How conservative are your models?

[corn18]

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?

 

[MBAustin]

How did you find the balance and courage to RE?

Started hanging out here every day

 

[RetireAge50]

Just go with your model (probably already using conservative inputs) and adjust if and when the bad stuff happens.

 

[REWahoo]

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.

 

[swakyaby]

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.

 

[steelyman]

+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 it’s a good benefit of the site and members who contribute.

 

[COcheesehead]

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.

 

[braumeister]

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.

 

[flintnational]

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.

 

[RobbieB]

Didn't have a budget, never tracked spending, ran a few calculators (not firecalc) and just retired.

Easy.

 

[audreyh1]

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.

 

[CardsFan]

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.

 

[Dtail]

+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.

 

[TwoByFour]

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).

 

[JackJester]

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.

 

[FI_RElater]

mine was quite conservative...

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]

 

[Midpack]

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.

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 it’s 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, I’ve read everything from 70% to 200% success rates here or 2%-5% WR’s), and
• maybe have a plan B, C, D (usually reducing your spending, considered in advance).

 

[DrRoy]

We are good with a 2% WR.

 

[steelyman]

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 didn’t use one pre-retirement but I wish I had. I use one now and it’s very helpful for planning/assessment. As a former mayor of NYC said, “How’m I doing?”.

There’s a current thread in which members mention what tools they use that could be a start.

 

[Bir48die]

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.

 

[FIREd]

+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.

It did in mine as well.

But while ER.org put my mind at ease somewhat, I still use a pretty conservative model.

 

[corn18]

I have a master financial spreadsheet with data going back to 1988. It tracks the budget, income, savings, taxes, SS, life insurance and a few what if scenarios (lose my job). So I have no shortage of data. There are a LOT of moving parts and unknowns between now and mid next year. So, no decisions will be made until some of these risks are either realized or mitigated.

I am crunching the data to determine if I want to ER in June 2019. I have been going full speed ahead for 30 years and maybe it's time for a change. I will post the numbers and see what the collective ER wisdom might reveal. Since there are a lot of moving parts, I am going to baseline everything to June 2019.

Age = 53 (as of June 2019), no debt

99,000 Annual Retirement Income @ 70
45,000 military pension w/COLA
54,000 SS @ 70
Tricare for Life (=no cost until 65, then is a no cost Medicare supplement,$3,500 / year out of pocket cap)

86,744 Base Expenses (includes taxes, excludes any vacation, cars, known unknowns)

12,256 delta

Once I get to age 70, the COLA pension + SS covers all my base expenses (shown below).

So all I really need to do is build a bridge from 53 to 70. I can build that bridge with savings.

773,000 Bridge amount required (assumes 2% real return)

1,070,000 Savings (60/40 AA)
401k = 50%
Roth = 12% (available to withdraw tax/penalty free)
Taxable = 20%
Cash = 18%

I have enough to build the bridge to SS @ 70. I also have enough available to bridge from 53 to 59.5 when the 401k is available.

297,000 left over (can SWR this @ 3%)

The real question comes down to expenses. That $86,744 is our current base budget that we are using. We have overspent it so far this year by $7,000 (mostly for clothes and dining out). It also does not include vacations, cars, major home repairs and who knows what else. The $12,256 difference between that and my retirement income is available, but is it enough? I also have $300,000 outside the SS bridge that I could SWR @ 3% for $9,000 a year. Now my excess is $21,256. Is that enough?

So, this is where I am struggling. If we knew we could stick to a $99,000 budget, we would have enough cushion to retire in June. Here's the budget:

$17,700 a year on food? For 2 people? That's insane.
$4,800 for clothes?!? That's down from $8,400
$10,200 Misc? What's that? I don't know.
$5,000 for gifts?

I think we have a lot of room for reductions.

You may fire when ready, Gridley!

 

[pacergal]

+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.

+1
I still check in almost every day. There is a wealth of information from all of the members here, along with lovely glimpses into folks lives via pictures, things they are making, jokes, etc. It's a great place to be!

 

[GravitySucks]

Sure can have fun scaring yourself with spreadsheets. I did a few what ifs in a little Excel sheet, but FireCalc and RIP are more complete.
Over 5 years in now and I only scare myself looking at the worst case presented by the Fidelity Planner every now and then.

Plug in 5 years of 20% inflation sometime... Especially if you have a lot of mid to long bonds.

 

[HI Bill]

Didn't have a budget, never tracked spending, ran a few calculators (not firecalc) and just retired.

Easy.

Easy, if you've oversaved, like you obviously have, Mr. Blow that Dough! Good job!