Author Topic: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?  (Read 33053 times)

Metric Mouse

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #250 on: February 07, 2017, 08:18:22 PM »
Eh. You figure out allowances for yourself as long as you have a level head about how much teeth-grinding you do over obnoxious work. I determined my max at my current job was the 4 more years it would take to get my flurry of benefits locked in (which puts me FI if not RE after the stint at this job). I'll consider that a win, but woo, will I never miss the industry.

I don't recommend anyone keep a job that grinds them down and makes them go home tired if they can avoid it. Least of all if you have family. The only reason I would do it is to facilitate not having to do it anymore. Some can say "oh there are others" and just quit and try something else, but there's a comi-tragedy in the reporting bias on just how well that actually goes. That is, again, especially if you have family.

This is where the power of FU money comes in. Living below one's means is much more important than making the most money possible at a job one hates.
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Hargrove

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #251 on: February 07, 2017, 08:40:15 PM »
I agree, except if that money is used for a clear purpose which can be constantly envisioned. You can't save your way out of a low income in a short span. Corporate types who made over 100k and gave it up for family could easily have made the opposite decision - to double down for just a year, two years. Mid-twenty-somethings could handle their retirement at 65 in one or two years at a high-paying job, get a condo down payment instead of a Vogue wedding and a Tiffany's ring, and their stress would be much more worthwhile, their savings goals far less threatening, work outlook much more flexible, etc etc.

Realistically, leaving a job to find another is a gamble at better fulfillment in work. There's an unpleasant trade sometimes. Better fulfillment through work, or through wrapping work up and leaving it behind? Sometimes you get both! The freedom to live and pursue meaningful work at the same time is what I look forward to, and how I manage to relax about the silly nonsense that makes up what many of us do until we get there. If you hopped that job/school track once or twice and met some interesting people but set yourself back another year, two years? That's when I said enough, I'm sticking with this until it's done - better a whole farm for the starving artist.
« Last Edit: February 07, 2017, 09:59:30 PM by Hargrove »

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #252 on: February 07, 2017, 11:02:36 PM »
Also if you get OMY syndrome, and your savings rate is at 80%, that means you can save four years of expenses in one. Workin two years would mean you could live 8 more with just the cash reserves. That should make most anyone comfortable enough to say 4% rule is good after that.
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Metric Mouse

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #253 on: February 07, 2017, 11:08:44 PM »
I agree, except if that money is used for a clear purpose which can be constantly envisioned. You can't save your way out of a low income in a short span. Corporate types who made over 100k and gave it up for family could easily have made the opposite decision - to double down for just a year, two years. Mid-twenty-somethings could handle their retirement at 65 in one or two years at a high-paying job, get a condo down payment instead of a Vogue wedding and a Tiffany's ring, and their stress would be much more worthwhile, their savings goals far less threatening, work outlook much more flexible, etc etc.

Realistically, leaving a job to find another is a gamble at better fulfillment in work. There's an unpleasant trade sometimes. Better fulfillment through work, or through wrapping work up and leaving it behind? Sometimes you get both! The freedom to live and pursue meaningful work at the same time is what I look forward to, and how I manage to relax about the silly nonsense that makes up what many of us do until we get there. If you hopped that job/school track once or twice and met some interesting people but set yourself back another year, two years? That's when I said enough, I'm sticking with this until it's done - better a whole farm for the starving artist.
You offer good points. There are pros and cons to each side of the 'stick it out/jump ship' debate. I would simply argue that no amount of saving or money that would be worth it to me to be in a job that made me unhappy.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #254 on: February 09, 2017, 12:45:06 PM »
Also if you get OMY syndrome, and your savings rate is at 80%, that means you can save four years of expenses in one. Workin two years would mean you could live 8 more with just the cash reserves. That should make most anyone comfortable enough to say 4% rule is good after that.
One extra year at 80% SR would put you at 29x expenses (3.44% WR) two years would put you at 33x expenses (3.03% WR). If you like the work go for it, but if not, get out. If you're in a job that makes you unhappy, perhaps one less year (with a plan for generating more income in a side-hustle or part-time job) would be more appropriate. Even at 80% savings rate you'd have 21x expenses (4.76% WR) which is likely enough in cases where you don't run into a bad sequence of returns.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #255 on: February 11, 2017, 09:09:33 PM »
Does anyone really think runaway inflation is a real risk in this country, though?  I mean, maybe if the political risk is high enough (ahem), but controlling inflation seems like the one thing we have really, really figured out. I can imagine lots of economics/financial threats over the next fifty years or so, but high inflation is very low on my list.

I believe that inflation is a real risk in the next 30 years. Not "demand-side" inflation caused by a good economy not being able to produce enough goods and thus causing higher prices, but instead "supply-side" inflation caused by shocking curtailment. Think border adjustment tax, oil embargo, war, famine, plague, etc.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #256 on: February 12, 2017, 07:49:25 AM »
Also if you get OMY syndrome, and your savings rate is at 80%, that means you can save four years of expenses in one. Workin two years would mean you could live 8 more with just the cash reserves. That should make most anyone comfortable enough to say 4% rule is good after that.

I typically would poo poo the OMY thing, but at 80% savings rate the total run from start to FIRE is ~5.5yrs according to MMM's math. So sure if you start at 25yrs and hit 25x COL at 30.5yrs and want to work another year to get to 3%WR I wouldn't argue with you because the impacts are much less.

OTOH if it was somebody with a 40% savings rate I think it would be a bad deal.

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #257 on: February 12, 2017, 09:01:24 AM »
I still argue that OMY is totally unneeded for a young retiree.  Yes a lower WR is probably needed for a 60 year retirement vs a traditional 20-30 in bad  economic scenarios (we may be in one now), BUT someone motivated enough to retire in their 20ís is going to earn compensation again.  Itís just going to happen and your WR doesnít take that into consideration at all. Maybe Iím the token old guy with wisdom(ha) here?

Even someone who goes completely without income for a dozen years to raise kids will eventually realize the kids are getting older and donít want/need as much time from you.  You will want to do something productive with your time.  Most volunteer type gigs are very low level.  You will get bored stuffing envelopes for your political candidate or stocking shelves at the local food shelf.  You are going to want to make a difference in the world, your community, or within yourself.   People just donít value your time, knowledge, and production unless it costs them something.  Being FI or having FU$ gives you the ability to choose which of these types of opportunities to take on your terms. One thing is certain, some of them will provide you with some form of compensation. 

Yes there is age discrimination, but someone so young will not run into this issue for decades.  Yes, the economy could crash, western civilization brought to its knees, etc which would change the game.  However, in those scenarios any WR would not have safe, padding your stash wouldnít have helped, you would have been better off taking time to learn other skills anyway.
 
Now, someone who is 27-29 and has 25X, but still enjoys being a salaryman/woman...I say more power to you, save the extra capital.  If the same person is sick of their job and putting other plans on holdÖ Please do not stick around ONLY to pad your WR.  Take advantage of your youth, do what you want to do, the financial situation is already covered, congrats!

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #258 on: February 12, 2017, 09:14:00 AM »
I still argue that OMY is totally unneeded for a young retiree.  Yes a lower WR is probably needed for a 60 year retirement vs a traditional 20-30 in bad  economic scenarios (we may be in one now), BUT someone motivated enough to retire in their 20ís is going to earn compensation again.  Itís just going to happen and your WR doesnít take that into consideration at all. Maybe Iím the token old guy with wisdom(ha) here?

I don't disagree with you. My point is that when evaluating the pros and cons of a plan if you are crushing a 80% savings rate and have worked a handful of years to get to 4%WR the impact of working OMY is low. If you go from 5.5yrs of work to 6.5yrs of work and you feel confident enough to retire early because of that extra year I don't think the cost is terrible.

Personally I'm not even going to get as low as a 4%WR and given how long my parents have lived I'm likely in for a 50yr retirement and with the changes in medical technology possibly longer. I'm not particularly worried as never earning another dollar would be a challenge.

The reason I bothered to comment is that the lack of perspective on the opportunity costs of OMY can go both ways. So it's worthwhile actually looking at what the specifics are and evaluating them on a case by case basis. If we get too dogmatic about never OMYing we risk turning off the critical part of the analysis and having people that shouldn't OMY not realize it because they pick the opposite dogma.

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #259 on: February 12, 2017, 09:26:38 AM »
The reason I bothered to comment is that the lack of perspective on the opportunity costs of OMY can go both ways. So it's worthwhile actually looking at what the specifics are and evaluating them on a case by case basis. If we get too dogmatic about never OMYing we risk turning off the critical part of the analysis and having people that shouldn't OMY not realize it because they pick the opposite dogma.

Agreed, situation specific is the key and adhering to dogma for it's own sake is bad.  I still maintain that a person in their 20's with 25X expenses of their preferred lifestyle would be foolish to trade another year of youth for any amount of money IF life goals or enjoyment are being diminished or delayed due to the income generating activities.  The only exception is if the additional capital is to be utilized for purposes not related to personal FI.

Edit: Otherwise the person will never have "enough" and this likely a more difficult/complex issue to tackle than reaching FI.
« Last Edit: February 12, 2017, 09:29:53 AM by Classical_Liberal »

The Happy Philosopher

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #260 on: February 12, 2017, 09:27:20 AM »
I still argue that OMY is totally unneeded for a young retiree.  Yes a lower WR is probably needed for a 60 year retirement vs a traditional 20-30 in bad  economic scenarios (we may be in one now), BUT someone motivated enough to retire in their 20ís is going to earn compensation again.  Itís just going to happen and your WR doesnít take that into consideration at all. Maybe Iím the token old guy with wisdom(ha) here?

I don't disagree with you. My point is that when evaluating the pros and cons of a plan if you are crushing a 80% savings rate and have worked a handful of years to get to 4%WR the impact of working OMY is low. If you go from 5.5yrs of work to 6.5yrs of work and you feel confident enough to retire early because of that extra year I don't think the cost is terrible.

Personally I'm not even going to get as low as a 4%WR and given how long my parents have lived I'm likely in for a 50yr retirement and with the changes in medical technology possibly longer. I'm not particularly worried as never earning another dollar would be a challenge.

The reason I bothered to comment is that the lack of perspective on the opportunity costs of OMY can go both ways. So it's worthwhile actually looking at what the specifics are and evaluating them on a case by case basis. If we get too dogmatic about never OMYing we risk turning off the critical part of the analysis and having people that shouldn't OMY not realize it because they pick the opposite dogma.

My biggest concern is clustering of negatives. In a normal distribution of negative and positive events there is little concern because they tend to cancel each other out, but often life doesn't work this way.

When the 4% rule fails it probably wont be due to math as others have pointed out. It will be due to behavior, sometimes voluntary, but sometimes forced. In a scenario I have seen MANY times as a physician: someone gets sick with a chronic and expensive health care issue while simultaneously not having the ability to go back to work. People in their 20s and 30s don't think of this possibility because hardly anyone is really sick at this age. This is similar to how happily married people never think divorce can happen to them.

It just doesn't seem rational to me to stop earning income as soon as one gets to 4% unless they really hate their job. At very high savings rates it is just not that much more time to get to 3.5 or even 3%. For many people just continuing to work, even part time for a few years is so much more efficient than trying to engineer a side hustle.
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Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #261 on: February 12, 2017, 09:39:04 AM »
It just doesn't seem rational to me to stop earning income as soon as one gets to 4% unless they really hate their job. At very high savings rates it is just not that much more time to get to 3.5 or even 3%. For many people just continuing to work, even part time for a few years is so much more efficient than trying to engineer a side hustle.

Well using your example if someone in their 30's FIREs they are unlikely to have those health issues until later in life. By that point their stash is very likely to be multiple times what they started with and they will effectively be at a very low WR right at the time the risks of serious health issues crop up.

So I don't see the logic in working extra.

If that same early retirement person was emotionally unready to pull the plug at 4%WR that's where I'd agree another year of work wouldn't be tragic in their early 30's if it allows them to FIRE with piece of mind. But that's an emotional decision not a logical one.
« Last Edit: February 12, 2017, 09:40:51 AM by Retire-Canada »

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #262 on: February 12, 2017, 09:41:09 AM »
When the 4% rule fails it probably wont be due to math as others have pointed out. It will be due to behavior, sometimes voluntary, but sometimes forced. In a scenario I have seen MANY times as a physician: someone gets sick with a chronic and expensive health care issue while simultaneously not having the ability to go back to work. People in their 20s and 30s don't think of this possibility because hardly anyone is really sick at this age. This is similar to how happily married people never think divorce can happen to them.

I work in healthcare and see people get sick with chronic illness as well.  You are correct in that a 20-something does not foresee this happening, health seems a given at that age.  However, I would argue the opposite point.  If one is concerned about this, one should be MORE inclined to retire early to get as many healthy years of FI as possible.  Secondarily, activities that lend themselves to most of the common chronic ailments are lifestyle related, meaning the types of things people tend to do sitting around as a salaryman/woman for too many years. So, waiting to FIRE actually increases the odds you end up this way.  Lastly, chronic illness sucks, in many cases very badly!  What we (meaning healthy people) fail to realize is once one becomes chronically ill, activities are often curtailed to such a degree that having to spend an extra 10K in insurance deductibles per year is offset by said lack of other activities. 

Just a thought...Ask a chronically ill person if they would rather have one more year of healthy time to do as they wish, or more spending money when they are sick. 

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #263 on: February 12, 2017, 09:44:17 AM »
Just a thought...Ask a chronically ill person if they would rather have one more year of healthy time to do as they wish, or more spending money when they are sick.

Good point. And for those with more modest savings rates where the question is not an extra year at 30, but several extra years in their 40's it's an even more important consideration.

The Happy Philosopher

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #264 on: February 12, 2017, 10:41:20 AM »
Just a thought...Ask a chronically ill person if they would rather have one more year of healthy time to do as they wish, or more spending money when they are sick.

Good point. And for those with more modest savings rates where the question is not an extra year at 30, but several extra years in their 40's it's an even more important consideration.

This is a common misconception, that somehow our time is more important to us when we are younger and healthier.  It certainly seems this way and we all believe it, yet it probably isn't true. In many studies it is actually shown that life satisfaction goes up as we age, even as we lose some of our physical abilities and health. Everyone will SAY they want more time when they are young and healthy, right up until they are sick and wish they had more money. The ability to increase spending by 20% when we are sick can be a game changer in terms of happiness. Maybe if you are Seneca or MMM the 20% wouldn't matter ;)

My argument is that it is not a simple decision. Many defenders of the 4% rule seem to mock people that take a different view and tell them their logic is flawed in some way. They are being foolish and trading away their freedom for no benefit. But there is a benefit, you just may not value it as highly an I do.

The 4% rule is a great place to start. It is a useful tool but there are behavioral ways it can fail, especially over long periods of time.

I completely agree that at lower incomes and savings rates it makes more sense for people to take higher levels of risk with respect to SWR as the opportunity cost of time increases.
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Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #265 on: February 12, 2017, 11:11:38 AM »
This is a common misconception, that somehow our time is more important to us when we are younger and healthier.  It certainly seems this way and we all believe it, yet it probably isn't true. In many studies it is actually shown that life satisfaction goes up as we age, even as we lose some of our physical abilities and health. Everyone will SAY they want more time when they are young and healthy, right up until they are sick and wish they had more money.

Not data, but anecdotes - my parents are in their 90's. Two things that are clear 1) they spend very little 2) they would both rather have extra years of free time in their 30's and 40's instead of time now.

The questions that need to be answered more rigorously is what is the extra year(s) of work for and what is the true cost of the year(s)? If you don't address that it's totally an emotional decision devoid of facts/logic.

For the early retiree what does a 3% or lower WR buy them that a 4% WR doesn't? And is there another way to get the same benefit without that extra time working? If you don't have the sequence of returns risk materialize in the early years of your retirement you'll end up with a really low withdrawal rate without working extra years as your stash compounds to ridiculous levels. That leaves you with the proposition do you work extra years for sure to insure against the small possibility of doing some work during the early years of FIRE to mitigate against the risk of poor market performance during the early years?

That seems to be the benefit you are talking about - buying insurance for the sequence of returns risk with a year or more of extra work.

- insurance = say working 2 extra years
- benefit avoiding a 20% risk of a bad sequence of returns which would mean working 2yrs [could also be 4yrs PT] early in FIRE to mitigate
- So the cost is 2yrs of your life and the benefit is 0.2 x 2yrs = 0.4yrs of your life

If those numbers don't suit you swap in something that seems more realistic to you.

That cost vs. benefit seems poor. If I tried to sell you that as an insurance policy you'd balk at the cost vs. the potential coverage benefits.

The thing is we are so programmed to work and to be fearful we'll grasp at anything that prevents us from having to make a big change in our lives. Hence the popularity of OMY. I don't say that to mock anyone. As I work on my FIRE plans I constantly have to acknowledge that fear of change and societal programming is something that affects my judgement and needs to be consciously mitigated.

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #266 on: February 12, 2017, 12:43:38 PM »
This is a common misconception, that somehow our time is more important to us when we are younger and healthier.  It certainly seems this way and we all believe it, yet it probably isn't true. In many studies it is actually shown that life satisfaction goes up as we age, even as we lose some of our physical abilities and health. Everyone will SAY they want more time when they are young and healthy, right up until they are sick and wish they had more money.

You misunderstand, as a matter of fact, I tend to be a avid proponent of reversing western social norms in which our older citizens are seen as less valuable.  I do, however, believe there is a general inverse correlation between maximum physical health/mental acuity and wisdom with age.  So our talents, needs, and desires change as we age.  I think the life satisfaction increases with age are highly related to increases in wisdom.

Anecdote, at 40 I thoroughly enjoy sleeping in on Sunday, waking up slowly with several cups of coffee and reading my morning away.  15 years ago I would have gladly sacrificed this time to a hangover if it meant spending Saturday night drinking, partying, and dancing with buddies & attractive young woman.  If I had spent too many of my Saturday nights working in my 20's, accumulating so that "someday" I can party every saturday, I would have missed the opportunity to do so.  It's no longer as desirable, my peers no longer do it (no more buddies or lovely ladies), so no amount of extra money will allow me to have that period of life back. It's gone, forever. It would be particularly frustrating to realize I could have stopped working Saturday's and still achieved "enough" to be free to sleep in and read today.

The ability to increase spending by 20% when we are sick can be a game changer in terms of happiness. Maybe if you are Seneca or MMM the 20% wouldn't matter ;)

I disagree with this.  A CHF patient who can barely move enough to get to the bathroom will likely not be significantly happier with 20% greater discretionary spending. Although my opinion would be different for someone with mild physical disabilities which naturally come with age, my previous post was addressing unexpected true chronic illness.  My point with normal physical decline is it's decades away for a 20-something early retiree, which again leads to the previously posted believe that a lifetime of FI will lead to ridiculous amounts of wealth by simply living it. 

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #267 on: February 12, 2017, 01:04:48 PM »
The questions that need to be answered more rigorously is what is the extra year(s) of work for and what is the true cost of the year(s)? If you don't address that it's totally an emotional decision devoid of facts/logic.

For the early retiree what does a 3% or lower WR buy them that a 4% WR doesn't? And is there another way to get the same benefit without that extra time working? If you don't have the sequence of returns risk materialize in the early years of your retirement you'll end up with a really low withdrawal rate without working extra years as your stash compounds to ridiculous levels.

Of course the median retiree has loads of money, but we're not talking about the median retiree, but about protecting (as much as possible) against adverse outcomes.

Quote
That leaves you with the proposition do you work extra years for sure to insure against the small possibility of doing some work during the early years of FIRE to mitigate against the risk of poor market performance during the early years?

That seems to be the benefit you are talking about - buying insurance for the sequence of returns risk with a year or more of extra work.

- insurance = say working 2 extra years
- benefit avoiding a 20% risk of a bad sequence of returns which would mean working 2yrs [could also be 4yrs PT] early in FIRE to mitigate
- So the cost is 2yrs of your life and the benefit is 0.2 x 2yrs = 0.4yrs of your life

If those numbers don't suit you swap in something that seems more realistic to you.

That cost vs. benefit seems poor. If I tried to sell you that as an insurance policy you'd balk at the cost vs. the potential coverage benefits.
Ok, I'm ran a simulation on cfiresim: Assumptions $1M portfolio, 80% stocks, 20% bonds, retirement length 50 years (2017-2066). I'm also assuming that our final portfolio should be 75% of our starting portfolio (as I'm not a believer in being able to timely run the portfolio down to zero).

Say your savings rate before retirement is $50k p.a., so the person who delays for two years has a 1.16M portfolio (also counting 3% in real portfolio appreciation). He starts in 2019 with a WR of $40k. The Success Rate is 97.92% according to cfiresim

Person #2 retires in 2017 with $1M and will go back to work in year 10 and 11 (2026 and 2027). They'll make $50k net each year. Their success rate is only 85.71%. If they work 4 years, it goes up to 94.9%, after 5 years it's 98.98%.

If they work part-time and make only $20k net each year, then they need to work 10 years to reach 96.94% success rate. So now the cost is 2 years and the benefit is 0.2 x 10 yrs = 2 yrs. (unless you want to divide by two to account for part-time).

Quote
The thing is we are so programmed to work and to be fearful we'll grasp at anything that prevents us from having to make a big change in our lives. Hence the popularity of OMY. I don't say that to mock anyone. As I work on my FIRE plans I constantly have to acknowledge that fear of change and societal programming is something that affects my judgement and needs to be consciously mitigated.

That is true of course. Nevertheless The OMY might be a very rational thing to do (or rather  I don't see it as one more year, I see it as "I'm not FI, yet"). FWIW I am using a 3% WR as the baseline for my personal calculations.
« Last Edit: February 12, 2017, 03:13:10 PM by Ursus Major »

The Happy Philosopher

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #268 on: February 12, 2017, 03:07:29 PM »
@retire-canada and @classical_liberal

I appreciate the response and discussion. You both make very valid points, but I still think you are not really understanding my main point. Each of us has a unique situation, and for some of us we would likely be best suited with a SWR other than 4%. I realize that I am writing to an audience that is biased towards avoiding continuing work. There is a reason we are all here and that is because we have some level of dissatisfaction with our job. This is certainly a factor. If you hate your job then it makes sense to take more risk by leaving it. It is not a binary "I'm a slave with a horrible life" vs. "I'm totally free and life is awesome". For some people working an extra year or two and retiring at 36 instead of 34 is not really that big of a sacrifice. For others it is the difference between life and suicide.

Also there is a difference between risk and fear. I don't have life insurance because I'm afraid, I have it because I cannot otherwise hedge my family against the financial risk of dying.

Someone stated there is nothing much 3% can buy that 4% can and I disagree. It hedges risk and provides me with future freedom and flexibility. Examples of things I can do without changing my spending:

1. Someone in my family develops a chronic medical illness that requires 10k out of pocket for meds that my Trumpcare making medical care great again insurance doesn't cover.

2. I can fund end of life care for either of my parents if they require a lengthy and expensive stay at a long term facility by writing a check and not worrying a bit.

3. I don't have to scramble if my wife decides she hates Happy Philosophers and leaves me for a romance novel cover model.

4. I can ramp up my spending my 10-20% and not have to worry about running out of money.

5. I can do things purely because I want to and never have to worry about making decisions for money again.

6. I can dump a big pile of money into something and leave a legacy somewhere.

7. I can move somewhere with a high cost of living and not worry.

etc, etc. Nothing is a better hedge against uncertainty than a big pile of money. I work in a very high paying job with a high barrier to re-entry. There is nothing I  can do 20 years from now that will pay me what I'm making now. I'm trading time for money at an extremely efficient rate, probably the highest I will see. I value flexibility in the future and I don't want to ever have to go back to work when I call it quits. In my case it makes sense to alter my SWR to something lower. For you guys it probably doesn't. I respect that, and I do understand where you are coming from believe it or not.

I wrote over 5000 words in a recent blogpost on this topic so feel free to blast away at it if bored :)

PS: I like your insurance analogy. I may steal that for a future article.
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BuffaloStache

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #269 on: February 15, 2017, 10:13:12 PM »
The thing is we are so programmed to work and to be fearful we'll grasp at anything that prevents us from having to make a big change in our lives. Hence the popularity of OMY. I don't say that to mock anyone. As I work on my FIRE plans I constantly have to acknowledge that fear of change and societal programming is something that affects my judgement and needs to be consciously mitigated.

That is true of course. Nevertheless The OMY might be a very rational thing to do (or rather  I don't see it as one more year, I see it as "I'm not FI, yet"). FWIW I am using a 3% WR as the baseline for my personal calculations.

Second this one. Another thing is that if you actually plan on a OMY policy, it's important to stick to it. I feel like it can be a slippery slope from 1 year into 5, etc. Personally, my wife has told me that she supports our FIRE goals, but isn't sure the RE side of it is for her. My "OMY" policy will be to quit when we hit FI and let her work for a year or two longer until she realizes how great RE is :-P.
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boarder42

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #270 on: February 16, 2017, 07:42:12 AM »
The thing is we are so programmed to work and to be fearful we'll grasp at anything that prevents us from having to make a big change in our lives. Hence the popularity of OMY. I don't say that to mock anyone. As I work on my FIRE plans I constantly have to acknowledge that fear of change and societal programming is something that affects my judgement and needs to be consciously mitigated.

That is true of course. Nevertheless The OMY might be a very rational thing to do (or rather  I don't see it as one more year, I see it as "I'm not FI, yet"). FWIW I am using a 3% WR as the baseline for my personal calculations.

Second this one. Another thing is that if you actually plan on a OMY policy, it's important to stick to it. I feel like it can be a slippery slope from 1 year into 5, etc. Personally, my wife has told me that she supports our FIRE goals, but isn't sure the RE side of it is for her. My "OMY" policy will be to quit when we hit FI and let her work for a year or two longer until she realizes how great RE is :-P.

i'm on a similar side with my wife. 
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #271 on: February 16, 2017, 07:50:28 AM »
The thing is we are so programmed to work and to be fearful we'll grasp at anything that prevents us from having to make a big change in our lives. Hence the popularity of OMY. I don't say that to mock anyone. As I work on my FIRE plans I constantly have to acknowledge that fear of change and societal programming is something that affects my judgement and needs to be consciously mitigated.

That is true of course. Nevertheless The OMY might be a very rational thing to do (or rather  I don't see it as one more year, I see it as "I'm not FI, yet"). FWIW I am using a 3% WR as the baseline for my personal calculations.

Second this one. Another thing is that if you actually plan on a OMY policy, it's important to stick to it. I feel like it can be a slippery slope from 1 year into 5, etc. Personally, my wife has told me that she supports our FIRE goals, but isn't sure the RE side of it is for her. My "OMY" policy will be to quit when we hit FI and let her work for a year or two longer until she realizes how great RE is :-P.

i'm on a similar side with my wife.

Help! I cannot figure out for the life of me what OMY is.  I've seen it a lot but am apparently terrible at figuring out acronyms...

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #272 on: February 16, 2017, 07:57:05 AM »
Help! I cannot figure out for the life of me what OMY is.  I've seen it a lot but am apparently terrible at figuring out acronyms...

One More Year. Often referred to as OMY syndrome. A fear based mental affliction that does not allow an individual who is financially independent to stop working. That one more year can stretch out to many extra years of desk slavery if not treated. It's probably the biggest risk for FIRE failure for most people.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #273 on: February 16, 2017, 08:13:31 AM »
Help! I cannot figure out for the life of me what OMY is.  I've seen it a lot but am apparently terrible at figuring out acronyms...

One More Year. Often referred to as OMY syndrome. A fear based mental affliction that does not allow an individual who is financially independent to stop working. That one more year can stretch out to many extra years of desk slavery if not treated. It's probably the biggest risk for FIRE failure for most people.

Ahhhhhh.  Thank you! That makes so much sense.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #274 on: February 16, 2017, 12:48:49 PM »
I'm currently doing my OMY, so I'll chime in to say that the emotion driving my decision is greed much more than fear.
I recognize that I'm selling a year of retired life and I'm OK with the price I'm getting for it.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #275 on: February 16, 2017, 12:55:32 PM »
I'm currently doing my OMY, so I'll chime in to say that the emotion driving my decision is greed much more than fear.
I recognize that I'm selling a year of retired life and I'm OK with the price I'm getting for it.

I'd argue that greed and fear are the same thing. If you have fully funded your retirement at something along the lines of the 4%WR rule you are in most cases going to end up with far more money than you started with. So you have the money you need to live off of, you will likely have far more and then you want even more hence you are OMYing. Greed is just being afraid of not having enough despite having plenty for your needs.

tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #276 on: February 16, 2017, 01:28:05 PM »
I'm currently doing my OMY, so I'll chime in to say that the emotion driving my decision is greed much more than fear.
I recognize that I'm selling a year of retired life and I'm OK with the price I'm getting for it.

I'd argue that greed and fear are the same thing. If you have fully funded your retirement at something along the lines of the 4%WR rule you are in most cases going to end up with far more money than you started with. So you have the money you need to live off of, you will likely have far more and then you want even more hence you are OMYing. Greed is just being afraid of not having enough despite having plenty for your needs.

that may be the case for some people and I would not judge them for it.
I think my case is more about greed.

as a fictitious counter example, imagine you have 100x annual expenses.. but you can't walk away from a "pay day" that is 10x annual expenses.
That's greed, right?
there's no rationale way to fear running out of money, but it just seems too good to pass up.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #277 on: February 16, 2017, 02:16:29 PM »
as a fictitious counter example, imagine you have 100x annual expenses.. but you can't walk away from a "pay day" that is 10x annual expenses.
That's greed, right?
there's no rationale way to fear running out of money, but it just seems too good to pass up.

Fear is irrational. What you are proposing above is irrational. I'm not educated enough in human psychology to take this any further than that.

If you are willing to trade away you most precious resource [time at the prime of your life] for a resource you have zero need for [money far beyond anything you can use] then you have a serious problem and need help. Call it fear, call it greed, but if that was me in your example above I hope somebody would call a good doctor for me.

tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #278 on: February 16, 2017, 02:55:41 PM »
If you are willing to trade away you most precious resource [time at the prime of your life] for a resource you have zero need for [money far beyond anything you can use] then you have a serious problem and need help. Call it fear, call it greed, but if that was me in your example above I hope somebody would call a good doctor for me.

Huh?  I get that you value your time as priceless.
But who's to say that it has to be true for everyone in the world?
I imagine that there are people in early retirement who trade their time for money.
Not because they are operating from a place of fear, but because it's a fair trade to them.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #279 on: February 16, 2017, 03:09:45 PM »
Huh?  I get that you value your time as priceless.
But who's to say that it has to be true for everyone in the world?
I imagine that there are people in early retirement who trade their time for money.
Not because they are operating from a place of fear, but because it's a fair trade to them.

You are the one who selected the conditions of hypothetical scenario. If you have more money than you can spend what would be the point of getting more? It would have zero utility to you. So deciding to do that is the same as saying this time in the prime of my life has zero value to me. You framed the discussion around greed not me.

If you are instead saying I'm going to write a blog [MMM] and make $400K/yr not because I want the money, but because I want to express my ideas online and the money is irrelevant to me....than I agree that could make sense. But in that case you are not being greedy since you don't want the money. In fact the money becomes a hassle to that FIREr as he/she now has to decide what to do with it since it's not needed for spending.

Money cannot be a fair trade for your life when it has zero utility to you. That's irrationale.

tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #280 on: February 16, 2017, 03:57:17 PM »
In fact the money becomes a hassle to that FIREr as he/she now has to decide what to do with it since it's not needed for spending.

Money cannot be a fair trade for your life when it has zero utility to you. That's irrationale.

Your point is well taken in that as your stash grows, so do the tax complications and the hassle of giving it away.
But I disagree that extra money has zero utility.
One of the ways money can increase happiness is the ability to help people before we die.

That's why there's a price I value my time at and that's why my OMY isn't driven by fear.
I would concede that if I caught terminal illness, then my time would immediately become priceless.
In that way, I'm gambling and it's a calculated risk that some people are willing to take.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #281 on: February 16, 2017, 04:22:38 PM »
I would concede that if I caught terminal illness, then my time would immediately become priceless.

Your terminal illness is called life, it's 100 percent fatal.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #282 on: February 16, 2017, 04:35:01 PM »
Your point is well taken in that as your stash grows, so do the tax complications and the hassle of giving it away.
But I disagree that extra money has zero utility.
One of the ways money can increase happiness is the ability to help people before we die.

That's why there's a price I value my time at and that's why my OMY isn't driven by fear.
I would concede that if I caught terminal illness, then my time would immediately become priceless.
In that way, I'm gambling and it's a calculated risk that some people are willing to take.

Do you have any specific plans to help people with money? What are they?

If you are following a 4%SWR plan in most cases you will end up with a very large chunk of money you are going to have to give away.

tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #283 on: February 16, 2017, 06:22:31 PM »
Do you have any specific plans to help people with money? What are they?

If you are following a 4%SWR plan in most cases you will end up with a very large chunk of money you are going to have to give away.

my only near term plan is to help my brother pay down his student loans.
one thing I learned from reading this forum is that financial help in your 20's is worth more than a big inheritance in your 60's.
I'm a bit older than my brother and I'm glad I can afford to help him out.
apart from that, I'm saving money in a DAF because we haven't decided what charities to support.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #284 on: February 17, 2017, 12:00:21 AM »
I would concede that if I caught terminal illness, then my time would immediately become priceless.

Your terminal illness is called life, it's 100 percent fatal.
Attack life. It's going to kill you anyway.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #285 on: February 17, 2017, 08:21:50 AM »
Your terminal illness is called life, it's 100 percent fatal.

Yes. Definitely. It's crazy how great the social programming and fear is around leaving work. People will do almost anything to justify not stopping. As I have noted I think it's a bigger risk to FIRE than running out of money yet that's the thing people focus on myopically.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #286 on: February 17, 2017, 11:19:05 AM »
Yeah, I think the risk of running out of money is fairly remote if you are prudent and live in a country wth some social security. You would just cut back your spending as needed to preserve your stash.

I have seen how little people can get by on, and be perfectly content. People have a way of making do.

If you own your house and have a lifetime of stuff already accumulated in your nest, then I am certain you could get the expenses really low if needed.

So many options.


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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #287 on: February 24, 2017, 07:54:14 PM »
If you own your house and have a lifetime of stuff already accumulated in your nest, then I am certain you could get the expenses really low if needed.

So many options.
This is one of the issues I've found is more difficult on early retirees. Things that people accumulate during their years of working I have not have time to accumulate, and can be expensive when purchased on fixed incomes. When someone says "just make do with this or that for the next 10 years." and I have to think "I don't even have that."
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #288 on: February 24, 2017, 07:57:50 PM »
When someone says "just make do with this or that for the next 10 years." and I have to think "I don't even have that."

Just check CL there is usually some consumer sucka looking for any excuse to upgrade to the next marginally different version of the same product and willing to give away the old one at a significant discount.

Beyond that when I make a list of what I actually need to live it's a pretty darn short list. In Canada we define deprivation as not having a shit ton of luxuries.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #289 on: February 24, 2017, 08:16:50 PM »

Beyond that when I make a list of what I actually need to live it's a pretty darn short list. In Canada we define deprivation as not having a shit ton of luxuries.
While this may be true, I am unwilling to live my entire retirement devoid of any luxuries. Thankfully I am lucky enough to be able to afford many of them; but I could never flip houses for extra money or free accomodations like MMM, for example. Even the CL tool budget for that could easily eat up any of my gains for a year of work. (not that I would want that job personally, but for example)
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #290 on: February 25, 2017, 02:02:10 PM »
MM: take it from me you will want some luxuries in your older years.  We used to tent camp but at 62 with back problems not any more. Now we stay at a hotel or in our old RV. WE also want to travel why we can because you never know. We are also taking some cruises which we had never done before.  We were more frugal for years due to kids, saving for retirement, etc. Now it is our time to have some fun and enjoy. That does not mean going hog wild but it does involve spending $. Living on a shoestring budget in old age is no fun. Some of our friends have found themselves in that position and it is sad.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #291 on: February 26, 2017, 11:11:58 AM »
I would believe it cassie. I lived on a shoestring budget when I first retired as well. My spending has become much more comfortable over time.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #292 on: February 27, 2017, 02:46:01 PM »
I would believe it cassie. I lived on a shoestring budget when I first retired as well. My spending has become much more comfortable over time.
This is why I'm a little skeptical of the 4% rule, not mathematically but because of the impact of behavioral or life changes post-FIRE. I mean, if someone was really hardcore and got to FIRE in their 20's or early 30's and then wanted to travel a bunch more or married someone who had a different standard of living, then all bets are off. It seems like the 4% rule locks you in to a certain lifestyle (or at least forces you to sacrifice certain things if you shuffle priorities).

I didn't start aggressively saving (>15%) until late 20's, and while I don't love my job, I also don't hate it. In my career, if I'm out for more than a year my qualifications rapidly become worthless, so if I stop making the good money doing what I do, I need to be sure I'd be content with whatever pay I can get at any random job that doesn't need many qualifications if I start seeing my stash depleted. I'm looking at a probable employer transition a few years before I hit my rough FIRE date due to quality of life reasons, and that may set back FIRE for me by a few years. From what I hear, the grass really is greener and I may be able to work part time-ish with the new employer and reap a lot of benefits from that job and taper off my employee commitments in a fashion that I cannot now. Fortunately I've got the marriage thing behind me and I think the kid thing too, so I don't see a lot of change in lifestyle there, but it is hard to forecast how much my retired life will cost while I work full time in a location that I don't want to stay in, while in grad school, etc. I hope through my activity in the forums here I will start to hear how people estimate what they need for an annual amount, because to me, the initial forecasting of what you will need through all of retirement seems to be the most open to error. I certainly don't want to cut it close and then miss out on opportunities decades down the road because of a crappy estimate based on my current lifestyle and not the one I want.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #293 on: February 27, 2017, 02:54:35 PM »
In my career, if I'm out for more than a year my qualifications rapidly become worthless, so if I stop making the good money doing what I do, I need to be sure I'd be content with whatever pay I can get at any random job that doesn't need many qualifications if I start seeing my stash depleted.

Honestly, I think the above (and that fact that it strongly applies to some professions and only at little if at all in others) is the main reason there is so much back and forth in this and the half dozen other equivalent threads about whether it makes sense to ensure you have enough saved to not have to work again vs. FIRE when you probably have enough and plan to work more later in retirement if you end up eating into your stash too quickly.

FWIW, I'm in the same boat as you. I'm making reasonable money now, but if I stopped and wanted to start again in 5 years, my qualifications would essentially be meaningless if not an active hinderance (since I'd look out of date for the typeof job I have now, but would probably be triaged as "overqualified" for other jobs).
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #294 on: February 27, 2017, 02:56:04 PM »
I would believe it cassie. I lived on a shoestring budget when I first retired as well. My spending has become much more comfortable over time.
This is why I'm a little skeptical of the 4% rule, not mathematically but because of the impact of behavioral or life changes post-FIRE. I mean, if someone was really hardcore and got to FIRE in their 20's or early 30's and then wanted to travel a bunch more or married someone who had a different standard of living, then all bets are off. It seems like the 4% rule locks you in to a certain lifestyle (or at least forces you to sacrifice certain things if you shuffle priorities).

Why is it that people can be content working a salaried job that pays $xx,xxx/year with little room for advancement, year after year, and yet the idea of having $xx,xxx  $yy,yyy/year from investments, year after year is somehow constraining?  At least the ER route allows people to earn some side income (as long as the IRP don't show up and arrest you), and the likelihood that you'll have substantially more money as time goes on.

If you have a salary, you (hopefully) live within that salary and find happiness.  Ditto with retiring on investments.

Edited for clarity.
« Last Edit: February 27, 2017, 03:16:54 PM by nereo »
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #295 on: February 27, 2017, 03:03:55 PM »
Because the $ from their investments most likely is quite a bit less then what they were living on when working???  Also with more free time comes more energy/ability to want to go out to do things and some things are not free.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #296 on: February 27, 2017, 03:04:20 PM »
This is why I'm a little skeptical of the 4% rule, not mathematically but because of the impact of behavioral or life changes post-FIRE. I mean, if someone was really hardcore and got to FIRE in their 20's or early 30's and then wanted to travel a bunch more or married someone who had a different standard of living, then all bets are off. It seems like the 4% rule locks you in to a certain lifestyle (or at least forces you to sacrifice certain things if you shuffle priorities).

In most start years your stash continues to grow even as you make withdrawals. So if you want to spend more you could re-start your 4%WR plan at a high annual spend level with a shorter total duration.

Let's say your portfolio doesn't grow and you are taking out $30K/yr from a $750K stash. You meet someone and decide you need to spend $40K/yr to make the new lifestyle/relationship work. You are not locked into anything. You've got a great base income to work with. You can then decide to work FT again and save up the extra $250K you need to grow your stash to $1M and pull $40K/yr from it. You could get an easy PT job and earn that $10K/yr until you hit SS or your stash cross the gap on its own. You could decide not to work, but to shift to a variable withdrawal rate and pull out more in high return years to meet your higher desired spending needs.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #297 on: February 27, 2017, 03:05:55 PM »
Because the $ from their investments most likely is quite a bit less then what they were living on when working???  Also with more free time comes more energy/ability to want to go out to do things and some things are not free.

That's a planning fail. Not anything to do with the 4% rule.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #298 on: February 27, 2017, 03:15:42 PM »
Because the $ from their investments most likely is quite a bit less then what they were living on when working???  Also with more free time comes more energy/ability to want to go out to do things and some things are not free.
Why do you assume this, and why the three question marks? If you are using a fixed WR strategy you will know what your retirement income will be.  You can set that to be lower, the same, or higher than your salary and adjust your 'stache number accordingly.  There are several people around here who have planned for MORE money in ER (we are two of them).

Obviously things cost money, that's why we plan on having retirement income in the first place. 
I honestly don't understand what you are trying to say here.

ETA: ah, it occurred to me that my use of "xx,xxx" for both income and retirement was interpreted as meaning it had to be the same amount.  I have edited the above post, and did not mean for "x" to be a fixed variable... but that was sloppy of me.
« Last Edit: February 27, 2017, 03:18:02 PM by nereo »
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Guide2003

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #299 on: February 27, 2017, 03:38:37 PM »
Why is it that people can be content working a salaried job that pays $xx,xxx/year with little room for advancement, year after year
Some of us have to pay back time off a commitment incurred from free training in our salaried jobs. I know that's my fault for committing, but take me back to age 20 and I think I'd make the same decision again. I'm a big fan of the FIRE concept, but I think one of its faults is that it assumes that all jobs are lame. A big part of the reason I don't have a higher savings rate is my job just isn't that bad and I don't feel a lot of pressure to get out of it.
ďWe think sometimes that poverty is only being hungry, naked and homeless. The poverty of being unwanted, unloved and uncared for is the greatest poverty. We must start in our own homes to remedy this kind of poverty.Ē Mother Teresa