Badass vs Dumbass
Master your Financial Kung Fu to be one and not the other.
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👉Go to Sifu’s Notebook for Staying on FIRE: How to Navigate if S&P 500 Returns Drop to 3%
Primer: Who are Sifu & Ronin
Episode 62: Ronin vs Faceplant!
Ronin: Sifu! Goldman Sachs just put out a prediction that we can expect S&P500 returns of only 3% a year over the next decade. Pretty sure that wasn’t in our spreadsheet, bossman! Did my FIRE dream just do a faceplant?
Sifu: Ah, Goldman Sachs predictions—the ultimate test of FIRE’s staying power. Let’s call it a challenge, not a faceplant. Maybe time for FIRE 2.0.
Ronin: FIRE 2.0? Let me guess—it’s the version with fewer perks, right? Like the economy-class upgrade. FML. I’m praying here that you have some expert tips on how to stay in the game, boss.
Sifu: Ha! What kind of Sifu would I be if I didn’t. Stick with me. We’ll get through this together, #1.
Ronin: Ok ok. I’m all ears.
1. Lower the Withdrawal Rate
Sifu: First, you might need to cut down your withdrawal rate. Aim for around 3%, maybe even 2.5%, to make sure the money lasts.
Ronin: So, I’ll be living my best life on 2.5%? I might as well just join the squirrels and store nuts.
Sifu: You could call it… “strategic self-restraint.” If you don’t lower that withdrawal rate, your funds might run dry by the time you’re 70.
Ronin: Ah, strategic self-restraint. Because nothing says “reward for a lifetime of hard work” like living on a diet of ramen and air. Living the dream!
2. Pump Up the Savings Rate
Sifu: Next, increase your savings rate. Aim to save at least 60% of your income, if possible.
Ronin: Oh, of course. I’ll just cancel my utilities, sell my bean bag furniture, and live off cold water sandwiches. Boom—60% saved.
Sifu: Well, cutting non-essentials and being selective with what you spend can go a long way.
Ronin: Selective spending, huh? Does that mean I get to choose between toilet paper and toothpaste each month? Double down on FML, dude!
Sifu: Consider branching out beyond stocks. Look into dividend stocks, real estate, or even REITs for a steadier income stream.
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Ronin: So, instead of losing my shirt on stocks, I can now lose my pants on property management. Perfection!
Sifu: A diversified portfolio provides stability, grasshopper. You don’t want to put all your hopes in one type of investment.
Ronin: So, instead of one sinking ship, I get to balance on a whole fleet of questionable boats? Sounds like a party!
4. Embrace Flexible FIRE Approaches
Sifu: You could adopt Coast FIRE or Barista FIRE. With Coast FIRE, you reach a point where your investments can grow on their own while you work part-time. Barista FIRE lets you work part-time to cover expenses and use your portfolio for extra income.
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Ronin: So, in my golden years, I get to work a part-time gig to keep the dream alive? That’s the future?
Sifu: Think of it as a “slower burn” towards financial independence. Sometimes a little detour extends the journey.
Ronin: Ah, yes! Because who doesn’t want to trade in their retirement dreams for a part-time gig serving coffee to college students? Sounds like paradise!
5. Boost Income with Side Hustles or New Skills
Sifu: Developing new skills or side hustles could give your income the boost it needs. Consider freelance work, consulting, or even learning a new skill to advance in your career.
Ronin: Consulting sounds glamorous, Master! You mean I get to give people advice while my own finances look like a dog’s breakfast? Sign me up!
Sifu: Or you could find something people are actually willing to pay for.
Ronin: I know, I know! If people want practical advice, I could just walk in and say, “Step one: Don’t be me.” Guaranteed to change lives!
Sifu: Such a dumbass…
6. Discipline Over Drama
Sifu: Remember, discipline is key. Resist the urge to make impulsive changes. Investing consistently, even in a low-growth decade, will eventually pay off.
Ronin: Discipline? Is that the fancy term for “sticking to my plan while I watch my friends party like it’s 1999”?
Sifu: So, with a lower withdrawal rate, higher savings, and more diversified investments, you’re still on track for FIRE. You just might need a bit more patience and discipline.
Ronin: Patience, discipline, saving more… wow, sounds like a real riot.
Sifu: Once you’re finished with your drama and get serious, you will see the wisdom of what I’m telling you, #1. In the meanwhile, you’ve exhausted me with your witty repartee. Here’s the good news – I’m treating for lunch. You ready?
Ronin: See! I just knew it would all end up ok by the end of the lesson. Right again, eh boss?
Sifu: Always, #1. Always.
Sifu’s Notebook
With Goldman Sachs’ recent prediction that S&P 500 returns of just 3% annually over the next decade, the path to FIRE (Financial Independence, Retire Early) might look tougher. Here’s a breakdown of strategies to keep your FIRE journey on track, even in a low-return environment.
1. Adjust Your Withdrawal Rate and FIRE Target
- Reduce withdrawal rate to 3% or even 2.5% to protect portfolio longevity.
- Re-evaluate your FIRE target: Consider increasing your savings goal (e.g., from $1 million to $1.2 million) to counteract the slower growth.
2. Boost Your Savings Rate
- Increase savings rate to compensate for lower returns; aim for 60%+ if possible.
- Cut expenses strategically: Eliminate unnecessary subscriptions, look for grocery discounts, and negotiate utility bills to save more.
3. Diversify Beyond Stocks
- Explore other asset classes: Real estate, dividend stocks, or REITs can add income and stability to your portfolio.
- Consider high-yield alternatives: Options like peer-to-peer lending, private equity, and high-yield bonds may offer higher returns (but research their risks).
4. Adopt a Flexible FIRE Approach
- Coast FIRE: Reach a level where investments grow independently while you work part-time to cover living costs.
- Barista FIRE: Work part-time and use a smaller investment portfolio for supplemental income.
- These approaches reduce reliance on high investment returns and offer a “slower burn” path to FIRE.
5. Increase Active Income through Skills or Side Hustles
- Upskill or seek promotions: Boost your primary income by gaining certifications or moving up in your career.
- Develop side hustles: Freelancing, consulting, or a side business can add income to save and invest, helping offset low returns.
6. Prioritize Long-Term Discipline and Avoid Panic
- Stick to a long-term view: Avoid drastic changes to your plan in response to projections.
- Continue investing consistently: Staying disciplined, even in a low-growth decade, allows you to benefit if the market outlook improves over time.
With these strategies—adjusted withdrawal rates, higher savings, diversified investments, flexible income plans, and long-term focus—you can stay committed to your FIRE journey, even with a modest 3% market return. The path may take more time and adaptability, but with resilience, financial independence is achievable. Note that GS’s prediction is just that. No one really knows what happens next. Stay tuned!
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
