Did the Great Resignation class of 21-22 just pick the worst time to retire?

[maizefolk]

https://www.zumper.com/rent-research/san-diego-ca
And if you focus on the areas that have all of the good jobs are in SD - there are zero 1 bed apartments for 2450. More like 3450.

Yes, more desirable areas of cities tend to have higher rents than less desirable areas. I hear you telling me that your personal rent has gone up 30% in the last 24 months and I believe you. My speculation based on market trends is that your invested net worth is up by an equal or greater percentage over the past 24 months as your rent has increased. Would that be an accurate assessment?

I think we're talking past each other to some extent. I'm trying to communicate two ideas:

The first is that I think you are drawing broad conclusions (first about everyone and later to everyone renting in a high cost of living area) from your personal experience that are neither consistent with that either my personal experience nor consistent the broad data we have about the USA generally or HCOL cities specifically.

The second is that it is misleading to mix and match inflation from one time period with stock market price changes from another and that doing so can lead to deceptive conclusions about how risky retirement actually is.

[Dicey]

Thanks for the clarification @ maizefolk. I was going to pm you, but I think you're are making an excellent and important point. Your additional info is really helpful, thank you. Many people have never experienced inflation before and are freaking out. Those of us who are *cough* more "seasoned" *cough* know the world isn't going to end. Things will smooth out and this is no time for panic.

[bryan995]

For the first point, I agree. I was thinking more about entry level coworkers (no major investments, >30% to expenses and only 10% COLA). But I agree that’s not fair nor similar to an early retirees situation.  Personal finance is personal.

For the second. I suppose that assumes that a person that retired 6-24 months ago adjusted their expenses for inflation as things changed, and came to a new target investment amount to meet expenses at the 4% SWR. Basically negating the impact of past  inflation. After one retires, the $ investment amount becomes fixed and responds solely to the market.  If inflation continues tracking higher than normal then it will drive expenses higher. Unless they have fixed most of their costs (home, taxes, utilities, transport), they will be vulnerable.   A few down years of market returns coupled with higher than ~3% inflation will crush an early retiree.

I’m not sure how to protect against that besides far overshooting SWR (minus adjusting lifestyle as the market performs).  The simplest way to combat inflation is to keep working - but who wants to do that forever :)

And back to the title. I certainly don’t think it was a good time to retire. It’s could be the worst. It could be very bad. I highly doubt it will turn out to be good timing. And there is no doubting the added risk / volatility, that’s for real.  Kudos to anyone that pulled the trigger, but I couldn’t do it unless I already had a healthy buffer to absorb a large negative event. Especially after the 10+ year bull run and inflated assets everywhere.  Even now, I tend to want to see what happens over the next 3-5 years before I make any major decisions.

[Dicey]

For the first point, I agree. I was thinking more about entry level coworkers (no major investments, >30% to expenses and only 10% COLA). But I agree that’s not fair nor similar to an early retirees situation.  Personal finance is personal.

For the second. I suppose that assumes that a person that retired 6-24 months ago adjusted their expenses for inflation as things changed, and came to a new target investment amount to meet expenses at the 4% SWR. Basically negating the impact of past  inflation. After one retires, the $ investment amount becomes fixed and responds solely to the market.  If inflation continues tracking higher than normal then it will drive expenses higher. Unless they have fixed most of their costs (home, taxes, utilities, transport), they will be vulnerable.   A few down years of market returns coupled with higher than ~3% inflation will crush an early retiree.

I’m not sure how to protect against that besides far overshooting SWR (minus adjusting lifestyle as the market performs).  The simplest way to combat inflation is to keep working - but who wants to do that forever :)

And back to the title. I certainly don’t think it was a good time to retire. It’s could be the worst. It could be very bad. I highly doubt it will turn out to be good timing. And there is no doubting the added risk / volatility, that’s for real.  Kudos to anyone that pulled the trigger, but I couldn’t do it unless I already had a healthy buffer to absorb a large negative event. Especially after a 10+ year bill run and inflated assets everywhere.  Even now, I tend to want to see what happens over the next 3-5 years before I make any major decisions.

At some point, enough is enough. As I've mentioned upthread and elsewhere, DH has been on vacation since March. His retirement will be official on July 1. We're not going to change that. We have multiple income streams, including a DBP with COLA. We'll be fine. We're in the process of turning over one of our rentals. We were getting $1900/month. The new tenants are paying $2750/month. Sure, some costs have risen, but not that much.

Another point that I think has been missed is that if you're a younger FIREE, your remaining funds have a long time horizon for recovery. If you're spending 4%, you still have 96% of your nest egg in the market, and so on.

Anecdata: a friend of mine, for a variety of once-in-a-lifetime reasons, blew through 20% of her investment accounts in her first year of retirement. At year 3 she sold off a rental and invested the proceeds. Fifteen years later, she's fine. More than fine. She'd have been fine if she kept the rental, but she got tired of the upkeep.

[bryan995]

At some point, enough is enough. As I've mentioned upthread and elsewhere, DH has been on vacation since March. His retirement will be official on July 1. We're not going to change that. We have multiple income streams, including a DBP with COLA. We'll be fine. We're in the process of turning over one of our rentals. We were getting $1900/month. The new tenants are paying $2750/month. Sure, some costs have risen, but not that much.

Another point that I think has been missed is that if you're a younger FIREE, your remaining funds have a long time horizon for recovery. If you're spending 4%, you still have 96% of your nest egg in the market, and so on.

Anecdata: a friend of mine, for a variety of once-in-a-lifetime reasons, blew through 20% of her investment accounts in her first year of retirement. At year 3 she sold off a rental and invested the proceeds. Fifteen years later, she's fine. More than fine. She'd have been fine if she kept the rental, but she got tired of the upkeep.

Indeed!
What is your target SWR once you both retire?  Is it exactly 4%? Or less?

And the other thing that I am sure was mentioned elsewhere, is how that 4% is allocated.

If one has enough saved such that 1% SWR covers a bare minimal existence, but prefers to live the life that the extra 3% provides, then that's one thing.
But it is very different than someone planning for a minimal / already no-fluff low expense life at 4% SWR.

We will likely pursue the first option and be willing to adjust lifestyle if the need arises.

[Sandi_k]

@Dicey mentioned a Defined Benefit Plan as one of the stability hedges in their plan. I think that is absolutely worth exploring.

If you *don't* have one, you can buy one, with a Single Premium Immediate Annuity - SPIA. It's possible to take some of your nest egg, and buy plans that perhaps kick in at age 75, 80 and 85 so that you have longevity insurance, too.

Income producing real estate is another option, but it does take someone to manage it.

Finally, depending upon the age of retirement, Social Security - which has the huge advantage of COLAs to its structure - will be around, in some form or another. In our planning, we assume a 25% discount to future benefits. Since both of us have been working since we were teenagers, we have many years of income that are past the second bend point of Social Security calculations - which means we'll have ~ $60k per year - even with the 25% discount rate! - of Social Security income, ON TOP of our portfolio, and ON TOP of my DBP.

This is the reason why multiple streams of income matter.

If *all* you will have is your investments, then yes! - 2020/2021 might have been a terribly stressful/disadvantaged time to retire. But if you make your portfolio one of multiple streams  of income (SocSec, annuity, rental income, pension, etc.) then it becomes a much more adaptable and flexible plan.

[maizefolk]

For the second. I suppose that assumes that a person that retired 6-24 months ago adjusted their expenses for inflation as things changed, and came to a new target investment amount to meet expenses at the 4% SWR. Basically negating the impact of past  inflation. After one retires, the $ investment amount becomes fixed and responds solely to the market.  If inflation continues tracking higher than normal then it will drive expenses higher. Unless they have fixed most of their costs (home, taxes, utilities, transport), they will be vulnerable. 

The thing is that these two things (market returns and inflation) are not independent of each other.

The federal government spent a lot of money to get the country through the pandemic and the federal reserve created a bunch of new money to enable that spending. That extra money increased demand for both stocks (higher prices, e.g. outsized market returns) and consumer goods and services (higher prices, e.g. inflation).

Now the federal reserve is trying to slow inflation by putting the economy into a controlled recession. They may or may not succeed at getting us back down to 3%, but if they successfully engineer a recession demand will drop and inflation will be lower than it otherwise will be ... but so will stock market valuations.

If the federal reserve blinks first, get scared by how grim the economy looks, and go back to creating money instead of trying to pull money out of the system, inflation will go up even more, but the stock market will also have much better returns than it would in the world where the fed keeps trying to fight inflation by stalling out the economy.

A few down years of market returns coupled with higher than ~3% inflation will crush an early retiree.

I can understand how it feels that what, it it is not accurate. The 4% rule is ridiculously conservative even in the face of multiple down years and >3% inflation.

Consider the 1939 retiree. Three years in a row of down markets and inflation that rose from 0% at the time of retirement to 9.9% the year after and 9% the year after that. An early retiree however comes out okay. After 30 years their spend has grown almost 2.5x in nominal terms, but their portfolio is 60% larger than it was when they started in inflation adjusted terms.

Or the 1973 retiree. Stock market was down 17% their first year and another 30% the next year. Their retirement coincided with the end of the cold standard, inflation was at 8.7% that year, 12.3% the year after that and didn't drop below 4% for the first eight years of their retirement. After 30 years their spending had grown to 4x what they were spending at the start. And, while their portfolio didn't do quite as well as the 1939 retiree they still have >98% of their starting portfolio in inflation adjusted terms.

These years may seem like random ones to talk about, but it's actually really hard to find periods where the stock market had significantly negative returns two years in a row AND had high inflation because, as discussed above, recessions tend to return demand and so reduce inflation.

[vand]

So 21-22 was probably not a historically great time to retire.  But I high doubt it was the worst time.  1929 and 1966 were epically shitty times.  This doesn't feel epically shitty to me.

Not only is this true, but it was 1966 that actually defined the 4% rule, not 1929.  So, while stock crashes are bad, it is actually the decade of inflation that followed (aka the 1970's) that were the worst.  (And we, so far, have had a correction in 2022, not a crash.)

So, when mortgages hit high double-digit, we can talk about the worst.  To me, going to 6-8% mortgages is simply reverting to the mean.  (As a quick shorthand for all the adjustments to various financing rates)

The 21st century has simply been filled so far with such ideal conditions for stock investing that people have gotten used to them.

I took this for gospel at first based on cfiresim etc, but it's important to recognise holes in their dataset that was pointed by ERN in a recent interview:

Sites like cfiresim etc use an annual data series. That means that if you specify a starting year then you the simulation uses one price point to represent that year. In a year like 1929 that leaves some serious margin for error, as the worst time to retire during the year may much worse than the average (or start of year/end of year price), and the result being that the historical simulation understates the likelihood of failure.

Cfiresim is a great tool and I use it myself, but it's important to recognise the limitations of the dataset they are using.

Here is the full interview (point about the annual series around 18mins). It's a good listen
.
https://tunein.com/podcasts/Business--Economics-Podcasts/Hack-Your-Wealth-FIRE-financial-independence-an-p1265296/?topicId=168953417

[bryan995]

It must be this, correct?
https://hackyourwealth.com/4-percent-rule

Your link it behind an app paywall :)

Regardless - I completely agree with the interviewee.  This is a complex problem than cannot be simplified into a web app.  Things are fundamentally different and the assumptions made are not readily apparent to the average user/reader.

TLDR he assumes a real return of 2.25% with inflation at 2%. So total of 4.25%. Withdrawing 4% could then be a bit risky!

Think about modern day advertising / engagement modeling. 10000+ MS/PHD level data scientist all paid >300k are focusing on this single problem.

Compared to the FIRE community trusting their retirement to a website that’s looks to have been built in 1999 (cfiresim) and 1 study written by 3 people and apparently cited only 29 times … :). Because of this complexity, I personally will have to layer in many additional buffers / backdrops / hedges to maximize chances of success.
https://www.researchgate.net/publication/228707593_Sustainable_withdrawal_rates_from_your_retirement_portfolio

[mistymoney]

So, I think there is reason to think that the probability of failure is greater than 5% (aka blanket application of the 4% rule) based on what we can guess at seems probable over the next year or so. However, the big swings you are worried about are effectively guaranteed to happen over most of our early retirement time intervals. Later is just better because you have fewer years left to live.

Sure big swings are guaranteed to happen, but the price you pay for your assets affects their returns.  Over a 20-yr window someone retiring today automatically generating a 1%/yr higher return (approximately) than someone who retired at year-end 2021, and so the person retiring today must have a higher success rate than the same person retiring December of last year.  I don't think it's enough to chant "sequence of returns risk" and wish it away.     

but are you assuming that they retire with the same amount? That would mean the the today retiree had much more than the YE 2021 in YE 2021.

Or that they start with the same amount in year-end 2021? and today retiree didn't use any for 6 months and/or invested more over these past 6 month?

Trying to understand the basis of the comparison.

 

[mistymoney]

The impressive thing about the Y2k all-stock retiree is how they've been hanging onto the precipice almost from year 1. Those early years of the dotcom crash really screwed the portfolio's ability to participate in subsequent recoveries, taking a further alarming lurch down in the GFC and then has required one of the greatest recoveries and subsequent bull markets in history just for the portfolio to keep treading water since.

It's remarkable that it hasn't already failed, if you consider that it was alredy down by 2/3rds at the 2009 nadir, barely 10 years in!

I think I heard W.Pfau say (on Afford Anything?) that if you're down > 50% in the first decade, you have a high probability to be in a failing timeline and you should cut spending and / or get some kind of an income source.

When people are analyzing this Y2k retiree, are they accounting for SS? That might be the difference in a case like this (even though we'd all prefer it to just be icing on the cake).

This is an instructive article from the doyen himself on when you should ideally expect to be drawing down into principle:
(hint: it isn't in the first decade!)

https://www.kitces.com/blog/consumption-gap-in-retirement-why-most-retirees-will-never-spend-down-their-portfolio/

I really don't understand what information he is drawing on.

In theory, the whole point of saving and investing for retirement is that upon reaching retirement, it’s time to spend down the money and enjoy it. In practice, a growing base of research finds that for most of their retirement, retirees are just continuing the growth of their pre-retirement portfolios,

I thought the majority of retirees have very little saved. Is referring only to high NW retirees? seems that statement need to be qualified somehow.

Federal Reserve report, the median household net worth for a head of household age 35-44 years old is $91,300. For a head of household age 45 to 54 years old, that figure is $168,600. In the 55-64 age range, average net worth is $212,500.

https://smartasset.com/retirement/average-retirement-savings-are-you-normal

[mistymoney]

The impressive thing about the Y2k all-stock retiree is how they've been hanging onto the precipice almost from year 1. Those early years of the dotcom crash really screwed the portfolio's ability to participate in subsequent recoveries, taking a further alarming lurch down in the GFC and then has required one of the greatest recoveries and subsequent bull markets in history just for the portfolio to keep treading water since.

It's remarkable that it hasn't already failed, if you consider that it was alredy down by 2/3rds at the 2009 nadir, barely 10 years in!

I think I heard W.Pfau say (on Afford Anything?) that if you're down > 50% in the first decade, you have a high probability to be in a failing timeline and you should cut spending and / or get some kind of an income source.

When people are analyzing this Y2k retiree, are they accounting for SS? That might be the difference in a case like this (even though we'd all prefer it to just be icing on the cake).

This is an instructive article from the doyen himself on when you should ideally expect to be drawing down into principle:
(hint: it isn't in the first decade!)

https://www.kitces.com/blog/consumption-gap-in-retirement-why-most-retirees-will-never-spend-down-their-portfolio/

Isn't needing to draw down prinicpal a completely ramdom accurrence, based on maket movement?

What even counts as prinicpal, as an aside. I'm thinking here it is the pot you start retirement with, but the reality is most of that is growth for most people. aka not principal?

[wageslave23]

The impressive thing about the Y2k all-stock retiree is how they've been hanging onto the precipice almost from year 1. Those early years of the dotcom crash really screwed the portfolio's ability to participate in subsequent recoveries, taking a further alarming lurch down in the GFC and then has required one of the greatest recoveries and subsequent bull markets in history just for the portfolio to keep treading water since.

It's remarkable that it hasn't already failed, if you consider that it was alredy down by 2/3rds at the 2009 nadir, barely 10 years in!

I think I heard W.Pfau say (on Afford Anything?) that if you're down > 50% in the first decade, you have a high probability to be in a failing timeline and you should cut spending and / or get some kind of an income source.

When people are analyzing this Y2k retiree, are they accounting for SS? That might be the difference in a case like this (even though we'd all prefer it to just be icing on the cake).

This is an instructive article from the doyen himself on when you should ideally expect to be drawing down into principle:
(hint: it isn't in the first decade!)

https://www.kitces.com/blog/consumption-gap-in-retirement-why-most-retirees-will-never-spend-down-their-portfolio/

Isn't needing to draw down prinicpal a completely ramdom accurrence, based on maket movement?

What even counts as prinicpal, as an aside. I'm thinking here it is the pot you start retirement with, but the reality is most of that is growth for most people. aka not principal?

I think they mean lower than your initial balance at retirement.

[maizefolk]

Isn't needing to draw down prinicpal a completely ramdom accurrence, based on maket movement?

What even counts as prinicpal, as an aside. I'm thinking here it is the pot you start retirement with, but the reality is most of that is growth for most people. aka not principal?

With the 4% rule, yeah. It's such a conservative strategy, built to allow you to avoid having to adapt by cutting sequence of return scenarios, that in a large majority of cases after 30 years you end up with significantly more money than you started with.

[mistymoney]

I've been giving this thread alot of thought because I retired 11 months ago.  In all of my pre-retirement planning, I found that the times the 4% rule fails is during times of inflation + flat/down markets.  Well here we are.  I have also found in the last few months that there is a ton of difference between buying the dip when you are still working and just watching the dip because you are NOT working and can't buy in.  And I've been reading about how long it has taken the market to recover in the past (which is not particularly enjoyable reading).  Do I think this is one of the failure times?  I have no idea.  It could be.  Or it might not be.  The problem is we'll only know in hindsight which is a risk I don't want to take.

All of that said, I planned and planned and planned before we retired.  We have multiple streams of income. We can live on my pension, our rentals, and my husbands social security (two of which I feel are dang near guaranteed income and the rentals are super strong at the moment).  Have I panicked?  Yes, a little in that I've stopped our withdrawals of investments.  Have I started acting crazy by selling everything and going cash?  Absolutely not.  Was I withdrawing 4% in the first place?  No.  While I believe in the math of the 4% rule, apparently I never believed it enough to stake my future on it.  Just the extra things in life. 

But beyond all of that, what I know is that I freaking LOVE not working.  And unless the end of times comes, I'm not going back to work.  And if it's the end of times, I'm probably not going back to work then either.  It's entirely possible that I have enjoyed the last 11 months of my life more that at any period in my life.  And this is from someone who has (almost) always enjoyed life.  For 11 months I've determined what I did with my time everyday.  And even during the time that was difficult (caring for my mom in her final days) I was so dang grateful to be able to choose that over going to a job everyday. I continue to be grateful that I don't have to work. 

So for me, in the big picture, if I have to modify the 4% rule, or cut my spending, or just be more aware of money, I'm ok with that.  Because being retired is awesome!

This is a great and honest post. You hit the nail on the head when you say that coping with dips when you have no new income is a totally different ball game to when you are still accumulating. The beneficiaries and losers of a bear market net each other out, and if you aren’t accumulating then you are going to be counted amongst the losers.


While I would still expect the 4% rule to hold up for you, it’s important to recognise that we are into uncharted waters in many ways, and we’re probably heading for one of the less favourable outcomes in the distribution curve. Anything you can do to protect your portfolio during this difficult period will help greatly. Financial freedom is not having to worry about your money, not matter how large of a stash you have built.

ladychips is doing great, and doesn't need to worry about anything, imo.

We can live on my pension, our rentals, and my husbands social security (two of which I feel are dang near guaranteed income and the rentals are super strong at the moment).

they don't even need the stache at all.

Have I panicked?  Yes, a little in that I've stopped our withdrawals of investments.  Have I started acting crazy by selling everything and going cash?  Absolutely not.  Was I withdrawing 4% in the first place?  No.  While I believe in the math of the 4% rule, apparently I never believed it enough to stake my future on it.  Just the extra things in life.

So it is only for extras. I'm not sure how many 2021/22 retiree are that secure.

[Wolfpack Mustachian]

It must be this, correct?
https://hackyourwealth.com/4-percent-rule

Your link it behind an app paywall :)

Regardless - I completely agree with the interviewee.  This is a complex problem than cannot be simplified into a web app.  Things are fundamentally different and the assumptions made are not readily apparent to the average user/reader.

TLDR he assumes a real return of 2.25% with inflation at 2%. So total of 4.25%. Withdrawing 4% could then be a bit risky!

Think about modern day advertising / engagement modeling. 10000+ MS/PHD level data scientist all paid >300k are focusing on this single problem.

Compared to the FIRE community trusting their retirement to a website that’s looks to have been built in 1999 (cfiresim) and 1 study written by 3 people and apparently cited only 29 times … :). Because of this complexity, I personally will have to layer in many additional buffers / backdrops / hedges to maximize chances of success.
https://www.researchgate.net/publication/228707593_Sustainable_withdrawal_rates_from_your_retirement_portfolio

How many years will those layers take to add? It's all a gamble, and I really want to have time to enjoy things without working while I'm young. All that to say I'm still in the accumulation phase,  so it might feel differently if I was planning on retiring this year.

[Glenstache]

A few years ago Sol pointed out that there is expected to be a 5 percent chance of failure using the Trinity assumptions. Thats 1 in 20. To decrease the odds, you have to work longer. Say you have to work 5 more years to have that buffer and you would have the 30 year retirement (aka, Trinity assumption). You are giving up 1/6 of your retirement against a 1 in 20 chance of failure (plus reducing retirement to 25 years, or maybe shorter if your job is unhealthy). Add to that the reality that the 5 percent failure risk can be motigated for us with even a low paying part time job. Once you are working beyond what you need for your stache, you are working for free.

Different people will turn the dial based on their own risk tolerance and comfort with uncertainty. But the exchange is years of work (a guaranteed loss) against a potential failure that would require imementing a contingency. And the failures are slow moving and you can see them coming. You'll see a decline trend long before you are on the street.

[EscapeVelocity2020]

I wish there were an easy way to poll folks mid-thread on how this forum generally feels about a OMY this year, if they were FI and planned to ER in, say, July….  But there’s also that slippery slope element to OMY, and maybe in this tight labor market it would work out well to get a break then find a better work situation for your OMY if it turns out to be necessary….

That is one of the many quirks to this high inflation, negative market year - loads of job openings!

[Bateaux]

I wish there were an easy way to poll folks mid-thread on how this forum generally feels about a OMY this year, if they were FI and planned to ER in, say, July….  But there’s also that slippery slope element to OMY, and maybe in this tight labor market it would work out well to get a break then find a better work situation for your OMY if it turns out to be necessary….

That is one of the many quirks to this high inflation, negative market year - loads of job openings!

I was going to quit in 2020.  Then the pandemic hit and most everything I wanted to do in retirement got shut down.  2021 was just a relapse of 2020.  By 2022 I was within a year of locking in lots of benefits in 2023 at work.  So OMY did become 3.  The bank account grew very well the entire time.  What we have now, even with the market drop is much greater than what I'd been willing to retire with in 2020.  This time next year I'll be hiking the Appalachian Trail.  We'd probably been fine retiring in 2020.  But, we the amount of PTO we have it hasn't been terrible.

[vand]

It must be this, correct?
https://hackyourwealth.com/4-percent-rule

Your link it behind an app paywall :)

Regardless - I completely agree with the interviewee.  This is a complex problem than cannot be simplified into a web app.  Things are fundamentally different and the assumptions made are not readily apparent to the average user/reader.

TLDR he assumes a real return of 2.25% with inflation at 2%. So total of 4.25%. Withdrawing 4% could then be a bit risky!

Think about modern day advertising / engagement modeling. 10000+ MS/PHD level data scientist all paid >300k are focusing on this single problem.

Compared to the FIRE community trusting their retirement to a website that’s looks to have been built in 1999 (cfiresim) and 1 study written by 3 people and apparently cited only 29 times … :). Because of this complexity, I personally will have to layer in many additional buffers / backdrops / hedges to maximize chances of success.
https://www.researchgate.net/publication/228707593_Sustainable_withdrawal_rates_from_your_retirement_portfolio

It's this one:
https://hackyourwealth.com/macroeconomic-changes-safe-withdrawal-rate

ERN's SWR series is of course essential reading if you want to get into the nuts and bolts of drawdown strategy.

The interview episode with Wade Pfau is very good too.

[vand]

https://www.currentmarketvaluation.com/models/price-earnings.php



The S&P would need another -30% from here to return to its long term CAPE10 average, roughly 2,800, and this wouldn't even be a particularly bad outcome as it's quite typical for falling markets to overshoot on the way down.

[wageslave23]

A few years ago Sol pointed out that there is expected to be a 5 percent chance of failure using the Trinity assumptions. Thats 1 in 20. To decrease the odds, you have to work longer. Say you have to work 5 more years to have that buffer and you would have the 30 year retirement (aka, Trinity assumption). You are giving up 1/6 of your retirement against a 1 in 20 chance of failure (plus reducing retirement to 25 years, or maybe shorter if your job is unhealthy). Add to that the reality that the 5 percent failure risk can be motigated for us with even a low paying part time job. Once you are working beyond what you need for your stache, you are working for free.

Different people will turn the dial based on their own risk tolerance and comfort with uncertainty. But the exchange is years of work (a guaranteed loss) against a potential failure that would require imementing a contingency. And the failures are slow moving and you can see them coming. You'll see a decline trend long before you are on the street.

I think what that example is missing is that 5% takes into account the market average over the last 100 yrs. It doesn't tell you what the failure risk is in any particular year. It's kind of like saying the there are 10 90 degree days on average in Illinois per year and then extrapolating that out to say there is a 10/365 chance that tomorrow is 90 degrees in Illinois without taking into account  the time of year.  Given where we are with market valuations, inflation, etc and controlling for those variables first and then looking at the last 100 yrs, we might be at 30% failure chance. 

It also assumes the extra money saved is wasted other than providing more security. When in real life the difference in FIRE budget from working a few extras years may bring your budget from $30k to 40k and the extra money is used for some vacations, golfing, or living on a lake - not a bad consolation prize for the extra security you ended up not needing.

[swaneesr]

I wish there were an easy way to poll folks mid-thread on how this forum generally feels about a OMY this year, if they were FI and planned to ER in, say, July….  But there’s also that slippery slope element to OMY, and maybe in this tight labor market it would work out well to get a break then find a better work situation for your OMY if it turns out to be necessary….

That is one of the many quirks to this high inflation, negative market year - loads of job openings!

I am this guy. FI and planned to retire 7/1/22. I would have told my manager last Thursday but decided to work a few months longer.

I may bump back to 10/1/22. Not sure yet.

In my case, there is no reason to panic or go full blown OMY.

Once I hit the exit, I want to go through the full decompression for about 6 months. I will surely get offers to consult part time but I would like to avoid falling back into the trap.

As you stated, the tight job market would allow someone like me to demand even more flexibility than I enjoy now.

This pull back in the market may not be fun but is normal and was overdue.


SwaneeSR


Sent from my iPhone using Tapatalk

[vand]

A few years ago Sol pointed out that there is expected to be a 5 percent chance of failure using the Trinity assumptions. Thats 1 in 20. To decrease the odds, you have to work longer. Say you have to work 5 more years to have that buffer and you would have the 30 year retirement (aka, Trinity assumption). You are giving up 1/6 of your retirement against a 1 in 20 chance of failure (plus reducing retirement to 25 years, or maybe shorter if your job is unhealthy). Add to that the reality that the 5 percent failure risk can be motigated for us with even a low paying part time job. Once you are working beyond what you need for your stache, you are working for free.

Different people will turn the dial based on their own risk tolerance and comfort with uncertainty. But the exchange is years of work (a guaranteed loss) against a potential failure that would require imementing a contingency. And the failures are slow moving and you can see them coming. You'll see a decline trend long before you are on the street.

I think what that example is missing is that 5% takes into account the market average over the last 100 yrs. It doesn't tell you what the failure risk is in any particular year. It's kind of like saying the there are 10 90 degree days on average in Illinois per year and then extrapolating that out to say there is a 10/365 chance that tomorrow is 90 degrees in Illinois without taking into account  the time of year.  Given where we are with market valuations, inflation, etc and controlling for those variables first and then looking at the last 100 yrs, we might be at 30% failure chance. 

It also assumes the extra money saved is wasted other than providing more security. When in real life the difference in FIRE budget from working a few extras years may bring your budget from $30k to 40k and the extra money is used for some vacations, golfing, or living on a lake - not a bad consolation prize for the extra security you ended up not needing.

Yes, it's a disingenious argument. Many people are only at the point of RE so early because of outlandish stock market returns over the last decade, and especially over the last 2 years (bubble territory). You can't expect such a high tide that carried you over the line quicker than expected to not retreat somewhat sooner or later.  Pencil in more subdued returns and those people would still be working towards their FI number.

Saying that you have a 1 in 20 chance of failure from today is like driving home in a snowy blizzard at night and saying "I know the statistics say drivers experience a car crash every 50,000 miles so I should be ok" and totally ignoring what the subset of statistics show for the conditions that you currently find yourself driving in.  You will hopefully make it home safely... but your chances of having an accident per mile driven are markedly higher than 1 in 50,000.

[Morning Glory]

A few years ago Sol pointed out that there is expected to be a 5 percent chance of failure using the Trinity assumptions. Thats 1 in 20. To decrease the odds, you have to work longer. Say you have to work 5 more years to have that buffer and you would have the 30 year retirement (aka, Trinity assumption). You are giving up 1/6 of your retirement against a 1 in 20 chance of failure (plus reducing retirement to 25 years, or maybe shorter if your job is unhealthy). Add to that the reality that the 5 percent failure risk can be motigated for us with even a low paying part time job. Once you are working beyond what you need for your stache, you are working for free.

Different people will turn the dial based on their own risk tolerance and comfort with uncertainty. But the exchange is years of work (a guaranteed loss) against a potential failure that would require imementing a contingency. And the failures are slow moving and you can see them coming. You'll see a decline trend long before you are on the street.

I think what that example is missing is that 5% takes into account the market average over the last 100 yrs. It doesn't tell you what the failure risk is in any particular year. It's kind of like saying the there are 10 90 degree days on average in Illinois per year and then extrapolating that out to say there is a 10/365 chance that tomorrow is 90 degrees in Illinois without taking into account  the time of year.  Given where we are with market valuations, inflation, etc and controlling for those variables first and then looking at the last 100 yrs, we might be at 30% failure chance. 

It also assumes the extra money saved is wasted other than providing more security. When in real life the difference in FIRE budget from working a few extras years may bring your budget from $30k to 40k and the extra money is used for some vacations, golfing, or living on a lake - not a bad consolation prize for the extra security you ended up not needing.

Yes, it's a disingenious argument. Many people are only at the point of RE so early because of outlandish stock market returns over the last decade, and especially over the last 2 years (bubble territory). You can't expect such a high tide that carried you over the line quicker than expected to not retreat somewhat sooner or later.  Pencil in more subdued returns and those people would still be working towards their FI number.

Saying that you have a 1 in 20 chance of failure from today is like driving home in a snowy blizzard at night and saying "I know the statistics say drivers experience a car crash every 50,000 miles so I should be ok" and totally ignoring what the subset of statistics show for the conditions that you currently find yourself driving in.  You will hopefully make it home safely... but your chances of having an accident per mile driven are markedly higher than 1 in 50,000.

This is not a binary choice. A recently fired person can choose to postpone some spending, draw on cash reserves until the market rebounds, or take a part time job for a while, just like a person driving in a blizzard can bring emergency supplies and slow down or pull over when necessary.

[BeanCounter]

When I was getting close to pulling the trigger and quitting, I was running all the what ifs and worrying about all the scenarios that could cause my FIRE plan to fail. Then another member of this forum, a veteran to FIRE said “you were smart enough to get here, to build real wealth, why would you think you won’t be able to figure out what to do to keep from failing? Just plan to be flexible.”

I think that is just about the best advice to give anybody who is going to FIRE. There will always be market downturns that we will have to navigate. That does not mean you should work forever.

[swaneesr]

When I was getting close to pulling the trigger and quitting, I was running all the what ifs and worrying about all the scenarios that could cause my FIRE plan to fail. Then another member of this forum, a veteran to FIRE said “you were smart enough to get here, to build real wealth, why would you think you won’t be able to figure out what to do to keep from failing? Just plan to be flexible.”

I think that is just about the best advice to give anybody who is going to FIRE. There will always be market downturns that we will have to navigate. That does not mean you should work forever.

+1 exactly right.


Sent from my iPad using Tapatalk

[BlueHouse]

 While I believe in the math of the 4% rule, apparently I never believed it enough to stake my future on it.  Just the extra things in life. 
...
But beyond all of that, what I know is that I freaking LOVE not working.  And unless the end of times comes, I'm not going back to work. 
...
So for me, in the big picture, if I have to modify the 4% rule, or cut my spending, or just be more aware of money, I'm ok with that.  Because being retired is awesome!

Same here.  I'm down over 16% in my investments.  If I were deciding whether to FIRE now, I wouldn't have the guts to do it.  But I have 2+ years of cash on hand that I could probably stretch to 3 years.  And I look at my LNW and realize that even if it stayed at this number without growing a penny over the next 2 years while I spend down my cash, I could still make it on that, just not with as much fluff as I'd like.  AND I also have a house with $1M+ equity that I plan to sell sometime in the next 10 years.  The value of my home hasn't taken a hit yet and is instead growing growing growing.  If/When that takes a hit, I will be wringing my hands with worry. 

[vand]

A few years ago Sol pointed out that there is expected to be a 5 percent chance of failure using the Trinity assumptions. Thats 1 in 20. To decrease the odds, you have to work longer. Say you have to work 5 more years to have that buffer and you would have the 30 year retirement (aka, Trinity assumption). You are giving up 1/6 of your retirement against a 1 in 20 chance of failure (plus reducing retirement to 25 years, or maybe shorter if your job is unhealthy). Add to that the reality that the 5 percent failure risk can be motigated for us with even a low paying part time job. Once you are working beyond what you need for your stache, you are working for free.

Different people will turn the dial based on their own risk tolerance and comfort with uncertainty. But the exchange is years of work (a guaranteed loss) against a potential failure that would require imementing a contingency. And the failures are slow moving and you can see them coming. You'll see a decline trend long before you are on the street.

I think what that example is missing is that 5% takes into account the market average over the last 100 yrs. It doesn't tell you what the failure risk is in any particular year. It's kind of like saying the there are 10 90 degree days on average in Illinois per year and then extrapolating that out to say there is a 10/365 chance that tomorrow is 90 degrees in Illinois without taking into account  the time of year.  Given where we are with market valuations, inflation, etc and controlling for those variables first and then looking at the last 100 yrs, we might be at 30% failure chance. 

It also assumes the extra money saved is wasted other than providing more security. When in real life the difference in FIRE budget from working a few extras years may bring your budget from $30k to 40k and the extra money is used for some vacations, golfing, or living on a lake - not a bad consolation prize for the extra security you ended up not needing.

Yes, it's a disingenious argument. Many people are only at the point of RE so early because of outlandish stock market returns over the last decade, and especially over the last 2 years (bubble territory). You can't expect such a high tide that carried you over the line quicker than expected to not retreat somewhat sooner or later.  Pencil in more subdued returns and those people would still be working towards their FI number.

Saying that you have a 1 in 20 chance of failure from today is like driving home in a snowy blizzard at night and saying "I know the statistics say drivers experience a car crash every 50,000 miles so I should be ok" and totally ignoring what the subset of statistics show for the conditions that you currently find yourself driving in.  You will hopefully make it home safely... but your chances of having an accident per mile driven are markedly higher than 1 in 50,000.

This is not a binary choice. A recently fired person can choose to postpone some spending, draw on cash reserves until the market rebounds, or take a part time job for a while, just like a person driving in a blizzard can bring emergency supplies and slow down or pull over when necessary.

I agree, but those choices are always available to us. It doesn't change that the environment may not be conducive to our goals. To take my previous analogy further, you could decide to drive at an average of 50km/hr during the blizzard rather than your usual 60 or 70km/hr.

[mathlete]

Depends. I think if you had been planning to retire for many years and did so with a good plan, you're probably okay.

I really worry about anyone who raced to retire on super bare bones spending divided by 0.04 though. I continue to believe that lean FIRE or barista FIRE is a really bad idea.

[ixtap]

Depends. I think if you had been planning to retire for many years and did so with a good plan, you're probably okay.

I really worry about anyone who raced to retire on super bare bones spending divided by 0.04 though. I continue to believe that lean FIRE or barista FIRE is a really bad idea.

A couple of people have asked if we are part of the Great Resignation. Well, we OMYed for two years during the pandemic and DH has received an offer to be half time, rather than actually quitting, so <shrug>. There certainly isn't anything spontaneous about our decision

[AlanStache]

Threads been a good read.

Going back a bit pre-Covid I was sort of thinking that regardless of hitting x25 spending I would like to work through one more recession just to get that done.  I momentarily hit x25 around the new year but did not put any real thought in to RE, was great to see the number if only for a short time.  I know they dont ring a bell when the recession is over but will be good to get a year/two of stocks at sale prices and building up a cash reserve before walking away.  Work is basically fine, interesting, low stress and spraying a fire hose of cash at me so meh. 

But yes as a data point of one, I did not blindly take note of hitting x25 at a market peak and turn in my resignation letter the following day. 

[eyesonthehorizon]

A few years ago Sol pointed out that there is expected to be a 5 percent chance of failure using the Trinity assumptions. Thats 1 in 20. To decrease the odds, you have to work longer. Say you have to work 5 more years to have that buffer and you would have the 30 year retirement (aka, Trinity assumption). You are giving up 1/6 of your retirement against a 1 in 20 chance of failure (plus reducing retirement to 25 years, or maybe shorter if your job is unhealthy). Add to that the reality that the 5 percent failure risk can be motigated for us with even a low paying part time job. Once you are working beyond what you need for your stache, you are working for free.

Different people will turn the dial based on their own risk tolerance and comfort with uncertainty. But the exchange is years of work (a guaranteed loss) against a potential failure that would require imementing a contingency. And the failures are slow moving and you can see them coming. You'll see a decline trend long before you are on the street.

I just read this in increasingly strangled croaks to my SO while sinking further & further under the table in abject shame.

Thank you for both the facepunch & the laugh.

[BeanCounter]

Here's the issue- I think if you use cFIREsim to model, you'll find that OMYing doesn't really contribute that much to your success rate. Unless you OMY for 5-10 years. And who wants to work full time that much longer?

[EscapeVelocity2020]

Here's the issue- I think if you use cFIREsim to model, you'll find that OMYing doesn't really contribute that much to your success rate. Unless you OMY for 5-10 years. And who wants to work full time that much longer?

Interesting, but I'm not sure I understand Sol's statements.  If I were to use cFIRE to run this analysis, I'd input two sets of early retirement starting point assumptions.  I would think, if I put my OMY set of assumptions in which would include an extra year of investment gains and contributions, and one less year of early retirement (until claiming SS and medicare), I'm sure I'd see substantial improvements (keeping a 4% SWR).

I guess it's all subjective on what 'a lot' more success rate needs to be.  If you look at this as going from 95% to 99%, then it isn't much in those terms, but allowing me to go from 4% SWR to 3.5% is a lot.  There's also a much higher probability of having much higher ending values, which to me means more financial security throughout the ER for black swans (ACA going away, a market crash 5 years in, etc).

To each their own, but automatically assuming OMY for 5-10 years doesn't make sense, it's called one more year for a reason.  I ran the numbers a long time ago and felt like OMY was substantial to me, but I'd feel even more inclined to OMY in a recession.  It would be interesting to run the numbers assuming a negative market return for that OMY...

[Davnasty]

Regarding "failure" of your SWR, I've been trying to wrap my head around what that would actually look like. As many have already stated, we're human and we can adjust our spending as the markets and our personal situations change. In that same line of thought, most early retirees aren't going to stay retired and watch helplessly as their stash dwindles to $0, they're going to go back to work much sooner than that.

What I'm wondering, is when does one decide to go back to work? And would it make more sense to consider that "failure" in your personal equation?

I think the answer to when you go back is going to vary greatly based on an individual's risk tolerance and how much they like/dislike working so it's probably not something we can put generalized numbers on, but I think it is worth taking into consideration when deciding what your FIRE numbers should be.

Bringing this back on topic, I am not RE but if I had quit during recent stock highs I think I might already be looking for work, or at least a supplemental income. I wouldn't consider a failure of my SWR of course, it would be more of a hiccup in early retirement based on my individual plans and level of risk tolerance. Also worth noting, my plans are closer to leanFIRE knowing that means supplemental income may be needed and I'm happy to accept that risk.

[eyesonthehorizon]

Here's the issue- I think if you use cFIREsim to model, you'll find that OMYing doesn't really contribute that much to your success rate. Unless you OMY for 5-10 years. And who wants to work full time that much longer?

Interesting, but I'm not sure I understand Sol's statements.  If I were to use cFIRE to run this analysis, I'd input two sets of early retirement starting point assumptions.  I would think, if I put my OMY set of assumptions in which would include an extra year of investment gains and contributions, and one less year of early retirement (until claiming SS and medicare), I'm sure I'd see substantial improvements (keeping a 4% SWR).

I guess it's all subjective on what 'a lot' more success rate needs to be.  If you look at this as going from 95% to 99%, then it isn't much in those terms, but allowing me to go from 4% SWR to 3.5% is a lot.  There's also a much higher probability of having much higher ending values, which to me means more financial security throughout the ER for black swans (ACA going away, a market crash 5 years in, etc).

To each their own, but automatically assuming OMY for 5-10 years doesn't make sense, it's called one more year for a reason.  I ran the numbers a long time ago and felt like OMY was substantial to me, but I'd feel even more inclined to OMY in a recession.  It would be interesting to run the numbers assuming a negative market return for that OMY...

I don't recall Sol's specific post but the implication in Glenstache's summary above isn't so much about the specific duration of time (one to five years) to get that extra 5% odds of success (that would present two problems: it depends on your income-to-expenses ratio, & also, is really sort of an asymptotic curve toward zero, isn't it? nothing is ever actually a guarantee, & all our guesses assume the future will look to some degree like the past, which is the #1 no-no in finance anyway.) Instead it's about how there's a guaranteed loss (of precious, irreplaceable youthful Retirement Time) in exchange for a potential, unassured gain, which you could make up for anyway through a combination of observation & flexibility without locking in the guaranteed loss.

As much as I want to model it to perfection, as much as we all love to have exact numbers, the sim is only there to give people the confidence to jump. I, too, resent this :D

My position: I'm still in a job that's so stressful it's giving me health problems, even though I could work any minimum wage job to pay the bills & let the stash grow in the background. I could barista-fi right now, but lose a thousand or so mornings of waking up to a book over my own coffee with no shift ahead of me due to lower pay necessitating that I work longer. Or I could quit on my current 'stache, gain time immediately, but also face increased risk of failure compared to any type of continuing employment/ OMY.  My budget & lifestyle are very lean, with only a couple thousand of discretionary spending a year, so I can't cut much; if my 'stache can't meet a change in my needs, I'll have to go back. I know I've already stayed too long, but I have (partially substantiated, but surely exaggerated?) fear about what happens when I pull my foot out of the door, whether it will lock behind me. All that, & yet:

Most of us on the FIRE path suffer not because we jumped too soon but because we jump too late.

[nereo]

To reframe this idea a bit - as your target WR drops from ~6% to 3% (or even lower) two things occur. #1 each reduction of 0.25% requires progressively more money (and thereby progressively more time saving). That’s just how the math works.

#2, the likelihood of a failure in a theoretical portfolio rapidly approaches 0. It’s a great example of the law of diminishing returns, but with time being a limiting resource (and typically unknowable)

Since no amount of money saved is truly “bulletproof” from every possible scenario, there an additional lesson here: as you go below 4.X%, “more money” becomes increasingly less useful while a myriad of less tangible things provides additional security. Flexibility with your circumstances, strong social networks and not having a lot of legal skeletons or enemies can boost your odds of success much more than another fraction of a percent lower WR.

[vand]

To reframe this idea a bit - as your target WR drops from ~6% to 3% (or even lower) two things occur. #1 each reduction of 0.25% requires progressively more money (and thereby progressively more time saving). That’s just how the math works.

#2, the likelihood of a failure in a theoretical portfolio rapidly approaches 0. It’s a great example of the law of diminishing returns, but with time being a limiting resource (and typically unknowable)

Since no amount of money saved is truly “bulletproof” from every possible scenario, there an additional lesson here: as you go below 4.X%, “more money” becomes increasingly less useful while a myriad of less tangible things provides additional security. Flexibility with your circumstances, strong social networks and not having a lot of legal skeletons or enemies can boost your odds of success much more than another fraction of a percent lower WR.

The flip side of this is that it takes much less time going from 6% to 3% SWR than it does starting from scatch and getting to 6% SWR. 

Each unit of wealth may be marginally less useful, but it is also increasingly easy to obtain.

[nereo]

To reframe this idea a bit - as your target WR drops from ~6% to 3% (or even lower) two things occur. #1 each reduction of 0.25% requires progressively more money (and thereby progressively more time saving). That’s just how the math works.

#2, the likelihood of a failure in a theoretical portfolio rapidly approaches 0. It’s a great example of the law of diminishing returns, but with time being a limiting resource (and typically unknowable)

Since no amount of money saved is truly “bulletproof” from every possible scenario, there an additional lesson here: as you go below 4.X%, “more money” becomes increasingly less useful while a myriad of less tangible things provides additional security. Flexibility with your circumstances, strong social networks and not having a lot of legal skeletons or enemies can boost your odds of success much more than another fraction of a percent lower WR.

The flip side of this is that it takes much less time going from 6% to 3% SWR than it does starting from scatch and getting to 6% SWR. 

Each unit of wealth may be marginally less useful, but it is also increasingly easy to obtain.

Yes, but I'm not sure how useful that perspective is. I don't see anyone here advocating a long retirement on a >7% WR. The overwhelming majority of discussion here seems to focus on sub 6% WRs, so the time it takes to go from $0 NW (or even negative NW) to a 6% WR is largely meaningless.

In my view what matters (and what Sol more eloquently pointed out) is that once you hit this point where *most* portfolios will theoretically survive continued accumulation requires trading your finite time on this earth for a small and ever decreasing percentage of potential failure, and that your time+effort is better spent elsewhere if your goal is to minimize potential failures.

[maizefolk]

Since no amount of money saved is truly “bulletproof” from every possible scenario, there an additional lesson here: as you go below 4.X%, “more money” becomes increasingly less useful while a myriad of less tangible things provides additional security. Flexibility with your circumstances, strong social networks and not having a lot of legal skeletons or enemies can boost your odds of success much more than another fraction of a percent lower WR.

In addition, as we start getting into the far tail of failure scenarios, we're typically talking about scenarios where a person is going to have to change their lifestyle in fundamental ways whether they are FIREd or still working a job. The great depression was a scary time in the USA regardless of whether a person personally had enough money or not. We came closer to a revolution/government collapse than I think is now appreciated, and that's when the 4% rule still worked!

Looking at SWR studies using data from European countries, a lot of them are shockingly low (1.X%, 2.X%) until you realize those SWR numbers are coming from years where the country was invaded, had much of its infrastructure/housing destroyed, its government fall and its bonds become worthless, and lost two generations of young men to world wars I and II.

[treffpunkt]

In my view what matters (and what Sol more eloquently pointed out) is that once you hit this point where *most* portfolios will theoretically survive continued accumulation requires trading your finite time on this earth for a small and ever decreasing percentage of potential failure, and that your time+effort is better spent elsewhere if your goal is to minimize potential failures.

I needed to be reminded of this today. Thank you nereo!

[NorthernBlitz]

Threads been a good read.

Going back a bit pre-Covid I was sort of thinking that regardless of hitting x25 spending I would like to work through one more recession just to get that done.  I momentarily hit x25 around the new year but did not put any real thought in to RE, was great to see the number if only for a short time.  I know they dont ring a bell when the recession is over but will be good to get a year/two of stocks at sale prices and building up a cash reserve before walking away.  Work is basically fine, interesting, low stress and spraying a fire hose of cash at me so meh. 

But yes as a data point of one, I did not blindly take note of hitting x25 at a market peak and turn in my resignation letter the following day.

I think I'd want to be over 25x for about a year before retiring.

But if you get average returns and have a high saving rate, it probably only take ~ 2 years to go from 4% to 3.5%*.

It's pretty easy to see how I personally would be prone to OMY. Especially since I generally enjoy most of my job...and could easily tone down the parts I don't like if I was at 25x.

* Let's say you make $120k after taxes and spend $60k, so you save $60k too. Your 25x is $1.5M. Let's say you get 7% after inflation and continue to save 50% each year. In 2 years, you've gone from 4% WR to 3.3% WR. Even if you don't invest a penny in those 2 years, your 7% returns gets you to a 3.5% WR (assuming that you just dropped your savings into cash and didn't double your annual spending from $60k to $120k). The math doesn't change with the income above.

[NorthernIkigai]

For once I’m thankful of being somewhere in the middle bit of our FI journey! It usually feels like a bit of a slog, but now I’m happy not to have to make big decisions or worry about whether we’ve thought of everything. The market is doing weird things, but since we’re contributing to the stash it’s almost better that way. I’ve been investing since 2007, so it’s not that we’re afraid of a dip or a crash (except for the real-life problems in society it leads to), we know what comes after that. But the chart of our stash is sure starting to look a bit wonky…

[Glenstache]

Threads been a good read.

Going back a bit pre-Covid I was sort of thinking that regardless of hitting x25 spending I would like to work through one more recession just to get that done.  I momentarily hit x25 around the new year but did not put any real thought in to RE, was great to see the number if only for a short time.  I know they dont ring a bell when the recession is over but will be good to get a year/two of stocks at sale prices and building up a cash reserve before walking away.  Work is basically fine, interesting, low stress and spraying a fire hose of cash at me so meh. 

But yes as a data point of one, I did not blindly take note of hitting x25 at a market peak and turn in my resignation letter the following day.

I think I'd want to be over 25x for about a year before retiring.

But if you get average returns and have a high saving rate, it probably only take ~ 2 years to go from 4% to 3.5%*.

It's pretty easy to see how I personally would be prone to OMY. Especially since I generally enjoy most of my job...and could easily tone down the parts I don't like if I was at 25x.

* Let's say you make $120k after taxes and spend $60k, so you save $60k too. Your 25x is $1.5M. Let's say you get 7% after inflation and continue to save 50% each year. In 2 years, you've gone from 4% WR to 3.3% WR. Even if you don't invest a penny in those 2 years, your 7% returns gets you to a 3.5% WR (assuming that you just dropped your savings into cash and didn't double your annual spending from $60k to $120k). The math doesn't change with the income above.

Yes, but your real rate of return is lower than 7% and after inflation is factored in. It will take longer than just a year or two to get there with your math assumptions.  And, we have plenty of people in this thread wanting to get to a 2-3% withdrawal rate. The point is that there is a decision to trade years of your life working rather that retire early. Those are guaranteed lost years with a diminishing rate of return on certainty. OMY will not significantly change the odds of success for many people (unless they have an very high income to future spend ratio). Everyone has to decide where to set that dial, and be clear eyed about what the contingency is, but it is a decision.

Part of the point of mustachianism isn't necessarily to just have a lot of money (go to Bogleheads for that), but to recognize that you are trading hours of your life for that money and that the hours of life are more important than the money. The smart application of resources can allow you to spend more of your life not working, or only working at the things you love.

[AlanStache]

It is an interesting question of how long should you be at x25 before pulling the plug, I suspect like many things it depends.   

...
Yes, but your real rate of return is lower than 7% and after inflation is factored in. It will take longer than just a year or two to get there with your math assumptions.  And, we have plenty of people in this thread wanting to get to a 2-3% withdrawal rate. The point is that there is a decision to trade years of your life working rather that retire early. Those are guaranteed lost years with a diminishing rate of return on certainty. OMY will not significantly change the odds of success for many people (unless they have an very high income to future spend ratio). Everyone has to decide where to set that dial, and be clear eyed about what the contingency is, but it is a decision.

Part of the point of mustachianism isn't necessarily to just have a lot of money (go to Bogleheads for that), but to recognize that you are trading hours of your life for that money and that the hours of life are more important than the money. The smart application of resources can allow you to spend more of your life not working, or only working at the things you love.

Personally I have relatively low discretionary spending to cut and am considering a move to a slightly higher COL.  Also I dont think I could work part time in my current field if needed down the line. 

But also RE or working is not a black and white line between life sucks and life is awesome.  Most every weekday after work I work out, play some bass and read a book, I would love an extra +8hr of free time each day but I dont have 0hr free time now.  Then looking at last sunday afternoon I choose to work on some work stuff because it was interesting.  This would get off topic but what I do is interesting and post RE I probably would replace some of it with other as interesting stuff. 

I do kind of fear becoming institutionalized and continuing OMY for ten years, but given how my tolerance for work BS has decreased since getting near x25 I suspect I would literally fly some double birds and walk out well before ten years of OMY. 


So I made a Spread sheet to clarify if someone should continue working as a function of job suckieness and invested net worth.  Its a spreadsheet so you know its true and will therefor end all debate the subject /s

[maizefolk]

Yes, but your real rate of return is lower than 7% and after inflation is factored in. It will take longer than just a year or two to get there with your math assumptions.  And, we have plenty of people in this thread wanting to get to a 2-3% withdrawal rate. The point is that there is a decision to trade years of your life working rather that retire early. Those are guaranteed lost years with a diminishing rate of return on certainty. OMY will not significantly change the odds of success for many people (unless they have an very high income to future spend ratio). Everyone has to decide where to set that dial, and be clear eyed about what the contingency is, but it is a decision.

I agree with your overall point but did want to say that the CAGR of the US stock market over the past 150 years (with dividends reinvested) and after correcting for inflation is actually just over 7%.

[clifp]

It is an interesting question of how long should you be at x25 before pulling the plug, I suspect like many things it depends.   

...
Yes, but your real rate of return is lower than 7% and after inflation is factored in. It will take longer than just a year or two to get there with your math assumptions.  And, we have plenty of people in this thread wanting to get to a 2-3% withdrawal rate. The point is that there is a decision to trade years of your life working rather that retire early. Those are guaranteed lost years with a diminishing rate of return on certainty. OMY will not significantly change the odds of success for many people (unless they have an very high income to future spend ratio). Everyone has to decide where to set that dial, and be clear eyed about what the contingency is, but it is a decision.

Part of the point of mustachianism isn't necessarily to just have a lot of money (go to Bogleheads for that), but to recognize that you are trading hours of your life for that money and that the hours of life are more important than the money. The smart application of resources can allow you to spend more of your life not working, or only working at the things you love.

Personally I have relatively low discretionary spending to cut and am considering a move to a slightly higher COL.  Also I dont think I could work part time in my current field if needed down the line. 

But also RE or working is not a black and white line between life sucks and life is awesome.  Most every weekday after work I work out, play some bass and read a book, I would love an extra +8hr of free time each day but I dont have 0hr free time now.  Then looking at last sunday afternoon I choose to work on some work stuff because it was interesting.  This would get off topic but what I do is interesting and post RE I probably would replace some of it with other as interesting stuff. 

I do kind of fear becoming institutionalized and continuing OMY for ten years, but given how my tolerance for work BS has decreased since getting near x25 I suspect I would literally fly some double birds and walk out well before ten years of OMY. 


So I made a Spread sheet to clarify if someone should continue working as a function of job suckieness and invested net worth.  Its a spreadsheet so you know its true and will therefor end all debate the subject /s

I absolutely love your matrix, I think it is something every person looking at RE should seriously consider. In my case, back in 99, I had the 30x the year before, but job went from really good, to meh, so that was a trigger.  As it turns out if I hadn't been aggressive in selling tech stock and buying bonds when I first retired the 30x would have been illusionary due to the dot.com crash.

I add one other dimension as a factor, are their specific retirement dreams you have; write novels, climb mountain peaks, homeschool your kids, or build an airplane? Or are they more generic,travel get shape, learn a language, spend more time with family? Is there particular reason you have to retire this year?

[mistymoney]

Here's the issue- I think if you use cFIREsim to model, you'll find that OMYing doesn't really contribute that much to your success rate. Unless you OMY for 5-10 years. And who wants to work full time that much longer?

Interesting, but I'm not sure I understand Sol's statements.  If I were to use cFIRE to run this analysis, I'd input two sets of early retirement starting point assumptions.  I would think, if I put my OMY set of assumptions in which would include an extra year of investment gains and contributions, and one less year of early retirement (until claiming SS and medicare), I'm sure I'd see substantial improvements (keeping a 4% SWR).

I guess it's all subjective on what 'a lot' more success rate needs to be.  If you look at this as going from 95% to 99%, then it isn't much in those terms, but allowing me to go from 4% SWR to 3.5% is a lot.  There's also a much higher probability of having much higher ending values, which to me means more financial security throughout the ER for black swans (ACA going away, a market crash 5 years in, etc).

To each their own, but automatically assuming OMY for 5-10 years doesn't make sense, it's called one more year for a reason.  I ran the numbers a long time ago and felt like OMY was substantial to me, but I'd feel even more inclined to OMY in a recession.  It would be interesting to run the numbers assuming a negative market return for that OMY...

I agree that 5-10 is out there. Theoretically, you can fund  your whole FI in 10 years with a high enough savings rate of like 65%. So - seems really off that after you hit an FI number that 10 more years is needed.

[mspym]

I add one other dimension as a factor, are their specific retirement dreams you have; write novels, climb mountain peaks, homeschool your kids, or build an airplane? Or are they more generic,travel get shape, learn a language, spend more time with family? Is there particular reason you have to retire this year?

What if your reason is to develop more specific interests?

I’ve hesitated to jump into this thread because my reasons for pulling the plug 3 weeks ago really are nobody’s business but this paragraph seems really depressing to me. Is there a particular reason to keep on working is an equally valid way to look at it and I hit the point where I would rather have time than money.