Why We Cling to 4%
The Trinity Study (source of the 4% Rule) was revolutionary in 1998. It used a portfolio of S&P 500 stocks (1.5% yield) and Bonds (5% yield). To generate 4% cash, you had to sell shares.
But selling shares is psychological torture. When the market drops 20%, selling shares feels like locking in a permanent loss. Because it is.
The 8% Reality
With modern ETFs like SPYI (12%), JEPI (8%), and BDCs (9%), building a diversified portfolio with an 8% blended yield is not just possible—it's standard.
The Million Dollar Difference
4% Rule
- • Portfolio: $1,000,000
- • Income: $40,000
- • Method: Sell Shares
- • Risk: Running out of money.
8% Yield Strategy
- • Portfolio: $1,000,000
- • Income: $80,000
- • Method: Cash Distributions
- • Risk: NAV Erosion (manageable).
The "Buffer" Strategy
We don't recommend spending all 8%. That is risky. We recommend the 6/2 Split.
- Spend 6%: This gives you $60k income (50% raise over the 4% rule!).
- Reinvest 2%: This buys more shares, growing your income stream to fight inflation.
Conclusion
Stop targeting a "Number" based on 4% math. Target an "Income Stream" based on 8% math. You might find you can retire years earlier than you thought.