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0 pointshervature8mo ago0 comments

You are supposed to invest and keep the money working for you. Adjusted for inflation, S&P 500 returns 6.5% a year. That alone gets you above the poverty line. Recall, this is inflation adjusted so your $600,000 is growing with inflation and the poverty line income also grows over time. This does not account for any swings.

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loeg8mo ago

You can't actually draw down 6.5%/yr, though, because of sequence of returns risk. The number that is actually safe (historically) is something like 3.5%.

quickthrowman8mo ago

Keep in mind that almost all of the FIRE advice available online has been written in a bull stock market that is almost 2 decades long (COVID drawdown is a blip on the 2008-2025 chart).

Past performance is not indicative of future returns. Do you know anyone still running a risk parity 60% UPRO/40% TMF (3x long S&P 500, 3x long 20-year Treasury Bonds) portfolio? That portfolio composition had massive returns, until the Fed started hiking rates.

The annual implied volatility of SPX is around 15-20%, if you want to withdraw 6.5% a year at 40 and have to restart your career at 55, be my guest.

A 40% drawdown on 600k is -240k which puts you at 360k, 6.5% of which is $23,400. Starts getting pretty tight if you need to sell assets for cash which reduces your future returns.

deanmoriarty8mo ago

> Keep in mind that almost all of the FIRE advice available online has been written in a secular bull market that is almost 2 decades long

Most of the reasonable FIRE advice (e.g. https://earlyretirementnow.com/ quality) suggests a ~3-3.5% withdrawal rate, which has been measured using historical data way before the current secular market.

Is your take that even such withdrawal rate wouldn't work anymore, moving forward?

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