On Fact Central (Facebook), there was a post in a FI group asking about how closely people followed the 4% (or other %) rule, like it was the gospel of cash flow. Their question steered towards the guardrails withdrawal approach, which is structured to withdraw more (spending) when markets are good and less (spending) when markets are bad. SUPER INTERESTING strategy.
I love how you can set thresholds on your guardrails to buffer when and how much to change. However, I don’t like the “we can’t do something this year because the markets are down or flat.” That’s not a huge problem for a young retiree, but for a retiree in their 60s or 70s, they may not be able to put off some activities until later. They may not have the health or energy to do some of these GoGo things when they’re older. Use it or lose it=life.
Anyway, back to my random thought.
There was a response from a FIRE expert sharing how, after 20+ years, their assets have compounded faster than their inflation assumption or the 4% SWR.
Here’s where personal finance is PERSONAL. That expert didn’t share in the response that they have two large pensions. I believe they are inflation ADJUSTED pensions. I also recall them sharing in person that these pensions (and included medical coverage) covered their retirement lifestyle.
I would say “yes, your assets may have compounded faster than assumed because you aren’t living off your assets (my assumption!) because of your two healthy pensions and free medical.
It’s Personal
I think there are a few forks in the retirement planning/living path:
- Pension/No Pension
- Coupled / Solo
- Have Kids / No Kids
- Side Income
Quickly
Pension/No Pension – FI people rarely talk about Social Security’s security. Will it be there for you? Imagine if you are a married couple and you both also have a pension. That is FOUR streams of income each month that should not go away as long as you live.
Add those four payments together and compare that total to your required/fixed life costs each month. I’d bet that many saver-type people, those payments cover a bulk of the expenses when they are all turned on. There may even be a surplus of money for your Fun Bucket.
Some, many, most pensions are not inflation-adjusted, so with the inflation increases in expenses, you may get to where there is no longer any surplus (guaranteed) income, and then there is a gap between your “income” and your base expenses.
This gap is planned for in the same way before the social capital streams are turned on, just as it is when the social capital streams are not enough for base life. Your savings–your assets–fill the income gap.
Coupled / Solo – In retirement, two people get some economies of scale benefits (housing, electricity, utilities, vehicle?, etc) that are shared. This is the same benefit as pre-retirement.
For the solo retiree, all these costs are your responsibility alone, and it’s not half the couple. Also, a surviving spouse only keeps the higher of the social security payment amounts and loses the lower payment. As for a pension, it depends on the contract (single life or survivor option) selection.
Kids / No Kids – Humans cost money each month. Humans cost money when they are young. Humans cost money when they are old. And, based on what I read, kids cost money as young adults or adults as parents subsidize parts of their living expenses.
The joy your child brings you cannot be quantified, but the expenses can be totaled up.
Side Income
I jumped back to add this item. Most FI “experts” aren’t sharing their side income cash flow. Nor do all the FIRE people who have a working spouse and are not a fully-FIREd household share this income stream info.
I’m not being the cranky old internet police here. I’m not saying “all these FI bloggers make money off their content.” Hell, if they are, nice job. Well, not “job.” “Good work.”
There are also inheritances, deferred comp plans, business sales with income streams, etc. etc.
That’s good stuff. Hard-built structure. I’m 100% in support of the side income. But don’t BS someone about the 4% SWR if you are not fully funding your life from your investment assets (or rentals, other income streams) withdrawals.
Summary
Nobody, not even a Face Central expert poster, can use their position, history, or future projections to define YOUR situation.
Yes, there can be similarities. Yes, these similarities are helpful. Often, they are very helpful. (I see this all the time with special needs family members, college funding, medical insurance, etc.)
Be careful, very, very careful, when someone tells you about the “growth” of their assets and their lifestyle. You really don’t know what their financial situation is. Cash flow is King.
Maybe their cash INFLOW is great.
Oh, and another thought I just realized. If someone says, “I only draw 2% of my investments each year,” that just means they over-saved. That is personal to them, not to you. They are probably (WAY) underspending what they could if they had some balance to their asset allocation. Their HOGs will thank them.
One more thing
When you get/hear the perspective of someone—whether it’s a FI person, or a financial planner— it really makes a difference (in my mind) if they personally have 500k, 1 million, 2, 3, 5, 10, 10+ million of their own assets.
A person with 3 million in investments will have a very different perspective than someone with 10 million. Or imagine a great saver who has accumulated 500k. To that 500k person, they have a TON of money and serious freedom.
Yes, 500k is a TON of money. 10 million would be a shit-ton of money…unless you spent 50k per month.
It’s all perspective. It’s all PERSONAL…Finance.
*** Nothing in this article is to be construed as financial advice. I am not a financial planner, nor do I pretend to be. You should always consult your own professional when seeking advice. This post is not a piece of literary mastery, just a random thought I had.