If I was retiring today, I could comfortably withdraw 5% (mid-30s dad using ERN SWR Toolbox)

[Random Musings]

Other income? Inheritence? With additional (but not defined in terms of $ or timeframe) cash flow streams, the 5% means little.

RM

How is 5% meaningless when we are trying to make a reasonable calculation about how much money we will need from our portfolio given potential future expenses, windfalls, inheritance or income streams? Do you have any helpful recommendations about how we can better calculate a WR or position ourselves?

It is not meaningless to you; however compared to most SWR strategies that have a starting bucket and SS. You have a starting bucket that will be filled up with inheritance money X years down the road, let alone other income streams (perhaps) besides SS. Therefore, it's hard to benchmark your 5% to other studies that analyze a more traditional retirement at the age of 60 something.

Saying that, the 20% bear market (we are a bit less than that right now when including dividends) may make 5% a decent target when considering all bear markets that hit that threshold, but does it specifically work for 29-32, late 30's, 73-74, 00-02, 08-09 periods? Those are good stress tests because with 50% plus bear markets, that means you have at least another 38% haircut. You can argue that the bear market for the final haircut will be shorter hence the rebound to get to break even won't take too much time, but there is still a risk that the recovery could take longer than history typically shows (like Japan or our depression). But if you get a very meaningful new bucket of money five, ten or fifteen years down the road via inheritence (versus now), your SWR analysis is far different and an early big bear market won't be as punishing with a higher early SWR.

RM

[L84SUPR]

I'm curious about how the ERN SWR Toolbox accounts for CAPE. More specifically, what value of Shiller CAPE (or whichever CAPE it uses) is neutral, neither increases nor decreases the calculated SWR.

I recommend reading the post linked to in OP

I wandered around ERN but I never found mention of a neutral value for CAPE. They say >20 is high and <20 is low to moderate but they don't say if moderate means neutral or moderately overvalued.

As far as starting out at 4.0 or 4.5 or 5.0 percent in the current market, I think any will work given the ability to be flexible. It would be interesting to compare two people with the same portfolio using the same dynamic rules. One starts at 4 and the other starts at 5 percent. Would they converge to the same path? Maybe the rules are more important than the starting point.

[halfnine]

So, MMM numbers and financial plan worked until both didn't.
Got it.

That's a cynical view. He went through divorce if I understand correctly. If your plan doesn't work out because of that, can you fault him? I don't think so.

In fact lots of folks can't retire at all if they have to plan to stay bulletproof post-divorce.

I think it is actually even simpler than that. If one wanted advice on how to successfully have a 50+ year retirement one probably shouldn't go out seeking the advice of 35 year olds who have only been retired 5 years on how to do it.

[wolf359]

https://livingafi.com/2021/03/17/the-20 ... nt-update/

Of note is the fact that his numbers worked, and the financial plan worked. The failure was caused by social issues, increased costs from being single, and unanticipated health problems.

So, MMM numbers and financial plan worked until both didn't.
Got it.
Yes the reasons for failure may be true, but of course if the FIRE wasn't so lean, and unanticipated expenses were planned for by having a cushion, then a plan has a greater chance at success.

Sorry, what did that have to do with MMM? We're talking about a different person, who made different choices with his finances and financial plans?

But note OP used the word "IF." OP is not actually retiring today. OP is just crossing the threshold into FI.

And yes, I absolutely agree that having a bigger buffer and expense flexibility leads to a more successful retirement. This is true regardless of what age you retire. I'm well past 35, and these are considerations that I'm having before choosing to retire.

The point of the post, however, is that there are issues beyond finances that should be considered if you retire at such a young age. Specifically, this:

If you are yourself working on becoming FI and you have any specific takeaway from this post, let it be this: You are making future plans based on what your current life looks like. Your current job, your current income, your current partner, your current percentage of savings, your expected market return, your housing costs, your location and so-on. You’re assuming large parts of your life will remain static over the next X years, where, for many early-retiree hopefuls, X is 30+ years, perhaps even fifty.

They may not be static. It might be a mistake to think that things will be as smooth as you believe they will be. The ability to recover from changes and disruptions — to be adaptable and resilient in the face of adversity — will show itself to be perhaps the most critical Early Retirement skill of them all. I hope sincerely that nothing changes for everyone on this path — that your happiness meter goes up to max and stays there. But for some percentage of us, like myself — well. We will hit bumps in the road, potholes, areas of the street that are flooded out where you need to slow down or even turn around and find another route. And we will all need to be flexible enough to deal with it.

In fact, someone who retires at 35 still has considerable earnings potential, and has the option of going back to work if things go south. Things look much bleaker if you have health issues at 90 but can't afford that medicine or treatment and haven't worked for 30 years.

As for the finances, his portfolio not only survived both the divorce and drawing from it, but was actually 20% higher than when he started. It just wasn't enough to support his new health expenses.

[TN_Boy]

Okay, that's fine you have fixed your OP. You are NOT doing this:

a starting withdraw rate of around 5% and I would adjust that up for inflation each year

Right, I plan to have lumpy spending, but the probability is high that when the market is down, you can withdraw 5% and adjust that up for inflation each year and survive over even very long retirement horizons, actually around 70% of the time for all scenarios (it’s even higher for scenarios where the market is already down 20%):

I find a 30% "chance" of failure rate unacceptably high, and I'm really not that risk averse. However, I put chance in quotes, because as I'm sure you know, that chart does not tell you going forward what will happen. It tells you what would have happened using backtesting, including backtesting with a carefully constructed CAPE* metric.

I'm not one of those people that thinks historical backtesting is useless ... I used the inverse of the 4% rule (25x expenses) as a guideline on how big the portfolio needed to be. And then SS kicks in and the withdrawal rate is relatively low. For our situation.

That's the withdrawal rate math, if expense projections are correct. I had no idea at age 35 what my interests and spending would have been at age 55, but your ability to predict the future might be better than mine. And if you are planning on continuous part time work, etc. that might be okay, along with a continuous relatively minimal lifestyle. The thing about having flexible expenses that average 100k a year, versus 40k a year, is that if something bad and expensive happens and you have a portfolio supporting 100k a year, you probably have a lot more firepower to deal with such expenses. At a lean 40k expenses and portfolio size to match, you need more luck.

A lot of people, I think, underestimate the role of luck in ones "successful planning." But I know that having more resources gives you more options in many situations. This in fact is what drives a lot of people to oversave and/or underspend. Watching what happens to friends and relatives, a few of which will have bad luck, is a motivator to have some extra money if possible.

* ERNs revised CAPE metric ... does it cover foreign stocks? I have a globally diversified portfolio.

[randomguy]

As for the finances, his portfolio not only survived both the divorce and drawing from it, but was actually 20% higher than when he started. It just wasn't enough to support his new health expenses.

Stocks returned something like 15% over that time period. And it wasn't enough. What type of returns would he have needed.....

[thedaybeforetoday]

https://livingafi.com/2021/03/17/the-20 ... nt-update/

Of note is the fact that his numbers worked, and the financial plan worked. The failure was caused by social issues, increased costs from being single, and unanticipated health problems.

So, MMM numbers and financial plan worked until both didn't.
Got it.
Yes the reasons for failure may be true, but of course if the FIRE wasn't so lean, and unanticipated expenses were planned for by having a cushion, then a plan has a greater chance at success.

Sorry, what did that have to do with MMM? We're talking about a different person, who made different choices with his finances and financial plans?

But note OP used the word "IF." OP is not actually retiring today. OP is just crossing the threshold into FI.

And yes, I absolutely agree that having a bigger buffer and expense flexibility leads to a more successful retirement. This is true regardless of what age you retire. I'm well past 35, and these are considerations that I'm having before choosing to retire.

The point of the post, however, is that there are issues beyond finances that should be considered if you retire at such a young age. Specifically, this:

If you are yourself working on becoming FI and you have any specific takeaway from this post, let it be this: You are making future plans based on what your current life looks like. Your current job, your current income, your current partner, your current percentage of savings, your expected market return, your housing costs, your location and so-on. You’re assuming large parts of your life will remain static over the next X years, where, for many early-retiree hopefuls, X is 30+ years, perhaps even fifty.

They may not be static. It might be a mistake to think that things will be as smooth as you believe they will be. The ability to recover from changes and disruptions — to be adaptable and resilient in the face of adversity — will show itself to be perhaps the most critical Early Retirement skill of them all. I hope sincerely that nothing changes for everyone on this path — that your happiness meter goes up to max and stays there. But for some percentage of us, like myself — well. We will hit bumps in the road, potholes, areas of the street that are flooded out where you need to slow down or even turn around and find another route. And we will all need to be flexible enough to deal with it.

In fact, someone who retires at 35 still has considerable earnings potential, and has the option of going back to work if things go south. Things look much bleaker if you have health issues at 90 but can't afford that medicine or treatment and haven't worked for 30 years.

As for the finances, his portfolio not only survived both the divorce and drawing from it, but was actually 20% higher than when he started. It just wasn't enough to support his new health expenses.

The point I was highlighting was the contradictory statement, that is bolded above, which concerns MMM plan's failure; that a plan was successful until it wasn't hardly seems like a plan I would want to utilize in my financial life.

Similar to what you just wrote, that the plan worked with the exception of health issues. So the plan didn't work now did it?
A plan should account for unforeseen events, like health issues, or it increases the risk of failure.

Going back to work as part of "the plan" should unforeseen events occur that bring about unforeseen expenses, is put at risk with health issues as well, compounding the risk of lean FIRE.

I've got nothing against lean FIRE or the OP, but lets not kid ourselves into thinking a failed plan should be held up as a model for FIRE of any kind. Also as you point out, this is in spite of NW increasing 20% over 6 years, and he went back to work full time.

I think this is actually a warning to the OP, esp. given the statement " I retired early on a shoestring, something called lean-FIRE as dubbed by the early-retirement geeks: a sub 4% withdrawal rate", although the OP is all about hypotheticals so may not be relevant, but it was brought up and I was addressing the contradiction as noted above.

An interesting experiment and I'm glad he documented his experience.

[wolf359]

As for the finances, his portfolio not only survived both the divorce and drawing from it, but was actually 20% higher than when he started. It just wasn't enough to support his new health expenses.

Stocks returned something like 15% over that time period. And it wasn't enough. What type of returns would he have needed.....

I'm not sure there is a correct answer to that. He was no longer happy being retired, so he unretired. I don't think that any amount of return would have stopped that. In fact, since his balance was higher, he was probably basing his calculations on the fact that he was exceeding his desired withdrawal target, rather than him actually facing a sequence of returns failure.

For normal retirements, it is reasonable to anticipate that you're going to get older, that you need reserves to pay Medicare, that there's a 50% probability of needing long-term care. If you're voluntarily retiring, then you have the ability to choose your timing and resources. It didn't appear that he was ready to handle any of the known health care issues that comes with getting old, let alone unexpected major health problems. I'm guessing that if his assets double in accordance with the rule of 72, his portfolio will be north of $2.5 million within 8-10 years, and he might try it again.

[thedaybeforetoday]

As for the finances, his portfolio not only survived both the divorce and drawing from it, but was actually 20% higher than when he started. It just wasn't enough to support his new health expenses.

Stocks returned something like 15% over that time period. And it wasn't enough. What type of returns would he have needed.....

I'm not sure there is a correct answer to that. He was no longer happy being retired, so he unretired. I don't think that any amount of return would have stopped that. In fact, since his balance was higher, he was probably basing his calculations on the fact that he was exceeding his desired withdrawal target, rather than him actually facing a sequence of returns failure.

For normal retirements, it is reasonable to anticipate that you're going to get older, that you need reserves to pay Medicare, that there's a 50% probability of needing long-term care. If you're voluntarily retiring, then you have the ability to choose your timing and resources. It didn't appear that he was ready to handle any of the known health care issues that comes with getting old, let alone unexpected major health problems. I'm guessing that if his assets double in accordance with the rule of 72, his portfolio will be north of $2.5 million within 8-10 years, and he might try it again.

While the blog author may have been unhappy being retired (although states he enjoyed it throughout the post) he actually went back to work out of financial necessity, from the blog post :https://livingafi.com/2021/03/17/the-20 ... nt-update/

"In other news, my previously calculated FI math suddenly no longer works because I am single and it’s more expensive generally to be single than part of a couple with shared expenses. Plus I’m spending more — quite a bit more actually — because of the health issues." ...
" Conclusion: I needed income again."

[TinyHouse]

I find a 30% "chance" of failure rate unacceptably high, and I'm really not that risk averse.

Sure, but with the market down ~20%, it’s more like 5 to 10% chance of failure. I’m much more comfortable with 90%+ odds for planning purposes. That doesn’t take into account that we will have other potential income streams that are at 90%+ probably (SS, side income, inheritance, etc).

We can’t afford not to ”retire” early at some point. For now, OMY syndrome to pay for the house build.

[wfrobinette]

deleted

[ncbill]

As for the finances, his portfolio not only survived both the divorce and drawing from it, but was actually 20% higher than when he started. It just wasn't enough to support his new health expenses.

Stocks returned something like 15% over that time period. And it wasn't enough. What type of returns would he have needed.....

I'm not sure there is a correct answer to that. He was no longer happy being retired, so he unretired. I don't think that any amount of return would have stopped that. In fact, since his balance was higher, he was probably basing his calculations on the fact that he was exceeding his desired withdrawal target, rather than him actually facing a sequence of returns failure.

For normal retirements, it is reasonable to anticipate that you're going to get older, that you need reserves to pay Medicare, that there's a 50% probability of needing long-term care. If you're voluntarily retiring, then you have the ability to choose your timing and resources. It didn't appear that he was ready to handle any of the known health care issues that comes with getting old, let alone unexpected major health problems. I'm guessing that if his assets double in accordance with the rule of 72, his portfolio will be north of $2.5 million within 8-10 years, and he might try it again.

While the blog author may have been unhappy being retired (although states he enjoyed it throughout the post) he actually went back to work out of financial necessity, from the blog post :https://livingafi.com/2021/03/17/the-20 ... nt-update/

"In other news, my previously calculated FI math suddenly no longer works because I am single and it’s more expensive generally to be single than part of a couple with shared expenses. Plus I’m spending more — quite a bit more actually — because of the health issues." ...
" Conclusion: I needed income again."

His plan 'failed' because of a divorce & serious health problems.

But another significant factor, IMHO, was his decision to continue living in a HCOL area despite his admission he didn't have any family or (after the divorce) even friends there locally.

[TinyHouse]

If I recall, you’re planning on retiring, with 2 young kids, on $40k. It might work. Forcing yourself to live on that small amount of money doesn’t give you any cushion if something changes. There’s a lot that can and will go wrong in the next 60 years. Inflation, market crashes, illness, disability, divorce, college expenses, drug rehab, car problems, or stuff nobody has even thought of yet. At least some of that is likely to happen.

Retiring in your mid-30’s. Have you worked enough quarters for Social Security and Medicare?

Yes, our annual budget is around $40,000 per year, which is about 3.8% of our current portfolio. With other things that can come up like vacationing or unexpected things, knowing that 5% WR is likely safe given market conditions is nice.

Yes, the SS website estimates around 2500 per year for me, and a little less for my wife, definitely have worked past the initial bends. In my calculations I account for about $1000 a month starting at age 75 lol.

How much of the 40k can be allocated to health insurance. I don’t see that mentioned.

Padded budget:
Living/Utilities/Maintenance 600
Phones, vehicles 300
Food 1600
Medical 500
Miscellaneous, travel 500
Monthly Total 3500

annual spend 42000

[TN_Boy]

I find a 30% "chance" of failure rate unacceptably high, and I'm really not that risk averse.

Sure, but with the market down ~20%, it’s more like 5 to 10% chance of failure. I’m much more comfortable with 90%+ odds for planning purposes. That doesn’t take into account that we will have other potential income streams that are at 90%+ probably (SS, side income, inheritance, etc).

We can’t afford not to ”retire” early at some point. For now, OMY syndrome to pay for the house build.

No

ERN's spreadsheet, based on a revised CAPE measure, notes that historically "with the market down ~20%, it’s more like 5 to 10% chance of failure."

You may think that spreadsheet is predictive, but you are placing a lot more faith in the ability of backtesting to predict the future than I am, or that I think is warranted. And I like backtesting, in general.

So my major points are:

1) Predicting expenses 20, 30, years into the future is difficult. It is really hard so far from retirement.
2) Using backtesting to predict SWRs 50 years into the future is .... hmm.
3) Having more money gives you more options than having less money. (Most people know this, but as you get older this becomes clearer).

Retiring really early with a lean budget is risky, especially if one has the option and ability to get more financial security. It could be a valid choice, but the risk is, I believe, far higher than you think.

I'm all for retiring early if it makes sense. I did.

[dknightd]

After over a decade of learning from and reading this forum and other great resources about investing, I've read countless arguments and presentations about SWRs and withdraw methods. WRs vary from 3-4% typically (sometimes below 3%!!!), and withdraw methods and recommended asset allocations vary widely. But one thing is for sure, choosing your own withdraw rate once you retire is tough, and it can feel like a measure 100 times, cut once situation. But it doesn’t have to be so daunting even though Finance is personal and each situation is different. Despite the diversity, the variables for most of our situations are actually pretty similar, but the inputs to those variables are different. Retirement age, income, lifestyle, cost of living, family obligations, inheritance, health, life expectancy, goals, etc. we all have these things for the most part.

After all my research and years of learning, I feel comfortable quitting my job today since I'm financially independent, and today I would have a starting withdraw rate of around 5% and adjust dynamically from there depending on need and market conditions. Our needs and our spending won’t be perfectly smooth.

Details:
I'm in the USA, in my 30s, have a wife and kids, have a mostly VTSAX/VXUS portfolio, have 25X+ our living expenses invested, and still work currently. I could get laid off tomorrow (in tech), I could get injured, I could get fed up with my job, or any number of things could derail my career or make me stop wanting to continue working. If I did stop working, I wouldn't worry at all about spending 5% of our portfolio today. I will probably never “retire“, but I could see myself getting out of corporate America for good.

How did I arrive at ~5%? A number of tools and resources, but the one I keep coming back to is Karsten's ERN SWR Toolbox spreadsheet . I can't recommend it more highly. It's flexible, you can be as conservative as you want, and it accounts for a number of variables and scenarios. Is it perfect? No, but it's solid enough to stand alone as the only tool you use for determining WRs.

Inputs:
I use his custom “CAPE2” and take into account very discounted SS and super small side income starting in 30 years, and it says I'm around 5% starting target WR for my ~700 month time horizon (ending portfolio of $300k), and a 4% WR for 100% capital preservation. This looked more like 4.5% and 3.6% respectively back in January 2022. I will very likely have other smallish income throughout the years, should get an inheritance, etc. that all makes this even more conservative, but those items aren’t guaranteed so I didn’t include them over the next 30 years. To be clear, our budget is supported by 3.5-4% WR, but it’s nice to know we can spend up to 5% given current conditions and our variables. Since we plan on a dynamic withdrawal plan, I’ll keep coming back to the tool each year to enter in my portfolio value and check in on target spend.

Here's a video that explains how to use it: https://youtu.be/CClhsaBbTm0

So if I was to recommend tools for retirement planning (some for more precision and some for more quick, rough cutting) that I’ve come back to the most:
- Precision: ERN SWR Toolbox: https://earlyretirementnow.com/2019/12/ ... s-part-33/
- Precision: FICalc.app: https://ficalc.app/
- Rough: Rich, Broke, Dead: https://engaging-data.com/will-money-last-retire-early/
- Rough: Nesteggly https://www.nesteggly.com/investment-wi ... calculator
- Rough: FireCalc (old faithful )

Especially for traditional 30 year retirement horizons, you can probably withdraw much more than you think in the current market. Check these out and let me know your thoughts. Is anyone else using the ERN SWR toolbox to determine their spending each year? Anyone currently in retirement who is using this? Would love to hear from you.

Edit: added in more clarifying context and other tools to the list

Are you really ready to pull the plug on external income?
That is a scary thing to do. You have perhaps many years to live.
And you are now depending on what you've saved up, to last you till you die.
I'm not using ERN SWR toolbox. But it seems like a typical NPW spread sheet.
I think those tools are useful. I use one.

I encourage you to look all the tools you linked to. They are similar to what I used before I retired. Basically a range of guesstimates. I would NOT feel comfortable taking out 5% this year, unless I thought I'd need 1% next year. You have to be flexible.

[sperry8]

After over a decade of learning from and reading this forum and other great resources about investing, I've read countless arguments and presentations about SWRs and withdraw methods. WRs vary from 3-4% typically (sometimes below 3%!!!), and withdraw methods and recommended asset allocations vary widely. But one thing is for sure, choosing your own withdraw rate once you retire is tough, and it can feel like a measure 100 times, cut once situation. But it doesn’t have to be so daunting even though Finance is personal and each situation is different. Despite the diversity, the variables for most of our situations are actually pretty similar, but the inputs to those variables are different. Retirement age, income, lifestyle, cost of living, family obligations, inheritance, health, life expectancy, goals, etc. we all have these things for the most part.

After all my research and years of learning, I feel comfortable quitting my job today since I'm financially independent, and today I would have a starting withdraw rate of around 5% and adjust dynamically from there depending on need and market conditions. Our needs and our spending won’t be perfectly smooth.

Details:
I'm in the USA, in my 30s, have a wife and kids, have a mostly VTSAX/VXUS portfolio, have 25X+ our living expenses invested, and still work currently. I could get laid off tomorrow (in tech), I could get injured, I could get fed up with my job, or any number of things could derail my career or make me stop wanting to continue working. If I did stop working, I wouldn't worry at all about spending 5% of our portfolio today. I will probably never “retire“, but I could see myself getting out of corporate America for good.

How did I arrive at ~5%? A number of tools and resources, but the one I keep coming back to is Karsten's ERN SWR Toolbox spreadsheet . I can't recommend it more highly. It's flexible, you can be as conservative as you want, and it accounts for a number of variables and scenarios. Is it perfect? No, but it's solid enough to stand alone as the only tool you use for determining WRs.

Inputs:
I use his custom “CAPE2” and take into account very discounted SS and super small side income starting in 30 years, and it says I'm around 5% starting target WR for my ~700 month time horizon (ending portfolio of $300k), and a 4% WR for 100% capital preservation. This looked more like 4.5% and 3.6% respectively back in January 2022. I will very likely have other smallish income throughout the years, should get an inheritance, etc. that all makes this even more conservative, but those items aren’t guaranteed so I didn’t include them over the next 30 years. To be clear, our budget is supported by 3.5-4% WR, but it’s nice to know we can spend up to 5% given current conditions and our variables. Since we plan on a dynamic withdrawal plan, I’ll keep coming back to the tool each year to enter in my portfolio value and check in on target spend.

Here's a video that explains how to use it: https://youtu.be/CClhsaBbTm0

So if I was to recommend tools for retirement planning (some for more precision and some for more quick, rough cutting) that I’ve come back to the most:
- Precision: ERN SWR Toolbox: https://earlyretirementnow.com/2019/12/ ... s-part-33/
- Precision: FICalc.app: https://ficalc.app/
- Rough: Rich, Broke, Dead: https://engaging-data.com/will-money-last-retire-early/
- Rough: Nesteggly https://www.nesteggly.com/investment-wi ... calculator
- Rough: FireCalc (old faithful )

Especially for traditional 30 year retirement horizons, you can probably withdraw much more than you think in the current market. Check these out and let me know your thoughts. Is anyone else using the ERN SWR toolbox to determine their spending each year? Anyone currently in retirement who is using this? Would love to hear from you.

Edit: added in more clarifying context and other tools to the list

That ERN SWR calc you're using is pretty good. Based on my real world spend over 16 years of retirement (I never used their xsheet prior), I believe I can spend a certain amount going forward and after entering inputs - they show a slightly lower (~10% lower) amount. That's in the ballpark over a 40+ year period imo. That 10% diff may be the fact that future returns may be less than past due to higher CAPE10. In any event, it's close.

So if your numbers allow you confidence to retire... I'd say perhaps give yourself a buffer (lower your WRs somewhat for the first decade to gain experience) and then move on from there.

I've posted a lot on this board about how 4% withdrawal rates are too low. So it's no shocker to me that you believe you can do it at 5%. Although I will say... every .25% or so annually does start to make a diff. So start a little lower and work your way up as real world spend and confidence grows

[guyfromct]

If I recall, you’re planning on retiring, with 2 young kids, on $40k. It might work. Forcing yourself to live on that small amount of money doesn’t give you any cushion if something changes. There’s a lot that can and will go wrong in the next 60 years. Inflation, market crashes, illness, disability, divorce, college expenses, drug rehab, car problems, or stuff nobody has even thought of yet. At least some of that is likely to happen.

Retiring in your mid-30’s. Have you worked enough quarters for Social Security and Medicare?

Yes, our annual budget is around $40,000 per year, which is about 3.8% of our current portfolio. With other things that can come up like vacationing or unexpected things, knowing that 5% WR is likely safe given market conditions is nice.

Yes, the SS website estimates around 2500 per year for me, and a little less for my wife, definitely have worked past the initial bends. In my calculations I account for about $1000 a month starting at age 75 lol.

How much of the 40k can be allocated to health insurance. I don’t see that mentioned.

Padded budget:
Living/Utilities/Maintenance 600
Phones, vehicles 300
Food 1600
Medical 500
Miscellaneous, travel 500
Monthly Total 3500

annual spend 42000

What happens when you need to replace a vehicle? Where is home/car insurance? This budget seems very tight.

[TinyHouse]

If I recall, you’re planning on retiring, with 2 young kids, on $40k. It might work. Forcing yourself to live on that small amount of money doesn’t give you any cushion if something changes. There’s a lot that can and will go wrong in the next 60 years. Inflation, market crashes, illness, disability, divorce, college expenses, drug rehab, car problems, or stuff nobody has even thought of yet. At least some of that is likely to happen.

Retiring in your mid-30’s. Have you worked enough quarters for Social Security and Medicare?

Yes, our annual budget is around $40,000 per year, which is about 3.8% of our current portfolio. With other things that can come up like vacationing or unexpected things, knowing that 5% WR is likely safe given market conditions is nice.

Yes, the SS website estimates around 2500 per year for me, and a little less for my wife, definitely have worked past the initial bends. In my calculations I account for about $1000 a month starting at age 75 lol.

How much of the 40k can be allocated to health insurance. I don’t see that mentioned.

Padded budget:
Living/Utilities/Maintenance 600
Phones, vehicles 300
Food 1600
Medical 500
Miscellaneous, travel 500
Monthly Total 3500

annual spend 42000

What happens when you need to replace a vehicle? Where is home/car insurance? This budget seems very tight.

We buy $10000 reliable Japanese cars and drive them for 10 to 20 years. We just got a Highlander with 100k miles, last Toyota lasted to 300k. I do most of the maintenance myself. We do the base/minimum insurance allowed in our state, which is dirt cheap. Excellent driving records.

We live on land, no payment or insurance. Minimal property taxes and very little utilities consumed.

Again, this padded budget is 3.5-4% of our portfolio, we could easily spend 20 to 30% less if we need to without much lifestyle change. $40k is honestly lavish for us

[thedaybeforetoday]

If I recall, you’re planning on retiring, with 2 young kids, on $40k. It might work. Forcing yourself to live on that small amount of money doesn’t give you any cushion if something changes. There’s a lot that can and will go wrong in the next 60 years. Inflation, market crashes, illness, disability, divorce, college expenses, drug rehab, car problems, or stuff nobody has even thought of yet. At least some of that is likely to happen.

Retiring in your mid-30’s. Have you worked enough quarters for Social Security and Medicare?

Yes, our annual budget is around $40,000 per year, which is about 3.8% of our current portfolio. With other things that can come up like vacationing or unexpected things, knowing that 5% WR is likely safe given market conditions is nice.

Yes, the SS website estimates around 2500 per year for me, and a little less for my wife, definitely have worked past the initial bends. In my calculations I account for about $1000 a month starting at age 75 lol.

How much of the 40k can be allocated to health insurance. I don’t see that mentioned.

Padded budget:
Living/Utilities/Maintenance 600
Phones, vehicles 300
Food 1600
Medical 500
Miscellaneous, travel 500
Monthly Total 3500

annual spend 42000

What happens when you need to replace a vehicle? Where is home/car insurance? This budget seems very tight.

Agreed.
And given the way spending is grouped, I'm wondering if OP has actually tracked expenses for more than a year?
IE: what is living? Miscellaneous shouldn't exist, it's a mission creep category and it's oddly paired with travel. As are phones and vehicles an odd pairing, unless it's 1988 and it's a car phone.

[dknightd]

I do most of the maintenance myself.

Cool. I do my best. But appreciate having options.

[TinyHouse]

I find a 30% "chance" of failure rate unacceptably high, and I'm really not that risk averse.

Sure, but with the market down ~20%, it’s more like 5 to 10% chance of failure. I’m much more comfortable with 90%+ odds for planning purposes. That doesn’t take into account that we will have other potential income streams that are at 90%+ probably (SS, side income, inheritance, etc).

We can’t afford not to ”retire” early at some point. For now, OMY syndrome to pay for the house build.

No

ERN's spreadsheet, based on a revised CAPE measure, notes that historically "with the market down ~20%, it’s more like 5 to 10% chance of failure."

You may think that spreadsheet is predictive, but you are placing a lot more faith in the ability of backtesting to predict the future than I am, or that I think is warranted. And I like backtesting, in general.

So my major points are:

1) Predicting expenses 20, 30, years into the future is difficult. It is really hard so far from retirement.
2) Using backtesting to predict SWRs 50 years into the future is .... hmm.
3) Having more money gives you more options than having less money. (Most people know this, but as you get older this becomes clearer).

Retiring really early with a lean budget is risky, especially if one has the option and ability to get more financial security. It could be a valid choice, but the risk is, I believe, far higher than you think.

I'm all for retiring early if it makes sense. I did.

Do you have an alternative method you recommend for planning that gives some assurance to the investor about when they have enough to (mostly) stop working? Would love to hear if you have any actionable advice other than “save more”. How much more? You say it seems risky, but wouldn’t it be risky to not live the life I want to live when tomorrow might not come?

What makes you think my $42k budget is lean? Is providing a 20 to 30% cushion enough padding?

[TinyHouse]

I'm wondering if OP has actually tracked expenses for more than a year?

Yes, we track our expenses, and over the last 10 years we have averaged around $60,000 per year while living in a HCOL city, most recent years were around $75,000 per year. Now that we have moved tiny and don’t have mortgage or rent, living on paid off land, our $40,000 budget is quite the same great quality life, if not more lavish than we had before.

[protagonist]

I kinda agree, that the odds are a 5% withdrawal rate would last. However, what % of the time? 70%? 51%?

The whole point is that its taking into account that the current market is already 20% down, so the probability of 4.5-5% WR being successful is significantly higher.

Why would that be relevant?
Do you believe that past market performance predicts future results?

[thedaybeforetoday]

I'm wondering if OP has actually tracked expenses for more than a year?

Yes, we track our expenses, and over the last 10 years we have averaged around $60,000 per year while living in a HCOL city, most recent years were around $75,000 per year. Now that we have moved tiny and don’t have mortgage or rent, living on paid off land, our $40,000 budget is quite the same great quality life, if not more lavish than we had before.

Sounds nice.
Perhaps you could entertain us with a detailed budget like the one you use for the last 10 years?
I'm sure your like us in that the longer that we keep a budget the more we are able to hone in on those categories.

[guyfromct]

Yes, our annual budget is around $40,000 per year, which is about 3.8% of our current portfolio. With other things that can come up like vacationing or unexpected things, knowing that 5% WR is likely safe given market conditions is nice.

Yes, the SS website estimates around 2500 per year for me, and a little less for my wife, definitely have worked past the initial bends. In my calculations I account for about $1000 a month starting at age 75 lol.

How much of the 40k can be allocated to health insurance. I don’t see that mentioned.

Padded budget:
Living/Utilities/Maintenance 600
Phones, vehicles 300
Food 1600
Medical 500
Miscellaneous, travel 500
Monthly Total 3500

annual spend 42000

What happens when you need to replace a vehicle? Where is home/car insurance? This budget seems very tight.

We buy $10000 reliable Japanese cars and drive them for 10 to 20 years. We just got a Highlander with 100k miles, last Toyota lasted to 300k. I do most of the maintenance myself. We do the base/minimum insurance allowed in our state, which is dirt cheap. Excellent driving records.

We live on land, no payment or insurance. Minimal property taxes and very little utilities consumed.

Again, this padded budget is 3.5-4% of our portfolio, we could easily spend 20 to 30% less if we need to without much lifestyle change. $40k is honestly lavish for us

The $10k car of yesteryear is $15 to $20k now, a look at Camrys locally showed a 5-10 year with around 70-80,000 miles will set you back around $17k. You have substantial assets and yet you carry state minimum liability insurance? That’s nuts to me.

I’m surprised you don’t have home insurance irrespective of a mortgage. What happens if someone slips/falls? What if your house burns to the ground along with your possessions?

Some of the categories make little sense, miscellaneous for instance. $6,000 covers clothing and travel, as well as entertainment and everything else?

Also, are you planning to just not pay for your kids‘ college?

[TinyHouse]

That ERN SWR calc you're using is pretty good. Based on my real world spend over 16 years of retirement (I never used their xsheet prior), I believe I can spend a certain amount going forward and after entering inputs - they show a slightly lower (~10% lower) amount. That's in the ballpark over a 40+ year period imo. That 10% diff may be the fact that future returns may be less than past due to higher CAPE10. In any event, it's close.

So if your numbers allow you confidence to retire... I'd say perhaps give yourself a buffer (lower your WRs somewhat for the first decade to gain experience) and then move on from there.

I've posted a lot on this board about how 4% withdrawal rates are too low. So it's no shocker to me that you believe you can do it at 5%. Although I will say... every .25% or so annually does start to make a diff. So start a little lower and work your way up as real world spend and confidence grows

Great to hear from you, I really appreciate responders who actually read the OP and try the spreadsheet. Sounds like you are in a good spot, and I agree with your approach of starting smaller if possible and increasing from there.

I completely agree that even lowering your spending from say 4.5% to 4.25% can make a dramatic difference in long term outcomes, that’s something many people don’t seem to realize: how much of an impact those incremental changes make. Many folks on this forum say “I’m doing 2% WR because I’m worried that 4% won’t work”, when say around 3.75% would very likely provide the safety margin they are looking for. But hey, there’s a lot of money rich and extremely risk averse people on this forum it seems.

It’s really interesting to me how many people discount the fact that we have concrete knowledge that the current market is down 20%, and how to conservatively implement a plan with the knowledge of current market status.

[TinyHouse]

I kinda agree, that the odds are a 5% withdrawal rate would last. However, what % of the time? 70%? 51%?

The whole point is that its taking into account that the current market is already 20% down, so the probability of 4.5-5% WR being successful is significantly higher.

Why would that be relevant?
Do you believe that past market performance predicts future results?

I encourage you to read the ERN SWR series, he discusses these questions at length

[dknightd]

I can imagine driving around, and living, in a camper van. That has to be replaced occasionally.
It is nice to be able to consider options

[TinyHouse]

I'm wondering if OP has actually tracked expenses for more than a year?

Yes, we track our expenses, and over the last 10 years we have averaged around $60,000 per year while living in a HCOL city, most recent years were around $75,000 per year. Now that we have moved tiny and don’t have mortgage or rent, living on paid off land, our $40,000 budget is quite the same great quality life, if not more lavish than we had before.

Sounds nice.
Perhaps you could entertain us with a detailed budget like the one you use for the last 10 years?
I'm sure your like us in that the longer that we keep a budget the more we are able to hone in on those categories.

From up thread, with some context that may help (spending a month to month is lumpy, but annually, these buckets seem to cover everything on average):

With ACA in our state, healthcare is almost free if we were to quit our jobs at our income level, and we can apply for financial aid on any large expenses. For now, we have medical care through my employer. If ACA was to dry up, there isn’t a ton we do in the mainstream medical system anyways, we currently pay cash to doctors who are friends who help us with anything. We are not big into chemicals or surgeries or drugs, or the medical industrial complex in general. Emergencies come up, that’s why we have benefits/insurance.

Here’s our base budget that honestly we don’t see ourselves spending much more than this since it has padding, and at least for the next five years there is unlimited fun to do locally (we live in an outdoor paradise with all four seasons) at very little cost. Example, we get unlimited access to our little family boat if we pay for the gas. The local ski hill isn’t expensive. Going on hikes and bike rides is essentially free. Playing pickleball is almost free. Fishing locally doesn’t cost that much since we have the gear.

Tiny budget:
Utilities/Maintenance 600
Phones, vehicles, insurance 300
Food 1600
Medical 500
Miscellaneous 500
Total Monthly 3500
Annual: 42000

[TinyHouse]

I can imagine driving around, and living, in a camper van. That has to be replaced occasionally.
It is nice to be able to consider options

Our Tiny will stay stationary, except for minor adjustments or maintenance. It will definitely last the next 5+ years without much need for maintenance, and by that time we will have built a house/cabin on the property.

[dknightd]

I encourage you to read the ERN SWR series, he discusses these questions at length

Yes he does. I'm not seeing an answer.

[guyfromct]

I can imagine driving around, and living, in a camper van. That has to be replaced occasionally.
It is nice to be able to consider options

Our Tiny will stay stationary, except for minor adjustments or maintenance. It will definitely last the next 5+ years without much need for maintenance, and by that time we will have built a house/cabin on the property.

And there’s no cost to build? Because that’s not in the budget…

[TinyHouse]

I encourage you to read the ERN SWR series, he discusses these questions at length

Yes he does. I'm not seeing an answer.

https://earlyretirementnow.com/2022/10/ ... s-part-54/

[dknightd]

Our Tiny will stay stationary, except for minor adjustments or maintenance. It will definitely last the next 5+ years without much need for maintenance, and by that time we will have built a house/cabin on the property.

Why would you build something more, when a tiny house is good enough

[TinyHouse]

Our Tiny will stay stationary, except for minor adjustments or maintenance. It will definitely last the next 5+ years without much need for maintenance, and by that time we will have built a house/cabin on the property.

Why would you build something more, when a tiny house is good enough

Tiny is great for our current season of life, but it’s not a permanent situation, 5-7 yrs max is our target. We went from 3000 ft.² to less than 300 ft.², so going back up to a 1000 ft.² cabin (built by yours truly) at some point will be nice and seem very spacious, allow for guests to sleep over more easily, etc.

[Wannaretireearly]

I find a 30% "chance" of failure rate unacceptably high, and I'm really not that risk averse.

Sure, but with the market down ~20%, it’s more like 5 to 10% chance of failure. I’m much more comfortable with 90%+ odds for planning purposes. That doesn’t take into account that we will have other potential income streams that are at 90%+ probably (SS, side income, inheritance, etc).

We can’t afford not to ”retire” early at some point. For now, OMY syndrome to pay for the house build.

I like the way you think

[TinyHouse]

We can’t afford not to ”retire” early at some point. For now, OMY syndrome to pay for the house build.

I like the way you think

Cheers!

[TN_Boy]

stuff deleted

Do you have an alternative method you recommend for planning that gives some assurance to the investor about when they have enough to (mostly) stop working? Would love to hear if you have any actionable advice other than “save more”. How much more? You say it seems risky, but wouldn’t it be risky to not live the life I want to live when tomorrow might not come?

What makes you think my $42k budget is lean? Is providing a 20 to 30% cushion enough padding?

Based on your posts it sounds like you have around 1M, give or take a bit, and are figuring you can live off that for 30 years. You will have some SS (not a lot) and you clearly expect an inheritance. You believe based on ERNs work that you could have a "4% WR for 100% capital preservation." (Is that nominal or real preservation). You suspect you will always have a side job/income stream, and of course even 20k or so would make a big difference. Have I got that right?

You have tracked your budget and believe it to be sound. As I noted, I think it is pretty hard to know in your 30s what your spending in your 50s and 60s will be. But perhaps your interests and spending will remain relatively unchanged. I couldn't have made budget estimates at age 35 that were in the ballpark for 55. A lot changes in those years. And wow, a lot of people I know wind up spending money on their kids in various assorted ways that might have been hard to forsee when the kids were young.

I still think you are pretty cavalier about health care; you seem sure that in your state you can, at your income level, get an ACA plan that will result in minimal out of pocket costs after subsidies (i.e. premiums, prescriptions, copays, deductibles etc), even if you had an expensive problem. And I assume you've looked to see if the network itself is reasonable for such plans. You may be right; I've never priced the plans at that income level for a family of four. ACA plans in some locations are pretty good, others simply are not. If you quit your job, you'll likely be be paying dental and vision 100% out of pocket.

Somebody else asked this, but if you are building a 1,000 square foot cabin, what is your budget for materials (and labor, unless you are confident you can entirely build it yourself with the help of free labor from friends). That seems like a substantial expense, even with minimal labor costs.

Back to the insurance, you mentioned you carried the minimal insurance on your vehicles and I assume that includes liability. The minimum liability and property damage coverage in my state is a joke; if I caused even a moderately serious accident while driving I'd be facing major $$ issues were I dumb enough to carry minimum coverage. Is your money in a brokerage account? I assume so, since it is harder to access things like 401k money at your age. But I think lawsuits can go after taxable accounts quite easily. We have umbrella coverage on top of car and property insurance.

You probably are not planning on putting your kids in a lot of expensive after school activities (too bad if they really get excited about something, but many parents do go kinda crazy with that sort of thing), but how much help with college will you give them? A few years ago, four years in the better public schools in my state cost around 100k. Are you assuming that you can keep your income low enough to get sufficient financial aide to cover ALL costs? Or do you figure the kids can figure out a way to pay for college, if they want to go? Speaking of kids, if one of them has mental health issues, substance abuse issues, etc will the ACA plan cover counseling, etc? Or will all that come out of your pocket?

You place far far more confidence in ERNs spreadsheet calculations than I do. For example, the assumption that at 4% draw rate, you wind up in 30 years with the same size portfolio (again, nominal or real?). I think that a massive risk; many of the successful sequences in the standard SWR studies leave you with relatively little money at the end of 30 years. You succeeded, but living much longer doesn't work. But of course if you are confident of a large inheritance, maybe that's okay.

So yeah, I wonder if your budget projections are as good as you think, and I think your belief in the precision of ERN's projections is too strong.

There are really two separate issues here, right? One is simply the lifestyle you want. A person with $100M could decide to have a minimalist lifestyle, not because they have to, but maybe they want to have a smaller carbon footprint, and they don't want or need more "stuff."

But the other issue is how much financial security do you want to try and get for your family? An all consuming quest to acquire more money is bad. But putting together a big enough pile to help the kids if they need it (not just when they are kids, but as adults) and also cover any LTC needs you might have in later life, well, that doesn't sound so bad. If you really quit now, you'd potentially be throwing away the chance to accumulate enough money to make a difference later. Many people in the US live on slim budgets and it all winds up okay. But you need some luck. Having more money reduces the amount of luck you need, frankly.

[TinyHouse]

stuff deleted

Do you have an alternative method you recommend for planning that gives some assurance to the investor about when they have enough to (mostly) stop working? Would love to hear if you have any actionable advice other than “save more”. How much more? You say it seems risky, but wouldn’t it be risky to not live the life I want to live when tomorrow might not come?

You place far far more confidence in ERNs spreadsheet calculations than I do. For example, the assumption that at 4% draw rate, you wind up in 30 years with the same size portfolio (again, nominal or real?). I think that a massive risk; many of the successful sequences in the standard SWR studies leave you with relatively little money at the end of 30 years. You succeeded, but living much longer doesn't work.

You didn’t really answer my questions. Again, I’d love to hear any specific feedback you have about the ERN toolbox. It provides calculations on what’s been possible throughout US history given certain market conditions and variables. This toolbox is inherently conservative, and the calculations are not much different than many retirement calculators or what financial advisors would say. What do you not trust about his toolbox? What would you improve to make it reliable enough to be a solid planning tool for 30+ year periods? What tools do you use instead?

[Marseille07]

You didn’t really answer my questions. Again, I’d love to hear any specific feedback you have about the ERN toolbox. It provides calculations on what’s been possible throughout US history given certain market conditions and variables. This toolbox is inherently conservative, and the calculations are not much different than many retirement calculators or what financial advisors would say. What do you not trust about his toolbox? What would you improve to make it reliable enough to be a solid planning tool for 30+ year periods? What tools do you use instead?

If your living expenses can be paid by 4% WR, I think you're all set. I personally wouldn't do 5% when your expected retirement horizon is pretty long. 5% won't crash & burn, but your portfolio might run pretty thin if the markets don't return well.

[randomguy]

We have sort of reached the end point of all these discussions. We have hit the
- Can you really live on that? After all there is no way I could live on X. We will end up debating life choices forever. Yeah I would save for my kids college education. I know other people feel differently. And so on down the list.

- What if accident x happens? Yep you sure would like to have more money. But you will find someway to survive the same way people who make 40k and have those same things happen.

-I think a x% chance of failure is ok. Hey we can debate that forever. Some want to push that to 0.0001%. Others can live with 10%

-Well I will just spend x% less for a while. Ok. This basically goes back to the first point. You don't need a lot of money to live. But it is up to you if you want to live that way. It is very hard to comment on this.It is easy to say I will just spend 20% less for a decade. But what will be the cost? After all I assume you are getting soemthing out of that spending today..

The only interesting part left to me (you are free to feel differently about it), is the question is 5% as safe as 4% a year ago? The answer is sort of. The person taking out 40k last year out of 1 million and the person taking out 40k this year out of an 800k portfolio will have roughly the same fate (1 portfolio has to last 1 year longer). But and here is the part that seems to get ignored is that the risk of taking 40k out of 800k isn't 5% like it was when you were taking 40k out of 1 million at the start. It is much higher. You could run a simulation to get the an exact number but I came up with a roughly 20% risk of failure when you lost 20% in year 1 when I looked at something similar a while back. If you don't understand why, think of it in this very simplified way. We started with 95 paths to success and 5 to failure. 80% of the time the portfolio went up in year 1 and you never failed. 20% of the time, it went down and 15 worked and 5 failed. What are our chance of failure? 5/20. Those 80 cases where the market went up in year one no longer exist for us. We only exist in the cases where you lose money in year 1. And it is probably worse than that since a -20% loss is at the higher end of the bad cases...

Now you could argue that the risk a year ago wasn't 5% either. Maybe after a 10+ year bull market, the real risk was more like 10%. I haven't looked into that. It is hard to figure out how you want to account for preconditions (PE10s have the whole problem that the definition of earning is constantly changing and the industrial make up also changes over time, just market gains is easy but doesn't factor in economic growth,...) and outside extremes (and yes 27+ PE10s might turn out to be an extreme) the effect tends to be pretty small.

[thedaybeforetoday]

I'm wondering if OP has actually tracked expenses for more than a year?

Yes, we track our expenses, and over the last 10 years we have averaged around $60,000 per year while living in a HCOL city, most recent years were around $75,000 per year. Now that we have moved tiny and don’t have mortgage or rent, living on paid off land, our $40,000 budget is quite the same great quality life, if not more lavish than we had before.

Sounds nice.
Perhaps you could entertain us with a detailed budget like the one you use for the last 10 years?
I'm sure your like us in that the longer that we keep a budget the more we are able to hone in on those categories.

From up thread, with some context that may help (spending a month to month is lumpy, but annually, these buckets seem to cover everything on average):

With ACA in our state, healthcare is almost free if we were to quit our jobs at our income level, and we can apply for financial aid on any large expenses. For now, we have medical care through my employer. If ACA was to dry up, there isn’t a ton we do in the mainstream medical system anyways, we currently pay cash to doctors who are friends who help us with anything. We are not big into chemicals or surgeries or drugs, or the medical industrial complex in general. Emergencies come up, that’s why we have benefits/insurance.

Here’s our base budget that honestly we don’t see ourselves spending much more than this since it has padding, and at least for the next five years there is unlimited fun to do locally (we live in an outdoor paradise with all four seasons) at very little cost. Example, we get unlimited access to our little family boat if we pay for the gas. The local ski hill isn’t expensive. Going on hikes and bike rides is essentially free. Playing pickleball is almost free. Fishing locally doesn’t cost that much since we have the gear.

Tiny budget:
Utilities/Maintenance 600
Phones, vehicles, insurance 300
Food 1600
Medical 500
Miscellaneous 500
Total Monthly 3500
Annual: 42000

Ok I get it, that's as detailed as you want to post and it's not why you posted the OP and you may not wish to invite further scrutiny.

OP, you, understandably, want an answer to your question about the big ERN tool box, which seems to be of interest to you ( although you seem all in on the big ERN). Some other posters, like myself, are curious about your lifestyle and choices.

That said, I'm not all that interested in your question and you don't seem all that interested in what most are curious about with regards to your choices and process. You hooked me with the title of your post.
Each to his/her own right?
Now I'm un hooked.
Seems this thread may have run it's course, at least for me.
Best of luck!

[wfrobinette]

deleted

[wfrobinette]

deleted

[TN_Boy]

stuff deleted

Do you have an alternative method you recommend for planning that gives some assurance to the investor about when they have enough to (mostly) stop working? Would love to hear if you have any actionable advice other than “save more”. How much more? You say it seems risky, but wouldn’t it be risky to not live the life I want to live when tomorrow might not come?

You place far far more confidence in ERNs spreadsheet calculations than I do. For example, the assumption that at 4% draw rate, you wind up in 30 years with the same size portfolio (again, nominal or real?). I think that a massive risk; many of the successful sequences in the standard SWR studies leave you with relatively little money at the end of 30 years. You succeeded, but living much longer doesn't work.

You didn’t really answer my questions. Again, I’d love to hear any specific feedback you have about the ERN toolbox. It provides calculations on what’s been possible throughout US history given certain market conditions and variables. This toolbox is inherently conservative, and the calculations are not much different than many retirement calculators or what financial advisors would say. What do you not trust about his toolbox? What would you improve to make it reliable enough to be a solid planning tool for 30+ year periods? What tools do you use instead?

I had specific comments about your expenses, but I think you decided you know a lot more about your expenses than we do and are not interested in our opinions on this topic.

But to the toolbox, first I am generally skeptical of how good any "expected return" predictions are, except at a very high level. And equally amused by how rapidly they change. Here is the quote from your OP:

I use his custom “CAPE2” and take into account very discounted SS and super small side income starting in 30 years, and it says I'm around 5% starting target WR for my ~700 month time horizon (ending portfolio of $300k), and a 4% WR for 100% capital preservation. This looked more like 4.5% and 3.6% respectively back in January 2022.

So what the toobox is saying is that based on ONE year in the markets, 2022, the SWR rate changed from 4.5 to 5%. Put another way, based on ONE year's change in *expected* return, you can pull 10% more (5% versus 4.5%) from the portfolio. For 30 years. Really? That truly makes sense to you? One year's change can affect 30 years that much? That is some toolbox.

There are other things I would quibble with, and I'll note that I actually like the ERN website, and sure, I can see why you would listen more to what he says than me .

But let's take his custom CAPE2. He started down that path because the basic CAPE has been, like, wrong for most of the last 12 years or so. So he fixes it, as described in https://earlyretirementnow.com/2022/10/ ... ape-ratio/

And tweaks it a lot. He decides that Schiller missing 3 months of data (for a 10 year estimate) is a major deal, so he fixes that, by using better data, including a small use of projected earnings (i.e. guesses). He uses month end index levels versus monthly average index levels (this actually makes sense to me). And then he adjusts for corporate taxation and "retained earnings," the latter explanation which candidly sort of made my head explode. But anyway, after all these tweaks, he now has a model that makes CAPE work "better." And maybe he is really onto to something. And maybe he has data mined the heck out of things and this new metric is not truly any better than the old CAPE. We don't know yet.

Now I'd assume, but didn't really see (perhaps this is in one of his other posts) that this level of detail on the CAPE stuff only applies to US stocks, perhaps only S&P 500. What if you have foreign stocks? What if you own TIPS instead of nominal bonds? Probably all this stuff still kinda works.

Anyway, your big question, okay bright boy, how would you estimate your SWR? And I personally think something like 4% or less for a inflation adjusted SWR is still the right ballpark, because a number of studies wind up around there. Maybe a bit less than 4% if you are conservative. To be clear, the problem is unsolvable. You do not know what the returns will be in the future, nor do you know what your expenses will be. That is why many people get conservative as they look at stuff that has happened to other people. Anybody that thinks they can predict 30 years into the future is kidding themselves.

If you are using a dynamic withdrawal method, you have to hope that your return estimator is better than the old CAPE has been for the last decade (there are various ways to guess at returns). And I suspect you figure you'll be doing some side work, and will have an inheritance and thus will be fine. Which is probably true. I think you are more likely to have issues with your expense projections than your portfolio return projections.

[randomguy]

Where are you getting medical insurance for a family at $500? Full time working for large corps I can’t even get it all for $500 let alone any co-pays or out of pocket. But non-working I believe that number to be extremely low. I had one year of bad luck and hit full out of pocket maximums. Which eclipsed the $6000 you have budgeted by $7500.

In my state, a family of 4 making 40k/year gets a 1300/month subsidy. A silver plan with an out of pocket limit of 6000 costs about 1200/month at my age. So basically you just have to pay the deductibles. There should even be some support for paying the deductible. Now that doesn't include things like adult dentists and things like eyewear. 6k seems like a pretty reasonable guess to me. Obviously this is all situational. If you are spending 100k/year, I would need like 20k/year for health care.

[randomguy]

I think you are more likely to have issues with your expense projections than your portfolio return projections.

The thing with expense projections is that you will adapt your life to meet them. How that 40k gets spend might not match your projections but you will find a way to live with the money you have. Maybe you take 3k from the vacation fund and it goes to the health care or home repair. Or vice versa. Now if you would have been happier working more so you could spend say 60k instead of 40k is a guessing game. I know my personal comfort level is up at more like 80k but there is always location and personal preferences. I know I could live on 30k. I just don't want to.

[TN_Boy]

I think you are more likely to have issues with your expense projections than your portfolio return projections.

The thing with expense projections is that you will adapt your life to meet them. How that 40k gets spend might not match your projections but you will find a way to live with the money you have. Maybe you take 3k from the vacation fund and it goes to the health care or home repair. Or vice versa. Now if you would have been happier working more so you could spend say 60k instead of 40k is a guessing game. I know my personal comfort level is up at more like 80k but there is always location and personal preferences. I know I could live on 30k. I just don't want to.

Up to a point. The lower the your spending level, the harder those adaptions are to make. At our spending level, it would be relatively "easy" to make different spending choices. At 40k I just think that is harder, for the obvious reason that a higher percentage of your spending is required. Also the OP is not single. The OP has a spouse and 2 kids. So adaptations have to work around the needs of four people, not one. Like you, I *could* live on 30k, but really really would rather not. And at a 30k budget, there wouldn't be any money to do things like save for retirement (or kids college ...).

That said, I'm sure the OP would go back to work if expense projections are wrong, hopefully to a reasonable job. Then of course you have to play the ACA game ... if your job doesn't provide full family health care, you have to watch what increased income does to subsidies.

Honestly, I think part of the reaction some of us are having, and I'm being candid, is that I'd worry about ensuring I had more financial security for my kids, not just enough money to live the lifestyle *I* wanted. But that is a choice/judgment call. More money gives you more security. Where on the spectrum of "working 80 hours a week" versus "quit in your 30s and don't spend a lot of money" a person falls is of course a personal choice. Money gives you additional ability to handle some problems, and it gives you some different options. Then again, freedom from a 9 to 5 job also gives you options.

[randomguy]

Up to a point. The lower the your spending level, the harder those adaptions are to make. At our spending level, it would be relatively "easy" to make different spending choices. At 40k I just think that is harder, for the obvious reason that a higher percentage of your spending is required. Also the OP is not single. The OP has a spouse and 2 kids. So adaptations have to work around the needs of four people, not one. Like you, I *could* live on 30k, but really really would rather not. And at a 30k budget, there wouldn't be any money to do things like save for retirement (or kids college ...).

That said, I'm sure the OP would go back to work if expense projections are wrong, hopefully to a reasonable job. Then of course you have to play the ACA game ... if your job doesn't provide full family health care, you have to watch what increased income does to subsidies.

Honestly, I think part of the reaction some of us are having, and I'm being candid, is that I'd worry about ensuring I had more financial security for my kids, not just enough money to live the lifestyle *I* wanted. But that is a choice/judgment call. More money gives you more security. Where on the spectrum of "working 80 hours a week" versus "quit in your 30s and don't spend a lot of money" a person falls is of course a personal choice. Money gives you additional ability to handle some problems, and it gives you some different options. Then again, freedom from a 9 to 5 job also gives you options.

You don't need to save for retirement when you are retired:) You are right that in it is mainly people projecting. The go I spend 80k, how can someone live on 40k? I want to pay for my kids college, how come someone else doesn't? And so on. I have to assume the OP knows what makes them happy. But it appears what makes them happy isn't retiring and living 5%. There is a reason why they haven't pulled the trigger... It is in the maybe I could do it category rather than the I want to do it.

[TinyHouse]

I have to assume the OP knows what makes them happy. But it appears what makes them happy isn't retiring and living 5%. There is a reason why they haven't pulled the trigger... It is in the maybe I could do it category rather than the I want to do it.

I never really plan to retire, but we are totally comfortable/happy quitting corporate America right now, the only reason why we continue to suffer from OMY syndrome is to fund our house build. Once we have that funded, we will live off of the current portfolio as planned. We have made good progress saving for the house (separate from our portfolio discussed in OP), so hoping by June 2024 it’s all funded. If we never end up building, it just makes the portfolio that much bigger, but I bet we will in the next couple years.