Should I give myself a raise?

[Ramen]

So midway through my first official year of FIRE, I'm already worrying about money and my portfolio shrinking from the get-go.

My FIRE is lean, a planned $30K annual spend. Despite a 10% rent hike this year, I'm still on track.

But . . . it feels restrictive.

I'm trying to relax into this new life phase. It's not so relaxing to be pinching pennies as I did all those years before FIRE. If my portfolio were rising, I'd be less concerned.

If I increased my spend to $35K, I'd feel like I could enjoy life more. I'm not looking for great luxury or grand adventure, only to enjoy my current home without feeling like I need to bail to a cheaper place before the next rent hike. I'd also like to eat out more often and increase other fun stuff (movies, day trips).

On Jan. 1, my portfolio was $1.4M, so $30K was a very comfy 2% WR. Now it’s down to $1.2M, which makes for a $2.5% WR. I'm OK with this as long as current inflation trends simmer down.

$35K would be nearly a 3% WR, which is where I might start feeling nervous. I know the guideline is 4% or so, but I'm 54 and don't know whether I'll live 20 more years or 40. Either way, I want to enjoy it.

FIRECalc gives me good results with all of these scenarios, but only if market returns and inflation get back on track before too long. (My numbers also include modest SS and a small pension starting at 65.)

I realize my starting spend can be adjusted for inflation in coming years. I'm just trying to set the starting amount right.

When, why, and how do you decide to give yourself a raise? Or is it prudent in the current climate to remain conservative this early into retirement?

 

[pacergal]

If Firecalc says you are ok, I'd go with it.
I would personally not feel comfortable going to 4%, 3.5% would be my limit, especially with a longer retirement plan. At 54, you potentially have a good 40 years left.
Why not give yourself a raise for one year to check your comfort level and spending enjoyment?

 

[Al18]

Yes, give yourself a 5% raise. Don't think twice about it.


Speaking from experience, it's hard to switch from being a saver to a spender. It takes a couple of years to adjust and be comfortable with the decision.

 

[pb4uski]

I think you need to give yourself some slack... and a raise.

IIRC FIRECalc at 95% success is usually about a 3.8% WR. Even if you "retired again" with $1.2m with $35k spending that would only be 2.9% WR... so you have plenty of slack... don't sweat it.

So you have my permission to increase your spending to $35k... but not a penny more!

YMMV.

What you might find helpful is to set up an automatic transfer from savings to the checking account that you use to pay your bills.... call it your monthly "paycheck".

 

[Ramen]

Speaking from experience, it's hard to switch from being a saver to a spender. It takes a couple of years to adjust and be comfortable with the decision.

Yes, I'm already feeling this! Thanks for the heads up on the couple of years to adjust. This has been the hardest thing for me so far.

If Firecalc says you are ok, I'd go with it.

It says I'm OK, but only if things get back to somewhat normal. I'm worried about continued high inflation.

So you have my permission to increase your spending to $35k... but not a penny more! . . .

What you might find helpful is to set up an automatic transfer from savings to the checking account that you use to pay your bills.... call it your monthly "paycheck".

Thanks and I'm already doing the monthly "paycheck" auto transfer. In fact, I have a question about it that I'll post in another thread. But yeah, if I increase my current $2,500 paycheck to $3K, that's $36K a year, so I'm already thinking past the penny more!

 

[ERD50]

... On Jan. 1, my portfolio was $1.4M, so $30K was a very comfy 2% WR. Now it’s down to $1.2M, which makes for a $2.5% WR. I'm OK with this as long as current inflation trends simmer down.

$35K would be nearly a 3% WR, which is where I might start feeling nervous. I know the guideline is 4% or so, but I'm 54 and don't know whether I'll live 20 more years or 40. Either way, I want to enjoy it.

FIRECalc gives me good results with all of these scenarios, but only if market returns and inflation get back on track before too long. (My numbers also include modest SS and a small pension starting at 65.) ...

You are kind of misapplying the 4% 'rule'. Take whatever starting %WR rate feel comfortable with, and adjust for inflation going forward. You do not need to recalculate that % if/when the portfolio drops. That's already baked in the cake with the historical analysis. Quite a few historical scenarios have a drop of 50%, but they aren't calling it an 8% WR, that's just not how it works.

So your $35K on initial 1.4M is only 2.5%, and that isn't even counting for the 'allowed for' inflation increase in the withdraw amount.

I agree with you to be conservative with that % at age 54, but getting down to a 3% initial WR is pretty much a 'forever' portfolio. I think you are more than good spending $35K now.

-ERD50

 

[ShokWaveRider]

I would certainly say you can easily expand your diet to something other than Ramen.... Sorry, I could not resist.

 

[ERD50]

...

It [FIRECalc] says I'm OK, but only if things get back to somewhat normal. I'm worried about continued high inflation. ...

The 1980's are laughing at our "high inflation"! Of course, we have no idea if it gets worse, but your WR survived the historic inflation of the 80's, what else can we do (other than work until we die!).

But remember, the failures in FIRECalc have nothing to do with 'normal' conditions. The 5% that fail (using the defaults) are the extraordinarily bad starting years.

IOW, don't worry about normal, worry about things being worse that the worst of the past. Still could happen, but you already have a buffer in you WR%, so IMO, you should relax.

Oh, and your SS and small pension are another buffer (even if they are cut, it won't be to zero!).

-ERD50

 

[FANOFJESUS]

I think anything under 48k would be ok. You don't want to be rich in the cemetery. That would my limit even though I don't spend that much.
How much are your modest SS and a small pension?

 

[Rocky mtn high]

Absolutely, don’t think twice

 

[RobbieB]

I agree. If there is something you want to do, do it and enjoy yourself, have fun!

Or you can look forward to 30 years of misery, scrimping along with the minimum.

Your choice.

 

[Midpack]

...so $30K was a very comfy 2% WR. Now it’s down to $1.2M, which makes for a $2.5% WR. I'm OK with this as long as current inflation trends simmer down.

$35K would be nearly a 3% WR, which is where I might start feeling nervous. I know the guideline is 4% or so, but I'm 54 and don't know whether I'll live 20 more years or 40. Either way, I want to enjoy it.

When, why, and how do you decide to give yourself a raise? Or is it prudent in the current climate to remain conservative this early into retirement?

3% seems sufficiently conservative to me - if it's not there will be millions of us reassessing our plans.

You can always cut back on "eat out more often and increase other fun stuff (movies, day trips)" if needed in a year or 10 years from now if necessary. Just reassess where you are once a year and enjoy it. It's the people how splurge on bigger houses, higher COL areas, expensive cars/toys that can't adjust down later if necessary.

Like all of us, you will face later years when it will be harder to get out and be active, so giving yourself a raise then may not add to your quality of life. Enjoy it some while you're still able. Cheers.

 

[DawgMan]

I can relate to the "can (should) I give myself a raise" tension. Like OP, I am in year 1 of retirement and at 58, I conservatively underwrote a low 2% WR at beginning of year when my portfolio was worth more, yet find myself looking at my balances often and calculating the WR % of the day I have to admit, I feel a little paralyzed sometimes when it comes to spending beyond my original planned amount, despite having a significantly higher annual spend than OP which is a good 50% discretionary. While I entered retirement expecting some level of market correction, I find my conservative nature kicking in and playing Jedi mind tricks on me, despite knowing I should be perfectly fine spending as much as 3% of my portfolio. Of course, the market has made a little run since hitting bottom towards the middle of June and now I find myself being more open to spending some additional $$... DW wants to refurnish the family room.

I think part of the tension is being new to the transition from accumulation to drawdown in the middle of a bear market. I'm assuming my BTD muscles will get better developed over time, but I sure as heck do not want to be the richest guy in the cemetery

 

[Ramen]

Thanks, guys. I'm going to try loosening the purse strings a little. "Rich in the cemetery" is hilarious and really puts things into perspective. I will try to keep this in mind and remember to live.

The proverbial ramen diet is indeed the inspiration for my screen name, and I guess I need to outgrow the practice. Actually, I do eat well but still pinch pennies at the grocery store when I see prices rising like this. I've been forgoing some favorite foods, which seems extreme now that I think of it.

How much are your modest SS and a small pension?

I can't recall the numbers offhand. When I looked them up back in 2020, I think SS was about $2,000 a month at age 67 and the pension was about $400 a month. These were part of my original FIRECalc.

You are kind of misapplying the 4% 'rule'. Take whatever starting %WR rate feel comfortable with, and adjust for inflation going forward. You do not need to recalculate that % if/when the portfolio drops. That's already baked in the cake with the historical analysis. Quite a few historical scenarios have a drop of 50%, but they aren't calling it an 8% WR, that's just not how it works.

So your $35K on initial 1.4M is only 2.5%, and that isn't even counting for the 'allowed for' inflation increase in the withdraw amount.

I agree with you to be conservative with that % at age 54, but getting down to a 3% initial WR is pretty much a 'forever' portfolio. I think you are more than good spending $35K now.

-ERD50

Thanks for this reminder. It's hard not to want to recalculate when the stash is dropping!

 

[NW-Bound]

On Jan. 1, my portfolio was $1.4M, so $30K was a very comfy 2% WR. Now it’s down to $1.2M, which makes for a $2.5% WR. I'm OK with this as long as current inflation trends simmer down.

$35K would be nearly a 3% WR, which is where I might start feeling nervous. I know the guideline is 4% or so, but I'm 54 and don't know whether I'll live 20 more years or 40. Either way, I want to enjoy it.

FIRECalc gives me good results with all of these scenarios, but only if market returns and inflation get back on track before too long. (My numbers also include modest SS and a small pension starting at 65.)

With a pension and SS coming, you should be able to spend more.

Come on, spend that extra $5K. The increase from $30K to $35K is big percentage wise and lets you do more. I would cut myself the slack.

 

[militaryman]

I like to think in Buckets ---

Bucket 1 -- AFTER 67 --- SS money & small pension @ 67 you said was about $28K per year (assuming they adjust for inflation)

I would put aside a bucket of $500K of the $1.2mil for the "AFTER 67" bucket and forget about that --- Returns on that money should keep up with inflation (AT LEAST) and provide 20K more per year for 25 years after age 67 --- So SS/Pension $28k + the $20k from bucket = $48K til death (92)

Bucket 2 -- BEFORE 67 --That leaves $700K for age 54-67 $700K divided by 13 years = $53K

Withdraw 53K/year until age 67 and live it up while young and in good shape... Then drop down to the $48k which is way over what you're living on now anyways.

Returns on the $700K should easily keep up with inflation if intelligently invested.

 

[MarieIG]

I would probably split the difference the first year at 32.5k.

That said, I'm nervous, don't like the SORR, and my belt and suspenders have belts and suspenders, so I'm probably not a good person to ask.

 

[GravitySucks]

I also retired at 54.
I did a strict 4.5% the first 5 years. (It was a pretty lean fire.) At year 5 I recalculated and decided to Retire Again with a now substantially larger portfolio.
But then 2020 hit, spending crashed. Then a knee injury kept spending low. Then I needed to go on ACA and keep withdrawals a bit low. Now I'm hoping in 2023 I will be able to blow a little more dough. The end of 2023 will be Medicare time and I'll do another Retire Again 2024 through 2028 when SS kicks in and Retire Again is reviewed.

I do regret not spending a few thousand more those first five years. Could have done a few trips that are getting a little more difficult now.

 

[Koolau]

I back calculated my spend (FIRE at 58) and realized I'd been spending at 4.5 to 5%. Lots of housing rehab (two of 'em) during that period. You can cut back later if need be but YMMV.