Coasting or cheating across the FIRE finish line? / OLY syndrome

[ChpBstrd]

Invested assets: $1,054,000
Annual spending per Mint: $52,000
25X FIRE number: (52k*25=) $1,300,000
Return needed to reach FIRE number: (((1,300,000-1,054,000)/1,054,000)-1=) 23.3% or $246k
Allocation: 97% stock
Savings rate: $6-8k/year or 10%, may decrease to 5% or less.

Problem:
Dear spouse has left the workforce and shows no indication of ever going back. That conversation is another subject :). Presuming we continue as a one-earner household, we will roughly break even after paying taxes and saving a modest amount to get my 401k match. I just sold a couple hundred hours of PTO back to my company and reduced my 401k deduction to 10% in order to fund the family through at least year-end. Stimmie checks and our EBT card allowed me to put thousands more toward my 401k in 2020-21, but from here forward we'll be coasting at a maybe 5% savings rate.

This means my retirement date is at the mercy of the markets, even this close to the finish line. I'm a millionaire who might have to work another several years. I want to quit ASAP, so I'm looking at AA options that would (1) generate at least $50k/year in portfolio returns, and (2) have the potential to grow 23.3% over the next couple of years so that I could retire with a more extensively backtested portfolio. FIRE calculators do not like this idea at all - all they know is 5% WRs on stock-heavy portfolios have a 22% 40y failure rate.

Factors:

• I'm 43, so if I quit for a year and markets didn't work out, I go back to work. An issue would arise if markets limped along for years and I got older while my assets didn't grow. I would need an IPS that says "vacation over" if the portfolio is only $x by a particular date.
• I don't actually like the idea of taking a mini-retirement followed by another period of working. Thus I'm only considering taking a break that could become a full retirement thanks to market forces, and I'd strongly prefer a portfolio that grows throughout retirement.
• Account allocations are 60% to traditional IRAs, 27% to roth IRAs, and 13% in taxable accounts.
• I'm bullish on the stock market right now, and do not expect inflation to exceed 3% for the next few years. I also expect a big correction to occur sometime in the next few years.
• My $170k house with a $109k 13 year mortgage at 3.25% is not counted in the above asset numbers, but is included as an expense.
• If I quit, dear spouse might return to work. :))

Specific Question:
I need you all to shoot holes in my moonshot ideas to quit my very cushy job to live on an 5% WR, and then retire when the WR is 4% in a year or two, all while taking calculated risks to make that happen. Also feel free to validate these "white hat" ideas if you like them. I recognize that risk is involved, but to avoid all risk is to OMY forever. I'm thinking about taking extra risk to do at least One Less Year.


Idea 1: Discounted Yield To The Max
There are several healthcare REITs, mortgage REITs, and preferred shares yielding >6% right now because the markets have dropped. I could build a portfolio with names like OHI, SBRA, MNR-C, GMRE-A, NHI, CSR-C, MAA-I, UMH-C or UMH-D, and AGNC and technically live off the dividends right now with a 5% WR. But what makes this idea attractive, despite my general disdain for dividends, is the observation that several of the non-preferred REITs on this list - especially the COVID-sensitive ones - are down significant amounts in the past 6 mos. AGNC is down 13%. SBRA is down 16%. OHI is down 19%. NHI is down 27%. If they returned to their post-pandemic highs in the next 12 months, I'd be very close to my FIRE number. Maybe I could quit and live off the dividends while waiting up to a couple of years for that to happen? Note that most of these names have less volatility than the market. The main risk would be interest rate increases, but if China has a financial crisis or something geopolitically destabilizing happens, this strategy would appear genius.

Idea 2: Option Up 24%
The gutsiest and fastest way to earn 24% would be to do covered calls on triple-leveraged ETFs like UPRO, SPXL, or TQQQ. For example, TQQQ's current price is $126.37. I could buy it and sell the January 21, 2022 call at the 150 strike for $6.75. If assigned, I would keep $23.63 in capital gains plus the $6.75 option premium for a (30.38/126.37=) 24% return. This would happen if the Nasdaq rose roughly 6% - basically just recover from our current mini-correction and get back to where we were at the end of August. Of course the downside is 3x leverage in the other direction.

Idea 3: Leverage Preferreds and REITs
Interactive Brokers' margin rate is currently 1.08% for Pro accounts at the trade sizes I'm exploring. I could use this margin to buy twice as many shares of the REITs listed above, plus maybe some preferred ETFs, and they'd have to fall 50% before I was margin called. My yield on initial investment would be ~9-10%. In a nutshell, I'd be earning 100k a year in dividends while waiting for these shares to swing back up. When they returned to even a fraction of their typical prices, I'd be at my FIRE number due to the 2x leverage. This would be a dangerous strategy if I wasn't also using costless options collars or protective puts to eliminate any risk of liquidation.

Idea 4: Field Goal For The Win
At the point when I'm 3-5% away from FIRE, I'll probably sell call options to increase the likelihood that I'll be over the hump in the following 3-6 months. E.g. if I was 3-5% away today, I might do something like hold SPY and sell the 445 strike Feb 18, 2022 calls to harvest 5.5% when you combine put premium and amount out of the money. I might regret this bet if SPY increases by more than 5.5% by that time, but then I'm over my FIRE number in terms of dollars invested. The tradeoff is an increased likelihood of being over the threshold, at the expense of no possibility of far exceeding it. I could set my FIRE date with reasonable probability. If assigned, I could sell put options to both fund my first year of retirement and get back into my post-retirement AA. I have a way to go until reaching field goal range, of course.

[waltworks]

Just RE at 5% WR and be willing to do some sort of super part time work once in a while if you need to. No need to get fancy.

Assuming you're in the US, you're certain to get *something* from SS, too.

Remember that the 4% rule assumes NO earned income or SS or inheritance of even $5k. You will almost certainly be luckier than that financially.

Go do your thing.

-W

[maizefolk]

Any way to work your numbers in parallel from the current annual spending side? If you really want a 4% WR, you need either $250k in additional investments or a $10k reduction in annual spending, or some combination of bits less of the two.

Beyond that, I agree with waltworks, it doesn't make sense to adopt higher risk strategies which might make you better off, or significantly worse off. If you are at the point where you need to get out, just retire with a 5% withdrawal rate. In the worst case scenario it only needs to last you twenty-some years before you'll have the option of drawing some level of social security.

And depending on your field of work there may be side gigs open to you short of going back to work full time if the market starts going to wrong direction early on.

[ColaMan]

Option 4 strikes me as the least bad of those you listed.  The others all entail too high a risk of blowing up in your face (especially if the market downdraft risk you mention materializes).

[JJ-]

A couple of questions.

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

Second, would you consider a refi to a 30 year mortgage? It would take some pressure off your income and lower your withdrawal rate.

All that to be said I agree you'll probably be fine to pull the plug. Personally I think the risk of options 1-4 open you up to too much risk of backfiring. I'd suggest really considering a deeper dive into the AA comment. 100% equities seems to be ok for growth but as you coast and look into withdrawal it is not the optimal allocation.  I'm going to ping @Radagast for some thoughts there.

[secondcor521]

I know it's an option you pretty clearly have already ruled out, but when I was in a similar spot, I personally decided to just suck it up and work as long as it took.  Mainly because I didn't think I could go back and earn a similar income after being on sabbatical for a few years.

I also realized spending $1 less was easier than earning $25 more net after taxes.  So I really dialed in my spending.  I realize that's harder with a spouse who may be less on board with the whole idea of FIRE.

Also, I did realize after I retired that I was ignoring what I call NPI - non-portfolio income, which is money coming in that isn't dividends or capital gains distributions.  I didn't think about it much, because the amounts seemed small and various and unpredictable, and I didn't want to rely on that.  But after FIREing and watching things for a while, I realized that my NPI is actually, in total, large enough to be significant and also somewhat stable or predictable in aggregate.  So now I actually note it in my spreadsheets.  As a rough guide, my actual WR is about 2% but my NPI is about 1%, so my net WR is about 1%.

If I were in your shoes and understood NPI better then, I might take a hard look around and see if I could find NPI of $5K a year or something to help bring that FIRE date in closer.  NPI can be tax refunds, gifts, bank bonuses, or, as some people have already mentioned, a small side gig (which brings with it the Internet Retirement Police, but I don't care about them).

I also think that FIREing at a 5% rate is much less dangerous than any of the ideas you've proposed in the OP.

Another option is for you to switch companies, teams, positions, areas, or something.  Usually the yucky parts of a new role can be ignored or minimized for a while just because there is new stuff to distract.

Finally, for me, once I said to myself to just suck it up and work as long as possible, with the option of quitting if I really wanted to or if things seemed unbearable - just having that option made it more bearable, at least for a while.

[waltworks]

Just doing a refi to a 30 year gets you something like $4k/year reduction in expenses. Boom, $48k and ~4.5% WR.

I'd guess plenty of other expenses would decline if you weren't working, too, though obviously that depends on your job/commute.

Figure in some minimal SS for you and your spouse ($2k/mo combined) and 20% spending flexibility and you're sailing well over 96% success rate.

I mean, it's your life. I would give my 2 weeks notice tomorrow if I were you.

-W

[Metalcat]

You're dramatically over complicating things.

Have a serious conversation with your spouse. Figure out where to cut expenses, even if it's just $100/mo each. Then figure out how to both generate small amounts of income, even 5K/yr would suffice.

Regardless, there are very simple solutions to this if you and your spouse work *together* on this. Much wiser solutions than magical investment thinking.

[former player]

You're dramatically over complicating things.

Have a serious conversation with your spouse. Figure out where to cut expenses, even if it's just $100/mo each. Then figure out how to both generate small amounts of income, even 5K/yr would suffice.

Regardless, there are very simple solutions to this if you and your spouse work *together* on this. Much wiser solutions than magical investment thinking.

I agree with this.  Reducing spending is more likely to get you to the finish line than anything you do with your investments.

If your spouse does not want to earn money then they (and you, it's got to be a joint enterprise) need to "work" at reducing expenses.  Marriage is a joint enterprise, so you both need to "work" with some combination of earning money and/or reducing expenses.  One of you working a job to earn money and the other not might work in some circumstances (keeping house and raising children counts as work, it's just not paid) but one needing to earn money and the other just spending it rarely does.

[Dicey]

You're dramatically over complicating things.

Have a serious conversation with your spouse. Figure out where to cut expenses, even if it's just $100/mo each. Then figure out how to both generate small amounts of income, even 5K/yr would suffice.

Regardless, there are very simple solutions to this if you and your spouse work *together* on this. Much wiser solutions than magical investment thinking.

^This^, plus I'll pile on the 30 year re-fi train with @JJ-  and @waltworks. Get a long, cheap mortgage now, while you're working. A new 30-year mortgage will act like a bond and add some balance to that 97% equities portfolio. Besides the significant drop to your overall spend, it will also offer effortless inflation protection.

If you do a re-fi now, you could pull the trigger on the job before the end of 2021.

We're doing a re-fi on one of our rentals with AimLoans.com. So far, their process been pretty easy.

[ChpBstrd]

Thanks for the replies!

Just RE at 5% WR and be willing to do some sort of super part time work once in a while if you need to. No need to get fancy.

The whole 22% failure rate thing is a big deterrent to me, personally, and seems more risky than the strategies I listed. PT work seems like blocking out 60% as much of your time to earn 33% as much as a FT job. The really bad part about winging a 5% WR is the possibility of not knowing your portfolio is going to fail until 10-15 years later. By then, all the WalMart greeters will be robots!

Any way to work your numbers in parallel from the current annual spending side? If you really want a 4% WR, you need either $250k in additional investments or a $10k reduction in annual spending, or some combination of bits less of the two.

Have a serious conversation with your spouse. Figure out where to cut expenses, even if it's just $100/mo each. Then figure out how to both generate small amounts of income, even 5K/yr would suffice.

Reducing spending is more likely to get you to the finish line than anything you do with your investments.

If your spouse does not want to earn money then they (and you, it's got to be a joint enterprise) need to "work" at reducing expenses.  Marriage is a joint enterprise, so you both need to "work" with some combination of earning money and/or reducing expenses.  One of you working a job to earn money and the other not might work in some circumstances (keeping house and raising children counts as work, it's just not paid) but one needing to earn money and the other just spending it rarely does.

I've been fighting that good fight for several years now. Dear Spouse is on board, but also has expectations for things like top-quality food, "reasonable" shopping and takeout budgets, occasional massages, at least one basic vacation per year, and things like that. Plus we have some reoccurring medical expenses. Why yes, in fact there is a tension between me with holes in my socks "but they still have a couple more wears in them" and DS who signed us up for a $42/mo subscription to a smoothie service that delivers protein powder (and agreed to cancel, but didn't get around to it for another month). We've had lots of polite but "serious conversations" and honestly DS is frugal in many ways. Perhaps I should retire on a $1M nut and say "Well dear, we're on a $40k budget now, and if we overspend we'll likely experience poverty in old age. That's plenty of budget for me, so I'm quitting. If you ever want to see Hawaii or continue buying the brown eggs that cost twice as much as the white eggs you'll need to go out and earn it." I'm not completely ruling out that approach, because it's clear spending growth can run a lot faster than asset growth and we have clear differences in incentives that could fuel just such a dynamic. However I am very confident that our annual spending as quoted is what it's actually going to be unless I take a range of risks in a whole other domain. Annual spending has been around $52k for years with me pushing fairly hard on it.

Just doing a refi to a 30 year gets you something like $4k/year reduction in expenses. Boom, $48k and ~4.5% WR.

You just unsealed a can of worms that might take over this whole thread, because this ties back to the pay-off-your-mortgage vs. don't-POYM debate. We only owe $109k on the house, but P&I on this debt is $10,380 per year (15y mortgage). We have the assets sitting in taxable accounts that could pay off our mortgage tomorrow, and this would lower our annual spending to (52k-10.38k=) $41,620 and our 4%WR FIRE number to $1.04M. Paying off the mortgage would lower our invested assets to $945k. Boom, 4.4% WR!! Then we'd be only $95k away from a 4% rule FIRE number instead of $246k away from it.

Some will read this as the obvious reason to POYM upon retirement. Others will read it as a perfect illustration of why one shouldn't use rigid and simplistic rules to make FIRE decisions while disregarding improved cash flows in the distant future where the actual risks exist. The POYM debate can be reduced to a guess about future investment earnings and whether they'll be higher than the mortgage interest rate. I lean bullish on investments, and I also appreciate having an inflation hedge, which is why I'm in the DPOYM camp for now.

I could refi for a slightly lower rate, but breakeven would not occur for several years.

[Metalcat]

So your spouse is happy to quit and force you to keep working just so they can have the luxuries they insist they're entitled to?

Yeah, I would be having far more serious conversations about that if I were you. That's some fucking bullshit, unless there's some aspect you haven't told us about, like they supported you through grad school, or paid off your previous divorce debt, or something that you *both* agree entitles them to an earlier retirement than you.

[calimom]

So your spouse is happy to quit and force you to keep working just so they can have the luxuries they insist they're entitled to?

Yeah, I would be having far more serious conversations about that if I were you. That's some fucking bullshit, unless there's some aspect you haven't told us about, like they supported you through grad school, or paid off your previous divorce debt, or something that you *both* agree entitles them to an earlier retirement than you.

This jumped out at me too. You guys are a team, are you not?

[affordablehousing]

Wait, the only thing I want to know is how do you get food stamps as a highly compensated person? I've been trying to figure out that for awhile but haven't been able to find anyone who mentions it. Any advice would be appreciated.

[secondcor521]

Perhaps I should retire on a $1M nut and say "Well dear, we're on a $40k budget now, and if we overspend we'll likely experience poverty in old age. That's plenty of budget for me, so I'm quitting. If you ever want to see Hawaii or continue buying the brown eggs that cost twice as much as the white eggs you'll need to go out and earn it." I'm not completely ruling out that approach

I'd rule it out.  As others have pointed out, you have a relationship issue that the two of you would be wise to address.  You attempting to address it in the way you describe in the above paragraph is not healthy.  I know your frustration, having been there and done that (including attempting to save enough to offset my SAHP's greater spending and thinking that exact thought with her).  BTW, my ex and I failed to address it successfully; it's probably one of the main reasons she left.

You just unsealed a can of worms that might take over this whole thread, because this ties back to the pay-off-your-mortgage vs. don't-POYM debate. We only owe $109k on the house, but P&I on this debt is $10,380 per year (15y mortgage). We have the assets sitting in taxable accounts that could pay off our mortgage tomorrow, and this would lower our annual spending to (52k-10.38k=) $41,620 and our 4%WR FIRE number to $1.04M. Paying off the mortgage would lower our invested assets to $945k. Boom, 4.4% WR!! Then we'd be only $95k away from a 4% rule FIRE number instead of $246k away from it.

Some will read this as the obvious reason to POYM upon retirement. Others will read it as a perfect illustration of why one shouldn't use rigid and simplistic rules to make FIRE decisions while disregarding improved cash flows in the distant future where the actual risks exist. The POYM debate can be reduced to a guess about future investment earnings and whether they'll be higher than the mortgage interest rate. I lean bullish on investments, and I also appreciate having an inflation hedge, which is why I'm in the DPOYM camp for now.

I could refi for a slightly lower rate, but breakeven would not occur for several years.

What you might consider doing is running FIREcalc or cFIREsim in a more sophisticated manner - put in your assets and cash flow as they exist now, then put in a negative future cash flow to represent when that mortgage payment goes away.  Depending on how you feel about SS and how old you are, you could look up your SS benefits and plug them (or a portion of them) in there as well.

The nice thing about doing it this way is that the simulators will then simulate you having a mortgage for X more years across the entire history of market and inflation returns for the past 100 years or whatever.

And you very well might find that your historical success rate rises to something very close to, if not equal to 100%.

I did that with both my mortgage and my child support.  Since both were large expenses ending soon, it made a big difference in the success percentages.  It also quantified for me where I actually stood, because I could intuitively see that having a large chunk of expenses go away in a few years was helpful, but I couldn't know how helpful it would be.

(Blah blah, history isn't predictive, blah blah, 4% rule isn't a rule, blah blah.)

[ChpBstrd]

Wait, the only thing I want to know is how do you get food stamps as a highly compensated person? I've been trying to figure out that for awhile but haven't been able to find anyone who mentions it. Any advice would be appreciated.

I didn't ask for it. $250/mo just started appearing in our checking acct. and an EBT card arrived that got charged up each month by a similar amount.
https://www.irs.gov/newsroom/2021-child-tax-credit-and-advance-child-tax-credit-payments-resources-and-guidance
https://www.fns.usda.gov/snap/state-guidance-coronavirus-pandemic-ebt-pebt
I believe my state expanded the p-EBT program to include all children. It would cost more time and money to validate everybody than it was worth, apparently. The downside is that I no longer have a child tax credit, which means I'll probably owe when I do taxes in Sprint 2022.

[Morning Glory]

The whole 22% failure rate thing is a big deterrent to me, personally, and seems more risky than the strategies I listed. PT work seems like blocking out 60% as much of your time to earn 33% as much as a FT job. The really bad part about winging a 5% WR is the possibility of not knowing your portfolio is going to fail until 10-15 years later. By then, all the WalMart greeters will be robots!

[/quote]

I don't understand this. Can you not do some temporary/contracting work in your field for a high hourly rate?

You just unsealed a can of worms that might take over this whole thread, because this ties back to the pay-off-your-mortgage vs. don't-POYM debate. We only owe $109k on the house, but P&I on this debt is $10,380 per year (15y mortgage). We have the assets sitting in taxable accounts that could pay off our mortgage tomorrow, and this would lower our annual spending to (52k-10.38k=) $41,620 and our 4%WR FIRE number to $1.04M. Paying off the mortgage would lower our invested assets to $945k. Boom, 4.4% WR!! Then we'd be only $95k away from a 4% rule FIRE number instead of $246k away from it.

Some will read this as the obvious reason to POYM upon retirement. Others will read it as a perfect illustration of why one shouldn't use rigid and simplistic rules to make FIRE decisions while disregarding improved cash flows in the distant future where the actual risks exist. The POYM debate can be reduced to a guess about future investment earnings and whether they'll be higher than the mortgage interest rate. I lean bullish on investments, and I also appreciate having an inflation hedge, which is why I'm in the DPOYM camp for now.

I could refi for a slightly lower rate, but breakeven would not occur for several years.

[/quote]

Look up drawdown calculations for paying off a mortgage after FIRE. Even if you don't pay off the mortgage or refinance it, you don't need enough to keep making those payments indefinitely. You need roughly your number without the mortgage, plus enough to pay it off (or slightly less based on drawdown figures). So your actual FIRE number is around 1.13M.

[maizefolk]

Look up drawdown calculations for paying off a mortgage after FIRE. Even if you don't pay off the mortgage or refinance it, you don't need enough to keep making those payments indefinitely. You need roughly your number without the mortgage, plus enough to pay it off (or slightly less based on drawdown figures). So your actual FIRE number is around 1.13M.

Yeah, whether you refinance to a new 30 year timeline, pay it off entirely, or just factor it going away after 10 years in your financial modeling it is absolutely good news and means you need less money today to retire.

[yachi]

Look up drawdown calculations for paying off a mortgage after FIRE. Even if you don't pay off the mortgage or refinance it, you don't need enough to keep making those payments indefinitely. You need roughly your number without the mortgage, plus enough to pay it off (or slightly less based on drawdown figures). So your actual FIRE number is around 1.13M.

Yeah, whether you refinance to a new 30 year timeline, pay it off entirely, or just factor it going away after 10 years in your financial modeling it is absolutely good news and means you need less money today to retire.

The way I model a mortage in FireCalc:

In your Spending on the "Start Here" page, enter your total yearly spending, minus your mortgage principal and interest.

On the "Other Income/Spending" page, you'll have off-chart spending equal to your mortgage payment (principal and interest only, taxes go on the "Start Here" page).  Uncheck the inflation adj. box: your payment remains the same regardless of inflation.  Put today's year as the start date.

On the next line, select a Pension Income equal to the mortgage amount you have in the previous line, also uncheck the inflation adj. box.  Use the date your mortgage is paid off in this box.

[waltworks]

Yeesh, even making $5k a year is enough to make you pretty much bulletproof. You can do that just selling tradelines or being a lifeguard for a few hours a day for a few months or whatever. If you just can't bring yourself to do any job that isn't your current one, then that's too bad, I guess, but you're the one who says they want to quit ASAP.

Modeling is fun, and all, but your risks here are mostly not financial. You will almost certainly be dead before you run any risk of running out of money even at 5% WR, and even that assumes no nuclear war, big meteor strike, really bad pandemic, etc that renders the financial considerations moot anyway.

-W

[ChpBstrd]

So your spouse is happy to quit and force you to keep working just so they can have the luxuries they insist they're entitled to?

Yeah, I would be having far more serious conversations about that if I were you. That's some fucking bullshit, unless there's some aspect you haven't told us about, like they supported you through grad school, or paid off your previous divorce debt, or something that you *both* agree entitles them to an earlier retirement than you.

This jumped out at me too. You guys are a team, are you not?

There are a ton of details, of course, and these include health issues, loss of family members, previously earning a shitton more than me for a decade in a stressful work environment, my company's health insurance subsidy rocks, etc. DS creates value helping in our household every day, and is exploring a home-based side gig idea. If that doesn't work out, they're planning to jump back into the workforce... someday.

The relevant point is that we have gone from killing it in two-player mode to having a very low savings rate in one-player mode, and now I'm *this close* to the finish line and reliant on market luck to actually cross it. Almost anyone can lower their consumption, but not fighting over each person's vices counts for a lot too (yes, I have very minor vices too).

Perhaps I should retire on a $1M nut and say "Well dear, we're on a $40k budget now, and if we overspend we'll likely experience poverty in old age. That's plenty of budget for me, so I'm quitting. If you ever want to see Hawaii or continue buying the brown eggs that cost twice as much as the white eggs you'll need to go out and earn it." I'm not completely ruling out that approach

I'd rule it out.  As others have pointed out, you have a relationship issue that the two of you would be wise to address.  You attempting to address it in the way you describe in the above paragraph is not healthy.  I know your frustration, having been there and done that (including attempting to save enough to offset my SAHP's greater spending and thinking that exact thought with her).  BTW, my ex and I failed to address it successfully; it's probably one of the main reasons she left.

You just unsealed a can of worms that might take over this whole thread, because this ties back to the pay-off-your-mortgage vs. don't-POYM debate. We only owe $109k on the house, but P&I on this debt is $10,380 per year (15y mortgage). We have the assets sitting in taxable accounts that could pay off our mortgage tomorrow, and this would lower our annual spending to (52k-10.38k=) $41,620 and our 4%WR FIRE number to $1.04M. Paying off the mortgage would lower our invested assets to $945k. Boom, 4.4% WR!! Then we'd be only $95k away from a 4% rule FIRE number instead of $246k away from it.

Some will read this as the obvious reason to POYM upon retirement. Others will read it as a perfect illustration of why one shouldn't use rigid and simplistic rules to make FIRE decisions while disregarding improved cash flows in the distant future where the actual risks exist. The POYM debate can be reduced to a guess about future investment earnings and whether they'll be higher than the mortgage interest rate. I lean bullish on investments, and I also appreciate having an inflation hedge, which is why I'm in the DPOYM camp for now.

I could refi for a slightly lower rate, but breakeven would not occur for several years.

What you might consider doing is running FIREcalc or cFIREsim in a more sophisticated manner - put in your assets and cash flow as they exist now, then put in a negative future cash flow to represent when that mortgage payment goes away.  Depending on how you feel about SS and how old you are, you could look up your SS benefits and plug them (or a portion of them) in there as well.

The nice thing about doing it this way is that the simulators will then simulate you having a mortgage for X more years across the entire history of market and inflation returns for the past 100 years or whatever.

And you very well might find that your historical success rate rises to something very close to, if not equal to 100%.

I did that with both my mortgage and my child support.  Since both were large expenses ending soon, it made a big difference in the success percentages.  It also quantified for me where I actually stood, because I could intuitively see that having a large chunk of expenses go away in a few years was helpful, but I couldn't know how helpful it would be.

Well stated about the tradeoffs between frugality and relationship damage. Sorry to hear it. As it is we don't fight about money - only occasionally snipe about each other's vices. This might be optimal place to be. It doesn't completely eliminate vices, but it keeps them in check and doesn't directly lead to the more complicated problem of divorce-FIRE.

I took your advice and ran FIRECalc with an 85% stock portfolio, social security amounts/dates taken directly from SSA.gov and assuming we quit now, added an off-chart spending increase of $5k starting upon retirement for an Obamacare plan, added an off-chart spending reduction of $10,380 starting in 13 years to account for mortgage payoff, CPI inflation, constant spending, a 0.3% average ER, and no portfolio changes. Results are attached below - 77.5% success rate.

cFIRESim delivered a 74.3% success rate with roughly the same inputs. I was able to pull that up to 79% with an 85% stock, 15% gold allocation. Still not great - the needle didn't move much.

What did get me to 99% success in cFIREsim was raising the portfolio value to $1.3M with an 85% stock 15% gold allocation - and all the worst years were in the 1900's/1910's. This is what keeps me focused on getting over the 4% rule hurdle. 

[joe189man]

A couple of questions.

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

Second, would you consider a refi to a 30 year mortgage? It would take some pressure off your income and lower your withdrawal rate.

All that to be said I agree you'll probably be fine to pull the plug. Personally I think the risk of options 1-4 open you up to too much risk of backfiring. I'd suggest really considering a deeper dive into the AA comment. 100% equities seems to be ok for growth but as you coast and look into withdrawal it is not the optimal allocation.  I'm going to ping @Radagast for some thoughts there.

i would second this, what's your current AA? There are options our there

[FLBiker]

Thanks for this thread!  We're in almost exactly the same position as you.  DW works part time, and I'm planning to join her next year.  I like what has been posted above about how to treat a mortgage in FI -- I hadn't been doing that.  And recently I've been leaning towards paying it off.  I'm in Canada, so I can't just pay it off whenever without a penalty, but I could pay it off in a bit under 4 years.  I recently encountered the idea that it didn't really make sense to have both bonds and a mortgage, and we're like 90/10 stocks to bonds.  My goal (I think) is to pay off the mortgage and settle into something more like 80/20.

[frizzywhiskers]

Your financial situation is almost identical to mine, except we have a mortgage free home.  We’ve been struggling with the same situation but I’m turning 50 this year and I’m calling it!  Retirement date is March 31, 2022.  We are saving cash for our first year of retirement and hoping our portfolio does well until we touch it 2023.  Worst case we get part time gigs.  Life is short - time to enjoy your hard work!

[frugalor]

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

I am really bad using these tools or reading charts.  What is the best AA for 30+ year retirement?  I always thought 100% VTI is pretty safe...

[slappy]

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

I am really bad using these tools or reading charts.  What is the best AA for 30+ year retirement?  I always thought 100% VTI is pretty safe...

I may be wrong, but I think it's a good option if you assume on average market conditions. Many people feel that performance in the future will be lower than it was in the past. In that case, or in the case of increased market volatility, lower allocations do better.

[secondcor521]

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

I am really bad using these tools or reading charts.  What is the best AA for 30+ year retirement?  I always thought 100% VTI is pretty safe...

You can explore the question (at least between stocks and bonds) with all your personal numbers on the Investigate tab in FIREcalc (www.firecalc.com).

Generally speaking:

1.  The longer duration of retirement, the more stocks tend to be "safe" in the sense of portfolio survivability.  This is because stocks protect against the long term ravages of inflation better than bonds.
2.  The shorter duration of retirement, the more bonds tend to be "safe" in the sense of portfolio survivability.  This is because the lower volatility of bonds protect against the short term large fluctuations that stocks periodically have.
3.  In general there is typically a large flat plateau in the middle where moderately large changes in AA have very little effect on portfolio survivability.
4.  In general, all stock or all bonds have lower portfolio survivability than a mixture somewhere in the middle, especially if your spending level is relatively safe (I use 95% safe spending levels to do my analysis.  There is also an option on the Investigate tab to help you determine 95% (or any other level) safe spending amounts.)

[ChpBstrd]

4.  In general, all stock or all bonds have lower portfolio survivability than a mixture somewhere in the middle, especially if your spending level is relatively safe (I use 95% safe spending levels to do my analysis.  There is also an option on the Investigate tab to help you determine 95% (or any other level) safe spending amounts.)

I played with that variable. It basically assured portfolio survivability even at a 5% WR. The catch is that some cohorts had to drop spending by about 40%, even though the sim would only allow spending to drop 5% per year. I.e. for some cohorts, things kept getting worse and worse and they had to drop spending 5% year after year after year. Before walking off and thinking "I have a 95% chance of success" take a look at the scenarios where spending drops very, very low and ask if that should count as a success.

If I could drop spending 40%, I would do so and quickly save enough to retire on a 4% WR with higher expenses. More importantly, if a long series of poor market returns was accompanied by inflation, it might be impossible to keep from spending 40% more, not less!

[secondcor521]

4.  In general, all stock or all bonds have lower portfolio survivability than a mixture somewhere in the middle, especially if your spending level is relatively safe (I use 95% safe spending levels to do my analysis.  There is also an option on the Investigate tab to help you determine 95% (or any other level) safe spending amounts.)

I played with that variable. It basically assured portfolio survivability even at a 5% WR. The catch is that some cohorts had to drop spending by about 40%, even though the sim would only allow spending to drop 5% per year. I.e. for some cohorts, things kept getting worse and worse and they had to drop spending 5% year after year after year. Before walking off and thinking "I have a 95% chance of success" take a look at the scenarios where spending drops very, very low and ask if that should count as a success.

If I could drop spending 40%, I would do so and quickly save enough to retire on a 4% WR with higher expenses. More importantly, if a long series of poor market returns was accompanied by inflation, it might be impossible to keep from spending 40% more, not less!

The Investigate tab on FIREcalc that I was referring to is not a variable spending approach.  You must be thinking of something else.  See attached image, particularly the area in the red bubtangle.

[frugalor]

Generally speaking:

1.  The longer duration of retirement, the more stocks tend to be "safe" in the sense of portfolio survivability.  This is because stocks protect against the long term ravages of inflation better than bonds.
2.  The shorter duration of retirement, the more bonds tend to be "safe" in the sense of portfolio survivability.  This is because the lower volatility of bonds protect against the short term large fluctuations that stocks periodically have.
3.  In general there is typically a large flat plateau in the middle where moderately large changes in AA have very little effect on portfolio survivability.
4.  In general, all stock or all bonds have lower portfolio survivability than a mixture somewhere in the middle, especially if your spending level is relatively safe (I use 95% safe spending levels to do my analysis.  There is also an option on the Investigate tab to help you determine 95% (or any other level) safe spending amounts.)

That makes sense.  So can this work?  Let's say I plan to retire today and I expected 30+ years of retirement:

1. I retire with 100% VTI
2. Every year, I move 1% into BND

So at year 30, my AA will be 70/30.

Is that a sound plan?

[Steeze]

Generally speaking:

1.  The longer duration of retirement, the more stocks tend to be "safe" in the sense of portfolio survivability.  This is because stocks protect against the long term ravages of inflation better than bonds.
2.  The shorter duration of retirement, the more bonds tend to be "safe" in the sense of portfolio survivability.  This is because the lower volatility of bonds protect against the short term large fluctuations that stocks periodically have.
3.  In general there is typically a large flat plateau in the middle where moderately large changes in AA have very little effect on portfolio survivability.
4.  In general, all stock or all bonds have lower portfolio survivability than a mixture somewhere in the middle, especially if your spending level is relatively safe (I use 95% safe spending levels to do my analysis.  There is also an option on the Investigate tab to help you determine 95% (or any other level) safe spending amounts.)

That makes sense.  So can this work?  Let's say I plan to retire today and I expected 30+ years of retirement:

1. I retire with 100% VTI
2. Every year, I move 1% into BND

So at year 30, my AA will be 70/30.

Is that a sound plan?

I think the general advice is to do the opposite of that.

[JJ-]

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

I am really bad using these tools or reading charts.  What is the best AA for 30+ year retirement?  I always thought 100% VTI is pretty safe...

VTI is "safe" for general accumulation phase of retirement planning. However as you approach retirement (say t minus 5 years), your portfolio needs to be reworked, i suggest along with many others, to a "bond tent" where you increase bond allocations before retirement and then decrease after retirement.

 This protects against "sequence of returns risk" which is basically a fancy way of saying you don't want to be selling equities in the first 5 years of retirement in the event of a dip. The best way to kill long term success is selling early in retirement equities in a bear market. There's a lot of nuance into this and widely discussed in other parts of the forum, so i won't go into it there but just steer you that way.

The reason VTI is not necessarily "safe" in these first 5 years is the time it takes to recover as well. It's primarily large caps and i think the average recovery time after dips is something like 7 years. That's a long time to be selling at a discount.

All of the portfolios in that link i provided have various asset allocations beyond just stocks and have a "better" overall portfolio ranking as growth is just one of the factors. They include things like REITs, gold, and bonds in various percentages. Weighing long term growth, which stocks/VTI excels at, versus literally all of the other categories categories, is how these portfolios are ranked.

There's a lot of schools of thought on "best", but you just need to make sure you've got a plan to survive that short term hump into retirement and ride rising equities off into the sunset.

[shuffler]

If I could drop spending 40%, I would do so and quickly save enough to retire on a 4% WR with higher expenses.

Depending on the site/app you use, some offer "rails" of min and max spending.
I've lately been enjoying FI Calc for its slicker UX, and for its various withdrawal strategies that offer such rails.

Likely you can model the spending flexibility that you can support, and use rails to ensure you don't go below (or above!) it, and see if that improves your theoretic success rate.

[Tester]

I have something to say about the title: why would it be cheating???
Who are you cheating?
It is your decision and your life.
You are in a very good situation, in the worst case you need to earn 5k USD/year????

Do whatever you want :).

Disclaimer: this comes from someone with 580k net worth with only 280k invested and with expenses WAAAAYYYYYY higher.

[Radagast]

Thanks @JJ-!

I will agree with others here you already have what you need to do this.
-That is a high interest rate for 13 years left on a mortgage. You would get both a lower rate and a lower payment by refinancing to a 15 year at 2%. Or refinance to a 30, or pay it off as you have said. Really there are lots of better ways to do this.
-You have a teen in your expenses? Wouldn't that indicate that expense will be going down soon too, even sooner than the mortgage?
-Credit card hacking? Could reduce non-mortgage expenses by 10%/yr, if you are not already doing it. Brokerage signup bonuses? Tastyworks is offering $500 to transfer $10,000 of existing assets right now.
-Concur with the asset allocation! Adding international stocks (would have helped the mid 60's starting periods and the internet bubble pop), long term government bonds (would have helped the great depression periods and 2008), and small-cap-value stocks (would have helped the 1960s-1970s and internet bubble popping) would give a much better chance at meeting the new SWR goal.

[2Birds1Stone]

Great thread!

Similar boat here......we're currently sitting at ~$950k in assets (50/50 AA) and current spending is ~$42k/yr (4.4% WR). We have lived on ~$30k/yr (3.2% WR) in LCOL EU countries and enjoyed it, but at the same time could see ourselves wanting to try some HCOL international cities where spending could go as high as $60k/yr (6.25% WR)!

Being in our mid-30's it's hard to predict future wants. We settled on one/both of us getting some sort of part time/gig/online work if we decide the lavish $60k/yr is what we want to try out to see if it's worth it. We'll also see if the LCOL locations strung together leave us feeling like we're missing out on something. If not, the stache should grow on it's own and support higher and higher spending over time.

FWIW I don't like any of your options other than living on a 5% WR and just leveraging some PT work to make up the delta if you feel you need to. Even at relatively low wage/low skill labor earning $15/hr for two 8 hour shifts a week 6 months out of the year reduces your spending by 12%. There's gotta be something you enjoy doing twice a week for half the year if you needed the income.

We also have a track record of earning several thousand dollars a year in CC sign up bonuses, bank account bonuses, etc. Between using those to get much more travel for your dollar and actual cash value, it makes a tremendous difference in quality of life in the $40-50k/yr spend range.

Gig work is also another option. Walk some dogs, watch some kids, take some old people to dr appointments or do some errands for them.....all of these can add up to a couple hundred to thousand dollars a month and you can do it at your own discretion......

[ChpBstrd]

A couple of folks have mentioned credit card hacking. My numbers already include about $1k/year in cash bonus income, plus 2% rebates on most spending. I have about 8 CCs, and I’m running out of lucrative new card options. Plus my average account age is really low. I’ve not gotten into account churning, because that’s more work and I’m afraid of losing “time in the market” to get a modest new account bonus.

Regarding barista-FIRE, I’m not really interested. My status quo is not all that stressful; it’s the loss of control over time that compels me to quit for good. To get a low wage PT gig would be to waste time for less money for a longer period of time, and it might even be stressful!

[2Birds1Stone]

Then just suck it up and work till the numbers make you feel warm and fuzzy or your spouse is on board.

[Radagast]

I’ve not gotten into account churning, because that’s more work and I’m afraid of losing “time in the market” to get a modest new account bonus.

The idea is to just transfer existing ETF shares around, so no time out of market and no tax events. Only good for maybe a few thousand a year for five years, but hard to imagine it's more work than trading options.

https://www.bogleheads.org/forum/viewtopic.php?t=196884
https://www.doctorofcredit.com/best-brokerage-bonuses-earn-up-to-3500/
https://info.tastyworks.com/opennow

[mistymoney]

with only 13% in taxable, do you have a more detailed plan on making it until 59.5? I'm not sure how the equal withdrawal thing works if you end up having to go back to work before 50.

More particularly if you do pay off your mortgage out of the taxable account, you'd have very little left.

[waltworks]

I want to quit ASAP
...
My status quo is not all that stressful

Dude, really? As already pointed out, you only *might* (maybe ~20% chance) even need to do any barista-ing EVER.

If you want to keep talking yourself out of RE, fine. Have at it, keep working forever. But your own words are making this seem more and more like the kind of mental block that you'll struggle to ever overcome ("but 3.5% WR is even safer... I should keep working...")

-W

[ChpBstrd]

I want to quit ASAP
...
My status quo is not all that stressful

Dude, really? As already pointed out, you only *might* (maybe ~20% chance) even need to do any barista-ing EVER.

If you want to keep talking yourself out of RE, fine. Have at it, keep working forever. But your own words are making this seem more and more like the kind of mental block that you'll struggle to ever overcome ("but 3.5% WR is even safer... I should keep working...")

-W

I appreciate portfolio optimism, but in no way is a 5% WR "safe" in an environment where 10y treasuries are yielding 1.6% and the S&P500's earnings yield is 3.3%. Yes, there are historical cohorts where high WRs survived for 30 years, but I'd much rather be financially secure than hope to get lucky. If I'm talking myself out of ER on a high WR, I'm also talking myself out of throwing it all into option spreads that could earn 25% this week - because the risks are unacceptable. Moreover, the consequences of being unlucky are severe. Old, impoverished, and out of work for the past X years is not a place I ever want to find myself.

As ERN points out, it would typically take years of barista-ing to actually recover a portfolio from historical SORR events, and in some cases you'd end up going back to work when market returns would have rescued your portfolio anyway. https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/

So my framing of the dilemma is less about whether to reach at least 25x and more about the fastest risk-tolerable route to do so.

[waltworks]

Fair enough, get back to it. There not a risk-free way to make a bunch of extra money and retire at a lower WR, sorry.

-W

[achvfi]

A couple of questions.

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

Second, would you consider a refi to a 30 year mortgage? It would take some pressure off your income and lower your withdrawal rate.

All that to be said I agree you'll probably be fine to pull the plug. Personally I think the risk of options 1-4 open you up to too much risk of backfiring. I'd suggest really considering a deeper dive into the AA comment. 100% equities seems to be ok for growth but as you coast and look into withdrawal it is not the optimal allocation.  I'm going to ping @Radagast for some thoughts there.

i would second this, what's your current AA? There are options our there

I third this, if you are planning to use 4% WR to retire you need to diversify your almost 100% stock allocation with significant chunk of safer assets to protect from sequence of returns risk. 100% stock portfolio doesn't work well if we have extended downturn or flat markets.

I believe 4% rule analysis is based on 60/40 stocks and bonds portfolio. Please typically forget that assumption.

Since its clear your need to retire soon, suitable asset allocation should be your top priority.

[JJ-]

A couple of questions.

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

Second, would you consider a refi to a 30 year mortgage? It would take some pressure off your income and lower your withdrawal rate.

All that to be said I agree you'll probably be fine to pull the plug. Personally I think the risk of options 1-4 open you up to too much risk of backfiring. I'd suggest really considering a deeper dive into the AA comment. 100% equities seems to be ok for growth but as you coast and look into withdrawal it is not the optimal allocation.  I'm going to ping @Radagast for some thoughts there.

i would second this, what's your current AA? There are options our there

I third this, if you are planning to use 4% WR to retire you need to diversify your almost 100% stock allocation with significant chunk of safer assets to protect from sequence of returns risk. 100% stock portfolio doesn't work well if we have extended downturn or flat markets.

I believe 4% rule analysis is based on 60/40 stocks and bonds portfolio. Please typically forget that assumption.

Since its clear your need to retire soon, suitable asset allocation should be your top priority.

I am not sure he wants to address this or else he would have already provided the info. Seems that sightly modifying the AA is out of question.

[ChpBstrd]

A couple of questions.

What is your current asset allocation at 97% equities? If it is 100% VTI you may want to review some of the common portfolios and you'll notice that this is one of the worst for almost all categories except avg return. Many of the portfolios support withdrawal rates >4%, sometimes up to 5.2%, but the metrics are for 30 year periods.

Second, would you consider a refi to a 30 year mortgage? It would take some pressure off your income and lower your withdrawal rate.

All that to be said I agree you'll probably be fine to pull the plug. Personally I think the risk of options 1-4 open you up to too much risk of backfiring. I'd suggest really considering a deeper dive into the AA comment. 100% equities seems to be ok for growth but as you coast and look into withdrawal it is not the optimal allocation.  I'm going to ping @Radagast for some thoughts there.

i would second this, what's your current AA? There are options our there

I third this, if you are planning to use 4% WR to retire you need to diversify your almost 100% stock allocation with significant chunk of safer assets to protect from sequence of returns risk. 100% stock portfolio doesn't work well if we have extended downturn or flat markets.

I believe 4% rule analysis is based on 60/40 stocks and bonds portfolio. Please typically forget that assumption.

Since its clear your need to retire soon, suitable asset allocation should be your top priority.

I am not sure he wants to address this or else he would have already provided the info. Seems that sightly modifying the AA is out of question.

There are certainly more optimal AAs for post-retirement, but I'm not retired yet. The goal right now is to get across the finish line ASAP, and then the goal will shift to 40y sustainability. My AA is aligned with the goal right now, and I'm up $200k in the past 12 mos. I'm still extremely bullish due to the various stimulus bills that will echo through the economy for years, like they did after the GFC. It only encourages me to hear people stressing about TTM inflation numbers and valuations, because that was absolutely the vibe in 2011. Meanwhile the suddenly emerged work-from-home economy is poised to be a bigger productivity driver than the personal computer during the 90s and we're heading toward an era of absolute congressional gridlock. 

[JJ-]

There are certainly more optimal AAs for post-retirement, but I'm not retired yet. The goal right now is to get across the finish line ASAP, and then the goal will shift to 40y sustainability. My AA is aligned with the goal right now, and I'm up $200k in the past 12 mos. I'm still extremely bullish due to the various stimulus bills that will echo through the economy for years, like they did after the GFC. It only encourages me to hear people stressing about TTM inflation numbers and valuations, because that was absolutely the vibe in 2011. Meanwhile the suddenly emerged work-from-home economy is poised to be a bigger productivity driver than the personal computer during the 90s and we're heading toward an era of absolute congressional gridlock.

I'm really not sure what all that means as an argument, but here's from the OP:

• I'm bullish on the stock market right now, and do not expect inflation to exceed 3% for the next few years. I also expect a big correction to occur sometime in the next few years.

You could make another $200k over the next few years and then your big correction comes and you'll be right back where you started. You typically need to glide into your optimal allocation, but technically retirement could be now, so you you just need to wrap your head around it.

You've asked for us to shoot holes in your plan but you said they don't count or argued against it. You've asked for validation for your ideas/options but didn't get it.

What else are you looking for? Is there an argument that might change your mind?

[Radagast]

[I'm bullish on the stock market right now, and do not expect inflation to exceed 3% for the next few years. I also expect a big correction to occur sometime in the next few years.

I appreciate portfolio optimism, but in no way is a 5% WR "safe" in an environment where 10y treasuries are yielding 1.6% and the S&P500's earnings yield is 3.3%. Yes, there are historical cohorts where high WRs survived for 30 years, but...

I'm still extremely bullish due to the various stimulus bills that will echo through the economy for years, like they did after the GFC. It only encourages me to hear people stressing about TTM inflation numbers and valuations, because that was absolutely the vibe in 2011.

I think you are talking yourself in circles. How can you be bullish, but expect a record low safe withdrawal rate, but expect that now is similar to 2011?

I agree, 1/37 is probably a more realistic withdrawal rate based on ERN based on current earnings yield. The good news for you, valuations for international stocks and value stocks are much nearer their historical averages from what I have read, so you should feel safe investing in those. More good news: OMY will be very effective for your situation! More saving, more compounding, no touching the stash, another 2.5% of your remaining time (on average, hopefully) working. which is apparently the point of the thread.

[ChpBstrd]

There are certainly more optimal AAs for post-retirement, but I'm not retired yet. The goal right now is to get across the finish line ASAP, and then the goal will shift to 40y sustainability. My AA is aligned with the goal right now, and I'm up $200k in the past 12 mos. I'm still extremely bullish due to the various stimulus bills that will echo through the economy for years, like they did after the GFC. It only encourages me to hear people stressing about TTM inflation numbers and valuations, because that was absolutely the vibe in 2011. Meanwhile the suddenly emerged work-from-home economy is poised to be a bigger productivity driver than the personal computer during the 90s and we're heading toward an era of absolute congressional gridlock.

I'm really not sure what all that means as an argument, but here's from the OP:

• I'm bullish on the stock market right now, and do not expect inflation to exceed 3% for the next few years. I also expect a big correction to occur sometime in the next few years.

You could make another $200k over the next few years and then your big correction comes and you'll be right back where you started. You typically need to glide into your optimal allocation, but technically retirement could be now, so you you just need to wrap your head around it.

You've asked for us to shoot holes in your plan but you said they don't count or argued against it. You've asked for validation for your ideas/options but didn't get it.

What else are you looking for? Is there an argument that might change your mind?

It's not that I can't wrap my head around picking the historical winner off of portfoliocharts and quitting with a 5% WR and a double-digit failure probability, it's that such a portfolio is unlikely to solve my dilemma within the next 1-2 years or so. With a 30-50% bond allocation yielding 1.5%, a 0% savings rate, and spending rising at the rate of inflation at 2-4%, I'd almost certainly be working at least another 4-6 years. And if I'm that far out, what's the point of doing a bond tent or conservative AA? The optimal post-retirement portfolio wasn't the question. I probably phrased it poorly (checks... and yep, phrased poorly) but the question is how to make a move out of a seemingly stuck position and either generate income until asset prices rise or use options/leverage to generate a quick win at reasonable risk.

Things that might change my mind: Good reasons each specific idea is worse than sitting and waiting in 100% stocks. Good reasons why a 90+% stocks portfolio will earn 24% in the next 12 mos. Better strategies, creative contingency plans, or new perspectives. Etc.

[I'm bullish on the stock market right now, and do not expect inflation to exceed 3% for the next few years. I also expect a big correction to occur sometime in the next few years.

I appreciate portfolio optimism, but in no way is a 5% WR "safe" in an environment where 10y treasuries are yielding 1.6% and the S&P500's earnings yield is 3.3%. Yes, there are historical cohorts where high WRs survived for 30 years, but...

I'm still extremely bullish due to the various stimulus bills that will echo through the economy for years, like they did after the GFC. It only encourages me to hear people stressing about TTM inflation numbers and valuations, because that was absolutely the vibe in 2011.

I think you are talking yourself in circles. How can you be bullish, but expect a record low safe withdrawal rate, but expect that now is similar to 2011?

I agree, 1/37 is probably a more realistic withdrawal rate based on ERN based on current earnings yield. The good news for you, valuations for international stocks and value stocks are much nearer their historical averages from what I have read, so you should feel safe investing in those. More good news: OMY will be very effective for your situation! More saving, more compounding, no touching the stash, another 2.5% of your remaining time (on average, hopefully) working. which is apparently the point of the thread.

I'm bullish for the same reasons I should have been bullish in 2009-14: Massive stimulus - distributed more broadly than in the GFC, don't fight the fed, a 9.4% consumer savings rate that's likely to continue going down, fairly low unemployment, and interest rates so low it's easy for corporations to make profits. I'm also well aware that even bullish cycles feature regular corrections, sometimes big. It is no contradiction to believe both of these facts at the same time. They are both important to keep in mind though, because if I didn't think a correction was a risk I'd just put everything into a December options spread for the win.

While I'm bullish for the next year or two, I don't see this as a good era to tempt fate and quit at 20x. SWRs have been a lot lower when CAPE is >30 like it is now, and a bond-heavy portfolio is likely not to earn enough to outpace withdraws and inflation in the long run. Essentially, it looks a lot like the mid to late 1960's when the 4% rule was destined to run into trouble several years later.

The reason to take extra risk now, with this massive stimulus tailwind and a deep recession in the rear-view mirror, is so that I can dial into a more conservative portfolio later. I would like to time-shift risk from the future into the present. Feel free to differ, but I think the next 12 months will be less risky than the distant future.

@Radagast you and ERN might be right about 3-3.75% WRs, value stocks, and international stocks. Sector-picking looks a lot like stock-picking to me, but in a sense owning S&P or Nasdaq based ETFs is like tilting toward large-cap growth so I'm probably already doing it. I do have a healthy international allocation though.

Social Security calculates my life expectancy as another 38.3 years. That's a reason to look twice at 30y SWRs. It also means that if I end up working 3-4 years hunkered down in a portfolio loaded with bonds, I will have used more like 10% of my remaining lifespan.