Family of Four Taking Flight to Financial Independence

The Stock Market This Century: Would The 4% Rule Be Safe?


As you know by now, I’m always running our numbers in planning for our (very quickly approaching) ER (early retirement).  While I was doing some research on historic market returns, I came across this great website that lists the yearly returns of the stock market from 1928 to current day.  

While scrolling through the numbers, I thought it would be a great idea to see how well a person would have done if they had retired at the beginning of this century and applied the 4% rule.  


New York City's Financial District is home to the New York Stock Exchange


I did this for two reasons: 

One: After looking at the data, it doesn’t take a rocket scientist to see that retiring in the year 2000 was really bad timing, so therefore a good way to test the 4% rule.

Two: I wanted to compare a portfolio withdrawing 4% no matter what the market is doing with one that will apply safety margins via a smaller withdrawal rate and / or tapping into a cash cushion (this would be similar to our future strategy). 

Lets take a look at the results.  



The above table illustrates what a 4% withdrawal rate would look like from 2000 - Present.  

As shown, after retiring right when the dot com bubble was bursting, and Enron was imploding, along with September 11th, two major wars (Afghanistan and Iraq), and with the housing bubble looming, this person would have an overall loss of ($108,443.40) to their portfolio.  This certainly isn’t a good outcome, but this is also a scenario in which a person literally retired at one of the worst times in history and with that said, it's not a terrible outcome (they still have almost $900k invested!)  They have clearly been able to weather the storm, and my guess would be over the next 20 years their account value will go up even while withdrawing their 4%.  

Also note, this person didn’t apply any safety margins during this time frame, which IMO (in my opinion) is a reckless way to go about early retirement.  But, to each their own.



This table illustrates what would be much closer to the way our withdrawal strategy would have worked had we retired in the year 2000.  In this scenario the person / family lives on 3.5% of their investments in the good years (Safety Margin 1: 3.5% withdrawal), and they lowered that down to 2.5% in the bad years by tapping into their cash cushion as needed (Safety Margin 2: 2.5% withdrawal).  

Also remember, in this plan, each year’s withdrawal rate is based on the previous year's market performance.  For example, even though in the year 2000 the market was down over 10%, they still withdrew their 3.5% because in 1999, the market was up 19.53%. 

As we can see (and hopefully this is obvious) the results in table 2 are better, but still not really great.  After dealing with such volatility, I expect a better return than this, and again my guess would be the next 20 years are set to provide that.

Note, table 2 isn’t even a true representation of our plan because it does not factor in any extra income coming in, which we absolutely intend to have in some shape or form at some point.  This income would be used to lower our withdrawal rate even more (potentially to zero for at least some of the time).

What this exercise shows us is that despite the historic bull run that the market has been on the last 10 years, this century overall has been extremely volatile.  While we expect and even embrace the volatility that the market brings, this leaves me feeling (dare I say) optimistic with what the next 20 years has in store for market returns ...?!

Also, it is important to keep in mind that it is very rare (though possible) to retire at a historically bad time like this post illustrates.  For example, if the person from the first table would have decided to work just one more year and retired in 2001, their account balance in 2019 would have been positive by over $38k.  Work a few more years and retire in let’s say 2003 ... and withdrawal their 4% as shown in table 1, their current account balance in 2019 would be over $1.7 million!  Had they adopted the withdrawal strategy shown in table 2 (and retired in 2003), their account balance in 2019 would be over $2 million.

Key Takeaways

  • Stay flexible in retirement (and really in life in general) because there will be stretches of years where returns aren’t great. 
  • Plan to have safety margins, and implement them as needed. 
  • Don’t be scared to earn some income in ER (early retirement).  This doesn’t mean your ER has failed, this just means you are a relatively young, healthy, educated, and productive human being (pat yourself on the back).

Lastly, I leave you with a quote from Mr. Money Mustache:


What do you think?  What withdrawal rate feels safe to you?  Would you apply safety margins?  What might yours be?

-Erik

FI With Kids: Fun Friday Food

Food is always a big topic in the FI (financial independence) community as we mentioned in our blog last week (How To Feed A Family Of Four On $75 Per Week).

One topic that does come up in FI social media groups is ... lunchHow do you save on lunch (adults and kids)?  What do you pack for lunch?  How much do you spend on buying lunch?  And so on ...

So today I bring you ...

Fun Friday Food

Our daughter's Back to School lunch from last year.  Also featured in the photo - reusable bag (found on Amazon - Bumkins).

When our son entered Kindergarten (he's now in 3rd Grade) I started doing Fun Friday Lunch Art for him.  And now that both of our kids are in elementary school, I do Fun Friday Lunch Art for both of them each week.  It is an easy goal to stick with - entertaining for the kids, and nearly free (with the exception of art supplies, but of course most of us have those around the house).  (Side Note: I am an art teacher.  You can read more about how we live on a teacher's salary (and save the higher salary) here).















Not feeling artsy?  Of course you can write simple notes or jokes (my kids love when I incorporate jokes!).

But what about the food?  Most of the food comes from our regular grocery budget - How To Feed A Family Of Four On $75 Per Week.  If I buy anything special, it would come from our extra spending budget.

Today I am not going to talk to you about their normal lunches, but I am going to talk to you about their special "holiday" lunches.

On special holidays (or near special holidays), I sometimes try to surprise them with an extra fun lunch (maybe Back to School, Halloween, Dia de los Muertos, Christmas, Valentine's, and Easter (Easter is fun because I put ALL of their food in eggs!)).  It really doesn't take that much more effort than their normal school lunch, and the cost is minimal and would come from our extra spending budget (I could definitely do it for $10 or less for two kids if I wanted to).

For example ... it might look like:

Back to School Lunch


Christmas Lunch - Our Son


Christmas Lunch - Our Daughter

Valentine's Day Lunch - Our Daughter

Valentine's Day Cookie - My Sweet Obsession Cookies (Support local vendors and artists!)

Valentine's Day Lunch - Our Son


-Instead of using their normal Bento Box in their lunch kit for special holiday lunches, I would remove that to allow for more room.  (I bought their Bento Boxes from Pottery Barn Kids their Kindergarten year.  They have lasted since then (now 3rd Grade and 1st Grade).  Their lunch boxes are also from Pottery Barn Kids which last 2 years or more.)

-I sometimes replace the Bento Box with crinkle paper (paper not plastic) that goes along with the holiday.  I've found this at the Dollar Store.  I like to avoid the Dollar Store as much as possible, but some things are okay like paper products.  At Christmas, I've put in "snow."  You can find fake fluffy snow at craft stores.  It's cheap, and the kids love it.

-I've found holiday baggies at Target to use to hold some food items.

-Sometimes I find little trinkets to go along with the holiday (like spiders at Halloween).  I often find these at Target.

-Food?  I usually use the food they normally eat for lunch, but then I might buy one or two extra treats they don't get (this would come from extra spending).  And I sometimes do extra special treats like the one featured in the Valentine's Day lunches above.  I've used a local cookie artist / vendor a few times for holidays and gifts.  Her cookies (My Sweet Obsession Cookies) are adorable, tasty, and affordable, and I prefer to support local artists / artists in general versus big box stores (when possible).

-Other ideas?  Cookie cutter shapes go a long way!

I've thought about doing my own Etsy shop or something similar selling personalized lunch art ... and maybe even pre-packed holiday lunch items (not food items), but that is not something I have time for right now.  Maybe in early retirement as a side gig?

So there you have it ... what do you pack for lunch?  Do you ...or would you consider packing notes / art .. or going above and beyond at the holidays?  What other ideas do you have for lunches?

-Tara


How To Feed A Family Of Four On $75 Per Week


Before we get to our food post, I am going to provide a quick summary on FIRE (Financial Independence Retire Early).  As we get closer to FIRE, I've had some people ask me ... well, what about work?  What about a job?  (You can also see our recent post here on the What Abouts).  

1) FIRE stands for Financial Independence Retire Early: Once you reach financial independence you are able to retire early if you choose to do so (of course you do not have to stop working!).
2) We plan to stop working full-time, but that does NOT mean we will probably never work (make money) in some way ever again.
3) We plan to try to get Non-Lucrative Visas (NLV), and move to Spain for at least a school year (or more).  If we are able to obtain Non-Lucrative Visas, this means we can't work / take a job from a Spaniard.  But a NLV would allow us to stay for up to a year in Spain (versus an American Passport would only let us stay for 90 days).
4)  How do you achieve FIRE?  Short answer ...

Pay off all of your debt!
Budget, and decrease your spending rate (and increase your savings rate!).
Invest, invest, invest.
Figure out your FI (financial independence) number.
Be prepared, and have back up plans (your safety margins).
Reach your FI number!  Now you can live off your investments (4% or less), and there are other ways you can pull from your retirement early (here and here).
Enjoy FIRE.  Done!

-Tara

How To Feed A Family Of Four On $75 Per Week


The hummus wraps and salad are mentioned below.

One of the numbers that seems to jump out to people when they read our blog and look at our budget is the amount we spend on groceries.  (It is also a fairly common topic amongst the FIRE (financial independence retire early) community).  We try to keep this between $70 - $75 per week or about $300 per month.  What?!  Yep, you heard that correctly.  This includes our food, toiletries, cleaning supplies (hello, baking soda and vinegar!), etc.  

Today we wanted to give you an inside look at what a typical week looks like for us.  

We will also include the meals that we plan to cook (because planning your meals ahead of time is key to sticking with your budget (and a time saver)) AND some of the recipes we use.  (At this point I don’t really use recipes, and I certainly never measure seasonings.  The cooking is more based on feel.  The below recipe ideas are almost impossible to mess up -- really quick and easy to make and adjust to your own tastes).

As of right now, we mainly shop at HEB and Aldi (of course prices vary depending on the market you are in and where you shop).  Both of these places are pretty popular amongst the FI community / local FI community.  Where do you shop?  We've also shopped at Sprouts (which is like a smaller version of Whole Foods) when they've had sales.  And if we lived closer to Trader Joe's (there are some in Houston, but we are in the burbs), we would probably frequent there too (we even noticed when we have visited NYC the prices at Trader Joe's are similar to the prices in Houston which was surprising!).

Note, any eating out (meals, even grabbing ice cream, or Starbucks, etc.) comes from our extra spending budget not our grocery budget.  And I am guessing we "eat out" less than a typical American family because that has not been a priority for us.  It also helps that any eating out is usually because it is a treat not because we weren't prepared / or in a pinch.

The Grocery List





The sample lists above were actual lists we used within the last month.

As you can see we try to shop the sales for our fruits as much as possible.  Another thing to note is that I have my list written according to the store layout.  We start in the produce section.  Then we hit the condiments (Peanut Butter, Salsa, etc.) ... next up, rice, beans, etc.  This helps me stick to my list and gets us in and out of the grocery store as quickly as possible (the less time you’re wandering around in there, the less likely you are to spend on unnecessary items).  

Speaking of the list, it is in my hand EVERY time I am in the store.  It includes obviously the items I am going to buy but also each item's price (an estimate) so that I have a good idea of how much I’m spending before I check out.  My son and I sometimes play a game where I tell him how much the bill is going to be (give or take $1), and my estimate is always right (this blows his mind!)  My list also contains the meals I have planned to cook for the week (which helps me make sure that I’m not forgetting any ingredients).  (Sample of that below).




The Meals


This exact meal isn't mentioned in this post, but basically it is baked tofu, kale, rice, and white sauce / hot sauce!  Yum!

I’m guessing most people who cook at home have some “go to” meals that they make most weeks that are quick / easy, and that everyone in the family likes (depending on the day or mood if you have a 6 and 8 year old).  These are just some of our “go to” meals.  Note, they are all plant-based.  What are your "go to" meals?

Pasta with Garlic & Walnut Sauce and Spinach Salad with Sliced Apple and Garlic & Walnut Sauce

To make the garlic & walnut sauce - blend about 1 cup of walnuts with as much or as little fresh garlic as you want (I usually use 4 - 5 pieces) and ½ - 1 cup of water (depending on the consistency you want the sauce to be).  This stuff is good on just about anything, but we like it over rice, pasta, homemade tortilla chips, and steamed kale.

Burrito Bowl

This is one of the wife’s favorites, and it's also good for kids because they can come and build their own bowl (think Chipotle at home).  For this I usually make a big batch of rice.  Then just set out bowls of beans, garlic sauce (same as above), corn, cilantro, sautéed onion, salsa, hot sauce, homemade tortilla chips, etc.

To make the homemade tortilla chips, preheat oven to 400.  Put some parchment paper on a baking sheets, and cut tortillas into chips or strips ( you can use corn or flour tortillas).  Bake for about 10 minutes.  (Start watching them around 8 or so.)
  
Breakfast Scramble

Onion, garlic, frozen hashbrowns, spinach, leftover beans, and leftover corn in a non-stick skillet.  Top with hot sauce, cilantro, or salsa.  Done!

Hummus Wrap

Fill a tortilla with homemade hummus, sliced cucumber, sautéed onion / garlic, diced tomatoes, spinach, cilantro, beans, etc.

To make the homemade hummus, simply blend 1 - 2 cups of cooked chickpeas with fresh garlic (again I use 4 - 5 pieces), a couple squirts of mustard, lemon juice, and about a ½ cup of water (alter depending on the consistency you want for your hummus). 

“Nachos”

Make tortilla chips (as mentioned above).  Put some homemade hummus in the middle of the plate, and lay chips around hummus.  Then cover chips with the garlic sauce, cilantro, salsa, hot sauce, beans, onion, jalapeno, spinach, etc.

Big Pot of Beans / Rice

What plant-based menu is complete without a recipe for a BIG OL’ POT of rice and beans (plus we are Texans ... we love rice and beans)!?  This is one of my personal favorites, and I typically eat a variation of it at dinner every night.  This is a great meal for leftovers, and it is good to eat by itself (or you can use it as filling to make tacos with).  

Saute onion / garlic in non-stick skillet.  Next add 4 cups of vegetable broth, 1 - 2 cups of water, 1 cup uncooked rice, 3 cups of cooked beans OR lentils, and seasonings of choice (my favorites are smoked paprika, onion powder, and garlic powder).  Bring everything to a boil, and then simmer on medium / low until rice is cooked (and most of the liquid has been absorbed).  

There you have it!  This is just one example of our grocery list / meals in a week.  

What do you think?  How much do you spend on groceries?  What kind of food do you cook?  Do you shop with a grocery list, and plan your meals ahead of time? 

-Erik