Would your FIRE plan work had your journey started 1965?

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GettingFIREd
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Would your FIRE plan work had your journey started 1965?

Post by GettingFIREd » Mon Jan 07, 2019 1:42 am

The stock market went down over 70% between 1965 and 1982, following a 15-year bull market. Now we are standing at the start of another bear market. What if the history repeats itself? A 4% "safe" withdrawl rate is surely not safe...

AlohaJoe
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Re: Would your FIRE plan work had your journey started 1965?

Post by AlohaJoe » Mon Jan 07, 2019 2:45 am

GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982, following a 15-year bull market. Now we are standing at the start of another bear market. What if the history repeats itself? A 4% "safe" withdrawl rate is surely not safe...
You're not the first person to realise that the 1960s & 1970s weren't a good time to invest. The paper that "discovered" the 4% rule has an entire section talking about retiring in the 1960s/70s.

The 4% rule included that time and worked fine. If history repeats itself then 4% is still safe, since it worked for someone who retired in 1965.

stocknoob4111
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Re: Would your FIRE plan work had your journey started 1965?

Post by stocknoob4111 » Mon Jan 07, 2019 3:15 am

which paper is that and i'd be curious to see what the strategy was to survive a period that took 30 years to recover.. the Dow regained it's 1965 peak only in 1995!!! One would be dead and gone by then.. and even then that's just to break even.

AlohaJoe
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Re: Would your FIRE plan work had your journey started 1965?

Post by AlohaJoe » Mon Jan 07, 2019 3:19 am

stocknoob4111 wrote:
Mon Jan 07, 2019 3:15 am
which paper is that and i'd be curious to see what the strategy was to survive a period that took 30 years to recover.. the Dow regained it's 1965 peak only in 1995!!!
"Determining Withdrawal Rates Using Historical Data" by Bill Bengen. There's no "strategy" needed. I think you don't understand how extremely conservative 4% is.

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4nursebee
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Re: Would your FIRE plan work had your journey started 1965?

Post by 4nursebee » Mon Jan 07, 2019 5:04 am

It might not be enough to live on but the money would last.
4nursebee

GAAP
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Re: Would your FIRE plan work had your journey started 1965?

Post by GAAP » Tue Jan 08, 2019 2:54 pm

I don't use a constant-rate method, and yes, it would have worked then up through today. I treat the portfolio as a perpetuity and withdraw a variable rate that is chosen to maintain/slightly-grow the real portfolio value over longer period.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

KlangFool
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Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Tue Jan 08, 2019 2:59 pm

OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool

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TheTimeLord
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Re: Would your FIRE plan work had your journey started 1965?

Post by TheTimeLord » Tue Jan 08, 2019 3:03 pm

AlohaJoe wrote:
Mon Jan 07, 2019 3:19 am
stocknoob4111 wrote:
Mon Jan 07, 2019 3:15 am
which paper is that and i'd be curious to see what the strategy was to survive a period that took 30 years to recover.. the Dow regained it's 1965 peak only in 1995!!!
"Determining Withdrawal Rates Using Historical Data" by Bill Bengen. There's no "strategy" needed. I think you don't understand how extremely conservative 4% is.
You might be the perfect person to comment on my thread.
viewtopic.php?f=1&t=269063
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

mtmingus
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Re: Would your FIRE plan work had your journey started 1965?

Post by mtmingus » Tue Jan 08, 2019 4:43 pm

KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?

KlangFool
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Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Tue Jan 08, 2019 4:53 pm

mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
mtmingus,

1) I am not projecting anything. I am saving 1 year of current annual expense every year.

2) I am aiming for Financial Independence. Hence, I am using current annual expense.

<<How is it possible to save 1 yr of expense every yr?>>

3) It is possible when you come from a culture/country where the average gross saving rate is 30+%. It is how normal people live in that culture/country.

KlangFool

mtmingus
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Re: Would your FIRE plan work had your journey started 1965?

Post by mtmingus » Tue Jan 08, 2019 6:14 pm

KlangFool wrote:
Tue Jan 08, 2019 4:53 pm
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
mtmingus,

1) I am not projecting anything. I am saving 1 year of current annual expense every year.

2) I am aiming for Financial Independence. Hence, I am using current annual expense.

<<How is it possible to save 1 yr of expense every yr?>>

3) It is possible when you come from a culture/country where the average gross saving rate is 30+%. It is how normal people live in that culture/country.

KlangFool
That's incredible!
I thought I have tried hard in saving.
My savings : expenses is close to 40:60 (after ss, fed, state taxes) - where I regard 401k and tIRA as savings without counting the tax consequences for simplicity.

KlangFool
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Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Tue Jan 08, 2019 6:25 pm

mtmingus wrote:
Tue Jan 08, 2019 6:14 pm
KlangFool wrote:
Tue Jan 08, 2019 4:53 pm
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
mtmingus,

1) I am not projecting anything. I am saving 1 year of current annual expense every year.

2) I am aiming for Financial Independence. Hence, I am using current annual expense.

<<How is it possible to save 1 yr of expense every yr?>>

3) It is possible when you come from a culture/country where the average gross saving rate is 30+%. It is how normal people live in that culture/country.

KlangFool
That's incredible!
I thought I have tried hard in saving.
My savings : expenses is close to 40:60 (after ss, fed, state taxes) - where I regard 401k and tIRA as savings without counting the tax consequences for simplicity.
mtmingus,

<<That's incredible!>>

A) I save a lot of money but I am not frugal. My annual expense is around 50K to 60K. So, it is not that incredible. I just buy less house as compare to my peers.

B) At this moment, I save nothing. My annual saving goes towards paying my kids' college education.

C) My portfolio is at 20 times my annual expense. So, I could be FI in a few years even if I save nothing now.

KlangFool

brad_g
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Re: Would your FIRE plan work had your journey started 1965?

Post by brad_g » Tue Jan 08, 2019 11:14 pm

GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982,
Well that scared me enough to do a little digging. There are some things to note about that >70% decline figure:
  • It's for the DJIA. The broader S&P500 went down less (about 61% vs 73% in real terms).
  • Dividends weren't included. If reinvested, the DJIA was down 43%. The S&P500 was down 26% during the period (inflation adjusted).
  • Typical retirement asset allocations would go a long way to further reducing the equity impact.
So 26% isn't pretty but not as bad as over 70%. And as others have pointed out it wasn't enough to break the "4% rule".

Figures above are from https://dqydj.com/dow-jones-return-calculator/ using the period January 1966 to June 1982.

nguy44
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Re: Would your FIRE plan work had your journey started 1965?

Post by nguy44 » Tue Jan 08, 2019 11:20 pm

brad_g wrote:
Tue Jan 08, 2019 11:14 pm
GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982,
Well that scared me enough to do a little digging. There are some things to note about that >70% decline figure:
  • It's for the DJIA. The broader S&P500 went down less (about 61% vs 73% in real terms).
  • Dividends weren't included. If reinvested, the DJIA was down 43%. The S&P500 was down 26% during the period (inflation adjusted).
  • Typical retirement asset allocations would go a long way to further reducing the equity impact.
So 26% isn't pretty but not as bad as over 70%. And as others have pointed out it wasn't enough to break the "4% rule".

Figures above are from https://dqydj.com/dow-jones-return-calculator/ using the period January 1966 to June 1982.
Thanks very much for the detail.

Mine would. With my AA it would only impact my savings+investments 15-20%. I built a lot more safety margin beyond that in my plan.

OldSport
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Re: Would your FIRE plan work had your journey started 1965?

Post by OldSport » Tue Jan 08, 2019 11:54 pm

stocknoob4111 wrote:
Mon Jan 07, 2019 3:15 am
which paper is that and i'd be curious to see what the strategy was to survive a period that took 30 years to recover.. the Dow regained it's 1965 peak only in 1995!!! One would be dead and gone by then.. and even then that's just to break even.
That's the Dow. How long was it for the S&P 500? What about Mid Caps, Small Caps, Intl, REITS?

fire4fun
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Re: Would your FIRE plan work had your journey started 1965?

Post by fire4fun » Wed Jan 09, 2019 12:02 am

KlangFool wrote:
Tue Jan 08, 2019 4:53 pm
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
mtmingus,

1) I am not projecting anything. I am saving 1 year of current annual expense every year.

2) I am aiming for Financial Independence. Hence, I am using current annual expense.

<<How is it possible to save 1 yr of expense every yr?>>

3) It is possible when you come from a culture/country where the average gross saving rate is 30+%. It is how normal people live in that culture/country.

KlangFool
Just a guess -- China? I've been very impressed by the intelligence and hard work nature of every Chinese person I've met. I hope to have the opportunity to interact with more.

Saving one year of expense isn't hard. If you earn $150K post tax, spend $75K per year, well you just saved one year of expenses. Seems pretty simple 8-)

AlphaLess
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Re: Would your FIRE plan work had your journey started 1965?

Post by AlphaLess » Wed Jan 09, 2019 12:16 am

mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
Example:
- gross pay: $100K,
- taxes: $30K,
- savings: $35K,
- spending: $35K.

Thus, saving an amount equal to one year of expenses.
"You can get more with a kind word and a gun than with just a kind word." George Washington

KlangFool
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Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Wed Jan 09, 2019 12:54 am

fire4fun wrote:
Wed Jan 09, 2019 12:02 am
KlangFool wrote:
Tue Jan 08, 2019 4:53 pm
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
mtmingus,

1) I am not projecting anything. I am saving 1 year of current annual expense every year.

2) I am aiming for Financial Independence. Hence, I am using current annual expense.

<<How is it possible to save 1 yr of expense every yr?>>

3) It is possible when you come from a culture/country where the average gross saving rate is 30+%. It is how normal people live in that culture/country.

KlangFool
Just a guess -- China? I've been very impressed by the intelligence and hard work nature of every Chinese person I've met. I hope to have the opportunity to interact with more.

Saving one year of expense isn't hard. If you earn $150K post tax, spend $75K per year, well you just saved one year of expenses. Seems pretty simple 8-)
fire4fun,

1) No, I am not from China. China average gross saving rate is higher at 40+%.

<<Saving one year of expense isn't hard. If you earn $150K post tax, spend $75K per year, well you just saved one year of expenses. Seems pretty simple 8-)>>

2) Not if you choose to buy a 600K house like most of my peers.

KlangFool

mtmingus
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Re: Would your FIRE plan work had your journey started 1965?

Post by mtmingus » Wed Jan 09, 2019 10:33 am

AlphaLess wrote:
Wed Jan 09, 2019 12:16 am
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
Example:
- gross pay: $100K,
- taxes: $30K,
- savings: $35K,
- spending: $35K.

Thus, saving an amount equal to one year of expenses.
I understand the math part. It's just hard to control the spending part. My last year the three categories proportionally look like:

Expenses: Taxes: Savings = 45:20:35

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Wed Jan 09, 2019 11:01 am

mtmingus wrote:
Wed Jan 09, 2019 10:33 am
AlphaLess wrote:
Wed Jan 09, 2019 12:16 am
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
Example:
- gross pay: $100K,
- taxes: $30K,
- savings: $35K,
- spending: $35K.

Thus, saving an amount equal to one year of expenses.
I understand the math part. It's just hard to control the spending part. My last year the three categories proportionally look like:

Expenses: Taxes: Savings = 45:20:35
mtmingus,

That is not a problem for me. I do "Pay Yourself First". I auto deduct from my paycheck for the savings. Then, I spend the rest. I could not spend the money that I do not have. In fact, I do not budget at all.

KlangFool

MnD
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Re: Would your FIRE plan work had your journey started 1965?

Post by MnD » Wed Jan 09, 2019 11:11 am

4% inflation-adjusted is too low most of the time yet in terrible sequences is on the bleeding edge of survivability.
5% of annual portfolio balance with a 3% inflation-adjusted floor provides on average a 41% greater utility in producing retirement income versus 4% inflation-adjusted and in the most favorable sequences ~150% more. The cost is that in very unfavorable sequences one will spend most years at the 3% inflation-adjusted floor, which is exactly where one should be in that situation.

Choosing 3% SWR or 3.X% up front for any sequence guarantees a terrible outcome as measured by the utility of retirement income produced by ones nest egg. But I suspect most folks in the ultra-low SWR camp are more comfortable with the idea of "checking out" with a portfolio significantly larger (even in real terms) than what they retired with. Or at least they and their SO should be, because that's the very likely outcome.

ReadyToRetire
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Re: Would your FIRE plan work had your journey started 1965?

Post by ReadyToRetire » Wed Jan 09, 2019 11:29 am

I use KlangFool's method as well. Budgeting has never been a strong suit of mine so I just don't. Pull what needs to be saved off the top and spend the rest works for me.

I also follow his advice of buying less house. It is amazing how much cost is involved in your home. My wife and I had a great starter home that we had almost completely paid off well before our 50th birthdays. And then for some reason we "bought up" We went from a 2,000 sf really nice home to a 3,700 sf 1/2 million dollar behemoth. My wife suffered a malady that put her in the hospital for a while (fortunately she fully recovered). During those nights in the hospital we re-found our original plan for our lives. As soon as we managed we sold that place and purchased a much more reasonably priced and sized home. That change freed up thousands of dollars a year that went straight into savings.

Full disclosure, my wife and I both work and we both have professional jobs and in the latter part of our careers relatively decent paychecks. But we started out young and lower paid just like everyone else. During our entire married lives we followed advice similar to what KlangFool espouses. Although we didn't hit the mark every year, we structured our lives such that we could live on only one of our paychecks. Being somewhat hedonistic, we chose to live on the larger salary and save the smaller one but still dropping one spouses entire paycheck into savings year in and year out over 2 1/2 decades begins to add up.

I'm certainly not a Mr. Money Mustache. I don't enjoy bicycles nearly as much as he does. But just like I beleive KlangFool, I also believe MMM is correct in that the vast majority of folks have a spending problem. Sure there are a lot of examples of folks that have had issues befall them outside of their control, but in my gut - no proof to back it up, just my opinion - there are a lot more people out there experiencing money issues that are brought on by self inflicted wounds.

I believe in this formula: As high a savings rate as you can stand while still enjoying your life (there is no sense in being miserable but do try to hit double digit savings rates) invested in well diversified low cost investments + time (2 1/2 or 3 decades of it) = A decent retirement.

Just my opinion.

02nz
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Re: Would your FIRE plan work had your journey started 1965?

Post by 02nz » Wed Jan 09, 2019 11:45 am

GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
Now we are standing at the start of another bear market.
Is that what your crystal ball says? Please share with us what it tells you about how long the bear market will last and what the low will be.

lostdog
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Re: Would your FIRE plan work had your journey started 1965?

Post by lostdog » Wed Jan 09, 2019 11:53 am

KlangFool wrote:
Wed Jan 09, 2019 11:01 am
mtmingus wrote:
Wed Jan 09, 2019 10:33 am
AlphaLess wrote:
Wed Jan 09, 2019 12:16 am
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
Example:
- gross pay: $100K,
- taxes: $30K,
- savings: $35K,
- spending: $35K.

Thus, saving an amount equal to one year of expenses.
I understand the math part. It's just hard to control the spending part. My last year the three categories proportionally look like:

Expenses: Taxes: Savings = 45:20:35
mtmingus,

That is not a problem for me. I do "Pay Yourself First". I auto deduct from my paycheck for the savings. Then, I spend the rest. I could not spend the money that I do not have. In fact, I do not budget at all.

KlangFool
I do the same as KlangFool.

Expenses-$27,700
Saved-$35,500

We have a paid off home and zero debt. If we bought too much home like our friends, we wouldn't be able to save as much.
Current portfolio: 54% ITOT, VTSAX / 46% VTIAX

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HomerJ
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Re: Would your FIRE plan work had your journey started 1965?

Post by HomerJ » Wed Jan 09, 2019 1:12 pm

GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982, following a 15-year bull market. Now we are standing at the start of another bear market. What if the history repeats itself? A 4% "safe" withdrawl rate is surely not safe...
stocknoob4111 wrote:
Mon Jan 07, 2019 3:15 am
which paper is that and i'd be curious to see what the strategy was to survive a period that took 30 years to recover.. the Dow regained it's 1965 peak only in 1995!!! One would be dead and gone by then.. and even then that's just to break even.

Both of these statements are incorrect, because both of them ignore dividends.

$10,000 invested in AMRMX in January 1965 (American Mutual Fund - an old blue-chip mutual fund that was around back then) was worth $35,000 in Jan 1995, in inflation-adjusted numbers. ($275,000 in nominal numbers!)

Plus, the 4% rule is not for 100% stocks the day you retire, but 60/40 stocks/bonds. Bonds smooth out the returns quite a bit (although the inflation of 70s really hurt bonds too).
The J stands for Jay

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HomerJ
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Re: Would your FIRE plan work had your journey started 1965?

Post by HomerJ » Wed Jan 09, 2019 1:16 pm

mtmingus wrote:
Wed Jan 09, 2019 10:33 am
AlphaLess wrote:
Wed Jan 09, 2019 12:16 am
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
Example:
- gross pay: $100K,
- taxes: $30K,
- savings: $35K,
- spending: $35K.

Thus, saving an amount equal to one year of expenses.
I understand the math part. It's just hard to control the spending part. My last year the three categories proportionally look like:

Expenses: Taxes: Savings = 45:20:35
You're doing great. As your salary goes up, don't increase your expenses, and you will someday be painlessly at a 50% savings rate, if that's what you want.

No need to compare yourself to KlangFool or anyone else.
The J stands for Jay

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HomerJ
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Re: Would your FIRE plan work had your journey started 1965?

Post by HomerJ » Wed Jan 09, 2019 1:19 pm

KlangFool wrote:
Wed Jan 09, 2019 11:01 am
That is not a problem for me. I do "Pay Yourself First". I auto deduct from my paycheck for the savings. Then, I spend the rest. I could not spend the money that I do not have. In fact, I do not budget at all.
You also make a lot of money. Let's not ignore that variable.

My wife and I saved half our salaries for quite a few years, but I don't hold myself out as some super saver, because together we made a ton of money (for the Midwest), and there was no sacrifice involved.
The J stands for Jay

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Abe
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Re: Would your FIRE plan work had your journey started 1965?

Post by Abe » Wed Jan 09, 2019 1:34 pm

GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982, following a 15-year bull market. Now we are standing at the start of another bear market. What if the history repeats itself? A 4% "safe" withdrawl rate is surely not safe...
If my memory serves me, interest rates were extremely high back then.
Slow and steady wins the race.

KlangFool
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Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Wed Jan 09, 2019 1:51 pm

HomerJ wrote:
Wed Jan 09, 2019 1:19 pm
KlangFool wrote:
Wed Jan 09, 2019 11:01 am
That is not a problem for me. I do "Pay Yourself First". I auto deduct from my paycheck for the savings. Then, I spend the rest. I could not spend the money that I do not have. In fact, I do not budget at all.
You also make a lot of money. Let's not ignore that variable.

My wife and I saved half our salaries for quite a few years, but I don't hold myself out as some super saver, because together we made a ton of money (for the Midwest), and there was no sacrifice involved.
HomerJ,

By the way, I save 1 year of expense every year when I was making 1/4 to 1/5 of my current income too. But, I was living in Houston.

KlangFool

randomguy
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Re: Would your FIRE plan work had your journey started 1965?

Post by randomguy » Wed Jan 09, 2019 1:53 pm

GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982, following a 15-year bull market. Now we are standing at the start of another bear market. What if the history repeats itself? A 4% "safe" withdrawl rate is surely not safe...
Why would you say that the 4% rule would surely not be safe? Take a 40 year old retiree. The 4% rule gets him to 68 or so. Thats not great. But if SS at 62 pays for say ~1/3-1/2rds of your expenses (i.e. me and my wife would get about 30k of SS at 62 which would be well 50% of expenses with paid off house. YMMV if you weren't a high earner at 22) , that takes enough pressure off so that your portfolio so that on will make it to 90.

Realistically everyone will cut expenses (that is actually said in the Bergen paper) or get a job. Mentally I don't think very many people could stay the course.

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HomerJ
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Re: Would your FIRE plan work had your journey started 1965?

Post by HomerJ » Wed Jan 09, 2019 1:58 pm

KlangFool wrote:
Wed Jan 09, 2019 1:51 pm
HomerJ wrote:
Wed Jan 09, 2019 1:19 pm
KlangFool wrote:
Wed Jan 09, 2019 11:01 am
That is not a problem for me. I do "Pay Yourself First". I auto deduct from my paycheck for the savings. Then, I spend the rest. I could not spend the money that I do not have. In fact, I do not budget at all.
You also make a lot of money. Let's not ignore that variable.

My wife and I saved half our salaries for quite a few years, but I don't hold myself out as some super saver, because together we made a ton of money (for the Midwest), and there was no sacrifice involved.
HomerJ,

By the way, I save 1 year of expense every year when I was making 1/4 to 1/5 of my current income too. But, I was living in Houston.

KlangFool
That just tells me you bought too much house in Virginia. If you were capable of living that cheaply before, you're wasting money now. :)

But seriously, that means those "1 year of expenses" you saved in Houston weren't really "1 year of expenses", because your expenses have gone way up. Spending 4x to 5x what you used to spend is not a small change.

What matters is your planned "retirement expenses". Will those be similar to today's expenses? Or Houston's 80% less expenses?
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barnaclebob
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Re: Would your FIRE plan work had your journey started 1965?

Post by barnaclebob » Wed Jan 09, 2019 2:00 pm

What were bonds and CD's paying during this time. Stocks are only part of the picture. Also any article that doens't include dividends reinvested is garbage and not to be trusted.

KlangFool
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Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Wed Jan 09, 2019 2:05 pm

HomerJ wrote:
Wed Jan 09, 2019 1:58 pm
KlangFool wrote:
Wed Jan 09, 2019 1:51 pm
HomerJ wrote:
Wed Jan 09, 2019 1:19 pm
KlangFool wrote:
Wed Jan 09, 2019 11:01 am
That is not a problem for me. I do "Pay Yourself First". I auto deduct from my paycheck for the savings. Then, I spend the rest. I could not spend the money that I do not have. In fact, I do not budget at all.
You also make a lot of money. Let's not ignore that variable.

My wife and I saved half our salaries for quite a few years, but I don't hold myself out as some super saver, because together we made a ton of money (for the Midwest), and there was no sacrifice involved.
HomerJ,

By the way, I save 1 year of expense every year when I was making 1/4 to 1/5 of my current income too. But, I was living in Houston.

KlangFool
That just tells me you bought too much house in Virginia. If you were capable of living that cheaply before, you're wasting money now. :)

But seriously, that means those "1 year of expenses" you saved in Houston weren't really "1 year of expenses", because your expenses have gone way up. Spending 4x to 5x what you used to spend is not a small change.

What matters is your planned "retirement expenses". Will those be similar to today's expenses? Or Houston's 80% less expenses?
HomerJ,

I am aiming for FI. So, it is all based on my current annual expense. My current annual expense is 60K.

KlangFool

randomguy
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Re: Would your FIRE plan work had your journey started 1965?

Post by randomguy » Wed Jan 09, 2019 2:08 pm

mtmingus wrote:
Wed Jan 09, 2019 10:33 am
AlphaLess wrote:
Wed Jan 09, 2019 12:16 am
mtmingus wrote:
Tue Jan 08, 2019 4:43 pm
KlangFool wrote:
Tue Jan 08, 2019 2:59 pm
OP,

I save 1 year of expense every year. My AA range from 70/30 to 60/40. This FIRE plan works under any stock market condition.

KlangFool
How is it possible to save 1 yr of expense every yr? Are you projecting lower or equal expenses in the future?
Example:
- gross pay: $100K,
- taxes: $30K,
- savings: $35K,
- spending: $35K.

Thus, saving an amount equal to one year of expenses.
I understand the math part. It's just hard to control the spending part. My last year the three categories proportionally look like:

Expenses: Taxes: Savings = 45:20:35
Correct me if I am wrong Klangfool but aren't you saving 0 dollars right now?:) Yes I know college is a one time expense but you can't just pretend it isn't an expense and it sure isn't savings. How you account for stuff is up to you but it doesn't point out how none of us are using some standardized set of accounting rules and that we often pick ones that make us :)

Mine is more like
15:40:45
these days

When I was making 1/5th as much it was more like
30:35:35

Either is easy to do when your making an income that leaves 30k+ for expenses (for a single person up that to 50k for a couple if you want). Its a lot harder when you start having <20k to spend to meet your savings goals.

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Re: Would your FIRE plan work had your journey started 1965?

Post by Abe » Wed Jan 09, 2019 3:39 pm

barnaclebob wrote:
Wed Jan 09, 2019 2:00 pm
What were bonds and CD's paying during this time. Stocks are only part of the picture. Also any article that doens't include dividends reinvested is garbage and not to be trusted.
By the early to mid 70's CD rates were getting up into the 2 digit range.
Slow and steady wins the race.

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Re: Would your FIRE plan work had your journey started 1965?

Post by barnaclebob » Wed Jan 09, 2019 3:42 pm

Abe wrote:
Wed Jan 09, 2019 3:39 pm
barnaclebob wrote:
Wed Jan 09, 2019 2:00 pm
What were bonds and CD's paying during this time. Stocks are only part of the picture. Also any article that doens't include dividends reinvested is garbage and not to be trusted.
By the early to mid 70's CD rates were getting up into the 2 digit range.
Then I'm guessing the physical bogleheads message board back then had a bunch of papers stapled to it asking "Should I go to 100% bonds"

randomguy
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Re: Would your FIRE plan work had your journey started 1965?

Post by randomguy » Wed Jan 09, 2019 3:51 pm

barnaclebob wrote:
Wed Jan 09, 2019 3:42 pm
Abe wrote:
Wed Jan 09, 2019 3:39 pm
barnaclebob wrote:
Wed Jan 09, 2019 2:00 pm
What were bonds and CD's paying during this time. Stocks are only part of the picture. Also any article that doens't include dividends reinvested is garbage and not to be trusted.
By the early to mid 70's CD rates were getting up into the 2 digit range.
Then I'm guessing the physical bogleheads message board back then had a bunch of papers stapled to it asking "Should I go to 100% bonds"
The threads would be should i go 100% gold. Why buy bonds and stocks hat just lose money every year when you can buy nice asset that just goes up in value😃 It is easy tp forgot that the bond investments of the 70s were only a good deal because inflation was tamed quicker than expected. It is easy to say 30 years or stocks were an easy investment to make in 1981. A lot harder to do at the time. It wsnt like everyone was going this is a once in a decade buying opportunity in 2009 either.

JBTX
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Re: Would your FIRE plan work had your journey started 1965?

Post by JBTX » Wed Jan 09, 2019 4:55 pm

It would be interesting to see the data. Apparently 4.0% worked through that time period. I suspect though it would have been pretty harrowing. By 1982 your withdrawal rate vs your remaining assets was probably uncomfortably high, but then the market started back up.

That is one problem with a fixed/inflation based withdrawal rate. There is a good possibility that somewhere along the way things are going to look pretty ugly, if you are heavily weighted into stocks. Historically, over the long term the market has always bailed you out, but if you are 70-80 years old and your portfolio has been hammered it is probably difficult to sleep easily and have faith that a bull market is coming soon and everything will be OK.

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Re: Would your FIRE plan work had your journey started 1965?

Post by AlphaLess » Wed Jan 09, 2019 11:34 pm

mtmingus wrote:
Wed Jan 09, 2019 10:33 am
I understand the math part. It's just hard to control the spending part. My last year the three categories proportionally look like:

Expenses: Taxes: Savings = 45:20:35
I understand what you are saying.

The proportions are probably heavily influenced by the absolute numbers.
Like, if you make $100K, it is hard to have only 30% of expenses.
But if you make $5MM, it is not that hard to fit your expenses in under 10%.
"You can get more with a kind word and a gun than with just a kind word." George Washington

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Re: Would your FIRE plan work had your journey started 1965?

Post by AlohaJoe » Wed Jan 09, 2019 11:55 pm

Abe wrote:
Wed Jan 09, 2019 1:34 pm
GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982, following a 15-year bull market. Now we are standing at the start of another bear market. What if the history repeats itself? A 4% "safe" withdrawl rate is surely not safe...
If my memory serves me, interest rates were extremely high back then.
barnaclebob wrote:
Wed Jan 09, 2019 2:00 pm
What were bonds and CD's paying during this time. Stocks are only part of the picture. Also any article that doens't include dividends reinvested is garbage and not to be trusted.
What interest rates were is meaningless for an investor, especially in the context of SWRs & retirement. The only thing that matters are real rates, not nominal rates.

In January 1979 10-year Treasuries were paying 8.95%. Yet inflation that year was 13%. So you lost money even though the rates were high. And the next year, 1980, inflation was 12% so you lost even more money (plus you lost money on your principal went rates went up). In 1981, inflation was finally brought down to 8.9% -- so you broke even. 3 years into holding your 10 year bond and you are deep in the hole.

Bonds got destroyed in the 1960s, 1970s, and early 1980s. This is widely known and not exactly a secret. The real return on bonds over that period looked like:

-1.2%
1.4%
-3.1%
-2.5%
-8.2%
10.9%
4.3%
-0.4%
-4.7%
-7.1%
-0.2%
6.2%
-3.9%
-6.7%
-10.2%
-9.0%
-4.2%


The only thing worked was extremely short-term holdings (like 30-day Treasuries) that kept even (but didn't make you any money). In the infamous "Death of Equities" article Newsweek commented on it saying
In short, the financial markets are so eccentric that for more than 10 years the largest returns have come from taking the fewest risks. Indeed, by constantly rolling over short-term paper, investors have beaten returns on stocks and bonds by a considerable margin. “That’s not the way it’s supposed to work,” says an investment banker.

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Re: Would your FIRE plan work had your journey started 1965?

Post by dcabler » Thu Jan 10, 2019 7:03 am

GettingFIREd wrote:
Mon Jan 07, 2019 1:42 am
The stock market went down over 70% between 1965 and 1982, following a 15-year bull market. Now we are standing at the start of another bear market. What if the history repeats itself? A 4% "safe" withdrawl rate is surely not safe...
Nobody knows if we're standing at the start of another bear market or not. And a 4% SWR method of withdrawal is now considered by many to only be a guideline to tell you whether or not you are ready to retire. Variable withdrawal methods, such as VPW, do much better anyway. The only question then is whether the bad sequence of returns result in some annual withdrawals that are below your minimum standard of living. Not pleasant either, but the lesser evil when compared to running out of money before running out of life.

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HomerJ
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Re: Would your FIRE plan work had your journey started 1965?

Post by HomerJ » Thu Jan 10, 2019 11:05 am

Again, the stock market didn't go down 70% from 1965 to 1982. That completely ignores dividends.

The actual DOW price was around 1000 in 1965 and still 1000 in 1982. Flat after 16 years, price-wise. It did go down a lot in real terms though because inflation was a real killer. But not 70%. Dividends (which were higher back then) muted a lot of that.

And then the next 18 years, the DOW went from 1000 to 11,000.

16 years of nothing (except dividends), then over the next 18 years, you get 11x growth (plus dividends)

That's often how the stock market works. It runs in cycles.

Just like 2000-2010 was pretty flat, price wise, but then followed by 9 years of high growth.
The J stands for Jay

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Cycle
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Re: Would your FIRE plan work had your journey started 1965?

Post by Cycle » Thu Jan 10, 2019 1:10 pm

KlangFool wrote:
Wed Jan 09, 2019 12:54 am
1) No, I am not from China. China average gross saving rate is higher at 40+%.
There is the Klang river which runs through Kuala Lumpur, which is what I would have guessed... Ie Malaysia. Though I've also seen the word Klang on some dishes from Laos.

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Re: Would your FIRE plan work had your journey started 1965?

Post by wolf359 » Thu Jan 10, 2019 2:34 pm

stocknoob4111 wrote:
Mon Jan 07, 2019 3:15 am
which paper is that and i'd be curious to see what the strategy was to survive a period that took 30 years to recover.. the Dow regained it's 1965 peak only in 1995!!! One would be dead and gone by then.. and even then that's just to break even.
Fun weekend reading:

"Determining Withdrawal Rates Using Historical Data," by William Bengen, published in Journal of Financial Planning, October, 1994 http://www.retailinvestor.org/pdf/Bengen1.pdf

“Retirement Spending: Choosing a Sustainable Withdrawal Rate,” by Philip L. Cooley, Carl M. Hubbard, and Daniel T. Walz (all professors at Trinity University in Texas) published in February 1998 issue of the Journal of the American Association of Individual Investors. This is also known as the "Trinity Study," and expands on William Bengen's paper. https://www.aaii.com/files/pdf/6794_ret ... inable.pdf

Wade Pfau redid the Trinity Study updated to 2018. https://digitalcommons.theamericancolle ... culty/887/

For that matter, read Wade Pfau's 2017 book "How Much Can I Spend in Retirement?" which covers all these methods as well as variable withdrawal rate plans, ones based on annuities, and ones based on investing. It's a very comprehensive list of retirement strategies.

Of course, you should also read "The Boglehead's Guide to Retirement Planning," by Taylor Larimore, Mel Lindauer, Richard A. Ferri, Laura F. Dogu, and John C. Bogle, which discuss these strategies and tools in a very approachable and comprehensive manner.

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Re: Would your FIRE plan work had your journey started 1965?

Post by stocknoob4111 » Thu Jan 10, 2019 2:43 pm

I am aware of Bengens paper although I have not read the whole thing. However, there are a bunch of articles that make the claim that Bengen's study on this is flawed.

This is one from Betterment:

https://www.betterment.com/resources/wh ... is-broken/

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HomerJ
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Re: Would your FIRE plan work had your journey started 1965?

Post by HomerJ » Thu Jan 10, 2019 4:22 pm

stocknoob4111 wrote:
Thu Jan 10, 2019 2:43 pm
I am aware of Bengens paper although I have not read the whole thing. However, there are a bunch of articles that make the claim that Bengen's study on this is flawed.

This is one from Betterment:

https://www.betterment.com/resources/wh ... is-broken/
That article is flawed.
However, while the 4% figure remained fixed in the public’s imagination, the rates it relied on were anything but. Twenty years ago, the yield on a three-month Treasury bill was 6%. So while Bengen’s model called for a 50/50 stock allocation, even those with a more conservative asset allocation could still draw down 4% annually adjusted for inflation, and reasonably expect to preserve their capital.
That is NOT how Bengen's model was devised.

4% worked in the WORST cases in the past, not the good times, or even average times. We've had low interest rate environments before and 4% worked. 4% was not based on conditions from 20 years ago.

If Bengen had based his model on just what the bonds and markets were doing 20 years ago, it would have been called the 7% rule.
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Re: Would your FIRE plan work had your journey started 1965?

Post by Clever_Username » Thu Jan 10, 2019 5:07 pm

KlangFool wrote:
Wed Jan 09, 2019 2:05 pm
HomerJ,

I am aiming for FI. So, it is all based on my current annual expense. My current annual expense is 60K.

KlangFool
I hope it's okay to ask this, because I do really get a lot out of your posts, here and elsewhere. Maybe I missed something though.

Why are you using current annual expense? I figure if I were FI, and still working, my current annual expense wouldn't be a number that mattered towards this, and if I were FI and not working at my current job, I'd probably move cities (and likely state as well), so my current annual expense would be immaterial to that.

I'm guessing the answer is you have other plans for if you FI and aren't working, but I'd still like to ask. I hope it's an okay question.

I'm very onboard with this sort of plan, which is why I'd like to learn more. I save in excess of my current annual expenses, even before I count employer matching on retirement account or the portion of my required mortgage payment that pays down the loan.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: Would your FIRE plan work had your journey started 1965?

Post by KlangFool » Thu Jan 10, 2019 5:18 pm

Clever_Username wrote:
Thu Jan 10, 2019 5:07 pm
KlangFool wrote:
Wed Jan 09, 2019 2:05 pm
HomerJ,

I am aiming for FI. So, it is all based on my current annual expense. My current annual expense is 60K.

KlangFool
I hope it's okay to ask this, because I do really get a lot out of your posts, here and elsewhere. Maybe I missed something though.

Why are you using current annual expense? I figure if I were FI, and still working, my current annual expense wouldn't be a number that mattered towards this, and if I were FI and not working at my current job, I'd probably move cities (and likely state as well), so my current annual expense would be immaterial to that.
Clever_Username,

The answer is simple.

A) My target number is I can FI at my current location. If I use other numbers, I can LIE to myself easily.

B) My current annual expense is a lot more accurate than any forecast.

KlangFool
Last edited by KlangFool on Thu Jan 10, 2019 5:56 pm, edited 1 time in total.

stocknoob4111
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Re: Would your FIRE plan work had your journey started 1965?

Post by stocknoob4111 » Thu Jan 10, 2019 5:34 pm

HomerJ wrote:
Thu Jan 10, 2019 4:22 pm
That article is flawed.
Yeah, perhaps... just saying that there is a lot of press out there criticizing it.

Now, just doing a 30 year Monte Carlo analysis with actual historical data does not always support Bengen's conclusion. Here is a 75/25 US Equities/US Bonds portfolio.

https://tinyurl.com/yd3vdd2m

At a 4% withdrawal rate, monthly, even at the 10th percentile Portfolios survived with a generous residual balance. However, if I adjust the Sequence of Returns to "Worst 5 years first" then only 62% of all Portfolios survived which is not very confidence inspiring.

Reducing the withdrawal rate to 3% and using the worst 5 years first, results in 92% of all Portfolios surviving. Even using worst 10 years first survived at the median.

The downside is that this uses only data starting 1987 but we've had some pretty good variations in this timespan.

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Re: Would your FIRE plan work had your journey started 1965?

Post by HomerJ » Thu Jan 10, 2019 6:40 pm

Clever_Username wrote:
Thu Jan 10, 2019 5:07 pm
Why are you using current annual expense?
When you're close to retirement, one's current annual expense should pretty close to what you want in retirement.

At least, it's a great starting point.

You may have to adjust it if you plan to downsize. You may have to adjust it for health insurance. You may have to adjust it if you plan to take more vacations.

But where else would one start?

If you are 35, with two kids, in starter home with a mortgage, your current expenses may not be a very accurate estimate of retirement expenses.

But if you're 55, kids are gone, house is paid off, I would think your current expenses would be a pretty accurate place to start.
The J stands for Jay

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