Author Topic: Author of 4% rule now says 4.5%  (Read 5331 times)

chevy1956

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Re: Author of 4% rule now says 4.5%
« Reply #50 on: October 30, 2020, 07:35:00 PM »
Being fearful and pessimistic is very expensive. Personally I'm not willing to pay that cost.

This is the crux of the issue. If you want to pay that cost be my guest. I guess I make money out of people taking out inefficient insurance policies and this is no different to that.

JMS

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Re: Author of 4% rule now says 4.5%
« Reply #51 on: October 30, 2020, 11:59:39 PM »
Could someone please post a link to the calculate that predicts the failure rate based on my on parameters?  Thanks

Is this what you are looking for?

http://www.cfiresim.com/

Exactly - thanks very much

Or here:

https://calculator.ficalc.app/

Or my favorite since it includes that grey "dead" outcome to put things in perspective:

https://engaging-data.com/will-money-last-retire-early/

Be sure to adjust the parameters. The default 0.3% drag from investment expenses is way high for me.

Retire-Canada

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Re: Author of 4% rule now says 4.5%
« Reply #52 on: October 31, 2020, 07:01:11 AM »
I have about 12 months off. I'm pretty sure I could go back part time. I watched that podcast but it's really just a confirmation of my opinion on the subject. The point being that I feel I've won the race and I don't have to work anymore. It was interesting hearing MMM state only work if you would do it for free. That to me is a good perspective.

I could end up going back but it may be that I miss work or I decide I want to buy a Ferrari which I can't see happening.

12 months is a nice amount of time to have off and settle into FIRE. It's also great that you could go back PT if you wanted. That gives you some solid options. Enjoy the year off and most likely the first year of FIRE.

Speaking of Ferraris I wouldn't mind a fancy travel van in 10 years or so when my truck dies. I don't have a fancy travel van in my budget, but it's possible my portfolio will increase enough to cover it by then or I might do some work to pay for one. It's also possible I'll decide I don't care enough about a van to spend the $$/time on one. Time will tell!

TomTX

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Re: Author of 4% rule now says 4.5%
« Reply #53 on: October 31, 2020, 09:17:36 AM »
Well said.  When in doubt, it's better to just work a couple extra years during your peak earning years.  I certainly don't want to go back to work in my 60's or 70's at some low paying job...

Dumb strawman is dumb.

maizefolk

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Re: Author of 4% rule now says 4.5%
« Reply #54 on: October 31, 2020, 09:23:57 AM »
Well said.  When in doubt, it's better to just work a couple extra years during your peak earning years.  I certainly don't want to go back to work in my 60's or 70's at some low paying job...

Dumb strawman is dumb.

The problem I have with this argument is that first flexibility is dismissed because it would be too big a hardship to cut spending by 20% when ones portfolio is down. Then only after flexibility has been dismissed as too hard, working longer is presented as the only alternative to the risk running out of money in old age (which would be pretty miserable).

My personal order of preference:

Sometimes having to spend 20% less than I'd planned > working longer > going broke in my 70s.

BicycleB

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Re: Author of 4% rule now says 4.5%
« Reply #55 on: October 31, 2020, 01:57:24 PM »
How long is your sabbatical? Do you have the option of returning to PT work if you wanted to earn some $$, but also free up more time?

I have about 12 months off. I'm pretty sure I could go back part time. I watched that podcast but it's really just a confirmation of my opinion on the subject. The point being that I feel I've won the race and I don't have to work anymore. It was interesting hearing MMM state only work if you would do it for free. That to me is a good perspective.

I could end up going back but it may be that I miss work or I decide I want to buy a Ferrari which I can't see happening.

Briefly, I imagined the poster by the side of the road holding a sign that says "Will work for Ferrari."

Then I realized that with a screen name like @chevy1956, that probably doesn't make sense. :)

mistymoney

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Re: Author of 4% rule now says 4.5%
« Reply #56 on: October 31, 2020, 03:19:02 PM »


I've read a few ERN posts and then just stopped bothering. Being super conservative/fearful is very expensive in terms of $$$ and time when planning FIRE. The thing that folks like that miss is that running out of money isn't the only way to fail at FIRE. If you damage your physical/mental health and/or personal relationships pursuing a super low %WR at a typical sedentary professional job you'll be excessively rich and miserable or dead. When I look at a chart like the one above I am not worried about the small chance of running out of money (red) as much as I am of the increasingly likely chance I'll run out of time (gray) to enjoy the freedom I worked so hard for.

If my choice is a 100% chance of working a bunch of extra FT years vs. FIREing years earlier and accepting small % chance of having to adjust my spending and/or doing some PT working in the future...I'll take the later option every time.

I use this chart at engaging data a lot, and I usually toggle off the death probability as irrelevant to my planning - but your argument here is very compelling!

I will be rethinking that approach, and I do need to start giving greater weight to my health.

While I'd like to leave a nice legacy of FI someday, for me personally - if SS is all I have left at 85, there are worse situations! Being one of those professional and sedentary workers, I won't be among the lowest SS checks - and it does seem like there would be a lot of steps I could take before all the stache evaporated....

As I said - very compelling words, and it's given me a lot more to consider in my plans and calculations...

Retire-Canada

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Re: Author of 4% rule now says 4.5%
« Reply #57 on: October 31, 2020, 04:32:26 PM »
I use this chart at engaging data a lot, and I usually toggle off the death probability as irrelevant to my planning - but your argument here is very compelling!



I'm glad it was useful.

I was already keen on FIRE, but when MaizeFolk aka MaizeFeous aka MorPHeous posted this ^^^ set of charts on the forums a while back I popped out of the matrix and unplugged myself from my battery pod as fast as possible before I missed the underground rave in Zion! It really blew my mind that I/we were all worried about the red bit and not focused on the gray bit.


ender

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Re: Author of 4% rule now says 4.5%
« Reply #58 on: October 31, 2020, 05:17:34 PM »
People also seriously underestimate social security.

chevy1956

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Re: Author of 4% rule now says 4.5%
« Reply #59 on: October 31, 2020, 05:21:45 PM »
Speaking of Ferraris I wouldn't mind a fancy travel van in 10 years or so when my truck dies. I don't have a fancy travel van in my budget, but it's possible my portfolio will increase enough to cover it by then or I might do some work to pay for one. It's also possible I'll decide I don't care enough about a van to spend the $$/time on one. Time will tell!

My perspective on portfolio management in relation to WR's is that it's much more likely I end up being really wealthy rather than the lowest possible downside. The lowest possible downside for me is also completely fine. So if we charted happiness on a scale of potential portfolio outcomes compared to happiness I'm really risk averse and I've already worked too long for no real benefit.

I think for instance that you will more than likely in the 10 years or so be able to afford the fancy travel van without doing any additional work. The real issue is will you care about it in 10 years time. I was doing this a bit - you start thinking will I potentially want something more. I just saved up an additional buffer for any additional costs that may come up. This includes house maintenance, new cars etc. It's not a lot but it gives me peace of mind. It's not like I'm paying a massive cost for it ala getting down to a 3% or similar WR.

@Retire-Canada - the grey bit in those charts is the interesting bit right. You are so much more likely to die than run out of money assuming you get to a reasonable level. I used to think that was 5% and I suppose that is the level I'm cool with but I can see a rational argument for higher than that dependent on your age. I think financial planners use a much higher figure if you are retiring at 65.
« Last Edit: October 31, 2020, 05:24:27 PM by chevy1956 »

mistymoney

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Re: Author of 4% rule now says 4.5%
« Reply #60 on: November 01, 2020, 09:35:35 AM »
Speaking of Ferraris I wouldn't mind a fancy travel van in 10 years or so when my truck dies. I don't have a fancy travel van in my budget, but it's possible my portfolio will increase enough to cover it by then or I might do some work to pay for one. It's also possible I'll decide I don't care enough about a van to spend the $$/time on one. Time will tell!

My perspective on portfolio management in relation to WR's is that it's much more likely I end up being really wealthy rather than the lowest possible downside. The lowest possible downside for me is also completely fine. So if we charted happiness on a scale of potential portfolio outcomes compared to happiness I'm really risk averse and I've already worked too long for no real benefit.

I think for instance that you will more than likely in the 10 years or so be able to afford the fancy travel van without doing any additional work. The real issue is will you care about it in 10 years time. I was doing this a bit - you start thinking will I potentially want something more. I just saved up an additional buffer for any additional costs that may come up. This includes house maintenance, new cars etc. It's not a lot but it gives me peace of mind. It's not like I'm paying a massive cost for it ala getting down to a 3% or similar WR.

@Retire-Canada - the grey bit in those charts is the interesting bit right. You are so much more likely to die than run out of money assuming you get to a reasonable level. I used to think that was 5% and I suppose that is the level I'm cool with but I can see a rational argument for higher than that dependent on your age. I think financial planners use a much higher figure if you are retiring at 65.

I think it was mentioned somewhere upthread about social security. For those retiring decades early, any ss they get would be quite small, assuming they did get the 40 quarters of credits to qualify. In that case, certainly more caution is warranted to never run out of money.

for those retiring who do have 30 years of earnings for ss to average (rather than say averaging 15 years of earnings with 15 years of 0's) there is that safety net which would for most be sufficient for a non-homeless existence. If you are looking at pulling the plug, and the ss safety net you will eventually get is 500/month vs 1500/month and think about what you'd do with only that at 85, it does make a difference I think.

maizefolk

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Re: Author of 4% rule now says 4.5%
« Reply #61 on: November 01, 2020, 09:58:06 AM »
About social security and retiring super early. SS is a remarkably redistributive program at the low end so, provided you get 40 quarters of earnings to qualify and don't fall into some weird special case*, a benefit of only $500/month is unlikely.

Using the 2021 numbers monthly benefit of $900/month requires only $420,000 in inflation adjusted lifetime social security eligible earnings. It would require a pretty heroic savings rate (or something like an inheritance or working at a startup that went public can gave you good stock options) to hit FIRE with less than $420,000 in lifetime earnings.

After you hit $900/month in benefits/$420k in lifetime earnings, the additional return from additional taxed SS earnings is not so ridiculously favorable.

*Certain pensions that fall into windfall exclusion criteria.

mistymoney

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Re: Author of 4% rule now says 4.5%
« Reply #62 on: November 01, 2020, 10:16:07 AM »
About social security and retiring super early. SS is a remarkably redistributive program at the low end so, provided you get 40 quarters of earnings to qualify and don't fall into some weird special case*, a benefit of only $500/month is unlikely.

Using the 2021 numbers monthly benefit of $900/month requires only $420,000 in inflation adjusted lifetime social security eligible earnings. It would require a pretty heroic savings rate (or something like an inheritance or working at a startup that went public can gave you good stock options) to hit FIRE with less than $420,000 in lifetime earnings.

After you hit $900/month in benefits/$420k in lifetime earnings, the additional return from additional taxed SS earnings is not so ridiculously favorable.

*Certain pensions that fall into windfall exclusion criteria.

I've always understood that ss pay a larger proportion of earnings back to lower income levels, but I didn't think that it evened that out for a number of years with 0 earnings.


maizefolk

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Re: Author of 4% rule now says 4.5%
« Reply #63 on: November 01, 2020, 10:24:31 AM »
I've always understood that ss pay a larger proportion of earnings back to lower income levels, but I didn't think that it evened that out for a number of years with 0 earnings.

The way your SS benefit is calculated is that they sum up your 35 highest earning years (adjusting for wage inflation) and divide by 420 (the number of months in 35 years) to calculate your average monthly earnings.

A person who makes $100,000 for a few years and zero most of the rest* has the same average monthly earnings as someone pulling in only $12,000/year for all 35 years. And the person who earned a high salary for a few years and then FIREd benefits from the same tweaks to the benefits formula to make sure that person who only ever earned $12k/year isn't starving on the street in retirement.**

*Would have to have earn slightly above zero in a few more years in order to have enough credits to be eligible for Social Security, but even working a very part time job in college can get one almost halfway to being social security eligible.

**People can argue back and forth about whether this is a good thing or a bad thing, but it is how the system works whether we approve or disapprove.

PDXTabs

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Re: Author of 4% rule now says 4.5%
« Reply #64 on: November 01, 2020, 10:57:01 AM »
Yup, it's total SS earnings over your lifetime. You really want to get to the first bendpoint.

ender

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Re: Author of 4% rule now says 4.5%
« Reply #65 on: November 01, 2020, 10:57:36 AM »

maizefolk

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Re: Author of 4% rule now says 4.5%
« Reply #66 on: November 01, 2020, 11:28:44 AM »
Exactly.

Until you hit that first SS bend point, each additional dollar you pay in social security tax increases your annual retirement benefits of about 41.5 cents in each year you're drawing social security. Even factoring in the risk of a benefits cut those first few hundred thousand dollars of earnings are an extremely good deal for a potential early retiree.

mistymoney

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Re: Author of 4% rule now says 4.5%
« Reply #67 on: November 01, 2020, 12:15:00 PM »
good information, thanks to you all!

Learning so much on this board!

chevy1956

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Re: Author of 4% rule now says 4.5%
« Reply #68 on: November 01, 2020, 02:54:56 PM »
I think it was mentioned somewhere upthread about social security.

This is dependent on where you live. I'm Australian. We'd get the same income that we now spend with 3 kids and none of them are paying any board (2 at school 1 working and not costing us anything). I don't expect to get any social security because I'll be too wealthy but our worst case is fine by me. I don't want it and I don't expect to get it but it's available.

I suppose there is a downside risk the country I live in goes broke and doesn't pay out aged pensions but I think that's unlikely. I also think it's unlikely we get social security because we will be too rich. It's a pretty good buffer though.

jpdx

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Re: Author of 4% rule now says 4.5%
« Reply #69 on: January 29, 2021, 10:39:36 PM »
Should we be concerned that Bengen has taken his stock allocation down to 25%?

blue_green_sparks

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Re: Author of 4% rule now says 4.5%
« Reply #70 on: January 30, 2021, 09:53:35 AM »
Should we be concerned that Bengen has taken his stock allocation down to 25%?

I was curious...
https://www.barrons.com/articles/the-originator-of-the-4-retirement-rule-thinks-its-off-the-mark-he-says-it-now-could-be-up-to-4-5-51611410402
How do you have your money invested?
Iím currently allocating far less to stocks than I normally would be. I normally have a 50% allocation of stocks. Iím at about 25%. I just have a very uncomfortable feeling about the speculation in this market, the extremely high valuations, and the disparity between the stock market and the economy with the virus.
Isnít this violating your own rule about keeping between 40% and 75% of assets in stocks?
My position is a temporary one. The 40% to 75% average is a long-term average youíd like to maintain. Iím doing this because of short-term conditions that I consider dangerous. Iím hoping after this is over, Iíll return to my normal allocation for stocks. I may even go higher than normal.
Some advisors are telling clients to put as much as 70% of their assets in stocks.
Well, it all seems backward to me. When the valuations are high, I think you should at the very least not increase your stock exposure and ideally reduce it a little bit to reduce risk.
The most important thing for retirees is that they have to maintain their nest egg. Itís a completely different scenario when youíre saving for retirement and youíre willing to take lots of risk because you want to get that egg as big as possible.