FIRE on 4%

[audreyh1]

Good point, Audrey, my mistake. I confused the expense ratio of Pfau's study with the earlier studies.

Thanks - I just didn't want folks deciding to increase their withdrawal rates because their expenses were << 1%, without reviewing the study.

 

[pb4uski]

So I have to put back the 0.75% I took out the other day? And return all the stuff I bought with it? Bummer!

 

[haha]

With this in mind, I don't know why I wouldn't spend more money. I should be able to like some of you are doing. I may start spending more in a few years, but for now, it's hard enough that I have to spend the money I had been so diligently saving (with no more income coming in!) - that I feel this is as much as I am willing to spend for now without much fear.

I think planning to spend money may be putting the cart before the horse. I hate to spend money per se, but i like to eat out, go out with GF, go to the Symphony, eat good food at home, and to a greater or lesser degree these all cost money.

So if I feel that spending that money will not make me less secure, and it does not push me over 4%, I suppose I might go ahead. Otherwise, I am more concerned about how awful it feels to be money stressed than any idea that I "should spend more money". I hear you clearly- no more money remains for either of us where that money came from, so like you I feel that I had better treat it with the utmost respect. Money is potential energy, all that water behind a dam, just eager to spin the turbines and make power. But once that power is used, that's that!

If somebody tells me that I am tight-fisted, I'll say damn right, and I plan to stay this way.

Ha

 

[papadad111]

Just did some very casual looking online, looked like those cola'd SPIAs were very pricey at this point in time. As much drag as having a typical assets under management FA, perhaps 2% a year. That's half or more of my budget for the next 4 decades, I'd have to go back to w*rk...

Without cola, I'm losing 2-3% yearly to inflation, plus still some drag from the SPIA. Can't afford this stuff, so resorting to DIY with low cost indexing, 50/50 (or 60/40, etc) AA with yearly rebalance, and hanging on for the ride...

Some suggest SPIA for only a smaller part of the egg nest, but I can't stomach the costs. There's always early SS in 5 yrs if needed/desired, we'll see what the market brings/takes!

FB

Same conclusion - SPIAs are expensive and cola'd SPIAs even more so, very few SPIAs protect against inflation. In this era of super low rates, one is probably better to go it alone with a relatively high AA tilted toward equities. Especially to fund 30 or 40 years in retirement.

 

[MildlyEccentric]

My initial withdrawal rate is more on the order of 6%, but this seems like it should be the norm (WR over 4%) for many who wish to retire early. In the first years of early retirement, one is likely to have no pension or social security. These early years have to be funded out of assets. After these self funded years pass, then pensions/social security kick in and your withdrawal rate should drop to a more sustainable level.

For me, the difficult decision was how much over 4% I would be willing to go in the early years to safely cross the chasm of no income and sequence of return risk to a more sustainable spending rate after I collect social security. FIRECALC was helpful as it permits modeling this exact scenario.

 

[pb4uski]

....For me, the difficult decision was how much over 4% I would be willing to go in the early years to safely cross the chasm of no income and sequence of return risk to a more sustainable spending rate after I collect social security. FIRECALC was helpful as it permits modeling this exact scenario.

+1... in your case I would look to what your projected ultimate WR rate is (after SS and pensions start) in making a decision and QLP, Firecalc and other tools are useful for that.

 

[W2R]

I think planning to spend money may be putting the cart before the horse. I hate to spend money per se, but i like to eat out, go out with GF, go to the Symphony, eat good food at home, and to a greater or lesser degree these all cost money.

So if I feel that spending that money will not make me less secure, and it does not push me over 4%, I suppose I might go ahead. Otherwise, I am more concerned about how awful it feels to be money stressed than any idea that I "should spend more money". I hear you clearly- no more money remains for either of us where that money came from, so like you I feel that I had better treat it with the utmost respect. Money is potential energy, all that water behind a dam, just eager to spin the turbines and make power. But once that power is used, that's that!

If somebody tells me that I am tight-fisted, I'll say damn right, and I plan to stay this way.

Ha

I have been making at least a little effort to spend more money, but like you I clearly remember how awful it feels to be money stressed. I never, never, ever want to be in that position again. Before spending more money, I analyze the scenario half to death to reassure myself that it won't result in that kind of stress.

Of course, the unforeseen tends to pop up in life and hit us from behind, but I don't think there is much that can be done about that. An asteroid with an unfavorable landing spot could blow my plans to smithereens.

Smile, be flexible, don't forget our LBYM habits, and approach life with caution and a sense of humor. Beyond that (and a sensible WR), in some respects we are just observers of events we cannot control.

 

[NW-Bound]

... Of course, the unforeseen tends to pop up in life and hit us from behind, but I don't think there is much that can be done about that. An asteroid with an unfavorable landing spot could blow my plans to smithereens.

Many things can blow away my life, not just my plans. REWahoo's asteroid is just a figure of speech.

Smile, be flexible, don't forget our LBYM habits, and approach life with caution and a sense of humor. Beyond that (and a sensible WR), in some respects we are just observers of events we cannot control.

Money is important, and I always like to have more, having called myself Scroogey often here on this forum. But at the same time, I try to not keep my eyes peeled on that Quicken screen and forget to live life.

 

[daylatedollarshort]

I think planning to spend money may be putting the cart before the horse. I hate to spend money per se, but i like to eat out, go out with GF, go to the Symphony, eat good food at home, and to a greater or lesser degree these all cost money.

One of our best ER finds so far has been comp ticket lists / services. We can fog a mirror, like going to a variety of events and venues want their events to look sold out, so it works out. I see the symphony come up from time to time on our lists.

 

[tmm99]

I think planning to spend money may be putting the cart before the horse. I hate to spend money per se, but i like to eat out, go out with GF, go to the Symphony, eat good food at home, and to a greater or lesser degree these all cost money.

So if I feel that spending that money will not make me less secure, and it does not push me over 4%, I suppose I might go ahead. Otherwise, I am more concerned about how awful it feels to be money stressed than any idea that I "should spend more money". I hear you clearly- no more money remains for either of us where that money came from, so like you I feel that I had better treat it with the utmost respect. Money is potential energy, all that water behind a dam, just eager to spin the turbines and make power. But once that power is used, that's that!

If somebody tells me that I am tight-fisted, I'll say damn right, and I plan to stay this way.

Ha

Thank you very much for your wise advice, as always.

I thought about my spending habits some more, and I am realizing that my spending habit hasn't changed much since I stopped wo*king, except that I don't spend as much on convenience items (eating out, take-outs, buying with less shopping around if it saves time). My hobbies in retirement are very inexpensive (playing volleyball almost every weekday with different groups and taking udemy courses when they are $10 a course, etc) and generally, I enjoy the food I cook at home. I think what's hard to get over is that I am now having to spend what I have saved!

You are so right - I shouldn't spend money just for the sake of spending, but it may be nice to raise my budget for travel (Current budget is $5K per year). I have a feeling I will have a better handle on this once I get over this initial shock of drawing down from my savings for expenses.

 

[tmm99]

I have been making at least a little effort to spend more money, but like you I clearly remember how awful it feels to be money stressed. I never, never, ever want to be in that position again. Before spending more money, I analyze the scenario half to death to reassure myself that it won't result in that kind of stress.

Of course, the unforeseen tends to pop up in life and hit us from behind, but I don't think there is much that can be done about that. An asteroid with an unfavorable landing spot could blow my plans to smithereens.

Smile, be flexible, don't forget our LBYM habits, and approach life with caution and a sense of humor. Beyond that (and a sensible WR), in some respects we are just observers of events we cannot control.

I read in other threads that you loosened the purse strings after a few years. I hope I feel comfortable enough to be able to do that in a few years...

 

[W2R]

I read in other threads that you loosened the purse strings after a few years. I hope I feel comfortable enough to be able to do that in a few years...

Spending money can be a little scary the first few years of retirement, and I felt the same as you do. Watching my portfolio grow for a few years has helped. I retired in 2009, so my portfolio got a good start with the thriving market.

Below is a graph showing the growth of my January 1st portfolio size each year of retirement (divided by the initial size). The last two years I was putting aside money from my portfolio to buy my dream house in cash, which I did last summer. But overall, looking at this graph encouraged me to think I could buy that house and also spend a little more. Starting Social Security in 2014 helped, too. I'm slowly and gradually starting to spend more, and will see how it goes.

This year I plan to spend about 135% of what I usually spend. Not sure if the increased spending will happen, but that's the plan and my analyses say that I can afford to do this. If I don't truly want something, then buying it is just throwing my money away. So, I will not do that.

 

[tmm99]

Spending money can be a little scary the first few years of retirement, and I felt the same as you do. Watching my portfolio grow for a few years has helped. I retired in 2009, so my portfolio got a good start with the thriving market.

Below is a graph showing the growth of my January 1st portfolio size each year of retirement (divided by the initial size). The last two years I was putting aside money from my portfolio to buy my dream house in cash, which I did last summer. But overall, looking at this graph encouraged me to think I could buy that house and also spend a little more. Starting Social Security in 2013 helped, too. I'm slowly and gradually starting to spend more, and will see how it goes.

This year I plan to spend about 135% of what I usually spend. Not sure if the increased spending will happen, but that's the plan and my analyses say that I can afford to do this. If I don't truly want something, then buying it is just throwing my money away. So, I will not do that.

Your numbers on the graph are looking great! Unfortunately, my portfolio has taken a dive since my retirement (last April) - that is even if I hadn't taken any money out. I have several years of cash reserves and that's what I am using for expenses anyway so no worries, but I think I will feel a whole lot better once the market picks up again. Anyway, yeah, it looks like you are doing great! I wouldn't mind spending some extra if I were in your shoes.

 

[W2R]

Yes, April was a very good month for most of us so it's natural that your portfolio has dropped a bit since then. Hopefully the market will recover soon. But meanwhile, I think it must be a little worrisome for a new retiree. As the market recovers you will probably feel more comfortable spending more.

If the market crashes, I plan to reduce my spending a lot, and probably most of us will do that.

 

[papadad111]

Deleted double post

 

[papadad111]

My initial withdrawal rate is more on the order of 6%, but this seems like it should be the norm (WR over 4%) for many who wish to retire early. In the first years of early retirement, one is likely to have no pension or social security. These early years have to be funded out of assets. After these self funded years pass, then pensions/social security kick in and your withdrawal rate should drop to a more sustainable level.

I disagree. It's not at all the norm for early retirees. this confidence level really depends a lot on where u are age wise in early retirement.

Since this is an early retirement board, it's more likely to be decade(s) before SS...

Not years but decades.

A 45 year old is 22 years from SS and a 50 year old is 17 years out.

As for pensions ? Few early early retirees today have pensions ... having worked and retired in the "self managed" era of 401k and IRA's -- those safe and reassuring traditional DB pensions have almost all but gone the way of the raphus cucullatus (aka Dodo Bird).

Let's also not forget early early retirees are not really going to be able to depend on SS at the levels the statements say today -... More likely a reduction to 60-75 percent of that figure.

Then there's inflation risk (medical care predominantly but also demographics and the global central bank printing presses spark inflation).

The retirement game plan really needs to be individualized.

This 4 % is just a rough rule of thumb. Like licking your finger to test the wind direction. Perhaps a mid 60's year old can do 5 or 6 percent WR but that's not really "early" retirement by my book.

40s and 50s year olds have entirely different scenarios to face ... Fewer instances of data. Unprecedented low rates. On and on.

 

[NW-Bound]

Yes, a 45-year-old retiree has problems that I do not have. But hey, does he want to have the problems older people have?

If you want to retire really early, you've got to give up something. Life is fair that way.

 

[papadad111]

Yes, a 45-year-old retiree has problems that I do not have. But hey, does he want to have the problems older people have?

If you want to retire really early, you've got to give up something. Life is fair that way.

Not sure one has to give up anything ... Just have a big enough egg that 3% or something along those lines is enough to play the long game. ...

And that implies making sure the WR is set appropriately not by some rule of thumb published in the late 1980s but rather understanding the unique nuances that individualize the game plan and setting the WR accordingly.

Finally be willing and able to adjust as circumstances change.

 

[Focus]

Let's also not forget early early retirees are not really going to be able to depend on SS at the levels the statements say today -... More likely a reduction to 60-75 percent of that figure.

Let's not go too far. Isn't 75% the worst-case scenario post-2035 or so? And I really can't imagine there wouldn't be some type of fix implemented before then to reduce or eliminate the gap.

I use 75% in my calculations -- just to be extra conservative -- but I'll fight for every percentage point under 100% and I'll be in good company. The pressure on politicians will be tremendous.

 

[AdrianC]

Let's not go too far. Isn't 75% the worst-case scenario post-2035 or so? And I really can't imagine there wouldn't be some type of fix implemented before then to reduce or eliminate the gap.

I use 75% in my calculations -- just to be extra conservative -- but I'll fight for every percentage point under 100% and I'll be in good company. The pressure on politicians will be tremendous.

I use 75% also.

https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html

Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits. This increase in cost results from population aging, not because we are living longer, but because birth rates dropped from three to two children per woman. Importantly, this shortfall is basically stable after 2035; adjustments to taxes or benefits that offset the effects of the lower birth rate may restore solvency for the Social Security program on a sustainable basis for the foreseeable future.

I'll be looking to take SS in 2033...

 

[papadad111]

Yes. My 60-75 percent range is dependent on tax situation.

The gross payout may be 75 percent as is heavily quoted in financial medial but for most early retirees on this forum, there could be tax burdens on that SS money due to other sources of income eg. Dividends, interest on bonds, eventual 401k and IRA RMD's, rental income, etc. Has nothing to do with solvency. It's just income tax impacts. Federal,state,city. Depends in part where u live.

It's a range ...hence 60-75% comment.

Just simply centering on 75% is ok too. But ignores some possible risk

The real point is that it won't likely be the full 100 percent that is received by retirees today ... in two decades time.. So when I file and start collect in 2036 it likely won't be what it is today.

 

[sengsational]

For me the WR is for people who can't do math, lol! It's a rule of thumb, and about any set of decent retirement calculators could (should) override whatever the rule of thumb says.

And it's meaningless for comparison unless the NPV of future cash flows is included (i.e. SS, pensions). To get an idea of magnitude, compare your current WR with one calculated with the NPV of your expected SS (or .75 SS, if you prefer). I just did that with the annual spend suggested by i-orp, and it changed the WR% by 35%! So a WR of 3% is "really" a 2% WR if you include SS. A WR of 5% is "really" a 3.25% WR if you include SS. Why isn't there a :shakes-head: icon?

 

[daylatedollarshort]

Our income and expenses change every year and will continue to change every year throughout retirement - college, hobby income, new cars, ACA or not, Medicare, taxes on RMDs, paying off the mortgage and having interest expense decrease, non-COLA pensions losing value over time, etc. We plug it all in a spreadsheet and have real rates of return and inflation as variable parameters.

 

[haha]

One of our best ER finds so far has been comp ticket lists / services. We can fog a mirror, like going to a variety of events and venues want their events to look sold out, so it works out. I see the symphony come up from time to time on our lists.

Thanks Day Late. I had never heard of this. A senior membership, which gets 2 tickets seems to cost $6.50/mo., after the $25 three month intro.

Later I will see if I can view a sample of available events.

Ha

 

[hnzw_rui]

For me the WR is for people who can't do math, lol! It's a rule of thumb, and about any set of decent retirement calculators could (should) override whatever the rule of thumb says.

And it's meaningless for comparison unless the NPV of future cash flows is included (i.e. SS, pensions). To get an idea of magnitude, compare your current WR with one calculated with the NPV of your expected SS (or .75 SS, if you prefer). I just did that with the annual spend suggested by i-orp, and it changed the WR% by 35%! So a WR of 3% is "really" a 2% WR if you include SS. A WR of 5% is "really" a 3.25% WR if you include SS. Why isn't there a :shakes-head: icon?

Given I can't rebalance between SS/pension and my portfolio and there are age restrictions to when you can access those funds, instead of using NPV of SS/pension, I just reduce expenditures by the expected SS/pension benefit (adjusted by some safety factor). My planned WR is then based on that reduced amount.