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Old 03-12-2015, 06:33 PM   #61
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....if you FIRED at 55, had a mortgage, travelled and hung out at your country club every day (when not travelling) I don't think it's an insanely high number
Not insanely high, but IMO much more than what one "needs" to retire unless you live in a high COL area or have a high lifestyle.

I retired at 56, refinanced just prior to retiring so I have a mortgage, we travel some (just got back from 8 weeks down south), we both belong to the country club and also golf while on vacation and at courses other than our home course, and live quite comfortable on less than $2.5 million and sleep quite well at night.
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Old 03-12-2015, 06:50 PM   #62
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...I'd like to see your math. ....
How's this.... if you have $2.5 million and can invest it and earn a real return of 2.5% then you could withdraw $88k in the first year (and adjust it for inflation every subsequent year) for 50 years.

The present value of $88k a year for 50 years at 2.5% is $2.496 million.

As a point of reference, the historical nominal rate of return for a 60/40 portfolio is 8.8% and inflation is 3% so the net real return is 5.9% so there is a lot of provision for adverse results built into the 2.5% discount rate.
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Old 03-12-2015, 07:03 PM   #63
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How's this.... if you have $2.5 million and can invest it and earn a real return of 2.5% then you could withdraw $88k in the first year (and adjust it for inflation every subsequent year) for 50 years.

The present value of $88k a year for 50 years at 2.5% is $2.496 million.

As a point of reference, the historical nominal rate of return for a 60/40 portfolio is 8.8% and inflation is 3% so the net real return is 5.9% so there is a lot of provision for adverse results built into the 2.5% discount rate.

I hope the nominal rate of return by historical standards continues to hold true! I would be happy with 2.5% real rate of return over 50 years. Having 88K equivalent per year and leave nothing to heirs is doable.

Sadly. Hope is not a plan ....
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Old 03-12-2015, 10:03 PM   #64
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Not insanely high, but IMO much more than what one "needs" to retire unless you live in a high COL area or have a high lifestyle.
[...]
Here's the exact quote from the article (emphasis is mine).
"According to a recent Legg Mason survey, U.S. investors said they will need an average of $2.5 million in retirement to enjoy the quality of life they have today."

I think the article's title (and OP's paraphrasing of the thesis) may have led this conversation down a path that wasn't really implied by the content of the article itself.

Really what this might be interpreted to be saying is that the people in the survey are enjoying lifestyles that cost them around $75K a year today (or $88K or whatever the investors in the survey thought their spending level could be on a nest egg of $2.5M). That doesn't sound too unreasonable to me.
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Old 03-13-2015, 12:16 AM   #65
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I hope we don't need $2.5 million to retire, because we are only going to have about half of that, plus a little bit of rental income a few years after retirement when the mortgage is paid off. I will be 40 & my S.O. will be 58. I may still work part time just to reduce our risk a little more. We live in a less expensive metro area in the Midwest. I can't imagine how many more years we would have to work to double our nest egg. Ugh!
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Old 03-13-2015, 12:59 AM   #66
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What I need more than the 2.5M in investable assets and a high likelihood of a good SS chunk beginning in 5 to 12 years is the courage to take a leap of faith. Like many on this forum I have long realized that no matter how long I work and save nothing will guarantee financial security. Peace of mind with that leap of faith is gradually setting in as I get less and less comfortable with the alternative of waiting too long to enjoy the good years DW and I have left. Spreadsheets, simulations etc.. have been of major help figuring out a rational ballpark number for RE. That has been the easy part. Now we need to want freedom enough to take some risk.
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Old 03-13-2015, 05:38 AM   #67
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Me and DW trying to do a pro-forma post FIRE budget. The stuff that's expensive is 1) health insurance - which is easily as much as a mortgage payment as we won't get ACA subsidies for a few years post FIRE and 2) other forms of insurance eg Umbrella liability policy. Disability insurance and with teen drivers, car insurance. 3). Cellphone service seems ridiculously expensive by historic "utilities" cost.

With just basics we are well over 5k per month - in middle America and we have no mortgage. Also that is basic as in No special travel and no sinking fund to set aside the annual deductible and max OOP for healthcare each year.
Some things to reconsider--
Disability insurance? In retirement? What is that?

Car insurance for teen drivers? I know it may sometimes feel like it, but they are not teens forever. The cost to insure them is not something that has to be budgeted for the entire 40+ years of retirement. That cost goes away-- or should, anyway.

A good Health insurance plan is clearly going to be the major monthly expense, but should be less than $2000 a month. But surely,(and no I won't stop calling you Shirley) it too should go down a little when you reach Medicare age.

Depending on local tax rates, property/real estate taxes can be the next most likely large on-going expense in perpetuity.





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Old 03-13-2015, 07:19 AM   #68
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....Me and DW trying to do a pro-forma post FIRE budget. The stuff that's expensive is 1) health insurance - which is easily as much as a mortgage payment as we won't get ACA subsidies for a few years post FIRE and 2) other forms of insurance eg Umbrella liability policy. Disability insurance and with teen drivers, car insurance. 3). Cellphone service seems ridiculously expensive by historic "utilities" cost.....

Looking again at the article, $2.5M or equivalent in annuitized income is reasonable to retire with low risk of running out of money over a long ( 35+ year retirement). With that sort of duration and need for inflation protection, @ $2.5m, I would be scared to spend more than 2.5% or about $62k SWR annually.
Some thoughts from our experience. If health insurance costs more than 8% of your income then you can buy catastrophic health insurance even thought you are over 30. We do this and in our state the catastrophic coverage is 40% less than bronze level coverage and the coverage is not that different. YMMV and I understand that in other states there is not as much of a difference in premiums so there are not as much in savings. Also, we buy individual policies to get a better value since in our state cat policies for more than one person have aggregate deductibles rather than stacked deductibles so if we were to have a health event the insurance would kick in earlier.

If you have enough to retire early then you don't need disability insurance, which people buy to protect their income from a disability where they can no longer work.

Our cellphone service costs us only $10/month per phone through airvoicewireless but we bring our own AT&T phone and our cellphone needs are modest. They have other plans that would cover us for a bit more if we needed more service. $10 gives you 30 days of service and the $10 is reduced by 4 cents for each minute of voice, 2 cents for each incoming or outgoing text and 6 cents per mb for data.

But to be honest, if you would be scared to have a WR of more than 2.5%, you probably are not ready. Our WR is currently a bit high but it will go down when my pension and our SS start. I focus on the projected WR once those flows have started rather than our initial WR.
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Old 03-13-2015, 07:59 AM   #69
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I hope the nominal rate of return by historical standards continues to hold true! I would be happy with 2.5% real rate of return over 50 years. Having 88K equivalent per year and leave nothing to heirs is doable.

Sadly. Hope is not a plan ....
I just ran those numbers through FireCalc: $2.5M starting portfolio, $88K per year withdrawal, adjusting for inflation, 50 year time span.

FireCalc looked at the 94 past 50 year periods that it has to reference, and only one cycle failed. Overall success rate, 98.9%. Average ending portfolio balance, $12,451,002. Range of $48,243,830 to -$795,997.

So, at $88K per year, there's a good chance you're going to leave money to your heirs. A lot of it.
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Old 03-13-2015, 09:39 AM   #70
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I just ran those numbers through FireCalc: $2.5M starting portfolio, $88K per year withdrawal, adjusting for inflation, 50 year time span.

FireCalc looked at the 94 past 50 year periods that it has to reference, and only one cycle failed. Overall success rate, 98.9%. Average ending portfolio balance, $12,451,002. Range of $48,243,830 to -$795,997.

So, at $88K per year, there's a good chance you're going to leave money to your heirs. A lot of it.
So what does this really tell you about the SWR, Firecalc, etc? It is good to live below your means... but in retirement you need some flexibility. If the market is bad...you may need to tighten up a bit, especially during early years of retirement. You do need some protection from the -798997 case by being able to reduce spending. That said... if the market is good, you need to be able to spend a tad more unless you want the extra $ to do something specific after you pass. Leaving $48Mil to no one would likely mean you should have spent more.
I try to use things like Firecal or FRIP to plan with no cases failing and plan to live on that amount. However, the mean (50% likely) case really means you have a good chance of being able to spend more.
The real take away is to plan for the 90% to 99% likelihood case, but be flexible to party a bit more.
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Old 03-13-2015, 09:50 AM   #71
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I totally agree.... the inevitable dilemma is that you likely won't know whether you are on the -$796k track or the $12.5 million track or the $48.2 million track until you are probably too old to enjoy that higher level of spending. In a way, a WR with high success rate means almost spending to an investment results worst case scenario.

Taking the situation above, I suspect that once I got to some $ level that I would probably just spend anything that accumulates above that $ amount being careful not to use thse surplus funds to buy things that would increase my annual expenses so I could scale back if I needed to.
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Old 03-13-2015, 10:01 AM   #72
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One other detail to take into account with FireCalc. If you're using a 50 year timeframe, that means that the most recent period in history it has to pull from would be 1964-2014, right?

I know it's been suggested in the past to run those same scenarios for shorter timeframes, just to take into account some of the more recent turmoil, such as the later 60's, the first oil embargo, etc. If you shorten that period to 40 years, whereby the most recent scenario would be 1974-2014, the success rate drops a bit to 96.2%. Shorten it to 30 years, and it's up to 100%.

In my case, I'm planning for a 95% success rate. But, like pb4uski said, if the portfolio grows too fast, too early on, I'd probably spend a bit more and have some fun with it. Also, if it grew too fast, I'd probably end up cashing in some profit and reinvesting into something a bit more conservative. So that might stifle future gains a bit, but would also soften some of the blows.
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Old 03-13-2015, 10:47 AM   #73
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How old are you?
What are your current expenses?
How long to you hope to be retired ?
How much is comfortable to you?
Do you have pensions ?
How old was mom when she retired? Bet she got full SS too...


I'd like to see your math. I'm in fly over states and think more than 2.5m would be necessary to sustain us from mid 40's through end of life. Now If you're 63 and "retiring early" with SS now or within the next few years, I get what you're saying.

But this is an early retirement board and that implies retiring in 40's or early 50s. I think that's where things are different.

Social security likely to be reduced or not around at a in another 25-30 years. No pensions .. It's all on our own.

Again i would like to see your math. What do you think you'll spend and how will you source that money in retirement ( thud....the sound of reality check).
51 will be 52 at retirement.
Living expenses a bit over 40K should be comfortable on 35-36K.
Already said no pensions. Rentals here don't return what others have reported but then expenses are lower--should supply about 12-20K per year depending on what breaks. 401K and IRAs about $1M. Maybe another $100K in outside funds. House will be paid for.

Mom was in her late 40's when Dad died. No life insurance no pension but the house was paid for. Several rental properties. She sold all but one within 10 years and put my brother and I thru college. Didn't take SS until she was 67 I think.
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Old 03-13-2015, 01:02 PM   #74
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My budget is 100k per year and I do not "live large". My HC budget is 25k annually (because I am conservative I've including hitting the OOP max each year), my "accruals" are 11k per year (and include new roof every 15 years, updated used car every 15 years, updated furniture every 10 years, new appliances every 10 years, new HVAC every 10 years, repainting every 15 years, and regular ongoing home repairs/maintenance at 1%). I have 5k for travel. I have no mortgage and live in a very modest 30 year old 1400 sq ft house. I have two cars- one is 16 yo and the other is 5. I do not belong to a country club, I do not eat out more than 1x a month .... I do not "live large". I know I have alot budgeted for "worst case scenarios" but once ER'd its a hard road back into the w*rkforce so I'd rather save a bit more than I need. In 10 years when I am 62 I can re-evaluate and if I need to spend more on travel to deplete my portfolio I'm sure I can find a way to do so.
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Old 03-13-2015, 01:14 PM   #75
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My budget is 100k per year and I do not "live large". My HC budget is 25k annually (because I am conservative I've including hitting the OOP max each year), my "accruals" are 11k per year (and include new roof every 15 years, updated used car every 15 years, updated furniture every 10 years, new appliances every 10 years, new HVAC every 10 years, repainting every 15 years, and regular ongoing home repairs/maintenance at 1%). I have 5k for travel. I have no mortgage and live in a very modest 30 year old 1400 sq ft house. I have two cars- one is 16 yo and the other is 5. I do not belong to a country club, I do not eat out more than 1x a month .... I do not "live large". I know I have alot budgeted for "worst case scenarios" but once ER'd its a hard road back into the w*rkforce so I'd rather save a bit more than I need. In 10 years when I am 62 I can re-evaluate and if I need to spend more on travel to deplete my portfolio I'm sure I can find a way to do so.

How much of your budget have you been spending per year? Do you put the remainig $$ back into your portfolio?
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Old 03-13-2015, 01:41 PM   #76
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How much of your budget have you been spending per year? Do you put the remainig $$ back into your portfolio?
For 2012 - 2014 my average spend has been 82k per year. Since I still have employer HC I am "only" spending 8k per year vs my 25k budget. I have left the difference in the portfolio which has an AA of 55/40/5.
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Old 03-13-2015, 01:47 PM   #77
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My budget is 100k per year and I do not "live large". My HC budget is 25k annually (because I am conservative I've including hitting the OOP max each year), my "accruals" are 11k per year (and include new roof every 15 years, updated used car every 15 years, updated furniture every 10 years, new appliances every 10 years, new HVAC every 10 years, repainting every 15 years, and regular ongoing home repairs/maintenance at 1%). I have 5k for travel. I have no mortgage and live in a very modest 30 year old 1400 sq ft house. I have two cars- one is 16 yo and the other is 5. I do not belong to a country club, I do not eat out more than 1x a month .... I do not "live large". I know I have alot budgeted for "worst case scenarios" but once ER'd its a hard road back into the w*rkforce so I'd rather save a bit more than I need. In 10 years when I am 62 I can re-evaluate and if I need to spend more on travel to deplete my portfolio I'm sure I can find a way to do so.
You've mentioned budgeting for max OOP for healthcare. I get that - this is my first year on a high deductible plan and by the end of February we were at 46% of our max OOP thanks to unexpected events with my kids.

That said - for years you DO NOT hit the max OOP - do you roll the balance over to the next year's max OOP? Do you spend it?

I'm thinking we have a sinking fund (like for new cars/roofs/heaters, etc) for the amount above our AVERAGE OOP... I don't see a reason to fund for max OOP each year unless someone in my family develops a condition that requires expensive, ongoing treatment that will cause us to hit max OOP each year. (Chemo would be an example.)
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Old 03-13-2015, 02:04 PM   #78
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You've mentioned budgeting for max OOP for healthcare. I get that - this is my first year on a high deductible plan and by the end of February we were at 46% of our max OOP thanks to unexpected events with my kids.

That said - for years you DO NOT hit the max OOP - do you roll the balance over to the next year's max OOP? Do you spend it?

I'm thinking we have a sinking fund (like for new cars/roofs/heaters, etc) for the amount above our AVERAGE OOP... I don't see a reason to fund for max OOP each year unless someone in my family develops a condition that requires expensive, ongoing treatment that will cause us to hit max OOP each year. (Chemo would be an example.)
For me I will hit the OOP each year (ongoing non-life threatening condition needing monthly treatment). DH may not hit OOP.

My theory is that I will roll 1/2 the unused OOP max to the subsequent years travel budget and leave the other 1/2 in the portfolio during the first 10 years of ER. At 62 I will reevaluate the entire portfolio and up the annual travel budget if I can.
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Old 03-13-2015, 02:08 PM   #79
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This one scary thread for those of us looking to ER in the next year. Just like Bogleheads, as mentioned by an earlier poster, the numbers have taken off faster than, dare I say, medical costs over the last 6 years.
However, my situation really hasn't changed all that much. The value of my portfolio is greater than what I projected and I have enough stashed away for the next 10-15 years no problem. The rest is tucked away to grow for future use which I hope I'll need.
I can either mentally account for it with a total return approach, or use the buckets. A 45/40/15 allocation with considerably less than 2.5 mill suites me fine.
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Old 03-13-2015, 02:45 PM   #80
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It depends on what type of assets they are as well. Brokerage, IRA, 401k, etc. If I had $2.5m in a brokerage account, I could invest it and live off the dividends and income alone. $2.5m in tax free muni's would provide a good amount of income.
With that being said, I live below my means, don't have expensive taste and enjoy the simpler things in life.
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