First Few Years of RE: Net Worth Rise or Fall?

[Kickernick]

We are now less than 4 months from our planned FIRE escape and I notice that our passive income is growing MUCH faster than our spending. In fact, I added up ALL the money I've earned in my 26 year career and it is LESS than our current net worth. I know that the point where passive income (from all stocks and bonds for us) exceeds spending is the inflection point of FI and I wonder if it is likely to continue?

Among our already RE friends on the forum - did you see your net worth continue to RISE in your first few years post-work, or did it gradually start to FALL as you spent for your lifestyle?


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[dallas27]

When you added up you past earnings, did you adjust for inflation? Just wondering...


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[GravitySucks]

I've had a good 2 1/2 years and the markets have been nice to me.

Up about 30%

 

[ejman]

Its so hard to compare pre ER vs post ER living expenses vs income. For example I don't really know how to adjust for inflation because since ER at the end of 2002 some major changes took place (vs pre ER).

1) I no longer had a mortgage so mortgage rates were not material
2) I no longer had a regular commute to work so the price of gas was much less relevant
3) I had time to start a large garden and keep livestock at the small farm we purchased in SW Oregon so the cost of food and the nature of our meals changed
4) I now had the time to do a lot of the work I previously hired someone to do
5) I moved to an area that had a much lower cost of living
6) Taxes are much lower
7) Heating costs are much lower (cut and split my own firewood)
8) clothing costs are way lower since we don't have to dress up for anything
9) some costs have gone up. One dog pre ER, lots of critters now
10) Some hobby costs are up, have a large LP collection now and time to listen to a very nice Hi Fi system.
11) Wife's horses are not cheap

I guess the bottom line is that our liquid NW has about doubled since ER 12 years ago. Started SS at 62, 3 years ago, and just started a tiny non cola pension from a long ago employer of less than $400/mo.

Basically between SS, the non cola pension and dividends and CG from the taxable portion of our investments (about 1/2 of the total) we are fortunate to have enough for our comfortable (to us) lifestyle. We haven't used our IRA's at all and don't foresee the need to tap into that at this time. I guess in 5 years as RMD's start the Gummint will be happy to share in our good fortune unless Rewahoo's asteroid makes an appearance or we do something really dumb or otherwise the SHTF.

 

[truenorth418]

My portfolio is worth 50% more than the day I retired due to some consulting work, an inheritance, and investment gains.


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[Meadbh]

In the first two years of ER, my NW increased beyond inflation. This is year 3. I will do the calculations after the new year, but I suspect NW will have decreased, due to the crummy markets. No pension here. Spending has been very modest this year.

 

[marko]

I know that the point where passive income (from all stocks and bonds for us) exceeds spending is the inflection point of FI and I wonder if it is likely to continue?

Among our already RE friends on the forum - did you see your net worth continue to RISE in your first few years post-work, or did it gradually start to FALL as you spent for your lifestyle?


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It's a matter of how you're invested. Ideally/obviously, it would continue to grow over your entire retirement as long as your spending was less than your investment growth.

Some of us here are able to do that through simple brute force (large portfolios that are well invested and small-ish expenses). Many are able to just live on dividends coupled to SS and a pension. Others go the draw-down route with each year having a lower balance.

 

[mystang52]

Our net worth has gone up quite a bit, despite 2 car purchases and some significant home repairs. But we're not exactly investment geniuses, the stock market's overall gain the last few years is the only reason.

 

[kcowan]

Only time our net worth goes down is when the markets swoon. 2007-8. Been retired since 2002. We will expect this year to be slightly up, thanks to diversity and a one-time permanent reduction in annual budget in 2008 due to snowbirding.

 

[RockyMtn]

Pulled the plug in July 2009. Up 46% net worth since then. Stock market gains and last tranche of company stock options are responsible.

 

[H2ODude]

We've been drawing 2.5 now grown to 3% since retiring mid 2011 and net worth has gone up substantially. We will wait on SS til 70 to pay the tax on MRWs and I have a pension that runs about the same as the 3% withdrawals from investments. So we feel very safe at the 3% and are trying hard to spend that draw. We fully expect it will continue to grow a good bit over the hopefully long run until we check out.

I know others have written here of retiring just pre 2008 and if that was me I'd have really squirmed, probably have minimized any discretionary, which today is probably about half of what we really would need to survive.

 

[W2R]

We are now less than 4 months from our planned FIRE escape and I notice that our passive income is growing MUCH faster than our spending. In fact, I added up ALL the money I've earned in my 26 year career and it is LESS than our current net worth. I know that the point where passive income (from all stocks and bonds for us) exceeds spending is the inflection point of FI and I wonder if it is likely to continue?

Among our already RE friends on the forum - did you see your net worth continue to RISE in your first few years post-work, or did it gradually start to FALL as you spent for your lifestyle?

I think that your net worth may be reflecting market conditions. The market has gone up since you retired.

I retired in November, 2009, and my net worth has gone up quite a bit because so far all I have experienced is a long, thriving bull market. (edited to add: overall, not counting recent fluctuations! But in the long term everything has been pretty good so far.)

 

[Trawler]

Retired October 2012 and after two years 2013 and 2014 our Portfolio was 15% higher than we started even with our spending. It looks like 2015 we will still have more than we started with in 2012 but will be first year NW will not increase unless Santa brings a big year end rally. If the market remains around where it now at year end our net worth will be about what it was an year end 2014 minus our expenditures. Hope we will not take a withdraw until portfolio back to record high. We have another 2 to 2.5 years of cash to live on.

 

[Danmar]

Really depends on the markets and spend rate. If you spend under say 4% of portfolio and the market increases on average that amount, you should maintain the balance in nominal terms. In down years (like this one) you would expect your net worth to decline. Real question would be do you reduce your spending when the market is bad?

 

[Fedup]

Now that I retire, I will keep track of actual vs planned spending. Same with net worth. I hope it goes up.


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[rodi]

I've only been retired for 18 months. I was feeling really positive about my ever growing portfolio through most of this past summer... Late August and this past week have changed that feeling.

I'm not worried - these numbers are based on my total cash/investments... which included some money set aside for one time things (like my big trip this past summer.). If I use the number I used for planning/firecalc runs/etc... (ignoring the set aside funds)... I'm close to flat. That darn one time spending. Outside of our big trip and remodeling projects our spending is more frugal than planned for... which surprised me.

 

[athena53]

Also retired 18 months. Our net worth was up by $100k after 12 months. Now, after pulling out $50k in addition to our usual living expenses to buy a new house and a crappy market, we're down. Long term we should be fine.

 

[jkern]

Retired in July 2009. Real Estate crash, stock market crash, everything was down. Six plus years later my total Net Worth is 60% higher.

 

[Meadbh]

Really depends on the markets and spend rate. If you spend under say 4% of portfolio and the market increases on average that amount, you should maintain the balance in nominal terms. In down years (like this one) you would expect your net worth to decline. Real question would be do you reduce your spending when the market is bad?

Yes.

 

[Car-Guy]

I'm coming up on my 4th year in retirement and I only track my cash/investable net worth. I quit trying to estimate and track physical assets value to closely.

When I retired, I was satisfied with my cash/investable net worth. So, as long as my total cash/investable net worth stays the same as when I retired (inflation adjusted), I just don't worry about it. I'm finding I tend to spend down to that level pretty consistently. By spending on daily living expenses, traveling, gambling, buying collectibles, donations, etc. I'm actually starting to think that I may want to start spending down my cash a bit more (maybe by 20% over the next 5 years). After all, I worked for 40+ years to get the money to enjoy retirement. I can't take it with me and I don't get too excited by looking at numbers on bank statements.

 

[arky]

Retired Jan 1, 2008, so almost 8 years in and my liquid (does not include house) net worth is approx. 25% higher. So far, so good.

 

[scrabbler1]

I retired at the end of October, 2008, just as the markets were crashing. (This was a GOOD thing because I bought thousands of shares of a bond mutual fund at bargain-basement prices.) The markets kept falling into early 2009 but they rebounded quickly and even now I am up about 50% since then with a majority-bond portfolio.

 

[Cobra9777]

I retired in July 2013. Two and a half years later, net worth is 17% higher. We make very small withdrawals, less than 1%. Pensions, rentals, and dividends cover basic living expenses.

 

[Independent]

It seems to me that people who plan to withdraw 4% from their investments will see the real value of their investments
go up if those investments yield more than 4% real, and
go down if those investments yield less than 40% real.

Since most people here have investments with market values that can fluctuate by double-digit percents in a single year, the answer the to the OP question will depend primarily on when people happened to retire.

 

[Danmar]

It seems to me that people who plan to withdraw 4% from their investments will see the real value of their investments
go up if those investments yield more than 4% real, and
go down if those investments yield less than 40% real.

Since most people here have investments with market values that can fluctuate by double-digit percents in a single year, the answer the to the OP question will depend primarily on when people happened to retire.

Yes, this is what I was trying to say. You said it much better than I. We are at the mercy of the market.