You hit an FI number, now what?

[momoney]

So your portfolio hits a FI number that you could be comfortable with.

Your portfolio is 50/50 equities to fixed. I'm trying to wrap my head around the psychological significance of it. Would I be able to sleep at night if half of my equities where gone tomorrow because of big correction? Is this the time to rebalance to preserve more of what you have? Or leave things as they are to keep up with inflation, knowing that you have enough fixed income to ride out the tough times?

What did you do the day you hit your number?

 

[Jerry1]

Would I be able to sleep at night if half of my equities where gone tomorrow because of big correction?

What did you do the day you hit your number?

You’ve hit a number. If you’re not able to sustain a significant drop in the market (I don’t know about 50% but significant), then you haven’t hit your retirement number.

I don’t know about “the day”, but hitting my number moved me to go part time at work. Part of my number was vesting in my retiree health insurance at 55. My boss was understanding enough to allow be to start winding. By 57, they were letting people go and I volunteered. Took a package and haven’t looked back.

 

[Car-Guy]

From my POV I didn't feel like I had won the game until I had enough that just investing in fixed income was enough to retire. I like to gamble but "depending" on returns from equities to fund my retirment was a bet I just didn't want to make. Of course YMMV.

 

[Gumby]

So your portfolio hits a FI number that you could be comfortable with.

Your portfolio is 50/50 equities to fixed. I'm trying to wrap my head around the psychological significance of it. Would I be able to sleep at night if half of my equities where gone tomorrow because of big correction? Is this the time to rebalance to preserve more of what you have? Or leave things as they are to keep up with inflation, knowing that you have enough fixed income to ride out the tough times?

What did you do the day you hit your number?

One thing you could do is go ahead and assume that 50% drop in equities and then run your model with what remains, which would be all of your fixed income and still 50% of your equities, totaling 3/4 of your assets . Assume you rebalance back to 50/50. Is it still enough? That's why you might want to consider getting by on a 3% withdrawal rate (of your original stash), because it will rise to 4% if you lost half your equities.

For me, I waited until we could spend twice as much as we do and still get to 100% on FIRECalc. My allocation is still right around 60/40, same as it was while I was working, because that's just about at the efficient frontier.

 

[mystang52]

I don't remember when, but there was some point that I recognized that my portfolio was such that I no longer HAD to w*rk. That made my commuting, thereafter, a bit easier as I strove toward a more comfortable figure. ER was then only a matter of when, within a relatively short date span.

 

[Midpack]

You’ve hit a number. If you’re not able to sustain a significant drop in the market (I don’t know about 50% but significant), then you haven’t hit your retirement number.

+1. Building on the above using Dr Bernstein’s “if you’ve won the game, quit playing” thought, considerably changed after 2008.

Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that’s your “risk portfolio,” which he describes this way:

Anything above that, you can invest in risky assets. That’s your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn’t do well, at least you’re not pushing a shopping cart under an overpass.

This is a little bit of a different way to think about things. The 4% Rule was developed based on keeping a significant portion of risky assets in the mix. The Trinity Study showed that having fewer stocks in the retirement portfolio INCREASED your risk of running out of money early. How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.

 

[jollystomper]

I did not "hit my number" until, as other stated, I was comfortable with losing half the value of my equities within that number. I still worked a few more years to support an even better desired retirement, primarily desiring to build up cash to avoid any forced withdrawal from said equities. It helped that I enjoyed my job, and there was little stress in doing that.

 

[Aerides]

If your number is comfortable, then it answers all the reasonable "what ifs" - or it's not your number.

If equities collapse? Sure, we all know it can happen. But we all probably remember the years after when it came back. So you have not a number, but an asset allocation, which allows your to ride things out without panicking.

Maybe that's a bigger cash balance, or more bonds, or whatever.

Point being: comfort with your FI number means more than just the number. Personally, if you said you had $2m in cash I'd be a lot more worried than $2m in equities.

 

[SecondCor521]

So your portfolio hits a FI number that you could be comfortable with.

Your portfolio is 50/50 equities to fixed. I'm trying to wrap my head around the psychological significance of it. Would I be able to sleep at night if half of my equities where gone tomorrow because of big correction? Is this the time to rebalance to preserve more of what you have? Or leave things as they are to keep up with inflation, knowing that you have enough fixed income to ride out the tough times?

What did you do the day you hit your number?

I didn't market time. I still don't market time. Some here do, although I think most of those have a band they stay within and adjust based on what they view as common sense conclusions about market expectations.

I buy and hold basically forever. I sell about 1/12 of 1% of my FIRE stash every month to pay my expenses, and I periodically rebalance to my target AA.

My target AA is based on what the historically safest AA is over my remaining life expectancy with my particular details in FIREcalc. It doesn't depend or vary on politics, recent market performance, inflation estimates, the Fed, the price of oil / bitcoin / gold, or what any of the talking heads think might happen.

You get to decide on your risk / reward balance. You might decide differently than I do and on different facts and opinions than I do. But I do tend to believe that having a consistent AA that you can stick with through thick and thin does come out ahead of "tactical market AA adjustments". We do have a number of people here (whose opinions I generally respect) that do believe in "tactical market AA adjustments". Perhaps they will chime in.

 

[mrfeh]

Folks are being overly conservative in this thread, IMO. Massive drops in equities (great depression, great recession) are taken into account in the planning tools such as firecalc.

If firecalc and the others say you are good to go, and you have a solid understanding of your expenses, I think 50/50 at the start of retirement is just fine.

FWIW, we are 60/40.

 

[Ronstar]

I didn’t have a number. I had a date. DW had a number - we were about half way there when I retired. We’ve now hit her number 10 years later, which is meaningless to me. My investment strategy has never changed since the 1980’s.

 

[USGrant1962]

Folks are being overly conservative in this thread, IMO. Massive drops in equities (great depression, great recession) are taken into account in the planning tools such as firecalc.

If firecalc and the others say you are good to go, and you have a solid understanding of your expenses, I think 50/50 at the start of retirement is just fine.

FWIW, we are 60/40.

+1

The Henny Pennys are out in force.

 

[CardsFan]

In my case, when I hit a number that I thought was FI, it totally changed my attitude. I didn't retire, but I knew that I could. Work became more fun. I could give my opinions, and if they didn't like them, I could leave.

Funny thing was, I spent 3-4 years actually being listened to! The more I gave my opinion, the bigger the bonuses got. My boss' boss, who I had some run ins with the past, would stop by and chat with me (my office was next to hers). Other VP's would ask my opinion on contract language ( I was NOT a lawyer and they were).

In short, most of that time was actually enjoyable, even ego building, if I want to admit it.

In those 3-4 years the market went crazy, and ER became the logical choice.

Enjoy being FI. You don't have to be in a hurry to RE.

 

[Time2]

I didn't have a number, but I thought we had a enough, but my wife wasn't interested in retiring. Luckily a hurricane hit, total destroyed our small business, ruined the possibility of restarting it, and did $90k of damage to our home. Almost 6 years later, I'm sure we over saved.

 

[levindb]

Just today, I looked at a table of Safe Withdrawal Rates that listed various Asset Allocations and time periods from 10 years to 40 years. There is not that much variation among the central AA choices. I multiplied those rates by MY NUMBER and saw that it did not matter much if I was 70/30 or 50/50...maybe going through that exercise will help you decide what to do, if anything, and help you sleep at night.

 

[Koolau]

Yeah, that's been typical from what I've seen in the past. The AA can be a rather wide mix of equities/bonds and still be viable within the model.

 

[jebmke]

We never had a number. The whole idea of "a number" wasn't a thing back when we were accumulating. In retrospect, we blew past "a number" that would have worked long before I even considered retiring. I'm not sure what would have changed.

 

[MarieIG]

"The number" was just one of a number of factors. I had a list of tasks that I needed to complete prior to ER, and I would say I didn't notice the day I hit/ passed the number as I was lost in "the fog of work" (credit Nords).

As you have half your assets in fixed - this should mitigate your swings somewhat.

I didn't set out to change my portfolio when I reached the number, i.e. I didn't sell equities to reduce exposure but stockpiled cash from my paycheck in preparation for retirement. (Yes, I understand that this could be considered a change in asset allocation.)

 

[pacergal]

We did not have a number, but a date. We are SIRE, so do not rely on portfolio for Dady to day expenses. But I did check Firecalc many times before we retired to reassure that what we had was OK.
Our asset allocation has varied from 90/10 to 50/50. I found my "sleep at night" number to be between 70/30--80/20, and that's where we have been for a while.

 

[Winemaker]

We didn't have a net worth or portfolio number goal to hit. We looked at monthly income replacement number. We were happy with our spending/outflow, and just wanted to maintain that level plus inflation. We had 2 pension incomes, rental income, and portfolio income that we could turn on or off to meet annual expenses. DW took SS at 65, and I plan to take in 4 years when I take mine. That will give us a $130k/yr fixed, not including rental income as they were sold recently.

 

[momoney]

Just today, I looked at a table of Safe Withdrawal Rates that listed various Asset Allocations and time periods from 10 years to 40 years. There is not that much variation among the central AA choices. I multiplied those rates by MY NUMBER and saw that it did not matter much if I was 70/30 or 50/50...maybe going through that exercise will help you decide what to do, if anything, and help you sleep at night.

Do you mind linking to the table of Safe Withdrawal Rates?

 

[FREE866]

I retired once I hit 25x my yearly expenses.

As far as AA its all about your own ability to mentally handle volatility. Fixed income is a way to mitigate volatility at the expense of lower returns.

 

[Exchme]

Do you mind linking to the table of Safe Withdrawal Rates?

I recommend the Safe Withdrawal Series at EarlyRetirementNow, The Ultimate Guide to Safe Withdrawal Rates - Part 1: Introduction - Early Retirement Now

The author is Karsten Jaske who used to work as an economist at the Fed before he retired a couple years ago. I think he uses Shiller's data, which is monthly, so he shows that the safe withdrawal rate is somewhat lower than the 4% we toss around as a rule of thumb. He dives into great detail on different strategies and has a spreadsheet you can download and use.

 

[levindb]

Do you mind linking to the table of Safe Withdrawal Rates?

What’s a Safe Withdrawal Rate Today?

What declining stock and bond prices and higher inflation mean for retirement income.

www.morningstar.com

 

[momoney]

Fidelity's

+1

The Henny Pennys are out in force.

Fidelity planner is giving me a 114 score until age 94 for essential expenses plus 55%. So ideally I want double my essential expenses?