Is 4% SWR really safe?

Hello Ladies & Gents,

We have already a thread about the applicability of 4% rule in Switzerland. However, I’m opening a new thread as I discovered more general problem with the rule itself.

Although it’s recommended by 99% of financial advisors and FI rockstars (e.g. MMM, JLCollins), I started doing some research on that rule (William Bengen’s papers, Trinity Study, etc) and I came across a reddit thread that mentioned a critique of that rule by William F. Sharpe (an economic Nobel prize winner who figured out CAPM and Sharpe ratio):

In the blog posts he mentions a paper proposing alternative solution to 4% rule. I don’t have access to it, but here you can read the abstract:

“The floor-leverage rule is a spending and investment strategy designed for retirees who can tolerate investment risk but insist on sustainable spending. The rule calls for purchasing a spending guarantee with 85% of wealth and investing the remaining 15% in equities with 3× leverage. Surprisingly, this leverage is a tool for managing risk. The authors compare the rule with some popular strategies, illustrate it for a variety of retiree preferences, and evaluate its historical performance.”

I don’t understand much of that critique and I guess I need a free weekend to analyse it more carefully. I’m curious about your opinions about the rule.

It seems like common sense that 4% cannot be fixed rule - if during the year of the crash my $1M portfolio becomes a $0.5M, my 4% rule generates $20k, instead of $40k, and that might be not enough for living. And even if it were enough for a living - spending such huge chunk of your portfolio during recession years seems to be a solution far from optimal.

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Hi 1M

thanks for bringing up this topic again. Since my original post about the applicability of the 4% rule I did some more research and without citing sources, my current opinion is that the 4% rule:

  • Is NOT safe
  • Makes not much sense as a WR
  • Is based on insufficient data (Trinity Study).

However, I see it as a good rule of thumb to get an estimate of how much money (invested in stocks/bonds) you need to reach FI.

My go-to resource regarding SWR ideas pointed out to me by @nugget is:


Hi @ElMago,

Thanks for you feedback. I’m glad that I’m not the only one skeptical about the 4% rule in the forum. I’d be really happy to learn about some simple alternatives, but I’m afraid the alternatives won’t be simple to apply.

PS. I really strongly recommend everyone to listen to the podcast interview:

This guy is really brilliant. He’s one of the persons standing behind academic research that inspired creators of passive index funds.

Thanks for the recommendation, @1000000CHF! I only understood about half of what they were talking about, but the rest was very interesting. I’d like to find the time to look into his RISMAT software…

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I just had a deep reading into the series from ERN. I like the 60Y model
I haven’t downloaded the Excel (Google DOCS) sheets but definitely is a must.

We’re close to ER (2019) so I’m starting to read more about this topic and putting in place a Withoughal strategy.
Since we’ll be moving to LAM I need to estimate and simulate a dramatic scenario with high inflations rate and currency exchange scenarios.

Has any of you started to model some scenarios in Excel?