Author Topic: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?  (Read 23492 times)

Roothy

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #50 on: December 16, 2016, 11:10:43 AM »
I dunno--I really feel like the Fed has it figured out.  They have a lot of tools, and deploy them really well.  We've learned a lot--a lot--since the last bout of high inflation in this country (the 1970's--forty years ago).  https://www.thebalance.com/contractionary-monetary-policy-definition-examples-3305829

Am I alone in not being worried about inflation?  I feel like this is an example of the old adage of "you are always prepared for the last war, but not the next one."  Inflation is the last war.

ChpBstrd

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #51 on: December 16, 2016, 11:24:09 AM »
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.

We are currently very good at managing inflation, and that is largely due to the political independence of the federal reserve. I'm the 1970's, when the FR caved to political pressure and kept rates too low for too long in order to boost employment, double-digit inflation did ruin the plans of many retirees.

So when you hear people calling to "audit/abolish the fed", that would be the result.

Another reason inflation could rise would be a cutoff in international trade. Out-of-control inflation in places like Iran and Russia occurred due to sanctions, and goods/resource shortages. The 1970s oil embargo was a similar trade disruptor and resource shortage. A trade war with China or enactment of tariffs might just do the job.

Guess what the US's new policies are?

Roothy

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #52 on: December 16, 2016, 11:30:27 AM »
OK, I see your point--you are confirming what I alluded to, which is that the risk of high inflation in the future is really just political risk of ignoring all the lessons we have learned.

I do think Trump is insane, so I don't discount the possibility of political risk.  But is everyone around him *really* also insane?  Abolish-the-Fed-type insane?  I guess I just don't see it.  Alternative: if we really are in that new kind of world, then we have a lot more than just inflation to worry about as threats to our finances (let alone our very existence.)  To me, this is almost apocalypse-talk.  Maybe I'm must a pollyanna.

nereo

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #53 on: December 16, 2016, 12:05:07 PM »
OK, I see your point--you are confirming what I alluded to, which is that the risk of high inflation in the future is really just political risk of ignoring all the lessons we have learned.

...adding to what ChpBstrd said...
I agree that calls to 'rein in' or "abolish" the Fed could very well lead to a loss of fiscal control.  Ironically the very reason the Fed has been successful is that (once appointed) Congress and the President have no control over them.

Also - my biggest concern going forward is what we do when the next recession hits. It's been 8 years since the 'great recession' (already a bit longer than the historical average between recessions), and interest rates can't be lowered very much right now.  That leaves things like "Quantitative Easing" which Republicans railed against and many fear could spark inflation if done wrong.
What do we (and the Fed) do if we hit a recession in the next 6-12 months while rates are still 1% or less?  It's literally never happened in our history.
Or - imagine what would happen if inflation suddenly shot up above 3% early in 2017 - I assume the Fed would drastically raise interest rates, but that would also set up a tense feud between Yallen and Trump, particualrly since Trump's entire pitch is that he will put America back to work and he's relying on large infrastructure projects, less regulation and lower taxes, which depend heavily on low interest rates.  I'd imagine in that scenario (and with Rs controlling both Congress and the WH) legislation could be passed very quickly...

...and of course the counter-adage to "you are always prepared for the last war" is of course "it's different this time!"
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tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #54 on: December 16, 2016, 02:16:02 PM »
I dunno--I really feel like the Fed has it figured out.  They have a lot of tools, and deploy them really well.  We've learned a lot--a lot--since the last bout of high inflation in this country (the 1970's--forty years ago).  https://www.thebalance.com/contractionary-monetary-policy-definition-examples-3305829

I think you're probably giving them too much credit.
The fed's primary mission is to maintain stable unemployment rate.
I've heard it said that their policy to keep interest rates low contributed to the Great Recession.
If that's true, then they really failed at their job, didn't they?

BuffaloStache

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #55 on: December 16, 2016, 02:26:53 PM »
...Someone with a 1.5m portfolio, spending 60k a year could litterally save themselves with a minimum wage job part time. This is why you don't need to worry. Is going to work part time occasionally in between years off really that bad?

This. If you are planning for a 40+ year retirement, then a part time job might actually be a fun way to get some added perks/benefits/excuse to travel more and or do more things. Here are some great suggestions; even though the site is geared more towards more senior people, all of the lessons apply to us FIRE types as well.
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Metric Mouse

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #56 on: December 16, 2016, 02:45:03 PM »
...Someone with a 1.5m portfolio, spending 60k a year could litterally save themselves with a minimum wage job part time. This is why you don't need to worry. Is going to work part time occasionally in between years off really that bad?

This. If you are planning for a 40+ year retirement, then a part time job might actually be a fun way to get some added perks/benefits/excuse to travel more and or do more things. Here are some great suggestions; even though the site is geared more towards more senior people, all of the lessons apply to us FIRE types as well.

Right? And for me, this isn't even plan A, or B or C; it's likely a worst case scenario, having to find a part-time job for a year to weather the storm.
Give me one fine day of plain sailing weather and I can mess up anything.

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nereo

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #57 on: December 16, 2016, 02:47:17 PM »
I dunno--I really feel like the Fed has it figured out.  They have a lot of tools, and deploy them really well.  We've learned a lot--a lot--since the last bout of high inflation in this country (the 1970's--forty years ago).  https://www.thebalance.com/contractionary-monetary-policy-definition-examples-3305829

I think you're probably giving them too much credit.
The fed's primary mission is to maintain stable unemployment rate.
I've heard it said that their policy to keep interest rates low contributed to the Great Recession.
If that's true, then they really failed at their job, didn't they?
Not quite...
The Fed has three objectives, assigned to them by Congress via the Federal Reserve act: 
1) maximizing employment ("lowering unemployement")
2) fighting inflation ("controlling inflation")
3) controlling long-term interest rates (e.g. the Fed sets the rate)

Items #1 & #2 are perpetually at odds with one another.
When people claim that low interest rates set by the Fed contributed to the Great Recession they don't know what they are talking about.  Rates from 2006-2008 were 5.25%.  The Fed did not lower rates until well after the 'Great Recession' was underway.
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tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #58 on: December 16, 2016, 03:16:35 PM »
When people claim that low interest rates set by the Fed contributed to the Great Recession they don't know what they are talking about.  Rates from 2006-2008 were 5.25%.  The Fed did not lower rates until well after the 'Great Recession' was underway.

I don't see that narrative from the chart on wikipedia.
It looks like they lowered rates, raised it, and then lowered it again.
The analogy that comes to mind is steering a car with chopsticks.
https://en.wikipedia.org/wiki/File:Federal_Funds_Rate_1954_thru_2009_effective.svg

nereo

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #59 on: December 16, 2016, 04:10:29 PM »
When people claim that low interest rates set by the Fed contributed to the Great Recession they don't know what they are talking about.  Rates from 2006-2008 were 5.25%.  The Fed did not lower rates until well after the 'Great Recession' was underway.

I don't see that narrative from the chart on wikipedia.
It looks like they lowered rates, raised it, and then lowered it again.
The analogy that comes to mind is steering a car with chopsticks.
https://en.wikipedia.org/wiki/File:Federal_Funds_Rate_1954_thru_2009_effective.svg
steering a car with chopsticks? huh?

I'm not sure what you're referring to.  The 'Great Recession' started in Dec '07.  The fed held rates steady at 5.25% for 7 quarters prior to this. 
Saying low rates caused the great recession doesn't make a lot of sense, unless they are saying that it was the actions much earlier.  The previous low was 2%, but the Fed started steadily ratcheting up the rates by a quarter percent every month starting in early 2004, a full 3.5 years earlier. 

The great recession was caused by credit freezing up because there were too many bad loans and too much leverage that had all been repackaged. The worst of these loans occurred in '05, '06 and '07, after rates started going back up. The argument just doesn't make any sense to me.

Worth noting that this goes back to Alan Greenspan, a Reagan appointee, and continued through Bernanke (appointed by W.)
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Indexer

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #60 on: December 16, 2016, 04:52:10 PM »
I think you're probably giving them too much credit.
The fed's primary mission is to maintain stable unemployment rate.
I've heard it said that their policy to keep interest rates low contributed to the Great Recession.
If that's true, then they really failed at their job, didn't they?

For clarity.

Fed Funds rate:
2000= 5.7-6
2001= 6.... down to 1.75
2002= 1.25
2003= 1
2004= 1.25-2.25
2005= 2.5-4.25
2006= 4.5-5.25
2007= 4.75-4.25
2008= 3.5... down to 0.

Blaming the Housing Crash on the Fed is very convenient since it removes the blame on everyone else. It was the big scary Fed...

That is a lot easier than saying individuals borrowed far more than they could afford, banks loaned far more than people could afford, rating agencies turned a blind eye, the Government encouraged all of it, and the insurance companies insuring all of it without doing their due diligence.

The Fed keeping rates low might have fueled more growth in 2002-2004 like it was suppose to. By the time rates are 4%+ you can't really blame the Fed anymore. People kept on borrowing, banks kept on lending. Interest only mortgages and ARMs are not meant for everyday people who plan on living in the home. The purpose of such loans was for real estate house flippers and people with high incomes but very uneven cash flows(attorneys being an example). They liked the low minimum payment, but then after settling a big case they could drop $10k towards the principal all at once. The fact the individuals and banks were using these loan types like crazy is ZERO fault of the Fed.
« Last Edit: December 16, 2016, 04:55:18 PM by Indexer »

tonysemail

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #61 on: December 16, 2016, 05:22:13 PM »
Saying low rates caused the great recession doesn't make a lot of sense, unless they are saying that it was the actions much earlier.  The previous low was 2%, but the Fed started steadily ratcheting up the rates by a quarter percent every month starting in early 2004, a full 3.5 years earlier. 

Worth noting that this goes back to Alan Greenspan, a Reagan appointee, and continued through Bernanke (appointed by W.)

Yes, I think a more accurate statement is that Greenspan's fed contributed to inflating the housing bubble.  The bursting bubble ofc is the main cause of the great recession.

That is a lot easier than saying individuals borrowed far more than they could afford, banks loaned far more than people could afford, rating agencies turned a blind eye, the Government encouraged all of it, and the insurance companies insuring all of it without doing their due diligence.

Granted.  I don't object to the Fed.
But for all those reasons and more, I think it's foolhardy to assume that inflation is a solved problem.
What I see from recent history is that the fed ratchets the rate up slowly precisely because the economy is too unpredictable.

Roothy

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #62 on: December 16, 2016, 05:26:26 PM »
Indexer and nereo, sounds like you agree with me, that inflation isn't really a worry?  That is, we might have plenty of other troubles... but inflation isn't realistically one of them.  Whatever causes a market crash--and over the many decades the OP is talking about, there will be at least one--it's going to come from a source we don't expect.  (Because if we expected it, we'd do something to prevent or offset it.) 

And back to OP's initial point--I don't see any reason to think the 4% rule won't work, because of inflation or low real returns or whatever.  I mean, it might not, but there's no concrete reason to THINK it won't.

Indeed, I'm struggling to explain to myself why I don't plan for a 4.5% or even 5% withdrawal rate, given my essential optimism about capitalism/the economy.  I, too, think the more likely surprises will be on the upside (e.g., technology causing costs of goods/services to plummet; a universal basic income and a world of a few heavily taxed but large-living capital owners and many, many more artists/athletes/bon vivants who get by quite well).

nereo

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #63 on: December 16, 2016, 06:27:22 PM »
I would say inflation is something we forget we should worry about, that it's been so low for so long that Joe Everyday ignores what could happen.  I doubt we'll see 10% inflation anytime soon, but I fully expect to see it go into the 3-5% range sometime in the next couple of decades, and likely stay there for a while.

Black swans will keep happening.  By definition we can't predict them, and we are just ok at reacting and mitigating them.

One last comment about the Fed and the Great Recession.  Blaming the housing bubble entirely on Greenspan is dumb.  Congress has been pushing home ownership since the 70s.  Interest dedecutions, fanny
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #64 on: December 17, 2016, 07:45:04 AM »
Indeed, I'm struggling to explain to myself why I don't plan for a 4.5% or even 5% withdrawal rate, given my essential optimism about capitalism/the economy.

Do it. The biggest risk is in working too long.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #65 on: December 17, 2016, 08:59:07 AM »
Indeed, I'm struggling to explain to myself why I don't plan for a 4.5% or even 5% withdrawal rate, given my essential optimism about capitalism/the economy.

Do it. The biggest risk is in working too long.

+1

I'm curious why more folks dont seem to be considering variable withdrawals.  People seem to easily accept the fact that their work income with vary through the next 40 or 50 years, but are diametrically opposed to this thought when the income comes from investments.  Sure some years you'll make less and have to tighten belts or earn a little extra cash, but most years will have excess for "reinvestment".  Such is life, retired or wage slaving. Over a period of decades investment income will increase, just like job income likely would.  With most variable withdrawal scenarios, starting at 5 or 6 percent is very reasonable.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #66 on: December 17, 2016, 09:02:04 AM »
Do it. The biggest risk is in working too long.

And there are opportunity cost and health benefits to FIREing early that don't get tabulated in your FIRE spreadsheet, but are arguably more important that a lower WR.

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #67 on: December 17, 2016, 09:59:06 AM »
Do it. The biggest risk is in working too long.

And there are opportunity cost and health benefits to FIREing early that don't get tabulated in your FIRE spreadsheet, but are arguably more important that a lower WR.

Not all forms of capital are equal.  I'd take poor and very healthy over rich and chronic disease any day. 

maizeman

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #68 on: December 17, 2016, 10:02:08 AM »
I'm curious why more folks don't seem to be considering variable withdrawals.  People seem to easily accept the fact that their work income with vary through the next 40 or 50 years, but are diametrically opposed to this thought when the income comes from investments.  Sure some years you'll make less and have to tighten belts or earn a little extra cash, but most years will have excess for "reinvestment".  Such is life, retired or wage slaving. Over a period of decades investment income will increase, just like job income likely would.  With most variable withdrawal scenarios, starting at 5 or 6 percent is very reasonable.

I've highlighted what I think is the key part of your statement. My guess is that most people don't plan for or even like to think about involuntary decreases in salary in the future.
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Roothy

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #69 on: December 17, 2016, 10:12:02 AM »
Believe me, I've been obsessively reading threads on VPW for the last year or so.  Interest Compound (I think that is his/her name) said something that really altered my worldview recently: that the withdrawals should simply be seen as income, and therefore orthogonal to expenses.  (Several of you have said the same thing, above, but maybe it was just something about the way he/she said it...)  Looked at that way, it really is no different than my own income, which has varied pretty wildly over the years I've been in (and out, for schooling) of the workforce.

I don't have to make a decision yet, because even under an optimistic scenario of 5% withdrawals from the beginning, I don't retire for another 2 years.  That is, unless I predict lower expenses--which especially if I'm going to do VPW, I am loathe to do, since I would need the ability to be flexible with my expenses when "income" is low.  Right now, about 50% of my predicted retirement expenses are "necessities," and 50% are essentially luxuries.

Yes, I am almost certainly working longer than I need to.  But as we've all discussed ad infinitum, it's really, really hard for many of us to walk away, especially from a good, very stable income.
« Last Edit: December 17, 2016, 10:15:11 AM by Roothy »

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #70 on: December 17, 2016, 10:26:21 AM »
Agreed maizeman.  But those on this forum are not "most people".   Forumites think about these things.   With a variable rate withdrawal, a big drawdown of 30% or more in the first ten years is no different than one spouse getting laid off in a typical household.  I dont know the statistics, but I would imagine the chances are very high this could happen at some point for the typical family. If "most people" can manage to tighten belts & do what needs to be done to get through a bad time, I would imagine Mustachians would have an easier time doing the same.  Particularly if they are already retired and have the extra time and resources that implies.

RE with an appropriate variable rate withdrawal, a big, early drawdown doesn't dramatically impact long term success (ie the fears of running out of money at 70), if you simply lower your income today.  I'm just pointing out this is a situation that would likely occur over the decades even if you hadn't chosen a Mustachian path. Risks like this are inherent to life.

Classical_Liberal

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #71 on: December 17, 2016, 10:31:08 AM »
Believe me, I've been obsessively reading threads on VPW for the last year or so.  Interest Compound (I think that is his/her name) said something that really altered my worldview recently: that the withdrawals should simply be seen as income, and therefore orthogonal to expenses.  (Several of you have said the same thing, above, but maybe it was just something about the way he/she said it...)  Looked at that way, it really is no different than my own income, which has varied pretty wildly over the years I've been in (and out, for schooling) of the workforce.

Well said!  This is my point, thanks!

Maybe thinking like this is easier for those of us who have had varying incomes in the past.  With commission based jobs or changing careers (i've done both).  The point is, adjust to the situation, it's really not that hard.

nereo

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #72 on: December 17, 2016, 11:02:43 AM »
I'm curious why more folks don't seem to be considering variable withdrawals.  People seem to easily accept the fact that their work income with vary through the next 40 or 50 years, but are diametrically opposed to this thought when the income comes from investments.  Sure some years you'll make less and have to tighten belts or earn a little extra cash, but most years will have excess for "reinvestment".  Such is life, retired or wage slaving. Over a period of decades investment income will increase, just like job income likely would.  With most variable withdrawal scenarios, starting at 5 or 6 percent is very reasonable.

I've highlighted what I think is the key part of your statement. My guess is that most people don't plan for or even like to think about involuntary decreases in salary in the future.

It does amaze me how many people will work much longer to assure themselves that they will 'never need to cut back or adjust in ER". I think it's rooted in this fantasy that people have that a secure retirement is one where you never think about money. Even with mega-millions people still think about money, and no amount can be safe from lifestyle creep (just as Mike Tyson).
We learn from a very early age into our adult lives how to manage needs and wants, income with expenses, and adjust accordingly. If we lose our job we tighten our belts, and (hopefully) we put at least part of a big bonus or windfall towards things that will have a long term impact on our happiness, like paying down debt or addressing deferred maintenance on our homes.  If we squander these we soon pay the price.  Why on earth should retirement be different?
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Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #73 on: December 17, 2016, 11:16:12 AM »
Why on earth should retirement be different?

It's not, but a lot of this behaviour is fuelled by fear.

Fear of leaving a situation they understand [working full-time]. Fear of failure at FIRE and I am not just talking about running out of money when they are 90. We tend to talk very casually about going from demanding professional careers to FIRE. I suspect for most people it's a real challenge. It's easy to understand the OMY thing. You get to stick with what you know - ostensibly you are reducing your FIRE risk by increasing your 'stash and most importantly you get to put off a bunch of things you have a lot of fear around [stopping work].

I think the same mechanisms are at work with the pay down mortgage early vs. invest the extra $$ discussion. Regardless of the math or logic some people just "feel" better doing what allows them to avoid their fears. Paying off a house faster is emotionally safe even if it's not actually less risky.

It's a whole lot easier to focus on a number in your spreadsheet [WR% or success %] than to face your fears.
« Last Edit: December 17, 2016, 05:51:51 PM by Retire-Canada »

BuffaloStache

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #74 on: December 17, 2016, 03:47:07 PM »
It's not, but a lot of this behaviour is fuelled by fear.

Great point. People hate change. There is a ~87 year old man who works at my company, and I'm convinced he still does it because he fears doing anything else.
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maizeman

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #75 on: December 17, 2016, 04:16:20 PM »
@Classical_Liberal, yeah, I agree with you, the chances of at least one spouse involuntarily losing their job in a two income household at some point in their working lives is quite high, and people do figure out how to tighten their belts and get by. And I'd imagine you are also right that most mustachian families could find a way to absorb a 30-40% "pay cut" from their investments if necessary and still make ends meet. But while I can see how I'd do it if I had to, just the thought implementing the various changes needed to cut own budget by that amount right now is rather stressful.

@nereo, I have to disagree with you a little here. By living a somewhat mustachian lifestyle and living well below my means, I'd found that (even without megamillions) I don't really have to ever think about, or worry about, money. Most unexpected expenses aren't even enough to push me into the red for the month, just knock down my savings rate. A 30-40% paycut at work would be upsetting because it'd delay my time to FIRE, but wouldn't require significant lifestyle changes on my part. I can see why people, especially those who have gotten used to the financial stress-free life of working while mustachian would want to replicate something similar in RE rather than always having to think about how what is happening to the stock market will effect their life choices in the coming year.

So I guess overall I'm saying I'd rather retire on a lower, constant, income than a higher, but more variable one (although obviously this depends on how much income I'm giving up by opting for the constant option). I don't think that is driven by fear so much as wanting to avoid stress and hassle and thinking about money as much as is realistically feasible. But depending on how much or little work it is for a person to adjust their budget from year to year and how much happiness they get from higher spending in good years I can certainly see how someone would end up making the opposite decision.
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DavidAnnArbor

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #76 on: December 18, 2016, 09:12:07 AM »
Seems like almost every mustachian on here who has FIRE, has an additional sidejob, above and beyond what's really needed for expenses.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #77 on: December 18, 2016, 09:34:37 AM »
Seems like almost every mustachian on here who has FIRE, has an additional sidejob, above and beyond what's really needed for expenses.

If you are the kind of high performance individual who can develop and successfully implement a FIRE plan I think it would actually be hard to avoid earning any extra money at all for 50 years. No to mention that for the typical MMM FIRE budgets it doesn't take much side income to really have a positive impact of your finances.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #78 on: December 18, 2016, 12:04:50 PM »
Seems like almost every mustachian on here who has FIRE, has an additional sidejob, above and beyond what's really needed for expenses.

If you are the kind of high performance individual who can develop and successfully implement a FIRE plan I think it would actually be hard to avoid earning any extra money at all for 50 years. No to mention that for the typical MMM FIRE budgets it doesn't take much side income to really have a positive impact of your finances.

Plus, people will pay you do the most ridiculously awesome things!
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Cassie

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #79 on: December 18, 2016, 12:28:41 PM »
Papabear: I know a few early retirees that ended up being sorry in their early 60's that they were so locked into just an existence type of lifestyle. Also as you age you want more comfort when traveling etc. So tent camping is great when young and not so great at 60. WE have made $ in retirement by doing consulting, etc in our fields. Some people have not been able to find that type of work.  I would not want to work retail in my 60's etc just to make ends meet.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #80 on: December 18, 2016, 05:22:38 PM »
Papabear: I know a few early retirees that ended up being sorry in their early 60's that they were so locked into just an existence type of lifestyle.

Were they using a 4%WR index fund plan? What was their FIRE plan?

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #81 on: December 18, 2016, 09:01:20 PM »
Papabear: I know a few early retirees that ended up being sorry in their early 60's that they were so locked into just an existence type of lifestyle.

Were they using a 4%WR index fund plan? What was their FIRE plan?

This is a great point. When you look back to the beginning of the FI movement, it seems that most people were fine putting money into government bonds or other sources because they had a stable return that is much higher than it is today. I do somewhat wonder if in ~30 years from now, there will be some alternative to index funds that are more stable but still provide the needed returns.
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nereo

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #82 on: December 19, 2016, 06:35:57 AM »

@nereo, I have to disagree with you a little here. By living a somewhat mustachian lifestyle and living well below my means, I'd found that (even without megamillions) I don't really have to ever think about, or worry about, money. Most unexpected expenses aren't even enough to push me into the red for the month, just knock down my savings rate. A 30-40% paycut at work would be upsetting because it'd delay my time to FIRE, but wouldn't require significant lifestyle changes on my part. I can see why people, especially those who have gotten used to the financial stress-free life of working while mustachian would want to replicate something similar in RE rather than always having to think about how what is happening to the stock market will effect their life choices in the coming year.

To clarify, there is a difference between worrying about having enough money and thinking about money in general. We're in a similar boat, where we we've been able to meet all unexpected expenses by spending much less than we earn on a continual basis. There's certainly a big difference between panicking when a big bill hits and thinking "well this month's savings will take a dip".  My point was that money is still a consideration for most everyone, and it seems bizarre to me when people talk about wanting a retirement when they 'will never think about money again'. 
I simply don't think that's possible for the vast majority of people, and more to the point I don't think it's something one should even strive for.  It isn't a bad thing to think about what something costs, and whether that cost will bring equivalent value into your life.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #83 on: December 19, 2016, 08:24:31 AM »
Alright, we've all heard about the 4% SWR rule, and I'm not knocking on it for someone that's already retired today, or close to retiring.

But my question is, for those of us in our 20's who will likely live until the year 2065-2070...do we really think we'll continue to see average annual returns of 7%? I just can't see how a mature economy can sustain that kind of growth for another 50 years.

You're listening to the "experts" who can't even predict what the market will do in the next 12 months, and you expect them to be right when they predict the next 10, 20 or 50 years?? hah, yeah good luck!

And also, you can't see how the economy will can continue to grow? If you were alive in 1960 what are the chances you would you have said the same thing? Humans are terrible at imagining changes to the status quo, and usually extrapolate current trends into the future without accounting for big changes. Some of world's biggest companies only exist because of IT/internet, something that was decades from being invented 50 years ago. Nobody saw this coming! DNA sequencing and biotech? The list goes on. Who had the quote from the early 1900s, about everything imaginable already being invented and there's nothing left to discover? yeah..

« Last Edit: December 19, 2016, 09:17:35 AM by Scandium »

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #84 on: December 19, 2016, 09:57:28 AM »
"everything that can be invented has been invented."

Attributed to  Mr. Charles H.  Deull, comissioner of the US Patent office, in 1899. Although maybe falsely so? http://patentlyo.com/patent/2011/01/tracing-the-quote-everything-that-can-be-invented-has-been-invented.html
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nereo

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #85 on: December 19, 2016, 10:15:28 AM »
"everything that can be invented has been invented."

Attributed to  Mr. Charles H.  Deull, comissioner of the US Patent office, in 1899. Although maybe falsely so? http://patentlyo.com/patent/2011/01/tracing-the-quote-everything-that-can-be-invented-has-been-invented.html

Building on this, Morgan Housel wrote a column a few years back where he dug up articles from every decade going back to WWII, each effectively arguing that we should expect lower returns from that point forward, and decades with ~7% annual returns were forever gone.  These were all written by bright, well educated financial experts and printed in reputable sources like the WSJ.  History has shown this not to be the case so far, but it seems to be an unquenchable opinion.
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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #86 on: December 19, 2016, 11:05:14 AM »
History has shown this not to be the case so far, but it seems to be an unquenchable opinion.

The human psyche has an unlimited amount of fear to draw on and it's easy to get other people worried. That's why fear is right up there with sex as a way to get ahead in business and other aspects of life.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #87 on: December 19, 2016, 11:14:15 AM »
History has shown this not to be the case so far, but it seems to be an unquenchable opinion.

The human psyche has an unlimited amount of fear to draw on and it's easy to get other people worried. That's why fear is right up there with sex as a way to get ahead in business and other aspects of life.
... and marketing to the fear that you'll never get sex if you don't buy/do XYZ...
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Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #88 on: December 19, 2016, 11:27:25 AM »
... and marketing to the fear that you'll never get sex if you don't buy/do XYZ...

Everyone knows FIRErs with WR below 3% get more action! ;)

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #89 on: December 19, 2016, 11:56:37 AM »
Everyone knows FIRErs with WR below 3% get more action! ;)

What?! Best argument for OMY I've ever read!

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #90 on: December 19, 2016, 02:29:58 PM »
They didn't run out of $ but could only take 30k/year for a couple to live on. When they were 40 it seemed like plenty of $ but 22 years later it is not enough.

Retire-Canada

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #91 on: December 19, 2016, 02:58:36 PM »
They didn't run out of $ but could only take 30k/year for a couple to live on. When they were 40 it seemed like plenty of $ but 22 years later it is not enough.

I'm from Canada so I don't know the exact eligibility dates, but shouldn't US Gov't benefits be kicking in around that age? That will top them up.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #92 on: December 19, 2016, 03:07:24 PM »
They didn't run out of $ but could only take 30k/year for a couple to live on. When they were 40 it seemed like plenty of $ but 22 years later it is not enough.

Nearly all scenarios where the 4% withdrawal has succeeded over 30 years result in a massive increase in money by the end, however, which should mitigate this risk significantly.

Portfolio failure is most common in initial stages, too, which means any FIRE'ed person who doesn't blindly go through the rest of their life should be more ok in their 60s and older if they FIRE at 40.

For reference, 100% of 20 year retirement periods historically succeed when using default settings on cFIREcalc and after 20 years, the median balance is 60% higher than the beginning balance.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #93 on: December 19, 2016, 03:36:34 PM »
I don't know these people well enough to know all the particulars.  I just know they are not happy with their current situation.

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ender

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #95 on: December 19, 2016, 04:03:59 PM »
Guys, this beats the shit out of the 4% rule:  http://forum.mrmoneymustache.com/investor-alley/variable-percentage-withdrawal-(vpw)/

That approach works a lot better if you are willing to work or have fluff in your spending.

If you spend at minimum $20k a year and have $500k, you can't just decide "eh I guess I'll spend $15k this year" if that $20k is already a fairly low amount. Of course you can work PT or something, but many people don't want to do that.

I fully anticipate working PT at least some during my initial stages of FIRE.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #96 on: December 19, 2016, 04:07:33 PM »
They didn't run out of $ but could only take 30k/year for a couple to live on. When they were 40 it seemed like plenty of $ but 22 years later it is not enough.
...
I don't know these people well enough to know all the particulars.  I just know they are not happy with their current situation.

Something seems amiss though.  22 years ago was 1994. That would have had them retiring at a golden-age for early retirees - five consecutive years with returns from +21 to +37%; annual average returns of +6.95% for the full 22 years.  Without knowing more of the particulars I'd have to conclude that they just didn't plan well, had poor investments or they completely ignored their plan.
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Cassie

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #97 on: December 19, 2016, 04:28:18 PM »
I am just speculating at this point but what if they retired with only a small pension equaling that amount.  Say no $ saved at all. That would make more sense for the situation they are in now.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #98 on: December 19, 2016, 04:56:23 PM »
I am just speculating at this point but what if they retired with only a small pension equaling that amount.  Say no $ saved at all. That would make more sense for the situation they are in now.

Well retiring with a budget you are not able to happily live with will cause problems. That's a whole other topic than whether or not the 4% rule is appropriate for younger FIRErs.

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Re: The 4% Rule For Those In Their Mid-20's... Completely Unrealistic?
« Reply #99 on: December 20, 2016, 06:17:18 PM »
Guys, this beats the shit out of the 4% rule:  http://forum.mrmoneymustache.com/investor-alley/variable-percentage-withdrawal-(vpw)/

This is a very interesting read with TONS of information. Thanks for linking that thread! I particularly liked the idea that Dodge came up with for using the Variable Percentage Withdrawal method combined with a reasonable spending floor and ceiling (around 3% and 4% of total investment 'stache) as a way to detect and adjust if you're on the path of portfolio failure or not.

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.
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