Author Topic: Rethinking the 4 percent rule  (Read 11991 times)

tomsang

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arebelspy

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Re: Rethinking the 4 percent rule
« Reply #1 on: February 08, 2013, 01:56:33 PM »
Thanks for the link.

Yes, many of us here are skeptical of the 4% rule.  If nothing else, I think one ought not blindly draw down the same amount (plus inflation) if the market is down, but be flexible with spending when possible.

Wade Pfau is the most prominent current researcher on the topic of SWRs, his blog is worth reading and following if you're into retirement withdrawal research (and his recent conclusions are along similar lines as the linked article, but with more data).
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Nords

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Re: Rethinking the 4 percent rule
« Reply #2 on: February 08, 2013, 08:17:46 PM »
I think when you're young(er), reasonably well employed, and reasonably happy with your work/life balance, then everyone focuses on the 5%-33% failure rate of the 4% SWR.

When you're old(er), facing reduced hours or a layoff, desperately unhappy with workplace stress, and perhaps the survivor of a medical/family health crisis or two... that 67%-95% success rate starts lookin' pretty good.  Especially if you know how to annuitize a portion of your retirement portfolio and vary your spending as required.

I forget who wrote the column, but one financial writer said that you pay an unreasonably high price for the last few percentage points of retirement security.  But maybe that's just my own particular brand of "survivor bias", from a guy in his low 50s who's seen way too many of his peers & friends drop dead in the last couple months.

arebelspy

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Re: Rethinking the 4 percent rule
« Reply #3 on: February 08, 2013, 08:44:34 PM »
But maybe that's just my own particular brand of "survivor bias", from a guy in his low 50s who's seen way too many of his peers & friends drop dead in the last couple months.

Sorry to hear that, Nords.

Thanks for the perspective.  It certainly does - for me at least - add some weight to the side of the scale towards "ER earlier, and be flexible later" versus "ER later to have more security and not have to be flexible later."
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Re: Rethinking the 4 percent rule
« Reply #4 on: February 11, 2013, 09:42:27 AM »

I forget who wrote the column, but one financial writer said that you pay an unreasonably high price for the last few percentage points of retirement security. 

I believe you are referring to William Bernstien in his "retirement calculator from hell" series. 

http://www.efficientfrontier.com/ef/901/hell3.htm

velocistar237

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Re: Rethinking the 4 percent rule
« Reply #5 on: February 11, 2013, 03:10:28 PM »
http://www.efficientfrontier.com/ef/901/hell3.htm

Definitely an interesting read. Here are the installments: I, II, III, IV, V

The articles fall on both sides, saying that you should prepare a lot better than your peers, and that beyond some point, further preparation is probably futile.

Between a 4% withdrawal rate and 3%, there are (1/0.03-1/0.04) = 8.3 years worth of annual expenses you would need to save. Once you get to 25 times your annual expenses, that extra 8.3 comes in about 3 years of full-time work. I can see how stage of life can affect that decision. Spending those 3 years not working could be very valuable with age, kids, sick loved-ones, etc., or it could be an easy continuation of a well-loved job with a little more financial security at the end.

The Money Monk

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Re: Rethinking the 4 percent rule
« Reply #6 on: February 20, 2013, 08:50:58 AM »
I think the less you are living off of initially the less of a problem the variance is, because in an emergency there are a lot of options if don't need that much to fill the gaps.

For example, if you have a 10 million dollar portfolio and you are spending every bit of your $400,000 you are withdrawing annually, you are going to have a lot harder time adjusting if yu can't pull out 4% for a year or two.

On the other end of the scale, if you have a $450,000 'stache and are living off of $1500 a month, then you can even get a job at Mcdonalds for 6 months to fill the gaps, or start ebaying, etc and are not going to be in any real danger of drastic lifestyle changes.

So in the latter case you can 'retire' earlier without as much worrying about years where you aren't actually getting 4% return on your stache.

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Re: Rethinking the 4 percent rule
« Reply #7 on: February 20, 2013, 12:20:04 PM »
Yes, but conversely it's a lot easier to instead trim $10,000 off a $400,000 budget than to trim $10,000 off a $20,000 budget. I wonder which of those effects is stronger... maybe it depends on your willingness to work vs. pinch?

Mike

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Re: Rethinking the 4 percent rule
« Reply #8 on: February 21, 2013, 05:36:50 AM »
Earning $10,000 in a year is not that difficult, particularly if you have some useful skill.  I would wager that many people on this site could earn that in a relatively short amount of time by charging for financial advice.  $50 for a one hour sit-down with someone to explain budgeting and investment is certainly reasonable.

Of course, all this information is freely available on the web, but most people don't seem to know this and/or are simply too lazy to look for it.  As is the case with everything, the lazy end up paying for someone else to do the work / gain the knowledge.  That's where you come in. 

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Re: Rethinking the 4 percent rule
« Reply #9 on: February 21, 2013, 05:44:49 AM »
Earning $10,000 in a year is not that difficult, particularly if you have some useful skill.  I would wager that many people on this site could earn that in a relatively short amount of time by charging for financial advice.  $50 for a one hour sit-down with someone to explain budgeting and investment is certainly reasonable.

Of course, all this information is freely available on the web, but most people don't seem to know this and/or are simply too lazy to look for it.  As is the case with everything, the lazy end up paying for someone else to do the work / gain the knowledge.  That's where you come in.

Yeah, but I wish it were easier to pick up adhoc jobs at will.  I'm a Systems Engineer, and when I look around for jobs, I find it hard to find anything that ISN'T full-time employment, let alone an adhoc contract that would let me earn a few grand.  There was a guy in my current office that was in his 60's, and he was an independent contractor for the contract I was on.  He worked on a very specific project, and only came to the office 1 out of 3-4 weeks to perform testing. The rest of the time, he just didn't work.  I thought it was awesome, but it took him years to wedge himself into such a situation.

Nords

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Re: Rethinking the 4 percent rule
« Reply #10 on: February 21, 2013, 09:14:24 AM »
Yeah, but I wish it were easier to pick up adhoc jobs at will.
I think that earning side-hustle income is easier to do on your own entrepreneurial time rather than seeking an employer who's willing to hire a contractor.

Geezers get hired for gigs like that because we know a lot of people, know how to get stuff done, and don't have an urgent need for the money.  All it takes for you to get to the same position is to wait a few years.  In the meantime perhaps you'll make things happen faster by starting a blog, writing an eBook, teaching something, tutoring someone, or networking with friends who are starting their own businesses.

MooreBonds

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Re: Rethinking the 4 percent rule
« Reply #11 on: February 21, 2013, 10:20:55 PM »
Earning $10,000 in a year is not that difficult, particularly if you have some useful skill.  I would wager that many people on this site could earn that in a relatively short amount of time by charging for financial advice.  $50 for a one hour sit-down with someone to explain budgeting and investment is certainly reasonable.

Of course, all this information is freely available on the web, but most people don't seem to know this and/or are simply too lazy to look for it.  As is the case with everything, the lazy end up paying for someone else to do the work / gain the knowledge.  That's where you come in.

I also agree with the skepticism towards the invincible optimism.

To start with, I really can't believe that people are suggesting that it's more difficult/dangerous to rely on a $400,000 budget than a $16,000 budget if you're using a 4% WR.

So you really think all of those unforseen items you never put money in the budget for (root canals, car maintenance, accidents, higher health insurance costs as you age, etc., etc.) are more easily handled by a $16,000 budget? Do you realize that some of these unforeseen items could very well exceed your entire annual budget of $16,000??? Do you plan on simply going without utilities and every possible convenience above bare existence for an entire year (or more) to offset some of these expenses? (Yes, I realize Bakari has a very strong composition and can endure extreme temperatures in the house, but most people aren't that adaptable)


While Nords has great posts on this and the ER forum, his (and other poster's comments in this thread) about "why, just start blogging! Hang light fixtures for people as a handyman for $30/hr. Write an ebook! Start tutoring someone" are a little overly simplistic and naive.

Sure, some people have some skills that can be put to good use....but for "the masses" on this forum, I could never recommend that someone simply assume it's a given, guaranteed solution.

For handyman-type work, do you really have that many potential clients you can depend on for an extra $5,000 or $10,000 each year? And can you find that many students to tutor - especially when you've been out of school for 15 or 25 years and your competition is a starving college or grad school student who either recently took the class, or is even majoring in it? And that doesn't even start to add up all the unpaid hours and travel you spend marketing your services posting on school boards or writing all these blogs and ebooks that will simply have people beating down your door to buy.

So your answer is a traditional part-time job? Not only have you been out of your original industry for a while, but even just a part-time job @ McDonald's can be difficult:

Hiring manager: "So I see on your application that you last had a job 15 years ago? And you were an engineer?"
Former retiree: "Yes. I've been retired, but now I want to pick up some more income."

You have to realize that their first assumption is one (or more!) of the following:
a) You are boldly lying your ass off (a trait most managers don't want in a new hire if they can help it)
b) You are trying to cover up for a period of incarceration
c) You are simply not telling them about a long series of very short-term job hopping because every employer fires you after 2 months for your inconsistent work schedule, perhaps from drug use or supremely poor work ethic.

a, b, and c are what the hiring managers see on a weekly basis. Early retirement is something they likely never have or will come across. And even if you convince them that it really is the reason, they will then assume you have no motivation to really work and are really doing it out of boredom, and will probably flake out and quit after a few months when you make a few bucks. That doesn't put you in a good position compared to other possible hires.

That is why I am choosing to work a few extra years of full-time work (at $x/year) now prior to reaching FIRE, so I don't have to rely on stressing out trying to earn 1/10 of X at a minimum wage or side hustle job that is very sporadic and inconsistent, for potentially a much longer period of time than I would now.

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Re: Rethinking the 4 percent rule
« Reply #12 on: February 22, 2013, 12:42:51 AM »
MooreBonds, first off, I'm curious as to why you assume an early retiree doesn't budget for car maintenance or health insurance premiums.  How poorly-planned is this hypothetical retirement? 

Secondly, I would question anyone looking to retire early who doesn't have some amount of flexibility/safety built into his/her plan.  Do you really need a car in retirement?  Depending on exactly where I choose to live, I might not need mine.  That's nearly $2000 currently budgeted that can disappear immediately if necessary (plus netting me some money from selling the vehicle).  As far as medical issues are concerned, I have an HSA.  By the time I retire, it will have over $10,000.  Obviously not everyone has this, but this is part of the mindset - to have backups just in case.

I guess I just don't understand the belief/assumption that those who are resourceful and disciplined enough to retire young won't have the ability to adapt to whatever it is life throws at them in retirement.

And there are many income opportunities beyond straight jobs.  Not all of them are handyman type jobs, either.  Cripes, people get paid to walk other people's dogs for crying out loud.  A sad commentary on our society to be sure, but it illustrates the point that there are odd jobs out there for those that know where to look.

tooqk4u22

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Re: Rethinking the 4 percent rule
« Reply #13 on: February 22, 2013, 09:13:31 AM »
MooreBonds, first off, I'm curious as to why you assume an early retiree doesn't budget for car maintenance or health insurance premiums.  How poorly-planned is this hypothetical retirement? 

Actually I would be very surprised if most people even consider this, at least fully anyway. Sure they think things may come up here or there but they don't think about the potential for big surprises or even big items that will definetly fail but may be far off - best example is a roof.  Lets say it is a 20 year roof that is 12 years old.  Cost to replace is about $6k - you should be putting away for this but even for FIRE types that may be to far off to full grasp.  MMM doesn't even really quantify this and treats it as repairs and maintenance simply come up and are dealt with.

Personally, I put $300/month into an account dedicated for repairs and replacement.  Some years I won't use any of it and others like last year (heater/ac) I used a big chunk.  Its not if, its when and if you think about the average useful life of everything in your house and add in routine and unexpected repairs you'll find it is a pretty consistent number on average.  This monthly deposit is part of my FIRE budget. Depending on your skillset maybe this number can be trimmed overtime by doing some of it yourself.

Secondly, I would question anyone looking to retire early who doesn't have some amount of flexibility/safety built into his/her plan.  Do you really need a car in retirement?  Depending on exactly where I choose to live, I might not need mine.  That's nearly $2000 currently budgeted that can disappear immediately if necessary (plus netting me some money from selling the vehicle).  As far as medical issues are concerned, I have an HSA.  By the time I retire, it will have over $10,000.  Obviously not everyone has this, but this is part of the mindset - to have backups just in case.

Possibly but ones flexibility may be the ability to generate some income if needed. Also, if you need your car for whatever reason then that $2000 isn't so flexible.

I guess I just don't understand the belief/assumption that those who are resourceful and disciplined enough to retire young won't have the ability to adapt to whatever it is life throws at them in retirement.

All that said, I think this is a great point and the best argument presented thus far.

And there are many income opportunities beyond straight jobs.  Not all of them are handyman type jobs, either.  Cripes, people get paid to walk other people's dogs for crying out loud.  A sad commentary on our society to be sure, but it illustrates the point that there are odd jobs out there for those that know where to look.

My MIL walks a neighbors dog twice daily for $25/day - completely anti-MMM sure and the best part is that she would still be walking her dog anyway.

Nords

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Re: Rethinking the 4 percent rule
« Reply #14 on: February 22, 2013, 01:27:17 PM »
While Nords has great posts on this and the ER forum, his (and other poster's comments in this thread) about "why, just start blogging! Hang light fixtures for people as a handyman for $30/hr. Write an ebook! Start tutoring someone" are a little overly simplistic and naive.
While the words "simplistic" and "naive" have certainly showed up in a number of my performance appraisals, I think you could benefit from a little more perspective that's offered by early retirement.

When I had my head down on the grindstone, slaving away for 50+ hours/week in the office or on the watchbill, it was very difficult to see entrepreneurial opportunities.  I could barely see past the next meal and my pillow.  I completely understand the guy who's discouraged about finding ad hoc work, because I was that guy.

Once I retired, caught up on sleep & exercise, and had the time to look around me, I was shocked at all the opportunities.  I'm not suggesting that you'll earn $10K/year by changing lightbulbs, and re-reading my last post I notice that I used the word "starting".  I am suggesting that you need to get off your assets and start changing lightbulbs right now if you want to turn that into a business that'll generate $10K/year.

My point is that people tend to try to improve their situation by doing more of what they're doing now.  After all, they're getting $100/hour to do that now, so by doing more of it they'll get even more $100s!  Yet if they can get it at all, then that bumps into diminishing returns pretty quickly-- and burnout.

Instead try something different that can grow into an alternative yet steady business.  It's your own business, so it makes you feel that you have control and autonomy.  It's your own choice of tasks, so you enjoy it more.  If it's something that builds passive income (like blogging) then you don't have to treat it like a full-time job.  If it's something you'd be doing anyway (the dog-walking example) or a skill you want to develop (like fixing window screens) then why not get paid for it?

I was earning $25/hour for side-hustle handyman labor in the 1990s when I was still on active duty.  I was teaching/tutoring and helping people fix their computers for $50/hour.  I was painting rooms and homes for $25/hour (easy work, though).  I was managing rental properties for absentee landlords (shipmates).  I enjoyed using (and developing) those skills, and my only limit was having the hours in a week to devote to them.  If blogging had been easier in the 1990s then I would've been earning $10K/year of AdSense income while I was in uniform, too.

The bar is not so high.  The hardest part is getting started, because it takes a year or two before the growth comes.

However if you'd like to help me go door-to-door in my neighborhood fixing window screens and tweaking water heaters for $25/hour, there's enough work right now to keep us both busy all week long for the rest of the year...


brewer12345

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Re: Rethinking the 4 percent rule
« Reply #16 on: February 26, 2013, 10:23:57 AM »
Just curious: has Hocus been bannd here yet?

arebelspy

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Re: Rethinking the 4 percent rule
« Reply #17 on: February 26, 2013, 11:36:29 AM »
Just curious: has Hocus been bannd here yet?

Heh.

AFAIK, he hasn't found this community yet.

Glad to see you here, brewer.
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brewer12345

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Re: Rethinking the 4 percent rule
« Reply #18 on: February 26, 2013, 12:57:45 PM »
The banning of Hocus is a good yardstick of the maturity of any online forum like this.  Thanks.

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Re: Rethinking the 4 percent rule
« Reply #19 on: February 26, 2013, 01:25:36 PM »
The banning of Hocus is a good yardstick of the maturity of any online forum like this.  Thanks.

Hah, touché.  This forum's been around about a year.  He generally gets banned in year 2 (maybe 3), from what I've seen of his history.
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Re: Rethinking the 4 percent rule
« Reply #20 on: February 26, 2013, 10:46:14 PM »
The banning of Hocus is a good yardstick of the maturity of any online forum like this.  Thanks.
Hey, Brewer, welcome!

Unlike many other forums, this one seems to have no illusions about "give hocus a chance".  He's also been keeping a pretty low profile in the last six months-- I've hardly heard anything from him since FINCON12 last September, and I'm not planning to go looking for any signs of him.

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Re: Rethinking the 4 percent rule
« Reply #21 on: March 04, 2013, 02:36:45 PM »
The bar is not so high.  The hardest part is getting started, because it takes a year or two before the growth comes.

That's funny, because Bakari made almost the exact same statement in a thread I started with a similar theme (might be of interest to MooreBonds, who expressed concerns similar to mine).

Anyway: I can't disagree with this statement, because I've never tried.  But you have to realize, it's a chicken-and-egg problem that requires a leap of faith to overcome.  That is, with a 55-hour/week job and young children, I don't have the time to give entrepreneurship a serious try.  I basically have to FIRE to really try it in earnest.  But what if I fail?  Hence, the leap of faith.

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Re: Rethinking the 4 percent rule
« Reply #22 on: March 04, 2013, 05:52:57 PM »
Anyway: I can't disagree with this statement, because I've never tried.  But you have to realize, it's a chicken-and-egg problem that requires a leap of faith to overcome.  That is, with a 55-hour/week job and young children, I don't have the time to give entrepreneurship a serious try.  I basically have to FIRE to really try it in earnest.  But what if I fail?  Hence, the leap of faith.
With statements like that, I'm pretty sure that you'll never be able to give entrepreneurship a serious try.

When I was working a 55-hour/week job and raising a youngster, I was similarly blinded to the opportunities all around me.  My nose was right up against the grindstone, I was chronically fatigued, and there was "no way" that I could learn enough to take advantage of the examples my co-workers were living in front of me.  Oh, and I wasn't willing to give up that righteous paycheck either.  It was another nine years before I found my way to ER, and even after a decade of ER I still have moments of regret that I couldn't see my way out of my "problem".  All I knew how to do was to work harder at my job in hopes that I'd be able to move my career to the next rung on the ladder.  I stayed on that rung for nine more years until I could retire on the pension.  It would have taken a serious health crisis to knock me off that routine, but luckily I made it to retirement first.

I think the successful entrepreneurs are the ones who don't "have to realize".  To further mangle your analogy, you're already a chicken.  Now you have to lay an egg and incubate it.  If it succeeds then it'll be blindingly obvious to you that you should quit your day job.  If it fails then you haven't yet quit your day job, but you've learned from the experience and you're ready to try something else.

Or you could just lean over and put your nose back against that grindstone.  If you work harder at that then you'll eventually succeed, or die trying.

Tomorrow I'm going to buy my $99 ticket to FINCON13, where I'll be surrounded by approximately 400 personal-finance bloggers.  Right off the top of my head, at least a half-dozen of them have already quit their day jobs.  A couple are financially independent.  We'll have to gather demographic data on their income vs years of blogging (if it hasn't been done already), but when you're in the room with these people you can practically cut the entrepreneurial spirit with a chainsaw.

« Last Edit: March 04, 2013, 05:57:41 PM by Nords »

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Re: Rethinking the 4 percent rule
« Reply #23 on: March 05, 2013, 10:25:27 AM »
When I was working a 55-hour/week job and raising a youngster, I was similarly blinded to the opportunities all around me.  My nose was right up against the grindstone, I was chronically fatigued, and there was "no way" that I could learn enough to take advantage of the examples my co-workers were living in front of me.  Oh, and I wasn't willing to give up that righteous paycheck either.  It was another nine years before I found my way to ER, and even after a decade of ER I still have moments of regret that I couldn't see my way out of my "problem".  All I knew how to do was to work harder at my job in hopes that I'd be able to move my career to the next rung on the ladder.  I stayed on that rung for nine more years until I could retire on the pension.  It would have taken a serious health crisis to knock me off that routine, but luckily I made it to retirement first.

You were in the military, right?  What if your pay was that of a top-level officer over 30 years of experience?  Would that have changed your perspective?

Are you saying something along the lines of: It's just a job.  The upside to entrepreneurship is practically unlimited.  What's the risk if you try and fail, when you can always get another job?  Perhaps that's my hangup (one of them anyway)---if I had an ordinary job, I wouldn't feel the risk of making the leap is so great.  But the job I have now is kind of a rare opportunity in terms of pay; if I quit and tried making it on my own and failed, I'd be back to a day job, but in all likelihood making about 15% of what I am now.

I think the successful entrepreneurs are the ones who don't "have to realize".  To further mangle your analogy, you're already a chicken.  Now you have to lay an egg and incubate it.  If it succeeds then it'll be blindingly obvious to you that you should quit your day job.  If it fails then you haven't yet quit your day job, but you've learned from the experience and you're ready to try something else.

I would love to do that.  But with what time?  I'm committed to The Man from 7am to 7pm daily (no flexibility here).  I'm one of those people who consistently needs 7+ hours of sleep per night.  The "egg time" you suggest would inevitably come out of what little time I have left with my family (wife, one toddler, and will have an infant in a couple months).

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Re: Rethinking the 4 percent rule
« Reply #24 on: March 05, 2013, 11:43:06 PM »
My theme in the following paragraphs is "calling it as I see it" based on "been there, done that".  I'm not so sure the phrase "face punch" is appropriate, but that certainly seems to be the culture on this forum.  If you want a kinder, gentler approach then you could take this situation over to Early-Retirement.org.

I understand if you choose to reject this advice, perhaps with incredulity and disbelief.  You seem to keep returning to the things that are preventing you from breaking out of your life the way it is now.  Well, if they're such tough constraints then you have no choice but to smile and keep on plugging until you reach financial independence. 

However instead of being focused on the external factors that are keeping you from success, you could focus on the personal changes that you can make to sidestep these brick walls that you're currently bashing your head against.  Again, if you had a better alternative then you'd be doing it, right?

When I was working a 55-hour/week job and raising a youngster, I was similarly blinded to the opportunities all around me.  My nose was right up against the grindstone, I was chronically fatigued, and there was "no way" that I could learn enough to take advantage of the examples my co-workers were living in front of me.  Oh, and I wasn't willing to give up that righteous paycheck either.  It was another nine years before I found my way to ER, and even after a decade of ER I still have moments of regret that I couldn't see my way out of my "problem".  All I knew how to do was to work harder at my job in hopes that I'd be able to move my career to the next rung on the ladder.  I stayed on that rung for nine more years until I could retire on the pension.  It would have taken a serious health crisis to knock me off that routine, but luckily I made it to retirement first.
You were in the military, right?  What if your pay was that of a top-level officer over 30 years of experience?  Would that have changed your perspective?
You mean, if I was enjoying the work so much that I'd be willing to devote more than 30 years to it?  Sure it would've changed my perspective because I'd have no reason to retire, nor reason to start a side hustle.

My regrets are based in the fact that I was miserable and couldn't see any way out of the hole I was digging... except to get a bigger shovel and scoop faster.

I should also point out that anyone who stays in the military past 20 years is no longer in it for the money.  They may be in it because they don't understand how to budget or invest, but they're in it mainly because they enjoy it more than the scary unknown of trying to find a "real" job in the civilian world... or because they have no idea how to be responsible for their own entertainment and don't want to rust on the front porch.

I think servicemembers are a poor example of reaching financial independence because the odds are tilted so heavily in their favor (inflation-fighting pension, cheap healthcare) yet so few of them actually do so.  Hey, I got an entire book out of the subject.

Are you saying something along the lines of: It's just a job.  The upside to entrepreneurship is practically unlimited.  What's the risk if you try and fail, when you can always get another job?  Perhaps that's my hangup (one of them anyway)---if I had an ordinary job, I wouldn't feel the risk of making the leap is so great.  But the job I have now is kind of a rare opportunity in terms of pay; if I quit and tried making it on my own and failed, I'd be back to a day job, but in all likelihood making about 15% of what I am now.
That's exactly what I'm saying.  It's just a job, and if you're so darn good at what you're doing now then the only thing limiting your opportunities is your perception of your abilities.  If this job is such a wonderful career then you should be tap-dancing your way to work every day, knowing you're so well compensated that you'll be able to achieve ER in no time.  But from what you've posted, I'm gaining a different impression of your level of satisfaction.

My spouse left active duty just a couple years short of vesting for retirement.  Our rough estimate of the price tag on that decision is somewhere between $500K-$750K.  However she found a great job in the Reserves, and she was routinely pelted with offers of civil-service and contract work.  If she'd chosen to go full time then she could've replaced that lost income within 5-7 years... at fewer working hours and a much higher quality of life.

You keep talking about quitting your day job and failing on your own.  Another alternative would be to keep your day job until your side-hustle income exceeds your employment income, and then quitting your job to devote more time to your entrepreneurial efforts.  That maximizes your opportunity for success (while you still have a paycheck) while minimizing your risk of failure (after you've given up your paycheck).

I would love to do that.  But with what time?  I'm committed to The Man from 7am to 7pm daily (no flexibility here).  I'm one of those people who consistently needs 7+ hours of sleep per night.  The "egg time" you suggest would inevitably come out of what little time I have left with my family (wife, one toddler, and will have an infant in a couple months).
Last time I checked the Internet was full of helpful suggestions on "getting things done".  You have to figure out how to be more efficient with what you're doing, or stop doing some things, or cut a deal with your family.  You appear to be suggesting that you're efficiently optimizing 100% of your time, but we know that your time is actually being wasted every day by something.  I don't know what specific changes you should make, but they'll start with a website or a book on the topic and on eliminating the things that you really don't need to be doing.  Otherwise your only option is to work harder, and from what I'm reading of your posts that doesn't seem to be a sustainable option.

Look, I'm not the one suffering here.  (Well, not any more.)  I'm basing my suggestions on what I've read & heard from over a hundred servicemembers and their families.  They all faced impossible problems like yours, with unworkable solutions and zero time to devote to troubleshooting.  Yet somehow they figured out a solution to their problems, and meanwhile I unsuccessfully attempted to do what it seems that you're doing now.

Eventually one of two things will happen.  You'll get so desperate that you'll finally break through all the "Yeah, but..." that you're posting here and figure a way out.  Or you'll have a serious health crisis and you'll be unable to continue the status quo... a solution will be forced on you.

Oh, I suppose a third option would be that you could keep living your life like it is right now until you reach your goal(s).  For me it was nine years because I earned an inflation-fighting pension with cheap healthcare.  How long will you have to do that in your career?
« Last Edit: March 05, 2013, 11:45:37 PM by Nords »

WageSlave

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Re: Rethinking the 4 percent rule
« Reply #25 on: March 06, 2013, 10:32:24 AM »
My theme in the following paragraphs is "calling it as I see it" based on "been there, done that".  I'm not so sure the phrase "face punch" is appropriate, but that certainly seems to be the culture on this forum.

You can call it whatever you like, but either way, I appreciate the feedback and thoughts.  Sometimes face punches are the right prescription.  :)

You mean, if I was enjoying the work so much that I'd be willing to devote more than 30 years to it?  Sure it would've changed my perspective because I'd have no reason to retire, nor reason to start a side hustle.

My regrets are based in the fact that I was miserable and couldn't see any way out of the hole I was digging... except to get a bigger shovel and scoop faster.

What I meant was hypothetical---imagine you were back in that situation but making 5x to 10x the money.  Everything else was the same (age, time in the service, etc etc).  But either way, you used the word miserable which is really too strong for where I'm at.

That's exactly what I'm saying.  It's just a job, and if you're so darn good at what you're doing now then the only thing limiting your opportunities is your perception of your abilities.  If this job is such a wonderful career then you should be tap-dancing your way to work every day, knowing you're so well compensated that you'll be able to achieve ER in no time.  But from what you've posted, I'm gaining a different impression of your level of satisfaction.

It's possible you are assuming that I'm good at my job because of the pay.  I'm confident that I'm a good hire, but I'll argue that in my case, luck has more to do with it than anything.  I had a well-positioned college friend.  And I have skills that under normal circumstances would be unremarkable (Linux system administration) but could be exploited by my employer due to the trust relationship implied by my friend.  That, and nobody else wants to do the work I do.

Last time I checked the Internet was full of helpful suggestions on "getting things done".  You have to figure out how to be more efficient with what you're doing, or stop doing some things, or cut a deal with your family.  You appear to be suggesting that you're efficiently optimizing 100% of your time, but we know that your time is actually being wasted every day by something.  I don't know what specific changes you should make, but they'll start with a website or a book on the topic and on eliminating the things that you really don't need to be doing.  Otherwise your only option is to work harder, and from what I'm reading of your posts that doesn't seem to be a sustainable option.

I added the emphasis, because that's the only option I see.  During the week, my day looks like this:
5:30 to 7:00 - exercise and shower
7:00 to 7:00 - work
7:00 to 7:30ish - dinner with family
7:30ish to 8:15ish - play with wife & kid
8:15 to 9:00 - put kid to bed
9:00 to 9:30ish - time with wife
9:30ish to 5:30 - sleep

Outside of work, I have no "hard" obligations, as my wife is a SAHM and does virtually all the domestic chores.  I could, for example, maybe twice a week come home, eat, then spend the next two or three hours working on some kind of side hustle.  With hard work and optimism, the thesis of your posts (and MMM's for that matter) is that after a year or two, it ought to turn into something sustainable, and the day job will quickly become obsolete.  And sure, I'm giving up what precious little family time I have now, but in the long run, the payoff is dramatically increased family time: a longer-term net win.  I doubt any website or book can tell me anything other than I just have to decide to actually do it, and commit to that decision.  Perhaps the hardest part is that it is a change, just like any non-trivial MMM-style life strategy.  For example, biking everywhere, or giving up practically all eating out, or DIY over paid service/repair/maintenance... it's stepping out of a comfort zone, even if we know in our hearts that our comfort zone really isn't as comfortable as we'd like.  The comfort is only in familiarity; change is not familiar, and therefore uncomfortable.

Eventually one of two things will happen.  You'll get so desperate that you'll finally break through all the "Yeah, but..." that you're posting here and figure a way out.  Or you'll have a serious health crisis and you'll be unable to continue the status quo... a solution will be forced on you.

Oh, I suppose a third option would be that you could keep living your life like it is right now until you reach your goal(s).  For me it was nine years because I earned an inflation-fighting pension with cheap healthcare.  How long will you have to do that in your career?

Again, some of your wording ("misery" and "suffering") makes me think I gave the wrong impression.  It's not that bad.  It ebbs and flows, but I'd say it averages out to being neutral.  Yes, it's definitely not the long-term situation in which my wife and I want to be.  But we tolerate it now in the interest of hopefully making our life easier in the future.  I don't think there's any sure bet as far as this stuff goes---I could save up a billion dollars (hypothetically!) and still not make it in ER due to some random thing completely out of my control.  But then again, trying to pull of 40+ year FIRE with a 10% SWR (for example) is almost certainly folly.

What I'm trying to do is determine the sweet spot for the size of my stache before making a significant life-leap.  Perhaps the conventional wisdom---and certainly MMM's stance---is that the 4% SWR is that sweet spot.  But I think the whole point of this thread (at least originally :)) is that maybe it's not really that sweet unless supplemented with some kind of side hustle.

Nords

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Re: Rethinking the 4 percent rule
« Reply #26 on: March 06, 2013, 10:32:09 PM »
I could, for example, maybe twice a week come home, eat, then spend the next two or three hours working on some kind of side hustle.  With hard work and optimism, the thesis of your posts (and MMM's for that matter) is that after a year or two, it ought to turn into something sustainable, and the day job will quickly become obsolete.  And sure, I'm giving up what precious little family time I have now, but in the long run, the payoff is dramatically increased family time: a longer-term net win.  I doubt any website or book can tell me anything other than I just have to decide to actually do it, and commit to that decision.  Perhaps the hardest part is that it is a change, just like any non-trivial MMM-style life strategy.  For example, biking everywhere, or giving up practically all eating out, or DIY over paid service/repair/maintenance... it's stepping out of a comfort zone, even if we know in our hearts that our comfort zone really isn't as comfortable as we'd like.  The comfort is only in familiarity; change is not familiar, and therefore uncomfortable.
Yep.

Again, some of your wording ("misery" and "suffering") makes me think I gave the wrong impression.  It's not that bad.  It ebbs and flows, but I'd say it averages out to being neutral.  Yes, it's definitely not the long-term situation in which my wife and I want to be.  But we tolerate it now in the interest of hopefully making our life easier in the future. 
"Neutral" is generally not enough voltage to force change.  If I'd been at neutral in my military career with 5x-10x the pay scale then I probably would done what I ended up doing-- staying at that occupation because there was no compelling reason to leave. 

I think that one of the strongest incentives for financial independence-- far stronger than ERE's permaculture or any quest for wealth-- is sucky employment.  If work is autonomous, fulfilling, and somewhat complex, then there's hardly a reason to quit.  But since most work eventually crosses the line heading the wrong way, that's plenty of incentive to achieve the financial independence to be able to work by choice.

I don't think there's any sure bet as far as this stuff goes---I could save up a billion dollars (hypothetically!) and still not make it in ER due to some random thing completely out of my control.  But then again, trying to pull of 40+ year FIRE with a 10% SWR (for example) is almost certainly folly.
What I'm trying to do is determine the sweet spot for the size of my stache before making a significant life-leap.  Perhaps the conventional wisdom---and certainly MMM's stance---is that the 4% SWR is that sweet spot.  But I think the whole point of this thread (at least originally :)) is that maybe it's not really that sweet unless supplemented with some kind of side hustle.
I think we're all very good at focusing on the 5% failure rate of the 4% SWR.  What tends to get lost in the analysis, though, is the 95% success of the 4% SWR-- and that's even before people start varying their spending, collecting Social Security, or running almost any sort of side hustle to help take the pressure off the SWR.  Many of the well-known flaws of the 4% SWR (especially sequence of returns) can be brought down close to zero just by purchasing a single-premium immediate annuity for part of one's income and staying flexible on spending during the first 10 years.  Even for 40 or 50 years, I'm pretty sure that spending won't rise by inflation every year.

So I'd say that 4% is a tripwire.  Like your job, or at least not hate it?  Fine, then keep working if you want to (but stay healthy and low stress). 

Hate your job, or having health issues?  Start that side hustle a couple years before your projected date of financial independence.  Then on the happy day you can declare your FI, start your 4% SWR, and keep working on the side hustle.  As long as it's fulfilling, complex, and autonomous then the Internet Retirement Police will leave you alone.

I'm almost embarrassed by how easy it's been to earn money at things I enjoy doing:  handyman, writing, blogging, learning more about investing.  I thought I was doing great with $100/month AdSense income for just 12,000 hits, and today I've learned that I can improve that at least 2x.  I haven't even started up the Amazon affiliate sales or Commission Junction, let alone the Chase credit-card referrals.  Why, if I had a nickel for every... oh wait.

WageSlave

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Re: Rethinking the 4 percent rule
« Reply #27 on: March 07, 2013, 10:08:51 AM »
Semi-related random personal anecdote/introspection.  For anyone who is familiar with Role-Playing Games (RPGs), what I feel like I'm doing at my job now is grinding.  In an RPG, that means deliberately fighting weaker enemies over and over again to easily (but tediously) level up, making harder enemies/bosses easier to defeat.  With RPGs, I've always been a grinder.  I just can't help myself.  About to explore a new area?  I better do another walk-through of the current area, just to make sure I'm adequately prepared for whatever comes next.  Only recently did I draw the parallel between my RPG style and real life.

fiveoh

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Re: Rethinking the 4 percent rule
« Reply #28 on: March 07, 2013, 10:33:00 AM »
Semi-related random personal anecdote/introspection.  For anyone who is familiar with Role-Playing Games (RPGs), what I feel like I'm doing at my job now is grinding.  In an RPG, that means deliberately fighting weaker enemies over and over again to easily (but tediously) level up, making harder enemies/bosses easier to defeat.  With RPGs, I've always been a grinder.  I just can't help myself.  About to explore a new area?  I better do another walk-through of the current area, just to make sure I'm adequately prepared for whatever comes next.  Only recently did I draw the parallel between my RPG style and real life.

LMAO love the analogy.  Played wow and several other MMORPGs for several years.  :)

unitsinc

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Re: Rethinking the 4 percent rule
« Reply #29 on: March 07, 2013, 10:44:16 AM »
Semi-related random personal anecdote/introspection.  For anyone who is familiar with Role-Playing Games (RPGs), what I feel like I'm doing at my job now is grinding.  In an RPG, that means deliberately fighting weaker enemies over and over again to easily (but tediously) level up, making harder enemies/bosses easier to defeat.  With RPGs, I've always been a grinder.  I just can't help myself.  About to explore a new area?  I better do another walk-through of the current area, just to make sure I'm adequately prepared for whatever comes next.  Only recently did I draw the parallel between my RPG style and real life.

As a fellow gamer, that is an incredibly succinct way to describe the situation.
« Last Edit: March 08, 2013, 09:10:45 AM by unitsinc »

brewer12345

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Re: Rethinking the 4 percent rule
« Reply #30 on: March 07, 2013, 10:45:30 AM »
WS, I hae lived a life pretty similar to the one you have, judging by your schedule and other details posted.  I was making a crap load (technical term) of money for a while there, but it was a difficult existence to sustain for a long period of time.  I made the money while I could and when I lost the embarassingly high paying job in the crash, I ended up in a much less taxing (and less remunerative) job.  You know what?  It still riled me.  I still hate being in a cube so much that I am finally willing to take the risks and cut the cord (planned fro early next year).  Will I succeed or fail once that happens? I don't know.  What I do know is that I cannot spend another 20 years in a cube without at least a break, and I am willing to try real hard to make it work such that I never have to go back to the cube again.  Do I have enough monety per the 4% rule?  Nope, just a good start on it. I will figure out how to make up the rest of it and there si a signficant possibility that the next 10 years will not equal the worst in history and I will have an easy ride.

Time waits for no man.

WaxOnWaxOff

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Re: Rethinking the 4 percent rule
« Reply #31 on: March 07, 2013, 11:51:53 AM »
Coming out from lurking: this thread has been incredibly helpful for me. I have juuuuuuust enough to live on per the 4% rule, but I didn't count my tiny pension or money from side hustles in my calculation. I do plan to side hustle big time after retirement because I enjoy working (on my own terms and on my own projects, of course), so theoretically I can leave now and be fine. Yet I'm still having trouble cutting the cord because I've been at my current job for only 6 months. And there's always the temptation of staying a little longer to build more of a money cushion.

Decisions, decisions....

Kriegsspiel

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Re: Rethinking the 4 percent rule
« Reply #32 on: March 07, 2013, 04:33:25 PM »
Semi-related random personal anecdote/introspection.  For anyone who is familiar with Role-Playing Games (RPGs), what I feel like I'm doing at my job now is grinding.  In an RPG, that means deliberately fighting weaker enemies over and over again to easily (but tediously) level up, making harder enemies/bosses easier to defeat.  With RPGs, I've always been a grinder.  I just can't help myself.  About to explore a new area?  I better do another walk-through of the current area, just to make sure I'm adequately prepared for whatever comes next.  Only recently did I draw the parallel between my RPG style and real life.

that's a pretty funny analogy.  You'd probably like nerdfitness.com too :)