It’s Not (Always) About The Number

How mainstream finance sees you

How mainstream finance sees you

The problem with traditional retirement planning and even personal finance oriented websites (including this one) is that they all focus a lot on the number, that is, our retirement stash that we aspire to get to.  For those having a set target, this laser-like focus on ‘hitting’ that number can turn into an obsession.  For those with say, a $1 million target, reaching a precise figure of say, $933,240, may still feel like they fell short.  That is far from the truth.  The number doesn’t define who you are or isn’t even a gauge of what you have accomplished in life.

I realize this might sound at odds with my earlier post on PAW, AAW and UAWs.   That post was meant to help people to keep track of where they are and importantly, do an honest review of their lifestyle expenses, especially if they are an UAW.  The caveats of the method were covered in that article, so I will not repeat them here.    

Many personal finance bloggers talk about hitting their number before getting to their cherished financial independence and early retirement (FIRE).  Ten Factorial Rocks is no exception.  For some like Steve, not hitting a milestone number like $1 million is no big deal but for others like Green Swan and the good doctor, their desired number is in some multiples of that figure.   Net worth numbers are also the yardstick that drives a popular list of personal finance bloggers.  🤑

PF bloggers fare better but you are still tagged (http://rockstarfinance.com/blogger-net-worths/)

PF bloggers fare better but you can still be tagged 

The problem with a number-driven ranking and excessive focus is that it causes needless ‘blogger envy’.  It can trigger a vicarious race that, frankly, is unnecessary.   Each one of us are on our own life journey, of which financial independence is just a part, although a very important part.

The wonderful people who make up the personal finance community have many great things in common, like discipline, having a plan, value-conscious mindset, life purpose or passionate interests.  So, should we let a number get between us all? Absolutely not!  No number should drive a wedge between the committed personal finance bloggers, whether the number is small, large, negative, positive or just somewhere in-between.

Instead, what’s important is how we squeeze what we want out of that number.  Like the blogger net worth ranking, I wish there was a list of bloggers showing just their current year’s spending as percentage of their total retirement assets.  I would guess such a list would have a much narrower spread, say 1% to maybe 7%, with a large proportion of people falling between 3-5%.   This is the ‘number’ that is more meaningful to each person as each one of us must know what our sustainable annual spending should be in proportion to our own asset base.

If we are going to ‘level the playing field’, as the politicians like to say, let’s start leveling with the FIRE community! 😊   Most of us are quantitatively driven and are focused on numbers, so ranking personal finance bloggers on net worth will remain popular.   What I am suggesting here is a tracker of another kind, to help people think about sustainability of early retirement.  

1apke3Maybe we should start a new tracker requesting all personal finance bloggers and commenters to share their current annual spend rate or (if they are yet to retire) anticipated spend rate during their first year of retirement.  Annual spending divided by retirement assets is how this spend rate or withdrawal rate (WR%) should ideally be calculated. Withdrawals automatically consider your spending budgets (even if they are sexy), because what you withdraw, at the very least, must cover what you need.

This withdrawal rate should be net of any guaranteed pensions or Social Security to make this list ‘global’ because every country has different rules on public welfare and social retirement programs. Some may have barely $10K saved up for retirement at age 64.  But what if they have a guaranteed inflation-adjusted monthly pension of $3K, and together with public old age pension (like social security in US), are making say, $55,000 a year, while they spend only $40,000 a year.  Their WR is 0%, so their seemingly tiny $10K stash lasts forever.  Completely different picture, right?  Retirement assets can also include investment real estate, with marketable value within a reasonable time frame (say, 6-12 months), so they don’t necessarily have to be only financial assets.

Since this withdrawal rate percentage is also tied to expected retirement length, we need to capture that data as well. This way, we don’t fall into another ranking list of low percentage spenders to high!  Obviously, a person planning for a 50-year retirement or wanting to leave a sizable estate will have a lower withdrawal rate than one happy with a 30 year retirement span and no interest in leaving a legacy.   

I would expect a lot more people (not just bloggers) would be open to sharing their spend rate percentage on an open forum.  Also, this can be a global list covering many countries as this WR% would be relevant regardless of whatever country they are in. The WR% also takes care of the pesky purchasing power parity (PPP) problem with dollar net worth figures.  With more diverse and better data, hopefully some new insights on early retirement will come.   I am not savvy enough to create such a tracker.  Hopefully, Team Rockstar Finance is.   

What do you all think?  Please share your views in comments.  J. Money, are you listening? 🙂 

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11 comments on “It’s Not (Always) About The Number”

  1. By Ambertree

    Sounds like a fair number to publish. At the start of our FIRE, that would be 4 pct, unless we do some projects on the side.
    At age 67 it will drop as state pension will kick in.

  2. By The Green Swan

    Thanks for the mention, TFR. I agree, net worth is relative and a lot of factors are at play.

    I hope to keep my WR around 3-3.5% initially. But part of the reason I’m going to have a few million in the bank then is because I’ll still have young kids and a long retirement span. So better safe than sorry. And when kids leave the nest a large chunk of the budget will be for discretionary travel. I expect my WR to vary a lot over these years, but hopefully stay within my target.

    • By TFR

      Thanks GS. I hope the WR% list takes shape and it encourages other FIRE seekers. I know J$ heard me loud and clear!

  3. By J. Money

    I hear ya loud and clear 🙂

    There will be many updates coming to Rockstar Finance over the next few weeks – we’re about to have some fun…

    • By TFR

      Glad you heard me, J$! Look forward to the new and improved Rockstar Finance!

  4. By Mr. Tako @ Mr. Tako Escapes

    I try not to talk about my net worth too much. It fluctuates up and down constantly, so why focus on it?

    I don’t hide my net worth on my blog, but I don’t try to show it off either.

    I’d rather focus on the cash flow derived from my networth. The cash flow is what I live off.

    • By TFR

      I understand Tako. Stealth Wealth is a great concept but as bloggers, finding the right balance between sharing too little and too much is not easy- that’s why WR% is a better approach in my view.

  5. By Full Time Finance

    Its an interesting concept. The real gap I see is for those still working towards FI. I believe the idea for posting the numbers for some is to make public the goal they are striving towards. The net worth they achieve from month to month makes them feel that they are being held accountable to that goal. The question is how do you track your progress against %WR retirement goals? This is especially true for someone just starting their journey who may not have gotten the extra lifestyle inflation out of their life as of yet. Instead of having one number to track in Net Worth your now tracking two moving variables: Expenditure and assets. The two numbers might be hard to understand in tandem as you first start your journey. Then again it is true that the ultimate end goal must include both. Though provoking.

    • By TFR

      Thanks FTF. I feel the end objective is to provide value to the millions of seekers out there. Putting too high a number and focusing on it (what net worth does) without providing context can discourage people. I think a WR% list anchors the idea of sustainable FIRE that many week.

  6. By Vicki@MakeSmarterDecisions

    I love your idea! We have pensions and not all that much (well, a lot more than many people) in investments, so it is hard to compare! We also have rental properties. Love to see what others have to say.

    • By TFR

      Thanks Vicki. Pensions would be reflected in lower WR% as I showed in one example.

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