The Wolf Den #976 - The 4% Rule
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In This Issue:
The 4% Rule
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Metaplanet Buys More Bitcoin
Mt Gox Begins To Transfer Bitcoin
Everyone Is Weighing In On Solana ETFs
Will The Ethereum ETF Approval Spark A Major Crypto Rally? | Macro Monday
The 4% Rule
Retirement is simultaneously frightening, fascinating, boring, and blissful. While I don't have plans to retire any time soon, I enjoy the thought process of financially preparing and considering all the associated expenses when the time comes. Retirement sparks enriching conversations about wealth and frugality while opening new chapters of life. The sooner you think about it, the less daunting it becomes.
In the early retirement community, there’s a popular concept known as “The 4% rule,” or “The Safe Withdrawal Rate” (SWR). Like all financial tools, it carries some controversy. I’ll cover the controversy later, but for now, let's discuss what the SWR is. According to Investopedia, “The 4% rule for retirement budgeting suggests that a retiree withdraw 4% of the balance in their retirement accounts in the first year after retiring and then withdraw the same dollar amount, adjusted for inflation, every year thereafter.”
For a bit of history, the SWR was developed by financial planner Bill Bengen in the mid-1990s. Interestingly, Bengen later expressed dissatisfaction with how the concept was interpreted and suggested that a 5% withdrawal rate would be more realistic. The rule itself was derived from backtesting market returns over a 50-year period from 1926 to 1976. Let’s now examine the rule in practice.
Bob, at 65, is prepared to retire with $1 million in savings. Despite today’s reported inflation rate of 3.4% from the U.S. Bureau of Labor Statistics, I'll simplify calculations by assuming a steady 3% inflation rate indefinitely. I’m sure some might question this assumption, but let's set aside those concerns for now. Each figure represents what Bob withdraws from his principal following the 4% rule.
- Year 1: $40,000
- Year 2: $41,200
- Year 3: $42,436
- Year 4: $43,708
- Year 5: $45,018
- Year 6: $46,366
- Year 7: $47,754
- Year 8: $49,184
- Year 9: $50,656
- Year 10: $52,172
Could you live on these amounts each year without additional income? You'll notice that the amount Bob withdraws each year steadily rises due to inflation's impact on his purchasing power. This is a simple and straightforward concept. For many retirees, this model is an ideal starting place for those who need to retire but haven't spent a significant portion of their lifetime preparing financially and conceptually for that day. Now, let's address the problems that arise.
Here are some common considerations when planning for retirement:
- Starting age of retirement
- Life expectancy
- Health needs
- Social Security
- Market volatility (especially early in retirement)
- Withdrawal timing
- Inflation
These variables typically work against you to some degree, making retirement more of a defensive game.
Very briefly, can you guess where the 4% figure comes from? The simplest explanation is that if markets are expected to conservatively return 7% annually and inflation erodes about 3% of your net worth, you're left with 4% to spend each year. If that math frustrates you, it might indicate you need closer to 5% or 6% and potentially a larger starting sum for retirement.
Furthermore, the biggest question in retirement planning is determining an appropriate starting point. Many people guess random figures—$1 million, $3 million, $5 million, and so on. This approach is flawed because it doesn't consider the key factor: your pre-retirement income. To get a better estimate, you should multiply your annual pre-retirement income by the number of years you plan to be retired. A higher pre-retirement income likely means you have a higher standard of living and will need more savings to maintain it. Conversely, someone who retired with a modest salary of $50,000 and managed their money wisely won't need as large of a nest egg.
(Please remember, I am NOT a financial planner; I am simply sharing popular ideas for your entertainment.)
Now for the secret sauce your certified financial planner won't tell you: Bitcoin.
I believe the primary reason the SWR faces controversy is the challenge of accounting for inflation—more so than market fluctuations, health, or life expectancy. Inflation is particularly difficult to defend against because it cannot be accurately predicted, controlled, or even calculated. However, I consider Bitcoin to be the antidote to this problem.
If Bitcoin serves as a hedge against inflation, purchasing it both before and during retirement could help counteract the actual or hidden inflation rates retirees face. I have yet to see a definitive rule for integrating Bitcoin into retirement planning, but knowing the SWR, I can propose several straightforward options that mirror the strategy and could serve as worthy starting points for consideration:
1. Allocate 4% of your pre-retirement income to buy Bitcoin.
2. Plan for a 5% withdrawal rate in retirement, with 1% dedicated to purchasing Bitcoin.
3. Use 4% of your annual withdrawal amount to buy Bitcoin (in Bob’s example, this would mean buying $1,600 worth of Bitcoin in the first year).
4. Convert anything remaining from the 4% not spent in a year to Bitcoin.
5. Selling Bitcoin should be the last resort.
While these are merely ideas, the premise—that owning Bitcoin in retirement serves as a hedge against inflation—can be effective. It's really that straightforward.
I wish you all the best with your retirement planning. It’s one of the few investment concepts that is worth consistent and careful consideration. It’s not just a set-it-and-forget-it decision. Retirement will significantly impact your happiness in the final chapter of your life, so don’t sell yourself short or overlook the potential impact Bitcoin can have on it.
Maybe if we are lucky, Bitcoin will retire all of us early or turn it into an afterthought.
Bitcoin Thoughts And Analysis
There is basically nothing to see on Bitcoin at the moment on higher time frames, so we are forced to zoom in and look for clues.
We have a clear symmetrical triangle, which could be considering a bull pennant. Regardless, the next move will likely be defined by whether price breaks up or down from this triangle.
Still… this is all chop on larger time frames.
Legacy Markets
Stocks and bonds slid as US Treasury yields spiked, influenced by weak debt auctions and hawkish remarks from a Federal Reserve speaker. US futures pointed to a 0.6% decline at the open, matching the drop in Europe’s Stoxx 600. After Tuesday's spike, 10-year Treasury yields edged up to 4.56%. UK bond yields also rose, while German bond yields pulled back after regional inflation slowed. The dollar climbed for a second consecutive day.
Market concerns stemmed from tepid demand for US note sales, resilient consumer confidence, and central bank commentary, all fueling expectations of sustained high interest rates. Traders are watching an auction of seven-year Treasuries and key US price growth statistics later this week. High bond yields are putting pressure on equity valuations, but moderated inflation expectations and potential interest rate cuts could allow markets to climb higher. The Stoxx 600 is on track for a 2.2% monthly gain, while the S&P 500 was up 5.4% as of Tuesday, driven by enthusiasm for tech mega-caps and artificial intelligence.
Hedge funds' exposure to tech giants, known as the "Magnificent Seven," is at a record high since Nvidia’s recent earnings report. Friday will see the release of the Fed’s preferred inflation gauge, the personal consumption expenditures index, expected to rise by 2.7% in April. Fed Chair Jerome Powell emphasizes the need for more evidence of sustained inflation control before cutting the benchmark interest rate.
In the oil market, Brent crude advanced 0.8% to $84.88 per barrel due to geopolitical tensions, while West Texas Intermediate climbed above $80 a barrel. Corporate highlights include ConocoPhillips in talks to acquire Marathon Oil, boosting Marathon’s shares, and Anglo American deciding not to extend the deadline for BHP Group's takeover offer. Additionally, Royal Mail's parent company agreed to a £3.6 billion takeover by Czech billionaire Daniel Kretinsky, and Lenovo Group plans to sell $2 billion in zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund.
Key events this week:
Fed’s Beige Book, Wednesday
Fed’s John Williams speaks, Wednesday
Eurozone economic confidence, unemployment, consumer confidence, Thursday
US initial jobless claims, GDP, wholesale inventories, Thursday
Fed’s John Williams and Lorie Logan speak, Thursday
Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
China official manufacturing and non-manufacturing PMI, Friday
Eurozone CPI, Friday
US consumer income, spending, PCE deflator, Friday
Fed’s Raphael Bostic speak, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.6% as of 7:12 a.m. New York time
Nasdaq 100 futures fell 0.6%
Futures on the Dow Jones Industrial Average fell 0.6%
The Stoxx Europe 600 fell 0.7%
The MSCI World Index fell 0.3%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.0840
The British pound fell 0.2% to $1.2741
The Japanese yen was little changed at 157.25 per dollar
Cryptocurrencies
Bitcoin fell 0.7% to $67,777.9
Ether fell 0.3% to $3,817.42
Bonds
The yield on 10-year Treasuries advanced two basis points to 4.57%
Germany’s 10-year yield advanced four basis points to 2.63%
Britain’s 10-year yield advanced six basis points to 4.34%
Commodities
West Texas Intermediate crude rose 0.8% to $80.44 a barrel
Spot gold fell 0.7% to $2,344.87 an ounce
Metaplanet Buys More Bitcoin
Do you remember Metaplanet, the Japanese equivalent of MicroStrategy? They recently released a public memo detailing their Bitcoin-only strategy and concerns about the weakening Yen. Metaplanet has now announced another Bitcoin purchase of ¥250 million, currently valued at $1.6 million USD. It's a small but noteworthy step.
In other Bitcoin adoption news, California-based Semler Scientific, a company focused on both healthcare and marketing, has also announced a Bitcoin adoption strategy. They purchased 581 bitcoins for a total of $40 million. Following the announcement, the company's stock surged by about 30%, showcasing an attractive feature for companies considering a Bitcoin acquisition strategy. I expect stories like this to become increasingly common
“Our bitcoin treasury strategy and purchase of bitcoin underscore our belief that bitcoin is a reliable store of value and a compelling investment….We also believe its digital, architectural resilience makes it preferable to gold, which has a market value of approximately 10 times that of Bitcoin…Given the gap in value between gold and bitcoin, we believe that bitcoin has the potential to generate outsize returns as it gains increasing acceptance as digital gold.” —Semler Scientific's chairman
Mt Gox Begins To Transfer Bitcoin
The first movement of assets from Mt. Gox's cold wallets in over five years has occurred, involving the transfer of over 140,000 BTC, valued at approximately $9 billion. Reports suggest this address is likely where the coins will be distributed. According to the bankruptcy proceedings, the distribution plan is set to be completed by October 31, 2024, and includes returning 142,000 BTC, 143,000 BCH, and 69 billion Japanese yen to creditors.
The market experienced a dip upon learning of the coins being moved, due to fears of a large influx of supply being sold, though no sales have taken place yet. It will be interesting to observe how creditors respond—whether they choose to sell, reinvest the funds into new assets, or hold onto their coins. Given the significant increase in value since they last had access to these assets, it's understandable if many opt to sell.
Everyone Is Weighing In On Solana ETFs
Concerns about Solana achieving an ETF status stem from allegations that it, along with several other tokens, was classified as a security in lawsuits against Binance and Coinbase. While it's uncertain whether this will deter issuers from submitting applications, it is undoubtedly a crucial factor for them to consider. The scrutiny on Ethereum intensified after the ETH ETFs had already been filed, benefiting from fortunate timing. Additionally, it's still unclear whether the SEC will act on the Wells Notices or focus solely on staking. Of course, all of this could change overnight with the election of a pro-crypto president.
Nikolaos Panigirtzoglou, managing director and global market strategist at JPMorgan said the following regarding Solana ETF” “We doubt. The decision by the SEC to approve ETH ETFs is already stretched given the ambiguity about whether Ethereum should be classified as security or not. We don't think the SEC would go even further by approving Solana or other token ETFs given the SEC has stronger (relative to Ethereum) opinion that tokens outside bitcoin and Ethereum should be classified as securities.”
Will The Ethereum ETF Approval Spark A Major Crypto Rally? | Macro Monday
Join Dave Weisberger, Mike McGlone and today's special guest, Larry Lepard, as we break down what's happening in macro and crypto!
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.