Ain’t got time for the 4% rule

TL;DR: The 4% rule is the idea that if 4% of your savings can cover your living costs, you can comfortably retire on that amount (well, at least for 30 years…). It’s bullshit. Just more of the same tired financial advice touted by the financial industrial complex. It will take way too long for most people to reach that much in savings through stocks and bonds, and even if you do, withdrawing 4% a year from those investments will be eating into your principal. Over time you’ll run out of cash. A better approach is to explore the world of alternative, private investments in real estate and small businesses – those types of investments can offer inflation protected cash flow today, while still providing fantastic long term returns and wealth creation. Don’t take the advice of the financial pundits. With a little extra effort you can chart your own course to financial freedom and Ramen Retirement much sooner!

The 4% rule is often touted by the financial industrial complex, suggesting that if you invest all your savings in a mix of stocks and bonds (60/40), and withdraw only 4% from the account every year, it is highly likely that the money will last you at least 30 years of retirement (see Trinity Study). So if you can save up enough such that 4% is equal to your cost of living, then you can retire now. This study has been discussed and debated extensively, so I won’t weigh in here on whether 3% or 4% is the right safe withdrawal rate (SWR). But, there are a number of problems with this advice in general that I want to address below.

Takes way too long

The first problem is that it’s going to take way too long. At a 4% return, living in the midwest on ~$80K a year will require saving $2M. In San Francisco living on $160K a year needs double that, $4M. As someone in the 5th percentile of earnings for San Francisco ($350K household), if they own their home, they can save ~$72K per year after tax and retirement contributions, which means it will take them 21 years to amass $4M after tax:

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Source: Lifetime earnings calculator

Sure, you could include 401K savings and assume they can reach $4M across both after 17 years. But the point is, that’s an awfully long time to wait! That is the deferred life plan that the financial industrial complex wants you to buy into. Keep in mind, the above scenario is for a household in the 5th percentile of earnings for SAN FRANCISCO! They are making $350K per year (~7X the US median household income), and still it takes them a few decades to reach this milestone. The math works out to be shockingly similar for someone in the 5th percentile living in Kansas City – it will take them 22 years to amass ~$2M in savings. Roughly 15 years if you include their 401K. Again, it’s worth repeating that these are individuals in the 5th percentile of earnings for their region! What about the other 95% of people making less? They don’t even stand a chance!

Speak for yourself, but I don’t plan on working for someone else the rest of my life. I want the time to spend on the productive and leisure activities that will be most fulfilling. I don’t want to wake up at 50 realizing the prime of my life has passed me by.

You’re eating through your savings

But that’s not the only problem. If you follow this advice, when you finally step back and ‘retire’, you’ll actually be eating into your savings every year. Yes, the idea is that the value of your stocks and bonds should go up enough to offset that, but the fact is you’re drawing down on that capital stock. Over time, it will approach zero, or at least the purchasing power will be inflated away. This is okay if you plan to live less than 30 years once in your retirement, but I hope to do a little better than that both by ‘retiring’ earlier and hopefully living longer! Not meaning to boast, but the ‘Blueprint Income’ retirement calculator (image below) says I might live to 98, and I’ve already reached Ramen Retirement at the age of 34. I need a nest egg that is going to be inflation protected and durable over time. I don’t want to end up on food stamps in the twilight of my life, just ‘getting by’.

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Do you plan to leave nothing behind?

Now, even if you do check out early, why not leave a little something behind for spouse and children? Do you really want to say that over the 80-90 years on this planet you entered it and left with exactly nothing to your name? I’m not a material person, but I do care about having the time and flexibility to pursue proper interests and passions in life. Why shouldn’t someone be able to build up real capital over the course of a lifetime? If you think of your children as an extension of yourself through time, then why not give them a leg up as well to help them reach their own personal Ramen Retirement sooner, so they can enjoy this life we’ve built and pursue their passions? Surely your children and grandchildren will thank you. Be generous to your future selves.

So what’s the alternative?

Well, if you’ve read any of my material, the answer is obvious – invest in something other than that patsy-dominated-public-stocks-and-bonds. There are higher, inflation protected returns that generate strong cash flow today. Investments in real estate and small businesses are some of my preferred avenues to access these types of returns. The financial industrial complex only recommends public stocks and bonds, because that’s the only thing they can profit from at scale! It’s like the consumer packaged goods companies who try to sell you processed foods – they can make those things at scale, quite profitably, but that says nothing of whether it’s good or healthy for you the person who has to eat it! So don’t take the financial advice from Wall St. They don’t care about you or your future. Only you can care for your future self.

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To illustrate just one alternative path, instead of investing in stocks, those same ‘5th percentile’ individuals could invest in cashflow generating real estate instead. What would this do for them? The answer is a few pretty awesome things:

  1. Inflation protected cashflow: first, their investments will generate real cashflow from day one – as opposed to the ~2% offered from stocks, they will be getting 8%+ per year on their investments. This means their passive income will start growing right away, and compound on itself
  2. Higher returns over time: They will amass greater wealth, faster, as the value of that real estate grows rapidly too!

In the case of the San Francisco 5th percentile household, they’ll reach $4M in real estate assets in 14 years as opposed to the 21 years required with stocks. In addition, that real estate will be generating so much passive income that they will be Ramen Retired after only 13 years! At that point they could stop working and their investments should sustain them indefinitely – no drawdown on capital! When I account for the real estate returns, I also account for holding back reserves to repair and improve the property, so you can expect that the properties will remain useful over the long term:

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If you consider the Kansas City 5th percentile household they’ll reach $2M in real estate assets after 14 years vs. the 22 years referenced above. Moreover, they’ll be Ramen Retired, with inflation protected passive income, after just 14 years.

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So you can see that there is a different path. Traditional financial advice only considers one way to invest your money – stick it into stocks and bonds. As if those are the only options in the investment universe that a respectable person would consider. Bullshit. The truth is there are a ton of ways to generate cash yielding, inflation protected returns that outperform both stocks and bonds. With the right real estate investments (single family rentals, syndicates) you can be making 8-10% or more a year in cash, with growing equity value over time. Investing in private businesses is another way to access lower risk cashflow, with 20-40% annualized returns. Nobody tells you about these opportunities because… well… why would they? They’d rather keep those opportunities for themselves. Also, nobody on Wall St can make money on them, so there’s no incentive to put up a billboard advertising them to you. You need to put in a little work yourself. But it’s just a little extra effort, and the reward is worth it, I assure you. Ramen Retirement was created to help you think through and figure this out for yourself. Join me on this journey and together we’ll chart our own course to a rich, fulfilled life.

To your health, wealth, and a life of abundance!


For those interested, there are a ton of not-very-useful calculators out there focused around the 4% rule. I say not-very-useful because I think all of these are missing the point by focusing on a 4% approach to things, and they also assume basic stock market investments without considering the myriad of alternatives to generate cash flow today:

  • The FIREcalc is kind of interesting in that it show you the scenarios when a ‘4% rule’ retirement plan might fail you before your 30 years is out
  • The 1000monthlyclub is a neat little visualization around some of the options to generate passive income. It notes that some of the better ways might be through real estate, and businesses… which is my main focus. The site’s a little self defeating though and ultimately not that helpful beyond potentially steering you into high risk investments while chasing yield
  • Workfortime has also built a rather simplistic ‘calculator’ to estimate how much you need to save in order to reach your target retirement with the 4% rule

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