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

[GuitarStv]

Why a 60 year window?  I have a number of relatives that lived to 105-110.  Everyone in my family lives forever if they don't smoke and get lung cancer.  And since I don't smoke, I need to be able to handle living to a ridiculous age.  Assuming I lose some weight...

"Marlboro . . . the path to earlier retirement."

:P

[naturalhattrick]

I could never go back to the office after experiencing that freedom. We're left with so much free time in the mornings, evenings and weekends it's incredible.

This. There's never a bad time to retire early. The sheer joy you feel everyday outweighs everything else.

[2Birds1Stone]

I could never go back to the office after experiencing that freedom. We're left with so much free time in the mornings, evenings and weekends it's incredible.

This. There's never a bad time to retire early. The sheer joy you feel everyday outweighs everything else.

I'm still on the payroll for now ;)

However, I agree. It's really hard to give an employer any control at all over your autonomy and schedule once you've experienced the alternative. We did a test run of FIRE at the end of 2019 which was thwarted by Covid. The only reason I could mentally handle going back to work (even WFH) was because we knew we didn't have the stache to support long term retirement yet. It was always meant to be a sabbatical of sorts......but that didn't make it much easier anyway.

[MrGreen]

I could never go back to the office after experiencing that freedom. We're left with so much free time in the mornings, evenings and weekends it's incredible.

This. There's never a bad time to retire early. The sheer joy you feel everyday outweighs everything else.

I'm still on the payroll for now ;)

However, I agree. It's really hard to give an employer any control at all over your autonomy and schedule once you've experienced the alternative. We did a test run of FIRE at the end of 2019 which was thwarted by Covid. The only reason I could mentally handle going back to work (even WFH) was because we knew we didn't have the stache to support long term retirement yet. It was always meant to be a sabbatical of sorts......but that didn't make it much easier anyway.

Just had my 5-year FIREversary and I firmly believe I'm totally unemployable at this point. Any alternative would be better.

[vand]

Like many others have said, I feel like the "4% rule" is a starting point from which most folks can reasonably start from by reading the basic assumptions of the Trinity study and then need to do some research to figure out what assumptions they are comfortable with, what assumptions they aren't comfortable with, and start running some simulations.  Between CFIRESIM and my personal hero, Big Ern and the epic SWR Series (https://earlyretirementnow.com/safe-withdrawal-rate-series/), there's plenty of data and simulations out there for each person to run the simulations that make sense for their scenarios.  Hopefully they understand the risk factors, etc. and can plan accordingly.  Honestly, Big Erns massive 52 part series has answered any question I could conceivably come up with. 

But, yeah, there are some mental gymnastics and "rules" folks may put in place to dumb this data down and make critical decisions more manageable.  For me, I really want to leave a decent nest egg for my kids.  Maybe ~$500-750k per kid in present day dollars.  For sure more than $250k (present day dollars) per kid minimum.  I want an absolutely 0% chance of having to go back to work.  Zero.  I have no interest in barista FIRE or part time jobs or returning to the workforce.  I currently make good money in an industry (oil and gas) which is likely to not have good paying jobs for me to go back to when I finally FIRE.  Plus my skills and network will likely rot within 2-3 years of leaving industry.  And I'd like my simulated retirement to be able to handle being the 2000 or 1966 cohort and basically be 99% reliable for 30 year window AND a 60 year window. 

Why 99% reliable? I'm a damned engineer.  I can't tell you how many things I've seen break that had only a fraction of a percent chance of breaking and needed 20 things to line up in a row in order to break through the swiss cheese model.  Am I overengineering my retirement? Probably.  Would I be overengineering my retirement if I hated my job and/or had a physical job that was breaking down my body? Nope, I'd FIRE a lot sooner.  So I'm fortunate to be able to make this conservative plans.

Why a 60 year window?  I have a number of relatives that lived to 105-110.  Everyone in my family lives forever if they don't smoke and get lung cancer.  And since I don't smoke, I need to be able to handle living to a ridiculous age.  Assuming I lose some weight...

I also give my social security earnings a 30% haircut because Social Security flat out says they will be unable to pay full benefits and there's no reason to assume benefits won't get a haircut since I'm high income and will have high investments and either taxes or a haircut will have to cover this spread- so it's reasonable to assume I'll only get ~70% of the value of my Social Security earnings.

For me, if I plan on a 3.5% SWR for my invested assets + a separate 2 years' cash buffer + having paid off mortgage/paid off cars (yes, I know most folks will say 3.5% SWR + 2 years' cash == 30.6x spending == almost 3.25% SWR) gets me to the comfort level I need in order to be able to FIRE and meet my goals of ~99% reliably ending retirement with likely at least 1/2 of what I started with and therefore easily meet my bequest desires.

I used to think 3.5% SWR was enough for me, however I've started to realize that my final couple of years are likely to be crazy bull market years such that if you look at CAPE ratios and likely initial sequence of risk returns - it's really not unlikely that my first few years of retirement will have substantially bad returns.  And the idea of a bequest has become more important to me as I get older.  Nothing huge, but something worthwhile.  So for me this 3.5% + 2 years' cash (basically 3.25%) makes a lot of sense.  And, again, I have zero interest in going back to work in any non-voluntary capacity once I retire.  Zero.  I did my time as an hourly employee, a server, a computer repair guy, etc.  No interest in doing that again.

The difference between 25-27x and 33-35x is probably less than 2 years working time and definitely less than 3 years working time.  I haven't fully done that math so feel free to poke holes in it.  So for me the extra couple of years is well worth the peace of mind, massive padding, and insurance that I don't have to go back to work.

Cracking post.

My gut feeling is that a 3.25% SWR isn’t at all over-conservative for the timeframe and goals you have set.
 
A theoretical x33 stash used to FIRE at market peak is now a x26 stash; market falls account for 6, inflation for 0.5, and spending 0.5
Likewise a x25 stash is now reduced to just a x19 stash

And, despite the falls we have seen this year, the market has potential to fall much further. Looking at the AAII asset allocation survey, major bottoms only occur when stock ownership falls to much lower levels. Right now we’re still far closer to the top of the range at 67% than we are to the bottom. We may need another 20-40% fall to bring us into the underowned range that we typically see at long term bear market bottoms. Not saying this will definitely happen, but we should all consider it a real possibility.

https://www.aaii.com/assetallocationsurvey

[clifp]

I used to think 3.5% SWR was enough for me, however I've started to realize that my final couple of years are likely to be crazy bull market years such that if you look at CAPE ratios and likely initial sequence of risk returns - it's really not unlikely that my first few years of retirement will have substantially bad returns.  And the idea of a bequest has become more important to me as I get older.  Nothing huge, but something worthwhile.  So for me this 3.5% + 2 years' cash (basically 3.25%) makes a lot of sense.  And, again, I have zero interest in going back to work in any non-voluntary capacity once I retire.  Zero.  I did my time as an hourly employee, a server, a computer repair guy, etc.  No interest in doing that again.

The difference between 25-27x and 33-35x is probably less than 2 years working time and definitely less than 3 years working time.  I haven't fully done that math so feel free to poke holes in it.  So for me the extra couple of years is well worth the peace of mind, massive padding, and insurance that I don't have to go back to work.

I think you are being prudent not overly conservative, two or three years in the context of 40-50 year retirement is 5% of your total retirement, and while not working is generally better than working, it not the difference between having sex or cleaning the toilet, it just more enjoyable.

Regarding going back to work, I agree 100%.

[Dicey]

Just had my 5-year FIREversary and I firmly believe I'm totally unemployable at this point. Any alternative would be better.

My 10-year FIREversary is coming up. I firmly believe I could obtain some kind of gainful employment, but I am more sure than ever I would never want to.

Cheers, Mr. Green. Ain't the FIRE life grand?

[nereo]

I could never go back to the office after experiencing that freedom. We're left with so much free time in the mornings, evenings and weekends it's incredible.

This. There's never a bad time to retire early. The sheer joy you feel everyday outweighs everything else.

I'm still on the payroll for now ;)

However, I agree. It's really hard to give an employer any control at all over your autonomy and schedule once you've experienced the alternative. We did a test run of FIRE at the end of 2019 which was thwarted by Covid. The only reason I could mentally handle going back to work (even WFH) was because we knew we didn't have the stache to support long term retirement yet. It was always meant to be a sabbatical of sorts......but that didn't make it much easier anyway.

Just had my 5-year FIREversary and I firmly believe I'm totally unemployable at this point. Any alternative would be better.

At least in my state, the labor market is so tight right now that we’re seeing a ton of sub-par applicants get hired for jobs they never would have been considered for previously.

[MisterA]

A really informative blog post from Ben Carlson on the worst historic outcomes for a 60/40:

https://awealthofcommonsense.com/2022/06/the-worst-years-ever-for-a-60-40-portfolio/

Note that all figures are nominal only. It's quite easy to imagine 2021 slotting into these "worst performance" tables as the next 5-10 years unfolds imo.

Worst 5 year stretches


Worst 10 years stretches

This is quite interesting, as is the link in the post.

So... my 60:40 portfolio is down by -12.5% since its peak in about December. Looking at the worst ever 5 year period, does this mean that the most it is likely to go down by in the next 5 years is another -12%, as this would then match the 1932 worst ever 5 year 60:40 period at -24.5%?

Although, I realise that the next period of time could be volatile before finishing the 5 year period.

[Arbitrage]

Really needs inflation/real returns to be meaningful in that analysis.  Some of those 1930s numbers would disappear (and probably be supplanted by 1970s or whenever) when considering the serious deflation of the early 1930s. 

[BlueMR2]

Why 99% reliable? I'm a damned engineer.  I can't tell you how many things I've seen break that had only a fraction of a percent chance of breaking and needed 20 things to line up in a row in order to break through the swiss cheese model.

I can identify with that as someone that's done software development, systems administration, and network administration.  The weird should never happen failures that I saw wayyy too often really make one doubt everything!

[FIRE 20/20]

Like many others have said, I feel like the "4% rule" is a starting point from which most folks can reasonably start from by reading the basic assumptions of the Trinity study and then need to do some research to figure out what assumptions they are comfortable with, what assumptions they aren't comfortable with, and start running some simulations.  Between CFIRESIM and my personal hero, Big Ern and the epic SWR Series (https://earlyretirementnow.com/safe-withdrawal-rate-series/), there's plenty of data and simulations out there for each person to run the simulations that make sense for their scenarios.  Hopefully they understand the risk factors, etc. and can plan accordingly.  Honestly, Big Erns massive 52 part series has answered any question I could conceivably come up with. 

Big ERN did a lot of good work.  I read the full series when it was much shorter, so he may have fixed some of the big problems with I had with his analysis.   When I read it he used CAPE pretty extensively but he never accounts for the changes made to the Generally Accepted Accounting Principles (GAAP) regarding earnings in the '90s.  That basically invalidates any of his forward-looking CAPE-related work, and if I'm remembering correctly he bases a huge amount of his modified SWR stuff on that.  That alone makes his work vastly more pessimistic than it needs to be and it was the biggest problem I had with his work.  I had a few other problems with it, and overall I think he did a service to the FIRE community.  At least the big mistake he made makes things excessively pessimistic so the main problem he's causing for people is delaying their retirement unnecessarily by a few years.

[MrGreen]

Just had my 5-year FIREversary and I firmly believe I'm totally unemployable at this point. Any alternative would be better.

My 10-year FIREversary is coming up. I firmly believe I could obtain some kind of gainful employment, but I am more sure than ever I would never want to.

Cheers, Mr. Green. Ain't the FIRE life grand?

I really meant unemployable from my side. Haha! FIRE has forever ruined the normal 9-to-5 office job for me. It would literally be my last resort, like about to lose my house kind of thing. Yes, the FIRE life is grand indeed!

[By the River]

My wife is still planning to retire on December 1.  I showed her an updated rich dead or broke scenario after the market entered bear territory.  The >5x start portion is smaller and the red broke area is a little bigger which scares her.  Of course the dead, >start, and >2x are still so much bigger than the broke category that I'm not worried (plus we have several contingencies that aren't baked into it.)

[vand]

The hypothetical retiree 12 months ago using a vanilla 4% SWR has had a pretty rough first year - their portfolio is down by around 25% inflation adjusted, so after just 1 year their new reality is that they've effectively reset to using a 5.25% WR from a x18.75 multiple pot to fund their ongoing retirement.

Unlike both 2000 and 2008, the supposedly bombproof 60/40 has done just as badly as a 100/0 portfolio
 
100% TSM (#1)
60/40 using 10y (#2)
60/40 using LT bonds (#3)

[FIRE 20/20]

The hypothetical retiree 12 months ago using a vanilla 4% SWR has had a pretty rough first year - their portfolio is down by around 25% inflation adjusted, so after just 1 year their new reality is that they've effectively reset to using a 5.25% WR from a x18.75 multiple pot to fund their ongoing retirement.

Are you suggesting that the person who FIREd 12 months ago is, essentially, in the same position as someone who FIREs after just achieving a 5.25% withdrawal rate?  If that is your claim, it is false.  In many of the successful 4% cases, there is an initial drop.  That's ok.  That person is still FIREing based on a 4% withdrawal rate and still has a very high likelihood of being in the ~95% of cases that are successful, rather than the larger likelihood of failure that would follow from starting FIRE with a 5.25% withdrawal rate.  Why?  Because following a significant market drop like we've seen, the likelihood of a rebound occurring soon is very high.  If you ride the markets up to a high and then FIRE with a 5.25% withdrawal rate then you're less likely to see the same kind of further jump from the markets. 

This isn't just opinion.  Kitces has shown the poor correlation of first year returns to FIRE success here:
https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

This chart shows the poor correlation between first-year returns and SWR.  In addition to seeing a very gently increasing regression line, you can see that the lowest safe withdrawal rate came in a year that had first-year returns of 35% (!) and the roughly -45% first year return had an initial safe withdrawal rate of over 5%.  I'm just eyeballing the charts, but the trend is clear.



This chart shows the correlation between safe withdrawal rates and real/nominal returns.  It takes a lot more than 1 down year to have any reason based on the data to get very worried. 

[wageslave23]

The hypothetical retiree 12 months ago using a vanilla 4% SWR has had a pretty rough first year - their portfolio is down by around 25% inflation adjusted, so after just 1 year their new reality is that they've effectively reset to using a 5.25% WR from a x18.75 multiple pot to fund their ongoing retirement.

Are you suggesting that the person who FIREd 12 months ago is, essentially, in the same position as someone who FIREs after just achieving a 5.25% withdrawal rate?  If that is your claim, it is false.  In many of the successful 4% cases, there is an initial drop.  That's ok.  That person is still FIREing based on a 4% withdrawal rate and still has a very high likelihood of being in the ~95% of cases that are successful, rather than the larger likelihood of failure that would follow from starting FIRE with a 5.25% withdrawal rate.  Why?  Because following a significant market drop like we've seen, the likelihood of a rebound occurring soon is very high.  If you ride the markets up to a high and then FIRE with a 5.25% withdrawal rate then you're less likely to see the same kind of further jump from the markets. 

This isn't just opinion.  Kitces has shown the poor correlation of first year returns to FIRE success here:
https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

This chart shows the poor correlation between first-year returns and SWR.  In addition to seeing a very gently increasing regression line, you can see that the lowest safe withdrawal rate came in a year that had first-year returns of 35% (!) and the roughly -45% first year return had an initial safe withdrawal rate of over 5%.  I'm just eyeballing the charts, but the trend is clear.



This chart shows the correlation between safe withdrawal rates and real/nominal returns.  It takes a lot more than 1 down year to have any reason based on the data to get very worried. 

If we are looking at market valuations, then I'd say a year ago we were massively overpriced and are now probably about average as a starting point compared to historical 30 yr swr periods. So 5% equivalent swr is probably about right.

Another way to look at it is that you would need about 4% real returns from here on out for your money to last 29 yrs. 5% is when I'd start to worry.

I would not being going back to work yet, but I'd be preparing myself mentally depending on how the next year or two goes.

[vand]

The hypothetical retiree 12 months ago using a vanilla 4% SWR has had a pretty rough first year - their portfolio is down by around 25% inflation adjusted, so after just 1 year their new reality is that they've effectively reset to using a 5.25% WR from a x18.75 multiple pot to fund their ongoing retirement.

Are you suggesting that the person who FIREd 12 months ago is, essentially, in the same position as someone who FIREs after just achieving a 5.25% withdrawal rate?  If that is your claim, it is false.  In many of the successful 4% cases, there is an initial drop.  That's ok.  That person is still FIREing based on a 4% withdrawal rate and still has a very high likelihood of being in the ~95% of cases that are successful, rather than the larger likelihood of failure that would follow from starting FIRE with a 5.25% withdrawal rate.  Why?  Because following a significant market drop like we've seen, the likelihood of a rebound occurring soon is very high.  If you ride the markets up to a high and then FIRE with a 5.25% withdrawal rate then you're less likely to see the same kind of further jump from the markets. 

This isn't just opinion.  Kitces has shown the poor correlation of first year returns to FIRE success here:
https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

This chart shows the poor correlation between first-year returns and SWR.  In addition to seeing a very gently increasing regression line, you can see that the lowest safe withdrawal rate came in a year that had first-year returns of 35% (!) and the roughly -45% first year return had an initial safe withdrawal rate of over 5%.  I'm just eyeballing the charts, but the trend is clear.



This chart shows the correlation between safe withdrawal rates and real/nominal returns.  It takes a lot more than 1 down year to have any reason based on the data to get very worried. 

This is the danger of reading into the overall statistics too much.  Yes, overall 4% initial SWR has held up despite 1st year falls. But if you further qualify it and look at only the complete datasets where it went down 25% in the first year, how many independent samples are there, and what is the survival rate? It hasn't happened that often... and you probably have nowhere near enough samples to be confident that your chances of survival are still >95%

Put it this way - do I think the 2021 retiree will run out of money? Probably not. Do I think the 2021 has a higher than 5% chance of running out of money? Definitely.

[EscapeVelocity2020]

The hypothetical retiree 12 months ago using a vanilla 4% SWR has had a pretty rough first year - their portfolio is down by around 25% inflation adjusted, so after just 1 year their new reality is that they've effectively reset to using a 5.25% WR from a x18.75 multiple pot to fund their ongoing retirement.

Are you suggesting that the person who FIREd 12 months ago is, essentially, in the same position as someone who FIREs after just achieving a 5.25% withdrawal rate?  If that is your claim, it is false.  In many of the successful 4% cases, there is an initial drop.  That's ok.  That person is still FIREing based on a 4% withdrawal rate and still has a very high likelihood of being in the ~95% of cases that are successful, rather than the larger likelihood of failure that would follow from starting FIRE with a 5.25% withdrawal rate.  Why?  Because following a significant market drop like we've seen, the likelihood of a rebound occurring soon is very high.  If you ride the markets up to a high and then FIRE with a 5.25% withdrawal rate then you're less likely to see the same kind of further jump from the markets. 

This isn't just opinion.  Kitces has shown the poor correlation of first year returns to FIRE success here:
https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

This chart shows the poor correlation between first-year returns and SWR.  In addition to seeing a very gently increasing regression line, you can see that the lowest safe withdrawal rate came in a year that had first-year returns of 35% (!) and the roughly -45% first year return had an initial safe withdrawal rate of over 5%.  I'm just eyeballing the charts, but the trend is clear.

This chart shows the correlation between safe withdrawal rates and real/nominal returns.  It takes a lot more than 1 down year to have any reason based on the data to get very worried. 

If we are looking at market valuations, then I'd say a year ago we were massively overpriced and are now probably about average as a starting point compared to historical 30 yr swr periods. So 5% equivalent swr is probably about right.

Another way to look at it is that you would need about 4% real returns from here on out for your money to last 29 yrs. 5% is when I'd start to worry.

I would not being going back to work yet, but I'd be preparing myself mentally depending on how the next year or two goes.

Since real returns are looking awfully lackluster this year and I'm expecting sustained ~5% inflation unless the Fed changes its trajectory, I'd pay more attention to this part of the Kites article referenced above, personally - Inflation Sequencing And Bad Real Returns

While the focus thus far has been on returns, the reality is that inflation plays an important role in sequence of returns risk as well, both because high inflation overall means more withdrawals are required to sustain a standard of living (which necessitates getting higher returns just to survive!), and because inflation itself has its own sequencing risk.

For instance, if inflation averages 3% for 20 years and 8% for the last decade, overall average compound inflation is 4.6% for the 30-year time horizon. If inflation is 8% for the first decade and 3% for the last 20 years, it’s still the same 4.6% for 30 years.

In actual dollar terms, though, the results are quite different. As illustrated in the chart below, a retiree starts with nominal spending of $40,000/year, the late higher inflation (8% in the last decade, solid blue line) requires cumulative nominal withdrawals (dotted blue line) of $2.12M for 30 years, while the early higher inflation (8% in the first decade, solid red line) requires $2.90M of cumulative withdrawals (dotted red line) because the higher early inflation results in a higher level of base spending upon which the later inflation still compounds even if the later inflation rate is lower. The end result is that the sequence of inflation – even with the same compound annual growth rate of inflation for the whole time horizon – can increase the nominal withdrawal requirement by almost 37% (the difference between $2.90M and $2.12M)!

[vand]

The hypothetical retiree 12 months ago using a vanilla 4% SWR has had a pretty rough first year - their portfolio is down by around 25% inflation adjusted, so after just 1 year their new reality is that they've effectively reset to using a 5.25% WR from a x18.75 multiple pot to fund their ongoing retirement.

Are you suggesting that the person who FIREd 12 months ago is, essentially, in the same position as someone who FIREs after just achieving a 5.25% withdrawal rate?  If that is your claim, it is false.  In many of the successful 4% cases, there is an initial drop.  That's ok.  That person is still FIREing based on a 4% withdrawal rate and still has a very high likelihood of being in the ~95% of cases that are successful, rather than the larger likelihood of failure that would follow from starting FIRE with a 5.25% withdrawal rate.  Why?  Because following a significant market drop like we've seen, the likelihood of a rebound occurring soon is very high.  If you ride the markets up to a high and then FIRE with a 5.25% withdrawal rate then you're less likely to see the same kind of further jump from the markets. 

This isn't just opinion.  Kitces has shown the poor correlation of first year returns to FIRE success here:
https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

This chart shows the poor correlation between first-year returns and SWR.  In addition to seeing a very gently increasing regression line, you can see that the lowest safe withdrawal rate came in a year that had first-year returns of 35% (!) and the roughly -45% first year return had an initial safe withdrawal rate of over 5%.  I'm just eyeballing the charts, but the trend is clear.

This chart shows the correlation between safe withdrawal rates and real/nominal returns.  It takes a lot more than 1 down year to have any reason based on the data to get very worried. 

If we are looking at market valuations, then I'd say a year ago we were massively overpriced and are now probably about average as a starting point compared to historical 30 yr swr periods. So 5% equivalent swr is probably about right.

Another way to look at it is that you would need about 4% real returns from here on out for your money to last 29 yrs. 5% is when I'd start to worry.

I would not being going back to work yet, but I'd be preparing myself mentally depending on how the next year or two goes.

Since real returns are looking awfully lackluster this year and I'm expecting sustained ~5% inflation unless the Fed changes its trajectory, I'd pay more attention to this part of the Kites article referenced above, personally - Inflation Sequencing And Bad Real Returns

While the focus thus far has been on returns, the reality is that inflation plays an important role in sequence of returns risk as well, both because high inflation overall means more withdrawals are required to sustain a standard of living (which necessitates getting higher returns just to survive!), and because inflation itself has its own sequencing risk.

For instance, if inflation averages 3% for 20 years and 8% for the last decade, overall average compound inflation is 4.6% for the 30-year time horizon. If inflation is 8% for the first decade and 3% for the last 20 years, it’s still the same 4.6% for 30 years.

In actual dollar terms, though, the results are quite different. As illustrated in the chart below, a retiree starts with nominal spending of $40,000/year, the late higher inflation (8% in the last decade, solid blue line) requires cumulative nominal withdrawals (dotted blue line) of $2.12M for 30 years, while the early higher inflation (8% in the first decade, solid red line) requires $2.90M of cumulative withdrawals (dotted red line) because the higher early inflation results in a higher level of base spending upon which the later inflation still compounds even if the later inflation rate is lower. The end result is that the sequence of inflation – even with the same compound annual growth rate of inflation for the whole time horizon – can increase the nominal withdrawal requirement by almost 37% (the difference between $2.90M and $2.12M)!

I don't disagree with the the Kitces article; it basically saying that 1yr returns do not correlate well, but if you extend out to 3-10 years the correlation with SWR becomes much strong.
This is the most telling chart:



About as good a correlation as you will find in the real world.

If the S&P does zoom back to new highs over the course of the next year and continues to on towards 10,000 over the next decade then everything is going to be A-ok. But a bad stretch has to start with a poor first year.. and we've just had that.  And if things continue keep going this way for another year or two then I think 2021 retirees really will be in deep doodoo.  It's too early to tell if this will be a really poor starting point, but it's kinda heading that way... isn't it?

[FIRE 20/20]

This is the danger of reading into the overall statistics too much.  Yes, overall 4% initial SWR has held up despite 1st year falls. But if you further qualify it and look at only the complete datasets where it went down 25% in the first year, how many independent samples are there, and what is the survival rate? It hasn't happened that often... and you probably have nowhere near enough samples to be confident that your chances of survival are still >95%

Put it this way - do I think the 2021 retiree will run out of money? Probably not. Do I think the 2021 has a higher than 5% chance of running out of money? Definitely.

I agree with all of this.  It certainly is possible to read too much into the statistics.  At this point all we can say is that the limited history we have so far doesn't point to a bad first year as definitive or even very highly correlated with failure.  It'll take a few more years to be confident that the 2021 cohort hit one of the unlucky years that comes around every few decades.  And I certainly agree that it seems plausible that a person who FIREd blindly using the 4% rule has a greater than 5% chance of failure. 
Fortunately, essentially everyone who FIREs around these parts doesn't rely on blindly following the 4% rule without any ability to adjust if the SHTF.  I'm sure most of the 2021 cohort had some combination of a sub-4% withdrawal rate, opportunities to supplement their income or cut expenses, ignored a pension, SS, or likely inheritance, or some other backup plan that will more than keep them from living under a bridge in 25 years.  Almost anyone who got to the point where they felt they could safely FIRE in 2021 and did so demonstrated a whole host of abilities that will enable them to weather this storm even if it eventually turns out to be one of the 4% failure years.  The cohort is going to be fine. 

[EscapeVelocity2020]

Just one year of high inflation and negative markets really gets you to appreciate those decades of low inflation and double digit returns!  It's no wonder there was so much FIRE success from 2009 until the end of 2021, inflation was negligible (I think it was 2%, but I really never noticed it) and returns were great.  Even from when I started investing in the 90's, inflation was low so my only focus was on market returns.  Had a few bad years (2000, 2008/9), but never had to worry that cash sitting out HAD to be put to use to avoid losing purchasing power...

[nereo]

Just one year of high inflation and negative markets really gets you to appreciate those decades of low inflation and double digit returns!  It's no wonder there was so much FIRE success from 2009 until the end of 2021, inflation was negligible (I think it was 2%, but I really never noticed it) and returns were great.  Even from when I started investing in the 90's, inflation was low so my only focus was on market returns.  Had a few bad years (2000, 2008/9), but never had to worry that cash sitting out HAD to be put to use to avoid losing purchasing power...

Agreed.  I think the previous decade lulled a lot of investors into forgetting (or never learning about) the impacts of inflation, and how to mitigate its negative impacts.  Even on this forum there was a common sentiment of "well high inflation is really a thing of the past in a developed economy such as the US - the Fed will never let get much above 3%".  Those of us that talked about inflation hedges were largely overlooked as chicken-littles - preparing for an exceedingly unlikely event.

[Wolfpack Mustachian]

Just one year of high inflation and negative markets really gets you to appreciate those decades of low inflation and double digit returns!  It's no wonder there was so much FIRE success from 2009 until the end of 2021, inflation was negligible (I think it was 2%, but I really never noticed it) and returns were great.  Even from when I started investing in the 90's, inflation was low so my only focus was on market returns.  Had a few bad years (2000, 2008/9), but never had to worry that cash sitting out HAD to be put to use to avoid losing purchasing power...

Agreed.  I think the previous decade lulled a lot of investors into forgetting (or never learning about) the impacts of inflation, and how to mitigate its negative impacts.  Even on this forum there was a common sentiment of "well high inflation is really a thing of the past in a developed economy such as the US - the Fed will never let get much above 3%".  Those of us that talked about inflation hedges were largely overlooked as chicken-littles - preparing for an exceedingly unlikely event.

What were these inflation hedges?

[2Birds1Stone]

Just one year of high inflation and negative markets really gets you to appreciate those decades of low inflation and double digit returns!  It's no wonder there was so much FIRE success from 2009 until the end of 2021, inflation was negligible (I think it was 2%, but I really never noticed it) and returns were great.  Even from when I started investing in the 90's, inflation was low so my only focus was on market returns.  Had a few bad years (2000, 2008/9), but never had to worry that cash sitting out HAD to be put to use to avoid losing purchasing power...

Agreed.  I think the previous decade lulled a lot of investors into forgetting (or never learning about) the impacts of inflation, and how to mitigate its negative impacts.  Even on this forum there was a common sentiment of "well high inflation is really a thing of the past in a developed economy such as the US - the Fed will never let get much above 3%".  Those of us that talked about inflation hedges were largely overlooked as chicken-littles - preparing for an exceedingly unlikely event.

What were these inflation hedges?

TP and bicycles from 2020!!!

[vand]

Just one year of high inflation and negative markets really gets you to appreciate those decades of low inflation and double digit returns!  It's no wonder there was so much FIRE success from 2009 until the end of 2021, inflation was negligible (I think it was 2%, but I really never noticed it) and returns were great.  Even from when I started investing in the 90's, inflation was low so my only focus was on market returns.  Had a few bad years (2000, 2008/9), but never had to worry that cash sitting out HAD to be put to use to avoid losing purchasing power...

Agreed.  I think the previous decade lulled a lot of investors into forgetting (or never learning about) the impacts of inflation, and how to mitigate its negative impacts.  Even on this forum there was a common sentiment of "well high inflation is really a thing of the past in a developed economy such as the US - the Fed will never let get much above 3%".  Those of us that talked about inflation hedges were largely overlooked as chicken-littles - preparing for an exceedingly unlikely event.

Yep, and without trying to toot my horn I have previously warned about regarding stocks and paper assets as a hedge against inflation when they are the exact opposite.

I even remember a bravado “bring on more inflation” from at least one post — the absurd example of holding stocks throughout the Weimar hyperinflation supposedly being brought out as a bullish example.

Of course inflation itself is not the problem if wages and asst prices can keep up. But in the real world they don’t - never have, never will.

[vand]

This great blog post from Nick Maguilli illustrated the peris of retiring when the market is entering a prolong downtrend:

https://ofdollarsanddata.com/great-depression-or-bust/

Without any context, people may assume that retiring when the market is falling is a good thing for what it means for your SWR because:

- you didn't retire right at the peak - hurrah!
- valuations are slightly lower - all in all this should slightly elevate future returns

However the more pressing factors are is that you are retiring in a term downtrend and what this may imply for the more immediate future. Under such conditions:

- stocks do considerably worse over the short term than on the whole (5.5 vs 9.6%)
- You are at immediate risk of the small downtrend now extending into a much larger and longer downtrend
- volatility increases and you should expect a bumpier ride


Over 3 years, while the expected return improves, the distribution of those returns is all over the place, argely due to the depression dominating this still relatively small subset of the overall data:



Up to -20% drawdowns the average/median 12 month outlook is still lower than.  It's only after the market has really crashed (-30% or worse) that you can be relatively confident that the bottom is already or close to being in, and the 1yr outlook improves - we are not at that stage yet.


And even if and when it does fall that much and the immediate outlook is higher, remember that crucially, retirement planning is based around planning for the worst case scenario to gaurantee not running out of money. While the outlook may be good, the risk of a cataclysmic outcome must still not be written off.

All things said, and to point out the somewhat bleedin' obvious, it is much better to retire during a bull market, preferably one that has many years left to run!

[Malossi792]

This is why some people employ rising equity glidepaths, isn't it? Not the best if a strong bull comes right after one retires, but then again, no 'insurance' is worth its price while the sun shines...

[2Birds1Stone]

This is why some people employ rising equity glidepaths, isn't it? Not the best if a strong bull comes right after one retires, but then again, no 'insurance' is worth its price while the sun shines...

Bingo. As someone who is starting at 60/40 and gliding up to 95/5 over 10 years, this should be largely a moot point.

[maizefolk]

Yep, and without trying to toot my horn I have previously warned about regarding stocks and paper assets as a hedge against inflation when they are the exact opposite.

I even remember a bravado “bring on more inflation” from at least one post — the absurd example of holding stocks throughout the Weimar hyperinflation supposedly being brought out as a bullish example.

Of course inflation itself is not the problem if wages and asst prices can keep up. But in the real world they don’t - never have, never will.

I believe I'm the person (or one of the many people) who pointed out the historical evidence that in the long run stocks recover from the effects of inflation while many "safer" investments do not.

We're either either almost at a bear market or barely into one. The fact that stocks go down 20% sometimes is not a shock (nor that they go down 50% sometime). I remain much more confident my stash will still have substantial value a decade from now that I would with a much more conservative asset mix, including in a high inflation environment.

I'd say you can safely hold off on tooting your own horn for quite a long while longer.

[BlueMR2]

Just one year of high inflation and negative markets really gets you to appreciate those decades of low inflation and double digit returns!  It's no wonder there was so much FIRE success from 2009 until the end of 2021, inflation was negligible (I think it was 2%, but I really never noticed it) and returns were great.  Even from when I started investing in the 90's, inflation was low so my only focus was on market returns.  Had a few bad years (2000, 2008/9), but never had to worry that cash sitting out HAD to be put to use to avoid losing purchasing power...

Yeah, the whole time period from 2000-2008 was ugly.  I sat on a lot of cash through it and didn't miss out on much of anything.  My investments basically did nothing for those 8 years.  Kind of a repeat of 1992-1997 where I ended with the same amount invested as when I started.  :D

[vand]

When I retired, in 99/2000, like today we were at tail end of the web 1.0 internet stock bubble.  The class of 2000 retiree is the worse off class since sometime in the mid-1960s.  By the time the great recession hit us right after the dot com bubble burst and the  bear market of 2000-2002. Someone with 25x portfolio and no cushion, was looking at their portfolio being cut in 1/2 at normal AA ratios and a current withdrawal rate of close to 8%. Now the great bull market of 2009-2021 helped a lot but the 2000 retiree portfolio is below (in real terms) their starting portfolio. If was a 30-year retirement, it is very likely they'll still have a bit money after 30 years.  However, if you were 39 like I was when I retireed. You are still looking at another 20-35 years of retirement.  At the start of bear market, running out of money before you die is a distinct possibility.

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

Luckily, in my experience, most people are disciplined enough to retirement early, has some slack in their budget. Even if that is not true, they are flexible.  One obvious thing to do is to skip the cost of living adjustment. If you retired this year with $1.3 million and planned to spend $50K/year.  Instead of giving yourself a cost of living raise next year to $54 or $55K, consider keeping spending flat or maybe only $1,000-2,000.  Then catch up during the next bull market.

Yep, the hypothetical Y2k retiree with a 100% stock portfolio is now in real danger of portfolio failure.

For a Jan 2000 retiree with a $1m portfolio and using a 4% SWR and 100% US stock allocation, they would now be down to $512k nominally, but only $300k in real terms, so you have depleted 70% of the portfolio capital after 22 years, so in real terms you would have a portfolio x7.5 your living expenses to support the rest of your retirement.



 

Is the same fate going to befall the 2021 retiree?  While its may be true that stock valuations may not be as extreme as 2000, bond valuations are even more extreme, whilst short/med term inflation looks like its going to be much more of a factor for today's retirees than it was back then... so its possible that unlike 2000, no combination of stock/bonds will be able to sustain the portfolio

For Y2k retirees, the TSM portfolio strategy (which I will henceforth refer to as the "bravado" portfolio) is now back in the position as it found itself right at the 2009 bottom. 

The current withdrawal rate on this portfolio is running at 15% - ie, you are having to pull 1.2% per month of the remaining portfolio in order to sustain your inflation adjusted living expenses - marry that inconvenience with the previous post illusstrating that you should expect (nominal) returns to be 5.5% over the next year, then you can say that things aren't looking great,

History tends to show that once the withdrawal rate of the ongoing portfolio starts to exceed the long term average return of the stock market then failure almost always arrives within the next 5-10 years. We are way past that point today now - y2k/2009 is a noticeable exception, and even then it took an amazing 14 year bull market with above average returns and very low volatility to rescue it, during which the portfolio never recovered to more than 40% of its real y2k value.

Without a similar amazing bull market right around the corner it seems inevitable that we will see complete portfolio failure sooner rather than later,




People may say that "yes, bravado portfolio has struggled since then, but who the hell retires with a 100% stocks?"

I would argue probably more people that you suspect.That's what happens at the top of the market - you think stocks are invincible and the good times will continue, so why not carry on into retirement with the strategy that got you there in the first place. A counter argument is - how many people do you suppose might have retired with a 100% stock portfolio, saw it get savagely sold off in the first downturn and switched it to add more bonds once they were terrified on it falling even further? I suspect the answer is not zero, and probably more than did the opposite switch.

[Villanelle]

When I retired, in 99/2000, like today we were at tail end of the web 1.0 internet stock bubble.  The class of 2000 retiree is the worse off class since sometime in the mid-1960s.  By the time the great recession hit us right after the dot com bubble burst and the  bear market of 2000-2002. Someone with 25x portfolio and no cushion, was looking at their portfolio being cut in 1/2 at normal AA ratios and a current withdrawal rate of close to 8%. Now the great bull market of 2009-2021 helped a lot but the 2000 retiree portfolio is below (in real terms) their starting portfolio. If was a 30-year retirement, it is very likely they'll still have a bit money after 30 years.  However, if you were 39 like I was when I retireed. You are still looking at another 20-35 years of retirement.  At the start of bear market, running out of money before you die is a distinct possibility.

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

Luckily, in my experience, most people are disciplined enough to retirement early, has some slack in their budget. Even if that is not true, they are flexible.  One obvious thing to do is to skip the cost of living adjustment. If you retired this year with $1.3 million and planned to spend $50K/year.  Instead of giving yourself a cost of living raise next year to $54 or $55K, consider keeping spending flat or maybe only $1,000-2,000.  Then catch up during the next bull market.

Yep, the hypothetical Y2k retiree with a 100% stock portfolio is now in real danger of portfolio failure.

For a Jan 2000 retiree with a $1m portfolio and using a 4% SWR and 100% US stock allocation, they would now be down to $512k nominally, but only $300k in real terms, so you have depleted 70% of the portfolio capital after 22 years, so in real terms you would have a portfolio x7.5 your living expenses to support the rest of your retirement.



 

Is the same fate going to befall the 2021 retiree?  While its may be true that stock valuations may not be as extreme as 2000, bond valuations are even more extreme, whilst short/med term inflation looks like its going to be much more of a factor for today's retirees than it was back then... so its possible that unlike 2000, no combination of stock/bonds will be able to sustain the portfolio

For Y2k retirees, the TSM portfolio strategy (which I will henceforth refer to as the "bravado" portfolio) is now back in the position as it found itself right at the 2009 bottom. 

The current withdrawal rate on this portfolio is running at 15% - ie, you are having to pull 1.2% per month of the remaining portfolio in order to sustain your inflation adjusted living expenses - marry that inconvenience with the previous post illusstrating that you should expect (nominal) returns to be 5.5% over the next year, then you can say that things aren't looking great,

History tends to show that once the withdrawal rate of the ongoing portfolio starts to exceed the long term average return of the stock market then failure almost always arrives within the next 5-10 years. We are way past that point today now - y2k/2009 is a noticeable exception, and even then it took an amazing 14 year bull market with above average returns and very low volatility to rescue it, during which the portfolio never recovered to more than 40% of its real y2k value.

Without a similar amazing bull market right around the corner it seems inevitable that we will see complete portfolio failure sooner rather than later,




People may say that "yes, bravado portfolio has struggled since then, but who the hell retires with a 100% stocks?"

I would argue probably more people that you suspect.That's what happens at the top of the market - you think stocks are invincible and the good times will continue, so why not carry on into retirement with the strategy that got you there in the first place. A counter argument is - how many people do you suppose might have retired with a 100% stock portfolio, saw it get savagely sold off in the first downturn and switched it to add more bonds once they were terrified on it falling even further? I suspect the answer is not zero, and probably more than did the opposite switch.

I don't know anyone who has retired (or plans to retire) with 100% stocks.  The closest I know is probably myself, at about 9-10% bonds, and that's only because spouse will have an solid, inflation-adjusted pension. 

I also don't know anyone who doesn't cut spending, at least a small bit--even those who retired pretty lean--in a down market.  And in many cases, I know of people who have started or ramped up a side hustle.  In my orbit, there are people who have started driving the Smaller Car for errands.  Maybe that saves $20 a month.  They shop at Aldi or Lidl instead of the fancy grocery store.  Maybe another $25.  One person I'm aware of has gone from an every other week housekeeper to monthly.  That's probably $100+/mo.  I'm seeing little changes all around me (by people retired and not-yet). 

As always, there is nuance, but I think that nuance makes the picture significantly brighter than it would appear based on rigid math.

[maizefolk]

History tends to show that once the withdrawal rate of the ongoing portfolio starts to exceed the long term average return of the stock market then failure almost always arrives within the next 5-10 years.

@maizefolk or others, any response/insight/commentary on this statement?

Long term inflation adjusted CGAR of the stock market is what, 7% give or take? There are a bunch of 100% equities scenarios that start in the early 70s, are withdrawing >8% in the mid 1980s and ended up worth more than they started with (in inflation adjusted terms no less) after a full 30 years.

Basically any statement about failure always arriving is going to be a little suspect because we have so few actual examples of a failure, or even near failure of the 4% rule to work with.

The worst years are probably 1906, 1929, 1965, 1966, 1968, 1973. Not all of those ended at zero after 30 years but all of them were clearly in bad shape. Six total years, and really only three independent historical events.

The 2000 retiree may end up being a seven year and a fourth time in recorded history that a 4% withdrawal rate failed or came close to failing. If so, it'll be a useful point of reference. But be very cautious around people who try to convince you that X always follows Y.

[2sk22]

Having gone through 7 pages of this interminable thread, there is still one point that bothers me. Clearly inflation is bad for the retiree but all of the discussion is in terms of the official numbers reported by the government. However, as all of us know, the actual inflation that we experience is highly personal. I keep track of our finances at a pretty fine granularity. I am just not seeing that much extra in terms of expenses:
- Housing: We own our house outright and property tax increases have been modest in our area. This is the only house we own.
- Cars: I am retired but my wife is still working. I barely drive much and have a brand new car that I just bought last year. Wife does drive to work but her car is a very efficient hybrid so gas prices don't bother us all that much. We keep our cars for at least ten year.
- Utilities: We have 9.6 kW worth of solar panels on our roof and there is a 1:1 net metering so we don't pay a lot for electricity. The more electricity prices rise, the more valuable each watt-hour generated by our panels becomes!
- Food: We barely ever eat out and are vegetarians. My wife has been taking her lunch to work for the past 25 years. I track our food expenses pretty carefully and have not seen a big increase.
- Travel: We don't travel a lot. We went for a hiking vacation this year in the northeast which turned out to be fun and inexpensive.
- Hobbies: I enjoy building model trains and tinkering with electronics: One can get a lot of enjoyment for relatively little money (compared to other hobbies). One of my friends spends a fortune buying optics for telescopes for example.

I am not seeing a big impact from inflation right now.

Where I think we could get affected in the future:
- We have no plans of moving as of now but if we were forced to move, it could potentially be expensive (although we live in northern NJ which is already a very HCOL area)
- If we had to replace a car in a hurry, it could be expensive due to the lack of inventory
- Long term care could become even more expensive

[wageslave23]

Having gone through 7 pages of this interminable thread, there is still one point that bothers me. Clearly inflation is bad for the retiree but all of the discussion is in terms of the official numbers reported by the government. However, as all of us know, the actual inflation that we experience is highly personal. I keep track of our finances at a pretty fine granularity. I am just not seeing that much extra in terms of expenses:
- Housing: We own our house outright and property tax increases have been modest in our area. This is the only house we own.
- Cars: I am retired but my wife is still working. I barely drive much and have a brand new car that I just bought last year. Wife does drive to work but her car is a very efficient hybrid so gas prices don't bother us all that much. We keep our cars for at least ten year.
- Utilities: We have 9.6 kW worth of solar panels on our roof and there is a 1:1 net metering so we don't pay a lot for electricity. The more electricity prices rise, the more valuable each watt-hour generated by our panels becomes!
- Food: We barely ever eat out and are vegetarians. My wife has been taking her lunch to work for the past 25 years. I track our food expenses pretty carefully and have not seen a big increase.
- Travel: We don't travel a lot. We went for a hiking vacation this year in the northeast which turned out to be fun and inexpensive.
- Hobbies: I enjoy building model trains and tinkering with electronics: One can get a lot of enjoyment for relatively little money (compared to other hobbies). One of my friends spends a fortune buying optics for telescopes for example.

I am not seeing a big impact from inflation right now.

Where I think we could get affected in the future:
- We have no plans of moving as of now but if we were forced to move, it could potentially be expensive (although we live in northern NJ which is already a very HCOL area)
- If we had to replace a car in a hurry, it could be expensive due to the lack of inventory
- Long term care could become even more expensive

That's all well and good.  But only anecdotal.  On average, people are seeing their expenses increase about 8%.  If you only spend $100 per month on groceries, that's only an $8 increase, but its still 8%.  Same thing with gas, if you only pay $50/month for gas, its only $4 but its still about 8%.  No matter how big or small your FIRE budget is, the majority of the things in your budget are affected by inflation.  If your FIRE budget is only $10k per year, obviously the gross increase is going to be less than if your FIRE budget is $100k.  But in percentage terms it doesn't really matter. 

FWIW, in my state property tax is billed in arrears, so I won't be paying the 8% increase until next summer.  But I'll still be paying it.

[2sk22]

That's all well and good.  But only anecdotal.  On average, people are seeing their expenses increase about 8%.  If you only spend $100 per month on groceries, that's only an $8 increase, but its still 8%.  Same thing with gas, if you only pay $50/month for gas, its only $4 but its still about 8%.  No matter how big or small your FIRE budget is, the majority of the things in your budget are affected by inflation.  If your FIRE budget is only $10k per year, obviously the gross increase is going to be less than if your FIRE budget is $100k.  But in percentage terms it doesn't really matter. 

FWIW, in my state property tax is billed in arrears, so I won't be paying the 8% increase until next summer.  But I'll still be paying it.

Indeed - I was talking about my specific situation so it is an anecdote by definition :-) I just wanted to point out that there is a lot of variance around the average. I have a hunch that many retirees on this forum are more like me - lying on the lower end of the scale.

[wageslave23]

That's all well and good.  But only anecdotal.  On average, people are seeing their expenses increase about 8%.  If you only spend $100 per month on groceries, that's only an $8 increase, but its still 8%.  Same thing with gas, if you only pay $50/month for gas, its only $4 but its still about 8%.  No matter how big or small your FIRE budget is, the majority of the things in your budget are affected by inflation.  If your FIRE budget is only $10k per year, obviously the gross increase is going to be less than if your FIRE budget is $100k.  But in percentage terms it doesn't really matter. 

FWIW, in my state property tax is billed in arrears, so I won't be paying the 8% increase until next summer.  But I'll still be paying it.

Indeed - I was talking about my specific situation so it is an anecdote by definition :-) I just wanted to point out that there is a lot of variance around the average. I have a hunch that many retirees on this forum are more like me - lying on the lower end of the scale.

I guess I just don't believe people when they say that inflation doesn't really affect their budgets.  The only expense item that I can think of that wouldn't be affected by inflation is a fixed rate mortgage.

[vand]

History tends to show that once the withdrawal rate of the ongoing portfolio starts to exceed the long term average return of the stock market then failure almost always arrives within the next 5-10 years.

@maizefolk or others, any response/insight/commentary on this statement?

TBF it's probably an exaggeration on my part, but it does raise the failure rate over the next 10 years to what most people would consider unacceptable.

[FIRE 20/20]

I guess I just don't believe people when they say that inflation doesn't really affect their budgets.  The only expense item that I can think of that wouldn't be affected by inflation is a fixed rate mortgage.

I'm in agreement here, most of the time and for the average household, something around the average inflation level will impact people's budgets.  However, I think @2sk22 is also correct that many people (and I think they're right that this is more common among FIREes) will tend to be on the low end.  My situation is totally different from the example @2sk22 gave, but the result is similar.  I have seen notable increases specifically in utilities, food, insurance, and property taxes.  However, overall my spending in year 3 of FIRE was similar to year 1 because we've made up for it in other areas.  For instance, if my grocery bill has been up $50 / month, my restaurant bill has actually been about $80 below expected.  Utility bills per unit have gone up, but we've made some easy and free efficiency improvements that we might not have otherwise done, meaning our overall utility bill has stayed the same.  I will probably keep my cars a few years longer due to the increase in both used and new car prices, so that will likely offset that inflation factor.  We haven't offset our insurance and property tax increases elsewhere directly, but we have spent vastly less than expected on travel and home maintenance so the overall expenditures have stayed the same or dropped slightly. 

So yes, inflation has impacted per unit costs for us in many areas (inflation really is rising), but our overall expenses are the same as 3 years ago so my personal overall increase in spending has been about 0%.  Both increased inflation and no individual impact can be true at the same time. 

[bryan995]

I guess I just don't believe people when they say that inflation doesn't really affect their budgets.  The only expense item that I can think of that wouldn't be affected by inflation is a fixed rate mortgage.

I'm in agreement here, most of the time and for the average household, something around the average inflation level will impact people's budgets.  However, I think @2sk22 is also correct that many people (and I think they're right that this is more common among FIREes) will tend to be on the low end.  My situation is totally different from the example @2sk22 gave, but the result is similar.  I have seen notable increases specifically in utilities, food, insurance, and property taxes.  However, overall my spending in year 3 of FIRE was similar to year 1 because we've made up for it in other areas.  For instance, if my grocery bill has been up $50 / month, my restaurant bill has actually been about $80 below expected.  Utility bills per unit have gone up, but we've made some easy and free efficiency improvements that we might not have otherwise done, meaning our overall utility bill has stayed the same.  I will probably keep my cars a few years longer due to the increase in both used and new car prices, so that will likely offset that inflation factor.  We haven't offset our insurance and property tax increases elsewhere directly, but we have spent vastly less than expected on travel and home maintenance so the overall expenditures have stayed the same or dropped slightly. 

So yes, inflation has impacted per unit costs for us in many areas (inflation really is rising), but our overall expenses are the same as 3 years ago so my personal overall increase in spending has been about 0%.  Both increased inflation and no individual impact can be true at the same time.

Exactly.  Also seems strange that many here are celebrating their victory over inflation by consuming less or cutting quality of items or frequency of 'entertainment/etc'.  That's not beating inflation ... Inflation is beating you. 

The only way to win here is to either get a >10% income increase (without adding 10% more productivity), or via having fixed costs, like a fixed cost mortgage, or a fixed cost solar loan (to combat rising utility costs).
But if you are now FIRE as of 21/22, the income increase piece is doing to be quite difficult....

[FIRE 20/20]

Exactly.  Also seems strange that many here are celebrating their victory over inflation by consuming less or cutting quality of items or frequency of 'entertainment/etc'.  That's not beating inflation ... Inflation is beating you. 

The only way to win here is to either get a >10% income increase (without adding 10% more productivity), or via having fixed costs, like a fixed cost mortgage, or a fixed cost solar loan (to combat rising utility costs).
But if you are now FIRE as of 21/22, the income increase piece is doing to be quite difficult....

I couldn't disagree with that more.  First, the 4% rule accounts for inflation.  One year of bad returns and inflation is very weakly correlated with SWR.  3-5 years, sure, but not one.  Second, in the vast majority of cases the 4% rule and the other approaches people here use (like real estate) to FIRE are pessimistic by nature.  It's still much more likely that someone who FIREd in 21-22 will in the long run have way more money than they need than too little.  Third, everyone planning to FIRE should be well aware of the risks.  Blindly following the 4% rule results in failure some small percentage of times in about 25+ years.  So essentially nobody here blindly follows the 4% rule.  I read all of the cohort threads, and you can count on one hand the people who take an aggressive approach to FIRE withdrawals.  Almost everyone says something like, "I'm planning a 3.5% withdrawal rate and ignoring the $2k / month in Social Security I'll get in 20 years.  I also have fat to trim in the budget, and if it really gets bad I could increase my etsy business from $2k / year to $8k / year".  For those typical FIREes this inflation bump is just nothing at all to worry about. 

But if spending an hour doing weatherstripping and an afternoon planting low-water plants is being beaten by inflation, then ok. 

[Cassie]

Bryan, I totally agree with you and inflation is killing me being on a fixed income. I have cut just about all discretionary spending to keep expenses within my budget.

[Villanelle]

That's all well and good.  But only anecdotal.  On average, people are seeing their expenses increase about 8%.  If you only spend $100 per month on groceries, that's only an $8 increase, but its still 8%.  Same thing with gas, if you only pay $50/month for gas, its only $4 but its still about 8%.  No matter how big or small your FIRE budget is, the majority of the things in your budget are affected by inflation.  If your FIRE budget is only $10k per year, obviously the gross increase is going to be less than if your FIRE budget is $100k.  But in percentage terms it doesn't really matter. 

FWIW, in my state property tax is billed in arrears, so I won't be paying the 8% increase until next summer.  But I'll still be paying it.

Indeed - I was talking about my specific situation so it is an anecdote by definition :-) I just wanted to point out that there is a lot of variance around the average. I have a hunch that many retirees on this forum are more like me - lying on the lower end of the scale.

Since you said you track carefully, what is the inflation-related increase you are seeing?

I don't understand the logic that because someone doesn't spend a lot, they aren't as affected by inflation.  Whether you spent $10/mo on gas last year or $500/mo, if gas goes up 15%, you see a 15 % increase in that line item.  If your grocery items are up $10%, that's a 10% increase, whether it's on $250/mo or $1500/mo. 

If your costs are up 8% and inflation is 8%, you aren't on the lower end of the inflation scale.  Maybe you are on the lower end of the spending scale, but that's true regardless of inflation.  And I'd argue that someone with a lower spend is potentially more prone to being harmed by inflation, because they have less fat to trim.  If you are already eating meatless, you can't bring down your grocery budget to counteract some of the inflation in meat by eating meatless 3x/week.  If you already drive very little, you can't react to increasing gas prices by carpooling or cutting out longer trips. 

[2Birds1Stone]

For most Mustachians, our basket of goods is probably up more than the official CPI numbers, especially those of us who are not home owners. DW and I have seen a roughly 25% increase in our COL for 2022 YTD vs. the same area in 2019. Energy, rent, food are the main drivers.

[nereo]

Thankfully, the CPI data is publicly available, so one can see which categories they are trailing, exceeding, or matching inflation. It's also fairly easy to understand how your own categories relate to the CPI, provided you track your own spending with sufficient accuracy

Latest CPI
https://www.bls.gov/news.release/cpi.t01.htm

[Arbitrage]

I'm sure we're getting hit by inflation of all sorts, but many expenses are too irregular to specifically point to.  I'm sure all of our property tax, medical/homeowner/auto insurance, medical billing rates, college room & board (ten years from now), car prices (hopefully 5+ years from now), assisted living prices (hopefully never...) and so on are all increasing.  Just because I haven't paid the increase yet doesn't mean I'm going to pretend that I'm not being affected by all of those price increases. 

Food is the one we've noticed the most, since we're always buying that, as those prices climb inexorably. 

[ATtiny85]

Bryan, I totally agree with you and inflation is killing me being on a fixed income. I have cut just about all discretionary spending to keep expenses within my budget.

I’m even worse than fixed income, I’m still employed at a mega corp. You'll get COLA'd, right? No way in hell I get anything remotely close to that next April when “raises” are given. 2-3% like always. Yes, I could leave, but you could get a job, so that’s no counter.

But yeah, rough if you have yanked your levers.

[vand]

For most Mustachians, our basket of goods is probably up more than the official CPI numbers, especially those of us who are not home owners. DW and I have seen a roughly 25% increase in our COL for 2022 YTD vs. the same area in 2019. Energy, rent, food are the main drivers.

Yes, I suspect that many MMMs have already stripped their spending down to fairly basic neccessities, and as such are probably more vulnerable to raw price increases than many people who have more scope for cutting back and optimizing.

OTOH if you are already achieving a very high saving rate then you are easily able to absorb a big increase in the cost of living and barely have it impact your journey towards FI. Someone with a 70% saving rate can see their real cost of living rise by 20% and still take it all in their stride as their saving rate falls from 70% down to 63% - hardly a cause to panic.

[2Birds1Stone]

For most Mustachians, our basket of goods is probably up more than the official CPI numbers, especially those of us who are not home owners. DW and I have seen a roughly 25% increase in our COL for 2022 YTD vs. the same area in 2019. Energy, rent, food are the main drivers.

Yes, I suspect that many MMMs have already stripped their spending down to fairly basic neccessities, and as such are probably more vulnerable to raw price increases than many people who have more scope for cutting back and optimizing.

OTOH if you are already achieving a very high saving rate then you are easily able to absorb a big increase in the cost of living and barely have it impact your journey towards FI. Someone with a 70% saving rate can see their real cost of living rise by 20% and still take it all in their stride as their saving rate falls from 70% down to 63% - hardly a cause to panic.

While from a purely mathematical sense the first point may be true, these same people are also much more likely to know how to leverage social or other capital to achieve same quality of life as a non-mustachian who solves everything by throwing money at it. They are also much more likely to benefit from even the tiniest bit of income, even a hundred bucks a week can replace a nice chunk of investment returns or lack there of and I bet most here can generate this kind of income with bare minimum effort.

If we can more or less agree that from an economic standpoint; QOL ~= consumption * skill, then there might be no better group of people to maximize the right end of that equation. This won't be all or probably even most people on this forum, since  the followers have evolved quite a bit over the past decade, people that truly embrace the MMM values of community, consciousness of waste/consumption, and maximizing for happiness without without trying to buy our way to it are probably going to find more fulfilment and satisfaction in their daily lives, vs. those who get to 4% with the plan on never having to flex a creative muscle or trade value for $ for their rest of their lives.