For early retirees, my understanding is, 4% is risky and <= 3% historically has a 100% success rate (and never depleted completely). I'm planning for <= 2% SWR though because, 1. I'm pessimistic on the future outlook - climate change, aging population, global political instability etc 2. I would rather be over prepared than skimp or find a job when I'm 65. I would rather donate a lot at the end than do gofundme 3. I'm fortunate earning tech TC, so over prep is like just 3 years or so, not a big deal. (2% would 75K, more than what we are spending now, no impact on lifestyle) What's your SWR and why? Blind tax. TC: 310K without stock appreciation, ~450K with. 8 YoE
Stop coding and read some books on macroeconomics and monetary policies
2% is barely inflation. I would suggest being more optimistic about the future
I hope it's rainbows and unicorns, but prefer to prepare for the worst case. Like I said, I would rather give away big stash at the end than stress about money when I'm 65
Better worst case prep: FIRE like usual and re-enter the workforce if the bear market is bad enough
This is actually harder than people think. A lot of people think pay==stress, but it’s quite the opposite. You’d have to find your own temp work if you want that much flexibility, or create your own product or service
“Playing poker” isn’t work, you should call it hobby income. It’s also far less reliable
I think 4% is too conservative. 5-6% is more what I am thinking in bull markets while during market correction I would reduce it to 4% of the market value at the time of a bear market. As long as you don’t hit a bear market the moment you retire you will be good with even a 6% swr
Those studies are for the traditional retirement of 30 years with scenarios of complete depletion at 30 years considered success. It's different for FIRE. Be careful and conservative.
Length of time has no bearing if you follow the policy of not withdrawing more than 4% of portfolio value in any given year. Those studies assume you withdraw even 8% of your net worth if your portfolio tanks 50%. That’s why in bear markets you need to be prepared to cut spending to 4% by either working part time or cutting luxury like travel
You should be able to expect 6% real returns (inflation adjusted) in the stock market conservatively. With enough principle you could live in perpetuity on like 4-5% real earnings, but you effectively kill the compounding. Plus if you have some W2 income still that should be no issue. You can build a monte carlo model with the statistical distribution of yearly index performance in like an hour.
I worked through historical data and simulations to test SWRs, they are useful but not certainty. Like I mentioned in a comment above, US could hit what Japan Nikkei index hit in 90s - that market was in downward or sideways for over 30 years. That's a longtime to be drawing 4% for. Though historical data is rosier, for peace of mind I want to add as many guardrails or buffers as I can. It is just a matter of 3-4 extra years. I'm not from the US and wouldn't be retiring here - income for hobby jobs is shit back home that I could ignore those completely and I could never come back to current income levels after I quit. So I want to use this fortunate situation as much as possible.
My SWR is 2.5% as I would also like to be over prepared than under. And like you said, working a few more years to have that peace of mind is not a big deal. During recession, I would probably reduce that to 2% though.
Exactly my thought! Totally agree, peace of mind through recessions > grinding through a few extra years. It's not like I absolutely hate my job
2 - 2.5% is more than conservative. 3% is already the very conservative SWR. If you're afraid of recessions, keep a year of expense in cash and extra 3 years in treasury notes/investment grades bonds. If a recession hit, you get those years of buffer without touching your stock
3% with 2 years in cash or similar holding just in case
👍 That sounds like early-retirement-now (Big ERN) plan. Curious, are you a reader (I personally love his writing)
Targeting same as Microsoft. Plan is to FIRE when I have 6M. Run on 3% SWR ($180k/year), pretty much tax free after moving to a non-income tax state. Hopefully in ~8 years
4% is risky? 5.5% is the new 4%. You can guarantee 9% just with stable coins. 2% is super conservative even for doomsdayers
AFAIK those 4% and current upto 6% are all from studies for traditional 30 year retirement, with scenarios of near complete depletion at 30 year mark considered successful. That wouldn't work for me - I would be ~65 and it's not ideal to look for jobs then. 9% from stablecoins? That should raise so many red flags :) > 2% is super conservative for doomsdayers Well, I'm very conservative and want to add as much buffer and guardrails before I pull the trigger. A doomsdayer wouldn't invest in anything other than beans, ammo and bunkers though. I'm not one of them :)
You’re gonna need like a lot of money to make 2% work for fire
My target is $3.8M, that's about 75K at 2%
So clearly you’re moving way the fuck far away from SF