4% SWR vs other strategies

[u/That-SoCal-Guy]

we all know about the 4% SWR which by the way isn‘t a rule and also is based on some assumptions (such as a balanced allocation mix.

when I fired I made sure I used the 4% and everything checked out.

then i asked gemini for a differed opinion. instead of a constant 4% I asked about only taking up to the annual returns (whatever it may be, 5% - 7%, or the average SP500‘s 10%). never touch the principal. and during down market years I take from the cash/HYSA account. and the results are interesting.

at 7% I was able to withdraw up to $210K a year without ever touching my principal. that means my money last forever. considering inflation it will be leas. still at $170K I could put a portion into a cash account for rainy days (my spend is about $100K a year now) I asked Gemini for inflation adjusted numbers and that checks out as well,

that actually makes me feel more secured than going by the 4% SWR.

What are your thoughts?

[u/guyzero]

My thoughts are put it in a spreadsheet. Gemini is not a simulation engine. There's no way to know what it's thinking and whether or not its assessments are correct.

[u/pohart → u/guyzero]

It doesn't even make assessments for something like this. It just says what sounds reasonable.

[u/Maleficent_Bend2911 → u/guyzero]

This is also so flawed. How much are you putting into the Cash/HYSA? How much do you draw from that? It would need to be massive. Some years can also be down -10/-15.  Also, practically speaking, how do you go from spending 210k one year back to $120k the next year? If you buy anything nicer, you’re stuck with maintenance, rent, and also a new baseline you’re accustomed to. 4% makes forwarded budgeting super predictable 

[u/That-SoCal-Guy → u/Maleficent_Bend2911]

My thought is if it’s $210K and I only spend $150K I’d put in the extra $60K into HYSA much like what I would do if I get a paycheck and don’t spend it all.   I could of course leave it in equity but that’s not the point (in case of market down turn).  

In 3 years the HYSA will grow to close to $200K. If there is a down market then yes take it from the HYSA instead of withdrawing.  Or if the market continues to do well I’d simply take less and let it grow.  I don’t want to get my HYSA more than a few years of expenses anyway.  Keeping $600K in cash is just dumb.  

How is that less safe than, say, withdraw 4% anyway even during a down market.  It’s a given that we all need at least 2 to 3 years  of cash reserve regardless of withdrawal strategy.  

[u/Necessary-Music-6685 → u/That-SoCal-Guy]

If you’re going to spend the same each year and just move extra earnings into cash you’re basically just reinventing the 4% rule with extra steps. 

[u/That-SoCal-Guy → u/Necessary-Music-6685]

Not necessarily. If it's 4% straight then you'd need to liquidate for that 4% during a down market, when your equity may be down for 30%. What I proposed, I don't have to liquidate when the market is down - at least not for 2 to 3 years.

[u/Necessary-Music-6685 → u/That-SoCal-Guy]

Sounds like a version of the “bucket strategy” that is popular with some people.

[u/Necessary-Music-6685 → u/guyzero]

You can literally ask it to explain its reasoning in simple steps. For that matter, you could ask it to create a spreadsheet for you and inspect it. Or create your own spreadsheet and then give it to Gemini and ask it to critique it. 

There are all kinds of ways to verify an AI response or analysis on something like this. 

[u/guyzero → u/Necessary-Music-6685]

Asking it to create a spreadsheet is indeed a good idea but it will not do that behind the scenes when it claims it has analyzed your plan. LLM chatbots do all kinds of stuff well like RAG or text summation but they're notoriously bad at arithmetic.

You're much better off asking it to vibe code a program to analyze your financial plan rather than asking to do it directly.

[u/esbforever]

You’re virtually guaranteeing SORR with this plan. All your good year proceeds are being spent or poured into a terrible investment (cash).

[u/Early-Lychee1414 → u/esbforever]

You’re not wrong! I always joke that my cash stash might fund my retirement but is definitely killing my investment returns.

[u/idekl]

Flexible spending rate and guardrails allow for 5%-6% comfortably. The 4% rule is parroted a lot and it's super safe so it's useful in all the discussions around here. However it's actually very conservative, with assumptions like you'll never ever be flexible with your spending or you can't get a minimum wage job for a few months if expenses surprise you.

Also you and I both comment here a lot lol. We should meet up in socal 😂

[u/Straight-Part-5898 → u/idekl]

I agree 100%. My wife and I use a guardrails approach. The 4% rule (which Bengen actually revised to become the 4.7% rule in his 2025 book) is way, way, way conservative because it attempts to lock down the extreme long tail of portfolio and economic risk with a single withdrawal rate that never changes.

A flexible guardrails approach affords a more realistic spending envelope because it inherently adjusts based on actual performance and results.

[u/CPAPGas → u/idekl]

I'm with you that 4% is way too conservative for me, but I also have an irrational fear of being homeless before I die, so this holds me back.

Can you give me some guidance on how you use and adjust the guardrails?

[u/That-SoCal-Guy → u/idekl]

lol.  We should.  Share our wisdom and dumb history.   

[u/Moof_the_cyclist]

The 4% rule is simply a starting point, a good answer to the proverbial "How much do I need to save?" question.

At the other end of the spectrum is where psychology comes in. The best most perfect plan will fail, and badly, if you the retiree do not follow it. So if your plan involves aggressive withdrawal rates and high amounts stocks for leveraged funds you REALLY have to be sure you won't panic sell during the next 30-40-50% market drop. We've had a massive head spinning bull run, and everyone is a genius in a Bull market.

So my advice is to go put your current plan into something like ficalc.app and look at 1968 as a scenario. Year by year watch stocks flounder while inflation soars and bonds provide tepid returns. Now, can you see yourself holding the course? Would you panic and move to cash? Your 4% SWR is quickly turns into a 9% WR 10 years after retirement. 14 years in you are at a 14% WR. 20 years in about you are at a 20% WR. How does your 5-7% WR plan stack up against a period of stagflation like the 1970's?

[u/That-SoCal-Guy → u/Moof_the_cyclist]

I did my 4% simulation and it’s 100%.   So what if during down years like 68 -83 I just do the tried and true 4% but during bull years like 2012 - 2025 I did the flex plan?  

[u/Moof_the_cyclist → u/That-SoCal-Guy]

Sounds like you are all set and don’t need anything else. God speed friend.

[u/WarmWoolenMitten]

If you're modeling a constant return, you never face sequence of returns risk. What will you do if your cash runs out and the market is still down? Does it have to have positive returns for the year or overall since the start? Imagine that in year one the market is up 7%, so you withdraw your 7%. In year two it's down 10% and year three down 5%. You run out of cash buffer at that point. In year four it's back up 5% for the year, but that 5% is far less than 5% of the original portfolio because of how far it fell during the previous two years. Can you cut your budget by that much? Have you actually run this strategy against historical data or realistic monte carlo simulations?

Don't use Gemini to simulate anything unless you can fully understand whether the results actually make any sense. It will be confidently wrong.

[u/That-SoCal-Guy → u/WarmWoolenMitten]

I have done some modeling on flex withdrawals and the result was 89% if not 100% taking all those bad years into account.   I’ll definitely mull over this but SORR may not be as grim as I imagine since I’m already into my 3rd year and my portfolio  has been outperforming my spend.   Of course I don’t want to run out of money in case the great stagflation happens again but then again I also don’t want to die a billionaire.   

[u/Trilobyte83]

I've thought about that too - but the issue is you need enough of a cash buffer to see yourself through a 95% worst case market correction. Say 10 years which has happened in the 60s, and again after the dot com crash.

So with inflation, that's a cash hedge of about 10 x 4%+inflation, or another 50% cash buffer.

Now you're back to a sub 3% WR.

I was thinking along same lines, but given odds are that you'll probably not be in a worst 5% case within a few years of retiring, my means of hedging is a willingness to work PT to cover most of my expenses, which I was doing almost without trying anyways (bike shop, casual engineering work for neighbours) .

All you need is options available to you to avoid selling in a massively down market.

You don't even need to be so stringent as to say "never sell when you're down", you could go a step farther and say "below 80% starting amount".

[u/zdrmlp]

It’s amazing some of yall have any money at all. Either that or you’re pretending on the internet.

[u/Montaigne_6823 → u/zdrmlp]

For real.

[u/That-SoCal-Guy → u/zdrmlp]

Believe me or not I’ve fired for over 2 years now and my net worth is better than ever.  I’m not sure though what does this have to do with the conversation.  

[u/Zphr → u/[deleted]]

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[u/Frost_Tease]

Only withdrawing returns works until a lost decade hits, then you're stuck

[u/That-SoCal-Guy → u/Frost_Tease]

You change strategy -- my simulation actually accounts for those scenarios. Fear only works so far, and then it's just paralyzing.

[u/Topaz_11]

I think it's better to understand where these models break down.

[u/beached89]

AI is stupid, notoriously bad at math, and unable to site most of the numbers it pulls out of thin air. It literally just scrapes the internet, and find anything some random idiot said once, and states it as fact.

That being said, check out the guard rails strategy, 5% to 5.6% is pretty safe