What is your FIRE number? Your expected FIRE expenses?

[steveo73]

Okay, here's another simple reason why Person A is better off than Person B. If you consider investment risk rather than could be expected spending event and surmise a possible scenario where the market falls by 50% and both A and B wish to recover their SWR, if both Person A and Person B are capable of going back to work and earning $20/hr on the employment market in order to recover same level SWR, then Person A will only have to go back to work for an additional 3125 hours, but Person B will have to go back to work for an additional 15,000 hours in order to feel equally secure and happy.

This is also correct but it requires going back to work.

[steveo73]

A bigger buffer is not always better.

ETA: I should mention that we have a buffer that continues to grow. We are doing both. But each year I live the ultra-low-cost lifestyle I appreciate the skills over the buffer more and more.

I think a bigger buffer is always better but is it worth the extra time at work. I don't think so.

I also live a low cost lifestyle but I have some limitations. I have 3 kids. I can't be too cheap with my children.

[BRUTE]

The idea that the less you spend the safer you are without returning to work is I think false. It's more fragile.

brute thinks it's a bit like with inflation vs. stock market crash. if brute puts all his money into the stock market, and the market crashes, the money could be gone. but if brute keeps all his money in cash, he's certain to lose purchasing power over the long run because of inflation.

it's not that "cash is more risky" or "stocks are more risky". there are various, different types of risks, and lacking a crystal ball, one has to make a plan on how to diversify among them.

brute thinks "working longer" is like inflation, keeping it all in cash. each year is not terribly bad, but if one keeps doing it without reacting, one loses out in the long run. early retirement in general protects against this risk. being a handyman/diversifying into different skills/professions is like investing in different asset classes.

so it's not useful to say "the less you spend the safer you are, always", or "a bigger buffer is always better (if it comes with more working years)". each individual must find their risk tolerance for the individual risks.

[steveo73]

The idea that the less you spend the safer you are without returning to work is I think false. It's more fragile.

brute thinks it's a bit like with inflation vs. stock market crash. if brute puts all his money into the stock market, and the market crashes, the money could be gone. but if brute keeps all his money in cash, he's certain to lose purchasing power over the long run because of inflation.

it's not that "cash is more risky" or "stocks are more risky". there are various, different types of risks, and lacking a crystal ball, one has to make a plan on how to diversify among them.

brute thinks "working longer" is like inflation, keeping it all in cash. each year is not terribly bad, but if one keeps doing it without reacting, one loses out in the long run. early retirement in general protects against this risk. being a handyman/diversifying into different skills/professions is like investing in different asset classes.

so it's not useful to say "the less you spend the safer you are, always", or "a bigger buffer is always better (if it comes with more working years)". each individual must find their risk tolerance for the individual risks.

Some good points here. At the same time I think my point is pretty accurate but probably only meaningful if you have artificially decreased your spending or maybe better put estimated your retirement spending at too low a level.

[BRUTE]

sure, the fixed-sum, unpreventable/unforeseeable catastrophe is the "stock market crash" in this analogy. if a human lived on $7,000/yr, FIREd on $175,000 (4%) with zero buffer, a $30,000 one-time medical hit will significantly reduce their capital stock, and they can now only live on $5,800 or have to go back to work.

[steveo73]

sure, the fixed-sum, unpreventable/unforeseeable catastrophe is the "stock market crash" in this analogy. if a human lived on $7,000/yr, FIREd on $175,000 (4%) with zero buffer, a $30,000 one-time medical hit will significantly reduce their capital stock, and they can now only live on $5,800 or have to go back to work.

Exactly. The person who gets to 500k with a spending of 20k per year still gets hit but their spending goes down to 18.8k.

The point being that it's just as likely for either person to get hit with that 30k medical hit. It hits the person with the lower asset portfolio a lot more than it does the person who saved more and that is avoiding the important point that the person with the lower spending may already have maxed out their ability to cut spending. The person with the higher spending may for instance just not be able to upgrade their mobile phone.

[Ego]

Exactly. The person who gets to 500k with a spending of 20k per year still gets hit but their spending goes down to 18.8k.

The point being that it's just as likely for either person to get hit with that 30k medical hit.

I don't believe it is equally likely that the two will get hit with a $30k medical bill. In short, I don't believe that all medical problems just happen to people. There is a large behavioral component.

1. Morale Hazard. Safety nets make people act differently than they would if the net wasn't there. The bigger the net, the more they are willing to act risky. Tightrope walkers are much more careful when they know there is no net to catch them. Flood insurance encourages people to build their homes in flood plains. Drivers are more willing to park their cars in bad neighborhoods when they are fully insured. People are more willing to make risky lifestyle choices (diet, exercise, habits...) if they know they've got a big stash backing them up in case of emergency.

2. Cumulative damage. People earning high wages are often forced to choose between work and health. They prioritize work to keep their jobs. Each additional year of emphasizing work over health causes damage that builds on itself. A negative spiral. One problem leads to the next and they collectively become more rooted.

[Dave]

2. Cumulative damage. People earning high wages are often forced to choose between work and health. They prioritize work to keep their jobs. Each additional year of emphasizing work over health causes damage that builds on itself. A negative spiral. One problem leads to the next and they collectively become more rooted.

While hard to quantify the damage, I have to agree. Being in the asset accumulation phase myself, I often feel I am not capable of doing a sufficient job at all of the following: sleeping enough, exercising enough, socializing (outside work) enough, eating healthy, building new skills, and doing a good job at work. Something has to give.

In my case, I prioritize sleeping #1, eating #2, exercising #3, and work #4. The problem is that even if I am meeting my big three goals, this puts me in a situation where I am not working quite as "hard" or "much" as I feel I should be, so there are chronic levels of stress associated with it. I do consider this a real cost I am paying.

[IlliniDave]

This is also correct but it requires going back to work.

I think this is a consideration that divides a lot of people on this topic. Some are much more comfortable with the idea of just going back to work*, or always working to some degree, than others. For me personally I intend to minimize the chances of letting it become a requirement post-retirement. In early ER it might not be so bad, but as time marches on it will grow increasingly difficult to pull off. At the same time it's an option I hold open because there are a few things I'd like to try that the best way to learn might be through employment. But doing it in the spirit of leisure/personal growth is a different thing than doing it out of financial crisis/need. At least in this simple salaryman's mind.

My oft-repeated disclaimer: I'm not saying there is one right way or any one-size-fits-all better way. This is one where you have to look at your circumstances and be introspective then hope you can find a good balance for yourself.

*some form of making other people happy enough they give their money to you in exchange for your time

[7Wannabe5]

I am confused by this example of 30k hip replacement. Obviously, health and liability insurance exists in order to ameliorate exactly this sort of problem. If we assume that both Person A and Person B are rational, fairly conservative actors who have obtained adequate insurance coverage leaving X% of their net worth subject to deductible/co-pay risk and are including the cost of insurance otherwise in their budget, the argument becomes moot, except for the obvious notation that insurance payments would be a much higher proportion of the overall budget of Person A. For instance, prior to Obamacare, I purchased health insurance with a $5000 deductible for around $115/month (now I pay something between $0 and $30 a month with much lower deductible. I rarely spend more than $100/yr on health services, so it's kind of moot.) So, Person A would be putting 4% of net worth at risk, and would be devoting almost 28% of his $5000 budget to health insurance premiums. Person B could try to find somebody to underwrite a policy with a $25,000 deductible, which would maybe only cost him $89/month, or less than 5% of his $24,000 budget. Liability insurance is more complicated, because the risk of liability would generally tend towards increasing with net worth, and could often be accounted for as business rather than personal expense. I had a friend who was almost wiped out by being divorced by wife and sued for improper black mold abatement by tenant in the same year.

I think there is a level on which what is being assumed in this argument is that if Person A actually was paying enough to cover his risk in proportion to Person B then he would not be left with enough other funds in his budget to possibly survive and be as happy as Person B. Unless what is being assumed is that there are risks that can adequately and only be addressed with set sum of money that even insurance companies are not yet aware of enough to manufacture a product they could profitably sell.

[BRUTE]

there are things that not everyone is insured against. a friend of brutes woke up in the hospital one day, from a 3 week coma. no memory of anything past having breakfast. hit by a drunk lady in a truck who was uninsured. brute doesn't remember the exact figure, but it was something like $50-70k after the friend's insurance.

[ThisDinosaur]

So, what is a systems theory, web-of-goals set of principles for preparing for unexpected $70k medical expenses? Assuming you have established a healthy lifestyle, robust insurance, and a mass of liquid assets, of course. I keep hearing about all these roots and berries, but all I see are the damn apples.

[jacob]

@ThisDinosaur - You got all the pieces already, but you didn't put them together.

Example: You live on 7k on the 3% rule, so you have 233k liquid invested. You get hit by a bus for 70k. You now have 163k invested. Your income deficit is $2100/year. Solution. You step up one or two of several of the activities you already engage in and make $175 per month. Roots and berries.

The objection that some people have is that making $175 per month is superhard. The solution for them is to instead live on 20k on the 3% rule, say ... in that case, they can find the $175/month by cutting out some waste like magazine subscriptions or the saltwater acquarium whereas someone living on 7k has less to cut.

So instead of a lean webbed strategy, they prefer to spend three times as much time working their real job to build up the savings to cover a buffer of spending slack.

Pick one or the other:
1) 100% chance of working 3x longer but the certainty of never having to work again given a bus incident.
2) Putting in 1x the time but with the risk that a bus incident results in having to engage in part time work somewhere down the line.

It really comes down to one's attitude to work and productivity. If you're convinced (and you may be right) that finding other sources of income than your day job is really hard, you stay with the one job you have until you're absolutely sure you'll never need another one. On the other hand, the greater your confidence that you're personally able to find other sources of income of a similar magnitude to your spending, the less of a surplus you need.

I think that confidence comes with experience.

It is also clear that it's much easier to find $2000/year worth of income than it is to find $20000 or $50000. So it also depends on how lean your spending is.

[ThisDinosaur]

Yeah, I guess my issue is I'd like to rule out "working for the man" as an answer. I've found non-monetary, non-employment solutions acceptable for most of my other needs, so I figure there must be some currency-independent way to deal with healthcare costs, too. At some point I or a family member will be sick or injured in the next sixty years. I'd like to know I can cover it without having to go work for somebody else.

[RealPerson]

@Jacob - I totally get the concept. But as a high income earner, it is very difficult to step away from all or part of that to add skills that pay maybe 10% or less of my main job. It makes me less flexible and less able to respond to black swan events. Less of a Renaissance man, if you will. That is all true. But imagine having a conversation with your family that goes something like this: in order to be more flexible and less dependent on the 4% (or 3% or 2% or 1% or 0.5%) rule, I plan to work less for X dollars. But with the extra time available, I plan to learn skills that would pay X/10. What do you think of that? It would be a difficult conversation.

In addition, high paying careers are often difficult to pursue less than full time. Maybe I am simply describing the trap of the high income career, but I think it is a very real scenario for many high income earners. Additionally, the skills needed for high paying jobs often require a level of mastery that would diminish rapidly when the skills are no longer maintained at an optimal level.

In a way, you had such a dilemma when walking away from a career in astrophysics. Didn't you feel like you were throwing away an investment of many years? I assume that if you had regretted your decision and would have wanted to return to your field, that would have been very difficult or nearly impossible. So it was really a point of no return. Walking away from something lucrative or "a sure thing" is especially daunting when there is no way back if you made a mistake. The personal and financial risk is real and not small.

I seem to remember that Ego walked away from a career as a city lawyer. He is now coming up with all these cool ways to sell various finds for a nice profit. I enjoy reading his posts on that. Still, small potatoes compared to a law job I imagine. How do you escape the trap? I continue to struggle with this dilemma. An intellectual understanding is not the same as taking an irreversible life changing step. I believe it is a true challenge, because the 4% rule looks tenuous at best. The 21st century will be nothing like the previous one. Capitalism and the stock market have never before been confronted by diminishing supplies of easy and cheap energy, ecological challenges, and dwindling supplies of raw materials as is already happening. There may not be a FIRE number at all. It really is not an academic discussion.

[Ego]

I seem to remember that Ego walked away from a career as a city lawyer. He is now coming up with all these cool ways to sell various finds for a nice profit. I enjoy reading his posts on that. Still, small potatoes compared to a law job I imagine. How do you escape the trap?

My career was not quite as lofty as a lawyer, but your point stands. I walked away from full-time work sixteen years ago at the age of thirty-two. We are not earning nearly what we could nor what we did, but we just had a two-and-a-half-hour picnic lunch in the park. If the ninety-year-old me was offered the opportunity to pay to come back in time and have this picnic lunch all over again, how much would he pay? I've paid by given up status and some measure of future comfort. I've gotten a heck of a lot more in return.

We escaped the trap by focusing on things we enjoy that incidentally cost little or nothing. Relationships, learning new things and health. We travel one year then come back to the US for three years and each time we earn a living by doing something different from the last time. We travel to inexpensive countries and live in places for a while so we get to see life through the eyes of the people who live there. That is the key. They constantly remind us that the trap is self-created and self-imposed.

[TopHatFox]

Pick one or the other:
1) 100% chance of working 3x longer but the certainty of never having to work again given a bus incident.
2) Putting in 1x the time but with the risk that a bus incident results in having to engage in part time work somewhere down the line.

This is true, though there's also the option to reach bare-bones FI, then switch to a better-fitting career to FI, then part-time to buffered FI, or hobbies to Buffered FI. Or take a year off every now-and-again in the process.

It all seems very flexible and resilient as long as the ideals of living below our means and prudence/planning are consistently used.

Incidentally, is it not possible to ensure against stray busses?

[jennypenny]

I feel like maybe I derailed the thread a little with my specifics on medical costs. That wasn't my intention, nor was it to imply that people should work years longer to guarantee that they have enough in the bank to cover such expenses. I was only trying to put some real numbers to the risk of ongoing medical expenses. My point wasn't that everyone should have an extra million in the bank, only that even with that kind of worst case scenario, the amount was still manageable enough through some combination of work, ssi/ssdi, and expense reduction.

I tend to agree with Ego's take on this subject but my husband feels very differently, partially because his career is such that once he walks away he can't go back and there's no part-time option. I don't think there's a 'right' answer, other than the one that best suits each person.

[jacob]

@RealPerson - Well, the perfect individual solution really depends on where each and every person is coming from in terms of income, skills, and temperament. There's no one-size-fits all or copying-a-solution for success. This is why I wrote the book as a strategy guide rather than a how-to plan or a personal anecdote.

This way everybody can use it to find their own optimal solution.

However, maybe explaining where I come from can be of some general use even if I am very much an outlier. If nothing else it will clear up some misunderstandings.

There seems to be some general perception the astrophysics pays well?! It doesn't!! Someone with an MSc can expect to make 25k/yr as a grad student working 80-100hrs/week for an effective wage of about $5/hour. Sure, you can try doing 40hrs/week and effectively double your wage, but you're not going to make it past quals. Now, get your PhD, and you'll bump that to 40k/yr or $9/hr. Academic science is neither an "investment" nor a "career". Basically it's up or out and most people work around the clock sans sleep. Not for some monetary gain but because it's the most interesting thing in the world for them--- and in some cases for the prestige of calling themselves a phd, scientist, professor, ... etc.

It's not something anyone does as an exchange of time for money. That's just not the mindset.

It's a lifestyle that people do because it's super-interesting to them or because they some day want to call themselves "professor" (in which case I suggest pursuing something much easier than "hard science").

Now, imagine getting paid 25-40k/year for something you'd do for free---for the average person, that'd be watching TV shows, travelling, going to football games, or eating ice cream---that's a fecking awesome deal. That's how junior academic scientists feel. They're absolutely not "doing the career/ROI math" when it comes to personal finance, because they don't and they likely never cared.

As a result of not caring about anything else but their research, very few academic scientists develop an appreciation for bling as they get their rush for free anyway + enough money to pay rent and cafeteria meals. Nor do they feel any need to buy a BMW or a McMansion to compensate for perceived sacrifices or to display upper class status, like lawyers or doctors or business executives. The scientist lifestyle doesn't demand any external signalling. They're too busy solving problems that only interest five other people in the world to care. They're just happy to be paid for having [their kind of] fun.

I was like that myself (and I know other hard science academics like me with very few exceptions).

Now, I was FI at 30 but didn't retire my physics work until I was 33. So I went 3 years beyond FI. Not for financial reasons but because I liked my work.

At 30 astrophysics was still fun to me. I said things like "I'm still gonna do this for free when I'm 80 yo". But when I was 33, it was no longer fun to me. I got sick of "ice-cream" so to speak.

(Hence my concern when people say that the solution is just to find your so-called passion. Well, for some people passions change ... and if they do, and you're not FI or at least FU, you're fecked.)

The daily conversation I had with my family (DW) for the last 6-12 months before I retired from astro was something like this: "I know we're making good money (like 5x as much as we need), but every single day when I go to work I can't wait to get home and do something else(*). We have the money [saved] for me to quit tomorrow. I've been FI for a while. I also have a side-income (copy-editing) that can easily cover my half of all our expenses and even yours if you get fired---like I can work 4 hours per week for me or 8 hours for both of us. And on top of that you have your job. I know that if I get this [very likely] promotion we'll be millionaires before we turn 40, but I'm going batshit on a daily basis and I don't know if I can keep it up for the next 5-10 years. What do you think?"

Eventually, she convinced me to "pursue other interests". I was actually the holdout; maybe because "millionaire".

(After I quit, everybody agreed that was the best idea ever!)

(*) As it happens, that was working on the ERE blog/book which I was increasingly important relative to dealing with the astrophysical significance of some resonance level in Sulfur 30. Compare having your academic paper read 50 times over a lifetime (about one hit per year) to getting 1500 blog hits per day and getting emails that someone changed their life for the better.---This was in 2008 when FIRE was still new.

My second point as it relates to opportunity cost... and again it might not be useful to high-income peeps, but it's significant to my situation.

I note the following ...

1) My hourly copy-editing pay after two days of "training" was higher than my academic postdoc salary and on par with my government postdoc salary. Fun/painful fact for any phd students reading this ... the people type-setting your academic research that <20 people is going to read anyway are paid way better (like 6 times better/hour) than what you're paid doing the actual research. Ugh!!
2) My annual junior/intro salary in finance was higher than my highest achieved academic salary.
3) If you add up the combined income of the ERE book+blog and divide it by the hours spent creating it, it has paid way better than astrophysics.

I think high income peeps often ignore/dismiss that the reason they're making lots of money might be due to some inherent quality (e.g. they're worth it) rather than some external/random quality (e.g. they lucked into a high salary; they may suffer from imposter syndrome).

In my case it definitely revealed the former. In terms of dollars/effort and even total dollars, I've made more USD sum-total post-career retirement than pre-retirement. Because pre-retirement I was locked into some underpaying astrophysics career-track.

Obviously that's not the case for everyone, but it's definitely worth considering whether anyone might be in a similar situation. E.g. now you might be receiving 200k and have 0 hours of free-energy to convert while working your salaryman job. Although in reality, most people (do you watch TV?) would probably have several hours to convert.

Of course, if you're complete torched/burned out (see Ego's post about that risk) after you quit, that [productivity] might not happen. I took almost a year post finance to get back up and running productively. Whereas post-physics, it was almost immediately.

However, what happens when you have 0k but 100hours to convert. Well, I didn't have 200k, I "only" had 67k/year when I quit... but I converted that into 150k/year combined over a few years just by not focusing on astro... so ...

Obviously that wasn't a guaranteed outcome [at the point of retiring], so if one is prone to go for high probability outcomes, maybe salary is better... but compare 67k to spending 7k ... or 150k to spending 7k ... and it should be clear(?) that it doesn't really matter.

Basically, if you only spend <four figures per year, almost any source revenue will do.

As it happens, my current networth is 119.4 years of my spending. Give me a few days I can throw a quarter million USD or 8 hip fractures at random problems. And yes, I have umbrella insurance ++. Our biggests ERE expenses are taxes+insurance+utilities. We could fix the last post by moving somewhere else---The first post by moving west of the Mississippi.

Having a lifestyle that only requires four figures of spending means that almost all of one's income goes into the buffer as long as one keeps making some of it. So that's my strat.

TL;DR - Obviously, there are multiple dimensions to consider, but I think the "what could have been" tends to be ignored... unless everybody's plan is to spend all day watching NFLX for the next sixty years.

[BRUTE]

@jennypenny:

brute thinks it was useful to put the numbers in perspective, and with jacob's math, it doesn't actually seem so terrible. sure, brute might get hit by a $500k black swan, but he also might just die and then it was all for nothing. good to know that even a $30k or $70k event can be buffered away with a side income of a few hundred dollars a month with a $250k net worth. so even in the "pretty much worst case", it's not so bad.

@RealPerson:

if brute remembers correctly, jacob's career in physics wasn't exactly super high paying, it was more of a labor of love with which jacob became disillusioned after a while. brute doesn't know but would bet a sizable amount that jacob made A LOT more money as a quant than as a physicist. there's a reason all the physicists go into finance, and it's not because finance is such a beautiful, relaxing place.