Author Topic: When FIRE Plans Go Wrong - Your Experiences?  (Read 26510 times)

HopefulMustache

  • 5 O'Clock Shadow
  • *
  • Posts: 76
When FIRE Plans Go Wrong - Your Experiences?
« on: February 23, 2015, 11:04:21 AM »
I definitely appreciate MMM (and many others I see in the FI blogosphere) taking an upbeat and optimistic attitude about our abilities to adapt, save, invest and hit FIRE. It's a way of looking at things that I enjoy reading and, as much as possible, living.

However, as we all know, there are any number of challenges that can drastically throw off one's projections. One's assets, income or expenses can all take a sharp turn the wrong way, whether it's from bad luck, projections "not panning out," or myriad other difficulties that can crop up. I know the general advice goes something like "We're not robots and there are no guarantees - if something happens to disrupt your plans just add to your income and/or reduce other expenses as best you can. Create a new projection, and good luck to you." It's usually not addressed in much more detail than that as far as I've seen.

I thought it would be interesting to hear actual experiences from people who have had their FIRE dreams forced off course. What happened and how did you try to get back on track? Were you able to succeed, and if not yet, what are your current goals? Was there anything you wish you had thought of/planned for, either emotionally or financially, when you were starting out that would have helped?

I know this can potentially be a deeply personal question and I don't mean to try and call anyone out who has had difficulty - the MMM community is pretty nice in general, but sometimes it can seem like 100% of posters here reach FI, so I imagine it can be harder to share a story of not reaching it. Everyone has unique challenges and needs and I don't intend to pass judgment on any stories shared. I'll add that for myself, I am in the (very) early stages of trying to reach FI and don't expect to hit it for many years in a best-case scenario, which is often what MMM writes about. I also want to consider potential worst-case scenarios, so I'm turning to the community for honest stories and thoughts. Thanks for sharing if you do, and good luck to anyone trying to hit FIRE.

Sayonara925

  • Stubble
  • **
  • Posts: 131
  • Location: Point B
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #1 on: February 23, 2015, 11:14:02 AM »
In that I'm probably going to FIRE in the next several weeks, I'd be very interested to see responses to this as well.

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #2 on: February 23, 2015, 11:16:05 AM »
I definitely appreciate MMM (and many others I see in the FI blogosphere) taking an upbeat and optimistic attitude about our abilities to adapt, save, invest and hit FIRE. It's a way of looking at things that I enjoy reading and, as much as possible, living.

However, as we all know, there are any number of challenges that can drastically throw off one's projections. One's assets, income or expenses can all take a sharp turn the wrong way, whether it's from bad luck, projections "not panning out," or myriad other difficulties that can crop up. I know the general advice goes something like "We're not robots and there are no guarantees - if something happens to disrupt your plans just add to your income and/or reduce other expenses as best you can. Create a new projection, and good luck to you." It's usually not addressed in much more detail than that as far as I've seen.


How much more detail can there really be?  Everyone is going to have their own individual challenges to meet and individual situations that caused a wrinkle in their retirement, which is why the general spend less/work some is usually as specific as it gets.


There are a few stories and links here:

http://forum.mrmoneymustache.com/welcome-to-the-forum/any-early-retirement-fails-out-there/

sol

  • Walrus Stache
  • *******
  • Posts: 8433
  • Age: 47
  • Location: Pacific Northwest
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #3 on: February 23, 2015, 11:21:02 AM »
As noted above, there have been lots of stories here of people who failed to retire.  Usually they're people in their late 20s who were expecting 10%+ returns per year or something equivalently nonsensical.  There aren't so many stories of people planning on a 4% SWR and then having to go back to work, unless something horrible like expensive health problems comes along.

I also think it's worth noting that we generally misconstrue the safety margins of these plans.  Just because a given SWR only has a 5% failure rate over historical simulations does NOT mean that 5% of people who retire today with that plan will fail.  Quite the opposite, it means that for a given plan either 0% of this year's crop of retirees fails, or 100% of this year's crop of retirees fails, and there's a 5% chance that it will be 100% of them this year.

2ndTimer

  • Magnum Stache
  • ******
  • Posts: 4607
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #4 on: February 23, 2015, 11:44:18 AM »
We FIRED in our 40's and moved to Mexico.  When I became seriously ill, the Hub panicked and jumped back into the work world to make sure I got the care I needed.  It wasn't really a money issue, although all the insurance we have now is handy.  It was more a matter of he was used to having a solid partner who supervised  big chunks of our lives.   There is quite a difference when you are living in a third world country between having a fully functional partner who is always ready to try something new and having a partner who can't construct a coherent sentence and falls down a lot.

True story:  He first realized I was ill when it dawned on him that he was hungry all the time.  I like food and find all processes involving it interesting in a way that he doesn't so over the course of our lives together I have assumed responsibility for that part of our lives.  When I started being unconscious for many hours a day, the poor man nearly starved to death.

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1533
  • Location: Canada
    • My Necronomicon of Badassity
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #5 on: February 23, 2015, 11:53:09 AM »
As noted above, there have been lots of stories here of people who failed to retire.  Usually they're people in their late 20s who were expecting 10%+ returns per year or something equivalently nonsensical.  There aren't so many stories of people planning on a 4% SWR and then having to go back to work, unless something horrible like expensive health problems comes along.

^^ THIS!!  When I started down this path two years ago, I set what (to me) was a realistic yet slightly daunting task (at the time) of a 55% saving rate over 10 years.  I know that some years my net worth will explode over the projection.  That fact doesn't raise the bar for the next year--the plan is THE PLAN and I'm sticking to it.  The next year could be lean--equities sink -8% over the year or something.  I'm working with averages.  Last year my savings rate was 57%.  It might not be that this year, or it could be higher, and doesn't mean I can ratchet savings down to 53%, but the goal is to try for 55% annually.  I also placed my investments growth at a very conservative 6%.  (I'm not one to get caught up in recency bias.)

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1533
  • Location: Canada
    • My Necronomicon of Badassity
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #6 on: February 23, 2015, 12:02:58 PM »
It's usually not addressed in much more detail than that as far as I've seen.

I used the following calculator, printed it out, and pinned it beside my desk.  It's a rough projection, but enough to go on for now:

http://networthify.com/calculator/earlyretirement

I wrote the age I'd be beside each row and set a low withdrawal rate so it would show the number of years 'til I'd hit a million.

HopefulMustache

  • 5 O'Clock Shadow
  • *
  • Posts: 76
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #7 on: February 23, 2015, 12:04:58 PM »

How much more detail can there really be?  Everyone is going to have their own individual challenges to meet and individual situations that caused a wrinkle in their retirement, which is why the general spend less/work some is usually as specific as it gets.


There are a few stories and links here:

http://forum.mrmoneymustache.com/welcome-to-the-forum/any-early-retirement-fails-out-there/

Oh I understand - I almost specifically wrote in a caveat about how it's likely due to just how unique the problems are, so I don't really blame MMM/other bloggers. I think it's a well suited question to forums like this one though, where more individual/personal detail can be explored. Thanks for that link too, I'll be reading through it.

As noted above, there have been lots of stories here of people who failed to retire.  Usually they're people in their late 20s who were expecting 10%+ returns per year or something equivalently nonsensical.  There aren't so many stories of people planning on a 4% SWR and then having to go back to work, unless something horrible like expensive health problems comes along.

This is kind of my sense, but I think it can still be instructive/valuable to hear about even unlikely cases if people would like to share them. It doesn't have to move the needle on the cold-math part of the equation per se, but I think it can still be good for awareness.

HopefulMustache

  • 5 O'Clock Shadow
  • *
  • Posts: 76
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #8 on: February 23, 2015, 12:09:09 PM »
I used the following calculator, printed it out, and pinned it beside my desk.  It's a rough projection, but enough to go on for now:

http://networthify.com/calculator/earlyretirement

I wrote the age I'd be beside each row and set a low withdrawal rate so it would show the number of years 'til I'd hit a million.

Thanks for that link - I think I've seen that before but I'd forgotten about it, it's another good calculator link that gives a good visual.

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 43
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #9 on: February 23, 2015, 03:25:13 PM »
It's also worth keeping in mind that the stock market has been on an essentially-uninterrupted tear for the past 5+ years, so you are unlikely to find many early retirement failure stories cropping up in recent years.

Also, even though most of us consciously recognize the ridiculous amounts of safety margin built into MMM-style early retirement, the actual early retirees in this forum can't seem to help but express surprise that their retirements are indeed succeeding as expected.  "My stash is growing out of control!  I'm down to a 1% WR!  It's become clear that I worked too long and saved too much!"  Well, yes, cfiresim always told you that, historically speaking, the odds were close to 100% that you were working too long and saving too much and equipping yourself to wind up with an obscene final portfolio amount that you can use to throw yourself the world's flashiest funeral.

RootofGood

  • Handlebar Stache
  • *****
  • Posts: 1361
  • Age: 43
  • Location: North Carolina
  • Retired at age 33. 5 years in, still loving it!
    • Root of Good
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #10 on: February 23, 2015, 03:42:43 PM »
If we have another Great Recession, I'll be sweating a little bit.  But I don't think I would run out and grab a job in the first year or two of a down market. 

As others mentioned, retiring on 3-4% safe withdrawal rate and having a forecasted 95-99% success rate (plus the ability to trim spending or hustle up a few $k per year) means those following the advice preached in the ER community are very unlikely to "fail" barring some horrible catastrophe that eats the whole portfolio up front or over time. 

I could see something like me or Mrs. RootofGood having a stroke or other debilitating medical condition requiring expensive long term care and medical care something that might lead to the healthy spouse going back to work.  Not that continuing to work forever is an antidote to that either.  I'd much rather have a million or two in the bank if something like that were to happen.  At least we know we'll be fine for many years, and can slowly adjust to a new reality. 
 

jmusic

  • Bristles
  • ***
  • Posts: 465
  • Location: Somewhere...
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #11 on: February 23, 2015, 04:04:04 PM »
I certainly can't speak from any experience, but when failure means I got to take off 5 years of work and then said "Oh, crap, I need more money..."   That'd be a pretty good problem to have.  Especially compared to folks who get laid off with debt up to their eyeballs.

deborah

  • Senior Mustachian
  • ********
  • Posts: 15966
  • Age: 14
  • Location: Australia or another awesome area
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #12 on: February 23, 2015, 07:21:59 PM »
I am wondering whether the OP means us to talk about our hiccups along the way.

For instance, I had a traffic accident, which ended up costing me about $100k in lost work and expenses. For years I wandered around in a maze of hurt and depression. That was definitely a major hiccup, and I think that a number of people have them. I worry sometimes about the way people seem to be pretty definite that they will FIRE in June 2020 (for example), when so much can happen in between - getting married, extra expensive children, divorce... can all create havoc with your FIRE plans.

Since I was just saving, rather than ERing, I didn't have the concern of missing my major goal as well as all the other concerns I had at the time.

Vilgan

  • Bristles
  • ***
  • Posts: 451
  • Location: Seattle, WA
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #13 on: February 23, 2015, 07:45:18 PM »
I'd imagine the divorce thread is a good place to look for bumps in the road

backyardfeast

  • Pencil Stache
  • ****
  • Posts: 867
  • Location: Vancouver Island, BC
    • My journal
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #14 on: February 23, 2015, 08:11:05 PM »
Well I'm still early along this road, and there have indeed been hiccups.  And I'd love to hear reassuring stories from others about hiccups they experienced and then recovered from! :)

In our case, although I'd been reading ERE, YMOYL and others for many years, I got full on the MMM bandwagon a couple of years ago now.  We earn what feels like decent money, and I started setting savings goals, monthly budgets, and dreaming of our soon-to-be retirement years.  But over the last couple of years, although we've managed to save a little, we've also been derailed by major dental work ($6500), a month on half salary for me last summer, an upcoming paid leave at 70% salary, and this past month DH had an episode with his car that will likely end up costing us another $1000 of unexpected cash.  Then it turned out I wasn't budgeting nearly enough for our home maintenance fund, we're going to need to replace the car a little sooner than planned, some other more minor issues came up, etc etc.  You know, Life Happens.  But we just can't seem to keep an emergency fund intact.

It's frustrating, because generally we're on track, and when I run the long-term numbers, everything still works out fine.  But in the short term, I struggle, because we're THIS CLOSE to getting ahead and really building some savings, and we just can't quite seem to get there.  My sister points out that our financial skills mean that we can absorb these costs, and our debts aren't mounting, they're still shrinking.  Sigh.  I remain optimistic, and trust that YNAB and our daily frugal habits will eventually win out. :)

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5503
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #15 on: February 23, 2015, 11:04:26 PM »
I have wondered about this and have a section of my FIRE plan for contingency plans that I divide into four sections:

a.  Padding plans.  Things I am doing or plan to do.
b.  Expense safety plans.  Things I could do or would do to reduce my expenses.
c.  Income safety plans.  Things I could do or would do to increase my income.
d.  Super duper backups.  Things I don't want to plan on but could happen and would help.

In each section I have a list of items, so for example:

a.  Work longer at my current company aka OMY.
    Work part time at my current company.
    Get to a 3.5% WR.
b.  Downsize my home
    Rent out a room
    Rent out my house
    Sell my house and travel / RV / rent
    Move to a lower COL area
    Dial up the frugality in general
c.  Work in various "enjoyable but low paying" jobs
    Take SS early
d.  Various ways my assumptions might be too conservative - for example, I own some stock in a small local startup that I assume will eventually be worthless, but there's still some chance it will turn into some non-trivial amount of money.

I have plans to check my actual withdrawal rate against my planned withdrawal rate, and if I cross that tripwire I will invoke some selection of my contingency plans.

RootofGood

  • Handlebar Stache
  • *****
  • Posts: 1361
  • Age: 43
  • Location: North Carolina
  • Retired at age 33. 5 years in, still loving it!
    • Root of Good
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #16 on: February 24, 2015, 07:04:08 AM »
In our case, although I'd been reading ERE, YMOYL and others for many years, I got full on the MMM bandwagon a couple of years ago now.  We earn what feels like decent money, and I started setting savings goals, monthly budgets, and dreaming of our soon-to-be retirement years.  But over the last couple of years, although we've managed to save a little, we've also been derailed by major dental work ($6500), a month on half salary for me last summer, an upcoming paid leave at 70% salary, and this past month DH had an episode with his car that will likely end up costing us another $1000 of unexpected cash.  Then it turned out I wasn't budgeting nearly enough for our home maintenance fund, we're going to need to replace the car a little sooner than planned, some other more minor issues came up, etc etc.  You know, Life Happens.  But we just can't seem to keep an emergency fund intact.

This is a general comment, but backyardfeast, your "extra" costs are a great illustration.  All of these "unexpected" or one-time costs are fairly predictable in the aggregate and it's something the savvy FIREee should explicitly budget for over the long term.  You're not going to replace your car and spend $6500 on dental work every year, but it's always something ugly and lumpy just about every year.  Bumping up the car replacement fund and home maintenance fund over the long term is a great way to insulate against these type of lumpy "unexpected" expenses (unexpected as to the exact timing, but not as to whether they tend to occur over the long term). 


Caoineag

  • Pencil Stache
  • ****
  • Posts: 663
  • Age: 42
  • Location: Michigan
    • My Journal
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #17 on: February 24, 2015, 07:26:03 AM »
We had a 3 year period where my sole goal was to keep us from accumulating more debt. It was a complete derailment from our original goals. So I changed our goals from early retirement to surviving said period without accumulating debt. Once the income went back up, the original goal of retiring by a certain time seemed feasible again, so I knocked out the debt and stepped up the savings. Since the income went way up, we are actually back on track and probably even a little ahead of the original goal. But for awhile there, I definitely was more concerned about keeping afloat in the here and now then early retirement.

I actually expect to have one more experience like that prior to early retirement. That is why having savings is so crucial because you never know what will happen in life and some events can be huge. I don't know how many people have told me there is nothing you can do when life happens and that I am just lucky I weathered my storm but I don't believe that. We survived that period because we were getting things in order, cutting expenses and had chosen to keep our main expenses low.

To me, one of the perks of saving for early retirement is that when things go wrong, you are still better off then if you had been saving for a normal retirement.

RootofGood

  • Handlebar Stache
  • *****
  • Posts: 1361
  • Age: 43
  • Location: North Carolina
  • Retired at age 33. 5 years in, still loving it!
    • Root of Good
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #18 on: February 24, 2015, 07:29:54 AM »
For instance, I had a traffic accident, which ended up costing me about $100k in lost work and expenses. For years I wandered around in a maze of hurt and depression. That was definitely a major hiccup, and I think that a number of people have them. I worry sometimes about the way people seem to be pretty definite that they will FIRE in June 2020 (for example), when so much can happen in between - getting married, extra expensive children, divorce... can all create havoc with your FIRE plans.

Along this track of thought, I got lowercase fired 1.5 years ago when we were planning to work another 2-3 years to keep padding the FIRE stash (and quit in April of 2015 or April of 2016 instead of Aug of 2013).  I didn't get any severance but got $7000 in unemployment (NC = worst state in the nation for unemployment I think). 

We had enough in August 2013 when I lost my job to declare FIRE status, and we decided I didn't need to look for another job.  Mrs. RootofGood kept working since she had a 3 month paid sabbatical and another eight weeks of paid leave to burn through during 2014 (ie work 7 months, get paid for 12).  She took off most of the summer, a few weeks in the fall and worked four day weeks the last half of the year (semi-retirement? :) ).  They gave her an extra five weeks paid time off in 2014 and asked her to take two or three months of the sabbatical in 2015. 

Here we are in early 2015 and she's about to find out whether they are going to offer the sabbatical in the next few months, otherwise she's quitting sooner rather than later. 

Our portfolio continued to rise since August 2013 by enough to make us rather comfortably FIRE and probably enough to give our three kids a full ride through college. Most of that is from market returns, but a significant part is also Mrs. RootofGood's continued income.  My loss of income wasn't so bad since childcare costs dropped to zero, commuting and work-related expenses dropped to zero, and our federal taxes dropped to zero (well, negative $2000 due to child tax credits).  I'm also economizing at home since I have more time and we are saving thousands here and there. 

In other words, there was a major bump in the road but we managed just fine.  Like someone else said, maybe I get five years off from work then have to go back for a while to top off the portfolio.  Sounds like a pretty good "failure" to me!  :)

Thegoblinchief

  • Guest
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #19 on: February 24, 2015, 08:15:39 AM »
This is a general comment, but backyardfeast, your "extra" costs are a great illustration.  All of these "unexpected" or one-time costs are fairly predictable in the aggregate and it's something the savvy FIREee should explicitly budget for over the long term.  You're not going to replace your car and spend $6500 on dental work every year, but it's always something ugly and lumpy just about every year.  Bumping up the car replacement fund and home maintenance fund over the long term is a great way to insulate against these type of lumpy "unexpected" expenses (unexpected as to the exact timing, but not as to whether they tend to occur over the long term).

+1

This is where tracking spending is such a powerful tool. I personally do it in a custom spreadsheet, with my own unique categories and subcategories, but this way I know exactly what the running average of costs are. So many expenses are quite "lumpy" but are very easy to plan for if you know what the past averages have been.

retired?

  • Pencil Stache
  • ****
  • Posts: 665
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #20 on: February 25, 2015, 10:40:19 AM »
Posting to get this thread back on top.  I had not scrolled down far enough and wouldn't have started a new post.  Thanks, Eric.

I am simply looking to hear real stories that highlight stuff I didn't consider.  We can always conjecture about what might go wrong, but real examples, well, make it more real.

retired?

  • Pencil Stache
  • ****
  • Posts: 665
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #21 on: February 25, 2015, 11:36:58 AM »
As noted above, there have been lots of stories here of people who failed to retire.  Usually they're people in their late 20s who were expecting 10%+ returns per year or something equivalently nonsensical.  There aren't so many stories of people planning on a 4% SWR and then having to go back to work, unless something horrible like expensive health problems comes along.

I also think it's worth noting that we generally misconstrue the safety margins of these plans.  Just because a given SWR only has a 5% failure rate over historical simulations does NOT mean that 5% of people who retire today with that plan will fail.  Quite the opposite, it means that for a given plan either 0% of this year's crop of retirees fails, or 100% of this year's crop of retirees fails, and there's a 5% chance that it will be 100% of them this year.

Good note.  Beforehand, it is probabilities, but one instance will play out.  In this instance, what plays out is a single path of returns.  And, the 100% refers to the crop really being the same.  Bob and Sally both retiring in 2020 with same swr with either both fail (and in the same year) or both succeed.....under the usual simple swr assumptions.

Reminds me of a probability example to highlight the differences in some definitions.  Take a turtle who wanders aimlessly on a two-lane road.  The average position is in the middle (i.e. safe), but, almost surely, he will get run over.

backyardfeast

  • Pencil Stache
  • ****
  • Posts: 867
  • Location: Vancouver Island, BC
    • My journal
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #22 on: February 25, 2015, 05:36:22 PM »
RootofGood and GoblinChief, you are so right.  The hard part though (for me, at this moment) is that we're in this early transitional stage; the debts are JUST about paid off, and the savings aren't QUITE built yet.  So the derailments mean we're constantly resetting at debt payment, rather than continuing to build savings.  You're right that tracking over many years will create a clearer anticipation of specific categories of expenses.  And I know the savings will win out eventually.  It's just teetering on this edge that is frustrating sometimes....

retired?

  • Pencil Stache
  • ****
  • Posts: 665
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #23 on: February 25, 2015, 05:59:17 PM »
For instance, I had a traffic accident, which ended up costing me about $100k in lost work and expenses. For years I wandered around in a maze of hurt and depression. That was definitely a major hiccup, and I think that a number of people have them. I worry sometimes about the way people seem to be pretty definite that they will FIRE in June 2020 (for example), when so much can happen in between - getting married, extra expensive children, divorce... can all create havoc with your FIRE plans.

Along this track of thought, I got lowercase fired 1.5 years ago when we were planning to work another 2-3 years to keep padding the FIRE stash (and quit in April of 2015 or April of 2016 instead of Aug of 2013).  I didn't get any severance but got $7000 in unemployment (NC = worst state in the nation for unemployment I think). 

We had enough in August 2013 when I lost my job to declare FIRE status, and we decided I didn't need to look for another job.  Mrs. RootofGood kept working since she had a 3 month paid sabbatical and another eight weeks of paid leave to burn through during 2014 (ie work 7 months, get paid for 12).  She took off most of the summer, a few weeks in the fall and worked four day weeks the last half of the year (semi-retirement? :) ).  They gave her an extra five weeks paid time off in 2014 and asked her to take two or three months of the sabbatical in 2015. 

Here we are in early 2015 and she's about to find out whether they are going to offer the sabbatical in the next few months, otherwise she's quitting sooner rather than later. 

Our portfolio continued to rise since August 2013 by enough to make us rather comfortably FIRE and probably enough to give our three kids a full ride through college. Most of that is from market returns, but a significant part is also Mrs. RootofGood's continued income.  My loss of income wasn't so bad since childcare costs dropped to zero, commuting and work-related expenses dropped to zero, and our federal taxes dropped to zero (well, negative $2000 due to child tax credits).  I'm also economizing at home since I have more time and we are saving thousands here and there. 

In other words, there was a major bump in the road but we managed just fine.  Like someone else said, maybe I get five years off from work then have to go back for a while to top off the portfolio.  Sounds like a pretty good "failure" to me!  :)

What is "lowercase fired"?

A polite firing?  Being "let go"......never heard this term.

stuckinmn

  • Stubble
  • **
  • Posts: 110
  • Location: Minneapolis
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #24 on: February 25, 2015, 06:31:43 PM »


What is "lowercase fired"?

A polite firing?  Being "let go"......never heard this term.

fired= terminated from employment involuntarily
FIREd= financially independent, retired early voluntarily

SugarMountain

  • Pencil Stache
  • ****
  • Posts: 938
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #25 on: February 25, 2015, 08:03:22 PM »
It seems to me that the "fail" that most of us worry about is 30-40 years down the road.  I haven't seen too many posters on who have been FIREd even 10 years, let alone 30.

sol

  • Walrus Stache
  • *******
  • Posts: 8433
  • Age: 47
  • Location: Pacific Northwest
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #26 on: February 25, 2015, 08:12:41 PM »
It seems to me that the "fail" that most of us worry about is 30-40 years down the road.  I haven't seen too many posters on who have been FIREd even 10 years, let alone 30.

That's a valid point, and one that Wade Pfau has written about repeatedly.  He says that the "great recession" market crash of 2008 has ruined retirement for millions of people who just don't know it yet, and won't know it for decades to come.  Eventually their 4% inflation adjusted withdrawals based on 2007 valuations will outstrip their residual savings, or at least that's his claim.

Time will tell.

retired?

  • Pencil Stache
  • ****
  • Posts: 665
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #27 on: February 25, 2015, 09:31:28 PM »
I am wondering whether the OP means us to talk about our hiccups along the way.

For instance, I had a traffic accident, which ended up costing me about $100k in lost work and expenses. For years I wandered around in a maze of hurt and depression. That was definitely a major hiccup, and I think that a number of people have them. I worry sometimes about the way people seem to be pretty definite that they will FIRE in June 2020 (for example), when so much can happen in between - getting married, extra expensive children, divorce... can all create havoc with your FIRE plans.

Since I was just saving, rather than ERing, I didn't have the concern of missing my major goal as well as all the other concerns I had at the time.

This is along the lines of what I was interested to hear about....when I (prematurely) started a separate thread.  I planned well, I did this and that, but.........

retired?

  • Pencil Stache
  • ****
  • Posts: 665
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #28 on: February 25, 2015, 09:35:40 PM »


What is "lowercase fired"?

A polite firing?  Being "let go"......never heard this term.

fired= terminated from employment involuntarily
FIREd= financially independent, retired early voluntarily

Ah, yes.  Seeing it written as "fired" vs. "FIREd" is clear.  I see many a new phrase here and I google first.  "lowercase fired" didn't come up so I felt fine asking.......no such thing as a stupid question, eh? 

retired?

  • Pencil Stache
  • ****
  • Posts: 665
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #29 on: February 25, 2015, 09:41:18 PM »
It seems to me that the "fail" that most of us worry about is 30-40 years down the road.  I haven't seen too many posters on who have been FIREd even 10 years, let alone 30.

That's a valid point, and one that Wade Pfau has written about repeatedly.  He says that the "great recession" market crash of 2008 has ruined retirement for millions of people who just don't know it yet, and won't know it for decades to come.  Eventually their 4% inflation adjusted withdrawals based on 2007 valuations will outstrip their residual savings, or at least that's his claim.

Time will tell.

Why don't they know it yet?  I mean, clearly they cannot read the future, but they do see what the recession has done to their savings.  I didn't think people planned to based withdrawals on a fixed year's valuation.

I agree it may have ruined retirement, but the "don't know it yet" part is a little confusing.  They know it as much as anyone thinking about retiring.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9923
  • Registered member
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #30 on: February 25, 2015, 11:11:44 PM »
It seems to me that the "fail" that most of us worry about is 30-40 years down the road.  I haven't seen too many posters on who have been FIREd even 10 years, let alone 30.

That's a valid point, and one that Wade Pfau has written about repeatedly.  He says that the "great recession" market crash of 2008 has ruined retirement for millions of people who just don't know it yet, and won't know it for decades to come.  Eventually their 4% inflation adjusted withdrawals based on 2007 valuations will outstrip their residual savings, or at least that's his claim.

Time will tell.

Why don't they know it yet?  I mean, clearly they cannot read the future, but they do see what the recession has done to their savings.  I didn't think people planned to based withdrawals on a fixed year's valuation.

I agree it may have ruined retirement, but the "don't know it yet" part is a little confusing.  They know it as much as anyone thinking about retiring.

I think he means they, like many here, will just say "well the market went down, but the 4% SWR accounts for that," even though it's possible 2007 is a new historical "worst starting year".  But nobody knows that for sure yet.

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 43
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #31 on: February 26, 2015, 07:28:21 AM »
That's a valid point, and one that Wade Pfau has written about repeatedly.  He says that the "great recession" market crash of 2008 has ruined retirement for millions of people who just don't know it yet, and won't know it for decades to come.  Eventually their 4% inflation adjusted withdrawals based on 2007 valuations will outstrip their residual savings, or at least that's his claim.

This highlights an issue that I don't think gets as much attention as it should in the FIRE community:  people constantly repeat the mantra that "most portfolio failures result from a bad sequence of returns where a market crash occurs early in the retirement period" and therefore conclude that it's easy to identify within a few years after retirement whether your particular portfolio's trajectory is headed for failure or success.  But I don't think it's necessarily so easy, and I don't think anyone has put forward any good, well-defined parameters for identifying whether the early performance of your portfolio means you're probably still good to go or whether you need to take corrective action.  Actual early retirees seem to be navigating by gut feeling when it comes to these issues.

Thegoblinchief

  • Guest
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #32 on: February 26, 2015, 08:05:39 AM »
This is also why a lot of us build massive buffers into our annual expenses. My FIRE number has at least 33% optional spending, and many around here have gone far higher.

People like Pfau have attempted to mathematically analyze it, so reading his stuff would be a good place to start, if you want to get beyond a gut-level "hmm, maybe I should pare back spending" feeling.

Of course, in all this, you can always go back to work. Even low-wage PT earnings deferring expenses does amazing things to the pressure on your asset sheet. Obviously that's not the ideal, but when talking about 4% SWR, that model presumes blind set expenditures and never getting off the couch to earn a buck ever again.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 8685
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #33 on: February 26, 2015, 09:27:52 AM »
That's a valid point, and one that Wade Pfau has written about repeatedly.  He says that the "great recession" market crash of 2008 has ruined retirement for millions of people who just don't know it yet, and won't know it for decades to come.  Eventually their 4% inflation adjusted withdrawals based on 2007 valuations will outstrip their residual savings, or at least that's his claim.

Time will tell.

If the market crashes like in 2008 and you take no action to adjust your ER plans and you can't see why that is a problem your ER kung fu is weak and my sympathy is pretty low.

Get a part-time job and adjust your spending for a year or two so you don't damage your portfolio at its weakest. Use that cash reserve of 12 months living expenses you had to buffer the downturn.

If you are just cranking out 4% of your initial investment amount come hell or high water you are either dumb or crazy - possibly both.

-- Vik

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #34 on: February 26, 2015, 10:20:45 AM »
It seems to me that the "fail" that most of us worry about is 30-40 years down the road.  I haven't seen too many posters on who have been FIREd even 10 years, let alone 30.

That's a valid point, and one that Wade Pfau has written about repeatedly.  He says that the "great recession" market crash of 2008 has ruined retirement for millions of people who just don't know it yet, and won't know it for decades to come.  Eventually their 4% inflation adjusted withdrawals based on 2007 valuations will outstrip their residual savings, or at least that's his claim.

Time will tell.

I highly doubt that these people are in trouble.  At least not at the current time.  We surpassed 2007 stock market highs a long time ago.  A crash, even a big one, that's followed by a quick recovery isn't all that detrimental.  It's a crash followed by a long drawn out period without gains that causes all the problems.  In any historical simulation 1966-1969 are years that fail because the 70s were mostly flat and that was combined with high inflation.  And since inflation not an issue at the moment and we're already 35% higher than 2007, I don't think there's anything to worry about.

stuckinmn

  • Stubble
  • **
  • Posts: 110
  • Location: Minneapolis
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #35 on: February 26, 2015, 11:00:07 AM »
I highly doubt that these people are in trouble.  At least not at the current time.  We surpassed 2007 stock market highs a long time ago.  A crash, even a big one, that's followed by a quick recovery isn't all that detrimental.  It's a crash followed by a long drawn out period without gains that causes all the problems.  In any historical simulation 1966-1969 are years that fail because the 70s were mostly flat and that was combined with high inflation.  And since inflation not an issue at the moment and we're already 35% higher than 2007, I don't think there's anything to worry about.

Was just about to post this but Eric saved me the time. 

I've noticed when I'm doing cfiresim exercises 1966 is always the low point in any hypothetical portfolio/SWR I create.  Not 1929, not 1936 or other famous crash years but a 17 year period of a flat market and runaway inflation.

If that happens to me then I'm just going to have to accept the fact i was born under a bad star and I'm screwed.  folks that retired in 2007 should be fine, though I'm sure they were feeling nervous in early 2009.

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 43
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #36 on: February 26, 2015, 01:52:28 PM »
People like Pfau have attempted to mathematically analyze it, so reading his stuff would be a good place to start, if you want to get beyond a gut-level "hmm, maybe I should pare back spending" feeling.

I'm not aware of any guidelines that have come out of the research to help early retirees gauge whether or not their portfolio performance is on a successful trajectory.  People like Pfau are generally focused on determining the withdrawal rate that can be expected to be sustainable in anything but the worst-case and near-worst-case scenarios, or developing more dynamic withdrawal strategies that can protect against downside risk and/or allow retirees to take advantage of upside outcomes.  Has anyone put forward a history-based rule of thumb (akin to the 4% rule) that tries to quantify the "gut feeling"--something like:  if you're using a 4% WR and your portfolio's average performance over the first W years is less than X% then you need to drop to a Y% WR until the portfolio recovers by Z%?

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9923
  • Registered member
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #37 on: February 26, 2015, 02:08:25 PM »
People like Pfau have attempted to mathematically analyze it, so reading his stuff would be a good place to start, if you want to get beyond a gut-level "hmm, maybe I should pare back spending" feeling.

I'm not aware of any guidelines that have come out of the research to help early retirees gauge whether or not their portfolio performance is on a successful trajectory.  People like Pfau are generally focused on determining the withdrawal rate that can be expected to be sustainable in anything but the worst-case and near-worst-case scenarios, or developing more dynamic withdrawal strategies that can protect against downside risk and/or allow retirees to take advantage of upside outcomes.  Has anyone put forward a history-based rule of thumb (akin to the 4% rule) that tries to quantify the "gut feeling"--something like:  if you're using a 4% WR and your portfolio's average performance over the first W years is less than X% then you need to drop to a Y% WR until the portfolio recovers by Z%?

When your retired you ran firecalc or used 4% probably from trinity.    That backtest had a "worst drawdown from which you can recover".  If current drawdown is worse than that, I'd reconsider.  More specifically, the 4% is probably based on one really crappy starting year.  If your retirement year is currently looking worse than the worst viable starting year in the backtests, that's a good reason to consider alternatives.

You could also just rerun firecalc every year based on current assets and spending.  This approach would be slightly conservative, but if you fail with this year's numbers, that's an indication of higher failure risk.


kib

  • Stubble
  • **
  • Posts: 195
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #38 on: February 26, 2015, 02:26:44 PM »
I first FIRE'd at age 36, and it was partly out of desperation to get out of the high stress (high pay) work situation I was in.  I was determined to make it work and I was very good with numbers, but I was ignorant about other things - like how much harder it is to fixer-up a 100 year miner's shack than a 40 year old apartment, and how living in a low income area with lots of money in your bank book makes you a target.  I lived and learned but I lost a lot of money buying low and selling lower, and trusting people I had no business trusting.

So I got another comparatively well paying job in a different field, buckled down and put away 75% of my salary for 5 years til I could FIRE again.  Better luck this time, I knew what I could and couldn't manage in re real estate, and made some very nice profit there. 

So ... yeah.  There are times when I think about going back and taking 36 year old me by the hand and turning her into a multi millionaire.  It could have been done.  But I've loved a lot of my life both FI and struggling back to it, and I'm living proof that if at first you don't succeed, all is not lost.


desk_jockey

  • CM*MW 2023 Attendees
  • Bristles
  • *
  • Posts: 326
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #39 on: February 27, 2015, 05:58:23 AM »
That's a valid point, and one that Wade Pfau has written about repeatedly.  He says that the "great recession" market crash of 2008 has ruined retirement for millions of people who just don't know it yet, and won't know it for decades to come.  Eventually their 4% inflation adjusted withdrawals based on 2007 valuations will outstrip their residual savings, or at least that's his claim.

This highlights an issue that I don't think gets as much attention as it should in the FIRE community:  people constantly repeat the mantra that "most portfolio failures result from a bad sequence of returns where a market crash occurs early in the retirement period" and therefore conclude that it's easy to identify within a few years after retirement whether your particular portfolio's trajectory is headed for failure or success.  But I don't think it's necessarily so easy, and I don't think anyone has put forward any good, well-defined parameters for identifying whether the early performance of your portfolio means you're probably still good to go or whether you need to take corrective action.  Actual early retirees seem to be navigating by gut feeling when it comes to these issues.

This will be a little conservative, but I believe the parameter a few years after retirement can be your current withdrawal rate.

Take Wade’s example in the quote above for someone (Retiree A) that retires in 2007 with 4% inflation adjusted withdrawals.   On $1M, Retiree A would have withdrawn $40K in the first year and very slightly increased that amount year after year. 

In 2008-2010 Retiree A may have been withdrawing an average 6%+ per year of his reduced portfolio, perhaps over 8% at one point.  Four years later let’s say the market has recovered to the exact same level that it was before the crash, but Retiree A’s portfolio hasn’t fully returned to $1M because he  was making  withdrawals for retirement expenses while the portfolio was down.   Retiree A would still have less than $1M, while withdrawing more than $40K per year.    Three  more years pass, with the market steadily increasing again, Retiree A’s portfolio may only then cross back just above $1M, but by that time his inflation adjusted withdrawals have increased to $46K per year.    And so seven years into retirement Retiree A find that strictly following the 4% SWR rule that he is at a current withdrawal rate of 4.5%.   Looking at a new 30-year timeline at that point, you could run the math on a 4.5% withdrawal rate increasing at inflation and see the reduced chance of success.

Whereas someone else (Retiree B) retired with $1M in 2010, also withdrawing $40K in the first year for 4% SWR.   Five years later her portfolio may have increased to $1.7M and the annual withdraw amount to $43K, so her current withdraw rate has become 2.5% of her portfolio.    Running a new 30-year analysis at the then current 2.5% withdrawal rate shows no concern.

Retiree B would be in a good position if another recession were to come along in 2016 or 2017, but Retiree A may not.
   
Retiree A, knowing that 7 years into retirement he is currently withdrawing more that 4% of his principal could take corrective action to improve his probability of not outliving his $tache.    These corrections could be (a) stopping his annual inflation adjusted increase for the withdrawal, (b) getting part-time work so that he can reduce his withdrawals to below $40K for a few years, or (c) anticipating to die a bit sooner than the 30 year horizon. 

RootofGood

  • Handlebar Stache
  • *****
  • Posts: 1361
  • Age: 43
  • Location: North Carolina
  • Retired at age 33. 5 years in, still loving it!
    • Root of Good
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #40 on: February 27, 2015, 08:19:03 AM »
Ah, yes.  Seeing it written as "fired" vs. "FIREd" is clear.  I see many a new phrase here and I google first.  "lowercase fired" didn't come up so I felt fine asking.......no such thing as a stupid question, eh?

No harm in asking - I made the term up!  It contrasts well with FIREd.  And in my case the two events were one in the same. 

And yes, fired = involuntarily terminated employment in this case. 

RootofGood

  • Handlebar Stache
  • *****
  • Posts: 1361
  • Age: 43
  • Location: North Carolina
  • Retired at age 33. 5 years in, still loving it!
    • Root of Good
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #41 on: February 27, 2015, 08:25:57 AM »
Of course, in all this, you can always go back to work. Even low-wage PT earnings deferring expenses does amazing things to the pressure on your asset sheet. Obviously that's not the ideal, but when talking about 4% SWR, that model presumes blind set expenditures and never getting off the couch to earn a buck ever again.

That's the truth.  In reality, retirees can (and do) trim spending during rough times and feel more free to spend more in good times.  And many end up earning a little money doing something enjoyable or to keep them busy, active and social. 

And for the annual spending of many members here, it doesn't take much to work a $15/hr gig part time and cover half of their living expenses. 

RootofGood

  • Handlebar Stache
  • *****
  • Posts: 1361
  • Age: 43
  • Location: North Carolina
  • Retired at age 33. 5 years in, still loving it!
    • Root of Good
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #42 on: February 27, 2015, 08:44:06 AM »
Has anyone put forward a history-based rule of thumb (akin to the 4% rule) that tries to quantify the "gut feeling"--something like:  if you're using a 4% WR and your portfolio's average performance over the first W years is less than X% then you need to drop to a Y% WR until the portfolio recovers by Z%?

I did some serious analysis many years ago and posted my conclusions at the ER forums.  Taking the firecalc results, I looked at what "% of initial portfolio value" was remaining after 10 and 15 years and figured out the % that led to eventual portfolio failures. 

I can't remember the exact results but it was something like if you only have 50-60% of your portfolio value remaining at 10 or 15 years, then you're destined for failure within your retirement period.  Otherwise, the portfolio value eventually recovers and you have "success" (as in, portfolio never dips to zero). 

As a prescriptive rule, you could state it as "If you still have half or more of what you started with after 10 to 15 years of ER living, then you're probably going to be fine long term, otherwise, cut your expenses and/or bring in some more income". 

I know if my portfolio value dropped in half within 10 years, I'd already be looking at cutting expenses or pulling in some earned income.  Heck, I'd probably go back to full time work so I could shore up my portfolio.  In other words, I think my gut feelings are good enough to guide me through early retirement and to avoid those failures 30-40 years down the road. 

After all, if you're spending 3-4% of your portfolio and it's growing at 5-6% real returns long term, then under most time series you'll have more than you started with.  By 30 years you will have significantly more under almost all time series.
« Last Edit: February 27, 2015, 08:46:25 AM by RootofGood »

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 2075
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #43 on: February 27, 2015, 02:25:56 PM »
People like Pfau have attempted to mathematically analyze it, so reading his stuff would be a good place to start, if you want to get beyond a gut-level "hmm, maybe I should pare back spending" feeling.

I'm not aware of any guidelines that have come out of the research to help early retirees gauge whether or not their portfolio performance is on a successful trajectory.  People like Pfau are generally focused on determining the withdrawal rate that can be expected to be sustainable in anything but the worst-case and near-worst-case scenarios, or developing more dynamic withdrawal strategies that can protect against downside risk and/or allow retirees to take advantage of upside outcomes.  Has anyone put forward a history-based rule of thumb (akin to the 4% rule) that tries to quantify the "gut feeling"--something like:  if you're using a 4% WR and your portfolio's average performance over the first W years is less than X% then you need to drop to a Y% WR until the portfolio recovers by Z%?

I very much appreciate all the different models people have put together to address these questions, and I've gone through many different simulations. But, at the same time, there's a threshold where we have to realize that the future performance is unknowable, since we cannot know with certainty that a future period will be like past periods. I mean, the odds of 30 year stagflation or similar problem are admittedly low, but the point is you can't know with 100% certainty if your portfolio will outlive any and all scenarios based on past performance. Coming up with rules designed to create a bullet-proof ER are ultimately impossible -- there will always be uncertainty we cannot overcome.

There's a point where you have to accept that your flexibility will allow you to handle anything (reasonable) life can throw at you, and that it's not a "failure" if you (worst case) get a 20-year vacation while you're young and have to go back to work for a while when you're 60. Plus, you'll have 20 years to see it coming and take corrective action if you don't like that worst-case outcome.

Cookie78

  • Handlebar Stache
  • *****
  • Posts: 1888
  • Location: Canada
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #44 on: February 27, 2015, 03:41:51 PM »
I certainly can't speak from any experience, but when failure means I got to take off 5 years of work and then said "Oh, crap, I need more money..."   That'd be a pretty good problem to have.  Especially compared to folks who get laid off with debt up to their eyeballs.

+1

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 43
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #45 on: February 27, 2015, 03:43:36 PM »
But, at the same time, there's a threshold where we have to realize that the future performance is unknowable, since we cannot know with certainty that a future period will be like past periods. I mean, the odds of 30 year stagflation or similar problem are admittedly low, but the point is you can't know with 100% certainty if your portfolio will outlive any and all scenarios based on past performance. Coming up with rules designed to create a bullet-proof ER are ultimately impossible -- there will always be uncertainty we cannot overcome.

Yes, the disclaimer that the past does not necessarily predict the future always applies.  But I wasn't asking if there are any rules of thumb designed to create a bullet-proof ER, just whether there are any rules of thumb for spotting trouble on the horizon, like what Root of Good posted above or what secondcor521 newly proposed in this thread.

Quote
Plus, you'll have 20 years to see it coming and take corrective action if you don't like that worst-case outcome.

How will you see it coming?  We (the FIRE community) can come up with a better answer than "you'll know it when you see it" or "your gut will tell you."

I like dragoncar's suggested approach of simply rerunning cfiresim every so often with your updated numbers to see if you're still comfortable with the historical odds in light of the then-most recently available information or whether you want to take corrective action.  The updated success rate that cfiresim spits out at each periodic check-up will take into account both the actual performance of your portfolio since the last check-up and also the inclusion of the newer periods that got added to the historical dataset.  Note that this will magnify the effect of either a market run-up or a market downturn, as Sol observed in this thread.
« Last Edit: February 27, 2015, 04:08:43 PM by brooklynguy »

Cassie

  • Walrus Stache
  • *******
  • Posts: 7946
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #46 on: February 27, 2015, 04:54:52 PM »
I think that the younger you are the more there is to worry about because your retirement will be so long. We retired at 53 & 58 & our goal was to be able to live on our pensions ($40,000 minus $10,000) for health insurance if we needed to without using our other $. We did it for the first year no problem.  Then we both got bored & did p.t. consulting in our fields which resulted in our saving more $ but also spending more by doing more traveling, going out etc then what we did when we were not working at all.  There will be a time when neither of us wants to work at all so we are planning for that also.  As we age we will probably want to travel less so plan to do all our traveling while we both in good health, etc (55 & 60) now. For younger folks I think that good insurance would be continuing to work p.t. to maintain or obtain new skills so that there is still some $ coming in for awhile.

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #47 on: February 27, 2015, 07:34:29 PM »
Plus, you'll have 20 years to see it coming and take corrective action if you don't like that worst-case outcome.

How will you see it coming?  We (the FIRE community) can come up with a better answer than "you'll know it when you see it" or "your gut will tell you."

I like dragoncar's suggested approach of simply rerunning cfiresim every so often with your updated numbers to see if you're still comfortable with the historical odds in light of the then-most recently available information or whether you want to take corrective action.  The updated success rate that cfiresim spits out at each periodic check-up will take into account both the actual performance of your portfolio since the last check-up and also the inclusion of the newer periods that got added to the historical dataset.  Note that this will magnify the effect of either a market run-up or a market downturn, as Sol observed in this thread.

Dr. Doom wrote about this in his Drawdown series.  All five posts in the series are great, but the 5th one summarizes what you're talking about pretty well.

Quote
3.  Living Below The Line Is Normal

I think of ‘the line’ as the level of your asset pool upon quitting your job.  Everyone wants to see totals rise above that line by at least 3-4% every year, which will in turn sustain your spending without lowering your principal.  But it doesn’t always work out that way. Slightly fewer than half the years in the history of the market will result in a drop in your 75/25 portfolio.

If there’s a bad sequence of returns after retirement, you may therefore be living below that line.  In this case, as I outlined in the Strategy post, I thought it would be a good idea to re-execute cFIREsim every year in January, when I do my annual financial reckoning prior to tax season.  And I set a percentage:  I will perhaps go back to work if cFIREsim is reporting lower than an 80% success rate.

I see now that this is ridiculous.  If I followed this rule, there would be greater than a forty percent change of returning to work at some point.  It’s fairly normal to have portions of RE life where the value of your assets is below their level when you retired.  The major exception to this is for people who retired right before a terrific boom.

But back to reality:  It’s very common, if not completely expected, for portfolios to have significant drops during retirement.  Therefore I should expect that at some point cFIREsim will report correspondingly lower chances of success.  I’m reducing the back-to-work percentage from 80% to 70%.   

This is obviously a somewhat personal preference, at where to set the "oh shit percentage" as I'll call it.

I realize that you want a better answer than "you'll know it when you see it" but reading through the posts in this thread plus the one that you linked to from Secondcor521, makes me think that you really will know it when you see it.  If your balance has dropped to half of your initial amount or lower, there's a good chance that you'll be in trouble.  My guess is that you'll feel like you're in trouble before that point and instinctively cut some expenses and start picking up some side gigs or more formal part time work and nothing a simulation/back test says could make you do otherwise.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9923
  • Registered member
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #48 on: February 27, 2015, 07:52:36 PM »
Plus, you'll have 20 years to see it coming and take corrective action if you don't like that worst-case outcome.

How will you see it coming?  We (the FIRE community) can come up with a better answer than "you'll know it when you see it" or "your gut will tell you."

I like dragoncar's suggested approach of simply rerunning cfiresim every so often with your updated numbers to see if you're still comfortable with the historical odds in light of the then-most recently available information or whether you want to take corrective action.  The updated success rate that cfiresim spits out at each periodic check-up will take into account both the actual performance of your portfolio since the last check-up and also the inclusion of the newer periods that got added to the historical dataset.  Note that this will magnify the effect of either a market run-up or a market downturn, as Sol observed in this thread.

Dr. Doom wrote about this in his Drawdown series.  All five posts in the series are great, but the 5th one summarizes what you're talking about pretty well.

Quote
3.  Living Below The Line Is Normal

I think of ‘the line’ as the level of your asset pool upon quitting your job.  Everyone wants to see totals rise above that line by at least 3-4% every year, which will in turn sustain your spending without lowering your principal.  But it doesn’t always work out that way. Slightly fewer than half the years in the history of the market will result in a drop in your 75/25 portfolio.

If there’s a bad sequence of returns after retirement, you may therefore be living below that line.  In this case, as I outlined in the Strategy post, I thought it would be a good idea to re-execute cFIREsim every year in January, when I do my annual financial reckoning prior to tax season.  And I set a percentage:  I will perhaps go back to work if cFIREsim is reporting lower than an 80% success rate.

I see now that this is ridiculous.  If I followed this rule, there would be greater than a forty percent change of returning to work at some point.  It’s fairly normal to have portions of RE life where the value of your assets is below their level when you retired.  The major exception to this is for people who retired right before a terrific boom.

But back to reality:  It’s very common, if not completely expected, for portfolios to have significant drops during retirement.  Therefore I should expect that at some point cFIREsim will report correspondingly lower chances of success.  I’m reducing the back-to-work percentage from 80% to 70%.   

This is obviously a somewhat personal preference, at where to set the "oh shit percentage" as I'll call it.

I realize that you want a better answer than "you'll know it when you see it" but reading through the posts in this thread plus the one that you linked to from Secondcor521, makes me think that you really will know it when you see it.  If your balance has dropped to half of your initial amount or lower, there's a good chance that you'll be in trouble.  My guess is that you'll feel like you're in trouble before that point and instinctively cut some expenses and start picking up some side gigs or more formal part time work and nothing a simulation/back test says could make you do otherwise.

This seem really wrong, though.  cFiresim gives a 4.5% WR an 80% chance of success.  Thus, you can "live above the line" quite a bit and still get an 80% success rate.  The real problem (or is it??) is that cfiresim doesn't take into account the history of your stache.  If you retire at a market peak, all is fine and well.  But if you retire 1 year into a market crash, cFiresim doesn't simulate only paths that start AFTER a crash, it simulates all paths, including those that start at a peak.  This is a pessimistic result.

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: When FIRE Plans Go Wrong - Your Experiences?
« Reply #49 on: February 27, 2015, 08:13:04 PM »
I realize that you want a better answer than "you'll know it when you see it" but reading through the posts in this thread plus the one that you linked to from Secondcor521, makes me think that you really will know it when you see it.  If your balance has dropped to half of your initial amount or lower, there's a good chance that you'll be in trouble.  My guess is that you'll feel like you're in trouble before that point and instinctively cut some expenses and start picking up some side gigs or more formal part time work and nothing a simulation/back test says could make you do otherwise.

This seem really wrong, though.  cFiresim gives a 4.5% WR an 80% chance of success.  Thus, you can "live above the line" quite a bit and still get an 80% success rate. 

If you're living above the line for quite a bit (meaning that your portfolio value keeps growing while you're withdrawing your 4.5% of initial + inflation) then I think your success rate is much higher than 80%.  (depending on how long quite a bit is)  Most failures occur when there's an initial dip that never recovers. 

The real problem (or is it??) is that cfiresim doesn't take into account the history of your stache.  If you retire at a market peak, all is fine and well.  But if you retire 1 year into a market crash, cFiresim doesn't simulate only paths that start AFTER a crash, it simulates all paths, including those that start at a peak.  This is a pessimistic result.

I guess, but that doesn't really matter once you're retired and drawing off of your stash.  Does it?  At that point, it's sort of binary.  It's either going to work or it's not.  And as 2cor521 pointed out, a good general rule seems to be that if you're above your initial line after 20 years, you'll be good where if you're below, you're probably not.

After all, you can't really know if you're retiring at a peak or not. (EDIT -- although I guess after 20 years you'd know)
« Last Edit: February 27, 2015, 08:19:49 PM by Eric »

 

Wow, a phone plan for fifteen bucks!