Mr. Money Mustache, SWR, and equity allocation

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retire2022
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by retire2022 » Tue Dec 18, 2018 6:25 pm

Starfish wrote:
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.
Social Security website recommends 35 years of employment, obviously it depends on your income, and yes I agree if you choose to live in Mexico or Thailand that is cheap living.

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

Post by Starfish » Tue Dec 18, 2018 6:40 pm

retire2022 wrote:
Tue Dec 18, 2018 6:25 pm
Starfish wrote:
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.
Social Security website recommends 35 years of employment, obviously it depends on your income, and yes I agree if you choose to live in Mexico or Thailand that is cheap living.
How is SS in the position to make these kind of recommendations? It should be a purely financial transaction, a function of what you get for what you pay in. Some people in 35 years pay less than others in 15.
By the way, that amount is per person, not family. When you multiply by 2 is not that bad.

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

Post by RadAudit » Tue Dec 18, 2018 6:43 pm

HomerJ wrote:
Tue Dec 18, 2018 12:55 pm

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.
+1

I'm not a MMM fan; but, that's one take-away I remember from some of his blogs. (It's also a recurring theme in "Your Money or Your Life," IIRC) Suredly, there must be some amount of money and some SWR that would be sufficient to allow one to leave a job they didn't like in a place they didn't want to live to find something they want to do in a place they want to live. That's what I understand MMM's definition of FIRE to be. And, because YMMV, the amount of money and the SWR are up for debate but not necessarily for dissmissal.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

retire2022
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by retire2022 » Tue Dec 18, 2018 8:02 pm

Starfish wrote:
Tue Dec 18, 2018 6:40 pm

How is SS in the position to make these kind of recommendations? It should be a purely financial transaction, a function of what you get for what you pay in. Some people in 35 years pay less than others in 15.
By the way, that amount is per person, not family. When you multiply by 2 is not that bad.
see link:

https://www.myretirementpaycheck.org/Ho ... Calculated

"How are Benefits Calculated?

First, a worker’s previous earnings are restated in terms of today’s wages to reflect wage growth.
Second, earnings for the highest 35 years are averaged and divided by the number of months in 35 years to arrive at Average Indexed Monthly Earnings (AIME).
Third, the Social Security benefit formula is applied to AIME to produce the Primary Insurance Amount (PIA), the benefit payable at Full Retirement Age (FRA)."

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

Post by JonnyDVM » Tue Dec 18, 2018 8:22 pm

dratkinson wrote:
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.

I think that’s the difference in boglehead philosophy. You would rather use a conservative rate of projected growth and a very conservative SWR. You would rather be safe. MMM would say your desire for excess safety is costing you time. Lifetimes are finite. That’s time you will never get back. So those that follow the MMM philosophy go with some less conservative (but still reasonable) assumptions of a 4% SWR and 5% ROI, retire earlier, and are comfortable with that. The math does work with those assumptions. He is not wrong.

I read MMM. I could not live the lifestyle. I like to eat out. I like to travel. I have a big house. I drive an automobile. I don’t hate my job. I could not switch to a frugal lifestyle and I be happy. Quite frankly I’d be bored retiring very young. But I do respect the math. If you live an extremely frugal lifestyle it doesn’t take much to keep it going. Most bogleheads are going to work a few years extra just to be extra sure they have enough and then leave this world with a large ball of money behind. Not everyone wants that. Some would rather have the extra free time. I can respect that.
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randomguy
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by randomguy » Tue Dec 18, 2018 8:33 pm

retire2022 wrote:
Tue Dec 18, 2018 6:25 pm

Social Security website recommends 35 years of employment, obviously it depends on your income, and yes I agree if you choose to live in Mexico or Thailand that is cheap living.
35 years maximizes your payout. But if you are a high earner, you will find that you don't much benefit from those last 10-15 years as you only get a 15% benefit for the money after the second bend point compare to the 90% for the first bend point and 32% for the second.

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

Post by FiveK » Tue Dec 18, 2018 9:57 pm

randomguy wrote:
Tue Dec 18, 2018 8:33 pm
retire2022 wrote:
Tue Dec 18, 2018 6:25 pm

Social Security website recommends 35 years of employment, obviously it depends on your income, and yes I agree if you choose to live in Mexico or Thailand that is cheap living.
35 years maximizes your payout. But if you are a high earner, you will find that you don't much benefit from those last 10-15 years as you only get a 15% benefit for the money after the second bend point compare to the 90% for the first bend point and 32% for the second.
+1

The SS website isn't "recommending" anything, just noting how the calculation is done.

One is free to decide how many extra years of work are worthwhile to eke out the last bit of SS benefits.

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

Post by FiveK » Tue Dec 18, 2018 10:01 pm

Triple digit golfer wrote:
Tue Dec 18, 2018 3:02 pm
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)
zuma wrote:
Tue Dec 18, 2018 12:01 pm
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%
Appears that Vanguard and MMM are in agreement if one allows that 68% qualifies as "probably."

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

Post by Starfish » Tue Dec 18, 2018 11:02 pm

retire2022 wrote:
Tue Dec 18, 2018 8:02 pm
Starfish wrote:
Tue Dec 18, 2018 6:40 pm

How is SS in the position to make these kind of recommendations? It should be a purely financial transaction, a function of what you get for what you pay in. Some people in 35 years pay less than others in 15.
By the way, that amount is per person, not family. When you multiply by 2 is not that bad.
see link:

https://www.myretirementpaycheck.org/Ho ... Calculated

"How are Benefits Calculated?

First, a worker’s previous earnings are restated in terms of today’s wages to reflect wage growth.
Second, earnings for the highest 35 years are averaged and divided by the number of months in 35 years to arrive at Average Indexed Monthly Earnings (AIME).
Third, the Social Security benefit formula is applied to AIME to produce the Primary Insurance Amount (PIA), the benefit payable at Full Retirement Age (FRA)."
Is says nothing about recommending anything, just the calculation method.
The point is that if you are a low earner any year counts as long as you do no reach the first or second inflection point and the return on your money is still reasonable.
If you are a high earner and maximize SS contribution it does not take that many years to pass first or even second inflection point. After that the contribution is lost, and this point is way before 35 years.

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

Post by AlohaJoe » Tue Dec 18, 2018 11:44 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 didn't say "5% is guaranteed to never fail". He said (quote from his actual 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.
Sure, he doesn't put numbers on "probably" or "very likely" or "overwhelmingly certain". But, at a stab, let's call it 80% - 90% - 99%. That seems to completely match up with all of the existing research. Let's do a quick check of what the Trinity Study said...

5% = 85% chance
4% = 95% chance
3% = 100% chance

That's for 30 years, though. EarlyRetirementNow did something similar but for 60 years:

5% = 70%
4% = 89%
3% = 100%

So is the argument really just "he said 'probably' but it is really only 70% and I think 'probably' should be 80%"? ... which, I guess people can argue about?

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

Post by Starfish » Tue Dec 18, 2018 11:53 pm

JonnyDVM wrote:
Tue Dec 18, 2018 8:22 pm
dratkinson wrote:
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.

I think that’s the difference in boglehead philosophy. You would rather use a conservative rate of projected growth and a very conservative SWR. You would rather be safe. MMM would say your desire for excess safety is costing you time. Lifetimes are finite. That’s time you will never get back. So those that follow the MMM philosophy go with some less conservative (but still reasonable) assumptions of a 4% SWR and 5% ROI, retire earlier, and are comfortable with that. The math does work with those assumptions. He is not wrong.

I read MMM. I could not live the lifestyle. I like to eat out. I like to travel. I have a big house. I drive an automobile. I don’t hate my job. I could not switch to a frugal lifestyle and I be happy. Quite frankly I’d be bored retiring very young. But I do respect the math. If you live an extremely frugal lifestyle it doesn’t take much to keep it going. Most bogleheads are going to work a few years extra just to be extra sure they have enough and then leave this world with a large ball of money behind. Not everyone wants that. Some would rather have the extra free time. I can respect that.

IMO some bogleheads are like high percentage (up to 100% of AA) bond investors. Or cash holders.
They think they are conservative. In reality not only they are not conservative but they set themselves up in surely losing situation. Life passes doesn't matter what and time is the only thing of value.

Jordan4FI
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Jordan4FI » Wed Dec 19, 2018 8:36 am

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

Here is a link to what that article might be.. Retire with a chunk of money.. makes sense to me, and even better for those of us who choose not to live in the U$A....

This is pretty much my plan with 20-40% bonds mixed in.. depending on age and when I really do step away from the need to work and with how big my chuck is...

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

Post by HomerJ » Wed Dec 19, 2018 9:45 am

willthrill81 wrote:
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.
Your last point is especially true. True of all retirees really.

Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.

But they actually got down into the $400,000s NINE years into their retirement.. How scary would that be? It's only because the market has done so well lately that they are staying even.

They're going to need to keep getting 15% a year returns just to stay EVEN. If the market goes down 30% instead, that person is going to be flat broke in less than 5 years.

So 30-year 4% withdrawals from 100% stocks didn't work even in the RECENT past. It's not going to last another 12 years. Now 50/50 stocks/bonds 4% withdrawals would have worked so far for a 2000 retiree and is on track to last the entire 30 years, but not 100% stocks.

And 5% of 100% stocks would have bankrupted someone even faster.

BUT, if one can adjust to bad times, it changes the math. If you retire in 2000 or 2008, and the market crashes 40% the year after you retire, you go back to work, doing whatever you can. You're still young, your skills are still relevant, for MMM people, you don't need a lot of money so any job will do.

Or if you're a BH, you have some discretionary stuff in that 4% and you drop back to 3% for a few years, or at the very least, you don't increase your withdrawals by inflation. :)
Last edited by HomerJ on Wed Dec 19, 2018 11:30 am, edited 3 times in total.
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HomerJ
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by HomerJ » Wed Dec 19, 2018 9:48 am

Interesting comment over on the MMM forums.
A common criticism of FIRE, one I believe to be at least partially legitimate, is that it is too reliant on the ideal state to work. Just be frugal and get a degree in a well-paying field and secure a good paying job and continue to get raises and save most of your money and....voila, you're retired. In reality life often gets in the way. People get sick, or die. Children have learning disabilities. Parents get old and need support. Jobs are lost. Good investments go bad. Relationships end.

There not much more to be said about the math or personal finance side of FIRE. Those topics have been well exhausted by now. But there is a lot to be said about how to achieve or maintain FIRE in less than ideal circumstances. I think it would be of great value if Pete would talk about that.
That's my biggest criticism of FIRE as well. MMM people seem to plan for best-case scenarios. BH people plan for worst-case scenarios.

Maybe both are too extreme. But I'd still rather be closer to the BH side, and have SOME cushion in my plans.
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JoMoney
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by JoMoney » Wed Dec 19, 2018 10:00 am

Starfish wrote:
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.
When I look at various estimates on the SSA 'Quick Calc', it seems like there's a diminishing return if you've earned a lot in early years, the benefit of additional years doesn't add much. I do think maintaining eligibility for disability-medicare is important though, mostly for potential health coverage in the event of a critical illness.
"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 willthrill81 » Wed Dec 19, 2018 11:58 am

HomerJ wrote:
Wed Dec 19, 2018 9:45 am
Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.
I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
“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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JoMoney
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by JoMoney » Wed Dec 19, 2018 12:14 pm

willthrill81 wrote:
Wed Dec 19, 2018 11:58 am
HomerJ wrote:
Wed Dec 19, 2018 9:45 am
Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.
I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
PV Link
The above PortfolioVisualizer scenario suggests that a 100% stock portfolio since 2000 would have successfully had 18 withdrawals, current balance $450,000.
In order for the 30 year 4% SWR to succeed you need 12 more withdrawals (currently at $60k from the inflation adjustment), you would need just over 8% real returns to make that work... that's a bit of an optimistic stretch to expect that to work.

PV Link 2
The above scenario has a 60/40 portfolio since 2000, which would have a current balance of $940,880 and could successfully make at least 12 more inflation adjusted withdrawals even with less than 0% real return on the balance.
"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 willthrill81 » Wed Dec 19, 2018 3:03 pm

JoMoney wrote:
Wed Dec 19, 2018 12:14 pm
willthrill81 wrote:
Wed Dec 19, 2018 11:58 am
HomerJ wrote:
Wed Dec 19, 2018 9:45 am
Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.
I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
PV Link
The above PortfolioVisualizer scenario suggests that a 100% stock portfolio since 2000 would have successfully had 18 withdrawals, current balance $450,000.
In order for the 30 year 4% SWR to succeed you need 12 more withdrawals (currently at $60k from the inflation adjustment), you would need just over 8% real returns to make that work... that's a bit of an optimistic stretch to expect that to work.

PV Link 2
The above scenario has a 60/40 portfolio since 2000, which would have a current balance of $940,880 and could successfully make at least 12 more inflation adjusted withdrawals even with less than 0% real return on the balance.
Your numbers are slightly different because you used VFINX instead of VTSMX.
“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 fennewaldaj » Wed Dec 19, 2018 3:14 pm

HomerJ wrote:
Wed Dec 19, 2018 9:45 am


Or if you're a BH, you have some discretionary stuff in that 4% and you drop back to 3% for a few years, or at the very least, you don't increase your withdrawals by inflation. :)
I think maybe the FIRE crowd is so fixated on the fixed withdrawal strategy because so many of them are so frugal they have little room to say cut to 60% of their current expenses. Bogleheads are also frugal but most of us spend enough on luxuries we could cut back if we had too.

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

Post by randomguy » Wed Dec 19, 2018 3:24 pm

fennewaldaj wrote:
Wed Dec 19, 2018 3:14 pm
HomerJ wrote:
Wed Dec 19, 2018 9:45 am


Or if you're a BH, you have some discretionary stuff in that 4% and you drop back to 3% for a few years, or at the very least, you don't increase your withdrawals by inflation. :)
I think maybe the FIRE crowd is so fixated on the fixed withdrawal strategy because so many of them are so frugal they have little room to say cut to 60% of their current expenses. Bogleheads are also frugal but most of us spend enough on luxuries we could cut back if we had too.
I dont know how many people can cut to 60% of expenses without major changes. But this is probably very income specific. I know cutting out 20%(vacation, eating out, and some other entertainment) is very easy. But after that you start doing lifestyle stuff.

The advantage the cheap fire crowd has is that when your living on 20k/yr, working at McDs part time can cover half your expenses. When your living on 100k, it ambarely moves the needle. The FIRE crowd is different than the 60+ yeat old retire crowd in that they still have the ability to work for the first 15-20 years of retirement.

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

Post by smitcat » Wed Dec 19, 2018 3:30 pm

randomguy wrote:
Wed Dec 19, 2018 3:24 pm
fennewaldaj wrote:
Wed Dec 19, 2018 3:14 pm
HomerJ wrote:
Wed Dec 19, 2018 9:45 am


Or if you're a BH, you have some discretionary stuff in that 4% and you drop back to 3% for a few years, or at the very least, you don't increase your withdrawals by inflation. :)
I think maybe the FIRE crowd is so fixated on the fixed withdrawal strategy because so many of them are so frugal they have little room to say cut to 60% of their current expenses. Bogleheads are also frugal but most of us spend enough on luxuries we could cut back if we had too.
I dont know how many people can cut to 60% of expenses without major changes. But this is probably very income specific. I know cutting out 20%(vacation, eating out, and some other entertainment) is very easy. But after that you start doing lifestyle stuff.

The advantage the cheap fire crowd has is that when your living on 20k/yr, working at McDs part time can cover half your expenses. When your living on 100k, it ambarely moves the needle. The FIRE crowd is different than the 60+ yeat old retire crowd in that they still have the ability to work for the first 15-20 years of retirement.
"The FIRE crowd is different than the 60+ yeat old retire crowd in that they still have the ability to work for the first 15-20 years of retirement."
I agree that many of them could but most would not. The early FIRE crowd will eventually come across some difficult years - but they will not easily take min wage jobs to make up the difference. At the same time the jobs will likely be much less plentiful and employers will shy away from a FIRE applicant.

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

Post by fennewaldaj » Wed Dec 19, 2018 3:33 pm

smitcat wrote:
Wed Dec 19, 2018 3:30 pm
randomguy wrote:
Wed Dec 19, 2018 3:24 pm
fennewaldaj wrote:
Wed Dec 19, 2018 3:14 pm
HomerJ wrote:
Wed Dec 19, 2018 9:45 am


Or if you're a BH, you have some discretionary stuff in that 4% and you drop back to 3% for a few years, or at the very least, you don't increase your withdrawals by inflation. :)
I think maybe the FIRE crowd is so fixated on the fixed withdrawal strategy because so many of them are so frugal they have little room to say cut to 60% of their current expenses. Bogleheads are also frugal but most of us spend enough on luxuries we could cut back if we had too.
I dont know how many people can cut to 60% of expenses without major changes. But this is probably very income specific. I know cutting out 20%(vacation, eating out, and some other entertainment) is very easy. But after that you start doing lifestyle stuff.

The advantage the cheap fire crowd has is that when your living on 20k/yr, working at McDs part time can cover half your expenses. When your living on 100k, it ambarely moves the needle. The FIRE crowd is different than the 60+ yeat old retire crowd in that they still have the ability to work for the first 15-20 years of retirement.
"The FIRE crowd is different than the 60+ yeat old retire crowd in that they still have the ability to work for the first 15-20 years of retirement."
I agree that many of them could but most would not. The early FIRE crowd will eventually come across some difficult years - but they will not easily take min wage jobs to make up the difference. At the same time the jobs will likely be much less plentiful and employers will shy away from a FIRE applicant.
In economic bad times any job can be hard to get. I doubt Mcdonalds is going to be very excited to take on a Computer programmer that hasn't worked in 10 plus years.

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

Post by willthrill81 » Wed Dec 19, 2018 3:42 pm

fennewaldaj wrote:
Wed Dec 19, 2018 3:14 pm
HomerJ wrote:
Wed Dec 19, 2018 9:45 am


Or if you're a BH, you have some discretionary stuff in that 4% and you drop back to 3% for a few years, or at the very least, you don't increase your withdrawals by inflation. :)
I think maybe the FIRE crowd is so fixated on the fixed withdrawal strategy because so many of them are so frugal they have little room to say cut to 60% of their current expenses. Bogleheads are also frugal but most of us spend enough on luxuries we could cut back if we had too.
I agree. It's easier to reduce $100k of spending to $75k than to cut $40k down to $30k.

And I really don't see why MMM would recommend 4% withdrawals at all anyway. There have been several historic instances where that would have exhausted a portfolio after 30 years (when many early retirees would be unable to return to significant gainful employment). But it's much easier for a FIRE person with a high savings rate to achieve a 33.3X portfolio size (3% withdrawal rate) than a traditional person because their time frame for saving is much less. Many of them are accumulating their entire portfolio in just ten years, sometimes fewer. The difference between 25X and 33.3X may only be two or three years of additional working. That seems like a good tradeoff for a 30-35 year old to make, IMHO, in return for significantly more security.
“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 HomerJ » Wed Dec 19, 2018 3:51 pm

willthrill81 wrote:
Wed Dec 19, 2018 11:58 am
HomerJ wrote:
Wed Dec 19, 2018 9:45 am
Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.
I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
My remaining money wasn't inflation adjusted. You have $410,000 left. Not in 2000 dollars. $410,000 total. Yet you're pulling nearly $60k a year out (If you blindly increased your withdrawals by 2% inflation each year).

My numbers came from retiring in August 2000 with $1 million.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by willthrill81 » Wed Dec 19, 2018 4:09 pm

HomerJ wrote:
Wed Dec 19, 2018 3:51 pm
willthrill81 wrote:
Wed Dec 19, 2018 11:58 am
HomerJ wrote:
Wed Dec 19, 2018 9:45 am
Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.
I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
My remaining money wasn't inflation adjusted. You have $410,000 left. Not in 2000 dollars. $410,000 total. Yet you're pulling nearly $60k a year out (If you blindly increased your withdrawals by 2% inflation each year).

My numbers came from retiring in August 2000 with $1 million.
According to Portfolio Visualizer, a starting portfolio with $1 million in the year 2000, withdrawing an inflation-adjusted $40,000 annually, invested 100% in U.S. stocks would be worth a nominal $613,629 as of the end of November, 2018, or $409,755 after adjusting for inflation.
“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 vitaflo » Wed Dec 19, 2018 4:10 pm

willthrill81 wrote:
Wed Dec 19, 2018 3:42 pm
And I really don't see why MMM would recommend 4% withdrawals at all anyway. There have been several historic instances where that would have exhausted a portfolio after 30 years (when many early retirees would be unable to return to significant gainful employment).
Because MMM is playing the odds, not the worst case scenarios. I think this is the fundamental difference between MMM and Bogleheads. Bogleheads want assurance that nothing bad could ever happen. MMM wants people to not work longer than they "probably" have to. I think in his mind, working an extra 5-10 years is worse than the probability of running out of money, because historically that probability has been low.

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

Post by willthrill81 » Wed Dec 19, 2018 4:23 pm

vitaflo wrote:
Wed Dec 19, 2018 4:10 pm
willthrill81 wrote:
Wed Dec 19, 2018 3:42 pm
And I really don't see why MMM would recommend 4% withdrawals at all anyway. There have been several historic instances where that would have exhausted a portfolio after 30 years (when many early retirees would be unable to return to significant gainful employment).
Because MMM is playing the odds, not the worst case scenarios. I think this is the fundamental difference between MMM and Bogleheads. Bogleheads want assurance that nothing bad could ever happen. MMM wants people to not work longer than they "probably" have to. I think in his mind, working an extra 5-10 years is worse than the probability of running out of money, because historically that probability has been low.
That is indeed a personal assessment of the risk. But how bad is it really for a 35 year old to work two or three more years to put themselves into a position that would have always worked in the past (i.e. 3% withdrawals)?

However, I certainly don't think that the '4% rule' means that "nothing bad could ever happen," especially over a 50-60 year retirement, nor do I think that most Bogleheads do either. Many of us understand the limitations of this approach. For instance, had non-U.S. equities been used in lieu of U.S. equities, it would be called the '3% rule'. And just because the '4% rule' worked in the past, that's no guarantee that it will work in the future. I do think that for a 65 year old, it's plenty conservative enough. But I would certainly not consider it to be conservative enough for a 35 year old who doesn't want to face the distinct possibility of being forced to return to the workforce during a time when doing so may be difficult (e.g. deep recession).
“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 HomerJ » Wed Dec 19, 2018 5:24 pm

willthrill81 wrote:
Wed Dec 19, 2018 4:09 pm
HomerJ wrote:
Wed Dec 19, 2018 3:51 pm
willthrill81 wrote:
Wed Dec 19, 2018 11:58 am
HomerJ wrote:
Wed Dec 19, 2018 9:45 am
Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.
I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
My remaining money wasn't inflation adjusted. You have $410,000 left. Not in 2000 dollars. $410,000 total. Yet you're pulling nearly $60k a year out (If you blindly increased your withdrawals by 2% inflation each year).

My numbers came from retiring in August 2000 with $1 million.
According to Portfolio Visualizer, a starting portfolio with $1 million in the year 2000, withdrawing an inflation-adjusted $40,000 annually, invested 100% in U.S. stocks would be worth a nominal $613,629 as of the end of November, 2018, or $409,755 after adjusting for inflation.
Yep, what date did you start at? Jan 1st? Dec 31st?

My numbers were from August 2000.

Market dropped 14% or so from August to December, so $1 million in August 2000 was only worth $860,000 in December. If you started Dec 31, 2000 with $1 million, yes you'd have $613,000 by today, but if you started in August 2000 with $1 million, you'd be down to $410,000 today and in big trouble with a $60k annual pull.

Amazing what a difference 4 months can make, eh?
The J stands for Jay

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

Post by willthrill81 » Wed Dec 19, 2018 5:33 pm

HomerJ wrote:
Wed Dec 19, 2018 5:24 pm
willthrill81 wrote:
Wed Dec 19, 2018 4:09 pm
HomerJ wrote:
Wed Dec 19, 2018 3:51 pm
willthrill81 wrote:
Wed Dec 19, 2018 11:58 am
HomerJ wrote:
Wed Dec 19, 2018 9:45 am
Using the strict 4% rule (where you increase each year by inflation) would indeed have a 2000 retiree at 41%. Starting with $1 million, you'd be down to $410,000, and because of inflation adjustments, you'd be pulling close to $60,000 a year from your nest egg.
I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
My remaining money wasn't inflation adjusted. You have $410,000 left. Not in 2000 dollars. $410,000 total. Yet you're pulling nearly $60k a year out (If you blindly increased your withdrawals by 2% inflation each year).

My numbers came from retiring in August 2000 with $1 million.
According to Portfolio Visualizer, a starting portfolio with $1 million in the year 2000, withdrawing an inflation-adjusted $40,000 annually, invested 100% in U.S. stocks would be worth a nominal $613,629 as of the end of November, 2018, or $409,755 after adjusting for inflation.
Yep, what date did you start at? Jan 1st? Dec 31st?

My numbers were from August 2000.

Market dropped 14% or so from August to December, so $1 million in August 2000 was only worth $860,000 in December. If you started Dec 31, 2000 with $1 million, yes you'd have $613,000 by today, but if you started in August 2000 with $1 million, you'd be down to $410,000 today and in big trouble with a $60k annual pull.

Amazing what a difference 4 months can make, eh?
Our numbers are still too far apart. I started with January 1st. PV calculates the first withdrawal as occurring at the end of year 1 and adjusts it for inflation, so the Dec. 31st, 2000, withdrawal would have been $41,355. There's no withdrawal at year 0.
“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 randomguy » Wed Dec 19, 2018 6:12 pm

fennewaldaj wrote:
Wed Dec 19, 2018 3:33 pm

In economic bad times any job can be hard to get. I doubt Mcdonalds is going to be very excited to take on a Computer programmer that hasn't worked in 10 plus years.
Most retail establishents are thrilled to have people that show up. Just being reliable puts you at the top of the employee food chain😁. Obviously there is a slew of potential jobs. Maybe working doing tax prep for 3 months is more your cup of tea. Or driving an Uber. None pay great but again you dont need great pay.

And you dont need the job during the bad times. You can wait 2-3 years. You need more money but your need isnt urgent.

Personally I would rather work 5 years now but going the otherway isnt crazy if you really hate your current situation. With something like an 70% success rate your odds are good. You just need to be able to figure out when you are in the 30% failure range anf have a plan to deal with it.

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

Post by Diver4242 » Wed Dec 19, 2018 7:02 pm

Never make investment decisions based on what some blogger says. I recommend educating yourself and using power tools like Big ERN's Safe Withdrawal series and accompanying SWR Toolbox V2 spreadsheet. That will allow you to model your specific situation and see how much risk is involved, based on cold hard mathematics and historical simulations going back to 1871.

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

Post by m1collector » Wed Dec 19, 2018 7:59 pm

Two years ago, a 30 year old at my workplace announced he was retiring. He held a lunchtime session where he mentioned MMM, 4% rule, and Roth conversions. That one lunch changed my life. I started reading MMM which led me to Bogleheads, blogs, and YouTube finance videos. I finally analyzed my investing and my spending. I now have a plan. It is not the MMM plan. It is not the Bogleheads plan. It is a plan that I expect to work for my lifestyle and financial situation. That is the true benefit of MMM, to get you thinking, calculating, and studying. My suggestions are to actually calculate how much you need until you pass, have no debt, look for other sources of income, invest conservatively, and have some margin of safety. Then enjoy retirement which is what many retirees will tell you. In fact, many say they should have done it earlier.

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

Post by willthrill81 » Thu Dec 20, 2018 12:12 am

Diver4242 wrote:
Wed Dec 19, 2018 7:02 pm
Never make investment decisions based on what some blogger says. I recommend educating yourself and using power tools like Big ERN's Safe Withdrawal series and accompanying SWR Toolbox V2 spreadsheet. That will allow you to model your specific situation and see how much risk is involved, based on cold hard mathematics and historical simulations going back to 1871.
I understand your point, but it's still funny to read "Don't do what a blogger says. Instead, read this series by a blogger and then decide what to do."

The bottom line is that people must do what they usually don't want to do: educate themselves about the topic to the point that they can make an appropriate, well reasoned decision for themselves. It requires effort, which we as humans generally try to avoid when we can, but there's no good substitute for it here.
“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 getthatmarshmallow » Thu Dec 20, 2018 12:25 am

fennewaldaj wrote:
Wed Dec 19, 2018 3:14 pm
HomerJ wrote:
Wed Dec 19, 2018 9:45 am


Or if you're a BH, you have some discretionary stuff in that 4% and you drop back to 3% for a few years, or at the very least, you don't increase your withdrawals by inflation. :)
I think maybe the FIRE crowd is so fixated on the fixed withdrawal strategy because so many of them are so frugal they have little room to say cut to 60% of their current expenses. Bogleheads are also frugal but most of us spend enough on luxuries we could cut back if we had too.
This is the main thing that worries me about it. I think the movement itself is great, and rethinking what's "done" is always valuable, especially with respect to cars and houses. But MMM's response to "what about bad times?" is always "we can just be more frugal!", but many of them don't have a whole lot to cut, and life can throw curveballs that can't be cut easily (e.g.., insulin for a T1D child.)

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

Post by LittleGreenSoldiers » Thu Dec 20, 2018 12:28 am

m1collector wrote:
Wed Dec 19, 2018 7:59 pm
My suggestions are to actually calculate how much you need until you pass, have no debt, look for other sources of income, invest conservatively, and have some margin of safety. Then enjoy retirement which is what many retirees will tell you. In fact, many say they should have done it earlier.
I'd say in there is the Bogleheads' way. Especially 'invest conservatively'. Remember, it's not simply investing conservatively but having a proper AA and investing in low cost funds.

I, for one started with this forum and the bogleheads got me to thinking first. It was only then I found MMM.

SWR as far as I can remember is based on 25x your current annual expenses. If was to follow MMM and many other 'hardcore' FIRE types I should have retired years or decades earlier as they strike me as minimalist at times.

my $.02

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

Post by fennewaldaj » Thu Dec 20, 2018 12:29 am

randomguy wrote:
Wed Dec 19, 2018 3:24 pm


I dont know how many people can cut to 60% of expenses without major changes. But this is probably very income specific. I know cutting out 20%(vacation, eating out, and some other entertainment) is very easy. But after that you start doing lifestyle stuff.
Right this is very specific from person to person. In early retirement for us (early fifties) the house will be paid off and we want to travel a lot so travel and eating out could easily be 40% of our budget. Of course since travel is a big part of the reason we want to retire early I would be likely to go back to work (if I could find a job) if our variable withdrawal strategy necessitated a 40% cut.

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

Post by HomerJ » Thu Dec 20, 2018 11:06 am

willthrill81 wrote:
Wed Dec 19, 2018 5:33 pm
HomerJ wrote:
Wed Dec 19, 2018 5:24 pm
willthrill81 wrote:
Wed Dec 19, 2018 4:09 pm
HomerJ wrote:
Wed Dec 19, 2018 3:51 pm
willthrill81 wrote:
Wed Dec 19, 2018 11:58 am


I've made the same mistake before. You're adjusting for inflation twice. An inflation-adjusted value of $410k would fund an inflation-adjusted withdrawal of $40k for 10+ years, assuming 0% inflation-adjusted returns going forward.

And yes, I completely agree with you.
My remaining money wasn't inflation adjusted. You have $410,000 left. Not in 2000 dollars. $410,000 total. Yet you're pulling nearly $60k a year out (If you blindly increased your withdrawals by 2% inflation each year).

My numbers came from retiring in August 2000 with $1 million.
According to Portfolio Visualizer, a starting portfolio with $1 million in the year 2000, withdrawing an inflation-adjusted $40,000 annually, invested 100% in U.S. stocks would be worth a nominal $613,629 as of the end of November, 2018, or $409,755 after adjusting for inflation.
Yep, what date did you start at? Jan 1st? Dec 31st?

My numbers were from August 2000.

Market dropped 14% or so from August to December, so $1 million in August 2000 was only worth $860,000 in December. If you started Dec 31, 2000 with $1 million, yes you'd have $613,000 by today, but if you started in August 2000 with $1 million, you'd be down to $410,000 today and in big trouble with a $60k annual pull.

Amazing what a difference 4 months can make, eh?
Our numbers are still too far apart. I started with January 1st. PV calculates the first withdrawal as occurring at the end of year 1 and adjusts it for inflation, so the Dec. 31st, 2000, withdrawal would have been $41,355. There's no withdrawal at year 0.
Well, I did my own spreadsheet, and did a withdrawal in year 0. How else you going to eat that first year?
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by Bronko » Thu Dec 20, 2018 11:44 am

m1collector wrote:
Wed Dec 19, 2018 7:59 pm
Two years ago, a 30 year old at my workplace announced he was retiring. He held a lunchtime session where he mentioned MMM, 4% rule, and Roth conversions. That one lunch changed my life. I started reading MMM which led me to Bogleheads, blogs, and YouTube finance videos. I finally analyzed my investing and my spending. I now have a plan. It is not the MMM plan. It is not the Bogleheads plan. It is a plan that I expect to work for my lifestyle and financial situation. That is the true benefit of MMM, to get you thinking, calculating, and studying. My suggestions are to actually calculate how much you need until you pass, have no debt, look for other sources of income, invest conservatively, and have some margin of safety. Then enjoy retirement which is what many retirees will tell you. In fact, many say they should have done it earlier.
That about sums it all up as well as it can be done. People are all different. Even within one "plan". The big part is it taught you something just as it did me. I have in turn brought others into the circle of financial knowledge. Some stayed and are thankful, some think if they have checks left they still have money. Life isn't meant to pay bills and die but you also don't want to live on cat food in retirement.
Never let a little bit of money get in the way of a real good time.

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

Post by GAAP » Thu Dec 20, 2018 11:58 am

"Expenses" really means the minimum amount you need, guaranteed.

Using some really rough numbers and CAPE10 (which will annoy a number of folks here), but...

The size of a likely value drop in stocks is roughly proportional to the CAPE10 value -- but actually gets worse at the extremes. With the CAPE10 level at about 28 today, you can probably expect to lose 28-30% or more on that allocation. If you're going to live on 20x expenses, then you should probably actually plan around 20/.7 times expenses for a 100% equity portfolio -- or around 28x expenses to handle the volatility.

MMM might be useful if you have a problem managing expenses -- but investment advice like that is just nuts.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

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

Post by Whakamole » Thu Dec 20, 2018 12:25 pm

AlohaJoe wrote:
Tue Dec 18, 2018 11:44 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 didn't say "5% is guaranteed to never fail". He said (quote from his actual 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.
Sure, he doesn't put numbers on "probably" or "very likely" or "overwhelmingly certain". But, at a stab, let's call it 80% - 90% - 99%. That seems to completely match up with all of the existing research. Let's do a quick check of what the Trinity Study said...

5% = 85% chance
4% = 95% chance
3% = 100% chance

That's for 30 years, though. EarlyRetirementNow did something similar but for 60 years:

5% = 70%
4% = 89%
3% = 100%

So is the argument really just "he said 'probably' but it is really only 70% and I think 'probably' should be 80%"? ... which, I guess people can argue about?
The problem with the calculation is that someone who plans to retire off their investments (as opposed to retiring at a set age) is overwhelmingly more likely to do it when the markets are high, rather than when the markets are low, because the withdrawal rate is tied to net worth, and most of that is going to be in some kind of investment.

If we look at richly valued markets, and ERN did with his look at the 2000 cohort, things don't look so good.

So I question the 68% number (or 70%, or any %) because it assumes that people are equally likely to retire in any given year, which is not true is you are planning on early retirement and are multiplying your net worth by 4% and seeing if you can live off that.

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

Post by redrocker » Thu Dec 20, 2018 12:44 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!
He's a Canadian citizen and back in the early days of the blog admitted that was his fallback if/when the US Healthcare situation becomes untenable.

It's yet another detail in his rather exceptional life that he doesn't acknowledge enough as a mitigating risk factor.

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

Post by willthrill81 » Thu Dec 20, 2018 12:47 pm

HomerJ wrote:
Thu Dec 20, 2018 11:06 am
willthrill81 wrote:
Wed Dec 19, 2018 5:33 pm
HomerJ wrote:
Wed Dec 19, 2018 5:24 pm
willthrill81 wrote:
Wed Dec 19, 2018 4:09 pm
HomerJ wrote:
Wed Dec 19, 2018 3:51 pm


My remaining money wasn't inflation adjusted. You have $410,000 left. Not in 2000 dollars. $410,000 total. Yet you're pulling nearly $60k a year out (If you blindly increased your withdrawals by 2% inflation each year).

My numbers came from retiring in August 2000 with $1 million.
According to Portfolio Visualizer, a starting portfolio with $1 million in the year 2000, withdrawing an inflation-adjusted $40,000 annually, invested 100% in U.S. stocks would be worth a nominal $613,629 as of the end of November, 2018, or $409,755 after adjusting for inflation.
Yep, what date did you start at? Jan 1st? Dec 31st?

My numbers were from August 2000.

Market dropped 14% or so from August to December, so $1 million in August 2000 was only worth $860,000 in December. If you started Dec 31, 2000 with $1 million, yes you'd have $613,000 by today, but if you started in August 2000 with $1 million, you'd be down to $410,000 today and in big trouble with a $60k annual pull.

Amazing what a difference 4 months can make, eh?
Our numbers are still too far apart. I started with January 1st. PV calculates the first withdrawal as occurring at the end of year 1 and adjusts it for inflation, so the Dec. 31st, 2000, withdrawal would have been $41,355. There's no withdrawal at year 0.
Well, I did my own spreadsheet, and did a withdrawal in year 0. How else you going to eat that first year?
Okay, that closes most of the gap. If I change the starting portfolio size in PV from $1 million to $960k to account for pulling at $40k at year 0, the nominal ending balance as of last month would be $499,162, $333,318 inflation-adjusted, or 8.3 years of additional spending. Our differences are probably due to starting in Jan., 2000, rather than August.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by willthrill81 » Thu Dec 20, 2018 12:49 pm

GAAP wrote:
Thu Dec 20, 2018 11:58 am
"Expenses" really means the minimum amount you need, guaranteed.
It depends on the retiree. Many BHs include discretionary spending with their essential spending for determining their 'needs', while some separate them, which is what we do in our planning. For many BHs, Social Security will most or all of their essential spending, so their portfolios are mostly or entirely for discretionary spending (my parents are in this position, and we plan to be to if we defer SS benefits until age 70, though I plan to retire by age 55).
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by GAAP » Thu Dec 20, 2018 12:53 pm

willthrill81 wrote:
Thu Dec 20, 2018 12:49 pm
GAAP wrote:
Thu Dec 20, 2018 11:58 am
"Expenses" really means the minimum amount you need, guaranteed.
It depends on the retiree. Many BHs include discretionary spending with their essential spending for determining their 'needs', while some separate them, which is what we do in our planning. For many BHs, Social Security will most or all of their essential spending, so their portfolios are mostly or entirely for discretionary spending (my parents are in this position, and we plan to be to if we defer SS benefits until age 70, though I plan to retire by age 55).
OP is talking about 20x at age 40, so SS or any pension in the USA would not apply for years.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by alpenglow » Thu Dec 20, 2018 12:56 pm

m1collector wrote:
Wed Dec 19, 2018 7:59 pm
Two years ago, a 30 year old at my workplace announced he was retiring. He held a lunchtime session where he mentioned MMM, 4% rule, and Roth conversions. That one lunch changed my life. I started reading MMM which led me to Bogleheads, blogs, and YouTube finance videos. I finally analyzed my investing and my spending. I now have a plan. It is not the MMM plan. It is not the Bogleheads plan. It is a plan that I expect to work for my lifestyle and financial situation. That is the true benefit of MMM, to get you thinking, calculating, and studying. My suggestions are to actually calculate how much you need until you pass, have no debt, look for other sources of income, invest conservatively, and have some margin of safety. Then enjoy retirement which is what many retirees will tell you. In fact, many say they should have done it earlier.
If you are collecting M1's, you definitely aren't on the MMM plan.

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

Post by willthrill81 » Thu Dec 20, 2018 12:56 pm

GAAP wrote:
Thu Dec 20, 2018 12:53 pm
willthrill81 wrote:
Thu Dec 20, 2018 12:49 pm
GAAP wrote:
Thu Dec 20, 2018 11:58 am
"Expenses" really means the minimum amount you need, guaranteed.
It depends on the retiree. Many BHs include discretionary spending with their essential spending for determining their 'needs', while some separate them, which is what we do in our planning. For many BHs, Social Security will most or all of their essential spending, so their portfolios are mostly or entirely for discretionary spending (my parents are in this position, and we plan to be to if we defer SS benefits until age 70, though I plan to retire by age 55).
OP is talking about 20x at age 40, so SS or any pension in the USA would not apply for years.
I understand that, but even an early retiree doesn't need to have 'guaranteed discretionary' spending. They can reduce their discretionary spending just as easily as a 65 year old can. And I was merely providing an example by discussing SS as I know full well that the OP is decades away from it, too far to really include it to any meaningful degree in his planning, IMHO.
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Re: Mr. Money Mustache, SWR, and equity allocation

Post by alpenglow » Thu Dec 20, 2018 1:07 pm

Whakamole wrote:
Thu Dec 20, 2018 12:25 pm
AlohaJoe wrote:
Tue Dec 18, 2018 11:44 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 didn't say "5% is guaranteed to never fail". He said (quote from his actual 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.
Sure, he doesn't put numbers on "probably" or "very likely" or "overwhelmingly certain". But, at a stab, let's call it 80% - 90% - 99%. That seems to completely match up with all of the existing research. Let's do a quick check of what the Trinity Study said...

5% = 85% chance
4% = 95% chance
3% = 100% chance

That's for 30 years, though. EarlyRetirementNow did something similar but for 60 years:

5% = 70%
4% = 89%
3% = 100%

So is the argument really just "he said 'probably' but it is really only 70% and I think 'probably' should be 80%"? ... which, I guess people can argue about?
The problem with the calculation is that someone who plans to retire off their investments (as opposed to retiring at a set age) is overwhelmingly more likely to do it when the markets are high, rather than when the markets are low, because the withdrawal rate is tied to net worth, and most of that is going to be in some kind of investment.

If we look at richly valued markets, and ERN did with his look at the 2000 cohort, things don't look so good.

So I question the 68% number (or 70%, or any %) because it assumes that people are equally likely to retire in any given year, which is not true is you are planning on early retirement and are multiplying your net worth by 4% and seeing if you can live off that.
I think someone said in a recent Boglehead thread that we might be at "peak-FIRE". As you say, people are more likely to hit their number in a strong bull market, like the one we have experienced lately. I would be very wary of early retirement if I hit my number in such a situation. Hitting my number in a bear market would be much more encouraging.

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

Post by Smorgasbord » Thu Dec 20, 2018 1:09 pm

Whakamole wrote:
Thu Dec 20, 2018 12:25 pm
The problem with the calculation is that someone who plans to retire off their investments (as opposed to retiring at a set age) is overwhelmingly more likely to do it when the markets are high, rather than when the markets are low, because the withdrawal rate is tied to net worth, and most of that is going to be in some kind of investment.
The problem with this argument is that it breaks down the faster someone is saving for retirement. While someone saving 10% of their income is more likely to hit their number when the markets are high, someone saving 70% of their income is less likely to hit their number at the market peak.

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

Post by Whakamole » Thu Dec 20, 2018 1:28 pm

Smorgasbord wrote:
Thu Dec 20, 2018 1:09 pm
Whakamole wrote:
Thu Dec 20, 2018 12:25 pm
The problem with the calculation is that someone who plans to retire off their investments (as opposed to retiring at a set age) is overwhelmingly more likely to do it when the markets are high, rather than when the markets are low, because the withdrawal rate is tied to net worth, and most of that is going to be in some kind of investment.
The problem with this argument is that it breaks down the faster someone is saving for retirement. While someone saving 10% of their income is more likely to hit their number when the markets are high, someone saving 70% of their income is less likely to hit their number at the market peak.
I disagree. If someone is saving 10% for retirement, they're likely going to be retiring closer to traditional retirement age, and the availability of Social Security. They won't have as much of a gap to cover, may be able to use SS to reduce or eliminate the need to withdraw during bad market years, etc. In any case, this retiree is close to the "retiring based on age" bucket, only the age may be reduced by a few years.

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

Post by Smorgasbord » Thu Dec 20, 2018 1:42 pm

Whakamole wrote:
Thu Dec 20, 2018 1:28 pm
I disagree. If someone is saving 10% for retirement, they're likely going to be retiring closer to traditional retirement age, and the availability of Social Security. They won't have as much of a gap to cover, may be able to use SS to reduce or eliminate the need to withdraw during bad market years, etc. In any case, this retiree is close to the "retiring based on age" bucket, only the age may be reduced by a few years.
Perhaps I should have used 20% as the example for the low end, but at the upper end of the savings rate spectrum (which is where you must be for 60 year retirement planning to make any sense) the higher your savings rate the more decoupled your retirement date is from the market returns.

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