So, What's Your Financial Independence (FI) Number?
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- Опубликовано: 25 июн 2024
- How much do you really need to achieve financial independence? We decode the math used to calculate our FI numbers, talk about the different flavors of FIRE and you'll learn where our FI numbers fall on the FIRE spectrum. All finance is personal but it's difficult not to compare your financial situation to those around you. The pragmatics of calculating your FI number are easier to comprehend and address than the psychological ones and this episode touches on those too. And, the closer you get to financial independence the more these conversations impact your day-to-day life. See below for key resources mentioned in the episode to help you establish and chart your own FIRE path.
Timestamps:
00:00 Is my plan too risky?
02:18 It all boils down to how much you want to spend
04:30 The math of FIRE and different FIRE variations
07:58 What are our FIRE numbers?
11:12 Determining your target lifestyle enables you to set your number
16:11 Accounting for unknowns and uncertainty in your budget
23:13 Testing your plan for likelihood of success is essential!
26:23 Doubting the math and questioning yourself is normal
28:52 Talking about your FIRE number is difficult
32:36 Resources and tools discussed in this episode
**Tools, resources + information: twosidesoffi.com
**Our podcast: twosidesoffi.com/podcast/
**Jason’s FI Blog: thenextphaseisnow.com/
**Eric’s business: 30X40 Design Workshop: thirtybyforty.com
**Eric’s RUclips Channel: thirtybyforty.com/youtube
#twosidesoffi #financialindependence #firemovement
Be sure to check out the resources page on our website to learn about the tools we mention - and a lot more!
twosidesoffi.com/resources/
Statistically, most people spend less as they get older, not more.
FI is math
RE is psychology
Wow! You said a lot there, James. And you are spot-on. Thanks for sharing
I did the math in my early 20's long before FIRE was a thing. I decided then I wanted to be able to retire at 55, because I was seeing how the Aerospace industry was chewing up and spitting out the older workers. My number at 20 in 1988 was $1.25-1.5 million when I was only making about $15k/yr. A few years ago that number had grown to about $2.75-3 million, partly because of inflation, partly because of lifestyle inflation. Just retired at 55 with $4.5 million investable accounts, hit the knee in the curve a few years ago and passed my number about 5 years ago and sitting fat and happy now. Maybe not officially Fat FIRE but feels like it to me. I'm really glad I picked 55 as a target so young because 35 years later I'm not sure I had any more years left.
I appreciate Eric asking the hard questions, and Jason's ability to dodge them haha.
Ha! First of all, I agree with you: Eric is really great at asking the tough questions that are both important and interesting. However, I don't (intentionally) dodge (many) questions! I do get off track in my answers sometimes, I'll be the first to admit. That can lead to me missing speaking to what was originally asked. My brain works in rather non-linear ways sometimes. But I'm working on it! In any case, thanks very much for watching! -Jason
@@TwoSidesOfFI OK, so now you have the chance to answer the question you claimed to not have dodged.....so, what is your FI number? :)
@@DannyPerry160 he did dodge it this time
They did at least put themselves in a particular category - Chubby FIRE / $2.5-5M. Still a very large range but I found that somewhat helpful.
Purpose in retirement. Stay active; keep up with challenges; Don't let the what if keep you from challenging yourself. Do what you LOVE. LOVE what your do.
Cheers! Love the way you put that. Best wishes to you!
What really helped us emotionally was to practice spending our projected FIRE budget for 18 to 24 months. More than a 12 month cycle is needed to truly capture how the annual expenses like property taxes and insurance bump the monthly cash flow around. My two year FIRE anniversary is this month and I am still blown away by how much better this has worked out than I ever imagined. And as time marches on I’ve had great joy exploring additional spend-down strategies with maintaining very conservative assumptions, including a likely huge market crash at the worst possible time 😉. Just found your channel and I am really enjoying this fascinating content. Thank you
Jason here - Hi Joel, thanks for your feedback. 100% YES! I don't recall in which episodes I mentioned this, but I idid exactly the same thing though in my case for 12 months. It gave me lots of confidence but for sure you are right about the merit of >12 months. Congrats on your two year FIRE anniversary! I'd love to hear more about your asset allocation and spend-down strategies if you're willing to share. Thanks for your support and we are very happy that you're enjoying the show!
Now that is a great idea!
@@TwoSidesOfFI There is some great research on spend-down optimization being done. I use an immediate annuity calculator so I can always quickly see what amount I can spend (to adjust to market changes). Also, read some of Moshe A. Milevsky's stuff, he can get you thinking.
@@cryan1627 now that is definitely interesting to us. If you have any links you'd recommend please do share them. Thanks!
Our budget today is similar to the minimum we'd like to have when we retire, but adjusted for expenses that we expect to go away. For example if we want a minimum of $3K per month in retirement and our mortgage today is $1K, then our budget today is $4K since we expect to pay off the house by the time we retire.
My number is $600,000. Probably way lower than most but for me, $24,000 a year is more than I need. I currently live on $18,000 roughly, not including what I invest but it does include $400 a month for fun which is a lot for me. Didn't even hit that last month.
I’m guessing that you are single like me. A Lean fire number for a married couple could be a fat fire number for a single person.
Living on 18000? Where do you live bro? In a tent on Skid Road LAX?
Are you living in a home that you own? If so, is the value of that home included in the 600k?
@@me-lg1yw Well it's not like your spouse will leach off of you... assume she contributes something, you'll also get there earlier so it's almost a zero sum game.
Try 6,000,000
I'm living my dream in an RV in Baja. I don't need much and I'm reasonably healthy. Healthcare is about a third of what it is in the US, and most other things are around half.
I think a lot of people just don't want you to retire before they do.
Love the way y’all danced around the number, and appropriately so. Reminds me of guys at work trying to figure out what other people make- usually not good because most people lack the right perspective and their brains melt. Great show
Thanks for the feedback, Jeri. We're so glad you liked it! We touch on this point again in the next episode that will come out in two days. One's FI number truly is so individual that anyone else's number without the full context is nearly useless! It's all about the lifestyle you want to live (i.e. annual spending) and your risk tolerance (withdrawal rate). That's it!
I'm of the opinion that the only ones who really wins when employees don't know each other's salary is the employer.
I am enjoying these conversations. The two very different thoughts processes of each of these individuals is a good example of what couples grasp with when they start FI. One if the methodical planner and the other is an indecisive dreamer. I relate to both of them. It will be interesting to see if the other hits his number.
Thank you for this video, it really put my mind at ease. No two people are the same and we just have to have faith in this process. We can always adjust if needed.
Thank you thank you thank you. . I really appreciate you guys sharing,
Really enjoying your content and conversations. This is quite inspiring actually for someone pursuing FIRE. Thank you.
Thanks, Jeffrey! So glad to hear you are enjoying it. Thanks for your support.
For anyone that is single here, you don't need 2.5-5m to FIRE. These numbers they rattle off are for a couple.
Thanks for the input. In the end, your total portfolio size is a product of two things: your annual expenses (and projected through your expected lifetime), and your withdrawal rate. It's certainly true that in general, a single person's expenses are lower than for a couple under otherwise similar circumstances. The most important thing is to work out what your want your post-FIRE life to look like - and where, and from here you can work out your expenses. For certain, not everyone needs to have a portfolio like what we've set as our own targets. You've got to choose what is right for you. Thanks for watching!
Having a budget will help you decide what number works for you. My husband and I have been keeping budgets throughout the years and came up with a decent amount to keep two houses, and plenty of vacations. Retiring is the best job!!!
Thanks for sharing your thoughts!!
Love this channel.
Thank you! We are so glad you enjoy it. 🙏
It's really nice to hear your honest conversation! Thanks for letting us listen in. Nice presentation as well. Clean.
Thanks, Brad! We really appreciate your support.
I just found your channel and wanted to say thanks to you both! I'm 53, working on paying my debts so I can RE NLT 2025. I'm hoping to get affirmation on what I've been planning and follow how your journeys go. I guess I'm looking at lean FIRE, but live in IA, so... anyway, I look forward to watching more of you content and checking out your website!
Thanks, Mike! We look forward to hearing your own story of retirement in a few years. Best wishes to you!
Thanks for sharing
Since I've started budgeting, I feel that not budgeting would be like driving on the highway with no headlights.
I'm going for sumo fire myself. Hopefully I will be there soon ;) Thanks for the video.
Nicely done. I look forward to joining you sooner than later in early retirement.
Thanks very much, Erik! We look forward to learning more about your own FIRE journey.
It sounds like you are over thinking this, just save as much as possible, and stop working when you feel like it. Some people that's 35 and others is 60. Some people work till they drop, it's all good ;)
That sounds like a great way to potentially live on cat food at age 63, or equally unfortunate, live miserly your whole life only to die extremely wealthy. Finding the right balance is hard, it's not something that comes naturally, and definitely not something that will just come to you when you feel it.
Totally true. People run after unknowns not under their control with
Very true
One of the features of barista-fire arises from the fact that some part time jobs (eg in starbucks) come with some massive benefits including employee healthcare insurance benefits and THAT is a major consideration in places where there is not universal healthcare available to those who do not work but are not old.
Absolutely correct. Those benefits also come at the tradeoff of working (generally) 30 hours or more. This is an entirely valid decision particularly if one does not plan to fully fund healthcare premiums (i.e. via ACA in the US) as part of their post-FIRE budget.
Great discussion guys! Admittedly, I'm trying Coast FIRE. But I'm also working hard on another source of income -- building my own business. So maybe that will mitigate the risk a bit....or add more risk, lol.
Thanks! Coast FIRE is super common given the benefits of the approach. We wish you well on your journey!
Interesting topic guy 👍 thanks from Ireland 🇮🇪
great content, thank you ^^
Amazing channel. I have no doubt that you’re going to have a great subscriber count soon. Can you do a deep dive on your spending habits by decade of your lives. I’ve always been curious about how fire lives have changed based on knowledge and personal experiences. Family’s college career… would be interesting.
Great suggestion! Thanks a lot
My goal is basically lean fire with the option to work part or full time to supplement lifestyle as desired in the future. Retirement fully funded, paid off house, and a million bucks in the bank. Can live simply on 4% or always work some to elevate lifestyle intermittently through the years.
@@ordinaryhuman5645 yup exactly. I like the way ya think. For me if I stay unmarried with no kids, even 7-8 hundred k total net worth would be enough to retire. But assuming a family and such one day is why I say a paid off house plus a mil.
@@ordinaryhuman5645 if I was gonna settle down and get married and such I think I would prefer to have a comfortable paid off home with the ball park of a mil invested. As long as it’s me I need no home as I can live like a college student/hobo and couch surf and sleep in tents and such with no problem. Lol.
I work with yearly budgets. Like for pets I take into account 500 euro per cat per year. Some will cost more, some wil cost less, but with 8 cats it’s about right. And like for food, some months are more expensive than others, but on a yearly basis, again, quite accurate. Adding all the budgets I get a total for yearly spending, and over more than a decade variations are minor, so I think I’m good in estimating yearly expenses.
I had been saving for years and lost my job during COViD and it took me a year to find a job that I didn’t really like so after few months I resigned to take my time and try to find the right one. I knew that I could afford to take my time at least for few years and I’m debt free, I guess maybe that’s FI? But anyways, when I talked to some family members…they seemed to think I was going through some life crisis. I have no regrets, I’m feeling healthier, lost weight, toned up and feel more centered. I’m hoping to retire early but because of no medical insurance that would be the only thing to hold me back …at least I’ve read so much on health and investing that I wish I’d learned years ago, at the minimum , I have more insight to be on a better path to retirement.
Thanks for the comment, AH. We're sorry to learn you went through those challenges due to COVID. That said it sounds like you used the time really productively, even if it was a bit confusing for some family members. If you felt like could take that time it definitely seems like you at least have sufficient cushion in your assets if not already at FI - which is great! Difficult circumstances like that can certainly be better managed with a strong safety net in place. We wish you all the best on your path.
I believe in being 100% debt free and still being able to passively earn $140k a year. I don’t want to compromise my current lifestyle $3 to $5million net worth. This will allow me to still give my two sons a nice monthly income stream as well, to help them be able to retire early themselves.
Sounds like you’ve got yourself well set up. Congrats!
Assuming you live in Cali and have a really high income now. Most people don't make $140k period. You can live very comfortable of $50k
@@TheDjcarter1966 It depends how much you like international travel, dining out ... etc and if you live in the big city vs a small city etc
@@joannabusinessaccount7293 After taxes.
140K is difficult. I ran the numbers on my end for 150 and they didn’t work unless I retired north of 55 years old with 3.5 nest egg.
I'm actually taking a different approach to fire that I've not seen much of. Once I have my pot of money, I plan on spending it all, not just safely withdrawing 3 or 4%. I don't want to die rich. I never hear anyone talking about that, it's always safe withdrawal rates to keep your account full. I have no desire to leave money to children or family because that often does no good. I'll actually be spanking it all, in an ordered fashion. This might be easier to do in the uk perhaps because healthcare is free and the state pension will fill any gaps I find myself in if I run dry before I die.
same. I figure ill give away about half
@@Beachtrader0007 yea, I don't wana be the richest guy in the grave yard. I don't care what people think of me, hence my alternative lifestyle anyways. I don't actually plan on having kids so there is no legacy. And so far, the evidence I see on people being given money is surprising negative. Often it robs people of their struggle and in my opinion the meaning of life, to struggle and overcome. I suppose giving to charity is a different approach and I'd imagine I'll do some of that.
‘Spanking it all’ 😂😂😂 say you’re a Brit without saying you’re a Brit!!
Just learned about FIRE, turns out we are coast FIRE without planning for it. Saved from 25-48 then stopped saving while kids in college. Now nest egg has grown so we are On target to retire 55.
Wow! Now that’s a nice surprise. Congrats!
Wow... Very interesting conversation... Thank you so much for sharing... ☺️ Informative in my journey as well...
Thank you, Edlina!
Welcome..
The "dancing" around the number kills me. I get that it is a very personal thing but as a learning tool it is nice to play the what if game. Thanks for your help. 3 years to go and out at 55.
Jason here - I appreciate the position, and we do talk about this idea in several of our videos. In essence, one's FI number isn't terribly useful to any other person. I say that because it's very directly influenced by your expenses and lifespan, along with your risk tolerance. Ignoring lifespan, it's largely about the former, and secondarily the last factor. Expenses are truly individual - where do you live, what kind of lifestyle do you want to have, do you support other people or charities, etc. Then you have risk tolerance, which is effectively about withdrawal rate i.e. how much of your portfolio your annual expenses requires. Many people talk about the 4% rule, which both Eric and I think is too aggressive for our personal risk tolerance levels. We want a higher degree of likelihood of success in our plans. You may be far less conservative, and still others more conservative than us. This is why any individual number is less useful. In giving a range, we're trying to make it easier for folks to understand in a broad sense how we're each thinking. I hope that's useful.
Jason, I couldn't agree more. I also think "your" number is of no practical value to me or anyone else. There is a very personal side to it as well. In my opinion expenses are everything and as you point out, being able to maintain a 3% ish? spending ratio for the long term is the real key to a long and regret free retirement. Thank you both again. Your channel is helpful for those of us nearing the jumping off point.
@@rayanderson3164 Thanks so much. We really appreciate your support + feedback.
Cool discussion and I can relate to all of the points and fears expressed! I'm Gen-X, chubby FIREd this year, and even own a Braumeister 10L. ;)
Jason here - Congrats on your FIRE! Wow, it seems we have a lot in common :) Got a favorite homebrew recipe you'd like to share? I've got an imperial stout finishing up in the fermenter presently. Here's to hoping the next 3-6 months pass quickly so we can start to enjoy it!
@@TwoSidesOfFI Those are perfect to drink in the winter! I actually still have one on tap from last year. Don’t want to spam your channel comments but happy to chat homebrew recipes offline. I appreciate the content you guys are posting!
Confy 1k a month goal. 150 a month is what I have now.
I think I am lucky as I am not in any debt. reasonable healthy, and I like to sit and watch the birds if not bothered. Fire is made for me.
Cheers! We suspect there is more than luck behind your not having any debt.
Watching birds and listening to their singing is also good for your health and shouldn't be knocked. That, together with greenery and the sound of water are proven to lessen stress and lower blood pressure. Just don't sit too much! 😁
The older I get, the higher my FI number is. That's why I am not RE yet.
Every calc I run says 100% success. Guess we are good to go !
Congratulations, Bob! That sounds pretty great to us. Jason is also a big fan of using multiple calculators with different models and assumptions that you can vary. Best wishes to you!
I track a rolling 12 month average of actual expenses and then add back in benefits I wouldn't have if unemployed. I figure, if I'm able to reduce my expenses to hit the 3.5% number, I'm FI. Spending rate is so much more important than how much you save. For example, eliminating a $6/week coffee is $8228 less you need to retire!
So right! Reducing expenses is important for sure. Best wishes to you!
Eric is asking the questions we want to hear answers to....
It's not too crazy to budget for gifts and vacations. It is just about 15-20 buckets that one needs. We have a google doc and we track these every month so it is easy to know and see what is going on.
We budget differently for FIRE - for instance more for travel since we'll be home more (so 2x or 3x current travel - because it will be more often but it will be cheaper than current - we'll have more time to look for deals, slow travel etc).
Pet spending will be less since we will groom the dog more and cook the food at home instead of buying...
And so on...
Then once we get a yearly $$ we multiply by 1.03 for inflation for each year after FIRE.
Jason here - Sounds great! It sounds like we budget in very similar ways. Thanks for sharing!
Great channel and thanks for sharing. Is your FIRE number (or ‘chubby range’ of $2.5m to $5.0m) just your own as an individual, or is it combined with your spouse/life partner?
Hi PT, thank you! For both of us, our range contemplates us + our spouse.
I think that I still would be a barista fire dude for a while. Just to generate more assets. Then one day stop completly. It has been a while that I am thinking about switching from five days a week to just working on the weekend. I don't know, I love my work. But I would like to have more time to explore, discover, enjoy what I like to do. Like I want to do something or my wife wants to do something. Well sorry I work. Something like that. I am just buying assets to create more freedom. But it's not something that you can do in one day. As of now, I could stop working for about 10 years. So I have to still work for a while. I did start too late. Not that there is a too late. But it's not something that they teach at school or they ever will be. So I do what I can. Thanks you so much for the information. Your RUclips channel is awesome.
Thanks for the comment! Very glad you are liking the show. It sounds like you're thinking about all the right questions. It's also true that any income generated post-FI reduces your withdrawal rate, and therefore reduces the potential impact of Sequence of Returns Risk. Good luck to you!
Thanks so much for this channel! Came here via Erics' 30x40 and love to get to know some other thoughts from you. And I really like you Jason, super sympathetic. I'm still at university, but it's so great and interesting to know all this and keep it in mind for when earning a real salary. All the best to you!
Thanks so much, Hannah! We really appreciate the feedback. Best wishes to you as well. -Jason
Finally decided…fatfire at 57…thx for helping us make that decision (although it will probably change 50 times prior Lol)
Nice! Best wishes to you on your journey
Exactly!! Number 1 thing people miss is lifestyle, live on a LOT less and you can do fine, guess I'm a lean fire guy...doing it next month. Retiring at 54, living on $45k/yr is plan (that's my pension only). 401k about $600k but not touching it until 65 and by then if SS is good probably up to $65k/yr so still might not touch it.
Sidenote, they based health insurance premiums on your net income and with six figures in profit, I have a negative net income with rental properties.
Very true! ACA subsidies are based on MAGI, which includes net rental income.
Interesting stuff. No one does any calcs with rental properties tho. Some calculators with property appreciation, amortization , rent increases would be helpful. I'm a property guy, not a stock guy. I FIRE'd a year ago, a pension kicks in next year from public service. I figure a 30 yr lifetime draw. Increasing rents are soon to pay me 3x what the job was, and capital gains continue to accrue both market gain and loan paydown. Someday I may do a Delayed Sale Trust and stock market it, keep up the good work!
Hi Charles, thanks for the feedback. Using calculators like cFIREsim and NewRetirement.com you can readily plug in expected annual income from various sources, including rental real estate as well as your pension. There you can ascertain how well you will cover your expected annual expenses in retirement. Great to hear your business is going so well! Best wishes to you.
House and new car paid off at 40. I’d say I could live comfortably on 15k a year at my current location. Not sure how long I will continue to work full time but probably not long. I cannot grasp my mind around what sort of lifestyles these two guys are intending to lead. I have no goal to have 1 million saved.
Make sure to factor in the potential of long term care and other large expenses like new roofs or other repairs to your home. A roof costs 15k that would blow your annual budget with one item.
@@nacholover804 My budget has over $15k / year for regular medical / dental insurance. I agree with you on long-term care as well. What about food, utilities, taxes, etc?
Chubby Fire checking in.
I wonder if growing interest in the FIRE movement will put a little pressure on employers to make jobs more appealing. In the future, there could be more 40- and 50-somethings who have reached a "work optional" state.
Yes, the employers should definitely be thinking about how to make jobs more appealing. Work from home has obviously been one of the main perks that is happening all over now, but another one that isn't popular but should be is a shorter work week, basically part-time work without the loss of benefits.
@@nitetrekker That is so true. Many employees aren't actually working 40 hours per week, but are hanging out in the workplace for ~40 hours/week.
Employers can encourage more efficient work (while giving employees more reason to stay on the job) by giving people permission to work 35 or 30 hours/week.
Only half way through, but I feel your pain on the numbers and lifestyle. That's why for me I think building a life you don't want to escape from is the answer for me. Keep working, but spend enough and take enough time off to have adventures along the way. Invest the rest. So forget the ERE fantasy really. The chubby fire numbers would not be realistic for almost everyone. The position of FU is also helpful in enjoying the journey and setting boundaries.
Awesome video! I am a 23 year old graduate student and was wondering if I could get your opinion on something and how you would approach this from a FIRE perspective.
Is it wise to start repaying a small portion of student loan debt while still in school (unsubsidized”) or invest that small allocation into an ETF of index fund?
My thought is conflicted is that I can afford to be a little more risky but at the same time, why not just start trying to get some accrued interest taking care of? Or do a mixture of both? Thanks in advance, any input is appreciated
Thanks, Casey! The answer is likely "it depends". If you have typical student debt with a higher interest rate, it is generally in your best interest to pay down that debt. One concept we like is to employ a "financial order of operations". One of the best we've found is that of the Money Guy Show, which is a RUclips channel and podcast. Have a look into that and see what you think. Here's a high level summary of their views on the topic that they make available on their website: www.moneyguy.com/wp-content/uploads/2020/09/FOO-deliverable-4.pdf
I know a handful of professionals who retired and a year later went back to part time work because of boredom. My experience in paying off debts and mortgage convinced me that my best path is to get to lean fire so I have the option to retire. Will probably continue to work and save because I hate the process of selling my house to move to flyover country. Eventually, the lure of the country life and dislike of big city will make me pull the trigger on retirement.
I feel bad for those professionals that can’t handle their life without work in it.
I'm going to be Walmart Greeter FIRE.
Please speak at the next CampFI or FI conference!
Is a good ideal to pay off hard assets like a home mortgage to lower your regular expenses before you look at going FI?
Great question, Ethan. It depends, and we talk with people who have followed either path. For some, the freedom of knowing they are debt-free is an important goal. Still others look at low interest rate debt as a non-issue, and just another planned expense in retirement - as Jason does. The best guidance is to do what is right for your individual situation, and ensure all costs are contemplated in your modeling.
For me, having paid it off early was a big relief, I am still working on FIRE but I can tell you my sense of flexibility in what options I can take as far as risk is much higher because I don't have to worry abt the house payment.
It also lowers expense projections which makes FI seem more attainable. (Pay less in interest than if don't pay ahead as well.)
On the other hand, you can put that same money into investments instead. So its a personal decision you have to make.
Basically it depends on if your focus at a particular phase is more on lowering costs, or increasing income. Its best to do a bit of both overall (IMO) but which your looking at might depend on the season of your life as well as which level of FIRE your doing. Even someone who is not doing Lean fire needs to counteract lifestyle inflation & hedonic treadmill and make sure they keep the savings rate high.
I also have a publishing business, some savings in precious metals and work a front desk job. I am aiming at a sort of lean coasting fire & making fair time. I will just drop off bits of work I don't care for as the publishing business pays for more of my monthly costs.
Since I genuinely like books, I probably won't FULLY quit, not for many years. I am always thinking abt automation & smoothing proceedures things out and have that in my longer term business plans & projections.
For me, it is after I have my rather simple life funded that I will think abt expanding that. (should be by 2024/5 also, will be 38/39)
I used to work as a brokers assistant so may move into real estate or land flipping later down the line but nowadays I like being laid back. So more on the investor side and "at will". I would do these things because the areas interest me & because I can monetize them on top of it!
As far as whether real estate is passive or not, depends on if you hold it then pay a management company and other factors. Thats pretty passive. Anyway passive income for me never meant "you don't have to do anything ever". Its more like you push something and it has high momentum as well as recurring payments. But you do have to make the initial push.
Publishing for example, once you produce a book & put it up, there is still advertizing you can do for it, you might need to manage any number of very small things. If you hire someone to do all of this, you still probably need to oversight this a bit etc. Especially in the beginning.
Anyway, you pay for passivity one way or the other (even if indirectly), with time+effort put in up front or by gaining less resources back.
I think my plan is a hybrid of cubby and barista.
Between my investments and anticipated inheritance I am working toward low chubby, but when I reach the chubby number I'm planning on dropping to part-time work somewhere between 58 and 60 (depending on when I reach that number). Assuming all is good I plan to fully retire at 65.
That would give me some time to adjust to retirement and should allow my balance to continue growing.
That plan is certainly subject to change.
How do you think about the split between 401k assets you can access starting at 60 vs after tax investments that can bridge till you can access 401ks? Do you break down how much you need in each to understand where your funds are coming from? And how do you factor in pre and post tax accounts into your analysis? Thanks!
Thanks for the questions, Nathan. We've got an upcoming episode on asset allocation that will speak to this. For sure, the short answer is taxable brokerage accounts (and cash on hand) will fund expenses until the retirement accounts are accessible without penalty.
@@TwoSidesOfFI Be careful with this, it gets complicated if you backload all the payments. There are tax cliffs that can be avoided if you are low income enough (under $40K). Also, retirement accounts have no penalty after 59.5 years of age. If you have a crazy expensive 401k this can be a good time to move to a low cost platform.
This is a whole new language! Thanks for sharing all this - it's quite motivating me to dig back into those 'someday' PI projects I have scribbled down somewhere....
now to avoid going down a Reddit rabbithole...
You’re welcome! Keep us posted on your progress. Ah, Reddit rabbit holes… good luck!
I've done some monte carlo sims as well and it really more or less just validates the 4% rule afaict. Curious if you all have found something else?
Jason here - Great to hear! It will vary based on portfolio mix and duration of retirement, among other factors. I definitely see 100% at 3.5% but don’t recall when it finally pushes down from there. I’ll have a look
SUGGESTION: Since I believe you are now ‘broken away’ from your financial advisor, have you been trying tools like “new retirement”? If you have, I’d love to hear how you compare the two, because this group also has hourly consulting for when you get into new territory, but I think the tool (with subscription) is pretty rebust.
Jason here - thanks for the comment, Ergin. I have tried New Retirement and it's listed in our Resources section on our website (www.twosidesoffi.com). I'm no expert with the tool, but I'm really impressed by the functionality. I may talk more about it in an upcoming upside. Have you tried any of their consulting services? I haven't.
Is this total networth numbers (all assets) or just what you think folks need to have in an actual retirement account for your Fire number?
Great question, Sheldon. This is all investment assets and cash, but not full net worth (ie doesn’t including primary residence or cars, for example).
I love the fact that geo-arbitrage was mentioned less than 3 minutes into the video, especially since that is a great idea for us "lean-fire" folks.
The guy on the left (not sure if they even mentioned their names) seems to think you need 100% certainty in order to retire, but that's simply not the case. Also it's not like you can't ever go back to work or cut back if your numbers aren't working out in a few years. Making money is ALWAYS an option. Have confidence in yourself, you've got this!
The guy on the right seems to be doing a great job, although with a 3.5% withdrawal rate he's probably being a bit conservative (thats ofc his personal choice and understandable). He'll probably end up with a very large surplus to leave to his heirs by the end of his life, but if you have someone to leave it to, that's not so bad.
Question: Have either of you considered how much of an impact your actual portfolio has on your perpetual withdrawal rate? Your allocation can make a HUGE difference in the amount of money you need to save in order to be able to cover your annual expenses. It can also drastically accelerate the time it takes to get to FI. Some portfolios have been able to safely support withdrawal rates up to 6%, although I'd personally never go higher than 5% to be conservative. On a $1M FI number that changes your annual withdrawal amount from the standard $40k (4%) to $50k (5%)... A 25% increase in annual spending, without any additional savings. Just food for thought
Jason here - excellent points, Andrew. Thanks for sharing. Something you'll hear in a later episode is that while I'm actually presently below 3% WR (due to market performance among other reasons), I have full plans to increase WR when I'm beyond the 3-5 years where I'm most susceptible to Sequence of Returns Risk. We aren't exactly "Retire with Zero" people as we do have family, but we also have no interest in dying with a giant portfolio left behind. At present we really don't feel any pain from our lower WR and we'd tested our FIRE budget for more than a year before I stopped working. At the end of the day, risk tolerance is a big part of WR and while I'm presently more conservative than many, that won't always be the case.
Are you presently post-FIRE?
@@TwoSidesOfFI Thanks for replying. An excellent idea of waiting a bit to increase your withdrawal rate to be on the the safe side. Research suggests that market performance during the first 5-10 years of retirement can set the tone for the rest of your days.
I wish I was post FI, but I've still got awhile to go. 9 years if I stay stateside and as little as 3 if I can convince my wife for us to move to Ecuador. We're actually in Ecuador right now during a 6 month trial.
@@andrewb9595 very cool. Be sure to share your thoughts on Ecuador! It’s certainly a popular destination from a geo-arbitrage standpoint.
I like this conversation
Thanks!
When you retire do have paid of houses or plan to pay rent or mortgage?
The answer differs and we’ve seen all options out here.. Eric has paid off his mortgage and Jason still has a mortgage.
How much control do both of you guys have over your retirement money? Do you manage the money yourselves?
Great question, Brady. Eric manages his portfolio himself 100%. Jason started working with financial advisors about 8 years ago but that may be changing…stay tuned!
You worry about the insecurity off living off your investments, but feel secure about your job. Is your "job security" more reliable than your investments. You could be unemployed in a heartbeat.
i am in my 50s. the crap i use to buy in my 40s is not important anymore. Time freedom is more important. I spend less now. Looking to retire in a year. No debt. Number is 2.5m. spend 5k a month. I live in a crazy housing market. One house 2.5 and 2m for the cottage. One of those can go if things go bad. Government pays for healthcare. Still stressed though...Its scary not having a regular paycheck..
great video and info...
Thanks, Greg. With a year to go the finish line is certainly in sight for you - congrats! Indeed, even with lots of planning and preparation the anxiety that comes along with big life changes is real. We talk about this in a few of our later videos, including Jason's reflections on his first year in retirement. Hopefully these might be of some help to you. Best wishes on your journey!
You in Canada bro. ?
What lens is the guy on the left using a Canon RF 35mm macro?
Eric’s gear is all listed here. Typically he is shooting 24-70 or 16-24. thirtybyforty.com/architectural-photography-gear-architects-camera-equipment
you could both move to Canada! healthcare solved!
thanks again gentlemen. LOVE Y'ALL
also.... a good way to double that FI number ;)
@@MrWaterbugdesign which state do you live in?
Just came across this video, and wanted to say "Hi" as the creator of cFIREsim :)
Hi Lauren! As you can do doubt tell, we are among the many big fans of the tool. Thanks so much for this tremendous contribution to the community!
@@TwoSidesOfFI Of course! I am one of those people that does my own simulations a TON to figure out the what-ifs. Glad that it helps other people obsess over simulations, too haha.
@@laurenboland3593 Jason here - it makes sense that one who obsesses similarly would make that kind of tool! I love endless simulating, even now post-FIRE. I can never get enough.
Have you thought about an option that randomly permutes the (actual results from) years to make synthetic n-year periods as opposed to only actual n-year periods?
Lauren, (Eric here) chiming in to add my personal thanks for creating such an immensely helpful tool, I use it often!
Thanks for the video! Does your FI number include your spouse in the equation? so if your number is $1 million that would withdraw $40k/year for both of you?
You’re welcome! Yes, our numbers include our spouses. Ie if the number was $1M that’s total portfolio size, and at a 4% rule would be $40k / year in total.
FIRE number is simple. Take your annual income minus your annuals savings. Whatever number equals that at a 4% withdrawal rate = your FIRE number
Could u be more specific what is your fi number besides saying "2-5 million"? That is a huge range
Also what % withdrawal rate are you planning to use?
Thanks for the question. Eric and I are trying to strike the right balance of disclosure and informative content, hence the lack of precision on the number. But I also firmly believe that one's FI number is as much about where you live and how you live (i.e. monthly spend) as anything else. My family has elected to live in a moderate cost of living area in CA, so our spend is going to be higher than many people in the US - I'm carrying a $2K / month mortgage, for example. Eric is thinking about lower COL regions and so his spend will necessarily allow for a lower total FI number. I'm currently targeting a max WR of 3.5%, though I'm actually a good deal below that spend presently due to market conditions and the positive impact they've had on my portfolio. Eric is of course pre-FI but is thinking about a similar target. -Jason
@@TwoSidesOfFI
3.5% is a little too high for me, i am targeting a constant percentage 2% wr. Also because i am invested in global stocks by market weight instead of just the S&P500 so i fear the returns may be lower. Do you have rental real estate in your portfolio or is it all in a stock/bond mix?
How did you decide when was the right time to retire? I find myself constantly moving the goalpost of my FI number for fear of "what ifs".
@@lilsaint91 And that's great! As we discussed in the show, WR is really a risk tolerance variable in our opinion. We all need to select what feels best for us (risk tolerance; Eric's is higher than mine!) and makes sense for our portfolio, age of drawdown start, and other factors (risk capacity). I don't recall my full portfolio mix but as an example, my brokerage acct. is 85% stock, of which around 45% S&P and 15% is int'l. remainder are small cap, emerging, and REIT - the last of which is how I invest in real estate. In an upcoming series on passive income, we will discuss why Eric and I don't choose to invest in rental real estate. Stay tuned! -Jason
How’s the W/R adjusted based on age? Topic for future … like 3% for
Great question, Scott. For certain, the age at which you start withdrawal (and more importantly, the total duration your assets must last you i.e. lifespan), influences your overall withdrawal rate (WR), where starting later means there is lower risk to a higher WR vs. if you'd started withdrawing earlier. It's also true that there are a variety of flexible withdrawal rate strategies in use based on factors like your portfolio performance (Guyton-Klinger), or market indicators (using Shiller CAPE for example). Based on these factors one could certainly elect to increase your WR as you age assuming strong performance in previous years. But you'd equally need to be willing to decrease WR if the alternative was true. For me, I'd rather plan more conservatively in the meantime, and consider any WR increases once I get beyond the initial Sequence of Return Risk years. Who knows how I'll think with more time under my belt? At the core, WR is really a risk capacity / tolerance issue. If you'd like to nerd out on this topic I can't recommend Big ERN's SRR series highly enough. Give yourself a few weeks to get through it though. It's really long. There's a link to it in the first section on our Resources page - twosidesoffi.com/resources/
Withdrawal rates will also depend on if you can monetize your collectibles during FIRE - gold coins, Don Mattingly rookie cards, Skankenstein European vinyl releases, etc.
@@noraz12 I never had any gold coins but I did collect rookie baseball cards back in the day. Sadly, my Don Mattingly and a whole host of others (most notably, an amazing Roger Maris card) got sold by my sibling so that they could buy Metallica tickets... -Jason
The Metallica tickets was likely a great trade seeing how worthless baseball cards became. Those baseball cards today would be worth the same as a used Metallica Ride The Lightning cassette.
I plan to retire in two years. If you can live off your passive income and maybe save a little as well then you shouldn't need to draw 4%. This also allows your portfolio to grow. What are your thoughts on this strategy? I'm debt free, no kids and in my early 40's. Worse case scenario I think, I can do the barista fire.
Jason here - Yes, this can be a great plan. Anything that serves to reduce your withdrawal rate will benefit your portfolio. And this is particularly true in the initial years where Sequence of Returns Risk is highest. If you've seen our Passive Income two-part series, you know Eric has 90% of his present income from passive sources. Surely a portion of this will continue on post-RE for him, so I suspect he'll be doing exactly as you propose. Best wishes to you! Part 1 of Passive Income: ruclips.net/video/L1d1gF-Gtn4/видео.html
How do I plan if I have 2 retirement accounts which I can't touch until age 60 and 1 account which I can touch any time?
Most people in the US who retire prior to 59 1/2 employ taxable brokerage accounts to support their expenses until the time when they are able to leverage their tax-deferred 401(k) and other retirement accounts.
Most retirement talks go about talking about the math at ~6 minutes. But very little is talked about as far as mortgage or assets from home equity.
Jason here - I carry a mortgage post-RE. Eric’s house is paid off. We talk about this in an earlier episode. We also consider our home equity as part of net worth but not as retirement assets for “the number” ie FI target.
@@TwoSidesOfFI I'm kinda watching the videos randomly and probably more from the more recent stuff. Maybe I should start from the beginning :P
@@ChrisKSP How you watch is up to you! We do sometimes build upon older show topics but we try to make sure we re-introduce concepts wherever we can. Thanks for your support!
@@TwoSidesOfFI I enjoy your candid discussions, thanks!
Are the spouses working or not? I don't think that factor was being considered in the conversation, unless I missed something.
Thanks for the question, Jay. We discuss this topic in our two-part series where our spouses join us on the show.
It's good to see you too bouncing stuff off each other
Thanks! We find we have the most productive conversations when we do that. Thanks for watching!
With dividends at an all time low, and not likely to recover soon, and bonds paying so little, 4% is no longer a viable withdrawal. And if dividends and bond payments recover, it will be at the cost of stock and bond prices. So "the number" has to be more like 2.5-3%, or 30-40x annual spend.
Divs are low because the market has signaled to companies that share price growth is preferred to divs. Appreciation gives the individual shareholder control over when to realize tax obligations, and overall is better IMHO.
You don't life on interest/divs alone and none of the math is targeted at that.
You could make the argument that the market is likely to be flat for a decade or so. I think we are on the foothills of a technology revolution, so I'm not so worried.
@@Life_as_Game The math has traditionally been based on both dividends (and bond yields) and market appreciation. Part of the "growth" scenario that has been used to project the ability to pull 4% annually includes these dividends. 4% + inflation = traditional stock/bond allocation return. With dividends and bond payments at historic lows, and (as you point out) equities being overpriced and likely to be flat to minimal growth over the next decade, 4% is now extremely aggressive. Even if inflation doesn't go bananas.
They say the 25x it but what if your young? I’m 38 wouldn’t I base it off how old I see myself living, taking a guess at it? Why 2x?
Hi Elie, great questions. The so-called "4% rule" is how you get to 25X and this is a good starting point. From there you need to really understand the particulars as they relate to your own life - likely lifespan, annual spending, as well as your risk tolerance.
Either the cost of living in USA is very high or you're living a life of luxury but those ball park figures are crazy. £1M and a paid for house can sustain a very comfortable lifestyle in the UK for 30+ years. (Maybe not London)
healthcare is very expensive. Left the US 16 years ago because I didn't want to add years of work. We may consider going back in 18 years when we are both 65 and qualify for medicare. But not before then.
£1M=$1.37M portfolio + house in the US (mortgage free) would be fine in 99% of the locations in the US (Not CA; would have to be outside NYC but ok along the metro line N. of NYC :-) )
@Tara Naz - from below: Actually given the ACA for medical expenses it is now doable if your portfolio has been crafted to generate lo-income cash flow but that takes planning. Tara is completely correct that expat COL w/ a reasonable wage is the best way to accumulate wealth. but then again that takes career planning.
@@kevinkanter2537 yes, I've looked into it again and it is cheaper. But the plans in my state are all so bad with high deductibles. It would still not work for us.
@@taranaz1436 I figured you had already done the research; i was just making sure - still horrified at the medical insurance predicament. much success & best wishes for successful investing .. gonna have to 'earn the way out'....
Am a Brit living in the US and thinking about FIRE. Living expenses in the US are significantly higher. Even with a paid off house, property taxes are crazy high in many states, often over $1000, even over $2-3000/MONTH based on the property value, so goes up in line with house prices. Even if you own your home “free and clear” you still have these taxes to pay, which is not a factor in the UK. Also healthcare is over a thousand a month for family cover with a low deductible vs free in UK. Basic food and groceries are also double the cost vs UK.
On the plus side, income tax is much lower in the US unless you earn megabucks, so it’s a good plan to work/save in the US and retire to the UK.
ACA subsidies is why I'm minimizing passive income such as subsidies. I prefer to choose how my income arrives (minimal dividends, ROTH pull outs, taxable brokerage withdrawals - selected to optimize my income.
The plan is that I group the taxable income when I can't manipulate the numbers consistently year over year to remain ACA subsidy eligible. Worst case I pay unsubsized rates once every few years (hopefully less often though)
Be great if you two shares your net worth or FI number goal(s) budget especially living in California.
For more on our budgets:
ruclips.net/video/mzR98CkGZok/видео.html
And the FIRE number question:
ruclips.net/video/n811DYwEdrs/видео.htmlm50s
I’m Danish, so I pay a bit more in taxes than you Americans do. On the other hand I don’t need to factor in money for health insurance in my budget. I think the Danish FIRE experts say that here the 4% rule should be more like a 3% rule. Personally I feel more comfortable with a withdrawal rate of 2.5%. Is that too low?
Hi Tim, thanks for sharing. We don’t think there is truly a “too low”. Particularly since you can adjust your WR as you go, and specifically after the highest Sequence of Returns Risk years have passed. Jason is currently
@@TwoSidesOfFI Thank you for the reply. I plan to live forever :-) It is not entirely a joke, because in my view there is no up side to betting on your own demise, so I don't subscribe to the idea that you should try to make the last check you write before you die bounce, as some of my colleagues do. I'm not planning to sit on a huge pile of cash when I die either, but I want some assurance that I can live to an arbitrarily high age without going broke before I kick the bucket, so I need to be in a place where my investments on average pay out more than I earn, even if that means leaving a rather substantial inheritance to my family.
It would be helpful to see you input your numbers for the equation and how you arrived to your main number. You never actually share what your 'number' is.
Thanks for the comment. We will likely do a budget episode in the future. At the end of the day, the most critical factor in determining the number is your annual spend, projected out across your expected lifespan. This differs so much by the area in which you live and the lifestyle you aspire to of course.
Does no one in the FI community consider social security to be a contributing factor? I’m aware of the doom and gloom scenario but the general consensus seems to be that there will be SOME benefit, even if it is 75% of current benefits. That could make a huge difference in what the “number” needs to be.
Hi David, excellent question. We do assume it will continue to exist in some form despite all the doom and gloom out there that you correctly call out. Many assume it won’t be there from a math perspective but you’re right that it can have a pretty big impact on the number if you elect to do that. It’s definitely another comfort level / risk tolerance topic.
If social security is gone we will as a country be in great turmoil and also, people will riot. Don’t be silly and think it won’t be there.
Yep, one can probably figure that SS will pay at minimum what it is pulling in payroll deductions. Whether that will be means tested so rich guys like you - and much of the country thinks your "rich" - will get a lesser piece of that. So, maybe 40-50% in pretty much every scenario below civil war.
I am fully expecting that SS in the future will be means tested similar to how they did with the stimulus checks except it will be based on wealth and not income. If you have saved "enough" to live comfortably then you probably won't get anything.
@@nitetrekker Many people agree. It's safest / most conservative to assume that is correct. We shall all see...
so... what's his number?
Start working on a Lean Fire and bet on Elon.
Then watch out because you’ll jump over Fat Fire and going directly to Mars Fire.
This is by far the best comment, Tesla to 5000 by 2030
What is the number? OMG 😳
Instead of throwing out your FI number, just give your FI multiplier. My absolute lean fire multiplier is 35x my desired annual spend. Fat fire would be 48x in my mind. Lean fire annual spend covers my basics, fat fire is at least 50% more than my basics.
Jason here - This is an interesting idea. However, the definition of “basics” is tricky. If I limit myself to must-haves only, my multiplier >50X. But that isn’t really living to the standard we worked hard to FIRE to achieve (and we aren’t leanFIRE). So long as my actual withdrawal rate (and inversely my multiplier) is below my failsafe WR, I’m in good shape! More on this and our budgets is coming up soon…
@@TwoSidesOfFI Looking forward to it. And just to clarify, lean fire would be basics x35, fat fire would be (basics plus 50% or more cushion) x48
4% isn't the common rate, it's the worst case scenario.. the median withdrawal rate is around 6.5%
What we mean is that if you survey the pre-FIRE community, 4% WR target is the most commonly cited and is the number against which all the planning is happening. We fully agree that the reality of actual withdrawal will be different, and varies over time for a variety of reasons. I'd be interested in reading more about the 6.5% median if you can share a source.
@@sbkpilot1 worst SWR for a 30 year time period was 3.8% for 1966 retirees.
why do I feel like the guy saying he will be FI by 2024 totally isn't on track to accomplish that?
Jason here - I promise, he's well on track! It may just be how something he said came across to you in this video. Thanks for watching