If No One Follows the 4% Rule, What IS the Right Withdrawal Rate?

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May 23, 2025

In this engaging discussion, Karsten Jeske, aka "Big Ern," an early retiree and expert on safe withdrawal rates, challenges the widely accepted 4% rule for retirement. He shares insights on why even he doesn't follow it, suggesting a more comfortable withdrawal rate for early retirees. Karsten emphasizes the need for adaptability in withdrawal strategies amidst today's volatile markets, discusses diversifying portfolios with cash-flowing assets, and presents differing views on whether to pay off mortgages or invest. Essential advice for aspiring FIRE followers!

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INSIGHT

4% Rule Applies to 30 Years

The classic 4% safe withdrawal rate mainly applies to a 30-year retirement horizon.
Early retirees retiring for 40-50 years need a lower withdrawal rate to reduce failure risk.

INSIGHT

Sequence of Returns Risk Matters

Sequence of returns risk can cause failure even with lower withdrawal rates like 3.3%.
Early poor market performance harms long-term portfolio sustainability more than average returns suggest.

ADVICE

Factor Side Income Into Plans

Personalize your safe withdrawal rate by factoring in additional income streams like side gigs or Social Security.
Consider whether income reliance affects your retirement enjoyment or stress, especially during recessions.

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Most people assume the “safe withdrawal rate” for retirement (or early retirement) is 4%. But, if that’s the case, why is it SO hard to find anyone who’s gotten to their FIRE number, quit their job, and lived entirely off of the 4% rule? If the 4% rule is so safe and backed by solid math, why are so few FIRE followers confident enough to actually use it? We don’t know. So we asked Karsten, AKA “Big Ern,” from Early Retirement Now to help answer!

Karsten has done the math, and the 4% rule checks out. But even he, an early retiree, doesn’t follow it. So, instead of the safe withdrawal rate, what’s the comfortable withdrawal rate early retirees should be following to FIRE on time and with less stress? And with turbulence in today’s stock market, and rising prices (which cause your spending to rise), what does the right FIRE portfolio look like?

Karsten walks through how your portfolio should change as you approach FIRE. He explains why hedging with cash-flowing assets may be a smart move, how much cash to keep on hand, and whether those reserves can actually protect against sequence risk. Plus, should you pay off your mortgage on the path to FIRE? Scott and Karsten offer two different perspectives on whether it’s smarter to pay off your mortgage or invest that money instead.

If you’re planning to FIRE, this is info you need to know!

In This Episode We Cover

Is the 4% rule math or myth, and why doesn’t anyone actually trust it enough to use it?

The optimal FIRE portfolio for less risk and higher potential returns

Cash reserves and emergency “buckets” to limit your sequence of returns risk

Should you pay off your mortgage early or invest that money instead?

One smart hedge to protect your portfolio against a stock market downturn

And So Much More!

Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/money-643

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