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The response to "what about volatility" is not really right. Volatility makes a much bigger difference than the article admits - the reason FIRE proponents com

The response to "what about volatility" is not really right. Volatility makes a much bigger difference than the article admits - the reason FIRE proponents come up with a similar number is because they started with a much higher number. They are using US-only historical returns, which average around 7% (inflation-adjusted), not 5%, and the safe withdrawal rate is typically quoted as 3.5%-4%. So in order to be safe, you have to cut the return rate in half or so. There's probably an argument to be made that this is still too aggressive, because US historical returns feels like cherrypicking - they're much better than international returns, and there doesn't seem to be a good argument for expecting that to continue. That said - how many 80% drops are there? If your criteria for safety is "will have enough money to last forever even if the great depression hits the second I retire", you might be a bit too conservative - it's hard to imagine another great depression at all, given the Fed's recent history of propping up the market in crashes, let alone at the worst possible time. You'll never be able to take chances on anything with requirements like that.

bumby 6y ago
>it's hard to imagine another great depression at all, given the Fed's recent history of propping up the market in crashes I think the counter-argument (not that I know enough one way or the other) is that the Fed’s recent addiction to low interest rates removes one of its most important tools for propping up the economy if the existing approach is found insufficient
- thedufer 6y ago
  The strategy this spring of just buying up bonds en masse worked pretty well, and seems fairly unlimited as long as they're willing to print money with which to buy stuff. They have a lot more levers than just interest rates.
  - bumby 6y ago
    What types of bonds are you referring to? Treasury bonds aren’t exactly going gang busters. Or maybe we’re talking about different periods? The point I was trying to make (maybe unclearly) is that one of the main bullets to assist the broad economy may have already been fired. To your point, there will always be segments of the economy that perform well, but that’s not equivalent to the broad economy performing well
    - thedufer 6y ago
      Corporate bonds. Look at $BND, for example. It crashed 8.5% March 9-12. The flattening and then quick rebound are generally credited to the rumors and then announcement of the Fed's bond buying program. The health of the _broad economy_ isn't what's relevant to this, though, only the bond and stock markets (or whatever else you're invested in, but mainly it's those two). The Fed has the ability, and apparently the willingness, to prop those up in times of stress.
      - bumby 6y ago
        Fair enough, maybe I was reading too far between the lines that the parent commenter was referencing the market as a proxy for the economy (which I don't agree with, but it's a common assumption). I agree the Fed has the ability (to a certain extent) and the willingness to prop them up. The point I may not be getting across is that they only have so many tools available (the biggest lever being interest rates, but as you mention they have other options like buying bonds). Once those tools are in play (e.g., interest rates hovering near zero) they have less leverage to impact the economy if a severe downturn happens. That's not to say they are out of options, just that they have less options at their disposal. That's why I referenced interest rates as one of its most important tools, with the implication they had other (perhaps less broadly impactful) ways to spur the economy
        thedufer 6y ago
        Interest rates have historically been their biggest tool, but the buyer-of-last-resort things seems both better at propping up the market (probably worse at spurring the actual economy, but again, all we're talking about here are investment returns!) and unlimited in power in a way that interest rates are not. Interest rates are bounded at 0, or at least start behaving oddly beyond that, while just buying stuff is bounded at having all of the stuff, and if the Fed has all the stuff you no longer care what prices the stuff has because you don't have any of it.
        bumby 6y ago
proverbialbunny 6y ago
What people typically do is if they retire and then a recession hits, they go back to work for 1 to 3 years, then retire. If you look at the numbers there is a surge of retirees a couple of years after the bottom of a recession.
JKCalhoun 6y ago
Yes, I picked a wild drop — I guess to exxagerate the diminished capital to the point the problem becomes obvious.

bumby 6y ago

>it's hard to imagine another great depression at all, given the Fed's recent history of propping up the market in crashes I think the counter-argument (not that I know enough one way or the other) is that the Fed’s recent addiction to low interest rates removes one of its most important tools for propping up the economy if the existing approach is found insufficient

thedufer 6y ago
The strategy this spring of just buying up bonds en masse worked pretty well, and seems fairly unlimited as long as they're willing to print money with which to buy stuff. They have a lot more levers than just interest rates.
- bumby 6y ago
  What types of bonds are you referring to? Treasury bonds aren’t exactly going gang busters. Or maybe we’re talking about different periods? The point I was trying to make (maybe unclearly) is that one of the main bullets to assist the broad economy may have already been fired. To your point, there will always be segments of the economy that perform well, but that’s not equivalent to the broad economy performing well
  - thedufer 6y ago
    Corporate bonds. Look at $BND, for example. It crashed 8.5% March 9-12. The flattening and then quick rebound are generally credited to the rumors and then announcement of the Fed's bond buying program. The health of the _broad economy_ isn't what's relevant to this, though, only the bond and stock markets (or whatever else you're invested in, but mainly it's those two). The Fed has the ability, and apparently the willingness, to prop those up in times of stress.
    - bumby 6y ago
      Fair enough, maybe I was reading too far between the lines that the parent commenter was referencing the market as a proxy for the economy (which I don't agree with, but it's a common assumption). I agree the Fed has the ability (to a certain extent) and the willingness to prop them up. The point I may not be getting across is that they only have so many tools available (the biggest lever being interest rates, but as you mention they have other options like buying bonds). Once those tools are in play (e.g., interest rates hovering near zero) they have less leverage to impact the economy if a severe downturn happens. That's not to say they are out of options, just that they have less options at their disposal. That's why I referenced interest rates as one of its most important tools, with the implication they had other (perhaps less broadly impactful) ways to spur the economy
      - thedufer 6y ago
        Interest rates have historically been their biggest tool, but the buyer-of-last-resort things seems both better at propping up the market (probably worse at spurring the actual economy, but again, all we're talking about here are investment returns!) and unlimited in power in a way that interest rates are not. Interest rates are bounded at 0, or at least start behaving oddly beyond that, while just buying stuff is bounded at having all of the stuff, and if the Fed has all the stuff you no longer care what prices the stuff has because you don't have any of it.
        bumby 6y ago

proverbialbunny 6y ago

What people typically do is if they retire and then a recession hits, they go back to work for 1 to 3 years, then retire. If you look at the numbers there is a surge of retirees a couple of years after the bottom of a recession.

JKCalhoun 6y ago

Yes, I picked a wild drop — I guess to exxagerate the diminished capital to the point the problem becomes obvious.