[Anne]

When you fire and you are doing the 4% rule: what is some advice for handling when the stock market drops?

Do people just trust in the process and pull the same amount? Adjust down during these times?

Or do periodic checks that there numbers still add up?

Obviously each situation is a little different, but would love to here about some techniques to think about until I get there.

[Allen]

The 4% rule is fine for “back of the napkin” math, but it sucks as an actual withdrawal strategy.

It doesn’t really help prevent either type of plan failure:

1) overspending (what if the future looks worse than the “worst case” from the past?)

2) underspending (what if the future looks better than the “worst case” from the past?)

Dynamic distribution strategies like guardrails or ratcheting spending are far superior.

Using a static rule like 4% is like a pilot getting to cruising altitude and then handcuffing their wrists to the seat.

[Scott]

I use stop orders to protect my gains and I keep about 18 mos cash lying around in case of a recession.

Fire +10 works great for me

[Guy]

There are some books available on this specific subject. The basic premise is you create buckets large enough that you can live out of one bucket until the market recovers and then fill the bucket back up. Trying never to pull money out during a bear market.

Expect a bear market to last X period of time and make sure your cash on hand can weather X period of time.

[Trinh]

Make sure you have high dividend stocks in your portfolio to get ready for the rainy days.

[Dan]

The whole idea is that 4% should get you through the worst historical scenarios, so assuming you have a 60/40 portfolio you trust the process…

but verify regularly and rebalance when needed.

If you are anxious about bear markets, I would tilt your plan to the conservative side, but at the end of the day we all need to have faith in the numbers and our plan.

[Max]

I would keep 2 year emergency funds expenses in a HYSA. Very rarely you have back to back bad years in the market and two yrs is good timetable for the market to start rebounding.

[Brian]

Just keep 5 years of expenses in a stable low growth fund such as bonds, or even a HYSA.

[Brian]

I’ve been RE for 5 years and honestly, I just wing it. My current “has never failed” spending amount is $102K.

With a paid off house, no debt, and almost free healthcare, I haven’t hit that amount yet.

I’m getting closer every year, but it’s all gratuitous spending on dating, expensive restaurants, and travel.

I’m getting used to this lifestyle, but can dial it back when/if times get tough.

Eventually, I’ll probably settle down with someone who also brings something to the table, but I can survive without that as well.

Have more money than you need is basically my plan.

[Author]

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