Author Topic: 4% SWR (or 3.x) has never been modeled with current interest rates  (Read 13432 times)

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #150 on: September 29, 2019, 04:51:16 AM »
People can debate these little percentage differences all they want, but the variability in the outcome of the simulation is peanuts compared to the variability inherent in the inputs.

It all comes down to your estimated expenses doesn't it. In reality I see it as hitting a reasonable target (a 3%-5%) with a reasonable estimate of expenses and then some buffer in some format. The buffer could be the ability to decrease expenses or it could be additional savings. Then you figure out your drawdown plan for at least the first say 5 years and then you just give it a shot. It's just a rough estimate that hopefully has some flexibility in the plan.

"Estimated" being the key word.

Person A might be calculating their future annual spend with so much fat in it that they'll virtually never come close to spending it, especially when the markets are down. So they're "calculating" a 4% WR and seeing "risk" that isn't actually there.

Person B could have an incredibly lean/unrealistic budget, but "calculate" a sub-4% WR and feel like they're being conservative.

The math says Person B is marginally safer than A. In reality, A is enormously more secure than B because the critical information behind the inputs is invisible to the simulation.

In addition, even if someone tries to be "accurate" with their inputs, they can track current spending all they want, but projections about future spending are still made up numbers, leaving the calculations still wildly imprecise.

Simulations are great for understanding the relative effects of your options, which is great for guiding decision making. Beyond that though, the outputs are vague to useless in terms of projecting odds of an actual person running out of money.

Running out of money isn't even the real risk that most people are afraid of. What a lot of people are afraid of is ending up uncomfortable and imagining themselves regretting leaving work so early when they could have OMY'd and avoided that discomfort.

I totally get why people want to over save, I do too, but it's not rational to base that oversaving on reassurance from a calculator that works on nonsense inputs.

The "risk" of a 4% calculation shouldn't freak people out, just as the "safety" of a sub-4% calculation shouldn't reassure them. Those little percentage values spit out my simulators just doesn't mean anything.

2Birds1Stone

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #151 on: September 29, 2019, 06:16:52 AM »
It all comes down to having slack in your systems. Some of that is financial slack (fat in the budget to trim), but other forms of slack exist too. This is why a more resilient approach is recommended in places outside of the mainstream FIRE forums/blogs, that focuses on other forms of capital.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #152 on: October 02, 2019, 01:36:23 PM »
@Malkynn - that is exactly how I see the issue. Your WR is more than likely considerably less an issue that how much buffer you have in your estimated expenses.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #153 on: October 02, 2019, 01:37:21 PM »
It all comes down to having slack in your systems. Some of that is financial slack (fat in the budget to trim), but other forms of slack exist too. This is why a more resilient approach is recommended in places outside of the mainstream FIRE forums/blogs, that focuses on other forms of capital.

It's always financial slack unless there is some way not to spend any money.

2Birds1Stone

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #154 on: October 02, 2019, 01:48:32 PM »
That is correct, skills can be used to create slack, social capital, etc. You have to think more creatively lest every problem can only be solved with more money.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #155 on: October 02, 2019, 06:28:42 PM »
That is correct, skills can be used to create slack, social capital, etc. You have to think more creatively lest every problem can only be solved with more money.

It can but what does this mean in reality. Can you keep lowering your expenses forever ? When does this theoretical process end ? Are you going to rely on that ?

My take is per Malkynn's point above that someone who budgets for really low expenses but gets to a 3% WR is significantly less safe than someone who budgets for a higher level of expenses but gets to 4%.

This is what I mean by you need some financial buffer (or slack). To me it's about estimating your future expenses with a little buffer. I don't believe that you can continually optimize your expenses. If you are really tight already your expenses may even go up.

Put it this way I'd be much more concerned about a plan that involves relying on a concept of continually being able to create some theoretical concept of slack or buffer out of nothing rather than interest rates being low.
« Last Edit: October 02, 2019, 06:31:33 PM by chevy1956 »

secondcor521

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #156 on: October 02, 2019, 08:07:42 PM »
I had already aggressively and continuously optimized and minimized my expenses as much as I was able for a long period before FIRE.

After FIRE, I was mildly surprised to discover that the addition of lots more time, mental energy, and creativity unleashed from not having to do a job resulted in additional opportunities on both the income and expense sides.

And in my case, being relaxed resulted in a further somewhat natural reduction in expenses.  As a practical and real example, I have pretty much stopped eating fast food because that was a way to attempt to alleviate work-related stress.  Work went away, and thus so did Wendy's and the associated charges on my bank statements.

In my case, overall easily an additional 50% improvement over my optimized pre-FIRE state.

However, I can imagine it is hard to take that on faith for someone who is pre-FIRE, and it frankly would seem like bad planning to FIRE counting on such a reduction.

ChpBstrd

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #157 on: October 02, 2019, 09:30:58 PM »
The discussion about slack sounds like it is coming from two perspectives:

Mustachian 1 saves 30% of their income, eats at restaurants at least weekly, has Amazon prime, pays the vet bills for 5 pets, drives a much more expensive car than is technically necessary, lives in a much more expensive home than is technically necessary, occasionally buys artisan organic bananas at Whole Foods, and donates $5k a year to charity. Their target WR is based on this lifestyle, which has lots of fat. Mustachian 1 could cut back their spending 25-35% for the next decade if they retired and then experienced a SORR event. If their WR went from 4% to 5% due to a market crash, a 20% reduction in spending would get them back to 4% as if they'd just retired that day near a market bottom. There's a good chance they could resume their spendy ways after a decade or so of relative frugality.

Mustachian 2 saves 70% of their income, has cut out all luxuries and discretionary purchases, bikes to work, owns no car, grows their own food, and has 3 immigrant families as roommates in the spare bedroom, each paying the full cost of the 15 year mortgage on the modest house. Mustachian 2's target WR is based on this optimized lifestyle, which has practically no fat. In a SORR event, Mustachian 2 could only cut their spending by maybe 5%, but that wouldn't be enough to move the needle, so it's back to work. Even though Mustachian 2 has better frugality skills, resiliency, resistance to lifestyle creep, initiative, and a financially optimized lifestyle. their retirement did not survive the SORR event as well as Mustachian 1's.

So perhaps the person saving for a full "FAT FIRE" can aim for a 4% WR if they are OK with switching plans to "moderate FIRE" when a SORR event occurs within their first decade of retirement.
And perhaps the person saving for a "LEAN FIRE" needs to think about 3% or 3.5% as their WR, because they have so little latitude to cut expenses.

All this ignores the perspective of Mustachian 3, who is retiring at 28 on a 5% WR because YOLO. They know they probably have a 62% probability of never having to go back to work again (per cfiresim at 5%WR and a 90/10 portfolio), and are willing to take the chance because the consequence of portfolio failure - having to go back to work a few years - is the same as the consequence of not taking the chance and working a few years to lower their WR.

So these 3 mustachians would have a lot to say to each other about the risks of portfolio failure, but none would be talking about the same thing.

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #158 on: October 03, 2019, 04:43:46 AM »
The discussion about slack sounds like it is coming from two perspectives:

Mustachian 1 saves 30% of their income, eats at restaurants at least weekly, has Amazon prime, pays the vet bills for 5 pets, drives a much more expensive car than is technically necessary, lives in a much more expensive home than is technically necessary, occasionally buys artisan organic bananas at Whole Foods, and donates $5k a year to charity. Their target WR is based on this lifestyle, which has lots of fat. Mustachian 1 could cut back their spending 25-35% for the next decade if they retired and then experienced a SORR event. If their WR went from 4% to 5% due to a market crash, a 20% reduction in spending would get them back to 4% as if they'd just retired that day near a market bottom. There's a good chance they could resume their spendy ways after a decade or so of relative frugality.

Mustachian 2 saves 70% of their income, has cut out all luxuries and discretionary purchases, bikes to work, owns no car, grows their own food, and has 3 immigrant families as roommates in the spare bedroom, each paying the full cost of the 15 year mortgage on the modest house. Mustachian 2's target WR is based on this optimized lifestyle, which has practically no fat. In a SORR event, Mustachian 2 could only cut their spending by maybe 5%, but that wouldn't be enough to move the needle, so it's back to work. Even though Mustachian 2 has better frugality skills, resiliency, resistance to lifestyle creep, initiative, and a financially optimized lifestyle. their retirement did not survive the SORR event as well as Mustachian 1's.

So perhaps the person saving for a full "FAT FIRE" can aim for a 4% WR if they are OK with switching plans to "moderate FIRE" when a SORR event occurs within their first decade of retirement.
And perhaps the person saving for a "LEAN FIRE" needs to think about 3% or 3.5% as their WR, because they have so little latitude to cut expenses.

All this ignores the perspective of Mustachian 3, who is retiring at 28 on a 5% WR because YOLO. They know they probably have a 62% probability of never having to go back to work again (per cfiresim at 5%WR and a 90/10 portfolio), and are willing to take the chance because the consequence of portfolio failure - having to go back to work a few years - is the same as the consequence of not taking the chance and working a few years to lower their WR.

So these 3 mustachians would have a lot to say to each other about the risks of portfolio failure, but none would be talking about the same thing.

And there are countless more scenarios than that, all with their own risks and mitigations.

Each person has their own factors and own fears that drive their numbers, and to make sense of comparing one example to another, those all need to be unpacked in order to compare apples to apples in terms of risk.
WR tells us virtually nothing.

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #159 on: October 03, 2019, 08:38:16 AM »
The discussion about slack sounds like it is coming from two perspectives:

Mustachian 1 saves 30% of their income, eats at restaurants at least weekly, has Amazon prime, pays the vet bills for 5 pets, drives a much more expensive car than is technically necessary, lives in a much more expensive home than is technically necessary, occasionally buys artisan organic bananas at Whole Foods, and donates $5k a year to charity. Their target WR is based on this lifestyle, which has lots of fat. Mustachian 1 could cut back their spending 25-35% for the next decade if they retired and then experienced a SORR event. If their WR went from 4% to 5% due to a market crash, a 20% reduction in spending would get them back to 4% as if they'd just retired that day near a market bottom. There's a good chance they could resume their spendy ways after a decade or so of relative frugality.

Mustachian 2 saves 70% of their income, has cut out all luxuries and discretionary purchases, bikes to work, owns no car, grows their own food, and has 3 immigrant families as roommates in the spare bedroom, each paying the full cost of the 15 year mortgage on the modest house. Mustachian 2's target WR is based on this optimized lifestyle, which has practically no fat. In a SORR event, Mustachian 2 could only cut their spending by maybe 5%, but that wouldn't be enough to move the needle, so it's back to work. Even though Mustachian 2 has better frugality skills, resiliency, resistance to lifestyle creep, initiative, and a financially optimized lifestyle. their retirement did not survive the SORR event as well as Mustachian 1's.

So perhaps the person saving for a full "FAT FIRE" can aim for a 4% WR if they are OK with switching plans to "moderate FIRE" when a SORR event occurs within their first decade of retirement.
And perhaps the person saving for a "LEAN FIRE" needs to think about 3% or 3.5% as their WR, because they have so little latitude to cut expenses.

All this ignores the perspective of Mustachian 3, who is retiring at 28 on a 5% WR because YOLO. They know they probably have a 62% probability of never having to go back to work again (per cfiresim at 5%WR and a 90/10 portfolio), and are willing to take the chance because the consequence of portfolio failure - having to go back to work a few years - is the same as the consequence of not taking the chance and working a few years to lower their WR.

So these 3 mustachians would have a lot to say to each other about the risks of portfolio failure, but none would be talking about the same thing.

Interesting way of putting it.

Mustachian #2 would likely be designing there life using a "systems theory" approach such that someone else was paying for their housing, food, and other expenses.....and in all seriousness with expenses that low, could probably work 1 day a week at some job they enjoy or even a hobby they monetized because they are resourceful and have built up plenty of social capital through their vast hobbies and activities.

I like the #2 approach, though cutting out "all" luxuries and discretionary purchases is a bit extreme. This might be a person who purchases used cars that need a lil TLC, fixes, drives and flips them. Someone who may do the same thing with electronic gadgets. It's someone who learns how to produce vs. consume.

Here is a great quote from Jacob's recent guest post on JD Roth's blog (https://www.getrichslowly.org/early-retirement-extreme/)

“Spending money is a failure to solve problems by smarter means.”

While this is not always true, and sometimes spending money is vastly superior to trying to DIY......if people focused more on being a well rounded human being, vs. putting all of their eggs in the net worth basket, life might be a lot more interesting :)

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #160 on: October 03, 2019, 09:02:25 AM »
Interesting way of putting it.

Mustachian #2 would likely be designing there life using a "systems theory" approach such that someone else was paying for their housing, food, and other expenses.....and in all seriousness with expenses that low, could probably work 1 day a week at some job they enjoy or even a hobby they monetized because they are resourceful and have built up plenty of social capital through their vast hobbies and activities.

I like the #2 approach, though cutting out "all" luxuries and discretionary purchases is a bit extreme. This might be a person who purchases used cars that need a lil TLC, fixes, drives and flips them. Someone who may do the same thing with electronic gadgets. It's someone who learns how to produce vs. consume.

Here is a great quote from Jacob's recent guest post on JD Roth's blog (https://www.getrichslowly.org/early-retirement-extreme/)

“Spending money is a failure to solve problems by smarter means.”

While this is not always true, and sometimes spending money is vastly superior to trying to DIY......if people focused more on being a well rounded human being, vs. putting all of their eggs in the net worth basket, life might be a lot more interesting :)

Well, sure, you can compare these two theoreticals and make some kind of value judgement, but in those two examples, the spending habits and WR could also be easily reversed, so it really doesn't say much.

The low spender could budget a huge amount of buffer room in their spend "just in case" and the high spender could have an unrealistically tight budget.

Their level of frugality actually has no impact on the relative risk, except that yes, a high spender typically has more expenses that they could easily cut.

There tends to be a habit here of equating fat-FIRE and high spending, which isn't necessarily true, it could just be extra buffer for security's sake, which makes it exactly the same as having a lower WR.

Lean-FIRE doesn't equal a low spend, it means having enough to just barely cover projected expenses with minimal fat in the budget to cut. One person's Lean-FIRE might be 1.5M, while another person's fat-FIRE might be 750K.

At the end of the day, the net worth does really matter, but only in direct proportion to the desires, goals, and risk tolerance of the people involved.

When it comes down to it, it's all entirely individual.

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #161 on: October 03, 2019, 09:19:40 AM »
There tends to be a habit here of equating fat-FIRE and high spending, which isn't necessarily true, it could just be extra buffer for security's sake, which makes it exactly the same as having a lower WR.

Lean-FIRE doesn't equal a low spend, it means having enough to just barely cover projected expenses with minimal fat in the budget to cut. One person's Lean-FIRE might be 1.5M, while another person's fat-FIRE might be 750K.

At the end of the day, the net worth does really matter, but only in direct proportion to the desires, goals, and risk tolerance of the people involved.

When it comes down to it, it's all entirely individual.

While everything is relative, I would disagree. The generally accepted definition of fatFIRE is indeed spending that's much higher than the median or peer group you tend to associate with.

PoF has a post on it, and if you hang out in the fatFIRE FB group or subreddit you will see this too.

https://www.physicianonfire.com/fatfire/

If fatFIRE was simply having a huge financial buffer regardless of spending, then most of the ERE weirdos and JLF himself who target 33x+ annual expenses would be "fatFIRE'd".

Anyway, I'm done debating in this thread =) Have a happy and healthy rest of your day.


Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #162 on: October 03, 2019, 09:20:54 AM »
There tends to be a habit here of equating fat-FIRE and high spending, which isn't necessarily true, it could just be extra buffer for security's sake, which makes it exactly the same as having a lower WR.

Lean-FIRE doesn't equal a low spend, it means having enough to just barely cover projected expenses with minimal fat in the budget to cut. One person's Lean-FIRE might be 1.5M, while another person's fat-FIRE might be 750K.

At the end of the day, the net worth does really matter, but only in direct proportion to the desires, goals, and risk tolerance of the people involved.

When it comes down to it, it's all entirely individual.

While everything is relative, I would disagree. The generally accepted definition of fatFIRE is indeed spending that's much higher than the median or peer group you tend to associate with.

PoF has a post on it, and if you hang out in the fatFIRE FB group or subreddit you will see this too.

https://www.physicianonfire.com/fatfire/

If fatFIRE was simply having a huge financial buffer regardless of spending, then most of the ERE weirdos and JLF himself who target 33x+ annual expenses would be "fatFIRE'd".

Anyway, I'm done debating in this thread =) Have a happy and healthy rest of your day.

Hmm...I'll have to reconsider then.

2Birds1Stone

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #163 on: October 03, 2019, 09:33:48 AM »
I'm just saying, food for thought.

I'm currently at ~36x barebone expenses, and ~30x actual trailing 12 month expenses......but far from what I would consider fatFIRE, living slightly above the US poverty level, and drastically below the median spending for my HCOL area.

I REALLY like the way you frame the "slack" in different situations. I guess the point I was trying to make was that the scenario where someone has optimized costs also likely means that type of individual is more resourceful and thus less reliant on money to meet their everyday needs/wants. It's a whole lot easier to reduce SORR risks (through going back to work or finding creative ways to earn money) once you FIRE when you're spending $1000/month than $10,000 a month, in absolute terms.

This is why I love this forum, always learning from smart people who challenge the status quo.

ChpBstrd

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #164 on: October 03, 2019, 11:18:56 AM »
I'm just saying, food for thought.

I'm currently at ~36x barebone expenses, and ~30x actual trailing 12 month expenses......but far from what I would consider fatFIRE, living slightly above the US poverty level, and drastically below the median spending for my HCOL area.

I REALLY like the way you frame the "slack" in different situations. I guess the point I was trying to make was that the scenario where someone has optimized costs also likely means that type of individual is more resourceful and thus less reliant on money to meet their everyday needs/wants. It's a whole lot easier to reduce SORR risks (through going back to work or finding creative ways to earn money) once you FIRE when you're spending $1000/month than $10,000 a month, in absolute terms.

This is why I love this forum, always learning from smart people who challenge the status quo.

In a nutshell, the issue is that financial optimization becomes less effective the further one takes it.

For example, deciding to cook one’s own meals instead of getting restaurant food 3x a week is a relatively easy way to halve one’s food expenses at a net cost of maybe a couple extra hours work. Cutting the grocery bill in half while eating healthy is a harder task, requiring several hours investment into developing an optimized recipe rotation, researching nutrition science, shopping around, and reading labels. Getting groceries for free is an even harder task, possibly requiring the input of so many hours one might as well have a job. Getting paid to eat would require Guy Fieri level dedication and would essentially be an 80 hour a week job.

The same could be said for transportation. Going from buying a brand new car every 3 years to buying a brand new car every 10 years is an easy way to halve one’s transportation expense at a cost of only a few hours extra labor. Going from a new car every 10y to a used 5 year old car every 10 years would halve it again, but at the cost of a few dozen hours labor. Bouncing from beater to beater is the cheapest way to own a car, but might cost 100-150 hours per year dealing with issues and trading. Giving up car ownership might reduce transportation expenses to a few hundred bucks a year, but at the expense of hundreds of hours per year in extra transportation time.

You can probably envision more diminishing-returns scenarios around housing and healthcare. The point is there is some level of spending that all the resourcefulness in the world can’t avoid, assuming our definition of retirement is something better than poverty. We can rig things and replace parts, but we cannot manufacture parts. We can exercise to stay healthy, but cannot synthesize our own drugs or perform surgeries on ourselves. We can invest money in energy efficiency or energy production, but we cannot generally produce energy (electricity, fossil fuels) for less effort than industry. We can grow a big garden and get into canning, but frankly the amount of labor and risk involved makes this approach similar to having a job.

We have limited time, and because optimizations require investments of time we can only pursue limited optimization. At some point in the diminishing-returns curve, we spend less time/effort at a job saving for a bigger portfolio than we do by gardening, doing DIY projects, building our own housing, or walking 15 miles per day.

In a situation such as a recession/correction, the low-optimized person could apply their time to saving lots of money because they have many options to do so, each with a ROI high on the curve of diminishing returns. The highly-optimized person, OTOH, has only marginal opportunities to save big chunks of money. The low-optimized person might earn $1,000 per hour doing things like shopping for insurance and paying off CC debt as MMM recently noted, but Jacob L. Fisher might be challenged to find a way to convert an hour into $10 in savings (fix the homemade rake?).

WR doesn’t tell us much because it says nothing about how optimized spending is. Qualifying WR by some sort of “fatness” factor would be a useful way to get a grasp on SORR.

Let’s also pause to note how lucky we are. Hundreds of millions of people hustle nonstop to survive on less than $2 per day. We are attempting to quantify the “risk” of having to do without Netflix, gourmet coffee, and huge houses with ornamental lawns. This whole debate is about enjoying luxury without working for it, and the terrifying risk that our own weaknesses for luxury could cause us to have to do without some luxuries.

bacchi

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #165 on: October 03, 2019, 01:20:37 PM »
^^ Well written. This is really the crux of why LeanFIRE is dangerous. It's difficult to cut your food budget when it's already $125/month and your investments are cut by 40% (start dumpster diving?).

That said, cutting a fatFIRE budget is a hedonistic challenge. Look at some of the Case Studies threads. We have one person that is unemployed and doesn't want to sell their 2.5M house with its accompanying huge mortgage. As seen again and again, a lot of high spenders really like the concept of ER but can spin out excuses all week long about why their $8000/month budget is truly as lean as it can get.

Is it easier if you specifically designate a "bare-bones" budget and a "nice-to-have" budget? Or, to put it another way, set up a variable withdrawal rate.

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #166 on: October 03, 2019, 02:21:21 PM »
My thoughts:  'LeanFIRE' is only dangerous if your mitigation plan is further cutting expenses.  But cutting isn't the only option - earnings is of course another.  And just as cutting expenses is easier for some folks than others, so earning potential. For some who's training requires keeping certifications current and loads of networking to maintain a client base (all lots of work) the challenge of picking up some part time work isn't practical.  For others who are either 'work-generalists' or have a skill-set that's perpetually in need the suggestions that they couldn't easily earn 0.25 - 1x their annual spending might seem absurd. 

And it doesn't have to be traditional work.  As an example, we could rather painlessly rent out a third of our home, which (following the 50% rule) would generate about 30% of our annual spending.  Boom - a WR that crept up to 5% due to market forces would suddenly be back to 3.5%.  We'd lose our guest bedroom and a closet now housing a bunch of our crap but little else.

point is - individual circumstances determine risk, and one person's 'leanFIRE' can be less risky than a 'fatFIRE' individual who refuses to get off their hedonistic treadmill.

secondcor521

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #167 on: October 03, 2019, 02:47:31 PM »
What I did before I FIREd was to make a list of a bunch of contingency plans.  I have a trigger condition that I monitor to see if I need to implement any of them.

I categorized them into:

1.  Reducing expenses items
2.  Increasing income items
3.  Super duper backups - things I wouldn't want to do but are definitely available to me, such as rely on my family for help.

Between the 3 categories, I have 42 individual contingency plan items I could trigger.

So far it has not been necessary.

2Birds1Stone

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #168 on: October 03, 2019, 06:41:40 PM »
@secondcor521, could you break some of those down? Or is it too personal?

I'm highly intrigued.

secondcor521

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #169 on: October 03, 2019, 06:57:20 PM »
@secondcor521, could you break some of those down? Or is it too personal?

I'm highly intrigued.

Sure.  I'll provide examples of each category.  I've deleted any that I think are too specific or personal.

I'm very far from my triggering condition of a WR > 4.08%.  Currently I'm at a WR = 0.77%.  Therefore I don't look at that part of my FIRE plan too much.  So I made a mistake in my prior post - there are actually four categories with 42 items.  (41 now, actually; one of my items is now a defunct website.)

1.  "What are my padding plans?
(Things I am doing or plan to do)"

Some examples:
"Work longer (salary / options / bonuses)
Work part time at my current company
Not maximizing frugality immediately pre-FIRE
Personal inflation rate of 0% versus historical inflation
Not accounting for any reduction in everyday expenses
Not accounting for any reduction in expenses when the kids fly the nest"

2.  "What are my expenses safety factors?
(Things I could do or would do)"

Examples:

"Downsize my home
Rent out my home and travel / RV / rent
Sell my home and travel / RV / rent
Live in a lower COL state or country
Dial up the frugality in general"

3.  "What are my income safety factors?
(Things I could do or would do)"

Examples:

"Miles hacking
Work part time or on a project basis as a <insert prior job title here>
Do Uber or TaskRabbit
Teach SAT/GMAT/etc preparation
Tutor.com
Teach at an international school (Search Associates)
Teach at the local schools or universities
Move retirement assets around for bonuses
Teach ESL
Substitute teach at the local schools
Prepare taxes
House sit with “A Trusted HouseSitter”
Gig jobs at <link>
Craigslist.org gigs
Rent out my garage
Rent out a room or two via AirBnB or similar
Textbroker.com – write for money
Work as a library assistant
Become a scuba dive master
Take SS early"

4.  "What are my super duper backups?
(Things I don’t want to rely on but are possibilities)"

Examples:

"Withdraw excess college funds
Return to full time work
Receive inheritance from Mom and Dad
Receive gifting to me from Mom and Dad
Receive kids’ college gifting from Mom and Dad
Receive Social Security at more than predicted amount of my benefit
Receive proceeds from my stock in small start-up
Die earlier than expected :-("

Hope that helps.

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #170 on: October 03, 2019, 08:07:38 PM »
Quote
Die earlier than expected :-(

Hopefully you do not trigger this contingency plan

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #171 on: October 03, 2019, 08:14:41 PM »
Quote
Die earlier than expected :-(

Hopefully you do not trigger this contingency plan
It's called the Smith and Wesson retirement plan. 

secondcor521

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #172 on: October 03, 2019, 09:31:22 PM »
Quote
Die earlier than expected :-(

Hopefully you do not trigger this contingency plan

Working on not triggering it.  Pun not intended.

It can help make the finances work out though. ;-P

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #173 on: October 04, 2019, 03:54:04 AM »
Some good discussion on the topic of fatFIRE and having slack in your budget.

The whole trouble here is that for most people living on 40k/year when you could be living on 25k/y will mean you are taking roughly twice as long to reach FI in the first place and runs counter to the whole "Mustaschianism" ethos... am I wrong on this?

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #174 on: October 04, 2019, 04:04:07 AM »
Some good discussion on the topic of fatFIRE and having slack in your budget.

The whole trouble here is that for most people living on 40k/year when you could be living on 25k/y will mean you are taking roughly twice as long to reach FI in the first place and runs counter to the whole "Mustaschianism" ethos... am I wrong on this?


Aaaaaand yet again we circle back to personal risk, and it all depending on how much the person likes or hates their job.

Mustachianism is whatever the person wants it to be, but at its core it's about not forcing yourself to working longer than you have to in order to fund wasteful spending.

What's wasteful is defined by the person.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #175 on: October 04, 2019, 04:36:37 AM »
Their level of frugality actually has no impact on the relative risk, except that yes, a high spender typically has more expenses that they could easily cut.

The big spender to me is in a significantly better position. If things go bad they can adjust. The optimized spender can't adjust.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #176 on: October 04, 2019, 04:40:02 AM »
I REALLY like the way you frame the "slack" in different situations. I guess the point I was trying to make was that the scenario where someone has optimized costs also likely means that type of individual is more resourceful and thus less reliant on money to meet their everyday needs/wants. It's a whole lot easier to reduce SORR risks (through going back to work or finding creative ways to earn money) once you FIRE when you're spending $1000/month than $10,000 a month, in absolute terms.

I think the opposite is true. The optimized spender has no buffer whereas the less optimized spender has buffer. I suppose the question is where is the slack. The optimized spender based on your opinion has theoretical slack that I think will fail under pressure. The less optimized spender has actual slack and therefore can handle different scenarios via adjusting their spending.

If you think about it the issue is can you live off less than what you budgeted for in difficult situations. My take is the less optimized spender is going to win out here in the vast majority (probably all) of situations,.
« Last Edit: October 04, 2019, 04:43:48 AM by chevy1956 »

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #177 on: October 04, 2019, 04:41:40 AM »
I]n a nutshell, the issue is that financial optimization becomes less effective the further one takes it.

Exactly. You can create whatever theoretical situation you like but it's theoretical and it probably won't work in reality.

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #178 on: October 04, 2019, 04:45:10 AM »
@chevy1956, I guess that depends on the higher spenders skills. Plenty of these people ended up homeless during the financial crisis because they were locked into a high income/high spending lifestyle and lost it very quickly.

Despite my spending being fairly optimized @~$18k/yr in a HCOL area, I could trim that down to $12-14k/yr painlessly. Literally any minimum wage job in NY 2 days a week could replace half of my portfolio, not so much for someone who relies on money to solve all of their problems and is locked into a high spend lifestyle. To each his own, enjoy your high spending :)
« Last Edit: October 04, 2019, 05:10:37 AM by 2Birds1Stone »

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #179 on: October 04, 2019, 04:51:33 AM »
Their level of frugality actually has no impact on the relative risk, except that yes, a high spender typically has more expenses that they could easily cut.

The big spender to me is in a significantly better position. If things go bad they can adjust. The optimized spender can't adjust.

In the specific post you are selectively quoting from, I was referring to an example where an optimized/frugal spender added a lot of buffer to their budget, but the high spender didn't.

So both of their risk is more related to buffer in the budget and not the spending itself, except, that yes, the high spender has actual expenses they can cut. Still, the lower spender is far more secure because they have buffer.

We never know how much buffer people have factored in when they talk about their projected annual spend and WR, so we can have two people posting here comparing numbers and have no clue what one of their biggest risk-mitigating factors is.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #180 on: October 04, 2019, 06:24:30 AM »
@chevy1956, I guess that depends on the higher spenders skills. Plenty of these people ended up homeless during the financial crisis because they were locked into a high income/high spending lifestyle and lost it very quickly.

Skills sound great but unless you are you talking about creating food out of air this sounds like pie in the sky. As for plenty of those people ending up homeless because they were locked into a high spending lifestyle I'd like to see the facts on that. My take is that if you are in the situation of having to spend less to retain a roof over your head then you will spend less unless you are already optimized. If you are optimized then you can't decrease spending.

Lot's of people learn to spend less because they have too. If you are already highly optimized it's probably hard to do that.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #181 on: October 04, 2019, 06:30:51 AM »
Their level of frugality actually has no impact on the relative risk, except that yes, a high spender typically has more expenses that they could easily cut.

The big spender to me is in a significantly better position. If things go bad they can adjust. The optimized spender can't adjust.

In the specific post you are selectively quoting from, I was referring to an example where an optimized/frugal spender added a lot of buffer to their budget, but the high spender didn't.

So both of their risk is more related to buffer in the budget and not the spending itself, except, that yes, the high spender has actual expenses they can cut. Still, the lower spender is far more secure because they have buffer.

We never know how much buffer people have factored in when they talk about their projected annual spend and WR, so we can have two people posting here comparing numbers and have no clue what one of their biggest risk-mitigating factors is.

I get it.  A 3% WR with no room to decrease spending may be the same as a 4% WR with room to decrease spending. The point being that arguing over a SWR is a little funny because it's all based on estimated expenses and we don't know if there is buffer or not in the estimated expenses.

There is also the argument about somehow being able to use skills to avoid portfolio failure. This to me is simply a play on decreasing expenses which really just comes down to how highly optimized your spending is. I'd like to know why these people haven't already optimized their spending now.

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #182 on: October 04, 2019, 06:49:51 AM »
Their level of frugality actually has no impact on the relative risk, except that yes, a high spender typically has more expenses that they could easily cut.

The big spender to me is in a significantly better position. If things go bad they can adjust. The optimized spender can't adjust.

In the specific post you are selectively quoting from, I was referring to an example where an optimized/frugal spender added a lot of buffer to their budget, but the high spender didn't.

So both of their risk is more related to buffer in the budget and not the spending itself, except, that yes, the high spender has actual expenses they can cut. Still, the lower spender is far more secure because they have buffer.

We never know how much buffer people have factored in when they talk about their projected annual spend and WR, so we can have two people posting here comparing numbers and have no clue what one of their biggest risk-mitigating factors is.

I get it.  A 3% WR with no room to decrease spending may be the same as a 4% WR with room to decrease spending. The point being that arguing over a SWR is a little funny because it's all based on estimated expenses and we don't know if there is buffer or not in the estimated expenses.

There is also the argument about somehow being able to use skills to avoid portfolio failure. This to me is simply a play on decreasing expenses which really just comes down to how highly optimized your spending is. I'd like to know why these people haven't already optimized their spending now.

Well...optimization is also relative.
How spartan does someone need to live in order to be considered optimized??

Pete has a ton of spending he could cut, he's always been open about that.

If it's all about optimal spending for optimal happiness, how is anyone to judge what's optimal for someone else?
One person's "optimal" lifestyle spending may include a lot of things that they might happily cut in the event of economic downturn, such as a travel budget.

So just because they have some spending that they are comfortable living without for a certain period doesn't mean that that spending is overall suboptimal.

In fact, it may be highly optimal to plan to favour spending on desired luxuries during prosperous years. That's actually a legitimate approach to establishing a more secure WR.


PhilB

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #183 on: October 04, 2019, 07:27:00 AM »
I've always been more interested in the psychology than the mathematics, so here's a scenario that closely matches my own experience:
Mustachian 1 and Mustachian 2 both have reasonably, but not excessively, optimised lifestyles with $30k pa expenses and a 70% savings rate.  M1 believes in 4% WR, but does two and a bit extra years to build a buffer which gets his stash to $1M before retiring which his spreadsheet says will support $40k pa.  M2 also retires at the $1M mark trusting his 3% WR to deliver.  Post FIRE both continue to spend $30k because that still works fine for them.  Both scenarios are mathematically identical, but who is happier?

I realise that's probably a very personal choice, but I myself am much happier as M1.  I did my extra two years and initially I kept reducing my WR as the stash got bigger to try and make me feel 'safer'.  I found each reduction in the WR had no noticeable impact on my happiness or peace of mind.  Post FIRE I have changed tack and budget more like M1.  Cashing up at the end of the month and seeing how much money I have 'saved' compared to budget gives me a warm fuzzy feeling.

ChpBstrd

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #184 on: October 04, 2019, 08:19:23 AM »
I also wonder about people’s motivational levels pre-FIRE vs. post-FIRE. In theory, while we are pre-FIRE we are wage slaves with little control over how we spend our lives and this steady wasting away of our lifetimes, reformatting the TPS reports, sitting in traffic, or whatever, should be a highly motivating factor. To escape such a fate, I suspect some people of a certain mindset adopt a more frugal lifestyle than is sustainable. Yet they base their “FIRE number” on this low baseline. Ask them what they want to do in retirement and they might say “travel”, which is not something they’re doing now.

In retirement the world opens up and life becomes unbounded, except perhaps by a spreadsheet one keeps buried in a computer. Can you go over budget this month to take that river boat cruise down the Seine? Did last month’s restaurant meals cost a bit more than expected, so are you going to skip lunch with the old friend? Did we cut spending elsewhere and set up a savings fund before buying that new bicycle? Maybe the excuses and forgotten mental debts accumulate much more easily without the constant annoyance of work, and when spending comes in at 4.5% perhaps we excuse ourselves for the one time expenses and make no long term changes.

secondcor521

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #185 on: October 04, 2019, 09:38:24 AM »
I REALLY like the way you frame the "slack" in different situations. I guess the point I was trying to make was that the scenario where someone has optimized costs also likely means that type of individual is more resourceful and thus less reliant on money to meet their everyday needs/wants. It's a whole lot easier to reduce SORR risks (through going back to work or finding creative ways to earn money) once you FIRE when you're spending $1000/month than $10,000 a month, in absolute terms.

I think the opposite is true. The optimized spender has no buffer whereas the less optimized spender has buffer. I suppose the question is where is the slack. The optimized spender based on your opinion has theoretical slack that I think will fail under pressure. The less optimized spender has actual slack and therefore can handle different scenarios via adjusting their spending.

If you think about it the issue is can you live off less than what you budgeted for in difficult situations. My take is the less optimized spender is going to win out here in the vast majority (probably all) of situations,.

I don't agree with your conclusion.  A less optimized spender may be able to adjust when things go south.  That is, if they agree with us that they have room to cut in their budget; spenders - high, low, and in-between - very frequently refuse to make and/or justify their current expense level as necessary.

However, most of the time things are not going south.  I've been invested since at least 1987, been familiar with and working on FIRE since the mid-1990's, and have been FI for five years.  Lots happened in that time, but really there were only two years where I thought things were going south (the tech crash in 2000/1, and the great recession in 2008/9).  So that's 2 bad years out of 32.  Perhaps I've been lucky.

During the other 90%+ of the time, the more optimized spender is, IMHO, gaining ground over the less optimized spender, pretty much by definition.  If my spending truly matches my values, then I'm moving as fast towards my goals as I can.  The less optimized spender is getting there, but they're leaking oil or whatever analogy you want to use.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #186 on: October 04, 2019, 12:40:40 PM »
I don't agree with your conclusion.  A less optimized spender may be able to adjust when things go south.  That is, if they agree with us that they have room to cut in their budget; spenders - high, low, and in-between - very frequently refuse to make and/or justify their current expense level as necessary.

I was trying to figure out where the disagreement was. I think that this the difference is in how you are defining the optimized versus less optimized spender. If you assume they can both decrease spending sufficiently then there is no real discussion but to me that means that spending isn't optimized.

During the other 90%+ of the time, the more optimized spender is, IMHO, gaining ground over the less optimized spender, pretty much by definition.  If my spending truly matches my values, then I'm moving as fast towards my goals as I can.  The less optimized spender is getting there, but they're leaking oil or whatever analogy you want to use.

This is tough to discuss because spending is personal. I'll give an example. In my post fire budget I have some expenses that I am budgeting for that are luxuries for me. They aren't stuff that I have to spend but they are stuff that I want to be able to spend if everything is going well. If I don't spend that money I'll be fine. I'll still be happy but I'd prefer to spend that money if the market is going well. I'm not wasting money or leaking oil. I just have some luxury spending in my expenses that contribute to my happiness.

If we take the optimized spender as someone who cuts out all luxuries out then they don't  have that slack or buffer in their plans.

2Birds1Stone

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #187 on: October 04, 2019, 12:45:22 PM »
@chevy1956, that's ok. Not everyone will understand systems thinking and advance beyond Keegan 3 self-consciousness.

Most of the people on this forum are looking for a linear path to financial independence with a bullet point list of tips and tricks to follow and arrive at some utopia they imagine to exist at the end of the journey. Once your mindset shifts from consuming to producing, it opens a whole world of opportunity.

As far as people who had high paying jobs and ended up on the streets, just go on YouTube and check out the "Invisible People" channel, some of those stories are truly heartbreaking. For some it's financial crisis, others it can be losing a loved one, or having a health issue which wipes out their wealth. Many of these people didn't have the necessarily skills, IQ, resourcefulness, or better yet "practice" of finding alternate ways of meeting their needs besides monetary capital.

Someone who has optimized their spending thanks to being well rounded in terms of skills, strong social capital, and removing waste or even creating value from their activities, will likely never need a traditional job in order to eat, find shelter, or thrive.

2Birds1Stone

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #188 on: October 04, 2019, 12:47:13 PM »
I was trying to figure out where the disagreement was. I think that this the difference is in how you are defining the optimized versus less optimized spender. If you assume they can both decrease spending sufficiently then there is no real discussion but to me that means that spending isn't optimized.


Bingo, optimized =/= not being able to decrease spending out of necessity or will.

chevy1956

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #189 on: October 04, 2019, 01:07:29 PM »
@chevy1956, that's ok. Not everyone will understand systems thinking and advance beyond Keegan 3 self-consciousness.

I had to look this up so thanks for that. I don't think that this is a fair comment. I think you are trying to state that unless people agree with your outlook they are less evolved. I don't see that at all. People can have different opinions and outlooks in relation to how they view the world and you can't state one person is better than another.

If anything I think anyone thinking they are more self-aware than other people are probably less self-aware.

Most of the people on this forum are looking for a linear path to financial independence with a bullet point list of tips and tricks to follow and arrive at some utopia they imagine to exist at the end of the journey. Once your mindset shifts from consuming to producing, it opens a whole world of opportunity.

Really ? How do you know what most people on this forum are after ? Can you give a practical example of a mind-set change opening up a whole world of opportunity ?

Someone who has optimized their spending thanks to being well rounded in terms of skills, strong social capital, and removing waste or even creating value from their activities, will likely never need a traditional job in order to eat, find shelter, or thrive.

Maybe. Can you provide practical examples of this.
« Last Edit: October 04, 2019, 01:09:45 PM by chevy1956 »

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #190 on: October 04, 2019, 01:21:51 PM »
I was trying to figure out where the disagreement was. I think that this the difference is in how you are defining the optimized versus less optimized spender. If you assume they can both decrease spending sufficiently then there is no real discussion but to me that means that spending isn't optimized.


Bingo, optimized =/= not being able to decrease spending out of necessity or will.

At some point, portfolio failure needs a definition too. Physical survival to old age might be possible for someone whose net worth and spending have been reduced to a fraction of what was originally planned, but that is not a success story. Inherent to the concept of retirement is some expectation of stability: living in similar-quality housing, eating similar-quality food, having access to healthcare and medication, little luxuries, not being reliant on public assistance, etc. Essentially the same financial lifestyle one had while working. The objective is to not find oneself in the position of having to reduce one’s quality of life. Going back to work and selling one’s home to become a roommate are both retirement failure scenarios, even if one accepts their situation or later recovers to previous levels and re-retires.

2Birds1Stone

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #191 on: October 04, 2019, 01:49:39 PM »
@chevy1956, sorry, that was neither a dig at you or what I meant by that statement. I also disagree that moving up in Keegan levels or thinking of things more systemically necessarily makes one "better" than another person. It does however give someone the ability to think outside of their own cognitive biases and possibly open the mind to other ideas and concepts. It's more than just self awareness. To me, it means being able to think outside of the box.

To your second point, I've spent way more time on here over the past 5 years than I care to admit. And really, most come here for advice, or with a case study, etc...so they're asking/telling us pretty openly. Most of the advice given is very much mainstream FIRE-101 advice.....drive less, live smaller, cook vs. eat out. It's been restated, re-branded, and repackaged all over the internet over the past few years.  The examples you're looking for are planted among the masses here and other places on the internet. A favorite poster of mine on ERE goes by the name "Ego", who in searching for an apartment realized he could become the "maintenance" guy using his handyman skills and has over the past 8 years gotten free housing/utilities + a small stipend by parlaying those skills for small/mid sized commercial apartment communities. Our very own @BicycleB has 3 roommates who effectively pay his mortgage, @Warlord1986 wanted to get into standup paddleboarding, so instead of purchasing a brand new SUP, she figured out how to get one used, then got certified and now has clients who she guides on paddles for a tidy profit, @arebelspy house sat all over the world for free accommodations, @C40 leveraging his handiness built/lived in a van for a number of years before selling it for almost what it cost him before planning his next big adventure. None of these would be possible with traditional thinking and conforming to typical societal norms.

The godfather of what you're referring to in your third point would be Jacob from ERE, there's a guest post he did on JD Roth's blog which I linked up-thread (at the top of this page), and if you head over to the ERE forums and check out the journals there, you can find dozens, if not hundreds of practical examples.

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #192 on: October 05, 2019, 05:15:17 AM »
"None of these would be possible with traditional thinking and conforming to typical societal norms."

Right, but a doctor or investment banker might generate enough income, by conforming to typical societal norms, that she can retire in 10 years with a relatively luxurious living standard, and not have to do any of those hacks in the meantime.

No system is better than the other - as long as it works for the person - everyone is resourceful in his or her own way.

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #193 on: October 05, 2019, 05:45:59 AM »
Yes very true although I guess that doctor or investment banker is reliant on the financial system after FIRE as much as they were reliant on their job during accumulation.

This has been a very interesting thread. I’ve spent all sorts of time thinking about SWR’s. I’ve got tables that show different levels of expenditure and the resultant stash required. I’ve discovered as many others have, the fact that one level of expenditure at 3% requires the same stash as a larger budget at 4% etc. I agree the difference is mainly psychological. I am concerned that job worries are replaced with stash worries post FIRE I.e. I’ve just swapped my single income source with a different single income source. Markets rise and fall, the outlook can be terrible, there is always plenty to worry about if you want to find something.

Pre-MMM I was too scared to invest so just overpaid my mortgage and kept in cash. This blog/forum has given me the confidence to invest. This has obviously transformed my position but despite this I still think my biggest strength is my ability to live on an annual spend lower than the minimum wage.

If I lost my job it is comforting to know any job would cover my expenses and that I don’t need to compete with the top 10% just to pay the bills. Obviously I wouldn’t want to take just any job, but nonetheless comforting to know I’ll be able to eat and keep a roof over my head.

I am very much looking into multiple income sources as a more resilient life approach going forwards. A lodger, stash, some sort of side hustle, more skills to ensure I don’t have to outsource as much, as well as any part time job, could all come to the rescue when only minimal expenses are required.

This also allows part time to be explored earlier, avoiding a slog to hit a number and the transition from working flat out to suddenly having loads of time to fill, with only the career as the main skill gained in that time.

I agree there is no right or wrong here, and it’s important to put the ‘personal’ into finance. If there was a really severe and more permanent downturn, maybe due to climate change or automation, or lower returns due to the lower interest rates this thread started on, then I wouldn’t say it is a stretch that the wider more generalist skill set with fewer needs would be more handy.

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #194 on: October 05, 2019, 06:59:07 AM »
I was trying to figure out where the disagreement was. I think that this the difference is in how you are defining the optimized versus less optimized spender. If you assume they can both decrease spending sufficiently then there is no real discussion but to me that means that spending isn't optimized.


Bingo, optimized =/= not being able to decrease spending out of necessity or will.

At some point, portfolio failure needs a definition too. Physical survival to old age might be possible for someone whose net worth and spending have been reduced to a fraction of what was originally planned, but that is not a success story. Inherent to the concept of retirement is some expectation of stability: living in similar-quality housing, eating similar-quality food, having access to healthcare and medication, little luxuries, not being reliant on public assistance, etc. Essentially the same financial lifestyle one had while working. The objective is to not find oneself in the position of having to reduce one’s quality of life. Going back to work and selling one’s home to become a roommate are both retirement failure scenarios, even if one accepts their situation or later recovers to previous levels and re-retires.

IF that is the person's personal definition of FIRE failure.
Just because those are commonly seen as unappealing outcomes doesn't definitively make them FIRE failures.

This is what these conversations always turn into: each person indicating what they feel are reasonable limits, when really, they're just personal priorities.

For someone who hates their career and is burning out, their primary goal may just be to leave the professional world and never spend another year ever working a full time stressful job. For that person, the notion of "having to go back to work" to a part time casual job may feel like a totally reasonable and pleasant part of a retirement plan compared to more years working to avoid what you define as "FIRE failure".

Don't forget, A LOT of traditional retirees work part time, so ruling out paid work as some kind of retirement failure seems patently ridiculous.

If that's your personal definition of failure, and having to do paid work in retirement is a major risk you would like to mitigate, that's fine. For anyone whose personal definition of FIRE failure includes having to do any paid work, they should save accordingly.

But...why do we need some universal definition of FIRE failure? What impact would that actually have other than to plug into our simulators, which we've already established mean virtually nothing beyond a vague rule of thumb?

The future isn't some binary thing determined as a success or a failure. Money will fluctuate, markets will change, technology will come and go, and how we exist in the world will evolve. People deal with change, they adjust to new realities, and no sum of savings guarantees anything, much less comfort for the rest of your life.

If shit goes totally sideways, one person may have more capital to start with, and that may or may not matter. One person may be more skilled/willing to work, and that may or may not matter. One person may have no problem moving into cheap communal housing, and that may or may not matter.

Life changes, we change, what we want changes, what we're afraid of changes, what we consider failure changes, regardless of what your financial state is at one specific point in time when you decide you're ready to leave your job.

So I ask you very honestly, what on earth is the utility of defining FIRE "failure"? Because if its purpose is to predict FIRE "success" through some form of simulation...well...


ChpBstrd

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #195 on: October 05, 2019, 09:25:19 PM »
A definition of FIRE failure is needed so that the risk can be quantified and the amount of life traded for money can be minimized.

If a person who lives off a stash has to get a job after recessions/corrections, or to significantly lower the level of luxury they are accustomed to (e.g. selling their single family home to become someone’s roommate), then I would argue they aren’t actually FI. WR’s around 7-9% do not reduce a portfolio during a bull market, and are thus only unsustainable in the long run. Yet they might last decades nonetheless! Some of the 4% portfolios I see in cfiresim take a hit early on and finally exhaust themselves 20 years later. WR is a way of quantifying the chance that we will someday discover we are not actually FI, and face unpleasant choices about going back to work, foregoing healthcare, changing our housing situation, etc. The consequences of FIRE failure are discomfort and a loss of autonomy, unless one is elderly/ disabled, in which case it could be life-threatening (at least here in the States).

In terms of individual risk tolerance, individual flexibility, side gigs, etc. I can see how we need a definition for how much intervention counts as coming out of retirement or retirement failure. If my stash only survived because I spent a decade working part time, was I FI or was I just a part time careerist? If I lowered my standard of living from median middle class to poverty level, did my retirement plan work? It is possible to work 5 years and then live off the proceeds for 5-10 years over and over again, but this lifestyle, though fun and optimal in some ways, would be something different than financial independence. The underlying assumption with FIRE is that you plan to maintain spending on a similar level as you had pre-FIRE. An unexpected but necessary emergency cutback of, say, 20% would count as retirement failure in my opinion.

PhilB

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #196 on: October 06, 2019, 12:56:26 AM »
A definition of FIRE failure is needed so that the risk can be quantified and the amount of life traded for money can be minimized.
I would broadly agree with that, but despite the wishes of the IRP it most definitely will not be a simple, black and white definition and, most importantly of all, it will vary hugely from one individual to another based on their personal tolerance for picking up PT work, cutting back spending and indeed their tolerance for working longer in the first place.
For someone being totally ground down by their job then a 20% chance of having to pick up a little bit of PT here and there if they hit SORR issues might be entirely acceptable.  They would not see that as a failure, it's just at the less optimal end of their range of acceptable outcomes.  For 'failure' to be meaningful in the context of choosing when to retire it surely means being forced to take options outside your personally acceptable range.

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #197 on: October 06, 2019, 04:44:42 AM »
A definition of FIRE failure is needed so that the risk can be quantified and the amount of life traded for money can be minimized.

If a person who lives off a stash has to get a job after recessions/corrections, or to significantly lower the level of luxury they are accustomed to (e.g. selling their single family home to become someone’s roommate), then I would argue they aren’t actually FI. WR’s around 7-9% do not reduce a portfolio during a bull market, and are thus only unsustainable in the long run. Yet they might last decades nonetheless! Some of the 4% portfolios I see in cfiresim take a hit early on and finally exhaust themselves 20 years later. WR is a way of quantifying the chance that we will someday discover we are not actually FI, and face unpleasant choices about going back to work, foregoing healthcare, changing our housing situation, etc. The consequences of FIRE failure are discomfort and a loss of autonomy, unless one is elderly/ disabled, in which case it could be life-threatening (at least here in the States).

In terms of individual risk tolerance, individual flexibility, side gigs, etc. I can see how we need a definition for how much intervention counts as coming out of retirement or retirement failure. If my stash only survived because I spent a decade working part time, was I FI or was I just a part time careerist? If I lowered my standard of living from median middle class to poverty level, did my retirement plan work? It is possible to work 5 years and then live off the proceeds for 5-10 years over and over again, but this lifestyle, though fun and optimal in some ways, would be something different than financial independence. The underlying assumption with FIRE is that you plan to maintain spending on a similar level as you had pre-FIRE. An unexpected but necessary emergency cutback of, say, 20% would count as retirement failure in my opinion.

I agree that each individual needs to plan according to their own particular risks and mitigate against those with a reasonable savings goal, but that's not the same as defining something as a "failure" or even close to establishing a broad definition of failure for everyone.

You can argue whether someone is FI or not all you want, although that doesn't matter in the least if they understand their financial choices and are comfortable with the risks they are taking.

They might not get to ever wear their official 'MMM FI CLUB" pin, but people really shouldn't be making important life decisions based on consensus of internet strangers about definitions that don't affect anyone.

You are absolutely entitled to whatever version of the future that you want to define as a "failure" of your plan for yourself, and yes, you should save accordingly to mitigate the risk of having to cut your spending by 20%, if that's something you would be uncomfortable with.

For someone else though, that kind of variable spending may be baked into their FIRE plan. It's a legitimate approach to mitigating portfolio risk.

You can't project your preferences and goals onto everyone else in the world. Cutting expenses dramatically in down years may be totally comfortable for some people.

I'm one of them, our household spending can easily be cut back to "poverty level" because our base expenses are very low. Our future travel budget is an enormous portion of our spending, and in down times we could eliminate travel costs and instead take trips for up to one month a year to exotic places where we get paid to do our in-demand jobs. That one month would generate enough income to cover most of our annual spend.

I don't consider that a failure of my plan, because during the up years, I'll probably do the exact same types of trips on a volunteer basis.

Different people have different lives, different risks, different fears, different flexibilities. What one person is trying to avoid may be what another person has as an advantage.

Risks are deeply personal and entirely based on feelings, and we try to quantify an amount of money that will protect us against them.
Except...you can't really guarantee against them, they're tremendously difficult to quantify, and they're entirely arbitrary.

If you really don't ever want to have to cut your spending, yes, you should absolutely save more than 25X your projected annual spend. No one is arguing against that, the 4% rule is an EXCELLENT starting point.

How much more should you save?
Fuck, I don't know. No one does. Your simulations sure as hell don't because the inputs and assumtpions are so flawed.

You're not wrong, there's absolutely a major risk of not saving enough for retirement, especially in a place without free/affordable healthcare.

That doesn't mean that you can quantify or define FIRE failure though. You can identify risk, but it's impossible to draw a firm line in the sand as to exactly what is success and exactly what is failure.

If risk is based on feelings and feelings change over time, you can't even know what your future risk tolerances will be.

At the end of the day, ALL of our retirement plans are just best guesses.

ChpBstrd

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #198 on: October 06, 2019, 09:22:33 AM »
I agree we are all operating on "best guesses". For example, the US had an epic stock market during most of the 20th century, but who can say this century will necessarily resemble the past? If inflation hits 5-10% mid-retirement, all portfolio bets are off. Yet, a decision must be made or else one ends up in perpetual OMY syndrome, or afraid to spend money on travel in retirement, or wasting one's life away in an office building a too-massive stache in a futile effort to protect against the feeling of insecurity, or retiring with too small a stache and facing real insecurity in the future.

Although life is a best guess, I'm not a fan of a do-whatever-your-feelings-tell-you retirement decision-making. In terms of personal finance, feelings = error. That's true for stock trading, car buying, timeshares, expensive broker relationships, and every other way to spend or invest. Why would it not be true for setting a WR?

Also, I'm skeptical about the possibilities to "personalize" one's WR by making assumptions about options that might not exist in the future, such as employability. Consider the 60 year old who retired at 40 but has experienced portfolio depletion and must return to work. Sounds doable in the US with our 3.5% unemployment rate right now, but suppose s/he is in Greece (or a possible future US) where the unemployment rate is over 17% and they have no experience for the past 20 years? Consider the downsizing or moving options for a retiree who owns their home outright, but would have to pay more in rent than the proceeds from the sale of their home could earn them. Consider the retired construction worker with a bad back, who might face disability if they aggravate the injury. Consider the retired tech or healthcare worker whose skills are obsolete/dangerous after 10 years of missed continuing education and lapsed certifications.

Yes, there are alternative ways to avoid wage slavery that don't involve FIRE. We need new terminology to describe strategies that are only partially dependent upon investments/pensions and still require the constant input of work or else the finances break down. Flextired? Semi-FIRE? PT-FIRE? Semi-retired? Part FI? The important part is to understand that quitting one's job to pursue one of these strategies is not the same as achieving FIRE. And I adamantly think if one's "FIRE plan" involves probably being forced to go back to work, it is something other than a "FIRE plan".

Example: A 30y/o quits to live off of investments at a 7% WR. Are they FIRE?

Cfiresim says their historical chance of success is about 39%. So there's about a 61% chance they'll be going back to work in their 40s, 50s, or 60s for many many years. They might have made the right decision for themselves personally, but to call them FIRE is a stretch. This person is not in the same game as the 4% or 3.5% retiree who has 90%+ historical odds of never having to work again. They are Semi-FI with a portfolio lotto ticket that might make them FIRE someday all on its own.

Malkynn

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Re: 4% SWR (or 3.x) has never been modeled with current interest rates
« Reply #199 on: October 06, 2019, 10:04:34 AM »
I agree we are all operating on "best guesses". For example, the US had an epic stock market during most of the 20th century, but who can say this century will necessarily resemble the past? If inflation hits 5-10% mid-retirement, all portfolio bets are off. Yet, a decision must be made or else one ends up in perpetual OMY syndrome, or afraid to spend money on travel in retirement, or wasting one's life away in an office building a too-massive stache in a futile effort to protect against the feeling of insecurity, or retiring with too small a stache and facing real insecurity in the future.

Although life is a best guess, I'm not a fan of a do-whatever-your-feelings-tell-you retirement decision-making. In terms of personal finance, feelings = error. That's true for stock trading, car buying, timeshares, expensive broker relationships, and every other way to spend or invest. Why would it not be true for setting a WR?

Also, I'm skeptical about the possibilities to "personalize" one's WR by making assumptions about options that might not exist in the future, such as employability. Consider the 60 year old who retired at 40 but has experienced portfolio depletion and must return to work. Sounds doable in the US with our 3.5% unemployment rate right now, but suppose s/he is in Greece (or a possible future US) where the unemployment rate is over 17% and they have no experience for the past 20 years? Consider the downsizing or moving options for a retiree who owns their home outright, but would have to pay more in rent than the proceeds from the sale of their home could earn them. Consider the retired construction worker with a bad back, who might face disability if they aggravate the injury. Consider the retired tech or healthcare worker whose skills are obsolete/dangerous after 10 years of missed continuing education and lapsed certifications.

Yes, there are alternative ways to avoid wage slavery that don't involve FIRE. We need new terminology to describe strategies that are only partially dependent upon investments/pensions and still require the constant input of work or else the finances break down. Flextired? Semi-FIRE? PT-FIRE? Semi-retired? Part FI? The important part is to understand that quitting one's job to pursue one of these strategies is not the same as achieving FIRE. And I adamantly think if one's "FIRE plan" involves probably being forced to go back to work, it is something other than a "FIRE plan".

Example: A 30y/o quits to live off of investments at a 7% WR. Are they FIRE?

Cfiresim says their historical chance of success is about 39%. So there's about a 61% chance they'll be going back to work in their 40s, 50s, or 60s for many many years. They might have made the right decision for themselves personally, but to call them FIRE is a stretch. This person is not in the same game as the 4% or 3.5% retiree who has 90%+ historical odds of never having to work again. They are Semi-FI with a portfolio lotto ticket that might make them FIRE someday all on its own.

Ooooh...

My opinions are quite the contrary of what you seem to think they are.

I don't think people should be all willy nilly with their finances, nor do I think people should choose ultra high withdrawal rates and use magical thinking to hope their way to financial security.

I think anyone with common sense who is open to working in the future needs to also assess the very real risk of knowing they might not be able to.

Saying that someone can't just depend on continuing to work part time doesn't disprove my point at all, it just shows how much thought needs to go into trying to quantify a person's risk.

My whole entire point is that people need to account for their feelings and not abdicating that responsibility to an inaccurate mathematical simulation as some kind of proxy.

Just because a simulator tells you a certain WR is safe doesn't mean anything, and personal fears and feelings need to be examined in order to determine what best actions should be taken.

I've never once argued that people should be saving less than 25X their projected annual spend. I've never once argued that undersaving is somehow okay because of feelings.

I gave you the example of myself where DH and I have incredible flexibility to cut expenses and work in our retirement with very little effort. Well guess what? I've also already indicated that my projected WR is likely to be incredibly low. There are deep, personal reasons for that, that required A LOT of extremely profound reflection in terms of hopes, fears, and risks.

So no, none of my posts in this thread have argued for less conservative savings, I've argued against arbitrary nonsense math being the basis for savings targets.

As for your example guy who has saved to a 7% WR and whether or not he can be considered FIRE, well I truly don't care who can and cannot be considered FIRE and I don't think it matters one damn bit.

What does matter is that your guy knows his risks, knows his options, and makes the best decisions for himself. If he quits at 7% with an aim to never work again and calls himself FIRE, so be it, he's a moron, plain and simple. Chances are bad things will happen to him just because he's stupid and irresponsible.

However, if he's a burnt out professional who just beat cancer and had FU money, so he decides to leave his profession with what amounts to a 7% WR today but plans to geo-arbitrage to lower his expenses for the next decade while exploring projects that may or may not be profitable...he might just be perfectly fine financially, and end up very happy.

Should he walk around calling himself FIREd??
Nope, not on the fucking internet, not unless he wants a fight. 
Do I think he should call himself FIREd?
If he's happy, he can call himself a magical unicorn for all I care.
Is his plan a failure if it requires a significant reduction in spending, a significant change in lifestyle, and possibly a lot of work for years to come???
Well...not if that was the plan in the first place.

My entire damn point is that feelings aren't the antithesis of numbers, quite the opposite, in finance, the numbers are a measurable manifestation of feelings. The feelings that define the numbers are critical to understand.
The simulations done with those numbers??? Virtually meaningless beyond the broadest of strokes.