I am interested in retiring early and would like to offer myself up as a case study.To that end, I would be very much obliged if representatives of each of the varying opinions about retiring early from the REHP board would consider making a statement reflecting their views and applying them to my situation. I have looked at the FAQ for the REHP board. It appears to state one opinion in summary fashion, and then refers one to a more detailed outside source. I have looked at some of the materials on that outside source, but I think it would be helpful to hear not only clarified descriptions of that position but also other positions as well.In doing so in this forum, I hope to clear out some of the messages that are argumentative and based on things other than trying to retire early. For instance, I will not tolerate ad hominem attacks. Criticism of research and analysis are of course appreciated, but I would hope that all would make such criticism constructive and avoid needless confrontations.In other words, I am taking over ownership of this dormant board. If this experiment actually goes somewhere, the board will evolve according to its own dynamics, but my hope is to provide at least some guiding influence on its growth.Here's some info about me:Age: 32Salary: X/year (if the threads make it clear that I need to be less vague, I will deal with that later)Benefits: health insurance, 401(k) with partial match, term lifeNet worth: 4XLiving expenses: 0.3X/yearThanks in advance for your help.dan
galagan says:Here's some info about me:Age: 32Salary: X/year (if the threads make it clear that I need to be less vague, I will deal with that later)Benefits: health insurance, 401(k) with partial match, term lifeNet worth: 4XLiving expenses: 0.3X/yearGreat idea! I think another relevant piece of info would be taxes: ???X/yearDid you include taxes in the living expenses? What I'm getting at is how much X per year are you saving (0.7X/year would be amazing!!!)? In order to predict when one will reach FIRE, we need to know a few things, some of which we have to make educated guesses about. Off the top of my head, these include:living expenses (post retirement phase)rate of savingsrate of savings growthinflation rate With this info, we can predict how the nest egg will grow. Then we just have to pick a number for "enough" and quit our jobs. The REHP study is a great starting point, but obviously past performance is no guarantee of future results. I've seen amateur statisticians argue quite reasonably that the 100+ overlapping periods used are not statistically independent (they overlap!), so there aren't really 100+ data points, there are many fewer than that (3-5 IIRC). Not exactly the sort of stuff to make me sleep well at night.I've seen some Monte Carlo simulators, and the worst case scenarios that you get from them are truly dismal -- never quit your job!!! The trouble with MC worst cases is you take the worst ever returns in year one, followed by the next worst ever returns in year two and on and on. The real market doesn't behave that way (there's at least some regression to the mean, for example), but then you have to build a more sophisticated MC and make some more guesses about how the market might behave, introducing more assumptions and possibilities for error.Well, that's just what I've got off the top of my head. I'll throw it out there and see if anyone else is paying attention to this board.:)Stephanie
Stephanie - Thanks for the help. Did you include taxes in the living expenses? I can only wish. :) Taxes are probably about 0.3X/year. I can say with some certainty that savings is around 0.4X/year, and I think the allocation between living expenses and taxes is about right.Living expenses are probably analogous to what they will be at retirement, except that presumably health costs (whether insurance or direct) will increase substantially, and there will be some increase in relatively inexpensive travel (I'm a hosteller and love it). past performance is no guarantee of future results... That's my main problem with historically based simulations - as well as the statistical ideas you mentioned. I realize you have to start somewhere, but basing the future on the past is a paradigm that I'm not excited about starting from. I was an actuary for a short period of time, and probability-based simulations are more comfortable. Of course, the underlying data for those simulations is probably also historical, so one has much the same problem.It seems to me the best system would (1) incorporate some ideas from the past, (2) try to make predictions of the future that aren't entirely based on historical information, and (3) adjust itself so that catastrophic market movements at exactly the wrong time wouldn't destroy you. Another problem with most simulations is that they assume straight line projections - for example, you assume an 8-percent return and 3-percent inflation. Just like dollar cost averaging can help you on the buy side, it can really hurt you on the sell side, if the road to your 8-percent return is sufficiently bumpy.Thanks again for your help, Stephanie, and for giving this board a chance.dan
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