How much is enough to FIRE in San Francisco?(andrenader.substack.com)
andrenader.substack.com
How much is enough to FIRE in San Francisco?
https://andrenader.substack.com/p/enough-to-fire-in-san-francisco
117 comments
I retired three years ago at the age of 49. I was rather successful as a software engineer and is content with what I achieved. My response to your thoughts.
1) I have not missed work at all for the last three years. Not a single day. I have not done any programming since I retired. Instead I spend my time on other hobbies and travelling. I try to take two week-long trips every month to new locations. That is plenty meaningful for me. I have nothing to prove, I already did that. My job now is to see the world while I still can.
2) Initially it was daunting to start living on savings / investments. Especially with an initial ~20% market correction and high inflation. However I am spending less than I expected, only around 2% withdrawal rate and I could reduce that by almost 50% if needed and still live rather comfortably.
3) Financial independence is nice. But you also have to spend the money, while you still can.
1) I have not missed work at all for the last three years. Not a single day. I have not done any programming since I retired. Instead I spend my time on other hobbies and travelling. I try to take two week-long trips every month to new locations. That is plenty meaningful for me. I have nothing to prove, I already did that. My job now is to see the world while I still can.
2) Initially it was daunting to start living on savings / investments. Especially with an initial ~20% market correction and high inflation. However I am spending less than I expected, only around 2% withdrawal rate and I could reduce that by almost 50% if needed and still live rather comfortably.
3) Financial independence is nice. But you also have to spend the money, while you still can.
I think "rather successful" is an understatement if you're able to travel for 24 weeks out of the year on only a 2% withdrawal rate.
Consider reading “Get Real, Get Gone: How to Become a Modern Sea Gypsy and Sail Away Forever”, written by Rick Page who has been sailing around the globe for a long, long, long time without any 2% withdrawal rate available.
Single data point: Pretty much every FIRE that I met regreted bitterly leaving the workforce and went back working (most often to do something different that they found more fulfilling like starting their own company burning all their saving, buying a farm, restaurants..).
"4%" is very much in dispute. It's easy to get that by reading click-bait article titles, but the question is obviously more nuanced. "N%" works anywhere you don't have total chaos. Do you have many years of plausibly relevant statistics? Can you envision these statistics (which by now include minor wars, major wars, self-inflicted major nonsense, high-inflation crises, other economic crises, demographic waves, and sitcom writer strikes) - can you envision these statistics to be reasonably relevant going forward? (You should ask yourself the questions, but "now is different" is a red flag, as economic thinking).
Not everyone's purpose is their job. The question is more "will you be active, interested, fed, fulfilled, if you stop working?" Even "busy" is not a requirement.
If there is a big war like that between superpowers, I bet we will have so much to cry about that we will give a damn even if our investments go down to zero !
A few things you can do to reduce costs, my family does this and hope it helps others.
- Gardening/yardwork - We do all this ourselves, its exercise and gets you outside, plus you have made something better in the physical world(I work in software so get extreme satisfaction from this!): savings per month/year ($240/$2880)
- Cleaning - We also do not have cleaners, our house is not particularly messy and we clean as we go, this saves us money by not hiring a expensive house cleaner: savings per month/year ($200/$2400)
- Shop around for home/car insurance, our home insurance rate was jumping to $5600 a year, we looked around and were able to bundle with a well known company and got it to $2600 a year. Also its cheaper to pay in full, plus if you are a engineer or manager you get a discount: savings per month/year ($250/$3000)
- Switch to lower cost cell phone plans, went with Tmobile over Verizon on a family plan and saved a decent amount: savings per month/year ($60/$720)
- Avoid doordash and other takeout services, they tack on a huge fee with every transaction(ie. 25-30%) that saves you money if you either head out to get food or just make it at home, assuming 5-6 dashes per month and cost per dash being $100: savings per month/year ($150/$1800)
- Make your food at home, kind of obvious but food eaten out is usually 2-3x cost of making the same thing at home. When we do eat out I have been getting 1 glass of an alcoholic beverage as its usually the most expensive thing on the menu, also avoid appetizers. Those two things usually cuts the bill down by 30%. Assuming eating out 10 times a month and average bill is $100(very conservative for a big city) you end up with: savings per month/year ($250/$3000)
- Avoid Cable and other high cost entertainment packages, they are usually over $100 a month and are mostly commercials anyways. if you like sports I usually get peacock as its quite cheap, also HBOgo(or max) has live sports now and both are around/under $10 a month. savings per month/year ($100/$1200)
These things don't add a huge burden to your life and when added up allow you to save more money. All of these cost savings are what my family actually did and it saved us roughly $15k a year and in general are all more healthy alternatives to what would cost money.
- Gardening/yardwork - We do all this ourselves, its exercise and gets you outside, plus you have made something better in the physical world(I work in software so get extreme satisfaction from this!): savings per month/year ($240/$2880)
- Cleaning - We also do not have cleaners, our house is not particularly messy and we clean as we go, this saves us money by not hiring a expensive house cleaner: savings per month/year ($200/$2400)
- Shop around for home/car insurance, our home insurance rate was jumping to $5600 a year, we looked around and were able to bundle with a well known company and got it to $2600 a year. Also its cheaper to pay in full, plus if you are a engineer or manager you get a discount: savings per month/year ($250/$3000)
- Switch to lower cost cell phone plans, went with Tmobile over Verizon on a family plan and saved a decent amount: savings per month/year ($60/$720)
- Avoid doordash and other takeout services, they tack on a huge fee with every transaction(ie. 25-30%) that saves you money if you either head out to get food or just make it at home, assuming 5-6 dashes per month and cost per dash being $100: savings per month/year ($150/$1800)
- Make your food at home, kind of obvious but food eaten out is usually 2-3x cost of making the same thing at home. When we do eat out I have been getting 1 glass of an alcoholic beverage as its usually the most expensive thing on the menu, also avoid appetizers. Those two things usually cuts the bill down by 30%. Assuming eating out 10 times a month and average bill is $100(very conservative for a big city) you end up with: savings per month/year ($250/$3000)
- Avoid Cable and other high cost entertainment packages, they are usually over $100 a month and are mostly commercials anyways. if you like sports I usually get peacock as its quite cheap, also HBOgo(or max) has live sports now and both are around/under $10 a month. savings per month/year ($100/$1200)
These things don't add a huge burden to your life and when added up allow you to save more money. All of these cost savings are what my family actually did and it saved us roughly $15k a year and in general are all more healthy alternatives to what would cost money.
Non-project landscaping in my nondescript midwest suburb is a minimum $600-800/mo. This is one mulch application, weekly mowing, biweekly weeding, pruning / cleanup on a half-acre lot with no difficult terrain and a generous back patio. It's a big part of why we just do it ourselves, it's hard to justify $7-10k or more on someone mowing the grass and getting rid of sticks.
yeah my numbers were more focused towards smaller yards that alot of folks have in the sf bay area. For me I am on 1/3 acre in Colorado with about 33% of it grass, it takes about 30-40 mins to mow and edge it and after I fixed the dead patches with easy seed etc it just sort of takes care of itself. I think we were quoted $125 a visit(weekly) so $500 a month. I have so many better things to do with that money than spend it on landscapers. And agree with your decision as well, that is alot saved!
Companies are essentially subsidizing $1M (or more now?) mortgages if you are willing to go into their SV offices. You don't have to retire there! Just sell the house and move on.
You don’t have to retire there, but it turns out that the Bay Area has one of the most pleasant climates in the entire world for humans and it is coupled with some of the most stunningly beautiful and varied terrain in the world.
It’s hard to leave and call anything else retirement if you’re just considering climate, weather, and nature. My family did end up leaving the area but it was hard. I am still working. Wouldn’t surprise me if I return some day.
It’s hard to leave and call anything else retirement if you’re just considering climate, weather, and nature. My family did end up leaving the area but it was hard. I am still working. Wouldn’t surprise me if I return some day.
It's not easy but you can find similar (even arguably better) climate in Europe (Cyprus, Canary Islands, Malta) at a much cheaper COL, with lower crime rate, healthier food - and even less taxes with the right choices.
South East Asia and South America have opportunities too albeit .
I think the weather in SF is decent but not great (way too cold) - but it's all the other cons (homeless, taxes, drugs) that makes me run away from SF.
South East Asia and South America have opportunities too albeit .
I think the weather in SF is decent but not great (way too cold) - but it's all the other cons (homeless, taxes, drugs) that makes me run away from SF.
Entire central coast plus LA offers much of the same.
Doesn’t really solve the cost of living problem being in coastal CA :)
It's still less of an issue than Bay Area, and the other parts are more fun.
Where did you move to, if you don't mind my asking?
It's hard to leave here for sure :'(
The Carolinas, near the Blue Ridge Mountains where it is also pretty. Not quite the Sierras but it’ll do
As somebody who would prefer to return to California—- The Blue Ridge line between Roanoke, VA and Greenville, SC is probably where I’ll end up myself. But sadly the mountains are not nearly the same, I’ll miss that elevation.
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I hadn’t heard of this, what are some example companies I can look at?
I think what he means is: Some SF companies pay very large compensation packages so that their engineers can afford to purchase homes.
I don't think this is true. There are only a handful of companies that pay $500k+ TC for senior+ engineers. The vast majority of companies top out at $250k, be it F500 or startups (not including their worthless "equity").
You can't afford a home, on your own, at $250k in the Bay Area. Realistically you need $500k+.
I don't think this is true. There are only a handful of companies that pay $500k+ TC for senior+ engineers. The vast majority of companies top out at $250k, be it F500 or startups (not including their worthless "equity").
You can't afford a home, on your own, at $250k in the Bay Area. Realistically you need $500k+.
Maybe they mean they pay more in the bay area because of the high housing costs.
That's what I understood too, but it seems more like enough to rent, not buy.
Yeah I recently looked at rent costs down in the South Bay (thinking “tiny shitty apartment to avoid 12-15 hours of mandatory commuting 3 days a week”) and it’s insane - like “more than my mortgage payments” insane.
they just mean that this is what the geo-adjusted salary is doing
I wonder what the number would be assuming you own your own home. I thought it would make a real difference, but instead of $60K/year you spend on renting a house (in his calculation), you'd spend $30K/year on property taxes :-(( So, not much of difference if you own a $2M house.
Not if you bought a couple decades ago or inherited from your parents.
Not sure how it works in every state, but my property taxes are liable to increase year to year, for a home I own. Are you saying this is not the case in California? They just true up property taxes for a property upon next sale?
CA assessed value for property tax calculations is capped at 2% growth per year. So if you bought a house in the 1970s you’re never selling that thing as the tax hit on any new property annually would be much more. If anything, you keep the property, rent it out, and never do any major renovation that would trigger a full reassessment.
Oregon passed a ballot measure in the early 90's that is essentially the same.
A mile away I have a literal mansion that is on the market for $8m. looking up the property taxes, the house has been owned by a trust since the late 80's, and they pay less in property taxes on the mansion and 15 acres than I do for my regular house in the suburbs..
I'm don't know them, but have heard its the kids that live in the house now, but the trust didn't sell or change so taxes have been kept the same.
Also have a house down the street that has been completely vacant for 2 years now, in the middle of a housing crisis in my area. The owner passed away, and the family couldn't decide what to do with her stuff. I talked to one of them, he said the taxes are only $500/year on the place, and utilities are less than $100/month, and pretty cheap to have a crew mow the lawn weekly, till they decide what to do.
A mile away I have a literal mansion that is on the market for $8m. looking up the property taxes, the house has been owned by a trust since the late 80's, and they pay less in property taxes on the mansion and 15 acres than I do for my regular house in the suburbs..
I'm don't know them, but have heard its the kids that live in the house now, but the trust didn't sell or change so taxes have been kept the same.
Also have a house down the street that has been completely vacant for 2 years now, in the middle of a housing crisis in my area. The owner passed away, and the family couldn't decide what to do with her stuff. I talked to one of them, he said the taxes are only $500/year on the place, and utilities are less than $100/month, and pretty cheap to have a crew mow the lawn weekly, till they decide what to do.
If you have some time to kill, this site: https://www.officialdata.org/ca-property-tax/#37.76919241859...
will show you your neighborhood's property taxes (Cali only, I think).
You will find neighborhoods where one owner is paying < $1000/year and another is paying > $30000/year
will show you your neighborhood's property taxes (Cali only, I think).
You will find neighborhoods where one owner is paying < $1000/year and another is paying > $30000/year
It's not just the West Coast, midwest suburb here and our home's previous owners only had it for a decade but we had a 60% property tax increase after buying.
California does handle it differently.
https://en.wikipedia.org/wiki/1978_California_Proposition_13 - "by assessing values at their 1976 value and restricted annual increases of assessed value to an inflation factor, not to exceed 2% per year. It prohibits reassessment of a new base year value except in cases of (a) change in ownership, or (b) completion of new construction."
https://en.wikipedia.org/wiki/2020_California_Proposition_19 - Some updates about transferring to family, farms, etc
https://en.wikipedia.org/wiki/1978_California_Proposition_13 - "by assessing values at their 1976 value and restricted annual increases of assessed value to an inflation factor, not to exceed 2% per year. It prohibits reassessment of a new base year value except in cases of (a) change in ownership, or (b) completion of new construction."
https://en.wikipedia.org/wiki/2020_California_Proposition_19 - Some updates about transferring to family, farms, etc
Businesses in CA got people to vote for prop13 in the 70s I think (the propaganda justifying it was essentially “the Supreme Court said your property taxes have to pay for the same quality of education for poor people”, but the actual reason is a massive tax cut for corporations as they never actually sell property so get a permanent cut to property taxes).
It basically says “unless a property changes ownership the taxable valuation cannot increase by more than 2%”, it doesn’t matter if it’s a rental property that has rent increased by 50%, or a corporate owned property that has financial reports reflecting its true value, it’s capped at 2% increase.
This has a follow on impact of increasing the actual property tax rates (because the majority of properties are undervalued by actual market rates the only option is higher base tax rates) which means if you do buy a new property you get hit with massive property taxes (over time they will become cheap relative to property value but initial cost is insane).
We’ve owned our house for a decade, and if we were to try and buy it today the property taxes on it would be higher than our current mortgage payments because of the increase in actual market value.
The actual fix for this is complicated (there’s a real issue where a person is retired say and their property taxes could increase to being unaffordable forcing them to sell their home), but I feel a reasonable improvement would be to say that taxable value for residential rental property increases at the maximum of “2% or rate of rent increase”, and commercial property gets taxed at the value included in financial reports, or something to that effect. Alas prop13 is actually a modification to the California state constitution so the only way to fix it is through an amendment to the constitution.
It basically says “unless a property changes ownership the taxable valuation cannot increase by more than 2%”, it doesn’t matter if it’s a rental property that has rent increased by 50%, or a corporate owned property that has financial reports reflecting its true value, it’s capped at 2% increase.
This has a follow on impact of increasing the actual property tax rates (because the majority of properties are undervalued by actual market rates the only option is higher base tax rates) which means if you do buy a new property you get hit with massive property taxes (over time they will become cheap relative to property value but initial cost is insane).
We’ve owned our house for a decade, and if we were to try and buy it today the property taxes on it would be higher than our current mortgage payments because of the increase in actual market value.
The actual fix for this is complicated (there’s a real issue where a person is retired say and their property taxes could increase to being unaffordable forcing them to sell their home), but I feel a reasonable improvement would be to say that taxable value for residential rental property increases at the maximum of “2% or rate of rent increase”, and commercial property gets taxed at the value included in financial reports, or something to that effect. Alas prop13 is actually a modification to the California state constitution so the only way to fix it is through an amendment to the constitution.
It's interesting that in your example, your specific situation would still have tax rates subsidized by your neighbors while the people you consider the out-group (corporations, landlords) get minimal or no benefit from it. I'm also not convinced corporations are getting any outsized benefit, business buy and sell real estate all the time.
The fix doesn't seem complicated. Assess a home's value. Tax it. If you're concerned about it disproportionately impacting low or fixed income folks, move as much of that tax as you can to income and commuter taxes.
The fix doesn't seem complicated. Assess a home's value. Tax it. If you're concerned about it disproportionately impacting low or fixed income folks, move as much of that tax as you can to income and commuter taxes.
There’s so much wrong with this.
The people paying the property taxes are the tenants. Except they’re paying market rate for the property while the owner pays far below that actual rate. In other words the artificially lowered tax rate is just a profit center for the owner.
Second, the owner does benefit from those property taxes: the property taxes fund a bunch of the infrastructure that makes their property have value, that makes tenants interested, covers police and fire, etc
Except because the land owners in these cases aren’t paying their fair share, so in addition to profiting off tenants that are paying market rate for the property owners are being subsidized by the increased base rate others have to pay.
People do not have direct control over the market value of their property so it is trivial to have a world where people’s property taxes could increase beyond what they could afford at all, while simultaneously pricing them out moving (to “realize” the “value” of their home), but if you’re renting a property out at the market rate then you should be paying taxes at the market rate.
The people paying the property taxes are the tenants. Except they’re paying market rate for the property while the owner pays far below that actual rate. In other words the artificially lowered tax rate is just a profit center for the owner.
Second, the owner does benefit from those property taxes: the property taxes fund a bunch of the infrastructure that makes their property have value, that makes tenants interested, covers police and fire, etc
Except because the land owners in these cases aren’t paying their fair share, so in addition to profiting off tenants that are paying market rate for the property owners are being subsidized by the increased base rate others have to pay.
People do not have direct control over the market value of their property so it is trivial to have a world where people’s property taxes could increase beyond what they could afford at all, while simultaneously pricing them out moving (to “realize” the “value” of their home), but if you’re renting a property out at the market rate then you should be paying taxes at the market rate.
You seem to think I'm arguing for some sort of landlord handout when in actuality I'm arguing that people pay fair market rate for everything, including their property taxes, at all times.
If your property taxes are too expensive for you, you should move.
If your property taxes are too expensive for you, you should move.
You could delay the tax collection above a certain amount until sale of the property. But I'm against allowing people to sit on valuable property while contributing little back to society. Get a reverse mortgage or move out.
Delaying the collection has weird side effects and edge cases where if you hold on to the property long enough you could get into a position where you will actually lose money selling it, or worse yet even have to write a check to the government when you sell your house.
I would agree in general that if you can't afford the market-rate property taxes on your home, you should move. And stuff like Prop 13 just makes your neighbors subsidize you.
I would agree in general that if you can't afford the market-rate property taxes on your home, you should move. And stuff like Prop 13 just makes your neighbors subsidize you.
Nobody should be forced to move due to their home increasing in value outside their control.
I see this argued a lot but never with any reason why other than hand-wavey arguments about "fairness." Why are high property taxes pricing someone out of area inherently worse than property values or insurance costs forcing someone out?
If you can't afford to live there, shouldn't you have to live somewhere else? Even if you think housing is a human right, housing in the specific city/neighborhood/suburb/street of your choice is not.
If you can't afford to live there, shouldn't you have to live somewhere else? Even if you think housing is a human right, housing in the specific city/neighborhood/suburb/street of your choice is not.
Economics ignore anything that's uncountable like life enjoyment or community ties. People who have lived somewhere long enough for prices to have spiralled out of control likely score high on those measures. Kicking people out of a life and community they not only enjoy, but probably even define them, is in my opinion barbaric.
I think it should be something close to a right to continue living in your primary residence until you pass away. Being forced to move against your will is a difficult and traumatic experience, especially if you’re older and rely on a local support network.
Yes. Proposition 13 is famous for triggering sweeping tax changes across the country.
In CA, Prop 13 effectively caps how much the assessed value of your home can increase each year to 2%.
So over time, the tax burden of long term property is much less than the current property value.
When the house changes hands (generally) the house is reassessed to the market.
There was also new laws passed a few years ago where a family can bring their current tax basis forward to a new home.
There’s also the phenomenon of businesses buying other businesses, but leaving them formally intact so that their assets don’t “change hands” thus maintaining the inherited tax basis.
In CA, Prop 13 effectively caps how much the assessed value of your home can increase each year to 2%.
So over time, the tax burden of long term property is much less than the current property value.
When the house changes hands (generally) the house is reassessed to the market.
There was also new laws passed a few years ago where a family can bring their current tax basis forward to a new home.
There’s also the phenomenon of businesses buying other businesses, but leaving them formally intact so that their assets don’t “change hands” thus maintaining the inherited tax basis.
> Yes. Proposition 13 is famous for triggering sweeping tax changes across the country.
prop 13 is cali only, there's no such thing as a federal ballot initiative
prop 13 is cali only, there's no such thing as a federal ballot initiative
yes, it is a serious problem in california - people consider this one of the primary causes of the housing crisis
Prop 13 means that property tax increases are capped at 2% or inflation, whichever is lower.
Yep! It's good to be born rich already!
Not only your property tax rate but your valuation in other states.
Used rebuild friends old homes and do habitat in a freedom state like TX. They can't afford to live there anymore. Low-service state gov't rolls it all down to you.
Socialist CA fixed that 40 years ago.
Used rebuild friends old homes and do habitat in a freedom state like TX. They can't afford to live there anymore. Low-service state gov't rolls it all down to you.
Socialist CA fixed that 40 years ago.
The funny thing is that I just plucked 5MM out of a hat for my number 5 or so years ago when asked and I guess this analysis supports my intuition.
The one big problem with renting is instability. If the owner decides to sell the property, it may be difficult to find something equivalent on your terms or you may be forced to hop around a few times before settling.
The one big problem with renting is instability. If the owner decides to sell the property, it may be difficult to find something equivalent on your terms or you may be forced to hop around a few times before settling.
A buyout, as sibling mentioned, could happen, but would likely not be enough to make up for losing your rent-controlled apartment. In SF, most apartment rentals are covered by rent control so you can more or less predict how much rent you'll be paying years into the future (the annual rent increases are capped by the city and though they are supposed to be tied to inflation the allowable rent increases are likely, practically speaking, less than the inflation rate (for example, looks like for the coming year the increase is capped at 1.7%)).
> most apartment rentals are covered by rent control
For a rather loose definition of "most". Depends on type of building and when they were built or renovated.
For a rather loose definition of "most". Depends on type of building and when they were built or renovated.
Stability is one of the reasons why I bought a few years ago (albeit, not in the SF Bay Area). That ever-looming possibility of needing to move again come lease renewal time, whether that be due to rent hikes or the landlord deciding to do something else with the property wore on my nerves.
Of course home ownership isn’t all roses either, but I can at least rely on and plan around my mortgage payment not changing and not having to move unless I decide to do so independently.
Of course home ownership isn’t all roses either, but I can at least rely on and plan around my mortgage payment not changing and not having to move unless I decide to do so independently.
>That ever-looming possibility of needing to move again come lease renewal time, whether that be due to rent hikes or the landlord deciding to do something else with the property wore on my nerves.
That sounds dreadful and that's why there should be laws against landlords kicking out long time tenants at their whim. Your home should be a safe space and having that sword of Damocles constantly looming above your head must feel awful especially in lower income households.
That sounds dreadful and that's why there should be laws against landlords kicking out long time tenants at their whim. Your home should be a safe space and having that sword of Damocles constantly looming above your head must feel awful especially in lower income households.
It’s not great, but what makes it that much worse is the hunt for the next apartment that one needs to start a good deal before lease renewal just in case. Just having a single small cat cuts your options in half, and then of course price and whatever other quality of life things you might be looking for (e.g. adequate windows/natural light/building facing) cut that down further. Apartment hunting is anxiety-stoking.
Let's not go too far either. IF that happens, you can live in a too expensive, or not optimal location, or otherwise imperfect place for a few months or one year while you hunt for better.
For me that scenario is all the more stressful since that means there’s going to be at least two moves upcoming instead of just a potential single move.
It's a "might have to" - not very likely - in exchange for going house hunting every year just before lease renewal. That's a lot of work every year. But sure, it's a choice.
These calculations do not commit you to a course. They are statistical reassurance. You can and should remain aware that you can course correct. For example, California weather and your friends might be your preference in San Francisco, but you can still fall back to something far less expensive.
At least in SF, tenants get pretty generous buyouts when the landlord decides to sell.
If the landlord buys out the tenant then that typically means the unit is rent-controlled, which means the tenant does not have to leave, and their rent doesn't change, just because the building is sold (rent control goes with the building, not the owner). Just adding in case that's not clear to other readers here. Tenants can and do accept buyouts, but just pointing out that a tenant's rights under rent control do not end with the transfer of the property to a new owner.
I guessed $6M when I read the headline.
I'm in a LCOL area so I see ~$4.5M as my number.
Inflation / future returns are the biggest challenge.
Live in a multi-unit under rent control. New landlord has very limited options with you.
I think any time you string together a series of worst case scenarios all being true at the same time, you're going to end up with something ridiculous. It's silly to ignore social security since at the bare minimum, if congress does nothing, people will still get roughly 75% of the benefit.
One tool I like better than the online calculators is the spreadsheet at https://earlyretirementnow.com/safe-withdrawal-rate-series/ . It'll give you the actual 0% failure safe withdrawal rate, based off of your numbers. I'm sure in OP's case it will be higher than 3.00%.
One tool I like better than the online calculators is the spreadsheet at https://earlyretirementnow.com/safe-withdrawal-rate-series/ . It'll give you the actual 0% failure safe withdrawal rate, based off of your numbers. I'm sure in OP's case it will be higher than 3.00%.
FireCalc is also great - https://firecalc.com/. Just put in spending, portfolio & years (tiny box on right), and it does back testing analysis over investment windows going back to 1871.
For $4M and $140k annual spend:
> FIRECalc looked at the 124 possible 30 year periods in the available data, starting with a portfolio of $4,000,000 and spending your specified amounts each year thereafter.
> Here is how your portfolio would have fared in each of the 124 cycles. The lowest and highest portfolio balance at the end of your retirement was $348,731 to $24,529,049, with an average at the end of $9,233,594. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
> For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
For $4M and $140k annual spend:
> FIRECalc looked at the 124 possible 30 year periods in the available data, starting with a portfolio of $4,000,000 and spending your specified amounts each year thereafter.
> Here is how your portfolio would have fared in each of the 124 cycles. The lowest and highest portfolio balance at the end of your retirement was $348,731 to $24,529,049, with an average at the end of $9,233,594. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
> For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Once your number as high as $5.6m, is that even plausibly within the scope of early retirement?
I feel like a lot of the value of getting a specific number is getting spooked by it! And then facing some real choices. Is it really worth N years of my working life to [live in the most expensive city in America] / [buy a large home] / [pay for 4 years of expensive American universities]?
And this isn't even touching on stuff tech people often want that OP doesn't (private schools / resort vacations / expensive winter sports).
I feel like a lot of the value of getting a specific number is getting spooked by it! And then facing some real choices. Is it really worth N years of my working life to [live in the most expensive city in America] / [buy a large home] / [pay for 4 years of expensive American universities]?
And this isn't even touching on stuff tech people often want that OP doesn't (private schools / resort vacations / expensive winter sports).
Doesn't this depend heavily on inflation? With the ballooning US debt, how do people imagine the government will continue to pay interest without massive inflation in a few decades?
The 4% rule accounts for inflation. The stock market on an average gives you 7% a year in returns adjusted for inflation. The 4% gives you enough cushion in case of economic turmoil.
The stock market on average has given you 7%. That may not be a safe assumption going forward - going far forward. I might live another 30 years. If you FIRE, you might live another 50. Will the stock market continue to yield 7% over the next 50 years? That's a larger assumption than I'm comfortable making.
Why is it such a crazy assumption? Going back to like 1870 a $SPY equivalent has yielded something like 8-10% on average if you reinvest dividends. In that time there have been two world wars, a handful of pandemics, election turmoil (oversea and aboard), many bubbles in tech and housing, and yet the long term average was 8%+.
FWIW there have always been and will always be spelling financial doom right around the corner, but betting that way has been a failing strategy save for lucky few who got the timing just right.
FWIW there have always been and will always be spelling financial doom right around the corner, but betting that way has been a failing strategy save for lucky few who got the timing just right.
Let's say you didn't invest in the US stock market, because you lived in, say, Japan. How did the Japanese stock market do since 1870? Pretty well, except for that part in 1945 when it went to approximately zero.
Ditto Germany in 1945.
Ditto Russia in 1918.
Ditto China in 1949.
Is the US going to be the US of history for the next 50 years? Or is it going to be one of Japan, Germany, China, or Russia?
Or is it just going to be, say, the UK? How did the UK stock market do over the last 50 years?
Ditto Germany in 1945.
Ditto Russia in 1918.
Ditto China in 1949.
Is the US going to be the US of history for the next 50 years? Or is it going to be one of Japan, Germany, China, or Russia?
Or is it just going to be, say, the UK? How did the UK stock market do over the last 50 years?
"Better be weary of making financial assumptions because you may end up on the losing side of a world war and then it will all be for naught" isn't very useful thinking imo
If you think America (or wherever you live) is going to end up like Germany in 1945, or Russia in 1918, then it won't matter in the slightest what you've invested in anyway - you plus everyone around you will be in the same (half underwater) boat.
"Ditto" for if $SPY suddenly tanks or underperforms. There are going to be much more immediate concerns for everyone if that happens.
If you think America (or wherever you live) is going to end up like Germany in 1945, or Russia in 1918, then it won't matter in the slightest what you've invested in anyway - you plus everyone around you will be in the same (half underwater) boat.
"Ditto" for if $SPY suddenly tanks or underperforms. There are going to be much more immediate concerns for everyone if that happens.
> The 4% rule accounts for inflation
"Accounts" wrongly, though? 4% inflation for the next half-century seems like complete fantasy. How do you imagine it possibly being sufficient to address the ballooning debt?
"Accounts" wrongly, though? 4% inflation for the next half-century seems like complete fantasy. How do you imagine it possibly being sufficient to address the ballooning debt?
Yeah but have you seen the interest rate on the national deb and the amount the fed government is borrowing every year?
The interest we pay on the debt has just passed defense spending this year as a percentage of the federal budget.
I cant imagine how 4% inflation will continue to be the norm as the government has to print more and more money to pay for this stuff.
The interest we pay on the debt has just passed defense spending this year as a percentage of the federal budget.
I cant imagine how 4% inflation will continue to be the norm as the government has to print more and more money to pay for this stuff.
Presumably their investments would inflate as well. Unfortunately, the asset owning class is protected by inflation in that way.
It's the lower / middle class who have cash savings that get wrecked by inflation.
It's the lower / middle class who have cash savings that get wrecked by inflation.
usually inflation helps the lower class - this has been the case historically and also the case for the most recent inflation
Data?
https://www.forbes.com/sites/jackkelly/2024/04/08/how-inflat...
Inflation is absolutely a way to steal the already meager savings of the working class.
The only way it wouldn't be is if that "new money" actually entered their local economy, which I'd love to see.
https://www.forbes.com/sites/jackkelly/2024/04/08/how-inflat...
Inflation is absolutely a way to steal the already meager savings of the working class.
The only way it wouldn't be is if that "new money" actually entered their local economy, which I'd love to see.
> Data?
Sure [0]. You can also look at historical US rebellions, such as Shays' rebellion - where a principle demand of the working class rebels was that the US government print more money.
> Inflation is absolutely a way to steal the already meager savings of the working class.
Exactly why inflation is generally beneficial to the working class, generally their savings are insignificant while their wages are very important - it raises their wages while reducing the value of savings & debt, which hurts people who have lots of savings and helps people who are living off of their wages.
[0]: https://realtimeinequality.org/?id=wealth&wealthend=03012023...
Sure [0]. You can also look at historical US rebellions, such as Shays' rebellion - where a principle demand of the working class rebels was that the US government print more money.
> Inflation is absolutely a way to steal the already meager savings of the working class.
Exactly why inflation is generally beneficial to the working class, generally their savings are insignificant while their wages are very important - it raises their wages while reducing the value of savings & debt, which hurts people who have lots of savings and helps people who are living off of their wages.
[0]: https://realtimeinequality.org/?id=wealth&wealthend=03012023...
You think Shays' rebellion is relevant here? That is quite the reach.
https://www.nber.org/system/files/working_papers/w31775/w317...
There is an overwhelming amount of data pointing in the opposite direction.
This is easier to answer through simple logic though. Do you think the ruling / wealthy class would allow inflation if it hurt them? Perhaps, but personally I find it a bit naive.
Let's break down your claim though
> Exactly why inflation is generally beneficial to the working class, generally their savings are insignificant while their wages are very important - it raises their wages while reducing the value of savings & debt, which hurts people who have lots of savings and helps people who are living off of their wages.
Reducing the value of debt is a real possible winner, but that helps the rich just as much. And the poor person's debt, believe it not, tends to be of high enough interest that inflation isn't going to help them as much as you claim. Especially since they are subject to variable interest rates more than most.
Savings? Once again, this is cash for them, and for the wealthy it tends to be assets that are not harmed by inflation (either by growing with them or outpacing it).
So let's get to the final claim. It raises their wages. Is that true? The wage is inflated, but their purchasing power doesn't actually improve. It tends to go down, as the things they spend their money on are, you guessed it, inflated.
It's wild to think that inflation is helping folks at the bottom.
https://www.nber.org/system/files/working_papers/w31775/w317...
There is an overwhelming amount of data pointing in the opposite direction.
This is easier to answer through simple logic though. Do you think the ruling / wealthy class would allow inflation if it hurt them? Perhaps, but personally I find it a bit naive.
Let's break down your claim though
> Exactly why inflation is generally beneficial to the working class, generally their savings are insignificant while their wages are very important - it raises their wages while reducing the value of savings & debt, which hurts people who have lots of savings and helps people who are living off of their wages.
Reducing the value of debt is a real possible winner, but that helps the rich just as much. And the poor person's debt, believe it not, tends to be of high enough interest that inflation isn't going to help them as much as you claim. Especially since they are subject to variable interest rates more than most.
Savings? Once again, this is cash for them, and for the wealthy it tends to be assets that are not harmed by inflation (either by growing with them or outpacing it).
So let's get to the final claim. It raises their wages. Is that true? The wage is inflated, but their purchasing power doesn't actually improve. It tends to go down, as the things they spend their money on are, you guessed it, inflated.
It's wild to think that inflation is helping folks at the bottom.
The 4% or 3% as OP put it withdrawal rate accounts for inflation.
The same as always? Pay old debt with new debt. Other countries might run into issues with exchange rates this way, but the status of the USD is dampening such effects.
Even assuming there are always people, institutions and countries eager to buy the new debt, the government must still pay the ongoing interest on the debt. The concern is when that interest becomes a significant part of the annual budget. Then there is no money left to pay for the essentials - like, /s - government workers' salaries and retirement and military.
You can pay the ongoing interest with more debt. Sure, this will probably not work forever, not even for the USA and the special status its currency has. But "forever" is usually not a relevant concept for politicians.
how long can you do that for?
Most countries in the West are doing that at least since WW2. To different degrees, though.
> To different degrees, though.
There's quantifiable data on this and it's looking problematic as of now.
There's quantifiable data on this and it's looking problematic as of now.
I dont think people understand it or arent aware or are in blissful denial.
Im guilty of this, just a few years ago I started researching it even though its been a problem for decades or more.
The news media puts wars on the front page and the debt on the back page if its reported at all.
In my opinion this one of the biggest existential threats to America and the main stream media isnt even raising any red flags.
Im guilty of this, just a few years ago I started researching it even though its been a problem for decades or more.
The news media puts wars on the front page and the debt on the back page if its reported at all.
In my opinion this one of the biggest existential threats to America and the main stream media isnt even raising any red flags.
The author should spend some time reading root of good's blogs.
The guy takes his family of four on multi-week vacations for essentially nothing...
The guy takes his family of four on multi-week vacations for essentially nothing...
Send the kid to SFSU and have her live at home since that's the norm now. That or give up the daily avocado toast.
140k in spend in SF is a broke lifestyle. So more like 10mm at least
why does he skip the taxes though? surely at 140k, even long term capital gains taxes are going to eat up a significant portion.
OP here. Married Filing Jointly has nearly 90k of long term capital gains in the 0% tax bracket. Most the "income" coming from qualified dividends, long term capital gains, and importantly the original cost basis of the investments you sold. This is all before more complicated withdraw strategies. So the taxation at that level ends up being smaller than you think. I need to make a longer post going into all the details explaining it all.
Using a a multiple to guess is highly inaccurate. You also cannot use stock market as a way to accurately assume it will nullify inflation. You need to use some sort of TIPS treasury as a baseline calculation, not a volitle market. If you are messing around with the stock market, you could screw it up when you feel lucky or panic.
The best way to retire is to always have some sort of backup skill income and do some side jobs on your own leisure to keep it sharp. With any number you can still go under for whatever reasons and when you do, you are really screwed
The best way to retire is to always have some sort of backup skill income and do some side jobs on your own leisure to keep it sharp. With any number you can still go under for whatever reasons and when you do, you are really screwed
This analysis doesn't seem to account for inflation? In 40 years, withdrawing $140,000 will not be nearly as much.
For reference, inflation over the last 40 years has been 300%. So you're talking about $47k in inflation adjusted purchasing power in 40 years.
For reference, inflation over the last 40 years has been 300%. So you're talking about $47k in inflation adjusted purchasing power in 40 years.
It does factor in inflation. I am using a 3% safe withdraw rate in my calculations which is where I withdraw 3% of my portfolio balance in year one, then in year two I take that original amount and adjust it up by inflation, and continue doing this each year. So it will maintain the same buying power.
the 3% rule accounts for inflation. Average nominal return 7-10%, inflation of 3.5% average, leaves you 3% withdrawal with no decrease (or even an increase) in principle in real dollars
That's not what the 4% rule means. The 4% rule (modified to 3% by OP) is what you can withdraw without running out of principle. Maintaining the level of principle is a different thing entirely.
Average nominal should be ignored anyway. It's never been a practical number for the individual investor to rely on. Mistakes, allocation models, people having less to invest when times are bad (and market is low), etc.
Average nominal should be ignored anyway. It's never been a practical number for the individual investor to rely on. Mistakes, allocation models, people having less to invest when times are bad (and market is low), etc.
The 4% rule as a plan is not very smart in the current environment. A few years ago it was difficult to get safe higher yielding equities/bonds, but no longer.
You can build a quite safe stock/bond portfolio yielding 8% on distributions alone. Why would you aim to sell 4% of principal a year when you can avoid touching the principal at all at close to twice the yield?
Large caps are also at quite high valuations historically... earnings grow over time, but valuation multiples are cyclical. There are so many safe small caps at depressed, recessionary valuations right now.
Look at any number of the ~1B market cap or under REITs that often yield 7%+ right now and have strong balance sheets and good growth prospects
Owning 10,000 apartment buildings isn't really any more differentiated or safer than owning 1000. Especially not when you're paying 1.5x the multiple for it.
The growth in popularity of passive investing has really inflated the spread in valuation between large/small cap.
EDIT: The negative engagement on this comment is strongly explanatory as to why there's so much opportunity in the market right now.
You can build a quite safe stock/bond portfolio yielding 8% on distributions alone. Why would you aim to sell 4% of principal a year when you can avoid touching the principal at all at close to twice the yield?
Large caps are also at quite high valuations historically... earnings grow over time, but valuation multiples are cyclical. There are so many safe small caps at depressed, recessionary valuations right now.
Look at any number of the ~1B market cap or under REITs that often yield 7%+ right now and have strong balance sheets and good growth prospects
Owning 10,000 apartment buildings isn't really any more differentiated or safer than owning 1000. Especially not when you're paying 1.5x the multiple for it.
The growth in popularity of passive investing has really inflated the spread in valuation between large/small cap.
EDIT: The negative engagement on this comment is strongly explanatory as to why there's so much opportunity in the market right now.
Those yields can shrink or disappear quite rapidly, and then you are left selling the equity. From a purely financial perspective, there is nothing special about dividends versus selling equity, it doesn't make you better off; that is just rearranging how value is recognized. The main difference between dividends and growth is tax structure, which generally favors the latter due to the added optionality. Dividends are mostly only useful if you want to cater to fixed income investors and similar.
A company owning real estate, paying 8% dividends with a 65% payout ratio isn't going to have its dividends disappear overnight.
I can buy O (Realty Income) right now and lock in a ~6% yield. They didn't cut their dividend even during the GFC. And I think O is one of the poorer options of REITs to choose from right now.
What do you mean?
This entire thread is about retirement, where fixed income becomes important. If you're 75 do you want to wait 10 years for the market to recover to resume selling your principle?
I can buy O (Realty Income) right now and lock in a ~6% yield. They didn't cut their dividend even during the GFC. And I think O is one of the poorer options of REITs to choose from right now.
What do you mean?
This entire thread is about retirement, where fixed income becomes important. If you're 75 do you want to wait 10 years for the market to recover to resume selling your principle?
The thing about retirement, especially early retirement, is it (hopefully) lasts a long time. It is foolish to assume that the trends of the last couple of years will continue on indefinitely rather than return to historic norms. Banking on a 7%-8% return on low risk assets is just asking for trouble.
You seem to misunderstand.
If a company owns apartment buildings and earns $1B a year, and pays out $500m a year in dividends at 5% yield, that is a 50% payout ratio and very safe margin of error on cashflow for real estate.
If you buy today and hold, that's locked in. You are in a safe position, if you assume that rents aren't going to decline nationally and materially. There is no "good times and bad times" you're in the position and in the game. Just hold it
If you buy Costco today at a 45x earnings multiple and 0.5% dividend, and expect to be able to sell it down at 4% a year and earn a better yield at lower risk, that is quite clearly poorly conceived in my opinion.
(among many other large caps in a similar position)
If a company owns apartment buildings and earns $1B a year, and pays out $500m a year in dividends at 5% yield, that is a 50% payout ratio and very safe margin of error on cashflow for real estate.
If you buy today and hold, that's locked in. You are in a safe position, if you assume that rents aren't going to decline nationally and materially. There is no "good times and bad times" you're in the position and in the game. Just hold it
If you buy Costco today at a 45x earnings multiple and 0.5% dividend, and expect to be able to sell it down at 4% a year and earn a better yield at lower risk, that is quite clearly poorly conceived in my opinion.
(among many other large caps in a similar position)
Do you have an example of an REIT that fits your hypothetical that has a history of delivering these yields consistently for decades?
O (Realty Income) pays 6% today, AFFO multiple of 12x, low debt (35% debt to asset value), low payout ratio (75% of AFFO), and has never cut their dividend, including during the GFC
And I think this is one of the poorer income choices today.
People would rather buy Costco at 50x earnings multiple and try to sell the principle down at 4%/year, apparently!
The responses to this thread are really eye opening to why such a large small/large cap valuation gap exists. (Yes, O is large cap, but smaller REITs have even better numbers)
And I think this is one of the poorer income choices today.
People would rather buy Costco at 50x earnings multiple and try to sell the principle down at 4%/year, apparently!
The responses to this thread are really eye opening to why such a large small/large cap valuation gap exists. (Yes, O is large cap, but smaller REITs have even better numbers)
Realty Income is higher risk and lower return net of taxes right now than e.g. some US treasury tracking ETFs. As an example, the effective yield on BOXX is only 0.25% lower than O, and can be recognized as long-term capital gains.
For a company like Costco with high revenue growth and a very low price/sales ratio, earnings are a fairly meaningless number for valuing the company and experienced investors know this. You have to finance growth with earnings and if they stopped investing in growth it would boost earnings at the new (higher) equilibrium. Investors take the long view.
For a company like Costco with high revenue growth and a very low price/sales ratio, earnings are a fairly meaningless number for valuing the company and experienced investors know this. You have to finance growth with earnings and if they stopped investing in growth it would boost earnings at the new (higher) equilibrium. Investors take the long view.
I'm a fan of bonds too, though think yields will go a bit higher from here.
A 12x AFFO multiple is not lower return than a 5% yielding (20x multiple) US treasury bond though. The treasury bond coupon is safer, but more exposed to inflation risks.
I'm not sure what BOXX is, but a quick look showed they hold options against SPY, so sounds like an options selling strategy for income. These work alright too, though your income will grow/decline along with the price of the underlying.
And you should check again revenue growth for COST or a stock like AAPL, which is projected to have -5% revenue growth over the year.
A 50x earnings multiple implies 2% yield today. Even if Costco doubles their revenue, at the same margins their earnings yield would only be 4%. So say they grow it 3x, they now have an earnings yield of 6%.
So in 15-20 years when they've 3x their revenue, you're entitled to a 6% yield on your original investment at 100% payout ratio.
To be a remotely good investment on a fundamental basis, they must either carry a lower multiple, or expand their margins over time. Given that Costco's whole premise is being a discount retailer, expanding margins is unlikely.
Please don't participate in an investing conversation if you don't have anything data driven to contribute.
A 12x AFFO multiple is not lower return than a 5% yielding (20x multiple) US treasury bond though. The treasury bond coupon is safer, but more exposed to inflation risks.
I'm not sure what BOXX is, but a quick look showed they hold options against SPY, so sounds like an options selling strategy for income. These work alright too, though your income will grow/decline along with the price of the underlying.
And you should check again revenue growth for COST or a stock like AAPL, which is projected to have -5% revenue growth over the year.
A 50x earnings multiple implies 2% yield today. Even if Costco doubles their revenue, at the same margins their earnings yield would only be 4%. So say they grow it 3x, they now have an earnings yield of 6%.
So in 15-20 years when they've 3x their revenue, you're entitled to a 6% yield on your original investment at 100% payout ratio.
To be a remotely good investment on a fundamental basis, they must either carry a lower multiple, or expand their margins over time. Given that Costco's whole premise is being a discount retailer, expanding margins is unlikely.
Please don't participate in an investing conversation if you don't have anything data driven to contribute.
You pretty quickly when from "yielding 8% on distributions alone" and "REITs that often yield 7%" to "pays 6% today". There are plenty of windows in which an investment in O wouldn't have met your original criteria.
I gave a widely known larger cap name.
We are discussing a proposed strategy of selling 3-4% of principle as your "income". 6% is clearly far higher, and in this case safer too (imo), which was my original point
CTO pays 8.8% with similar setup, higher payout ratio and debt, but below market rents across the portfolio, and well situated in the Sunbelt. As one smaller cap example
We are discussing a proposed strategy of selling 3-4% of principle as your "income". 6% is clearly far higher, and in this case safer too (imo), which was my original point
CTO pays 8.8% with similar setup, higher payout ratio and debt, but below market rents across the portfolio, and well situated in the Sunbelt. As one smaller cap example
And I can get 4-5% by just holding cash in a high yield savings account right now. The point of the 4% rule is that is has remained true over large scales of time in which a lot changes. Compare that to your CTO example, and that 9.5% yield hasn't exactly been consistent.
https://www.nasdaq.com/market-activity/stocks/cto/dividend-h...
https://www.nasdaq.com/market-activity/stocks/cto/dividend-h...
1) You should never stop working. Humans need purpose. It may be worthwhile to think of it instead as saving money so you can transition to a more meaningful job. Maybe one that doesn't pay anything at all, like child rearing, or volunteering.
This conclusion implies that if you CAN already do something meaningful, it's probably better to do it sooner rather than later because youth/time is more valuable than money.
2) The 4% withdrawal rate works in a world where the US is dominant and young. Economic growth is fueled by young workers. We are able to stay relatively young thanks to immigration, but birth rates are falling all around the world.
Also, the geopolitical world is changing. The most likely scenario is that US power continues for the next several decades. A less likely scenario is a painful major conflict with China/Russia/etc. in which the US wins. An even less likely scenario is a painful conflict that the US loses. In the second two scenarios, you can't rely on the 4% rule to hold.
3) I like the idea of financial independence. But financial independence in that you have a chunk of wealth to cushion blows or go on sabbaticals, not that you're done having to work forever.