I think the short answer to "is FIRE attainable at age 42 with $2.6M and $109K draw" is probably no, unless you want to accept a higher risk of running out early than the typical 10% failure rate threshold. It's probably worth getting a benefits estimate from https://ssa.gov, since I expect you'll need that income in addition to your portfolio income to make ends meet.Quick background info-
42 years old ... how best to invest 2.6MM to meet these goals:
My mother and father were employees of the business (mother 68 yrs old) and I would like to guarantee her a retirement/pension of $42k per year and my father (84 yrs old) a pension of $15k per year for the remainder of their lives.
I would like to consider if FIRE is attainable/sustainable at this age and net worth. Personal spending of around 52k a year.
The 4% Rule that Retired@50 cited was from a study by Bengen on Safe Withdrawal Rates showing that a constant-dollar withdrawal strategy had a 90% chance of success (not running out early) for a 30 year period if the initial draw was 4% of the balance, and then increased by inflation rate for the next 29 years. $2,600K x 4% = $104K in year-1, but FIRE means retiring early. If you retire at 42, then that 30y period is extended to 53y which reduces the 4% draw to 3.15%, which is only about $82K in year-1. You need $42K + $15K + $52K = $109K, so it's not viable to retire at 42 with only $2.6M and $109K expenses.
If you will have a sizeable SocSec income, it might be feasible with a higher risk acceptance than 10% failure rate. For example you could draw $110K (4.23%) in year-1, if you will get the maximum SocSec benefit and defer claiming until age 70 ($4,873/mo, extrapolated by +3%/yr for 28 years), then you get an offset to your portfolio draw by the SocSec income of $133K, but this strategy has only a 82.5±1.2% chance of survival (about 18% chance of failure, which might be acceptable to you). Of course, SocSec benefits may be reduced (SSA predicts this will happen in 2035 with no action by congress to address the predicted shortfall) and FIRE means being independent of corporate/government income for your retirement. There are also alternatives to the const-$ method used in the Trinity Study such as const-% and var-% that might allow for a higher initial draw, have a 100% success rate, but have the potential for "pay cuts" during retirement during market downturns (see Alternative Withdrawal Methods).
The success rates above are from my Withdrawal Monte Carlo, which is linked below along with other models that don't require Excel. The case where there's a SocSec offset to the portfolio draw in year-28 of retirement (age 70) is in the image with an Asset Allocation (AA) of 75/25, but Bengen showed in a later study that AA doesn't have much impact on portfolio survivability, it's mostly driven by how long the period is and initial draw percentage.
Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo
Withdrawal Monte Carlo
You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).
I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
TPAW (historical data, but adjusted to avoid limitations of a random index into the historical array),
Engaging Data: Rich, Broke, or Dead, (uses historical returns in a cycle for your retirement duration), and
FireCalc (also historical data, but lots more inputs to tailor to your situation).
I don't care for a random index into the historical array of returns, compared to distribution modeling, as noted in this thread HERE.
Paid models sometimes cited here include Boldin (formerly NewRetirement) and Pralana Gold as well as many others (just citing these not recommending for or against on any of these).
Statistics: Posted by bonesly — Tue Dec 17, 2024 12:20 pm — Replies 4 — Views 247