Discretionary vs fixed expenses in spending model

[padlock]

Hi everyone,

Here's my situation. I've recently been let go from my job, and am considering using this as an opportunity for early retirement (I'm currently 51).

I've been tracking my financial metrics for a number of years now, and know that, assuming average returns, I would be alright.

I entered my numbers in FireCalc and got a 75% chance of success (using the constant spending model), which seems riskier than I would like.

I then re-entered my info, this time excluding some of my discretionary expenses (I had $10,000 a year earmarked for travel), and got back a 100% success rate.

What I'm now wondering if there's a way to somehow run the numbers, assuming that if you fall a bellow a certain threshold, you could skip some discretionary expenses until you're back on track?

I looked at the other spending models, but neither seem to do what I want.

 

[pb4uski]

One thing you can do is use the Investigate tab and have FIRECalc solve for the spending that provides 95% success. The resulting graph will tell you your safe spending at various success levels.

Below is what you will see using the default FIRECalc assumptions.

Them select a success rate that you can live with and ask yourself if you think you can live with that amount of spending, and if not perhaps consider some part-time work to fill the gap.

 

[padlock]

Thank you pb4usi, that is very helpful. I assume that the plan would then be to begin withdrawing at the safe spending amount.

Honestly, I'm torn as to how risk averse I want to be. On one hand, I don't want to outlive the money, but on the other, I don't like the idea of potentially leaving money on the table that I could make use of, especially while I'm still healthy enough to enjoy it.

I guess the idea of potential part time work could allow me to be a bit less cautious.

 

[audreyh1]

You always have the option of some part-time work to help meet discretionary expenses. With the bases covered you have a lot more flexibility now.

 

[COcheesehead]

75% is a bit risky and what kind of life would you have without discretionary spending? Audreyh1 is on the right track. I would look to increase income either through better fixed income investing or part time work.

You should also make sure you account for lumpy expenses like autos, medical perhaps, home maintenance etc.

 

[pb4uski]

...I would look to increase income either through better fixed income investing or part time work. ...

What's the difference?[emoji12]

 

[walkinwood]

Look into the papers written by Klinger & Guyton. They are particularly useful for people who can rachet down spending when market / inflation conditions are unfavorable.


https://finalytiq.co.uk/guyton-klinger-sustainable-withdrawal-rules/


Google guyton klinger for other papers they wrote.



Kitces web site had a recent article on how a financial advisor uses guard-rails to guide his clients.
https://www.kitces.com/blog/impleme...e-the-right-spending-raises-and-spending-cuts


However, don't jump into it. A new job, even if it doesn't meet your current salary, will give you time to plan & feel comfortable with your decision. We ER'd with some headroom in our spending budget & are often thankful that we did that.

 

[padlock]

75% is a bit risky and what kind of life would you have without discretionary spending? Audreyh1 is on the right track. I would look to increase income either through better fixed income investing or part time work.

You should also make sure you account for lumpy expenses like autos, medical perhaps, home maintenance etc.

Yes, I would be fine giving up travel for a few years over the course of my retirement, I just wouldn't want do it all the time.

I feel like a flaw of the constant spending model is that it just assumes people are robots and won't adjust their spending to fit the current situation. I wish there was a way I could enter my desired and minimum spending, as well as a rule for when to take less that the desired amounts, and have the calculator tell me both my percent chance of success as well as the average number of years I wouldn't be able to take my desired spending given the historical data.

I have planned a yearly fund for large expenses (new car, home maintenance, etc.)

 

[padlock]

Look into the papers written by Klinger & Guyton. They are particularly useful for people who can rachet down spending when market / inflation conditions are unfavorable.


https://finalytiq.co.uk/guyton-klinger-sustainable-withdrawal-rules/


Google guyton klinger for other papers they wrote.



Kitces web site had a recent article on how a financial advisor uses guard-rails to guide his clients.
https://www.kitces.com/blog/impleme...e-the-right-spending-raises-and-spending-cuts


However, don't jump into it. A new job, even if it doesn't meet your current salary, will give you time to plan & feel comfortable with your decision. We ER'd with some headroom in our spending budget & are often thankful that we did that.

Thank you, the Guyton-Klinger study sounds interesting. I will do some more research on it.

 

[COcheesehead]

Yes, I would be fine giving up travel for a few years over the course of my retirement, I just wouldn't want do it all the time.

I feel like a flaw of the constant spending model is that it just assumes people are robots and won't adjust their spending to fit the current situation. I wish there was a way I could enter my desired and minimum spending, as well as a rule for when to take less that the desired amounts, and have the calculator tell me both my percent chance of success as well as the average number of years I wouldn't be able to take my desired spending given the historical data.

I have planned a yearly fund for large expenses (new car, home maintenance, etc.)

I am pretty sure FICalc
https://ficalc.app/
allows you to set up spending parameters.

 

[COcheesehead]

Thank you, the Guyton-Klinger study sounds interesting. I will do some more research on it.

That strategy is one of the spending options in FICalc.

 

[walkinwood]

That strategy is one of the spending options in FICalc.

Are you thinking of the Bernicke model? That's one of the Firecalc options. I don't see the Guyton model there.

 

[Sunset]

OP - Will you get CPP and how much more will you get if you work 5 more years ( I think they use 40 yrs ).

Of course apply for UI effective the day after being laid off.

Have you lived in Canada all your life, not counting vacations ? It will affect OAS.

Honestly, I'd be shy about retiring so young, I feel I did my best work that I'm proud of at around age 50 as I had accumulated a lot of skills by then, especially as your savings don't seem too robust.

 

[COcheesehead]

Are you thinking of the Bernicke model? That's one of the Firecalc options. I don't see the Guyton model there.

No it’s a completely different tool called FICalc
https://ficalc.app/
It’s sort of the competitor to FireCalc with IMHO more options. The Guyton is one of several preloaded spending models.

 

[Koolau]

Hi everyone,

Here's my situation. I've recently been let go from my job, and am considering using this as an opportunity for early retirement (I'm currently 51).

I've been tracking my financial metrics for a number of years now, and know that, assuming average returns, I would be alright.

I entered my numbers in FireCalc and got a 75% chance of success (using the constant spending model), which seems riskier than I would like.

I then re-entered my info, this time excluding some of my discretionary expenses (I had $10,000 a year earmarked for travel), and got back a 100% success rate.

What I'm now wondering if there's a way to somehow run the numbers, assuming that if you fall a bellow a certain threshold, you could skip some discretionary expenses until you're back on track?

I looked at the other spending models, but neither seem to do what I want.

If you're a bit uncomfortable with your FIRECalc result (and I would be at 75%) you might at least try to find another position for a couple of years - and hope the markets all come back.

Another option just might be relocation to a lower COL area. No idea of your situation, but even moving from say a 4/3 to a 2/2 house might make all the difference if you bank/invest the "profits" from house sale.

Travel becomes more problematic as you age, so I wouldn't put it off too long if there are any other options.

As always, YMMV.

 

[COcheesehead]

It is best to be poor when young, than poor when old.
Said someone once.

 

[padlock]

OP - Will you get CPP and how much more will you get if you work 5 more years ( I think they use 40 yrs ).

Of course apply for UI effective the day after being laid off.

Have you lived in Canada all your life, not counting vacations ? It will affect OAS.

Honestly, I'd be shy about retiring so young, I feel I did my best work that I'm proud of at around age 50 as I had accumulated a lot of skills by then, especially as your savings don't seem too robust.

Yes, I factored in CPP and OAS. Working another 5 years would increase my CPP benefit by about $1900 a year, but it's just not worth it to me. I had a very stressful career, and simply can't stomach the idea of doing it anymore (let alone for 5 more years).

If you're a bit uncomfortable with your FIRECalc result (and I would be at 75%) you might at least try to find another position for a couple of years - and hope the markets all come back.

Another option just might be relocation to a lower COL area. No idea of your situation, but even moving from say a 4/3 to a 2/2 house might make all the difference if you bank/invest the "profits" from house sale.

Travel becomes more problematic as you age, so I wouldn't put it off too long if there are any other options.

As always, YMMV.

I already took tapping into some home equity into account. My current home is much to big and I have no interest in retiring in place.

It is best to be poor when young, than poor when old.
Said someone once.

Honestly, that's where I'm at. I view time as a valuable, non renewable resource, that I don't want to squander anymore. My mother died young (before she was 70), and I want to make sure I make the most out of the time when I'm still relatively healthy. If that means living with some uncertainty and having to do without some luxuries, that's something I'm willing to do.

I tried out FiCalc, and playing around with the different withdrawal strategies and juggling some number around, I think I'm in a spot where I'm feeling pretty good about things.

 

[COcheesehead]

I tried out FiCalc, and playing around with the different withdrawal strategies and juggling some number around, I think I'm in a spot where I'm feeling pretty good about things.

Good, FICalc is a good alternative to FireCalc. I think it lets you play more with changing allocations, different withdrawal methods, shows you the danger years better.

 

[pb4uski]

....as a rule for when to take less that the desired amounts, and have the calculator tell me both my percent chance of success as well as the average number of years I wouldn't be able to take my desired spending given the historical data.



I have planned a yearly fund for large expenses (new car, home maintenance, etc.)

There isn't a rule for that, but there is a "retired again" concept. I'll use FIRECalc as an example. Let's say you retire and based on your portfolio balance, etc FIRECalc says you can safely spend $x.

A year later. If you stay the course your spending for that year would be $x plus inflation. But if you run FIRECalc using you current portfolio balance and one year less it tells you that you can spend $y.

So you can then safely spend the greater of $x plus a year of inflation, or $y. So if your portfolio has a good year you "reset" as if you retired that year, otherwise you stay the course.

 

[Sunset]

Yes, I factored in CPP and OAS. Working another 5 years would increase my CPP benefit by about $1900 a year, but it's just not worth it to me. I had a very stressful career, and simply can't stomach the idea of doing it anymore (let alone for 5 more years).

I already took tapping into some home equity into account. My current home is much to big and I have no interest in retiring in place.

Honestly, that's where I'm at. I view time as a valuable, non renewable resource, that I don't want to squander anymore. My mother died young (before she was 70), and I want to make sure I make the most out of the time when I'm still relatively healthy. If that means living with some uncertainty and having to do without some luxuries, that's something I'm willing to do.

I tried out FiCalc, and playing around with the different withdrawal strategies and juggling some number around, I think I'm in a spot where I'm feeling pretty good about things.

Sounds like the home equity loan is because you are planning to sell and move ?
Otherwise you simply increased your cost of living.

While time is a non-renewable resource, that reasoning would suggest nobody should ever work and just be a bum, but it's really a balancing of work for $$ so you can actually live and enjoy doing things that do cost $.

I'm leery of retiring too early, because I had a friend in Canada that did that, and sure it was enjoyable with free days for 10 years, but then that person needed to find a job again, with outdated skills and outdated resume, and older. Had that person worked 5 more years initially, everything would have been fine due to the income level earned in the 5 years from being skilled, current, etc.

 

[Koolau]

Sounds like the home equity loan is because you are planning to sell and move ?
Otherwise you simply increased your cost of living.

While time is a non-renewable resource, that reasoning would suggest nobody should ever work and just be a bum, but it's really a balancing of work for $$ so you can actually live and enjoy doing things that do cost $.

I'm leery of retiring too early, because I had a friend in Canada that did that, and sure it was enjoyable with free days for 10 years, but then that person needed to find a job again, with outdated skills and outdated resume, and older. Had that person worked 5 more years initially, everything would have been fine due to the income level earned in the 5 years from being skilled, current, etc.

I'm sure this is why One-more-year-ism is so difficult to resist.

I appreciate that FIRECalc gives folks at least a good shot at quantifying "when" it's "safe" to FIRE.

 

[youbet]

I view time as a valuable, non renewable resource, that I don't want to squander anymore.

Yep. Just as an anecdotal example, I FIRE'd at 58 when MegaCorp canned my sorry ass and I just couldn't get up the gumption to go job hunting going into the Great Recession. I had planned on RE at 62 and going 4 years prior was painful financially. But now, at 75, (18 years into FIRE), I have zero regrets. The cuts in planned spending we took were sometimes disappointing, but the time gained offsets that beyond doubt.

Look at the spending cuts you'd need to make and sniff around for any painless income sources and if your can, go for it!

 

[Koolau]

Yep. Just as an anecdotal example, I FIRE'd at 58 when MegaCorp canned my sorry ass and I just couldn't get up the gumption to go job hunting going into the Great Recession. I had planned on RE at 62 and going 4 years prior was painful financially. But now, at 75, (18 years into FIRE), I have zero regrets. The cuts in planned spending we took were sometimes disappointing, but the time gained offsets that beyond doubt.

Look at the spending cuts you'd need to make and sniff around for any painless income sources and if your can, go for it!

I guess my story is sort of the opposite. I was ready (financially) to go at 51 but found I liked what I was doing. When at 58, Megacorp finally figured out they actually had a happy empl*yee, they "ordered" me to a different assignment. I told 'em "I don't have to. I'm retired on Friday." So at 75, we've arrived at the same state by a somewhat different route. There are many paths to FIRE. This has been two of them.