All-out savings vs minimal savings (re: FIRECalc)

[A Bird In Hand]

Recently I was fiddling with FIRECalc and I discovered something that kind of blew my mind. Consider these two scenarios:

1) For the next ~20 years (until age 55) I max out my 401k, my wife and I max out our Roth IRA's, and we cut back on our living expenses somewhat in order to build up our taxable savings.

2) Immediately (and for the next ~20 years) I reduce my work hours and salary by 25% (work 30 hours a week vs 40), stop maxing out my 401k (contributing only a few thousand dollars in order to get the maximum company match), stop contributing to Roth IRA's for my wife and I, and save nothing in taxable accounts. The reduced salary is largely offset by reduced contributions to 401k, Roth IRA's and taxable accounts, so we wouldn't have to adjust our living expenses much.

With the assumptions I used in FIRECalc, the slacker approach still put me at 100% success rate. Granted, the aggressive savings approach resulted in a lot more $$ (average balance of $15 million vs $7 million at a $50k/year withdrawal rate; or the ability to withdraw $75k/year, still with 100% success rate).

There are plenty of other variations to my scenarios which also result in 100% success rates. For example, working 1/2 time starting tomorrow, but not starting withdrawals until age 62 (start of SS, for which I assumed 1/2 of what the SS calculator said our benefits would be); or saving at my current rate while working full time for 3 more years, then switching to half time; etc.

For those of you who have been in this situation -- that is, realizing you could imminently ease into your ER (by switching to part-time work), but only by drastically scaling back your savings rate -- were you able to pull the trigger? Maxing out my 401k seems so fundamental to my identity as a saver that the thought of abandoning it abruptly is giving me the willies. Especially while I'm still in my 30's, possibly with another 60 years of compounding interest ahead of me. Yet, the thought of working full-time just so I can afford to max out my 401k when neither are necessary for achieving my ER goals also gives me pause. I feel like I might be prematurely entering the "just one more year" phase.

 

[tmm99]

What was the spending power difference between the two scenarios?

 

[A Bird In Hand]

What was the spending power difference between the two scenarios?

I'm not sure whether there's a precise definition of spending power that you're referring to. As I mentioned, the aggressive saving scenario resulted in approximately 2x the average portfolio balance of the slacker scenario, and approximately 50% more yearly withdrawal (75k vs 50k) while still remaining at 100% success rate.

 

[foxfirev5]

My DW and I have done a modified version of what you suggest. Last year we realized that we could reduce our savings rate and still be ready for retirement, which my wife did. We are now living on my salary with reduced 401k contributions. However I must confess that we did this after almost 30 years of heavy savings. Also the stock market of the 90's helped considerably.

 

[MooreBonds]

For those of you who have been in this situation -- that is, realizing you could imminently ease into your ER (by switching to part-time work), but only by drastically scaling back your savings rate -- were you able to pull the trigger? Maxing out my 401k seems so fundamental to my identity as a saver that the thought of abandoning it abruptly is giving me the willies. Especially while I'm still in my 30's, possibly with another 60 years of compounding interest ahead of me. Yet, the thought of working full-time just so I can afford to max out my 401k when neither are necessary for achieving my ER goals also gives me pause. I feel like I might be prematurely entering the "just one more year" phase.

I'm 35, and my portfolio could roughly spin off enough dividends at a conservative rate to fully fund my necessities and a modest 'fun life experiences' budget...I guess my hesitation to selecting Door #2 is not only preferring the attitude of:

'making hay while the sun still shines', and rather keep plowing the additional savings in now to give a much stronger probability of strong future withdrawals

vs

(mainly) the strict lack of availability of having a generously-compensated job that I can get for just 30 hours/week (for someone in their 30s/40s), as well as (minor issue) the situation of slashing my income/savings now and hoping that everything works out almost perfectly according to plan to reach my goals...and then when life happens somewhat differently than planned, having to scurry around and possibly losing ground and nervously having to figure out how to make up for lost ground.

Mostly comes down to your own particular personality comfort level - if you're a pure ant and want things more 'certain', or lean more towards the happy-go-lucky grasshopper attitude of being able to pull something out of thin air to make things (hopefully) work out if something goes wrong.

 

[Animorph]

Sounds like you've reached the point where you've saved enough if you don't start withdrawing for a few years. Just a little bit to go, and the tough decision of when to pull the trigger. 100% success rate is good. I'd also consider the following:

1) How does your plan hold up if you or your wife dies early? This may mean a drop in SS or pensions and higher single tax rates.

2) What margin of safety are you comfortable with? Lower SWR, more ammuitization, more bonds, selling a house, part-time job, living with family.... Plan B, Plan C...

3) Do you have good estimates for medical insurance and long-term care expenses? House painting, new roof, new cars, new appliances, new furniture, and other non-yearly expenses?

4) What's your withdrawal plan to minimize taxes (which come out of your SWR)?

5) Will you be retiring into the start of a bear market? Might want a bigger cash/bond buffer up front.

Probably a bunch of other stuff I haven't though of in a few minutes. Once you have a solid and comfortable plan, then just monitor your FI status and decide if you want to semi-retire, retire, or save some more.

 

[ziggy29]

There are a lot of nuances to this sort of this. For example, if someone initially planned to go straight from full-time employment to retirement at 55 (and save a lot until 55), how would that compare to a decision to go part-time at 50 and do that until 60? On one hand you'd have less opportunity to save anything for retirement between 50 and 55; on the other hand you might earn enough to prevent dipping into your retirement savings between 55 and 60. And maybe the part time work would relieve stress and workplace BS that you felt refreshed enough to stick around until 60.

Situations like these vary enough that one can only plug in their own personal expectations, perhaps with just a little extra conservative assumptions built in, and see how it looks for them. Frankly I'd go part-time *today* (at 46) if I didn't have the health insurance problem to deal with.

 

[jclarksnakes]

If you already have a big net worth (investments, SS and pension values combined)and/or your planned spending in retirement is not too big then you may already be close to FI. From a point of being at or close to FI the FIRECALC is going to generate high confidence numbers. For example if you have a net worth of several million dollars and projected retirement expenses of 25K a year then you are already way past FI and FIRECALC will generate 100% or very near 100% probability of success. Rather than suffering from one more year syndrome you may actually be suffering from one more decade syndrome.

 

[Katsmeow]

Well one obvious thing is that if you can retire in 20 years with working less now and saving less now another alternative would be to work full-time now and save more now ... and retire sooner.

If I was in my 30s, I think that is probably what I would do for at least a few years. If I decided I didn't want to retire that soon then I might switch to lower pressure, less stress work.

 

[A Bird In Hand]

My DW and I have done a modified version of what you suggest. Last year we realized that we could reduce our savings rate and still be ready for retirement, which my wife did. We are now living on my salary with reduced 401k contributions. However I must confess that we did this after almost 30 years of heavy savings. Also the stock market of the 90's helped considerably.

I'm at around 15 years of heavy savings...and the stock market of 1999-2008 -- the bulk of my years in the market -- hindered my ER aspirations considerably.

 

[A Bird In Hand]

Mostly comes down to your own particular personality comfort level - if you're a pure ant and want things more 'certain', or lean more towards the happy-go-lucky grasshopper attitude of being able to pull something out of thin air to make things (hopefully) work out if something goes wrong.

Yeah, I hear that. I'm usually in the more conservative camp and would tend to work/save longer/more than I needed ala "better safe than sorry." But lately I've had a nagging feeling that I'm already missing out on my one opportunity to cut back at work, spend more time with my kids before they're grown up, and generally maximize my enjoyment of life while I'm still young and healthy. It's been really hard to reconcile my natural tendencies with those kinds of thoughts.

 

[A Bird In Hand]

Sounds like you've reached the point where you've saved enough if you don't start withdrawing for a few years. Just a little bit to go, and the tough decision of when to pull the trigger. 100% success rate is good. I'd also consider the following:

<snip>

Thanks! Those are excellent points to ponder, and some (e.g., figuring out how to pay for large, intermittent expenses) I hadn't really considered much. Definitely some food for thought.

Finding the right balance between "worked way longer, saved way more than I needed to" and "didn't work/save enough, and paid for it later in life" is tricky business. And much of it (market performance, large/unexpected expenses, illnesses, etc.) is outside of my direct control.

 

[A Bird In Hand]

There are a lot of nuances to this sort of this. For example, if someone initially planned to go straight from full-time employment to retirement at 55 (and save a lot until 55), how would that compare to a decision to go part-time at 50 and do that until 60?

Exactly. It seems like every day I think of a new ER scenario that I hadn't previously considered. Then I fire up FIRECalc and get excited by the results, post something on a forum like this one...you know the routine.

Frankly I'd go part-time *today* (at 46) if I didn't have the health insurance problem to deal with.

This is a very important point, one that always seems to bubble up to the top of people's concerns when considering ER. I take it you can't work part time for your current employer and still get medical coverage through your employer's plan? Or perhaps you're self-employed.

 

[A Bird In Hand]

Rather than suffering from one more year syndrome you may actually be suffering from one more decade syndrome.

Basically, yes.

 

[A Bird In Hand]

Well one obvious thing is that if you can retire in 20 years with working less now and saving less now another alternative would be to work full-time now and save more now ... and retire sooner.

I've struggled with this. Up until recently I figured that ER for me meant not having to work, and perhaps only working part time (grudgingly) to keep from drawing down my nest-egg principal too early. But after a bit more contemplation, I think I'd actually prefer to work at least part time indefinitely. My reasons for this:

- I like my job/employer.

- My employer offers some great benefits, including eligibility to remain in its health care plan (for life) after a certain # of years of service + age, and tuition assistance for my kids' college expenses.

- I'm still not sure what I'd do with 100% leisure time if I stopped working; a balance of, say, 50% spent on a well-paying job I enjoy, and 50% pursuing other interests sounds reasonable to me at the moment. I realize this could change if I develop some new hobbies/passions outside of work.

- I'm concerned that if I back out at the first moment it seems financially feasible, I'll constantly be stressed out about my financial security and whether my portfolio will hold up. Maybe I'm wrong.

If I was in my 30s, I think that is probably what I would do for at least a few years. If I decided I didn't want to retire that soon then I might switch to lower pressure, less stress work.

A main reason I'm interested in gaining some more free time now is that my kids are only this young once -- in just a few short years they'll be in school most of the day. It's hard to put a price on the extra time that I could be spending with them now. It's time that will soon be gone forever, and I'd hate to live with the regret over choosing to work more rather than spend more time with my kids. Cue "And the cat's in the cradle and the silver spoon..."

 

[jclarksnakes]

Basically, yes.

Congratulations, seems like you are in a great position. You can probably do whatever you want. Only problems seems to be that you are not sure what that is? Work fulltime, work parttime, take a year off, lots of other choices to consider also. If I was you I would spend some time trying to figure out the answer to the "what do I want to do" question and then go for it.

 

[A Bird In Hand]

Congratulations, seems like you are in a great position. You can probably do whatever you want. Only problems seems to be that you are not sure what that is? Work fulltime, work parttime, take a year off, lots of other choices to consider also. If I was you I would spend some time trying to figure out the answer to the "what do I want to do" question and then go for it.

I should probably clarify that the 100% success rate FIRECalc reports has less to do with a large nest egg than it does with my modest annual withdrawal expectation.

 

[Katsmeow]

I've struggled with this. Up until recently I figured that ER for me meant not having to work, and perhaps only working part time (grudgingly) to keep from drawing down my nest-egg principal too early. But after a bit more contemplation, I think I'd actually prefer to work at least part time indefinitely.

.....

A main reason I'm interested in gaining some more free time now is that my kids are only this young once -- in just a few short years they'll be in school most of the day. It's hard to put a price on the extra time that I could be spending with them now. It's time that will soon be gone forever, and I'd hate to live with the regret over choosing to work more rather than spend more time with my kids. Cue "And the cat's in the cradle and the silver spoon..."

Both of those are very valid points and ones that I can -- to some extent -- speak to. My DH fully retired a couple of years ago. I was 56 and had been working very full time. At the time we had adolescent kids.

FWIW, DH and I had for years assumed he would retired at 66 (his FRA) and I would retire at some point a few years later (I am 7 years younger). Eventually he retired a few years early and I went to a very part time schedule at 56. That was a little over 2 years ago and I'm still working part-time, going to the office usually two days a week. And, it has worked out well for me. I get to do the work that I like and I enjoy the people I work with. (As a part time person I don't get benefits from my employer but DH does have subsidized retiree medical insurance so I get coverage through him).

The point about kids is a valid one. Even though our kids were adolescents when we went to this schedule it has resulted in us being able to spend a lot more time with them. In fact, we are homeschooling our daughter which we could not have done before. And, you are right. That is time you can never get back.

 

[MooreBonds]

Yeah, I hear that. I'm usually in the more conservative camp and would tend to work/save longer/more than I needed ala "better safe than sorry." But lately I've had a nagging feeling that I'm already missing out on my one opportunity to cut back at work, spend more time with my kids before they're grown up, and generally maximize my enjoyment of life while I'm still young and healthy. It's been really hard to reconcile my natural tendencies with those kinds of thoughts.

Your desire to spend more time w/ the kids is definitely commendable...however, truly analyze what this would mean, or how it would come into practice.

You might be able to work up a part-time gig (20 hrs or so), but you referenced 30 hrs/week earlier. Would your 'free time w/ the kids' really be all that different if you worked 30 hrs/week vs 40 hours? Sure, there are chores that need to be done around the house that you could do in that 10 hrs you wouldn't be working...but there are many households that have dual-income parents who still find time to spend some time w/ the kids and each other.

Also, while it is great to spend a good amount of time w/ your kids, they do need a little 'alone time' to be with their friends -during which you could get other things accomplished.

Is it possible to simply leave your job at the office when you leave at 5pm each day, and only commit to working 40/hrs a week (with the exception of a few hours of OT once in a rare while), and still have a decent enough time to be with the family and get everything done around the house and around town?

 

[teejayevans]

I'm at around 15 years of heavy savings...and the stock market of 1999-2008 -- the bulk of my years in the market -- hindered my ER aspirations considerably.

But not saving heavily would have hurt more, some things you can control, some you can't. But since you have been consistently putting money in you have bought a lot when prices were cheap, so 2009 and onward should have help make for that.
TJ

 

[A Bird In Hand]

Would your 'free time w/ the kids' really be all that different if you worked 30 hrs/week vs 40 hours?

Though it sounds redundant, it would be different to the extent that I could take advantage of those 10 hours. 10 hours could mean 2-3 additional afternoons per week that I could spend with the kids. So yeah, a pretty big difference if you ask me.

Sure, there are chores that need to be done around the house that you could do in that 10 hrs you wouldn't be working...but there are many households that have dual-income parents who still find time to spend some time w/ the kids and each other.

I guess it all depends on how much time people want to spend with their kids. Maybe most people are OK with seeing their kids briefly in the mornings before school, and then for a few hours in the evening before bed. For me, those scant hours fly by and often more like work (trying to get the kids fed and out the door in time, preparing dinner, bed-time routine) than quality family time. There's more time available on weekends, but a substantial portion of that goes to household chores, yardwork, errands, etc.

Also, while it is great to spend a good amount of time w/ your kids, they do need a little 'alone time' to be with their friends -during which you could get other things accomplished.

Good point. My kids aren't quite to the age where it's OK to send them out to play unsupervised, but I can imagine in a few years that will be the case. Then again, in a few years they'll also be in school most of the day.

Is it possible to simply leave your job at the office when you leave at 5pm each day, and only commit to working 40/hrs a week (with the exception of a few hours of OT once in a rare while), and still have a decent enough time to be with the family and get everything done around the house and around town?

That pretty much describes my life now. I only started questioning the lost opportunity cost when I took a closer look at my finances, started fiddling with FIRECalc, and realized that maybe I'm doing the 9-5 thing more out of habit than necessity.

 

[A Bird In Hand]

But not saving heavily would have hurt more, some things you can control, some you can't. But since you have been consistently putting money in you have bought a lot when prices were cheap, so 2009 and onward should have help make for that.
TJ

Indeed, you're right. I think my annualized ROR over the last 14 years is in the 4-5% range. Not as dire as it could have been given the crashes in 2002/2003 and 2008, but a far cry from the long-term averages we like to imagine are written in stone. I have often told myself that those crashes were just opportunities to buy low while I'm still in the rapid accumulation phase.

 

[RE2Boys]

A main reason I'm interested in gaining some more free time now is that my kids are only this young once -- in just a few short years they'll be in school most of the day. It's hard to put a price on the extra time that I could be spending with them now. It's time that will soon be gone forever, and I'd hate to live with the regret over choosing to work more rather than spend more time with my kids. Cue "And the cat's in the cradle and the silver spoon..." [/QUOTE]

Twelve years ago, when I was trying to decide whether to take an early retirement offer from my employer, it suddenly dawned on me that I had an opportunity most parents only dream of, to have the time to spend with my boys, supporting their activities, without the worries and pressures of a career job. Though I wasn't sure if the financials were solid (this was before I ever heard of Firecalc, just know of the Trinity study and 4% "rule"), I accepted the offer (after several late nights analyzing income & expenses) even though my sons were 18 months and 3 years old. I've never regretted the decision, though it helped that we have always been LBYM.

 

[A Bird In Hand]

Twelve years ago, when I was trying to decide whether to take an early retirement offer from my employer, it suddenly dawned on me that I had an opportunity most parents only dream of, to have the time to spend with my boys, supporting their activities, without the worries and pressures of a career job. Though I wasn't sure if the financials were solid (this was before I ever heard of Firecalc, just know of the Trinity study and 4% "rule"), I accepted the offer (after several late nights analyzing income & expenses) even though my sons were 18 months and 3 years old. I've never regretted the decision, though it helped that we have always been LBYM.

That's fantastic! You were given a wonderful opportunity and I'm glad it has worked out for you and your family. That's kind of my dream scenario...unfortunately my employer never has and probably will never offer early retirement.

 

[arebelspy]

Have you run the numbers on if you do option 1 (max out savings) what is the earliest you could FIRE with a 100% success rate? 5 years? 10?