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

[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 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.

I'm in a similar state vis a vis actually quitting. Sometimes work is miserable, but



I know I'll never make this much again, so I keep holding on before the good is gone.

So - I do think it comes down to how much you make/savings rate on if that barista thing is attractive or not. For me, the thought of working a low wage job is very unapealing, unless it was totally something I loved to do anyway, and even then, the time commitment might make it not loved.....

Then thinking about how many months of current job vs how many years of barista job. Because it really would come down to 6 more months of this job with high pay, full benefits, more 401k match, increased ss payment, etc. etc. right now would = 3-4 years of some part time no benefits gig 5 years down the road if things start to look like they might not work out on the fire side. And that is just to = the money. There is also the effects on drawing down the stash for a few years before realizing it isn't enough. That does damage that is hard to recover from, I think.

Sure, I could do the barista job if I had to. But if I know I'm likely going to have to, I'll take the 6 more months where I'm at.

and as stated, there is no point of guarntee. You might opt for 6 more months to be "sure" and still end up needing that other job for a few years down the road...

[bryan995]

The OMY argument is never clear cut, there are so many factors that go into this.  Not that everyone does it - but generalizing things into simple 'rules' is dangerous.

For me it looks like:

What is the savings rate of one additional year?
What is target SWR?
What is current SWR?
How padded is the target SWR?
How difficult would it be to replace income 5-10 year later (post retirement)?
What is current income multiple relative to an 'easy FIRE' (barista) job?
What is the current market sentiment/outlook?
How much income/career growth potential do you still have?
Do you enjoy working?
etc
etc
etc


Personally, almost every single one of those questions suggests that a OMY holding pattern is the most optimal move.  The sweet spot seems to be to exit once your career has peaked, and everyone’s does at one point.

https://en.m.wikipedia.org/wiki/Peter_principle

[vand]

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?

It depends on your saving rate and assumptions about ongoing portfolio growth, but another 1-3 years could take your eventual SWR down to very safe levels
here is a schedule for ongoing accumulation @ 6% real return with 67% saving rate:

+2 years takes you down to 3.2% SWR
+3 years takes you down to 2.9% SWR

Code: [Select]

Year Starting pot Saving rate Internal Growth Finish Pot SWR
0 25.00 0.67 1.06 25.00 4
1 25.00 0.67 1.06 27.99 3.572380698
2 27.99 0.67 1.06 31.16 3.208766158
3 31.16 0.67 1.06 34.53 2.896280562
4 34.53 0.67 1.06 38.09 2.625278168
5 38.09 0.67 1.06 41.87 2.388389883
6 41.87 0.67 1.06 45.87 2.179888735
7 45.87 0.67 1.06 50.12 1.995256383
8 50.12 0.67 1.06 54.62 1.830880069
9 54.62 0.67 1.06 59.39 1.683836414
10 59.39 0.67 1.06 64.44 1.551734341

But as we know, due to the nature of markets, they don't actually often go up by their average long term rate. Most years they go up by more, and then the odd year they take a step back.  A favourable sequence of 3 "normal" upyears could easily see your portfolio compound eg 13% a year and end up 44% up rather than the 19% that compounding at the long term rate of 6% would return.  But a bad year could easily see -20%... in which case you would be grateful that you took the option to OMY.

[BeanCounter]

You all are correct. It's not a simple truth that "OMY doesn't really contribute that much to your success rate". The answer, as always, is- it depends.
Because I'm a visual person and I have to SEE the numbers to conceptualize, I ran some scenarios in cFIREsim

2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
2023 Portfolio now $3,422,425                  
retire in 2023- 3.5% original portfolio value= safe withdraw= $112,996                  
extra = $3,861                  
                  
2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
Retire in 2023, save an additional $50,000 in 2022-2023 Portfolio now $3,475,990                  
retire in 2023- 3.6% original portfolio value= safe withdraw= $114,765                  
extra =     $5,630.00    per year            
                  
                  
2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
Retire in 2023, save an additional $100,000 in 2022-2023 Portfolio now $3,529,554                  
retire in 2023- 3.6% original portfolio value= safe withdraw= $116,533                  
extra =     $7,398.00    per year            

Obviously if you can work one more year and contribute an additional $100k, it can make a meaningful impact on your safe withdraw rate and could be a real hedge for inflation.
Still not sure I would do it though. :)
I like @bryan995 's questions.
I just hate that this stuff is so personal. I would prefer black and white rules. Then again, what would we post about?

[BeanCounter]

Also if you're wondering how I came up with that safe withdraw rate of 3.4%. Using the investigation tool in cFIREsim and 100% success rate vs 95% success rate to get various safe withdraw rates based on length of retirement. I use 50 years as I am 45 and hope to cover my retirement to 95-

100% success rate
65 years= 3.3% safe withdraw
50 years= 3.0% safe withdraw
45 years = 3.1% safe withdraw
40 years = 3.2% safe withdraw
30 years= 3.45% safe withdraw

95% success rate
65 years = 3.6% safe withdraw rate
50 years= 3.4% safe withdraw rate
45 years= 3.5% safe withdraw rate
40 years = 3.6% safe withdraw rate
30 years= 3.9% safe withdraw rate


What I can't figure out is if using the 95% success rates, at what point do you know in those 5 periods of failure, that you are failing? I've looked all through the simulation CSV detail and I really can't see any kind of trend figure. I just know that it happens in periods of high inflation low return.
And it looks like you wouldn't know it until you were too many years into your retirement to get another job.
For me this makes coast fire or barista fire more appealing. I can increase my safe withdraw rate, and mitigate risk of later portfolio failure while holding a part time job in early retirement.

[Villanelle]

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.

I'm in a similar state vis a vis actually quitting. Sometimes work is miserable, but



I know I'll never make this much again, so I keep holding on before the good is gone.

So - I do think it comes down to how much you make/savings rate on if that barista thing is attractive or not. For me, the thought of working a low wage job is very unapealing, unless it was totally something I loved to do anyway, and even then, the time commitment might make it not loved.....

Then thinking about how many months of current job vs how many years of barista job. Because it really would come down to 6 more months of this job with high pay, full benefits, more 401k match, increased ss payment, etc. etc. right now would = 3-4 years of some part time no benefits gig 5 years down the road if things start to look like they might not work out on the fire side. And that is just to = the money. There is also the effects on drawing down the stash for a few years before realizing it isn't enough. That does damage that is hard to recover from, I think.

Sure, I could do the barista job if I had to. But if I know I'm likely going to have to, I'll take the 6 more months where I'm at.

and as stated, there is no point of guarantee. You might opt for 6 more months to be "sure" and still end up needing that other job for a few years down the road...

Sometimes, I think people take "barista FIRE" a bit too literally.  It could also be a part time consulting gig, where you make 5x as much as a barista, but likely at least somewhat less than you made in your "big girl" job. 

And there is something to be said for sweet, sweet flexibility.  I've long championed substitute teaching for those who qualify (and in the US are willing to risk their life to be in a school, I suppose).  Pay is pretty mediocre, but it doesn't get much more flexible than that.  You can tell the system to not even contact you on Tuesdays because that is when your model train club meets. You can take 3 weeks away to travel and not even have to tell anyone.  Yes, you are making less money per hour.  But you can fit work in around your life, instead of vice versa. 

One of the reasons I've been cultivating my freelance writing stuff, in addition to just wanting to write, is that I can 100% work on my own schedule.  In a crazy month, I don't take any extra jobs.  (Currently I have one stream where I just opt in if they are offering something that sounds interesting to me, or if I pitch an idea and they like it.  And the other is that I write 4 short pieces per month, on my own scheduled and, once I'm up and running, with the ability to write several months in advance.  I'll likely be getting an additional assignment, so that's 6 pieces a month.)  I can literally do all my work in 1-2 days a month, or spend 20 minutes a day for a few weeks, or anything in between.  The hourly pay is  way less than I could make full time, but I will never, ever have to say no to anything in life because of a work conflict. 

I'd rather to that for literally the rest of my life than work 8-5 in an office, with "permission" granted to take 2 weeks off a year, for another 6 months.  (And also, doing so means that while the hourly is much lower, so is the tax burden, compared to 6 months of high-pay work.)

These are just examples, but to me the biggest appeal of barista FIRE is the flexibility.  And to some extent the scalability.  (If markets are down once I start withdrawing, I can hopefully get a few extra gigs each month.)

[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 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.

I'm in a similar state vis a vis actually quitting. Sometimes work is miserable, but



I know I'll never make this much again, so I keep holding on before the good is gone.

So - I do think it comes down to how much you make/savings rate on if that barista thing is attractive or not. For me, the thought of working a low wage job is very unapealing, unless it was totally something I loved to do anyway, and even then, the time commitment might make it not loved.....

Then thinking about how many months of current job vs how many years of barista job. Because it really would come down to 6 more months of this job with high pay, full benefits, more 401k match, increased ss payment, etc. etc. right now would = 3-4 years of some part time no benefits gig 5 years down the road if things start to look like they might not work out on the fire side. And that is just to = the money. There is also the effects on drawing down the stash for a few years before realizing it isn't enough. That does damage that is hard to recover from, I think.

Sure, I could do the barista job if I had to. But if I know I'm likely going to have to, I'll take the 6 more months where I'm at.

and as stated, there is no point of guarantee. You might opt for 6 more months to be "sure" and still end up needing that other job for a few years down the road...

Sometimes, I think people take "barista FIRE" a bit too literally.  It could also be a part time consulting gig, where you make 5x as much as a barista, but likely at least somewhat less than you made in your "big girl" job. 

And there is something to be said for sweet, sweet flexibility.  I've long championed substitute teaching for those who qualify (and in the US are willing to risk their life to be in a school, I suppose).  Pay is pretty mediocre, but it doesn't get much more flexible than that.  You can tell the system to not even contact you on Tuesdays because that is when your model train club meets. You can take 3 weeks away to travel and not even have to tell anyone.  Yes, you are making less money per hour.  But you can fit work in around your life, instead of vice versa. 

One of the reasons I've been cultivating my freelance writing stuff, in addition to just wanting to write, is that I can 100% work on my own schedule.  In a crazy month, I don't take any extra jobs.  (Currently I have one stream where I just opt in if they are offering something that sounds interesting to me, or if I pitch an idea and they like it.  And the other is that I write 4 short pieces per month, on my own scheduled and, once I'm up and running, with the ability to write several months in advance.  I'll likely be getting an additional assignment, so that's 6 pieces a month.)  I can literally do all my work in 1-2 days a month, or spend 20 minutes a day for a few weeks, or anything in between.  The hourly pay is  way less than I could make full time, but I will never, ever have to say no to anything in life because of a work conflict. 

I'd rather to that for literally the rest of my life than work 8-5 in an office, with "permission" granted to take 2 weeks off a year, for another 6 months.  (And also, doing so means that while the hourly is much lower, so is the tax burden, compared to 6 months of high-pay work.)

These are just examples, but to me the biggest appeal of barista FIRE is the flexibility.  And to some extent the scalability.  (If markets are down once I start withdrawing, I can hopefully get a few extra gigs each month.)

Good points. I'm just not sure how much of a consulting gig you could work up after being retired for 5 years or so. Might be best to go coast and do it from the begining of quiting the day job. I personally do have a side gig that is equivalent to my day job, so keeping that going is something I plan to do, unfortunatly my fire date in 2023 is getting less sure in this economy. Will see what the next year brings, how I may need to adapt, etc.


PTO is an important consideration. Currently, I have nearly 5 weeks vacation, plus 2 weeks sick, plus ~14 holidays per year. I haven't really taken sick time much and have about 5-6 weeks banked. I have max# of vacation days rolled over from 2021, so this is the first year where I have to take my entire amount of vacation days or lose them. Not going to lose them! And going to start taking more sick time too for routine appts, maybe therapy? Physical or mental health or both.....<insert plug for my thread on taking your time, this is something I am actively working on>.

In dec and jan, I was getting dangerously close to my number, and that made work so much more tolerable and less stressful. So I think the other side of OMY that may not be visible until you are there is how much easier the dayjob is when you could literally walk away at any moment and not have a care in the world about. Knowing I may need to keep this job for another 2-3 or more years (if economy continues to worsen) has taken a bit of that carefree feel out of it. I miss that carefree feeling!

[mistymoney]

You all are correct. It's not a simple truth that "OMY doesn't really contribute that much to your success rate". The answer, as always, is- it depends.
Because I'm a visual person and I have to SEE the numbers to conceptualize, I ran some scenarios in cFIREsim

2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
2023 Portfolio now $3,422,425                  
retire in 2023- 3.5% original portfolio value= safe withdraw= $112,996                  
extra = $3,861                  
                  
2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
Retire in 2023, save an additional $50,000 in 2022-2023 Portfolio now $3,475,990                  
retire in 2023- 3.6% original portfolio value= safe withdraw= $114,765                  
extra =     $5,630.00    per year            
                  
                  
2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
Retire in 2023, save an additional $100,000 in 2022-2023 Portfolio now $3,529,554                  
retire in 2023- 3.6% original portfolio value= safe withdraw= $116,533                  
extra =     $7,398.00    per year            

Obviously if you can work one more year and contribute an additional $100k, it can make a meaningful impact on your safe withdraw rate and could be a real hedge for inflation.
Still not sure I would do it though. :)
I like @bryan995 's questions.
I just hate that this stuff is so personal. I would prefer black and white rules. Then again, what would we post about?

I just wanted to add that sometimes, the benefits aren't as apparent.

so if someone retired Jan of this year at 1m, and someone else who thought about retirement with 1 m on Jan first decided to go 6 more months, they are now at ~800k on the 1m, and add in 20k extra they put into 401k and other savings so starting out 6 month later at 820k.

there initial withdrawal rate is going to be much higher but in reality their chance of success has to be higher. So they definitely benefitted from the additional 1/2 year, but the math to check it isn't very apparent. At least to me! Maybe you can count those beans. :)

[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.

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.

My understanding is that 7% is adjusted for inflation.
https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

Per the link above, the average annualized return of the SP500 from inception to end of 2021 is 10.49%. It's not spelled out in the article, but the link describing annualized rate of return says that it is calculated including price appreciation, capital gains, and dividends.

To get to 7%, we'd have an annual inflation rate of 3.5%. I think that's probably pretty close to the actual number over that span (1926 - 2021). I didn't spend too much time looking for a number for average inflation, but from 1960 - 2020, the rate has averaged out to 3.7%...so 6.8% and not 7% (technically correct is the best kind of correct! ;-) )
https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi

Now, if you want to argue that the long term average doesn't really matter and that over the next 2 years returns may be lower than average and inflation may be higher than average...well, I wouldn't really disagree with you (with the caveat that I really have no idea what will happen in the future).

In the example I had, it wonder if it would be a good idea to invest at least some portion of the money you aren't spending (maybe 25% to cash and 25% to investments?). What would you rather hedge against, a downturn where you might have to draw from the portfolio in a down market, or lost gains due to a bull run? Not sure. And maybe it doesn't matter if you already won the game...which I guess is always the argument against OMY.

I think it won't be easy whenever I'm in this situation. I think I'll have a real pull to OMY.

[NorthernBlitz]

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 like this decision matrix.

[big_owl]

Having just fired myself in December this experience has made me thankful I paid off my mortgage and all my cars before I fired.  I can basically shut down most discretionary spending outside of utilities and food/taxes in order to avoid withdrawals while stocks have dropped.  Working part time helps too because I can live off that alone without making any withdrawals at all. 

[clifp]

Sometimes, I think people take "barista FIRE" a bit too literally.  It could also be a part time consulting gig, where you make 5x as much as a barista, but likely at least somewhat less than you made in your "big girl" job. 

And there is something to be said for sweet, sweet flexibility.  I've long championed substitute teaching for those who qualify (and in the US are willing to risk their life to be in a school, I suppose).  Pay is pretty mediocre, but it doesn't get much more flexible than that.  You can tell the system to not even contact you on Tuesdays because that is when your model train club meets. You can take 3 weeks away to travel and not even have to tell anyone.  Yes, you are making less money per hour.  But you can fit work in around your life, instead of vice versa. 

One of the reasons I've been cultivating my freelance writing stuff, in addition to just wanting to write, is that I can 100% work on my own schedule.  In a crazy month, I don't take any extra jobs.  (Currently I have one stream where I just opt in if they are offering something that sounds interesting to me, or if I pitch an idea and they like it.  And the other is that I write 4 short pieces per month, on my own scheduled and, once I'm up and running, with the ability to write several months in advance.  I'll likely be getting an additional assignment, so that's 6 pieces a month.)  I can literally do all my work in 1-2 days a month, or spend 20 minutes a day for a few weeks, or anything in between.  The hourly pay is  way less than I could make full time, but I will never, ever have to say no to anything in life because of a work conflict. 

I'd rather to that for literally the rest of my life than work 8-5 in an office, with "permission" granted to take 2 weeks off a year, for another 6 months.  (And also, doing so means that while the hourly is much lower, so is the tax burden, compared to 6 months of high-pay work.)

These are just examples, but to me the biggest appeal of barista FIRE is the flexibility.  And to some extent the scalability.  (If markets are down once I start withdrawing, I can hopefully get a few extra gigs each month.)

The only time I needed to find a job was at the bottom of the 2009 bear market. The bear market also corresponded with the great recession. That these two events occurred at the same time is not a coincidence but rather typical.  I would have been lucky to find a job as a barista or Walmart greeter at the time, lots of hungrier, more qualified were looking for work, than a high-tech marketing guy who had been retired for a decade. Among my volunteer activities, I worked as docent a at several tourist places here in Honolulu.  I worked alongside paid staff, doing very similar jobs. So part-time jobs were options for many years, just not after the 9/11 recession or the 2008-9 recession.   But in my experience, part-time jobs are flexible more for the employer than the employee.  You can say that you can't work Tuesday for your model train club, or more plausible you have to take your uncle for dialysis, but they decide when you work the rest of the week.

I'm pretty sure that the market for freelance writers was also a lot tighter in 2009 than in 2021 or 2022. Freelancers, contractors, and part-time employees are pretty much always the first ones to go during a recession.  I suspect that even the demand for substitute teachers decreases during a recession.  I know several of my friends who get laid off in their 50s or early 60s have gone the teaching route.  Personally, I would have rather worked 3 years at my old job than one year as a substitute teacher, even if the pay was equivalent. In reality OMY at my old job, I would have made 3x as much as a substitute teacher.

[mcneally]

You all are correct. It's not a simple truth that "OMY doesn't really contribute that much to your success rate". The answer, as always, is- it depends.
Because I'm a visual person and I have to SEE the numbers to conceptualize, I ran some scenarios in cFIREsim

2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
2023 Portfolio now $3,422,425                  
retire in 2023- 3.5% original portfolio value= safe withdraw= $112,996                  
extra = $3,861                  
                  
2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
Retire in 2023, save an additional $50,000 in 2022-2023 Portfolio now $3,475,990                  
retire in 2023- 3.6% original portfolio value= safe withdraw= $114,765                  
extra =     $5,630.00    per year            
                  
                  
2022 Portfolio of $3,200,000                  
95% success rate                  
retire in 2022- 3.4% safe withdraw= $109,135                  
Retire in 2023, save an additional $100,000 in 2022-2023 Portfolio now $3,529,554                  
retire in 2023- 3.6% original portfolio value= safe withdraw= $116,533                  
extra =     $7,398.00    per year            

Obviously if you can work one more year and contribute an additional $100k, it can make a meaningful impact on your safe withdraw rate and could be a real hedge for inflation.
Still not sure I would do it though. :)
I like @bryan995 's questions.
I just hate that this stuff is so personal. I would prefer black and white rules. Then again, what would we post about?

I just wanted to add that sometimes, the benefits aren't as apparent.

so if someone retired Jan of this year at 1m, and someone else who thought about retirement with 1 m on Jan first decided to go 6 more months, they are now at ~800k on the 1m, and add in 20k extra they put into 401k and other savings so starting out 6 month later at 820k.

there initial withdrawal rate is going to be much higher but in reality their chance of success has to be higher. So they definitely benefitted from the additional 1/2 year, but the math to check it isn't very apparent. At least to me! Maybe you can count those beans. :)

I'm still a few years away, but it seems to me that in the short term, literally deciding whether to retire today or work "one more year", it makes the most sense to ignore market returns. Add a year's net pay (not savings, net pay) + 401k contributions + any other benefits you receive or would pay out of pocket for if you retired today. That's how much better off you'd be if you waited a year. This does understate how much better off OMY is if the market goes down considerably at the start of the extra year, since the worker is buying cheaper stocks while the retiree may be selling cheaper stocks, so you'd be *at least* that much better off working OMY. 

[mspym]

For real, where is the value of outrageous optimism in this thread? You can always find an argument for OMY or here is why you will never find a job again. I just do not believe that is true. I would rather have *time* than money as as someone who just turned down a 6-figure contract for 6 months work, it turns I know exactly how much value I place on controlling my own time.

In my professional capacity, contractors can always find a gig. It might not be for as much money but IT projects run on contract labour. My sister is a substitute teacher and can name when she wants to work, especially in times of Covid-endured scarcity. Anyone who can pay attention to their finances to hit FI, or even close to it, will keep paying attention during a recession and adjust as needed. 

[clifp]

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.

It was part of my reasons to retire early also. I have developed new interest, but none I'd call a burning passion. So for my example, my dad retired at 55 to build a wooden airplane, it took him 5 or 6 year,s and then he had fun flying it and helping other experimental airplane builders. If he had retired at 65 he would have only two years of flying before the brain tumor would have killed him.

Not all of us can be Warren Buffett and love our jobs at 90. Nor will all of us find a burning passion that drives us to jump out of bed to go do something wonderful. This same passion also drives our significant others and family and friends nuts.   

My keenest insight after 22 years of early retirement, is my best weeks were when I was working, but my miserable months were also when I was working.  Retiring early to avoid awful months is a perfectly valid reason.  I should also note while many retired people agree with my assessment, plenty of folks find the most fulfillment in retirement.

That's why I really like the matrix

[FIRE 20/20]

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.

Remember that changes to Generally Accepted Accounting Principles (GAAP) dramatically changed the definition of "Earnings" sometime around 1990 (I forget the exact year).  Since CAPE is the 10-year average for the Price to Earnings ratio, if you change the definition of Earnings then you can't just compare today's CAPE to CAPE from prior times.  It's a little like saying my car gets 30 miles per gallon (US), and then putting Imperial gallons of fuel into my car to improve mileage.  I will get 36 mpg, but that's just because an Imperial gallon is 20% larger than a US gallon.  You can pretty clearly see that the average CAPE in your chart jumped after some big changes in GAAP around 1990.  Look at the CAPE average before 1990, and then after.  That change could be due to a lot of things, but there's no question that a significant jump is just due to changes in accounting rules. 

[BeanCounter]

I've thought about all of this some more and I think I'm back to my original statement. :)- OMY doesn't really make a meaningful impact, it's just psychological more than anything.
Once you've modeled the SWR for your period of retirement, and you're comfortable with the success rate be it 95% or 98% or 100%. Then I think you should pull the plug and not look back and not worry too much about the current economy. (though I have struggled with this myself) Trust that the data you modeled your SWR on includes the depression, wars, the dot come bust, the great recession etc, etc. While "this time might be different" it's still the same flavor of market instability.

You were smart enough to get RE, then you're also smart enough to stay RE.

Or you might die early anyway.
Life is too short to OMY.

[GuitarStv]

You were smart enough to get RE, then you're also smart enough to stay RE.

As much as I like to pat myself on the back . . . not sure if RE really equates to 'smart'.  It's not exactly complex math or genius level problem solving.  A pretty significant chunk of my being able to retire early will have depended upon luck.

[wageslave23]

You were smart enough to get RE, then you're also smart enough to stay RE.

As much as I like to pat myself on the back . . . not sure if RE really equates to 'smart'.  It's not exactly complex math or genius level problem solving.  A pretty significant chunk of my being able to retire early will have depended upon luck.

Yeah I'd say discipline maybe?  And what to the degree that I am "smart", that means I'm also "smart" enough to weigh the odds of having to go back to work and if working extra to prevent that makes sense for my situation.

[BeanCounter]

You were smart enough to get RE, then you're also smart enough to stay RE.

As much as I like to pat myself on the back . . . not sure if RE really equates to 'smart'.  It's not exactly complex math or genius level problem solving.  A pretty significant chunk of my being able to retire early will have depended upon luck.

Yeah I'd say discipline maybe?  And what to the degree that I am "smart", that means I'm also "smart" enough to weigh the odds of having to go back to work and if working extra to prevent that makes sense for my situation.

It's all of it.
I was smart enough to make it through college and go into a highly paid field, and lucky that I had the opportunity.
I was lucky enough that I landed at a good company and then was noticed and put on the Director track. (god knows plenty of smart, hardworking people just never get noticed for promotion. much of that IS LUCK)
I was smart and disciplined enough to stay with that job even after I grew tired of the work.
I was disciplined enough not to spend all my salary.
I was smart enough to make good investments with that money and see it as a path to leave my work through RE.
I was lucky enough that those investments returned what historical returns said they would over time. (which is what I modeled RE on)
I was also lucky that in all of that nobody in my household had any major illnesses. And I pray that will continue.

So it's likely to say that my future will be much of the same mashup of intelligence, discipline and luck.

I think it goes back to that nobody who retired this year or last is doomed to fail. And it does not mean you have to OMY. You just have to figure out how to best deal with inflation.

[PhilB]

There are lots of different assumption being used here to calculate the impact of OMY or TMY, but I prefer a much simpler one.

If you're at 25x then, in theory, your stash should provide enough 'income' to cover your spending.  If your savings rate is 50% then OMY takes you to 27x and TMY to 29x as each year income = 3x spending (2x from job and one from stash).  With 67% savings OMY gets to 28x and TMY to 31x.  Simples.

[2Birds1Stone]

There are lots of different assumption being used here to calculate the impact of OMY or TMY, but I prefer a much simpler one.

If you're at 25x then, in theory, your stash should provide enough 'income' to cover your spending.  If your savings rate is 50% then OMY takes you to 27x and TMY to 29x as each year income = 3x spending (2x from job and one from stash).  With 67% savings OMY gets to 28x and TMY to 31x.  Simples.

I think the point some folks were making was that the stock market does not go up in a linear ~4% p.a. trajectory adjusted for inflation. Just take a look at the spaghetti lines when you run a FIRECALC simulation.

[AlanStache]

There are lots of different assumption being used here to calculate the impact of OMY or TMY, but I prefer a much simpler one.

If you're at 25x then, in theory, your stash should provide enough 'income' to cover your spending.  If your savings rate is 50% then OMY takes you to 27x and TMY to 29x as each year income = 3x spending (2x from job and one from stash).  With 67% savings OMY gets to 28x and TMY to 31x.  Simples.

So last december & january I was at x25, today not so much.  Is my savings still sufficient to replace my income?  Since jan one I have bought more shares of the sp500 and lived off my income.  So in some ways I have more assets now than I did back then but I also have a lower net worth.  That is to say this is all a bit more complicated and requires looking at details. 

[Dicey]

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.

Sorry, I've been busy turning over one of our rentals. The answer might surprise you: I don't know the exact %, because I've never bothered to calculate it.

In retirement, DH's DBP will replace 60% of our income. It has a COLA. I will probably file for SS next March, when I hit 65, which will cover half of the gap. Rental income covers the other 20% and then some. We have a large-ish cash cushion. There is also a substantial inheritance in the pipeline, which we never counted on. Rents are soaring on our rentals, to a degree we never anticipated. In short, most of our income will be replaced, so I expect a very low withdrawal rate.

Our primary home is paid for, as are our vehicles, including a fancy-pants RV. We refinanced the rentals at a good time last year and wer'e never paying those suckers off early. Our DAF is well funded and will continue to be so through RMDs on a previous small inheritance. Sixty percent may seem like a big drop, but it isn't really, because we were never spending all of what we made. What will probably happen is that we will just stop adding to our savings.

At some point, RMDs are likely to be our MPP.

It bears mentioning that I FIRE'd at 54 and DH at 59. That's not exactly early by Mustachian standards, so the money doesn't have to last as long.

[PhilB]

There are lots of different assumption being used here to calculate the impact of OMY or TMY, but I prefer a much simpler one.

If you're at 25x then, in theory, your stash should provide enough 'income' to cover your spending.  If your savings rate is 50% then OMY takes you to 27x and TMY to 29x as each year income = 3x spending (2x from job and one from stash).  With 67% savings OMY gets to 28x and TMY to 31x.  Simples.

So last december & january I was at x25, today not so much.  Is my savings still sufficient to replace my income?  Since jan one I have bought more shares of the sp500 and lived off my income.  So in some ways I have more assets now than I did back then but I also have a lower net worth.  That is to say this is all a bit more complicated and requires looking at details.

That's the whole point.  Market returns are complicated and unpredictable.  Over a short period like one or two years there's really no point agonising over what assumptions to use for growth and inflation or doing detailed year-by-year calculations.  I think it makes much more sense when trying to get an idea of the likely impact of OMY or TMY to use as simple a model as possible to get a ball park central estimate. 

The predictions of that model are, of course, extremely unlikely to agree with reality.  All the more reason not to use anything more than a simple rule of thumb in this case.

A better way to think of it might be that TMY at 67% savings puts you in the same position as if you were at 31x now

[AlanStache]

...

That's the whole point.  Market returns are complicated and unpredictable.  Over a short period like one or two years there's really no point agonising over what assumptions to use for growth and inflation or doing detailed year-by-year calculations.  I think it makes much more sense when trying to get an idea of the likely impact of OMY or TMY to use as simple a model as possible to get a ball park central estimate. 

The predictions of that model are, of course, extremely unlikely to agree with reality.  All the more reason not to use anything more than a simple rule of thumb in this case.

A better way to think of it might be that TMY at 67% savings puts you in the same position as if you were at 31x now

Beyond a simple one line of algebra model we could do Monty Carlo simulation of what might happen from a given initial condition based on past history and if we see that the failing scenarios have something in common with the current real world (major market correction + high inflation at the start of FIRE) then maybe we should consider the failing conditions (that might be a small percent of the over all MC simulations) to be of higher importance*.  Unless I am totally not getting what you are saying or we are talking past each other - if so please tell me what you have posted before that I should reread.  I work in simulation so maybe I am biased on the topic :-)   

Just checked and my invested net worth today is within $1k of where it was 1 year ago, both comfortably below x25.  Was if FI and good to RE 1 year ago, am I now?  How is late may 2022 different from late may 2021 when they have the same nest egg?

I guess I am not trying to predict what my net worth will be in one or two years, that I am below x25 is sufficient information to remain employed, along with other details like no side hustle income and little fat to trim etc. 

*But I do see that even the MC, (I normally look at https://engaging-data.com/will-money-last-retire-early/), calculations have some over simplifications.  Like expecting people to not react to a falling net worth.  But adding complexity to this runs the risk of over complicating the model and forcing a result you want. 

"All models are wrong, some models are useful."

[PhilB]

There are two separate questions here:

• What is my risk profile with a given multiple of spending; and
• How does that change if I do OMY or TMY

I'm only talking about the second point, and the fact that some people were trying to do what I would argue is an overly complex / specific calculation based on using assumed rates of return to predict what the stash might be after the OMY / TMY.

Rather than try to estimate what your stash will be in one or two years' time, and then look into the risk profile based on that, I am suggesting a much simpler approach.  With a 67% savings rate I am arguing that the risk profile of someone with 25x plus a planned TMY is, to all intents and purposes, the same as someone with 31x

[wageslave23]

There are two separate questions here:

• What is my risk profile with a given multiple of spending; and
• How does that change if I do OMY or TMY

I'm only talking about the second point, and the fact that some people were trying to do what I would argue is an overly complex / specific calculation based on using assumed rates of return to predict what the stash might be after the OMY / TMY.

Rather than try to estimate what your stash will be in one or two years' time, and then look into the risk profile based on that, I am suggesting a much simpler approach.  With a 67% savings rate I am arguing that the risk profile of someone with 25x plus a planned TMY is, to all intents and purposes, the same as someone with 31x

That is correct.  If you retire in 2025 with $1M and $40,000 spend, you will have X amount of stache in 2027 depending on the markets.  If you work two more years with a 67% savings rate, you will have X + $240k in 2027.  The market will perform the same over those two years whether you are working or not, and your spend will be $40k whether you are working or not.  The only thing that changes is the extra $240,000 you would have made while working.  That's a bit oversimplified because it ignores the gain or loss on the extra $240,000 but that should be neglible compared to overall stache amount. 

[NorthernIkigai]

And also two years less that the stash should cover. Yay…

[wageslave23]

And also two years less that the stash should cover. Yay…

That would be double counting the benefit.  Your stache is still invested for the same years, your expenses are still the same over those years, the only thing that changes is the extra income you earn in the two years extra that you worked.

[EscapeVelocity2020]

There are two separate questions here:

• What is my risk profile with a given multiple of spending; and
• How does that change if I do OMY or TMY

I'm only talking about the second point, and the fact that some people were trying to do what I would argue is an overly complex / specific calculation based on using assumed rates of return to predict what the stash might be after the OMY / TMY.

Rather than try to estimate what your stash will be in one or two years' time, and then look into the risk profile based on that, I am suggesting a much simpler approach.  With a 67% savings rate I am arguing that the risk profile of someone with 25x plus a planned TMY is, to all intents and purposes, the same as someone with 31x

Not that I'm advocating for OMY, but going from a nail-biting 4% SWR in a negative market with high inflation vs. a 3.2% SWR that has never failed...  I think I know which one I'd choose.  Have fun spending 30 years heading toward failure, I'll take my 28 years of knowing I'm fine.  What's that, I have too much money?  Oh woe is me.

[nereo]

And also two years less that the stash should cover. Yay…

That would be double counting the benefit.  Your stache is still invested for the same years, your expenses are still the same over those years, the only thing that changes is the extra income you earn in the two years extra that you worked.

I read this to mean: your retirement will be 2 years shorter (because your life is finite, and you've spent two more years working).

[nereo]

There are two separate questions here:

• What is my risk profile with a given multiple of spending; and
• How does that change if I do OMY or TMY

I'm only talking about the second point, and the fact that some people were trying to do what I would argue is an overly complex / specific calculation based on using assumed rates of return to predict what the stash might be after the OMY / TMY.

Rather than try to estimate what your stash will be in one or two years' time, and then look into the risk profile based on that, I am suggesting a much simpler approach.  With a 67% savings rate I am arguing that the risk profile of someone with 25x plus a planned TMY is, to all intents and purposes, the same as someone with 31x

Not that I'm advocating for OMY, but going from a nail-biting 4% SWR in a negative market with high inflation vs. a 3.2% SWR that has never failed...  I think I know which one I'd choose.  Have fun spending 30 years heading toward failure, I'll take my 28 years of knowing I'm fine.  What's that, I have too much money?  Oh woe is me.

I would happily take an extra 730 days of retirement and implement a few extra strategies, but that's just me.  Each has to find what they are comfortable with.

[NorthernIkigai]

And also two years less that the stash should cover. Yay…

That would be double counting the benefit.  Your stache is still invested for the same years, your expenses are still the same over those years, the only thing that changes is the extra income you earn in the two years extra that you worked.

Nope, you’re not going to live two years longer just because you worked two years longer. If I retire at 48 my retirement will be two years longer than if I retire at 50 (assuming work isn’t healthy or unhealthy for me), so the stash will not be invested for the same length of time and the total expenses it has to cover are also not the same. The meek yay was a memento mori.

[PhilB]

And also two years less that the stash should cover. Yay…

That would be double counting the benefit.  Your stache is still invested for the same years, your expenses are still the same over those years, the only thing that changes is the extra income you earn in the two years extra that you worked.

Nope, you’re not going to live two years longer just because you worked two years longer. If I retire at 48 my retirement will be two years longer than if I retire at 50 (assuming work isn’t healthy or unhealthy for me), so the stash will not be invested for the same length of time and the total expenses it has to cover are also not the same. The meek yay was a memento mori.

wageslave23 is right on the double counting.  Spreading the money over the same period, just working for two of them.

[EscapeVelocity2020]

There are two separate questions here:

• What is my risk profile with a given multiple of spending; and
• How does that change if I do OMY or TMY

I'm only talking about the second point, and the fact that some people were trying to do what I would argue is an overly complex / specific calculation based on using assumed rates of return to predict what the stash might be after the OMY / TMY.

Rather than try to estimate what your stash will be in one or two years' time, and then look into the risk profile based on that, I am suggesting a much simpler approach.  With a 67% savings rate I am arguing that the risk profile of someone with 25x plus a planned TMY is, to all intents and purposes, the same as someone with 31x

Not that I'm advocating for OMY, but going from a nail-biting 4% SWR in a negative market with high inflation vs. a 3.2% SWR that has never failed...  I think I know which one I'd choose.  Have fun spending 30 years heading toward failure, I'll take my 28 years of knowing I'm fine.  What's that, I have too much money?  Oh woe is me.

I would happily take an extra 730 days of retirement and implement a few extra strategies, but that's just me.  Each has to find what they are comfortable with.

It'll be fun to be in this forum in 2050.  Sadly, folks that are having fun and have plenty of money typically don't post to tell us 'hey I made a great choice, look at me'.

[AlanStache]

...

It'll be fun to be in this forum in 2050.  Sadly, folks that are having fun and have plenty of money typically don't post to tell us 'hey I made a great choice, look at me'.

What is the technical term for this "failure bias" ie only people who failed in RE will hang out in forums complaining about how they failed.  And the winners will be off on a beach somewhere. 

[NorthernIkigai]

And also two years less that the stash should cover. Yay…

That would be double counting the benefit.  Your stache is still invested for the same years, your expenses are still the same over those years, the only thing that changes is the extra income you earn in the two years extra that you worked.

Nope, you’re not going to live two years longer just because you worked two years longer. If I retire at 48 my retirement will be two years longer than if I retire at 50 (assuming work isn’t healthy or unhealthy for me), so the stash will not be invested for the same length of time and the total expenses it has to cover are also not the same. The meek yay was a memento mori.

wageslave23 is right on the double counting.  Spreading the money over the same period, just working for two of them.

Years 48–50 are not paid for from the stash (neither the x nor the 240k part of it), but the non-saved 80k earned during those two years. So if we want to use the same period, for example ages 48–100, we should not say that the only difference is 240k but rather 320k. I’d argue that it’s not the same period, because the stash (whatever the size) only becomes relevant at FIRE.

[wageslave23]

And also two years less that the stash should cover. Yay…

That would be double counting the benefit.  Your stache is still invested for the same years, your expenses are still the same over those years, the only thing that changes is the extra income you earn in the two years extra that you worked.

Nope, you’re not going to live two years longer just because you worked two years longer. If I retire at 48 my retirement will be two years longer than if I retire at 50 (assuming work isn’t healthy or unhealthy for me), so the stash will not be invested for the same length of time and the total expenses it has to cover are also not the same. The meek yay was a memento mori.

wageslave23 is right on the double counting.  Spreading the money over the same period, just working for two of them.

Years 48–50 are not paid for from the stash (neither the x nor the 240k part of it), but the non-saved 80k earned during those two years. So if we want to use the same period, for example ages 48–100, we should not say that the only difference is 240k but rather 320k. I’d argue that it’s not the same period, because the stash (whatever the size) only becomes relevant at FIRE.

Money is fungible so there's no difference between pulling it out of your stache or out of your earnings,  tomato tomato. But if you are pulling it out of your earnings then it would be $160 saved over the two years plus the 80 that you didn't take out of your stache.  It's easier to visualize if you put concrete numbers in excel.

[PhilB]

And also two years less that the stash should cover. Yay…

That would be double counting the benefit.  Your stache is still invested for the same years, your expenses are still the same over those years, the only thing that changes is the extra income you earn in the two years extra that you worked.

Nope, you’re not going to live two years longer just because you worked two years longer. If I retire at 48 my retirement will be two years longer than if I retire at 50 (assuming work isn’t healthy or unhealthy for me), so the stash will not be invested for the same length of time and the total expenses it has to cover are also not the same. The meek yay was a memento mori.

wageslave23 is right on the double counting.  Spreading the money over the same period, just working for two of them.

Years 48–50 are not paid for from the stash (neither the x nor the 240k part of it), but the non-saved 80k earned during those two years. So if we want to use the same period, for example ages 48–100, we should not say that the only difference is 240k but rather 320k. I’d argue that it’s not the same period, because the stash (whatever the size) only becomes relevant at FIRE.

The example wageslave23 gave was of someone earning $120k pa (ie $40k spend and 67% savings rate).  At day one we are therefore saying someone with $1m + $240k of future earnings is equivalent to someone with $1,240k at that same point.  As both are measured from the same point there is no difference in life expectancy.

wageslave correctly points out that there is a difference because you don't get investment earnings on the extra wages for a couple of years, but on the other hand you are insulated from SORR for the first two years as you are still accumulating which probably balances that out.

[flyingaway]

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!

I am on the same boat. Retired in August 2021 and don't plan to go back to work as long as there are cat foods and some space under bridges available.

[NorthernIkigai]

Gaaah, apparently I jus’t can’t math anymore, despite many attempts. Thanks for the patience, @wageslave23 and @PhilB, I’m with you now!

[vand]

What is the technical term for this "failure bias" ie only people who failed in RE will hang out in forums complaining about how they failed.  And the winners will be off on a beach somewhere.

There's two sides to this

1. There's how you portfolio is doing, objectively
2. Then there's how you feel about your portfolio


I keep coming back to the Y2K retiree with 100% stock portfolio and them being down by 2/3rds at the bottom GFC.  At that point your portfolio has gone from x25 to x6.5, and you need to withdraw 15%pa to meet living costs and your portfolio has to survive for at least another 20-30 years. Yes, in retrospect the portfolio hasn't failed yet, largely thanks to one of the best post-war bull runs we've had...

..but back in 2009, and faced with that reality I outlined above, how on earth does anyone not think they are going to experience portfolio failure. For me, it would be a continual worry each and every day... and the point of retirement is to not worry about money.

[PhilB]

What is the technical term for this "failure bias" ie only people who failed in RE will hang out in forums complaining about how they failed.  And the winners will be off on a beach somewhere.

There's two sides to this

1. There's how you portfolio is doing, objectively
2. Then there's how you feel about your portfolio


I keep coming back to the Y2K retiree with 100% stock portfolio and them being down by 2/3rds at the bottom GFC.  At that point your portfolio has gone from x25 to x6.5, and you need to withdraw 15%pa to meet living costs and your portfolio has to survive for at least another 20-30 years. Yes, in retrospect the portfolio hasn't failed yet, largely thanks to one of the best post-war bull runs we've had...

..but back in 2009, and faced with that reality I outlined above, how on earth does anyone not think they are going to experience portfolio failure. For me, it would be a continual worry each and every day... and the point of retirement is to not worry about money.

I definitely get where you are coming from, but it's a line of argument that could lead to you never retiring.  FIRE will always be a gamble.  It's a great prize if you win, but it's important to have a plan for if things go against you and to be as ready as possible for the fact that that might happen.  That plan generally needs to be some combination of earn more and/or spend less and will vary for everyone.  If you're confident your skills will always enable you to earn enough to live on, then that's an easy plan.  If you're not, or if you would hate to have to go and work for a fraction of what you used to get, then you need a robust plan to cut spending.

In my own case, I modelled the income we would have if our investments halved in value overnight, then gave historic average returns thereafter.  When we reached a stage where the lifestyle that would afford, whilst being much more frugal than we had hoped for, would still be better than going to work every day, we pulled the plug.

[wageslave23]

What is the technical term for this "failure bias" ie only people who failed in RE will hang out in forums complaining about how they failed.  And the winners will be off on a beach somewhere.

There's two sides to this

1. There's how you portfolio is doing, objectively
2. Then there's how you feel about your portfolio


I keep coming back to the Y2K retiree with 100% stock portfolio and them being down by 2/3rds at the bottom GFC.  At that point your portfolio has gone from x25 to x6.5, and you need to withdraw 15%pa to meet living costs and your portfolio has to survive for at least another 20-30 years. Yes, in retrospect the portfolio hasn't failed yet, largely thanks to one of the best post-war bull runs we've had...

..but back in 2009, and faced with that reality I outlined above, how on earth does anyone not think they are going to experience portfolio failure. For me, it would be a continual worry each and every day... and the point of retirement is to not worry about money.

I definitely get where you are coming from, but it's a line of argument that could lead to you never retiring.  FIRE will always be a gamble.  It's a great prize if you win, but it's important to have a plan for if things go against you and to be as ready as possible for the fact that that might happen.  That plan generally needs to be some combination of earn more and/or spend less and will vary for everyone.  If you're confident your skills will always enable you to earn enough to live on, then that's an easy plan.  If you're not, or if you would hate to have to go and work for a fraction of what you used to get, then you need a robust plan to cut spending.

In my own case, I modelled the income we would have if our investments halved in value overnight, then gave historic average returns thereafter.  When we reached a stage where the lifestyle that would afford, whilst being much more frugal than we had hoped for, would still be better than going to work every day, we pulled the plug.

You guys are both right.  Vand is correct that actual failure rate isn't as important as times that YOU would feel the need to go back to work if you THOUGHT the portfolio was going to fail.  For someone considering FIRE, it would probably be more helpful to examine your own psyche like Phil did and ask yourself at what point would you personally decide to go back to work and how many times historically would your portfolio have reached that point during your hypothetical FIRE timeframe.  Phil what swr did that end up equating to?

[PhilB]

That's a difficult question as we have various pension schemes cutting in at different times in the future. 

In terms of income levels though, in round numbers, our original target income was £3.5k per month.  Our 'still better than working' number is £2.5k per month.  To be able to achieve the latter number after a 50% investment fall, meant growing the stash to the point where our income on a 'standard' SWR would be >£4k per month.  That was the point at which I felt happy to place my bets and took 2MY over the point where a normal SWR said we could retire.  That was the price I considered worth paying to avoid worrying about running out of money.

[nereo]

I keep coming back to the Y2K retiree with 100% stock portfolio and them being down by 2/3rds at the bottom GFC.  At that point your portfolio has gone from x25 to x6.5 x8.3, and you need to withdraw 15%pa to meet living costs and your portfolio has to survive for at least another 20-30 years. Yes, in retrospect the portfolio hasn't failed yet, largely thanks to one of the best post-war bull runs we've had...

..but back in 2009, and faced with that reality I outlined above, how on earth does anyone not think they are going to experience portfolio failure. For me, it would be a continual worry each and every day... and the point of retirement is to not worry about money.

I also understand the concern here, but here's another take on why I don't think focusing on ever-smaller WR is a great strategy:

Let's say a ER wanted something that has historically never failed in the US, so s/he kept working for a bit longer squirreled away 31x expenses (a WR of 3.2%).  Under your same retirement scenario, s/he would have watched their 32x savings drop to about x10.  Yes, better than the ~x8 had they "only" saved up to x25 expenses and retired with a 4% WR, but still gut-wrenchingly low.  Would that person feel much better about their situation?  I'm guessing no if their entire focus had been "get to a level of savings that will never fail".

So to be truly 'comfortable' in a historically large downturn a retiree must be able to do at least one of the following: i) have steadfast faith that the markets will recover with amazing speed to prevent a portfolio failure, ii) have a WR in the low 2% range (and even then it may drop below 25x expenses)), or iii) have strategies which include things beyond just money in equities.

If the strategy remains "more money" the most likely outcome is having way more than you will ever likely deplete (and requires a longer accumulation phase - sometimes considerably so).  That's the predominate approach amount Bogleheads it seems. I just think there are more valuable strategies once you have 20-25x in expenses invested.

[wageslave23]

That makes sense.  I like your idea of coming up with your ideal retirement budget and then your "better than working"/less than ideal budget.  I think that buffer makes a big difference and maybe more so than the headline SWR.  Personally, we only have about $5k between our FIRE budget and "its better than working" budget.  I think people who are more laissez faire about swr probably have 25% or more they can cut from their FIRE budget.  Which effectively brings a 4% swr down to 3%. 

[vand]

I keep coming back to the Y2K retiree with 100% stock portfolio and them being down by 2/3rds at the bottom GFC.  At that point your portfolio has gone from x25 to x6.5 x8.3, and you need to withdraw 15%pa to meet living costs and your portfolio has to survive for at least another 20-30 years. Yes, in retrospect the portfolio hasn't failed yet, largely thanks to one of the best post-war bull runs we've had...

..but back in 2009, and faced with that reality I outlined above, how on earth does anyone not think they are going to experience portfolio failure. For me, it would be a continual worry each and every day... and the point of retirement is to not worry about money.

I also understand the concern here, but here's another take on why I don't think focusing on ever-smaller WR is a great strategy:

Let's say a ER wanted something that has historically never failed in the US, so s/he kept working for a bit longer squirreled away 31x expenses (a WR of 3.2%).  Under your same retirement scenario, s/he would have watched their 32x savings drop to about x10.  Yes, better than the ~x8 had they "only" saved up to x25 expenses and retired with a 4% WR, but still gut-wrenchingly low.  Would that person feel much better about their situation?  I'm guessing no if their entire focus had been "get to a level of savings that will never fail".

So to be truly 'comfortable' in a historically large downturn a retiree must be able to do at least one of the following: i) have steadfast faith that the markets will recover with amazing speed to prevent a portfolio failure, ii) have a WR in the low 2% range (and even then it may drop below 25x expenses)), or iii) have strategies which include things beyond just money in equities.

If the strategy remains "more money" the most likely outcome is having way more than you will ever likely deplete (and requires a longer accumulation phase - sometimes considerably so).  That's the predominate approach amount Bogleheads it seems. I just think there are more valuable strategies once you have 20-25x in expenses invested.

It's wasn't down to x8.3, it was down to x6.5 at the nadir because you are forgetting about all the INFLATION that happened between 2000 & 2009,

i.e. If you retired in Jan 2000 on a 4% initial WR and stuck rigidly to your spending plan then at the nadir in March 2009 you would have needed to be drawing out 15.3% on an annualized basis from the portfolio's remaining value in order to maintain the same real level of spending.

[ScreamingHeadGuy]

Class of ‘21 member here.  Nope, I picked a pretty good time for me to retire (plus or minus a few weeks). 

While I had first hit my FI number 16 months before I retired my OMY was due to getting emotionally/mentally ready for the life change, not number-driven.