Financial Independence Daily FI discussion thread - Sunday, November 07, 2021 |
- Daily FI discussion thread - Sunday, November 07, 2021
- What part of the world would you retire to?
- Quantifying the insidious effect of inflation
- I reworked my spreadsheet. Turns out I can't quite retire, but I can afford to only work 6-9 months out of the year.
| Daily FI discussion thread - Sunday, November 07, 2021 Posted: 07 Nov 2021 02:02 AM PST 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]  |
| What part of the world would you retire to? Posted: 07 Nov 2021 12:25 PM PST I've been thinking more and more lately about where I want to raise my family, and I'm beginning to more seriously considering leaving the USA. Perhaps this is a greener grass phenomenon, but I have become so disenchanted with this country over the politicization of everything, the rat race and ensuing unhappiness/depression that is rampant here, the gun violence, you name it. I work in healthcare now and I find myself deeply unsatisfied with the state of our healthcare system and wanting more and more of an out for myself, and for my children. Anyways, I don't want to turn this into a bickering discussion of the pros/cons of the US. I'm grateful for the opportunities we've been given here. I'm curious what other countries fellow FI-seekers have potentially looked into as a place to settle down one day? My wife and I are very early 30's and currently sitting on about 1m in investments, and I'm 2 years away from having a very high-paying job in the mid-six figure region. Our NW is growing rapidly as I'm finally starting to be able to earn good money after about 5 years of little to no earnings. I think we can "fat fire" (>5m assets) by our early 40's. Whether or not my degree would transfer to another country is not super pertinent as I do not even know if I will continue to work. I'm really just interested in the highest QOL for my family that we could realistically attain. Again, probably a grass is greener phenomenon, but we've traveled throughout several parts of Europe over the past few years and people just seem happier and more content with their lives in many of these countries. Taking into account the ability to get a retirement visa and integrate our family into another country, what countries have caught your eyes? [link] [comments]  |
| Quantifying the insidious effect of inflation Posted: 01 Nov 2021 06:12 AM PDT This grew out of an interesting effect I noticed in a model I had built to forecast out my NW. Namely, there were some scenarios where my forecast net worth would grow for decades before suddenly "flipping": experiencing stalling growth, then declining and dropping to zero. At first I thought that this was a mistake in my model, but the math checked out so I decided to mathematically tackle this issue, and thought my findings might be of interest to the broader community. My model was quite simple: take net worth in year T, increment it by a nominal rate of return r%, subtract from it an inflation-adjusted amount $E (i.e. $E is incremented each year by i% to represent increased spending due to inflation), to then get net worth in year T+1. There were only four inputs into this model: the initial net worth $N, the assumed nominal rate of return r%, the initial annual expenditure $E, and the rate at which annual expenditure was assumed to grow, i%. The key finding is that inflation snowballs, which can lead to a declining nest egg years down the road, even in a steady-state market environment (i.e. no changes to inflation or return on investment). Both net worth and inflation grow exponentially, but NW has a has a chunk taken out of it each year to cover living expenses, so expenses can eventually grow to surpass your return on investment. Notably, it doesn't take any market shock for this to happen: even in a steady-state market with constant nominal return on investment and inflation rates, your nest egg might grow for 20 years, then draw down to zero in another 25 (a scenario with 6% return, 3% inflation, 4% WR). After crunching the numbers, I came up with two formulas that I think are useful. 1. The first quantifies, for a given nominal rate of return and inflation rate, the SWR that will allow your investments to grow in perpetuity. This will be quite close to your nominal return on investment less inflation, but slightly lower than just the simple difference (provided inflation is not zero).
2. The second tells you, if your withdrawal rate is above the "perpetual withdrawal rate" described above, how long (in years) your nest egg would continue to grow before starting to decline.
For the math nerds out there, to get these formulas, I converted my recursive equation into a function, took the derivative with respect to time and set it to zero, then solved for the time variable in terms of the other parameters (r%, i%, E, N) to get formula 2. Formula 1 I then got by finding the necessary conditions of the other parameters such that a solution would not exist, i.e. derivative would never equal zero and net worth would indefinitely increase. Math is here: https://imgur.com/a/cX2607v The interesting fact here is that for a fixed investment return to inflation spread, the withdrawal rate necessary for growth into perpetuity decreases as inflation rises. In other words, your investments might be outperforming inflation by 5%, but it matters if inflation is 1% and your investments are earning 6%, or if inflation is 3% and your investments are earning 8% - the 1%/6% scenario permits you to withdraw more of your nest egg since inflation is lower and your expenses will scale up more slowly. These findings are most relevant to fixed-income assets held to maturity where the investor essentially "locks in" a return, but I think it's an important tidbit to keep in mind in any case, particularly as fears of higher inflation have begun to resurface. The situation (constant nominal ROI, constant inflation) is admittedly a bit contrived, but I think isn't that inappropriate since the level of inflation in one period tends to be correlated that of the prior period, and since central banks target specific levels. In any case, it's an interesting thought exercise. If you read this far, I hope that you found this information useful. Thank you for reading. [link] [comments]  |
| Posted: 31 Oct 2021 01:21 PM PDT 34M, $1.1MM in assets, HCOL City. $110k Salary Under the 4% rule, my monthly budget is $3600/mo. But my rent+utilites runs me $2,000/mo. A bit over half, and home ownership is a bit out of my price range. I'm unmarried, and have no kids, but am open to that someday. So a full on retirement right now would be a bit too lean for my taste. I spoke to my boss a few days ago and told him that I'd like the ability to take 3-6 months of unpaid time off a year moving forward. This would allow me to have the ability to enjoy life while I still have some youth left in me, and let me easily come back to a full time role if the marriage/kids lifestyle starts to happen. I do actually enjoy a lot of what my job has to offer, and having the flexibility to take a loooooong break after a project is completed would greatly help my work life balance. Currently when a project is finished and we're all exhausted....a new one comes in the next day and we have to go full steam ahead without any downtime. Gross. [link] [comments]  |
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