Author Topic: Thought Experiment: What if our assumptions about stock market growth are wrong?  (Read 8580 times)

thirtysomething-in-dc

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Something that has been on my mind a lot lately is a sort of thought experiment: what if the underlying assumption that is basically a foundational fact of Mustachianism is wrong? I am thinking specifically of the assumption about stock market growth over the long term. What if it is not 7%, but is instead something dramatically lower, like 1% or 2%?

This doesn't strike me as all that far-fetched. It is, after all, possible that our economy is undergoing some sort of fundamental transformation such that growth levels of the past are not possible anymore. I don't offer this possibility out of fear by any stretch, just to ask how Mustachianism would necessarily have to change if we couldn't rely on 7% growth in the stock market. What would our alternatives be?

GrowingTheGreen

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This is always an important question to ask and it must be done with the right frame of mind. This isn't a question to ask when in freak-out mode. The only solution in my mind is through diversification. A common type of investment that others tend to go to in order to diversify with respect to the stock market is real estate.

But even with real estate, there are many unknowns in the future. Appreciation can't be counted on for fantastic returns. A sound option may be investing in income properties, which have been doing very well recently. Headline after headline states that rent prices are increasing. But what if we're in a rent bubble? I'm not saying we are or anything, but what if.

I guess the point I'm trying to make is that the future is always unknown no matter what you're investing in. Can we make educated guesses that often turn out right? Absolutely. Nothing is guaranteed though.

All this talk about the future being unknown can be a little scary. You ask "what would the alternative be to stocks?"  Let's broaden it up and ask, "what is the alternative to investing?" My answer to that is that there is no alternative. The only other move you could make is to try to save enough with cash in order to live off of. That is not a viable alternative.



« Last Edit: March 10, 2016, 08:17:58 AM by GrowingTheGreen »

poorboyrichman

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Yep, it's all about diversification.

In capitalistic society, there will always be opportunity to turn a profit if you have the various forms of capital to invest, but the best bet going forward won't necessarily be wall street.

Mustachians need to educate themselves about why the market only ever "goes up over the long term" and they will realise that there are the real limits to the eternal growth myth. Climate change, resource depletion or world war poses serious risk of mass wealth destruction unless something is done to prevent these outcomes.

Back to diversification, never keep all your eggs in one basket. Retire at the wrong time with 100% of your capital in the stock/bonds, fiat, gold, RE or whatever and you could get wiped out.

The peak prosperity website goes into a lot of this. Some here would dismiss this as tin foil hat material, but a smart man reads around many subjects before forming his own opinions on long term prospects for stock market growth. Chris Martenson's book changed my view and investment stratergy, you could do a lot worse than reading something like that.

Alternative investment strategies could be owning productive organic farms, owning resources such as coppice woodland for selling firewood and construction timber, which will never go out of demand, maybe even factories or some other means of production. There's also land lording, whether it's apartments for rental markets or vaste swathes of arable land for implementing your own olde England Lord of the Manor style social system. You can also invest in tools to reduce your annual expenses which can also provide a source of income post retirement. I.e. hand tools for DIY carpentry work.
« Last Edit: March 10, 2016, 09:10:00 AM by poorboyrichman »

beltim

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Mustachians need to educate themselves about why the market only ever "goes up over the long term" and they will realise that there are the real limits to the eternal growth myth. Climate change, resource depletion or world war poses serious risk of mass wealth destruction unless something is done to prevent these outcomes.

"Growth" has little to do with investor returns.  There is essentially no relationship between the growth of an economy and the growth of its stock market.  Instead, the metric you should care about is profit long term stock returns almost perfectly match corporate profits, which makes sense if they didn't, the market would get much more or much less expensive over time:

zephyr911

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Something that has been on my mind a lot lately is a sort of thought experiment: what if the underlying assumption that is basically a foundational fact of Mustachianism is wrong? I am thinking specifically of the assumption about stock market growth over the long term. What if it is not 7%, but is instead something dramatically lower, like 1% or 2%?

This doesn't strike me as all that far-fetched. It is, after all, possible that our economy is undergoing some sort of fundamental transformation such that growth levels of the past are not possible anymore. I don't offer this possibility out of fear by any stretch, just to ask how Mustachianism would necessarily have to change if we couldn't rely on 7% growth in the stock market. What would our alternatives be?
I think about it all the time. And maybe it's realistic, with the world filling in like it is. Entire books have been written on the thesis that current economic growth will become unsustainable and markets will taper off over the coming decades. Some people, even smart ones, think we can't keep the present population of the world alive, let alone increase its size and standard of living, for the next century.

Even in a worst-case scenario, there is (at any given time) a finite nonzero quantity of wealth in the world, and you can increase your odds of success by accumulating a disproportionate share of the mechanisms that create or move it. Even if economic growth ceases, you still command a flow of resources in the near term, and can care for yourself and others.

But I think what you're really asking is, how far to diversify for real security. So, think about expanding the paradigm beyond bonds, real estate, and more exotic financial instruments. If investing as we know it today ceases to be a viable strategy, your worries will surpass economics. If returns disappear, asset values crash too. Massive unemployment is a given, crime is likely to rise, and political upheaval probably gives way to armed conflict. So maybe you invest in assets that will survive not just a market crash but also a societal breakdown - gold, rural land, shelters, weapons, food production and storage capabilities, survival skills. That's what doomsday preppers are doing, essentially - buying assets that will (only) rise in value if the mainstream investment world takes a huge flaming dive.

Because those things produce generally negative returns in any non-disaster scenario, and are cheap and abundant now, I'd have to see blatant signs of imminent decay to buy them, but it is still the next logical step along that line of thinking. I would settle for getting rich and staying cognizant of the world around you. There's no need to live in fear if you stay connected and aware of your surroundings. Seismic shifts are unlikely, but possible, and the mentally agile are the most likely to come out unscathed.

matchewed

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You are basically anticipating that at some point in your lifetime -
A) 0 innovation, no new technology

and

B) Company profits stagnating due to... some unknown reason.

... I'm not so worried. But feel free to waste your time on that worry. I'll invest and keep my plan conservative and flexible.

JLee

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If that happens, I'll still have more FU/FIRE money than I would have if I just spent it all, so my strategy likely wouldn't change all that much.

I'm a red panda

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If that happens, I'll still have more FU/FIRE money than I would have if I just spent it all, so my strategy likely wouldn't change all that much.

That's what I figure.  I'll probably still be doing better than people who never saved anything.

And even if it goes down, I'll be doing better than people racking up debt.

poorboyrichman

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"Growth" has little to do with investor returns.  There is essentially no relationship between the growth of an economy and the growth of its stock market.  Instead, the metric you should care about is profit long term stock returns almost perfectly match corporate profits, which makes sense if they didn't, the market would get much more or much less expensive over time:


Interesting insight, however I would argue you are mistaken, growth and returns are linked, although not directly correlated as you seem imply I was suggesting.

Consider that corporate profits could only be increasing only because of stock buy backs and by cheap credit thanks to N/ZIRP monetary policy and eternal increases in total stock market value are unlikely in our economic climate.

Here's an interesting analysis on corporate profits:
http://www.oftwominds.com/blogmar16/profitless-recession3-16.html

If we consider a world where growth slows to a trickle, corporate profits are normalised and stagnate or fall, how do you suggest that the stock market increases in value eternally? The only alternative is inflation caused by [ineffective] quantitative easing. This is what I was trying to get at when I suggest people read around the eternal growth paradigm.
« Last Edit: March 10, 2016, 09:36:19 AM by poorboyrichman »

beltim

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"Growth" has little to do with investor returns.  There is essentially no relationship between the growth of an economy and the growth of its stock market.  Instead, the metric you should care about is profit long term stock returns almost perfectly match corporate profits, which makes sense if they didn't, the market would get much more or much less expensive over time:

Interesting insight, however I would argue you are mistaken, growth and returns are linked, although not directly correlated as you seem imply I was suggesting.

Consider the impact corporate profits are increasing only because of stock buy backs funded by cheap credit thanks to N/ZIRP monetary policy and sustained increase in share value to infinity is impossible.

Here's an interesting analysis on corporate profits:
http://www.oftwominds.com/blogmar16/profitless-recession3-16.html

If we consider a world where growth slows to a trickle, corporate profits are normalised and stagnate or fall, how do you suggest that the stock market increases in value eternally? The only alternative is inflation? This is what I was trying to get at when I suggest people read around the eternal growth paradigm.

Since you're fond of thought experiments, let me pose one to you to illustrate why a no-growth future shouldn't be scary:
What is the value of a business that consistently earns $x per year, that increases exactly with inflation, never more or less?

Seppia

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Since you're fond of thought experiments, let me pose one to you to illustrate why a no-growth future shouldn't be scary:
What is the value of a business that consistently earns $x per year, that increases exactly with inflation, never more or less?

That's the point.
Whatever happens there is still going to be people that eat, drive around, watch TV, etc.
buying stuff.
As a part owner of the businesses that sell these goods, you are entitled to their air share of profits

If the Armageddon comes I'll have more important things to think about than my bank account I guess.

poorboyrichman

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@beltim, No, I agree entirely with what you are saying. I was just stating that growth and stock market values are linked intrinsically. But the point I was making was... Could a total stock market fund indefinitely fund a retirement plan centred around the 4% safe withdrawal rate in a low growth economy without the massive QE programmes to continually inflate asset values at the expense of economic and social stability?

beltim

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@beltim, No, I agree entirely with what you are saying. I was just stating that growth and stock market values are linked intrinsically.

No, they're not.  We discussed this a while ago at this thread: http://forum.mrmoneymustache.com/investor-alley/is-it-theoretically-possible-for-the-market-to-not-go-up-long-term/
I'd encourage you to read that discussion and the links I posted.

Quote
But the point I was making was... Could a total stock market fund indefinitely fund a retirement plan centred around the 4% safe withdrawal rate in a low growth economy without the massive QE programmes to continually inflate asset values at the expense of economic and social stability?

Yes.  Growth of the economy has nothing to do with stock returns.


2Birds1Stone

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Great thought exercise.

I use 4% growth in all of my FIRE spreadsheets. This should dull the impact of underperforming markets in the future.

Other than that it's prudent to have backup plans.

Ability to pare down expenses.
Ability to earn some side income.
Invest in non market related vehicles.
Annuitize a portion of your 'stache.


zephyr911

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Great thought exercise.

I use 4% growth in all of my FIRE spreadsheets. This should dull the impact of underperforming markets in the future.

Other than that it's prudent to have backup plans.

Ability to pare down expenses.
Ability to earn some side income.
Invest in non market related vehicles.
Annuitize a portion of your 'stache.
Yep. Not just a big SM, but a diversified one. Get big, financially, but stay agile too. My picture includes a net-zero (energy) dwelling so utility costs are not an issue, and preferably a small one so taxes will be low. In addition to pensions, there will be IRAs, TSP, taxable accounts, and rentals. Investments are already diversified financially and geographically, and will be even more so by the end. And I'll probably always have a self-employed job.

steveo

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My take is that companies will still make money and therefore pay out dividends. I can't see companies not making money over the longer term. I don't know which companies will make money but capitalism basically means companies have to exist for profit.

So the stock market will grow however it is going to grow but if you own a slice of all companies they will pay you some of their profits.

Diversification is in my opinion simply a way to cater for the ups and downs of various markets to try and make your investments more stable.

Classical_Liberal

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Don't forget, for a SWR of 4% to last for 40 years, one does not need significant returns.  Something like an average of 2 percent above inflation will do it.  With the added benefit of at least 70 percent of our Social Security benefits later on, even a smaller average return will do (personally I look at SSI as money to cover "old man" medical costs and never count it in my calculations).

An important thing to realize and is probably obvious to more seasoned folks on this forum...  Sequence of returns is probably more important the the average return over 40 years. I would argue though, that this is probably the most easily compensated for variable for a Mustachian early retiree.  Someone who is 45, retires and sees a horrible initial sequence of returns is certainly capable of going back to work for a year or two in peak earning years.  That, along with slight changes to spending covers the small, but certainly possible risk of a very poor sequence of returns.  Someone who is a spend thrift 67 year old retiree is less likely to have this option.

mohawkbrah

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my new plan is to build up a larger portfolio so i can live off a 1%-2% withdrawal rate. im a very pessimistic person

poorboyrichman

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I'd encourage you to read that discussion and the links I posted.

Thanks, I'll check it out.

Quote
Yes.  Growth of the economy has nothing to do with stock returns.

Yes, the key word being returns, not stock market value. But if profits slide, you'll end up burning the furniture to keep warm so to speak, in other words, selling your index shares.

So what happens to asset values in a low growth world in a social-economic structured society that relies on continued debt expansion and economic growth to service debts?

This is the crux of the issue.

We may be entering an environment where 4% is no longer safe, where 3% or maybe even 2% withdraws will be required. No sweat for most mustachians, you just pinch the belt and find ways to bring in income during the tough times.
« Last Edit: March 11, 2016, 04:06:46 AM by poorboyrichman »

AlmstRtrd

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An economy doesn't have to be a basket case for stocks to go nowhere for decades. Japan is the obvious example. Companies can still be profitable but not growing their earnings from year to year.

I would also challenge the idea that folks can "just go back to work" if stock returns are low. Yes, that will be true in some cases, but some of the careers that people are trained for can be automated out of existence, or just cease to be as economically valuable as they once were for a variety of reasons.

Being able to live without all kinds of extras will be a huge help in a low-return environment, but savings targets (in terms of total money saved) may have to be raised significantly.

Doubleh

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But you don't live off stock market growth, you live off corporate profits.

There are several ways that corporations can use those profits, the two main ones are 1. pay a dividend to their owners; or 2. invest to grow their business.

Currently the US has a very low dividend rate compared to the rest of the world, due to a tax regime which is more favourable to capital gains than profits. This encourages companies to reinvest profits for growth, which pushes the share price up and results in capital gains for the owners when they sell. Many other markets globally have much higher dividend yields than USA - for example in the UK the FTSE100 has a yield in the region of 3 - 3.5% which for most people would be a pretty liveable amount.

If the business environment changed so that growth was unachievable or close to it, corporations would still continue to make a profit and would likely increase their dividends to return to shareholders the funds that they couldn't generate a return on.

So the real question should be not will the market continue to grow, but will corporations continue to be able to generate real returns of at least 4% that will be available to distribute to shareholders. That seems pretty hard to argue against without invoking some sort of apocalypse scenario.

ender

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For what it's worth, growth after accounting for after-inflation reinvested dividend returns is what matters. Not just SP500 value, but the combined return of dividends as well. SP500 dividend yield is around historic lows but still is about 2%. The lowest it ever has been in 100+ years is only 1% and that was for a very short period of time.

If inflation is 0% then the market growth does not need to be as high as it would if inflation is 3% or 6% to sustain ER. Especially when combined with dividend reinvestment, it should be obvious to factor into these decisions, but I find it is often overlooked. Sure it is nice to have sustained combined return rates of 6-7% after inflation, but you do not need them to succeed at FIRE. This is really important to consider.

A 0% inflation results with 1% real market growth (after dividend reinvestment, meaning the actual market value would be slightly negative or completely flat) for 30 years straight would make the 4% rule still work, because you would be withdrawing 3% of your portfolio every year and never have to increase the amount as 100/3 = 33 years. Even with 0% growth after dividend reinvestment (so the index value goes down every year exactly what the dividend percentage is) you still get 25 years. Reality of course won't be quite so simple, but it is important to recognize this sort of thing when attempting to find reasons FIRE plans will fail.

Essentially the overall market having a lower growth rate for a sustained period does not necessarily directly cause ER to fail. Depending on the relative ratios, it might make it work better or worse. There are a lot of competing factors which stabilize things for FIRE folks.

For example, you probably will not have to worry about a high inflation, low return environment being sustained for years. Many of the drivers for higher inflation correlate to stronger economic performance. Which should correlate to better market performance, however imperfectly. So a higher inflation environment is less likely to happen over an extended period of time with minimal market growth (or negative real growth). And note that the periods of time affecting FIRE considerations are long - quite a few years will not 'destroy' plans. A few decades? That might.

In my opinion, the worst thing to happen for someone in FIRE is for a long period of flat real reinvested growth (well over 10 years) followed by a multi-year crash and an inflationary period where the market doesn't keep up (like the 70s). And again, flat total growth initially, not flat index value. An early crash you can react to quite easily and adjust your course if needed, so I don't consider this so bad of a situation (such as if you retired exactly in 2000).

Frankly though, given the last 100 years and the strong performance of the market given a lot more world events such as world wars and the cold war and it's associated "should we go to nuclear war" dancing, I am fairly confident the next 100 will be less eventful.

An interesting observation, since Jan 1, 2000 (the height of the .com bubble) the CAGR of the SP500 has still been about 1.87% after inflation. A starting balance of $1,000,000 at that time, with a 75/25 mix of stocks/bonds using cFIRESIM, would still be worth about $600k today with a 4% withdrawal rate, and that is a FIRE date immediately prior to a multi-year crash. A 100% stock mix still would be worth about $500k.

I will close with an interesting thought exercise. How many folks here would FIRE on a 4% SWR if you knew the market would experience consistent 2% after inflation growth (including dividend reinvestment) every year for the next 50 years? And why?

2Birds1Stone

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I will close with an interesting thought exercise. How many folks here would FIRE on a 4% SWR if you knew the market would experience consistent 2% after inflation growth (including dividend reinvestment) every year for the next 50 years? And why?


I would, because the 4% rule doesn't account for very low index fee costs, SS, inheritance, and occasional part time work.

Retire-Canada

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I will close with an interesting thought exercise. How many folks here would FIRE on a 4% SWR if you knew the market would experience consistent 2% after inflation growth (including dividend reinvestment) every year for the next 50 years? And why?

I'll be 47 this year.

If I had:

- $1M in portfolio
- took out $40k/yr inflation adjusted
- and got a regular 2% return after inflation
- my money runs out at 82 [36yrs of FIRE]

If I add in my expected CPP [@60yrs] /OAS [@65yrs] gov't benefits I run out of money after 55yrs at age 101.

Would I FIRE under those circumstances with the foreknowledge of 2% returns each year? For sure I would. Free time to enjoy my life is worth more to me than anything else so I'd want to stop working full-time this year and get my FIRE on.

I expect Gov't benefits will still be around for me and I can't imagine living another 55yrs and not earning another dollar despite giving up full-time work for good.


Retire-Canada

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my new plan is to build up a larger portfolio so i can live off a 1%-2% withdrawal rate. im a very pessimistic person

The cost of doing this ^^^ in terms of your life's most valuable resource [time] is huge. Consider that a lot of the potentially catastrophic scenarios people come up with to cause a potential 4% SWR failure would not be helped by extra money.

If you want to be pessimistic, but not waste some of the best years of your life working full-time I'd suggest:

- save and invest 25x annual expenses
- use one of the variable WR plans that gets you a similar average WR, but responds to market performance
- keep your mind and body in as good a shape as possible so you can adapt to whatever comes your way in FIRE more easily
- figure out an easy/fun part-time side gig that brings in a little bit of money to give you some WR flexibility to assist the variable WR plan
- work on your zombie fighter/doomer skills

The nice thing about all of these ^^^ items is that they don't require you to work many extra years full-time, but they add a great deal to your FIRE success chances and they diversify you beyond just having money as the solution to a problem in FIRE.

poorboyrichman

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- save and invest 25x annual expenses
- use one of the variable WR plans that gets you a similar average WR, but responds to market performance
- keep your mind and body in as good a shape as possible so you can adapt to whatever comes your way in FIRE more easily
- figure out an easy/fun part-time side gig that brings in a little bit of money to give you some WR flexibility to assist the variable WR plan
- work on your zombie fighter/doomer skills

The nice thing about all of these ^^^ items is that they don't require you to work many extra years full-time, but they add a great deal to your FIRE success chances and they diversify you beyond just having money as the solution to a problem in FIRE.

This is my strategy exactly. I'm savings up to 25x my current expenses, which will drop by at least 50% when I retire because then I will have all the time in the world to grow and cook my food from scratch, I also plan to learn to build fine furniture using the carpentry skills and hand tools I acquired over recent months just for fun (but bringing in income also)  :)

Yes, food spending accounts for half my monthly spending, and no, that doesn't mean I spend a whole heap on food either. :)
« Last Edit: March 11, 2016, 08:20:53 AM by poorboyrichman »

Retire-Canada

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This is my strategy exactly. I'm savings up to 25x my current expenses, which will drop by at least 50% when I retire because then I will have all the time in the world to grow and cook my food from scratch, I also plan to learn to build fine furniture using the carpentry skills and hand tools I acquired over recent months just for fun (but bringing in income also)  :)

Yes, food spending accounts for half my monthly spending, and no, that doesn't mean I spend a whole heap on food either. :)

To be clear that's not the same strategy exactly. If you are saving 50x your FIRE expenses and doing a variable WR plan and planning a side gig than you are doing just what I am saying is a terrible waste of your precious life.....working too long to saving too much money.
« Last Edit: March 11, 2016, 08:44:18 AM by Retire-Canada »

zephyr911

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To be clear that's not the same strategy exactly. If you are saving 50x your FIRE expenses and doing a variable WR plan and planning a side gig than you are doing just what I am saying is a terrible waste of your precious life.....working too long to saving too much money.
It's not a waste if you like your job. It's not a waste if you've made a calculated decision that the lower risk is worth the tradeoff in time.
Personally, I plan to overshoot pretty far, but mostly so I can give away more later on, or use it for other not-entirely-selfish ends.

Retire-Canada

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It's not a waste if you like your job. It's not a waste if you've made a calculated decision that the lower risk is worth the tradeoff in time.

I'd say it is a waste if your risk assessment/mitigation is not rational. When I see people talk about 1% or 2% WRs their explanations are almost always fear based not a rationale assessment of the likely risks and the other ways to mitigate those risks aside from working and amassing a mountain of money.

The problem being that the 4% SWR already has so many safeguards in place and for many of the likely risks saving 4 times the money isn't going to solve the problem.

Now if you love your job and you would work at it for free just because it is so satisfying then that's a different story, but ultra-low WRs and job satisfaction are two different issues. If you love your job the FIRE thing really isn't much of an issue since you can just keep working. The longer you work the less time you'll be retired for which is again a way to mitigate FIRE failure.

If you start working an extra 10-15yrs to save for a 1% or 2% WR you've got so many belts and suspenders on you I have a hard time seeing that as either rationale or not a waste of time for anyone that wouldn't do the same work for free.

Ultimately I'm advocating for a rationale assessment of the risk of FIRE failure with a 4% SWR. If that happens and you want to stay at your job working full-time knowing full well it's not going to make your FIRE significantly less likely to fail that's a personal choice.
« Last Edit: March 11, 2016, 10:49:17 AM by Retire-Canada »

zephyr911

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Well, you're technically right that WR and job satisfaction are separate things, but if you're basically happy, the human cost of running up the score is much less. I'm 100% with you on advocating for a rational assessment of the tradeoff.

deeshen13

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[/quote]

Since you're fond of thought experiments, let me pose one to you to illustrate why a no-growth future shouldn't be scary:
What is the value of a business that consistently earns $x per year, that increases exactly with inflation, never more or less?
[/quote]

Infinity.  What do I get?

steveo

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my new plan is to build up a larger portfolio so i can live off a 1%-2% withdrawal rate. im a very pessimistic person

The cost of doing this ^^^ in terms of your life's most valuable resource [time] is huge. Consider that a lot of the potentially catastrophic scenarios people come up with to cause a potential 4% SWR failure would not be helped by extra money.

Yep. This is why once I get to about 5% I am planning my FIRE date. Getting it lower is a huge cost in regards to time that I have to spend at work.

I'd say it is a waste if your risk assessment/mitigation is not rational.
....
The problem being that the 4% SWR already has so many safeguards in place and for many of the likely risks saving 4 times the money isn't going to solve the problem.

100% correct.

The 4% WR has a lot of buffer in it for me personally.

It assumes:-

1. No social security.
2. No Inheritance.
3. No downsizing.
4. No ability to decrease spending.
5. Never working again.

It also has a 95% success ratio.

How realistic is it that none of the events above happen. It's basically completely impossible. Social security may not happen because we have too much money. Inheritance will more than likely be a lot of money. We may downsize because we have 3 kids and probably don't need a house this size. We might not downsize because we like the house but the point is we could. Spending can definitely go down. 3 kids cost a lot of money. Going to work costs a bit as well. We could also work part time and may do that.

When I look at the buffer in my figures it's tempting to go for a 50% chance WR (I think this is about 6%). I reckon that would be too stressful for me but the point is the 4% WR isn't exactly unsafe.

Thinking about this maybe the issue with the 4% WR is more to do with your projected spending. If you are too tight and really minimise your expenses to bare bones level then maybe the 4% WR may not work because you haven't budgeted enough for spending. I think we are really frugal but we have buffer in our figures due to having 3 kids. Sticking to the same spending level we have now as the kids grow older should be easy.
« Last Edit: March 11, 2016, 03:32:28 PM by steveo »

Indexer

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my new plan is to build up a larger portfolio so i can live off a 1%-2% withdrawal rate. im a very pessimistic person

3% is as low as you need to go even if you want to be super super safe!  Even for a very pessimistic person 3%... even 3.3% or 3.5% should be fine. A 4% SWR gives you a very high success rate, but it isn't 100%.  A 3% SWR will normally give you a success rate over 99%. A portfolio with a 3% SWR can survive a great depression style crash.

I want assurance that once I quit doing the career I'm experienced in that I never need that level of income ever again. IE I don't want to risk having to go back to work because I would have to start from scratch. So I aim for 3.5% which is about as safe as anyone needs to go.

Seppia

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- save and invest 25x annual expenses
- use one of the variable WR plans that gets you a similar average WR, but responds to market performance
- keep your mind and body in as good a shape as possible so you can adapt to whatever comes your way in FIRE more easily
- figure out an easy/fun part-time side gig that brings in a little bit of money to give you some WR flexibility to assist the variable WR plan
- work on your zombie fighter/doomer skills

This is my strategy exactly.

Mine too. Big focus on the zombie fighter skills for me, that's paramount.

Jokes aside
I plan on reaching the typical 25x yearly expense, plus adding three specific skills to what I do today (international sales)
1- dive master (scuba diving): this could bring in nice side income in any paradise  island setting. I'm 75% there (as in: next certification I'm there)
2- pizzaiolo: I happen to live in Italy, so the teaching level is high and replicable almost anywhere in the world. I'm 50% there (as in: I'm reasonably good at cooking but need to take specialty courses = working for free in a great pizzeria for a month or two)
3- gardening: learn how to grow stuff out of the ground. 25% there
I have nailed down some easy plants (sage mint basil rosemary tomatoes zucchini) but need to learn many more and the optimal rotations in the garden

With the 25x savings, I feel the added skills (plus what I already do) will protect me under any scenario.