At What Point Would You Go Back To Work?

[wageslave23]

Here is roughly how retiring Jan 2020 with $1 million and $40,000 annual expenses would have faired.

2000    1,000,000
2001    873,750
2002    707,484
2003    510,791
2004    604,383
2005    582,520
2006    577,012
2007    600,996
2008    528,122
2009    299,846
2010    349,345
2011    360,066
2012    336,953
2013    345,478
2014    387,204
2015    399,786
2016    340,796
2017    362,681
2018    404,129
2019    389,189
2020    446,642
2021    479,167

This is scary stuff.  I would have gone back in 2003 for sure, maybe 2002.  This tells me, you can do all the statistical analysis you want but if you retire at a peak you are probably going back to work at some point unless you have balls of steel and are a little insane. 

Not to mention if I did go back to work in 2003 adding $50,000 a year back to my stache, I would have to work for 11 more years in order to get back to $1 million and maybe feel comfortable retiring again.  That's some heady sh*t for someone who has a pretty good job now and wouldn't be able to get as good of a job if they retired and had to re enter the workforce in a few years. 

I think there are two sane responses to this data.  Option 1: save up 20-30% more than what you NEED for FIRE so you can mitigate a large initial drop.  Option 2: YOLO and retire at minimum FIRE stache and take a wait and see approach, knowing there's a decent chance you go back to work if the first few market years don't go well.

*ETA - I think the numbers are a little off because I shouldn't have used inflation adjusted returns.  It should have been nominal returns with the expenses adjusted for inflation.  But the point remains, if you retire at a peak and the next few years are down or even sideways most people would feel the need to go back to work imo.

Here are actual market returns (not inflation adjusted) with a fixed $40k spend.  The numbers are definitely better, but are skewed a little too positively now.

2000    1,000,000
2001    907,860
2002    745,544
2003    555,496
2004    674,279
2005    675,140
2006    703,613
2007    757,862
2008    707,070
2009    415,141
2010    513,204
2011    557,308
2012    536,301
2013    583,321
2014    692,704
2015    746,074
2016    680,394
2017    784,045
2018    940,010
2019    855,378
2020    1,056,167
2021    1,204,851

[scantee]

Is this a 100% stock allocation?

[wageslave23]

Is this a 100% stock allocation?

Yes.  And don't rely too much on the precision.  This is more for illustrative purposes (about what did happen, and could definitely happen again).  I used yearly dividend reinvested total sp 500 return adjusted for inflation, with a fixed $40k coming out yearly.

[ericrugiero]

That sequence of returns is definitely one that would scare most people if it happened to them.  Like you, I would be changing something at least by 2003. 

You laid out two "sane" responses that are pretty far on opposite ends of the spectrum from conservative to risky.  In reality, anywhere on that spectrum is OK.  It just changes the risk you accept and how flexible you need to be.  There are many options that can be used depending on your personal preference.  For example:
-  Cut spending.  Most people have some fat in their budget for travel, toys, eating out, etc.  You can dial those back if your stache is dropping. 
-  Earn some income.  Most people who are able to FIRE early in life are going to have skills that can earn income.  Many of those people will earn some money just doing something they love even if they don't need the extra income.  In most cases, it doesn't take a large amount to make a significant difference. 
-  Move to a lower cost of living area.  Some people are flexible about where they live and would be happy with geographic arbitrage (either in the US or overseas).  Others wouldn't even consider the option due to family and friends. 

If I was to FIRE in 2000, I would probably do some combination of 1 & 2.  Also, I would have some strategy for SORR such as 2 years cash, money in bonds, etc.  Those would probably make a big difference in this particular case.   

[GuitarStv]

Not retiring with 100% stock allocation would seriously mitigate the risks you're seeing here, wouldn't it?

[roomtempmayo]

The even tougher question is what happens if you pull the plug in 1967?

[wageslave23]

Not retiring with 100% stock allocation would seriously mitigate the risks you're seeing here, wouldn't it?

I don't think so because bonds aren't really going to "save" you.  Just mitigate some of the damage.  You need positive returns from a psychological perspective in order to make FIRE work.  Pulling 4% out for 5 years with no positive returns would be very hard to do mentally.

[wageslave23]

That sequence of returns is definitely one that would scare most people if it happened to them.  Like you, I would be changing something at least by 2003. 

You laid out two "sane" responses that are pretty far on opposite ends of the spectrum from conservative to risky.  In reality, anywhere on that spectrum is OK.  It just changes the risk you accept and how flexible you need to be.  There are many options that can be used depending on your personal preference.  For example:
-  Cut spending.  Most people have some fat in their budget for travel, toys, eating out, etc.  You can dial those back if your stache is dropping. 
-  Earn some income.  Most people who are able to FIRE early in life are going to have skills that can earn income.  Many of those people will earn some money just doing something they love even if they don't need the extra income.  In most cases, it doesn't take a large amount to make a significant difference. 
-  Move to a lower cost of living area.  Some people are flexible about where they live and would be happy with geographic arbitrage (either in the US or overseas).  Others wouldn't even consider the option due to family and friends. 

If I was to FIRE in 2000, I would probably do some combination of 1 & 2.  Also, I would have some strategy for SORR such as 2 years cash, money in bonds, etc.  Those would probably make a big difference in this particular case.

If you are mustachian then you have your spending pretty well dialed in.  There shouldn't be much wasted spending, so any cuts would "hurt".  And it would have to be a big chunk of cuts plus substantial income to overcome those first 10 yrs.

[Fire2025]

ERN - Early Retirement Now - has some interesting posts about the 2000 retirement cohort.  ERN is a little ultra fiscally conservative on this issue, but math is math, and he backs up his point of view.  He is also, like OP, cherry picking the worst of the worst, of the worst cases. So I try to be at a medium "the sky is falling" about SORR. 

But most importantly he offers solutions to the scenarios that he uses and spoiler alert he has a lower "safe" withdrawal rate than anyone else.  But if you want to prepare with the Black Swan market events in mind he is a great read.


https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

There are others but I'll let everyone do their own googling/ searching ERN, if they want to dive down this rabbit hole.

[magus]

Hmm - LT UST bonds made 25% over those first 3 years - I'd think a 70 / 30 allocation would have fixed a lot of those problems. But I think I'd trim expenses where I could and/or get a side hussle if I really needed.

[HPstache]

Not retiring with 100% stock allocation would seriously mitigate the risks you're seeing here, wouldn't it?

I don't think so because bonds aren't really going to "save" you.  Just mitigate some of the damage.  You need positive returns from a psychological perspective in order to make FIRE work.  Pulling 4% out for 5 years with no positive returns would be very hard to do mentally.

Re-run your simulation and see... I think you'd be surprised. 

[scantee]

A bond allocation plus a variable withdrawal strategy plus an examination of expenses plus a small amount of earned income (<$10k) would address this. My takeaway from these worst case scenarios is that the most important factor is flexibility. Going into an early retirement with a rigid approach is probably the factor that most often leads to failure once you’ve reached a minimum threshold of assets.

[GuitarStv]

Not retiring with 100% stock allocation would seriously mitigate the risks you're seeing here, wouldn't it?

I don't think so because bonds aren't really going to "save" you.  Just mitigate some of the damage.  You need positive returns from a psychological perspective in order to make FIRE work.  Pulling 4% out for 5 years with no positive returns would be very hard to do mentally.

Having bonds would mean that you're not withdrawing your stocks when they've tanked, so you wouldn't be losing out on anywhere near as much.  Mitigating some of the damage is the whole point . . . you want to be able to mitigate that damage, particularly early on in retirement.  Check out what happens over the same period, mix of stocks and bonds (using the data from here - https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html):


60% Stocks (S&P500 including dividends) / 40% Bonds (Boa corporate bond)
------------------------------------------------------------------------------------
2000    600,000        400,000    <-Take 40,000 from bonds
2001    528,900        403,848    <-Take 40,000 from bonds
2002    377,517        413,077    <-Take 40,000 from bonds
2003    484,580        413,077    <-Take 40,000 from bonds
2004    536,625        423,554    <-Take 40,000 from bonds
2005    558,089        402,424    <-Take 40,000 from bonds
2006    645,206        387,975    <-Take 40,000 from stocks
2007    638,371        400,196    <-Take 40,000 from stocks
2008    379,666        379,906    <-Take 40,000 from bonds
2009    478,151        419,206    <-Take 40,000 from bonds
2010    549,013        410,869    <-Take 40,000 from bonds
2011    560,542        417,524    <-Take 40,000 from bonds
2012    649,612        415,729    <-Take 40,000 from stocks
2013    805,602        411,322   
etc.


I've never felt that the risk of going 100% stocks was worth it.  You do great when things are booming, but when you're retired your risk of failure is much higher.

[wageslave23]

Not retiring with 100% stock allocation would seriously mitigate the risks you're seeing here, wouldn't it?

I don't think so because bonds aren't really going to "save" you.  Just mitigate some of the damage.  You need positive returns from a psychological perspective in order to make FIRE work.  Pulling 4% out for 5 years with no positive returns would be very hard to do mentally.

Having bonds would mean that you're not withdrawing your stocks when they've tanked, so you wouldn't be losing out on anywhere near as much.  Mitigating some of the damage is the whole point . . . you want to be able to mitigate that damage, particularly early on in retirement.  Check out what happens over the same period, mix of stocks and bonds (using the data from here - https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html):


60% Stocks (S&P500 including dividends) / 40% Bonds (Boa corporate bond)
------------------------------------------------------------------------------------
2000    600,000        400,000    <-Take 40,000 from bonds
2001    528,900        403,848    <-Take 40,000 from bonds
2002    377,517        413,077    <-Take 40,000 from bonds
2003    484,580        413,077    <-Take 40,000 from bonds
2004    536,625        423,554    <-Take 40,000 from bonds
2005    558,089        402,424    <-Take 40,000 from bonds
2006    645,206        387,975    <-Take 40,000 from stocks
2007    638,371        400,196    <-Take 40,000 from stocks
2008    379,666        379,906    <-Take 40,000 from bonds
2009    478,151        419,206    <-Take 40,000 from bonds
2010    549,013        410,869    <-Take 40,000 from bonds
2011    560,542        417,524    <-Take 40,000 from bonds
2012    649,612        415,729    <-Take 40,000 from stocks
2013    805,602        411,322   
etc.


I've never felt that the risk of going 100% stocks was worth it.  You do great when things are booming, but when you're retired your risk of failure is much higher.

Wow that made a much bigger difference than I thought.  Is 60/40 still ok for the typical 4% withdrawal rate?  I thought it was based on 80/20 or 75/25 or something around there.  Even still you are looking at being down 20% after 2 years with no guarantees for the future.

ETA: I just looked up the study.  I guess 50/50 is best for longevity in the 30 yr study.  Back testing, 75/25 works better for 40 yrs.

[Steeze]

ERN - Early Retirement Now - has some interesting posts about the 2000 retirement cohort.  ERN is a little ultra fiscally conservative on this issue, but math is math, and he backs up his point of view.  He is also, like OP, cherry picking the worst of the worst, of the worst cases. So I try to be at a medium "the sky is falling" about SORR. 

But most importantly he offers solutions to the scenarios that he uses and spoiler alert he has a lower "safe" withdrawal rate than anyone else.  But if you want to prepare with the Black Swan market events in mind he is a great read.


https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

There are others but I'll let everyone do their own googling/ searching ERN, if they want to dive down this rabbit hole.

ERN must be losing his mind with CAPE near 40

My vote is have 5-10 years in bonds (20%-40%), rebalance to maintain % every 6-12 months. Also, you are telling me the market is down ~50% and you aren't going to try to do any paid work to invest a little?? I think by the time we were down 40% + I would have reduced my bond allocation significantly, bought equities and gotten at a weekend job waiting tables or something.

[pasadenafr]

To me, this illustrates two things:

* the 4% rule says it works for 30 years with an AA between 40/60 and 60/40. I may be more conservative than most on this board, but I do think a lot of early retirees conveniently forget those two assumptions and this is dangerous.

* SORR is important, and one should try to protect against it, so 100% stocks is just asking for trouble.

[Fire2025]

...snip...
https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

ERN must be losing his mind with CAPE near 40

My vote is have 5-10 years in bonds (20%-40%), rebalance to maintain % every 6-12 months. Also, you are telling me the market is down ~50% and you aren't going to try to do any paid work to invest a little?? I think by the time we were down 40% + I would have reduced my bond allocation significantly, bought equities and gotten at a weekend job waiting tables or something.

Again, I'm not advocating for ERN, he doesn't need me to.  I'm just pointing out his point of view, which I find helpful, but I've adjusted to my own risk tolerances and blah blah blah.

He also has some great articles on the usefulness of the bond glide path strategy that you seem to be talking about and I think I'm going to use also.

https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/#more-31662

[Metalcat]

Everyone should assess their SORR risk. We all know this already.

First you need to assess how flexible your spending is. Someone above said most mustachians have their spending "dialed in" and wouldn't have much to cut, but that's bullshit. Plenty of people here report 6 figure spends. Plenty of us have fat that we could trim if needed.

Then assess ability to earn additional income. Some of us can work a few weeks here and there, no matter how long we've been out of the workforce, and make 5 figures. Some people will find this harder. Regardless, assess your particular capacity to generate more money.

Then, if you don't have a lot of flexibility in your withdrawal amount, either through cutting costs or generating income, THEN start really prioritizing asset allocation strategies, like increasing bonds, or employing a bond tent, increasing cash holdings, etc, etc

Lastly, consider saving more to have a lower WR overall if you have a serious risk of needing more money and can't afford to cut, such as if you have chronically ill child with high medical costs, or something equally inflexible and financially demanding, and you don't want to have to go back to work.

What no one should do is retire on 25X projected expenses, with a 4% WR, while keeping everything in 100% equities, and never, ever question or contemplate any hedging strategies for SORR.

No one with an ounce of sanity or common sense would ever do that though, so it's really not worth worrying about.

[DadJokes]

The most telling time as to whether or not your portfolio is going to succeed or fail is the first five years of retirement. If, after five years, you are still pulling 4% (or more) from your portfolio, then you are at a higher risk of failure. So you need to reduce risk during the early years (whether that's a bond allocation, cash, whatever). However, you also don't want to be caught from behind by inflation. I believe that by the time your withdrawal rate gets down to 3.5% or lower, you need to start ramping back up to 100% equities, at least if your retirement time frame is >30 years.

So a good allocation might look like this:
Year 1: 75% equities 25% bonds
Year 2: 80% equities 20% bonds
Year 3: 85% equities 15% bonds
etc...

As someone else said, the most important thing is flexibility. Have options.

[wageslave23]

...snip...
https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

ERN must be losing his mind with CAPE near 40

My vote is have 5-10 years in bonds (20%-40%), rebalance to maintain % every 6-12 months. Also, you are telling me the market is down ~50% and you aren't going to try to do any paid work to invest a little?? I think by the time we were down 40% + I would have reduced my bond allocation significantly, bought equities and gotten at a weekend job waiting tables or something.

Again, I'm not advocating for ERN, he doesn't need me to.  I'm just pointing out his point of view, which I find helpful, but I've adjusted to my own risk tolerances and blah blah blah.

He also has some great articles on the usefulness of the bond glide path strategy that you seem to be talking about and I think I'm going to use also.

https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/#more-31662

Thank you all for the responses and links.  This discussion has been far more informative than most of the dumbass threads on this forum lately.  I guess I just need to find some other blogs to follow.

[Anon-E-Mouze]

Then assess ability to earn additional income. Some of us can work a few weeks here and there, no matter how long we've been out of the workforce, and make 5 figures. Some people will find this harder. Regardless, assess your particular capacity to generate more money.

I also think many people overestimate how easy it will be to go back to work in their field - or even to find a so-called "Barista FIRE" job. My husband is a tech professional who has been mostly out of work for 18 months. He's in his mid-50s and it's REALLY hard to get anyone to consider him for a position in anything remotely associated with his field. Companies want to hire people who have exactly the amount of experience they need (and no more), and they want really specific industry experience. Even if you think you have transferable skills, the hiring managers (or HR) don't agree. And I suspect that managers filling retail and service jobs aren't particularly interested in hiring former 50+ executives (without retail or service experience), because they expect those people to quit quickly if they find something better.

I was out of work for a year in my mid-50s. I had meetings with, and introductions/endorsements from, peers, C-suite executives and even board members at dozens of organizations - and none of those connections ultimately led to any offers. (I was very grateful for the time people spent with me, and I really enjoyed meeting with them, but no offers ...)

[pasadenafr]

Then assess ability to earn additional income. Some of us can work a few weeks here and there, no matter how long we've been out of the workforce, and make 5 figures. Some people will find this harder. Regardless, assess your particular capacity to generate more money.

I also think many people overestimate how easy it will be to go back to work in their field - or even to find a so-called "Barista FIRE" job. My husband is a tech professional who has been mostly out of work for 18 months. He's in his mid-50s and it's REALLY hard to get anyone to consider him for a position in anything remotely associated with his field. Companies want to hire people who have exactly the amount of experience they need (and no more), and they want really specific industry experience. Even if you think you have transferable skills, the hiring managers (or HR) don't agree. And I suspect that managers filling retail and service jobs aren't particularly interested in hiring former 50+ executives (without retail or service experience), because they expect those people to quit quickly if they find something better.

I was out of work for a year in my mid-50s. I had meetings with, and introductions/endorsements from, peers, C-suite executives and even board members at dozens of organizations - and none of those connections ultimately led to any offers. (I was very grateful for the time people spent with me, and I really enjoyed meeting with them, but no offers ...)

This is very true. Just ask stay-at-home parents who want to find a job after several years spent raising their kids.

I was laid off a few years ago. After 8 years in my previous company, I still had to spend 3 months doing training and refreshing certifications (almost full time) before I was up-to-speed enough on new techs (and current versions of my specialty field) to pass technical interviews.

[YttriumNitrate]

If you are mustachian then you have your spending pretty well dialed in.  There shouldn't be much wasted spending, so any cuts would "hurt".  And it would have to be a big chunk of cuts plus substantial income to overcome those first 10 yrs.

Since 40%* of Mr. Money Mustache's 2019 budget was deemed non-essential, does that mean we consider him non-mustachian?
https://www.mrmoneymustache.com/2020/01/27/mmm-2019-spending/

**Actually higher than that because that he deemed restaurants, booze, cars, and gadgets from Amazon essential.

[lutorm]

Thank you all for the responses and links.  This discussion has been far more informative than most of the dumbass threads on this forum lately.  I guess I just need to find some other blogs to follow.

Have you gone through the 2000 posts in the "stop worrying about the 4% rule" thread? That pretty much exhausted the topic for me.

[dmc]

I retired summer of 2007.  I reduced my stock holdings from around 80% down to 55%-60%.  I was lucky there, but the big drop in the following years just starting out were a bit of a concern.  But we also allowed for some cushion, and put off any big purchases right away.

After making the decision to retire early, at 50, it would have to get really bad to go back to work.  We are of coarse now in much better shape than then, money is really not much of a concern.  And after being out of the workforce for 14 years going back isn’t much of a option anyway, unless I want to flip burgers or something.

[moof]

If you are mustachian then you have your spending pretty well dialed in.  There shouldn't be much wasted spending, so any cuts would "hurt".  And it would have to be a big chunk of cuts plus substantial income to overcome those first 10 yrs.

People throw around lean FIRE, fat FIRE, etc.  One should be "comfortable" at their planned spending level when using it as the basis of the 4% rule.  The point is to enjoy the rest of your life and be happy, not just avoid starvation while unemployed.  If you have no fat in there for travel, hobbies, medical expenses, etc you are talking lean or bare bones FIRE, the equivalent of living paycheck-to-paycheck in retirement.  Survival not thriving.

Personally I'm aiming for a nominal 5% withdrawal rate, but will be only 18 years away from social security so it pencils out nicely.  My planned withdrawal rate includes significant slack for both lumpy expenses (home repairs, cars, medical, etc), as well as fun crap like travel and hobbies.  Roughly speaking I could slash a third of my planned budget for at least a couple years were a crisis to hit like a stock market crash or major medical incident without feeling badly deprived.  I could cut it significantly further by moving to a LCOL area at the expense of leaving behind some good friends.

[wageslave23]

If you are mustachian then you have your spending pretty well dialed in.  There shouldn't be much wasted spending, so any cuts would "hurt".  And it would have to be a big chunk of cuts plus substantial income to overcome those first 10 yrs.

Since 40%* of Mr. Money Mustache's 2019 budget was deemed non-essential, does that mean we consider him non-mustachian?
https://www.mrmoneymustache.com/2020/01/27/mmm-2019-spending/

**Actually higher than that because that he deemed restaurants, booze, cars, and gadgets from Amazon essential.

There's a big difference between essential expenses and expenses that would greatly reduce quality of life if cut.  I stand by my original comment, if you have a lot of spending that if cut would not greatly impact your quality of life, then your lifestyle isn't very mustachian.  You may be on this forum and call yourself a mustachian but I would argue by definition you aren't. 

[dmc]

Also 2000 was 21 years ago.  If you were starting at 50 you would be 71 now.  You would be drawing SS and be on Medicare.  And how many years will you have left.

[DadJokes]

Also 2000 was 21 years ago.  If you were starting at 50 you would be 71 now.  You would be drawing SS and be on Medicare.  And how many years will you have left.

Very good point - it does vary greatly on your age when you retired, but if your portfolio was nearly halved 3 years into retirement, I don't know anyone who would have had the resolve to just keep trucking along with no changes to their plan.

[dmc]

If you are mustachian then you have your spending pretty well dialed in.  There shouldn't be much wasted spending, so any cuts would "hurt".  And it would have to be a big chunk of cuts plus substantial income to overcome those first 10 yrs.

Since 40%* of Mr. Money Mustache's 2019 budget was deemed non-essential, does that mean we consider him non-mustachian?
https://www.mrmoneymustache.com/2020/01/27/mmm-2019-spending/

**Actually higher than that because that he deemed restaurants, booze, cars, and gadgets from Amazon essential.

There's a big difference between essential expenses and expenses that would greatly reduce quality of life if cut.  I stand by my original comment, if you have a lot of spending that if cut would not greatly impact your quality of life, then your lifestyle isn't very mustachian.  You may be on this forum and call yourself a mustachian but I would argue by definition you aren't.

I would not quit working if it meant I was on a bare bones budget.  I’m not sure what a mustachian lifestyle is?  If it means just surviving I’m not for it. 

[wageslave23]

If you are mustachian then you have your spending pretty well dialed in.  There shouldn't be much wasted spending, so any cuts would "hurt".  And it would have to be a big chunk of cuts plus substantial income to overcome those first 10 yrs.

People throw around lean FIRE, fat FIRE, etc.  One should be "comfortable" at their planned spending level when using it as the basis of the 4% rule.  The point is to enjoy the rest of your life and be happy, not just avoid starvation while unemployed.  If you have no fat in there for travel, hobbies, medical expenses, etc you are talking lean or bare bones FIRE, the equivalent of living paycheck-to-paycheck in retirement.  Survival not thriving.

Personally I'm aiming for a nominal 5% withdrawal rate, but will be only 18 years away from social security so it pencils out nicely.  My planned withdrawal rate includes significant slack for both lumpy expenses (home repairs, cars, medical, etc), as well as fun crap like travel and hobbies.  Roughly speaking I could slash a third of my planned budget for at least a couple years were a crisis to hit like a stock market crash or major medical incident without feeling badly deprived.  I could cut it significantly further by moving to a LCOL area at the expense of leaving behind some good friends.

That's exaclty my point.  Those things while not "essential" to live, are part of what you have determined to be part of your ideal retirement.  Cutting them would hurt, in that it would be a sacrifice - sacrificing the way you want to live your retirement years. 

[GuitarStv]

To me, this illustrates two things:

* the 4% rule says it works for 30 years with an AA between 40/60 and 60/40. I may be more conservative than most on this board, but I do think a lot of early retirees conveniently forget those two assumptions and this is dangerous.

* SORR is important, and one should try to protect against it, so 100% stocks is just asking for trouble.

I agree completely.

Bonds are much derided on this forum, but the 100% stocks idea is more prone to failure than I believe is commonly understood.  Don't let an unusually long run of good stock returns lull you into a feeling of security.  100% stocks is indeed very risky.

[wageslave23]

Thank you all for the responses and links.  This discussion has been far more informative than most of the dumbass threads on this forum lately.  I guess I just need to find some other blogs to follow.

Have you gone through the 2000 posts in the "stop worrying about the 4% rule" thread? That pretty much exhausted the topic for me.

I stand corrected.  I need to venture off the General Topics threads.

[dmc]

Also 2000 was 21 years ago.  If you were starting at 50 you would be 71 now.  You would be drawing SS and be on Medicare.  And how many years will you have left.

Very good point - it does vary greatly on your age when you retired, but if your portfolio was nearly halved 3 years into retirement, I don't know anyone who would have had the resolve to just keep trucking along with no changes to their plan.

Mine took a drop 08-09 , but not halved.  And by 10-11 things were back .  I did some rebalancing along the way, but i don’t remember.  If stocks dropped 50% it would only mean a 50/50 mix would be down 25%. 

And I wasn’t looking at making any big purchases those years like I may have if the market hadn’t dropped.   I put those off till around 2012.

[FIRE Artist]

This is why I have redesigned my ER plan and numbers to use VPW, instead of the 4% rule for draw down.  I can be flexible in my spending, and really like that there is a method to calculating exactly how much to withdraw based on the markets on the day I want  to withdraw.  It makes much more sense to me to do a controlled draw down on my portfolio over my expected lifespan, than blindly take out 4% plus inflation year on year and die with a fortune in the bank, or worse, broke. 

[BlueMR2]

This is very true. Just ask stay-at-home parents who want to find a job after several years spent raising their kids.

I was laid off a few years ago. After 8 years in my previous company, I still had to spend 3 months doing training and refreshing certifications (almost full time) before I was up-to-speed enough on new techs (and current versions of my specialty field) to pass technical interviews.

I left a job in my 30's and took a few months off.  It was depressingly hard to even get an interview since I had not been working.  Places that were after me while I was working wouldn't even talk to me when I didn't actively have a job.  Right now I'm watching several ex-coworkers play out the same story.  Some of them were working and were able to jump into new jobs real quick.  The ones that took a month or 2 off first are really struggling to find positions.  Once you're out of the workforce everybody hates you (overexaggerating of course, but seriously, watch the "friends" you used to have at other companies that claimed they wanted you to work for them suddenly not answer your calls and even ignore you if they run into you in person).

[NorthernIkigai]

This is one of the reasons I’m planning to start my own company when I RE. I’ll do a bit of consulting or something through it, more as a hobby than anything else, and so I have something to put on LinkedIn and to tell people if someone asks what I’m doing nowadays.

RE doesn’t really exist where I live, except for a) actual entrepreneurs who sell the business they’ve grown and then retire to play golf (usually not before the age of 55 or so) and b) in the dreams of 20-something FIRE candidates interviewed in media and usually ridiculed between the lines (and they usually are quite unrealistic about it all)..

I remember reading on here about someone doing what I’m planning to do and commenting that there’s no law that a company has to be particularly active or lucrative… That’s what I’m aiming for, a hobby that serves as a convenient excuse not to have a day job!

[Metalcat]

Then assess ability to earn additional income. Some of us can work a few weeks here and there, no matter how long we've been out of the workforce, and make 5 figures. Some people will find this harder. Regardless, assess your particular capacity to generate more money.

I also think many people overestimate how easy it will be to go back to work in their field - or even to find a so-called "Barista FIRE" job. My husband is a tech professional who has been mostly out of work for 18 months. He's in his mid-50s and it's REALLY hard to get anyone to consider him for a position in anything remotely associated with his field. Companies want to hire people who have exactly the amount of experience they need (and no more), and they want really specific industry experience. Even if you think you have transferable skills, the hiring managers (or HR) don't agree. And I suspect that managers filling retail and service jobs aren't particularly interested in hiring former 50+ executives (without retail or service experience), because they expect those people to quit quickly if they find something better.

I was out of work for a year in my mid-50s. I had meetings with, and introductions/endorsements from, peers, C-suite executives and even board members at dozens of organizations - and none of those connections ultimately led to any offers. (I was very grateful for the time people spent with me, and I really enjoyed meeting with them, but no offers ...)

True, but like I mention *every single time* this is brought up, early retirees are also far more equipped to do what it takes to become competitive in various work fields.

An unemployed person who needs a job is very different from an early retiree who needs a job *at some point* in the next few years. They also have plenty of resources to put towards retraining if that would be ideal.

So yeah, you can't just expect to jump back into professional level work, but it's not as dire as people make it out to be. And retaining or developing employable skills is one of the things that a retiree can proactively do if they want to build more resilience into their retirement plan.

I've been retired for a year and I've already taken several courses that give me marketable job skills, just to keep my skill set fresh. I could also easily do a 2 year graduate program, which would completely retrain me for a professional 6 figure career, which would allow me to work part time, if that's what I wanted.

As someone who was forced out of a very specialized medical career with virtually NO transferable skills, because I have time and resources, I feel like I have no limitations on my capacity to earn, if that becomes important to me.

If I was an unemployed single mom with debt and bills to at, I would be completely fucked.

Having time and money makes engineering job opportunities a COMPLETELY DIFFERENT experience than being jobless and needing income to cover bills ASAP.

When people fear monger about finding work in retirement, this should very much be kept in mind.

Also, to someone's comment about older, over qualified folks not being considered for entry level jobs, that's a bunch of hogwash. There is a long tradition of retirees taking on low level part time jobs, often retail. These jobs are typically staffed with young people, who also don't tend to stick around, so a younger retiree who has clearly expressed no interest in ever climbing the ladder, who is competent, professional, and responsible, and only looking for flexible part time work??? Yeah, that's a very valuable candidate. I worked in staffing for big box stores, and we LOVED staffing retirees in these roles.

The world of work is MASSIVE, and hugely diversified, and early retirees have advantages that no one else has when it comes to finding really great opportunities.

[Mr. Green]

This is an ongoing historical record of sequence of returns risk that I keep based on an 80/20 portfolio. The ending portfolio values were established using cfiresim. Historically, if you end your first decade of FIRE with a negative rate of return you are more likely than not to see a portfolio failure before 30 years. Only one starting year ended the first decade with a -3% or worse return and managed to go the distance and that is only because the rate of return in the second decade averaged 16+%. The correlation is so high that it behooves you to return to work or cut expenses as soon as you realize you are falling into this cohort.

This chart also shows you how extreme the returns have to be in the second and third decades of a 30-year retirement in order to save a portfolio where the first decade's returns were non-existent. The starting years highlighted in red failed. The ones in orange ended the 30 year period with less than the original beginning balance. The ones highlighted in green end with more money than was started with. At the bottom of the chart, you'll see where I've highlighted a few years that don't even have a full 30 years of data. In those cases, the data accumulated already are so extreme, based on historical performance, that a conclusion can already be drawn about the outcome if historical returns are used as the determining criteria. The black border at the bottom is the cutoff for actual data and anything below that line is a projection I've made of future years for a little insight into recent years that do not yet have full decades of data.

So worst-case scenario, you know you're in trouble after 10 years and intervene. Realistically, unless you don't really understand what is happening, you know by year 7 or 8 that things are really bad. However, taking action after just year 2 or 3 is a bit premature, IMO.

As far as whether to retire as soon as you hit your FIRE number or accumulate 20-30% extra? That's up to you and a number of questions. Do you like your job? Do you want to be doing other things? How fast will you accumulate that extra 20-30%? For me, that answer was bailing even earlier. We wanted $1 million liquid but I couldn't take my job anymore and quit in 2016 with only 80% of that. Our portfolio just hit $2 million this year, so we may ultimately have had one of the better starting years historically. I hated what I did though and couldn't stand it a minute longer. I have no regrets.

[wageslave23]

This is awesome!  Everytime I create something similar to this, my wife just smiles and nods ;)

What do the red and orange mean for the 10 yr returns?

I think what hits me the most is that there are so many false positives when it comes to FIRE failure.  There are quite a few initial 10 yr periods that are flat or slightly negative that would push you to modify spending/go back to work that would end up being fine in the long run.  I had always thought there was 5% chance I would have to cut expenses or go back to work due to FIRE failure, but practically speaking its probably a 20% chance.

[GodlessCommie]

Someone on Reddit created a similar experiment. Also a 100% stock allocation, also 2000 starting year, but with $60K cash buffer. They start with a 6% WR, though, and don't adjust for inflation. I have no opinion on the validity of it, but thought you'd enjoy it.

https://www.reddit.com/r/Fire/comments/q3c0nt/lets_discuss_fire_withdrawal_strategy_example/?%24deep_link=true&correlation_id=9817ca67-18e4-4ee3-ba1f-f38478dc925f

[ChpBstrd]

ERN thoroughly debunked the idea that having "flexibility" in withdraws or getting a side gig for a few months when markets are down is going to rescue your retirement if your cohort turns out to be a bad one and your WR is 4% or more.

https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/
https://earlyretirementnow.com/2018/05/09/the-ultimate-guide-to-safe-withdrawal-rates-part-24-flexibility-myths-vs-reality/
https://earlyretirementnow.com/2018/05/23/the-ultimate-guide-to-safe-withdrawal-rates-part-25-more-flexibility-myths/

Basically, you need some kind of rule to go back to work. ERN calls them "guardrail" strategies. Particularly interesting to me is ERN's treatment of Type 1 vs. Type 2 error. That is, going back to work when it will turn out not to be necessary and not going back to work when it turns out it was going to be necessary.

Also of general interest: Look at the sheer number of risk control schemes ERN has to analyze. People are very motivated to find a shortcut, and I'm very motivated to find a shortcut too. Motivation can create blind spots, so I appreciate the cold water when it hits me.

[Metalcat]

ERN thoroughly debunked the idea that having "flexibility" in withdraws or getting a side gig for a few months when markets are down is going to rescue your retirement if your cohort turns out to be a bad one and your WR is 4% or more.

https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/
https://earlyretirementnow.com/2018/05/09/the-ultimate-guide-to-safe-withdrawal-rates-part-24-flexibility-myths-vs-reality/
https://earlyretirementnow.com/2018/05/23/the-ultimate-guide-to-safe-withdrawal-rates-part-25-more-flexibility-myths/

Basically, you need some kind of rule to go back to work. ERN calls them "guardrail" strategies. Particularly interesting to me is ERN's treatment of Type 1 vs. Type 2 error. That is, going back to work when it will turn out not to be necessary and not going back to work when it turns out it was going to be necessary.

Also of general interest: Look at the sheer number of risk control schemes ERN has to analyze. People are very motivated to find a shortcut, and I'm very motivated to find a shortcut too. Motivation can create blind spots, so I appreciate the cold water when it hits me.

He doesn't debunk anything, he just realistically explains how flexible spending and additional income would have to be in order to hedge against SORR.

What he criticizes is people who think they can cut 2% from their spending. Meanwhile, we have people here who have half of their annual budget going towards travel, and people who have luxury golf memberships. We also have people who can generate 5 figures with a single month of easily found work.

His point is that people need to be realistic, but that's my point as well.

[Mr. Green]

Yeah if you reach the point where you suspect a portfolio failure is in your future and need to modify your spending/income situation, small doses won't cut it. 10% might have a pretty decent impact if you sustain it over many years moving forward. If you're looking for a shorter body of corrective work, it probably needs to be 25% and even then it's still going to last several years at minimum. All that just depends on how far the portfolio is drawn down and how quickly the market recovers afterward.

@wageslave23 The red and green shading in the 10-year columns is just an arbitrary sliding scale I picked between percentages to help me visualize the return values. Solid red is anything below ~2% and solid green is anything above ~10%.

[wageslave23]

ERN thoroughly debunked the idea that having "flexibility" in withdraws or getting a side gig for a few months when markets are down is going to rescue your retirement if your cohort turns out to be a bad one and your WR is 4% or more.

https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/
https://earlyretirementnow.com/2018/05/09/the-ultimate-guide-to-safe-withdrawal-rates-part-24-flexibility-myths-vs-reality/
https://earlyretirementnow.com/2018/05/23/the-ultimate-guide-to-safe-withdrawal-rates-part-25-more-flexibility-myths/

Basically, you need some kind of rule to go back to work. ERN calls them "guardrail" strategies. Particularly interesting to me is ERN's treatment of Type 1 vs. Type 2 error. That is, going back to work when it will turn out not to be necessary and not going back to work when it turns out it was going to be necessary.

Also of general interest: Look at the sheer number of risk control schemes ERN has to analyze. People are very motivated to find a shortcut, and I'm very motivated to find a shortcut too. Motivation can create blind spots, so I appreciate the cold water when it hits me.

He doesn't debunk anything, he just realistically explains how flexible spending and additional income would have to be in order to hedge against SORR.

What he criticizes is people who think they can cut 2% from their spending. Meanwhile, we have people here who have half of their annual budget going towards travel, and people who have luxury golf memberships. We also have people who can generate 5 figures with a single month of easily found work.

His point is that people need to be realistic, but that's my point as well.

This type of information/analysis is super helpful.  People can have vague ideas of they will "adjust", but when determining how much of a FIRE stache is needed and weighing the pros and cons of more or less it's prudent to fully analyze the probability and magnitude of changes that would need to be made vs the extra working years.  I hate work just as much as anyone, but working another year isn't a death sentence. So I need to carefully weigh all the scenarios.  With a decision this large and complex, it is hard for the human brain to grasp an accurate view of the true situation.  So I will be diving in to some of these analysis in order to fine tune my perspective.

[MissNancyPryor]

I am never going back to work. 

The usual SORR analysis misses having cash on hand and the natural spending restriction that comes with disaster.  No one really has a 100% stock portfolio if cash is on hand even as the emergency fund.   

I have 2 years of liquidity available so I do not have to sell into a hellish death market at the worst possible time.  And when those days come around again I will be comfortably hunkered in my debt-free home living on less than 2% because I would be fairly freaked out about the state of affairs.  There would be a natural restriction of movement and spending with only mandatory items covered (no travel, no gadgets, no home upgrades during a serious, months long crash).  The flexible spending scenarios can't really cover what it would actually be like and insist on a drum beat of cashing in stock. 

March 2020 was a dress rehearsal for that feeling and it crystallized how important it was to go into FIRE with that cash buffer paired with a very low cash flow demand for expenses.  No debt.  No taxes either, since my income is from long term capital gains and is completely controllable. 

If a couple years cash, meaning no selling stock at the worst time, was put into any of the calculations that buffer would change the outcomes.  I imagine bonds could serve as that buffer but the liquidity is useful (I own no bonds).

[GuitarStv]

I am never going back to work. 

The usual SORR analysis misses having cash on hand and the natural spending restriction that comes with disaster.  No one really has a 100% stock portfolio if cash is on hand even as the emergency fund.   

I have 2 years of liquidity available so I do not have to sell into a hellish death market at the worst possible time.  And when those days come around again I will be comfortably hunkered in my debt-free home living on less than 2% because I would be fairly freaked out about the state of affairs.  There would be a natural restriction of movement and spending with only mandatory items covered (no travel, no gadgets, no home upgrades during a serious, months long crash).  The flexible spending scenarios can't really cover what it would actually be like and insist on a drum beat of cashing in stock. 

March 2020 was a dress rehearsal for that feeling and it crystallized how important it was to go into FIRE with that cash buffer paired with a very low cash flow demand for expenses.  No debt.  No taxes either, since my income is from long term capital gains and is completely controllable. 

If a couple years cash, meaning no selling stock at the worst time, was put into any of the calculations that buffer would change the outcomes.  I imagine bonds could serve as that buffer but the liquidity is useful (I own no bonds).

What kind of 'liquidity' are you holding?

[MissNancyPryor]

cash

[GuitarStv]

You keep two years of living expenses in cash?  What's the aversion to bonds?

[Imma]

Then assess ability to earn additional income. Some of us can work a few weeks here and there, no matter how long we've been out of the workforce, and make 5 figures. Some people will find this harder. Regardless, assess your particular capacity to generate more money.

I also think many people overestimate how easy it will be to go back to work in their field - or even to find a so-called "Barista FIRE" job. My husband is a tech professional who has been mostly out of work for 18 months. He's in his mid-50s and it's REALLY hard to get anyone to consider him for a position in anything remotely associated with his field. Companies want to hire people who have exactly the amount of experience they need (and no more), and they want really specific industry experience. Even if you think you have transferable skills, the hiring managers (or HR) don't agree. And I suspect that managers filling retail and service jobs aren't particularly interested in hiring former 50+ executives (without retail or service experience), because they expect those people to quit quickly if they find something better.

I was out of work for a year in my mid-50s. I had meetings with, and introductions/endorsements from, peers, C-suite executives and even board members at dozens of organizations - and none of those connections ultimately led to any offers. (I was very grateful for the time people spent with me, and I really enjoyed meeting with them, but no offers ...)

True, but like I mention *every single time* this is brought up, early retirees are also far more equipped to do what it takes to become competitive in various work fields.

An unemployed person who needs a job is very different from an early retiree who needs a job *at some point* in the next few years. They also have plenty of resources to put towards retraining if that would be ideal.

So yeah, you can't just expect to jump back into professional level work, but it's not as dire as people make it out to be. And retaining or developing employable skills is one of the things that a retiree can proactively do if they want to build more resilience into their retirement plan.

I've been retired for a year and I've already taken several courses that give me marketable job skills, just to keep my skill set fresh. I could also easily do a 2 year graduate program, which would completely retrain me for a professional 6 figure career, which would allow me to work part time, if that's what I wanted.

As someone who was forced out of a very specialized medical career with virtually NO transferable skills, because I have time and resources, I feel like I have no limitations on my capacity to earn, if that becomes important to me.

If I was an unemployed single mom with debt and bills to at, I would be completely fucked.

Having time and money makes engineering job opportunities a COMPLETELY DIFFERENT experience than being jobless and needing income to cover bills ASAP.

When people fear monger about finding work in retirement, this should very much be kept in mind.

Also, to someone's comment about older, over qualified folks not being considered for entry level jobs, that's a bunch of hogwash. There is a long tradition of retirees taking on low level part time jobs, often retail. These jobs are typically staffed with young people, who also don't tend to stick around, so a younger retiree who has clearly expressed no interest in ever climbing the ladder, who is competent, professional, and responsible, and only looking for flexible part time work??? Yeah, that's a very valuable candidate. I worked in staffing for big box stores, and we LOVED staffing retirees in these roles.

The world of work is MASSIVE, and hugely diversified, and early retirees have advantages that no one else has when it comes to finding really great opportunities.

When the pandemic hit, quite a few of our friends who worked in industries affected by the pandemic were without work almost instantly. A lot of them were entrepeneurs, not working for an employer who would qualify for government grants etc.

Almost all of them found something to do within a very short timeframe, and in most cases it had nothing to do with their original career. Things I've heard people do to start earning money:
- one started a bike repair place from home. He already worked on bikes as a hobby so had the skills and tools, and quickly started a business.
- Buying and selling vehicles (cars/motorbikes). Again something that person already did for fun but not as a way to make money
- Food delivery services, UberEats doesn't care about your previous job as a CEO
- House cleaning
- Working as a nanny
- Buying and selling stuff through secondhand websites and apps (clothing, musical instruments, vintage stuff, records)
- Handyman services
- Gardening services

Of course it depends on what kind of skills you have but I can't imagine someone making it to FIRE at 35 and not having any type of skill to show for it. If I wanted to make money on the side I'd probably start a business doing clothing repair. My friend works for a clothing repair business and they've never been busier. Is mending clothes the most fun thing I could ever imagine doing? No. Would it be worth it to get a parttime job mending clothes (ideally from home) if that meant being able to stay FIRE'd? For sure. I'd also be able to reduce my bills by growing even more of my own food. Plus I also bake my own bread and it's quite nice. I could also sell home-baked bread to make money. I think you'd probably need some type of license for that so clothing repair would be easier, but just baking some bread for family and friends as a cash-in-hand job would already be helpful if you're looking to reduce costs.