Author Topic: FIRE on 4%?  (Read 74672 times)

AdrianC

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Re: FIRE on 4%?
« Reply #100 on: February 12, 2016, 07:28:58 AM »
I've taken the position of 'over compensate' ... meaning, if you look at the hugely rich, and you over simplify the problem; then extrapolate for yourself - it looks something like this;
....
So, Yes - I can see a 3-4% withdraw work, but if you're worried, it's all about the safety margins and use the numbers as guidelines, not absolutes ...  Just build in a buffer, a

http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/

Yes. I just got around to reading that blog post. Very good, and it's how I am.

Build in those safety margins. The stock and bond markets will not bail you out.

steveo

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Re: FIRE on 4%?
« Reply #101 on: February 12, 2016, 02:47:19 PM »
So, the modified query is:

Has anyone retired early using an initial withdrawal rate of 4% or more?

I believe a man known as Mister Money Mustache did this.  He has a website about it.

I saw his article on accountants though and he appears to be earning well over $100k from this forum. The dude is going to be a multimillionaire.

tj

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Re: FIRE on 4%?
« Reply #102 on: February 12, 2016, 02:48:40 PM »
So, the modified query is:

Has anyone retired early using an initial withdrawal rate of 4% or more?

I believe a man known as Mister Money Mustache did this.  He has a website about it.

I saw his article on accountants though and he appears to be earning well over $100k from this forum. The dude is going to be a multimillionaire.

Dude already is!
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steveo

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Re: FIRE on 4%?
« Reply #103 on: February 12, 2016, 03:52:56 PM »
So, the modified query is:

Has anyone retired early using an initial withdrawal rate of 4% or more?

I believe a man known as Mister Money Mustache did this.  He has a website about it.

I saw his article on accountants though and he appears to be earning well over $100k from this forum. The dude is going to be a multimillionaire.

Dude already is!

Maybe I should state its going to be getting up to the 10's of millions assuming he keeps spending low.

AdrianC

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Re: FIRE on 4%?
« Reply #104 on: February 16, 2016, 07:48:12 AM »
But I don't think having pensions or other passive income means you aren't using the 4% rule.

For example, someone who has pension cover 50% of expenses, and relies on drawing down 12.5 times brokerage investments, that's still totally in line with the idea of the 4% rule.

It is, but a pension is all but guaranteed. The markets are not. Having half of retirement income from a pension is a huge advantage.

We recently discovered that my wife will be getting a much bigger pension than we thought: projected to be $48k/year at age 67. Sweet.

AdrianC

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Re: FIRE on 4%?
« Reply #105 on: February 16, 2016, 08:02:17 AM »
Someone suggested I post this question over at early-retirement.org. I did, and as predicted there were more hits - 7 people so far retired on 4% or more, 3 on less. However, also as predicted, it's an older crowd. Mid to late 50's mainly.

So, interesting, no real conclusions to be drawn.

Messing around with FireCalc using our numbers, cutting SS by 25%, and a 50 year retirement, I get one failure at 4%, zero failures at 3.9%. Our base expenses are easily covered at 3%.

Now I just have to convince DW...

Thanks for all your help, Mustachians.

Mr. Green

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Re: FIRE on 4%?
« Reply #106 on: February 16, 2016, 08:44:13 AM »
It is, but a pension is all but guaranteed. The markets are not. Having half of retirement income from a pension is a huge advantage.
I would be careful there. Personally, I consider a pension to be more risky than the market. Pensions are invested in the market and they are also at the mercy of a company's management of them. If markets fall off a cliff and never come back a pension is no safer than a 401k. And given the way companies have mismanaged pensions over the years, I'd be hesitant to think of them as "all but guaranteed." Sure there are some companies out there that have done right by their employees but ask all the airline pilots how they're liking their pensions these days and you'll get plenty of ugly answers.
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AdrianC

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Re: FIRE on 4%?
« Reply #107 on: February 16, 2016, 01:40:07 PM »
It is, but a pension is all but guaranteed. The markets are not. Having half of retirement income from a pension is a huge advantage.
I would be careful there.

Good point. I had military pensions in mind (thinking of Nords) and my wife's, which is with a great privately owned company. Others won't be so rock solid.

arebelspy

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Re: FIRE on 4%?
« Reply #108 on: February 16, 2016, 03:52:05 PM »
Good point. I had military pensions in mind (thinking of Nords) and my wife's, which is with a great privately owned company. Others won't be so rock solid.

Even great privately owned companies can suffer from hard times, potential mismanagement (especially with the pension investments, even if not the company itself), lawsuits, etc.
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AdrianC

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Re: FIRE on 4%?
« Reply #109 on: February 17, 2016, 06:15:12 AM »
Even great privately owned companies can suffer from hard times, potential mismanagement (especially with the pension investments, even if not the company itself), lawsuits, etc.

This is true. It's currently well funded. In 20 years who knows?

We're back to that safety margin again.

BeanCounter

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Re: FIRE on 4%?
« Reply #110 on: February 17, 2016, 06:26:08 AM »
Even great privately owned companies can suffer from hard times, potential mismanagement (especially with the pension investments, even if not the company itself), lawsuits, etc.

This is true. It's currently well funded. In 20 years who knows?

We're back to that safety margin again.
I can't remember exactly, and I probably shouldn't say anything without looking it up (no time right now), but when I studied pensions in school I believe there is some of a federal guarantee/insurance behind them. They can't just go away altogether. It's part of ERISA. The case I remember studying was Polaroid. You might want to do some reading/investigating on this and your pension before you discount it altogether and build too much of a safety margin.

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Re: FIRE on 4%?
« Reply #111 on: February 17, 2016, 07:41:02 AM »
Pension Benefit Guaranty Corporation (PBGC) guarantees private company pension benefits if a private company fails.  However, they take over when the plan terminates.  So whatever you had you had and you get nothing else.  Important to note that they are already paying 826,000 people and there are not a lot of pension plans paying in premiums anymore.  Also, this is for private companies.  I'll bet the workers in Detroit felt pretty safe about their pensions for a long time before the Chapter 9.  Some of them took a 30% hit and healthcare disappeared.


AdrianC

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Re: FIRE on 4%?
« Reply #112 on: February 17, 2016, 08:24:37 AM »
You might want to do some reading/investigating on this and your pension before you discount it altogether and build too much of a safety margin.

Thanks, but too late for that :-)

We didn't build this pension or Social Security into our plan (OK, alright, we never had a plan). We've just been saving because that's what we do. Make hay while the sun shines, and all that. This pension is another layer of icing.

Now I have to convince DW that more than enough is, indeed, more than enough. So far I've shown her:

1. Firecalc - no failures over 30, 40, 50 years
2. Fidelity retirement report - "On Track"
3. Quicken retirement planner - "Your plan is working!"

She has now at least admitted that "maybe you could work part time...". Progress!

DoubleDown

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Re: FIRE on 4%?
« Reply #113 on: February 17, 2016, 10:52:18 AM »
So, the modified query is:

Has anyone retired early using an initial withdrawal rate of 4% or more?

I believe a man known as Mister Money Mustache did this.  He has a website about it.

I saw his article on accountants though and he appears to be earning well over $100k from this forum. The dude is going to be a multimillionaire.

Dude already is!

This development has my wife convinced that MMM is a fraud (she's a founding member of the RP, Retirement Police, without the Internet-part). She considers only two possibilities:

1. MMM set out as a fraud, starting a blog to create a bunch of money and that he never would have been able to retire forever without it.

2. MMM did not set out as a fraud, but the fact that he makes so much money from the blog undermines the whole notion that you can retire early on just savings (pointing out others who have done it without million-dollar blogs does not convince her).

So goes the irony of being one of the first well-known and successful early retirees, I guess.
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dragoncar

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Re: FIRE on 4%?
« Reply #114 on: February 17, 2016, 11:39:54 AM »
So, the modified query is:

Has anyone retired early using an initial withdrawal rate of 4% or more?

I believe a man known as Mister Money Mustache did this.  He has a website about it.

I saw his article on accountants though and he appears to be earning well over $100k from this forum. The dude is going to be a multimillionaire.

Dude already is!

This development has my wife convinced that MMM is a fraud (she's a founding member of the RP, Retirement Police, without the Internet-part). She considers only two possibilities:

1. MMM set out as a fraud, starting a blog to create a bunch of money and that he never would have been able to retire forever without it.

2. MMM did not set out as a fraud, but the fact that he makes so much money from the blog undermines the whole notion that you can retire early on just savings (pointing out others who have done it without million-dollar blogs does not convince her).

So goes the irony of being one of the first well-known and successful early retirees, I guess.

Even on the off chance he's a fraud, he's so entertaining and informative it's worth the "price" of admission.  And not everyone on this forum can be a fraud-  others have done what he claims without the corresponding internet millions

BeanCounter

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Re: FIRE on 4%?
« Reply #115 on: February 17, 2016, 11:50:34 AM »
I wouldn't call him a fraud. And I certainly don't think he's trying to be fraudulent. But I don't think his example really proves that you can FIRE for 50-60 years on 4% wdr of $24k (or whatever it is I don't remember the exact number) per year and provide for a family. Including a child. Sure that was his intention. But the truth is he has a pretty good income from several side hustles. So, when his comes home and needs orthodontics or tuition or soccer money or their health insurance premiums sky rocket or they start to suffer from frugal fatigue or WHATEVER would come around and blow the budget he has his side hustle to protect them. Which also helps with the portfolio longevity.

Mr. Green

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Re: FIRE on 4%?
« Reply #116 on: February 17, 2016, 01:18:54 PM »
Thanks, but too late for that :-)

We didn't build this pension or Social Security into our plan (OK, alright, we never had a plan). We've just been saving because that's what we do. Make hay while the sun shines, and all that. This pension is another layer of icing.

Now I have to convince DW that more than enough is, indeed, more than enough. So far I've shown her:

1. Firecalc - no failures over 30, 40, 50 years
2. Fidelity retirement report - "On Track"
3. Quicken retirement planner - "Your plan is working!"

She has now at least admitted that "maybe you could work part time...". Progress!
If your wife's pension is 48k and you have social security to boot, that's got to be upwards of 100k right there. Unless you spend a phenomenal amount of money, I'd guess you're going to be leaving someone an insane amount of money when you die. If you have businesses to sell/leave to the kids, and savings on top of all that, man alive.....I'd be popping smoke yesterday! Eject! Eject!
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thriftycanadian

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Re: FIRE on 4%?
« Reply #117 on: February 17, 2016, 07:17:06 PM »
I would say 4% WR is the base line.  In my case, it would be nearly impossible for either myself or my wife to NOT earn some sort of additional income throughout our lives after FIRE.  If anyone retires on a straight 4% WR, invested in at least 60% stock indexes - they have a very high chance of becoming ridiculously more wealthy just through investment growth alone.  Inject some occasional fun income to bring the average WR down, and you have a higher chance of becoming radically more wealthy than you do running out.   

NorcalBlue

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Re: FIRE on 4%?
« Reply #118 on: February 17, 2016, 08:29:44 PM »
I've ER'd with a 3% WR at 42 a little over a year ago after a layoff.  That being said, I'm lookin for work again as ER isn't living up to the dream for me. Finances aren't the issue (3% WR on a 1.25M portfolio), but I feel more comfortable ER'ing in my late 40's or 50.  However, I'm acting as if I'm ER'd permanently in case a new gig doesn't come along.


AdrianC

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Re: FIRE on 4%?
« Reply #119 on: February 18, 2016, 07:21:31 AM »
If your wife's pension is 48k and you have social security to boot, that's got to be upwards of 100k right there. Unless you spend a phenomenal amount of money, I'd guess you're going to be leaving someone an insane amount of money when you die. If you have businesses to sell/leave to the kids, and savings on top of all that, man alive.....I'd be popping smoke yesterday! Eject! Eject!

:-)

SS and the pension is 20 years in the future.

My business is consulting and dies when I stop working. My brother's company I mentioned up thread is a traditional business with plant and equipment and employees and a large customer base. His kids could take over that business. The brother will have to run it till they are able, though, which is at least 15 years in the future. He'll probably need to anyway - him and SiL are big spenders. That's not for me. I'm about done...

We're good, just getting used to the idea of FIRE.

Been watching Breaking Bad season 1 on Netflix this week as I work out. Walt and I are almost the same age (he looks older). I don't want to be like Walt!

Retire-Canada

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Re: FIRE on 4%?
« Reply #120 on: February 19, 2016, 11:26:30 AM »
Been watching Breaking Bad season 1 on Netflix this week as I work out. Walt and I are almost the same age (he looks older). I don't want to be like Walt!

I don't blame you. Look at all the hassle having a ton of money to deal with is! Poor Walt! That's why 4% SWR + 8 different back up options is more than enough. You don't want to spend your FIRE counting all that money! ;)

dabears847

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Re: FIRE on 4%?
« Reply #121 on: February 20, 2016, 10:46:31 AM »
This guy has been living on the 4% rule for 20 years (actually, because of the growth in his account, he's down to living on 1%):

http://www.retireearlyhomepage.com/20year.html

Also, he just published a short little piece on Wade Pfau's recent proclamation regarding current retirees' need to withdraw only 1.7%.

http://www.retireearlyhomepage.com/wadepfau_2016.html

Thank you so much for posting... Great article and update

Best part to me>

 Losing a full 1.00% (or more) to an investment adviser is nothing short of financial rape.

Nords

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Re: FIRE on 4%?
« Reply #122 on: February 20, 2016, 11:43:03 AM »
This guy has been living on the 4% rule for 20 years (actually, because of the growth in his account, he's down to living on 1%):

http://www.retireearlyhomepage.com/20year.html

Also, he just published a short little piece on Wade Pfau's recent proclamation regarding current retirees' need to withdraw only 1.7%.

http://www.retireearlyhomepage.com/wadepfau_2016.html

Thank you so much for posting... Great article and update

Best part to me>

 Losing a full 1.00% (or more) to an investment adviser is nothing short of financial rape.
"This guy"?!? 

Sigh.  Nobody appreciates history.

John Greaney is one of the earliest of the ERs, who created RetireEarlyHomePage in the 1990s after The Motley Fool started charging monthly fees for their Early Retirement forums.  Among other accomplishments, John's spreadsheet on predicting a safe withdrawal rate led another guy (the founder of Early-Retirement.org) to create FIRECalc.

I know six others who ER'd earlier than John:  the Kaderlis, the Terhorsts, a poster named "Jarhead" on E-R.org, and another poster named HaHa.  All have more than 20 years of ER (Terhorsts are over 30), and all have more than enough money to live their lives.  A seventh is Dory, the founder of E-R.org, but I'm not sure whether John ER'd first.  Jarhead hasn't posted for years and I fear that he may have passed on.  HaHa must be in his 70s by now.  I think the rest are (at least) in their 60s.  But all of them (except for possibly the Kaderlis) must be getting pretty tired of writing about the 4% SWR.

I've been retired for nearly 14 years on the 4% SWR, including two awe-inspiring recessions, and I think that record counts as "so far so good" for sequence of returns risk.  Unlike many other ERs, I'm still interested in writing about it.  Or perhaps the reality is that I can't stop writing.


Which brings up a good point, and I'm going to re-post/edit the text that I put up on E-R.org in the similar thread.

Stop trying to drive the 4% SWR success rate to 100%.  Mathematically, it's a waste of time.  The 4% SWR works for the vast majority of cases, and the cure for edge-case failures is longevity insurance.  But the 4% SWR also has a lot of accidental margin built into it, and that can be exploited by every ER.

Let's rehash the assumptions that the Trinity trio made to simplify their computer simulations:
- 1% expense ratio on investments (mentioned above)
- No Social Security
- No flexible spending
- Conservative asset allocation

So if you go by the 4% SWR, right away you're assuming that you throw away a percentage point every year.  (You're giving a quarter of your withdrawals to the financial industry, but I digress.)  In my case, with my expense ratio of about 24 basis points, I have an extra 0.76% percentage points of the 4% SWR on my side.

I don't know about a few of you pessimistic skeptics, but I expect Social Security to be available when I turn 70 years old in 15(!??!) years. That's about $12K/year for me and another $12K for my spouse. That's at least a quarter of our spending-- nearly half-- unless we're really blowing it out for travel.  It'll certainly buy groceries and surf wax.

Which brings me to the next point: we don't rigidly spend 4% + CPI every year. I don't think anybody does, and we can all cut back during a recession. There's another margin to let a portfolio recover from a bear market.

Which brings me to my final point: you'll never get a 100% success ratio, and statistics indicates that anything over 80% is ludicrous. (See William Bernstein's Calculator From Hell III post, which published well over a decade ago: http://www.efficientfrontier.com/ef/901/hell3.htm)  Instead of maximizing your success ratio, eliminate your failure rate by annuitizing a portion of your portfolio to provide a minimal standard of living. Maybe that annuity is SS, or maybe it's another type of deferred annuity, or maybe you buy a SPIA.  (In my case it's a military pension.)  But once you have that minimum longevity insurance covered, then you can invest in a much more aggressive asset allocation of around 80%/20% stocks/cash.

By the time I'm 70 I'll have lived through 29 of my 4% SWR's 30 years. I'll let you know how it goes while I reset the calendar for a second 30-year retirement. I'm guessing that second 30-year sequence will work out too... at least in terms of having my assets last longer than me.

Luckily, those who are not comfortable with the 4% SWR are the only ones who have to work longer to pad the nest egg until they can sleep comfortably at night. Behavioral finance is at least as important as the math.


There might be a blog post in this discussion, so please share your thoughts on those Trinity assumptions.
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arebelspy

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Re: FIRE on 4%?
« Reply #123 on: February 20, 2016, 12:04:12 PM »
Great post Nords!

I knew HaHa was old, I wouldn't have guessed THAT old.  He's so young at heart.
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Re: FIRE on 4%?
« Reply #124 on: February 20, 2016, 02:29:32 PM »
My business is consulting and dies when I stop working.

I've been there and it can be hard to let go of a business and clients that you've established over many years.  In my case, I was forced to stop consulting in order to start a new business, but I don't regret it.

It would not have been possible for me to continue consulting on a part-time basis (due to the nature of my work), but maybe that might be an option for you to segue into FIRE?

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Re: FIRE on 4%?
« Reply #125 on: February 20, 2016, 02:39:14 PM »
I'm with Bernstein on this one, and have lost interest in 4% threads in general. This one caught my eye, and I thought might be interesting to see what experiences might be shared.

Thanks Nords for the history.

I came across another longterm retiree - Gary Pierce who posts at http://www.frugal-retirement-living.com/ - he retired in 1994. He mentions the 4% rule, but the details of his finances are not posted.  According to his website he needed to  supplement his income with blog income after 2008. I'm not sure if he planned to retire on 4% or not.
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AdrianC

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Re: FIRE on 4%?
« Reply #126 on: February 21, 2016, 07:11:11 AM »
Sigh.  Nobody appreciates history.
We do now. Thanks for educating us.
Quote
I've been retired for nearly 14 years on the 4% SWR, including two awe-inspiring recessions, and I think that record counts as "so far so good" for sequence of returns risk.  Unlike many other ERs, I'm still interested in writing about it.  Or perhaps the reality is that I can't stop writing.

And we're glad that you will still write about it. There's a constant stream of folks just coming across the idea of FIRE. We all need educating.

A question: would you mind saying how much of your initial 4% WR was pension and how much was withdrawals from the portfolio?

Quote
Which brings up a good point, and I'm going to re-post/edit the text that I put up on E-R.org in the similar thread.

I'll do the same. You make good points about the Trinity study, except I think the Trinity study didn't include a 1% fee, but that's not important. We have better tools now (cFIREsim and FIREcalc). We can all play around with our numbers and get to feel good, or not.

Quote
Instead of maximizing your success ratio, eliminate your failure rate by annuitizing a portion of your portfolio to provide a minimal standard of living. Maybe that annuity is SS, or maybe it's another type of deferred annuity, or maybe you buy a SPIA.  (In my case it's a military pension.)  But once you have that minimum longevity insurance covered, then you can invest in a much more aggressive asset allocation of around 80%/20% stocks/cash.

We went over SS and pensions in this thread. Made me happy. I've always been stocks plus cash. I can take the volatility.

Quote
By the time I'm 70 I'll have lived through 29 of my 4% SWR's 30 years. I'll let you know how it goes while I reset the calendar for a second 30-year retirement. I'm guessing that second 30-year sequence will work out too... at least in terms of having my assets last longer than me.

Luckily, those who are not comfortable with the 4% SWR are the only ones who have to work longer to pad the nest egg until they can sleep comfortably at night. Behavioral finance is at least as important as the math.

Sure.

My plan is a variable withdrawal rate ranging from 2.5% (current base expenses) to 4% or more (charity, big vacations, big ticket items, sports cars, motorcycles, etc). The lower rate when in capital preservation mode in down markets. The higher rate when we're feeling flush. I'm also continuing to work part time, for this year at least. No extra savings required. Social security for me in 18 years, spouse in 21 years, $20K pension for spouse in 19 years. I assume a 25% cut to SS in my calcs, just to be safer.

That all said...I never intended this or the daughter thread on early-retirement.org to be about "proving" the 4% rule of thumb. Both threads have turned into that. My intent was to simply ask if many people had done it, my hypothesis being: lot's of people around here talk about it but not many have done it. It wasn't intended as a scientific study. Just personal interest.

As it turns out, I personally have learned a great deal from both threads and feel even better about FIREing immediately, and for that I thank you all.

AdrianC

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Re: FIRE on 4%?
« Reply #127 on: February 21, 2016, 07:18:35 AM »
My business is consulting and dies when I stop working.

I've been there and it can be hard to let go of a business and clients that you've established over many years.  In my case, I was forced to stop consulting in order to start a new business, but I don't regret it.

It would not have been possible for me to continue consulting on a part-time basis (due to the nature of my work), but maybe that might be an option for you to segue into FIRE?

Part-time is an option, though it will be more like full-time, nothing, full-time, nothing, etc. I was concerned about letting people down - my clients are also friends and/or people I like and respect and trust. As it happens, business seems to be dying off on it's own. A natural death as clients move to other positions or retire themselves. New guys taking their place bring in their own teams. Previously I would market to the new guys and often win their business. I've stopped doing that.

Rubic

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Re: FIRE on 4%?
« Reply #128 on: February 21, 2016, 08:36:11 AM »
Part-time is an option, though it will be more like full-time, nothing, full-time, nothing, etc. I was concerned about letting people down - my clients are also friends and/or people I like and respect and trust. As it happens, business seems to be dying off on it's own. A natural death as clients move to other positions or retire themselves. New guys taking their place bring in their own teams. Previously I would market to the new guys and often win their business. I've stopped doing that.

That might make for a nice slow glide path.  I certainly understand not wanting to let people down, especially if they've become dependent on you.  Best wishes.

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Re: FIRE on 4%?
« Reply #129 on: February 21, 2016, 01:46:50 PM »
This guy has been living on the 4% rule for 20 years (actually, because of the growth in his account, he's down to living on 1%):

http://www.retireearlyhomepage.com/20year.html

Also, he just published a short little piece on Wade Pfau's recent proclamation regarding current retirees' need to withdraw only 1.7%.

http://www.retireearlyhomepage.com/wadepfau_2016.html

Thank you so much for posting... Great article and update

Best part to me>

 Losing a full 1.00% (or more) to an investment adviser is nothing short of financial rape.
"This guy"?!? 

Sigh.  Nobody appreciates history.

John Greaney is one of the earliest of the ERs, who created RetireEarlyHomePage in the 1990s after The Motley Fool started charging monthly fees for their Early Retirement forums.  Among other accomplishments, John's spreadsheet on predicting a safe withdrawal rate led another guy (the founder of Early-Retirement.org) to create FIRECalc.

I know six others who ER'd earlier than John:  the Kaderlis, the Terhorsts, a poster named "Jarhead" on E-R.org, and another poster named HaHa.  All have more than 20 years of ER (Terhorsts are over 30), and all have more than enough money to live their lives.  A seventh is Dory, the founder of E-R.org, but I'm not sure whether John ER'd first.  Jarhead hasn't posted for years and I fear that he may have passed on.  HaHa must be in his 70s by now.  I think the rest are (at least) in their 60s.  But all of them (except for possibly the Kaderlis) must be getting pretty tired of writing about the 4% SWR.

I've been retired for nearly 14 years on the 4% SWR, including two awe-inspiring recessions, and I think that record counts as "so far so good" for sequence of returns risk.  Unlike many other ERs, I'm still interested in writing about it.  Or perhaps the reality is that I can't stop writing.


Which brings up a good point, and I'm going to re-post/edit the text that I put up on E-R.org in the similar thread.

Stop trying to drive the 4% SWR success rate to 100%.  Mathematically, it's a waste of time.  The 4% SWR works for the vast majority of cases, and the cure for edge-case failures is longevity insurance.  But the 4% SWR also has a lot of accidental margin built into it, and that can be exploited by every ER.

Let's rehash the assumptions that the Trinity trio made to simplify their computer simulations:
- 1% expense ratio on investments (mentioned above)
- No Social Security
- No flexible spending
- Conservative asset allocation

So if you go by the 4% SWR, right away you're assuming that you throw away a percentage point every year.  (You're giving a quarter of your withdrawals to the financial industry, but I digress.)  In my case, with my expense ratio of about 24 basis points, I have an extra 0.76% percentage points of the 4% SWR on my side.

I don't know about a few of you pessimistic skeptics, but I expect Social Security to be available when I turn 70 years old in 15(!??!) years. That's about $12K/year for me and another $12K for my spouse. That's at least a quarter of our spending-- nearly half-- unless we're really blowing it out for travel.  It'll certainly buy groceries and surf wax.

Which brings me to the next point: we don't rigidly spend 4% + CPI every year. I don't think anybody does, and we can all cut back during a recession. There's another margin to let a portfolio recover from a bear market.

Which brings me to my final point: you'll never get a 100% success ratio, and statistics indicates that anything over 80% is ludicrous. (See William Bernstein's Calculator From Hell III post, which published well over a decade ago: http://www.efficientfrontier.com/ef/901/hell3.htm)  Instead of maximizing your success ratio, eliminate your failure rate by annuitizing a portion of your portfolio to provide a minimal standard of living. Maybe that annuity is SS, or maybe it's another type of deferred annuity, or maybe you buy a SPIA.  (In my case it's a military pension.)  But once you have that minimum longevity insurance covered, then you can invest in a much more aggressive asset allocation of around 80%/20% stocks/cash.

By the time I'm 70 I'll have lived through 29 of my 4% SWR's 30 years. I'll let you know how it goes while I reset the calendar for a second 30-year retirement. I'm guessing that second 30-year sequence will work out too... at least in terms of having my assets last longer than me.

Luckily, those who are not comfortable with the 4% SWR are the only ones who have to work longer to pad the nest egg until they can sleep comfortably at night. Behavioral finance is at least as important as the math.


There might be a blog post in this discussion, so please share your thoughts on those Trinity assumptions.

I'm gathering as much data as possible and enjoy reading about the 4% with flexible options. I've read on this site so many differing opinions of the 4% less 1% for fees etc. which is it... Is it more like 5% less 1% in fees leaving 4% safe withdrawal or 3%...

arebelspy

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Re: FIRE on 4%?
« Reply #130 on: February 21, 2016, 02:39:33 PM »
Go read the original study, and subsequent research. It's worth it. :)

It is 4%, minus fees.

But play around with your own numbers, to your comfort level, at www.cfiresim.com  :)
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Re: FIRE on 4%?
« Reply #131 on: February 22, 2016, 07:59:27 AM »
Part-time is an option, though it will be more like full-time, nothing, full-time, nothing, etc. I was concerned about letting people down - my clients are also friends and/or people I like and respect and trust. As it happens, business seems to be dying off on it's own. A natural death as clients move to other positions or retire themselves. New guys taking their place bring in their own teams. Previously I would market to the new guys and often win their business. I've stopped doing that.

That might make for a nice slow glide path.  I certainly understand not wanting to let people down, especially if they've become dependent on you.  Best wishes.

I was just on a conference call with a client and recommended he use a different outfit for the bulk of the work. I'll get a few days of work out of it instead of a few weeks. A couple years ago I would have been fighting for the business. Glide path in action... :-)

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Re: FIRE on 4%?
« Reply #132 on: February 23, 2016, 08:42:49 AM »
Go read the original study, and subsequent research. It's worth it. :)

It is 4%, minus fees.

But play around with your own numbers, to your comfort level, at www.cfiresim.com  :)

I've been on all the models and prefer the old cfire... thanks for the reference, I'll be searching for the information.

AdrianC

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Re: FIRE on 4%?
« Reply #133 on: February 25, 2016, 07:18:41 AM »
Which brings me to my final point: you'll never get a 100% success ratio, and statistics indicates that anything over 80% is ludicrous. (See William Bernstein's Calculator From Hell III post, which published well over a decade ago: http://www.efficientfrontier.com/ef/901/hell3.htm)  Instead of maximizing your success ratio, eliminate your failure rate by annuitizing a portion of your portfolio to provide a minimal standard of living. Maybe that annuity is SS, or maybe it's another type of deferred annuity, or maybe you buy a SPIA.  (In my case it's a military pension.)  But once you have that minimum longevity insurance covered, then you can invest in a much more aggressive asset allocation of around 80%/20% stocks/cash.

I just got around to reading the linked article. Very good. His conclusions:

Mind you, this is not a call for wild abandon. The above table constrains the retiree desiring a theoretical 97% success rate (of portfolio survival) from spending more than 3% per year of the initial real amount of his nest egg. Taking the accident propensity of the species into account would allow him to spend about 4%. But if you believe that we’re about to encounter a bad returns sequence or simply wish to leave a few baubles to your heirs, you’re right back to 3% again.

So live a little, and enjoy your money, for tomorrow we may be consumed by the ghosts of Hitler, Lenin, and Attila the Hun. And at withdrawals of 3% to 4% of your nest egg, don’t spend it all in one place.


Many well respected people do "believe that we’re about to encounter a bad returns sequence":

http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05

Bogle...[said] that U.S. stocks over the next decade will return just 4% on average annually. (That's a 2% real return).

In this new forecast, Bogle joins the ranks of notable value investors and market observers Jeremy Grantham, Robert Arnott, and Robert Shiller , whose dim views of stock valuations and future returns are well-documented.

Bogle predicts that a balanced portfolio (roughly half in stocks and half in bonds) should return around 3.5% for the next decade. Adjusted for inflation or in “real” terms, Bogle thinks a balanced portfolio will return 1.5%, barely increasing purchasing power.

Here's my current thinking on this: Bogle is factoring in PE compression, so after 10 years stocks would be in a more normal value range, leading to more normal average returns.

For a portfolio to last 40 years at a 4% WR it has to generate a 2.5% real return. In my own case I want it to last 50 years, but it still works out to about a 2.5% real return due to SS and pension.

Bonds will be a drag on returns. A real 2.5% return should be doable over the next ten years with a portfolio of mainly equities, a mix of US and international and low expenses. After that is anyone's guess.

4% is still looking good.

Nords

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Re: FIRE on 4%?
« Reply #134 on: February 28, 2016, 11:34:49 AM »
I've been retired for nearly 14 years on the 4% SWR, including two awe-inspiring recessions, and I think that record counts as "so far so good" for sequence of returns risk. 
A question: would you mind saying how much of your initial 4% WR was pension and how much was withdrawals from the portfolio?
I don't mind (the info is public) but I don't think that you're using the generally-accepted definition of a 4% SWR.

I didn't look at my pension as a percentage of SWR.  I projected our retirement expenses, subtracted my pension from that, and made sure that our investment portfolio was at least 25x that "expense gap". 

FI = 25 x (expenses - pension).

When I retired in 2002, my military pension was $2655/month or $31,860/year. 
http://www.dfas.mil/militarymembers/payentitlements/military-pay-charts.html  (For those of you with military experience it's O-4>20, Final Pay.)

Today (due to COLAs) I'm receiving $3566/month or $42,792/year.  If you compare my pension to an O-4 servicemember who retires today on the 2016 pay charts with a High Three pension, we're pretty close to parity.  (My Final Pay retirement system is no longer in effect for most of today's retirees.)  According to the CPI, my pension has gone up about 34% in 14 years.  Personally, my pension has risen faster than our family inflation rate in almost every category.

I don't have my 2002-03 expenses handy but 2004 was about $75K (call it $6200/month).  So the pension was 42.8% of our total expenses, and about $43K of our spending came from our investment portfolio.  I have very clear memories of calculating the value of that portfolio on 17 September 2001, after the stock markets re-opened from 9/11.  The number was $1.1M:  lower than I would've liked (and it got lower during the next 13 months before it started recovering) but it was "close enough".

Keep in mind that back then my spouse had just left active duty for the Reserves and unpaid drill weekends, so we had no expectation that she'd earn more than a small pension starting at age 60.  (Our assets had to bridge the big gap between 2002 and 2022, and then still cover a smaller gap after that.)  We were loaded down with mortgage debt on our residence, which boosted our expenses but also let our investment portfolio stay big enough to handle the 4% SWR.  We were losing money on our rental (thanks to my parents-in-law who were squatting there) and we were still parenting (including putting $5000/year in the college fund).  Our investment expenses were pretty close to 1%/year (including a "value" mutual fund charging 1.4%/year) and we had a significant backlog of home maintenance & repairs begging for DIY sweat equity.

In other words, retiring at a 4% SWR into a recession could've been ugly but we had faith in the math and the probabilities.  The inflation-indexed annuity assured us a minimum standard of living even if our portfolio was chopped in half by a bear market.  Plan B was for one of us to re-enter the workforce, but only if absolutely necessary.  My research indicated that we could even hack withdrawals of 6%-7% for a year or two if necessary.

Our spending stayed pretty flat for the next decade (or declined with inflation).  In 2013 (the last summary I have on file) we spent $82K.  During that decade we dropped our mortgage payment by over 40% (serial refinancings) and launched our daughter from the nest.  We built a photovoltaic array and a solar water heating system and dropped our electric bill by over $1400/year.  My spouse retired from the Reserves in 2008 with a few extra points and a surprise promotion to her credit.  (Her pension still starts in 2022.)  My PILs moved back to the Mainland and we were finally able to generate cash flow from our rental property.  We took advantage of both recessions to shift our asset allocation to ETFs with low expense ratios and to convert most of our traditional tax-deferred accounts to Roth IRAs.  We liquidated a small chunk of our portfolio to upgrade our home, spent another small chunk to fix up the rental property, and gave another small chunk to charity.  I've finally submitted my VA disability claim, which may drop my tax bill by $1000-$2000 per year.

I haven't tallied our annual spending since 2013, and in 2015 I stopped tracking our spending.  I could reconstruct it from checking account & credit-card statements, but if anything it's actually dropping.  We spent five months of last year visiting our daughter in Spain, so that knocked our spending down and our checking account balance is still climbing.  Instead of indulging my inner nuke with Quicken details, we're going to automate all of our tracking of our portfolio and our expenses with Personal Capital and/or Mint.  It won't be as detailed as Quicken but it'll be "close enough".

My point is that if I'd done these calculations in 2001 and blindly sought an extra margin of safety from a 2.5%-3% withdrawal rate, then I would've worked a corporate bridge career for at least 2-3 more years.  I finally would've eased into ER in 2005.  Then when the Great Recession hit I probably would've panicked and clamped down very hard on the spending, perhaps even seeking part-time work.  But in 2002, instead of succumbing to the lure of an unreachable 100% success rate and "Just One More Year" Syndrome, I avoided employment and learned how to tolerate financial ambiguity & volatility.  I learned to get comfortable with the 4% SWR and to optimize our finances even further.  Along the journey I learned that I still have tremendous human capital.  Screw the corporate career track-- I could have earned an entrepreneurial lifestyle income from handyman labor or appliance repair or writing (or all three). 

If I'd succumbed to JOMY Syndrome then I would've missed out on some of the best years of my daughter's life.  (Including the exciting "danger teen" era.)  I would not have surfed as near as much with her, and I wouldn't have trained alongside her to get our taekwondo black belts.  I would've kept gaining weight around my waist (instead of converting it into surfing muscles around my shoulders) and I would've kept gaining points on my blood pressure & cholesterol.  I would've had to outsource most of my life (rental property management, housecleaner, yardwork) so that I could earn more margin of safety for the portfolio.  My spouse and I would've missed years of even better togetherness & intimacy.  I would've endured several (more) years of workplace dissatisfiers and epic rush-hour commutes.  I would've missed some incredible world travel (Japan, Thailand, all over the Mainland) and a couple of cruises.  Eventually I would've retired (perhaps with an extra push from a family or medical crisis) to discover that I had way more money than I needed-- and had missed out on years of satisfying, fulfilling retirement.

The 4% SWR is a great hypothesis, and the execution is messily variable & volatile, but we appear to be following the track of "way more money than we need". 

I think the benefits of the 4% SWR outweigh the risks.  The human behavioral financial psychology of loss aversion costs way more than necessary.
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dragoncar

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Re: FIRE on 4%?
« Reply #135 on: February 28, 2016, 12:52:17 PM »
Nords, thanks for the helpful summary.  Maybe I missed it, but any discussion of personal 4% SWR should mention he asset allocation-- were you doing 100% stocks or age in bonds or something else? 

Totally agree with the expenses minus "guaranteed income" approach to SWR

arebelspy

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Re: FIRE on 4%?
« Reply #136 on: February 28, 2016, 01:43:33 PM »
He did mention earlier in the thread his belief that:
once you have that minimum longevity insurance covered, then you can invest in a much more aggressive asset allocation of around 80%/20% stocks/cash.
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Nords

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Re: FIRE on 4%?
« Reply #137 on: February 28, 2016, 02:15:39 PM »
Nords, thanks for the helpful summary.  Maybe I missed it, but any discussion of personal 4% SWR should mention he asset allocation-- were you doing 100% stocks or age in bonds or something else? 

Totally agree with the expenses minus "guaranteed income" approach to SWR
He did mention earlier in the thread his belief that:
once you have that minimum longevity insurance covered, then you can invest in a much more aggressive asset allocation of around 80%/20% stocks/cash.
Yep.  If I remember correctly, I think the 80/20 asset allocation is at the peak of Bernstein's efficient frontier and also the edge of the AA from the Bengen research & Trinity Study.  Or at least going >80% brings more volatility without significantly more return.

Since I have a military pension, personally we keep our portfolio at >90% equities and about 8% cash (in a money market and a ladder of three-year CDs).  That "two years' expenses in cash" started as a way to ride out a bear market (and to avoid the sequence-of-returns risk in the first 5-10 years of retirement).  Lately, however, it's been creeping up and I think we can gradually cut back to 95% equities/5% cash.  Some of the 95/5 ratio would also reflect that our portfolio has grown faster than we're spending it.  Our dividend ETF distributions are also growing faster than inflation, so our rising dividends reduce the need for selling shares to fund portfolio withdrawals.  The result is a dropping withdrawal rate.

We'd save up during a year or two in order to pay for a really large expense like a luxury cruise or a replacement beater car.  Or maybe we'd just sell a few shares of whatever's had the most gains.

I've also recently concluded that we'll probably never sell another Berkshire Hathaway "B" share for the rest of my life...
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Basenji

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Re: FIRE on 4%?
« Reply #138 on: February 28, 2016, 03:06:06 PM »

If I'd succumbed to JOMY Syndrome then I would've missed out on some of the best years of my daughter's life.  (Including the exciting "danger teen" era.)  I would not have surfed as near as much with her, and I wouldn't have trained alongside her to get our taekwondo black belts.  I would've kept gaining weight around my waist (instead of converting it into surfing muscles around my shoulders) and I would've kept gaining points on my blood pressure & cholesterol.  I would've had to outsource most of my life (rental property management, housecleaner, yardwork) so that I could earn more margin of safety for the portfolio.  My spouse and I would've missed years of even better togetherness & intimacy.  I would've endured several (more) years of workplace dissatisfiers and epic rush-hour commutes.  I would've missed some incredible world travel (Japan, Thailand, all over the Mainland) and a couple of cruises.  Eventually I would've retired (perhaps with an extra push from a family or medical crisis) to discover that I had way more money than I needed-- and had missed out on years of satisfying, fulfilling retirement.

I'm going to show this to DH. Lovely.

EscapeVelocity2020

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Re: FIRE on 4%?
« Reply #139 on: February 28, 2016, 06:49:57 PM »

If I'd succumbed to JOMY Syndrome then I would've missed out on some of the best years of my daughter's life.  (Including the exciting "danger teen" era.)  I would not have surfed as near as much with her, and I wouldn't have trained alongside her to get our taekwondo black belts.  I would've kept gaining weight around my waist (instead of converting it into surfing muscles around my shoulders) and I would've kept gaining points on my blood pressure & cholesterol.  I would've had to outsource most of my life (rental property management, housecleaner, yardwork) so that I could earn more margin of safety for the portfolio.  My spouse and I would've missed years of even better togetherness & intimacy.  I would've endured several (more) years of workplace dissatisfiers and epic rush-hour commutes.  I would've missed some incredible world travel (Japan, Thailand, all over the Mainland) and a couple of cruises.  Eventually I would've retired (perhaps with an extra push from a family or medical crisis) to discover that I had way more money than I needed-- and had missed out on years of satisfying, fulfilling retirement.

I'm going to show this to DH. Lovely.

I also appreciate that Nords detailed this out to better understand how he went about determining FI (50% of expenses covered by guaranteed pension with COLA (core expenses), ~50% expenses covered by equity investments for growth including 2 year liquid emergency fund, and a 20 year planning horizon).  It's also interesting to see the common theme as to why most folks value ER so highly.  I agree that the traditional American work arrangement is outdated, even if the pay is getting better for professionals.  People should be entitled to a favorable work / life balance.  In the absence of this, saving for FU money / FI and taking matters into our own hands makes perfect sense.  Of course, it doesn't have to be this way, the Scandinavian and most European countries are much more supportive of giving their workers 'a life', and now with Uber, Air BnB, YouTube, blogger, etc., there are new options that don't involve costly startups and having to jump through tricky legal and tax hoops to earn income independently.
« Last Edit: February 29, 2016, 07:30:21 AM by EscapeVelocity2020 »
Transitioning to FIRE'd albeit somewhat cautiously...

ender

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Re: FIRE on 4%?
« Reply #140 on: February 29, 2016, 06:24:33 AM »
I think the benefits of the 4% SWR outweigh the risks.  The human behavioral financial psychology of loss aversion costs way more than necessary.

To be fair though, a $40k+ military pension makes it considerably easier to "rely" on the 4% rule than someone who will be 100% sustained from portfolio withdrawals. I would be careful presuming the risk tolerance for your situation is the same as someone where 100% of their annual spend is from investments.

Worst case of a trinity study 'failure' is you drop your spending to closer to your pension income and just have a less luxurious ER.  It would make things much easier to take risks (or perhaps a better way to phrase it is lowering the perceived risk and worst-case outcome) knowing that you have a fairly large reliable income. Well, except if you are exflyboy apparently :-)

It does not really change the math, but it does change the overall worst-case associated with ER. Considerably easier for you to reduce your spending from your portfolio to 0% than someone with a 100% portfolio ER.

arebelspy

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Re: FIRE on 4%?
« Reply #141 on: February 29, 2016, 07:21:57 AM »
I think the benefits of the 4% SWR outweigh the risks.  The human behavioral financial psychology of loss aversion costs way more than necessary.

To be fair though, a $40k+ military pension makes it considerably easier to "rely" on the 4% rule than someone who will be 100% sustained from portfolio withdrawals. I would be careful presuming the risk tolerance for your situation is the same as someone where 100% of their annual spend is from investments.

Worst case of a trinity study 'failure' is you drop your spending to closer to your pension income and just have a less luxurious ER.  It would make things much easier to take risks (or perhaps a better way to phrase it is lowering the perceived risk and worst-case outcome) knowing that you have a fairly large reliable income. Well, except if you are exflyboy apparently :-)

It does not really change the math, but it does change the overall worst-case associated with ER. Considerably easier for you to reduce your spending from your portfolio to 0% than someone with a 100% portfolio ER.

If you believe that, just annuitize some of your portfolio into an income floor, and you have the same situation.

I'd rather keep control of the money, personally, and ride it out, but if someone else taking the risk for you helps you sleep, it is an option.
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EscapeVelocity2020

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Re: FIRE on 4%?
« Reply #142 on: February 29, 2016, 07:45:21 AM »
I think the benefits of the 4% SWR outweigh the risks.  The human behavioral financial psychology of loss aversion costs way more than necessary.

To be fair though, a $40k+ military pension makes it considerably easier to "rely" on the 4% rule than someone who will be 100% sustained from portfolio withdrawals. I would be careful presuming the risk tolerance for your situation is the same as someone where 100% of their annual spend is from investments.

Worst case of a trinity study 'failure' is you drop your spending to closer to your pension income and just have a less luxurious ER.  It would make things much easier to take risks (or perhaps a better way to phrase it is lowering the perceived risk and worst-case outcome) knowing that you have a fairly large reliable income. Well, except if you are exflyboy apparently :-)

It does not really change the math, but it does change the overall worst-case associated with ER. Considerably easier for you to reduce your spending from your portfolio to 0% than someone with a 100% portfolio ER.

If you believe that, just annuitize some of your portfolio into an income floor, and you have the same situation.

I'd rather keep control of the money, personally, and ride it out, but if someone else taking the risk for you helps you sleep, it is an option.

Depending on your age (and most of us are younger than traditional retirement age), annuitization leads to more OMY's than less.  It's typically a deferred income source for old age, getting the benefit from outliving the actuarial mortality odds. 

You can run your own numbers here (https://investor.vanguard.com/annuity/fixed), but for a 42 year old getting a 'pension' with COLA, sole annuitant and lifetime immediate annuity worth $42k/yr starting April 2016, I'd have to pay $1,589,000 today.  With 4% SWR I only have to pay $1,050,000... not to mention the many other benefits to investing it outside the annuity, so no, I don't call that a real option for ER.

Also, I have to mention, the annuity provider could conceivably go bankrupt in the 50 or so years I'm receiving benefits, so it's not even that good for diversification.
« Last Edit: February 29, 2016, 07:52:00 AM by EscapeVelocity2020 »
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arebelspy

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Re: FIRE on 4%?
« Reply #143 on: February 29, 2016, 07:53:31 AM »
annuitization leads to more OMY's than less

Naturally.  You're offloading the risk to someone else.  Why wouldn't less risk cost more?


Quote
for a 42 year old getting a 'pension' with COLA, sole annuitant and lifetime immediate annuity worth $42k/yr starting April 2016, I'd have to pay $1,589,000 today.  With 4% SWR I only have to pay $1,050,000...

Yup.  But the benefit of having the "guaranteed" (or at least a lot safer, the company can go BK) stream of income may be worth it to some, especially people who oversaved before FIRE.  For people who can't stomach the market, it's a valid option, and one a lot better than investing in fixed-rate items like CDs, IMO.

I don't recommend it, but it's a valid option, one plenty of people take.
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Re: FIRE on 4%?
« Reply #144 on: February 29, 2016, 10:05:13 AM »
I think the benefits of the 4% SWR outweigh the risks.  The human behavioral financial psychology of loss aversion costs way more than necessary.

To be fair though, a $40k+ military pension makes it considerably easier to "rely" on the 4% rule than someone who will be 100% sustained from portfolio withdrawals. I would be careful presuming the risk tolerance for your situation is the same as someone where 100% of their annual spend is from investments.

Worst case of a trinity study 'failure' is you drop your spending to closer to your pension income and just have a less luxurious ER.  It would make things much easier to take risks (or perhaps a better way to phrase it is lowering the perceived risk and worst-case outcome) knowing that you have a fairly large reliable income. Well, except if you are exflyboy apparently :-)

It does not really change the math, but it does change the overall worst-case associated with ER. Considerably easier for you to reduce your spending from your portfolio to 0% than someone with a 100% portfolio ER.

If you believe that, just annuitize some of your portfolio into an income floor, and you have the same situation.

I'd rather keep control of the money, personally, and ride it out, but if someone else taking the risk for you helps you sleep, it is an option.
I'm always a little perplexed when I hear that comment, and I'm sure part of it is the read-only context of a forum without seeing the body language or the tone of voice.  Arebelspy's response is exactly right, but let me expand on the whole envelope of available responses.

This thread isn't about the military (or about any particular occupation) or about defined benefits pensions.  This is about asset allocation.  Of course a $40K/year annuity makes it easier to rely on the 4% SWR.  Of course it's a lower risk.  That's why I have such a different risk tolerance than someone whose annual withdrawals come from their own investments, and everyone can do that.  If there's something "unfair" about annuities instead of strictly using portfolio withdrawals, then make it fair.  If you feel more comfortable with some annuitized income rather than "just" portfolio withdrawals then give up some of your control over your portfolio and go buy your own annuity. 

The response I frequently get to that last paragraph is "Yeah, but annuity prices suck almost as badly as insurance companies".  That is probably true in a low-interest environment, and if that's the case then I hope I never see the interest-rate environment which makes annuities a bargain.  But again a complaint about a particular type of asset (annuities, stocks, real estate) is an indication that an investor's portfolio is either in the wrong assets or is insufficiently capitalized. 

It's simply a different form of insurance.  Everyone hopes that they never have a fire or an auto accident, yet everyone buys insurance against those financial (and personal) disasters.  Hopefully the money spent on insurance premiums is wasted, but the waste implies that insurance policies suck almost as badly as the insurance companies selling them.  Yet somehow fire and auto insurance is an accepted part of our lives while annuities are viewed with skepticism.

Another asset-allocation option (not part of the Bengen or Trinity or Pfau studies) is the inflation-adjusted deferred annuity provided by Social Security.  That may be all the annuity that most retirees need.

I occasionally hear "Yeah, I'd be able to retire too if I had a <insert high-risk career here> pension."  Very few of those commenters have the context of any part of the marathon but the finish line.  Even fewer consider the inherent "survivor bias", the potential personal disability, the military spouse's limited career options, or the military's 20-year cliff vesting.  When those commenters are taken through the actions necessary to obtain one o' them there cushy pensions, it becomes more apparent why so few serve. 

It takes a lot of tax dollars to bribe persuade people to stay in an all-volunteer force.  Only 1% of Americans serve in the U.S. military, and only 0.17% actually cross the finish line of the military pension marathon.  Perhaps the people who come out of the other side of that funnel are so familiar with risk that they're happy to annuitize part of their assets...

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dragoncar

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Re: FIRE on 4%?
« Reply #145 on: February 29, 2016, 12:03:02 PM »
I occasionally hear "Yeah, I'd be able to retire too if I had a <insert high-risk career here> pension."  Very few of those commenters have the context of any part of the marathon but the finish line.  Even fewer consider the inherent "survivor bias", the potential personal disability, the military spouse's limited career options, or the military's 20-year cliff vesting.  When those commenters are taken through the actions necessary to obtain one o' them there cushy pensions, it becomes more apparent why so few serve. 

It takes a lot of tax dollars to bribe persuade people to stay in an all-volunteer force.  Only 1% of Americans serve in the U.S. military, and only 0.17% actually cross the finish line of the military pension marathon.  Perhaps the people who come out of the other side of that funnel are so familiar with risk that they're happy to annuitize part of their assets...
Oh man, preach. Nothing like moving every two years to help a spouse build a solid moneymaking career!  LOL.

As a married couple, that pension offsets the risk we took living that life for 22 years. To put it another way, our risk was frontloaded.

It's not really that hard, actually.  Just sell some Tupperware to your friends

arebelspy

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Re: FIRE on 4%?
« Reply #146 on: February 29, 2016, 12:52:48 PM »
I think the benefits of the 4% SWR outweigh the risks.  The human behavioral financial psychology of loss aversion costs way more than necessary.

To be fair though, a $40k+ military pension makes it considerably easier to "rely" on the 4% rule than someone who will be 100% sustained from portfolio withdrawals. I would be careful presuming the risk tolerance for your situation is the same as someone where 100% of their annual spend is from investments.

Worst case of a trinity study 'failure' is you drop your spending to closer to your pension income and just have a less luxurious ER.  It would make things much easier to take risks (or perhaps a better way to phrase it is lowering the perceived risk and worst-case outcome) knowing that you have a fairly large reliable income. Well, except if you are exflyboy apparently :-)

It does not really change the math, but it does change the overall worst-case associated with ER. Considerably easier for you to reduce your spending from your portfolio to 0% than someone with a 100% portfolio ER.

If you believe that, just annuitize some of your portfolio into an income floor, and you have the same situation.

I'd rather keep control of the money, personally, and ride it out, but if someone else taking the risk for you helps you sleep, it is an option.
I'm always a little perplexed when I hear that comment, and I'm sure part of it is the read-only context of a forum without seeing the body language or the tone of voice.

At first I read this sentence as directed at me, but I think we're in agreement, so was it directed at the poster I was quoting?
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Nords

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Re: FIRE on 4%?
« Reply #147 on: February 29, 2016, 01:28:06 PM »
I think the benefits of the 4% SWR outweigh the risks.  The human behavioral financial psychology of loss aversion costs way more than necessary.

To be fair though, a $40k+ military pension makes it considerably easier to "rely" on the 4% rule than someone who will be 100% sustained from portfolio withdrawals. I would be careful presuming the risk tolerance for your situation is the same as someone where 100% of their annual spend is from investments.

Worst case of a trinity study 'failure' is you drop your spending to closer to your pension income and just have a less luxurious ER.  It would make things much easier to take risks (or perhaps a better way to phrase it is lowering the perceived risk and worst-case outcome) knowing that you have a fairly large reliable income. Well, except if you are exflyboy apparently :-)

It does not really change the math, but it does change the overall worst-case associated with ER. Considerably easier for you to reduce your spending from your portfolio to 0% than someone with a 100% portfolio ER.

If you believe that, just annuitize some of your portfolio into an income floor, and you have the same situation.

I'd rather keep control of the money, personally, and ride it out, but if someone else taking the risk for you helps you sleep, it is an option.
I'm always a little perplexed when I hear that comment, and I'm sure part of it is the read-only context of a forum without seeing the body language or the tone of voice.

At first I read this sentence as directed at me, but I think we're in agreement, so was it directed at the poster I was quoting?
Didn't mean to create additional confusion-- "that comment" refers to Ender's which starts with "To be fair...", but I've encountered it many times. 

And your annuity recommendation is the best response!
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arebelspy

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Re: FIRE on 4%?
« Reply #148 on: February 29, 2016, 01:37:59 PM »
Got it, that's what I thought, but wasn't sure.  Thanks for the clarification.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Basenji

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Re: FIRE on 4%?
« Reply #149 on: February 29, 2016, 02:19:56 PM »

It's not really that hard, actually.  Just sell some Tupperware to your friends

https://youtu.be/ja0jS_toKxk