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07-16-2014, 08:44 PM
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#1
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Dryer sheet aficionado
Join Date: Jul 2014
Posts: 26
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New to site, my overview
Hi, I am 48 years old and new to this site and spend a lot of time focused on personal finance.
An overview of my financial situation is following.
Overall net worth is $3M broken down by following:
- $500K primary house
- $500K rental house ($2800/month)
- $1M Liquid investments non retirement
- $1M investments in 401k/retirement accounts
I have two kids, 18 yo and 9 yo.
Current expenses $10k/month which want to maintain in retirement.
Any thoughts/feedback is welcome.
Biggest challenge is managing current investments that balances returns and risk to reach the finish line.
Thanks,
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07-17-2014, 01:57 AM
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#2
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gone traveling
Join Date: Oct 2007
Posts: 1,135
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Welcome. Tell us more about your asset allocation. And about your budget - is it gross or bet of annual income tax ?
considering the house in your total net worth you could do 4 pct and be close to ok
But being conservative and backing out the house leaves 2.5m and also would suggest a less risky SWR of 3.5 or 3.0 pct giving an approx 90-100k per year safe spend.
Later what so you expect SS or pension etc to contribute if anything ?
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07-17-2014, 04:20 AM
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#3
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Dryer sheet aficionado
Join Date: Jul 2014
Posts: 26
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So the $2M of retirement and non retirement funds are invested in a diverse portfolio of stocks and mutual funds. I have about 10% in cash but remaining is moderately conservative with many dividend focused stocks.
The $10K /month is the net spend each month on average.
I am very conservative with my financial calculations and personal goal is to have $5M net worth in 7-8 years which will give me plenty of cushion if the income environment is as it is now where very difficult to get 4-5% return without much risk.
I will have no pension but in todays $'s will max out SS at around $2500 / month.
I'm new to all the acronymns so please clarify : SWR, I assume it is something withdrawl rate?
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07-17-2014, 05:30 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 4,337
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Welcome to the forum. You'll learn most of the jargon and acronymns quickly.
SWR is Safe Withdrawl Rate.
At $10K/mo after taxes you are definitely pushing things if you rely only on your portfolio. A single rental house may have a nice cash flow now but a bad tenant or a few empty months can create a financial mess. I'm suggesting caution on relying too much on this income without a reserve fund to cover problems.
The classic SWR is 4% of invested assets but many here recommend lower withdrawl rates for younger retirees. If you want $10K/mo, that's more like needing an income of $150K/yr. I'll give you $30K credit for the rental income but I'll repeat my caution on depending on it. The remaining $120K would need $3.0 MM at 4% and $4.0 MM at 3%. Technically, your house is part of your net worth but isn't used in calculating your investable income since it doesn't generate a return unless you sell it. The rental is generating an income that's counted separately and also not included in investable income.
I didn't include anything for SS and you didn't mention any pensions would would reduce your need for investment income. I also didn't include anything for childrens' college or other big expenses.
There's a lot involved in figuring out your "number." If you haven't already done so, try plugging your numbers into FireCalc and see what happens.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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07-17-2014, 05:36 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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Quote:
Originally Posted by philly17
I'm new to all the acronymns so please clarify : SWR, I assume it is something withdrawl rate?
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This will help: http://www.early-retirement.org/foru...rum-34884.html
__________________
Numbers is hard
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07-17-2014, 05:40 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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You NW is similar to mine, and I also have rental real estate. No kids, no mortgage for my home.
I am guessing your $2800 in rents is a gross amount, you still have to pay property taxes, insurance, mortgage, vacancy, management and maintenance, etc.
Plan on 50% of rents towards expenses, and pay the mortgage after. Generally, it's tough to make much money on a SF home. And it's not guaranteed every month. With one rental, you are 100% full, or 100% vacant.
When I look at my plan, and I plan for $10K per month, it's tough to do with my situation now and feel 100% comfortable. And I gross ~25K in rents per month, and have only ~$4500 in P&I expenses.
The 4% rule might be good for $80K, for 30 years. Or longer, or not, it depends on who you listen to. Do you feel lucky?
If you spend $80K, You will also need some for taxes. Plan on another $3K or so for that.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
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07-17-2014, 07:48 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,361
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Quote:
Originally Posted by philly17
...I am very conservative with my financial calculations and personal goal is to have $5M net worth in 7-8 years .....
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If you end up in the $5m range in 7-8 years you should be all set to retire and maintain your current lifestyle. $120k a year today will be ~$150k a year in 7-8 years assuming 3% annual inflation and $150k would be a 3% WR on $5m and SS would be gravy.
I suggest that you run your situation through Quicken Lifetime Planner (a retirement planning tool included in Quicken Deluxe and higher versions) or Firecalc, but you should be all set if you stay the course. Congratulations.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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07-17-2014, 08:22 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Sep 2013
Location: Cincinnati, OH
Posts: 4,373
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Quote:
Originally Posted by 2B
Welcome to the forum. You'll learn most of the jargon and acronymns quickly.
SWR is Safe Withdrawl Rate.
At $10K/mo after taxes you are definitely pushing things if you rely only on your portfolio. A single rental house may have a nice cash flow now but a bad tenant or a few empty months can create a financial mess. I'm suggesting caution on relying too much on this income without a reserve fund to cover problems.
The classic SWR is 4% of invested assets but many here recommend lower withdrawl rates for younger retirees. If you want $10K/mo, that's more like needing an income of $150K/yr. I'll give you $30K credit for the rental income but I'll repeat my caution on depending on it. The remaining $120K would need $3.0 MM at 4% and $4.0 MM at 3%. Technically, your house is part of your net worth but isn't used in calculating your investable income since it doesn't generate a return unless you sell it. The rental is generating an income that's counted separately and also not included in investable income.
I didn't include anything for SS and you didn't mention any pensions would would reduce your need for investment income. I also didn't include anything for childrens' college or other big expenses.
There's a lot involved in figuring out your "number." If you haven't already done so, try plugging your numbers into FireCalc and see what happens.
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Agree with this above. Your expenses are a bit high for your actual assets that you can get an income off of (not incl your personal house, and also real net income from rental) in order to meet your needs. You can go with a higher withdrawal rate, but then you risk depleting the assets before you are depleted
If you can grow the assets as you plan and for the next few years i think you are in a better situation financially to meet your goals. It may not take 7-8 years, depending on your savings and investment performances.
__________________
The problem isn't artificial intelligence, it's natural stupidity.
You can't spend yourself to prosperity.
Semi-Retired 7/1/16: working part-time (60%) for now [4/24/17 changed to 80%]
Retired Aug 2, 2017; age 53
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07-17-2014, 07:47 PM
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#9
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Dryer sheet aficionado
Join Date: Jul 2014
Posts: 26
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No doubt I can't retire yet and maybe my goal is not necessarily full retirement even in future. Retirement to me is not having to do a job/career to maximize income to maintain lifestyle and take care of family.
I'm currently in software sales and it provides a good living would welcome the opportunity to pursue other jobs in semi retirmeent that are much lower paying.
Where and what is Fire calc?
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07-17-2014, 07:55 PM
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#10
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Administrator
Join Date: Apr 2006
Posts: 23,036
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FIRECalc is a retirement calculator that allows you to input a variety of data about your assets, your spending, your asset allocation, etc. It then runs calculations based on historical data and generates, among other things, an estimate of success probability for your retirement. The link is at the bottom of every page.
And here http://firecalc.com/ for your added convenience.
__________________
Living an analog life in the Digital Age.
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07-17-2014, 08:02 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Location: Denver
Posts: 3,518
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To understand SWR, you should read Bengen's paper. He (among others) did the early research on this topic
http://www.retailinvestor.org/pdf/Bengen1.pdf
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