This post was inspired by a portion of the JLCollins stocking investing series.
Let me explain where I got 7% from:
I am 33 years old, and the basic plan to be in the stash building stage for another 6-7 years. Thus, I plan to reach FIRE at age 40 with a stash of a minimum of at least 400k (I make about 120k/year right now and saving). A conservative estimate is that I would need $2184/month in passive income (about 27k per year) during early retirement.
I have a separate, entirely different 401k savings as well.
Thus, the plan is to build a stash to bridge the gap from age 40 to 60, at which point, I could then tap into the 401k penalty free (also I am not interested in a Roth conversion ladder scheme nor the 72t rule).
Anyway, below are two highlighted charts from the updated 2009 version of the Trinity study taking into account different withdraw rates (adjusted for inflation):
If I am reading this correctly, according to historical data:
*As long as you keep your asset allocation in stocks very high (75% to 100%), you have an average 72% success rate using 7%. Anything above 25% in bonds is too risky using a 7% withdraw rate.
*Also, it appears that 7% is much riskier for some reaching FIRE at 30 age rather than at age 40. It really matters whether you are looking for 20 years or 30 years or longer.
Thus, my own plan is do 75% allocating into the Vanguard Total Stock Market Index Fund and 25% allocating into the Vanguard Total Bond Market Index Fund. In fact according to the other chart below from the trinity study, with this allocation, on average, after 20 years you will have more money left in the stash than you started with even taking 7% withdraws:
Personally I am comfortable with a 72% success rate (others my not be). I feel that if one does fall into the 28% failure rate, you could always take on part-time work or even have a side business, if need be, to make up short falls. The key difference in early retirement is you are still be young and presumably healthy, and capable with plenty of energy and spirit. In contrast, a 7% withdraw would not make sense for anyone over 65 doing conventional old-age retirement.
Further, for background info, me and wife just recently paid off our mortgage and have no debt whatsoever. This may be why I feel less risk with this withdraw rate than other people with high monthly payments on their mortgages. So the money in FIRE is to mainly to pay for groceries, health care, utilities, and property tax.
Anyone have any thoughts or comments on this idea (i.e. it is smart, stupid, complete BS, etc.)?