High risk, high reward: A pauper's dream of early retirement.

Hoenir

barnstar2077 said:

Bostonerimus1 said:

barnstar2077 said:

kempiejon said:

barnstar2077 said:
My prediction spreadsheet is set out in years, with each year taking last years amount, adding on x percent for growth, then add that years contributions.

I am aware of there being periods of zero growth, even losses, I am prepared to take the risk, as I can always just work till 57 if it doesn't work out.  He who dares, and all that! : ) 

I love my spreadsheets but the numbers can get ridiculous at decades out, I am aware of their shortcomings. Have you looked at any of the Monte Carlo simulations? https://www.firecalc.com/ is one or https://www.cfiresim.com/ another, more are out there. I found them more useful than my own work to look at a series of outcomes over several decades.

I took a route of 100% equities, leverage and tax treatments to maximise my path to FI. You've got to hold your nerve to keep investing when the portfolio has lost 40% of its value and rub your hands with glee at the bargains available. The down side to your I can always just work until 57 you have to keep working. It might not be 57 either, how can anyone know? I didn't set a date but a target income. Itemised spending analysis showed me when my investments would just cover my basic needs  - after that work become optional, to acquire more things or experiences or add a larger income to my retirement phase. 

I have used something similar, that runs many scenarios based on historical data and my preliminary plans passed with a 100% success rate.  It is definitely a useful tool for putting ones mind at ease.  I only ran 100% global equity scenarios though, as that was what I was interested in.  I will put a lot more effort into that side of things a bit closer to the time. 

Take a look at what happened with the failure of "Long Term Capital Management". Modeling is a useful tool to understand retirement income parameters, but funding retirement with drawdown is not trivial and subject to market risk. Like saving for retirement I believe that a diversified approach to income generation is good and you should compliment drawdown with annuities as well as SP and maybe some dividend stocks that have good long records of regular payouts. Stress testing is important and if you can survive in the worst situations then you have a good plan that should allow you to sleep at night - it's good to be pessimistic. I've lost a lot in the recent US markets downturn, but I can sleep because I don't rely on drawdown for my income and low stress and being able to sleep are increasingly necessary as you get older.

So, using tracker funds, making contributions monthly, staying 100% equities etc, should on average give me a good outcome. 

If only it was that simple. Equity markets are akin to riding a roller coaster. Can take many many years for a market to return to a previous high. Equities in itself is a broad generalised term.  Companies undertaking many trading activities. Successfull investors are often the ones that navigate the downturns the best. Portfolio diversification is in itself an art. Requiring a forward looking contrarian outlook.  

barnstar2077

Hoenir said:

barnstar2077 said:

Bostonerimus1 said:

barnstar2077 said:

kempiejon said:

barnstar2077 said:
My prediction spreadsheet is set out in years, with each year taking last years amount, adding on x percent for growth, then add that years contributions.

I am aware of there being periods of zero growth, even losses, I am prepared to take the risk, as I can always just work till 57 if it doesn't work out.  He who dares, and all that! : ) 

I love my spreadsheets but the numbers can get ridiculous at decades out, I am aware of their shortcomings. Have you looked at any of the Monte Carlo simulations? https://www.firecalc.com/ is one or https://www.cfiresim.com/ another, more are out there. I found them more useful than my own work to look at a series of outcomes over several decades.

I took a route of 100% equities, leverage and tax treatments to maximise my path to FI. You've got to hold your nerve to keep investing when the portfolio has lost 40% of its value and rub your hands with glee at the bargains available. The down side to your I can always just work until 57 you have to keep working. It might not be 57 either, how can anyone know? I didn't set a date but a target income. Itemised spending analysis showed me when my investments would just cover my basic needs  - after that work become optional, to acquire more things or experiences or add a larger income to my retirement phase. 

I have used something similar, that runs many scenarios based on historical data and my preliminary plans passed with a 100% success rate.  It is definitely a useful tool for putting ones mind at ease.  I only ran 100% global equity scenarios though, as that was what I was interested in.  I will put a lot more effort into that side of things a bit closer to the time. 

Take a look at what happened with the failure of "Long Term Capital Management". Modeling is a useful tool to understand retirement income parameters, but funding retirement with drawdown is not trivial and subject to market risk. Like saving for retirement I believe that a diversified approach to income generation is good and you should compliment drawdown with annuities as well as SP and maybe some dividend stocks that have good long records of regular payouts. Stress testing is important and if you can survive in the worst situations then you have a good plan that should allow you to sleep at night - it's good to be pessimistic. I've lost a lot in the recent US markets downturn, but I can sleep because I don't rely on drawdown for my income and low stress and being able to sleep are increasingly necessary as you get older.

So, using tracker funds, making contributions monthly, staying 100% equities etc, should on average give me a good outcome. 

If only it was that simple. Equity markets are akin to riding a roller coaster. Can take many many years for a market to return to a previous high. Equities in itself is a broad generalised term.  Companies undertaking many trading activities. Successful investors are often the ones that navigate the downturns the best. Portfolio diversification is in itself an art. Requiring a forward looking contrarian outlook.  

The statement that you have highlighted is factual (even when out of context of everything else that I have said in this thread.)  My plan will most likely give me the desired outcome.  As you and others have said, it may not be a smooth process and clearly I could play it "safer" and achieve a different, less volatile result, but that isn't the route I am taking personally.

I am no expert on what a successful investor would or wouldn't do, but I do think that it depends on their financial goals.  For example, whether someone is trying to preserve wealth or if they are trying to grow wealth over the long term, will have a big influence on how they should make financial decisions.

I maybe wrong choosing the latter, watch this space...

Bostonerimus1

barnstar2077 said:

Bostonerimus1 said:

barnstar2077 said:

kempiejon said:

barnstar2077 said:
My prediction spreadsheet is set out in years, with each year taking last years amount, adding on x percent for growth, then add that years contributions.

I am aware of there being periods of zero growth, even losses, I am prepared to take the risk, as I can always just work till 57 if it doesn't work out.  He who dares, and all that! : ) 

I love my spreadsheets but the numbers can get ridiculous at decades out, I am aware of their shortcomings. Have you looked at any of the Monte Carlo simulations? https://www.firecalc.com/ is one or https://www.cfiresim.com/ another, more are out there. I found them more useful than my own work to look at a series of outcomes over several decades.

I took a route of 100% equities, leverage and tax treatments to maximise my path to FI. You've got to hold your nerve to keep investing when the portfolio has lost 40% of its value and rub your hands with glee at the bargains available. The down side to your I can always just work until 57 you have to keep working. It might not be 57 either, how can anyone know? I didn't set a date but a target income. Itemised spending analysis showed me when my investments would just cover my basic needs  - after that work become optional, to acquire more things or experiences or add a larger income to my retirement phase. 

I have used something similar, that runs many scenarios based on historical data and my preliminary plans passed with a 100% success rate.  It is definitely a useful tool for putting ones mind at ease.  I only ran 100% global equity scenarios though, as that was what I was interested in.  I will put a lot more effort into that side of things a bit closer to the time. 

Take a look at what happened with the failure of "Long Term Capital Management". Modeling is a useful tool to understand retirement income parameters, but funding retirement with drawdown is not trivial and subject to market risk. Like saving for retirement I believe that a diversified approach to income generation is good and you should compliment drawdown with annuities as well as SP and maybe some dividend stocks that have good long records of regular payouts. Stress testing is important and if you can survive in the worst situations then you have a good plan that should allow you to sleep at night - it's good to be pessimistic. I've lost a lot in the recent US markets downturn, but I can sleep because I don't rely on drawdown for my income and low stress and being able to sleep are increasingly necessary as you get older.

It is good that you managed to find a strategy that has worked for you, and that you feel able to sleep at night.  A quality that is hard to put a price on!

I have taken the approach that I am going to do what should give me the best result in the long run on average, with a few educated guesses thrown in.  I am a perfectly average person, that will probably live to an average age, so am happy to have a plan that will, probably, on average, work out just fine.

So, using tracker funds, making contributions monthly, staying 100% equities etc, should on average give me a good outcome.  Admittedly, I am my own worse enemy by trying to time the market every now and then to get ahead, but I have a pretty high risk tolerance and have a great deal of flexibility about when I start drawdown and how much I take etc, so am not concerned for the long run.

I haven't ruled out an annuity in retirement though, that will depend on what is available and my pot size etc at the time. 

People have been sold the idea that for the "average person" drawdown is a perfectly reasonable way to fund retirement. That idea is a bit of a hang over from the time when DC pensions were created back in the late 20th Century and has been pushed by the financial industry because of the fees they collect and by employers because it transfers risk from them to employees. DC drawdown is great if you have a large pot and can afford to take on the added risk, but it's dangerous for people who plan to spend the SWR that drops out of Monte Carlo simulation using historical data. I'm not saying that DC drawdown won't work and leave you with a healthy amount to pass on to heirs, it's just that there are a lot of unknown variables that can mess up all the historically probable outcomes - so proceed with caution and skepticism.

barnstar2077

Bostonerimus1 said:

barnstar2077 said:

Bostonerimus1 said:

barnstar2077 said:

kempiejon said:

barnstar2077 said:
My prediction spreadsheet is set out in years, with each year taking last years amount, adding on x percent for growth, then add that years contributions.

I am aware of there being periods of zero growth, even losses, I am prepared to take the risk, as I can always just work till 57 if it doesn't work out.  He who dares, and all that! : ) 

I love my spreadsheets but the numbers can get ridiculous at decades out, I am aware of their shortcomings. Have you looked at any of the Monte Carlo simulations? https://www.firecalc.com/ is one or https://www.cfiresim.com/ another, more are out there. I found them more useful than my own work to look at a series of outcomes over several decades.

I took a route of 100% equities, leverage and tax treatments to maximise my path to FI. You've got to hold your nerve to keep investing when the portfolio has lost 40% of its value and rub your hands with glee at the bargains available. The down side to your I can always just work until 57 you have to keep working. It might not be 57 either, how can anyone know? I didn't set a date but a target income. Itemised spending analysis showed me when my investments would just cover my basic needs  - after that work become optional, to acquire more things or experiences or add a larger income to my retirement phase. 

I have used something similar, that runs many scenarios based on historical data and my preliminary plans passed with a 100% success rate.  It is definitely a useful tool for putting ones mind at ease.  I only ran 100% global equity scenarios though, as that was what I was interested in.  I will put a lot more effort into that side of things a bit closer to the time. 

Take a look at what happened with the failure of "Long Term Capital Management". Modeling is a useful tool to understand retirement income parameters, but funding retirement with drawdown is not trivial and subject to market risk. Like saving for retirement I believe that a diversified approach to income generation is good and you should compliment drawdown with annuities as well as SP and maybe some dividend stocks that have good long records of regular payouts. Stress testing is important and if you can survive in the worst situations then you have a good plan that should allow you to sleep at night - it's good to be pessimistic. I've lost a lot in the recent US markets downturn, but I can sleep because I don't rely on drawdown for my income and low stress and being able to sleep are increasingly necessary as you get older.

It is good that you managed to find a strategy that has worked for you, and that you feel able to sleep at night.  A quality that is hard to put a price on!

I have taken the approach that I am going to do what should give me the best result in the long run on average, with a few educated guesses thrown in.  I am a perfectly average person, that will probably live to an average age, so am happy to have a plan that will, probably, on average, work out just fine.

So, using tracker funds, making contributions monthly, staying 100% equities etc, should on average give me a good outcome.  Admittedly, I am my own worse enemy by trying to time the market every now and then to get ahead, but I have a pretty high risk tolerance and have a great deal of flexibility about when I start drawdown and how much I take etc, so am not concerned for the long run.

I haven't ruled out an annuity in retirement though, that will depend on what is available and my pot size etc at the time. 

People have been sold the idea that for the "average person" drawdown is a perfectly reasonable way to fund retirement. That idea is a bit of a hang over from the time when DC pensions were created back in the late 20th Century and has been pushed by the financial industry because of the fees they collect and by employers because it transfers risk from them to employees. DC drawdown is great if you have a large pot and can afford to take on the added risk, but it's dangerous for people who plan to spend the SWR that drops out of Monte Carlo simulation using historical data. I'm not saying that DC drawdown won't work and leave you with a healthy amount to pass on to heirs, it's just that there are a lot of unknown variables that can mess up all the historically probable outcomes - so proceed with caution and skepticism.

Solid advice, thank you.

kempiejon

MeteredOut said:

Interesting thread.

There's a lot of click-bait social media about what will happen to the state pension for those under 50. Whilst I'll never subscribe to the "state pension will be means tested" claims, I do think people should stress test the models with the SP age being increased to, say, 70.

I don't think that would alter your figures/circumstances significantly, but worth considering.

I can't know but guess for those at 50+ looking at a glide path out of employment should be OK counting on the state pension at current levels and protections; the triple lock, winter fuel, bus passes and other age related benefits as a reducing bonus. For a younger worker making plans much less so. My financial independence plan has me free from permanent employment for over a decade before state pension is relevant. The OP has worked out if need be they can cut their coat with the available cloth. Spending down more from private pensions until the SP tops up is a viable looking plan while similarly aiming high over their time frame.
Not necessarily one would make today, if starting out today.

Hoenir

barnstar2077 said:

Hoenir said:

barnstar2077 said:

Bostonerimus1 said:

barnstar2077 said:

kempiejon said:

barnstar2077 said:
My prediction spreadsheet is set out in years, with each year taking last years amount, adding on x percent for growth, then add that years contributions.

I am aware of there being periods of zero growth, even losses, I am prepared to take the risk, as I can always just work till 57 if it doesn't work out.  He who dares, and all that! : ) 

I love my spreadsheets but the numbers can get ridiculous at decades out, I am aware of their shortcomings. Have you looked at any of the Monte Carlo simulations? https://www.firecalc.com/ is one or https://www.cfiresim.com/ another, more are out there. I found them more useful than my own work to look at a series of outcomes over several decades.

I took a route of 100% equities, leverage and tax treatments to maximise my path to FI. You've got to hold your nerve to keep investing when the portfolio has lost 40% of its value and rub your hands with glee at the bargains available. The down side to your I can always just work until 57 you have to keep working. It might not be 57 either, how can anyone know? I didn't set a date but a target income. Itemised spending analysis showed me when my investments would just cover my basic needs  - after that work become optional, to acquire more things or experiences or add a larger income to my retirement phase. 

I have used something similar, that runs many scenarios based on historical data and my preliminary plans passed with a 100% success rate.  It is definitely a useful tool for putting ones mind at ease.  I only ran 100% global equity scenarios though, as that was what I was interested in.  I will put a lot more effort into that side of things a bit closer to the time. 

Take a look at what happened with the failure of "Long Term Capital Management". Modeling is a useful tool to understand retirement income parameters, but funding retirement with drawdown is not trivial and subject to market risk. Like saving for retirement I believe that a diversified approach to income generation is good and you should compliment drawdown with annuities as well as SP and maybe some dividend stocks that have good long records of regular payouts. Stress testing is important and if you can survive in the worst situations then you have a good plan that should allow you to sleep at night - it's good to be pessimistic. I've lost a lot in the recent US markets downturn, but I can sleep because I don't rely on drawdown for my income and low stress and being able to sleep are increasingly necessary as you get older.

So, using tracker funds, making contributions monthly, staying 100% equities etc, should on average give me a good outcome. 

If only it was that simple. Equity markets are akin to riding a roller coaster. Can take many many years for a market to return to a previous high. Equities in itself is a broad generalised term.  Companies undertaking many trading activities. Successful investors are often the ones that navigate the downturns the best. Portfolio diversification is in itself an art. Requiring a forward looking contrarian outlook.  

The statement that you have highlighted is factual 

Not disputing that.  I'm simply cautioning that social media is full of misinformation, miscomprehension and assumption. Every generation of investors believes that they know better. Investing in markets can be a humbling experience. 

Rich1976

Interested in following your journey. I am the same age as you but with about 100k less saved for retirement than you and work full time! Good luck I am sure you will achieve your dream 

barnstar2077

Rich1976 said:

Interested in following your journey. I am the same age as you but with about 100k less saved for retirement than you and work full time! Good luck I am sure you will achieve your dream 

Hi Rich, thank you for your kind words!  Do you have a plan in place to try and retire early yourself?  Now is a good time to up those pension contributions if you have been on the fence about it.

FIREDreamer

Bostonerimus1 said:

barnstar2077 said:

Bostonerimus1 said:

barnstar2077 said:

kempiejon said:

barnstar2077 said:
My prediction spreadsheet is set out in years, with each year taking last years amount, adding on x percent for growth, then add that years contributions.

I am aware of there being periods of zero growth, even losses, I am prepared to take the risk, as I can always just work till 57 if it doesn't work out.  He who dares, and all that! : ) 

I love my spreadsheets but the numbers can get ridiculous at decades out, I am aware of their shortcomings. Have you looked at any of the Monte Carlo simulations? https://www.firecalc.com/ is one or https://www.cfiresim.com/ another, more are out there. I found them more useful than my own work to look at a series of outcomes over several decades.

I took a route of 100% equities, leverage and tax treatments to maximise my path to FI. You've got to hold your nerve to keep investing when the portfolio has lost 40% of its value and rub your hands with glee at the bargains available. The down side to your I can always just work until 57 you have to keep working. It might not be 57 either, how can anyone know? I didn't set a date but a target income. Itemised spending analysis showed me when my investments would just cover my basic needs  - after that work become optional, to acquire more things or experiences or add a larger income to my retirement phase. 

I have used something similar, that runs many scenarios based on historical data and my preliminary plans passed with a 100% success rate.  It is definitely a useful tool for putting ones mind at ease.  I only ran 100% global equity scenarios though, as that was what I was interested in.  I will put a lot more effort into that side of things a bit closer to the time. 

Take a look at what happened with the failure of "Long Term Capital Management". Modeling is a useful tool to understand retirement income parameters, but funding retirement with drawdown is not trivial and subject to market risk. Like saving for retirement I believe that a diversified approach to income generation is good and you should compliment drawdown with annuities as well as SP and maybe some dividend stocks that have good long records of regular payouts. Stress testing is important and if you can survive in the worst situations then you have a good plan that should allow you to sleep at night - it's good to be pessimistic. I've lost a lot in the recent US markets downturn, but I can sleep because I don't rely on drawdown for my income and low stress and being able to sleep are increasingly necessary as you get older.

It is good that you managed to find a strategy that has worked for you, and that you feel able to sleep at night.  A quality that is hard to put a price on!

I have taken the approach that I am going to do what should give me the best result in the long run on average, with a few educated guesses thrown in.  I am a perfectly average person, that will probably live to an average age, so am happy to have a plan that will, probably, on average, work out just fine.

So, using tracker funds, making contributions monthly, staying 100% equities etc, should on average give me a good outcome.  Admittedly, I am my own worse enemy by trying to time the market every now and then to get ahead, but I have a pretty high risk tolerance and have a great deal of flexibility about when I start drawdown and how much I take etc, so am not concerned for the long run.

I haven't ruled out an annuity in retirement though, that will depend on what is available and my pot size etc at the time. 

People have been sold the idea that for the "average person" drawdown is a perfectly reasonable way to fund retirement. That idea is a bit of a hang over from the time when DC pensions were created back in the late 20th Century and has been pushed by the financial industry because of the fees they collect and by employers because it transfers risk from them to employees. DC drawdown is great if you have a large pot and can afford to take on the added risk, but it's dangerous for people who plan to spend the SWR that drops out of Monte Carlo simulation using historical data. I'm not saying that DC drawdown won't work and leave you with a healthy amount to pass on to heirs, it's just that there are a lot of unknown variables that can mess up all the historically probable outcomes - so proceed with caution and skepticism.

RPI annuities are a reasonable and decent alternative now.

Rich1976

barnstar2077 said:

Rich1976 said:

Interested in following your journey. I am the same age as you but with about 100k less saved for retirement than you and work full time! Good luck I am sure you will achieve your dream 

Hi Rich, thank you for your kind words!  Do you have a plan in place to try and retire early yourself?  Now is a good time to up those pension contributions if you have been on the fence about it.

You’re very welcome , and yes the pension contributions have been increased to approx 16% every month which includes the 4% from my employer . 

My main issue was that until auto enrolment came along most of the companies I worked for previously didn’t pay into any pension scheme, so whilst they were good jobs that was the big downside. So pretty much most of my working life has been making my own provision which I have carried on mostly alongside my workplace schemes over the last 10 years .
life though does get in the way with things needing replacing or upgrading so that has placed limitations on the ability to put as much away as I would like. Fortunately we only have 3 years left of the mortgage remaining so that will help . I cannot see myself wanting to go before 60 but I would like the choice to retire on my own terms and not dictated by health or the state pension age .