Financial Advisor, negative experience.

[PBandJelli]

Hi, The point of this post is basically just to gripe. :(

A week or so back I posted a case study to ask fellow mustachians to confirm or contest my assumptions about how big our stache will grow.  I am hoping to fire before my husband  -- within the year, then my husband will fire in five or six.  Below the "****" below are the numbers from my original post, with explanation.  I am almost 40 and my husband is 44.

I am just writing to share that I met with a financial advisor since that posting.  The advisor was *very* negative on the prospects of our FIREing as quickly as we'd like.  We want to have about 100-110k of passive income which we expected would happen in 2020.  The advisor basically said we're being overly optimisitic about dividends/annual gains and retiring as young as we are.  It was a really upsetting conversation, but we're not letting it get us down- nor are we going to take a single person's opinion to heart.  We're also trying to be realistic.  Just wondering if others have met with financial advisors for a pulse check and had a bad experience.  We're debating sitting down with another advisor just to get another pulse check.


***********
Left hand column is the total cash we have now.  Almost all of that is invested in index funds and 401k lifecycle funds.  I am assuming an average 5% return each year.  My husband and I put away 100k a year (about 45 in retirement accounts, the rest in taxable accounts). I know the 100k is more or less what we can do, and have done for a couple of years.  (It's not easy, but getting easier.)  Thanks in advance.

Current $ cash/5% mkt gain on $ /Additional savings/year
$2,124,000.00   $106,200.00   $100,000.00   2018   
$2,330,200.00   $116,510.00   $100,000.00   2019   
$2,546,710.00   $127,335.50   $100,000.00   2020   
$2,774,045.50   $138,702.28   $100,000.00   2021   
$3,012,747.78   $150,637.39   $100,000.00   2022   
$3,263,385.16   $163,169.26   $100,000.00   2023   
$3,526,554.42   $176,327.72   $100,000.00   2024   
$3,802,882.14   $190,144.11   $100,000.00   2025   
$4,093,026.25   $204,651.31   $100,000.00   2026   
$4,397,677.56   $219,883.88   $100,000.00   2027   

[ysette9]

I’m struggling with the columns of numbers because I am on a phone. I think I understand what you are doing there.
If you have $2.1M today and are adding $100k a year, I don’t see any reason why you can’t both FIRE in 2021, given the market assumptions you are making. Obviously actual performance will tweak the dates somewhat since we cannot predict that. The one need I have with your calculations below is that if you FIRE in 2020, I don’t expect you will continue to save $100k a year, correct? Not that it would matter too much. If your husband kept working for a few more years to allow the stash to continue to grow without being touched, the market would do the heavy lifting anyway.

[ysette9]

What advice did the advisor actually give? Looking at it another way, you are at $2.1M now and adding $100k a year. If your goal is $2.5M, you can get there in another four years even if the market goes exactly nowhere in the interim. That isn’t a bad place to be.

[PBandJelli]

Thanks for the response.  You're struggling with the number because -- you're right-- the numbers assume I keep working and we continue to save 100k per year.  We won't be able to do that when I fire, but we went to the advisor asking about our both FIREing simultaneously.  Upshot now is we're thinking it's more appropriate to stagger quitting.

You ask what advice the advisor gave: he basically thinks healthcare is too big of an uncertainty for us to pull the trigger.  We're allowing 15-20k for one vacation a year and healthcare.  I thought we were being pretty safe in our calculations.  The advisor gave other advice about market fluctuations, being in prime earning years, etc.  I don't think he understands that prime earning years are also prime doing/living years.  I am thinking we (advisor and my husband/me) just have different values, and the financial advice and advisor's personal values are being conflated.

[Another Reader]

Your estimates for healthcare are much too low, especially over time.  Even if the ACA survives, in your 50's, that will easily be the cost for one person with the maximum OOP, and that's not including much for inflation.  Price plans for 55 year olds in your state to get an idea of what you would pay, including the OOP.

If you apply the 4 percent rule today, you can pull $84,000 a year, gross, from your accounts.  With a 40 plus year retirement, the four percent SWR drops to 3.5 percent or less.  Out of whatever income you pull, you must pay federal and state income taxes.  Then your living expenses, including health insurance.

Rather than talking to advisers, play with the retirement calculators.  FIREcalc, C-FIREsim, the Fidelity Retirement Income Planner, and several others.  Have you estimated your Social Security, assuming no earned income after your retirement date?  That can affect the later income projections.

You are also facing sequence of returns risk.  If you have a bad sequence of returns in the first few years after retirement, that can be disastrous for a 40 plus year retirement.  We have had nothing but good news in all asset markets since 2009.  That will change at some point.  The economic cycle is already long in the tooth.

You might look at some other sites to see how other people are handling early retirement.  Early-retirement.org is one. 

[PBandJelli]

thank you!

[ysette9]

I say play with cFIREsim because it will likely tell you that you can quit before you reach 25x/4% rule; it does for us. 4% doesn’t include SS or pensions.

Yes, be aware of the cost of healthcare (my backup plan is to leave this country), but things like sequence of returns is already baked into the 4% rule. You could do some reading on sequence of returns risk to feel more comfortable https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/
You can also consider the reverse glide path with equities to help reduce that risk. That is something we are looking into.
https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

[Another Reader]

The four percent rule is based on a 30 year period.  Remember, the result is a success if you end up with zero at the end of the period.  The results for 40 and 45 year periods are not as positive.  That's why the recommendation is to drop to a 3.5 percent withdrawal rate or lower for longer retirements.  That's supported by a number of people that study this.

The paper asset markets did not really exist 150 years ago.  Individuals only started investing in them in large numbers in the 1970's.  The US economy has grown enormously since the end of WWII.  That may or may not continue at the same rate in the future.  We all know past performance does not predict future performance.  For these reasons, I'm even more conservative.  If I were relying on a paper asset portfolio, I would not be comfortable with anything above a 3 percent withdrawal rate.

Members of this forum tend to be young and many have not experienced extended downturns in the market and the economy.  Because you are older and closer to pulling the plug, sites and forums composed of people closer to your age and in your situation may provide you with more useful information. 

[Mrbeardedbigbucks]

I talked to a financial advisory recently as well. I was met with more optimism than I expected but he was still not very encouraging. They're not used to hearing from people that want to retire at such a young age unless you have a "I just won the Powerball" size stash. With uncertainty about health care costs and the stock markets being in the second longest bull in history, you won't hear any financial advisor recommend or try to help you retire in your 40's or even 50's. Keep in mind too, many of these financial advisors/consultants, even with their fancy CFP designations, are still stuck in the old way of thinking. They are still recommending expensive actively managed mutual funds and income annuities to cover your essential expenses. They rarely talk about reducing wasteful spending, moving to a lower cost of living country, taking advantage of the sharing economy or finding health care alternatives outside the U.S. They don't realize that a younger, early retiree wannabe has a much different approach to optimizing their budget and can be flexible during a long retirement. We can find work online and keep a big toe in the work force to bring in a little extra income in the door.

When you retire young you face risk, there's no denying that but it's a risk most young FIRE people are willing to take in order to enjoy some of the prime years of their lives or maybe do something else they really enjoy doing that may still bring some income in the door. Don't let people scare you too much with high health care costs and "gaps in your resume" garbage. Do some planning, control your spending, invest in the markets, have some cash/CD's to mitigate sequence risk and be flexible and you'll likely be in good shape.


I recently posted my case study if you would like to take a look and I make reference to my recent financial advisor meeting:

https://forum.mrmoneymustache.com/case-studies/is-this-fire-plan-'razor-thin'/

[tozier]

Just wondering if others have met with financial advisors for a pulse check and had a bad experience.  We're debating sitting down with another advisor just to get another pulse check.

I met an advisor a little over a year ago, telling her my approach and even showing her this website. After reviewing it, she told me that MMM was a bit too extreme and that I was being overly optimistic. She couldn't understand that, for example, my decision to cut cable out of my life was not a sacrifice to eradicate the last of my debt, but rather a lifestyle change. I've concluded that she is under the same paradigm that most others fall under: that the path to wealth is through earning and not frugality, perhaps because almost all of her clientele share that mindset. She may have also understood that I wasn't going to earn her or her company any commissions or fees unless she could convince me that my approach was all wrong, that I should work another twenty years, and to let them handle my investment strategy.

I later discovered that the president of her company drives around town in a luxury automobile, sending a pretty clear signal of what the president believes, or what the firm wants its current and future customers to believe.

[Travis]

She may have also understood that I wasn't going to earn her or her company any commissions or fees unless she could convince me that my approach was all wrong, that I should work another twenty years, and to let them handle my investment strategy.

And there's the bottom line. You went to your financial advisor whose income depends on you employing them for as long as possible, told them you had a plan that involved reducing or eliminating them from the equation, and asked their opinion about it.

[marty998]

I later discovered that the president of her company drives around town in a luxury automobile, sending a pretty clear signal of what the president believes, or what the firm wants its current and future customers to believe.

The president drives a luxury car because that's where your money goes...

[PBandJelli]

Hi all: Original OP here.  Just see the last few posts may be conflating two related but different sercives:

Investment advisors
Financial planners

It is not unusual for the same professional to offer both services, but a true financial planner (at least as I understand) checks your plan against your goal, and then helps you adjust to meet that goal.  The planner I saw was a for-fee hourly consultant, and not someone that also does investment advising (stock picks, money management).  Just offering to make the distinction, in case folks aren't aware these are different.

Thanks to all of those who have already responded with insights and experience.  Much appreciated!

[Ben Kurtz]

A lot depends on the flexibility of your approach.

If your planner is thinking of early retirement like a conventional old-age retirement, then he'll have an overly inflexible set of assumptions: Never return to work once you FIRE, great difficulty modulating expenses should the need arise, very conservative view as to where are good places to live and how frequently you can move, etc.

In which case the hard-to-predict course of the U.S. health insurance markets would make someone very pessimistic. There is very little to limit our imaginations as to how bad prices on individually-purchased health plans can get, so no matter how robust your numbers look you can always semi-rationally ratchet up the fear level on health care spending and overwhelm your numbers.

My view is that a $2,500,000 investment portfolio is more than enough. Heck, $90,000 to $100,000 in annual spending is considered bonkers wasteful by most people who post here, so some willingness to be flexible in at least one of: cutting spending, staggering your retirement dates, returning to the workforce if you need to (even Starbucks and Home Depot offer group medical plans to their hourly retail employees), living as an expat to take advantage of lower cost of living and health plan costs abroad, etc., should more than keep you safe.

If you've worked hard, saved up, have reasonable spending habits and put $2,500,000 in the bank, by all means go forth and live life!

[PBandJelli]

Thanks for the thinking.  The high income "need" projections is in case we have parent care issues, plus we want to do the things we haven't done -- extravagant things like travel, high end restaurants once a month -- in retirement.  That's the point for us.  Getting out of the grind while we can still bike across two states for fun while staying in hotels with hot water, etc.  :)

[jlcnuke]

For some perspective, a $2.5M portfolio with spending of $110k/year for 50 years (assuming ya'll live into your 90's) historically would have failed almost 30% of the time (using FireCalc the success rate is 72.2% to be precise). Even adding in $20k in social security starting in your mid-60's only ups the success rate to 74.2%.

Historically, your FA was right in saying that the probability of you being able to maintain $110k spending with a "normal" portfolio isn't very good.

There are three problems with your "spreadsheet".
1. It ignores sequence of return risk. The markets don't provide "constant" return levels and thus calculating as if they will is okay for "general forecasting" but terrible for understanding actual probabilities.
2. It ignores inflation. Your spending has to go up each year to keep the same relative lifestyle. 50 years from now if you're spending $100k/year you'd be able to afford the equivalent of a $33k lifestyle today (assuming average historical inflation rates).
3. You're going with "best case" spending. Don't plan for "best case" (i.e. lowest predicted) because you're exceptionally unlikely to stick with that consistently going forward (speaking of "people in general here, not you specifically necessarily).

#1 and 2 are the primary reason why using a tool like FireCalc that can run historical simulations or those using Monte Carlo scenarios are more likely to give you real probabilities of success. Yours currently isn't great. Wait until you have ~$3 million and you'll up your chance of success to ~95%. Sure, it's a couple extra years working, but if you want the lifestyle to be affordable long-term then that's the best route imo. (that's with $20k/year SS, if yours will be more or less then it would need adjusting, I may be over-estimating your SS benefits given the short work history total).

[jeroly]

A lot depends on the flexibility of your approach.

If your planner is thinking of early retirement like a conventional old-age retirement, then he'll have an overly inflexible set of assumptions: Never return to work once you FIRE, great difficulty modulating expenses should the need arise, very conservative view as to where are good places to live and how frequently you can move, etc.

In which case the hard-to-predict course of the U.S. health insurance markets would make someone very pessimistic. There is very little to limit our imaginations as to how bad prices on individually-purchased health plans can get, so no matter how robust your numbers look you can always semi-rationally ratchet up the fear level on health care spending and overwhelm your numbers.

My view is that a $2,500,000 investment portfolio is more than enough. Heck, $90,000 to $100,000 in annual spending is considered bonkers wasteful by most people who post here, so some willingness to be flexible in at least one of: cutting spending, staggering your retirement dates, returning to the workforce if you need to (even Starbucks and Home Depot offer group medical plans to their hourly retail employees), living as an expat to take advantage of lower cost of living and health plan costs abroad, etc., should more than keep you safe.

If you've worked hard, saved up, have reasonable spending habits and put $2,500,000 in the bank, by all means go forth and live life!

+1

If you're willing to be flexible in bad scenarios (eg bad sequence of returns, death of the ACA) then you could FIRE now.  Especially if DH continues to work for a while!

[jeroly]

Thanks for the thinking.  The high income "need" projections is in case we have parent care issues, plus we want to do the things we haven't done -- extravagant things like travel, high end restaurants once a month -- in retirement.  That's the point for us.  Getting out of the grind while we can still bike across two states for fun while staying in hotels with hot water, etc.  :)

There's a lot of value to separating "do[ing] the things we haven't done" from "extravagant things like travel."

You don't need to be extravagant to have amazing travel experiences, bike trips, etc.  For example, I traveled around the world for four months, and spent a total of $10k in today's dollars, and never felt like I was denying myself anything in terms of experiences (the key was keeping my hotel budget low, and I _usually_ had hot water :-)    ).

If done in moderation, you should certainly be able to afford an occasional high end restaurant meal... besides, there's a lot of research into hedonic tone that shows if you do those things too often they become much less enjoyable.

If these compromises don't speak to you, then your advisor is basically correct... you would be looking to retire rich and you don't have the assets to do that yet.

[PBandJelli]

Super helpful -- thanks all for the advice.  Much to think about here. 

[Bicycle_B]

(snip)
There are three problems with your "spreadsheet".
1. It ignores sequence of return risk. The markets don't provide "constant" return levels and thus calculating as if they will is okay for "general forecasting" but terrible for understanding actual probabilities.
2. It ignores inflation. Your spending has to go up each year to keep the same relative lifestyle. 50 years from now if you're spending $100k/year you'd be able to afford the equivalent of a $33k lifestyle today (assuming average historical inflation rates).
3. You're going with "best case" spending. Don't plan for "best case" (i.e. lowest predicted) because you're exceptionally unlikely to stick with that consistently going forward (speaking of "people in general here, not you specifically necessarily).

Not sure why jlcnuke assumes your spreadsheet ignores inflation.  Your "spreadsheet" (table) appears to use assumptions such as 5% return during investment accumulation that are assumed to be after inflation when MMM himself posts case studies.  I assumed your savings projections were likewise after inflation. 

Whether you're FI now, later or never depends more on spending than anything else.  Spending in turn depends on your willingness and ability to shop efficiently for the results you desire.  +1 to the comment that wonderful travel doesn't have to be financially extravagant.  A few months ago I took a week long trip to Ecuador.  Visited a friend who lives in a fairly fancy neighborhood in the capital, met and hung out with other expats who live in even fancier apartments; hiked to top of an Andes mountain (maybe 14,000 feet); rode local buses and taxis for the experience, got local cell service for experience; met several locals who do nonprofit work and fight the local govt, and others who are builders and young techies and entrepreneurial barbers, very friendly; spoke lots of Spanish; learned multiple native fruits and various drinks based on them (juice drinks for me); had a wonderful time.  Total cost: some air miles plus $120 cash for flight; less than $200 for food, local transport, admission to various tourist-ish attractions (gondola over the valley, a visit to an Incan lookout on the Equator). 

I admit that if travel plus health care is 20k and other expenses are 90k, your spending is higher than the usual Mustache, so there is a question as to whether you will shop efficiently in the event of rising health care prices.  But I wouldn't let health care stop me in your shoes. 

I might be biased, though.  I consider myself FIRE on 450k stash (18k typical spending).  Four years and counting since last "real" job.  Quite pleasant.  Helped a 40something friend move to his new job a year ago, was fun for me.  Good times... all the better to have time with him since he had a fatal attack a few months later. 

TL;DR - if you want to FIRE now, do it. 

[CrazyIT]

I talked to a financial advisory recently as well. I was met with more optimism than I expected but he was still not very encouraging. They're not used to hearing from people that want to retire at such a young age unless you have a "I just won the Powerball" size stash. With uncertainty about health care costs and the stock markets being in the second longest bull in history, you won't hear any financial advisor recommend or try to help you retire in your 40's or even 50's. Keep in mind too, many of these financial advisors/consultants, even with their fancy CFP designations, are still stuck in the old way of thinking. They are still recommending expensive actively managed mutual funds and income annuities to cover your essential expenses. They rarely talk about reducing wasteful spending, moving to a lower cost of living country, taking advantage of the sharing economy or finding health care alternatives outside the U.S. They don't realize that a younger, early retiree wannabe has a much different approach to optimizing their budget and can be flexible during a long retirement. We can find work online and keep a big toe in the work force to bring in a little extra income in the door.

When you retire young you face risk, there's no denying that but it's a risk most young FIRE people are willing to take in order to enjoy some of the prime years of their lives or maybe do something else they really enjoy doing that may still bring some income in the door. Don't let people scare you too much with high health care costs and "gaps in your resume" garbage. Do some planning, control your spending, invest in the markets, have some cash/CD's to mitigate sequence risk and be flexible and you'll likely be in good shape.


I recently posted my case study if you would like to take a look and I make reference to my recent financial advisor meeting:

https://forum.mrmoneymustache.com/case-studies/is-this-fire-plan-'razor-thin'/

Very nicely written and truthful.  All financial planers I have had relationships with have never really helped me.