What are your financial ER goals?

[theanimal]

We've been invaded by the internet retirement police!!

[Tyler9000]

@OldPro: I personally think your "only income" requirement is perhaps too restrictive and filters out other perfectly fine total returns strategies.

I use the Permanent Portfolio. It's a total returns strategy that depends just as much on rebalancing as it does on yield for any individual asset. That's precisely how gold (with no regular income) still generates money for the portfolio. So do I sell principal to generate profit when I rebalance or refill my checking account? Absolutely. Do I reduce my overall invested principal in the process? Not necessarily.

By my calculations, the PP dos not simply support a 4% SWR that (in the worst case) runs out of money in 30 years. Withdrawing 4%, it supports a 4% sustainable withdrawal rate that does not reduce principal 30 (or even 40) years later. I consider that my sustainable investment income for planning purposes. I understand you may not personally trust calculations like this, but it works well for my own planning and when coupled with my other contingencies below, I'm quite comfortable with the plan.

My own retirement spending has been 2.5% over my first full year of retirement. That includes not only bare necessities but also a comfortable level of happy discretionary spending. Note that I actually aimed for 3%, but retirement has been more affordable than I anticipated. So the gap between my actual spending and projected sustainable income is about 1.5% of my investment portfolio a year.

Sure markets may look worse in the future and the projections may be a little off. However, with recent part time work my SWR is also temporarily negative again. Both my earned and investment income are uncertain, but I feel like I have a reasonable baseline to start with.

IMHO, there's more than one good path to ERE. As Jacob is good about reminding us, ERE is really about making good decisions rather than constructing the "perfect" plan.

[C40]

We've been invaded by the internet retirement police!!

exactly!

[disparatum]

So to repeat, I am asking for a clear understanding of what gap if any people are planning on having between their cost and their income. That is where your cushion to weather the 'hiccups' that will arise comes from. Not from getting a part time job, not from your house.

So, who meets my arbitrary and narrow definition of FIRE that includes certain ways of weathering risk and uncertainty but excludes others based on my personal experience?

I think the real value of the forums is seeing the great variety of ways people choose to meet their needs. For some its downsizing their home, picking up part time work, moving to a lower cost of living area, developing additional skillsets, and for others its having more money. The meta lesson being that there are many ways to structure one's life.

If your intent is to highlight the fact that there needs to be some room in everyone's plan for contingencies, I think most people get this. If they acknowledge that they could and are willing to sell their house for additional capital or pick up part time work to deal with non-ideal scenarios then what's the issue?

If the issue is that the person is no longer FIRE or wasn't to begin with, then isn't this just a problem of definitions?

If we just call your way of doing things OPFIRE (OldPro's FIRE) and everyone else's way of doing things some other term, does this conversation resolve itself? I think maybe you see yourself as dispensing hard earned wisdom and inconvenient truths to an unwilling group of starry eyed optimists, but I'm not sure that's the case.

[almostthere]

Oldpro, I appreciate your advice. I think it is prudent and wise. I am currently at 2% of total capital. The capital is invested in index funds and cash. For the past twelve months, my income from investments was approximately equal to my expenses for the year. Not much of a gap to speak of. Eventually, I'd like to increase the gap as you suggest and have all the income from index funds. This will take time, patience, and luck. In the meantime, I am working on my investing skills to try and replace some of the luck with increased skill.

[A Life of FI]

Oldpro most people's planned income is higher than the spending rates they are quoting above - For example when Ilorona says he/she plans to spend 4% this most likely isn't their planned income, which is probably much greater, but the spending rate on their portfolio. Their actually planned income/expected returns are probably in the 7% to 11% range - which it the rate of average historical returns for most portfolios.

The reason for people's focus on the spending rate and not on planned income is that while the average historical returns maybe in the 7% to 11% range the actual results over the last 150 years have varied between around 3% at the bottom end and greater than 20% at the upper end - so many people prepare for a worst case scenario for their income of 3% thus aim for 3% withdrawal rate which (refer to Jason's numbers above) worked 100% of the time in the past.

The 6% spending rate you had when you FIRE'd was successful 34% of the time (also in Jason's numbers above) , while their is nothing wrong with FIREing at this spending rate it is much more risky than the 3%/4% spending rate which most people here plan on.

[OldPro]

Disparatum, that is a fair assessment. Let's ignore all personal preferences or plans and simply concentrate on "the fact that there needs to be some room in everyone's plan for contingencies" as you say. That is indeed the point I am making.

I also agree entirely with your comment, "an unwilling group of starry eyed optimists, but I'm not sure that's the case." My concern of course is that it IS the case with some perhaps and that is why I am asking if there is a gap between costs and income, in their plan.

[Laura Ingalls]

We've been invaded by the internet retirement police!!

exactly!

I'll take my chances with my capital burning
Maybe later when other income streams kick in I'll be like Old Pro.

I think ER is a more robust and flexible system then some want to credit it with.

[steveo73]

There are other ways to get buffer as well. So OldPro's idea of discretionary and non-discretionary spending is valid. My non-discretionary spending which still has some buffer is $25k. I model a variable spending model where I can decrease spending based on market returns down to $25k. I plan to spend $40k however this is for budgeting purposes and I can easily go down or maybe not even spend $40k because I don't just spend money for no reason.

[IlliniDave]

I did not break discretionary budget out separately because it is irrelevant to my planning. My budget numbers are based on actuals from a lifestyle I am content with and have lived. It's debatable how discretionary the spending above bare existence actually is. My "income" will vary as is the nature of investing in equities and bonds. I imagine it might average somewhere in the range of $30K-$45K. On average I'll need about $21K of that. At times I'll spend down some of my capital, but through time my capital should increase above inflation.

[jacob]

Planning for the gap between needs and wants is pretty basic stuff. Many are explicitly doing this in the journals referring to various budgets (#1, #2, ... etc) so just go look there. Don't expect everybody to join the tally here. Absence of evidence [in this particular thread] is not evidence of absence, eh, duh?

For a more nuanced discussion that also takes buffering, etc. into account, see chapter 7 in the ERE book which I think most have read. If not, it's available at the library.

As is evident most people in this thread know how assets are turned into a combination of income and more assets for a given risk. And that the particular ratio of income and reinvestment is just a question of financial engineering which can be as simple as asset allocation in a bunch of securities or more hands-on as in building a house (money to bricks) and renting it out (bricks to income stream).

It, therefore, makes no sense to frame the discussion exclusively in terms of "just income" since that's missing the reinvestment. Oldpro is actually reinvesting his savings and thus pursing a total return strategy by not spending his entire income but he seems incapable of realizing or admitting this basic fact.

In any case if we use finance101 and standard financial planning, it's pretty clear, that the most "optimistic", to put it euphemistically, plan has been that of Oldpro himself by more than a factor two. Indeed, if a financial planner signed off on something like that, they could probably be sued for incompetence/breaking fiduciary duty.

Since practically all other planning here is done for the worst possible case, it would, therefore, be more interesting to learn how the particulars worked out in Oldpro's high risk case. Was it genius? Luck? Or just a bull market?

[steveo73]

it would, therefore, be more interesting to learn how the particulars worked out in the high risk case. Was it genius? Luck? Or just a bull market?

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.

[Dragline]

We've been invaded by the internet retirement police!!

You[re not doing it the right way! Someone will be mad!

The hobgoblins of little minds are coming home to roost . . .

[wood]

I'm planning to retire on real estate income. Numbers are in local currency:

Planned capital when retired: 3.5 million
Expected minimum annual income generated from capital: 170k
Social security income and inheritance (3 houses) excluded. Part time work excluded but will most likely happen in some form.

Annual expenses (needs): 120k

Although not included in my plan per se, there are ways that I could reduce expenses in half if need/want be. I intend to never spend more than I earn.

[OldPro]

Let my put this nonsense about the perceived risk of my initial strategy to bed.

"Jacob writes (and others have written similar comments), "In any case if we use finance101 and standard financial planning, it's pretty clear, that the most "optimistic", to put it euphemistically, plan has been that of Oldpro himself by more than a factor two. Indeed, if a financial planner signed off on something like that, they could probably be sued for incompetence/breaking fiduciary duty."

Along with, "Since practically all other planning here is done for the worst possible case, it would, therefore, be more interesting to learn how the particulars worked out in Oldpro's high risk case. Was it genius? Luck? Or just a bull market?"

I've made it clear here before that my initial plan was based on rental income from 8 commercial and industrial properties with a total of a couple of hundred tenants. The income to be derived was a known based on lease agreements. It was only subject to fluctuation by the amount that the loss or gain of a tenant or two might affect it. Basically insignifigant. So when I say I planned for an income of 10%, it was a KNOWN, not a 'if the market does what I think it will do or provides me what it has historically averaged.' The 10% return was my 'worst case'.

Now you tell me Jacob what financial planner would be sued for agreeing to a plan that returns a for all intents and purposes, GUARANTEED 10% return. There was as close to ZERO RISK in that plan as it is possible to get.

So please people, no more nonsense about my plan with a 10% GUARANTEED return which was indeed higher 'by more than a factor two" than plans being espoused here, having been 'high risk'. Move on from that. Stop thinking only in terms of the stock market, Trinity and SWRs. They do not apply in my case. I never have gambled on the stock market and have always invested in things that were as low risk as I could find. If anything, I would say a plan based on the stock market and SWR is double the risk for half the return.

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?

If people want to believe in Trinity and SWRs, that is up to them. But don't assume that anyone doing anything else "either get lucky and invest in a bull market or they delude themselves...." Also keep in mind that while I may be one of the few frequenting this forum who questions the Trinity study and the ability to predict the future based on the past, I am not the only person in the world who questions it. https://www.google.ca/search?q=swr+myth ... +rate+myth

Going back to Jacob's, "interesting to learn how the particulars worked out in Oldpro's high risk case.", the answer is obvious, it worked just fine, I'm still here 26 years later and doing well, without any 'high risk' investing. As I have also said before, I look at what I invest in every year (more often if a significant change occurs) and make changes as I see fit. I do not believe in a 'here is the one answer that will work forevermore' and while people will say they can make changes while still following a 3% SWR plan, that 'answer forevermore' is still the basis of their plan.

I see two clear examples from IlliniDave and wood who both appear to have plans similar to mine in that they intend to live off the income their capital generates. Dave hopes to generate $30-45k with living costs of $21k as initial numbers. Wood anticipates a minimum income of $170k (around 5% ROI). Dave says, "my income will vary" and wood says, "I intend to never spend more than I earn." Both in line with my own thinking obviously. Both Dave and wood's plans appear to have about a 50% cushion built in between actual living costs and income.

But let's face it, even Dave's planned initial income of $30-45k is probably above the average EREr's planned income. Wood's planned income of $170k certainly is. Looking at their planned income, if someone wanted to equal it, it presents a very serious problem for the person who wants to follow the Trinity study and a SWR of 3-4% though. It would mean having to have a lot more capital before you could start ER and that obviously means a lot more time before you can start. That thought is not something people want to hear.

Dave hasn't said what ROI his plan calls for but wood has given a clear answer of around 5% based on rental income. I'd say that is a pretty safe bet in today's rental market depending on what kinds of properties, how many and where they are located. Personally, I don't consider 5% acceptable, I'd want more but that just my personal preference. I would certainly say wood's plan is a conservative plan his 'minimum $170k' quite low risk.

[C40]

Dude.

Take a deep breath. Calm down.


If I make a positive assumption - that you made this thread with helpful ambition -to share some wisdom and help people make good retirement planning decisions. People are here to learn, so that's a good idea. Consider these two strategies:
1 - Asking people what their retirement plans are and then criticizing nearly every last one. When it appears that everyone may actually have a more conservative strategy than what worked out for you, they ask you about it, and you get defensive yourself and start arguing.
2 - Sharing your own story and the lessons you've personally learned.

You seem to be taking the first approach. I believe you would have much better luck with the second.

[A Life of FI]

Let my put this nonsense about the perceived risk of my initial strategy to bed.

I've made it clear here before that my initial plan was based on rental income from 8 commercial and industrial properties with a total of a couple of hundred tenants. The income to be derived was a known based on lease agreements. It was only subject to fluctuation by the amount that the loss or gain of a tenant or two might affect it. Basically insignifigant. So when I say I planned for an income of 10%, it was a KNOWN, not a 'if the market does what I think it will do or provides me what it has historically averaged.' The 10% return was my 'worst case'.

Now you tell me Jacob what financial planner would be sued for agreeing to a plan that returns a for all intents and purposes, GUARANTEED 10% return. There was as close to ZERO RISK in that plan as it is possible to get.

So please people, no more nonsense about my plan with a 10% GUARANTEED return which was indeed higher 'by more than a factor two" than plans being espoused here, having been 'high risk'. Move on from that. Stop thinking only in terms of the stock market, Trinity and SWRs. They do not apply in my case. I never have gambled on the stock market and have always invested in things that were as low risk as I could find. If anything, I would say a plan based on the stock market and SWR is double the risk for half the return.

Oldpro - I know many people who invest in commercial real estate - During the last crisis many of their tenants moved out or become bankrupt and stopped paying rent - They were unable to locate new tenants as the economy was contracting - Their returns were negative for several years - In addition they had to pay money out of their own pockets for property taxes and other costs - Creating negative cash flow on the properties - I don't disagree that investing in commercial real estate can be a good investment but its not a guaranteed 10% return and can create negative returns and negative cash flows in economic contractions.

[henrik]

Wood anticipates a minimum income of $170k

AFAIK that's 170k NOK, which should currently be a little less than $20k

[Carlos]

Let my put this nonsense about the perceived risk of my initial strategy to bed.

...

I've made it clear here before that my initial plan was based on rental income from 8 commercial and industrial properties with a total of a couple of hundred tenants. The income to be derived was a known based on lease agreements. It was only subject to fluctuation by the amount that the loss or gain of a tenant or two might affect it. Basically insignifigant. So when I say I planned for an income of 10%, it was a KNOWN, not a 'if the market does what I think it will do or provides me what it has historically averaged.' The 10% return was my 'worst case'.

Now you tell me Jacob what financial planner would be sued for agreeing to a plan that returns a for all intents and purposes, GUARANTEED 10% return. There was as close to ZERO RISK in that plan as it is possible to get.

So please people, no more nonsense about my plan with a 10% GUARANTEED return which was indeed higher 'by more than a factor two" than plans being espoused here, having been 'high risk'. Move on from that. Stop thinking only in terms of the stock market, Trinity and SWRs. They do not apply in my case. I never have gambled on the stock market and have always invested in things that were as low risk as I could find. If anything, I would say a plan based on the stock market and SWR is double the risk for half the return.

I understand your investments worked out for you and I am happy for you. Real estate investments can be lucrative. If you are uncomfortable with investing in publicly traded securities or don't understand it completely (e.g. it's gambling) that's okay. Many people hold your opinion and chose to fund their FI via other means like you have.

In finance we call the current rate on the 3 month T-bill in the US the "risk-free rate". No investor in the US (I'm speaking from a US perspective, the largest and most well-understood market in the world) would ever consider rental real estate to be " guaranteed" or " as close to zero risk as possible".

Anytime someone says an investment is "guaranteed" or "risk-free" alarm bells should go off in one's head if the ROI is significantly above the risk-free rate. People do in fact go broke investing in real estate.

Personally I think rental real estate can be a good component of someone's FI plan but I wouldn't go all-in (100%) because it would 1) lack diversification and 2)require time and effort beyond other types of investments. Often discussions around real estate investing vs. stock investing revolve around whether RE is passive enough.

I am not a professional investment adviser. I only manage my personal portfolio.

[OldPro]

C40, I am not 'Dude', nor am I a dude. Please do me the courtesy of addressing me as OldPro as I address you by name, or you can address me as Sir. Please keep 'dude' for those who frequent dude ranches. It is a derogatory term.

I did indeed start the thread to help people think about their plan. 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. Instead, the thread went of on a tangent from response #1, with much of it defending SWR and questioning my initial 10% return. So just who is criticizing who?

Even after I have just explained how my initial strategy was basically risk free, you still write, "When it appears that everyone may actually have a more conservative strategy than what worked out for you, they ask you about it, and you get defensive yourself and start arguing."

WHO has a more conservative strategy than RISK FREE? Can you read English? Do you understand what I wrote? That isn't me getting defensive or arguing, that is me getting frustrated at the apparent inability of some people to hear what they read. As far as I am concerned C40, I am attempting to do your approach #2 but in order for it to work, people have to be willing to HEAR what they read. If you can write, "everyone may actually have a more conservative strategy than what worked out for you", right after I have explained my strategy had NO risk, you can't be listening.

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?

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?