Author Topic: 2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018  (Read 858 times)

pdxmonkey

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.