What do you consider an acceptable success %

[haha]

one's ability to absorb the risk of lower success %s is clearly related to the amount of slack in one's budget.

Penetrating insight.

Ha

 

[youbet]

I don't think 5-10% swings in our annual draw will be all that painful.

Sure beats working. 8)

Cb

I don't think 5-10% swings in annual withdrawal would be painful either. Too bad short term 5-10% swings wouldn't have a material impact on portfolio survival.

You're right regarding working....... FIRE beats it a zillions times over and I'm enjoying the hell out of it!

 

[audreyh1]

Why not just defer "long-cycle" discretionary expenditures such as auto replacements or remodeling projects during down years? Or dial it back a few notches on vacation outlays? I don't think 5-10% swings in our annual draw will be all that painful.

Sure beats working. 8)

Cb

Hear! hear!

And the LYBM types can probably adjust most easily and sensibly to fluctuations in portfolio income.

I have a feeling that the "LYBM types" are also doing same after retirement. I know we are!

Audrey

 

[W2R]

I have a feeling that the "LYBM types" are also doing same after retirement. I know we are!

I know that I'm building a "fudge factor" into my budget, that I will invest most of the time. It's tentatively about 1/3-1/2 of my post-retirement budget.

This accomplishes several goals. If all goes smoothly, I'll continue to increase my nest egg so my 3.5% will get larger and larger as I age. I will be better able to survive various possible financial catastrophes, should they occur (such as if social security craters, if we experience utterly horrendous inflation for a decade, or if my house burns down, and so on). It will also allow me to decrease my withdrawals during bear markets. By considering my "fudge factor" money as a separate pot of money, I will be able to take somewhat greater investment risks with it if I want to. It won't be necessary for my ER income.

As for Firecalc success %, I consider between 90-95% to be adequate, BUT - - I only use Firecalc to validate decisions that I have already come to on my own. If my own common sense and computations say that a withdrawal amount is reasonable, then I run Firecalc as a double-check. So really, all I am getting from it is a sort of veto power which then sends me "back to the drawing board", so to speak.

 

[rs0460a]

After running your numbers through Firecalc, what do you think is an acceptable chance for success?

For DW/me, our goal is 100% success rate (against a target of 100% current net income, to age 100, at 3% inflation)

Since DW/me suffer from the bag lady/man syndrome, we tend to be "uber conserative" in our finances. I guess you can say our mantra is "we don't worry about dying with money (we'll never know!), but we don't want to live without it"...

- Ron

 

[Sam]

If someone lucked into a lottery or inheritance windfall retirement despite having never saved a dime I'd lean more towards the 100% safety, but all these resourceful, financially saavy, disciplined posters? Nahhh I suspect most would easily adjust and do fine if they rolled the 10% dice on the 90% safety.

Agreed. BTW, what's the meaning of "tui_xiu"?

 

[cute fuzzy bunny]

Plan B is cut spending in bad years, and since we're spending fairly loosely over the last few good years, that makes sense. Plan B1 is employ my handyman skills to do odd jobs, mow lawns, replace water heaters, change peoples oil or whatever gets a little cash flow going. Hell, maybe even fix someones computer, develop a marketing/advertising plan and bring in some real money.

Budget wise, I think we're spinning out something in the mid 40's right now. We can trim that back to about 24k without feeling any serious hardship and still living a nice middle class-ish sort of life. Just drop the non-essential spending, turn down the thermostat, go back to the basic satellite package, drop the king crab and filet mignon and champagne from the diet.

In a serious situation, we can drop to 12k or so for a year, maybe two, but thats more severe. Drop non-mandated insurance, very basic, inexpensive but palatable diet, drop the satellite tv and cable internet. Certainly not panhandling/bag lady level, but pretty minimalistic.

Shoot, we might even find that we like simple living

Not to bang the same drum over and over again, but its these scenarios where having limited or no debt really gives you a lot of flexibility.

 

[Sam]

In a serious situation, we can drop to 12k or so for a year, maybe two, but thats more severe. Drop non-mandated insurance, very basic, inexpensive but palatable diet, drop the satellite tv and cable internet. Certainly not panhandling/bag lady level, but pretty minimalistic.

That's way too severe, imo. 12K for a family with a young child, in the US? What would your budget look like at that level.

 

[cute fuzzy bunny]

All the food we could eat of the chicken/pasta/vegetable variety, a nice home, riding in a lexus, watching tv from an antenna, using the local coffee shop or supermarket for occasional internet access, being a bit bare on insurance (except health care), no discretionary spending of any kind.

Looking at about $200 a month for food, $50 for gas (we dont have to drive far), $250 a month for all utilities, $150 for supplemental medical, the rest miscellaneous necessary items.

Pretty tight, but for a year, maybe two...pretty doable. Remember, no car payments, no mortgage, no credit card debt.

Two keys are no debt and being able to make very tasty low cost (and probably healthier) meals at home.

I see a lot of low income people at the supermarket with a cart full of chips, ice cream, hamburger helper and frozen pizzas. My cart would be full of fresh vegetables, beans, rice, pasta and a little chicken or pork.

 

[heyyou]

What got us to ER, will also get us past hard times in ER. Read "The Millionaire Next Door" for instructions about LBYM.
I second what CFB said about substituting time for convenience in the kitchen. Many tasty dishes (some from other cultures) are started from scratch with fresh, cheap, seasonal ingredients added to legumes and grains.
Spenders will make unwise choices at the grocery store, too. Modern anthropologists found that richer homes had cheaper brand beer cans in the trash. The poorer folks were more susceptible to the lure of premium beer advertising.

 

[Gone4Good]

In a serious situation, we can drop to 12k or so for a year

Well that just about covers my expected health insurance with maybe $1-$2k to spare.

I think I need to move.

 

[cute fuzzy bunny]

The benefits of a working wife with health care coverage.

Without that, in a situation that would demand dropping to a 12k budget? I think we'd do without the health care coverage.

Good news is that there are few scenarios that would result in our having to drop back that far. I'd go back to work first.

 

[WRBT]

one's ability to absorb the risk of lower success %s is clearly related to the amount of slack in one's budget.

Yup, or work.

Amazing the impact even a couple days of work per week can have on an income stream and wthdrawal rate.

 

[youbet]

Well that just about covers my expected health insurance with maybe $1-$2k to spare.

I think I need to move.

Yeah....... much agreement here on that! If I had to cut our RE budget to $12K, I'd consider my RE a total bust.

Of course, with a working wife providing adequate income and benefits, my RE income from investments could be zero for a nice life!

Folks have been mentioning that a lower probability of success, say 85 - 90%, would be acceptable if the budget is adequately padded so that reducing expenditures wouldn't be too painful if necessary. But doesn't having a higher probabability of success, say 95%, and having a padded budget both require a larger portfolio? Don't they both take you to the same place?

Also, a note to newer board members: be aware that in discussions like this where specific dollar amounts are mentioned, keep in mind the various posters have dramatically different life scenarios. Some have working spouses, some have large, cola DBP pensions, some are doing it only on their investment portfolios, ages vary greatly, etc. It's not a matter of right or wrong, but of different points of view and the devil is in the details!

 

[haha]

Well that just about covers my expected health insurance with maybe $1-$2k to spare.

I think I need to move.

That, or the fuzzy one needs to quit fantasizing.

Ha

 

[cute fuzzy bunny]

Ha...my fantasies are WAY better than 12k a year budgets...

 

[Nords]

Amazing the impact even a couple days of work per week can have on an income stream and wthdrawal rate.

You guys go first. I'll catch up with you later... I need to refine the anthropological "happiness" research on those beer brands.

 

[landover]

I vote for 80-90% or 85%, I think I start with 5% of that fixed exp will be 2.5%. If my portfolio goes below a certain number, I will start part time, looking at spreadsheet output of firecalc, first 10 yrs are generally make or break. I am debating should I start a consultancy business front just for insurance and keeping resume current at least for first 5-10 yrs of ER.

I have one question here, how do you treat kid's college fund? Is it part of total portfolio and education expenses will be cut following some really bad years?

 

[audreyh1]

Amazing the impact even a couple days of work per week can have on an income stream and wthdrawal rate.

Amazing the impact even a couple of days of work per week can have on the stress level and total screwing up of any travel plans!

No thanks!

Even Martha saw the light!

Audrey

 

[audreyh1]

I know that I'm building a "fudge factor" into my budget, that I will invest most of the time. It's tentatively about 1/3-1/2 of my post-retirement budget.

IMO that fudge factor is very, very important!

You might also consider an padding extra "play budget" for the first year or two of retirement - some extra funds to blow on travel or whatever.

We did just that, and we were really glad. We had a lot of fun without worrying about what implications it had for long term budgets.

Audrey

 

[W2R]

IMO that fudge factor is very, very important!

You might also consider an padding extra "play budget" for the first year or two of retirement - some extra funds to blow on travel or whatever.

We did just that, and we were really glad. We had a lot of fun without worrying about what implications it had for long term budgets.

What a great idea! I don't really want to travel, but I plan to move and I could use that "play budget" for decorating and furnishing my new home. That's something I love to do, and it would keep me busy during the transition period, carefully searching for the perfect artwork, table, or carpet.

After gleefully spending my "play budget" the first year or so, I'll still include a continual fudge factor. To me it doesn't make sense for me to stop saving for retirement just because I have retired. I want to keep building the wealth.

 

[audreyh1]

Oh yeah - you still need the annual fudge factor.

On fudge factors and padding the retirement budget:

Cut-throat (I think) says it best - take your absolute barebones budget, the one you could "survive" on if times got rough (i.e. no frills at all) and then double it to get your annual withdrawal needs. Then make sure assets are 25X times this.

Then you know that if you really had to, you could cut back 50% under really hard times.

You have to take taxes into account somewhere in the withdrawal needs - but you get the idea.

Audrey

 

[W2R]

Oh yeah - you still need the annual fudge factor.

On fudge factors and padding the retirement budget:

Cut-throat (I think) says it best - take your absolute barebones budget, the one you could "survive" on if times got rough (i.e. no frills at all) and then double it to get your annual withdrawal needs. Then make sure assets are 25X times this.

Then you know that if you really had to, you could cut back 50% under really hard times.

You have to take taxes into account somewhere in the withdrawal needs - but you get the idea.

I was thinking more like triple, to account for a genuine fudge factor. I don't want to compute my retirement assuming that I would live on my barebones survival budget, so I'm assuming normally I would live on twice that. The fudge factor is on top of all that, since I am assuming that it does not get spent, but is reinvested. It's not normally part of my spendable budget.

Yes, taxes... they could reduce my 3.5% withdrawal rate to maybe somewhere less than 2.5%. I can still make it if the market doesn't tank in the next three years.

 

[audreyh1]

Wow - sounds like you are really padding! It's fine to pad as long as it doesn't have to working too long!

Also, taxes might end up being less - I've seen closer to 0.5% average over several years, but last year was not as good - lots of distributions!

Audrey

 

[W2R]

Well, in my case I have to work 3 more years to get free lifetime medical anyway, so I'm trying to see how much I can save between now and then. I'll still have less than most on this board, but it looks like I will have enough for my fudge factor.

That's encouraging about the taxes!