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How conservative are your models?
Old 11-13-2018, 04:05 PM   #1
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How conservative are your models?

I find myself dreaming about FIRE. I run a few different models and my plan to retire @55 seems to be reasonable. But then I start in with the whatifs:

1. 40% market drop the day after I retire
2. 0% real return forever
3. SS benefits reduced by 25%
4. Long term care expenses
5. New cars
6. Pad the regular expenses
7. Add more for known unknowns (house repairs, pet emergencies, etc...)
8. lions and tigers and bears....

After I do all that, it is clear I need to work until the day I die.

What I really want to do is get laid off next year and try it out for a year. If I get scared, then get back into the work force but maybe a less stressful job.

How did you find the balance and courage to RE?
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Old 11-13-2018, 04:12 PM   #2
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How did you find the balance and courage to RE?
Started hanging out here every day
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Old 11-13-2018, 04:17 PM   #3
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Just go with your model (probably already using conservative inputs) and adjust if and when the bad stuff happens.
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Old 11-13-2018, 04:20 PM   #4
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Started hanging out here every day
+1

It would be interesting to know how influential ER.org was in supporting/encouraging/enabling those who post here to ER. It played a huge role in my ER journey.
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Old 11-13-2018, 04:25 PM   #5
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If you live in California, you have to add the what-if your house burns down and you get out with only your pajamas, your wallet, and your cat!

But if you're willing to be flexible in your plans if the unthinkable happens, then you'll have the confidence to move forward.
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Old 11-13-2018, 04:26 PM   #6
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+1



It would be interesting to know how influential ER.org was in supporting/encouraging/enabling those who post here to ER. It played a huge role in my ER journey.


All of the above. In addition there has been an educational component (for me) of ER.org. Not always about the financial aspects of ER. It happens slowly and hit-and-miss sometimes, but itís a good benefit of the site and members who contribute.
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Old 11-13-2018, 04:28 PM   #7
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I have a budget based on real numbers including HC costs. I add 30% to that and model away. I still die with millions under all scenarios so I figure I am good.
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Old 11-13-2018, 04:33 PM   #8
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I'm one of the extremely lucky ones. My Air Force retired pay covers most of our essential expenses and DW's private DB pension covers the rest. So our portfolio is just for discretionary spending. Now that we are taking Social Security benefits we can blow that dough on things like occasional business class flights.

I had already been retired for quite a few years when I discovered this site, and I was just delighted to find so many other early retirees in one place. I still am; it's a wonderful community.

And I've learned quite a lot here. I'm still tweaking things, probably always will.
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Old 11-13-2018, 04:34 PM   #9
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One of the major factors that drove me to FIRE was the knowledge that I would not live forever. There are things I want to do. So, I try to remember that my time is limited.

Work is not all upside. By definition, each extra year you work, is a year you will not get back. There are pros and cons on both sides of the decision. Try to account for all the trade offs. Find a balance between money and time that seems reasonable. That is all you can do.
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Old 11-13-2018, 04:35 PM   #10
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Didn't have a budget, never tracked spending, ran a few calculators (not firecalc) and just retired.

Easy.
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Old 11-13-2018, 05:02 PM   #11
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I had been early retired for over five years living on investments only when I found this site. So I had already done the scary part on my own. I somehow found the Trinity study, I did careful budgeting and spending reviews, and I found enough info online to setup a reasonable asset allocation and averaging into my retirement portfolio. So fortunately that happened well enough and I was pretty much established as a retiree before finally finding like minds on this forum.

I hadn’t used Firecalc. It was certainly way more complete than what I had used and it would have been terrific to use before I retired. But I still managed to have a reasonable plan.
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Old 11-13-2018, 05:20 PM   #12
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Started hanging out here every day
+100

I spent 5 years reading this forum before joining, but in that time I learned a great deal. Ironically, I found this site searching for joke forums, and stumbled on to "it's funny joke thursday".

From there, I found Firecalc, and the great information from all the members.

A few things I learned, that I did not know before:

0% tax in the 15% (now 12%) bracket on LTG and QD
Roth conversions
A wealth of info on SS and Medicare.

But back to OP. If you plan for every possibility, you're right, you will never stop working. But, then again, you haven't planned for the possibility you CAN'T work. Or for an asteroid strike. At some point you need to take a leap of faith. Sure be conservative, we were. There is a high probability we will never use over 1/2 of the portfolio.

In our case we looked at the last five years of expenses, added $20k for travel or emergencies, no less than 100% in Firecalc, checked how we would do with No SS (but also cutting the travel budget, if needed). In the end we overshot by a lot, because the market continued to be kind (and travel has become less important, mostly domestic, and a lot less than the plan).

The decision is yours, but the time you have is limited and undetermined.
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Old 11-13-2018, 05:37 PM   #13
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+1

It would be interesting to know how influential ER.org was in supporting/encouraging/enabling those who post here to ER. It played a huge role in my ER journey.
I discovered this site just as my last big job opportunity fell through. Led me to Firecalc, then I discovered other ones and decided I was good to go.
So hugely influential.
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Old 11-13-2018, 07:51 PM   #14
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What I really want to do is get laid off next year and try it out for a year. If I get scared, then get back into the work force but maybe a less stressful job.

How did you find the balance and courage to RE?
I think most people are worried about giving up the security of a job so you're not alone. My feeling is that the longer you wait, the easier it is: you have a bigger nest-egg and you are closer to getting SS and Medicare. But if you have run some models and they all look good, you just have to go for it. It will all work out.

BTW - Age discrimination is alive and well in America so getting laid off with the idea of returning may not work out. At least not for me (in high-tech).
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Old 11-13-2018, 08:53 PM   #15
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I'm not FIRE'd yet. But, IMO, if you can get 95% success on firecalc, and you have a good plan to cover your expenses to get to 59.5, as well as cover estimated HC, then you need to take the plunge. Plus, if things go really bad with your investments, you can always move to LCOL area or reduce the discretionary expenses. There's a lot of fun things to do in life that are nearly free. Lots of folks have stories of friends that retired and then died of cancer shortly after. I have 2 close friends that this happened to, and one that is currently fighting hard right now. Cancer is a bitch!

The future’s uncertain and the end is always near” ...the late great Jim Morrison. enough said.
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mine was quite conservative...
Old 11-14-2018, 02:00 AM   #16
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mine was quite conservative...

Quote:
Originally Posted by corn18 View Post
I find myself dreaming about FIRE. I run a few different models and my plan to retire @55 seems to be reasonable. But then I start in with the whatifs:

1. 40% market drop the day after I retire
2. 0% real return forever
3. SS benefits reduced by 25%
4. Long term care expenses
5. New cars
6. Pad the regular expenses
7. Add more for known unknowns (house repairs, pet emergencies, etc...)
8. lions and tigers and bears.... {oh, my!!}

After I do all that, it is clear I need to work until the day I die.

What I really want to do is get laid off next year and try it out for a year. If I get scared, then get back into the work force but maybe a less stressful job.

How did you find the balance and courage to RE?
{preamble....already retired {although probably not “early” relative to this board}, ran numbers using other calcs for additional confidence after running excel models with VERY conservative inputs, joined here after retirement}

consider negative rates of return for first five or ten years in your planning ( I used negative 2%/yr)
check sensitivity by having market drop by some percentage ( like 40% which has been seen a couple of times in recent history ) and drop your portfolio equities by that percentage

plan on having one (or more) health situations where you will max out your deductible for your model

RE: your #5. we bought a new vehicle before retirement (in cash), partly to insure AWD to get through roads vs the FWD sedan before, but also to give a period of roughly five years of likely trouble free service (since w/o w@rk there was gonna be less miles put on it) so less capital needed for e-fund for that. Expect replacement needed less often, due to fewer miles, but plan on having funds for such every eight years as a minimum.

my early planning didn’t have the drop off of SS, rather I examined the sensitivity of my plan by checking it without SS at all, and if I was still likely to make it after a certain time.

I wasn’t optimistic about long term care.... didn’t purchase that insurance because of the history of rate hikes causing owners to need to drop due to exorbitant increases just as they started to need it. The rate of increases in that area is so high that I’m not sure that anyone can fully plan those; having a paid off house that could be used to pay for a year or two is optimal. So plan on being mortgage free before retirement.

AFA your #6: I had looked at the prior five to six years of spending, took the WORST year, and added 25% to that ____used that for planning purposes

For your #1: I planned on lower equity allocation before retirement (50/50 or lower, currently 45/55) and planned on a three to five year CD ladder for expenses (in addition to my pension, which I assumed would lag inflation by at least one per cent). {I was already close enough, vested}

... AFA those animals, the cougars and bears in the area, along with the coyotes, were likely to keep the tigers away, although there’s plenty of deer and rabbits for prey.

if after putting all those inputs into your model that you find you can retire, then I suspect it’s robust enough to have a fairly high confidence that you will succeed.
[you can also post on the “Bogleheads” board for their opinion and for info on other calculators]
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Old 11-14-2018, 02:45 AM   #17
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Quote:
Originally Posted by MBAustin View Post
Started hanging out here every day ;
Quote:
Originally Posted by REWahoo View Post
+1

It would be interesting to know how influential ER.org was in supporting/encouraging/enabling those who post here to ER. It played a huge role in my ER journey.
Quote:
Originally Posted by steelyman View Post
All of the above. In addition there has been an educational component (for me) of ER.org. Not always about the financial aspects of ER. It happens slowly and hit-and-miss sometimes, but itís a good benefit of the site and members who contribute.
+1, all of the above. ER.org was crucial for me too, before and after retiring. The wisdom and support here is mostly exceptional.

OP, there are no guarantees -
  • you plan to the best of your ability,
  • build in a safety factor you can live with (varies for each of us, Iíve read everything from 70% to 200% success rates here or 2%-5% WRís), and
  • maybe have a plan B, C, D (usually reducing your spending, considered in advance).
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Old 11-14-2018, 04:46 AM   #18
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We are good with a 2% WR.
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Old 11-14-2018, 09:08 AM   #19
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Something that may be helpful in getting something concrete in your mind is to find and start using some type of budgeting tool to track your actual expenses.

I didnít use one pre-retirement but I wish I had. I use one now and itís very helpful for planning/assessment. As a former mayor of NYC said, ďHowím I doing?Ē.

Thereís a current thread in which members mention what tools they use that could be a start.
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Old 11-14-2018, 09:47 AM   #20
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Originally Posted by corn18 View Post
I find myself dreaming about FIRE. I run a few different models and my plan to retire @55 seems to be reasonable. But then I start in with the whatifs:

1. 40% market drop the day after I retire
2. 0% real return forever
3. SS benefits reduced by 25%
4. Long term care expenses
5. New cars
6. Pad the regular expenses
7. Add more for known unknowns (house repairs, pet emergencies, etc...)
8. lions and tigers and bears....

After I do all that, it is clear I need to work until the day I die.

What I really want to do is get laid off next year and try it out for a year. If I get scared, then get back into the work force but maybe a less stressful job.

How did you find the balance and courage to RE?
After I gave my boss the indication that I would be retiring in a year and a half it gave me time to mess around with "possibilities". Being a guy that likes math and has a bit of doomsday in me I started building Excel spreadsheets on five or six different scenarios. Off the top of my head they were:

Early Retirement
ER with SS at 62
ER with SS at 70
40% drop in market no SS
40% drop with early SS

It gave me some different strategies (also was conservative in some of my investment returns forecasts) to make a judgement whether I had the fortitude to move forward. I saw that even if the bottom dropped out we could make a go of it and worst case scenario use my SS as a backstop.
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