Comment by PragmaticPulp | Hacker News Reader

Comment by PragmaticPulp | Hacker News Reader

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There's a big difference between spending $60K/year on average, and having a firm upper limit of $60K/year that can never be exceeded for the entire rest of your life (inflation adjusted), lest your entire financial plan collapses.

If you had an unlucky year and had to spend an extra $10K on various things (car breaks down, medical expenses, moving for a job) it's probably not a big deal for you. If a leanFIRE person had an unexpected extra $10K expense, they'd have to cut $10K out of the rest of their budget for the entire year.

If you're already squeezing by on $30K/year like this author, somewhere between 1/2 and 2/3 of that might go to basic living expenses (rent, utilities, food). If the other 1/3 of your budget gets wiped out by an unexpected $10K expense, it's going to be a very lean year.

This is the problem with most leanFIRE plans: They only work if nothing ever goes wrong, no unexpected expenses occur (for 4 or more decades straight), and a person's lifestyle never expands at all.

This isn't really accurate, though. In most cases there is a large margin of error built into the 4% "safe withdrawal rate" - and that is that the investments "on average" do much better than 4% (easily 5-7% after inflation, in many cases much higher) and that you end up with much more than what you need to withdraw 4%.

The notable exception is called a "sequence of returns risk" (SORR) where either something bad happens in the first few years draining a really large portion of your original savings (more than $10k) and/or the market undergoes a recession during the first few years, and if you withdrew the full 4% from your investments while their value was markedly depressed, you would never recover (without additional income). In my opinion, a proper retirement strategy should account for SORR; some padding (i.e. the wants portion of your budget you can reduce during a lean year), reverse-glide strategy where you can draw from cash/bonds instead of equities in case of depressed value equities, etc. In many cases, this scenario happens so early in retirement that anyone retiring at a younger age has relatively good prospects of rejoining the work force to get to the other side, and then will likely be very well prepared for a second retirement with a decreased likelihood of yet another bad sequence of returns occurring before their nest egg has grown well beyond 25 times annual expenses.

And all retirement plans should be flexible - some years where you might spend a bit less than the target, but have room to change that, particularly if your invested assets grow beyond the original necessary funds.

> In most cases there is a large margin of error built into the 4% "safe withdrawal rate"

I don't think that's the case if you're retiring early. The 4% withdrawal rate was based on a 30 year retirement. You need to go a bit lower if you want to have minimal risk of running out of money for a much longer horizon.

https://engaging-data.com/will-money-last-retire-early/

You're more likely to die than run out of money!

Certainly, but with their example of retiring at 40, you have an 8.5% chance of going broke before you die and a 3.4% chance of going broke before you even reach a normal retirement age.

That's a much higher level of risk than I would accept.

I think this was covered in the article. His assets have grown 20% (inflation adjusted) since retiring and that's with a number of years having higher than average expenditures due to unplanned medical issues. His financial plan didn't really collapse per se.

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