The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Guitarguy on December 10, 2016, 08:36:59 AM
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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.
This is a hot topic of debate among my wife and I. We've thrown the idea around to people we know that work in finance and they're saying 5% annual growth over the next 50 years is much more realistic than 7%.
But that might theoretically lower the 4% rule down to 2.9%. That's a huge difference. (Yuge.)
Another point we're considering is that from 1990 to 2010, the average life expectancy for a USA male increased from 75 to 78 years. If this trend holds, we're looking at the average 2065 life expectancy to be 7.5 years longer than today.
That means the average age a male dies in the USA in 2065 will be 85 years old, vs. 78 today. Right now the average retirement age is 63. So that means we'll go from an average retirement length of 15 years for males to an average retirement length of 22 years. That's a 46% increase in length of the average retirement.
Anyone else that's 25-30 years old want to weigh-in? I'm curious to hear how similarly-aged mustachians are thinking about this.
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The 4% rule is more than realistic, it's pretty much foolproof if you can do the following.
Earn just a tiny bit of side income.
Have the flexibility to drop that spending down to 3.5-3.75% in a really bad market year.
Get even a tiny percentage of your expenses in some sort of old age social aid (SS currently)
Get a part time job doing something you enjoy even for a little while.
There is a whole sticky thread on this topic.
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The enemy of the 4% rule is a bad initial sequence of returns. If you are young you are even better placed to identify this and address it. On the other hand if you make it through the first 10-15yrs with solid returns your portfolio is going to be so big it will provide a huge safety buffer for your long FIRE.
I would also note if you look at cases of people who FIRE'd young it seems almost impossible to avoid making some money over the span of decades, which will pad your 'stash.
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The 4% rule came from studies looking at historical returns and asking at what SWR(safe withdrawal rate) can you pull money and have a high likelihood of your money lasting forever. In most cases 4% works.
It isn't perfect though. The 4% rule survives most market scenarios, but not all. Depending on the monte carlo simulator you use it normally gives an 85-90% likelihood of never running out of money, which is really good. 95-99% is normally achieved around 3.5% SWR(28.6 X expenses). 100%(or 99.9999) is normally achieved when you get to 3% or less, which would be 33.33X expenses. That is overdoing it IMO.
There have been studies into whether your initial SWR should change based on market conditions. It will get a lot of disagreement here... but I tend to agree with those studies. If you had 20X expenses(5% SWR) in 2009 the market was so depressed who cares, you could retire. If you had 25X expenses(4%SWR) in the average year, you can retire. If the market valuations are well above their historical averages(think 1999) that normally implies lower returns in the next 5-10 years, which means you might want to target 28.6X expenses(3.5%SWR). Of course, if the market has been killing it for several years then it should be easier to hit 28.6, BUT if those great markets just barely got you to 25 then you might be at a higher risk than you think.
This is not encouraging market timing. That is just silly. I'm just saying high valuations today can imply lower expected returns in the future. An idea that is supported by Bogle and Vanguard.
We've thrown the idea around to people we know that work in finance and they're saying 5% annual growth over the next 50 years is much more realistic than 7%.
Even Vanguard is saying that(well at least for 10 years, I don't know about 50...). Check page 28 of their 2017 outlook. Note those are real(after inflation) returns.
https://personal.vanguard.com/pdf/ISGVEMO.pdf
But that might theoretically lower the 4% rule down to 2.9%. That's a huge difference. (Yuge.)
No, because the 4% rule was already trying to figure out whether a portfolio could survive 'most market' scenarios, including the bad ones. 4% works even if you are earning less. If the market was earning 7% real returns consistently you could have a higher SWR. Again, just getting to 3.5% SWR if you want to be extra safe will give you a very high likelihood of never running out of money even if future returns are lower.
That's a 46% increase in length of the average retirement.
Doesn't matter. In most cases a portfolio will grow faster than the 4% withdrawal rate. If the portfolio is growing even as you take money off of it then it will last forever. Again, the 4% SWR is expected to protect you in most below average markets. Just average markets will make the portfolio grow. This is why the first 5 years after retirement are the most vulnerable. If your portfolio grows for awhile before the next crash you normally have a big enough cushion that it doesn't matter.
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2 days ago there were a bunch of articles about life expectancy declining over the past 2 years. Not sure life expectancy growth as in the past is realistic.
Nothing to add to 4% rule.
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I completely agree with the other posters that the riskiest period for the 4% rule is the first 5-10 years so changes in life expectancy aren't a major thing to worry about but wanted to add a word about life expectancy anyway.
Age at death is left skewed, which is a fancy way of saying that if the average age at death is 80, you are much more likely to die at 50 than at 110. Also, most of the increase in life expectancy has come from a decrease in extremely early deaths rather than an increase in extremely late deaths.
Illustration of this:
(http://www.osfi-bsif.gc.ca/Eng/PublishingImages/MPSSPC_chart26b.png)
This means
1) you cannot translate directly from life expectancy to calculate the average length of retirement, because life expectancy includes a non-trivial number of people who die before (normal) retirement age). In my data source which may be a few years out of date, at birth, a male child has a life expectancy of 76.1 years,* but the average 63 year old man (average age of retirement you found) can expect to live to be 82, which would translate to a 19 year retirement, not 13 as the overall life expectancy tables would indicate.
2) Even as life expectancy increases, the chances of living to 110 aren't appreciably increasing over time.
*We're probably using different original data sources, but this is for illustration only.
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This is a hot topic of debate among my wife and I. We've thrown the idea around to people we know that work in finance and they're saying 5% annual growth over the next 50 years is much more realistic than 7%.
But that might theoretically lower the 4% rule down to 2.9%. That's a huge difference. (Yuge.)
Safe withdrawal rates are based on the single worst-case historical sequence of returns. For reference, the single worst 30-year retirement timeframe for most high-stock portfolios began in 1966. The 30-year inflation-adjusted CAGR for the S&P500 from 1966-1995 was about 4.78%. So yes, 5% real gets you a lot closer to the danger zone but it still technically does not fail.
Now the issue of whether a SWR calculated for somebody with a 30-year life expectancy is appropriate for someone in their 20's is another matter entirely. I personally prefer perpetual withdrawal rates (https://portfoliocharts.com/2016/12/09/perpetual-withdrawal-rates-are-the-runway-to-a-long-retirement/) for very early retirees.
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Not to mention that all of those longer-living people out there have more time to buy things, further stimulating economic growth.
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This is a hot topic of debate among my wife and I. We've thrown the idea around to people we know that work in finance and they're saying 5% annual growth over the next 50 years is much more realistic than 7%.
People tend to assume that the current trend they are experiencing, whatever that trend is, will continue on forever. If you were to ask people that same question back in the late 1990s, they would say 15 or 20% forever is plenty realistic. The doubters saying 10% were viewed as hopeless wet blankets, and the 8%'ers were being fitted for straitjackets.
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The stockmarket is the worst place you grow your money passively except for every other alternative. Nobody knows what will happen for sure, but you have to pick something. Personally I'd rather FIRE with some reasonable assumptions and take the small risk that they fail me than either work many more years to [hopefully] secure a less risky future and very likely waste years of my life.
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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.
This is a hot topic of debate among my wife and I. We've thrown the idea around to people we know that work in finance and they're saying 5% annual growth over the next 50 years is much more realistic than 7%.
But that might theoretically lower the 4% rule down to 2.9%. That's a huge difference. (Yuge.)
Another point we're considering is that from 1990 to 2010, the average life expectancy for a USA male increased from 75 to 78 years. If this trend holds, we're looking at the average 2065 life expectancy to be 7.5 years longer than today.
That means the average age a male dies in the USA in 2065 will be 85 years old, vs. 78 today. Right now the average retirement age is 63. So that means we'll go from an average retirement length of 15 years for males to an average retirement length of 22 years. That's a 46% increase in length of the average retirement.
Anyone else that's 25-30 years old want to weigh-in? I'm curious to hear how similarly-aged mustachians are thinking about this.
I'm late twenties. Withdrawing much higher rates than 4% over the past couple of years. My portfolio has only grown in value. Another five years of this and I'll be past the ten year RE mark, and hopefully through the worst of sequence of return risk. No issues or worries from my end, though my expenses vary year-to-year and I don't follow a strict 4% rule.
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Depending how early you FIRE, there may be more risk in changes in life decisions that the 4% withdrawal rule. If you retired with a plan of no kids and then that changed to say two kids the old budget just won't work. Or you want to go from city life to homesteading and that has some start up capital associated with it. Heck, who knows what craziness you could get into with all that time on your hands :)
Major unplanned expenses like that could put you back to working for a bit. This doesn't seem so bad since you'd only make the big change if it was really worth it to you.
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Depending how early you FIRE, there may be more risk in changes in life decisions that the 4% withdrawal rule. If you retired with a plan of no kids and then that changed to say two kids the old budget just won't work. Or you want to go from city life to homesteading and that has some start up capital associated with it. Heck, who knows what craziness you could get into with all that time on your hands :)
Major unplanned expenses like that could put you back to working for a bit. This doesn't seem so bad since you'd only make the big change if it was really worth it to you.
Yeah, I think this is the biggest thing, especially if you're planning on retiring on a shoestring budget - the lifestyle that you want at age 25 may end up being quite different from the lifestyle you want at age 50. And if even if you already have kids, the lifestyle your kids are happy with at age 1 and 3 might be different from the lifestyle they are cool with at 15 or 17. If your "retire at 25" budget has some fat in it, it's less concerning.
That said, I'm 38 and my spending now is actually lower (if I adjust for inflation) than my spending when I was in my early 20s. Pretty crazy considering my salary was 30-35% of what I'm making now and my rent was 20-60% of what I pay now. I wasn't an outrageous spender back then but I wasn't particularly frugal either.
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Just remember that in most cases, you'd have even more money at 50 than you did at 25. Often huge amounts more. So that would leave plenty of room to grow your spending if you made different life choices.
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Just remember that in most cases, you'd have even more money at 50 than you did at 25. Often huge amounts more. So that would leave plenty of room to grow your spending if you made different life choices.
Definitely. But if you're on a really tight budget (like, let's say you're planning on sharing a room in a cooperative house with your SO, eating mostly lentils and rice, and only using human-powered travel), it's not hard to double your expenses with a few apparently modest lifestyle changes.
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That said, I'm 38 and my spending now is actually lower (if I adjust for inflation) than my spending when I was in my early 20s. Pretty crazy considering my salary was 30-35% of what I'm making now and my rent was 20-60% of what I pay now. I wasn't an outrageous spender back then but I wasn't particularly frugal either.
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Day to day the cost decrease is true for me too. I'm a more efficient cook and better at fixing things. (and already own enough tools that projects don't require new toys, er tools) But some of the big stuff like health insurance doesn't seem like it has a path to costing less.
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked. Who knows if these people had saved enough or what their situation was. But if going back to work is one of your options, be aware that getting a job will be hard, and it will be for way less than a previous salary. This will be especially true that the point in time when our portfolio fails, it's when the economy is crashing, and everyone will be out looking for work.
Ok, back to regular programming.
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked. Who knows if these people had saved enough or what their situation was. But if going back to work is one of your options, be aware that getting a job will be hard, and it will be for way less than a previous salary. This will be especially true that the point in time when our portfolio fails, it's when the economy is crashing, and everyone will be out looking for work.
Ok, back to regular programming.
Sent from my iPhone using Tapatalk
They either weren't using the 4% rule, or they weren't using index funds, or both.
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If you are a mustachian with a low COL you can avert portfolio disaster earning a fraction of a professional salary. I can earn $10K/yr without killing myself, selling a kidney or slaving in the coal mines. That's 25% of my full FIRE budget, 33% of my no luxury items FIRE budget or 50% of my just keep the lights on FIRE budget - all including a mortgage.
If you are not totally obvious you don't need to rebuild your 'stash from scratch all you have to do is reduce your withdrawals during particularly bad years - "if" you feel your FIRE success is at stake. A slight bit of flexibility in your 4% SWR increases your odds of success dramatically. That can be reducing expenses, side income or both.
And just to address the concern life would be awful. I did just this. I went from $100K+ a year contract work to working in a camping store for $15/hr for 6 months to deal with an issue I was facing. You know what it was not awful. If you can earn a professional salary you will out compete anyone who typically does a "Joe" job. I would much rather make $50/hr or $100/hr than $15/hr, but my personal self-worth or sense of satisfaction is around taking care of my life not a job title. Plus it was really nice to do a job with no supervision and no difficult responsibilities for a while. I just worked enough to cover my expenses and not dip into my savings. It was easy.
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked. Who knows if these people had saved enough or what their situation was. But if going back to work is one of your options, be aware that getting a job will be hard, and it will be for way less than a previous salary. This will be especially true that the point in time when our portfolio fails, it's when the economy is crashing, and everyone will be out looking for work.
Ok, back to regular programming.
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They either weren't using the 4% rule, or they weren't using index funds, or both.
I don't disagree with you. Just saying if going back to work is one of the plans if you are too aggressive, be weary that it won't be what you think.
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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.
This is a hot topic of debate among my wife and I. We've thrown the idea around to people we know that work in finance and they're saying 5% annual growth over the next 50 years is much more realistic than 7%.
While I can accept that average real growth in the 21st century might be closer to 5% than 7%, to me this does not sound like a problem for the 4% SWR rule (average growth still exceeds withdraws, so on average wealth is still growing). What it does mean however is that accumulation might take longer because savings compound slower. Go ahead and use 5% growth as you project your accumulation phase; you'll avoid the disappointment of lower than expected returns adding a couple of years to your working life. However, as long as you maintain flexibility for the first few years of retirement in case you have low initial returns, planning on a 4% SWR is fine. My personal plan is to begin retirement monitoring expenses and ensuring that I never withdraw more than 1% of current investment value in a quarter. I imagine that the investments will grow enough as I get further into retirement that I will gradually decrease the effort I spend monitoring money.
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked. Who knows if these people had saved enough or what their situation was. But if going back to work is one of your options, be aware that getting a job will be hard, and it will be for way less than a previous salary. This will be especially true that the point in time when our portfolio fails, it's when the economy is crashing, and everyone will be out looking for work.
Why the hell were they so honest about their situation, they could have told any old story like for example, "That they used to run their own company" or "That they worked as a capital manager" or whatever and they would have been as attractive as ever on the market.
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked. Who knows if these people had saved enough or what their situation was. But if going back to work is one of your options, be aware that getting a job will be hard, and it will be for way less than a previous salary. This will be especially true that the point in time when our portfolio fails, it's when the economy is crashing, and everyone will be out looking for work.
Why the hell were they so honest about their situation, they could have told any old story like for example, "That they used to run their own company" or "That they worked as a capital manager" or whatever and they would have been as attractive as ever on the market.
References would be difficult to obtain for a fake job. And employers tend to frown on lying on your resume.
But in general, people tend to tell the truth about things. Like I said, it was a handful of times this came up that there was an early retiree coming back to work. Most of the retirees coming back to work were of normal retirement age and were either bored or wanted to get away from their spouses!
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked. Who knows if these people had saved enough or what their situation was. But if going back to work is one of your options, be aware that getting a job will be hard, and it will be for way less than a previous salary. This will be especially true that the point in time when our portfolio fails, it's when the economy is crashing, and everyone will be out looking for work.
This probably wasn't supposed to reassure me but it did.
If I retire and have to come back to work, I LOVE the idea that you can make nearly $13.50 (adjusted to 2016 dollars) after having retired and doing data entry types of jobs.
My biggest concern about retiring early and having to go back to work isn't about getting back into my chosen field. It's about not being able to find any job. Working 30 hours a week 45 weeks a year is 1350 hours a year. $13/hr puts your yearly salary at $17,550 -- that's a TON of money for a MMM minded person! Our budgeted expenses this year for a couple are going to run around $30k which means I can be nearly guaranteed to drop a 4% SWR in half even if the economy explodes?
Heck yeah! That's unbelievably reassuring.
(or did I completely miss the point of your post? :-)
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I think there's a much higher chance that post-scarcity economics means everyone is FI at birth than the 4% rule fails someone in their mid-20s.
Or that we all die because the earth gets too damn hot, but that's not a 4% SWR problem.
So don't worry about it.
-W
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked. Who knows if these people had saved enough or what their situation was. But if going back to work is one of your options, be aware that getting a job will be hard, and it will be for way less than a previous salary. This will be especially true that the point in time when our portfolio fails, it's when the economy is crashing, and everyone will be out looking for work.
This probably wasn't supposed to reassure me but it did.
If I retire and have to come back to work, I LOVE the idea that you can make nearly $13.50 (adjusted to 2016 dollars) after having retired and doing data entry types of jobs.
My biggest concern about retiring early and having to go back to work isn't about getting back into my chosen field. It's about not being able to find any job. Working 30 hours a week 45 weeks a year is 1350 hours a year. $13/hr puts your yearly salary at $17,550 -- that's a TON of money for a MMM minded person! Our budgeted expenses this year for a couple are going to run around $30k which means I can be nearly guaranteed to drop a 4% SWR in half even if the economy explodes?
Heck yeah! That's unbelievably reassuring.
(or did I completely miss the point of your post? :-)
Nah if it's reassuring then all the better. I tend to think people are too conservative. Staffing agencies can be a great resource if looking for short term work or something in a pinch. And if you can be flexible with compensation, some temp job will pop up.
You just never get to hear about any fails, since there is typically confirmation bias. And for a lot of people, taking a major hit to find a job can really hurt your ego.
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
...
This probably wasn't supposed to reassure me but it did.
If I retire and have to come back to work, I LOVE the idea that you can make nearly $13.50 (adjusted to 2016 dollars) after having retired and doing data entry types of jobs.
My biggest concern about retiring early and having to go back to work isn't about getting back into my chosen field. It's about not being able to find any job. Working 30 hours a week 45 weeks a year is 1350 hours a year. $13/hr puts your yearly salary at $17,550 -- that's a TON of money for a MMM minded person! Our budgeted expenses this year for a couple are going to run around $30k which means I can be nearly guaranteed to drop a 4% SWR in half even if the economy explodes?
Heck yeah! That's unbelievably reassuring.
(or did I completely miss the point of your post? :-)
You completely understood that post! :)
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We decided not to put all our eggs in the stock market basket.
We have some in farmland that we inherited, but we also have some in rental property.
Including SS, that's 3 completely different sources of income.
I expect we'll either flip some houses or fix some up for renting out just for the fun of it.
We've targeted a median family income with zero debt, which is pretty good money. And there's lots of room for cutting back if we need to for a few years.
And, of course, we could always find a way to earn $5,000 to $10,000 in a year if we had to. The USA is chock full of opportunities.
Or pay folks to walk their dogs? $5 a day for 5 days a week for 40 weeks a year is $1,000. And all for talking a walk around the neighborhood that you would have done anyway.
Or mow their yards? Why pay for a gym membership when people will pay you to work out? :) $30 for a yard once a week for 33 weeks is $990.
Those two "jobs" would take up about 6 hours a week of your time and bring in $2,000 just for doing some exercise you would have wanted to do anyway.
Two more yards a week and we're up to an 8 hour work week for about another $2,000.
And that's not even trying.
Did you know that people charge over $1,000 to put up other people's Christmas lights and then take them back down?
Is this a great country or what?
Just read an article in a NC business magazine about a guy who started his own business pressure washing houses. From there he started painting them. Within a few months he was finding enough work that he had hired 2 people to do the work for him. He's at around $10,000,000 in annual sales now.
And the only reason he went into business is he got his first credit card while living at his parents, spent $5,000 on computer gaming gear, and needed a job to pay that debt off.
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The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.
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The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.
It also assumes ZERO income of ANY kind including pensions, Social Security, side gigs, Xmas presents from mom and dad, etc.
Feel free to keep working longer, though. It's your life.
-W
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This is a great thread and really makes me think. I too worry that the 4% rule may be coming to an end. However, I also agree with the other readers that life expectancy shouldn't matter (and if it does, here (http://www.wsj.com/articles/life-expectancy-for-white-americans-declines-1461124861)is a source to an article that claims it isn't an ever-increasing value). Additionally,
And just to address the concern life would be awful. I did just this. I went from $100K+ a year contract work to working in a camping store for $15/hr for 6 months to deal with an issue I was facing. You know what it was not awful. If you can earn a professional salary you will out compete anyone who typically does a "Joe" job. I would much rather make $50/hr or $100/hr than $15/hr, but my personal self-worth or sense of satisfaction is around taking care of my life not a job title. Plus it was really nice to do a job with no supervision and no difficult responsibilities for a while. I just worked enough to cover my expenses and not dip into my savings. It was easy.
This is my plan exactly: build up my 'stache till I'm right around 4% withdrawal, then switch to a lower paid job for ~1 year. I actually keep a list of potential low-wage, low-stress, part-time jobs that I was thinking I'd use to create a gradual slide into RE. Something with added perks (working for an airline, at a movie theater, camping store- to get a discount, Costco- because I love the company and their stores, etc.) could be an added bonus.
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There are many possibilities that could completely negate the 4% rule for everyone - sizeable asteroid impact, global war, runaway rapid climate change, some sort of severe epidemic.. As well as this, there are many ways in which the 'endless growth', western-style 'prosperity for all' model of society are completely unsustainable and the expected future productivity of the human race could potentially collapse within our lifetimes.
On the other hand, the 4% rule is pretty much the best option you've got, apart from building a lifestyle in which you can basically drop your required income to zero if need be (property owned outright, solar+batteries, sustainable food sources).
Even if it turns out you'll need to use 3% or 2%, does it really change what you need to be doing at this point? Just save as much as you can and hope for the best, plan as well as you can for the worst (the 'worst' perhaps, in this case, being the longest expected lifespan - funny way to look at it).
Also as someone else said it could go the totally opposite way and a basic income + robot servants + digital existence could mean you'll never need all that money anyway. But again that doesn't change what the best way forward is at this point in time.
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I think there's a much higher chance that post-scarcity economics means everyone is FI at birth than the 4% rule fails someone in their mid-20s.
I agree, the chances of a UBI being established in the next 30-40 years is much higher than the 4% rule failing in my view. It's quite likely that many of us have saved too much (unless you want an extravagant lifestyle).
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The 4% rule assumes a 30 year time horizon (until death).
And 1% expense ratios, and a conservative AA ratio... and many other things...
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The 4% rule assumes a 30 year time horizon (until death).
And 1% expense ratios, and a conservative AA ratio... and many other things...
Not "1% expense ratios". IIRC ERs were not taken into account in the academic studies that lead to the 4% rule.
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The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.
No one wants to hear about the 3.3% rule.
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The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.
No. There's no 3.3% rule for 40 year retirements - that would be even MORE conservative than using 4% for 30 years. And where did you pull 5.1 to 5.5% from? If you're trying to match the 'success rate' (i.e. the % of portfolios which did not hit $0 over a given time frame) than you'd use a 5.0% for a 20 year term to get the same success rate as 4% for a 30 year term. But they're still not equal - at 5% roughly half of all portfolios will be worth less after 20 years, compared with about 1/3 at 4%.
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No one wants to hear about the 3.3% rule.
Indeed. It makes us sad to hear about people who want to FIRE wasting extra years at a job to get a low WR for irrational reasons.
If people are truly concerned about FIRE failures I would suggest that there are a myriad of ways to fail at FIRE that are more likely than the 4% SWR failing, but nobody wants to talk about that because it's not a number with a % or $ attached. Working extra years at most jobs would be one of those risks to your FIRE I'd definitely lump in that pool of non-monetary risks.
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This is a hot topic of debate among my wife and I. We've thrown the idea around to people we know that work in finance and they're saying 5% annual growth over the next 50 years is much more realistic than 7%.
But that might theoretically lower the 4% rule down to 2.9%. That's a huge difference. (Yuge.)
Safe withdrawal rates are based on the single worst-case historical sequence of returns. For reference, the single worst 30-year retirement timeframe for most high-stock portfolios began in 1966. The 30-year inflation-adjusted CAGR for the S&P500 from 1966-1995 was about 4.78%. So yes, 5% real gets you a lot closer to the danger zone but it still technically does not fail.
Now the issue of whether a SWR calculated for somebody with a 30-year life expectancy is appropriate for someone in their 20's is another matter entirely. I personally prefer perpetual withdrawal rates (https://portfoliocharts.com/2016/12/09/perpetual-withdrawal-rates-are-the-runway-to-a-long-retirement/) for very early retirees.
I'm digging your withdrawal rate calculator. Do you plan to add any other fixed income categories (such as corporate bonds?)
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I'm digging your withdrawal rate calculator. Do you plan to add any other fixed income categories (such as corporate bonds?)
I'd love to. It's just a matter of data availability. I'm currently working on it and hope to have a few new bond options in January.
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I'm digging your withdrawal rate calculator. Do you plan to add any other fixed income categories (such as corporate bonds?)
I'd love to. It's just a matter of data availability. I'm currently working on it and hope to have a few new bond options in January.
+1. Also, I love your "heat map" of all different combinations of starting year and time periods. It does a good job of showing in one graphic what many try to describe in countless paragraphs (myself included).
Keep up the good work.
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I'm undecided. The bad news is I have plenty of time to decide. (FIRE gallows humor)
Long term stock returns will be based on demographics, politics, educational attainment by the population, productivity growth, etc. This is all incredibly hard to predict long-range. People once thought Japan would dominate the world economy.
But we're probably looking at the wrong thing. In my spreadsheet simulations, the average assumed rate of inflation makes a bigger difference than ROI. If inflation runs 3% over my retirement, I'm fine with a lot less money than if it runs 3.5%. At 4% I would need a large fortune. At least with stocks, you are in theory buying the companies collecting those higher prices. To see what I mean, drop your current spending into a spreadsheet (cell A1) and in cell A2 write "=A1*1.03" and then drag it down 50 years. Yikes! Now put on a diaper and try it at 4%.
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I'm digging your withdrawal rate calculator. Do you plan to add any other fixed income categories (such as corporate bonds?)
I'd love to. It's just a matter of data availability. I'm currently working on it and hope to have a few new bond options in January.
+1. Also, I love your "heat map" of all different combinations of starting year and time periods. It does a good job of showing in one graphic what many try to describe in countless paragraphs (myself included).
Keep up the good work.
Make it +2. That was a great read!
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No one wants to hear about the 3.3% rule.
Indeed. It makes us sad to hear about people who want to FIRE wasting extra years at a job to get a low WR for irrational reasons.
If people are truly concerned about FIRE failures I would suggest that there are a myriad of ways to fail at FIRE that are more likely than the 4% SWR failing, but nobody wants to talk about that because it's not a number with a % or $ attached. Working extra years at most jobs would be one of those risks to your FIRE I'd definitely lump in that pool of non-monetary risks.
I expect a good number of FIRE failures will be due to expense inflation, especially among the very early retirees. Kids cost money. Healthcare is an unknown. We could well be in for a bought of monetary inflation. Lots of things to worry about if you're so inclined.
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No one wants to hear about the 3.3% rule.
Indeed. It makes us sad to hear about people who want to FIRE wasting extra years at a job to get a low WR for irrational reasons.
If people are truly concerned about FIRE failures I would suggest that there are a myriad of ways to fail at FIRE that are more likely than the 4% SWR failing, but nobody wants to talk about that because it's not a number with a % or $ attached. Working extra years at most jobs would be one of those risks to your FIRE I'd definitely lump in that pool of non-monetary risks.
I expect a good number of FIRE failures will be due to expense inflation, especially among the very early retirees. Kids cost money. Healthcare is an unknown. We could well be in for a bought of monetary inflation. Lots of things to worry about if you're so inclined.
Of course - there are always unknowns, including not knowing how much time you and your loved ones have left.
It's also worth noting that survey after survey show that people wind up spending less in retirement than they had anticipated.
Overall we tend to overestimate our retirement expenses, underestimate our willingness to adjust spending habits during down years, assume we will never make any money ever again and plan on living far longer than is statistically likely. Based on those assumptions we still shoot for "success rates" in the upper 90s.
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As if Vangaurd had known I'd been reading this thread, I got this link in an email from them today about the 4% rule, and doubts given the recent lower returns: https://personal.vanguard.com/us/insights/article/retirement-spending-102016?EXCMPGN=EX:EM:RIG:eITV:121516:retail:XX:article:slot2 (https://personal.vanguard.com/us/insights/article/retirement-spending-102016?EXCMPGN=EX:EM:RIG:eITV:121516:retail:XX:article:slot2)
Essentially the article boiled down to a very mustachian principle- be flexible. If it was a bad year, maybe take out less than 4% (or even get that part time job). If it was a banner year, take out the full 4% and don't feel bad about it.
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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.
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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.
Well, there's runaway inflation, the sort that coutries like Iran and Zimbabwe have experienced, and then there's chronic high inflation, which has struck most large developed countries at some point or another, including the US. In the last 100 years we've had 5 periods where inflation in the US averaged above 10%. 26% of the the last 50 years have had inflation above 5%
After 15 years of below average inflation it's easy to forget how detrimental this can be to long-term savings. Maybe we've truly 'licked' high inflation forever, but I tend to doubt it.
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The 4% rule won't ever "just not work"
You need to remember the success of the rule is based on the start year. Will 95% of the next 100 years be successful start years? Probably not, but that's hardly much to worry about. Fire is a long slow and heavy ship. Small changes early yeild massive improvements.
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?
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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.
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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?
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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.
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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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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?
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...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 (http://www.nextavenue.org/semi-retirement-jobs-great-benefits/); 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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...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 (http://www.nextavenue.org/semi-retirement-jobs-great-benefits/); 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.
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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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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
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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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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.
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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.
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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).
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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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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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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.
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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.
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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.
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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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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.
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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.
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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.
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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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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.
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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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@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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Seems like almost every mustachian on here who has FIRE, has an additional sidejob, above and beyond what's really needed for expenses.
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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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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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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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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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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, 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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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..
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"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 (http://patentlyo.com/patent/2011/01/tracing-the-quote-everything-that-can-be-invented-has-been-invented.html)
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"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 (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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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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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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... 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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Everyone knows FIRErs with WR below 3% get more action! ;)
What?! Best argument for OMY I've ever read!
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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.
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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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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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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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Guys, this beats the shit out of the 4% rule: http://forum.mrmoneymustache.com/investor-alley/variable-percentage-withdrawal-(vpw)/
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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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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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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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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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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 (http://forum.mrmoneymustache.com/investor-alley/variable-percentage-withdrawal-(vpw)/msg475007/#msg475007) (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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I think 1970's level inflation is possible if you look far enough into the future. It would be a fallacious extrapolation of current trends to say rates will stay in the current 2% range for the next 10-20-30-40 years. Sometimes, a country's long-term inflation trend line changes, often in apparent response to mounting debt. Inflation is, after all, a form of default.
A voluntary US government default could also be possible. For a real scare, read https://press.princeton.edu/titles/8973.html although it's very boring for normal people. The premise is that governments default a lot more often than interest rates and debt/GDP ratios might lead one to believe.
That said, I'd go for the 4% rule and maybe work part time for the first years of your FIRE to lower that to 3%, to the extent I was worried.
Also, diversify the markets/currencies you invest in. Consider the plight of Japanese early retirees with their almost-flat stock market and rock-bottom interest rates for the past 25 years. That's a possibility not accounted for in the probability models based on historical U.S. returns (i.e. you don't get historical U.S. returns, you get something unknown, unless the claim is that past performance is related to future results.).
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In practice, I could see it this way: save up a 'stache so that 3% is your bare-bones life expenses, but a 4% withdrawal year would allow for much more travel, trips, donating to charities, etc. I need to do more research into this, but I'm really liking this idea.
That's basically my plan. I'll vary between 3% - 5% WR depending on market/portfolio performance as well as my needs. I haven't worked out the exact mechanism for moving between the different WR % ranges. That's something I'm going to work on before I FIRE.
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i've enjoyed reading this series on earlyretirementnow (https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/).
It has some good graphs showing the impact of WR on success rate of 30Y vs 60Y retirements.
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vary between 3% - 5% WR depending on market/portfolio performance as well as my needs....
Sounds like a great plan!
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Retire C: what if when they retired they could easily live on that amount but didn't account for inflation, etc?
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Stocks are basically automatic inflation hedges (30 year mortgages at 3.5% are pretty rad, too).
4% SWR/Trinity Study stuff includes historical inflation in their calculations.
You can safely assume that the folks debating this here have accounted for inflation.
-W
Retire C: what if when they retired they could easily live on that amount but didn't account for inflation, etc?
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Retire C: what if when they retired they could easily live on that amount but didn't account for inflation, etc?
As Walt notes the portfolio's that were studied as part of the 4%WR research withstood the inflation effects very well. And the 4% WR is 4% of the initial portfolio adjusted for inflation each year. It's not a static 4% of the initial portfolio.
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And the 4% WR is 4% of the initial portfolio adjusted for inflation each year. It's not a static 4% of the initial portfolio.
This is an important part of the SWE theory that many people forget.
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Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.
For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.
Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?
I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.
If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?
The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).
Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.
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Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.
For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.
Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?
I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.
If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?
The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).
Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.
Additionally, people around here act like 4% is guaranteed to be safe. You can backtest all you want, but there's no guarantee that what worked in the past will work in the future.
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If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?
I bought the whole planet. If the entire global economy collapses "early retirement" won't be on my radar. However, I'm laying my bet that the whole global economy won't collapse.
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Additionally, people around here act like 4% is guaranteed to be safe. You can backtest all you want, but there's no guarantee that what worked in the past will work in the future.
There are no guarantees in life at all. The 4% WR rule provides a target that's going to work under a wide variety of economic situations as evidenced by past performance. The solution to most of the problems I can foresee around FIRE is not [as comes up a lot on this forum] to work extra years in pursuit of a much lower WR. I think being flexible, staying physically and mentally healthy are far more beneficial than a bigger pile of money.
As I read the forums I don't see people saying the 4% cannot fail ever under any circumstances. What I see them saying is that the 4% WR rule is very conservative and it will succeed in most conceivable situations. Furthermore the failures that could occur are likely due to sequence of return risks, which happen early in FIRE and can be mitigated by a number of responses. So people point out [rightly so in my opinion] that working extra years to get a super low WR is not worth the opportunity cost in lost retirement years at the prime of your life.
Anyone of us could die tomorrow and from a FIRE perspective we would be failures if we saved for decades for little to no retirement.
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If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?
I bought the whole planet. If the entire global economy collapses "early retirement" won't be on my radar. However, I'm laying my bet that the whole global economy won't collapse.
I think that's the correct answer.
Do you feel that owning foreign companies / ETFs hedges the currency risk of your home country? The collapse of the pound is surely sweating the 'staches of people in Britain, and the US may have just followed them, policy-wise. Hopefully, the value of US funds have shot up in nominal GBP terms to provide some relief!
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Do you feel that owning foreign companies / ETFs hedges the currency risk of your home country?
My asset allocation is 50% US/30% CDN and 20% Int'l. So yes regardless of the CDN vs. USD exchange I'd be okay.
I should note that the biggest hedge is a low consumption lifestyle. If I was buying lots of consumer goods [very few of which are made in Canada] a low CDN dollar would punish me much more. As it is a low CDN dollar means my biggest/only liability [mortgage] just got devalued as well and my lifestyle is very flexible. I can happily stay home and camp/ride bikes for fun. I also enjoy Mexico a lot and typically a low CDN to USD exchange doesn't impact the CDN to Peso a lot.
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Plug your information into www.cfiresim.com (http://www.cfiresim.com). It will use a backtest to try to guess the safety of your withdrawal rate.
Also, you might investigate some of the other withdrawal protocols. (cfiresim supports a few).
[Among other things, you can replicate the Trinity study that first came up with the 4% number, in your browser, in a few seconds.]
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The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.
Haha 3.3%. When 3.5% has never failed on any horizon and 4% works forever 90+% of the time on all horizons.
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Additionally, people around here act like 4% is guaranteed to be safe. You can backtest all you want, but there's no guarantee that what worked in the past will work in the future.
There are no certainties with withdrawal rates - but at some point one has to draw the line of 'enough' for themselves. 4% is at least as good as anything, and better in a lot of ways than many others. I personally skew considerably higher, and have no regrets for doing so.
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Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.
For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.
Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?
I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.
If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?
The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).
Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.
I definitely have an allocation to international for this very reason.
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Thing is, we get the market returns and the inflation of the future, not the past. The historical path of the US economy doesn't necessarily predict its future path.
For example, the stellar performance of Japan's economy from the 1950's to 1980's did not predict the following quarter century. The levels of USD inflation in the 1970's through early 80's could not have been forseen as likely based on prior inflation. Then the trend flipped for decades after the early 80's and burned the goldbugs.
Then there are the political screwups. Imagine being a Russian fixed-income investor now, or a Brit whose currency lost 30% of its exchange value within a couple months in 2016. Remember when Brazil was a growth story? Remember when the US almost defaulted?
I'm not saying the sky is falling, I'm just pointing out that sometimes the entire game flips around, the rules change, and long-valid assumptions become false.
If you wouldn't buy a stock based on past performance, why buy an economy on the same rationale?
The best reason would be because they appear to be doing the same things that were successful in the past (education, government activity, money supply management, stability vs war, demographics, culture, corruption control, etc.).
Diversify based on how you perceive economies moving toward or away from the growth path. But please don't buy 100% US investments because they did best in the past.
I definitely have an allocation to international for this very reason.
And the same reason I weight heavily towards US stocks.
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I should note that the biggest hedge is a low consumption lifestyle.
This. If there is nothing else people get from this blog, then this lesson should be it.
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I should note that the biggest hedge is a low consumption lifestyle.
This. If there is nothing else people get from this blog, then this lesson should be it.
living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.
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Conversely, it only take a very minimal amount of money (like a part time minimum wage job) to reduce WR significantly.
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Conversely, it only take a very minimal amount of money (like a part time minimum wage job) to reduce WR significantly.
correct but even living on a larger budget (which inherently has more room for downside due to the larger pot to begin with) i'd rather be hustling to add my vacation back in than eat.
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I should note that the biggest hedge is a low consumption lifestyle.
This. If there is nothing else people get from this blog, then this lesson should be it.
living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.
+1. Two pillars of early retirement, a stash and a frugal lifestyle. The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live. That amount happens to be $2100 with a mortgage. That's for a family of three. I could shave more off of this by selling the house and moving into a small rental. Perhaps down to $1700 per month. If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time. I could work part time to earn $700 per month and make up the other $1000 from the stash. At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for. Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement. This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in. But I like to plan for as many potentialities as possible.
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I should note that the biggest hedge is a low consumption lifestyle.
This. If there is nothing else people get from this blog, then this lesson should be it.
living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.
+1. Two pillars of early retirement, a stash and a frugal lifestyle. The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live. That amount happens to be $2100 with a mortgage. That's for a family of three. I could shave more off of this by selling the house and moving into a small rental. Perhaps down to $1700 per month. If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time. I could work part time to earn $700 per month and make up the other $1000 from the stash. At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for. Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement. This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in. But I like to plan for as many potentialities as possible.
anything below 3.5% SWR is a waste of work b/c that has lasted forever throughout all of the history of the stock market on cfiresim
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I should note that the biggest hedge is a low consumption lifestyle.
This. If there is nothing else people get from this blog, then this lesson should be it.
living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.
+1. Two pillars of early retirement, a stash and a frugal lifestyle. The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live. That amount happens to be $2100 with a mortgage. That's for a family of three. I could shave more off of this by selling the house and moving into a small rental. Perhaps down to $1700 per month. If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time. I could work part time to earn $700 per month and make up the other $1000 from the stash. At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for. Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement. This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in. But I like to plan for as many potentialities as possible.
anything below 3.5% SWR is a waste of work b/c that has lasted forever throughout all of the history of the stock market on cfiresim
Agreed. I was just making the point that very early retirees can be just as successful as us "older" early retirees.
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living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.
I've got 25% for luxury items like travel, a surf board, fly rod, etc... So in a pinch I can stay local and not buy anything new for my hobbies or I could get an easy PT job to pay for those items.
The 75% that's left is not even bare bones as I have a vehicle and I can eat fancy food and do fancy stuff locally. I would say 50% of my FIRE budget is truly bare bones, but still fine and living in a house. Just nothing fancy at all. I could go even lower cost by moving into a van, but I don't think my GF would go for that and my cat keeps giving me the stink eye when I suggest it. ;)
Thing is even with full fancy pants stuff I'd spend 50% or less than my peers. At bare bones I'd be at 25% of my peers.
I would be FIRE right now living in a van eating beans and rice. However, I want some modest luxuries in my long retirement.
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Thing is even with full fancy pants stuff I'd spend 50% or less than my peers. At bare bones I'd be at 25% of my peers.
I would be FIRE right now living in a van eating beans and rice. However, I want some modest luxuries in my long retirement.
Agreed. I find it hard to even conceive spending my full salary, and yet so many of my peers (even some without children) seem to spend it all and then some every year...
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Yep I'm on the same page Canada. Almost exactly. I could be done traveling in an RV right now very happy. My spouse doesn't agree with that life so we'll work 7 more years or so
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I'm not sure if this link has been posted but I found this article linked in a bogleheads thread. I think it's a great read even if you want to scoff at how conservative it is. There are four parts, part one is below.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/ (https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/)
EDIT: I see above that tonysemail has linked the article, surprised no one else has mentioned it.
I know a lot of people will think bogleheads is way to conservative but it's one thing to live off of 25k a year while making 100k a year and another completely different thing to suddenly go to a 4% withdrawal rate on a bare minimum stash and pull 25k a year from it.
Retire Canada, hit the nail on the head. Fear is definitely an issue, I know I'd feel a lot better withdrawing 25k a year with a portfolio of 750k than 625k a year. Now if you want to retire on 40-50k a year (with a million bucks) you have a lot of fat to work with as years go by, withdrawing 20k on 500k you won't have as much fat to cut.
Another issue is actually returning to work after retirement, I know I would never want to go back to making coffees or serving sandwiches. I don't care if it's only 8 hours a week. When I retire that's it! Work part time before retiring would be fine, but retire and then 10 years later start working as a barista, not my bag.
When I hit 50, I'll be eligible for a public servant's "annual allowance" and I'll have about 750k stashed away (my FI) number. I could retire sooner and live off of 400k for 15 years until I hit 60 and collect a small pension but that is just to tight for me. I started late in this game and for now I'm ok retiring in 12 years at 50, I may see how things are at 45 but not sure I would retire just then.
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I know a lot of people will think bogleheads is way to conservative but it's one thing to live off of 25k a year while making 100k a year and another completely different thing to suddenly go to a 4% withdrawal rate on a bare minimum stash and pull 25k a year from it.
I agree with this edited version of the statement.
Retire Canada, hit the nail on the head. Fear is definitely an issue, I know I'd feel a lot better withdrawing 25k a year with a portfolio of 750k than 625k a year. Now if you want to retire on 40-50k a year (with a million bucks) you have a lot of fat to work with as years go by, withdrawing 20k on 500k you won't have as much fat to cut.
This is entirely dependant. Unfortunately, I feel these threads are becoming more about this idea of "I can only trim the fat so far". This implies simply cutting out extras or a coupon cutter mentality, to me mustachianism is more. It's changing mindset to realize that money really isn't that important to fulfillment. It's not just about finding a "sale" on the same lifestyle you've always lived, it's about experimenting with different ones... perhaps better ones where side income mixes with fun, or sharing living spaces with interesting like-minded individuals creates a better sense of belonging. Opening one's mind to various possibilities makes the idea of living off of a lower income or making a few bucks in a new way fun and interesting. Where you see depriving yourself of some necessity at a certain arbitrary withdrawal level, I see fun and interesting challenges.
Another issue is actually returning to work after retirement, I know I would never want to go back to making coffees or serving sandwiches. I don't care if it's only 8 hours a week. When I retire that's it! Work part time before retiring would be fine, but retire and then 10 years later start working as a barista, not my bag.
Again, entirely dependent, but you did succeed in implying you're better than baristas. I'm sure you're a VIP, but the most enjoyable jobs I've ever had have been in the service industry.
When I hit 50, I'll be eligible for a public servant's "annual allowance" and I'll have about 750k stashed away (my FI) number. I could retire sooner and live off of 400k for 15 years until I hit 60 and collect a small pension but that is just to tight for me. I started late in this game and for now I'm ok retiring in 12 years at 50, I may see how things are at 45 but not sure I would retire just then.
You are guaranteed to work at your current job longer than someone who was more flexible and open minded. It's your choice.
It seems you see only steak and hamburger. You have decided steak is required for good life, hamburger is unacceptable for whatever reason. You've realized that at a certain budget, no matter how many coupons, sales, and cash back bonuses you apply to the grocery bill, steak is no longer realistic and hamburger is your only choice. That is your cut point. Some realize that there is 99% of the grocery store you haven't even considered and still others realize that the grocery store isn't the only place to get food.
Back to the point, a 4%WR is only as safe as you let it be. If someone fears 4%, they will still fear 3.5 or 3.
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You got me all wrong Classical Liberal, when I say I don't want to go back to serving coffee, I literally mean "back" as in I've done it before. I worked at McD's doing early morning shifts and and overnight shifts and then as a waiter for about 8 years. Not doing that again, that's why I work at the job I currently work at. EDIT to add, never said I was to good for it, just that I wouldn't enjoy it and FIRE for me is about enjoying myself.
My comment that 20k a year is not sufficient has nothing to do with my current spending (which is about that right now if you exclude charity, and admittedly could go lower if I wanted to leave my girlfriend and move further from work) it has to do with long term care. My grandmother spent a long time in a LTC facility and it cost 60k a year. While palliative care covered by universal healthcare in Canada is great, assisted living is not.
Like I said, I'll reassess at 45 to see if 20-30k for possibly 40-45 years (long life in my family, but all end up in nursing homes) is something I'm willing to live with.
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Another issue is actually returning to work after retirement, I know I would never want to go back to making coffees or serving sandwiches. I don't care if it's only 8 hours a week. When I retire that's it! Work part time before retiring would be fine, but retire and then 10 years later start working as a barista, not my bag.
Similar sentiment.
I don't like the idea of taking a block of ER and then going back to work because my skillset would rust, my references would wither, and it would be hard to sell "I spent the last 8 years living off of savings", which sounds like a BS excuse for not having a work history and probably cover for a substance abuse problem or drug dealing. Plus, one's stache needs to be a secret from one's employer - they don't prefer employees with FU money and an agenda that involves quitting.
Career earnings for knowledge workers tend to rise over time until a peak is hit. If I quit now, I might go back to work at half my salary after a few years of ER. Plus the money I would have earned earlier would not have had a chance to compound. So the tradeoff is like 1y labor now vs. 2y later. Why not just finish the marathon and be done for a lifetime?
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I've got no issues or concerns with having to do some work later. Firstly it's a small chance and would only require some easy PT work to have a big impact on my FIRE budget. Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill. Thirdly I actually think it would be a real challenge to spend 40 or 50yrs retired and not earn another dollar aside from my investments.
I'd far more concerned about working extra years FT now in the hopes of staving off some very small chance of working PT later. That seems like a bad risk mitigation strategy to me.
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I've got no issues or concerns with having to do some work later. Firstly it's a small chance and would only require some easy PT work to have a big impact on my FIRE budget. Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill. Thirdly I actually think it would be a real challenge to spend 40 or 50yrs retired and not earn another dollar aside from my investments.
I'd far more concerned about working extra years FT now in the hopes of staving off some very small chance of working PT later. That seems like a bad risk mitigation strategy to me.
I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.
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Those saying <3.5% is a waste of time because never in history has it failed, might be wrong. Just because it hasn't happened in the past 100 years, doesn't mean it couldn't happen. I think one has to a little careful with their justifications for what they believe to be a waste of time.Each person has to work out their appetite for risk.
That said, I am perfectly comfortable rolling the dice once I have 25x saved.
Like others have said:
Step 1: you need to decide when enough is enough. No guarantees, but enough that you are ok with the risk. For me, this is 25x. If I have an average retirement based on history I will die rich. If it's less than average I might die broke, but I am willing to take some risk for some freedom.
Step 2: you need to consider what you will do if there is a crash, long recession, hyper inflation etc to minimise the damage to your stache durIng that period. For me there are 3 things.
A. Diversify and rebalance - I won't have 100% in stocks.
B. My budget includes lots of costs that could be deferred for several years: car replacement funds, home renovation funds (figuring over 40 years I will have to freshen up the kitchen, bathroom etc at least once or twice), home appliances funds, travel, clothes even. In fact I think we could manage on around 50% of our budget for 3-5 years or so. At some point we will want to spend as planned, but we could wait a while
C. Post Fire income.... whatever source. My DW can easily get short contracts as an experienced school teacher. It would be harder for me, but I am sure I could find something if it was necessary. I might work a bit even if it's not necessary. Who knows....
I am comfortable I can turn my 4% in to significantly < 2% for a few years if required. Hopefully, and most probably, the crisis will pass after a few years and then we will go back to Plan A.
I am not really wedded to looking to the past as a guide to the future. I do however sense that 25x is a big enough pile of money to play with and to take some risk based on everything I have read and experienced in my working life. I don't really know how much risk I am taking, but I don't think it is much. I definitely can't imagine all my savings disappearing too quickly. Its not like I am not putting my entire stache on black in a game of roulette. The risks are manageable.
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That statement in contradictory. I'm not a fan of looking at the past but based on everything I've read and experienced I'm good with 25x. That is entirely based on the past. All data supporting it is
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Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill.
I believe this was fun for you. Please understand that others may not feel the same way about it. Having also worked part time in retail, the misery of the experience was what drove me to buckle down and finish up college.
Because different people will place different relative value on an extra year of FIRE, an extra year working at their current job, and an extra year working at whatever sort of employment they can get with a ten year gap on their resume, possibly during a significant recession, different people will have different optimal solutions in the exact same set of circumstances. This isn't one of those situations where there is one universal correct answer that applies to everyone.
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Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill.
I believe this was fun for you. Please understand that others may not feel the same way about it. Having also worked part time in retail, the misery of the experience was what drove me to buckle down and finish up college.
Because different people will place different relative value on an extra year of FIRE, an extra year working at their current job, and an extra year working at whatever sort of employment they can get with a ten year gap on their resume, possibly during a significant recession, different people will have different optimal solutions in the exact same set of circumstances. This isn't one of those situations where there is one universal correct answer that applies to everyone.
the difference between 4% SWR and 3% SWR is not one year for 99.99% of people. you're talking about accumulating 33% more money than you currently have. a person spending 40k per year and saving say 50% so saving 40k
takes 3 extra years to get to a 3% SWR. thats not an extra year its 3x that.
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I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.
That minimum wage job wasn't going to support his new drug habit, though. :-)
I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.
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I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.
That minimum wage job wasn't going to support his new drug habit, though. :-)
I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.
7k for 20 hours a week for a year. i mean we arent talking much extra. but if you have money that 7k can be made much more easily other ways.
1. scalping tickets
2. buying crap and reselling it
3. selling tradelines on your credit cards.
4. mowing lawns. - 25-30 bucks an hour around here.
5. odd jobs for people
when you have unlimited free time of retirement there are alot of ways to use your time and your brain to make you extra money if needed.
i plan to keep churning these tradelines til that falls apart. hopefully it doesnt ever. if that happens i'll be earning 40-50k a year in FIRE after i've accumulated what i need just to live off of ... so that can basically sit and grow.
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I agree without being sold on just earning money from out of nowhere. Personally though I'd have no problems working at McDonalds. I think of Lester in American Beauty. That dude had it going on.
I have several ideas for PT work if the unlikely confluence of events transpire that I need to work a bit during FIRE. Some are fast and easy like working outdoor retail. Some require a bit more effort/time like a PT project management gig, but have better pay/working conditions.
The key things to remember are:
1. the 4% WR has a huge chance at success
2. if you can be a bit flexible with spending you can increase your odds to 100% based on the data we have with no loss in overall spending in most cases and no requirement to ever work
3. if you do have a FIRE problem it will be early in your retirement where you will be younger and find work easier
4. should you need to add some income to your FIRE it's not going to be required instantaneously so you can figure it out and come up with a plan
5. if you are following a typical frugalish MMM lifestyle you don't need to score an amazing job at the top of your field to make a huge difference to your stash
6. an extra $10K-$20K/yr for a short period is a massive boost to your portfolio yet a pretty small amount to earn for someone that FIRE'd early
7. since you are not trying to become the next CEO of Apple you are competing against some pretty mediocre folks for work
8. if you are smart capable person it will be a challenge to spend 40yrs+ in FIRE and not earn any money from a side gig
The problem with the future is we don't have all the details our future-selves will have so it's easy to fill the gaps in our knowledge with fear and anxiety. It's also possible to look rationally at the possibilities and be optimistic about your ability to deal with what comes your way.
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I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.
So how much to do you figure you have to earn per year to make a difference between success and failure? Are you starting from a 4%WR if not what are you starting from? And what is your safety margin then?
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Because different people will place different relative value on an extra year of FIRE, an extra year working at their current job, and an extra year working at whatever sort of employment they can get with a ten year gap on their resume, possibly during a significant recession, different people will have different optimal solutions in the exact same set of circumstances. This isn't one of those situations where there is one universal correct answer that applies to everyone.
I agree there is not one answer for everyone, but the reason I bother to make these comments is because as I read the explanations why people feel working extra years at the prime of their lives they don't sound rationale based on the facts. Since this is a forum to discuss FI and ER it's worth digging into that to understand what the opportunity costs are for the risks being addressed as well as to look at the many non-dollar based risks that we gloss over.
In the end everyone has to decide for themselves what they want to do. In some cases say the frequent early pay off of a mortgage discussion people conclude that despite the math and the risk analysis it makes them feel better to pay down their mortgage early understanding that that will likely mean a smaller portfolio and higher risks of foreclosure until that last payment clears. If all the relevant factors are discussed and you say hey working an extra 3yrs to mitigate this tiny risk of portfolio failure makes sense to me despite the risks [health effects of extra years of FT work] and the other ways to mitigate the risk [like easy PT work or being flexible on WRs say 3.5% - to 4.5%] than awesome go for it.
My take on it is that most professionals have been trained from a young age to work, want to work, enjoy the benefits of work and so even in the FIRE community we look for any excuse to keep doing that. We are programmed to work and fearful of change. That makes OMY so attractive as it feeds both beasts.
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i think your take is much more true of the non millenial generations thats came before us Canada.
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I should note that the biggest hedge is a low consumption lifestyle.
This. If there is nothing else people get from this blog, then this lesson should be it.
living 100% barebones makes it hard to cut in bad times ... if you have some float for travel and some other things that could be cut you can much more easily make it through some early in retirement down markets.
+1. Two pillars of early retirement, a stash and a frugal lifestyle. The way I approach this is...I've identified what I could cut from my average monthly living expenses to a barebones amount I would absolutely have to have to live. That amount happens to be $2100 with a mortgage. That's for a family of three. I could shave more off of this by selling the house and moving into a small rental. Perhaps down to $1700 per month. If things went horribly wrong and I would have to go back to work, I could almost make this by increasing the amount of substitute teaching I do. But let's say I still didn't want to work all the time. I could work part time to earn $700 per month and make up the other $1000 from the stash. At 3% WR I would need 396k to provide this amount. Not an overwhelming amount to save for. Point here is, if very early retirees are uncomfortable with a 4% WR, then 3% is more than sufficient to fund a frugal retirement. This is all an academic exercise for me as I receive a monthly pension that covers barebones expenses along with a nice cushion built in. But I like to plan for as many potentialities as possible.
Consider also that since your mortgage is inflation impervious (well most of it anyway) and the 4% WR is inflation adjusted. If your budget includes a mortgage of about $15k/yr ($13k after removing taxes which do inflate) and your spending is $40k/yr that means approximately 1/3 of your budget doesn't need an inflation adjustment. So if your spending lines up with inflation after your first ten years of ER (assuming 2% inflation):
Real 4% WR after first 10 years: ~$48,800
Mortgage after ten years: ~$15,500
Other inflation adjusted spending: ~$30,500
Actual spending: $46,000
After ten years WR: 3.77%
The benefit of your mortgage increases both with time, its percentage of your budget, and higher inflation periods. If my budget included a 30 or 15 year mortgage, at 4% I'd be approaching 3.5% WR after 20 years.
You'll have a similar benefit just owning your home too. (You won't be subject to regular rent increases). My guess is that overall, us MMM folk won't experience inflation that the government reports. Recently most high inflation has been in health, education, and services. Low or even negative inflation has been in energy, food, and housing. I've been pedaling around the idea of creating a MMM inflation index (how are US Mustachians affected by inflation compared to government's reported overall inflation) to prove out this theory, but I've been short on time. I may be able to get around to it when I hope to quit my job this summer.
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the difference between 4% SWR and 3% SWR is not one year for 99.99% of people. you're talking about accumulating 33% more money than you currently have. a person spending 40k per year and saving say 50% so saving 40k
takes 3 extra years to get to a 3% SWR. thats not an extra year its 3x that.
That's a good point. Since historically sequence of returns is the most likely way for a portfolio to fail, it might be reasonable to mitigate it with a delay of retirement measured in time rather than money - perhaps deciding to literally work "one more year" by not retiring until your portfolio has remained over 25x your expenses for an entire year. If you accumulate with a 50% savings rate and that year happens to have 7% real returns, then you'd retire with a 3.6% withdraw rate.
Backtesting this idea with the most recent crash (all assume a 50% savings rate in accumulation and 100% stock portfolio):- Using a 4% SWR after accumulating 25x expenses at the end of 2007, making no adjustments for the 2008-9 crash, portfolio should have recovered to be about 25x expenses again now
- Waiting a year after accumulating 25x expenses at the end of 2006, making no adjustments for the 2008-9 crash, portfolio should have recovered to be about 28x expenses now.
- Waiting a year after accumulating 25x expenses at the end of 2007, delaying retirement due to 2008-9 crash, portfolio should have recovered to 25x expenses in 2010. Retiring at the end of 2010, current portfolio should be over 38x expenses.
- Accumulating 25x expenses at the end of 2007, but targeting 3.5% SWR - would retire in 2012
- Accumulating 25x expenses at the end of 2007, but targeting 3.0% SWR - would retire in 2013
So even the retiree who happened to retire 9 months before the 2008 crash with only 25x expenses looks to be doing OK. One more year retirees are doing great. Lower SWR retirees worked 5-6 extra years. Personally I still prefer the idea of being flexible with spending and/or seeking supplemental income during down years to be much more appealing than delaying retirement beyond the 4% SWR rule; however, it'd be nice to look deeper into the idea of setting a target portfolio:expense ratio and a target time period for that ratio to be maintained as a trigger for retirement.
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Consider also that since your mortgage is inflation impervious (well most of it anyway) and the 4% WR is inflation adjusted. If your budget includes a mortgage of about $15k/yr ($13k after removing taxes which do inflate) and your spending is $40k/yr that means approximately 1/3 of your budget doesn't need an inflation adjustment. So if your spending lines up with inflation after your first ten years of ER (assuming 2% inflation):
Yeah, I agree. 4% WR is somewhat academic for me. In reality, I divide my expenses between perpetual ones and expiring ones.
Eventually, my mortgage is paid and my kids are launched and then my WR drops in half.
This can all be modeled as Other Spending in cfiresim.
Similarly, you can model expenses that are likely to increase faster than CPI.
This post (http://thehappyphilosopher.com/dangers-of-relying-on-the-4-rule-in-early-retirement-scenarios/) caused me to update my estimate for healthcare expenses.
At the end of the day, it didn't matter much because my expiring expenses more than make up for the expected healthcare inflation.
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i think your take is much more true of the non millenial generations thats came before us Canada.
That would make sense since I'm part of those non-millennial generations. ;)
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for mortgages i pull it out of my retirement calc b/c its finite. and decreases with inflation. so if i need 40k a year to live on i need 1MM plus my remaining mortgage balance. which in the early years causes greater risk of sequence of return issues due to it being a higher than 4% WR on the stash as a whole. but i'm a long 7 years away from FIRE and can cross the OMY bridge when i get there. since at that time each extra year will be worth 300k+ in money towards the stash.
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Secondly having done retail sales in an outdoors shop it's fun and not particularly hard when it's not FT or your only source of income. Chatting about someone's upcoming trip while you sell them a tent is very chill.
I believe this was fun for you. Please understand that others may not feel the same way about it. Having also worked part time in retail, the misery of the experience was what drove me to buckle down and finish up college.
Because different people will place different relative value on an extra year of FIRE, an extra year working at their current job, and an extra year working at whatever sort of employment they can get with a ten year gap on their resume, possibly during a significant recession, different people will have different optimal solutions in the exact same set of circumstances. This isn't one of those situations where there is one universal correct answer that applies to everyone.
the difference between 4% SWR and 3% SWR is not one year for 99.99% of people. you're talking about accumulating 33% more money than you currently have. a person spending 40k per year and saving say 50% so saving 40k
takes 3 extra years to get to a 3% SWR. thats not an extra year its 3x that.
I wasn't specifically arguing for 3%. I completely agree that is overkill. Take the example of 3.5%. That's the difference between 25 years of spending and ~28.5 years of spending. For a person living on 30-45% of their take home plus earning a year or more worth on living expenses on the compounded growth of 25 years living expenses, the difference is approximately one year.
But the ratio of years worked to years might have to work in the future isn't really the point. The 4% rule maxes out at an ~8% failure rate for an assumed retirement of ~48 years, while 3.5% withdrawal rate basically never fails. If a person thinks a job they could find after being out of the labor force for a decade, in the middle of a major recession, would be 15x more unpleasant than their current job, it makes logical sense for them to work the extra year (and this assumes they'd only have to work that job for one year). If they'd have to work longer in a failure scenario, then it makes sense for them to work longer at their current job even if they only have a 8x differential in how unpleasant they find the two jobs. On the other hand, if they're saving money more slowly, even at higher differentials of unpleasantness between current work and future work, it makes sense to FIRE earlier.
Plus humans are weird non-logical creatures, and small risks of bad things happening to us disturb our happiness more than they should in a purely utilitarian model. We can argue we shouldn't be weird and illogical, or we can accept that our brains won't always process statistics and risks unemotionally and plan around it to still ensure ourselves the happiest lives we can manage.
For what it's worth, I'm perfectly happy retiring at a 4% withdrawal rate, with my safety margin coming from ways I could cut spending in bad years/decades rather than going back to work in bad years/decades.
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Snip.
I agree there is not one answer for everyone, but the reason I bother to make these comments is because as I read the explanations why people feel working extra years at the prime of their lives they don't sound rationale based on the facts. Since this is a forum to discuss FI and ER it's worth digging into that to understand what the opportunity costs are for the risks being addressed as well as to look at the many non-dollar based risks that we gloss over.
In the end everyone has to decide for themselves what they want to do. In some cases say the frequent early pay off of a mortgage discussion people conclude that despite the math and the risk analysis it makes them feel better to pay down their mortgage early understanding that that will likely mean a smaller portfolio and higher risks of foreclosure until that last payment clears. If all the relevant factors are discussed and you say hey working an extra 3yrs to mitigate this tiny risk of portfolio failure makes sense to me despite the risks [health effects of extra years of FT work] and the other ways to mitigate the risk [like easy PT work or being flexible on WRs say 3.5% - to 4.5%] than awesome go for it.
My take on it is that most professionals have been trained from a young age to work, want to work, enjoy the benefits of work and so even in the FIRE community we look for any excuse to keep doing that. We are programmed to work and fearful of change. That makes OMY so attractive as it feeds both beasts.
Point well taken, and I think it's definitely important to have voices on this forum making the points you've been making in this discussion. Some people really wouldn't be bothered by a smallish risk of going back to work for a few years, but if they never hear anyone make the point, they really may fall victim to OMY syndrome for no good reason. Similarly, being flexible about your spending in down years really REALLY helps cushion against a series of bad years early in FIRE, and it's important people consider whether a risk of having to cut some discretionary spending is really worth putting in more time at work. So yeah, I personally don't get the same answer to at least one of those questions as you, but I'm glad that the questions are at least being asked.
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I have been surprised at how much unsolicited work has come my way since retiring almost 5 years ago. In the beginning I took it all but now I only teach an online college class that I love. I just turned down more work last week. Before I retired I kept reading that people had trouble finding p.t. work in retirement (even professionals) but that has not been the case.
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I have been surprised at how much unsolicited work has come my way since retiring almost 5 years ago. In the beginning I took it all but now I only teach an online college class that I love. I just turned down more work last week. Before I retired I kept reading that people had trouble finding p.t. work in retirement (even professionals) but that has not been the case.
what did you do?
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vocational testing/evaluation/career counseling to help people with disabilities get back to work. It is a tiny occupation with very few people qualified to do it.
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Ok - so if you are planning on working again in worst case scenario, when does that happen? We all know sequence of returns risk at the beginning is terrible. So do you wait until year 10? Year 2? How do you know if you are in the worst retirement environment in history? When your portfolio hits a certain percentage of original? Is that 50%? 20%? 80% ??
I'm curious to know what people are thinking.
Sent from my iPhone using Tapatalk
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I'm always going to be making money even in fire I love buying and selling shit
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I'm curious to know what people are thinking.
I haven't worked out my FIRE WR strategy yet, but I intend to vary my WR between 3% and 5% aiming to average ~4% depending on market performance. That will likely mean no requirement to ever work PT. That said I can't envision 40yrs+ where I don't earn any money at all. I don't have a $ number or % in mind that indicates I have to find PT work, but I will be evaluating my portfolio annually when I decide on the $ to WR. I'll use that opportunity to consider if any additional income is required.
I expect there will be many people here or in whatever FIRE forums are popular at the time discussing that very question. Those conversations will contribute to my decision making process.
One thing I suspect is that when I can no longer crush the trails mountain biking and kite surfing becomes untenable I'll be interested in doing something out of the house with my spare time and I won't be shocked at all if I grab a PT job in a bike shop or outdoor store. That'll let me stay connected to the outdoor community and if I earn a few bucks [needed or not] that's cool.
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Ok - so if you are planning on working again in worst case scenario, when does that happen? We all know sequence of returns risk at the beginning is terrible. So do you wait until year 10? Year 2? How do you know if you are in the worst retirement environment in history? When your portfolio hits a certain percentage of original? Is that 50%? 20%? 80% ??
I'm curious to know what people are thinking.
Sent from my iPhone using Tapatalk
If you spend 4% as long as your portfolio is >= to your original stash in inflation adjusted terms, and 3.3% or less in years when your portfolio is work less than your original stash in inflation adjusted terms, you will never run out of money (based on a 100% stock portfolio, and retirement lengths between 20 and 100 years, using data from 1871-present).
So if you have a little less than 20% of your planned spending you can either skip in bad years, or if you are willing work enough to bring in a little less than 20% of your FIRE income in bad years, you're golden. The farther you let your portfolio drop before you take action, the more you have to work or the more spending you have to cut to get back to a 100% historical success rate.
(https://i1.imgpile.com/i/2p3aX.png) (https://imgpile.com/i/2p3aX)
Partially recycled image from another thread about how planning for extremely long retirements can actually make you less conservative by taking really bad years to retire (like 1965) out of the simulations.
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That statement in contradictory. I'm not a fan of looking at the past but based on everything I've read and experienced I'm good with 25x. That is entirely based on the past. All data supporting it is
I agree that it sounds contradictory, but it wasn't meant to be.
Yes, 25x is normally linked to the trinity study and with reference to past performance. It's hard to divorce the future from the past.
But what I was trying to say is that you can't rely too much on the past so you have to just pick a point at which you are willing to take the risk and move forward.
If I take 25x and am flexible in the down years, and if the market performs at around 3% above inflation over the long term I should be ok to spend my stache over 35-40years or so, particularly as I feel sure I will pick up some extra cash along the way eg pension, inheritance, casual employment etc.
It's a gamble, but I'll take the risk.
If the market only returns 2% above inflation, or things go to crap in the coming 10 years I'll have to invoke a plan B.
In a capatilist world people go into business to make money, so I feel pretty comfortable with an assumption that returns will be greater than inflation over the long term - how much? No idea.
Dividend yields in Australia are currently around 5%. I get a net rental yield of 3 % on my rental property. I can always buy a cheaper home.
I think 25x will be enough without reference to the trinity study.
Absolute worst case, I go back to work or I'll just receive a government pension when I am old and live off that.
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If you spend 4% as long as your portfolio is >= to your original stash in inflation adjusted terms, and 3.3% or less in years when your portfolio is work less than your original stash in inflation adjusted terms, you will never run out of money (based on a 100% stock portfolio, and retirement lengths between 20 and 100 years, using data from 1871-present).
thanks for showing/linking this image- really awesome takeaway here and a great point.
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I just don't buy that anyone who has the discipline to hit 25x annual spending in their mid-20's is just going to stop generating income for the rest of their life.
It's not realistic.
Jason Fieber has a great article on this:
http://www.mrfreeat33.com/why-much-of-the-math-on-early-retirement-is-moot/
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I just don't buy that anyone who has the discipline to hit 25x annual spending in their mid-20's is just going to stop generating income for the rest of their life.
It's not realistic.
Jason Fieber has a great article on this:
http://www.mrfreeat33.com/why-much-of-the-math-on-early-retirement-is-moot/
From the article you linked to:
And that means that if you want to work, you’ll be doing it because you want to rather than because you have to. There’s a big difference there.
The easiest way to ruin the joy of anything done for fun is to make it mandatory.
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The easiest way to ruin the joy of anything done for fun is to make it mandatory.
That's definitely true. I'd add if you wanted to make a significant difference in your FIRE income and are somewhat frugal a PT job will do the trick. I think it's far easier to enjoy work at 10hrs or 20hrs a week for a finite number of months vs. 40hrs or 50hrs a week for year after year.
I'll also note that if you decide to do some PT work during FIRE [either to cushion your portfolio a bit or perhaps afford something luxurious that's not in your normal budget] it's not like the ATM stops spitting out $20's and it's either beg for a job flipping burgers at McD's or starve. It's a process that doesn't have to be rushed. You can take a breathe figure out what your options are and take some action when you are ready.
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The easiest way to ruin the joy of anything done for fun is to make it mandatory.
That's definitely true. I'd add if you wanted to make a significant difference in your FIRE income and are somewhat frugal a PT job will do the trick. I think it's far easier to enjoy work at 10hrs or 20hrs a week for a finite number of months vs. 40hrs or 50hrs a week for year after year.
I'll also note that if you decide to do some PT work during FIRE [either to cushion your portfolio a bit or perhaps afford something luxurious that's not in your normal budget] it's not like the ATM stops spitting out $20's and it's either beg for a job flipping burgers and McD's or starve. It's a process that doesn't have to be rushed. You can take a breathe figure out what your options are and take some action when you are ready.
An occasional temp job from an employment agency would do the trick. The nature of the work might be 3 months full time but IMO that would just make FIRE sweeter, like retiring multiple times. No, the hourly/consulting pay would not be very high, like a 50h/week job, but you're also working when it's convenient.
Personally, I'd rather work FT for just a little bit longer and not have to do this ever, but this is always a fallback option to comfort me if I thought my stache was too low.
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Personally, I'd rather work FT for just a little bit longer and not have to do this ever, but this is always a fallback option to comfort me if I thought my stache was too low.
And that's kind of the point- even in a recession you are still earning dividends and have a 'stache in the bank, so you can do things on your time.
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Ok - so if you are planning on working again in worst case scenario, when does that happen? We all know sequence of returns risk at the beginning is terrible. So do you wait until year 10? Year 2? How do you know if you are in the worst retirement environment in history? When your portfolio hits a certain percentage of original? Is that 50%? 20%? 80% ??
I'm curious to know what people are thinking.
Personal short answer: Within the first 7 years and when the portfolio goes down 10% from its value at t=0.
Reason why: Looking through all the sims, portfolios that failed all showed stress (defined as droping below the starting balance) within the first 7 years. Its important to note that not all sims that showed stress eventually failed - about 50% recovered... but that's would be my first warning sign.
From that point forward it would be a matter of dropping my WR down below 3.5% by spending less, earning some or both. For us that would be $5k/year, and we've decided this possibility is nothing to stress over. It's actually not very different from our current plan where we'll go part time for many years before finally hitting the ER button. We could also more than hit this by slow traveling for a few months in LCOL areas.
How long: Still trying to work this out but I'd feel comfortable again once we went 5% above our original portfolio amount. From personal experience it seems very hard to earn LESS than $5k/year working part time, as most companies want to give you a big enough job to offset the cost and paperwork of hiring you.
That's just us - others may do things differently.
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There is a lot of conversation about part time work picking up slack in bad sequence scenarios, so, I’m just going to point something out that may not be obvious. Someone retiring very young will likely still want to make a difference with their life. Sure a couple of years traveling, reclaiming mental health and physical fitness, working on the house or homestead, child rearing until kids become more independent will be fulfilling. However, over a period of decades this is not going to be enough for the type of person who was motivated enough to become FI.
Eventually, mentality will shift back to participating in meaningful activities. Unfortunately, most volunteer work is not that fulfilling in itself. Sure, you can stock at the food shelf two days a week, but this type of work will likely be no more fulfilling than working a 9-5 at the supermarket doing the same for 15 bucks an hour. Not saying someone doesn’t have to do it, just that I doubt someone with a Mustachian personality type is going to limit him/herself to this type of activity. If you think a stocking volunteer who offers to create an inventory software and distribution system to increase efficiency will be allowed to do so, think again. If you want to make that contribution, you’ll likely have to take a part time job at the food shelf, probably at a ridiculously low wage, but it's unexpected income. Want to volunteer in the medical corps for six months… sorry, but part of the package is that they pay for your food, housing and travel while on assignment, more unexpected compensation. I could go on ad nauseam, but the point is the world perceives value through how much they have to pay for it. Any truly meaningful activity is likely going to provide unexpected compensation.
This framework has been shown anecdotally, time and again, with the experiences of those on this forum. A 29 year old Mustachian who earns no other form of compensation through a 60+ year retirement is less likely than a 4% rule failure, and that’s pretty low.
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There is a lot of conversation about part time work picking up slack in bad sequence scenarios, so, I’m just going to point something out that may not be obvious. Someone retiring very young will likely still want to make a difference with their life.
[snip]
I've never met an early retiree who didn't wind up earning money or compensation for something at some point. We live in a world that's set up to reward time spent with compensation. Most individuals actually feel uncomfortable not paying you for doing something, and many businesses simply cannot allow you to work for very long without paying you (often required by law).
Call the IRP if you must... but being a functional member of society typically means you get something for it.
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Here's a simple tool for testing SWR.
Sorry, need more clickbait. THE ONE SIMPLE TOOL THAT WILL CHANGE YOUR LIFE COMPLETELY!!!!! OMG!!!!!!
https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf
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I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.
So how much to do you figure you have to earn per year to make a difference between success and failure? Are you starting from a 4%WR if not what are you starting from? And what is your safety margin then?
Minimum wage "part-time" job:
$8.15/h x20h x50w x(1-0.0765) = $7,526 take home
Our health insurance and OOP medical/dental costs in 2016 were $15K. That's just a normal, nobody got sick year. So the minimum wage part time job pays only half of our medical. And that's before the ACA gets repealed. It's anybody's guess what it will cost in 2018, assuming we can even get insurance.
You see my point? The part time minimum wage option is a non-starter for a person with a family to support. Yes, it would help. No, it isn't even remotely on my radar.
I've built a large safety margin into my future expense estimates. Or into my withdrawal rate. Depends on how you look at it.
I'm keeping my hand in picking up consulting work from selected old clients. It's easy and pays a lot more than the min wage option :-)
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I have a family to support. A part time minimum wage job isn't going to make enough difference for me. I have to build in a safety margin elsewhere.
So how much to do you figure you have to earn per year to make a difference between success and failure? Are you starting from a 4%WR if not what are you starting from? And what is your safety margin then?
Minimum wage "part-time" job:
$8.15/h x20h x50w x(1-0.0765) = $7,526 take home
Our health insurance and OOP medical/dental costs in 2016 were $15K. That's just a normal, nobody got sick year. So the minimum wage part time job pays only half of our medical. And that's before the ACA gets repealed. It's anybody's guess what it will cost in 2018, assuming we can even get insurance.
You see my point? The part time minimum wage option is a non-starter for a person with a family to support. Yes, it would help. No, it isn't even remotely on my radar.
I've built a large safety margin into my future expense estimates. Or into my withdrawal rate. Depends on how you look at it.
I'm keeping my hand in picking up consulting work from selected old clients. It's easy and pays a lot more than the min wage option :-)
Sorry, but I'm not really understanding your point here and why it would be a non-starter. Your theoretical part-time job at minimum wage would be $8k. Why would that be a non-starter, medical costs aside? Total spending is what matters, not any sub-category; if you normally spend $40k/year then the extra $8k would reduce your reliance on investments an equatable amount. More to the point, it allows you not to draw down as much principle.
What am I missing?
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I'm keeping my hand in picking up consulting work from selected old clients. It's easy and pays a lot more than the min wage option :-)
If I needed to work during FIRE I'd far rather do consulting work than retail. As has been noted the need to make money is not a panic situation so I would take a moment to find the best option of those that seem reasonable at the time. Here a PT retail job in a bike shop or outdoors store would be over $15/hr. 20hrs a week for 6 months would knock my WR down to 3.5%WR. Add in some easy spending modifications and I'd be below 3%WR.
How much is your annual FIRE budget?
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Sorry, but I'm not really understanding your point here and why it would be a non-starter. Your theoretical part-time job at minimum wage would be $8k. Why would that be a non-starter, medical costs aside? Total spending is what matters, not any sub-category; if you normally spend $40k/year then the extra $8k would reduce your reliance on investments an equatable amount. More to the point, it allows you not to draw down as much principle.
What am I missing?
You're not missing anything. I'm just trying to show how insignificant working 1000 hours at min wage might be for someone with a family to support. I think a parent needs to have a better plan if he/she take their responsibilities seriously.
A single person or childless couple? No problem.
EDIT - wanted to add more but plane was taking off - I'm on one of those part time consulting gigs :-)
$40k stash, say it drops 40%. Your costs don't drop 40%. Your part time job makes up only half of it.
I got to admit also that I'd find it hard to be happy selling my time at min wage. I FIRE'd because I value my time higher than $100/hour. I'm not going to be happy at $10/hour unless it's doing something I'd do for free anyway.
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I'm keeping my hand in picking up consulting work from selected old clients. It's easy and pays a lot more than the min wage option :-)
If I needed to work during FIRE I'd far rather do consulting work than retail. As has been noted the need to make money is not a panic situation so I would take a moment to find the best option of those that seem reasonable at the time. Here a PT retail job in a bike shop or outdoors store would be over $15/hr. 20hrs a week for 6 months would knock my WR down to 3.5%WR. Add in some easy spending modifications and I'd be below 3%WR.
How much is your annual FIRE budget?
Quite a bit more than yours. It covers 5 people, though. 3 growing kids.
How many people does your cover?
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$40k stash, say it drops 40%. Your costs don't drop 40%. Your part time job makes up only half of it.
I got to admit also that I'd find it hard to be happy selling my time at min wage. I FIRE'd because I value my time higher than $100/hour. I'm not going to be happy at $10/hour unless it's doing something I'd do for free anyway.
The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
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$40k stash, say it drops 40%. Your costs don't drop 40%. Your part time job makes up only half of it.
I got to admit also that I'd find it hard to be happy selling my time at min wage. I FIRE'd because I value my time higher than $100/hour. I'm not going to be happy at $10/hour unless it's doing something I'd do for free anyway.
The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
Just curious - did you have a significant portion of your net worth invested in 2008 and 2009?
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The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
Great points.
As has been pointed out, if your stash drops 40% (or X% from its inflation adjusted starting value) and one is living off of 4% withdrawls, they only need to drop their withdrawls 12.5% to ensure they will never run out of money. At $40K, this puts it in the neighborhood of $5K, or even less than a minimum wage job. If spending is double that, two adults with jobs would fill that gap easily until the portfolio amount returns to the inflation-adjusted value.
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The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
Great points.
As has been pointed out, if your stash drops 40% (or X% from its inflation adjusted starting value) and one is living off of 4% withdrawls, they only need to drop their withdrawls 12.5% to ensure they will never run out of money. At $40K, this puts it in the neighborhood of $5K, or even less than a minimum wage job. If spending is double that, two adults with jobs would fill that gap easily until the portfolio amount returns to the inflation-adjusted value.
How do you get the 12.5% figure?
If I had a stash of $1m, which allows me to withdraw $40k per year, and the stash drops 40%, it becomes $600k. That $600k only allows me to withdraw $24k per year (using the 4%) rule. $24k is a 40% drop from $40k. I might be missing something obvious here.
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If I had a stash of $1m, which allows me to withdraw $40k per year, and the stash drops 40%, it becomes $600k. That $600k only allows me to withdraw $24k per year (using the 4%) rule. $24k is a 40% drop from $40k. I might be missing something obvious here.
That's not how the 4% WR Rule works.
- if your starting portfolio is $1M you can withdraw $40K year 1
- if year 2 there is a market crash and your portfolio ends up at $600K the 4% WR plan is to still withdraw $40K + inflation
- you do not reset your WR % each year based on your current portfolio value you use 4% of the initial value + inflation
- using the cFIREsim defaults this have a ~96% chance of success using historical data
Now practically speaking you may cut back on spending by $5K and maybe take a PT side gig for $10K that year because you are concerned about such a big drop early on, but the 4% WR plan is not telling you to only take $24K that year from your investments.
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If I had a stash of $1m, which allows me to withdraw $40k per year, and the stash drops 40%, it becomes $600k. That $600k only allows me to withdraw $24k per year (using the 4%) rule. $24k is a 40% drop from $40k. I might be missing something obvious here.
That's not how the 4% WR Rule works.
- if your starting portfolio is $1M you can withdraw $40K year 1
- if year 2 there is a market crash and your portfolio ends up at $600K the 4% WR plan is to still withdraw $40K + inflation
- you do not reset your WR % each year based on your current portfolio value you use 4% of the initial value + inflation
- using the cFIREsim defaults this have a ~96% chance of success using historical data
Now practically speaking you may cut back on spending by $5K and maybe take a PT side gig for $10K that year because you are concerned about such a big drop early on, but the 4% WR plan is not telling you to only take $24K that year from your investments.
Ah, thanks for the clarification. Okay, so I understand that if withdrawing $40k annually from a $1 million portfolio will result in a ~96% success rate, then reducing the amount withdrawn by even, say, 10%, would increase the success rate. I still don't understand where 12.5% comes from. What would a 12.5% reduction in expenses increase the success rate to?
Personally I'm quite risk averse and have a lot of flexibility in my budget for at least the first few years - I plan to move to a LCOL area upon FIRE-ing for a year or two (possibly permanently if I like it there), but my FIRE target is based on my current expenses. So if my portfolio drops x% in the first year, I'm planning to drop my spending by x% - up to a point. If my portfolio drops 40% I'm not sure I'll be able to reduce my spending by 40% but I think I'll be able to cut back by around 20% relatively easily.
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Ah, thanks for the clarification. Okay, so I understand that if withdrawing $40k annually from a $1 million portfolio will result in a ~96% success rate, then reducing the amount withdrawn by even, say, 10%, would increase the success rate.
If you use a variable WR going from 3.5% to 4.5% of the initial portfolio value depending on market returns [so for $1M WRing $35K to $45K] you get 100% success using historical data with cFIREsim.
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Ah, thanks for the clarification. Okay, so I understand that if withdrawing $40k annually from a $1 million portfolio will result in a ~96% success rate, then reducing the amount withdrawn by even, say, 10%, would increase the success rate.
If you use a variable WR going from 3.5% to 4.5% of the initial portfolio value depending on market returns [so for $1M WRing $35K to $45K] you get 100% success using historical data with cFIREsim.
That is very reassuring, thanks! I may start rethinking my overly conservative plans....
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That is very reassuring, thanks! I may start rethinking my overly conservative plans....
No problem. I plan to use a variable WR rate plan as it gets me to FIRE faster.
Interestingly if you look at the average and median yearly WR using that variable rate plan in the previous post they are both above $40K/yr. So you have a higher probability of success and are likely to have higher WR amounts. That's win-win for just a bit of flexibility in your spending.In a bad return year if you didn't want to take the "pay cut" at $35K you could do an easy side gig to get $5K to spend and be back at $40K/yr.
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That is very reassuring, thanks! I may start rethinking my overly conservative plans....
No problem. I plan to use a variable WR rate plan as it gets me to FIRE faster.
A variable WR rate plan does seem to be the way to go, I had just never used that feature on cfiresim before. I also think that human nature will make it hard NOT to be somewhat variable in your WR unless your planned expenditure was already barebones. If my portfolio dropped 40% in the first year after I retired, I doubt I'd be able to resist cutting back my spending by at least 10-20%. All it would mean for me is not taking vacations that I had planned for in my expenses.
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A variable WR rate plan does seem to be the way to go, I had just never used that feature on cfiresim before. I also think that human nature will make it hard NOT to be somewhat variable in your WR unless your planned expenditure was already barebones. If my portfolio dropped 40% in the first year after I retired, I doubt I'd be able to resist cutting back my spending by at least 10-20%. All it would mean for me is not taking vacations that I had planned for in my expenses.
Agreed. I just looked at some rough numbers and the difference for me to go variable WR vs. a similar constant WR was 2.5yrs of extra full-time work. No thanks!
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So what number are you shooting for Canada. You said it helps your fire faster. Are you firing at 4.5% swr
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So what number are you shooting for Canada. You said it helps your fire faster. Are you firing at 4.5% swr
I haven't decided yet. I'm going to stop FT work at the end of this year and let the 'stash do its thing. That way I get lots more free time now while earning enough to cover costs.
Here are a couple options...
Constant WR
- FIRE target $1.1M
- take out $40K + $6K taxes each year [less CPP + OAS]
- cFIREsim = 96% success
- avg/median WR/yr = $46K
Variable WR
- FIRE target $850K
- take out $35K to $60K each year [less CPP + OAS]
- cFIREsim = 100%
- median WR/yr = ~$45K
I'm at $675K today. So I'll add what I can in 2017 and then coast until I'm happy with the value of the portfolio. At the moment I'd like $46K/yr income in Canada bucks. That's like $35K USD/yr. I'm going to continue to optimize spending so perhaps I'll get that lower. $850K seems like a reasonable compromise and that's 5.4%WR [-1.4%/+1.7%] @ $46K/yr. I can collect modest Gov't benefits in 2029 and more in 2034.
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Thank you for referencing my article tonysemail. This is a very interesting and thoughtful thread and I'm glad I stumbled upon it.
I think the 4% rule can work for someone in extremely early retirement, but there are certainly more things to consider. Health care is something that I spend a great deal of time thinking about (perhaps because I work in the industry and see the chaos it introduces to many peoples lives). The problem is that health care costs are growing at or faster than inflation while at the same time buying health insurance gets much more expensive as you age. Over long periods of time these little increases add up. Most people will do just fine, but if you are in one of those unlucky cohorts that retires in a year where 4% barely makes it, then these areas of lifestyle inflation become real problems. I think the 4% rule is a good foundation. I just question my ability to actually stick to a 4% withdrawal when times get tough and life becomes more expensive. I guess it just depends on how badass you are. I'm kinda wimpy and risk averse :)
For me personally, when I retire I don't want to have to go back to work 15 years later. I'm not sure I would be hireable. I make great money right now and can trade my time for it at a very high rate. It is a factor I think one needs to take into consideration. I can go from 4% to 3% in only a few years because of my high savings rate and relatively low spending in relation to my income. If your needs are low and there is not a big barrier to getting back into the workforce I think 4% is solid at any age.
Consider also that since your mortgage is inflation impervious (well most of it anyway) and the 4% WR is inflation adjusted. If your budget includes a mortgage of about $15k/yr ($13k after removing taxes which do inflate) and your spending is $40k/yr that means approximately 1/3 of your budget doesn't need an inflation adjustment. So if your spending lines up with inflation after your first ten years of ER (assuming 2% inflation):
Yeah, I agree. 4% WR is somewhat academic for me. In reality, I divide my expenses between perpetual ones and expiring ones.
Eventually, my mortgage is paid and my kids are launched and then my WR drops in half.
This can all be modeled as Other Spending in cfiresim.
Similarly, you can model expenses that are likely to increase faster than CPI.
This post (http://thehappyphilosopher.com/dangers-of-relying-on-the-4-rule-in-early-retirement-scenarios/) caused me to update my estimate for healthcare expenses.
At the end of the day, it didn't matter much because my expiring expenses more than make up for the expected healthcare inflation.
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So what number are you shooting for Canada. You said it helps your fire faster. Are you firing at 4.5% swr
I haven't decided yet. I'm going to stop FT work at the end of this year and let the 'stash do its thing. That way I get lots more free time now while earning enough to cover costs.
Here are a couple options...
Constant WR
- FIRE target $1.1M
- take out $40K + $6K taxes each year [less CPP + OAS]
- cFIREsim = 96% success
- avg/median WR/yr = $46K
Variable WR
- FIRE target $850K
- take out $35K to $60K each year [less CPP + OAS]
- cFIREsim = 100%
- median WR/yr = ~$45K
I'm at $675K today. So I'll add what I can in 2017 and then coast until I'm happy with the value of the portfolio. At the moment I'd like $46K/yr income in Canada bucks. That's like $35K USD/yr. I'm going to continue to optimize spending so perhaps I'll get that lower. $850K seems like a reasonable compromise and that's 5.4%WR [-1.4%/+1.7%] @ $46K/yr. I can collect modest Gov't benefits in 2029 and more in 2034.
Good call. Probably gonna do this allows for crazy top end spending if I just cut 5k or just make 5 k in down years which I'll likely do anyways
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Thank you for referencing my article tonysemail. This is a very interesting and thoughtful thread and I'm glad I stumbled upon it.
I think the 4% rule can work for someone in extremely early retirement, but there are certainly more things to consider. Health care is something that I spend a great deal of time thinking about (perhaps because I work in the industry and see the chaos it introduces to many peoples lives). The problem is that health care costs are growing at or faster than inflation while at the same time buying health insurance gets much more expensive as you age. Over long periods of time these little increases add up. Most people will do just fine, but if you are in one of those unlucky cohorts that retires in a year where 4% barely makes it, then these areas of lifestyle inflation become real problems. I think the 4% rule is a good foundation. I just question my ability to actually stick to a 4% withdrawal when times get tough and life becomes more expensive. I guess it just depends on how badass you are. I'm kinda wimpy and risk averse :)
For me personally, when I retire I don't want to have to go back to work 15 years later. I'm not sure I would be hireable. I make great money right now and can trade my time for it at a very high rate. It is a factor I think one needs to take into consideration. I can go from 4% to 3% in only a few years because of my high savings rate and relatively low spending in relation to my income. If your needs are low and there is not a big barrier to getting back into the workforce I think 4% is solid at any age.
Consider also that since your mortgage is inflation impervious (well most of it anyway) and the 4% WR is inflation adjusted. If your budget includes a mortgage of about $15k/yr ($13k after removing taxes which do inflate) and your spending is $40k/yr that means approximately 1/3 of your budget doesn't need an inflation adjustment. So if your spending lines up with inflation after your first ten years of ER (assuming 2% inflation):
Yeah, I agree. 4% WR is somewhat academic for me. In reality, I divide my expenses between perpetual ones and expiring ones.
Eventually, my mortgage is paid and my kids are launched and then my WR drops in half.
This can all be modeled as Other Spending in cfiresim.
Similarly, you can model expenses that are likely to increase faster than CPI.
This post (http://thehappyphilosopher.com/dangers-of-relying-on-the-4-rule-in-early-retirement-scenarios/) caused me to update my estimate for healthcare expenses.
At the end of the day, it didn't matter much because my expiring expenses more than make up for the expected healthcare inflation.
I heartily agree healthcare costs are a great uncertainty. I'm 51 and have maintained good health, and therefore I hardly have any medical expenses. But health insurance for me has gone up over the years, and the only reason I'm not paying exorbitantly for it now is because of the subsidies under the ACA. We all know how long that's likely to last. The uncertainty of future health insurance costs that used to spiral up for me prior to ACA, and the uncertainty of some unknown medical event in the future are the reasons I want to build in an extra layer of financial security, maybe more like a 2% rule. Obviously, Canada's health care situation is a lot more sane and predictable, and if I lived there I think the 4% rule would be no problem. Because the US social safety net is so much weaker than Canada's I have to save more and spend less to cover me for these future unknowns.
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I heartily agree healthcare costs are a great uncertainty. I'm 51 and have maintained good health, and therefore I hardly have any medical expenses. But health insurance for me has gone up over the years, and the only reason I'm not paying exorbitantly for it now is because of the subsidies under the ACA. We all know how long that's likely to last. The uncertainty of future health insurance costs that used to spiral up for me prior to ACA, and the uncertainty of some unknown medical event in the future are the reasons I want to build in an extra layer of financial security, maybe more like a 2% rule. Obviously, Canada's health care situation is a lot more sane and predictable, and if I lived there I think the 4% rule would be no problem. Because the US social safety net is so much weaker than Canada's I have to save more and spend less to cover me for these future unknowns.
You have to assess the risk of health care costs and come up with a plan that you can live with. My only comment would be don't discount the negative health care impacts of working so much longer to build twice as big a stash at 2% WR.
FWIW health care is not free in Canada nor is it a full coverage situation. You can go bankrupt paying for treatment up here if you get unlucky.
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FWIW health care is not free in Canada nor is it a full coverage situation. You can go bankrupt paying for treatment up here if you get unlucky.
adding (because I feel I have to): There is no "Canadian Health Care" - each province is responsible for disbursing health care, and the levels of coverage (and rules governing that) are different throughout Canada. Depending on your province things like prescription drugs, non-essential surgeries (i.e. those that improve quality of life), post-op care, physical therapy, advanced or 'high-risk' treatments etc may have limited or no coverage. Also, as we learned shortly after arriving your coverage level can be changed when the next political parties comes in and decides we need a "more sound fiscal policy".
If we remainin Canada we'll definitely carry additional health insurance (yes, that's a thing here). One bonus though is that its much cheaper to have than in the US because everyone does get a basic level of service. I'd say Health Care is THE biggest concern with the long-term fiscal health in most provinces, and most financial experts agree that it's going to become a bigger slice of the budget as Canada's population gets older.
Just FYI.
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I'd say Health Care is THE biggest concern with the long-term fiscal health in most provinces, and most financial experts agree that it's going to become a bigger slice of the budget as Canada's population gets older.
Just FYI.
No argument on the healthcare cost concern. BC spends more than 50% of its annual budget on health care.
I have some extra health care insurance due to my GF's job, but I don't plan on buying extra insurance when she quits. The 4% WR rule ends up with massive wealth so much of the time I'm more worried about what to do with all the money I am likely to have than running out or paying for health care. I also know that looking back at my adult life the single biggest negative health care impact has been working full time. So if I was worried about paying for health care costs working many years extra to double my stash and hit a 2% WR would not seem like a good call. Doing that would pretty much guarantee I'll need far more health care than stopping FT work at 4% WR or earlier. That's a self-defeating plan in my opinion.
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I'd say Health Care is THE biggest concern with the long-term fiscal health in most provinces, and most financial experts agree that it's going to become a bigger slice of the budget as Canada's population gets older.
Just FYI.
No argument on the healthcare cost concern. BC spends more than 50% of its annual budget on health care.
I have some extra health care insurance due to my GF's job, but I don't plan on buying extra insurance when she quits. The 4% WR rule ends up with massive wealth so much of the time I'm more worried about what to do with all the money I am likely to have than running out or paying for health care. I also know that looking back at my adult life the single biggest negative health care impact has been working full time. So if I was worried about paying for health care costs working many years extra to double my stash and hit a 2% WR would not seem like a good call. Doing that would pretty much guarantee I'll need far more health care than stopping FT work at 4% WR or earlier. That's a self-defeating plan in my opinion.
and just using variable spending and personally only dropping 5k on 80k spend it allows upward mobility later in life since we also plan to keep the mortgage that will expire 22 years after FIRE. mean top end spending is about double our current spending. there is piles of money and you can acually spend down your retirment and not be left with a big bubble
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Healthcare will always be the big unknown... until it isn't. Consider that the median household income in the US is around 56K* with an average household size of about 2.5**. Obviously there is great variability in health care costs, but the average cost of health care per household is over 20K***. This means that a full 35% of gross income is spent on health care costs without government or employer subsidy. This is unsustainable, period. Either the subsidies from gov't and employers will begin to dry up and the market will correct or gov't will step in and create a lower cost system and price controls (I also work in health care and see tremendous waste; private patient suites, unnecessary tests to avoid liability, abusers of system, etc). The ACA was a half-assed effort at combining both a market and social subsidy solution. I see this issue being tackled in the next decade, for humans necessity breeds innovation. Just one person's opinion.
*Google search, 2016
**Google search, 2016
*** Google search, 2013 (wanna bet it's even higher today?)
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Healthcare will always be the big unknown... until it isn't. Consider that the median household income in the US is around 56K* with an average household size of about 2.5**. Obviously there is great variability in health care costs, but the average cost of health care per household is over 20K***. This means that a full 35% of gross income is spent on health care costs without government or employer subsidy. This is unsustainable, period. Either the subsidies from gov't and employers will begin to dry up and the market will correct or gov't will step in and create a lower cost system and price controls (I also work in health care and see tremendous waste; private patient suites, unnecessary tests to avoid liability, abusers of system, etc). The ACA was a half-assed effort at combining both a market and social subsidy solution. I see this issue being tackled in the next decade, for humans necessity breeds innovation. Just one person's opinion.
*Google search, 2016
**Google search, 2016
*** Google search, 2013 (wanna bet it's even higher today?)
holy cow. 20k per year per household. that is a shocking number. how cutting the costs isnt one of the main goals of the govt is beyond me.
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The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
Great points.
As has been pointed out, if your stash drops 40% (or X% from its inflation adjusted starting value) and one is living off of 4% withdrawls, they only need to drop their withdrawls 12.5% to ensure they will never run out of money. At $40K, this puts it in the neighborhood of $5K, or even less than a minimum wage job. If spending is double that, two adults with jobs would fill that gap easily until the portfolio amount returns to the inflation-adjusted value.
Like Out of the Blue above, I'd also like to know what the basis of this claim is. It doesn't make sense to me as is. Why would reducing your withdrawals by 1/8 ensure that you'd never run out of money? Certainly you're already started down a path that's staring at failure if your portfolio shrinks by 40% shortly after retirement. Just because that last large drop recovered extremely quickly doesn't mean the next one will.
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The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
Great points.
As has been pointed out, if your stash drops 40% (or X% from its inflation adjusted starting value) and one is living off of 4% withdrawls, they only need to drop their withdrawls 12.5% to ensure they will never run out of money. At $40K, this puts it in the neighborhood of $5K, or even less than a minimum wage job. If spending is double that, two adults with jobs would fill that gap easily until the portfolio amount returns to the inflation-adjusted value.
Like Out of the Blue above, I'd also like to know what the basis of this claim is. It doesn't make sense to me as is. Why would reducing your withdrawals by 1/8 ensure that you'd never run out of money? Certainly you're already started down a path that's staring at failure if your portfolio shrinks by 40% shortly after retirement. Just because that last large drop recovered extremely quickly doesn't mean the next one will.
if you're using a variable withdrawal method you can play with the z value to see what works for you but historically with a .5 z value and a floor at ~.5% less than your spending level you will never run out of money. the basis lies somewhere in that math.
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Healthcare will always be the big unknown... until it isn't. Consider that the median household income in the US is around 56K* with an average household size of about 2.5**. Obviously there is great variability in health care costs, but the average cost of health care per household is over 20K***. This means that a full 35% of gross income is spent on health care costs without government or employer subsidy. This is unsustainable, period. Either the subsidies from gov't and employers will begin to dry up and the market will correct or gov't will step in and create a lower cost system and price controls (I also work in health care and see tremendous waste; private patient suites, unnecessary tests to avoid liability, abusers of system, etc). The ACA was a half-assed effort at combining both a market and social subsidy solution. I see this issue being tackled in the next decade, for humans necessity breeds innovation. Just one person's opinion.
*Google search, 2016
**Google search, 2016
*** Google search, 2013 (wanna bet it's even higher today?)
holy cow. 20k per year per household. that is a shocking number. how cutting the costs isnt one of the main goals of the govt is beyond me.
In case I wasn't clear, that isnt what a household pays. The out of pocket was about 4.5K. The remainder of the total is paid for by employer, gov't subsidy, etc. The numbers may be a bit skewed as I dont think household income counts benefits (ie how much employers subsidize this cost, likely seen as reduction in regular compensation), although I could be wrong. Point being the resources are coming from somewhere and are of circulation for other needs.
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The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
Great points.
As has been pointed out, if your stash drops 40% (or X% from its inflation adjusted starting value) and one is living off of 4% withdrawls, they only need to drop their withdrawls 12.5% to ensure they will never run out of money. At $40K, this puts it in the neighborhood of $5K, or even less than a minimum wage job. If spending is double that, two adults with jobs would fill that gap easily until the portfolio amount returns to the inflation-adjusted value.
Like Out of the Blue above, I'd also like to know what the basis of this claim is. It doesn't make sense to me as is. Why would reducing your withdrawals by 1/8 ensure that you'd never run out of money? Certainly you're already started down a path that's staring at failure if your portfolio shrinks by 40% shortly after retirement. Just because that last large drop recovered extremely quickly doesn't mean the next one will.
if you're using a variable withdrawal method you can play with the z value to see what works for you but historically with a .5 z value and a floor at ~.5% less than your spending level you will never run out of money. the basis lies somewhere in that math.
Hmmm, that could be, but I still have problems with it if that's the case. Because basically, the suggestion is to change boats mid-stream, by switching from inflation adjusted withdrawals (4% rule) to variable withdrawals. So you'd 1) have to commit to staying with variable withdrawals going forward and 2) (the big one), you're essentially starting over with your withdrawal method so you should probably start as if this was year 0. That could make the variable withdrawal a lot lower than 12.5% of the original amount of the inflation adjusted withdrawal.
I need to play around with the variable withdrawal results some more. I actually just yesterday figured out what that Z score stood for and how it affected withdrawal amounts and therefore account balances. EDIT -- Answer here for those interested: http://cfiresim.com/phpBB3/viewtopic.php?f=11&t=163
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Perhaps I'm being Mr obvious here, but using a low Z value (like the 0.5 default) means one is slowly reacting to market conditions. Quicker reaction means less failures. If one is withdrawing a year's worth of spending at a time, "quickly" reacting means reacting sometime in the next year, which seems like a ton of time. Setting Z at 1 or selecting % of portfolio with appropriate floors and ceilings makes a huge difference in success. This would be a better way to look at variable withdrawals for folks with large discretionary spending or who have a personality preferring to "bite the bullet" with income generation or spending cuts quickly, then get back on track. Colorful metaphor... If you unexpectedly lose a finger would you rather cauterize it with brief intense pain, or throw on a bandaid and hope you don't slowly bleed out.
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So I did some quick excel work on the Z score recording differences in the standard 40k $1,000,000 portfolio.
Firecalc still adjusts all numbers for inflation.
Some thoughts:
1. The Z score represents a percentage that your withdraw changes with your portfolio. So a Z of 0 is the standard 4% WR, 1 means that you adjust your spending at the same rate as your portfolio changes, and a .2 means that you'd adjust at a rate of 20%. So a 10% change in your portfolio would mean you change your adjust your spending by 2%.
2. This is cumulative. So saying that you only need to adjust your spending by 12.5% is misleading. If your portfolio goes down two years in a row, the reduction in your spending level would increase on top of each other.
3. That said a Z of somewhere between .1 and .2 is 100% effective. The lowest withdraw for .1 is about -11% from starting portfolio and .2 is about -19%. This means that the worst withdraw in a 30 year period would at worst require covering 20% of your spending. So if you're spending $40k (inflation adjusted), you'll in the worst year need to cover about $8k.
My opinion is that overall, awesome knowledge to have, and for anyone that will be earning 15-30% of their salary year-to-year has absolutely no fear of ever running out of money.
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Some thoughts:
1. The Z score represents a percentage that your withdraw changes with your portfolio. So a Z of 0 is the standard 4% WR, 1 means that you adjust your spending at the same rate as your portfolio changes, and a .2 means that you'd adjust at a rate of 20%. So a 10% change in your portfolio would mean you change your adjust your spending by 2%.
I run my variable WR simulations in cFIREsim and I set floor and ceiling values [Say $35K floor and $60K ceiling] to control the range of change I am willing to live with. I leave the score at 0.5 which is the default value.
Another way to look at the change in spending is to move non-essential costs around. So say an international trip gets deferred or a you hold off 2yrs on a full roof replacement, etc... Unless you have to spend $40K each year you can move some costs back to make up the difference and spend more than $40K in the good years so your average spending is at least $40K. That would mean not having to do any extra work at all.
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So what number are you shooting for Canada. You said it helps your fire faster. Are you firing at 4.5% swr
I haven't decided yet. I'm going to stop FT work at the end of this year and let the 'stash do its thing. That way I get lots more free time now while earning enough to cover costs.
Here are a couple options...
Constant WR
- FIRE target $1.1M
- take out $40K + $6K taxes each year [less CPP + OAS]
- cFIREsim = 96% success
- avg/median WR/yr = $46K
Variable WR
- FIRE target $850K
- take out $35K to $60K each year [less CPP + OAS]
- cFIREsim = 100%
- median WR/yr = ~$45K
I'm at $675K today. So I'll add what I can in 2017 and then coast until I'm happy with the value of the portfolio. At the moment I'd like $46K/yr income in Canada bucks. That's like $35K USD/yr. I'm going to continue to optimize spending so perhaps I'll get that lower. $850K seems like a reasonable compromise and that's 5.4%WR [-1.4%/+1.7%] @ $46K/yr. I can collect modest Gov't benefits in 2029 and more in 2034.
I think this just demonstrates that one's swr can't really be compared to others. To me 1.1 million is a huge nest egg and I wouldn't bat an eye at 4-4.5% wr as I could easily change things and reduce expenses whenever I wanted.
However for myself with expenses of 25k I'd rather have a nest egg of 750k rather than 625k. That's an extra 125k to put away for 5k a year in breathing room, or 3.3% wr. I think it would take me about an extra 2 years of work to get to that and never have to worry period. Of course others over at ere would scoff at 750k and might put away 300-400k.
As usual it's expenses that matter more than anything else.
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I hate to be Debby downer here, but I'll give some real world examples here about people going back to work if needed. Note, this is anecdotal, but we rarely hear of FIRE fails.
When I was working as a manager of a large staffing firm, back in 2009-2014, there were a handful of times that I had interviewed people who had been early retirees.
These people had come back looking for work after the real estate and market crash and they hadn't yet recovered. These people were former accountants or finance managers and been out of the workforce for 5+ years. Previously, they would have been controllers or had experience in public accounting. Well, in the shitty work environment at the time, and the length of time people were off work, the best offers, if there were any, were to do data entry at 10-12$ / hour. In fact, in 2009 and early 2010, it was a general sales practice to "sell" former controllers at bill rates under 20/hour.
This sucked. Absolutely sucked....
This. I have never yet heard someone raise this issue, yet so many say they'll just get a job if RE doesn't work out. They also never mention ageism.
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This. I have never yet heard someone raise this issue, yet so many say they'll just get a job if RE doesn't work out. They also never mention ageism.
As others have already pointed out, a "horrible" $10-12/hour part-time job would be plenty to save your RE plans. You don't need to go back to your high-powered former career.
I think being a lifeguard or working retail at REI or whatever would actually be pretty fun, but that's just me.
-W
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2. This is cumulative. So saying that you only need to adjust your spending by 12.5% is misleading. If your portfolio goes down two years in a row, the reduction in your spending level would increase on top of each other.
3. That said a Z of somewhere between .1 and .2 is 100% effective. The lowest withdraw for .1 is about -11% from starting portfolio and .2 is about -19%. This means that the worst withdraw in a 30 year period would at worst require covering 20% of your spending. So if you're spending $40k (inflation adjusted), you'll in the worst year need to cover about $8k.
My opinion is that overall, awesome knowledge to have, and for anyone that will be earning 15-30% of their salary year-to-year has absolutely no fear of ever running out of money.
So possibly misleading, if actionably accurate. If a 3.5% withdrawal rate has never failed, one should only need to reproduce the difference between their current withdrawal and 3.5% - if one were withdrawing 4% that would .5% - you're not trying to rebuild your 'stache, just withdraw from it at a lower rate.
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I think this just demonstrates that one's swr can't really be compared to others. To me 1.1 million is a huge nest egg and I wouldn't bat an eye at 4-4.5% wr as I could easily change things and reduce expenses whenever I wanted.
However for myself with expenses of 25k I'd rather have a nest egg of 750k rather than 625k. That's an extra 125k to put away for 5k a year in breathing room, or 3.3% wr. I think it would take me about an extra 2 years of work to get to that and never have to worry period. Of course others over at ere would scoff at 750k and might put away 300-400k.
As usual it's expenses that matter more than anything else.
Not sure if you are in Canada or not, but $1.1M CAD = ~$839K USD and pretty much everything costs a lot more here compared to the US.
I do agree that spending is a key way to change your FIRE success/schedule. While I have made great strides in lowering my costs I know that I'm not done. As I shift to PT I'll have more time to optimize costs particularly food. As I reach lower spending levels I'll adjust my FIRE targets appropriately.
That said you have to work with your current reality. Hence I plan for what I spend now and keep an open mind to changing plans.
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2. This is cumulative. So saying that you only need to adjust your spending by 12.5% is misleading. If your portfolio goes down two years in a row, the reduction in your spending level would increase on top of each other.
3. That said a Z of somewhere between .1 and .2 is 100% effective. The lowest withdraw for .1 is about -11% from starting portfolio and .2 is about -19%. This means that the worst withdraw in a 30 year period would at worst require covering 20% of your spending. So if you're spending $40k (inflation adjusted), you'll in the worst year need to cover about $8k.
My opinion is that overall, awesome knowledge to have, and for anyone that will be earning 15-30% of their salary year-to-year has absolutely no fear of ever running out of money.
So possibly misleading, if actionably accurate. If a 3.5% withdrawal rate has never failed, one should only need to reproduce the difference between their current withdrawal and 3.5% - if one were withdrawing 4% that would .5% - you're not trying to rebuild your 'stache, just withdraw from it at a lower rate.
Ahhh, but if a 3.5% WR has never failed, then the action would be to start withdrawing 3.5% of the current balance. Otherwise, you're comparing apples to oranges.
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2. This is cumulative. So saying that you only need to adjust your spending by 12.5% is misleading. If your portfolio goes down two years in a row, the reduction in your spending level would increase on top of each other.
3. That said a Z of somewhere between .1 and .2 is 100% effective. The lowest withdraw for .1 is about -11% from starting portfolio and .2 is about -19%. This means that the worst withdraw in a 30 year period would at worst require covering 20% of your spending. So if you're spending $40k (inflation adjusted), you'll in the worst year need to cover about $8k.
My opinion is that overall, awesome knowledge to have, and for anyone that will be earning 15-30% of their salary year-to-year has absolutely no fear of ever running out of money.
So possibly misleading, if actionably accurate. If a 3.5% withdrawal rate has never failed, one should only need to reproduce the difference between their current withdrawal and 3.5% - if one were withdrawing 4% that would .5% - you're not trying to rebuild your 'stache, just withdraw from it at a lower rate.
Ahhh, but if a 3.5% WR has never failed, then the action would be to start withdrawing 3.5% of the current balance. Otherwise, you're comparing apples to oranges.
Just go run the tool if you allow yourself to drop to 3.5% even with no cap I never run out of money and more often than not you end up being able to spend a lot more
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Ahhh, but if a 3.5% WR has never failed, then the action would be to start withdrawing 3.5% of the current balance. Otherwise, you're comparing apples to oranges.
This makes no sense. If one's portfolio dropped 50% overnight, why would one withdraw 3.5% of the 'current' stache? The 4% rule isn't "Withdraw 4% of the current level of the stache"; why would the 3.5% rule do that?
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Ahhh, but if a 3.5% WR has never failed, then the action would be to start withdrawing 3.5% of the current balance. Otherwise, you're comparing apples to oranges.
This makes no sense. If one's portfolio dropped 50% overnight, why would one withdraw 3.5% of the 'current' stache? The 4% rule isn't "Withdraw 4% of the current level of the stache"; why would the 3.5% rule do that?
Why do you think that adjusting withdrawal rates in the middle of a period grants the same success rates as using the lower withdrawal rate from the start of the period? That is what makes no sense. Simply adjusting to a lower WR at anytime, regardless of any circumstances, absolutely does not "ensure [you] will never run out of money."
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2. This is cumulative. So saying that you only need to adjust your spending by 12.5% is misleading. If your portfolio goes down two years in a row, the reduction in your spending level would increase on top of each other.
3. That said a Z of somewhere between .1 and .2 is 100% effective. The lowest withdraw for .1 is about -11% from starting portfolio and .2 is about -19%. This means that the worst withdraw in a 30 year period would at worst require covering 20% of your spending. So if you're spending $40k (inflation adjusted), you'll in the worst year need to cover about $8k.
My opinion is that overall, awesome knowledge to have, and for anyone that will be earning 15-30% of their salary year-to-year has absolutely no fear of ever running out of money.
So possibly misleading, if actionably accurate. If a 3.5% withdrawal rate has never failed, one should only need to reproduce the difference between their current withdrawal and 3.5% - if one were withdrawing 4% that would .5% - you're not trying to rebuild your 'stache, just withdraw from it at a lower rate.
Ahhh, but if a 3.5% WR has never failed, then the action would be to start withdrawing 3.5% of the current balance. Otherwise, you're comparing apples to oranges.
Just go run the tool if you allow yourself to drop to 3.5% even with no cap I never run out of money and more often than not you end up being able to spend a lot more
Which tool would you use to start with a 4% WR and then once your portfoliio drops 40% switch to a 3.5% WR an option?
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I think you can get pretty close by running the "Variable" withdraw in cfiresim with:
Z value of : .3 (40% drop to cause 12.5% change in spending 12.5/40 = .3125)
Spending ceiling set at 4% (defined value of 40k with set defaults)
Spending floor set at 3.5% (35k)
Shows a good success rate of ~99%.
Not the exact requested scenario, but I assume pretty close.
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I think you can get pretty close by running the "Variable" withdraw in cfiresim with:
Z value of : .3 (40% drop to cause 12.5% change in spending 12.5/40 = .3125)
Spending ceiling set at 4% (defined value of 40k with set defaults)
Spending floor set at 3.5% (35k)
Shows a good success rate of ~99%.
Not the exact requested scenario, but I assume pretty close.
That's not the context of this scenario though. The claim is that using a 4% inflation adjusted WR, after a 40% drop in portfolio value, switching to a 3.5% inflation adjusted WR (of the initial balance) then guarantees success. Things just don't work like that. Starting with a variable withdrawal rate, as you're suggesting, is a whole different ball of wax.
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That's not the context of this scenario though. The claim is that using a 4% inflation adjusted WR, after a 40% drop in portfolio value, switching to a 3.5% inflation adjusted WR (of the initial balance) then guarantees success. Things just don't work like that. Starting with a variable withdrawal rate, as you're suggesting, is a whole different ball of wax.
That was not the scenario posted. This is probably why you're confused - the scenario you described does indeed make little sense!
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That's not the context of this scenario though. The claim is that using a 4% inflation adjusted WR, after a 40% drop in portfolio value, switching to a 3.5% inflation adjusted WR (of the initial balance) then guarantees success. Things just don't work like that. Starting with a variable withdrawal rate, as you're suggesting, is a whole different ball of wax.
That was not the scenario posted. This is probably why you're confused - the scenario you described does indeed make little sense!
I'm glad to hear that, but you may want to edit previous posts because it sounds like you're saying the exact scenario I described above.
The fact your portfolio drops 40% doesn't mean you withdrawals need to drop by 40%. In most cases you wouldn't need to change anything due to a significant market crash. You also would not shoot for the lowest paying PT job as a goal. There would be no pressure to jump on something crappy ASAP.
Great points.
As has been pointed out, if your stash drops 40% (or X% from its inflation adjusted starting value) and one is living off of 4% withdrawls, they only need to drop their withdrawls 12.5% to ensure they will never run out of money. At $40K, this puts it in the neighborhood of $5K, or even less than a minimum wage job. If spending is double that, two adults with jobs would fill that gap easily until the portfolio amount returns to the inflation-adjusted value.
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No. You may have missed the part that the 3.5% withdrawal would be from the inflation adjusted value, not the 'starting balance'.
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It doesn't matter how technically complex one's simulations are. They are still extrapolations of past data into the future. They still operate under the fundamental assumption that the future will resemble the past.
50,000 Monte Carlo simulations yielding a probability distribution of future values along with various statistics is still a fancy way of tracing a trendline with a ruler.
You cannot statistically account for the probability of events like the multi-decade low-growth funk Japan has endured, much less the collapses of democracy Turkey, Russia, and Thailand have experienced, or the 30% currency devaluation the Brits experienced last year.
Sure, if the US committed to sticking with the same economic configuration we had for most of the post-WW2 era, we could predict similar outputs. But now we've entered an era of financial deregulation, ballooning national debt, economic isolationism, and one-party government that doesn't resemble the past we are extrapolating.
So the odds of portfolio failure could be a factor of "normal" variability in returns PLUS variability caused by "unusual events". This sum is greater than sims based on past data can calculate.
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This. I have never yet heard someone raise this issue, yet so many say they'll just get a job if RE doesn't work out. They also never mention ageism.
As others have already pointed out, a "horrible" $10-12/hour part-time job would be plenty to save your RE plans. You don't need to go back to your high-powered former career.
I think being a lifeguard or working retail at REI or whatever would actually be pretty fun, but that's just me.
-W
I'm with you on this Walt. And remember, that part time job (which may come with added social, fitness, or other perks) would easily push most FIREe's down to below a 3% withdrawal rate, protecting you from all but the worst of market conditions
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I think for us that has say 1-7years left until FIRE we have one thing in common, we will have to get past the next stock market crash before we can settle. What i mean is that if i had two years left, and the market just continued to rise until then, and i reached my goal ( 25x ) THEN the crash came, i would be bad off, but the same applies to the ones that have lets say 5 years left. Why i say this is that i think the next crash would be as big as the last one at least (there is much more debt around now than in 2008) and there is imminent that we are not very many years from it coming from a long bull market. I could be 2017, it could be 2018, but we all need to get past it before we safely can surf away :-). It would not be great to get the 70% down in your face after a year or two into your FIRE. So it would not help me very much to say i am two years away from FIRE in contradiction to say i am 4 years from it. I would say for those of us that are not fire today, you would have to wait until after the next big one :-). Might be awfully wrong of course but it goes along with the importance of the 5 first years after you quit work thing. The behavior of the market the period before you FIRE kind of predict if you need to go 3,5% or can go 5% etc.
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There is no telling when the next crash will come, how big it will be or how fast the recovery will be. You need a FIRE plan that can deal with all the typical risks, which include a market crash early on. Any plan that doesn't account for these risks is incomplete.
I'm into the short strokes for FIRE. If the market keep climbing like this year I'm done in 3-4yrs. Assuming we get that far down the road without a crash I'm not going to keep working until there is a crash or until I have some wacky low WR that can weather a nuclear war. I'll pull the trigger and have some contingency plans for an early crash. If the crash comes I'll execute those contingency plans and if it doesn't I'll get on with FIRE.
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It doesn't take a crash to get back into the realm of normal growth a simple 0% gain year would put us back in the ballpark. The valuation is not astronomically high right now
I don't get why everyone assumes crash
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It doesn't take a crash to get back into the realm of normal growth a simple 0% gain year would put us back in the ballpark. The valuation is not astronomically high right now
I don't get why everyone assumes crash
You are correct. I don't assume anything. The best thing I've learned from MMM & JL Collins is that I have no fucking clue what's going to happen next year or few years and that's okay I can still be a successful investor.
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It doesn't take a crash to get back into the realm of normal growth a simple 0% gain year would put us back in the ballpark. The valuation is not astronomically high right now
I don't get why everyone assumes crash
You are correct. I don't assume anything. The best thing I've learned from MMM & JL Collins is that I have no fucking clue what's going to happen next year or few years and that's okay I can still be a successful investor.
Agreed.
People tend to point to 07 valuations and we're higher now. But we don't have stupid lending going on in the housing markets that spurred that. We have it in cars but that's not near the same. We have an education bubble I can see too. But most of these will not be like the 08 housing bubble.
But we have no clue. Just dump in every dollar you have as fast as you can and watch it grow. BC it will over time.
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It doesn't take a crash to get back into the realm of normal growth a simple 0% gain year would put us back in the ballpark. The valuation is not astronomically high right now
I don't get why everyone assumes crash
You are correct. I don't assume anything. The best thing I've learned from MMM & JL Collins is that I have no fucking clue what's going to happen next year or few years and that's okay I can still be a successful investor.
Can we wait 1 more year of normal returns? Then I calculate I'll be through the sequence of returns risk and won't even notice the next crash.
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There is no telling when the next crash will come, how big it will be or how fast the recovery will be. You need a FIRE plan that can deal with all the typical risks, which include a market crash early on. Any plan that doesn't account for these risks is incomplete.
I'm into the short strokes for FIRE. If the market keep climbing like this year I'm done in 3-4yrs. Assuming we get that far down the road without a crash I'm not going to keep working until there is a crash or until I have some wacky low WR that can weather a nuclear war. I'll pull the trigger and have some contingency plans for an early crash. If the crash comes I'll execute those contingency plans and if it doesn't I'll get on with FIRE.
I'm in this position as well. I haven't really thought through a contingency plan. I'm interested in what your contingency plans are.
Just off the top of my head here are mine:-
1. I should be able to not withdraw from the stash for 2-3 years based on accrued leave. I don't have that much leave at all but I don't spend anywhere near that amount of money that I earn ala anyone who is intending to FIRE.
2. I can go back to work at my current job within say 3 years. I intend to ask for a career break which means I can go back to work.
3. Use my bonds post the 3 year point. This is a tough one because if markets crash 50% I'd like to sell my bonds and buy more stocks.
4. Work in a part-time job that pays crap but I don't really need much anyway.
5. Just be really frugal and spend less.
6. Do nothing. I can always sell my house and downsize. There would be no rush to do this. It's just that my stash would be depleted.
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The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.
No. There's no 3.3% rule for 40 year retirements - that would be even MORE conservative than using 4% for 30 years. And where did you pull 5.1 to 5.5% from? If you're trying to match the 'success rate' (i.e. the % of portfolios which did not hit $0 over a given time frame) than you'd use a 5.0% for a 20 year term to get the same success rate as 4% for a 30 year term. But they're still not equal - at 5% roughly half of all portfolios will be worth less after 20 years, compared with about 1/3 at 4%.
If you want to make your money last for 40 years then you have to lower to 3.3%. This is according to researchers. When you have a 20 year time horizon there's one study that concluded 5.1% and another that concluded 5.5%.
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The 4% rule assumes a 30 year time horizon (until death).
For 40 years or more it's the 3.3% rule.
For a 20 year time horizon it's 5.1% - 5.5%.
No. There's no 3.3% rule for 40 year retirements - that would be even MORE conservative than using 4% for 30 years. And where did you pull 5.1 to 5.5% from? If you're trying to match the 'success rate' (i.e. the % of portfolios which did not hit $0 over a given time frame) than you'd use a 5.0% for a 20 year term to get the same success rate as 4% for a 30 year term. But they're still not equal - at 5% roughly half of all portfolios will be worth less after 20 years, compared with about 1/3 at 4%.
If you want to make your money last for 40 years then you have to lower to 3.3%. This is according to researchers. When you have a 20 year time horizon there's one study that concluded 5.1% and another that concluded 5.5%.
Citations, plz.
-W
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....
If you want to make your money last for 40 years then you have to lower to 3.3%. This is according to researchers. When you have a 20 year time horizon there's one study that concluded 5.1% and another that concluded 5.5%.
Ummm. what? Who are these researchers and what crazy assumptions did they make?
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Yeah 3.3% is wrong. 3.5% has never historically failed with greater than 75% stocks.
Those studies were all based on larger amounts of bonds.
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Ummm. what? Who are these researchers and what crazy assumptions did they make?
....that you'd never fact check their crazy assumptions?
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I'd like to point out that with a 20 year horizon, these amazing "researchers" are very, very close!
One can, with a 100% cash allocation, withdraw 5% per year for 20 years. The 5.1% figure is optimistic, says my math, but great effort by the "researchers". This is how science progresses!
I'm publishing these findings today, then waiting to hear from the Nobel committee!
-W
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If you want to make your money last for 40 years then you have to lower to 3.3%. This is according to researchers. When you have a 20 year time horizon there's one study that concluded 5.1% and another that concluded 5.5%.
Citations, plz.
-W
The specific numbers vary by portfolio, and one would be wise to make sure that their own investments match the assumptions of whatever retirement study they are referencing before arguing over basis points (not all stocks and bonds are created equal), but the idea that withdrawal rates vary by retirement length is absolutely true.
(https://portfoliocharts.files.wordpress.com/2015/09/classic-60-40-withdrawal-rates-2017.jpg)
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I'd like to point out that with a 20 year horizon, these amazing "researchers" are very, very close!
One can, with a 100% cash allocation, withdraw 5% per year for 20 years. The 5.1% figure is optimistic, says my math, but great effort by the "researchers". This is how science progresses!
I'm publishing these findings today, then waiting to hear from the Nobel committee!
-W
Ha. I didn't catch that at first.
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Simple answer:
4% rule followed exactly may have tough times.
4% rule bent with some mustachian ways (spend less, start a side hussle, go back to work, etc.) you'll be okay.
Great read if you want to explore more: http://www.madfientist.com/safe-withdrawal-rate/
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Simple answer:
4% rule followed exactly may have tough times. is very very conservative and will work under most conceivable scenarios.
4% rule bent with some mustachian ways (spend less, start a side hussle, go back to work, etc.) you'll be okay - takes stupid safe and adds a belt and suspenders to it.
Great read if you want to explore more: http://www.madfientist.com/safe-withdrawal-rate/
Sorry I had to correct that post a little bit as it doesn't summarize the discussion so far well.
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Per usual, Tyler makes great points about AA. If someone is so very concerned about the 4% rule (I am not), there are ways to mitigate this risk through portfolio management. Changing passive AA during different times in drawdown is not market timing, it’s like hedging your bets or buying insurance.
Think of it this way: You purchase a house in a flood plain. History tells us that in the last 150 years your neighborhood has flooded 5 times. Rightfully, you are concerned and get a quote for flood insurance at a rate of $100 a month. However, detailed investigation shows that every time your neighborhood has flooded it has happened in March and April, your insurer is willing to offer you a policy that only covers March and April for $400 annually (let’s forget about climate change here as that is a known variable, pretend all things are equal). Which insurance is the best buy?
There are only two historical scenarios that have cause a failure of 4% rule in the US:
- Significant drop is asset value soon after drawdown initiation which lasts multiple years (sequence risk)
- Long term low growth coupled with high inflation (stagflation)
Why not insure against these two risks? For example, a portfolio 100% VTI is a high risk portfolio for scenario #1 (If you call single digit percents high). In the first decade or so of drawdown, a simple modification to 25 to 40 percent treasuries significantly reduces this risk. If a bad sequence never materializes (most scenarios) and the retiree sees average or above average gains, this risk disappears. Yes, being less invested in equities means a smaller stash after the decade of average returns, BUT (big but) it’s meaningless! A 60% equity allocation would have been more than enough to reduce withdrawal rate to a point in which historically, the retirement never fails. 100% equities would have reduced WR more, but for what purpose? After the sequence risk has been eliminated (historically speaking, since that’s all we’ve got), then reallocate to defend against the next issue, inflation. Obviously having a percentage of liquid assets tax deferred allows for easier (quicker) AA changes, but over periods of time it can be adjusted in taxable accounts rather efficiently as well (or one could glidepath).
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Have people gamed out the "initially 60/40 split, moving to 100% stocks over time" scenario?
My gut says it feels like a free lunch, and is suspicious that if you chop so much possible growth off your portfolio in the early years by going 40% bonds, you're actually extending the number of years where your portfolio is small enough it'd be subject to sequence of returns risk. But my gut has been wrong before, which is why it is good I can overrule it with hard numbers once available.
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I think your "gut" is absolutely correct! "Insurance" has it's costs, if the worst case does not play out, you are probably at risk for worst cases for a bit longer thanks to lower expected returns. However, the worst case is exactly what you are insuring against, risk remains mitigated. This is why glidepath has gained some popularity.
The biggest "cost" is not having more money than has ever historically been needed (ie all the scenarios where 4% ends with more inflation adjusted stache than initial are significantly reduced). If legacy or inheritance is more important than mitigating risk, this is a lousy suggestion.
Edit: This is the advantage of knowing how much is "enough" vs always trying to accumulate at a maximum rate.
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Have people gamed out the "initially 60/40 split, moving to 100% stocks over time" scenario?
My gut says it feels like a free lunch, and is suspicious that if you chop so much possible growth off your portfolio in the early years by going 40% bonds, you're actually extending the number of years where your portfolio is small enough it'd be subject to sequence of returns risk. But my gut has been wrong before, which is why it is good I can overrule it with hard numbers once available.
I think that you're looking at it backwards. At 4% it's already likely one's stache is growing way faster than needed. While a 60/40 (or whatever) split would remove some of the upside, it would also remove some of the downside, which is the real portfolio killer. While you may be right that it extends the time subject to sequence of returns risks, it is also making those risks lower on a per year basis. This is why reverse glide path has become more popular.
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Is there a good mathematically precise example of the reverse glide path? I'd like to actually run some simulations when I get the chance (right now my in house script doesn't think about bonds at all so it'll take a little work).
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Is there a good mathematically precise example of the reverse glide path? I'd like to actually run some simulations when I get the chance (right now my in house script doesn't think about bonds at all so it'll take a little work).
Have you read the Kitces article?
https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/
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Also, more recent Kitces article on "V-shaped" equity glidepath (decreasing equity exposure in years immediately leading up to retirement, then ratcheting back up in years immediately following retirement):
https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/
And discussion (with some historical backtest results) here:
http://forum.mrmoneymustache.com/investor-alley/changing-asset-allocation-as-fire-approaches/
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I hadn't read the Kitces article, thanks!
So if I understand how he's using starting and ending allocations correctly, the model is you start at XX% bonds, spend only from the bonds bucket, and don't start rebalancing out of stocks until bonds until your percent bonds hits YY% (where YY is your target ending bond allocation?).
I wish he gave more detail on his monte carlo method (for example, does it assume no correlation -- positive or negative -- between stock and bond returns) and explained why he was using monte carlo data instead of historical data, but it already starts to give more solid info to work with.
...pause while I try to post and get notified of brooklynguy's post...
Okay, someone (msilenus) tested it with actual historical data. Very cool. My gut is officially silenced with hard numbers.
The intuition I'm developing is that you're going to give up median end portfolio with either glidepaths, or by increasing bond allocations. Both of those strategies improve worst case performance, but the 70/30,10 glidepath seemed to be striking a better tradeoff than I could find via statically increasing bonds. Ie: I could get better security at a higher median than I could with static allocations, but the median wasn't as good as with 100/0 static.
Thank you both.
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+1 Thanks for the kitces article, I hadn't read it and it was very interesting.
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The stockmarket is the worst place you grow your money passively except for every other alternative. Nobody knows what will happen for sure, but you have to pick something. Personally I'd rather FIRE with some reasonable assumptions and take the small risk that they fail me than either work many more years to [hopefully] secure a less risky future and very likely waste years of my life.
Haha, perfect.
Yeah, even the stock market is a bet, but you are forced to make some kind of bet to stop working. That said, nearly anyone industrious enough to make 30-40-year-old FIRE work is probably going to trip over a few grand a year in odd hobby jobs, community involvement, something. That is an insurance against the miniscule chance the 4% rule fails us that we all never calculate (usually on purpose!), but which is the reason I would never bother to worry about The Total Decline of Everything™.
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Yeah, even the stock market is a bet, but you are forced to make some kind of bet to stop working. That said, nearly anyone industrious enough to make 30-40-year-old FIRE work is probably going to trip over a few grand a year in odd hobby jobs, community involvement, something. That is an insurance against the miniscule chance the 4% rule fails us that we all never calculate (usually on purpose!), but which is the reason I would never bother to worry about The Total Decline of Everything™.
Agreed on the side income.
We also fail to fully appreciate how damaging it is to be chained to a desk for years. You can fail FIRE before you start if you force yourself to chase after a super low WR and arrive at the finish line physically and mentally broken. That doesn't fit neatly into a cFIREsim simulation or a spreadsheet projection though so we ignore it.
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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.
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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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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.
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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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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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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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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.
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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.
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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 20’s is going to earn compensation again. It’s just going to happen and your WR doesn’t take that into consideration at all. Maybe I’m 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 don’t 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 don’t 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 wouldn’t 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 hold… 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!
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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 20’s is going to earn compensation again. It’s just going to happen and your WR doesn’t take that into consideration at all. Maybe I’m 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.
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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.
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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 20’s is going to earn compensation again. It’s just going to happen and your WR doesn’t take that into consideration at all. Maybe I’m 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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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.
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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.
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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.
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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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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.
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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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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.
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).
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.
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@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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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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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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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...
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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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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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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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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.
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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.
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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.
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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.
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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.
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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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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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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.
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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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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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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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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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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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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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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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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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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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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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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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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.
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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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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.
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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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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.
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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.
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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.
not sure if you were intending to take my quote out of context, but I wasn't commenting about people being satisfied about working a salaried job so much as I was questioning why doing the same in ER seems such a mental block for some.
That said, it sounds like we are similar in many ways. It's taken me the better part of a decade in training to get where I am, and despite being active on this forum we're more SWARMIs than ER types. Our plan is to continue working in our respective fields for the next couple of decades, but in a more limited fashion (i.e. part-time).
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There is more to this than pick 4% and nothing else matters and you're good forever. Bogleheads wiki has a good condensed version of the Trinity Study which attempted to find a good number for a Sustainable Withdrawal Rate.
https://www.bogleheads.org/wiki/Safe_withdrawal_rates
Some things to note: Your asset allocation changes things.
The 4% number is essentially a withdrawal rate that will sustain your income for 30 years with great probability.
Wait.....what did I just say? So if you're 20, and have some disease that's going to kill you when you're 50, and you can keep enough stock funds, then you're good to go. If not, that withdrawal rate has to be smaller. Like 1%. Whoops. Read the link. There are color glossy charts with circles and arrows and a paragraph on the back of each one to be used as evidence against me.
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Bogelheads is a great source for informatino, but they are often incredibly, almost maniacally conservative.
1% WR is absurd unless you are convinced that the future will be a great deal worse than any period in the last 100+ years, which happens to include the great depression and two world wars. Using a 4% WR the majority of portfolios have wound up with MORE money after 30 years. With a 2.8% every scenario has seen the portfolio increase.
Going to 1% is a 'head for the hills and get your ammo" sort of scenario; by definition that's 100x your annual spending, which pretty much means if one simply keeps even with inflation his/her portfolio would last for 100 years.
As always, flexibility can be your greatest asset regardless of the WR you choose.
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Going to 1% is a 'head for the hills and get your ammo" sort of scenario; by definition that's 100x your annual spending, which pretty much means if one simply keeps even with inflation his/her portfolio would last for 100 years.
It's actually pretty cunning. If you work long enough to save that much you might just die at your desk. Think how awesome that would be! Zero chance of running out of money under any circumstance! It doesn't get saferer than that folks. ;)
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At least part of the 4% rule at least historically stems from the fact that returns at or above 4% have historically been achievable with less volatile investments like bonds, maybe even savings accounts, or annuities for people who are willing to give up some control for a guarantee.
That fact that all those investments have been rough on returns recently or at least the past couple years with bonds coming to a crawl too as interest rates trickle up puts some retires in a somewhat long term pickle since having most of their money in say a bond index is not going to sustain a 4% withdrawal through earnings.
The rules for someone who is traditionally retiring with at best 30 years of life left in them and an ER are a bit different to begin with. A 20 or 30 something ER isn't going to use an annuity.
Also someone this young in tough times could take up side jobs and let their investments sit untouched for a year. MMM, when he talks about 4%, it seems he is looking at a more sustaining withdrawal in a more equity based account, where as most traditional retirement calculations expect you to eventually deplete your investments and maintain a steady withdrawal rate.
The philosophy of ER doesn't seem to preach never work a day in your life again and never run out of money. It is more like, you don't have to work. So save enough money that you can live off investments most of the time, but be flexible enough to pick up some side work to keep your nest egg stable or growing.
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Going to 1% is a 'head for the hills and get your ammo" sort of scenario; by definition that's 100x your annual spending, which pretty much means if one simply keeps even with inflation his/her portfolio would last for 100 years.
It's actually pretty cunning. If you work long enough to save that much you might just die at your desk. Think how awesome that would be! Zero chance of running out of money under any circumstance! It doesn't get saferer than that folks. ;)
Working until you die... 100% fool proof. Anything else is just too risky...
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Going to 1% is a 'head for the hills and get your ammo" sort of scenario; by definition that's 100x your annual spending, which pretty much means if one simply keeps even with inflation his/her portfolio would last for 100 years.
It's actually pretty cunning. If you work long enough to save that much you might just die at your desk. Think how awesome that would be! Zero chance of running out of money under any circumstance! It doesn't get saferer than that folks. ;)
Working until you die... 100% fool proof. Anything else is just too risky...
Still too risky! What if you lose your job? Better have two.
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Going to 1% is a 'head for the hills and get your ammo" sort of scenario; by definition that's 100x your annual spending, which pretty much means if one simply keeps even with inflation his/her portfolio would last for 100 years.
It's actually pretty cunning. If you work long enough to save that much you might just die at your desk. Think how awesome that would be! Zero chance of running out of money under any circumstance! It doesn't get saferer than that folks. ;)
Working until you die... 100% fool proof. Anything else is just too risky...
Still too risky! What if you lose your job? Better have two.
Good point. And what if one loses their job AND the market crashes? Happened in 2008. Best to keep cash in case this happens. Or maybe all gold?
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Still too risky! What if you lose your job? Better have two.
Fuck me! This is why I come to these forums! I thought I had every risk nailed and you showed me I had a Bigly League hole in my plan and I didn't even see it.
What do you think about 1 FT job and 2 PT jobs for greater redundancy?
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Still too risky! What if you lose your job? Better have two.
Fuck me! This is why I come to these forums! I thought I had every risk nailed and you showed me I had a Bigly League hole in my plan and I didn't even see it.
What do you think about 1 FT job and 2 PT jobs for greater redundancy?
As long as you have "job diversification"; the PT jobs must be in completely different fields.
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Still too risky! What if you lose your job? Better have two.
Fuck me! This is why I come to these forums! I thought I had every risk nailed and you showed me I had a Bigly League hole in my plan and I didn't even see it.
What do you think about 1 FT job and 2 PT jobs for greater redundancy?
As long as you have "job diversification"; the PT jobs must be in completely different fields.
I like this idea. You also need a job though that isn't susceptible to the standard economic cycle.
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Still too risky! What if you lose your job? Better have two.
Fuck me! This is why I come to these forums! I thought I had every risk nailed and you showed me I had a Bigly League hole in my plan and I didn't even see it.
What do you think about 1 FT job and 2 PT jobs for greater redundancy?
As long as you have "job diversification"; the PT jobs must be in completely different fields.
I like this idea. You also need a job though that isn't susceptible to the standard economic cycle.
So
Primary - bar tender
Secondary 1 - liquor store cashier
Secondary 2 - water delivery birl
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Going to 1% is a 'head for the hills and get your ammo" sort of scenario; by definition that's 100x your annual spending, which pretty much means if one simply keeps even with inflation his/her portfolio would last for 100 years.
It's actually pretty cunning. If you work long enough to save that much you might just die at your desk. Think how awesome that would be! Zero chance of running out of money under any circumstance! It doesn't get saferer than that folks. ;)
Working until you die... 100% fool proof. Anything else is just too risky...
Still too risky! What if you lose your job? Better have two.
Good point. And what if one loses their job AND the market crashes? Happened in 2008. Best to keep cash in case this happens. Or maybe all gold?
Bitcoin. MMM is nothing if not modern!
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Going to 1% is a 'head for the hills and get your ammo" sort of scenario; by definition that's 100x your annual spending, which pretty much means if one simply keeps even with inflation his/her portfolio would last for 100 years.
It's actually pretty cunning. If you work long enough to save that much you might just die at your desk. Think how awesome that would be! Zero chance of running out of money under any circumstance! It doesn't get saferer than that folks. ;)
Working until you die... 100% fool proof. Anything else is just too risky...
Still too risky! What if you lose your job? Better have two.
Good point. And what if one loses their job AND the market crashes? Happened in 2008. Best to keep cash in case this happens. Or maybe all gold?
Bitcoin. MMM is nothing if not modern!
Nice. :D
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Bitcoin. MMM is nothing if not modern!
Too mainstream. Better off using DogeCoin or one of the other million knock-offs
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Bitcoin. MMM is nothing if not modern!
Too mainstream. Better off using DogeCoin or one of the other million knock-offs
Bitcoin has treated me much better than the gold or ammo for the Trumpocalypse so far. :)
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Bitcoin has treated me much better than the gold or ammo for the Trumpocalypse so far. :)
Do you actually have some? I've contemplated getting some, but figured I'd wait until I have a higher net worth and feel like it's ok to put some $$ into something that might not pay off at all.
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Bitcoin has treated me much better than the gold or ammo for the Trumpocalypse so far. :)
Do you actually have some? I've contemplated getting some, but figured I'd wait until I have a higher net worth and feel like it's ok to put some $$ into something that might not pay off at all.
I do have a few coins I keep at coinbase. I even ran a mining rig for a while as an experiment. (broke even mining after selling the equipment) Bitcoin fascinates me as an exchange medium and an alternative to large banks. Its popularity and usage keeps growing as its a mainstream alternative thing to do. That being said, holding Bitcoin can be criticized as a greater fool trade... there is no intrinsic value, its not backed by an army like a fiat currency and technologically, some of the other crypto currencies like Eth may actually be better designed.
So yeah, trades like this require limited position sizing. Once net worth is beyond a certain point, lots of alternative investments start to make sense for small positions. In Bitcoins case, my position is so small its more of an experiment than a position size. It entertains me to follow it and if I make a few bucks, I'll roll it into the next project like this.
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It entertains me to follow it and if I make a few bucks, I'll roll it into the next project like this.
This seems like the best mindset to have. I'll probably be in a similar boat once I feel I've made some serious progress on my path to FI (in a couple years)
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Somewhat bringing this discussion back on track, I'd like to throw out the following thread:
https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/ (https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/)
Seems like there is a heated debate going on as to whether the 4% rule is *too* conservative, and definitely not unrealistic. Not saying I agree, just interesting to read.