Planning for a 6% Withdrawal Rate. Am I Crazy?

[forummm]

I'm looking for your thoughts on my FIRE budget. Too much? Missing something?

I'm mid 30s. DW is late 20s. We have a new baby. Pre-baby, we spent about $25k per year if you ignore loan repayments (including the mortgage). I'm assuming we'll have all debts paid off entering FIRE. My FIRE budget is mentally divided into 3 funds.

Fund 1: Baseline expenses--$36k/year ($600k fund at FIRE using 6% WR)
We have one kid (a few months old) and may end up having more. Our current expenditures don't include health insurance (provided by work) or almost any expense for kids. I don't feel comfortable relying on the Affordable Care Act to remain intact in this exact structure for the next 35 years, so I think we need to have something available to pay for health insurance and care. And I have no idea what we'll end up spending on children going forward. Our current spending is pretty minimal. It would be hard to go lower. I think this baseline estimate is pretty reasonable but conservative too. This money needs to last about 30-35 years until we hit Social Security and Medicare age (hopefully those will still be there).

Fund 2: Optional spending--$200k (won't get touched for about 6 years so it grows to $300k-ish)
My plan for this money is to only spend from it when the market is doing well. Some years we'd take nothing from it. It would fund trips, hobbies, etc. It would also be available for larger infrequent expenses like a car or home repair or medical expenses (hopefully won't be needed). I've done a lot of historical modeling. If I only pull from it when the market return was positive in the prior year I can typically withdraw $27k about 20 years out of 30. The amounts are kind of arbitrary. It feels like more than we'd actually spend, but it's hard to know. We're interested in doing stuff like taking the kids to travel around Europe (and other places) to live for months.

Fund 3: Specific future expenses--$335k
This fund holds money that will be invested and will grow (hopefully!) to meet future needs.
-->$75k would be for the kids college fund (should be $300-400k ish by the time they need it). I have mixed feelings about whether it's better for the kids to have them pay their own way (as I did--and I feel that was valuable for me) or to help them out.
-->$60k would be to supplement Social Security (should grow to enough to provide $15k/yr inflation adjusted for the rest of our lives starting at SS retirement age). We haven't worked very long and haven't had high incomes so our SS will not be very much, and it could be reduced by political decisions. And with a higher WR on the base spending fund, that fund could be depleted after 30 years.
-->$200k would be to buy a more expensive house that's in a decent school district when our baby is ready for school. We live in a terrible school area and I won't send my kids to school around here unless they can get into some kind of a special school. The house we're in now is worth about $135k. I think $300k is the minimum to get a lower-end house in a decent district in this general area. We could also move to another state, but I imagine $300k is a decent target for a decent school district, especially in the areas of the country we might move to.

So we're looking at around $1.13 million plus paying off our debts (not much debt). I would probably leave nearly all of it in stocks with perhaps a year of spending in bonds.

Risk--That's a pretty high WR for Fund 1, but using cFIREsim it's successful over 30 years 66% of the time.
Risk--Health care policy could change and insurance/care could get much more expensive
Safety--We could probably cut back a bit if the sequence of returns looks bad, and definitely cut the optional Fund 2 spending
Safety--We could probably get jobs (even part time) if the sequence of returns looks bad
Safety--We could downsize and cash out the housing equity if Fund 1 turns out to be in a failure scenario
Safety--The kid(s) could be home schooled which would eliminate the need for additional housing expense
Safety--The kid(s) could get into a charter or Montessori school or one in another district that wouldn't require moving

[mozar]

Basically you are taking 35k out of 1.3m a year which is like a 3% WR. Is this click bait?

[PhysicianOnFIRE]

Basically you are taking 35k out of 1.3m a year which is like a 3% WR. Is this click bait?

I come up with 1.135 million minus a little bit of debt.

With 5000+ posts, I don't think ForuMMM is giving us clickbait. I've read some insightful posts from the man before.

5 Safeties versus 2 risks.  I think the plan could easily work if the family wants to give FIRE a go.  No, it's not a 6% SWR.  Yes, it could work if that's where they're at in their lives and they want to do this. If not, returning to work was presented as an option.

Godspeed, ForuMMM.

-PoF

[Travis]

It looks more like you have a 3.3% withdrawal rate with some red lines and options built in for flexibility.

[hlca]

I don't really get the purpose of setting up your core expenses to fail.  FIRECalc shows a 40% success rate if you draw $36K for 35 years.  Why not make sure you can survive on your core expenses first, then build extra spending on top of that?

[forummm]

It looks more like you have a 3.3% withdrawal rate with some red lines and options built in for flexibility.

Don't look at the total to determine the WR. Some of those funds are for specific future purposes and are not to be touched for general living expense. And if I tap into them, it probably means going back to work--perhaps for a long time. I can't spend the $200k housing fund to live on unless I either 1) sacrifice my kid(s) education, or 2) workout another schooling option. If I spend the college fund they won't be pleased. If I spend our SS supplement we could be hurting.

Fund 2 is what I would be OK spending from if things went south. But then it would mean a more limited ability to travel or deal with housing repairs or big medical expenses or have hobbies, etc.

I don't really get the purpose of setting up your core expenses to fail.  FIRECalc shows a 40% success rate if you draw $36K for 35 years.  Why not make sure you can survive on your core expenses first, then build extra spending on top of that?

Depending on when I can FIRE and how long DW works, I only need 25-30 years until SS kicks in. And the funds we're setting aside to supplement SS can be tapped then too. My cFIREsim simulations show a 66% success rate for 100% equities portfolio with a 6% WR. For those 33% of times where that WR doesn't work, I would be willing to cut back on 1) baseline expenses, 2) optional expenses, or get a job for at least awhile to cover expenses.

[forummm]

I guess I'm also looking for feedback on
1) Does the housing expense look reasonable? Is there some other option I should be considering that would allow the kid(s) to go to a good school but not require $300k+ housing?
2) Does the optional spending amount look reasonable? It's essentially around $550k that I'll be able to spend from it over the course of 25ish years. Is that too much? We probably won't do optional things that are expensive other than traveling. But cars and home repairs and medical expenses are hard to predict.
3) How much more should we expect to spend with kid(s) who are a bit older? Right now it's just diapers and those aren't too bad (we are borrowing clothes). But when they get older? Do I have enough buffer in there for both kids and health insurance costs  ($36k vs the $25k we spend now)? Or is that too much buffer? I'm guessing health insurance will cost around $8k based on current rates (but who knows what medical costs will be in 10 years).

[NoStacheOhio]

I guess I'm also looking for feedback on
1) Does the housing expense look reasonable? Is there some other option I should be considering that would allow the kid(s) to go to a good school but not require $300k+ housing?

This one all comes down to location. We live in a good district, and our house wasn't anywhere near $300k. It's also a very modest house, but still.

[boarder42]

I've put a lot of thought into kids college. 

Here is what i've decided.  I'm going to tell them its on them.  (this way they will get scholarships, or at least try, and live more frugally)  Whatever loans they come out with i will then payoff as their graduation gift.  a best of both worlds scenario IMO. 

[Zamboni]

1&2) I think you will probably have plenty of money if you treat it as fungible.

3) There are costs associated with having kids, but these are highly variable. Clothes can be very cheap for the first decade, and then it might be harder to find things that fit which are as cheap. Shoes are always an issue since it's harder to find used kids shoes that aren't trashed (especially sneakers; usually things like boots I can find used.) They don't eat much at first, but my middle schoolers eat as much as any adult and sometimes more. They grow and need bigger bikes, helmets, etc. There are periodic expenses associated with school even if it is public school, like field trips and poster boards/supplies for projects and teacher/coach gifts and special books they want you to buy at the last minute. Around where I live the museums aren't free, so a family membership became an expense when they were little and we visited frequently. Heck, it costs us $5 per person per game to go to their school basketball games (siblings have to pay too even though they are students at the same school.) Once they are too big to sit on your lap, every time you travel, everyone will need a ticket for trains, planes, etc.

True, some of these expenses are completely optional, some have a workaround (like volunteering to help coach or keep score at games so you don't have to pay to attend), but some you will have to pay unless your child doesn't participate or you want to let others foot the bill for your share. You obviously don't have to chip in every time someone is asking for $20 for a teacher or coach gift, but realize that people are going to ask for this periodically. Just something to keep in mind, but I don't think it eliminates RE plans by any means.

On the medical side: we have been extremely fortunate not to need much medical care. My brother has lots of medical expenses associated with his children, but his limited income (he actually earns a lot, but not enough to cover some of the needs) has led to places like Shriner's hospital picking up most or all of the tabs. One of my children needs braces, which are expensive, and my vision keeps getting worse, which is becoming expensive. I'm glad you have something set aside for this.

I would say keeping a "hobby job" or side hustle active much of the time is a good idea for most people who FIRE young with a family. That way you can reduce the cut into your stash and keep your resume filled with employment dates if catastrophe ever strikes and you really need to reenter the regular work force.

[ender]

Is there any reason you are going to be so clearly delimitating between your three different funds the way you are? It feels a bit strange to me to see a "6% WR" when realistically if the scenarios would be in the "failing" category you'd have nearly double the resources available.

One thing to consider regarding moving and higher expenses, you could choose to homeschool for quite some years if you wanted. I don't know what your travel plans are but this could be a good option if you want to do things like extended traveling.

It is hard to know whether $300k is reasonable because it is so variable depending on where you live. $300k here would be... a very, very large house.

[Bracken_Joy]

ForuMMM- it feels like you're assigning emotional values to money here... remember, money is fungible. Cash is cash. Just because you decide to delineate it, doesn't mean it's not really a 3.5% withdrawl rate. It would be one thing to say, well, it'll be tied up in a paid off mortgage and I *refuse* to HELOC, but that's a pretty major safety net.

Re: kids. Near I can tell, kids are like a work project- they will take up every minute and every cent you allow for them, but usually the same result can be achieved for less. I think it's really important to define your priorities when it comes to your spending for kids, otherwise everything is important... aka expensive.

I've put a lot of thought into kids college. 

Here is what i've decided.  I'm going to tell them its on them.  (this way they will get scholarships, or at least try, and live more frugally)  Whatever loans they come out with i will then payoff as their graduation gift.  a best of both worlds scenario IMO.

This is what my parents said they would do. They changed their minds. I have lots of debt now and as a result am delaying several large life changes.

At least don't tell them until later, so that if you change your mind/circumstances, it isn't as much of a sucker punch.

[MickeyMoustache]

I've put a lot of thought into kids college. 

Here is what i've decided.  I'm going to tell them its on them.  (this way they will get scholarships, or at least try, and live more frugally)  Whatever loans they come out with i will then payoff as their graduation gift.  a best of both worlds scenario IMO.

While I love the idea of this, it pains me to feel like I'm tricking my kids into thinking "mom and dad dgaf" :(  I'm not saying it's wrong, I'm just saying I see myself having difficulty coming to terms with this approach.  Perhaps this is the the epitome of "tough love" when you really think about it.

[boarder42]

yes dont tell them that defeats the purpose of ths.


I dont see this as tough love.  It is a very valuable stepping stone for a kid to cross and understand how to budget and finance.  My parents gave me 2k per year.  i made up the rest getting scholarships and working in the summer and came out debt free.  I may do a hybrid approach like this, if my kids arent intelligent enough to get scholarships to the level me and my brother did.   offer 2k equivalent in support with the intention of paying off any debt they have to take out.

if you just flat out tell you're kids you're paying for their college what do they learn about money.  mommy and daddy pay for things.  thats it.

[BeanCounter]

1&2) I think you will probably have plenty of money if you treat it as fungible.

3) There are costs associated with having kids, but these are highly variable. Clothes can be very cheap for the first decade, and then it might be harder to find things that fit which are as cheap. Shoes are always an issue since it's harder to find used kids shoes that aren't trashed (especially sneakers; usually things like boots I can find used.) They don't eat much at first, but my middle schoolers eat as much as any adult and sometimes more. They grow and need bigger bikes, helmets, etc. There are periodic expenses associated with school even if it is public school, like field trips and poster boards/supplies for projects and teacher/coach gifts and special books they want you to buy at the last minute. Around where I live the museums aren't free, so a family membership became an expense when they were little and we visited frequently. Heck, it costs us $5 per person per game to go to their school basketball games (siblings have to pay too even though they are students at the same school.) Once they are too big to sit on your lap, every time you travel, everyone will need a ticket for trains, planes, etc.

True, some of these expenses are completely optional, some have a workaround (like volunteering to help coach or keep score at games so you don't have to pay to attend), but some you will have to pay unless your child doesn't participate or you want to let others foot the bill for your share. You obviously don't have to chip in every time someone is asking for $20 for a teacher or coach gift, but realize that people are going to ask for this periodically. Just something to keep in mind, but I don't think it eliminates RE plans by any means.

On the medical side: we have been extremely fortunate not to need much medical care. My brother has lots of medical expenses associated with his children, but his limited income (he actually earns a lot, but not enough to cover some of the needs) has led to places like Shriner's hospital picking up most or all of the tabs. One of my children needs braces, which are expensive, and my vision keeps getting worse, which is becoming expensive. I'm glad you have something set aside for this.

I would say keeping a "hobby job" or side hustle active much of the time is a good idea for most people who FIRE young with a family. That way you can reduce the cut into your stash and keep your resume filled with employment dates if catastrophe ever strikes and you really need to reenter the regular work force.

+1- Especially the bolded part.
We are trying to FIRE with two kids and even though lots of the expenses are optional. There are many things that just aren't. Unless you are extremely comfortable with living (and making your kids live) at a bare minimum and not doing much that isn't free. It is very hard to be home 24/7 with small kids and only libraries and parks to go to. It doesn't seem like it would be that way, until your living it.
As far as health insurance, I would put a budget place holder of about $1k per month. Hopefully with the ACA and your low RE income it will be much less, but I think that's a reasonable number for a small family insuring themselves.

[FrugalFan]

Yours is an approach I think about frequently (has been discussed as "retiring in phases" I think in previous threads) and becomes most relevant when you have different sources of money coming in during different parts of retirement. I see a lot of merit to it because for us, it would mean needing to save a lot less money overall. The point is, if you have a secure source of money coming in at some point in the future for the rest of your life, you can save a small sum of money now that will grow to be more than enough, and to be extra safe you could plan a 3% SWR for that money. For the interim time until that future source of money is available but after you retire, you can hold more of your money in less risky assets and just spend it down without worrying about the future pool of money. I see some benefits and costs to this approach. The main benefit is that you need to save a lot less. There is also the benefit of being able to spend down the interim money without worrying about the future. The cost is that you will generate less wealth overall and will have less to pass on to your children (because your final 3-4% SWR amount is much smaller). That is not a huge cost in my opinion. We all know that a 4% SWR will most of the time leave you with much more money than you started with, but people aim for 95-100% success rates because they are worried about running out of money. This approach can still follow those guidelines for the later part of retirement, but use a different strategy for early retirement.

In our situation, for example, our retirement could have three phases.

Phase 1 - 55-65. DH will have a small pension and we need to cover an extra 40 k a year in spending. Kids still home and starting college, lots of travel.

Phase 2 - 65-75. We have extra money coming from our version of social security, so we only need to cover an extra 20 k a year in spending; hopefully still doing lots of travel.

Phase 3. 75 onwards. We still have the social security but we are going to travel less, so we probably only need an extra 10 k a year.

We could save 1 MM in assets to cover the initial 40 k a year forever at a 4% SWR and hopefully have a bunch of money left over (600k in today's dollars). Or we could save 240k now to cover the 400k (40k x 10 years) needed in 13 years to start phase 1, plus 81k to cover the 200 k (20k x 10 years) to cover the 200k needed in 23 years to start phase 2, plus 68 k to cover the 250k (10k x 25 for 4% SWR) needed in 33 years to start phase 3. That's a total of 389k that we need to have right now (the amounts go up each year as we get closer to retirement). That's a huge difference! To me, this approach limits a lot of the downside risk of early retirement. And for us (and maybe most people), our spending amounts will be larger in the earlier part of retirement, which could increase sequence of return risk. This scenario kind of eliminates that risk.

[thd7t]

You have looked at enough projections to see that most portfolios that are going to fail do so because of the impact of the first ten years. This seems very favorable to early retirees. You will probably be able to see if you are headed for trouble and determine whether a brief sabbatical from retirement (going back to work) is necessary.

[FrugalFan]

I guess I'm also looking for feedback on
1) Does the housing expense look reasonable? Is there some other option I should be considering that would allow the kid(s) to go to a good school but not require $300k+ housing?
2) Does the optional spending amount look reasonable? It's essentially around $550k that I'll be able to spend from it over the course of 25ish years. Is that too much? We probably won't do optional things that are expensive other than traveling. But cars and home repairs and medical expenses are hard to predict.
3) How much more should we expect to spend with kid(s) who are a bit older? Right now it's just diapers and those aren't too bad (we are borrowing clothes). But when they get older? Do I have enough buffer in there for both kids and health insurance costs  ($36k vs the $25k we spend now)? Or is that too much buffer? I'm guessing health insurance will cost around $8k based on current rates (but who knows what medical costs will be in 10 years).

1) This is very location dependent. If you are willing to move during fire, you could probably find places where that is too much, but for all but the most expensive cities in the US, I think this is more than enough.

2) The optional spending looks good to me. It's a really nice buffer and it doesn't hurt if you have a bit too much.

3) Our two kids are still young and cost us a lot in daycare now, an expense that will go away soon. Aside from daycare though, I estimate we pay about $100 extra per month for food and diapers, $25 extra per month for clothes, $25 per month for activities and entertainment, $25 per month for gifts for them or friends/teachers, and $25 per month for essentials (car seats, etc). So roughly $200 per month. We also save $416 per month for college.

[forummm]

Is there any reason you are going to be so clearly delimitating between your three different funds the way you are? It feels a bit strange to me to see a "6% WR" when realistically if the scenarios would be in the "failing" category you'd have nearly double the resources available.

I was trying to set parameters and expectations for the funds to ensure that we had enough money now and in the future. Fund 1 needs to cover our basic expenses, even if there's another 2000 or 2008. I can get a lot more value out of each dollar that goes into Fund 2, but only by being incredibly flexible with it. Through my historical simulations, I get a 9% WR on those dollars with immediate withdrawal and 15% WR with a 6 year lag before tapping (letting it grow). If I wanted to draw down that much cash on a consistent basis, I'd have to go with something like 4-6% and save like half a million bucks more before RE. Fund 3 is very much set aside for future use and I don't want to tap it for living expenses.

One thing to consider regarding moving and higher expenses, you could choose to homeschool for quite some years if you wanted. I don't know what your travel plans are but this could be a good option if you want to do things like extended traveling.

It is hard to know whether $300k is reasonable because it is so variable depending on where you live. $300k here would be... a very, very large house.

I basically see us either staying in the Atlanta area (not really preferred and probably not that likely) or moving somewhere westward. Probably CA, OR, WA, or CO (much more likely). I know there's a big variation inside those states too. It's so hard to know. There's also a possibility that we will do a lot of traveling for extended periods of time and may not have a permanent residence, or would be renting it out. But I don't see us doing this for that long. We both like staying in one place generally.

I am generally in favor of homeschooling. But I also didn't like the idea of daycare, and it seems like my kid really enjoys it. It's hard to know what the kid(s) will want and what I will think is best for them at the time.

[Retire-Canada]

Breaking up your money into all these different pots isn't helpful to your planning or your actual use of your money. If you don't have enough money in the main pot to eat you are not going to stay away from the "bonus spending" pot or the "new house" pot and be hungry. If you go back to work full time for a spell it doesn't matter if you are filling up the main pot or the "new house" pot back to a level that works for you.

What all these pots do is make your plan confusing and reduce your risk management flexibility.

Pool the money and simulate a bunch of reasonable spending scenarios using cFIREsim.

- you can add in various spends and specific dates to simulate costs for education or a new house
- you can use the variable spending setting with floor/ceiling limits to simulate your bonus spending in good years fund
- it has fields for SS and any other Gov't benefits you think you'll get
- you can simulate a few different part-time work options
--- some extra income for the first few years to deal with sequence of return risks
--- or you can lower the variable spending floor by say $5K to $10K/yr expecting that in bad return situations you'll top back up to the desired level with part-time work

Once you do FIRE you can review your situation annually with up to date data and plan out the next 1, 5 and 10yrs. The end result will be more flexibility and no negative change to your ability to meet your life goals. Without going through all the simulations I can't say for sure, but my experience with risk management makes me think you'll either be able to save less and FIRE earlier with the same risk or save the same amounts and have a higher level of confidence in your plan.

[forummm]

ForuMMM- it feels like you're assigning emotional values to money here... remember, money is fungible. Cash is cash. Just because you decide to delineate it, doesn't mean it's not really a 3.5% withdrawl rate. It would be one thing to say, well, it'll be tied up in a paid off mortgage and I *refuse* to HELOC, but that's a pretty major safety net.

I don't think it's emotional values. It's different accounts with specific purposes. Sure, some of it is fungible. But if I don't leave some there for SS age then we could be hurting by then. A HELOC could be hard to attain if I don't have employment income. And the idea of 3.5% isn't correct, because I would be spending a lot more than $36k/year on average. One year I might spend $300k on a house (existing equity plus $200k from Fund 3) plus $36k from Fund 1 plus $27k from Fund 2--a 23% WR that year by your accounting!

[FrugalFan]

What all these pots do is make your plan confusing and reduce your risk management flexibility.

I know it is a bit confusing, but I'm not sure I agree. When looking at cFIREsim, what I want to avoid is those few years where the curves dip to zero or almost. If I put some big chunks of money in "safer" assets and spend them down early on, yes I am probably losing out on some future wealth building, but I don't care about that. I just don't want to run out of money but also don't want to have to worry about each dollar I spend in the early years. I see this as a way of limiting the downside risk (at the cost of wealth building). The money I'll need in my later years can rely on a 3-4% SWR. And in fact, we could probably survive without any of it with the small pension and OAS and CPP.

--- or you can lower the variable spending floor by say $5K to $10K/yr expecting that in bad return situations you'll top back up to the desired level with part-time work

I do think playing around with various withdrawal strategies has some merits as well. It's hard to imagine a scenario where one would spend the same inflation adjusted amount year after year without changing their spending based on how the markets were doing.

[boarder42]

ForuMMM have you seeen the post from MadFientist about the relationship between the ShillerPE and how it has directly projected an SWR reliably. 

[forummm]

What all these pots do is make your plan confusing and reduce your risk management flexibility.

Pool the money and simulate a bunch of reasonable spending scenarios using cFIREsim.
...
Without going through all the simulations I can't say for sure, but my experience with risk management makes me think you'll either be able to save less and FIRE earlier with the same risk or save the same amounts and have a higher level of confidence in your plan.

I appreciate the point about risk management. I think I already did something similar to what you are suggesting, but not quite identical. I used more of a phased and layered approach that Travelling Biologist mentions. Essentially SS era is a separate phase from the immediate era. And I modeled them separately. I'm aware that I could end up with a pile of money that I don't need when I start SS era but that's OK. I want to be for sure not needing money at that age. And I layered the variable spending on instead of modeling the two together because cFIREsim doesn't have the approach I want to take with it.

I'm OK with leaving a bunch of money to charity at the end. I'm also OK with working some, but I'd prefer not to need to.

I will continue to think about it and play around with simulations, trying to approximate what you suggest. Thanks for the feedback.

[forummm]

ForuMMM have you seeen the post from MadFientist about the relationship between the ShillerPE and how it has directly projected an SWR reliably. 

I don't recall that specific post, but I am familiar with how CAPE is somewhat (but not extremely) correlated with SWR. But CAPE is also perhaps less reliable in recent years because it has been so elevated for so long. Schiller has been predicting a reversion to the long term historical mean for at least a couple decades. But that hasn't happened...yet. Maybe something has changed in the fundamentals (I think it has). But that does bring me some anxiety.

[trashmanz]

moving somewhere westward. Probably CA, OR, WA, or CO (much more likely).

In the most densly populated areas of CA it is possible to get into a decent school district for under 400,000 but it is a challenge in this current market.  May be doable if you are ok to be away from all the major areas probably (since not working and needing to be in the major work hubs that may be fine?).  Those states are all going through housing increases of late I think.  Also depends how handy you are with fixing the place up. 

When you say paying off all debt, that includes current mortgage?

[boarder42]

ForuMMM have you seeen the post from MadFientist about the relationship between the ShillerPE and how it has directly projected an SWR reliably. 

I don't recall that specific post, but I am familiar with how CAPE is somewhat (but not extremely) correlated with SWR. But CAPE is also perhaps less reliable in recent years because it has been so elevated for so long. Schiller has been predicting a reversion to the long term historical mean for at least a couple decades. But that hasn't happened...yet. Maybe something has changed in the fundamentals (I think it has). But that does bring me some anxiety.

Right now it is projecting around 3.88 swr lasting forever.

[Inaya]

yes dont tell them that defeats the purpose of ths.

I dont see this as tough love.  It is a very valuable stepping stone for a kid to cross and understand how to budget and finance.  My parents gave me 2k per year.  i made up the rest getting scholarships and working in the summer and came out debt free.  I may do a hybrid approach like this, if my kids arent intelligent enough to get scholarships to the level me and my brother did.   offer 2k equivalent in support with the intention of paying off any debt they have to take out.

if you just flat out tell you're kids you're paying for their college what do they learn about money.  mommy and daddy pay for things.  thats it.

I learned about money LONG before I was in college. I think if they're only just learning about money in college, it's way too late for them.

My parents paid my way through college, but I still got campus jobs and internships for spending money and work experience (and VERY small Roth IRA contributions, but hey it's something, I guess). Graduated with no debt when almost all of my classmates had debt--made me appreciate my parents' planning and sacrifice even more.

Of everything my parents did for me, two stand out as contributing to my current success in life: reading to me every night as a child and paying for my education as an adult.

[boarder42]

yes dont tell them that defeats the purpose of ths.

I dont see this as tough love.  It is a very valuable stepping stone for a kid to cross and understand how to budget and finance.  My parents gave me 2k per year.  i made up the rest getting scholarships and working in the summer and came out debt free.  I may do a hybrid approach like this, if my kids arent intelligent enough to get scholarships to the level me and my brother did.   offer 2k equivalent in support with the intention of paying off any debt they have to take out.

if you just flat out tell you're kids you're paying for their college what do they learn about money.  mommy and daddy pay for things.  thats it.

I learned about money LONG before I was in college. I think if they're only just learning about money in college, it's way too late for them.

My parents paid my way through college, but I still got campus jobs and internships for spending money and work experience (and VERY small Roth IRA contributions, but hey it's something, I guess). Graduated with no debt when almost all of my classmates had debt--made me appreciate my parents' planning and sacrifice even more.

Of everything my parents did for me, two stand out as contributing to my current success in life: reading to me every night as a child and paying for my education as an adult.

i'm not saying this is the first time the should learn about money but if when you go away to school you really start the first step towards managing your own finances outside of the watch of you parents. 

just flat out paying for it IMO is bad, maybe its b/c of the kids i've seen that have had this were from a family that were bad at managing money so they still learned nothing.  Just think its good for them to understand what they are getting for their money not my money. managing your own finances in college, paying your own bills, etc. is a very valuable life experience.   

[Axecleaver]

Think about this in terms of what you'd do if you hit sequence of returns problems. Would you raid the set-aside funds? You could go back to work. You could reduce expenses. You could reallocate your mad money fund. So take a look at what you would do if it failed, and plan based on that. If your answer is to raid the funds, then eliminate the fund separation from the planning.

Another thought, you could put down 20% and get a mortgage on a home in the future. This way you can apply your 300k for a house to pool #1, and just assume that you'll need another $1150/month in expenses to service the loan. This is a version of the "should I pay off my house or invest the surplus" discussion.

If it were me, I'd look at it as all one fund, and set trigger points above which some limited amount of variable spending could occur. When it comes time to fund a life event, you can rerun the numbers before it happens and make a new plan.

[forummm]

When you say paying off all debt, that includes current mortgage?

Yes. So I'd probably have about $125k in equity minus closing costs to add to the $200k. And I probably would avoid the most expensive areas of any place we'd move to.

ForuMMM have you seeen the post from MadFientist about the relationship between the ShillerPE and how it has directly projected an SWR reliably. 

I don't recall that specific post, but I am familiar with how CAPE is somewhat (but not extremely) correlated with SWR. But CAPE is also perhaps less reliable in recent years because it has been so elevated for so long. Schiller has been predicting a reversion to the long term historical mean for at least a couple decades. But that hasn't happened...yet. Maybe something has changed in the fundamentals (I think it has). But that does bring me some anxiety.

Right now it is projecting around 3.88 swr lasting forever.

Yeah. That's why the 6% WR worries me some. But maybe PEs will decline before I get to FIRE. And I have some levels of safety available (like working some). And I could borrow from the college fund in the short term if the recession is so bad that jobs aren't available, etc. I'm not too worried about starving (that would probably be due to some major societal event that I couldn't avoid anyway). Just about the level of hassle and pain required to follow this plan and meet desired commitments.

[forummm]

yes dont tell them that defeats the purpose of ths.

I dont see this as tough love.  It is a very valuable stepping stone for a kid to cross and understand how to budget and finance.  My parents gave me 2k per year.  i made up the rest getting scholarships and working in the summer and came out debt free.  I may do a hybrid approach like this, if my kids arent intelligent enough to get scholarships to the level me and my brother did.   offer 2k equivalent in support with the intention of paying off any debt they have to take out.

if you just flat out tell you're kids you're paying for their college what do they learn about money.  mommy and daddy pay for things.  thats it.

I learned about money LONG before I was in college. I think if they're only just learning about money in college, it's way too late for them.

My parents paid my way through college, but I still got campus jobs and internships for spending money and work experience (and VERY small Roth IRA contributions, but hey it's something, I guess). Graduated with no debt when almost all of my classmates had debt--made me appreciate my parents' planning and sacrifice even more.

Of everything my parents did for me, two stand out as contributing to my current success in life: reading to me every night as a child and paying for my education as an adult.

i'm not saying this is the first time the should learn about money but if when you go away to school you really start the first step towards managing your own finances outside of the watch of you parents. 

just flat out paying for it IMO is bad, maybe its b/c of the kids i've seen that have had this were from a family that were bad at managing money so they still learned nothing.  Just think its good for them to understand what they are getting for their money not my money. managing your own finances in college, paying your own bills, etc. is a very valuable life experience.   

Yeah, I have mixed feelings about it too. Even paying off their loans afterwards. I think early career financial discipline is valuable and better achieved by having to pay off loans. But I have a long time to decide and want to have much less time to save whatever I might contribute.

[index]

How much will SSI be if you quit working at 35?

[boarder42]

How much will SSI be if you quit working at 35?

this is something i've been wondering as well.  does anyone know how to calc this?

[forummm]

Think about this in terms of what you'd do if you hit sequence of returns problems. Would you raid the set-aside funds? You could go back to work. You could reduce expenses. You could reallocate your mad money fund. So take a look at what you would do if it failed, and plan based on that. If your answer is to raid the funds, then eliminate the fund separation from the planning.

Another thought, you could put down 20% and get a mortgage on a home in the future. This way you can apply your 300k for a house to pool #1, and just assume that you'll need another $1150/month in expenses to service the loan. This is a version of the "should I pay off my house or invest the surplus" discussion.

If it were me, I'd look at it as all one fund, and set trigger points above which some limited amount of variable spending could occur. When it comes time to fund a life event, you can rerun the numbers before it happens and make a new plan.

I might not be able to get a mortgage without a job. Currently the rules are such that I wouldn't qualify for a $300k house with 20% down with the amount of savings I am proposing (and most of it will be in IRAs).

If I hit a sequence of returns problem I would go back to work or cut back on optional spending long term or both. If the recession were really bad (a likely cause of sequence of returns) such that employment were unavailable, I could borrow from one of the other funds if needed to provide food and electricity money until I could find a job. But I wouldn't sacrifice education for my kid(s) (K-12 or college) or SS-age finances--those are very high priorities to me.

[neo von retorch]

How much will SSI be if you quit working at 35?

this is something i've been wondering as well.  does anyone know how to calc this?

I was just reading this earlier! How Early Retirement Affects Social Security

It doesn't matter when you retire; just that up to 35 working years will be used to get your average monthly income. [35 best working years income totaled] / 420 = average monthly income. From there, it's a progressive benefit calculator, with a modifier for retiring before or after 67.

[forummm]

How much will SSI be if you quit working at 35?

this is something i've been wondering as well.  does anyone know how to calc this?

You can calc it at SSA.gov. I have a spreadsheet at home where I have my actual earning and projected future earning and how much SS I would get based on different scenarios. Same for DW. However, this is based on the current SS formula. It's possible that by the time I get there they will only be paying out 75% of current benefit levels (that's what current receipts will fund in 203Xish when the SS Trust Fund is depleted).

I forget the exact numbers for us based on when I project we get to FIRE age, but it's not huge. We have short earnings histories (some of my jobs were SS exempt) and moderate income histories. And Medicare has premiums and cost sharing and may also get cut in the future. We could probably get by on it. But I want a little buffer--especially if SS is done away with or reduced. It's well worth it to me to save an extra $60k before quitting to have that security available down the line.

[Retire-Canada]

I know it is a bit confusing, but I'm not sure I agree. When looking at cFIREsim, what I want to avoid is those few years where the curves dip to zero or almost. If I put some big chunks of money in "safer" assets and spend them down early on, yes I am probably losing out on some future wealth building, but I don't care about that. I just don't want to run out of money but also don't want to have to worry about each dollar I spend in the early years. I see this as a way of limiting the downside risk (at the cost of wealth building). The money I'll need in my later years can rely on a 3-4% SWR. And in fact, we could probably survive without any of it with the small pension and OAS and CPP.

My comment was directed to the OP not you.

That aid dividing money into pots doesn't help you prevent running out of money. It just makes for a more complex plan with less obvious flexibility as you assess your risks. If you pool all your money you can still have a more conservative asset allocation if that's what you feel best suits your needs.

If things go poorly for you regardless of the reason you will use what money you have to make life work no matter what "pot" it's from and if you decide you need to work to replenish your portfolio it won't matter if you are putting that money into pot A or pot B.

The end result I suspect is you will either have less confidence in your plan than you should if you pool the money or you will save more than you need to in achieving your desired risk. You need to run the simulations to get a handle on it.

I would also add to both you and the OP that when I see plans  that have sub-4% WR and several other layers of "safety" added on top what I see are people that worked too much in the prime of their lives. The MMM focuses too much on money as the answer to all FIRE's risks and it's just not. Ultimately you have to decide what is acceptable for your life. All I am suggesting is have an objective look at the opportunity cost of all this "safety" and ask yourself is it worth years of my life?

[MickeyMoustache]

yes dont tell them that defeats the purpose of ths.


I dont see this as tough love.  It is a very valuable stepping stone for a kid to cross and understand how to budget and finance.  My parents gave me 2k per year.  i made up the rest getting scholarships and working in the summer and came out debt free.  I may do a hybrid approach like this, if my kids arent intelligent enough to get scholarships to the level me and my brother did.   offer 2k equivalent in support with the intention of paying off any debt they have to take out.

if you just flat out tell you're kids you're paying for their college what do they learn about money.  mommy and daddy pay for things.  thats it.

Yeah I'm with ya.  I have 14 years before its reality though so I'll have time to come to terms with it :)

[boarder42]

yes dont tell them that defeats the purpose of ths.


I dont see this as tough love.  It is a very valuable stepping stone for a kid to cross and understand how to budget and finance.  My parents gave me 2k per year.  i made up the rest getting scholarships and working in the summer and came out debt free.  I may do a hybrid approach like this, if my kids arent intelligent enough to get scholarships to the level me and my brother did.   offer 2k equivalent in support with the intention of paying off any debt they have to take out.

if you just flat out tell you're kids you're paying for their college what do they learn about money.  mommy and daddy pay for things.  thats it.

Yeah I'm with ya.  I have 14 years before its reality though so I'll have time to come to terms with it :)

i have 0 kids curretnly so i've got plenty of time

[forummm]

How much will SSI be if you quit working at 35?

this is something i've been wondering as well.  does anyone know how to calc this?

You can calc it at SSA.gov. I have a spreadsheet at home where I have my actual earning and projected future earning and how much SS I would get based on different scenarios. Same for DW. However, this is based on the current SS formula. It's possible that by the time I get there they will only be paying out 75% of current benefit levels (that's what current receipts will fund in 203Xish when the SS Trust Fund is depleted).

I forget the exact numbers for us based on when I project we get to FIRE age, but it's not huge. We have short earnings histories (some of my jobs were SS exempt) and moderate income histories. And Medicare has premiums and cost sharing and may also get cut in the future. We could probably get by on it. But I want a little buffer--especially if SS is done away with or reduced. It's well worth it to me to save an extra $60k before quitting to have that security available down the line.

If I quit in December (after working for 17 years), and SS pays out 75% of today's benefits (i.e. no taxes are raised and Congress decides to match SS receipts to SS outlays), then I would get annually (in today's dollars):
$6,251 if I started at 62
$9,060 if I started at 67
$11,234 if I started at 70

[2Birds1Stone]

How much will SSI be if you quit working at 35?

this is something i've been wondering as well.  does anyone know how to calc this?

You can calc it at SSA.gov. I have a spreadsheet at home where I have my actual earning and projected future earning and how much SS I would get based on different scenarios. Same for DW. However, this is based on the current SS formula. It's possible that by the time I get there they will only be paying out 75% of current benefit levels (that's what current receipts will fund in 203Xish when the SS Trust Fund is depleted).

I forget the exact numbers for us based on when I project we get to FIRE age, but it's not huge. We have short earnings histories (some of my jobs were SS exempt) and moderate income histories. And Medicare has premiums and cost sharing and may also get cut in the future. We could probably get by on it. But I want a little buffer--especially if SS is done away with or reduced. It's well worth it to me to save an extra $60k before quitting to have that security available down the line.

If I quit in December (after working for 17 years), and SS pays out 75% of today's benefits (i.e. no taxes are raised and Congress decides to match SS receipts to SS outlays), then I would get annually (in today's dollars):
$6,251 if I started at 62
$9,060 if I started at 67
$11,234 if I started at 70

You might not get all of it, but you can expect to get *something* down the line.

I for one applaud your plan and thought exercise. It might be "mental accounting" to some but it helps you understand how much you need for a shoestring lifestyle vs. all of the discretionary spending you plan on.

With the ability to cut that discretionary spending, go back to work f/t, work a little p/t, have the kids get a job in HS/take loans for college, etc etc you have SO much flexibility built into this that I would say just go for.

The worse that happens is you get to go back to work here and there on your own terms......vs a possibility of numerous OMY syndrome =D

Do it, pull the trigger.

[forummm]

How much will SSI be if you quit working at 35?

this is something i've been wondering as well.  does anyone know how to calc this?

You can calc it at SSA.gov. I have a spreadsheet at home where I have my actual earning and projected future earning and how much SS I would get based on different scenarios. Same for DW. However, this is based on the current SS formula. It's possible that by the time I get there they will only be paying out 75% of current benefit levels (that's what current receipts will fund in 203Xish when the SS Trust Fund is depleted).

I forget the exact numbers for us based on when I project we get to FIRE age, but it's not huge. We have short earnings histories (some of my jobs were SS exempt) and moderate income histories. And Medicare has premiums and cost sharing and may also get cut in the future. We could probably get by on it. But I want a little buffer--especially if SS is done away with or reduced. It's well worth it to me to save an extra $60k before quitting to have that security available down the line.

If I quit in December (after working for 17 years), and SS pays out 75% of today's benefits (i.e. no taxes are raised and Congress decides to match SS receipts to SS outlays), then I would get annually (in today's dollars):
$6,251 if I started at 62
$9,060 if I started at 67
$11,234 if I started at 70

You might not get all of it, but you can expect to get *something* down the line.

I for one applaud your plan and thought exercise. It might be "mental accounting" to some but it helps you understand how much you need for a shoestring lifestyle vs. all of the discretionary spending you plan on.

With the ability to cut that discretionary spending, go back to work f/t, work a little p/t, have the kids get a job in HS/take loans for college, etc etc you have SO much flexibility built into this that I would say just go for.

The worse that happens is you get to go back to work here and there on your own terms......vs a possibility of numerous OMY syndrome =D

Do it, pull the trigger.

Thanks. Unfortunately I don't have nearly that much money yet. But I'm heading towards it. For my sanity I just need to know where I'm heading towards and how much time it should take me. It'll also help me know when I might have more flexibility to take a lower paying job that's more enjoyable.

[2Birds1Stone]

Thanks. Unfortunately I don't have nearly that much money yet. But I'm heading towards it. For my sanity I just need to know where I'm heading towards and how much time it should take me. It'll also help me know when I might have more flexibility to take a lower paying job that's more enjoyable.

Assuming you implement this plan, approximately how many years off from FIRE are you?

[GorgeousSteak]

I'm in the camp of thinking you're over complicating it, but I don't think its too crazy.  For me, I combine 1 & 2 & what your calling your SS supplement (and use my SWR to get the needed stache).  But I account for the college fund separately (because its not being drawn down on at FIRE and isn't a constant expense)  I also keep housing/mortgage costs out.  Primarily, its because they aren't effected by inflation (in the way that rent would be), and they end at some point in the future, so requiring the necessary stache to support the mortgage payment indefinitely is overly pessimistic IMO.  It just makes more sense to me to account for the remaining balance separately, so once I have this amount saved, I can choose to pay the house off, or let it ride in the market and try to grow the stache a bit more.

[forummm]

Thanks. Unfortunately I don't have nearly that much money yet. But I'm heading towards it. For my sanity I just need to know where I'm heading towards and how much time it should take me. It'll also help me know when I might have more flexibility to take a lower paying job that's more enjoyable.

Assuming you implement this plan, approximately how many years off from FIRE are you?

Well, if we both worked for 3-4 years that would probably get us there. At dinner DW said she would almost certainly work until at least 35. If she followed through on that I could probably quit this year and we'd still get there. And I'd be 25 years away from full SS at that point, so our money wouldn't need to last as long. And at least one kid would be in school, so we'd have already made a housing change or discovered an alternative, so that would provide more certainty about that expense. That's still a long way away though so I don't know how to feel about being reliant on her continuing to want to work for the whole time. I'd feel bad if she changed her mind but then felt stuck. And probably a little bad now and then when she had a hard day. New things to think about. But options are good. Until recently I was thinking we needed about $500k more, so this is much better anyway we look at it.

[2Birds1Stone]

3-4 years is nothing in the grand scheme of things!!!

[forummm]

3-4 years is nothing in the grand scheme of things!!!

It feels like a long time to be unhappy with the situation. Day after day. But it's better than 30 more years.

[arebelspy]

So I like the idea of buckets, generally, to help make things clearer.

The college and house stuff (bucket 3) being separate makes sense.

The first and second.. sort of.

You can break it out like that, and say 6% WR (from Bucket 1) succeeded 66% of the time.  The question then becomes: is that acceptable, to you?

It would be for me, if I was unhappy, especially counting the safety margins for the 33% of the time it was going downhill, meaning the success chances are much higher than that.

In the ideal world (and most common world), the 6% WR from bucket 1 works out just fine, bucket 2 grows to support your extra/luxury spending, as planned, and bucket 3 covers what it is supposed to.  Awesome.

In the non-ideal world, you may have to tap bucket 2.  So if you combine buckets 1 and 2 (in the less ideal world), that gives you more like a 4.5% WR (36k spend, 800k stache), which (at 100% equities) historically lasted about 89% of the time.  That's a nice little boost to your success rate.

I think this plan is quite feasible, and dipping into your "luxury fund" can be a nice plan if you don't feel like working more, or before you pick up some extra cash, or whatever.

[arebelspy]

I've done a lot of historical modeling. If I only pull from it when the market return was positive in the prior year I can typically withdraw $27k about 20 years out of 30. The amounts are kind of arbitrary.

I'd like to hear more about this--how did you model it, specifically?