It feels ironic that my last post began talking about how the bull market has rocketed me to my FI number faster than expected. Between that post and now, my investments are down around 10%. Beyond that, I had some unexpected expenses this year (dentist recommending ¾ kids get orthodontics), mother-in-law needing assisted living, and I’m flat out spending more with inflation.
My original FI # from Living Life 4% at a Time with Financial Independence was $1,300,000. At the time, with an assumed 6% real return, I estimated I would get to that number by August of 2023. By the end of last year, my FI assets had made it to $1.2M and I thought that was “close enough” to my FI goals that I could maybe punch out in the summer of 2022.
Retire Anyway, in a Down Market?! Inconceivable!
I read and reread Should I Stay or Should I Go Now from January and find that even with markets down more, I feel EXACTLY the same. Which really means I was even better off than I thought I was in January.
Some of the changes in my estimates include the fact that even though I am spending more, roughly half of our income is inflation adjusted. Beyond that, our future estimates for Social Security are also inflation adjusted. Many people don’t include Social Security in their financial independence numbers at all, but I think that is crazy. I give my Social Security estimates a moderate haircut (70%), but I can’t imagine a world where the politicians let SS go up in smoke completely.
I know some people hate this one, but some of my expenses are ALSO inflation protected. What do you mean by that Mrs. FIF? We have a large home mortgage at 2.875%. These payments aren’t going up no matter the inflation.
Oh, and now it’s time to confess. I finally convinced Mr. FIF to trade in his old gas guzzler for a shiny, new (to us) electric vehicle. I added an inflation protected payment of $675/mo for 6 years to the budget. BUT, I removed $300/mo in fuel spending from the budget as long as we drive the EV as our primary vehicle.
Mrs. FIF, don’t you know about sequence of return risk? Spend less up front. Don’t retire at the top of a recession/crash. Yes, yes, I do.
But What Do the Spreadsheets Say?
My favorite financial independence spreadsheet of all time is the free Google Sheet DIY Withdrawal Rate Toolbox that Early Retirement Now puts out. I like cFIREsim 3.0 too, oh and a new one I’m still putting through it’s paces: FICalc, but my heart will always belong to a spreadsheet. The main place I spend my time in Big ERN’s Withdrawal Rate Toolbox is on the Cash Flow Assist tab. I don’t care so much about my Safe Withdrawal Rate (SWR). <gasp> I care about how much I can safely spend, which includes any passive income. The Cash Flow Assist tab lets me model our pension, Social Security, mortgage payments that don’t increase with inflation, and any other cash flow impacts on our financial independence plan.
The other ingenious attribute that Big ERN works into his Withdrawal Rate Toolbox is CONTEXT. Every other calculator I’ve come across puts your numbers through a Monte Carlo simulation of ALL market returns. But Big ERN provides withdrawal amounts based on what the market is doing right now. He also has a great post explaining how the market wants to revert back to a mean. So your SWR should be lower if the market is at all time highs, but if it has pulled back, you can probably raise your SWR and be ok – and his toolbox provides the modeling.
That is a long way of saying, based on what I am currently estimating spending (with my mortgage, car note, and 70% SS) I have a 1% failure rate.