Risk/Reward of ER

[AFloat]

Just starting out on ER and working all the numbers (budgets, FireCalc, and my own spreadsheets) it seems to me that ER is a matter and analyzing the risks vs. the rewards. The risks are both financial and emotional; the rewards are mainly life style. Each person needs to determine if the rewards out way the risks based on their own analysis.

On the risk side no system can guarantee that a certain withdraw rate will be successful because you can not predict the future of the market or your own situation. Sure you can get a high probability of success but you can never reach 100%. And what if you get a major medical problem or you or your family has a financial tragedy that’s going to eat up a big portion of your savings. There are many factors that are just out of your control and therefore can not be predicted. On the other hand the rewards of ER can be great. Some people can tolerate a lot of risk and therefore ER on a small nest egg, others can’t tolerate risk and require a much larger amount.

For us the risk is low enough and the rewards great enough to warrant ER. But who knows what will happen in the future? One of my main motivations is that I won’t take enough risk in my life and end up wishing I had. I figure if things go bad I can always get a job (“Welcome to WM”) and start over with a new plan.

Anyone else think of ER this way?

 

[TromboneAl]

I do now. Well put.

 

[Coach]

I'm with you, Afloat. We all have to find our "risk tolerace" for all of life's risks. I may use a retirement of 30 years in FIREcalc, but I also bear in mind that I could wake up dead tomorrow -- as important a risk as running out of money to me. And like you, I'd rather retire sooner, recognizing some risk of having to go back to work. I hope I plan well enough that that risk is fairly small, but well above zero is fine.

That's me -- I sure can understand the folks at the opposite end of the risk spectrum though.

Perhaps we can give each other references as Walmart greeters, if worse comes to worse.

Coach

 

[maddythebeagle]

nice thread

 

[setab]

Perhaps we can give each other references as Walmart greeters, if worse comes to worse.

Coach

Welcome. Would you like a sticker today?

 

[tomz]

The risks are both financial and emotional; the rewards are mainly life style. Each person needs to determine if the rewards out way the risks based on their own analysis.

You have articulated my feelings about ER.  For the past 10 years, I have gotten up every day, driven 50 miles to work, sold my time to someone else, and then driven 50 miles home.  On average, between commuting and work, I spend 11-12 hrs a day doing things to make a living.  It's a good company and for the most part, the work is interesting, but it wears you down.  CNN online had a questionnaire recently on burnout in the workplace.  I answered yes to all the questions so I guess I'm burned out.  Getting out of  this "rat race" is the reward.

The risks - I won't have enough money to allow me to live without working.  When it gets to that point  my DW and I arm wrestle or play rock-paper-scissors to see who goes back to work.  It could be worse.  When I tell people what I'm doing, I just say "we're changing lifestyles" rather than retiring.

My Dad died when he was 68.  My mom when she was 64.  I'm 54.  According to Firecalc, I should have enough to last me until I am 95.  Going at the end of next year works for me....

 

[wildcat]

Afloat -

I think you walk a fine line no matter which route you take in life - equal amounts of risk/reward.

a) You save a boat load of money by age 60-65, plenty for a  nice retirement and 5 years later you pass away due to some health related problem - maybe from the stress associated with work.

b) You save some but maybe not enough by the age of 40-55, plenty for your present lifestyle and 5-15 years down you learn you don't have enough to cover some emerging health problems or poor investment performance.  You have to go back to work at an age when few companies will want to hire you and you no longer will be able to live the retirement lifestyle you hoped to have with a low wage job.

You decide.

 

[audreyh1]

And what if you get a major medical problem... that’s going to eat up a big portion of your savings.

It's just as likely that a major medical problem that eats up a lot of savings also results in a drastically shortened life (or lowered quality of life). If you are NOT already retired when something like this hits it can be really tragic.

We know how much money we have.....we never know how much time we have.

(oh yeah, it's all about balancing risks)

Audrey

 

[AV8]

Risk of not spending time with DW and the resultant growing apart...
Risk of not getting to know my kids before leave the house to go it alone...
Risk of not being able to spend time with my aging parents before they pass...
Risk of not getting to cross off the stuff on the list of things I'd like to do during my short allotted time on this ship called Earth...

vs.

Risk of not having quite enough money to splurg when I'm 85+ so I continue to w*rk for more $$.

Seems so simple to me. We'll have enough when the time comes to FIRE (based on pension vesting) and there will be no hesitation when we get there.

AV8

 

[Nords]

Seems so simple to me.  We'll have enough when the time comes to FIRE (based on pension vesting) and there will be no hesitation when we get there.

And yet over 88% of our contemporaries, with largely the same background, training, & experience, arrive at a completely different conclusion.

I wish we knew why. I blame the military's "transition assistance program" (all about a second career and nothing about retirement) but maybe that answer's too simple.

 

[AV8]

True Nords, but by the time they get to TAP it is probably too late since few will have the FI to make it happen without a substantial decrease in standard of living. I blame consumerism and a lack of education on financial matters in our schools, including university.

AV8

 

[Jay_Gatsby]

I've been struggling with the same issue for the past few years and have come to the following conclusion. Do what is necessary to maximize your income from age 21 to 35, save as much as possible, invest the money carefully, and then scale back your working hours so that you can enjoy the rest of your life.

Sounds simple, but it's worked for quite a few people I know (including myself) who didn't wrap their entire self-worth into their careers/possessions.

 

[SteveR]

We work to pay the bills created by living on our own.

We work to fund the nest egg that can buy us the things in life we feel we need or want. The smart ones fund their Retirement Nest Egg with the belief that someday they will no longer have to work to fund their lifestyle.

Life is about balance as CT has said many times. Too much work for too long can kill you. Too little work for too short a time cannot fund a nest egg so some kind of work would be necessary for much longer. We each have an unseen hour glass that starts draining downward from the moment we are conceived. No one knows when their sand will run out so each we need to do all we can to put some balance in our lives. For some that means doing a job they love for as long as they can. For others, it is getting out of a toxic situation and having time to do all the things they could no do while still working because the job did not provide these things for them. We all have to learn what we need to balance our lives.

We all have our own reasons for wanting to retire or to keep working based on what is important to us. My driver for the past 15 years is ER and to enjoy what years I have before me.

 

[kat]

Risk of not spending time with DW and the resultant growing apart...
Risk of not getting to know my kids before leave the house to go it alone...
Risk of not being able to spend time with my aging parents before they pass...
Risk of not getting to cross off the stuff on the list of things I'd like to do during my short allotted time on this ship called Earth...

vs.

Risk of not having quite enough money to splurg when I'm 85+ so I continue to w*rk for more $$.

Seems so simple to me. We'll have enough when the time comes to FIRE (based on pension vesting) and there will be no hesitation when we get there.

AV8

AV8, I love what you said here. It really hits the spot for me today. -kate

 

[cute fuzzy bunny]

Another aspect of risk: the ones we've adapted to via the slow boiled frog syndrome.

Risk that you wont get paid for the work you did. That you'll lose your job. That your pension or health benefits will get cancelled. That you'll get into an accident during your commute. Not to mention all that air travel. Health hazards in the workplace. Not eating right or exercising due to work related issues.

People that are worried about investments or running out of money probably face a fairly decent amount of risk going through their everyday work lives. But like slow boiled frogs, they've become acclimated to it

I've become well acclimated to ER life. Unless I can measure or cleanly identify a risk or concern, I dont worry about it.

But then again, given a long paid sabbatical and getting to work from home for a few years before retiring, I guess I was a slow-boiled ER frog...

 

[ESRBob]

I've been struggling with the same issue for the past few years and have come to the following conclusion. Do what is necessary to maximize your income from age 21 to 35, save as much as possible, invest the money carefully, and then scale back your working hours so that you can enjoy the rest of your life.

Jay,
That is what I did (well from age 28 to 42 but same idea) and I managed to get out without a heart attack, but is it a strategy that one could recommend to others? That is what I wonder about. Just because I survived it and got to the other side, is it something I would want to wish on anyone from the outset?

I meet a lot of people who are working in fields that are intrinsically rewarding and also (perhaps as a result) low paid. They ask me about FI and I am not sure they will ever achieve it, but I also have reservations about recommending they get into the 'rat race' in order to get out of the rat race 15 or 20 years later via FI. Maybe they should just stay low-paid and relatively happy in their current field and foret about ER?

 

[Ed_The_Gypsy]

I have looked for work alternatives. Low pay brings its own stress. And it seems that sooner or later all jobs bring stress. Also, lower-paid folks seem to get pushed harder. Easier to exploit them. Why get beat up for less money?

You may mean people who have invented their own jobs. That would be great, but I am not clever enough, myself. And, we would be stressed by low pay right now. It takes better planning than we have done.

Some of us are stuck in the tar baby. We did it to ourselves. I found that contracting (in a time of high demand) eliminated a lot of my job stress. As we have seen on this board, some people are being crushed by their employers. It is one step just to change that situation. For may of us, it is the best we can do for the present.

Ed,
whining in the North today.

 

[Jay_Gatsby]

Jay,
That is what I did (well from age 28 to 42 but same idea) and I managed to get out without a heart attack, but is it a strategy that one could recommend to others?  That is what I wonder about.  Just because I survived it and got to the other side, is it something I would want to wish on anyone from the outset? 

I meet a lot of people who are working in fields that are intrinsically rewarding and also (perhaps as a result) low paid.  They ask me about FI and I am not sure they will ever achieve it, but I also have reservations about recommending they get into the 'rat race' in order to get out of the rat race 15 or 20 years later via FI.  Maybe they should just stay low-paid and relatively happy in their current field and foret about ER?

It depends on your goal. If your goal is to make as much money as possible, as quickly as possible, you do what is necessary to achieve that goal. On the other hand, if your goal is to enjoy every day of your life, then you take a more intrinsically rewarding job. The issue with many people who have intrinsically rewarding jobs is that they want the money as well (and vice-versa -- those with the money want more rewarding jobs). Unfortunately, the two very rarely go hand in hand unless you create your own job. The problem in doing so is that there is a substantial amount of risk involved, and it's so much easier to just to to work for someone else to achieve monetary success or rewarding employment.

Your reply reminded me of the classic Robert Frost poem:

The Road Not Taken

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

 

[Sheryl]

Thanks, Jay. That's always been dear to my heart.

My dad wrote it on a scrap of notebook paper and mailed it to me with no explanation one day. It's here above my desk.

 

[Jay_Gatsby]

Thanks, Jay.  That's always been dear to my heart.   

My dad wrote it on a scrap of notebook paper and mailed it to me with no explanation one day.  It's here above my desk.

You're welcome.

 

[setab]

I love that poem!  I keep coming back to it over and over.  In part, it is the philosophy that caused me to chuck it all and ER.

setab

 

[AFloat]

Thanks to everyone who posted their thoughts on this thread. Now in my 50’s, I look back on my 20’s and wonder what would have happened if only… Now I wonder what I will think when in my 70’s I look back at my 50’s. I can’t imagine that I will regret ER no matter what the outcome.

 

[Nords]

Now in my 50’s, I look back on my 20’s and wonder what would have happened if only… Now I wonder what I will think when in my 70’s I look back at my 50’s.

If I was 20 again and knowing what I know now, I'm not sure that my body would have endured to my 30s...

 

[cute fuzzy bunny]

I'd have the same concerns. As it was, nobody was more surprised than me to wake up on my 30th birthday.

Whenever I go back east and randomly run into someone I havent seen for 10-20 years, I always get one of the same two lines:

"I heard you were dead"

"I'm surprised your not dead"

 

[kaudrey]

Hi Afloat,

Very well put. I saw my parents save their whole lives, and the FIRE'd 12 years ago at age 57. I want to be like them, but FIRE at 52. My dad (who takes care of the finances) is very risk averse, and although I didn't at the time know how much they retired with, I knew they wouldn't do it unless they were SURE they'd be OK.

We have longevity on both sides of my family - late 80s to mid-90s for my grandparents, so the risk of running out of money feels high.

Although I have been saving since I started working, several things in the last few years have solidified my desire to enjoy my life as much as possible, and convinced me to FIRE as soon as I can - a friend of mine died of leukemia at 42, and I wrecked my car but walked away unscathed. Both events made me think hard about choices in life.

That, plus I see how much fun my parents are having in retirement! They are two of the most active and busy people I know, and they love it.

Karen
(whose parents are on their way from FL to their home in NH now that winter is winding down)