Do you really need a lower SWR for longer retirement?

[accountingsucks]

As the length of retirement goes up, the SWR is said to go down. I wonder though if this is really necessary. With a longer retirement, one will of course be younger at age of "retirement". As such, depending on one's profession it should be easier for those 45-55 to go back to work if needed or work part time as appropriate. Most 60+ year olds would not have that option. Does the flexibility of work options at the younger retirement age cancel out the need for a lower SWR?

I hope so - my personal plan is to get to 25X expenses around age of 45 and then go back to work "as needed" - hopefully that will not be the case but I'll have the option.

 

[rescueme]

...it should be easier for those 45-55 to go back to work if needed or work part time as appropriate.

Ya think?

Since I'm past 60, my options have run out (as you stated).

I have the advantage of age; in other words, I've already lived through the ages you are only talking about (yes, I've been there - done that).

First of all, I believe in today's age (as in the past) the idea of anybody hiring for anybody after age 40 (unless working at the local Micky D's or 7-11, on midnight shift) is just wishful thinking. By that time, I had a boss that was much younger than me, and wished that I would just fade away (I made his wish come true).

Also, you are trying to calculate your expenses at an earlier age. I don't know about you, but I was making much, much more at my time of retirement (at age 59) than 10-15 years earlier. My goal (and I achieved it) was to live in retirement at 100% of my final year's net income. I could not even estimate that requirement many years before.

My "solution" was easy. Work as long as I could (I know if I left, I would never return) and accumulate as much as I could. When I was ready to go (both emotionally and financially), I pulled the plug - and never looked back.

I know the temptation to retire early and "gain your freedom" earlier in life is a big pull. However it leaves too many "if's", IMHO. You are counting on situations in the future (which may, or may not) come about.

In my case, I made the plan, executed what needed to be done to meet the plan goals, and then executed the end of the plan (and yes, it's working as planned ).

Just my $.02 on your question/statement.

 

[Rich_by_the_Bay]

As the length of retirement goes up, the SWR is said to go down. I wonder though if this is really necessary. With a longer retirement, one will of course be younger at age of "retirement". As such, depending on one's profession it should be easier for those 45-55 to go back to work if needed or work part time as appropriate. Most 60+ year olds would not have that option. Does the flexibility of work options at the younger retirement age cancel out the need for a lower SWR?

From what I hear and have experienced, it is might be challenging for some to FIRE and then go back to full time work. It sounded better to me to ESR rather than FIRE, and adjust by deciding to ESR longer if needed. That is, build the hedge right into the plan from the get-go.

 

[Gone4Good]

Does the flexibility of work options at the younger retirement age cancel out the need for a lower SWR?

I'd say "No" for a couple of reasons . . .

1) Work skills are perishable. Your value as an employee diminishes every day you stay out of the labor force. It's quite possible that after a 5 or 10 year absence you'll be basically unemployable.

2) Work will be scarce when you need it the most. Employment opportunities and investment returns are positively correlated. Finding a job in a bad economy is going to be challenging, all the more so because of point #1.

3) In 10 years, when it's clear your retirement plan isn't working, you'll also be ~60 with the same number of productive work years left as a ~60 year old retiree. Only you'll have a smaller portfolio and higher WR then.

 

[Onward]

Does the flexibility of work options at the younger retirement age cancel out the need for a lower SWR?

Naw, that's cheating. The purpose of a low WR at 45 is to give you a good shot at solvency when you're too old to work.

 

[W2R]

As the length of retirement goes up, the SWR is said to go down. I wonder though if this is really necessary. With a longer retirement, one will of course be younger at age of "retirement". As such, depending on one's profession it should be easier for those 45-55 to go back to work if needed or work part time as appropriate. Most 60+ year olds would not have that option. Does the flexibility of work options at the younger retirement age cancel out the need for a lower SWR?

I hope so - my personal plan is to get to 25X expenses around age of 45 and then go back to work "as needed" - hopefully that will not be the case but I'll have the option.

If you are "retiring" with the intention of going back to full time work as needed, then in my opinion that is not so much retiring as possibly just an extended period of unemployment. Also, have you considered the possibility that by the time your ER plan fails, you very well might be over 60?

Quality of life in retirement is another factor to consider. If you are generally worried about money and having to go back to work, that could be depressing and could really detract from your enjoyment of retirement.

Can you happily live on 75% of your anticipated ER budget? If so, you could then live on 3% instead of 4%. It sounds to me like that might help a lot in your situation.

 

[LOL!]

Based on your posts here accountingsucks, it seems to me that you should start your own business. Why haven't you done that yet?

 

[accountingsucks]

Ya think?

Since I'm past 60, my options have run out (as you stated).

I have the advantage of age; in other words, I've already lived through the ages you are only talking about (yes, I've been there - done that).

First of all, I believe in today's age (as in the past) the idea of anybody hiring for anybody after age 40 (unless working at the local Micky D's or 7-11, on midnight shift) is just wishful thinking. By that time, I had a boss that was much younger than me, and wished that I would just fade away (I made his wish come true).

Also, you are trying to calculate your expenses at an earlier age. I don't know about you, but I was making much, much more at my time of retirement (at age 59) than 10-15 years earlier. My goal (and I achieved it) was to live in retirement at 100% of my final year's net income. I could not even estimate that requirement many years before.

My "solution" was easy. Work as long as I could (I know if I left, I would never return) and accumulate as much as I could. When I was ready to go (both emotionally and financially), I pulled the plug - and never looked back.

I know the temptation to retire early and "gain your freedom" earlier in life is a big pull. However it leaves too many "if's", IMHO. You are counting on situations in the future (which may, or may not) come about.

In my case, I made the plan, executed what needed to be done to meet the plan goals, and then executed the end of the plan (and yes, it's working as planned ).

Just my $.02 on your question/statement.

Let me ask you this. What if you had retired 5 years earlier and were able to do all the things you wanted to do during that time. Would those years not have outweighed the extra additional risks?

As for finding jobs later in life I think it is highly dependent on the profession. I would think something like pharmacy would be easy to work part time in, whereas something like IT where one must keep up to date constantly would be much harder.

 

[FIREd]

I do believe that longer retirements call for lower SWRs. Our SWR would have to be below 3% before we would consider retiring completely in our 30s or 40s. And I agree with Rich, ESR makes a lot of sense for us very early retirees, especially given the uncertainties we face. If you had retired completely years ago and suddenly had to find a job, it would be nearly impossible in the current economic climate (if you are unemployed with a long gap in work history, you would be SOL in this economy with 10% unemployment). With ESR, your skills remain up-to-date and your work history shows no gap. If you had to find another job, you'd be in a much better position. Plus even a small amount of earned income can make a lot of difference on your long term plan. Earned income typically increases with inflation and can increase the survivability of your portfolio.

 

[Meadbh]

Let me ask you this. What if you had retired 5 years earlier and were able to do all the things you wanted to do during that time. Would those years not have outweighed the extra additional risks?

As for finding jobs later in life I think it is highly dependent on the profession. I would think something like pharmacy would be easy to work part time in, whereas something like IT where one must keep up to date constantly would be much harder.

Pharmacists need to keep up to date, too! Most of the drugs in common use nowadays were unheard of when I graduated from medical school 30 years ago.

 

[accountingsucks]

I'd say "No" for a couple of reasons . . .

1) Work skills are perishable. Your value as an employee diminishes every day you stay out of the labor force. It's quite possible that after a 5 or 10 year absence you'll be basically unemployable.

2) Work will be scarce when you need it the most. Employment opportunities and investment returns are positively correlated. Finding a job in a bad economy is going to be challenging, all the more so because of point #1.

3) In 10 years, when it's clear your retirement plan isn't working, you'll also be ~60 with the same number of productive work years left as a ~60 year old retiree. Only you'll have a smaller portfolio and higher WR then.

As per point 1, I think if one needed to work abit to supplement income a lower paid part time job would be sufficient. I don't think finding the same high stress 6 figure job after "retirement" would be needed/possible. If it was needed, then the person was terribly unprepared to retire. I could live on a $12 per hour job if I had to because I have structured my life as such. Also I'm not talking about working at McDonalds. Where I live, there are plenty of jobs such as parts delivery guy or whatever that pay $15 an hour. Working for the city parks department yields over $20 an hour. Not exactly high stress positions here.

As for point 3, at 62 I would have Canadian retirement benefits kick in (same as social security in US). My 25X expenses assumes I receive zero pension from the govt but realistically it will provide about 25% - 40% of my retirement needs. Many pensioners live only on Canadian pensions.

 

[accountingsucks]

Based on your posts here accountingsucks, it seems to me that you should start your own business. Why haven't you done that yet?

I don't want to take on that extra risk and I have no idea what I would start said business in .

 

[Meadbh]

I don't want to take on that extra risk and I have no idea what I would start said business in .

You're an accountant, I presume? How about a seasonal tax preparation business? Or an accounting business with a niche...like specializing in professional corporations like mine? That could be a nice part time "hobby" business and you wouldn't be in thrall to the Man.

 

[Koolau]

Not that it can't be done, but my guess is that going back to w*rk would be very difficult to do, especially at any wage close to your previous wage. When I retired, out of curiosity, I checked the market and found only temp work in my field which was relatively poorly paid and with no benefits (not that I needed them.) This was especially true without relocating.

In short, I wouldn't count on w*rking to make up for a failed FIRE plan. Yes, you could do it to survive, but I wouldn't count on it to maintain your plan's required cash flow.

I have several contingencies built into my plan (much shorter time frame than accounting sucks, I would admit). W*rk is the LAST contingency following things like relocation to a cheaper area, selling cars, eating only at home, etc. If I ever found something I wanted to do and it happened to be w*rk, that would be a different story. I just would not want to count on it as a part of the plan. YMMV of course.

 

[rescueme]

I don't want to take on that extra risk and I have no idea what I would start said business in .

As one who as "been there" (no, not mine, but in a "family business" I was raised in), you are wise to not just jump into such an "opportunity".

I'm not saying running your own business is "bad", but since I have a lot of horror tales to tell (based upon actual experience), I learned at a very eary age to let others take the risk. I rather share in the profits ...

 

[rescueme]

Let me ask you this. What if you had retired 5 years earlier and were able to do all the things you wanted to do during that time. Would those years not have outweighed the extra additional risks?

As for finding jobs later in life I think it is highly dependent on the profession. I would think something like pharmacy would be easy to work part time in, whereas something like IT where one must keep up to date constantly would be much harder.

Fair enough question.

As I said before, I retired at age 59. I (along with my DW) had achieved "our number" in our early 50's.

Our indivudial goals were achieved during our working years. Mine? To be able to spend 100% (adjusted each year for our personal inflation rate) as we spent during our wor*ing years.

My wife's (primary) goal? To be able to travel (both internationally and CONUS) several times a year. As a secondary goal, also to be able to spend 100% of her pre-retirement net income (adjusted for personal rate of inflation).

Unlike a lot of folks looking at future retirement expenses, we did not "plan for the future" as to what we were going to do in retirement. We actually did it/spent it during our wor*ing/accumulation years. We did (and still do) a lot of travel (were "down under" for a month last year, in June, along with an east coast cruise later in the year). We just returned from a Baltic cruise two weeks ago (Nordic/Russia - plus a few days in London). My wife is leaving in September with a friend of hers to go to the Canyonlands/Vegas in September. In November, they are headed off to Cairo and a cruise on the Nile for a week. I'm not trying to impress you at all; just to say that we (mostly my DW) are achieving our desires.

We've always done travel (the biggest retirement expense). Nothing has changed in retirement.

As for me? I rather stay home (I traveled much - too much, mostly international travel, to much during my wor*ing years) and enjoy my home, my pups, and not having to travel.

Retiring early would have not made much imact upon an improvement in lifestyle, in my/our case.

As to occupation? I retired from working in IT. If you count from the first class I took (1965) till retirement (2007), that's 42 years in an area of the economy that never stayed the same (as you well know). In my case, returning to work (even in my last role of PM) would be hard to return to.

It is not only the ability to perform a function, but it's also the desire to perform that function/job, IMHO.

At my age, I'm not willing to put up with office BS, nor "suffer the consequences" of somebody half my age who has not been brought up "in the trenches" at my advanced age ...

Heck - I look at it as that I earned my stripes (yes, former military). I have nothing to prove to anybody, anymore...

As to your question directly pertaining to retiring 5 years earlier. I (and my DW) planned on retiring at age 65 (of course now age 66). We planned to retire at age 59 - seven years earlier. So in essence, I did retire more than five years earlier than planned. I can't say I took any risk at all, since it was my/our plan and any possible impacts were considered before execution.

As to my DW? She was to retire at the same time as me (we're the same age). However a few months before she was to retire, she found that she was not "emotionally ready". At age 62, she still is gainfully employed. However she knows that any day she wishes to leave, she is free to do so. I guess you can call that real "freedom"...

 

[walkinwood]

I hope so - my personal plan is to get to 25X expenses around age of 45 and then go back to work "as needed" - hopefully that will not be the case but I'll have the option.

Your chances will improve if you
a) use a percentage of portfolio method for withdrawals rather than the conventional inflation adjusted method.
b) have a significant amount of discretionary spending in your annual budget. The withdrawals from a percentage-of-portfolio method swing wildly.

Whenever your % withdrawal falls below your needs, you'll need to work to make up the difference

This is more or less my plan. I have a separate "bucket" to draw from in years when the percentage withdrawal is lower than what I need, but that's equivalent to using a less than 4% withdrawal rate. Its just feels good to me. I'm also prepared to work to make up the gap if needed. My plan does not rely on SS distributions, so there is some leeway there.

 

[haha]

Pharmacists need to keep up to date, too! Most of the drugs in common use nowadays were unheard of when I graduated from medical school 30 years ago.

True, but the same turnover would take at most 2 years in IT or software development.

Plus if a pharmacist works in a modern venue he will be in pretty good shape as long as s'he can read, since the information appears to be entirely available in a database.

Ha

 

[chinaco]

IMO - Don't ER unless you are confident of your plan. I believe it is easier to work more years before ER than to quit for 5 - 10 years and need to go back to work full-time or part time. It is unlikely you will earn the same money (therefore you will spend more time working for the same amount of money). Alternately work part time while you have your higher earning capability and ER later. The future may not turn out as you expect... If health problems occur later in life, you may not be able to go back to work.

 

[Meadbh]

I think the key concern about burning one's bridges too early is variability in portfolio performance. Take a look at any FireCalc graph. Over time there is a broader range of possible outcomes. If there is no cash flow buffer to reverse the inevitable downward variations, a vicious circle may lead to financial "ruin". The longer you are retired, the more times this will occur.

 

[traineeinvestor]

As the length of retirement goes up, the SWR is said to go down. I wonder though if this is really necessary. With a longer retirement, one will of course be younger at age of "retirement". As such, depending on one's profession it should be easier for those 45-55 to go back to work if needed or work part time as appropriate. Most 60+ year olds would not have that option. Does the flexibility of work options at the younger retirement age cancel out the need for a lower SWR?

I hope so - my personal plan is to get to 25X expenses around age of 45 and then go back to work "as needed" - hopefully that will not be the case but I'll have the option.

This is exactly one of the questions I have been grappling with over the last few years. If I had been prepared to go with a WR of 4% with a back up plan of going back to work later should the need arise, I would have been gone already. I didn't - I decided to stick around and save for a few more years until my WR was lower - largely for the reasons others have given:

1. skills become stale: if I go back to work later on, not only is there no certainty that I will find a job at all, the prospects of finding something that pays what I am earning now are fairly low. In other words, I could find that my total time in the work force goes up due to the lower savings rate later on

2. by the time I conclude that I need to go back to the work force, I will be older. The older I get (and the more time i have spent in retirement mode) the less likely it is that I will be mentally willing to face a return to the coal face

3. it's one moe thing for me (and DW) to worry about

4. the alternative to going back to work is to cut expenses. If that means a cut in the lifestyle we have planned for and become used to living, that is an unappealing option

I would much rather stick it out for a few more years and retire at 47 (+/- a year or two) than go early and have to deal with these issues.

 

[Rustic23]

Going back to work when you are older may be difficult, but not impossible. I changed careers at 45, military to appraiser, and again at 55, appraiser to MIS director. That being said, I think it unrealistic to think one would be able to go back into a primary field and salary at say 65 or 75. However, if you look around you will see that there are plenty of people doing jobs in that age range. We kid that there is always the greeter at Wally World! The key, IMHO, is to identify the problem as early as possible so you supplement savings and pensions rather than replace them. This may be easier said than done.

 

[CyclingInvestor]

I retired almost 4 years ago at 48 from a programming career. I had to feel extremely confident (and I did) that I had saved enough to cover myself indefinitely. I knew it was a one way decision - my skills would be stale shortly after quitting, and any future work would be a a much lower salary. The thought of working again would be bad enough - working at $15 an hour after having retired from $65+/hour would be awful.

 

[Purron]

I retired almost 4 years ago at 48 from a programming career. I had to feel extremely confident (and I did) that I had saved enough to cover myself indefinitely. I knew it was a one way decision - my skills would be stale shortly after quitting, and any future work would be a a much lower salary. The thought of working again would be bad enough - working at $15 an hour after having retired from $65+/hour would be awful.

Like you, DH and I feel confident about our situation. I also agree it would be awful working for a low salary. Even so, nothing is ever 100% without risk. For this reason, if I felt a need or desire to return to work, I'd considering starting my own small business.

Unlike the difficulty most people may find obtaining work in an economic downturn, hard times are often prime for starting a business.

 

[teejayevans]

I retired almost 4 years ago at 48 from a programming career. I had to feel extremely confident (and I did) that I had saved enough to cover myself indefinitely. I knew it was a one way decision - my skills would be stale shortly after quitting, and any future work would be a a much lower salary. The thought of working again would be bad enough - working at $15 an hour after having retired from $65+/hour would be awful.

I took a leave of absence, the big surprise was the inflation rate on the health insurance (20% increases). I'm back at work because of the
uncertainty in the economy and pad my bank account to account for the high cost of health care.
TJ