Financial Independence [Discussion] Data Driven Definition of LeanFIRE, FIRE, FatFIRE |
- [Discussion] Data Driven Definition of LeanFIRE, FIRE, FatFIRE
- For Those who have used Financial Advisors, What were some of the best advices that you have received?
- Article in The Guardian: Life gets better after 50: why age tends to work in favour of happiness
- How much does it cost today retire one day earlier?
- Daily FI discussion thread - May 08, 2018
- Is it still worth it to use an HSA if your provider is garbage?
- Any Physical Therapists on the path to FIRE?
- Do our employers deserve us?
- How to best invest with 401k? (x-post from r/personalfinance)
- "Freedom days" as a measure of financial independence (FI) progress
- Leveraged Index Funds vs the Norm
- Am I on track for FIRE? (Review with questions)
- Book recommendations?
- Does SWR include dividends?
- More in-depth Trinity Study examination with multiple WD rates, horizons and success rates
- Things to do before last day at job
- How much $ is needed to withdraw $100k a year from retirement fund indefinitely?
- Where would you retire given my situation, and why?
| [Discussion] Data Driven Definition of LeanFIRE, FIRE, FatFIRE Posted: 08 May 2018 12:17 AM PDT Highlight: This analysis looks to apply the Trinity Study, Vanguard Data, and statistics as reported by the US Labor Bureau to come up with a data driven definition of LeanFIRE, FIRE, and FatFIRE. Feel free to add your input and thoughts below to make this conversation even better! This is just a fun table top exercise to explore the different definitions of FIRE. Never take financial advice on the internet from strangers and do not use this post as an investment guide. Relevant Data and Sources in defining LeanFIRE, FIRE, and FatFIRE 1) 1998 Trinity Study Conclusion:
2) 2012 Vanguard Update to the Trinity Study Withdrawal rates for hypothetical portfolios based on various allocations Portfolio withdrawal rates assuming 85% success rate
[Notes: For an investor with a 30-year time horizon and assuming an 85% success rate (that is, an 85% probability that a portfolio will not be depleted before the end of the time horizon), an aggressive portfolio allocated 80% stocks/20% bonds would likely have supported a 4% initial spending rate, but a conservative portfolio of 20% stocks/80% bonds would likely have supported a rate of 3.5%. Moderate = 50% stocks/50% bonds.] 3) U.S. Bureau of Labor Statistics reported in 2017 that the average American household had $57,311 in total yearly expenditures. 4) 2012 Vanguard Update to the Trinity Study
5) LeanFIRE is typically defined as...
6) FIRE is typically defined as...
Conclusion from Data For the average American, meeting annual expenses at or below $57,311 with passive/semi-passive income for the rest of their lives would be defined as FIRE. This denotes "reasonable living expenses" as not exceeding the total yearly expenses of an average American household. Trinity and Vanguard have confirmed withdrawal rates between 3%-4% are extremely unlikely (15% chance or less) to exhaust any portfolio of stocks and bonds. Choosing a conservative 3% withdrawal rate, retiring with $1,910,366.67 in investments would allow one to comfortably meet an average yearly expenditure total every year without exhausting investments. A 4% withdrawal rate allows one to retire with $1,432,775.00, but this position becomes riskier the earlier one retires as evident by the Vanguard analysis. Compare this result to FIRECalc calculations, which gives an investment amount of approx $1,812,000 as the minimum investment need to guarantee a $57,311 yearly withdrawal over 50 years of retirement for a 100% success rate throughout history. This would be a data driven definition of FIRE - leveraging between $1,432,775 to $1,910,66.67 in investments in order to passively earn the equivalent of what one average American household spends every year. For Americans seeking to fulfill a LeanFIRE retirement, meeting annual expenses at or below $40,000 with passive/semi-passive income for the rest of their lives would require a maximum investment amount of $1,333,333.33 in order to withdraw no more than $40,000 every year without exhausting investments (assuming a yearly withdrawal rate of 3%). Many in the LeanFIRE community strive to keep annual expenses to $25,000 or even $15,000, requiring an investment amount of $833,333.33 and $500,000.00, respectively, in order to meet annual expenses without exhausting investments withdrawn at a 3% rate. This would be a data driven definition of LeanFIRE - leveraging between $500,000.00 to $1,333,333.33 in investments in order to passively earn the equivalent of 30% - 70% of what an average American household spends every year. For Americans seeking to fulfill a FatFIRE retirement, the sky is truly the limit. There really isn't a data driven definition that can be met as the FatFIRE community encourages members to reach a maximum earning potential and increase spending to whatever level their investments and net worth can support. A minimum data driven definition could be postulated - passively earning at least twice the equivalent of what an average American household spends each year. This requires an investment of at least $3,820,733.33 in order to meet 2x the average American household annual expenses without exhausting investments withdrawn at a 3% rate. However, many in the FatFIRE community have annual expense rates exceeding $114,633/yr and would thus need successively higher investment amounts to meet this goal assuming they are playing by the Trinity rules. Summary: Data indicates LeanFIRE retirement requires anywhere from $500,000.00 to $1,333,333.33 to achieve a high likelihood of successful retirement; FIRE retirement requires on average anywhere between $1,432,775 to $1,910,66.67 to achieve a high likelihood of successful retirement; and FatFIRE requires $3,820,733.33 or more depending on one's personal spending and wealth accumulation goals. This data driven analysis is not perfect - assumptions are made to keep the math simple and the basic concepts at the forefront. It is also important to note this data analysis plays by the rules of the Trinity study and law of averages. Living in a HCOL or LCOL area will affect expenses as will other factors. There are also many convincing arguments one can get away with a higher yearly withdraw rate or lower total investment amount for each category. Those with high net worth will also have access to unique investment strategies that may allow for higher withdrawal rates. Let me know your thoughts below and how to make this analysis even better! [link] [comments]  | ||||||||||||||||||||||||||||||||
| Posted: 08 May 2018 08:20 AM PDT What were some of the best advices that you have received? [link] [comments]  | ||||||||||||||||||||||||||||||||
| Article in The Guardian: Life gets better after 50: why age tends to work in favour of happiness Posted: 08 May 2018 03:07 PM PDT Not directly FI related, but I thought this was an interesting read on research being done that shows happiness is a U-Curve with people's happiness hitting a trough in their 40's before bouncing back up in their 50's and beyond. For many folks on this sub, this could coincide with our FIRE timelines so it's interesting to explore. [link] [comments]  | ||||||||||||||||||||||||||||||||
| How much does it cost today retire one day earlier? Posted: 08 May 2018 08:52 AM PDT Here's a metric I like: How much do I need to save today to advance my retirement by one day. Assuming I already have a good idea of your my exit date and assets, my math (slightly simplified): Example: Exit date: May 2028, ten years from now Exit NW: 2MM in 2028 dollars Expected nominal investment ROR: 8% Expected daily savings: $200 First step: determine one day's expected NW growth when working near my retirement date. This is equivalent to the amount I would forgo retiring one day early, and has two components, that day's investment growth and that day's contribution. One day's investment growth: As a rule of thumb, I use yearly growth / 400. In this example, that would be 2MM (NW) * 0.08 (yearly return) / 400, which is $400 Add expected daily contribution to savings of $200, for a total of $600 forgone in 2028 if I retire one day early. Second step: determine how much I additional savings I need today to make up for that. This is simply the forgone amount, adjusted for rate of return. If I expect 8 percent return, then if I have $X in year Y, I expect X * 1.08 in year Y+1 and X * (1.08)^N in year Y+N. Working backwards, that means if I have $X in year Y, I had X/1.08 last year. Thus if I have X in year Y, I had X/(1.08^N) in year Y-N In the above example, I need $600 in 10 years and I expect 8% return. 1.08^10 is 2.16, so I need to put away $277 today to retire one day earlier. When making quick mental math decisions, I go with $300. Use cases: Sitting on the phone for an hour enduring automated call directors and hold music with my insurance company can save me $300. I might hate it, but it gets me one day closer to retirement. The yard guy charges $100, it takes me all day to do what he does, and I don't enjoy it in the heat of summer. I have to do my yard for three days to earn a day of retirement. It's worth a day of retirement to pay him. This provides some framework for more complicated decisions: I could pick up overtime, or I could take my family to see a baseball game. It's worth retiring one day later to spend an afternoon with my kids when they are young, but probably not worth three days. Notes: Yes, there's a little mathematical hand-waving up there. Yearly returns / 400 isn't exactly the 365th root of yearly returns. There are a few simplifications up there. It's close enough for me to do mental math when I'm not in front of my spreadsheets. Also, this doesn't actually predict when I can retire exactly one day earlier, as the expected error term projected out to retirement is larger than one day's return. However, averaged over many repeated uses, it was a pretty good heuristic for me. As always, I would be grateful to spotting errors in my logic. [link] [comments]  | ||||||||||||||||||||||||||||||||
| Daily FI discussion thread - May 08, 2018 Posted: 08 May 2018 04:08 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]  | ||||||||||||||||||||||||||||||||
| Is it still worth it to use an HSA if your provider is garbage? Posted: 08 May 2018 03:21 PM PDT I'm signing up for health insurance for the first time ever, and was excited to learn that my company offers an HSA! As a healthy young person, I figured I can take advantage of the free $500/yr my company contributes, invest my contributions to retire even earlier, save a few bucks on my biweekly contributions versus a PPO, and not need to worry too much about the higher out-of-pocket max as it's unlikely I'll reach it. However, as I was signing up I got to the page about the fee structure, and that's where the deal really started to break down:
And the list goes on. I can probably avoid some of these fees, but some like the investing fee and account closure fee I won't be able to, and of course I might get hit by some of the other fees by accident. Is it even worth it to go with the HSA despite the atrocious fee schedule? The PPO would be another $364/yr, and has a $400 higher deductible. And of course no free $500/yr from my company. [link] [comments]  | ||||||||||||||||||||||||||||||||
| Any Physical Therapists on the path to FIRE? Posted: 08 May 2018 09:00 AM PDT Hi all, I'm new to this sub and FIRE in general. I'm starting my final year of physical therapy (PT) school. I see lots of posts from nurses and docs, but are there any PTs here? I can see that the PT profession is not as great for early FIRE due to 3 years of grad school, high loans (~70k for me), and modest salary (~80k) compared to other career paths. I guess I'm just looking for confirmation that FIRE is attainable in a reasonable timeframe with PT haha. So if you or someone you know has chosen PT, what is the path to FIRE like? What setting do/did you work in? How were your own loans and salary prospects? Is it reasonable to start your own PT business? Thanks all! [link] [comments]  | ||||||||||||||||||||||||||||||||
| Posted: 08 May 2018 04:05 PM PDT People on this sub here pursue happiness, broadly defined. A very philosophic group of people indeed. Since many (if not most) of us are high achievers, it does beg the subject question. Do our employers deserve us? The question flips the principal-agent framework on its head. With FIRE, the agent could be as powerful as the principal. If the employers don't deserve us, we FIRE and simply walk away. [link] [comments]  | ||||||||||||||||||||||||||||||||
| How to best invest with 401k? (x-post from r/personalfinance) Posted: 08 May 2018 04:00 PM PDT So I have a Fidelity 401k account through my employer. I have been working there for almost 2 years now and have a balance of around 35k, which includes Employer contributions and stock market changes. I've only adjusted the investments a little bit, because I'm scared that I'll lose all the money in there, lol. (I didn't max out my 401k the first year, but will be doing so my second year). I used to be 100% invested in a "Blended Fund", which I think was the default. I know enough to stay about from mutual funds. Yesterday, I changed it so now I'm 95% invested in stocks (index fund with large cap, S&P 500 index), and 5% invested in bonds. I also have a separate IRA account with Bank of America with a balance of around 16k, but have done nothing with that either. I guess my goal is to maximize returns and have enough to retire as early as possible. (I'm currently only 24, but I'm so exhausted from working, I feel like I'm 40 and have been working my whole life already, lol). Is 95/5 a good stock/bond ratio to have? Should I go back to the default blended fund? What are your investment strategies? Thanks for taking the time to read this! (I also posted this in r/personalfinance, so let me know if either one needs to be removed or anything) [link] [comments]  | ||||||||||||||||||||||||||||||||
| "Freedom days" as a measure of financial independence (FI) progress Posted: 08 May 2018 03:45 PM PDT This is a repost from yesterday as that one was removed for unknown reasons, so I thought I'd try again. "Freedom days" is a simple but powerful measure of your FI progress. Calculating your "Freedom days" is done by the following:
So the "freedom days" approach is to look at it is that we have saved up enough money to buy our freedom until April 7, each and every year. Here is a screenshot on an online calculator that can help with the calculation.. And if anyone is interested, I can message you directly. Hopefully this may be motivating to you to think about FI progress in this way. If anyone wants to share their freedom days as well, go for it. [link] [comments]  | ||||||||||||||||||||||||||||||||
| Leveraged Index Funds vs the Norm Posted: 08 May 2018 02:36 PM PDT Quick question that I hope can spark a little discussion. With everyone here so ardent on being 90% or 100% equity, only investing in an index fund and never pulling out, why have we not considered leveraged funds? I have been fumbling with this idea for a while. At my old job I'd look at funds all day and found some really interesting funds out there. Say, leveraged NASDAQ funds doubling monthly returns. Of course, 2 months of losses would a lot more than 2 months to come back from, but predicting the market is hard after all. Everyone knows that here. If the market trends upwards though you start seeing insane compounding. I can't link a fund summary/graph as I am working currently, however if you view a $10k investment before 2007 in one of these funds you'll see that the investment today is worth exponentially more than the same investment in a fund tracking the NASDAQ regularly. Aside from age and supposing you're following the Index tracking strategy, why don't you do this? Looking forward to a cool talk. [link] [comments]  | ||||||||||||||||||||||||||||||||
| Am I on track for FIRE? (Review with questions) Posted: 08 May 2018 01:05 PM PDT Hi All, I'm a huge lurker and finally bit the bullet and made a username, and made a post! I started my FIRE initiative in my early 20s, but got all in serious when I turned 30. I said enough is enough, and time to get done. I've been in absolute beast mode from my 30th birthday, one track mindset, and crazy focused! Everything else is just a distraction. I've been getting into the office before the sun comes up, and leaving at dark. I don't mind it at all, as I know I'm getting closer and closer to my goal (at least I hope...!) I've been kind of nervous to release any of my account info, but realized it would be very beneficial to get a 3rd party view, as sometimes we can be very stuck in our own thoughts. My strategy is dividend growth stocks and live off the dividend yield (3-4%) with the addition of a percent withdrawal (not sure how much) from growth funds as well. Here's where I stand as of a few minutes ago, I'm currently 33 years old: \numbers rounded** Dividend Growth Strategy: SCHD: $45,000 SPHD: $15,000 VYM: $5,000 I started w/ SCHD from the start, and constantly add a set amount every 3 months automatically, and keep this going. My own portfolio of 35 dividend growth stocks: $150,000 (estimated yield 3.5%) These were all bought over time at $2-4K each, and some I added more to over time if they dropped in price. I continue to add to this based on priced well dividend growth stocks with at least 25 year+ dividend, and many other rules/criteria.--- Growth: Betterment 90/10 portfolio (i've been auto adding to this every month for many years): $34,950 VASGX Life Strategy 80/20 portfolio (i've been taking a few hundred out of each paycheck for many years on this one from when I first started, and continue to do so): $25,900 --- Work based retirement account: 401K in retirement year date 2050 (more aggressive which correlates to 95/5 stock/bond split): $125,000 I'm maxing out the contributions, but kinda sucks to have a 0.95% expense ratio, but the options were pretty limited, and it seems like a good long term solution (at the 2050 mark). --- Personal ROTH (over contribution limit for salary, first world problem!): $14,900- Savings: $130k (in 1.5% "high" interest savings account) Let me know if you'd change/add/remove anything. I know the savings may be a bit overkill, but when you were once negative $50K+ and struggling to even pay for necessities, the cushion is priceless. I never ever want to be in that situation again, and anyone who has been there/there now, can certainly relate. If you're there, keep pushing and stay positive (the only way to get out of it). A few questions/concerns/ideas:
--- Thanks guys, I plan to post a ton, now that I popped my /fire cherry. I'm ready to help, guide, assist, and loaded with questions myself! Can't wait to hear back! - Hustling hard, Billy [link] [comments]  | ||||||||||||||||||||||||||||||||
| Posted: 07 May 2018 10:33 PM PDT I'm looking for a book to add to my summer list. I'm a college student and would like to learn more about life in general (epically about investing) and how to reach financial independence from the very beginning. What do you recommend? [link] [comments]  | ||||||||||||||||||||||||||||||||
| Posted: 08 May 2018 10:25 AM PDT What about dividends? If someone can live off of 3% of their portfolio each year, and their dividend yield is 2%, can't they just withdraw/sell 1% each year? [link] [comments]  | ||||||||||||||||||||||||||||||||
| More in-depth Trinity Study examination with multiple WD rates, horizons and success rates Posted: 08 May 2018 02:02 PM PDT So I got this PDF from my financial guy a while back and have been meaning to post it but I just saw someone posted a Trinity study update and I thought I'd share this. Pretty cool document that shows how different retirement duration can be affected by asset allocation and withdrawal rate. Reuploaded the charts alone here, sorry for the weird screenshot: [link] [comments]  | ||||||||||||||||||||||||||||||||
| Things to do before last day at job Posted: 08 May 2018 07:22 AM PDT This Friday will be my last day at my job! For those of you who have taken a gap year/FIRED, what things did you do before wrapping up at work? What I've done so far: - verified last day of insurance - maxed out final 401k payments to get as close to $18.5k for the year as possible - saved off my annual reviews - prepped farewell note to send to my co-workers What else should I make sure to do before I turn in the badge? Thanks! [link] [comments]  | ||||||||||||||||||||||||||||||||
| How much $ is needed to withdraw $100k a year from retirement fund indefinitely? Posted: 08 May 2018 01:48 PM PDT I posed this question recently to some friends while hiking and I posted this on /investing but they suggested I ask it here. I would like to retire by age 45 or 50. In my dream world, i would be able to live off $80-100k a year by only taking that amount of money out of my investment portfolio each year. From my understanding, if I were unemployed during this time, I should only pay 15-20% capital gains on this withdrawal so taking $100k out per year would yield me roughly $80k post tax. What I would like to know is how much money would I need invested in the market (prob S&P index fund that historically doubles value every 7 years) in order to have a portfolio that continues to grow while allowing unlimited $100k withdrawals each year for life? My thinking was if I could have $2 million dollars invested by say age 40, could I make this retirement plan work by the time I'm 50 without worrying about my portfolio being depleted into retirement? My house is paid off, I have no kids, not married yet, debt free, and I'm not factoring any crazy medical expenses in this hypothetical but I do have insurance. Also, I'm a US resident. Thoughts? [link] [comments]  | ||||||||||||||||||||||||||||||||
| Where would you retire given my situation, and why? Posted: 07 May 2018 11:54 PM PDT I am 23 years old and have a guaranteed fixed income of 2000 per month (residual income), and $10,000 in savings. Which city in the world would I be able to retire with the above constraints, and have the best standard of living? I would prefer a Spanish speaking country, but it is not an absolute must. Decent internet speed would also be important. The dream is to live like a king, although I know that may not be entirely realistic. [link] [comments]  |
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