Having Trouble Trusting the Math in Early Retirement?

the safe with jewelry toolbox would tell me I could double the amount of money we spent on going out to eat as as a factor of my budget I don't know if it's just fear like additional fear of running out and the market you know it's not doing so great compared to three years ago or there's a natural hesitancy in me for sure to just kind of let's not just go Hog Wild because just because we can two lifelong friends document and share their personal stories as they seek Financial Independence and to retire early one reaches fire in 2020 during a global pandemic inspiring the other to play catch-up this is two sides of Phi so Jay I you just made this video on karsten's safe withdrawal rate toolbox which is a tool that both you and I use and I was glad that you offered to make that video because I do feel like it feels really intimidating when you open it up you see all these charts all these numbers there's all these tabs and Carson's work is obviously uh very involved there's a lot of mathematical analysis under the hood yes and you just breaking it down simply I think makes it more approachable and accessible and just kind of wanted to follow up on that since this is a tool that both you and I use me planning my uh retirement and how I'm gonna draw down my portfolio and you are now you know two years into using this and so you're you know we both have relied on this heavily you know I just dipped back into mine this week just in preparation for this and I was playing around with some of the new features I know you've been using some of the new features how did you come to discover this tool so I actually it's it's funny you should ask that because I started digging through my old emails and notes this morning way back from when I was working with financial advisors some of the early retirement modeling I did and I definitely stumbled on this stuff somewhere in I think early 2019 if I'm not mistaken and I had already been using a lot of the other tools out there fire galaxy fire Sim I'm sure we're going to come back to those and then came upon the safe withdrawal rate series and you know discovered it in part seven of that series was while I was charging through all the Articles and you know it's something I kept coming back to something I would ask other people their opinions about so uh it went from being something that was just interesting and something I was trying to learn about and seeing you know doing my math a thousand different ways was it another valuable piece of that it went from exploratory to now it's really my primary tool so it's been quite an evolution over the last almost four years now I guess there's so many calculators online and when you first find out about the fire movement you you I think kind of try every one of them and obviously one of the one of the prominent ones that bubbles up to the surface is seafire Sim right that's that's a you know it's very graphical very simple set of inputs um and the outputs are you know you basically have a portfolio value and you're entering a withdrawal rate that's right you're you're running some tests on it the fundamental difference that I see between see something like C5 or Sim and Carson's safe withdrawal rate toolbox is it's solving for different things with the safe withdrawal rate toolbox you're entering your portfolio and your retirement Horizon basically how long you think you're going to live once you be on retirement and it's telling you a Fail-Safe withdrawal rate it's giving you a whole bunch of more information but basically it's saying hey if you want your portfolio to last this long this is the you know Fail-Safe uh withdrawal rate there as opposed to see fire Sim it's asking you to input whatever withdrawal rate so let's say you put in four percent withdrawal rate it's going to tell you you know how many times based on the simulations that it's running how many times did that fail you know it's that's a full drawdown of your portfolio that's right yeah they're they're they're tackling a similar question but approaching it from different angles one like you said See Fire Sim does require you to operate say this is the amount of money I think I want to take out uh every year how am I going to do uh whereas the safe withdrawal rate toolbox says this is the amount of money I have this is likewise this is how long I need it to last what should I do or what could I do and then you know it takes a couple of different other added kind of angles on it that are interesting and we can talk about but um I would say one thing that I did like about seafire Sim since I don't know if we're going to talk about this further is it allowed you to choose the number of different types of withdrawal models both consistent rate and variable rate and while staple Trailway toolbox as we'll discuss has some of that and some of that I'm I really like earlier on when I was even just learning about all the different ways people could choose or have proposed that one could withdraw in retirement See Fire Sim did that stuff pretty well I do think one thing that's interesting to point out and we're not going to Deep dive on all the tools that are out there today right is that some of these Monte Carlo simulation tools out there do use historical data but they randomly permute it you know they mix up the years and you know if you want to be I guess the most objective maybe that's a reasonable thing or it's another type of condition you can look at but that may not be an accurate reflection well it won't be some of those simulations that are pulled will be pretty insane in terms of low followed by the highest followed by you know things we've never seen before I guess someone could argue that could be interesting to really you know look at all possibilities but um maybe that's not I mean if you if you look at how carsten talks about this actually he uses the analogy of you know traveling in and out of San Francisco and you know you're going to be traveling during rush hour but if you look at the probability of you Landing in a traffic jam over any 24-hour period you know you know that you're going to have traffic at a very high volume of traffic at certain hours right you do the probability over a 24-hour period and you find well it's four percent chance you're going to be in traffic but if you know you're going to be traveling there between 7 and 9 A.M it's 100 probability that you're going to be in traffic and that's what I think he's trying to say with these kind of conditional probabilities it's not really a random walk there are periods where you have you know strong momentum in either direction and so to just completely discount that is very hard to do so you know he and he's made some great arguments and I think you and I both buy into that which is why I don't know if this is the only planning tool you're using anymore but it's it's almost exclusively the one that I'm using currently yeah it's become my primary tool um you know especially at this stage of things right where I understand my budget pretty well I know what are my usuals right expenses and I just want to look at based on what the market is doing you know what my portfolio is like if I needed to change my withdrawal rate would that be okay based on the conditions that I'm seeing in the tool and we can dig into practically what that looks like but yeah you're right it is kind of the primary tool I'll use right now it's also what I liked about it and now that I'm starting to get deeper into it you know there's a high level sort of you can just plug your numbers in and get some pretty usable information in just a few minutes as you demonstrated in that video but as you get further into it and you start predicting future cash flows like for example maybe you know your your mortgage is going to be paid off at a certain point so you can you know pull that out of you as a negative cash flow at a certain point right or maybe you think Health expenses are going to be higher in the future or for exactly for me personally I started projecting out well I know there's going to be some residual income from my business that's going to happen in the first say three or four years and I made some predictions as to what that is and you can see in real time by modeling out different scenarios how that actually affects the portfolio and how how it changes your withdrawal rate like the safe consumption rate the withdrawal rate like it's just I love it for that and you maybe can use this for some of your side hustle income right you know you're working pouring wine one day a week Lori's bringing in some tutoring money um do you use it in that way or are you just saying I'm going to use that as kind of a buffer and I'm not going to count that yeah it's more of the latter and that's just because it's it's small potatoes you know for sure if we started doing something you know we had some kind of small business or something that generated more income we would definitely be using it to model uh that because you know we would change our withdrawals right we'd be changing we'd be taking less out of the portfolio uh you know because you can if you have other income coming in and I like that flexibility it's what you're supposed to be thinking about your expenses can and do change over time as do potential income so being able to be flexible and just update that to me makes a lot of sense and isn't work I have to recreate independently yeah the other thing I really appreciate about this is it's kind of a window into Carson's mind we spoke to him and Fritz recently about the bucket strategy and his opinions on the bucket strategy as being window dressing and Fritz using it in a sort of different way and it's interesting because part of his Dialogue on that interview was I don't really care right how I draw down the Assets in my portfolio like it doesn't matter as long as I'm consistently rebalancing right so what I pay attention to are things like withdrawal rate you know expense ratio like all the things that he plugs into this safe withdrawal rate toolbox those are all the things that he cares about cape-based withdrawal strategy you can see as he's adding to this tool over time the things that are really important you know if you retire when the cape ratio is very high that is going to have potentially a pretty big impact on a safe withdrawal rate you know your sequence risk and you can see that present in this toolbox for sure yeah that's actually a really good way to put it I hadn't thought of it that way but the points of Focus right the the things that that Carson thinks are a priority are are I guess pretty obvious and consistent with what he says in conversations like that or when we've heard them on other podcasts yeah I wanted to ask you about this um supplemental cash flows because we just talked about about it a little bit here what you know I think part of his point in including these supplemental cash flows and and for the most part I think we're talking about you know pensions the biggest one that you know everyone in the US is probably going to have access to in some form or another is Social Security and you know he's like you'd be surprised at how many people in the fire movement actually wholly discount the fact that Social Security exists but it is it's an inflation-adjusted you know addition to your your income over time it's going to change your withdrawal rate naturally it should right yeah how how have you modeled that out Social Security is probably the thing that I've given the most thought to and you know you and I have talked about before the fact that I have modeled over the years you know scenarios between zero and a hundred percent of projected Social Security um you know in my own case not knowing what types of legislative changes there could be or additional mean testing Etc but when I uh what I've settled on in more recent years is assuming that my social security is funded to half of what the projection is and I have that uh claiming at age 70 which is a pretty common um uh tactic in the fire movement especially when you had a working spouse with lower income maybe they would claim sooner I would claim it 70. so I do have those Flows In starting at age 70. so that's the main thing I've used it for I did you know kind of like in his demo day data I did put some additional expenses whether they're medical or otherwise coming in in later years for both me and Lori if nothing else just as a placeholder to see what that impact is so that I would say the the degree of confidence in that isn't super high right now but it's something that at least is easy to go in and change and if new information became available so be it I would just add it in how about you is that something you you know you mentioned your passive income kind of your business income changing over time do you find Value in digging into increasing expenses too or is that not yet on the radar you know I I I'm trying to be as accurate as I possibly can with it it's a little tricky because like you said how much can we actually know about this and I I think there's you know conventional wisdom says like once we turn 55 there'll at least be some kind of phase out for Social Security um and so it's not going to just drop off a cliff and you and I are still five years away from that that point so presume we make it to that point and I think that I just have a hard time believing that it's going to completely go away so I've been modeling 50 value but it's a it's a little tricky um as well because you know my wife and I obviously we have different earnings histories and you know we both paid in enough to to receive payments obviously but um it's hard to tell where that final value is going to land especially if the business is going to continue producing residual income and so yeah I've made some projections and and generally I adopted your 50 of what I thought those projections should be okay and I presumed my I was going to start drawing at 70 and I guess Laura would draw at her full retirement age 67 I think that is for our cohort here um but yeah I I find a lot of value in actually playing with those first couple of years because in one sense it's a way of padding the number right you can you can look at this as okay well maybe this is uh this is maybe the most I could withdraw if I had ideal earnings here um you know who you could pad at the other direction and just say Okay a safe withdrawal rate not counting on any residual income which I know there's going to be some you know ends up being in the range that I'm sort of anticipating and so I can plan that way are you using it to create buffers um I would say I'm using buffers in a different way and that's going to probably kind of launch us into a new area but um I I you know I can it might maybe it would help to kind of just back up a little and explain to because it's been a few years since you and I have talked about this I can't think of why we would have Revisited since then but like where I started with my thoughts on withdrawal rate and where I ended up now some years later so you know back when I was still working with financial advisors getting some support there we together had come up with this idea of you know three and a half percent of starting portfolio starting portfolio value and that jived with everything I had been modeling because even though I was you know literally paying somebody to help me with this stuff uh for a number of years I was on the side using every type of modeling out there including the safe withdrawal network not checking their work per se because I mean I did have a lot of trust in them but I honestly wanted to know had they considered or had they even heard of some of this stuff and you know into their credit they would read the things I would send and they would give me their feedback on it but you know in the end I just became happy with this three and a half percent idea and that's exactly where I started um with with that idea in mind however I never really started withdrawing three and a half percent you know we've talked about it here before I was using a fixed rate but really keeping it to three percent or below of starting portfolio value and then so we're not changing it I'm confused then yeah we're using three and a half percent but you as well I said yeah yeah exactly so it was I viewed it as a ceiling and you're going to see that this idea continues so then I start you know I'm out on my own I'm using the safe with strawberry toolbox as my guide right my primary tool and you know it's still telling me you know based on portfolio value this we're good and uh my goal was I would look at it annually see how I felt about things and you know what but but no matter what I still had this ceiling that I just it made me feel comfortable that I'm staying below the ceiling now enter where we are today it's going to bring us to this you know conversation about Cape adjusted uh withdrawal rate I want to stop you though because you were just you were just covering expenses or you you knew you needed X dollars I'm covering expenses to fund your life yeah and fun and everything in your budget and then it just turns out that that happened to be less than the three and a half percent ceiling that you set well and so there's there's the rub right because as you and I have talked about in in recent shows my budget is X but you know and in there are some sinking funds that cover things like vacation and and some other things but you know I don't necessarily pull everything I might need to cover all those things in my budget so my true withdrawals can be higher than what I'm modeling in my budget but I use the safe withdrawal rate to make sure at a ceiling level I'm not going above it um and so that's what I had been doing until really a few months ago and then I started using the cape adjusted withdrawal rate okay but so and so this is another tab in in Carson and unless we lose people here right in the the weeds yeah correct me this Tab models a dynamic withdrawal rate based on the cape ratio the cyclically adjusted price to earnings ratio which is it's just basically an average of the inflation adjusted earnings from the prior 10 years so it tracks valuations in the stock market you know our equities overvalued or undervalued based on their earnings I think the important idea is that based on market conditions you may have more or less sequence risk for example based on a given withdrawal strategy and so if you allow to use that as an indicator you can actually potentially raise or lower your withdrawal rate in response to what the current Cape is and Carson has even recently proposed his own modified version of the cape right that he feels is better aligned with sort of today's business practices you know different from when Robert Schiller created the ratio you know decades ago at this point so the Trinity study which sort of generated the four percent you know rule of thumb that that everyone one likes to quote in the fire movement that basically looked at the unconditional probability of you retiring at any sort of random point in the you know the last 100 years or so right adding and looking at the cape ratio is important because you know if you look at all the failures of the four percent rule it always happened when Cape was high right yep over 20 I think Carson said it's 100 of the failures are Cape over 20. so you'd be kind of crazy not to factor that in use that as you know your your retirement is conditional on a certain set of of market conditions right um and so you want to be looking at those numbers in the market conditions at the point of retirement which is it's going to ask you did did you ever go back and look at your actual retirement date and what the cape ratio was then and then compare to what his withdrawal rate would have been I didn't but you're right you're actually making a good point you know kind of underneath all this and it's like not everybody I feel like people could be tuning out right now yes because not everybody is actually interested in market dynamics at all and that's I think one of the nice elements of the safe withdrawal rate toolbox is you could just use that kind of First Column um if you know for people who have watched the tutorial if they haven't they should really see part one of this um that's the you know safe withdrawal rate right all all years uh is say saying this is the fail safe and if you choose the zero percent failure rate there's your fail safe whatever that number is 3.25 or whatever you look at you don't ever have to consider it conceivably you don't ever have to consider the impact of what market dynamics are you could just go with that but if you're willing to be more flexible meaning you could withdraw more or less depending upon market conditions and really ensure that you're in line with the market to your point I mean how could you choose a better strategy than to consider the cape ratio and it wasn't something that was on my radar in the beginning it was more about how simple can I keep this right yeah because we don't want to make it hard right and certainly something I could never talk to Lori about this is just so boring to her and she asked me not to talk about it but um but in reality it could be pretty powerful uh and if nothing else just give you confidence right right because the end of the day when you start withdrawing I got to tell you confidence is not always there right right so this is something that really I think I even told you this there might even be a text about this it gave me so much more confidence when I got reacquainted with the toolbox and started looking at some of these additional ways to carve up the data oh yeah yeah mentally I mean it really helps it's a lot to process and also you know I as I think about setting a withdrawal rate like you know and planning out a life and budgeting like I want that number yeah pretty I don't want that to change a lot right I want to know what it is and I want to be able to increase it with inflation over time and but I don't want when the market tanks to have to change that a lot and so yeah I guess my initial take on this was like oh no it's another set of calculations to run it's another thing to add to my to-do list and it but you know actually if you look at the number it's not actually more work Carson's done all the work for you under the hood but it does give you like you can maybe treat it like a ceiling like you're doing yeah with this and and understand that you know when you're in a bear market and the cape ratio is down valuations have readjusted some that you know you actually could spend more than four percent you might be able to spend five percent or six of whatever the number says based on the portfolio there and I I thought that was interesting it also is not quite as dynamic as and I know the Bogle heads have this kind of dynamic PW yeah there's a dynamic you know withdrawal rate right and that could potentially swing wildly based on portfolio value or right I mean yeah absolutely and yeah Carson's written about that is why the reasons why he's not in favor of vpw it's much more um impacted by it will have these swings as a result of what the market is doing whereas you know using this cape adjusted you know method the swings are actually much less in terms of the actual impact on your withdrawal amount it adds kind of a smoothing curve that's the best way to put it yeah totally and it's um and it also you know helps hedge against sequence risk which he'll tell you never really goes away but I mean that's the thing that you were most worried about I know when you first started drawing down your retirement but like as someone you know you like to track a lot of things so now we're just adding more and more things for you to track in your retirement well I mean you're you're on it more than you realize you are because you know now so now my monthly process uh you know I have my little money this is every month I do it's super simple well I mean and if you're if you're using uh Cape adjusted withdrawal rate you should be looking monthly and Carson updated every month it does change but I mean I'll I'll tell you when I do that little roll up now I have a new thing to track what did it say I could withdraw what did I really withdraw and you know I'm not I'm not definitely not taking advantage of it as much as I could you know I could really be using opportunity to withdraw more uh when it says I can but of course you know you'd also have to be willing to withdraw less if conditions dictate and so I think that's probably part of why I think of it more as the ceiling that just gives me Comforts like a security blanket it's saying right now well based on your duration based on how much you want to leave to your heirs or whatever it's saying four and a half percent you could withdraw right now based on Cape and I think his adjusted Cape right now was around 23. um but I'm not I'm still withdrawing around three percent because why should I draw extra right now I don't have a need right now last month I did I had to get a dental implant so I went way over budget that month but still below that ceiling so that felt pretty good to do that but I'm definitely still gun shy about looking at it like oh you have free reign now just go spend up to this amount I'm just I'm not going to do that because I'd rather it be there if I need it for good reasons or for scary reasons so I mean it's still I guess it's like a guide a guidance for me it's a guiding principle but it's definitely not I'm not looking at it as licensed to just go spend yeah no I feel like it's um it's maybe potentially more useful for the as we're nearing a new peak in the bull market to kind of help you think about not getting too frothy with your spend right I think it's it's like maybe like a regulator a little bit almost um because I don't see you know your spending habits at the bottom of a bear Market you know and who knows how long we're going to be here you're probably already dialed into like um you're feeling a little bit reserved in how you're spending things anyway right I mean it's not like yeah you're not really looking to dial things up are you no well so I had oh maybe maybe you are well you know I don't know man I I think right now I it's more important for me for it to feel good for everybody involved in the household right like I'm not like okay it's tighten your belts you know the Market's still not good guys like they don't want to feel it and so what I usually explain when you know Lori or our teenager asks us like oh why are we spending X why can't we spend X plus you know a thousand um I say like you know like we have our routine expenses covered and that way if we want to spend more it's there for us to have to spend more we shouldn't just because it says like you can spend up to this much we should absolutely spend up to that much every month like that seems crazy to me well give me some specifics I don't know what do you like go out to dinner more right like we have an amount that we allocate to going out to dinner and we always spend that 100 in fact I'm usually throwing other money at it from other places in my budget because the family likes to go out to eat um but you know to double that like the safe with jewelry toolbox would tell me I could double the amount of money we spend on going out to eat as as a factor of my budget but I don't know it's it's to me it just seems like I don't know if it's Eric I'll be honest with you I don't know if it's just fear like additional fear of running out or you know because we're in these earliest sequence risk years and the market you know it's not doing so great compared to three years ago or two years ago there's a natural hesitancy in me for sure to just kind of go wild it's like this is our budget we can stick to it and feel good and go above when we need to but like let's not just go Hog Wild because just because we can well I get that but also stupid I mean here's here's what I'll say to that you are using the a spreadsheet which has a lot of additional information in it and some of the columns which you actually didn't talk about in your video Yeah you could go and and peer at those to the right um on that analysis sheet and see the failure rate based on Cape right now and based on your withdrawal rate your actual withdrawal rate and I bet you're gonna see you're in the zero percent range I know so there's a difference I'm telling you and I I can't yeah but you're not you want it you're trusting the math implicitly I do trust them and you and you are hedging against trusting the math it's like if there is a little bit of lunacy to it I mean I hope you can see that right it's this idea that you know you can he actually has another tab in this spreadsheet I don't know if you played around this it's called the case study tab yeah and you and he'll put in 1929 as like one of the the word and you can put in any year you want and and it test it historically and test your portfolio against whatever your current withdrawal rate is and see what happens over a period right have you do it I have not done that specific exercise but I will it's kind of homework it's kind of fun man because you know you it's even the four percent rule at this point in time it's tested against the awards like these are bad conditions and you know Carson is always saying he's like oh dude okay we've just had a 20 Market drop do you really think we're gonna throw on another I know you know a Great Depression on top of it a Great Depression on top of it yeah and like it's some in some ways you're planning like you are well you know and that's the thing that this is the this is the mental block that I mean it's a let's face it Eric it's uh was it Fritz that said this it came up in Fritz and and Carson's recent series about the bucket strategy like it's a privileged position to be able to buffer your budget to the degree that I know I have and to be able to live comfortably well below my safe withdrawal rate but on the same note it's like like I don't know if I that's the right thing to do like I mean I don't feel like we're holding back but you know I mean here I'm gonna push back on that if if someone's asking can we go out more yeah sure you're literally correct what do you think of course we could to be fair I'm never like oh no no it's macaroni cheese time guys I'm not saying that but I can I you know you and I are very very much alike in this in this respect and I and I do know that when Laura comes to me with a certain spend so we're we're kind of renovating our living room if you will we're upgrading Furniture you know for the longest time we've had like an Ikea house basically yeah you did yeah which I like which is fine for like you know when you're just getting started and you don't have a lot to put in the house but in a certain point like the stuff wears out and you gotta upgrade and so when she comes to me with these things and requests and I'm like I'm starting to run it through that my own math of like okay if we did this in when we were fired yes and now I gotta manage like and we want obviously we're still going to do things like that but my brain immediately goes to okay well if I'm gonna cash this in that's going to have some implication on ACA premium tax credits and like this it's like this whole calculus that I don't even want to get into you know when when really the reality is like we can you can kind of do it you can well and this is what I'm wondering about and I'm glad you went there because that was going to be my next question question like and I know this is kind of an impossible question that to answer but like if you project yourselves yeah you know just a couple years out whenever you think you're going to cross that line and now you're withdrawing and maybe you're you you're not generating any income from your business so maybe we have to go out another year can you imagine like making these decisions and what that's going to feel like I mean you're a cautious person right you you measure twice cut once for sure like how do you think it's gonna feel yeah well I'm gonna trust the math on this one man okay I'm just going to be honest and and um yeah and I started looking at some of those things exactly with that scenario some of some of his case studies with exactly that in mind because I wanted to kind of know what that feels like um yeah and of course I'm I'm entering kind of future values of the portfolio so it's not a true maybe accurate reflection of where the portfolio would be in a bottle of bear market and so it's the best way I can think to do it and um I felt pretty good with it because the you know we do all this preparation and planning for a reason and and we're and if you don't believe it how how can you jump in to and make this decision in the first place it feels like a pretty big decision to make based on math but then get into that position yeah and then not trust the math well it's I I think there's a distinction and maybe this is maybe this is just one of those cases where you can hold two completely opposing ideas in your head sure right I mean uh I trust cognitive dissonance that's the word uh that's the expression I was going for I mean I'm not the one with a PhD in economics and a CFA um so I trust Carson he's published the algorithm is used no one is torn it apart and you know sort of held them up as a fraud despite this being out there for years now um and so I do trust the math it makes logical sense in many respects it's true that you can't predict insane outcomes in the future but we have lots of insane historical data that it does hold up again so it's not about trusting it it's just some weird conservatism about like whoa you can't you know you don't want to screw this up because you know you don't want to go back to work Jason which is true and you don't want your family to suffer um nor do you want to deprive them but you want to be like cautious in these initial years so I know that that's at odds with math that says you don't have to be that cautious and I've heard that this adjustment to spending is a real thing you know from other retirees fire or traditional and so it seems silly but I know I've gotten better over time but I've clearly got ground to gain still I always think it's interesting to maybe put some kind of scale behind it I mean what are we talking here you're mentioning going out to eat more often how much does that change the annual spend but I mean roughly I don't know you must be a thousand dollars I mean that's that's like a rounding I know it's immaterial it's like immaterial right and and but is part of your concern like okay well that's that's step one then oh yeah it's going to be a create a landslide slippery slope probably what's next yeah maybe it is I mean you know here's the thing like the big picture doesn't worry me at all and I'm gonna I'm gonna be very interested to see how what things you kind of grab on to post uh re but for me at least big picture I feel good like I have this budget I watch what we're doing I don't agonize over it I think about it but I move on quickly but then it's little things like I'll be shopping today and Lori was like you know we need some good balsamic vinegar like the real stuff this is I'm like no problem I put it on the list I'm in the store I'm like there's 15 or 20 I'm like you know what like that's annoying and I know the groceries went up but I know that you know this is a good problem to have to be complaining about the price of vinegar you know it's not a real problem let's be clear yeah but still that's the kind of thing I think about she's like why is this meal ninety dollars we went out so we had a great conversation last night with some people we met recently turned out they had seen the show I met them in another social Forum so it was cool we got together and had a couple beers and some dinner you didn't invite me man well yeah I mean your main is far away but uh you know we had a great conversation about about rental real estate and things they're interested in and at the end of that dinner we're walking out the door and the first thing I said to Lori is like that should not be ninety dollars like that's annoying as hell like we just had a salad each and two beers and it was ninety dollars I'm like this is an outrage like I mean I feel like I'm one step away from get off my lawn with this you didn't offer to pay for the other uh no no everybody paid for them you know for themselves um but I mean just Lori and I's bill was more than I thought it should have been and I just like immediately my brain will like enter that into the budget and be like damn it like that's a that's a chunk of our going out to eat money it's funny because I don't think that's gonna be one of the things for me because good I mean because I that is one of the most enjoyable things for me is going out for a meal and me too I struggled to pay 90 bucks going out these days I don't know what it is but I mean yeah prices are pretty crazy and yeah maybe it was the classic get off my lawn kind of you're getting old but I have no room to complain right I uh I'm just I try to understand like why certain things like you know they I think about them they fixate on them and some of this spending especially on like you know you know food dining like the just the costs that have changed uh over time and everybody's dealing with that of course I do think about it and I know that you know it's not going to move the needle from a big picture perspective but it's just an example of the things that from a financial uh aspect I think about yeah it's funny um when we're spending now on buying some furniture and upgrades and for the house you know I I definitely equate that to you know weekly earnings like okay uh right how long is it gonna take me to recoup this you know and also it's and it's deferring money you know it's taking money away from that we could be putting in the market and in my head is like well it's a great time to be out buying in the market right now you know right on a baby on an upswing here um but I yeah I keep coming back to this idea that what is it all for man I mean yeah and I think you know the older we get the reality is just you know you look around and you know you see people around you who are getting sick and passing away and not to be modeling about it but I mean we just got an email from the school today someone who's you know 51 years old she just passed away like Suddenly Last I'm like yeah you know it's hard to it like you said it's hard to hold all these things in the same space but I do feel like you know you've worked hard for this man you've you guys have set yourself up really well you've planned you've taken a really conservative approach for these first couple of years it's really conservative you know yeah it is and when you step back into this toolbox you get to cross off some of those years at the bottom I don't know if you're doing that too but I mean that changes the retirement Horizon too yep yep I do update it yeah so so you know I do change my Horizon at least annually I go through and you know take off a year and you know look at my assumptions and make sure it's right I admit I haven't been doing that on a monthly basis when I do my kind of Cape assessment but um I know that well let me let me throw it back to you what what should I do what could I do differently to become more comfortable I still I don't want us I don't want to spend at the limit to me that that's that seems crazy but um well what is your what's the Fail-Safe rate right now so right now I mean Cape adjusted it's four and a half percent right what are you actually drawing my budget my current budget what I'm taking out monthly looking at this month last month it hasn't changed so much is three percent it's man I recognize it's a huge difference but put that number on a piece of paper yeah and look at it and and add half of it to your spend yeah like I mean then you're still patting it by 50 percent right well I think what I'm probably going to start getting better at is you know being you know kind of just explicitly funding extras like you know just a weekend thing with the family or something like that even if I don't make it like a budgetary withdrawal like I'm getting more comfortable with the idea of just taking it out for things and you know that will naturally make the withdrawal and that month go higher of course there's there's things that aren't great that could make it go up to like you know dental work or whatever but I think I don't know I I guess when I am sitting here and like reflecting this feels to me like just another step that I need to take forward to get better at this because you know you helped me come to the realization that I was still holding like another six months of emergency funds as a sinking fund and you know I I got rid of that that's gone um so that was a good step I agree I don't need two and a half years of cash that's not what my IPS tells me to do I probably don't need two years of cash coming back to our conversation with Fritz and Karsten but well you don't effectively I mean you've I know Carson tells me I don't yeah you've got it laddered so in a way that I think is smart I think I think what you're doing is smart I just think that maybe there's another rule set that you need to come up with you know that you know this whole um I don't know if it's an app or a website it's called stick I don't know that one s-t-i-k-k I think it is basically a habit forming app yeah so um you know you could do your own version of this where you know you fund a certain amount and you have to commit to doing a certain act whether that's you know walking 10 miles a day or whatever whatever goal you set you know it's a sales goal or whatever it is and if you don't reach the goal and there's some accountability to it that that pool of money gets donated to a charity that you can't you absolutely can't stand uh whatever that might be and so maybe it's just a way I can think of a few of those right right and I'm not suggesting that's the right yeah device for doing it but it's like you know you have this kind of pot of money and if it if you don't actually spend it for life it goes away it's interesting I wonder if Lori your wife was involved in this bit of the discussion like I know you don't wrap her into these things but I feel like you know if she were involved in that and had some agency there maybe this would change well I mean I think it would it scares me a little to be honest and why that and when we watch this as I know we're going to watch this together I I think the reaction is going to be like oh so what you're telling me is the model says and she knows we're withdrawing below the ceiling she doesn't want to know the the nuts and bolts of it but I'm honest about the fact that it says we can withdraw this much we are withdrawing below that because life's unexpected things special vacation whatever then we we have it to withdraw but but if you're saying that's how I've explained it even if you're saying you know you're drawing three percent you said yes and you could draw up to four at four percent I mean that's that's a huge that's a big difference if she if she actually knew the the money that was that was equated to it I think she'd be pretty surprised yeah I think we're cutting this part out you're gonna make me feel like a cowboy when I started drawing my stuff I know I'm just picturing you like you know you're like uh exactly I was picturing you all uh drinks on me Slim Pickens drive you know flying on riding the missile down just spending like crazy I mean like I said I've had it in my head and I've said this a million times and uh to Lori you know I I just feel like in these earliest years is when you should be more conservative and then when you have a better you know I just picture like riding one of those C fire Sims graphs it's one of the reasons I like those graphs honestly you can see just how different the paths are depending upon what cohort you're in it's a really powerful thing for your brain I think um I don't know which one of those I'm on we we had a really good first year in retirement which is good news and then since then not as good um so I I know that's driving part of my hesitancy to spend um I'm not I'm not fundamentally against the idea of spending to the safe withdrawal rate I think you need to um you need exercise to spend muscle a little like so for those people that you went out to dinner with last night if they're listening next time it's on Jason suffice it to say uh I haven't used these words before but this really is the tool that I find most useful certainly the one I'm using most frequently now that I have the highest confidence in and it's really helped put my mind at ease in a lot of different ways and I believe there's a lot of utility for other people so I I mean I hope they check it out I'm glad to hear that you're finding value in it too yeah I think Carson should make a separate uh toolbox just for you the the ultra conservative guy not tell you what's under the hood and then it'll just tweak your your with your all rates perfect yeah he just sits there with the dial just changes them periodically no I love new type of financial advisor I love the toolbox man I think it's super helpful and once I got beyond the initial point where I had to become a little bit comfortable with you know the inputs and what it was actually giving me I I'm finding a ton of value in it and so I hope people check it out I hope people support Carson and his work and his 64 part series whatever number He's on by by the time this releases it's been really impactful to both of us for sure well put [Music] foreign [Music] foreign

Channel: Two Sides Of FI

Views: 17,653

Keywords: financial independence retire early, financial independence, fire movement, early retirement, early retirement planning, early retirement planning tips, retire early lifestyle, retire early fire, retire early fire movement, retire early fire method, first year in early retirement, eric reinholdt, two sides of fi, financial independence retire early fire, how to retire early, asset allocation, stocks, bear market, market crash, safe withdrawal rate, sequence of return risk

Id: rapSolx37gY

Length: 44min 47sec (2687 seconds)

Published: Sun Mar 12 2023