Bill Bengen, The Chain Gang, and an Eclipse

1440x630 Friday Follow-up 8-25-17

A lot goes on in the FIRE world, and so much of it is worth talking about. The Friday Follow-up Series highlights some of that: awesome blog posts, financial news items, and whatever else I find interesting from the past week.

Today’s quote of the day comes from Bill Bengen (see below for more details):

Like everything else, if you plan and execute early and well, you will most likely achieve what you want.

Happy Friday! I am trying out a new series this week that summarizes things that are going on. Let me know what you think.

FIRE Blogoshpere Rumblings

FIRE Prowess Gauge

FIRE-Prowess-Gauge

The Chain Gang continues to grow! Since I posted mine last week, six more bloggers have joined in on the fun:

If you haven’t heard of it yet, The FIRE Prowess Gauge was created by JW at The Green Swan for determining how aggressively you are approaching financial independence. It’s different from savings rate because it accounts for changes in net worth due to investment gains, not just savings from your salaried income. You can find the original post here, as well as a full list of the other bloggers who have published their own (I’m link #16).

Other Blog Stuff

ern

In How useful is international diversification?, Early Retirement Now talked about why he doesn’t keep any international diversification in his portfolio.

It’s less about whether diversification works. It’s more about when diversification works and especially when it doesn’t.

ERN says that the common argument that the U.S. markets are an adequate representation of global markets is correct in the end, but the reasoning incorrect. ERN points out that if U.S. stocks were to tank then international stocks would surely follow. So what’s the point if international stocks aren’t even adequately reducing risk? He gives pretty clear evidence in support of not holding international stocks to diversify your core U.S. holdings.

mindfullyspent

While not from this week, I only just read it this week. Melanie at Mindfully Spent wrote an awesome post about the beauty of old things and the benefit of adding the Japanese principle of Wabi-sabi to your own life.

Financial News

A legend in our midst

Bill-BengenBill Bengen, the creator of the 4% Rule (!), took the Internet-FIRE-world by storm on Wednesday with an AMA (ask me anything) on Reddit.

Just take a moment for that to sink in.

THE 4% rule. As in the one that all early retirees base their ability to, you know, retire early. This guy is a big deal. He even has his own Wikipedia page.

One of his most interesting (and most upvoted) responses was about how the 4% rule is actually the 4.5% rule. WHAT. He says to withdraw 4.5% the first year of retirement, and then just simply adjust all subsequent annual withdrawals by the previous year’s inflation rate.

The “4% rule” is actually the “4.5% rule”- I modified it some years ago on the basis of new research…Example: $100,000 in an IRA at retirement. First year withdrawal $4,500. Inflation first year is 10%, so second-year withdrawal would be $4,950.

He also argued in favor of bonds, which is slightly anomalous in the FIRE community. Granted, he was talking about actual retirement, not saving up for retirement.

…I still believe bonds should play a significant role in most retirement portfolios…Overall, I believe a 50% equities/50% bonds mixture at the start of retirement is close to ideal.

I find it surprising that he would recommend 50% bonds. (That seems high, even for retirees.) What do you think?

Other News

eclipse
It was difficult to capture the eerie-ness of the lighting near totality. This is the best I got.

In case you didn’t know, there was an eclipse on Monday. It was a pretty big deal because it was visible from so many places in the U.S. It went straight across the whole country from Oregon to South Carolina.

We were just out of the path of totality. If we had made the 20 minute drive north, we could have seen the real deal. The only problems were:

  1. I had to work.
  2. Every other person in the immediate area was making the trek north and it was super crowded.
  3. It rained in the area of totality, so we wouldn’t have seen much anyway.

My wife got the day off (lucky!) so she came to my office where we watched the eclipse with my coworkers. It was actually pretty fun. During the 99% totality, I was more interested in the weird lighting caused by the eclipse than the eclipse itself. It cast an indescribable dark gray on everything. I would have liked to have seen 100% totality, but I’m happy that we were so close to totality right where we were.

Finally, I started my last semester of my master’s degree. I’m only taking one class this semester, so it won’t be too difficult. It feels great to be on the home stretch! Ironically, the last class of my M.S. mechanical engineering will be a law class, not engineering. At least it is an engineering law class.

I hope you had a good week! Is there anything I left out from this week that you found interesting? Let me know in the comments!

3 thoughts on “Bill Bengen, The Chain Gang, and an Eclipse

  • August 25, 2017 at 12:16 pm
    Permalink

    Thanks for the shoutout. It’s a controversial topic! So, thanks for spreading the word about the pros and cons of international diversification! Have a great weekend!!!

    Reply
  • August 25, 2017 at 7:14 pm
    Permalink

    Nice summary. The 4.5 sounds better than 4.0, but I’m still going to reference the conservative number. Who wants to run out of money? Not me! I wonder if the 4.5 even applies to the FI crowd?

    A 50/50 bond/stock ratio sounds interesting as it lowers your risk at the start of retirement. I wonder how long it would last in your retirement. Once again, is this for FIREs?

    Reply
    • August 26, 2017 at 12:53 pm
      Permalink

      Good question. I think the short answer is no, it doesn’t really apply to early retirees. The 4.5% is for traditional retirement, but he does talk about longer horizons : “For example for 35 years, I calculated 4.3%; for 40 years, 4.2%; and for 45 years, 4.1%…If you plan to live forever, 4% should do it.” I will still plan for under 4%, though.

      Reply

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