As I'm getting closer to Fire (less than 1 year) my mind is switching from accumulation to spending... something all of us have to do.
Just like everyone I spend hours doing all kinds of spreadsheets and calculations... the easiest one being using FireCalc to get to 100%. At my current LNW (around 3.5M), and my roughly 45 year horizon (40 years old), and current spending (Around 100k w mortgage + insurance, etc), it's easy to get to 100% with 0% chance of having less at the end of the 45 years, historically.
But I quickly realized that isn't the big problem.
The big problem is what will I DO in the first few years, and how will I react to different situations. It's easy to say I'll just stick to my simple allocation/rebalance no matter what happens... but how can I be sure.
So I thought about preparing for various scenarios.
Using FireCalc, I can put in the same assumptions, but run it for 10 years.
In that timeframe I can expect my LNW to be anywhere from 1.6M to 10.8M. That is not a small range
and I'd be lying if the results didn't have impact on my life. At 1.6M I might feel the urge to get a job, sell my house, sell all my holdings and all kinds of other crazy stuff. At 10M I might take more trips to Hawaii, treat more friends to dinner and donate more money to charity.
Here's a couple other ranges:
At 5 years, the expected range is 1.7M - 8M
At 1 year, its 2.4M-4.8M
Can I really say I will easily weather a 1M drop in LNW in the first 12
months of FIRE? Or that if it goes to 4.8M I'll think no differently?
No Way. It'll feel really different and if I'm not equally prepared, I could make terrible mistakes in over reacting.
Now in most cases, it will be somewhere in the middle... but what has a big impact on us short term is the smoothness of the ride.
I think time is a good teacher here.
Going back through the forums, I've seen how some people handled 2008 and it's pretty interesting. It seems that not looking at it too much, and not paying too much attention are really good methods for fighting through the pain. The discipline and habit of a simple strategy that you execute regardless will really pay off when it's a difficult time.
So I am trying to use these comparatively "easy" times to develop those as well as prepare for what to expect. So if my portfolio drops 25% in the first year, I won't freak out... or at least not as much. And if it goes up 25% I won't change my spending... or at least not too much