9 ms·

How much is enough to FIRE in San Francisco?

68 points by andrenader 2y ago

adam_arthur 2y ago
The 4% rule as a plan is not very smart in the current environment. A few years ago it was difficult to get safe higher yielding equities/bonds, but no longer. You can build a quite safe stock/bond portfolio yielding 8% on distributions alone. Why would you aim to sell 4% of principal a year when you can avoid touching the principal at all at close to twice the yield? Large caps are also at quite high valuations historically... earnings grow over time, but valuation multiples are cyclical. There are so many safe small caps at depressed, recessionary valuations right now. Look at any number of the ~1B market cap or under REITs that often yield 7%+ right now and have strong balance sheets and good growth prospects Owning 10,000 apartment buildings isn't really any more differentiated or safer than owning 1000. Especially not when you're paying 1.5x the multiple for it. The growth in popularity of passive investing has really inflated the spread in valuation between large/small cap. EDIT: The negative engagement on this comment is strongly explanatory as to why there's so much opportunity in the market right now.
- slg 2y ago
  The thing about retirement, especially early retirement, is it (hopefully) lasts a long time. It is foolish to assume that the trends of the last couple of years will continue on indefinitely rather than return to historic norms. Banking on a 7%-8% return on low risk assets is just asking for trouble.
  - adam_arthur 2y ago
    You seem to misunderstand. If a company owns apartment buildings and earns $1B a year, and pays out $500m a year in dividends at 5% yield, that is a 50% payout ratio and very safe margin of error on cashflow for real estate. If you buy today and hold, that's locked in. You are in a safe position, if you assume that rents aren't going to decline nationally and materially. There is no "good times and bad times" you're in the position and in the game. Just hold it If you buy Costco today at a 45x earnings multiple and 0.5% dividend, and expect to be able to sell it down at 4% a year and earn a better yield at lower risk, that is quite clearly poorly conceived in my opinion. (among many other large caps in a similar position)
    - slg 2y ago
      Do you have an example of an REIT that fits your hypothetical that has a history of delivering these yields consistently for decades?
      - adam_arthur 2y ago
        O (Realty Income) pays 6% today, AFFO multiple of 12x, low debt (35% debt to asset value), low payout ratio (75% of AFFO), and has never cut their dividend, including during the GFC And I think this is one of the poorer income choices today. People would rather buy Costco at 50x earnings multiple and try to sell the principle down at 4%/year, apparently! The responses to this thread are really eye opening to why such a large small/large cap valuation gap exists. (Yes, O is large cap, but smaller REITs have even better numbers)
        slg 2y ago
        You pretty quickly when from "yielding 8% on distributions alone" and "REITs that often yield 7%" to "pays 6% today". There are plenty of windows in which an investment in O wouldn't have met your original criteria.
        adam_arthur 2y ago
        I gave a widely known larger cap name. We are discussing a proposed strategy of selling 3-4% of principle as your "income". 6% is clearly far higher, and in this case safer too (imo), which was my original point CTO pays 8.8% with similar setup, higher payout ratio and debt, but below market rents across the portfolio, and well situated in the Sunbelt. As one smaller cap example
        slg 2y ago
        And I can get 4-5% by just holding cash in a high yield savings account right now. The point of the 4% rule is that is has remained true over large scales of time in which a lot changes. Compare that to your CTO example, and that 9.5% yield hasn't exactly been consistent. https://www.nasdaq.com/market-activity/stocks/cto/dividend-history https://www.nasdaq.com/market-activity/stocks/cto/dividend-h...
- jandrewrogers 2y ago
  Those yields can shrink or disappear quite rapidly, and then you are left selling the equity. From a purely financial perspective, there is nothing special about dividends versus selling equity, it doesn't make you better off; that is just rearranging how value is recognized. The main difference between dividends and growth is tax structure, which generally favors the latter due to the added optionality. Dividends are mostly only useful if you want to cater to fixed income investors and similar.
  - adam_arthur 2y ago
    A company owning real estate, paying 8% dividends with a 65% payout ratio isn't going to have its dividends disappear overnight. I can buy O (Realty Income) right now and lock in a ~6% yield. They didn't cut their dividend even during the GFC. And I think O is one of the poorer options of REITs to choose from right now. What do you mean? This entire thread is about retirement, where fixed income becomes important. If you're 75 do you want to wait 10 years for the market to recover to resume selling your principle?
willsmith72 2y ago
why does he skip the taxes though? surely at 140k, even long term capital gains taxes are going to eat up a significant portion.
- andrenader 2y ago
  OP here. Married Filing Jointly has nearly 90k of long term capital gains in the 0% tax bracket. Most the "income" coming from qualified dividends, long term capital gains, and importantly the original cost basis of the investments you sold. This is all before more complicated withdraw strategies. So the taxation at that level ends up being smaller than you think. I need to make a longer post going into all the details explaining it all.
hindsightbias 2y ago
Send the kid to SFSU and have her live at home since that's the norm now. That or give up the daily avocado toast.
m3kw9 2y ago
Using a a multiple to guess is highly inaccurate. You also cannot use stock market as a way to accurately assume it will nullify inflation. You need to use some sort of TIPS treasury as a baseline calculation, not a volitle market. If you are messing around with the stock market, you could screw it up when you feel lucky or panic. The best way to retire is to always have some sort of backup skill income and do some side jobs on your own leisure to keep it sharp. With any number you can still go under for whatever reasons and when you do, you are really screwed
readthenotes1 2y ago
The author should spend some time reading root of good's blogs. The guy takes his family of four on multi-week vacations for essentially nothing...
tunesmith 2y ago
I think any time you string together a series of worst case scenarios all being true at the same time, you're going to end up with something ridiculous. It's silly to ignore social security since at the bare minimum, if congress does nothing, people will still get roughly 75% of the benefit. One tool I like better than the online calculators is the spreadsheet at https://earlyretirementnow.com/safe-withdrawal-rate-series/ https://earlyretirementnow.com/safe-withdrawal-rate-series/ . It'll give you the actual 0% failure safe withdrawal rate, based off of your numbers. I'm sure in OP's case it will be higher than 3.00%.
- beambot 2y ago
  FireCalc is also great - https://firecalc.com/ https://firecalc.com/. Just put in spending, portfolio & years (tiny box on right), and it does back testing analysis over investment windows going back to 1871. For $4M and $140k annual spend: > FIRECalc looked at the 124 possible 30 year periods in the available data, starting with a portfolio of $4,000,000 and spending your specified amounts each year thereafter. > Here is how your portfolio would have fared in each of the 124 cycles. The lowest and highest portfolio balance at the end of your retirement was $348,731 to $24,529,049, with an average at the end of $9,233,594. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.) > For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
asdfman123 2y ago
I've spent years thinking about and pursuing early retirement. My thoughts: 1) You should never stop working. Humans need purpose. It may be worthwhile to think of it instead as saving money so you can transition to a more meaningful job. Maybe one that doesn't pay anything at all, like child rearing, or volunteering. This conclusion implies that if you CAN already do something meaningful, it's probably better to do it sooner rather than later because youth/time is more valuable than money. 2) The 4% withdrawal rate works in a world where the US is dominant and young. Economic growth is fueled by young workers. We are able to stay relatively young thanks to immigration, but birth rates are falling all around the world. Also, the geopolitical world is changing. The most likely scenario is that US power continues for the next several decades. A less likely scenario is a painful major conflict with China/Russia/etc. in which the US wins. An even less likely scenario is a painful conflict that the US loses. In the second two scenarios, you can't rely on the 4% rule to hold. 3) I like the idea of financial independence. But financial independence in that you have a chunk of wealth to cushion blows or go on sabbaticals, not that you're done having to work forever.
- sceptical 2y ago
  I retired three years ago at the age of 49. I was rather successful as a software engineer and is content with what I achieved. My response to your thoughts. 1) I have not missed work at all for the last three years. Not a single day. I have not done any programming since I retired. Instead I spend my time on other hobbies and travelling. I try to take two week-long trips every month to new locations. That is plenty meaningful for me. I have nothing to prove, I already did that. My job now is to see the world while I still can. 2) Initially it was daunting to start living on savings / investments. Especially with an initial ~20% market correction and high inflation. However I am spending less than I expected, only around 2% withdrawal rate and I could reduce that by almost 50% if needed and still live rather comfortably. 3) Financial independence is nice. But you also have to spend the money, while you still can.
  - pc86 2y ago
    I think "rather successful" is an understatement if you're able to travel for 24 weeks out of the year on only a 2% withdrawal rate.
TideAd 2y ago
Once your number as high as $5.6m, is that even plausibly within the scope of early retirement? I feel like a lot of the value of getting a specific number is getting spooked by it! And then facing some real choices. Is it really worth N years of my working life to [live in the most expensive city in America] / [buy a large home] / [pay for 4 years of expensive American universities]? And this isn't even touching on stuff tech people often want that OP doesn't (private schools / resort vacations / expensive winter sports).
subsubzero 2y ago
A few things you can do to reduce costs, my family does this and hope it helps others. - Gardening/yardwork - We do all this ourselves, its exercise and gets you outside, plus you have made something better in the physical world(I work in software so get extreme satisfaction from this!): savings per month/year ($240/$2880) - Cleaning - We also do not have cleaners, our house is not particularly messy and we clean as we go, this saves us money by not hiring a expensive house cleaner: savings per month/year ($200/$2400) - Shop around for home/car insurance, our home insurance rate was jumping to $5600 a year, we looked around and were able to bundle with a well known company and got it to $2600 a year. Also its cheaper to pay in full, plus if you are a engineer or manager you get a discount: savings per month/year ($250/$3000) - Switch to lower cost cell phone plans, went with Tmobile over Verizon on a family plan and saved a decent amount: savings per month/year ($60/$720) - Avoid doordash and other takeout services, they tack on a huge fee with every transaction(ie. 25-30%) that saves you money if you either head out to get food or just make it at home, assuming 5-6 dashes per month and cost per dash being $100: savings per month/year ($150/$1800) - Make your food at home, kind of obvious but food eaten out is usually 2-3x cost of making the same thing at home. When we do eat out I have been getting 1 glass of an alcoholic beverage as its usually the most expensive thing on the menu, also avoid appetizers. Those two things usually cuts the bill down by 30%. Assuming eating out 10 times a month and average bill is $100(very conservative for a big city) you end up with: savings per month/year ($250/$3000) - Avoid Cable and other high cost entertainment packages, they are usually over $100 a month and are mostly commercials anyways. if you like sports I usually get peacock as its quite cheap, also HBOgo(or max) has live sports now and both are around/under $10 a month. savings per month/year ($100/$1200) These things don't add a huge burden to your life and when added up allow you to save more money. All of these cost savings are what my family actually did and it saved us roughly $15k a year and in general are all more healthy alternatives to what would cost money.
- pc86 2y ago
  Non-project landscaping in my nondescript midwest suburb is a minimum $600-800/mo. This is one mulch application, weekly mowing, biweekly weeding, pruning / cleanup on a half-acre lot with no difficult terrain and a generous back patio. It's a big part of why we just do it ourselves, it's hard to justify $7-10k or more on someone mowing the grass and getting rid of sticks.
Paulrer 2y ago
[flagged]
thefaux 2y ago
The funny thing is that I just plucked 5MM out of a hat for my number 5 or so years ago when asked and I guess this analysis supports my intuition. The one big problem with renting is instability. If the owner decides to sell the property, it may be difficult to find something equivalent on your terms or you may be forced to hop around a few times before settling.
- pwarner 2y ago
  I guessed $6M when I read the headline. I'm in a LCOL area so I see ~$4.5M as my number. Inflation / future returns are the biggest challenge.
- harmmonica 2y ago
  A buyout, as sibling mentioned, could happen, but would likely not be enough to make up for losing your rent-controlled apartment. In SF, most apartment rentals are covered by rent control so you can more or less predict how much rent you'll be paying years into the future (the annual rent increases are capped by the city and though they are supposed to be tied to inflation the allowable rent increases are likely, practically speaking, less than the inflation rate (for example, looks like for the coming year the increase is capped at 1.7%)).
  - creer 2y ago
    > most apartment rentals are covered by rent control For a rather loose definition of "most". Depends on type of building and when they were built or renovated.
- jwells89 2y ago
  Stability is one of the reasons why I bought a few years ago (albeit, not in the SF Bay Area). That ever-looming possibility of needing to move again come lease renewal time, whether that be due to rent hikes or the landlord deciding to do something else with the property wore on my nerves. Of course home ownership isn’t all roses either, but I can at least rely on and plan around my mortgage payment not changing and not having to move unless I decide to do so independently.
tapatio 2y ago
[flagged]
dataflow 2y ago
Doesn't this depend heavily on inflation? With the ballooning US debt, how do people imagine the government will continue to pay interest without massive inflation in a few decades?
- the_real_cher 2y ago
  I dont think people understand it or arent aware or are in blissful denial. Im guilty of this, just a few years ago I started researching it even though its been a problem for decades or more. The news media puts wars on the front page and the debt on the back page if its reported at all. In my opinion this one of the biggest existential threats to America and the main stream media isnt even raising any red flags.
- ww520 2y ago
  The 4% or 3% as OP put it withdrawal rate accounts for inflation.
- diob 2y ago
  Presumably their investments would inflate as well. Unfortunately, the asset owning class is protected by inflation in that way. It's the lower / middle class who have cash savings that get wrecked by inflation.
  - rzmmm 2y ago
    Depends on the asset, but usually salaries follow inflation more closely than investments.
    - diob 2y ago
      This doesn't address what I said though. Salaries may follow, but their cash savings do not.
  - whimsicalism 2y ago
    usually inflation helps the lower class - this has been the case historically and also the case for the most recent inflation
the_gipsy 2y ago
Companies are essentially subsidizing $1M (or more now?) mortgages if you are willing to go into their SV offices. You don't have to retire there! Just sell the house and move on.
- photonbeam 2y ago
  I hadn’t heard of this, what are some example companies I can look at?
  - darknavi 2y ago
    Maybe they mean they pay more in the bay area because of the high housing costs.
    - hot_gril 2y ago
      That's what I understood too, but it seems more like enough to rent, not buy.
      - olliej 2y ago
        Yeah I recently looked at rent costs down in the South Bay (thinking “tiny shitty apartment to avoid 12-15 hours of mandatory commuting 3 days a week”) and it’s insane - like “more than my mortgage payments” insane.
  - whimsicalism 2y ago
    they just mean that this is what the geo-adjusted salary is doing
  - dinobones 2y ago
    I think what he means is: Some SF companies pay very large compensation packages so that their engineers can afford to purchase homes. I don't think this is true. There are only a handful of companies that pay $500k+ TC for senior+ engineers. The vast majority of companies top out at $250k, be it F500 or startups (not including their worthless "equity"). You can't afford a home, on your own, at $250k in the Bay Area. Realistically you need $500k+.
hankchinaski 2y ago
140k in spend in SF is a broke lifestyle. So more like 10mm at least
hiddencost 2y ago
This analysis doesn't seem to account for inflation? In 40 years, withdrawing $140,000 will not be nearly as much. For reference, inflation over the last 40 years has been 300%. So you're talking about $47k in inflation adjusted purchasing power in 40 years.
- andrenader 2y ago
  It does factor in inflation. I am using a 3% safe withdraw rate in my calculations which is where I withdraw 3% of my portfolio balance in year one, then in year two I take that original amount and adjust it up by inflation, and continue doing this each year. So it will maintain the same buying power.
- aketchum 2y ago
  the 3% rule accounts for inflation. Average nominal return 7-10%, inflation of 3.5% average, leaves you 3% withdrawal with no decrease (or even an increase) in principle in real dollars
  - tunesmith 2y ago
    That's not what the 4% rule means. The 4% rule (modified to 3% by OP) is what you can withdraw without running out of principle. Maintaining the level of principle is a different thing entirely. Average nominal should be ignored anyway. It's never been a practical number for the individual investor to rely on. Mistakes, allocation models, people having less to invest when times are bad (and market is low), etc.
1024core 2y ago
I wonder what the number would be assuming you own your own home. I thought it would make a real difference, but instead of $60K/year you spend on renting a house (in his calculation), you'd spend $30K/year on property taxes :-(( So, not much of difference if you own a $2M house.
- coryrc 2y ago
  Not if you bought a couple decades ago or inherited from your parents.
  - starttoaster 2y ago
    Not sure how it works in every state, but my property taxes are liable to increase year to year, for a home I own. Are you saying this is not the case in California? They just true up property taxes for a property upon next sale?
    - whimsicalism 2y ago
      yes, it is a serious problem in california - people consider this one of the primary causes of the housing crisis
    - countvonbalzac 2y ago
      Prop 13 means that property tax increases are capped at 2% or inflation, whichever is lower.
    - collingreen 2y ago
      Yep! It's good to be born rich already!
    - koolba 2y ago
      CA assessed value for property tax calculations is capped at 2% growth per year. So if you bought a house in the 1970s you’re never selling that thing as the tax hit on any new property annually would be much more. If anything, you keep the property, rent it out, and never do any major renovation that would trigger a full reassessment.

68 points by andrenader 2y ago

The 4% rule as a plan is not very smart in the current environment. A few years ago it was difficult to get safe higher yielding equities/bonds, but no longer. You can build a quite safe stock/bond portfolio yielding 8% on distributions alone. Why would you aim to sell 4% of principal a year when you can avoid touching the principal at all at close to twice the yield? Large caps are also at quite high valuations historically... earnings grow over time, but valuation multiples are cyclical. There are so many safe small caps at depressed, recessionary valuations right now. Look at any number of the ~1B market cap or under REITs that often yield 7%+ right now and have strong balance sheets and good growth prospects Owning 10,000 apartment buildings isn't really any more differentiated or safer than owning 1000. Especially not when you're paying 1.5x the multiple for it. The growth in popularity of passive investing has really inflated the spread in valuation between large/small cap. EDIT: The negative engagement on this comment is strongly explanatory as to why there's so much opportunity in the market right now.

slg 2y ago
The thing about retirement, especially early retirement, is it (hopefully) lasts a long time. It is foolish to assume that the trends of the last couple of years will continue on indefinitely rather than return to historic norms. Banking on a 7%-8% return on low risk assets is just asking for trouble.
- adam_arthur 2y ago
  You seem to misunderstand. If a company owns apartment buildings and earns $1B a year, and pays out $500m a year in dividends at 5% yield, that is a 50% payout ratio and very safe margin of error on cashflow for real estate. If you buy today and hold, that's locked in. You are in a safe position, if you assume that rents aren't going to decline nationally and materially. There is no "good times and bad times" you're in the position and in the game. Just hold it If you buy Costco today at a 45x earnings multiple and 0.5% dividend, and expect to be able to sell it down at 4% a year and earn a better yield at lower risk, that is quite clearly poorly conceived in my opinion. (among many other large caps in a similar position)
  - slg 2y ago
    Do you have an example of an REIT that fits your hypothetical that has a history of delivering these yields consistently for decades?
    - adam_arthur 2y ago
      O (Realty Income) pays 6% today, AFFO multiple of 12x, low debt (35% debt to asset value), low payout ratio (75% of AFFO), and has never cut their dividend, including during the GFC And I think this is one of the poorer income choices today. People would rather buy Costco at 50x earnings multiple and try to sell the principle down at 4%/year, apparently! The responses to this thread are really eye opening to why such a large small/large cap valuation gap exists. (Yes, O is large cap, but smaller REITs have even better numbers)
      - slg 2y ago
        You pretty quickly when from "yielding 8% on distributions alone" and "REITs that often yield 7%" to "pays 6% today". There are plenty of windows in which an investment in O wouldn't have met your original criteria.
        adam_arthur 2y ago
        I gave a widely known larger cap name. We are discussing a proposed strategy of selling 3-4% of principle as your "income". 6% is clearly far higher, and in this case safer too (imo), which was my original point CTO pays 8.8% with similar setup, higher payout ratio and debt, but below market rents across the portfolio, and well situated in the Sunbelt. As one smaller cap example
        slg 2y ago
        And I can get 4-5% by just holding cash in a high yield savings account right now. The point of the 4% rule is that is has remained true over large scales of time in which a lot changes. Compare that to your CTO example, and that 9.5% yield hasn't exactly been consistent. https://www.nasdaq.com/market-activity/stocks/cto/dividend-history https://www.nasdaq.com/market-activity/stocks/cto/dividend-h...
jandrewrogers 2y ago
Those yields can shrink or disappear quite rapidly, and then you are left selling the equity. From a purely financial perspective, there is nothing special about dividends versus selling equity, it doesn't make you better off; that is just rearranging how value is recognized. The main difference between dividends and growth is tax structure, which generally favors the latter due to the added optionality. Dividends are mostly only useful if you want to cater to fixed income investors and similar.
- adam_arthur 2y ago
  A company owning real estate, paying 8% dividends with a 65% payout ratio isn't going to have its dividends disappear overnight. I can buy O (Realty Income) right now and lock in a ~6% yield. They didn't cut their dividend even during the GFC. And I think O is one of the poorer options of REITs to choose from right now. What do you mean? This entire thread is about retirement, where fixed income becomes important. If you're 75 do you want to wait 10 years for the market to recover to resume selling your principle?

willsmith72 2y ago

why does he skip the taxes though? surely at 140k, even long term capital gains taxes are going to eat up a significant portion.

andrenader 2y ago
OP here. Married Filing Jointly has nearly 90k of long term capital gains in the 0% tax bracket. Most the "income" coming from qualified dividends, long term capital gains, and importantly the original cost basis of the investments you sold. This is all before more complicated withdraw strategies. So the taxation at that level ends up being smaller than you think. I need to make a longer post going into all the details explaining it all.

hindsightbias 2y ago

Send the kid to SFSU and have her live at home since that's the norm now. That or give up the daily avocado toast.

m3kw9 2y ago

Using a a multiple to guess is highly inaccurate. You also cannot use stock market as a way to accurately assume it will nullify inflation. You need to use some sort of TIPS treasury as a baseline calculation, not a volitle market. If you are messing around with the stock market, you could screw it up when you feel lucky or panic. The best way to retire is to always have some sort of backup skill income and do some side jobs on your own leisure to keep it sharp. With any number you can still go under for whatever reasons and when you do, you are really screwed

readthenotes1 2y ago

The author should spend some time reading root of good's blogs. The guy takes his family of four on multi-week vacations for essentially nothing...

tunesmith 2y ago

I think any time you string together a series of worst case scenarios all being true at the same time, you're going to end up with something ridiculous. It's silly to ignore social security since at the bare minimum, if congress does nothing, people will still get roughly 75% of the benefit. One tool I like better than the online calculators is the spreadsheet at https://earlyretirementnow.com/safe-withdrawal-rate-series/ https://earlyretirementnow.com/safe-withdrawal-rate-series/ . It'll give you the actual 0% failure safe withdrawal rate, based off of your numbers. I'm sure in OP's case it will be higher than 3.00%.

beambot 2y ago
FireCalc is also great - https://firecalc.com/ https://firecalc.com/. Just put in spending, portfolio & years (tiny box on right), and it does back testing analysis over investment windows going back to 1871. For $4M and $140k annual spend: > FIRECalc looked at the 124 possible 30 year periods in the available data, starting with a portfolio of $4,000,000 and spending your specified amounts each year thereafter. > Here is how your portfolio would have fared in each of the 124 cycles. The lowest and highest portfolio balance at the end of your retirement was $348,731 to $24,529,049, with an average at the end of $9,233,594. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.) > For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.

asdfman123 2y ago

I've spent years thinking about and pursuing early retirement. My thoughts: 1) You should never stop working. Humans need purpose. It may be worthwhile to think of it instead as saving money so you can transition to a more meaningful job. Maybe one that doesn't pay anything at all, like child rearing, or volunteering. This conclusion implies that if you CAN already do something meaningful, it's probably better to do it sooner rather than later because youth/time is more valuable than money. 2) The 4% withdrawal rate works in a world where the US is dominant and young. Economic growth is fueled by young workers. We are able to stay relatively young thanks to immigration, but birth rates are falling all around the world. Also, the geopolitical world is changing. The most likely scenario is that US power continues for the next several decades. A less likely scenario is a painful major conflict with China/Russia/etc. in which the US wins. An even less likely scenario is a painful conflict that the US loses. In the second two scenarios, you can't rely on the 4% rule to hold. 3) I like the idea of financial independence. But financial independence in that you have a chunk of wealth to cushion blows or go on sabbaticals, not that you're done having to work forever.

sceptical 2y ago
I retired three years ago at the age of 49. I was rather successful as a software engineer and is content with what I achieved. My response to your thoughts. 1) I have not missed work at all for the last three years. Not a single day. I have not done any programming since I retired. Instead I spend my time on other hobbies and travelling. I try to take two week-long trips every month to new locations. That is plenty meaningful for me. I have nothing to prove, I already did that. My job now is to see the world while I still can. 2) Initially it was daunting to start living on savings / investments. Especially with an initial ~20% market correction and high inflation. However I am spending less than I expected, only around 2% withdrawal rate and I could reduce that by almost 50% if needed and still live rather comfortably. 3) Financial independence is nice. But you also have to spend the money, while you still can.
- pc86 2y ago
  I think "rather successful" is an understatement if you're able to travel for 24 weeks out of the year on only a 2% withdrawal rate.

TideAd 2y ago

Once your number as high as $5.6m, is that even plausibly within the scope of early retirement? I feel like a lot of the value of getting a specific number is getting spooked by it! And then facing some real choices. Is it really worth N years of my working life to [live in the most expensive city in America] / [buy a large home] / [pay for 4 years of expensive American universities]? And this isn't even touching on stuff tech people often want that OP doesn't (private schools / resort vacations / expensive winter sports).

subsubzero 2y ago

A few things you can do to reduce costs, my family does this and hope it helps others. - Gardening/yardwork - We do all this ourselves, its exercise and gets you outside, plus you have made something better in the physical world(I work in software so get extreme satisfaction from this!): savings per month/year ($240/$2880) - Cleaning - We also do not have cleaners, our house is not particularly messy and we clean as we go, this saves us money by not hiring a expensive house cleaner: savings per month/year ($200/$2400) - Shop around for home/car insurance, our home insurance rate was jumping to $5600 a year, we looked around and were able to bundle with a well known company and got it to $2600 a year. Also its cheaper to pay in full, plus if you are a engineer or manager you get a discount: savings per month/year ($250/$3000) - Switch to lower cost cell phone plans, went with Tmobile over Verizon on a family plan and saved a decent amount: savings per month/year ($60/$720) - Avoid doordash and other takeout services, they tack on a huge fee with every transaction(ie. 25-30%) that saves you money if you either head out to get food or just make it at home, assuming 5-6 dashes per month and cost per dash being $100: savings per month/year ($150/$1800) - Make your food at home, kind of obvious but food eaten out is usually 2-3x cost of making the same thing at home. When we do eat out I have been getting 1 glass of an alcoholic beverage as its usually the most expensive thing on the menu, also avoid appetizers. Those two things usually cuts the bill down by 30%. Assuming eating out 10 times a month and average bill is $100(very conservative for a big city) you end up with: savings per month/year ($250/$3000) - Avoid Cable and other high cost entertainment packages, they are usually over $100 a month and are mostly commercials anyways. if you like sports I usually get peacock as its quite cheap, also HBOgo(or max) has live sports now and both are around/under $10 a month. savings per month/year ($100/$1200) These things don't add a huge burden to your life and when added up allow you to save more money. All of these cost savings are what my family actually did and it saved us roughly $15k a year and in general are all more healthy alternatives to what would cost money.

pc86 2y ago
Non-project landscaping in my nondescript midwest suburb is a minimum $600-800/mo. This is one mulch application, weekly mowing, biweekly weeding, pruning / cleanup on a half-acre lot with no difficult terrain and a generous back patio. It's a big part of why we just do it ourselves, it's hard to justify $7-10k or more on someone mowing the grass and getting rid of sticks.

Paulrer 2y ago

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thefaux 2y ago

The funny thing is that I just plucked 5MM out of a hat for my number 5 or so years ago when asked and I guess this analysis supports my intuition. The one big problem with renting is instability. If the owner decides to sell the property, it may be difficult to find something equivalent on your terms or you may be forced to hop around a few times before settling.

pwarner 2y ago
I guessed $6M when I read the headline. I'm in a LCOL area so I see ~$4.5M as my number. Inflation / future returns are the biggest challenge.
harmmonica 2y ago
A buyout, as sibling mentioned, could happen, but would likely not be enough to make up for losing your rent-controlled apartment. In SF, most apartment rentals are covered by rent control so you can more or less predict how much rent you'll be paying years into the future (the annual rent increases are capped by the city and though they are supposed to be tied to inflation the allowable rent increases are likely, practically speaking, less than the inflation rate (for example, looks like for the coming year the increase is capped at 1.7%)).
- creer 2y ago
  > most apartment rentals are covered by rent control For a rather loose definition of "most". Depends on type of building and when they were built or renovated.
jwells89 2y ago
Stability is one of the reasons why I bought a few years ago (albeit, not in the SF Bay Area). That ever-looming possibility of needing to move again come lease renewal time, whether that be due to rent hikes or the landlord deciding to do something else with the property wore on my nerves. Of course home ownership isn’t all roses either, but I can at least rely on and plan around my mortgage payment not changing and not having to move unless I decide to do so independently.

tapatio 2y ago

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dataflow 2y ago

Doesn't this depend heavily on inflation? With the ballooning US debt, how do people imagine the government will continue to pay interest without massive inflation in a few decades?

the_real_cher 2y ago
I dont think people understand it or arent aware or are in blissful denial. Im guilty of this, just a few years ago I started researching it even though its been a problem for decades or more. The news media puts wars on the front page and the debt on the back page if its reported at all. In my opinion this one of the biggest existential threats to America and the main stream media isnt even raising any red flags.
ww520 2y ago
The 4% or 3% as OP put it withdrawal rate accounts for inflation.
diob 2y ago
Presumably their investments would inflate as well. Unfortunately, the asset owning class is protected by inflation in that way. It's the lower / middle class who have cash savings that get wrecked by inflation.
- rzmmm 2y ago
  Depends on the asset, but usually salaries follow inflation more closely than investments.
  - diob 2y ago
    This doesn't address what I said though. Salaries may follow, but their cash savings do not.
- whimsicalism 2y ago
  usually inflation helps the lower class - this has been the case historically and also the case for the most recent inflation

the_gipsy 2y ago

Companies are essentially subsidizing $1M (or more now?) mortgages if you are willing to go into their SV offices. You don't have to retire there! Just sell the house and move on.

photonbeam 2y ago
I hadn’t heard of this, what are some example companies I can look at?
- darknavi 2y ago
  Maybe they mean they pay more in the bay area because of the high housing costs.
  - hot_gril 2y ago
    That's what I understood too, but it seems more like enough to rent, not buy.
    - olliej 2y ago
      Yeah I recently looked at rent costs down in the South Bay (thinking “tiny shitty apartment to avoid 12-15 hours of mandatory commuting 3 days a week”) and it’s insane - like “more than my mortgage payments” insane.
- whimsicalism 2y ago
  they just mean that this is what the geo-adjusted salary is doing
- dinobones 2y ago
  I think what he means is: Some SF companies pay very large compensation packages so that their engineers can afford to purchase homes. I don't think this is true. There are only a handful of companies that pay $500k+ TC for senior+ engineers. The vast majority of companies top out at $250k, be it F500 or startups (not including their worthless "equity"). You can't afford a home, on your own, at $250k in the Bay Area. Realistically you need $500k+.

hankchinaski 2y ago

140k in spend in SF is a broke lifestyle. So more like 10mm at least

hiddencost 2y ago

This analysis doesn't seem to account for inflation? In 40 years, withdrawing $140,000 will not be nearly as much. For reference, inflation over the last 40 years has been 300%. So you're talking about $47k in inflation adjusted purchasing power in 40 years.

andrenader 2y ago
It does factor in inflation. I am using a 3% safe withdraw rate in my calculations which is where I withdraw 3% of my portfolio balance in year one, then in year two I take that original amount and adjust it up by inflation, and continue doing this each year. So it will maintain the same buying power.
aketchum 2y ago
the 3% rule accounts for inflation. Average nominal return 7-10%, inflation of 3.5% average, leaves you 3% withdrawal with no decrease (or even an increase) in principle in real dollars
- tunesmith 2y ago
  That's not what the 4% rule means. The 4% rule (modified to 3% by OP) is what you can withdraw without running out of principle. Maintaining the level of principle is a different thing entirely. Average nominal should be ignored anyway. It's never been a practical number for the individual investor to rely on. Mistakes, allocation models, people having less to invest when times are bad (and market is low), etc.

1024core 2y ago

I wonder what the number would be assuming you own your own home. I thought it would make a real difference, but instead of $60K/year you spend on renting a house (in his calculation), you'd spend $30K/year on property taxes :-(( So, not much of difference if you own a $2M house.

coryrc 2y ago
Not if you bought a couple decades ago or inherited from your parents.
- starttoaster 2y ago
  Not sure how it works in every state, but my property taxes are liable to increase year to year, for a home I own. Are you saying this is not the case in California? They just true up property taxes for a property upon next sale?
  - whimsicalism 2y ago
    yes, it is a serious problem in california - people consider this one of the primary causes of the housing crisis
  - countvonbalzac 2y ago
    Prop 13 means that property tax increases are capped at 2% or inflation, whichever is lower.
  - collingreen 2y ago
    Yep! It's good to be born rich already!
  - koolba 2y ago
    CA assessed value for property tax calculations is capped at 2% growth per year. So if you bought a house in the 1970s you’re never selling that thing as the tax hit on any new property annually would be much more. If anything, you keep the property, rent it out, and never do any major renovation that would trigger a full reassessment.