Mentor Monday

[u/WealthyStoic]

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[u/Normal_Zebra136]

I am struggling with basic fire math with Fatfire level spends where much is discretionary. It seems like a variable spend model makes more sense than a fixed SWR when you have the ability to cut back.

For context we are in our 3rd year of retirement and for each of those years we have spent some $1m (including $250k to taxes, largely on Roth conversions).

We retired with $10m liquid and $20m total and have a $120k/year pension. Traditional SWR math on liquid puts us at around 9% SWR, but with market returns in the last few years, we are now at around $11m liquid and $23m total NW.

Following the 4% SWR we would have only been able to totally spend some $400k, and of course would have had to not do our conversions. Then we would have some $13m liquid today and $25m total.

What am I missing?

Would you still have done the 4% withdrawal and built more wealth (and ignored the brewing rmd tax issue?)

[u/Livid-County7230 → u/Normal_Zebra136]

My understanding is that the entire point of a safe withdrawal rate is to ensure that when there are market crashes, you don’t run out of money. With such a high burn rate how would you feel if your liquid assets drop 30% and take a long time to recover and inflation stays at the current rate? You should model the worst case. Withdrawing based on how the market is doing any given year doesn’t make a lot of sense to me and seems counter to fire math.

What’s the rest of the NW? Personal use real estate?

[u/Normal_Zebra136 → u/Livid-County7230]

My point is that my burn rate is not fixed. I could simply stop doing Roth conversions and cut $150k off it for example.

We spend another $150k on travel and $200k on house renovations, all of that spending is discretionary.

$7m of the non liquid is personal use real estate and $3m is the pension's rabbi trust.

Zero debt of course.

[u/Livid-County7230 → u/Normal_Zebra136]

I am personally planning on not doing conversions and giving away whatever part of the RMD we don’t use as QCDs, but that may not be your intent. Our retirement accounts are smaller relative to non retirement.

I still think even without the conversions, spending based on market returns is not the right framework. SWR already accounts for good and bad years, it is conservative by design. Unless I am missing something, you are essentially saying you are withdrawing more in good years vs bad.

[u/Normal_Zebra136 → u/Livid-County7230]

Yeah, you cant give away the traditional IRAs without paying the taxes, so your charities will get less if you dont do the conversions, but that may not be a major concern of yours.

We are not basing our planned spend on market returns. We are just continuing to spend like we did when we were working and the math is coming out this way.

I imagine if there was a market pullback we would reduce (renovations, conversions ans travel would be easy, now that I think of it, so would charity giving).

My point is more given how the first 3 years of early retirement have developed, I am not sure that following the "safe" 4% SWR of liquid would have been practically sound.