Making sense of all the ER noise and strategies

[Major Tom]

I don't know how long you've been reading the ER literature, but one day, you'll find that most of it is just variations on a theme. You'll learn to skim articles and spot the pieces of useful information quickly. It just happens at some point just like it probably did in your professional field.

A big +1 to this. I think it's the same whenever one starts learning about a new field. In the beginning, you can feel overwhelmed, not quite knowing who is giving sage advice, and whose words need to be taken with a big pinch of salt.

My answer to these predicaments has always been to take my time, and do lots of reading. Gradually, you develop an ability to sort the wheat from the chaff. Luckily, for me, I was so entranced with the idea of ER, that reading as many articles and posts on the subject as I could, was an enjoyable task. Every night, when I got home from work, I looked forward to the hour or two I'd spend reading post upon post upon post from my favorite forum or blog du jour. I barked up quite a few wrong trees, but eventually figured out where I was heading.

 

[Red Badger]

"I am reminded of the saying, "There are some things you just can't explain to a virgin"

But not for a lack of trying!

But Dawg, if you've run the numbers, grab your T-10, hook up your static line and don't have a weak exit.

F the 25X (also the 80-100% of gross income crowd, etc). Know your spending (outflows) and your assets/equities, pensions, SSI, etc (inflows). If FIREcalc and other tools have you solid, you are.

I had similar reservations out the gate, but learned here and other places to trust the data, but only after torturing for an extended period.

Come to the Free Zone! It's awesome!

 

[trumpeting_angel]

Inspiring thread! One of the best threads on here, for me, at the brink of taking the plunge.

 

[DawgMan]

"I am reminded of the saying, "There are some things you just can't explain to a virgin"

But not for a lack of trying!

But Dawg, if you've run the numbers, grab your T-10, hook up your static line and don't have a weak exit.

F the 25X (also the 80-100% of gross income crowd, etc). Know your spending (outflows) and your assets/equities, pensions, SSI, etc (inflows). If FIREcalc and other tools have you solid, you are.

I had similar reservations out the gate, but learned here and other places to trust the data, but only after torturing for an extended period.

Come to the Free Zone! It's awesome!

Will there be candy on the other side?!

Ya, I think at this point I just need to take the water wings off and jump in...

 

[DawgMan]

I have to admit DawgMan... going by the threads that you have started over the last few months, you are doing a very comprehensive job of your retirement planning. When doing so, it is easy to get all wrapped up in your underwear if you are not careful.

I retired at the beginning of 2012. My master plan at the time anticipated a ~4% WR until my pension started, then ~3.5%, then 2.7% when DW started SS at 66 then less than 1% once my SS started at age 70.

Our WR were as follows:
2012..... 4.1%
2013..... 5.8%
2014..... 5.8% (included replacing 1-car garage with 2-car garage with bonus loft)
2015..... 4.6%
2016..... 11.7% (included purchasing winter condo for cash, otherwise 4.5%)
2017..... 3.6%
2018 estimated... 3.2%

Now here is the best part.... out portfolio today is 125% of what it was when I retired at the end of 2011 and what my master plan projected it to be as of now (134% if I include the value of the winter condo as part of our retirement assets).

Just before I retired I ran just about every free retirement calculator known to man... trying to use the same assumptions... each gave me different versions of a green light so I decided enough was enough (and I still enjoyed my job and colleagues but was tired of traveling).

Ok, ok, I hear ya... “ Sir, step away from the calculator!”

 

[DawgMan]

Well for you and I and others retiring in their late 50's, that situation is less likely.
Don't worry I understood you and would believe you not wouldn't believe you......

Now THAT clears up everything!

 

[JackJester]

I am in the mode now of trying out every “what if” I can think of in FIRECALC:

"What if congress screws us and we only get 60% of what SS.org says we should get at age 62?”
“What if the day before we plan to RE there is a 20% market crash…would I still RE the next day?” answer is 84% FIRECALC success, so that’s a tough one.
“What if I take the Pension lump sum vs the annuity?” … answer is lump sum BTW; I can control the $ vs mega corp uncertainty.
“What if my AA is X vs Y?" I really like the portfoliocharts.com site to play these games and look at the SWR calculator plots.
“What is our bare minimum magic # (93% FIRECALC success) and what is super safe (100% success)?.
“Gonna need a new truck in 5 years, can we afford it if FIREd?”
“etc"

2 years to FIRE for my DW and me. I feel pretty confident about that now, but it has taken 5 years of getting serious and crunching #s a lot.

The hardest part is:
A) what to assume for future Health Care expenses? …pre-medicare and during medicare?
B) how do we get from 53 to 59.5 to access all that $401K? …SEPP 72T? take the 10% penalty? heavily LBYM? combination of things? etc? The answer is a combination (savings + after tax account + small 72T, + slight LBYM). I sure wish 10 -15 years ago I would have focused on Roth and more on after tax account; damn hindsight. This year we are experimenting by sticking to the "slight LBYM" budget to see if we can adjust and handle it for 4.5 years.

 

[trumpeting_angel]

Turning 65 has once again inspired me to look at retiring. The last time was 2004, when I inherited some money. I still had a kid at home, got divorced, and settled down to save in earnest after that. So I’m back on this forum, no longer looking to ER, but now to R.

The last few weeks have been spent in hunting down and running retirement calculators, listening to financial podcasts, and researching my options. All day I can leave the workforce safely ( e.g. FIRECalc says 100% chance of success, as does Vanguard’s Nest Egg, newretirement.org, Financial Mentor, AARP, and whatever else I’ve found).

The result? Lost sleep. This makes me nervous. I have cut back on work, bought a house with cash, moving to Vermont to be with my DH. The extra consulting seems to fill my spare time, and I really want to cut back further. Here I am at 11:40 pm, alarm set for 5:40 am, wide awake with mind racing.

Maybe I will cut back to half time from 3 days - I can still get benefits. And pick up less consulting. And drag DH off on vacation.

If I set a date, maybe the anxiety will abate?

 

[Live And Learn]

The hardest part about ER is the leap of faith we have to take.

Like you, I read just about everything I could. And yes, alot of it made my eyes glaze over (and I am / was an accountant !). At the end of the day what made me finally take the leap was:

a. verifying that I knew my spending patterns and that I had accounted for everything I could in my "budget" (knowing that I would have offsetting under / over plan variances in real life). I had been tracking my spending for 10 years in detail, so knew that I had also accounted for many of the non-recurring expenses that we face (new roof, replacement vechicles, etc).

b. making sure that I had a pot of "I didn't think of that" money available for the stuff I forgot (I intentionally ignored 10% of my portfolio when I did any calcs or used any planning tools).

c. the final test was when my spending was 3% of my portfolio (which is really only 90% of my portfolio). I am 3 years retired (dang, that was FAST !) and my portfolio has grown. At some point I will up my spending so that I am using 3% of my new portfolio. But since there is still a sequence of returns risk I will wait a few more years before I do that.

 

[Scuba]

I am reminded of the saying, "There are some things you just can't explain to a virgin". To me FIRE is like this. It is a leap of faith based on some fundamental insights. Here are some of the things that I had to "experience" before I understood and felt good about FIRE. IMO, all the calculators and advice in the world will not overcome these feelings.



1) The world did not stop when the paychecks ended. (Prior to FIRE I wasn't sure.)

2) I have saved all my life. The strange feeling of withdrawing from savings quickly goes away.

3) You soon realize you love your new life and have a lot of flexibility to keep it. You can cut expenses, downsize get a part time j*b.

4) Like many of us, you will probably get a few years in and start realizing you over planned and could have FIRED sooner. A 4% WR is based on worst case scenarios. There is a lot of safety built into this calculation.



So, you are correct. Keep your plans simple and ignore a lot of the data. It will not alleviate the above feelings. You have to make adequate plans and then take a leap.

This is excellent advice!

 

[Scuba]

Being a single woman with most of my family dead, and an introvert with few friends other than Frank to lean on, I felt absolutely compelled to work towards a financially bulletproof retirement. After a financially disastrous 1998 divorce that left me with a negative net worth, no house, less than $1000, no retirement savings or investments, and creditors hounding me, at age 50, I was scared to death about retirement. So my first step was ramping up the LBYM severely, and then working hard on retirement planning. I strongly felt, and feel, that my financial future is my own responsibility and I'd better not mess it up.

So anyway, I used ALL of the approaches you mention, and made sure my retirement would work no matter which I used. I feel like FIRECalc is the best calculator around, and everyone should at least be given the go-ahead by FIRECalc. That said, I'm not trusting any one calculator. I used every calculator I could find, used the 25x factor, modeled my income and outgo with inflation, studied the seminal papers on relevant topics at JFP and elsewhere, and blah blah blah.

Using all of these I was OK to retire and completely set by my late 50's, but then had to work for 2-3 more years beyond that to age 61.5 in order to qualify for retiree health insurance and mini-pension. I continued to save at the same rate during those 2-3 years, and meanwhile came into some good fortune, and also got some divorced spousal SS at age 66 that I wasn't expecting. So, to make a long story short, my ultra-conservative financial plan plus unexpected good fortune that was not part of my planning, resulted in a retirement that is WAY over-funded.

That's OK with me. Being a worry wart, I'd rather be over-funded than worried about money all the time.

My spending record is overly conservative too and I know that I need to ramp up my "Blow that Dough" efforts. How was I to know that the market would boom like this? I was planning for the opposite plus massive inflation. I haven't had much good luck in my life, so although I never expected it, I'll take it.

I sold my (paid off) home and bought my (paid off) Dream Home that I have always wanted, three years ago. So my spending in retirement has been:

2010: 2.61%
2011: 1.98%
2012: 2.12%
2013: 2.40%
2014: 1.70% (started getting divorced spousal SS)
2015: 1.72% + 6.92% for Dream Home purchase and move
2016: 1.75%
2017: 1.58%
2018: 0.28% (projected - - went on my own SS which is higher than divorced spousal)

My very conservative (45:55 AA) investment portfolio today is 134% of what it was on 11/9/2009, the day I retired. Part of the reason the percentages above are so low, is that even though I spend more every year I am not catching up with market increases. Guess I hit the "sweet spot". That's OK by me. I plan to self fund LTC, so some of it may be used for that some day.

W2R, very impressive how well you recovered from your financially disastrous divorce at 50 and were still able to retire early. Well done!

 

[Scuba]

The anecdotes from folks documenting that their WR’s have exceeded 4%, some significantly, yet their stash is still higher than when they ER’d is consistent with what my former employer’s financial advisor told me. He said most of his clients average 5-6% WR’s and still have higher net worths than they did 10-20 years after ER.

 

[pb4uski]

+1 because 4% is based on/designed to handle bad case scenarios of sequence of returns risk that are remote probabilities but still need to be provided for.

 

[Major Tom]

+1 because 4% is based on/designed to handle bad case scenarios of sequence of returns risk that are remote probabilities but still need to be provided for.

Agreed, but there can be a big difference between portfolio survivability and the degree of drop in portfolio value that a retiree can psychologically withstand before throwing in the towel and either selling his or her holdings, or going back to work. We've enjoyed a nice, long run-up in stocks since the deep downturn about 8 or 9 years ago. Folk retiring during, or shortly after, this period, would have been able to withdraw relatively high amounts and still see their portfolios grow. A person retiring at, or close to, the peak of the market would still be able to withdraw 4%, or perhaps more, and their portfolio would most likely survive to tell more tales. However, I suspect the deep drops in value would more than rattle a few folk. We might not be seeing so many stories along the lines of "I withdrew significantly more than 4% and have more money than when I started!" I don't think we'd see many posts telling stories of people selling their holdings, or going back to work, though. More likely, we'd be seeing posts such as, "I wonder where so-and-so is? We haven't seen him/her here in a while......."

 

[tb001]

+1 because 4% is based on/designed to handle bad case scenarios of sequence of returns risk that are remote probabilities but still need to be provided for.

Yes! And I think it’s actually 4.5%, not 4%. Albeit for a shorter time frame than most of us are considering.

We haven’t pulled the plug yet, but a few things helped me get comfortable with moving forward with decisions that will get us there. One was creating a table/matrix of spending across different scenarios and failure rates. This was probably the most helpful for us. It gave me a ballpark spending range that I knew we could target. The other was understanding the real drivers behind the failures, when they occur. I hadn’t appreciated the 1965 cycle and the real impact of inflation. Knowing that some of our non discretionary spend is fixed/capped was helpful. Then creating multiple budgets, ideal vs stripping out some discretionary spending vs SHTF, and understanding how much play there is was really helpful. Ultimately, for us it comes down to understanding the multiple layers of conservatism built into our plan.

From what I’ve seen, you’re already doing all of these things. The part that makes me a little squirrely is market valuation, but it’s been really helpful for me to look at other market downturns, how fast the recovery was, etc. A big worry is we’ll put things off, trying to get just a *little* more wiggle room and then be stuck for another 5 years riding out a bad market.

ETA, one of the hardest pieces for me to figure out has been taxes, especially across the various withdrawal strategies and time frames. This is the one piece I haven't yet modeled extensively. I'm hoping that I've been conservative enough with my tax rate and spending plan that it offsets any surprises to the negative. The one upside is that we won't be dealing with RMDs until our spending starts to decline.

 

[Dtail]

I hope with current high valuations, this whole concept will continue.
Anyone on this site who retired between 2009-2012 most likely will have an increase in their nominal and probably real portfolio values unless their spending was overboard.

 

[Car-Guy]

Anyone on this site who retired between 2009-2012 most likely will have an increase in their nominal and probably real portfolio values unless their spending was overboard.

And some of us can say:

Anyone on this site who retired between 2009-2012 most likely will have an increase in their nominal and probably real portfolio values even if their spending was overboard

I mentioned in another thread that I've spent a lot more than planned during the first decade (closing in on a decade anyway) of my retirement and my NW is up from when I retired, inflation adjusted. No calculator I used pre retirement came close to indicating that.

Retirement calculators and spreadsheets have just turned out to be a "very" rough guide for me. Just too many variables in life and so few of them are really under my control.

 

[kcowan]

Our lawyer is not a planner but he takes the following approach. Estimate your life expectancy and subtract your current age. Divide into portfolio value. Add in any pensions and SS. Can you live on that amount? Consider any portfolio growth to compensate for inflation.

If not, then try the more complex tools.

 

[Rianne]

Our lawyer is not a planner but he takes the following approach. Estimate your life expectancy and subtract your current age. Divide into portfolio value. Add in any pensions and SS. Can you live on that amount? Consider any portfolio growth to compensate for inflation.

If not, then try the more complex tools.

OH! I like those numbers. I can even add 10 years onto my life expectancy.

 

[kcowan]

OH! I like those numbers. I can even add 10 years onto my life expectancy.

May you live long and prosper!

(and stay away from those heights!)

 

[corn18]

How did our parents ever retire without firecalc? Oh, the horror!

 

[REWahoo]

How did our parents ever retire without firecalc?

They didn't - at least not early.

 

[walkinwood]

J...., but your journey prompted some questions, particularly during the years your portfolio balance was below your starting balance...

- When you launched in 2008, did you have a budget which represented both your ideal spend as well as a"cutback" budget?

I had tracked spending for some 5 years, so I had an idea of our essential and discretionary spending. Obviously, there was uncertainty about our spending when we weren't at work all time.

- It sounds like you always underwrote going back to work/"getting a job" as one of your levers to pull if income was needed? Did you generate the income you had thought you would relative to your time commitment (i.e. part time/full time/consulting gig)?

I had a lucrative per hour rate when I consulted, but the hours didn't add up to much. DW, on the other hand, did just as well as she did before ER. Since the market was already recovering, I didn't put as much effort into finding more work than I would have if our portfolio was still shrinking.

- Were you able to plug the gap with your "jobs" in those years to get you back whole on your planned spending, or did you still make certain cutbacks?

We dropped our spending to match the percentage of income formula that we were using. In the year that we worked (2010) we made enough to fund our spend + a bit more iirc. Our surprise was that we were enjoying life just as much with the lower spend though we had cut back on travel.

- What is the "look-back" lesson for the rest of us? What, if anything, do you wish you would have done differently during those down portfolio years?

I wish I had kept bringing my portfolio into line with my AA. I didn't sell anything in a panic, but I let my AA drift by not buying more equity when I should have. On the other hand, it was a very scary time and I'm just glad we didn't panic and sell.

Thanks for the wisdom!

I don't know if I'd call it that, but I learned most of what I know about ER funding from this forum & the articles/papers that were mentioned here.

 

[trumpeting_angel]

Thanks to all for these perspectives. I’ve felt more stressed at my (3-day/week) j*b lately, and discovered that the new secretary was booking us all for 2 hours+ per day more than usual direct client hours, leaving little time for notes or bathroom breaks! No wonder I was working so late! This will be straightened out, but to realize I am FI now if I can stay frugal, and I don’t want to stop w*rking completely anyway - it’s a great feeling. I feel another major cut in hours coming up. Yay!

 

[Floridatennisplayer]

Wow, I love this thread! Interestingly I was talking with an ex coworker about this on Monday. He bailed at 59. Laughs at all my different calculators. His simple advise:
What are your annual expenses?
How much money do you have?
How many years will it last? Don’t assume any increases or decreases..assume it’s just been put in a savings account.
Now throw in additional income from SS, pensions, annuities

Simple and surprisingly accurate.