It is all personal, but (e)re all comes down to: spend (slightly) less then the expected yield (after taxes and inflation) that is generated by the principal.
A minimum net yield of 3% is perceived to be very reasonable and thus a 'safe' assumption. Some use a higher 'swr', depending on personal situations .
Cushions vary per individual: work (parttime) when needed, reduce spending, social security / pensions to be received at later stage, possibility to withdraw from the principal (at the end stage).
There is no one size fit all solution or path.
What is unsafe for one, works well for another.
Most people here are fairly cautious and use a low swr.
Personally, I think a principal of 25-30 years expenses is pretty safe for ourselves when we might want to RE. Because even when are only able keep up with inflation and taxes (=no nett yield), we are already 70-75 years old. By that time a (small) pension will be available and probably also some social security to us. We will likely earn a little along the way too (even if not intended to chase income).
All in all I think we have enough cushions with a principal that is 25-30 times our yearly expenses. If you are 20 years younger it might be different. For us that will be about 625-750K excluding our own house and a lump sum to help our kids trough their study.
We make yield currently through using the Permanent Portfolio and rental income (we will sign the contract for a 2nd property in a few days).
Even if I am able to make 10% ROI (now), I would personally not feel comfortable to RE with a principal of 10 times our yearly expenses because I am not sure I would be able to maintain a 10% yield for a long time and thus it increases the risk of a failure.
What are your financial ER goals?
Re: What are your financial ER goals?
Reasonable comments Carlos from your perspective.
A couple of points in return. I also say to invest in what you know. Know takes 2 forms. Actual knowledge about something that you yourself have or access to knowledge that you have through others. In the case of the real estate I was invested in, my knowledge was partly from both. While I agree no investment is guaranteed, there is a difference between a guess and an educated guess. It does seem to be very difficult to explain this aspect to people. The closest I can seem to get is to suggest insider trading without the illegality of insider trading on the stock market. Having insider knowledge of something else is not illegal.
The return of 10% back then was not 'significantly above the risk-free rate' of 3 month T-bills. Remember, I'm taking back in the early 90s. So there was no need for 'alarm bells'. A bank account would have paid you 7-8%. It was perfectly normal to expect a 10% ROI.
That really goes towards showing how people seem to want to put the risk that exists today onto something I did in the past. I keep reading comments about how my risk was higher because I expected a higher return. I expected 10%, they expect 3% so my risk must have been more than double their risk. That is totally false logic. Risk(talking about financial risk of something) exists at a given point in time. The amount of risk anything has at two different points in time is a different amount of risk. The risk of not getting 10% in 1993 was no more than the risk of not getting 3% today.
Diversification was in the spread of the properties in type, location and size. Obviously, owing 8 houses with 8 tenants could get you in some trouble if even 1 tenant left. But owing 8 properties in locations from Ontario, Canada to California that were office buildings, warehouses, strip malls and medical clinics with a total of several hundred tenants does not carry anywhere near the same risk if a tenant leaves, or a market changes in a given area for a given type of real estate. There are all kinds of way achieve diversification.
Whether real estate today is as good an investment as it was then, is irrelevant. People do seem to want to respond as if I was advocating it today rather than 26 years ago.
A couple of points in return. I also say to invest in what you know. Know takes 2 forms. Actual knowledge about something that you yourself have or access to knowledge that you have through others. In the case of the real estate I was invested in, my knowledge was partly from both. While I agree no investment is guaranteed, there is a difference between a guess and an educated guess. It does seem to be very difficult to explain this aspect to people. The closest I can seem to get is to suggest insider trading without the illegality of insider trading on the stock market. Having insider knowledge of something else is not illegal.
The return of 10% back then was not 'significantly above the risk-free rate' of 3 month T-bills. Remember, I'm taking back in the early 90s. So there was no need for 'alarm bells'. A bank account would have paid you 7-8%. It was perfectly normal to expect a 10% ROI.
That really goes towards showing how people seem to want to put the risk that exists today onto something I did in the past. I keep reading comments about how my risk was higher because I expected a higher return. I expected 10%, they expect 3% so my risk must have been more than double their risk. That is totally false logic. Risk(talking about financial risk of something) exists at a given point in time. The amount of risk anything has at two different points in time is a different amount of risk. The risk of not getting 10% in 1993 was no more than the risk of not getting 3% today.
Diversification was in the spread of the properties in type, location and size. Obviously, owing 8 houses with 8 tenants could get you in some trouble if even 1 tenant left. But owing 8 properties in locations from Ontario, Canada to California that were office buildings, warehouses, strip malls and medical clinics with a total of several hundred tenants does not carry anywhere near the same risk if a tenant leaves, or a market changes in a given area for a given type of real estate. There are all kinds of way achieve diversification.
Whether real estate today is as good an investment as it was then, is irrelevant. People do seem to want to respond as if I was advocating it today rather than 26 years ago.
Last edited by OldPro on Sun Dec 27, 2015 2:43 pm, edited 1 time in total.
Re: What are your financial ER goals?
OldPro, please reread the post again and you will see it was specified as 'my local currency' or something along those lines. This is a very global community, not only people from the USA and Canada are here. Google NOK currency to find outOldPro wrote: Henrik, write in English. I can guess that AFAIK means 'as far as I know' but I can't guess what NOK means. Wood wrote that he expected a minimum of $170k income on $3.5mil capital. Where does the $20k come from?
.The higher the return you are aiming, the higher the risk of failing at some point [in general]. This stays the same if you switch your investments and strategy. If it (= a higher then average return) works for you, it is great. For me, I would be uncomfortable with a high WR. With a savings rate of 66% and likely above 70% next year, it is much easier for me to work for another few years in a comfortable way and not need to worry if I will make my high yield year after year when I RE.
Re: What are your financial ER goals?
Rube, that all sounds fine to me except for the last part.
"Even if I am able to make 10% ROI (now), I would personally not feel comfortable to RE with a principal of 10 times our yearly expenses because I am not sure I would be able to maintain a 10% yield for a long time and thus it increases the risk of a failure."
Being comfortable is of course an individual thing and I am not questioning that at all. What I would question though is the math. If you were living on your entire10% yield then yes, I would also wonder about maintaining that. But if you are living on 3-4% of your 10% initial yield, have 3% discretionary and the last 3% being re-invested, then you are not looking at a principal of 10 times yearly expenses nor a principal that does not continue to grow.
I could have lived on $6k initially if I had continue to live in the house I co-owned with my wife. I chose to move out and pay $6k in rent instead bringing my expenses to $12k voluntarily. So my actual minimum living costs of $6k to $200k capital were around 1:33, NOT 1:10.
I think you just misinterpreted my example of my own initial numbers. I would never advocate anyone trying to retire on a ratio of 1:10 expenses to capital.
PS: Thanks for the NOK clarification. I did indeed assume dollars. So wood's goal is reasonably in line with other ERErs as far as income goes but not dependent on withdrawing capital. Whether he would stick with that same type of investment or not is all that can't be known. I didn't because things change and so what I invested in changed accordingly.
"Even if I am able to make 10% ROI (now), I would personally not feel comfortable to RE with a principal of 10 times our yearly expenses because I am not sure I would be able to maintain a 10% yield for a long time and thus it increases the risk of a failure."
Being comfortable is of course an individual thing and I am not questioning that at all. What I would question though is the math. If you were living on your entire10% yield then yes, I would also wonder about maintaining that. But if you are living on 3-4% of your 10% initial yield, have 3% discretionary and the last 3% being re-invested, then you are not looking at a principal of 10 times yearly expenses nor a principal that does not continue to grow.
I could have lived on $6k initially if I had continue to live in the house I co-owned with my wife. I chose to move out and pay $6k in rent instead bringing my expenses to $12k voluntarily. So my actual minimum living costs of $6k to $200k capital were around 1:33, NOT 1:10.
I think you just misinterpreted my example of my own initial numbers. I would never advocate anyone trying to retire on a ratio of 1:10 expenses to capital.
PS: Thanks for the NOK clarification. I did indeed assume dollars. So wood's goal is reasonably in line with other ERErs as far as income goes but not dependent on withdrawing capital. Whether he would stick with that same type of investment or not is all that can't be known. I didn't because things change and so what I invested in changed accordingly.
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A Life of FI
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Re: What are your financial ER goals?
I wasn't specifically referring to today's real estate market. What I was saying is that one can make good return in commercial real estate but no level of return/percentage return from it is guaranteed when you invest. And that someone could in fact could incur losses from investing in real estate not gains.OldPro wrote: A Life of Fi, I am not now invested in real estate, so what's your point? It was a 10% return when I was invested. I said nothing about what it would return today. I think wood's, 5% is a more realistic figure today but as I also said, I would want more and therefore I no longer invest in it. Are you perhaps getting hung up on the 'one answer forevermore' idea? Yes real estate "can create negative returns and negative cash flows in economic contractions", as you say. So what? Change what you are invested in. Your assumption is that someone has to stay invested in real estate. Why make that assumption?
I agree than someone can change their investment when they start to incur losses to some other investment, but they will take loss on what they sell as the sales price of a property is determined based on how much money it makes - thus decreasing their net worth and leaving them with less money to reinvest in the next investment.
Last edited by A Life of FI on Sun Dec 27, 2015 3:16 pm, edited 2 times in total.
Re: What are your financial ER goals?
Rube, regarding, "If it (= a higher then average return) works for you, it is great. For me, I would be uncomfortable with a high WR."
again as I wrote above, a 'higher than average return' is only relevant to the day on which you look at it. What is higher than average today has no bearing on what was average in the past or will be in the future.
I try to look for a return on the 'high side of average' if you will, at any given time.
again as I wrote above, a 'higher than average return' is only relevant to the day on which you look at it. What is higher than average today has no bearing on what was average in the past or will be in the future.
I try to look for a return on the 'high side of average' if you will, at any given time.
Last edited by OldPro on Sun Dec 27, 2015 3:19 pm, edited 1 time in total.
Re: What are your financial ER goals?
Well we could say that about investing in anything couldn't we? I just go back to what I've also said above about investing in what you know about. I think that at the time I was investing in real estate I had more access to knowledge on where it might go than I would have had about where an investment in a mutual fund or whatever might go. Which would have been a riskier investment in that case?A Life of FI wrote:I wasn't specifically referring to today's real estate market. What I was saying is that one can make good return in commercial real estate but no level of return/percentage return from it is guaranteed when you invest. And that someone could in fact could incur losses from investing in real estate not gains.OldPro wrote: A Life of Fi, I am not now invested in real estate, so what's your point? It was a 10% return when I was invested. I said nothing about what it would return today. I think wood's, 5% is a more realistic figure today but as I also said, I would want more and therefore I no longer invest in it. Are you perhaps getting hung up on the 'one answer forevermore' idea? Yes real estate "can create negative returns and negative cash flows in economic contractions", as you say. So what? Change what you are invested in. Your assumption is that someone has to stay invested in real estate. Why make that assumption?
The relative merit of real estate today really isn't what the thread is about.
Re: What are your financial ER goals?
@OldPro: Ok, well I think that is [generalized] what most are aiming here too: use about 3-5% of the total principal but aiming for a gross yield of 7-10% long term. The difference is for taxes, keep up with the inflation and to have a cushion.
So, it comes back to the rule of thumb to have a principal of 25- 30 times your annual expenses. And all the exact numbers and the path how to get there, can (will) vary depending on the exact individual circumstances.
But most people here are hanging around long enough and show enough peristance to accumulate a sizable nest-egg that I do not doubt these people will understand these are basic assumptions and each have to find their own way and determine what exactly will work for them with a (small) acceptable risk of failure for them.
So, it comes back to the rule of thumb to have a principal of 25- 30 times your annual expenses. And all the exact numbers and the path how to get there, can (will) vary depending on the exact individual circumstances.
But most people here are hanging around long enough and show enough peristance to accumulate a sizable nest-egg that I do not doubt these people will understand these are basic assumptions and each have to find their own way and determine what exactly will work for them with a (small) acceptable risk of failure for them.
Re: What are your financial ER goals?
My stoicism practice is really being tested today...
*ahem* "Sir, please step down from your perceived pedestal. Thank you."
*ahem* "Sir, please step down from your perceived pedestal. Thank you."
Re: What are your financial ER goals?
I've never said that anything that you state is ridiculous but this is.OldPro wrote:Steveo73, please read what you yourself wrote. "I don't believe in geniuses when it comes to market returns. In my experience most people either get lucky and invest in a bull market or they delude themselves and tell themselves they've done better than what they really have."
What is a plan based on a belief in the Trinity study, other than a belief in 'genuis' (the authors)? Or is it really about people who want to "delude themselves" that the past can predict the future?
The trinity study is a statistical study based on how much your assets need to be to be able to retire for 30 years. It has nothing to do with being a genius and beating the market.
I'm happy to discuss anything but there needs to be some basis in reality for opinions that you are stating.
What is believing in being a genius is expecting 10% returns to continue on forever. That doesn't happen.
Re: What are your financial ER goals?
Remember, Steveo: Lord Oldpro's investment was RISK FREE. RISK FREE!!! 
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jennypenny
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Re: What are your financial ER goals?
Didn't we already have this argument in this thread? I understand that OP's factual contributions also come with a heavy dose of moralizing, which isn't appropriate or helpful. OTOH, criticizing the method of someone who has successfully FIRE'd/ERE'd before doing so yourself can sound a bit peevish.
Isn't there a way to call out people who step over the line (like OP did in some of his comments) without ganging up on them? I hate to chase people away. Has SimpleLife posted recently? He was the last person to get taken to the woodshed. I've gotten a taste of it in the religion threads--you guys can be brutal when you want to be.
Isn't there a way to call out people who step over the line (like OP did in some of his comments) without ganging up on them? I hate to chase people away. Has SimpleLife posted recently? He was the last person to get taken to the woodshed. I've gotten a taste of it in the religion threads--you guys can be brutal when you want to be.
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IlliniDave
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Re: What are your financial ER goals?
OldPro,
Have to string both my posts in this thread together. Starting with a stake of about ~750K I'm guessing an average real return of about 4-6% to get the roughly $30K to $45K income from investments on average. Actually, for my baseline planning I use 3.5% real return on my investment portfolio, which on $750K is about $26K (of course it's not all income, some will be appreciation, and in some years I'll have capital losses). On top of that I expect to average $24K-$30K in fixed income (SPIA starting at 55 and SS starting at 70). So if I take $21K from my investment pool (2.8%) and add it to the $24K from fixed income payments I get the $45K I mentioned in my first post. In reality I expect to pull a little more from my financial assets early on and less later because of the large jump in fixed income payments I'll get based on when I start SS. And, when it comes to adding margin, I do my planning based on 60% of my expected SPIA. If I work until 55 my asset pool should be well above $750K and I'll average about $8K/yr in withdrawals from it to maintain $45K pre-tax "spending income", so in other words, about a 1% SWR in Trinity study terms. In my view, I've got a fair bit of margin worked in.
Have to string both my posts in this thread together. Starting with a stake of about ~750K I'm guessing an average real return of about 4-6% to get the roughly $30K to $45K income from investments on average. Actually, for my baseline planning I use 3.5% real return on my investment portfolio, which on $750K is about $26K (of course it's not all income, some will be appreciation, and in some years I'll have capital losses). On top of that I expect to average $24K-$30K in fixed income (SPIA starting at 55 and SS starting at 70). So if I take $21K from my investment pool (2.8%) and add it to the $24K from fixed income payments I get the $45K I mentioned in my first post. In reality I expect to pull a little more from my financial assets early on and less later because of the large jump in fixed income payments I'll get based on when I start SS. And, when it comes to adding margin, I do my planning based on 60% of my expected SPIA. If I work until 55 my asset pool should be well above $750K and I'll average about $8K/yr in withdrawals from it to maintain $45K pre-tax "spending income", so in other words, about a 1% SWR in Trinity study terms. In my view, I've got a fair bit of margin worked in.
Re: What are your financial ER goals?
LOL, jennypenny these guys are lightweights, none have anywhere near what it takes to 'chase' me away.
steveo73, the Trinity study is a statistical study based on how much your assets WOULD HAVE needed to be to be able to retire for 30 years, IN THE PAST. Faith is what projects it into the future.
Where did anyone say anything about expecting 10% returns to continue on forever? But a lot of people seem to be believing in a 3-4% SWR that will continue on forever.
I find it amusing that some people get hung up on the 10% I earned initially on my investments as if it couldn't have changed since then. I have earned less and earned more than 10% over the years. What I recognize is that things change and I have had to change my investments to suit the circumstances. I am not the one hanging my hat on things not changing.
Most amusing(or scary) of all to me is the belief in Trinity. You do understand that something came before Trinity and something has already come after Trinity(showing Trinity to be flawed) and that no doubt something else will come after that as well. In the following linked article the author refers to Generation1, 2, 3. Trinity was G2. http://financialmentor.com/retirement-p ... rate/13192
The writer provides some info that may open a few eyes. I like the way he ends each topic with a 'Lesson Learned' summarizing it. Here is my lesson learned from all of these kinds of pro or con articles on SWR. I don't trust ANY of them. I believe in simple common sense. I must live on less than I earn. If I live on less than the income my capital produces, I will never go broke. If I start eating my capital (especially if planning a longer than average retirement as all here are), then it becomes a crap shoot.
I could probably start eating capital now pretty safely (at age 70) but what if 10 years from now I'm still alive and someone comes up with a way to prolong my life to 150? Oh shit, I didn't plan for that. Nope, I will continue to live on less than I earn for as long as I can.
I put my faith in ME and my ability to adapt, not in some theoretical mathematics that I think can tell me what to do.
steveo73, the Trinity study is a statistical study based on how much your assets WOULD HAVE needed to be to be able to retire for 30 years, IN THE PAST. Faith is what projects it into the future.
Where did anyone say anything about expecting 10% returns to continue on forever? But a lot of people seem to be believing in a 3-4% SWR that will continue on forever.
I find it amusing that some people get hung up on the 10% I earned initially on my investments as if it couldn't have changed since then. I have earned less and earned more than 10% over the years. What I recognize is that things change and I have had to change my investments to suit the circumstances. I am not the one hanging my hat on things not changing.
Most amusing(or scary) of all to me is the belief in Trinity. You do understand that something came before Trinity and something has already come after Trinity(showing Trinity to be flawed) and that no doubt something else will come after that as well. In the following linked article the author refers to Generation1, 2, 3. Trinity was G2. http://financialmentor.com/retirement-p ... rate/13192
The writer provides some info that may open a few eyes. I like the way he ends each topic with a 'Lesson Learned' summarizing it. Here is my lesson learned from all of these kinds of pro or con articles on SWR. I don't trust ANY of them. I believe in simple common sense. I must live on less than I earn. If I live on less than the income my capital produces, I will never go broke. If I start eating my capital (especially if planning a longer than average retirement as all here are), then it becomes a crap shoot.
I could probably start eating capital now pretty safely (at age 70) but what if 10 years from now I'm still alive and someone comes up with a way to prolong my life to 150? Oh shit, I didn't plan for that. Nope, I will continue to live on less than I earn for as long as I can.
I put my faith in ME and my ability to adapt, not in some theoretical mathematics that I think can tell me what to do.
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George the original one
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Re: What are your financial ER goals?
Actually, they answered exactly what you asked. Just because you don't understand the notation doesn't mean it wasn't a valid answer.OldPro wrote:I thought it was a very simple question. How much cushion are you planning to have between your costs and your income? I asked the question because it appears to me that some may not be actually including a figure in their budget. Look at the responses and see how few answered that.
And it's rather rich that someone who took on jobs during their early retirement is insisting that the rest of us can't plan for income in a similar manner if they wish.
Re: What are your financial ER goals?
isn't every second oldpro works for money wasted if the money isn't used up in his lifetime? it might be harder to earn more money at 70 to make it until 80, but it's easier than getting the time back that oldpro wasted on a safety buffer.OldPro wrote:I could probably start eating capital now pretty safely (at age 70) but what if 10 years from now I'm still alive and someone comes up with a way to prolong my life to 150? Oh shit, I didn't plan for that. Nope, I will continue to live on less than I earn for as long as I can.
so it comes down to how much of a safety buffer individual humans are comfortable with.
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George the original one
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Re: What are your financial ER goals?
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Last edited by George the original one on Tue Dec 29, 2015 8:08 pm, edited 1 time in total.
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George the original one
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Re: What are your financial ER goals?
G3, LOL!!! You do realize that Rob Bennett is a quack? I mean, you're seriously believing an article that references Rob Bennett?!?OldPro wrote:Most amusing(or scary) of all to me is the belief in Trinity. You do understand that something came before Trinity and something has already come after Trinity(showing Trinity to be flawed) and that no doubt something else will come after that as well. In the following linked article the author refers to Generation1, 2, 3. Trinity was G2. http://financialmentor.com/retirement-p ... rate/13192
Wade Pfau is not a quack, but his agenda is aligned with the annuity & professional financial manager industry. Are you seriously suggesting we indulge in annuities for a significant part of our portfolios?
So basically calling this G3 is hogwash.
Last edited by George the original one on Sun Dec 27, 2015 9:25 pm, edited 1 time in total.
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George the original one
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Re: What are your financial ER goals?
Er, uhm, more income allows you to increase your COST of living. It doesn't mean that your STANDARD of living is any better.OldPro wrote:More income does allow you to increase your standard of living obviously if you want to.
Re: What are your financial ER goals?
OP,
You are seriously underestimating the level of financial knowledge of many of the participants of this forum. I don't consider myself one of the smartest people here and I've read the Financial Mentor.. I follow and read Dr Pfau and Michael Kitces. It does concern me that the Financial Mentor references Rob Bennett in a serious way. He's considered the Voldemort of internet personal finance (no one dares speak his name because he's a troll and a hack but that's another story). I like the F. Mentor anyway and can overlook his error in judgement.
You've not raised any new information about flaws or limitations of the Trinity study that most of us are not already aware.
You are seriously underestimating the level of financial knowledge of many of the participants of this forum. I don't consider myself one of the smartest people here and I've read the Financial Mentor.. I follow and read Dr Pfau and Michael Kitces. It does concern me that the Financial Mentor references Rob Bennett in a serious way. He's considered the Voldemort of internet personal finance (no one dares speak his name because he's a troll and a hack but that's another story). I like the F. Mentor anyway and can overlook his error in judgement.
You've not raised any new information about flaws or limitations of the Trinity study that most of us are not already aware.