Author Topic: Hitting FI Goal - Could use some advice - Am I REALLY FI??  (Read 1150 times)

justostash

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Hitting FI Goal - Could use some advice - Am I REALLY FI??
« on: January 26, 2018, 10:43:05 PM »
Recently my FI goal has been reached a bit faster than I imagined due to the market run. I find myself wondering, should I continue to slave away at the job I don't much care for to add a buffer for the inevitable downturn? Or can I consider myself FI no matter the circumstances? What are the FI rules :) ?

Fishingmn

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Re: Hitting FI Goal - Could use some advice - Am I REALLY FI??
« Reply #1 on: January 27, 2018, 06:12:13 AM »
To me it would depend on a number of questions -

  • How old are you and what are you using to determine you are FI (4% rules?)
  • If the market does go down do you have flexibility to cut expenses? Would you go back to work in some capacity?
  • Do you dislike the work you are doing now? Are there other options for making money you want to pursue during transition? (Consulting, PT job, different career, side hustle)

In my opinion there's nothing wrong with either working a little longer (if you don't hate it) or considering alternatives if it means a better chance of RE success and/or the ability to even spend a little more than you planned.

Retire-Canada

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Re: Hitting FI Goal - Could use some advice - Am I REALLY FI??
« Reply #2 on: January 27, 2018, 08:47:35 AM »
Recently my FI goal has been reached a bit faster than I imagined due to the market run. I find myself wondering, should I continue to slave away at the job I don't much care for to add a buffer for the inevitable downturn? Or can I consider myself FI no matter the circumstances? What are the FI rules :) ?

You are not FI if you can't withstand a market downturn. Crashes are normal so your FI plan has to be robust enough to weather the kinds of crashes we've seen historically.

You are not FI if you don't have faith in your financial situation for whatever reason. Perhaps you picked a very tight budget figure to plan FI from and you are not confident it's an amount of money per year you can live on longterm. If that's the case go back and address whatever element of your FI plan is bothering you and see what the new version looks like relative to the amount of money you have invested.

Let's assume you've sorted out your FI plan so you are confident in the fact your longterm financial needs are covered then I would no longer work at a job you don't care for. It's a waste of your most precious resource...time. Quit your job. Give yourself a reasonable amount of time [say 1 year] to decompress and recover from the mental and physical damage you did to yourself amassing your stash. Then see how you feel and what you want to do with the rest of your life.

jamesplease

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Re: Hitting FI Goal - Could use some advice - Am I REALLY FI??
« Reply #3 on: January 27, 2018, 09:31:56 AM »
justostash, there is no set rules that determine with certainty if you are ever FI or not. Any “rule” that comes from historical analysis, such as the 4% rule, is based on statistical methods that aim to reduce the likelihood of the portfolio running out during your lifetime. When looking at historical data, even portfolios with a 4% withdrawal rate fail (even though it happens a small fraction of all of the simulated runs).

Further, there is the chance that the market’s past performance will not accurately reflect the future. For instance, the market could continue to climb and climb, and a 4% withdrawal rate could be overly pessimistic. Or it could crash for longer than it ever has crashed before, making the 4% rate too optimistic. We can’t know this until it happens.

Anyway, the way I think about this is that it is about building the confidence that you are FI.

I’ve been studying the historical success method recently, and I think there are some things that could help you determine if you feel confident enough to call yourself FI.

1. long retirements are less likely to succeed than early ones. So someone who is 30 is more at risk for “failed” portfolios than someone who is 50, given the same start year, portfolio, withdrawal strategy, etc. Looking at “extreme” situations makes this very clear: given $1,000,000, you could probably withdraw 50% of the portfolio and not run out of money if you only plan to FIRE for 2 years. This same idea (just less exaggerated) applies to longer retirements as well.

2. retirements that begin right before big stock market crashes are the ones least likely to succeed. So if you think the market is due for a correction, then maybe this is worth factoring in.

3. folks who can adjust their spending when there is a market downturn (i.e.; going for 3% or 3.5% inflation-adjusted withdrawal rates, rather than 4%) are more likely to have a stash that lasts as long as they do. How well do you think you would do living on 3% of your portfolio for a few years? Would that be too difficult for you to do, or do you think you could pull it off?

With all of this said, I don’t want to scare you into thinking that 4% is risky, or anything like that. The presence of risk doesn’t make something risky (a lot of risk is what makes something risky). The 4% withdrawal rate is a conservative estimate, and has a high rate of success independent from the above factors.

These are just some things to consider that may help you adjust your confidence level.

One more thing: there are “smarter” withdrawal strategies than the 4% rule. Right now, I prefer a slightly modified version of the Hebeler autopilot method. My modification is to put a cap on withdrawal rates during good years. Going from a 4% withdrawal rate to something like a 10% withdrawal rate, and then back down to 4% sounds like it would be very annoying to adjust to. I’d rather my spend rate be a little more consistent.
« Last Edit: January 27, 2018, 09:33:57 AM by jamesplease »

justostash

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Re: Hitting FI Goal - Could use some advice - Am I REALLY FI??
« Reply #4 on: January 27, 2018, 12:42:36 PM »
I'm always pleased by the well informed and detailed responses here.  Thank you all, I really appreciate it.

I do understand that there is no steadfast RULE to FI for everyone, only the rules we decide for ourselves. However, I've been using the cfiresim (http://www.cfiresim.com/) to work out my spending plan. I like the data modeling approach. With my current savings I'm set with a near 100% chance of historical success (cfiresim) to age 90 as long as my withdraw rate starts at about 22K/yr and adjusts with inflation. I understand for a lot of people that is very lean, but I have lived lean all my life (40 now), and am used to spending about 20K/yr on everything I need/want in life. BTW, I'm running the cfiresim leaving out social security income, inheritance, or any other income in the future which I am likely to have (I just didn't want to count on it).

You all make a good point about having flexibility to adjust your withdraw rate when the investments get a little rocky. Perhaps getting all my expenses below 20K/yr could be difficult if I ever need to do that for a few years let's say. Maybe that's what my fear is.

So, 2 withdraw rate issues really:
- Unknown future life events that could affect what I would like to withdraw: health, marriage, children?? All unknowns to me right now.
- Starting FIRE at the 'top' of the market: Something I could never know until the future.

It does sound like the solution is to either continue working a while or quit the current job I don't like and be at ease knowing I can always pick up some work in the future if needed.

In recent years I've noticed that I have been passing up on enjoyable opportunities that cost money in a rush to reach FI... This is kind of the 'dark side' of moustacheism for me: the laser focus on this FI goal... obviously my choice.