Why the academic aversion to failing FIRE?

[TheAnonOne]

I have been a poster and a reader here (and other blogs) for a few years now and am well on my path FIRE. However I have 8-10 years left depending on pay/raises/market returns/wife's income growth/

I am 26 years old with a 300k+NW, with a pretty stable plan to never HAVE to work again in my mid 30s. Pretty sweet! but not uncommon here.

I read here and even understand that the first X years of FIRE are the only ones to REALLY worry about. What I don't understand is why it matters much beyond an academic point.

If the market TANKS year 1 of my FIRE goals, you can bet-your-butt that I would just go back and work another year(or LESS). I am still FIREed in my MID 30s AND I would end up richest in this situation out of ALL THE SITUATIONS. (buying at a massive discount and living my first years of fire riding the market back to new heights)


I just wanted to start a conversation around this and get some viewpoints. Is failing FIRE early and going back to work for a 'SHORT' period of time, the worst thing in the world? It really does seem nit-picky to me. We collectively generate, chart after chart, play with different asset allocations, and plan to cut spending in 'lean times' all to avoid having to return to work in the first year or two to ride out a bad market.

I can't be the only one who feels this way.

[onlykelsey]

I think it probably is a bigger deal to certain folks

1.  Those in fields that it's hard to leave for a year and come back to
2.  Older folks or folks otherwise discriminated against in hiring
3.  Parents or caretakers whose FIRE plans included childrearing/caretaking (and maybe not the 5-figure budget for outsourcing those services)
4.  People whose employability is particularly correlated with performance of the stock market (i.e. if your portfolio being down is likely to correlate with a hiring freeze in your area).

[TheAnonOne]

I think it probably is a bigger deal to certain folks

1.  Those in fields that it's hard to leave for a year and come back to
2.  Older folks or folks otherwise discriminated against in hiring
3.  Parents or caretakers whose FIRE plans included childrearing/caretaking (and maybe not the 5-figure budget for outsourcing those services)
4.  People whose employability is particularly correlated with performance of the stock market (i.e. if your portfolio being down is likely to correlate with a hiring freeze in your area).

I think there are some assumptions here, like, you must go back to work at your old career. You would simply have to support yourself at a minimum, obviously investing in the down term is preferable.

2 and 3 seem like reasonable concerns!

[Mr. Green]

There are plenty of people who simply fall into the category of fear of the unknown. For most, FIREing at an extremely early age is a hard enough concept to personally implement, but then the idea of failure, I believe, is like a multiplier. We're taking a concept that is so far out in left field that most of the working world doesn't even consider it, and then we make it more complicated by adding a potential failure to it. It's just too much for most folks to handle. I think that if a portfolio "failure" actually happened most would realize it's not nearly as bad as they fear, because they would begin working well before $0. But the mind, and fear, is a powerful thing.

[Shrike]

I think you raise an important point that often gets overlooked.
There are many definitions of retirement.  The one most people use is the one I like the least - it's also the one the 4% rule was based.  It's the traditional definition, where retirement means never engaging in an activity that earns you another dime for the rest of your life.

Sometimes I have to remind myself that those numbers, incrementing by one as they descend the rows of my spreadsheets, don't represent the age of some drooling, lobotomized couch potato eternally forbidden from adapting to changing circumstance, they represent ME. 

As long as your definition of retirement includes an agile, adaptable you, and not the you represented by typical retirement equations, then I believe risk goes down considerably.

Some of the better retirement calculators allow you to enter fields for future earnings.  It's instructive to try to simulate not-so-great investment returns in the initial years, and then enter future earnings to see just how little you might actually need to make over the course of a few years to mitigate those losses.

[BTDretire]

If the market TANKS year 1 of my FIRE goals, you can bet-your-butt that I would just go back and work another year(or LESS). I am still FIREed in my MID 30s AND I would end up richest in this situation out of ALL THE
SITUATIONS. (buying at a massive discount and living my first years of fire riding the market back to new heights)

 I read responses and think my quibbles were covered except for (buying at a massive discount).
I'm FI, but that requires that my money be invested earning me 4% plus growth.
That means if the market drops, you need to sell an asset to be (buying at a massive discount).
 Where are you getting this money to buy when the market is discounted?
 Understand you can pour your savings from working into the market but most of us are happy
if we can put $30k of new money a year into the market.
 If you have 1M in the market and it drops 30% (been there) your down $300,000.
That's a lot of $30,000.
Yea, you could have money in bonds that you could sell. (I think) I hope by then you can get
a decent return on a bond. I don't have any bonds, there is just no return. Yet.
Just something to be aware of.

[marty998]

Yep agree Qmavam... the perfect time to buy was March 2009, precisely when I had a failing portfolio, no money and a very insecure job.

Theory and practice are 2 very different beasts.

[Brokenreign]

I think you raise an important point that often gets overlooked.
There are many definitions of retirement.  The one most people use is the one I like the least - it's also the one the 4% rule was based.  It's the traditional definition, where retirement means never engaging in an activity that earns you another dime for the rest of your life.

Sometimes I have to remind myself that those numbers, incrementing by one as they descend the rows of my spreadsheets, don't represent the age of some drooling, lobotomized couch potato eternally forbidden from adapting to changing circumstance, they represent ME. 

As long as your definition of retirement includes an agile, adaptable you, and not the you represented by typical retirement equations, then I believe risk goes down considerably.

Some of the better retirement calculators allow you to enter fields for future earnings.  It's instructive to try to simulate not-so-great investment returns in the initial years, and then enter future earnings to see just how little you might actually need to make over the course of a few years to mitigate those losses.

Great thoughts Strike. I don't see why someone adaptable and prudent enough to achieve FIRE should be scared of a few market-related bumps along the way.

I sometimes wonder if it's just a fear of failing in a big goal that makes people hesitant, not so much a fear of running out of money.

I often see people post doomer-esque stuff on these forums (massive market drops, strife, and whatever else doomers are concerned about) and wonder how anyone could retire with that level of fear. The future is unknowable, and being adaptable and light will do far more good than a 2 percent swr.

Edit - not sure if your usernamename is based on the Hyperion Shrike. If so you have an unfair advantage in controlling time.

[fattest_foot]

If you have 1M in the market and it drops 30% (been there) your down $300,000.
That's a lot of $30,000.

You haven't actually realized a loss until you sell, though. Unless you plan on liquidating your entire 1M portfolio when the market dips, you're not actually losing $300k.

Unless my math is wrong, you're "losing" about $13,000.

Hopefully you've got either some cash, bonds, or part time work to mitigate that $13k loss.

The thing you actually need to worry about is a prolonged period with that 30% drop. Now you're not just losing that $13k a year, but also future gains on that money. In the one year scenario, it's not a big deal because historically the market will go up enough to make up for that drop (see 2010-2014 after the recession).

[Metric Mouse]

Great thoughts Strike. I don't see why someone adaptable and prudent enough to achieve FIRE should be scared of a few market-related bumps along the way.

I sometimes wonder if it's just a fear of failing in a big goal that makes people hesitant, not so much a fear of running out of money.

I often see people post doomer-esque stuff on these forums (massive market drops, strife, and whatever else doomers are concerned about) and wonder how anyone could retire with that level of fear. The future is unknowable, and being adaptable and light will do far more good than a 2 percent swr.

Well said. Fear of unknowable and uncontrollable things should not hold anyone back from achieving their goals.

The fear of having to go back to work is the least of my concerns.  FIRE's been so fantastically unbelieveable, and if the markets stay high for a few more years I should be set. If not, I may have to go back to work after I hit 30. That'd be just another adventure!

[Monkey Uncle]

Is failing FIRE early and going back to work for a 'SHORT' period of time, the worst thing in the world?

No, it's not the worst thing in the world.  But is having to go back to work after several years of freedom worse than working a couple more years before quitting in the first place?  In my opinion, yes.  Everyone's situation is different, but in my case, if I've been out for a few years it is highly unlikely that I'm going to go back to making anything close to my current salary.  So I'm going to have to work way longer to make up for the losses than if I had just stuck around to build the safety margin a little.

[Cassie]

While not a ton of people in my age group (early 60's ) retired young I do know a few people that did and are now sorry.  They retired anywhere from 40-50 on what was a suitable income back then. Now all these years later they can't travel and have to live on a very strict budget. These people wish they had worked longer. I met a few people on a forum that also did this and although they live on very little budget they are not sorry.  For many people if you go back to work you must start at a lower salary then when you left. I think it is smarter to work longer and then when you go to know you don't need to work more then p.t. to have the kind of life you want. The problem is that you may think what you want now is what you will want later but that may change.  the future you is really unknown.

[arebelspy]

Here's a scenario:
You FIRE at, say, 30.  Two years later, market crashes, you decide you don't like what would be, say, a 10% withdrawal that year for living expenses, so you go get a job.  Maybe it's not as lucrative as the one you had.  Maybe it only pays HALF of what your old job did.  But you had a savings rate > 50%, so you're still saving money even at this new, much lower paying job.

You buy some stocks while low, and over the next year the market recovers.  You quit, and try FIRE #2.  Having survived that crash in what would have been year 3 of your original ER, the market is pretty good for the next 8 years or so until the next crash, and by then your portfolio's been humming along for a decade, you're past the major part of the sequence of returns risk, and having not elevated your lifestyle, your portfolio has grown to a point where your SWR that was 4% is now at 3% and dropping, and you ride out the next crash easily without even thinking of going back to work.

Yes, your ER failed that one year early, but damn, to me that sounds pretty good.  A two year sabbatical at age 30, then one final year of working after age 30, then ER forever?  Awesome.

That, however, would be counted as an ER failure. 

/shrug

Okay.  I'm okay if my ER "fails."  If I have to go back to work in a decade, well, at least I spent my 30s traveling, raising kids, and enjoying my life.  So I go back to work for a year.  Maybe even two!  I don't think it's likely, but if it happens, I'm okay with that ER "failure."

I 100% agree with you, AnonOne.  Going back isn't the worst thing in the world, other than for someone's pride, perhaps, if they care about that sort of thing.  Yes, you may not make as much if you do go back, that is a risk you take.  The risk you take by not ERing sooner though is giving up extra years of your life, and it's not just a risk, it's a definite.  I'd rather risk making money at a reduced rate a but in the future as an unlikely maybe, then give up precious time for sure.

[Paul der Krake]

There is no law that says failing retirees must return to a similar job that pays the same, or else.

When you can comfortably live on a fraction of the median income, all sorts of fun jobs open up.

[onlykelsey]

Okay.  I'm okay if my ER "fails."  If I have to go back to work in a decade, well, at least I spent my 30s traveling, raising kids, and enjoying my life.  So I go back to work for a year.  Maybe even two!  I don't think it's likely, but if it happens, I'm okay with that ER "failure."

I 100% agree with you, AnonOne.  Going back isn't the worst thing in the world, other than for someone's pride, perhaps, if they care about that sort of thing.  Yes, you may not make as much if you do go back, that is a risk you take.  The risk you take by not ERing sooner though is giving up extra years of your life, and it's not just a risk, it's a definite.  I'd rather risk making money at a reduced rate a but in the future as an unlikely maybe, then give up precious time for sure.

This makes me all sweaty and nervous.

[JCfire]

My problem with failing FIRE is that the income I would be able to return to, particularly seeking a job during an economic downturn, would be quite a bit lower income than the job that I abandoned to FIRE.

[Cottonswab]

While I agree that some people do have irrational hesitation to FIRE, a stock market crash is not the only potential negative event.  I think most people who are hesitant to FIRE, are also trying to rationally account for things like:

- unplanned medical disability and associated expenses
- lack of a social safety net
- unexpected law suits and other liabilities
- unexpected defendants
- desired lifestyle inflation / potential one time purchases that are worth working a bit longer for like a house in a HCOL area

These considerations are not necessarily purely academic circle jerking.  FIRE numbers are not black and white.  Opportunity costs are real. 

To give an example (for simplicity, assume no taxes):

Person X currently makes $300,000 per year. If he were to leave this job and find work again after a multi year hiatus, he expects to earn a maximum of $100,000 per year, if healthy.  If disabled, he expects disability payments of $20k per year.

Person X has currently expected recurring expenses of $30,000 per year. 

Person X plans to spend much of his time in retirement BASE jumping.  He does some research and calculates that he has a 1/10 chance of being seriously injured.  He determines that the expected out of pocket cost for treatment and rehab to be $100,000.  Therefore, the probability weighted expense is $10,000.

Person X will be driving in FIRE and has a 1/100 chance of being in a serious auto accident. Expected out of pocket cost for treatment and rehab is $100,000.  The probability weighted expense is $1,000.

Person X has a 1/20 chance of having cancer.  Out of pocket treatment cost is expected to be $200,000.  The probability weighted expense is $10,000.

Person X wants to marry and have 3 children.  He believes there is a 50% chance that this will happen.  He expects that each child will cost him about $5,000 per year over 22 years.  The probability weighted expense is $7,500 per year over 22 years. 

Person X also wants to to eventually buy a $500,0000 house in Vail, but not immediately after FIRE.  Person X feels that this dream is worth 1.67 years of work (@ $300k / yr), but not 5 years worth of work at ($100k / yr). 

If you are person X, do you:
(A) FIRE at 25 x $30,000 ($750,000)
(B) Keep working until you can also buy the house in Vail that you want, but do not need.
(C) Keep working until you have covered the probability weighted expense of uncertain expenses that may never occur
(D) Or do you keep working until you can cover the full cost of kids, cancer, BASE injury, and car wreck injury that may never occur

[TheAnonOne]

While I agree that some people do have irrational hesitation to FIRE, a stock market crash is not the only potential negative event.  I think most people who are hesitant to FIRE, are also trying to rationally account for things like:

- unplanned medical disability and associated expenses
- lack of a social safety net
- unexpected law suits and other liabilities
- unexpected defendants
- desired lifestyle inflation / potential one time purchases that are worth working a bit longer for like a house in a HCOL area

These considerations are not necessarily purely academic circle jerking.  FIRE numbers are not black and white.  Opportunity costs are real. 

To give an example (for simplicity, assume no taxes):

Person X currently makes $300,000 per year. If he were to leave this job and find work again after a multi year hiatus, he expects to earn a maximum of $100,000 per year, if healthy.  If disabled, he expects disability payments of $20k per year.

Person X has currently expected recurring expenses of $30,000 per year. 

Person X plans to spend much of his time in retirement BASE jumping.  He does some research and calculates that he has a 1/10 chance of being seriously injured.  He determines that the expected out of pocket cost for treatment and rehab to be $100,000.  Therefore, the probability weighted expense is $10,000.

Person X will be driving in FIRE and has a 1/100 chance of being in a serious auto accident. Expected out of pocket cost for treatment and rehab is $100,000.  The probability weighted expense is $1,000.

Person X has a 1/20 chance of having cancer.  Out of pocket treatment cost is expected to be $200,000.  The probability weighted expense is $10,000.

Person X wants to marry and have 3 children.  He believes there is a 50% chance that this will happen.  He expects that each child will cost him about $5,000 per year over 22 years.  The probability weighted expense is $7,500 per year over 22 years. 

Person X also wants to to eventually buy a $500,0000 house in Vail, but not immediately after FIRE.  Person X feels that this dream is worth 1.67 years of work (@ $300k / yr), but not 5 years worth of work at ($100k / yr). 

If you are person X, do you:
(A) FIRE at 25 x $30,000 ($750,000)
(B) Keep working until you can also buy the house in Vail that you want, but do not need.
(C) Keep working until you have covered the probability weighted expense of uncertain expenses that may never occur? 
(D) Or do you keep working until you can cover the full cost of kids, cancer, BASE injury, and car wreck injury that may never occur?

Clearly, things are not black and white, but if your desire is to own a house in a HCOL area, then you were never ready for FIRE#1 in the first place. You simply looked at your budget and lied to yourself.

The point of "C" is an interesting topic in it's own right. Chances are in FIRE your 'INCOME' is probably low enough, that medical expenses are covered by your fellow taxpayers (right or wrong...)

[ender]

This thread I started regarding working part-time income is highly relevant, here:

http://forum.mrmoneymustache.com/taxes/optimizing-taxes-maximizing-benefits-for-parttime-working/

It does not take very much part-time income to suddenly cover a significant percentage of your expenses, even near minimum wage (particularly if you have kids, given the insanely progressive nature of EITC).

Working part-time to me is a great way to mitigate risks you bring up, as well as alleviate nearly all risks with "leaving and reentering" the workforce. It's even more effective if your ER goals do not involve significant travel.

Combining tax credits/incentives for a FIRE'd person to work part-time also doesn't properly reflect the impact on your withdrawal rate if you have part-time income in retirement.

For example, retiring with a $40k/year spend and $1M in portfolio makes your withdrawal rate 4% -- even adding $10k/income year drops your WR a full percentage (ignoring the situation where you optimize your part time income to use tax credits totally abuse the way tax credits work and turn that $10k into $15k). Many/most of us are planning on less than $40k spending anyways. If you retire on $30k/year spend at a 4% rate, adding that $10k drops your withdrawal rate to 2.67%.


Also regarding the risk factor:

Everyone's personal risk tolerance will be different because of differences in situation.


A lot of factors affect this. For what it's worth I completely agree with your perspective on people who worry about the 4% rule. Here is a non-comprehensive list of things which also affect risk tolerance:

• Government/private pensions
• Social security
• Inheritances
• Ease of reentering workforce (some careers this is nearly impossible, others are easy)
• Ability to move to LCOL area
• Ability to lower spending
• Actual impact of "failure" or down years (is it reduced luxury spending or electric bill/food)
• Kids and overall health
• Expectation of large, non-recurring expenses in future (ie housing related repairs, etc)
• Overall asset diversification
• ER age
• Ability, interest, and profitability of parttime work (or hobbies) in ER
• Government assistance programs should ER implode

Someone who has no pension, retires very early because of a huge income (so reduced SS eligibility), has no inheritance expectation, works in a career where their future reentry earning potential is minimal, maintains nearly 4% spending with nearly no extra spending in an already LCOL area, have multiple kids with medical problems, and is retiring at age 32 will hopefully view their risk tolerance of the 4% rule differently than others.

And yes, of course you can work to mitigate these - everyone here should be doing their best to do that. Reducing the risk of each individual factor (where possible) reduces your overall risk, meaning you can safely retire at 4% (or really higher, if you are "good" on many or most of those items - more than a 4% SWR is completely possible even without a pension).

Most of us just have to get to SS age with $0 remaining and we'll be fine - I am still in my 20s and already have an estimated SS benefit of almost $10k a year if I didn't earn anything more. If I retire at age 40, it will only be 27 years where ER has to "work" for me to "win" at ER and my SS benefit will be much greater than $10k. For those folks here who came to the ideas of ER later and are in their 40s or even 50s that gap is even less and their SS benefit likely will be even larger. That should heavily mitigate risk for anyone who is around that age.

It is likely most people simply have not thought through all the actual implications of the above. Or even what "failing" at the 4% scenarios mean and what the implications practically speaking for a "failed" ER would actually be. Or knowing how many would need to be present to reduce the risk of a SWR 4% failing significantly. Pretty much any one of the first six items should give someone significant security in ER working out at 4% given that none of them are included in the Trinity study "success" scenarios. If you have more than one of them you should be able to reliably ER on a withdrawal rate higher than 4%.

The reality is everyone has different situations which naturally shape their risk tolerance differently. It is important to realize nearly all of those factors can be controlled or influenced, but also that everyone will have different abilities to do so.

But to not acknowledge a difference in risk tolerance resulting from the factors discussed in this wall of text on the whole is a bit shortsighted.


The biggest problem, which I suspect you also agree with, is that people do not look at their situation and investigate what factors increase or reduce the risk associated with their actual ER plan.

[arebelspy]

My problem with failing FIRE is that the income I would be able to return to, particularly seeking a job during an economic downturn, would be quite a bit lower income than the job that I abandoned to FIRE.

So what?  You don't need to cover the income you made before, you need to cover your FIRE expenses.  Assuming they aren't ridiculous, you can find a job that will cover that, even if it's way less than what you made before, and your portfolio can ride it out.

Even if you can't make enough to cover your expenses, it'll drop your WR drastically.. a 1% WR at a time a portfolio is down will essentially make it last forever.

(See the numbers in my example a few posts above yours.  It's predicated on you making half what you did.)

Yes, you can totally avoid this by doing OMY, but, again, you're trading the possibility of having to work a little bit to cover ER expenses for the definite year(s) of life now.

Maybe that's worth it, to you.  It seems silly to me, unless you value years of your life very little, because in all liklihood you won't have to go back to any job, low paying to cover some expenses or not.

[Cassie]

The people I know that regret it is because the cost of living has risen but their income has not. While they were happy to live on a strict budget when younger now at 60 they want to have more comforts, travel etc and they can't afford to do that. Not sure why they haven't gotten some crappy p.t. work but they were all professionals who have been out of the job market for too long to return to their professions. I don't know these people well enough to ask.  I am also sure that medical premiums and bills are eating into their nest eggs too since these have a tendency to increase with age.  I am not advocating for people to wait but just pointing out some of the reality for some people that did it and are now not satisfied.

[steveo]

My problem with failing FIRE is that the income I would be able to return to, particularly seeking a job during an economic downturn, would be quite a bit lower income than the job that I abandoned to FIRE.

So what?  You don't need to cover the income you made before, you need to cover your FIRE expenses.  Assuming they aren't ridiculous, you can find a job that will cover that, even if it's way less than what you made before, and your portfolio can ride it out.

I think that this is a critical point. At the moment I'm saving to get to my FIRE target so my earnings are important but once I get to a certain level if my savings rate is 0% or -whatever % it probably doesn't matter. It's just a matter of riding out a couple of years and then the portfolio should be able to carry me through. I even think about this when it comes to my FIRE date. At a certain point I could just work part time and save a lot less. Each year that I'm not drawing down makes a difference. If I had to my portfolio that is just a bonus.

Failing FIRE could just be a matter of decreasing my WR for a couple of years.

[Cottonswab]

Clearly, things are not black and white, but if your desire is to own a house in a HCOL area, then you were never ready for FIRE#1 in the first place. You simply looked at your budget and lied to yourself.

It is not lying to yourself to FIRE without fully funding all of the discretionary expenses that you might desire in the distant future.  As people rightly point out, you can always make additional income after FIRE to fund discretionary expenses..

The point that I was trying to make here is that a lot of FIRE expenses are discretionary and are anticipated to occur many years after the date you wish to retire.  These discretionary expenses can be high relative to "base" annual expenses that most people base their declaration of financial independence on.  The higher your income, the less additional time is required to work for these discretionary expenses.  Therefore, it can be worthwhile to work longer in your first career to give yourself more options for discretionary spending that would no longer be appealing at a significantly reduced income, after you retire. 

Until you actually commit to spending that extra money on discretionary expense(s), that additional money might be viewed as an "academic aversion to FIRE" by the SWR police.   

[Metric Mouse]

Clearly, things are not black and white, but if your desire is to own a house in a HCOL area, then you were never ready for FIRE#1 in the first place. You simply looked at your budget and lied to yourself.

It is not lying to yourself to FIRE without fully funding all of the discretionary expenses that you might desire in the distant future.  As people rightly point out, you can always make additional income after FIRE to fund discretionary expenses..

The point that I was trying to make here is that a lot of FIRE expenses are discretionary and are anticipated to occur many years after the date you wish to retire.  These discretionary expenses can be high relative to "base" annual expenses that most people base their declaration of financial independence on.  The higher your income, the less additional time is required to work for these discretionary expenses.  Therefore, it can be worthwhile to work longer in your first career to give yourself more options for discretionary spending that would no longer be appealing at a significantly reduced income, after you retire. 

I bought a house almost 4 years after FIRE. Having large expenses is not that massive of a deal after FIRE. Remember the SWR rates don't figure you'll only have exactly 25X forever; your 'stache is just as likely to grow massively, meaning that you'll probably be better off in the future than you were when you FIRED.

[undercover]

I 100% agree with you, AnonOne.  Going back isn't the worst thing in the world, other than for someone's pride, perhaps, if they care about that sort of thing.  Yes, you may not make as much if you do go back, that is a risk you take.  The risk you take by not ERing sooner though is giving up extra years of your life, and it's not just a risk, it's a definite.  I'd rather risk making money at a reduced rate a but in the future as an unlikely maybe, then give up precious time for sure.

Basically this. Those too caught up in number-crunching need to adjust their definition of risk: it's more risky not to pull the trigger sooner rather than later. I'd rather have 5 years of bliss than 40 years of wondering. The good news is that working doesn't have to be all bad and there are always options - and people probably are much more flexible than they think.

[Libertea]

I'm not so worried about how the finances will work out.  I'm 41 years old, and I doubt I'm going to suddenly become a spendthrift now since it hasn't already happened even though I more than have the opportunity available. 

However, I do think a lot about what to do with myself after I stop working.  I mean, let's be honest: if you're type A enough to retire early, are you really going to want to just lay on the beach all day for the next 5-6 decades?  Maybe some people would, and doing that probably sounds good to all of us for at least a few weeks.  But I am realizing that I need to have a reason to get up in the morning besides just hanging out.  I am a very goal-oriented, directed kind of person.  That's why I'm earning a six figure income that will let me reach FIRE in the first place.  Sure, I don't like my current work, but the issue is less that I'm working, and more that I want to be working on something else.  And then I also realized, if what I really want is a life overhaul, who says I need to be fully retired to start doing that?  Why not start now?  Hence my change from FIRE to FISRE (early semi-retirement). 

[Monkey Uncle]

My problem with failing FIRE is that the income I would be able to return to, particularly seeking a job during an economic downturn, would be quite a bit lower income than the job that I abandoned to FIRE.

So what?  You don't need to cover the income you made before, you need to cover your FIRE expenses.  Assuming they aren't ridiculous, you can find a job that will cover that, even if it's way less than what you made before, and your portfolio can ride it out.

Even if you can't make enough to cover your expenses, it'll drop your WR drastically.. a 1% WR at a time a portfolio is down will essentially make it last forever.

(See the numbers in my example a few posts above yours.  It's predicated on you making half what you did.)

Yes, you can totally avoid this by doing OMY, but, again, you're trading the possibility of having to work a little bit to cover ER expenses for the definite year(s) of life now.

Maybe that's worth it, to you.  It seems silly to me, unless you value years of your life very little, because in all liklihood you won't have to go back to any job, low paying to cover some expenses or not.

But you don't just need to cover your FIRE expenses.  You also need to rebuild much of what you lost in the downturn (if you expect to FIRE again), which means you need to be making enough to have a decent savings rate.  For most people, that's a lot harder after you've been out of the job market for a few years.

[arebelspy]

But you don't just need to cover your FIRE expenses.  You also need to rebuild much of what you lost in the downturn (if you expect to FIRE again), which means you need to be making enough to have a decent savings rate.

I disagree.   Your portfolio will recover by itself, if you're just covering your expenses and not drawing down on it. After a bit of that, your portfolio bounces back, even without adding to it (though, like I said, if your savings rate was > 50%, and you get a job paying even half, you will still have a positive savings rate without cutting back on expenses at all).

I'm on my phone so unable to run numbers, but maybe someone else will.  Say you FIRE'd Jan 1 08 with 1MM, 4% WR (40k/yr).  You take out 40k on Jan 1 08, portfolio value 960k, Jan 1, 2008.  End of 2008 there's been a big crash, so you get a job to cover your expenses for a year (which inflated, look up the number for inflation for 2008).  You leave the portfolio alone for all of 2009.  You quit the job after a year, and Jan 1 2010 you withdraw whatever your expenses are now (inflated for 2008 and 2009's inflation), and each subsequent year (Jan 1 2011, 12, 13, 14, 15, and 16).  What will your portfolio be at today, and what will your WR be at today if you kept inflating your expenses each year to match inflation?  If all you did was get a low paying job during that single year to cover your expenses, and nothing more?

Anyone want to do this exercise for us and tell us what you came up with?  We'll see if MU or I is correct.  My gut is that one year of working at a low pay got you close enough to being fine, even without adding any at the low point.  :)

[TheAnonOne]

But you don't just need to cover your FIRE expenses.  You also need to rebuild much of what you lost in the downturn (if you expect to FIRE again), which means you need to be making enough to have a decent savings rate.

I disagree.   Your portfolio will recover by itself, if you're just covering your expenses and not drawing down on it. After a bit of that, your portfolio bounces back, even without adding to it (though, like I said, if your savings rate was > 50%, and you get a job paying even half, you will still have a positive savings rate without cutting back on expenses at all).

I'm on my phone so unable to run numbers, but maybe someone else will.  Say you FIRE'd Jan 1 08 with 1MM, 4% WR (40k/yr).  You take out 40k on Jan 1 08, portfolio value 960k, Jan 1, 2008.  End of 2008 there's been a big crash, so you get a job to cover your expenses for a year (which inflated, look up the number for inflation for 2008).  You leave the portfolio alone for all of 2009.  You quit the job after a year, and Jan 1 2010 you withdraw whatever your expenses are now (inflated for 2008 and 2009's inflation), and each subsequent year (Jan 1 2011, 12, 13, 14, 15, and 16).  What will your portfolio be at today, and what will your WR be at today if you kept inflating your expenses each year to match inflation?  If all you did was get a low paying job during that single year to cover your expenses, and nothing more?

Anyone want to do this exercise for us and tell us what you came up with?  We'll see if MU or I is correct.  My gut is that one year of working at a low pay got you close enough to being fine, even without adding any at the low point.  :)

These are approx.

2007= 1000k
2008= 960k (you took 40k out)
2009= ??? you take nothing
2010= 728k (you took 40k out) You had 768k before taking money out
(2011->2015 you keep 40k expenses because inflation is 0%, you also withdraw 40k a year)
2016... about 1.5 million after consuming another 200k+ off of it.

WITHOUT WORKING THAT YEAR>
2007= 1000k
2008= 960k (you took 40k out)
2009= 440k (you took 40k out)
2010= 628k (you took 40k out) You had 668k before taking money out
(2011->2015 you keep 40k expenses because inflation is 0%, you also withdraw 40k a year)
2016... about 1.1 million after consuming another 200k+ off of it.


So for working 1 year, you "made" about $400k.... These numbers are of-course approximate, but it gets the point across.

[ender]

So for working 1 year, you "made" about $400k.... These numbers are of-course approximate, but it gets the point across.

I don't really see how only the $40k difference in spending in 2009 translates to a $400k difference a few years later (?).

That means that from the current peak to the 2009 low the SP500 was off by a factor of 10. The drop was 676 or so in 2009. which means that the SP500 needs to be at 6700 now for your math to work out.


While the current approximately 3.2x multiplier if you happened to be unlucky enough to pull out the $40k all  on March 7th, 2009 is non-trivial (not including dividend reinvestment) it's not even close to a $400k difference. Nor is it that large if you use Dec31, 2008 as the start point (1115.10 vs 2100ish now).

[Brokenreign]

But you don't just need to cover your FIRE expenses.  You also need to rebuild much of what you lost in the downturn (if you expect to FIRE again), which means you need to be making enough to have a decent savings rate.

I disagree.   Your portfolio will recover by itself, if you're just covering your expenses and not drawing down on it. After a bit of that, your portfolio bounces back, even without adding to it (though, like I said, if your savings rate was > 50%, and you get a job paying even half, you will still have a positive savings rate without cutting back on expenses at all).

I'm on my phone so unable to run numbers, but maybe someone else will.  Say you FIRE'd Jan 1 08 with 1MM, 4% WR (40k/yr).  You take out 40k on Jan 1 08, portfolio value 960k, Jan 1, 2008.  End of 2008 there's been a big crash, so you get a job to cover your expenses for a year (which inflated, look up the number for inflation for 2008).  You leave the portfolio alone for all of 2009.  You quit the job after a year, and Jan 1 2010 you withdraw whatever your expenses are now (inflated for 2008 and 2009's inflation), and each subsequent year (Jan 1 2011, 12, 13, 14, 15, and 16).  What will your portfolio be at today, and what will your WR be at today if you kept inflating your expenses each year to match inflation?  If all you did was get a low paying job during that single year to cover your expenses, and nothing more?

Anyone want to do this exercise for us and tell us what you came up with?  We'll see if MU or I is correct.  My gut is that one year of working at a low pay got you close enough to being fine, even without adding any at the low point.  :)

This^. My investments totally rebounded, as well as my house value, after the recession. Because I choose to reduce lots of discretionary spending during that time I was able to live on a smaller income thus leaving much of my dwindling investments untouched. I'm assuming mist people have a lot of discretionary spending in their FIRE budgets and can therefore reduce their spending a lot. Going bare bone spending for a couple of years during a downturn to preserve your $$ isn't a terrible thing. I had some of my best ER times during the recession when I was living on less than I had planned. And I haven't gone back to the spending level I had originally planned for either.

I always like your posts but this one illustrates the point a lot of people are trying to make quite well. You easily adapted to what many would perceive as an unfortunate situation (market drop) and came out even lighter and more adaptable than before.

I think that most of the people here would do the same. All of the debates over swr seem assume that the retiree is a mindless automaton and even that worked the majority of the time!

As arebelspy noted, there's a very real risk to working longer. You know that you have today, but you might not have tomorrow and it becomes even more uncertain the further out you project. Work itself often makes your chances of many healthy years worse due to repetitive stress injuries and stress. From a PV perspective, a year doing what I want now is worth fr more than one in 20 years.

I might be the oddity here, but I also think that it's fun to hustle for a buck! Buying broken shit and fixing it for sale, buying things like winter tires in the off-season and selling when demand is high. This weekend I contemplated filling a cooler with food and drinks and pedaling along the highway selling to schmucks stuck in long weekend traffic. Would have made a killing!

The world is full of money. I'm not at all scared of running out. I may or may not be paraphrasing charlie and the chocolate factory...

[TheAnonOne]

So for working 1 year, you "made" about $400k.... These numbers are of-course approximate, but it gets the point across.

I don't really see how only the $40k difference in spending in 2009 translates to a $400k difference a few years later (?).

That means that from the current peak to the 2009 low the SP500 was off by a factor of 10. The drop was 676 or so in 2009. which means that the SP500 needs to be at 6700 now for your math to work out.


While the current approximately 3.2x multiplier if you happened to be unlucky enough to pull out the $40k all  on March 7th, 2009 is non-trivial (not including dividend reinvestment) it's not even close to a $400k difference. Nor is it that large if you use Dec31, 2008 as the start point (1115.10 vs 2100ish now).

I'll have to run it through an actual calc, because, I agree, it seems like my napkin math is pretty bad.

[Monkey Uncle]

But you don't just need to cover your FIRE expenses.  You also need to rebuild much of what you lost in the downturn (if you expect to FIRE again), which means you need to be making enough to have a decent savings rate.

I disagree.   Your portfolio will recover by itself, if you're just covering your expenses and not drawing down on it. After a bit of that, your portfolio bounces back, even without adding to it (though, like I said, if your savings rate was > 50%, and you get a job paying even half, you will still have a positive savings rate without cutting back on expenses at all).

I'm on my phone so unable to run numbers, but maybe someone else will.  Say you FIRE'd Jan 1 08 with 1MM, 4% WR (40k/yr).  You take out 40k on Jan 1 08, portfolio value 960k, Jan 1, 2008.  End of 2008 there's been a big crash, so you get a job to cover your expenses for a year (which inflated, look up the number for inflation for 2008).  You leave the portfolio alone for all of 2009.  You quit the job after a year, and Jan 1 2010 you withdraw whatever your expenses are now (inflated for 2008 and 2009's inflation), and each subsequent year (Jan 1 2011, 12, 13, 14, 15, and 16).  What will your portfolio be at today, and what will your WR be at today if you kept inflating your expenses each year to match inflation?  If all you did was get a low paying job during that single year to cover your expenses, and nothing more?

Anyone want to do this exercise for us and tell us what you came up with?  We'll see if MU or I is correct.  My gut is that one year of working at a low pay got you close enough to being fine, even without adding any at the low point.  :)

Although 2008 is the bad year that most people around here remember, a more informative exercise would be to pick one of the widely known 4% rule failure years; say, 1966 or 1973.  I don't have time to run the numbers right now.  I may pick it up this weekend if someone doesn't beat me to it.

[arebelspy]

Although 2008 is the bad year that most people around here remember, a more informative exercise would be to pick one of the widely known 4% rule failure years; say, 1966 or 1973.  I don't have time to run the numbers right now.  I may pick it up this weekend if someone doesn't beat me to it.

My point was not to literally pick the worst year ever, but what might be a semi-typical "bad" year, like 2008 was.  It was rough, but not the worst year ever.

Those numbers could be interesting too, though.

[soccerluvof4]

Right or wrong, what helps me sleep at night better is having 3 years always in cash or assets I can take out of that wont hurt me to bad. When the market was up around 18,500 on the Dow I added a year transferring money to my cash stash.  Market crashes I live off that and or invest a lump of that into the market. This also gives me money to look for other investment opportunites outside of just market investments which I have not found yet.

[JCfire]

My problem with failing FIRE is that the income I would be able to return to, particularly seeking a job during an economic downturn, would be quite a bit lower income than the job that I abandoned to FIRE.

So what?  You don't need to cover the income you made before, you need to cover your FIRE expenses.  Assuming they aren't ridiculous, you can find a job that will cover that, even if it's way less than what you made before, and your portfolio can ride it out.

Even if you can't make enough to cover your expenses, it'll drop your WR drastically.. a 1% WR at a time a portfolio is down will essentially make it last forever.

(See the numbers in my example a few posts above yours.  It's predicated on you making half what you did.)

Yes, you can totally avoid this by doing OMY, but, again, you're trading the possibility of having to work a little bit to cover ER expenses for the definite year(s) of life now.

Maybe that's worth it, to you.  It seems silly to me, unless you value years of your life very little, because in all liklihood you won't have to go back to any job, low paying to cover some expenses or not.

What you are missing is that working OMY at a much higher pay rate does not only buy you insurance against having to work for a longer period of time later on if there is a poor market return scenario -- it also means you can spend more 10 or 15 years into retirement if you have not had one of those poor market return scenarios.  There is clearly a non-zero amount of failure risk I'd be willing to take, but I'm not willing to take as much as I would be if there were not large frictional costs to exiting and re-entering the workforce.

[arebelspy]

I didn't miss that--I've experienced it myself, and pulled the plug (early!) anyways.  :)

Even taking your addition into account, I stand by this conclusion:

Yes, you can totally avoid this by doing OMY, but, again, you're trading the possibility of having to work a little bit to cover ER expenses for the definite year(s) of life now.

Maybe that's worth it, to you.  It seems silly to me, unless you value years of your life very little, because in all liklihood you won't have to go back to any job, low paying to cover some expenses or not.

[Libertea]

I think it comes down to people's personal risk tolerance.  Some people are ok with the idea of having to go back to work temporarily in a low-paying job that is a massive downgrade from their prior career.  Others aren't.  I suspect that many in the latter group come from high-paying, prestigious professional careers where going back and, say, working in retail sales part time would feel like too much of a downgrade to be acceptable.  So ok.  Work your one more year (or three), and save your extra cushion, then quit or go PT/consult.  It's not like it's wrong to do things that way.  Everyone has to figure out where their comfort point is.  There will be pros and cons to pulling the trigger no matter when you finally decide to do it.

[clarkfan1979]

I think the concern is that someone might be making 100K and nearing retirement. If they retire for 10 years and run out of money, going back to the 100K job is not guaranteed. They might only make 50K. I think this is why people always want to work "just one more year" just in case something bad happens.

[arebelspy]

I think the concern is that someone might be making 100K and nearing retirement. If they retire for 10 years and run out of money, going back to the 100K job is not guaranteed. They might only make 50K. I think this is why people always want to work "just one more year" just in case something bad happens.

Fill in some details for me on the scenario where they run out of money after 10 years, but didn't change spending habits, or go earn money along the way?

(Really, actual details.  What did the market do in those 10 years, for example?  How did they go from, say, 1MM to $0, spending 40k at a 4% WR, after a decade?)

My point is that them earning that 50k along the way, just to cover expenses, is fine, because the portfolio will recover.  Yes, they're earning at a much lower rate.  That's a bummer.  If they stuck out OMY, they wouldn't have had to do that.  But odds are if they stick out OMY, they didn't need to do that anyways, and wasted that extra year of life for no reason.  I'd rather have a small chance of going back (and yes, earning a lot less when doing so) than the guaranteed spending an extra year for likely no reason.

[Monkey Uncle]

Although 2008 is the bad year that most people around here remember, a more informative exercise would be to pick one of the widely known 4% rule failure years; say, 1966 or 1973.  I don't have time to run the numbers right now.  I may pick it up this weekend if someone doesn't beat me to it.

My point was not to literally pick the worst year ever, but what might be a semi-typical "bad" year, like 2008 was.  It was rough, but not the worst year ever.

Those numbers could be interesting too, though.

The point of the thread relates to the consequences of "failing" FIRE, not just experiencing a semi-typical bad year.  So it seems to me that any scenario-gaming should address an actual failure year.

[Metric Mouse]

I think it comes down to people's personal risk tolerance.  Some people are ok with the idea of having to go back to work temporarily in a low-paying job that is a massive downgrade from their prior career.  Others aren't.  I suspect that many in the latter group come from high-paying, prestigious professional careers where going back and, say, working in retail sales part time would feel like too much of a downgrade to be acceptable.  So ok.  Work your one more year (or three), and save your extra cushion, then quit or go PT/consult.  It's not like it's wrong to do things that way.  Everyone has to figure out where their comfort point is.  There will be pros and cons to pulling the trigger no matter when you finally decide to do it.

Why would a low paying job be a 'massive downgrade?'  I don't see many posts on this site saying "I love my awesome job so much, it just sucks that I'm FI so fast, and have to FIRE."  Don't work longer than you have to - if you have to go back, no reason you can't do something interesting and fun and super awesome, even if the salary is a 'massive downgrade.'  Doesn't mean the work will be.

As you pointed out, if one is inclined to lose sleep over their financial state, it's probably better if that person just kept working.  I would be more of a nervous wreck that I was working too long to save up money that I would never ever use. Flip that switch early; things are great here on the other side.

[arebelspy]

Although 2008 is the bad year that most people around here remember, a more informative exercise would be to pick one of the widely known 4% rule failure years; say, 1966 or 1973.  I don't have time to run the numbers right now.  I may pick it up this weekend if someone doesn't beat me to it.

My point was not to literally pick the worst year ever, but what might be a semi-typical "bad" year, like 2008 was.  It was rough, but not the worst year ever.

Those numbers could be interesting too, though.

The point of the thread relates to the consequences of "failing" FIRE, not just experiencing a semi-typical bad year.  So it seems to me that any scenario-gaming should address an actual failure year.

Ah, I see the confusion.  No, the thread isn't about actual portfolio failure.  The title, and OP is about a ER "failure" whereby you go back to work.  It's about an academic aversion to FIRE "failure" of throwing in the towel and going back to work.

Obviously everyone has an aversion to their portfolio running out of money.  That's not a question. 

But if you FIRE, and then go back to work, most people would call that an ER "failure."  The OP asks... why?  What's the aversion to going back?

What I don't understand is why it matters much beyond an academic point.

If the market TANKS year 1 of my FIRE goals, you can bet-your-butt that I would just go back and work another year(or LESS). I am still FIREed in my MID 30s AND I would end up richest in this situation out of ALL THE SITUATIONS. (buying at a massive discount and living my first years of fire riding the market back to new heights)

I just wanted to start a conversation around this and get some viewpoints. Is failing FIRE early and going back to work for a 'SHORT' period of time, the worst thing in the world? It really does seem nit-picky to me. We collectively generate, chart after chart, play with different asset allocations, and plan to cut spending in 'lean times' all to avoid having to return to work in the first year or two to ride out a bad market.

(Emphasis original.)

So that's how I got sidetracked on the idea of "well let's look at if you admitted ER defeat in a crash, went back to a lower paying job--just for a bit--and see what it would do to your portfolio" and wanted to look at an actual crash where that may have happened.  1966 is not one.  That was a slow decline due to inflation.  That's a lot more insidious, and hard to detect.

Overall, I agree with you, an actual portfolio failure is the worst-case scenario.  I'm sure OP agrees, and basically everyone. 

So yes, your idea of looking at going back to work, and seeing how it affects those failures, is an interesting one.  But I'm betting someone without an aversion to the ER "failure" of going back to work would have gone back in, say, 2008.  Or 2000 (which is looking like it'll be a portfolio failure year as well as a crash year).  And looking at those years would be interesting, too, IMO.

[arebelspy]

Ran some numbers.. jesus, 2000 was a bad time to retire!

If you had 1MM in 2000, and were going to FIRE at a 4% rule, here's what it looked like:
I assumed you were making 100k, spending 40k, 20k to taxes, saving 40k.
After quitting and getting a new job, I assumed you were making 50k, spending 40k, saving 10k.
The numbers above are quibbleable, but round and enough for my just playing analysis--I wasn't planning on even posting this, or it might have been cleaner, but my results were stupid enough that I had to post.

If you FIRE'd, withdrew first year's expenses, took a year off, then after a year went "uh, stuff is bad" and went back to work at half your salary, you'd have needed to work 9 more years to get back to a 4% WR (assuming your spending rose with inflation each year).

That sounds really bad.  But even if you DIDN'T FIRE, because you decided OMY, and you stayed at that higher paying job (and DIDN'T withdraw the 40k the first year, and saved 4x as much each year, 40k instead of 10k), you'd STILL have needed to work 6(!) more years to get back down to 4% WR.

What in the hell.. you were at 4% WR, and deciding to OMY, you end up doing 6MY to get back to 4%.

2000 succcckkkkked.  :P

[Libertea]

Why would a low paying job be a 'massive downgrade?'  I don't see many posts on this site saying "I love my awesome job so much, it just sucks that I'm FI so fast, and have to FIRE."  Don't work longer than you have to - if you have to go back, no reason you can't do something interesting and fun and super awesome, even if the salary is a 'massive downgrade.'  Doesn't mean the work will be.

Because to a lot of people, their job is part of their identity.  I get it.  I mean, the first thing people ask when they meet you is, "what do you do?"  And if you're a high power executive type (or doctor/lawyer/banker/whatever else you could be and make a six figure income), then you suffer a double loss when you FIRE: loss of your identity, and loss of your income.  Speaking as someone who has had a six figure income for two years now after living on a five figure income for the prior two decades, it still feels like I've won the lotto, every two weeks.  I can't even imagine what it must be like to function on a Fortune 500 CEO level and deal with seven, eight, nine figure cash flows.  And the me who used to earn five figures couldn't have imagined what it would be like now, earning six.

As you pointed out, if one is inclined to lose sleep over their financial state, it's probably better if that person just kept working.  I would be more of a nervous wreck that I was working too long to save up money that I would never ever use. Flip that switch early; things are great here on the other side.

This is what I'm getting at when I speak of the risk tolerance.  The conventional FP is going to tell the conventional professional that they can't possibly retire comfortably with less than a few million dollars in their stash.  It takes a long time to save up that kind of money, even on a six figure salary.  So it takes some courage for that professional to go back and say, no, actually, I'm going to retire on half a million, and I'm going to walk away from literally earning a few million more in salary over the next couple of decades to retire early. 

Not only that, but people who are more cautious understandably think about worst-case scenarios more than people who are bolder (or younger, or both).  If you retire when you're in your 20s or even your 30s, you're probably young and healthy.  You aren't thinking about getting old and sick, at least not in a concrete way.  But lots of unplanned things can happen in life, from having a serious illness to having an unplanned pregnancy in your mid-40s after your first kids are already grown.  And while extra money doesn't solve all problems, it sure helps ease a lot of them and broaden the range of possible solutions that are open to you.

For the record, I'm not trying to say that one viewpoint is "right" and the other is "wrong."  But if you want to understand why people would choose to continue working to save up money they would never use, these are some of the major reasons why.

[fattest_foot]

Ran some numbers.. jesus, 2000 was a bad time to retire!

If you had 1MM in 2000, and were going to FIRE at a 4% rule, here's what it looked like:
I assumed you were making 100k, spending 40k, 20k to taxes, saving 40k.
After quitting and getting a new job, I assumed you were making 50k, spending 40k, saving 10k.
The numbers above are quibbleable, but round and enough for my just playing analysis--I wasn't planning on even posting this, or it might have been cleaner, but my results were stupid enough that I had to post.

If you FIRE'd, withdrew first year's expenses, took a year off, then after a year went "uh, stuff is bad" and went back to work at half your salary, you'd have needed to work 9 more years to get back to a 4% WR (assuming your spending rose with inflation each year).

That sounds really bad.  But even if you DIDN'T FIRE, because you decided OMY, and you stayed at that higher paying job (and DIDN'T withdraw the 40k the first year, and saved 4x as much each year, 40k instead of 10k), you'd STILL have needed to work 6(!) more years to get back down to 4% WR.

What in the hell.. you were at 4% WR, and deciding to OMY, you end up doing 6MY to get back to 4%.

2000 succcckkkkked.  :P

Yeah, I'm actually really glad the thread went towards that direction. Yesterday I went through my current expected numbers, but used the actual returns from about the last 25 years. I then went and checked how the numbers panned out with each set of years, and the conclusion I came to is that unless you run into a series of 2-3 years with high negative returns the year you retire, it works out incredibly well. Retiring in 1998 or 1999, for instance, leads you to be just fine, but 2000 or 2001 were horrendous. 2008, despite being a REALLY bad year, was just a singular one and survivable.

So basically, I know that if when we decide to FIRE, we just need to mostly watch out for those first 2-3 years. If they're bad, it's time to go back to work. If they're just okay? RE is probably going to be permanent.

[brooklynguy]

Ran some numbers.. jesus, 2000 was a bad time to retire!

If you had 1MM in 2000, and were going to FIRE at a 4% rule, here's what it looked like:
I assumed you were making 100k, spending 40k, 20k to taxes, saving 40k.
After quitting and getting a new job, I assumed you were making 50k, spending 40k, saving 10k.
The numbers above are quibbleable, but round and enough for my just playing analysis--I wasn't planning on even posting this, or it might have been cleaner, but my results were stupid enough that I had to post.

If you FIRE'd, withdrew first year's expenses, took a year off, then after a year went "uh, stuff is bad" and went back to work at half your salary, you'd have needed to work 9 more years to get back to a 4% WR (assuming your spending rose with inflation each year).

That sounds really bad.  But even if you DIDN'T FIRE, because you decided OMY, and you stayed at that higher paying job (and DIDN'T withdraw the 40k the first year, and saved 4x as much each year, 40k instead of 10k), you'd STILL have needed to work 6(!) more years to get back down to 4% WR.

What in the hell.. you were at 4% WR, and deciding to OMY, you end up doing 6MY to get back to 4%.

2000 succcckkkkked.  :P

On the other hand, the huge market run-up leading up to 2000 allowed accumulators to reach their stash target (25x expenses, in your example) much more quickly than average.  So, despite the extra years tacked on after your hypothetical 2000 retiree returned to work after stuff got bad, perhaps the total number of working years (counting both before and after (premature) FIRE-declaration) is no worse than average. Maybe someone less lazy than me will run some numbers to check.

[onlykelsey]

Ran some numbers.. jesus, 2000 was a bad time to retire!

If you had 1MM in 2000, and were going to FIRE at a 4% rule, here's what it looked like:
I assumed you were making 100k, spending 40k, 20k to taxes, saving 40k.
After quitting and getting a new job, I assumed you were making 50k, spending 40k, saving 10k.
The numbers above are quibbleable, but round and enough for my just playing analysis--I wasn't planning on even posting this, or it might have been cleaner, but my results were stupid enough that I had to post.

If you FIRE'd, withdrew first year's expenses, took a year off, then after a year went "uh, stuff is bad" and went back to work at half your salary, you'd have needed to work 9 more years to get back to a 4% WR (assuming your spending rose with inflation each year).

That sounds really bad.  But even if you DIDN'T FIRE, because you decided OMY, and you stayed at that higher paying job (and DIDN'T withdraw the 40k the first year, and saved 4x as much each year, 40k instead of 10k), you'd STILL have needed to work 6(!) more years to get back down to 4% WR.

What in the hell.. you were at 4% WR, and deciding to OMY, you end up doing 6MY to get back to 4%.

2000 succcckkkkked.  :P

On the other hand, the huge market run-up leading up to 2000 allowed accumulators to reach their stash target (25x expenses, in your example) much more quickly than average.  So, despite the extra years tacked on after your hypothetical 2000 retiree returned to work after stuff got bad, perhaps the total number of working years (counting both before and after (premature) FIRE-declaration) is no worse than average. Maybe someone less lazy than me will run some numbers to check.

Good point.  I think any math run would depend on how long people had saved and through what markets leading up to 2000, so I'm not sure there is a real way to "check" but I think you're right that people saving through the boom "artificially" met their numbers sooner.  That's possibly true for me, as well, as I started investing (2 or 3K a year in an IRA) in 2007 and got the post-recession boom years.

[Metric Mouse]

Yeah, I'm actually really glad the thread went towards that direction. Yesterday I went through my current expected numbers, but used the actual returns from about the last 25 years. I then went and checked how the numbers panned out with each set of years, and the conclusion I came to is that unless you run into a series of 2-3 years with high negative returns the year you retire, it works out incredibly well. Retiring in 1998 or 1999, for instance, leads you to be just fine, but 2000 or 2001 were horrendous. 2008, despite being a REALLY bad year, was just a singular one and survivable.

So basically, I know that if when we decide to FIRE, we just need to mostly watch out for those first 2-3 years. If they're bad, it's time to go back to work. If they're just okay? RE is probably going to be permanent.

I like this - sound, actionable advice. Thanks for running the numbers for us.

[fattest_foot]

It's a little iffy once you get to about 2005, because there aren't enough numbers for the 10+ FIRE years, but I think it's safe to assume that when the portfolio is still over its initial value after 10 years, it's probably good.

I'd like to go back and run the numbers with maybe 60 or 70 years of returns.

It was a really easy thing to do though; I had my spreadsheet with drawdown rate and estimated returns already. Just make a column with all the returns for each year, and for the years you want to check, change it to the first year you want to calculate off of (portfolio value * (1 + historical rate) - drawdown amount). Then drag down for the remaining years and it will pull the historical column. Change it to the next year in the sequence and repeat, and you can see how it fairs. Adjust for inflation if desired (or get CAGR to start with).