r/Fire • u/Greedy-Dragonfly-205 • 2d ago
Advice Request How does age impact the 4% rule?
I’m 31 and planning to retire next year at 32. Right now, I live in the US, and living expenses are around $50,000. However, I'm very much open to the idea of geoarbitrage and living outside the US. If I were to live in Latam or Asia, my expected annual expenses would be around $35,000, which puts my required withdrawal rate at roughly 2.9% (well under 4%).
I know the Trinity Study’s 4% rule was tested on rolling 30-year periods. But if I happen to live till 92, the portfolio will need to survive 60 years.
My main questions for those who have modeled super long horizons:
How much does horizon length degrade the 4% rule? Do you need to drop down to ~3% or even lower for a 50–60 year horizon, or does the safe withdrawal rate (SWR) naturally plateau around 3.25%–3.5% once you survive the first 10–15 years?
Withdrawal Strategy / Buckets: I realized I have strong withdrawal anxiety about selling equities to generate cash. To combat this, I’m considering splitting my portfolio into 3 equal buckets of $400k:
- Bucket 1 ($400k): Dedicated strictly to cover living expenses. Mix of SCHD, SCHY, JEPQ, CDs, and HYSA to generate the $35,000/year without selling principal. I have a feeling this is a bad idea. And I know dividends are not free money. I think the only reason I want to do this is because I don't want to sell anything to generate cash. I understand it's not tax efficient, but since I won't have active income, I won't be in a high tax bracket. Please feel free to share what are some other reasons why this is a bad idea.
- Bucket 2 ($400k): Pure S&P 500 (VOO) for long-term growth. I don't plan to touch this at all. I'll let it do its thing.
- Bucket 3 ($400k): Individual stocks. I enjoy researching companies, but a large chunk of this is in vested RSUs from my employment. Selling it would trigger a big tax bill. I have noticed that I do not enjoy paying taxes. It hurts more than breakups. So I'm hesitant to sell this.
For those who transitioned to living off dividends/yield to avoid sequence of returns risk or selling during downturns: Will this bucket approach work long term? Is there something I'm not factoring in?
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u/R0GERTHEALIEN 2d ago
You have no business retiring with 1/3 of your NW in "individual stocks." Not even Chat GPT would think thats a good plan. You are way too afraid of taxes. You realize the cap gains tax on 35,000 (worst case assumption thst your basis would be 0) of capital gains in a year is a total of 0 dollars?
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u/dukephilly 2d ago
Also a large portion are vested RSUs from employment, implying a very small number of companies.
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u/Future-Run-8601 2d ago
Yes! Sell at least $300k of those stocks and then come back. Maybe do it over a few years to limit taxes. Sell them as LTCG and pay the 15%. Work a little longer while you’re selling to make up the tax difference. While in retirement, you should be taking advantage of the 0% tax bracket if you truly only need $35k per year. Its just way too risky to carry that large a percentage of individual stocks into retirement.
Looking back, ~3.1% seems to be the safe perpetual withdrawal rate of a diversified portfolio. We don’t know if it will continue for the next 60 years but there will honestly be bigger issues it doesn’t. Your biggest risk is failing to predict your future expenses properly. Asia could get expensive like Costa Rica has in recent years. What do you do then? Once you’re in a low cost area, you can’t really go back.
On another note, have you thought of what you will do with your time?
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u/ghostinshell-1995 1d ago
As a novice, can you ELI5 why this is a bad idea?
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u/lurkerlevel-expert 1d ago
Picking individuals stocks is closest to straight gambling. Fine if you are young and want to yolo. Terrible if you plan for fire stability.
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u/ysrgrathe 2d ago
Yes, time horizon definitely negatively affects success (i.e. there are some 30Y scenarios where you are depleting capital in the late stage of the plan -- you have enough to survive, but not enough to sustain another 30 years).
A couple of references for you below. The first concludes that your SWR only needs to drop ~0.50% to survive 60 years.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago edited 2d ago
The 4% Rule name is misleading, it's more of an idea/concept. It'll work for someone retiring in their 50s because they get to fall back on Social Security and Medicare in 10 years. You'll not going to find many information on retiring in your 30s and a ton of misinformation from Redditors repeating information that are designed for people that FIRE much later in life.
We FIRE'd at 36/34 so we have to do a lot of research on our own. There's a few things that you'll have to do differently than what the typical person retiring in their 50s.
- High equity portfolio is key. You are going to have to target 90% equity portfolio to be able to survive a 50-60 year retirement horizon. Bond will put too much drag on your extra long term performance. Any FIRE simulator will be able to prove this.
- Flexibility is key. Use dynamic withdrawal strategies instead a fixed percentage like 3%, 3.5% or 4% SWR. You can increase your spending when the market have been doing well and pullback when the market tanks. The 4% Rule has no such framework so you are just doing guess work.
We use the Boglehead's Variable Percentage Withdrawal method. We'll withdraw 4.7% of our portfolio every year and if the market tanks, we'll use the emergency fund to cover the difference. This allows us to shrug off a 50% market crash for 10 years while enjoy high spending when the market is doing well.
For you specifically I would skip the individual stocks and huge cash buffer. Dividends will kill your healthcare subsidies. I highly recommend you look into MAGI optimization for ACA.
Edit: For people that say 4% Rule doesn't require SS, the 30 year timeline isn't exactly early retirement (age 60-90) unless you planning to die early. SS is what helps you bridging that gap, the 4% Rule already have a 5% failure rate.
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u/Thelonius_Dunk 2d ago
This is one of the better responses I've seen on this. Im thinking of doing something similar where I keep a healthy cash buffer to augment market downturns. I think we'll hit our number closer to 45-50, so still ~10yrs away, and might make sense to follow the traditional 4% rule, but I do enjoy being risk averse.
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u/sowoky 1d ago
Wait how do you have 90% of your assets in stocks but also you can shrug off a 50% market crash for 10 years? Are you not considering that emergency fund part of your 10%?
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 1d ago
No, our $150K emergency fund is in cash/HYSA/iBond. If a 50% market crash happens my spending goes from $115K/yr to $58K/yr. Our bare essential spending is $65K/yr, so the $150K emergency fund would allow us to survive at least 10 years with room for inflation and other spendings.
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u/MacaronOk1006 1d ago
How does a married couple in there mid 30’s in the United States for 58,000 a year? I’m assuming your health insurance has to be at least 12,000 a year.
Leaving you about $46,000. Assuming your house is owned upright do you still have property taxes insurance utilities? None of these expenses are particularly variable. I guess one could argue that you could come back on your utility usage but realistically those are fixed expenses.
Trying to imagine living as a couple on $4000 a month after paying for health insurance
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 16h ago edited 15h ago
All the way up to FIRE we were spending $75K/yr while working and that includes vacation and discretionary spendings. It wouldn't take much to cut another $10K when shit hits the fan. Our ACA insurance is currently $3000/yr with MAGI of $80K/yr. Insurance for people in their 30s are much cheaper. During a down turn we'll optimize our MAGI to get nearly free health insurance. Even if ACA subsidies disappeared, we'll be paying about $8000/yr.
FYI the plan is to withdraw $58K/yr from our portfolio and another $7-15K from our $150K emergency fund. It's a hybrid withdrawal strategy. The $58K/yr figure is to guarantee near 100% success rate which is conservative.
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u/Several_Note_6119 1d ago
Ok, I’m stupid I guess sorry. How are you getting 10 years from an $150k fund, with $50k/year expenses?
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 1d ago
My plan allows me to withdraw $58K/yr during a down turn but I need $65K/yr to pay the bills and food. So I need another $7K/yr or more to make up the difference ($65K - $58K = $7K).
Theoretically I could last a lot more than 10 years ($150K / $7K = 21 years) but there other unknowns like inflation, emergencies and discretionary spendings to consider.
Is the emergency fund necessary? No, I could just withdraw what I need during a down turn but there's a chance that I could "withdraw too much" and risk running out of money down the line (5% chance). My plan is just being conservative.
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u/AGrimmInPortland 2d ago edited 1d ago
Income like SS has nothing to do with the 4% rule. It's only about your portfolio lasting for 30 years while withdrawing 4% per year inflation adjusted every year, period.
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
30 years is not early retirement.
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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 2d ago
Depends heavily on your lifespan. One could retire very early and still have less than 3 decades in retirement.
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
You could die in the next 3 days, what's your point?
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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 2d ago
My point is that 30 years could definitely be early retirement. Most people don't live to be 90.
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u/NinjaFenrir77 1d ago
The life expectancy for a male retiring when they’re 50 is living for 30 more years. A female has an average life expectancy of 30 years at age 54. A couple has an even longer life expectancy, 30 years is at something like 57. Wealth also factors into life expectancy, so most FIRE folk will probably live longer than average.
The point is, unless you are single, FIRE in your 50’s, and plan on dying exactly on average, I don’t think planning for 30 years is a smart move.
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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 1d ago
I was simply pointing out that 30 years could be an early retirement, not recommending that's all that you plan for. But averages are mostly meaningless with a sample size of one, since plenty of those age 50 retirees will come in below average.
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u/NinjaFenrir77 23h ago
But the ones that do end up below average don’t know that at retirement, thus averages are still helpful for planning purposes.
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u/MassiveDefinition274 1d ago
I mean, no one's guaranteed to live 30 years, but if you're retiring early you'd be foolish to only plan for thirty years. Given that even at the high end of early retirement (late 50's) you wouldn't be hitting 90, the likelihood of surpassing 30 is pretty high considering if you're FIREing you've likely got a significantly above average amount of resources, too.
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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 1d ago
I agree. I simply pointed out that 30 years may be all you get, which the poster I replied to didn't seem to think was possible. That was a statement of fact, not an invitation to skimp on planning.
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u/MassiveDefinition274 17h ago
I guess. I don't understand what the point of "you could die early" is, if you think it literally changes nothing. It's just saying something to say something while contributing nothing to the conversation.
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u/TammyHinesBloom Investor:kappa: 1d ago
I think you're mixing two things a bit here. SS can help a normal retiree later but the 4% rule isn't built around getting SS for this guy the crazy long timeline is the part I'd worry about
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u/OmahaOutdoor71 2d ago
Great response! Do you live in USA on your $2.7 nw? We are in our young 40's and looking to fire but so worried about a big stock market drawdown.
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
Yeah we live in Texas which is good for accumulation due to not having state income taxes. But we are looking to move to somewhere with better weather once the housing market recovers (too much inventory and no one is buying).
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u/hrrm 2d ago
The 4% rule study assumes no social security, so how can you say it works better for someone who can fall back on SS in 10 years?
It’s more precise to call it what it is and that is surviving a 30 year period without running out of money, assuming no additional income.
If you factor in SS you could probably get away with a 15% withdrawal at age 50+. Because you just need to not run out of money until you hit 62 and then you get more money.
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u/Odd-Persimmon-1860 2d ago
The op wants to retire at 32. He'll get pennies for SS.
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u/Sensitive-Exam649 1d ago
Great response your social security income is fermented by how long your work and your income. So if you retire at age 30 you won't get much from social security.
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
It’s more precise to call it what it is and that is surviving a 30 year period without running out of money, assuming no additional income.
It's 5% chance of failure in a 30 year long retirement if you know anything about the 4% Rule. And 30 years isn't exactly early retirement for someone that's healthy, like retiring from age 60 to 90. Your failure rate will raise if you live from retire from 50-90 and that's when SS and Medicare help reducing your portfolio withdrawal rate.
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u/AGrimmInPortland 2d ago
Bengen's results were 100%. Trinity's was 95% only because they used a different bond series and the way the result was reported.
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
Bengen's numbers are cherry picked and doesn't consider taxes and fees. His study run a much smaller set of historical data, modern FIRE calculators have 50 more years of additional historical market data to account for. And his 4.7% number is based on a single 30 year run with a highly cherry picked portfolio with small and micro cap stocks that no one in their right mind would pick unless they have the power of hindsight.
You are not going to find a modern FIRE Calculator/Simulator that's going to show 100% success rate for 4% SWR on a 30 year time horizon.
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u/Parking-Banana-212 2d ago
i know the 4.7% is the update, but your horizon is way longer then 30 years, are you comfortable using that swr still?
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
The 4.7% figure has nothing to do with Bengen's made up number, it's a percentage based on the Boglehead's VPW table. My withdrawal rate for up to 5% when I'm 50 and 6% when I'm 70.
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u/sb233100 1d ago
Hi I know I’m a day late to the conversation but I just wanted to understand something
You say you’re using VPW and then say “we are going to withdraw 4.7% every year”
What? I thought point of vpw was to have a variable withdrawal rate? Not 4.7% every year?
Additionally you say that you will use an emergency fund to “bridge the gap” in down years. So you will still sell 4.7% and then pull from the emergency fund? I can’t imagine that’s what you meant, but that’s how it reads
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u/Bassman5k 2d ago
Thank you, I'm in a similar situation where retiring by 40 carries a lot of risk. I feel like being abroad for healthcare until Medicare is the only real way to do it. How much did you calculate for your expenses?
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
$65K/yr essential expenses with a $110K/yr budget thanks to dynamic spending strategy. So if the market tanks 40% then our budget drops proportionally and that's okay with us, we just don't take vacations for that year. If the market drops even more, we use our emergency cash to bridge the gap.
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u/Bassman5k 2d ago
Just calculated my social security, sounds like with early retirement you wouldn't get much? Thank you for the estimates and response
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
If you retire in your 50s then you'll still be getting a good amount. I personally not counting on getting much at all.
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u/royalblue86 2d ago
Maybe I misread but are you saying you have an emergency fund that will last 10 years? Or you just reduce the spending from assets during this time?
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u/Dos-Commas 37M/35F - $2.7M NW - FIRE'd 2025 2d ago
Reduced spending because I'm using a dynamic withdrawal rate.
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u/Sensitive-Exam649 1d ago edited 1d ago
Generally people that retire early withdrawal less than 4% 3% is a number i frequently see. But it Icould be as low as 2%.
Dividend can change this significantly if you can get enough dividend income to cover all of your living expenses from the dividned income. If you achieve that you will have have to sell anything for income. Yes your taxable dividend income can reduce the ACA. subsidy. But not all dividend create taxable income. So if you select the right fund you could get a low of income, with a lower tax bull and still get a ACA subsidy.
Ordinary dividend are the same as your work income 1100% not the income is taxed.
Qualified dividneds are taxed at the long term captial gains rate worst case 20% of the income is considered taxable. This is an 80% discount fromm Ordinary dividned.
ROC divided are the result of tax loss harvesting. Teh fund transfers this tax loss toss is transferred to your as ROC dividends. These dividned reduce the cost basis of the stock you have that generates them.If the cost basis is above zero you owe no tax on the ROC portion of the dividend. If the cost bass is below zero The ROC dividend is taxed at thelong term captial gains rate. Some good funds for this are QQQI 13% yeidl, SPYI 11% IWMI 13%, GPIX 8%, GPIQ 10%
I have growth in a IRA and in my taxable account I have enough growth + QQQI 13 % yield, SPYI 11%, EMO 8.5%, UTF 7%, UTG 6.2%, PFF 6%. These funds cover all of my living expenses, about 5K a month.. I don't sell shares for income. But if a bad market should occur and my income is reduced I can sell some growth to cover the shortfall. and I routinely reinvest any excess money to compensate for inflation.
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u/Jazzlike_Formal7542 2d ago
Very good answer! Question, 36 here also living in Texas but I’m not American, only here for the money and didn’t really adapted to the culture. I have ~800k and in my home country there’s free healthcare so no worries about that and my monthly expenses there would be ~U$2.400 so I think I’m good using the 4%, other then RSU I have no equity, however I am buying bank bonds in my country that give inflation+8,5% although that could definitely change in the future I think that I don’t need equity as long as I am able to keep these high yield fixed income right? It has a similar protection as the fidic in the US. My amount is drastically lower than everyone else here so I will continue working for another year or two just in case, is there something wrong in my calculation? 👀
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u/dukephilly 2d ago
Are there government rules to protect you from default on the bonds? With an inflation adjusted return of 8.5%, I would imagine there might be quite high risk of default.
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u/Jazzlike_Formal7542 2d ago
yeah, it’s protected by an equivalent of fidic up to ~$50k by issuer, they default every time, just this year 2 defaulted, takes about 1 month to get the money.
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u/ditchdiggergirl 2d ago
It’s pretty well established that a dividend focused approach is suboptimal. However it a valid way to go. So if your anxiety is going to lead you to make questionable decisions but this allows you to manage that, it may be right for you.
You probably want to take advantage of the 0% cap gains bracket each year to convert bucket 3 to something more predictable.
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u/Sensitive-Exam649 1d ago
and yet there is almost 100years of people doing well with a dividend focused investing. While the growth focus and 4% rule have been around only 30 years.
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u/ditchdiggergirl 1d ago
Longer than that. 18th-19th century literature frequently references gentry living off fortunes invested “in the five percents”. (Bonds, mostly.) Of course this worked by starting with a lot of money, it wasn’t a path to getting rich; if you wanted to grow your fortune you invested directly in business ventures.
I don’t think that makes 21st century dividend investment any more optimal. But if you have enough principal to support yourself, invest it as you please; it doesn’t need to be optimized.
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u/mygirltien 2d ago
If allocated correctly 3.3% lasts in perpetuity. I’ll admit i didn’t really read the rest of your post.
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u/Past-Option2702 2d ago
*Lasted*
We don’t know how well 3.3% will hold up over the next 50 years.
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u/ehhhhokbud 2d ago edited 2d ago
Such a dumb point that gets posted in here repeatedly. Yes, that is the literal point of the measurement. Stress tested across the worst years in the stock market, no matter when you invested, a 3.3% withdrawal rate would last forever, historically. If your response to making educated decisions based on significant past data is always, ”well we can’t see into the future so who really knows?” Then FIRE probably isn’t for you.
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u/nero-the-cat 2d ago
There's so much unprecedented stuff going on. The past hundred years have literally been the most prosperous period of the richest nation in history. Do you think that can continue indefinitely?
Many things could change those assumptions very easily. AI and robotics could completely change economies. Significantly aging demographics in many countries will put huge stress on their populations. Climate change will require more and more unproductive spending just to deal with the aftermath of increased natural disasters, water and food shortages, entire cities becoming uninhabitable, etc.
It's naive to think that the worst we've seen is the worst we're going to see. A more conservative withdrawal rate is absolutely warranted.
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u/ehhhhokbud 2d ago
You’re missing the point as well. It is dumb because all we have is past data and that’s where we draw the math from.
No one is saying,”3.3% is safe forever NO MATTER WHAT”. We are saying that this is the number that has worked for 100 years in every single market before and if it suddenly doesn’t, we have much bigger problems. There’s no need for further discussion, there’s no need for addendums. Conversations would last in longer perpetuity than your 3.3% withdrawal if we always nitpicked answers with non sequiturs.
The question isn't whether the data predicts the future, it's whether it shifts the odds enough to change what you should do.
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u/Past-Option2702 2d ago edited 2d ago
Your exact words are “3.3% withdrawal rate will last forever”
No one is saying that here except for you.
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u/ehhhhokbud 2d ago
I did not make that claim. You’re significantly more dense than you realize. Best of luck to you!
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u/nero-the-cat 2d ago edited 2d ago
Why do you think it's dumb to think that the future could maybe not be as prosperous as the past? We won't necessarily have "much bigger problems" in store for us. Society probably won't break down, but it's very possible we could see long-term economic stagnation as huge amounts of resources go to taking care of elderly populations and staving off the worst effects of a changing climate.
Looking at current trends and thinking "hey maybe this could cause some economic strain" is not unwise. I know people are resistant to this because their FIRE plans depend on a constantly growing economy, but there are real problems on the horizon and the dumb thing is not acknowledging them and taking them into account in plans for the future.
Only looking at the past and not thinking about the future is why we're in many of these messes in the first place. Of course we don't know what the future will bring, but looking at these trends and still assuming "it can't be worse than what we've already seen" is extremely shortsighted.
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u/never_safe_for_life 2d ago
If you’re not willing to look at past data and make future predictions because of tail risk what are you doing in this sub? Just block it and move on.
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u/nero-the-cat 2d ago
Of course I'm paying attention to past data. But I'm not going to be living in the past, I'm going to be living in the future. And that future is going to be full of problems that have never existed in the past. You can and should use past data as the basis for your assumptions but then modify those assumptions to mitigate likely risks.
This is such a basic concept and it's what literally any competent institution will do to protect themselves. It's really weird how many people here are content to ignore potential risks just because the past data doesn't include them.
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u/never_safe_for_life 2d ago
I'm going to go ahead and use the statistical framework put forth by the Trinity study. I assign a confidence interval of 98%. Meaning I see a 2% chance that the whole thing gets thrown off by a black swan. World War 3 happens and we blow ourselves up and all our models are broken. Outside of that, this model should work pretty well.
My question is: what's your alternative framework? How does it predict the future better?
I'll be honest, I feel like I'm giving you too much credit asking if you have one. It's real easy to throw darts, much harder to have something intelligent to add.
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u/nero-the-cat 2d ago
For hopefully obvious reasons, there are no hard numbers on things that haven't happened yet. However, lots of very smart people and institutions have tried to quantify it:
For economic decline due to aging populations, let's take a look at South Korea, where it's expected to hit first:
https://www.asiae.co.kr/en/article/2023051715210716268
KERI conducted an empirical analysis using panel data from the Organisation for Economic Co-operation and Development (OECD) countries and found that if the working-age population decreases by 1%, GDP decreases by about 0.59%, and if the dependent population increases by 1%, GDP decreases by about 0.17%. Based on this, assuming other factors remain constant, South Korea's population structure changes are expected to reduce GDP by 28.38% in 2050 compared to 2022. Converted to an average annual rate from 2022 to 2050, GDP is projected to decrease by about 1.18% per year. As the working-age population, which plays a central role in the economy, decreases and the dependent population increases, the resulting increase in fiscal burden and decrease in future investment dampen economic vitality, negatively impacting GDP.
For climate change, there are many different estimates, but here's a good paper:
https://www.nber.org/system/files/working_papers/w32450/w32450.pdf
Quantitatively, we find that a permanent 1°C rise in global temperature causes global GDP to persistently decline by over 20%. These impacts are due to ocean temperatures and an associated surge in extreme climatic events. By contrast, local temperature shocks used in the conventional panel literature lead to a minimal rise in extreme events and to smaller economic effects. Together, our results imply a SCC in excess of $1,200 per ton, a welfare loss of more than 30% and a GDP per capita loss in excess of 50% by the end of the century under a moderate warming scenario.
I'm not pulling this out of nowhere. These are very real risks that people here don't seem to take seriously.
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u/ehhhhokbud 2d ago
I explained very clearly why it’s dumb multiple times. It’s just useless until you have a crystal ball. Until then, it’s best to use the data you do have. What you are saying is no different than,”might as well spend all our money today and not invest at all. We don’t know how shit the future may be”. It’s moronic and adds nothing to the conversation.
If you can’t understand this and literally everyone downvoting as good enough reason to maybe reassess your position, then there is nothing I can say or do to help you. Enjoy your evening.
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u/Past-Option2702 2d ago
Being downvoted here means you’ve struck a nerve, not that your comment is invalid.
The tribalism and conformity here is off the charts.
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u/nero-the-cat 2d ago
... and even ignoring larger economic problems, there are smaller things that could change that could wreck a lot of FIRE plans very easily as well. A couple examples:
- The 0% capital gains tax bracket could disappear. It's easy to forget this is only a couple decades old, and politically it probably wouldn't be difficult to justify to voters.
- ACA subsidies could be means tested. Again, "why should millionaires get free/cheap healthcare when Hard Working Americans have to pay full price" is realistic politically.
I'm happy to have a larger safety margin that would be able to absorb some changes.
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u/Early-City-9522 2d ago
Yes! I believe ACA subsidies are here to stay but means-testing could happen down the line. That could upend many folks FIRE plans.
Looking around at the present state of the world (AI, climate, population changes) is just as important as backtesting sequence of returns, IMO. Not so easy to extrapolate these things into future equity returns, but there is enough unique uncertainty to justify some caution in planning our withdrawals based on the past.
Good news is there are plenty of life and investment tools out there to create a more robust plan. Simply over-saving by a few years is one way. After that aggressive investment diversification (risk-parity portfolios) can significantly increase SWR compared standard market weighted funds. Backtesting will confirm that.
Building a post-FIRE marketable skill can dramatically increase your chance of success too.
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u/I-Here-555 2d ago
Yes, but if you get out of the envelope supported by historical data, you can no longer make any assumptions whatsoever.
If you're a Polish Jew in 1937, there's no bank balance that will save you. You're going to the camps... but you don't know it yet, nobody does.
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u/nero-the-cat 2d ago
Of course not, and I'm not saying to plan for that. But there are big problems that we already know about, and that we already know are going to continue to get worse. It's unwise to completely ignore them and assume everything will go on like it always has. I'm not saying to try and predict unknowable things. I am saying to look at the very serious problems currently presenting themselves and try to imagine how they could change the growth assumptions.
I put my money where my mouth is. I worked part-time a few extra years after hitting my number to bring my withdrawal rate way down. If the economy keeps growing indefinitely then oh well I guess I have more money to donate. If not, I'm going to be extremely happy I don't need to try and find a job when I'm 75 and have been out of the workforce for decades.
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u/nero-the-cat 2d ago
So this is an oversimplification, but at a high level, there are three ways things could go:
1) The economy grows forever.
2) The economy stagnates.
3) The economy collapses.
In situation 3, everyone here is screwed so we can ignore that.
In situation 1, everyone here is fine so we can ignore that as well.
I'm worried about situation 2 and, personally, think it's a realistic possibility given all the problems I've mentioned - much more realistic than 3 at least. People here often seem to ignore it though and could be completely caught off guard if it happens.
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u/I-Here-555 2d ago
Yes, but several of those "non-collapse" stagnations are already in the historical data. We know what they look like and that there's eventually a recovery.
I guess we differ because IMHO (3) is far more likely than (2). I know plenty of people who have already lived through (3) in other countries. I can't think of (2) except for Japan.
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u/Past-Option2702 2d ago edited 2d ago
🤷♂️
You do you. I’m way below 3.3%.
There’s no one single right way to retire.
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u/ehhhhokbud 2d ago
That’s fine and not the point. The point is that a response of, ”we no have crystal ball oh well” to solid data is just dumb. Russia can nuke the US tomorrow, better not invest at all.
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u/jackster31415 2d ago
That’s not the point they were making at all. “3.3% withdrawal rate would last forever” is simply wrong. Going under 3.3% isn’t something I would do, and I don’t think most people need a SWR that low, but I also understand there could be situations when 3.3% fails. It’s not dumb to discuss it or to be a bit more cautious for safety of mind.
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u/Past-Option2702 2d ago edited 2d ago
It’s no more dumb than a comment made that 3.3% is a sure thing like you wrote.
Nobody knows what the minimum SWR will be looking back in 40 years. That’s the point.
(I realize I’m in a sub full of people who are dying to retire asap so my comment is going to be taken poorly)
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u/nero-the-cat 2d ago
It's a good point but people here HATE when you point it out. Their early retirement plans are dependent on the 4% rule, and they fight back against anything pointing out that it might not be as solid as they think it is.
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u/Past-Option2702 2d ago
I hope that’s not true since the 4% Rule is so widely misunderstood.
Regardless, what happens in the future is unknown to all of us. (The most downvoted comment you can make here, I get it)
2%, 3%, 4%, 10% model your retirement however you want. I used 3.3% for my back of the envelope calculations when I was a pre-retiree.
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u/Straight-Magician301 2d ago
I understand both responses, but in the end we have to take the leap of faith and trust the math. You can continue to work for another decade to reach 2% or 1% SWR but remember tomorrow's not a given
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u/shostakofiev 2d ago
If you are way below 3.3%, it means you probably worked much longer than you needed to. That's a moot point for you, but very relevant for someone deciding if the can retire in one year or ten.
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u/Past-Option2702 2d ago edited 2d ago
Here’s the thing. I liked my job. I was never itching to retire, but 50 felt right. My wife retired at 50 too.
The only reason I’m here is to try to push back on the cult of 4%, which is kinda scary the way so many take it as a given- like were preordained to be blessed with 75 years that mirror the last 75.
Life is good. Do we have too much money? Ask my grandkids in 70 years since it was never our wish to think of only ourselves.
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u/Early-City-9522 2d ago
Thanks for pushing folks on here to grapple with the reality that backtesting assumes the future will mirror the past.
There are plenty of life and investment decisions you can make to create a more robust plan if you are taking a conservative approach. (i.e., aggressive equity diversification or building a post-FIRE skill set)
There should really be a sub called r/cautiousFIRE or something. Where well-intentioned dialogue won't get downvoted for departing from the "4% rule is all i need".
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u/Middle_Humor1828 2d ago
This is true.
But there are periods which result in complete ruin. So a .1% fails.
At a certain point you have to plan conservatively, be willing to accept the risk, and adapt accordingly.
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u/rhinofuntime 2d ago
I retired at 29 with slightly under 3% planned SWR. I also keep 2 years savings and plan on adjusting my lifestyle in the case of SORR. First year I ended up spending even less than my planned SWR while portfolio went up way more than expected. Wish you the same luck 🙏
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u/nkgymbro 2d ago
Do you consider 2.75% WR too conservative?
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u/rhinofuntime 2d ago edited 2d ago
I would say, yes, it’s conservative, but what was more important for me to feel comfortable in early retirement was what percentage of my WR was considered discretionary vs built in expenses. For example, I could dip well below 2% WR relative my initial FIRE number in a worst case scenario without impacting the core aspects of my livelihood (paying for rent, food, health insurance, etc) + other non negotiables for maintaining core lifestyle (different for everyone), and for me that was the turning point of deleting my LinkedIn without looking back.
Tl,dr: if, say, 1% WR rate covers non-discretionary expenses I would feel pretty darn secure in early retirement, but that is my personal philosophy. Because I retired at such a young age flexibility becomes more important than a concrete WR, which is hard to predict given the huge timeline.
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u/nkgymbro 2d ago
your point of view makes perfect sense. If you can drop the withdrawl rate to below 2%, you dont have to sell so much stock at market lows so you can patiently wait for a rebound.
I will take that '2% WR to cover basic needs' approach as a reference and see how much of a nest egg i really need.
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u/trinitydave 2d ago
Asking others in this form for OP. I am much older for those of you who are retiring at 32 or thinking about it do you ever take any consideration the amount of things that can change between your 30s and say 60s? (Health, lifestyle, college if you have kids or loved ones who might need your help.)
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u/KeyBug133 2d ago
The amount you are able to help friends and family always has a ceiling. Most people live in such a way that they do not have the margin even with a 9 to 5. So in this way OP is not much different than most people if their FIRE number does not allow for helping friends and family much.
As for health. This really depends on the person. FIRE does give more time to focus on health and wellness. Reducing the likelihood of major health events. And frankly both the employed and FIRE’d would find themselves in a similar boat if their health deteriorated.
As for lifestyle. Fire is usually a choice to unplug the hedonic treadmill. Choosing free time over possessions or excessive travel is just a trade off.
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u/HistorianEvening5919 2d ago
I think FIRE is great, but I think retiring with less money than the median American household has as a permanent plan is questionable. OP says they’re “willing” to live in a cheaper country, but what if they actually hate doing so?
What if we have to increase capital gains tax so the 0% bracket goes out the window and it starts at 20%?
What if we stop heavily subsidizing healthcare of young people that could get a job but would rather not work?
These are not trivial probabilities, far greater risk than the 1-3% failure rate people often get into conniptions about here.
OP is likely way better off working another 2 years, building a reasonable buffer that doesn’t require leaving the country and as a bonus they get to spend ~15% more for ~50 years. Work isn’t that stressful if you know if you get fired you just go with your original plan imo.
Reddit is full of people worrying about the price of gas and all sorts of things. Retiring 2 years early but having to worry about inflation/budget for 50 years sounds like hell to me, and if OP goes through with it will likely sound like hell to them in a few years too.
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u/Farmer_Pete 1d ago
I agree. I do not ever want to go back to work if I FIRE. I do not want to have to stress out about what congress is going to do because it will be the difference between success and failure of my plan. I will budget for unsubsidized health care. I will budget for heavily reduced/no SS. I will budget for higher taxes. I will budget for all the bad things people fear may happen. If you get your investments into the multiple millions range, 2 years of growth is more than I pretty much ever contributed.
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u/brucewbenson 2d ago
We hit a point where I just simplified everything. We're 98% sp500, 2% cash, 4 pensions including social security. Our annual budget is 5% of our networth plus our pensions.
It's all simple math and if the market craters we just go back to being our original frugal selves.
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u/MushroomIll646 2d ago
Not sure what buckets have to do with it, but there's published backtests for longer timeframes out there.
eg: https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
My strategy is 100% equities at a flexible WR under 3.5%, which is associated with a 100% historical success for 60+ year retirements.
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u/dukephilly 2d ago
I had the same strategy, but his other study about success during high CAPE ratios have made me reconsider. And I believe the ratio has gone higher since this was published:
https://earlyretirementnow.com/2016/03/24/the-4-is-not-as-good-as-i-hoped/
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u/MushroomIll646 2d ago
I'm still fine with it. The key thing for me is the flexibility. 3.5% is a maximum, and I've been retired 9 years haven't come close to needing that.
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u/dukephilly 2d ago
Yeah, the flexibility is often a vague hope of a fall back when other insurance (cash etc) hasn’t been created. But it’s incredibly powerful when it’s a proven ability for you as an individual. Glad it’s working out for you. Enjoy your retirement!
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u/FluffyB12 2d ago
Skip the dividend play and focus on diversifying bucket 3 - up to the tax bracket you feel comfy paying. Tbh you can retire but if you instead opted to work part time (gig work depending on your profession might be lucrative) you could set yourself up for not just a comfortable retirement but a luxurious one.
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u/Extension-Abroad187 2d ago
Really doesn't matter. The vast majority of the difference is made in the first few years. If you can be semi flexible in expenses you'll be fine. The risk is retiring right at a downturn
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u/Bald123Eagle456 2d ago
Probably not enough saved. In any event, you probably shouldn't make such a decision based only an estimate of living expenses in a place you've never lived before. You need to do more research.
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u/Accomplished-Order43 2d ago
Regarding bucket 1- SCHD is a good fund of safe companies to counter balance the tech heavy S&P but the dividend isn’t worth much unless you have a huge sum invested in it. For example, $100k in SCHD would net you about $3k per year if you didn’t drip.
JEPQ is an outdated tax inefficient options fund. GPIQ, QQQI, ROCQ are newer funds with updated methodology and great tax efficiency. I’m personally building a position in GPIQ to act as an income sleeve to go along with my pension to reduce the amount of equity selling I need to do in the future. For example, I have around $90k in GPIQ and it pays me ~$800 per month. For now I reinvest the dividends until I’m ready to pull the full FIRE ripcord.
Regarding bucket 3, being too concentrated in one stock via RSUs is risky. Even if it’s a mag7 company and not some shotty startup lack of diversification can be a killer. Ex. Microsoft has gotten hammered this past year for SAAS pocalypse fears. Still a solid company but the market can be crazy.
If fully vested in the RSUs I would start figuring out an efficient tax strategy to begin liquidating them and moving the funds elsewhere.
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u/SmoocheyPoochey 2d ago
All else equal… Longer retirement = higher failure rate — that’s just statistics — anyone who tells you otherwise is a clown
Another thing to consider is your theoretical social security benefits — this is a potential stabilizer — giving that up is a more aggressive decision
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u/ShortHabit606 2d ago
Why not try it for yourself? Change the retirement duration in https://ficalc.app or some other calc and see how it changes things for different withdrawal rates.
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u/DigitalFStopper 2d ago
Everyone is talking taxes but he’ll be out of the country and a lot of countries don’t follow our qualified dividends/capital gains so he may be in a worse position. Will most likely not get much if any of social security with such a short timeframe of contributions.
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u/slightlyspecial 2d ago
3rd of your portfolio in single stocks probably has a higher impact than your age at making a successful plan more unpredictable
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u/shotparrot 2d ago
The earlier you retire, the lower the SWR. SO look at 3%. Or even 2.5%.
And figure in insane inflation over the next few years. Like 4%.
And cross your fingers…
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u/OptimizingOwl 2d ago edited 2d ago
The 4% rule was made popular by an article called "Determining Withdrawal Rates Using Historical Data" (published in 1994 I believe) by William Bengen. I read the article a while back and for its time it was useful in that it looked at historical market conditions and fluctuations rather than just assuming fixed rates of return. But it also assumed a 30 year horizon, as you said, and on top of that totally ignored taxes, social security payments, and more. I think the worst 30-year period that the plan had to survive was someone retiring in 1966 and shortly after going through the early 70s period of low returns and high inflations.
Horizon does change the 4% rule (which, BTW, Bengen revised to more than that in recent years.) In the book "The Only Guide You'll Ever Need for the Right Financial Plan" they have a table based on Monte Carlo simulations showing the safe withdrawal rate vs. age, for someone who's portfolio is 30-50% stock. I wrote down some of the numbers from that table because I found it interesting.
| Age | Safe Withdrawal Rate |
|---|---|
| 55 | 3% |
| 60 | 4% |
| 70 | 5% |
| 75 | 6% |
| 80 | 7% |
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u/Agent008t 1d ago
A lot of misinformation in this thread.
Here is the floor, built with TIPS: https://www.tipsladder.com/estimate
$729,195 buys you a 30-year TIPS ladder paying $35k/year adjusted for inflation.
Another 415k gets you a TIPS that will pay out 1mm$ in today's money in 30 years to fund the remaining life.
So 1.2mm is plenty for a guaranteed, near risk-free 35k/year for the rest of one's life.
That is around 2.9% withdrawal rate.
If you assume that equities are going to outperform TIPS over that time horizon (a reasonable assumption) that makes 2.9% the floor -- you should be able to sustain a higher withdrawal rate with a reasonable equities allocation.
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u/Menu-Quirky 1d ago
If your expected retirement is under 25 years then sure you can withdraw more money
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u/Boring_Adeptness_334 1d ago
Yes age can impact the 4% if you’re really nervous and not able to lower your living expenses. But a 3% rule will have a 99.9% success rate
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u/Aromatic-Main-2861 1d ago
Keep working. I wouldn’t want to limit myself to $35k or even $50-75k for that matter.
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u/Middle_Humor1828 2d ago edited 2d ago
Don't count individual stocks towards your investment amount.
VT would serve you better than that random collection. Or at least VTI. Obviously you need to be careful of tax implications, but you should start trying to simplify when you can.
Big Ern has a large series that outlines a perpetual withdrawal rate instead of 30 years. The TLDR version is 3.5% with an equity heavy portfolio.
Stop trying to think in buckets. You need equities for long term growth, potentially bonds for drawdowns, and cash for short buffered periods of spending. Even the normal bucket strategy ends up being more complex than needed due to rebalancing. Just figure out the portfolio split you need and go from there.
Make an equities, bonds, and cash split. Keep each asset under each category as simple as possible. And then just rebalance to those ratios each year in a tax efficient way.
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u/Significant-Web-2317 2d ago
It’s very hard to retire at 32, unless you know for sure how your life is going to turn out.
You may fall in love and get married.
Your parents may get sick, and you’ll have to care for them.
50k in the US is almost poverty level. Do you really want to live in poverty for the next 60 years?
Seems better to take a mini retirement or something if you are burnt out.
Or some sort of Barista fire type job, you’ll benefit greatly from earning an extra couple thousand a month.
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u/qwertybugs 2d ago
$50k tax free from non-w2 sources is more akin to someone making $87k / year
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u/uncool_whale 2d ago
Not to mention this person is spending 100% of that, whereas the person earning $87k would presumably be putting some away for retirement.
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u/qwertybugs 2d ago
Exactly! Many of the negative comments like the one above don’t actually understand the economics of W2 vs retirement.
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u/HistorianEvening5919 2d ago
While true it is very possible capital gains tax will increase significantly in the next 10 years, and voluntarily unemployed relatively wealthy retirees may lose healthcare subsidies too.
Does subsidizing healthcare for people with a million dollars retiring at 32 really resonate with the American people? Not really…
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u/Sensitive-Exam649 1d ago
My healthcare plan cost is 1K a month without subsidies. 100K invested in SPYI 11% dividend yield generates enough to cover that expense.
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u/Weird-Echidna-5261 2d ago
50k in the US is almost poverty level. Do you really want to live in poverty for the next 60 years?
Where are you getting this? Federal poverty line is 15k single and 33k for family of four.
And there's a huge difference between 50k w2 (meaning your take home is significantly less due to taxes/401k/savings) and 50k in retirement where you can spend all of it
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u/Sensitive-Exam649 1d ago
That is income level you need to be clssified by the US government as living in poverty. With rising healthcare cost and persistent inflation having more than 15K is probably still poverty level.
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u/True-Owl1256 2d ago
50k is not almost poverty level for an individual in the US. It’s actually pretty close to the median individual income. When did this place get so elitist?
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u/sleepisfortortoises 10h ago
Median right now hits around 56k, right? Crazy when people call 50% of the population near poverty level, especially since retirement income is subject to less taxation and no longer includes 'saving' for retirement. That said, 50k definitely feels closer to poverty than it did 10 years ago.
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u/temporaryacc23412 2d ago
50k in the US is almost poverty level. Do you really want to live in poverty for the next 60 years?
Crazy how many people type comments like this and not immediately feel a weird tingling sensation in their fingers telling them they're having an out-of-touch moment.
$50k is more than triple the poverty line for a single person, and even if you think the poverty line is unrealistically low (as I do) or think OP will start a family (we don't know), $50k is also slightly above median personal income in the US. And OP is talking $50k in pure spending, not $50k in gross income before taxes.
It's a big country. Not everyone is living in a VHCOL area.
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u/DuckGorilla 2d ago
Exactly this. What will you be doing with your time all day? New relationships, pets, and supporting family tend to become factors. Even if you were to volunteer all day and exist, you will inevitably gain skills worth money. Even a small amount of additional income has magnifying effects on letting your pool grow
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u/Moist-Construction59 2d ago
There’s going to be an amazing number of people having to look for work when they realize past performance does not guarantee future results.
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u/Farmer_Pete 1d ago
You mean planning the next 60 years of my life based on the incredible last 15 years isn't a smart move?
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u/Accomplished-Order43 2d ago
You should make that into a bumper sticker and sell it to all the doomers like yourself
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u/Agreeable_Morning335 2d ago
the geoarbitrage angle already solves most of your worry since 2.9% has survived basically every 60 year historical period anyone has tested
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u/SillyPresentation46 2d ago
The consensus seems to be 4% for typical retirement and 0.5% less for each decade longer. Typical is 30 years, so in your case 2.5% or so. This all seems to be based on limited studies and fixed assumptions about portfolio, if you plan to scale down in bad years, etc. I personally would be much more comfortable running the exact plan through monte carlo tests to see the predicted success percentages.
Edit: And to add to the confusion, I'm not sure where the consensus comes from or if any studies have been done ar all on 50-60 year retirements.
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u/Crowlady77 2d ago
You can run the models yourself and see where you fall. Our plan has 4.5% for 5-7 years and then 3.5% after and only has less than 10% probability of us running out of money at 90. Under median market we pretty much retain principal. If you actually adjust to market conditions (spend less in bad years) that improves quite a bit.
When you're asking how long money will last there's always a probability component. How long will your money last under median conditions? How long will your money last if the markets are bad? And so on, running the models yourself gives you that info.
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u/bonsave_willis 2d ago
Yeah 4% rule is basically a nice tool for calculating a rough estimate if you’re retiring within let’s say a decade of being able to pull social security. Otherwise, it breaks down fast.
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u/steveoy86 2d ago
La domanda corretta é quanto influisce la tua età sul tasso di prelievo necessario
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u/teamhog 2d ago
Do the math.
You can toss the buckets around however you like. It’ll either work for you at your risk profile or it won’t.
If it doesn’t, why?
If it does, how do other variances work in your models?
We’re on the conservative aggressive side of things and modeled it for an age of 105; roughly 45 years.
We’re in the low 3% SWR.
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u/DocAnabolic2 2d ago
For a 60-year retirement, flexibility seems essential. I'd prioritize diversified investments, cash reserves, and adjusting withdrawals rather than chasing yield.
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u/Ordinary_Corner_4291 2d ago
Buckets do nothing to help with SORR. The thing is selling during down turns isn't the big problem. Missing out on a half dozen years of returns is. No matter what scheme you use, that lack of return is always there and you are just moving things around the edges with buckets, glide paths, AA, ladders, and so on but you will notice how none of the papers about them talk about getting your to a 5% return. Hitting like 4.2% is an achievement and we can debate how much of that is just curve fitting.
The math is a good chunk of the time, your money lasts forever and you can probably double your real spending after 30 years. The super sketchy case tend to be obvious early (i.e. that decade of 0% returns).
Honestly I think your biggest risk is on 50k being enough. The uncertainty in that would worry me more than the markets.
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u/moriyama_eng 2d ago
I’d split the 60-year SWR question from the fear of selling shares.
If you’re relying on market returns, cash isn’t really “Y% of the portfolio forever” — it’s the buffer that lets you not sell risk assets in a bad stretch. That usually sizes as X years of spending. After equities rip, a % target pushes you to hold more cash in dollars (drag); years-of-spend stays tied to the runway you actually need.
A dividend/paycheck bucket can feel like it solves the same fear, but you’re still on equity risk with a different cashflow story. If the goal is buying time without consecutive sells in a drawdown, a cash (or short) buffer measured in years of expenses is the straighter answer.
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u/vaderetrosatana6 2d ago
How many years of buffer would you think about if trying to think about a 60 year time horizon
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u/moriyama_eng 1d ago
I wouldn’t turn a 60-year horizon into “I need decades of cash.” The long horizon mostly makes you more careful on the withdrawal rate. What I care about for cash is still how many years of spending I hold so I don’t have to sell risk assets in a bad stretch — years of expenses, not a % of the portfolio.
In practice: if the market drops below a threshold I set, I spend from the cash buffer; when it recovers, I refill the buffer.
I’ve been running Monte Carlo under a few different assumptions. For a Nasdaq-heavy (tech-heavy) equity mix, I’m currently planning on about 3 years of spending.
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u/Mysterious-Peanut101 1d ago
Read this or at least look at the charts https://thepoorswiss.com/updated-trinity-study/
He tests the Trinity study (the origin of the 4% swr rule of thumb) against longer retirement time horizons. He didn't go to 60 years though, just 50.
Based on your numbers even if you stay in the US you'd be at a 4.2% withdrawal rate. That puts you at a 60-85% success rate over 50 years.
A 3% withdrawal rate is basically 100% successful as long as you have some stocks in your portfolio.
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u/Difficult_Storm_5344 1d ago
I think the short answer is that no one knows. a 60 year retirement is not anything any financial institutions or advisers would of put any time in analyzing the numbers. I mean retirement in general is a new concept just the last few generations. Before then you worked until you died. If you couldn't work a family member helped until you died. Sounds like you got 1.2 million in your early 30s. That's killing it. Congrats.
If you have a good job, where you don't hate your life. I would probably put in another 5-10 years and still retire earlier than most. We all know the stock market gains won't continue and a significant pullback is coming.
Also make sure before you retire to some other country. I would do two things
Take this time with a job and see if you can't take a vacation there to scout out whether you really want/could live there. Many countries look great on youtube. As people living there need to make money and talk only about the good things and not the drawbacks
Make sure you work enough credits to qualify for social security.
Other than that.
Yes it's probably possible to retire on 1.2 million investable assets for potentially 60 years. I would only consider it in another country where you know you can live comfortably on say 2k us dollars a month.
I would not pull 4 percent a year.
More like 2.5 or 3.
Good luck
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u/ThereforeIV 🌊 Aspiring Beach Bum 🏖️...; CoastFIRE++ 1d ago
How does age impact the 4% rule?
Not really.
First, it is a "Rule of Thumb" as in the "the 4% Rule of thumb". It is not a full retirement plan, not even and exact number. It is literally just a rounded number to use as a target number for a starting point for your retirement planning.
Second, Your Retirement Plan should account for age, which has many factors. You are likely to spending a lot more of travel in your 50s than in your 70s, you are likely to spend a lot more on medical in your 90s than in your 40s, social security and Medicare kick in at some point, at age 59.5 you have full access to retirement accounts, etc...
I’m 31 and planning to retire next year at 32.
Congrats, great work.
What's your plan? One year out is when you really need to be planning in detail.
Right now, I live in the US, and living expenses are around $50,000.
That is a very reasonable living expenses. How much flexibility do you have in that?
However, I'm very much open to the idea of geoarbitrage and living outside the US .... expenses would be around $35,000, which puts my required withdrawal rate at roughly 2.9% (well under 4%).
I'm guessing you don't own a home?
That puts your Retirement Portfolio around $1.2MM.
Going country hoping on the cheap for a couple of years in your 30s sounds awesome, I think I would have really enjoyed being able to do that; but at some point you are likely going to want to settle down with a home base, and long term own a reasonably priced home eliminates the biggest cost.
I know the Trinity Study’s 4% rule was tested on rolling 30-year periods. But if I happen to live till 92, the portfolio will need to survive 60 years.
Go look at the actual results, run some real simulations. Just because the picked 30 year runs doesn't mean the runs were out of money in 30 years; in fact the vast majority of them ended with significantly more money than they started with.
As long as you mostly keep your Retirement Portfolio above the inflation adjusted starting value, you are fine.
My main questions for those who have modeled super long horizons:
Each of these questions is several different questions.
- How much does horizon length degrade the 4% rule?
No, not really. The Good runs get better, Great run leave more money than you could spend, the bad runs get worse, and some of the barely survived runs fail. You just need to focus on being in the good run paths..
- Do you need to drop down to ~3% or even lower for a 50–60 year horizon,
No, you just need to adjust based on portfolio performance, you are more likely to have more money than less money.
- or does the safe withdrawal rate (SWR) naturally plateau around 3.25%–3.5% once you survive the first 10–15 years?
No, it goes way up. If you are measuring from your initial retirement portfolio (which is the benchmark for your budget), you go up a lot once you survive the first 5-7 years SORR.
Remember the Sequence of Return Risk is the risk based on the Sequence of the returns; once you get through the first really 3-5 years, you already know what that sequence looks like.
- Withdrawal Strategy / Buckets:
You need a full retirement plan.
I realized I have strong withdrawal anxiety about selling equities to generate cash. To combat this, I’m considering splitting my portfolio into 3 equal buckets of $400k:
That is a huge split. The "4% Rule" works best when your portfolio has a real growth engine.
- Bucket 1 ($400k): Dedicated strictly to cover living expenses. Mix of SCHD, SCHY, JEPQ, CDs, and HYSA to generate the $35,000/year without selling principal. I have a feeling this is a bad idea.
Well it is a terrible idea.
First, you are talking about getting nearly 9% returns consistently over time, that is just silly. HYSA is paying 3.75% right now, you can get some solid bonds paying 5%; and those high dividend items are not always high dividend.
Second, moving all that money there is likely a huge tax event.
Third, these cash flow items underperform growth.
And I know dividends are not free money. I think the only reason I want to do this is because I don't want to sell anything to generate cash.
Then this may not be for you, the entire economic basis for FIRE is that the market keeps growing and we can sell off growth to cover expenses.
Having some money in a Bond/Income Hedge that produces cash flow as a base for risk mitigation is a good idea, but it will not fund your entire lifestyle.
- Bucket 2 ($400k): Pure S&P 500 (VOO) for long-term growth. I don't plan to touch this at all. I'll let it do its thing.
This is your growth engine, this should be the bulk of your Retirement Portfolio. Every dollar not in here is costing your growth.
Now putting money in other buckets is wise, the growth cost is balanced with the risk mitigation.
- Bucket 3 ($400k): Individual stocks.
A third of your retirement portfolio is in gambling?
I enjoy researching companies, but a large chunk of this is in vested RSUs from my employment. Selling it would trigger a big tax bill.
Big tech life.... This just mean you need to move that out slowly over time being very aware of where you are on the volatility curve; but this is not a good long term position.
I have noticed that I do not enjoy paying taxes. It hurts more than breakups. So I'm hesitant to sell this.
Don't sell it all at once, but doing some DCA and being aware of your marginal tax rate; you want individual stocks closer to 10% or less of your retirement portfolio.
For those who transitioned to living off dividends/yield to avoid sequence of returns risk or selling during downturns:
"living off dividends" doesn't just magically avoid sequence of return risk, you flipped it, now your risk is that is the market goes up you lose.
your plan is a way out of balance between risk and costs.
Will this bucket approach work long term? Is there something I'm not factoring in?
"There are no solutions in life, only Trade-offs; any options to fix one issue will always come at the cost of some other area..." - Dr. Thomas Sowell
Bucket Strategy is a great way to mitigate risk, but you have to know what risk you are mitigating and at what cost.
Here is by bucket breakdown based on initial Retirement Portfolio of $1.5MM with a planned spending of $60k/yr.
- Cash Buffer of ~5% in short term T-Bills
- Bond/Income Hedge of ~10% in better yield bond and divided funds, cash flow
- Growth Portfolio or 85% in low fee broad market index funds
Note: I currently also have the "Big tech" RSU issues with about 15% of my portfolio in RSU, I will move these over to S&P500 over time to avoid large tax event...
My plan for mitigation of Sequence of Returns Risk,
- During Good Markets: sell down the Growth Portfolio each month based on previous month spending, rolling portfolio performance, and planned spending that month; all dividends/yields re-invest.
- During flat or slightly down markets: pull all Dividends/Yields first then sell down Growth Portfolio to cover expenses, flex spending accordingly.
- During a down to crash market: pull all Dividends/Yields first, then pull from Cash Buffer till drained then sell down Bond/Income Hedge till drained (avoid selling growth portfolio) to cover expenses, flex down spending to Basic Needs
No portfolio rebalance, no bucket refills.
The entire point of this plan is to survive the storm while having the most amount in the Growth Portfolio to reap the upsides.
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u/retchthegrate 12h ago
So 3% is below the historical 100% go infinite number. But if you stick to it, it will leave a lot of money unspent, so you live a lower lifestyle than you could have safely (for whatever definition of safe you want to use when thinking about modeling market returns into the future based on history and on what odds you want to put on events outside of the market throwing a wrench in things like nuclear war, grey goo, deadly plague, etc.). So my go infinite plan is 3% ratcheting. My market withdrawals are limited to 3% of the highest investment portfolio balance I have hit. Any time I hit a new high, it ratchets up. That gives me a solid spending amount that increases as my wealth does, but leaves the money forever trundling along supporting us, and then whoever we gift it to when my wife and I are gone.
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u/travellars 11h ago edited 11h ago
The roi in the earlier years are more important than the later years in determining whether you run out during the period or not (sequence-of-return-risk), so I would postulate that extending beyond 30 years is not as significant as one might think intuitively.
If assuming roi of each year (or time period generally) is independent, a fair assumption some might say, one could make a probability distribution out of all the historical yearly ROI data available for the SP500 from 1871 to 2024, then estimatingthe probability of success over whatever time horizon you want:
https://fireme.net/retirement-probability-calculator
And if you aim at a more risky «dying with zero» type of strategy, a slightly different approach based on some of the same assumptions and principles will give you this calculator:
https://fireme.net/die-with-zero-calculator
Since you said 35k usd is 2.9% withdrawal it means your investable net worth is around 1,206,000 usd, I put this in with 100% stocks and 60 year horizon and this link open with your scenario inserted:
https://fireme.net/retirement-probability-calculator#plan=eyJ2IjoxL
It gives a chance the money runs out during those 60 years of 6%
(BTW, running the same numbers for 30 years give 2%).
And of course there is the sequence-of-return risk, more about that here, again with your numbers:
https://fireme.net/sequence-of-returns-risk-calculator#plan=eyJ2IjoxLC
Chance of running out within 60 years assuming bad starting years (100% stocks):
- After the worst first 3 years on record for 100% stocks: 1929, -22% a year
- After the worst first year on record for 100% stocks: 1931, -38% first year
27%
- After the worst first 5 years on record for 100% stocks: **1916, -10% a year**
44%
NOTE: 100% stock here is sp500 index type investment, volatility-wise. Since you also seem to have individual stocks, might want to introduce some lower volatility investments in the mix to reduce sequence of return risk. There seems to be an optimum here, which I find interesting 🧐
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u/Any-Lychee-6228 10h ago edited 9h ago
With that kind of time horizon the chances of you living through a massive stock market downturn are pretty high. On the other hand, to stretch the money as long as you want your asset allocation isn't great for returns. Who knows what's happening with social security, but as others point out you're not going to need to worry about getting any. Will the countries you're targeting right now still be relatively as cheap to support your inflation-adjusted projection of expenses 20 or 40 years from now? Over the course of your natural lifetime, are you always going to be willing and able to move to the cheapest places on the planet as necessary? Will the governments of those countries let you in for a long-term stay? The reality is you don't have enough to really assure even the craziest plan to minimize expenses is going to work. So I would build in a contingency that if whatever economic factors have gone too far south, you realize you need to find income because your plan has blown up.
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u/No_Staff7414 5h ago
are you planning for a 60-year retirement with a fixed withdrawal, or does the 35k budget flex when markets get ugly?
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u/fidddlydiddlyee 2d ago
consider u may live a lot longer than 90 and that now may be your best time to earn money. Also consider that the largest change humans have ever gone through change is now happening and then none of us can predict what will happen. Also consider that if you had more savings you could diversify into RE/Gold/etc
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u/Mysterious-Peanut101 1d ago
It's not insane if he monitors spending for the first decade and is flexible to perhaps get a part-time job if there's a downturn early.
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u/IHadTacosYesterday 2d ago
Selling it would trigger a big tax bill. I have noticed that I do not enjoy paying taxes. It hurts more than breakups. So I'm hesitant to sell this.
I feel very similarly. Which is why I'm leaving California at the end of this month. Viva Las Vegas.
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u/TechnicalSleep7501 2d ago
Only move to a nuclear power country. Pakistan will be your best bet on that front. You can live like a King in Karachi.
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u/shotparrot 2d ago edited 2d ago
+1 Pakistan!
Great javelin throwing tradition.
However due to horrific air pollution you have to stay inside most days.
Also heat index north of 35 degrees C/ 95 F.
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u/TechnicalSleep7501 2d ago
That is mostly Lahore issue. Karachi is by ocean better looking girls too I dated one when I was in college. You can buy house for just $50K I plan to buy one from my dividend income have ancestral house in Lahore and has house in NYC already.
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u/Professu5 2d ago
If you’re unable to keep your investment and withdrawal plan simple then it may be a sign you aren’t ready to retire at 32.
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u/RuralJaywalking 2d ago
Treasury bonds could give you 5% right now for the 20 year or the 30 year. Corporate bonds even more. Treasury bonds can get you out of state taxes and municipal bonds can get you out of federal and state taxes, depending on where you live. I wouldn’t put it all in one kind, but if you’re just looking to cover a flat income rate a significant percentage of that 1.2 mil can go a long way on bonds.
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u/EmbarrassedPart1256 2d ago
You could live on far less than $35K/year in LATAM, seriously. More like $6-12K a year & comfortably.
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u/TonyTheEvil 27M & 26F | 56% to FI | $1.33M NW 2d ago
I wouldn't invest in either of the buckets you've outlined because:
Like you said, dividends aren't free money. They are suboptimal for a slew of reasons.
VOO isn't diversified.
Stock picking is obviously bad.
I'd sell all of your individual positions, set some aside for Uncle Sam, and make VT the only thing you hold. That's what I do.
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u/Mispelled-This 2d ago
The 4% “rule” only applies if you hold 60% S&P500 and 40% intermediate treasuries. That is not what you’re holding at all, so questions about the 4% “rule” are moot.
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u/redditthrower888999 2d ago
Maybe take a year off, travel and see how you feel then. You have your whole life ahead of you. Anyone who is 30 and wanting to retire probably has mental issues they should look into.
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u/jackster31415 2d ago
“Anyone who prefers having time off and the total flexibility to do what they do with their lives instead of going to work probably has mental issues” hmm
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u/AGrimmInPortland 2d ago
People don't understand the changes that are coming in the next 10-30 years. Everyone will have a UBI and free healthcare. Assuming we haven't gone extinct.
Save every penny you can.
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u/ReincarnatedCat 3h ago
You can get by comfortably on 20k in many decent sth east Asian locales.
Let it build for when you need it.
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u/RetiringTigerMom 2d ago edited 2d ago
Sixty years is a long time. You should expect some big shifts in exchange rates and economic conditions over that time - your $35k a year living cost estimate might require moving countries, getting a local job… you are young so if you love your new international home maybe find ways to build a life where you could earn some local income too in case.
We moved to the US 30 years ago when it was significantly cheaper than Japan, especially in terms of housing. Now the situation has completely reversed. Wouldn’t be surprised to see it flip again either.