Author Topic: Stop worrying about the 4% rule  (Read 208917 times)

arebelspy

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Re: Stop worrying about the 4% rule
« Reply #500 on: December 11, 2016, 02:19:45 PM »
Yeah, sometimes it baffles me - people will choose to work another 10 years to get their portfolio failure rate down by 5% or something - but 5% of your remaining life is what, 2 or 3 years?

We've discussed this here before, but the short version is that sometimes working at your job IS your highest purpose in life.

If what you really want to do with your life is sleep late and watch tv, then by all means retire asap and get on with it.  But if your goals include being part of something, or working towards something, sometimes you are better served by staying employed and involved in that something. 

In those cases, we have to more carefully consider whether we would do the same work for free, which is effectively what you're doing if you continue to work after achieving a 4% SWR.  Sometimes the answer is yes.  Some people think that's crazy irrational.
Sure. If you've hit a 4% WR and acknowledge that you have enough, but want to keep working, that's great!  More power to you.

It seems like though the vast majority who are going for a 3% WR are doing it out of fear, and their plan is to pull the plug as soon as they can, as soon as they hit their number. They aren't working in their job for a sense of purpose, as you suggest in your post.
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Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #501 on: December 11, 2016, 02:57:15 PM »

It seems like though the vast majority who are going for a 3% WR are doing it out of fear, and their plan is to pull the plug as soon as they can, as soon as they hit their number. They aren't working in their job for a sense of purpose, as you suggest in your post.

If anything, I think these folks are dissatisfied with their work MORE than the average forum member.  The irrational need to save way past a "safe" amount is a reflex to ensure never having to go back, like PTSD or something.  Those that Sol mentions, who work for the sake of greater good or enjoyment are rarely debating the math of WR's and AA's.

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #502 on: December 11, 2016, 03:40:14 PM »

It seems like though the vast majority who are going for a 3% WR are doing it out of fear, and their plan is to pull the plug as soon as they can, as soon as they hit their number. They aren't working in their job for a sense of purpose, as you suggest in your post.

If anything, I think these folks are dissatisfied with their work MORE than the average forum member.  The irrational need to save way past a "safe" amount is a reflex to ensure never having to go back, like PTSD or something.  Those that Sol mentions, who work for the sake of greater good or enjoyment are rarely debating the math of WR's and AA's.

I think it's a stretch to say that these folks are dissatisfied with their work MORE than the average forum member.  Given the run in the equities market and from what was shared about Mustachian household incomes (almost 50% above 125k), it is almost inevitable that going a little further than 4% quickly (OMY maybe) becomes 3%.

Also, in my case, I got to a bare bones FI (5 - 6% WR) and was emboldened to get a better job.  I think several other FI bloggers and forum members have 'dream jobs' or working spouses that have them continuing to stash beyond the 4% WR number. 

I'd be interested to understand why you'd think FI folks at 4% or below are so unhappy with working or having an income.
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steveo

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Re: Stop worrying about the 4% rule
« Reply #503 on: December 11, 2016, 03:47:04 PM »
In those cases, we have to more carefully consider whether we would do the same work for free, which is effectively what you're doing if you continue to work after achieving a 4% SWR.  Sometimes the answer is yes.  Some people think that's crazy irrational.

The thing is you aren't working for free. So the additional caveat is that the additional work might mean that you can go on a fancy holiday or get a fancy bike or whatever it is that you consider a luxury type purchase.

My version of FI is I think a pretty great existence but it's definitely not excessive. My work also isn't bad even if I definitely wouldn't do it for free. I could though work a little longer to afford some luxury type spending.

I am though being theoretical here. At this point as soon as my chances look good enough to me I will RE. I see myself as now being past work and I want to embark on a different phase of my life. I don't have any grand plans either.

arebelspy

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Re: Stop worrying about the 4% rule
« Reply #504 on: December 11, 2016, 03:59:12 PM »

It seems like though the vast majority who are going for a 3% WR are doing it out of fear, and their plan is to pull the plug as soon as they can, as soon as they hit their number. They aren't working in their job for a sense of purpose, as you suggest in your post.

If anything, I think these folks are dissatisfied with their work MORE than the average forum member.  The irrational need to save way past a "safe" amount is a reflex to ensure never having to go back, like PTSD or something.  Those that Sol mentions, who work for the sake of greater good or enjoyment are rarely debating the math of WR's and AA's.

I think it's a stretch to say that these folks are dissatisfied with their work MORE than the average forum member.  Given the run in the equities market and from what was shared about Mustachian household incomes (almost 50% above 125k), it is almost inevitable that going a little further than 4% quickly (OMY maybe) becomes 3%.

Also, in my case, I got to a bare bones FI (5 - 6% WR) and was emboldened to get a better job.  I think several other FI bloggers and forum members have 'dream jobs' or working spouses that have them continuing to stash beyond the 4% WR number. 

I'd be interested to understand why you'd think FI folks at 4% or below are so unhappy with working or having an income.
Because we've done polls, and found that the majority don't like their jobs. That's the majority of the general population, and of Mustachians.

Your experience and ideas of a "dream job" seem normal to you, because it's your experience. But it seems not to be the case for the majority.

And as CL points out, if you are enjoying your dream job and past the FI point, you aren't on an early retirement forum handwringing about the success rate of 3% vs. 4%.

So the vast majority of people on here talking about how they want to pull the plug at 3% WR are very likely doing it out of fear.

If they were in their dream job, and wanted to work forever, they wouldn't be talking about pulling the plug as soon as they hit 3%, because they'd want to keep working, because they love their job.
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Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #505 on: December 11, 2016, 04:56:53 PM »
I'd be interested to understand why you'd think FI folks at 4% or below are so unhappy with working or having an income.

I think Arebelspy answered that for me.
 
The thing is you aren't working for free. So the additional caveat is that the additional work might mean that you can go on a fancy holiday or get a fancy bike or whatever it is that you consider a luxury type purchase.

My version of FI is I think a pretty great existence but it's definitely not excessive. My work also isn't bad even if I definitely wouldn't do it for free. I could though work a little longer to afford some luxury type spending.

I understand the idea that one is concerned that they may want something more or different down the road.  The thing is, the 4% rule covers that.  Just go into Cfiresim and run the default scenario.  In most cases you end up with more money than you started with 20 or 30 years into retirement.  Most of the anecdotal evidence of those who have FIRE'd on this forum shows that spending usually does not go up AND many accidently make more money anyway. I think it's fear driven. 

Honestly, anyone who was smart and motivated enough to FIRE young and wants a luxury bike or vacation in 10 years he/she will figure out how to make it happen easily. If someone doesn't like their job and works past 4% because of PE/10's or whatever nightmare scenario they have in their head, it's virtually a guaranteed failure as Arebelspy points out so eloquently upthread.

Edit: To harp on the subject a little more, here are the SS actuarial numbers:
https://www.ssa.gov/oact/STATS/table4c6.html

If you retire at 30 with the 4 percent rule; which is more likely to have happened 30 years later, running out of money or death?  It just gets worse the older you get (as I am becoming more acutely aware).  Is working two more years for a 3.5% WR looking a bit more irrational yet?

« Last Edit: December 11, 2016, 05:13:40 PM by Classical_Liberal »

steveo

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Re: Stop worrying about the 4% rule
« Reply #506 on: December 11, 2016, 11:39:02 PM »
Classical_Liberal - I intend to retire on a 5% WR probably on a best case scenario. I still agree with what you are stating. I can't see myself bothering to get to a 4% WR. I think for me it's much more likely to get to 5% and then work to save up some extra spending money.

We intend to do what you state though - i.e. see how our spending goes once we retire and save to splurge if we choose too.

Telecaster

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Re: Stop worrying about the 4% rule
« Reply #507 on: December 11, 2016, 11:50:31 PM »
By instead working those years up front, you've guaranteed that you have to work them. Still seems like an ER failure, to me.

I gotta say arebelspy, despite your tender age, you continually impress me with your wisdom. 

arebelspy

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Re: Stop worrying about the 4% rule
« Reply #508 on: December 12, 2016, 01:06:09 AM »
By instead working those years up front, you've guaranteed that you have to work them. Still seems like an ER failure, to me.

I gotta say arebelspy, despite your tender age, you continually impress me with your wisdom.
My tender age.  :D

And here I've been feeling so old lately.

Thanks for the double compliment!
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EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #509 on: December 12, 2016, 06:38:29 AM »
By instead working those years up front, you've guaranteed that you have to work them. Still seems like an ER failure, to me.

I gotta say arebelspy, despite your tender age, you continually impress me with your wisdom.
My tender age.  :D

And here I've been feeling so old lately.

Thanks for the double compliment!

I would think you ER's would feel like children.  I ran 14 miles on Sunday and am here at the office before 7am.  I love how fast life is, still feel like I'm in my 20's!  Maybe ER makes you feel old ;)
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ImCheap

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Re: Stop worrying about the 4% rule
« Reply #510 on: December 12, 2016, 08:21:21 AM »
One stat in the back of mind is:

http://firecalc.com/
Quote
Ty Bernicke's Reality Retirement Planning: A New Paradigm for an Old Science describes extensive research showing that most people see significant reductions in spending with age (not related to reduced assets or income). If selected, this option will reduce your inflation-adjusted yearly spending by 2-3% per year starting at age 56, and then stabilizing at age 76 to keep up with inflation. You should read his article for details if you plan to use this option.

After seeing first hand parents and In-Laws, most of who have passed on, one left out of 4. The above seems to be true with one exception, healthcare!  Those final years can be crazy expensive, think 3-4 years of assisted living plus some memory care.

Most of the time an SWR assumes a constant increase in spending, not so sure that is true from what I see, the one living parent I have left has a tough time spending a SS check, thank goodness for good health at 90 years young!
« Last Edit: December 12, 2016, 08:30:01 AM by ImCheap »

mizzourah2006

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Re: Stop worrying about the 4% rule
« Reply #511 on: December 14, 2016, 09:28:37 AM »
I've started viewing a low WR as a guaranteed ER failure.

The failure is just up front, not down the line.

That is, if you have a higher WR because you pull the plug early, and you end up having to go back to work for a few years to bolster the stache at some point down the line, we'd call that ER failure.

By instead working those years up front, you've guaranteed that you have to work them. Still seems like an ER failure, to me.

Compare to someone else who pulls the plug a few years earlier than you, and then gets a part time job a few different years to supplement in a crash. Both of you work the same. Why is only one a failure?

Consider the person who ERs a few years earlier, and never has to go back, because early returns drop their WR low enough. They never worked the extra years. Why should your working them not be considered ER failure?

Maybe something to challenge your thinking today. ;)

(I understand and recognize all the caveats that the up front years are likely at a higher rate, you may not be able to find a job when the economy is bad, etc. I'm providing food for thought, ignore the nit picking, please.)

This automatically assumes you literally hate what you do. I could say that I see owning real estate as an automatic failure because I would literally hate dealing with it. It doesn't make it true, but it makes it true in my case. My issue with the 30 year studies vs. the 40 & 50 year simulations is as you start to get into larger and larger years for simulation purposes the number of unique combinations goes down. So we have no where near as much historical data on a 50 year withdrawal rate as compared to a 30 year withdrawal rate. It also assumes the US will continue to be a GDP super power or that you will know when to invest in any new emerging markets that become the new GDP grower that the US has been over the last century. Could a 4% withdrawal rate work over 50-60 years, sure, but I wouldn't rely on historical simulations of that considering most of the data used in the simulation is not even double the time period you are trying to simulate. We need to remember that the life expectancy of healthy adults continues to increase. I am in my early 30s, there's a strong chance that the average life expectancy for people my age as long as they are healthy at 60 is into the mid 90s. So if you retire planning on a 4% WD exactly and little no wiggle room at 40 you may need to plan on supporting yourself for 55 years and that is just assuming it is you that needs to be supported by that money. A married couple may have an average life expectancy between the two of over 100, which would mean you need to make sure that money lasts over 60 years.

Now you could say don't worry about it because you can always go back to work, but I'd rather do what I do and enjoy for a few more years than chance needing to go back to work in my 60s or 70s. To each their own, but  I definitely wouldn't say working a few years longer is automatically a failure especially if you don't dislike what you do in the first place. You need to keep in mind that not everyone in this forum is aiming for FIRE as fast as possible, some are aiming for FI and a relatively early RE.

waltworks

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Re: Stop worrying about the 4% rule
« Reply #512 on: December 14, 2016, 09:36:56 AM »
Sure, that's not a useful response to Arebelspy, though. "Retirement" does not have to mean not working for money, or even not working full time if that's your thing. It's your life and you can do whatever you feel is most satisfying *without being concerned with money*.

The point of FIRE is not "sit on your ass", it's "you can do whatever you want to do most and not worry about the money".

So if you're still working and you NEVER WITHDRAW A DIME from any of your retirement accounts in your life, that's fine if it's what you want to do. If you are working because you are trying to lower your WR below 4% (or even lower) because it makes you feel safe, you are being irrational - you are doing something you hate and not getting a commensurate return in years of doing what you love.

Does that make more sense?

-W

arebelspy

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Re: Stop worrying about the 4% rule
« Reply #513 on: December 14, 2016, 12:19:23 PM »
This automatically assumes you literally hate what you do.

No, it merely assumes you have something else you'd rather do.

if you don't, you love your job and will keep doing it forever, then you're not worried about the 4% rule anyways.

But if you want to ER, then working down to 4%, or past it, is ER failure as much as someone FIREing at 5% WR and going back for a bit to bolster the stache.

Quote
I could say that I see owning real estate as an automatic failure because I would literally hate dealing with it.

Sure, I agree with that.  If you don't want to have real estate in ER, if you were forced to have some and deal with it for years of your retirement, I'd consider an ER failure.
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nereo

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Re: Stop worrying about the 4% rule
« Reply #514 on: December 14, 2016, 01:02:52 PM »

This automatically assumes you literally hate what you do. I could say that I see owning real estate as an automatic failure because I would literally hate dealing with it. It doesn't make it true, but it makes it true in my case. My issue with the 30 year studies vs. the 40 & 50 year simulations is as you start to get into larger and larger years for simulation purposes the number of unique combinations goes down. So we have no where near as much historical data on a 50 year withdrawal rate as compared to a 30 year withdrawal rate. It also assumes the US will continue to be a GDP super power or that you will know when to invest in any new emerging markets that become the new GDP grower that the US has been over the last century. Could a 4% withdrawal rate work over 50-60 years, sure, but I wouldn't rely on historical simulations of that considering most of the data used in the simulation is not even double the time period you are trying to simulate. We need to remember that the life expectancy of healthy adults continues to increase. I am in my early 30s, there's a strong chance that the average life expectancy for people my age as long as they are healthy at 60 is into the mid 90s. So if you retire planning on a 4% WD exactly and little no wiggle room at 40 you may need to plan on supporting yourself for 55 years and that is just assuming it is you that needs to be supported by that money. A married couple may have an average life expectancy between the two of over 100, which would mean you need to make sure that money lasts over 60 years.

Now you could say don't worry about it because you can always go back to work, but I'd rather do what I do and enjoy for a few more years than chance needing to go back to work in my 60s or 70s. To each their own, but  I definitely wouldn't say working a few years longer is automatically a failure especially if you don't dislike what you do in the first place. You need to keep in mind that not everyone in this forum is aiming for FIRE as fast as possible, some are aiming for FI and a relatively early RE.

There's a couple of things that jumped out at me with your post I'd like to respond to.

1) From a purely medical standpoint this notion about increasing lifespans is wildly misunderstood.  Ignoring for a moment the recent dip in life expectancies (mostly due to an increase in drug overdoses and suicides among otherwise young, healthy individuals), the increase in life expectancies is because fewer people are dying earlier. When fewer adults die in their 50s or 60s the median life expectancy increases.  Put another way, while the life expectancy of a healthy 60 year old has increased by roughly 3 years in the last two decades, the probability that they will reach 90 has barely budged.  As a species our average (median) life span has increased, but our maximum lifespan is essentially unchanged.
There is no evidence that the life expectancy (by definition a 50% probability of surviving) of someone in their 60s will be their 'mid 90s'.  Sorry, but the likelihood that either person in a marriage will live to see 100 is very small. Not today and not projected for our generation (you and I are about the same age).  Currently a healthy 60yo white male has a life expectancy of 81.5.  I'd love to think my wife and I will live to see 95, but the odds are heavily against it.

this doesn't mean that financially you shouldn't plan for your money to last as long as your maximum life span - you should. On that note...

2) While it is true that the available sample size (or 'number of unique combinations' as you call them) does decrease as you increase time periods, this doesn't mean that its not possible to test longer time periods.  The most common way to do this is with Monte Carlo simulations where you re-sample (sampling with replacement) different time periods, which allows you to have very large and equal sample sizes even when the time periods are very long.  Most people seem to use yearly time periods for MC simulations, but there's logic to sampling at 7 or 10 year time periods as well (cyclical markets and all...) An even simpler method is instead of viewing how many simulated portfolios 'failed' is to view what percentage ended with a higher real balance than they started with. There's a far greater probability that you will end your first 30 years of ER with substantially more then there is that you will have less money (in real terms) than when you first retired.

All of this assumes that the next few decades will be no worse than the worst time periods of the last 100+ years, which brings us to...

3) The idea that the lost of the US as the largest GDP somehow equates with the eminent failure of the 4% 'rule'. There's several different facets illustrating why this need not be the case.  For example, the ratio of US GDP to global GDP has been falling since its peak in 1952. There's the fact that only ~55% of profits from SP500 companies come domestically (a number that's also been steadily declining), and the idea that 'emerging markets' are better long term investments (historically they have not). Lower growth won't even limit the efficacy of a 4% WR per se. For that to happen we would need more periods that were as bad or worse than what we've seen over the last several decades.  Despite the 'great recession' and lots of articles published over the last 4 decades claiming 'the good times are over' there's little evidence showing that this is actually happening.
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secondcor521

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Re: Stop worrying about the 4% rule
« Reply #515 on: December 14, 2016, 01:04:06 PM »
ARS, you know I respect you.  And I understand your POV and the math about working longer as a failed RE situation.  I also respect each individual person's decision to FIRE when and whether they see fit.

I would like to point out, though, that some folks - me included - attach a high negative value to the transition event of being forced to go back to work.  There is also the calculus of the tradeoff between a shorter time now at a relatively higher paying job vs. a longer time at some point in the future at a relatively lower paying job.  These two things mean there are some situations and value systems where paying what is effectively an insurance policy premium of working longer can make sense.

I guess it seems to me that, from your perspective, those extra X years are a guaranteed spend now versus maybe X+epsilon years later, and from that point of view you are absolutely accurate.  I'm just throwing out there that for others, the contiguity of the working years, the relative size of epsilon, the probability of "maybe", the likelihood of being able to get a job (ageism still happens despite the law), and similar factors may be weighted as heavily or even more so.

Cheers!
« Last Edit: December 14, 2016, 01:06:40 PM by secondcor521 »
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deborah

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Re: Stop worrying about the 4% rule
« Reply #516 on: December 14, 2016, 01:06:36 PM »
The point of FIRE is not "sit on your ass", it's "you can do whatever you want to do most and not worry about the money".
Why not sit on your ass, if that's what you want to do?

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Re: Stop worrying about the 4% rule
« Reply #517 on: December 14, 2016, 01:15:40 PM »
The point of FIRE is not "sit on your ass", it's "you can do whatever you want to do most and not worry about the money".
Why not sit on your ass, if that's what you want to do?
Well if we're being philisophical, it would be a waste of a life.
Just sayin'...
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waltworks

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Re: Stop worrying about the 4% rule
« Reply #518 on: December 14, 2016, 01:30:29 PM »
I guess it seems to me that, from your perspective, those extra X years are a guaranteed spend now versus maybe X+epsilon years later, and from that point of view you are absolutely accurate.  I'm just throwing out there that for others, the contiguity of the working years, the relative size of epsilon, the probability of "maybe", the likelihood of being able to get a job (ageism still happens despite the law), and similar factors may be weighted as heavily or even more so.

Young years are also MUCH more valuable than older years. Working extra years for perceived safety beyond the 4% SWR (already insanely conservative) is nuts. If doing some form of part-time paid work at some point in the future is your *worst case scenario*, then go at it, I guess.

Keep in mind, too - you could die tomorrow, or the day after you hit your 3.3% or whatever you're going for. The downside risks are kinda nuts on the work-longer side IMO.

-W

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #519 on: December 14, 2016, 01:35:06 PM »
Young years are also MUCH more valuable than older years. Working extra years for perceived safety beyond the 4% SWR (already insanely conservative) is nuts. If doing some form of part-time paid work at some point in the future is your *worst case scenario*, then go at it, I guess.

Keep in mind, too - you could die tomorrow, or the day after you hit your 3.3% or whatever you're going for. The downside risks are kinda nuts on the work-longer side IMO.

-W

I fully expect there will be a point in my life where doing an easy PT job at a camping store, bike shop or surf shop will be very appealing even if I don't need the $$. Once I can no longer be super active staying in touch with those communities while having a reason to get out for a bicycle ride will be nice. But while I am still fit an extra year to camp, ride or surf is far more important.

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Re: Stop worrying about the 4% rule
« Reply #520 on: December 14, 2016, 04:54:11 PM »
I guess it seems to me that, from your perspective, those extra X years are a guaranteed spend now versus maybe X+epsilon years later, and from that point of view you are absolutely accurate.  I'm just throwing out there that for others, the contiguity of the working years, the relative size of epsilon, the probability of "maybe", the likelihood of being able to get a job (ageism still happens despite the law), and similar factors may be weighted as heavily or even more so.

Young years are also MUCH more valuable than older years. Working extra years for perceived safety beyond the 4% SWR (already insanely conservative) is nuts. If doing some form of part-time paid work at some point in the future is your *worst case scenario*, then go at it, I guess.

Keep in mind, too - you could die tomorrow, or the day after you hit your 3.3% or whatever you're going for. The downside risks are kinda nuts on the work-longer side IMO.

-W

In some ways, I'm an extraordinarily conservative person.  Belts and suspenders plus fashionable boxers behind a fence, if you don't mind a tortured analogy.

Overall, I think the WR discussion, while a great rule of thumb, is really just a first cut measurement.  Like knowing your BMI for health - it is a good number to know, it's just a first piece of data.  A safe WR depends on a person's disposition, risk tolerance, asset allocation, age, life expectancy, work history, backup plans, other sources of income, family size, children's ages, opinions about mortages and college costs, and probably half a dozen other factors.

For me personally, I declared myself FI when I reached a 4.08% pro forma WR about age 45.  My job wasn't bad at that point, so I kept with it and watched my WR drop while knowing I could quit any time.  About two years later, things got bad at work, and my Mom was sick, so I RE'd just before age 47 - I think I was at an estimated 2.5-3.0% WR then.

Nowadays I spend a little more freely and am at about 3.5%, which is where I personally feel comfortable.

As far as the perennial time versus money issue you allude to in your last sentence, yes, I keep that in mind.  I like what people have said elsewhere...you rolls your dice and you takes your chances.
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arebelspy

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Re: Stop worrying about the 4% rule
« Reply #521 on: December 14, 2016, 09:17:34 PM »
ARS, you know I respect you.  And I understand your POV and the math about working longer as a failed RE situation.  I also respect each individual person's decision to FIRE when and whether they see fit.

I would like to point out, though, that some folks - me included - attach a high negative value to the transition event of being forced to go back to work.  There is also the calculus of the tradeoff between a shorter time now at a relatively higher paying job vs. a longer time at some point in the future at a relatively lower paying job.  These two things mean there are some situations and value systems where paying what is effectively an insurance policy premium of working longer can make sense.

I guess it seems to me that, from your perspective, those extra X years are a guaranteed spend now versus maybe X+epsilon years later, and from that point of view you are absolutely accurate.  I'm just throwing out there that for others, the contiguity of the working years, the relative size of epsilon, the probability of "maybe", the likelihood of being able to get a job (ageism still happens despite the law), and similar factors may be weighted as heavily or even more so.

Cheers!

Definitely.

This becomes more true the higher the amount you make, and the lower the probability of being able to make anything close to it, later.

You're still trading off guaranteed years for unlikely future years, especially when you're trying to go from a 95% success rate to a 100% one.

That was my point. We don't count these traded off years as ER failure, because you haven't ER'd yet.  But I think there's a reasonable case to consider it an ER failure (if not imagination failure).  :)
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Re: Stop worrying about the 4% rule
« Reply #522 on: December 14, 2016, 11:07:02 PM »
Agreed.  I think the older one is too the more likely one is to not be willing to go back.  It didn't work for me, but even so a strategy of being young and flexible and RE'ing at 30 or 35 at a 5% SWR and being willing to take the bet makes sense to me.

The point about 95% vs. 100% is one I didn't realize until after the fact.  I just plugged in 100%, got 4.08% back out (older data from retireearlyhomepage.com) and worked to grow my assets to hit FI.  It wasn't until after FIRE that I looked and realized that if one is willing to take the bet that one is not starting in a period like the mid-1960's, one can raise one's WR quite a bit.  Personally I am of the opinion that the future will be better than the past, at least to be able to avoid the stagflation that affected those start years, so in retrospect I should have gone more with a 95% success rate (which is what you get for a 40-year planning period if you toss out or ignore four or five of those 1960's start dates).
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arebelspy

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Re: Stop worrying about the 4% rule
« Reply #523 on: December 15, 2016, 01:51:04 AM »
what you get for a 40-year planning period if you toss out or ignore four or five of those 1960's start dates.

This is my preferred "safe" method. Then you're basically saying "It'll be worse than average.  Worse than almost every other year, in fact, but not literally the worst."  I think that's probably about as safe as you can get, barring a catastrophe, without just trading away MANY years chasing an illusive and uncatchable "guarantee."
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Re: Stop worrying about the 4% rule
« Reply #524 on: December 15, 2016, 06:25:23 AM »
Agreed.  I think the older one is too the more likely one is to not be willing to go back.  It didn't work for me, but even so a strategy of being young and flexible and RE'ing at 30 or 35 at a 5% SWR and being willing to take the bet makes sense to me.

Keep in mind that all of us with even a remotely large stash are already taking the bet.

We're assuming:

  • We will live long enough to ER (instead of quitting now and enjoying a few years)
  • We will be closer to a failure scenario (and not a success scenario)
[li]Guaranteeing working now vs a potential of working in the future[/li][/list]

The last one is one I see interesting in these discussions as it's often overlooked. You can't say, "there's a risk of having to go back to work, so I'll keep working for a few OMYs so I can negate the risk" without acknowledging that by doing so, you are guaranteeing that you work extra years.

It's entirely possible you could FIRE on 5%. Or higher. The risk is having to work again in the future. The benefit is not having to work for the immediate short term.


arebelspy

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Re: Stop worrying about the 4% rule
« Reply #525 on: December 15, 2016, 06:43:21 AM »
You can't say, "there's a risk of having to go back to work, so I'll keep working for a few OMYs so I can negate the risk" without acknowledging that by doing so, you are guaranteeing that you work extra years.



I was trying to say something similar recently, but much more rambling, and much less eloquently.
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Re: Stop worrying about the 4% rule
« Reply #526 on: December 15, 2016, 07:07:33 AM »
And if you have the flexibility to vary your annual spending WR say +/- 0.5% in response to market conditions you can get a nice bump in your success rate.

Using stock cFIREsim values and a 40yr FIRE

4%WR

- $40K/yr WR
- 90% success rate

3.5% - 4.5%WR

- $44K/yr median WR
- 96% success rate

3% - 5% WR

- $44K/yr median WR
- 100% success rate

For most FIRErs the variable rate options means you'll get more $$/yr and a higher probability of success.
« Last Edit: December 15, 2016, 08:24:05 AM by Retire-Canada »

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Re: Stop worrying about the 4% rule
« Reply #527 on: December 15, 2016, 07:14:43 AM »
Right, I get the argument.  I think it actually is discussed (vs. being overlooked) in many of the OMY posts that crop up on FIRE forums - does the person work longer for extra safety or quit now and start enjoying retirement.  Although I guess as an explicit strategy ("I'll stop at 5% knowing that I might have to but probably won't have to go back to work.") it isn't often discussed in that way.

To me, the even rarer discussion (and one that, incidentally, I was among the first to point out <- my extraordinarily minor contribution to FIRE research) is on the other end of lifespan - the 4% rule is even safer than we think because we discount the successes associated with dying early.  Most if not all of us breezily assume that we'll live to 85 or 100 or whatever and then look to make sure our money will last that long.  We ignore the fact that we might not last that long - I'm not sure what the numbers are exactly, but they're pretty grim; I plan for age 87 (47+40) but there's only a 50% chance or thereabouts that I'll be around.  Since living or dying and the stash surviving are mostly independent events, one can calculate P(failure)=P(me dying)*P(stash going to zero).  Doing the math that way leads to the 4% rule being very very safe.

Here's a page that intercst wrote on the subject (I believe after reading a post of mine from the old Motley Fool REHP forum).  He deserves credit for extending the math to account for year-by-year failure:

http://www.retireearlyhomepage.com/swrlife.html
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arebelspy

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Re: Stop worrying about the 4% rule
« Reply #528 on: December 15, 2016, 07:18:44 AM »
And if you have the flexibility to vary your annual spending say +/- 0.5% in response to market conditions you can get a nice bump in your success rate

To clarify: That's varying your WR by 0.5%, not your annual spending--your spending would vary by 12.5%.

Could you temporarily take a 12.5% pay cut, basically? Or earn 12.5%. Or some combination of the two. Either of which would reduce your WR by 0.5%, and then your numbers illustrate what would have happened historically in that case.
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arebelspy

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Re: Stop worrying about the 4% rule
« Reply #529 on: December 15, 2016, 07:20:47 AM »
Wow 2ndCor, you've been in the ER community awhile.
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Re: Stop worrying about the 4% rule
« Reply #530 on: December 15, 2016, 07:23:53 AM »
And if you have the flexibility to vary your annual spending say +/- 0.5% in response to market conditions you can get a nice bump in your success rate.

Using stock cFIREsim values and a 40yr FIRE

4%WR

- $40K/yr WR
- 90% success rate

3.5% - 4.5%WR

- $44K/yr median WR
- 96% success rate

3% - 5% WR

- $44K/yr median WR
- 100% success rate

For most FIRErs the variable rate options means you'll get more $$/yr and a higher probability of success.

Very good. And in the 3-5% case your average spend is higher than a straight 4%.

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Re: Stop worrying about the 4% rule
« Reply #531 on: December 15, 2016, 07:37:50 AM »

To me, the even rarer discussion (and one that, incidentally, I was among the first to point out <- my extraordinarily minor contribution to FIRE research) is on the other end of lifespan - the 4% rule is even safer than we think because we discount the successes associated with dying early.  Most if not all of us breezily assume that we'll live to 85 or 100 or whatever and then look to make sure our money will last that long.  [snip]

My opinion on the matter is that if one is considering a retirement of >>30 years, there's really no point in worrying about whether you will live to be 85 or 100, because difference in 'failures' is miniscule between these two options, and the most likely outcome for either is that you die with more money than you started.  Since all of the risk is tied to the initial sequence of returns your response would be the same (reduce spending or earn some income, or both).

For example - using numbers similar to your own lets assume you were planning for either a 37 year retirement (median life expectancy) or a 50 year retirement; "success" slides from 90 to 81%, but in both accounts troubled portfolios can be identified within the first 7 years. In both cases >50% of scenarios end with substantially more $ than they began with.  Tack on SS and the numbers get much closer.  Use a slightly reduced WR (e.g. 3.7) and the numbers essentially converge.

Following this logic I don't worry that my retirement could be 65 years if I wind up winning the life-expectancy lottery and living well past 100.  My plan doesn't change from an estimated 40 years of retirement.
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Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #532 on: December 15, 2016, 08:30:55 AM »
And if you have the flexibility to vary your annual spending say +/- 0.5% in response to market conditions you can get a nice bump in your success rate

To clarify: That's varying your WR by 0.5%, not your annual spending--your spending would vary by 12.5%.

Could you temporarily take a 12.5% pay cut, basically? Or earn 12.5%. Or some combination of the two. Either of which would reduce your WR by 0.5%, and then your numbers illustrate what would have happened historically in that case.

Good catch. I edited my post.

Personally I could take a 25% pay cut in any year or for a few years as long as it was likely I could increase my spending later. I have a number of expenses that are either nice to have or are for longer term issues that could be deferred a year or 3 if needed without any harm. Heck with an easy PT job I could drop my portfolio spending by 50%/yr for a while without feeling hard done by. That's the beauty of spending [relatively less] than is typical for your peer group.

What I don't want to do is spend extra years working FT because I am afraid of a small % risk of working PT for a few years. That makes no sense to me.
« Last Edit: December 15, 2016, 08:36:58 AM by Retire-Canada »

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Re: Stop worrying about the 4% rule
« Reply #533 on: December 15, 2016, 08:41:34 AM »

What I don't want to do is spend extra years working FT because I am afraid of a small % risk of working PT for a few years. That makes no sense to me.

I agree with you on this, but the point where the risk is "small enough" is different among people.  Personally I'd be content anywhere north of 50%, knowing that we have every intention of adjusting spending and picking up random sources of income as they become available.  Others think this approach is crazy and would be terrified by it. 
So where does your comfort level lie regarding portfolio success rates?  80%?  95%?
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Re: Stop worrying about the 4% rule
« Reply #534 on: December 15, 2016, 09:06:54 AM »
So where does your comfort level lie regarding portfolio success rates?  80%?  95%?

I don't know for sure yet. I am behind the 8 ball in terms of time because I didn't start this process as early as I would have liked. I am also very active and my FIRE dreams are camping, mtn biking, surfing, fly fishing, etc... So that predisposes me to value my health and mobility.

My current FIRE numbers look roughly like this:

- spending ~$40K/yr so with taxes I need ~$47K/yr
- at 4%WR that's ~$1.2M
- I currently have ~$650K saved/invested
- I'm 47
- at my usual income/spending levels I can save $30K-$40K/yr

As you can see those number don't work out so great for an early FIRE...assuming you even think you can have an early FIRE once you are closing in on 50. So my plan is to save what I can in 2017. I'm luckily [sort off] working two contracts and earning more than typical so I may be able to sock away $80K next year. In 2018 I will shift to PT work with the goal to carve out months of free time and do the stuff I love while not drawing down the portfolio. That will allow it to continue to grow.

Now to your question. My expectation is that one of the things I will do with my additional free time in the downshift period is to see if I can reduce my FIRE budget comfortably and also to explore what variable WR rate plan I am comfortable with and what WR range I am comfortable with. Obviously by moving those variables around I can significantly reduce the $$ value I need to hit and shave years off my need to even do PT work. Also as obvious is that great or poor market performance will dramatically impact my motivation to optimize my FIRE plans.

I can say I am 100% comfortable with the standard 4%WR. And I think ~5yrs of PT work is something I feel good with. My simple simulations say that will give me ~$1M. I figure that I'll be able to make anything approaching that work. So that's the direction I am heading.

I will keep evaluating my situation and if I hate the PT work or my health changes or something else drastic occurs I'll be ready to stop working entirely on less than $1M. I'm also open to the notion that at some level/type of PT work I will actually prefer working to not working at all, which makes the shift to PT sooner than later sensible to me as with an income of $10K/yr my FIRE $ target shifts down significantly. I've spend 6 months+ doing outdoors store retail in my adult life and it was fun, but poorly paid.

Sorry that's not a concise answer. I really don't have one. I do know I am ready to be done working FT though and I do know that 6months/yr of free time now is worth more to me than 12 months/yr of free time in a decade.
« Last Edit: December 15, 2016, 09:10:01 AM by Retire-Canada »

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Re: Stop worrying about the 4% rule
« Reply #535 on: December 15, 2016, 11:00:11 AM »
It's an interesting side alley, taking the unconventional view that working at all beyond a 4%SWR is an ER failure, but I don't see a good way to nudge the mainstream view.  To most folks, being unhappy in retirement is their only criteria for ER failure.  This current bull market nonwithstanding, you will have a negative return at some point before traditional retirement age if you retire in your 30's or 40's which most people feel uncomfortable about, even though the 4% literature still gives them some 95% success rate.  It's probably just human nature, but erring on the side of safety, especially when it's a 'bird in hand vs. two in the bush' decision just feels better.  I do hope that people don't work jobs they hate plugging through their OMY, or at least that they feel like a tremendous weight has been lifted by hitting FI (I have seen this light bulb go on, and it's a great feeling), but I don't think I could convince any FI'ed people I know that by working they are retirement failures.  They would look at me like I've lost my mind! 

TL;DR  I guess what I've noticed is that people really want to be FI, and ER is a distant second.  So if you tell them to ER but they think it might compromise their FI, the answer is going to be no.  It could be because of health insurance, or sequence of returns, or a zombie apocalypse, but FI 'trumps' ER.  (see what I did there :)
« Last Edit: December 15, 2016, 11:23:02 AM by EscapeVelocity2020 »
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Re: Stop worrying about the 4% rule
« Reply #536 on: December 15, 2016, 03:37:26 PM »
To me, the even rarer discussion (and one that, incidentally, I was among the first to point out <- my extraordinarily minor contribution to FIRE research) is on the other end of lifespan - the 4% rule is even safer than we think because we discount the successes associated with dying early.

Indeed.  But to be fair, it is hard to wrap your brain around the mindset that dying early is a success  :) 

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Re: Stop worrying about the 4% rule
« Reply #537 on: December 15, 2016, 03:46:53 PM »
To me, the even rarer discussion (and one that, incidentally, I was among the first to point out <- my extraordinarily minor contribution to FIRE research) is on the other end of lifespan - the 4% rule is even safer than we think because we discount the successes associated with dying early.

Indeed.  But to be fair, it is hard to wrap your brain around the mindset that dying early is a success  :)

True.  I come from an extremely blunt and practical lineage.  :-)
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Re: Stop worrying about the 4% rule
« Reply #538 on: December 15, 2016, 03:54:59 PM »
The trouble is that most people are part of a couple. In Australia, life expectancy is 80, but at least one of a couple is expected to live until 90-something. This is going to be similar elsewhere, so you actually need to think about how long your stash will need to last to cover both of you.

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Re: Stop worrying about the 4% rule
« Reply #539 on: December 15, 2016, 04:19:35 PM »
The trouble is that most people are part of a couple. In Australia, life expectancy is 80, but at least one of a couple is expected to live until 90-something. This is going to be similar elsewhere, so you actually need to think about how long your stash will need to last to cover both of you.
It's extremely likely (I'd bet on it) that someone who is 90 has limited mobility and therefore spends little. By limited mobility I mean aches and pains become the norm and you become less and less likely to take trips. My grandmother on my mom's side just died at 87 and my grandfather (her husband) is still alive at 90. They were the healthiest elderly people I ever met. Indeed all their friends had died off before them. And they stopped travelling 10 years ago, with the exception of visiting family. And there was a healthy tapering in the decade before that. At that age they just couldn't string together enough good days to take week long vacations and such. Now that Grandma is gone (died last January), I'd say Grandpa barely spends anything. I can't say for sure that the same healthcare system will be in place when I'm that age but they used medicare and they paid for extra insurance that covered their 20% coinsurance beyond medicare. Those two costs covered everything so there were never any surprises. Of course they weren't taking heaps of pills either. I know prescriptions can be very costly.

There are communities popping up in the US where 3 types of housing are offered. Villas for independent living, apartments for the less mobile, and full on nursing care. You buy into the community and you have equity for 10 years. If you die before 10 years some equity is returned to the estate. If you live longer than 10 years there is an additional cost to stay there if you have the money to pay it but they can never kick you out. As a person or couple ages they can start in the independent living space and move to more assisted care as they need it, without having to leave the community. There's a communal space that allows people to get together and enjoy activities with other people of a similar age and new friendships can be formed if people are so inclined. It's a great way to limit the "long term care" cost that people seem to fear so much, provided a couple or individual has the means to buy into the community. The cost is no more expensive than buying a small home, and typically older people are able to pay for the transition by selling the home they lived in and no longer need. It's a cool concept, particularly since you do lose friends at that age and the community you live in can start to look like a bunch of strangers. My grandfather talks about this now. He's basically the last man standing of all their friends.

That being said, I still think overall costs for most people will go down from 60 to 80, assuming you live that long, unless your base spending is already incredibly low. Perhaps a mustachian, spending only 40k a year, would see spending essentially stay flat as travel decreases and increased medical expenses replace the travel budget.
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Re: Stop worrying about the 4% rule
« Reply #540 on: December 15, 2016, 04:21:06 PM »
The trouble is that most people are part of a couple. In Australia, life expectancy is 80, but at least one of a couple is expected to live until 90-something. This is going to be similar elsewhere, so you actually need to think about how long your stash will need to last to cover both of you.

I've attached a spreadsheet that calculates the probability of one or both of you surviving to given ages (based on US data, but I bet Australia is quite similar, though perhaps slightly longer--within the margin of error though).

Put in your current age, and select your health level (from above average, average, or below average) and it'll calculate the probability that each of you makes it X number more years, and the probability that AT LEAST one of you makes it there.

Right now, at 31, wife is 30, our 50% chance of making it is: 54 more years (to 85) for me, 58 more years (to 88) for her.  Our joint 50% probability (i.e. 50/50 chance at least one of us will be left) is 62 years from now, when I'm 93 and she's 92.

We have a 10% chance of at least one of us lasting 70 more years, until I'm 101 and she's 100.  If you want the same odds as many want for cFIREsim runs, 95% chance of covering you, we look at the 5% chance one of us will be alive... 72 years, when I'll be 103, her 102.

I don't care about covering myself past 100 (though I think it'll happen naturally via the way net worth raises in FIRE), but some might.

Have fun playing with your own numbers, everyone!

:)
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Re: Stop worrying about the 4% rule
« Reply #541 on: December 15, 2016, 06:23:49 PM »

I've attached a spreadsheet that calculates the probability of one or both of you surviving to given ages...

I love that you are posting this, particularly given that from what I know about you none of this stuff matters. You FIREd based on real cash flow rather than 4% theory fluff. Thanks for continuing to provide resources for the rest of us.

As to the recent conversation, +1 to retire-canada. My current plan (hope) is to just get close to something reasonable, then slow down and pick up some random cash here and there to supplement. A 6-7% WR can be super "safe" if you keep picking up a few dollars, rely on SS, and remain flexible.
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Re: Stop worrying about the 4% rule
« Reply #542 on: December 15, 2016, 06:58:53 PM »
It's extremely likely (I'd bet on it) that someone who is 90 has limited mobility and therefore spends little. By limited mobility I mean aches and pains become the norm and you become less and less likely to take trips. My grandmother on my mom's side just died at 87 and my grandfather (her husband) is still alive at 90. They were the healthiest elderly people I ever met. Indeed all their friends had died off before them. And they stopped travelling 10 years ago, with the exception of visiting family. And there was a healthy tapering in the decade before that. At that age they just couldn't string together enough good days to take week long vacations and such. Now that Grandma is gone (died last January), I'd say Grandpa barely spends anything. I can't say for sure that the same healthcare system will be in place when I'm that age but they used medicare and they paid for extra insurance that covered their 20% coinsurance beyond medicare. Those two costs covered everything so there were never any surprises. Of course they weren't taking heaps of pills either. I know prescriptions can be very costly.

There are communities popping up in the US where 3 types of housing are offered. Villas for independent living, apartments for the less mobile, and full on nursing care. You buy into the community and you have equity for 10 years. If you die before 10 years some equity is returned to the estate. If you live longer than 10 years there is an additional cost to stay there if you have the money to pay it but they can never kick you out. As a person or couple ages they can start in the independent living space and move to more assisted care as they need it, without having to leave the community. There's a communal space that allows people to get together and enjoy activities with other people of a similar age and new friendships can be formed if people are so inclined. It's a great way to limit the "long term care" cost that people seem to fear so much, provided a couple or individual has the means to buy into the community. The cost is no more expensive than buying a small home, and typically older people are able to pay for the transition by selling the home they lived in and no longer need. It's a cool concept, particularly since you do lose friends at that age and the community you live in can start to look like a bunch of strangers. My grandfather talks about this now. He's basically the last man standing of all their friends.

That being said, I still think overall costs for most people will go down from 60 to 80, assuming you live that long, unless your base spending is already incredibly low. Perhaps a mustachian, spending only 40k a year, would see spending essentially stay flat as travel decreases and increased medical expenses replace the travel budget.
Ah dear! There are a few things here that I need to comment on.

My parents are quite elderly, as are some of their relatives, and I have been looking at multilevel accommodation in Australia (some of them are in multilevel accommodation). Obviously, we are a different country, with different laws BUT although many people go into multilevel accommodation because they think that if one of them gets worse, he will go into a higher level of care while she stays in the lower level accommodation, it just doesn't work that way here, and there is no guarantee that this can happen. These places are perennially full, so if they have the room, it can be done, but, generally, it can't.

Secondly, the last eight years of life tend to be the most expensive years of all (according to the Australian stats). People tend to take eight years going downhill before they die. They may have a fall and break a hip, and never walk again (this is very common). Or some other progressive problem occurs. My grandmother (who was just short of 100 when she died) was in nursing homes for the last eighteen years of her life with dementia - for years she was just a skeleton lying on a bed, with no speech, no ability to walk - and ll this takes an amazing amount of money to support. So I really disagree about being elderly costing less.

My parents loved travel. They traveled to many places, and gradually traveled more as they got older. Cruises replaced tours which had replaced independent travel as they got older. Their last cruise was from London to Sydney through the Panama Canal. So, as 60 became 70 became 80 became 85, their travel gradually increased in price. As they became less able to visit local towns or sites on the weekend, their overseas travel became longer and more often.

That said, it is normal here for expenses to go down slightly between 65 and 85 - see the comfortable standard of living developed by the banks https://www.superannuation.asn.au/resources/retirement-standard - but this is marginal. However, are mustachians more like my parents? There seem to be a lot of people in the forum who adore travel. The other thing is that the 85 year olds in Australia have MUCH cheaper pills and medical care than even our general populace - I have forgotten the exact cutoff, but if an elderly person spends more than (say) $5000 in a year on pharmaceuticals, they don't have to pay any more.

arebelspy

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Re: Stop worrying about the 4% rule
« Reply #543 on: December 15, 2016, 09:38:48 PM »

I've attached a spreadsheet that calculates the probability of one or both of you surviving to given ages...

I love that you are posting this, particularly given that from what I know about you none of this stuff matters. You FIREd based on real cash flow rather than 4% theory fluff. Thanks for continuing to provide resources for the rest of us.

As to the recent conversation, +1 to retire-canada. My current plan (hope) is to just get close to something reasonable, then slow down and pick up some random cash here and there to supplement. A 6-7% WR can be super "safe" if you keep picking up a few dollars, rely on SS, and remain flexible.

It was one of the ER resources I accumulated at some point, so was no big deal to share.  :)

Our plan is definitely different, so it is much less relevant to me personally, but very interesting, still.

I love your plan; I think everyone should do something similar, IMO, and gain years of life, unless they love their job and aren't doing it for the money..
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
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TomTX

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Re: Stop worrying about the 4% rule
« Reply #544 on: December 16, 2016, 06:20:18 AM »

It seems like though the vast majority who are going for a 3% WR are doing it out of fear, and their plan is to pull the plug as soon as they can, as soon as they hit their number. They aren't working in their job for a sense of purpose, as you suggest in your post.

If anything, I think these folks are dissatisfied with their work MORE than the average forum member.  The irrational need to save way past a "safe" amount is a reflex to ensure never having to go back, like PTSD or something.  Those that Sol mentions, who work for the sake of greater good or enjoyment are rarely debating the math of WR's and AA's.

I think it's a stretch to say that these folks are dissatisfied with their work MORE than the average forum member.  Given the run in the equities market and from what was shared about Mustachian household incomes (almost 50% above 125k), it is almost inevitable that going a little further than 4% quickly (OMY maybe) becomes 3%.

Also, in my case, I got to a bare bones FI (5 - 6% WR) and was emboldened to get a better job.  I think several other FI bloggers and forum members have 'dream jobs' or working spouses that have them continuing to stash beyond the 4% WR number. 

I'd be interested to understand why you'd think FI folks at 4% or below are so unhappy with working or having an income.
Because we've done polls, and found that the majority don't like their jobs. That's the majority of the general population, and of Mustachians.

Your experience and ideas of a "dream job" seem normal to you, because it's your experience. But it seems not to be the case for the majority.

And as CL points out, if you are enjoying your dream job and past the FI point, you aren't on an early retirement forum handwringing about the success rate of 3% vs. 4%.

So the vast majority of people on here talking about how they want to pull the plug at 3% WR are very likely doing it out of fear.

If they were in their dream job, and wanted to work forever, they wouldn't be talking about pulling the plug as soon as they hit 3%, because they'd want to keep working, because they love their job.

I actually would like my job if I didn't have to go in every day :D It's the day in, day out aspect of it (and the solo travel) that's most wearing.

Doing it an average of a week or two per month would be great.
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AdrianC

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Re: Stop worrying about the 4% rule
« Reply #545 on: December 16, 2016, 07:11:32 AM »
I actually would like my job if I didn't have to go in every day :D It's the day in, day out aspect of it (and the solo travel) that's most wearing.

Doing it an average of a week or two per month would be great.

It seems to me that some here are taking serious risks of failure in their FIRE plans, then I remember what many of you actually do on a daily basis. I'd hate that. I'd take some serious risks to get out of that too. Though I guess I did when I quit a salaried job and became a self-employed consultant years ago.

If you can swing it, a self-employed consulting gig can be sweet. Work from home, no commute, travel to clients' sites is paid by the mile and minute, tax-deductions, no set schedule, high pay/hour...you get the idea. It worked for me.

I'm still working some. More than I want to. I considered myself semi-RE at the start of 2016, but still managed an average of 30h/week (in chunks). I gave one project inquiry this week to a competitor. I'm trying to do more of that. Then again, I just completed a project for an old client and it was immensely satisfying. I don't get that same satisfaction from riding my bike, hiking or messing with my cars. I need a new hobby.

Mr. Green

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Re: Stop worrying about the 4% rule
« Reply #546 on: December 16, 2016, 09:07:49 AM »
I've attached a spreadsheet that calculates the probability of one or both of you surviving to given ages (based on US data, but I bet Australia is quite similar, though perhaps slightly longer--within the margin of error though).

Put in your current age, and select your health level (from above average, average, or below average) and it'll calculate the probability that each of you makes it X number more years, and the probability that AT LEAST one of you makes it there.
I tried your spreadsheet and as a 33 year old male, with a 30 year old wife, both in average health, it says I have a 99% chance of living 13 more years. She has a 99% chance of living 24 more years. Together we have a 99% chance of living 40 more years. So by having a wife my 99% chance of being alive increases from 13 to 40 years? Something about that doesn't seem right to me. That's an insane jump.
FIRE, Take Two.

TomTX

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Re: Stop worrying about the 4% rule
« Reply #547 on: December 16, 2016, 09:13:14 AM »
I've attached a spreadsheet that calculates the probability of one or both of you surviving to given ages (based on US data, but I bet Australia is quite similar, though perhaps slightly longer--within the margin of error though).

Put in your current age, and select your health level (from above average, average, or below average) and it'll calculate the probability that each of you makes it X number more years, and the probability that AT LEAST one of you makes it there.
I tried your spreadsheet and as a 33 year old male, with a 30 year old wife, both in average health, it says I have a 99% chance of living 13 more years. She has a 99% chance of living 24 more years. Together we have a 99% chance of living 40 more years. So by having a wife my 99% chance of being alive increases from 13 to 40 years? Something about that doesn't seem right to me. That's an insane jump.

You ALONE have a 99% chance of living 13 more years
Wife ALONE had a 99% chance of living 24 more years
Together, there is a 99% chance that ONE OF YOU is alive for 40 more years.
There is NOT a 99% chance that BOTH of you are alive for 40 more years.

Seems pretty reasonable to me.
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dandarc

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Re: Stop worrying about the 4% rule
« Reply #548 on: December 16, 2016, 09:17:17 AM »
I've attached a spreadsheet that calculates the probability of one or both of you surviving to given ages (based on US data, but I bet Australia is quite similar, though perhaps slightly longer--within the margin of error though).

Put in your current age, and select your health level (from above average, average, or below average) and it'll calculate the probability that each of you makes it X number more years, and the probability that AT LEAST one of you makes it there.
I tried your spreadsheet and as a 33 year old male, with a 30 year old wife, both in average health, it says I have a 99% chance of living 13 more years. She has a 99% chance of living 24 more years. Together we have a 99% chance of living 40 more years. So by having a wife my 99% chance of being alive increases from 13 to 40 years? Something about that doesn't seem right to me. That's an insane jump.
The "Joint" time is that one of you makes it.  Turning it around - you're looking for a 1% chance of both being dead at that age : 10% * 10% = 1%.  So the 90% lines for individuals are what you'd look at to "validate" the 99% line for joint.  Roughly.
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Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #549 on: December 16, 2016, 09:52:09 AM »
I've attached a spreadsheet that calculates the probability of one or both of you surviving to given ages (based on US data, but I bet Australia is quite similar, though perhaps slightly longer--within the margin of error though).

Put in your current age, and select your health level (from above average, average, or below average) and it'll calculate the probability that each of you makes it X number more years, and the probability that AT LEAST one of you makes it there.
I tried your spreadsheet and as a 33 year old male, with a 30 year old wife, both in average health, it says I have a 99% chance of living 13 more years. She has a 99% chance of living 24 more years. Together we have a 99% chance of living 40 more years. So by having a wife my 99% chance of being alive increases from 13 to 40 years? Something about that doesn't seem right to me. That's an insane jump.

These numbers do not seem to match up with the SS actuarial data I had posted up thread.  They are more optimistic. Another safety margin if you use them.

...Secondly, the last eight years of life tend to be the most expensive years of all (according to the Australian stats). People tend to take eight years going downhill before they die. They may have a fall and break a hip, and never walk again (this is very common). Or some other progressive problem occurs. My grandmother (who was just short of 100 when she died) was in nursing homes for the last eighteen years of her life with dementia - for years she was just a skeleton lying on a bed, with no speech, no ability to walk - and ll this takes an amazing amount of money to support. So I really disagree about being elderly costing less.

This is not supported from data in the US, even including rising medical expenses.
https://www.kitces.com/blog/do-your-clients-spend-more-or-less-in-their-later-retirement-years/