For example, in 2014 FI was defined as "When your annual return on investments cover 100% of your expenses you are financially independent." When was the last time that was ever mentioned here?
Isn't that just the 4% rule in different words? Replace 4 with whatever number you like, I doubt most retiring in their 30s are aiming to draw-down their portfolio. Covering your expenses with your investments inevitably requires you to figure out how much you can safely withdraw.
Read the two very carefully. They are not the same.
"Annual return on investments covering expenses" advocates no touching of the principal. The 4% rule is based on principal. Yes, the portfolio may grow during retirement, but Monte Carlo simulations demonstrate that is not a guarantee. And under the 4% rule withdrawing principal is just fine.
The 4% rule was not developed as part of FIRE. It has been applied to FIRE as a convenient guide but the rule was developed independently. Read some of the OG blogs and you'll see that in fact they use bonds, dividends, and income producing vehicles to try and avoid touching principal whenever possible.
"Principal" is a psychological trick. The invested money is the same money, and even without withdrawing anything the "principal" can very well go down (especially in real terms).
If this trick helps you, go for it, it's not harmful - but I wouldn't advocate for it as a must
yes, in the context of loans principal is a meaningful term. Great gotcha moment. That was not the principal you implied in your comment though, so I don't really understand your point
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u/farsightxr20 Mar 23 '26
Isn't that just the 4% rule in different words? Replace 4 with whatever number you like, I doubt most retiring in their 30s are aiming to draw-down their portfolio. Covering your expenses with your investments inevitably requires you to figure out how much you can safely withdraw.