Author Topic: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies  (Read 8014 times)

RetireAbroadAt35

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The Slog:
Of the FI/RE population, I definitely fall into the "Hates Their Job" and "Could Think of a Million Better Ways to Spend Time" and "Anti-Authoritarian" demographics.  It is a miracle that I've made it as a corporate cog for as long as I have.  For the last 6 months though, it's been really hard to slog it through the work day.  I need to fix my attitude as my performance has been middling at best.  I'm barely doing the minimum.  I used to be a highly-rated cog.

One More Year
I've been saving since I was a teenager.  First with savings bonds, then with 401k/Vanguard taxable accounts.  I was partway along the journey already when I discovered the FI/RE community three years ago.  Then I was finally able to do the math and set a #, initially $1mm in index funds.  I realize now I was building a certain amount of OMY into that target.

One Less Year
My actual expenses are quite low that number would have allowed for a lot of fluff.  Upon this realization, I started doing some more careful budget analysis, and I came up with a lower number as a feasible RE target with a little bit of room to grow/shrink.  I OLY'd a few years off the schedule.

Am I There Yet?
But today, as I'm faced with yet another spreadsheet, and yet another set of PowerPoint slides summarizing that spreadsheet, and a business trip to present said slides, for some people I really don't like spending time with, I'm procrastinating again and wondering if I can't just cut the cord now.  It is so tempting.

Withdrawal Strategies
But the rational part of me wants to model this out and have a quantitative analysis.  I started thinking about accumulation in context of draw-down.  This line of thought led me to withdrawal strategies.  I found that few posts/blogs seem to follow the 4% rule during the withdrawal phase, and that few RE'ers are getting their income purely from a stock/bond portfolio.  Most seem to be highly variable in their withdrawals, and/or have diverse sources of income. 

To really answer the question at hand, I need to understand my current portfolio and what strategy I would use for withdrawal.  So is this really possible?  I know I've been FI for a little while but could I really RE now without being rash or restricting my RE lifestyle too greatly? 

My current Assets represent 33x my basic budgeted expenses (rent, subsidized ACA, food, clothing, phone, internet, car maintenance/insurance) so there is a bit of wiggle room for variable withdrawals or fun stuff / travel.  I could pay those expenses with a 3% WR.  I would not be able to live in a high-COL area unless I scored some serious market returns.  This would be a comfortable, albeit lower middle-class budget in many parts of the US, and comfortable to extravagant in many parts of the world for a frugal person.

Assets: 33x basic expenses
* 401(k) - 43%
* Roth IRA - 7%
* Taxable - 49%
* Cash - 1%

Allocation:
* 401k - VBMPX - 19%
* 401k - S&P500 - 20%
* 401k - VGSNX - 9%
* Roth IRA - VTSAX - 2.3%
* Taxable - VTSAX - 42%
* Taxable - VTIAX - 5%

Stuff:
* I own a 15 yo car that I'll happily keep driving.  No house or property. 

Simulations
There seems to be a number of withdrawal strategies that don't get much discussion.  I turned to cfiresim and ran some numbers.  After a brief review, I settled on Inflation Adjusted and Variable Spending strategies.

* 3.6% inflation-adjusted withdrawal, no social security, gives a 93% success rate.
* 4% inflation-adjusted withdrawal, 2/3 of expected social security, gives a 96% success rate.
* 3-5% (3.6% target) variable spending, no social security, gives a 81% success rate
* 3-5% (3.6% target) variable spending, 2/3 of expected social security, gives a 100% success rate

By the numbers, it sure seems I could cut the cord and start filling a Roth ladder using a variable withdrawal rate as long as SS comes along.  I believe it will.

But I'm still working.

Why Am I Still Here?
This budget is modest and doesn't leave a whole lot of room for travel, hobbies, etc.  I've been testing the budget for the last 6 months though, and it is doable. 

Post-FIRE, I have been considering a small RE partnership.  I might need W-2 income to appear credit-worthy.

General apprehension.  What if I want to do something that costs more than my budget allows?  Continuing education, travel, underwater basket-weaving hobby, etc.

General apprehension.  What if I were to become financially responsible for ailing parents?

I'm not sure what my next step is going to be.  Right now I'm trying to talk myself into sticking it out through the end of the year and getting one more back-door ROTH in. 

But I don't know if I can make it that long.  Can I RE today?  Maybe if I give myself permission to end it at any day, I'll make 6 more months.
« Last Edit: June 18, 2015, 08:53:59 AM by RetireAbroadAt35 »

RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #1 on: June 17, 2015, 06:16:39 PM »
Opportunity Cost

To round out the story, I guess I should mention the opportunity costs of RE.  If I stay on to the end of the year, I could get my assets up from 33x to almost 35x my basic budgeted expenses.  My variable withdrawal rate floor would drop to 2.9%.  Worth it? 

Alternative Plans

I guess I could just stop working now and go read a novel.  Or:

* Leave now, take on occasional contract work, getting my assets up to 35x basic expenses and WR floor to 2.9% over 12 months.  Less stress but still office work.
* Leave now, build small RE venture with partner, using leverage to increase income such that the WR floor drops to 1.6%.  We have a feasible business plan.
* Leave in 6 months, getting my assets up to 35x basic expenses and WR floor to 2.9%.  Slog but there's light at the end of the tunnel.
* Hang on tight to the gravy train, increasing net worth by 4x basic expenses each year, until my WR drops to near zero or I drop from stress
« Last Edit: June 17, 2015, 06:36:53 PM by RetireAbroadAt35 »

Retired To Win

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #2 on: June 17, 2015, 06:33:39 PM »
Opportunity Cost

To round out the story, I guess I should mention the opportunity costs of RE.  If I stay on to the end of the year, I could get my assets up from 33x to almost 35x my basic budgeted expenses.  My variable withdrawal rate floor would drop to 2.9%.  Worth it?

If you are going to consider the money opportunity cost of leaving sooner, then also think about the time opportunity cost of staying longer.  That's the trade-off.  More money or more time.  (We don't live forever.  And when a day is gone... it is gone.)

Good luck.

The_path_less_taken

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #3 on: June 17, 2015, 08:35:49 PM »
If you do retire as your handle suggests, you have practically infinite opportunities to acquire another w-2 position for credit purposes.

Although...just running stuff thru cards and even just churning like the card barons on here do, will maintain an astoundingly high score if you pay it all off promptly. In many states you can  pay utilities and property tax on credit cards, and you can pay at least Farmer's Insurance via credit card (so I toss the house/ranch/vehicles on it...several grand a year).

I'm not thrilled with my current job. The general manager is apparently breaking up with his wife and is beyond pissy 24/7...if he weren't older than me I would have decked him the last time he started screaming in my face.

But I'm going to try and smile and nod and make it work for one more year. That way if I do need dental implants/etc it will be semi-covered.

I can see how it would be tempting quit once you were almost to your goal. Then again: you're almost to your goal.

You could try and "one day at a time" your way thru it, right?

"Well, I haven't given two weeks notice but if they piss me off today, that puppy is already in the cloud and ready to be emailed straight to corporate."

"I like 'some' of these people, and don't want to quit before the 4th of July picnic."

Or whatever.

But only you know just how much they're pissing you off. It's an equation, and there's a tipping point...leave before you hurt one of them, is my plan.

Some days are more challenging than others. ;-0

Good luck!

RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #4 on: June 17, 2015, 09:57:51 PM »
If you do retire as your handle suggests, you have practically infinite opportunities to acquire another w-2 position for credit purposes.

My handle was ambitious but I did reach the goal.  However, since I created that username, I decided I didn't want to make geographic arbitrage a mandatory component of my RE plan.  I stuck it out beyond 35 and acquired enough assets to give me a perpetual, comfortable, lower class income in the states. 

Quote
But only you know just how much they're pissing you off.
They aren't pissing me off, which is the real kicker.  It's a good job as far as jobs go, just tedious, stressful and time-consuming.  The well of discontent has little to do with the job and everything to do with the opportunity cost of lost time.  Now that I'm doing the math and thinking about withdrawal strategies, I'm starting to wonder why I'm trying to push through.

The real question here is, is a 3-5% variable withdrawal strategy, + social security, a good one?  Can I build a working plan off of this? 

http://www.cfiresim.com/docs/faq.php#spendingPlan
Quote
Variable Spending: allows for small deviations in spending within those values when the market dictates it. The Z-value determines how much your spending changes during the market changes. The method then tracks an inflation-adjusted version of your Spending amount. Example: If your portfolio is up 10%, Z-value is 0.5, and Spending was $40k, your new spending is now (1+(10% * 0.5)) * $40k = (1.05)*40k = $42000. Example2: If your portfolio then is down 25%, Z-value is still 0.5, Spending was $42000, your new spending is now (1-(25% * 0.5)) * $42k = (0.875)*42000 = your $36750. So, the z-value just provides a value of how much your spending reacts to your portfolio health. If the Z-value is lower, your spending swings less. If it is higher, it swings more. Add in the universal Spending Floor/Ceiling for guardrails, and you've got yourself a pretty good spending method.

I need a variable % withdrawal rate spreadsheet.

Quote
Some days are more challenging than others. ;-0
Oh man, I hear you there. 
« Last Edit: June 17, 2015, 10:01:00 PM by RetireAbroadAt35 »

StockBeard

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #5 on: June 18, 2015, 04:13:18 PM »
At 33 times your annual expenses, sounds to me like you already have what you need + a good safety net. What am I missing?

Quote
Of the FI/RE population, I definitely fall into the "Hates Their Job" and "Could Think of a Million Better Ways to Spend Time" and "Anti-Authoritarian" demographics.  It is a miracle that I've made it as a corporate cog for as long as I have.  For the last 6 months though, it's been really hard to slog it through the work day.  I need to fix my attitude as my performance has been middling at best.  I'm barely doing the minimum.  I used to be a highly-rated cog.
Hey, that's me too!

RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #6 on: June 18, 2015, 04:57:08 PM »
At 33 times your annual expenses, sounds to me like you already have what you need + a good safety net. What am I missing?

Ok, I made it.  Accumulation phase complete.  Uh, now what do I do?  Start drinking margaritas?

StockBeard

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #7 on: June 18, 2015, 05:16:45 PM »
Lurk on the forum and laugh at people like me who still have a few years to go? :P

RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #8 on: June 18, 2015, 06:00:42 PM »
Y'all should be laughing at me, working like a chump when maybe I don't need to be.

Cycling Stache

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #9 on: June 18, 2015, 06:32:25 PM »
I've read most of the blog posts, but only been lurking on the forum a little while.  So take this with a huge grain of salt, and surely there are more qualified people to answer.  That said, I kind of relate to the feeling, so maybe I'm just working through the analysis as well.

First, I think you can count on social security.  While they may have to tweak it, increase the retirement age, or do a few other things, I would still bet on getting 80% of what you would be entitled to if everything stays the same.  Given the number of people on social security and the importance for most, it's just not feasible to make drastic changes the system.  Incremental changes of 10-20% seem much more likely.

Second, are you at a job that is uniquely high paying or one that requires specialized skills such that you could not hope to get a comparable job in the future?  This is one for the more senior FIRE people, but a lot of the blog and forum posts both the ability and really, probability, of some kind of part-time income as time goes by.  And just because you don't want to work now (or maybe for the next 10 years), I would guess you could if you needed to, right?

Third, it seems to me like the toughest part about jumping off is jumping off.  I'm fascinated by this stuff, got myself to debt-free, and realistically, we could just now live on my wife's salary (who claims she definitely wants to work forever!).  But I realize that the unqualified excitement I feel for cutting debt, cutting spending, and freeing up my future is easy, and I love talking to people about it.  Actually walking away when it seems like nobody else does, thougn, seems scarier, especially when you're in a career profession.  It feels so . . . permanent.

In my case, I don't really have the reserves built up yet (besides retirement accounts), and we just recently got the budget to less than what my wife makes.  I'm still thinking another 5 years to build up at least 10-15 times annual spending, and then see if my wife really wants to keep working.  But I know the biggest thing holding me in is that I have a relatively easy job that pays well and would be very hard to replicate at anywhere near my salary if I left.  So it seems very hard to think about actually leaving when 5 more years is worth 10-15 years later of work, especially for a job that is really pretty good--except that I don't really like to work that much!

Which is a long way of saying that if your job or salary is easily replicable in the future, leaving seems less risky given the likelihood of working at some point, either because you'll want to or if you needed to based on a worst-case financial scenario developing.

Would love to see what the more senior FIRE people have to say!

RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #10 on: June 18, 2015, 06:57:34 PM »
First, I think you can count on social security.
Yup, and even partial SSI is all it takes to move cfiresim scenarios from the 80s to the high 90s.

Quote
Second, are you at a job that is uniquely high paying or one that requires specialized skills such that you could not hope to get a comparable job in the future?
Yes, sort of.  I don't quite know how it happened but I've been recently earning a fair bit more than I ever expected in technology related work.  But I'm over this scene.  Thing is, I've reached this point before.  I walked away a long period of time.  I made my FI accumulation plan with the intent of RE'ing for real the next time.  I've tasted the good life and I'm highly motivated to exercise my financial freedom, even if it calls for modest cost-of-living. 

As long as I don't develop a taste for renovating things or luxury travel ...

Quote
I would guess you could if you needed to, right?
If I came back within a year, I could probably go back to my old employer or to one of the other megacorps in this industry (probably for a raise).  There is a short window of opportunity to do this in my field.  Rather than resign, I'll apply to go on unpaid leave, making a return to old employer hassle-free. 

But I would feel like I was selling myself short by needlessly piling up my stache at the cost of years of precious time. 

I also have a good shot at landing a contract position or two, where I'd make almost as much as I am now, but with periods of no work between contracts (a good thing). 

Ignoring the "do I have enough" question, that's the route I'm leaning towards.  I'll give my notice after this project completes, take some time off, continue analyzing/experimenting with withdrawal plans, and consider seeking contracts, returning to my old employer, or going to another megacorp.

Quote
So it seems very hard to think about actually leaving when 5 more years is worth 10-15 years later of work, especially for a job that is really pretty good--except that I don't really like to work that much!
OMY syndrome is a thing, man.  You can counteract it with a healthy dose of OLY.  I just carefully predicted a barebones budget, determined the minimum savings I'd need, and OLY'd it back to today.  The math continues to prove out that I don't have to do this if I don't want to.  And I REALLY don't like to work that much.

Axecleaver

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #11 on: June 19, 2015, 12:49:44 PM »
Quote
I also have a good shot at landing a contract position or two, where I'd make almost as much as I am now, but with periods of no work between contracts (a good thing). 
My two cents, you should start looking for one solid contract role and FIRE as soon as you land it. Variety is the spice of life, and there is a HUGE quality of life difference between working 9 months of the year and working all 12.

The happiest time of my life was when I was an independent consultant in my 20's. I lost a contract that I had expected to last another year or more, with no notice. On Friday I left a big project meeting with a long list of action items, and by Monday I was unemployed. Having been through this before, though, and with money in the bank, I took the whole summer off, went trout fishing every morning, spent a half hour on emails looking for work, grilled my fish and went to bed with my wife at sunset every night. Best. Summer. Ever.

I'm working on a 2020 FIRE date, at which point I'll have enough to meet 90% of our projected expenses. I'm planning to reduce but not completely eliminate work. Add in to your model what would happen if you took 13 weeks a year of consulting work at 1/1000th of your salary per hour.

Another thing, you could retire and never work again with 33x. The key to why cFireSim is giving sub-100% success results is going to be the first 3-5 years of market performance after you retire. If things go well, you're set. If they don't, then you end up working 13 weeks a year for another few years until your portfolio recovers. NBD. Good luck!

RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #12 on: June 19, 2015, 01:34:12 PM »
I think my ideal glide into FIRE will go like this.

* Retire in two months, diverting all savings to cash in the meantime.  I ran cash-light during accumulation.
* Request a leave of absence at the start of the next quarter.  Has a few advantages regarding benefits.
* Go travel a bit, relax, work out and screw off for the next 6 months.
* Come back and start a contract job, return to megacorp, or just stay retired if I feel good about my modest spending

I still haven't quite accepted that this is possible but I'm slowly coming around.  It's a series of ah-hah moments.

The Beacon

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #13 on: June 21, 2015, 09:17:16 AM »
I think my ideal glide into FIRE will go like this.

* Retire in two months, diverting all savings to cash in the meantime.  I ran cash-light during accumulation.
* Request a leave of absence at the start of the next quarter.  Has a few advantages regarding benefits.
* Go travel a bit, relax, work out and screw off for the next 6 months.
* Come back and start a contract job, return to megacorp, or just stay retired if I feel good about my modest spending

I still haven't quite accepted that this is possible but I'm slowly coming around.  It's a series of ah-hah moments.

Sounds like a plan except returning to megacorp.   Do not treat the symptoms.  Treat the cause.  One good thing about my FIRE plan is that I have a side gig I truly love.  This side gig solves 3 things. 1: how to fill my time after FIRE. 2: Bring some extra money. 3  work on my own schedule. 

If I FIRE this year, I would need my side gig to generate 20,000 a year, which is very possible but not a 100% thing.  If I FIRE in 2017, I would need only 10,000 a year, which is super easy.


The Beacon

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #14 on: June 21, 2015, 09:18:30 AM »
I think my ideal glide into FIRE will go like this.

* Retire in two months, diverting all savings to cash in the meantime.  I ran cash-light during accumulation.
* Request a leave of absence at the start of the next quarter.  Has a few advantages regarding benefits.
* Go travel a bit, relax, work out and screw off for the next 6 months.
* Come back and start a contract job, return to megacorp, or just stay retired if I feel good about my modest spending

I still haven't quite accepted that this is possible but I'm slowly coming around.  It's a series of ah-hah moments.

Sounds like a plan except returning to megacorp.   Do not treat the symptoms.  Treat the cause.  One good thing about my FIRE plan is that I have a side gig I truly love.  This side gig solves 3 things. 1: How to fill my time after FIRE. 2: Bring some extra money. 3  Work on my own schedule. 

If I FIRE this year, I would need my side gig to generate 20,000 a year, which is very possible but not a 100% thing.  If I FIRE in 2017, I would need only 10,000 a year, which is super easy.

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #15 on: June 21, 2015, 10:08:56 AM »
Do a contract. With 33x expenses, it's a nice segue into ER.

If you can manage a 1099 contract, all the better. It'll give you maximum freedom, since independent contractors can choose when and where they work (at home, from the coffee shop, only from 11am-3pm, etc.)


RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #16 on: June 22, 2015, 10:34:25 AM »
I remain someqhat skeptical that i could live forever, happily and without regret on 4% of my stache, but i am 100% convinced that there's no rational reason why i should be boarding a plane right now to leave my warm bed and loving woman to fly to some other city to work with an exploitive corporation, interacting with a maniacal client and spending all my time with some colleagues i don't really care for.  If that's not motivation, i don't know what is. I'll be giving my notice on Sept 1st.

arebelspy

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #17 on: June 22, 2015, 10:35:12 AM »
Wow, good for you!  Only 2 1/2 months left.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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RetireAbroadAt35

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Re: Am I there yet? The Slog, OMY, OLY and Withdrawal Strategies
« Reply #18 on: July 07, 2015, 06:57:14 AM »
It's time to run the gauntlet, IE the dehumanizing process of soliciting feedback for our pseudo meritocracy. If I do it and come out on top in our cult of personality, my bonus could be 8% instead of 4%.  I'm inclined to decline. I wonder what my fellow middle managers would think if I decided to sit out the shit show thia year.