4 ms·

If I retired at 40 I don’t think I’d want to remove more than 2% a year from the principal amount, which is.. $12,000-$16,000 a year. How is that possible? Eve

If I retired at 40 I don’t think I’d want to remove more than 2% a year from the principal amount, which is.. $12,000-$16,000 a year. How is that possible? Even with a fully paid off house, you still have property taxes, utilities, maintenance. Even 4% a year which is recommended for a 30 year retirement, you’re only taking out $24,000-$36,000 a year.

hervature 1y ago
You are supposed to invest and keep the money working for you. Adjusted for inflation, S&P 500 returns 6.5% a year. That alone gets you above the poverty line. Recall, this is inflation adjusted so your $600,000 is growing with inflation and the poverty line income also grows over time. This does not account for any swings.
- loeg 1y ago
  You can't actually draw down 6.5%/yr, though, because of sequence of returns risk. The number that is actually safe (historically) is something like 3.5%.
- quickthrowman 1y ago
  Keep in mind that almost all of the FIRE advice available online has been written in a bull stock market that is almost 2 decades long (COVID drawdown is a blip on the 2008-2025 chart). Past performance is not indicative of future returns. Do you know anyone still running a risk parity 60% UPRO/40% TMF (3x long S&P 500, 3x long 20-year Treasury Bonds) portfolio? That portfolio composition had massive returns, until the Fed started hiking rates. The annual implied volatility of SPX is around 15-20%, if you want to withdraw 6.5% a year at 40 and have to restart your career at 55, be my guest. A 40% drawdown on 600k is -240k which puts you at 360k, 6.5% of which is $23,400. Starts getting pretty tight if you need to sell assets for cash which reduces your future returns.
  - deanmoriarty 1y ago
    > Keep in mind that almost all of the FIRE advice available online has been written in a secular bull market that is almost 2 decades long Most of the reasonable FIRE advice (e.g. https://earlyretirementnow.com/ https://earlyretirementnow.com/ quality) suggests a ~3-3.5% withdrawal rate, which has been measured using historical data way before the current secular market. Is your take that even such withdrawal rate wouldn't work anymore, moving forward?
daemonologist 1y ago
3.5% historically holds up over longer retirements (I ran a rough model and got ~98% success for 50 years). $21k is quite lean - you'd have to pick and choose luxuries like a car, no roommates, travel, etc. - but for a single person in many parts of the country it's doable. The big gamble is that Medicaid might get cut further, which would definitely force you back to work.
- quickthrowman 1y ago
  Yes, it’s doable if you rent a $500/month apartment/bedroom in a rural area or split a shitty $1000/month apartment in a mid tier city and don’t have a car, never travel, and don’t use medical care. My employer paid health insurance premiums are ~$15,000/yr. That sounds like my personal idea of Hell, I’d like to be able to get treatment if I got cancer instead of being given a prescription for painkillers and a look of sorrow from a doctor that can’t treat me. FWIW, I currently live in a shitty $1000/month apartment in a mid-tier city, not casting any aspersions on the living situation. But, I’ve lived in this same city without a car and it’s miserable.
ghaff 1y ago
Presumably, it would be cheaper if I had a fairly modern urban condo but my exurban property is a good $15K+ per year. Heck, I just had a kitchen fire and, even with good insurance, I'll probably be $50K out of pocket when all is said and done. I could probably have done things more on the cheap but didn't really make sense.

hervature 1y ago

You are supposed to invest and keep the money working for you. Adjusted for inflation, S&P 500 returns 6.5% a year. That alone gets you above the poverty line. Recall, this is inflation adjusted so your $600,000 is growing with inflation and the poverty line income also grows over time. This does not account for any swings.

loeg 1y ago
You can't actually draw down 6.5%/yr, though, because of sequence of returns risk. The number that is actually safe (historically) is something like 3.5%.
quickthrowman 1y ago
Keep in mind that almost all of the FIRE advice available online has been written in a bull stock market that is almost 2 decades long (COVID drawdown is a blip on the 2008-2025 chart). Past performance is not indicative of future returns. Do you know anyone still running a risk parity 60% UPRO/40% TMF (3x long S&P 500, 3x long 20-year Treasury Bonds) portfolio? That portfolio composition had massive returns, until the Fed started hiking rates. The annual implied volatility of SPX is around 15-20%, if you want to withdraw 6.5% a year at 40 and have to restart your career at 55, be my guest. A 40% drawdown on 600k is -240k which puts you at 360k, 6.5% of which is $23,400. Starts getting pretty tight if you need to sell assets for cash which reduces your future returns.
- deanmoriarty 1y ago
  > Keep in mind that almost all of the FIRE advice available online has been written in a secular bull market that is almost 2 decades long Most of the reasonable FIRE advice (e.g. https://earlyretirementnow.com/ https://earlyretirementnow.com/ quality) suggests a ~3-3.5% withdrawal rate, which has been measured using historical data way before the current secular market. Is your take that even such withdrawal rate wouldn't work anymore, moving forward?

daemonologist 1y ago

3.5% historically holds up over longer retirements (I ran a rough model and got ~98% success for 50 years). $21k is quite lean - you'd have to pick and choose luxuries like a car, no roommates, travel, etc. - but for a single person in many parts of the country it's doable. The big gamble is that Medicaid might get cut further, which would definitely force you back to work.

quickthrowman 1y ago
Yes, it’s doable if you rent a $500/month apartment/bedroom in a rural area or split a shitty $1000/month apartment in a mid tier city and don’t have a car, never travel, and don’t use medical care. My employer paid health insurance premiums are ~$15,000/yr. That sounds like my personal idea of Hell, I’d like to be able to get treatment if I got cancer instead of being given a prescription for painkillers and a look of sorrow from a doctor that can’t treat me. FWIW, I currently live in a shitty $1000/month apartment in a mid-tier city, not casting any aspersions on the living situation. But, I’ve lived in this same city without a car and it’s miserable.

ghaff 1y ago

Presumably, it would be cheaper if I had a fairly modern urban condo but my exurban property is a good $15K+ per year. Heck, I just had a kitchen fire and, even with good insurance, I'll probably be $50K out of pocket when all is said and done. I could probably have done things more on the cheap but didn't really make sense.