Pre-FIRE SORR

[Freedomin5]

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!

[Villanelle]

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.   

[evanc]

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.

[tooqk4u22]

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. 

[Villanelle]

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. 

[tooqk4u22]

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. 

[spartana]

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.

[leevs11]

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

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

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. Hell, even iBonds 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.

[weebs]

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.

[leevs11]

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.

[Rockies]

Another view: Try to find any sort of pattern in this bar chart, showing S&P500 total returns: https://www.slickcharts.com/sp500/returns

I found a pattern! There tend to be more positive years than negative years.

[Rockies]

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??

[Retire-Canada]

Anyone care to define it for me??

SORR = Sequence of Returns Risk

https://www.investopedia.com/terms/s/sequence-risk.asp