I have posted this elsewhere, but didn't want to deny you all my pearls of wisdom.
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What does it take to FIRE? I'm going to concentrate on the analysis here and I'm only going to talk about my own experience, because everybody's situation is different. I hope others add on about their experiences,
I started thinking seriously about FIRE about 1992. I was just realizing that the work environment was not working for me. For starters, though
I had always maxed my retirement account
We never cared about the Jones, so LBYM came pretty naturally. When I became serious about FIRE, I started budgeting so I could see where the money was going. That was an eye-opener that allowed me to save more to after-tax accounts.
I had a small after-tax account where I would periodically stuff money
My husband enjoys learning about stocks and has his own little method of determining if a stock is at a good buy point. He isn't always right, of course, but he's bought some pretty nifty stocks early on (Microsoft would be one). So I have my own built-in stock advisor.
As I started to get into FIRE-mode, I fired up the spreadsheets and started keeping track of my portfolio, retirement accounts, etc. I also read Your Money or Your Life. Just the exercise that forces you to compute your real wage (after taking out travel time, wear and tear, work clothes, etc) was worth the price of the book. The main thing, though, was that these people had retired early. Not sold on their financial advice, though.
In 1995, I received a small inheritance. While not large, it did jumpstart my thinking about when to retire. I switched to consulting, and doubled my salary in 1997. I immediately opened 2 Keoghs with Fidelity so I could once again max my retirement funds. I rolled my 403b from TIAA/CREF into a Vanguard Rollover IRA. I also started seriously adding to my after-tax fund. In 1998, I discovered The Retire Early Homepage (http://www.retireearlyhomepage.com/ ) which had a lot less stuff than it does now. It did, however, have famous study about the 4% SWR. I poured over that, downloaded the spreadsheet and played.
Let me put a word in for playing with spreadsheets. They allow you to do "what-ifs" scenarios where you can put in data that is relevant to you. Of course, the results are only as good as what you put in. No sense putting in 10 years longevity just to get a 8.5% spendout rate. I have always felt that the REHP study was fine within the limits of the study. People who try to use it inappropriately are going to get burned. I also have only used it or any other study as one piece of data among many used to come up with the decision that it was relatively safe to quit working. I'll also say that I was never a big fan of number crunching in the sense of moving data around to give you better results. The amount of error attached to any such SWR would swamp the benefits of slicing and dicing the data. I don't think fine-tuning works in this case. So I use the SWR as a mildly interesting rule of thumb.
I was getting pretty tired of work. I knew that according to the Schiller data, a SWR of about 3.5% would get me through 40 years. And that's just a worst case scenario, according to the data. If I could entertain a little more risk (95% level), the SWR could be about 4%. I thought I'd get a second opinion, so I ask my husband. He just looked a kind of average inflation rate and an average rate of return and came up with 5%. So I was home-free, because I could do the 4% amount (realizing that I don't have the same asset mix, and so on as the REHP study). Remember, to me it is one piece of information - a rule of thumb. I also relied heavily on knowing what my budget would be, the steadyness of my various assets, the fact that I heavily padded the budget just in case, and so on.
So I quit!
For the record, since 1999, I've taken out 20% of my assets as stated in 1999, but my actual loss of assets is only 6%. This swag was done in constant dollars. My spendout ranged between 2.9-4% (the high end were expected one time large expenses). And my portfolio is something like 51% equities, 41% mutual funds (retirement accounts), 1% REITS (recently sold some) and 7% money market funds. I've been naughty and never set up a CD ladder or the like. Oh, well.
arrete
-----------------------------
What does it take to FIRE? I'm going to concentrate on the analysis here and I'm only going to talk about my own experience, because everybody's situation is different. I hope others add on about their experiences,
I started thinking seriously about FIRE about 1992. I was just realizing that the work environment was not working for me. For starters, though
I had always maxed my retirement account
We never cared about the Jones, so LBYM came pretty naturally. When I became serious about FIRE, I started budgeting so I could see where the money was going. That was an eye-opener that allowed me to save more to after-tax accounts.
I had a small after-tax account where I would periodically stuff money
My husband enjoys learning about stocks and has his own little method of determining if a stock is at a good buy point. He isn't always right, of course, but he's bought some pretty nifty stocks early on (Microsoft would be one). So I have my own built-in stock advisor.
As I started to get into FIRE-mode, I fired up the spreadsheets and started keeping track of my portfolio, retirement accounts, etc. I also read Your Money or Your Life. Just the exercise that forces you to compute your real wage (after taking out travel time, wear and tear, work clothes, etc) was worth the price of the book. The main thing, though, was that these people had retired early. Not sold on their financial advice, though.
In 1995, I received a small inheritance. While not large, it did jumpstart my thinking about when to retire. I switched to consulting, and doubled my salary in 1997. I immediately opened 2 Keoghs with Fidelity so I could once again max my retirement funds. I rolled my 403b from TIAA/CREF into a Vanguard Rollover IRA. I also started seriously adding to my after-tax fund. In 1998, I discovered The Retire Early Homepage (http://www.retireearlyhomepage.com/ ) which had a lot less stuff than it does now. It did, however, have famous study about the 4% SWR. I poured over that, downloaded the spreadsheet and played.
Let me put a word in for playing with spreadsheets. They allow you to do "what-ifs" scenarios where you can put in data that is relevant to you. Of course, the results are only as good as what you put in. No sense putting in 10 years longevity just to get a 8.5% spendout rate. I have always felt that the REHP study was fine within the limits of the study. People who try to use it inappropriately are going to get burned. I also have only used it or any other study as one piece of data among many used to come up with the decision that it was relatively safe to quit working. I'll also say that I was never a big fan of number crunching in the sense of moving data around to give you better results. The amount of error attached to any such SWR would swamp the benefits of slicing and dicing the data. I don't think fine-tuning works in this case. So I use the SWR as a mildly interesting rule of thumb.
I was getting pretty tired of work. I knew that according to the Schiller data, a SWR of about 3.5% would get me through 40 years. And that's just a worst case scenario, according to the data. If I could entertain a little more risk (95% level), the SWR could be about 4%. I thought I'd get a second opinion, so I ask my husband. He just looked a kind of average inflation rate and an average rate of return and came up with 5%. So I was home-free, because I could do the 4% amount (realizing that I don't have the same asset mix, and so on as the REHP study). Remember, to me it is one piece of information - a rule of thumb. I also relied heavily on knowing what my budget would be, the steadyness of my various assets, the fact that I heavily padded the budget just in case, and so on.
So I quit!
For the record, since 1999, I've taken out 20% of my assets as stated in 1999, but my actual loss of assets is only 6%. This swag was done in constant dollars. My spendout ranged between 2.9-4% (the high end were expected one time large expenses). And my portfolio is something like 51% equities, 41% mutual funds (retirement accounts), 1% REITS (recently sold some) and 7% money market funds. I've been naughty and never set up a CD ladder or the like. Oh, well.
arrete
