26X Annual Spending Enough?

[clifp]

Quote:

Originally Posted by Nords OK, I'll step up: "Sure. ER tomorrow!" You certainly don't need our consensus... nor would anyone be able to get it from this "diversity" of opinions.

GetNClose I think you Got There.

As HaHa says you are well within the margin of error for the forum's wisdom. As I often have said the forum is terrific at keeping people from doing truly stupid things, not great at telling them what to do.

The plus for me is you have

• tracked expenses
• house is a small portion of your net worth
• Good balance between taxable and tax deferred AA
• Social security provides a good margin of safety

Negatives

• 40/60 probably too conservative for 40 year retirement
• 50/52 is young
• Good chance future returns on capital will be lower than historically.

To amplify on the last point as I result of the crisis, central bankers have injected a ton of liquidity and as a result there is a lot capital looking for returns and us savers are seeing poor returns.

For most of the last 20 years a retiree could stick 60% of his money in bonds/CD and get 5%+. Meaning of the 4% withdrawal, fixed income would be providing 3+%, this left the 40% in equities to return an additional 1% and keep up with inflation. As long as equities returned 8-10% over a long periods of time, this provided the needed 4% withdrawal and compensated for inflation in the 2-3% range.

Going forward the Total Bond Market is only yielding 3.4% so your 60% fixed income proportion is only providing 2% of your needed income. You are depending on the remaining 40% in equities to provide 2% and protect from inflation. I think this is a bit risky.

[FreeAtLast]

I never consider my house which is paid off as an investment asset. It will be some day if I down size or have to move to an ALF and finally sell it, but who knows what it will be worth then.

Hard to put a value on something you may or may not sell in the future and that you may have to put additional capital into the property for major maintenance.

We had to sell my mother's home in 2008 at a very difficult time for real estate when she moved to an ALF. We were fortunate to get a buyer, however, we she would have received much more if she sold it a year or two sooner.

[VaCollector]

I vote to GO FOR IT! You're not getting any younger

There are several folks here who seem to be getting by on much less and you can ALWAYS give it a try and make adjustments ~ either through spending or possibly part time w*rk....I believe the old adage of "where there is a will, there is a way!"

If you have been tracking your expenses for 25 years and have (obviously) mastered the art of saving, then IMHO, you are MORE than capable of making the leap!

Good luck with what ever you decide and (in case I missed it elsewhere) welcome to the forum!!

[OrcasIslandBound]

Hello GetNclose! Welcome to the Forum!

Your situation is kind of similar to our situation. We agree with the 40/60% stock/bond split and that is where we are at. Yes, bonds are a bit low at this instant in time, but the anticipated overall return of 7.5% we feel is enough to fund our planned retirement starting in 2 1/2 years. We'll be 56 when we retire early.

We also intend to depend on SS for some of our income. If I did a calculation of the ratio of our total net worth to our planned annual expenses that Fidelity simulations say we can support, it would be about 1.9M/72K = 26.38. What a coincidence. However, we intend to live below the 72K number. We also anticipate ~30K SS and the 72K includes that. Fidelity gives this a 95% chance of making it to age 95. These numbers, I suspect, are probably a bit lower than yours. So, if that is the case, it should be even easier for you to manage. Without the house, it comes out to 1.5M/72K = 20.8. Most people would shy away from such a low number, and I certainly would reduce the 72K if possible down to a number that give a ratio of 25. (60K). Or perhaps our investments will be a bit higher than 1.5M in 2014.

You get the picture. You're in the ball park!

[Rambler]

It depends on if you are a belt guy, a suspenders guy, or a belt and suspenders guy. I tend towards belt and suspenders, and would not try to ER before I had assets held for retirement of 33-35x expenses NOT including my principle residence. DW and I are nearing 50, have at least a year and a half to go, with an agreement in principle on a semiretirement or reduced workload plan after that. If the semiretirement thing works out well, I may go on for a few years. If not, we'll still be north of 35x. If it looks any lower than that I'll find other work that allows me to slow down a little but still cover most of our expenses.

Another point, I would probably plan for much more than 12k in medical insurance and out of pocket costs. Several times a year I work on fine tuning the budget to the latest information and assumptions. Assuming we don't get sick, we can find plans for less than 12k but that assumes low out of pocket costs due to good health. But the moment something goes wrong, it will be very easy to hit the out of pocket limits, pushing the cost way up over 12k. My projections were 15k until last week, when I upped them to 20k to provide some comfort. Of course, in the good years, the extra can fund extra travel or toys. When the bad years come, the money will fund the medical incl all out of pocket costs. Of course, as with all things, YMMV.

Good luck

R

[OrcasIslandBound]

Just out of curiosity, do most folks count SS? A 72K income plan becomes a 42K income plan if one can count on SS for the 30K difference, as in our case (eventually). If that is true, then wouldn't a plan that has 1.5M/42K = 35.6 be a fairly good ratio by Rambler's standards? I believe that is how the Fidelity simulation can achieve 95% probability.

I must count SS or plan on working (how do you spell that? w@&k#!ng?) until I'm 65. No thanks, I would rather live a bit while young.

[landover]

I look at this in two parts, what is the bare minimum and what is the luxury part. Food, shelter, medical, some entertainment (laptop+internet), a cheap car, cheap vacation, these I consider as minimum. I will also include depreciation of above in bare minimum. I am aiming for 2% in this category, maybe 2.5%. Rest is your choice, but still I will not go above 4% to 4.5% in total.

I guess social security will be there for people over 50 in current form, inflation may be a problem there, just look at some people suggesting changing Medicare and now their friends are balking at supporting them. So SS can give one some more freedom to up the SWR.

I am lately realizing that companies pay good money for stressful jobs but this extra income is advance payment for taking care of future health problems/lower quality of life.

[obgyn65]

Hello GetNclose - have you tried this calculator :

Merrill Edge| See Where You Stand

Quote:

Originally Posted by GetNclose My question: Would you retire at age 50 with a net worth that is 26X annual retirement expenses?

[Dawg52]

It's easy to get caught in the one more year trap. But when in doubt, work and extra year or two. And if you do not want to go that route, are you in a field you could work part time if you had to?

[clifp]

Quote:

Originally Posted by sbwitte Just out of curiosity, do most folks count SS? A 72K income plan becomes a 42K income plan if one can count on SS for the 30K difference, as in our case (eventually). If that is true, then wouldn't a plan that has 1.5M/42K = 35.6 be a fairly good ratio by Rambler's standards? I believe that is how the Fidelity simulation can achieve 95% probability. I must count SS or plan on working (how do you spell that? w@&k#!ng?) until I'm 65. No thanks, I would rather live a bit while young.

Social security is my back up plan if all my investments go south and I suspect that is true of many of the board members. As a board, we are wealthier, more frugal, and more conservative with our finances than the public by a very large margin.

I think it is wise to be conservative on somethings but not everything. So for instance if you were planning on 40/60 portfolio generate a 4% SWR so that you could spend 60K from your 1.5 million and also counted on all 30K in SS to be available and spent 90K each year and increased the spending to keep up with inflation, and went through another 2008 and didn't cut spending that IMO is risking running out of money.

On the other hand, I think assuming that you need 33x and that SS will disappear is excessively conservative, or alternatively perfectly fine if you love your job and don't want to quit w*rk.

I'd look your plan as have 90K worth of income but only planning on spending 72K, give you a 20% margin of safety which seems plenty safe.

[rescueme]

Quote:

Originally Posted by VaCollector I believe the old adage of "where there is a will, there is a way!"

I always thought that "where there is a will, there are some relatives ready to collect on it" ...

[RunningBum]

Quote:

Originally Posted by sbwitte Just out of curiosity, do most folks count SS? A 72K income plan becomes a 42K income plan if one can count on SS for the 30K difference, as in our case (eventually). If that is true, then wouldn't a plan that has 1.5M/42K = 35.6 be a fairly good ratio by Rambler's standards? I believe that is how the Fidelity simulation can achieve 95% probability.

I view SS as bonus money. If I get it, I can live better, travel more, etc, but I'm not counting on it for essentials. Don't forget that if you are looking at 30K SS, some of that is probably taxed, and I suspect to keep SS solvent benefits will either be reduced or more of it taxed. Also be careful if that 72K income plan is in current dollars and the 30K SS benefit is in future dollars. SS COLA has been 0 for the past two years, yet I'm seeing a lot of prices going up around me.

[Retire2013]

Thank you GetNClose for starting this thread; It is excellent. If you are willing to work parttime in years where your expenses soar or your investment income plummets, then I think you can ER as soon as you'd like to.

[landover]

Quote:

Originally Posted by RunningBum Also be careful if that 72K income plan is in current dollars and the 30K SS benefit is in future dollars. SS COLA has been 0 for the past two years, yet I'm seeing a lot of prices going up around me.

I always though that SS benefit is given in current dollars, I think till 62 it is indexed to wage growth rate and then inflation.

[haha]

Quote:

Originally Posted by landover I always though that SS benefit is given in current dollars, I think till 62 it is indexed to wage growth rate and then inflation.

That is correct.

Ha

[RunningBum]

Quote:

Originally Posted by landover I always though that SS benefit is given in current dollars, I think till 62 it is indexed to wage growth rate and then inflation.

My mistake. Still, I don't expect their indexing to keep up with real inflation.

[Nords]

Quote:

Originally Posted by Mulligan As a person who is fortunate enough to be able to live off a COLA'D pension, I am not one to give advise on your situation as others can. But I still want to congratulate you are your efforts so far. Building that amount of wealth and being able to fully fund your children's college education is something to be proud of. I sure hope your children appreciate your planning and sacrifice. Good luck in your decision!

Thanks.

I should point out that our daughter is attending a horrifically expensive private college on an NROTC scholarship. She's personally accounting for about three-quarters of that "fully funded" experience, and we'll see how she feels in another three years when the "payback" phase begins.

I'm going to put up a post in a couple weeks about ER and paying for college. They're mutually compatible.

Building the wealth... well, that comes from not having the time or the opportunity to spend it during our working days, and then living a beach-bum lifestyle after our working days.

I'm sure our daughter will appreciate our parental sacrifice someday-- shortly after she starts making her own parental sacrifices!

[Mulligan]

Quote:

Originally Posted by Nords Thanks. I should point out that our daughter is attending a horrifically expensive private college on an NROTC scholarship. She's personally accounting for about three-quarters of that "fully funded" experience, and we'll see how she feels in another three years when the "payback" phase begins. I'm going to put up a post in a couple weeks about ER and paying for college. They're mutually compatible. Building the wealth... well, that comes from not having the time or the opportunity to spend it during our working days, and then living a beach-bum lifestyle after our working days. I'm sure our daughter will appreciate our parental sacrifice someday-- shortly after she starts making her own parental sacrifices!

+1 and True on your last comment!!! Thankfully there wasn't an online forum 30 years ago, or my dad would be letting me have it too!

[haha]

Quote:

Originally Posted by RunningBum My mistake. Still, I don't expect their indexing to keep up with real inflation.

It is important to realize that at present, whatever someone may think "real inflation" might be, social security adjustments taken over a working lifetime more than keep up with CPI. This is because until a certain age, I think 62, SS earnings are adjusted by a wage inflator, which in the past has been greater than CPI inflation. After 62, CPI itself is used.

Ha

[MDJO]

If you like what you are doing - wait and save more. If not, quit and find something you like to do in retirement. You will never get more time - it's the most precious asset you have. Might as well enjoy it to the fullest.