly pull from that over time, adjusting the allocation as we get older, the risk is when the market is doing backflips, we have to practice Jedi levels of aggressive patience as we watch our moolah ride a roller coaster. As we get older, that'll likely get harder to do because we'll have a child, maybe more likely need more health care and have expenses to consider that we don't have today. So what did we do to hedge that risk? We invested in real estate. This way we're not solely reliant on our stocks and bonds portfolio and the 4% rule to produce income for us. Instead, we'll have debt free rental properties that supplement our income. Not owing a mortgage on our rental properties boosts cash flow. So long as we have tenants and will cover a significant portion of our
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new mortgage, the only costs for our
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rentals will be operating costs, that is management fees, repairs, insurance, HOAs and property taxes, admin costs like legal fees and capital costs like long term repairs. So if you tie the two together, you can say our rental properties relieve the pressure from us to build a massive nest egg because we've built other vehicles of income. Not to mention the properties could appreciate in value and are great tax shelters for us. But we're not stopping there. Taking a page from a millionaire's mindset, we're actively building other streams of income that fit our lifestyle and skill sets. Here's how I look at it. You can go after the big job, the fancy title, and the corporate perks that come with it. In exchange for that, you don't own your time. Your productivity and security is limited to the whims of that organization and likely several other forces that are completely out of your control. Or you can trade in the big old check life to create several smaller checks that produce the same, if not more, income passively. What we love about this approach is it gives us multiple streams of income while having more flexibility to spend our time doing more of the things we love. It could be investing in a franchise, monetizing this blog, consulting work, micro investing, etc. The point is, we'll be in control, which you can't say when you're bound to one paycheck at a job. So there you have it folks. That's the underlying math and some more on our approach in a bit more detail. Whether you agree or not, the gist is the same. If you're in a position to explore alternative ways of earning income and are interested in owning more of your time, you should Consider this approach of frontloading your retirement. You just listened to the post titled the 4% rule and why We're Not Relying on it by Kirsten Saunders of richandregular.com I don't know about you, but
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The 4% rule is discussed constantly in various FHIR forums and online groups, and for good reason. Most of us are creating financial targets and plans around this rule, but I like to think of it as a guideline more than a rule. It's helpful as a way to determine that you have enough money to quit your job, but it's not really a withdrawal strategy. There are many factors that the 4% rule doesn't consider, especially for early retirees The Mad Fientist shared a blog post in collaboration with Nick Maggi to expand on this, it's called the problem with the 4% rule and why you could retire even sooner if you'd like to check it out. They argue that this rule doesn't account for the flexibility that most early retirees have, as demonstrated in the article. Today, many people who quit required work move on to fun employment, or they create other more passive streams of income where they simply don't need to sell investments for income. The 4% rule assumes that you have no other income and you will never have any other income for the rest of your life, which for most people isn't true. Social Security is going to kick in at some point, if nothing else. It also assumes that you will never decrease your spending for any reason. It doesn't consider when Medicare kicks in and reduces your health care costs. And it assumes that your personal rate of inflation will match the overall rate of inflation, which for the frugal among us is laughable. While the 4% rule is very helpful, it can also cause fire enthusiasts to delay making big meaningful changes in their lives or obsess over moving the goal post. But that's a wrap for another Monday show. Have a great rest of your day and start to your week and I'll be back tomorrow where your optimal life awaits.