Author Topic: Why the concept of retiring early could disappear due to Coronavirus  (Read 11169 times)

Maenad

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #50 on: April 01, 2020, 11:42:05 AM »
He doesn't have the ability to balance the fact that 25 people have lost their job for every illness, mild to severe, and 1500 have lost their gig for every death.  The latest modeling suggested that most of the deaths were among those who probably would have passed away within the next 2 years anyway due to advanced age or fragile health.  The unemployed are not of concern compared to the fear of criticism on twitter. 

The big concern is the load on hospitals. They don't have infinite capacity and infinite staffing, and having people out of work for months, as sucky as that is, is preferable to the hospitals getting completely swamped and having way more people die. In MN, the current models given how the disease is progressing here is that if we just let the disease go without any mitigations, the ICUs would fill up in 6 weeks, and the pandemic peak wouldn't hit until week 9, so you'd have 3 weeks on the way up, and assuming a normal distribution, 3 weeks on the way down before we return to levels the hospitals could handle. So, 6 weeks of 20% of the people getting sick needing hospitalization, and unable to get it, and a large portion dying at home. That's far, FAR worse than high unemployment that will be a temporary problem.

I get this totally.  Bolded above is flaw in the thinking.  There are not only 2 options.  The choices are not either "depression level unemployment" vs. "go to a rave party with 100 of your groovy friends". 

Especially in states where the curve has flattened there needs to be creativity on how to get people back to work, with face masks, prolonged isolation of elderly and infirm, still restricting large gatherings, and being prepared to pull things back a bit if cases spike.   

Oh, I absolutely agree. The actions taken need to be based on the data of what's actually going on, and adjusted as needed. We're in total agreement on that. I've just been hearing too many people lately act like it's totally fine to have church services with hundreds of people together, since this virus is a liberal plot, or something. Didn't realize viruses were political, but apparently that's what the world has become now.

Maenad

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #51 on: April 01, 2020, 11:46:26 AM »
If the tech bubble didn't kill it, and 2008 didn't kill it, there is no way this is going to kill it.   If fact, in a few years there are going to be droves of people posting all over the internet that don't even remember it clearly, either from normal faded recall, or from being sub-adults at the time it happened.

And everything will just move forward.

Ending my own participation in the foam, this was my first thought as well. If the Global Financial Crisis didn't kill it, this won't either. I think it will weed out people who were blithe about how perfectly things were going to go for them, but in my experience, there's actually not that many of those around. They're a great straw man, but ultimately more of a stereotype than reality.

bacchi

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #52 on: April 01, 2020, 01:18:04 PM »
He doesn't have the ability to balance the fact that 25 people have lost their job for every illness, mild to severe, and 1500 have lost their gig for every death.  The latest modeling suggested that most of the deaths were among those who probably would have passed away within the next 2 years anyway due to advanced age or fragile health.  The unemployed are not of concern compared to the fear of criticism on twitter. 

The big concern is the load on hospitals. They don't have infinite capacity and infinite staffing, and having people out of work for months, as sucky as that is, is preferable to the hospitals getting completely swamped and having way more people die. In MN, the current models given how the disease is progressing here is that if we just let the disease go without any mitigations, the ICUs would fill up in 6 weeks, and the pandemic peak wouldn't hit until week 9, so you'd have 3 weeks on the way up, and assuming a normal distribution, 3 weeks on the way down before we return to levels the hospitals could handle. So, 6 weeks of 20% of the people getting sick needing hospitalization, and unable to get it, and a large portion dying at home. That's far, FAR worse than high unemployment that will be a temporary problem.

I get this totally.  Bolded above is flaw in the thinking.  There are not only 2 options.  The choices are not either "depression level unemployment" vs. "go to a rave party with 100 of your groovy friends". 

Especially in states where the curve has flattened there needs to be creativity on how to get people back to work, with face masks, prolonged isolation of elderly and infirm, still restricting large gatherings, and being prepared to pull things back a bit if cases spike.   

Oh, I absolutely agree. The actions taken need to be based on the data of what's actually going on, and adjusted as needed. We're in total agreement on that. I've just been hearing too many people lately act like it's totally fine to have church services with hundreds of people together, since this virus is a liberal plot, or something. Didn't realize viruses were political, but apparently that's what the world has become now.

We can't make good decisions without good data. If a city isn't testing, of course it won't have any cases. As I mentioned in another thread, Kansas City has a very low number of cases for such a large city but Missouri can't even test everyone in their infected nursing homes. Why would a city like that go back to business-as-usual?

bacchi

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #53 on: April 01, 2020, 02:34:56 PM »
Business as usual was not suggested.

Even allowing people to get back to work with face masks and no mass gatherings seems premature if we don't have data.

doggyfizzle

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #54 on: April 01, 2020, 06:32:37 PM »
If the tech bubble didn't kill it, and 2008 didn't kill it, there is no way this is going to kill it.   If fact, in a few years there are going to be droves of people posting all over the internet that don't even remember it clearly, either from normal faded recall, or from being sub-adults at the time it happened.

And everything will just move forward.

Exactly!  Gyrations in publicly-traded equity valuations are really, really common.  Just in my "investing" lifetime, I can recall the meltdown of the LTCM Hedge Fund implosion (and Asian Financial Crisis) of 1997/1998, Dot-com bubble bursting in 2000-2003 (compounded by 9/11), Housing Bubble/Global Recession/Oil-Price Skyrocketing of 2007-2009 (and beyond) and now the COVID Apocalypse of 2020.  Every 5-10 years this is entirely normal and should be seen as an opportunity to rotate funds from bonds (if in the black) to take advantage of personal and institutional investor fear.

jeroly

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #55 on: April 01, 2020, 08:30:23 PM »
The recent re-run of the ChooseFI podcast episode with Michael Kitces was encouraging for those pursuing or already FIRE'd.  Kitces reminded the hosts that the Great Depression was an 89% loss of stock market value, it lasted for more than a decade, and yet the 4% rule WORKED even if you retired at the start of it.  So wear a cup and stop freaking out.   

With some of the angst displayed on other threads it seems like this virus episode should be a reckoning and those who don't have the stoicism to weather this market downturn without panic-selling should probably turn in their FIRE cards.  They would be complete basket cases if such an event happened after they leave the cushy job so they might as well admit it now and pursue other hobbies.  FIRE is not for everyone, never has been.
What is the math on that? I have 3.5% annual withdrawal and the stock market returns for that decade. I run out of money by year 15?

Initial Investment    $1,200,000.00          
Withdrawal    $42,000.000    Return   Withdrawal   Ending Balance
             $1,200,000.00
   Year 1   -11.91%    $(42,000.000)    $1,146,566.40
   Year 2   -28.48%    $(42,000.000)    $778,024.29
   Year 3   -47.07%    $(42,000.000)    $369,808.26
   Year 4   -15.15%    $(42,000.000)    $271,782.31
   Year 5   46.59%    $(42,000.000)    $356,405.68
   Year 6   -5.94%    $(42,000.000)    $293,235.18
   Year 7   41.37%    $(42,000.000)    $372,546.58
   Year 8   27.92%    $(42,000.000)    $434,561.58
   Year 9   -38.59%    $(42,000.000)    $224,864.27
   Year 10   25.21%    $(42,000.000)    $239,552.55
   Year 11   -5.45%    $(42,000.000)    $184,496.94
   Year 12   -15.29%    $(42,000.000)    $114,287.36
   Year 13   -17.86%    $(42,000.000)    $51,875.63
   Year 14   12.43%    $(42,000.000)    $16,323.78
   Year 15   19.45%    $(42,000.000)    $(22,501.25)
I believe that you are not factoring in dividends, which were fairly substantial in that era.

BPA

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #56 on: April 01, 2020, 10:04:34 PM »
Proud "hysterical rule keeper" here. I'd far rather be that than lacking in empathy/bordering on sociopathic when it comes to those who are older or have compromised immune systems like my brother-in-law who is 34 and lives in a nursing home. He is at very high risk to die from this because of living in a home and having a disorder that managed properly (ie not sacrificed for "the economy") will extend his generally very happy life for many years to come. He (and many others like him) were not destined to die within two years, but are made more vulnerable now by people who aren't taking social distancing and self-isolation seriously enough and/or seem to think that he's expendable.

But back to the real issue mentioned in the OP.

As for FIRE dying out because of Covid, I agree that some people are struggling with coming to terms with their investment losses, but I do think that being FIRE is what is helping my family cope with this crisis, so I hope that people don't turn away from the FIRE movement. Having no debt (including a paid off house), frugal habits, and a DIY mindset will help my family cope no matter what happens. Perhaps many people need to be more realistic about their risk tolerance, so I hope that changes going forward. However, I understand that it is hard to really imagine what one's risk tolerance might be if you haven't invested through a significant downturn.

I did the geo-arbitrage within my own country and glad I did. That may become more appealing as someone else pointed out.


bendixso123

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #57 on: April 01, 2020, 11:27:59 PM »
I do think with FIRE, it is important to have a *reason* to FIRE, and so much of that is personality-driven.

I am interested in financial independence because I'm actually way more passionate about my field (software) than the majority of people who are in it and who I am usually forced to work with because "teamwork" is a thing people seem to care about. I question the dominant convenience-based way software is built, and I want to demolish vast swathes of currently accepted dogma and build something better from the ground up.

Of course *my* kind of thinking is heresy in most companies today. You can't find organizations with the means to take on projects as ambitious as the sorts of things I'm interested in, and no manager I've met can think on a long enough time horizon to make actual innovation happen.

Then you interview at some of these companies and you're just taken to cleaners over these bullshit toy programming challenges that emphasize how well you do under some contrived high pressure scenario.

I'm supposed to pretend to care about the latest pile 'o bullshit year after year. Like now we're all doing this Object Oriented thing. Oh wait. Now it's React. Oh wait. Now it's some other popular piece of shit web framework thingy.

Meanwhile, here I am, building a cross-platform video game completely from scratch and thinking up ways to stop companies from having to rewrite the same app two times in two totally different programming languages.

Of course, a truly well thought out video game doesn't just magically appear from nowhere. You have to invest some serious time and energy into it. It's very difficult to take on a project that ambitious while working a job, and you need to fund other aspects of its development like graphics, music, designers, that sort of thing.

You're probably looking at a minimum of three years full-time with at least a hundred grand invested, and it's a financial risk because you may not get the press you want or some other random event could sink it. Plus, it just takes time to create something worthwhile. You have to keep practicing at something before you get good enough at it to make waves.

FIRE, for me, has always been a way to jump into a career where I'm not constantly feeling dysphoria over holding certain beliefs about the right way to do things while pretending to like the bullshit to get jobs.


Maenad

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #58 on: April 02, 2020, 11:45:04 AM »
The recent re-run of the ChooseFI podcast episode with Michael Kitces was encouraging for those pursuing or already FIRE'd.  Kitces reminded the hosts that the Great Depression was an 89% loss of stock market value, it lasted for more than a decade, and yet the 4% rule WORKED even if you retired at the start of it.  So wear a cup and stop freaking out.   

With some of the angst displayed on other threads it seems like this virus episode should be a reckoning and those who don't have the stoicism to weather this market downturn without panic-selling should probably turn in their FIRE cards.  They would be complete basket cases if such an event happened after they leave the cushy job so they might as well admit it now and pursue other hobbies.  FIRE is not for everyone, never has been.
What is the math on that? I have 3.5% annual withdrawal and the stock market returns for that decade. I run out of money by year 15?

Initial Investment    $1,200,000.00          
Withdrawal    $42,000.000    Return   Withdrawal   Ending Balance
             $1,200,000.00
   Year 1   -11.91%    $(42,000.000)    $1,146,566.40
   Year 2   -28.48%    $(42,000.000)    $778,024.29
   Year 3   -47.07%    $(42,000.000)    $369,808.26
   Year 4   -15.15%    $(42,000.000)    $271,782.31
   Year 5   46.59%    $(42,000.000)    $356,405.68
   Year 6   -5.94%    $(42,000.000)    $293,235.18
   Year 7   41.37%    $(42,000.000)    $372,546.58
   Year 8   27.92%    $(42,000.000)    $434,561.58
   Year 9   -38.59%    $(42,000.000)    $224,864.27
   Year 10   25.21%    $(42,000.000)    $239,552.55
   Year 11   -5.45%    $(42,000.000)    $184,496.94
   Year 12   -15.29%    $(42,000.000)    $114,287.36
   Year 13   -17.86%    $(42,000.000)    $51,875.63
   Year 14   12.43%    $(42,000.000)    $16,323.78
   Year 15   19.45%    $(42,000.000)    $(22,501.25)
I believe that you are not factoring in dividends, which were fairly substantial in that era.

Also, IIRC, there was deflation during some of those years, so the withdrawal amount would have been lower.

martyconlonontherun

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #59 on: April 02, 2020, 11:52:49 AM »
The recent re-run of the ChooseFI podcast episode with Michael Kitces was encouraging for those pursuing or already FIRE'd.  Kitces reminded the hosts that the Great Depression was an 89% loss of stock market value, it lasted for more than a decade, and yet the 4% rule WORKED even if you retired at the start of it.  So wear a cup and stop freaking out.   

With some of the angst displayed on other threads it seems like this virus episode should be a reckoning and those who don't have the stoicism to weather this market downturn without panic-selling should probably turn in their FIRE cards.  They would be complete basket cases if such an event happened after they leave the cushy job so they might as well admit it now and pursue other hobbies.  FIRE is not for everyone, never has been.
What is the math on that? I have 3.5% annual withdrawal and the stock market returns for that decade. I run out of money by year 15?

Initial Investment    $1,200,000.00          
Withdrawal    $42,000.000    Return   Withdrawal   Ending Balance
             $1,200,000.00
   Year 1   -11.91%    $(42,000.000)    $1,146,566.40
   Year 2   -28.48%    $(42,000.000)    $778,024.29
   Year 3   -47.07%    $(42,000.000)    $369,808.26
   Year 4   -15.15%    $(42,000.000)    $271,782.31
   Year 5   46.59%    $(42,000.000)    $356,405.68
   Year 6   -5.94%    $(42,000.000)    $293,235.18
   Year 7   41.37%    $(42,000.000)    $372,546.58
   Year 8   27.92%    $(42,000.000)    $434,561.58
   Year 9   -38.59%    $(42,000.000)    $224,864.27
   Year 10   25.21%    $(42,000.000)    $239,552.55
   Year 11   -5.45%    $(42,000.000)    $184,496.94
   Year 12   -15.29%    $(42,000.000)    $114,287.36
   Year 13   -17.86%    $(42,000.000)    $51,875.63
   Year 14   12.43%    $(42,000.000)    $16,323.78
   Year 15   19.45%    $(42,000.000)    $(22,501.25)
I believe that you are not factoring in dividends, which were fairly substantial in that era.

Also, IIRC, there was deflation during some of those years, so the withdrawal amount would have been lower.
Thanks. I was missing dividends and bonds. Obviously this is a bad/worst case scenario but a devils advocate could point out we won't be getting those bonds and dividends so in the worst depression scenario we would be screwed. That said, it would allow you to ride it out 20 years while you find additional sources of income.

joleran

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #60 on: April 13, 2020, 07:19:12 AM »
Because of articles like the one that started this thread (and the one I have below), a lot of podcasts are addressing the question of whether FIRE is dead.  The April 5th episode of Bigger Pockets had a few of our well-known names on to talk about how they are weathering these events.  All are several years into RE, are doing very well, and have good advice on how to prepare yourself in the run up to retirement so that you are well-positioned for the black swans.  MadFientist and Nords were among them. 

In other news, Financial Samurai is up to his usual look-at-me tripe: 
   
https://www.businessinsider.com/coronavirus-pandemic-might-end-fire-movement-early-retirement-2020-3

It's way too early to tell what the true SWR would be for very recent retirees, the 2000 cohort is not looking too good right now.  FIRE can't ever truly die, just get more difficult.

SugarMountain

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #61 on: April 13, 2020, 02:47:54 PM »
The recent re-run of the ChooseFI podcast episode with Michael Kitces was encouraging for those pursuing or already FIRE'd.  Kitces reminded the hosts that the Great Depression was an 89% loss of stock market value, it lasted for more than a decade, and yet the 4% rule WORKED even if you retired at the start of it.  So wear a cup and stop freaking out.   

With some of the angst displayed on other threads it seems like this virus episode should be a reckoning and those who don't have the stoicism to weather this market downturn without panic-selling should probably turn in their FIRE cards.  They would be complete basket cases if such an event happened after they leave the cushy job so they might as well admit it now and pursue other hobbies.  FIRE is not for everyone, never has been.
What is the math on that? I have 3.5% annual withdrawal and the stock market returns for that decade. I run out of money by year 15?

Initial Investment    $1,200,000.00          
Withdrawal    $42,000.000    Return   Withdrawal   Ending Balance
             $1,200,000.00
   Year 1   -11.91%    $(42,000.000)    $1,146,566.40
   Year 2   -28.48%    $(42,000.000)    $778,024.29
   Year 3   -47.07%    $(42,000.000)    $369,808.26
   Year 4   -15.15%    $(42,000.000)    $271,782.31
   Year 5   46.59%    $(42,000.000)    $356,405.68
   Year 6   -5.94%    $(42,000.000)    $293,235.18
   Year 7   41.37%    $(42,000.000)    $372,546.58
   Year 8   27.92%    $(42,000.000)    $434,561.58
   Year 9   -38.59%    $(42,000.000)    $224,864.27
   Year 10   25.21%    $(42,000.000)    $239,552.55
   Year 11   -5.45%    $(42,000.000)    $184,496.94
   Year 12   -15.29%    $(42,000.000)    $114,287.36
   Year 13   -17.86%    $(42,000.000)    $51,875.63
   Year 14   12.43%    $(42,000.000)    $16,323.78
   Year 15   19.45%    $(42,000.000)    $(22,501.25)

Part of it could be you're not adjusting your withdrawals for inflation (or in this case deflation for the first part of the depression).
1929 0%
1930 -7% $39,060
1931 -10% $35,154
1932 -10% $31,639

Nords

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #62 on: April 18, 2020, 07:59:44 PM »
Because of articles like the one that started this thread (and the one I have below), a lot of podcasts are addressing the question of whether FIRE is dead.  The April 5th episode of Bigger Pockets had a few of our well-known names on to talk about how they are weathering these events.  All are several years into RE, are doing very well, and have good advice on how to prepare yourself in the run up to retirement so that you are well-positioned for the black swans.  MadFientist and Nords were among them. 


It's way too early to tell what the true SWR would be for very recent retirees, the 2000 cohort is not looking too good right now.  FIRE can't ever truly die, just get more difficult.
You might be missing the point, @joleran

The 4% SWR is the *worst* case for the last century, including the period of 1966-82.
(EDIT, see the post below.) 

The 4% SWR is the *worst* case of 30-year portfolio survival for the last century, including the period of 1966-82.  You're presuming that the 2000 cohort has stumbled blindly along for the last 20 years, blissfully spending their CPI adjustments every year without ever paying attention to their true spending needs or any (American) possibility of Social Security or any possibility of variable spending.  For them to fail, the SWR would have to be less than 4%.

Mindy Jensen set up that BP Money podcast on a Thursday, we recorded on Friday, and she released it on a Monday.  More to the point, the following episode had Michael Kitces analyzing the latest reviews of the 4% SWR:
https://www.biggerpockets.com/blog/biggerpockets-money-podcast-120early-retirementasset-allocation-safe-withdrawal-rates-michael-kitces
« Last Edit: April 20, 2020, 09:53:46 AM by Nords »

joleran

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #63 on: April 20, 2020, 08:32:41 AM »
It's way too early to tell what the true SWR would be for very recent retirees, the 2000 cohort is not looking too good right now.  FIRE can't ever truly die, just get more difficult.
You might be missing the point, @joleran

The 4% SWR is the *worst* case for the last century, including the period of 1966-82.  You're presuming that the 2000 cohort has stumbled blindly along for the last 20 years, blissfully spending their CPI adjustments every year without ever paying attention to their true spending needs or any (American) possibility of Social Security or any possibility of variable spending.  For them to fail, the SWR would have to be less than 4%.

Mindy Jensen set up that BP Money podcast on a Thursday, we recorded on Friday, and she released it on a Monday.  More to the point, the following episode had Michael Kitces analyzing the latest reviews of the 4% SWR:
https://www.biggerpockets.com/blog/biggerpockets-money-podcast-120early-retirementasset-allocation-safe-withdrawal-rates-michael-kitces

The 4% SWR is the worst case for portfolio depletion over 30 years, assuming people happily continued spending their CPI adjustments with depleted portfolios as you say.

Here's the thing for the 2000 cohort - they're doing really badly.  https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

In order for them to recover and re-validate the 4% rule, we will need substantial outperformance in the next 10 years during a time when 1. even Vanguard has been urging caution about expected equity returns in this timeframe due to high valuations until recently and 2. this recent additional setback due to COVID-19 is likely to have long lasting knock-on effects.  That would be utterly amazing to observe, and I'm not saying it won't happen, but the 2000 cohort is right now at high risk for "breaking" the 4% rule.

Nords

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #64 on: April 20, 2020, 09:49:44 AM »
It's way too early to tell what the true SWR would be for very recent retirees, the 2000 cohort is not looking too good right now.  FIRE can't ever truly die, just get more difficult.
You might be missing the point, @joleran

The 4% SWR is the *worst* case for the last century, including the period of 1966-82.  You're presuming that the 2000 cohort has stumbled blindly along for the last 20 years, blissfully spending their CPI adjustments every year without ever paying attention to their true spending needs or any (American) possibility of Social Security or any possibility of variable spending.  For them to fail, the SWR would have to be less than 4%.

The 4% SWR is the worst case for portfolio depletion over 30 years, assuming people happily continued spending their CPI adjustments with depleted portfolios as you say.
All right, I didn't anticipate that interpretation of my words, so let me rephrase for precision.

"The 4% SWR is the *worst* case of 30-year portfolio survival for the last century."

Here's the thing for the 2000 cohort - they're doing really badly.  https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

In order for them to recover and re-validate the 4% rule, we will need substantial outperformance in the next 10 years during a time when 1. even Vanguard has been urging caution about expected equity returns in this timeframe due to high valuations until recently and 2. this recent additional setback due to COVID-19 is likely to have long lasting knock-on effects.  That would be utterly amazing to observe, and I'm not saying it won't happen, but the 2000 cohort is right now at high risk for "breaking" the 4% rule.
Right, I get that too.  (I've spent quite a bit of time with the 4% SWR.)  Let's stipulate that there's plenty of real-world and academic data that the 2000 cohort is doing really badly.   

Incidentally, it sort of proves the point that you can see a portfolio failure coming from a long way off.  People were talking about it over a decade before Karsten put the spotlight on it.
http://www.raddr-pages.com/forums/viewtopic.php?f=2&t=1208&hilit=Y2K

But that's not my point.  Here's my point.

People who retired at the 4% SWR don't have to recover over the next decade, because they've already recovered.  They either never blindly followed the 4% SWR's inflation increases or they've already varied the way they spend.  They might even start Social Security before 2030.  They used the 4% SWR, they saw failure coming, and they acted.  They're winning.

We don't have to "revalidate" anything about the 4% SWR. It's a very useful tripwire all by itself, just the way it stands.  Failures have already been identified for various asset allocations, and some people might feel uncomfortable with a portfolio value near zero at the end of their lives.  Yet we only have to avoid its failure rates by not blindly following the computer simulation.

If you really want to fix the 4% SWR then you'd add in annuities (SPIAs or deferred) or figure out when to implement variable spending (temporary or permanent), or get a few more centuries of data to extend the 4% SWR success rates past 30 years (Monte Carlo).  But people are already working on those enhancements.

Here's the really annoying issue with driving the 4% SWR to 100% success, or with revising it to the 3.47952% SWR, or with dismissing it for its other perceived flaws:
People stay in the workforce longer than necessary. 

They lock themselves into "Just One More Year" Syndrome, or they decide to gut it out for the pension, or they're afraid to negotiate a career change.  A few of them just want someone to tell them what to do, and when we claim that the 4% SWR doesn't work then they don't know what to do.

Instead of trying to optimize the math, we should be optimizing our lives. 

For that purpose, the 4% SWR keeps people from spending the rest of their lives trying to eliminate failures out of fear.

That podcast with Michael Kitces (who's also spent quite a bit of time with the 4% SWR) goes a long way toward replacing fear with optimism and confidence.
« Last Edit: April 20, 2020, 09:55:25 AM by Nords »

joleran

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #65 on: April 20, 2020, 10:33:08 AM »
For that purpose, the 4% SWR keeps people from spending the rest of their lives trying to eliminate failures out of fear.

All good points, especially this one.  4% rule messaging is generally helpful and the vast majority of people need to be saving much more to even allow for a 4% retirement, let alone early retirement.

For me though, it's a pretty big deal if we have (potentially multiple) violations of the 4% rule coming in the next 20 years.  Just because historically we've had a certain amount of growth fairly well-bounded on the lower end over a retirement timeframe, does not mean we couldn't, for example, have a 10 year global recession that blows all the historical data out of the water, which would rock many in the early retirement community hard.

"This time its different" is foolish and has been proven wrong many times in the past - bird flu, swine flu, SARS, MERS all had their impact on humanity but eventually became minor footnotes in history.  But this time it was different. 100 years from now it won't be anything more than the spanish flu is to us now, but that doesn't help the people it directly effects today.  An (entirely theoretical right now) unprecedented economic hit literally worse for an early retiree than anything we've seen in the last 150 years is likely going to be in that same boat.

When you're sitting there looking at giving up a high paying job with relatively little chance of being able to walk back into it after a few years out of the field and a couple of kids that will be directly impacted if you're wrong, the 4% rule for present-day people looking at FIRE seems imprudent until we understand what things are going to look like in the next year or two.

ERN covers this flexibility too, and sometimes it's really ugly what it would take: https://earlyretirementnow.com/2018/05/09/the-ultimate-guide-to-safe-withdrawal-rates-part-24-flexibility-myths-vs-reality/
« Last Edit: April 20, 2020, 10:35:52 AM by joleran »

Nords

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #66 on: April 20, 2020, 02:07:35 PM »
When you're sitting there looking at giving up a high paying job with relatively little chance of being able to walk back into it after a few years out of the field and a couple of kids that will be directly impacted if you're wrong, the 4% rule for present-day people looking at FIRE seems imprudent until we understand what things are going to look like in the next year or two.
It can be difficult to move from an attitude of scarcity to abundance.  Members of my military family audience are frequently reluctant to leave active duty (long after it stops being challenging or fulfilling) simply because they can't imagine that anyone will pay them enough to reach financial independence.  We call it the "military inferiority complex."

Speaking as someone who made that mistake over two decades ago, I hope people will start with the <good enough> of the 4% SWR instead of being stuck with paralysis analysis in pursuit of perfection.

DadJokes

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #67 on: April 20, 2020, 02:15:07 PM »
When you're sitting there looking at giving up a high paying job with relatively little chance of being able to walk back into it after a few years out of the field and a couple of kids that will be directly impacted if you're wrong, the 4% rule for present-day people looking at FIRE seems imprudent until we understand what things are going to look like in the next year or two.
It can be difficult to move from an attitude of scarcity to abundance.  Members of my military family audience are frequently reluctant to leave active duty (long after it stops being challenging or fulfilling) simply because they can't imagine that anyone will pay them enough to reach financial independence.  We call it the "military inferiority complex."

Speaking as someone who made that mistake over two decades ago, I hope people will start with the <good enough> of the 4% SWR instead of being stuck with paralysis analysis in pursuit of perfection.

I saw that fear a lot when I was in, and leadership causes a lot of it. First sergeants who want people to re-enlist would question whether or not separating soldiers would be able to find employment "in this economy" (it was 2015 when I got out and heard the spiel).

jeroly

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Re: Why the concept of retiring early could disappear due to Coronavirus
« Reply #68 on: April 20, 2020, 03:47:07 PM »
For that purpose, the 4% SWR keeps people from spending the rest of their lives trying to eliminate failures out of fear.

All good points, especially this one.  4% rule messaging is generally helpful and the vast majority of people need to be saving much more to even allow for a 4% retirement, let alone early retirement.

For me though, it's a pretty big deal if we have (potentially multiple) violations of the 4% rule coming in the next 20 years.  Just because historically we've had a certain amount of growth fairly well-bounded on the lower end over a retirement timeframe, does not mean we couldn't, for example, have a 10 year global recession that blows all the historical data out of the water, which would rock many in the early retirement community hard.

"This time its different" is foolish and has been proven wrong many times in the past - bird flu, swine flu, SARS, MERS all had their impact on humanity but eventually became minor footnotes in history.  But this time it was different. 100 years from now it won't be anything more than the spanish flu is to us now, but that doesn't help the people it directly effects today.  An (entirely theoretical right now) unprecedented economic hit literally worse for an early retiree than anything we've seen in the last 150 years is likely going to be in that same boat.

When you're sitting there looking at giving up a high paying job with relatively little chance of being able to walk back into it after a few years out of the field and a couple of kids that will be directly impacted if you're wrong, the 4% rule for present-day people looking at FIRE seems imprudent until we understand what things are going to look like in the next year or two.

ERN covers this flexibility too, and sometimes it's really ugly what it would take: https://earlyretirementnow.com/2018/05/09/the-ultimate-guide-to-safe-withdrawal-rates-part-24-flexibility-myths-vs-reality/
That linked to article discusses how a 4% withdrawal rate won’t work for a fifty year retirement, which is something far different than the 4% ‘rule’ discusses.

FIREsigns

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@Grim Squeaker,

HR Director here. Check again---you should not have to wait to drop your daughter from your insurance plan. And her employer plan should be required to add her once she proves she's lost coverage elsewhere. While you CAN keep her in your subscription, to my knowledge you are NOT REQUIRED to do so. And since she has a job and access to coverage there, I'd cut her loose (especially since she's totally disrespecting you).

TheGrimSqueaker

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@Grim Squeaker,

HR Director here. Check again---you should not have to wait to drop your daughter from your insurance plan. And her employer plan should be required to add her once she proves she's lost coverage elsewhere. While you CAN keep her in your subscription, to my knowledge you are NOT REQUIRED to do so. And since she has a job and access to coverage there, I'd cut her loose (especially since she's totally disrespecting you).

Hi. Unfortunately I checked with multiple plan administrators, begging for help at times, but the only time I am allowed to unilaterally drop her is during open enrollment. That is coming up in a few months. To drop her at any other time requires a "qualifying event" and I must have paperwork to prove she has coverage elsewhere within a certain number of days, after which point I lose the right to make changes. It is a very abuse-centric policy that was probably set up to prevent abusive spouses from dropping coverage on a vulnerable homemaker or child. Ironically it has had the opposite effect: it allows an abusive family member to drain the policy holder by deliberately running up gigantic bills for imaginary or self-inflicted medical problems.

I kicked my 20-year-old daughter out of the house on Valentine's Day for refusing to stop engaging in some illegal and dangerous activities that put me at risk. It was either that or become complicit in felony level crime by winking, nodding, and making it easier for her to continue while insulating her from the consequences. Furthermore she was not holding up her end of even one of the agreements she made when she moved in. Her behavior toward me has improved somewhat since I booted her out, but she's still not leading what I would consider to be an honest life. With her job she's gone to part-time. But since she has Medicaid I don't see a reason to keep her on when open enrollment arrives around the start of the fiscal year.

On the plan Web site there was a switch I could set to prevent automatic deduction from my HRA, which is too late this year but which would protect me next year if I still had her on the account (I don't plan to).

Missy B

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I keep seeing articles about how the COVID recession is going to delay retirement and whack the FIRE movement, and that millenials (its always the millenials) are going to be so badly sidetracked financially that they'll have to work til they die. (Their gig jobs are going to leave them repeatedly unemployed for months at a time, and then they'll get lousy market returns and low interest rates).

But even millenials cannot destroy the FIRE movement :)

In the short term I imagine there will be a lot of people who were about to retire who will delay for a year or two, just like in 2009. Longer term who can say what conditions will be. I don't think it will be easy like it was for the boomers, who were remarkably blessed by their timing and who could have the grace to be less smug about it. 
But I think that if it is as difficult as some are forecasting, it's going to be more motivating, not less, for a lot of people. And by that I don't mean that I think they'll going to work harder or hustle more, though some will. I think that people faced with treading water financially for decades are going to think a lot harder about what they really need and how they can make it work. I know for myself, when I looked at my portfolio, and at some of the changes to my work, skinny fire looked suddenly much more viable. Do I want more of a cushion? Oh, yeah. Would I drag myself through multiple stressful years to get there? No. And I really don't  expect that will be the case. But for others who are facing that situation who are already of the FIRE mindset I think it will encourage earlier retirement.

Chris@TTL

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...
But I think that if it is as difficult as some are forecasting, it's going to be more motivating, not less, for a lot of people.

I'm with you here. It seems like a pandemic is a great way to:
  • Stress test the systems in place (emergency fund, not selling investments, etc)
  • Grant FIRE participants the ability to say no (FU money) if an employer demands too much risk
We decided to pull the trigger less than two weeks ago (well, admittedly, begin the slow transition from full-time to part-time consulting for special projects -- for one of us at least). Our finances were still above the ol' 4% rule so it seems like no better time than now (we'd been planning this for a while, it just happened to coincide with a pandemic).