Am I missing anything on doing a 5.5% SWR

[themagicman]

I am considering retiring at 34 with a 5.5% safe withdraw rate. The caveats being that I am planning on selling my house 15 years later and renting and that I am ok with flexibility down 15% in a down market year. Am I missing anything on this? CFIRESIM or rich broke dead say it is about an 88% success rate (Which I think I am ok with)

Retirement spend $35,000 a year
Spend in down market year $30,000
House sale - $300,000
Increased rental cost per year $8,900
Fire number = 636,000

That puts me at a 5.5% withdraw rate. Is there anything that I am missing or looking at this the wrong way? Anyone see issues with this plan?

[Laura33]

Primarily, what's your backup plan if things don't go well over the first 10-15 years?  What you don't want to figure out is that your plan wasn't good when you're 75 or 80; better to be able to course-correct while you're young.  If you have something like a hobby you can monetize if need be, that can provide a helpful cushion. 

Specific questions:

1.  How accurate is the $35K?  Is it based on historic records or just assumptions?  How close is that to your current spend?  You want to be sure that you're planning a budget that you will be happy living on indefinitely, not just assuming that you'll be happy to cut your budget in half once you don't have to work any more.
2.  What about taxes?  E.g., income or capital gains?  I suspect you should be able to manage withdrawals to avoid/minimize as much as possible, but take a close look at that.
3.  How good are you in a 30% down year?  You are looking at potentially another 50-60 years, with (ideally) no required paid work.  The reality is that over that timeframe, you are likely to have at least two 30-40% market drops (we had that in 1974 and 2008, for example, along with three other similar drops earlier in the 20th century).  What is your backup plan for when (not if) that happens -- can you further cut your spend below the $30K you have allocated for the 10% drop year?
4.  What's your medical insurace plan?  Many states have subsidies that would make this affordable, if the program stays as it is now; but in the states that don't, prices can be very high.
5.  What's the rental cost based on?  Will it be a significant downsize from your house?  If so, how confident are you that you will be happy in that smaller space once you've had 15+ years of living in a larger one?
6.  Also keep in mind that if you permanently stop work at 34, you won't have much SS as a backup if things go south later on.  That's not a reason to stay in the workforce for 20 more years, but just be aware that it's a backstop many people have that you won't. 

[MDM]

I am considering retiring at 34 with a 5.5% safe withdraw rate.

The question is whether such a rate will indeed be safe.  Perhaps the biggest unknown at this point is long term medical cost, followed by long term lifestyle desires.

Not as ridiculous an idea as many at Bogleheads or early-retirement.org might suggest, but perhaps less sure than a 4% WR for someone retiring at age 62.  If you figure that it is better than 50/50 and are willing to adjust as needed, go for it - and good luck!

[BicycleB]

Personally I think there's a lot that can go wrong with a 5.5% withdrawal rate, which is why 4% is a much more common plan. That said, you're correct in recognizing that if you accept the higher risk of running out of money, you could have a higher withdrawal rate and it might turn out fine. Just remember that by the time it doesn't turn out fine, you're older and poorer.

What might you be missing?

Sequence of Returns Risk.

Also, that most studies of these withdrawal rates assume that if you have $1 left after 30 years, you're good, but you have a longer timeframe.

Also, the calculators can't guarantee future returns.

And, the calculators are somewhat dependent on choice of investment, especially over the long term.

If you're an active person of the sort who's likely to earn more as you go, and you're dying to escape the cube, escape. But the problems can really happen.

For reference on what efficient portfolios look like, and how safe they are over 50 to 60 year periods, check out portfoliocharts.com.  Look at the 40 year SWRs, and also look at the perpetual rates. Most are lower than 5.5%.

You might be missing the possibility of higher costs in future.

You might be missing how uncertain the ride would be in many paths where you don't go broke but you get close. Combining this concept with SORR, how would you feel during the period when you have 150k left and you're going to go broke but you don't die yet? Presumably if 12% of scenarios are failures, 30% or so might be close calls - so you'd be riskier than you may anticipate in nearly half of cases.

Big ERN at Early Retirement Now discusses this last point, along with several others (see points 4 and 5 in the second link below).

https://earlyretirementnow.com/safe-withdrawal-rate-series/
https://earlyretirementnow.com/2018/06/27/ten-things-the-makers-of-the-4-rule-dont-want-you-to-know/

[themagicman]

Primarily, what's your backup plan if things don't go well over the first 10-15 years?  What you don't want to figure out is that your plan wasn't good when you're 75 or 80; better to be able to course-correct while you're young.  If you have something like a hobby you can monetize if need be, that can provide a helpful cushion. 

Specific questions:

1.  How accurate is the $35K?  Is it based on historic records or just assumptions?  How close is that to your current spend?  You want to be sure that you're planning a budget that you will be happy living on indefinitely, not just assuming that you'll be happy to cut your budget in half once you don't have to work any more.
2.  What about taxes?  E.g., income or capital gains?  I suspect you should be able to manage withdrawals to avoid/minimize as much as possible, but take a close look at that.
3.  How good are you in a 30% down year?  You are looking at potentially another 50-60 years, with (ideally) no required paid work.  The reality is that over that timeframe, you are likely to have at least two 30-40% market drops (we had that in 1974 and 2008, for example, along with three other similar drops earlier in the 20th century).  What is your backup plan for when (not if) that happens -- can you further cut your spend below the $30K you have allocated for the 10% drop year?
4.  What's your medical insurace plan?  Many states have subsidies that would make this affordable, if the program stays as it is now; but in the states that don't, prices can be very high.
5.  What's the rental cost based on?  Will it be a significant downsize from your house?  If so, how confident are you that you will be happy in that smaller space once you've had 15+ years of living in a larger one?
6.  Also keep in mind that if you permanently stop work at 34, you won't have much SS as a backup if things go south later on.  That's not a reason to stay in the workforce for 20 more years, but just be aware that it's a backstop many people have that you won't.

Thanks for the great questions let me know what you think after my responses below.

As far as 10-15 years it not looking good I would more than likely do contact work or get a part time job to help suppliment.

1. The $35,000 number is based off our families historical spending with some assumptions/educated guesses. We have historically spent  almost zero on our 1 and 3 year old. I have allocated 2k a year for each of them (I assume this is enough throughout teen years but not sure). We also have not had any healthcare Costs really but I have allocated $1,800 a year. I also have about $5k a year of overflow/unbudgeted spending in that.  Our current spend is about $26k

2. That $35k budget includes a small state and federal tax bill based on current tax rates

3. I'm not 100% sure what you mean by this. Do you mean like how I would feel and if I would stay the course? If so, then yes I believe so with the only thing I might do is cut spending further. (We have a little fat in the 30k but not much)

4. I have $150 allocated for health insurance. Aca would be much cheaper (like $40 at our income) and have seen christain healthshare for $135 for backup

5. It is based on $1,400 a month. (And subtracting out our home cost now) which brings us to 8,900 a year. That gets us a 3/2 in a decent neighborhood which would be good for just be and my wife once kids are moved out. We would love somewhere like that now but do not want to move because of kids friends so I think we would be good.

6. I calculated I will have $23k at 70. I would think I might get $15k at the min with changes but I do not have it in my plans.

[2Birds1Stone]

You think your teenagers will cost $2k/yr each? $38/week? Do you live in a 3rd world country?

I think your math might be sound*, but your assumptions seem wildly optimistic.

*by math I mean the 5.5% WR lasting into your 70's if you cut spending by 15% if your account balance is <starting balance, adjusted for inflation.

I just FIRE'd on $525k portfolio, but my spending is <$18k/yr. Even a job at McDonalds 2-3 days a week can cover >50% of my needs.

Kids can be very unpredictable with expenses, god forbid they're sick or need some other out of pocket long term help you are not prepared to provide. Since you're only 29, you have plenty of time to learn and model things out as the world keeps on turning, but I would question some of your initial assumptions about future spending. 

[bacchi]

Will you and spouse have enough credits for SS and Medicare?

[msbutterbean]

We have historically spent  almost zero on our 1 and 3 year old. I have allocated 2k a year for each of them (I assume this is enough throughout teen years but not sure). We also have not had any healthcare Costs really but I have allocated $1,800 a year. I also have about $5k a year of overflow/unbudgeted spending in that.  Our current spend is about $26k

I, too, would suggest taking another look at these line items. My son has some ADHD/anxiety issues and we've spent more than $2K out of pocket annually for the past three years. And we're not an especially sporty family, but one child in an extacurricular can easily top a thousand dollars. Or braces, ugh. Have you asked any friends in your area with older kids how much they are spending? The kid stuff ads up quickly, more so with each passing year.

[themagicman]

I am considering retiring at 34 with a 5.5% safe withdraw rate.

The question is whether such a rate will indeed be safe.  Perhaps the biggest unknown at this point is long term medical cost, followed by long term lifestyle desires.

Not as ridiculous an idea as many at Bogleheads or early-retirement.org might suggest, but perhaps less sure than a 4% WR for someone retiring at age 62.  If you figure that it is better than 50/50 and are willing to adjust as needed, go for it - and good luck!

I think I am good on lifestyle desires long term increasing. Medical is definitely something that could change but it is so hard for me to predict. I could even see at 4% having worry with medical since it could be anything

[themagicman]

What might you be missing?

Sequence of Returns Risk.

Also, that most studies of these withdrawal rates assume that if you have $1 left after 30 years, you're good, but you have a longer timeframe.

Presumably if 12% of scenarios are failures, 30% or so might be close calls - so you'd be riskier than you may anticipate in nearly half of cases.

Shouldn't the calculators that I am looking at already take into account sequence of return risk? Also being longer than 30 year time horizon

That is a good point about 30% being close calls. I had not thought about that and would make retirement less fun. Need to weigh if that is worth working more time though

[themagicman]

You think your teenagers will cost $2k/yr each? $38/week? Do you live in a 3rd world country?
 

What do you think would be more in line? I am really not sure and do not have much to base it on. Note- this does not include food or healthcare

[themagicman]

Will you and spouse have enough credits for SS and Medicare?

I will. Well at least for SS, is it the same as medicare. My spouse will not but my understand is she will get half of my benefit (included in $23k estimate

[Villanelle]

Why not barista FIRE?  Quite the primary job and commit to finding a part-time job that earns enough to put you at about 4%SWR, or better?  (I'm always and advocate of substitute teaching, for those who qualify.  Super flexible and not appallingly low-paying.) Earn $8-10k/year and you are more than set, even if those budget assumptions are slightly off. 

 Also, SWR is SAVINGS Withdraw Rate, not SAFE withdraw rate.  I'm not just being pedantic; there's some meaning in the distinction. 

[themagicman]

We have historically spent  almost zero on our 1 and 3 year old. I have allocated 2k a year for each of them (I assume this is enough throughout teen years but not sure). We also have not had any healthcare Costs really but I have allocated $1,800 a year. I also have about $5k a year of overflow/unbudgeted spending in that.  Our current spend is about $26k

I, too, would suggest taking another look at these line items. My son has some ADHD/anxiety issues and we've spent more than $2K out of pocket annually for the past three years. And we're not an especially sporty family, but one child in an extacurricular can easily top a thousand dollars. Or braces, ugh. Have you asked any friends in your area with older kids how much they are spending? The kid stuff ads up quickly, more so with each passing year.

Is something like that not covered by insurance.In 4 years do you feel that I would have an understanding if that will be an issue? (kids being 8 and 5). Do you think its worth working extra years just in case I need more than the $1,800 a year average in medical?

[themagicman]

Why not barista FIRE?  Quite the primary job and commit to finding a part-time job that earns enough to put you at about 4%SWR, or better?  (I'm always and advocate of substitute teaching, for those who qualify.  Super flexible and not appallingly low-paying.) Earn $8-10k/year and you are more than set, even if those budget assumptions are slightly off. 

 Also, SWR is SAVINGS Withdraw Rate, not SAFE withdraw rate.  I'm not just being pedantic; there's some meaning in the distinction.

I think that I would do something like that but just wanted the plan to stand on its own without it. I do not see me going many years with making less than $5k.

I had never heard that before on SWR. Learned something new

[Villanelle]

We have historically spent  almost zero on our 1 and 3 year old. I have allocated 2k a year for each of them (I assume this is enough throughout teen years but not sure). We also have not had any healthcare Costs really but I have allocated $1,800 a year. I also have about $5k a year of overflow/unbudgeted spending in that.  Our current spend is about $26k

I, too, would suggest taking another look at these line items. My son has some ADHD/anxiety issues and we've spent more than $2K out of pocket annually for the past three years. And we're not an especially sporty family, but one child in an extacurricular can easily top a thousand dollars. Or braces, ugh. Have you asked any friends in your area with older kids how much they are spending? The kid stuff ads up quickly, more so with each passing year.

Is something like that not covered by insurance.In 4 years do you feel that I would have an understanding if that will be an issue? (kids being 8 and 5). Do you think its worth working extra years just in case I need more than the $1,800 a year average in medical?

It depends in the insurance and the deductible and maximum out of pocket. 

As for when you might now if there is an issue, I think the answer is "never".  Kids (and adults) are diagnosed with all sorts of illnesses at all ages.  A 10 year old can be diagnosed with Diabetes, cancer, or asthma, or can blow out a knee and require complex reconstruction. 

Assuming you plan on buying insurance on the ACA exchange (and you believe that something similar in cost will always be around), you should be able to shop for plans to get an idea of premiums (so you know the minimum you'd pay) and maximum OOP (so you know the most you would pay). 

[msbutterbean]

Is something like that not covered by insurance.In 4 years do you feel that I would have an understanding if that will be an issue? (kids being 8 and 5). Do you think its worth working extra years just in case I need more than the $1,800 a year average in medical?

We've ended up out of network for some of the treatment, so our portion is higher. But Rx copays add up, too.  For the dental, there was a braces max, which I think is pretty typical (multiplied by 3 kids). For a long time our kid expenses were negligible, because I had a sweet neighborhood network of clothing hand-me-downs. And for entertainment, I just took them camping on the weekend. Expenses didn't really escalate until they hit the tween years, but they are higher than I was expecting.

[themagicman]

Is something like that not covered by insurance.In 4 years do you feel that I would have an understanding if that will be an issue? (kids being 8 and 5). Do you think its worth working extra years just in case I need more than the $1,800 a year average in medical?

We've ended up out of network for some of the treatment, so our portion is higher. But Rx copays add up, too.  For the dental, there was a braces max, which I think is pretty typical (multiplied by 3 kids). For a long time our kid expenses were negligible, because I had a sweet neighborhood network of clothing hand-me-downs. And for entertainment, I just took them camping on the weekend. Expenses didn't really escalate until they hit the tween years, but they are higher than I was expecting.

Do you have an average per kid per year you are spending in tween years and what the bulk of that spending is from?

[MDM]

Also, SWR is SAVINGS Withdraw Rate, not SAFE withdraw rate.  I'm not just being pedantic; there's some meaning in the distinction.

One can impute various meanings to any Three Letter Acronym (TLA).  Safe Withdrawal Rate is however the meaning of SWR that most personal finance discussions would assume.  E.g., see that Boglehead wiki article.

In that article one finds

Unfortunately, the term "Safe Withdrawal Rate" is necessarily an ambiguous term. This is because initial methods utilized historical data to statically determine what would have been safe given the actual results that past portfolios would have generated with the variables given. The next logical step, of course, was to use that information to predict future SWRs. Either use is technically correct, but one should always be sure to be clear whether the use is in reference to past or projected SWRs, so that unnecessary argument can be prevented.

In other words, anyone can choose a Withdrawal Rate going forward.  Time will tell whether that was in fact a Safe Withdrawal Rate.

[Cannot Wait!]

"We would love somewhere like that now but do not want to move because of kids friends so I think we would be good."


You don't want to move because you can't tear your toddlers away from their pals?!?  Yet you think you'll be able to move teenagers in 15 years?  Good luck with that.
If if makes more sense to move now - do it; they will make new friends instantly.

[themagicman]

"We would love somewhere like that now but do not want to move because of kids friends so I think we would be good."


You don't want to move because you can't tear your toddlers away from their pals?!?  Yet you think you'll be able to move teenagers in 15 years?  Good luck with that.
If if makes more sense to move now - do it; they will make new friends instantly.

The kids would be in college when we sold the house. We are talking about retiring in 4 years and selling the house around 15 years after that. It's not just the friends but just a great overall place to raise a family. ( Although that comes at a premium)

[six-car-habit]

 Inflation ?
 I'm not sure $35 K a year is going to be enough in USA , 40 years from now. I wouldn't be surprised if Rent on a place smaller than you envision costs way more than you are bugeting for. If you kept the house, you'd only be paying taxes and insurance for most of your retirement years, which will undoubtedly go up, but not at the same rate Rent in someone else's house will.

[Metalcat]

Spend the next 4 years reading up on the risks, read about the 4% rule of thumb and why it's debated here endlessly.

You seem to be looking for reassurance that because a simulator spit out a certain number that you can count on a plan working.

Well, that's completely insane, so no, you will not get that reassurance. The numbers that simulations spit out are virtually meaningless because your chances of success depend far more on the assumptions inherent in the numbers you input into your simulation than the meaningless percentages that they spit out.

Which means you should also spend the next 4 years looking at your assumptions.

-How can you possibly assume that your children will continue to cost so little. Do you have any idea how much teenagers eat?

-You seem to be assuming that insurance will pay for a lot of potential substantial costs, but have you actually looked into it? Does your plan include 100% payment for braces, glasses, orthotics, root canals/crowns/implants, physio, therapy, etc??? All of which are run of the mill medical expenses for families?

-Does your 35K include budgeting for a new roof/major home repairs, while still maintaining a 15% buffer for spending reduction if the roof goes during a recession?
Same with car repairs/replacement?
Do you have a separate fund for this type of non-timeable spending?

Now, if you want to leave your job in 4 years, then yeah, you will have plenty saved to justify leaving your job in 4 years. Congrats! You have all the freedom in the world to live your best life.

Your best life may require a new job or part time work if you want to comfortably live without significant financial risk in the future, but that all depends on the myriad factors involved in what constitutes your best life.

Look carefully at your life, your risks, and your flexibilities.
Draw your own conclusions from there, no simulation in the world exists that can tell you if your plan will work out the way you want it to.

[themagicman]

Inflation ?
 I'm not sure $35 K a year is going to be enough in USA , 40 years from now. I wouldn't be surprised if Rent on a place smaller than you envision costs way more than you are bugeting for. If you kept the house, you'd only be paying taxes and insurance for most of your retirement years, which will undoubtedly go up, but not at the same rate Rent in someone else's house will.

Those numbers should be all inflation adjusted

[themagicman]

Which means you should also spend the next 4 years looking at your assumptions.

-How can you possibly assume that your children will continue to cost so little. Do you have any idea how much teenagers eat?
-You seem to be assuming that insurance will pay for a lot of potential substantial costs, but have you actually looked into it? Does your plan include 100% payment for braces, glasses, orthotics, root canals/crowns/implants, physio, therapy, etc??? All of which are run of the mill medical expenses for families?

-Does your 35K include budgeting for a new roof/major home repairs, while still maintaining a 15% buffer for spending reduction if the roof goes during a recession?
Same with car repairs/replacement?
Do you have a separate fund for this type of non-timeable spending?

Yes, it is a luxery to be able to think and work through this the next 4 years and I plan to. Also, I am going to post a full retirement budget below since a lot of the questions are around that. Let me know what holes you see in it!

It seems that a lot of people are thinking the child budget is low. What do you think would be a better amount? This does not include increase grocery or healthcare costs (Separate budget lines)

Also, yes I accrue for those expenses yearly (I have already been doing that and will continue to in retirement) This is in that $35k budget and the categories are home expenses, car replacement, and healthcare. (see below)

[themagicman]

See attached retirement budget for normal years and years for when market is down and let me know your thoughts!

[ontheway2]

No accounting for the fact that you are willing to decrease your spending by 15% in a down year, firecalc gives you a 45.8% success rate

[Metalcat]

See attached retirement budget for normal years and years for when market is down and let me know your thoughts!

So...your so called flexible spending just involves not spending your overflow budget.

That is NOT the same as having a predictably flexible budget because you can't control the years where you need that overflow.

A predictably flexible budget is one where fixed line items can easily be removed/reduced, like lowering housing costs by renting out a room, or eliminating vacation spending, reducing entertainment spending, etc.

The only item you have like that is $1000 less for travel. So no, you do not have a very flexible budget. You have an unrealistic assumption that your "overflow" spending can be timed with the market.

What you have is a very good starting point, a very reasonable spending level, a good savings rate, and a lot of options. What you don't have is a realistic plan for never working again within the next few years.

[themagicman]

No accounting for the fact that you are willing to decrease your spending by 15% in a down year, firecalc gives you a 45.8% success rate

Does this include the sale of the house? I am seeing more around  70% without the flexibility

[freya]

Plans like this are why financial gurus dislike FIRE.  This is a recipe for disaster.

A 5.5% withdrawal rate is very optimistic even if you succeed in staying within your $30/$35K budget plan.   The website portfoliocharts.com has a ton of data on historical withdrawal rates that I suggest you examine.  Remember that Mr. MM himself fired at $800K with living expenses lower than yours, which included an active house rental business which he continued to work in after quitting his regular job.

And chances are that this budget will not be maintained over your lifetime.  You're counting on cutting costs if the markets are down, but how do you know for sure you can do that?  There are a LOT of costs you are not taking into account...what about college, what about when your kids want to join activities or school trips?  What about clothes, food, piano lessons, lunch money etc?  What happens if one of them, say, turns out be dyslexic and need special tutoring?  And what about your own needs?  Projecting your life plans 40 years into the future...I can't even imagine.

A backup plan is mandatory here.  A side gig, independent consulting, some way to continue your vocation whatever it is.  Remember that once you quit work and develop a gap in your CV, you become virtually unemployable for most full time, well paying jobs.  Yes, you could clean houses, mow lawns, substitute teach, make coffee at Starbucks or whatever for additional income, but even if that's enough, is that what you want to swap your current job for?  The answer may well be "yes", but it's something you need to think about carefully.  Also keep in mind that such jobs may be hard to find in a recession, when businesses everywhere are laying people off and cutting costs.

[ontheway2]

No accounting for the fact that you are willing to decrease your spending by 15% in a down year, firecalc gives you a 45.8% success rate

Does this include the sale of the house? I am seeing more around  70% without the flexibility

Yes. I did for a lifespan of 100 though. 66 years with 300k added to the portfolio in 2036 and 8900 off chart spending in 2036. Everything else default (besides portfolio balance and spend)

[Metalcat]

No accounting for the fact that you are willing to decrease your spending by 15% in a down year, firecalc gives you a 45.8% success rate

Does this include the sale of the house? I am seeing more around  70% without the flexibility

To repeat myself.

None of these numbers mean anything anyway if your assumptions aren't accurate, which they aren't.

A simulation could spit out 100% and it wouldn't change anything about the actual risk of you permanently leaving work with no back up plan.

[Sibley]

See attached retirement budget for normal years and years for when market is down and let me know your thoughts!

Well, first, your budgeting isn't good enough. "Overflow spending"?!? That's code for "we don't know what the hell we spent the money on, but it's gone" to me.

Also, I agree that you have dramatically underestimated how much the kids will cost when they're older. A 1 and 3 year old realistically don't eat much, even when they're heading into a growth spurt. I've had kids that age at my house for a meal at the same time as a 10 yo, 15 yo, and 18yo, plus assorted adults. The older kids ate something like 10x the amount of food as the little ones. Each. Not joking.

You can get clothes for little kids up to probably 4/5ish basically free or really cheap. Not so much for older kids. Between availability of used clothes in the right sizes (older kids are harder on clothes than toddlers) and style preferences, you probably won't be able to get much used until mid to late teens if you're lucky. Shoes are also expensive. I know a 12 yo kid who is growing through 2 shoe sizes a year, plus with sports etc he destroys the first pair of a size and has to get a 2nd. That's minimum 4 pairs of shoes a year. That doesn't account for sandals, winter boots, slippers, sport specific shoes, etc. That's minimum 4 pairs of basic everyday shoes every year.

Then you've got school fees/field trips/supplies. Extra curricular activities. Sports/dance/music/etc. Then lets add on that kids today are glued to their phones, but they're not necessarily good about not losing or destroying their phones. Sure, you can delay the phone phase, but you will have to cave at some point. Video games, headphones/ear buds (times a million pairs cause they get lost and break easily). Whatever the latest gadget is. Then, horror of horrors - driving lessons.

Medical stuff. Asthma/allergies are common now. Braces. Glasses or contacts. Injuries. Your little kids haven't really entered the lets-see-how-much-damage-we-can-do-today phase. My friend was such a regular at the local ER (sports + klutz + being a dumb kid = lots of injuries) that their family knew all the nurses and doctors by name, and they did a child abuse screening as well. That gets expensive.

Your plan is to work for another 4 years. Make sure you're tracking your spending, and re-evaluating your planned retirement budget. Because I don't think you've got it right, so you're basing your analysis on bad info.

[GoCubsGo]

Chiming in to say the kid spend is ridiculously low.  Braces alone for 2 kids were $3k out of pocket with really strong insurance.  Your kids won't be able to drive under your calculations.  Insurance went up $1,200 for teenage drivers. 

Sports are important in our family (kids have tons of friends through them) and the kids ONLY played park district and now school sponsored sports (still close to $1,300 a year after fees and equipment).  If they play travel sports that could quadruple.  Add into that piano, dance, voice lessons over the years (discretionary of course but my kids have a lot of cool talents and hobbies because of it). 

My kids work and spending/extra clothing expenses are their responsibility.   But back to school clothes are roughly $1,000 year (we are high income and I grew up with hand me downs so I have zero problem with some splurges)

My teenage son eats 5 times a day.  Add minimum of 25% to food bill.

Healthy kids but have had broken bones, stitches, allergies etc that probably add $1,000 a year to our health spend.

Obviously you won't be helping with any college costs on $2k a year budget.

I'd be fine it you tried to FIRE in 5 years if were just you, but I think it's irresponsible to try to fire on a 5.5 SWR with 2 kids.  They are 1 and 3, they don't have any friends they will even remember in a year.  Your only shot would be to downsize now.

Please read the Big ERN early retirement website someone linked.  After reading everything he's read I don't think I would even consider it at 4% SWR given your projections.  The info on that site is a must read in your case.

Don't mean to be brutal but....

[ysette9]

You mist have nerves of steel.

5.5% WR with an already low spend rate (little buffer), with two young kids, at the end of an amazing stock market bull run, with historically high CAPEs, when you are in your 30s.... and and and?

If we were coming out of a recession and the stock market was poised to do a big recovery, of you were single or didn’t have kids, if you had a plush budget with lots of fat for discretionary things like travel and remodeling, if you didn’t have 50+ years of life ahead of you, I’d say 5.5% is doable. But you have all of these potential margin things stacked against you.

Which leads me to wonder what is so dreadful about your job that you want to escape it that badly? What can you do to make it more tolerable to allow you to get into a safer spot with your finances? I’d focus my attention on that if I were in your shoes.

[DeniseNJ]

The real problem is that if you fail, you fail hard.  4% withdrawel in the original study of 50 years to retire in left 2 retirement years with zero or fewer dollars after 30 years.  So there were 4% failures.  But not"4% of ppl had no dough in 30 yrs." Rather "for 4% of two for these retirment years, there was a 100% failure rate." True 96% of the years studied showed a 0+ balance at 30 years.  But the ppl who failed had NOTHING left at 30 years.  Forget the odds--if you lose, you lose it all.

Social Security is a gov't retirment annuity type plan.  You pay into it while you work, and based on how mucg you've paid you get a lifetime annuity.  It's not much.  You can take it from 62 to 70--the longer you wait, the more it is.  Statistically it makes no difference over a life time.  If it did, they woulnd't give you an option.

Medicare is health insurance you get at 65.  Part A is usually free--that's for inpatient only.  Part B currently cost 134 per month each and that's for outpatient, DME, and docs.  Part D is extra and that's for meds.  Medciare only covers 80% of costs.

Other things you will need money for are things they may improve life drastically that haven't even been invented yet.

[Metalcat]

Which leads me to wonder what is so dreadful about your job that you want to escape it that badly? What can you do to make it more tolerable to allow you to get into a safer spot with your finances? I’d focus my attention on that if I were in your shoes.

This is what I keep coming back to.
OP must be miserable to even try and attempt this level of self deception.

OP, instead of trying to fudge inputs to create an output that tells you what you want to hear, even though it's a blatant lie, then why not focus on making realistic plans to change your life???

My guess is that you're like a lot of people who feel the need to have the artificial reassurance of "achieving FI" according to whatever arbitrary metric they set for themselves before you feel like you can give yourself permission to make a major life change.

You don't need it, just make the change.

[Laura33]

So take a look at the SS calculations again.  They take the average of 40 years of earnings, so if you don't work for 3/4 of those, your benefits take a huge hit.  I ran a super-quick calculator that assumed you had earned $70K/yr since you were 18-19 (so for 15 years before retiring at 34), and I got $1100/mo. for you.  Obviously that will be higher/lower depending on how long you worked and your earning history, and you are right that your wife will get half your benefit; but also remember that when one of you dies, you drop down to only your SS again.  I'm glad you did the math without considering SS, but it's worth getting a solid sense of what that is, because that is your "things hit the shitter after I'm too old to work any more" backstop.

Also going to beat the dead horse over kid expenses.  Obviously, you don't have to sign your kid up for gymnastics lessons or let them play in the school band or go on field trips.  But the real question is are you -- or your wife -- going to want to offer them those advantages?  If all the kids in the neighborhood are playing rec soccer (our neighborhood rec league is about $100 per kid per sport, not counting equipment costs), will you be happy telling your kids they can't?  What about school supplies and field trips and tickets to the school dances and all that?  We spend hundreds of dollars a year just on those basic public school "extras" -- and if we had to rent an instrument for my kid to play in the band, that would be a lot more.  What are your college plans?  Don't assume your kids will get full rides anywhere if you are not employed; a lot of schools will assume you can afford to pay a cut of what you have saved, too.  So do you plan for them to take out loans?  And do you have a sense of the magnitude of what those loans will be, and how long it will take them to pay them back? 

I agree with everyone else here that you need to take a much closer look at what you want your life to be like -- spend less time projecting SWRs and more time pinning down the details of the life you want to live.  Don't assume that cheap insurance will be available and cover everything; research the cost of an ACA plan, and then look at what that plan will leave for you to cover out of your own pocket.  Think of the kind of activities you will want your kid to do -- sports, music/art, driving, etc. -- and research what those things actually cost to give yourself a baseline.  Think about the kind of college option you want your kids to look at, and run a calculator to see what your expected family contribution would be assuming you are FIRE'd with the appropriate 'stache and no other income.  Etc. 

Yes, you can get by on $30-35K/yr.  People get by on less and live perfectly happy lives doing so.  Kids shop at Goodwill and don't play in the band and don't get braces and work part-time jobs for spending money/college tuition and take out loans or don't go to college at all or live at home and go to CC.  The real question is, when the kids are 16 and want phones and to drive and to hang out with their friends and are talking about college and all that, will you still want to be living on $30K?  Or will you and your wife want the flexibility to let them play sports or in a band, or buy the nicer eyeglasses instead of the ones on the cheap shelf, or pay the EFC at the local college?  Plan your future spend around that, not around unfounded assumptions.

[FIRE@50]

I can't believe how many people think that braces are a requirement of life. There is some amazing marketing going on somewhere.

[Metalcat]

I can't believe how many people think that braces are a requirement of life. There is some amazing marketing going on somewhere.

For some kids they really are, it's not just about pretty teeth.

[ontheway2]

I can't believe how many people think that braces are a requirement of life. There is some amazing marketing going on somewhere.

For some kids they really are, it's not just about pretty teeth.

Yes. I had phase 1 done in early elementary to expand my upper jaw. Not doing this would have created lifetime issues for me and is not something that can be easily done as an adult.  I am now in braces because my parents never did phase 2. I did not have very noticeable issues, but I have bite issues. I have always wanted to fix the extreme overcrowding on the bottom, but when the dentist finally told me I should look into something because of the damage my bite was doing, I went ahead and "splurged" on braces. My son is 14 and needed them for his bite as well, and I wasn't going to leave that on him to do as an adult. With a "2fer" discount, pay in full cash discount, and insurance, we are out about 7k. This is not "6 month smile" cosmetic braces that you see in the dentist office.

[ysette9]

My husband had to have braces in his 30s in order to repair damage that had accumulated to that point. His dentist said he needed to get this work done if he still wanted his own teeth in his head by age 40.

That aside, there is no escaping that in the US straight teeth is a visual marker of being part of middle class society.

[honeybbq]

1. The $35,000 number is based off our families historical spending with some assumptions/educated guesses. We have historically spent  almost zero on our 1 and 3 year old. I have allocated 2k a year for each of them (I assume this is enough throughout teen years but not sure).

Do you want your children to never participate in organized sports or clubs at all? Piano lessons or a sports team will cost more than that alone. Not to mention clothing, birthday parties, Xmas, etc.

[themagicman]

See attached retirement budget for normal years and years for when market is down and let me know your thoughts!

So...your so called flexible spending just involves not spending your overflow budget.

That is NOT the same as having a predictably flexible budget because you can't control the years where you need that overflow.

A predictably flexible budget is one where fixed line items can easily be removed/reduced, like lowering housing costs by renting out a room, or eliminating vacation spending, reducing entertainment spending, etc.

The only item you have like that is $1000 less for travel. So no, you do not have a very flexible budget. You have an unrealistic assumption that your "overflow" spending can be timed with the market.

What you have is a very good starting point, a very reasonable spending level, a good savings rate, and a lot of options. What you don't have is a realistic plan for never working again within the next few years.

The overflow is basically free spend. Most years it would go to vacation I would guess. Some years for buying a new tv or laptop but it would go towards discretionary spending most of the time unless a very large unexpected expense (like for a kid or something ) came up.

[themagicman]

No accounting for the fact that you are willing to decrease your spending by 15% in a down year, firecalc gives you a 45.8% success rate

Does this include the sale of the house? I am seeing more around  70% without the flexibility

Yes. I did for a lifespan of 100 though. 66 years with 300k added to the portfolio in 2036 and 8900 off chart spending in 2036. Everything else default (besides portfolio balance and spend)

Strange that I am seeing such different numbers. Are you doing 100% stock?

[honeybbq]

I can't believe how many people think that braces are a requirement of life. There is some amazing marketing going on somewhere.

Seriously ignorant post here. Kids with messed up mouths can feel like monsters and never smile. Is that what you want for your child because you're too cheap to help them? Not to mention medical issues that stem from screwed up teeth and jaws...

[themagicman]

See attached retirement budget for normal years and years for when market is down and let me know your thoughts!

Well, first, your budgeting isn't good enough. "Overflow spending"?!? That's code for "we don't know what the hell we spent the money on, but it's gone" to me.

Also, I agree that you have dramatically underestimated how much the kids will cost when they're older. A 1 and 3 year old realistically don't eat much, even when they're heading into a growth spurt. I've had kids that age at my house for a meal at the same time as a 10 yo, 15 yo, and 18yo, plus assorted adults. The older kids ate something like 10x the amount of food as the little ones. Each. Not joking.

You can get clothes for little kids up to probably 4/5ish basically free or really cheap. Not so much for older kids. Between availability of used clothes in the right sizes (older kids are harder on clothes than toddlers) and style preferences, you probably won't be able to get much used until mid to late teens if you're lucky. Shoes are also expensive. I know a 12 yo kid who is growing through 2 shoe sizes a year, plus with sports etc he destroys the first pair of a size and has to get a 2nd. That's minimum 4 pairs of shoes a year. That doesn't account for sandals, winter boots, slippers, sport specific shoes, etc. That's minimum 4 pairs of basic everyday shoes every year.

Then you've got school fees/field trips/supplies. Extra curricular activities. Sports/dance/music/etc. Then lets add on that kids today are glued to their phones, but they're not necessarily good about not losing or destroying their phones. Sure, you can delay the phone phase, but you will have to cave at some point. Video games, headphones/ear buds (times a million pairs cause they get lost and break easily). Whatever the latest gadget is. Then, horror of horrors - driving lessons.

Medical stuff. Asthma/allergies are common now. Braces. Glasses or contacts. Injuries. Your little kids haven't really entered the lets-see-how-much-damage-we-can-do-today phase. My friend was such a regular at the local ER (sports + klutz + being a dumb kid = lots of injuries) that their family knew all the nurses and doctors by name, and they did a child abuse screening as well. That gets expensive.

Your plan is to work for another 4 years. Make sure you're tracking your spending, and re-evaluating your planned retirement budget. Because I don't think you've got it right, so you're basing your analysis on bad info.

The overflow spending is just extra fat in retirement as a safety margin. These is not any overflow spending in say this year. Its just an extra category thrown into retirement budget to give me a little more wiggle room in my plan. Most years it would all go to vacation and I would guess half would not be spent.

It seems like everyone is saying something similar about kids. I am not seeing what a budget per kid that people are thinking would be better though? Any ideas?

I do not have anything to base it on as the kids are young and have cost nothing so far. Note that this budget should not include additional food or healthcare cost for the kids, just other things. And should be an average from 3-18

[themagicman]

My guess is that you're like a lot of people who feel the need to have the artificial reassurance of "achieving FI" according to whatever arbitrary metric they set for themselves before you feel like you can give yourself permission to make a major life change.

You don't need it, just make the change.

Honestly this is a lot of it. I am not even sure that I would RE then but like the idea of hitting FI. I think it would lift a large weight off me.

[themagicman]

It looks to me that most people have issues with the $35k number and individual categories (particularly children) that make that up.

Do most people think that IF we met the $35k budget that the plan would work out and that I am not missing anything. I guess what I am saying is that do most people think the plan would work with a higher annual budget. Say $45k and still a 5.5% withdraw rate and 15% cut and selling the house?

Also, I would like some real examples of what people are allocating for their children outside of food. We are an overall frugal family and also have Grandparents that will more than likely purchase the majority of their clothes. I am just trying to get an idea of how far off we would be off. Are you all talking more like $3k a kid, $5k, $8k, etc?

[BicycleB]

I can't speak to kids' costs, but I am concerned about the 5.5% withdraw rate and relatively slim wiggle room.

You've seen (or been told) that there's a big spending or %withdrawal rate gap between 95% success rate and the lower success rate you want to base your plan on. The $5,000 overflow budget is much smaller than the withdrawal rate gap. Yet for the failure case, there's only guesswork and probably and maybe.

You might be fine, yes. But you might not.

I do think some things will sooner or later sneak up on you. Might be teens eating a lot of food, or medical expenses changing, or just life surprises. A 4% withdraw rate covers a lot.

That said, you only live once. You can choose to take the consequences, and leave work in 4 years. I'd suggest paying for dental work if the kids need it, fwiw. In any case, good luck, and keep us posted.