Comment by hammock
9 years ago
To apply MMM's ideas, on a 50K salary assuming monthly expenses of 1,250 (that's the hard part), if you put away 50% every year you can retire on a 375K nest egg (4% safe annual draw) after 15 years, or age 37. Roughly.
Assuming you only live to be 80, you'll have to stretch out that $375k nest egg for a whopping 43 years of inflation, rising healthcare costs, and unpredictable market conditions. And God forbid you reach 80, run out of money, and then... keep living, old and frail and weak with no job prospects. FIRECalc suggests a probability of about 20% of running out of money by age 80 with a 4% annual withdrawal rate (adjusted for inflation).
Plans like this just seem downright dangerous to me.
On a longer timeframe you'll need to have a lower withdrawal rate, but not a huge amount more. The 4% withdrawal rate is based on the Trinity Study [1] which was looking at 30 year time periods. (edit: added the link)
Per cFIREsim, with "success" defined as having more than 0 dollars at the end of the time period
375k -> 84.62% success 425k -> 96.15% success 450k -> 99.04% success
Additionally, the median portfolio value at the end went from 650k to 1.1M to 1.4M.
375k is definitely cutting things close. But at the same time...
* you're always going to have unpredictable market conditions
* you're likely to get at least some level of social security (which is unaccounted for in the above numbers)
* pulling back the expenses even a couple percent in the particularly bad years has a huge effect on success. This is admittedly difficult at 15k/year expenses, but padding the 375k by 5-10% would do a lot to mitigate that risk as well.
* If things start going downhill in terms of market returns, you retired young enough that you can reasonably go back to work for a short period of time. Even working at McDonald's at 7.25/hour would be approximately sufficient to cover the annual expenses.
[1] https://en.wikipedia.org/wiki/Trinity_study
To add on to this, I found the recent reddit AMA with Bill Bengen (first author on that Trinity paper) highly interesting:
https://www.reddit.com/r/financialindependence/comments/6vaz...
Or god forbid, you work a little bit to supplement your nest egg during those 43 years.
Sure, but that changes the topic a fair bit. Part of the allure of MMM is telling people they can retire at age 30 to 40 with a relatively small amount of money if only they can keep their expenses under control and live frugally.
The reality is that as you get deeper into that 43 year period without pursuing your career, your marketable skills will diminish as well. Many careers don't "scale down" either. A person who was once making $50k may not be able to make $25k with half the hours. The choice in many careers is 100% or 0%. Programming is in many cases a wonderful exception, so that might be biasing folks here.
You may very well end up just getting a part-time retail or fast food job. In any area of the country where this plan is viable, the minimum wage is going to be quite low, possibly as low as $7.25/hour. You're going to find yourself working quite a few hours just for a "little bit" of supplemental income. Indeed, if you needed to cover all your expenses (but nothing more), that'd be a full-time year-round job at the minimum wage (and in fact you might have to work overtime).
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Most people do not have a lot of good opportunities to supplement income in retirement. Yes, there's part-time retail--especially around the holidays--and, these days, there are the various gig economy jobs. I'm not sure that any of those are things I'd voluntarily do absent a pressing need for some additional money.
>>Plans like this just seem downright dangerous to me.
Retirement doesn't mean one sleeps 15 hours a day. It generally means one doesn't care much about the day to day financial demands of life and does what he/she always wanted to do.
If you give these $50K/yr people $400K at the age of 37, these people will very likely go on to a lot of other important things which can help them make more money.
when you retire @ 37, you can start to do yoga/tai chi religiously, 1-2 hrs a day, so when your 80 years old your not old/frail. And IF you are tired of material existence, you have the means to end your life internally by simply controlling your energy, sending it up your spine into your brain ;)
> when you retire @ 37, you can start to do yoga/tai chi religiously, 1-2 hrs a day, so when your 80 years old your not old/frail.
Ever heard of diseases (not to mention just plain old aging)? Tai chi/joga is not a ticket to immortality.
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It's just a strangely worded way of saying it. You can practice these forms without needing to retire and/or you can continue to practice them for however long you want whenever you retire. And it might not be a matter of starting, if you've already started before you retire.
Many people (myself included) practice yoga and other internal martial arts for at least 1-2 hours a day while also having a full-time job and family.
Where are you LIVING on that kind of money? Even in a small town you're looking at probably at least $750/month for a place that's not a roach motel.
Estimate is off. $500 if the town is small enough. Additionally, typically lower-income people aren't trying to pay the whole of it (family lives with them and contribute).
May or may not be relevant in the context of this discussion.
FWIW you can buy a lot more than you'd expect for a small amount in very rural areas. Homes and acreage for well under $100k, which gives you a pretty small mortgage. Much, much smaller than $750.
I paid $220/mo for a room in Tucson during 2012-2013. Nice and big one-bedroom houses are close to the university are like 400-500 nowadays. Obviously having kids changes things.
In a perfect universe. But along the way unintended expenses happen, hospital bills, car accident, getting sued, or just drifting away from your original goals. Bottom line though is just keep saving, and don't worry so much about a hard date.