Do you FIRE? Financial Independence, Retire Early

[Not a cat 5652]

1 minute ago, Snake Diggity said:

Word.  My job is extremely friendly in terms of work-life balance.  100% from home and I schedule my own commitments, so I am able to be available to my kids as much as needed.  That has actually made it harder for me to decide whether to hang it up or not.  Hard to justify walking away from a good salary when it’s really not that demanding of a job.

Yeah, if you like your job, have time for the kids and everything is working well, sounds like you're in a good place.

 

The one more year thing is someone that is in a job they hate yet they're too afraid to take the plunge.  There's certainly nothing wrong with working even if you don't "need" the money, just make sure it's on your terms.

I liked my job fine and could do it in my sleep, problem is it's located in Minnesota, and I can't wait to put these winters behind me.  

[936horn 910]

Wtf? This is surly where I thought everyone was pulling down 7 figs per year. 

On a serious note I don’t necessarily subscribe to fire or fat fire by the book (see: new car thread lol) but I do plan to have enough $$ by 55ish to walk if I want. I love what I do and I’m still 20ish years out from that but I want the flexibility when I get there if I want to walk away. 

[Dbeasy 15040]

As someone who partially FIRED at 45 and fully at 56, one of the weirdest elements of it is the mental aspect.

People who FIRE are goal oriented, so once you get there you always have two competing thoughts: the desired to continue to increase wealth and/or continue saving, competing with the realization that with health problems etc. you could lose the chance to enjoy the time off. You find yourself in this perpetual state of conflict over those two competing thoughts. 

[CleverNickname 1308]

10 hours ago, Dbeasy said:

As someone who partially FIRED at 45 and fully at 56, one of the weirdest elements of it is the mental aspect.

People who FIRE are goal oriented, so once you get there you always have two competing thoughts: the desired to continue to increase wealth and/or continue saving, competing with the realization that with health problems etc. you could lose the chance to enjoy the time off. You find yourself in this perpetual state of conflict over those two competing thoughts. 

Counterpoint: At work, we do biweekly reports but sometimes also monthly reports, so often I do a second roundup a mere 24 hours after the previous one.

[Nice Guy Eddie 13507]

Feel like a dumb question but for those who early retired or even normal retired, how do you actually receive your investment  income? Do you sell some shares once per month, a couple of time per year, and then withdraw X amount per month? 

my last 30 years has basically been putting money into the market so the idea of taking it out feels foreign.

[Dbeasy 15040]

6 hours ago, Nice Guy Eddie said:

Feel like a dumb question but for those who early retired or even normal retired, how do you actually receive your investment  income? Do you sell some shares once per month, a couple of time per year, and then withdraw X amount per month? 

my last 30 years has basically been putting money into the market so the idea of taking it out feels foreign.

It’s a very good question. The most common approach is stick 40% in bonds, 60% in stocks, live off interest and dividends and sell what you need to meet your full expenses. 

However, as we all saw in 2022, you would have been selling bonds or stocks that were down. You string enough years together doing that and you run into what’s called sequence of returns risk. You run out of money because you had to withdraw during down markets. 

I setup my portfolio so that I always have enough income annually to cover base expenses. That way I never sell in a down market. There’s also other approaches, like putting money into buckets. For example, buy CD’s that mature two years from now to pay expenses two years from now. 

I’ve gone down deep rat holes looking at many different asset allocations models and how to maximize risk return. It’s taken me awhile, but I’m finally getting to a place where I feel comfortable. 

[Reagan1k 3024]

On 3/31/2023 at 2:45 PM, Dbeasy said:

You string enough years together doing that and you run into what’s called sequence of returns risk.

Single biggest mistake one can make in any retirement scenario- failing to take this into account.

That's why looking at average returns isn't all its cracked up to be and people get whipsawed.  Monte Carlo simulations can take this into account and help you plan accordingly or at least understand the real level of risk.  It's pretty staggering what 3-4 years of negative returns (even single digit) will do to a portfolio with income requirements. 

 

[Nice Guy Eddie 13507]

@Dbeasy @Reagan1k I’ve heard a few retirement experts talk about having 3 years of expenses always in no-risk accounts.  Then when you face market downturns, you draw your income from these accounts instead of selling investments.  Then when stocks rebound, reload the 3 years.

[Dbeasy 15040]

1 hour ago, Nice Guy Eddie said:

@Dbeasy @Reagan1k I’ve heard a few retirement experts talk about having 3 years of expenses always in no-risk accounts.  Then when you face market downturns, you draw your income from these accounts instead of selling investments.  Then when stocks rebound, reload the 3 years.

I have maturing CD’s each of the next three years. 

For running Monte Carlo simulations, there’s a great site called portfolio visualizer. You plug in your portfolio with some assumptions and it will run hundreds of scenarios. 

[Reagan1k 3024]

18 hours ago, Dbeasy said:

I have maturing CD’s each of the next three years. 

For running Monte Carlo simulations, there’s a great site called portfolio visualizer. You plug in your portfolio with some assumptions and it will run hundreds of scenarios. 

Another benefit of having and refilling a market-neutral current income bucket (beyond neutralizing the sequence of return risk), is that it frees one to make the most tax efficient decisions in both up and down markets.  Loss harvesting, etc. isn't nearly as effective if the proceeds are being spent rather than reinvested.

[UTGrad98 2271]

Got right up to the edge of quitting. For the last week I had made up my mind I was done. Even set a quit date. This Tuesday.  Used up all my pto. Then I did our taxes today and realized my wife doesn't make shit and stepped back. I think this is going to end up like quitting smoking or drinking where it takes a few tries. Now I'm back to early next year as my date. Wife was relieved when I told her. She was getting nervous she'd have to start spending her own money on things. 

[Nice Guy Eddie 13507]

11 hours ago, UTGrad98 said:

Got right up to the edge of quitting. For the last week I had made up my mind I was done. Even set a quit date. This Tuesday.  Used up all my pto. Then I did our taxes today and realized my wife doesn't make shit and stepped back. I think this is going to end up like quitting smoking or drinking where it takes a few tries. Now I'm back to early next year as my date. Wife was relieved when I told her. She was getting nervous she'd have to start spending her own money on things. 

Measure twice, cut once.

[CooterBrown 18002]

On 3/31/2023 at 2:45 PM, Dbeasy said:

It’s a very good question. The most common approach is stick 40% in bonds, 60% in stocks, live off interest and dividends and sell what you need to meet your full expenses. 

I'm retiring in 7 years at 57 and that's roughly my plan. I'm currently leaning to FAGIX for my bond investment and to have a monthly dividend paycheck.  I probably won't touch the investment fund.  My wife will get over six figs a year from her state pension.  She also has a 457 plan at the state and we will probably roll that over into JEPI if it continues to perform over the next 7 years to get more monthly dividends.  At that point, we won't have a mortgage payment and the oldest kid is off the payroll and the youngest headed to college. My wife will continue to get her state employee health care plan for both of us until Medicare kicks in.  It's weird thinking that with less annual income our lifestyle will improve without the kid expenses and debt.

Edited April 17, 2023 by CooterBrown

[Dbeasy 15040]

2 hours ago, CooterBrown said:

I'm retiring in 7 years at 57 and that's roughly my plan. I'm currently leaning to FAGIX for my bond investment and to have a monthly dividend paycheck.  I probably won't touch the investment fund.  My wife will get over six figs a year from her state pension.  She also has a 457 plan at the state and we will probably roll that over into JEPI if it continues to perform over the next 7 years to get more monthly dividends.  At that point, we won't have a mortgage payment and the oldest kid is off the payroll and the youngest headed to college. My wife will continue to get her state employee health care plan for both of us until Medicare kicks in.  It's weird thinking that with less annual income our lifestyle will improve without the kid expenses and debt.

Do state pensions increase/index with inflation?

[CooterBrown 18002]

2 hours ago, Dbeasy said:

Do state pensions increase/index with inflation?

I think it’s up to the legislature to provide a COLA. They have in the past pre-MAGA at least. 

[UTGrad98 2271]

I resigned. Got another job so i had to go through with it. 1 day on, 6 days off. I know the 6 days a week off is implied but I like typing it. I will stay on with my current employer until they find a replacement for me. That's fine. I also offered to stay on as needed. Maybe 1 shift every 2 weeks and to help train my replacement. They accepted. I made a compromise with myself. My new work week will allow me to continue to pay my portion of the bills while allowing our nest egg to grow compounding on itself. I can also still save and invest some of my income per month but obviously much much less. Feels like a win. And I can always go back to work full time if my math is wrong. Narrator: it's not. In other news my brother, best friend and I finished our video game demo and are currently working on the full game. It's a hack n slash. Bought Rosetta stone to learn Spanish. Am going to start some home depot classes so I can be a bit more handy around the house. Online coding classes, reading some books, working out/meditation, playing some saved up video games, and watching breaking bad are also on my to do list. All and all a good day.

 

[Snake Diggity 4619]

One thing I have been thinking more about as I age is how different things are for older people trying to re-enter the workforce.  It’s the real risk underneath retiring early; you think “I can always go back to work”, but if you are 50+ I don’t think that is universal.  I do think there will be a shortage of workers for at least the next 20 years, so being able to find some source of income is pretty likely, but I do think there’s quite a lot of jobs (sales, professional services, technology, many others) that if you are over 50 and have been out of the game for 5+ years, it might be very difficult to find even part time work in the same role/field.  I am in that type of role, so as I prepare for early retirement, I am preparing as if there is no way I will be able to go back and make big salaries ever again if things don’t go as planned.  My worst case scenario backup plan will involve proactively finding part time work that is easy to get but doesn’t pay near what I am making now.  But I am setting my number high enough so that outcome is incredibly unlikely.  It’s just become more of a concern as I see people treating me differently as I transition from up-and-coming young gun to established middle aged resource.

[mchookem 16319]

On 4/17/2023 at 8:27 AM, CooterBrown said:

I'm retiring in 7 years at 57 and that's roughly my plan. I'm currently leaning to FAGIX for my bond investment and to have a monthly dividend paycheck.  I probably won't touch the investment fund.  My wife will get over six figs a year from her state pension.  She also has a 457 plan at the state and we will probably roll that over into JEPI if it continues to perform over the next 7 years to get more monthly dividends.  At that point, we won't have a mortgage payment and the oldest kid is off the payroll and the youngest headed to college. My wife will continue to get her state employee health care plan for both of us until Medicare kicks in.  It's weird thinking that with less annual income our lifestyle will improve without the kid expenses and debt.

i hit Rule of 80 at 49... my first visit to ERS, when they showed me my potential take home, i was like 'what?! how is that figure even possible??' 😮

he told me i was a 'unicorn' lol - not too many folks started when they were still teenagers and continue uninterrupted. 

they don't offer the kind of package/security to keep people anymore... and it shows in recruiting, retention and quality of state employees. by design, of course. oh well, FAFO 🤨

[CleverNickname 1308]

5 hours ago, mchookem said:

i hit Rule of 80 at 49... my first visit to ERS, when they showed me my potential take home, i was like 'what?! how is that figure even possible??' 😮

he told me i was a 'unicorn' lol - not too many folks started when they were still teenagers and continue uninterrupted. 

they don't offer the kind of package/security to keep people anymore... and it shows in recruiting, retention and quality of state employees. by design, of course. oh well, FAFO 🤨

I'll hit 80 at age 53 with ERS in 9 years. Folks hired after 9/1/22 don't get the plan at all (not even with the pre-60 penalty). I'm very worried about recruiting. But enough about hypothetical people. How has retirement been without COLA increases? That's what I worry most about. I wish ERS offered an inflation adjusted option. I don't have a good feel on how much to save to basically provide my own inflation kicker.

[mchookem 16319]

3 hours ago, CleverNickname said:

I'll hit 80 at age 53 with ERS in 9 years. Folks hired after 9/1/22 don't get the plan at all (not even with the pre-60 penalty). I'm very worried about recruiting. But enough about hypothetical people. How has retirement been without COLA increases? That's what I worry most about. I wish ERS offered an inflation adjusted option. I don't have a good feel on how much to save to basically provide my own inflation kicker.

well...tbh some other things happened that i guess you could say have served as an 'inflation kicker'...my mom died and left some nice surprises, and we sold our house bought in 1997 in central Austin at the literal peak last year, like just a couple weeks before the turn. also, no kids. 

but mostly my mom...she worked much too long and died less than two years into her retirement, and she was sick almost the entire time. seeing her not get to enjoy it and then finding out she had the means...really served as a jolt to me. 

she blessed us, but it's a sad story 💔, one i determined to avoid. my husband is significantly older than me...we got fun stuff we want to do now 😊

 

Edited June 12, 2023 by mchookem

[Nice Guy Eddie 13507]

I've never understood the idea that dying early into retirement is either sad or a waste. It could also be that the person led a very fulfilling professional/pre-retirement life. So what if their retirement days were limited. You can't miss something that never occurred. I suppose people can have regrets that they didn't retire earlier but spending a minute regretting the past is an even bigger waste. 

My guess is that someone who regrets not retiring earlier may not have lived very well pre-retirement anyway. Working doesn't prevent you from living.

I've also spoken with a few older people who care more about leaving something to their children as opposed to spending it themselves, perhaps even to the point of neglecting their current or future needs. I don't have kids so I'm not in this mindset. Maybe it's a parental thing that some parents always want to help out their children regardless of their age.

[mchookem 16319]

i mean i get what you're saying and there are undoubtedly people that happily work until they drop doing what they love...but yeah, no, not in this case. she was an unhappy and unhealthy person whose final few years were...not great.

 

but her blessings allowed her oldest to retire young and her youngest to buy her first home at 40...and that would have made her very happy, i take some solace in that 🙂❤️

[Snake Diggity 4619]

8 hours ago, Nice Guy Eddie said:

I've never understood the idea that dying early into retirement is either sad or a waste. It could also be that the person led a very fulfilling professional/pre-retirement life. So what if their retirement days were limited. You can't miss something that never occurred. I suppose people can have regrets that they didn't retire earlier but spending a minute regretting the past is an even bigger waste. 

My guess is that someone who regrets not retiring earlier may not have lived very well pre-retirement anyway. Working doesn't prevent you from living.

I've also spoken with a few older people who care more about leaving something to their children as opposed to spending it themselves, perhaps even to the point of neglecting their current or future needs. I don't have kids so I'm not in this mindset. Maybe it's a parental thing that some parents always want to help out their children regardless of their age.

Inheritance is a big deal, and lots of people rely on it, but for me it’s too hard to predict all the factors that go into it to make any promises or count on it.  That’s true for me on both sides; I believe my parents may have some assets remaining when they die because they are extremely frugal people and my dad saved well enough, but I am not counting on them leaving us anything at all.  It just feels evil/morbid to think otherwise, and I really do hope they live long enough to spend everything they’ve saved/earned.  Just the same, I fully plan to have enough wealth saved to be able to leave a significant inheritance to my kids, but I’m not going to promise them anything, because I’m not going know how much will be left until it’s too late, and I think it’s better for it to be a surprise than something they’re counting on.

[Sandman 3403]

On 6/11/2023 at 2:04 PM, mchookem said:

i hit Rule of 80 at 49... my first visit to ERS, when they showed me my potential take home, i was like 'what?! how is that figure even possible??' 😮

he told me i was a 'unicorn' lol - not too many folks started when they were still teenagers and continue uninterrupted. 

they don't offer the kind of package/security to keep people anymore... and it shows in recruiting, retention and quality of state employees. by design, of course. oh well, FAFO 🤨

Here in OK, they changed the rule from 80 to 90, back in the early 90s. I didn't start until 2008 so I'm not done till 62. My goal is to buy a couple of years of service and retire at 60. But that depends on how easy my job is at that point.

Here's a unicorn for you: My old boss retired after 50 years of service. She was on the rule of 80 but OK has a provision that if you keep working past your rule time, you get a 4% yearly increase on your retirement for every year you go over. She was 20 years past her rule of 80, so she's making bank. Of course the downside is that she didn't retire until age 70 and her health is in the shitter. She admitted to someone that she should have left years ago. Fuck working here for 50 years IMO.

[jimmyjazz 45878]

This probably isn't the most appropriate thread for these questions, but I don't really want to launch a new one.

My wife's father passed away and she will receive a modest inheritance.  His assets were a combination of IRA (which I believe is Roth), an annuity (I assume whole life), and a brokerage account (including stocks and cash).

We will be speaking with a financial advisor, but I'd like to understand some things regarding taxes going in, namely what disbursements might be taxed immediately and whether they might trigger short/long term gains based on when my wife received them or based on when her father purchased them?  My experience is mostly in the stock trading world, and I've always just accepted short term gain rates, but we don't need this money at the moment and so I'm trying to help her figure out how to best minimize tax implications.

If there's a better thread, please direct me there.  Thanks.

[Dbeasy 15040]

12 minutes ago, jimmyjazz said:

This probably isn't the most appropriate thread for these questions, but I don't really want to launch a new one.

My wife's father passed away and she will receive a modest inheritance.  His assets were a combination of IRA (which I believe is Roth), an annuity (I assume whole life), and a brokerage account (including stocks and cash).

We will be speaking with a financial advisor, but I'd like to understand some things regarding taxes going in, namely what disbursements might be taxed immediately and whether they might trigger short/long term gains based on when my wife received them or based on when her father purchased them?  My experience is mostly in the stock trading world, and I've always just accepted short term gain rates, but we don't need this money at the moment and so I'm trying to help her figure out how to best minimize tax implications.

If there's a better thread, please direct me there.  Thanks.

Not 100% sure, but I believe the IRA must be distributed to you over several years (10?).  The brokerage account will have a step up in basis and thus no taxes, unless it comes from a trust. The annuity I have no idea. 

Edited June 14, 2023 by Dbeasy

[Firemans4Horn 18034]

2 minutes ago, Dbeasy said:

Not 100% sure, but I believe the IRA must be distributed to you over several years (10?).  The brokerage account will have a step up in basis and thus no taxes, unless it comes from a trust. The annuity I have no idea. 

Roth IRA has 10 year distribution requirement. The distributions are tax-free as long as the Roth has been opened longer than 5 years. 
 

@Dbeasy is spot on regarding the step up on stocks and not being able to tell you anything on the annuity without more details. 

[jimmyjazz 45878]

5 minutes ago, Firemans4Horn said:

Roth IRA has 10 year distribution requirement. The distributions are tax-free as long as the Roth has been opened longer than 5 years. 
 

@Dbeasy is spot on regarding the step up on stocks and not being able to tell you anything on the annuity without more details. 

-- the 5 year bar is related to when her father opened the IRA, right?  (We're not transferring anything to any of our accounts until we have clarity on all these issues.)

-- when you say "step up in basis", I assume that means the cost basis of the stocks are reset to their value on the date of his death, or maybe the date of transfer?

[Dbeasy 15040]

8 minutes ago, jimmyjazz said:

-- the 5 year bar is related to when her father opened the IRA, right?  (We're not transferring anything to any of our accounts until we have clarity on all these issues.)

-- when you say "step up in basis", I assume that means the cost basis of the stocks are reset to their value on the date of his death, or maybe the date of transfer?

Yes

[jimmyjazz 45878]

That seems crazy to me that he could buy (for instance) GE at $12 and my wife's cost basis would now be ~ $100.  Am I misinterpreting? 

Edited June 14, 2023 by jimmyjazz

[Firemans4Horn 18034]

1 hour ago, jimmyjazz said:

That seems crazy to me that he could buy (for instance) GE at $12 and my wife's cost basis would now be ~ $100.  Am I misinterpreting? 

Nope. Pretty nice estate planning tool (hold stocks/etfs/mutual funds for decades). 

[CooterBrown 18002]

Is anyone else really turned off by the 4% rule and the traditional retirement portfolio mix?  It seems way too conservative to me.

My current plan is to stay aggressive and collect dividends/capital gains on a portfolio heavy on technology and health care which I don't see trending downwards in my lifetime.  Sure, you may lose 20%+ in a bad downturn but the longest the market has taken to reach new highs after a bear market is 2 years (not including the great depression which was 5 years).  

My plan is to keep 2 years of living expenses in cash/bonds and collect dividends and capital gains from my portfolio during bull markets and reinvest it during bear markets. 

Past performance isn't a indicator of future performance but let's be honest, in general it's damn good indicator.  Back testing my portfolio shows that, over 7 years, the balance would almost double without dividend/CG reinvestment and the income it generates would range between $114K-$400K annually.

My mix is an equal spread between FXAIX (S&P 500 index), FSPTX (Fidelity Select Technology Portfolio), FSPHX (Fidelity Select Healthcare Portfolio), and DIVO (Amplify CWP Enhanced Dividend Income ETF).

Am I crazy in this idea?  Granted, I have my normal investment portfolio, my wife will be drawing a six figure pension w/healthcare from the state, plus social security a few years later, so maybe that back up allows me to be less risk adverse than most.

 

[Snake Diggity 4619]

15 minutes ago, CooterBrown said:

Is anyone else really turned off by the 4% rule and the traditional retirement portfolio mix?  It seems way too conservative to me.

My current plan is to stay aggressive and collect dividends/capital gains on a portfolio heavy on technology and health care which I don't see trending downwards in my lifetime.  Sure, you may lose 20%+ in a bad downturn but the longest the market has taken to reach new highs after a bear market is 2 years (not including the great depression which was 5 years).  

My plan is to keep 2 years of living expenses in cash/bonds and collect dividends and capital gains from my portfolio during bull markets and reinvest it during bear markets. 

Past performance isn't a indicator of future performance but let's be honest, in general it's damn good indicator.  Back testing my portfolio shows that, over 7 years, the balance would almost double without dividend/CG reinvestment and the income it generates would range between $114K-$400K annually.

My mix is an equal spread between FXAIX (S&P 500 index), FSPTX (Fidelity Select Technology Portfolio), FSPHX (Fidelity Select Healthcare Portfolio), and DIVO (Amplify CWP Enhanced Dividend Income ETF).

Am I crazy in this idea?  Granted, I have my normal investment portfolio, my wife will be drawing a six figure pension w/healthcare from the state, plus social security a few years later, so maybe that back up allows me to be less risk adverse than most.

 

Your wife’s pension really gives you more security than the average person, especially the average person retiring early.  I think aggressive investing is fine, but people who do it better be prepared to make moves (reducing expenses and/or going back to work) to mitigate the downside.

[tomahawk dunk 321]

53 minutes ago, CooterBrown said:

Is anyone else really turned off by the 4% rule and the traditional retirement portfolio mix?  It seems way too conservative to me.

My current plan is to stay aggressive and collect dividends/capital gains on a portfolio heavy on technology and health care which I don't see trending downwards in my lifetime.  Sure, you may lose 20%+ in a bad downturn but the longest the market has taken to reach new highs after a bear market is 2 years (not including the great depression which was 5 years).  

My plan is to keep 2 years of living expenses in cash/bonds and collect dividends and capital gains from my portfolio during bull markets and reinvest it during bear markets. 

Past performance isn't a indicator of future performance but let's be honest, in general it's damn good indicator.  Back testing my portfolio shows that, over 7 years, the balance would almost double without dividend/CG reinvestment and the income it generates would range between $114K-$400K annually.

My mix is an equal spread between FXAIX (S&P 500 index), FSPTX (Fidelity Select Technology Portfolio), FSPHX (Fidelity Select Healthcare Portfolio), and DIVO (Amplify CWP Enhanced Dividend Income ETF).

Am I crazy in this idea?  Granted, I have my normal investment portfolio, my wife will be drawing a six figure pension w/healthcare from the state, plus social security a few years later, so maybe that back up allows me to be less risk adverse than most.

 

Bengen recently updated it to 4.5% if that helps.

https://www.barrons.com/articles/the-originator-of-the-4-retirement-rule-thinks-its-off-the-mark-he-says-it-now-could-be-up-to-4-5-51611410402

[blacklab 11926]

52 minutes ago, CooterBrown said:

Is anyone else really turned off by the 4% rule and the traditional retirement portfolio mix?  It seems way too conservative to me.

My current plan is to stay aggressive and collect dividends/capital gains on a portfolio heavy on technology and health care which I don't see trending downwards in my lifetime.  Sure, you may lose 20%+ in a bad downturn but the longest the market has taken to reach new highs after a bear market is 2 years (not including the great depression which was 5 years).  

My plan is to keep 2 years of living expenses in cash/bonds and collect dividends and capital gains from my portfolio during bull markets and reinvest it during bear markets. 

Past performance isn't a indicator of future performance but let's be honest, in general it's damn good indicator.  Back testing my portfolio shows that, over 7 years, the balance would almost double without dividend/CG reinvestment and the income it generates would range between $114K-$400K annually.

My mix is an equal spread between FXAIX (S&P 500 index), FSPTX (Fidelity Select Technology Portfolio), FSPHX (Fidelity Select Healthcare Portfolio), and DIVO (Amplify CWP Enhanced Dividend Income ETF).

Am I crazy in this idea?  Granted, I have my normal investment portfolio, my wife will be drawing a six figure pension w/healthcare from the state, plus social security a few years later, so maybe that back up allows me to be less risk adverse than most.

 

Pretty close to what my uncle did, and left me a nice inheritance because of it.

Would sell off small chunks when the market was high/had to because of IRA rules, always keeping 7 years of expenses in cd/savings/money market. With house and car paid off and Social Security coming in 7 years was only a couple hundred grand.

He had around $2 million when he retired 20 years ago, had >$2 million  when he died last year. 

[troph 24781]

So what is the new rule if not 4%
 

I’ll be a bit honest I’m decent at making money by taking risks or working more and I like it - been practicing (no pun intended) for 21 years. 
 

what I would not know how to do is convert to passive income that is safe(r) entirely. We have passive income that is risky, and it’s harder to create. Just not sure what the retirement strategies even are.

I love to work and I love doing deals even more so. I think working until the end is appealing but there is a competing desire. I never really went for it adventure style when I was young. I’ve gone for it in business and clearly personally and it’s just in my DNA. I never walk up to the craps table because rolling the dice is a daily thing for me. But the extreme adventure thing is the glaring hole. Things like  sailing trans Atlantic if not a full circumnavigation. Living in Europe, multi week expeditions in South America. I’m afraid I’m going to have to do that to have a life fulfilled.  I think that means retirement or at least working part time.

I have a minimum of 6 years, 5 to get my youngest into college and then one to adjust and then go. 
 

so what the fuck is the strategy when you say hey I’m done (or at least partially done)?
 

Edited June 17, 2023 by troph

[Snake Diggity 4619]

1 hour ago, troph said:

So what is the new rule if not 4%
 

I’ll be a bit honest I’m decent at making money by taking risks or working more and I like it - been practicing (no pun intended) for 21 years. 
 

what I would not know how to do is convert to passive income that is safe(r) entirely. We have passive income that is risky, and it’s harder to create. Just not sure what the retirement strategies even are.

I love to work and I love doing deals even more so. I think working until the end is appealing but there is a competing desire. I never really went for it adventure style when I was young. I’ve gone for it in business and clearly personally and it’s just in my DNA. I never walk up to the craps table because rolling the dice is a daily thing for me. But the extreme adventure thing is the glaring hole. Things like  sailing trans Atlantic if not a full circumnavigation. Living in Europe, multi week expeditions in South America. I’m afraid I’m going to have to do that to have a life fulfilled.  I think that means retirement or at least working part time.

I have a minimum of 6 years, 5 to get my youngest into college and then one to adjust and then go. 
 

so what the fuck is the strategy when you say hey I’m done (or at least partially done)?
 

I am not a pro and am curious about this as well.  I assume you just slowly move shit from the risky stuff into the conservative stuff.  Most of my wealth is currently in stocks and real estate.  I will talk to a pro eventually, but I assume when I get to the point of actually stopping working, I will hold 1 years expenses in cash/savings, 1-2 years worth in CDs, then 4-5 years worth in ETFs, and the rest (ideally 7-8 years worth of expenses minimum) in riskier stuff like individual stocks and real estate.

[UTGrad98 2271]

1 hour ago, troph said:

So what is the new rule if not 4%
 

I’ll be a bit honest I’m decent at making money by taking risks or working more and I like it - been practicing (no pun intended) for 21 years. 
 

what I would not know how to do is convert to passive income that is safe(r) entirely. We have passive income that is risky, and it’s harder to create. Just not sure what the retirement strategies even are.

I love to work and I love doing deals even more so. I think working until the end is appealing but there is a competing desire. I never really went for it adventure style when I was young. I’ve gone for it in business and clearly personally and it’s just in my DNA. I never walk up to the craps table because rolling the dice is a daily thing for me. But the extreme adventure thing is the glaring hole. Things like  sailing trans Atlantic if not a full circumnavigation. Living in Europe, multi week expeditions in South America. I’m afraid I’m going to have to do that to have a life fulfilled.  I think that means retirement or at least working part time.

I have a minimum of 6 years, 5 to get my youngest into college and then one to adjust and then go. 
 

so what the fuck is the strategy when you say hey I’m done (or at least partially done)?
 

I hate to say this but it honestly depends on the person and their desires. I will say having a partner who works helps tremendously. I am responsible for my part of the total expenses. My wife is responsible for her part. It makes things a hell of a lot cheaper when calculating all of this. In terms of moving to more conservative strategies, if you were to put the bulk of your money in a 30 year note at 3.9%, could you live off the interest it makes while doing the things you want? Id start there. If not, what is the % return you need to stop working and live off the interest with what you currently have saved, properties etc? That % is what you want to shoot for and how conservative (or not) with your investments youll need to be. In terms of being partially done. Id advocate for everyone is go part time first if they can. My mind set right now is, I have enough, why do I need more than enough? My strategy is the next year or 2 will show if I can keep my standard of living while working 12-16 hours a week. If I can, Ill contemplate working even less or full retirement.  I did read (and agree with) where those who are able to save say 50+% or so of their income already have a lower standard of living and are practicing for when they retire. Id also try that first. If you make 200k a year and only save 20k, then you have to account for that and either find a return that yields you 180k per year or reduce your expenses to equal a more conservative yield like 4-6%. As an example, for me, the percent return I need to never touch my principle of my retirement is ~3.5%. My investment strategies are based off that.

[Nice Guy Eddie 13507]

On 6/15/2023 at 11:21 AM, tomahawk dunk said:

Bengen recently updated it to 4.5% if that helps.

https://www.barrons.com/articles/the-originator-of-the-4-retirement-rule-thinks-its-off-the-mark-he-says-it-now-could-be-up-to-4-5-51611410402

Practically speaking if someone is weighing retirement math and the 0.5% extra is making retirement possible/feasible, that person should work a couple of more years.  Measure twice, cut once. Especially if you’re early retiring in your prime earning years which is usually in your 50s. Obviously different for different people and careers.

say you have an above average $2m in a 401k and you’re weighing 4 or 4.5%. That’s an extra $800 per month. Is that really moving the needle for someone with a lifestyle and they also saved $2m? I bet that person doesn’t care much about $800. Work for 2 more years and bank as much as possible. If your balance grows to $2.25m, then that $800 is realized at 4%.

it’s important to remember that when you’re 55 (men), your life expectancy is 24-25 years. You need the money to last.

Edited June 18, 2023 by Nice Guy Eddie

[troph 24781]

My problem is going to be liquidating into the right investment vehicles. I know how to invest speculatively for a good return but it’s not secure and the timing is multiple years (3-7) and the return is uncertain. 
 

I think we are going to shift to still illiquid but more reliable income producing then maybe derisk from there.  I’ve spent the last 20 years getting decent at what I know this next phase is brand new. 

I dunno. Hope I don’t fuck it up.

The net worth is there to retire now but not at a level I want. 
 

 

[Dbeasy 15040]

So, I’ve spend hundreds of hours looking at the 4% rule, including studies, Monte Carlo simulations, etc. It is a very complicated topic. Here are a few conclusions I was able to draw:

1. What makes withdrawal rates tricky are those really long time periods where stocks lost money or failed to produce returns. There have been several ~7-10+ year periods where this occurred. By the way, right now the Schiller CAPE index is extremely high.  That could be an indication of poor returns from stocks for the next 5-10 years.  

2. Math is math- if we are in for poor returns, and you have most money in stocks, and say the rest in cash or CD’s or bonds to cover expenses for 7-10 years, the 4% rule still could get flaky. There are several reasons why. Below market returns from the funds sitting in CD’s. Poor returns from stocks for that 10 years when it should have been increasing your portfolio, inflation effects, etc  

There is a guy online who created a pretty cool spreadsheet that analyzes the safe withdrawal rate rule. His bottom line is that if you really really need to make sure and not run out of money, the 4% rule may won’t work in some situations. But, if you aren’t trying to cover the less likely scenarios, then 4% or more will work.

I could spend hours talking about asset allocations, percentages, inflation assumptions, return assumptions, alternative assets, etc.  It all plays into whether you could draw more than 4%, or even 4%.  I don’t need to draw 4% so I don’t worry about it too much. 

 

[Larry T. Spider 1746]

8 hours ago, Dbeasy said:

So, I’ve spend hundreds of hours looking at the 4% rule, including studies, Monte Carlo simulations, etc. It is a very complicated topic. Here are a few conclusions I was able to draw:

1. What makes withdrawal rates tricky are those really long time periods where stocks lost money or failed to produce returns. There have been several ~7-10+ year periods where this occurred. By the way, right now the Schiller CAPE index is extremely high.  That could be an indication of poor returns from stocks for the next 5-10 years.  

2. Math is math- if we are in for poor returns, and you have most money in stocks, and say the rest in cash or CD’s or bonds to cover expenses for 7-10 years, the 4% rule still could get flaky. There are several reasons why. Below market returns from the funds sitting in CD’s. Poor returns from stocks for that 10 years when it should have been increasing your portfolio, inflation effects, etc  

There is a guy online who created a pretty cool spreadsheet that analyzes the safe withdrawal rate rule. His bottom line is that if you really really need to make sure and not run out of money, the 4% rule may won’t work in some situations. But, if you aren’t trying to cover the less likely scenarios, then 4% or more will work.

I could spend hours talking about asset allocations, percentages, inflation assumptions, return assumptions, alternative assets, etc.  It all plays into whether you could draw more than 4%, or even 4%.  I don’t need to draw 4% so I don’t worry about it too much. 

 

Based on what you shared with 4% cutting it close in certain scenarios, my guess is that 3.5% is almost always safe. What do the simulations say?

[Dbeasy 15040]

12 hours ago, Larry T. Spider said:

Based on what you shared with 4% cutting it close in certain scenarios, my guess is that 3.5% is almost always safe. What do the simulations say?

Yes, it’s extremely difficult to have a scenario where 3.5% isn’t enough, unless you have a 40+ year retirement window. If you can build your plan around 3.5%, it seems to be very very resilient. 

Edited June 20, 2023 by Dbeasy

[CooterBrown 18002]

Since 1950, there have been only 4 instances of the S&P500 returning less than 6% two years in a row.  Since 1950, there's never been a downturn longer than two years.  I have a hard time imagining a scenario where 5% isn't a safe withdrawal rate as long as you are investing in index funds and don't try to outsmart the market.

 

[Dbeasy 15040]

For those of you contemplating retirement or early retirement, I found a very good blog of a guy that has analyzed the 4% rule extensively. Here are some reasons why he says you have to be very careful with the 4% rule.

https://earlyretirementnow.com/2018/06/27/ten-things-the-makers-of-the-4-rule-dont-want-you-to-know/

By the way, I know a lot of people use a financial advisor who charges ~.6-1%+ of assets every year. For some people, this is absolutely necessary because they don't have the financial wherewithal to figure out and manage financial strategies themselves. I used a financial advisor in mid-career because it was provided by my company as part of my management position. However, as I moved to FIRE, I dropped my advisor. I felt comfortable enough to make my own financial decisions of how to invest. I also liked having the control over such an important part of my life, and I'm financially pretty knowledgeable.

If you are trying to figure out whether you need to use a financial advisor or not, and what type, here is what I've found:

1. The conditions for everyone's retirement are different. Some people have pensions. Some don't (like me). If you have a pension, it becomes MUCH easier to manage the financial plan because the pension provides a floor of income to survive through market downturns. That could mean you forego a planner, or it might mean having one is fine because you can more easily afford one without the risk of running out of money. If you have plenty of retirement funds, you might as well utilize professional advice to manage it, unless you enjoy doing it yourself. If you worry about running out of money, then it's a tougher decision.

2. If you don't have plenty of retirement funds, that's where it gets a little tricky. People have widely different levels of wealth and spending needs. Ignoring wealth over $8M, where it becomes pretty easy to manage financially for most people, retirement plans for $1M-$8M net worth scenarios could have some risk of running out of money, depending upon your spending needs. Why? Because there is a minimal level of spend for most people in order to have a decent standard of living. Once you look at that level, and analyze potential investment returns, inflation, asset allocation, etc. there are a bunch of scenarios where you could have anywhere from a very comfortable retirement financially to a shaky one, where you worry about running out of money. So, should you use a financial advisor in this range? Maybe.

3. The drag on the portfolio from a .6-1%+ fee every year is a really big deal if your total retirement assets just barely cover your spending needs. Of course, there are also fee-only advisors. I haven't found one yet myself in that category that is good, but I'm sure they are out there. Be careful of the bait and switch. I know several people that contacted "fee-only" advisors, only to be then told that they actually charge annual fees as a percentage of assets.

4. So, if you do have the ability to understand financial information well, then you have the option to use an advisor or not. If you are in the $1-6M range of net worth, a 1% fee would pull $10,000-$60,000 from your account every year.  For many people, their total retirement spending is $50,000-$120,000 per year. So you are paying for that advice, when you could cover a significant portion of your expenses by not paying that fee. It's a tough decision. An advisor might say they will be able to deliver a .5-1% better annual return than you could on your own, and they might be right. If you can't structure and manage your portfolio properly, you might underperform what an advisor could do.

I looked at a wide range of advisors and ultimately I found that they structured portfolios that weren't too different than what I could create on my own. So for me, it made sense to do it myself. However, I spent a LOT of time to learn about optimizing taxes, bonds, asset allocation models, Roth conversions, Obamacare, security types, alternative assets, real estate, etc.

I also put a small amount of money in with a financial advisor as part of a broader family account. This allowed me to compare how I did managing my own funds versus the advisor. After 3 years, I'm ahead of the advisor. However, it's because I've been actively engaged with the movement of money to optimize returns between cash, bonds, stock, and alternative assets. I was able to avoid the meltdown of bond funds in 2022 and optimize income to cover spending needs. A financial advisor will more likely set you up with a more static portfolio, and that's fine. Moving money around a lot isn't a great idea usually. I plan a more static model for the future.

Anyway, that's been my experience.

Edited June 20, 2023 by Dbeasy

[Dbeasy 15040]

14 minutes ago, CooterBrown said:

Since 1950, there have been only 4 instances of the S&P500 returning less than 6% two years in a row.  Since 1950, there's never been a downturn longer than two years.  I have a hard time imagining a scenario where 5% isn't a safe withdrawal rate as long as you are investing in index funds and don't try to outsmart the market.

 

The earlyretirementnow blog painstakingly walks throught the risks. It's all about % chance of failure. I think in general you are right that the risks are pretty low. Many financial planners plan with a 5-10% chance of running out of money. If you are comfortable with that, then the 4% rule is fine for most scenarios. Also, some of the market data for running scenarios comes from pre-1950, and obviously the great depression was included in that time period. 

[Snake Diggity 4619]

I would imagine the extreme outcomes (depressions, booms) for stock prices are probably less likely than would have been estimated 20+ years ago.  There’ve been pretty clearly demonstrated tools for preventing calamity, but I also think there’s a lot of things working against the probability of the highest end outcomes.  I’m not sure how that should affect people’s risk assessment or expected overall returns.

Edited June 20, 2023 by Snake Diggity

[Nice Guy Eddie 13507]

Other factors to include with withdrawals rate is length of time for retirement and social security checks . If you're retiring at 45, your withdrawal rate may need to be 3 or 3.5%.  And if you retire early, that should impact your future SS check amounts.

and while almost no parents plan to mooch off their children, I guarantee that some consider their adult kids as a backstop. "If I run out of money at 80, I can always split my time in my kids' spare bedrooms."  I don't have kids so I have to have a high confidence that my money will last me.  I understand that retiring parents may be adamant that they won't end up taking money from their kids, but the kids still won't let their parents go homeless. 

As for @Dbeasy's comment on managed funds, retirees need to be careful about paying someone a percentage. If you are trying to maintain your capital or earn a slight bump, I don't see why you need an advisor. If you are withdrawing 4%, earning 4% would be a sweet plan. Right this minute, earning 4% risk-free is simple. Why do you need to pay someone 0.5-1.0% to do that. Giving that advisor 1% is the equivalent now of a 5% withdrawal rate.

Edited June 20, 2023 by Nice Guy Eddie

[Dbeasy 15040]

One other comment that will help anyone analyzing retirement. The biggest aha moment for me was looking at the expected return on stocks over the retirement period, and inflation. Those two things absolutely dominate all calculations. 

So, I spent a lot of time not only modeling higher inflation rates (3%), but also researching the expected return projections for stocks over the next 10+ years. You will find a wide range of forecasts, from as low as 5% nominal returns to as high as 11%. 

All of the financial calculators on the internet either use historical returns or let you plug in your own number. Beware some of the ones that use historical returns. They may show 11%, and that is very unlikely to happen over the next 10+ years. I went pretty conservative and assumed 7% for stocks in aggregate. I also applied category specific numbers for each category of stock I have, to make the calcs more accurate. So I have an expected return table for each asset category. 

[Nice Guy Eddie 13507]

Food for thought. Here is Vanguard's take on FIRE retirement and withdrawal rates: https://corporate.vanguard.com/content/dam/corp/research/pdf/Fuel-for-the-F.I.R.E.-Updating-the-4-rule-for-early-retirees-US-ISGFIRE_062021_Online.pdf

two charts: Success of a 4% withdrawal rate depending on retirement duration and the other how investment fees increase the chance of failure.