The Money Mustache Community
General Discussion => Post-FIRE => Topic started by: RookieStache on June 05, 2018, 11:09:50 AM
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I mess around with all of my accounts on an excel sheet I made and found out the following:
Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.
Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?
Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.
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Plug your numbers in https://firecalc.com/ and see your chances.
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You will be highly susceptible to sequence of returns risk. If you are willing and able to go back to work, you could certainly try.
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If we had a 20% market correction, you would be under $500,000.
Stuff happens, have a plan.
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Plug your numbers in https://firecalc.com/ and see your chances.
Thanks for this, surprised I haven't come across this yet.
44% success rate, actually higher than I thought.
95% success rate if that portfolio was $1,000,000. That's promising.
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I mess around with all of my accounts on an excel sheet I made and found out the following:
Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.
A 6.45% WR is unlikely to work, because the stock market is not a savings account. While 7% may be the long term average, there's a ton of volatility. www.cFIREsim.com says that historically you would've had greater than $0 after 30 years only 47% of the time. If your retirement period is longer than 30 years, the odds decrease. Does that inspire a lot of confidence in your plan?
Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?
Mostly crazy, yeah. Or at least, your "retirement" will likely contain lots of lots of mandatory work. So that would be up to you whether you consider that worth it.
Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.
I don't see anyone advocating for a 2% WR, let alone "so many". Where are you seeing that? But yes, I think it's safe to conclude that a 2% WR would indeed be overkill. However, there's a large space between 2% and 6.45% for which it would be more reasonable.
But an even better plan may be to spend less than $40,000. That way you can choose a WR with a high likelihood of success AND not have to save as much.
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basically what Eric said
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Plug your numbers in https://firecalc.com/ and see your chances.
Thanks for this, surprised I haven't come across this yet.
44% success rate, actually higher than I thought.
95% success rate if that portfolio was $1,000,000. That's promising.
This is derived from the Trinity Study. You should probably read it, considering that you're likely to base your retirement on it.
https://www.onefpa.org/journal/Pages/Portfolio%20Success%20Rates%20Where%20to%20Draw%20the%20Line.aspx
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I see others have already demystified this for you.
I plan on retiring on less than that, but I also spend a heck of a lot less than $40k/yr.
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I see others have already demystified this for you.
I plan on retiring on less than that, but I also spend a heck of a lot less than $40k/yr.
A couple above made it seem as this is my plan, clearly not... Just found it interesting that it seems feasible. I selected $40,000 as it seems like it would be a standard that would easily be able to be hit. When a retire, i'd expect closer to $28,000-$30,000 a year.
Good to hear someone is retiring on less than that, as many make it seems like a grave mistake.
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I see others have already demystified this for you.
I plan on retiring on less than that, but I also spend a heck of a lot less than $40k/yr.
A couple above made it seem as this is my plan, clearly not... Just found it interesting that it seems feasible. I selected $40,000 as it seems like it would be a standard that would easily be able to be hit. When a retire, i'd expect closer to $28,000-$30,000 a year.
Good to hear someone is retiring on less than that, as many make it seems like a grave mistake.
The number you need is directly correlated to what you plan to spend. Many don't need 2mil because they don't plan to spend 80k.
You do have to account for inflation though, and it doesn't seem as you are
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Right on @RookieStache , 7% is not sustainable because all it would take is a few years of negative returns to eat away at your principal where you would not be able to recover.
Now if you had some way of earning 7% guaranteed return (inflation adjusted) then you would be set!
My #'s work because my average spend over the past 4 years has been ~$22-23k/yr.
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I'm kinda old, but I remember when one could earn 7% in safe corporate bonds. My online savings account paid 5.5% in 2007. The economy has been in Oz for so long most people have forgotten what historically normal looks like. Compared to historical norms, we are in an everything bubble.
For an example of someone retired on a half-mil with expenses around 25k, see http://velociraptor.cc (http://velociraptor.cc). Understand that his approach of using options and CEFs has yet to be tested by a recession, but then again, there he is doing it.
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Whole lot of people have retired with less and done OK, but they probably learned how to live on less than $40K per year.
Heck, I know a few folks that probably live on only $25K per year and are happy. It's just a matter of what your needs are.
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I’m even older and remember when BF, now husband, was paying 17 or18% on his mortgage. Ten percent on a term deposit was insulting...
I had never used the fire calc before so I just played with that...fun. Totally need to start spending far more!
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Also, where does social security fit in this equation. If you are closing in on it, then 620k with a lower wr starts to look a lot better.
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I'm kinda old, but I remember when one could earn 7% in safe corporate bonds. My online savings account paid 5.5% in 2007. The economy has been in Oz for so long most people have forgotten what historically normal looks like. Compared to historical norms, we are in an everything bubble.
For an example of someone retired on a half-mil with expenses around 25k, see http://velociraptor.cc (http://velociraptor.cc). Understand that his approach of using options and CEFs has yet to be tested by a recession, but then again, there he is doing it.
Hey! I resemble that remark!
Seriously though... I retired on a withdrawal rate higher than the 6.45% you are proposing. That situation is a little different as my exit date was 5OCT2012 with a huge federal reserve stimulus program providing a tailwind. Also different, I budget only 25,000 a year and so far have spent less for all five years of ER. Finally, my home is paid for so stache is technically larger than ~500k. I'll also note, I intended to take on part time work for 5-7 years upon ER to bridge any gaps. I was very fortunate with my timing to coincide with the aforementioned stimulus and thus never needed the extra income due to rapid stache growth.
If you insist on doing this:
[1] See if you can get spending under 40k. This will improve your chances while simultaneously supercharging your savings for the final months of stache building.
[2] Sequence of returns risk is going to be huge for you. You are going to need a larger than normal bond allocation. I don't like open ended funds for bonds. When bonds are falling, shares get liquidated resulting in forced selling (at a loss) for the fund. Closed End Funds do not have this risk and tend to hold notes to maturity, e.g. your duration risk will eventually expire. There are lots of CEF funds invested in bonds and/or other debt instruments that yield around 10%. (Else, lots of municipal oriented funds that yield around 6%.) A forty percent allocation to 10% yielders gets you to the 4% rule while leaving 60% of your portfolio available to chase additional income or growth. In your case, the 60% would need to yield 4.08% to achieve the remaining portion of 6.45% withdrawal rate. Completely achievable with a bundle of REITs, BDCs, MLPs, and dividend stocks. But seriously work on number [1] first.
[3] My concept for the remaining 60% of my portfolio not tied up in debt instruments is to sell options. Dividend growth investing would equally valid. The idea is to be income centric. I'm not looking to sell appreciated assets for long term capital gains. I'm looking to generate enough income to cover my budget plus taxes and nominal stache growth thus becomes unimportant. (On the taxes note, recognize my approach is not tax efficient. Getting spending down has helped me live a life where my tax bracket is sufficiently low that I have collected the maximum ACA subsidy three times now; number [1] above is really important and deserves repeating yet again.)
HTH and I'm available by PM if you want something more specific in private.
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Too much missing detail in the OP. I don't know where people are recommending $2M to retire. That number would be tied to your expenses in retirement, including healthcare and taxes, how many years you're going to live off the stash and the amount of SS and pension (and when) you will receive, etc. For me personally, $620,000 would be plenty to pay my bare bones expenses with several hundred extra to spend before I draw SS in another 16 years, dependent on ACA.
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Clearly y'all didn't read the rest of the thread where OP stated that this was NOT his plan, just a thought exercise.
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following
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i think the better thought exercise here is what if bonds get back up to 7-15% yields on them. could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.
i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year. and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term.
i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.
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I mess around with all of my accounts on an excel sheet I made and found out the following:
Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.
Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?
Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.
There is a pretty widespread current of thought out there (based on PE10 and other factors) that returns going forward, for the next decade or so, will underperform historical averages, and that 4% real return is likely. Obviously, know one can know the future for certain, and prognosticators often get it wrong, but I do think (from my research) that they are likely to be right.
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I mess around with all of my accounts on an excel sheet I made and found out the following:
Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.
Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?
Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.
There is a pretty widespread current of thought out there (based on PE10 and other factors) that returns going forward, for the next decade or so, will underperform historical averages, and that 4% real return is likely. Obviously, know one can know the future for certain, and prognosticators often get it wrong, but I do think (from my research) that they are likely to be right.
I figure this to be the case as well. I also figure that after that decade of lower returns would come quite the spike to even it out. I just turned 30, so I guess I'll have a better understanding on what my portfolio will need to look like if I want to RE in 15 years or so.
I understand this isn't the most trusted of websites, but I see articles like this all the time.
https://www.thestreet.com/story/13465544/1/you-ll-need-2-million-before-you-can-think-of-retirement.html
Not to mention, many of the Boggleheads posters state that you should max out 401K and IRA before you pay down mortgage/529's/save out of retirement/taxable accounts etc to be able to retire early.
If you were to start maxing out 401K and IRA at 28, with a 7% rate of return, you would have $2 million at 55.
You would also have $647,000 at the age of 43. Which some would argue it being enough to retire on at $40,000 a year if you were to downswing to $25,000 on bad years.
Again, not going to even attempt to retire with anything less than $1.25 million in retirement accounts... I just find it interesting that the math and logic lends itself to this being a successful approach about 45% of the time. (Not even including SS, as I don't want to bank on that mess)
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1. the PE10 figure and lower returns for the next 10 years could all come in one year
2. why would there be a spike after a correction to the norm
3. the PE10 figure doesnt have to recede to the norm thru decrease in returns - it could return to the norm thru increases in profits
4. if you remove 2008 and 2009 from the calculation we're not abnormally high
5. accounting practices have changed which many believe equates to a higher norm for the Shiller
you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.
You're in the MMM forums quoting the general heard think of americans saying you need X to retire isnt worth they time or effort.
you need to do more than max retirement accounts if you really want to retire early.
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i think the better thought exercise here is what if bonds get back up to 7-15% yields on them. could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.
i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year. and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term.
i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.
It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.
A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.
For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.
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i think the better thought exercise here is what if bonds get back up to 7-15% yields on them. could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.
i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year. and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term.
i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.
It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.
A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.
For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.
its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.
again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.
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so for instance the peak of the bond market happens again - ~11% yield on a 10 year treasury note in 1985 the 5 year didnt exist in 85 but it was 8.67% in 1990 the 20 year was 8% in 1995 the 30 year was 8.26% in 1990 ...
in theory couldnt one buy a bunch of bonds that matured across different time horizons for each year with yield between 8 and 11% - there by guaranteeing the growth of their money over time.
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You'd be crazy to retire, but you wouldn't be crazy to scale back work and only earn what you need to live on and me the $620,000 keep growing.
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its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.
again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.
If inflation spikes, but people expect it to quickly recede back to our (abnormal) low levels, interest rates won't change nearly as much as inflation does, and they'll change much less for 30 year bonds than for shorter duration bonds.
The inflation increase is only beneficial if we get a spike in inflation that then drops again rapidly, but interest rates still rise a lot because people expect high inflation to continue indefinitely, but you still go heavily into bonds because you're expecting inflation to drop, and it turns out that you were right and the market as a whole was wrong.
It could happen, but it's like trying to time the market. You might strike it rich, but you're more likely to end up losing an awful lot of money.
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You'd be crazy to retire, but you wouldn't be crazy to scale back work and only earn what you need to live on and me the $620,000 keep growing.
This^
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I'll add a little bit more detail...
I've gone back and looked at my net worth tracking year over year. I signed up for a pretty big promotion and disruptive life events with just over $700,000 in net worth just under five years ago. That $700,000 invested has been predominately responsible for my net worth today, even more so than the additions. You get to a critical mass where the money snowballs if you just don't draw it down.
I look back and think I was faced with two options, both of which would create regret: Will I wonder if I ever could have climbed the corporate ladder one more, to the job I thought I always wanted? or, Will I regret not taking off and moving to the beach and picking up enough part-time work to cover basic living expenses.
FI doesn't have to mean grinding it out in a cubicle or office for 15-20 years, once you get to that critical mass you can really scale back
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I'll add a little bit more detail...
I've gone back and looked at my net worth tracking year over year. I signed up for a pretty big promotion and disruptive life events with just over $700,000 in net worth just under five years ago. That $700,000 invested has been predominately responsible for my net worth today, even more so than the additions. You get to a critical mass where the money snowballs if you just don't draw it down.
I look back and think I was faced with two options, both of which would create regret: Will I wonder if I ever could have climbed the corporate ladder one more, to the job I thought I always wanted? or, Will I regret not taking off and moving to the beach and picking up enough part-time work to cover basic living expenses.
FI doesn't have to mean grinding it out in a cubicle or office for 15-20 years, once you get to that critical mass you can really scale back
yeah i've got some strong golden handcuffs that keep me at work - but those handcuffs only require that i work 1000 hours a year to keep them growing - really i think i'd have to work 24 hours a week and still probably get some frowns from upper management. but i'm strongly considering a cut back to 4 day weeks this year. and possibly 3 day weeks in the future - our next egg has reached "critical mass" as you call it with 750k total value. but it is an issue as the next 2 years could get me up to a level where money just pours from the heavens- but on the flip side do i really need any of it- that answer really is no not really. not a bad place to be in but a tough decision to make.
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@boarder42
Its interesting, I hit that moment where "money pours in from the heavens" at the same time I hit the point of "my time is worth more than anything you can pay me". My wife asked me "what if they offer you a lot more money to stay?". I thought about it and told her I'd probably need an up front, cash retention bonus of $300,000 to commit for another year, on top of what they'd pay me. I also thought I might always switch employers because people are "made whole" in the industry, but I wouldn't do that for the $300,000 - $400,000 plus one year waiting period just because my time is worth more.
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@boarder42
Its interesting, I hit that moment where "money pours in from the heavens" at the same time I hit the point of "my time is worth more than anything you can pay me". My wife asked me "what if they offer you a lot more money to stay?". I thought about it and told her I'd probably need an up front, cash retention bonus of $300,000 to commit for another year, on top of what they'd pay me. I also thought I might always switch employers because people are "made whole" in the industry, but I wouldn't do that for the $300,000 - $400,000 plus one year waiting period just because my time is worth more.
yeah thats the paradox - when is your time more important. its funny b/c up until a year ago when i thought my bonus each year would be in the mid 5 digits when it maxed out i didnt really care - but apparently i love money too much still b/c i found out they would be in the 6 digits possibly in a couple years that flipped a switch where now i'm like - can i really leave all this money on the table. - i'm assuming if i drop to part time i wont get bonus growth to that level. on the flip side my golden handcuffs - ESOP - basically just continues to kill it whether i work 4 days a week or 3 days a week or 60 hours a week none of that effect the insane returns. so basically every hour worked in pursuit of 60-70k more in bonus in a couple years loses value each year at the compounding of the company stock. its really a tough mental battle i fight b/c i can see that 6 figure bonus - and right now i'm around 30. if i'd never been told this 6 digit light existed at the end of this tunnel i'd likely be having a convo with my boss in a couple weeks about dropping to 4 day weeks.
oh the struggles of the oversaving but not quite there early retiree
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you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.
you need to do more than max retirement accounts if you really want to retire early.
This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.
Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
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What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.
If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.
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ptf
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you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.
you need to do more than max retirement accounts if you really want to retire early.
This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.
Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
you can use a spreadsheet to project a rate of return to determine when you can FIRE but you should look at historical data to determine a withdrawal rate and strategy that you're comfortable with. when projecting a FIRE date if you're wrong about the returns in your projections (which you will be b/c we just assume constant return) you just get to RE earlier or later. but retursn really dont drive FIRE dates savings rates do esp if you're talking about an income and spending low enough to FIRE on less than maxing retirement accounts - the numbers you were proposing here were 40k and 25k which if you're maxing retirement accounts at 24k a year would take you 17 years to get there if you were spending 25k or ~24 years to get there if you were spending 40k . so yes to retire in 15 years you need to do more than max retirement accounts.
You should go read the investment order to understand the order in which you should invest. Tax advantaged accounts are the most cost effective way to acheive FIRE when using equities.
yes i balk at it b/c there is a calculator that was shown above that can calculate exactly what you want to know but first we'd have to know what historical failure rate youre comfortable with.
there arent hypotheticals here given parameters savings and withdrawal strategies can all be back tested.
for instance in cFIREsim
40k retirement withdrawal with a variable withdrawal ability to drop to 25k and ceiling of 40k would result in a nest egg of
620k - only inceases that 44% to 53%
750k - 88%
850k - 99.07%
900k - 100%
if we run the variable withdrawal inversely meaning we start out only withdrawing 25k and use it to increase our sending up to 40k you get a success rate of 91.67% with 620k
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What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.
If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.
Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.
I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return. I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...
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What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.
If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.
Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.
I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return. I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...
you keep changing the rules and the parameters of the equation - the answer is you dont fucking work til your 55 not a single person here is advocating for oversaving.
but no one here considers saving 20% of your income from 25 -55 really seaking early retirement - your first statement was 15 years. whats your end goal what are you trying to learn here.
you're only saving 20% of you income at 24k which works out to spending 96k based on these numbers you're on track to retire in 37 years or at normal age of 62
MOD NOTE: You can argue without being rude.
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you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.
you need to do more than max retirement accounts if you really want to retire early.
This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.
Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
you can use a spreadsheet to project a rate of return to determine when you can FIRE but you should look at historical data to determine a withdrawal rate and strategy that you're comfortable with. when projecting a FIRE date if you're wrong about the returns in your projections (which you will be b/c we just assume constant return) you just get to RE earlier or later. but retursn really dont drive FIRE dates savings rates do esp if you're talking about an income and spending low enough to FIRE on less than maxing retirement accounts - the numbers you were proposing here were 40k and 25k which if you're maxing retirement accounts at 24k a year would take you 17 years to get there if you were spending 25k or ~24 years to get there if you were spending 40k . so yes to retire in 15 years you need to do more than max retirement accounts.
You should go read the investment order to understand the order in which you should invest. Tax advantaged accounts are the most cost effective way to acheive FIRE when using equities.
yes i balk at it b/c there is a calculator that was shown above that can calculate exactly what you want to know but first we'd have to know what historical failure rate youre comfortable with.
there arent hypotheticals here given parameters savings and withdrawal strategies can all be back tested.
for instance in cFIREsim
40k retirement withdrawal with a variable withdrawal ability to drop to 25k and ceiling of 40k would result in a nest egg of
620k - only inceases that 44% to 53%
750k - 88%
850k - 99.07%
900k - 100%
if we run the variable withdrawal inversely meaning we start out only withdrawing 25k and use it to increase our sending up to 40k you get a success rate of 91.67% with 620k
So you agree with the calculator and the calculator states that 900k has a 100% success rate with $25K to $40K variable withdraw rate correct?
It's quite easy to hit $900,000 without maxing retirement accounts.
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you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.
you need to do more than max retirement accounts if you really want to retire early.
This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.
Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
you can use a spreadsheet to project a rate of return to determine when you can FIRE but you should look at historical data to determine a withdrawal rate and strategy that you're comfortable with. when projecting a FIRE date if you're wrong about the returns in your projections (which you will be b/c we just assume constant return) you just get to RE earlier or later. but retursn really dont drive FIRE dates savings rates do esp if you're talking about an income and spending low enough to FIRE on less than maxing retirement accounts - the numbers you were proposing here were 40k and 25k which if you're maxing retirement accounts at 24k a year would take you 17 years to get there if you were spending 25k or ~24 years to get there if you were spending 40k . so yes to retire in 15 years you need to do more than max retirement accounts.
You should go read the investment order to understand the order in which you should invest. Tax advantaged accounts are the most cost effective way to acheive FIRE when using equities.
yes i balk at it b/c there is a calculator that was shown above that can calculate exactly what you want to know but first we'd have to know what historical failure rate youre comfortable with.
there arent hypotheticals here given parameters savings and withdrawal strategies can all be back tested.
for instance in cFIREsim
40k retirement withdrawal with a variable withdrawal ability to drop to 25k and ceiling of 40k would result in a nest egg of
620k - only inceases that 44% to 53%
750k - 88%
850k - 99.07%
900k - 100%
if we run the variable withdrawal inversely meaning we start out only withdrawing 25k and use it to increase our sending up to 40k you get a success rate of 91.67% with 620k
So you agree with the calculator and the calculator states that 900k has a 100% success rate with $25K to $40K variable withdraw rate correct?
It's quite easy to hit $900,000 without maxing retirement accounts.
not sure what game your playing here but you're smelling more and more like a troll. and yeah if you're going to say over 30 years its easier to hit 900k with out maxing retirement accounts but again none of these were your original parameters. you were at 15 years. and to retire in 15 years you need to be saving 55% of your income from the start. which would max retirement accoutns for most make 120k a year.
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What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.
Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.
Unfortunately "low" and "high" are very hard to quantify, and different people will read the same words and come to very different conclusions.
Perhaps you should investigate this yourself with one of the many online tools like cFireSim, since you can program in your own values for flexibility, and also make your own assessments of what an acceptably low level of risk is.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.
If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.
I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return. I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...
See here were are getting into default assumptions again. I see no reason to assume people are married unless they tell me that they are, yet that's an assumption you're apparently bringing to the discussion of what a reasonable amount to save for retirement is.
Similarly, I realize in the general public that retiring at 55 is considered early. But on this forum specifically, I wouldn't be comfortable making the default assumption that sometime here speaking about wanting to "retire early" == "planning to work for 30 years to save enough money."
Anyway, it sounds like we have very different frames of reference so further discussion is unlikely to prove fruitful. However you've clearly got a plan that you feel comfortable with, even though I would still urge you to read up a lot more on sequence of returns risk.
Good luck to you.
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At the risk of using this word for the first time, I believe your first post was the behavior of a "troll".
I simply posted that 7% rate of return on $620,000 statistically shows that it will grow with a withdraw rate of $40,000. I brought it up for discussion because I was surprised and found it interesting.
You then state that I need to max accounts, that it's a crazy plan, and I need to learn the investment order.
I understand how powerful all tax advantaged accounts are and am utilizing them to the best of my abilities. But with a combined gross of $120,000 (again, very LCOLA), and two children, throwing $48,000 at retirement accounts doesn't seem too realistic at this point in our lives.
And you did answer my question, and I thank you for that. From a numbers point of view, if flexible ($25K-$40K withdraw) retiring on $620,000 has a 91% chance of succeeding.
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What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.
What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.
Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.
Unfortunately "low" and "high" are very hard to quantify, and different people will read the same words and come to very different conclusions.
Perhaps you should investigate this yourself with one of the many online tools like cFireSim, since you can program in your own values for flexibility, and also make your own assessments of what an acceptably low level of risk is.
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.
Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.
If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.
I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return. I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...
See here were are getting into default assumptions again. I see no reason to assume people are married unless they tell me that they are, yet that's an assumption you're apparently bringing to the discussion of what a reasonable amount to save for retirement is.
Similarly, I realize in the general public that retiring at 55 is considered early. But on this forum specifically, I wouldn't be comfortable making the default assumption that sometime here speaking about wanting to "retire early" == "planning to work for 30 years to save enough money."
Anyway, it sounds like we have very different frames of reference so further discussion is unlikely to prove fruitful. However you've clearly got a plan that you feel comfortable with, even though I would still urge you to read up a lot more on sequence of returns risk.
Good luck to you.
I appreciate your response, but it seems you skipped ahead a bit. I stated multiple times that I would never even think of retiring without upwards of $1.2 million (aiming for $2). This was simply a discussion topic.
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i think the better thought exercise here is what if bonds get back up to 7-15% yields on them. could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.
i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year. and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term.
i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.
It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.
A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.
For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.
its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.
again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.
To illustrate, suppose you put your entire $1M portfolio in bonds yielding 7%. The bonds pay your accounts exactly $70k each year. You plan to withdraw $40k each year for living expenses. The other $30k gets added to your account. You start year 2 with $1,030,000.
This sounds great except that prices increased 8% that year. In year 2, your living expenses rise to $43,200. You just surpassed your 4% withdraw plan because you'd need $1,080,000 to support that level of spending and you only have $1,030,000. So your WR increases to 4.2%.
You can spreadsheet this out to see that as long as ( inflation > bond interest - WR ) the portfolio's purchasing power will decline and the WR will increase. After several years of this, the portfolio's long term survival is seriously impaired.
Stocks are more volatile, but their ability to raise earnings is why the Trinity study emphasized that any portfolio with at least some equity exposure is likely to survive. The illustration above demonstrates the riskiness of safe bonds.
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i think the better thought exercise here is what if bonds get back up to 7-15% yields on them. could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.
i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year. and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term.
i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.
It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.
A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.
For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.
its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.
again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.
To illustrate, suppose you put your entire $1M portfolio in bonds yielding 7%. The bonds pay your accounts exactly $70k each year. You plan to withdraw $40k each year for living expenses. The other $30k gets added to your account. You start year 2 with $1,030,000.
This sounds great except that prices increased 8% that year. In year 2, your living expenses rise to $43,200. You just surpassed your 4% withdraw plan because you'd need $1,080,000 to support that level of spending and you only have $1,030,000. So your WR increases to 4.2%.
You can spreadsheet this out to see that as long as ( inflation > bond interest - WR ) the portfolio's purchasing power will decline and the WR will increase. After several years of this, the portfolio's long term survival is seriously impaired.
Stocks are more volatile, but their ability to raise earnings is why the Trinity study emphasized that any portfolio with at least some equity exposure is likely to survive. The illustration above demonstrates the riskiness of safe bonds.
completely understand but again you're looking at it in a vacuum of specifically this year. i agree if we have sustained high inflation that bonds stay at levels that high it fails. but that likely also starts to erode stock portfolios as well just like the 1960's. if the bond yield for a 30 year treasury note exceeds the avg 30 year return for equities i think some very interesting conversations will start around here.
@RookieStache best of luck i'm done playing whatever random game you want to play b/c you're mixing what you want with hypotheticals on a consistent basis while constantly changing the rules of the game.
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To illustrate, suppose you put your entire $1M portfolio in bonds yielding 7%. The bonds pay your accounts exactly $70k each year. You plan to withdraw $40k each year for living expenses. The other $30k gets added to your account. You start year 2 with $1,030,000.
This sounds great except that prices increased 8% that year. In year 2, your living expenses rise to $43,200. You just surpassed your 4% withdraw plan because you'd need $1,080,000 to support that level of spending and you only have $1,030,000. So your WR increases to 4.2%.
You can spreadsheet this out to see that as long as ( inflation > bond interest - WR ) the portfolio's purchasing power will decline and the WR will increase. After several years of this, the portfolio's long term survival is seriously impaired.
Stocks are more volatile, but their ability to raise earnings is why the Trinity study emphasized that any portfolio with at least some equity exposure is likely to survive. The illustration above demonstrates the riskiness of safe bonds.
Just for discussion, the academic literature suggests the minimum volatility portfolio is 72% bonds, 28% equity. Going 100% bonds is nonsensical as it actually starts increasing your volatility after 72% due to all the assets being highly correlated.
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I don't know if I said 100%. But if a 30 year bond is yielding 15% I think we'd all be pretty dumb to not place a larger stake in bonds.
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I don't know if I said 100%. But if a 30 year bond is yielding 15% I think we'd all be pretty dumb to not place a larger stake in bonds.
If bonds were yielding 15 percent, we'd definitely be in an at least double digit inflation environment, and I would run away screaming from bonds to equities.
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I don't know if I said 100%. But if a 30 year bond is yielding 15% I think we'd all be pretty dumb to not place a larger stake in bonds.
If bonds were yielding 15 percent, we'd definitely be in an at least double digit inflation environment, and I would run away screaming from bonds to equities.
I think this would be shortsighted. Like paying down the crazy low mortgage we have now. Buying a 30 year note that yields 15% with part of your portfolio. If you assume we'll stay in the crazy high inflation environment forever you should probably run back to work. As equities die in this environment too. As can be seen by the worst year to FIRE ever 1966.
I still feel like you're all looking at this in a vacuum of the year you buy the bond. The us stock market has never averaged 15% ROI over 30 years.
If you put 10% of a 2MM portfolio into a 30y yielding 15% and you subtract out avg inflation it's going to be worth 6MM in 30 years in today dollars.
And as I said earlier if we assume inflation will maintain the high levels everyone has problems big problems
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If you assume we'll stay in the crazy high inflation environment forever you should probably run back to work. As equities die in this environment too. As can be seen by the worst year to FIRE ever 1966.
In rapidly increasing inflation environments equities have short term problems, but eventually though they catch back up, because they're earning profits in inflated dollars.
In high inflation environments, the interest AND principal of bonds eventually becomes worthless and you're out of the FIRE game for good.
If you put 10% of a 2MM portfolio into a 30y yielding 15% and you subtract out avg inflation it's going to be worth 6MM in 30 years in today dollars.
If you find 30 year bonds (without significant default risk, so let's constrain ourselves to us government bonds) with a yield of 15%, it means the as a whole is market is expecting inflation to stay high for a very, very long time.
To me, trying to outguess the market and say that you're sure interest rates will return to the exceptional lows we have today, seems like any other form of timing the market. A person may win, and they may lose, but statistically it seems likely that they'll eventually lose more than they gain.
Now I know very little about what inflation rates will be 25 or 30 years from now, and so my inclination is to trust the market's collective best guess.* You are certainly free to do otherwise.
*Subject to a couple of constraints:
1) I'm pretty confident interest rates in the USA won't go significantly negative for any length of time.
2) If the average interest rate on the national debt today was 15%, interest on the $21.2 trillion dollar debt ($3.18 trillion) would approximately equal total federal revenue from all sources, so the fed would either need to print money (extremely high inflation), or we'd need to default on the debt, neither of which seems good for bond holders.
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If you assume we'll stay in the crazy high inflation environment forever you should probably run back to work. As equities die in this environment too. As can be seen by the worst year to FIRE ever 1966.
In rapidly increasing inflation environments equities have short term problems, but eventually though they catch back up, because they're earning profits in inflated dollars.
In high inflation environments, the interest AND principal of bonds eventually becomes worthless and you're out of the FIRE game for good.
If you put 10% of a 2MM portfolio into a 30y yielding 15% and you subtract out avg inflation it's going to be worth 6MM in 30 years in today dollars.
If you find 30 year bonds (without significant default risk, so let's constrain ourselves to us government bonds) with a yield of 15%, it means the as a whole is market is expecting inflation to stay high for a very, very long time.
To me, trying to outguess the market and say that you're sure interest rates will return to the exceptional lows we have today, seems like any other form of timing the market. A person may win, and they may lose, but statistically it seems likely that they'll eventually lose more than they gain.
Now I know very little about what inflation rates will be 25 or 30 years from now, and so my inclination is to trust the market's collective best guess.* You are certainly free to do otherwise.
*Subject to a couple of constraints:
1) I'm pretty confident interest rates in the USA won't go significantly negative for any length of time.
2) If the average interest rate on the national debt today was 15%, interest on the $21.2 trillion dollar debt ($3.18 trillion) would approximately equal total federal revenue from all sources, so the fed would either need to print money (extremely high inflation), or we'd need to default on the debt, neither of which seems good for bond holders.
I disagree with the premise that it will be high for a very very long time. The fed just dropped rates to 0 and that time was very very short in the grand scheme of things.
If you look at the relationship between the 10 and 30 we could assume 30year bonds would have peaked in the 80s around 12- 13 %. This beat the market if you'd bought one of those over the last 30years. So again explain to me why it has to stay high for a long long time and what would make it worse than equities.
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If you look at the relationship between the 10 and 30 we could assume 30year bonds would have peaked in the 80s around 12- 13 %. This beat the market if you'd bought one of those over the last 30years. So again explain to me why it has to stay high for a long long time and what would make it worse than equities.
So I'll note that you're now trying to change my position from what I said to one that is easier to argue with but has the disadvantage of not being one I feel any need to defend, since it's not something I ever said.
If you find 30 year bonds (without significant default risk, so let's constrain ourselves to us government bonds) with a yield of 15%, it means the as a whole is market is expecting inflation to stay high for a very, very long time.
I'd be happy to continue this discussion with you, but if you're going to be arguing with me about how I was wrong about things that I didn't say, it doesn't seem destined to be particularly productive, now does it?
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In the early 80's when US treasury bonds hit double-digits, nobody knew that inflation would not stay that high (or higher) for a very long time. We have the benefit of hindsight only now.
Had you bought Venezuelan bonds a while back when they were yielding 10-15%, you would have lost a significant amount of purchasing power by now. Conditions worsened instead of getting better, and the bonds now yield 33% in selective default.
You can buy 9y bonds from the government of Argentina right now yielding 17.47%, but I strongly advise against it. Their central bank rate is 40%!
http://www.worldgovernmentbonds.com (http://www.worldgovernmentbonds.com)
We in the U.S. enjoy hindsight bias when looking back at the 1980s as a great time to buy treasury bonds. Inflation does not always return to normal. It was not clear at the time that Volker's policy changes would work, when government policies had already failed to contain inflation for a decade.
Perhaps bonds from Egypt, Turkey, Argentina, Venezuela, Kenya, Uganda, or Brazil will pay off with stock market beating returns for the next 30 years. Investors who weathered the Greek panic 3 years ago were handsomely rewarded as yields have fallen from 15% to 4.57%. But good luck selecting the future's Greeks and not the future's Venezuelans.
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I agree hindsight is 20/20. But in general for FIRE we assume thing receed to the norm.
@maizeman you litterally said it means the market is expecting inflation rates to stay high for a very long time. To which I presented the counterpoint that the market just had an insanely low inflation and interest rate environment that we're still coming out of and I wouldn't call that a very long time so if it works in one extreme why not the other. And the 80s are a perfect example of a time it was very short in that window.
I agree we can't predict the future. But the examples of many of these other countries I don't think compare as much to the US. Maybe they do. I hope they never get there. But if they do it really doesn't matter if you're in bonds or equities at that point bc FIRE will be failing unless you make some great market timing moves. If we assume it's a very long time of high inflation.
In the us the fed works to control inflation to around 2-3%. If it's higher I assume they will work to bring it down and lower the opposite. Will what they do work we don't know but they are actively trying to control it.
And again o still go back to mortgage rates. Everyone who was paying down their mortgage the last few years kept making the point that it was the best risk free return and that banks are lending this low bc rates are gonna stay low for awhile. Why else would they lend so low. My bank calls me everyother week to try to get me to refi.out of my 3.25% 30 year rate.
Im probably not doing much if rates ever get that high but I think we all are having some interesting conversations here about rates. Just like we had some interesting conversations when they were at the other extreme and we could leverage that to our advantage. I guess the only real difference was if you locked in a rate on your mortgage. And rates continued lower you could always go refi in my case for free. With buying a bond if rates continue higher or stay the same you get screwed and you only benefit if things receed to the norm.
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I agree hindsight is 20/20. But in general for FIRE we assume thing receed to the norm.
We do have to assume inflation adjusted market returns will revert to historical norms. I don't know that we have to generalize that to all things.
@maizeman you litterally said it means the market is expecting inflation rates to stay high for a very long time.
Yes, that is indeed what I said. Do you not see the incredibly important difference between that and the way you described my position in your previous post?
To which I presented the counterpoint that the market just had an insanely low inflation and interest rate environment that we're still coming out of and I wouldn't call that a very long time so if it works in one extreme why not the other. And the 80s are a perfect example of a time it was very short in that window.
Absolutely the expectations of the market will be wrong sometimes.
In 1997, apple stock hit a new low at 13 1/16 a share. ($0.56/share diluting for future stock splits). Over the next 21 years the stock has provided a 31.1% CAGR.
The market clearly was wrong about the value of apple stock in 1997.
If apple stock is ever back to selling at $13 a share, I won't assume it means the market must be wrong again, or that, if the market is wrong, it will necessarily be wrong in the same direction and the same magnitude as last time Apple was selling for $13/shae.
It seems to me this is what you're doing with the one case in the historical record where the united states saw interest rates and inflation well into the double digits.
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I agree hindsight is 20/20. But in general for FIRE we assume thing receed to the norm.
We do have to assume inflation adjusted market returns will revert to historical norms. I don't know that we have to generalize that to all things.
@maizeman you litterally said it means the market is expecting inflation rates to stay high for a very long time.
Yes, that is indeed what I said. Do you not see the incredibly important difference between that and the way you described my position in your previous post?
To which I presented the counterpoint that the market just had an insanely low inflation and interest rate environment that we're still coming out of and I wouldn't call that a very long time so if it works in one extreme why not the other. And the 80s are a perfect example of a time it was very short in that window.
Absolutely the expectations of the market will be wrong sometimes.
In 1997, apple stock hit a new low at 13 1/16 a share. ($0.56/share diluting for future stock splits). Over the next 21 years the stock has provided a 31.1% CAGR.
The market clearly was wrong about the value of apple stock in 1997.
If apple stock is ever back to selling at $13 a share, I won't assume it means the market must be wrong again, or that, if the market is wrong, it will necessarily be wrong in the same direction and the same magnitude as last time Apple was selling for $13/shae.
It seems to me this is what you're doing with the one case in the historical record where the united states saw interest rates and inflation well into the double digits.
i was just posing the scenario of what if bonds got back to that level - i dont think THE US BOND MARKET is equivalent to a single stock this is not apples to apples. Apple may not be too big to fail but the US is pretty much too big too fail and if it does we have other issues regradless.
Nonetheless discussions will start if bonds and inflation get that high and i personally dont think its a large risk to put 5-10% of your portfolio into some 30 year notes when they are yielding higher than the average stock returns over 30 years. 10 years is a completely different story as i can see it taking over 10 years to get it back under control. but going for extended hyper inflation will criple the entire economy. likely the world economy as the US is one of the largest players in it.
we're already assuming it wont be worse than the worst of the past when we FIRE. so why not take advantage of an opporunity that presents itself. could it compound some sequencing risk yes but only mildly when its such a small percentage but thats the same thing some plan to do caring mortgages - except SORR for what will more than likely be a safer long term value of money.
on a side note have you seen Mr. Green's analysis on SORR i think you'd like it https://forum.mrmoneymustache.com/post-fire/chalanging-the-4-'rule'/msg2030250/#msg2030250
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@boarder42
Its interesting, I hit that moment where "money pours in from the heavens" at the same time I hit the point of "my time is worth more than anything you can pay me". My wife asked me "what if they offer you a lot more money to stay?". I thought about it and told her I'd probably need an up front, cash retention bonus of $300,000 to commit for another year, on top of what they'd pay me. I also thought I might always switch employers because people are "made whole" in the industry, but I wouldn't do that for the $300,000 - $400,000 plus one year waiting period just because my time is worth more.
yeah thats the paradox - when is your time more important. its funny b/c up until a year ago when i thought my bonus each year would be in the mid 5 digits when it maxed out i didnt really care - but apparently i love money too much still b/c i found out they would be in the 6 digits possibly in a couple years that flipped a switch where now i'm like - can i really leave all this money on the table. - i'm assuming if i drop to part time i wont get bonus growth to that level. on the flip side my golden handcuffs - ESOP - basically just continues to kill it whether i work 4 days a week or 3 days a week or 60 hours a week none of that effect the insane returns. so basically every hour worked in pursuit of 60-70k more in bonus in a couple years loses value each year at the compounding of the company stock. its really a tough mental battle i fight b/c i can see that 6 figure bonus - and right now i'm around 30. if i'd never been told this 6 digit light existed at the end of this tunnel i'd likely be having a convo with my boss in a couple weeks about dropping to 4 day weeks.
oh the struggles of the oversaving but not quite there early retiree
Its always going to be a difficult decision, you eventually have to look at what you have relative to your money needs/desires and decide when enough is enough. For us, we couldn't see how how I could ever want/need more than $2mil enough to continue working full time for someone else, doing some things I enjoy and some I really don't. Sure, I'm walking away from somewhere between $9mil and $13mil in additional earnings I could get over the next 27 years, but I can't find enough value in giving away/spending the money to exchange my time at this pace. I'll also end up picking up some income in early retirement, my skills are too valuable not to (and there are pieces I really enjoy)
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was just posing the scenario of what if bonds got back to that level - i dont think THE US BOND MARKET is equivalent to a single stock this is not apples to apples. Apple may not be too big to fail but the US is pretty much too big too fail and if it does we have other issues regradless.
So are you saying the entire US Bond market is a less efficient market (and hence less subject to the efficient market hypothesis) than the market for an individual stock? *eyebrow raise*
Because while I agree they aren't necessarily equivalent, if anything I'd think the US Bond market is more likely to be efficient than the market for an individual stock.
we're already assuming it wont be worse than the worst of the past when we FIRE. so why not take advantage of an opporunity that presents itself.
We're already assuming real market returns won't be worse than the worst observed in the past when we FIRE. I don't see why you're saying that assumption has to extend to other economic factors.
I'm confident FIREing without any solid assumptions about what inflation will do over the next 30 years. It sounds like we just disagree on this point. Which is perfectly okay.
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Oh, and on this great bond debate, consider using REITs as a nice "tweener" asset class. You have to pick specific ones, but they're already a fund themselves.
Yes, they went down even more than stocks in 2009, but that was due to the crash being a real estate driven crash, the good ones still paid their monthly/quarterly checks and did fine.
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was just posing the scenario of what if bonds got back to that level - i dont think THE US BOND MARKET is equivalent to a single stock this is not apples to apples. Apple may not be too big to fail but the US is pretty much too big too fail and if it does we have other issues regradless.
So are you saying the entire US Bond market is a less efficient market (and hence less subject to the efficient market hypothesis) than the market for an individual stock? *eyebrow raise*
Because while I agree they aren't necessarily equivalent, if anything I'd think the US Bond market is more likely to be efficient than the market for an individual stock.
we're already assuming it wont be worse than the worst of the past when we FIRE. so why not take advantage of an opporunity that presents itself.
We're already assuming real market returns won't be worse than the worst observed in the past when we FIRE. I don't see why you're saying that assumption has to extend to other economic factors.
I'm confident FIREing without any solid assumptions about what inflation will do over the next 30 years. It sounds like we just disagree on this point. Which is perfectly okay.
we're not just assuming the market will perform as it has - we're assuming the market will continue to perform as it has in relation to inflation - the WORST time to FIRE was 1966 this wasnt due to the markets specifically and was more effected by inflation - we are making many assumption not just equity return.
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Oh, and on this great bond debate, consider using REITs as a nice "tweener" asset class. You have to pick specific ones, but they're already a fund themselves.
Yes, they went down even more than stocks in 2009, but that was due to the crash being a real estate driven crash, the good ones still paid their monthly/quarterly checks and did fine.
in general i'm not a big fan of bonds and have considered using REITs in FIRE to dampen the downtimes in lieu of bonds. this was just a question on the lines of if it happened hopefully it never does but i think there will be some very indepth analysis done here when it does - we'll just have to wait and see i really dont care to debate it much longer as historically we dont have enough data to not just cherry pick the single time of hyper inflation when US treasury notes existed. if we had multiple cylces of it then we could actually analyze it.
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Oh, and on this great bond debate, consider using REITs as a nice "tweener" asset class. You have to pick specific ones, but they're already a fund themselves.
Yes, they went down even more than stocks in 2009, but that was due to the crash being a real estate driven crash, the good ones still paid their monthly/quarterly checks and did fine.
in general i'm not a big fan of bonds and have considered using REITs in FIRE to dampen the downtimes in lieu of bonds. this was just a question on the lines of if it happened hopefully it never does but i think there will be some very indepth analysis done here when it does - we'll just have to wait and see i really dont care to debate it much longer as historically we dont have enough data to not just cherry pick the single time of hyper inflation when US treasury notes existed. if we had multiple cylces of it then we could actually analyze it.
REITs can be more volatile in their repricing, but there are some REITs that to me are more stable than corporate bonds. I'd recommend being disciplined and buying them with limit orders over time. The entire asset class will get whacked by 10-15% right now when someone comes out and starts talking about interest rates. I have some I bought too high and some I bought 15% lower than where they are.
STAG is the closest one I can find to a diversified corporate bond index, their asset/tenant mix is incredible, carries minimal leverage, and pays a dividend monthly. Yield depends on the price you pay, but I've been a buyer anywhere from $23 to $27/share.
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Why do you need $40,000 a year to live on? That's $3,333.33 a month. I spent $3,087 last month and that included $1,384 in (yearly) taxes and $537 in (unexpected) medical bills. In April I spent $1,350. I live in Anchorage, Alaska; which has a higher than average cost of living.
Pay cash for a modest condo or small house in a low cost area. Have a small older car that you don't drive much. Don't eat out. Don't have a smart phone. Don't vacation every year. Don't buy fancy clothes.
I will retire when I have $500,000 and I will withdraw 4% a year, or $20,000. I will spend less than $1,500 a month, with $2,000 a year for unexpected expenses.
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I might have missed it, but it seems the most surface level argument against a 40k drawdown on 620k was missed. The 4% rule accounts for inflation whereas a 6.5%-with-7%-returns rule does not.
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I might have missed it, but it seems the most surface level argument against a 40k drawdown on 620k was missed. The 4% rule accounts for inflation whereas a 6.5%-with-7%-returns rule does not.
No. The long term CAGR of the stock market with dividends reinvested is close to 7% after accounting for inflation. Without inflation it'd be up above 9%.
The reason it's the 4% rule and not the 7% rule is because of the effects of volatility (sequence of returns risk), not because of inflation.
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Why do you need $40,000 a year to live on? That's $3,333.33 a month. I spent $3,087 last month and that included $1,384 in (yearly) taxes and $537 in (unexpected) medical bills. In April I spent $1,350. I live in Anchorage, Alaska; which has a higher than average cost of living.
Pay cash for a modest condo or small house in a low cost area. Have a small older car that you don't drive much. Don't eat out. Don't have a smart phone. Don't vacation every year. Don't buy fancy clothes.
I will retire when I have $500,000 and I will withdraw 4% a year, or $20,000. I will spend less than $1,500 a month, with $2,000 a year for unexpected expenses.
Good advice except for paying cash for where you live. That's shortsighted in today's interest rate environment. You're lowering your monthly expenses but increasing risk in almost all cases
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Good advice except for paying cash for where you live. That's shortsighted in today's interest rate environment. You're lowering your monthly expenses but increasing risk in almost all cases
Let me put it this way - I paid cash for my condo. If I had put it all in the stock market I would be a lot better off BUT with what I would have otherwise paid in rent or on a mortgage I would have drastically increased the risk of being homeless when life happened and I had no job and would not have been able to pay my rent or mortgage.
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Good advice except for paying cash for where you live. That's shortsighted in today's interest rate environment. You're lowering your monthly expenses but increasing risk in almost all cases
Let me put it this way - I paid cash for my condo. If I had put it all in the stock market I would be a lot better off BUT with what I would have otherwise paid in rent or on a mortgage I would have drastically increased the risk of being homeless when life happened and I had no job and would not have been able to pay my rent or mortgage.
You use the money you invested. It's pretty simple. Your fear is mostly unwarranted and highly improbable.
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Also, there's no guarantee of ANY real growth over a decade, as this shows no real growth (including dividends, inflation adjusted) in the S&P over a recent 13 year period:
https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973
Also from that thread:
Thanks for bringing it up DreamFIRE. I will add that it's happened numerous times.
Here are a couple more
Sept 1929 - Sept 1947, -.1% per year or -2% cumulative, with dividends, inflation adjusted. 18 years with negative real return.
Jan 1966 - Jan 1982, -1.4% per year or -20% cumulative, with dividends, inflation adjusted. 16 years with negative real return.
Jan 1906 - Jan 1921, -1.9% per year or -25% cumulative, with dividends, inflation adjusted. 15 years with negative real return.
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Those are 13-15 year periods people can point out. Looking back, I should have turned to "Barista FI" at $600,000, especially getting there in my early 30s. That leaves 35+ more years for the money to work for me while I just do enough in passion projects to support our $2,000 - $3,000/mo plus housing cost spending. The nice thing about projects is you can often create annuitized income when you don't have the immediate need for all the cash up front.
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y'all are making me want to barista, but I don't have $600k yet -_-
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y'all are making me want to barista, but I don't have $600k yet -_-
My issue with my current job is that people are stupid, barista means I really failed.
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Also, there's no guarantee of ANY real growth over a decade, as this shows no real growth (including dividends, inflation adjusted) in the S&P over a recent 13 year period:
https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973
Also from that thread:
Thanks for bringing it up DreamFIRE. I will add that it's happened numerous times.
Here are a couple more
Sept 1929 - Sept 1947, -.1% per year or -2% cumulative, with dividends, inflation adjusted. 18 years with negative real return.
Jan 1966 - Jan 1982, -1.4% per year or -20% cumulative, with dividends, inflation adjusted. 16 years with negative real return.
Jan 1906 - Jan 1921, -1.9% per year or -25% cumulative, with dividends, inflation adjusted. 15 years with negative real return.
These are cherry picked dates and even with that they are all positive when they are not inflation adjusted. A fixed rate mortgage would not be affected by inflation. When inflation is out of control a fixed rate mortgage is a huge hedge against inflation. https://dqydj.com/sp-500-return-calculator/
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Also, there's no guarantee of ANY real growth over a decade, as this shows no real growth (including dividends, inflation adjusted) in the S&P over a recent 13 year period:
https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973
Also from that thread:
Thanks for bringing it up DreamFIRE. I will add that it's happened numerous times.
Here are a couple more
Sept 1929 - Sept 1947, -.1% per year or -2% cumulative, with dividends, inflation adjusted. 18 years with negative real return.
Jan 1966 - Jan 1982, -1.4% per year or -20% cumulative, with dividends, inflation adjusted. 16 years with negative real return.
Jan 1906 - Jan 1921, -1.9% per year or -25% cumulative, with dividends, inflation adjusted. 15 years with negative real return.
These are cherry picked dates and even with that they are all positive when they are not inflation adjusted.
Simply stating times frames that the S&P had no gains is not cherry picking, it's simply stating the facts of what has happened in the past multiple times with specifics on the dates. Unless you have a compelling argument why you think it can never happen again, then it's something to keep in mind.
A fixed rate mortgage would not be affected by inflation. When inflation is out of control a fixed rate mortgage is a huge hedge against inflation.
I never said anything about a mortgage, and neither did the OP. If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.
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I mess around with all of my accounts on an excel sheet I made and found out the following:
Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.
Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?
Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.
The scary thing that I see with a lot of people is that they do not fully understanding what their expenses are going to be in the future. I think that is the number one thing to do. Once you have that then you can figure out how much you will need to support that lifestyle.
If you are single are you saving enough for a spouse, or are they expected to continue to work while you are retired? Do you have parents/family that may need help in the future? Do you have enough fluff in your budget to take advantage of the amazing changes that technology will be bringing us.
For a lot of people, employer benefits are significant. If you are paying $350 a month for medical, your employer is probably subsidizing in excess of a $1,000 a month for a family plan. As a business owner with a family I pay over $25,000 for medical, dental, and vision. My employees pay $4,000. Many would say that you could get subsidized ACA insurance. How stable do you think this is? I would probably budget at least $15k for a family for medical expenses.
If your employer is providing you with a cell phone, gym membership, Costco membership, credit card mileage points, etc. Make sure that you are truly figuring out what all of these are going to cost when they stop paying for them.
The other significant area is that when you are young and spry, you can do everything. Moving a house can be done on your back. When you are 45 you value your back more. Your health, teeth, eyes, and everything are great when you are under 30. As you age, expect the costs to go up.
I think MMM sometimes paints a glamourous ideal that since we are Mustachian that we can do everything until we die. As someone who is in his 40's, I can see more medical expenses, more hiring out physical work, and more expenses that you would not imagine when you are young. Your brain slows down. My father was the President of a sizable company. My parents are 80 and use an asset advisor. On MMM we would say that is stupid. Based on their cognitive abilities, I think that is a good safeguard of their assets. Losing 1%, so they don't do stupid financial mistakes is genius.
MMM's budget has also exploded with wastefulness according to him. He is getting older, he is like 44. He has not experienced putting kids through college, helping out with a wedding, house, and all of the other things that are going to pop up. Even in elementary through high school there are tons of expenses that pop up.
For professionals you have one shot at banking the money. Once you have been out of the workforce for 15 years, you will not command the premium that you do at the height of your career. Make sure that you have truly figured out what the future holds.
Lastly, the sequence of risk and the amazing success that our country has had over the past 100 years may provide rosier models than what the future holds. Your retirement is going to effect how much you will receive in Social Security payments for the rest of your life. SS is projected to only be able to pay out 75% in the future. Will our government shore up this program or will they let it wither?
Lots of unknowns!! It should be exciting! Make sure you have the ammunition to weather what life throws you.
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I never said anything about a mortgage, and neither did the OP. If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.
Go get a 30 year fixed rate mortgage and your inflation risk is gone.
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Jeez tom, way to be a party pooper.
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I never said anything about a mortgage, and neither did the OP. If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.
Go get a 30 year fixed rate mortgage and your inflation risk is gone.
LOL. I wouldn't consider it. My mortgage lasted less than 2 years, and that was 15 some years ago! The 30 year mortgage rate back when I bought my house was even higher than the mortgage I had gotten and paid off. I think some of you think mortgage rates have always been in the 3 to 4% range. Mine was more than double that.
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I never said anything about a mortgage, and neither did the OP. If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.
Go get a 30 year fixed rate mortgage and your inflation risk is gone.
LOL. I wouldn't consider it. My mortgage lasted less than 2 years, and that was 15 some years ago! The 30 year mortgage rate back when I bought my house was even higher than the mortgage I had gotten and paid off. I think some of you think mortgage rates have always been in the 3 to 4% range. Mine was more than double that.
Seems extremely shortsighted and head in the sand to present an issue be presented with a solution and just say no. That is if you actually care about historical data.
His point wasn't go get a mortgage from when you had one his point was go get a new fucking mortgage now. If you actually care about solving the problem you presented above. I know you don't bc from other posts here you've extremely oversaved to protect against nothing that's ever happened.
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^ =D
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I never said anything about a mortgage, and neither did the OP. If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.
Go get a 30 year fixed rate mortgage and your inflation risk is gone.
LOL. I wouldn't consider it. My mortgage lasted less than 2 years, and that was 15 some years ago! The 30 year mortgage rate back when I bought my house was even higher than the mortgage I had gotten and paid off. I think some of you think mortgage rates have always been in the 3 to 4% range. Mine was more than double that.
Seems extremely shortsighted and head in the sand to present an issue be presented with a solution and just say no. That is if you actually care about historical data.
I wasn't asking or needing a solution to a mortgage I paid off some 15 years ago. I stated above about a recent time period (and others) where there were no real gains in the S&P over 13+ years. And this was based on historical data! I never referenced anything about mortgages. That was brought up in tom's first response to me. Heck, 15 years ago, I wasn't even thinking about FIRE. I figured I would work until the full retirement age of 67.
His point wasn't go get a mortgage from when you had one his point was go get a new fucking mortgage now.
He responded to me after I provided the fucking historical time frames in a previous post, and again after I said I had paid my mortgage off 15 years ago. I don't need a mortgage now. And I might be selling my house in another year with no plans to buy another one anytime soon. I've mentioned this in previous threads. Several years from now, who knows.
If you actually care about solving the problem you presented above.
I have no problem to solve. I was merely pointing out some historical data. He said I was cherry picking data and started talking about mortgages.
I know you don't bc from other posts here you've extremely oversaved to protect against nothing that's ever happened.
I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
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I look back and think I was faced with two options, both of which would create regret: Will I wonder if I ever could have climbed the corporate ladder one more, to the job I thought I always wanted? or, Will I regret not taking off and moving to the beach and picking up enough part-time work to cover basic living expenses.
FI doesn't have to mean grinding it out in a cubicle or office for 15-20 years, once you get to that critical mass you can really scale back
So, do you regret not moving to the beach?
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I look back and think I was faced with two options, both of which would create regret: Will I wonder if I ever could have climbed the corporate ladder one more, to the job I thought I always wanted? or, Will I regret not taking off and moving to the beach and picking up enough part-time work to cover basic living expenses.
FI doesn't have to mean grinding it out in a cubicle or office for 15-20 years, once you get to that critical mass you can really scale back
So, do you regret not moving to the beach?
To an extend, but who knows how much I'd feel if I didn't try to do a role that I'd always wanted (I also happen to be damn good at that job too). "What if's" are a dangerous line of thought!
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
Yeah, that's what they call a "one trick pony".
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
Each and every negative stock US stock market return has corresponded to high inflation. If people had a mortgage, a large portion of their expenses would be shielded by a low rate 30 year fixed mortgage. The fact that some people fail to see this gift from the government is baffling. Rates are moving up but nothing like historical averages. Use cfiresim or firecalc to figure out how much safer you are having a 4% 30 year fixed rate mortgage when you are retired.
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
bull shit I know much more that mortgages but the number of people who apply emotion to mortgages like its some special little candle that no one can blow out is baffling when the hinderance on both RE and time to RE are immense in most cases.
if you ever care to go toe to toe and savings withdrawals and tax strategies let me know.
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
Yeah, that's what they call a "one trick pony".
and you can both quit the personal attacks btw - my attacks were on your ideas not anything else. you're attacking me in these posts - not my ideas.
and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.
so please quit.
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Why do you need $40,000 a year to live on? That's $3,333.33 a month. I spent $3,087 last month and that included $1,384 in (yearly) taxes and $537 in (unexpected) medical bills. In April I spent $1,350. I live in Anchorage, Alaska; which has a higher than average cost of living.
Pay cash for a modest condo or small house in a low cost area. Have a small older car that you don't drive much. Don't eat out. Don't have a smart phone. Don't vacation every year. Don't buy fancy clothes.
I will retire when I have $500,000 and I will withdraw 4% a year, or $20,000. I will spend less than $1,500 a month, with $2,000 a year for unexpected expenses.
$40,000 would be far more than I would need, again this was more of a hypothetical exercise than a plan of mine.
The point of my numbers, was to give an extremely easy withdraw number to hit or go below ($40,000) and see what number you would have to stash away at 7% return to have your stash keep growing without contributing to it anymore. I selected $40,000 because I understand that 7% won't happen every year and this would give room to lower withdraw number to match returns.
I love your post though, I agree with everything you said in regards to spending. My only major expense at the moment is daycare!
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I understand how powerful all tax advantaged accounts are and am utilizing them to the best of my abilities. But with a combined gross of $120,000 (again, very LCOLA), and two children, throwing $48,000 at retirement accounts doesn't seem too realistic at this point in our lives.
And you did answer my question, and I thank you for that. From a numbers point of view, if flexible ($25K-$40K withdraw) retiring on $620,000 has a 91% chance of succeeding.
If you think you can live on 25-40k in retirement, why is maxing your retirement accounts on 120k a year in a LCOLA unrealistic? Maybe if you are trying to Roth everything, including 401ks, but if you choose traditional 401k plus Roths and HSAs on the side you can shelter plenty from taxes and get the full advantage of the child tax credit (if that still exists), etc.
We currently have a $1,400 mortgage, $9,500 a year in daycare expenses, saving $200 a month for 529's, 3 years left on 0% interest car payment, etc. Our current annual savings with 401K/HSA/IRA's are at circa $25,000 a year. Even with the majority being tax deferred, a 50% savings rate at $54,000 would be stretching it.
At the age of 55, we won't have any mortgage/any other debt/college expenses etc. so expenses will be quite low. Also maxing out HSA so health care should be more than covered.
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I selected $40,000 because I understand that 7% won't happen every year and this would give room to lower withdraw number to match returns.
Sure it won't happen every year, and we've had occurrences of no net real gain for well over a decade, which was what I was stating a few posts back based on historical data.
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
Yeah, that's what they call a "one trick pony".
and you can both quit the personal attacks btw - my attacks were on your ideas not anything else. you're attacking me in these posts - not my ideas.
and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.
so please quit.
You can relax. My comment wasn't meant as an attack, but I wasn't the one who brought up the commentary about a mortgage. I'm well aware of the math involved if I actually needed one.
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
Yeah, that's what they call a "one trick pony".
and you can both quit the personal attacks btw - my attacks were on your ideas not anything else. you're attacking me in these posts - not my ideas.
and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.
so please quit.
You can relax. My comment wasn't meant as an attack, but I wasn't the one who brought up the commentary about a mortgage. I'm well aware of the math involved if I actually needed one.
I didn't bring it up either but you replied to someone who did with a comment of ignorance. That would not indicate you understood it. I still find it absolutely hilarious when people say i understand the math yet do the opposite. It may be the absolute worst thing on this forum a thread dedicated to likely one of the top 3 things one can do to fire earlier and be safer post re but I'm glad y'all get the math.
I believe name calling is in rule one regardless of your intent of was an attack on my knowledge.
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
Yeah, that's what they call a "one trick pony".
and you can both quit the personal attacks btw - my attacks were on your ideas not anything else. you're attacking me in these posts - not my ideas.
and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.
so please quit.
You can relax. My comment wasn't meant as an attack, but I wasn't the one who brought up the commentary about a mortgage. I'm well aware of the math involved if I actually needed one.
I didn't bring it up either but you replied to someone who did with a comment of ignorance. That would not indicate you understood it. I still find it absolutely hilarious when people say i understand the math yet do the opposite. It may be the absolute worst thing on this forum a thread dedicated to likely one of the top 3 things one can do to fire earlier and be safer post re but I'm glad y'all get the math.
No, my comment was providing historical data where there were times of no net real gains in the S&P500 over more than a decade. It was not about mortgages. I've never had a mortgage when rates were near this low nor am I looking to purchase a home now. Just selling soon. So I certainly didn't "do the opposite" because I haven't had that choice to make. My S&P data was correct, and again related to the OP's recent comment.
You mischaracterized my reason for saving, so I hope I got you straightened out about that.
I believe name calling is in rule one regardless of your intent of was an attack on my knowledge.
I never actually called you a name. I was responding to another poster stating that's what they call someone who only knows and talks about one thing. So unless that applies to you, then I must have not been talking about you. Anyway, welcome to the interwebs. Take a few deep breaths. Everything will be ok.
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I never said anything about a mortgage, and neither did the OP.
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I don't care about solving a problem that I don't fucking have. That's MY point. It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year. I don't regret that. But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.) There's nothing I'm lusting after. I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working. I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year. Everything is fine.
Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.
Each and every negative stock US stock market return has corresponded to high inflation. If people had a mortgage, a large portion of their expenses would be shielded by a low rate 30 year fixed mortgage. The fact that some people fail to see this gift from the government is baffling. Rates are moving up but nothing like historical averages. Use cfiresim or firecalc to figure out how much safer you are having a 4% 30 year fixed rate mortgage when you are retired.
I'll just clarify this point. I live in Australia and we have a mortgage system that is actually somewhat resembling the free market. Your points are completely invalidated if you have mortgages that are true to market. No fool would make a 30 year bet that interest rates will remain at 2%. That means that at some point you would think the government gets out of the business and then you will have mortgage rates that move with the market and the market won't offer 30 year fixed term loans. So although what you are stating may be accurate it may actually fail over the time period that you are considering.
The analysis that is being completed by people who love mortgages to me is simply not well thought through. In my opinion it's a clear case of the people who stress this idea not actually having the knowledge to understand what they are prescribing.
It may work out okay but it may not. For me personally the idea of retaining a mortgage makes no sense at all. I'd much rather not try and leverage my mortgage to potentially increase returns especially in the markets that are available to me today. There is no such thing as a 30 year fixed mortgage in Australia (and no country with a mortgage system that is based on the free market). I have heard of 10 year fixed rates but I haven't seen a large financial institution do this. The maximum term is 5 years. If you want to re-fix your loan you also will have to pay a penalty to pay back the costs incurred to the bank of breaking that term. That is how mortgage markets work without government intervention.
I should add that I'm cool with people doing whatever they want when it comes to using mortgage debt to finance their investments.
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Yeah Australia is different thanks for analysis that doesn't pertain to the conversation.
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Children! Be nice to one another!
Yes, the government-subsidized mortgages in the U.S. are a gift to homeowners. Mine is 3.625% for 30 years, which is negligible in the context of compound inflation. A ratty apartment rented at the price of my mortgage payment would be a third to a half the size of my home. Yet somebody at some point invested on the assumption that buying my mortgage was the best risk-adjusted real return they could obtain. Not only that, but the national debt taken on by the U.S. government to subsidize my mortgage makes inflation all the more likely. The net result is McMansions, overpriced housing markets, and probably a national debt crisis someday. In such an environment, the average Aussie would probably choose to be a subsidized seller of debt too.
Given the much less favorable borrowing environment in Australia, I'm a bit surprised to see real estate prices so far beyond economic fundamentals. Perhaps this market is propped up by money laundering, like in London and Vancouver. Maybe local laws are set up to restrict housing supply, like in California. Or perhaps the legendary stability of the Australian economy (due partially to not subsidizing shit like McMansions so much) earns a pricing premium in itself.
For me, mortgage payoff is not a priority. If I was to move to Australia (which is looking like a better and better idea with each news headline here in the States), my priorities might change with the incentives.
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In the context of this thread though I don't think it's really about having a mortgage and let's be honest you don't need to have a mortgage. This is really just a discussion about withdrawal rates and mortgages aren't really going to make a huge difference when it comes to amending your WR.
So maybe the discussion on mortgages should be left to a thread that is about having mortgages.
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When discussing inflation effect on withdrawal rates a mortgage absolutely effects it. And helps immensely
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In the context of this thread though I don't think it's really about having a mortgage and let's be honest you don't need to have a mortgage. This is really just a discussion about withdrawal rates and mortgages aren't really going to make a huge difference when it comes to amending your WR.
So maybe the discussion on mortgages should be left to a thread that is about having mortgages.
Agreed. Some people really like to talk about mortgages, though.
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In the context of this thread though I don't think it's really about having a mortgage and let's be honest you don't need to have a mortgage. This is really just a discussion about withdrawal rates and mortgages aren't really going to make a huge difference when it comes to amending your WR.
So maybe the discussion on mortgages should be left to a thread that is about having mortgages.
Agreed. Some people really like to talk about mortgages, though.
For the record you brought up inflation. Mortgages are the best inflation hedge.
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In the context of this thread though I don't think it's really about having a mortgage and let's be honest you don't need to have a mortgage. This is really just a discussion about withdrawal rates and mortgages aren't really going to make a huge difference when it comes to amending your WR.
So maybe the discussion on mortgages should be left to a thread that is about having mortgages.
Agreed. Some people really like to talk about mortgages, though.
For the record you brought up inflation. Mortgages are the best inflation hedge.
I didn't bring up inflation itself, I brought up some info on historical real negative gains during specific lengthy time periods, which happens to include inflation as part of the calculation, so I simply pointed that out. This was in relationship to the OP stating 7% yearly gains on investments in stocks, not in relationship to a mortgage.
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Good so we agree you brought up inflation. Thanks for clarifying it for those who don't know what real returns are.
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Good so we agree you brought up inflation. Thanks for clarifying it for those who don't know what real returns are.
Actually, we don't agree at all. Reread my last post. Simply bringing up real gains (which happen to account for inflation - basically just defined what real gains were) does not mean you are actually discussing inflation itself. That's quite the leap to make, and I could make some interesting analogies based on neck bones being connected to other bones and such. In fact, it's possible for real gain results to be the result of no inflation or negative inflation (deflation).
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Good so we agree you brought up inflation. Thanks for clarifying it for those who don't know what real returns are.
Actually, we don't agree at all. Reread my last post. Simply bringing up real gains (which happen to account for inflation - basically just defined what real gains were) does not mean you are actually discussing inflation itself. That's quite the leap to make, and I could make some interesting analogies based on neck bones being connected to other bones and such. In fact, it's possible for real gain results to be the result of no inflation or negative inflation (deflation).
The specific time frames you brought up had poor real gains primarily due to inflation which as tomsang pointed out is mitigated by a low fixed rate mortgage. If you cant see those very simple links in that data I can't help you here.
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Good so we agree you brought up inflation. Thanks for clarifying it for those who don't know what real returns are.
Actually, we don't agree at all. Reread my last post. Simply bringing up real gains (which happen to account for inflation - basically just defined what real gains were) does not mean you are actually discussing inflation itself. That's quite the leap to make, and I could make some interesting analogies based on neck bones being connected to other bones and such. In fact, it's possible for real gain results to be the result of no inflation or negative inflation (deflation).
The specific time frames you brought up had poor real gains primarily due to inflation which as tomsang pointed out is mitigated by a low fixed rate mortgage.
Ummm.... not quite. Inflation was not high during the 1999 to 2012 period that I personally calculated and linked to.
https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973
The annualized gain over 13+ years was still very low at 1.746% when excluding the inflation adjustment.
Inflation was not high during that time span - looks like less than 3% per year on average. Any more excuses?
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Can we return to the subject please?
In your opinion, what category does ER on let's say 600-650K fall under? Assuming it's for a single person retiring early, no pension other than Social Security (if it still exists by the time the person is eligible). Willing to use geo arbitrage to lower costs in the US and/or internationally. Willing to look for side gigs or temp jobs to avoid portfolio failure but not counting on them as a base case scenario.
-Early Retirement Extreme category. Possible to retire but too risky by MMM standards (and laughable for a Boglehead)
-Lean Fire. A respectable amount by MMM standards but cutting it close. Ideally need more but can RE if you really want to.
-Pretty normal FIRE nest egg for a Mustachian.
What yearly withdrawal amount or range would you be comfortable with if you were going to retire with a $600-650K 'stache?
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In the context of this thread though I don't think it's really about having a mortgage and let's be honest you don't need to have a mortgage. This is really just a discussion about withdrawal rates and mortgages aren't really going to make a huge difference when it comes to amending your WR.
So maybe the discussion on mortgages should be left to a thread that is about having mortgages.
I think the mortgage decision is a big factor for people retiring on a lean budget and relatively small stache - the subject of this otherwise wandering thread.
To illustrate, imagine having a portfolio of $650k, no home equity, and spending of $32,500 ($19.5k core spending + $13k payments on a 30y mortgage at ~5.1% = $32.5k).
Scenario A:
You keep the mortgage. Your $650k net worth consists of $650k in a 70/30 portfolio. Spending is $32.5k (mortgage included) or 5% of portfolio assets ($650k).
Scenario B:
You pay off the mortgage. Your $650k net worth now consists of $450k in a 70/30 portfolio plus $200k home equity. Spending is $19.5k (with no mortgage) or 4.3% of portfolio assets ($450k).
Which portfolio is more likely to survive a deep recession, Japan scenario, high inflation, etc? I would argue Scenario A has the potential for faster growth if investments consistently return better than the mortgage interest rate, but Scenario B is probably more resilient and lower risk due to the lower WR.
If I was to retire at a WR above 4%, I would scrutinize my housing finance decision very carefully. It is a risk/reward calculation: can my investments outperform my mortgage interest rate forever? Retiring mortgaged involves risk arbitrage between my risk-free mortgage interest rate and the yield on risky assets.
Remember, the Trinity study and most spin-off studies are only looking at portfolio value and spending rate. Home equity counts for nothing in this framework unless it eliminates some spending, as in Scenario B. In reality, the paid-off house could create opportunities for portfolio rescue down the road, such as selling and moving to a rental, taking out a mortgage or reverse mortgage, HELOCs, under-insuring, etc... It also creates risks, such as not being able to leave the house with your lender if its value decreases, your equity turns negative, and must move due to external factors (e.g. lava flows, Love Canal scenario, civil instability).
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Can we return to the subject please?
In your opinion, what category does ER on let's say 600-650K fall under? Assuming it's for a single person retiring early, no pension other than Social Security (if it still exists by the time the person is eligible). Willing to use geo arbitrage to lower costs in the US and/or internationally. Willing to look for side gigs or temp jobs to avoid portfolio failure but not counting on them as a base case scenario.
-Early Retirement Extreme category. Possible to retire but too risky by MMM standards (and laughable for a Boglehead)
-Lean Fire. A respectable amount by MMM standards but cutting it close. Ideally need more but can RE if you really want to.
-Pretty normal FIRE nest egg for a Mustachian.
What yearly withdrawal amount or range would you be comfortable with if you were going to retire with a $600-650K 'stache?
MMM retired on about $650k plus an owned-outright home.
I would call it a Lean Fire, particularly at today's CAPE and especially if full home ownership is not included in addition to the 600-650k.
Most Mustachians on this forum seem to be aiming for >$1M portfolios, but many of them are not single.
I would be comfortable at a 4% WR as a single or as a family.
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MMM retired on about $650k plus an owned-outright home.
MMM had a mortgage for a year or two after he retired. His website and other income was so great that he finally paid it off.
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I guess of those choices, I'd call it a lean FIRE.
Really though, I think it's a perfect scenario for someone whose skills lend themselves to consulting or other part time work, or who has reason to feel confident they can get some sort of part-time gig that won't overly impede their version of the FIRE dream. (I'm a big proponent of substitute teacher as a post-FIRE supplemental job, for example, because most places don't require a lot more than a college degree and a basic test, it pays a semi-decent amount, and the schedule is 100% flexible, which is the most important part in my mind. Want to travel? Tired and feel like lazing? Working on a large project on your home or garden? Don't take work that day.) Making $6-10k in a year should be pretty easy and low stress, but allows for so much more security, and it can be scaled up during down markets, especially early on, to mitigate against SoR risks. I'd be entirely comfortable doing that if $40k was a pretty accurate spend for me. But no way would I rely on a 7% SWR.
And really, this is kind of what MMM did. He retired at that low number but kept working and brought in supplemental money. It just so happens that in his case, the supplement because more than the stache withdraw.
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Can we return to the subject please?
In your opinion, what category does ER on let's say 600-650K fall under? Assuming it's for a single person retiring early, no pension other than Social Security (if it still exists by the time the person is eligible). Willing to use geo arbitrage to lower costs in the US and/or internationally. Willing to look for side gigs or temp jobs to avoid portfolio failure but not counting on them as a base case scenario.
-Early Retirement Extreme category. Possible to retire but too risky by MMM standards (and laughable for a Boglehead)
-Lean Fire. A respectable amount by MMM standards but cutting it close. Ideally need more but can RE if you really want to.
-Pretty normal FIRE nest egg for a Mustachian.
What yearly withdrawal amount or range would you be comfortable with if you were going to retire with a $600-650K 'stache?
The thing is that these categories are going to differ for different people.
How much you feel you need to live on is an entirely personal question. How much you need saved is also personal because for some people, continuing to work to build a buffer is no big deal because they enjoy their jobs, and for others pulling the plug at very low numbers is fine because they feel comfortable with generating more income in the future if necessary.
You mention being willing to work if needed, but that’s such a vague statement.
For some people, they don’t have skills or experience that lend well to picking up work in retirement, others can easily generate their entire year spending with just their hobbies.
The range of realities is vast.
A little snap shot of how much someone has saved isn’t nearly enough to determine how successful their retirement plan is likely to be.
Not to mention, in down years (think 2008), jobs are hard to come by. Labor gets squeezed as unemployment rates rise. So going back to work may not be the simple exercise one envisions. A friend of mine got laid off from his law firm in 2008 (after more than a decade of being there). It took him more than 18 months to find employment -- in a state 1,000 miles away. He was stressed as a motherfucker, and had to spend down savings just to make ends meet. Also, his house went underwater. When people toss out the "I'll just go back to work if things aren't going well (in all likelihood because of a bad economy)" line, well, just call me skeptical.
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Can we return to the subject please?
In your opinion, what category does ER on let's say 600-650K fall under? Assuming it's for a single person retiring early, no pension other than Social Security (if it still exists by the time the person is eligible). Willing to use geo arbitrage to lower costs in the US and/or internationally. Willing to look for side gigs or temp jobs to avoid portfolio failure but not counting on them as a base case scenario.
-Early Retirement Extreme category. Possible to retire but too risky by MMM standards (and laughable for a Boglehead)
-Lean Fire. A respectable amount by MMM standards but cutting it close. Ideally need more but can RE if you really want to.
-Pretty normal FIRE nest egg for a Mustachian.
What yearly withdrawal amount or range would you be comfortable with if you were going to retire with a $600-650K 'stache?
The thing is that these categories are going to differ for different people.
How much you feel you need to live on is an entirely personal question. How much you need saved is also personal because for some people, continuing to work to build a buffer is no big deal because they enjoy their jobs, and for others pulling the plug at very low numbers is fine because they feel comfortable with generating more income in the future if necessary.
You mention being willing to work if needed, but that’s such a vague statement.
For some people, they don’t have skills or experience that lend well to picking up work in retirement, others can easily generate their entire year spending with just their hobbies.
The range of realities is vast.
A little snap shot of how much someone has saved isn’t nearly enough to determine how successful their retirement plan is likely to be.
Not to mention, in down years (think 2008), jobs are hard to come by. Labor gets squeezed as unemployment rates rise. So going back to work may not be the simple exercise one envisions. A friend of mine got laid off from his law firm in 2008 (after more than a decade of being there). It took him more than 18 months to find employment -- in a state 1,000 miles away. He was stressed as a motherfucker, and had to spend down savings just to make ends meet. Also, his house went underwater. When people toss out the "I'll just go back to work if things aren't going well (in all likelihood because of a bad economy)" line, well, just call me skeptical.
Sure, if one is looking for work as a lawyer, and *only* as a lawyer. (Feel free to substitute pretty much any other profession, too.) And if one requires a huge salary. But it is it just a case of needing some extra cash to minimize withdraws, first most people are going to have fat in the budget they can trim. Nix the vacation and add an extra meatless meal each week. But second, they aren't going to need $100k, or even $30k. They still have a stache, they are just looking to lower the withdraw rate during a down market. So even making $5-8k would make a significant difference. And that can be pretty easy. It could even mean just cobbling together a bunch of small things. Walk a neighbors dog or pet sit while they are on vacation. Baby sit occasionally. Mow a lawn. Get seasonal retail work. Stalk garage sales and do some reselling. Turn a crafting (or other) hobby into a small side gig. Drive an old lady to the doctor and pick up her groceries and prescriptions. Or change her light bulbs and fix her leaking faucet. Making a lot of money would be hard in a down market. Making an average of a hundred dollars a week? Easy.
Your friend was stressed as a mother fucker because he needed to replace a huge salary in a very specific profession. Someone who is FIREd and just hits a down market only needs to smooth out the edges temporarily, which means any work, no matter how badly paid or random or piecemeal, will be plenty to ride out the storm, especially if paired with budget trimming.
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Can we return to the subject please?
In your opinion, what category does ER on let's say 600-650K fall under? Assuming it's for a single person retiring early, no pension other than Social Security (if it still exists by the time the person is eligible). Willing to use geo arbitrage to lower costs in the US and/or internationally. Willing to look for side gigs or temp jobs to avoid portfolio failure but not counting on them as a base case scenario.
-Early Retirement Extreme category. Possible to retire but too risky by MMM standards (and laughable for a Boglehead)
-Lean Fire. A respectable amount by MMM standards but cutting it close. Ideally need more but can RE if you really want to.
-Pretty normal FIRE nest egg for a Mustachian.
What yearly withdrawal amount or range would you be comfortable with if you were going to retire with a $600-650K 'stache?
The thing is that these categories are going to differ for different people.
How much you feel you need to live on is an entirely personal question. How much you need saved is also personal because for some people, continuing to work to build a buffer is no big deal because they enjoy their jobs, and for others pulling the plug at very low numbers is fine because they feel comfortable with generating more income in the future if necessary.
You mention being willing to work if needed, but that’s such a vague statement.
For some people, they don’t have skills or experience that lend well to picking up work in retirement, others can easily generate their entire year spending with just their hobbies.
The range of realities is vast.
A little snap shot of how much someone has saved isn’t nearly enough to determine how successful their retirement plan is likely to be.
Not to mention, in down years (think 2008), jobs are hard to come by. Labor gets squeezed as unemployment rates rise. So going back to work may not be the simple exercise one envisions. A friend of mine got laid off from his law firm in 2008 (after more than a decade of being there). It took him more than 18 months to find employment -- in a state 1,000 miles away. He was stressed as a motherfucker, and had to spend down savings just to make ends meet. Also, his house went underwater. When people toss out the "I'll just go back to work if things aren't going well (in all likelihood because of a bad economy)" line, well, just call me skeptical.
18 months isnt a very long time and a Mustachian wont be stressed b/c they have piles of cash. even in the worst cases with a mortgage it takes the perfect storm of events and you still have 10 years before you're out of money completely.
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There's a lot of faith that a side gig could weather a bad sequence of returns. ERN has some things to say about that.
https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/ (https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/)
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There's a lot of faith that a side gig could weather a bad sequence of returns. ERN has some things to say about that.
https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/ (https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/)
and my favorite side gig thrives in economic down turns - buying shit and reselling it on craigslist - the economy is so good right now people really arent shopping for deals they're just spending money. took me a bit to realize that over the last year an a half so i put it on the back burners.
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There's a lot of faith that a side gig could weather a bad sequence of returns. ERN has some things to say about that.
https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/ (https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/)
and my favorite side gig thrives in economic down turns - buying shit and reselling it on craigslist - the economy is so good right now people really arent shopping for deals they're just spending money. took me a bit to realize that over the last year an a half so i put it on the back burners.
That's a really astute observation, b42. I suppose that in a good economy people also let go of stuff cheaply or even give it away. Do you see any opportunities for a little judicious stockpiling?
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There's a lot of faith that a side gig could weather a bad sequence of returns. ERN has some things to say about that.
https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/ (https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/)
and my favorite side gig thrives in economic down turns - buying shit and reselling it on craigslist - the economy is so good right now people really arent shopping for deals they're just spending money. took me a bit to realize that over the last year an a half so i put it on the back burners.
That's a really astute observation, b42. I suppose that in a good economy people also let go of stuff cheaply or even give it away. Do you see any opportunities for a little judicious stockpiling?
could be for some smaller items that were easily stored.
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Can we return to the subject please?
In your opinion, what category does ER on let's say 600-650K fall under? Assuming it's for a single person retiring early, no pension other than Social Security (if it still exists by the time the person is eligible). Willing to use geo arbitrage to lower costs in the US and/or internationally. Willing to look for side gigs or temp jobs to avoid portfolio failure but not counting on them as a base case scenario.
-Early Retirement Extreme category. Possible to retire but too risky by MMM standards (and laughable for a Boglehead)
-Lean Fire. A respectable amount by MMM standards but cutting it close. Ideally need more but can RE if you really want to.
-Pretty normal FIRE nest egg for a Mustachian.
What yearly withdrawal amount or range would you be comfortable with if you were going to retire with a $600-650K 'stache?
The thing is that these categories are going to differ for different people.
How much you feel you need to live on is an entirely personal question. How much you need saved is also personal because for some people, continuing to work to build a buffer is no big deal because they enjoy their jobs, and for others pulling the plug at very low numbers is fine because they feel comfortable with generating more income in the future if necessary.
You mention being willing to work if needed, but that’s such a vague statement.
For some people, they don’t have skills or experience that lend well to picking up work in retirement, others can easily generate their entire year spending with just their hobbies.
The range of realities is vast.
A little snap shot of how much someone has saved isn’t nearly enough to determine how successful their retirement plan is likely to be.
Not to mention, in down years (think 2008), jobs are hard to come by. Labor gets squeezed as unemployment rates rise. So going back to work may not be the simple exercise one envisions. A friend of mine got laid off from his law firm in 2008 (after more than a decade of being there). It took him more than 18 months to find employment -- in a state 1,000 miles away. He was stressed as a motherfucker, and had to spend down savings just to make ends meet. Also, his house went underwater. When people toss out the "I'll just go back to work if things aren't going well (in all likelihood because of a bad economy)" line, well, just call me skeptical.
18 months isnt a very long time and a Mustachian wont be stressed b/c they have piles of cash. even in the worst cases with a mortgage it takes the perfect storm of events and you still have 10 years before you're out of money completely.
Piles of cash??? There are legions of people in these forums talking of retiring with 25x $25,000/year, ACA coverage, etc. That is not piles of cash IMHO, and many of those people will be one calamity away from going broke.
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There's a lot of faith that a side gig could weather a bad sequence of returns. ERN has some things to say about that.
https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/ (https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/)
Good article.
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Can we return to the subject please?
In your opinion, what category does ER on let's say 600-650K fall under? Assuming it's for a single person retiring early, no pension other than Social Security (if it still exists by the time the person is eligible). Willing to use geo arbitrage to lower costs in the US and/or internationally. Willing to look for side gigs or temp jobs to avoid portfolio failure but not counting on them as a base case scenario.
-Early Retirement Extreme category. Possible to retire but too risky by MMM standards (and laughable for a Boglehead)
-Lean Fire. A respectable amount by MMM standards but cutting it close. Ideally need more but can RE if you really want to.
-Pretty normal FIRE nest egg for a Mustachian.
What yearly withdrawal amount or range would you be comfortable with if you were going to retire with a $600-650K 'stache?
The thing is that these categories are going to differ for different people.
How much you feel you need to live on is an entirely personal question. How much you need saved is also personal because for some people, continuing to work to build a buffer is no big deal because they enjoy their jobs, and for others pulling the plug at very low numbers is fine because they feel comfortable with generating more income in the future if necessary.
You mention being willing to work if needed, but that’s such a vague statement.
For some people, they don’t have skills or experience that lend well to picking up work in retirement, others can easily generate their entire year spending with just their hobbies.
The range of realities is vast.
A little snap shot of how much someone has saved isn’t nearly enough to determine how successful their retirement plan is likely to be.
Not to mention, in down years (think 2008), jobs are hard to come by. Labor gets squeezed as unemployment rates rise. So going back to work may not be the simple exercise one envisions. A friend of mine got laid off from his law firm in 2008 (after more than a decade of being there). It took him more than 18 months to find employment -- in a state 1,000 miles away. He was stressed as a motherfucker, and had to spend down savings just to make ends meet. Also, his house went underwater. When people toss out the "I'll just go back to work if things aren't going well (in all likelihood because of a bad economy)" line, well, just call me skeptical.
18 months isnt a very long time and a Mustachian wont be stressed b/c they have piles of cash. even in the worst cases with a mortgage it takes the perfect storm of events and you still have 10 years before you're out of money completely.
Piles of cash??? There are legions of people in these forums talking of retiring with 25x $25,000/year, ACA coverage, etc. That is not piles of cash IMHO, and many of those people will be one calamity away from going broke.
there are not legions of people talking about 25x 25k
https://forum.mrmoneymustache.com/ask-a-mustachian/poll-what-is-your-fire-income-target/
this pole many are shooting for 10-60k PER PERSON most people on here are not single.
https://forum.mrmoneymustache.com/share-your-badassity/poll-what-is-your-annual-spending/
heres' another more detailed PER PERSON one with the majority around 20-30k per person
i wouldnt call this legions
i think the legions exist around 1MM or 40k in spending based on most polls around this site.
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There's a lot of faith that a side gig could weather a bad sequence of returns. ERN has some things to say about that.
https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/ (https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/)
Forst, he completely dismisses any spending cuts in his "guardrail" scenario. How about it in addition to a side hustle, the retiree cuts spending from $40k to $35k? He dismisses the idea of spending cuts because it would just be to hard to make huge cuts. 25% or more would just be too hard. So do nothing?!?! Okay, make moderate cuts as one angle of addressing the problem.
Also, I don't think I'd need to get my stache back up to 80%, regardless of age. That seems pretty OTT to me. He says that his scenario would require 22 years of side hustle. If someone retires at 40, that puts them at 62, assuming this happened almost immediately after FIRE. By the time they are 62, they will have or nearly have SSI. An they will have a lot fewer years to worry about. Do they really need to get back up to 80% of their original portfolio?
With a $40k spend, cut down to $35k, supplemented for a few years with a side hustle, I imagine the numbers look pretty damn good for overall success (i.e. not running out of money before you die.). My eyes admittedly glazed over halfway through the article, but it doesn't seem like he ran the numbers for overall success for that kind of situation. It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)? Defining success as basically having 80% of your stache left or working toward that seems unnecessary.
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Good post Villanelle. I really like ERN but he is fairly pessimistic.
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Good post Villanelle. I really like ERN but he is fairly pessimistic.
I love ERN and he even did one of his 10 case studies on me. I would call him more...statistical than pessimistic. He's really hung up on the CAPE ratio right now, even though I don't think its an accurate predictor, especially with the wonky issues of inflated financial sector losses in 2008-2010 with gains realized in the private markets.
The reality is almost every "early retiree", especially those under the age of 45 will find their way into some level of income, be it $5,000/year, $25,000/year, or $50,000/year. Its just impossible to have a strong skill set, personal discipline, and 112 hours a week for 52 weeks a year and not end up being paid for something. Even the $2,200/year we can earn as a couple with our eyes closed doing travel rewards is real income that provides an enormous cushion.
I also can't agree with his "paid off house" right now. I think the capital is too precious to tie up in a house. If I can get an inflation protected security like earning 6% - 7% on a low leveraged REIT or private real estate investment with rent increases each year that match inflation, why wouldn't I get a long-term mortgage at 4.5% fixed and maximize net worth? The only argument I can see that makes sense there is if it messes with ACA subsidies, which is probably a couple-year issue vs. long term issue.
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Good post Villanelle. I really like ERN but he is fairly pessimistic.
I love ERN and he even did one of his 10 case studies on me. I would call him more...statistical than pessimistic. He's really hung up on the CAPE ratio right now, even though I don't think its an accurate predictor, especially with the wonky issues of inflated financial sector losses in 2008-2010 with gains realized in the private markets.
The reality is almost every "early retiree", especially those under the age of 45 will find their way into some level of income, be it $5,000/year, $25,000/year, or $50,000/year. Its just impossible to have a strong skill set, personal discipline, and 112 hours a week for 52 weeks a year and not end up being paid for something. Even the $2,200/year we can earn as a couple with our eyes closed doing travel rewards is real income that provides an enormous cushion.
I also can't agree with his "paid off house" right now. I think the capital is too precious to tie up in a house. If I can get an inflation protected security like earning 6% - 7% on a low leveraged REIT or private real estate investment with rent increases each year that match inflation, why wouldn't I get a long-term mortgage at 4.5% fixed and maximize net worth? The only argument I can see that makes sense there is if it messes with ACA subsidies, which is probably a couple-year issue vs. long term issue.
this really doesnt effect ACA susidies for any one to speak of.
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Good post Villanelle. I really like ERN but he is fairly pessimistic.
I love ERN and he even did one of his 10 case studies on me. I would call him more...statistical than pessimistic. He's really hung up on the CAPE ratio right now, even though I don't think its an accurate predictor, especially with the wonky issues of inflated financial sector losses in 2008-2010 with gains realized in the private markets.
The reality is almost every "early retiree", especially those under the age of 45 will find their way into some level of income, be it $5,000/year, $25,000/year, or $50,000/year. Its just impossible to have a strong skill set, personal discipline, and 112 hours a week for 52 weeks a year and not end up being paid for something. Even the $2,200/year we can earn as a couple with our eyes closed doing travel rewards is real income that provides an enormous cushion.
I also can't agree with his "paid off house" right now. I think the capital is too precious to tie up in a house. If I can get an inflation protected security like earning 6% - 7% on a low leveraged REIT or private real estate investment with rent increases each year that match inflation, why wouldn't I get a long-term mortgage at 4.5% fixed and maximize net worth? The only argument I can see that makes sense there is if it messes with ACA subsidies, which is probably a couple-year issue vs. long term issue.
this really doesnt effect ACA susidies for any one to speak of.
If you need in come to cover a mortgage, it will push your MAGI up, which will reduce your subsidy.
i'm aware of how it works but have yet to see the math behind what would push it up enough it made sense to pay it off vs keep it invested. i used to think something similar but i've done the math many times and cant get there.
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It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)? Defining success as basically having 80% of your stache left or working toward that seems unnecessary.
Strategy 1: You end up with $0 stash 20 years post FIRE.
Strategy 2: You end up with your original stash, say $1M, after 20 years.
Do you really think the difference between scenario 1 and 2 is 2-3 years of $5k budget cut and minimal income?
3.3% WR vs 4% WR makes a difference only when it's sustained for 30-50+ years.
However I agree with you that attacking the problem from both cut and income is helpful. Also ERN didn't optimize the guardrails to minimize cuts and time to side-hustle. Most likely we can do a better job than 70-80.
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Good post Villanelle. I really like ERN but he is fairly pessimistic.
I love ERN and he even did one of his 10 case studies on me. I would call him more...statistical than pessimistic. He's really hung up on the CAPE ratio right now, even though I don't think its an accurate predictor, especially with the wonky issues of inflated financial sector losses in 2008-2010 with gains realized in the private markets.
It can be both. He writes from a perspective that if your current retirement plan didn't work 100% of the time in the past, then it's not robust enough. All of his vast statistical analysis of the past is pointing towards zero failure periods. Personally, I think that's ridiculous because there is no such thing as 100%, but it's a risk tolerance thing that's tailored to each individual.
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In a scenario where you retire on a 4% WR in 2007 and then 2008 happens, and your portfolio is down $400k, I do not think selling stuff on ebay, card hacking, or cutting expenses like paper towels and thermostat settings was going to get your $400k back anytime soon. The real risk was selling too many shares at depressed prices to cover living expenses in 2009-2014 and then not fully realizing the recovery (and the recovery was historically swift that time). The simulations show some portfolio scenarios never recover - and not just the great depression cohort.
When he speaks of WR, ERN's assumption is that "retirement" does not mean working part-time until 70 or living in a shack eating dog food. You may differ, but he considers those to be portfolio failure scenarios. He also assumes you can't just decide to cut your budget 25-50% when the stock market goes down. This makes sense because you would never have become an early retiree in the first place if you could cut that much fat just by cancelling your Cadillac Escalade lease, selling your ski boat, firing your pet psychologist, and skipping your annual two weeks in Fiji. We will all go back to work if we're young enough and if our stache will be unable to deliver the lifestyle we want (i.e. our spending today, adjusted for future inflation).
There's nothing pessimistic about admitting that if we want to retire on market returns, our incomes will depend upon externalities more than our attention to hypermiling, DIY projects, or thrift store bargains. A decision about when we have enough should take into account our historical odds of success (where ERN and various calculators are helpful) AND the opportunity cost of getting into a OMY cycle (where the balance is somewhat missing).
We want to get to the point where we say "OK, so my odds of portfolio failure are estimated at 10%. By working OMY I can reduce that to 5%. I am deciding to/not to trade most of another remaining year of my life to mitigate that risk."
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So I have a pretty live scenario going on right now.
My target house in my retirement destination is $350,000. Mortgage would be $280,000. Probably buying it before the end of the year.
I either pay it off after my other house sells, going mortgage free.
Or
I leave the $280,000 invested, a combination of my existing portfolio and money form the sale of current house.
A passive, low turnover index funds will kick off 2.5%/year in dividends plus turnover gains, or an extra $7,000 per year.
Add that into a deferred comp payout I'll already be receiving in the $25,000/year range plus gains generated by a taxable portfolio in the $450,000 range. That alone puts MAGI in the $25,000 range. It gets a lot worse if I drop that $280,000 directly into a couple of REITs, or what I'll call real estate arbitrage. They kick off 6-7% fully taxable, or an extra $19,600/year, which I would turn around and be using to pay down the 4.5% mortgage. The subsidy starts dropping at $25,000 in income then really starts dropping between $40,000 and $62,000 before its gone completely. (Yeah, yeah, yeah, I know hold the REIT holdings into the IRAs and hold my small/mid cap index ETFs in the taxable account because they have the lowest yield)
This hurts more and more because the premiums are skyrocketing annually but staying below $62,000 in income for a couple provides a huge benefit. The specific state I'm looking at its almost a $10,000 difference in the cost of a silver plan because your insurance premium cost is capped. I plan on buying the house with a mortgage and seeing how the ACA shakes out through 2019, then if I need to I'll pay it down significantly at the end of 2019 I will. I plan on using COBRA for 2019 since my income will still be "high" due to the couple months of working and bonus season. I could also fall into side income that makes it a moot point, so who knows.
I also hate that its referred to as a "subsidy". Its really a cap in insurance cost. Paying $5,700/year for health insurance with a $14,000 out of pocket rider isn't exactly a free lunch. I'll leave the "why's" in this to the ACA debate. Heath-share isn't an option for us either due to a pre-existing condition.
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this really doesnt effect (sic) ACA susidies for any one to speak of.
If you need in come to cover a mortgage, it will push your MAGI up, which will reduce your subsidy.
Exactly. Despite controlling my MAGI with tax optimized FIRE withdrawals, just a little more income would take me over the next CSR subsidy cliff.
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
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I also hate that its referred to as a "subsidy". Its really a cap in insurance cost. Paying $5,700/year for health insurance with a $14,000 out of pocket rider isn't exactly a free lunch. I'll leave the "why's" in this to the ACA debate. Heath-share isn't an option for us either due to a pre-existing condition.
But that language would be less accurate.
A cap on insurance sounds like the insurance company isn't allowed to charge more than $X/year. A subsidy makes it clear the insurance company is still making the full cost of insurance, it is just that the rest of society is picking up any costs of insurance beyond the first $X/year.
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Likely true...although most recessions involve lowering rates, mortgage refinance/modifications, ect. Agree with your premise though
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I also hate that its referred to as a "subsidy". Its really a cap in insurance cost. Paying $5,700/year for health insurance with a $14,000 out of pocket rider isn't exactly a free lunch. I'll leave the "why's" in this to the ACA debate. Heath-share isn't an option for us either due to a pre-existing condition.
But that language would be less accurate.
A cap on insurance sounds like the insurance company isn't allowed to charge more than $X/year. A subsidy makes it clear the insurance company is still making the full cost of insurance, it is just that the rest of society is picking up any costs of insurance beyond the first $X/year.
And that is a morality decision I'll have to make at the time. If you ask me today, I'm probably okay with it given my total tax contributions over my lifetime. It'll probably not be a decision I ever come to, I'll find enough paying hobbies in early retirement and there's always a chance the politicians on both sides can just fix the issues inside the ACA
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this really doesnt effect (sic) ACA susidies for any one to speak of.
If you need in come to cover a mortgage, it will push your MAGI up, which will reduce your subsidy.
Exactly. Despite controlling my MAGI with tax optimized FIRE withdrawals, just a little more income would take me over the next CSR subsidy cliff.
Shortsighted view the math still favors the mortgage.
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I also hate that its referred to as a "subsidy". Its really a cap in insurance cost. Paying $5,700/year for health insurance with a $14,000 out of pocket rider isn't exactly a free lunch. I'll leave the "why's" in this to the ACA debate. Heath-share isn't an option for us either due to a pre-existing condition.
As an owner of a firm, my family pays $25k in medical, dental and vision insurance per year plus a $5k deductible. My employees pay something like zero for them or $4k for their family. Our firm covers the amount, we subsidize the costs. Once a year, we spell out total compensation to our employees including everything we give them. Gym memberships, Costco memberships, parking, cell phones, insurance subsidy, bonuses, compensation, etc. They are always shocked at the costs of everything, but specifically medical insurance. Too many people in the US and even on this board believe that insurance costs what they are paying through their paycheck vs. what the employers are paying.
So to me the ACA is subsidizing, because the true cost is the unsubsidized cost.
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In a scenario where you retire on a 4% WR in 2007 and then 2008 happens, and your portfolio is down $400k, I do not think selling stuff on ebay, card hacking, or cutting expenses like paper towels and thermostat settings was going to get your $400k back anytime soon. The real risk was selling too many shares at depressed prices to cover living expenses in 2009-2014 and then not fully realizing the recovery (and the recovery was historically swift that time). The simulations show some portfolio scenarios never recover - and not just the great depression cohort.
Yes, that's the whole point of earning a bit of money or cutting expenses, or ideally, both. You give your portfolio some time to recover, which in the case of 2008, was only a few years. Are there worse examples? Yes. Should you plan your entire retirement around the absolute worst case scenario? If so, let me point you to the SWR of Japan at .25% (http://(https://www.advisorperspectives.com/articles/2014/03/04/does-international-diversification-improve-safe-withdrawal-rates)). That's a lot of extra years at work!
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I also hate that its referred to as a "subsidy". Its really a cap in insurance cost. Paying $5,700/year for health insurance with a $14,000 out of pocket rider isn't exactly a free lunch. I'll leave the "why's" in this to the ACA debate. Heath-share isn't an option for us either due to a pre-existing condition.
But that language would be less accurate.
A cap on insurance sounds like the insurance company isn't allowed to charge more than $X/year. A subsidy makes it clear the insurance company is still making the full cost of insurance, it is just that the rest of society is picking up any costs of insurance beyond the first $X/year.
And that is a morality decision I'll have to make at the time. If you ask me today, I'm probably okay with it given my total tax contributions over my lifetime. It'll probably not be a decision I ever come to, I'll find enough paying hobbies in early retirement and there's always a chance the politicians on both sides can just fix the issues inside the ACA
I'm not trying to drag morality into it, only arguing that one word is a better descriptor of the process than the other, so it makes sense people call them subsidies rather than a payment cap.
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I also hate that its referred to as a "subsidy". Its really a cap in insurance cost. Paying $5,700/year for health insurance with a $14,000 out of pocket rider isn't exactly a free lunch. I'll leave the "why's" in this to the ACA debate. Heath-share isn't an option for us either due to a pre-existing condition.
As an owner of a firm, my family pays $25k in medical, dental and vision insurance per year plus a $5k deductible. My employees pay something like zero for them or $4k for their family. Our firm covers the amount, we subsidize the costs. Once a year, we spell out total compensation to our employees including everything we give them. Gym memberships, Costco memberships, parking, cell phones, insurance subsidy, bonuses, compensation, etc. They are always shocked at the costs of everything, but specifically medical insurance. Too many people in the US and even on this board believe that insurance costs what they are paying through their paycheck vs. what the employers are paying.
So to me the ACA is subsidizing, because the true cost is the unsubsidized cost.
The ACA cost without a subsidy is actually higher than my employer's total per-employee cost of insurance (employer plus employee contribution). I work for a Fortune 500 company that self insures, from what I understand we have a healthier employee pool than the ACA's employee pool in the home state of our insurance carrier.
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this really doesnt effect (sic) ACA susidies for any one to speak of.
If you need in come to cover a mortgage, it will push your MAGI up, which will reduce your subsidy.
Exactly. Despite controlling my MAGI with tax optimized FIRE withdrawals, just a little more income would take me over the next CSR subsidy cliff.
Shortsighted view the math still favors the mortgage.
That math shows that a few thousand dollars more in income loses my CSR and PCT both, and my insurance and healthcare costs go through the roof.
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It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)? Defining success as basically having 80% of your stache left or working toward that seems unnecessary.
Strategy 1: You end up with $0 stash 20 years post FIRE.
Strategy 2: You end up with your original stash, say $1M, after 20 years.
Do you really think the difference between scenario 1 and 2 is 2-3 years of $5k budget cut and minimal income?
3.3% WR vs 4% WR makes a difference only when it's sustained for 30-50+ years.
However I agree with you that attacking the problem from both cut and income is helpful. Also ERN didn't optimize the guardrails to minimize cuts and time to side-hustle. Most likely we can do a better job than 70-80.
Maybe I'm not following your post, but I'm not sure how my strategy would lead to $0 in 20 years. There is a lot of territory between $0 remaining, and 80% of the original retirement amount. And yes, I do think that a difference about ~$15k in the amount withdrawn (roughly $5k in cuts and $10k in income, for example) for a few years, if those are the down years, could make an extremely significant difference in one's FIRE success.
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this really doesnt effect (sic) ACA susidies for any one to speak of.
If you need in come to cover a mortgage, it will push your MAGI up, which will reduce your subsidy.
Exactly. Despite controlling my MAGI with tax optimized FIRE withdrawals, just a little more income would take me over the next CSR subsidy cliff.
Shortsighted view the math still favors the mortgage.
That math shows that a few thousand dollars more in income loses my CSR and PCT both, and my insurance and healthcare costs go through the roof.
I love math equations that end with "thru the roof" can you please share the formula that outputs this answer.
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It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)? Defining success as basically having 80% of your stache left or working toward that seems unnecessary.
Strategy 1: You end up with $0 stash 20 years post FIRE.
Strategy 2: You end up with your original stash, say $1M, after 20 years.
Do you really think the difference between scenario 1 and 2 is 2-3 years of $5k budget cut and minimal income?
3.3% WR vs 4% WR makes a difference only when it's sustained for 30-50+ years.
However I agree with you that attacking the problem from both cut and income is helpful. Also ERN didn't optimize the guardrails to minimize cuts and time to side-hustle. Most likely we can do a better job than 70-80.
Maybe I'm not following your post, but I'm not sure how my strategy would lead to $0 in 20 years. There is a lot of territory between $0 remaining, and 80% of the original retirement amount. And yes, I do think that a difference about ~$15k in the amount withdrawn (roughly $5k in cuts and $10k in income, for example) for a few years, if those are the down years, could make an extremely significant difference in one's FIRE success.
You're correct it's why variable withdrawal increases success. You can use cfiresim to calc this. With my own numbers including a mortgage and dropping my withdrawal from my stashe by 10k in fire if I need to the only year that still fails after 40years is 1966
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this really doesnt effect (sic) ACA susidies for any one to speak of.
If you need in come to cover a mortgage, it will push your MAGI up, which will reduce your subsidy.
Exactly. Despite controlling my MAGI with tax optimized FIRE withdrawals, just a little more income would take me over the next CSR subsidy cliff.
Shortsighted view the math still favors the mortgage.
That math shows that a few thousand dollars more in income loses my CSR and PCT both, and my insurance and healthcare costs go through the roof.
I love math equations that end with "thru the roof" can you please share the formula that outputs this answer.
That's because the amount varies based on the plan and the actual healthcare needs in any particular year in any particular state for any particular income, for any particular family size, but when I have checked in the past, I determined it was very important to keep my retirement MAGI low during the years I would use ACA. A lower MAGI qualifies for a greater PCT, and qualifies for CSRs to boot. See: https://www.healthcare.gov/lower-costs/ That's where you need to get the specific figures on how high your costs could be. It can be very significant when your MAGI goes up.
Also see this thread, which will help explain it to you:
https://forum.mrmoneymustache.com/ask-a-mustachian/information-on-the-affordable-care-act-with-a-focus-on-early-retirees/
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I've done the math many others here have as well and no one has shown math that actually makes it beneficial to not have a mortgage for ACA subsidies. If you care to share actual numbers.
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I've done the math many others here have as well and no one has shown math that actually makes it beneficial to not have a mortgage for ACA subsidies. If you care to share actual numbers.
It appears you've only done the math regarding a low interest mortgage with an assumed investment earning 7% CAGR, not anything regarding ACA subsidies, which drop off significantly with increased income at certain thresholds. The links I provided (and the links within) provide info on that.
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I've done the math for ACA. And it really doesn't work out I understand how the subsidies and cost benefits of lower income work but a mortgage doesn't sway it enough to conteract the benefits of leveraging it to invest.
It's a cool topic to bring up and think you're coming out ahead til you actually look at the math and realize it's not a big difference.
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It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)? Defining success as basically having 80% of your stache left or working toward that seems unnecessary.
Strategy 1: You end up with $0 stash 20 years post FIRE.
Strategy 2: You end up with your original stash, say $1M, after 20 years.
Do you really think the difference between scenario 1 and 2 is 2-3 years of $5k budget cut and minimal income?
3.3% WR vs 4% WR makes a difference only when it's sustained for 30-50+ years.
However I agree with you that attacking the problem from both cut and income is helpful. Also ERN didn't optimize the guardrails to minimize cuts and time to side-hustle. Most likely we can do a better job than 70-80.
Maybe I'm not following your post, but I'm not sure how my strategy would lead to $0 in 20 years. There is a lot of territory between $0 remaining, and 80% of the original retirement amount. And yes, I do think that a difference about ~$15k in the amount withdrawn (roughly $5k in cuts and $10k in income, for example) for a few years, if those are the down years, could make an extremely significant difference in one's FIRE success.
You're correct it's why variable withdrawal increases success. You can use cfiresim to calc this. With my own numbers including a mortgage and dropping my withdrawal from my stashe by 10k in fire if I need to the only year that still fails after 40years is 1966
If by "a few years" you mean around 15 then yes $10-15k can make a difference, if you mean 2-3 like in your original post then not sufficient.
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Nobody mentions taxes in these 4 pages...
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Nobody mentions taxes in these 4 pages...
I mentioned taxes in my first post on page 1.
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It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)? Defining success as basically having 80% of your stache left or working toward that seems unnecessary.
Strategy 1: You end up with $0 stash 20 years post FIRE.
Strategy 2: You end up with your original stash, say $1M, after 20 years.
Do you really think the difference between scenario 1 and 2 is 2-3 years of $5k budget cut and minimal income?
3.3% WR vs 4% WR makes a difference only when it's sustained for 30-50+ years.
However I agree with you that attacking the problem from both cut and income is helpful. Also ERN didn't optimize the guardrails to minimize cuts and time to side-hustle. Most likely we can do a better job than 70-80.
Maybe I'm not following your post, but I'm not sure how my strategy would lead to $0 in 20 years. There is a lot of territory between $0 remaining, and 80% of the original retirement amount. And yes, I do think that a difference about ~$15k in the amount withdrawn (roughly $5k in cuts and $10k in income, for example) for a few years, if those are the down years, could make an extremely significant difference in one's FIRE success.
You're correct it's why variable withdrawal increases success. You can use cfiresim to calc this. With my own numbers including a mortgage and dropping my withdrawal from my stashe by 10k in fire if I need to the only year that still fails after 40years is 1966
If by "a few years" you mean around 15 then yes $10-15k can make a difference, if you mean 2-3 like in your original post then not sufficient.
Based on what? I'm admittedly too lazy to run CFireSim or other numbers, but that seems counter-intuititve. Reducing withdraws during the down years by about 25% (10k of a 40k spend) and maybe a year or two after seems like it would be pretty damn effective. But my intuition could certainly be wrong.
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?
Seems this would depend on the reason(s) for having a mortgage.
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The answer is not simple since it depends on so many factors that are individual related like current health status, location, age, regional market, housing cost, general budget, type of policy, income, state.
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I've done the math many others here have as well and no one has shown math that actually makes it beneficial to not have a mortgage for ACA subsidies. If you care to share actual numbers.
I have always been on the side of having a mortgage and keeping my money invested until we started talking about buying a new home recently. I'm getting close to FIRE so I've been analyzing the impact on my FIRE date and was surprised at the results. Since I have a spreadsheet of possible budgets with/without both subsidies and a mortgage, I plugged them into CFiresim for comparison. Below are the inputs that I used:
Current Savings: $655k $599k
Retirement years: 2021-2061
Asset Allocation 80% stocks/20% bonds
additional savings 2018-2020: $60k
House purchase in 2021
30K down payment vs 150k cash purchase
Expenses in both scenarios include ACA subsidized healthcare & taxes. The 11k difference is from the mortgage expense, less subsidized healthcare and resulting higher taxes.
with mortgage: $37k
(in 2051 reduced spending because of mortgage payoff $11k)
cash purchase: $26k
cash purchase: 92.31% success
mortgage: 78.85% success. 92.31% success when treating P&I as non-inflationary.
ETA: fixed a typo in the current porfolio balance and changed the mortgage success ration when not adjusting for inlfation of P&I.
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Hi justchristine,
You may have already accounted for these in your calculations, but are you including your mortgage as regular spending (which gets adjusted for inflation each year) or as a fixed, non-inflating, expense? The former makes things look a lot worse for the with-mortgage scenario than it otherwise would be.
The other thing I've seen some other people run into trouble with is remembering to break out the escrow part of their monthly mortgage payment (for property taxes and home insurance), as they'll end up paying these expenses whether they pay cash or take on a mortgage, and these will continue to increase roughly with inflation, while the principal and interest components do not.
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Hi justchristine,
You may have already accounted for these in your calculations, but are you including your mortgage as regular spending (which gets adjusted for inflation each year) or as a fixed, non-inflating, expense? The former makes things look a lot worse for the with-mortgage scenario than it otherwise would be.
The other thing I've seen some other people run into trouble with is remembering to break out the escrow part of their monthly mortgage payment (for property taxes and home insurance), as they'll end up paying these expenses whether they pay cash or take on a mortgage, and these will continue to increase roughly with inflation, while the principal and interest components do not.
Ah good catch. I had the escrow broken out separately but I wasn't treating the mortgage P&I as non-inflationary. When I made that adjustment, the success percentage with a mortgage rises to 92.3%. So basically a wash whether I pay cash or take a mortgage. That's still not what I would have initially expected.
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Yeah, that's consistent with what I've seen as well. Having a mortgage tends to increase your final net worth almost all the time,* or a significant majority of the time,** but doesn't move the needle for overall success/failure rates for FIRE that much (partially because once you get down to 3.5-4% withdrawal rates the risk of failure is so low to begin with). Back in the great mortgage debate blow up of '17 there was also the potential argument about the deductibility of interest on a home mortgage, but under the new tax code that's an issue for far fewer people than it used to be.
*If you assume historical stock market returns and today's low 30 year fixed mortgage interest rates
**If you assume historical stock market returns and impute what 30 year fixed mortgage interest rates would be at the start of retirement if they'd existed based on the strong correlation between government debt and mortgage interest rates)
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Expenses in both scenarios include ACA subsidized healthcare & taxes. The 11k difference is from the mortgage expense, less subsidized healthcare and resulting higher taxes.
with mortgage: $37k
(in 2051 reduced spending because of mortgage payoff $11k)
cash purchase: $26k
Are you calculating only based on the ACA PTC and assuming that you won't use much healthcare services? The CSR subsidy drops off more quickly with higher incomes needed to pay higher expenses of a mortgage, the higher ACA premiums, and other greater out of pocket healthcare costs due to no CSR subsidies.
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Hi justchristine,
You may have already accounted for these in your calculations, but are you including your mortgage as regular spending (which gets adjusted for inflation each year) or as a fixed, non-inflating, expense? The former makes things look a lot worse for the with-mortgage scenario than it otherwise would be.
The other thing I've seen some other people run into trouble with is remembering to break out the escrow part of their monthly mortgage payment (for property taxes and home insurance), as they'll end up paying these expenses whether they pay cash or take on a mortgage, and these will continue to increase roughly with inflation, while the principal and interest components do not.
Ah good catch. I had the escrow broken out separately but I wasn't treating the mortgage P&I as non-inflationary. When I made that adjustment, the success percentage with a mortgage rises to 92.3%. So basically a wash whether I pay cash or take a mortgage. That's still not what I would have initially expected.
Did you account for the payment and interest for only 30 years? Some people accidentally have it going for life.
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Did you account for the payment and interest for only 30 years? Some people accidentally have it going for life.
Looks like it:
(in 2051 reduced spending because of mortgage payoff $11k)
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?
Seems this would depend on the reason(s) for having a mortgage.
Citation? This is just math. The reason for having a mortgage is unimportant. Having a mortgage and the associated payment requirement is the issue.
Simple example:
No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month
With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month. Cost reduction goal not met.
If you need additional references and lots more maths, ERN has a blog post on this. https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?
Seems this would depend on the reason(s) for having a mortgage.
this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed. you know if we care about the historical worst case scenarios which we all base our spending plans on.
may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.
Citation? This is just math. The reason for having a mortgage is unimportant. Having a mortgage and the associated payment requirement is the issue.
Simple example:
No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month
With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month. Cost reduction goal not met.
If you need additional references and lots more maths, ERN has a blog post on this. https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?
Seems this would depend on the reason(s) for having a mortgage.
this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed. you know if we care about the historical worst case scenarios which we all base our spending plans on.
may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.
Citation? This is just math. The reason for having a mortgage is unimportant. Having a mortgage and the associated payment requirement is the issue.
Simple example:
No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month
With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month. Cost reduction goal not met.
If you need additional references and lots more maths, ERN has a blog post on this. https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
Everyone has their own risk tolerance.
As I said, the example was very simple. It does not matter what the numbers are, if you have higher fixed expenses you have to cut your remaining discretionary spending deeper to achieve the overall spending cut desired. This is simple math
Also, it is easy to look at the past and say, "That drop was short lived I didn't need to cut much to get through it." As they say, hindsight is 20/20. It is much harder to look into the future and know how much you need to cut to protect your portfolio.
The Dow is down for the last 6 days. This drop has essentially wiped out all the index gains for the year. Are we done? Or is the decline just getting started? Is this the start of a black swan or just a momentary distraction?
There is no way to tell if this or any future drop is going to last a few months followed by a strong recovery or if it is the beginning of a decade of stagflation. No one knows until after it is over.
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Here's some even simpler math:
http://www.helpfulcalculators.com/compound-interest-calculator
Pay particular attention to the green bars on the right side of the graph. Exponential growth is the key.
The more years your money has to compound, the more money you will have to do Anything You Want with. And you won't have to lift a finger to earn it.
Here's another good explanation, with more words:
https://www.ck12.org/book/CK-12-Math-Analysis/section/3.6/
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?
Seems this would depend on the reason(s) for having a mortgage.
this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed. you know if we care about the historical worst case scenarios which we all base our spending plans on.
may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.
Citation? This is just math. The reason for having a mortgage is unimportant. Having a mortgage and the associated payment requirement is the issue.
Simple example:
No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month
With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month. Cost reduction goal not met.
If you need additional references and lots more maths, ERN has a blog post on this. https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
Everyone has their own risk tolerance.
As I said, the example was very simple. It does not matter what the numbers are, if you have higher fixed expenses you have to cut your remaining discretionary spending deeper to achieve the overall spending cut desired. This is simple math
Also, it is easy to look at the past and say, "That drop was short lived I didn't need to cut much to get through it." As they say, hindsight is 20/20. It is much harder to look into the future and know how much you need to cut to protect your portfolio.
The Dow is down for the last 6 days. This drop has essentially wiped out all the index gains for the year. Are we done? Or is the decline just getting started? Is this the start of a black swan or just a momentary distraction?
There is no way to tell if this or any future drop is going to last a few months followed by a strong recovery or if it is the beginning of a decade of stagflation. No one knows until after it is over.
what you also dont account for is the fact that those "fixed" expenses when talking about mortgages actually arent fixed they decrease over time at the rate of inflation. so its actually a decreasing expense over time.
you're talking about volatility tolerance i absolutely hate when the pay off your mortgage crowd uses the word risk(like stocks going down is the only risk) and since its emotionally safer for most to see the volatility risk side of the equation while completely ignoring the life expectancy of money risk side of the equation - personally and for most young FIREes the greater risk is money longevity than SORR - b/c finding work again or odd jobs early in FIRE is much more likely to be had than at 75 when your stache runs out due to inflation or other issues with a lower volatility risk portfolio.
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Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses. You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?
Seems this would depend on the reason(s) for having a mortgage.
this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed. you know if we care about the historical worst case scenarios which we all base our spending plans on.
may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.
Citation? This is just math. The reason for having a mortgage is unimportant. Having a mortgage and the associated payment requirement is the issue.
Simple example:
No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month
With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month. Cost reduction goal not met.
If you need additional references and lots more maths, ERN has a blog post on this. https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
Everyone has their own risk tolerance.
As I said, the example was very simple. It does not matter what the numbers are, if you have higher fixed expenses you have to cut your remaining discretionary spending deeper to achieve the overall spending cut desired. This is simple math
Also, it is easy to look at the past and say, "That drop was short lived I didn't need to cut much to get through it." As they say, hindsight is 20/20. It is much harder to look into the future and know how much you need to cut to protect your portfolio.
The Dow is down for the last 6 days. This drop has essentially wiped out all the index gains for the year. Are we done? Or is the decline just getting started? Is this the start of a black swan or just a momentary distraction?
There is no way to tell if this or any future drop is going to last a few months followed by a strong recovery or if it is the beginning of a decade of stagflation. No one knows until after it is over.
what you also dont account for is the fact that those "fixed" expenses when talking about mortgages actually arent fixed they decrease over time at the rate of inflation. so its actually a decreasing expense over time.
you're talking about volatility tolerance i absolutely hate when the pay off your mortgage crowd uses the word risk(like stocks going down is the only risk) and since its emotionally safer for most to see the volatility risk side of the equation while completely ignoring the life expectancy of money risk side of the equation - personally and for most young FIREes the greater risk is money longevity than SORR - b/c finding work again or odd jobs early in FIRE is much more likely to be had than at 75 when your stache runs due to inflation or other issues with a lower volatility risk portfolio.
As I said before, everyone has their own risk tolerance. No one FIRE formula fits everyone.
I agree that longevity risk is a bigger issue than SORR especially for young FIREes. But SORR is much more immediate and stressful for recent FIREes like me. I have no idea where my portfolio will be in 20, 30 or 40 years but I certainly know what has happened to it in the last two weeks!
IMO the best way to address longevity risk is to have an aggressive investment strategy, coupled with sufficient liquidity and capitalization to bridge the inevitable downturns. For me, the riskiest strategy of all is being too risk adverse.
ATM I am just a little concerned that I jinxed things by asking if this current market drop might be the start of a longer term slump. <GRIN>
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I mess around with all of my accounts on an excel sheet I made and found out the following:
Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.
Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?
Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.
I don't think too many people on the MMM forum advocate for saving $2 million...or even $1 million. It just depends on your expected spending levels. Lots of people here (including myself) retired early on much less than a million or even less than $600k in NW because we don't need $40K/year. Or even $20K/year to fund our desired lifestyle. Just depends on your personal circumstances.
Exactly, Everyone has different needs and risk tolerances. What is ample for one person is no where near enough for another. For some, SORR is a major concern, for others not so much. Going back to work is easy for some, very hard for others. Some people have large post FIRE income streams (rentals, pensions, etc.) others have little or none.
Just because $620K (or any other number) is plenty for you does not mean it is right for the next person. One size does NOT fit all.
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Some people have large post FIRE income streams (rentals, pensions, etc.) others have little or none.
Just because $620K (or any other number) is plenty for you does not mean it is right for the next person. One size does NOT fit all.
The apples and oranges occurs all over these boards. Some people don't count the value of their paid off house. Some people have a pension that they don't calculate the value in their number. Some people are retired, but their significant other is continuing to work. Some people only count their number vs. their family's number. If someone is willing to move to the Philippines for their FIRE life is different if someone wants to live in San Francisco.
As I posted earlier, I think the younger you are the more likely you feel like you can live on a minimal amount. Costs go up significantly with kids, age, paying for 100% of your medical, etc.