How much income cushion did/will you plan into FIRE?

[Retired To Win]

If you are shooting for a specific FIRE date, I am assuming that date is based on a FIRE stash target amount that you want to reach before leaving your job.  And that that stash target amount is presumably based on how much of a pile you need to support a certain spending rate after you've FIRE'd.  So here's my question: how much of an income cushion or buffer have you planned for over and above what it takes to cover your basic living expenses?

Here's my example.  I've now pulled down my basic living expenses to less that $14,000 a year.  My passive income is between $40,000 and $45,000 a year. Call it $42,000.  So in my case that's a (too large?!) income cushion of 2 times (200%) my basic living expenses ($42,000 minus $14,000 = $28,000 divided by $14,000 = 2x).  That cushion covers my optional spending on travel, entertainment, major big boy toys, etc.  But it's also there as a buffer that protects my financial ability to maintain my basic living lifestyle.

How big an income cushion was/is factored into your planned FIRE target?  What was your reasoning to arrive at that cushion level?  How much longer did/will you have to wait to FIRE in order to have that cushion?

[sol]

I think the answer this question is going to depend on how stringenty you define basic living expenses.

If you currently spend 42k per year and your retirement income is 42k per year, I'd call that zero buffer.  I'm not sure you get to claim a 200 percent safety margin just because you figure you can lower your expenses in the future.

[Retired To Win]

I think the answer this question is going to depend on how stringently you define basic living expenses.

If you currently spend 42k per year and your retirement income is 42k per year, I'd call that zero buffer.  I'm not sure you get to claim a 200 percent safety margin just because you figure you can lower your expenses in the future.

Looks like I did not do a good job explaining.  I don't spend $42k a year.  It could be spent.  But it's not.  The $42k is what comes in.

I spend just under $14k a year on basic living expenses.  That's what goes out.

Any way, what about my question?

[KCM5]

How do you define passive income? Is that 4% of stash or another withdrawal rate? Does it also include some other monthly or annual income source?

[sol]

I spend just under $14k a year on basic living expenses.  That's what goes out.

Any way, what about my question?

I don't normally separate out "basic living expenses" from just regular expenses.  I guess I could assume that some of my current spending is frivolous (cell phone, netflix, gas for the car, fancy foods, heat in the winter, my oversized house...) to come up with a lower number that would keep us alive, but otherwise I tally up what we actually spend in a year and call that "expenses".  Then I adjust for what I expect to spend in retirement (less on daycare, more for travel, more after inflation) to figure my future expenses.  Then I try to figure out where I'm going to get that number of dollars from each year.

No extra.  No buffer.  If my anticipated expenses were $42k/year, why would I convert any more out of a tIRA to a RothIRA (and then pay extra taxes for doing so) just so I could have extra cash laying around?  That seems suboptimal.

I recognize that I could cut my expenses if I needed to, and still get by just fine, but I don't have a separate figure in mind for "basic living expenses".  Sorry.

[AlwaysBeenASaver]

I went about it a different way. I calculated my desired (not basic) living expenses after FIRE. I then made sure over the last few years that my annual spending roughly matched my desired living expenses after FIRE, minus commuting costs and plus health insurance costs. This works for me because I don't have any major spending increases expected after FIRE other than health insurance costs. I didn't build in a buffer per say, but I have somewhere around 20% of costs in my living expenses that I could trim if I needed to: gifts for people, vacations, eating out, things like that. Knowing I can trim these things gives me the peace of mind I think you're looking for by having a buffer.

[fartface]

I'd like to generate about $48K/year, but think we can live comfortably on about $30K/year (assuming no mortgage).

[aschmidt2930]

Great question, and not sure I have a firm answer on this one.  I don't imagine I'd feel comfortable completely retiring until I had at least 10k/year more than my projected expenses.  Now will I go part-time and do consulting before then? Yes.

[Daisy]

I spend just under $14k a year on basic living expenses.  That's what goes out.

Any way, what about my question?

I don't normally separate out "basic living expenses" from just regular expenses.  I guess I could assume that some of my current spending is frivolous (cell phone, netflix, gas for the car, fancy foods, heat in the winter, my oversized house...) to come up with a lower number that would keep us alive, but otherwise I tally up what we actually spend in a year and call that "expenses".  Then I adjust for what I expect to spend in retirement (less on daycare, more for travel, more after inflation) to figure my future expenses.  Then I try to figure out where I'm going to get that number of dollars from each year.

No extra.  No buffer.  If my anticipated expenses were $42k/year, why would I convert any more out of a tIRA to a RothIRA (and then pay extra taxes for doing so) just so I could have extra cash laying around?  That seems suboptimal.

I recognize that I could cut my expenses if I needed to, and still get by just fine, but I don't have a separate figure in mind for "basic living expenses".  Sorry.

I'm with Sol on this one. I have detailed out what my expected expenses will be. There is buffer in there to be able to trim if needed, but there is a certain lifestyle I'd like to lead, charity to give to, irregular expenses (car, health, emergencies), travel, keeping a somewhat-"normal" social exchange with friends (that sometimes conflicts with my frugal side - but it's the "cost" of modern life and friendships) that I like to plan out for. So my 4% SWR is based on this, not "basic" living expenses. If I wanted to just subsist, then I'd be FIRE'd by now.

[Workinghard]

I like this "formula" I saw on Bogleheads.

Nest Egg = (( Non Discretionary Budget * 2) - Annual Pension Amts and/or SS) * 25

The constant of "2" is there so you can cut expenses by 50% if needed.

[mozar]

Well it's all theoretical at this point but I haven't figured that out. My expenses with my mortgage are 24k. Without is 16k. I'll have 40k worth of my mortgage left if I FIRE in 10 years. I could save 550k and pay off the mortgage and have 510k left to live on. Or I could wait till 600k and keep the mortgage and live with no cushion until the mortgage is paid off 5 years later.

[Villanelle]

I'v never looked at what our bare bones expenses are because I don't care.  We looked at the number we want to have available as an annual budget.  I don't know if that is 3 times bare bones, or 3.75 times. 

Dh and I are different than many here in that we plan to be working (or at least one of us) long past a FI number, so we will have automatic cushion.  As such, I guess figuring out that we could live on $XX,000 per year if necessary, is just not something we've ever felt a need to look at. 

The only time I really consider the fact that we will have a lot of fat available for trimming if things go badly south is that it mentally adds another failsafe.  But all my calculations are based on what we want to have, not in any way what we need to have.

[2Birds1Stone]

I guess I could cover my basic living expenses on $600k.
I plan to fully retire once I crack the $1 million mark.

[Retired To Win]

I like this "formula" I saw on Bogleheads.

Nest Egg = (( Non Discretionary Budget * 2) - Annual Pension Amts and/or SS) * 25

The constant of "2" is there so you can cut expenses by 50% if needed.

I really, really like this formula! (I wish I had been aware of it when I worked up my blog article on how I planned out my target FIRE date!)   This Bogle formula allows in actuality for discretionary spending equal to and above basic living expenses -- which the formula calls non-discretionary. And that's nice and generous IMHO.

I think the formula certainly enhances the analysis of this forum post's topic, and adds an "objective" approach apart from anyone's preferences and biases. Further tweaking can also be done by adjusting the formula's implied 4% SWR.

So here goes the formula in my case:

Nest Egg = (( $15,000 * 2) - 21,000) * 25 = (30,000 - 21,000) *25 = $225,000.

I'm actually at a little over twice that for my nest egg, so I'm good!  I could probably do a *4 in the formula and have it still work.

Anyone else care to work up the Bogle formula with their numbers?

[Eric]

I think the formula certainly enhances the analysis of this forum post's topic, and adds an "objective" approach apart from anyone's preferences and biases. Further tweaking can also be done by adjusting the formula's implied 4% SWR.

Isn't the ( Non Discretionary Budget * 2) part subjective?  Why 2?  Seems rather subjective, as you could easily make that 1 or 3 or whatever number you wanted.

[Cheddar Stacker]

I'm leaning toward a -35% ish buffer, meaning once my passive income stream reaches ~65% of our anticipated expenses it's time to move on from the "career". I know I can close that gap with the side hustle and/or a new part-time gig or self-employed role. I should have a better idea about a year from now, if not sooner.

[Workinghard]

I think the formula certainly enhances the analysis of this forum post's topic, and adds an "objective" approach apart from anyone's preferences and biases. Further tweaking can also be done by adjusting the formula's implied 4% SWR.

Isn't the ( Non Discretionary Budget * 2) part subjective?  Why 2?  Seems rather subjective, as you could easily make that 1 or 3 or whatever number you wanted.

Sure, it could be any number. Obviously the non-discretionary budget would be things like food, housing, utilities etc. Things that you can't do without. Multiplying that by 2 is a way of padding things.  I look at that money being used for travel and/or entertainment expense.  In a down market it would be easy to cut out.

 When I first started thinking seriously about retirement, three years ago, I didn't account for SS or know how to adjust what was needed afterwards. This formula helped. My dh is 64, so I'm not worried SS will be there. Plus once he reaches 70, SS will be more than our current expenses. 

We're both looking at retiring next year and only have five years to bridge until SS. Selling our home will bridge those years, allow us to do Roth conversions, and let our other accounts grow.

[Sojourner]

I like this "formula" I saw on Bogleheads.

Nest Egg = (( Non Discretionary Budget * 2) - Annual Pension Amts and/or SS) * 25

The constant of "2" is there so you can cut expenses by 50% if needed.

I really, really like this formula! (I wish I had been aware of it when I worked up my blog article on how I planned out my target FIRE date!)   This Bogle formula allows in actuality for discretionary spending equal to and above basic living expenses -- which the formula calls non-discretionary. And that's nice and generous IMHO.

I think the formula certainly enhances the analysis of this forum post's topic, and adds an "objective" approach apart from anyone's preferences and biases. Further tweaking can also be done by adjusting the formula's implied 4% SWR.

So here goes the formula in my case:

Nest Egg = (( $15,000 * 2) - 21,000) * 25 = (30,000 - 21,000) *25 = $225,000.

Cushion Factor = ((Nest Egg)/25 + Annual Pension Amts and/or SS) / Non Discretionary Budget

Example using RTW figures:

               = ($225,000/25 + $21,000) / $15,000
 
               = ($9,000 + $21,000) / $15,000
   
               = $30,000 / $15,000

Cushion Factor = 2

- OR -

If there are no pensions/SS:

Cushion Factor = (Nest Egg/25) / Non Discretionary Budget

[Thegoblinchief]

There are so many unknowns for us (will we be FI with kids still around, or will it take longer; buy a homestead; possibly get free land from family, etc) that we may end up with a bigger than intended cushion, but when I've come up with various FIRE numbers, I've mentally planned in 1/3 buffer - mainly budgeting as optional travel expenses we could forgo as needed.

[mozar]

If I multiply my expenses by 2 and don't include ss, I get 800k. There is no way I'm waiting that long.

[sleepyguy]

Our cushion is that she'll probably still do consulting seasonal work on the side, while I'll still do hobbies that generate income.  Plus once we reach 67, GIS/CPP/OAS kicks into gear which will probably be between $10-16k/yr for each of us.  We are quite risk adverse so I don't think we'll have any issues.  We also have 2 kids so we'll be helping them out as well.

[Daisy]

I think the formula certainly enhances the analysis of this forum post's topic, and adds an "objective" approach apart from anyone's preferences and biases. Further tweaking can also be done by adjusting the formula's implied 4% SWR.

Isn't the ( Non Discretionary Budget * 2) part subjective?  Why 2?  Seems rather subjective, as you could easily make that 1 or 3 or whatever number you wanted.

I don't understand the factor of 2 either. Why would my buffer be a factor of my "basic" expenses? I'd much rather estimate what these "extra" expenses would be and add that to my expected cost of living for a year - averaged out with the big ticket items that pop up such as a replacement car, health issues, etc.

I don't mean to rain on RTW's parade. I commend RTW for cutting down expenses so much and trying to encourage others to do the same. I see RTW start a lot of interesting threads on this point (having fun frugally, etc.).

Maybe RTW and I have a different definition of "basic". I'm not sure what makes any particular expense fall into the "basic" vs. other expense. I would imagine it would differ a lot among people. For example, some might just ditch their car and not call a car expense basic, but for others a car is a basic expense.

I'm assuming RTW's "basic" expenses are housing, transportation, food that they shell out in a typical year. However, I don't think RTW, over the course of 10 years, is only spending $150,000. I assume within that time some irregular expenses related to car, health, etc., pop up. I am of the mindset that this needs to be planned for.

As far as the original question, I add about $10k to my non-travel expenses as my desired level of expenses related to SWR go. That extra $10k would cover travel or other emergencies not planned for - such as excessive health expenses. I don't feel this amount is necessarily a factor or percentage of my other expenses. It's just what I feel comfortable with. I can cut out travel if something else arises. I also have enough buffer (entertainment) in my regular expenses that can be cut.

I assume "basic" expenses are what I would need to live on if the SHTF (big market correction) and I really need to cut back, but I don't base my SWR or FIRE number on that. I just like to know how low I can go if things got so bleak.

[MustacheNY]

I view income cushion in one of two ways. 

1. The first, and more conservative way is I look at what my absolute most bare bones of bare bones expenses would be if I had to drop them due to financial recession, or any other reason that could create financial pressure on my investment portfolio.  With dividend and interest rates as low as they are, my retirement portfolio would yield ~2%.  Even in severe market downturns, the cash value of the dividend payments and interest payments generally do not decrease nearly as much as the market itself.  Therefore, at a 2% withdrawal rate, I could pretty much conservatively guarantee that I will never have to dip too much into my investment principal, and can therefore ensure a pretty much 100% success rate regardless of what the market does.  For my regular comfortable living expenses right now, I am actually using a 3% withdrawal since I feel the markets are a little bit at the tail end of a bull market.  Even with the 3% withdrawal rate, I am pretty confident that even if we had a major recession tomorrow, that I could still persist with my current level of expenses without having to cut down to a bare bones budget.  Essentially, that is about a 50% asset buffer over core expenses, or a 100% asset buffer if you were to look at it based on the standard 4% withdrawal rule.

2. The second way I look at it is my human capital.  My expenses are relatively low, so any gap that I would need to plug on a temporary basis could easily be plugged with some sort of part-time work until the markets or investments stabilized.  A 4% withdrawal rule at a comfortable budget with my human capital as my emergency buffer is another way to look at it.

For me, there is no wrong option, it is just a matter of how conservative I want to be, and whether I want to deal with the hassle of having to do any work for money, and the trade offs of additional income vs. additional security vs. additional years of work.

[Retired To Win]

I think the formula certainly enhances the analysis of this forum post's topic, and adds an "objective" approach apart from anyone's preferences and biases. Further tweaking can also be done by adjusting the formula's implied 4% SWR.

Isn't the ( Non Discretionary Budget * 2) part subjective?  Why 2?  Seems rather subjective, as you could easily make that 1 or 3 or whatever number you wanted.

I don't understand the factor of 2 either. Why would my buffer be a factor of my "basic" expenses? I'd much rather estimate what these "extra" expenses would be and add that to my expected cost of living for a year - averaged out with the big ticket items that pop up such as a replacement car, health issues, etc.

Workinghard already answered this on reply #16.  You can make the buffer multiplier whatever makes you comfortable.  It's a fungible formula guys, not the pythagorean theorem.

I don't mean to rain on RTW's parade. I commend RTW for cutting down expenses so much and trying to encourage others to do the same. I see RTW start a lot of interesting threads on this point (having fun frugally, etc.).

Maybe RTW and I have a different definition of "basic". I'm not sure what makes any particular expense fall into the "basic" vs. other expense. I would imagine it would differ a lot among people. For example, some might just ditch their car and not call a car expense basic, but for others a car is a basic expense.

Here's some color on how I see the difference between basic and optional, being totally nonjudgmental about how much anyone spends on any expense category.  Groceries are basic; restaurants are optional.  The car is basic (for argument's sake); the boat is optional.  Insurance premiums are basic; vacation travel is optional.  The mortgage on the primary residence (or the rent) is basic; the second/vacation home is optional.  And so on.

[arebelspy]

I like this "formula" I saw on Bogleheads.

Nest Egg = (( Non Discretionary Budget * 2) - Annual Pension Amts and/or SS) * 25

The constant of "2" is there so you can cut expenses by 50% if needed.

I really, really like this formula! (I wish I had been aware of it when I worked up my blog article on how I planned out my target FIRE date!)   This Bogle formula allows in actuality for discretionary spending equal to and above basic living expenses -- which the formula calls non-discretionary. And that's nice and generous IMHO.

I think the formula certainly enhances the analysis of this forum post's topic, and adds an "objective" approach apart from anyone's preferences and biases. Further tweaking can also be done by adjusting the formula's implied 4% SWR.

So here goes the formula in my case:

Nest Egg = (( $15,000 * 2) - 21,000) * 25 = (30,000 - 21,000) *25 = $225,000.

I'm actually at a little over twice that for my nest egg, so I'm good!  I could probably do a *4 in the formula and have it still work.

Anyone else care to work up the Bogle formula with their numbers?

My numbers give me a negative number for an answer.

[sol]

My numbers give me a negative number for an answer.

Yea, I saw that coming.  That's what you expect for someone in your situation.

That formula is really only useful for traditional retirement folks.  Rental income confuses it.  Large pensions that kick in years down the road confuse it.  Variable future spending confuses it.

[arebelspy]

My numbers give me a negative number for an answer.

Yea, I saw that coming.  That's what you expect for someone in your situation.

That formula is really only useful for traditional retirement folks.  Rental income confuses it.  Large pensions that kick in years down the road confuse it.  Variable future spending confuses it.

Anyone in the scenario of having an "income cushion" should get a negative answer.  In other words, that formula doesn't work at all for the premise of this thread.

Most people though don't have an income cushion, because they're using SWR-based income for ER, meaning they have no income cushion at all, it's nonsense to ask about it.

That is to say, I reject both the thread premise AND the formula that makes no sense with the thread!  :P

[Workinghard]

My numbers give me a negative number for an answer.

Yea, I saw that coming.  That's what you expect for someone in your situation.

That formula is really only useful for traditional retirement folks.  Rental income confuses it.  Large pensions that kick in years down the road confuse it.  Variable future spending confuses it.

Anyone in the scenario of having an "income cushion" should get a negative answer.  In other words, that formula doesn't work at all for the premise of this thread.

Most people though don't have an income cushion, because they're using SWR-based income for ER, meaning they have no income cushion at all, it's nonsense to ask about it.

That is to say, I reject both the thread premise AND the formula that makes no sense with the thread!  :P

As long as you're not rejecting me, it's all good. :P

[arebelspy]

Never!

[blackswan]

I would say you need less cushion the more guaranteed your post retirement cashflow stream is and more cushion to the extent it is purely based on a 4% SWR. Do a scenario analysis on your stash if mkt goes down 20% T+1 after you retire, for example. That wouldnt ding a pension, SS, rental etc. But might be a game changer in the brokerage account.

Secondly, model out the growth of your excess/safety margin. Depending on the size of the stash and the amount of time it will have to grow, your safety margin will hopefully compound itself to more and more over time. I think a great safety margin is if you reach a point where your stash is throwing off more excess returns than your current salary (not expenses), its a REAL no brainer because youll actually be saving more in retirement (lower tax rate). This is whats happening for the folks who post stuff like, "My 4th million was easier than my first!" :)

[ash7962]

You guys might think I'm crazy, but I plan on having little to no cushion.  I'm currently living in a very high COL area and plan to move when I FIRE, so my situation isn't a simple "build stash to cover current expenses".  I'm still very young (25) and I plan on moving on or "retiring" in the 28-30 range (to a lower COL area).  In fact, I am quite possibly going to be pulling the plug on my high income job without having enough of a stash to fully support myself.  Of course I've tried to theorize on how much I'll spend, but the fact is I won't know for sure until I move to a low COL area and see what my monthly expenses turn into.  Either way, when I build scenarios in my spreadsheet where I quit in 3 years and start withdrawing 4% right away then my accounts still grow huge over the years.  So, when I quit my job I figure that one of the following scenarios will happen:

1. I quit and realize I can't cover expenses with 4% of whatever I have, and I'll have to figure out a way to cover the remaining expenses.  If that means I have to get a job.. well I'll be 28-30 and still have my bachelors degree + 7/10 years experience as a software developer.  I'll have better knowledge of how much I require to live in a low COL area, and I'll go back to work until I meet the new magic FIRE number.
2. I will be able to cover expenses and will just remain FIRE'd.  Over time my NW is still expected to grow which will turn into my money cushion.  Its true if I'm barely covering my expenses over the first few years then a market crash or a sudden increase in expenses could interfere with my plans.  I'm not worried at all though because the riskiest years are the first few when the cushion hasn't built up yet, and those are also the years it will be easiest to pick up another decently paying job to cover the increases.
3. I make it work but decide I want more money to play with.  I'll grab a part time job or go back to work full time until I build up the stash a little more, then retire once more :).

Bottom line is I'd rather "retire" too early and fail (go back to work) than work until I have a crazy cushion that I'd have no idea how to spend.  Feel free to tell me I'm crazy.

[Daisy]

You guys might think I'm crazy, but I plan on having little to no cushion.  I'm currently living in a very high COL area and plan to move when I FIRE, so my situation isn't a simple "build stash to cover current expenses".  I'm still very young (25) and I plan on moving on or "retiring" in the 28-30 range (to a lower COL area).  In fact, I am quite possibly going to be pulling the plug on my high income job without having enough of a stash to fully support myself.  Of course I've tried to theorize on how much I'll spend, but the fact is I won't know for sure until I move to a low COL area and see what my monthly expenses turn into.  Either way, when I build scenarios in my spreadsheet where I quit in 3 years and start withdrawing 4% right away then my accounts still grow huge over the years.  So, when I quit my job I figure that one of the following scenarios will happen:

1. I quit and realize I can't cover expenses with 4% of whatever I have, and I'll have to figure out a way to cover the remaining expenses.  If that means I have to get a job.. well I'll be 28-30 and still have my bachelors degree + 7/10 years experience as a software developer.  I'll have better knowledge of how much I require to live in a low COL area, and I'll go back to work until I meet the new magic FIRE number.
2. I will be able to cover expenses and will just remain FIRE'd.  Over time my NW is still expected to grow which will turn into my money cushion.  Its true if I'm barely covering my expenses over the first few years then a market crash or a sudden increase in expenses could interfere with my plans.  I'm not worried at all though because the riskiest years are the first few when the cushion hasn't built up yet, and those are also the years it will be easiest to pick up another decently paying job to cover the increases.
3. I make it work but decide I want more money to play with.  I'll grab a part time job or go back to work full time until I build up the stash a little more, then retire once more :).

Bottom line is I'd rather "retire" too early and fail (go back to work) than work until I have a crazy cushion that I'd have no idea how to spend.  Feel free to tell me I'm crazy.

The tools, processes, and languages in software change so much that if you take yourself out of the workforce for too long you might find your skills outdated. I suppose you can try to keep your skills up to date on your own without a job, but you might find some difficulties in interviews if you can't show concrete proof you have the new skills mastered. Some people are able to do this, but you will have to convince an interviewer that you are on top of your game.

But maybe you are thinking of doing side gigs in other fields, so you might not run into these issues.

[Davids]

My number for FIRE is based on a 3% SWR, not 4% SWR just in case so I guess that is my answer.

[Retired To Win]

My numbers give me a negative number for an answer.

Yea, I saw that coming.  That's what you expect for someone in your situation.

That formula is really only useful for traditional retirement folks.  Rental income confuses it.  Large pensions that kick in years down the road confuse it.  Variable future spending confuses it.

Anyone in the scenario of having an "income cushion" should get a negative answer.  In other words, that formula doesn't work at all for the premise of this thread.

Most people though don't have an income cushion, because they're using SWR-based income for ER, meaning they have no income cushion at all, it's nonsense to ask about it.

That is to say, I reject both the thread premise AND the formula that makes no sense with the thread!  :P

From your reply, it looks like you consider an "income cushion" and an "SWR-based income" to be 2 different things.  But I did not intend them to be separate things.  I was posing the question from an "all income in" perspective.  Also, if we take another look at the original Boglehead formula, for the term "annual pension amounts or SS" we can substitute an expanded "annual pension amounts, SS or other side income" term and that would make the formula more applicable to more people.

Also, it's perfectly feasible that some people would come up with a negative number as a result and that would not be a mistake.  How much do you want to bet that MMM Pete would come up with a negative number if he plugs in his blog and side gig income into the formula?

So, I still think the formula works and that the premise of the thread is a valid one.  But it's okay if you don't see it that way.

[arebelspy]

From your reply, it looks like you consider an "income cushion" and an "SWR-based income" to be 2 different things.  But I did not intend them to be separate things.  I was posing the question from an "all income in" perspective.

But there are tons of absurd scenarios, then.

One example: Someone who has a 1% SWR (spending 30k/yr w/ 3MM stache), but no pension, SS, or other income, then they have no income cushion whatsoever.

But someone with a pension/SS that gives them 31k/yr and spends 30k/yr and has a stache of $0 has a 1k income cushion.

Person 1 reports "I have no income cushion" and person 2 says "I have a 1k income cushion."  ..that tells us nothing.

Thus why I said it doesn't seem to be too helpful, in a vacuum.

[ash7962]

You guys might think I'm crazy, but I plan on having little to no cushion.  I'm currently living in a very high COL area and plan to move when I FIRE, so my situation isn't a simple "build stash to cover current expenses".  I'm still very young (25) and I plan on moving on or "retiring" in the 28-30 range (to a lower COL area).  In fact, I am quite possibly going to be pulling the plug on my high income job without having enough of a stash to fully support myself.  Of course I've tried to theorize on how much I'll spend, but the fact is I won't know for sure until I move to a low COL area and see what my monthly expenses turn into.  Either way, when I build scenarios in my spreadsheet where I quit in 3 years and start withdrawing 4% right away then my accounts still grow huge over the years.  So, when I quit my job I figure that one of the following scenarios will happen:

1. I quit and realize I can't cover expenses with 4% of whatever I have, and I'll have to figure out a way to cover the remaining expenses.  If that means I have to get a job.. well I'll be 28-30 and still have my bachelors degree + 7/10 years experience as a software developer.  I'll have better knowledge of how much I require to live in a low COL area, and I'll go back to work until I meet the new magic FIRE number.
2. I will be able to cover expenses and will just remain FIRE'd.  Over time my NW is still expected to grow which will turn into my money cushion.  Its true if I'm barely covering my expenses over the first few years then a market crash or a sudden increase in expenses could interfere with my plans.  I'm not worried at all though because the riskiest years are the first few when the cushion hasn't built up yet, and those are also the years it will be easiest to pick up another decently paying job to cover the increases.
3. I make it work but decide I want more money to play with.  I'll grab a part time job or go back to work full time until I build up the stash a little more, then retire once more :).

Bottom line is I'd rather "retire" too early and fail (go back to work) than work until I have a crazy cushion that I'd have no idea how to spend.  Feel free to tell me I'm crazy.

The tools, processes, and languages in software change so much that if you take yourself out of the workforce for too long you might find your skills outdated. I suppose you can try to keep your skills up to date on your own without a job, but you might find some difficulties in interviews if you can't show concrete proof you have the new skills mastered. Some people are able to do this, but you will have to convince an interviewer that you are on top of your game.

But maybe you are thinking of doing side gigs in other fields, so you might not run into these issues.

I am planning on that!  One of the reasons I want to FIRE is so that I can work on my own dev projects.  I'm primarily a Java developer now and I want to branch into the mobile development world.  I am also competent with web development so I was thinking I could offer my services to set up or update websites for small businesses.  I've also got a friend from college who's kinda got a side project start up for mobile game development so I could see if he'd be interested in me there.  I'm also not opposed to having a part time job if I retire and find I can't quite make ends meet.  Also, I kinda shrug my shoulders when it comes to all this planning because I'm 25 and a ton of things could change in the next 3 years that would cause my plans to change a bunch (marriage, kids, job going better or worse than expected...).  Oh and also the fact that my parents just told me they lost a bunch of money and are no longer sure their nest egg will last them for the rest of their lives... so yep I'd bet money these plans will change before those 3 years are up.

[Daisy]

You guys might think I'm crazy, but I plan on having little to no cushion.  I'm currently living in a very high COL area and plan to move when I FIRE, so my situation isn't a simple "build stash to cover current expenses".  I'm still very young (25) and I plan on moving on or "retiring" in the 28-30 range (to a lower COL area).  In fact, I am quite possibly going to be pulling the plug on my high income job without having enough of a stash to fully support myself.  Of course I've tried to theorize on how much I'll spend, but the fact is I won't know for sure until I move to a low COL area and see what my monthly expenses turn into.  Either way, when I build scenarios in my spreadsheet where I quit in 3 years and start withdrawing 4% right away then my accounts still grow huge over the years.  So, when I quit my job I figure that one of the following scenarios will happen:

1. I quit and realize I can't cover expenses with 4% of whatever I have, and I'll have to figure out a way to cover the remaining expenses.  If that means I have to get a job.. well I'll be 28-30 and still have my bachelors degree + 7/10 years experience as a software developer.  I'll have better knowledge of how much I require to live in a low COL area, and I'll go back to work until I meet the new magic FIRE number.
2. I will be able to cover expenses and will just remain FIRE'd.  Over time my NW is still expected to grow which will turn into my money cushion.  Its true if I'm barely covering my expenses over the first few years then a market crash or a sudden increase in expenses could interfere with my plans.  I'm not worried at all though because the riskiest years are the first few when the cushion hasn't built up yet, and those are also the years it will be easiest to pick up another decently paying job to cover the increases.
3. I make it work but decide I want more money to play with.  I'll grab a part time job or go back to work full time until I build up the stash a little more, then retire once more :).

Bottom line is I'd rather "retire" too early and fail (go back to work) than work until I have a crazy cushion that I'd have no idea how to spend.  Feel free to tell me I'm crazy.

The tools, processes, and languages in software change so much that if you take yourself out of the workforce for too long you might find your skills outdated. I suppose you can try to keep your skills up to date on your own without a job, but you might find some difficulties in interviews if you can't show concrete proof you have the new skills mastered. Some people are able to do this, but you will have to convince an interviewer that you are on top of your game.

But maybe you are thinking of doing side gigs in other fields, so you might not run into these issues.

I am planning on that!  One of the reasons I want to FIRE is so that I can work on my own dev projects.  I'm primarily a Java developer now and I want to branch into the mobile development world.  I am also competent with web development so I was thinking I could offer my services to set up or update websites for small businesses.  I've also got a friend from college who's kinda got a side project start up for mobile game development so I could see if he'd be interested in me there.  I'm also not opposed to having a part time job if I retire and find I can't quite make ends meet.  Also, I kinda shrug my shoulders when it comes to all this planning because I'm 25 and a ton of things could change in the next 3 years that would cause my plans to change a bunch (marriage, kids, job going better or worse than expected...).  Oh and also the fact that my parents just told me they lost a bunch of money and are no longer sure their nest egg will last them for the rest of their lives... so yep I'd bet money these plans will change before those 3 years are up.

Good planning!

[Retired To Win]

From your reply, it looks like you consider an "income cushion" and an "SWR-based income" to be 2 different things.  But I did not intend them to be separate things.  I was posing the question from an "all income in" perspective.

But there are tons of absurd scenarios, then.

One example: Someone who has a 1% SWR (spending 30k/yr w/ 3MM stache), but no pension, SS, or other income, then they have no income cushion whatsoever.

But someone with a pension/SS that gives them 31k/yr and spends 30k/yr and has a stache of $0 has a 1k income cushion.

Person 1 reports "I have no income cushion" and person 2 says "I have a 1k income cushion."  ..that tells us nothing.

Thus why I said it doesn't seem to be too helpful, in a vacuum.

You've got a point, and it's all because of that "vacuum" you allude to.  I've got an answer rolling around in my head, but plunking down a long explanation in a forum reply format is just not going to work for me.  So I guess I feel a new blog post coming on!  :D

[Retired To Win]

You guys might think I'm crazy, but I plan on having little to no cushion.  I'm currently living in a very high COL area and plan to move when I FIRE, so my situation isn't a simple "build stash to cover current expenses".  I'm still very young (25) and I plan on moving on or "retiring" in the 28-30 range (to a lower COL area).  In fact, I am quite possibly going to be pulling the plug on my high income job without having enough of a stash to fully support myself... [if] I can't cover expenses with 4% of whatever I have I'll have to figure out a way to cover the remaining expenses... Bottom line is I'd rather "retire" too early and fail (go back to work) than work until I have a crazy cushion that I'd have no idea how to spend.  Feel free to tell me I'm crazy.

No, I don't think you are crazy.  I'm in that boat you described with "a crazy cushion that I'd have no idea how to spend."  I FIRE'd at 53; I would have rather pulled the plug earlier. (However, it's a fact that my cushion skyrocketed from effecting a major reduction in my basic living expenses after I had FIRE'd.)

And, BTW, your plan to earn like crazy now in an HCOL and then relocate after FIRE'ing to a LCOL is totally astute.  It's a great strategy. (And you'll still have the option of doing side gigs or tele-consulting, as my wife manages to do.)

Good luck.

[ash7962]

Cool, thanks for the assurances.  A crazy cash/investment cushion isn't a bad thing either, but it does seem like a case by case type of thing.  I think if I had retired at the age you retired I would have put more effort into ensuring I had a good cushion.  However at my age I think there's almost a concept of a "time cushion" where I have plenty of time to adjust my plans (or make more money) if necessary.  My thought process is that as long as I hit age 60ish with high enough net worth to fund a 4% withdrawal rate, then I'm golden.  How I get there is negotiable.

[Retired To Win]

Cool, thanks for the assurances.  A crazy cash/investment cushion isn't a bad thing either, but it does seem like a case by case type of thing.  I think if I had retired at the age you retired I would have put more effort into ensuring I had a good cushion.  However at my age I think there's almost a concept of a "time cushion" where I have plenty of time to adjust my plans (or make more money) if necessary...

That time cushion concept is a really good one, as long as one doesn't become complacent about it and miss out on the "miracle" of compounding.  I'd start looking over my shoulder a bit after age 30.

Good luck.

[Retired To Win]

Technically I can live on 1/3 of my small pension and cover all my basic expenses. Basic expenses for me are all my food, utilities, taxes and insurance, fuel for the car, etc... Basically everything I need to cover my butt day to day so I don't have to work and can go out and play everyday. The other 2/3 rds of the pension (plus extra money from my savings/stash if needed) goes to cover anything beyond that for things like travel and more expensive entertainment like dining out, larger home and car repairs, replacement of cars and bikes, and the like as well as will cover future inflation. I honestly can live easily and comfortably (and very happily) on the 1/3 rd pension (debt and mortgage free with free/low cost health coverage via the VA) and many months spend very little to have a great lifestyle but the extra "cushion" allows for many more options as well as stability in the future.

That's also my situation and approach, practically word for word.  To me, "basically everything I need to cover my butt day to day" means everything it takes to provide me with a base life satisfaction floor that I am happy maintaining without longing or wishing for something "more."  That makes my leftover 2/3 of income truly a cushion for that lifestyle level.

[patrickza]

My current speding is $15k per year, which is what I passivle earn, but I won't fire until I'm passively earning $30k a year. I'd like to use the surplus to keep investing post fire to get to asset runaway. That plus when my son finishes school (another 9 years) I'd like to buy a catamaran and explore the world with him for a year or two.

[Cougar]

I'm trying to replace my before tax income + $10,000 yearly  at a 4% SWR.  I make above average but not six figures; so I figure that should work considering I'm living on much less now with taxes and 50% saving rate.

[Retired To Win]

My current spending is $15k per year, which is what I passively earn, but I won't fire until I'm passively earning $30k a year. I'd like to use the surplus to keep investing post fire to get to asset runaway. That plus when my son finishes school (another 9 years) I'd like to buy a catamaran and explore the world with him for a year or two.

So, you're planning for a 100% passive income cushion.  And the accrued cushion, if not used, will be available to fund that catamaran trip dream you have.  Very cool.  How long is getting to that $30K per year passive income point going to take you?