Current Networth with a Grain of Salt?

[wageslave23]

Anybody else taking their current networth with a grain of salt?  Personally I'm discounting my networth by about $100k because I think assets are inflated right now.

[Sibley]

I'm not going to discount net worth. I might increase the target.

Assets are worth what people are willing to pay for them. That can change. But if someone is willing to pay $100, then it's worth $100.

[DadJokes]

Your net worth is the current value of your assets minus the current value of your liabilities. It has no bearing on anything (including FIRE) other than ego-stroking.

What value does discounting your net worth provide?

[HPstache]

I guess it depends on what you're using it for.  If it's just a factual, "this is how much I'm worth right now", then no... my net worth is exactly what it is at this snapshot in time regardless of how inflated things are.  If it's for FIRE planning purposes, well then yes I do take it with a grain of salt.  However, the value of my net worth isn't really the right number to use for FIRE planning anyway since it includes things such as the equity in my personal residence which isn't really helpful to FIRE until it's paid off and at that point it reduces my expenses.  So yeah, I don't think it's a terrible idea to track net worth, inflated or not, but I don't want to let it lead me to over confidence in time to FIRE since there probably will be a correction in the future and it's really not the number to use anyway.

[dodojojo]

Not necessarily discount it but tell myself that next month it could be 25% smaller.  Also just know it can't be a bull market forever.  Whatever my NW now could be half in 5 years and it would be a complication as retirement nears.  Stuff happens. It tamps down the giddiness of seeing some extraordinary gains.

[wageslave23]

My networth is also my fire number. At $1 million networth, I can afford to buy the residence I want and live off of 4% of the remaining funds.  Whether I choose to keep a mortgage or not or whether I buy more expensive house in a place with lower other expenses is also irrelevant.  At $1 million I would normally be pretty confident, now it's more like 1.15 million or even 1.2.  For me it's two ways of looking at the same thing.  Maybe not everyone. 

[fat-johnny]

My networth is also my fire number. At $1 million networth, I can afford to buy the residence I want and live off of 4% of the remaining funds.  Whether I choose to keep a mortgage or not or whether I buy more expensive house in a place with lower other expenses is also irrelevant.  At $1 million I would normally be pretty confident, now it's more like 1.15 million or even 1.2.  For me it's two ways of looking at the same thing.  Maybe not everyone.

But at that point, don’t the line items cancel each other out?

What’s the difference in a net worth of $1 million, if the makeup is:
(before you buy this house)
$800k investments
$200k cash
$0  house

Or

(after you buy this house)
$800k investments
$0  cash
$200k house

Both are still a $1mil “net".
FJ

[Fishindude]

Your net worth is the current value of your assets minus the current value of your liabilities. It has no bearing on anything (including FIRE) other than ego-stroking.

What value does discounting your net worth provide?

Yep !

[helloyou]

I don't discount the net worth because it's what it is.

However because of inflation I reduced the 4% rules to 2.5-3%.

[Paper Chaser]

I think that having some concern about account balances potentially dropping is not all that different from having concern that medical costs might increase, or education costs for your kid, or travel costs, or any other cost increasing after you retire. When account balances drop, it's essentially retirement income that's dropping. And there's realistically no difference between income dropping and expenses increasing an equal amount.

The real issue at the core is that you're uncertain about the future and you're trying to offset that uncertainty by padding your stash. It's the same as OMY people (insert "Not that there's anything wrong with that" meme here). Do what you have to do in order to sleep at night. Maybe you really do need to pad the stash a little more. Maybe you could just adjust asset allocation so that you're less concerned about market volatility. Maybe you alter/downsize plans for what you can do in retirement. This is why having an investment plan drawn up ahead of time is so valuable. It keeps you on track so that you can be more certain that you're not basing decisions on emotion and feelings in the moment.

[NumberJohnny5]

For our net worth, I calculate what we'd have if we liquidated everything and just had cash.

Vehicles would be on the lower-end of what one could reasonably expect to get in a private party sale.

House is what I think we could reasonably get, minus 10% realtor commission.

Technically our net worth is a bit higher than the number I use, but it's about as close to a true cash value as I can get.

[wageslave23]

My networth is also my fire number. At $1 million networth, I can afford to buy the residence I want and live off of 4% of the remaining funds.  Whether I choose to keep a mortgage or not or whether I buy more expensive house in a place with lower other expenses is also irrelevant.  At $1 million I would normally be pretty confident, now it's more like 1.15 million or even 1.2.  For me it's two ways of looking at the same thing.  Maybe not everyone.

But at that point, don’t the line items cancel each other out?

What’s the difference in a net worth of $1 million, if the makeup is:
(before you buy this house)
$800k investments
$200k cash
$0  house

Or

(after you buy this house)
$800k investments
$0  cash
$200k house

Both are still a $1mil “net".
FJ

Exactly, doesn't matter either way I need $1 million networth

[wageslave23]

My networth is also my fire number. At $1 million networth, I can afford to buy the residence I want and live off of 4% of the remaining funds.  Whether I choose to keep a mortgage or not or whether I buy more expensive house in a place with lower other expenses is also irrelevant.  At $1 million I would normally be pretty confident, now it's more like 1.15 million or even 1.2.  For me it's two ways of looking at the same thing.  Maybe not everyone.

But at that point, don’t the line items cancel each other out?

What’s the difference in a net worth of $1 million, if the makeup is:
(before you buy this house)
$800k investments
$200k cash
$0  house

Or

(after you buy this house)
$800k investments
$0  cash
$200k house

Both are still a $1mil “net".
FJ

Exactly, doesn't matter either way I need $1 million networth

I suppose it would matter if you had a NW of $1 million and it was ALL tied up in a house. No cash, no investments, all house. Otherwise it doesn't matter for FI purposes since that will be based on your expenses rather then your NW. If your NW is one million invested  and you only need $500k ($20k/year) to cover expenses then you can buy a $500k house. If your investments drop by $200k but expenses remain the same then you can buy a $300k house. Etc...

 I don't count my total NW as part of my FIRE number, only my passive income stream. If I didn't own a home but planned to buy one, I just determine the cost to buy and my expenses for FIRE purposes and lower (or raise) that number if needed.

That makes sense.  For me its easier just to know that I need $1 million and and I need to keep my housing expenses in line with that just like I do with my other expenses.  Whether thats buying a house for $250k and having $2k in property taxes or renting somewhere for $1000 mo.  So $250k + 2k X 25 = $300k (or $1,000 x12 x 25) target netorth/FIRE number for housing expenses.

Same thing with transportation expenses.  I don't know if I'll have $15k vehicle paid out right or a loan or a lease or just use Uber.  But I'm confident I can keep my expenses around $250/mo.  So $250 x 12 x 25 = my target networth/FIRE number for transportation expenses.

[Sanitary Stache]

I have made my financial independence projections with some sloppy assumptions about investment returns and inflation.  I am pretty sure I got these assumptions from MMM or maybe even JL Collins.  I am certain I don't really understand them because I tried to read Bogle's Common Sense on Mutual Funds and got turned around at every graph.

They go something like this: assume a 7% annual rate of return for investments in VTSAX, averaged over a 20+ year horizon.  This is really a 10% rate of return with 3% inflation.  Then I don't inflate my expenses over the 20 years because I have already accounted for inflation.  My FIRE number isn't going to be 25x today's expenses, because today's expenses will grow due to inflation, but if I project out to when my 7% per annum is 25x today's expenses, that is when the return+inflation equals 25x expenses + inflation.  I guess.  You can see why I have no confidence in my understanding of this concept.

One thing I did learn from Bogle is that the growth of my investments will revert to the mean.  So if I think the mean is 7% per year over 20+ years, then the 26% I have seen this year will get balanced out by some shitty returns in the not too distant future.

[ixtap]

Nope. The simulations I use to project how much I can spend over the next 50 years already take into account the possibility of a crash right after I start withdrawing. And I often do use 50 because with the limited data, that is where the probabilities start increasing again with longer time frames (ie FIREcalc).

[PDXTabs]

I don't discount my liquid net worth. But things like real estate take money to sell, and have less certainly in their final pricing. I think that a discount there makes sense.

[norajean]

Don’t forget taxes. Cap gains on home sale? Short and long term gains on investments? What tax bracket will you be in on sale?

[charis]

What's the point of discounting NW if you are taking it with a grain of salt?

Mint tracks my NW automatically so I see it regularly. It's a helpful snap shot bc if you see a big jump or fall, you know to check individual accounts for any errors. 

That's about it - has nothing to do FIRE for me. I'm only looking at investments for that number.

[elaine amj]

I'm no expert - but if you feel inflation will be high, than why wouldn't you just bump up the inflation number when calculating the rate of return? The 4% rule is assuming an average 7% rate of return. We subtract a 3% rate of inflation to that to come up with the 4% rule.

So if you want to adjust for inflation, it makes more sense (to my mind - I'm no math wiz) to increase the rate of inflation rather than discounting your net worth. This will increase your FIRE number to allow for a larger margin of safety.

Your net worth is a snapshot of today. Your FIRE number includes all your assumptions on rate of return and the rate of inflation. And really your FIRE number is simply your best guess on how much you need for the rest of your life. Some will choose to take a riskier approach, others a more conservative one. I don't see how discounting your net worth helps with anything.

Sent from my VCE-AL00 using Tapatalk

[mckaylabaloney]

The 4% rule is assuming an average 7% rate of return. We subtract a 3% rate of inflation to that to come up with the 4% rule.

I know MMM and other financial bloggers have said this, but it's not really true. The 4% rule wasn't devised by subtracting inflation from average returns. Actually, the studies that developed the 4% rule in the 90s didn't assume average returns at all, because they analyzed actual historical data. That was kind of the point: they wanted to see what was a safe withdrawal rate even for people retiring into particularly bad (aka well below average) market conditions.

When the studies' authors looked at that historical data, they concluded that 4% would have been an extremely safe withdrawal rate for all or nearly all past retirees based on actual returns over the length of their actual retirements (including retirements that experienced catastrophic market events). (see: https://www.retailinvestor.org/pdf/Bengen1.pdf; https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf) We assume that 4% is also likely to be an extremely safe withdrawal rate in the future, because we assume that the future stock market will, at least over time, resemble its own past. (This may or may not be true, and some people choose a more conservative withdrawal rate because they don't think it's true, or worry it may not be.)

Of course, average returns and inflation are both relevant to our assumptions about the future, but it's not as simple as 7-3=4.

Also, the average 7% rate of return already takes inflation into account; in nominal dollars, the average rate of return (at least for the stock market) is closer to 10%. This actually demonstrates why the safe withdrawal rate isn't just average returns minus inflation: if it was, the safe withdrawal rate would be more like 7%. It's lower, at 4%, to account for retirees with particularly bad sequences of returns (aka those who experience catastrophic market events right at the beginning of their retirements).

This also means that, if the average stock market returns remain around 10% (which, who knows!), most people who use a 4% withdrawal rate are going to wind up with more money than they started with.

If you're worried that inflation will be particularly high for an extended period during your retirement, you can plan on a lower withdrawal rate, though it may also be true that stocks will rise along with inflation (so inflation may or may not actually necessitate a lower withdrawal rate). Also, note that the withdrawal rate studies certainly included years of very high inflation, so high inflation is already baked into the 4% rule.

[MoneyTree]

I don't think discounting your net worth is the right approach. How do you know what % to discount it? Just based on a general feeling that it is inflated?

You're taking a number that you are not sure about, and modifying it by another number that you're not sure about, to get something that is supposedly more accurate than the original?

A thought exercise: would you do the opposite? If you felt that the market were undervalued, would you subconsciously adjust your net worth higher? I'm guessing not.

If you don't feel comfortable with your numbers, then target something higher or use a more conservative withdrawal rate.

[elaine amj]

@mckaylabaloney Thanks for explaining it so well!

Sent from my VCE-AL00 using Tapatalk

[wageslave23]

I don't think discounting your net worth is the right approach. How do you know what % to discount it? Just based on a general feeling that it is inflated?

You're taking a number that you are not sure about, and modifying it by another number that you're not sure about, to get something that is supposedly more accurate than the original?

A thought exercise: would you do the opposite? If you felt that the market were undervalued, would you subconsciously adjust your net worth higher? I'm guessing not.

If you don't feel comfortable with your numbers, then target something higher or use a more conservative withdrawal rate.

Actually I do.  When the stock market crashed last year, in the back of my mind I was saying to myself "these are only paper losses its going to jump back up over the next year or two.  Again, I'm just saying that if I hit my FIRE number today, I would not feel comfortable retiring because I believe the market is overpriced.   This is the first time in the 9 years that I have been following MMM that I would say that. Personally I would have one more year syndrome and usually I wouldn't.   I'm wondering if anyone else feels that way about this current market

[ender]

I know MMM and other financial bloggers have said this, but it's not really true. The 4% rule wasn't devised by subtracting inflation from average returns. Actually, the studies that developed the 4% rule in the 90s didn't assume average returns at all, because they analyzed actual historical data. That was kind of the point: they wanted to see what was a safe withdrawal rate even for people retiring into particularly bad (aka well below average) market conditions.

Adding to this, you really don't need much returns at all for the 4% rule to succeed.

A 30 year period where after inflation returns every year were 1% would pass, by the framing of the study, because you'd have money leftover.

I don't think that many people seem to understand the biggest risk factors to FIRE that the Trinity study points out are basically inflation and sequence of returns.

[DadJokes]

I know MMM and other financial bloggers have said this, but it's not really true. The 4% rule wasn't devised by subtracting inflation from average returns. Actually, the studies that developed the 4% rule in the 90s didn't assume average returns at all, because they analyzed actual historical data. That was kind of the point: they wanted to see what was a safe withdrawal rate even for people retiring into particularly bad (aka well below average) market conditions.

Adding to this, you really don't need much returns at all for the 4% rule to succeed.

A 30 year period where after inflation returns every year were 1% would pass, by the framing of the study, because you'd have money leftover.

I don't think that many people seem to understand the biggest risk factors to FIRE that the Trinity study points out are basically inflation and sequence of returns.

Indeed. With the 4% rule, if gains match inflation, your money will last 25 years. That's still a really long time.

[ender]

Yep.

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

As someone who used to build simulation models for paid employment, we had a saying - garbage in, garbage out. A simulation model is only as accurate as the data and assumptions you put into it.

Part of why there's a long thread about not worrying about the 4% rule is because people take the worst case on the outcome and don't realize that by constraining the model in that way, you are meaningfully causing a garbage in, garbage out situation.

[mckaylabaloney]

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

People also forget (or don't know) that the Trinity study itself calls a 4% WR "exceedingly conservative" for people who are heavily invested in stocks.

[elaine amj]

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

People also forget (or don't know) that the Trinity study itself calls a 4% WR "exceedingly conservative" for people who are heavily invested in stocks.

I knew that but this is a comforting reminder.



Sent from my VCE-AL00 using Tapatalk

[Paper Chaser]

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

People also forget (or don't know) that the Trinity study itself calls a 4% WR "exceedingly conservative" for people who are heavily invested in stocks.

But it was also only discussing a 30 year retirement as well right? For somebody that retires at age 45 and expects to live until they're 90-100 years old 4% might not be "exceedingly conservative".

[moof]

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

People also forget (or don't know) that the Trinity study itself calls a 4% WR "exceedingly conservative" for people who are heavily invested in stocks.

I knew that but this is a comforting reminder.

+1.  It would also be very foolish to FIRE with a withdrawal rate that have no margin in it if you are caught in a big market dip for a few years.  Surely a good retirement has money for hobbies, travel, occasional eating out, and so forth that could be curtailed to a certain degree in the face of a calamity.  If you can't clamp down on spending at all during a crisis, you probably don't have enough fat in your budget to live a good life during normal years.

[TheAnonOne]

Yep.

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

As someone who used to build simulation models for paid employment, we had a saying - garbage in, garbage out. A simulation model is only as accurate as the data and assumptions you put into it.

Part of why there's a long thread about not worrying about the 4% rule is because people take the worst case on the outcome and don't realize that by constraining the model in that way, you are meaningfully causing a garbage in, garbage out situation.

Well, garbage in, and a super rich retirement, though 1-3 years shorter, out.

[mckaylabaloney]

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

People also forget (or don't know) that the Trinity study itself calls a 4% WR "exceedingly conservative" for people who are heavily invested in stocks.

But it was also only discussing a 30 year retirement as well right? For somebody that retires at age 45 and expects to live until they're 90-100 years old 4% might not be "exceedingly conservative".

Yes, that's fair. In that case it's probably only regular conservative :)

Of course, once you throw in other assumptions that the Trinity study didn't adopt (including that the retiree could earn more than $0 during retirement, might receive funds through Social Security or elsewhere, and that the retiree can dial down spending if necessary), it goes back to exceedingly conservative for most early retirees -- as long as you continue to assume that the future stock market will not be worse than the past stock market, which may or may not be a good assumption.

[secondcor521]

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

People also forget (or don't know) that the Trinity study itself calls a 4% WR "exceedingly conservative" for people who are heavily invested in stocks.

But it was also only discussing a 30 year retirement as well right? For somebody that retires at age 45 and expects to live until they're 90-100 years old 4% might not be "exceedingly conservative".

They were discussing 30 year periods, yes.  Other people since then have extended the analysis to longer periods.  And there are tools where you can run the analysis yourself for any period you choose.  I'm currently using a 38 year period, for example.

The main thing to note is that the much longer period doesn't really reduce the SWR much.  For example, when going from a 30 year to a 60 year period, it isn't necessary to drop from 4% to 2%.

The other thing to note is that the historically worst starting periods are in the late 1960's.  So if you stick with historical datasets and choose a 60 year period, you'll end up getting higher SWR results because you're ignoring 1966 (which was 55 years ago).

The Trinity study and others generally ignore Social Security, side gig income, and inheritances.  They also don't count on the reduction in expenses that is possible in FIRE.  I've reduced my income taxes, my clothing expenses, and my stress-related vacation and eating out expenses.  I can also travel anytime I want, so the travel expenses can be optimized as well - I think I went to the Caribbean in November for almost two weeks for about $1500 all in - flight, hotels, car rental, food, and entertainment.

I FIREd at a fortunate time.  I hit my 4% target in 2013 or so, FIREd at around 2% in 2016, and between the market performance and side gig income, I'm at 0.75% net WR now.  But that's also part of the point - the 4% is determined by the *worst ever* historical scenario (in the US).  The other 99.9% of the time 4% was too low because it wasn't the worst ever time to retire.

[Telecaster]

One thing I did learn from Bogle is that the growth of my investments will revert to the mean.  So if I think the mean is 7% per year over 20+ years, then the 26% I have seen this year will get balanced out by some shitty returns in the not too distant future.

That's the proper way to think about it.   If we've experienced higher than average returns in the recent past, then it stands to reason there will be lower than average returns at some point in the future.

So, if you think the current gains are transitory, you can discount your current net worth and come up with a future value using average returns.  Or you can use your current net worth and discount your future returns to come up with a future value.   You wind up at the same point.   But I think it is simpler and easier to discount your future returns rather than discount your current net worth.    Because we don't know what our future returns will be, but we do know our current net worth. 

[wageslave23]

One thing I did learn from Bogle is that the growth of my investments will revert to the mean.  So if I think the mean is 7% per year over 20+ years, then the 26% I have seen this year will get balanced out by some shitty returns in the not too distant future.

That's the proper way to think about it.   If we've experienced higher than average returns in the recent past, then it stands to reason there will be lower than average returns at some point in the future.

So, if you think the current gains are transitory, you can discount your current net worth and come up with a future value using average returns.  Or you can use your current net worth and discount your future returns to come up with a future value.   You wind up at the same point.   But I think it is simpler and easier to discount your future returns rather than discount your current net worth.    Because we don't know what our future returns will be, but we do know our current net worth.

Correct. I didnt realize I needed to spell that out for everyone, but yes that is what I was trying to get at.  These recent returns have been exceptionally high - Is anyone modifying their FIRE plans because of that?

[rantk81]

Correct. I didnt realize I needed to spell that out for everyone, but yes that is what I was trying to get at.  These recent returns have been exceptionally high - Is anyone modifying their FIRE plans because of that?

Yes.  I've hit my "number". But I don't "believe" it yet.  Still working...

[moof]

I really struggle to think of any situation too where the assumptions there -- that you'd spend 4% of starting amount inflation adjusted every year without deviating -- are robust enough to justify the rigid adherence to the model outcomes.

People also forget (or don't know) that the Trinity study itself calls a 4% WR "exceedingly conservative" for people who are heavily invested in stocks.

But it was also only discussing a 30 year retirement as well right? For somebody that retires at age 45 and expects to live until they're 90-100 years old 4% might not be "exceedingly conservative".

Troubles come up when looking at very long periods, such as a 30 year old FIRE'ing and living to 100.  If you only have say 120 years of historical data, then you'll have at best a 1950 start date as the most recent scenario, skipping over scenarios like 1960's stagflation right after your FIRE starts, which is where most failures are when using historical data.  Reality is that if you made it 30 years of exponential growth, about 90+% of the time you will end with far more inflation adjusted money than you started with, so starting another 30 year period has very very low chance of additional failures if you yet again use historical data, and if you just survived a 30 year stretch with low growth the odds are probably better than not that the next 30 years will be boom period.

It all boils down to the future being unknown, with no sure fire guarantees of anything other than death (taxes seem to be increasingly optional).  No simulator will give you a strategy that will survive a societal collapse, mass war, world wide famine, alien invasion, or a meteor strike.  You can do crap like Monte Carlo simulations, but they suffer from garbage in, garbage out limitations on a whole different angle.  In the end the 4% rule is a great guideline to start with, and is a conservative answer to the ever present "How much do I need to retire?" question.

[Blissful Biker]

Correct. I didnt realize I needed to spell that out for everyone, but yes that is what I was trying to get at.  These recent returns have been exceptionally high - Is anyone modifying their FIRE plans because of that?

Yes.  I've hit my "number". But I don't "believe" it yet.  Still working...

Me too.  The math shows that I could FIRE inside of a year as opposed to the plan of 2024 but am reluctant to trust it.  Here's today's S&P 500 Cape ratio.  What could go wrong?  :)

[moof]

One thing I did learn from Bogle is that the growth of my investments will revert to the mean.  So if I think the mean is 7% per year over 20+ years, then the 26% I have seen this year will get balanced out by some shitty returns in the not too distant future.

That's the proper way to think about it.   If we've experienced higher than average returns in the recent past, then it stands to reason there will be lower than average returns at some point in the future.

So, if you think the current gains are transitory, you can discount your current net worth and come up with a future value using average returns.  Or you can use your current net worth and discount your future returns to come up with a future value.   You wind up at the same point.   But I think it is simpler and easier to discount your future returns rather than discount your current net worth.    Because we don't know what our future returns will be, but we do know our current net worth.

Alternatively, if recent nose-bleed high gains are making you edgy you should use a conservative 3.5-4% WR, and if recent gain are sub-par you might do well to pull the trigger at something more aggressive like 4.5-6% WR.

[Much Fishing to Do]

Correct. I didnt realize I needed to spell that out for everyone, but yes that is what I was trying to get at.  These recent returns have been exceptionally high - Is anyone modifying their FIRE plans because of that?

Yes.  I've hit my "number". But I don't "believe" it yet.  Still working...

Me too.  The math shows that I could FIRE inside of a year as opposed to the plan of 2024 but am reluctant to trust it.  Here's today's S&P 500 Cape ratio.  What could go wrong?  :)

I guess I'm not sure of the connection between the thought the market might tank and needing to work one or two more years.  Is your salary so high that the market at half of what it is now can be overcome by a year or two of salary?

Thats kinda what gives me the go ahead to quit.  If the market drops 50% I'd have to work many years to make that back, and I'm not willing to work many years more, so might as well quit now.

[Bloop Bloop Reloaded]

I assume a yearly return of 4% gross (2.5% net) on investable assets so in that sense I'm being conservative already.

I do think a lot of net worths are inflated. US shares are up 160% since their peak in 2007 before the GFC (I am not even counting it from the post-GFC low). If the Australian share or property market had done that well I'd be worth an extra million right now, and I'd be feeling similarly 'successful'. Likewise if the US share market had done as modestly as the Australian share/property market in the past 15 years (Australian property has done reasonably well but nowhere near as well as American shares), I think there'd be a lot fewer FIREd people.

I say it all the time - you Americans don't know how lucky you are to live in the greatest country on earth. FIREing in America, at least over the past 15 years, is like shooting fish in a barrel.

[odput]

But being up 160% after 14 years is simply the result of a compounded average of, wait for it...7% per year, which is exactly the conservative estimate of average returns in the stock market.

I also wonder, does Australia not have a mechanism to invest in the American markets? I understand completely that situations are different in different countries, but since you are quite confident that the American markets is better than the Australian market, what is stopping you from buying American equities?

[tooqk4u22]

Well if I just hit a 4% WR I would not be comfortable to FIRE with these valuations and Fed manipulation of all markets. 

But I said that too when I FIRED in 2019....so there's that!

I don't discount NW, actually I don't pay much attention to NW in general, just the FIRE investments.   

But I do, and did when I FIRED, keep in my mind what my investments would be after a 50% drop in equities and whether or not that would be a palatable amount.   I am not 100% equities and do have a fairly conservative AA.   

I just can't see how the markets/asset values don't get whacked when the Fed pulls back......other than the fact they probably never will.

[slappy]

Correct. I didnt realize I needed to spell that out for everyone, but yes that is what I was trying to get at.  These recent returns have been exceptionally high - Is anyone modifying their FIRE plans because of that?

Yes.  I've hit my "number". But I don't "believe" it yet.  Still working...

Me too.  The math shows that I could FIRE inside of a year as opposed to the plan of 2024 but am reluctant to trust it.  Here's today's S&P 500 Cape ratio.  What could go wrong?  :)

I guess I'm not sure of the connection between the thought the market might tank and needing to work one or two more years.  Is your salary so high that the market at half of what it is now can be overcome by a year or two of salary?

Thats kinda what gives me the go ahead to quit.  If the market drops 50% I'd have to work many years to make that back, and I'm not willing to work many years more, so might as well quit now.

I don't think it's about making it back up with salary, as much as just letting it recover organically, without putting additional pressure on the portfolio from withdrawals. I don't have the numbers in front of me, but I think the average time for the market to recover from a recession is something like 2-3 years. So in my mind, that's where the "work another couple of years" comes into play.

[Greystache]

I have not discounted my net worth, but for long term planning, I have discounted my expected social security payments. When I was planning for FIRE, I assumed that I would only get 75% of my expected SS payout.

[Bloop Bloop Reloaded]

No, I don't know if the US market will outperform the Australian market after this - so when taking hindsight bias out of it, there's no particular reason (besides diversification) for me to invest in US equities.

As for the 7% growth, yeah, that's if you invested 100% immediately at the peak  in 2007 and put nothing in since then. Anyone who didn't do that has gotten an above-average return.

Here in Australia our shares have gone up about 10% since 2007...

[iris lily]

Because I have serious Silas Marner tendencies, I do like piling up the gold in my head. But it serves no practical purposes since I don’t actually SPEND much of it although at the moment we are renovating a house so our stash is funding that.

 My situation is different from most here because we are retired. Our income is about $80,000 each year and we spend about $80,000 each year. So, the stash is for fun and games like house renovation, new cars, trips to Europe.

[vand]

As others have said, net worth is net worth.  Yes markets are inflated but a better adjustment mechanism for this is to recalibrate your future growth expectations lower and build in more resilience into your plan. 
Oh yeah, and diversify.