As I mentioned earlier in this thread, I went down the 4% rat hole over the last two years, trying to decide how I wanted to structure my portfolio. Like I often do, I ended up combining a few different strategies to address risks and unknowns:
1. Total Returns - don’t ever forget about trying to invest for total returns with a significant chunk of your portfolio. I’ve done Monte Carlo simulations until I’m blue in the face and you need the high returns of stocks to address inflation later in life, unless your living expenses are so low in relation to your portfolio size (<2%) that you can just sit in bonds. Dividend stocks are great for income, but often don’t deliver great total returns so be careful in your use of them.
2. Covering expenses - dividends and interest are great for converting your expenses if you can. A total stock fund kicks off 1.6% and bonds kick off 4%+. If this doesn’t cover it, you have to either sell something or be holding extra cash. Today, it’s easy because cash is earning 5% and bonds are earning 5%+. In the future, it may be tougher if rates drop. In that scenario, adjusting your portfolio to have more income producing assets might be a good idea. How do you decide how much to tune it? Taxes.
3. Taxes - you want enough income to cover expenses and not much more if possible. That way you stay in lower tax brackets and can qualify for ACA subsidies if you need that for healthcare until age 65. This also gives you headroom for Roth conversions.
4. Sequence of Returns Risk - early in retirement it’s a huge risk a few down stock markets and you can be in trouble. Right now the market is rich by historical standards. I use what’s called a bond tent. That’s a fancy name for holding more bonds today than I’ll hold 7-10 years from now, once SoRR has gone away.
Those are some of the big issues around getting that 4% liquid. Also, in some periods the 4% rule gets shaky and could drop to as bad as ~3.2% depending on your tolerance for a risk of running out of money above 2-5%.