I think I am doing okay

itwasntme001

If one was to use any rule i would at most use the 3% rule with a retirement gap of over 20 years. Given we have had such good returns in recent history in terms of investments, it would be prudent to use an even lower swr. The point is thinking one can FIRE using the 4% with a retirement gap of 40 years is simply very foolish.

Oliver1191

Using historical data of US stock returns, inflation etc i ran simulations and found:

40 year retirement span:
5% swr: 40% chance of running out of money before death
4% swr: 9% chance of running out of money before death
3% swr: 0% chance of running out of money before death

50 year retirement span:
5% swr: 40% chance of running out of money before death
4% swr: 11% chance of running out of money before death
3% swr: 0% chance of running out of money before death

So there is roughly a 10% chance the 4% rule wont work for you if you have a 40 or 50 year retirement span. Can you say comfortably at age 36 or 46 that the 4% rule will work? At a 10% failure rate i don't think that is comfortable at all. And with such a steep increase in failure rate at the 5% swr, it does not take much of extra spending over the years (say for medical expenses etc) to cause complete destruction to your plans. Not to mention the risk of you happening to retire at the wrong time i.e. steep drop in investment value in the early years - sequence of returns risk.

FIRE by definition means no work. What you are suggesting is people don't have to work but they can do if they so choose to. this blurs the line between FIRE and not-FIRE. If they are working because they need to bridge the gap to get to retirement they were never FIRE in the first place.

You have proven that people like yourself blindly follow others like MMM and get it oh so wrong. What MMM has written in his article does not look into the details that i have and so misses quite dangerously some key risks in assuming one can retire early.

So, you didn't read the article then (and his associated articles).

Further, you've made several assumptions.

To begin with, why invest in just a US tracker?

Further, once you know your lean FIRE figure, you know what flexibility you have. A lean FIRE for me would be 1k a month. So, you might have a 4% swr which gives 2k a month. You don't need to spend it, just because you have it.

Moreover, anyone who has been working will have built up a state pension, providing another source of income.

So, yes, the whole point is that 4% will suffice. A 3% swr is a great idea - it means the amount you withdraw each year will always be on the increase (in the long run).

itwasntme001

Oliver1191 wrote: »

So, you didn't read the article then (and his associated articles).

Further, you've made several assumptions.

To begin with, why invest in just a US tracker?

Further, once you know your lean FIRE figure, you know what flexibility you have. A lean FIRE for me would be 1k a month. So, you might have a 4% swr which gives 2k a month. You don't need to spend it, just because you have it.

Moreover, anyone who has been working will have built up a state pension, providing another source of income.

So, yes, the whole point is that 4% will suffice. A 3% swr is a great idea - it means the amount you withdraw each year will always be on the increase (in the long run).

I am not trying to convince you anymore because you just seem not to get it and i gave up few replies ago. I hope others who read this and are considering FIRE understand that the "4% rule" does not work for long retirements.

I don't think you understand what the 4% rule is. I have seen a lot of people use the 4% blindly to retire early because they think they have enough to last a lifetime. No the 4% will not suffice for early retirees as they will need to also rely on side jobs, state pension etc as you also seem to admit. That is not what i call FIRE under the 4% rule. That's neither retire early nor is it financially independent as they will depend on state pension and need to work at times.

I chose the US stock market because that's what data i have. Go ahead and find me data for international diversified stocks. They are certain to have worse outcomes then i have presented.


Speaking of assumptions, MMM seems to have used a very simple assumption of constant inflation, stock returns and dividend yield (so yes i have read his article). I hope he does not think markets work like that - providing constant growth year after year! I am guessing you did not even notice that as you do not seem to understand even basic concepts.

itwasntme001

Also if you decide to spend 1k a month instead of 2k, why not just retire even earlier with a smaller portfolio so that it satisfies the 4% rule! The 4% rule means you are able to spend 4% of your portfolio no matter what every year and you still will have enough by death 95% of the time. Stop thinking its anything but what i have stated.

AlanP_2

Oliver1191 wrote: »

If, at 46, you are not planning for the option to retire, you've simply missed a trick.

Whilst I don't disagree with planning for retirement I strongly disagree with this statement.

Many people just do not have the income or personal situation to retire in their 40s or early 50s and of the rest, most of them don't want to.

Those on low incomes or with caring responsibility and the like can only dream of FI let alone RE.

For the others - They enjoy their work, spending time with their colleagues, maybe don't have many outside interests, who knows but they aren't missing a trick they are doing what they want to.

Unfortunately the whole FIRE thing comes across in the same way as your statement with lots of arrogance and demeaning potshots at those who don't subscribe to the same beliefs.

Some people want to retire early, some don't. Some of those who want to can't afford to, and some of those who don't want to can afford to.

itwasntme001

AlanP wrote: »

Whilst I don't disagree with planning for retirement I strongly disagree with this statement.

Many people just do not have the income or personal situation to retire in their 40s or early 50s and of the rest, most of them don't want to.

Those on low incomes or with caring responsibility and the like can only dream of FI let alone RE.

For the others - They enjoy their work, spending time with their colleagues, maybe don't have many outside interests, who knows but they aren't missing a trick they are doing what they want to.

Unfortunately the whole FIRE thing comes across in the same way as your statement with lots of arrogance and demeaning potshots at those who don't subscribe to the same beliefs.

Some people want to retire early, some don't. Some of those who want to can't afford to, and some of those who don't want to can afford to.

Unfortunately i don't think you will convince him as he seems set in his ways. I just hope what we have posted gets through to others who are open to looking at things without their eyes shut.

Mistermeaner

When I've messed around with various spreadsheet I've found the percentage route to be flawed :

Is it 3% of your pot as a fixed amount or 3% of your starting pot then adjusted for inflation each year or 3% of your pot at the beginning of each year ?

Much more meaningful is to select an income you are happy with then inflate that year by year : run a simple spreadsheet with that ever increasing amount being deducted with an assumed growth to balance it out each year and see how long your pot lasts

As a clue if you inflate your income by 3% per annum and assume growth of 2.5% per annum you WILL run out of money (at some point)

State pensions tends to be the saving grace

itwasntme001

Mistermeaner wrote: »

When I've messed around with various spreadsheet I've found the percentage route to be flawed :

Is it 3% of your pot as a fixed amount or 3% of your starting pot then adjusted for inflation each year or 3% of your pot at the beginning of each year ?

Much more meaningful is to select an income you are happy with then inflate that year by year : run a simple spreadsheet with that ever increasing amount being deducted with an assumed growth to balance it out each year and see how long your pot lasts

As a clue if you inflate your income by 3% per annum and assume growth of 2.5% per annum you WILL run out of money (at some point)

State pensions tends to be the saving grace

It is 3% of the starting balance for the first year and then the same amount in £ terms adjusted for inflation each year thereafter.


The problem is you can not just do this simply in a spreadsheet like MMM has done as its assuming way too much that will mislead you into think you have enough when in fact you do not.


Key dangerous assumption being stocks grow by x% a year CONSTANTLY. Similar with inflation. When i calculated it i did not use a spreadsheet but used an algorithm in my favorite programming language to run simulations over actual past historical data and see how many simulations produce positive results (having enough till death) and how many simulations produce negative results (running out before death).

Mistermeaner

Thnaks

I’ve had a play around with some of my spreadsheets

Rather than using a steady growth rate investments I used the following:

Year 1 -3%
Year 2 +5%
Year 3 -7%
Year 4 +10%
Year 5 -11%
Year 6 +15%
Year 7 +2%
Year 8 +6%
Year 9 -5%
Year 10 +4%
And repeat years 11onwards

(gives an average of 1.6%)

Assuming withdrawals from a given pot start at value X and then increase by 3% each year the pot will last:

X= 3% 26years
X= 2% 36 years
X = 1% 60 years

Not spent ages looking but wasn’t able to find historical discrete annual growth data for e.g. and all world tracker but if anyone has that I can revisit growth assumptions

Value peoples comments and input

itwasntme001

You need to use historical data. You have only assumed one scenario which most likely wont actually happen. Using historical data will give you many actual scenarios that have actually happened. Its probably the best way to ESTIMATE the swr under given confidence.