The concept of critical mass

[KingB]

To me, critical mass is when the income from my portfolio, in addition to my SS, is enough to cover all our expenses. This will leave the value of my portfolio from ever declining.

 

[yakers]

I think of critical mass=financial independence. For me, and the rest of the subset of posters who had govt employment it meant being 'retirement eligible'. Hit that @55 and stayed another 2.5 yrs, liked my job but health issues and enough financial resources (pension+investments) meant it was time to go. The last 2.5 years were great and stress free.

 

[clifp]

I guess critical mass for me was when it became clear that the incremental savings I was adding to the pile were largely besides the point.

+3 (I think)

Since I listened to Bob Brinker for many years before I retiring I came up with another term

sub-critical mass.
The point where your assets are large enough that you are better off spending more time managing your portfolio, than working the extra hours trying to get a bigger raise.

 

[David1961]

+3 (I think)
sub-critical mass.
The point where your assets are large enough that you are better off spending more time managing your portfolio, than working the extra hours trying to get a bigger raise.

+1. It's a lot more rewarding, too!

 

[Fermion]

I would much rather know the half life of my portfolio.

 

[Closet_Gamer]

Sure you can add more money (reactivity), but even if you didn't the problem would "solve itself" (you'd reach FI/the reactor is self-sustaining).

Thus, most of us probably reach portfolio "critical mass" before we reach FI, and one is not necessarily linked to the other.

/nerd

+1 That how I think of critical mass. When the assets and growth internal to those assets hit the point that you "can't miss" your RE target date.

 

[imoldernu]

Bob Brinker was the main driver of our ER... In 1989, his show convinced me to develop the dozens of projection spreadsheets that led to our decision to retire. And yes... we called it critical mass.
We had a financial advisor "advise us". and he produced a classy looseleaf binder of 60 pages with dozens of predictions and charts, but it wasn't until I drew it all out on annual projection sheets with actual budgets and plans that I could see and actually calculate myself, that I became convinced.
We didn't take his advice, but did our own thing. now, 25years later, exactly on plan dollarwise, even though not always the way we planned it.

The FA had recommended 4 to 5 more years of WRK.

 

[samclem]

To me, critical mass is when the income from my portfolio, in addition to my SS, is enough to cover all our expenses. This will leave the value of my portfolio from ever declining.

True, but only if the portfolio has no stocks or (esp long-term) bonds. If the portfolio has assets with volatile prices, it can lose value even if it keeps throwing off enough income to keep the annual "take" stable/growing.

 

[Bestwifeever]

Although we did not use that term for it, we did reach that point about five years before DH er'd and stopped putting $ into the 401k (not to mention the company had stopped any match a couple of years before that), using it to fund travel instead.

 

[growing_older]

I never thought of critical mass as having an exact numerical definition, but referring generally to the point past which in an average year, portfolio growth was due far more to investment gains than to contributions. In other words, what brewer and a few others have said.

This has always been my interpretation as well. The point at which my investments could sustain my lifestyle, so I no longer need to work, is Financial Independence. It can come in different flavors from just barely getting by on my minimal budget, to generously allowing me to live with many/most of my wants as well as needs adequately funded.

Before I reach financial independence, there is also a point at which my growing portfolio has reached substantial enough size that even if I make no more contributions, it will reach financial independence in my expected lifetime. That, I think of as critical mass. It may not be enough to live on already, but it will certainly get there all by itself, all I have to do is not mess it up.

Sure, once I am FI, my portfolio is also still at (or more precisely above) critical mass, but it's useful to have a term for the self sustaining point my investments reach BEFORE I am FI, so that's how I've always understood "critical mass" of investments.

 

[longranger]

Most have expressed the same understanding of the concept of critical mass in this thread. The danger I see is that many people underestimate their true needs and wants. That is particularly true for people who ER 50 or younger. Their longer number of years in ER increase the chance of an unanticipated series of adverse financial events, marriage problems and all sorts of other cash eating problems that they have no reason to work into their projections. Not to sound overly pessimistic this same group may have huge excess in their portfolios if the markets, personal health and personal life go well.

 

[Rothman]

I think Nash's definition is more sensible, a situation where the fund growth from compounding is more important than new contribution. I have been in this situation for a few years now where daily market swings are greater than my contribution even though I'm a serious saver.
So my critical mass will deliver me to my FI, in a few more compounded years. Market willing.

 

[brewer12345]

Most have expressed the same understanding of the concept of critical mass in this thread. The danger I see is that many people underestimate their true needs and wants. That is particularly true for people who ER 50 or younger. Their longer number of years in ER increase the chance of an unanticipated series of adverse financial events, marriage problems and all sorts of other cash eating problems that they have no reason to work into their projections. Not to sound overly pessimistic this same group may have huge excess in their portfolios if the markets, personal health and personal life go well.

Eh, if any of that happens I will just go back to work. I the meantime, I will enjoy my time out of the cube.

 

[scrabbler1]

Most have expressed the same understanding of the concept of critical mass in this thread. The danger I see is that many people underestimate their true needs and wants. That is particularly true for people who ER 50 or younger. Their longer number of years in ER increase the chance of an unanticipated series of adverse financial events, marriage problems and all sorts of other cash eating problems that they have no reason to work into their projections. Not to sound overly pessimistic this same group may have huge excess in their portfolios if the markets, personal health and personal life go well.

As someone who ERed in 2008 at age 45, I must highly disagree with this. I think by the time someone turns 45 he or she has a good idea of his own wants and needs. And with the ACA making health insurance more affordable than it was before, that bit of uncertainty (health insurance has often been mentnioned here as a big concern of early retirees) has been removed.

According to Fidelity's RIP, my long-term financial future gets better and better once my reinforcements (Social Security, frozen company pension, unfettered access to my IRA) kick in when I am in my 60s. And my NW has increased 50% in the last 5 years, all with zero wages.

 

[mpeirce]

> And with the ACA making health insurance more affordable than it was before

For some, especially if they are getting transfer payments from other taxpayers, but for many it's driving substantial increases in their insurance premiums.


As someone who retired at 49, I'd say that you have to pay extra attention to the details. There are never guarantees, so you have to have more of a cushion the earlier you retire and keep at sharp eye on spending. It also helps to have the flexibility to cut back if our economy hits an extended rough patch.

Also, I'm another one of those who listened to Bob for years back in the late '80's and '90's. Lots of good advice, especially that people should educate themselves and take responsibility for their own investments. I still enjoy listening to him from time to time.