DeBriefed wrote:My caution also means I currently assume a 0% real rate of return in all my planning spreadsheets. I think (hope!) this is waaaay too conservative, but if I retire in my mid 40s then (health permitting) I may be a long time retired, and thinking about how much the world has changed in the last 20-30 years I think it's good to have some extra headroom if you are trying to plan over such long timescales. For example, I can absolutely imagine a wealth tax being brought in over the next few years (or a additional tax on income from assets rather than labour, which I think was suggested by one of the Labour Party leadership candidates). So I need to make sure I am covered for that: either by keeping enough flexibility to earn more money in the future, or by having a bigger cushion when I start out so I can afford for more of it to be taxed away. I definitely don't feel comfortable assuming a 4% WR.
My other caution is that I only have one child at the moment, and she leaing aside childcare she is pretty easy on the wallet (lots of handmedowns due to being older parents!) - But I know from friends that children do cost more as they get older, and I don't want to be in a position where I am holding her back from doing things in 15 years time because of a financial decision I made now. So that makes me cautious again. I'm hoping as our household finances stabilise over the next few years I'll be in a better position to predict what I really need financially.
A lot of FIRErs do seem to be in the US or without kids, so it's hard to find a precise model for what I want to do: I just need to find my own path, but hopefully making some more sensible and proactive investment decisions along the way!
DeB
I wouldn't do a straight 4% either, especially not at the age some of the USers are doing it. It would also concern me to call it quits and start living off an income that's deriving from a portfolio invested in a market that's been on a straight-up ramp for 7+ years and is edging into a level unsupported by fundamentals.
Regardless of how many times they read the Trinity Study or say they've allowed for sequence of returns risk, I bet there are going to be some very sleepless nights when some of the younger RE bloggers experience what for them will be the first significant portfolio downturn in their adult lives. Younger Me watched my pensions gyrate about a bit, but didn't care overmuch as it was not-real money that I didn't need for decades, and it was only relatively small sums anyway, and I was rich in human capital. I think my comfort level for watching a virtual portfolio loss on our current much larger savings pot, at this much later stage of life (mid-40s), is up to 20%. I recently read through posts on the US early-retirement forum spanning 2007-2009, and it was a fascinating insight into investor psyche, and helped me think through how I am likely to react to significant downturns.
I AM assuming 4% as my investment return and working on a 4% withdrawal rate, at least for our initial years, but I have quite a few advantages that a lot of the US bloggers - and UK ones - don't. We'll be in our early to mid-50s, so fewer years to cover. We'll have income kicking in from a large number of government and private pensions across multiple countries/ currencies - so they can't ALL go bust or get means-tested out of existence! - and I've also made very conservative estimates as to the value of that income; I'll have a clearer steer once 6-7 years closer. More than half of our 'traditional retirement age' income be coming from those pensions, which will be index-linked and provide 50-100% for a remaining spouse. So once we're 70 our withdrawal rate will drop to less than 2%; as long as we can get comfortably across the 15-year early retirement bridge, we'll be fine.
We do have kids, two of them, but ours are older than most young blogger families and will all be 18+ so few future unknown parenting costs. We're planning to pay for their undergraduate education, as we were fortunate enough to get free degrees and start life unemcumbered, and it's worth doing some generational arbitrage - my OH doing an extra year or two at his far higher salary - to give them a clean slate for adulthood and not have debts equating to a second mortgage for a decade or more.
And we'll have the enormous advantage of geographical arbitrage too - we'll be dual UK/ US citizens, so will be able to make visa-free living decisions across multiple countries (hopefully some European ones...) based on what governments are doing in matters like taxation, healthcare, etc.
But yeah, the young blogger families with 1-3 kids who are budgeting $25k a year concern me. None of their budgets seem to include any slack for helping their kids out with ANYTHING in the future beyond food and clothes: nothing for extracurriculars or sports during school (which are hugely important here culturally, and part of the college application decision even for academic kids); none of their kids will apparently ever need help like private tutoring or counseling or physical therapy, or have a passionate and life-enriching gift like music or robotics that should be nurtured; none of their kids will be having their own mobile phone or computer, which in a few years will be the equivalent of us growing up in a house with no car or TV, ie, perceived as dirt-poor or bizarrely eccentric.
You're very right to be thinking that kids come with extra, often unforeseen future costs, and that although you can always be sure they will have food and shelter, it's foolish to make a choice to deliberately impoverish them of opportunities that can't yet be imagined by fondly watching a 5 year old content with splashing in puddles and a 'stick' sword.
Very few bloggers seem to do monthly or annual accrual for anything either; hardly any of them will apparently ever be replacing their cars/ household appliances/ computers during their remaining 50+ years, let alone buying technology that doesn't even exist yet (the non-existent ER bloggers of the 1970s and 1980s weren't including any costs for internet service, mobiles and computers in their monthly budgets...)
Still, I admire their desire to want to live their lives more deliberately and to question the main cultural paradigm, and I've learned an enormous amount from their tireless calculations and research.