FIRE on 4%

[petershk]

Also bear in mind people with 4%+ that it didn't work out for are likely self selecting out of an ER forum

Sent from my HTC One_M8 using Early Retirement Forum mobile app

[AdrianC]

Quote:

Originally Posted by haha These anecdotes about how something is working and what ones's concerns are have absolutely nothing to do with how you or anyone else will do going forward. I guess these testimonials can make some people feel good, but there is much better information out there. Our lives are a movie that no one has seen before. Ha

Sure. I posted the question out of interest. I posted the same question on the Money Moustache forum, where the consensus is very much for the 4% rule, and it was surprising (to me) how few there were who had FIRE'd on 4% or more.

As I wrote up thread, I’m thinking I need to be a little more prudent, with three young kids. A 3% WR is more than our current expenses.

[AdrianC]

Quote:

Originally Posted by petershk Also bear in mind people with 4%+ that it didn't work out for are likely self selecting out of an ER forum

There is that!

[nun]

Quote:

Originally Posted by AdrianC Sure. I posted the question out of interest. I posted the same question on the Money Moustache forum, where the consensus is very much for the 4% rule, and it was surprising (to me) how few there were who had FIRE'd on 4% or more. As I wrote up thread, I’m thinking I need to be a little more prudent, with three young kids. A 3% WR is more than our current expenses.

The folks who are aching to ER probably look at their expenses and as soon as their portfolio is 25x their income they retire. Those that fail and have to go back to work might not post on ER forums leaving only the successful 4% people.

Personally, I waited until 52 and ERed with a paid off home and rental apartment. I took 20% of my portfolio and bought into a pension/annuity that with the rental income meets my income needs. SS will be gravy. My portfolio is left to compound to fund large expenses and to leave to my nieces and a couple of charities.

[Teacher Terry]

As to the poster that mentioned Sil was spending to travel now I think that is a good plan. If she is low income at 90 she can live in senior housing for cheap, etc. Many people don't live that long and I certainly would not be delaying traveling while they can just in case they live to be 100. As people age they lose their desire to travel or to spend a lot of $ on stuff. I wouldn't spend every penny either which didn't sound like what they were doing.

[AdrianC]

Quote:

Originally Posted by nun The folks who are aching to ER probably look at their expenses and as soon as their portfolio is 25x their income they retire. Those that fail and have to go back to work might not post on ER forums leaving only the successful 4% people.

Yep. There's a lot of posters on the ER forums in their 30s and early 40s targeting about $700K, and who will FIRE as soon as they get there. There aren't many who say they actually did it on such small amounts.

[nun]

Quote:

Originally Posted by AdrianC Yep. There's a lot of posters on the ER forums in their 30s and early 40s targeting about $700K, and who will FIRE as soon as they get there. There aren't many who say they actually did it on such small amounts.

$700k at 4% is $28k/year. With SS and a frugal lifestyle I suppose that might be ok . But 4% also might be a bit optimistic given the projections of the returns if the stock and bond markets.

[photoguy]

My WR is way under 4%, but I'd be more willing to pull out that much if (1) I was willing to return to work and (2) I could easily find another position that paid comparably to my jobs before fire.

I suspect that many of the younger retirees willing to take a go at 4% do consider returning to work a viable plan b.


Sent from my iPad using Early Retirement Forum

[NW-Bound]

Quote:

Originally Posted by golfnut Are you thinking you will still be around after the age of 95? If so, you must have longevity genes in your family. I would think most people retiring any time between 60 and 65 will be looking down from the heavens well in advance of 30 years. 4% wr should actually leave a balance for heirs.

Yes. I am one who does not think I will live to see my 80th birthday, let alone 90. And I also fear that I will not be looking down from heaven, but looking up from h*ll.

But in any case, while I am still alive I like to see a nice number at the bottom of Quicken screen if I can help it. It's not to leave to the kids, as I hope leaving them the homes will be good enough for them. It's for my comfort, as having money gives me a warm and fuzzy feeling that spending it on anything cannot match.

[papadad111]

Quote:

Originally Posted by AdrianC Thanks, all. I think I have a good appreciation of what the 4% rule is and what it isn't. It is reasonable to target 25x expenses as your Financial Independence goal. Reach 25x with some margin of safety and most folks can start to think about giving up the day job, with caveats, eyes open to risks, etc. It is not reasonable to then take out an inflation-adjusted 4% each year with no regard to investment performance and spending levels. Audreyh1 sums up my thinking: In addition to that, the current investment environment is very much less than ideal. I’m thinking of FIREing this year, at age 50. I don’t have long-life genes but my younger wife does, plus we have three kids, two still in elementary school. Our money needs to last 50+ years. We will get SS down the road. Wife will get a small pension. That’s all. I’ve been self employed for 16 years, wife has been a stay at home mom for 8. I’m thinking I need to be a little more prudent. A 3% WR is doable. In 2016, is the 4% rule good advice to be giving to wannabe early retirees? Especially very early retirees, folks in their 30s and 40s? There may be some disappointment in a few years, I fear.

Many discussions on these items you highlight.

My conclusion is an early early retiree, defined by me as someone 20 years from SS or more, meaning early to mid 40s of age, needs to be in the 2.5-3.0 percent withdraw rate to be safe. In fact the best position would be to be 100 percent equities and just living on dividend yield which for broad market is approximately 2.5%. The hope then is that the equity market rises to cover ravages of inflation ( holding long term bonds won't) with a little help 20+ years out when cola'd social security kicks in for a little added reinforcement.

For a 40 or 50 year horizon, the crystal ball is quite blurry and its best to be very flexible with spending scenarios including the "no really" and the "living large" budgets especially during the first two decades of FIRE.

Then offset this with occasional splurges during "up years" for living life to its fullest while younger. Healthier and able to do so.

[Bir48die]

My goal has always been to retire at 60 and drop dead at 85 (inside joke). For those glorious 25 years I have projected to stay under 4% even during the bridging until FRA at 66.2 and claim for SS. Once I hit that my WR will plummet to 1.5% while I watch my portfolio grow. Then DW can chase the men who are still alive and kicking and be their golden goose

[YVRRocketSurgery]

Quote:

Originally Posted by AdrianC Lots of people talk about it, but does anyone really do it? Has anyone here retired early using an initial withdrawal rate of 4% or more? <snip>

You've actually kind of inspired me to run some calculations over the next decade.

We're somewhat FI but looking to hit certain numbers before we RE for various reasons: a safety factor, afford to be a bit more splurgy, etc. I have, as I'm sure many others do, an enormous spreadsheet tracking various financials year over year. It's be interesting to run and track various scenarios around if I had retired in year 20xx how would have our accumulated nest egg fared against our investment selections and spend requirements.

Quote:

Originally Posted by AdrianC <snip>In 2016, is the 4% rule good advice to be giving to wannabe early retirees? Especially very early retirees, folks in their 30s and 40s? There may be some disappointment in a few years, I fear.

I'm scared as heck about running out of money so for me, the 4% rule is more of guideline to use for default assumptions. Ie. Do you take the 4% rule literally and take out 4%+I every year or do you use it for baseline calculations to compare to your yearly spend but have flexibility to adjust down your discretionary spend in poor market years?

[AdrianC]

Thanks everybody.

I hope that anyone using the 4% rule for early retirement realizes that there is a definite possibility it will not work going forward. Past results do not guarantee future performance and all that. Your plan has to include a margin of spending flexibility and the ability to go back to some sort of paid work if needed.

My plan is a variable withdrawal rate ranging from 2.5% (base expenses) to 4% (charity, vacations, big ticket items, etc). The lower rate when in capital preservation mode in down markets. The higher rate when we're feeling flush. I'm also continuing to work part time, for this year at least.

[pb4uski]

Quote:

Originally Posted by AdrianC Lots of people talk about it, but does anyone really do it? Has anyone here retired early using an initial withdrawal rate of 4% or more? Did you have any other income at retirement, such as a company or military pension, or a spouse still working? Did you build in extra safety margins in the budget? I'd like to hear about it. How is it working out for you? Are you concerned about investment returns going forward? Thanks, AdrianC

Quote:

Originally Posted by AdrianC Thanks everybody. I hope that anyone using the 4% rule for early retirement realizes that there is a definite possibility it will not work going forward. Past results do not guarantee future performance and all that. Your plan has to include a margin of spending flexibility and the ability to go back to some sort of paid work if needed. My plan is a variable withdrawal rate ranging from 2.5% (base expenses) to 4% (charity, vacations, big ticket items, etc). The lower rate when in capital preservation mode in down markets. The higher rate when we're feeling flush. I'm also continuing to work part time, for this year at least.

You're kidding us, right? In your OP (and your first post) you ask if any people are using 4% and how it is going and then 5 posts you later admonish us that it might not work and lecture people as to what their plan should include.

Seems pretty arrogant to me. I guess you learned a lot in 6 posts. What makes you think you are such an expert that you can lecture us?

[nun]

Quote:

Originally Posted by pb4uski You're kidding us, right? In your OP (and your first post) you ask if any people are using 4% and how it is going and then 5 posts you later admonish us that it might not work and lecture people as to what their plan should include. Seems pretty arrogant to me. I guess you learned a lot in 6 posts. What makes you think you are such an expert that you can lecture us?

There is plenty of wisdom outside of early-retirement.org and number of posts does not necessarily equate with naivety. There is a 4% dogma, but some retirees might not feel comfortable with that given their ideas about future returns or feelings about risk. The OP's plan seems sensible and the reasons for it are given. However, I'm not as pessimistic at the success probability of a 4% WR and future returns and I would not retire without knowing that I never needed to work again. Having said that this year I plan to spend 3.6% of my invested portfolio, but to have that come from rent and a pension....so 0% withdrawal from the portfolio.

[HadEnuff]

At 62, I'm pretty comfortable with it. If I were trying to retire at 40, or even 50, I don't think I would be.
Even at 62 I'll be watching things pretty closely, especially these first few years.

[Dcharles]

As an optimist, I chose 5% the past two years and we'll stick with that and not adjust it for inflation. In other words, I chose to start a WD rare of 5 percent from 60 years old when I retired and see how things go when I hit 70 and begin SS. That was 2 years ago and we look forward to a bump in income at 65 when I can reduce our monthly medical costs of $1,065 to whatever Medicaid might be three years from now. I am a little nervous about the down turn in the market, but I am not changing course yet and reducing our Withdrawal rate. I'm sticking to 5% in our particular situation. Each retiree needs to work up their own plan to meet their needs and expectations and then roll the dice. Who knows what the future will bring?


Sent from my iPad using Early Retirement Forum

[pb4uski]

Quote:

Originally Posted by nun There is plenty of wisdom outside of early-retirement.org and number of posts does not necessarily equate with naivety. There is a 4% dogma, but some retirees might not feel comfortable with that given their ideas about future returns or feelings about risk. ....

I concede that number of posts doesn't equate with expertise, and if the post #53 had said something along the lines of "I am concerned that the 4% rule might not work going forward and ..." then I would not have objected in the least. It wasn't the message that was objectionable but more the lecturing tone.

[Chuckanut]

Quote:

Originally Posted by AdrianC I hope that anyone using the 4% rule for early retirement realizes that there is a definite possibility it will not work going forward. Past results do not guarantee future performance and all that. Your plan has to include a margin of spending flexibility and the ability to go back to some sort of paid work if needed.

My understanding is that the 4% rule was suggested for those retiring at a 'normal' retirement age - about 65. However, many 'experts' use it out of context and forget this important caveat.

[NW-Bound]

Quote:

Originally Posted by Chuckanut My understanding is that the 4% rule was suggested for those retiring at a 'normal' retirement age - about 65. However, many 'experts' use it out of context and forget this important caveat.

I think posters here who use 4%WR or even higher are closer to the SS or pension eligibility age than the younger crowd at some other forums. They expect to drop their WR when other incomes kick in, thus maintaining the same living condition. Or in a decade or so, they may have travel or desire for toys out of their system, and submit themselves to the Bernicke's observation.

Their "event horizon" may also be closer than it appears, though they do not want to think about it.