Author Topic: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018  (Read 1648 times)

pdxmonkey

  • Bristles
  • ***
  • Posts: 268
I'm approaching the point where I believe I'm getting close to having my minimal (not planned) FI goals met. As a result I'm thinking about testing those assumptions by trying to spend only 4% of my retirement/taxable account value in 2018. That would make it a pretty austere year, but would also help accelerate savings to my ultimate less austere FI goal.

So here is the challenge based on how close to your MINIMAL FI number you think you are:

I think I'm/we're Halfway - spend 8% of your retirement/taxable account $ or net worth depending on how you are measuring your goal.
We're 3/4 of the way there - spend 5.333%
We think we're there - spend 4%
« Last Edit: September 18, 2017, 08:25:20 PM by pdxmonkey »

TempusFugit

  • Stubble
  • **
  • Posts: 195
  • Location: In my own head, usually
Re: 2018 - test your minimal FI assumptions 8%, 6%, 4% spending for 2018
« Reply #1 on: September 18, 2017, 05:26:43 PM »
Sounds like a good experiment.  Let us know how it goes.   I think there's a story about the Stoic philosopher Seneca who would reserve a few days each month to live with the minimal food / clothing just to expose himself to the condition that most people fear.   Similarly, Ben Franklin, in his autobiography says that he lived for a period (I can't recall how long) on just bread and water while sleeping on the floor rather than in his bed, just to demonstrate to himself that he could do so if he needed to.   Both of these examples are extreme of course, but if I understand your plan it is to live off of 4% of your current stash, meaning less than the 4% of your future FI number stash.

Perhaps a more direct correlation would be to use your planned FI stash baseline, but use the lower percentage that would represent your fallback spending level in a down market (3% or 2.5% rather than 4%).   You might end up with the same number either way, but it seems clearer as an experiment on the planned scenario. 

pdxmonkey

  • Bristles
  • ***
  • Posts: 268
Re: 2018 - test your minimal FI assumptions 8%, 6%, 4% spending for 2018
« Reply #2 on: September 18, 2017, 08:13:37 PM »
That's correct. I plan to live off 4% of my current stash.

Planning to have the mortgage paid off by the end of 2017 making 2018 the first year in which I could conceivably actually live off $ generated by the stash. I want to know what it feels like to live on what I believe to be the very minimal stash amount required in this area to better inform future choices about actual FI number, etc. Living long term off the amount my stash would currently generate seems like it would be very stressful, worried about "unexpected" appliance break downs, other home repairs, car repairs, etc. Doing so while still employed doesn't seem like it should be stressful at all because I can always pull the parachute cord and go "well...that didn't work out."

markbike528CBX

  • Pencil Stache
  • ****
  • Posts: 643
  • Location: the Everbrown part of the Evergreen State (WA)
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #3 on: September 18, 2017, 08:56:26 PM »
Since I don't budget, does living under my takehome count?

I also have 20% savings (taxable, Roth, accelerated mortgage payments)  on  that takehome.

TartanTallulah

  • Bristles
  • ***
  • Posts: 417
  • Location: The Middle of Scenic Nowhere
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #4 on: September 20, 2017, 02:43:54 PM »
I think practical exercises in testing our ability to live within our aspirational means are essential for those of us who aren't catapulted into having life-changing sums of money and whose FI is not the same as never having to think about what something costs.

I've got a similar experiment going on at the moment. My situation is different, because I'm getting close to retirement and the bulk of my retirement income will be from a DB pension. I've taken a minimum monthly household income figure based on stopping work at the end of June 2018 (my earliest provisional date), and DH and I are trying to live within that. We've been running the experiment for four months now and early impressions are that it could be done but that holding on for another nine months until my intended retirement date of March 2019 would give us a worthwhile increase in our non-essential spending in the first few years of retirement.

We've never budgeted, but I suspect there's an element of the Hawthorne effect going on at present. I'll be interested to see if our expenditure starts to drift up as we continue with the experiment. If so, that will be useful information.



pdxmonkey

  • Bristles
  • ***
  • Posts: 268
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #5 on: September 21, 2017, 04:19:50 PM »
Since I don't budget, does living under my takehome count?

I also have 20% savings (taxable, Roth, accelerated mortgage payments)  on  that takehome.
No. Living under your takes home is not a good test for whether you have reached minimum FI as it doesn't take into account the amount of $ you could passively generate with no job.

This is a more advanced challenge for those with a budget and an idea of what their ultimate $ number is to achiever minimum FI, but not necessarily their ultimate FIRE number.

I suggest tracking your spending to establish a baseline budget and perhaps starting your own challenge to others to create a budget if they don't have one. A budget can be a really simple or really complex thing. Budgeting doesn't have to be hard. The simplest budget would be something like I plan to spend $20,000/year. You then need to measure actual spending to see if you meet that goal.

My budget here is of the very simple variety. 4%or less of my stash for everything. I don't like complex budgets, but do have a more detailed break down of where my money actually goes. I really don't care if I go over the food budget if I come under on some other budget so I don't budget at that level of detail and let myself spend on whatever I feel like once the taxes, heating, etc fixed costs are taken care of. If I feel like starving so I can rent a helicopter... Great. As long as it comes in under my 4% budget.


markbike528CBX

  • Pencil Stache
  • ****
  • Posts: 643
  • Location: the Everbrown part of the Evergreen State (WA)
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #6 on: September 21, 2017, 04:42:37 PM »
Since I don't budget, does living under my takehome count?

I also have 20% savings (taxable, Roth, accelerated mortgage payments)  on  that takehome.
No. Living under your takes home is not a good test for whether you have reached minimum FI as it doesn't take into account the amount of $ you could passively generate with no job.

This is a more advanced challenge for those with a budget and an idea of what their ultimate $ number is to achiever minimum FI, but not necessarily their ultimate FIRE number.

I suggest tracking your spending to establish a baseline budget and perhaps starting your own challenge to others to create a budget if they don't have one. A budget can be a really simple or really complex thing. Budgeting doesn't have to be hard. The simplest budget would be something like I plan to spend $20,000/year. You then need to measure actual spending to see if you meet that goal.

My budget here is of the very simple variety. 4%or less of my stash for everything. I don't like complex budgets, but do have a more detailed break down of where my money actually goes. I really don't care if I go over the food budget if I come under on some other budget so I don't budget at that level of detail and let myself spend on whatever I feel like once the taxes, heating, etc fixed costs are taken care of. If I feel like starving so I can rent a helicopter... Great. As long as it comes in under my 4% budget.

The takehome minus the savings should equal my maximum current spend.   
If I pay few taxes in FIRE (capital gains taxed at 0% for <75K married filing jointly), then my takehome pay should be adequate.

The "4% rule" in my passive investments gets me much above (25% over) that takehome dollar value.  I therefore have some slack.
 I'm FI, working on RE.

pdxmonkey

  • Bristles
  • ***
  • Posts: 268
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #7 on: September 21, 2017, 05:11:17 PM »
Seems fine then.

pdxmonkey

  • Bristles
  • ***
  • Posts: 268
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #8 on: September 21, 2017, 05:22:40 PM »
I was concerned that somehow someone relatively new to this idea that had just gotten their spending under control/under take home and wasn't taking on new debt was signing up for something likely to be out of their reach for a while. While an important step for many, its a different place in life. Noticing your post count I was wondering how you got so many posts while just getting under your take home. It all makes so much more sense now.

markbike528CBX

  • Pencil Stache
  • ****
  • Posts: 643
  • Location: the Everbrown part of the Evergreen State (WA)
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #9 on: September 21, 2017, 08:20:07 PM »
Just being my usual cryptic self apparently.

pdxmonkey

  • Bristles
  • ***
  • Posts: 268
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #10 on: December 27, 2017, 03:33:29 PM »
I've looked at my spending for the past year (which was not tracked 100% accurately). Mint gives a pretty good picture of the majority of spending and tacking on what I "think" is a slight over estimate of spending not tracked there I actually came out with....lower 2017 spending (not including mortgage spending) than 4% spending for 2018 will be. So this may not be as large a challenge for myself as hoping. My "idealized" stay at home budget with no travel is within $50-$100 of my 4% allowed budget. I do however want to take a trip this year so depending on where/how much that costs it could still be a moderate challenge to keep things under 4%.

I worked entirely too much in 2017 which has the effect of both making more and spending less.

Which is to say I may have run this experiment less stringently already over the past year trying to pay down the last of the mortgage so I could run the experiment for real in 2018.

If everything goes well over the next year that leaves me with the bigger questions...
1) How much will healthcare cost me during FIRE, how much additional do I need to save to pay for that? Currently $0 budgeted as its entirely paid for by employer.
2) How much more than the minimum will keep me happy long term?
« Last Edit: December 27, 2017, 03:41:29 PM by pdxmonkey »

2Birds1Stone

  • Magnum Stache
  • ******
  • Posts: 4008
  • Age: 31
  • Location: New York
  • Peter Gibbons
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #11 on: December 27, 2017, 03:42:23 PM »
I'll bite, we are shooting for $45k/yr but that includes healthcare costs.

Let's call it $40k for the purpose of this challenge, since we have employer subsidized HC now.

pdxmonkey

  • Bristles
  • ***
  • Posts: 268
Re: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018
« Reply #12 on: January 31, 2018, 10:52:21 PM »
January was a smashing success for me. Came in about 75% of budget and it was not really challenging. The 75% number includes 1/12 of what I estimate my property tax is likely to be this year.

 Nothing spendy I was interested in on sale, no trips, etc. Bought more books than I can read in a month so excess spending in that category. No maintenance or other costs this month. Over the course of a year maintenance and other one time expenses are where I expect that last 25% to go as some months will end up over 100% for those reasons.

Side note. My income is variable to a degree and this month my actual spending not including the 1/12 property tax was under 10% of my after tax after 401k contribution income. I think that's a first for me as my mortgage is only recently paid off.