Blogger Joe Udo says 25x expenses not enough for early-retirees

[Major Tom]

If anything the four percent figure is way too conservative.

If the next forty years is the same as the last forty years, someone who invested in a 50/50 total stock and bond fund portfolio and took out four percent of their money each year and updated that amount to match inflation, would have 21 times their orginal investment. (If they reinvested the dividends)

You can verify it on this website:

https://www.portfoliovisualizer.com/backtest-asset-class-allocation

Forced to Retire - I will let others give their opinions and reasoning as to why it would not be a good idea to withdraw more than 4% from a 50/50 (or some other similar AA) portfolio and expect it to last 40 years.

I will say that you would be well served to do plenty of reading and research for yourself. The multiple threads in this forum have much relevant reading. It never hurts to sit yourself down with a good book, or in front of a computer, and read, read, read.

 

[samclem]

If the next forty years is the same as the last forty years . . .

It won't be "the same." That's just one run of the very many runs even a straight use of historical data can provide. Play around with FIRECalc a bit, it covers some time periods that were not so kind to investors. There's not much to be learned from a single series, there are scores/hundreds of series in the historical record (depending on the length of the time period chosen). Regardless, it is important to remember that, of the 200+ nations in the world, the US economy has done uniquely well over much of this period. So, it may be useful to take US historical returns with a grain of salt (and humility) as we look ahead, unless we think that this will continue.
4% has historically done quite well, but the present circumstances are well outside the "averages"--CDs/bonds are providing very low real interest rates, stocks are priced quite high in relation to the earnings of the underlying companies.

A dollar spent on stocks today is backed by 50% less earnings than in 1972. Are stocks expensive now? Yes. Does that mean they are more likely to go up (long term) or down (long term) from their present valuations?

 

[Forced to Retire]

I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise.

I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

 

[razztazz]

I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise.

I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

The reality is as follows:

We talk all the time here about what we'd do, or what anybody would do if hard times hit and the 4% rule started showing signs of stress. We'd spend less, thus insuring we'd have more money later.

The reverse is true. After some years of retirement it is was apparent the investments were doing like the loaves and fishes in the Bible, We'd spend more. Or perhaps just allot more to the nursing home fund down the pike. Same thing.

I doubt anybody will be angry at having too much money in the short term, OR the long term.

 

[Teacher Terry]

Better to have too much $ then to be broke, old and still alive.

 

[samclem]

I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise.

I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

A lot of people here make sure they can cut their expenses if need be. Then they take a certain percentage (maybe 4%, maybe a little less or more) of the >year end balance< of their portfolio every year. Three giant advantages to this approach compared to a "4% starting amount adjusted for inflation every year" approach:
1) You can never totally run out of money. You may lose ground to inflation over time, but you won't spend the last cent because you aren't heedlessly withdrawing money every year without respect for the value of the portfolio. If your portfolio declines you take the pain right then, but you can never get down to zero.
2) When your portfolio has a bad year, you sell less of it. This leaves more shares in the account to recover as share prices rebound (and they always have). So, by being flexible in withdrawal amounts you avoid eating your "seed corn" and give your portfolio a chance to recover. And, doesn't it match what most of us would do anyway? Would most people keep spending at the same rate even though their portfolio is down 50% over the last few years? Probably not.
3) It helps avoid the huge accumulations of money you referred to above. You spend while you are alive. And, s a bonus, you'll see (when you model it in FIRECalc, which you should do), that the historically safe withdrawal percentage can be quite a bit higher if you use this "end of year balance %age" approach.

It doesn't work for everyone, because some people are unwilling or unable to flex their spending by the needed amount every year. But it is something to consider. There's lots written about this and many other issues already on this site.

 

[Major Tom]

I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise.

I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

Put yourself in the shoes of such a person who was lucky enough to have experienced this positive sequence of returns. Let's say you put $300K into a 50/50 portfolio and 40 years later, you have the inflation-adjusted equivalent of $6.3M. Don't you think that somewhere along the way, when you realized you had a lot more money than when you started - say, at the $1M, or $2M mark, you'd have allowed yourself to increase your withdrawals accordingly? Very, very few people would doggedly stick to the same WR year after year, in such a scenario.

You may, as you have said, done lots of reading on this, but you are either not taking it in, are performing a very simplistic analysis of the information you are receiving, or have not done enough reading. Whichever it is, your posts are good for forum traffic

 

[haha]

I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise.

I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

Where have you been all my life?

I have needed your wise counsel many times.

Ha

 

[Mulligan]

I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise.

I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

It just depends on the person. My 87 year old neighbor friend says he has considerbly more money now than he ever had and every year the stash climbs. I will tease him about going and spending some of it and having some fun. And he always says " I havent wasted money my entire life and sure as hell aint starting now".

 

[RobbieB]

Hehe, yeah, that's pretty good! 87 and still stacking cash.

I don't want to be that guy -

 

[Mulligan]

Hehe, yeah, that's pretty good! 87 and still stacking cash.

I don't want to be that guy -

It is the Great Depression mind set. It will not change. In his mind he has everything he wants and needs. So I doubt spending anymore would increase his satisfaction levels.

 

[UpAnchor]

Hehe, yeah, that's pretty good! 87 and still stacking cash.

I don't want to be that guy -

It is the Great Depression mind set. It will not change. In his mind he has everything he wants and needs. So I doubt spending anymore would increase his satisfaction levels.

I'm thankful for the lessons I learned from that set growing up, as they helped me get to where I am today. Although I'm sure they'd be shaking their heads at some of the areas where I've been less than frugal...

 

[RobbieB]

I enjoy investigating more ways to blow dough every day.

I've done the frugal, got a nice stash, I'm 61 and haven't worked in 2 years and have more dough than I ever did. I'm still stacking cash.

Gotta Blow More Dough!

 

[Helena]

It just depends on the person. My 87 year old neighbor friend says he has considerbly more money now than he ever had and every year the stash climbs. I will tease him about going and spending some of it and having some fun. And he always says " I havent wasted money my entire life and sure as hell aint starting now".

That has been my experience. I live frugally, simply and comfortably and I have added to my nest egg every year since my retirement.

This is not a hardship... this is the way I prefer to live.

.

 

[Nemo2]

I live frugally, simply and comfortably and I have added to my nest egg every year since my retirement.

This is not a hardship... this is the way I prefer to live.

.

+1

 

[RioIndy]

25X seems fine for a 65 yo, but I'd be scared out of my mind retiring in my 40s using that metric.

I'm not sure if I see the point of investing 25X my expenses at 65 years old. 65 + 25 years of expenses puts one at 90 years old if they just spent it.

At 65 I'd rather just spend more of that while I can still enjoy that money and my life. By the time it potentially grew to be significantly more I will have rapidly lost my ability to enjoy that extra money. Apart from health care if that's a concern, most of my spending will likely decrease as I get into my twilight years.

 

[aida2003]

Yep, they would drop by a few times a year to promote their blog with the hopes someone would buy something to help support their "retirement".

Odds are E-R.org management put a stop to their free advertisement opportunity, which resulted in them losing interest in posting.

Ha, it figures. You could be right. I bought 2 of their books (it's not books, they email PDF files) when they offered at discount a few years ago. I was disappointed. They lacked substance on the financial advice and too many pictures for my taste. However, they were inspirational and would be beneficial for people wanting to retire outside the USA and they'd work for beginners who wished to get more motivated. At least MMM and Joe's blog presented quite a few math examples how to get to the 'number' (but everyone should trust or distrust that number at their own expense).

BTW, I don't think I ever finished reading one of the 2 purchased PDF files-books. I guess I cannot ask for my my money back LOL

 

[Mulligan]

That has been my experience. I live frugally, simply and comfortably and I have added to my nest egg every year since my retirement.



This is not a hardship... this is the way I prefer to live.



.

Helen, your "not a hardship" comment is exactly how he feels... And I am slowly drifting that way too. Im just too set in my lifestyle ways. Many things I dreamed of owning, that now I can, I don't even desire. Not really a heck of a lot of things I really even want to buy anymore other than needed replacements.

 

[Helena]

Helen, your "not a hardship" comment is exactly how he feels... And I am slowly drifting that way too. Im just too set in my lifestyle ways. Many things I dreamed of owning, that now I can, I don't even desire. Not really a heck of a lot of things I really even want to buy anymore other than needed replacements.

Being taught by Depression-era parents and following my own nature, I have always lived frugally, simply and saved money.

When I was a small child, money was the dime in my hand waiting for the ice cream man.

When I was in elementary school, our teacher took us on a field trip to the local bank to open a savings account and instructed us about banks and the value of saving money.

When I became an adult, I realized that money can buy more than ice cream... it buys freedom... and debt enslaves.

The best thing about my retirement is my freedom.

.

 

[Major Tom]

Being taught by Depression-era parents and following my own nature, I have always lived frugally, simply and saved money.

When I was a small child, money was the dime in my hand waiting for the ice cream man.

When I was in elementary school, our teacher took us on a field trip to the local bank to open a savings account and instructed us about banks and the value of saving money.

When I became an adult, I realized that money can buy more than ice cream... it buys freedom... and debt enslaves.

The best thing about my retirement is my freedom.

.

More schools should do that. Your teacher helped put you on the right track - as well as your parents.

My parents were born in the 1920's in England. They lived through WWII, and the scarce years after it which, over there, lasted into the 50's. I was given my own savings account with the local building society (which I suppose is a bit like an S&L or Credit Union) and taught to save a portion of my allowance every week. There was great stability in our household. We always had a good roof over our head, and enough to eat. I had everything I needed, and a few little extras. There was definitely no material excess though - and that was fine. It wasn't needed.

The income I draw from my portfolio puts me in the low income category, but I have a dry, warm place to live, all the food I want, the company of 3 fantastic cats, and a bicycle. On top of that, every morning when I wake up, I can do whatever I want. It reminds me very much of the sense of freedom I felt as a kid every year, when the 3 month summer holiday from school was just beginning. Those 3 months of glorious unscheduled time stretching out in front of me felt wonderful - and now, every morning when I wake up, so does my retirement

 

[Helena]

More schools should do that. Your teacher helped put you on the right track - as well as your parents.

My parents were born in the 1920's in England. They lived through WWII, and the scarce years after it which, over there, lasted into the 50's. I was given my own savings account with the local building society (which I suppose is a bit like an S&L or Credit Union) and taught to save a portion of my allowance every week. There was great stability in our household. We always had a good roof over our head, and enough to eat. I had everything I needed, and a few little extras. There was definitely no material excess though - and that was fine. It wasn't needed.

The income I draw from my portfolio puts me in the low income category, but I have a dry, warm place to live, all the food I want, the company of 3 fantastic cats, and a bicycle. On top of that, every morning when I wake up, I can do whatever I want. It reminds me very much of the sense of freedom I felt as a kid every year, when the 3 month summer holiday from school was just beginning. Those 3 months of glorious unscheduled time stretching out in front of me felt wonderful - and now, every morning when I wake up, so does my retirement

Your childhood sounds a lot like mine.

We always had cats. I used to dress them up in baby clothes and stroll them down the sidewalk in a baby buggy. They kept jumping out. But they couldn't run away far because their hind legs kept getting tangled in their clothing.

Retirement is a second childhood... but without parental supervision.

.

 

[Helena]

the company of 3 fantastic cats

Have you ever seen the 1960s British children's movie, "The Three Lives of Thomasina " ??

If not, you might want to check it out... maybe it is on YouTube.

.

 

[Major Tom]

Have you ever seen the 1960s British children's movie, "The Three Lives of Thomasina " ??

If not, you might want to check it out... maybe it is on YouTube.

.

Couldn't find the full movie, but did see the trailer. Now I know where you got your idea of dressing up the cats

I rather liked the charming presentation and production quality. Will keep an eye out for it. Thank you!

 

[Helena]

Couldn't find the full movie, but did see the trailer. Now I know where you got your idea of dressing up the cats

I rather liked the charming presentation and production quality. Will keep an eye out for it. Thank you!

I was dressing my cats in Texas years before the 1963 British movie.
Maybe it was a common Anglo idea

.

 

[Gumby]

The young wife dressed her cats (Georgie and Linda) and pushed them in a carriage when she was a child in New Jersey. I guess it was fairly common at one time. Still may be, for all I know.