Author Topic: Bogleheads Forum  (Read 9862 times)

RJC

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Bogleheads Forum
« on: December 18, 2018, 12:35:19 PM »
I'm new to both this forum and Bogleheads but I've noticed some cross-forum discussions like the one below.

Do they have a valid point? How do you feel about their philosophy? Are the same folks on both?

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=266780

Assetup

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Re: Bogleheads Forum
« Reply #1 on: December 18, 2018, 01:09:35 PM »
Lots of different perspectives that's for sure!  I'd run your own numbers and see what you're comfortable with. 

Boofinator

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Re: Bogleheads Forum
« Reply #2 on: December 18, 2018, 01:09:44 PM »
Many valid points by the bogleheads. MMM's optimism is great for drawing people into the lifestyle, but it isn't the most realistic on many of the finer points, which the bogleheads did a good job of highlighting.

Even though I disagree with MMM on many of the fine details, it doesn't detract from the message at all. (Unless anyone here is drinking the Kool-Aid.)

nereo

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Re: Bogleheads Forum
« Reply #3 on: December 18, 2018, 01:15:09 PM »
I'm new to both this forum and Bogleheads but I've noticed some cross-forum discussions like the one below.

Do they have a valid point? How do you feel about their philosophy? Are the same folks on both?

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=266780

As you've probably noticed from the responses on the Bogleheads forum, most members over there take a much more conservative approach with WR, and often early retirement is frowned upon (the classic argument being "if you retire early you're missing the best earning years of your life" along with "if you exit the workplace in your 30s, you will have difficulty ever finding a job if/when you want to work again".

Obviously this forum takes a different approach. 

There's a great deal of fantastic information to be learned over there (I frequent both) and the financial analyses on Bogleheads typically are far more rigorous.  But I find their pessimism and emphasis on very high NW off-putting.  I've witnessed several debates where posters argued that a 2.5% WR was probably insufficient for a 40+ year retirement.  To this day that leaves me shaking my head in shock. From the comments in that thread: "For myself, I plan on a 2% withdrawal rate and am very close to my number now."   Many over there are in the high-spend/high-earn category, and often people's "FI" number on Bogleheads are in the $5-10MM range.  Around here it's closer to $1MM in investments with more careful spending.  Certainly there's a spread on both forums.

tl;dr - both have great information, but the approach of each is different.
« Last Edit: December 18, 2018, 01:52:25 PM by nereo »

nereo

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Re: Bogleheads Forum
« Reply #4 on: December 18, 2018, 01:16:51 PM »
Many valid points by the bogleheads. MMM's optimism is great for drawing people into the lifestyle, but it isn't the most realistic on many of the finer points, which the bogleheads did a good job of highlighting.

Even though I disagree with MMM on many of the fine details, it doesn't detract from the message at all. (Unless anyone here is drinking the Kool-Aid.)

Curious @Boofinator - what aspects of MMM do you find unrealistic and where do you disagree? 
I certainly have my own opinions (MMM's rush to pay off mortgages, plus his overly rosy rental assumptions are two examples). 

OurTown

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Re: Bogleheads Forum
« Reply #5 on: December 18, 2018, 01:40:03 PM »
"US Stocks in Free Fall" is not nearly as fun as "Top is In."

Boofinator

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Re: Bogleheads Forum
« Reply #6 on: December 18, 2018, 02:21:43 PM »
Many valid points by the bogleheads. MMM's optimism is great for drawing people into the lifestyle, but it isn't the most realistic on many of the finer points, which the bogleheads did a good job of highlighting.

Even though I disagree with MMM on many of the fine details, it doesn't detract from the message at all. (Unless anyone here is drinking the Kool-Aid.)

Curious @Boofinator - what aspects of MMM do you find unrealistic and where do you disagree? 
I certainly have my own opinions (MMM's rush to pay off mortgages, plus his overly rosy rental assumptions are two examples).

I agree with the general tenets. That's why I'm here. But let's pick through the article:

1) MMM puts his stake in the ground (or draws a line in the sand), saying its absolutely possible to make a chunk of money last a lifetime with no side hustles. I agree.
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.
4) MMM uses a constant rate of return for stocks in his calculations. Since this has never actually happened, I don't consider it a good lynchpin for your retirement spending.
5) MMM says to get the big picture right and not sweat the small stuff, but neglects to mention his experience with sequence of returns, specifically the house business. He certainly wasn't comfortable with the giant losses in his business at the time owing to the housing market downturn. Now, of course, everything is small stuff for him.
6) He recommends not investing in bonds. When you are that close to the line of making it / not making it from an historical perspective, bonds (at the beginning of retirement) can decrease the sequence of returns risk.
7) He says that should the stock market crash, within a year or two, the market is back up. Try 16 years for the Great Depression, or 11 years with the DotCom bust. (And these are not inflation-adjusted; if you consider those dips, we have historically seen decades-long dips).
8) He says you can cut your lifestyle if needed below $40k per year. Not sure this comes with the happiness proposed.
9) What happens should an adverse life event bump up the cost of living to $50k per year?
10) To round it out to an even ten, he only considers historical U.S. returns. Past performance yada yada.

To conclude, a chunk of money is a perfectly good retirement plan. But if one were to go solely based off that article they could become very disillusioned with Mustachianism (or perhaps they'll get lucky).

My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).

fattest_foot

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Re: Bogleheads Forum
« Reply #7 on: December 18, 2018, 02:48:15 PM »
Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.

Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.

It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.

Boofinator

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Re: Bogleheads Forum
« Reply #8 on: December 18, 2018, 03:05:03 PM »
Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.

Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.

It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.

I don't disagree. But then the question becomes, what are you retiring to? If your job is absolutely miserable, it's probably worth it to take some risk to get out. If your job is just a job, you enjoy your contributions in your field, and you get plenty of time off and with your friends and family, than working an extra year or two is no big deal. I fall in the latter category, so I probably have a more conservative lens than some others.

Honestly, if I retired tomorrow, I'm not altogether sure I would be happier. (Though at 5 a.m. I would most definitely be happier.)

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Re: Bogleheads Forum
« Reply #9 on: December 18, 2018, 04:53:55 PM »
Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.

Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.

It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.

I don't disagree. But then the question becomes, what are you retiring to? If your job is absolutely miserable, it's probably worth it to take some risk to get out. If your job is just a job, you enjoy your contributions in your field, and you get plenty of time off and with your friends and family, than working an extra year or two is no big deal. I fall in the latter category, so I probably have a more conservative lens than some others.

Honestly, if I retired tomorrow, I'm not altogether sure I would be happier. (Though at 5 a.m. I would most definitely be happier.)

Yeah, I think there are quite few of us that actually like our jobs and are still enjoying these years while working full time.  The previous poster seems to think those years are just "wasted" or "lost".  I think some of the cubicle workers are so miserable, it feels like they just lost a another year of their life on the job, so they assume everyone else feels the same way.

Eric

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Re: Bogleheads Forum
« Reply #10 on: December 18, 2018, 05:43:23 PM »
I think you have a number of these wrong, like #5, considering MMM is a relentless optimizer, but I'll just tackle these two:

3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.

My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).

If you plug 5% WR into www.cFIREsim.com with the default values, you get a 74% historical success rate.  So yes, if history is any guide, you would "probably" make it with 5%.  The numbers get even better when factoring in SS.  Maybe that doesn't fit your risk tolerance or definition of success?  Cool, then you can shoot for lower.  The fact remains that for most of history, a 5% WR would've worked out just fine, and as such, will probably work in the future.

4) MMM uses a constant rate of return for stocks in his calculations. Since this has never actually happened, I don't consider it a good lynchpin for your retirement spending.

This is simply false.  He's using historical returns and the Trinity Study methodology.  If you've never read it, now would be the time.

Andy R

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Re: Bogleheads Forum
« Reply #11 on: December 18, 2018, 07:06:43 PM »
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.

What I like about boghleads is they are a non-stop machine of people criticising bullshit
  • The bullshit of market timing.
  • The bullshit of dividend investing.
  • The bullshit that people can sector/market pick implying they know something the market doesn't.
  • The bullshit that average people can stock pick.
  • The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
  • The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
  • The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.

In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

maizeman

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Re: Bogleheads Forum
« Reply #12 on: December 18, 2018, 07:54:00 PM »
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.

The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.

Is that a correct understanding if your worldview?

Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.

Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.

It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.

Thanks for mentioning me with some forum legends, @fattest_foot. A lot of the credit (at least from my perspective) for continuing to make the case that the risk of working to long and dying too soon should be taken just as seriously as leaving work too early and going broke goes to @Retire-Canada I make mathematical models, that guy writes with passion about the topic.*

*And gets on my case when I start forgetting that the easiest way to guarantee I won't run out of money is to keep working until I die at my desk. ;-)

MDM

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Re: Bogleheads Forum
« Reply #13 on: December 18, 2018, 08:05:50 PM »
I'm new to both this forum and Bogleheads but I've noticed some cross-forum discussions like the one below.

Do they have a valid point? How do you feel about their philosophy? Are the same folks on both?

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=266780
MMM may be better for those "getting started" and Bogleheads may be better for those "more advanced" but there is quite a bit of overlap in who participates and who can benefit.

RJC

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Re: Bogleheads Forum
« Reply #14 on: December 19, 2018, 06:15:24 AM »
Thanks for your responses. I find it interesting that some folks on the Bogleheads forum think MMM is a "false prophet" and that it's not realistic (or honest) to tell people to live on 40k/yr when his blog makes over 400k yearly. I'm still new so trying to understand some of the dynamics going on here.

nereo

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Re: Bogleheads Forum
« Reply #15 on: December 19, 2018, 06:17:10 AM »

I agree with the general tenets. That's why I'm here. But let's pick through the article:

1) MMM puts his stake in the ground (or draws a line in the sand), saying its absolutely possible to make a chunk of money last a lifetime with no side hustles. I agree.
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.
4) MMM uses a constant rate of return for stocks in his calculations. Since this has never actually happened, I don't consider it a good lynchpin for your retirement spending.
5) MMM says to get the big picture right and not sweat the small stuff, but neglects to mention his experience with sequence of returns, specifically the house business. He certainly wasn't comfortable with the giant losses in his business at the time owing to the housing market downturn. Now, of course, everything is small stuff for him.
6) He recommends not investing in bonds. When you are that close to the line of making it / not making it from an historical perspective, bonds (at the beginning of retirement) can decrease the sequence of returns risk.
7) He says that should the stock market crash, within a year or two, the market is back up. Try 16 years for the Great Depression, or 11 years with the DotCom bust. (And these are not inflation-adjusted; if you consider those dips, we have historically seen decades-long dips).
8) He says you can cut your lifestyle if needed below $40k per year. Not sure this comes with the happiness proposed.
9) What happens should an adverse life event bump up the cost of living to $50k per year?
10) To round it out to an even ten, he only considers historical U.S. returns. Past performance yada yada.

To conclude, a chunk of money is a perfectly good retirement plan. But if one were to go solely based off that article they could become very disillusioned with Mustachianism (or perhaps they'll get lucky).

My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).

Thanks for the detailed response.  I'm not sure which 'article' you were referring to, and from which forum. 
In general I agree with a lot of your points, but I wouldn't use such absolute language in most cases.  I think MDM's discription of MMM as 'getting started' and Bogleheads as 'more advanced' is good - but I think a better description is that MMM focuses on the mindset of becoming financially independent (and introduces some basic financial concepts) while bogleheads takes a deep-dive into the minutia of all things market related (but often ignoring or glossing over the mind-set most take to get there). MMM emphasizes lifestyle flexibility to increase security, while bogleheads emphasizes additional assets for maximum security.

Absolutely agree about market timing, stock picking, dividend investing.  I think most are less risk-tolerant than they think they are (backed up by a lot of behavioral studies); however it seems MMM attracts a lot of those who are, and personally i was 100% equities during the dot-com and the great recession and didn't lose faith or change my strategy.  I will transition to holding more bonds as we near actual retirement (currently we sit around 90/10)

The $40k/year as 'insufficient' is where I diverge the most.  Subtracting out what we put into savings, we have never come anywhere close to spending $40k, and we live a pretty awesome lifestyle. It's also not far from the median household income in this country (and well above it for most of the world), so a good chunk of humanity lives on that or less.  Looking a bit closer, MMM has favored no mortgage in retirement and accelerated payments, so this figure is actually much rosier than it first appears (i.e. you must compare household spending minus mortgage/rent payments).

I understand even less this pervasive argument about 'what happens if you find you need $50k in retirement instead of $40k'.  For us fiscally responsible types we live our entire working lives spending less than we earn; why should retirement be any different? During my working years if I earn $40k/year I make sure I spend less than that - the same holds for my WR rate.  This argument gets even more absurd when one considers that there's virtually no level of spending one cannot overspend (e.g. "what if I plan on using a $100k WR, but realize I need $150k to live on?' - Answer: you adjust to spend $100k.) .   As for one-time events, that's where an ER fund comes in, and is part of the Investment Order.

As for the getting a job or side-gig during a recession, I think that's a very misunderstood concept - particularly on the bogleheads forum.  The suggestion isn't that one instantly gets a job when a recession hits, but that additional earned income may be considered further down the line. We're not even talking about full income replacement either, but typically 20-40% of annual spending, a level that's around $1k-2k/month with most budgets discussed on this forum. Experiences within my own family and community indicates that most retirees earn something just for doing what they enjoy. We anticipate our own paths to be similar

I do appreciate that study, and I'm working my way through the posts, will comment on that later.
cheers
~n~

Maenad

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Re: Bogleheads Forum
« Reply #16 on: December 19, 2018, 07:31:28 AM »
In terms of the typical spending of posters, the forums tend to go ERE -> MMM -> ER.org -> BH. Additionally, the "higher spending" boards tend more towards a more conservative view towards ER. I recommend checking out all of them and reading the different POVs - challenging your own assumptions is a good thing!

I also admit I've found MMM's optimism to be a little... much. I mean, it's easy to be optimistic when your little retirement project turned into a huge moneymaker, and your portfolio had the benefit of a nice long bull market. Once you're past the Scylla and Charybdis of SORR, the sailing tends to be a lot smoother.

maizeman

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Re: Bogleheads Forum
« Reply #17 on: December 19, 2018, 07:45:20 AM »
I also admit I've found MMM's optimism to be a little... much. I mean, it's easy to be optimistic when your little retirement project turned into a huge moneymaker, and your portfolio had the benefit of a nice long bull market. Once you're past the Scylla and Charybdis of SORR, the sailing tends to be a lot smoother.

I disagree, but I can certainly see why it would feel that way to some people. But as I think about that, honestly part of the reason I don't feel that was is that I've been around the FIRE movement and MMM since before it was clear that the last decade really was a golden age of relatively low volatility and near monotonically increasing stock prices, or before MMM was making $400k/year on his blog.

Which actually gives me an idea for a solution I'd like to propose: Go back and read the posts from the 2011-2012 era. Back then the blog wasn't making huge bucks yet and the stock market still hadn't fully recovered from the 2008/9 crash (2011 spent a while looking like we were in for a double dip recession as seen in the great depression). The update rate was a lot higher back then and most of the important ideas about FIRE (and honestly a lot of the same optimism) are present in those posts.  So if you'd like you can disregard the more recent post-SORR risk post-blog becoming a giant geyser of cash posts, and still get most of the good/useful ideas and information.

Boofinator

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Re: Bogleheads Forum
« Reply #18 on: December 19, 2018, 07:45:42 AM »
I think you have a number of these wrong, like #5, considering MMM is a relentless optimizer, but I'll just tackle these two:

3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.

My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).

If you plug 5% WR into www.cFIREsim.com with the default values, you get a 74% historical success rate.  So yes, if history is any guide, you would "probably" make it with 5%.  The numbers get even better when factoring in SS.  Maybe that doesn't fit your risk tolerance or definition of success?  Cool, then you can shoot for lower.  The fact remains that for most of history, a 5% WR would've worked out just fine, and as such, will probably work in the future.

I like cFIREsim as an extremely useful tool. But one aspect I find slightly misleading (and not in a negative way, because I'm not sure there is an easy way to account for it) is the use of yearly success rate as opposed to a per person success rate. So for any given person, they can hit their magic success rate to initiate FIRE at any time, so hence we look at yearly success rate. But on average, much more people will hit that magic number during a large stock market run-up, so those years should be weighted more heavily if we want to calculate a per person success rate. So even though cFIREsim shows a 74% success rate on a yearly basis, on a per person basis it is bound to be much less than this.

This is simply false.  He's using historical returns and the Trinity Study methodology.  If you've never read it, now would be the time.

Did you read the article? He used a spreadsheet calculation with constant returns to show how swimmingly things would work out for an early retiree.

I think you have a number of these wrong, like #5, considering MMM is a relentless optimizer, but I'll just tackle these two:

I agree that MMM is a relentless optimizer, and that most here or on Bogleheads were probably not the target audience for that article, so in that sense the critics (including myself) are being a bit unfair. If he gets more people into the joy of not spending money on stupid shit, than it is a win even if there's some sloppiness. There's probably only a couple really misleading statements in the article, but he who is without an internet error in their history should cast the first stone.

Boofinator

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Re: Bogleheads Forum
« Reply #19 on: December 19, 2018, 07:52:54 AM »
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.

The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.

Is that a correct understanding if your worldview?

What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.

maizeman

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Re: Bogleheads Forum
« Reply #20 on: December 19, 2018, 08:06:08 AM »
I like cFIREsim as an extremely useful tool. But one aspect I find slightly misleading (and not in a negative way, because I'm not sure there is an easy way to account for it) is the use of yearly success rate as opposed to a per person success rate. So for any given person, they can hit their magic success rate to initiate FIRE at any time, so hence we look at yearly success rate. But on average, much more people will hit that magic number during a large stock market run-up, so those years should be weighted more heavily if we want to calculate a per person success rate. So even though cFIREsim shows a 74% success rate on a yearly basis, on a per person basis it is bound to be much less than this.

Fortunately a forum member did account for exactly this. As seem in post #68 in that thread, as long as a person is saving saving at least 40% of their income the success rate of a 5% withdrawal rate is still greater than 60% after accounting for uneven clustering of retirement years. In that particular calculation (different investment mix from the default in cFireSim), the even retirement rate across years success rate for a 5% withdrawal rate was 69%.

I don't know if a nine percentage point different counts as "much less" to you, but to me seems like relatively small potatoes, given the error bars on all of these calculations. In any case, Eric's point that it is in fact true that a 5% withdrawal rate would succeed for the majority of people in the past is true whether or not we make the timing of retirement correction.

Now saying it succeeded for most people isn't the same as saying you should push the big red eject button on your career once you have 20x your expenses saved (5% WR), it just renders the statement a given person will "probably able to make it with 5%" not false.

2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.

The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.

Is that a correct understanding if your worldview?

What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.

In my experience living in both cities with below average incomes and in the poorer parts of cities with above average incomes, I meet more happy people than unhappy people. And the unhappy people I meet tend to be unhappy for reasons more money wouldn't fix (health issues, poor relationships with significant others, loneliness). And these are not mustachian individuals by any means.

So I assert that the answer to your bolded question is clearly yes.

Edit: But let's turn this around. If you don't think many people would be happy living on $40k/year, at what income do you think the answer to the question "will many people be happy spending at that level?" becomes "yes"? $50k? $80k? $150k? And why do you believe it is that number?
« Last Edit: December 19, 2018, 08:08:52 AM by maizeman »

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Re: Bogleheads Forum
« Reply #21 on: December 19, 2018, 08:15:06 AM »
Thanks for the detailed response.  I'm not sure which 'article' you were referring to, and from which forum. 

The $40k/year as 'insufficient' is where I diverge the most.  Subtracting out what we put into savings, we have never come anywhere close to spending $40k, and we live a pretty awesome lifestyle. It's also not far from the median household income in this country (and well above it for most of the world), so a good chunk of humanity lives on that or less.  Looking a bit closer, MMM has favored no mortgage in retirement and accelerated payments, so this figure is actually much rosier than it first appears (i.e. you must compare household spending minus mortgage/rent payments).

I understand even less this pervasive argument about 'what happens if you find you need $50k in retirement instead of $40k'.  For us fiscally responsible types we live our entire working lives spending less than we earn; why should retirement be any different? During my working years if I earn $40k/year I make sure I spend less than that - the same holds for my WR rate.  This argument gets even more absurd when one considers that there's virtually no level of spending one cannot overspend (e.g. "what if I plan on using a $100k WR, but realize I need $150k to live on?' - Answer: you adjust to spend $100k.) .   As for one-time events, that's where an ER fund comes in, and is part of the Investment Order.

As for the getting a job or side-gig during a recession, I think that's a very misunderstood concept - particularly on the bogleheads forum.  The suggestion isn't that one instantly gets a job when a recession hits, but that additional earned income may be considered further down the line. We're not even talking about full income replacement either, but typically 20-40% of annual spending, a level that's around $1k-2k/month with most budgets discussed on this forum. Experiences within my own family and community indicates that most retirees earn something just for doing what they enjoy. We anticipate our own paths to be similar

I do appreciate that study, and I'm working my way through the posts, will comment on that later.
cheers
~n~

Here's the article, which was also MMM's most recent on his site: https://www.marketwatch.com/story/mr-money-mustache-you-can-retire-super-early-and-have-your-money-last-for-life-2018-12-17

In the article, MMM uses a nest egg of $1M, then goes on to give details as to what to do if all of that $1M was in home equity. So the implication is $40k per year will also have to cover housing expenses. That being said, whether $40k is the right amount to bring happiness is certainly a debatable and subjective point. I know there are some people who are happy living on $0 per year in the USA. (Happiness is a mindset, after all.) I think the important thing is if you are going to choose a high withdrawal rate (like 5%), that the budget you are living on brings more than substantial happiness to the family and can easily be trimmed by a quarter without diminishing that happiness. Otherwise, you will become resentful of Mustachianism, which wasn't the objective.

I agree, side gigs aren't too hard to come by and can provide good meaning in a "retirement" world. I for one might not ever be comfortable with not working at all (at least in the near future). That being said, in the article the premise was built on not getting a side gig.

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Re: Bogleheads Forum
« Reply #22 on: December 19, 2018, 08:24:38 AM »
I've heard 75k is the magic number. Maybe it's less if you have no mortgage?

http://time.com/money/5157625/ideal-income-study/

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Re: Bogleheads Forum
« Reply #23 on: December 19, 2018, 08:36:29 AM »
I've heard 75k is the magic number. Maybe it's less if you have no mortgage?

http://time.com/money/5157625/ideal-income-study/

$72k would be 6 grand per month before taxes.  For a married couple filing jointly that also keeps you in the 12% marginal tax bracket.  I personally don't think you "need" any more than that to be "happy."   

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Re: Bogleheads Forum
« Reply #24 on: December 19, 2018, 08:47:47 AM »

Here's the article, which was also MMM's most recent on his site: https://www.marketwatch.com/story/mr-money-mustache-you-can-retire-super-early-and-have-your-money-last-for-life-2018-12-17

Thanks for linking that article - now we can be talking about the same thing.

Here I'll point out that MMM is guest-writing an article for MarketWatch, and the whole point (IMO) is just to get an 'average person' to consider that early retirement is possible, and doesn't require a massive nest egg of huge salary.  I have no qualms with either of those generalizations.  In all I think this was designed to be a '30,000 foot view' of FIRE and his view to attract readers, and to combat the recent negativity towards the FIRE movement (e.g Suze Orman's ridiculous podcast explosion, and the financial industry's constant insistence that managing your own money is too hard and too complicated).  To make his point in a short article he absolutely makes some big generalizations, like assuming constant market returns and inflation - but such minutia would have clouded the message of this relatively short (2,000 words) glossy piece, which is: early retirement is achievable, and the fundamentals are fairly straight-foward.

He's gone into detail about investing strategies and market volatility and tax implications and whether to pay off a mortgage and a whole host of other things in detail in his blog (particularly in the earlier years when he was posting weekly, instead of 3-6x/year).

In summary, I think most of the issues you have are with how the article took a very generalized view, not that MMM's approach itself avoids these various subjects.  As an analogy, I'm a scientist that frequently has to give presentations about my work.  Most of those presentations are 10-12 minutes in length and are designed to convey a year (or more) worth of work to a fairly diverse audience.  Because of these constraints I have to gloss over assumptions and skip over bits that didn't work or are still confusing and instead focus on the core message of my experiment(s).  If audience members are interested in my talk they can read my papers or converse with me directly or analyze my data (all stored on Github, btw). The same dynamic is at play here - the format (an online article at a very broad audience likely altered by an external editor) leaves a great deal of detail out, but focuses on a core message.  People who become interested then are directed to the hundreds of blog posts and this forum, where they learn all the finer points of planning for FIRE.

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Re: Bogleheads Forum
« Reply #25 on: December 19, 2018, 09:29:38 AM »

Fortunately a forum member did account for exactly this. As seem in post #68 in that thread, as long as a person is saving saving at least 40% of their income the success rate of a 5% withdrawal rate is still greater than 60% after accounting for uneven clustering of retirement years. In that particular calculation (different investment mix from the default in cFireSim), the even retirement rate across years success rate for a 5% withdrawal rate was 69%.

I don't know if a nine percentage point different counts as "much less" to you, but to me seems like relatively small potatoes, given the error bars on all of these calculations. In any case, Eric's point that it is in fact true that a 5% withdrawal rate would succeed for the majority of people in the past is true whether or not we make the timing of retirement correction.

Now saying it succeeded for most people isn't the same as saying you should push the big red eject button on your career once you have 20x your expenses saved (5% WR), it just renders the statement a given person will "probably able to make it with 5%" not false.


I appreciate the link. Still probably not perfectly representative, as people will tend to be making more income (and thus saving more) during boom years as well. Setting that aside and going back to the article under debate, MMM said, "If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)". Guess it gets into the connotation of the word "probably", but all of the dictionaries I've consulted imply much greater than 50%.

2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.

The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.

Is that a correct understanding if your worldview?

What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.

In my experience living in both cities with below average incomes and in the poorer parts of cities with above average incomes, I meet more happy people than unhappy people. And the unhappy people I meet tend to be unhappy for reasons more money wouldn't fix (health issues, poor relationships with significant others, loneliness). And these are not mustachian individuals by any means.

So I assert that the answer to your bolded question is clearly yes.

Edit: But let's turn this around. If you don't think many people would be happy living on $40k/year, at what income do you think the answer to the question "will many people be happy spending at that level?" becomes "yes"? $50k? $80k? $150k? And why do you believe it is that number?

I didn't say people wouldn't be happy on $40k per year. I said if you are using a 5% SWR, make damn sure you either have plenty of fat to cut where you can still be happy or consider it somewhat probable you may need to get some earned income down the road. (And yes, somewhat probable means >50%, because people aren't going to wait until they are down to their last dollar to get a job.)

And let's not forget MMM spends way more than $40k per year (including imputed rent), he just chalks up a lot of it to blog or carpentry business expenses. If these were hobbies instead of money-making businesses, would his personal expenses remain the same? Doubtful. But if so, would his level of happiness be the same? (I'm not criticizing his spending, just using him as the eponymous example set here.)

All of that being said, I think my family would be happier on more than $40k per year in retirement. I haven't dug deep enough to know our annual spending level (increased happiness also comes from not micromanaging my wife's expenditures), but I'm absolutely certain our Hedonic threshold is over $40k at this stage in my life. (This is understandably 100% subjective.) In other words, compared to our current level of spending, if we had to cut it down to $40k per year indefinitely (adjusted for inflation), I hypothesize a marked reduction in happiness levels.

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Re: Bogleheads Forum
« Reply #26 on: December 19, 2018, 09:44:27 AM »
In summary, I think most of the issues you have are with how the article took a very generalized view, not that MMM's approach itself avoids these various subjects.

I did touch on that in my earlier reply to Eric, namely that the article was not targeting advanced Mustachians or Bogleheads. That being said, there were probably two or three points in the article that were (I'm sure unintentionally) misleading. But if more people are brought into the way of the Mustache, minor internet errors are more than forgiven.

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Re: Bogleheads Forum
« Reply #27 on: December 19, 2018, 09:55:02 AM »

Fortunately a forum member did account for exactly this. As seem in post #68 in that thread, as long as a person is saving saving at least 40% of their income the success rate of a 5% withdrawal rate is still greater than 60% after accounting for uneven clustering of retirement years. In that particular calculation (different investment mix from the default in cFireSim), the even retirement rate across years success rate for a 5% withdrawal rate was 69%.

I don't know if a nine percentage point different counts as "much less" to you, but to me seems like relatively small potatoes, given the error bars on all of these calculations. In any case, Eric's point that it is in fact true that a 5% withdrawal rate would succeed for the majority of people in the past is true whether or not we make the timing of retirement correction.

Now saying it succeeded for most people isn't the same as saying you should push the big red eject button on your career once you have 20x your expenses saved (5% WR), it just renders the statement a given person will "probably able to make it with 5%" not false.


I appreciate the link. Still probably not perfectly representative, as people will tend to be making more income (and thus saving more) during boom years as well. Setting that aside and going back to the article under debate, MMM said, "If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)". Guess it gets into the connotation of the word "probably", but all of the dictionaries I've consulted imply much greater than 50%.

Fortunately we have empirical research to answer this bolded statement as well.



When you tell people an event is probably going to happen, they tend to interpret that between 60% and 80% odds. (Here's the original source code and data.) Since depending on our assumptions we're getting odds of success between 60 and 75%, I'd say "probably" is an accurate word to describe that distribution of probabilities.

Quote
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.

The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.

Is that a correct understanding if your worldview?

What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.

In my experience living in both cities with below average incomes and in the poorer parts of cities with above average incomes, I meet more happy people than unhappy people. And the unhappy people I meet tend to be unhappy for reasons more money wouldn't fix (health issues, poor relationships with significant others, loneliness). And these are not mustachian individuals by any means.

So I assert that the answer to your bolded question is clearly yes.

Edit: But let's turn this around. If you don't think many people would be happy living on $40k/year, at what income do you think the answer to the question "will many people be happy spending at that level?" becomes "yes"? $50k? $80k? $150k? And why do you believe it is that number?

I didn't say people wouldn't be happy on $40k per year.

Your specific statement was "Not that it isn't possible  [impossible?] to be happy on this amount, but few are as frugal as MMM." You followed up with the question "will many people be happy spending at that level?" I assert the answer is yes. If you agree with my answer to your question, just let me know and we can resolve this line of discussion.

Quote
I said if you are using a 5% SWR, make damn sure you either have plenty of fat to cut where you can still be happy or consider it somewhat probable you may need to get some earned income down the road. (And yes, somewhat probable means >50%, because people aren't going to wait until they are down to their last dollar to get a job.)

Yes you also said these things, but you listed your concern about happiness at $40k/year as a separate and independent point from thoughts about withdrawal rates or the odds of needing to get a job after FIRE. If you wish to retract item two from your original list, then I'm happy to agree that we have, in fact, reached an agreement. But trying to shift the argument onto other topics without addressing the original issue isn't an effective or efficient way to reach consensus.

Quote
All of that being said, I think my family would be happier on more than $40k per year in retirement. I haven't dug deep enough to know our annual spending level (increased happiness also comes from not micromanaging my wife's expenditures), but I'm absolutely certain our Hedonic threshold is over $40k at this stage in my life. (This is understandably 100% subjective.) In other words, compared to our current level of spending, if we had to cut it down to $40k per year indefinitely (adjusted for inflation), I hypothesize a marked reduction in happiness levels.

Ballpark numbers are completely fine. But are you saying you think you'd need about 20% more money to spend each year to avoid being unhappy? 2x as much? 10x as much?

Also, I am quite happy to agree that you and your specific family may be unhappy if you only had $40k a year to spend. You know your own family's desires and dynamics way better than anyone else. There are a number of important reasons this could be the cases, including that people tend to be less happy with annual expenditure that goes from $24k/year to $100k/year to $50k/year than an annual expenditure that goes from $24k to $30k to $40k, so having high expenditures in the past makes it harder to be happy with lower expenditures in the future than if you just never spend as much money in the first place. Another issue is that many people's feeling of satisfaction and happiness comes from their perception of their situation relative to their peer group. So if you life and socialize with people who earn and spend a lot of money, it will also take more work to be happy spending less than if your social circle is also spending about as much as you are.

My concern is that you appear to be generalizing from your own individual family to how most people (or the average person) might feel, and it is that generalization that strikes me as likely quite misleading given what we know about the overall distribution of income levels and happiness in the USA.

nereo

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Re: Bogleheads Forum
« Reply #28 on: December 19, 2018, 10:15:15 AM »
@maizeman - that's the most awesome quantitatively descriptive analysis of what common terms like "likely" and "probable" that I've come across.  That's going on my wall-o-graphs.  Woot!


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Re: Bogleheads Forum
« Reply #29 on: December 19, 2018, 10:39:27 AM »
I'm trying to understand the source data for that graph. My first question was, do people really assign probabilities less than 50% to "probable" and "probably"? I came across the following graph that appears to be the source data, showing that 1) NATO officers from 25 years ago were a statistically-challenged bunch and 2) one person's (Sherman Kent's) subjective assignations of probability levels for these words. Am I missing a separate dataset or is this the basis for that graph?

Here's from the linguistics experts:
probably (adv)
most likely; presumably (American Heritage)
almost certainly; as far as one knows or can tell (Oxford)
insofar as seems reasonably true, factual, or to be expected; without much doubt (Merriam-Webster)

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Re: Bogleheads Forum
« Reply #30 on: December 19, 2018, 10:52:00 AM »
What about Kent's methodology do you find to be subjective?

maizeman

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Re: Bogleheads Forum
« Reply #31 on: December 19, 2018, 10:56:55 AM »
It's it though? Worth reading the backstory on this type of quantitative analysis. That graph is more modern data, but the idea originated from old defense studies about how different people interpreted the qualitative terms to describe probability in analyst predictions and military intelligence reports.

I'm trying to understand the source data for that graph. My first question was, do people really assign probabilities less than 50% to "probable" and "probably"? I came across the following graph that appears to be the source data, showing that 1) NATO officers from 25 years ago were a statistically-challenged bunch and 2) one person's (Sherman Kent's) subjective assignations of probability levels for these words. Am I missing a separate dataset or is this the basis for that graph?

Here's from the linguistics experts:
probably (adv)
most likely; presumably (American Heritage)
almost certainly; as far as one knows or can tell (Oxford)
insofar as seems reasonably true, factual, or to be expected; without much doubt (Merriam-Webster)

I'm trying to understand the source data for that graph. My first question was, do people really assign probabilities less than 50% to "probable" and "probably"? I came across the following graph that appears to be the source data, showing that 1) NATO officers from 25 years ago were a statistically-challenged bunch and 2) one person's (Sherman Kent's) subjective assignations of probability levels for these words. Am I missing a separate dataset or is this the basis for that graph?

It's a separate dataset. The raw values are in the numberly.csv file. There's one outlier datapoint which was not removed, which is where those peaks come from in the image I posted. The NATO study is an independent dataset that came up with similar but not identical distributions for the probabilities people assign to qualitative words. It also has some values well below 50% for both of those terms, which is backed up by anecdotal data from people who reading intelligence estimates at the time.*

Here's an easier to read graphic showing the earlier NATO survey results (dots) and the standardized probability definitions for each term proposed by a single person (gray bars).



I don't think you can call people statistically challenged just because english words aren't being used with the same definitions that you think they should be. Language is defined by the meaning the speakers of the language assign to words. If you're trying to communicate with other human beings you can try to force people to redefine what they think words mean, but it's a difficult and not particularly fruitful task. You'll note that despite decades of effort Kent (the guy who proposed those gray bars) was not able to get people to define their use of words away from their original use and towards the prescriptive definitions he proposed.*

Or you can just figure out what people mean when they use a given word, and save yourself a lot of time and hassle to get to the same end goal (ability to communicate effectively with your fellow human beings).

*See this source: https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/books-and-monographs/sherman-kent-and-the-board-of-national-estimates-collected-essays/6words.html

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Re: Bogleheads Forum
« Reply #32 on: December 19, 2018, 11:12:08 AM »
What about Kent's methodology do you find to be subjective?

Poor choice of words on my part, and I'll recant that statement. I'm sure he considered some objective criteria to set the grey bars, but there would also have to be subjectivity employed.

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Re: Bogleheads Forum
« Reply #33 on: December 19, 2018, 11:22:48 AM »
What about Kent's methodology do you find to be subjective?

Poor choice of words on my part, and I'll recant that statement. I'm sure he considered some objective criteria to set the grey bars, but there would also have to be subjectivity employed.
Fair enough.  I ask just because this is a topic that comes up every semester, and there's a big difference between subjective data (or the subjective interpretation of a dataset) and the subjective choice of how to present objective data.

This graph is a good illustration:  This is 7 different ways of objectively presenting the same data, and all are valid.  The researcher can choose (subjectively) which method to present.  Whether that choice is a 'good' representation depends entirely on what the underlying question being answered was.


source: https://garstats.wordpress.com/2016/05/27/the-percentile-bootstrap/

ETA: Sorry if this is too far OT - I just like to geek out on such things.

Boofinator

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Re: Bogleheads Forum
« Reply #34 on: December 19, 2018, 12:02:03 PM »
I don't think you can call people statistically challenged just because english words aren't being used with the same definitions that you think they should be. Language is defined by the meaning the speakers of the language assign to words. If you're trying to communicate with other human beings you can try to force people to redefine what they think words mean, but it's a difficult and not particularly fruitful task. You'll note that despite decades of effort Kent (the guy who proposed those gray bars) was not able to get people to define their use of words away from their original use and towards the prescriptive definitions he proposed.*

Or you can just figure out what people mean when they use a given word, and save yourself a lot of time and hassle to get to the same end goal (ability to communicate effectively with your fellow human beings).

*See this source: https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/books-and-monographs/sherman-kent-and-the-board-of-national-estimates-collected-essays/6words.html

These aren't my definitions, they are the English language definitions from several dictionaries. And Mr. Kent is along the same line of thinking. Just because people have alternative facts does not mean we should accept them.

Or, perhaps maybe my thinking here is challenged. I'm willing to be educated. If you'll do me a favor, please provide a sentence where "probably" is used correctly (without faulty logic) and to indicate a value less than 50%.

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Re: Bogleheads Forum
« Reply #35 on: December 19, 2018, 12:09:20 PM »
I once mentioned my health insurance strategy and pointed out if I don't pick up hobby income, I would qualify for a subsidy.

The wrath of the internet subsidy police rained down on me

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Re: Bogleheads Forum
« Reply #36 on: December 19, 2018, 12:12:15 PM »
What about Kent's methodology do you find to be subjective?

Poor choice of words on my part, and I'll recant that statement. I'm sure he considered some objective criteria to set the grey bars, but there would also have to be subjectivity employed.
Fair enough.  I ask just because this is a topic that comes up every semester, and there's a big difference between subjective data (or the subjective interpretation of a dataset) and the subjective choice of how to present objective data.

This graph is a good illustration:  This is 7 different ways of objectively presenting the same data, and all are valid.  The researcher can choose (subjectively) which method to present.  Whether that choice is a 'good' representation depends entirely on what the underlying question being answered was.


source: https://garstats.wordpress.com/2016/05/27/the-percentile-bootstrap/

ETA: Sorry if this is too far OT - I just like to geek out on such things.

That's exactly why I recanted. All conclusions based on data are subjective to some extent, but that doesn't make them any less objective as long as they are based on facts.

maizeman

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Re: Bogleheads Forum
« Reply #37 on: December 19, 2018, 12:28:56 PM »
These aren't my definitions, they are the English language definitions from several dictionaries. And Mr. Kent is along the same line of thinking. Just because people have alternative facts does not mean we should accept them.

You can get really upset that the majority of english speakers will understand "literally" to mean "figuratively" or "metaphorically" (depending on context) and accuse them of lying or misleading people each time they use the word that way, or you can accept that the meaning of words shifts over time. (And ultimately that is indeed what dictionaries did, which suggests that dictionaries are a lagging, rather than leading, indicator of the meaning assigned to words in english by native speakers.)

I don't consider the usage of literally to sometimes mean figuratively or metaphorically to be an alternative fact. Do you?

Quote
Or, perhaps maybe my thinking here is challenged. I'm willing to be educated. If you'll do me a favor, please provide a sentence where "probably" is used correctly (without faulty logic) and to indicate a value less than 50%.

So now you're shifting the goal posts. Previously your complaint was that a probability range from 60-75% was not "probably" because you didn't consider that range to be "much greater than 50%" (which was how you chose to define the term yourself). Are you now agreeing that a range from 60-75% can indeed accurately be described using the word "probably" in the english language?

"I think Granddaddy Needs a New Pair of Pants is probably going to win the horse race. Based on the current betting odds the chance of that horse winning is greater than of any other." (You're welcome to argue this is not a logically usage, but of then we're just circling back to what definition you assign to "probably" and how it differs from what definition other native english speakers assign to the same word.)

Also, you seem to be dropping conversational threads without answering the original questions. While I'm happy to continue discussing what "probably" probably meant to the writers and readers of that particular article, did you ever have a final answer on whether you're agreeing that you were incorrect in point #2 in your original post?

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Re: Bogleheads Forum
« Reply #38 on: December 19, 2018, 12:41:36 PM »
To get somewhat back on topic, earlier upthread boofinator shared what s/he considers "the definitive guide" for setting one's WR (link below)
In that guide there was this table:


My reading from this is that I will 'probably' be fine even using a 5% WR and with a retirement duration of 50 years and a 75/25 investment ratio.  I would say that it is "highly likely" that my portfolio would survive the same number of years using a 4% WR. 

Others may use those terms differently, but that is how I would describe 62% and 88%, respectively. Using any WR less than 4% I would describe as "almost certain" to succeed, provided that future returns are no worse than the worst periods of the last 125+ years.

source of table:
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
« Last Edit: December 19, 2018, 12:44:28 PM by nereo »

Cassie

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Re: Bogleheads Forum
« Reply #39 on: December 19, 2018, 12:48:42 PM »
The first year of retirement we decided to test out the happiness factor of 40k. There are 2 of us in a MCOL. House and cars paid for. Low property taxes but retiree health insurance was 10k.  We didnít go out to eat or take vacations.   I shopped around for cheaper car/house insurance.   We went on a cheap cell phone plan but it only worked in cities.  We did have 4 old dogs so vet bills took part of the income. We stuck it out for the year but it sucked. Our happy budget now is between 60-70k/year depending on if we take one or 2 vacations.

nereo

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Re: Bogleheads Forum
« Reply #40 on: December 19, 2018, 01:02:26 PM »
Thanks for your responses. I find it interesting that some folks on the Bogleheads forum think MMM is a "false prophet" and that it's not realistic (or honest) to tell people to live on 40k/yr when his blog makes over 400k yearly. I'm still new so trying to understand some of the dynamics going on here.

I think Pete (MMM) would laugh at anyone holding him up as some sort of 'prophet', false or real.  The blog income comes up frequently by detractors as some great kink in his philosophy ("he's only saying you can live on $40k because he's really earning 10x that amount!!") but I think it's important to evaluate the message from the messenger.  Yes, it's possible to live very well on 'just' $40k/year indefinitely (literally hundreds of millions of middle-class people do this each year), and yes if you withdraw 4% you have an above average chance of that money lasting you until you die (see below for a very exhaustive discussion on what various terms like 'probable' and 'likely' mean to various people)

Regardless of what Pete's real life is like, those two ideas hold water. If you want to spend a great deal more in retirement, or if you refuse to have any sort of flexibility, or if you are extrmely pessimistic about the future you should shift your strategy accordingly.


I've heard 75k is the magic number. Maybe it's less if you have no mortgage?

http://time.com/money/5157625/ideal-income-study/

THere is no 'magic number'.  That study is based on a survey and what people earned, not what they spent (and not what they lived on after paying off loans, saving, taxes and with work-related expenses).  That is much different than the number it takes to be happy, which in itself is highly dependent on what sort of lifestyle you are accustomed to.  The lastest research shows that happiness continues to increase as NW increases, but that each subsequent dollar brings less happiness. 
Since our time itself is limited, and work (and needing to work) is one of the largest sources of stress,  that needs to be taken into context as well.  For example, very high earners might be able to reduce their target WR from 4% to 3.5% in just a year or two, whereas lowerwage earners that different might be a decade.
A person with a highly-stressful, high-paying job but exists in a very high-spend community is going to view their FI number much differently than someone who lives in a LCOL area who enjoys what their work but is lower down on the pay scale.

In sum: it's all relative to the individual.  Which is what makes arguments led with "you can never be happy on $40k/year!" so frustrating. I literally can't imagine spending the $200k/year that some on the BH forum are shooting for in retirement.

Boofinator

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Re: Bogleheads Forum
« Reply #41 on: December 19, 2018, 01:51:25 PM »
These aren't my definitions, they are the English language definitions from several dictionaries. And Mr. Kent is along the same line of thinking. Just because people have alternative facts does not mean we should accept them.

You can get really upset that the majority of english speakers will understand "literally" to mean "figuratively" or "metaphorically" (depending on context) and accuse them of lying or misleading people each time they use the word that way, or you can accept that the meaning of words shifts over time. (And ultimately that is indeed what dictionaries did, which suggests that dictionaries are a lagging, rather than leading, indicator of the meaning assigned to words in english by native speakers.)

I don't consider the usage of literally to sometimes mean figuratively or metaphorically to be an alternative fact. Do you?

Quote
Or, perhaps maybe my thinking here is challenged. I'm willing to be educated. If you'll do me a favor, please provide a sentence where "probably" is used correctly (without faulty logic) and to indicate a value less than 50%.

So now you're shifting the goal posts. Previously your complaint was that a probability range from 60-75% was not "probably" because you didn't consider that range to be "much greater than 50%" (which was how you chose to define the term yourself). Are you now agreeing that a range from 60-75% can indeed accurately be described using the word "probably" in the english language?

"I think Granddaddy Needs a New Pair of Pants is probably going to win the horse race. Based on the current betting odds the chance of that horse winning is greater than of any other." (You're welcome to argue this is not a logically usage, but of then we're just circling back to what definition you assign to "probably" and how it differs from what definition other native english speakers assign to the same word.)

No, I'm not going to correct the average Joe for using 'literally' when he intends 'figuratively', but I'm not going to be taking much stock in anything he says if it was used in a scientific or mathematic context.

And no, I'm not shifting goalposts. The discussion had morphed to where I had disagreed that "probably" could be used for anything less than 50%, which is where we're currently at. I concede that "probably" in the context used by MMM is not wrong, though at the same time would not be my choice of words.

As for your sentence, I would counter that "I think Granddaddy Needs a New Pair of Pants is probably not going to win the horse race" would be the logically correct statement. Unless both are true at the same time.

Also, you seem to be dropping conversational threads without answering the original questions. While I'm happy to continue discussing what "probably" probably meant to the writers and readers of that particular article, did you ever have a final answer on whether you're agreeing that you were incorrect in point #2 in your original post?

I've been working on a reply for this, haven't finished my thoughts yet.

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Re: Bogleheads Forum
« Reply #42 on: December 19, 2018, 02:02:23 PM »
I concede that "probably" in the context used by MMM is not wrong, though at the same time would not be my choice of words.

Ah good, we're making progress then.

As for your sentence, I would counter that "I think Granddaddy Needs a New Pair of Pants is probably not going to win the horse race" would be the logically correct statement. Unless both are true at the same time.

I think most native english speakers would accept either of those statements. Humans are messy and illogical creatures. That's why using qualitative words to describe probabilities is so confusing in a natural language. ... and honestly why a lot of human language is confusing when you stop to think about it (for example flammable and inflammable mean the exact same thing).

But hey, if we wanted logical designed and unambiguous vocabulary a whole lot more people would speak Esperanto.

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Re: Bogleheads Forum
« Reply #43 on: December 19, 2018, 02:18:29 PM »
I'm sure their is quite a bit of generalization from my own situation, but I think that is normal. Jacob from ERE would say you can be happy living on $7k in San Francisco. I'd be willing to bet, on the other hand, that most Mustachian people would not be.

My main point for #2 was that even MMM spends above $40k, and he is the master. It wasn't to say people cannot be happy at any spending level. As mentioned above on two separate occasions, there were probably only two or three misleading things in the article, whereas everything else would fall under the "optimism" category, including the $40k per year of spending.

EDIT: Too many nested threads to unstrand correctly. Just deleted all the quotes, but this is my response to maizeman on #2.
« Last Edit: December 19, 2018, 02:24:26 PM by Boofinator »

Dabnasty

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Re: Bogleheads Forum
« Reply #44 on: December 19, 2018, 02:24:13 PM »
You can get really upset that the majority of english speakers will understand "literally" to mean "figuratively"

Can and will. Everything else I'm pretty flexible on though :)

« Last Edit: December 19, 2018, 02:28:12 PM by Dabnasty »

Boofinator

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Re: Bogleheads Forum
« Reply #45 on: December 19, 2018, 02:44:10 PM »
To get somewhat back on topic, earlier upthread boofinator shared what s/he considers "the definitive guide" for setting one's WR (link below)
In that guide there was this table:


My reading from this is that I will 'probably' be fine even using a 5% WR and with a retirement duration of 50 years and a 75/25 investment ratio.  I would say that it is "highly likely" that my portfolio would survive the same number of years using a 4% WR. 

Others may use those terms differently, but that is how I would describe 62% and 88%, respectively. Using any WR less than 4% I would describe as "almost certain" to succeed, provided that future returns are no worse than the worst periods of the last 125+ years.

source of table:
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

Thanks for reposting this table, one of many amazing things from ERN's website.

I think one other nuance for the use of probabilistic words is the context of risk. For example, if somebody was rolling a die, with the outcome that they win $100 if they roll greater than a two but lose $100 if they roll a one or two, I think it is safe to say "you are probably going to win $100". But if someone is playing Russian Roulette with one loaded chamber in a six-shot revolver, I would not say "you are probably going to be fine" (though I also wouldn't say "you are probably going to kill yourself").

Which is one way to say that some people have different risk tolerances. Some might say the advice MMM gives in the article about using 5% is too risky, and hence the objection to the term "probably", whereas others would consider it not risky at all and therefore "probably" fits right in. Risk, of course, being defined as the product of probability and expected loss for each outcome.

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Re: Bogleheads Forum
« Reply #46 on: December 19, 2018, 02:58:08 PM »
I think one other nuance for the use of probabilistic words is the context of risk. For example, if somebody was rolling a die, with the outcome that they win $100 if they roll greater than a two but lose $100 if they roll a one or two, I think it is safe to say "you are probably going to win $100". But if someone is playing Russian Roulette with one loaded chamber in a six-shot revolver, I would not say "you are probably going to be fine" (though I also wouldn't say "you are probably going to kill yourself").

Which is one way to say that some people have different risk tolerances. Some might say the advice MMM gives in the article about using 5% is too risky, and hence the objection to the term "probably", whereas others would consider it not risky at all and therefore "probably" fits right in. Risk, of course, being defined as the product of probability and expected loss for each outcome.

That is an interesting self insight. So in your case what qualitative word for probability you feel is most appropriate to describe the likelihood of outcome depends on not just your perceptions of the likelihood of that outcome but your perception of how bad the negative outcome would be?

That would explain a portion of disconnect in this discussion, since for some people "failing" at FIRE and having to cut back their spending below their previously planned levels appears to be extremely scary to imagine and for other people the same scenario is seen as unpleasant and not desirable but not a big deal overall. [

My main point for #2 was that even MMM spends above $40k, and he is the master. It wasn't to say people cannot be happy at any spending level. As mentioned above on two separate occasions, there were probably only two or three misleading things in the article, whereas everything else would fall under the "optimism" category, including the $40k per year of spending.

Okay, I think we've essentially resolved this given the bolded bit, but I do just want to say that I think (based on the underlined bit) maybe part of the disconnect here is that you're perceiving people on the forum as thinking Mr. Money Mustache/Pete as the most badass/hardcore mustachian out there, whereas a lot of folks on the forum would say his lifestyle is probably about the middle of the range of the distribution (before the blog blew up and he had $400k a year to play around with).

So you're arguing: look, even MMM really spends more than $40k, so how could a regular person be happy with that level of spending. And I (and I'm guessing some others) know from lived experience that our own personal tipping points where spending more money ceases to make us any happier are significantly below that figure, so it has been hard to understand where your argument was coming from until now.

Dabnasty

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Re: Bogleheads Forum
« Reply #47 on: December 19, 2018, 03:06:41 PM »
I'm sure their is quite a bit of generalization from my own situation, but I think that is normal. Jacob from ERE would say you can be happy living on $7k in San Francisco. I'd be willing to bet, on the other hand, that most Mustachian people would not be.

My main point for #2 was that even MMM spends above $40k, and he is the master. It wasn't to say people cannot be happy at any spending level. As mentioned above on two separate occasions, there were probably only two or three misleading things in the article, whereas everything else would fall under the "optimism" category, including the $40k per year of spending.

EDIT: Too many nested threads to unstrand correctly. Just deleted all the quotes, but this is my response to maizeman on #2.

Going back to the article, it seems the only claim he made about the $40,000 figure was:
Quote
For example, in the story above I assumed a $40,000 annual spending rate, which is way more than almost anyone really needs to live well here in the US, especially once your kids are grown.

Every other use of that number was as an example to be used in a formula. Now of course we can debate the meaning of "live well" just the same as the meaning of "probably" but my take on what you've said so far is that you are thinking in terms of the amount of money that would maximize/optimize happiness which to me would be quite different than simply living well. Is this perhaps where the disagreement comes from at least in part?

For the record, my definition of living well would come in well below $40,000 for a family of 4. My figure for what dollar amount would constitute maximum happiness would be well over $40,000.

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Re: Bogleheads Forum
« Reply #48 on: December 19, 2018, 03:42:56 PM »
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.

What I like about boghleads is they are a non-stop machine of people criticising bullshit
  • The bullshit of market timing.
  • The bullshit of dividend investing.
  • The bullshit that people can sector/market pick implying they know something the market doesn't.
  • The bullshit that average people can stock pick.
  • The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
  • The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
  • The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.

In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

Good post.  Amidst a thread full of bullshit posts attacking someone for disagreeing with anything MMM has to say (Boofinator).  this is why i spend my time at BH now.

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Re: Bogleheads Forum
« Reply #49 on: December 19, 2018, 03:51:14 PM »

That would explain a portion of disconnect in this discussion, since for some people "failing" at FIRE and having to cut back their spending below their previously planned levels appears to be extremely scary to imagine and for other people the same scenario is seen as unpleasant and not desirable but not a big deal overall. [


Yes, I agree, though I'm not sure "extremely scary" is the right descriptor (but I struggle to think of a better one). For me, I would rather work a couple more years then have a 30% chance of working three-to-five years way down the road in a job I might not like and would definitely pay less while being more-or-less broke. Why take the risk if you enjoy what you're doing?


Okay, I think we've essentially resolved this given the bolded bit, but I do just want to say that I think (based on the underlined bit) maybe part of the disconnect here is that you're perceiving people on the forum as thinking Mr. Money Mustache/Pete as the most badass/hardcore mustachian out there, whereas a lot of folks on the forum would say his lifestyle is probably about the middle of the range of the distribution (before the blog blew up and he had $400k a year to play around with).

So you're arguing: look, even MMM really spends more than $40k, so how could a regular person be happy with that level of spending. And I (and I'm guessing some others) know from lived experience that our own personal tipping points where spending more money ceases to make us any happier are significantly below that figure, so it has been hard to understand where your argument was coming from until now.

I think you're pegged it. I don't consider MMM the most badass, but I consider him to have a very strong balance between frugality and happiness, and he's definitely cheaper than me (and I'm probably the most frugal person I know IRL... though stealth wealth has a habit of being stealthy).