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zuma
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by zuma »

Houdini563 wrote: Sat Jan 15, 2022 6:08 pm Also Social security uses your top 35 years of salary history to determine annual benefits. You may only have 20 of these 35 years in place which will dramatically reduce your payout.
OP's calculation already assumes $0/year for income going forward.
Last edited by zuma on Sun Jan 16, 2022 3:45 am, edited 1 time in total.
goaties
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by goaties »

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JDave
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by JDave »

If you are planning on retiring early, and are worried about healthcare costs, I STRONGLY recommend you start a Health Savings Account immediately, and put as much money in it as possible.
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Wricha
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Wricha »

I am not anti FIRE. I am much older and was on the FIRE train 30+ years ago and there were plenty of empty seats. I did retire at 55 which was early for my peer group. Financially, I could of easily left the work force in my late 40’s. Getting out at 40 maybe financially possible although (personally, set a much higher number for expenses) I think your number is cutting it too close. Realistically I would budget expenses at twice your number. Why, life happens that means going through the stages of life changes a person. You will not be the same person at 50 that you are now and at 60 it might be tough to even relating to the person you are now. I am not talking about a partner, kids, or even health just your own individual growth. These changes will ultimately cost you more resources. If you were 70 and said you were going to ride out your current lifestyle I would say have at it. At 40 I don’t think anyone (very few) are capable of knowing themselves that well otherwise monasteries will be a growth business (think Monastic REIT)
Joseph Campbell said some like this when you have psychological issues (and they will come) before 40 you need to grow up/take responsibility after 40 you are looking at a spiritual crisis. See what you have to look forward to! Gook luck.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by fortunefavored »

Wricha wrote: Sun Jan 16, 2022 7:29 am ... life happens that means going through the stages of life changes a person. You will not be the same person at 50 that you are now and at 60 it might be tough to even relating to the person you are now. I am not talking about a partner, kids, or even health just your own individual growth. These changes will ultimately cost you more resources. If you were 70 and said you were going to ride out your current lifestyle I would say have at it. At 40 I don’t think anyone (very few) are capable of knowing themselves that well otherwise monasteries will be a growth business (think Monastic REIT)
Joseph Campbell said some like this when you have psychological issues (and they will come) before 40 you need to grow up/take responsibility after 40 you are looking at a spiritual crisis. See what you have to look forward to! Gook luck.
As a counter example, I'm pretty much the same person I was at 30 as I am near 50. My spouse and family would agree. I suppose it depends on how well you know yourself. Even the practical things (kids, etc) I never wavered on. I'll let you know in another 10 years if that continues to 60.

If you had handed me enough money for my expenses at 30 vs. now, I would have been just fine and quite happy to not have wasted nearly 2 additional decades working for The Man. Unfortunately I had to work those 2 decades to make enough money for the lifestyle I wanted at 30.
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Wricha
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Wricha »

fortunefavored wrote: Sun Jan 16, 2022 7:56 am
Wricha wrote: Sun Jan 16, 2022 7:29 am ... life happens that means going through the stages of life changes a person. You will not be the same person at 50 that you are now and at 60 it might be tough to even relating to the person you are now. I am not talking about a partner, kids, or even health just your own individual growth. These changes will ultimately cost you more resources. If you were 70 and said you were going to ride out your current lifestyle I would say have at it. At 40 I don’t think anyone (very few) are capable of knowing themselves that well otherwise monasteries will be a growth business (think Monastic REIT)
Joseph Campbell said some like this when you have psychological issues (and they will come) before 40 you need to grow up/take responsibility after 40 you are looking at a spiritual crisis. See what you have to look forward to! Gook luck.
As a counter example, I'm pretty much the same person I was at 30 as I am near 50. My spouse and family would agree. I suppose it depends on how well you know yourself. Even the practical things (kids, etc) I never wavered on. I'll let you know in another 10 years if that continues to 60.
If you had handed me enough money for my expenses at 30 vs. now, I would have been just fine and quite happy to not have wasted nearly 2 additional decades working for The Man. Unfortunately I had to work those 2 decades to make enough money for the lifestyle I wanted at 30.
Great let me know, I am not sure whether you bragging or complaining 😀
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by danaht »

If you are renting - your rent is likely to go way up in the next few years. Home prices in many areas went up 40% in the last two years. Rents are going to have to adjust upwards to catch-up with the new real estate costs. Even if you are not renting -you might be forced to pay a lot more in real estate taxes if your in a state that does not have a property tax increase limit for primary homes. The assessed property tax values still have not caught up yet to the rapid rise in prices. This is one of the reasons I am leaving Texas for Nevada - although I am sure I'll find somethings in NV to be more expensive than TX. Not sure if your plan really accounts for the level of inflation that may persist in the next few years. It might be better for you to work a couple more years in order to relocate to a lower cost area and buy your "retirement" home - where your plan has a better chance of working.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Compound »

I think OP will be fine, as long as they maintain a solid backup plan. Expenses are very low, so if the investment numbers start trending down to a point where OP needs to reevaluate their plan, OP should be able to easily get a relatively low paying job or part time job and do just fine. Not saying this is the strategy I would take, but the OP seems convinced on retiring now, and I think they will do fine.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by LFKB »

feh wrote: Thu Jan 13, 2022 5:13 pm Without getting into the details of your plan, my opinion is: no, this won't work.

3.5% for >50 years is likely to fail.
Fire calc has it at a 99% success rate for 61 years and that excludes impact of social security
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by TitaniumCranium »

LFKB wrote: Sun Jan 16, 2022 9:17 am
feh wrote: Thu Jan 13, 2022 5:13 pm Without getting into the details of your plan, my opinion is: no, this won't work.

3.5% for >50 years is likely to fail.
Fire calc has it at a 99% success rate for 61 years and that excludes impact of social security
Entering a time horizon that is greater than 55 years has the effect of 1966 - one of the worst years, if not THE worst year for one to retire - being omitted from the FireCalc calculations.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by quantAndHold »

goaties wrote: Sun Jan 16, 2022 5:51 am -- Or, go without permanent housing. Many people are these days. "Vanlife" is a thing. Some people make it work without it being a miserable business. You might be one of them.
If you want to do that, at least read Nomadland first. It is not an easy life. We travel several months per year, and know a lot of vandwellers. A few people find it rewarding, at least for awhile, but most of the people I’ve met are really doing it because they got priced out of their previous life. I can’t imagine someone who wants to sit in the house all day playing video games would be happy living in a van for several decades. For one thing, it takes effort to get reliable internet.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by randomguy »

TitaniumCranium wrote: Sun Jan 16, 2022 10:00 am
LFKB wrote: Sun Jan 16, 2022 9:17 am
feh wrote: Thu Jan 13, 2022 5:13 pm Without getting into the details of your plan, my opinion is: no, this won't work.

3.5% for >50 years is likely to fail.
Fire calc has it at a 99% success rate for 61 years and that excludes impact of social security
Entering a time horizon that is greater than 55 years has the effect of 1966 - one of the worst years, if not THE worst year for one to retire - being omitted from the FireCalc calculations.
And if you just run a 54 year period you are up at 96% success rate. Calling a 4% chance likely is a stretch. You can even shove in all sorts of pessimistic stuff and it gets hard to get over a 50% failure rate.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by randomguy »

danaht wrote: Sun Jan 16, 2022 8:14 am If you are renting - your rent is likely to go way up in the next few years. Home prices in many areas went up 40% in the last two years. Rents are going to have to adjust upwards to catch-up with the new real estate costs.
No they don't. Real estate investing could also become less profitable (i.e. much lower cap rates and you need appreciation to make things work out). Or house prices can plummet as the run up caused by low interest rates fades away. Rental prices aren't driven by the solely by the cost of real estate. They are driven by the supply and demand. The ratio of rent to buying can shift some of the demand around
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by sailaway »

quantAndHold wrote: Sun Jan 16, 2022 10:16 am
goaties wrote: Sun Jan 16, 2022 5:51 am -- Or, go without permanent housing. Many people are these days. "Vanlife" is a thing. Some people make it work without it being a miserable business. You might be one of them.
If you want to do that, at least read Nomadland first. It is not an easy life. We travel several months per year, and know a lot of vandwellers. A few people find it rewarding, at least for awhile, but most of the people I’ve met are really doing it because they got priced out of their previous life. I can’t imagine someone who wants to sit in the house all day playing video games would be happy living in a van for several decades. For one thing, it takes effort to get reliable internet.
Alternative, mobile housing isn't without it's challenges, but Nomadland is focused on people with very, very limited resources. It's a lot different when replacing the tires doesn't mean going without food or when you can afford to choose a nice campground for a week while you fix your generator.

Hopefully, Starlink and ilk can sort out the reliable internet thing soon.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by TitaniumCranium »

randomguy wrote: Sun Jan 16, 2022 10:20 am
TitaniumCranium wrote: Sun Jan 16, 2022 10:00 am
LFKB wrote: Sun Jan 16, 2022 9:17 am
feh wrote: Thu Jan 13, 2022 5:13 pm Without getting into the details of your plan, my opinion is: no, this won't work.

3.5% for >50 years is likely to fail.
Fire calc has it at a 99% success rate for 61 years and that excludes impact of social security
Entering a time horizon that is greater than 55 years has the effect of 1966 - one of the worst years, if not THE worst year for one to retire - being omitted from the FireCalc calculations.
And if you just run a 54 year period you are up at 96% success rate. Calling a 4% chance likely is a stretch. You can even shove in all sorts of pessimistic stuff and it gets hard to get over a 50% failure rate.
Just pointing out a fact.
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quantAndHold
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by quantAndHold »

sailaway wrote: Sun Jan 16, 2022 10:25 am
quantAndHold wrote: Sun Jan 16, 2022 10:16 am
goaties wrote: Sun Jan 16, 2022 5:51 am -- Or, go without permanent housing. Many people are these days. "Vanlife" is a thing. Some people make it work without it being a miserable business. You might be one of them.
If you want to do that, at least read Nomadland first. It is not an easy life. We travel several months per year, and know a lot of vandwellers. A few people find it rewarding, at least for awhile, but most of the people I’ve met are really doing it because they got priced out of their previous life. I can’t imagine someone who wants to sit in the house all day playing video games would be happy living in a van for several decades. For one thing, it takes effort to get reliable internet.
Alternative, mobile housing isn't without it's challenges, but Nomadland is focused on people with very, very limited resources. It's a lot different when replacing the tires doesn't mean going without food or when you can afford to choose a nice campground for a week while you fix your generator.

Hopefully, Starlink and ilk can sort out the reliable internet thing soon.
I know people who are full timing with more money than OP has, and they still have issues with getting medical and dental care, or finding a place to camp when one person is in a big city hospital for several weeks, or needing emergency repairs in the middle of the Utah wilderness. They have nicer RVs, and don’t have to take the terrible jobs that the Nomadland people do, but living that way still requires a healthy sense of adventure and some sacrifices. It also isn’t particularly cheap. Between depreciation, insurance, registration, maintenance, repairs, diesel, camping fees and whatnot…the small apartment OP is in would be cheaper. I mean, we find it rewarding to do, but if we were doing it to save money, we wouldn’t do it.

Starlink is promising for the rest of us who just want to stream video, but it will never provide the low latency that a gamer needs, because of physics. It takes awhile to get the signal up to the satellite and back.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by rhubarbpie »

GerryL wrote: Sat Jan 15, 2022 4:03 pm
Charon wrote: Sat Jan 15, 2022 10:42 am So I'm not going to argue with your math, but I personally would find your plan extremely risky because of the lack of flexibility on spending. And for all the people saying that it's super easy to find a job to add some income - no, it's not always. Right now it's super easy, at extremely low unemployment rates (though one reason it's easy to find a McJob is because they are so terrible people keep quitting them). But sometimes it's very difficult to find a job, and those periods are often also times when the market is substantially down (March 2020, 2008-9).
And in case no one has mentioned it yet: age discrimination is real.
When you're in your 30s and have never had much trouble landing a job, it's hard to imagine being ignored by hiring managers because you are older than them. Being out of the job market for an extended period AND being visibly older than other candidates can put you at a real disadvantage if/when you decide you need to go back to work.
I do have to agree with these points; as I get midway through my forties I am experiencing this more and more. I was out of the workforce for a while in my 30s and it was difficult to get back in. A few years ago I chose to retrain in a field that's almost always hiring, and so far it's worked well for me, but it's also a physically and emotionally demanding job so I don't know how long I will be able to keep doing it.

I am not all doom and gloom about the OP's plan, though; they seem to have thought it through and know themselves very well. If I were in their shoes I'd definitely want to adjust my AA. 94% equities when entering the/a drawdown phase seems crazy high to me.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by StevieG72 »

fortunefavored wrote: Thu Jan 13, 2022 5:28 pm You have enough money to take time off, no question. Call it "a pause in working of indefinite period" and people will be more enthusiastic.

The biggest variable is always expenses. At 39, things can still change a lot.. your desires.. marriage.. kids.. elderly support.. only you can know how locked in that is. With a low spend, you just don't have a lot of room to cut if things go wrong. One big change blows your 3.5% SWR right outta the water. This blog posting should be required reading for 30-something early retirees: https://livingafi.com/2021/03/17/the-20 ... nt-update/

I'm a big proponent of FIRE, because work is awful for many people, regardless of how many others claim you should be able to find something you love (or at least tolerate.) Some personalities will just never fit into work expectations. I hated work from the day I punched my first time card to the day I walked out the door as a mid level exec 30 years later.

I wish you the best of luck.
Thanks for posting the linked article, good read.
Fools think their own way is right, but the wise listen to others.
donall
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by donall »

Predicting out to sixty years is a guess at best. This situation just seems like my best friend’s plan to just answer 70 questions on the US History exam in high school to pass. Why do the bare minimum when answering more questions than 70 would be a much better strategy. And yea, my friend got 69 right.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by jh »

.....
Last edited by jh on Tue Jan 18, 2022 3:36 am, edited 1 time in total.
Retired in 2022 at the age of 46. Living off of dividends.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Flight Plan »

fortunefavored wrote: Thu Jan 13, 2022 5:28 pm ...This blog posting should be required reading for 30-something early retirees: https://livingafi.com/2021/03/17/the-20 ... nt-update/
I read most of that article, and although the guy does a great job writing it (really, it was TLDR but I read it anyway, it was so well written!), it sure did sound like his early retirement attempt was one big hot mess, particularly the part where he lost his wife because he mostly wasn't listening to her. My interpretation only, of course. But still.

Oh sure, he came out of early retirement and went back to work, and STILL ended up with a 20% gain in his still-untouched retirement accounts for all that time he didn't work. That's crazy good, but just "gaining money" is not necessarily a mark of a successful retirement; not when all the other parts of his life were quite and well broken.

-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

Okay, now for this. I read most of the first page of responses to the OP and I have not yet read anybody's thoughts on his early retirement plans in the face of ever-skyrocketing INFLATION and RISING TAXES. I'll keep reading after I post this, but we sure do seem awfully quiet about this.

I get it; it's hard to calculate. But I suggest to you all that it's not THAT hard to estimate and plan for. One thing is for sure: I really don't think an $880,000 nest egg is enough to cover inflation if inflation continues to grow at a pace that outstrips the growth of our investments in the next 30 years as it has in 2021.

And this guy is hoping to be in retirement for as much as 60 years! $880K and only spending $30K to run his household?

I submit to you: Not in THIS economy! Have any of you been grocery shopping in the last 2 or 3 months? Yikes, the price hikes on meat, chicken, seafood, and anything else you might eat with those things just since Halloween are enough of a horror show to make even Lon Cheney blush and run away scared!

And why are we ignoring taxes too? With all the spending going on, if we're not growing the economy (and right now I'd argue that we're not), then eventually a majority of 435 "helpful somebodies" will decide to raise taxes for pretty much everybody, including retirees too. And then a majority of 100 other "helpful somebodies" will agree to it and all it'll take is one signature to make it the law of the land. And maybe early retirees will get hit more. "Fair Share" and all, don't you know.

I can't foretell the future, of course. But I can certainly calculate a worst-case scenario for myself with 2021 as a starting point. Your thoughts on how this might impact the OP of this thread...and the rest of us too?
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aaaaaa111111
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Post by aaaaaa111111 »

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calwatch
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by calwatch »

While it is not allowed by forum policy to speculate on future taxes, I can say that for the history of the United States to this date the income taxes on someone making the per capita income in the United States ($34,000 a year in 2019) have been pretty minimal ($2,422 after standard deduction, or around 7% of total income). The tax code is very progressive and income is not growth in assets, despite what some journalists may make of it.

There are the early retirement extreme types who start dumpster diving and living the van life. For $35,000 a year you can aspire to much better than that, although not a single family house with a yard (unless you become roommates with someone).

As for whether $880,000 is not enough when inflation is considered, if you fix your housing costs either through a rent controlled apartment or through home ownership in a jurisdiction with a cap in the rate of tax and/or assessed value growth, I think it's enough. Housing is the number one cost most people have and can be the most volatile, especially once a lease period expires. Food can fluctuate up and down depending on what is in season and what is in excess supply. Transportation can be ameliorated by biking, busing, or walking for more trips. People can substitute different kinds of entertainment that they enjoy. Enough doesn't mean that it's sufficient for my tastes perhaps, but it's enough at $30,000 a year to avoid being on the dole. You could always move to a lower cost of living area. You could always take a seasonal job for retail, tax season, or summer tourist season if needed. I think it would end up being a fairly spartan lifestyle but it's also at a level much higher than the many people you see begging on GoFundme for various needs.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Marseille07 »

aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am But I'd like to focus on the third for a moment, specifically one point that came up a lot: asset allocation. After all it's going to be relevant whether I start withdraws in 1 year or 10 years, so I'd love to have a better idea of how to approach it regardless.
If 3.5% SWR is used, I'd recommend 90/10. Maybe 95/5 but you have to have diamond hands not to panic sell. I agree that you have to be aggressive here, stuff like 60/40 is stable but you need growth here not stability.
calwatch
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by calwatch »

aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am I know there are many opinions on this, and technically 100% stocks are the best return on average, but if you get smacked with an unlucky sequence of returns you can still fail. I understand that, and one of the first things I came to this forum for was to ask a question about fund exchanges, because I was contemplating rebalancing.

I just don't know the smartest way to go about it. To recap what I've got now:
59% - taxable 100% stock [VFIAX]
22% - trad IRA 90% stock [VFIFX]
19% - roth IRA 90% stock [VFIFX]

IRA rebalancing: no tax/aca effect, but won't be my source of withdraws in the early years.
Taxable rebalancing: some tax/aca effect, but will also be my initial source of withdraws, when risk is highest.
• (At a minimum I could turn off dividend reinvestment on the taxable account this year before starting withdraws, and buy a non-stock fund with that money. But dividends are only ~$6-7k/yr based on recent history.)

As for the IRAs, would you advise rebalancing now even if I won't touch most of what's in them for 20.5 years?
If so would best practice be ~30% bonds? I could always switch from the Vanguard Target 2050 fund (10% bond/VFIFX) to, say, the 2030 (33% bond/VTHRX).

I already have my healthcare lined up and two months of premiums w/subsidy paid for this year, so I'm not sure I want to rock the boat too much on the 2022 income I already reported to my state's exchange.
But I could take a subsidy hit and rebalance the taxable account to be less stock-focused next year (regardless of whether I start withdraws or not).
If so, is there a well-regarded, widely-used, low-expense Vanguard fund that fits? They have a bewildering number of options to choose from.

While I don't necessarily need to be 90% stocks, I don't want to go overly conservative either, since stifling future returns is a risk as well. Just need to get the right balance...
If you are going to do any taxable income balancing you might as well bite the bullet and do it earlier than later, because the ACA subsidy is worth more when you get older (because the premiums are higher). Assuming you have continually reinvested dividends you should have some amount of money that you can sell with a small amount of gain, so I would start with that and put them in I Bonds to reduce sequence of return risk.

Also, you might consider a quality Vanguard balanced fund for your tax advantaged accounts. Many people like Wellington (VWELX/VWENX), even though it is actively managed, for its almost century long track record, low fees, and investment in blue chip stocks. It is 2/3 stock and 1/3 bond. It only holds 70 stocks but they tend to be the companies in each of the sectors with the longest track record - the top five are Microsoft, Google, Facebook, Charles Schwab, and Apple. The bonds are high quality corporate bonds with some Treasuries, and an average maturity of eight years. The expense ratio is only 0.16% at the Admiral level, or about double that of balanced index.

Past performance yadda yadda but here is a comparison:

Image

Wellesley is the inverse version, a 1/3 stock 2/3 bond fund (although currently at 40% stock, which is on the high end for them), also quality stocks and bonds. If you want index versions, you could try a LifeStrategy fund or Balanced Index, although they will hold the high flying companies in proportion to their current capitalization. This is probably better than signing on to a target date type fund since you aren't necessarily using it for targeting purposes.
zuma
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by zuma »

Marseille07 wrote: Mon Jan 17, 2022 12:38 am
aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am But I'd like to focus on the third for a moment, specifically one point that came up a lot: asset allocation. After all it's going to be relevant whether I start withdraws in 1 year or 10 years, so I'd love to have a better idea of how to approach it regardless.
If 3.5% SWR is used, I'd recommend 90/10. Maybe 95/5 but you have to have diamond hands not to panic sell. I agree that you have to be aggressive here, stuff like 60/40 is stable but you need growth here not stability.
You might consider a rising equity glide path as described here: https://earlyretirementnow.com/2017/09/ ... lidepaths/

Start with 60/40 or 70/30 and gradually increase your stock exposure to a desired endpoint in 5-10 years. This can help mitigate the effects of poor returns early in retirement while (hopefully) providing the long-term stock growth that you need.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by fortunefavored »

Flight Plan wrote: Sun Jan 16, 2022 11:38 pm
Okay, now for this. I read most of the first page of responses to the OP and I have not yet read anybody's thoughts on his early retirement plans in the face of ever-skyrocketing INFLATION and RISING TAXES. I'll keep reading after I post this, but we sure do seem awfully quiet about this.
Unless you believe inflation and bond returns will be worse than the worst ever (the 1967 to mumble-80s scenario) - they are included in those calculations. If you do believe they will be worse than the worst ever, I don't think retiring early is something one would pursue at all. Retiring off your portfolio is inherently being optimistic about the future. My personal rate of inflation so far has been close to zero. I still pay $10 for 60 eggs and $2/lb for chicken. I own my own home, I don't need a new car, I consume little energy, I have no need for college expenses. Inflation for people in that scenario is not a huge impact.

Taxes are trickier, but in general for someone in the OP's planned income range (especially non-salary) - taxes have been historically almost nothing. If anything the trend has been to more refundable credits. Now for me, at the "fat fire" level, I do worry a bit about it, but I also have a lot more flexibility in my budget.

In short I don't think they were mentioned because they don't matter all that much (except rent, which was mentioned several times.)
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Marseille07 »

zuma wrote: Mon Jan 17, 2022 3:35 am You might consider a rising equity glide path as described here: https://earlyretirementnow.com/2017/09/ ... lidepaths/

Start with 60/40 or 70/30 and gradually increase your stock exposure to a desired endpoint in 5-10 years. This can help mitigate the effects of poor returns early in retirement while (hopefully) providing the long-term stock growth that you need.
Excellent advice. If they can change their AA without a tax hit then they should consider this.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by quantAndHold »

Being 100% stocks is fine when you’re 39 and still working, because you can overcome the drag of a crash by investing new money at lower prices. Once you stop investing new money, the only way you are able to sell high and buy low is through rebalancing. If you’re 90 or 100% stocks, you don’t have a pot of money to rebalance from.

If you have, say a $1m portfolio that’s 100% stocks and the market drops 50%, then you have a $500k portfolio, and the market will have to rise 100% to get back to $1m.

If you have the same $1m portfolio that’s 60/40 and the market drops 50%, then you have a $700k portfolio. When you rebalance to 60/40, you move $120k from bonds to stocks (which you buy at half the previous value), and the market only has to go up 66% to get back to $1m. Also, in this situation, you’re not selling stocks at the bottom of the market in order to live.

The sequence of returns risk is highest in the first few years of retirement. Once you get through the first few years, if your portfolio has continued to grow (and you have fewer years to pay for), then SORR is less of an issue.

If this were me, I would probably go to 60/40 at first, and maybe adjust to 70/30 at age 50, and stay there indefinitely. I’m not sure what return rate you’re targeting, but more bonds would lower your projected return rate (but make it more likely to actually happen).

Edit to add: OP, I still think you don’t have enough and you should look at career change rather than just quitting to sit at home, but since you’re going to do it anyway, here’s my thoughts on AA.
Last edited by quantAndHold on Mon Jan 17, 2022 11:09 am, edited 1 time in total.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Lou Sevens »

OP- wouldn't it be better if able to take a sabbatical and maybe do something different? What if there is another decline in the market?
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Zardoz »

aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am While I don't necessarily need to be 95% stocks, I don't want to go overly conservative either, since stifling future returns is a risk as well. Just need to get the right balance...
One way I like to look at funding early retirement is how you will bridge to social security at age 70. In your case you would need to cover 31 years of expenses, and 31 years x $31k = $961k. By this framework, your retirement is not yet fully funded. That is, you don't have enough to fund your retirement based on your savings -- you are counting on stock market returns to fund your retirement.

If you had a larger portfolio, or you were closer to age 70, you could use a Liability Matching / Safety First approach, by purchasing inflation protected bonds. But since that would be guaranteed to come up short, you pretty much have to take the opposite (Probabilistic) approach of a stock heavy allocation and hope that past market returns repeat themselves during your timeframe. And of course you need to be prepared to be flexible on your spending should markets crash or fail to keep up with inflation.

I don't have a great suggestion for you on a specific asset allocation, but I would suggest you do some more in depth study of probabilistic portfolios and variable withdrawal strategies, e.g. earlyretirementnow.com, McClung's book "Living Off of Your Money", Jim Otar's book "Unveiling the Retirement Myth", Bogleheads VPW method, etc.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by rgs92 »

Zardoz wrote: Mon Jan 17, 2022 12:18 pm
aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am While I don't necessarily need to be 95% stocks, I don't want to go overly conservative either, since stifling future returns is a risk as well. Just need to get the right balance...
One way I like to look at funding early retirement is how you will bridge to social security at age 70. In your case you would need to cover 31 years of expenses, and 31 years x $31k = $961k. By this framework, your retirement is not yet fully funded. That is, you don't have enough to fund your retirement based on your savings -- you are counting on stock market returns to fund your retirement.
Social Security is going to be pretty dismal I think with a retirement age of 39.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by sailaway »

rgs92 wrote: Mon Jan 17, 2022 12:40 pm
Zardoz wrote: Mon Jan 17, 2022 12:18 pm
aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am While I don't necessarily need to be 95% stocks, I don't want to go overly conservative either, since stifling future returns is a risk as well. Just need to get the right balance...
One way I like to look at funding early retirement is how you will bridge to social security at age 70. In your case you would need to cover 31 years of expenses, and 31 years x $31k = $961k. By this framework, your retirement is not yet fully funded. That is, you don't have enough to fund your retirement based on your savings -- you are counting on stock market returns to fund your retirement.
Social Security is going to be pretty dismal I think if you retire at 39.
Someone who has retired at 39 due to a median lifestyle with high earnings may well have reached the second bend point. I believe I calculated the other day that it would take about 18 years of max contributions. While it is pretty rare to be at the max straight out of college, if you were close and had already accumulated quarters previously with lower paying jobs, you could do it. I know DH didn't reach the max until about 30, but he has been working since he was 16, so there is some leeway there. Anyway, he has contributed far more than I with my median wages, even with a significant age gap.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Zardoz »

rgs92 wrote: Mon Jan 17, 2022 12:40 pm
Zardoz wrote: Mon Jan 17, 2022 12:18 pm
aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am While I don't necessarily need to be 95% stocks, I don't want to go overly conservative either, since stifling future returns is a risk as well. Just need to get the right balance...
One way I like to look at funding early retirement is how you will bridge to social security at age 70. In your case you would need to cover 31 years of expenses, and 31 years x $31k = $961k. By this framework, your retirement is not yet fully funded. That is, you don't have enough to fund your retirement based on your savings -- you are counting on stock market returns to fund your retirement.
Social Security is going to be pretty dismal I think with a retirement age of 39.
Good point. The OP mentioned $1562/month as their expected benefit at age 67, which works out to $1937/month if delayed to age 70. That would cover 75% of their $31k annual expenses. So either the original $880k needs to still be providing income in year 32, or the OP should be prepared to reduce their annual spending to around $23k (or less if social security benefits are reduced in the future).
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by averagedude »

IF you can live on 31k a year, I say you should retire and not bat an eye about it. Worst case scenario, the stock market tanks, but at age 39 you can always go back to work two or three years to give the stock market time to recover. Also it would be super easy to make 30 or 40k a year if you decide to go back to work. You can usually always make more money, but you never get your time back. Don't be shocked that if you retire, you end up doing something else a few years from now, not because you need to but because you want to.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by poker27 »

rgs92 wrote: Mon Jan 17, 2022 12:40 pm
Zardoz wrote: Mon Jan 17, 2022 12:18 pm
aaaaaa111111 wrote: Mon Jan 17, 2022 12:22 am While I don't necessarily need to be 95% stocks, I don't want to go overly conservative either, since stifling future returns is a risk as well. Just need to get the right balance...
One way I like to look at funding early retirement is how you will bridge to social security at age 70. In your case you would need to cover 31 years of expenses, and 31 years x $31k = $961k. By this framework, your retirement is not yet fully funded. That is, you don't have enough to fund your retirement based on your savings -- you are counting on stock market returns to fund your retirement.
Social Security is going to be pretty dismal I think with a retirement age of 39.
I'm a few years younger than the OP, and I was pleasantly surprised by my SS estimates for 17ish years of work (if delayed to 70)
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Charon »

GerryL wrote: Sat Jan 15, 2022 4:03 pm And in case no one has mentioned it yet: age discrimination is real.
When you're in your 30s and have never had much trouble landing a job, it's hard to imagine being ignored by hiring managers because you are older than them. Being out of the job market for an extended period AND being visibly older than other candidates can put you at a real disadvantage if/when you decide you need to go back to work.
+1

It's weird the number of people who plan on falling back on work as if it will be obvious 1-2 years after retirement that their plan isn't working. As opposed to showing up 10-15 years after retirement. Too many people here are hot commodities on the job market, and don't understand how it could be hard for them to find a job. (And as for the fallback on "easy-to-get" jobs like McDonald's, really? Who has the stamina at 60 to compete with 20-year-olds for the job, and what manager is going to hire the PhD or MBA to flip burgers?)

There's also the possibility of being both over- and under-qualified. I recently explored the possibility of getting into a field that a lot of my peers went into straight out of grad school or postdoc, but I'm nearing a decade since my postdoc. Nobody was very interested in me, because I'm too senior in my current job, which is only related to this other field in minor ways. I'm too senior to hire in an entry-level position, but I don't have enough experience in the field to come in at a senior-level position.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by jh »

.....
Last edited by jh on Fri Jan 21, 2022 1:47 am, edited 1 time in total.
Retired in 2022 at the age of 46. Living off of dividends.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by spreadsheetguy »

the biggest flags that I see are the fairly low spending (i.e. hard to cut down significantly) and the danger of sequence of returns risk.
but if you can go back to work, that is the flexibility you need in these early years.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Chamade »

A lot of the suggestions in this thread are for OP to own more bond funds due
to sequence of return risk.
That seems a pretty tough sell right now with raising interest rates.

I am also curious how would OP go about rebalancing his portfolio in the current climate?
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by randomguy »

jh wrote: Mon Jan 17, 2022 7:14 pm IMHO, the dividend growth strategy reduces your sequence of returns risk, but this is just my opinion.
Everyone who has studied the issue has shown that the dividend strategy does pretty nothing to help. It is sort of like buckets that sound great when you first hear about them but when you sit down and do the math nothing changes. Dividends aren't quite as volatile as stock price but by the same token it takes them a long time to recover. The only saftey from the dividend strategy comes when people only spend them (i.e. adopting a 2.75% rate). It is the reduced spending that helps.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by randomguy »

Chamade wrote: Tue Jan 18, 2022 10:57 pm A lot of the suggestions in this thread are for OP to own more bond funds due
to sequence of return risk.
That seems a pretty tough sell right now with raising interest rates.

I am also curious how would OP go about rebalancing his portfolio in the current climate?
short term funds aren't going to be affected by the rates much. You aren't going to make much but the goal of that money is is to fund your living expenses and to allow you to buy stocks after they drop 40%. If neither happens, you have paid for insurance you don't need. Up north of 90% stocks, if we have something like 2000-9 again, you can burn through a 90/10 portfolio pretty quick.

OP still needs to be aggressive so we are still talking like 60/40 and creeping back up to 80/20 over the following decade.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by jharkin »

randomguy wrote: Thu Jan 13, 2022 6:00 pm
feh wrote: Thu Jan 13, 2022 5:13 pm Without getting into the details of your plan, my opinion is: no, this won't work.

3.5% for >50 years is likely to fail.
3.5% for 50 years is unlikely to fail. You are looking at something like a 95% success rate. SS makes it even safer. Wanting to live on 30k for the next 50 years seems like a much bigger risk..
+1
Lots of things that are almost guaranteed to blow up this plan:
* Big one time expenses like new car every xx years are not included. On such a low base budget those could easily double hte long term spending. Now 3.5% becomes 7% and he's broke
* Changes to the ACA law or a big health problem before medicare age? He's broke
* His current rent is 1100, but he wants to move to an expensive blue states? He's broke

I could go on... but you get the idea....
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by calwatch »

jharkin wrote: Wed Jan 19, 2022 6:19 am
randomguy wrote: Thu Jan 13, 2022 6:00 pm
feh wrote: Thu Jan 13, 2022 5:13 pm Without getting into the details of your plan, my opinion is: no, this won't work.

3.5% for >50 years is likely to fail.
3.5% for 50 years is unlikely to fail. You are looking at something like a 95% success rate. SS makes it even safer. Wanting to live on 30k for the next 50 years seems like a much bigger risk..
+1
Lots of things that are almost guaranteed to blow up this plan:
* Big one time expenses like new car every xx years are not included. On such a low base budget those could easily double hte long term spending. Now 3.5% becomes 7% and he's broke
* Changes to the ACA law or a big health problem before medicare age? He's broke
* His current rent is 1100, but he wants to move to an expensive blue states? He's broke

I could go on... but you get the idea....
Depending on what cost of living area they pick it may be more than the average per capita income in some smaller cities, or in Midwestern or Southern states. Some of them are politically liberal and/or have rent control and tax caps. I think people in this country drive too much and as a single individual, not trying to impress others, an electric bike with some panniers would provide just as much mobility with much less cost. The ACA is an issue but we can see through past law how difficult it is to change laws once they are passed. But given the existing health issue one concern might be support if said health issue flares up again, in an area without existing friends or relatives to provide assistance. Once moving to a new location I think it would be more imperative to try to build connections with other people so that they aren't strangers. This is especially the case once you're not working and that social network doesn't exist.
Last edited by calwatch on Wed Jan 19, 2022 12:28 pm, edited 1 time in total.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by citygirldc »

Charon wrote: Sat Jan 15, 2022 10:42 am
So I'm not going to argue with your math, but I personally would find your plan extremely risky because of the lack of flexibility on spending. And for all the people saying that it's super easy to find a job to add some income - no, it's not always. Right now it's super easy, at extremely low unemployment rates (though one reason it's easy to find a McJob is because they are so terrible people keep quitting them). But sometimes it's very difficult to find a job, and those periods are often also times when the market is substantially down (March 2020, 2008-9).
I very much agree with this point. People who weren't supporting themselves in 2008, or were employed throughout, really really don't know/remember how incredibly awful the job market was for a good three years during the GFC. There were NO jobs, not even fast food/low wage jobs. None. Teenagers couldn't get jobs because traditional teen jobs were taken by adults seeking anything to support their families. People who graduated into those years have had a permanent effect on their careers because they couldn't get into their professional fields and their degrees got stale. I was very fortunate to have a stable job during that time and it was still terrifying. It's an extreme example, but a friend of mine who is an attorney with degrees from prestigious universities and a strong work history (10+ years before law school, 7 years after law school) prior to 2008 JUST THIS MONTH started her first stable W-2 job after getting chewed up by 2008. She's been doing contract/freelance work for over a decade. As I say, this is an extreme example because she has a niche practice area and to some degree enjoyed the flexibility, but she has been applying for full time jobs the whole time. The gap in her resume just kept getting bigger and bigger and she couldn't get her foot in the door. Relying on the idea of going back to work to weather SORR is a huge, huge gamble.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by willthrill81 »

Your investment and withdrawal strategies look sound to me, though I would recommend that you examine how some historic tilts to certain asset classes would have been a big help historically. Reading up on the concept of perpetual withdrawal rates would be useful too.

Spending only $31k is definitely a thrifty lifestyle, but it's certainly doable.

There are at least a couple of big advantages you have working for you. First, you're young enough that if you change your mind for whatever reason, you could easily return to work and cover all your spending needs. Second, even if your portfolio performs poorly during the first critical decade or so of withdrawals, a part-time job would provide you with enough income to allow you to greatly reduce your portfolio withdrawals.
Last edited by willthrill81 on Wed Jan 19, 2022 5:58 pm, edited 2 times in total.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by quantAndHold »

I think for me, the two biggest things are the need for such low spending to start with, and the ambitious asset allocation. With spending that low, there’s no place to cut if anything goes wrong. Over a 50+ year timeframe, the odds of something going wrong are not insignificant. Then the stock heavy asset allocation piled on top makes the odds of something going wrong just that much higher.

If OP were talking about $50-60k of spending and a 3.5% withdrawal rate on a 70/30 portfolio, I think my answer would be different. But that would be $1.5m.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by GP813 »

You could also geohack and move to an area of the globe where your 30k annual budget more than covers shelter, medical and dental, food/entertainment, and internet connection. You're in a position where this can really work if you stay as flexible as you mentioned.

I root for the FIRE folks but a lot of this planning has happened under the umbrella of a long bull market. I really wonder what happens when we have a prolonged downturn in equities and how many will be able to stomach or adjust to that.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by Marseille07 »

willthrill81 wrote: Wed Jan 19, 2022 12:42 pm Your investment and withdrawal strategies look sound to me, though I would recommend that you examine how some [urlhttps://www.bogleheads.org/forum/viewtopic.php? ... 0=historic tilts[/url] to certain asset classes would have been a big help historically. Reading up on the concept of perpetual withdrawal rates would be useful too.

Spending only $31k is definitely a thrifty lifestyle, but it's certainly doable.

There are at least a couple of big advantages you have working for you. First, you're young enough that if you change your mind for whatever reason, you could easily return to work and cover all your spending needs. Second, even if your portfolio performs poorly during the first critical decade or so of withdrawals, a part-time job would provide you with enough income to allow you to greatly reduce your portfolio withdrawals.
If "doable" includes getting back to a part-time job then yeah, probably doable.

That said, imo you'd be worse off leaving the workforce and coming back; in that sense it is still a bad idea to cut it so tight w/ no margin for error.

I mean, even adjusting for 7% inflation puts them at 33K/year instead of 31K, and inflation might persist for a while; not to mention the market isn't exactly on the up and up in 2022.
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Re: Early retirement plan advice (39yo, $880k, ~3.5% withdraw)

Post by willthrill81 »

Marseille07 wrote: Wed Jan 19, 2022 3:41 pm
willthrill81 wrote: Wed Jan 19, 2022 12:42 pm Your investment and withdrawal strategies look sound to me, though I would recommend that you examine how some historic tilts to certain asset classes would have been a big help historically. Reading up on the concept of perpetual withdrawal rates would be useful too.

Spending only $31k is definitely a thrifty lifestyle, but it's certainly doable.

There are at least a couple of big advantages you have working for you. First, you're young enough that if you change your mind for whatever reason, you could easily return to work and cover all your spending needs. Second, even if your portfolio performs poorly during the first critical decade or so of withdrawals, a part-time job would provide you with enough income to allow you to greatly reduce your portfolio withdrawals.
If "doable" includes getting back to a part-time job then yeah, probably doable.

That said, imo you'd be worse off leaving the workforce and coming back; in that sense it is still a bad idea to cut it so tight w/ no margin for error.

I mean, even adjusting for 7% inflation puts them at 33K/year instead of 31K, and inflation might persist for a while; not to mention the market isn't exactly on the up and up in 2022.
I agree that if we knew that the OP's 3.5% WR would be too high going forward, working longer now would likely be better than returning to work later. But we don't know that. Historically, there have only been a handful of times when a 3.5% initial WR didn't last 50 years, so it seems unlikely that any return to work would be strictly necessary.

Those with very frugal spending needs like the OP have the big advantage that virtually any supplemental income will make a big difference in the withdrawal rate. Even a $15/hr. job for 500 hours a year will, after taxes, be around $7k, enabling more than a 20% reduction in the OP's initial WR.
Last edited by willthrill81 on Wed Jan 19, 2022 6:27 pm, edited 1 time in total.
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