Author Topic: What has worked/not worked for you guys who have been Fire for 10 yrs +?  (Read 30738 times)

Dawg Fan

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I am 4 yrs from Fire and want to tap into the knowledge of you experienced FIRE -tarians ... If there is such a word. I know the overall answers will depend on every individual's specific situation, risk tolerance, fall back options (eg. Get a job again), time horizons, etc, but work with me based on some general assumptions...

- min Fire time horizon of 30+ yrs
- no part time gig, 100% dependent on investments and any income sources such as SS/pensions
- utilizing 4% SWR
- you started Fire when a combination of your assets produced the required/preferred income
- Again, you have been Fire for 10+ yrs

Questions...
- What AA did you start with, has it changed?
- What if anything did you do differently from 2008 - 2011?
- How, if did, did you adjust your income/expense levels during the last 10 yrs?
- What % has your asset balance (assets used for income) changed +/- over the last 10 yrs?
- What, if anything would you have done differently?
- What would you advise us baby Fire-ees?

You 10 yr + guys have allot of wisdom to offer as you made it thru hopefully the worst market cycle we will see.

Thanks

Dawg Fan

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Wow! I must have missed on this topic! Has this been addressed somewhere else that someone could point me too? Are there no 10 yr + FIRE folks out there?? Come on and tell us what you know!

RetireAbroadAt35

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I think very few people are FIRE-ing purely on index funds with a 4% withdrawal rate.  As my planning/strategy starts shifting from accumulation (I've got that on auto-pilot) to withdrawal, I'm finding that nobody seems to do it by the book.  Even our demigod MMM has a very diversified set of post-FIRE income streams.


Dawg Fan

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Thanks. I was hoping to get insight as to how seasoned FIRE-ees have adjusted over the last 10 yrs, particularly how their initial strategy, AA, overall asset balance relative to their master plan when they started stayed or veered off the tracks. The last 10 yrs hopefully represented a worse case scenario for those of us who are looking at a 30 + yr horizon gong forward. It always helps to hear from the battle tested!

Jon_Snow

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This board skews fairly young. There are actually few members who are FIRE'd (though the number is growing steadily), let alone members who have been FIRE'd 10+ years. I will be able to answer some of your questions in 9 years. ;)

Dawg Fan

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Interesting. I purposely went to Post Fire as the Board described it focused on those already in FIRE?? I suppose I need to get MMM on the horn!

G-dog

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I think Spartana, Old Pro, and RetiredAt63 have several years under their belt. I am sure there are others.
Otherwise you can contact me in 5-10 years. 😉

Edit: there is a locked topic further down thread - retired to Win has been FIRE.for 14 yrs.
« Last Edit: June 12, 2015, 04:32:58 PM by G-dog »

Easy Does It FI

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If you're curious about deeper review of the math, cfiresim is fun to play with. Also, for the 4% SWR specifically, check out the trinity study again. They only quote a 95% success rate after 20 years. Of course, if you just take 4% of the current balance at that time, you'll never deplete the portfolio...

A good piece of advice I heard from arebelspy (though he was speaking specifically about real estate) is to build some clear contingency plans. Think about what, specifically you would be willing or capable of doing to fill the gaps.

happy

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I think Spartana, Old Pro, and RetiredAt63 have several years under their belt. I am sure there are others.
Otherwise you can contact me in 5-10 years. 😉

Edit: there is a locked topic further down thread - retired to Win has been FIRE.for 14 yrs.
Not to forget Nords, who has been retired at least a decade.

Frankies Girl

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This subforum section is pretty new (just begun in the last few months?), and I think the MMM forum itself has only been around 4-ish years (if that), so it would be surprising if there are that many 10+ year FIREd peeps hanging out around here.

Might want to check over at early-retirement.org for some of their insights as there are a large number of longer-term retirees, but from what I've seen, they're not as interested in being as frugal as the average MMM poster, and have larger portfolios and spending is higher as well.

Dr Doom just retired a few months ago, and had a really nice synopsis of drawdown and asset allocation ideas on his site:
http://livingafi.com/2014/05/09/drawdown-part-1-the-basics/
^first post in this series



Ask me again in 9.75 years and I'll have some sort of answer for you. ;)


deborah

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I was FI more than 10 years ago. Not RE until more recently, so I didn't start retirement when my figures hit a magic number (in fact, I didn't know what my magic number was until I was doing some calculations a few months ago). My retirement time frame is about 35 to 45 years. The stash keeps growing, and I find that most years I use less money than the year before. However, this year was a big one (I budget June to June) as I had a large purchase and I went on a very expensive trip. I still used less money than I originally thought I would before I retired.

Some of it is the magic of putting things off. I want to improve my bathroom, but I have not decided exactly what I want to do, so it gets put off. And I am not going to renovate my house until I have completely decluttered. A car might be getting a bit old, but replacing it could be put off for another year...

It's one side of frugality that is not talked about much here. It also stops you from having a house that has a million projects throughout it because things weren't put off until the others were finished.

RetiredAt63

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I am not quite 2 years retired, so not much advice here.  My plan - reliable pensions from work for basic expenses, RRIF and investments for "fun" money, and a willingness to be flexible, careful with spending, and keep the "wants" reasonable for my income.
As JL Collins just pointed out on his blog, the spending side is as important as the income side.

Dawg Fan

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Helpful, thanks. In my case, as someone who has been self employed my whole life, raising 4 kids, wife at home, I am it! No pension, just a combination of investments (i.e. Taxable and tax differed accounts and some investment RE) so outside of any income my RE is putting off, I am more dependent on the SWR method which is why I was more curious as to how long time FIRE-ees weathered the last recession both psychologically & strategically with their portfolios. Clearly having pensions that produce all or a significant amount of your overhead would help you sleep at night. Two related things I am picking up on is 1) many people end up spending less than they thought they would. Not sure if this due to being over conservative out of fear or just overestimating what FIRE life would be like? 2) As we get older our expenses drop barring some major medical expenses. This has always intrigued me in running the SWR model as it makes good sense to me to pursue your "bucket list" when you are younger, healthier, and more able and pursuing these things may require more $$ in say the first 10 - 15 yrs then after. So, do you/can you/should you run say a 5% SWR in the earlier yrs, do the funner, more active, and probably for many of us more expensive stuff, and then ratchet back there after? Just spit balling here as everything seems much simpler on paper which is why I like to hear from you all in the trenches. One last tid bit on me... while I subscribe to the MMM philosophy in many ways, my planned living expenses would be considered very excessive by most MMM true-ests. I know the immediate comment to this is I should have more margin to ratchet back when needed, which is true, but I think the overall questions are relative to any and all of us regardless of our targeted/actual FIRE overhead. More thoughts here??

G-dog

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I think Spartana, Old Pro, and RetiredAt63 have several years under their belt. I am sure there are others.
Otherwise you can contact me in 5-10 years. 😉

Edit: there is a locked topic further down thread - retired to Win has been FIRE.for 14 yrs.
Not to forget Nords, who has been retired at least a decade.

My apologies to Nords! I knew I was forgetting folks, my apologies to anyone else I overlooked.

G-dog

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 I have "old lady" money ......

I can't imagine that you will ever be an "old lady" ;)

deborah

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1) many people end up spending less than they thought they would. Not sure if this due to being over conservative out of fear or just overestimating what FIRE life would be like?
As I said, this year included my Turkey holiday - I got a ticket in the Australian Gallipoli ballot (meant I had a place at the Centenary Commemoration) which meant I had to be on a commercial tour - did an expensive battlefield tour. I also had another commercial tour of Eastern Turkey archeological sites - within a few miles of the Syrian border, in Kurdish areas, and at Ani which is a site that borders Armenia. Expensive - but worth every cent. Last year, I spent 20% less than I originally budgeted when I retired - this has been going down gradually over the years I have been retired, and does not allow for inflation. Apart from my two months in Turkey, I expect this year to have been in line with the other years.

It is not conservative out of fear. I had been keeping track of my spending for five years before retirement, and my estimates were good. I was saving most of my earnings, so my budget wasn't large to begin with - it was in line with the MMMs. Finding MMM a few years after retirement probably helped. I just find that I want less.

2) As we get older our expenses drop barring some major medical expenses.
I don't really think so. My parents' haven't! And apart from anything else, you are talking to the ER crowd here - people who will have a 30-40 year retirement. Why would our expenses drop for most of those years? Sure, I have read a lot of literature which says that in the last 8 to 10 years of life we have a lot of medical expenses, but until then we want to LIVE not vegetate. And WE have 4 times that long in retirement. I think it depends on how we expend our retirement. There seem to be a lot of people who want to do backpacker/cheap travel around the world as soon as they retire, and then settle down for a while creating a business (which may use up a lot of money). People like my parents are busy going on cruises - they are certainly more expensive that the travel ER people tend to do.

I intended to do completely different things than I have done. I studied for a couple of years. My father got cancer and nearly died, so I spent a couple of years going backwards and forwards to my parents place. I spent some time just vegging out after all that, and this coming year seems to be a year of travel. What lies in the future is anyone's guess, but retirement for me is fulfilling, and my retirement ideal is almost certainly not yours. I have done a lot of local (Australian) travel, and it has been very cheap.

So, do you/can you/should you run say a 5% SWR in the earlier yrs, do the funner, more active, and probably for many of us more expensive stuff, and then ratchet back there after? 
Changing to 5% for the early years sounds like a recipe for disaster to me. Every finance article says that a little bit saved early generates a larger nest egg than a larger bit saved later. Do a cFireSIM on it.

while I subscribe to the MMM philosophy in many ways, my planned living expenses would be considered very excessive by most MMM true-ests. I know the immediate comment to this is I should have more margin to ratchet back when needed, which is true, but I think the overall questions are relative to any and all of us regardless of our targeted/actual FIRE overhead. More thoughts here??
If you are a more expensive person/family ER may be quite different. As the years go by, I am finding I have fewer "wants". But if I was more expensive, I might still be governed by the consumer society and have more "wants" the longer I was retired. Keeping up with the neighbours who are not retired, and are getting (and spending) a lot more money in their 40s and 50s and 60s when you are retired, might engender a lot more "wants" because they are your community.


Dawg Fan

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Thanks Deborah. Clearly no "one size fits all". And yes, clearly there are exceptions to everyone's burn rate in the FIRE years. While we can all spend the same/more $$ in our "golden years", my research tells me statistically there is a better chance my energy, health, desire to do more active things will be there in my 50's (I'm 51) than in my 70's - 80's. My eg of a 5% SWR was just thrown out there as a thought. I realize some people want to leave a legacy to their kids in terms of a pot of $$. If I have my way, I will spend the last $$ when I kick and not be a financial burden to my kids at any point & time. And yes, I realize the primary MMM culture is more frugal driven than perhaps I may be, but that does not mean I am driven by consumerism in establishing a FIRE standard of living that I would like to have. Everything is relative whether our FIRE overhead goal is $20K/yr or $200K/yr. We are all "rich" by the worlds standards which is why I believe the same principles apply in terms of how we manage our assets/liabilities and any income producing products we have to meet our post FIRE income goals. One point you make which is true I would assume for most... prior to FIRE we are all accustomed to living at a certain level and while paying off the house, kid's college, and other annual expenses may go away reducing certain annual expenditures, I am thinking many/most of us want to replace a certain standard of living consistent with what we had been enjoying. In other words, if we have always enjoyed $20 bottles of wine, we don't downgrade to $5 bottles of wine, if you like traveling abroad you don't all of a sudden say I am only traveling to FL now and staying in a $50 hotel. So I would be lying if I didn't want to take some of the "good life" I was accustomed to with me post FIRE provided my financial model could support it. Again, all of this is personal and relative to us all individually. I would be curious to hear if post FIRE-ees felt they either set their RE budgets at/below/above their previous "living tastes"?? Asked another way, after stripping away the costs you knew would go away after FIRE, do you feel like your making more sacrifices to your standard of living to be in FIRE than you would while working, or are you are on par with the same lifestyle or effectively living as you so hoped, or have you actually stepped up your "quality of living" from your working days? Just a thought...

Exhale

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I budget June to June

I'm curious, why do you do that?

DragonSlayer

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I retired 11 yrs. ago at the age of 33 with at least a 50yr. time horizon. We traveled quite a bit the first few years (comfortably but not excessively, decent hotels not hostels, camping in our RV, etc.), but once we'd hit most of our "top 20" places to visit, we took a break from that. That also coincided with the market downturn, so our WD rate dropped to about 3% during the worst of it. We didn't stop traveling solely b/c the economy tanked, but it helped. We wanted to be closer to home anyway, as my parents were having some health troubles. So it was a nice coincidence, I guess. We could have kept traveling with no real consequence, but looking back I think I did feel a bit better staying home more during that time. But that's probably just my paranoid side talking.

We've always been frugal so our monetary needs just aren't that high. Increased travel represents the only thing that we've "splurged" on in retirement, but a lot of that is/was offset by lower gas expenses from no commuting, ditching 1 car, etc. So even with the "excess" of travel, we've stayed very close to 4% WD rate. So far, we're both healthy, so other than insurance that hasn't been a huge expense. No kids, so our money goes further than it would if we had them.

Now that we're home for a while, I've taken some side gigs, just for something to do. I get paid and the IRP would argue that I'm no longer retired, but I don't do it for the money. Yes, the extra is nice to have and during the downturn I plowed a lot of it back into investments which have grown since, increasing my stash. But I do some side work just to stay involved with people, get my brain working, and keep my skills up to date. I don't anticipate ever needing to go back to full time paid work, but since shit happens, I find it comforting to keep my hand in and network a bit. Hubby does the same. Collectively, I doubt we put in more than 8 - 10 hours a week, so far from even part-time work. We didn't go into FIRE with the plan to do PT work, it just sort of happened. Like I said, we stopped traveling, one person called and said, "Hey, can you help me out," and then we just sort of picked up some work along the way. We'd be fine without it, but it's fun.

We find that we're able to live just as we did without any sacrifices. Again, we've always been frugal, though. Not as hard core as many, but we just don't need much to be content. We have a nice house, decent neighborhood, etc. Once we pick up traveling again, we're planning to buy a newer/larger RV and probably sell the house entirely as we won't need a home base once my parents are no longer with us. So there haven't been any real sacrifices here, even through the downturn. Our plan has worked out well, and I expect that, barring some sort of total disaster, we'll be more than fine.   




RoadLessTravelled

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I think very few people are FIRE-ing purely on index funds with a 4% withdrawal rate.  As my planning/strategy starts shifting from accumulation (I've got that on auto-pilot) to withdrawal, I'm finding that nobody seems to do it by the book.  Even our demigod MMM has a very diversified set of post-FIRE income streams.

I agree and as I wrote on another thread, there is no such thing as a SAFE WR.  If someone chooses to withdraw from capital to fund retirement, that is their choice but any suggestion that it is SAFE is ridiculous.  No one can predict the future and the study based on the past cannot predict the future either.  The assumption being made is that all things will remain equal.  In fact, the only thing you can be sure of is that change will occur.

Capital can always produce income.  If you live on the income your capital produces, then you have no problem.  If you start to spend the capital, you MAY have a problem in the future.  That to me seems pretty simple to understand.  People like the 4% SWR theory because it appears to show they can retire sooner with a smaller stash.  They get that far and then stop looking for alternative answers.

If you choose to say the capital cannot be drawn down, then it changes the question.  It focuses you on ROI.  If you need X income to be happy, you then look at how much capital do I need to provide that income AND how high an ROI can I get so that the amount of capital I need is as low as it can be.

I would never be satisfied with a 4% ROI on my capital.  I want at least 10% ROI.  A simple example of how to do that is real estate.  There are many different ways to invest in real estate that will return you 10% or more if you know what you are doing.  That's the key, knowing what you are doing.  The 4% SWR and index funds is in fact the apparent investing for dummies answer.  No real knowledge required, just do this and you'll be fine. 

Then they add the, 'and oh yeah, be prepared to be flexible'.  Of course there is no explanation given of what that flexible is supposed to look like.  Good luck with that.  But people always want the easy and instant answer.  If someone appears to be offering them such an answer then they will grab it.

I live off the income my capital provides me.  I do so through investing in real estate and have been doing so for several decades.  It is an ongoing thing, I didn't get to X point in time and then stop figuring out how to make money.  That seems to be the idea behind the 4% SWR.  You get to X in terms of a stash and then you sit back and just spend the money.  I don't think anyone will find people who have been sitting back doing that for 10+ years.


nereo

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I think very few people are FIRE-ing purely on index funds with a 4% withdrawal rate.  As my planning/strategy starts shifting from accumulation (I've got that on auto-pilot) to withdrawal, I'm finding that nobody seems to do it by the book.  Even our demigod MMM has a very diversified set of post-FIRE income streams.

I agree and as I wrote on another thread, there is no such thing as a SAFE WR.  If someone chooses to withdraw from capital to fund retirement, that is their choice but any suggestion that it is SAFE is ridiculous.  No one can predict the future and the study based on the past cannot predict the future either.  The assumption being made is that all things will remain equal.  In fact, the only thing you can be sure of is that change will occur.

Capital can always produce income.  If you live on the income your capital produces, then you have no problem.  If you start to spend the capital, you MAY have a problem in the future.  That to me seems pretty simple to understand.  People like the 4% SWR theory because it appears to show they can retire sooner with a smaller stash.  They get that far and then stop looking for alternative answers.

If you choose to say the capital cannot be drawn down, then it changes the question.  It focuses you on ROI.  If you need X income to be happy, you then look at how much capital do I need to provide that income AND how high an ROI can I get so that the amount of capital I need is as low as it can be.

I would never be satisfied with a 4% ROI on my capital.  I want at least 10% ROI.  A simple example of how to do that is real estate.  There are many different ways to invest in real estate that will return you 10% or more if you know what you are doing.  That's the key, knowing what you are doing.  The 4% SWR and index funds is in fact the apparent investing for dummies answer.  No real knowledge required, just do this and you'll be fine. 

Then they add the, 'and oh yeah, be prepared to be flexible'.  Of course there is no explanation given of what that flexible is supposed to look like.  Good luck with that.  But people always want the easy and instant answer.  If someone appears to be offering them such an answer then they will grab it.

I live off the income my capital provides me.  I do so through investing in real estate and have been doing so for several decades.  It is an ongoing thing, I didn't get to X point in time and then stop figuring out how to make money.  That seems to be the idea behind the 4% SWR.  You get to X in terms of a stash and then you sit back and just spend the money.  I don't think anyone will find people who have been sitting back doing that for 10+ years.

Now hold on a minute...
This notion of 'not touching the capitol' is fraught with snakes and demons.  On the surface it seems so appealing - say you have $1MM - the "never touch your capitol" mantra preaches that that $1MM is somehow sacred and that you can somehow just leave it alone and all will be well.  The problem is, that doesn't work in reality.  First, there's inflation to consider, so if you have $1MM in 2015 you might need $1.03MM in 2016 for purchasing parity.  So already this 'capitol' idea is a moving target. Then there's market fluctuations - regardless of whether you are invested in the stock market or real-estate, what happens when prices drop?  You never touched this 'capitol' but suddenly it's worth less.  Does that violate the tenant of 'don't touch the capitol' rule?
Then there's dividends.  Many believe that living solely off dividend income is somehow 'better' than withdrawing a fixed percentage each year, because it 'protects the capitol'.  In reality this is a red herring; for every cent a company pays out in dividends, their share price decreases by an equal amount.

You've painted a 4% WR as the idiot's guide to investing, and I will grant you that one of it's most wonderful qualities is it's simplicity.  But I woulnd't confuse simplicity in execution with simplicity of concept.  It traces its routes to the trinty study, which takes into account historical market volatility, interest rates and market returns.  It's far from simple.

I agree that there are absolutely methods for getting higher returns, including real-estate.  But as you've pointed out, you have to 'know what you are doing' and you need to put in at least some work and typically you need at least a moderate level of handyman skill.  You then seem to lambast the idea of being flexible, saying:
Quote
hen they add the, 'and oh yeah, be prepared to be flexible'.  Of course there is no explanation given of what that flexible is supposed to look like.  Good luck with that
but you immediately say you never give up the knowledge of how to make money.  I believe these are the same thing - absolutely no sensible person is advocating a strategy of setting up a WR and then ignoring everyhting forever.  Some (like MMM) choose to build houses because they enjoy it and are good at it.  Others start side hustles, move around, adjust their costs....  it's human nature.

The 4% WR is a plan, and it's a good plan.  But like all plans, it doesn't mean you can follow it blindly forever. That shouldn't be mistaken for a flaw.

Dawg Fan

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Actually, Commercial RE brokerage is my current profession and has been for the last 28 yrs. During that time and currently I have been/am invested in various properties. I can tell you there is no guarantee all your RE will deliver as expected... can tell you from experience (i.e. Effects of recession, bad partners). Yes, opportunities to make good returns are there and I will always have RE as part of my portfolio, but for most RE investors running the investments as the primary owner (I.e. Principle investor, General Partner) as opposed to a passive investor, there is a risk/reward scenario that must be weighted out. I think we all can agree there is no set and forget plan in a world that is always going to be changing, but I think it helps to develope the best plan and alternative "what if" strategies. This was primarily what I was after when I started the thread, particularly how the FIRE-ees navigated thru the last recession. The assumption is you had a plan when you started, the recession hit and created significant paper loss (or real loss for those who may have panic sold), but you did something... stayed the course, got a job, lowered your SWR, robbed a bank, moved into a tee pee... but somehow came out the other end into 2015. So now, what does your plan look like compared to what you set out to do from the start? I think this is valuable shit for us newbies and frankly everyone looking forward. We all want to have the best tool box we can!

Nords

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I think Spartana, Old Pro, and RetiredAt63 have several years under their belt. I am sure there are others.
Not to forget Nords, who has been retired at least a decade.
Both Nords and his spouse were career military officers and so have dual pensions - that probably goes a long way to help secure their FIRE and alleviating any future risk fears of REing so maybe not applicable to the OP's questions. Of course most people with military pension don't seem to be able to manage to retire despite that so Nords has a lot of wisdom to offer on how he made that happen when many can't.
Thanks-- 13 years this month! 

Spartana, I know you already understand, so this is just clarification for the other readers. 

I have an active-duty pension now ($42,792/year) with a CPI cost-of-living adjustment and cheap Tricare health insurance (under $50/month).  My spouse is also retired, but from the Reserves-- so her pension kicks in at age 60 in 2022.  In today's dollars her pension would be about $67K/year, which is an obscenely large and redundant sum of money around which I still have difficulty wrapping my brain.  We have some cash flow from our rental property.  Hypothetically our savings will only have to last another six years, but our baseline spending is not much more than my pension.  We're gradually figuring out how to loosen up the purse strings, but we're clearly not spending it fast enough.

When I retired in 2002 (at the pit of the tech recession) it was not at all clear that my spouse would have a Reserve pension.  Her parents were squatting in our rental property, and renting to family does not create cash flow.  We were paying 8% on our home's mortgage.  We had only saved enough for our daughter to attend college at a state university.  We both planned to get "real" jobs if this ER thing didn't work out. 

Over the last 13 years, though, we kept doing the things that helped us reach FI in the first place.  We had nearly 20 years of dual-military income, and there were many sacrifices and stressful times.  (Only 17% of servicemembers make it to a pension, and ~10% of the military is dual-military marriages.  We're a statistical anomaly.)  We arguably have tremendous human capital in our specialties (nuclear engineering, meteorology/oceanography) although it's difficult to detect that from some of our performance appraisals.  We also took a lot of physical/stressful risks that are analogous to those of first-responders like firefighters and police officers. 

In other words, we worked our asses off in risky jobs and only now are we reaping the rewards. 

But we also did things that any Mustachian can do.  We didn't waste money, and we only spent it on the things that we valued.  (Even if they're my parents-in-law.)  We refinanced our mortgage multiple times (down to 3.625%) and we stayed aggressively invested in over 90% equities.  We kept working our DIY hobbies (building our own solar water heating system and photovoltaic array, blogging) and doing our own home maintenance and yardwork.  Our entertainment consists of surfing and home-improvement projects, not nightclubbing in Waikiki. 

When I retired we had a financial success probability of >80%.  Half of those percentage points would have left us with "enough".  A few of those percentage points would have left us with "more than enough".  Our trajectory over the last 13 years has followed the "more than enough" line.

But it was not so apparent in 2002, nor in 2009.  We can't confuse hindsight with foresight-- and certainly not with brilliance.

Like Spartana says, over 80% of military retirees immediately start a bridge career.  It's not just financial-- it's a commitment to service, or a need to take care of others, or a desire to see if you can make in the civilian corporate environment, or even an inability to believe that we have the skills & assets to survive in the civilian world.  It's complicated and I have a knack for explaining the issues. 

I am 4 yrs from Fire and want to tap into the knowledge of you experienced FIRE -tarians ... If there is such a word. I know the overall answers will depend on every individual's specific situation, risk tolerance, fall back options (eg. Get a job again), time horizons, etc, but work with me based on some general assumptions...

- min Fire time horizon of 30+ yrs
- no part time gig, 100% dependent on investments and any income sources such as SS/pensions
- utilizing 4% SWR
- you started Fire when a combination of your assets produced the required/preferred income
- Again, you have been Fire for 10+ yrs

Questions...
- What AA did you start with, has it changed?
- What if anything did you do differently from 2008 - 2011?
- How, if did, did you adjust your income/expense levels during the last 10 yrs?
- What % has your asset balance (assets used for income) changed +/- over the last 10 yrs?
- What, if anything would you have done differently?
- What would you advise us baby Fire-ees?

You 10 yr + guys have allot of wisdom to offer as you made it thru hopefully the worst market cycle we will see.
I've heard from many military veterans (no pension) who are in the same situation as you.  (For those who read the book, see Ken in Chapter 6.  He's a poster on Early-Retirement.org who volunteered his story.)  "All" that they have are their skills and their military training... maybe augmented with the GI Bill (for a short time) and some VA disability care (a minority of veterans).  They meet your initial conditions of your original post.

In Ken's case, he started out with 60% stocks/40% bonds and has not significantly changed that.  Most of it is in Vanguard Wellesley, which automatically maintains the asset allocation.  He didn't change anything over the Great Recession, although they put off a big fantasy vacation and spent more time with family.  (It's the opposite of the wealth effect.)  They started ER with a large RV and spent several months a year on the road.  Since then they've changed their travel spending by selling the Class A RV (too big for their needs) and going with a 5th-wheel rig (cheaper and more maneuverable).  That's the biggest difference.  Today Ken and his spouse are still spending several months per year on the road and still enjoying time with family.  His hair is grayer, too, but that's the most notable difference.

In my case, my military pension is one of the world's most trustworthy inflation-indexed annuities.  Because of that, I'm comfortable carrying a fixed-rate 30-year mortgage in retirement.  I'm also comfortable taking larger risks with the rest of our investments, which are >90% equities (index funds and Berkshire Hathaway).  To ride out the higher volatility of a high-equity portfolio, we keep about 8%-10% of it in cash (CDs and money market).  That's two years of spending, and most recessions are shorter than that.  If the market has a good year then we replenish the cash stash.  If the market has a bad year then we start cashing in CDs.

An annuity is more than just longevity insurance.  If you really screw up your other assets, then you have a bare-bones income-- even if it's "just" Social Security.  The 4% SWR is usually coupled with a success probability of 80%-95%.  Everybody focuses on the failures, though, and tries to make that 100%.  However the best way to handle the failure rates is to annuitize a portion of a portfolio.  It might be Social Security, it might be a deferred annuity, or it might be a single-premium immediate annuity that provides a bare-bones spending level for the first 5-10 years of ER.  The SPIA is particularly useful for the sequence-of-returns risk during the vulnerable first decade of ER when a recession could really hurt portfolio value.  So when you ER, then consider annuitizing a portion of your portfolio.

We started with the 4% SWR because of Bengen and the Trinity Study.  But here's the catch:  neither of them had the computing power to simulate variable-spending retirements.  Yet behavioral psychologists have shown many times that people cut their spending during bear markets and (maybe) raise it during bull markets.  Financially, this is backwards-- a luxury cruise is a lot cheaper during a recession, and so are home-improvement contractors.  But behavioral psychology is emotional, not mathematically logical.

I suspect that you're not a Vulcan financial analyst either.  When you ER then you'll start at the 4% SWR, but you will not robotically follow that through a bear market.  If a recession hits then you'll cut your spending (maybe even all the way back to your annuity).  When a bull market hits then you might take some gains off the table for future reserves.  But either way, your variable spending will go a long way toward covering the market's volatility and sequence-of-return risks to a portfolio.  You can also look at more recent studies of variable-spending schemes, or even try Bob Clyatt's 4%/95% system from "Work Less, Live More". 

When my spouse and I retired during the tech recession in 2002, we started at the 4% SWR.  We stayed within 4%, and we rebalanced our portfolio like crazy during the next 12 months to scoop up some stock-market bargains.  During the next five years we added some lifestyle luxury, but we were still well within 5%.  When the Great Recession came, we cut back to within the 4% SWR and did more rebalancing-- but we also spent a large chunk of cash on home-improvement contractors (at a huge discount). 

Today we're still at the same asset allocation.  Our net worth is nearly 2x larger today than in 2002.

Helpful, thanks. In my case, as someone who has been self employed my whole life, raising 4 kids, wife at home, I am it! No pension, just a combination of investments (i.e. Taxable and tax differed accounts and some investment RE) so outside of any income my RE is putting off, I am more dependent on the SWR method which is why I was more curious as to how long time FIRE-ees weathered the last recession both psychologically & strategically with their portfolios. Clearly having pensions that produce all or a significant amount of your overhead would help you sleep at night. Two related things I am picking up on is 1) many people end up spending less than they thought they would. Not sure if this due to being over conservative out of fear or just overestimating what FIRE life would be like? 2) As we get older our expenses drop barring some major medical expenses. This has always intrigued me in running the SWR model as it makes good sense to me to pursue your "bucket list" when you are younger, healthier, and more able and pursuing these things may require more $$ in say the first 10 - 15 yrs then after. So, do you/can you/should you run say a 5% SWR in the earlier yrs, do the funner, more active, and probably for many of us more expensive stuff, and then ratchet back there after? Just spit balling here as everything seems much simpler on paper which is why I like to hear from you all in the trenches. One last tid bit on me... while I subscribe to the MMM philosophy in many ways, my planned living expenses would be considered very excessive by most MMM true-ests. I know the immediate comment to this is I should have more margin to ratchet back when needed, which is true, but I think the overall questions are relative to any and all of us regardless of our targeted/actual FIRE overhead. More thoughts here??
That's correct.  You can probably start out at 5%, work on your bucket list while you're mobile, and then cut back later.  The math says that you'll have at least a 4/5 chance of success and maybe even leave a legacy to your great-great-grandkids.

If you found a Vegas blackjack table offering 80% odds, would you immediately sit down at the $100/hand table and play for a few years?  Or would you say "No, that's too risky, I want insurance before I risk $100K of my hard-earned salary."  Well, in ER you'll do a combination of both.

Your predicted ER spending is just a prediction, and it's conservative.  (It might be fear, too, but you'll get over that in a few years.)  Your actual ER spending reflects the conservative fudge factors, as well as the fact that you have the time to thoroughly review your finances (insurance, investment expenses), eliminate some spending (commuting, work attire, cell phone plans, cable TV), and save on other spending (doing your own yardwork, maintenance, and repairs).  You're also not just going to sit on your rocking chair pounding out your ER spreadsheet.  You'll probably find some way to turn a passion into a paying hobby, and you'll certainly experiment with part-time paid labor or set aside 10% of your asset allocation for extremely aggressive investments.  The skills that got you to FI will continue to pay off during ER.

However you should still insure against longevity, volatility, and sequence-of-returns risks (the latter during the first decade of ER).  The easy answer to those issues is annuitizing 15%-25% of your portfolio with a SPIA, and I'd include Social Security in that consideration.

So build up your assets to the 4% SWR, consider annuitizing some of them when you ER, and ER as soon as the fun stops at work. 

During the first decade of ER, spend 4%-5% but be flexible when necessary.  Stay open to revenue opportunities (if that's what you want to do) and don't take any crazy risks with your investment portfolio (or at least limit them to 10% of the asset allocation). 

After 10 years you're probably richer than when you started, and you're well on your way to an affluent life.  You could probably spend 5% but you just won't see the need to do so.  You'll focus even more on your health, so your medical expenses will generally stay manageable. 

After that first decade, you'll spend less time on analyzing your finances and more time on enjoying your life.

Damn, I think I just wrote another blog post.

I think we all can agree there is no set and forget plan in a world that is always going to be changing, but I think it helps to develope the best plan and alternative "what if" strategies. This was primarily what I was after when I started the thread, particularly how the FIRE-ees navigated thru the last recession. The assumption is you had a plan when you started, the recession hit and created significant paper loss (or real loss for those who may have panic sold), but you did something... stayed the course, got a job, lowered your SWR, robbed a bank, moved into a tee pee... but somehow came out the other end into 2015. So now, what does your plan look like compared to what you set out to do from the start? I think this is valuable shit for us newbies and frankly everyone looking forward. We all want to have the best tool box we can!
I won't sugar-coat it:  the 2008-09 stock market plunge was a real gut check even after six years of ER.  We dropped 58% from a "stupidly high" portfolio peak down to a "incredible bargains" low.  But DoD still kept depositing my pension, although I was mildly concerned that it might be paid in MREs.

During the entire period we stayed invested in our asset allocation and rebalanced like crazy.  It all came roaring back over the last six years, and our portfolio value reached a new high.  Today I doubt that we will ever sell the dividend ETF (DVY) shares or the Berkshire Hathaway shares that we bought during that period. 

Everyone has their own coping mechanisms for volatility and recessions.  Mine was obsessive/excessive analysis and bargain-hunting.  My spouse's approach was ignoring the stock markets and focusing on finding discounts on the things we already planned to buy.  Some might sleep better at night with a lower percentage of equities, or a higher percentage of dividend stocks and rental-property income.

And if you ever really screw things up, there's that monthly annuity deposit.
« Last Edit: June 13, 2015, 01:53:19 PM by Nords »

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Damm... Where you been hiding Nords?? Thanks for digging in to my real questions.

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Hey Nords

what AA do you maintain in ER?


Nords

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Damm... Where you been hiding Nords?? Thanks for digging in to my real questions.
Well, maybe my SEO could be better!

I check here once a week for posts with the keywords "Nords" or "military".  Otherwise I don't make the time to keep up with this forum's activity.

Hey Nords

what AA do you maintain in ER?
Pretty much the same one that we started ER with.  Before I distract you with tickers or changes, let me talk about the design and some disclaimers. 

My pension covers most of our expenses, and (these days) we have a little cash flow from the rental.  The rest of our expenses are handled by our investment portfolio with the 4% SWR.  However I'll add in the disclaimer again that we sleep comfortably at night with this volatile AA because much of our income is annuitized with a COLA (= military pension).  Every ER should have some annuity income for a bare-bones survival budget, even if it's "just" Social Security.  That's purely longevity insurance and has nothing to do with the 4% SWR.

I'll also point out the blatantly obvious:  there are millions of ways to do this.  The key is to develop your very own asset allocation plan, not one handed to you by anonymous Internet posters.  You have to have a system that you believe in (because you built it) and that you'll follow (because you made the rules).  I emphasize this because you're going to think that my plan is way too complicated, but that's my problem in exchange for solving other problems (while maintaining domestic harmony).  Over the last 28 years we've tried just about everything else before arriving at the status quo, and we're about done tweaking.

Our investment portfolio uses rebalancing bands.  When one asset goes outside the bands then it's time to rebalance.  Each of our assets started at 23% with bands of five percentage points (between 18%-28%).  This only leads to rebalancing every few years (not annually) and typically only in years like 1999, 2002, 2006, 2007, 2009, or... maybe... 2015.

My spouse and I encountered the classic rebalancing problem very early in our marriage.  When it was time to sell something, we wanted to let it run for a little longer.  When it was time to buy, we didn't want to touch that stuff with a 10-foot pole.  (She's worse than me about both.)  That discussion is easier when you're accumulating assets because you hold what you have and then use your regular paycheck contributions to buy more of what you need.  However in ER (no paychecks) it's painful to sell & buy when you no longer have that steady stream of paychecks coming at you.  Everybody likes "dry powder" except when it's finally time to light the fuse.

So here's the complicated part that preserves domestic harmony:  we sell covered calls and naked puts.  And frankly one reason for this rebalancing scheme is because I really enjoy any spouse conversation that uses the word "naked".

When our rebalancing bands are triggered, we either have to sell some shares or buy some more.  Instead of gritting our teeth and bitching about it, we sell covered calls or sell naked puts.  We pick a strike price that's about 5%-10% out of the money and sell the contract for enough shares to get back inside the 18%-28% band (ideally to 23%).  Then we pocket the proceeds and stop worrying about rebalancing.

If the option is exercised, then we're rebalanced.  End of discussion.

If the option expires worthless, then we sell another contract.  Eventually an option gets exercised or the other assets move on their own to return that asset back to its bands.  In the meantime we'll have earned several thousand dollars of options premiums for delaying the inevitable that we wanted to do anyway.

We use ETFs instead of index mutual funds because we can sell the options.  ETF expense ratios are higher but we've made over $30K on the options in the last seven years.  Our overall expense ratio is 0.21%.  We could find lower ERs but... domestic harmony and options contracts.

Regardless of rebalancing, we try to keep our cash at 8% of the total portfolio:  two years of spending.  We replenish it every year during bull markets and deplete it during bear markets.  As our portfolio grows while our spending stays relatively constant, this cash percentage tends to drift up to 10% or even 12%.  However if a bear market comes along then it can go to zero at the end of the second year.

In late 2007 I got interested in angel investing.  At the time, Hawaii offered 100% income-tax credits for investments made in "high-tech businesses".  That tax break was killed in 2010 but I still have many years of credits to carry forward while we wait for exits.  I decided that I should learn more about angel investing while I was at the peak of my cognition, and immunize myself against the temptation when I'm 82 years old.  That's succeeded beyond my wildest fantasies-- the immunization, not the cognition or the exits.  Today I'm still going to the meetings but I'm not investing more money.  I plan to let them all run and to close themselves out... which ideally will take more than a decade.

I include the angel investments in the small-cap asset allocation because that's the riskiest of the four equity categories.  I've also limited the percentage of money that we put into angel investing-- the 10% "shoot the moon" allocation that keeps you from doing stupid things with the rest of your assets.

Today our asset allocation is:
6% cash
25%  Berkshire Hathaway (BRK/B)
24%  iShares MSCI Value ETF (EFV)
24%  iShares Select Dividend ETF (DVY)
21 % iShares S&P600 Small-cap Value ETF (IJS) + TSP S fund + angel investments

If you've been following the international markets, EFV looks a little high.  That's because we bought more shares a couple years ago when it took a dive and a put got exercised. 

I'm gradually converting the TSP funds to a Roth IRA before my spouse's Reserve pension puts us into a higher tax bracket.  (Good problem to have.)  Just last week we got the alert that the funds have left her traditional TSP account and are enroute her traditional IRA.  We'll buy more IJS with the TSP funds.

Berkshire Hathaway:  I'm a hardcore fan of Munger and Abel and Rose (and Buffett too).  We've held most of these shares since 2002, although we added more in 2009.  Since my spouse and I have our expenses covered with other assets, I'm beginning to think that we should hold the Berkshire shares literally for the rest of our lives. 

The angel investments... well... so far it's philanthropy that's created a lot of short-term jobs.  Four of my nine investments have failed fast, although two failures were covered by tax credits and one coughed up a little cash before going out of business.  Two more are looking pretty good (med tech) and I'm tempted to start counting chickens (five more years).  Three others are too close to call (med tech, travel industry) but making profits and definitely not dead. 

In the meantime I've learned far more about investing than I've ever learned from the stock markets or an MBA.  The learning has been worth the tuition, and I'm helping military veterans who are entrepreneurs.

I'm sharing the angel investment info because I'm considering writing a series of blog posts that will become an eBook.  If you have more questions (or experience) feel free to contact me to share the details.  When we answer each other's questions, I develop a better outline.



« Last Edit: June 13, 2015, 04:59:49 PM by Nords »

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I budget June to June

I'm curious, why do you do that?

I would imagine because the Australian financial year runs 30 June-30 June

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When our rebalancing bands are triggered, we either have to sell some shares or buy some more.  Instead of gritting our teeth and bitching about it, we sell covered calls or sell naked puts.  We pick a strike price that's about 5%-10% out of the money and sell the contract for enough shares to get back inside the 18%-28% band (ideally to 23%).  Then we pocket the proceeds and stop worrying about rebalancing.

If the option is exercised, then we're rebalanced.  End of discussion.

If the option expires worthless, then we sell another contract.  Eventually an option gets exercised or the other assets move on their own to return that asset back to its bands.  In the meantime we'll have earned several thousand dollars of options premiums for delaying the inevitable that we wanted to do anyway.

We use ETFs instead of index mutual funds because we can sell the options.  ETF expense ratios are higher but we've made over $30K on the options in the last seven years.  Our overall expense ratio is 0.21%.  We could find lower ERs but... domestic harmony and options contracts.


Nords, wow ... thanks for all that info in your last couple of posts.

I'm intrigued by selling options to rebalance... but have very little knowledge about options trading.  How do you pick the time horizon (expiry) for the covered calls and naked puts?

Also ... Canadian angle:  does anyone know if this is a workable strategy for ETFs in Canada?  When I've briefly looked at the Montreal exchange it seemed like the available options are pretty limited.

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I retired at 39 in 99/2000, which I suspect will end up being one of those years like 1964 that was particularly bad time to retire. I had no pension, no real estate.

I hadn't intended to stop working permanently, but other than early 2009 I never was really concerned about running out of money.   My advice is have a good margin of safety. It can be very hard to find a good job after you've been out of the workforce for several years.  It was basically 10 years for me when I was concerned about running money and trying to find a job at almost 50 in 2009, no fun.  So for me spending another 1 year at well paying job even if you are totally burned out is better than risking spending 5 years as a greeter at Walmart when you are really desperate for money.

Lifestyle is so personal that won't offer advice. Financially I will.

I was heavily concentrated in tech stocks in 1999 especially Intel, by Jan 2000 I sold much of my Intel and virtually all of my tech stock in Jan 2000.   My timing was a combination of lucky and good.
The proceeds where invested in Muni bonds that were paying ~5% and TIPs bonds in my IRA that had a coupon of 3.6-3.93%.  My  max bond AA was probably 40% in 2002/3 thanks to a declining stock market.  I do have a target AA 80/20 which was consciously changed in the 2009 from 75/25 which was my target during the mid 2000s.   I feel like Buffett says that bonds offer return free risk right now, and so my my current bond AA is well under 10% (inflation protected short term corporates), as a substitute for bonds I have stocked up on any CD deals that were offered.  Penfed offer 5% 10 year CD back in 2011 and I bought a lot.  I wish I had bought more even though the money I had in the market obviously far exceeded the 5% yield I'm getting for the CDs.  But one  thing I learned during the 2008/9 crisis is that when I think stocks are sale I'll buy more than I should, so having CD keeps me from taking excessive risk, cause they can't be cashed in with the click of a mouse.

So to me financial matters in retirement boil down to these main points.

1. Reduce income volatility
2. Don't panic
3. Think
4. Be flexible.

1. Reduce Income volatility and replicate a paycheck
I really can't stress this enough.  Psychologically not having a paycheck is a big adjustment, especially for the type of folks that plan on retiring early. We have our calculator and spreadsheets track our spending. Then we retire and we have a stash but no predictable cash flow. It is scary;   and like sex there something that you just can't understand till you've done it. Psychologically, you have a leg up being self-employed as opposed to most of us who were wage slaves. As Nords and William Bernstein stress not all of your income needs to predictable just what you need to live on a minimal comfortable level.

If you got a pension that awesome, you like me don't.  Now there are multiple ways to replicate a paycheck.   If you want a part time job owning real estate can work, but you want a decent number of property 6+ and preferable in multiple markets. An SPIA from a good insurance company, and hopefully under your states insurance guaranty association limits is excellent but for somebody in their 50s expensive especially with today's ridiculously low interest rates.

It's more challenging to do so with a portfolio. Something like the Vanguard managed payout portfolio funds is something that is worth looking into. Vanguard launched this in the summer of 2008 and the timing was awful so they aren't popular, but I think the concept is sound

For me the easiest way to replicate a paycheck has been with a dividend income portfolio.  In my case about 60% of my portfolio is individual dividend paying stocks. I also have a large chunk of Berkshire Hathaway but that's for another reason. There are number of dividend skeptics on the board and I am pretty much agnostic as for the need for dividend focused portfolio in the accumulation phase. However for those of in retirement the benefits of a lower volatility stream  of income is very important both mathematically and psychologically.   Now by a dividend income, I don't necessarily mean purchasing individual dividend paying stocks like I do, or even dividend focused ETF or funds, just having the dividends of your stock index fund sent to your checking account instead of reinvested is just fine.

I'm not very mustachian, I don't track spending except at gross level, and don't really need to economize so I don't. However, I do update my income spreadsheet which includes 40 odd positions a couple of times a year. That sets my base spending for the year. I know that if I only spend my income I won't run out of money. I also know that over time I am very likely to have significant capital gains, and if I need to splurge and buy a Tesla, remodel the kitchen, invest in a start up, or go on an expense trip, I'll use the accumulated capital gains to "pay" for these but I don't count on capital gains for day to day living expenses.

What about the total return approach, have a fixed AA and rebalance each year and withdraw 4%, adjust for inflation?  I.e. do what the Trinity studies, FIRECalc etc. do.  In my experience this works better in theory than with real retirees. I have yet to meet on the net or in real life an actual real retiree who follows this practice precisely. Although many who follow it generally.
The problem with  total return approach is it can lead to panic

2. Don't Panic.
One of the things that will screw up a retirement finances is selling at the bottom. I having been in the market since I was 16, through a combination of temperament, and experience, I have internalized Buffett's advice to be greedy when others fearful. So I am quite good at buying at the bottom, not nearly as good as selling at the top. One of the advantage of owning individual stocks is that I never view the stock market as giant (mostly rigged) casino like so many mutual fund investor do.  Knowing what my baseline income generated from the portfolio is has made me far less concerned about the day to day or even year to year fluctuations of the market.   (My income during the financial crisis was down by only 5%) But mine isn't the only way.  If you can be very disciplined or Vulcan-like as Nord suggest and stick to your AA sell bond funds and buy stock funds when the market is down. If you can do this you'll do fine. In my experience many people need some help in keeping from panic selling, a fee only financial adviser, spending time in a early retirement forum with supportive people, a written investment policy statement, or learning more about market history all help.

3. Think
Rather than just buying or selling because of some fixed reason, I believe it is important to think through the rationale of why you are buying or selling something. (I know this opposite of what I just said about being very disciplined and sticking to your AA.)  In particular I ask one question before making an investment, will this purchase help with maintaining my retirement. So back in 2000 and 2001 when 10 year TIPS were near 4% the answer to the question was clearly yes. It didn't matter that I find bonds boring, or my faith in Uncle Sam to be avoiding effective default (most likely through very high inflation) isn't high. The bond were inflation protected, they were well above the 3% I needed, and the danger of default in 10 years was tiny.  Today with 10 year TIPs at .4% yield, and 40 year time frame (I have 90 year old mom and two grandfathers than lived to 95) even spending 2.5% of my principal plus the .4% interest is just below the 3% I want to spend from my portfolio. Now if the yield goes up to say 2% or when I become say 70 then math changes and TIPs will make sense as part of my retirement portfolio.

4. Be flexible
When the market crashes I buy more stocks and during 2008/09 I reduced spending and delayed things like buying a new car, remodeling etc. In general I don't spent more than my income, but a number of companies did cut dividends so I did spend over my income in 2009. The last few years the capital gains far exceeded my spending, and dividend growth has been robust. So spending on things like cars, and home improvement made sense.


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I budget June to June

I'm curious, why do you do that?

I would imagine because the Australian financial year runs 30 June-30 June
Yep! It also makes more sense when you consider that January is one long holiday here (remember it's the mid-summer school break), so everything (bills, payments...) comes in at a different date than you would expect. With end-of-financial-year everyone sends you your yearly breakdowns.

Exhale

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I budget June to June
I'm curious, why do you do that?
I would imagine because the Australian financial year runs 30 June-30 June
Yep! It also makes more sense when you consider that January is one long holiday here (remember it's the mid-summer school break), so everything (bills, payments...) comes in at a different date than you would expect. With end-of-financial-year everyone sends you your yearly breakdowns.

Makes sense - thanks!

Nords

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When our rebalancing bands are triggered, we either have to sell some shares or buy some more.  Instead of gritting our teeth and bitching about it, we sell covered calls or sell naked puts.  We pick a strike price that's about 5%-10% out of the money and sell the contract for enough shares to get back inside the 18%-28% band (ideally to 23%).  Then we pocket the proceeds and stop worrying about rebalancing.

If the option is exercised, then we're rebalanced.  End of discussion.

If the option expires worthless, then we sell another contract.  Eventually an option gets exercised or the other assets move on their own to return that asset back to its bands.  In the meantime we'll have earned several thousand dollars of options premiums for delaying the inevitable that we wanted to do anyway.

We use ETFs instead of index mutual funds because we can sell the options.  ETF expense ratios are higher but we've made over $30K on the options in the last seven years.  Our overall expense ratio is 0.21%.  We could find lower ERs but... domestic harmony and options contracts.


Nords, wow ... thanks for all that info in your last couple of posts.

I'm intrigued by selling options to rebalance... but have very little knowledge about options trading.  How do you pick the time horizon (expiry) for the covered calls and naked puts?

Also ... Canadian angle:  does anyone know if this is a workable strategy for ETFs in Canada?  When I've briefly looked at the Montreal exchange it seemed like the available options are pretty limited.
Admittedly I drank a lot of coffee this morning, but I've been trying to work up a couple of posts on these subjects.  Now I have a lot more material to work with.

The textbook is McMillan's "Options As A Strategic Investment".  Anyone who gets through this is ready to sell options.  Anyone who can't get through it should forget about options.

In general, we pick an expiry with 6-9 months.  They certainly have higher premiums, but I also convert them to an annual interest rate to see whether there's a big difference.  Occasionally the options market on a particular stock or ETF gets out of whack due to other traders or particular dates (end of the quarter, end of the year).  When that happens a six-month expiry may be paying the equivalent of 4.5% APY while a nine-month expiry may be "only" the equivalent of a 4% APY.

But again, we only sell calls or puts when we're outside of our rebalancing bands.  I'm not scanning the options trades every day. 

   I feel like Buffett says that bonds offer return free risk right now...
Ha!  I almost overlooked that.
« Last Edit: June 13, 2015, 11:34:47 PM by Nords »

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I retired at 39 in 99/2000, which I suspect will end up being one of those years like 1964 that was particularly bad time to retire. I had no pension, no real estate.

I hadn't intended to stop working permanently, but other than early 2009 I never was really concerned about running out of money.   My advice is have a good margin of safety. It can be very hard to find a good job after you've been out of the workforce for several years.  It was basically 10 years for me when I was concerned about running money and trying to find a job at almost 50 in 2009, no fun.  So for me spending another 1 year at well paying job even if you are totally burned out is better than risking spending 5 years as a greeter at Walmart when you are really desperate for money.
A little confused... It sounds like perhaps you lost your job in 1999/2000 as opposed to a planned retirement? Other than a shitty market, what happened to your portfolio that made you concerned in 2009 vs any other yrs around that time? It sounds like you pulled out of it and you are tracking today?

Lifestyle is so personal that won't offer advice. Financially I will.

I was heavily concentrated in tech stocks in 1999 especially Intel, by Jan 2000 I sold much of my Intel and virtually all of my tech stock in Jan 2000.   My timing was a combination of lucky and good.
The proceeds where invested in Muni bonds that were paying ~5% and TIPs bonds in my IRA that had a coupon of 3.6-3.93%.  My  max bond AA was probably 40% in 2002/3 thanks to a declining stock market.  I do have a target AA 80/20 which was consciously changed in the 2009 from 75/25 which was my target during the mid 2000s.   I feel like Buffett says that bonds offer return free risk right now, and so my my current bond AA is well under 10% (inflation protected short term corporates), as a substitute for bonds I have stocked up on any CD deals that were offered.  Penfed offer 5% 10 year CD back in 2011 and I bought a lot.  I wish I had bought more even though the money I had in the market obviously far exceeded the 5% yield I'm getting for the CDs.  But one  thing I learned during the 2008/9 crisis is that when I think stocks are sale I'll buy more than I should, so having CD keeps me from taking excessive risk, cause they can't be cashed in with the click of a mouse.
Did you stay between 75 - 80% stocks since 2000? Road out the storm?
So to me financial matters in retirement boil down to these main points.

1. Reduce income volatility
2. Don't panic
3. Think
4. Be flexible.

1. Reduce Income volatility and replicate a paycheck
I really can't stress this enough.  Psychologically not having a paycheck is a big adjustment, especially for the type of folks that plan on retiring early. We have our calculator and spreadsheets track our spending. Then we retire and we have a stash but no predictable cash flow. It is scary;   and like sex there something that you just can't understand till you've done it. Psychologically, you have a leg up being self-employed as opposed to most of us who were wage slaves. As Nords and William Bernstein stress not all of your income needs to predictable just what you need to live on a minimal comfortable level.

If you got a pension that awesome, you like me don't.  Now there are multiple ways to replicate a paycheck.   If you want a part time job owning real estate can work, but you want a decent number of property 6+ and preferable in multiple markets. An SPIA from a good insurance company, and hopefully under your states insurance guaranty association limits is excellent but for somebody in their 50s expensive especially with today's ridiculously low interest rates.

It's more challenging to do so with a portfolio. Something like the Vanguard managed payout portfolio funds is something that is worth looking into. Vanguard launched this in the summer of 2008 and the timing was awful so they aren't popular, but I think the concept is sound

For me the easiest way to replicate a paycheck has been with a dividend income portfolio.  In my case about 60% of my portfolio is individual dividend paying stocks. I also have a large chunk of Berkshire Hathaway but that's for another reason. There are number of dividend skeptics on the board and I am pretty much agnostic as for the need for dividend focused portfolio in the accumulation phase. However for those of in retirement the benefits of a lower volatility stream  of income is very important both mathematically and psychologically.   Now by a dividend income, I don't necessarily mean purchasing individual dividend paying stocks like I do, or even dividend focused ETF or funds, just having the dividends of your stock index fund sent to your checking account instead of reinvested is just fine.
I have been banging around the dividend approach for the very reasons above you mentioned... Have some psychological comfort that a certain amount of "steady" income is coming in. As you mentioned, dividends can get cut so no guarantees. I would be curious as to what yield on your dividend portfolio you have been able to achieve since 2000 and how the value of those stocks appreciated compared to the remainder of your stock portfolio (if you track it that way)?
I'm not very mustachian, I don't track spending except at gross level, and don't really need to economize so I don't. However, I do update my income spreadsheet which includes 40 odd positions a couple of times a year. That sets my base spending for the year. I know that if I only spend my income I won't run out of money. I also know that over time I am very likely to have significant capital gains, and if I need to splurge and buy a Tesla, remodel the kitchen, invest in a start up, or go on an expense trip, I'll use the accumulated capital gains to "pay" for these but I don't count on capital gains for day to day living expenses.
Interesting approach. You must be very flexible financially. I am assuming then you are not touching much of you principle? What % has your principle account changed(up/down) since 2000?
What about the total return approach, have a fixed AA and rebalance each year and withdraw 4%, adjust for inflation?  I.e. do what the Trinity studies, FIRECalc etc. do.  In my experience this works better in theory than with real retirees. I have yet to meet on the net or in real life an actual real retiree who follows this practice precisely. Although many who follow it generally.
The problem with  total return approach is it can lead to panic

2. Don't Panic.
One of the things that will screw up a retirement finances is selling at the bottom. I having been in the market since I was 16, through a combination of temperament, and experience, I have internalized Buffett's advice to be greedy when others fearful. So I am quite good at buying at the bottom, not nearly as good as selling at the top. One of the advantage of owning individual stocks is that I never view the stock market as giant (mostly rigged) casino like so many mutual fund investor do.  Knowing what my baseline income generated from the portfolio is has made me far less concerned about the day to day or even year to year fluctuations of the market.   (My income during the financial crisis was down by only 5%) But mine isn't the only way.  If you can be very disciplined or Vulcan-like as Nord suggest and stick to your AA sell bond funds and buy stock funds when the market is down. If you can do this you'll do fine. In my experience many people need some help in keeping from panic selling, a fee only financial adviser, spending time in a early retirement forum with supportive people, a written investment policy statement, or learning more about market history all help.

3. Think
Rather than just buying or selling because of some fixed reason, I believe it is important to think through the rationale of why you are buying or selling something. (I know this opposite of what I just said about being very disciplined and sticking to your AA.)  In particular I ask one question before making an investment, will this purchase help with maintaining my retirement. So back in 2000 and 2001 when 10 year TIPS were near 4% the answer to the question was clearly yes. It didn't matter that I find bonds boring, or my faith in Uncle Sam to be avoiding effective default (most likely through very high inflation) isn't high. The bond were inflation protected, they were well above the 3% I needed, and the danger of default in 10 years was tiny.  Today with 10 year TIPs at .4% yield, and 40 year time frame (I have 90 year old mom and two grandfathers than lived to 95) even spending 2.5% of my principal plus the .4% interest is just below the 3% I want to spend from my portfolio. Now if the yield goes up to say 2% or when I become say 70 then math changes and TIPs will make sense as part of my retirement portfolio.

4. Be flexible
When the market crashes I buy more stocks and during 2008/09 I reduced spending and delayed things like buying a new car, remodeling etc. In general I don't spent more than my income, but a number of companies did cut dividends so I did spend over my income in 2009. The last few years the capital gains far exceeded my spending, and dividend growth has been robust. So spending on things like cars, and home improvement made sense.
No doubt this is the key. My thought was to have basically 3 "budgets" ... 1) Bare bones - I can feed myself, keep a roof over my head, basically do cheap shit if the things tank, 2) RE design - covers all the shit I basically wanted to do like the annual travel, entertainment, etc, and 3) Bonus - if I hit pay dirt in the market, treat myself to something I always wanted to do above and beyond 2) stuff.
Thanks for sharing, good stuff!

Dawg Fan

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Clifp - I just noticed about 1/2 my posted comments to yours did not show up. A few questions... Other than a shitty market in 2009, what'd freeked you out more specifically about your $$ and what , if anything did you do then to come out of it? Assuming you got back to a good place today?

Curious as to how consistent or the dividend yield range you were able to achieve since 2000? How did your dividend portfolio appreciate since 2000 compared to the rest of your stock portfolio? Any specific changes you made there over the yrs?

Lastly, it sounds like you really are not touching your principle? How has that grown since 2000 and what, if any, major portfolio adjustments did you make since then? It sounds like your major adjustments were primarily making your spending match your returns for the yr? There were obviously yrs of negative return other than any interest/dividends you received so did you also sell some stocks/bonds to fund expenses or just totally drop your spending to match the dividends/interest? Wasn't clear if any job income came into play during this time.

Thanks.

fa

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Excellent posts here.  Please keep them coming.  This is really useful material.  Thank you.

Financial.Velociraptor

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The textbook is McMillan's "Options As A Strategic Investment".  Anyone who gets through this is ready to sell options.  Anyone who can't get through it should forget about options.

In general, we pick an expiry with 6-9 months. 

I keep about a third of my portfolio in cash to secure put writing.  I prefer expiries 6 to 8 weeks out.  I find that is the "sweet spot" for maximum theta decay and thus yields the highest annualized rate of return.  YMMV.

markbike528CBX

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Quote from: Nords link=topic=38666.msg695356#msg695356 date=

..........
However in ER (no paychecks) it's painful to sell & buy when you no longer have that steady stream of paychecks coming at you.  Everybody likes "dry powder" except when it's finally time to light the fuse.  .......

So here's the complicated part that preserves domestic harmony:  we sell covered calls and naked puts.  And frankly one reason for this rebalancing scheme is because I really enjoy any spouse conversation that uses the word "naked".    ...........

........
We use ETFs instead of index mutual funds because we can sell the options........

 


I've been trying to figure out how to get spending cash out of assets(mostly stock index funds).  Squirrling away current income is easy, but the only time I've sold anything, to pay down part of the mortgage, I had the most intense agony over it.   I can't imagine  "lighting the fuse" on a regular basis.  Nice analogy.

any spouse conversation that uses the word "naked"
+1

only have mutual funds so no options  :-(     
It especially irritating as selling cash covered "naked" puts is one of my stock accumulation techniques.



1. Reduce Income volatility and replicate a paycheck
I really can't stress this enough.  Psychologically not having a paycheck is a big adjustment, especially for the type of folks that plan on retiring early. ...
Then we retire and we have a stash but no predictable cash flow. It is scary;   and like sex there something that you just can't understand till you've done it.
 Psychologically, you have a leg up being self-employed as opposed to most of us who were wage slaves. As Nords and William Bernstein stress not all of your income needs to predictable just what you need to live on a minimal comfortable level.

If you got a pension that awesome, you like me don't.  Now there are multiple ways to replicate a paycheck.   If you want a part time job owning real estate can work, but you want a decent number of property 6+ and preferable in multiple markets. An SPIA from a good insurance company, and hopefully under your states insurance guaranty association limits is excellent but for somebody in their 50s expensive especially with today's ridiculously low interest rates.

It's more challenging to do so with a portfolio. Something like the Vanguard managed payout portfolio funds is something that is worth looking into. Vanguard launched this in the summer of 2008 and the timing was awful so they aren't popular, but I think the concept is sound

For me the easiest way to replicate a paycheck has been with a dividend income portfolio.  In my case about 60% of my portfolio is individual dividend paying stocks. I also have a large chunk of Berkshire Hathaway but that's for another reason. There are number of dividend skeptics on the board and I am pretty much agnostic as for the need for dividend focused portfolio in the accumulation phase. However for those of in retirement the benefits of a lower volatility stream  of income is very important both mathematically and psychologically.   Now by a dividend income, I don't necessarily mean purchasing individual dividend paying stocks like I do, or even dividend focused ETF or funds, just having the dividends of your stock index fund sent to your checking account instead of reinvested is just fine.


@clifp

Wow, this really hit home.
    Always, in professional career, had a steady paycheck.
           Work level seasonal, but planned for it  R&D vs customer work.
    Don't have enough dividends in taxable to support current basic spending
    too early for pension, pension will be small when it does arrive at age 55 to 60.

Spouse already warned that the first years will be a tough adjustment for me, and she should consider a spending money job, I don't have to know, worry about her spending.

If we RE now, at target spend (basic +fun money+ margin of safety), we would spend down nearly entire taxable by age 60.

Thanks for concrete suggestions on replicating paycheck.

Net upshot.
Might not be as ready to FIRE as I thought!   
cfiresim says 85%+ success at target for 45 year retirement.

15% less spend and add in Social Insecurity, pension = 100%
yes, I know that is the answer, but it increases the first year issues noted above.
   

RoadLessTravelled

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I think very few people are FIRE-ing purely on index funds with a 4% withdrawal rate.  As my planning/strategy starts shifting from accumulation (I've got that on auto-pilot) to withdrawal, I'm finding that nobody seems to do it by the book.  Even our demigod MMM has a very diversified set of post-FIRE income streams.

I agree and as I wrote on another thread, there is no such thing as a SAFE WR.  If someone chooses to withdraw from capital to fund retirement, that is their choice but any suggestion that it is SAFE is ridiculous.  No one can predict the future and the study based on the past cannot predict the future either.  The assumption being made is that all things will remain equal.  In fact, the only thing you can be sure of is that change will occur.

Capital can always produce income.  If you live on the income your capital produces, then you have no problem.  If you start to spend the capital, you MAY have a problem in the future.  That to me seems pretty simple to understand.  People like the 4% SWR theory because it appears to show they can retire sooner with a smaller stash.  They get that far and then stop looking for alternative answers.

If you choose to say the capital cannot be drawn down, then it changes the question.  It focuses you on ROI.  If you need X income to be happy, you then look at how much capital do I need to provide that income AND how high an ROI can I get so that the amount of capital I need is as low as it can be.

I would never be satisfied with a 4% ROI on my capital.  I want at least 10% ROI.  A simple example of how to do that is real estate.  There are many different ways to invest in real estate that will return you 10% or more if you know what you are doing.  That's the key, knowing what you are doing.  The 4% SWR and index funds is in fact the apparent investing for dummies answer.  No real knowledge required, just do this and you'll be fine. 

Then they add the, 'and oh yeah, be prepared to be flexible'.  Of course there is no explanation given of what that flexible is supposed to look like.  Good luck with that.  But people always want the easy and instant answer.  If someone appears to be offering them such an answer then they will grab it.

I live off the income my capital provides me.  I do so through investing in real estate and have been doing so for several decades.  It is an ongoing thing, I didn't get to X point in time and then stop figuring out how to make money.  That seems to be the idea behind the 4% SWR.  You get to X in terms of a stash and then you sit back and just spend the money.  I don't think anyone will find people who have been sitting back doing that for 10+ years.

Now hold on a minute...
This notion of 'not touching the capitol' is fraught with snakes and demons.  On the surface it seems so appealing - say you have $1MM - the "never touch your capitol" mantra preaches that that $1MM is somehow sacred and that you can somehow just leave it alone and all will be well.  The problem is, that doesn't work in reality.  First, there's inflation to consider, so if you have $1MM in 2015 you might need $1.03MM in 2016 for purchasing parity.  So already this 'capitol' idea is a moving target. Then there's market fluctuations - regardless of whether you are invested in the stock market or real-estate, what happens when prices drop?  You never touched this 'capitol' but suddenly it's worth less.  Does that violate the tenant of 'don't touch the capitol' rule?
Then there's dividends.  Many believe that living solely off dividend income is somehow 'better' than withdrawing a fixed percentage each year, because it 'protects the capitol'.  In reality this is a red herring; for every cent a company pays out in dividends, their share price decreases by an equal amount.

You've painted a 4% WR as the idiot's guide to investing, and I will grant you that one of it's most wonderful qualities is it's simplicity.  But I woulnd't confuse simplicity in execution with simplicity of concept.  It traces its routes to the trinty study, which takes into account historical market volatility, interest rates and market returns.  It's far from simple.

I agree that there are absolutely methods for getting higher returns, including real-estate.  But as you've pointed out, you have to 'know what you are doing' and you need to put in at least some work and typically you need at least a moderate level of handyman skill.  You then seem to lambast the idea of being flexible, saying:
Quote
hen they add the, 'and oh yeah, be prepared to be flexible'.  Of course there is no explanation given of what that flexible is supposed to look like.  Good luck with that
but you immediately say you never give up the knowledge of how to make money.  I believe these are the same thing - absolutely no sensible person is advocating a strategy of setting up a WR and then ignoring everyhting forever.  Some (like MMM) choose to build houses because they enjoy it and are good at it.  Others start side hustles, move around, adjust their costs....  it's human nature.

The 4% WR is a plan, and it's a good plan.  But like all plans, it doesn't mean you can follow it blindly forever. That shouldn't be mistaken for a flaw.

You're making some assumptions nereo.  Don't touch the capital does not mean don't add to the capital.  Adding enough to cover inflation is not a problem.

Second you ask what happens when prices drop.  You are assuming they drop signifigantly and for a signifigant amount of time.  That is not necessarily the case.  My capital value invested in real estate has dropped from time to time but never low enough or for long enough to actually affect things on a year on year basis. 

I buy and sell condos in Toronto.  Have a read here and look at the graph near the bottom to see what things looked like before, during and after the 08/09 recession.   In answer to Dawg Fan's question about the 08/09 recession, I could almost say, recession, what recession?  http://www.torontohomes-for-sale.com/Toronto-average-real-estate-property-prices.html

The one thing you do have right is that you have to know what you are doing.  As Kenny Rogers sang, 'You have to know when to hold them, know when to fold them'.  Forget the handyman skills though, you're assuming again.  I do not do improvents to properties myself, I use a contractor whenever I do that.  I never buy a property that I think needs more than paint, new carpet and appliances.  Many I do nothing at all to.  I simply look for a good buy (again knowing what to look for and finding the right seller) and sell for a profit.  Buy low, sell high, the age old simple formula.

Here is the key difference though from your 4% SWR answer nereo.  Bear in mind that the same capital can buy more than one condo per year.  So let's say you ONLY make 5% net return on each of 3 sales using the same $500k to buy.  Your actual ROI is 15% or $60k in cash.  Now do that with 6 properties or 10.  Then consider what happens if you make more than 5% net profit per property!  You can either bank more money or choose to sit back and buy/sell less properties to generate the income you are happy with. 

What do you think happens to your stash if you buy a property at full asking price before it even has time to be listed and then sell it 2 months later for 100%+ over your new asking price?  From the link above:  "The highest percentage above list price for condos in the City was 149% for a condo townhouse, closely followed by 147% for a condo apartment, both in Scarborough."  I have bought and sold at 100%+ plus profit twice nereo and at 25%+ a half dozen times.  I've never had to sell at a loss.

Now suppose you believe the market will drop in the short term.  You sell out and stop buying.  The capital is then cash in the bank which does not drop in value.  My capital is either in cash or in a property.   Again you have to judge when to stop buying and when to start again.  That is another key difference nereo.  The 4% rule assumes the money is invested ALL year.  I could make 10% in 3 months and then let the money sit in cash for 9 months of that same year.  All I have to do is try to predict where prices will go for the next couple of months. 

As for how much 'work' and time is involved, I'd say no more than a week per property at the most.   

clifp

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Clifp - I just noticed about 1/2 my posted comments to yours did not show up. A few questions... Other than a shitty market in 2009, what'd freeked you out more specifically about your $$ and what , if anything did you do then to come out of it? Assuming you got back to a good place today?

Curious as to how consistent or the dividend yield range you were able to achieve since 2000? How did your dividend portfolio appreciate since 2000 compared to the rest of your stock portfolio? Any specific changes you made there over the yrs?

Lastly, it sounds like you really are not touching your principle? How has that grown since 2000 and what, if any, major portfolio adjustments did you make since then? It sounds like your major adjustments were primarily making your spending match your returns for the yr? There were obviously yrs of negative return other than any interest/dividends you received so did you also sell some stocks/bonds to fund expenses or just totally drop your spending to match the dividends/interest? Wasn't clear if any job income came into play during this time.

Thanks.

Sorry missed this group of questions.
Here are couple of other post about my dividends and returns (and ya some bragging)
http://forum.mrmoneymustache.com/investor-alley/what-does-your-dividend-portfolio-look-like/msg617813/#msg617813

http://forum.mrmoneymustache.com/post-fire/net-worth-volatility/msg579445/#msg579445

Two things scared me about 2009, first my liquid networth dropped under my self proclaimed floor of $2 million, which is the point I said I start looking for work when I retired.  In truth I could certainly get by on under $2 mil although Hawaii is expensive. Fortunately by the time I put together things like a resume and starting 1/2 way seriously looking for jobs my portfolio rebounded.
Secondly, I ran out of cash to buy stock by end of 2008. So I did something similar to Nords, I wrote naked puts.   The panic was so great in 2008 and 2009 that people were willing to pay crazy amount of premiums for portfolio insurance so I wrote long term options (LEAPs) roughly 3x what people will pay today. If the market had continued to drop another 10-20% by Jan 2010, I would have had to come up with an additional $300K, which I really didn't have so that was an example of taking excess risk. 

Basically, each month I transfer X from my brokerage account to my checking account (both Schwab).  The amount is adjusted based on my estimate dividend/income each year. In every year but 2009 it goes up as companies raise their dividends. In 2009, between companies cutting dividends and interest rates plummeting, the actual income was below my withdrawals so I ended up with using principal.  But no job w*rk is a four letter word.  Although I do have a fair amount of volunteer jobs.

Dividend yield has dropped considerable.  I've been a subscriber  to M* Dividendinvestors newsletter for ten years, of the many investment newsletter I've tried it is the only one I resubscribe to.  The editor Josh Peters has an excellent track record with a real money portfolio and really understands the needs of his subscribers. One of the biggest benefits I've got from the newletters is understanding Master Limited Partnerships and specific recommendation on them. MLP are typical an alternative capital structure to the traditional stock or bond offering most corporations use for raising capital. They are generally used by companies in the energy sector primarily for those involved in transporting and/or refining gas or oil.   Many of these are huge firms such as Kinder Morgan.  However, for tax reason it is virtually impossible for mutual funds to own them, and difficult for ETFs to purchase them. Thus your index fund buyer who buys the Vanguard Total Market fund missed out on many of the players in this segment.  Considering the  Oil and Gas Midstream segment is up 13.9% over 10 years and 13.4% over 15 year vs the S&P performance of 7.9% and 4.3% over the same period that is a lot money indexers left on the table. When I started buying them they were distributing between 8-10% but the yield has dropped to 4-6%

Among regular corporation it was easy to find 4-6% yields among name brand slow growth companies up until recently, now day find much over 3% is challenging.
It is a good question on the performance of my dividend portfolio vs the rest.  I'm somewhat lazy so I rely on the Schwab portfolio performance tool to measure performance. I consistently average 1-2% over 3, 5,10 year time frame compared to my benchmark moderately aggressive portfolio (80/20) and more importantly I do so with slightly lower risk.

 

Dawg Fan

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Clifp - I just noticed about 1/2 my posted comments to yours did not show up. A few questions... Other than a shitty market in 2009, what'd freeked you out more specifically about your $$ and what , if anything did you do then to come out of it? Assuming you got back to a good place today?

Curious as to how consistent or the dividend yield range you were able to achieve since 2000? How did your dividend portfolio appreciate since 2000 compared to the rest of your stock portfolio? Any specific changes you made there over the yrs?

Lastly, it sounds like you really are not touching your principle? How has that grown since 2000 and what, if any, major portfolio adjustments did you make since then? It sounds like your major adjustments were primarily making your spending match your returns for the yr? There were obviously yrs of negative return other than any interest/dividends you received so did you also sell some stocks/bonds to fund expenses or just totally drop your spending to match the dividends/interest? Wasn't clear if any job income came into play during this time.

Thanks.

Sorry missed this group of questions.
Here are couple of other post about my dividends and returns (and ya some bragging)
http://forum.mrmoneymustache.com/investor-alley/what-does-your-dividend-portfolio-look-like/msg617813/#msg617813

http://forum.mrmoneymustache.com/post-fire/net-worth-volatility/msg579445/#msg579445

Two things scared me about 2009, first my liquid networth dropped under my self proclaimed floor of $2 million, which is the point I said I start looking for work when I retired.  In truth I could certainly get by on under $2 mil although Hawaii is expensive. Fortunately by the time I put together things like a resume and starting 1/2 way seriously looking for jobs my portfolio rebounded.
Secondly, I ran out of cash to buy stock by end of 2008. So I did something similar to Nords, I wrote naked puts.   The panic was so great in 2008 and 2009 that people were willing to pay crazy amount of premiums for portfolio insurance so I wrote long term options (LEAPs) roughly 3x what people will pay today. If the market had continued to drop another 10-20% by Jan 2010, I would have had to come up with an additional $300K, which I really didn't have so that was an example of taking excess risk. 

Basically, each month I transfer X from my brokerage account to my checking account (both Schwab).  The amount is adjusted based on my estimate dividend/income each year. In every year but 2009 it goes up as companies raise their dividends. In 2009, between companies cutting dividends and interest rates plummeting, the actual income was below my withdrawals so I ended up with using principal.  But no job w*rk is a four letter word.  Although I do have a fair amount of volunteer jobs.

Dividend yield has dropped considerable.  I've been a subscriber  to M* Dividendinvestors newsletter for ten years, of the many investment newsletter I've tried it is the only one I resubscribe to.  The editor Josh Peters has an excellent track record with a real money portfolio and really understands the needs of his subscribers. One of the biggest benefits I've got from the newletters is understanding Master Limited Partnerships and specific recommendation on them. MLP are typical an alternative capital structure to the traditional stock or bond offering most corporations use for raising capital. They are generally used by companies in the energy sector primarily for those involved in transporting and/or refining gas or oil.   Many of these are huge firms such as Kinder Morgan.  However, for tax reason it is virtually impossible for mutual funds to own them, and difficult for ETFs to purchase them. Thus your index fund buyer who buys the Vanguard Total Market fund missed out on many of the players in this segment.  Considering the  Oil and Gas Midstream segment is up 13.9% over 10 years and 13.4% over 15 year vs the S&P performance of 7.9% and 4.3% over the same period that is a lot money indexers left on the table. When I started buying them they were distributing between 8-10% but the yield has dropped to 4-6%

Among regular corporation it was easy to find 4-6% yields among name brand slow growth companies up until recently, now day find much over 3% is challenging.
It is a good question on the performance of my dividend portfolio vs the rest.  I'm somewhat lazy so I rely on the Schwab portfolio performance tool to measure performance. I consistently average 1-2% over 3, 5,10 year time frame compared to my benchmark moderately aggressive portfolio (80/20) and more importantly I do so with slightly lower risk.

It sounds like you navigated the the last 10 yrs pretty well and got a good education along the way. You had to have tested your resolve, but none the less, I am sure you are a more confident FIRE-ee going forward. Am I understanding how you structure/use your portfolio correctly... 60% Dividend portfolio covers your scheduled living expenses? Do you rely on the remaining 40% of your investments for income or do you just tap these during good yrs as "reward points" and treat yourself? How many individual dividend stocks do you carry in your 60% chunk? Have you compared this with a dividend ETF? I know every economy/market has it's own challenges, but if you made it thru 10 yrs and your balance is in the + category, that's impressive to me. I have been debating whether to put 1 yrs worth of expenses in cash at the beginning of the yr or do the monthly withdrawals as you have done. Weighing the phycological impact of knowing the $$ are there vs the extra time in the market. Did you FIRE initially with the standard 25x based on the 4% SWR or did you have more margin than that at your launch?

Helpful stuff Clifp... Thx

Eric

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I think very few people are FIRE-ing purely on index funds with a 4% withdrawal rate.  As my planning/strategy starts shifting from accumulation (I've got that on auto-pilot) to withdrawal, I'm finding that nobody seems to do it by the book.  Even our demigod MMM has a very diversified set of post-FIRE income streams.

I agree and as I wrote on another thread, there is no such thing as a SAFE WR.  If someone chooses to withdraw from capital to fund retirement, that is their choice but any suggestion that it is SAFE is ridiculous.  No one can predict the future and the study based on the past cannot predict the future either.  The assumption being made is that all things will remain equal.  In fact, the only thing you can be sure of is that change will occur.

Capital can always produce income.  If you live on the income your capital produces, then you have no problem.  If you start to spend the capital, you MAY have a problem in the future.  That to me seems pretty simple to understand.  People like the 4% SWR theory because it appears to show they can retire sooner with a smaller stash.  They get that far and then stop looking for alternative answers.

If you choose to say the capital cannot be drawn down, then it changes the question.  It focuses you on ROI.  If you need X income to be happy, you then look at how much capital do I need to provide that income AND how high an ROI can I get so that the amount of capital I need is as low as it can be.

I would never be satisfied with a 4% ROI on my capital.  I want at least 10% ROI.  A simple example of how to do that is real estate.  There are many different ways to invest in real estate that will return you 10% or more if you know what you are doing.  That's the key, knowing what you are doing.  The 4% SWR and index funds is in fact the apparent investing for dummies answer.  No real knowledge required, just do this and you'll be fine. 

Then they add the, 'and oh yeah, be prepared to be flexible'.  Of course there is no explanation given of what that flexible is supposed to look like.  Good luck with that.  But people always want the easy and instant answer.  If someone appears to be offering them such an answer then they will grab it.

I live off the income my capital provides me.  I do so through investing in real estate and have been doing so for several decades.  It is an ongoing thing, I didn't get to X point in time and then stop figuring out how to make money.  That seems to be the idea behind the 4% SWR.  You get to X in terms of a stash and then you sit back and just spend the money.  I don't think anyone will find people who have been sitting back doing that for 10+ years.

Now hold on a minute...
This notion of 'not touching the capitol' is fraught with snakes and demons.  On the surface it seems so appealing - say you have $1MM - the "never touch your capitol" mantra preaches that that $1MM is somehow sacred and that you can somehow just leave it alone and all will be well.  The problem is, that doesn't work in reality.  First, there's inflation to consider, so if you have $1MM in 2015 you might need $1.03MM in 2016 for purchasing parity.  So already this 'capitol' idea is a moving target. Then there's market fluctuations - regardless of whether you are invested in the stock market or real-estate, what happens when prices drop?  You never touched this 'capitol' but suddenly it's worth less.  Does that violate the tenant of 'don't touch the capitol' rule?
Then there's dividends.  Many believe that living solely off dividend income is somehow 'better' than withdrawing a fixed percentage each year, because it 'protects the capitol'.  In reality this is a red herring; for every cent a company pays out in dividends, their share price decreases by an equal amount.

You've painted a 4% WR as the idiot's guide to investing, and I will grant you that one of it's most wonderful qualities is it's simplicity.  But I woulnd't confuse simplicity in execution with simplicity of concept.  It traces its routes to the trinty study, which takes into account historical market volatility, interest rates and market returns.  It's far from simple.

I agree that there are absolutely methods for getting higher returns, including real-estate.  But as you've pointed out, you have to 'know what you are doing' and you need to put in at least some work and typically you need at least a moderate level of handyman skill.  You then seem to lambast the idea of being flexible, saying:
Quote
hen they add the, 'and oh yeah, be prepared to be flexible'.  Of course there is no explanation given of what that flexible is supposed to look like.  Good luck with that
but you immediately say you never give up the knowledge of how to make money.  I believe these are the same thing - absolutely no sensible person is advocating a strategy of setting up a WR and then ignoring everyhting forever.  Some (like MMM) choose to build houses because they enjoy it and are good at it.  Others start side hustles, move around, adjust their costs....  it's human nature.

The 4% WR is a plan, and it's a good plan.  But like all plans, it doesn't mean you can follow it blindly forever. That shouldn't be mistaken for a flaw.

You're making some assumptions nereo.  Don't touch the capital does not mean don't add to the capital.  Adding enough to cover inflation is not a problem.

Second you ask what happens when prices drop.  You are assuming they drop signifigantly and for a signifigant amount of time.  That is not necessarily the case.  My capital value invested in real estate has dropped from time to time but never low enough or for long enough to actually affect things on a year on year basis. 

I buy and sell condos in Toronto.  Have a read here and look at the graph near the bottom to see what things looked like before, during and after the 08/09 recession.   In answer to Dawg Fan's question about the 08/09 recession, I could almost say, recession, what recession?  http://www.torontohomes-for-sale.com/Toronto-average-real-estate-property-prices.html

The one thing you do have right is that you have to know what you are doing.  As Kenny Rogers sang, 'You have to know when to hold them, know when to fold them'.  Forget the handyman skills though, you're assuming again.  I do not do improvents to properties myself, I use a contractor whenever I do that.  I never buy a property that I think needs more than paint, new carpet and appliances.  Many I do nothing at all to.  I simply look for a good buy (again knowing what to look for and finding the right seller) and sell for a profit.  Buy low, sell high, the age old simple formula.

Here is the key difference though from your 4% SWR answer nereo.  Bear in mind that the same capital can buy more than one condo per year.  So let's say you ONLY make 5% net return on each of 3 sales using the same $500k to buy.  Your actual ROI is 15% or $60k in cash.  Now do that with 6 properties or 10.  Then consider what happens if you make more than 5% net profit per property!  You can either bank more money or choose to sit back and buy/sell less properties to generate the income you are happy with. 

What do you think happens to your stash if you buy a property at full asking price before it even has time to be listed and then sell it 2 months later for 100%+ over your new asking price?  From the link above:  "The highest percentage above list price for condos in the City was 149% for a condo townhouse, closely followed by 147% for a condo apartment, both in Scarborough."  I have bought and sold at 100%+ plus profit twice nereo and at 25%+ a half dozen times.  I've never had to sell at a loss.

Now suppose you believe the market will drop in the short term.  You sell out and stop buying.  The capital is then cash in the bank which does not drop in value.  My capital is either in cash or in a property.   Again you have to judge when to stop buying and when to start again.  That is another key difference nereo.  The 4% rule assumes the money is invested ALL year.  I could make 10% in 3 months and then let the money sit in cash for 9 months of that same year.  All I have to do is try to predict where prices will go for the next couple of months. 

As for how much 'work' and time is involved, I'd say no more than a week per property at the most.   

When did you stop posting under the handle OldPro and start using RoadLessTravelled instead?  Getting too much blowback from the other one?

clifp

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It sounds like you navigated the the last 10 yrs pretty well and got a good education along the way. You had to have tested your resolve, but none the less, I am sure you are a more confident FIRE-ee going forward. Am I understanding how you structure/use your portfolio correctly... 60% Dividend portfolio covers your scheduled living expenses? Do you rely on the remaining 40% of your investments for income or do you just tap these during good yrs as "reward points" and treat yourself? How many individual dividend stocks do you carry in your 60% chunk? Have you compared this with a dividend ETF? I know every economy/market has it's own challenges, but if you made it thru 10 yrs and your balance is in the + category, that's impressive to me. I have been debating whether to put 1 yrs worth of expenses in cash at the beginning of the yr or do the monthly withdrawals as you have done. Weighing the phycological impact of knowing the $$ are there vs the extra time in the market. Did you FIRE initially with the standard 25x based on the 4% SWR or did you have more margin than that at your launch?

Helpful stuff Clifp... Thx

It's actually been 16 years and when I retired the Trinity study had just be published and wasn't even available on the web. The first I heard about was on the Motley Fool's Retire Early forum, and stuff by one of the pioneers on the subject intrcst around 2000.  My calculation for retiring were laughable simply by today's standards I had more than $2 million in taxable account and around 600K in 401K/IRA.  I could get 5% with Muni bonds at the time and that gave me $100K tax free to spend a year, and I figured the IRA would keep up with inflation.  But yes I certainly retired with more than most people on MMM, but I was also pretty young.

I typically have a 35-40 individual stocks and few bonds, and than another 1/2 dozen index funds and one actively traded international bond fund.   At some point I'll stop purchasing individual securities and go with a combo of index funds and Vanguards Wellington and Wellesley.   To be clear virtually all of my portfolio generates income.  I count the 1.8% yield of VTI and the 2.7% dividend yield of SCHF (international fund) the same way I treat the GE dividends, or my PenFed CD interest it is all income. I know I'm "safe" spending that much income cause I'm not touching the principal (ignoring inflation which is not advisable.).  The theory is that dividend increase will keep up with inflation. Last I looked the overall yield of my portfolio was about 2.7%. Which is also the same as the dividend yield of international stocks. 

To me 2.7% should be floor for how much you can draw from a 60%+ equity portfolio.  (There is a 20 page thread on this on Early-Retirement.org)  I'd say that given today's low interest rate environment, high US equity valuations. I'd think 4% would be a ceiling for how much somebody in their 50s could take. It is fine for a 65 cause odds are great they won't make it to 95.  Unfortunately that is a wide range.

The cash buffer is an interesting question. I initially didn't bother but as I said during 2009, I found myself overspend ingon stocks (like a shopoholic during an after Xmas sale.)  So after 2009, I've made a point of having a couple year expense in CDs and I treat it as part of my bond portfolio. Now I have CD rates between 3-5% which are very competitive with bond yields.  I couldn't convince myself to  renew at 1.5% for 5 years this last April when one CD matured.  I don't know if I was just starting out if I'd have say 8% of my money earning that low of interest rate. It is a very hard call. 

Nords

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...and stuff by one of the pioneers on the subject intrcst around 2000. 
John Greaney's still at it-- it'll be 20 years next April.  He updates his site every 2-3 months.

http://www.RetireEarlyHomePage.com

Dawg Fan

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Clifp - thanks for sharing your details. Interesting strategy and one to consider when I launch. It sounds like the dividend approach for you gives you more peace of mind because it's easier to know you are not touching your principle as opposed to those who might take a stock harvesting approach each yr. As has been said many times, we all need to know our investing/risk temperment which will be reflected in our strategy.

Nords - great web site! The Real Life Retire Investment Returns was most interesting to me. The only points which I wasn't clear on in the various portfolios... 1) were all portfolios rebalanced once a yr or just those noted? 2) Was the 4% harvested equally amongst the individual portfolio mixes or was there some sort of order (I.e. Interest, dividends, cash, bonds, last stock sales)?

As a 4 yrs from FIRE guy, here is my takeaway so far for someone who is planning for 40+ yrs RE...
- Understand your risk temperment and don't kid yourself if your a 60/40 guy and going with a 100% stock portfolio
- After taking into acount any other income sources, 3 - 3.5% may be a safer withdrawal rate
- Using common sense and making sure you have flexibility to lower your annual expenses when needed (market tanks)
- 1 - 2 yr cash/CD/short term bond acct not a bad way to cushion a heavier stock portfolio mix
- Be sensitive to stock valuations when you launch and adjust your SWR accordingly if needed
- Maybe give consideration to a more aggressive SWR in yrs prior to age say 75 with a reduced SWR there after (This is basically my own research/observations as the theory is while you are younger/healthier, you will want to do more that may cost more $$ and as you get in your golden yrs you may be a little less active. Yes, exceptions everywhere, but I see this/hear this from people in my life)

You guys and this Forum have been a wealth of knowledge in just the few days have been on. Keep the tricks of the trade coming.

Dicey

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Wow! A lot of great information here so far... I love this forum.

Another blog I've found particularly helpful is Retirement: A Full Time Job. Althought she's only been retired for eight years and has an erratic posting shedule (kind of like MMM), Syd has a lot of good stuff to share. Here are just two recent examples:

http://retiredsyd.typepad.com/retirement_a_fulltime_job/2015/05/is-the-4-rule-dead.html

http://retiredsyd.typepad.com/retirement_a_fulltime_job/2015/05/building-a-resilient-retirement.html


Nords

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Another blog I've found particularly helpful is Retirement: A Full Time Job. Althought she's only been retired for eight years and has an erratic posting shedule (kind of like MMM), Syd has a lot of good stuff to share.
I love her writing.  I've learned a lot about home exchanges, slow travel, and even the few months that she went back to part-time work.  It's also fun to watch her pursue her piano interest. 

And, of course, she unapologetically writes only when she has something major to say instead of on an editorial calendar...

Dicey

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Another blog I've found particularly helpful is Retirement: A Full Time Job. Althought she's only been retired for eight years and has an erratic posting shedule (kind of like MMM), Syd has a lot of good stuff to share.
I love her writing.  I've learned a lot about home exchanges, slow travel, and even the few months that she went back to part-time work.  It's also fun to watch her pursue her piano interest. 

And, of course, she unapologetically writes only when she has something major to say instead of on an editorial calendar...
Oh, Nords, it tickles me that we both like Syd!

Nords

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Nords - great web site! The Real Life Retire Investment Returns was most interesting to me. The only points which I wasn't clear on in the various portfolios... 1) were all portfolios rebalanced once a yr or just those noted? 2) Was the 4% harvested equally amongst the individual portfolio mixes or was there some sort of order (I.e. Interest, dividends, cash, bonds, last stock sales)?
Thanks! 

I don't think that those differences are significant.  If they were relevant then Greaney would've taken the time to highlight them.

Those questions might not be relevant for any retirees, especially if the advice isn't suited for the retiree.  For example, some are firm believers in rebalancing every 1 January while others just do it when their asset allocation gets too far out of whack (I'm in the latter camp).  Some research says annual rebalancing is better, other research says every 2-3 years.  You have to pick the system with which you're most likely to stick.

You'll harvest your 4% with cash first, then the annual cap gains & dividends & interest, and then you'll sell off the assets that are farthest out of whack from your asset allocation.  So it doesn't matter what the study did-- your real-life practice is pretty close to the study, so minor differences won't be significant.

As a 4 yrs from FIRE guy, here is my takeaway so far for someone who is planning for 40+ yrs RE...
- Understand your risk temperment and don't kid yourself if your a 60/40 guy and going with a 100% stock portfolio
Absolutely.  It's the investor behavioral psychology aspect of investing, where you have to be able to sleep comfortably at night.

- After taking into account any other income sources, 3 - 3.5% may be a safer withdrawal rate
Um, no.  By that logic 0.0% would be even safer.

Consider the assumptions in the 4% SWR studies: 
no annuitized income (not even Social Security),
1% account expense ratios,
constant withdrawals (adjusted for inflation),
no extra cash beyond one year of expenses (just stocks/bonds).

Those are all simplifying assumptions for the benefit of the computer programming.  Nobody lives like that! 

Imagine that some of your income was annuitized (even if it was "just" Social Security).  If you encounter one of the failure scenarios where you blithely spend all of your assets at a 4% SWR, then you'll still have your annuity income.  In other words, your failure rate is actually zero because you have longevity insurance.  Yet the SWR studies never include this reality.

You're going to pay much less in fund expenses.  If you get your expense ratios down to 0.5% instead of 1% then the real SWR becomes 4.5%.  If you're thinking that you'll maintain a 3%-3.5% SWR then just cut your expense ratios and add the savings.  Now you're at 3.5%-4%.

But wait, there's more:  variable spending.  You'll spend more when the markets are up ("wealth effect") and cut back your spending during recessions ("loss aversion").  Some years you'll have a big fantasy vacation or a roof replacement, other years you'll hang out at home most of the year.  During the first five years of ER you'll be particularly sensitive to a recession and you'll probably cut your spending way back when it happens.  Even just using Bob Clyatt's variable spending scheme of 4%/95% in "Work Less, Live More" raises the 4% SWR to about 4.5%.  So variable spending is probably worth another 0.5% added to your more conservative version of the SWR.

Now if you keep two years of expenses in a money market or CD (instead of just one) then your asset allocation is more like 60/36/4.  Yet starting the year with two years' expenses in cash means that you can outlast almost any recession by just spending down your cash (which you're trying to conserve anyway) and letting your stocks recover.

Just by addressing some of those simplifying assumptions, we've taken your 3%-3.5% SWR right back up over 4%.

If you retire on a 4% SWR then you'll have a success ratio of 80%-100%, depending on your personal willingness to work longer to boost it past 80%.  (Anything over 80% is meaningless precision, but it'll help you sleep better at night.)  Your annuitized income (for a bare-bones budget) will guarantee that you'll avoid the failure rates of 0%-20%, so already your actual success ratio is at 100%.  In other words then you'll have more money than you need.

If you cut your spending to 3%-3.5% then you won't be any happier, although you might sleep better at night.  But eventually you'll realize that you have more money than you have health & mobility to enjoy it.  Your great-grandchildren will be happy with your legacy, but you'll have missed a lot of life-enhancing opportunities because you were too conservative with your spending.

Here's another way to look at it:  reducing your SWR from 4% to 3-3.5% is the same effect as cutting your current spending by 12%-25%.  Try that test now.  Cut your spending by that much for the next couple of years, while you're still working, and see how you feel about it.

I think you're good with a 4% SWR and behavioral psychology.  Don't over-think it.

- Using common sense and making sure you have flexibility to lower your annual expenses when needed (market tanks)
- 1 - 2 yr cash/CD/short term bond acct not a bad way to cushion a heavier stock portfolio mix
Yep, as mentioned in my previous paragraphs.

- Be sensitive to stock valuations when you launch and adjust your SWR accordingly if needed
Whatever the heck "valuation" means.  Trailing earnings?  Projected earnings?  EBIDTA?  Free cash flow?  One of the Internet's most notorious personal-finance trolls claims that he's been in cash since 1996 because valuations are still "too high".  Even 2009 wasn't good enough for him because future earnings were projected to be zero, and when a zero is in the denominator of P/E then valuations will always be too high.

A more concrete approach would be to start your ER at your personal conservative asset allocation, say at 60%/40% equities/bonds.  (I would not be more conservative than that.)  If a recession occurs during the first few years of ER then you'll cut your spending.  You'll spend your cash.  You'll spend some of your bonds.  Just by your spending, even though it's reduced, your AA will begin to drift up to 65%/35% or even 70/30.  At the end of the recession you'll resume your 4% SWR, your portfolio will have survived a recession and assumed a more aggressive AA, and it'll recover its value more quickly because you held on to your equities.  You'll have also endured the dreaded "sequence of returns" risk which is critical to portfolio survival during the first 5-10 years of ER.  Once you've survived that then your portfolio is nearly bulletproof.

- Maybe give consideration to a more aggressive SWR in yrs prior to age say 75 with a reduced SWR there after (This is basically my own research/observations as the theory is while you are younger/healthier, you will want to do more that may cost more $$ and as you get in your golden yrs you may be a little less active. Yes, exceptions everywhere, but I see this/hear this from people in my life)
One of the earliest mentions of this was a 1990s book by Michael Stein "The Prosperous Retirement." The anecdotal evidence is strong, but the research is mixed.  Are people spending less because they have to (running out of assets), or because they can't spend it?  (Poor health, limited mobility.)  What about medical expenses or end-of-life care?  In any case, I'm going to agree with the anecdotal data because it closely matches my personal experience.

I think your instincts are correct.  You could start your ER at a 4% SWR, and as you get into your 70s you might find out that your new 30-year SWR is really 5% or even 6%. 

I'm 54 years old, so it'll be interesting to see whether the actuarial analysis reaches a firm conclusion over the next decade.  However I'll still spend a little more now out of concern that I won't be able to spend it later.

bella

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I've been FI 13 years.  Single, retired from good paying job at age 53. Now 66.  Had a three legged stool -- sold home, rolled over defined benefit pension to an IRA, and savings.   Still have that nestegg in tact 13 years later.  Conservative investing in Ibonds, CD's (had some 6% with seven year life and a two year with 8% return in there) and some mutual funds.  Started Soc Sec at 62.  As rates on CD's reduced to 3%, it was helpful to have social security.   I live frugally but I do travel internationally every year, sometimes a month at a time, along with trips in the U.S.  That is my favorite thing to spend money on.  As far as spending stream, I've always taken out what I need as I need it.  I run 4% of my nestegg to live on, but I've had a couple of extraordinary expenses that have taken me over the 4% but my return on investments has been enough to make it up and I've kept my nestegg in tact.   I am now thinking of starting to spend down my nest egg.  My question is what am I saving it for -- a nursing home?  I will just travel more.   I have a son and would like to transfer some to him before I die.  Figuring it out now.

I am an accountant so it was natural that I planned my retirement in detail.  I tracked my expenses for one full year and then adjusted out the work expenses and my lower cost of housing after selling my too big house.  Things have worked out surprisingly how I planned.  I get an unplanned expense once in a while like dental implants but have weathered the storms.  I carried individual health insurance for 12 years and had a $5000 deductible/out of pocket expense and had to pay that two years because of surgeries. 

Unlike many, my nestegg hasn't grown mainly because I invest so conservatively.  But losing half my nestegg in a market crash would make me crazy so I've taken the conservative route.  It works for me. I have "enough".   It has been comfortable and I don't worry about not having enough.   I see people stay at jobs because there can never be "enough" it seems.  People worry so much about that.   I was more worried I would die at my desk.  I always said I wanted five years to putt - get up when I want, go to bed when I want, shop on Tuesday morning at 10 a.m, travel for more than a week at a time.  I've been lucky -- just winding up my 13th year and hopefully will have many more.

dude

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Damn, Nords, 90% equities, eh?  I'm such a pussy -- I wound down my equity exposure from 90 to 80 to 75 to 60 over the last 8-9 years, and in fact recently went to 55 on the basis of Buffet's "be fearful when others are greedy, and greedy when others are fearful" mantra.  Keep thinking that I want to be somewhere between 60 and 75%, but waiting for a shake out before going all in again (market timing?  I don't know).

I've always been torn between the two competing theories of how to treat a pension, i.e., as a portion of one's fixed income allocation, thus allowing one to be more aggressive with invested funds; or as a basis for being a lot more conservative because with the pension (and eventually SS), one doesn't need to be very aggressive with invested funds in order to cover one's financial needs.  I guess I've tended toward the "what helps you sleep at night" philosophy, but a part of me thinks I'm being too conservative (though my goal of 6% return have been more than met the past 12 years (avg. return 9.67%)) and should just set it at 75/25 and be done with it.