FIRE always involves RISK so just accept it

[OldPro]

RISK is an acronym for 'Really, I Should've Known.'  I just made that up but I think it works well when it comes to thinking about FIRE and the risks people foresee.

I FIREd 26 years ago and when I read comments here by people who have not yet retired or only recently, I find it understandable but naive when people write that their back of an envelope math; spreadsheet; financial planner; etc. tells them that they can RE and have enough money to last till they are age 90 or whatever.

Think about it.  How can anyone or anything 'tell' you the future?  Anything beyond today is crystal ball time.  In my 26 years of retirement, things have  happened that I could never have predicted and certainly not planned for.  In my case, things have generally work out well but there has never been any assurance of that nor is there any for tomorrow.

Many people considering FIREing are risk adverse and so turn to some kind of calculations etc. to try and assure themselves everything will be OK.  They're looking to avoid RISK(Really, I Should've Known).  Well, if you can fool yourself into believing that assurance, good for you.  When I took the leap, I didn't think that way.  I told myself I had enough money to live on for quite a few years no matter what(ie. 10-15?) and beyond that, what would happen would happen.  But as a fairly positive person, I figured whatever happened, I would muddle through somehow and do what I had to do.

If you are trying to gain assurance from a spreadsheet etc. what you are suggesting is that you want to be able to predict the future.  Some may say well 'all things being equal' it is a forecast and we have to start somewhere.  That's fine as far as it goes but I would say you might also want to consider 'expect the unexpected.'  All things are never equal over time.

There is never a point at which you will KNOW you have enough capital or income.  There is never a point at which you will KNOW the time you have left will run out before the money.  There is never a point at which you will know your health won't drain your savings.  etc. etc.  There are countless things you can't know beforehand that can affect you negatively or positively. 

Deciding to RE is an emotional decision, not a logical decision.  You simply cannot KNOW enough about the future to make a logical decision.  You just have to take a 'leap of faith' and see what happens.  Now I'm not saying don't do any math and quite your job with $50 in the bank.  But I am saying that if you are 'sitting on the fence' and trying to calculate your way to an answer, you may never get there.  FIRE means you have to expect RISK and accept that.  If you do RE, I guarantee you will find yourself saying one day, 'Really, I Should've Known.  Of course, you couldn't know and guess what, you'll deal with whatever made you say it.

I like the analogy of the trapeze.  It goes like this.  You are swinging on a trapeze.  There is another trapeze swinging in counterpoint and you look at it and think, 'I might like swinging on that trapeze better but I don't know.'  The problem is, the two never actually come close enough together that you can grab the new one without letting go of the old one.  Got the picture?  To grab on to the new trapeze you have to literally make a 'leap of faith' and that's pretty scary.  No one can make you take that leap until you see the potential reward as worth the risk.

Logic can only tell you that you are safe hanging on to the trapeze you are now on.  Logic cannot tell you that taking the leap is a good idea (unless you can fool yourself into believing 'I have enough to last till I'm 90').  Only emotion can get you to take that leap.  Or you can sit on the fence calculating and discover what 'paralysis by analysis' is all about.

[ender]

Hindsight is 20-20.

[Bateaux]

I'm with ya OLD PRO  I had my date set fir March 2018 for a while now.   If the right conditions unfolds I am jumping to March 2017.  Should still be able to use 3% withdrawl rate and live well. 

[Sayonara925]

In my 26 years of retirement, things have  happened that I could never have predicted and certainly not planned for.

Would be interested to hear examples.  BTW, I took the leap you speak of.

[Bateaux]

I'd love to hear more about it!

[moneymaker100]

Great topic, thank you

[spokey doke]

I'm not sure  there is a response to uncertainty that is fitting for everyone (except perhaps, some form of Buddhism).

[OldPro]

Agree spokey, there is no universal response to uncetainty.  There is however always the ability to make a decision.  Whether that decision is to FIRE now, postpone, forget the whole idea or bury your head in the sand, each is a decision, there is no such thing as no decision.  Once you ask yourself the question, 'should I', a decision does get made.

Years ago, someone told me you can be the architect of change or the victim of change.  What is inevitable is that change will occur.  You may not always be the originator of the changes obviously but what you always have is control over how you respond.  So while there is no universal response spokey, everyone has control over their own response.

[DoubleDown]

Sure, FIRE involves risk, but so does life.

I agree with the OP, to a point, that we cannot predict the future with 100% accuracy, and so models and forecasts can only take us so far. But on the other end of the spectrum, "winging it" is pretty foolhardy. In between, there are all kinds of possibilities.

I would not discount the insights that math and spreadsheets and analysis (such as the 4% SWR) can give us. We can't make informed or reasonable decisions without SOME kind of information and models. Those tools help us determine if we're just making things up as we go, or if we have some reasonable basis to believe our FIRE plans will work out (while understanding that there is inherent risk in everything we do, FIRE or no FIRE).

OldPro, in another thread you mentioned living on a "rule of 3's" which, as I understood it, meant spending one-third on living expenses, one-third on discretionary expenses, and one-third being saved (even in retirement). I might argue that approach is unnecessarily risk-averse -- that is, if you have saved enough to have 33% of your income unneeded even beyond discretionary spending, you have overachieved by a wide margin -- i.e., you've greatly increased the risk of working too long or dying at your desk.

[Gone Fishing]

Good points but all in all I think this crowd is pretty good at pulling the trigger.  Several people have announced recently.  I don't think I can recall anyone at 50x+ expenses that is still working, although a few ended up that way after FIRE.   

[OldPro]

DoubleDown, I understand your point but I think you are missing my point and maybe I haven't made it clear enough.

You can figure out today how much income you need in retirement, for the next few years with a fairly high probability of getting it right.  It just can't account for getting hit by a bus or any other major change in circumstances.  But you can't really expect to predict beyond the first few years.  There are just too many variables that can change and indeed some will change.  You cannot make as you say an 'informed decision' beyond a few years.   

So that's where the 1/3 rule comes into play.  I'm not saying, 'just go for it and wing it'.  I'm saying allow for MAJOR changes.  When I first retired I could and in fact did live on $12k a year.  Less than my 2/3 allowable.  IF some major change could not be dealt with within my 3/3 of income during the first 5 years or so, then I would probably have been in serious trouble somehow.  But so would anyone.  That's the risk I took to RE.

But as the capital continues to build up over time, so has my income and so my risk has not increased of having a serious problem tomorrow.  I am managing it as best I can.  I am not counting on nothing changing which is what anyone trying to calculate today what they will need 25 years out is doing.  See what I'm trying to say?

You can calculate all you want but all you can hope to predict is the next few years.  That being the case, the question then becomes how are you going to try at least to cover the unforseen which will happen beyond those first few years.  My answer is to keep saving 1/3 of income.

Let me give you a good example of what goes wrong when people 'calculate' based on today and life throws them a financial curveball.  When the recession hit in 08/09, a great many people who had recently retired and 'calculated' based on a given return on their stock investments, an ROI of whatever, suddenly saw their income drop considerably.  Their expenses started exceeding their income and many had to go back to work.  It isn't hard to find examples of just that on some forums.  Usually, complaining about the stock performance and how unfair life is instead of complaining about their own mistake of living on too close to their projected income and not allowing enough of a cushion to see them through real ups and downs.

Now compare that to my 'Rule of 3s'.  If you can live on 1/3 if you HAVE to when you start RE, then probably live on 2/3 most of the time and could even deal with an increase in expenses of 2/3 if necessary, you are in a whole different position.  No one following that rule would have had to go back to work in the example above.  It isn't 'unncessarily risk-adverse' as you say, it is simple common sense.

Our current income is $65k.  If necessary we could live on $20-25k today.  We don't though, we try to manage our expenses to that level but also spend discretionary money of nearly as much again and still have money to save.  If we had a major financial impact happen we can handle it. 

The problem lies in people THINKING they can predict 4% ROI, adjust for inflation and say that is what the income they will need is going to be forevermore.  Relying on those calculations is the problem and when someone tells them 'you have enough to last till age 90', that is exactly what they are doing, relying on those calculations.  That's what I find naive and it is causing people to make assumptions that they are OK, when they are not.  Those people who had to go back to work, did the calculations and thought they were OK.  They were told they were OK based on the calculations.  They did not allow for the unknown.  I'm saying you have to allow for it because it WILL happen.

So I actually think it's pretty easy to answer, 'do I have enough'.  The answer is how much do you really need x 3 and I can and I'm sure you can, do that math in your head.  What people can and do do however is OVER-estimate their actual NEEDS in terms of expenses.  For example, cable tv is NOT a need, it is a discretionary spend.  You could live life without TV service IF you had to.  Yet most people put it in the 'need' column when calculating what income they need.  If you do that then yes, your comment about 'overachieved' becomes likely.  They will be likely to work longer than necessary.  But I went from zero to FIRE in 7 years, so obviously I was not guilty of that DoubleDown.

So accept RISK and use common sense to plan accordingly.  Do not go looking for some magic calculation that will tell you how much you need every year from now till age 90 as if nothing is going to change that your 4% ROI calculation won't account for.

 

[Eric]

The problem lies in people THINKING they can predict 4% ROI, adjust for inflation and say that is what the income they will need is going to be forevermore.  Relying on those calculations is the problem and when someone tells them 'you have enough to last till age 90', that is exactly what they are doing, relying on those calculations.  That's what I find naive and it is causing people to make assumptions that they are OK, when they are not.  Those people who had to go back to work, did the calculations and thought they were OK.  They were told they were OK based on the calculations.  They did not allow for the unknown.  I'm saying you have to allow for it because it WILL happen.

Except that 80% or 90% or whatever % of the time, you actually can do that.  That's why those models exist.  They show us that the vast majority of the time, the unknown that will happen is that you'll end up with some ridiculous sum of money.  The Trinity Study and the 4% rule are already very conservative.

So I actually think it's pretty easy to answer, 'do I have enough'.  The answer is how much do you really need x 3 and I can and I'm sure you can, do that math in your head.  What people can and do do however is OVER-estimate their actual NEEDS in terms of expenses.  For example, cable tv is NOT a need, it is a discretionary spend.  You could live life without TV service IF you had to.  Yet most people put it in the 'need' column when calculating what income they need.  If you do that then yes, your comment about 'overachieved' becomes likely.  They will be likely to work longer than necessary.  But I went from zero to FIRE in 7 years, so obviously I was not guilty of that DoubleDown.

So accept RISK and use common sense to plan accordingly.  Do not go looking for some magic calculation that will tell you how much you need every year from now till age 90 as if nothing is going to change that your 4% ROI calculation won't account for.

Your point about having a semi-flexible budget is well taken.  I think we all agree on that.  But I believe DoubleDown's point was that it's not necessary to be super conservative with your budget (and 3 times the bare bones amount is super conservative), as it will keep you working a lot longer than necessary on the off chance that things may not work out.  Like you said, it's best to be flexible and go ahead and accept the risk.  Even if that risk involves working some more, the possibility of part time work definitely beats the guarantee of full time work (to me).

People need to have an idea of a starting point for their calculations.  There's nothing wrong with making that a 4% WR.  But I would be working many more years if I followed your prescribed example of tripling my base expenses.  I'd rather accept the risk that the financial models developed and fine tuned by the some of the finest financial minds in the business are a good guide.  As long as you add in flexibility to either spending, earning, or both, you should be all set.

Or maybe you're just vastly underestimating how good most people are with their budgets around here.  I mean, most of us don't even have cable now, let alone would we ever consider it part of a bare bones budget.

[Fastfwd]

There is no guarantee even if firecalc tells you 100% success. That does not mean that those numbers are meaningless; they are actually a great guide and I expect that the surprises I have in retirement will not be related to finance.

We all make decisions based on available data even if only looking at the weather to plan the day. Just planning retirement like we do probably puts us in the top 10% of all future retirees.

[Jon_Snow]

OldPro, I took the same leap you did, at about the same age. I feel like I was able to mitigate risk by having roughly 4x the assets you retired on. There is a significant matter of inflation working against my higher nest egg amount, but I feel like I have a good shot at success.

Sometimes I think members here should be aiming at higher "staches", but that that is the risk averse creature that I am.  :)

[steveo]

The answer is how much do you really need x 3 and I can and I'm sure you can, do that math in your head.

I think that this is risk averse and I'd be working for way too long.

[OldPro]

I'll reply to just one disagreement comment to see where it takes us but my comments are of course open to all to respond to.

Steveo, explain to me how you would be working for way too long?  The only way I can see that happening is if you set the 'need' expenses 'way too high'.

For example, as I wrote, my current needs require around $20-25k/year.  That is only actual needs, it does not include discretionary spending.  If your own were similar I would suggest you shoot for an income of around $60k/year when you start your retirement.  If you use a 4% ROI then you would need to have $1.5mil or a higher ROI. 

It also assumes you want that much discretionary spending.  I did not and still do not have any intention of not being able to do the things I like but do not need to do.  I like to be able to take a vacation in Switzerland to go hiking in the Alps.  But if you were willing to give that possibility up to retire a bit earlier then you could with less than $1.5mil obviously.

When I read that people have already decided to do without cable tv as Eric suggests, it sounds like a pretty bare bones retirement to me.  If that is all someone wants then yes they can ignore the 1/3 rule quite easily and just go say 70/30.  With the 70% being actual expenses and the 30% being cushion/savings. 

That would work out for $20-25k expenses and $12-15k savings/investment only needing you to come up with around  $875k at 4% ROI.

Jon_Snow, you cannot compare your 'stash' to my 'stash' unless you do so at about the same period in time.  ie. 1989.  You don't indicate when you took the leap. 

[AmbitiousCanuck]

Years ago, someone told me you can be the architect of change or the victim of change.  What is inevitable is that change will occur.  You may not always be the originator of the changes obviously but what you always have is control over how you respond.

That is a genius bit of wisdom, applicable to so many parts of life.

Sometimes I think members here should be aiming at higher "staches", but that that is the risk averse creature that I am.  :)

Jon_Snow, you would likely scoff at my measly FI figure of 300k!  I am on the fast lightning track to leaving the corporate world forevermore.  Once I am out, I will find other ways to make money, so I see no need to stockpile any more than absolutely necessary before jumping ship.

[MonkeyJenga]

I think most people here are aware that there's no guarantee a certain % withdrawal will last forever. Personally I'm itching to get out of my cubicle, so I keep reducing the number I can be comfortable with. If I need to rely on side income or better than expected investment returns for trips and "fun" spending, that's OK with me. What's the worst that could happen? I lose all my money and I need to go back to work full-time? Oh well. Jobs will always be there. If I stayed to build up a 30% buffer, I would likely go insane from a curious mix of boredom and stress, and then all my money would need to be used on a sanitarium.

Of course, not everyone hates their job as much as I currently do.

[steveo]

Steveo, explain to me how you would be working for way too long?  The only way I can see that happening is if you set the 'need' expenses 'way too high'.

I think you answered your question here:-

But if you were willing to give that possibility up to retire a bit earlier then you could with less than $1.5mil obviously.

When I read that people have already decided to do without cable tv as Eric suggests, it sounds like a pretty bare bones retirement to me.  If that is all someone wants then yes they can ignore the 1/3 rule quite easily and just go say 70/30.  With the 70% being actual expenses and the 30% being cushion/savings. 

Basically I want to retire as quickly as possible within some limits. I don't want cable or a fancy car and I don't want to save up to $1.5 mill. My goal at this point is $800k and then part time work or enough cash to live for 5 years. I might change my target but this is what it is at this point.

I'd have to save a fair bit more to get to $1.5 million.

[AmbitiousCanuck]

I would likely go insane from a curious mix of boredom and stress, and then all my money would need to be used on a sanitarium.

And here I thought I was the only one that managed to feel both bored and stressed at the same time at my job.  Its a very bizarre combination, and I don't intend to let it carry on for much longer.

[brooklynguy]

When I read that people have already decided to do without cable tv as Eric suggests, it sounds like a pretty bare bones retirement to me.  If that is all someone wants then yes they can ignore the 1/3 rule quite easily and just go say 70/30.  With the 70% being actual expenses and the 30% being cushion/savings. 

Maybe you have accidentally been posting on the wrong website?  The ability to live a "barebones" lifestyle (including, heaven-forbid, lack of cable television) without detracting from your life, but actually improving your life, is a fundamental tenet of Mustachianism and one of the underlying premises behind the notion of widespread accessibility of MMM-style early retirement.  Reading through this thread, I can't tell if your point is that we're all too risk averse, or not risk averse enough; you seem to be waffling back and forth between the two.

[OldPro]

Well if you see the world only in terms of black and white brooklynguy that might be true.  However, terms like 'barebones' are not universal in their meaning.  For example, one person might be quite willing to live in a wooden shack in the woods with an outhouse to achieve their goal.  Someone else however might insist that a flush toilet is a definite need and doing without is not 'barebones', it is ridiculous.  Is either wrong?

Regarding 'waffling', again, not everything is an absolute.  People can be risk averse to some things and not even aware of the risks of something else.  Are they risk averse or not risk averse enough?  The answer is neither or both.  It is not an either/or choice necessarily.  They can be risk averse or  not risk averse enough about different things at one and the same time.

If someone drives a car but will not invest in the stock market, is that person not risk averse enough because they are willing to risk having a car accident or is that person risk averse because they will not invest in the stock market?  The answer is, they are both.

Threads take on a life of their own as I'm sure you know.  I started out suggesting that risk will always exist and that those sitting on the fence might want to consider accepting that and get off the fence.  It was aimed at a specific target audience.  Whether it achieved communicating the message I intended it to give or not really doesn't matter.  Inevitably, some people will see it from another perspective and comment based on that perspective.  That's how threads change and evolve.  An answer intended for one reader, interpreted in another way by another reader may seem like 'waffling' when in fact it is different answers directed at different perspectives.

Look at the difference between Jon_Snow, Steveo and AmbitiousCanuck.  They have 3 very different views of what a 'barebones' lifestyle will require in several ways.  Which of them is not adhering to the 'fundamental tenet of Mustachianism?'

[fh2000]

One take-away from OldPro's posts, is that I will need to have enough cushions on top of cushions.  Once I quit, I will not have any opportunity to get back or find another job since I am close to 60 now.

[brooklynguy]

Threads take on a life of their own as I'm sure you know.

Fair enough, but I'm still confused about the point(s) you are trying to make (and, judging from the responses in this thread so far, others seem to be as well).

In the course of two posts within this single thread, you went from extreme to the other.  At one end of the spectrum, your original post was an argument for accepting risks in life and avoiding "paralysis by analysis," which I mostly agreed with but had the same reservations expressed by DoubleDown and Eric above (if tomorrow's weather forecast calls for rain but only has an 80% confidence level, surely you should still pack an umbrella?).  Then your next post, which was a self-described attempt to clarify the point of your original post, laid out a formula for protecting against risk by adopting extremely conservative (as compared to what's normally advocated around here) assumptions about your future living expenses.  So, while I agree with 80% of what you wrote, I'm still left scratching my head as far as what point(s) you were trying to make.

[OldPro]

It seems you see a contradiction or ends of a spectrum where none exists.  Try this.
1.  Risk is inevitable, accept it.
2.  Since risk is inevitable, try to allow for it.

They are not contradictory statements brooklynguy and they are not opposite ends of a spectrum.  Where the paralysis by analysis comes in is when someone sees risk and doesn't want to make a move until they can eliminate it.  I'm not suggesting that there is a way to eliminate RISK (Really, I Should've Known).  I am suggesting you can accept it and try to manage and/or mitigate risk.  But you cannot do that if your plan is to live on or near 100% of your income.

If someone says they can live on $10k a year or whatever and then RE when they have $10k of passive income, I call that bad planning.  It allows nothing for those unknowns that WILL happen in years to come.  I think the real life example I gave shows the problem of doing that. 

"When the recession hit in 08/09, a great many people who had recently retired and 'calculated' based on a given return on their stock investments, an ROI of whatever, suddenly saw their income drop considerably.  Their expenses started exceeding their income and many had to go back to work.  It isn't hard to find examples of just that on some forums.  Usually, complaining about the stock performance and how unfair life is instead of complaining about their own mistake of living on too close to their projected income and not allowing enough of a cushion to see them through real ups and downs."

You can bet your bottom dollar that some of those people who were smart enough to look at what really happened to them and not try blaming others, were sitting there saying, 'Really, I Should've Known.'  They should've known that planning on an average ROI of 4% is fine only as long as nothing outside of average happens.  But over a longer period of time it is almost inevitable that someone WILL go outside of average.  For many of those caught in the recession it happened within a few years of their having retired.  But think what it meant to those farther down the road.  Those who were 10-15+ years into their retirement.  They couldn't just easily go back to work.

You may call it being 'extremely conservative'.  I call it being a realist.  But I think the real problem with hearing it is it does not appeal to you (or many others I'm sure).  Yes, you will need to accumulate more.  It's much more welcome to hear, yes I can live on $10 and can quit when I get to that point rather than need to get to $15k.  But it doesn't do any good to say, 'I don't like hearing I need to work longer so I will not listen to any suggestion that I might need to.'  That to me is just burying your head in the sand.

All I can tell you brooklynguy is that I FIREd 26 years ago and as I have said, there is no way I could have predicted or possibly even have imagined the changes that have occurred to me during that time.   Some changes were under my control (I got married) and others were not (the recession).  None of the changes resulted in my HAVING to go back to work though brooklynguy. 

I have no problem with someone deciding voluntarily to supplement income after RE.  I've done that several times.  But HAVING to go back to work is another story.  If you RE at 30 or 40 and hit a bump in the road at 45 which means you have to go back to work, it's quite feasible to do so.  Try hitting that bump in the road after 26 years and at age 69.  Just what kind of job do you think I might find?

There is a saying, 'you can't see there, from here.'  People look at things from where they are now, they can't see things from 'there' until they get there. Suppose you retire at 40 and are diagnosed with MS at 45.  You may not be able to ride a bicycle anymore (typical transportation espoused here) but can drive a car for quite a few years depending on remissions etc. associated with MS.  Where's the money coming from to buy the car if you planned on $10k a year?  You sure as heck aren't going to be able to say, 'oh well, I'll just have to go back to work.'  I have an acquaintance in exactly that position right now.  He has very limited income, can't work and as a result life is becoming pretty miserable for him.  He sure as heck couldn't see what was coming when he was 40.

You cannot eliminate risk but you can plan to manage/mitigate it.  If you can live on $10k for actual expenses + discretionary spending, aim for $15k and that gives you a good chance of going the distance happily.  That's my point to you brooklynguy.  I actually find it crazy for anyone to think that if they plan for a 4% ROI today that it will work just fine for the next 30-40-50 years.  There is no way they can KNOW that and I would almost say you can count on it not working at some point.   

My original point to fence sitters was, don't sit on the fence trying to eliminate risk, it's never gonna happen.  So accept it and plan accordingly.

Sometimes I think people in forums on retirement see the goal as 'getting out'.  That is, having enough to FIRE financially.  That to me is not the goal, it is the means to the goal.  The goal is to live the rest of my life HAPPILY without having to work.  That's true financial independence, it's not a temporary thing I aimed for.  It's not enough to get out, you have to be able to stay out.

[arebelspy]

Agreed on the very mixed messages.

Take the leap, you can't wait forever!

..but don't do it until you have a WR of 1.3%!  (20k spending x 3 times what you need x 25 for 4% SWR).

[Eric]

OldPro, is there a reason that you don't acknowledge the risk of working too long?  If the goal is to live happily without having to work, as you state, then why in the world are you setting out scenarios that are so conservative that you're guaranteed to work so many extra years?

[Jon_Snow]

Sometimes I think people in forums on retirement see the goal as 'getting out'.  That is, having enough to FIRE financially.  That to me is not the goal, it is the means to the goal.  The goal is to live the rest of my life HAPPILY without having to work.  That's true financial independence, it's not a temporary thing I aimed for.  It's not enough to get out, you have to be able to stay out.

I REALLY agree with this. I'm starting to think I may be a 25 year younger version of OldPro. ;)

[slugline]

So we ought to be planning for events we have no reliable way to predict. Sounds simple enough.

[Cookie78]

Sometimes I think people in forums on retirement see the goal as 'getting out'.  That is, having enough to FIRE financially.  That to me is not the goal, it is the means to the goal.  The goal is to live the rest of my life HAPPILY without having to work.  That's true financial independence, it's not a temporary thing I aimed for.  It's not enough to get out, you have to be able to stay out.

I REALLY agree with this. I'm starting to think I may be a 25 year younger version of OldPro. ;)

I'm guessing this is an important factor to explain the difference between different people's risk tolerances. I have no problem at all doing work on the side for a little extra income, or even going back full time for a year or two if the right opportunity comes up. If, within a year of FIRE, everything collapsed and I NEEDED to go back to work I would be upset sure, but I could easily reduce costs instead if necessary.

If you are not flexible about finding active sources of income after FIRE, then yes, sure, you should have additional cash flow or flexibility in other areas. If you are flexible about the option to make extra money during FIRE, then you can be less flexible elsewhere.

[Albert]

I think OldPro has a lot good points. Some of his analysis reminds me of Nassim Taleb's black swans (great book by the way). They are bound to happen. Also true about being easy to go back to work in your 40-ties and virtually impossible in your sixties after being out of the work force for a decade or more.

In my native country 1,000 euros a month plus a paid off accommodation (already have) would provide a comfortable life right now. If I aimed for just that I could retire pretty much now, but it would be very risky. First because it would not allow for any "black swans" and second because it would tie me to living there and not traveling much. Plus I actually still like my job.

[arebelspy]

I think OldPro has a lot good points.

Which ones?  The one about how you can't predict the future so just dive in and accept the risk, or the one about how the future has risks so prepare for them and be extra conservative.

Seriously, I am genuinely confused about the message.

I'm wondering what you took away from it (and if you just took away the points that belied what you already thought).

[Albert]

I think OldPro has a lot good points.

Which ones?  The one about how you can't predict the future so just dive in and accept the risk, or the one about how the future has risks so prepare for them and be extra conservative.

Not that confusing to me. How I red it is that you need to be more conservative than many here advise and if you are it will allow you to better survive unpredictable future events. This I agree with even if the exact margin I would advocate for be a bit lower than his (more like 50/50 than 30/70).

I'm wondering what you took away from it (and if you just took away the points that belied what you already thought).

Probably, but aren't we all sometimes guilty of that? In any case he didn't say anything particularly controversial for a site like this.

[Cougar]

 Thanks for this thread, thats a good way to look at it.

 My constant worry is will it be enough to ride out uncertainties.

 Never thought that you cant take uncertainties out, work or not working.

 Thinking that way gives you more freedom.

[arebelspy]

Not that confusing to me. How I red it is that you need to be more conservative than many here advise

That's funny, because reading the OP I get the exact impression.

I'm wondering what you took away from it (and if you just took away the points that belied what you already thought).

Probably, but aren't we all sometimes guilty of that?

Absolutely.  :)

[Albert]

I think we have had a vaguely similar discussion before where I and few others stated that there is an ENORMOUS difference between living on 25k/year (in US) and earning only that much. The first scenario is no problem away from high cost of living areas where as the latter is not somewhere you want to be beyond your teenage and university years.

[BBub]

The problem is the complete contradiction between Oldpro's first and second post.

The first message is basically "the future is uncertain, so there's no point in relying on analysis to abate your fears.  Just FIRE when you are reasonably prepared financially then be mentally ready to adapt to future downturns". 

The second message is "the future is uncertain, but based on my analysis here's a set rule you can use to abate your fears". 

Either message can be valid, but presenting both at the same time doesn't work.

[steveo]

I think I get what OldPro is stating however I think how we all took the first post is a little different to how he meant it. I think he meant risk is always there so accept that but have some mitigations so that you can handle those risks. I basically agree with that idea.

In stating that I agree with that idea I intend to retire with greater than a 4% WR. I believe that I have various buffers within my plan. Firstly I intend to work part time for say 5 years or better put not touch my stash for 5 years. I also own an expensive house which I don't include as an asset towards my FIRE stash. I can downsize or move to a different location. I also have 3 kids who are getting older and I expect will cost us less money as they age. I also haven't counted any inheritance or social security within my plans.

One thing I don't agree with is that I need to have cable or something like that. For instance I ate lentil soup last night. I loved it. I think I can live on less and be happy.

[FFA]

Nice thread contradictions and all i still enjoyed the read. The message i takeaway: FIRE is subjective, only you can decide if you are ready to take the leap (using spreadsheets, firecalc, rules of thumb or whatever YOU believe in), and be adaptable/flexible for what comes next.

[arebelspy]

That makes sense stevo and FFA. Good posts.

[Clean Shaven]

My understanding of the 4% "safe withdrawal rate" (SWR) is that a 4% SWR is already a conservative estimate based on the FireCalc simulations -- in other words, that 4% SWR generally maintains principal in the worst-case scenario years.

Some years may well be such that a 4% withdrawal rate would cut into principal.  In order to prepare for that event, plan accordingly -- perhaps via a cash cushion as some have suggested, or be prepared to obtain income from other sources (e.g. return to work), or operate by an even more conservative plan (e.g. the OldPro rule of 3s).

Personally, I think I'll plan on a 4% SWR, but have a healthy cushion built into the retirement nest egg, such that a 4% annual withdrawal amount is in excess of what my wife and I actually need to live on.  For example, if we plan on a 4% SWR of $40K annually, maybe we'll do our projected nest egg based on a $50K annual withdrawal, giving us a $10K cushion.

Some will call it over-saving.  Using the $40K/50K numbers, that would mean saving $1.25M vs. $1M.  Rough numbers, but I think you get the idea.

[BBub]

i.e. you will use a lower SWR: 3.2 vs 4%.

I think some of the disconnect or confusion within this thread possibly stems from a misunderstanding of the common method applied to stash drawdown.  A withdrawal rate is used, instead of some other metric, because it's the simplest and most efficient way to communicate the concept of safety margin.

Oldpro's rule of 3 in today's yield environment,  using a traditional balanced portfolio, would result in gross oversaving.  But regardless of the yield, the withdrawal rate relative to stash size is important. The assertion that stash size is of no consequence and income is all that matters is dangerously flawed.  I'd strictly buy leveraged high yield bond funds and reits at a 10%+ yield if income was the only concern.  And what about all the berkshire shareholders?  That stock pays 0, so should a millionaire shareholder of berkshire never retire because the income is insufficient to sustain her spending?  Of course not.

The 4% rule was based on many decades of rolling results accross all market cycles.  If a retiree used the rule of 3's in the early 80's based on the income generated from his 12% money market and 15% treasuries, he may have been in for a rude awakening shortly thereafter.  4% on a balanced port has provided reliable withdrawals throughout history, which is why it's been so widely adopted instead of some other method.

[BBub]

Oldpro, I do want to mention I've thoroughly enjoyed your insights both here and elsewhere on the forums - especially the post about island living.  It's very apparent that you are a wise and experienced retiree, which is something I aspire to.  I'm not trying to attack or be argumentative - I just get kind of excited about this subject & love a lively numbers discussion.  And I'm always open to being proven wrong.

Just wanted to throw that out there :-)

[Clean Shaven]

i.e. you will use a lower SWR: 3.2 vs 4%.

Yes, another way of looking at it, and probably one that makes more sense than my explanation above.  Thanks.

The realities of it are likely that we won't be withdrawing any precise %, whether 4%, 3.5%, or 3.2% -- it'll fluctuate over time based on how the investments fluctuate.  I'm just planning on meeting a certain minimum %, and hoping that market returns are such that higher % withdrawals are doable from time to time.  (e.g., market returns 8 or 9% for a year or two = perhaps withdraw some more and splurge on a nicer trip traveling somewhere)

In other words, I'm planning on flexibility.

[okonumiyaki]

Isn't this connected to Bernstein's "for a retirement period of 30 years, 80% success is as good as you will get"

A SWR rate of 1% won't help you if you are Syrian and civil war breaks out.  Or hyperinflation happens in your country.  Let alone you get run over by a bus.

My parents lost almost everything when they had to flee Idi Amin's regime in Uganda.  They were young enough to recover, but if they had been in their 60's, it would be much more difficult.  One set of grandparents lost everything, including their health, in a Japanese internment camp in China (died in their 50's.  Gave almost all their rations to their children, basically starving themselves)  The other set had their small family business ruined by an embezzling relative.

My family haven't been very good at risk management :)

[WYOGO]

So we ought to be planning for events we have no reliable way to predict. Sounds simple enough.

Haha...