Classic Double Double (photo from In-N-Out Burger)
Every time we are in California I have to make a stop at In-N-Out Burger for a Double Double (protein style.)
Even after that time I threw up a Double Double and chocolate milkshake out my nose, I still love them. (Can’t say the same for Jack Daniels…)
Similarly, every time I enter my tax preparation state I have to check on our investment portfolio…
I can say without a doubt, the only thing better than Double Beef is Double Dollars.
Double Double
I left the traditional work force in October 2012 with a portfolio worth $X. (Winnie left 3 years prior.)
Today that portfolio is worth more than $2X.
This is incredibly fascinating… and at first I was just confused, especially after the portfolio was down 7 figures in early 2020.
Is this a math error? This can’t possibly be real?!
Did our portfolio just get silly drunk and vomit out a whole ‘nother copy of itself?
I tried to look at it all in other ways to see if I could make sense of it…
Money Metrics
Net worth isn’t the only (or most important) way to look at overall financial status… but it can be an useful money metric.
Other interesting ways to look at things:
After 8 full years of early retirement we have spent over $650k (roughly $82k/year.) That is more than we spent in the previous 20 years combined, including college tuition (but excluding taxes.)
By spending more each year, it certainly doesn’t make it easier for our portfolio to grow. But despite our best efforts, the portfolio still doubled.
In the process, our net worth grew beyond our lifetime gross earned income. We have more dollars than we ever worked for. Or another way to say the same thing, our capital has earned more than our lifetime of labor by a significant amount.
Mostly this has just tracked the S&P500. (You can see where I started and stopped closely tracking.)
S&P500 and GCC Net worth (not to scale)
It’s all very surreal… Was this all inevitable? Or did we just get really lucky?
Expectations
We were fortunate to stop working in the early stages of a prolonged upward trending stock market.
What if we called it quits at a different time? What should others expect to see 8 years into retirement?
To explore, I used cFIREsim (completely re-done in late 2020, it’s very nice, consider tapping that donate button maybe? I just did $10) which can tell us what would have happened had we retired at any time in the past ~150 years.
Using our exact blog income and expenses these past 8 years and a solid approximation of our asset allocation, cFIREsim spit out the following chart that shows the portfolio value growing in most cases:
Overall we had only a 1 in 10 chance for less money today and a 1 in 3 chance for a double or more. On average we would have 1.5x-1.7x our starting value. We are doing better than expected.
Raw data:
- Mean portfolio value after 8 years: 1.7x starting value
- Median: 1.5x
- Best case / max: ~4x (at start of 1929 though)
- Probability of portfolio growing 2x or more: 30%
- Probability of portfolio remaining the same or increasing, 1x: 90%
Since we spend less than 4% of portfolio value, here are the 4% numbers for comparison:
- Mean: 1.5x
- Median: 1.35x
- Best case: 3.5x
- Prob of 2x: 20%
- Prob of 1x: 75%
What We Did and Where We Are Going
The plan we have, as I explained it 6 years ago, is quite simple (copied here for your convenience):
- Plan on a 4% withdrawal rate
- Spend less in the early years, the lower the better
- Minimize taxes
- Travel hack for free flights and hotel stays
- Minimize investment costs through Vanguard index funds
- Earn a little accidental income
- Be prepared to move bond position into stock in a severe downturn
- Be OK with going back to work for awhile
We are doing pretty well with regards to plan adherence.
Our original “plan on a 4% withdrawal rate” was to live our desired lifestyle in Seattle (white picket fence and a BBQ, couple of rug rats, a minivan for those rainy days, anniversary dinners at Canlis, regular international travel, etc…)
Then we went to Mexico/Thailand/etc… where our desired lifestyle cost a fraction of Seattle prices, earned a nice income in our spare time via blogging, did a little tax optimization, and moved a bunch of bond money into stocks when COVID collapsed the stock market.
So far so good.
Now going forward… we’ll probably end up in California in a few years spending a bit less than we do now (maybe even better if the ACA improvements are made permanent.)
We don’t plan to continue to increase spending in part because we aren’t creative enough. If the portfolio doubles again, maybe we will fly business class more often. We will also ramp up charitable giving.
8 years is also still early into a 60+ year retirement – we could certainly give back some of these gains in the future, so there is no need to get crazy.
In short, the future looks to be more of the same.
Summary
We “retired” 8 years ago. Our portfolio doubled. Beef is delicious.
Unbelievable and inspirational. Thanks for sharing and all that you do!
My pleasure :)
USA Federal Government Debt:
2012/Sep/30 $16.066T
2021/Feb/28 $27.945T
CAGR:
= (27.945 / 16.066) ^ (1 / 8.413) – 1
= 6.80%
GCC CAGR:
= (2 / 1) ^ (1 / 8.413) – 1
= 8.59%
USA median individual income:
2012 $27,519
2019 $34,248
CAGR:
= (34248 / 27519) ^ (1 / (2019 – 2012)) – 1
= 3.17%
SP500 CAGR:
= (7929 / 2468) ^ (1 / 8.413) – 1
= 14.88%
Those are good metrics, thank you.
The SP500 did a little better even with dividends. We underperform here due to also holding bonds and non-US stocks, along with drawing down some of the portfolio for spending.
Here are 2 more:
BTC
2012/Sep/30 12
2021/Feb/28 46,642.61
CAGR:
= (46,642.61 / 12) ^ (1/8.413) – 1
= 167%
CPI CAGR:
= (262.14 / 231.41) ^ (1/8.413)-1
= 1.5%
Money Stock: https://fred.stlouisfed.org/series/MZM
CAGR: 8.229%
MZM Velocity: https://fred.stlouisfed.org/series/MZMV
GDP: https://fred.stlouisfed.org/series/GDP
More money, less turnover = more wealth stored in financial assets.
I retired in 2012 and our portfolio more than doubled as well. I think we’ve been incredibly lucky. The stock market did quite well over the last 8 years. But I also think the 4% rule is quite pessimistic for early retirement.
Most early retirees still have some kind of active income.
Many do, yeah. I’ve also met a lot who don’t, but I’m not sure on the statistics.
4% rule is definitely conservative
I’m not good with acronyms or statistics… What does BTC mean?
What is the difference between mean and median (and average)? Which of the two reflect realistic circumstances? 0.1-1%’ers skew income more up, I’d guess, if to believe the media stating that the top group holds much more wealth than ever before…
Bullockornis and GCC use 8.413 in formulas…what does that factor represent?
Wish we heard more from early retirees who are living of their savings only… Additional income skews the picture in case the entrepreneurial fairy doesn’t strike me…
>Wish we heard more from early retirees who are living of their savings only… Additional income skews the picture in case the entrepreneurial fairy doesn’t strike me…
By definition, these people are too busy enjoying life to find time to share their experience with strangers on the Internet.
But… the 4% example I shared above will get you the same thing.
BTC.= Bitcoin
8.413 is years between the dates Bullockornis provided (my retirement dates), used in the annual growth rate formula
Median is the middle number – half of all results are above this, half below. The 0.1% don’t skew this number, but that isn’t a factor here as we are just looking at portfolio value for somebody spending 4% or less.
Millenial Revolution separated their investments from accidental income.
https://www.millennial-revolution.com/invest/our-2020-finances-how-did-our-portfolio-do/
Technically we have too – we’ve spent 100% of our post-retirement income :p
Bullockornis and GCC use 8.413 in formulas…what does that factor represent?
Time in years from 2012/Sep/30 to
2021/Feb/28:
= 3073 days / 365.25 days / year
= 8.413 years
Sequence of returns risked worked well in your favour! Lower than 4% withdrawal in the beginning due to lower expenses, lower than 4% later due to some income, plus higher than average returns in the S&P. Sounds like a beautiful outcome for FIRE and a great example of how things can really align well if you continue to be diligent and conservative post all the hard work that was required to even get to the starting point of 2012 =)
Here’s to a further 8 years of prosperity and hopefully continued good health. Looking forward to the travel again too.
Makes me hungry.
Same
coasting – love the fact that this is not merely a bull market phenomenon and you’d be just as well off starting at any other point. That gives us hope. On a different note, however do you check your US based accounts from Taiwan?
from my laptop, same as in the US.
I feel like no matter what tax provisions are tried locally or nationally folks will always find a way to skirt around the system. It’s like plugging a leak on a boat only spraying another leak elsewhere. I can only hope that at some point we find the right balance with taxation, but the problem seems like a impossible one to tackle.
Wow. Totally posted my thoughts on another article here. Whoops. We’ll keep kicking butt. I like your initial FIRE principles. Simple, but effective!
yep, it’s all an endless party for quite some time now. Until 1929 hit us again and US debt is starting to show that path is very real
It’s not though.
The Deficit Myth is a quick read that can explain why.
‘Modern Money Theory’ or ‘Contemporary Money Hypothesis’?
The world is saving for retirement = relatively more financial assets, less productive investment.
‘Contemporary Money Hypothesis Mk II’: When the world’s retirees start drawing down capital to spend = asset price plunge.
MMT just as a point that the US debt leading to another Great Depression is objectively incorrect.
85% of US wealth is owned by 10% of households. That won’t be drawn down.
“85% of US wealth is owned by 10% of households. That won’t be drawn down.”:
Good point. High USA inequality means a small portion of USA ‘retirees’ will have more than they could reasonably spend other than on charity or inheritances.
USA top 1% ‘household’ wealth entry is around $3-4M. That is just enough to be sustainable in perpetuity.
https://windfalldata.com/blog/what-it-takes-to-be-in-the-top-1-of-every-state/
‘foreign investors owned about 40 percent of US corporate equity in 2019’
https://www.taxpolicycenter.org/taxvox/who-owns-us-stock-foreigners-and-rich-americans
However, in Aus, there is ‘concern’ that retirees are not spending capital – that they are living frugally on earnings or less and saving during retirement ‘leaving capital intact’.
I had some free time in between Jack Reacher books and read the Deficit Myth. Woah. Blown away. Thanks for the recommendation.
A critique of ‘MMT”:
https://www.cato.org/cato-journal/fall-2020/deficit-myth-modern-monetary-theory-birth-peoples-economy
Suits those who receive government money before it loses value.
No point in money when it has no value.
Currently the population is ageing and saving for retirement by consuming less. Governments are trying to increase consumption through stimulation which is working weakly but mostly increasing both private saving and public debt – due the greater propensity to save relative to consume. This to will pass.
Ahh, the Cato institute. We can always count on them for a bad faith argument :)
Regardless, the US will never pay off its debt, will never try, and it will all be OK.
“Regardless, the US will never pay off its debt, will never try, and it will all be OK.”:
Good to know. When with USA stop payment in spendable money?
never
> says Cato makes a bad faith argument
> offers no evidence
> offers no counter argument
Did you read the book I linked to?
No, you did not.
you focused only on the debt issue. There are plenty of other things that WILL lead us to 1929 path again. And it might start soon when inflation hits and fed is too behind the curve to do anything and when it does, it will only serve to sink the markets. God save us
Nah
I’m on the same path, but entered FIRE at the end of 2015. I admit that we have had very good timing in terms of sequence of return risks.
You chose a good year. Very smart
It wasn’t smart. It was blind luck :-).
looks like genius from where I’m standing! ;)
So curious to know why California. I mean from a financial standpoint, knowing that California is the most expensive state with highest taxes in the nation, it even taxes passive income as earned income. So, what makes it work for you?
>knowing that California is the most expensive state with highest taxes in the nation
this is inaccurate
See: Going Back to Cali…?
Made me realize that our net worth has doubled since retiring from full time work in 2014 (we have both had part-time w-2 jobs for much of the time since).
I know we have passed the net worth exceeding earned income as long as you don’t adjust for inflation. Pretty sure 2000 was our best year inflation adjusted.
I don’t think I have enough data on the spending piece other than last years spending was paltry and we need to spend money going somewhere this year😊.
Sounds like a fun problem to have :)
About seven years into retirement. Like many 2020 was a phenomenal year. I actively manage our portfolio and bottom line we had a return of ~40% for the year. At the same time we only have to spend ~1.5% of assets in any given year; that is all in including extensive traveling, etc. Life is very good. Best wishes to you and your family.
Livin the dream
With 0% returns and withdrawals 1.5% / y, fund will last:
= NPER(0%, 1.5%, -1, 0, 0)
= 66.7 y.
Earn 1% real:
= NPER((1+2%)/(1+1%)-1, 1.5%, -1, 0, 0)
= 109.5 y
Any return >= 1.5% will last indefinitely.
We have never withdrawn from our portfolio or used the dividends because my hobby consulting paid the bills. So we’ve seen aggressive growth in our assets too. It is weird to keep getting richer when I wasn’t earning all that much.
Amazing results! excellent job on your retirement portfolio. I also love In-n-Out!