Magic Money Number

[airstyle]

I would be interested in hearing of saving amounts typically aimed at for ER. * The 1mil mark seems to be popular, but what about 500k, 750k, etc. *I realize much comes into play, i.e. debts, expenses, activities, etc.

If all goes well (prayer), in fours years we can have our home paid off *(200k value), and have a 401k value of around $700,000.

I would be 52 years old at that point and we would have to pay for our own health insurance.

Thanks.

Hello Airstyle! I semiretired in 1993 with a TOTAL
net worth between 100K and 200K. This is what Paul
Terhorst called "bare bones" retirement. I knew it would be tricky
but I was motivated. So, in my case, there never was a
"magic" target of any kind. I wanted to quit and I just quit.
Obviously this wouldn't work for most folks.

John Galt

Excellent advice from Jarhead! I will just add this.
My income is so low now that I pay little or no income tax (an unforseen advantage when I retired in 1993).
I never made a lot of money while I was working,
and in my biggest earning years we
spent it all anyway. The point is that it is
amazing how little you can live on if you are
sufficiently motivated. A retired friend told me that in
1977, when I was 33. He was right. The important thing is that we don't feel the least bit deprived.
We can do everything we want to do within the confines of our budget. No kidding!

John Galt

[unclemick]

33% That's my story - Dory 36's old post got me hooked on this forum because it rang true after ten plus years in ER.

Even then our expenses ran much lower in the early years so 33% of our combined salary(his and hers) was on the high side without any big changes in lifestyle.

The other way - make your expense and investment income lines cross ah la YMOYL(book) or John Galt.

We have no LTC insurance. Can't afford it so never
considered it. My parents have none either. They are
86 and 83 now. A bridge to be crossed at some point,
obviously.

John Galt

Bob, Johngalt,

The standard 'advice' is to get LTC ins. when you around 55 years old. This is what I have heard from various sources. If it fits into your budget go for it!

My Thinking on this may be a bit radical, but it is impossible to insure for all of life's curveballs. If someone told me that they had all the bases covered and were insured for everything - Well; they could still cross the street and get hit by a truck and be quadriplegic in an instant. *They might get by financially, but I'd be ready to cash in the chips at that point. I have already lived a more fufilled life than I imagined.

I have a friend on mine that got polio in the 1950's, it has now come back to haunt him with post polio syndrome. He is in constant pain, constant medication - although he has great ins. coverage. - He has told me that his ultimate policy is the 20 gauge in the closet and the shells in the nightstand. Sad, but realistic. - We do not know how to die as a society yet, but we have learned how to prolong a life with machines, drugs etc. - But what about the quality?

These are the bigger questions that we'll need to come to grips with. My doctor friends tell me privately that they have all helped people to die like Dr. Kevorikian has, they just don't publicize it.

I'm not itching to be long term Vegetable!

It does not matter what you do, we are all dead in the end. And as John Galt says Live for Today, you may not be here tomorrow!

[wabmester]

Quote:

I would be interested in hearing of saving amounts typically aimed at for ER. *

Your lifestyle is probably the biggest driver. During the last bubble, I though $10M would be a nice number. That would cover a small mansion, a small yacht, and a fairly comfortable income.

I have reset my expectations since then

If you're curious about where your net worth ranks you wealth-wise, check out the fed's survey of consumer finances:

http://www.federalreserve.gov/pubs/b...3/0103lead.pdf

Based on 2001 data, you're in the high end of the 75-90%, and you have twice the net worth of average retired folk. So, on a relative basis, you're in great shape.

wabmester,

$10 Million would be just fine for me . I'm not greedy

If you really want to see where your wealth ranks. Take a Global perspective.

http://www.globalrichlist.com/

[unclemick]

$10 million would have been just ducky in 1993, instead of the 300k
we started with. Which we ended up not touching through 2003. Long story but it can be done - including $50/day(ex- health insurance). Ours was a mish- mash of rental income, 1 yr temp job, div. stocks, selling the rental, etc.

I agree with John Galt as to first make the decision - or at least pick a target - then the numbers begin to fall in place as you work the problem for your situation.

The lowest 'media' magic number I remember was a Scott Burns article - ?400k?

[malakito]

I think my magic number turns out to be about $2.5M.

This is how I calculate it:

Spending. I take whatever Quicken said I spent for the last full calendar month and project that forward by an assumed inflation factor.

Assets. I take whatever Quicken says my current retirement account assets are as of today and project those forward by an assumed rate of return factor.

The factors I use are the longest term average I can find from sources I trust. I believe I am using 3.5% for inflation (many different sources) and 10.7% for rate of return (Ibbotson).

Ideally I would like to retire in September 2020 when our youngest heads off to college. So I look at what my Spending / Assets ratio is at that age, what our joint life expectancy will be, and what the REHP spreadsheet and FireCalc say is 100% safe at that age.

I then see how close my Spending / Assets ratio is to the safe withdrawal rate.

Right now, since I am ~17 years away, I am really using my spreadsheet as a tool to help ensure that I am leading a balanced life. We divide our expenditures into several "buckets" which we would like to fund equally:

1. Regular monthly bills -- mortgage, utilities, insurance, etc. -- that come every month from a specified place and for a relatively even amount.
2. Everyday spending -- groceries, gas for the cars, eating out, household items, etc. -- that we spend money for but don't receive a bill.
3. Retirement -- 401(k), etc.
4. Kid's college -- ESA's mostly.
5. Mid-range goals -- large-ish items that we want to buy that are too expensive to be included in #2 above. Things like a special big vacation for our fifteenth anniversary, etc. We use Quicken's Savings Goals for this.

Right now, for example, I would say we are at the following:

1. 100%
2. 100%
3. ~85%
4. 100%
5. 60%

So I know that if I get some unplanned income I should put it towards #3 or #5. Alternatively I could redirect some of the savings from #4.

This approach, I am finding, is very sensitive to the month-to-month fluctuations in Quicken and I'll have to do a more refined approach someday. For example, I have reflected a property tax payment in December, 2003 which raised our expenses by perhaps 20% over November's numbers.

malakito

I also use Quicken, but I think your numbers will be more accurate if you use yearly figures for spending etc.

Have you used Quicken's retirement Planner? - A lot of the calculations are already done for you with this tool. It also shows you the amount in today's Dolllars.

Note: you may want to plan on a little less return to be on the safe side. Maybe use a number like 8 or even 7 % return.

Also - I assume that you have figured out that a lot of your expenses will disappear by the time you quit working. Like the mortgage will probably be paid. But other expenses can rise like Medical costs, travel etc. Quicken retirement planner can account for this as well.

[JWR1945]

For Malakito:

Your estimated expenses are much too high. Dory36 has an excellent write up about retirement needs somewhere on these boards. I will be looking for it and I will link you to it when I finally locate it.

First: your house should be paid off (or very close to being paid off). You will have no mortgage expenses.
Next: you will not pay social security taxes.
Next: you will not be contributing to your retirement account.
Next: you should have very little coverage in the way of term life insurance.
But: you may or may not get health insurance among your retirement benefits. This is critically important. Even now! You need coverage before you get any kind of illness. Otherwise, you might not get coverage. This varies from state to state. The time between beginning retirement and getting Medicare is critically important.
Next: your kids will probably be out of your house. Teenagers are especially expensive.
Next: you may decide to move to a smaller, less expensive house when your kids are gone. That cuts utility bills and puts money into your investment accounts. There is such a thing as a house of the right size. Maintaining an unnecessarily large house is a chore.
Next: your home becomes a potential source of income via a reverse mortgage if something bad happens that you cannot plan for.
Finally: you may decide to move to a lower cost area and/or to a lower cost state. Many states favor retirees, but in a variety of different ways. I am especially fond of places such as Florida where there are no state income taxes. Not doing the paperwork is a blessing. But if you have large holdings outside of a retirement account, they may be subject to an intangibles tax. It doesn't cost very much (compared to most state income taxes), but it can be a real nuisance.

Be conservative about what you require from you investments. Pay very close attention to future medical needs. Be as realistic as you can about expenses.

And have lots of fun. I am enjoying retirement immensely.

John R.

Wow! According to John R., I am doing everything right!
BTW, when I worked in Detroit back in the 70s, I seem
to recall a major street named John R.

John Galt

[JWR1945]

For John Galt:

And you thought that people had been paying you well for your services, possibly more than you were worth. You didn't charge enough (as measure by dollars per your actual number of hours contributed)! Quality counts.

Have fun.

John R.

[JWR1945]

Here is a link to dory36's write up.

Section: Costs of Retirement Life
Article: 33%? That's my story.
http://www.early-retirement.org/cgi-...num=1033641894

Have fun.

John R.

[malakito]

[quote]For Malakito:

Your estimated expenses are much too high. *Dory36 has an excellent write up about retirement needs somewhere on these boards. *I will be looking for it and I will link you to it when I finally locate it.

malakito: I am not sure if they are too high or not. I posted a poll way back on TMF about retirement expenses versus pre-retirement expenses and the consensus then seemed to be that you needed 100% of pre-retirement expenses in retirement. This poll was conducted among early retirees, and there were a number of replies, so I think that is the best I can do for now. I agree that I will have to re-shoot the number using a more detailed approach at some point in the future when I get closer to FIRE.

As an aside to Cutthroat: I used to use annual numbers, but I now use monthly numbers for two reasons: It's easier from a spreadsheet point of view, and it will hopefully at some point reinforce to my wife that our expenses can swing my retirement date in either direction by several years (yearly data doesn't have as quick of a feedback loop). When I do a more detailed look at things I will certainly look at data for a full year if not longer.

First: your house should be paid off (or very close to being paid off). *You will have no mortgage expenses.

malakito: Yes. I don't have an actual plan to pay off my house yet, but what I do in my spreadsheet is subtract my projected outstanding mortgage balance (easy to do with a fixed rate mortgage) from my projected investment assets before calculating my Spending/Assets ratio. Currently interest expense on my mortgage is my largest or second largest expense (taxes is the other top one). I don't count the principal part of my mortgage payment as an Expense; I treat it as an increase in net worth because it increases my home equity. I don't include home equity in my assets for the purposes of the 4% rule, though. I consider my home equity to be a fall-back asset for a reverse mortgage or HELOC if things turn ugly.

Next: you will not pay social security taxes.

malakito: Yes. Also, my income taxes will drop by quite a bit, primarily because I won't have to pay taxes on the money that I am earning and saving during my earning years. Overall I assume, and this is a very rough and crude assumption, that my overall tax burden will drop by an amount equal to the increase in my health care insurance premiums.

Next: you will not be contributing to your retirement account.

malakito: Yes. I don't consider this to be Spending, because in Quicken it becomes a transfer from my paycheck to my 401(k) for example. So this is considered an increase in my Assets.

Next: you should have very little coverage in the way of term life insurance.

malakito: Yes. However, the amount I spend on term life insurance now is, relatively speaking, a rounding error compared with other spending. I already project our life insurance needs and have already started reducing it as our assets grow. I certainly expect to have no need for insurance by the time I reach FIRE (by definition) and possibly sooner.

But: you may or may not get health insurance among your retirement benefits. *This is critically important. *Even now! *You need coverage before you get any kind of illness. Otherwise, you might not get coverage. *This varies from state to state. *The time between beginning retirement and getting Medicare is critically important.

malakito: Yup. I will be 51 in September 2020, so Medicare coverage would presumably be 14-16 years away at that point (I know my "full SS age" is 67 since I was born in 1969; I don't know if Medicare has adopted the older age thing too.) Currently I am covered through my employer and will plan to get catastrophic coverage at retirement, paid for by the reduction in my tax burden, as noted above.

[malakito]

(This board has limits on length of posts.)

Next: your kids will probably be out of your house. Teenagers are especially expensive.

malakito: Yup. That's why I have somewhat arbitrarily chosen September 2020, which is when our youngest will head off to college (welll, she'll be 18 then, anyhow). I recognize that our expenses should drop even further with the kids out of the home. I don't model this in my spreadsheet at all, although I could. I guess I am considering this a second safety-factor.

Overall, though, I don't want to try to guess how much our spending will be when our kids leave home in advance of it actually happening. Also, I have their college accounts that I will be funding up to that age, and overlapping the last few years of kids expenses & college savings with the first few years of retirement is a complicated exercise. However, depending how I feel in, say, September 2017, I might try to figure it out.

Next: you may decide to move to a smaller, less expensive house when your kids are gone. That cuts utility bills and puts money into your investment accounts. There is such a thing as a house of the right size. Maintaining an unnecessarily large house is a chore.

malakito: Uh, maybe. I have this on my list of possible assumptions. Right now I have an overarching assumption in my model that life remains status quo, which would imply staying in our current house. Our current house is ~2700 square feet and 4 bedrooms, so it would certainly be adequate to large when the kids are gone. However, my wife is kind of entrepreneurial, so she might want to start a business out of one of the kids' bedrooms, one might become a guest room, etc. As far as house expenses I did have this one built with extra insulation and energy efficient windows and appliances, so maintenance costs in terms of utilities are actually almost the same as our prior ~1500 square foot house.

Another thing to consider is that after living in the same area most of my life, I expect to have developed roots. My parents still live in the same house I grew up in. They talk about moving but probably never will because they've lived in the same house and town for 30 years. All their friends are there, their activities are there, etc.

Next: your home becomes a potential source of income via a reverse mortgage if something bad happens that you cannot plan for.

malakito: Yup, but don't want to plan on it.

Finally: you may decide to move to a lower cost area and/or to a lower cost state. Many states favor retirees, but in a variety of different ways. I am especially fond of places such as Florida where there are no state income taxes. Not doing the paperwork is a blessing. But if you have large holdings outside of a retirement account, they may be subject to an intangibles tax. It doesn't cost very much (compared to most state income taxes), but it can be a real nuisance.

malakito: I already live in a fairly low cost of living state and relatively low-tax state. I've visited Florida several times and at this point wouldn't want to live there.

Be conservative about what you require from you investments. Pay very close attention to future medical needs. Be as realistic as you can about expenses.

malakito: Yeah, that is why I try to set my expectations based on the longest term average I can find. It's funny: everyone seems to think 10.7% is too aggressive now after the 2000-2002 years, but in the 1997-2000 years everyone was saying it was too conservative. I was invested basically 100% in the S&P500 during both of those time frames, and am still invested that way. In 2003 Quicken tells me that my investments were up around 32% (I beat the S&P last year mostly because I had about 14% of Assets in my employer's stock, and my employer's stock handily beat the S&P this year). I've read the arguments on all sides and frankly I think 10.7% is a reasonable assumption.

And have lots of fun. I am enjoying retirement immensely.

malakito: I plan to. Thanks for the detailed reply. I've considered everything a lot over the past five years or so, but I always appreciate input because it causes me to re-think the parts that could be weak.

You know, in my case 100% of expenses is much higher than 33% of income -- nearly double, in fact. I wonder which is the better benchmark for a person in my situation.

John R.[/quote]

malakito.

Just a quickie re. house size. When I was single
1998 until 2001, I lived in a 600 SF apartment, but I
did have a detached garage. Plenty of room for me and
one fat Labrador Retriever. When I remarried in 2001,
we bought a 1000 SF cottage (both of these properties
are waterfront). This includes a one car attached garage and provides plenty of room for the 2 of us and
the dogs (now numbered 4). The point is that we are saving a bunch of money and hassle by forgoing a
larger house. If I was able, I would probably build a
smaller one for our eventual relocation south.
Another advantage is that it forces you to decide what to keep and what to dispose of. BTW, I happened to
visit my bachelor digs last week. I am not so sure that
we couldn't have made due with that rather than buy here,
although both are in really beautiful spots, or at least
as beautiful as Illinois gets.

John Galt

[JWR1945]

For malakito:

Your own numbers are always the best.

33% may be great for dory36 and it's a great number to start with, but you are not dory36 nor are you one of those who say 80% or 100%. You can always put in qualifiers that make the numbers fit. That is, 33% of what? And, of course, it is 80% to 100% of something else.

What you are doing is a great idea. Thinking through the process is worthwhile and it can yield some powerful insights.

Have fun.

John R.

[malakito]

JWR1945,

Yeah. To me it's the balance thing between the safety of saving enough to make sure you never run out versus the risk of working too long. From what I read here, it seems that most work a few years "too long", and I would tend to lean that way myself. I think I'd rather end up with the problem of having too much money and having spent a few years extra on the job.

However, probably in 5-10 years I will take a closer look at it (I know I can't retire now!), because if I use dory's 33% of income benchmark instead of my 100% of Quicken spending benchmark, that would be a difference of, I'm guessing, about 8 years (i.e., retire in 2012). Those 8 years between 2012 and 2020 would be pretty valuable years in that I could spend a lot of time with my kids before they leave the nest.

However however, it's awfully hard to try to do a prediction at age 42 with three kids at home to see if you have enough for their expenses, college expenses, and retirement expenses for the next 50 years. Again the comfort factor comes into play.

malakito