Mr. Money Mustache, SWR, and equity allocation

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Triple digit golfer
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Mr. Money Mustache, SWR, and equity allocation

Post by Triple digit golfer » Tue Dec 18, 2018 11:48 am

I was reading an article by Mr. Money Mustache, with whom I'm very familiar, and was curious what Bogleheads think of some of his assumptions and recommendations.

The general gist is that one could stop working today, forever, regardless of age and regardless of which account types the money is located, with 20x annual expenses, 100% in equities.

An example is an $800,000 portfolio of 100% equities (total U.S. stock market funds), drawing $40,000 in the first year of retirement and increasing annually for inflation.

Typically Bogleheads say that a 4% withdrawal rate will last 25-30 years.
MMM says that a 5% withdrawal rate will last 50+ years.

I am trying to reconcile the difference and determine what to use in my calculations.

Is the difference due to Bogleheads using far more conservative allocations?

My wife and I are on pace to have 20x annual expenses by around my 40th birthday, in seven years.

What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?

davidsorensen32
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by davidsorensen32 » Tue Dec 18, 2018 11:49 am

Ignore what he says. Instead follow what he does. He earns $400,000+ from his blog. Do you ?

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alpenglow
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by alpenglow » Tue Dec 18, 2018 11:51 am

There are lots of threads here about MMM. They generally get contentious and eventually locked. Search for them.

Overall, I like a lot of what he has to say on frugality, self-reliance, and consumerism. I cannot, however, agree that a 4% withdrawal rate is safe and appropriate for all ages. That strikes me as dangerous advice.

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market timer
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by market timer » Tue Dec 18, 2018 11:57 am

I don't recall MMM suggesting you use a 5% withdrawal rate without regard to market conditions, but rather that you adapt spending if there is a downturn. It's more a variable withdrawal rate. Also, he notes that early retirees often find ways to earn money after retirement.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by MotoTrojan » Tue Dec 18, 2018 11:59 am

Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
I was reading an article by Mr. Money Mustache, with whom I'm very familiar, and was curious what Bogleheads think of some of his assumptions and recommendations.

The general gist is that one could stop working today, forever, regardless of age and regardless of which account types the money is located, with 20x annual expenses, 100% in equities.

An example is an $800,000 portfolio of 100% equities (total U.S. stock market funds), drawing $40,000 in the first year of retirement and increasing annually for inflation.

Typically Bogleheads say that a 4% withdrawal rate will last 25-30 years.
MMM says that a 5% withdrawal rate will last 50+ years.

I am trying to reconcile the difference and determine what to use in my calculations.

Is the difference due to Bogleheads using far more conservative allocations?

My wife and I are on pace to have 20x annual expenses by around my 40th birthday, in seven years.

What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
Had never heard about a 5% SWR from MMM but I don't follow it. Even 4% is a bit controversial, and I would be curious to know if you truly can predict your retirement expenses at your current age of 33; children, healthcare, etc...

You are doing fantastically and it sounds like you could stop saving entirely and still have a very lavish retirement before you turn 55, but I would keep the gas pedal on.

I'd also be curious how you projected your net-worth in 7 years (what return did you assume)?

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by cdu7 » Tue Dec 18, 2018 12:00 pm

davidsorensen32 wrote:
Tue Dec 18, 2018 11:49 am
Ignore what he says. Instead follow what he does. He earns $400,000+ from his blog. Do you ?
Ahh, but he did what he said in the past and got through 2008 without breaking a sweat, and only lives on 30k a year or whatever. Plus, since he and his pals are so amazing they never have to worry about getting a job again if they get in trouble despite big gaps in employment history. Also their super healthy lifestyles ensure that medical catastrophes or sudden disability is a total impossibly.

He also of course doesn’t include his cash purchases of his nice house, car, and rent a space business in his own personal calculations because big cash purchases don’t count as expenses. So obviously every penny of his blog money is going right into his savings. You should really follow all of his advice because he is a genius like no other and has life totally figured out.
Last edited by cdu7 on Tue Dec 18, 2018 12:01 pm, edited 1 time in total.

zuma
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by zuma » Tue Dec 18, 2018 12:01 pm

Try a Monte Carlo simulation.

For a portfolio of $800k, 100% stocks, with a 5% withdrawal rate, Vanguard's nest egg calculator says:
Probability that savings will last 50 years: 68%
https://firecalc.com/ is another one to try.

MI_bogle
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by MI_bogle » Tue Dec 18, 2018 12:01 pm

This will be beat to death and then maybe eventually locked. There's been plenty of threads about MMM in the past and many turn contentious

There will be a bunch of Internet Retirement Police to come in and say how his assumptions rely on not actually being retired. There will be people that argue against that.

In general, Bogleheads from my observation are more conservative than MMM, and prefer their safety margins to come from accumulated financial capital rather than human capital.

Whereas MMM talks about safety margins in terms of optional employment and lifestyle flexibility in case your financial capital is not looking great after a few years of retirement and the perfect storm of recession and withdrawals from your portfolio.


But if you are *only* concerned about his return rate and withdrawal assumptions, he lays them out. He assumes you'll earn 5% real returns *during your savings years* and then live off the 4% SWR *after retirement*, with "some flexibility in your spending during recessions"



So in other words, not really that much different than folks talk about on Bogleheads in terms of long-term returns or long-term withdrawals.
What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
I would disagree that he says exactly this. I would paraphrase him as saying "Invest in stocks during your working career, plan on getting 5% real returns, and then after retirement withdraw 4% annually pending market conditions, and be prepared to reduce expenses and/or pick up a side hustle in case things go downhill for a prolonged period"

If you haven't read his article on safety margin https://www.mrmoneymustache.com/2011/10 ... ty-margin/

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by mhalley » Tue Dec 18, 2018 12:06 pm

MMM has lots of articles so am not sure which one you are referring to. This one discusses adding ss, variable withdrawal rate and part time income to get to the 5% being safe.

http://www.mrmoneymustache.com/2012/05/ ... etirement/
I think a lot of people don’t figure ss into the 4% wd due to fear of it being cut in the future, but most likely anyone over 50 could figure at least SS X 0.85.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by SevenBridgesRoad » Tue Dec 18, 2018 12:22 pm

MI_bogle wrote:
Tue Dec 18, 2018 12:01 pm

In general, Bogleheads from my observation are more conservative than MMM, and prefer their safety margins to come from accumulated financial capital rather than human capital.

Whereas MMM talks about safety margins in terms of optional employment and lifestyle flexibility in case your financial capital is not looking great after a few years of retirement and the perfect storm of recession and withdrawals from your portfolio.

So in other words, not really that much different...
I like what MI_bogle wrote...I’ve excerpted above.

Arguing between Orthodox Bogleheads, Reformed Bogleheads, secular MMMs and Full-on Mustachians is a lot like the various Protestant religions arguing with each other. Many basic tenets are similar enough. The important differences are worth a calm and open discussion, but not a fight.
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by delamer » Tue Dec 18, 2018 12:22 pm

The 4% SWR derived from various analysis is based on 60% stocks and 40% bonds.

Most people don’t have the stomach for 100% stocks.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by HomerJ » Tue Dec 18, 2018 12:24 pm

Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
MMM is wrong.

You would have been totally broke if you had done this right before the Great Depression, and you'd be close to broke right now if you did this in 2000.

The above is true for a 4% withdrawal from 100% stocks portfolio, let alone 5%.
Last edited by HomerJ on Tue Dec 18, 2018 12:31 pm, edited 1 time in total.
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JoMoney
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by JoMoney » Tue Dec 18, 2018 12:29 pm

Do you have a link to where he says that?
Does he maybe mean a variable withdrawal rate of 5% of whatever the balance is? As opposed to the typical 4% SWR which sets the initial withdrawal amount and is adjusted up with inflation.
A variable withdrawal that changes as a % of current balance will last indefinitely (but may not provide enough to match expenses)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by MI_bogle » Tue Dec 18, 2018 12:39 pm

JoMoney wrote:
Tue Dec 18, 2018 12:29 pm
Do you have a link to where he says that?
Does he maybe mean a variable withdrawal rate of 5% of whatever the balance is? As opposed to the typical 4% SWR which sets the initial withdrawal amount and is adjusted up with inflation.
A variable withdrawal that changes as a % of current balance will last indefinitely (but may not provide enough to match expenses)
Assumptions:

You can earn 5% investment returns after inflation during your saving years
You’ll live off of the “4% safe withdrawal rate” after retirement, with some flexibility in your spending during recessions.
You want your ‘Stash to last forever, you’ll only be touching the gains, since this income may be sustaining you for seventy years or so. Just think of this assumption as a nice generous Safety Margin.
He has articles about the 4% rule https://www.mrmoneymustache.com/2012/05 ... etirement/

Safety Margin https://www.mrmoneymustache.com/2011/10 ... ty-margin/

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by diy60 » Tue Dec 18, 2018 12:39 pm

JoMoney wrote:
Tue Dec 18, 2018 12:29 pm
Do you have a link to where he says that?
I'm not the OP, but I'm guessing this is the article. The article is full of holes, but the comments following the article are a fun read.
https://www.marketwatch.com/story/mr-mo ... 2018-12-17

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by tea_pirate » Tue Dec 18, 2018 12:41 pm

I've never seen MMM advocate for a 5% withdrawal rate. He generally uses 5% expected real returns, with a 4% withdrawal rate (which comes to 25x expenses). Maybe you got the two mixed up? Example seen here in one of his most popular blog posts:

http://www.mrmoneymustache.com/2012/01/ ... etirement/

Generally the argument of the 4% early retirement crowd seems to be that it worked for 95% of 30 year periods in the Trinity Study. This time period includes the great depression, wars, and all sorts of economic crises. So it already accounts for your worst case scenarios, and thus there's no need to make it even more conservative. Additionally, most portfolio failures that do occur happen due to a poor sequence of returns in the first decade of retirement. If I remember correctly, Mr. Money Mustache advocates that an early retiree can always go back to work and shore up their portfolio if necessary to combat a crash during the early years (though how true this is probably heavily depends on your profession and network).

The reason I don't like the 4% rule is because it was developed using only the historical returns of US stocks. I do not believe (rather, I'm not willing to bet) that US equities will continue to outperform international by ~2% annually on average as they did for the 20th century. For that reason combined with the longer expected withdrawal period of early retirement, I would use no more than a 3% withdrawal rate if I was planning on early retirement.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by MI_bogle » Tue Dec 18, 2018 12:44 pm

HomerJ wrote:
Tue Dec 18, 2018 12:24 pm
Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
MMM is wrong.

You would have been totally broke if you had done this right before the Great Depression, and you'd be close to broke right now if you did this in 2000.

The above is true for a 4% withdrawal from 100% stocks portfolio, let alone 5%.
He's not wrong, he's being misquoted/understood.

https://www.mrmoneymustache.com/2012/05 ... etirement/

In this article, he says he is a fan of the 4% rule, citing the Trinity Study and Wade Pfau. And he acknowledges that this is a 30-year period, not for a longer period. But then addresses aspects of that as well
The trinity study assumes a retiree will:

never earn any more money through part-time work or self-employment projects
never collect a single dollar from social security or any other pension plan
never adjust spending to account for economic reality like a huge recession
never substitute goods to compensate for inflation or price fluctuation (vacation in a closer place one year during an oil price spike, or switch to almond milk in the event of a dairy milk embargo).
never collect any inheritance from the passing of parents or other family members
and never do what most old people tend to do according to studies – spend less as they age
He acknowledges that a 5% withdrawal rate only has a 45% success rate in FIREcalc and suggests that normal things that most people already do take this to over 90% success - account for modest amount of social security in the future, reduce spending as you age, and add in very modest amounts of income from part time work or inheritances

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by JoMoney » Tue Dec 18, 2018 12:48 pm

MI_bogle wrote:
Tue Dec 18, 2018 12:39 pm
...

He has articles about the 4% rule https://www.mrmoneymustache.com/2012/05 ... etirement/

Safety Margin https://www.mrmoneymustache.com/2011/10 ... ty-margin/
Huh.. so from what I gather, he IS advocating for the same 4% SWR, but suggests you also get a different job in your "retirement" and/or cutting back and finding economies to shrink spending...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by MI_bogle » Tue Dec 18, 2018 12:53 pm

JoMoney wrote:
Tue Dec 18, 2018 12:48 pm
MI_bogle wrote:
Tue Dec 18, 2018 12:39 pm
...

He has articles about the 4% rule https://www.mrmoneymustache.com/2012/05 ... etirement/

Safety Margin https://www.mrmoneymustache.com/2011/10 ... ty-margin/
Huh.. so from what I gather, he IS advocating for the same 4% SWR, but suggests you also get a different job in your "retirement" and/or cutting back and finding economies to shrink spending...
That is how I interpret him, yes. And the working/cutting back is optional and based on the state of the market and your portfolio. In other words.... mostly what every other retired person does in this country. Cut back their spending if things get tight, and if things get really bad, start thinking about returning to the workforce in some capacity if they are not yet of social security age

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by HomerJ » Tue Dec 18, 2018 12:55 pm

MI_bogle wrote:
Tue Dec 18, 2018 12:44 pm
HomerJ wrote:
Tue Dec 18, 2018 12:24 pm
Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
MMM is wrong.

You would have been totally broke if you had done this right before the Great Depression, and you'd be close to broke right now if you did this in 2000.

The above is true for a 4% withdrawal from 100% stocks portfolio, let alone 5%.
He's not wrong, he's being misquoted/understood.

https://www.mrmoneymustache.com/2012/05 ... etirement/

In this article, he says he is a fan of the 4% rule, citing the Trinity Study and Wade Pfau. And he acknowledges that this is a 30-year period, not for a longer period. But then addresses aspects of that as well
The trinity study assumes a retiree will:

never earn any more money through part-time work or self-employment projects
never collect a single dollar from social security or any other pension plan
never adjust spending to account for economic reality like a huge recession
never substitute goods to compensate for inflation or price fluctuation (vacation in a closer place one year during an oil price spike, or switch to almond milk in the event of a dairy milk embargo).
never collect any inheritance from the passing of parents or other family members
and never do what most old people tend to do according to studies – spend less as they age
He acknowledges that a 5% withdrawal rate only has a 45% success rate in FIREcalc and suggests that normal things that most people already do take this to over 90% success - account for modest amount of social security in the future, reduce spending as you age, and add in very modest amounts of income from part time work or inheritances
Those are all good caveats, although half of them are more relevant for a normal retirement instead of early retirement.

Someone retiring at 35 or 40 should probably not be figuring in Social Security payments or their spending going down due to getting "old".

The number one useful caveat in that list for a 35 or 40 year old is "earn more money", i.e. "don't actually retire".

But you can certainly still quit that job you hate, and work part-time doing stuff you enjoy more. That's not early retirement, but being semi-retired and nearly financially independent is pretty awesome too.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by stocknoob4111 » Tue Dec 18, 2018 12:57 pm

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

lot of assumptions that were made during the 4% study such as high interest rates during that time period are no longer true!

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Jack FFR1846 » Tue Dec 18, 2018 1:01 pm

I'm both a fan and a critic of MMM. I think Pete has some good ideas but the overall public view of his preaching goes something like this: If you save enough to withdraw 5%, drink a bunch of micro brews, do lots of work for zero dollars and home school your kids, you'll never go wrong and can live forever.

I think what he really is saying is: Save a chunk of money. Live a lifestyle of frugality by bicycling everywhere, not buying up, not buying crap and do random jobs and gigs to forever continue to bring in money. So there's where "he" can live on 5% of that original chunk (even ignoring the $400k site income).

Here's where I think he's short sited. Black Swan events (he's now divorced.....I'm sure that wasn't budgeted). College funding? Legal issues (someone trips over an empty home brew bottle at one of his get togethers at his open business place....I forget what he calls it or his wife drags his butt back into court to get fancypants tuition at Ye Olde Private School Moar Than You Can Afford, Pal).

I also own a Jeep Wrangler Unlimited that I run with oversized tires and go offroading with.....so I can never be fully MMM'ized.

For myself, I plan on a 2% withdrawal rate and am very close to my number now.
Last edited by Jack FFR1846 on Tue Dec 18, 2018 1:03 pm, edited 1 time in total.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by HomerJ » Tue Dec 18, 2018 1:02 pm

stocknoob4111 wrote:
Tue Dec 18, 2018 12:57 pm
https://www.betterment.com/resources/wh ... is-broken/

lot of assumptions that were made during the 4% study such as high interest rates during that time period are no longer true!
We've had low interest rate environments before in the past. There were no "assumptions" made in the 4% study. They used the actual returns from bonds and stocks in past years.

And interest rates were low in the 40s and 50s.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by rich126 » Tue Dec 18, 2018 1:07 pm

I'm always confused regarding what people do for health insurance. A medical issue could severely deplete your savings. I think you have to be somewhat frugal and also willing to work part time at times to help with the finances.

I'm not sure how hard it would be to get loans, credit cards, etc. with no income.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by CyberBob » Tue Dec 18, 2018 1:07 pm

Bill Bernstein's Efficient Frontier article The Retirement Calculator From Hell, Part I is worth a read here regarding 4-5% adjusted/fixed withdrawal amounts.

http://www.efficientfrontier.com/ef/998/hell.htm

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by FoolMeOnce » Tue Dec 18, 2018 1:08 pm

diy60 wrote:
Tue Dec 18, 2018 12:39 pm
JoMoney wrote:
Tue Dec 18, 2018 12:29 pm
Do you have a link to where he says that?
I'm not the OP, but I'm guessing this is the article. The article is full of holes, but the comments following the article are a fun read.
https://www.marketwatch.com/story/mr-mo ... 2018-12-17
Some may have missed this post. He does suggest you should be fairly comfortable with a 5% withdrawal rate and no further earned income for life in this article that was published today.

From the article
• If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate);

• If you start with a $1 million nest egg (a 4% withdrawal rate), you will very likely never run out of money;

• If you start with $1.33 million chunk (a 3% withdrawal rate), it is overwhelmingly certain that you’ll have a growing surplus for life.
It is very sloppy. He then runs projections using a 4% withdrawal rate. He assumes a 4% real return. But he calculates a 4% appreciation on the starting balance while also pulling a 1.8% dividend out separately from the starting balance. So he's really using 6.8% real, which is quite optimistic. Also, monthly withdrawals, as he suggests, would dampen the return, which was calculated from the starting balance.

Then he quickly brushes off the risk of a health plan with a $15k deductible for a family of four living on $40k/year. Sure, no sweat!

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by HomerJ » Tue Dec 18, 2018 1:14 pm

diy60 wrote:
Tue Dec 18, 2018 12:39 pm
JoMoney wrote:
Tue Dec 18, 2018 12:29 pm
Do you have a link to where he says that?
I'm not the OP, but I'm guessing this is the article. The article is full of holes, but the comments following the article are a fun read.
https://www.marketwatch.com/story/mr-mo ... 2018-12-17
That article he wrote does indeed have some holes. He completely ignores sequence of returns risk, espouses 100% stocks, and assumes constant growth year after year.

I don't mind this statement (which is where the OP probably got the 5% thing)
In this situation, the following three sentences represent the entire universe of probability for you:

• If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate);

• If you start with a $1 million nest egg (a 4% withdrawal rate), you will very likely never run out of money;

• If you start with $1.33 million chunk (a 3% withdrawal rate), it is overwhelmingly certain that you’ll have a growing surplus for life.
That's very accurate for 30-year retirements. It probably extends to 50 or 60 year retirements as well.

For the OP, this is important from the article.
The absolute key to success in early retirement, and indeed most areas of life, is to get the big picture approximately right and not sweat the small stuff. And design the big picture with a generous safety margin, which allows lots of slop and mistakes in your original forecasts and allows you to still come out with a surplus.

For example, I assumed a $40,000 annual spending rate, which is way more than almost anyone really needs to live well here in the U.S., especially once your kids are grown.
I agree with MMM that you better be able to cut back your spending if needed. If $40,000 is your bare minimum, MMM really is recommending 3%, not 5% in that situation.
Last edited by HomerJ on Tue Dec 18, 2018 1:20 pm, edited 1 time in total.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by HomerJ » Tue Dec 18, 2018 1:15 pm

FoolMeOnce wrote:
Tue Dec 18, 2018 1:08 pm
Then he quickly brushes off the risk of a health plan with a $15k deductible for a family of four living on $40k/year. Sure, no sweat!
Yeah, just eat salad and buy some barbells, he says in the article!
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by HomerJ » Tue Dec 18, 2018 1:19 pm

Jack FFR1846 wrote:
Tue Dec 18, 2018 1:01 pm
Black Swan events (he's now divorced.....I'm sure that wasn't budgeted).
Whoa... does he discuss the financial impact of that? For him, not the end of the world. They were far richer than they needed to be...

But imagine one of his followers with the bare minimum nest-egg to support the bare minimum lifestyle, and then bam... nest-egg cut in half 15 years after they retired at 40.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by GoldStar » Tue Dec 18, 2018 1:44 pm

I can't find it but someone said it best in another post by stating his own situation as:
MMM is of a False-Prophet. He claims anyone can "stop working" and live off a small portfolio (without paying for necessities like health insurance) but he himself stopped worked his regular job - took side-jobs in construction for a year - until his blog started paying him $400,000. He never actually "stopped working" . He then handles this on one of his blog posts by re-defining what retirement is and blasting anyone who disagrees with his new definition.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by marcopolo » Tue Dec 18, 2018 2:02 pm

GoldStar wrote:
Tue Dec 18, 2018 1:44 pm
I can't find it but someone said it best in another post by stating his own situation as:
MMM is of a False-Prophet. He claims anyone can "stop working" and live off a small portfolio (without paying for necessities like health insurance) but he himself stopped worked his regular job - took side-jobs in construction for a year - until his blog started paying him $400,000. He never actually "stopped working" . He then handles this on one of his blog posts by re-defining what retirement is and blasting anyone who disagrees with his new definition.
I personally don't view a change in careers as being retired, but i don't really care how others wish to define it.
The aspect of MMM that i find even more dangerous for people who might be naively trying to follow his approach is all the "off the book" spending that he does not count. He covers that spending from other sources like his blog income that a follower of his is unlikely to have. So, someone trying to follow his approach would face either much higher expenses, or have to live a much leaner lifestyle for the same purported portfolio.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by furikake » Tue Dec 18, 2018 2:12 pm

OP: why don't you try it and when you fail, you come let us know?

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by vitaflo » Tue Dec 18, 2018 2:20 pm

rich126 wrote:
Tue Dec 18, 2018 1:07 pm
I'm always confused regarding what people do for health insurance. A medical issue could severely deplete your savings. I think you have to be somewhat frugal and also willing to work part time at times to help with the finances.
With low enough income (because you're a frugal "mustachian") you will get enough ACA subsidies to make health insurance fairly affordable. It's not like when you get a job that the health care is always cheap either.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Cosmo » Tue Dec 18, 2018 2:27 pm

market timer wrote:
Tue Dec 18, 2018 11:57 am
I don't recall MMM suggesting you use a 5% withdrawal rate without regard to market conditions, but rather that you adapt spending if there is a downturn. It's more a variable withdrawal rate. Also, he notes that early retirees often find ways to earn money after retirement.
He sure does here:

https://www.marketwatch.com/story/mr-mo ... 2018-12-17

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by White Coat Investor » Tue Dec 18, 2018 2:36 pm

Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
I was reading an article by Mr. Money Mustache, with whom I'm very familiar, and was curious what Bogleheads think of some of his assumptions and recommendations.

The general gist is that one could stop working today, forever, regardless of age and regardless of which account types the money is located, with 20x annual expenses, 100% in equities.

An example is an $800,000 portfolio of 100% equities (total U.S. stock market funds), drawing $40,000 in the first year of retirement and increasing annually for inflation.

Typically Bogleheads say that a 4% withdrawal rate will last 25-30 years.
MMM says that a 5% withdrawal rate will last 50+ years.

I am trying to reconcile the difference and determine what to use in my calculations.

Is the difference due to Bogleheads using far more conservative allocations?

My wife and I are on pace to have 20x annual expenses by around my 40th birthday, in seven years.

What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
3-5% withdrawal rate is a reasonable place to start. The key, of course, is to adjust as you go. If your first decade retired has terrible returns, you probably ought to dial it back a bit.
Last edited by White Coat Investor on Tue Dec 18, 2018 2:41 pm, edited 1 time in total.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by White Coat Investor » Tue Dec 18, 2018 2:40 pm

I got curious so I looked up what was actually said.
In this situation, the following three sentences represent the entire universe of probability for you:

• If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate);

• If you start with a $1 million nest egg (a 4% withdrawal rate), you will very likely never run out of money;

• If you start with $1.33 million chunk (a 3% withdrawal rate), it is overwhelmingly certain that you’ll have a growing surplus for life.
https://www.marketwatch.com/story/mr-mo ... 2018-12-17

I think that's absolutely accurate.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by cheezit » Tue Dec 18, 2018 2:48 pm

Jack FFR1846 wrote:
Tue Dec 18, 2018 1:01 pm
Black Swan events (he's now divorced.....I'm sure that wasn't budgeted).
The divorce rate for first marriages is around 33% for middle-income folks. It's higher (around 45% iirc) for low-income folks. I bet it would be even higher for people who are living off rice and beans (something literally suggested by MMM in the first and last article of his I read, years ago) by choice rather than by absolute necessity. That's about a one-sigma event, not a black swan IMO.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by CMD1 » Tue Dec 18, 2018 2:49 pm

For Medical he has stated that because his income is $40k it's actually really reasonable under the affordable care act, something like a couple hundred a month.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Admiral » Tue Dec 18, 2018 2:53 pm

Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
I was reading an article by Mr. Money Mustache, with whom I'm very familiar, and was curious what Bogleheads think of some of his assumptions and recommendations.

The general gist is that one could stop working today, forever, regardless of age and regardless of which account types the money is located, with 20x annual expenses, 100% in equities.

An example is an $800,000 portfolio of 100% equities (total U.S. stock market funds), drawing $40,000 in the first year of retirement and increasing annually for inflation.

Typically Bogleheads say that a 4% withdrawal rate will last 25-30 years.
MMM says that a 5% withdrawal rate will last 50+ years.

I am trying to reconcile the difference and determine what to use in my calculations.

Is the difference due to Bogleheads using far more conservative allocations?

My wife and I are on pace to have 20x annual expenses by around my 40th birthday, in seven years.

What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
I would not rely on any advice from the Internet (from Bh's, TripleM, or otherwise) to make a decision about whether to stop work at age 40 with $1m and be retired for potentially 50 years. It's simply impossible to know whether a 3% or a 5% SWR will be effective. Hell, at 40 you'd have 22 years minimum before you could even get a (likely small) SS payment. If you faced a bad sequence of returns you'd be in deep, deep trouble. Can you live on $20k per year? With a spouse?

The percentage of people who stop work at age 40 with $1m in the bank is so vanishingly small, I'd imagine, that it's a rounding error. Keep working and saving.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Triple digit golfer » Tue Dec 18, 2018 3:02 pm

Good discussion!

Yes, this is the article to which I was referring:

https://www.marketwatch.com/story/mr-mo ... 2018-12-17

Specifically this quote:
If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)
From what I see, he ignores emergencies, black swan events, inconsistent returns and uses a very generous 5.8% real return.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by WanderingDoc » Tue Dec 18, 2018 3:49 pm

davidsorensen32 wrote:
Tue Dec 18, 2018 11:49 am
Ignore what he says. Instead follow what he does. He earns $400,000+ from his blog. Do you ?
Exactly! Same can be said about Dave Ramsey. Ignore what he says (saving will make you rich), and follow what he does (buys $10M+ real estate, apartment buildings, fly first class, be a cutthroat capitalist) :beer
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by stimulacra » Tue Dec 18, 2018 4:00 pm

If he's wrong, his website/community will be long gone (or would have morphed into something else) before anyone can really take him to task.

Along a similar line, I remember Dave Ramsey advocating to his listeners to target 10x annual expenses for retirement. Is he setting the bar too low for his audience? Or setting an achievable one that he knows will be insufficient? Or does he know something about the median life expectancy of his audience that others do not?

I suspect a lot of these FIRE folks are selling medium-quick fixes to the casual readers of their blogs/books/seminars. Saving 10x or 20x annual expenses and putting it all in equities and/or setting up various passive income streams or side hustles on ETSY is pretty easy to grasp conceptually. Saving 30x or 50x with shifting or gliding allocations is more challenging.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Starfish » Tue Dec 18, 2018 4:02 pm

Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
I was reading an article by Mr. Money Mustache, with whom I'm very familiar, and was curious what Bogleheads think of some of his assumptions and recommendations.

The general gist is that one could stop working today, forever, regardless of age and regardless of which account types the money is located, with 20x annual expenses, 100% in equities.

An example is an $800,000 portfolio of 100% equities (total U.S. stock market funds), drawing $40,000 in the first year of retirement and increasing annually for inflation.

Typically Bogleheads say that a 4% withdrawal rate will last 25-30 years.
MMM says that a 5% withdrawal rate will last 50+ years.

I am trying to reconcile the difference and determine what to use in my calculations.

Is the difference due to Bogleheads using far more conservative allocations?

My wife and I are on pace to have 20x annual expenses by around my 40th birthday, in seven years.

What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
First of all you have to understand that both numbers are bogus and have no real life value. They are based on probabilities and certain assumptions, the main one being that the future will be similar with the past.
That being said MMM has a lot better reasoning that BHs in some points. At least he offers something clear and concrete: you life and your time. BHs are risk adverse (if you can call it this way, they are actually losing like you lose with bonds during high inflation) to the point where they sacrifice their life for some comfort in the years with 0 value in life.

If you follow MMM philosophy and you are wrong you live in misery in the last decade of you life but you add a young decade.
If you win, you win a lot: your life.


Where I think BHs win is the more moderate approach to retirement. If you destroy your life just to be retired it does not seem that you won.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by harvestbook » Tue Dec 18, 2018 5:17 pm

Does anyone's plan really work out exactly as they planned it over the course of 20 or 30 years, both in accumulation and withdrawal?

It seems to me people are always adjusting based on changing realities and expectations, whether they have fifty grand or fifty million. We don't live our lives on paper.
I'm not smart enough to know, and I can't afford to guess.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by willthrill81 » Tue Dec 18, 2018 5:32 pm

HomerJ wrote:
Tue Dec 18, 2018 12:24 pm
Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
MMM is wrong.

You would have been totally broke if you had done this right before the Great Depression, and you'd be close to broke right now if you did this in 2000.

The above is true for a 4% withdrawal from 100% stocks portfolio, let alone 5%.
Well, it wouldn't be quite that bad using 4% fixed withdrawals. From 2000 to now, the retiree using it with a 100% U.S. stock portfolio would now be down to about 41% of their starting capital. That's probably just fine for someone who started retirement at 65. But for a 30 year old, that's completely unacceptable.

Early retirees should probably shoot for 3% to maybe 3.5% withdrawals, and while they should probably have at least 50% of their portfolio in stocks, they probably shouldn't be 100% stock.

And frankly, an early retiree has little business even contemplating the use of fixed withdrawals anyway.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by retire2022 » Tue Dec 18, 2018 5:37 pm

all

The was on PBS News Hour Paul Solman on making sense did a profile on

"Eschewing consumer culture, Pete Adeney, also known as Mr. Money Mustache, practices an extreme frugality that allowed him to retire at age 30. Avoiding car use, DIYing and investing in stock market index funds are among the tactics he and his fellow F.I.R.E. (Financial Independence Retire Early) devotees espouse. Paul Solman reports from Colorado in this installment of “Making Sense.”"

https://www.pbs.org/newshour/show/how-t ... -their-30s
transcript and video below:

https://www.youtube.com/watch?v=RyF40JydVNU&t=4s

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Soon2BXProgrammer » Tue Dec 18, 2018 5:46 pm

Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
What I don't want to happen is to quit my job at age 40, throw everything into stock funds, draw 5% a year and assume I'll be okay. But isn't that essentially what MMM says?
I'm a MMM fan. but I plan to quit at 35 (hopefully). draw 4% or less from my portfolio, but also do what he recommends. create income diversity, I don't plan to do nothing with my time, there is no way I can just retire.. so I'm putting together a plan to run my own business at my own pace, and hopefully make some income. (hopefully 400k a year like his blog makes)

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by retire2022 » Tue Dec 18, 2018 5:49 pm

diy60 wrote:
Tue Dec 18, 2018 12:39 pm
JoMoney wrote:
Tue Dec 18, 2018 12:29 pm
Do you have a link to where he says that?
I'm not the OP, but I'm guessing this is the article. The article is full of holes, but the comments following the article are a fun read.
https://www.marketwatch.com/story/mr-mo ... 2018-12-17

"Jeff D Word of advice to those wanting to retire early, work for 35 years or until you max out social security by 35 years of salary." is one of the commenters indicated, that one needs 35 years of Social Security, this is absolutely true, and if one stops working with high income after 10 years, one essentially back themselves in a corner not having SS as a saftey net, not that a gen Xer or a Millennial will get one.

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Re: Mr. Money Mustache, SWR, and equity allocation

Post by dratkinson » Tue Dec 18, 2018 6:01 pm

Triple digit golfer wrote:
Tue Dec 18, 2018 11:48 am
...
MMM says that a 5% withdrawal rate will last 50+ years.
Recall the permanent SWR is reported to be 2.5%-3%. At this rate, withdrawals are offset by distributions + growth. Were I planning for 50+ years of withdrawals, I'd use 2.5%... just to be safe. Better to have it (money in reserve) and not need it, than to need it and not have it.



See:

The Ultimate Guide to Safe Withdrawal Rates
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
viewtopic.php?f=1&t=219423&newpost=3377708

Portfolio Success Rates: Where to draw the line. (Update by Trinity study authors.)
http://www.onefpa.org/journal/Pages/Por ... 0Line.aspx



Can also search forum for Trinity Study.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Starfish » Tue Dec 18, 2018 6:15 pm

retire2022 wrote:
Tue Dec 18, 2018 5:49 pm
diy60 wrote:
Tue Dec 18, 2018 12:39 pm
JoMoney wrote:
Tue Dec 18, 2018 12:29 pm
Do you have a link to where he says that?
I'm not the OP, but I'm guessing this is the article. The article is full of holes, but the comments following the article are a fun read.
https://www.marketwatch.com/story/mr-mo ... 2018-12-17

"Jeff D Word of advice to those wanting to retire early, work for 35 years or until you max out social security by 35 years of salary." is one of the commenters indicated, that one needs 35 years of Social Security, this is absolutely true, and if one stops working with high income after 10 years, one essentially back themselves in a corner not having SS as a saftey net, not that a gen Xer or a Millennial will get one.
I am not sure what you mean. I put 15 years of works in SS calculator and I get 1000-1500 of SS. Very little in US but survivable in many countries.

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