I think Spartana, Old Pro, and RetiredAt63 have several years under their belt. I am sure there are others.
Not to forget Nords, who has been retired at least a decade.
Both Nords and his spouse were career military officers and so have dual pensions - that probably goes a long way to help secure their FIRE and alleviating any future risk fears of REing so maybe not applicable to the OP's questions. Of course most people with military pension don't seem to be able to manage to retire despite that so Nords has a lot of wisdom to offer on how he made that happen when many can't.
Thanks-- 13 years this month!
Spartana, I know you already understand, so this is just clarification for the other readers.
I have an active-duty pension now ($42,792/year) with a CPI cost-of-living adjustment and cheap Tricare health insurance (under $50/month). My spouse is also retired, but from the Reserves-- so her pension kicks in at age 60 in 2022. In today's dollars her pension would be about $67K/year, which is an obscenely large and redundant sum of money around which I still have difficulty wrapping my brain. We have some cash flow from our rental property. Hypothetically our savings will only have to last another six years, but our baseline spending is not much more than my pension. We're gradually figuring out how to loosen up the purse strings, but we're clearly not spending it fast enough.
When I retired in 2002 (at the pit of the tech recession) it was not at all clear that my spouse would have a Reserve pension. Her parents were squatting in our rental property, and renting to family does not create cash flow. We were paying 8% on our home's mortgage. We had only saved enough for our daughter to attend college at a state university. We both planned to get "real" jobs if this ER thing didn't work out.
Over the last 13 years, though, we kept doing the things that helped us reach FI in the first place. We had nearly 20 years of dual-military income, and there were many sacrifices and stressful times. (Only 17% of servicemembers make it to a pension, and ~10% of the military is dual-military marriages. We're a statistical anomaly.) We arguably have tremendous human capital in our specialties (nuclear engineering, meteorology/oceanography) although it's difficult to detect that from some of our performance appraisals. We also took a lot of physical/stressful risks that are analogous to those of first-responders like firefighters and police officers.
In other words, we worked our asses off in risky jobs and only now are we reaping the rewards.
But we also did things that any Mustachian can do. We didn't waste money, and we only spent it on the things that we valued. (Even if they're my parents-in-law.) We refinanced our mortgage multiple times (down to 3.625%) and we stayed aggressively invested in over 90% equities. We kept working our DIY hobbies (building our own solar water heating system and photovoltaic array, blogging) and doing our own home maintenance and yardwork. Our entertainment consists of surfing and home-improvement projects, not nightclubbing in Waikiki.
When I retired we had a financial success probability of >80%. Half of those percentage points would have left us with "enough". A few of those percentage points would have left us with "more than enough". Our trajectory over the last 13 years has followed the "more than enough" line.
But it was not so apparent in 2002, nor in 2009. We can't confuse hindsight with foresight-- and certainly not with brilliance.
Like Spartana says, over 80% of military retirees immediately start a bridge career. It's not just financial-- it's a commitment to service, or a need to take care of others, or a desire to see if you can make in the civilian corporate environment, or even an inability to believe that we have the skills & assets to survive in the civilian world. It's complicated and I have a knack for explaining the issues.
I am 4 yrs from Fire and want to tap into the knowledge of you experienced FIRE -tarians ... If there is such a word. I know the overall answers will depend on every individual's specific situation, risk tolerance, fall back options (eg. Get a job again), time horizons, etc, but work with me based on some general assumptions...
- min Fire time horizon of 30+ yrs
- no part time gig, 100% dependent on investments and any income sources such as SS/pensions
- utilizing 4% SWR
- you started Fire when a combination of your assets produced the required/preferred income
- Again, you have been Fire for 10+ yrs
Questions...
- What AA did you start with, has it changed?
- What if anything did you do differently from 2008 - 2011?
- How, if did, did you adjust your income/expense levels during the last 10 yrs?
- What % has your asset balance (assets used for income) changed +/- over the last 10 yrs?
- What, if anything would you have done differently?
- What would you advise us baby Fire-ees?
You 10 yr + guys have allot of wisdom to offer as you made it thru hopefully the worst market cycle we will see.
I've heard from many military veterans (no pension) who are in the same situation as you. (For those who read the book, see Ken in Chapter 6. He's a poster on Early-Retirement.org who volunteered his story.) "All" that they have are their skills and their military training... maybe augmented with the GI Bill (for a short time) and some VA disability care (a minority of veterans). They meet your initial conditions of your original post.
In Ken's case, he started out with 60% stocks/40% bonds and has not significantly changed that. Most of it is in Vanguard Wellesley, which automatically maintains the asset allocation. He didn't change anything over the Great Recession, although they put off a big fantasy vacation and spent more time with family. (It's the opposite of the wealth effect.) They started ER with a large RV and spent several months a year on the road. Since then they've changed their travel spending by selling the Class A RV (too big for their needs) and going with a 5th-wheel rig (cheaper and more maneuverable). That's the biggest difference. Today Ken and his spouse are still spending several months per year on the road and still enjoying time with family. His hair is grayer, too, but that's the most notable difference.
In my case, my military pension is one of the world's most trustworthy inflation-indexed annuities. Because of that, I'm comfortable carrying a fixed-rate 30-year mortgage in retirement. I'm also comfortable taking larger risks with the rest of our investments, which are >90% equities (index funds and Berkshire Hathaway). To ride out the higher volatility of a high-equity portfolio, we keep about 8%-10% of it in cash (CDs and money market). That's two years of spending, and most recessions are shorter than that. If the market has a good year then we replenish the cash stash. If the market has a bad year then we start cashing in CDs.
An annuity is more than just longevity insurance. If you really screw up your other assets, then you have a bare-bones income-- even if it's "just" Social Security. The 4% SWR is usually coupled with a success probability of 80%-95%. Everybody focuses on the failures, though, and tries to make that 100%. However the best way to handle the failure rates is to annuitize a portion of a portfolio. It might be Social Security, it might be a deferred annuity, or it might be a single-premium immediate annuity that provides a bare-bones spending level for the first 5-10 years of ER.
The SPIA is particularly useful for the sequence-of-returns risk during the vulnerable first decade of ER when a recession could really hurt portfolio value. So when you ER, then consider annuitizing a portion of your portfolio.
We started with the 4% SWR because of Bengen and the Trinity Study. But here's the catch: neither of them had the computing power to simulate variable-spending retirements. Yet behavioral psychologists have shown many times that people cut their spending during bear markets and (maybe) raise it during bull markets. Financially, this is backwards-- a luxury cruise is a lot cheaper during a recession, and so are home-improvement contractors. But behavioral psychology is emotional, not mathematically logical.
I suspect that you're not a Vulcan financial analyst either. When you ER then you'll start at the 4% SWR, but you will not robotically follow that through a bear market. If a recession hits then you'll cut your spending (maybe even all the way back to your annuity). When a bull market hits then you might take some gains off the table for future reserves. But either way, your variable spending will go a long way toward covering the market's volatility and sequence-of-return risks to a portfolio. You can also look at more recent studies of variable-spending schemes, or even try Bob Clyatt's 4%/95% system from "Work Less, Live More".
When my spouse and I retired during the tech recession in 2002, we started at the 4% SWR. We stayed within 4%, and we rebalanced our portfolio like crazy during the next 12 months to scoop up some stock-market bargains. During the next five years we added some lifestyle luxury, but we were still well within 5%. When the Great Recession came, we cut back to within the 4% SWR and did more rebalancing-- but we also spent a large chunk of cash on home-improvement contractors (at a huge discount).
Today we're still at the same asset allocation. Our net worth is nearly 2x larger today than in 2002.
Helpful, thanks. In my case, as someone who has been self employed my whole life, raising 4 kids, wife at home, I am it! No pension, just a combination of investments (i.e. Taxable and tax differed accounts and some investment RE) so outside of any income my RE is putting off, I am more dependent on the SWR method which is why I was more curious as to how long time FIRE-ees weathered the last recession both psychologically & strategically with their portfolios. Clearly having pensions that produce all or a significant amount of your overhead would help you sleep at night. Two related things I am picking up on is 1) many people end up spending less than they thought they would. Not sure if this due to being over conservative out of fear or just overestimating what FIRE life would be like? 2) As we get older our expenses drop barring some major medical expenses. This has always intrigued me in running the SWR model as it makes good sense to me to pursue your "bucket list" when you are younger, healthier, and more able and pursuing these things may require more $$ in say the first 10 - 15 yrs then after. So, do you/can you/should you run say a 5% SWR in the earlier yrs, do the funner, more active, and probably for many of us more expensive stuff, and then ratchet back there after? Just spit balling here as everything seems much simpler on paper which is why I like to hear from you all in the trenches. One last tid bit on me... while I subscribe to the MMM philosophy in many ways, my planned living expenses would be considered very excessive by most MMM true-ests. I know the immediate comment to this is I should have more margin to ratchet back when needed, which is true, but I think the overall questions are relative to any and all of us regardless of our targeted/actual FIRE overhead. More thoughts here??
That's correct. You can probably start out at 5%, work on your bucket list while you're mobile, and then cut back later. The math says that you'll have at least a 4/5 chance of success and maybe even leave a legacy to your great-great-grandkids.
If you found a Vegas blackjack table offering 80% odds, would you immediately sit down at the $100/hand table and play for a few years? Or would you say "No, that's too risky, I want insurance before I risk $100K of my hard-earned salary." Well, in ER you'll do a combination of both.
Your predicted ER spending is just a prediction, and it's conservative. (It might be fear, too, but you'll get over that in a few years.) Your actual ER spending reflects the conservative fudge factors, as well as the fact that you have the time to thoroughly review your finances (insurance, investment expenses), eliminate some spending (commuting, work attire, cell phone plans, cable TV), and save on other spending (doing your own yardwork, maintenance, and repairs). You're also not just going to sit on your rocking chair pounding out your ER spreadsheet. You'll probably find some way to turn a passion into a paying hobby, and you'll certainly experiment with part-time paid labor or set aside 10% of your asset allocation for extremely aggressive investments. The skills that got you to FI will continue to pay off during ER.
However you should still insure against longevity, volatility, and sequence-of-returns risks (the latter during the first decade of ER). The easy answer to those issues is annuitizing 15%-25% of your portfolio with a SPIA, and I'd include Social Security in that consideration.
So build up your assets to the 4% SWR, consider annuitizing some of them when you ER, and ER as soon as the fun stops at work.
During the first decade of ER, spend 4%-5% but be flexible when necessary. Stay open to revenue opportunities (if that's what you want to do) and don't take any crazy risks with your investment portfolio (or at least limit them to 10% of the asset allocation).
After 10 years you're probably richer than when you started, and you're well on your way to an affluent life. You could probably spend 5% but you just won't see the need to do so. You'll focus even more on your health, so your medical expenses will generally stay manageable.
After that first decade, you'll spend less time on analyzing your finances and more time on enjoying your life.
Damn, I think I just wrote another blog post.
I think we all can agree there is no set and forget plan in a world that is always going to be changing, but I think it helps to develope the best plan and alternative "what if" strategies. This was primarily what I was after when I started the thread, particularly how the FIRE-ees navigated thru the last recession. The assumption is you had a plan when you started, the recession hit and created significant paper loss (or real loss for those who may have panic sold), but you did something... stayed the course, got a job, lowered your SWR, robbed a bank, moved into a tee pee... but somehow came out the other end into 2015. So now, what does your plan look like compared to what you set out to do from the start? I think this is valuable shit for us newbies and frankly everyone looking forward. We all want to have the best tool box we can!
I won't sugar-coat it: the 2008-09 stock market plunge was a real gut check even after six years of ER. We dropped 58% from a "stupidly high" portfolio peak down to a "incredible bargains" low. But DoD still kept depositing my pension, although I was mildly concerned that it might be paid in MREs.
During the entire period we stayed invested in our asset allocation and rebalanced like crazy. It all came roaring back over the last six years, and our portfolio value reached a new high. Today I doubt that we will ever sell the dividend ETF (DVY) shares or the Berkshire Hathaway shares that we bought during that period.
Everyone has their own coping mechanisms for volatility and recessions. Mine was obsessive/excessive analysis and bargain-hunting. My spouse's approach was ignoring the stock markets and focusing on finding discounts on the things we already planned to buy. Some might sleep better at night with a lower percentage of equities, or a higher percentage of dividend stocks and rental-property income.
And if you ever really screw things up, there's that monthly annuity deposit.
