Author Topic: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?  (Read 23493 times)

ChpBstrd

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #100 on: December 20, 2016, 08:30:23 PM »
I think 1970's level inflation is possible if you look far enough into the future. It would be a fallacious extrapolation of current trends to say rates will stay in the current 2% range for the next 10-20-30-40 years. Sometimes, a country's long-term inflation trend line changes, often in apparent response to mounting debt. Inflation is, after all, a form of default.

A voluntary US government default could also be possible. For a real scare, read https://press.princeton.edu/titles/8973.html although it's very boring for normal people. The premise is that governments default a lot more often than interest rates and debt/GDP ratios might lead one to believe.

That said, I'd go for the 4% rule and maybe work part time for the first years of your FIRE to lower that to 3%, to the extent I was worried.

Also, diversify the markets/currencies you invest in. Consider the plight of Japanese early retirees with their almost-flat stock market and rock-bottom interest rates for the past 25 years. That's a possibility not accounted for in the probability models based on historical U.S. returns (i.e. you don't get historical U.S. returns, you get something unknown, unless the claim is that past performance is related to future results.).

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #101 on: December 20, 2016, 09:36:27 PM »
In practice, I could see it this way: save up a 'stache so that 3% is your bare-bones life expenses, but a 4% withdrawal year would allow for much more travel, trips, donating to charities, etc. I need to do more research into this, but I'm really liking this idea.

That's basically my plan. I'll vary between 3% - 5% WR depending on market/portfolio performance as well as my needs.  I haven't worked out the exact mechanism for moving between the different WR % ranges. That's something I'm going to work on before I FIRE.


tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #102 on: December 21, 2016, 02:50:52 PM »
i've enjoyed reading this series on earlyretirementnow.
It has some good graphs showing the impact of WR on success rate of 30Y vs 60Y retirements.

BuffaloStache

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #103 on: December 22, 2016, 02:13:40 PM »
vary between 3% - 5% WR depending on market/portfolio performance as well as my needs....

Sounds like a great plan!
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Cassie

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #104 on: December 22, 2016, 05:39:04 PM »
Retire C: what if when they retired they could easily live on that amount but didn't account for inflation, etc?

waltworks

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #105 on: December 22, 2016, 06:13:58 PM »
Stocks are basically automatic inflation hedges (30 year mortgages at 3.5% are pretty rad, too).

4% SWR/Trinity Study stuff includes historical inflation in their calculations.

You can safely assume that the folks debating this here have accounted for inflation.

-W

Retire C: what if when they retired they could easily live on that amount but didn't account for inflation, etc?

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #106 on: December 22, 2016, 06:55:58 PM »
Retire C: what if when they retired they could easily live on that amount but didn't account for inflation, etc?

As Walt notes the portfolio's that were studied as part of the 4%WR research withstood the inflation effects very well. And the 4% WR is 4% of the initial portfolio adjusted for inflation each year. It's not a static 4% of the initial portfolio.

BuffaloStache

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #107 on: December 30, 2016, 06:58:47 AM »
And the 4% WR is 4% of the initial portfolio adjusted for inflation each year. It's not a static 4% of the initial portfolio.

This is an important part of the SWE theory that many people forget.
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ChpBstrd

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #108 on: December 30, 2016, 12:43:18 PM »
Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.

For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.

Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?

I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.

If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?

The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).

Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.

soupcxan

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #109 on: December 30, 2016, 01:43:52 PM »
Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.

For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.

Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?

I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.

If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?

The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).

Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.

Additionally, people around here act like 4% is guaranteed to be safe. You can backtest all you want, but there's no guarantee that what worked in the past will work in the future.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #110 on: December 30, 2016, 04:58:00 PM »
If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?

I bought the whole planet. If the entire global economy collapses "early retirement" won't be on my radar. However, I'm laying my bet that the whole global economy won't collapse.


Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #111 on: December 30, 2016, 05:07:23 PM »
Additionally, people around here act like 4% is guaranteed to be safe. You can backtest all you want, but there's no guarantee that what worked in the past will work in the future.

There are no guarantees in life at all. The 4% WR rule provides a target that's going to work under a wide variety of economic situations as evidenced by past performance. The solution to most of the problems I can foresee around FIRE is not [as comes up a lot on this forum] to work extra years in pursuit of a much lower WR. I think being flexible, staying physically and mentally healthy are far more beneficial than a bigger pile of money.

As I read the forums I don't see people saying the 4% cannot fail ever under any circumstances. What I see them saying is that the 4% WR rule is very conservative and it will succeed in most conceivable situations. Furthermore the failures that could occur are likely due to sequence of return risks, which happen early in FIRE and can be mitigated by a number of responses. So people point out [rightly so in my opinion] that working extra years to get a super low WR is not worth the opportunity cost in lost retirement years at the prime of your life.

Anyone of us could die tomorrow and from a FIRE perspective we would be failures if we saved for decades for little to no retirement.
« Last Edit: December 30, 2016, 05:16:08 PM by Retire-Canada »

ChpBstrd

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #112 on: December 30, 2016, 05:07:52 PM »
If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?

I bought the whole planet. If the entire global economy collapses "early retirement" won't be on my radar. However, I'm laying my bet that the whole global economy won't collapse.

I think that's the correct answer.

Do you feel that owning foreign companies / ETFs hedges the currency risk of your home country? The collapse of the pound is surely sweating the 'staches of people in Britain, and the US may have just followed them, policy-wise. Hopefully, the value of US funds have shot up in nominal GBP terms to provide some relief!

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #113 on: December 30, 2016, 05:25:09 PM »
Do you feel that owning foreign companies / ETFs hedges the currency risk of your home country?

My asset allocation is 50% US/30% CDN and 20% Int'l. So yes regardless of the CDN vs. USD exchange I'd be okay.

I should note that the biggest hedge is a low consumption lifestyle. If I was buying lots of consumer goods [very few of which are made in Canada] a low CDN dollar would punish me much more. As it is a low CDN dollar means my biggest/only liability [mortgage] just got devalued as well and my lifestyle is very flexible. I can happily stay home and camp/ride bikes for fun. I also enjoy Mexico a lot and typically a low CDN to USD exchange doesn't impact the CDN to Peso a lot.

respond2u

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #114 on: December 30, 2016, 09:24:00 PM »
Plug your information into www.cfiresim.com. It will use a backtest to try to guess the safety of your withdrawal rate.

Also, you might investigate some of the other withdrawal protocols. (cfiresim supports a few).

[Among other things, you can replicate the Trinity study that first came up with the 4% number, in your browser, in a few seconds.]

boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #115 on: December 31, 2016, 03:40:05 AM »
The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.

Haha 3.3%. When 3.5% has never failed on any horizon and 4% works forever 90+% of the time on all horizons.
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Metric Mouse

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #116 on: December 31, 2016, 03:45:03 AM »
Additionally, people around here act like 4% is guaranteed to be safe. You can backtest all you want, but there's no guarantee that what worked in the past will work in the future.

There are no certainties with withdrawal rates - but at some point one has to draw the line of 'enough' for themselves. 4% is at least as good as anything, and better in a lot of ways than many others. I personally skew considerably higher, and have no regrets for doing so.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #117 on: December 31, 2016, 03:42:39 PM »
Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.

For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.

Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?

I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.

If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?

The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).

Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.

I definitely have an allocation to international for this very reason.

Metric Mouse

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #118 on: January 01, 2017, 03:14:02 AM »
Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.

For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.

Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?

I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.

If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?

The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).

Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.

I definitely have an allocation to international for this very reason.

And the same reason I weight heavily towards US stocks.
Give me one fine day of plain sailing weather and I can mess up anything.

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BuffaloStache

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #119 on: January 03, 2017, 09:24:24 PM »
I should note that the biggest hedge is a low consumption lifestyle.

This. If there is nothing else people get from this blog, then this lesson should be it.
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boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #120 on: January 04, 2017, 06:14:58 AM »
I should note that the biggest hedge is a low consumption lifestyle.

This. If there is nothing else people get from this blog, then this lesson should be it.

living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.
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Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #121 on: January 04, 2017, 06:30:16 AM »
Conversely, it only take a very minimal amount of money (like a part time minimum wage job) to reduce WR significantly.

boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #122 on: January 04, 2017, 06:36:52 AM »
Conversely, it only take a very minimal amount of money (like a part time minimum wage job) to reduce WR significantly.

correct but even living on a larger budget (which inherently has more room for downside due to the larger pot to begin with) i'd rather be hustling to add my vacation back in than eat.
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Gunny

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #123 on: January 04, 2017, 06:43:24 AM »
I should note that the biggest hedge is a low consumption lifestyle.

This. If there is nothing else people get from this blog, then this lesson should be it.

living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.

+1.  Two pillars of early retirement, a stash and a frugal lifestyle.  The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live.  That amount happens to be $2100 with a mortgage.  That's for a family of three.   I could shave more off of this by selling the house and moving into a small rental.  Perhaps down to $1700 per month.  If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time.  I could work part time to earn $700 per month and make up the other $1000 from the stash.  At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for.  Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement.   This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in.  But I like to plan for as many potentialities as possible.

boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #124 on: January 04, 2017, 06:50:36 AM »
I should note that the biggest hedge is a low consumption lifestyle.

This. If there is nothing else people get from this blog, then this lesson should be it.

living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.

+1.  Two pillars of early retirement, a stash and a frugal lifestyle.  The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live.  That amount happens to be $2100 with a mortgage.  That's for a family of three.   I could shave more off of this by selling the house and moving into a small rental.  Perhaps down to $1700 per month.  If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time.  I could work part time to earn $700 per month and make up the other $1000 from the stash.  At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for.  Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement.   This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in.  But I like to plan for as many potentialities as possible.

anything below 3.5% SWR is a waste of work b/c that has lasted forever throughout all of the history of the stock market on cfiresim
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Gunny

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #125 on: January 04, 2017, 06:54:49 AM »
I should note that the biggest hedge is a low consumption lifestyle.

This. If there is nothing else people get from this blog, then this lesson should be it.

living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.

+1.  Two pillars of early retirement, a stash and a frugal lifestyle.  The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live.  That amount happens to be $2100 with a mortgage.  That's for a family of three.   I could shave more off of this by selling the house and moving into a small rental.  Perhaps down to $1700 per month.  If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time.  I could work part time to earn $700 per month and make up the other $1000 from the stash.  At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for.  Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement.   This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in.  But I like to plan for as many potentialities as possible.

anything below 3.5% SWR is a waste of work b/c that has lasted forever throughout all of the history of the stock market on cfiresim

Agreed.  I was just making the point that very early retirees can be just as successful as us "older" early retirees. 

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #126 on: January 04, 2017, 08:15:23 AM »
living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.

I've got 25% for luxury items like travel, a surf board, fly rod, etc... So in a pinch I can stay local and not buy anything new for my hobbies or I could get an easy PT job to pay for those items.

The 75% that's left is not even bare bones as I have a vehicle and I can eat fancy food and do fancy stuff locally. I would say 50% of my FIRE budget is truly bare bones, but still fine and living in a house. Just nothing fancy at all. I could go even lower cost by moving into a van, but I don't think my GF would go for that and my cat keeps giving me the stink eye when I suggest it. ;)

Thing is even with full fancy pants stuff I'd spend 50% or less than my peers. At bare bones I'd be at 25% of my peers.

I would be FIRE right now living in a van eating beans and rice. However, I want some modest luxuries in my long retirement.

BuffaloStache

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #127 on: January 04, 2017, 02:38:53 PM »
Thing is even with full fancy pants stuff I'd spend 50% or less than my peers. At bare bones I'd be at 25% of my peers.

I would be FIRE right now living in a van eating beans and rice. However, I want some modest luxuries in my long retirement.

Agreed. I find it hard to even conceive spending my full salary, and yet so many of my peers (even some without children) seem to spend it all and then some every year...
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boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #128 on: January 04, 2017, 05:18:20 PM »
Yep I'm on the same page Canada. Almost exactly. I could be done traveling in an RV right now very happy. My spouse doesn't agree with that life so we'll work 7 more years or so
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human

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #129 on: January 04, 2017, 05:48:08 PM »
I'm not sure if this link has been posted but I found this article linked in a bogleheads thread. I think it's a great read even if you want to scoff at how conservative it is. There are four parts, part one is below.

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

EDIT: I see above that tonysemail has linked the article, surprised no one else has mentioned it.


I know a lot of people will think bogleheads is way to conservative but it's one thing to live off of 25k a year while making 100k a year and another completely different thing to suddenly go to a 4% withdrawal rate on a bare minimum stash and pull 25k a year from it.

Retire Canada, hit the nail on the head. Fear is definitely an issue, I know I'd feel a lot better withdrawing 25k a year with a portfolio of 750k than 625k a year. Now if you want to retire on 40-50k a year (with a million bucks) you have a lot of fat to work with as years go by, withdrawing 20k on 500k you won't have as much fat to cut.

Another issue is actually returning to work after retirement, I know I would never want to go back to making coffees or serving sandwiches. I don't care if it's only 8 hours a week. When I retire that's it! Work part time before retiring would be fine, but retire and then 10 years later start working as a barista, not my bag.

When I hit 50, I'll be eligible for a public servant's "annual allowance" and I'll have about 750k stashed away (my FI) number. I could retire sooner and live off of 400k for 15 years until I hit 60 and collect a small pension but that is just to tight for me. I started late in this game and for now I'm ok retiring in 12 years at 50, I may see how things are at 45 but not sure I would retire just then.
« Last Edit: January 04, 2017, 05:59:44 PM by human »

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #130 on: January 04, 2017, 09:03:52 PM »
I know a lot of people will think bogleheads is way to conservative but it's one thing to live off of 25k a year while making 100k a year and another completely different thing to suddenly go to a 4% withdrawal rate on a bare minimum stash and pull 25k a year from it.

I agree with this edited version of the statement.

Retire Canada, hit the nail on the head. Fear is definitely an issue, I know I'd feel a lot better withdrawing 25k a year with a portfolio of 750k than 625k a year. Now if you want to retire on 40-50k a year (with a million bucks) you have a lot of fat to work with as years go by, withdrawing 20k on 500k you won't have as much fat to cut.

This is entirely dependant.  Unfortunately, I feel these threads are becoming more about this idea of "I can only trim the fat so far".  This implies simply cutting out extras or a coupon cutter mentality, to me mustachianism is more.  It's changing  mindset to realize that money really isn't that important to fulfillment. It's not just about finding a "sale" on the same lifestyle you've always lived, it's about experimenting with different ones... perhaps better ones where side income mixes with fun, or sharing living spaces with interesting like-minded individuals creates a better sense of belonging.  Opening one's mind to various possibilities makes the idea of living off of a lower income or making a few bucks in a new way fun and interesting.  Where you see depriving yourself of some necessity at a certain arbitrary withdrawal level, I see fun and interesting challenges.

Another issue is actually returning to work after retirement, I know I would never want to go back to making coffees or serving sandwiches. I don't care if it's only 8 hours a week. When I retire that's it! Work part time before retiring would be fine, but retire and then 10 years later start working as a barista, not my bag.

Again, entirely dependent, but you did succeed in implying you're better than baristas.  I'm sure you're a VIP, but the most enjoyable jobs I've ever had have been in the service industry.

When I hit 50, I'll be eligible for a public servant's "annual allowance" and I'll have about 750k stashed away (my FI) number. I could retire sooner and live off of 400k for 15 years until I hit 60 and collect a small pension but that is just to tight for me. I started late in this game and for now I'm ok retiring in 12 years at 50, I may see how things are at 45 but not sure I would retire just then.

You are guaranteed to work at your current job longer than someone who was more flexible and open minded.  It's your choice.

It seems you see only steak and hamburger.  You have decided steak is required for good life, hamburger is unacceptable for whatever reason.  You've realized that at a certain budget,  no matter how many coupons, sales, and cash back bonuses you apply to the grocery bill, steak is no longer realistic and hamburger is your only choice.  That is your cut point.  Some realize that there is 99% of the grocery store you haven't even considered and still others realize that the grocery store isn't the only place to get food.

Back to the point, a 4%WR is only as safe as you let it be.  If someone fears 4%, they will still fear 3.5 or 3.

human

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #131 on: January 04, 2017, 09:19:42 PM »
You got me all wrong Classical Liberal, when I say I don't want to go back to serving coffee, I literally mean "back" as in I've done it before. I worked at McD's doing early morning shifts and and overnight shifts and then as a waiter for about 8 years. Not doing that again, that's why I work at the job I currently work at. EDIT to add, never said I was to good for it, just that I wouldn't enjoy it and FIRE for me is about enjoying myself.

My comment that 20k a year is not sufficient has nothing to do with my current spending (which is about that right now if you exclude charity, and admittedly could go lower if I wanted to leave my girlfriend and move further from work) it has to do with long term care. My grandmother spent a long time in a LTC facility and it cost 60k a year. While palliative care covered by universal healthcare in Canada is great, assisted living is not.

Like I said, I'll reassess at 45 to see if 20-30k for possibly 40-45 years (long life in my family, but all end up in nursing homes) is something I'm willing to live with.
« Last Edit: January 04, 2017, 09:22:37 PM by human »

ChpBstrd

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #132 on: January 05, 2017, 07:17:54 PM »
Another issue is actually returning to work after retirement, I know I would never want to go back to making coffees or serving sandwiches. I don't care if it's only 8 hours a week. When I retire that's it! Work part time before retiring would be fine, but retire and then 10 years later start working as a barista, not my bag.
Similar sentiment.

I don't like the idea of taking a block of ER and then going back to work because my skillset would rust, my references would wither, and it would be hard to sell "I spent the last 8 years living off of savings", which sounds like a BS excuse for not having a work history and probably cover for a substance abuse problem or drug dealing. Plus, one's stache needs to be a secret from one's employer - they don't prefer employees with FU money and an agenda that involves quitting.

Career earnings for knowledge workers tend to rise over time until a peak is hit. If I quit now, I might go back to work at half my salary after a few years of ER. Plus the money I would have earned earlier would not have had a chance to compound. So the tradeoff is like 1y labor now vs. 2y later. Why not just finish the marathon and be done for a lifetime?

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #133 on: January 05, 2017, 09:12:36 PM »
I've got no issues or concerns with having to do some work later. Firstly it's a small chance and would only require some easy PT work to have a big impact on my FIRE budget. Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill. Thirdly I actually think it would be a real challenge to spend 40 or 50yrs retired and not earn another dollar aside from my investments.

I'd far more concerned about working extra years FT now in the hopes of staving off some very small chance of working PT later. That seems like a bad risk mitigation strategy to me.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #134 on: January 05, 2017, 11:51:40 PM »
I've got no issues or concerns with having to do some work later. Firstly it's a small chance and would only require some easy PT work to have a big impact on my FIRE budget. Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill. Thirdly I actually think it would be a real challenge to spend 40 or 50yrs retired and not earn another dollar aside from my investments.

I'd far more concerned about working extra years FT now in the hopes of staving off some very small chance of working PT later. That seems like a bad risk mitigation strategy to me.

I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.

Itchyfeet

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #135 on: January 06, 2017, 01:30:22 AM »
Those saying <3.5% is a waste of time because never in history has it failed, might be wrong. Just because it hasn't happened in the past 100 years, doesn't mean it couldn't happen. I think one has to a little careful with their justifications for what they believe to be a waste of time.Each person has to work out their appetite for risk.

That said, I am perfectly comfortable rolling the dice once I have 25x saved.

Like others have said:
Step 1: you need to decide when enough is enough. No guarantees, but enough that you are ok with the risk. For me, this is 25x. If I have an average retirement based on history I will die rich. If it's less than average I might die broke, but I am willing to take some risk for some freedom.

Step 2: you need to consider what you will do if there is a crash, long recession, hyper inflation etc to minimise the damage to your stache durIng that period. For me there are 3 things.
A. Diversify and rebalance - I won't have 100% in stocks.
B. My budget includes lots of costs that could be deferred for several years: car replacement funds, home renovation funds (figuring over 40 years I will have to freshen up the kitchen, bathroom etc at least once or twice), home appliances funds, travel, clothes even. In fact I think we could manage on around 50% of our budget for 3-5 years or so. At some point we will want to spend as planned, but we could wait a while
C. Post Fire income.... whatever source. My DW can easily get short contracts as an experienced school teacher. It would be harder for me, but I am sure I could find something if it was necessary. I might work a bit even if it's not necessary. Who knows....

I am comfortable I can turn my 4% in to significantly < 2% for a few years if required. Hopefully, and most probably, the crisis will pass after a few years and then we will go back to Plan A.

I am not really wedded to looking to the past as a guide to the future. I do however sense that 25x is a big enough pile of money to play with and to take some risk based on everything I have read and experienced in my working life. I don't really know how much risk I am taking, but I don't think it is much. I definitely can't imagine all my savings disappearing too quickly. Its not like I am not putting my entire stache on black in a game of roulette. The risks are manageable.


boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #136 on: January 06, 2017, 03:53:08 AM »
That statement in contradictory. I'm not a fan of looking at the past but based on everything I've read and experienced I'm good with 25x. That is entirely based on the past.  All data supporting it is
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #137 on: January 06, 2017, 05:58:20 AM »
Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill.

I believe this was fun for you. Please understand that others may not feel the same way about it. Having also worked part time in retail, the misery of the experience was what drove me to buckle down and finish up college.

Because different people will place different relative value on an extra year of FIRE, an extra year working at their current job, and an extra year working at whatever sort of employment they can get with a ten year gap on their resume, possibly during a significant recession, different people will have different optimal solutions in the exact same set of circumstances. This isn't one of those situations where there is one universal correct answer that applies to everyone.
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boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #138 on: January 06, 2017, 07:11:27 AM »
Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill.

I believe this was fun for you. Please understand that others may not feel the same way about it. Having also worked part time in retail, the misery of the experience was what drove me to buckle down and finish up college.

Because different people will place different relative value on an extra year of FIRE, an extra year working at their current job, and an extra year working at whatever sort of employment they can get with a ten year gap on their resume, possibly during a significant recession, different people will have different optimal solutions in the exact same set of circumstances. This isn't one of those situations where there is one universal correct answer that applies to everyone.

the difference between 4% SWR and 3% SWR is not one year for 99.99% of people.  you're talking about accumulating 33% more money than you currently have.  a person spending 40k per year and saving say 50% so saving 40k

takes 3 extra years to get to a 3% SWR.  thats not an extra year its 3x that.
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AdrianC

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #139 on: January 06, 2017, 08:18:07 AM »
I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.

That minimum wage job wasn't going to support his new drug habit, though. :-)

I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.

boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #140 on: January 06, 2017, 08:30:33 AM »
I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.

That minimum wage job wasn't going to support his new drug habit, though. :-)

I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.

7k for 20 hours a week for a year.  i mean we arent talking much extra.  but if you have money that 7k can be made much more easily other ways. 

1. scalping tickets
2. buying crap and reselling it
3. selling tradelines on your credit cards.
4. mowing lawns. - 25-30 bucks an hour around here.
5. odd jobs for people

when you have unlimited free time of retirement there are alot of ways to use your time and your brain to make you extra money if needed.

i plan to keep churning these tradelines til that falls apart.  hopefully it doesnt ever.  if that happens i'll be earning 40-50k a year in FIRE after i've accumulated what i need just to live off of ... so that can basically sit and grow.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #141 on: January 06, 2017, 08:34:08 AM »
I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.

I have several ideas for PT work if the unlikely confluence of events transpire that I need to work a bit during FIRE. Some are fast and easy like working outdoor retail. Some require a bit more effort/time like a PT project management gig, but have better pay/working conditions.

The key things to remember are:

1. the 4% WR has a huge chance at success
2. if you can be a bit flexible with spending you can increase your odds to 100% based on the data we have with no loss in overall spending in most cases and no requirement to ever work
3. if you do have a FIRE problem it will be early in your retirement where you will be younger and find work easier
4. should you need to add some income to your FIRE it's not going to be required instantaneously so you can figure it out and come up with a plan
5. if you are following a typical frugalish MMM lifestyle you don't need to score an amazing job at the top of your field to make a huge difference to your stash
6. an extra $10K-$20K/yr for a short period is a massive boost to your portfolio yet a pretty small amount to earn for someone that FIRE'd early
7. since you are not trying to become the next CEO of Apple you are competing against some pretty mediocre folks for work
8. if you are smart capable person it will be a challenge to spend 40yrs+ in FIRE and not earn any money from a side gig

The problem with the future is we don't have all the details our future-selves will have so it's easy to fill the gaps in our knowledge with fear and anxiety. It's also possible to look rationally at the possibilities and be optimistic about your ability to deal with what comes your way.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #142 on: January 06, 2017, 08:36:59 AM »
I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.

So how much to do you figure you have to earn per year to make a difference between success and failure? Are you starting from a 4%WR if not what are you starting from? And what is your safety margin then?

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #143 on: January 06, 2017, 08:48:29 AM »
Because different people will place different relative value on an extra year of FIRE, an extra year working at their current job, and an extra year working at whatever sort of employment they can get with a ten year gap on their resume, possibly during a significant recession, different people will have different optimal solutions in the exact same set of circumstances. This isn't one of those situations where there is one universal correct answer that applies to everyone.

I agree there is not one answer for everyone, but the reason I bother to make these comments is because as I read the explanations why people feel working extra years at the prime of their lives they don't sound rationale based on the facts. Since this is a forum to discuss FI and ER it's worth digging into that to understand what the opportunity costs are for the risks being addressed as well as to look at the many non-dollar based risks that we gloss over.

In the end everyone has to decide for themselves what they want to do. In some cases say the frequent early pay off of a mortgage discussion people conclude that despite the math and the risk analysis it makes them feel better to pay down their mortgage early understanding that that will likely mean a smaller portfolio and higher risks of foreclosure until that last payment clears. If all the relevant factors are discussed and you say hey working an extra 3yrs to mitigate this tiny risk of portfolio failure makes sense to me despite the risks [health effects of extra years of FT work] and the other ways to mitigate the risk [like easy PT work or being flexible on WRs say 3.5% - to 4.5%] than awesome go for it.

My take on it is that most professionals have been trained from a young age to work, want to work, enjoy the benefits of work and so even in the FIRE community we look for any excuse to keep doing that. We are programmed to work and fearful of change. That makes OMY so attractive as it feeds both beasts.

boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #144 on: January 06, 2017, 08:59:17 AM »
i think your take is much more true of the non millenial generations thats came before us Canada.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #145 on: January 06, 2017, 09:41:01 AM »
I should note that the biggest hedge is a low consumption lifestyle.

This. If there is nothing else people get from this blog, then this lesson should be it.

living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.

+1.  Two pillars of early retirement, a stash and a frugal lifestyle.  The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live.  That amount happens to be $2100 with a mortgage.  That's for a family of three.   I could shave more off of this by selling the house and moving into a small rental.  Perhaps down to $1700 per month.  If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time.  I could work part time to earn $700 per month and make up the other $1000 from the stash.  At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for.  Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement.   This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in.  But I like to plan for as many potentialities as possible.

Consider also that since your mortgage is inflation impervious (well most of it anyway) and the 4% WR is inflation adjusted. If your budget includes a mortgage of about $15k/yr ($13k after removing taxes which do inflate) and your spending is $40k/yr that means approximately 1/3 of your budget doesn't need an inflation adjustment. So if your spending lines up with inflation after your first ten years of ER (assuming 2% inflation):

Real 4% WR after first 10 years: ~$48,800
Mortgage after ten years: ~$15,500
Other inflation adjusted spending: ~$30,500

Actual spending: $46,000
After ten years WR: 3.77%

The benefit of your mortgage increases both with time, its percentage of your budget, and higher inflation periods. If my budget included a 30 or 15 year mortgage, at 4% I'd be approaching 3.5% WR after 20 years.

You'll have a similar benefit just owning your home too. (You won't be subject to regular rent increases). My guess is that overall, us MMM folk won't experience inflation that the government reports. Recently most high inflation has been in health, education, and services. Low or even negative inflation has been in energy, food, and housing. I've been pedaling around the idea of creating a MMM inflation index (how are US Mustachians affected by inflation compared to government's reported overall inflation) to prove out this theory, but I've been short on time. I may be able to get around to it when I hope to quit my job this summer.
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robartsd

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #146 on: January 06, 2017, 09:53:56 AM »
the difference between 4% SWR and 3% SWR is not one year for 99.99% of people.  you're talking about accumulating 33% more money than you currently have.  a person spending 40k per year and saving say 50% so saving 40k

takes 3 extra years to get to a 3% SWR.  thats not an extra year its 3x that.
That's a good point. Since historically sequence of returns is the most likely way for a portfolio to fail, it might be reasonable to mitigate it with a delay of retirement measured in time rather than money - perhaps deciding to literally work "one more year" by not retiring until your portfolio has remained over 25x your expenses for an entire year. If you accumulate with a 50% savings rate and that year happens to have 7% real returns, then you'd retire with a 3.6% withdraw rate.

Backtesting this idea with the most recent crash (all assume a 50% savings rate in accumulation and 100% stock portfolio):
  • Using a 4% SWR after accumulating 25x expenses at the end of 2007, making no adjustments for the 2008-9 crash, portfolio should have recovered to be about 25x expenses again now
  • Waiting a year after accumulating 25x expenses at the end of 2006, making no adjustments for the 2008-9 crash, portfolio should have recovered to be about 28x expenses now.
  • Waiting a year after accumulating 25x expenses at the end of 2007, delaying retirement due to 2008-9 crash, portfolio should have recovered to 25x expenses in 2010. Retiring at the end of 2010, current portfolio should be over 38x expenses.
  • Accumulating 25x expenses at the end of 2007, but targeting 3.5% SWR - would retire in 2012
  • Accumulating 25x expenses at the end of 2007, but targeting 3.0% SWR - would retire in 2013
So even the retiree who happened to retire 9 months before the 2008 crash with only 25x expenses looks to be doing OK. One more year retirees are doing great. Lower SWR retirees worked 5-6 extra years. Personally I still prefer the idea of being flexible with spending and/or seeking supplemental income during down years to be much more appealing than delaying retirement beyond the 4% SWR rule; however, it'd be nice to look deeper into the idea of setting a target portfolio:expense ratio and a target time period for that ratio to be maintained as a trigger for retirement.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #147 on: January 06, 2017, 10:16:22 AM »
Consider also that since your mortgage is inflation impervious (well most of it anyway) and the 4% WR is inflation adjusted. If your budget includes a mortgage of about $15k/yr ($13k after removing taxes which do inflate) and your spending is $40k/yr that means approximately 1/3 of your budget doesn't need an inflation adjustment. So if your spending lines up with inflation after your first ten years of ER (assuming 2% inflation):

Yeah, I agree.  4% WR is somewhat academic for me.  In reality, I divide my expenses between perpetual ones and expiring ones.
Eventually, my mortgage is paid and my kids are launched and then my WR drops in half.
This can all be modeled as Other Spending in cfiresim.
Similarly, you can model expenses that are likely to increase faster than CPI.
This post caused me to update my estimate for healthcare expenses.
At the end of the day, it didn't matter much because my expiring expenses more than make up for the expected healthcare inflation.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #148 on: January 06, 2017, 10:38:47 AM »
i think your take is much more true of the non millenial generations thats came before us Canada.

That would make sense since I'm part of those non-millennial generations. ;)

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #149 on: January 06, 2017, 10:50:49 AM »
for mortgages i pull it out of my retirement calc b/c its finite.  and decreases with inflation.  so if i need 40k a year to live on i need 1MM plus my remaining mortgage balance.  which in the early years causes greater risk of sequence of return issues due to it being a higher than 4% WR on the stash as a whole.  but i'm a long 7 years away from FIRE and can cross the OMY bridge when i get there.  since at that time each extra year will be worth 300k+ in money towards the stash. 
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