How much is enough to FIRE in San Francisco? • Hacker News Board

Re: How much is enough to FIRE in San Francisco?

#61

Post by its_ethan » Thu, May 02, 2024, 5:29 PM UTC

AnimalMuppet wrote: post #29

gotaran wrote: post #12

Earlier quoted context omitted.

The 4% rule accounts for inflation. The stock market on an average gives you 7% a year in returns adjusted for inflation. The 4% gives you enough cushion in case of economic turmoil.

The stock market on average has given you 7%. That may not be a safe assumption going forward - going far forward. I might live another 30 years. If you FIRE, you might live another 50. Will the stock market continue to yield 7% over the next 50 years? That's a larger assumption than I'm comfortable making.

Why is it such a crazy assumption? Going back to like 1870 a $SPY equivalent has yielded something like 8-10% on average if you reinvest dividends. In that time there have been two world wars, a handful of pandemics, election turmoil (oversea and aboard), many bubbles in tech and housing, and yet the long term average was 8%+.

FWIW there have always been and will always be spelling financial doom right around the corner, but betting that way has been a failing strategy save for lucky few who got the timing just right.

Re: How much is enough to FIRE in San Francisco?

#62

Post by hindsightbias » Thu, May 02, 2024, 5:30 PM UTC

starttoaster wrote: post #18

coryrc wrote: post #10

Earlier quoted context omitted.

Not if you bought a couple decades ago or inherited from your parents.

Not sure how it works in every state, but my property taxes are liable to increase year to year, for a home I own. Are you saying this is not the case in California? They just true up property taxes for a property upon next sale?

Not only your property tax rate but your valuation in other states.

Used rebuild friends old homes and do habitat in a freedom state like TX. They can't afford to live there anymore. Low-service state gov't rolls it all down to you.

Socialist CA fixed that 40 years ago.

Re: How much is enough to FIRE in San Francisco?

#63

Post by tunesmith » Thu, May 02, 2024, 5:31 PM UTC

aketchum wrote: post #17

hiddencost wrote: post #8

This analysis doesn't seem to account for inflation? In 40 years, withdrawing $140,000 will not be nearly as much. For reference, inflation over the last 40 years has been 300%. So you're talking about $47k in inflation adjusted purchasing power in 40 years.

the 3% rule accounts for inflation. Average nominal return 7-10%, inflation of 3.5% average, leaves you 3% withdrawal with no decrease (or even an increase) in principle in real dollars

That's not what the 4% rule means. The 4% rule (modified to 3% by OP) is what you can withdraw without running out of principle. Maintaining the level of principle is a different thing entirely.

Average nominal should be ignored anyway. It's never been a practical number for the individual investor to rely on. Mistakes, allocation models, people having less to invest when times are bad (and market is low), etc.

Re: How much is enough to FIRE in San Francisco?

#64

Post by whimsicalism » Thu, May 02, 2024, 5:32 PM UTC

whartung wrote: post #46

starttoaster wrote: post #18

Earlier quoted context omitted.

Not sure how it works in every state, but my property taxes are liable to increase year to year, for a home I own. Are you saying this is not the case in California? They just true up property taxes for a property upon next sale?

Yes. Proposition 13 is famous for triggering sweeping tax changes across the country. In CA, Prop 13 effectively caps how much the assessed value of your home can increase each year to 2%. So over time, the tax burden of long term property is much less than the current property value. When the house changes hands (generally) the house is reassessed to the market. There was also new laws passed a few years ago where a…

> Yes. Proposition 13 is famous for triggering sweeping tax changes across the country.

prop 13 is cali only, there's no such thing as a federal ballot initiative

Re: How much is enough to FIRE in San Francisco?

#65

Post by jokethrowaway » Thu, May 02, 2024, 5:32 PM UTC

foooorsyth wrote: post #23

the_gipsy wrote: post #5

Companies are essentially subsidizing $1M (or more now?) mortgages if you are willing to go into their SV offices. You don't have to retire there! Just sell the house and move on.

You don’t have to retire there, but it turns out that the Bay Area has one of the most pleasant climates in the entire world for humans and it is coupled with some of the most stunningly beautiful and varied terrain in the world. It’s hard to leave and call anything else retirement if you’re just considering climate, weather, and nature. My family did end up leaving the area but it was hard. I am still working. Would…

It's not easy but you can find similar (even arguably better) climate in Europe (Cyprus, Canary Islands, Malta) at a much cheaper COL, with lower crime rate, healthier food - and even less taxes with the right choices.

South East Asia and South America have opportunities too albeit .

I think the weather in SF is decent but not great (way too cold) - but it's all the other cons (homeless, taxes, drugs) that makes me run away from SF.

Re: How much is enough to FIRE in San Francisco?

#66

Post by adam_arthur » Thu, May 02, 2024, 5:33 PM UTC

jandrewrogers wrote: post #58

adam_arthur wrote: post #27

The 4% rule as a plan is not very smart in the current environment. A few years ago it was difficult to get safe higher yielding equities/bonds, but no longer. You can build a quite safe stock/bond portfolio yielding 8% on distributions alone. Why would you aim to sell 4% of principal a year when you can avoid touching the principal at all at close to twice the yield? Large caps are also at quite high valuations hist…

Those yields can shrink or disappear quite rapidly, and then you are left selling the equity. From a purely financial perspective, there is nothing special about dividends versus selling equity, it doesn't make you better off; that is just rearranging how value is recognized. The main difference between dividends and growth is tax structure, which generally favors the latter due to the added optionality. Dividends ar…

A company owning real estate, paying 8% dividends with a 65% payout ratio isn't going to have its dividends disappear overnight.

I can buy O (Realty Income) right now and lock in a ~6% yield. They didn't cut their dividend even during the GFC. And I think O is one of the poorer options of REITs to choose from right now.

What do you mean?

This entire thread is about retirement, where fixed income becomes important. If you're 75 do you want to wait 10 years for the market to recover to resume selling your principle?

Re: How much is enough to FIRE in San Francisco?

#67

Post by olliej » Thu, May 02, 2024, 5:38 PM UTC

starttoaster wrote: post #18

coryrc wrote: post #10

Earlier quoted context omitted.

Not if you bought a couple decades ago or inherited from your parents.

Not sure how it works in every state, but my property taxes are liable to increase year to year, for a home I own. Are you saying this is not the case in California? They just true up property taxes for a property upon next sale?

Businesses in CA got people to vote for prop13 in the 70s I think (the propaganda justifying it was essentially “the Supreme Court said your property taxes have to pay for the same quality of education for poor people”, but the actual reason is a massive tax cut for corporations as they never actually sell property so get a permanent cut to property taxes).

It basically says “unless a property changes ownership the taxable valuation cannot increase by more than 2%”, it doesn’t matter if it’s a rental property that has rent increased by 50%, or a corporate owned property that has financial reports reflecting its true value, it’s capped at 2% increase.

This has a follow on impact of increasing the actual property tax rates (because the majority of properties are undervalued by actual market rates the only option is higher base tax rates) which means if you do buy a new property you get hit with massive property taxes (over time they will become cheap relative to property value but initial cost is insane).

We’ve owned our house for a decade, and if we were to try and buy it today the property taxes on it would be higher than our current mortgage payments because of the increase in actual market value.

The actual fix for this is complicated (there’s a real issue where a person is retired say and their property taxes could increase to being unaffordable forcing them to sell their home), but I feel a reasonable improvement would be to say that taxable value for residential rental property increases at the maximum of “2% or rate of rent increase”, and commercial property gets taxed at the value included in financial reports, or something to that effect. Alas prop13 is actually a modification to the California state constitution so the only way to fix it is through an amendment to the constitution.

Re: How much is enough to FIRE in San Francisco?

#68

Post by slg » Thu, May 02, 2024, 5:38 PM UTC

adam_arthur wrote: post #56

slg wrote: post #47

Earlier quoted context omitted.

The thing about retirement, especially early retirement, is it (hopefully) lasts a long time. It is foolish to assume that the trends of the last couple of years will continue on indefinitely rather than return to historic norms. Banking on a 7%-8% return on low risk assets is just asking for trouble.

You seem to misunderstand. If a company owns apartment buildings and earns $1B a year, and pays out $500m a year in dividends at 5% yield, that is a 50% payout ratio and very safe margin of error on cashflow for real estate. If you buy today and hold, that's locked in. You are in a safe position, if you assume that rents aren't going to decline nationally and materially. There is no "good times and bad times" you're…

Do you have an example of an REIT that fits your hypothetical that has a history of delivering these yields consistently for decades?

Re: How much is enough to FIRE in San Francisco?

#69

Post by AnimalMuppet » Thu, May 02, 2024, 5:40 PM UTC

its_ethan wrote: post #61

AnimalMuppet wrote: post #29

Earlier quoted context omitted.

The stock market on average has given you 7%. That may not be a safe assumption going forward - going far forward. I might live another 30 years. If you FIRE, you might live another 50. Will the stock market continue to yield 7% over the next 50 years? That's a larger assumption than I'm comfortable making.

Why is it such a crazy assumption? Going back to like 1870 a $SPY equivalent has yielded something like 8-10% on average if you reinvest dividends. In that time there have been two world wars, a handful of pandemics, election turmoil (oversea and aboard), many bubbles in tech and housing, and yet the long term average was 8%+. FWIW there have always been and will always be spelling financial doom right around the cor…

Let's say you didn't invest in the US stock market, because you lived in, say, Japan. How did the Japanese stock market do since 1870? Pretty well, except for that part in 1945 when it went to approximately zero.

Ditto Germany in 1945.

Ditto Russia in 1918.

Ditto China in 1949.

Is the US going to be the US of history for the next 50 years? Or is it going to be one of Japan, Germany, China, or Russia?

Or is it just going to be, say, the UK? How did the UK stock market do over the last 50 years?

Re: How much is enough to FIRE in San Francisco?

#70

Post by adam_arthur » Thu, May 02, 2024, 5:40 PM UTC

slg wrote: post #68

adam_arthur wrote: post #56

Earlier quoted context omitted.

You seem to misunderstand. If a company owns apartment buildings and earns $1B a year, and pays out $500m a year in dividends at 5% yield, that is a 50% payout ratio and very safe margin of error on cashflow for real estate. If you buy today and hold, that's locked in. You are in a safe position, if you assume that rents aren't going to decline nationally and materially. There is no "good times and bad times" you're…

Do you have an example of an REIT that fits your hypothetical that has a history of delivering these yields consistently for decades?

O (Realty Income) pays 6% today, AFFO multiple of 12x, low debt (35% debt to asset value), low payout ratio (75% of AFFO), and has never cut their dividend, including during the GFC

And I think this is one of the poorer income choices today.

People would rather buy Costco at 50x earnings multiple and try to sell the principle down at 4%/year, apparently!

The responses to this thread are really eye opening to why such a large small/large cap valuation gap exists. (Yes, O is large cap, but smaller REITs have even better numbers)