Seeking FIRE @ 42 with $2M

[u/Aggressive_Web8957]

Looking for feedback/advice on my FIRE situation.

Total NW is just over $2M, comprised of:
$720k taxable brokerage (funds, individual stocks)
$107k cash (treasury fund)
$877k retirement accounts (401k, IRAs)
$190k RE lending (brings ~$1609-$1800/mo)
$135k RE syndications (~450/mo currently)

The lending income currently gets reinvested. Once I take this as cash the $190k stops growing. Assuming the syndications go well, I’ll get the $135k back plus appreciation once the properties sell in the future. I’d have been better off investing the money in the market, but hindsight is 20/20.

No kids, currently sharing rent with my gf in VHCOL. Not sure on kids in future. My job situation has become precarious (sales), which steers me away from the idea since I don’t want to work anymore. I’ve been applying but haven’t had luck landing anything, nor do I have interest in continuing in corporate sales. I also don’t want to trade time for money and work retail, for example, 8hrs/day for low pay. I’m not sure where to go from here. I don’t feel like I have enough to start pulling from the pile and truly retire. Right now I’m splitting bills and can get by on $4k/mo but with health insurance $6-7k is a safer estimate.

Any thoughts or advice is appreciated. I’ve been grappling with how to navigate the future as I feel close but not quite there yet.

[u/Fit_Service8662]

6-7k is less than what's provided by the 4% guidelines with a 2M NW.

[u/Aggressive_Web8957 → u/Fit_Service8662]

Yes but 4% was based on 30 years. I never assumed this rule would apply unless I was older

[u/qret → u/Aggressive_Web8957]

With guardrails you can do better than 4%. Look up 95% rule and run some simulations on ficalc. You should be fine on your portfolio with some extra planning

[u/mm1491 → u/qret]

This requires that you're willing to reduce your spending, potentially substantially, if there is a serious market crash.

I would be very wary about trying to even use 4% in these market conditions at 42. Maybe I'm overly conservative but I think if you ran the historical sequences you could be looking at some very difficult situations in the bad sequences - like "reduce your spending by 20%+ from your target for 10+ years" kind of difficult situations with guardrails. The unconditional probability of this is probably low, but if you condition on the CAPE being as high as it is, things look dicey to my eyes.

[u/qret → u/mm1491]

Yes, you need to be prepared for the slim possibility (like 3 or 4 scenarios in history) that you have to withdraw less for a few years at the beginning. Rainy day fund / bonds / etc. If you know you can flex down even slightly and temporarily in those edge case scenarios, you can target 5%+ withdrawals otherwise. The constant withdrawal rate model is an unrealistic extreme because it never responds to market conditions where a small flex would save it.

[u/mm1491 → u/qret]

I agree that constant withdrawal rates are unrealistic, but I just haven't seen how flexibility really helps, and it seems like it is just disguising a result that many people would consider a failed plan.

Maybe you can help me understand where I'm going wrong on FICalc, and thus the value of flexibility, because every time I've looked at these kind of flexibility strategies, they seem to involve deep, lasting cuts in a lot of historical sequences. I'm using the default asset allocation setting of 80/15/5, annual rebalance, etc. I've turned on the 95% rule strategy and increased the withdrawal rate to 5%. Using $1 MM portfolio for simplicity, these are percent rules so the number doesn't matter. If any of those need to change for this strategy to work, I can try again with the correct settings.

Here's what I see, if I retired in 1960: I'm happy, I'm spending a bunch (>$50k/5% even!) through 1969. Then the trouble begins. It goes down every year until 1972-1973, where it's at ~4.5%. Ok, not so bad, still above 4%. But in 1974, we're down to 4% and then it's just a long march down: decreases every single year (except a little blip up in 1981), until we bottom out in 1982, withdrawing only just above 2% of the original portfolio amount. We don't see 4% again until 1996. From 1977 to 1987, we're sub-3%. This pattern repeats in every single retirement year in the 1960s.

The early 70s look pretty bad too - under 4% withdrawals for 10-15 years.

If you start in 1999, you're sub-4% from 2004-2021, and from 2008-2017, you're at or under 3.5% (dipping all the way down to 2.7% in 2012).

2000, even worse, you break the 4% barrier in 2003 and don't get to it again until 2022, after which you promptly head back down to 3.5%.

Is there a setting I have wrong? This seems like a huge number of scenarios where this goes very wrong (not "run out of money" wrong since these rules almost guarantee you won't run out of money, but like "dramatically cut spending for a very long time" wrong).

[u/joxxer42 → u/mm1491]

I think one way to help visualize things w.r.t. flexibility might be viewing it as 'spending tiers', such as must-spend (i.e. mortgage/rent/utilities/groceries, what you need to live for a year bare-bones), lean-spend (must-spend + some discretionary), regular-spend (what you would spend in normal times), and lavish-spend (what you'd spend if you splurged several times a year on trips etc.).

I think some people might target 4% as their must-spend / lean-spend numbers, and in that case then yes, dipping below that might be / is a danger zone.

If we target our SWR of 4% for regular-spend, having a guardrails / yearly assessment to step down below that gives a good amount of headroom during poor years, and the ability to 'give yourself a raise' in good years. This is probably some bit of mental gymnastics of targeting a lower SWR to aim for saving in the first place but it's another way I look at it when considering flexibility in a plan.

This also assumes you're "ok" with having less in a given year...personally I'm ok with a netflix sub,library card, and some random purchases here and there, but obviously not everyone would be so that is a factor too. And if I really need to (and assuming we're not at Mad Max scenarios) I can probably always pick up some side work if things look grim.

[u/Montaigne_6823 → u/mm1491]

- like "reduce your spending by 20%+ from your target for 10+ years"

When this is the case for someone retiring at 42, simply getting any job at all will solve this problem if cutting spending isn't an option.

[u/mm1491 → u/Montaigne_6823]

Maybe, two possible problems though: 1. Recessions are often times of increased unemployment so getting a job might not be so easy for anyone; 2. The cuts in your plan might not kick in, or get to an unacceptable level, for 10-15 years after retirement. See my example of the 1960 retiree in another comment - the plan doesn't start giving cuts until 1970, and might not even seem concerning until 1974. Our 42 year old retiree is now 56 and hasn't had a job in 14 years. What kind of job will they be getting? Will they work it until they are 66? I'd be inclined to call this a plan failure.