48 Comments

1. Chris, I think you make the mistake of assuming that bloggers and podcasters are representative of people who are seeking financial independence and that most of them read blogs or listen to podcasts. I believe the vast majority of them have never read the blogs or podcasts you cite.

   1. Kevin,

      That is a fair point. But I think if Vanguard is going to publish something like this, they should take the time to do the research to point out these resources and ideas that are widely circulated in the FIRE community. For example, ERN’s work on safe withdrawal rates is easily found if you’re genuinely concerned with educating/helping people seeking financial independence. And to present Vanguard’s dynamic withdrawal strategy as though that is THE single best approach, without discussing downsides and comparing it to other’s work is lazy at best. I guess I would expect more from someone with the resources at Vanguard’s disposal, which is why reading the article rubbed me the wrong way.

      I appreciate the honest feedback though.

      Best,
      Chris

   2. Kevin: Is it your experience that folks in the FIRE community are casual about financial independence? My assumption is that those who get into the community are organized, research-oriented and committed. Sure, perhaps not as committed as bloggers and podcasters who are trying to make a side hustle living off the community, but definitely engaged. While the bloggers cited may not have been read, those who are new to the community surely have encountered some of the legendary bloggers of the movement, otherwise why would they think FIRE is achievable? I didn’t believe it until I did extensive reading on the subject.

      1. Bob,

         I would agree with this. Media and groups like Vanguard can be very influential in spreading key lessons. But it seems as though they didn’t bother to see what people in the FIRE community have been writing and talking about. Nothing they wrote was blatantly wrong or bad. I just found their paper disappointing because it didn’t really add anything new to the conversation that helps people already on this path nor did it likely do much to get those who aren’t familiar with FIRE on the path to improving their finances.

         Best,
         Chris

2. Excellent post, thank you, Chris! All your rebuttals are very well annotated with references to literature that is easily accessible and is frankly well known, as you point out.

   1. Thanks for reading and providing feedback AA.

      Best,
      Chris

3. Kevin, No offense but I think you’re mistaken thinking that people searching for information on retiring earlier DON’T read blogs or listen to podcasts. I for one, started with Mr. Money Mustache, and if you are like me when you read any of the comments (which most people learn a ton from) you click on the name of the commenter and that then takes you to their blog. Then you click on comments from those blogs and it goes on, and on, and on. For instance: from MMM (mr.moneymustache) I went to Financial Samuri, which lead to Can I retire Early, which went to Mr. Tako, from there Accidental fire, then The Retirement Manifesto, then to Retire by 40, etc. If you read any of the comments you will find that most of the commenters also comment on all the other blogs. The most commenters I have seen are on Mr. Money Mustache, who has been credited with increasing the knowledge of the FIRE movement since 2012 (I think). Maybe your company/blog Rock the Retirement Club can learn something from all of these blogs that you don’t think people read. Just saying, again no offense. Chris, I enjoyed the article. Thanks for writing.

   1. Tracy,

      Thanks for sharing your thoughts and experience.

      Best,
      Chris

4. I agree with the comment that says a lot of people don’t read the blogs you reference. I think the nuances of the differences between FIRE and Vanguard might be lost on them. Still I think it is good to point out that the 4% rule is sound but you may have to make yearly adjustments no matter where you are on the retirement spectrum.

   1. Dead on STBJ. Kind of like driving on the hiway to a destination. You know where you are going but you always need to make driving adjustments to arrive safely.

   2. STBJ,

      That’s fair. Thanks for reading!

      Best,
      Chris

   3. Great post Chris! I just wish it could reach as wide an audience as Vanguard’s.

      Sadly they have lost their way since Mr. Bogle’s death. Paying a percentage of assets under management to be put into the same 4 funds they use in their LifeStrategy and Target Date funds is offensive given what the company supposedly stands for.

      Someone in their corporate office needs to spend some quality time reading your writing and Darrow’s.

      1. Thanks for the kind words Kevin.

         Cheers!
         Chris

   4. I’m a pragmatist, not cynical… Vanguard makes money through assets under management. They make more money when people work longer and save more. They make less when people realize they can quit the rat race and live of their reserves. I would expect nothing less from Vanguard, Fidelity, Schwab, etc… They do some great things but are not going to tell people they don’t need to buy more of the products they market!

      1. Jay,

         Vanguard traditionally has been different, and at least structurally they still are different. They are set up to act in their investors’ best interest. This is why they were the leaders in lowering investment fees that benefitted all investors.

         Many of the others are now beating Vanguard at their own game, undercutting them on index funds. The other companies can use their index funds as loss leaders to draw customers into their higher fees services and products. Vanguard can’t, or couldn’t until offering the advisory services.

         We’ll see if I, like you, am overly cynical or just pragmatic about Vanguard’s Personal Advisory Service. Maybe it will be equally revolutionary in driving down advisory fees and benefitting all investors over the long term. Or maybe, Vanguard is changing and selling unnecessary complexity. Time will tell.

         Best,
         Chris

5. I applaud you, Chris for your article and many very real and accurate points. I just re-read the portion in Darrow’s book yesterday that addresses this topic – talk about timing. His book coupled with your many postings on this topic and various other topics applicable to FIRE are always reliable and steeped in integrity. Thanks again for making sense out of this!

   DJ

   1. DJ,

      Thanks for reading and providing the positive feedback. It’s much appreciated.

      Cheers!
      Chris

6. I think the Vanguard paper is fine. They likely did all of their own research, but I agree they should have cited some additional sources for folks to consider.

   I considered their advisory service, but in the end they were woefully inadequate in what I was looking for. Couldn’t figure in a capital gains plan, and wouldn’t even advise me in the 4% rule. Pretty sure they considered me unable to retire early.

   I decided to take JL Collins advise and figure out my own investments and that is what I would also recommend to anyone looking to retire early. You have to cut out fees, and you have to learn to manage your own portfolio.

   1. AR,

      I guess I would agree with “fine.” Nothing is blatantly wrong or misleading. Something about the tone and content just rubbed me the wrong way. I’ve been a big supporter of Vanguard for years and suppose I expected something of a higher quality from them.

      Cheers!
      Chris

7. Hi Chris,

   Thanks for the insightful post. I enjoy reading them and seem to get something from each one. I like Tracy also started down the FI path seeking out information and stumbled on MMM which brought me to many FI sites including this one. I have consumed all the blogs and books that I could get my hands on and listened to many, many, many podcasts over the last several years. I’ve come to realize that the common thread amongst all of us is a desire to better ourselves and in turn help those around us.

   When we started investing a number of years ago, before I became a little more aware financially, it happen to be with a crook advisor.
   Thankfully we cut ties before we lost too much money. Being soured by this experience we reluctantly joined our workplace plan with Fidelity and being busy with raising a family and work we decided to have them manage our portfolio. It was another mistake as we paid our fee (which was deducted…it’s ONLY 1.2% we were told) for some advise from a kid our of college. We hardly noticed it and its effects until I read JL’s book and realized what all those years of compounding fees had cost us! We (mostly I) smartened up and decided to put in the time do the work necessary to manage our own money and since then have never been more at ease.

   Fast forward a few years and we were debt free before 50 and reached FI about 6 years later. My wife retired at 57 as planned and I have decided to put in a couple of more years to help transition our consulting business to our two adult children which should accelerate their path to FI. This wouldn’t have ever happened without all the information put out by the FI community.

   I understand your feelings about the Vanguard post but in the end it should lead more people to the FI community which is a good think.

   Keep them coming.

   1. Roger,

      Thanks for sharing. I think your journey is the norm for most of us, one of constant growth and learning through mistakes (both ones we’ve made and others we avoid b/c others in the community share theirs.)

      I hope you’re correct about Vanguard creating curiosity and awareness that will lead more people to the FI community, but there wasn’t much in there that will lead them to it IMHO.

      Best,
      Chris

8. There is a specturm of financial savviness and readiness within the FIRE community. I think those that read the many bloggers cited in this article and comments are the more careful and diligent planners within the FIRE community and are not the primary audience of this “research” paper. Vanguard’s reach is huge and assuming the paper is targeted at the “average” household planning for retirement, aspire to retire early and have heard a little bit about the FIRE “movement”, this paper is probably about the right level of depth. Those that enjoy reading Big ERN, etc are likely better critical and more thoughtful readers and IMO, don’t need this fairly basic research paper.

   1. Phillip,

      I suppose this is correct. Maybe the paper will hit with some people who need that information. It just felt to me like Vanguard decided to write a topic on FIRE without taking the time to understand the people it was writing it for, so I found it disappointing.

      Cheers!
      Chris

9. We did go with Vanguard Personal Advisory Service (AUM), which is based on their Dynamic Spending Model, for a number of reasons. I’ve invested for some 29 years and know myself well enough to know that I flinch a little when the stock market plunges, after convincing myself that I’m “optimizing.” 30 basis points is cheap “mistake prevention insurance” that will pay for itself. It’s also a massive relief to have given the keys over to Vanguard 3 years ago so I can’t fiddle with things based upon newspapers. I trust their numbers.

   Second, my wife is not interested in personal finance, even though she earned a third of our savings, so it’s a relief to me to not have the weight of hoping I do right by both of us, especially if she outlives me. Having a neutral, knowledgeable third party really helps us make spending decisions, because we can spend what we want as long as the portfolio Success Ratio stays above 85%. When she wants to fix up the house or I want to travel more, I no longer have to be the judge and jury. Our assigned Vanguard advisor simply drops the cost into their expensive software and we can then decide what to do based on clear data, avoiding “you never/always want to spend too little/much money” kind of couple dynamics. The 30 basis points we pay Vanguard might be the best money we spend.

   Finally, Vanguard PAS is not based on any 4% Rule. We are in our mid 50s and have about 12 years before maximum Social Security, not to mention some part time income for us both, growing home equity, a small pension, expected normal spending decline as we age, all of which calls FOR OUR UNIQUE SITUATION to spend more heavily from the portfolio in the early years, like in the 7% range. Our plan is tailored to us in a way no 4% Rule can be. Were we following any 4% Rule variant, we would not be semi retired. Cheers and thanks for the post!

   1. Mark A.

      I appreciate this comment and I love having such smart and thoughtful readers who keep me honest. I hope I didn’t come across as overly dogmatic against AUM fees.

      In your case, the reasoning makes sense and you clearly are aware of the ongoing fees, are OK with them and feel they add value, and account for them in your plan. And it sounds like you are getting value out of the advisory services unrelated to portfolio advice.

      I personally hate the AUM model. Fees are disclosed up front and then they get buried in paper work out of sight and out of mind. Most people don’t pay attention to them or question whether they are getting value over time. Your fees go up and down with your portfolio size and not with the quality of advice you need or receive. Most people don’t take the time to quantify these fees and consider the impact they have over time. For those reasons, AUM is a great model for advisors, but often not so much for investors.

      At the end of the day personal finance is personal. It sounds like this is a great personal decision for you. I still think it is not the best way to get advice for most people though.

      Best,
      Chris

      1. Hi Chris,
         While it may not be the best model for most people I’m glad that Mark A took the time to post his decision and the reasons behind it, and I wish more people wold do so. I feel like the FIRE community has a, or at least had, a “do it this way to do it right” mentality. As you said, personal finance is personal and I think more people need to share what they decided to do and how. You have done this with your post on how you are not MMM. The more diverse paths that are highlighted and explained the better the chance that someone will see their own personal solution.

         Candidly, I am with Mark A on the relief of not being the gatekeeper. We have not moved to an AUM model yet so I am the decision maker and bear all the responsibility as my spouse glazes over and just wants to know “are we okay”. We have worked with a fee only planner in the past but it is too expensive to deal with the day to day changes and needs. It helps to know I am not the only one dealing with this scenario.

         1. JR,

            I agree and encourage a variety of viewpoints. I fully reject the idea that there is a “right” way to do personal finance. I just personally don’t like the AUM model. However all compensation models for financial advice come with inherent conflicts of interest.

            Best,
            Chris

      2. No, not dogmatic at all. For what it’s worth to others, the Vanguard PAS Dynamic Spending Model goes like this, based on our experience with it: We have line items in the plan for the big, known, predictable expenses during the next five years, like mortgage, health insurance, a set amount for travel, home renovation projects, car purchases. The rest of our expenses go into a category called Daily Living Expenses. The Dynamic Spending Model gives us a number to aim for each year for that Daily Living Expenses category, based on how the prior year investments grew or declined. The other categories are fairly static. That suggested number for Daily Living Expenses will never be more than 5% higher than the prior year or 2.5% lower.

         It’s just another withdrawal rate method and it’s what I think that article was advocating for. There are many paths to Rome, as they say. I thought that context might be useful for others. Best, Mark

         1. Mark a.

            Thanks for sharing. I really appreciate your efforts to help others and ability to have an honest and respectful dialogue.

            Cheers!
            Chris

10. Lost in both narratives, and therefore maybe a tangent, is the issue of whether turning off a robust revenue annuity (aka, the pre-FIRE day job) is the right call given that there’s a fundamental presumption that a X-4% draw-down is insulating you against edge-case risk scenarios.
    As the generation who worked at the same company for 20-40 years and received a robust pension ages out, the US will increasingly be dealing with an aging population whose daily costs exceed Social Security benefits (always designed to supplement retired income — not be retirement income — on a good day) — and will be wholly at a loss when faced with the unfortunate but real issue of long-term disability expenditure and the need for support as lifespans expand.
    I remain puzzled by the FIRE participants in the 20-40-y-o age demo. Maybe their parents are so affluent that there are no concerns on this front (congrats!!!) — but I for one would rather not RE only to be scrambling back in 5-10-15-20 years time (when one’s aptitude and patience are both lower) to try to rescue a parent from a miserable end game due to lack of funds. It would be interesting to hear more about how thought-leaders are contemplating this topic, whether it be the Vanguards of the world or FIRE thought leaders.

    1. jk,

       IMHO, the answer to that conundrum is to reject the dichotomy that your only 2 options are a life that revolves around careers and 40+ hour work weeks OR full retirement and all of the risks that you outline.

       The path that my wife and I have personally taken is more of a semi-retirement. I did completely retire from my career as a physical therapist, but not from ever earning more money or being useful. My wife continues in her part-time, work from home job. In doing so, we get many of the benefits of early retirement, without the financial stress and risk. This approach is also much more tax-friendly than when we were both working full-time. You can follow the links here to learn more about our approach.

       Another path that I find fascinating is taking mini-retirements. If you can swing it, finding the way to take a several month to several year break periodically seems a lot more appealing to me than devoting your life to working and saving for a retirement (early or otherwise) that may never come, or may come when your health fails, kids are gone, etc.

       Best,
       Chris

11. File under “great minds think alike Chris” but this just landed in my in box and is a wonderful “bookend” to your article. Turns out Vanguard isn’t so great at analyzing data and kind of misses the key point of the Bengen research:

    https://portfoliocharts.com/2021/07/20/what-vanguard-gets-right-and-wrong-about-the-4-rule/#more-45030

    1. Thanks for sharing that Kevin.

       Tyler as usual does a great job with the analysis. This really builds upon the idea that Michael Kitces emphasizes in the link I included in the post, the 4% rule was never about average returns but worst case scenarios.

       That’s not to discount that the future could be worst than the past. It could. My point is to give some perspective to the idea that as a group we are naturally very conservative and spend a lot of time focusing on the worst case scenarios, while ignoring the fact that there are a lot of other outcomes that are possible.

       Cheers!
       Chris

12. That’s a good read Kevin, does a good job of showing the Vanguard model doesn’t back test well against historical data. I did a lot of data analysis and modeling in my career using everything from polynomials to artificial intelligence and pattern recognition and if a model doesn’t back test against the training set its pretty much a crap model. However even if it does back test well it still may be totally useless going forward because in real life every new iteration is truly “different this time”. Its virtually impossible to have any future event fit completely within all historical parameters. The 4% rule is no exception, its very possible the next ten years will bear no resemblance to any past ten year period and that could be a good thing or a very bad one.

    1. Well said steveark. Thanks for reading and chiming in.

13. The Vanguard research is spot on in my opinion.

    To claim that Vanguard considers FIRE a community of naive investors is absurd.

    1. OK. Thanks for the input. 🙂

14. Great job Chris. I also am invested at Vanguard, but agree with 99% of what you said. You said ” Your spending determines how much you need to be financially independent.,” which is SO TRUE! Too many conservative investment firms advice, is you need to save xx% of what you earn. That is so wrong, because it should be a % on what you spend. If I earned $125,000 yearly and save $100,000, then obviously what I spend yearly is more important than what I earned. And because of Darrow, you and other blog sites, I have been retired now for 6 years and my “investment egg” has grown since I retired. I am taking out more than 4% yearly and will do so for a few more years, before I start taking Social Security and collecting a pension (lucky me), for both my wife and I. Our current yearly expenses are covered 100% by SS and pensions, so our nest egg will be relatively untouched except for vacations\playing. Keep writing and getting people to think outside the box!

    1. Thanks for the kind words Dale. Much appreciated!

15. Like many, I’ve been the financial planner / portfolio manager in our family for years. This is something I am compelled to do (and enjoy) but my spouse is not at all interested. Like many spouses, she just wants to know “are we alright”. We recently placed her accounts with Vanguard advisor services so that she can have someone to turn to if I should pass first (which is most likely). We feel that was the best choice because I know the sharks will circle if I’m gone first and no matter what I’ve said about such sharks in the past, she could be a victim of the worst kind (insurance salesman, high fee advisors, etc.) For these reasons, we went with Vanguard for about 40% of our money and feel it is the best legacy strategy available. What’s your legacy strategy? Is your spouse as interested as you are in this stuff? Best of luck to all.

    1. Thor,

       I appreciate this comment and it echos some of the others above. You make a great point in asking what your strategy is as you age.

       For my parents, they are still able to do all of their day-to-day finances, but I help them manage their portfolio and tax strategies. Like you they wouldn’t feel comfortable doing it on their own. If they didn’t trust me, they would have to hire someone. I would agree that they could do (and were doing before I took over) far worse than Vanguard’s PAS.

       As for me, both my wife and I are engaged and we’re only in our mid-40’s. So I honestly don’t know what we’ll do when that time comes.

       It is a good question for anyone reading this to ask themselves.

       Best,
       Chris

16. Regarding the “what to do in case of?” [cognitive decline, dying leaving the portfolio to a spouse uninterested in managing investments] question I’m reminded of the old (true) story that the shortest will ever accepted by a court was “all to wife.”

    A good argument could be made for “all in Wellesley” to be the investing equivalent and I know a number of very savvy investors who have directives in place to implement it. And of course if an actively-managed fund with concentrated assets doesn’t appeal despite its sterling track record, putting everything (or close to it) in Vanguard LIfeStrategy conservative or moderate growth or their Target Retirement Income Fund is far from the worst choice one could make.

    Far better to invest in those funds but hold them at Schwab or Fidelity rather than Vanguard in my opinion because that way the surviving and/or finance averse spouse will have a local brick-and-mortar office they can visit for hand holding and help if needed – something that Vanguard can’t offer. Far better customer service too, as well as (with Schwab) an excellent bank that reimburses ATM fees worldwide. Beat the heck out of paying Vanguard PAS a percentage of assets to put you in those same funds.

    1. This may be of interest to some. Variable Percentage Withdrawal (VPW)

       https://www.bogleheads.org/forum/viewtopic.php?f=10&t=120430

    2. Kevin,

       In theory I agree with you. I wrote my post through the eyes of a FIRE type that the Vanguard paper addresses. I’ve had the VG PAS pitched to me when I called about a separate issue. For someone like me that doesn’t need that service, the .3% over potentially 50+ years could have a significant negative impact, and so it is valid to address it.

       However, I think your suggestion ignores the complete lack of interest that some people have as expressed in the comments above. In my post, I’m addressing how much you can afford to take out of an account without depleting it in retirement as a theoretical construct. But there are people who feel completely overwhelmed by investing. Simply making transactions to add to or take from a pot that is already there is stressful.

       Unfortunately, many people have been conditioned to believe this complexity, and never questioned it. Trying to figure this out as you’re aging and at a point in time where you have a lot to lose is overwhelming for many.

       This is why I took over my parents investments for them upon their request. If they didn’t want me to, I think they could do a lot worse than Vanguard’s PAS. So if you have a spouse in a similar position of being disinterested or intimidated and you want to assure their needs are met when you’re no longer around, utilizing a service like Vangaurd’s is reasonable and certainly worth considering.

       Best,
       Chris

17. Chris,

    I think this analysis is reasonable and correct (within certain bounds). It is well-known within the FIRE community that the 4% rule is based on a 30-year timeframe, and that it should be modified–or at least deeply considered–by those who aspire to early retirement.

    However, I’d disagree with the conclusion that Vanguard doesn’t understand its audience. I think that a) they’re trying to drum up additional business, and b) they want to encourage prudence.

    I’ve personally seen people’s eyes get big when they learn about how much money they can make from the stock market (i.e. assume returns of 10% a year for 40 years, and see how big this ending balance is?…) and also that they can collect dividends. I suspect that Vanguard is targeting those folks with that paper, and in that circumstance, caution/prudence is warranted.

    As the old saying goes: ‘A little knowledge is a dangerous thing.’

    1. Froogal Stoodent,

       I agree with your analysis about “A little knowledge…” I think that naivety is evident in people just starting on the path to financial independence. And that’s OK. People don’t need to be bogged down with all the details when they just need simplicity in order to get started.

       I totally agree that Vanguard is trying to drum up business with the idea that they’ve created a better system for retirement withdrawals with their dynamic spending rule.

       I just disagree that people aren’t prudent. That they read one blog post, or one book and then base life altering decisions on that.

       But maybe I’m wrong? I’ve enjoyed reading the diversity of responses in these comments.

       Cheers!
       Chris

18. Chris, I’ve read a number of articles knocking the 4% rule, but seldom do I read about a better alternative. If you don’t recommend Vanguard’s 4% rule, what system of retirement withdrawal would you suggest in lieu of the 4% rule?

    1. Phil,

       Unfortunately there is no one “rule” or system that works. I prefer to think of the “4% rule” as the 4% guideline or 4% rule of thumb. The 4% rule and every alternative to model how to create retirement income are modeling based on the past (which may be very different than the future) or projections based on randomness (monte carlo, etc.) when financial markets don’t function in a purely random manner. This data is then used to predict the future (which is impossible) and be prescriptive.

       Unfortunately, I don’t have THE magical answer that everyone wants. No one does.

       My criticisms of Vanguard isn’t that their system is terrible, just that it suggests that they have figured it out. They haven’t.

       Smart and intellectually honest people like ERN and Michael Kitces who I cited in the article, as well as Darrow’s research that has been published on this blog over the years, all emphasize that there are lessons that can be learned from the past and modeling the future. They cite the work of others and have intellectually honest discussions about the pros and cons, risks and rewards of different systems in an effort to help others make better decisions to create retirement income. I didn’t get that from the Vanguard paper.

       Ultimately we need to learn to make decisions with incomplete information and adapt to the reality as it presents itself.

       Best,
       Chris

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