I think of pensions like social security or other annuity. The closer you are to receiving them the easier they are to model. It is important to know the details (how payout is determined, COLA, sposal benefits, etc.). For an in-depth analysis look at these articles (the whole series on the 4% rule is quite extensive):

https://earlyretirementnow.com/2017/01/04/the-ultimate-guide-to-safe-withdrawal-rates-part-4-social-security-pensions/

https://earlyretirementnow.com/2017/07/19/the-ultimate-guide-to-safe-withdrawal-rates-part-17-social-security/

Thanks for the great post. My wife is a local government employee and we put her pension value in our FI spreadsheet and know how much she can expect at 65, would you consider this a part of the 3-4% number like the ‘gap number’ method? Example if she retires now she can expect $700/month = $8400/year = knock $210,000 off our FI number?

Or do you consider pensions to be completely separate like social security or an inheritance?

Jeff

Yeah, I’ve known people in retirement that hit “frugal fatigue” and wanted to live a little and loosen the purse strings but were confined. It can result in bit of bitterness. There are a lot of knives in the air to juggle when considering retirement, and early retirement has the unfortunate side effect of compounding errors in our calculations.

Joe, I think part of the problem on those forums is there’s TOO much “information” (noise). Like, 975 comments on the MMM/4% forum you mentioned. I’ve read many, many blog entries on the 4% rule but the forums get way too excessive to efficiently read through them.

There are many, many people touting the “4% Rule” without digging into the weeds to see what it really entails. And very few ever mention what it actually -feels- like to see your account go down by 30-50%. Many, many people freak out and pull out of their stock investments at that point (which blows the whole plan up). Even some of the best bloggers have said “throw it into an index fund and pull 4% forever”, which would have be catastrophic if you retired in 2000.

I think The Happy Philosopher put it best: “To question it is considered heresy by some”. Well, we NEED more calm, logical questioning and discussing of all these things. There is a lot of bad, wrong, and misleading information out there. I’ve posted facts (not opinion) on blogs only to have it be laughed at (and even edited to go inline with the original author’s ideas!) as it went against “conventional FIRE” wisdom. When we laugh at or edit facts, it’s not a good situation! Calm, deeper discussion like this post is ALWAYS a positive in my book.

Thanks for the question. Health care in the United States is the one externality that I have not been able to wrap my arms around. If health care costs are a known entity the 4% rule just got a whole lot more robust. I feel I can hedge against all other threats. It is worth going through the mental exercise of looking at worst case scenarios though. Stress testing your plan will make the unknown less scary.

I found your blog through MadFientist and I have read through many of your posts. I am curious on your opinion of the 4% rule if healthcare costs are not an issue. As a Canadian, healthcare is for the most part covered by the government through taxes and I do not see that going away anytime soon (that would be political suicide). Would this make the 4% rule safer? I am a lawyer so I tend towards lower risk tolerance as well. Still about a decade off from early retirement, but would greatly value your opinion on this. Thanks!

Thank you sir, much appreciated. Kids can be as cheap or as expensive as you want them to be, but you are right, they can complicate finances greatly. One thing I have found to be almost universally true is that physicians think it is their duty to pay for their kids entire educational expense at any institution of learning for any time period. That is expensive.

You point is well taken. Extrapolating present to future is guesswork, and errors can compound greatly over time.

My “fancy shoe budget” is worth at least a 0.001% reduction in my SWR 😉