Last Thursday at 11:23 PM, I sat at our kitchen table with a spreadsheet I'd been maintaining for three years. My FIRE number glowed on the screen: ¥100 million. Twenty-five times our annual ¥4 million in expenses. Every American FIRE blog I'd read confirmed it. The 4% rule, they said. Retire when you hit 25x expenses.

My wife walked in to refill her water glass. She glanced at my screen. "How much is in your Rakuten account now?"

I checked. ¥18.2 million. All in eMAXIS Slim All Country. Up 143% since I started in October 2018.

She did the mental math faster than I expected. "So that's what, 14 or 15 percent per year?"

"About 14.5%," I said.

"And you're planning to withdraw 4%?"

I nodded.

"That seems really conservative." She refilled her glass and headed back to the living room.

I stared at my spreadsheet. She was right. My portfolio had averaged 14.5% per year. I was planning to withdraw 4%. That left a 10.5% margin. Massive cushion. Maybe I could retire earlier than I thought.

Then I remembered something I'd read on Early Retirement Now. A blog post about a retiree who started in 1966. I pulled it up.

Two hours later, I'd rewritten every assumption in my FIRE plan.

Side Note: This will be the first in a more technical series but important, and so I wanted to try make it digestible. If you have any questions reply and I am happy to clarify!

Here's what I didn't understand until that Thursday night: portfolio growth and safe withdrawal rates are not the same thing. Not even close.

The retiree who started in 1966 retired into one of the worst periods in modern financial history. Over the next 30 years, the S&P 500 delivered solid average returns. But the safe withdrawal rate for that retiree was only around 4%. Less than half the portfolio's average long-term return.

The reason? Sequence of returns risk.

When you're accumulating wealth, order doesn't matter. If the market crashes 50% in year one, then rebounds, you're fine. You bought low. Your future returns make up for it.

But when you're withdrawing money every year, order becomes everything.

Imagine you retire with ¥100 million. You withdraw ¥4 million in year one (4%). Then the market drops 50%. Your portfolio is now worth ¥48 million after your withdrawal.

Next year, you need another ¥4 million for expenses. But ¥4 million is now 8.3% of your ¥48 million portfolio. You're withdrawing twice as much in percentage terms. Your portfolio has to work twice as hard to recover.

That's sequence of returns risk. Early losses combined with ongoing withdrawals create a deficit your portfolio may never escape.

I found this most clearly explained in Big ERN's Safe Withdrawal Rate Series on Early Retirement Now. He analyzed 150+ years of market data and found something that stopped me cold: "With a 4% SWR and 70-80% index funds you have a roughly 1 in 3 chance of wiping out your money after 60 years. We want the opposite: A conservative withdrawal rate (e.g. 3.25%) and a generous allocation to index funds (e.g. 100%)."

For early retirement with 40-50 year horizons, the research converges on 3.5%. Not 4%.

Wade Pfau's landmark international study reinforces this finding. He examined 109 years of data from 17 developed countries and found the optimal safe withdrawal rate for globally-diversified portfolios was 3.45%—almost exactly matching our 3.5% target. The American 4% rule, Pfau concluded, was largely an artifact of "particularly favorable" 20th-century US returns. Countries affected by wars (Japan, Germany, Austria) showed safe withdrawal rates as low as 0.47%, underscoring why global diversification matters.

For Japanese investors, this is especially relevant. Our オルカン portfolios are inherently global. We're not betting on any single country's exceptional returns. The 3.5% rate accounts for this reality.

When you read international SWR research, you'll encounter a frightening statistic: Japan's worst-case safe withdrawal rate was just 0.47%. A retiree in 1940 investing only in Japanese stocks and bonds would have been wiped out by wartime destruction and post-war hyperinflation.

But that research assumed 100% domestic Japanese investments. That investor was:

Your eMAXIS Slim All Country portfolio is fundamentally different:

From a Japanese perspective, you're maximally internationally diversified. Recent research by Cederburg, Anarkulova, and O'Doherty at the University of Arizona found that increasing international diversification to 90% raises safe withdrawal rates to approximately 3.0%. At 95% international (your ACWI), you're at the upper bound of that benefit.

The trade-off: Currency volatility. Your portfolio is ~95% denominated in non-yen currencies, but you see yen values. Short-term, this creates volatility (your 14.5% returns included ~5% from yen depreciation). Long-term, this diversification protects against any single country's collapse—including Japan's.

There's an elegant hedge built into this structure: if Japan's economy struggles and the yen weakens, your internationally-denominated portfolio increases in yen terms, preserving purchasing power exactly when you need it most.

My wife came back to the kitchen around midnight. I was still at the table.

"What are you doing?" she asked.

"Figuring out why our eMAXIS returns don't matter as much as I thought."

She sat down. "Explain."

Here's what I showed her:

Our eMAXIS Slim All Country portfolio has returned about 143% since October 2018. That's ¥10,000 per unit growing to ¥24,270 by April 2025, according to the official MUFG fund reports. Roughly 14.5% annualized.

My Rakuten Securities account shows yen. When I check my balance, I see yen gains. My portfolio is denominated in yen. So why am I planning with 5% returns instead of 14.5%?

Because 6.5 years is not 40 years.

The 14.5% includes two major tailwinds that won't last forever:

First: An exceptional growth market. From October 2018 to April 2025, global equities went through one of the strongest runs in history. Central banks flooded markets with liquidity. Tech stocks soared. Earnings grew. This was not a normal 6.5-year period.

Second: Significant yen depreciation. The yen went from about ¥112 per dollar in late 2018 to around ¥150 today. That's a 34% decline. For a yen-denominated fund holding global assets, currency depreciation adds directly to returns. When the dollar strengthens, my yen-denominated eMAXIS units are worth more yen.

That currency move alone added roughly 5-6% annually to my yen returns. But the yen won't depreciate forever. If it strengthens back to ¥120 per dollar, my yen returns drop even if global markets rise.

The 30-year picture is more sobering. The MSCI All Country World Index, which eMAXIS tracks, has returned about 8.3% annualized in USD over 30 years. After US inflation of roughly 2.8%, that's about 5.5% real in dollar terms.

Here's how I think about it now:

My wife studied the table. "So you're ignoring the 14.5% completely?"

"Not ignoring," I said. "Just not betting our retirement on it continuing."

There's another reason I'm using 5% instead of 8% or 10%: current valuations.

The CAPE ratio (Cyclically Adjusted Price-to-Earnings) measures how expensive the market is relative to 10 years of inflation-adjusted earnings. The historical median is around 16. Today, it's hovering near 40.

Every historical failure of the 4% rule happened when someone retired with CAPE above 20. We're at double that.

High CAPE doesn't mean the market will crash tomorrow. But it does mean future returns are likely to be lower than historical averages. When you buy stocks at high prices relative to earnings, your future returns compress.

Big ERN's research shows this clearly. Starting CAPE is one of the strongest predictors of safe withdrawal rates. High CAPE at retirement? Use a lower withdrawal rate. Low CAPE? You have more cushion.

At CAPE 40, I'm not comfortable with 4%. With Lily's future on the line, I'd rather use 3.5% and be pleasantly surprised by excess wealth than use 4% and run out of money at 75.

The math changed my FIRE number completely.

Old calculation (American FIRE blogs):

New calculation (Big ERN research, Japan context):

But wait. There's a massive Japan-specific factor I haven't mentioned yet: pensions.

My wife's question that started this whole recalculation: "Did you remember we'll both get pensions at 65?"

I hadn't. At least not properly. I'd vaguely acknowledged pensions existed but never integrated them into my FIRE math.

That integration changes everything. But it's complex enough that it deserves its own explanation.

Next week, I'll show you exactly how Japanese pensions reduce the FIRE number by ¥20-40 million depending on your employment history. The math is specific to Japan, and understanding it changed everything about when we can actually retire.

Before next week's newsletter on pension integration, get clarity on your own numbers:

That Thursday night at the kitchen table, I realized I'd been planning my retirement with American blog assumptions and recent bull market data. Neither applied to my actual situation: a 40-50 year retirement horizon in Japan with a yen-denominated global equity portfolio during historically high valuations.

The shift from 4% to 3.5% withdrawal feels conservative. Maybe it is. But sequence of returns risk isn't theoretical. The 1966 retiree proved that. And with CAPE at 40, I'm not betting Lily's financial security on continued exceptional returns.

The 5% real return assumption protects against currency reversal, valuation compression, and sequence risk. It doesn't assume the 2018-2025 bull market continues. It uses 30+ years of data instead of 6.5. And it aligns with Big ERN's research for long-horizon early retirement.

Next week: How Japanese pensions change the entire calculation. (Hint: Most dual-income couples need ¥30-40 million less than they think.) Part 4 will show you exactly how to automate the withdrawals with 定期売却サービス.

Got questions about your own FIRE number calculation? Reply to this email. If I see patterns in the questions, I'll address them in a future newsletter.

The research behind this newsletter draws from peer-reviewed academic studies and rigorous financial analysis. Here are the primary sources:

Safe Withdrawal Rate Research:

CAPE and Valuation:

Japan-Specific Context:

Podcasts for Deep Dives:

Disclaimer: This newsletter shares my personal financial journey and research for educational purposes only. I'm not a licensed financial advisor. The calculations and frameworks I share are based on my interpretation of publicly available research and my own situation in Japan. Your situation is different. Before making major financial decisions, consider consulting with a qualified financial advisor familiar with Japanese tax and pension systems. Past returns (whether 14.5% or 8%) do not guarantee future results. All investing involves risk.

Stay Wealthy

Jason

Building wealth for English-speaking permanent residents in Japan, one story at a time.