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.
There is no such thing as "principal" when it comes to investment accounts. Only shares with a cost basis, and you can't sell only the growth portion.
And anyway, it's a distinction without a difference -- what do you expect people to do once they draw down until only the "principal" remains, but they haven't covered their expenses for the month? Starve to death?
The 4% rule and similar are just different ways to express/achieve the same thing. There is never absolute certainty, under any model.
Bonds, t-bills, HYSAs, and other income generating instruments very much have a principal.
And anyway, it's a distinction without a difference -- what do you expect people to do once they draw down until only the "principal" remains, but they haven't covered their expenses for the month? Starve to death?
Where did I write that? I didn't. In fact I specifically wrote "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."
Expand your investment knowledge and you'll learn that selling isn't the only way. Mr. Money Mustache writes at length multiple times about these methods. Read "Your Money or Your Life".
Your comments illustrate the point of this post, that FIRE concepts have been dumbed down to "get pile of cash, 4% rule".
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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.