Author Topic: Stop worrying about the 4% rule  (Read 602388 times)

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1600 on: October 19, 2018, 08:39:10 AM »
Except for the spectre of approaching death.

Let's face it people shooting for 2%WR or lower a secretly using the "if I die at my desk" strategy as a way to ensure they never have to worry about running out of money and perhaps even better "if I die at my desk I never have to face the scary possibility of actually having to stop working!" So I don't think death holds the same concern for them as it does for folks who are eager to retire and get off the hamster wheel. ;-)

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1601 on: October 19, 2018, 09:18:19 AM »
The other item people forget to think about is the spending aspect of a WR. Spending is not a constant over 50 years.

When talking about %WRs spending is assumed to be appropriately budgeted. If you are at 2%WR and don't have a budget you can live with or you are at 8%WR and have 300% luxury spending built in than there is no point trying to even compare the two.

Before you bother working out a withdrawal rate you need to determine how much annual budget you need for your retirement. If you fail at that step nothing you do further down the planning process is going to be reliable.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1602 on: October 19, 2018, 09:32:04 AM »
This is an over generalization and not true for everyone.

Nothing is true for everyone. People are very creative and will come up with all manner of reasons to OMY.

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1603 on: October 19, 2018, 09:36:11 AM »
Yeah the budgeting step is interesting. We went from $30k/year prior to RE to something more like $45k after RE. Why? Well we are not exactly sure yet (this is the first year of no real employment for either of us), nor are we sure of what our actual spend is yet.

I know we did a few things around the house, such as installed a new deck plus bought a fancy large fridge but that would only account for about half the extra spend.

Part of the issue is that 2% WR is about $60k for us so in some ways the extra spend really doesn't matter.. Good problem to have/hedonistic adaption perhaps?

PizzaSteve

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Re: Stop worrying about the 4% rule
« Reply #1604 on: October 19, 2018, 09:57:39 AM »
Agreed.  Thats why I get so annoyed about the mortgage debates.  It's really all about spending management, with investment returns really secondary.  Any decent investment strategy will do, ETFs, being debt free, individual stocks, rentals, even bonds or CDs are fine, assuming you live honestly and without that need to consume.

So much focus on x% withdraw rates misses the big picture. The models are just a tool/framework.  Lifestyle and savings are what matters, whether at a 2% or an 8% withdraw rate.  If you can manage yourself, track your status and be flexible, you will be fine.

Investment optimization threads are all fine, but secondary IMHO.

Well the underlying what you're invested in still matters a great deal. There are probably more unsuccessful investment to SWR mixes than successful ones.
Yes, but lets analyze what an 8% 'failure' looks like.

8% YOLO failure..
1) Focused young on doing your dreams.
2) Lived well, for maybe 30 years during your youth traveling, doing your thing.
3) In your senior years your stash looks something like the typical person at retirement (e.g. not much).
4) So you live frugally on social security or the local equivalent, cause you ran out of money.  Welcome to the world of most people.  However, you also have awsome life skills from your experience living off savings.  Likely you know how to make a thin income awsome.  You walk daily (because you have a healthy body from a lifetime of having time to exercise and with low stress).  Maybe some successful friends you made while retired help out with free vacations at their home, etc)

Meanwhile, 2% 'success' may mean...
1) Working much longer, perhaps another 10 years until traditional retirement age
2) Having more money than you need so you get some luxuries at old age (not to be under estimated)
3) Never pursued those thing you wanted to do while young enough to do it (e.g. mountain climbing, extreme sports, etc)

I am not advocating 8%, just saying it might be a good plan for someone really not materialistic, and with very specific goals like wanting time with kids during their youth, assuming they understand the consequences.  Often an 8% er inherits some cash when they run out, not that that is a good plan.  aive seen many very poor savers bailed out at 60 by a parents bequest.

The deciding factor may just be how much one likes their income generating life phase.  We oversaved more because we had good jobs we enjoyed and a good lifestyle while earning, than because we feared a lack of money after early retirement.  So it worked for us.

@Exflyboy We struggle a bit with giving ourselves permission to spend, having also saved to 2%ish.  A life of frugal habits is good, but can get in the way.  Nothing is wrong with the occasional deck or fancy fridge, well deserved. Better to get it when you will enjoy it for decades than hoard money.
« Last Edit: October 19, 2018, 10:09:55 AM by PizzaSteve »

steveo

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Re: Stop worrying about the 4% rule
« Reply #1605 on: October 19, 2018, 05:31:52 PM »
Before you bother working out a withdrawal rate you need to determine how much annual budget you need for your retirement. If you fail at that step nothing you do further down the planning process is going to be reliable.

This is the most important point and it gets missed in these maths type debates. Unless you get your estimated spending right it's going to be shot in the dark. That in all reality is probably a variable spending idea. You need to have an idea though of what you can live off but it's probably going to be I'd like to live on x but I can live off y for a period of time if things go bad so that I can quit earlier.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1606 on: November 03, 2018, 11:01:16 AM »

-snip-

Part of the issue is that 2% WR is about $60k for us so in some ways the extra spend really doesn't matter.. Good problem to have/hedonistic adaption perhaps?

2 % is a 50 X multiplier.

$60,000 X 50 = $3,000,000

It would take 30 years to spend that down at 100 K a year without any return.  You are definitely in a position where you do not have to worry about the 4 per cent rule.

Is health care a valid reason for OMY?  It seems rather unpredictable.  The 4 percent is fine other than that.

dude

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Re: Stop worrying about the 4% rule
« Reply #1607 on: December 04, 2018, 09:48:49 AM »
 This may have been posted here before (hell, I might have posted it previously!), but it gives me great comfort every time I read it:

https://www.kitces.com/blog/consumption-gap-in-retirement-why-most-retirees-will-never-spend-down-their-portfolio/

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1608 on: December 23, 2018, 12:13:27 PM »
Yes - I'm a worrier.  I was brought up to be a worrier.

With the recent blip in the stock market, my worries arise anew.  I try to figure things out.  Sometimes, me and this financial stuff just do not agree. 

Just take a quick look at this overview of the S&P 500 for the past 90 years.  Observe the pattern.

https://www.macrotrends.net/2324/sp-500-historical-chart-data

Look at say 1965.  See the pattern.  It's a nice climb to a peak about 772 in 1968.  Nice, huh?  Maybe your grandfather made money on this market.  The overall curve of the stock market is going up.  If you draw a line through it the 4 percent rule ought to do just fine.

When did it hit 772 again?  It was about 1993.  This was about 25 years later.

Explain to me.  If you let your money sit in the stock market, did it take 25 years to get this value back?

I saw a very similar pattern looking at the Dow Jones curves.

There is a similar pattern after 1929 to 1958 or so.

Now look at 2010 to now.  The slope and general pattern look like the rise from 1950 to the mid 1960s.  Now it is starting to fall at the end of 2018.  Hey! I could easily be dead in 25 years if we have a repeat of the same pattern.  That delta under the curve which represents the toil and sweat of my lifetime could have gone into some Wall Street fat cats pocket.

Is my worry invalid or is it, "You pay yoo money yoo taka yoo chances" 

Educate me and let me sleep easy at night.



Roadrunner53

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Re: Stop worrying about the 4% rule
« Reply #1609 on: December 23, 2018, 12:40:02 PM »
I am worried too! I need to make a substantial withdrawal 3.5-4% in January.

This will be my first time withdrawing this type of percentage. I had to dip into regular savings for the last few years due to Obamacare and not to increase my income level to lose the subsidy. I am off Obamacare and starting January I need to take from retirement money and cringe since the stock market is going nuts every day!

secondcor521

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Re: Stop worrying about the 4% rule
« Reply #1610 on: December 23, 2018, 12:40:32 PM »
1929 and 1966 were probably the absolute worst times to retire and use the 4% rule (even though it hadn't been described at those points in history).  Note that a 4% withdrawal rate historically succeeded over a 30 year retirement in both of those absolute worst years.(*)

This also assumes that the hapless retiree doesn't notice the problem for 30 years and refuses to go back to work or tighten their belt and continues to adjust upward for inflation.  A reasonable retiree would (a) probably notice sooner, and (b) probably do something about it.

Your chart also includes price changes but likely does not account for dividends.  The dividend yield in the 1960's was probably (guessing) 3%, so after 25 years of waiting you'd have all of your money back (less inflation) plus 75% of your money in dividends.

Finally, you seem to imply that the person saved up cash for a lifetime, then bought 100% stocks in 1966 (or 1929).  Nearly everyone works for 20 years at a career and buys in with each paycheck over that long period of time.  At least that's what I did.  So a typical investor trying to retire in 1966 would have started buying in 1946 or so and benefited from the 1946 to 1966 market performance.

2010 as a starting year could be worse than ever before, in which case the 4% rule could fail.  2019-2020 could rhyme with 1973-1974 (albeit probably with lower inflation), or it could rhyme with 2010-2011.  Nobody knows, so in this case of trying to predict the future, yes, you do pays your money and takes your chances.

Personally I think we've learned some things about economics since 1929 and 1966, and I think that the world economy is overall trending positively, not negatively.  I admit I may be wrong, but I'm pretty much a relentless optimist.

As the market drops - and it may drop further; I believe bear markets average about 9 months in length - you will find me likely rebalancing my portfolio from bonds to stocks.  As it bottoms out, I will probably be nervous.  If it isn't different this time and the recovery follows, I will be at 95% stocks, riding the next wave up, and probably buying a first class plane ticket to my favorite Caribbean island.  I fully and completely expect this.

If it is different this time, I'll be grubby from not having showered to minimize my water bill, and riding my ten-speed bicycle to my greeter job at Walmart, if my resume printed on the back side of a recycled piece of paper manages to catch the eye of HR over the thousands of my fellow unemployed citizens.  But for a few pretty enjoyable years between 2016 and then, I will have not had to work.

(*) More or less, depending on what you were invested in.  1966 and 1967 might have been failure years, but they were still close.
« Last Edit: December 23, 2018, 12:59:04 PM by secondcor521 »

SwordGuy

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mjr

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Re: Stop worrying about the 4% rule
« Reply #1612 on: December 23, 2018, 01:02:26 PM »
It's not adjusted for inflation, but it does include dividends.  You can't just ignore dividends, they're a big part of the total return.

This is just for the time period you mentioned.

« Last Edit: December 23, 2018, 01:04:10 PM by mjr »

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1613 on: December 23, 2018, 10:06:17 PM »
It's not adjusted for inflation, but it does include dividends.  You can't just ignore dividends, they're a big part of the total return.

This is just for the time period you mentioned.



Certainly is a much prettier picture.  I didn't think J L Collins was lying to me.

I couldn't understand it.  The late 1960s was a good time for the United States.  There were good paying union jobs, we were still on a science kick going to the moon and we had enough money too support LBJs war on poverty.  The Vietnam War probably dragged the economy down a bit, but this was the time when all of those shuttered factories in the rust belt were still going strong.  Like, we sold stuff to the world.

Ok - So they issued dividends and shared the wealth.  That's cool.

So, unless I hear about them continuing to do layoffs like GM, I would think American Industry will keep this stock thing going.  I'll hang in there.  Once they get this government thing solved, get a good trade deal with the Chinese and possibly revalue over-valued stocks, we should get back to a slow rise in maybe a year. 

mjr

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Re: Stop worrying about the 4% rule
« Reply #1614 on: December 23, 2018, 11:29:49 PM »
The inflation adjusted chart lets you compare apples and apples better.

It's not all gravy - it doesn't make it back to 1965 levels until 1983.  Better than 1992 but still a bloody long time.

Don't forget that the downturn in the market in 1966 is what defines the 4% rule for the US market.  4% withdrawals kept the 1965 retiree out of trouble, barely.

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1615 on: December 24, 2018, 06:52:04 AM »
The inflation adjusted chart lets you compare apples and apples better.

It's not all gravy - it doesn't make it back to 1965 levels until 1983.  Better than 1992 but still a bloody long time.

Don't forget that the downturn in the market in 1966 is what defines the 4% rule for the US market.  4% withdrawals kept the 1965 retiree out of trouble, barely.

That's right.  It was a time of high inflation, stagflation.  Not such a pretty picture with the inflation.  That all makes it make sense.  High inflation can drag you down.  OPEC was king back then.  Having a monopoly was very good for the monopoly.  It kind of gives one an appreciation for the new oil production technologies that get oil from tar sands and shale.  It is starting to make sense why the curve was kept from growth. 

From the web:

September 2018

"The United States likely surpassed Russia and Saudi Arabia to become the world's largest crude oil producer earlier this year, based on preliminary estimates in EIA's Short-Term Energy Outlook (STEO). In February, U.S. crude oil production exceeded that of Saudi Arabia for the first time in more than two decades."

If the money stays in North America, it should help recovery from the upcoming bear market.

I'm starting to feel better.  I've not known J. L. Collins to lie about this stuff.

DreamFIRE

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Re: Stop worrying about the 4% rule
« Reply #1616 on: December 25, 2018, 10:00:50 AM »
Here's a much more recent timeline of 13 years with negative real returns with dividend reinvestment and adjusted for inflation.

That's April 1999 to June 2012 with a real annualized return of -0.699%.

http://i65.tinypic.com/e02y3c.jpg


There have been longer time periods as well:

https://forum.mrmoneymustache.com/investor-alley/10-years-of-negative-returns/msg2100467/#msg2100467
« Last Edit: December 25, 2018, 10:07:14 AM by DreamFIRE »

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1617 on: December 25, 2018, 10:40:56 AM »
Here's a pretty good summary of what it's been like being in the drawdown phase from 2000 - 2017 for several asset allocations, example is scaled using $100,000 starting NW and $4,000 inflation adjusted withdrawals -

https://youtu.be/opNohVglLX0?t=183

Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1618 on: December 25, 2018, 07:01:39 PM »
@EscapeVelocity2020

Nice presentation in the link.  Although a high inflationary environment (1965-1982 for example) would make the higher bond allocation look pretty risky. 

In general, this is why I have always thought that circumstances should dictate AA.  It doesn't make you a market timer to adjust AA based on your needs.  The idea of bond tent or reverse glidepath has become rather popular, but I prefer a "buckets" approach with noncorrelating asset classes.  IOW one bucket is for longer term were I will not draw down, the other for nearer term that will be drawn down.

To stick with the thread topic; further perfecting personal AA increases the resiliency of the 4% rule.  Making it more robust than the original trinity study predicts
« Last Edit: December 25, 2018, 07:03:32 PM by Classical_Liberal »

tooqk4u22

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Re: Stop worrying about the 4% rule
« Reply #1619 on: December 26, 2018, 07:46:52 AM »
I certainly have not enjoyed this December, but I really am thankful for my assessment of my risk tolerance and managing to a 3.0-3.25% SWR and a conservative AA.  My year end rebalancing will get things back in order. 

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1620 on: January 29, 2019, 07:44:36 PM »
Perhaps this has been discussed previously.  I did not scour the entries to check.  Perhaps there are thoughts on this quote from Jack Bogle (Bloomberg) who recently passed:

"JB Great markets don’t go on forever. We’re certainly looking at an era of much lower returns. I don’t think 4 or 5 percent for stocks is a bad guess. You might get lucky and get 2.5 percent on bonds and maybe almost 3 percent if you get into some corporates. But you put the 5 and the 3 together, and you have a 50-50 balanced fund, that’s 4 percent for a balanced portfolio. Then you take out inflation—say we’re lucky enough to have 1 percent. I don’t think we’ll get that lucky, but it should be lower than in the past. Maybe it’s a 3 percent real return? Then you have your friendly mutual fund managers taking 2 percent. Easy math."

Does this give added credence to lowering the 4 percent rule to 3 percent?  Save a little longer to 33.34X your expected yearly expenditures?

Telecaster

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Re: Stop worrying about the 4% rule
« Reply #1621 on: January 29, 2019, 08:52:48 PM »
Perhaps this has been discussed previously.  I did not scour the entries to check.  Perhaps there are thoughts on this quote from Jack Bogle (Bloomberg) who recently passed:

"JB Great markets don’t go on forever. We’re certainly looking at an era of much lower returns. I don’t think 4 or 5 percent for stocks is a bad guess. You might get lucky and get 2.5 percent on bonds and maybe almost 3 percent if you get into some corporates. But you put the 5 and the 3 together, and you have a 50-50 balanced fund, that’s 4 percent for a balanced portfolio. Then you take out inflation—say we’re lucky enough to have 1 percent. I don’t think we’ll get that lucky, but it should be lower than in the past. Maybe it’s a 3 percent real return? Then you have your friendly mutual fund managers taking 2 percent. Easy math."

Does this give added credence to lowering the 4 percent rule to 3 percent?  Save a little longer to 33.34X your expected yearly expenditures?

A lower WR will always be safer.   But remember the 4% rule was based on a 30-year time horizon.  Bogle could well be correct that returns will be lower than average in the future.  I'm not sure what he's defining as an "era." 5, 10, 15 years?   But that doesn't mean the 4% rule will fail.  Because presumably a period of lower than average returns would be followed by above average returns. 

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1622 on: January 30, 2019, 05:34:41 AM »

-SNIP-

A lower WR will always be safer.   But remember the 4% rule was based on a 30-year time horizon.  Bogle could well be correct that returns will be lower than average in the future.  I'm not sure what he's defining as an "era." 5, 10, 15 years?   But that doesn't mean the 4% rule will fail.  Because presumably a period of lower than average returns would be followed by above average returns.

Yes - he was a smart man.  I don't know how long an era is either, but the term suggests a long time.  Wikipedia makes me think it could be a very long time, a very long run.

https://en.wikipedia.org/wiki/Era_(geology)

In the long run we are all dead.  Even Gibson guitar went bankrupt last year.

I think I can hedge a bit and go for 3  percent.

nereo

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Re: Stop worrying about the 4% rule
« Reply #1623 on: January 30, 2019, 07:28:13 AM »

-SNIP-

A lower WR will always be safer.   But remember the 4% rule was based on a 30-year time horizon.  Bogle could well be correct that returns will be lower than average in the future.  I'm not sure what he's defining as an "era." 5, 10, 15 years?   But that doesn't mean the 4% rule will fail.  Because presumably a period of lower than average returns would be followed by above average returns.

Yes - he was a smart man.  I don't know how long an era is either, but the term suggests a long time.  Wikipedia makes me think it could be a very long time, a very long run.

https://en.wikipedia.org/wiki/Era_(geology)

In the long run we are all dead.  Even Gibson guitar went bankrupt last year.

I think I can hedge a bit and go for 3  percent.

It's not the average rate of return which dictates portfolio failures, it's the very bad years that do them in, particularly at or near the start of the withdraw-phase (aka 'sequence of return risk).  Consider that a guaranteed 3% return and 4% WR would still last 44 years, and 30 year periods with 4% annual returns have yielded a larger ending portfolio provided the big down markets occurred later on.

So the question is less about average rates of return, but whether future bear markets will be much worse than in the past, and when will they occur.  If you believe bear markets will be more severe in the future, what strategies will you use to address such a large down market. If you are worried about 'sequence of returns' risk - what can you do to mitigate that.

2Birds1Stone

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Re: Stop worrying about the 4% rule
« Reply #1624 on: January 30, 2019, 07:53:40 AM »
You can hedge with social capital, skills, and passive/entrepreneurial income streams.

The first one is very often underestimated and overlooked on personal finance boards. 

sol

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Re: Stop worrying about the 4% rule
« Reply #1625 on: January 30, 2019, 09:29:58 AM »
So the question is less about average rates of return, but whether future bear markets will be much worse than in the past, and when will they occur.

The future is notoriously hard to predict. 

The 4% SWR basically solves the financial side of things, but there are always other risks to consider.  There are still about 5% of historical cases where someone who blindly withdrew an inflation-adjusted 4% per year didn't quite make it the full 30 years because of sequential market crashes.  By contrast, about 50% of all US deaths are due to heart disease, but I'm guessing that most of us have spent a lot more time worrying about the 5% chance of market crashes causing us to curtail our spending than we do about the 50% chance of heart disease causing our deaths. 

Maybe take a few of those hours plotting up sequence of return risk scenarios and spend them going for a brisk walk instead.

Eating red or processed meat daily increases your risk of stomach and colon cancers by more than 15%.  Where's the thread about the dangers of that?  People who sometimes forego their seatbelt are increasing their risk of death in an accident by more than 50%.  Do you have a firearm or swimming pool in your home?  Do you smoke?  Do you see where I'm going here?

Historical stats about the stock market are descriptive, not predictive.  Russia could nuke your city later today and then all of your careful portfolio spreadsheets that you worried so much about would look pretty silly, right?  At some point, you have to accept that your financial models are "good enough" and then start using your precious remaining hours on Earth to address other risks instead. 

secondcor521

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Re: Stop worrying about the 4% rule
« Reply #1626 on: January 30, 2019, 09:47:28 AM »
So the question is less about average rates of return, but whether future bear markets will be much worse than in the past, and when will they occur.

The future is notoriously hard to predict. 

The 4% SWR basically solves the financial side of things, but there are always other risks to consider.  There are still about 5% of historical cases where someone who blindly withdrew an inflation-adjusted 4% per year didn't quite make it the full 30 years because of sequential market crashes.  By contrast, about 50% of all US deaths are due to heart disease, but I'm guessing that most of us have spent a lot more time worrying about the 5% chance of market crashes causing us to curtail our spending than we do about the 50% chance of heart disease causing our deaths. 

Maybe take a few of those hours plotting up sequence of return risk scenarios and spend them going for a brisk walk instead.

Eating red or processed meat daily increases your risk of stomach and colon cancers by more than 15%.  Where's the thread about the dangers of that?  People who sometimes forego their seatbelt are increasing their risk of death in an accident by more than 50%.  Do you have a firearm or swimming pool in your home?  Do you smoke?  Do you see where I'm going here?

Historical stats about the stock market are descriptive, not predictive.  Russia could nuke your city later today and then all of your careful portfolio spreadsheets that you worried so much about would look pretty silly, right?  At some point, you have to accept that your financial models are "good enough" and then start using your precious remaining hours on Earth to address other risks instead.

Excellent points, @sol.

The magnitude of the relative risks is quite amazing to me.  At almost 50 years old and with a ~1.5% WR, I ran the Rich/Broke/Dead tool developed by @CCCA.  With my particular numbers, I have zero risk of running out of money, but a 20% chance of being dead in 20 years.  *Of course* I'll be in the 80% that makes it past that age, but one of my friends growing up died at 49 the other day, so the risk is real.

I won't bore you with what I do, but more of my time and effort is focused on my health and reducing those mortality factors.  On a related note, being middle-aged, rich, and feeling well is a thousand times better than being middle-aged, rich, and sick.

I'd also add that in my opinion the ways to gaining and preserving wealth are fairly well documented and the ways to gain and preserve health are also fairly well documented.  (Yes, there is considerable disagreement in both areas about the ideal way to do things, but the broad outlines in the middle seem to me to be mostly consistent.)
« Last Edit: January 30, 2019, 09:50:30 AM by secondcor521 »

pecunia

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Re: Stop worrying about the 4% rule
« Reply #1627 on: January 30, 2019, 10:04:28 AM »

The future is notoriously hard to predict. 

The 4% SWR basically solves the financial side of things, but there are always other risks to consider.  There are still about 5% of historical cases where someone who blindly withdrew an inflation-adjusted 4% per year didn't quite make it the full 30 years because of sequential market crashes.  By contrast, about 50% of all US deaths are due to heart disease, but I'm guessing that most of us have spent a lot more time worrying about the 5% chance of market crashes causing us to curtail our spending than we do about the 50% chance of heart disease causing our deaths. 

Maybe take a few of those hours plotting up sequence of return risk scenarios and spend them going for a brisk walk instead.

Eating red or processed meat daily increases your risk of stomach and colon cancers by more than 15%.  Where's the thread about the dangers of that?  People who sometimes forego their seatbelt are increasing their risk of death in an accident by more than 50%.  Do you have a firearm or swimming pool in your home?  Do you smoke?  Do you see where I'm going here?

Historical stats about the stock market are descriptive, not predictive.  Russia could nuke your city later today and then all of your careful portfolio spreadsheets that you worried so much about would look pretty silly, right?  At some point, you have to accept that your financial models are "good enough" and then start using your precious remaining hours on Earth to address other risks instead.

You wouldn't be just lying with statistics would you?  And - You went back to work yourself, so,.........

Jack Bogle was just one smart man.  A lot of other smart men like Sol give credibility to the 4 percent rule, so maybe I don't have to back down to 3 percent.  Evidence is made readily available using historical data for anyone to study the statistics and check it out for themselves.  It may not be 100 percent, but as was pointed out the odds are both small and manageable.

I guess it's similar to climate change.  A few smart men don't believe it.  Many more smart men do.  And,...the facts point at it being correct.

Given the odds,.......more veggies.

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Re: Stop worrying about the 4% rule
« Reply #1628 on: January 30, 2019, 06:33:24 PM »
We "blindly" hit 1.5% WR last year.. We should be able to cut that back when our pensions kick in though.. oops!

Malkynn

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Re: Stop worrying about the 4% rule
« Reply #1629 on: January 31, 2019, 06:04:27 AM »
Perhaps this has been discussed previously.  I did not scour the entries to check.  Perhaps there are thoughts on this quote from Jack Bogle (Bloomberg) who recently passed:

"JB Great markets don’t go on forever. We’re certainly looking at an era of much lower returns. I don’t think 4 or 5 percent for stocks is a bad guess. You might get lucky and get 2.5 percent on bonds and maybe almost 3 percent if you get into some corporates. But you put the 5 and the 3 together, and you have a 50-50 balanced fund, that’s 4 percent for a balanced portfolio. Then you take out inflation—say we’re lucky enough to have 1 percent. I don’t think we’ll get that lucky, but it should be lower than in the past. Maybe it’s a 3 percent real return? Then you have your friendly mutual fund managers taking 2 percent. Easy math."

Does this give added credence to lowering the 4 percent rule to 3 percent?  Save a little longer to 33.34X your expected yearly expenditures?

If you like your job and have a good work/life balance and can continue to make money while living a great life, then sure, why not save to 33.34X, why not save to 50X?

However, if your job is preventing you from exercising, eating well, focusing on your marriage, and generally just slowly killing you, then by working longer you are increasing your risk of your portfolio being hit by divorce, early severe illness requiring expensive treatment, late in life illness requiring ongoing nursing care, mobility challenges that make day to day life more challenging and expensive, etc, etc.

If your job is compromising your mental and physical health, then quitting at 10-15X and coasting to full FI may be a much saner option. It depends on your individual circumstances.

There are the possible risks of what the markets will do and then there is the guaranteed risk of working longer if you choose a more conservative WR.

This group is such a conservative and paranoid bunch, I fully suspect that most Mustachians aren't FIREing on super lean budgets at exactly 4% WR. The risk of OMY among this population is MUCH MUCH higher than SORR.
I suspect most people here will die with substantially more money than they initially saved.

It's the subjective factor of how much they enjoy their lives while working that defines if that conservativism is a significant risk or not. I mean, if the whole point of FIRE is to be happy, then whether or not you are happy while working is kind of a big deal in the equation.

If you have fat in your annual retirement budget, which most of us do, a willingness and capability of making money if needed, a possibility of geo arbitrage particularly in early retirement, and even a vague inclination to monitor what the markets are doing, then you could very very conservatively get away with saving well under 25X.

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Re: Stop worrying about the 4% rule
« Reply #1630 on: January 31, 2019, 06:48:46 AM »

However, if your job is preventing you from exercising, eating well, focusing on your marriage, and generally just slowly killing you, then by working longer you are increasing your risk of your portfolio being hit by divorce, early severe illness requiring expensive treatment, late in life illness requiring ongoing nursing care, mobility challenges that make day to day life more challenging and expensive, etc, etc.

If your job is compromising your mental and physical health, then quitting at 10-15X and coasting to full FI may be a much saner option. It depends on your individual circumstances.

There are the possible risks of what the markets will do and then there is the guaranteed risk of working longer if you choose a more conservative WR.

This group is such a conservative and paranoid bunch, I fully suspect that most Mustachians aren't FIREing on super lean budgets at exactly 4% WR. The risk of OMY among this population is MUCH MUCH higher than SORR.
I suspect most people here will die with substantially more money than they initially saved.


Clip-n-save comment, adding it to my journal.  I am definitely in the camp of "this job is killing me" and I realize I just have to get out of here.  Just a short while left, I really am committed to going this year with my 2019 cohort. 

As a side note, I have seen you quoted as the "best post of the day" but the link is gone to prior posts.  @spartana and others also have posts gone-  do folks blank their history for some reason and start over at 5 o'clock shadow status for privacy or something?  Are people manually deleting hundreds of old posts or going to the mods to do it?  Just curious. 

Anyone remember @scrubbyfish?  She totally disappeared and and all posts evaporated, I miss her voice.  You never know the circumstances of course, perhaps people have to abandon their old stuff because they are being stalked or have been outed at work.  I get it, no criticism from me but I am curious.  I could envision needing to go underground myself at some point but would hope not. 

nereo

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Re: Stop worrying about the 4% rule
« Reply #1631 on: January 31, 2019, 06:55:39 AM »
Some posters have a history of deleting their entire journals for reasons that are entirely personal. IT can be a bummer for those of us who have followed along and started our own mini-discussions with them, because as the journal goes so do those posts. 

Also a little-known fact; you can change your user name along with the title of any threads you have started (including journals). This appears to be what has happened with at least one frequent poster.

Malkynn

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Re: Stop worrying about the 4% rule
« Reply #1632 on: January 31, 2019, 06:58:34 AM »

However, if your job is preventing you from exercising, eating well, focusing on your marriage, and generally just slowly killing you, then by working longer you are increasing your risk of your portfolio being hit by divorce, early severe illness requiring expensive treatment, late in life illness requiring ongoing nursing care, mobility challenges that make day to day life more challenging and expensive, etc, etc.

If your job is compromising your mental and physical health, then quitting at 10-15X and coasting to full FI may be a much saner option. It depends on your individual circumstances.

There are the possible risks of what the markets will do and then there is the guaranteed risk of working longer if you choose a more conservative WR.

This group is such a conservative and paranoid bunch, I fully suspect that most Mustachians aren't FIREing on super lean budgets at exactly 4% WR. The risk of OMY among this population is MUCH MUCH higher than SORR.
I suspect most people here will die with substantially more money than they initially saved.


Clip-n-save comment, adding it to my journal.  I am definitely in the camp of "this job is killing me" and I realize I just have to get out of here.  Just a short while left, I really am committed to going this year with my 2019 cohort. 

As a side note, I have seen you quoted as the "best post of the day" but the link is gone to prior posts.  @spartana and others also have posts gone-  do folks blank their history for some reason and start over at 5 o'clock shadow status for privacy or something?  Are people manually deleting hundreds of old posts or going to the mods to do it?  Just curious. 

Anyone remember @scrubbyfish?  She totally disappeared and and all posts evaporated, I miss her voice.  You never know the circumstances of course, perhaps people have to abandon their old stuff because they are being stalked or have been outed at work.  I get it, no criticism from me but I am curious.  I could envision needing to go underground myself at some point but would hope not.

I had my entire post history deleted from 3 different forums for personal reasons.

I'm back now, but only on this forum.

MissNancyPryor

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Re: Stop worrying about the 4% rule
« Reply #1633 on: January 31, 2019, 07:13:32 AM »
Thanks for the reply, I totally get it.  And thanks for the frequently brilliant posts.

Malkynn

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Re: Stop worrying about the 4% rule
« Reply #1634 on: January 31, 2019, 07:56:18 AM »
Thanks for the reply, I totally get it.  And thanks for the frequently brilliant posts.

Thanks for the compliment.
I think I just come at things from a very different perspective than most people here because I'm not an engineer/math person and I don't actually care for FIRE, and really don't give the numbers much thought.

I tend to frame everything in terms of the feelings over the numbers because what are these numbers even for except to facilitate better feelings?

If the pursuit of the numbers creates a net lifetime deficit in the feelings column, then something went very very wrong along the way.

nereo

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Re: Stop worrying about the 4% rule
« Reply #1635 on: January 31, 2019, 09:33:39 AM »
aww... poor spartana, all stubble again.  Can I gift you a few thousand of my posts so you can at least sport a handlebar mustache?

nereo

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Re: Stop worrying about the 4% rule
« Reply #1636 on: January 31, 2019, 09:48:50 AM »
aww... poor spartana, all stubble again.  Can I gift you a few thousand of my posts so you can at least sport a handlebar mustache?
Its Walrus or nothing!! I demand only the biggest and fanciest of staches ;-). At least I promised the mods I wouldn't delete any more of my posts so that they don't kick me out.  I'll just remove incriminating info.
You mean like a personal description?  Spartana: White, 1'8", fluffy.  Often sports a monocle and top hat.
Oops, was that an overshare?

nereo

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Re: Stop worrying about the 4% rule
« Reply #1637 on: January 31, 2019, 10:59:40 AM »
And its not only death that's the issue with waiting to retire later - its age related infirmity. That isn't in @CCCA great graph but its something to be considered if choosing to work years longer than you need. I'm pretty sure a persons physical and mental abilities, and quality of life, is going to higher in your 40, 50s and 60s then in your 70s, 80s and 90s. So someone may work years longer than needed to fund a higher retirement lifestyle might find that even if they live a long life, the quality may be so poor due to old age problems.

I've now watched my parents, PIL, and at least one uncle 'overshoot' their retirement.  OMY syndrome hit and now the common refrain is "we should have retired years earlier'. They traded years and lots and lots of health problems for more money they will likely never spend.  At least their alma maters will benefit...


DavidAnnArbor

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Re: Stop worrying about the 4% rule
« Reply #1638 on: February 01, 2019, 12:08:45 PM »
I tend to frame everything in terms of the feelings over the numbers because what are these numbers even for except to facilitate better feelings?

If the pursuit of the numbers creates a net lifetime deficit in the feelings column, then something went very very wrong along the way.


It can take me time just to figure out what I'm actually feeling. It's now always clear to me.


On another note TheFinanceBuff sent out in his email an article that argues the feelings one has when dealing with rate of return risk during the drawdown phase of the early retirement.

https://medium.com/@justusjp/the-myopia-of-failure-rates-846f35a1c8eb

Harry Sit's response to the article was, "One more reason for calculating the withdrawal off the current portfolio value. If you don't want to be stressed for 10-15 years, be ready to live on less when your portfolio is down."

Tyson

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Re: Stop worrying about the 4% rule
« Reply #1639 on: February 01, 2019, 01:50:19 PM »
I tend to frame everything in terms of the feelings over the numbers because what are these numbers even for except to facilitate better feelings?

If the pursuit of the numbers creates a net lifetime deficit in the feelings column, then something went very very wrong along the way.


It can take me time just to figure out what I'm actually feeling. It's now always clear to me.


On another note TheFinanceBuff sent out in his email an article that argues the feelings one has when dealing with rate of return risk during the drawdown phase of the early retirement.

https://medium.com/@justusjp/the-myopia-of-failure-rates-846f35a1c8eb

Harry Sit's response to the article was, "One more reason for calculating the withdrawal off the current portfolio value. If you don't want to be stressed for 10-15 years, be ready to live on less when your portfolio is down."

Why do people seem to have problems with that?  If things are down, just cut your spending during those years.  A couple years living on slightly less seems like a very good trade off vs. spending an additional 5 or 10 years working. 

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1640 on: February 04, 2019, 01:18:05 AM »
And its not only death that's the issue with waiting to retire later - its age related infirmity. That isn't in @CCCA great graph but its something to be considered if choosing to work years longer than you need. I'm pretty sure a persons physical and mental abilities, and quality of life, is going to higher in your 40, 50s and 60s then in your 70s, 80s and 90s. So someone may work years longer than needed to fund a higher retirement lifestyle might find that even if they live a long life, the quality may be so poor due to old age problems.

I've now watched my parents, PIL, and at least one uncle 'overshoot' their retirement.  OMY syndrome hit and now the common refrain is "we should have retired years earlier'. They traded years and lots and lots of health problems for more money they will likely never spend.  At least their alma maters will benefit...

Must be nice.  I have two older sisters, a BIL, and a few relatives that only wish they were FI.  ER is off the table for them, but even Retirement is looking pretty skimpy other than SS and Medicare.  Not sure why I turned out so different, but I was focused on FI since graduating from HS and got there at 35 (using 4%).  Nowadays we are practicing stealth wealth and SWR falling further below 3%, although we live a similarly high lifestyle as the aforementioned relatives...  Guess I'm stuck in OMY but no 'should have retired years earlier' regrets - being FI regardless of the market and exciting one-off spending (enjoying things like SCUBA and a safari with the kids before they go off to college)...  Not really sure how a person can lament being FI and not ER to be honest...  why couldn't your parents, PIL, and uncle have retired years earlier if they regret it now?
« Last Edit: February 04, 2019, 01:20:31 AM by EscapeVelocity2020 »

nereo

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Re: Stop worrying about the 4% rule
« Reply #1641 on: February 04, 2019, 05:24:34 AM »
And its not only death that's the issue with waiting to retire later - its age related infirmity. That isn't in @CCCA great graph but its something to be considered if choosing to work years longer than you need. I'm pretty sure a persons physical and mental abilities, and quality of life, is going to higher in your 40, 50s and 60s then in your 70s, 80s and 90s. So someone may work years longer than needed to fund a higher retirement lifestyle might find that even if they live a long life, the quality may be so poor due to old age problems.

I've now watched my parents, PIL, and at least one uncle 'overshoot' their retirement.  OMY syndrome hit and now the common refrain is "we should have retired years earlier'. They traded years and lots and lots of health problems for more money they will likely never spend.  At least their alma maters will benefit...

Must be nice.  I have two older sisters, a BIL, and a few relatives that only wish they were FI.  ER is off the table for them, but even Retirement is looking pretty skimpy other than SS and Medicare.  Not sure why I turned out so different, but I was focused on FI since graduating from HS and got there at 35 (using 4%).  Nowadays we are practicing stealth wealth and SWR falling further below 3%, although we live a similarly high lifestyle as the aforementioned relatives...  Guess I'm stuck in OMY but no 'should have retired years earlier' regrets - being FI regardless of the market and exciting one-off spending (enjoying things like SCUBA and a safari with the kids before they go off to college)...  Not really sure how a person can lament being FI and not ER to be honest...  why couldn't your parents, PIL, and uncle have retired years earlier if they regret it now?

It's decidedly *not* nice, though certainly better than winding up destitute, to be sure.  Each has their own story of how they got there, but now they share the same regret - that their retirement will be substantially shorter and their bodies have suffered (age of course was a factor but compounded by working).  Since they all retired closer to traditional retirment age the result, proportionally, their retirements will be substantially shorter.  IME I think regret about OMY tends to strike only after pulling the plug and getting past the mental hurdle of relying one's stashe instead of working a job.  BUt they lament it precisely because of the time lost spent working literally over a thousand days - that they now wish they had spent doing other things while they were still able.

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1642 on: February 04, 2019, 06:21:25 AM »
Quote
It's decidedly *not* nice, though certainly better than winding up destitute, to be sure.  Each has their own story of how they got there, but now they share the same regret - that their retirement will be substantially shorter and their bodies have suffered (age of course was a factor but compounded by working).  Since they all retired closer to traditional retirment age the result, proportionally, their retirements will be substantially shorter.  IME I think regret about OMY tends to strike only after pulling the plug and getting past the mental hurdle of relying one's stashe instead of working a job.  BUt they lament it precisely because of the time lost spent working literally over a thousand days - that they now wish they had spent doing other things while they were still able.

Thanks for the answer, it was a sincere question.  I can see how a person's perspective changes once they retire.  There's a poll on the ER.org forum about this, with most folks thinking they retired at the right time (of course biased by the fact returns have been pretty good for the last 10 years, might have a different outcome after the 2008-9 45% drop).

Malkynn

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Re: Stop worrying about the 4% rule
« Reply #1643 on: February 04, 2019, 07:06:10 AM »
Quote
It's decidedly *not* nice, though certainly better than winding up destitute, to be sure.  Each has their own story of how they got there, but now they share the same regret - that their retirement will be substantially shorter and their bodies have suffered (age of course was a factor but compounded by working).  Since they all retired closer to traditional retirment age the result, proportionally, their retirements will be substantially shorter.  IME I think regret about OMY tends to strike only after pulling the plug and getting past the mental hurdle of relying one's stashe instead of working a job.  BUt they lament it precisely because of the time lost spent working literally over a thousand days - that they now wish they had spent doing other things while they were still able.

Thanks for the answer, it was a sincere question.  I can see how a person's perspective changes once they retire.  There's a poll on the ER.org forum about this, with most folks thinking they retired at the right time (of course biased by the fact returns have been pretty good for the last 10 years, might have a different outcome after the 2008-9 45% drop).

Also biased by the fact that people who are attracted to the ERE approach aren't likely to be the kind of people who deeply enjoy their work and get paid really well to do it.

That group is "extremely" motivated to FIRE as soon as humanly possible, so they are the least likely to be sucked into unnecessary OMY.

Risk is highly individual and depends entirely on personal circumstances. OMY might be wise for one person and tragic for another.

It's hard to know yourself well enough to know which side of the OMY risk you are on.

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Re: Stop worrying about the 4% rule
« Reply #1644 on: February 04, 2019, 08:47:31 AM »
We ended up going two more years than we possibly needed to.   But we have a mentally handicapped daughter who can't provide for herself and we don't trust Uncle Sam to do a good job for her, so we decided that being extra cautious was the way to go.  She would be the one penalized for our mistake and that wasn't fair to her or her brother, who would be saddled with her upkeep.

maizeman

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Re: Stop worrying about the 4% rule
« Reply #1645 on: February 04, 2019, 11:51:39 AM »
Quote
It's decidedly *not* nice, though certainly better than winding up destitute, to be sure.  Each has their own story of how they got there, but now they share the same regret - that their retirement will be substantially shorter and their bodies have suffered (age of course was a factor but compounded by working).  Since they all retired closer to traditional retirment age the result, proportionally, their retirements will be substantially shorter.  IME I think regret about OMY tends to strike only after pulling the plug and getting past the mental hurdle of relying one's stashe instead of working a job.  BUt they lament it precisely because of the time lost spent working literally over a thousand days - that they now wish they had spent doing other things while they were still able.

Thanks for the answer, it was a sincere question.  I can see how a person's perspective changes once they retire.  There's a poll on the ER.org forum about this, with most folks thinking they retired at the right time (of course biased by the fact returns have been pretty good for the last 10 years, might have a different outcome after the 2008-9 45% drop).

Also biased by the fact that people who are attracted to the ERE approach aren't likely to be the kind of people who deeply enjoy their work and get paid really well to do it.

That group is "extremely" motivated to FIRE as soon as humanly possible, so they are the least likely to be sucked into unnecessary OMY.

Risk is highly individual and depends entirely on personal circumstances. OMY might be wise for one person and tragic for another.

It's hard to know yourself well enough to know which side of the OMY risk you are on.

I think a small miscommunication. ER (early-retirement.org) is "early retirement" not "early retirement extreme." The average ER folk is probably closer to the mainstream than the average MMMer, while the average ERE forum member is probably farther from the mainstream than the average forum member here.

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Re: Stop worrying about the 4% rule
« Reply #1646 on: February 04, 2019, 11:58:20 AM »
Quote
It's decidedly *not* nice, though certainly better than winding up destitute, to be sure.  Each has their own story of how they got there, but now they share the same regret - that their retirement will be substantially shorter and their bodies have suffered (age of course was a factor but compounded by working).  Since they all retired closer to traditional retirment age the result, proportionally, their retirements will be substantially shorter.  IME I think regret about OMY tends to strike only after pulling the plug and getting past the mental hurdle of relying one's stashe instead of working a job.  BUt they lament it precisely because of the time lost spent working literally over a thousand days - that they now wish they had spent doing other things while they were still able.

Thanks for the answer, it was a sincere question.  I can see how a person's perspective changes once they retire.  There's a poll on the ER.org forum about this, with most folks thinking they retired at the right time (of course biased by the fact returns have been pretty good for the last 10 years, might have a different outcome after the 2008-9 45% drop).

Also biased by the fact that people who are attracted to the ERE approach aren't likely to be the kind of people who deeply enjoy their work and get paid really well to do it.

That group is "extremely" motivated to FIRE as soon as humanly possible, so they are the least likely to be sucked into unnecessary OMY.

Risk is highly individual and depends entirely on personal circumstances. OMY might be wise for one person and tragic for another.

It's hard to know yourself well enough to know which side of the OMY risk you are on.

I think a small miscommunication. ER (early-retirement.org) is "early retirement" not "early retirement extreme." The average ER folk is probably closer to the mainstream than the average MMMer, while the average ERE forum member is probably farther from the mainstream than the average forum member here.

I think of it as a continuum:
ERE
MMM
ER
Bogleheads

Malkynn

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Re: Stop worrying about the 4% rule
« Reply #1647 on: February 04, 2019, 12:04:15 PM »
Quote
It's decidedly *not* nice, though certainly better than winding up destitute, to be sure.  Each has their own story of how they got there, but now they share the same regret - that their retirement will be substantially shorter and their bodies have suffered (age of course was a factor but compounded by working).  Since they all retired closer to traditional retirment age the result, proportionally, their retirements will be substantially shorter.  IME I think regret about OMY tends to strike only after pulling the plug and getting past the mental hurdle of relying one's stashe instead of working a job.  BUt they lament it precisely because of the time lost spent working literally over a thousand days - that they now wish they had spent doing other things while they were still able.

Thanks for the answer, it was a sincere question.  I can see how a person's perspective changes once they retire.  There's a poll on the ER.org forum about this, with most folks thinking they retired at the right time (of course biased by the fact returns have been pretty good for the last 10 years, might have a different outcome after the 2008-9 45% drop).

Also biased by the fact that people who are attracted to the ERE approach aren't likely to be the kind of people who deeply enjoy their work and get paid really well to do it.

That group is "extremely" motivated to FIRE as soon as humanly possible, so they are the least likely to be sucked into unnecessary OMY.

Risk is highly individual and depends entirely on personal circumstances. OMY might be wise for one person and tragic for another.

It's hard to know yourself well enough to know which side of the OMY risk you are on.

I think a small miscommunication. ER (early-retirement.org) is "early retirement" not "early retirement extreme." The average ER folk is probably closer to the mainstream than the average MMMer, while the average ERE forum member is probably farther from the mainstream than the average forum member here.

Lol, oops

nereo

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Re: Stop worrying about the 4% rule
« Reply #1648 on: February 04, 2019, 01:47:57 PM »
reposting because it's relevant:


Only 5% of Americans 'retire' before age 55.
Following that logic, in the eyes of most Americans anyone who retires before than are outliers... extreme.  Even pulling the plug at 59 beats out most Americans.

Compared to the folks at ere.org someone retiring in their mid 40s would be fairly late - so it all comes down to the perspective of the person.

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Re: Stop worrying about the 4% rule
« Reply #1649 on: February 11, 2019, 08:26:35 PM »
Why are there two 50-54?