The Lemon Fool

JMN2 wrote: I have no interest in a new car every 3 years, expensive holidays, buying stuff, buyng expensive services. I have no children. No wife. No debt. My hobbies are running, walking, reading, cask ale, local history. I like to take inexpensive city breaks for a bit of beer and food. Bulk of my outgoings will be council tax, utility bills, keeping my car running, some food and beer. I don't have to think about leaving someone an inheritance.

You're a fortunate fellow. Had I managed that lifetstyle i'd have packed in work at 40.

Good for you, and long may you enjoy those cask ale trips - a great way to tour the country I think.

toofast2live wrote:

JMN2 wrote: I have no interest in a new car every 3 years, expensive holidays, buying stuff, buyng expensive services. I have no children. No wife. No debt. My hobbies are running, walking, reading, cask ale, local history. I like to take inexpensive city breaks for a bit of beer and food. Bulk of my outgoings will be council tax, utility bills, keeping my car running, some food and beer. I don't have to think about leaving someone an inheritance.

You're a fortunate fellow. Had I managed that lifetstyle i'd have packed in work at 40.

Good for you, and long may you enjoy those cask ale trips - a great way to tour the country I think.

Thanks, I did retire at 39....

Well make sure you don't marry

The very different personal circumstances described here suggest that a single SWR is not so helpful, as few will have constant spending over 30-50 years, nor constant portfolio income requirements as pensions kick in. My modelling allows for 4 time periods: 1) constrained by care for someone 2) see the world, 3) potter nationally, 4) care. So I'd expect net gains, drains, neutral, heavy drains on my portfolio. They key thing is to be safe at the start of period (3), so if the sequence of returns is going well, splash out in (2).

A lot depends on psychology too. I'm a frugal FIRE, not an earning one, so I struggle to imagine how I will spend the sums my cautious planning has left me. A high spending rate now won't lock me into a lifestyle I couldn't step back from, others might want to be more wary about splashing out.

If I had to pick a SWR, I'd choose 3%

We live off of our HYP. Our dividends exceed our planned budget. Should dividends be slashed by Mr Market, we have a contingency cash reserve (currently a little over three years budget, but that's because I like to pay for a lot of things up front, so replacement cars etc are also accruing cash). Should dividends take too long to recover, we would adjust our lifestyle. The budget includes holidays, hobbies etc. In hard times we'd have to swap to less expensive alternatives. If dividends were cut by 50% and hadn't started to recover after a couple of years we'd review and re-budget.

The point is that SWR and Firecalc models all start to assume you are inflexible and once spending 4% you'll continue to do so, increasing by inflation, every year, regardless of reality. My own view is rather different - just like a salesman earning commission, there are good years and bad years. The trick seems to be to have a buffer against bad years being any year of under-performance and actively reviewing spending and affordability.

Of course, this latter method does mean you will leave a HYP-load of equity behind when you snuff it, but I quite like the idea, so it's not a problem to me.

I'll let you know how it goes, maybe in 20 or 30 years!

VRD

vrdiver wrote: there are good years and bad years. The trick seems to be to have a buffer against bad years being any year of under-performance and actively reviewing spending and affordability.

There's been a lot of research in the US on safe withdrawal rates. One piece I saw suggested that rates well above 5% could be back-tested over the past century and shown to work by adopting the above approach - it gave several rules as to how much you were allowed to withdraw in any given year based on current performance - unfortunately I can't find the link. Essentially by having about a year's cash buffer and by having the ability to reduce your spend in bad years (and so avoid selling equity/bonds during market downturns), higher withdrawal rates than 4% could be shown to work. A year's cash buffer in itself seemed to be enough to remove some failure cases.

It's important to remember that the 4% rule is based on studies (eg Trinity study) which show that if you withdraw 4% per year from a mixed US equity/bonds portfolio (increasing the withdrawal amount with inflation) for 30 years, you will end up with a non-zero amount in 99% of back-tested 30 year periods. In most of those periods, you would end up with significantly larger portfolios than you started with, and a withdrawal rate higher than 4% could have been supported. Of course, the fact that it worked through the 20th century makes no guarantees for the future. Should also be considered that risk exists on both sides. If you opt for a lower withdrawal rate, you potentially work many extra years before you can retire - and that probably will turn out to have been unnecessary.

Excellent thread this - some very well informed comments. Thanks everyone.