What is your current FIRE / Live off assets for life number?

Thrugelmir

itwasntme001 wrote: »

How old are you? Anything more then about a 30 year time horizon is just going to increase the margin of error at any given confidence level. This error also does not rise linearly with age but non-linearly so be very careful if your time horizon is much greater than 30 years.


Add that to the fact that we have had very good returns in both stocks and bonds over the last 40 odd years that almost certainty will not be repeated for the next 40, and you will now have realized the very real risk of cfiresim giving you a completely misleading result.


I do not think the next 40 years will be pretty for financial assets due to inflation - everyone seems to be so complacent about inflation.

Not sure that inflation poses the greatest risk. ECB are struggling to lift the rate of inflation in the Eurozone despite huge amounts of fiscal intervention.

michaels

itwasntme001 wrote: »

How old are you? Anything more then about a 30 year time horizon is just going to increase the margin of error at any given confidence level. This error also does not rise linearly with age but non-linearly so be very careful if your time horizon is much greater than 30 years.


Add that to the fact that we have had very good returns in both stocks and bonds over the last 40 odd years that almost certainty will not be repeated for the next 40, and you will now have realized the very real risk of cfiresim giving you a completely misleading result.


I do not think the next 40 years will be pretty for financial assets due to inflation - everyone seems to be so complacent about inflation.

Agreed, interestingly cfiresim safe returns gets a lot lower when you push the duration up beyond 30 years - I was running it out to +46 years.

I am not sure we understand how long term returns are impacted by population profiles - the current ageing population I think is a big driver of higher asset prices and lower yields (and low inflation?). AS more and more of the world goes from population pyramid to column and potentially on to some sort of top heavy inverted pyramid we will again see a change in returns.

itwasntme001

Thrugelmir wrote: »

Not sure that inflation poses the greatest risk. ECB are struggling to lift the rate of inflation in the Eurozone despite huge amounts of fiscal intervention.

And this just proves the complacency.


People tend to extrapolate current regimes into the foreseeable future. Unfortunately it is not as simple as that. Regimes can and will certainly change at some point, higher interest rates and inflation and low asset prices will eventually be the "new norm".

itwasntme001

michaels wrote: »

Agreed, interestingly cfiresim safe returns gets a lot lower when you push the duration up beyond 30 years - I was running it out to +46 years.

I am not sure we understand how long term returns are impacted by population profiles - the current ageing population I think is a big driver of higher asset prices and lower yields (and low inflation?). AS more and more of the world goes from population pyramid to column and potentially on to some sort of top heavy inverted pyramid we will again see a change in returns.

Yes this is the non-linearity i was talking about. Even though returns do reduce in such a way, I would still be very skeptical about long time horizons such as 46 years.


There was an interesting paper by the BIS I read recently - it was mentioned in CGT's Peter Spiller's presentation. About the relationship between demographics, interest rates and inflation and the savings rate. Best to read it in full to get a proper picture, but essentially says that due to demographics in the western and emerging world (not enough working population but lot more dependents - old and very young people), real rates should rise over time as the savings get depleted. Inflation should also rise generally due to less workers and thus rising wages (more pro-labor and anti-globalization policies are other confluent factors).


This may very well be the new trend over the coming decades.

michaels

This paper?

https://www.bis.org/publ/work722.pdf

Not sure if Japan fits the postulated pattern.

Also the theoretical underpinning seems to be based on economies being effectively closed, in reality those in mature economies can invest in developing economies and then claim back assets for these investments as the population ages - even before we allow migration to impact on demographics so that it becomes endogenous rather than fixed.

itwasntme001

No, it was paper 656.


If i recall the paper does not assume closed economies. Pretty much only Africa has a birth rate able to product a big enough population to support the old and very young. The problem is it will not be enough and also the politics of the West seem to point to anti-immigration - exacerbating the issue.

DT2001

itwasntme001 wrote: »

How old are you? Anything more then about a 30 year time horizon is just going to increase the margin of error at any given confidence level. This error also does not rise linearly with age but non-linearly so be very careful if your time horizon is much greater than 30 years.


Add that to the fact that we have had very good returns in both stocks and bonds over the last 40 odd years that almost certainty will not be repeated for the next 40, and you will now have realized the very real risk of cfiresim giving you a completely misleading result.


I do not think the next 40 years will be pretty for financial assets due to inflation - everyone seems to be so complacent about inflation.

You have posed a valid scenario. I look back on my 41 years of working life and have seen high wage increases, mortgage rates at 15%, Stock Market corrections/falls etc and agree that any forecast will be wrong however the key is flexibility. When the markets change you have to move with them rather than using a strategy that worked previously. You can mitigate the impact.

In addition, as I understand it, the greatest threat to your investment pots are the 1st 10 years of retirement. My counter argument would be that that is when you are most able to cope - p/time work, downsizing etc.

If your investments are well spread the upside is lower but also the downside.

If work is stressful and the figures stack up (as of now using what is available) I’d go for it in the knowledge I might need to tweak my strategy, be it investment/expenditure.

MaxiRobriguez

FIRE took off about ten years ago when the markets were cheaper, but the withdrawal rate advice hasn't changed since.

If you're planning to retire shortly and it's an early retirement based on fire principles, then just make sure you stress test your plans. Factor in things like:

- Inflation rising to 5% and staying there.
- Equity returns annualised at 2% for the next decade.
- Impact of lowering your withdrawal rate.
- Market crash of 50% in the next five years.

Personally I feel I'm still a long way from FI despite having a net worth of about £350k. I'm planning on having a 35x expenditure rate in worth and a 2% withdrawal rate before I declare myself FI.

pensionpawn

Looking to retire at 57 (after youngest graduates from university). We'll both be able to draw the tax threshold from our pension pots with the wife using UFPLS to give us a combined tax free income of over £29k. My pot being able to support any larger one off expenditures or any increase in annual pension. Solar paying energy bills and keeping the EV (in the next 24 months) running. By 57 we both will have qualified for full SP, from 67. It's not be plain sailing and there are still potential pot holes ahead however at least we have a plan.

Thrugelmir

itwasntme001 wrote: »

And this just proves the complacency.


People tend to extrapolate current regimes into the foreseeable future. Unfortunately it is not as simple as that. Regimes can and will certainly change at some point, higher interest rates and inflation and low asset prices will eventually be the "new norm".

Little point in worrying about macro events beyond ones control. Focus on the micro decisions instead. One can only play the hand that is dealt.