39 and confused

[CaseInPoint]

Originally Posted by EagleEye

1. He assumes that you will live until you are 99.

Right, I always advise people to plan for their money to outlive them, not the other way around. However, as I said before, I would arrive at the same result for anyone facing a retirement of more than 30 years, because inflation for that period of time is too unpredictable NOT to be conservative.

2. He assumes that the money you withdraw will be taxed at a 30% rate, thereby necessitating a 90K withdrawal to yield 60K after tax.

Yep. Once you take into account Federal, State and local taxes, 30% is a good figure, with or without being hit by AMT.

3. He asserts, without any support, that you should withdraw only 2% per annum. The 4% withdrawal rate is based on FIREcalc results and results from other retirement calculators. FIREcalc can run caclulations on period of 40, 50, and 60 years. Where does his 2% edict come from? Why is it not 2.5% or 1.8% or 3%? We don't know.

I like FIRECalc as a seond or third opinion. But seeing completely different conclusions on FIRECalc than in my Schwab retirement calculator and other reputable calculators, I wouldn't gamble with the future of my family on FIRECalc alone, especially as its developers recognize that it's a work in progress.

With all due respect, your conclusion that a 39 year-old with young kids and an after-tax expenditure of $60k/yr, can retire on 1.7 for 60years , is way off base.

I've seen plenty of others on this forum who understand that the 4% doesn't apply for long retirements. I've seen some say 2.5% pretty recently, but the longer the retirement, the lower the percentage needs to be, IMO. That's why I chose 2%. If it turns out to be 2.1%, 2.%, fine with me.

And, FWIW - here are people who agree with my 2% figure:

http://www.early-retirement.org/foru...3&postcount=34

and -

http://www.early-retirement.org/foru...9&postcount=35

There are some who love to show the world how conservative they are in their planning, since they equate "conservative" with "prudent".

Sure, I'm definitely fiscally conservative, and I wouldn't gamble unnecessarily with my family's future. I'd imagine that anyone who has a family they love, wants to live a comfortable lifestyle, and doesn't want to sit around hoping to die before their money runs out, would be conservative, too.

[cute fuzzy bunny]

My family likes me fine at home rather than at the office for 60 hours a week.

My overall tax rate is less than 10%.

I havent seen any evidence that suggests that 4% doesnt work for "long retirements".

Many "reputable calculators" use monte carlo schemes that can produce far more conservative or far more liberal results than real world data would offer up simply because they dont incorporate satisfactory correlative factors in the data series over the passage of time. You can end up with very long negative return series or very long positive return series that simply wouldnt happen in the real world. So its not surprising that they come up with numbers far lower than 4%.

Sure, firecalc isnt the be-all, end-all. 4% isnt a sure thing. Its a good idea for young retirees to pay a lot of attention to their spending and how they invest.

But blanket statements with little or no solid backing other than "its a good idea to be conservative" are a little tough to take. If you want to be conservative, work until you're 70.

I've pretty much enjoyed the heck out of the last non rat race 7 years, and i'm pretty sure I'll enjoy the next 50 just as much.

[CaseInPoint]

Originally Posted by cute fuzzy bunny

My family likes me fine at home rather than at the office for 60 hours a week.

Tough to comment since, of course, I really don't know your personal situation at all.

If you're a stay-at-home mom with another income earner, there are definitely some advantages to that.

My overall tax rate is less than 10%.

Hmmm... No AMT? That's great. Although I'm pretty sure that whenever I hear about such tax miracles, there's some serious catch.

But blanket statements with little or no solid backing other than "its a good idea to be conservative" are a little tough to take. If you want to be conservative, work until you're 70.

Well, it's not like playing a 25-cent slot machine in Vegas. When it comes to gambling with other people's lives, "conservative" is the only way to go.

And, there's no need to work till 70. For example, I'm 42, no longer work full-time, though I enjoy my job very much. I can spend as much time with my family as I choose. In the future, I can either sell my company, or have someone run the day-to-day operations for me. So, it's possible to be conservative and also FIRE. I've seen this formula several times on the forum.

[Marquette]

Originally Posted by CaseInPoint

If you're a stay-at-home mom with another income earner, there are definitely some advantages to that.

CFB, you've got you change your username, man.

[WanderALot]

Originally Posted by midlifechange

WanderAlot - congrats! You are only 33 - amazing...so both of you came out with approx the same numbers 1.6M and 1.5M - so even with my 500K house sold when I'm approx 55 yrs old I still cannot retire soon? WanderALot says if I have the 50K-70K income - what if I do not have this income? What if I want to quit working ASAP? I have run FIRECalc but it's interesting to see what the "human brain calc" says...

Midlifechange, I didn't mean to imply that I have already semi-retired. I plan to, but not there yet. I tend to be a little conservative so I would like to have some extra income and not touch the portfolio for my living expenses, especially considering I'll be [semi] retiring pretty early in life. If you abide by the 4% rule, then I don't think you would need extra income at all with around 1.5 million.

I'm think I am missing something though, you have 2M now, if you take out 200K for the college fund and take around another 500K for a house, you'll still have 1.3M. You're 39 now, so you should be able to save enough to retire way before 55.

I'm definitely sure that I don't want to wait till I have 4 million to retire. Sure, it might be safer, but I'm not prepared to work fulltime for at least another 10+ years to get to that number. I'll take the small added risk to retire with a smaller number.

Remember, I'm just some guy on the Internet.

[cute fuzzy bunny]

Originally Posted by CaseInPoint

If you're a stay-at-home mom with another income earner, there are definitely some advantages to that.

Thats me. A stay at home mom.

Hmmm... No AMT? That's great. Although I'm pretty sure that whenever I hear about such tax miracles, there's some serious catch.

You bet. A very serious catch. Have no debt, eliminate low value expenses, and live off of qualified dividends and capital gains at a lowered withdrawal rate.

For three years I paid no income taxes at all. The catch is that you have to not be an idiot.

Well, it's not like playing a 25-cent slot machine in Vegas. When it comes to gambling with other people's lives, "conservative" is the only way to go.

Except conservative often leaves you out of money in mid stride because you didnt take enough risk. When you retire at 67 and can nibble off your social security, thats fine. When you're 40 you need to balance a certain amount of risk with reward due to the longer time horizon.

Everyone would love to have $5M+ and be able to drop everything in TIPS or muni's and relax for the rest of their lives with no investment concerns.

The other 99.92% of people interested in getting out of the rat race who have no chance of acquiring that sort of coin have to figure out another way.

[unclemick]

Originally Posted by cute fuzzy bunny

Everyone would love to have $5M+ and be able to drop everything in TIPS or muni's and relax for the rest of their lives with no investment concerns.

The other 99.92% of people interested in getting out of the rat race who have no chance of acquiring that sort of coin have to figure out another way.

300 k his and hers(no children) age 49 , 1993. A longer story than that but let's just say - my pesimist days, I was a cheap bastard and during optimistic periods - creatively frugal. There are as many ways as poster's to this forum. .

heh heh heh -

[unclemick]

Originally Posted by unclemick

300 k his and hers(no children) age 49 , 1993. A longer story than that but let's just say - my pesimist days, I was a cheap bastard and during optimistic periods - creatively frugal. There are as many ways as poster's to this forum. .

heh heh heh -

? Why is the quote button behaving uncool?

[EagleEye]

Right, I always advise people to plan for their money to outlive them, not the other way around. However, as I said before, I would arrive at the same result for anyone facing a retirement of more than 30 years, because inflation for that period of time is too unpredictable NOT to be conservative.

The first point concerned your estimate of the original poster's lifespan. So your comment above is a non-sequitir. In any event, if you would do me the courtesy of reading my post again, you will see that I am not opposed -- and I expressly support -- a conservative approach to retirement planning. The issue is one of degree. Ultimately, you can't account for every contingency; if you mean to retire, that means accepting some risk. Accordingly, the question becomes what assumptions are both conservative, yet realistic.

You may posture yourself as a conservative planner, but in just a few minutes I can come up with a host of hypothetical scenarios which would make your $4.5 million figure look positively reckless as a retirement goal. Based on that, why don't we tell the poster to shoot for $45 million, since that is 10X more conservative and thus 10X more prudent? Obviously, we don't suggest such a thing, because at a certain point, it works against his interest to work the rest of his life to accumulate surplus funds to account for extremely remote contingencies.

Yep. Once you take into account Federal, State and local taxes, 30% is a good figure, with or without being hit by AMT.

Capital gains are taxed at 15% long-term; 20% short. States vary, but most rates are small. To my knowledge, there is no "local" tax on capital gains. Moreover, the poster can further reduce his rate by planning out what he withdraws and when, i.e., using losses to offset realized gains. Moreover, tax on this income would be reduced by deductions. Finally, if he is living on $60K, he is very unlikely to bump into the AMT, even if he lives in a high-tax state. And even if he did somehow hit it, he likely would just scrape the border of the AMT trigger, so it would have minimal impact on his overall tax liability. In sum, unless you have something substantive to say, I don't see any basis for your "conservative" assumption that this poster needs to withdraw 90K to get 60K.

Quote:

I like FIRECalc as a seond or third opinion. But seeing completely different conclusions on FIRECalc than in my Schwab retirement calculator and other reputable calculators, I wouldn't gamble with the future of my family on FIRECalc alone, especially as its developers recognize that it's a work in progress.

It is perfectly legitimate to cite to other calculator tools, and I specifically stated that I thought the poster should run the numbers in other tools. That having been said, it would be helpful if you could identify the "other reputable calculators" to which you refer.

As for Schwab, since you mentioned it, I visited their site and put the poster's numbers into that calculator. Whaddya know? It disagrees with you too. In fact, it is pretty close to FIREcalc, giving $1.9 million as the number to hit. That is assuming no further income other than SSI from the poster or his spouse, and annual spending of 60K. You know what you don't see on the Schwab tool? Anything close to what you are advising.

With all due respect, your conclusion that a 39 year-old with young kids and an after-tax expenditure of $60k/yr, can retire on 1.7 for 60years , is way off base.

I am not sure what you intend by this statement. If you are implying that the 60K is an unreasonable amount on which to raise two young kids, then you are off base. The poster himself has run calculations on what he needs and came up with this figure, which itself is 20% greater than the median family income in this country, and thus is not unreasonable on its face. If you mean just to repeat in a more general fashion your position that he needs a "minimum of $4.5M", then I again say that that remains completely unsupported, even by the solitary calculator on which you rely.
Finally, I never said $1.7 was the number. I am in favor of padding that some, so I would probably be in accord with the Schwab calculator result.

BTW, just out of morbid curiosity, if $4.5M is the minimum he needs, what is the number in the middle range?

[REWahoo]

Originally Posted by unclemick

? Why is the quote button behaving uncool?

It's fixed now. You left off a ]. Heh heh heh...

[CaseInPoint]

Originally Posted by cute fuzzy bunny

...When you're 40 you need to balance a certain amount of risk with reward due to the longer time horizon.

Everyone would love to have $5M+ and be able to drop everything in TIPS or muni's and relax for the rest of their lives with no investment concerns.

The other 99.92% of people interested in getting out of the rat race who have no chance of acquiring that sort of coin have to figure out another way.

That's all true.

I'd say that since I joined this forum, it's been a real eye-opener for me to see the lengths that people will go to and how much they will give up for themselves and their families just to avoid working for a living. I guess that everyone has their own story and their own calculations.

[Marquette]

Originally Posted by CaseInPoint

That's all true.

I'd say that since I joined this forum, it's been a real eye-opener for me to see the lengths that people will go to and how much they will give up for themselves and their families just to avoid working for a living. I guess that everyone has their own story and their own calculations.

You'll have to provide some examples, please.

[REWahoo]

Originally Posted by CaseInPoint

I'd say that since I joined this forum, it's been a real eye-opener for me to see the lengths that people will go to and how much they will give up for themselves and their families just to avoid working for a living.

Rumors of our stinginess have been greatly exaggerated. The real frugalistas reside in places like this: Frugal Living Forums -Frugal Village

[CaseInPoint]

Originally Posted by EagleEye

Based on that, why don't we tell the poster to shoot for $45 million, since that is 10X more conservative and thus 10X more prudent? Obviously, we don't suggest such a thing, because at a certain point, it works against his interest to work the rest of his life to accumulate surplus funds to account for extremely remote contingencies.

True. That's why I tend to choose something slightly right of center, based on my own understanding of what's realistic for a person in their 40s with a young family. I don't plan for everything to run 100% smoothly according to "the plan," and I don't expect an endless string of disasters either.

The reason that I tend to be more conservative, though, is that the downside of being wrong is SO much worse than the downside of waiting a few more years to retire. I do understand that you are conservative, too, Eagle.

In sum, unless you have something substantive to say, I don't see any basis for your "conservative" assumption that this poster needs to withdraw 90K to get 60K.

Well, I usually avoid saying anything substantive at all costs.

As for Schwab, since you mentioned it, I visited their site and put the poster's numbers into that calculator. Whaddya know? It disagrees with you too. In fact, it is pretty close to FIREcalc, giving $1.9 million as the number to hit. That is assuming no further income other than SSI from the poster or his spouse, and annual spending of 60K. You know what you don't see on the Schwab tool? Anything close to what you are advising.

Yeah, waddaya know? Maybe you input the wrong data, Eagle. My reading on Schwab, is that the $1.7 will run out by age 60. That's with assumptions of needing to produce $85k/yr pre-tax, an overall rate of return of 4.4%, and inflation of 2.6% (The last 2 figures are automatically filled in by Schwab. I personally think that inflation will be much higher considering gas and food prices).

Admittedly, I'm not familiar with lower-tax states, so I guess it's possible to adjust the overall figure needed to produce $60k after-tax. But still, once a higher inflation rate is calculated, the final result will change, too. So, basically, I'm pretty comfortable with those figures.

Not to get too substantive, Eagle, but I guess that it's possible to manipulate the numbers and assumptions to give anyone the green light to RE. All you need to do reduce the pre-tax amount, raise the rate of return, lower the rate of inflation, and, bingo! Break out the shuffleboard set and get ready to rock.

BTW, just out of morbid curiosity, if $4.5M is the minimum he needs, what is the number in the middle range?

Once you hit the minimum, anything above that will just ensure an even better night's sleep, and a chance of leaving an inheritance to your family. If you hate 'em anyway, just can always use the excess $$ to pimp your wheelchair to the max and leave everything else to your pet chihuahua.

[EagleEye]

This has been a fun exchange, CaseInPoint. I hope I didn't come off too harshly earlier. I just take this stuff seriously, since ER is a major goal for me.

One follow-up in the interest of mutual education: The Schwab calculator that I used asks for certain data and then tells you how much you need in your portfolio to sustain retirement at a set age. I found it here:

Retirement Calculator: Charles Schwab: Retirement Savings Calculator

Were you using a different calculator, or this one? If Schwab has another one, I would be really interested in running my numbers in that one. Always good to check multiple tools and sources, no?



Could you provide a url for the the calculator you are using? It would be interesting to see why they are spitting out different results.

[jclarksnakes]

Originally Posted by CaseInPoint

That's all true.

I'd say that since I joined this forum, it's been a real eye-opener for me to see the lengths that people will go to and how much they will give up for themselves and their families just to avoid working for a living. I guess that everyone has their own story and their own calculations.

This is the early retirement forum. Multi-millionaires are welcome as are people with much lower net worth. There are lots of people on the forum who comfortably retired early (some of them your age even) and are living the good life with less than a million. I am impressed by people who can amass portfolios of several million but am also impressed by people who can retire comfortably with much less. I learn skills that will help me in ER from people at both ends of the wealth spectrum.

[FIREdreamer]

Just for information purposes:

Let's assume that all your money is in taxable accounts and that you are married, no dependents, filling jointly. Let's also assume that the gross income generated by your portfolio is $65,000 per year. Let's assume you take the standard deduction.

Worse case scenario: the 65K are all ordinary dividends and/or short term capital gains. Your federal tax bill for the year will be $6400 under our current tax code. That leaves you about $58,600 net.
Medium case scenario: the 65K is all long term capital gains. Your federal tax bill for the year is about $2400. That leaves you about $62,600 net.
Best Case scenario: the 65K are all qualified dividends. According to the H&R block calculator I used you would owe $0 in federal taxes.

Your income would most likely be composed of a mixture of ordinary dividends, qualified dividends and long term capital gains so you would probably pay somewhere between $1000 and $4000 a year in federal taxes under the current system.

For example if 25K comes from ordinary dividends (bonds for example), 20K comes from qualified dividends (stocks) and 20K from long term capital gains your yearly federal tax bill would come to $1375.