In this solo episode of the No Days Off podcast, host Brian Gubernick explains the 4% withdrawal rule for retirement, drawing on J.L. Collins' The Simple Path to Wealth and the 1990s Trinity Study. He outlines the rule’s premise—safely withdrawing 4% of a diversified investment portfolio each year without depleting the principal—backed by historical market returns (~7% real). Using concrete examples (Joe needing $1.25 M for $50k annual expenses, Jan needing $750 k for $30k), he shows how the required “freedom figure” is calculated as annual expenses × 25. Gubernick then demonstrates how modest monthly contributions ($360 or $720) invested in low‑fee S&P 500 index funds at ~11% nominal return can grow to $1 M or $2 M over 30 years, enabling $40k–$80k annual withdrawals. He discusses caveats: reliance on past performance, the need to stay invested, adjusting withdrawals in down markets, and accounting for healthcare and inflation. Finally, he urges listeners to compute their own freedom figure, adopt index‑fund investing, and read Collins’ book, framing the 4% rule as a practical path to financial freedom rather than a get‑rich‑quick scheme.
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Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. We are going to stick on the topic of wealth where we landed last week. We finished last week on wealth. We're going to continue into this week on wealth. And I want to talk about a simple formula, a formula we've, we've chatted around here at No Days Off in the past, but I want to do a review and maybe a deeper dive. What if I told you that there's a simple formula that tells you exactly how much money you need so that you never have to work again? Well, today we're going to break down what author J.L. Collins outlined for us in his book, book, The Simple Path to Wealth. He talks about the 4% rule, why it works, and how we can actually apply it. So what is this 4% rule? Simply said, uh, you can safely withdraw 4% of your investment portfolio per year during your retirement without actually running out of money. So you can withdraw 4% from your investment portfolio every year in retirement, and you will not run out of money according to this rule. It's based on this, this study that was done, I think, at Trinity College. It's called the Trinity Study, and it was from the 1990s where they started testing withdrawal rates over historical market data. And what it found was that using a 30-year retirement horizon, you know, let's say from age, say, 60 to 90, uh, which is a conservative estimate, they found that you most oftentimes would not outlive your money. The 30-year window really kind of became the standard. But even if you retired early, like some people of course would love to do, the 4% rule still holds. You may just have to adjust down a slight bit if you want to be safe. So let's, let's run through some simple math. Okay. Let's talk about maybe real life examples. Let's say Joe, give a guy named Joe. He lives on $50K per year. So he knows that he can afford his lifestyle and live a good life on $50,000 a year. 4% of, of, of $1.25 million yields $50,000 per year. So if Joe accumulates $1.25 million as his nest egg, as his investment portfolio, he can safely withdraw $50,000 a year to live on, and his $1.25 million will not change. He's pulling 4%, and, and over that 30-year horizon and they ran it at 30 years because that's, that's the typical, uh, retirement time frame. So that $1.25 million will not change, and he could withdraw $50,000. Let's say, uh, Jan is able to afford her life on $30,000 a year. All she would need is $750,000. All they have to do during their lifetime is focus on saving and focus on conservative investment Specifically index fund investment. JL Collins talks about the S&P 500. He talks about using Vanguard funds. So it's not just about increasing your income, but it's, it's focusing on saving and focusing on investing. Now, why does this work? Well, it's built on market history, and stocks historically return 7% or so after inflation. So if you look at, say, the, the 10 or 11% that we've been getting for a long time on an S&P 500 index fund, after inflation, which is going to be in that, you know, kind of 2 to 4% range, you find yourself sitting at about 7%. So when you withdraw 4%, the rest of the money continues to grow and offset that withdrawal amount. The compound growth plus time plus diversification is what's— is what makes it sustainable. Compound growth plus time plus the fact that it's diversified. In JL Collins' book, without going too deep into it, and it's maybe one for you to pick up if you haven't read it yet, his approach is use broad-based index funds like an S&P 500 index fund, which has low fees, and then have time in the market instead of trying to time the market. So use these broad-based index funds, and he tells you how you kind of weight between the index funds and bonds, which, which is just dependent on, you know, where you're at in retirement, all of that. But bottom line, it's time in the market versus trying to time the market. Makes sense? It's not a get-rich-quick scheme. This is a get-rich-slow and then stay rich. Now, how can we make this happen? Let's give a more comprehensive, uh, outline, right? Because I, I mentioned Joe needs $1.25 million, and that may sound like a lot for, for those listening here today to accumulate the $1.25 so you could withdraw $50,000 a year. Well, guess what? It's actually not. It truly is not. Because to get to about $1 million in, in, uh, an investment portfolio, you have to contribute monthly about $360 into an, into an index fund returning, call it 11%, which has been the numbers over 20 years or so. $360 every month for a 30-year time frame, which is, you know, your typical person's minimum work life, right? If you start working at 22, you know, 30 years later is 52. Let's say you go from age of 30 to 60 before you retire. You give it a 30-year time frame and you contribute about $360 a month into an index fund like I'm describing. At the end of that 30 years, you will have over $1 million in your investment portfolio. And if you have $1 million in your investment portfolio, you could safely withdraw $40,000 a year And that investment portfolio, based on historical data, will not change. It's a pretty powerful thing to understand that for just $360 a month, which no matter who you are, you can figure out how to come up with it, you could become a millionaire in 30 years and have $40,000 every year for all of your retirement. Now, it goes without saying, you start playing around with those numbers a little bit and you take that 3— let's say, uh, 360 contribution, and let's just say we make it 720. So 360 per month, I'm going to increase that to 720 a month, again over that 30-year time frame. Guess what? You're now at over $2 million. Over $2 million saved. All you're doing is putting away $720 a month. Now that might be more of a stretch for some people, but I'd find a way to put $700, $720 away, let it ride for 30 years, 11% rate, which is the S&P index rate. And in 30 years you have over $2 million. Using the 4% rule, you can now withdraw $80,000 a year, 4% of $2 million, $80,000 a year, and your investment portfolio will not change. I think it's a pretty compelling reason to maybe, uh, start saving aggressively and better understanding this 4% rule. Now, some common pitfalls and some flexibility with respect to the 4% rule. Recognize it's, it's based on past performance. It's not a guarantee, but historical data, which is what I'd lean into, gives a, gives us, gives us a good picture as to kind of where we might land. Number one. Number two, uh, you can't leave your money sitting in cash. It's got to be invested. Just like I said, JL Collins says S&P 500 index fund. Flexibility is key. You can, you can tighten the spending during down years of a market. You could adjust withdrawals. The 4% is just the baseline. And then also, of course, if you're retiring, you got to think about healthcare and emergencies and random, you know, maybe an uptick in inflation. You can adjust these numbers around. Again, the 4% is just a baseline rule. So what can you do now? Find your figure, find your freedom figure, right? What I'm saying is, what's the number you need? What's your annual expenses? Your annual expenses, take that number and multiply it by 25. If your annual expenses are $50,000, right? $50,000 and you multiply that by 25, that means you need $1.25 million. If your average, uh, annual expenses are $100,000, what does that mean? It means you need $2.5 million in your investment portfolio withdrawn at 4%. If your average, uh, annual expenses are $200,000, what's that mean? You need $5 million. Then you can withdraw 4% and still not change your lifestyle. So you get back into the math. I would start understanding index funds. I would read The Simple Path to Wealth. Remember, the 4% rule isn't just about retirement, it's about freedom. It's not a dream, it's really just math. That's all I have for you today, the No Days Off Podcast. Thank you so much for listening, and remember, every single day brings a new opportunity to get better. So let's get after it.
