The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: wheresthefire on January 14, 2019, 12:34:15 AM
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I've been tracking my FIREd goal in a spreadsheet as you do. As I've been approaching the final goal, the market keeps slipping. I've hit the target 4 times since July all the while investing as normal and have watched it dip away each time. It hasn't reached the target again yet.
The question I have is, since the value has already touched the goal, am I free to retire early? Or would I need to keep investing until I hit the goal again before doing so?
Any advice?
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I expect the market to go up again in the future, so yes, in my opinion you can FIRE now. I do advice you to to build up a cash reserve during your last working days, even though the stocks are on sale. But that way you can live of that cash during the low stock market and don't need to sell your stock for low price. As you now are no longer in the accumulation phase but rather in the spending phase. So buying stock on sale becomes less relevant.
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+1 on building up a cash buffer before you FIRE. FIRE sites generally suggest enough cash to cover anywhere between 1 to 3 years worth of expenses. If you have cash flow coming in from your investments (dividends, rental income, etc.), that also counts towards your cash reserves as you can generally depend on that cash coming in each month regardless of how the stock market is performing.
That should reduce your sequence of returns risk.
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+2 on just making sure you have enough of a buffer to get through a recovery when needed.
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Is your work so dreary that working is affecting your health? If not then I don’t see why going to 120% of your goal as a buffer wouldn’t be a bad idea.
That’s just me though and I lean more towards the FI movement than I do the RE
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Thanks everyone for the advice! It's funny how it feels kind of unsettling to be at this stage. I think adding some cushion as suggested would feel really good.
@beer-man Luckily I can say that I do really love my job. Whew! It's the best one I've had yet and the one that helped me hit my goal all while having a lot of fun (and hard work). It's a decent balance between work/life. Good call, there's really no rush to jump to RE in this case.
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You are probably free to FIRE, but it depends on how comfortable you are with risk and how much play you have in your budget. If you've built a bare-bones FIRE number and are working in a job that it would be hard to replace once you are out of it a few years, I'd personally be uncomfortable FIREing in that situation. OTOH, if your FIRE budget includes some extras that you can temporarily and happily go without, and/or you're willing/able to do some part-time work here or there to make up any slack, then why not?
FWIW we're doing a combination of the cash cushion others have mentioned and flexible expenses, as we do not have jobs that would be at all easy to return to. I will have 2-3 years' expenses in cash/CDs/individual bonds that we will replenish except when the market is down, so we have time to ride out normal recessions. In addition, our FIRE plan focuses on travel, so if the market goes in the shitter for an extended period of time, we'll just cut back the number of trips and/or spend that time in places with a much cheaper COL (and save London/NYC/Tokyo for when times are rocking!). That combination gives me the confidence that I will be able to adjust to economic issues while still enjoying the activities and quality of life I'm looking forward to.
Sounds like you're happy in your job, so really, there's no harm in letting things ride now to buy yourself a little more flexibility in the future. But congrats on being there!
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I just wrote it in my journal, but my DH is getting cold feet with the fact that our FIRE plan was so lean. The market downturn has caused that even though we saved 70% of our take home pay last year, our stash has not grown since the summer. We just put the savings into a back whole, called stock market. So we missed out on saving a bigger chunk of stash last year, and missed out on general stock market growth.
As our FIRE plan does not leave a lot of room for easily reducing costs a lot, we are now very much considering to OMY it.
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The key is to be flexible. Look in cfiresim at some of the tough years like 1929 and 1965. Things rapidly decline and are generally rough but you just make it even spending the 4% SWR. Being able to cut back a bit would help.
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The key is to be flexible. Look in cfiresim at some of the tough years like 1929 and 1965. Things rapidly decline and are generally rough but you just make it even spending the 4% SWR. Being able to cut back a bit would help.
This is what we need to remember. The 4% SWD is not based off of the best timing of FIRE - or even an average timing. It is based off of the hypothetical WORST retirement timing in HISTORY. The only thing that has ever broken the 4% rule is if your country has a nuclear bomb land on it - that causes real problems (Japan - historical SWD 0.6%).
Personally, I can totally see me finding myself padding out the retirement pot in a case of one more year syndrome - especially if I look to FIRE in similar market conditions to now - so it's down to the individual. If this IS the start of a recession, we're probably looking at a year or two until it recovers. Otherwise, it'll be much shorter. Congrats, btw!
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You are probably free to FIRE, but it depends on how comfortable you are with risk and how much play you have in your budget. If you've built a bare-bones FIRE number and are working in a job that it would be hard to replace once you are out of it a few years, I'd personally be uncomfortable FIREing in that situation. OTOH, if your FIRE budget includes some extras that you can temporarily and happily go without, and/or you're willing/able to do some part-time work here or there to make up any slack, then why not?
FWIW we're doing a combination of the cash cushion others have mentioned and flexible expenses, as we do not have jobs that would be at all easy to return to. I will have 2-3 years' expenses in cash/CDs/individual bonds that we will replenish except when the market is down, so we have time to ride out normal recessions. In addition, our FIRE plan focuses on travel, so if the market goes in the shitter for an extended period of time, we'll just cut back the number of trips and/or spend that time in places with a much cheaper COL (and save London/NYC/Tokyo for when times are rocking!). That combination gives me the confidence that I will be able to adjust to economic issues while still enjoying the activities and quality of life I'm looking forward to.
Sounds like you're happy in your job, so really, there's no harm in letting things ride now to buy yourself a little more flexibility in the future. But congrats on being there!
This is exactly my plan: cash buffer and slow travel to keep everything manageable.
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I think the Actuary on FIRE does a great job of explaining & quantifying the "Sequence of Returns Risk". If you FIRE and then the stock market tanks, your 4% withdrawal rate will give you problems. If you FIRE and the market continues to rise, you'll do much better.
Check it out:
https://www.actuaryonfire.com/mathtastic-advice-sequence-of-returns-risk/
https://www.actuaryonfire.com/reprise-sequence-returns-risk/?utm_source=ReviveOldPost&utm_medium=social&utm_campaign=ReviveOldPost
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If you FIRE and then the stock market tanks, your 4% withdrawal rate will give you problems.
4% has worked fine historically, even in the worst sequence of returns. Higher than 4% could give you problems, historically. Future is anyone's guess and it could turn out to be a bit less than 4% if armageddon awaits. Some people use 3.5% to be safe.
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If you FIRE and then the stock market tanks, your 4% withdrawal rate will give you problems.
4% has worked fine historically, even in the worst sequence of returns. Higher than 4% could give you problems, historically. Future is anyone's guess and it could turn out to be a bit less than 4% if armageddon awaits. Some people use 3.5% to be safe.
If future circumstances are so bad that they undermine the 4% rule, then said circumstances will cause us so many other problems that FIRE or retirement could be the last thing on our minds - at least for the time being. Flexibility is key, as someone else mentioned.
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I think scaling down when the market is correcting is important. This simple model shows that if you invested $1,000,000 in SPY at the market peak in 2000, and you withdrew 40K a year until now, you'd have $685,000 left. Not catastrophic, but depending how early your E is in FIRE, could be problematic.
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I think the Actuary on FIRE does a great job of explaining & quantifying the "Sequence of Returns Risk". If you FIRE and then the stock market tanks, your 4% withdrawal rate will give you problems. If you FIRE and the market continues to rise, you'll do much better.
Check it out:
https://www.actuaryonfire.com/mathtastic-advice-sequence-of-returns-risk/
https://www.actuaryonfire.com/reprise-sequence-returns-risk/?utm_source=ReviveOldPost&utm_medium=social&utm_campaign=ReviveOldPost
This is awesome, thanks for sharing