Financial Independence Daily FI discussion thread - March 30, 2018 |
- Daily FI discussion thread - March 30, 2018
- Weekly FI Frugal Friday thread - March 30, 2018
- Quick FIRECalc PSA
- Alternate SWR calculation - % of present value at peak
- Want to make over $100K - does changing jobs now help me FIRE?
- FIRE life dilemma
| Daily FI discussion thread - March 30, 2018 Posted: 30 Mar 2018 04:09 AM PDT Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Weekly FI Frugal Friday thread - March 30, 2018 Posted: 30 Mar 2018 04:09 AM PDT Please use this thread to discuss how amazingly cheap you are. How do you keep your costs low? How do become frugal without taking it to the extremes of frupidity? What costs have you realized could be cut from your life without pain? Use this weekly post to discuss Frugality in general. While the Rules for posting questions on the basics of personal finance/investing topics are more relaxed here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Posted: 30 Mar 2018 07:22 AM PDT Greetings, I thought I would throw out this observation to those that may have not stumbled upon this yet (or was slow to do so like I was). When using FIREcalc's Monte Carlo return simulations, aka where you can choose your own return rate, standard deviation and inflation rates, your output is something like 200 different simulations, which sounds like a lot, and it is. FIREcalc then spits out a chance of success, given your inputs, as well as an average portfolio end balance. What I ended up figuring out was, if you are to run the simulation again with all the exact variables (i.e. hit 'submit' again), you will very likely get a much different result in terms of success rate and end portfolio value. I am no statistician by any means, but I found it somewhat surprising given the number of iterations per 'submit'.
For example, here is the results of 10 trials (201 simulations/trial) with the same assumptions:
Results (% success - mean end portfolio value):
Average: 62% - $5.5 million
Now the point of this post is not to discuss the validity of FIREcalc, appropriate return/volatility assumptions, SWR or the like. All of our crystal balls are equally foggy and any sort of predictions without huge margins of error or input dispersion is most likely folly. However, if you are to use this function of FIREcalc, be weary of the results of just one trial. I'd recommend running at least 5-10 trials per set of variables, and ideally, run an additional 5-10 with a more conservative set of variables (i.e. 3% real return, 12% volatility), just to test the ruggedness (or fragility) of your plan and assumptions.
TL:DR If you are using FIREcalc for Monte Carlo simulations, where you input your own returns, inflation and standard deviation, run multiple (5-10+) trials and take an average to get a bit more accurate predictor of success. [link] [comments]  |
| Alternate SWR calculation - % of present value at peak Posted: 30 Mar 2018 09:42 AM PDT I think most of us feel a market peak approaching (although none of us can predict exactly when). This complicates things for anyone planning to FIRE in the next decade or so. I've been uncomfortable with using a 4% or 3.5% SWR based on the arbitrary date that you retire. Why, with a potential 60 year retirement, would the SWR be so significantly different for someone that retired with $1 million at the peak vs. say $600k a year later after a decline. I'm familiar with sequence of return risks and have read all the literature I can find about the SWR, and have come to the following conclusion: The time with the most predictable SWR is the peak of a market, with close to 100% success at a 3-3.25% rate. As such, instead of using current value of invested assets, we could use a formula: (assets at peak + subsequent contributions) * peak SWR. An example: let's assume the market peak will be 2020, after 10% further growth, and markets decline 40% over the next two years (math is simplified). All withdrawal amounts can be adjusted for inflation, and use a 3% SWR.
As FIRE approaches, there is a disconcerting phase when market fluctuations overwhelm additional contributions. Something about this doesn't feel right: additional investment should result in an increased retirement income regardless of how the markets behave at any given moment. This method smooths out the noise. The formula is actually a bit conservative: if there is a 3% SWR at the peak, subsequent contributions could be given additional weight, looking backwards towards the peak. Person2 is actually better off than person 1, with $660k in 2022 vs. $600k. If the $660k had been invested at the peak, it would have had a value of $1.1 million, so this person could use a $33k SWR. So the formula would actually be like: Annual withdrawal = SWR at peak * present value of all contributions at peak This makes back testing more efficient: we can look just at the worst case scenarios. It also allows us to avoid underspending. Withdrawals can be increased with each subsequent peak. 3% SWR has done pretty well in worst-case scenarios, but there might be some argument for 2.75% or 3.25%. What do you think? [link] [comments]  |
| Want to make over $100K - does changing jobs now help me FIRE? Posted: 29 Mar 2018 08:47 PM PDT I've been at my current company for about 1 year. I know it's not a long stint, but I'm already thinking about leaving. It's not that I'm unhappy where I am, I just want to make more money and accelerate my progress towards FIRE. But I need advice though on what the right move is. I currently make $78K base with a $3.9K (5%) target bonus. My 401K matches 50% up to 6%, although I don't usually stay at jobs long enough to vest. I have two offers in hand, although I'm not sure either provides enough return for the career risk of leaving a company I'm comfortable at and a job I'm doing pretty well in. The risk is compounded since I have a string of 1 year jobs and am probably viewed as a job hopper already, so I want to avoid hurting my career long-term. Offer #1: $90K base with possible 2-3% raise after 6 months. Discretionary bonus but no specific target (likely not more than $5K). 401K will also match 50% up to 6%. Benefits are better than my current job but also slightly more expensive. I'm relatively young and healthy though, plus no family, so I probably won't be taking advantage of those much. The thing is, I didn't really like the atmosphere of the company and the hours are a little longer (maybe working 5-7 more hours a week). This role is a promotion to my current role, so keep in mind the pay increase is for a company change AND higher position. Offer #2: $80K base, $5K signing bonus, with a $16K (20%) target bonus. 401K will also match 100% up to 4%. I will even get some stock options, but the equity stake is likely very small and not very valuable. Benefits are about the same as my current job and slightly cheaper. I liked the atmosphere of this company and it sounded like there would be some work flexibility (WFH and flexible hours). However, the company is also not doing the best right now, and I do have a concern that it could turn out to be a sinking ship. This role, like the other offer, is also a promotion to my current role. I'm not really sure what to do. Does changing jobs right now to get my comp closer to 100K help me towards FIRE? I'm leaning towards staying at my current company until a really compelling offer comes along, but who knows if that would even happen? Does changing jobs now to get a higher position put me in a better spot the next time I switch companies (e.g. able to negotiate better starting pay, higher bonuses, etc)? Or would job hopping as much as I've done (5 jobs in ~7 years) start becoming a huge negative in the long-run? All of these jobs are roughly in the same location so my costs would remain about the same. I'm really just trying to maximize my earnings potential and have the best career trajectory I can. Edit: Offer #2 is still being negotiated. Is there a reasonable salary at which point I should take the offer? What if I can get $85K or $90K base? Or $10K signing bonus? I also forgot to mention that due to the location, I would pay a few thousand more in taxes here that I wouldn't have in my current job location, so that would lower my take-home pay a bit. [link] [comments]  |
| Posted: 30 Mar 2018 08:38 AM PDT Hi everyone, I have a life dilemma of sorts. I have recently completely "bought in" to the idea of FIRE. I have actually been living in a way that would put me on a FIRE track before I ever really knew of this subreddit, but I have really taken it to the extreme within the past year, increasing my savings rate and being extremely frugal. I have never been a spender, so saving money comes naturally for me, and I grew up from very humble beginnings (we were poor) so I don't desire material or luxury items and I work hard for everything I own. Taking all of this into account, I have recently learned that my fiance's parents have a large (much larger than I ever thought) estate and that some time in the next 20 years, we will benefit from it. Neither of us would have to work, etc. and it will still continue to grow. My dilemma is that, now that I know that I have this sort of "backup" plan, am I missing out on something while I am still pretty young (29)? If anything, we both desire to travel more and I want to devote much more time to charitable causes. Ideally I would combine both of these and travel to places on mission trips to help others. Right now, I don't travel at all because I am focused on saving, and I work a lot in order to continue saving and achieving FIRE. Also note - we both enjoy our jobs and have great careers. Does anyone have advice? I would love to hear from someone who has lived this situation before and what they decided to do. [link] [comments]  |
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