11 ms·

Both of those make some very, very optimistic assumptions about how reality works. Pretty much any major negative event will add a decade and pretty much every

Both of those make some very, very optimistic assumptions about how reality works. Pretty much any major negative event will add a decade and pretty much everyone has at least a one of those. A single one can wipe out years of savings, even at a 50%+ savings rate. In the real world, you aren't in control of your savings rate for decades on end. No one is. I understand the illusion of that control is appealing but it simply isn't how reality works. There is a reason the majority of the bankruptcies are from medical issues with 5 figures out of pocket and into the 6 figures when you count lost income.

JoshTriplett 11y ago
> Pretty much any major negative event will add a decade and pretty much everyone has at least a one of those. A single one can wipe out years of savings, even at a 50%+ savings rate. Define "major negative event" here. Assuming you have insurance for catastrophic events, few things should be able to wipe out hundreds of thousands in savings, which is what you'd quickly build up with a high savings rate, especially in a high-paying field. On insurance, see http://www.mrmoneymustache.com/2011/09/21/i-can-never-retire-because-of-health-insurance-waaah-waaah/ http://www.mrmoneymustache.com/2011/09/21/i-can-never-retire... and http://www.mrmoneymustache.com/2012/11/01/our-new-237-per-month-health-insurance-plan/ http://www.mrmoneymustache.com/2012/11/01/our-new-237-per-mo... . More importantly, on safety margins in general, see http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/ http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-... . And even if one of your desired safety margins is a pile of savings, the higher your savings rate the sooner you build up those buffers. If you assume one of those events will happen and wipe out a pile of savings, that's an added drain that you'd have to account for, but a high savings rate still means you'll retire sooner than you would have with a lower savings rate.
- fweespeech 11y ago
  > Define "major negative event" here. Assuming you have insurance for catastrophic events, few things should be able to wipe out hundreds of thousands in savings, which is what you'd quickly build up with a high savings rate, especially in a high-paying field. Health insurance never provided 100% coverage and you can get into 5 figures with health insurance. I'm not sure why you disbelieve it given its a pretty accepted fact when talking about medical bankruptcies with insurance. Similarly, if you are having a major medical event, if you cannot work for months...failure to earn income is a cost. Other major negative events are extended bouts of unemployment that will chew through savings while creating a failure to earn income for months, etc. Hell, even being sued can be a problem if you have a high networth because you have access to resources. In the past 12 months, I've literally had people track me down to drag me into such fights over money. > And even if one of your desired safety margins is a pile of savings, the higher your savings rate the sooner you build up those buffers. If you assume one of those events will happen and wipe out a pile of savings, that's an added drain that you'd have to account for, but a high savings rate still means you'll retire sooner than you would have with a lower savings rate. I'm saying he is selling you a dream that you can do it at the age you stated. Black swan events do happen to people and you have no real safety margin for them with his lifestyle advice after you retire. A "silver plan" is 70% coverage. If you have a 6 figure medical event, that wipes out your entire planned income for the year. The 4% rule has been found to be overly optimistic. Similarly, RoI greater than safe withdrawal rates are assumed. [Hint: SWR and RoI are equal and equivalent in real terms over an extended period. MMM claims otherwise and I find it depressing people believe him, especially given that isn't what happened to him. ] The reality is, for most people, even with a high savings rate you are looking at 25+ years of work. 1400000 [35*40k] 2015 40,000 2016 81,600 2017 124,864 2018 169,859 2019 216,653 2020 265,319 2021 315,932 2022 368,569 2023 423,312 2024 480,244 2025 539,454 2026 601,032 2027 665,074 2028 731,676 2029 800,944 2030 872,981 2031 947,900 2032 1,025,817 2033 1,106,849 2034 1,191,123 2035 1,278,768 2036 1,369,919 2037 1,464,716 Assuming everything goes perfectly, it takes you 22 years. However, you are going to be unemployed for at least a couple of those years and you are likely to have some kind of major medical expense [or your wife, or your kid] in that time as well. The ability to do it faster is an illusion created by a bull market and lucky timing.
  - JoshTriplett 11y ago
    > Health insurance never provided 100% coverage Of course not; it's designed to limit liability in the case of disaster, not pay for absolutely everything. The term "Out of pocket maximum" may prove relevant here; there's a limit to your annual liability, which is what you're paying for. > Black swan events do happen to people and you have no real safety margin for them Read the article I linked about safety margin, which talks about several tiers of safety margin. The very last of which, after a half-dozen other possibilities, is "you can always go back to work". > The 4% rule has been found to be overly optimistic. Not for over a century, including the Great Depression and the .com crash, according to various studies as well as publically available data from which anyone can make the same calculations. Evidence, please? > Similarly, RoI greater than safe withdrawal rates are assumed. By 1%, and that's justified elsewhere in the articles, but even if you go with 4% that doesn't wildly change the numbers. > 1400000 [35*40k] [...] > it takes you 22 years First of all, 22 years is a lot better than most people's retirement plans. That means you can retire in your 40s, rather than your 60s. Second, could you please clarify what numbers you're using and assumptions you're making? I don't know where your multiplier of 35 is coming from. From the numbers in your table, it looks like you're assuming 40k/year of savings. It matters whether that's 40% of 100k or 50% of 80k; the percentage determines your years to retirement, not the absolute amount. If we're talking about saving 40% of 100k, then yes, you get to retirement after 22 years, but the operative calculation is how soon your savings will reliably generate $60k/year in returns (since that's what you're spending). If we're talking about saving 50% of 80k, then you need to know how soon your savings will reliably generate $40k/year in returns. Third, you've mentioned bad things that can happen over that period of time, but then you've also not allowed for good things, either. For instance, the assumptions behind the years-to-retirement calculation assume you never get a raise that allows you to save faster, and you never get a better return on investment (or if you do you spend it all), and you are incapable of adjusting your spending based on your returns.
    - fweespeech 11y ago
      > Not for over a century, including the Great Depression and the .com crash, according to various studies as well as publically available data from which anyone can make the same calculations. Evidence, please? 1) Even the author of the study doesn't say what MMM does in regards to the 4% rule. http://www.bogleheads.org/wiki/Safe_withdrawal_rates#Limitations_of_the_Trinity_study http://www.bogleheads.org/wiki/Safe_withdrawal_rates#Limitat... http://www.bogleheads.org/forum/viewtopic.php?p=717195#p717195 http://www.bogleheads.org/forum/viewtopic.php?p=717195#p7171... > "The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning." > What the "4% SWR" means is not that you can treat a portfolio as if it were a guaranteed annuity. 2) https://ideas.repec.org/p/ngi/dpaper/10-12.html https://ideas.repec.org/p/ngi/dpaper/10-12.html > . From an international perspective, a 4 percent real withdrawal rate is surprisingly risky. Even with some overly optimistic assumptions, it would have only provided "safety" in 4 of the 17 countries. A fixed asset allocation split evenly between stocks and bonds would have failed at some point in all 17 countries. 3) http://www.usatoday.com/story/money/personalfinance/2014/11/08/cnbc-four-percent-withdrawal-retirement-rule/18509395/ http://www.usatoday.com/story/money/personalfinance/2014/11/... 4) Even if you believed in the 4% rule, it was designed for 30 years. Long periods raises the failure rates. etc. You need to realize the 4% rule is a cute thing that journalists latched onto in the 90s and was never intended to provide 100% coverage. It also has a non-zero failure rate. Under certain market conditions it does fail. Pretending it doesn't is silly and even in the Trinity paper it is stated its not 100% reliable. I'm really not going to get into the rest of it since you don't even know the basics of what you are talking about and I've wasted enough time arguing with you. What you fail to grasp, and what I am pretty sure you are going to refuse to believe at this point, is the 4% rule applied as you and MMM are suggesting is the same trap of overfitting that many people who engage in backtesting do. If you are not in the historical US, you have a success rate of ~23% with the 4% rule. Even the US? Is not the historical US. Its a new entity that is not guaranteed to perform 100% identically to the historical entity. Best of luck to you, believe what you want, I honestly don't care. I get that you want to believe a bunch of optimistic assumptions about reality but the reality is, they are optimistic.

JoshTriplett 11y ago

> Pretty much any major negative event will add a decade and pretty much everyone has at least a one of those. A single one can wipe out years of savings, even at a 50%+ savings rate. Define "major negative event" here. Assuming you have insurance for catastrophic events, few things should be able to wipe out hundreds of thousands in savings, which is what you'd quickly build up with a high savings rate, especially in a high-paying field. On insurance, see http://www.mrmoneymustache.com/2011/09/21/i-can-never-retire-because-of-health-insurance-waaah-waaah/ http://www.mrmoneymustache.com/2011/09/21/i-can-never-retire... and http://www.mrmoneymustache.com/2012/11/01/our-new-237-per-month-health-insurance-plan/ http://www.mrmoneymustache.com/2012/11/01/our-new-237-per-mo... . More importantly, on safety margins in general, see http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/ http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-... . And even if one of your desired safety margins is a pile of savings, the higher your savings rate the sooner you build up those buffers. If you assume one of those events will happen and wipe out a pile of savings, that's an added drain that you'd have to account for, but a high savings rate still means you'll retire sooner than you would have with a lower savings rate.

fweespeech 11y ago
> Define "major negative event" here. Assuming you have insurance for catastrophic events, few things should be able to wipe out hundreds of thousands in savings, which is what you'd quickly build up with a high savings rate, especially in a high-paying field. Health insurance never provided 100% coverage and you can get into 5 figures with health insurance. I'm not sure why you disbelieve it given its a pretty accepted fact when talking about medical bankruptcies with insurance. Similarly, if you are having a major medical event, if you cannot work for months...failure to earn income is a cost. Other major negative events are extended bouts of unemployment that will chew through savings while creating a failure to earn income for months, etc. Hell, even being sued can be a problem if you have a high networth because you have access to resources. In the past 12 months, I've literally had people track me down to drag me into such fights over money. > And even if one of your desired safety margins is a pile of savings, the higher your savings rate the sooner you build up those buffers. If you assume one of those events will happen and wipe out a pile of savings, that's an added drain that you'd have to account for, but a high savings rate still means you'll retire sooner than you would have with a lower savings rate. I'm saying he is selling you a dream that you can do it at the age you stated. Black swan events do happen to people and you have no real safety margin for them with his lifestyle advice after you retire. A "silver plan" is 70% coverage. If you have a 6 figure medical event, that wipes out your entire planned income for the year. The 4% rule has been found to be overly optimistic. Similarly, RoI greater than safe withdrawal rates are assumed. [Hint: SWR and RoI are equal and equivalent in real terms over an extended period. MMM claims otherwise and I find it depressing people believe him, especially given that isn't what happened to him. ] The reality is, for most people, even with a high savings rate you are looking at 25+ years of work. 1400000 [35*40k] 2015 40,000 2016 81,600 2017 124,864 2018 169,859 2019 216,653 2020 265,319 2021 315,932 2022 368,569 2023 423,312 2024 480,244 2025 539,454 2026 601,032 2027 665,074 2028 731,676 2029 800,944 2030 872,981 2031 947,900 2032 1,025,817 2033 1,106,849 2034 1,191,123 2035 1,278,768 2036 1,369,919 2037 1,464,716 Assuming everything goes perfectly, it takes you 22 years. However, you are going to be unemployed for at least a couple of those years and you are likely to have some kind of major medical expense [or your wife, or your kid] in that time as well. The ability to do it faster is an illusion created by a bull market and lucky timing.
- JoshTriplett 11y ago
  > Health insurance never provided 100% coverage Of course not; it's designed to limit liability in the case of disaster, not pay for absolutely everything. The term "Out of pocket maximum" may prove relevant here; there's a limit to your annual liability, which is what you're paying for. > Black swan events do happen to people and you have no real safety margin for them Read the article I linked about safety margin, which talks about several tiers of safety margin. The very last of which, after a half-dozen other possibilities, is "you can always go back to work". > The 4% rule has been found to be overly optimistic. Not for over a century, including the Great Depression and the .com crash, according to various studies as well as publically available data from which anyone can make the same calculations. Evidence, please? > Similarly, RoI greater than safe withdrawal rates are assumed. By 1%, and that's justified elsewhere in the articles, but even if you go with 4% that doesn't wildly change the numbers. > 1400000 [35*40k] [...] > it takes you 22 years First of all, 22 years is a lot better than most people's retirement plans. That means you can retire in your 40s, rather than your 60s. Second, could you please clarify what numbers you're using and assumptions you're making? I don't know where your multiplier of 35 is coming from. From the numbers in your table, it looks like you're assuming 40k/year of savings. It matters whether that's 40% of 100k or 50% of 80k; the percentage determines your years to retirement, not the absolute amount. If we're talking about saving 40% of 100k, then yes, you get to retirement after 22 years, but the operative calculation is how soon your savings will reliably generate $60k/year in returns (since that's what you're spending). If we're talking about saving 50% of 80k, then you need to know how soon your savings will reliably generate $40k/year in returns. Third, you've mentioned bad things that can happen over that period of time, but then you've also not allowed for good things, either. For instance, the assumptions behind the years-to-retirement calculation assume you never get a raise that allows you to save faster, and you never get a better return on investment (or if you do you spend it all), and you are incapable of adjusting your spending based on your returns.
  - fweespeech 11y ago
    > Not for over a century, including the Great Depression and the .com crash, according to various studies as well as publically available data from which anyone can make the same calculations. Evidence, please? 1) Even the author of the study doesn't say what MMM does in regards to the 4% rule. http://www.bogleheads.org/wiki/Safe_withdrawal_rates#Limitations_of_the_Trinity_study http://www.bogleheads.org/wiki/Safe_withdrawal_rates#Limitat... http://www.bogleheads.org/forum/viewtopic.php?p=717195#p717195 http://www.bogleheads.org/forum/viewtopic.php?p=717195#p7171... > "The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning." > What the "4% SWR" means is not that you can treat a portfolio as if it were a guaranteed annuity. 2) https://ideas.repec.org/p/ngi/dpaper/10-12.html https://ideas.repec.org/p/ngi/dpaper/10-12.html > . From an international perspective, a 4 percent real withdrawal rate is surprisingly risky. Even with some overly optimistic assumptions, it would have only provided "safety" in 4 of the 17 countries. A fixed asset allocation split evenly between stocks and bonds would have failed at some point in all 17 countries. 3) http://www.usatoday.com/story/money/personalfinance/2014/11/08/cnbc-four-percent-withdrawal-retirement-rule/18509395/ http://www.usatoday.com/story/money/personalfinance/2014/11/... 4) Even if you believed in the 4% rule, it was designed for 30 years. Long periods raises the failure rates. etc. You need to realize the 4% rule is a cute thing that journalists latched onto in the 90s and was never intended to provide 100% coverage. It also has a non-zero failure rate. Under certain market conditions it does fail. Pretending it doesn't is silly and even in the Trinity paper it is stated its not 100% reliable. I'm really not going to get into the rest of it since you don't even know the basics of what you are talking about and I've wasted enough time arguing with you. What you fail to grasp, and what I am pretty sure you are going to refuse to believe at this point, is the 4% rule applied as you and MMM are suggesting is the same trap of overfitting that many people who engage in backtesting do. If you are not in the historical US, you have a success rate of ~23% with the 4% rule. Even the US? Is not the historical US. Its a new entity that is not guaranteed to perform 100% identically to the historical entity. Best of luck to you, believe what you want, I honestly don't care. I get that you want to believe a bunch of optimistic assumptions about reality but the reality is, they are optimistic.