#14 – Are We Too Conservative?


In this episode, the Mechanic, the Accountant, and the Economist ponder whether people in the FIRE community are too conservative in deciding when to leave their day job? We’ll sample a few new beers as usual too. If you found this podcast you’re probably familiar with the FI/RE movement that has grown in popularity recently. Here at the FI Garage, we’re all on the path to FI, however, we consider the RE part optional.

Bonus Drink: the Mrs. Money Mechanic home brew cider [0:52]
Useful Hack – Costco Gift Cards [2:51]
  • If you get Costco gift cards you can shop in a Costco without a membership
  • What if you go over the value of your gift card? they cut you off [3:40]
  • Buying gift cards with your MasterCard [5:40]
Beer #1 – Sam’ 76 – from Samuel Adams [7:05]

Are We Too Conservative? [9:50]

  • Writing your own definition of FI and FIRE [14:28]
  • Geo arbitrage if your retirement account is in trouble [15:35]
  • Being open to taking on risk [15:45]
  • FIRE community’s interpretation of Trinity study [17:20]
  • How much do I need to save for Retirement by MMM [20:35]
  • Are you a failure if you have to return to your day job? [22:27]
  • “Your worst-case Scenario is everyone else’s every day” [22:52]
  • If it’s not the 4 percent rule, what is the rule? [23:20]
  • Ending up with 8X your original fund at the end of the assumed retirement period [25:15]
  • The first 5 years are the most telling in how your portfolio will perform [26:25]
  • Everyone’s answer to the too conservative question is going to be different [27:00]
  • The FI continuum [28:28]
  • Entrepreneurship for Pansies [28:55]
  • Even if we are too conservative – maybe it is a reasonable direction to err in [29:07]
  • FireCalc [30:05]
    • $40,000 annual spending and $600,000 portfolio success rate of 42 percent
    • $30,000 annual spending and $800,000 portfolio success rate of 87 percent
  • Do your own deeper dive! [32:44]
  • Including government programs, in your calculations OAS and CPP- the CPP is funded [35:30]
    • CPP is funded to 2081 [36:40]
    • Work for 20 years at the year’s maximum pensionable earnings your pension will be about $8,000 per year [42:05]
    • My Service Canada Account [43:58]
  • Personal FI [44:55]
  • What are your plans? Leave us a note! [46:47]
Beer #2 – Blue Buck – by Philips Brewing and Malting Co. (Victoria, BC) [37:20]
Bonus Drink #2: the Mrs. Money Mechanic home brew raspberry cider [48:48]
Reading List


    1. Hi Helene,

      Glad you are enjoying the podcast, thanks for listening!

      That is a great calculator, I love the added wrinkle of being able to state how much you’d like to leave behind. Thanks for sharing!

  1. Hey guys, as promised some feedback.

    1. Starting without an agreed definition of what FI is was a bit rough. Until you sorted our what FI meant you were all talking past each other as the goal posts you were aiming for were different.

    2. At some point int he interview I got the impression that the Economist was saying that the trinity study did not account for dividends, this is not the case. From your linked article “The stock returns in the analysis are monthly total returns to the Standard & Poor’s 500 Index”.

    3. I have some reservations regarding the Trinity study and 4% rule for 2 reasons.
    a) the Trinity study used only US stocks which does not represent a typical Canadian portfolio.
    b) The Trinity study only looks out 30 years when many people pursuing FIRE need to plan out 40-60 years.

    For these reasons I think 4% should be viewed with some skepticism if you are looking at the FI situation of never earning another dollar and only relying on income from your portfolio.

    1. 1. Agreed. We’re not at episode 20 yet.

      2. Yes, you’re absolutely right and we had to try and edit appropriately as we realized the mistake. Perhaps we need to take another listen to it and chop some more!

      3. I also agree with both of these points. Unfortunately the Trinity study and 4% rule has become so ubiquitous within the community, it definitely can’t be taken at face value and applied to every situation. However, if we are using it as a baseline of assumptions, key word, assumptions. Then we do have to recognize that a 4% withdrawal of a properly allocated portfolio for a 30 year period has a very high rate of success. I think the point the Economist was trying to make was that if you are willing to accept 75% success rate give or take (enter your own number), then it is too conservative. We also thought that the earlier one is FIRE, the less likely it is that they will never earn money again.

      It’s an interesting point to debate, the whole 4% rule just doesn’t take into account enough assumptions that are relevant to each of our individual situations. I think one of the points that came up in the discussion this weekend about the ‘risk’ of FIRE was that one needs to be flexible and able to pivot to avoid sequence of return risk, or other unknowns that could jeopardize the 4% rule.

      Personally I prefer to have multiple income streams, and never having to rely on purely selling my assets as the 4% rule suggests. Thanks for listening and giving us some feedback. Cheers

    2. Yes, I was under the impression that the Trinity Study did not account for dividends; when I saw that it did I recorded an apology/correction but after the initial edit we thought that we could edit it so the apology/correction was not necessary. That impression was only a minor point in my argument. We will listen again to see if we can find the spot you are referring to (or if you remember where it was, please do let us know.

      What I really wanted to get across was that the 4 percent rule might be too conservative if one of the following is true for you:
      (1) you do plan to earn some income after leaving your day job; or
      (2) failure (having to return to work) is an acceptable (not desirable) outcome for you.

  2. Here is where I get stuck with these arguments.

    I believe the Trinity study does not apply to Canadian’s pursuing early retirement and sticking to the 4% rule and dismissing concerns about its validity by saying you can earn more money is putting lipstick on a pig. I think there is a much better approach.

    Instead of sticking with the 4% rule use a safe withdrawal rate that is based in evidence. The best I know of is Ben Felix’s article “FIRE? Here’s Why The 4% Spending Rule Does Not Apply to You”.

    So here is my example.

    I want $40,000 of income in retirement, and I think I will be retired for 45 years. According to Ben’s article my SWR is 2.5% which means I need at $1,600,000 portfolio. Holy S***! But wait, just like most other people looking at FIRE I’m not going to stop working, I plan to do something else that I enjoy and earns some money. I’ve looked at my options and considered what I will do and I think I can make $20,000 / year with the potential to earn up to $30,000 / year while enjoying the lifestyle I wnat. So now I don’t need to generate $40,000 of income from my investments, I only need to generate $20,000 of income. Using 2.5% SWR I’m now down to a $800,000 portfolio which is much more reasonable.

    There are still other factors to consider, but instead of using the 4% rule and waving my hands to say if it doesn’t work out I’ll earn more money I’ve made an actual plan on how to sustain my lifestyle on an evidence based SWR and an expected amount of earned income.

    1. I think you’re putting too much faith in that article and the study they did. I would like to see all their assumptions. It only says they are using a 50/50 portfolio and are trying to hit a 95% success rate which is very conservative. I’m surprised they even come up with 2.5% having so much in bonds! I agree that the 4% rule has a number of flaws and assumptions, and I’m pretty sure I said I’m not using it in my planning. I think that’s the important part for everyone to understand. Do your own planning, run your own numbers, make your own assumptions, know how much risk you are willing to accept. Sounds like you have a plan, which is great. I think the best plan is to remain flexible for the first 20 years of a 50 year retirement.

  3. I really enjoy your podcasts, this one included. I think though that you may want to dig a little deeper into the CPP pension calculation. Its more complicated than most defined benefit plans, and certainly not 2% per year. My sense is that if you only work 20 years, you’re not going to get $8,000 per year. That said, I think you are bang on in that its well funded and Canadians should for most part be confident that it will be there for them. Keep up the great work, including the beer!

    1. Hi Ed, Thanks for listening, glad you’re enjoying the show. CPP does get pretty complicated depending on your working years. I setup and use the My Service account so I have a pretty good idea of what I can expect, if I were 65 this year I would receive $10,000 after 23 years of contributions. Who knows what I’ll actually get in 20 years!! I think the general consensus is that people who want to FIRE in their early 30’s don’t consider CPP in their calculations, and rightfully so, because they probably won’t have enough years of max earnings to get a substantial amount. However, I think it is an important consideration for those of us that plan to ‘retire’ in our 40’s or early 50’s with 20+ years of pensionable earnings behind us. Ideally CPP will be in addition to good retirement financial planning. Always lots to learn, thanks for the comment.

    2. Hi Ed, you’re right the CPP formula is complicated and is not based on 2 percent per year.

      The maximum pension that you can receive is equal to 25 percent of the YMPE ($57,400) and is earned by earning at or above the YMPE for each year between 18 and 65. However, you are allowed to drop out your lowest earning years (up to 15 percent of your total years). Thus for someone who works 20 at or above the YMPE, they would drop 7 years and get 50 percent [20 years / 40 years (47 years – 7 years)] of the maximum, or about 57,400 x 25 percent x 50 percent = 7,200 per year.

      So you are right, not quite $8,000 per year.

      Thanks for the note!

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