Author Topic: Stop worrying about the 4% rule  (Read 402840 times)

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1450 on: June 10, 2018, 06:14:43 PM »
Well, I've both worked after being FI, and have chosen to retire.   So speaking from personal experience I can say that you are wrong in at least instance (my own).  I wasnt 'scared to retire.'  I had plenty of money, but had things to complete, work wise.

That said I woukd hesitate to try to speak for other people, as I cant reasonably speak for them as being 'scared' or not, without actually being them.



Agreed you can't speak for other people. Although I think it would be the rare high powered professional who would admit they were scared to stop working. If people were 100% honest with themselves and others....and able to work out accurately what is motivating their responses to major life events like FIRE psychiatrists/psychologists would be out of business. Luckily [for the psychiatrists] that's not the case.

I will say personally, as someone who is stoked about FIRE, the prospect of going through that massive life change is daunting and I am definitely scared/apprehensive, but that's just me. And I may be lying. ;)
« Last Edit: June 10, 2018, 06:54:01 PM by Retire-Canada »

steveo

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Re: Stop worrying about the 4% rule
« Reply #1451 on: June 10, 2018, 07:51:54 PM »
I will say personally, as someone who is stoked about FIRE, the prospect of going through that massive life change is daunting and I am definitely scared/apprehensive, but that's just me. And I may be lying. ;)

Myself and my wife are spending a lot of time discussing the big change that FIRE will bring onto us. I wouldn't say I'm scared but I think it will be a big change and it's something that I'm at least nervous about.
« Last Edit: June 12, 2018, 02:20:33 AM by steveo »

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1452 on: June 11, 2018, 10:04:26 AM »
It is a big change without a doubt.. But it falls into the "good problem to have" category...:)

Malkynn

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Re: Stop worrying about the 4% rule
« Reply #1453 on: June 11, 2018, 10:20:45 AM »
It is a big change without a doubt.. But it falls into the "good problem to have" category...:)

My personal life motto right now is "a good problem to have is still a problem"
I'm up to my eyeballs in really good problems right now, and the stress can't be ignored or disregarded.

Awesome lives still come with a lot of challenges that realistically need to be anticipated and subsequently dealt with.

OurTown

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Re: Stop worrying about the 4% rule
« Reply #1454 on: June 14, 2018, 02:44:42 PM »
https://www.getrichslowly.org/four-percent-rule/

A few thoughts from J.D. Roth.  Enjoy.

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1455 on: June 14, 2018, 03:25:23 PM »
https://www.getrichslowly.org/four-percent-rule/

From the article
Quote
Last October at Our Next Life, Tanja wrote that the fundamental problem with the 4% rule for early retirement isn’t the 4% rule. “The fundamental problem with any ‘safe’ withdrawal rate is the underlying assumption of level spending over time,” she said.

And you don’t have to be planning for dirtbag years followed by larger-living years, as we are, to be looking ahead to increasing costs in the future. You could be the most disciplined budgeter of all time and still need to plan for your spending to change over time.

The problem, Tanja says, is that many costs — especially costs for large expenses — can outpace inflation. Health care costs, for example, have been skyrocketing for years. So has the cost of higher education. Housing costs too have been increasing faster than inflation (and their historical average).

Meanwhile, Social Security and private pensions have not kept pace with inflation. (That’s one reason that, like many of you, I don’t even consider Social Security when calculating my retirement figures. Yes, I look at my projected benefits now and then. But to me, any future SS payments will be a bonus, not part of my actual calculations.)

False.  Assumptions not based in fact and without statistical support.  People spend less as they age

AdrianC

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Re: Stop worrying about the 4% rule
« Reply #1456 on: June 14, 2018, 05:38:03 PM »
False.  Assumptions not based in fact and without statistical support.  People spend less as they age

From the linked article:
This article examines the spending patterns of households with a reference person age 55 and older.

Be interesting, and more relevant, to see a study of the spending patterns of households with a reference person age 40 and older.

Anyway, expected increases in spending - like healthcare inflation - can be planned for and built into our number. That's what I did.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1457 on: June 14, 2018, 05:44:52 PM »
False.  Assumptions not based in fact and without statistical support.  People spend less as they age

From the linked article:
This article examines the spending patterns of households with a reference person age 55 and older.

Be interesting, and more relevant, to see a study of the spending patterns of households with a reference person age 40 and older.

Anyway, expected increases in spending - like healthcare inflation - can be planned for and built into our number. That's what I did.

In all actuality healthcare costs will start to be curbed over time. General services cant outpace inflation forever more players will enter tech will get more involved and people flat out won't continue to pay exorbitant rates. I have a much more optimistic out look on healthcare than most though.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1458 on: June 16, 2018, 08:49:51 AM »
bored of 42:
Quote
In all actuality healthcare costs will start to be curbed over time. General services cant outpace inflation forever more players will enter tech will get more involved and people flat out won't continue to pay exorbitant rates. I have a much more optimistic out look on healthcare than most though.

Good point - I think that more people are becoming aware that they are being ripped off rather than just blindly paying the ferryman.  I think businesses are being aware that they are being ripped off.  I think insurance companies while ripping us off are becoming aware that they too are becoming ripped off.

Retire - Canada:

Quote
Most of us have been programmed from nearly birth to work and power the economic engine of society. By the time you have saved up enough to hit a 4%WR you'll have done a lot of work. So my general advice is to get the hell out. From the perspective of someone who has always been working it's hard and scary to quite and see what you and your life are like without that career/job. It's always easier to stay chained to the desk. So people look for almost any rationale they can to OMY.

I used to think that way until I learned about the 1 percent.  Some of my work goes towards Society and some goes to those guys and I don't like it.  They don't care about me so why should I care about keepin' on workin' and helping them.  I guess you are right.  The smart thing is to get out.

Hey - If I moved a few miles North to Ontario, could I get the health care?


Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1459 on: June 16, 2018, 09:19:23 AM »
As time goes on I see more and more employers acting abusively towards their employees. Seems to me the faster you are done working for people who see you more as a commodity rather than a human being the better!

Once you are FI you don't HAVE to quit but having the option is priceless.

Virtus

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Re: Stop worrying about the 4% rule
« Reply #1460 on: June 16, 2018, 03:22:48 PM »
False.  Assumptions not based in fact and without statistical support.  People spend less as they age

From the linked article:
This article examines the spending patterns of households with a reference person age 55 and older.

Be interesting, and more relevant, to see a study of the spending patterns of households with a reference person age 40 and older.

Anyway, expected increases in spending - like healthcare inflation - can be planned for and built into our number. That's what I did.

In all actuality healthcare costs will start to be curbed over time. General services cant outpace inflation forever more players will enter tech will get more involved and people flat out won't continue to pay exorbitant rates. I have a much more optimistic out look on healthcare than most though.

Yah, that article seems to be a little light on research. It also commits a large logical fallacy by looking at a short-term trend and extrapolating it indefinably into the future. I am referring to the below section:

"...especially costs for large expenses — can outpace inflation. Health care costs, for example, have been skyrocketing for years. So has the cost of higher education."

Medical care cost inflation has been moderating and is around 2%. [1]

The inflation rate for the cost of college has been falling since 1982 and is now around 1.9%. [2]

[1] https://fred.stlouisfed.org/series/CPIMEDSL#0
[2] https://fred.stlouisfed.org/series/CUSR0000SEEB#0

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1461 on: June 17, 2018, 12:39:10 AM »
False.  Assumptions not based in fact and without statistical support.  People spend less as they age

From the linked article:
This article examines the spending patterns of households with a reference person age 55 and older.

Be interesting, and more relevant, to see a study of the spending patterns of households with a reference person age 40 and older.

Anyway, expected increases in spending - like healthcare inflation - can be planned for and built into our number. That's what I did.

In all actuality healthcare costs will start to be curbed over time. General services cant outpace inflation forever more players will enter tech will get more involved and people flat out won't continue to pay exorbitant rates. I have a much more optimistic out look on healthcare than most though.

Yah, that article seems to be a little light on research. It also commits a large logical fallacy by looking at a short-term trend and extrapolating it indefinably into the future. I am referring to the below section:

"...especially costs for large expenses — can outpace inflation. Health care costs, for example, have been skyrocketing for years. So has the cost of higher education."

Medical care cost inflation has been moderating and is around 2%. [1]

The inflation rate for the cost of college has been falling since 1982 and is now around 1.9%. [2]

[1] https://fred.stlouisfed.org/series/CPIMEDSL#0
[2] https://fred.stlouisfed.org/series/CUSR0000SEEB#0

Right, I think over long periods of time we see mean reversions in these types of things. Unless, of course, there is a fundamental change; think industrial revolution.  If Healthcare keeps up it's current pace it will cost more than GDP relatively soon.  Obviously that can't happen.  Closed systems only have so many resources.  How cost increases start to drop is the only real question (ie will we just have less services?)

Think of it as investing, we will never see CAPE 100 (at least not for the long term), who'd pay a dollar to get 50 cents of earnings? 

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1462 on: June 18, 2018, 03:34:31 PM »
Classical_Liberal:
Quote
Right, I think over long periods of time we see mean reversions in these types of things. Unless, of course, there is a fundamental change; think industrial revolution.  If Healthcare keeps up it's current pace it will cost more than GDP relatively soon.  Obviously that can't happen.

There's already been a few times when I have self diagnosed minor ailments with the computer.  Trips to the doctor are expensive.  Can't we expect cost decreases with expert programming?  Doctors are looking for patterns and they use these patterns to make a diagnosis.  Seems like computers can do a lot of this.  Will the necessity of needed medical care be the mother of one or more new inventions?

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1463 on: June 19, 2018, 07:52:08 AM »
Classical_Liberal:
Quote
Right, I think over long periods of time we see mean reversions in these types of things. Unless, of course, there is a fundamental change; think industrial revolution.  If Healthcare keeps up it's current pace it will cost more than GDP relatively soon.  Obviously that can't happen.

There's already been a few times when I have self diagnosed minor ailments with the computer.  Trips to the doctor are expensive.  Can't we expect cost decreases with expert programming?  Doctors are looking for patterns and they use these patterns to make a diagnosis.  Seems like computers can do a lot of this.  Will the necessity of needed medical care be the mother of one or more new inventions?

they are already working on this.  cameras that can determine if moles need to be biopsied.  eventually that could just be an app on your phone take a picture tells you if it fits the pattern that would need a biopsy - doctors over precribe biopsies for fear of being wrong.  AI helps the medical industry and actually is more efficient than a doctor if symptoms are entered into a system in the not too distant future it should be much better than a doctor at diagnosis - esp. in fringe cases where a doctor may just not have the knowledge. a machine can have all the knowledge.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1464 on: June 19, 2018, 08:10:18 AM »
Boarder42:
Quote
a machine can have all the knowledge.

You know a lot of us let things go too far before we see a doctor as they are expensive.  I could see a machine inexpensively checking you out more often, trending changes in your body and letting you know.  This would be great preventive medicine.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1465 on: June 19, 2018, 08:26:28 AM »
We are pretty far off the beaten track for the thread topic, but as a side note I've started using an e-doctor service here in BC. I just log in on my computer and usually within minutes I am video conferencing with a doctor and so far have been totally satisfied with the service. Saves me time and money. Saves the doctor time and money. I am more likely to see a doctor because the hassle is next to zero. So I stay on top of anything that's bothering me rather than waiting until it's a more serious issue. Overall this should be a significant savings to the health care system as it gets adopted more widely.

Canada is talking about various pharmacare/dental care programs where the government is the sole buyer and can negotiate amazing rates on drugs and services. Then it gets paid for with taxes and possibly income tested fees. I hope that goes through. It has the potential to save the country and massive massive amount of money and result in a much healthier population when nobody is choosing between rent/food and RX drugs/dental care.


boarder42

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Re: Stop worrying about the 4% rule
« Reply #1466 on: June 19, 2018, 09:24:36 AM »
We are pretty far off the beaten track for the thread topic, but as a side note I've started using an e-doctor service here in BC. I just log in on my computer and usually within minutes I am video conferencing with a doctor and so far have been totally satisfied with the service. Saves me time and money. Saves the doctor time and money. I am more likely to see a doctor because the hassle is next to zero. So I stay on top of anything that's bothering me rather than waiting until it's a more serious issue. Overall this should be a significant savings to the health care system as it gets adopted more widely.

Canada is talking about various pharmacare/dental care programs where the government is the sole buyer and can negotiate amazing rates on drugs and services. Then it gets paid for with taxes and possibly income tested fees. I hope that goes through. It has the potential to save the country and massive massive amount of money and result in a much healthier population when nobody is choosing between rent/food and RX drugs/dental care.

yep teladoc is now offered by my insurance company and our company encourages us to use it b/c it lowers costs taht they directly pass on to the rates we pay.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1467 on: June 19, 2018, 07:44:04 PM »
Quote
We are pretty far off the beaten track for the thread topic,

Sure, but the cost of health care is one of the biggest worries stopping people from retirement.  This can upset the most carefully laid 3-4-5 percent fiduciary plan.  It is a major worry with the 4 percent rule.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1468 on: June 19, 2018, 07:48:06 PM »
Quote
We are pretty far off the beaten track for the thread topic,

Sure, but the cost of health care is one of the biggest worries stopping people from retirement.  This can upset the most carefully laid 3-4-5 percent fiduciary plan.  It is a major worry with the 4 percent rule.

Not really. It's a budgeting issue. The 4% Rule says if you take 4% inflation adjusted out of your initial stash historical data provides a success rate looking backwards to help assess your plan. The 4% Rule never considered the fact your budget estimate may be incorrect and you spend more than you planned.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1469 on: June 19, 2018, 07:54:30 PM »
Retire-Canada:
Quote
Not really. It's a budgeting issue.

Says he who has the better and cheaper health care.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1470 on: June 19, 2018, 08:05:30 PM »
Says he who has the better and cheaper health care.

To be fair. I think if you have one of the better health care insurance plans in the US you get better health care. OTOH everyone in Canada has access to pretty good health care whether they have a lot of money or not. I prefer the latter system even if as a relatively wealthy person I could have better health care under the US system. I'm a one-for-all-and-all-for-one kinda person.

tooqk4u22

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Re: Stop worrying about the 4% rule
« Reply #1471 on: June 20, 2018, 09:33:21 AM »
Says he who has the better and cheaper health care.

To be fair. I think if you have one of the better health care insurance plans in the US you get better health care. OTOH everyone in Canada has access to pretty good health care whether they have a lot of money or not. I prefer the latter system even if as a relatively wealthy person I could have better health care under the US system. I'm a one-for-all-and-all-for-one kinda person.

You are both right in that it is a big concern for most FIRE people in the US AND it is a budgeting issue. 

The problem is that with ever increasing costs, potential changes to the political wills, higher deductibles, poorer access, and cliffs and scales for income it is really difficult to budget the RIGHT amount - it could range from nothing due to subsidies to next year being $25k for a family when factoring deductibles/coinsurance.  I guess the conservative thing is for everyone to budget $25k then to be safe.....boy oh boy that will shred a $40k a year expense budget.



Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #1472 on: June 26, 2018, 03:19:39 PM »
Says he who has the better and cheaper health care.

To be fair. I think if you have one of the better health care insurance plans in the US you get better health care. OTOH everyone in Canada has access to pretty good health care whether they have a lot of money or not. I prefer the latter system even if as a relatively wealthy person I could have better health care under the US system. I'm a one-for-all-and-all-for-one kinda person.

You are both right in that it is a big concern for most FIRE people in the US AND it is a budgeting issue. 

The problem is that with ever increasing costs, potential changes to the political wills, higher deductibles, poorer access, and cliffs and scales for income it is really difficult to budget the RIGHT amount - it could range from nothing due to subsidies to next year being $25k for a family when factoring deductibles/coinsurance.  I guess the conservative thing is for everyone to budget $25k then to be safe.....boy oh boy that will shred a $40k a year expense budget.
That's why geographic arbitrage exists. I can live a higher quality of life WHILE travelling the world AND get the same quality healthcare if I threw 25k on top on my planned expenses.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1473 on: June 26, 2018, 05:16:21 PM »
Mr. Green:
Quote
I can live a higher quality of life WHILE travelling the world AND get the same quality healthcare if I threw 25k on top on my planned expenses.

How many of the countries with socialized medicine will treat a foreigner?  I heard stories about US people getting hurt in Canada and having to pay next to nothing in health care costs.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1474 on: June 26, 2018, 05:29:40 PM »
How many of the countries with socialized medicine will treat a foreigner?  I heard stories about US people getting hurt in Canada and having to pay next to nothing in health care costs.

That's hard to believe. My GF is in health care and they need every dollar they have plus a few more so they won't be giving away health care to folks without insurance for free. I mean they will of course treat you in an emergency, but they will also bill you for everything.

Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #1475 on: June 26, 2018, 05:43:58 PM »
Mr. Green:
Quote
I can live a higher quality of life WHILE travelling the world AND get the same quality healthcare if I threw 25k on top on my planned expenses.

How many of the countries with socialized medicine will treat a foreigner?  I heard stories about US people getting hurt in Canada and having to pay next to nothing in health care costs.
Even if I pay full boat as a foreigner, the costs are reasonable compared to US costs. Throw in some travel insurance to help defray those costs and it's definitely a viable alternative. Medical tourism is booming in plenty of countries with top notch healthcare.

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1476 on: June 27, 2018, 12:09:44 AM »
The UK will treat visitors for emergency care for free.

MissNancyPryor

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Re: Stop worrying about the 4% rule
« Reply #1477 on: June 27, 2018, 07:30:13 AM »
My daughter "broke her arm" in British Columbia, Canada while skiing.  We had to pay $700 on the spot at the emergency room for XRays and the diagnosis.  Took several hours.

When we got home to get a cast on, the doctor here took an XRay and said it was not broken at all.  Gave her an ACE bandage for the sprain which was fine in 2-3 weeks. 

Sometimes the concept of wonderful, perfect, FREE foreign healthcare is just a fantasy.  There is stupid everywhere and it certainly was not free. 

Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #1478 on: June 27, 2018, 11:06:06 AM »
My daughter "broke her arm" in British Columbia, Canada while skiing.  We had to pay $700 on the spot at the emergency room for XRays and the diagnosis.  Took several hours.
A misdiagnosis is unfortunate but had you gone to the ER in the US without insurance the bill would have been thousands, not $700. That's what I mean by the cost of care in other countries is reasonable.

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1479 on: June 27, 2018, 09:12:23 PM »
Most Walk-in clinics/urgent cares have Xray capabilities. If it wasn't broken I'd be well under $700 for a single view Xray and an ace wrap. ER's are expensive because they are for emergencies.

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Re: Stop worrying about the 4% rule
« Reply #1480 on: June 27, 2018, 10:43:29 PM »
So what exactly is the 'Trump Adjustment' on the 4% Rule?  Because I can see how the 4% Rule was OK for ER in the 'irrationally exuberant' times of Greenspan (Regan, Bush, Clinton) + deregulation/tax cuts, internet, low oil price.  It's more questionable in times of trade wars, less social services, and political instability.  Commodities like gas prices are outpacing inflation, medical prices are going back to unaffordable, and unions just lost their lifeline.  Inflation and the Fed raising interest rates. 

Ultimately, it's a further acceleration of the rich getting richer (and increasingly expanding what it is to live the good life) vs. the labor force losing jobs and living 'well' but not good, struggling to get ahead, and ultimately going into debt to try to provide a better life for their children.  The 'American Dream' is quickly becoming something to scoff.

Wait a second, you aren't meeting up with Trump this weekend at Mar-a-Lago but you think he is working on your behalf?

tyort1

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Re: Stop worrying about the 4% rule
« Reply #1481 on: June 27, 2018, 10:54:04 PM »
So what exactly is the 'Trump Adjustment' on the 4% Rule?  Because I can see how the 4% Rule was OK for ER in the 'irrationally exuberant' times of Greenspan (Regan, Bush, Clinton) + deregulation/tax cuts, internet, low oil price.  It's more questionable in times of trade wars, less social services, and political instability.  Commodities like gas prices are outpacing inflation, medical prices are going back to unaffordable, and unions just lost their lifeline.  Inflation and the Fed raising interest rates. 

Ultimately, it's a further acceleration of the rich getting richer (and increasingly expanding what it is to live the good life) vs. the labor force losing jobs and living 'well' but not good, struggling to get ahead, and ultimately going into debt to try to provide a better life for their children.  The 'American Dream' is quickly becoming something to scoff.

Wait a second, you aren't meeting up with Trump this weekend at Mar-a-Lago but you think he is working on your behalf?

Good points!  Maybe you can add your Trump Adjustments to the end of this graph?


matchewed

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Re: Stop worrying about the 4% rule
« Reply #1482 on: June 28, 2018, 05:27:00 AM »
So what exactly is the 'Trump Adjustment' on the 4% Rule?  Because I can see how the 4% Rule was OK for ER in the 'irrationally exuberant' times of Greenspan (Regan, Bush, Clinton) + deregulation/tax cuts, internet, low oil price.  It's more questionable in times of trade wars, less social services, and political instability.  Commodities like gas prices are outpacing inflation, medical prices are going back to unaffordable, and unions just lost their lifeline.  Inflation and the Fed raising interest rates. 

Ultimately, it's a further acceleration of the rich getting richer (and increasingly expanding what it is to live the good life) vs. the labor force losing jobs and living 'well' but not good, struggling to get ahead, and ultimately going into debt to try to provide a better life for their children.  The 'American Dream' is quickly becoming something to scoff.

Wait a second, you aren't meeting up with Trump this weekend at Mar-a-Lago but you think he is working on your behalf?

So with this entire thread about the 4% rule you think it's solely based in those "irrationally exuberant" times and not all the other things that happened between 1925 and 1995 that the original Trinity Study took into account?

/boggle

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1483 on: June 28, 2018, 06:37:36 AM »
So what exactly is the 'Trump Adjustment' on the 4% Rule?  Because I can see how the 4% Rule was OK for ER in the 'irrationally exuberant' times of Greenspan (Regan, Bush, Clinton) + deregulation/tax cuts, internet, low oil price.  It's more questionable in times of trade wars, less social services, and political instability.  Commodities like gas prices are outpacing inflation, medical prices are going back to unaffordable, and unions just lost their lifeline.  Inflation and the Fed raising interest rates. 

Ultimately, it's a further acceleration of the rich getting richer (and increasingly expanding what it is to live the good life) vs. the labor force losing jobs and living 'well' but not good, struggling to get ahead, and ultimately going into debt to try to provide a better life for their children.  The 'American Dream' is quickly becoming something to scoff.

Wait a second, you aren't meeting up with Trump this weekend at Mar-a-Lago but you think he is working on your behalf?

So with this entire thread about the 4% rule you think it's solely based in those "irrationally exuberant" times and not all the other things that happened between 1925 and 1995 that the original Trinity Study took into account?

/boggle

I'm much less confident in history (especially historic data when very few people owned stock and Index funds didn't exist) these days, yes.  But feel free to disagree.  Only the future knows which of us is right, but the past tells us very little IMHO.  Just because it's the best we have is not a good reason to use it.
« Last Edit: June 28, 2018, 06:42:22 AM by EscapeVelocity2020 »

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1484 on: June 28, 2018, 06:43:44 AM »
Good points!  Maybe you can add your Trump Adjustments to the end of this graph?



That's a fun graph. One thing I notice though is that the points do get a little more sparse (and less serious sounding) after 2008-2009, especially compared the the 90s and the earlier 00s' It may be what we're seeing is that people have gotten out of practice with feeling like the world is going to end/society as we know it is gonna collapse, so those feelings are more uncomfortable than they otherwise would be.

Like how the first 100 degree day of summer makes you much more miserable than the same temperature after it's been that hot off and on for months.

matchewed

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Re: Stop worrying about the 4% rule
« Reply #1485 on: June 28, 2018, 06:56:23 AM »
So what exactly is the 'Trump Adjustment' on the 4% Rule?  Because I can see how the 4% Rule was OK for ER in the 'irrationally exuberant' times of Greenspan (Regan, Bush, Clinton) + deregulation/tax cuts, internet, low oil price.  It's more questionable in times of trade wars, less social services, and political instability.  Commodities like gas prices are outpacing inflation, medical prices are going back to unaffordable, and unions just lost their lifeline.  Inflation and the Fed raising interest rates. 

Ultimately, it's a further acceleration of the rich getting richer (and increasingly expanding what it is to live the good life) vs. the labor force losing jobs and living 'well' but not good, struggling to get ahead, and ultimately going into debt to try to provide a better life for their children.  The 'American Dream' is quickly becoming something to scoff.

Wait a second, you aren't meeting up with Trump this weekend at Mar-a-Lago but you think he is working on your behalf?

So with this entire thread about the 4% rule you think it's solely based in those "irrationally exuberant" times and not all the other things that happened between 1925 and 1995 that the original Trinity Study took into account?

/boggle

I'm much less confident in history (especially historic data when very few people owned stock and Index funds didn't exist) these days, yes.  But feel free to disagree.  Only the future knows which of us is right, but the past tells us very little IMHO. Just because it's the best we have is not a good reason to use it.

?? Bolded for emphasis.

Wha?

Regardless of that statement people are using it as a guideline and not a hard scientific fact. That is evidenced in this long thread that is stickied. I think it's somewhere over here - https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1486 on: June 28, 2018, 06:57:03 AM »
Just because it's the best we have is not a good reason to use it.

So you are suggesting we should use something worse then? Like pretending we can predict future returns or working many extra years to hit an absurdly low WR? 

If historical data is the "best" we have it does make a lot of sense to use it when developing FIRE plans.

However, as has been stated here like a million times a small amount of flexibility gives your FIRE plan a huge amount of resilience and doesn't "cost" much. If you are not prepared to be flexible and/or are pessimistic about the future the "cost" is significant in terms of your most valuable resource....time.

MissNancyPryor

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Re: Stop worrying about the 4% rule
« Reply #1487 on: June 28, 2018, 07:28:10 AM »
Good points!  Maybe you can add your Trump Adjustments to the end of this graph?



That's a fun graph. One thing I notice though is that the points do get a little more sparse (and less serious sounding) after 2008-2009, especially compared the the 90s and the earlier 00s' It may be what we're seeing is that people have gotten out of practice with feeling like the world is going to end/society as we know it is gonna collapse, so those feelings are more uncomfortable than they otherwise would be.

Like how the first 100 degree day of summer makes you much more miserable than the same temperature after it's been that hot off and on for months.

I notice they are missing a few items.  Brexit is a divot in there somewhere, end of June 2016.  A one day, huge divot.  And Monica Lewinsky and presidential impeachment is not a thing here, that was good for a dive... ahem. 

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1488 on: June 28, 2018, 08:02:04 AM »
Brexit may be just off the end of the graph (I noticed that there were tick marks for 2004, 2008, 2012 but not 2016, which may indicate the figure was put together in late 2015).

I'd say '16 '17 '18 have been a reversion to the mean in terms of how much evidence we're presented with about how we're all going to die and/or be living in the world of Mad Max. It may also be an over correction well past the mean. I struggle to make the comparison since in the '90s and early '00s I just assumed that was the way the world always was.

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1489 on: June 28, 2018, 09:50:49 AM »
I made a fair bit of money during the Brexit Vote.. We were on our way to Thailand and I saw the vote and in the airport terminal dumped the remainder of my cash into VTSAX.. Then didn't see the market for another 3 days.. I think I paid for the entire 8 week vacation by that point..:).

Disclaimer.. I have never logged onto to my financial accounts again from a public WIFI an I changed all my passwords..:)

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1490 on: June 28, 2018, 10:04:48 AM »
Just because it's the best we have is not a good reason to use it.

So you are suggesting we should use something worse then? Like pretending we can predict future returns or working many extra years to hit an absurdly low WR? 

If historical data is the "best" we have it does make a lot of sense to use it when developing FIRE plans.

However, as has been stated here like a million times a small amount of flexibility gives your FIRE plan a huge amount of resilience and doesn't "cost" much. If you are not prepared to be flexible and/or are pessimistic about the future the "cost" is significant in terms of your most valuable resource....time.

I'm not trying to rehash everything, more so I am trying to head in a slightly new direction (even if I may not reach a very satisfying destination).  I'm trying to say we should not take US stock market history for granted that it is a predictor of anything going forward.  This isn't a crazy call to ignore it, but more a call to deeper independent thought on how it has changed (especially in the case of participants in the stock market now vs. the whole history of the data set).

We are currently benefitting from a time of relatively unbroken growth and reduced volatility in the US (the great moderation) and did benefit greatly from increased access to the financial markets and capital.  But maybe, going forward, it has come to an end and we begin to experience more downside.  Going from globalization back to protectionist trade policy was just one Trump effect.  Seeing just how much change can be effected in one year got me thinking about how the next 30 years probably won't look anything like the last 30 years.  Another niggling thought I can't shake is that if the concentration of wealth continues its exponential trajectory for the next 30 years, economic growth in the US will certainly slow down.     

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1491 on: June 28, 2018, 10:56:56 AM »
I'm trying to say we should not take US stock market history for granted that it is a predictor of anything going forward.  This isn't a crazy call to ignore it, but more a call to deeper independent thought on how it has changed (especially in the case of participants in the stock market now vs. the whole history of the data set).

The problem is that one of the biggest things historical stock market data teaches us is that whenever people have tried to make predictions about changes in the long term trends of the stock market through reasoning based on existing factors and projecting current trends into the future, they've had extremely limited success.

Projections from historical data could certainly be wrong about what the stock market will do. I don't disagree with that.

What I do disagree with is that I don't we're any more likely to make accuracy predictions by putting out fingers on the scale to push things in one direction or another than all the people who have tried to do so in the past.

Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #1492 on: June 28, 2018, 11:17:17 AM »
Just because it's the best we have is not a good reason to use it.

So you are suggesting we should use something worse then? Like pretending we can predict future returns or working many extra years to hit an absurdly low WR? 

If historical data is the "best" we have it does make a lot of sense to use it when developing FIRE plans.

However, as has been stated here like a million times a small amount of flexibility gives your FIRE plan a huge amount of resilience and doesn't "cost" much. If you are not prepared to be flexible and/or are pessimistic about the future the "cost" is significant in terms of your most valuable resource....time.

I'm not trying to rehash everything, more so I am trying to head in a slightly new direction (even if I may not reach a very satisfying destination).  I'm trying to say we should not take US stock market history for granted that it is a predictor of anything going forward.  This isn't a crazy call to ignore it, but more a call to deeper independent thought on how it has changed (especially in the case of participants in the stock market now vs. the whole history of the data set).

We are currently benefitting from a time of relatively unbroken growth and reduced volatility in the US (the great moderation) and did benefit greatly from increased access to the financial markets and capital.  But maybe, going forward, it has come to an end and we begin to experience more downside.  Going from globalization back to protectionist trade policy was just one Trump effect.  Seeing just how much change can be effected in one year got me thinking about how the next 30 years probably won't look anything like the last 30 years.  Another niggling thought I can't shake is that if the concentration of wealth continues its exponential trajectory for the next 30 years, economic growth in the US will certainly slow down.   
If you're not comfortable with using the past as a reference point then you literally have no reference point. Nothing is safe. How are you comfortable with anything other than dying at your deask?

tyort1

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Re: Stop worrying about the 4% rule
« Reply #1493 on: June 28, 2018, 11:55:15 AM »
Just because it's the best we have is not a good reason to use it.

So you are suggesting we should use something worse then? Like pretending we can predict future returns or working many extra years to hit an absurdly low WR? 

If historical data is the "best" we have it does make a lot of sense to use it when developing FIRE plans.

However, as has been stated here like a million times a small amount of flexibility gives your FIRE plan a huge amount of resilience and doesn't "cost" much. If you are not prepared to be flexible and/or are pessimistic about the future the "cost" is significant in terms of your most valuable resource....time.

I'm not trying to rehash everything, more so I am trying to head in a slightly new direction (even if I may not reach a very satisfying destination).  I'm trying to say we should not take US stock market history for granted that it is a predictor of anything going forward.  This isn't a crazy call to ignore it, but more a call to deeper independent thought on how it has changed (especially in the case of participants in the stock market now vs. the whole history of the data set).

We are currently benefitting from a time of relatively unbroken growth and reduced volatility in the US (the great moderation) and did benefit greatly from increased access to the financial markets and capital.  But maybe, going forward, it has come to an end and we begin to experience more downside.  Going from globalization back to protectionist trade policy was just one Trump effect.  Seeing just how much change can be effected in one year got me thinking about how the next 30 years probably won't look anything like the last 30 years.  Another niggling thought I can't shake is that if the concentration of wealth continues its exponential trajectory for the next 30 years, economic growth in the US will certainly slow down.   

Yes, and?  What is your actionable item that you're putting forth as a result of this analysis?  What should people put their money in if not the S&P500?

matchewed

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Re: Stop worrying about the 4% rule
« Reply #1494 on: June 28, 2018, 11:57:34 AM »
Just because it's the best we have is not a good reason to use it.

So you are suggesting we should use something worse then? Like pretending we can predict future returns or working many extra years to hit an absurdly low WR? 

If historical data is the "best" we have it does make a lot of sense to use it when developing FIRE plans.

However, as has been stated here like a million times a small amount of flexibility gives your FIRE plan a huge amount of resilience and doesn't "cost" much. If you are not prepared to be flexible and/or are pessimistic about the future the "cost" is significant in terms of your most valuable resource....time.

I'm not trying to rehash everything, more so I am trying to head in a slightly new direction (even if I may not reach a very satisfying destination).  I'm trying to say we should not take US stock market history for granted that it is a predictor of anything going forward.  This isn't a crazy call to ignore it, but more a call to deeper independent thought on how it has changed (especially in the case of participants in the stock market now vs. the whole history of the data set).

We are currently benefitting from a time of relatively unbroken growth and reduced volatility in the US (the great moderation) and did benefit greatly from increased access to the financial markets and capital.  But maybe, going forward, it has come to an end and we begin to experience more downside.  Going from globalization back to protectionist trade policy was just one Trump effect.  Seeing just how much change can be effected in one year got me thinking about how the next 30 years probably won't look anything like the last 30 years.  Another niggling thought I can't shake is that if the concentration of wealth continues its exponential trajectory for the next 30 years, economic growth in the US will certainly slow down.   
If you're not comfortable with using the past as a reference point then you literally have no reference point. Nothing is safe. How are you comfortable with anything other than dying at your deask?

That can't be so bad... I can invest in pillow keys to soften the blow as my head hits the desk.


In other news two years of one president's policies and the world is going to never be the same. Queue shocking reveal music.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1495 on: June 28, 2018, 11:59:37 AM »
That can't be so bad... I can invest in pillow keys to soften the blow as my head hits the desk.

...and just think of the satisfaction you'll have as you exhale your last breathe and your face starts heading for the keyboard knowing you didn't run out of money in retirement! ;)

Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #1496 on: June 28, 2018, 12:38:17 PM »
That can't be so bad... I can invest in pillow keys to soften the blow as my head hits the desk.

...and just think of the satisfaction you'll have as you exhale your last breathe and your face starts heading for the keyboard knowing you didn't run out of money in retirement! ;)
Coworker A: What?! What did you say his last words were as he died at his desk?

Coworker B: I swear I heard him say, "Hash tag winning!"

matchewed

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Re: Stop worrying about the 4% rule
« Reply #1497 on: June 28, 2018, 01:09:35 PM »
That can't be so bad... I can invest in pillow keys to soften the blow as my head hits the desk.

...and just think of the satisfaction you'll have as you exhale your last breathe and your face starts heading for the keyboard knowing you didn't run out of money in retirement! ;)
Coworker A: What?! What did you say his last words were as he died at his desk?

Coworker B: I swear I heard him say, "Hash tag winning!"

Now I know what to put on my gravestone. Thanks Mr. Green.

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1498 on: June 28, 2018, 01:19:38 PM »
I'm not saying that it's actionable for everyone (like if you are just getting started building a portfolio), and certainly not the same action for everyone, but when you are ahead of the game it is prudent to dial back exposure to risk and volatility.  Given the exceptional returns we have experienced since 2009, high stock exposure and 4% SWR is not my best bet.  Everyone here seems to think they have high risk tolerance, but I'll be interested to see how they feel in the middle of a bear market, especially if they are retired.  Fortunately I only need 2 - 3% WR currently, but that assumes inflation stays tame until I get to Medicare and SS.  I will probably ER in a year or two depending mostly on circumstances outside my finances (other than healthcare, I might still work to have access to my company plan).

Anyway, Financial Samurai has posted a bit about this recently (https://www.financialsamurai.com/ideal-retirement-scenario-conservative-returns-and-a-steady-income/).

Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #1499 on: June 28, 2018, 02:41:28 PM »
I'm not saying that it's actionable for everyone (like if you are just getting started building a portfolio), and certainly not the same action for everyone, but when you are ahead of the game it is prudent to dial back exposure to risk and volatility.  Given the exceptional returns we have experienced since 2009, high stock exposure and 4% SWR is not my best bet.  Everyone here seems to think they have high risk tolerance, but I'll be interested to see how they feel in the middle of a bear market, especially if they are retired.  Fortunately I only need 2 - 3% WR currently, but that assumes inflation stays tame until I get to Medicare and SS.  I will probably ER in a year or two depending mostly on circumstances outside my finances (other than healthcare, I might still work to have access to my company plan).

Anyway, Financial Samurai has posted a bit about this recently (https://www.financialsamurai.com/ideal-retirement-scenario-conservative-returns-and-a-steady-income/).
It's all risk. Life is risk. And 10 people have 10 different opinions about whether we're going to have a period of low returns.

This is one of the big reasons why I'm keeping a year or two of my living expenses in cash. I don't want to be looking at the markets quarterly or monthly during a recession and having that mental battle about not wanting to sell assets in a down market. If you can put your head in the sand for two years while the market is down, you've missed all the panic and fear. You can just keep on rocking. The thing I think most working people don't understand is just how easy it is to be oblivious if you choose to be. I have no compelling reason to remember what day of the week it is, what the Dow Jones number is, or what is going on in the news. I'm doing my FIRE thing and it's real easy to get lost in living your life. So I think it is completely reasonable to think you can go through a recession as a FIRE'ee with little to no mental anguish if you have a good plan that allows you to tune out the noise.

This is (attached picture) my view, and has been for the last couple hours. As for what day or the week it is? I'll quote another retiree I once knew. "I don't care!"