Escape velocity, how do you know?

[BizzyC]

I'm trying to ask a question that I suspect will only have "squishy" answers as opposed to firm metrics. I'm interested in everyone's thoughts on the matter, but I'm especially interested in the answers from people who feel like they have lived this situation. Let me jump into it.

I'm defining "escape velocity" as, your stash is overall still growing even after funding all of your expenses. In my particular situation, over the last ~4 years, my withdrawal rate has been in the range of 5-12%*. But, my investible assets are up about 135% over that time. If I look at my monthly figures averaged over that 4 year period, my investible assets grow each month by an amount that is approximately equal to what I spend in a month.

It is true that equity returns over this period have been unusually high, and it is true that I had an extremely aggressive AA during this time, so in no way do I think this is a sure thing over all the rest of my life.

For those of you who have been retired for a while and have a growing stash, do you feel like there were/are signs that you've reached escape velocity, and what are those signs?

*The 5-12% WR was a conscious choice to BTD a little. No need to warn me that that rate is too high to sustain over the entire retirement.

 

[SecondCor521]

In terms of escape velocity, I look at net WR%. I define net WR% as (spending - NPI) / FIREstash. NPI is income that doesn't come from your portfolio - so *not* dividends/interest/capital gains, but rather gifts, side gig income, refunds and rebates, etc. FIREstash for me is approximately net worth minus house minus car minus kids' college funds plus NPV of SS.

I gave myself the OK to retire when my WR% was 4%. I stayed on the job another two years so my WR% was around 2% or 2.5% when I FIREd (the market was going well and I was saving 60% of my income).

After I FIREd, I figured out about NPI. My planning assumed NPI of $0, but I realized that historically for me it has been equivalent to about a 1% reduction in WR%.

As of the last update to my spreadsheet, my WR% is just under 2% and my net WR% is just under 1%. With those numbers, I feel confident that my stash will continue to grow despite my expenses and thus I meet your definition of escape velocity.

I'm actually trying to spend more and give more as a result of this situation. So conceivably I could spend enough to lose escape velocity, although I doubt I could manage to do so just on an emotional basis, let alone a practical basis. Unless zombies or the fall of western civilization or a large meteorite.

Investment-wise, I've been over 90% US equities since the late 1980s and am currently 99% US equities. My net worth has approximately doubled since I FIREd 8 years ago.

 

[walkinwood]

I'm defining "escape velocity" as, your stash is overall still growing even after funding all of your expenses.

What's the point of this metric? There will be times that your portfolio will shrink multiple times your annual expenses. Other periods, you'll see growth like you have now. You have to be as unemotional as you can about these swings, in order to prevent any actions that will have long-lasting negative consequences.

I would rely on a calculator like firecalc or similar one using monte-carlo simulations, that allows you to add in lumpy scheduled expenses (like a car purchase) and future income sources (like Social Security) to see whether your are spending too little or too much. And I would repeat this exercise annually.

That is not to say, you swing your annual budget each year, but use this exercise as a guideline.

 

[rk911]

We may be a-typical. Our NW continues to climb thanks to our money mgr even though we're not investing any new money. We're in preservation mode. We have a positive monthly cash flow meaning our income from SS and pensions is greater than *required* spending so no need to take take $ from investments. The sole exception was when we boufht a new car last year. We have zero debt.

 

[TheWizard]

I've had a negative withdrawal rate ever since I started age 70 SS four years ago.
This means my pension/annuity + SS exceed my expenses by a few thousand dollars most months so I invest the excess in my taxable account, which is 95% stock funds.

Now this month I'm paying the remainder of next May's river cruise so I may not have any excess. That's fine too...

 

[Diogenes]

We may be a-typical. Our NW continues to climb thanks to our money mgr even though we're not investing any new money. We're in preservation mode. We have a positive monthly cash flow meaning our income from SS and pensions is greater than *required* spending so no need to take take $ from investments. The sole exception was when we boufht a new car last year. We have zero debt.

This is the ideal situation. Withdrawal rate of 0%, except for splurges or emergencies. We don't need FireCalc to conclude that the portfolio is vibrant in perpetuity. Its "escape velocity" is contingent only on market vagaries, which hopefully attenuate over time.

A different matter entirely, is how to balance competing desires, of living off of one's portfolio, while also ensuring its vigorous growth. This differs from the standard SWR estimations, because these posit "success" as merely not running out of money, X-years out. A person might have a very substantial portfolio indeed, but if the self-imposed goal is growing the portfolio at some rate, then the "safe" withdrawal rate might be zero, or outright negative - as would be the case in a "lost decade" for stocks.

This brings us back to veneration of the good old defined-benefit pension. Whether the portfolio is large or small, such pension frees us to cultivate gains, instead of getting mired in Monte Carlo simulations of worst-case losses.

 

[BizzyC]

n'

In terms of escape velocity, I look at net WR%. I define net WR% as (spending - NPI) / FIREstash. NPI is income that doesn't come from your portfolio - so *not* dividends/interest/capital gains, but rather gifts, side gig income, refunds and rebates, etc. FIREstash for me is approximately net worth minus house minus car minus kids' college funds plus NPV of SS.

I gave myself the OK to retire when my WR% was 4%. I stayed on the job another two years so my WR% was around 2% or 2.5% when I FIREd (the market was going well and I was saving 60% of my income).

After I FIREd, I figured out about NPI. My planning assumed NPI of $0, but I realized that historically for me it has been equivalent to about a 1% reduction in WR%.

As of the last update to my spreadsheet, my WR% is just under 2% and my net WR% is just under 1%. With those numbers, I feel confident that my stash will continue to grow despite my expenses and thus I meet your definition of escape velocity.

I'm actually trying to spend more and give more as a result of this situation. So conceivably I could spend enough to lose escape velocity, although I doubt I could manage to do so just on an emotional basis, let alone a practical basis. Unless zombies or the fall of western civilization or a large meteorite.

Investment-wise, I've been over 90% US equities since the late 1980s and am currently 99% US equities. My net worth has approximately doubled since I FIREd 8 years ago.

Thanks SecondCor521, this helps. So it seems like you feel that the WR is really the primary/best metric for evaluating if you've reached escape velocity, and I can't argue with that. A WR that is decreasing over time is certainly a good sign.

 

[BizzyC]

We may be a-typical. Our NW continues to climb thanks to our money mgr even though we're not investing any new money. We're in preservation mode. We have a positive monthly cash flow meaning our income from SS and pensions is greater than *required* spending so no need to take take $ from investments. The sole exception was when we boufht a new car last year. We have zero debt.

Perhaps a-typical, but one example of a completely legitimate case of "reached escape velocity".

 

[BizzyC]

What's the point of this metric?

I'm just trying to learn from people who have been at this longer than I have. I wondered if maybe people who are already at escape velocity now, noticed along the way things that indicated they were approaching it. Maybe the portfolio was cranking out x times their previous salary. Maybe it was paying for all of their expenses and growing beyond that. Maybe each year the net worth grows. Maybe WR is dropping every year. I don't know since I'm not there.

 

[Diogenes]

I'm just trying to learn from people who have been at this longer than I have. I wondered if maybe people who are already at escape velocity now, noticed along the way things that indicated they were approaching it. Maybe the portfolio was cranking out x times their previous salary. Maybe it was paying for all of their expenses and growing beyond that. Maybe each year the net worth grows. Maybe WR is dropping every year. I don't know since I'm not there.

Not claiming any special personal prowess or achievement here, but yes, there comes a time (whether retired or not), when the portfolio reaches a large ratio of one's highest-ever W2 earnings. "Large" is subjective, but call it... large enough. The result can be an in insufferably smug self-congratulation, or on the contrary, a dismay that one's additional earnings and savings don't matter much, because going-forward, what the market does, matters so much more. For instance, if Smith earns $100K as a lecturer at the local U, but has $10M saved in his portfolio, then his getting a promotion from lecturer to professor, doesn't mean much. Neither does it much matter if he cancels his cable subscription and saves $80/month. Should Smith chortle with glee, that he's so awesome, for having saved so much? Well, he could... but the flip side, the obverse, is that if Mr. Market decides to embrace the bear, Smith is out $2M... something that he won't be able to earn throughout the remainder of his life. A bit daunting, isn't it?

 

[SecondCor521]

Thanks SecondCor521, this helps. So it seems like you feel that the WR is really the primary/best metric for evaluating if you've reached escape velocity, and I can't argue with that. A WR that is decreasing over time is certainly a good sign.

Correct.

As somebody else pointed out, though, there will be times that you go backwards. For me (and probably many here), 2022 was such a year. But after a bunch of average to good years, 2022 just meant that my WR went from maybe 0.8% up to 1.3% or whatever. Backwards, but not enough to really worry about.

I'm just trying to learn from people who have been at this longer than I have. I wondered if maybe people who are already at escape velocity now, noticed along the way things that indicated they were approaching it. Maybe the portfolio was cranking out x times their previous salary. Maybe it was paying for all of their expenses and growing beyond that. Maybe each year the net worth grows. Maybe WR is dropping every year. I don't know since I'm not there.

You'll know it when you see it.

Another metric, also subjective, is when you realize you have more money than time and you start to focus more on how you spend your time and less on how you spend your money. See the attached cartoon.

 

[Andre1969]

In my mind, I'm seeing "Escape Velocity" as getting to the point you can "escape" the workplace and retire. So isn't that basically the same thing as "FI" (Financially Independent). I guess throwing the metric of your portfolio continuing to grow even after withdrawals does put it in a higher level, since you can still be financially independent, yet have your invested asset total either flatline, or slowly deplete. Just as long as your assets last long enough to keep you out of the poor house before you die!

I have a feeling that "Escape Velocity" or even "Financially Independent" are stages of life that you won't realize you're in, until you've been in it for a few years, at least, and can look back on the data.

For instance, in my case, just doing a very rough calculation, I'd say I hit "Escape Velocity" around September of 2018. But, I wouldn't have realized it, at the time. And by the end of 2018, when things bottomed out, I certainly would not have believed it. Same for the bottom of the "Covid Crash" in March of 2020, although that one bounced back pretty quickly.

My reasoning for picking September of 2018 is that I bought a house on 9/7/2018. If I had retired before then, I don't think I would have been able to qualify for the mortgage. I would have needed to cough up a much larger down payment, perhaps even paying for the whole thing in cash. That might have been enough to derail any sort of escape velocity I might have been in, at the time. Of course, I could have made the decision to just not buy the house. I had paid off the loan on the house I was living in at the time around January or February of 2018, and had no other outstanding debt, so I was in a really good spot, financially.

 

[Badger]

Another metric, also subjective, is when you realize you have more money than time and you start to focus more on how you spend your time and less on how you spend your money.

This was always my goal since it would insure my wife would be taken care of in case I go first.

 

[racy]

My squishy input: I've been retired 10 years. My average 12-month portfolio performance exceeds my average 12-month expenses 83% of the time. So, 17% of the time it doesn't. I'm not sure what 'escape velocity' means if one has market investments. It goes up, it goes down.

 

[Ronstar]

...For those of you who have been retired for a while and have a growing stash, do you feel like there were/are signs that you've reached escape velocity, and what are those signs?.....

We started our retirement 10 years ago. Escape velocity occurred long before we retired. I wouldn't have retired without my stash being able to generate more than enough income to cover retirement expenses. And then keep WR extremely low to make sure that stash keeps growing after retirement.

 

[latexman]

I'm defining "escape velocity" as, your stash is overall still growing even after funding all of your expenses.

Isn’t this the same as being “financially independent”?

 

[BizzyC]

Isn’t this the same as being “financially independent”?

Well, no. I would say that a person who has a stash that is decreasing every year, but still fully adequate to cover the rest of their lifetime is financially independent.

But someone who has a negative or zero WR, or someone whose yearly increase is greater than a year's expenses 83% of the time, is just in a different category risk wise. Squishy, I know.

I suspect what Andre said above is correct-- you probably won't recognize it until some time after it's happened. Which was kind of the origin of my question-- are there clues along the way to know you are getting there.

 

[TheWizard]

Isn’t this the same as being “financially independent”?

Not really.
You could be nominally FI with enough $$ to fund a 30 year retirement and then pass away 29 years into it with less than $40k left.
That's not escape velocity.

OP is talking about folks whose assets grow 10% per year on average. So after 29 years they'd have 16 times more $$ than at year zero...

 

[SecondCor521]

I suspect what Andre said above is correct-- you probably won't recognize it until some time after it's happened. Which was kind of the origin of my question-- are there clues along the way to know you are getting there.

This is the crystal ball / looking in the rear view mirror effect.

I used the 4% rule as a guideline for when to leave my job and FIRE. At the time I remember thinking that I needed to be emotionally ready for the market to drop 5%-10%-20%-more after I retired. I needed to decide if I would remain calm and not return to work if that happened, because for me personally I wanted to be completely done with work at FIRE. (I know some people have different definitions and preferences on that point, and that's OK with me.)

So I FIREd, and it could have turned out that the market dropped, or my expenses went up unexpectedly, or my side income actually turned out to be zero, or I could have gotten bored. Bad stuff could have happened.

But in my case, FIREing in spring 2016 and being basically 90% or more mostly in VTI-type investments the entire time, and earning some side income and receiving some gifts from family and expenses staying flat, and not being bored is what happened. It's been more or less good.

And with the 4% rule being figured the way it is, that is what we should expect to happen most of the time. Only in a rare while will some "graduating class" have the investing misfortune of the 4% rule being pushed to it's limit. 1966 retirees definitely. 2008 retirees maybe.

Spending increases out of our control is probably the other big risk. I think most FIRE folk on this board have very stable lives and are good at either budgeting or tracking expenses and are good at looking ahead and planning and maybe taking action to avoid risk in this area. I am, anyway.

So when I FIREd in 2016, I was looking in my crystal ball and taking a leap of faith. Looking back in 2024, I see how things have turned out so far and now know that I was going to be fine, at least for the first 8 years or so.

...

There's actually a bit of a parallel here. I of course continue to plan and monitor and look ahead to my future financial situation. The numbers say I'm going to have $waytoomuch and the math says I should be doing large-ish Roth conversions and large-ish gifting and should be flying first class if I wanted to. Emotionally it's a bit hard to grok the numbers, and it's easy to say "Well, I could have X go wrong so I need to be cautious and safe and careful and conservative now" And things may still go wrong - I might be doing my spreadsheets wrong - but I'm trying to learn and sort of force myself to trust the future spreadsheet numbers and do some of that spending, gifting, converting, and flying.

 

[Diogenes]

Well, no. I would say that a person who has a stash that is decreasing every year, but still fully adequate to cover the rest of their lifetime is financially independent.

But someone who has a negative or zero WR, or someone whose yearly increase is greater than a year's expenses 83% of the time, is just in a different category risk wise. Squishy, I know.

I suspect what Andre said above is correct-- you probably won't recognize it until some time after it's happened. Which was kind of the origin of my question-- are there clues along the way to know you are getting there.

This depends on our attitude, on purpose of the stash. If the stash is a slush-fund to cover one's expenses, then yes, "full adequacy" merely means dying before the stash dies. If the stash is an entity in itself, a necessary end in itself, then it's imperative to attend to the vitality of the stash. The withdrawal-rate, smoothing out fluctuations due to bear markets, should be considerably lower, than the accumulation rate.

True "escape velocity" is where the burden of keeping a person funded (from the stash's point of view) is small, compared to reasonable estimates of rate of return. It means that the stash is larger, adjusted for inflation, on the day that its owner dies, than on the day the he or she retired.

 

[skyking1]

Why do you care if it continues to grow? Unless you have a burning need to leave a bunch to charities or heirs, that money is nothing more than bragging rights. I intend to spend the stuff, myself. What is left over after our time goes to selected charities, but we won't be around to bask in the glory of that contribution.

 

[Route246]

My squishy input: I've been retired 10 years. My average 12-month portfolio performance exceeds my average 12-month expenses 83% of the time. So, 17% of the time it doesn't. I'm not sure what 'escape velocity' means if one has market investments. It goes up, it goes down.

Exactly. You may be feeling optimistic now because of a cyclical growth upturn is happening but are you prepared for a bear market, 20% or more downturn in your equity assets? Those equity returns can turn negative on a dime, usually when you least expect it. As long as your OK with 50% shrinkage then you should have no problems.

 

[CardsFan]

I guess we hit "escape velocity" when we started SS. Now our dividends and interest (throughout the portfolio) produce much more income than we spend (beyond SS), even with the taxes on Roth conversions and the sporadic splurge for trips and cars.

 

[Diogenes]

Why do you care if it continues to grow? Unless you have a burning need to leave a bunch to charities or heirs, that money is nothing more than bragging rights. I intend to spend the stuff, myself. What is left over after our time goes to selected charities, but we won't be around to bask in the glory of that contribution.

Why? Because one's portfolio can be part of one's identity... just like the development of one's muscles, # of pull-ups that one can do, and so on. To witness a diminished stash, is to accept a diminished self. I would rather live a more modest life, skipping on luxuries (or even necessities), but advancing the vitality of the portfolio. Careers come and careers go. But what remains, what endures, is the money that we saved and invested. Why voluntarily diminish that?

 

[luckydude]

Answers can be squishy because everyone’s definition is different.

For me, it’s no longer caring about the numbers. I stopped tracking my NW last year and no longer care about market returns. I still track expenses but only through force of habit. I don’t track my WR anymore. I know I will never outlive my assets so I just don’t bother with all the financial projections and modeling that I used to obsess about when I first FIREd.