The Money Mustache Community
General Discussion => Post-FIRE => Topic started by: evanc on February 15, 2024, 12:27:42 PM
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For those nearly at "the number," I would like to discuss SORR, given current market conditions. As of today, VTSAX is already up 5% from a month ago and nearly 19% from 1YR. That being said, reversion to the mean is a very real phenomenon.
Here's my dilemma: let's say 2 years ago, you assumed a very reasonable rate of return, based on an allocation of stocks and bonds, e.g. 6-7%. Based on that assumption, at that time you had 3 years ahead of you of working and saving. But now (today), given the high market, you have technically crossed the threshold of FI. Do you immediately retire?
Or do you keep working omy, operating under the assumption that current market conditions cannot last forever and will inevitably revert?
I realize that there is no "right" answer to this question, but more looking for how do people conceptualize the issue, what are the pros and cons, etc. especially if you decided to retire earlier than your anticipated date. TIA
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Some additional factors go into the decision in my view, e.g. Do you/how much do you hate your job? Are there health considerations that would push for quitting sooner? I personally take a conservative approach and just work the omy, barring health issues or extreme hate of job. And if there is significant hate of job, consider taking the FI but not RE approach and downshifting a bit. I'm conservative in that I prefer to have more buffer than a strict FIRE number, in case one decides one wants to live it up a bit more as one gets older. I def. put up with more scrimping when I was young than I feel like engaging in these days. I choose direct flights rather than connections that would save me $50. Someone else mentioned choosing to fly during the day rather than taking a red-eye to save. Are there things like this in your life that you can foresee changing as you age?
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Some additional factors go into the decision in my view, e.g. Do you/how much do you hate your job? Are there health considerations that would push for quitting sooner? I personally take a conservative approach and just work the omy, barring health issues or extreme hate of job. And if there is significant hate of job, consider taking the FI but not RE approach and downshifting a bit. I'm conservative in that I prefer to have more buffer than a strict FIRE number, in case one decides one wants to live it up a bit more as one gets older. I def. put up with more scrimping when I was young than I feel like engaging in these days. I choose direct flights rather than connections that would save me $50. Someone else mentioned choosing to fly during the day rather than taking a red-eye to save. Are there things like this in your life that you can foresee changing as you age?
Yes, and I would add to that my personal aversion to returning to mandatory work. When I'm done, I want to be done (and by that, I mean work entirely optional).
I might frame it this way – if I'm going to work 12 more months at some point in the future, I'd rather do it now while I am highly compensated than in the future at some unknown, but likely lower, rate of compensation. And though I am not loving my job, I am also fortunate to not be in a position of it absolutely ruining my health, like so many others post about.
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
We hit our number last week and plan to FIRE in 1.5 years. The timeline is only slightly related to our stash and is more driven by the death of a parent, elderly parents needing more help, a cancer diagnosis, and it being a natural transition point in DD’s education (since our FIRE-ing involves an international move). We don’t hate our jobs, so we don’t mind working the extra 1.5 years.
For us, our SORR mitigation strategies should be so robust that we may not need to sell any investments. We plan to have a cash cushion, dividend income, rental income, and two very PT incomes. We are also househacking, car hacking, and have identified other ways to help keep our expenses low.
There are a couple other threads right now discussing this, and the general consensus seems to be that MMM folks tend to oversave and could’ve FIRE”d sooner and been fine.
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Here's my dilemma: let's say 2 years ago, you assumed a very reasonable rate of return, based on an allocation of stocks and bonds, e.g. 6-7%. Based on that assumption, at that time you had 3 years ahead of you of working and saving. But now (today), given the high market, you have technically crossed the threshold of FI. Do you immediately retire?
Or do you keep working omy, operating under the assumption that current market conditions cannot last forever and will inevitably revert?
Delaying retirement when at one’s FI number bc the market just went up more quickly than average is no more rational than any other market timing though. The market is no more likely to “inevitably revert” than it would be if it slowly grew over a longer timeframe. We never know what will happen next. Becoming FI slowly is no safer than FI quickly; you’re just as FI either way (although I totally get how psychologically it can feel that way).
This is not to say that one should retire if not ready just bc at their FI number. Maybe that number is too low for their comfort, maybe they don’t want to. But what happened in the market in the immediately preceding 12 months rationally shouldn’t factor in.
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
We hit our number last week and plan to FIRE in 1.5 years. The timeline is only slightly related to our stash and is more driven by the death of a parent, elderly parents needing more help, a cancer diagnosis, and it being a natural transition point in DD’s education (since our FIRE-ing involves an international move). We don’t hate our jobs, so we don’t mind working the extra 1.5 years.
For us, our SORR mitigation strategies should be so robust that we may not need to sell any investments. We plan to have a cash cushion, dividend income, rental income, and two very PT incomes. We are also househacking, car hacking, and have identified other ways to help keep our expenses low.
There are a couple other threads right now discussing this, and the general consensus seems to be that MMM folks tend to oversave and could’ve FIRE”d sooner and been fine.
Well said. To your point about conservative estimates, I'm not relying upon several likely future income sources: SSA (self); SSA (spouse); and a pension. If they show up in some form or fashion, great, but I look at it more as icing on the cake.
You're probably right that self-selected forum members skew financially conservative and therefore struggle more with saving too much than too little.
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Our number is actually pretty fuzzy. It's not like Spouse will hit "send" on a resignation letter the second our portfolio hits it. It things are hovering there for a month or so, give or take a fraction of a percent, that will be plenty sufficient.
Also, the actual exact timing will likely be based on something other than the number, so when we get super close to the number, it will be time to evaluate those things. Is there a large bonus for staying a few more months? Is there a specific event we'd like to be retired for? Is there a time of year that is more advantageous for some reason? Can we supercharge 401k contributions to get to the max match and if so, when would that happen? How much notice do we want or need to give our employer and/or do we think there's a chance they will want us to stay on part time through a transition? Is there a big work project we want to see through?
Those factors will dictate the actual date far more than, "well, we only have $980k and our number was "$1m, so we have to keep on keeping on." If we are are $980k (in a scenario where the target is $1m) but we've just gotten an annual bonus, we have been invited on a 3 week trip to an amazing local in 6 weeks, our 401k is maxed for the year, a huge project just wrapped up, and we'd be ale to more easily travel to visit family for a planned reunion in 2 months, we are pulling the plug.
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Our number is actually pretty fuzzy. It's not like Spouse will hit "send" on a resignation letter the second our portfolio hits it. It things are hovering there for a month or so, give or take a fraction of a percent, that will be plenty sufficient.
Also, the actual exact timing will likely be based on something other than the number, so when we get super close to the number, it will be time to evaluate those things. Is there a large bonus for staying a few more months? Is there a specific event we'd like to be retired for? Is there a time of year that is more advantageous for some reason? Can we supercharge 401k contributions to get to the max match and if so, when would that happen? How much notice do we want or need to give our employer and/or do we think there's a chance they will want us to stay on part time through a transition? Is there a big work project we want to see through?
Those factors will dictate the actual date far more than, "well, we only have $980k and our number was "$1m, so we have to keep on keeping on." If we are are $980k (in a scenario where the target is $1m) but we've just gotten an annual bonus, we have been invited on a 3 week trip to an amazing local in 6 weeks, our 401k is maxed for the year, a huge project just wrapped up, and we'd be ale to more easily travel to visit family for a planned reunion in 2 months, we are pulling the plug.
Thank you for sharing your perspective. It does really highlight that, at a certain point, we are talking shades of gray. And I suppose, some subjective level of "comfort." Is there a mathematically meaningful difference between 98% and 100% of your savings goal? Most likely, real world, no.
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If you are worried that stock valuations are too high, take a look at small caps (VB) and mid caps (VO), which have forward PE ratios in the low end of their historical range. These stocks are not in a "high market". Similarly, you could maintain large-cap exposure and still mitigate valuation risk by purchasing an equal-weighted ETF (RSP).
https://archive.yardeni.com/pub/stockmktperatio.pdf (https://archive.yardeni.com/pub/stockmktperatio.pdf)
There are also lots of ex-US opportunities to buy stocks at below-typical valuations. Brazil, Canada, Chile, Germany, Greece, Ireland, Israel, Italy, Malaysia, Mexico, Philippines, Poland, Singapore, South Africa, Spain, the UK, and the Scandinavian Counties all seem to have compelling valuations compared to the last couple of decades. Germany and the UK are in recession and their forward PE's are 11.3 and 10.7, which is to say it's bargain hunting season.
https://archive.yardeni.com/pub/mscipecountry.pdf (https://archive.yardeni.com/pub/mscipecountry.pdf)
Yet if you've hit your FI number in today's environment, you don't even have to swing for the fences in the stock market. Times have never been better to just set up a 60/40 portfolio and head to the beach. There are plentiful safe opportunities to earn >5% from the bonds in your bond tent (https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/). Hell, even iBonds (https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/) are yielding 5.27%. Inflation is running <3% so you're probably locking in a historically high real interest rate when you do something like buying a 1 year treasury yielding almost 5% or a 5-year Baa utility bond yielding 5.3%.
You could set up a whole ladder of such bonds and cover half your 4% annual spend from the 5% yields on your 40% bond allocation. Dividends from your 60% stock allocation would cover another 1% at today's yields, and thus you'd only be required to sell or not reinvest another 1% of your assets per year. That's a recipe for success if you ask me.
Really, this is the last sort of market environment that should give pause to someone thinking about pulling the plug, because there are so many appealing options to buy stocks on the cheap, and to build a bond tent with a highly positive real return. You just have to look beyond the headlines.
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The 10-year average return for VTSAX is just under 12%. Pretty wild. Maybe there's a reversion coming at some point but that's a loooooong time to see higher than historically average returns. At some point you risk being wrong longer than you have life, or it's at least a long enough period to have a meanfully detrimental impact on your portfolio returns.
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The 10-year average return for VTSAX is just under 12%. Pretty wild. Maybe there's a reversion coming at some point but that's a loooooong time to see higher than historically average returns. At some point you risk being wrong longer than you have life, or it's at least a long enough period to have a meanfully detrimental impact on your portfolio returns.
Maybe I'm dense (it has been a long day), but wouldn't the historically supercharged 10 year return suggest even more strongly that the inevitable drop may come sooner than later? I realize nobody has a crystal ball, but eventually what goes up must come down (to "regular" returns), right? Or am I missing something else entirely?
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The 10-year average return for VTSAX is just under 12%. Pretty wild. Maybe there's a reversion coming at some point but that's a loooooong time to see higher than historically average returns. At some point you risk being wrong longer than you have life, or it's at least a long enough period to have a meanfully detrimental impact on your portfolio returns.
Maybe I'm dense (it has been a long day), but wouldn't the historically supercharged 10 year return suggest even more strongly that the inevitable drop may come sooner than later? I realize nobody has a crystal ball, but eventually what goes up must come down (to "regular" returns), right? Or am I missing something else entirely?
Yes, I'd say so. You're assuming there's a "correct" rate of return which the stock market will eventually revert to. That may not be true. The 10-year historical average return of the S&P may not be fundamental in the way that, like, Newton's gravitational constant is.
Maybe historical rates of return aren't relevant anymore. Maybe the return on invested capital is increasing due to technological acceleration. Maybe in ten or twenty years, AI and robots will be doing all the jobs, and investors who get in on the ground floor will be filthy rich.
I have no idea if this is true or not. Predictions are hard, especially about the future. But it's a hypothesis that's at least worth considering.
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After I decided I had enough to retire, I spent some time ensuring the other components of my life were ready for the jump. I made up a checklist for retirement and took about a year to be happy that I had everything ready, then jumped. The retirement checklist that’s here is much better (I retired before it was available).
You may be ready, but is your partner ready for you to retire? What assumptions do you both have about your retirement?… These are important considerations to ensure things go as smoothly as possible.
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I pulled the plug when I got to 25x planned spending Between the time I decided/gave notice to my gig COVID happened and markets crashed. I just kept going as COVID would have ended that contract opportunity anyways. Markets recovered and are much higher now. No regrets.
Before I committed to FIRE I went from 100% stocks to 5 year's of spending in cash/bonds + 100% stocks. So I had a long runway at full spend to deal with SORR. In the event I ended up working PT and generating some income.
One thing I can say for sure is the valuable free time I enjoyed from FIREing until now was priceless as I age I appreciate more and more that you can't replace a year in your 40's with a year in your 60's so as you are trading time for money always be aware of the opportunity cost.
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OK so I'm still 5 years out, so maybe not your target audience, but... well, I just felt like answering lol.
My plan is to retire when I reach my "number" and age 54.5 (so I can get my greedy hands into my 401(k) early). So best case scenario, I'll reach my number way before that and will keep working.
Otherwise, I've given it a lot of thought, but I'm still unclear on what I'd do. Chances are that I will keep working for a few months, simply because retirement for me means international relocation, and that takes a bit of time to organize. Also because I seem to be pretty conservative in that regard.
OTOH, someone mentioned health concerns. I don't have any at this time (knocking on wood), but my parents certainly do, and they will be 82 when I'm 55. So I'm guessing that alone will light a fire on my behind not to procrastinate for stupid reasons, because at the end of the day, whatever time I have left with them is more important than a hundred thousand dollars (which is what I normally save in a whole year of work).
OMY syndrome is real, but... when does it end? If you think you need to protect against SORR at the very beginning of ER then you need to increase your number now. Also remember that in the early months/years, you can still find a job if and when the market crashes and you need more money.
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Right or wrong....we've got a target of 4% SWR after "adjusting" our net worth to approximate what it would be if S&P500 were at 85% of the all-time high. In rough numbers, household long-term annual spend is ~$50k, so target is something like:
- S&P 500 at all-time high: Target NW=$50k*25/0.85=$1.47M (i.e. 30x)
- S&P 500 at 85% of all-time high: Target NW=$50k*25=$1.25M (i.e. 25x)
- S&P 500 at 70% of all-time high: Target NW=$50k*25/1.15=$1.09M (i.e. 22x)
That said, this doesn't mean much, because we've already crossed this target and I've continued to work...also my wife just picked up a part-time photography job after 8+ years as a SAHM, so our income would drop to about $20k instead of zero if I pulled the plug...which I figure knocks another 500k off the target. I have requested a move to part time, which is highly unusual for my employer/position...but they're seriously considering it. Fingers crossed.
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The 10-year average return for VTSAX is just under 12%. Pretty wild. Maybe there's a reversion coming at some point but that's a loooooong time to see higher than historically average returns. At some point you risk being wrong longer than you have life, or it's at least a long enough period to have a meanfully detrimental impact on your portfolio returns.
Maybe I'm dense (it has been a long day), but wouldn't the historically supercharged 10 year return suggest even more strongly that the inevitable drop may come sooner than later? I realize nobody has a crystal ball, but eventually what goes up must come down (to "regular" returns), right? Or am I missing something else entirely?
This expectation assumes the existence of some sort of evening-out mechanism that reduces the volatility of stock returns so that short-term or intermediate-term averages can't stray too far from long-term averages. If this hypothesis was correct, average returns in one decade would be close to average returns in any other decade. As the chart below shows, this is not the case. Returns by decade are lumpy and all over the place.
We should discard the hypothesis, and not expect high returns to lead to low returns.
(https://external-content.duckduckgo.com/iu/?u=https%3A%2F%2Fstatic.seekingalpha.com%2Fuploads%2F2019%2F1%2F9%2Fsaupload_mkt-returns-by-decade-nominal.png&f=1&nofb=1&ipt=8da127bd4cdfa2d9ff7eb7e674752e62c136f608fda1c50ecd1b5576691be03b&ipo=images)
Another view: Try to find any sort of pattern in this bar chart, showing S&P500 total returns: https://www.slickcharts.com/sp500/returns (https://www.slickcharts.com/sp500/returns)
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For us, our SORR mitigation strategies should be so robust that we may not need to sell any investments. We plan to have a cash cushion, dividend income, rental income, and two very PT incomes. We are also househacking, car hacking, and have identified other ways to help keep our expenses low.
Seems to me this is good thinking.
When your investments aren’t crushing it the best asset you can have is a job. Second best is a good plan, like this.
Selling assets at a loss or just depleting the egg too fast ain’t gonna cut it.Death spiral…
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Another view: Try to find any sort of pattern in this bar chart, showing S&P500 total returns: https://www.slickcharts.com/sp500/returns (https://www.slickcharts.com/sp500/returns)
According to this chart, there hasn't been a year of plus 40% return since 1958!
It's time, baby!!! It's time!!!
waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
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After financial independence, retire or not, it depends on how much you like or hate your job.
I always encourage people to make more money if they don't hate their jobs and if they are young.
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The 10-year average return for VTSAX is just under 12%. Pretty wild. Maybe there's a reversion coming at some point but that's a loooooong time to see higher than historically average returns. At some point you risk being wrong longer than you have life, or it's at least a long enough period to have a meanfully detrimental impact on your portfolio returns.
Maybe I'm dense (it has been a long day), but wouldn't the historically supercharged 10 year return suggest even more strongly that the inevitable drop may come sooner than later? I realize nobody has a crystal ball, but eventually what goes up must come down (to "regular" returns), right? Or am I missing something else entirely?
Yes, I'd say so. You're assuming there's a "correct" rate of return which the stock market will eventually revert to. That may not be true. The 10-year historical average return of the S&P may not be fundamental in the way that, like, Newton's gravitational constant is.
Maybe historical rates of return aren't relevant anymore. Maybe the return on invested capital is increasing due to technological acceleration. Maybe in ten or twenty years, AI and robots will be doing all the jobs, and investors who get in on the ground floor will be filthy rich.
I have no idea if this is true or not. Predictions are hard, especially about the future. But it's a hypothesis that's at least worth considering.
That's what I was driving at. It could go either way. Maybe there's a reversion to the historical average and we're in for a period of worst than average returns. Maybe the old historical average won't hold in the near future. Do you gamble on the future being slower growth and miss out on a decade of 12% returns?
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It's tough to know how to apply statistics to stock market predictions. Is it like a coin flip where what happened on the last flip has no influence on the next one? Or is there some kind of implicit moment? Like, if the coin has been heads the last ten times, maybe you can surmise that the coin isn't evenly waited, and odds are better than 50/50 that the next will be heads, too? Or is it more like Russian Roulette, where, if the last 3 tries were empty, you've increased the chances that the next pull will have one on the chamber?
We don't know. No one has been able to come up with a decent model that is actually predictive consistently and in various situations. So we default back to *don't try to time the market*.
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The stock market returnd are not random numbers. But I don't want to guess the particular return numbers. Just stick to a plan and don't change it during rough times.
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I've got about 1.5 more years to work part time until FIRE but around the beginning of this year, I reached my "number".
Planning to stay the course until 55 for two main reasons- 1) Rule of 55 to access 401k w/o penalty and 2) employer provided "cadillac" healthcare.
My number includes about 100k for 10 years of healthcare. With no subsidy it's about $750+/month for bronze level.
Still debating whether forgo ACA subsidy to roll chunks from 401k into RothIRA or prioritize ACA subsidy or alternate by year...
Like most MMM folks, I have low spend rate, high saving rate, healthy brokerage/401k/rothIRA/Ibonds balance/rental income to provide options for SORR.
I do get nervous about switching from saving to spending but all the calculators give me 99-100% success for a "fat" for me FIRE.
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We don't know. No one has been able to come up with a decent model that is actually predictive consistently and in various situations. So we default back to *don't try to time the market*.
Yes, predicting future returns is not doable—in the short term, long term, whatever. There’s no model for this. But I think the default for protecting against SORR is a cushion. If you don’t have a cushion, you could be forced into “timing the market” by selling at lows to live.
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We don't know. No one has been able to come up with a decent model that is actually predictive consistently and in various situations. So we default back to *don't try to time the market*.
Yes, predicting future returns is not doable—in the short term, long term, whatever. There’s no model for this. But I think the default for protecting against SORR is a cushion. If you don’t have a cushion, you could be forced into “timing the market” by selling at lows to live.
I agree, though my definition of "cushion" may be more broad than yours. Having fat to trim from the budget, having a side hustle, being willing to find work (and realistic about what that might look like, especially in a down market), a cash cushion and a plan to manage it, some income from an inflation-adjusted pension, being willing to take on a roommate (likely *very* easy to do in a rough economy)--to me, all those things and probably many more all count as cushion.
Our plan includes most of them.
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We have planned for a variety of fall-backs, in case of SORR. In the end a couple of sources have been very reassuring.
1) Bigger Pockets podcast with Michael Kitces on Safe Withdrawal Rates and the 4% Rule of Thumb (aka, the Trinity Study):
https://www.biggerpockets.com/blog/biggerpockets-money-podcast-120early-retirementasset-allocation-safe-withdrawal-rates-michael-kitces
He talks quite clearly about all the levers you have in retirement, if SORR hits early. We plan on several of them, but can pull more if needed. For example:
- We take 6% of the portfolio's initial value in Years 1-5 or retirement; no COLA.
- We reduce to 3.5% of the initial value after Year 6, as DH's Social Security comes on line.
- In Year 10, the mortgage is paid off. So we bump to 4%, as I am then 70, and I claim my Social Security.
- We already have 7 years of the portfolio in cash or fixed income/Money Market funds.
At any point:
- DH could file for SS earlier
- I could file for SS earlier
- We don't take inflation adjustments.
- We could get a PT gig; my employer would be thrilled should I choose to do so.
- We eliminate or reduce $20k of planned travel per year.
- We could downsize the house, or rent the basement as an ADU.
- We could change the retiree health care plan for a couple of years to an HMO from PPO.
- We don't replace our cars, or go down to only one.
Again - SORR of some sort is common. Which is why you want redundancies and additional income streams or expense reduction plans.
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Sometimes I wonder if I should re-allocate my asset allocation from 100% stocks to something more reasonable to take some risk off the table - but I have pretty much been 100/0 over the past 5 years, and it would seem that I've been rewarded for that.
Seeing a 2008-like nosedive on my portfolio would be pretty demoralizing when I'm almost at the finish line...
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How close are you @tj? Maybe this is a good time to cash in some LTCG if you have them and start a cash stash to draw on in years 1-5.
I just dirty market timed the last market high to harvest enough that I can pay for my renovations and 12-24 months of basic living expenses. If markets continue to do well I will continue to top up the cash bucket — I feel better knowing I have cash to live off of when the market is bouncing around. The retirement money is all in the market so that is where I contain my risk
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How close are you @tj? Maybe this is a good time to cash in some LTCG if you have them and start a cash stash to draw on in years 1-5.
I just dirty market timed the last market high to harvest enough that I can pay for my renovations and 12-24 months of basic living expenses. If markets continue to do well I will continue to top up the cash bucket — I feel better knowing I have cash to live off of when the market is bouncing around. The retirement money is all in the market so that is where I contain my risk
I'm about 3 years out according to the Mad Fientist Lab. Between Roth basis and taxable brokerage, I have 5 years of expenses available, but it's all exposed to the market.
My cash amount is basically the amount of my car loan + 6 months of rent. 2 years of expenses in cash might be reasonable, but I guess it hasn't seemed necessary with the firehose of job income.
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It's difficult to make predictions, especially about the future.
My old boss retired during the collapse of 2008 when VTSAX was around $20. He was nervous as heck sinking his pension lump sum into what seemed like a black hole.
We slipped into retirement in late 2020 when VTSAX was at an all time high of $80 and seemed pretty frothy in its post-COVID bounce. Since then it is up about 50% (to $120) and our net worth is up more than 30%.
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It's difficult to make predictions, especially about the future.
My old boss retired during the collapse of 2008 when VTSAX was around $20. He was nervous as heck sinking his pension lump sum into what seemed like a black hole.
We slipped into retirement in late 2020 when VTSAX was at an all time high of $80 and seemed pretty frothy in its post-COVID bounce. Since then it is up about 50% (to $120) and our net worth is up more than 30%.
In your signature, it says you went back to work. What motivated that?
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It's difficult to make predictions, especially about the future.
My old boss retired during the collapse of 2008 when VTSAX was around $20. He was nervous as heck sinking his pension lump sum into what seemed like a black hole.
We slipped into retirement in late 2020 when VTSAX was at an all time high of $80 and seemed pretty frothy in its post-COVID bounce. Since then it is up about 50% (to $120) and our net worth is up more than 30%.
In your signature, it says you went back to work. What motivated that?
I was harassed by some consultants who wanted my help on a cool project in a part of the world new to me. I signed up for six months of periodic trips over the winter, entirely at my discretion. It has been a blast. Not sure what to do with the income but it's definitely fun money. I plan to retire from the gig come spring because the weather will be so nice at home (and blazing hot there). For some reason not entirely clear to me, my spouse was quite happy to see me in a necktie and shiny shoes again instead of driving a tractor in the mud.
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It's tough to know how to apply statistics to stock market predictions. Is it like a coin flip where what happened on the last flip has no influence on the next one? Or is there some kind of implicit moment? Like, if the coin has been heads the last ten times, maybe you can surmise that the coin isn't evenly waited, and odds are better than 50/50 that the next will be heads, too? Or is it more like Russian Roulette, where, if the last 3 tries were empty, you've increased the chances that the next pull will have one on the chamber?
We don't know. No one has been able to come up with a decent model that is actually predictive consistently and in various situations. So we default back to *don't try to time the market*.
In addition to what you said, if someone DID succeed in finding a pattern, their outperformance would be noticed and copied. Then the pattern would be arbitraged away. So the Heisenberg / Observer effect exists in the trading of market assets. E.g. the small cap value effect that disappeared immediately after a paper was published about it.
Markets have had tens of thousands of trading days - in each of the world's many markets - for millions of traders and computers to find patterns and arbitrage them away. This sounds to me like a system that evolves toward chaos instead of toward enduring patterns. The system itself actively extinguishes patterns as they emerge and as active traders gravitate toward them.
So a trader who noticed a pattern would likely pile into something that is ending, and make a losing trade.
Now throw in the risk that patterns can occur in random sequences. In a series of coin tosses, the combination heads-heads-heads-heads-heads is exactly as probable as the combination heads-tails-heads-tails-tails. The first meets our criteria of a pattern, while the second does not. Actually both are random noise, telling a person nothing about the future. The whole process has only the capacity to trick us into a type 1 error.
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We don't know. No one has been able to come up with a decent model that is actually predictive consistently and in various situations. So we default back to *don't try to time the market*.
Yes, predicting future returns is not doable—in the short term, long term, whatever. There’s no model for this. But I think the default for protecting against SORR is a cushion. If you don’t have a cushion, you could be forced into “timing the market” by selling at lows to live.
I agree, though my definition of "cushion" may be more broad than yours. Having fat to trim from the budget, having a side hustle, being willing to find work (and realistic about what that might look like, especially in a down market), a cash cushion and a plan to manage it, some income from an inflation-adjusted pension, being willing to take on a roommate (likely *very* easy to do in a rough economy)--to me, all those things and probably many more all count as cushion.
Our plan includes most of them.
Yeah, my definition is extra money—but so what?
So long as you have a plan you feel comfortable implementing that effectively manages bad SOR, whatever floats your boat.
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Maybe I'm dense (it has been a long day), but wouldn't the historically supercharged 10 year return suggest even more strongly that the inevitable drop may come sooner than later? I realize nobody has a crystal ball, but eventually what goes up must come down (to "regular" returns), right? Or am I missing something else entirely?
Yes, you are assuming this implies a "inevitable" drop, as opposed to a period of lower than average returns. Keep in mind your withdrawals over any reasonable period of time will be the average. By definition.
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We don't know. No one has been able to come up with a decent model that is actually predictive consistently and in various situations. So we default back to *don't try to time the market*.
Yes, predicting future returns is not doable—in the short term, long term, whatever. There’s no model for this. But I think the default for protecting against SORR is a cushion. If you don’t have a cushion, you could be forced into “timing the market” by selling at lows to live.
I agree, though my definition of "cushion" may be more broad than yours. Having fat to trim from the budget, having a side hustle, being willing to find work (and realistic about what that might look like, especially in a down market), a cash cushion and a plan to manage it, some income from an inflation-adjusted pension, being willing to take on a roommate (likely *very* easy to do in a rough economy)--to me, all those things and probably many more all count as cushion.
Our plan includes most of them.
Yeah, my definition is extra money—but so what?
So long as you have a plan you feel comfortable implementing that effectively manages bad SOR, whatever floats your boat.
Um... huh? I was just point out a different perspective--how I view a cushion. I even said I mostly agree with you. Not sure what the bolded is about.
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We don't know. No one has been able to come up with a decent model that is actually predictive consistently and in various situations. So we default back to *don't try to time the market*.
Yes, predicting future returns is not doable—in the short term, long term, whatever. There’s no model for this. But I think the default for protecting against SORR is a cushion. If you don’t have a cushion, you could be forced into “timing the market” by selling at lows to live.
I agree, though my definition of "cushion" may be more broad than yours. Having fat to trim from the budget, having a side hustle, being willing to find work (and realistic about what that might look like, especially in a down market), a cash cushion and a plan to manage it, some income from an inflation-adjusted pension, being willing to take on a roommate (likely *very* easy to do in a rough economy)--to me, all those things and probably many more all count as cushion.
Our plan includes most of them.
Yeah, my definition is extra money—but so what?
So long as you have a plan you feel comfortable implementing that effectively manages bad SOR, whatever floats your boat.
Um... huh? I was just point out a different perspective--how I view a cushion. I even said I mostly agree with you. Not sure what the bolded is about.
Right…and?
I was simply pointing out that while definitions of “cushion” might differ it doesn’t make a difference so long as you’re comfortable with it and it works toward a SORR problem. In other words, whatever works for you.
You do have to read the sentence I wrote after the one you chose to bolden in order to get my point but I laid it out there…
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Some additional factors go into the decision in my view, e.g. Do you/how much do you hate your job? Are there health considerations that would push for quitting sooner? I personally take a conservative approach and just work the omy, barring health issues or extreme hate of job. And if there is significant hate of job, consider taking the FI but not RE approach and downshifting a bit. I'm conservative in that I prefer to have more buffer than a strict FIRE number, in case one decides one wants to live it up a bit more as one gets older. I def. put up with more scrimping when I was young than I feel like engaging in these days. I choose direct flights rather than connections that would save me $50. Someone else mentioned choosing to fly during the day rather than taking a red-eye to save. Are there things like this in your life that you can foresee changing as you age?
This definitely rings true for me. If I had my way, I would work until I was 50. I doubt health issues will allow that, so I have a plan to significantly downshift in 2026, when I'll be 42. If that doesn't work out, or if health issues necessitate leaving my job earlier, I have a few backup plans:
1) Gig work. (For example, my school district is hard up for subs, and doesn't require a teaching cert. My JD would probably make me a decent fit for government/social studies, plus I like the idea of being able to say "no" on days I feel crappy)
2) Dividends would cover a significant portion of my spend in years without "lumpy" expenses.
3) I have 3+ years of spending in ibonds that I could draw from instead of equities if the market took a nosedive.
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The 10-year average return for VTSAX is just under 12%. Pretty wild. Maybe there's a reversion coming at some point but that's a loooooong time to see higher than historically average returns. At some point you risk being wrong longer than you have life, or it's at least a long enough period to have a meanfully detrimental impact on your portfolio returns.
Maybe I'm dense (it has been a long day), but wouldn't the historically supercharged 10 year return suggest even more strongly that the inevitable drop may come sooner than later? I realize nobody has a crystal ball, but eventually what goes up must come down (to "regular" returns), right? Or am I missing something else entirely?
Yes, I'd say so. You're assuming there's a "correct" rate of return which the stock market will eventually revert to. That may not be true. The 10-year historical average return of the S&P may not be fundamental in the way that, like, Newton's gravitational constant is.
Maybe historical rates of return aren't relevant anymore. Maybe the return on invested capital is increasing due to technological acceleration. Maybe in ten or twenty years, AI and robots will be doing all the jobs, and investors who get in on the ground floor will be filthy rich.
I have no idea if this is true or not. Predictions are hard, especially about the future. But it's a hypothesis that's at least worth considering.
Fair point and thank you. Recency bias at work :)
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I pulled the plug when I got to 25x planned spending Between the time I decided/gave notice to my gig COVID happened and markets crashed. I just kept going as COVID would have ended that contract opportunity anyways. Markets recovered and are much higher now. No regrets.
Before I committed to FIRE I went from 100% stocks to 5 year's of spending in cash/bonds + 100% stocks. So I had a long runway at full spend to deal with SORR. In the event I ended up working PT and generating some income.
One thing I can say for sure is the valuable free time I enjoyed from FIREing until now was priceless as I age I appreciate more and more that you can't replace a year in your 40's with a year in your 60's so as you are trading time for money always be aware of the opportunity cost.
Well said, as I plan to spend some quality time traveling, it would be much easier to do earlier on. Thanks for sharing your experience. And it is reassuring in a sense to see that even when there is a global pandemic and markets dropped, the inevitable recovery sustained you (and then some).
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OK so I'm still 5 years out, so maybe not your target audience, but... well, I just felt like answering lol.
My plan is to retire when I reach my "number" and age 54.5 (so I can get my greedy hands into my 401(k) early). So best case scenario, I'll reach my number way before that and will keep working.
Otherwise, I've given it a lot of thought, but I'm still unclear on what I'd do. Chances are that I will keep working for a few months, simply because retirement for me means international relocation, and that takes a bit of time to organize. Also because I seem to be pretty conservative in that regard.
OTOH, someone mentioned health concerns. I don't have any at this time (knocking on wood), but my parents certainly do, and they will be 82 when I'm 55. So I'm guessing that alone will light a fire on my behind not to procrastinate for stupid reasons, because at the end of the day, whatever time I have left with them is more important than a hundred thousand dollars (which is what I normally save in a whole year of work).
OMY syndrome is real, but... when does it end? If you think you need to protect against SORR at the very beginning of ER then you need to increase your number now. Also remember that in the early months/years, you can still find a job if and when the market crashes and you need more money.
Yes, I hear you. At a certain point, the marginal gains are vanishingly small. Is another 100k nice? Sure, but not necessarily worth the opportunity cost of another entire year of life after you have enough saved.
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The 10-year average return for VTSAX is just under 12%. Pretty wild. Maybe there's a reversion coming at some point but that's a loooooong time to see higher than historically average returns. At some point you risk being wrong longer than you have life, or it's at least a long enough period to have a meanfully detrimental impact on your portfolio returns.
Maybe I'm dense (it has been a long day), but wouldn't the historically supercharged 10 year return suggest even more strongly that the inevitable drop may come sooner than later? I realize nobody has a crystal ball, but eventually what goes up must come down (to "regular" returns), right? Or am I missing something else entirely?
This expectation assumes the existence of some sort of evening-out mechanism that reduces the volatility of stock returns so that short-term or intermediate-term averages can't stray too far from long-term averages. If this hypothesis was correct, average returns in one decade would be close to average returns in any other decade. As the chart below shows, this is not the case. Returns by decade are lumpy and all over the place.
We should discard the hypothesis, and not expect high returns to lead to low returns.
(https://external-content.duckduckgo.com/iu/?u=https%3A%2F%2Fstatic.seekingalpha.com%2Fuploads%2F2019%2F1%2F9%2Fsaupload_mkt-returns-by-decade-nominal.png&f=1&nofb=1&ipt=8da127bd4cdfa2d9ff7eb7e674752e62c136f608fda1c50ecd1b5576691be03b&ipo=images)
Another view: Try to find any sort of pattern in this bar chart, showing S&P500 total returns: https://www.slickcharts.com/sp500/returns (https://www.slickcharts.com/sp500/returns)
I'm a very visual person so that chart makes a lot of sense. Thank you for sharing that. Because you're right, in a practical/real-world sense, 20 years or more could be a significant portion of a retirement horizon. Just as an example, if you retired in 1980, you would have quite a ride up before the dot-com fall. By that time, SORR would be moot. None of us knows what tomorrow brings.
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Another view: Try to find any sort of pattern in this bar chart, showing S&P500 total returns: https://www.slickcharts.com/sp500/returns (https://www.slickcharts.com/sp500/returns)
According to this chart, there hasn't been a year of plus 40% return since 1958!
It's time, baby!!! It's time!!!
waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
Speak it into existence LOL
Edit: (formatting)
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Sometimes I wonder if I should re-allocate my asset allocation from 100% stocks to something more reasonable to take some risk off the table - but I have pretty much been 100/0 over the past 5 years, and it would seem that I've been rewarded for that.
Seeing a 2008-like nosedive on my portfolio would be pretty demoralizing when I'm almost at the finish line...
Right, it's a very personal decision whether you can holdfast during the storm. But even the revered JL Collins, himself, buckled under the pressure of a bear market in his earlier years as an investor. Sometimes it's hard to know what you would do in a situation until you are in that situation. Another vote for, in your circumstance, perhaps take a certain amount off the table. 100% seems perhaps a bit aggressive if you have already been at that allocation for the past five years and are "almost at the finish line."
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
Totally true for us as well.
Even though we are between 3.25 and 4% withdrawal rate based on our current spending, we've made some adjustments to make us (me, since I do most of the budgeting and calculations) feel more comfortable:
1. Moved ~2 years of spending into a high yield savings account to manage immediate SORR.
2. Came up with a barebones budget that would be just about covered by dividends alone.
3. Realized at the base budget we would be spending so little that our 2 years of savings accounts alone would last 3 years. The other bonus- health care on the exchange would be essentially free at that spending level, and we'd be paying essentially no taxes.
4. We have a paid off house.
5. Citizenship in a country where we could cut costs another 20-30% off our base budget. I'll get a modest pension in less than 5 years that would almost completely cover a decent, if frugal, living there- even if we had no other income or assets.
6. I still work part-time, just to stay busy and social. I don't even spend all the money I earn as my "fun" money.
I know all of this is statistically complete overkill, but the paranoia wants what it wants. I know that I sleep well at night.
In reality, it's likely you won't feel comfortable until you have practical experience that it works a couple of years after you stop work and start living without regular work income.
The only thing I'd suggest is if you don't feel like you can jump comfortably in, give yourself some baby steps. Set up a plan for what a few years of spending on your "emergency" budget would look like. Not "I'm not going to starve" budget, but "this is nice, but just missing most of the frills" budget. Then actually live on that budget for a few months. Heck, if you've been saving diligently, you might already be there! See how it feels.
Once you realize that your "worst case scenario" is actually perfectly okay, you're golden. Make sure you have a couple of years relatively liquid (high-yield savings, CD ladder, etc.) at this level and FIRE whenever you want without regrets.
Also remember when running all those FIRE simulators: If you hit 100% back-tested spending level, that means your savings would have survived *every* market downturn. So if you could have had a 100% chance of success even if retiring in Sept. 1929, I think you're pretty safe today no matter what you think about the current state of the market.
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I guess my take is that a lot of folks approach their FIRE number differently. If you are taking your bare bones budget, multiplying by 25, ignoring taxes, ignoring lumpy expenses, etc. then waiting until your balance hits your FIRE number is probably not well advised, and the next downturn may be excessively stressful or risky.
While I had been operating with a pretty simple estimate until recently, I did re-evaluate. I went through and looked at a reasonable withdrawal plan, really figured out our likely taxes, added a good budget for extra "fun" money, and margin for infrequency house repairs/medical bills. My number went up by about 25% from what I had been thinking. So now that there is at lease some fat in the budget I feel a lot more confident that our current plan is flexible enough to weather a decent storm of circumstances.
I would have gotten to the same approximate place by having an aggressive budget and using a conservative 3.5% WR and saved a lot of work on my part. To each his own.
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I FIRED right when I hit my number. Or maybe a little before. I had to add in checking and E fund to my number to justify it. That year, the market went up, and I felt as if I had a "free year" of retirement. But then when we had that blip, my portfolio dropped by over 1/2 Million. That was a little scary. But not enough for me to even consider return to work. Instead, I just ate out less, and spent my travel closer to home. Now things have recovered -- my portfolio is above what it was when I retired but I'm still trying to figure out what that means in real dollars after inflation.
Inflation Corporate price gouging is hitting harder than I thought it would, but I'm still okay.
My point is, if you're that close and want to pull the plug, do it and adjust.
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I have a 20% reduction safeguard portfolio in place. What I mean is if I am planning on needing $1M then $1.25M is what I want to have ($1.25 * 20% = $1M). This way if a 20% market decline occurs within the few years of retirement I won't be as concerned. Could the market decline another 20% or more the following year(s), yes but at some point you have to "roll the dice".
With this I believe the odds are in my favor that I could retire without running out of money. If a second or extended downturn comes then less will be spent on vacations and eating out.
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I have a 20% reduction safeguard portfolio in place. What I mean is if I am planning on needing $1M then $1.25M is what I want to have ($1.25 * 20% = $1M). This way if a 20% market decline occurs within the few years of retirement I won't be as concerned. Could the market decline another 20% or more the following year(s), yes but at some point you have to "roll the dice".
With this I believe the odds are in my favor that I could retire without running out of money. If a second or extended downturn comes then less will be spent on vacations and eating out.
Said otherwise a 3.2% WR if your base goal is 4%. I too look at it similarly. Depending on AA that 20% can be a 20% decline on 100% stocks to 40% decline in stocks on 50/50 portfolio or somewhere in-between.
It is definitely a psychological crutch for me to be able to withstand a sizeable decline in equities and not cross higher than 4%.
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I have a 20% reduction safeguard portfolio in place. What I mean is if I am planning on needing $1M then $1.25M is what I want to have ($1.25 * 20% = $1M). This way if a 20% market decline occurs within the few years of retirement I won't be as concerned. Could the market decline another 20% or more the following year(s), yes but at some point you have to "roll the dice".
With this I believe the odds are in my favor that I could retire without running out of money. If a second or extended downturn comes then less will be spent on vacations and eating out.
Said otherwise a 3.2% WR if your base goal is 4%. I too look at it similarly. Depending on AA that 20% can be a 20% decline on 100% stocks to 40% decline in stocks on 50/50 portfolio or somewhere in-between.
It is definitely a psychological crutch for me to be able to withstand a sizeable decline in equities and not cross higher than 4%.
That makes a lot of sense. I never thought about it that way. What a great way to mitigate SORR!
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
Totally true for us as well.
Even though we are between 3.25 and 4% withdrawal rate based on our current spending, we've made some adjustments to make us (me, since I do most of the budgeting and calculations) feel more comfortable:
1. Moved ~2 years of spending into a high yield savings account to manage immediate SORR.
2. Came up with a barebones budget that would be just about covered by dividends alone.
3. Realized at the base budget we would be spending so little that our 2 years of savings accounts alone would last 3 years. The other bonus- health care on the exchange would be essentially free at that spending level, and we'd be paying essentially no taxes.
4. We have a paid off house.
5. Citizenship in a country where we could cut costs another 20-30% off our base budget. I'll get a modest pension in less than 5 years that would almost completely cover a decent, if frugal, living there- even if we had no other income or assets.
6. I still work part-time, just to stay busy and social. I don't even spend all the money I earn as my "fun" money.
I know all of this is statistically complete overkill, but the paranoia wants what it wants. I know that I sleep well at night.
In reality, it's likely you won't feel comfortable until you have practical experience that it works a couple of years after you stop work and start living without regular work income.
The only thing I'd suggest is if you don't feel like you can jump comfortably in, give yourself some baby steps. Set up a plan for what a few years of spending on your "emergency" budget would look like. Not "I'm not going to starve" budget, but "this is nice, but just missing most of the frills" budget. Then actually live on that budget for a few months. Heck, if you've been saving diligently, you might already be there! See how it feels.
Once you realize that your "worst case scenario" is actually perfectly okay, you're golden. Make sure you have a couple of years relatively liquid (high-yield savings, CD ladder, etc.) at this level and FIRE whenever you want without regrets.
Also remember when running all those FIRE simulators: If you hit 100% back-tested spending level, that means your savings would have survived *every* market downturn. So if you could have had a 100% chance of success even if retiring in Sept. 1929, I think you're pretty safe today no matter what you think about the current state of the market.
I think it's also super important to remember that your savings would have survived *every* market downturn ***without changing a single thing***. No selling eggs from your chickens and making an extra $75 a month. No postponing a vacation or downgrading to a local drive instead of an international flight. No driving your car a year longer than planned or going to meatless meals one day a week. Nothing at all done, even ifn the face of economic catastrophe.
In reality, who would actually do that? Unless someone has ZERO fat to trim, they are making changes. And even if they have zero fat, they are looking to walk someone's dog for $20 a week, or getting a job once there are jobs to be had after the economy recovers, or something.
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I guess my take is that a lot of folks approach their FIRE number differently. If you are taking your bare bones budget, multiplying by 25, ignoring taxes, ignoring lumpy expenses, etc. then waiting until your balance hits your FIRE number is probably not well advised, and the next downturn may be excessively stressful or risky.
Great point. I have been tracking expenses since 2016, so at this point have some excellent data, including "lumpy" years. And also taking into account taxes and some likely increased spending, e.g. healthcare premiums and more travel.
As @Reddleman and others have said, flexibility in discretionary spending is another lever to pull if SHTF. Peace of mind.
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
Totally true for us as well.
Even though we are between 3.25 and 4% withdrawal rate based on our current spending, we've made some adjustments to make us (me, since I do most of the budgeting and calculations) feel more comfortable:
1. Moved ~2 years of spending into a high yield savings account to manage immediate SORR.
2. Came up with a barebones budget that would be just about covered by dividends alone.
3. Realized at the base budget we would be spending so little that our 2 years of savings accounts alone would last 3 years. The other bonus- health care on the exchange would be essentially free at that spending level, and we'd be paying essentially no taxes.
4. We have a paid off house.
5. Citizenship in a country where we could cut costs another 20-30% off our base budget. I'll get a modest pension in less than 5 years that would almost completely cover a decent, if frugal, living there- even if we had no other income or assets.
6. I still work part-time, just to stay busy and social. I don't even spend all the money I earn as my "fun" money.
I know all of this is statistically complete overkill, but the paranoia wants what it wants. I know that I sleep well at night.
In reality, it's likely you won't feel comfortable until you have practical experience that it works a couple of years after you stop work and start living without regular work income.
The only thing I'd suggest is if you don't feel like you can jump comfortably in, give yourself some baby steps. Set up a plan for what a few years of spending on your "emergency" budget would look like. Not "I'm not going to starve" budget, but "this is nice, but just missing most of the frills" budget. Then actually live on that budget for a few months. Heck, if you've been saving diligently, you might already be there! See how it feels.
Once you realize that your "worst case scenario" is actually perfectly okay, you're golden. Make sure you have a couple of years relatively liquid (high-yield savings, CD ladder, etc.) at this level and FIRE whenever you want without regrets.
Also remember when running all those FIRE simulators: If you hit 100% back-tested spending level, that means your savings would have survived *every* market downturn. So if you could have had a 100% chance of success even if retiring in Sept. 1929, I think you're pretty safe today no matter what you think about the current state of the market.
I think it's also super important to remember that your savings would have survived *every* market downturn ***without changing a single thing***. No selling eggs from your chickens and making an extra $75 a month. No postponing a vacation or downgrading to a local drive instead of an international flight. No driving your car a year longer than planned or going to meatless meals one day a week. Nothing at all done, even ifn the face of economic catastrophe.
In reality, who would actually do that? Unless someone has ZERO fat to trim, they are making changes. And even if they have zero fat, they are looking to walk someone's dog for $20 a week, or getting a job once there are jobs to be had after the economy recovers, or something.
I do wonder how many people would have had the fortitude or discipline to hang on during the great depression as thier portfolio when down from $31.30 in September 1929 to $4.77 in June 1932 an 85% drop in a grinding 3 years - but like other crazy times (2000, 2007, 2021, maybe now) there was a runup before then a fallout after so maybe if they were in it on the way up then then they get back to par. Anyway changes can be made for the good or bad.
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
Totally true for us as well.
Even though we are between 3.25 and 4% withdrawal rate based on our current spending, we've made some adjustments to make us (me, since I do most of the budgeting and calculations) feel more comfortable:
1. Moved ~2 years of spending into a high yield savings account to manage immediate SORR.
2. Came up with a barebones budget that would be just about covered by dividends alone.
3. Realized at the base budget we would be spending so little that our 2 years of savings accounts alone would last 3 years. The other bonus- health care on the exchange would be essentially free at that spending level, and we'd be paying essentially no taxes.
4. We have a paid off house.
5. Citizenship in a country where we could cut costs another 20-30% off our base budget. I'll get a modest pension in less than 5 years that would almost completely cover a decent, if frugal, living there- even if we had no other income or assets.
6. I still work part-time, just to stay busy and social. I don't even spend all the money I earn as my "fun" money.
I know all of this is statistically complete overkill, but the paranoia wants what it wants. I know that I sleep well at night.
In reality, it's likely you won't feel comfortable until you have practical experience that it works a couple of years after you stop work and start living without regular work income.
The only thing I'd suggest is if you don't feel like you can jump comfortably in, give yourself some baby steps. Set up a plan for what a few years of spending on your "emergency" budget would look like. Not "I'm not going to starve" budget, but "this is nice, but just missing most of the frills" budget. Then actually live on that budget for a few months. Heck, if you've been saving diligently, you might already be there! See how it feels.
Once you realize that your "worst case scenario" is actually perfectly okay, you're golden. Make sure you have a couple of years relatively liquid (high-yield savings, CD ladder, etc.) at this level and FIRE whenever you want without regrets.
Also remember when running all those FIRE simulators: If you hit 100% back-tested spending level, that means your savings would have survived *every* market downturn. So if you could have had a 100% chance of success even if retiring in Sept. 1929, I think you're pretty safe today no matter what you think about the current state of the market.
I think it's also super important to remember that your savings would have survived *every* market downturn ***without changing a single thing***. No selling eggs from your chickens and making an extra $75 a month. No postponing a vacation or downgrading to a local drive instead of an international flight. No driving your car a year longer than planned or going to meatless meals one day a week. Nothing at all done, even ifn the face of economic catastrophe.
In reality, who would actually do that? Unless someone has ZERO fat to trim, they are making changes. And even if they have zero fat, they are looking to walk someone's dog for $20 a week, or getting a job once there are jobs to be had after the economy recovers, or something.
I do wonder how many people would have had the fortitude or discipline to hang on during the great depression as thier portfolio when down from $31.30 in September 1929 to $4.77 in June 1932 an 85% drop in a grinding 3 years - but like other crazy times (2000, 2007, 2021, maybe now) there was a runup before then a fallout after so maybe if they were in it on the way up then then they get back to par. Anyway changes can be made for the good or bad.
I doubt I would have, if by "hang on", you mean "change nothing and white knuckle it, hoping for the best". But for me, that's kinda the point. If the SHTF, I won't just hang on. I'll make changes--some in spending, and maybe even some in earning. Even if I can't find a side hustle (or FT job) in April 1930, I cut what I can, and maybe I get a job in 1935 when things have recovered a bit, to allow my portfolio to recover a bit, too.
That's not a failure to me, if it happens. It's just life.
I'm not doing NOTHING AT ALL different than the status quo. No one is.
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
Totally true for us as well.
Even though we are between 3.25 and 4% withdrawal rate based on our current spending, we've made some adjustments to make us (me, since I do most of the budgeting and calculations) feel more comfortable:
1. Moved ~2 years of spending into a high yield savings account to manage immediate SORR.
2. Came up with a barebones budget that would be just about covered by dividends alone.
3. Realized at the base budget we would be spending so little that our 2 years of savings accounts alone would last 3 years. The other bonus- health care on the exchange would be essentially free at that spending level, and we'd be paying essentially no taxes.
4. We have a paid off house.
5. Citizenship in a country where we could cut costs another 20-30% off our base budget. I'll get a modest pension in less than 5 years that would almost completely cover a decent, if frugal, living there- even if we had no other income or assets.
6. I still work part-time, just to stay busy and social. I don't even spend all the money I earn as my "fun" money.
I know all of this is statistically complete overkill, but the paranoia wants what it wants. I know that I sleep well at night.
In reality, it's likely you won't feel comfortable until you have practical experience that it works a couple of years after you stop work and start living without regular work income.
The only thing I'd suggest is if you don't feel like you can jump comfortably in, give yourself some baby steps. Set up a plan for what a few years of spending on your "emergency" budget would look like. Not "I'm not going to starve" budget, but "this is nice, but just missing most of the frills" budget. Then actually live on that budget for a few months. Heck, if you've been saving diligently, you might already be there! See how it feels.
Once you realize that your "worst case scenario" is actually perfectly okay, you're golden. Make sure you have a couple of years relatively liquid (high-yield savings, CD ladder, etc.) at this level and FIRE whenever you want without regrets.
Also remember when running all those FIRE simulators: If you hit 100% back-tested spending level, that means your savings would have survived *every* market downturn. So if you could have had a 100% chance of success even if retiring in Sept. 1929, I think you're pretty safe today no matter what you think about the current state of the market.
I think it's also super important to remember that your savings would have survived *every* market downturn ***without changing a single thing***. No selling eggs from your chickens and making an extra $75 a month. No postponing a vacation or downgrading to a local drive instead of an international flight. No driving your car a year longer than planned or going to meatless meals one day a week. Nothing at all done, even ifn the face of economic catastrophe.
In reality, who would actually do that? Unless someone has ZERO fat to trim, they are making changes. And even if they have zero fat, they are looking to walk someone's dog for $20 a week, or getting a job once there are jobs to be had after the economy recovers, or something.
I do wonder how many people would have had the fortitude or discipline to hang on during the great depression as thier portfolio when down from $31.30 in September 1929 to $4.77 in June 1932 an 85% drop in a grinding 3 years - but like other crazy times (2000, 2007, 2021, maybe now) there was a runup before then a fallout after so maybe if they were in it on the way up then then they get back to par. Anyway changes can be made for the good or bad.
I doubt I would have, if by "hang on", you mean "change nothing and white knuckle it, hoping for the best". But for me, that's kinda the point. If the SHTF, I won't just hang on. I'll make changes--some in spending, and maybe even some in earning. Even if I can't find a side hustle (or FT job) in April 1930, I cut what I can, and maybe I get a job in 1935 when things have recovered a bit, to allow my portfolio to recover a bit, too.
That's not a failure to me, if it happens. It's just life.
I'm not doing NOTHING AT ALL different than the status quo. No one is.
I was referring specifically to investments and holding fast, any changes (job, switching from meat to beans, etc) would not have offset the actual and emotional decline at that time.
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Most of the folks on this forum are conservative and few retire the minute they hit their FIRE number. Most also overplan SORR mitigation strategies.
For example, many FIRE with a large cash fund equal to 2-3 years expenses, have multiple income streams, have multiple (lean, full, fat) FIRE budgets that they use depending on market conditions, have buffers built into the FIRE budget that they used to calculate the stash needed, etc.
Totally true for us as well.
Even though we are between 3.25 and 4% withdrawal rate based on our current spending, we've made some adjustments to make us (me, since I do most of the budgeting and calculations) feel more comfortable:
1. Moved ~2 years of spending into a high yield savings account to manage immediate SORR.
2. Came up with a barebones budget that would be just about covered by dividends alone.
3. Realized at the base budget we would be spending so little that our 2 years of savings accounts alone would last 3 years. The other bonus- health care on the exchange would be essentially free at that spending level, and we'd be paying essentially no taxes.
4. We have a paid off house.
5. Citizenship in a country where we could cut costs another 20-30% off our base budget. I'll get a modest pension in less than 5 years that would almost completely cover a decent, if frugal, living there- even if we had no other income or assets.
6. I still work part-time, just to stay busy and social. I don't even spend all the money I earn as my "fun" money.
I know all of this is statistically complete overkill, but the paranoia wants what it wants. I know that I sleep well at night.
In reality, it's likely you won't feel comfortable until you have practical experience that it works a couple of years after you stop work and start living without regular work income.
The only thing I'd suggest is if you don't feel like you can jump comfortably in, give yourself some baby steps. Set up a plan for what a few years of spending on your "emergency" budget would look like. Not "I'm not going to starve" budget, but "this is nice, but just missing most of the frills" budget. Then actually live on that budget for a few months. Heck, if you've been saving diligently, you might already be there! See how it feels.
Once you realize that your "worst case scenario" is actually perfectly okay, you're golden. Make sure you have a couple of years relatively liquid (high-yield savings, CD ladder, etc.) at this level and FIRE whenever you want without regrets.
Also remember when running all those FIRE simulators: If you hit 100% back-tested spending level, that means your savings would have survived *every* market downturn. So if you could have had a 100% chance of success even if retiring in Sept. 1929, I think you're pretty safe today no matter what you think about the current state of the market.
I think it's also super important to remember that your savings would have survived *every* market downturn ***without changing a single thing***. No selling eggs from your chickens and making an extra $75 a month. No postponing a vacation or downgrading to a local drive instead of an international flight. No driving your car a year longer than planned or going to meatless meals one day a week. Nothing at all done, even ifn the face of economic catastrophe.
In reality, who would actually do that? Unless someone has ZERO fat to trim, they are making changes. And even if they have zero fat, they are looking to walk someone's dog for $20 a week, or getting a job once there are jobs to be had after the economy recovers, or something.
I do wonder how many people would have had the fortitude or discipline to hang on during the great depression as thier portfolio when down from $31.30 in September 1929 to $4.77 in June 1932 an 85% drop in a grinding 3 years - but like other crazy times (2000, 2007, 2021, maybe now) there was a runup before then a fallout after so maybe if they were in it on the way up then then they get back to par. Anyway changes can be made for the good or bad.
I doubt I would have, if by "hang on", you mean "change nothing and white knuckle it, hoping for the best". But for me, that's kinda the point. If the SHTF, I won't just hang on. I'll make changes--some in spending, and maybe even some in earning. Even if I can't find a side hustle (or FT job) in April 1930, I cut what I can, and maybe I get a job in 1935 when things have recovered a bit, to allow my portfolio to recover a bit, too.
That's not a failure to me, if it happens. It's just life.
I'm not doing NOTHING AT ALL different than the status quo. No one is.
Pre-2007 retiree here and my approx 3 years cash cushion of laddered CDs and bonds saw me thru the recession. I did make some minor changes - mostly because I was worried about the length of time the recession would last - but didn't need to do anything else. As a younger single person I was a bit freaked out to see my total NW tank by close to 50% (including my house which I had paid off before FIREing) but otherwise it was a damn good time for me. I was fortunate to have inexpensive medical care then (Pre-ACA) and lived a pretty low cost lifestyle anyways so could leave investments alone for a few years.
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If you are worried that stock valuations are too high, take a look at small caps (VB) and mid caps (VO), which have forward PE ratios in the low end of their historical range. These stocks are not in a "high market". Similarly, you could maintain large-cap exposure and still mitigate valuation risk by purchasing an equal-weighted ETF (RSP).
https://archive.yardeni.com/pub/stockmktperatio.pdf (https://archive.yardeni.com/pub/stockmktperatio.pdf)
There are also lots of ex-US opportunities to buy stocks at below-typical valuations. Brazil, Canada, Chile, Germany, Greece, Ireland, Israel, Italy, Malaysia, Mexico, Philippines, Poland, Singapore, South Africa, Spain, the UK, and the Scandinavian Counties all seem to have compelling valuations compared to the last couple of decades. Germany and the UK are in recession and their forward PE's are 11.3 and 10.7, which is to say it's bargain hunting season.
https://archive.yardeni.com/pub/mscipecountry.pdf (https://archive.yardeni.com/pub/mscipecountry.pdf)
Yet if you've hit your FI number in today's environment, you don't even have to swing for the fences in the stock market. Times have never been better to just set up a 60/40 portfolio and head to the beach. There are plentiful safe opportunities to earn >5% from the bonds in your bond tent (https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/). Hell, even iBonds (https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/) are yielding 5.27%. Inflation is running <3% so you're probably locking in a historically high real interest rate when you do something like buying a 1 year treasury yielding almost 5% or a 5-year Baa utility bond yielding 5.3%.
You could set up a whole ladder of such bonds and cover half your 4% annual spend from the 5% yields on your 40% bond allocation. Dividends from your 60% stock allocation would cover another 1% at today's yields, and thus you'd only be required to sell or not reinvest another 1% of your assets per year. That's a recipe for success if you ask me.
Really, this is the last sort of market environment that should give pause to someone thinking about pulling the plug, because there are so many appealing options to buy stocks on the cheap, and to build a bond tent with a highly positive real return. You just have to look beyond the headlines.
This has been on my mind lately. I hit my FI number but am working another year to pay for a new kitchen and bathroom first. I'm almost 100% equity though and debating on pulling the trigger on reallocating to 80/20 it at least 90/10. Then I'd feel more comfortable being FI. Right now it feels more like it could drop back below my number any day.
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This has been on my mind lately. I hit my FI number but am working another year to pay for a new kitchen and bathroom first. I'm almost 100% equity though and debating on pulling the trigger on reallocating to 80/20 it at least 90/10. Then I'd feel more comfortable being FI. Right now it feels more like it could drop back below my number any day.
That makes two of us. I'm working another year, but I'm on the other side - most of my brokerage account is allocated to CDs that mature next month and I need to figure out how to allocate those funds. My settlement fund (VMFXX) is still paying over 5%, so I'm not in a hurry.
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Same here. I have ~4% sitting in my settlement account. Only thing I worry about there is the additional tax on interest vs reallocating this to bonds within my IRA. If I drop this down to 1-2% to have a little spare cash and up the bonds from 0 to 8%, I'd feel a little better with a 90/10 split. Still could probably go lower on equity. I think it's hard to think about giving up potential gains after being pedal to the metal on equities for so long. I'm definitely desensitized to the volatility. So I think I can weather the storm. I just feel like, if I've won the game, I should take some chips off the table and put them in my back pocket.
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Another view: Try to find any sort of pattern in this bar chart, showing S&P500 total returns: https://www.slickcharts.com/sp500/returns (https://www.slickcharts.com/sp500/returns)
I found a pattern! There tend to be more positive years than negative years.
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I cant find a single definition of SORR online or in this forum and I feel like i've been shut out by the cool kids. Spent a lot of time guessing but cant come up with what it might be. It seems like you are referring to market rates of return.
Anyone care to define it for me??
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Anyone care to define it for me??
SORR = Sequence of Returns Risk
https://www.investopedia.com/terms/s/sequence-risk.asp