How to realistically FIRE?

[Wanderingwheelz]

Simple question.

Is 25x expenses/spending really a “safe” way to look at one’s ability or preparedness to retire? I realize it get safer to use such “rules of thumb” as you get older, but even for a 50 year old, is it still “within the margin of safety” to use the 25x figure? Two SSs will be there, but not using it in any calculations. Inheritances not calculated, either.

Portfolio is 60/40 using the 3 Fund Portfolio.

If it makes you feel 'safer' save more than 25X. Moving from 25X to 30X to 35X does not add that much more time to work due to compounding.

I completely agree, so long as you’re in a bull market. 25x can easily become 20x if there’s a remarkable downturn- especially if your stock allocation is higher than 60%.

[willthrill81]

Having said that, i would not feel comfortable with 25x at such a young age (50).

For me, it would depend on what level of spending was being assumed. If it included a large amount of discretionary spending (e.g. 50%) that could be reduced or eliminated in the event of very poor portfolio performance, then I would feel very comfortable it. But apart from that, I agree with you.

One thing I haven’t seen mentioned in this thread is ability of an individual to return to work if their FIRE plan fails. Theoretically, somebody retiring very early should be able to go back to some sort of employment if their 25x, 35x or whatever it may be falls short when they FIRE.

I plan to call it quits at 15x liquid + cash flow from my rentals, in about one more year, at age 42. But there is no way I’m hanging up my professional license or letting myself fall behind on changes in my field.

Indeed. It's a lot easier for the person was making $50k to reenter the workforce and begin again earning at least close to that much than for a professional making $250k to do it. It's certainly possible for some in the latter position to do it, but it's not common. The ever-cited "consulting gig" is not an option for everyone or even most.

But the person who retired early who made $250k/yr does not need $250k income to make that portfolio last in the most dire times. More than likely this individual is living on significantly less and just adding $10k/yr during a few years of dire times may be all that is needed.

Maybe, but I'm not so sure. Even if this person had a 50% savings rate, that means that they are spending $125k. I don't know if supplementing that with $10k from a part-time job would really move the needle much.

[EnjoyIt]

For me, it would depend on what level of spending was being assumed. If it included a large amount of discretionary spending (e.g. 50%) that could be reduced or eliminated in the event of very poor portfolio performance, then I would feel very comfortable it. But apart from that, I agree with you.

One thing I haven’t seen mentioned in this thread is ability of an individual to return to work if their FIRE plan fails. Theoretically, somebody retiring very early should be able to go back to some sort of employment if their 25x, 35x or whatever it may be falls short when they FIRE.

I plan to call it quits at 15x liquid + cash flow from my rentals, in about one more year, at age 42. But there is no way I’m hanging up my professional license or letting myself fall behind on changes in my field.

Indeed. It's a lot easier for the person was making $50k to reenter the workforce and begin again earning at least close to that much than for a professional making $250k to do it. It's certainly possible for some in the latter position to do it, but it's not common. The ever-cited "consulting gig" is not an option for everyone or even most.

But the person who retired early who made $250k/yr does not need $250k income to make that portfolio last in the most dire times. More than likely this individual is living on significantly less and just adding $10k/yr during a few years of dire times may be all that is needed.

Maybe, but I'm not so sure. Even if this person had a 50% savings rate, that means that they are spending $125k. I don't know if supplementing that with $10k from a part-time job would really move the needle much.

Let's play a little: A family of 2 making $250k/yr living in a state with tax will likely be spending about 35% on taxes alone which include SS/Medicare/Federal and State tax leaving behind $165k/yr for spending and saving. If this family is debt free from the begging and spending 125k/yr then they are saving $40k/yr. Remember we are looking at early retirees so lets say they started saving at 25 years old for the next 20 years. $40k/yr at 5% real growth (for calculation purposes only) will be $1.39 million and I know you will agree that amount will not sustain 125k/yr spending.

On the contrary saving $70k/yr leaves $95k/yr for spending and will get this couple to about $2.4 million which should comfortably sustain a $95k/yr lifestyle at 45 years old. I'm pretty sure an extra $10k in cash can do wonders. Just run it in your own calculator and see how it fairs in the worst of times in history.

[AerialWombat]

We all have definitions of "rich" in our head, I guess... but if you're in the top 1% in income in the richest country in the world, I really think you should stop calling yourself middle-class.

I concur with this.

I call myself “recently mass affluent”. I live a lower-middle class American lifestyle, but it would just be ignorant/embarrassing to not recognize the fact that I’m in the top 2% of income in the world’s wealthiest country.

Why not call yourself rich since that is what you are? I sure don't care about what you call yourself, but I totally get why these people that are either the top of the middle class or bottom of the rich, choose to associate with the other one.

Of course I only live in like the 10th wealthiest country. If I was living in Qatar with 2x the wealth of the US, my impressions might be different

Because to me, “rich” means net worth. Since I’m newly high-income, my net worth is nowhere close to “rich” yet.

Give me a year or two.

[KyleAAA]

One thing I haven’t seen mentioned in this thread is ability of an individual to return to work if their FIRE plan fails. Theoretically, somebody retiring very early should be able to go back to some sort of employment if their 25x, 35x or whatever it may be falls short when they FIRE.

I plan to call it quits at 15x liquid + cash flow from my rentals, in about one more year, at age 42. But there is no way I’m hanging up my professional license or letting myself fall behind on changes in my field.

Indeed. It's a lot easier for the person was making $50k to reenter the workforce and begin again earning at least close to that much than for a professional making $250k to do it. It's certainly possible for some in the latter position to do it, but it's not common. The ever-cited "consulting gig" is not an option for everyone or even most.

But the person who retired early who made $250k/yr does not need $250k income to make that portfolio last in the most dire times. More than likely this individual is living on significantly less and just adding $10k/yr during a few years of dire times may be all that is needed.

Maybe, but I'm not so sure. Even if this person had a 50% savings rate, that means that they are spending $125k. I don't know if supplementing that with $10k from a part-time job would really move the needle much.

Let's play a little: A family of 2 making $250k/yr living in a state with tax will likely be spending about 35% on taxes alone which include SS/Medicare/Federal and State tax leaving behind $165k/yr for spending and saving. If this family is debt free from the begging and spending 125k/yr then they are saving $40k/yr. Remember we are looking at early retirees so lets say they started saving at 25 years old for the next 20 years. $40k/yr at 5% real growth (for calculation purposes only) will be $1.39 million and I know you will agree that amount will not sustain 125k/yr spending.

On the contrary saving $70k/yr leaves $95k/yr for spending and will get this couple to about $2.4 million which should comfortably sustain a $95k/yr lifestyle at 45 years old. I'm pretty sure an extra $10k in cash can do wonders. Just run it in your own calculator and see how it fairs in the worst of times in history.

I think your tax number is too high unless you're talking a VERY high tax city/state (maybe if you live in NYC?). We make quite a bit more than that and pay MUCH less than 35% all-in. I live in a no-tax state, but even if I assume 6% state tax I'm still well below 30%.

[EnjoyIt]

Indeed. It's a lot easier for the person was making $50k to reenter the workforce and begin again earning at least close to that much than for a professional making $250k to do it. It's certainly possible for some in the latter position to do it, but it's not common. The ever-cited "consulting gig" is not an option for everyone or even most.

But the person who retired early who made $250k/yr does not need $250k income to make that portfolio last in the most dire times. More than likely this individual is living on significantly less and just adding $10k/yr during a few years of dire times may be all that is needed.

Maybe, but I'm not so sure. Even if this person had a 50% savings rate, that means that they are spending $125k. I don't know if supplementing that with $10k from a part-time job would really move the needle much.

Let's play a little: A family of 2 making $250k/yr living in a state with tax will likely be spending about 35% on taxes alone which include SS/Medicare/Federal and State tax leaving behind $165k/yr for spending and saving. If this family is debt free from the begging and spending 125k/yr then they are saving $40k/yr. Remember we are looking at early retirees so lets say they started saving at 25 years old for the next 20 years. $40k/yr at 5% real growth (for calculation purposes only) will be $1.39 million and I know you will agree that amount will not sustain 125k/yr spending.

On the contrary saving $70k/yr leaves $95k/yr for spending and will get this couple to about $2.4 million which should comfortably sustain a $95k/yr lifestyle at 45 years old. I'm pretty sure an extra $10k in cash can do wonders. Just run it in your own calculator and see how it fairs in the worst of times in history.

I think your tax number is too high unless you're talking a VERY high tax city/state (maybe if you live in NYC?). We make quite a bit more than that and pay MUCH less than 35% all-in. I live in a no-tax state, but even if I assume 6% state tax I'm still well below 30%.

OK, I will play the math game.
35% on $250k or $87,500. Let's assume a couple making $125k each. That comes out to $15,500 in Social security taxes and another $3625 in medicare. That is $19,125. Let's assume the couple is saving $19k each in a 401k plus the $24,000 standard deduction. Tax caster says this couple will pay $40,421 in federal taxes. So far we are totaling $59,546. So I admit I am incorrect. And 30% would be a better value if we assume state tax at 6%.

If we are more realistic and start considering mortgages, school loans, kids college expenses, the straw man example I made is probably overly optimistic even when over expressing the tax burden.

[sjt]

[Deleted]

[ncbill]

For me, it would depend on what level of spending was being assumed. If it included a large amount of discretionary spending (e.g. 50%) that could be reduced or eliminated in the event of very poor portfolio performance, then I would feel very comfortable it. But apart from that, I agree with you.

One thing I haven’t seen mentioned in this thread is ability of an individual to return to work if their FIRE plan fails. Theoretically, somebody retiring very early should be able to go back to some sort of employment if their 25x, 35x or whatever it may be falls short when they FIRE.

I plan to call it quits at 15x liquid + cash flow from my rentals, in about one more year, at age 42. But there is no way I’m hanging up my professional license or letting myself fall behind on changes in my field.

Indeed. It's a lot easier for the person was making $50k to reenter the workforce and begin again earning at least close to that much than for a professional making $250k to do it. It's certainly possible for some in the latter position to do it, but it's not common. The ever-cited "consulting gig" is not an option for everyone or even most.

But the person who retired early who made $250k/yr does not need $250k income to make that portfolio last in the most dire times. More than likely this individual is living on significantly less and just adding $10k/yr during a few years of dire times may be all that is needed.

Maybe, but I'm not so sure. Even if this person had a 50% savings rate, that means that they are spending $125k. I don't know if supplementing that with $10k from a part-time job would really move the needle much.

IMHO it makes more of a difference for those earning under $100k, as I saw it with a recently-deceased relative.

They were laid off at age 60 from their $70k IT job.

Rather than take any of the lower-paid ($35k) positions offered they decided to go back to school for a 4-year degree in a completely different field.

Which meant they had to refi their $100k, 15 year mortgage (5 years into that @ layoff) to a $100k, 30 year mortgage, adding along the way a ~$30k HELOC, borrowing ~$20k in federal student loans, plus cashing in what pension they had & taking SS at age 62.

Of course they never actually held a paying job in that degree field.

Had they taken a lower-paying IT job they could have kept the pension, delayed taking SS, & had a paid-off house in retirement.

[HomerJ]

Simple question.

Is 25x expenses/spending really a “safe” way to look at one’s ability or preparedness to retire? I realize it get safer to use such “rules of thumb” as you get older, but even for a 50 year old, is it still “within the margin of safety” to use the 25x figure? Two SSs will be there, but not using it in any calculations. Inheritances not calculated, either.

Portfolio is 60/40 using the 3 Fund Portfolio.

If it makes you feel 'safer' save more than 25X. Moving from 25X to 30X to 35X does not add that much more time to work due to compounding.

It can take 2-10 years depending on how much you save and how the markets do.

If you don't feel safe at 25x because you think we're "due for low returns", then you have to count on it taking 5-10 years.

If you're 50, and you like your job okay, working another 5-10 years is not a terrible choice for that extra few percent of certainty.

If you're 60, working another 5-10 years is much bigger sacrifice.

In any case, working an extra 5 years to make sure you never have to skip a vacation in retirement seems pretty silly since you're giving up FIVE years of freedom to get that certainty. Especially if you're older... When you only have 0-20 good healthy years left (note the zero), spending 5 of them in boring meetings in a office seems pretty silly to me.

[Wanderingwheelz]

One thing I haven’t seen mentioned in this thread is ability of an individual to return to work if their FIRE plan fails. Theoretically, somebody retiring very early should be able to go back to some sort of employment if their 25x, 35x or whatever it may be falls short when they FIRE.

I plan to call it quits at 15x liquid + cash flow from my rentals, in about one more year, at age 42. But there is no way I’m hanging up my professional license or letting myself fall behind on changes in my field.

Indeed. It's a lot easier for the person was making $50k to reenter the workforce and begin again earning at least close to that much than for a professional making $250k to do it. It's certainly possible for some in the latter position to do it, but it's not common. The ever-cited "consulting gig" is not an option for everyone or even most.

But the person who retired early who made $250k/yr does not need $250k income to make that portfolio last in the most dire times. More than likely this individual is living on significantly less and just adding $10k/yr during a few years of dire times may be all that is needed.

Maybe, but I'm not so sure. Even if this person had a 50% savings rate, that means that they are spending $125k. I don't know if supplementing that with $10k from a part-time job would really move the needle much.

IMHO it makes more of a difference for those earning under $100k, as I saw it with a recently-deceased relative.

They were laid off at age 60 from their $70k IT job.

Rather than take any of the lower-paid ($35k) positions offered they decided to go back to school for a 4-year degree in a completely different field.

Which meant they had to refi their $100k, 15 year mortgage (5 years into that @ layoff) to a $100k, 30 year mortgage, adding along the way a ~$30k HELOC, borrowing ~$20k in federal student loans, plus cashing in what pension they had & taking SS at age 62.

Of course they never actually held a paying job in that degree field.

Had they taken a lower-paying IT job they could have kept the pension, delayed taking SS, & had a paid-off house in retirement.

Going back to school at 60 in the case you described makes zero sense.

[LadyGeek]

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