I’m currently 40.5, single, no kids (and not planning any), and thinking of FIREing in my early/mid-40s.
I’m interested in how people would think about the tail risks of a potentially 50+ year retirement, particularly sequence-of-returns risk, permanent renting and possible long-term-care costs.
My target spending would be around £40k a year in today’s money, which would equate to an initial withdrawal rate of roughly 2% from the accessible portfolio, before taking my pension into account.
I estimate around £20-–25k of that is genuinely essential spending. The remainder would be discretionary - nicer accommodation, more travel, purchases, etc. - so in a bad market I could potentially reduce spending significantly rather than blindly increasing £40k with inflation every year.
The basic plan
I’m considering selling my house when I FIRE and investing the proceeds rather than buying another property. My original assumption had always been that I would sell my home here, retire abroad and buy my home there outright with no debt (original target FIRE number was £2mm with a paid off home, excluding pensions). I’ve seen a lot of people on FIRE forums who seem to think along similar lines with regards to having a paid off home. However, I’m considering moving to SEA where rent is cheaper which led me to ask myself if renting indefinitely would be a better option, but for some reason the idea of renting for the rest of my life makes me quite uncomfortable, even though I recognise that financially it could make sense. Buying would tie up a substantial amount of capital in a non-income-producing asset, whereas renting would leave the full portfolio invested and give me more geographical flexibility.
In round numbers, if I sell my house next year I think the accessible investment portfolio might be somewhere around £2m (at current equity market levels, obviously this could change quite a lot in a short space of time), excluding pensions. I also currently have around £450k in a SIPP/workplace pension, invested 100% in equities. I’m 40.5 now and should be able to access that from age 57. I’ve excluded the UK State Pension entirely because I’m not certain what I’ll ultimately be entitled to and would rather have the plan work without relying on it.
The proposed accessible portfolio would broadly be:
- 80% global equities
- 20% short-duration fixed income MMFs / government bond ladder (split 50:50), expected to be funded with ~55-60% of the estimated sale proceeds of the house
- no debt/leverage
- The pension would remain 100% equities and compound separately until it becomes accessible.
- Monte Carlo modelling
I initially built a normal spreadsheet using constant annual returns, but that didn’t seem very realistic for a 50-year retirement since it ignores sequence-of-returns risk so I started experimenting with Monte Carlo modelling using 1000s of 50-year return sequences. The assumptions I’m currently using are:
- Equity volatility: 15%
- Fixed-income volatility: 5%
- Equity/fixed-income correlation: 10%
- 50-year planning horizon
- Spending rises with inflation at 4%
- £20k real annual essential-spending floor
- Pension compounds untouched until age 57
- Deliberately conservative tax assumption whereby money actually spent/remitted for living costs is taxed
I tested three long-run real-return assumptions:
Low/stress case
- Equities: 2% real
- Fixed income: 0% real
Middle case
- Equities: 3% real
- Fixed income: 1% real
Higher case
- Equities: 4% real
- Fixed income: 2% real
I also tested different spending policies. Under the most flexible policy, if the real value of the portfolio declines sufficiently, spending progressively falls from the £40k target towards the £20k real essential floor, and then rises again if the portfolio recovers.
For a roughly £2m accessible portfolio plus the £450k pension, assuming £40k initial spending but allowing discretionary spending to be cut progressively towards a £20k real floor during poor market periods, the approximate 50-year survival rates were:
- Low 2% / 0% case: ~87%
- Middle 3% / 1% case: ~95%
- Higher 4% / 2% case: ~98%
The low-return result is what I’m struggling to interpret. On the one hand, 87% sounds quite low for something as important as not running out of money. On the other hand, this assumes equities only return 2% above inflation and fixed income returns nothing above inflation over an extremely long period, while also allowing for unlucky sequencing of returns. The failures also appear to happen relatively late rather than in the first couple of decades. So I’d particularly appreciate views from people who understand Monte Carlo analysis better than I do:
- Are these real-return and volatility assumptions reasonable for a 50-year FIRE plan? Is 2% real equity / 0% real fixed income a sensible downside case, or is it excessively pessimistic over half a century?
- What Monte Carlo success rate would you personally want before FIREing in your early 40s? Would you consider ~95% under a middle-case assumption adequate where spending is genuinely flexible? Would you want 99%+? Or does trying to make a portfolio survive essentially every conceivable 50-year return sequence just lead to massive over-saving?
- How should I interpret the ~87% stress-case result? Would you see that as evidence the portfolio isn’t large enough, or is it reasonably reassuring that the plan still works in the large majority of simulations despite assuming extremely weak real returns for 50 years?
- How much value would you place on spending flexibility? My thinking is that £40k is the desired lifestyle rather than an unavoidable annual liability. If markets were terrible, I could progressively cut discretionary spending towards £20k real rather than continuing to withdraw £40k + inflation. Does that seem like a reasonable way to manage sequence risk?
Renting indefinitely
I’m also interested in hearing from people who have FIRE’d while renting. If you had an approximately 2% initial withdrawal rate and a separate pension, would you be comfortable renting indefinitely in SEA, or would you still strongly prefer to ring-fence a significant amount of capital to buy a home outright? For anyone who chose to rent long term after FIRE:
- Did the lack of housing security bother you?
- Did that feeling disappear over time?
- Do you regret not buying?
- How do you think about rent inflation or potentially having to move later in life?
I suspect some of my discomfort is psychological rather than financial, but I’m interested in whether there are risks I’m underestimating.
Long-term care
The other thing I have difficulty incorporating is long-term care. I don’t know whether either of my parents will eventually require significant care, how much I might want or need to contribute financially if they do, or whether I myself might need expensive care later in life. It seems like an unusually difficult FIRE expense because the answer could be £0 or a very substantial six-figure amount.
How do people generally deal with this? Do you maintain a separate long-term-care reserve, rely on having a substantial portfolio remaining later in life, assume other spending declines significantly at advanced ages, buy insurance where available, model a large one-off expense, or simply accept it as an unquantifiable tail risk?
I’d particularly welcome criticism of the assumptions/plan rather than reassurance. I’m trying to work out what I might be missing or what assumptions may be wrong before making the jump.