With a lot being said about Safe Withdrawal Rates, I had to think about why it played no part in my thinking about FIRE. As I've mentioned before, as long as passive income > current standard of living, that's FI to me. To be safe, I can add a 20% buffer in case there is a 20% drop of income like during COVID (but since I didn't travel, my expenditure was much lower as well).
My current passive income is above the lean FIRE level as it pays for a lot of discretionary items and not just survival expenses. So for my type of FIRE, all I need to do each year is to make sure I don't spend more than my passive income that year (if I spend less, it means there is some money saved to be spent during a bad year).
The following graphic represents my "approach". The percentages do not reflect my current situation as my 'margin of safety' has gone beyond 20% since I am still in the accumulation stage. The numbers are meant to show that passive income is used to pay for different types of expenses, some are discretionary, some are essential, and some are in-between.
I fully appreciate that retrenchment/ ill health may cause people to involuntarily stop work. In which case learning how to calculate SWR is important, not for FIRE, but for 'survival'. Voluntarily quitting your job with only just enough money for bare survival is not something people should aspire to.
Investmentmoats linked to a chart showing the dividend volatility of the S&P500. What is interesting is that the drawdowns were "short and sharp" like COVID in 2020 when my passive income dropped by 20% and promptly recovered the following year.
The dividend drop in GFC was not as bad as it seemed because there was price deflation. During GFC, COE prices dropped (unlike COVID19) and you could get a parallel imported Mercedes C180 for $135k and property prices were soft because of lack of liquidity (I bought my current condo just after the GFC). Whereas now COE alone will set you back $100k+++
Links
Can You Live On Dividends From Your Portfolio? - A Wealth of Common Sense
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