Finance blog on early retirement, with a long series on safe withdrawal rates, plus posts on options and homeownership.
Commenters call the series great and recommend it, citing its conservative 3-3.5% withdrawal rate guidance and its homeownership and mortgage analysis.
Sadly international diversification is far less effective during downturns, which is exactly when you need it. It really turns out that the old adage "when the US sneezes the whole world catches a cold" is borne out by the evidence: https://earlyretirementnow.com/2017/08/23/how-useful-is-international-diversification/
I started getting concerned about the US stock market being overvalued in about 2019. If I'd followed my gut and ditched the US entirely I'd have missed out enormously.
Unfortunately the "guys, it's getting a bit frothy" stage can last for years and years. If you pull out of the stock market whenever everything's looking irrationally overvalued you're probably going to fall behind the unthinking approach of continually investing the same amount every month.
Although I don't think investments are easy to "bubble-proof" I feel like your career choices can make you more resistant to catastrophe. The strongest strategy of all (if it's practical in your lifestyle) is to be nationally and internationally mobile so that your job search can cover the entire world, and you pick whichever employer is most desperate to find someone. After that, you can sometimes transfer internally to teams that are more robust (in my industry we have teams that design new facilities and teams that run existing facilities - the ones that design new facilities are far more vulnerable to ups and downs as projects get cancelled). Finally, you can make lots of casual contacts in your…
My first comment was based on the simplistic onboarding flow before being asked to login. I've poked around the site a little more and have additional comments.
The site is for folks that are ok with a probability of success. There are folks that want better guarantees, probably annuities. Wade Pfau, who has been researching retirement planning for 15+ years has a good description of the issues in his Retirement Planning Guidebook [0] which talks about his RISA model. Looks like he's now productized it at [1].
I looked at the asset allocation recommended over time, and I think that should be adjustable based on the users level of risk.
I like your guide concept, but the content feels pretty generic. I think any product in this space needs to have a big emphasis on educating the user about the issues. I would like to see this integrated into the calculator better. Maybe a report that lists the issues that the product handles, then customizes the list for this particular financial plan showing if and when in the plan the issue applies and gives further resources to learn about the issue. Order it by when, so the customer has a financial issue learning plan.
In the education theme, the product is making lots of unstated assumptions now, and it makes it hard to interpret the output. As my teachers (and probably your teachers as well) said, ALWAYS state your assumptions.
Another way you can make your product more usable is to figure out what the top questions your…
> You also can’t withdraw at as high a “safe rate” as people planning for an ordinary retirement at ~65 do
Solvable, including consideration of valuations via CAPE PE 10. Based on past data, the safe withdrawal rate (SWR) happens to be around 3.25-3.5% of assets to extend to a 60-year time horizon [1]
> at constant 2% inflation (ha!) you need a very safe source of consistent (not average!) 6% returns to retire with 80,000/yr income on $2m, without eating into principal.
For most of this research, "failure" constitutes running out of money. Preserving the initial portfolio value in inflation-adjusted terms can also be solved for. It takes the SWR closer to 2.8-3% for 60-year horizon with high equity valuation corrections.
> You’ll be exposed to tens of thousands in risk per year on top of (low) tens of thousands in premiums per year for a family Exchange plan.
Better to cap expenses and be ready to pay for it than live in fear. Save, invest, and move on with life.
> $2m isn’t “retire at 35” (… or 45) money. It might be “take a big gamble and maybe get lucky… for a while” money. Or semi-retire money.
Depends on how much money you need to spend every year to be happy. Sounds like you need a lot of it. For many, $2m would be fine, even with a very long time horizon. And if any problems crop up, there would be a 15-20 year warning during which a small income boost could top things up.
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Things don't always have to be so gloomy.
[1]…
Those rates and risks are meaningless without a baseline, as Einstein and 28 other Nobel Prize Winners may agree.
If you're familiar with the early retirement community, the simplest strategy is withdrawing a fixed percentage of your initial retirement portfolio, adjusting for inflation every year. For an 100% equities portfolio, these are the odds of success over a 30 or 60 year horizon[0] when backtested against Shiller's total real return data from 1871-2018
4%/30 year: 97%
4%/60 year: 89%
3%/30 year: 100%
3%/60 year: 100%
Hence my comment about spending a little less or saving more - 4% to 3% makes a massive difference in success rates. I'm sure you've done some backtesting of your offerings, and hopefully would be able to share some withdrawal amount vs success rate comparison, even if it's not an identical time period/comparison.
[0]https://earlyretirementnow.com/2016/12/14/the-ultimate-guide-to-safe-withdrawal-rates-part-2-capital-preservation-vs-capital-depletion/
Everyone tosses around a 4% safe real withdrawal rate (SWR), but that number is just a starting point. The Trinity study was for a 30-year period where success was defined as ending with a non-negative account balance. If you're retiring at 30, you're probably looking at a 40-60 year time period and want to avoid sliding into the grave just as your account balance hits zero. Here is an in-depth analysis which seems to recommend a 3.25-3.5% SWR instead:
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
Of course, many software engineers will continue to mess around with tech after retirement; if you follow your interest into extremely niche domains, the option of irregular highly-specialized consulting gigs becomes available. This income stream, while not consistent enough to live off by itself, proves formidable in conjunction with retirement-level investments and enables a much higher SWR.
It's one of the option greeks. The original definition is basically the partial derivative of option price wrt time, i.e. it's the amount by which an option would lose in value per unit of time, when all else is equal. It's always negative.
Theta gang just means someone who sells options and expects that option to expire worthless, thereby profiting from the slow decay of option value due to theta. It's a legitimate strategy in the options world for professionals, not just for WSB autists. Here's a random example of a finance professional running this strategy successfully in his personal account: https://earlyretirementnow.com/2019/03/27/passive-income-through-option-writing-part-3/
Disclaimer: I don't know this person, nor do I recommend copying his strategy if you don't know the options greeks; actually the amount of money you would need to execute his strategy would probably make most options beginner uncomfortable anyways.