Author Topic: Hypothetical best time to retire?  (Read 5281 times)

wageslave23

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Hypothetical best time to retire?
« on: June 09, 2022, 04:49:43 PM »
Would it be best to retire right before or after a downturn or would it matter if all of your money is invested and you aren't withdrawing or adding any to it. So obviously 2000 would have been a bad year. But if you had $1m going into it and then the market dropped say 50% and you retired the following year with $500k, would the timing matter? Or if you were going into a 10 yr bull run with a million, would it matter if you started your 30 yr retirement started in yr 1 with a million and a 10 yr bull market ahead or if you started in year 5 with 2 million from 5 yrs of growth and had 5 more bull years left before a recession.  Likewise, if you were in accumulation stage for 20 years, would it be better to start with a market downturn when you have little money invested or start at the beginning of a bull market.  Let's say in this hypothetical world the market always goes up for 10 yrs and then down for 5. And the overall annual rate of return after 50 yrs will be the same in the end despite when you start.

wageslave23

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Re: Hypothetical best time to retire?
« Reply #1 on: June 09, 2022, 04:56:13 PM »
Nevermind, I think I figured out my own question but I can't delete the topic. It's been a long day, my brain is running on fumes :)

TheAnonOne

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Re: Hypothetical best time to retire?
« Reply #2 on: June 09, 2022, 05:56:00 PM »
Basically every year you work is "better" into infinity. The key is finding "Enough". For most that's the 3-4% SWR range.

Hit that and end it. If you feel the market is "high" aim for 3%. It likely won't matter either way.

achvfi

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Re: Hypothetical best time to retire?
« Reply #3 on: June 10, 2022, 02:52:11 PM »
Here is a handy calculator to check your wealth over time, including distributions based on past market performance.

https://paulmerriman.com/lifetime-investment-calculator/



lutorm

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Re: Hypothetical best time to retire?
« Reply #4 on: June 11, 2022, 12:00:33 PM »
Nevermind, I think I figured out my own question but I can't delete the topic. It's been a long day, my brain is running on fumes :)
So what was the answer? ;-)

I don't think the question was posed with sufficient detail to be answerable. Did you mean if you retired in 2000 or 2001 with a fixed $ spending, or with a fixed withdrawal rate? If you retire with a fixed withdrawal rate, arguably 2001 would be better (but only because in real $$$ you would be retiring on half the budget.) With a fixed $$ spending, it wouldn't matter, except that if you retired in 2001 you would have had one more year of income, and one less year of withdrawals.

Ron Scott

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Re: Hypothetical best time to retire?
« Reply #5 on: June 23, 2022, 09:17:26 PM »
So obviously 2000 would have been a bad year. But if you had $1m going into it and then the market dropped say 50% and you retired the following year with $500k, would the timing matter?

To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!

afox

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Re: Hypothetical best time to retire?
« Reply #6 on: June 23, 2022, 11:11:27 PM »
So obviously 2000 would have been a bad year. But if you had $1m going into it and then the market dropped say 50% and you retired the following year with $500k, would the timing matter?

To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!

Huh, the 4% rule is not recalculated to basically reamoritze spending periodically? for example if calculate a monthly spending amount on jan 1 2023 using x amount and on July 1 2023 my balance has decreased by half wouldnt I have to recalculate my monthly spending? I have not studied the 4% rule in detail so please educate me!


lutorm

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Re: Hypothetical best time to retire?
« Reply #7 on: June 23, 2022, 11:22:01 PM »
To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!
Except that's not what the 4% "rule" says at all. It says that given historical performance, only some small % of starting years would have run out of money in 30 years using a 4% WR. I'm pretty sure that there has never been a 50% single-day drop in history, so if that were to happen right after you started retirement, you are well outside the study's parameters and should very much worry.

lutorm

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Re: Hypothetical best time to retire?
« Reply #8 on: June 23, 2022, 11:24:10 PM »
Huh, the 4% rule is not recalculated to basically reamoritze spending periodically? for example if calculate a monthly spending amount on jan 1 2023 using x amount and on July 1 2023 my balance has decreased by half wouldnt I have to recalculate my monthly spending? I have not studied the 4% rule in detail so please educate me!
No, the "4% rule" for spending is that you calculate 4% or your assets on the day you retire, and then you withdraw that amount every year, adjusted for inflation. (If you withdrew 4% of your current net worth every given your you could by definition not ever run out of money, but you might have to live on very little instead.)

GAndStache

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Re: Hypothetical best time to retire?
« Reply #9 on: June 24, 2022, 04:00:21 AM »
I was pondering this recently given the latest market moves.

I wonder whether the actual FIRE number based on the 4% rule doesn't matter so much in conditions like this as it's liable to change quite a lot as markets are volatile. if the market is down then expected future returns are higher and if the market is up then expected future returns are lower, so balancing that out we come out roughly the same whether the market is up or down in the long term.

Perhaps a better way of doing this would be to calculate your FIRE number from what your NW would be based on the long term average growth rate of what you're invested in rather than the asset prices on any given day. Then you would remove market volatility from encouraging you to retire too early or too late... No idea how this would work in practice though, just my musings to myself on a walk recently.

LightTripper

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Re: Hypothetical best time to retire?
« Reply #10 on: June 24, 2022, 04:19:55 AM »
Big ERN covers a lot of this in his "Safe Withdrawal Rate" (SWR) series - definitely worth a read if you haven't come across it before (though there's a lot of it - not for one sitting!!)

https://earlyretirementnow.com/safe-withdrawal-rate-series/

Ron Scott

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Re: Hypothetical best time to retire?
« Reply #11 on: June 24, 2022, 06:44:29 AM »
To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!
Except that's not what the 4% "rule" says at all.

Actually it does. It posits a 30-year retirement starting at 25X. On your retirement date you either have 25X or you don’t. Period. Then shit happens…while the proposed WR follows its merry course.

Morning Glory

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Re: Hypothetical best time to retire?
« Reply #12 on: June 24, 2022, 06:54:46 AM »
To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!
Except that's not what the 4% "rule" says at all.

Actually it does. It posits a 30-year retirement starting at 25X. On your retirement date you either have 25X or you don’t. Period. Then shit happens…while the proposed WR follows its merry course.

We had the most hilarious thread, speculating what might happen if one followed it exactly. 

https://forum.mrmoneymustache.com/welcome-to-the-forum/the-sad-story-of-phil-and-bill/

bmjohnson35

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Re: Hypothetical best time to retire?
« Reply #13 on: June 24, 2022, 12:52:17 PM »

OP: you question(s) are rather convoluted.  I'm not sure how to respond.  I agree with others that the 4% rule has severe limitations and should not be blindly followed.  It's a yardstick at best and does not replace a plan that takes into account your personal situation.   

swashbucklinstache

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Re: Hypothetical best time to retire?
« Reply #14 on: June 24, 2022, 06:06:37 PM »
To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!
Except that's not what the 4% "rule" says at all.

Actually it does. It posits a 30-year retirement starting at 25X. On your retirement date you either have 25X or you don’t. Period. Then shit happens…while the proposed WR follows its merry course.
Well, technically the 4% rule would tell the first person "on the day you retired your plan had 5% chance of failure, and you were comfortable with that so you retired. Unfortunately, it's looking extremely likely you're in the 5% that's going to fail. So your predicted failure rate is now much higher than 5, it could even be 90+%!"

The second person has the exact same probability of failure if they retire that day too of course, they just probably wouldn't.

This is why people say a 4% WR is fine if you're comfortable with a 5% risk but remember 5% is not 0% so have some backup plans.

lutorm

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Re: Hypothetical best time to retire?
« Reply #15 on: June 24, 2022, 07:22:34 PM »
To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!
Except that's not what the 4% "rule" says at all.

Actually it does. It posits a 30-year retirement starting at 25X. On your retirement date you either have 25X or you don’t. Period. Then shit happens…while the proposed WR follows its merry course.
Indeed. But what it does not say is that you won't run out of money doing that. It just says that out of a bunch of people retiring all over the past history, only some low percentage of them would have.

To use some big words, you are conflating prior and posterior probabilities. Once you know the market has dropped 50% the day after you retired, your probability of failure is most definitely larger, because you now have to look at, not all years, but only years whose retirement history started with a 50% market drop. And there aren't any such years, so you have no data. We'd just be guessing at that point.


lutorm

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Re: Hypothetical best time to retire?
« Reply #16 on: June 24, 2022, 07:25:25 PM »
I wonder whether the actual FIRE number based on the 4% rule doesn't matter so much in conditions like this as it's liable to change quite a lot as markets are volatile. if the market is down then expected future returns are higher and if the market is up then expected future returns are lower, so balancing that out we come out roughly the same whether the market is up or down in the long term.
The Sequence of Return effect is what breaks this assumption. While the future growth probably would be higher following a recent market drop, until your portfolio has recovered you'll be depleting a larger fraction of it with your withdrawals, and it may never recover.

ixtap

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Re: Hypothetical best time to retire?
« Reply #17 on: June 24, 2022, 09:00:41 PM »
The 4% rule doesn't care about your retirement date. At most, it cares about the date that you begin withdrawals, and most people have at least one more paycheck after they turn in their badge. As I recall, the original study assumed everybody took their withdrawals once a year, and on the same date,.no matter when they retired.  As such, if you want to build strawmen based on this, no one should retire until the end of the year in which they see 25x on Jan 1...

Ron Scott

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Re: Hypothetical best time to retire?
« Reply #18 on: June 25, 2022, 07:43:10 AM »
To give you an idea how silly the 4% rule really is:

If you hit your theoretical target number, retired, and the market dropped 50% the next day, the rule would tell you not to worry and increase your spend by inflation next year.

But if the market dropped the day before you planned to retire the rule would tell you to wait to retire until you recouped the drop completely.

Good luck!
Except that's not what the 4% "rule" says at all.

Actually it does. It posits a 30-year retirement starting at 25X. On your retirement date you either have 25X or you don’t. Period. Then shit happens…while the proposed WR follows its merry course.
Indeed. But what it does not say is that you won't run out of money doing that. It just says that out of a bunch of people retiring all over the past history, only some low percentage of them would have.

To use some big words, you are conflating prior and posterior probabilities. Once you know the market has dropped 50% the day after you retired, your probability of failure is most definitely larger, because you now have to look at, not all years, but only years whose retirement history started with a 50% market drop. And there aren't any such years, so you have no data. We'd just be guessing at that point.

The most problematic statistical error is unrelated to the probabilities; it’s the sample set. As Wade Pfau put it “it is important to be clear that these success rates are based on US history. It is faulty logic to think that these are the success rates applying to new retirees today.”

vand

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Re: Hypothetical best time to retire?
« Reply #19 on: June 25, 2022, 04:36:35 PM »
Best time to retire, if you mean what years gave you the highest SWRs with the benefit of hindsight, were unsurprisingly the years at the bottom of major bear markets.

But the sting is that if you just follow the gradual accumulation route to FIRE then you would not be in a position to retire on any of those occasion because your portfolio would have tanked along with the market!



https://earlyretirementnow.com/2017/12/13/the-ultimate-guide-to-safe-withdrawal-rates-part-22-endogenous-retirement-timing/



"none of the peak safe withdrawal rates are ever feasible for the early retirees. That’s because they occur when the market is depressed and nobody can afford to retire, like 1932, 1949, 1982, 2002 and 2009."


If you won the lottery in '32, '49, '82 etc... then happy days - enjoy your double-digit SWR :D
For the rest of us it looks like anything between 4-8%, with quite a large proportion of outcomes below 5%.

NorthernIkigai

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Re: Hypothetical best time to retire?
« Reply #20 on: June 26, 2022, 03:31:21 PM »
Best time to retire, if you mean what years gave you the highest SWRs with the benefit of hindsight, were unsurprisingly the years at the bottom of major bear markets.

But the sting is that if you just follow the gradual accumulation route to FIRE then you would not be in a position to retire on any of those occasion because your portfolio would have tanked along with the market!

So the trick is to reach FI and then not do OMY but OMC (one more crash)? :-)

Telecaster

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Re: Hypothetical best time to retire?
« Reply #21 on: June 26, 2022, 06:32:13 PM »
The most problematic statistical error is unrelated to the probabilities; it’s the sample set. As Wade Pfau put it “it is important to be clear that these success rates are based on US history. It is faulty logic to think that these are the success rates applying to new retirees today.”

Good to see Wade Pfau is finally cluing into what was obvious to everybody else the whole time.   If he can figure out how to avoid high management fees, he might be only be two decades behind everybody else. 

Must_ache

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Re: Hypothetical best time to retire?
« Reply #22 on: June 27, 2022, 07:16:55 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.
« Last Edit: June 27, 2022, 07:19:02 AM by Must_ache »

wageslave23

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Re: Hypothetical best time to retire?
« Reply #23 on: June 27, 2022, 07:35:24 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

Psychstache

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Re: Hypothetical best time to retire?
« Reply #24 on: June 27, 2022, 08:14:54 AM »

OP: you question(s) are rather convoluted.  I'm not sure how to respond.  I agree with others that the 4% rule has severe limitations and should not be blindly followed.  It's a yardstick at best and does not replace a plan that takes into account your personal situation.
« Last Edit: June 27, 2022, 08:17:39 AM by Psychstache »

ixtap

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Re: Hypothetical best time to retire?
« Reply #25 on: June 27, 2022, 10:11:20 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

Not everyone gets paid to do the things they find rewarding.

joe189man

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Re: Hypothetical best time to retire?
« Reply #26 on: June 27, 2022, 10:51:53 AM »
ptf

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Re: Hypothetical best time to retire?
« Reply #27 on: June 29, 2022, 06:33:02 AM »
Hypothetical best time to retire?
 When you have 36 times your spending, withdraw 2.7%, problem solved.

rantk81

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Re: Hypothetical best time to retire?
« Reply #28 on: June 29, 2022, 07:11:26 AM »
So the trick is to reach FI and then not do OMY but OMC (one more crash)? :-)

Hah, I'm actually doing a variation on this right now, I think I'm doing "OMR" - one more recovery.

I'm almost definitely able to FIRE right now, but I am thinking I am going to wait until after the market rebounds from this current recession, and starts consistently making new highs again.  Or if I get laid off, I might just FIRE anyway :)

GuitarStv

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Re: Hypothetical best time to retire?
« Reply #29 on: June 29, 2022, 07:36:09 AM »
So the trick is to reach FI and then not do OMY but OMC (one more crash)? :-)

Hah, I'm actually doing a variation on this right now, I think I'm doing "OMR" - one more recovery.

I'm almost definitely able to FIRE right now, but I am thinking I am going to wait until after the market rebounds from this current recession, and starts consistently making new highs again.  Or if I get laid off, I might just FIRE anyway :)

I think that I'm doing OMR right now too.  :P

vand

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Re: Hypothetical best time to retire?
« Reply #30 on: June 29, 2022, 12:13:09 PM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

ERN's article is in the context of a 60yr drawdown period, but all that does is put the initial SWR up for debate, it doesn't change the timing of the best/worst time to retire, and I think the conclusions for the article can be applied to just about any drawdown period

moof

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Re: Hypothetical best time to retire?
« Reply #31 on: June 29, 2022, 01:22:23 PM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

ERN's article is in the context of a 60yr drawdown period, but all that does is put the initial SWR up for debate, it doesn't change the timing of the best/worst time to retire, and I think the conclusions for the article can be applied to just about any drawdown period
Agreed, it also ignores things like social security.

It is worth reading his discussion, as it makes some valid points to keep in mind before sending your letter of resignation.  The 4% rule is best used as a guideline, a one liner for opening a discussion when someone asks “How much do I need to retire?”.  If you answer that with a dissertation on world economics and complex statistical scenarios you will lose almost anybody.

Most folks I have discussed retirement fail to answer these basic questions:
1) Do you know how much you spend now?
2) Do you know what you want to do in retirement and how that might change your spending?
3) Do you know where your current money is invested?  (“I have a guy” is not a good answer)
4) If you can’t control your spending/debt now, how do you plan to control it once you retire?

So the 4% rule is a fabulous way to frame the discussion to get started with the folks who need a starting framework.  Having further discussions as to their particular situation and comfort level as they get close can come later.

My case is that 40 more years is likely, not 60.  Most of my spending can be covered by SSA in 25 years, and my spending will go down by about a third in once the mortgage is paid off in a 9 more years.  4% starting WR is very conservative in my particular situation.
« Last Edit: June 30, 2022, 05:11:15 PM by moof »

wageslave23

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Re: Hypothetical best time to retire?
« Reply #32 on: June 29, 2022, 01:49:14 PM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.
Speak for yourself dude! Some of us have goals to never work for money again. It's the dream ;-).

As for the hypothetical best time to retire? Probably before you die or become to old or unhealthy to enjoy it. "Things" will always crop up like recessions and the like so best to have a realistic plan to be able to ride things out for a bit. When you plan for 60 years of not earning money flexibily is the key. Reducing spending on discretionary things for a couple of years won't kill you and there are tons of enjoyable things to do that cost zero dollars.

I was mostly joking. But if you figure most people die around 90 or earlier, in this hypothetical the early retiree needs to amass enough money by 30. This model is assuming no further work or social security for 60 yrs.  You would have to have a nest egg close to $2M I would think to be safe for this model.  I don't think anyone is graduating college at 22, saving $2 million by 30 and then just calling it quits on any gainful employment for the rest of their lives.  To save that much at a young age you would have to be very smart, a go getter, and in a high demand field getting paid $200k+ a yr.  You find me this mythical person and then we can debate swr for 60 yr retirements. And the likelihood they overdose or kill themselves by some other self destructive behavior.  Because most of the people who come to mind who might be able to save that amount of money by 30 and then never work again are child actors, athletes, or performers. And their outcomes usually aren't great.

wageslave23

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Re: Hypothetical best time to retire?
« Reply #33 on: June 29, 2022, 04:40:56 PM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.
Speak for yourself dude! Some of us have goals to never work for money again. It's the dream ;-).

As for the hypothetical best time to retire? Probably before you die or become to old or unhealthy to enjoy it. "Things" will always crop up like recessions and the like so best to have a realistic plan to be able to ride things out for a bit. When you plan for 60 years of not earning money flexibily is the key. Reducing spending on discretionary things for a couple of years won't kill you and there are tons of enjoyable things to do that cost zero dollars.

I was mostly joking. But if you figure most people die around 90 or earlier, in this hypothetical the early retiree needs to amass enough money by 30. This model is assuming no further work or social security for 60 yrs.  You would have to have a nest egg close to $2M I would think to be safe for this model.  I don't think anyone is graduating college at 22, saving $2 million by 30 and then just calling it quits on any gainful employment for the rest of their lives.  To save that much at a young age you would have to be very smart, a go getter, and in a high demand field getting paid $200k+ a yr.  You find me this mythical person and then we can debate swr for 60 yr retirements. And the likelihood they overdose or kill themselves by some other self destructive behavior.  Because most of the people who come to mind who might be able to save that amount of money by 30 and then never work again are child actors, athletes, or performers. And their outcomes usually aren't great.
I don't necessarily agree but then I'm at 20 years and have a higher NW then when I started and haven't earned a dime from paid employment in that time. Of course the big run-up in the last 10 plus years coupled with spending much less then I though I would most years helps ALOT but that happened after I lost a bundle in the great recession after I had FIREd. Even if the market and housing market had stayed down I believe I had enough fluff in my budget to cut spending further without much impact or the need to get a job. Even not counting a future small pension benefit or SS benefit when I ER I would have been fine. And I started with less then 1 million let alone 2 million. Also no need to OD on coke due to boredoom yet ;-). Wish I had another lifetime (or had retired earlier) to do all the things I want.

I'm not saying it's impossible,  I'm more questioning the relevance of the 60 yr swr analysis.  I don't think it's relevant to many if any FIREes, and just makes people more pessimistic about being able to retire early. 

vand

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Re: Hypothetical best time to retire?
« Reply #34 on: June 30, 2022, 06:42:54 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

ERN's article is in the context of a 60yr drawdown period, but all that does is put the initial SWR up for debate, it doesn't change the timing of the best/worst time to retire, and I think the conclusions for the article can be applied to just about any drawdown period
Agreed, it also ignores things like social security.

It is worth reading his discussion, as it makes some valid points to keep in mind before sending your letter of resignation.  The 4% rule is best used as a guideline, a one liner for opening a discussion when someone asks “How much do I need to retire?”.  If you answer that with a dissertation on world economics and complex statistical scenarios you will lose almost anybody.

Most folks I have discussed retirement fail to answer these basic questions:
1) Do you know how much you spend now?
2) Do you know what you want to do in retirement and how that might change your spending?
3) Do you know where your current money is invested?  (“I have a guy” is not a good answer)
4) If you can’t control your spending/debt now, how do you plan to control it once you retire?

So the 4% rule is a fabulous way to frame the discussion to get started with the folks who need a starting framework.  Having further discussions as to their particular situation and comfort level as they get close can come later.

My case is that 40 more year is likely, not 60.  Most of my spending can be covered by SSA in 25 years, and my spending will go down by about a third in once the mortgage is paid off in a 9 more.  4% starting WR is very conservative in my particular situation.

I try to avoid using 4% rule when I talk to my not-clued-in friends. Trying to amass a x25 pot is a scary target for most people, and it ignore that:

- most of them won't be in any sort of position to retire early before SS kicks in anyway
- SS will be providing the backbone of their retirement expenditure
- most of them won't be retiring early enough or live long enough to have to worry about a 30yr drawdown period, never mind a 50yr+ drawdown
- most of them will expect to be doing things the tried and trusted way - get all their major life expenses out of the way first, pay off the house etc
- many of them will probably be monetizing their home at some point, after all, you can't take it with you
 
With all those factors in mind, its possible that they will only need as little as a x10-12 pot in a real-life scenario. Advising someone they need a x25 spending pot to a standard retiree who is relying on SS to provide half their expenses only shows that while you may know about the 4% rule in the context of FIRE, you don't really understand retirement planning.

ixtap

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Re: Hypothetical best time to retire?
« Reply #35 on: June 30, 2022, 09:50:41 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

ERN's article is in the context of a 60yr drawdown period, but all that does is put the initial SWR up for debate, it doesn't change the timing of the best/worst time to retire, and I think the conclusions for the article can be applied to just about any drawdown period
Agreed, it also ignores things like social security.

It is worth reading his discussion, as it makes some valid points to keep in mind before sending your letter of resignation.  The 4% rule is best used as a guideline, a one liner for opening a discussion when someone asks “How much do I need to retire?”.  If you answer that with a dissertation on world economics and complex statistical scenarios you will lose almost anybody.

Most folks I have discussed retirement fail to answer these basic questions:
1) Do you know how much you spend now?
2) Do you know what you want to do in retirement and how that might change your spending?
3) Do you know where your current money is invested?  (“I have a guy” is not a good answer)
4) If you can’t control your spending/debt now, how do you plan to control it once you retire?

So the 4% rule is a fabulous way to frame the discussion to get started with the folks who need a starting framework.  Having further discussions as to their particular situation and comfort level as they get close can come later.

My case is that 40 more year is likely, not 60.  Most of my spending can be covered by SSA in 25 years, and my spending will go down by about a third in once the mortgage is paid off in a 9 more.  4% starting WR is very conservative in my particular situation.

I try to avoid using 4% rule when I talk to my not-clued-in friends. Trying to amass a x25 pot is a scary target for most people, and it ignore that:

- most of them won't be in any sort of position to retire early before SS kicks in anyway
- SS will be providing the backbone of their retirement expenditure
- most of them won't be retiring early enough or live long enough to have to worry about a 30yr drawdown period, never mind a 50yr+ drawdown
- most of them will expect to be doing things the tried and trusted way - get all their major life expenses out of the way first, pay off the house etc
- many of them will probably be monetizing their home at some point, after all, you can't take it with you
 
With all those factors in mind, its possible that they will only need as little as a x10-12 pot in a real-life scenario. Advising someone they need a x25 spending pot to a standard retiree who is relying on SS to provide half their expenses only shows that while you may know about the 4% rule in the context of FIRE, you don't really understand retirement planning.

Many of the things you list is why, even for those who are quite knowledgeable and good savers, we talk about 25x NET expenses. You dont have to fund the part SS covers.

wageslave23

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Re: Hypothetical best time to retire?
« Reply #36 on: July 01, 2022, 11:06:57 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.
Speak for yourself dude! Some of us have goals to never work for money again. It's the dream ;-).

As for the hypothetical best time to retire? Probably before you die or become to old or unhealthy to enjoy it. "Things" will always crop up like recessions and the like so best to have a realistic plan to be able to ride things out for a bit. When you plan for 60 years of not earning money flexibily is the key. Reducing spending on discretionary things for a couple of years won't kill you and there are tons of enjoyable things to do that cost zero dollars.

I was mostly joking. But if you figure most people die around 90 or earlier, in this hypothetical the early retiree needs to amass enough money by 30. This model is assuming no further work or social security for 60 yrs.  You would have to have a nest egg close to $2M I would think to be safe for this model.  I don't think anyone is graduating college at 22, saving $2 million by 30 and then just calling it quits on any gainful employment for the rest of their lives.  To save that much at a young age you would have to be very smart, a go getter, and in a high demand field getting paid $200k+ a yr.  You find me this mythical person and then we can debate swr for 60 yr retirements. And the likelihood they overdose or kill themselves by some other self destructive behavior.  Because most of the people who come to mind who might be able to save that amount of money by 30 and then never work again are child actors, athletes, or performers. And their outcomes usually aren't great.
I don't necessarily agree but then I'm at 20 years and have a higher NW then when I started and haven't earned a dime from paid employment in that time. Of course the big run-up in the last 10 plus years coupled with spending much less then I though I would most years helps ALOT but that happened after I lost a bundle in the great recession after I had FIREd. Even if the market and housing market had stayed down I believe I had enough fluff in my budget to cut spending further without much impact or the need to get a job. Even not counting a future small pension benefit or SS benefit when I ER I would have been fine. And I started with less then 1 million let alone 2 million. Also no need to OD on coke due to boredoom yet ;-). Wish I had another lifetime (or had retired earlier) to do all the things I want.

I'm not saying it's impossible,  I'm more questioning the relevance of the 60 yr swr analysis.  I don't think it's relevant to many if any FIREes, and just makes people more pessimistic about being able to retire early.
Why wouldn't it be relevant? I'd think that planning a 60 year retirement - both financially and emotionally - would be right up our alley compared to planning a trad age retirement at 65 or older.

As I said earlier, I dont think the majority of early retirees are retiring by 30 with no future earnings or social security.  But if you think differently, we will just have to agree to disagree

ender

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Re: Hypothetical best time to retire?
« Reply #37 on: July 01, 2022, 03:43:36 PM »
The most problematic statistical error is unrelated to the probabilities; it’s the sample set. As Wade Pfau put it “it is important to be clear that these success rates are based on US history. It is faulty logic to think that these are the success rates applying to new retirees today.”

The first part of this quote is something everyone on this forum agrees on.

The second part is misleading. The entire point of the Trinity study isn't to prove future success rates. It's to look backwards and see historical dates.

If you are blindly going "well I can for sure retire on 4% with no risk" then you don't even understand the Trinity study. And a small percentage of folks on this forum if any believe that.

Personally, I think it's actually significantly more likely that when we look back over the next 30 years a much higher rate than 4% will be pretty safe. The government has shown a significant interest in stabilizing the economy in a way which didn't take place for most of the Trinity study years.

Keep in mind if the market returns not much over 1% real returns every single year, the 4% rule succeeds. The major problems for failing early retirements are sequence of returns risk and inflation.

No calculator can predict either of those.

Telecaster

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Re: Hypothetical best time to retire?
« Reply #38 on: July 01, 2022, 03:57:23 PM »
The most problematic statistical error is unrelated to the probabilities; it’s the sample set. As Wade Pfau put it “it is important to be clear that these success rates are based on US history. It is faulty logic to think that these are the success rates applying to new retirees today.”

The first part of this quote is something everyone on this forum agrees on.

The second part is misleading. The entire point of the Trinity study isn't to prove future success rates. It's to look backwards and see historical dates.

And as far as I can tell, everyone understands this.   On Bogleheads, the general solution is to take less than 4%.  Many other there do 3.5 or even 3%.   Same kind of thing here, but in addition many people here have income producing hobbies, or are willing to work occasionally.   Although there are notable exceptions, many people don't need the full 30 years.  Houses get paid off over the term and income needs go down.  SS might kick in before year 30.   The flipside might happen too.  There might be some unanticipated financial problem.     

But you need a starting place.  Knowing what would have worked in the past is a good start. 

ender

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Re: Hypothetical best time to retire?
« Reply #39 on: July 01, 2022, 04:05:03 PM »
The most problematic statistical error is unrelated to the probabilities; it’s the sample set. As Wade Pfau put it “it is important to be clear that these success rates are based on US history. It is faulty logic to think that these are the success rates applying to new retirees today.”

The first part of this quote is something everyone on this forum agrees on.

The second part is misleading. The entire point of the Trinity study isn't to prove future success rates. It's to look backwards and see historical dates.

And as far as I can tell, everyone understands this.   On Bogleheads, the general solution is to take less than 4%.  Many other there do 3.5 or even 3%.   Same kind of thing here, but in addition many people here have income producing hobbies, or are willing to work occasionally.   Although there are notable exceptions, many people don't need the full 30 years.  Houses get paid off over the term and income needs go down.  SS might kick in before year 30.   The flipside might happen too.  There might be some unanticipated financial problem.     

But you need a starting place.  Knowing what would have worked in the past is a good start.

Most everyone does.

The poster I was responding to seemed to treat the Trinity study as proscriptive risk-less guidance.

Telecaster

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Re: Hypothetical best time to retire?
« Reply #40 on: July 01, 2022, 04:09:37 PM »
The most problematic statistical error is unrelated to the probabilities; it’s the sample set. As Wade Pfau put it “it is important to be clear that these success rates are based on US history. It is faulty logic to think that these are the success rates applying to new retirees today.”

The first part of this quote is something everyone on this forum agrees on.

The second part is misleading. The entire point of the Trinity study isn't to prove future success rates. It's to look backwards and see historical dates.

And as far as I can tell, everyone understands this.   On Bogleheads, the general solution is to take less than 4%.  Many other there do 3.5 or even 3%.   Same kind of thing here, but in addition many people here have income producing hobbies, or are willing to work occasionally.   Although there are notable exceptions, many people don't need the full 30 years.  Houses get paid off over the term and income needs go down.  SS might kick in before year 30.   The flipside might happen too.  There might be some unanticipated financial problem.     

But you need a starting place.  Knowing what would have worked in the past is a good start.

Most everyone does.

The poster I was responding to seemed to treat the Trinity study as proscriptive risk-less guidance.

I completely agree with you.  I was just building onto your thought with examples of how most people seem to view the 4% rule.  Namely, it is a starting point, not an end all.   

clifp

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Re: Hypothetical best time to retire?
« Reply #41 on: July 01, 2022, 04:23:23 PM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

Hum, 23 years into retirement at 62.  My mom's body is still ok at 96, even if her mind is completely gone.  Her father died at 96 in excellent shape other than the last 6 months. My other grandfather died at 93.  Im fatter but exercise more than they did.  While is unlikely I'm make it to 99, it is even more unlikely I'll go back to work.

wageslave23

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Re: Hypothetical best time to retire?
« Reply #42 on: July 03, 2022, 08:01:12 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

Hum, 23 years into retirement at 62.  My mom's body is still ok at 96, even if her mind is completely gone.  Her father died at 96 in excellent shape other than the last 6 months. My other grandfather died at 93.  Im fatter but exercise more than they did.  While is unlikely I'm make it to 99, it is even more unlikely I'll go back to work.

And no social security or any other income? Because that's what the analysis I commented on is assuming.

charis

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Re: Hypothetical best time to retire?
« Reply #43 on: July 03, 2022, 08:14:11 AM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

Hum, 23 years into retirement at 62.  My mom's body is still ok at 96, even if her mind is completely gone.  Her father died at 96 in excellent shape other than the last 6 months. My other grandfather died at 93.  Im fatter but exercise more than they did.  While is unlikely I'm make it to 99, it is even more unlikely I'll go back to work.

And no social security or any other income? Because that's what the analysis I commented on is assuming.

Yes, but you commented on not working for 60 years only, not other sources of income.

clifp

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Re: Hypothetical best time to retire?
« Reply #44 on: July 19, 2022, 10:52:39 PM »
If you look at the article, it shows a 35% failure rate for the 4% rule with 50% equities. 
The failure rate drops to a 15.5% failure rate at 75% equities and a 12% failure rate at 100% equities.
That's a lot higher than the 5% people would like to quote.

As for the 3.25% withdrawal rate, the failure rate is below 4%, and below 1% for all instances of 65%+ equities.

Thats for a 60 yr time period. Nobody is retiring and not doing any work at all for 60 yrs straight. They would  die of cocaine overdose at 42 out of boredom before that happens.

Hum, 23 years into retirement at 62.  My mom's body is still ok at 96, even if her mind is completely gone.  Her father died at 96 in excellent shape other than the last 6 months. My other grandfather died at 93.  Im fatter but exercise more than they did.  While is unlikely I'm make it to 99, it is even more unlikely I'll go back to work.

And no social security or any other income? Because that's what the analysis I commented on is assuming.


I haven't collected social security, and all my income (except for trivial amounts as a poll worker for a few elections), has come from investments.  I'm treating Social Security as longevity insurance in case I live to 100.  Or if some gold digger robs me blind after I get dementia, I'll have modest sized SS check.