Anyone else FI now but still working for a bit longer?

[JL13]

That's a good way to put it. I was thinking of it kind of like investing. If you've got a really secure regular income stream, like a utility company, then you use a high multiple/low discount rate. On the other hand if you've got a company with some uncertainty and irregular earnings (oil production), then you use a low multiple/high discount rate.

The corollary would be that you'd want a very secure income stream to cover your predictable and necessary expenses, like food and shelter, so you'd opt for a very conservative withdrawal rate for these. But once those are covered, then you start to cover less necessary and less predictable things like hobbies, vacations, clothes. These things are irregular, can be delayed, can be reduced, etc. You can just wait for clothes to go on sale or for the thrift store to have your size, you can vacation in Mexico instead of Spain, and so on. So you're probably fine using a high discount rate for those items.

So really, while you might be totally safe withdrawing $6,000 on $200,000 for food and shelter, you might only need another $100,000 to get you to feel safe withdrawing $12,000 (3% for the core and 6% for the irregulars).

[jacob]

There's also the forward-looking consideration. For example, quitting physics and wanting to focus on productive efforts (writing, finance, bike repair, copy-editing, watchmaking, woodworking) resulted in me making more money in the years AFTER I FIRE'd from physics than I did before I FIRE'd. That's not even considering investment income!

Not all of those enterprises/attempts made money but a good fraction of them eventually did even if I wasn't expecting them too. So it's also worth considering what the propensity is towards future enterprises and how likely they are to be remunerative.

Financially speaking, I'm one of the cases, probably rare though, where my original career was actually holding me back

After quitting finance, I haven't developed any new income streams. However, it did allow me to get back to active investing again and so far that was worked out very well, about comparable to my former salary, so far, compared to the funds I was otherwise forced to be in.

[OTCW]

I have a SWR of about 2.6%, but I still work part time. It's a nice balance. I wish I could have worked part time my entire career.

[FBeyer]

...
After quitting finance, I haven't developed any new income streams. However, it did allow me to get back to active investing again and so far that was worked out very well, about comparable to my former salary, so far, compared to the funds I was otherwise forced to be in.

Really?
You're making as much money investing personally, as you were paid working full time?
Do you spend a full 'work day' trading and analysing too?

[jacob]

No, I just have more money to invest now and made the right call with my IRA money in 11/2015 compared to the market (or my previous employer fund) which has been flat YTD (I'm up 7.5%+). I don't expect this to continue but it was interesting/funny to note none the less.

Once again, though, I don't "trade". It's very rare for me to hold anything less than a year and more normal would be 3-5 years. Also I don't analyse in the sense that I meticulously go through financial reports and create my own spreadsheets. However, I do read the news daily and I do check the market daily. I can tell you today's (+ the development over the past few days + the past several months + comparing to similar situations in the past 10-15 years) oil price, SP, DJ, USD/EUD, sector evolution, Yellen statement, and a bunch of other stuff (the approximate market price of each of my some 25 holdings). My edge is having an idea of how those things hang together.

However, I don't think I spend more time on this than the average person spends tracking the election or alternatively which celebrity sleeps with who. Actually, come to think of it ... the structures are remarkably similar ;-P Point being, I don't sit down at my desk for X hours per day or week to focus on my investments. However, I do pay attention but mostly because it interests me.

[FBeyer]

I have a feeling that that last statement was a preventive knee jerk reaction against the Early Retirement Police.
Also: I lolled at the celebrity-sleaze comparison.

[jacob]

It's the "Internet Retirement Police" ... but also to point out that investing as an activity is leveraging both money and skill and thus needs increasingly less time (labor) with more wealth (dollar capital) and experience (brain capital). It's similar to how an 8 hour problem in school/research/creativity becomes a 1 hour problem some years later. If you look back at the written A level exam in HS physics (I forget whether it had 3 or 4 hours allocated), you could probably do that in under 5 minutes today. When I was learning how to [hand]plane boards square, I initially spent 45 minutes per side. Now I can do the entire board in about 10 mins. Ditto investing. I already have the mental model (which did take much reading and thinking create). But all I need to do is to update some values here and there. Intuition does the rest.

[Did]

Sometimes - and this may be a FIRE risk - I do feel a bit thicker than I used to be, as well as lazier. I haven't done much at all to generate income post quitting. I guess I took the R bit in FIRE seriously, and as it turns out I enjoy doing almost anything except worrying about commercialising things or making a buck Tim Ferris style. Having said that buying in Ireland and doing up the cottage may have made us a few quid, but we don't really think about it.

I could do with a bit more coin, but so far - almost 3 years - this hasn't motivated me to spend time earning it.

[Tyler9000]

Great thread, with so many topics that hit close to home.

Just wondering if anyone else is in the same boat. FI, able to retire, but working for more buffer, possibly looking at relocating to a LCOL area for FIRE for quality of life and financial reasons.

Why not both earn more money and start actively embracing FIRE? Back in 2012 the DW and I made the commitment to stop fantasizing about FIRE and to proactively attack it. We were making big money in a high COL area at the time, but the environment was wearing us out and clearly wasn't sustainable. Rather than continuing to "suck it up", we chose a lower COL city on our retirement short list and found jobs there. It was one of the best decisions we've ever made. In retrospect the move alone made us financially independent, but the additional two years of working comfortably padded our savings while we were able to live like retirees financially and truly understand our expenses. And in the meantime, finding a good company with better balance made us a lot happier. Taking a staged approach ultimately made our final decision to walk away much easier. Our lives didn't have to change at all -- the system was already in place, and we just turned off the income spigot and continued on with our day.

BTW, taking this approach also had an unexpected side benefit of building a relationship with a good company that now allows me to occasionally work part-time in retirement on my own terms. I didn't see that one coming, but it's a nice situation that grew out of building a sustainable system rather than anticipating swapping them entirely upon FI.

Actually leaving my job feels more like a fantasy than actually doing it. I think it would take a lot of balls to actually follow through on it. It would be so much easier to just get downsized or bought-out. Plus the insurance and benefits coverage from the job is an added incentive to stay. Wouldn't like so much to have to pay for those expenses out of pocket even though much of the insurance has gone unused for now.

Walking away takes huge balls. It was extremely stressful! But in retrospect, I recognize that all of that fear was completely in my head. Once you break the seal and replace your internal fears with external reality, you find that you have a lot more power than you previously thought. Your misplaced anxiety and lack of confidence is your own worst enemy.

I had the same feeling as @SimpleLife regarding the Opportunity costs, once you step out your profession, it is not that easy to get in again with a good Salary.
...
The point is : you only will know the other aspects of life if you stop the Salary-man path. That is what I felt all the way, as long as you continue the "normal" job, you do not easily find that other path nor the energy to try out.

Amen. I never truly understood how much the typical salary man routine was driving my life until I forcibly ended it. It's a lot like any other addiction -- you can't imagine functioning without it until you just cut it cold turkey, at which point you don't understand why you liked it so much to begin with.

I'll also add that the "I'll never make this much money again" argument is faulty on two fronts (although I absolutely fell prey to it as well). First, who cares? Once you're FI it really doesn't matter, and letting money rule your life is the complete opposite of the point. And second, it may not even be true. I've found that it's more of a defense mechanism to justify inaction rather than an accurate reflection of future opportunities. Just because you don't yet know where to make more money in the future does not mean such an opportunity does not exist. Going back to your previous point, you may not ever find it until you first leave the rut holding you back emotionally.

[Tyler9000]

I think 5% is probably fine. It's what I intend to retire on or close to it however I don't believe you can win via choosing an excellent portfolio. I think that could happen but it'll be blind luck.

I think you need some buffer somewhere though. So be willing to go to work doing whatever for some period of time. Be able to downsize your house. Use social security. Get inheritance. Go live somewhere really cheap for a number of years. There are probably a bunch of things you can do.

I don't believe effective asset allocation is blind luck. Some portfolios are more trustworthy than others.

But I do completely agree that asset allocation isn't the only factor to retirement success or even the most important one. Personal flexibility and good decision making go a long way.

FWIW, while my personal portfolio has supported a traditional 30-year safe withdrawal rate of 6% and a long-term sustainable WR near 5%, my actual WR was sub-3% when I didn't work at all. I didn't necessarily plan it that way (I was shooting for 3% based on traditional research and learned how to calculate SWRs for different portfolios not covered by that research only after I retired) but I do like to think of retirement AA more like an extra factor of safety rather than a guarantee. For the same conservative WR, one portfolio can be quantifiably more dependable than another and buy you a little more financial flexibility and peace of mind. Pushing the withdrawal limits of any AA isn't necessarily the best way to approach retirement.

[BRUTE]

brute believes Tyler9000 has a very important point with "incrementally building the systems that enable FIRE". if Tim Ferriss ever got one thing right, it's that WORK WORK WORK WORK RETIRE DO NOTHING FOREVERRRRR doesn't actually work. both the work and the retire part will suck if humans attempt this, because humans neither have the capacity for unlimited suffering, nor for completely switching who they are one day to the next. plus, the smaller the incremental steps towards FIRE, the less balls are required to pull off each individual move.

in the ERE book, jacob explains how for him, acquiring money-saving skills like plumbing and bicycle repair helped make those incremental steps. brute believes everybody who wants to fire should attempt to find such a step-ladder, instead of hoping that the big jump will work out just fine.

for many professionals, as Tyler9000 demonstrates, moving to a lower COL area, going freelance, or working part time are great strategies towards building the step-ladder.

[steveo73]

I think 5% is probably fine. It's what I intend to retire on or close to it however I don't believe you can win via choosing an excellent portfolio. I think that could happen but it'll be blind luck.

I think you need some buffer somewhere though. So be willing to go to work doing whatever for some period of time. Be able to downsize your house. Use social security. Get inheritance. Go live somewhere really cheap for a number of years. There are probably a bunch of things you can do.

I don't believe effective asset allocation is blind luck. Some portfolios are more trustworthy than others.

But I do completely agree that asset allocation isn't the only factor to retirement success or even the most important one. Personal flexibility and good decision making go a long way.

FWIW, while my personal portfolio has supported a traditional 30-year safe withdrawal rate of 6% and a long-term sustainable WR near 5%, my actual WR was sub-3% when I didn't work at all. I didn't necessarily plan it that way (I was shooting for 3% based on traditional research and learned how to calculate SWRs for different portfolios not covered by that research only after I retired) but I do like to think of retirement AA more like an extra factor of safety rather than a guarantee. For the same conservative WR, one portfolio can be quantifiably more dependable than another and buy you a little more financial flexibility and peace of mind. Pushing the withdrawal limits of any AA isn't necessarily the best way to approach retirement.

Tyler - don't get me wrong. I think asset allocation is the most important aspect of your asset management to focus on. I don't believe though that you should focus on outperformance. I think outperformance is hoping for blink luck.

I think we are basically on the same page when it comes to how to invest. Choose a good asset allocation that works for you. Use low cost index options as much as possible to diversify within the assets within your portfolio.

[BRUTE]

@steveo73: outperforming in the sense of higher long-term returns isn't the only way a portfolio can allow for a higher withdrawal rate. some portfolios are designed to be, and have demonstrably been, less volatile than others. so it's not necessarily blind luck and doesn't necessarily have anything to do with "beating the market".

[jacob]

There's a fine line between luck and skill. That line is subject of endless debate.
http://www.wired.com/2012/11/luck-and-s ... auboussin/

[steveo73]

@steveo73: outperforming in the sense of higher long-term returns isn't the only way a portfolio can allow for a higher withdrawal rate. some portfolios are designed to be, and have demonstrably been, less volatile than others. so it's not necessarily blind luck and doesn't necessarily have anything to do with "beating the market".

I understand this. I think it's more complex than what you just posted though. The initial post that I responded too was about having a portfolio that may outperform. I think anyone thinking that their portfolio is likely to outperform or have a better volatility to performance ratio on any basis is playing a risky game. We aren't though talking completely different things here unless you are stating your fantastic stock (or bonds or commodity) picking means that you will beat the market over time.

My take is as follows:-

1. Pick an asset allocation/portfolio that you are comfortable with. When you do this really criticise it. Don't think that past performance will correlate to future performance.
2. Execute that portfolio with as much diversification within your chosen asset classes at the least possible cost.
3. Rebalance when it makes sense. I think that like asset allocation this is a personal decision.

Prepare yourself for your asset allocation underperforming on whatever basis you think it may underperform and therefore make sure that you have a big enough portfolio that you are comfortable with it. Then just let it ride and don't think about it that much.

For instance if you choose a PP based portfolio you should be thinking that it probably will be fairly stable but underperform. Historically it might have a high return/volatility ratio but don't expect that continue. Your portfolio will probably underperform due to all the defensive assets.

If you choose a 100% stock portfolio you will probably outperform a more defensive portfolio however you will probably also have much worse drawdowns. You may need to be able to return to work or something similar.

I think the theory on this is fairly sound. It's the execution based upon the limited data-set that we have to use that is a lot tougher.

[steveo73]

There's a fine line between luck and skill. That line is subject of endless debate.
http://www.wired.com/2012/11/luck-and-s ... auboussin/

My FIL made a fortune trading. He says it's often better to be lucky than skillful.

[Did]

@brute re balls (first time I've said that) I think that is especially so when you are earning a massive salary and are off to live of relative peanuts. It helps (?) to be chased out or to burn out.

Re step ladder I agree. You can also take the plunge and with a savings buffer get more skilled over time. This comes naturally. Certain savings will seem very sensible as the cash dwindles and skill acquisition can just seem fun (joined a home brew club this week!).

[IlliniDave]

I'll echo the wisdom of auditioning retirement before retiring. It's what I've been doing for the last several years and it's helped immensely in honing in on my comfort level wrt spending money. Though I'm not yet retired I have a lot of confidence in my estimates of future spending and the suitability of the spending level for me. Hopefully that will counteract any anxiety when it time to turn the spigot off. When I imagine that day, fear is not part of the image.

[BRUTE]

I think anyone thinking that their portfolio is likely to outperform or have a better volatility to performance ratio on any basis is playing a risky game.

For instance if you choose a PP based portfolio you should be thinking that it probably will be fairly stable but underperform. Historically it might have a high return/volatility ratio but don't expect that continue. Your portfolio will probably underperform due to all the defensive assets.

If you choose a 100% stock portfolio you will probably outperform a more defensive portfolio however you will probably also have much worse drawdowns.

brute does not mean to pick apart steveo73's post to be a douche, but he senses some cognitive dissonance here.

1.steveo73 asserts that "picking" a portfolio that "outperforms the market" must be luck. what is the market here? 100% US stocks? global market portfolio?
2.steveo73 predicts that a PP will underperform in the future, and 100% stocks will outperform (the PP), thereby explicitly picking a portfolio

brute sees this cognitive dissonance in many indexers. at the same time, they accept as axiomatic that one cannot reliably outperform "the market" and picking anything but the market is therefore speculation, and then they define "the market" as "the domestic stock market", thereby explicitly making a very specific pick based on past performance and/or personal beliefs.

if steveo73 made this argument coming from a GMP, brute would agree. but arguing with uncertainty from such a specific place, where even the PP is more diversified, confuses brute.

[steveo73]

I think anyone thinking that their portfolio is likely to outperform or have a better volatility to performance ratio on any basis is playing a risky game.

For instance if you choose a PP based portfolio you should be thinking that it probably will be fairly stable but underperform. Historically it might have a high return/volatility ratio but don't expect that continue. Your portfolio will probably underperform due to all the defensive assets.

If you choose a 100% stock portfolio you will probably outperform a more defensive portfolio however you will probably also have much worse drawdowns.

brute does not mean to pick apart steveo73's post to be a douche, but he senses some cognitive dissonance here.

1.steveo73 asserts that "picking" a portfolio that "outperforms the market" must be luck. what is the market here? 100% US stocks? global market portfolio?
2.steveo73 predicts that a PP will underperform in the future, and 100% stocks will outperform (the PP), thereby explicitly picking a portfolio

brute sees this cognitive dissonance in many indexers. at the same time, they accept as axiomatic that one cannot reliably outperform "the market" and picking anything but the market is therefore speculation, and then they define "the market" as "the domestic stock market", thereby explicitly making a very specific pick based on past performance and/or personal beliefs.

if steveo73 made this argument coming from a GMP, brute would agree. but arguing with uncertainty from such a specific place, where even the PP is more diversified, confuses brute.

I'm happy to have my post picked apart. I find the cognitive dissonance comment a little funny though. I definitely don't think that is the case with myself.

I'll answer though. Picking a portfolio is individual. So I completely agree that it's impossible to determine what is the market. It's more complicated than that. I don't predict that the PP will underperform in the future. It will perform as per the combination of the underlying assets that constitute the portfolio. Since 75% of those assets are defensive assets you probably won't get high returns from that in the future even if the returns have been good in the past. I'm not into predictions. I'm into taking a step back and analyzing the flaws in your approach. Anyone who thinks that the PP will continue to perform as it has in the past is probably setting themselves up for failure. It has basically 75% defensive assets.

I'm not trying to be slack or difficult but I don't think that you understand asset allocation and portfolio performance and data mining that produces the results of various portfolios very well.

I can see holes in all portfolios based upon historical data. I accept that though. People that believe that their portfolio will perform as per historical performance are going to be disappointed. This is the component that I think you aren't getting. A lot of people don't get this as well. They are smart and they do their research. They realise that total performance in relation to maximum returns isn't the most important component when it comes to picking a portfolio. The problem is that they then pick a portfolio based upon historical data and don't realize in the word of a book that they may be "fooled by randomness".

I hope my opinion on this topic makes sense. If not ask more questions but look at the flaws in your reasoning as well. All I'm stating is that historical performance is not a good basis on which to choose a portfolio. At best it can be used as a very loose guideline. I also think no one will ever pick the right portfolio or if they do it will just be blink luck which matches to my initial point regarding outperformance.