FIRE - A Guaranteed Decline in Standard of Living?

[youbet]

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Originally Posted by Independent However, if real wages really do go up by and average of 2% over 40 years, I think that you'll find your initial 4% safe withdrawal rate was way too conservative. It allowed for a period of severe recession or depression that never happened. So you will be able to increase your withdrawals and keep up with the workers, anyway.

Ahhhhh........ Ummmmmm....... an extended period which has 2% growth in real wages and that same period containing a severe recession or depression is possible, not mutually exclusive as you imply.

[samclem]

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Originally Posted by Martha My advice? Forget about retiring at 45; you're better off being a productive human being as long as you can, and you'll certainly worry a lot less about your money running out.[/i] http://early-retirement.org/forums/i...p?topic=4299.0

Just two observations:
-- I wonder if Bill would feel the same way about working 25 more years if he were stuck in a cubicle cranking out the weekly reports. He's a neurosurgeon and talented author, he probably can pick and choose what he does to make money, and he likely enjoys these things. I know from reading his work that he's an empathetic guy, he should recognize that people with fewer options may be making a very rational decision to jump ship at the first opportunity.

-- Retired does not equal unproductive. Bill, you should know better!

[Lusitan]

It's a very interesting thought (especially the part about flying cars )

But even if my relative standard of living were to decline somewhat in FIRE, my relative (as well as my absolute) *quality of life* would be better. It's a trade-off I'm more than happy to make, since through my LBYM lifestyle I'm already well below the relative standard of living of my peers.

[magellan_nh]

This is an interesting topic. Thanks to bbuzzard for bringing it up.

A couple of things seem to be getting lost I think. The first is that the 20th century's supersonic growth in real wages and labor productivity is already baked into the SWR number. That number is based on historical results from a period when productivity of labor was going through the roof. If productivity had been stagnant, we'd probably be looking at a 2-3% SWR. So in this respect, there's reason to be afraid. Productivity growth may slow which would cause portfolios to grow at slower rates than in the past.

On the other hand, much of the increase in standard of living is not reflected in prices. New economic efficiencies and inventions result in people being able to spend less and have more. For example, consider what has happened to the price of a phone call to Europe in the past 5 years, or the cost of a bare bones computer system over the past 10 years. I'm probably paying around the same now for phone, cable, and internet than I paid for phone alone 10 years ago.

Finally, and this is probably the most important point, the 4% SWR is designed to give a high probability of retirement success (say 95%). As time goes on for the retiree living off an initial 4%, their portfolio should grow significantly (for maybe 80 out of 100 retirement outcomes). These lucky folks would probably have the opportunity to safely increase their withdrawals plenty to keep up with the Joneses.

Generalizing, the most vulnerable period for any retirement plan created to have a 95% probability of success is the first 5-10 years of retirement. After that time has elapsed, around 5% of the time the retiree will probably be in some trouble. In 10-15% of cases, it will probably be too close to call, and 80% of the time the retiree will be in fat city.

So the question becomes: Do you need to have a 95% chance of being able to keep up with the joneses, or is a 95% chance of not having ruin and an 80% chance of being able to keep up with the joneses ok?

Jim

[Khan]

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Originally Posted by slepyhed The textbook FIRE type person would be something like this: 49 years old, 40K per year expenses, 80K per year salary, $1 million nest egg. She retires at age 50 and starts withdrawing $40k per year for "income", and bumps it up every year to pace inflation. So this is someone who has just choosen to slash her "income" by 50%, just so she can stay home all day if she wants to. She's already spending 1/2 of the money that her peers (people making the same salary) are spending every year, because apparently the average working stiffs blow all their money as soon as they get it. The early retiree has already choosen to live at a much different standard of living as compared to her peers. She has already mentally come to grips with the idea that she's not going to keep up with the joneses. Seems like a non-issue to me.

You got it.

I was stashing away about half of my income towards the end, and I am perfectly happy without a lot of 'necessary' stuff.

[maddythebeagle]

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Originally Posted by samclem -- Retired does not equal unproductive. Bill, you should know better!

I wouldnt get your undies in a bunch....it was doubtful that was billy boy and we already picked it apart in that thread....as been pointed out, lots of folks continue to do something productive with their time....just maybe not doing TPS reports...

[Bikerdude]

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Originally Posted by lazyday I do think CPI inflation vs. wage inflation is a real issue. Willingness to fall even further behind average helps, and a conservative SWR will probably lead to a portfolio that grows over time--that is likely to help. But, it is still a real issue IMO.

I think most of the wage growth occurs early, in the first few years of employment in most working careers. After that, unless the worker moves around, is a professional or a union member his/her wage merely keeps up with inflation. And once you hit the magic 50 a 2% raise is not uncommon.

Now say you retire and live in a 3000 sq ft. home, take $10,000 vacations and have a vacation home. Then 10 yrs later your working friends have moved to a 5,000 sq ft. home, take $20,000 vacations, have 2 vacation homes and this bothers you, you should keep on working.

When I made my decision to retire I looked at how I lived and decided that I would be happy if I could continue to keep up with my own personal inflation rate. So far (7 years) I have met that goal.

One goal I never wanted to reach was being the richest guy in the Graveyard.

[lazyday]

If I understand correctly, lately, the benefit of productivity improvements has gone more to investors than to workers. This may color our thinking about wage inflation.

The portion of earnings going to investors/owners has increased, and is higher now than it's been for decades. That may turn around at some point, allowing wages to increase notably faster than inflation again.

[Helena]

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Originally Posted by bbuzzard While you may be happy with your current standard of living, you may feel a bit different in 30 years when your $40,000 income is only 55% of the average family income rather than 100% as it is today, and you cannot afford a flying car like everyone else has.

In 30 years I will be 85.

Can you envision blue hairs with flying cars :P

[sgeeeee]

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Originally Posted by Helena In 30 years I will be 85. Can you envision blue hairs with flying cars :P

Wooohooo. I hope so.

[Cb]

I'm not at all convinced the guys I left behind in cube-land are going to have a greater retirement income than me by working an extra 15 years. They'll have better pension income and SSI, and probably some remnant of current retiree health care (if they last), but I'm pretty sure most will still have pretty modest investment portfolios.

My wife and I are in the top few percent of wealth in the US today, and my guess is we always will be.

Cb
PS: of course I could always work a bit later on if I was losing sleep over my position relative to the Joneses.

[claire]

This is very interesting.

Personally i would opt for extreme ER (30's or 40's) over giving the best years of my life to a job which may kill me early from stress induced illnesses. I would rather take my chances and if I run out of money and am living in a van by the river then so be it, as long as I am with my DH and we are in good health and have enough to eat, some sort of roof over our heads then, ahh is this not happiness and contentment?

Plenty of leisure time, good health and covering our most basic needs which is, lets face it food, water and companionship.

Early ER can be done, I know some people frown and say you have to pay your dues and be producitve for as long as possible, why? to conform?

Look at Billy and Akaisha, and Paul Terhorst - they retired in their 30's on not a great deal of money but they are living to tell the tale.

Billy any thoughts on this thread?

[audreyh1]

I think Bernstein is talking from the point of view of an investor. He wants everyone working as long as possible and consuming as heavily as possible so that we goose this economy and make stocks go up.

He doesn't want no stinkin' LBYM ERs!

Audrey

[tryan]

Decline in standard of living ?!?!

Well, dual income friends just dropped 6k for a 52 inch flat panel high def TV ... of coarse they bearly got the thing in the room; then realized they needed a new entertainment center to house the beast. So I show up there and their son is still in his PJs planted firmly in the sofa ... looked like he'd been there for DAYS!

If that's an "increase" in the standard of living, I'll do just fine - without.

[youbet]

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Originally Posted by claire This is very interesting. Personally i would opt for extreme ER (30's or 40's) over giving the best years of my life to a job which may kill me early from stress induced illnesses.

Don't forget about the option of a job or business that is not stressful or unpleasant. To me, the saddest things written on this board are from people stuck in dreaded, stressful jobs trying to hang on to reach ER!

The demise of the DBP pension and retiree healthcare actually has an upside. Without these "anchors" people might be more inclined to change jobs, start a business or new business, switch careers or whatever it takes to get out of a crap filled groove and do something new and more enjoyable during their working years.

[Sheryl]

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Originally Posted by claire Early ER can be done, I know some people frown and say you have to pay your dues and be producitve for as long as possible, why? to conform? Look at Billy and Akaisha, and Paul Terhorst - they retired in their 30's on not a great deal of money but they are living to tell the tale.

And they are also being productive by educating and inspiring the rest of us. I look forward to ER as a time when I can be MORE productive or useful to the world in my free time. There are many ways to leave the world a better place, (if that's important to you) and most of them don't happen in a nine to five job.

[Billy]

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Early ER can be done, I know some people frown and say you have to pay your dues and be producitve for as long as possible, why? to conform? Look at Billy and Akaisha, and Paul Terhorst - they retired in their 30's on not a great deal of money but they are living to tell the tale.

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And they are also being productive by educating and inspiring the rest of us. I look forward to ER as a time when I can be MORE productive or useful to the world in my free time. There are many ways to leave the world a better place, (if that's important to you) and most of them don't happen in a nine to five job.

Thanks for your kind words! We appreciate it.

We agree about the many ways to leave the world a better place.. so many choices and places to give!

I have to tell you that I don’t ever think about not having “ a great deal of money “ in our retirement. We are way too busy being productive with our time, traveling the world, and learning life’s lessons just the same. I have free time to do what I want to do, and I have seen and been involved in cultures that I could not have become a part of in this manner if I were still working my 60-80 hours running our restaurant or running the Civil Engineering Office before we retired.

There are things that money simply can’t buy. Perspective is one of those things. Self reliance, and confidence in one’s contribution to society are others. We may not send checks to charity organizations (like those who are still working) but we are the ones there serving the food, teaching stay-at-home moms how to make a little extra cash to feed their kids, or building the tennis courts free of charge, all labor donated.

We like the first hand, one-on-one contact. Both sides of the coin are needed.

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While you may be happy with your current standard of living, you may feel a bit different in 30 years when your $40,000 income is only 55% of the average family income rather than 100% as it is today, and you cannot afford a flying car like everyone else has.

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The early retiree has already choosen to live at a much different standard of living as compared to her peers. She has already mentally come to grips with the idea that she's not going to keep up with the joneses.

RE: keeping up with the joneses, and having one’s standard of living decrease after retirement…. Our lives have so much more quality than they did before. I now actually have time to listen to my friends and family in a real conversation or to visit family and loved ones for more than a quick meal between traffic jams or only on holidays.

I may not have the latest and greatest in toys or wine, but I see the frantic pace people keep to pay for those things. I see the glint of fear in their eyes when they think their peers are judging them because their nails need to be done again, or their car is ‘too old” or the brand new rolling condo they bought isn’t up to standard with the one down the street.


What am I going to feel like in 30 years? Will my income be so paltry that I will be eating shoe leather for dinner? I doubt it. Opportunities are everywhere. My needs and ‘requirements’ are manageable. Life is full of change, and in my opinion with countless optimistic things.

I can’t bog my current life down with imagined fears about what might be 30 years from now. I continue to learn, to grow, and to share love. I have lived a remarkable life and I am most grateful.

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

[kcowan]

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Originally Posted by Billy What am I going to feel like in 30 years? Will my income be so paltry that I will be eating shoe leather for dinner? I doubt it. Opportunities are everywhere. My needs and ‘requirements’ are manageable. Life is full of change, and in my opinion with countless optimistic things. I can’t bog my current life down with imagined fears about what might be 30 years from now. I continue to learn, to grow, and to share love. I have lived a remarkable life and I am most grateful. Be well, Akaisha Author, The Adventurer's Guide to Early Retirement

I think this is the best advice you can get. No one can forecast what is going to happen in 30 years. Just think where you were at 30 years ago. The key element is to be flexible. I'll bet B&A did not plan to build tennis courts (congratulations), live in Thailand or write a book. But they did have the attitude to get out and experience the world as they found it. This is the secret to successful ER. Leave The Jones in your dust!

[bbuzzard]

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Originally Posted by Billy What am I going to feel like in 30 years? Will my income be so paltry that I will be eating shoe leather for dinner? I doubt it.

Yeah, but I still predict you will want a flying car .

[sgeeeee]

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Originally Posted by bbuzzard Yeah, but I still predict you will want a flying car .

I'm wondering if one will be enough . . . Woohoo!