Poll

Are you planning to go into FIRE interest only or burn down the balance?

Interest only.  Gonna die with a big bucket o’ money.
26 (37.7%)
Spend down to hopefully outlast before the last withdrawal.
36 (52.2%)
Post FIRE: Still living on that interest baby!
3 (4.3%)
Post FIRE: All that work saving....I’m whittling it down bit by bit.
4 (5.8%)

Total Members Voted: 69

Author Topic: Are you going to FIRE into your balance or not?  (Read 3399 times)

crxpilot

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Are you going to FIRE into your balance or not?
« on: March 15, 2018, 01:12:05 PM »
So I’m curious.  I see FIRE balance goals going in all different directions both high and low with various age ranges.  Who here are going into FIRE with living off of interest only vs. those who may FIRE with a smaller balance but get the same yearly spend as the interest only person but at say 25 years........the money is gone.  Obviously for the older crowd going into FIRE with a smaller balance with a planned burnoff in 20-25 years is this really possible.  Thoughts?
PS. For you Post FIRE folks who might be around I gave you a couple of options as well to tell us hows it going!

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 7254
  • Age: 39
  • Location: Seattle, WA
    • My blog
Re: Are you going to FIRE into your balance or not?
« Reply #1 on: March 15, 2018, 01:20:02 PM »
There is no good reason to "live off interest/dividends" rather than taking advantage of the very well-studied safe withdrawal rates. If you do decide to live off dividends, you're letting corporate boards decide how much you'll spend. Today they might pay enough out in dividends for you to survive, but tomorrow they might decide to shift to share buybacks instead. All logic and evidence points to share buybacks being a more tax-efficient way to distribute profits to shareholders; why would you decide to spend less when the companies you own make this change?

jlcnuke

  • Pencil Stache
  • ****
  • Posts: 931
Re: Are you going to FIRE into your balance or not?
« Reply #2 on: March 15, 2018, 02:30:51 PM »
The "plan" is to spend down the balance. Of course, since I'm shooting for a 95% FIRECalc etc "success rate", the odds are that I'll have to up spending as the years go by to even consider having less when I die than when I retired (inflation adjusted). The reality is that my passive income will likely go up as my health declines (I have a chronic medical condition), but due to government healthcare/insurance covering my medical costs, I'll likely end up seeing my spending decrease significantly starting somewhere in my mid to late 60's. So instead of having an inflation adjusted spending being constant, it'll probably drop rapidly as my ability to travel and do the things I enjoy which cost money decreases. Meaning I'll probably be leaving a pretty substantial estate when I pass if I don't give a bunch of it away in my later years.

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: Are you going to FIRE into your balance or not?
« Reply #3 on: March 15, 2018, 02:36:23 PM »
It seems like you're confused on likely scenarios for portfolio "drawdown".  In fact, maybe that's the word that's tripping you up.  Because while some scenarios of withdrawals leave you with less than you started, if you pick a conservative withdrawal rate like 4%, in the past your average balance at the end of 30 years was twice the amount you started with (in real, inflation-adjusted dollars).  So there is no dichotomy here, where it's either live off of only the interest/dividends or "whittle away" the portfolio.  Most likely you can choose the "whittle it down" method and still end up with more than you started.

crxpilot

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Are you going to FIRE into your balance or not?
« Reply #4 on: March 15, 2018, 02:46:30 PM »
It seems like you're confused on likely scenarios for portfolio "drawdown".  In fact, maybe that's the word that's tripping you up.  Because while some scenarios of withdrawals leave you with less than you started, if you pick a conservative withdrawal rate like 4%, in the past your average balance at the end of 30 years was twice the amount you started with (in real, inflation-adjusted dollars).  So there is no dichotomy here, where it's either live off of only the interest/dividends or "whittle away" the portfolio.  Most likely you can choose the "whittle it down" method and still end up with more than you started.
No there is no confusion.  Some people can't live in the perfect world that you are painting and may FIRE early outside of the 4% rule if it gets them retired sooner. 

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: Are you going to FIRE into your balance or not?
« Reply #5 on: March 15, 2018, 02:48:10 PM »
It seems like you're confused on likely scenarios for portfolio "drawdown".  In fact, maybe that's the word that's tripping you up.  Because while some scenarios of withdrawals leave you with less than you started, if you pick a conservative withdrawal rate like 4%, in the past your average balance at the end of 30 years was twice the amount you started with (in real, inflation-adjusted dollars).  So there is no dichotomy here, where it's either live off of only the interest/dividends or "whittle away" the portfolio.  Most likely you can choose the "whittle it down" method and still end up with more than you started.
No there is no confusion.  Some people can't live in the perfect world that you are painting and may FIRE early outside of the 4% rule if it gets them retired sooner.

Your poll suggests otherwise.

2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 7916
  • Age: 1
  • Location: Earth
  • K Thnx Bye
Re: Are you going to FIRE into your balance or not?
« Reply #6 on: March 15, 2018, 03:53:23 PM »
0_o

tipster350

  • Bristles
  • ***
  • Posts: 345
Re: Are you going to FIRE into your balance or not?
« Reply #7 on: March 16, 2018, 06:55:51 AM »
I find the poll and the discussions confusing. Instead of spending time trying to argue or refine points for clarity, I'll bring it up a notch for myself.

My plan is to die as close to penniless as possible without having to live penniless near the end of my life. I'll be starting with a 5% withdrawal rate for the first 5-7 years of my retirement, then will depend on other sources of income for more of my needs. The rest I'll play by ear to ensure I can enjoy my savings while not creating a difficult situation at the end of my life.

PhilB

  • Walrus Stache
  • *******
  • Posts: 5711
Re: Are you going to FIRE into your balance or not?
« Reply #8 on: March 16, 2018, 10:49:02 AM »
If only things were that simple!  We have various pensions kicking in between 11 and 15 years after we FIRE.  Roughly 30% of our stache gets burned through bridging that gap, 20% gets burned on specific things like helping kids through college and the remaining 50% we plan to draw from at a rate that it should easily last forever (3.6% of actual value each year) before leaving it as an inheritance.  Now which button do I press on the poll?

Prairie Stash

  • Handlebar Stache
  • *****
  • Posts: 1795
Re: Are you going to FIRE into your balance or not?
« Reply #9 on: March 16, 2018, 11:35:12 AM »
There is no good reason to "live off interest/dividends" rather than taking advantage of the very well-studied safe withdrawal rates. If you do decide to live off dividends, you're letting corporate boards decide how much you'll spend. Today they might pay enough out in dividends for you to survive, but tomorrow they might decide to shift to share buybacks instead. All logic and evidence points to share buybacks being a more tax-efficient way to distribute profits to shareholders; why would you decide to spend less when the companies you own make this change?
I think it was poorly worded. I think they meant to say, who is going to live off the 4% rule and who plans to draw it down to $0 (or lower). If I plan on the drawdown its much cheaper to retire.

Generally if you're 70+, the drawdown isn't a bad strategy.

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: Are you going to FIRE into your balance or not?
« Reply #10 on: March 16, 2018, 11:53:02 AM »
There is no good reason to "live off interest/dividends" rather than taking advantage of the very well-studied safe withdrawal rates. If you do decide to live off dividends, you're letting corporate boards decide how much you'll spend. Today they might pay enough out in dividends for you to survive, but tomorrow they might decide to shift to share buybacks instead. All logic and evidence points to share buybacks being a more tax-efficient way to distribute profits to shareholders; why would you decide to spend less when the companies you own make this change?
I think it was poorly worded. I think they meant to say, who is going to live off the 4% rule and who plans to draw it down to $0 (or lower). If I plan on the drawdown its much cheaper to retire.

Generally if you're 70+, the drawdown isn't a bad strategy.

Those aren't binary options that you get to simply decide on though.  One person can live off of the 4% WR and become fabulously wealthy, and the other person doing the same thing could end up broke.  It's not a "pick one" scenario. 

It would be great if you could just decide to have a good sequence of returns though.

moof

  • Pencil Stache
  • ****
  • Posts: 809
  • Location: Beaver Town Orygun
Re: Are you going to FIRE into your balance or not?
« Reply #11 on: March 16, 2018, 12:02:28 PM »
I'll have 23 years from the planned FIRE date to the full 70.5 year old SSA benefits.  Those benefits will cover about 80% of my needs.  With that factored in I can FIRE earlier and be closer to a 5% SWR.  So while you can hand wring about what-if's, I am planning on SSA benefits to for the base of my income after 70 rather than counting on my savings to fully sustain me for 50 years.  If I get a less than worst case set of returns from the market I stand to have more money than I know what do do with.  First world problems.

Prairie Stash

  • Handlebar Stache
  • *****
  • Posts: 1795
Re: Are you going to FIRE into your balance or not?
« Reply #12 on: March 16, 2018, 12:09:54 PM »
There is no good reason to "live off interest/dividends" rather than taking advantage of the very well-studied safe withdrawal rates. If you do decide to live off dividends, you're letting corporate boards decide how much you'll spend. Today they might pay enough out in dividends for you to survive, but tomorrow they might decide to shift to share buybacks instead. All logic and evidence points to share buybacks being a more tax-efficient way to distribute profits to shareholders; why would you decide to spend less when the companies you own make this change?
I think it was poorly worded. I think they meant to say, who is going to live off the 4% rule and who plans to draw it down to $0 (or lower). If I plan on the drawdown its much cheaper to retire.

Generally if you're 70+, the drawdown isn't a bad strategy.

Those aren't binary options that you get to simply decide on though.  One person can live off of the 4% WR and become fabulously wealthy, and the other person doing the same thing could end up broke.  It's not a "pick one" scenario. 

It would be great if you could just decide to have a good sequence of returns though.
I agree, you can't plan on good sequences. But you can purposefullly plan on drawing it down.

THe poll isn't about outcomes. Lots of plans go awry, lots of plans succeed, but what are your intentions? Do you intend for it to go to $0 or do you intend to keep the principle intact?

Cassie

  • Walrus Stache
  • *******
  • Posts: 7946
Re: Are you going to FIRE into your balance or not?
« Reply #13 on: March 16, 2018, 01:03:30 PM »
At 63 we are spending our $ on travel, eating out, entertainment, etc. Having 3 of my friends die between 59-67 really puts things into perspective. We are having fun while we can.

Mr. Green

  • Magnum Stache
  • ******
  • Posts: 4495
  • Age: 40
  • Location: Wilmington, NC
Re: Are you going to FIRE into your balance or not?
« Reply #14 on: March 16, 2018, 02:33:04 PM »
I'm not sure how one would FIRE on interest alone. The corresponding withdraw rate after accounting for inflation would be so small that it would take a lifetime to save that much money. Not even living off of dividends is considered "interest only" because dividends reduce the share price so your total value is technically dropping.

If inflation is 2% and you can find something paying 3% interest, you'd need a stash to support a 1% withdraw rate. I feel really bad for the person who thinks that is necessary.

Acastus

  • Bristles
  • ***
  • Posts: 397
  • Age: 62
Re: Are you going to FIRE into your balance or not?
« Reply #15 on: March 16, 2018, 02:36:40 PM »
I will SWR at 4-4.5% until SS kicks in, then I only need about 3%. It is somewhere between your options.

 

Wow, a phone plan for fifteen bucks!