FIRE Article in Real Simple Magazine

[Khaetra]

Not a bad article...

https://www.realsimple.com/work-life/money/money-planning/how-to-retire-early

[RWD]

Find a fund with a 0.5 percent fee [...]

Uhhhh, how about a 0.05%...

[clarkfan1979]

It was disappointing to read that they claim the 4% rule is based on the money lasting only 30 years.

[SwordGuy]

It was disappointing to read that they claim the 4% rule is based on the money lasting only 30 years.

It might be disappointing, but that's what exactly what the original Trinity study did.

The assumption was a normal retirement age of 65 and dead by 95.  $1 left was a victory.

Also that you would spend the inflation adjusted amount like a moronic automaton regardless of what the market was doing and never earn another penny in any other fashion for those 30 years.

[clarkfan1979]

I thought the trinity study assumed 7% returns and 3% inflation. If you withdraw 4%, shouldn't the money last forever, not 30 years?

[SwordGuy]

I thought the trinity study assumed 7% returns and 3% inflation. If you withdraw 4%, shouldn't the money last forever, not 30 years?

You need to do your homework on the Trinity Study because that's not accurate.  Not even a little bit.

It had a 5% failure rate.

This is important stuff.  So important, you should not just trust random strangers on the internet. 

There's an MMM blog article addressing some of the concerns and how to deal with them, and a whole forum thread on it, too.

Go do some serious digging and find out (and understand!) exactly and precisely what the study showed.

Because if you don't and you FIRE, you might just learn about that 5% problem area the hardest way possible...

[FIREstache]

I thought the trinity study assumed 7% returns and 3% inflation. If you withdraw 4%, shouldn't the money last forever, not 30 years?

Also, the Trinity study does not assume those returns or inflation.  It uses actual historical statistics as they happened chronologically in time, some years with returns in the negatives and inflation very high.

[gatortator]

oooh.. I was reading this in a waiting room yesterday.  nothing new for this site but this is mainstream magazine outside of the financial genre.    that alone made me smile when I saw the article.   

[clarkfan1979]

I thought the trinity study assumed 7% returns and 3% inflation. If you withdraw 4%, shouldn't the money last forever, not 30 years?

You need to do your homework on the Trinity Study because that's not accurate.  Not even a little bit.

It had a 5% failure rate.

This is important stuff.  So important, you should not just trust random strangers on the internet. 

There's an MMM blog article addressing some of the concerns and how to deal with them, and a whole forum thread on it, too.

Go do some serious digging and find out (and understand!) exactly and precisely what the study showed.

Because if you don't and you FIRE, you might just learn about that 5% problem area the hardest way possible...

The 5% failure rate doesn't scare me. Is it supposed to?

I'm ok with a 5% failure rate. The world is based on a 5% error rate. Science is mostly based on 5% error. Political polls are based on 5% error. When someone is found guilty beyond a reasonable doubt, it's quantified as 5%. If the trinity study is an academic paper, a 5% error rate makes perfect sense. Nothing in life is 100%.

I will probably never FIRE because I like my job. I teach community college. I work 4 days/week about 8 months out of the year. When I reach FI, it will be mostly through real estate (75%), not index funds.

[FIREstache]

I thought the trinity study assumed 7% returns and 3% inflation. If you withdraw 4%, shouldn't the money last forever, not 30 years?

You need to do your homework on the Trinity Study because that's not accurate.  Not even a little bit.

It had a 5% failure rate.

This is important stuff.  So important, you should not just trust random strangers on the internet. 

There's an MMM blog article addressing some of the concerns and how to deal with them, and a whole forum thread on it, too.

Go do some serious digging and find out (and understand!) exactly and precisely what the study showed.

Because if you don't and you FIRE, you might just learn about that 5% problem area the hardest way possible...

The 5% failure rate doesn't scare me. Is it supposed to?

5 is the new 20

[bacchi]

Updated Trinity study:

https://www.onefpa.org/journal/Pages/Portfolio%20Success%20Rates%20Where%20to%20Draw%20the%20Line.aspx

Table 2 is most relevant.

[clarkfan1979]

Updated Trinity study:

https://www.onefpa.org/journal/Pages/Portfolio%20Success%20Rates%20Where%20to%20Draw%20the%20Line.aspx

Table 2 is most relevant.

Thanks for the link. Great article. Based on table 1 & 2, if you are in 100% stocks, there is a 98% success rate of lasting 30 years. If you are in 75% stocks/25% bonds, then it's 100% success rate of lasting 30 years.

MMM advocates for 100% stocks of VTSAX, right? So the main lesson I am seeing is that instead of 100% stocks, it might be better to be 75% stocks/25% bonds. However, the success rate gain is pretty small.

Secondly, if the 75% stocks/25% bond portfolio is statistically 100% successful for 30 years, how long is at 100% success? Has anyone tested anything out beyond 30 years?

[Travis]

Secondly, if the 75% stocks/25% bond portfolio is statistically 100% successful for 30 years, how long is at 100% success? Has anyone tested anything out beyond 30 years?

Big ERN www.earlyretirementnow.com has a series on picking apart aspects of the Trinity Study and studying safe withdrawal rates.  He also had a guest post on his blog recently looking at a 60-year horizon.

https://earlyretirementnow.com/2019/06/26/does-a-4-percent-withdrawal-rate-survive-a-60-year-retirement/

In short: by his models it can still work, but the failure rate can go as high as 15% depending on stock/bond mix and withdrawal rate.

[Freedom Invested]

Here is an AMA from Bill Bengen who first proposed the 4% rule the Trinity study referenced and examined. I hope this additional context helps.

https://www.reddit.com/r/financialindependence/comments/6vazih/im_bill_bengen_and_i_first_proposed_the_4_safe/

[Davnasty]

I thought the trinity study assumed 7% returns and 3% inflation. If you withdraw 4%, shouldn't the money last forever, not 30 years?

You need to do your homework on the Trinity Study because that's not accurate.  Not even a little bit.

It had a 5% failure rate.

This is important stuff.  So important, you should not just trust random strangers on the internet. 

There's an MMM blog article addressing some of the concerns and how to deal with them, and a whole forum thread on it, too.

Go do some serious digging and find out (and understand!) exactly and precisely what the study showed.

Because if you don't and you FIRE, you might just learn about that 5% problem area the hardest way possible...

The 5% failure rate doesn't scare me. Is it supposed to?

I'm ok with a 5% failure rate. The world is based on a 5% error rate. Science is mostly based on 5% error. Political polls are based on 5% error. When someone is found guilty beyond a reasonable doubt, it's quantified as 5%. If the trinity study is an academic paper, a 5% error rate makes perfect sense. Nothing in life is 100%.

I will probably never FIRE because I like my job. I teach community college. I work 4 days/week about 8 months out of the year. When I reach FI, it will be mostly through real estate (75%), not index funds.

All 4 of these examples referring to 5% are very different and should not be equated with one another. A p-value of 5% is not enough to confirm anything, it's only enough to warrant replication of a study and further research. Political polls give a margin of error, for example ±3%, with 95% confidence. I'm not familiar with the reasonable doubt statistic but if 95% confidence is all we need to convict then that's pretty scary; I also don't think "reasonable doubt" is as quantifiable as this suggests. Lastly, the trinity study is based on rate of failure in back testing. It's one way to predict future returns but it's not the same as 95% confidence.

If you don't intend to RE then learning the details might not be that important to you, especially since you're heavy in real estate. However, if you do start making life plans around these assumptions you should understand the how and why.