Does the 4% Rule Hold During 2022’s Stock Market Crash?

Mindy:
Welcome to the Bigger Pockets Money podcast where we interview Michael Kitces and talk about inflation and this crazy stock market.

Michael:
The 4% rule, which was kind of built around these balanced portfolios that we regularly rebalance to wasn’t meant to be prescriptive about how the portfolios managed. It was meant to be a baseline about how the portfolios manage, not the least of which, because we’ve got historical data and it’s really easy to calculate what your word turn would’ve been for an annually rebalanced balanced portfolios. It’s a very straightforward way to calculate a baseline of here’s what would’ve worked historically.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my now officially qualified to make dad jokes co-host Scott Trench.

Scott:
Oh, baby.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
Whether you want to retire early or travel the world, go on to make big time investments in assets like real estate or start your own business. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams, relying on the 4% rule.

Mindy:
So Scott, I am super excited to talk to Michael Kitces today. He is a wealth of knowledge and a wealth of information, and he is going to come in and allay your retirement fears. I’m very excited to bring him in and let’s talk about you before we bring in. Michael, what’s new with you, Scott?

Scott:
Well, we recorded a couple of episodes in advance a month or so ago because I was going to be out for a few weeks because my wife and I welcomed a daughter into the world, Katie Trench, Catherine Katie Trench. So we’re very excited for her and she’s beautiful and wonderful and we’ve been enjoying some time with the baby for the last few weeks.

Mindy:
Yay. Congratulations. And he’s right. She is beautiful. She is wonderful. I harass them all the time for pictures and I have a ton of pictures on my phone. She’s the cutest little thing ever. I can’t wait to meet her in real life.

Scott:
Yeah, we’re not sharing a bunch of pictures online right now, but if anyone wants, why not? I can send them directly.

Mindy:
So Scott’s phone number is… Scott. This show today brings back the fabulous Michael Kitces. He really doesn’t need any introduction, but I’m going to give you one. Anyway, he is amazing and wonderful in every single way. He is a CFP. He is the founder of the XY Planning Network. He is the author of the Nerds Eye View blog. He is a financial planner. He runs a huge firm. He writes blogs all the time about money stuff. He’s just very wonderful in every single way.

Scott:
Yeah, he’s a master of the subject of retirement planning and the 4% rule and how markets inflation, interest rates, impact portfolios. So fascinating discussion we had with him. Always learn a lot from Michael.

Mindy:
Michael Kitces, welcome back to the Bigger Pockets Money podcast. I am so excited to nerd out with you today.

Michael:
Awesome. Appreciate the opportunity to come back, Mindy. Love nerding out on all things retirement planning, financial planning.

Mindy:
Before we jump in, let’s make your compliance team happy. Please give a disclaimer about how you are a financial planner, but you’re not their financial planner or blah, blah, blah.

Michael:
Yes, I am a financial advisor with Buckingham Wealth Partners. This is not personal financial planning. No. In particular investment recommendations. Your individual situation may vary. Please understand we’re talking about overall planning and guidance and not specific individual personal financial planning advice.

Mindy:
However, if you would like a personal financial planner, you can find one at the XYplanningnetwork.com, which is a fee only financial planning matchmaking service that will connect you with a financial planner that specializes in something like a thousand different specialties.

Michael:
Yes, we have almost 1700 advisors now across a very wide range of specialties, including a few that have gone very deep into the world of fire and advice only services and other similar engagements for folks that are navigating this early retirement path.

Mindy:
Yeah, it’s a great place to find a great financial planner. All right, Michael, when we last had you on episode 120, we asked you if the 4% rule was broken. This released back in March of 2020 and you had such an eloquent well thought out answer. I’d like to play that whole conversation again.

Michael:
Fantastic. I’m looking forward to it. Thank you Mindy for having me out. I’m excited about the conversation today.

Scott:
So Michael, I have a question for you. Is the 4% rule broken in light of the Coronavirus and the recent market drop? And do we have to completely reimagine retirement in general as a result of all this?

Michael:
No.

Mindy:
From episode 120. But now we’re in 2022.

Michael:
2022.

Mindy:
2022, the consumer price index came back recently higher than expected. Literally every single report that keeps coming out is either higher than expected in a bad way or lower than expected. In a bad way. The S&P 500 is in a free fall. The Dow is down, the NASDAQ is down, the sky is falling. So now is the 4% rule broken and do we have to completely reimagine retirement in general as a result of all of this?

Michael:
No. We’re still there. No, right. Again, I mean when we look at this relative to just where the 4% rule came from, and I find it’s the thing that we just sometimes miss as we keep looking back this and I understand we’re in the thick of all the scary stuff that’s happening. These are the times that it was made for. These are the times that it came from. The average historical safe withdrawal rate that would’ve worked is about six and a half. We don’t go around talking about six and a half, we talk about four. And the reason we talk about four is sometimes, times are not like they were five to 10 years ago. Times are like they are now, which is why you have that lower number. Talking about the 4% rule was implicitly saying, hey, the average is six and a half, but let’s cut a third of that off just in case once every 10 or 20 years we get absolutely horrible market returns with low real returns, with rising interest rates and all the nasty stuff that happens otherwise known as unfortunately what we are going through today.
So this certainly is the environment where I would be talking about four and not five or six or seven or eight or heck. I mean there are some 30 year periods where 10 would’ve worked. These are kinds of the environments where four was sort of made for, but it’s not necessarily the thing that breaks 4%. And I find interesting, even if you go back and look at what markets looked like historically, we have some analogous periods to this. If particular, if you go back to the 1970s, and to me it’s really interesting.
If you look back at an environment like 1973, so inflation had just spiked from three to six, it’s on its way to 11. Bond yields were at about six. So your bonds were yielding zero after inflation and soon to go negative. S&P is down 17%. Next year in 1974, it’s worse, right? It’s like if this is 2023, 24, as we’re going from 73 to 74, 1974, it’s worse. Inflation goes from six to 11, bonds go from six to seven. So you’re now getting negative four real return on bonds, the S&P is down another 30, and if that’s the environment that you retire in, not so different from where we are today. Safe withdrawal rate was six.

Scott:
Can we just take one step back here? I love it. I think this is fantastic. Perhaps not everyone listening has listened to the other 350 episodes of Bigger Pockets money and are not familiar with the 4% rule and really what we’re talking about even at a high level here, could we maybe frame the conversation there and then go right back in to dive?

Michael:
Should we take a step back of just where did the whole thing come from in the first place?

Scott:
What is the 4% rule and where does it come from and yeah, why are we talking about it here?

Michael:
Scott, it’s a good question. Just like yeah, pause and where the 4% rule thing come from. So the idea, if you literally dial back to where it came from, from the research end, you got to go back almost 30 years now. It’s the early 1990s. Stock market’s been booming for 10 plus years since we got past that nasty 1970s stuff, like eighties are booming. 1987 was a weird hiccup. We’re covered within a year. We’re getting these great double digit returns year after year after year. And if you pull out trade publications and magazines at the time, the common discussion was if you are getting ready to retire in the early 1990s, a reasonable conservative retirement spending rate would be about seven to 7.5%. And that seemed moderate because again, stocks have been doing 12 to 15 plus almost every year after year. So it was sort of a punchline to a joke like, hey, just in case maybe you would only want to take out seven to seven and a half and bear mind, you could get seven on a 10 year treasury at that point.
So all this discussion around you can spend upwards to 7% of your portfolio as a conservative number. And some folks are doing some research saying, Well, okay, we got some good returns that we’ve been running on here right now. And bond yields are pretty good right now, but it hasn’t always been that way. There are times when markets are worse and there are times when they don’t return so well and there are times where you get started and bad things happen out of the gate. And so some researchers start digging into this to say, “Well, let’s look at what this would’ve looked like historically.” And the first person that did this from the financial planning side was a gentleman named Bill Bengen and financial planner or an engineer, Paradox engineer turned financial planner, so the man loved to nerd out with the spreadsheet. Went and dug up all the historical data that we had at the time, which was basically the Ibison data sets when Ibison was driving a lot of that market research data.
And Bill went back and said, “Well, let’s see what kind of withdraw rates would’ve actually worked through all the different historical time periods that were out there.” We could do better part of 70 or 80 years of rolling history that we had pretty good data going back to the early 1900s. And so essentially what Bill did was he calculated if you had a balance portfolio and he went through each of the possible 30 year sequences we’ve had over the past century, what withdrawal rates would’ve worked in all the different 30 year scenarios that we’ve had. Some are good, some are bad, some are better, some are worse. The average of the whole series was about six to six and a half percent. But the comment in the framing from Bengen was, well, okay, I mean you could take something that had a median of six to six and a 5%, but almost by definition that means it fails about half the time.
If you really want to figure out a withdrawal rate that’s safe, you should look at all of the ones that have worked in history and pick the worst one we’ve ever had, whatever the lowest withdrawal rate was that would’ve worked. And the answer in that exercise was about 4.15%. Bengen rounded it to 4.1, the industry rounded it to four. And that was where we came up with this 4% rule. And it was essentially kind of a two-way tie between retiring right on the eve of the Great Depression with all the horrible things that happened in the 1930s and retiring in the mid to late 1960s where you went through a 10 to 15 year stagflation period before markets ultimately took off again. So one was sort of a deflationary depression, the other was an inflationary stagflation environment. Both of them came out with this number that was right around 4%.
And so that kind of became the number. The idea of it was, look, if we look at what have happened in history, basically one of two things happens. We get markets as bad as anything we’ve ever seen in history, in which case 4% should more or less get you through, or markets are better than the worst thing that’s ever happened in history. In which case either A, you’ll have a bajillion dollars left over at the end because market returns are better or B, more realistically you’ll get a couple of years in your retirement, you’ll realize things are going okay and you’ll decide to start ratcheting you’re spending up a little bit further because you’re ahead. But the idea of it was if we want to find a baseline, we take 4% of our initial starting balance. We spend that adjusted for inflation. So notably, it’s not like we take 4% of our balance every year because then your lifestyle goes up and down as the markets go up and down.
The idea of it was what’s a baseline spending that I can maintain adjusting for inflation for life. And so 4% rule is essentially $4,000 for every a hundred thousand dollars in your portfolio and you spend that 4,000 moving up and down, however inflation and deflation plays out and it would go 30 years even in the worst historical time period that we had found. So not the unequivocal guarantee. It is always possible. The future could literally be worse than anything that we’ve ever seen in history. But again, when you start going through what history actually looked like, I mean the market fell almost 89% from top to bottom from 1929 peak to 1932 trough. And the 4% rule still worked for that.
Now in part because there were a bunch of bonds that do well when the market gets obliterated like that. But just you look at the kind of things that we’ve had that have happened in history that are frankly even a lot worse than what we’re looking at in today’s environment and what was worse than the tech crash and it was worse than the financial crisis. And that’s why just we continue to find this number holds up pretty well. It’s not that it’s anything mystical or magical, it’s just when the reality is that on average and with average returns, you can go spend at six and a half adjusted for inflation and you dial it down to four, you cut a third of that off just in case market returns are bad. When you actually get bad market returns, it holds up pretty well because that’s what it was made for in the first place.

Scott:
Love it. So to summarize a couple of key points there, the 4% rule, the question that we’re answering, the reason we care about this is because people want to know how much money do I need to retire? And the 4% rule says you need 25 times your amount you intend to spend this year and the 4% rule will take care of inflation and all the other things associated with that. So you want to spend 40 grand this next year, your first year in retirement, you need a million dollars, you want to spend 80, you need 2 million and that you can spend 80 plus inflation every year for the next 30 years and not run out of money in the worst scenario in history with that. And what I think is interesting is the 4% rule is really not designed for the current situation that we’re in. It’s actually designed for the people who retired in February or March of this year when the market peaked or January when the market peaked this year.

Michael:
Yeah. I mean we’re already well into it. It’s sort of the weird inverse effect. If you look at what happens after markets have significant declines, the typical safe withdrawal rate that works is a lot closer to five than it is to four. Now it’s 5% of your portfolio with a 20% haircut, which is basically the same as 4% of your portfolio with the whole thing. But that’s kind of the point because as markets move, you’re spending can adjust with it or just the safe spending amount is more stable than what markets gyrate around in any particular year. And so that’s why these numbers continue to work as well as they do. If you actually take 4% off of your curtailed number because markets are down on the bond side and the stock side this year, arguably you may actually be hair cutting yourself more than you need to take 4% off that reduced based number.
Which is why again, if you look back to other time periods in history like hey, the 1973 which had a lot of similarities, inflation spiking, rates are rising, bonds lose money, stocks are down almost 20%, it’s about to get worse the following year. But if you actually retire heading into the start of 1974, in the midst of that miserable environment, the withdrawal rate that worked was six, not four because you’d actually already born enough of the pain that the pain wasn’t done. In fact, it was arguably worse in 1974 than it was in 1973, but you were already part of the way there and part of the way to the recovery, that means 4% isn’t even the number anymore because that’s really what shows up if you’re at the absolute peak, worse timing before any of the bad stuff begins.

Scott:
So markets down 25% and the inflation rate is close to 9%. So nine plus 25 is 34. Can we then say that because your effective purchasing power of your portfolio is down 34% year to date, which is an enormous decline that we’re good with the 6% rule now.

Michael:
I don’t know that I would dial it that directly only because look like I’m a big fan of looking at the data and measuring the data, but I’m also a bit of a data stats nerd. And so in the stats world there’s a phenomenon known as overfitting, which is like I’m going to so dive deeply into my numbers that I’m going to use a relatively small data set and then find the one perfect thing that I can fit to my data to make the point, even though that probably isn’t going to be perfectly representative of the future. So I don’t know if I would take it quite as far as four to six, but we published some research in the past just looking at how the withdrawal rate changes as you start getting shifts in valuation and shifts in real return expectations. And it does get from four to 5% pretty quickly.
And again, all that really does is say 4% of what I have at the beginning of the year is relatively close to 5% of what I’ve got now. It just makes the point that you’re still actually at a fairly similar number. It’s not like you’re going to get to spend more because bad things have happened in the market. It just gets you pretty close to what I would’ve had the beginning of the year because that is a phenomenon we see for a lot of people that were really close to retirement. It was like I was going to take 4% of my number and now the market’s crashed like well crap, I’m like, now I’m really far from my number again. It’s like, well if you were that close to your number at 4% of what you had in January, four and a half to 5% of what you’ve got now probably still puts you at least in a similar-ish neighborhood.
And again, I wish we could align it perfectly like every X percent decline in the market is a Y percent increase in withdrawal rate. But just having lived with all the numbers and crunched the law of the numbers and being wary of overfitting data, I wouldn’t try to torture the data for more than it can yield. And to me that’s probably pushing a little bit too hard and just trying to make precise calculations off of what is still a somewhat limited data set. So I can live with a hundred years to say the neighborhood that we’re in and the worst case that we’ve seen. But I would be a little bit wary to try to peg it perfectly into a year.

Mindy:
So you have an article that’s now a couple of years old when we were talking before we started recording, you said it’s 15 years old so thanks for making me feel super old. Your articles is called, How has the 4% Rule held up since the Tech Bubble and the 2008 financial Crisis? And in that article you note even when starting with a 4% initial withdrawal rate, less than 10% of the time does the retiree ever finish with less than the starting principle? And to rephrase that, let’s look at this way. More than 90% of the time you have more money than you started with after making your withdrawals based on the 4% rule for 30 years.
You truly have to wonder if the people who are dogging the 4% rule in this Bill Bengen study have ever even read the study. I’ve read the study and it is so well thought out and so well written and you can’t argue with the study if you read the study because math doesn’t lie. I have a link to the article, I’m going to link to it in the show notes and if anybody is still nervous after listening to Michael talk about this is the first time I’ve heard that 6% was the safe withdrawal rate in the early seventies.

Michael:
Yeah, in 1974 it was lower in 1973 before any of the bad stuff happened. It was a little bit higher, it was a little bit lower, that was still close to five. The 4% rule scenario from the stagflationary environment actually wasn’t for someone who retired in 1973, it was someone who retired in 1966. So if you look in kind of history, 1966 was the first time the DOW hit 1,000. 66 was a bad year as a pullback in the market, it wobbled sideways. In 1973, it was still at a thousand. Then the 73, 74 bear market happened, then you got a lot more volatility. By 1981, the DOW is still at a thousand. You’ve gone 15 years without a dollar of appreciation in the DOW. Now your total return was there because you got some dividends and back then companies paid out a little bit more than they retained in.
So your total return was a bit higher than that. But you got 15 years of zero price appreciation on top of inflation spiking to double digits. And that’s where you get this world of okay, that altogether was so unbelievably horrific, we got down to this 4% rule. But I mean when you look at it from that frame, to me it helps to highlight how awful markets have to be. I mean if we want to mirror something like the 4% rule from the 1960s or from the late 1920s, hopefully not dating us too much as we’re recording here. Like S&P’s a little bit under 4,000.
So you’re talking about a world where it’s 2037, we still haven’t gotten over S&P 4,000 again. 15 years from now, that would just be analogous to what makes the 4% rule, not breaks it. That just puts you on par with where it was. And even when I talk to folks, they’re like, hey, all this bad stuff happened. How long do you think it is before the market makes new highs again? I don’t hear a lot of people saying, “Well I’m concerned we’re not going to be there until the 2040s.” I hear people say like, “Well it could take a year or two or three or five or 10.” Great, that’s better than the 4% rule.

Scott:
So one quick question here about that. During that period, 64 to 81, I think you mentioned.

Michael:
66 to 81.

Scott:
66 to 81. What was happening to interest rates? Were they generally rising or falling or flat?

Michael:
So rates were rising. That’s an odd tongue twister. Rates were rising through that time period. The beginning of it, they were pretty low because we were coming off of post World War II inflation area in the fifties into the 1960s and interest rates got fairly low, I think three and a half to 4% on the 10 year, which back then was sort of unheard of low because it had been higher for a long time. By the time we went from 1966 until we got to the peak in 1981, interest rates basically, I mean if you look at the 10 year treasury, interest rates went from four to 14. On top of the fact that markets went nowhere flat over the 15 year period. Again-

Scott:
Might be causation there too.

Michael:
I mean it was a truly awful, awful, awful time period. And on top of that, inflation also peaked north of 13% in the middle of all of that as well. So even when you’re getting better yields, you’re not making much better money yet. You’re just trying to get yields that keep up with how much inflation was spiking through this time period as well. So your bond returns are real, your real bond returns are flat or negative for most of this time period. And your nominal bond returns are getting crushed because the rising interest rates is slamming the price as rates rise. So it was, again, it’s very analogous to a lot of what at least we’ve been seeing through this year, these sort of stagflationary environments where economic growth is not good, markets are down, inflation is rising, which to make rates rise, rates rising, are causing bonds to decline at the same time that your stocks are going down.
That’s the kind of environment that we had as we went through the sixties and through this late sixties into the seventies and into the early 1980s. And again to the point at the beginning, that’s where 4% came from. That’s why you can’t do six as a standard withdrawal. It got ratcheted down to four to deal with those kinds of environments.

Scott:
I mean it’s a lifetime of savings. I mean when you say the 4% rule, it says I’m going to save up 25 years of expenses and in all historical scenarios they have, that will last me 30 because I just need to eek out a tiny beat to inflation in order to have it not run out over 30 years. So I mean it’s just so conservative that it has to apply to the vast majority of situations that we’re likely to encounter in our lives.

Michael:
Well which is why, I mean if you look at it from the flip side, if you just say I take 4% rule in all historical scenarios and I see how I do, as Mindy had noted upwards of 90% of the scenarios, you never touch your principle once in 30 years. Half the time you finish with more than double your money left over on top of a lifetime of inflation adjusted spending. So it’s a weird phenomenon even for anyone who likes to put their dollars into calculators and spreadsheets. The 4% rule is the equivalent of, hey, if I’ve got a million dollars, let’s make a plan where I die with two and a half million dollars 30 years from now, never having used 2 million in my original 1 million. That’s actually what the 4% rule is. That’s an equivalent calculation trade off because in part because sequences matter and even if you get a great long term average return, you can get a really lousy sequence, which is why we take these more conservative numbers.
But again, the of the twin reality for it is setting your spending low enough to withstand the worst sequence we’ve seen in 30 years. Most of the time just results in either a big old pile of money leftover at the end that you didn’t use or more realistically for most people just we begin to make mid-course adjustments as we get a couple of years in and see that things are not as awful as feared. We’re doing okay, we’ve gotten ahead, we’re far enough ahead, we can start ratcheting or spending up again and we start dialing it up if we don’t get the disaster scenario.

Mindy:
A moment ago you said that people who retired in the mid to late sixties got hammered with the seventies inflation and we’ve been comparing the early seventies to what’s going on right now. Who should be concerned right now, people who retired five years ago? Where are you seeing people who need to be a little bit more cautious with their withdrawals?

Michael:
Strictly speaking, I would start with, I’d be more concerned with the folks who retired at the beginning of 2020 where we’re two and a half years in. Market actually we rebounded so much after the pandemic, we’re still higher than we were heading into the pandemic, but not far. I mean if you retired right before the pandemic broke out, I think S&P was close to 3,300. Now we’re at about 3,800. So spread out over two and a half years, that’s a pretty lousy return on top of inflation ramping up on my bonds, getting hammered and the rest. And so I would be a little bit more concerned if I retired two and a half years ago, right on the eve of the pandemic and I’d been living this out for two or three years and the markets have not been cooperating so much over a three year stint.
Because what you really find, if you dig into what drives sort of 4% rule in general, but just at a higher level, what drives failures in retirement outcome where we run out of money when we are planning for very long periods, it’s not really the market crashes that we tend to talk about. It’s the slow recoveries.
What defined sequence of return risk is much less about bad years and much more about bad decades. That’s why, look, if you retired on the eve of the crash of 1987, which was the worst market decline we’d seen in a single day ever since, yet a 20 plus percent decline the day after you retire. If you took your first withdrawal right before Black Friday and you took your second withdrawal a year later, the second withdrawal came out at a higher price than the first withdrawal and the entire crash of 1987 would literally not show up in your retirement distributions. Because the crash was so horrible and the recovery was so fast you wouldn’t even see it. And you still, I mean if you actually run the numbers back for someone retiring in that time period, you get like 9% safe withdrawal rates because the 1980s was a really, really good time period for markets.
So it’s not so much about retiring on the eve of crashes, it’s retiring when you get bad decades, when bad things happen and you get really slow recoveries. That’s why even by the time you get to retiring in 1973, it’s not as bad. Your withdrawal rates closer to five than four. It’s retiring in 1966 where you go seven years of no appreciation and rising rates and then the 73, 74 bear market happens and then this deflation kicks in and then they raise interest rates to the sky trying to break the inflation curve and all the terrible stuff happens and by the time they get control of inflation and markets and the bull market kicks in and all the rest, you are already more than halfway through your retirement. If you started in your early sixties, you’re about to have your 80th birthday before markets get higher than they were when you retired.
So those are the kinds of scenarios that create the challenges and it’s part of the reason why the Great Depression is similar. It took until after World War II for the market to make material highs, material new highs above where it was at the beginning of the Great Depression. That was 15 years from 1929 to the mid 1940s. And so it’s the 10 to 15 year sort of disaster scenarios that creates so much trouble. So that’s why the tech crash was not that problematic because the markets were covered relatively quickly. That’s ultimately why the financial crisis was not that problematic from a withdrawal rate perspective because markets were covered in a relatively short number of years. That’s why at least up until this year, Coronavirus pandemic was not that problematic because markets had such a V recovery going through the challenges in Q2 of 2020 that folks that retired then were still relatively on track.
Now seeing it again continuing this year to me raises a little bit more concerns because now we’re almost three years in and were not making good headway and who knows whether markets get better next year or whether we’ve got more pain going for this, we got more pain. You could be four, five years in and still struggling to get above the highs when you started your retirement. And even that’s not necessarily fatal to the retirement path. It’s still more about where are we at the end of the decade, not just in the next year or two, but these are at least the paths that to me would create a little bit more worry and concern for someone.
Which again, the context of the 4% rule simply means hang out with the rule. That framework is still built for troubling periods like this. But I wouldn’t necessarily be saying like, woo, market’s recovering, let’s ratchet up a spending because this is awesome. I might take a little bit more slow measured tempered pace if I’m a couple of years into retirement trying to decide, hey, do I spend more as the market recovers? Yeah, maybe go a little slow play on that.

Mindy:
Okay, so let’s pretend that I know a lot of people who retired in late 2019, early 2020 and are watching this market and thinking, huh, what should I be doing? I’m thinking of Amy and Tim and I think they’re in a good position, but they did retire and start their travels literally right before COVID started. So what are some things they should be watching out for if they’re continuing to do the 4% rule, they are continuing to be on track with their spending and they’re not going crazy with their spending, but what are some things they should be watching out for in the market just to keep track of this 10 to 15 year time period? Keeping that in their heads I guess is going to be really important.

Michael:
Well, there’s a couple of different ways to answer this because the question that it ultimately comes back to for most of us, well so first of all, from a pure 4% rule framework, we still shouldn’t have a problem in this environment. It’s not a good one. I wouldn’t be super excited about what’s going on, but it’s not necessarily the environment that creates breakages and at the least if we’re going to end up having breakages that make the 4% rule struggle, this is much more about questions like, hey, by the time we get to the latter part of the decade, it’s 2028 or 2029, are we still sitting at the S&P not able to break 4,000? Okay, now I’m getting a little bit more concerned. And by then you’ll probably notice because your spending has been ratcheting up for inflation, what started out as a 4% withdrawal rate is now four and a half, it’s five, it’s five and a half, you might be creeping towards six, good news, good news, air quotes, your 10 years in a retirement.
So you can have a slightly higher withdrawal rate cause your time horizons come a little as you moved along. But if I’m looking at a withdrawal rate that’s ratcheted up that high, I start getting a little bit nervous about it. More practically speaking though, and it is worth recognizing as an important… I’ll call it constraint to the safe withdrawal rate research. I don’t mean that as a knock on the work that Bengen did and others, I’ve written about some of this as well. But the original safe withdrawal rate research was very constraining in its assumptions about spending. It essentially assumes whatever that initial spending rate is that you take $4,000 per hundred thousand that you’ve got saved. That’s my baseline number that I’m going to adjust for inflation. It essentially says no matter what happens, no matter what’s going on, you never change your spending. You just march along for inflation every year essentially.
I joke about in the advisor context for us it’s sort of saying people are lemmings and they’re literally just going to blindly march straight off the cliff if you don’t ratchet their spending down on day one to point them a same direction where they won’t walk off the cliff. When of course what happens for people in real time is you do things, you respond to the world you’re in. Human beings are kind of built for that. We do stuff, I mean practically speaking like hey, maybe you’ll eat out a little bit less when all of your friends can’t afford to eat out either because it’s a horrible recession and there’s inflation and other bad things are happening. Or maybe you’ll say like, hey the place I’m in, I’m just not really enjoying the lifestyle here anymore and it’s gotten obnoxiously expensive. I’m going to relocate to another part of the country that has a significantly lower cost of living that just completely radically changes the trajectory.
Or maybe we will just, we had 30 years of trips around the world planned, let’s take a year or two off for that while the crazy stuff settles down, we can make temporary adjustments to our spending. And one of the things that we found that to me is most striking around this, when you look at bad things are happening, if you want to do something in the meantime to try to get back on track, one of the most straightforward ways to get back on track is actually the remarkably simple adjustment of just try, just don’t change your withdrawals for inflation. So if you were, whatever your number was, if you were taking five grand a month from your portfolio this year, keep taking five grand a month from your portfolio next year, keep that as your baseline. Now in practice you’ll feel a little squeeze, everything’s getting more expensive.
Inflation does what inflation does. So if I take the same dollars and inflation makes everything more expensive, nerd wise, I lose purchasing power practically speaking, my money just doesn’t go quite as far. And so you have to start adapting your budget at least slightly to the fact that I’m taking the same distribution but I can’t quite buy as much stuff and live my lifestyle as much because of this shift. And if you go down the path of doing that, it turns out that is one of the single biggest ways to put a portfolio back on track if you’re running down a troubled track. Because the reality from the spending end is if I trim an inflation adjustment out of my portfolio, I don’t just take a cut once, that forms essentially the new baseline for all of my spending adjustments in the future. And so if I don’t take my 8% spending adjustments, that’s about where inflation wraps up this year, we’ll see.
If I don’t take my 8% spending adjustment this year, that’s essentially a lifetime downward adjustment of 8% spending going forward. And it has an immense impact positively on putting portfolios back on track if you are getting the point where you’re feeling worried and want to make some adjustments. And so the framework that we tend to talk through clients with about this is when bad stuff’s happening, our gut response is horrible things are happening, I got to do something big to get back on track again. And we tend to think about large temporary cuts or I’m going to cut way back for the next year or two until this stuff blows over.
It turns out in practice what helps the most to get back on track are not large temporary cuts, they’re small, permanent ones, small but permanent ones like I’m just going to trim the inflation adjustment out. It puts me on a much safer trajectory and it’s sort of permanent in air quotes because if and when markets ultimately recover and you figure and you realize your way ahead of your target, again you can always give that back to yourself later. But to think in the framework of small but permanent adjustments or small long-term adjustments rather than large short-term adjustments, the small long-term adjustments actually have more benefit and are frankly just less lifestyle painful to adjust in the moment.

Scott:
So we talked a lot about the 4% rule in Bill Bengen and his approach to that. Perhaps some folks listening will know that Bill Bengen came out earlier in the year, I think January, February, March and said, you know what 4% rule is great but I’m actually going to sell all of my position or 70% of my position in stocks and bonds and go to cash because the world is about to, the sky’s fall and he looks pretty smart right now, I think with that adjustment that he made, given where everything is going, can you comment on that and say does that mean that he does not believe in the 4% rule or that we all should be going to cash or that we should be thinking that? What were we to make of that?

Michael:
It’s a great question. So first I’ll say at the high level, no I don’t think that’s necessarily an indication or statement that Bill doesn’t believe in the 4% rule and just I know him personally, I’ve actually had some of these conversations. It’s not that Bill doesn’t believe in the 4% rule. If you want to think of it from a research end, the 4% rule which was kind of built around these balanced portfolios that we regularly rebalanced to, wasn’t meant to be prescriptive about how the portfolios managed. It was meant to be a baseline about how the portfolios managed, not the least of which because we’ve got historical data and it’s really easy to calculate what your return would’ve been for an annually rebalanced balanced portfolios. It’s a very straightforward way to calculate a baseline of here’s what would’ve worked historically.

Scott:
So that’s an important statement that we need to call out here. The 4% rule was not designed to be the way that we should manage our portfolios. It was meant to be in the event that you are a robot, make no adjustments whatsoever. And I forget the word that you used earlier.

Michael:
Lemmings. Because I’m a Gen X’er that played the lemmings game when I was young. So shout out to my Gen X friends.

Scott:
Perfect. If you are a lemming, which is a new term to me, then you could manage your portfolio that way and not run out of money in all historical contexts using the 4% rule. But that’s not the way Bill Bengen actually managed his own or his client’s portfolios. It was more of an example.

Michael:
And it was never how Bill managed his client portfolio. So I have a podcast for advisors called Financial Advisor Success and we had Bill on a year or two ago just sort talking about this sort of his journey and the rule and how he did it in practice with his clients because from the advisor and we nerding out on these things, like how the guy that made the 4% rule do the 4% rule with his clients. And so Bill was not a passive investor, Bill was an active investor and I don’t necessarily want to open up the active versus passive debate. Maybe we can have that next or another day, but just Bill was not a passive investor. So Bill took his clients to cash at the beginning of 2008 as well when he was in practice. He took them out for a similar phenomenon to what he did earlier this year, which was just, markets are looking bad, just inverted yield curves and the kinds of things that tend to pretend bad stuff.
And the reality is markets predict more bad scenarios than bad scenarios actually occur. I forget what the exact number is, but something like inverted yield curves have predicted 14 of the past six recessions because it gets them all, gets a lot of false positives along the way as well. And if you like looking at that kind of stuff, there’s a couple of other market tracking techniques that you can glean similar insights from. Bill’s view of this was, look, if you recognize at the end of the day that sequence and return risk is driven by these bad things that happen that can take a couple of years to play out. If you just don’t mess around and play the game during the really high risk time periods, you strip out a whole bunch of risk without necessarily dialing down a lot of return.
Because if at worst, valuations are high and the yield curve is inverted and markets are trending down on the 50 days cross the 200 day and a bunch of other types of factors that people who do that trend watching look at. If you’re wrong and it’s not the next horrible recession, it’s still usually not the environment. It’s like whoops, didn’t see it coming to market like rockets 30% upwards at the least. It’s like hey, it didn’t turn out awful, it was just kind of sideways and grindy for a while. And so you don’t necessarily leave a lot on the table if you try to take those more defensive postures. And that’s essentially what Bill’s approach was. And what that means in practice is if you occasionally dodge a really large bear market, you end out with a withdrawal rate that’s a heck of a lot higher than four.
I mean four works, but when you don’t get clobbered in bear markets, higher than four turns out to be the result. And so Bill was never want… The point of the rule was not, well it was meant to be, we can call it prescriptive around what sustainable spending is. It was not meant to be prescriptive around what the one and only way to manage a portfolio through that journey was.
It was at least meant to show and Bill himself did some of this research and others who followed afterwards to point out there is a range of portfolios we can own from really aggressive to really conservative to more balanced stuff in the middle. And the research has been pretty clear that in the middle balanced are better than either of the extremes. If you go too heavy in a bonds, you get a high inflation environment, you get clobbered, you go too heavy into stocks, you get a depression and you get clobbered. So good old fashioned diversification does work and the data has been pretty clear that balanced portfolios are much better than too heavy into stocks or too heavy into bonds. But that’s all built around a static, passive strategic portfolio framework. And granted some folks are more passive and strategic, that’s much more just my approach, our firm’s approach for what we do with clients.
But Bill was not passive, had never been passive. He took his clients out in early 2008 and he since retired, he sold his practice a couple of years ago. But as noted in the recent media interviews, he’s done it again, he’s out again. Now the challenge for those environments, for anybody that’s ever been through these cycles is as the saying goes, if you want to try the time the market, you have to be right twice because you have to figure out when to get out and you have to figure out when to get back in. And Bill struggled at least on the last cycle in when to get back in. It took him a couple of years to get clients fully back in. So good news, they missed the decline, bad news, they missed a lot of the recovery. Net result is you still do pretty well because you end out back in similar to where you started without the giant V in the middle.
So it still lifts up retirement income sustainability, but just feel compelled any time to be talking about trying time markets that way, particularly when you put someone up who has managed to make a couple of good calls is you got to be right on wanting to leave and want to come back in. And a lot of people do this for a lot of reasons and most people don’t time it well. So just super heavy, your mileage may vary kind of warning around pursuing that. To get a little bit more directly to your question, Scott, of does that mean you should be pulling out and trading out today? Again, asterisk, I’m not a big fan of trying to do market timing, so be cautious with anything that comes out of my mouth from here. But just when you look at this from historical perspective around market volatility after you’ve already knocked off 20 plus percent of the market decline is usually not the best point to be fair to figure out when to get out.
You’re usually closer to the point that you’re trying to figure out to get back in. So wouldn’t necessarily be looking to say now, oh, since Bill sold six months ago, maybe I should be looking to sell now. It’s like, well he sold six months ago is heck of a lot higher than it is right now. Question to Bill is like, when are you getting back in? Now that the market has come down this far. And so again, I don’t know exactly where he is on it, but when you get this far into a decline, you’re usually looking more at when am I going to get back in than when am I going to get out further? And so I would be cautious about trying to make extreme shifts now after a big decline because Bill did at the beginning of the year before.

Scott:
What are you doing personally?

Michael:
What do I do personally? That’s a good question. I don’t even bother opening the statements and look, I just let it run.

Scott:
And this is in passive index funds?

Michael:
Yes. Yeah. Won’t give shout outs to any particular companies, but all the usuals that you would expect that are framed up for passenger student portfolios. I’m a little bit shifted though compared to most in that. I also keep a really sizable cash allocation, but that’s not a market thing for me. That’s a, I’m still a long ways to retire. And I’m an entrepreneur that starts businesses and so I got to deal with the secondary risk of if I get sick, I got to make payroll for some team members. And so for me there’s a bigger cash allocation, but that’s more business and personal reserves and essentially a very oversized emergency fund as an entrepreneur than a retirement portfolio allocation.

Mindy:
Okay. So how much cash do you keep on hand in terms of monthly spending or monthly payroll and things like that?

Michael:
Well, so relative to personal spending about three years.

Mindy:
So this is a large cash position. Okay, that’s interesting.

Michael:
About three years worth of cash on the personal side. And then I guess from the business perspective it’s about three months of payroll.

Mindy:
Okay.

Michael:
We’re a recurring revenue business, so revenue’s relatively stable for most of what we do and we’ve been running for a long time. But again, just when you’re running as an entrepreneur, particularly where you are a driver of the business revenue, my greatest risk from the business perspe… Or just from the financial perspective overall is if something happens to me, it impacts both my earning power, then it impacts my ability to keep my team on board, which then impacts the value of the business, which then impacts my future earning potential and the equity value of the business. And so not having cash to weather storms can cascade really, really quickly if you’re someone that runs a business, and especially if you run any kind of service business that has employees where you need them to stay around. Because if bad things happen and they leave, there’s no one to do the service stuff, which makes your business go downhill very, very quickly. So I keep much higher cash reserves from that end because that’s my primary risk as an entrepreneur and a business owner.

Scott:
I do the exact same thing. I have one year of personal expenses in there, so very large cash position. Everything else is in stocks and or real estate. My boring old duplexes and triplexes that I purchased once every 18 months here. So there’s something very comforting about having that cash position, even if it’s not the greatest return profile, it’s also very embarrassing for either one of us to go broke given what we do for a living.

Michael:
Yeah, I mean there’s a little bit extra pressure of being a financial person who ends up going broken there in their financial journey. True. But I mean, this was something for me from very early on and the irony, I guess in the context of Mindy’s earlier question, not to take us too far down the rabbit trail, but the dollars that I have that are invested in diversified retirement accounts is mostly stuff that I saved 15 years ago. So I’m 44 now. So mostly stuff that I saved in my twenties, I haven’t contributed to retirement account in almost 15 years outside of getting my match for my 401k plan. And the reason is simply, again, your mileage may vary. Don’t recommend entrepreneurial journeys for most people, but I like building businesses and I can’t go build something if I don’t have cash to launch something to hire the people it takes to get the business off the ground, to just have the reserves to take the risk of going and starting a business.
And so a lot of people I see that, that want to try to build wealth through entrepreneurship and building businesses, the first problem they get out of the gate is essentially I’d love to start a business, but all my money is tied up in retirement accounts and I don’t want to get clobbered on taxes and penalties, getting it out to start my business. And so I realized pretty early on that was going to be a problem. So I stopped putting money there so I wouldn’t have that problem.

Scott:
I also did the exact same thing. I think I completely agree with that sentiment and retirement’s a long way off, saving three grand a year starting at 23. I’d much rather have 20, 30 grand accessible to me at that point in time if I’m going to use it to pursue opportunities like building businesses, taking risks on new jobs, startups, whatever it is.

Michael:
So more early stage wealth accumulation than getting close to retirement side. At some point you have to turn that switch and decide how you’re going to liquidate and transition it out of that environment so that you can actually spend it. Right. Businesses can build dollars, but it’s not always good building cash flow. But yeah, just an interesting side note from the wealth building perspective is I decided pretty early on that I’d far prefer to bet on myself than investing in the markets. Not that I’ve got anything negative against markets. We help a lot of clients invest invested in markets as well, but I’ve still got long enough time horizon that bets on myself have a multi-decade period to pay off. And my career has grown faster than markets have grown.

Mindy:
Okay. I have a question for both of you because I get this a lot in the Bigger Pockets forums and in our Facebook groups. Aren’t you concerned about losing purchasing power to inflation by having so much in cash and I would like everybody to listen to Michael Kitces and listen to his answer.

Michael:
Yeah, I mean the short answer is no. I mean, it’s not the dollars I’m using to build wealth, it’s like the ballast I’m using to keep the stability so I can do other things that go actually build wealth. I don’t have the cash there to generate returns. And yeah, I mean from a pure financial perspective, it’s a big old dead weight that sits around. But when I look at that relative to, okay, but the fact that I’ve got a big pile of cash means I was able to launch a speaking career 15 years ago and grow my income and then I was able to launch a number of other businesses that I could not have done if I didn’t have cash built up because I’ve got a spouse and young children and I am the sole breadwinner for the family and that’s a whole lot of responsibility that sits in my shoulders.
And so I wasn’t even willing to go down a journey of saying, I’m going to invest in myself in my career and try to get raised and try to get promotions and try to build a business. I couldn’t do that if I didn’t first spend what was literally many years building up enough cash to be able to do that and take the leap. I think when I originally jumped, I had about a year’s worth of cash. I mean this was 15 years ago. I was also had less overhead and was not married yet. So didn’t take as much to build up the savings to take the leap originally. But I probably spent five years building up a year’s worth of cash to be able to cover the bills while I took a leap because it takes a while when you go and build something just to get back to your old income.
And then as the business grew early on, I took a lot of the free cash flow that came out and just banked it to build up the reserves even further before I went and launched the next thing. So it’s not a return engine, it’s the anchor that keeps you safe enough so you can go do other things that create returns and generate wealth.

Scott:
A hundred percent agree with that. And my cash position has been performing excellently in a relative context in 2022 compared to other asset classes.

Michael:
Well, yes. The irony at least is that it doesn’t lose money when interest rates rise when you’re keeping it in cash or money markets are equivalent. So yeah, it’d also turned out to be an okay returner this year by losing a large amount.

Scott:
Yeah, I got to make a decision about a car coming up. I have the option to pay cash for the car, I have the option to finance it. I got the option to do some sort of hybrid approach if I chose to do that. I mean, that’s a big return.

Michael:
Yeah. Well I still drive a crappy 16 year old Kia I bought off eBay in 2006.

Scott:
Love it.

Michael:
Used and used off eBay in 2006. No, no offense to Kia, it’s a fine car. I’m not trying to trash the brand. So it’s a weak old car. It’s managing to hold up though.

Mindy:
Yes. I don’t think there’s anything wrong with having cash. I think that you should have cash and everybody who is listening who wants to be a real estate entrepreneur and wants to quit their job and go out and have this huge empire, you should have a huge cash position to cover the expenses and the emergencies that life throws your way. And Michael Kitces, who knows everything there is to know about money, keeps three years of cash in his personal accounts, three years of spending in his personal accounts so that he has a safety net. And I’m sorry, but if you don’t have a lot of cash, a huge emergency reserve easily accessible. It doesn’t have to be in cash, it can be in something easily liquidable. I mean, this isn’t stuffed under your mattress. I hope it’s not stuffed under your mattress. Please tell me it’s not stuffed under your mattress.

Michael:
No, no, it’s in a banking institution.

Mindy:
But yeah, I mean he keeps this amount in his accounts so that he has access to it. And if you don’t like these people who say, the whole reason we started this show is people kept asking, I want to start investing in real estate with no money and bad credit. I’m like, well that’s like the worst thing ever, so don’t.

Michael:
Well yeah, save some dollars to work on improving your credit and getting down payments and then it gets a little bit more stable. And I mean the irony to me, even in that context, and look, I understand a lot of people are in different places and come from different journeys, but even in the vein of building wealth in real estate and building wealth in business, almost all of it, unless you come from money or have some independent source from which money springs forth for you, almost all of this starts with what can you do to build your personal income, your personal ability to earn with your time or your knowledge or whatever career, vocation you’re pursuing that gets you positive cash flow enough to get to the point where you can build some level of reserve for yourself, so you can then go do the next thing that builds the wealth even further.
Right? I spent the first nearly 10 years of my career, well, reinvesting in myself. So pursuing advanced degrees designations in our industry’s context before I ever went and owned any kind of real estate or started any kind of business. I mean it was 10 plus years into my career, I guess almost 10 years into my career before I made that leap. And most of that time I had a crappy car I bought off eBay and I split a three bedroom apartment with two buddies, three bedrooms in a common room just to keep my rent dirt cheap so that I could afford to save money to build up the reserves to then do the things that I wanted to do years later.

Scott:
Love it. Michael, this has been fantastic. Thank you so much for coming on the show today and sharing your wisdom and just the broad expertise you have in the subject of retirement planning and thinking about the 4% rule and how markets can impact your portfolio. We really appreciate it. Where can people find out more about you?

Michael:
Most straightforward places just Kitces.com. K-I-T-C-E-S.com, was not the luckiest on the translating the name into English. My family came over, but Kitces.com, K-I-T-C-E-S.com has our writing, our research, some links out to the other services that we provide as well, but that’s the best place to find it, as well as the nerdy retirement research we like putting out from time to time.

Scott:
Awesome. Well we link to all that in the show notes here.

Michael:
Awesome. Appreciate it. Thank you very much.

Mindy:
Michael, thank you. It was lovely talking to you again.

Michael:
Absolutely. Likewise, thank you Mindy. Thank you Scott. Appreciate the time.

Mindy:
Thank you. We’ll talk to you soon.

Michael:
Awesome. Take care.

Mindy:
Okay, Scott, that was Michael. That was fabulous. What did you think of the show?

Scott:
I thought it was great. I think it was affirming. Hey, the 4% rule is designed for situations like the Great Depression and the inflationary period of 1966 to 1981. Surely it will hold up in the current context here. And the worst part of it, if you believe that we’re about to enter a significant prolonged market downturn, the worst time was six months ago. So the 4% rule surely continues to hold up with the current portfolio. I also thought it was fascinating to hear about his large cash position. I have a couple of comments on that in a moment and I thought it was fascinating to hear the explanation that hey, the 4% rule is not designed to be a portfolio management strategy. Rather, it is a illustrative example of how a lemming would not run out of money in all but the worst market scenarios in all of including the worst market scenarios in history.

Mindy:
I want to focus on the phrase safe withdrawal rate. That is what this whole article and this whole concept was about. When Bill Bengen did his research, he was looking for the safest withdrawal rate. This doesn’t mean that your withdrawal rate only has to be 4% for the rest of your retirement life. This means that 4% will get you through 96% of the time. And that’s actually kind of a weird little math thing. It happens. It’s not called the 4% rule because it works 96% of the time. It just happens to be the 4% rule is the safe withdrawal rate. But in 96% of cases, you have enough money to last you 30 years. And Michael’s article, how has the safe withdrawal rate held up over since the 2008 crash, which we will link to in our show notes, which can be found at biggerpockets.com/moneyshow351.
That article says that in 10% of the time, you end 30 years with less than you started with. 90% of the time you have more money after withdrawing for 30 years than you started with in the beginning. So you’re living well with your 4% safe withdrawal and you still have a ton of money. If you got to the position of retirement, and we are speaking really to early retirees here on this show. But if you got to the position of early retirement, you are kind of obsessed with money, are you going to stop looking at your portfolio as soon as you retire? I can answer that question from my husband’s point of view. No, he looks at it every single day. I don’t look at it because I’m not… Well, I don’t have to because he does every single day and he tells me about it.
But like you will continue to review your portfolio. We continue to talk about our portfolio. So you will see trends. You will see, oh, the market’s down, I better be a little bit more cautious. Or hey, the market’s been up for seven years in a row. It’s okay to take that around the world cruise. You’ll still be conscious of what’s going on. So I think that people who are really, really concerned about their retirement that they have based on the 4% rule should read this Bill Bengen article, the original article, which will also be in the show notes and just read through it and see all the work and research that he did to come up with this number. It wasn’t just some pull it out of thin air number. There’s a lot of work that went into this particular article that he did. I really like what Michael also had to say, small long-term adjustments have more benefits than large short-term adjustments.

Scott:
Again, I thought it was great. And if you’re looking for how much money do I need to be done to be financially independent, a good answer to that question is the 4% rule, 25 times your current annual spending in a mixed stock bonds portfolio, and you’re done. Really in a variety of portfolios with that. And again, that portfolio assumes you are a lemming. That means you never earn more money, you never collect social security, you never adjust your spending to tie with that. You’re not making… You’re in a disaster scenario with this. You don’t react at all to circumstantial changes over 30 years. We know that’s not true.
Last I will leave us with a thought though, that in spite of the exhaustive of this study, I personally know zero financially independent people who rely exclusively on the 4% rule. So while the math is good, and while we just had an exhaustive discussion defending it, I know nobody who has a mixed 60/40 stock bonds portfolio, no significant cash position, and no other levers in their portfolio like real estate pensions or whatever. So paradoxically, in spite of the fact that it is this proven concept, folks still don’t seem to rely on it in early retirement in the fire community. But I do think it is the beginning of the finish line. You are financially independent when you hit the 4% rule with this. If you want a definition of that, you can feel confident in that, although you will probably go beyond that to pat it because that is what human beings in the fire movement tend to do.

Mindy:
I would like to tag off of Scott and say, if you are a human being who is using the 4% rule with no significant cash position and no other extra income and know all the other stuff that he said, reach out to me, [email protected] pockets.com because I would like to talk to you and see how your experience is going and talk to you about your mental mindset. I guess mental mindset is a…

Scott:
Well, we won’t be hearing from you because you don’t exist. But if you do, reach out to Mindy at [email protected]

Mindy:
Okay, that wraps up this excellent episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying I cannot believe Scott has never heard the word lemming before.

Scott:
Oh, what a cliff hanger.