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How is your risk tolerance affecting your FI date?

Recently, we’ve been discussing our Fully Funded Lifestyle Change (FFLC) date and we’ve going back and forth about what is the earliest date this could start. See, it started when I bought a retirement countdown clock. I had to set it to a date in the future, then set today’s date, and voila! You have a countdown to retirement. I decided to settle on July 13, 2018, as my last day in the office. How did I pick that date and more importantly, how has it changed from 2010? Let me explain.

It's been updated since this pic and is now under 600 days!

It’s been updated since this pic and is now under 600 days!

I’d heard Mrs. SSC talking for years that we can retire at 45. She had it all planned out in our “investment and retirement planning” excel sheet she would share with our friends when they would ask her advice on retirement planning. Then they would exclaim, “Wait, you’re retiring at 45?!” Well, that would be the year 2022, so clearly things have improved. How were we able to move up the date so dramatically? Well, since then, we’ve tracked budgets better, saved more, and refined our excel sheet to match reality. But, the single biggest thing we have done is assess and account for our risk tolerance. That’s right, risk tolerance alone has accounted for dropping almost 4 years off of our original FFLC date, and just this weekend, we potentially shaved another year off.

See, originally, we’d accounted for a 10% cushion so we could deal with any economic maelstrom that might occur. We also didn’t account for ANY side income, or Social Security, or our pensions (meager as they may be). We just looked at that as buffer money, in case it all goes pear shaped economically. We wanted to be able to take care of ourselves even if Social Security died, our companies failed and pensions didn’t exist (thanks for that lesson Enron), or any other myriad of calamities.

All these buffers and assumptions just added more money and time to our savings and FFLC date. Then I remembered a post by Mr. Maroon (they’re no longer active or I’d add a link, but they were a great source of inspiration for us) in which he described how he had shaved off 3-4 years from their planned FIRE (Financial Independence Retire Early) date, just by sitting down and doing a more detailed analysis of their budget and assumptions. The biggest thing they adjusted was their risk tolerance. This got Mrs. SSC and I to re-examine our own assumptions, and BAM! Overnight, we went from “retiring” at 45 to targeting 42! Woohoo! That got us to 2019 which is still 4 years away though and it’s still a fairly conservative estimate, because we don’t like to count our chickens before they hatch.

We use a mix of spreadsheets and online calculators to help us feel better about our FFLC situation. This isn’t saying we trust any of them blindly, but if we get agreement from multiple sources that our assumptions are fair, and our strategy could work most of the time, then it helps us feel more comfortable about all the assumptions we’re making when they are so far out in the future.

One of our fave’s is cFIREsim because you can put in your best assumptions and it runs your scenario against all historical data. For those that haven’t heard of it, cFIREsim is a crowdsourced FIRE simulator that works pretty well with letting you simulate and adjust your expected retirement lifestyle scenario. You can input as much detail or as little as you want and it gives you a sense of how your portfolio and withdrawal plan would fare. We targeted ~95% as our success rate, but it’s mainly because that is the number Mrs. SSC is comfortable with. This chart below shows a sample of one of their outputs run aainst various historical periods based on your inputs.

A version of our scenarios run against different historical periods

A version of our scenarios run against different historical periods

This past weekend, I was reading a link Mrs. SSC sent me that took me to the MMM forum with a good discussion about “choosing a success rate with cFiresim calculations”.  It was pretty interesting reading, and eye opening in that most of the people on the site were targeting 80% chance of success. Some even as low as 50%, to which I say, No thank-you, I don’t like to gamble that much. They make some great points about what a 90% success rate means, and what an 80% success rate means, and how that relates to your comfort level. It’s a great discussion and I highly recommend bouncing over there and checking it out, because they explain it WAY better than I can. Don’t worry, I’ll wait. (twiddling thumbs, looking at ceiling, whistling…) Good, you’re back! For those who didn’t go there yet, I’ll try to sum it up below.

In essence, having a success rate of 90% is saying that you’re expecting the future to be as bad as the worst 10% of historical periods. Even through all of those bad times, you should have success for 90% of those occurrences.

After reading that, we re-ran our numbers looking for a 90% success rate, and adjusted it to account for some of our retirement benefits and social security, and holy cow, we’re looking at the end of 2017!! Yeah, that’s moved up our FI date another 2 whole years! Granted, the stars would have to align, and all of that for us to achieve FFLC in 2017, but it’s a new best case scenario. See the chart below for various assumptions made with the amount investment being the only change. We typically go for 4% withdrawal and set a max spend of $90k/yr and min spend of $50k/yr. for our scenario.

Various scenario outcomes

Various scenario outcomes

Another thing we took into account is if we have any side income. Most likely, we’ll be working in some manner, and it’s amazing how even a little money like $5k/yr can dramatically change your chances of success. These assumptions using the $1.1 million starting also assumes a paid off house, and the higher invested scenarios are dependent on how the market does. The $1.1 million is assuming the same savings as now and 4% growth in the market. I did say we like to be conservative in our assumptions….

More scenarios based on side income variability

More scenarios based on side income variability

The biggest change for us, is that our comfort level with our FFLC plan has dramatically increased, and our risk tolerance towards enacting this Lifestyle Change has dramatically decreased. By tracking our spending- our real spending with the lifestyle we want to maintain in our FFLC, and keeping the discussion about this plan in the forefront, it isn’t some oddball unconventional dream anymore. We’ve given a face to it and realized, it’s TOTALLY achievable. We have also realized that we’re both going to have a side income of some sort, and if it’s enough to cover expenses so that we don’t have to tap into our investments immediately, then we can watch those investments grow and grow. We’ve quit looking at this Lifestyle Change as “retirement”, because for us, that’s what it has become. Focusing on getting to FI so we can have the freedom to do what we want to do, liver where we want to live, and have more time to spend with family.

After all of these realizations, we accepted that 2018 is now our most likely scenario, and it could be as early as 2017 when we hit FI. I adjusted my clock to Aug. 3, 2017 which is just under 600 days from now, as our new target and the point at which if we wanted to we can start our FFLC. I just find it amazing how knowing your numbers, adjusting assumptions, and reassessing your tolerance for risk can dramatically impact your FI date. To which I say, “Go! Go! Quit reading, get your spreadsheet out and see if you can shave any time off. Why are you still reading this and not “spreadsheeting”? Go! Now! GO! For your own sake!”


What is the biggest factor affecting your FIRE date?

Have you had any big leaps forward in your date, just by adjusting assumptions or risk tolerance?

29 thoughts on “How is your risk tolerance affecting your FI date?

  1. Steve @ Think Save Retire

    You are 100% correct that all this ultimately comes down to your risk tolerance. That is, the more risk that you are willing to assume, the earlier that you can, in theory, retire.

    For my wife and I, I am definitely the more risk tolerant one. I would retire NOW because our chances of success would be around 80 to 85 percent based on our anticipated level of yearly spending post retirement. My wife is less risk tolerant and would prefer to pad the stash a bit, which brings our success rate up into the mid 90s with our current retire date at the end of 2016.

    I’ve heard that a LOT of early retirees find that they probably could have retired sooner than they did, but their risk tolerance was holding them back from pulling the plug earlier. It’s only natural. Nobody wants their money to run out.

    But we early retirees tend to be very mindful people when it comes to our finances. If we find that the market isn’t doing as well as we would have liked, or our side businesses aren’t putting in the revenue that we anticipated, we simply go back to work for a little while – maybe part time work, just to bring in some additional cash. Or we spend less. You gotta do what you gotta do, life goes on.

    While it’s true that you may not be able to get your current job back again if things don’t work out as planned, you also probably don’t want or need your current job, either. If you are aware enough of how your finances are playing out post retirement, you can certainly head off any significant issues before they become catastrophic by working off and on to keep your balance statements even. Be flexible.

    I believe that jobs are replaceable. Do what you believe will work for you, and if you want it bad enough, you’ll make it happen. Cut out fun money for a couple months. Don’t eat out as often. Don’t drive except for on Fridays. Whatever…

    We sensible humans tend to make it work regardless of how much we have saved. If we have $10m, we live that kind of lifestyle. If we have $500,000, we live on that. And we’re always happy to do it if that means not commuting into a job every day. :)

    1. Mr SSC Post author

      It comes back to that part at the end of your comment that we will make it work regardless. While we don’ want to put ourselves in a bad financial situation just to get to a better climate, and seasons, and that sort of thing, we know that we’re going to find something to make money. Since our thought paradigm on this has shifted – oh 90’s buzz words! – since we started this journey, we’re not looking at it as “we’re through working” as much as we’re finding something to do that allows more family time, and is more fulfilling. Seeing how adding in just a wee bit more income per year helps out our overall bottom line, it could even be as little work as tutoring. I mean, $5-$10k/yr is a pretty low bar. Anything better than that is just gravy from there on out.

      We’ve also heard and read about a lot of retirees wishing they’d done it sooner, from past colleagues to family and all the internet stories related to those topics. We will be really vigilant for our first 0-5 years because they seem to be the most critical, and it’s not like it is a situation where one day you wake up broke. Hahahaha… here would be enough time to start making plans, get work, any work, and head off any financial issue well before it became catastrophic. We just hadn’t thought about it this much at all when we first started this path. It was like Stockbeard, where we wanted to have everything covered, with a good emergency cushion, a buffer built in, on top of our allowances, which is another big buffer that is totally sacrificial if need be. That alone would more than cover our money needed to help things out, just by not using them.

      Anyway, it’s great finding out we’re in a pretty good situation currently and I feel fortunate that we are where we are.

  2. Fervent Finance

    I like to say my risk tolerance is quite high. I first started with “I’m retiring by 40”. Then I actually calc’d it and realized I could do it by 2026 when I’m 38. But that’s basically I would NEVER have to work again and be quite fine. More recently I’ve decided I’ll prob call it quits before I’m 100% financially independent and bridge that gap with side hustles and work I enjoy. I just have so many variables coming up that will throw wrenches in my plans (good and bad wrenches) so it might be 33 or it might be 39. 2016 will be a big year for figuring a lot of this out as I plan on moving out of NYC – I’ll have a post on it soon :)

    1. Mr SSC Post author

      It’s funny how some seemingly arbitrary dates, like “I can be done before 40” actually make you realize you could be done before then if you put your mind to it. We’re coming to terms with the pulling the plug before we’re 100% FI, because we both know that we will be doing something. That’s not saying i want to go all Ramen on it and get in a situation where I regret ever quitting, but we are comfortable with not being at “100%” before we give it a whirl. I know I’ve gotten way more satisfaction out of other jobs I’ve held that I’m not currently working, and I am betting there are some I haven’t done that would be just as much fun and rewarding.

      1. Elephant Eater

        Totally in the same boat about not needing to be 100% to “our number” before quitting our jobs. I actually think that planning to make some money by working a little in retirement will improve quality of life by challenging us to think about what we really want to do with our lives and be more creative with how we live which is more fun. It will also reduce risk as you pointed out in the post by making a little money instead of sitting there playing chicken, even a game of chicken that we will have set up highly in our favor. Great thoughts!

        1. Mr SSC Post author

          I agree that working will be a benefit in more ways than monetary. We hope to get to 100% of our number before making any big decisions, but knowing that we will still be ok if we enact it before hand is kind of freeing.

    1. Mr SSC Post author

      Oh, I hope your number crunching afternoon went well! That hobby of Mrs. SSC’s is what got us started in this whole journey to begin with. Lots of number crunching and stuff and realizing, “Hmmm, I bet we could do this. why not?” It only took me about 4 years to get on board, lol.

  3. Tawcan

    Any time when your FI date gets closer it’s always a good thing. I think we can all increase our risk tolerate a little bit to improve our FI date. The thing with people in 30’s still, if you don’t hit your FI date because something happened, you still have two big allies on your side – time and job. There’s no reason why you can’t continue working in a part time job and become part-time FI. :)

    1. Mr SSC Post author

      Exactly, time and jobs are definitely on our side. I the sense that as little as an extra $1k/month or less can dramatically help preserve the bulk of our savings. That equates to working at a fly fishing shop part time, or doing some part time teaching work, or even something as small as giving banjo lessons. I have no conception that any job is beneath me, and as long as I enjoy it, it doesn’t have to pay much to help out our bottom line.

      The part time work, part time FI situation has really taken hold in our thoughts lately. Scoping jobs we could get, places we would like to relocate to, etc… I’me excited about it whether it happens sooner, later, or not at all. You’re never guaranteed the future.

    1. Mr SSC Post author

      Man, our situations sound SO similar in SO many ways! Except I was the one not buying into FI and not looking at the numbers. Fortunately, I came around after a while, but see, crunching numbers and adding in a bit of realism with side income, and the like, it’s awesome knowing that you can have the choice to do something not based on income after you reach XX date. While your situation is a bit more complicated, it still highlights the different struggles people deal with when trying to get to FI. Awesome progress, and good luck getting your wife on board. Mrs. SSC’s dad has a strong 1950’s the harder you work, the better it is mindset, but even he came around after a few years of us telling him the numbers, showing him the numbers and also him realizing he would have preferred to have more family time during his working years than he did.

      If you guys haven’t clicked his link, you should check it out, pretty interesting situation.

  4. Jason

    I would have to say my risk tolerance is quite high. I have a 95% stock portfolio right now and I don’t mind it. However, I am still not sure what my FI date is. Part of the reason is because I still have consumer debt. Another reason is that my spouse still isn’t on board with this idea. I just keep plugging away at paying off debt and investing. Also having an FI date means that I go do something else or leave my employer. I don’t have any plans to quit working because I enjoy it so much. That might change but when you like your job I feel like I already have lots of freedom, which is probably another reason I have no specific FI date.

    1. Mr SSC Post author

      Yeah, our stock bond ratio is right around there as well. It will adjust some when we are depending on it more for income, but for now… For us, our FI date isn’t about, this is when we quit, yeah! It’s more of a “if things go south, or Mrs. SSC gets a good teaching job offer, we’d be in a good position to move.” sort of situation. The retirement countdown clock is purely for my own amusement and goal setting. It is awesome to know that in as little as 2 years from now, we would have the freedom to pursue other things we might find more enjoyable. even more freeing to know that any money invested after that time just helps pad our nest egg.

      I currently, really love my job, and except for the commute home, I would sill do it past our FI date. We’ve discussed that as an option as well. We’ll see what happens.

  5. Hannah

    I think that one thing that builds my risk tolerance is not viewing an exit from the work force as permananent. I believe in building careers when the time is right, not when society dictates it. For me, it looks like I might want to build a big career between 45-60 rather than from 25-40. No big deal, just have to keep my skills sharp enough and keep a pulse on the business then.

    Of course, I tend to not think of things too deeply from the financial independence perspective either since putting your hope in wealth isn’t really what life is all about.

    1. Mr SSC Post author

      I agree, we realized that just because we would be leaving our current jobs doesn’t mean we’ll always be without jobs. Maybe at some point, we’ll be totally out of the workforce, but as long as our jobs we find give us more quality of life with family time and the like, that works for us. I mean, that’s the whole point of us wanting to have our Lifestyle Change.

      We don’t view our plan as putting our hope in wealth, but rather putting ourselves in a situation that will better our family and quality of life. While we’re comfortable in a lot of aspects 2 dual income parents eats up a lot of time that we’d rather have to spend with the family. While one could argue that we could just quit now and opt for a better family life and just make do with what we have, we’d rather put in another year or two and then not have an added stressor of bills and that sort of thing. It could still be a stressor, but at least we are planning for it to be as minimal as possible.

  6. amber tree

    Thanks for this story. It really opens my eyes on some essential items that I am not doing now
    1- simulate
    2- assume some side hustle

    If I see what effect this has on the FI date, then it is worth to spend some hours in figuring all of this out.

    On the other hand, I still do not see myself stepping out of the workforce for 100pct. I have found a kind of work that I like. It can give me great energy, and combined with family activities, sports and friends, I am happy. I rather see the FI date as the date that I can go freelance, or work half time or so.

    1. Mr SSC Post author

      In our industry, almost everything we do is unknown, and the best way we can figure out a good risk profile is by making some defendable assumptions, and simulation. Then we can find out how the range of risk the project could be and whether we’re planning on accepting that level of risk.

      We just tried to apply that same thinking here, and find a number that would put us into a tolerable risk range, and then knowing we would still have some income,works two ways. 1. it lets you lower that initial number if you want, or 2. It lets you know how much of an increase in chance of success you may experience, based on just minor amounts of income.

      We hadn’t thought about the latter situation much, so we were surprised how much of an effect even a little income had on upping our success. For us it was a “feel good” aspect that made us more comfortable enacting our lifestyle before we hit 100% of our number, if the right situation came along.

  7. MrFireStation

    I think it’s true that most people end up with MORE money than they expected they needed in retirement. Unfortunately for most people, that is due to having health issues or premature mortality. We’re retiring in 4 months @ age 49. We “score” a 100% in FIREcalc @ our current spending level. Our financial advisor had suggested 80-85%.

    For us, it’s more about timing than $$$. We could have retired a few years ago if we had liked to. Our son is finishing HS this year, so I decided to work until he was done. It certainly de-risked our plan by giving us a healthy cushion, but I hope to up our spending in early retirement with travel and other luxuries. We also are putting our final year paychecks into a philanthropic fund – we will give away 100% of it as a fun “early retirement activity”.

    1. Mr SSC Post author

      Congrats, I can’t wait to hear more about how ER goes for you! I think that’s cool you are saving your last year paychecks for philanthropy.

      For us there is definitely a timing component in that we can’t do anything until I vest in 2017. Beyond that, we have the kids school component also, so we may push enacting any move until it times with the school year. We have looked at various scenarios of if Mrs. SSC quit now, how would that look, if we both quit now, if one of us went part time, or even if I was still working past our date. We like everything about our situation except lack of seasons and hills. If things allow, I may continue working another year while we decide where to move – it’s still back and forth over east coast vs west, and that would ultimately just build a better cushion which is fine with us too. I like my job, and if our quality of life was able to improve with just me working, we’re fine delaying a move and enacting our major Lifestyle Change for another year or so.

  8. Our Next Life

    This post totally makes my day! I’m so happy you guys are shaving so much time off your clock! (Also, randomly, we got that same retirement clock as a stocking stuffer from the inlaws last year, and it wouldn’t let us put anything more than a year into it. So it sits and waits until January 2016!) I don’t think we can safely trim much more time off of our clock than we already have (our clock and yours are now the same!), but we’re committed to quitting at the end of 2017/beginning of 2018 no matter what, which could definitely mean doing some of the things you mention — doing some part-time or freelance work, downsizing the house, etc. And we’re okay with all of that, as long as we can slow things down and give up our hectic jobs. But, as I know you understand, those jobs come with too many perks and too good of pay to just scrap them now. Two years more is what we think we can live with, and we’ll just figure things out from there — in my book, that counts as embracing some risk, since I for sure couldn’t have imagined having that attitude only two or three years ago! :-)

    1. Mr SSC Post author

      That’s weird that the clock won’t let you put more than a year into it. Booo…. I’ve bounced it around from 1300 days, to 1000 days, and even now it’s reading 590 days. Yeah 590 days!
      I believe we’re in the same boat currently with getting our time shaved down as low as we can and still have a comfortable lifestyle when we leave our jobs. As you know, my biggest fear is walking away from a nice paying job to live in a shack, eating Ramen, worrying about money and food all the time. :) So… because of that, even late 2017 is dependent on another income supplementing us the first few years. The biggest thing would be Mrs. SSC hitting the teaching job market, and even myself looking for jobs out west, or east, but having the freedom to look knowing it could be a fun excursion that doesn’t have to necessarily be anything more than trying out a new type of job for a couple of years, and get to move to a different part of the country. To me, that’s really freeing and very exciting.
      Like you pointed out, three years ago, I was giving Mrs. SSC the deadpan stare when she was trying to explain how this possible, and look at me now, lol. Embracing getting to FI and even considering leaving our jobs before we hit 100% of our number as well, if we get a decent job opportunity to go along with it. Again, echoing your comment, we’re ok with all of that, as long as it means freeing up some time and slowing down our lives.

  9. Mrs. Groovy

    Our exit will be pretty permanent given that Mr. G will be 55 and I’ll be 57. We could FIRE now but we’re waiting for his (small) pension next year. Along with cash, it will get us through those first few years. I’ve been reading Wade Pfau’s research about investment and sequence risk. It seems the first few years are most pivotal and it’s the time to avoid locking in losses.

    1. Mrs SSC

      The first years do seem to be key. I figure if we can make it through the first ten without seriously eroding our initial investments, we should be okay.

  10. Isaac

    1) I’m finally caught up in real time on your blog! Yes!

    2) So far I’ve just roughly played around with – My biggest thing is that there don’t seem to be any clear directions on the forums of their page anywhere. I’m the type who likes to know what every little feature/pull-down is and have it explained, so I get aggravated not understanding what a lot of the things mean (i.e. Data to Use options being historical – all, historical – specific years, constant market growth, single simulation cycle, etc)

    Anyone know of where to find directions for the thing?

    1. Mr SSC Post author

      Thanks! It’s pretty eye opening to see what your retirement date could be, especially if you’ve already streamlined your monthly costs. Just looking at how much we were estimating that we needed before tracking things so closely, along with finding more ways to trim the overall monthly budget, we surprised ourselves with how much time could come off. I doubt we can move it closer, but I’m fine with it where it is now. If things change and timelines get moved around, that’s okay with me too. :)

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