2008 illustrates the fallacy of using market prices as one’s “FIRE number”. What actually retires a person is having a claim on a stream of
earnings cash flows that can cover all their expenses. The 4% rule is a helpful rule of thumb that is applicable in normal times and valuations. However, I would argue that at the peaks and troughs of our bubble driven market, investors should do the work of projecting the cash flow of their assets.
A person retiring in ‘08 could have safely retired - or stayed retired- at withdrawal rates above 5-6% because stock prices had been so artificially depressed by the crisis. At that time, it was possible to buy 8-10% growing cash flows and cover all of one’s expenses for a fraction of 25x living expenses. A half million then could have bought a lot more cash flow than a half million in, say, 2000 or early 2020. As it turned out (and always turns out), prices realigned with cash flows.
The amount of cash flow one controls has a much bigger influence on when one can retire than market prices. As we’ve seen this week, market prices whipsaw all over the place. It would be ridiculous to call oneself FI last week, but to then resolve to go back to work for OMY this week because stock prices fell. You still have the same assets! The price will change tomorrow.
It’s not easy to look up free cash flow for the indices (which you can then scale up or down to calculate FCF for your index fund shares). I have yet to find a free online source for this metric. So one must rely on articles done by people with Bloomberg terminals. This makes it tempting to use earnings as a proxy, but they are very much not the same metric.
https://banyanhill.com/free-cash-flow-fcf-yield-shows-when-to-invest/