How do you know you are FI? [Financially Independent]

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thegr881
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How do you know you are FI? [Financially Independent]

Post by thegr881 » Wed Dec 06, 2017 3:03 pm

I am just 40. What I am trying to figure out right now is.. am I FI and if not when will I be FI? I am looking for a list of things that you need to check mark to declare (to yourself) you FI status.

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Taylor Larimore
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Re: How do you know you are FI?

Post by Taylor Larimore » Wed Dec 06, 2017 3:09 pm

thegr881 wrote:
Wed Dec 06, 2017 3:03 pm
I am just 40. What I am trying to figure out right now is.. am I FI and if not when will I be FI? I am looking for a list of things that you need to check mark to declare (to yourself) you FI status.
thegr88:

Just to be sure, what does "FI" mean?

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Meaty
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Re: How do you know you are FI?

Post by Meaty » Wed Dec 06, 2017 3:13 pm

For me, financially independent means a 4% withdrawal rate from my portfolio meets or exceeds my gross expenses given a life expectancy of an additional 30 years. If the time horizon is over 30 years, I use 3%.

So, in my view, if you are 40 (ie life expectancy is greater than 30 years), you are FI if 3% of your portfolio covers your annual expenses
"Discipline equals Freedom" - Jocko Willink

aristotelian
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Re: How do you know you are FI?

Post by aristotelian » Wed Dec 06, 2017 3:19 pm

Most define FI has having enough money that you can safely withdraw from your portfolio enough to cover your expenses with a near 100% expectation that you will have money left at the end. According to the best historical data, that means having somewhere between 25-30X your annual expenses (meaning you would typically spend 3-4% of that amount annually). Where it gets complicated is how you calculate your expenses in view of health care, social security, etc.

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Re: How do you know you are FI?

Post by Jack FFR1846 » Wed Dec 06, 2017 3:25 pm

For me, (I'm very conservative), it means:

Assets able to support at 2% withdrawal (50 time spending in liquid assets).
Paid off mortgage and no debt.
College fully funded or even better, kids graduated from college, out of the house with good jobs.
No humungous known expenses on the horizon.
Health insurance plans in place and figured into that 2%.

Besides the college part, I've got all of the above covered and am still working pending that last little thing.
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Re: How do you know you are FI?

Post by rkhusky » Wed Dec 06, 2017 3:31 pm

If 40 and in good health, with a history of good health and long life in the family, I would shoot for a 2-3% withdrawal rate, the former for the the exceptionally conservative and the latter for those willing to take a little bit of risk.

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David Jay
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Re: How do you know you are FI?

Post by David Jay » Wed Dec 06, 2017 3:42 pm

To rephrase what others have said, it depends entirely on your expenses. When you have a portfolio that is 25X - 30X your annual living expenses, you have achieved FI.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: How do you know you are FI?

Post by thegr881 » Wed Dec 06, 2017 3:42 pm

Financial Independence
Taylor Larimore wrote:
Wed Dec 06, 2017 3:09 pm
Just to be sure, what does "FI" mean?
Thank you and best wishes.
Taylor

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mickeyd
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Re: How do you know you are FI?

Post by mickeyd » Wed Dec 06, 2017 3:51 pm

I think that I became FI when I realized that my retired income stream (not counting RMD) was greater than our monthly expenses. This allowed me to stash left over cash in my Ally account every month. The less I work, the more my account grows.

I love it when a plan comes together.
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thegr881
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Re: How do you know you are FI?

Post by thegr881 » Wed Dec 06, 2017 3:51 pm

Thanks for all the great replies. 2-4 is a good range to work with. Now how do you figure out what your expenses would be? I guess 120000 a year would do it. If i go with that and 2-4% range and stay towards the 2%, I would need about 5mil.

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Re: How do you know you are FI?

Post by remomnyc » Wed Dec 06, 2017 3:57 pm

I have assets (excluding social security) greater than 25x my annual expenses (including taxes and health care) in a VHCOL area. My stock portfolio could lose 50% of its value, and I'd have enough fixed income to ride out a very long correction. I am far more likely to leave a too large nest egg to my heirs than to run out eggs to eat.

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Re: How do you know you are FI?

Post by The Wizard » Wed Dec 06, 2017 4:03 pm

I'm FI because my net income, what hits my checking account, is higher in retirement than my latter working years.
My "expenses" don't really matter in this case...
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Re: How do you know you are FI?

Post by WageSlave » Wed Dec 06, 2017 4:05 pm

I use the definition from the book Your Money or Your Life (YMOYL): that is, when my passive income consistently matches (or exceeds) my expenses. But even that is a little tricky, as I currently have employer-paid health insurance. So other than co-pays, my health care costs are hidden from me. (And clearly, when it comes to healthcare, at least in the USA, the only thing we can be certain about is uncertainty).

I essentially have a "classic" BH-style 3-fund portfolio, which is about 20% bonds, 80% stocks. IOW, my passive income is dominated by stock dividends. Over the last five years I've been meticulously tracking all finances (using GnuCash), this has worked out to roughly 2.5% annual returns on my investment portfolio.

The other thing I'm omitting is taxes. I expect to go down several brackets when I start drawing from my portfolio. I'll save that analysis for a future date. (And I think we can reasonably assert that, at least in the USA, taxes have almost as much uncertainty as healthcare.)

For those familiar with YMOYL, since I have all my data in GnuCash, I can quickly create an expense and passive income graph versus time. The book talks about doing this on a giant piece of paper in your home (the "wall chart" IIRC). I generate this electronically every few months. But it's certainly encouraging to see the passive income growing, while trying to keep the expense line flat (or going down).

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Watty
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Re: How do you know you are FI?

Post by Watty » Wed Dec 06, 2017 4:06 pm

To complicate matters more there are also different levels of financial independence.

I worked in a field where layoffs were always a risk and employment prospects for older workers were potentially rough.

At some point well before I retired I realized that in the worst case scenario I could move to low cost of living area and live a frugal lifestyle if I needed to and that I would have little risk of going hungry or not having a roof over my head even if I never worked again. With a paid off house in a low cost of living area you can keep your expenses pretty low if you really need to. For example there are Midwest college town where you can still buy a small but livable house for $100,000.

That is not how I would want to retire but reaching that milestone was more of a relief than I would have expected.

That is a relatively low bar but I have traveled enough to appreciate that living like that is probably a better lifestyle than most people in the world live.

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Re: How do you know you are FI?

Post by J295 » Wed Dec 06, 2017 5:10 pm

We tracked expenses for five years, then extrapolated to what we would need in retirement. And taking into account our age when we had at least a certain multiple of expenses and fire calc and other programs showed high probability of success, redeemed ourselves FI. Our backstop is we didn’t include Social Security, paid for house and cars, likely inheritance, and part-time income from ongoing opportunities, so the FI determination was not as stressful as it might’ve been.

PFInterest
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Re: How do you know you are FI?

Post by PFInterest » Wed Dec 06, 2017 5:14 pm

25x expenses.

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Re: How do you know you are FI?

Post by PhysicianOnFIRE » Wed Dec 06, 2017 5:27 pm

thegr881 wrote:
Wed Dec 06, 2017 3:51 pm
Thanks for all the great replies. 2-4 is a good range to work with. Now how do you figure out what your expenses would be? I guess 120000 a year would do it. If i go with that and 2-4% range and stay towards the 2%, I would need about 5mil.
Don't guess -- track your spending. Or maybe you have and it's right around $10,000 a month. But does that include a mortgage? Kids' expenses? Commuting costs? A lot of those expenses can decrease in retirement.

It's best to take your anticipated expenses after retiring (don't forget to add health care coverage if currently supplied by your employer) and multiple by 25 to 33 to get a safe withdrawal rate of 3% to 4%.

Under 3% is really, really conservative. Study ERN's SWR series for lots more info.

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bertilak
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Re: How do you know you are FI?

Post by bertilak » Wed Dec 06, 2017 9:09 pm

thegr881 wrote:
Wed Dec 06, 2017 3:03 pm
I am just 40. What I am trying to figure out right now is.. am I FI and if not when will I be FI? I am looking for a list of things that you need to check mark to declare (to yourself) you FI status.
Two part answer:
  1. If you have to ask you are probably not there yet.
  2. If you bother to ask you are probably close.
More seriously, as others have mentioned: You need to analyze your expenses (current and projected) and compare them to your income. This needs to be reliable income.
Listen very carefully. I shall say this only once. (There! I've said it.)

Thesaints
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Re: How do you know you are FI?

Post by Thesaints » Wed Dec 06, 2017 9:13 pm

Financially Illiterate ?

flyingaway
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Re: How do you know you are FI?

Post by flyingaway » Wed Dec 06, 2017 9:20 pm

Estimate your expenses in retirement based on your current expenses. If you have 25X of that, then you can declare you are FI.

However, achieving FI does not mean you can retire and do what you want to do.

For example, my normal expenses in retirement is estimated to be about $80k per year. But if I want to retire now, I will need at least additional $20k to $40k per year for travel expenses in the next 10 to 20 years. That is why we have three levels of financial independence: Basic level, comfortable level, and luxury level.

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Sandtrap
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Re: How do you know you are FI?

Post by Sandtrap » Wed Dec 06, 2017 9:24 pm

David Jay wrote:
Wed Dec 06, 2017 3:42 pm
To rephrase what others have said, it depends entirely on your expenses. When you have a portfolio that is 25X - 30X your annual living expenses, you have achieved FI.
Isn't this based on retiring at age 65 with maybe 25-30 years (mileage) left on the clock?

but not necessarily for someone younger?

For myself:
Financial independence when working meant control over my employment and income by being self-employed. I didn't have to worry about losing my job unless I fired myself.
In retirement, FI means that my portfolio is large enough for me and DW to make it to the finish line without undue financial stress. It does not take much for us to "feel wealthy". But, I do like the additional margin of retiring at a luxury level but living at a comfortable frugal one. Great Sleep factor.
j :D
Last edited by Sandtrap on Wed Dec 06, 2017 9:36 pm, edited 3 times in total.

Thesaints
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Re: How do you know you are FI?

Post by Thesaints » Wed Dec 06, 2017 9:30 pm

flyingaway wrote:
Wed Dec 06, 2017 9:20 pm
That is why we have three levels of financial independence: Basic level, comfortable level, and luxury level.
Good rule for long term forecasts of that sort is to use "comfortable", if not "luxury". Doing so, if your projections are off you are left with "basic" at least.

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Re: How do you know you are FI?

Post by The Wizard » Wed Dec 06, 2017 9:31 pm

flyingaway wrote:
Wed Dec 06, 2017 9:20 pm
Estimate your expenses in retirement based on your current expenses. If you have 25X of that, then you can declare you are FI.

However, achieving FI does not mean you can retire and do what you want to do.

For example, my normal expenses in retirement is estimated to be about $80k per year. But if I want to retire now, I will need at least additional $20k to $40k per year for travel expenses in the next 10 to 20 years. That is why we have three levels of financial independence: Basic level, comfortable level, and luxury level.
It's much better to determine a reasonable DESIRED INCOME in retirement rather than merely focus on your actual pre-retirement expenses. But I agree with your concept of more than one level of FI...
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flyingaway
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Re: How do you know you are FI?

Post by flyingaway » Wed Dec 06, 2017 9:41 pm

Thesaints wrote:
Wed Dec 06, 2017 9:30 pm
flyingaway wrote:
Wed Dec 06, 2017 9:20 pm
That is why we have three levels of financial independence: Basic level, comfortable level, and luxury level.
Good rule for long term forecasts of that sort is to use "comfortable", if not "luxury". Doing so, if your projections are off you are left with "basic" at least.
If we retire at 75, maybe the barebone FI is enough as we would not be able to do many things.

If we lose our jobs at 55, we will also be fine with the barebone FI, we will just stay low.

ychuck46
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Re: How do you know you are FI?

Post by ychuck46 » Wed Dec 06, 2017 10:03 pm

We currently have over 40x our living expenses in investments alone. If I net out those expenses by taking out our SS it is over 70x expenses. Most analysts/advisers/BHs will tell you that is enough, as will all the Monte Carlo simulations. Even with that I felt I should work longer than I did (stopped at 60 a few years ago), but that was due to a lifetime of work starting at age eight.

Benton Bair
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Re: How do you know you are FI?

Post by Benton Bair » Wed Dec 06, 2017 10:07 pm

thegr881 wrote:
Wed Dec 06, 2017 3:42 pm
Financial Independence
Taylor Larimore wrote:
Wed Dec 06, 2017 3:09 pm
Just to be sure, what does "FI" mean?
Thank you and best wishes.
Taylor
Financial Indifference.

Slacker
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Re: How do you know you are FI?

Post by Slacker » Wed Dec 06, 2017 10:52 pm

Sandtrap wrote:
Wed Dec 06, 2017 9:24 pm
David Jay wrote:
Wed Dec 06, 2017 3:42 pm
To rephrase what others have said, it depends entirely on your expenses. When you have a portfolio that is 25X - 30X your annual living expenses, you have achieved FI.
Isn't this based on retiring at age 65 with maybe 25-30 years (mileage) left on the clock?

but not necessarily for someone younger?

For myself:
Financial independence when working meant control over my employment and income by being self-employed. I didn't have to worry about losing my job unless I fired myself.
In retirement, FI means that my portfolio is large enough for me and DW to make it to the finish line without undue financial stress. It does not take much for us to "feel wealthy". But, I do like the additional margin of retiring at a luxury level but living at a comfortable frugal one. Great Sleep factor.
j :D
The original paper published by Bengen cited a 4% withdrawal rate as being safe for 33 years maximum at 100% and around 90% of the time it was good enough for 50 years. Bengen also disclosed that a 3.5% withdrawal rate would last 50 years. However, this paper didn't include the latest dotcom bust and great recession and required a 75% stock / 25% bond portfolio (though you could do the 4% rule with a 50/50 portfolio).

I haven't read too much of "Early Retirement Now", but I think I've read others referring to a 3.5% perpetual withdrawal rate being suggested from that blog/website.

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Re: How do you know you are FI? [Financially Independent]

Post by miamivice » Wed Dec 06, 2017 11:52 pm

thegr881 wrote:
Wed Dec 06, 2017 3:03 pm
I am just 40. What I am trying to figure out right now is.. am I FI and if not when will I be FI? I am looking for a list of things that you need to check mark to declare (to yourself) you FI status.
There is a website called FireCalc.org. You type in your current net worth, and your annual spending, and how many years you will need it for, and it will tell you (through Monte Carlo analysis) the chance you'll not run out of money before the spending timeline is up.

It is powerful. First page is just a few options. Additional pages let you add in extra money you'll receive in retirement (such as social security and pensions) or expenses that will go away later (such as a mortgage payment). More pages give you the opportunity to input how much you have in stocks, bonds, and cash. Also whether you want constant spending power and the expected inflation rate.

Have fun with it.

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Re: How do you know you are FI?

Post by Thesaints » Thu Dec 07, 2017 12:50 am

flyingaway wrote:
Wed Dec 06, 2017 9:41 pm
Thesaints wrote:
Wed Dec 06, 2017 9:30 pm
flyingaway wrote:
Wed Dec 06, 2017 9:20 pm
That is why we have three levels of financial independence: Basic level, comfortable level, and luxury level.
Good rule for long term forecasts of that sort is to use "comfortable", if not "luxury". Doing so, if your projections are off you are left with "basic" at least.
If we retire at 75, maybe the barebone FI is enough as we would not be able to do many things.

If we lose our jobs at 55, we will also be fine with the barebone FI, we will just stay low.
In both cases you won’t even have that opportunity in case your calculations are not accurate, and they never are.

gotester2000
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Re: How do you know you are FI? [Financially Independent]

Post by gotester2000 » Thu Dec 07, 2017 1:43 am

How about this definition of FI -

FI corpus = (Life expectancy - current age) * current annual expenses(peak expenses when you have a full family)

The Wizard
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Re: How do you know you are FI?

Post by The Wizard » Thu Dec 07, 2017 2:49 am

Thesaints wrote:
Thu Dec 07, 2017 12:50 am
flyingaway wrote:
Wed Dec 06, 2017 9:41 pm
Thesaints wrote:
Wed Dec 06, 2017 9:30 pm
flyingaway wrote:
Wed Dec 06, 2017 9:20 pm
That is why we have three levels of financial independence: Basic level, comfortable level, and luxury level.
Good rule for long term forecasts of that sort is to use "comfortable", if not "luxury". Doing so, if your projections are off you are left with "basic" at least.
If we retire at 75, maybe the barebone FI is enough as we would not be able to do many things.

If we lose our jobs at 55, we will also be fine with the barebone FI, we will just stay low.
In both cases you won’t even have that opportunity in case your calculations are not accurate, and they never are.
That just depends on how he does the "calculations".
I've often whined about the inadequacy of doing a bottom-up expense tally since it tends to overlook certain "one-time" expenses.
Example: my 12- year old chainsaw just bit the dust and I bought a new one for $450. Where does that appears on my Retirement Expenses Spreadsheet?

But a top down expense analysis will generally provide adequate income to carry on existing lifestyle. This is computed as: Gross employment income minus long term retirement savings minus FICA.
So someone with $100,000 salary last few working years might be putting $20,000 into 401(k) and paying $7650 in FICA.
That someone will be fine with $72,350 per year in retirement, with inflation adjustment...
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Thesaints
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Re: How do you know you are FI? [Financially Independent]

Post by Thesaints » Thu Dec 07, 2017 2:53 am

You are absolutely right.
Which is the optimal (i.e. minimum capital) portfolio that provides that person with $72,350 per year for the rest of his life, compensating for inflation ?

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Re: How do you know you are FI? [Financially Independent]

Post by The Wizard » Thu Dec 07, 2017 3:22 am

Thesaints wrote:
Thu Dec 07, 2017 2:53 am
You are absolutely right.
Which is the optimal (i.e. minimum capital) portfolio that provides that person with $72,350 per year for the rest of his life, compensating for inflation ?
Depends on age at retirement.
Let's say 66 which is FRA this year.
So around $2400/month ($28,000/year) in SS leaving $44,000 to come from pension/annuity/portfolio.
If portfolio only, then $1.1M might work at 4% swr.
Annuitizing $680,000 at 6.5% payout rate also provides $44k per year, leaving $420,000 of that $1.1M to grow in reserve for inflation, etc...
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Re: How do you know you are FI? [Financially Independent]

Post by Thesaints » Thu Dec 07, 2017 3:35 am

Sure! Then it turns out those investment yield $69,000 per year. Now what does the retiree in question do ? Taking money away from a frugal retirement means destitution.
Wouldn’t have been a lot better to plan for a comfortable retirement ? In technical language it is referred to as “allowing for a margin of error”.

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Re: How do you know you are FI? [Financially Independent]

Post by Grt2bOutdoors » Thu Dec 07, 2017 8:18 am

thegr881 wrote:
Wed Dec 06, 2017 3:03 pm
I am just 40. What I am trying to figure out right now is.. am I FI and if not when will I be FI? I am looking for a list of things that you need to check mark to declare (to yourself) you FI status.
You don't go into a store and either look at price tags or ask "how much does this cost"?
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Re: How do you know you are FI? [Financially Independent]

Post by TheTimeLord » Thu Dec 07, 2017 8:43 am

I am wondering what people here are meaning by expenses. Are we talking about basic living expenses or anticipated retirement expenses which would include the extras like travel and eating out frequently. The reason I ask is I am reading lots of 33x to 50x definitions excluding Social Security. That would mean for someone using anticipated retirement expenses of say $100,000 you would need $3.3 million to $5 million in your investment portfolio alone excluding your paid off house and SS. Those numbers put you in rarefied air when it comes to individual portfolio size. Your portfolio alone would put you well into the top 5% for Net Worth in the 50-59 age bracket and even further into the top 5% for any younger age group. So are people getting to 33x and 50x by just using basic sit at home expenses or is it possible they have optimistic views of their expenses and future costs or is FI as it is being defined for many here only for those who have portfolios that place them in the top 3% or so, or have substantial pensions?
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Jack FFR1846
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Re: How do you know you are FI?

Post by Jack FFR1846 » Thu Dec 07, 2017 8:46 am

The Wizard wrote:
Thu Dec 07, 2017 2:49 am

Example: my 12- year old chainsaw just bit the dust and I bought a new one for $450. Where does that appears on my Retirement Expenses Spreadsheet?
Picture of chainsaw, please. (I forest manage and am a Husqvarna user)

$450 should not be a significant part of your living expenses. If it is, you're cutting things too closely. You can mitigate this. I had my Husky 51 finally go on me a year ago. I opted for the good Italian rebuild kit that included everything I needed. I put my sweat equity into the saw along with the $130 for the kit and it's been running fine ever since. I figure if you paid $450, its on the same level of saw. I'd hope it's either Husky or Stihl.
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Re: How do you know you are FI? [Financially Independent]

Post by reggiesimpson » Thu Dec 07, 2017 8:50 am

Its a personal decision that is fraught with many unknowns. Lifestyle and the changes that take place in the various stages of life, childrens issues, illness, etc. And of course the inevitable economic downturns. Try withdrawing 3 or 4% when your net has dropped 40%! To some degree you are "timing your own personal market" and as with any timing the result can be quite unpredictable. Your 40 and you have many years in which you will face some of these issues. Will you be ok?
I retired at 62 and this is how I think about being able to afford a decent retirement (my personal decision). I make sure to not drawdown my assets. Meaning I spend less than my assets generate income wise. In that way my net grows annually. Its as simple as that. Follow the old adage "Make so much money it doesn't matter". How you do it is your decision. Good luck.

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Re: How do you know you are FI?

Post by flyingaway » Thu Dec 07, 2017 8:58 am

Thesaints wrote:
Thu Dec 07, 2017 12:50 am
flyingaway wrote:
Wed Dec 06, 2017 9:41 pm
Thesaints wrote:
Wed Dec 06, 2017 9:30 pm
flyingaway wrote:
Wed Dec 06, 2017 9:20 pm
That is why we have three levels of financial independence: Basic level, comfortable level, and luxury level.
Good rule for long term forecasts of that sort is to use "comfortable", if not "luxury". Doing so, if your projections are off you are left with "basic" at least.
If we retire at 75, maybe the barebone FI is enough as we would not be able to do many things.

If we lose our jobs at 55, we will also be fine with the barebone FI, we will just stay low.
In both cases you won’t even have that opportunity in case your calculations are not accurate, and they never are.
What I meant was: we can always aim for a higher level, but if we do not make it, we will be satisfied with the level we achieved.

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Re: How do you know you are FI?

Post by The Wizard » Thu Dec 07, 2017 10:59 am

Jack FFR1846 wrote:
Thu Dec 07, 2017 8:46 am
The Wizard wrote:
Thu Dec 07, 2017 2:49 am

Example: my 12- year old chainsaw just bit the dust and I bought a new one for $450. Where does that appears on my Retirement Expenses Spreadsheet?
Picture of chainsaw, please. (I forest manage and am a Husqvarna user)

$450 should not be a significant part of your living expenses. If it is, you're cutting things too closely. You can mitigate this. I had my Husky 51 finally go on me a year ago. I opted for the good Italian rebuild kit that included everything I needed. I put my sweat equity into the saw along with the $130 for the kit and it's been running fine ever since. I figure if you paid $450, its on the same level of saw. I'd hope it's either Husky or Stihl.
$450 is fine for me since I have decent retirement income and maintain a healthy checking account balance.

Old saw is Husqvarna 55 Rancher with 18" bar. New saw is Husqvarna 460 Rancher with 20" bar and slightly larger engine, and a few improvements which should make cold weather starting easier.

I may try to repair the old one also, though the shop told me the cylinder is scored.

I cut firewood for three wood stoves, at my place and the GF's place...
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Sandtrap
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Re: How do you know you are FI?

Post by Sandtrap » Thu Dec 07, 2017 11:15 am

The Wizard wrote:
Thu Dec 07, 2017 10:59 am
Jack FFR1846 wrote:
Thu Dec 07, 2017 8:46 am
The Wizard wrote:
Thu Dec 07, 2017 2:49 am

Example: my 12- year old chainsaw just bit the dust and I bought a new one for $450. Where does that appears on my Retirement Expenses Spreadsheet?
Picture of chainsaw, please. (I forest manage and am a Husqvarna user)

$450 should not be a significant part of your living expenses. If it is, you're cutting things too closely. You can mitigate this. I had my Husky 51 finally go on me a year ago. I opted for the good Italian rebuild kit that included everything I needed. I put my sweat equity into the saw along with the $130 for the kit and it's been running fine ever since. I figure if you paid $450, its on the same level of saw. I'd hope it's either Husky or Stihl.
$450 is fine for me since I have decent retirement income and maintain a healthy checking account balance.

Old saw is Husqvarna 55 Rancher with 18" bar. New saw is Husqvarna 460 Rancher with 20" bar and slightly larger engine, and a few improvements which should make cold weather starting easier.

I may try to repair the old one also, though the shop told me the cylinder is scored.

I cut firewood for three wood stoves, at my place and the GF's place...
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Great example.
Great saw! I have one :D
j

sailaway
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Re: How do you know you are FI? [Financially Independent]

Post by sailaway » Thu Dec 07, 2017 11:28 am

Am I the only one who knows spry senior citizens? Why do people assume that the will be decrepit by 75?

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Re: How do you know you are FI? [Financially Independent]

Post by TheTimeLord » Thu Dec 07, 2017 11:31 am

sailaway wrote:
Thu Dec 07, 2017 11:28 am
Am I the only one who knows spry senior citizens? Why do people assume that the will be decrepit by 75?
I guess that depends a lot on ones definition of spry.
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sixtyforty
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Re: How do you know you are FI? [Financially Independent]

Post by sixtyforty » Thu Dec 07, 2017 11:33 am

I would also 2nd the http://www.firecalc.com recommendation. It takes into account SS, which can be a big factor as well as the actual length of your retirement. The last tab "Investigate", allows you to play with what-if scenarios such as delaying retirement etc.
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci

zengolf2011
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Re: How do you know you are FI? [Financially Independent]

Post by zengolf2011 » Thu Dec 07, 2017 11:40 am

We never really KNOW when we're financially independent, because we don't know the future. Best we can do is try to match or estimated future value of investments to expected expenses. I just do my best and try to not worry, be happy.

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Re: How do you know you are FI? [Financially Independent]

Post by The Wizard » Thu Dec 07, 2017 11:44 am

TheTimeLord wrote:
Thu Dec 07, 2017 8:43 am
I am wondering what people here are meaning by expenses. Are we talking about basic living expenses or anticipated retirement expenses which would include the extras like travel and eating out frequently...
Hard to say, since retirement aspirations and pre-retirement income levels vary widely.
But for most of us, it's good if we can keep basic expenses contained and therefore have excess income to fund various retirement activities.

As for creating retirement income, I'm not a big fan of limiting yourself to just a SWR from portfolio.
In the absence of a decent pension, a do it yourself via immediate annuities makes some sense. $1M can yield a single life 10-year guarantee payout rate of 6% to 7% depending on age.
So call it $65,000 from that $1M along with $40,000 from SS at age 70 and most individuals will be in good shape.
Add another $500k+ of normal portfolio and a retiree should be able to bridge the gap to age 70 and provide some inflation protection in later years with any luck...
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Re: How do you know you are FI?

Post by marcopolo » Thu Dec 07, 2017 11:48 am

The Wizard wrote:
Thu Dec 07, 2017 2:49 am

I've often whined about the inadequacy of doing a bottom-up expense tally since it tends to overlook certain "one-time" expenses.
Example: my 12- year old chainsaw just bit the dust and I bought a new one for $450. Where does that appears on my Retirement Expenses Spreadsheet?

But a top down expense analysis will generally provide adequate income to carry on existing lifestyle. This is computed as: Gross employment income minus long term retirement savings minus FICA.
So someone with $100,000 salary last few working years might be putting $20,000 into 401(k) and paying $7650 in FICA.
That someone will be fine with $72,350 per year in retirement, with inflation adjustment...
I really think you need to do both. Top down as you describe is much better for getting a handle of current expense. But, i am not sure i would want to extrapolate from there to say the person will be fine in retirement with same income. Especially if retiring young, i think expenses are likely to be higher (certainly different), to account for health care cost, possibly more travel, exploring hobbies, etc. I like to use top-down to get at current overall expense, then do a bottom-up analysis that crosses of expense that are likely to go away, and add back in new expenses i anticipate during retirement, then add in an additional fudge factor for things I suspect I missed.
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
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Re: How do you know you are FI? [Financially Independent]

Post by marcopolo » Thu Dec 07, 2017 11:55 am

Grt2bOutdoors wrote:
Thu Dec 07, 2017 8:18 am
thegr881 wrote:
Wed Dec 06, 2017 3:03 pm
I am just 40. What I am trying to figure out right now is.. am I FI and if not when will I be FI? I am looking for a list of things that you need to check mark to declare (to yourself) you FI status.
You don't go into a store and either look at price tags or ask "how much does this cost"?
While certainly not wealthy by Boglehead standards, we are pretty well off relative to most of the people in the world. But, we still look at the cost of just about everything we buy, and for most things will consider if it is worth the expense, are there more economical ways to achieve the same purpose, etc.

It is hard for me to envision how much money I would have to have to get to a point where i don't think to consider the price of things. If I could possibly come up with a number at which that would be true, it would certainly be out of our reach, way beyond what I would consider FI, and probably not worth working additional years to achieve.

I am just wired that way. But, everyone is different.
Once in a while you get shown the light, in the strangest of places if you look at it right.

onthecusp
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Re: How do you know you are FI? [Financially Independent]

Post by onthecusp » Thu Dec 07, 2017 12:03 pm

I try to be careful not to layer one safety margin onto another.
For a round number example.
I think 4% (25x) is a good number to use for 30 year planning.
I think all expenses will be about 100,000.
I think SS will provide 40,000 starting now.

I need 25 x 60,000 = 1,500,000.

My safety margin is that I think I can spend up to 20,000 less in any give year of bad portfolio performance.
Let's say I add some more safety margin.

3% is safer, yeah lets to that.
Long term care could be expensive and I would not want to sell my house cause I feel attached that my children would want the homestead in the family for generations to come. Better add $300,000 to the total.
Who knows what food prices will be next year. I don't want to scrimp on eating out. Let's add 10,000 a year to spending.
Congress, phhht, probably take SS away. I'll be self sufficient. Not plan on SS.

I need (33 x 110,000) + 300,000 = 3,930,000

Which is right?

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