2018 - test your minimal FI assumptions 8%, 5.33..%, 4% spending for 2018

[pdxmonkey]

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%

[TempusFugit]

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]

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]

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]

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]

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]

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]

Seems fine then.

[pdxmonkey]

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]

Just being my usual cryptic self apparently.

[pdxmonkey]

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?

[2Birds1Stone]

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]

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.

[pdxmonkey]

I haven't been updating as it seems there wasn't much interest, but for the few that care I am still on track for the year. I am averaging a bit above where I need to be, but as with most years there is a month with high spend. April had a one time home repair/improvement/maintenance expense that will not recur for many years. If the other 11 months look more like Jan, Feb, Mar and May I still expect I will end up within my 4% budget for the year so long as I don't take any extravagant or not so extravagant trips.

Trips are in my long term RE plan so it seems so far this is working out more or less as expected. Minimal FI @4%, but not a budget I want to RE on between the fact I want a greater spend and have to do something about healthcare.

Add in the fact 75% of my money is in IRAs/401ks and only 25% is accessible outside retirement accounts and I'm looking at a few more years at least. I'm thinking the in retirement account vs taxable accessible accounts will be closer to 50/50 by the time I RE. Barring any major market setbacks I expect next years budget to be 10% higher than this years and I plan to add back in some more fun items I have cut out this year to have the feel good of achieving a 4% spend and knowing for a FACT its possible, but not desirable even with my current assets. It feels good knowing that if my career went completely sideways I'd be OK.

[2Birds1Stone]

Nice work, we are averaging $3k/month, so below target as well.

I actually wrote about this topic in my journal a little while ago. I am going to do a "dry run" of my FI budget and attempt to finish the year at $18k for my portion of our expenses, that alone will help me get to $450k portfolio faster =)

[Padonak]

I spend much more than 4% of my nest egg and will be spending much more even right before I RE. I live in a HCOL area. My plan is to use geo arbitrage to reduce the cost of living dramatically: slow traveling/living in cheap countries overseas for awhile, then probably moving to LCOL area in the US or Europe.

[pdxmonkey]

I'm still running this experiment and I crossed $10,000 in annual spending today. Next month is the big $$$$ month with property taxes in it, but I look to be on track to spend slightly over my beginning of the year budget of ~$15000 (approximately 4% of last years ending stash balance) and slightly under what is 4% of my current stash balance.

Tracking everything has been enlightening and I think it has led to me actually feeling OK with spending more $ in certain discretionary categories rather than being a miser on everything.

[Zikoris]

Interesting challenge. Our net worth is about $365,000 right now, and so far this year we've spent about $25,000, and will probably finish the year at about $28,000. How, that includes a LOT of extravagant spending (close to $10,000 of travel). So it's looking like we're already barebones-FIRE for sure.

[2Birds1Stone]

We are on track to hit $38k in combined annual spending in a HCOL area, which is 7.6%.......we have a ways to go before FI.

[pdxmonkey]

I came in at just under $17k for the year as December was a high spend month. I made two unnecessary extravagant purchases that will bring me happiness for many years and also prepaid some 2019 healthcare expenses.

$17k is slightly above where I hoped to be and above 4% of my 2017 ending stash, but under 4% of my current stash and I allowed myself to spend fairly freely in the latter half of 2018 as I don't want to spend my retirement pinching pennies. I think spending on the second half of the year is pretty reflective of likely long term stay at home spending.

That means I've still got a bit more time on the job to grow the stash to include a travel budget and to account for paying for my own health insurance once the plug is pulled.

Overall I'm feeling pretty good. I'm going to track everything again for 2019 so I can get a better feel for what was really unusual spending vs. it's not this item every year, but there is an item of similar expense every year. e.g I spent money on house maintenance in 2018 and that particular maintenance is unlikely to be needed again for 30 to 40 years.

[2Birds1Stone]

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.

Ended up at $37,500, ALL IN.