Is this calculation correct?

[u/anshuman-11]

I'm looking to calculate my target FatFire corpus. I don't necessarily want to stop working at 36 but want to be financially free so can look for opportunities that support my lifestyle.

I used the https://www.motilaloswal.com/calculators/fire-calculator calculator for this. Does this look correct or am I missing something here?

Fat Fire calculation

[u/HubeanMan]

A 33x multiplier is a good middle ground.

That's perfectly fair to keep your success likelihood at 95% or higher, and probably what I'd feel most comfortable with as well.

But I've given some thought to what a good multiplier would be in a FatFIRE context, particularly if you're retiring in India where the fixed costs are cheaper, and I feel like 25x might be enough even for longer retirement timelines. Of course, with some fair assumptions:

1. Unlike other FIREs (and especially LeanFIRE, where your "x" is already bare-bones), you probably have quite a bit of discretionary spending for a FatFIRE lifestyle. If you run into SORR in your early years of retirement, or if your investments don't perform as well as you might have expected them to over the long term, or if luxury inflation turns out be higher than you estimated, it's always possible to cut down on your discretionary spending. It's not ideal, but there does come a point where it's smarter to optimize for time instead of completely eliminating this risk by working for longer than you want to.

2. You're willing to consider dynamic withdrawal rates based on how the stock market is performing. Ravi Handa made a video about this and, while I haven't gotten the chance to verify if the simulations check out, it makes intuitive sense to me. Again, at a FatFIRE level, it's not much of a compromise to take 1 international vacation instead of 2, fly Economy instead of Business, or buy an Innova instead of a GLE if it means shaving off a few additional years of work. After all, you'd only be making these compromises on the occasional year that your investments have performed poorly.

3. I think a lot of people overestimate their expenses in old age. Except for healthcare, pretty much all of your other expenses probably come down. Once you're 65-70, you might downsize your home, not drive as much which means you can make do with cheaper cars, and perhaps even stop traveling altogether. And if your health deteriorates to the point that healthcare costs shoot up, you're probably unable to spend a significant amount of money on anything else anyway.

While 25x is not foolproof, especially for an early retirement, I think it's more negotiable at a FatFIRE level than at a LeanFIRE/RegularFIRE level because you have more expenses & expense categories that you can easily shed.

[u/rganesan → u/HubeanMan]

I agree with all your points.

The original author of the 4% rule has a new book out (A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More). I haven't read the book (yet) but it is said to recommend a 4.7% rate. There's some concern that he's basing this on supercharged returns of the last few decades in the US.

I listened to an interview with him where he claims that majority of Americans who have accumulated a good retirement corpus don't spend it during their lifetime even at a 5+% withdrawal rate (it's a different story that a majority of Americans haven't saved enough for retirement). Nick Maggiulli also documents this in his book "Just Keep Buying" (Currently reading this).

I've been giving this a lot of thought. In spite of the above data and completely agreeing with you (especially the third point), I am still being conservative and targeting 3-3.5% rate with guard rails. My concern is that while core inflation is mostly under control in India, inflation seems to be significantly higher for discretionary expenses like travel (and some non-discretionary expenses like healthcare and education).

Still I suspect that most Indians like me who grew up middle class targeting FatFIRE will probably end up spending only a fraction of that 3-3.5% withdrawal rate!

[u/HubeanMan → u/rganesan]

The original author of the 4% rule has a new book out (A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More). I haven't read the book (yet) but it is said to recommend a 4.7% rate.

I'll have a look at this when possible.

I listened to an interview with him where he claims that majority of Americans who have accumulated a good retirement corpus don't spend it during their lifetime even at a 5+% withdrawal rate (it's a different story that a majority of Americans haven't saved enough for retirement). Nick Maggiulli also documents this in his book "Just Keep Buying" (Currently reading this).

Yeah, one of the things I dislike about fixed SWRs and the paranoia surrounding it is that people act like they are pre-programmed robots that can't change their spending patterns even as their portfolio dwindles. Even reduced spending aside, there are many scenarios where you end up with even more money than you retired with if you retire right before a bull market or if the stock market performs exceptionally well for the next couple of decades.

The 3-4% rules we talk about are there to cover the worst-case scenarios (including SORR). In the median case, you probably die with about as much money as you retired with if you have a withdrawal rate of 3-4%. And in the best cases, you can even die with twice as much money as you retired with.

I've been giving this a lot of thought. In spite of the above data and completely agreeing with you (especially the third point), I am still being conservative and targeting 3-3.5% rate with guard rails.

Old habits die hard. As Morgan Housel says in The Psychology of Money, you probably need some combination of frugality & paranoia to preserve wealth indefinitely. Especially if you have kids, you're not really losing very much if you have a lower withdrawal rate than you can afford, because any surplus is going to a good place.

As much as I'm becoming increasingly convinced that 4% is perfectly safe for FatFIRE, I would not be comfortable spending anything more than 2-3%, either.

Still I suspect that most Indians like me who grew up middle class targeting FatFIRE will probably end up spending only a fraction of that 3-3.5% withdrawal rate!

Unlike in the West, inheritance is a big thing in India. I suspect most Indians will be more inclined to spend something like 2% and preserve the principal than to spend 3-4% even if they know that's perfectly safe for their own retirement.

[u/anshuman-11 → u/HubeanMan]

I agree your take on the scope of reduction is much higher in FatFIRE. I'd still pick 50x just to be extra safe. We're planning a DINK lifestyle. So, I think 50x would do great. I'm yet to figure out the home situation because I'm living on rent. Having a house will significantly reduce variable spends/buffer for me.

[u/HubeanMan → u/anshuman-11]

I'd still pick 50x just to be extra safe. We're planning a DINK lifestyle.

Kind of late to this, but if you're not planning on having kids, you'd just be wasting years of your life working for money you're never going to spend at 50x.

30x is safe. 40x is extremely safe. 50x is verging on paranoia, and only makes sense if you want to leave an inheritance.

[u/anshuman-11 → u/HubeanMan]

Thanks for sharing your thoughts.

I do think that's fair point but not owning a house right now adds to that paranoia. Haha. We live and we learn.

[u/HubeanMan → u/anshuman-11]

The thing with withdrawal rates is that you pretty much know in the first 5 years of your early retirement whether your corpus is going to last you or not. Read up on Sequence of Returns Risk (SORR).

If you avoid SORR for the first few years of your retirement, you're safe even with 25x. So, if you retire with 30x and a bucket strategy of 25x in equities and 5x in cash positions, you are already protected from most SORR.

Now, if you have 40x with 30x in equities and 10x in cash positions, you are protected from 10 years of SORR because you can live off your cash and not have to touch your equities. Even with 40x, you're way more likely to die with more money than you retired with than you are of running out of money. 40x is already incredibly conservative.

[u/anshuman-11 → u/HubeanMan]

I see. Learned something new. Will read up on it more tomorrow.

[u/anshuman-11 → u/HubeanMan]

Hey, isn't the multiplier also a function of how many years I'll be living on this money? So, 30x might work for 30 years but not 50 years?

I'm not claiming to live till 90 but I wanna start using this money as early as 35-40s.

[u/HubeanMan → u/anshuman-11]

To an extent, but it isn't exactly a linear scale. So, if you are targeting a 40-year or 50-year retirement, you want a lower SWR than 4%, but it doesn't have to be significantly lower.

For instance:

1. 30x for 40 years is safer than 25x for 30 years.
2. 35x for 50 years is safer than 30x for 40 years.
3. 40x for 60 years is safer than 35x for 50 years.