Nugget, this link is a gold mine!
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Great stuff … thanks for sharing. I fear that once you would use Swiss data, the SWR would habe to be even more conservative.
I personally have more the approach to diversify globally, so this limits the variation of the SWR from country to country.
However, since “globally” means >50% US-based, there remains the issue of long term currency-risk. I have not yet figured out how to go about it or if it is relevant
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I don’t understand how people consider the SWR more conservative for Switzerland. If you retire here, you have access to good and relatively cheap health insurance, AVS/AHV and so on. 4% for US happen like in two 30-y period. Most of the time a 7% SWR would have been fine. If something happens you can always have different back-up plan built in, like go back working, spent more time cooking and cutting down expenses, avoid vacation and so on. I don’t understand working 5 years more to go to 3% to avoid maybe having to work a couple of years (in black swan worst case situations) with 4%. It really doesn’t make sense. And the advantag is that you can use your money to go by during the crisis and start working again when the economy recovers to refill your bucket.
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I would like to highlight that if you are no more employed before 65, you will still need to pay AVS/AHV. That not a lot, but interesting
You can find the table here
https://www.ahv-iv.ch/p/2.03.f page 8
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This discussion made me look for some numbers about the AVS =>
@wapiti, @ParaStachian : With these tables, someone who retires with a 1,5 million CHF net worth will have to pay almost 3kCHF of AVS per year. Compared to the 60CHF he could withdraw with the 4% rule, that would make 5% of his budget! Totally non-negligible.
@Grog : Sorry but I disagree. I still think the 4% rule is flawed in Switzerland, and also in the US. Let us try to find pro and counterarguments in a constructive way. I will suppose that most of the community invest in a indexing way.
Good points for Switzerland :
- Taxation. I made a mistake in my first post, and a very big advantage of Switzerland is that capital gains on the stock market are not taxed. They are in the US. Depending on your investing style, that can be a really great advantage. On the less bright side, we just saw that 5% of your budget will go in the AVS contribution.
-Bad for Switzerland :
If you decide to index the Swiss market :
As I said already, the Swiss market has been les dynamic than the US one, hence less returns. I cannot find older historical data, I would be interested if someone can provide them.
If you decide to index the US market instead of the swiss market :
Well the dollar has been continually losing value against the franc. 30% in 20 years… That makes 1.3% of relative loss per year. Of course past returns are not the same as future returns, but still, with the available data, a swiss investor would have earned much less returns than his american fellows.
-Regarding cheap healthcare insurances : I don’t know about you, but although I agree that currently in Switzerland healthcare a insurances are relatively cheap, it seems that the premiums have been constantly raising in the last few years. Between 2016 and 2017, the cheapest insurance available for me made a 10% jump in its premiums. At this rate, cheap healthcare won’t be cheap for long.
-Neutral points : Social Security. As I said in the AVS topic, it really depends in how much you contribute. I saw in your presentation post that you plan to retire at age 50, so I guess you will have contributed around 30 years, which is a lot, so you will have a substantial retirement rent from AVS. For other people like me, my contributions won’t be much more than 10 years, so the rent from social security is much less substantial…
Points that are independent of USA/Switzerland :
-As pointed several times in the topic and in Nugget’s link, the 4% SWR only guarantees that after 25 years, i still have some money left. With the trinity study criteria, if you have 50 CHF on your bank account after 25 years it is a success. So if I retire around 40 :
-I expect to live much longer than 40+25 = 65 years.
-Since I did not contribute a lot to AVS, if i only have 50 CHF when i’ll be 65 i am screwed.
-Good luck to find someone willing to hire you if there is a tail event when you are 55/60.
Plus, on the qualitative side : early retirement at a young age means that you will be able to do what you would like to do if money was not a decisional factor. It would be very crushing for the soul to go back to unwanted work (and it is not a supposition : Charlie Munger explained perfectly the “deprival super reaction tendency”, which is one of the cognitive biases we are subject to. See for instance his speech on the 25 factors of human misjudgment or this page : http://www.safalniveshak.com/latticework-mental-models-deprival-super-reaction-tendency/).
I am very open to counter arguments, but the points listed in my post make me think that overall, the 4% rule is still flawed. On the contrary, I would be very glad if you’d show me where I could be wrong 
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so if you retire at 35 you still have to pay AVS/AHV until 65, and what matters are not the total money you put in but how many consecutive years did you pay. So even retiring you caould have a good revenue from AHV. Second you can’t compare price index to price index: SMI gives you slightly more dividend (3% instead of 2% as the SP500). this is a drag on price development that in US is driven by share buyback. On top of it inflation in US is around 2%, in CH 0%. Dollar lose value 1 % p.a., again you can buy less francs every year.
In the end MSCI USA (USD) is 9.54%pa since 31 Mai 1994, MSCI Switzerland (USD) is 9.11%pa since 31 Mai 1994. They returned the same amount of money with same currency.
I’m just pointing out that working 5 years more when you are young (like from 40 to 45) is abig risk anyway. Nothing is given, you just have to choose which risk is more substantial 
https://www.msci.com/documents/10199/f0f13c98-d5fd-43f3-8908-9f12c2fb3a4a
https://www.msci.com/documents/10199/67a768a1-71d0-4bd0-8d7e-f7b53e8d0d9f
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Those are very good points you are making, be it for the indexes or the AHV. I did not realize that is is the total amount of contribution years that counts, not the amount of years worked. That puts everything back in the balance!
Now the important point is just to not fool ourselves with the meaning of the 4% rule. It just guarantees that there will still be some money left on the bank account after 25 years in 95% of cases. Not 40 years, not 60 years. In a lot of cases, that will be less money than at the beginning of retirement. Everyone can choose to use this rule or not depending on his own situation.
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Exactly. To go back in topic: what do you mean in the title with “work”? What is a your definition of “work” or “success” ?
Because as you said the rule as it is it only guarantees some money left after 30 years in 95% of the cases or something like this. But this is very rigid. This means always spending 4% of initial capital, adjusted for inflation, with disregard if we are in a crisis or whatever. I don’t believe any normal mustachian would still go for vacation and eating out once a week during a 50% crash of the stock market because “that was the plan”. Many of us living from investment will be very careful about the money during a crash.
Sequence of return is important. I read on MMM forums that if there are no crash in the first 3-5 years than you are set for life. So sometimes it comes down to luck.
I think a better discussion would be: what’s the best withdrawal strategy and from there try to estimate total capital you need. Because the 4% rule is a very stupid strategy.
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I totally agree. The Idea behind the original questions was: How big has the principal to be to enable early retirement? The 4% SWR is just one method of trying to get to an answer and according the feedback I got from all you, it is not the most rigid base for such a estimation.
So, I conclude the answer is “Maybe, but most likely not”.
@Grog: Any concrete suggestions about sizing of principal and withdrawal strategies - or vice versa, as you suggest?
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Hello,
old post but interesting thematic of price versus performance index.
The SMI is a price index while the S&P500 is a performance index which includes the dividends.
Wrong the S&P500 is a price index too but probably the dividend policy is different in the tech companies oriented in growth than in cash flow.
You have to make a plot of the total return (TR).
The plot is valid since January 2003 and we see that the SMI TR (SMIC) is quite equivalent to the S&P500 (SPX). With one difference the S&P500 is expressed in a monetary unit which dropped 30% in value since January 2003.
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As other people said, this is very wrong, as it does not include dividends.
You can use this page to calculate the return.
So in our case, $100 invested in 1970 becomes $12’700 in 2018. That’s a 10.6% annual return, measured in USD.
Now, if we invested 100 CHF in 1970, today we would have 12’700/4.3 = 2’950 CHF. That’s an annual return of 7.3%, measured in CHF.
To me that’s still a nice return (although still nominal, not counting inflation). I think in a very long term, inflation and exchange rates should cancel each other out.
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US shares are a damn powerful thing.
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For those nearing (or on) FIRE - I just read a nice analysis by the Big ERN on sequence risk.
Just read through the whole thing.
I think the main way to reduce risk is to find some fun stuff to do which can be monetarized.
Noone says you just have to stop to work forever… (except some early retirement police as MMM would put it). Just earn some 10-20k on the side, by being a guide for hiking, do some woodwork, giving classes… Whatever. Easy enough to do, no need for a lot of capital and still fun and a way to meet people.
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10-20k is a lot. Either you work a lot or you work on a highly paid job.
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I guess it’s 10-20k per year…that would already cover a good portion of the recurring expenses.
yes but it’s still a lot of money. What kind of side job will pay that if you don’t work 40h/w?
Working twice a week behind a bar might do it.
Quick back of the envelope:
- 6h/night @ 20CHF/h = 120CHF/night [20 could be a big underestimate]
- 8 nights plus some tips
- enough to get to 1000CHF/month