do you calculate a buffer? if so how much?

[MikeO]

do you calculate a buffer?  if so how much?

for example, I figure I'll need 30k per year to pay for basic living, then another 10-20k for entertainment/travel etc.  so that's $50k per year, which tells me in basic terms I need no less than 1.25 Million to FIRE ($1.25 million x 4% = $50k). 

but knowing how life throws curveballs and more, just having enough, in my opinion, is dangerous and a recipe for failure.  So in my mind I think we must plan for the unexpected by included a "buffer"  but how much?

I'm thinking another $20k in income from the investments if it's needed.  if it's not needed then I wouldn't take it out, it would stay in there to grow.

that means $70k per year potential income or $1,750,000 total invested.  or should I consider more? how much is enough?  maybe $2Mil? where does it end? LOL

I bounce around at figuring out what "enough" is.  so what do you use?

[Villanelle]

do you calculate a buffer?  if so how much?

for example, I figure I'll need 30k per year to pay for basic living, then another 10-20k for entertainment/travel etc.  so that's $50k per year, which tells me in basic terms I need no less than 1.25 Million to FIRE ($1.25 million x 4% = $50k). 

but knowing how life throws curveballs and more, just having enough, in my opinion, is dangerous and a recipe for failure.  So in my mind I think we must plan for the unexpected by included a "buffer"  but how much?

I'm thinking another $20k in income from the investments if it's needed.  if it's not needed then I wouldn't take it out, it would stay in there to grow.

that means $70k per year potential income or $1,750,000 total invested.  or should I consider more? how much is enough?  maybe $2Mil? where does it end? LOL

I bounce around at figuring out what "enough" is.  so what do you use?

Well $15,000 in travel and entertainment can also fairly easily become a buffer.   And that's how I look at our numbers.  $x is for the lifestyle we want to be able to leave.  If the market sucks or something comes up, we can travel a bit less or closer to home, cut back on the groceries a bit. give up one night of eating out or movie, etc. 

[Aggie1999]

What previous poster said. Your $10k - $20k in entertainment/travel is your buffer. A more relevant question is should you go with a 4% withdraw rate or a more conservative 3%.

[MikeO]

Great point. 

If I used my "entertainment budget" as my buffer then I would think a good idea would be to use a lower withdrawal rate as my "buffer"   I'm pessimistic and expect the worst so i want to be prepared.  Once I quit working I never want to HAVE TO go back.  I could see doing jobs or things that earn money that I enjoy but the whole point is to be on my own without the need for the JOB

 I wasn't sure how others are thinking about this.  I was originally thinking age 55 was my earliest but the more I consider I realize that I could actually do it by 50 (maybe).

[Bloop Bloop]

My current expenses are $45k a year but I assume with kids it'll be about $70k a year. So I've used the latter figure to calculate my SWR. I've also used a conservative 3% rule rather than 4%. That's my buffer. Any "excess" that accrues from year to year will probably be used by me to spend on frivolous things as a little gift to myself.

As a further buffer, I haven't factored my partner's income to any of this - she says she has no intention of FIREing so I'm not sure where that money will go - I guess we can figure it out. If I factored in her income we could fire immediately but I don't think that would be fair.

[MonkeyJenga]

Similarly to spartana, one of my safety margins is the willingness to work in the future if necessary. I also cut my baseline spending and have a low WR (around 2%), to prepare for rent increases and healthcare costs. I'm young and have very little discretionary spending, so a lower WR seems prudent. I can't just cut 10k from my travel budget, I would need to move to a different city to get lower rent.

Basic expenses are around 15k, with maybe $3k of optional spending that could be cut in an economic downturn without moving cities.

[MonkeyJenga]

well I didnt actually say I'd "work". That stuff will kill you ;-). But yes I'm willing to do some things like get a roommate or downsize the housing or move to a LCOL area if a very long term downturn happened. Since I survived the great recession as a FIREee without having to really do anything different but cut some discretionary spending,  I imagine Ill do OK in most normal situations.

Hah! I can't imagine going back to a job, honestly, even though I am planning on doing so next year. It's gonna be miserable.

[TomTX]

What previous poster said. Your $10k - $20k in entertainment/travel is your buffer. A more relevant question is should you go with a 4% withdraw rate or a more conservative 3%.

Unless you are in the "saving more than 80% of my income every year" club  or working because you like it... that's insane. Years of guaranteed extra work for no reason. His buffer is MORE than enough.

[Omy]

At ages 52 and 57, we have a ridiculous amount of buffer. We have two rentals that cover our basic expenses. 1-2% SWR provides a very comfy retirement - and that's not including social security in a few years. We could have easily FIRE'd 5 years ago, but I was too chicken about health care costs. Don't be OMY.

[Metalcat]

We have so many buffers, it's ridiculous, but we both love our work.

Don't forget though, these aren't static numbers.
Any buffer you have that isn't spent, just keeps snowballing into a bigger and bigger buffer over time.

So even if you underspend your buffered budget by only 4K per year, that amounts to you have an extra 100K sitting around compounding for years.

[ontheway2]

I am also planning a large enough travel budget and extras that I consider that my buffer along with a 3.5-3.8% withdrawal. If ever needed, I could easily reduce my expenses  enough to be reasonably ok. I'm still a long ways out though so who knows what could happen

[Greystache]

Our total budget is $60K/yr and our total fixed expenses are about half that much. Our present WR is 3.5%. We could reduce our budget by $17K just by eliminating travel, golf and charitable contributions. So yes we have some slack built in to our budget. Also, we consider our home equity as our last line of defense if everything goes seriously south. If we needed to, we could sell our house for about $650K and downsize. 

[Bateaux]

I've moved the target out a few times.  First target was 1.5M at a 4% withdrawal or 60K annually.   At the time I hated my job was was ready to quit.  I was lucky enough to move to a better job position with equal pay within my company.  I met the 1.5M dollar goal but didn't FIRE.   Being less frustrated at work, I moved the goal to 2M and a 3% withdrawal rate for greater safety.  Once again I met the 2M dollar goal but didn't FIRE.  With the uncertainty of the future of the ACA and thus health care expenses going forward, I moved the upper goal to 2.5 million but retain the same 60K annually withdrawal amount so the bottom goal can remain 2M.  Since 60K is the limit our MAGI can be and still get the subsidies offered within the ACA.  We're at 2.2M now and are in the final FIRE stretch.  Hopefully around January 2021 well be done.  We'll finish out 2020 and then I'll have 7 weeks of paid vacation to use in 2021.  Since we need to keep income low for the ACA, after those 7 weeks we'll be done. 

[erutio]

I've moved the target out a few times.  First target was 1.5M at a 4% withdrawal or 60K annually.   At the time I hated my job was was ready to quit.  I was lucky enough to move to a better job position with equal pay within my company.  I met the 1.5M dollar goal but didn't FIRE.   Being less frustrated at work, I moved the goal to 2M and a 3% withdrawal rate for greater safety.  Once again I met the 2M dollar goal but didn't FIRE.  With the uncertainty of the future of the ACA and thus health care expenses going forward, I moved the upper goal to 2.5 million but retain the same 60K annually withdrawal amount so the bottom goal can remain 2M.  Since 60K is the limit our MAGI can be and still get the subsidies offered within the ACA.  We're at 2.2M now and are in the final FIRE stretch.  Hopefully around January 2021 well be done.  We'll finish out 2020 and then I'll have 7 weeks of paid vacation to use in 2021.  Since we need to keep income low for the ACA, after those 7 weeks we'll be done.

This is OMY to the extreeeeme, my friend.  You need to retire man, you're dropping to a 2.4% wr?

[Bateaux]

I've moved the target out a few times.  First target was 1.5M at a 4% withdrawal or 60K annually.   At the time I hated my job was was ready to quit.  I was lucky enough to move to a better job position with equal pay within my company.  I met the 1.5M dollar goal but didn't FIRE.   Being less frustrated at work, I moved the goal to 2M and a 3% withdrawal rate for greater safety.  Once again I met the 2M dollar goal but didn't FIRE.  With the uncertainty of the future of the ACA and thus health care expenses going forward, I moved the upper goal to 2.5 million but retain the same 60K annually withdrawal amount so the bottom goal can remain 2M.  Since 60K is the limit our MAGI can be and still get the subsidies offered within the ACA.  We're at 2.2M now and are in the final FIRE stretch.  Hopefully around January 2021 well be done.  We'll finish out 2020 and then I'll have 7 weeks of paid vacation to use in 2021.  Since we need to keep income low for the ACA, after those 7 weeks we'll be done.

This is OMY to the extreeeeme, my friend.  You need to retire man, you're dropping to a 2.4% wr?

We're more focused now.  The 2M is a good floor for us, a 20 or 25 percent recession for a year or two doesn't threaten us as much as it would have a few years ago.  We're 14 months out, so hopefully it's OLY  (one last year).

[DaMa]

I have a $10k per year buffer that I use for travel and other extras.  I also have a $100k buffer for healthcare.

[Monkey Uncle]

While the market is still at or near all time highs, I run my historical simulations with a 100% success rate.  Then I cut about 15% off of that max spending amount and use the resulting figure as my normal annual spending allowance.  Why 15%?  Mostly a SWAG, but it happens to be about the same as a typical engineering project contingency budget.  If we had to, we could cut out travel and other extras and reduce expenditures by another 8 - 10 grand.  The most likely scenario is that this will lead to a snowballing buffer that one day will reach several hundred thousand dollars, which will then be either passed on as an inheritance, or spent for long term care.  But if SHTF before then, the buffer can be used to cover whatever expenses are caused by the shit.

[Bloop Bloop]

Interesting to see so many people with big buffers. I think that a buffer can be a useful psychological safety mechanism, and there is some inherent utility in that. I think also for those of us who tend to be numbers-focussed, allowing yourself to "use up" some of your buffer over time can force you to do things that you might normally not do and that might be enjoyable. E.g., if your withdrawal amount per year is $70k and you are on track to only spend $55k, you might decide to splash $5k on a holiday guilt-free and that might be really enjoyable - and you could do that most years!

Of course, you have to balance that out with the longer time required to achieve FIRE in the first place.

[Dicey]

The best buffer of all is practically free: Start Early. Yup, I'm surprised it doesn't get even more traction on FIRE sites. It's the reason I consistently encourage people to do the math before they start prepaying the mortgage. There are lots of examples where people who started early, and even early-ish, who are godsmacked by how rich they become on investment growth alone. Some examples might be @arebelspy, @Exflyboy, and this thread's very own @Bateaux and @spartana.

BTW, please allow me to clarify that I have nothing against paying off mortgages, but in the US, the lump sum strategy after reaching FI makes much more sense. I know it's counterintuitive, but so is the whole FIRE concept.

[Exflyboy]

Agreed, I'm pretty gobsmacked!

I would LOVE to do our international travel in business class. There is no earthly reason not to.. Except.. Its just such a ginourmous waste of money and the buyers remorse about 30 seconds after I bought the tickets would kill me!

One day (maybe after the next recession) I might just have to force myself to do it.

[habanero]

When you are very young it's hard to know what actual expenses are 40 years into the future and what actual cashflow will be in between now and then because not much of life has happened yet. As you get older you have a better overview and can also clearly see some major decisions and judge those in a fairly rational matter - like downsizing, moving, contracting work and whatever. I get that future health expenses are a major source of uncertainty in the US, but apart from that, most costs should be able to estimate with a reasonable ballpark.

As long as you consistently spend significantly less than you make and put the surplus somwhere productive it will normally work out fine in the end. How long it's gonna take is harder to say.

And not only bad things can happen. Good ones can as well.

[flyingaway]

do you calculate a buffer?  if so how much?

for example, I figure I'll need 30k per year to pay for basic living, then another 10-20k for entertainment/travel etc.  so that's $50k per year, which tells me in basic terms I need no less than 1.25 Million to FIRE ($1.25 million x 4% = $50k). 

but knowing how life throws curveballs and more, just having enough, in my opinion, is dangerous and a recipe for failure.  So in my mind I think we must plan for the unexpected by included a "buffer"  but how much?

I'm thinking another $20k in income from the investments if it's needed.  if it's not needed then I wouldn't take it out, it would stay in there to grow.

that means $70k per year potential income or $1,750,000 total invested.  or should I consider more? how much is enough?  maybe $2Mil? where does it end? LOL

I bounce around at figuring out what "enough" is.  so what do you use?

I think your $20k buffer for a $50k budget is very solid. Social security can be considered as another buffer.
If you have your future health insurance figured out, you will be good.

In any case, it is a trade off between your job and your target.

[TomTX]

do you calculate a buffer?  if so how much?

for example, I figure I'll need 30k per year to pay for basic living, then another 10-20k for entertainment/travel etc.  so that's $50k per year, which tells me in basic terms I need no less than 1.25 Million to FIRE ($1.25 million x 4% = $50k). 

but knowing how life throws curveballs and more, just having enough, in my opinion, is dangerous and a recipe for failure.  So in my mind I think we must plan for the unexpected by included a "buffer"  but how much?

I'm thinking another $20k in income from the investments if it's needed.  if it's not needed then I wouldn't take it out, it would stay in there to grow.

that means $70k per year potential income or $1,750,000 total invested.  or should I consider more? how much is enough?  maybe $2Mil? where does it end? LOL

I bounce around at figuring out what "enough" is.  so what do you use?

I think your $20k buffer for a $50k budget is very solid. Social security can be considered as another buffer.
If you have your future health insurance figured out, you will be good.

In any case, it is a trade off between your job and your target.

It's an enormous buffer. More than double what you need for a super-super safe 4% WR. Which was already 90-95% safe.

More buffer = more years working.

If you love working at the high-paying job, great!

If not, it's madness.

[Laura33]

I do 1-3 of @spartana's buffer.  My job is currently of the firehose-of-cash variety, and once I leave it will be very difficult to get back in, and I don't want to be in a position of having to work again.  I have also done a couple of extra things:

1.  Because we are late to the retire-before-65 party, we find ourselves in a position where many of the unknowns are knowns or mostly-knowns.  Kids will be in or through college, so those expenses will be known and covered.  Medical is an issue, but we will have only @7-10 years before becoming eligible for Medicare.  Because we have worked so long, we have good SS payouts coming, plus a pension we never expected DH to qualify for, which are great financial backstops.  And just through luck, our mortgage payoff date aligns with our anticipated retirement date.  So just through coincidence, we will have lower expenses as soon as we retire, and a guaranteed income only a few years down the road.  We will also do what we can to reduce pending unknowns before we cut the cord, i.e., make sure to cover any pending big expenses (cars, home repairs) while we still have high cash flow. 

2.  All of our plans anticipate dying with some money -- we project until 95-100, and always have some money left.

This is way more conservative than most folks here would choose, and that's fine; I have a higher-than-normal need for security.  But we are also in good jobs that we enjoy, and DH has zero interest in retiring until he sees this one project through in @5-8 years, so I don't really feel like I'm giving up anything meaningful to get that extra security.

[MikeO]

I am like Laura33's situation -  a little - I am in a "firehose-of-cash" type job where I am investing about $85k per year. it's also the kind of job that if I leave I won't be able to get this back at this location, ever.    I love what I do but don't want to work forever, I'd quit tomorrow if I had the money.  no pensions, SS is proposed to be good, but the year I'm eligible is the year they say it'll be insolvent...will it be? who knows but I'm not counting on it.  what ever I get in SS benefits I consider bonus, I never count that money in my calculations.

I like the idea of using a 3% WR to induce a buffer, in my math it works out to be about the same as my 20K buffer so apples and oranges either way it'll work.  Medical is my only real concern once FIRE hits, we'll cross that bridge when we come to it I guess.  Worst case scenario is my wife quits and I work as little as possible to keep my medical with my employer. 

right now I work a lot of overtime, last year was over 700 hours of it!  and I work 7 on 7 off.  with three weeks of paid vacation (1 week of vacation means 3 weeks off) so i've got the "retired on active duty" kind of job already.   If I hated my job this would be a different story but I like it so that's a huge benefit.  it does require annual physicals and is just one serious medical issues away from a total end so being financially independent is key.  (even a car accident with serious injuries could end my career)

Starting early is absolutely the key, but there's no turning the clock back so I have to work with what I've got.  I try to tell everyone I know, including my kids how important it is to save early.  If had only known what I know now we wouldn't even be having this discussion.  I'd be drinking Margaritas on an island somewhere!  LOL

[Buffaloski Boris]

Not a big fan of a buffer. The article on ERN about why he doesn’t have an emergency fund was persuasive. I’d expand that same logic to having a buffer.  To the extent I’m concerned about SoRR, I just plan on a lower WR anyway.

Interesting observation I’ve read about: if you chart retirement expenditures by age it looks like a smile. Decreasing expenditures as you age until toward the end when care expenses go up.

https://earlyretirementnow.com/2016/05/05/emergency-fund/

[the_fixer]

No planned buffer shooting for a 4% WR but we have plenty of fat to cut   since our FIRE plan is based off how we live now and we spend a ton on vacations / entertainment.

Basically cut back as much as we can to make it through a down market, ride bikes locally and camp for fun instead of fancy pants vacations. Maybe see if we can pick up a little extra money on the side or tap into the emergency fund if things get really bad (e fund is not used towards my fire calculations I just pretend it doesn't exist)

Rent a room basically remaining flexible

Also I have never really used social security in my calculations so if it is still around when we hit 62 that will just be icing on the cake but we hit that about the time they are supposed to run out of money.


Sent from my Pixel 2 XL using Tapatalk

[Monkey Uncle]

I am like Laura33's situation -  a little - I am in a "firehose-of-cash" type job where I am investing about $85k per year. it's also the kind of job that if I leave I won't be able to get this back at this location, ever.    I love what I do but don't want to work forever, I'd quit tomorrow if I had the money.  no pensions, SS is proposed to be good, but the year I'm eligible is the year they say it'll be insolvent...will it be? who knows but I'm not counting on it.  what ever I get in SS benefits I consider bonus, I never count that money in my calculations.

SS will not be insolvent.  If absolutely nothing is done, it will still be able to pay about 3/4 of the promised benefit.  If you are totally ignoring your SS benefit at your age, you are building in a huge buffer.

[Exflyboy]

I have no issue with SS not being there.. It will in some form or another.

My issue is that if one is using the ACA prior to 65 and taking a significant subsidy (in our case the Bronze plan premiums are essentially free), then you hit Medicare age.

In that case your medical costs will go up significantly if you want to protect yourself against the 20% unlimited coinsurance payment in Part B.

Now I'm not an expert in Medicare but the cost of insurance policies to cover the 20% looked frighteningly large in doing a little Googling for premium rates.

Seems to me that my SS payment (not large because I am subject to WEP.. about $1200/m) would be about all used up in a medigap type policy.

Am I missing something?

Of course if one is not relying on the ACA subsidy anyway in one's WR then it doesn't matter..:)

[Cassie]

My sister in Chicago is paying 600/month total for part b and her supplements.

[Exflyboy]

My sister in Chicago is paying 600/month total for part b and her supplements.

So $600/m for a single person?

Sounds about right