Regarding the hypothetical 10M portfolio generating 300K income — To me, FAT is if that 300K is dividend income and the underlying asset is still appreciating (albeit without the benefit of reinvestment).
Real Estate, then, is attractive because one can treat the rental income as a “dividend” while the underlying asset still appreciates …. And then one can use the tax benefits of depreciation as a sweetener…… which one doesn’t enjoy with “real dividend income.”
With SWR, the capital pool decreases with regular withdrawls. This leaves reduced cushion in the event of a catastrophe - i.e. hyper inflation/deflation, war, or earthquake destroying one’s home completely. Relying on SWR to me is just FIRE, not FAT FIRE. That’s what I think the reddit poster is missing.
I understand what you are saying and I agree that would be nice. Maybe yours is WhaleFIRE. But to play devil advocate, dividend income can be different based on what you invest in. I can invest in REIT for 7%, I can invest in AAPL/MSFT for 1%, or get VIG. They all have different growth potential. I just disagree that because you are relying on SWR, you are not “Fat”. Same can be argue with investing in real estate, you might be trading your time for more income, your property can be more exposed to earthquake (who on this forum has earthquake insurance - not me).
FatFIRE is state of mind depending on your risk tolerance level and it is very personal. To me, you need at least 2 or 3 income streams (SWR, Dividend, Rental, Syndication, etc).
The Four Percent Rule was created using historical data on stock and bond returns over the 50-year period from 1926 to 1976.
… the withdrawals will consist primarily of interest and dividends.
I believe presumed annualized return is 7%, so drawing out 4% still leave 3% to be DRIPped.
Experts are divided on whether the 4% withdrawal rate is safe…
With current high (officially is low) inflation and low interest environment, 4% withdrawal means need to withdraw principal. Double whammy is 4% won’t be enough.
You’re a complicated man. Everything also so diversified. RE so diversified. IRAs so diversified. Passive income streams so diversified.
I believe “retirement” articles are written for simple people. Get a portfolio of dividend-paying stocks that yield 7%, withdraw 4%… 4% has already accounted for inflation. As pointed out by previous article, these articles may not apply since it is based on what happened from 1926 to 1976.
Once you include no-dividend high growth and low dividend moderate growth stocks, infinite possibilities. For example,
a. Hold no-dividend/ near zero dividends high growth stocks e.g. FANGMANT, till retirement and switch to dividend aristocrats like PG JNJ upon retirement. I believe even after accounting for paying capital gain tax, would still get more passive income (at higher NW) than accumulating PG JNJ from the start.
b. Accumulate low dividend moderate growth stocks like AAPL MSFT NVDA, during retirement can sell some principal in addition to dividends to meet expenses. In good years, optionally can sell few years worth of expenses. I believe this would allow you to FatFIRE at higher NW than accumulating PG JNJ from the start.
Ofc, I am sprouting what I have in mind/ have done, kind of… my passive income stream comprises AAPL dividends + rentals. So far, I have ploughed every cent of passive income into rental house purchases.
I don’t know where the “7% yield” comes from. Is it coming from a “60% stock 40% bond” portfolio? Similarly what’s with the 4% safe withdrawal rate? Is the goal to never see principal go down so you can pass it onto your heirs?
I think age factors heavily into any FIRE considerations. The person in OP is in his late 40s with kids in middle school. It’s too early to put any money into bonds. Besides, the bonds part is really just a short hand for “safe investment that spits out reliable cashflow”. You can substitute it with real estate or REIT for example, which should yield higher than government bonds.
Historically S&P index fund returns about 10% per year. He won’t spend even half of the appreciation plus dividend such a portfolio generates. So his principal would continue to go up, over the long run, even if he quits his job today. I really don’t see why he needs to worry.
Forgot to mention the amount of capital. That’s also super important. If he only had 3M, say, then he needs to be more conservative. So a 60-40 portfolio is what works best so he can have something to spend when the stock market tanks. But with 7M+ I would say just put it all in stocks. The good years will yield so much to more than cover any stretch of bad years.