Doesn't this depend heavily on inflation? With the ballooning US debt, how do people imagine the government will continue to pay interest without massive inflation in a few decades?
The 4% rule accounts for inflation. The stock market on an average gives you 7% a year in returns adjusted for inflation. The 4% gives you enough cushion in case of economic turmoil.
The stock market on average has given you 7%. That may not be a safe assumption going forward - going far forward. I might live another 30 years. If you FIRE, you might live another 50. Will the stock market continue to yield 7% over the next 50 years? That's a larger assumption than I'm comfortable making.
Why is it such a crazy assumption? Going back to like 1870 a $SPY equivalent has yielded something like 8-10% on average if you reinvest dividends. In that time there have been two world wars, a handful of pandemics, election turmoil (oversea and aboard), many bubbles in tech and housing, and yet the long term average was 8%+.
FWIW there have always been and will always be spelling financial doom right around the corner, but betting that way has been a failing strategy save for lucky few who got the timing just right.
Let's say you didn't invest in the US stock market, because you lived in, say, Japan. How did the Japanese stock market do since 1870? Pretty well, except for that part in 1945 when it went to approximately zero.
Ditto Germany in 1945.
Ditto Russia in 1918.
Ditto China in 1949.
Is the US going to be the US of history for the next 50 years? Or is it going to be one of Japan, Germany, China, or Russia?
Or is it just going to be, say, the UK? How did the UK stock market do over the last 50 years?
"Better be weary of making financial assumptions because you may end up on the losing side of a world war and then it will all be for naught" isn't very useful thinking imo
If you think America (or wherever you live) is going to end up like Germany in 1945, or Russia in 1918, then it won't matter in the slightest what you've invested in anyway - you plus everyone around you will be in the same (half underwater) boat.
"Ditto" for if $SPY suddenly tanks or underperforms. There are going to be much more immediate concerns for everyone if that happens.
"Accounts" wrongly, though? 4% inflation for the next half-century seems like complete fantasy. How do you imagine it possibly being sufficient to address the ballooning debt?
Sure [0]. You can also look at historical US rebellions, such as Shays' rebellion - where a principle demand of the working class rebels was that the US government print more money.
> Inflation is absolutely a way to steal the already meager savings of the working class.
Exactly why inflation is generally beneficial to the working class, generally their savings are insignificant while their wages are very important - it raises their wages while reducing the value of savings & debt, which hurts people who have lots of savings and helps people who are living off of their wages.
There is an overwhelming amount of data pointing in the opposite direction.
This is easier to answer through simple logic though. Do you think the ruling / wealthy class would allow inflation if it hurt them? Perhaps, but personally I find it a bit naive.
Let's break down your claim though
> Exactly why inflation is generally beneficial to the working class, generally their savings are insignificant while their wages are very important - it raises their wages while reducing the value of savings & debt, which hurts people who have lots of savings and helps people who are living off of their wages.
Reducing the value of debt is a real possible winner, but that helps the rich just as much. And the poor person's debt, believe it not, tends to be of high enough interest that inflation isn't going to help them as much as you claim. Especially since they are subject to variable interest rates more than most.
Savings? Once again, this is cash for them, and for the wealthy it tends to be assets that are not harmed by inflation (either by growing with them or outpacing it).
So let's get to the final claim. It raises their wages. Is that true? The wage is inflated, but their purchasing power doesn't actually improve. It tends to go down, as the things they spend their money on are, you guessed it, inflated.
It's wild to think that inflation is helping folks at the bottom.
The same as always? Pay old debt with new debt. Other countries might run into issues with exchange rates this way, but the status of the USD is dampening such effects.
Even assuming there are always people, institutions and countries eager to buy the new debt, the government must still pay the ongoing interest on the debt. The concern is when that interest becomes a significant part of the annual budget. Then there is no money left to pay for the essentials - like, /s - government workers' salaries and retirement and military.
You can pay the ongoing interest with more debt. Sure, this will probably not work forever, not even for the USA and the special status its currency has. But "forever" is usually not a relevant concept for politicians.