I'm 53 with a 401K and pension (lump sum) that are currently worth about $950,000 together. I visited with my financial advisor yesterday and told her that I think I'll need $4000 a month after taxes when I retire, hopefully at age 56 or 57. She said she thinks I'm "in the ballpark". What do you think?
$4000 a month net income possible?
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ziggy29
Moderator Emeritus
Trying to generate $48,000 a year on a $950,000 portfolio is more than a 5% withdrawal rate. Seems pretty aggressive to me, but it's also true that you can ratchet this back when you start collecting SS. Have you put this scenario through FIRECalc?
And what is your health insurance situation? Is that settled and secured? If not that would be an added consideration.
And what is your health insurance situation? Is that settled and secured? If not that would be an added consideration.
W2R
Moderator Emeritus
Sounds like you are doing very nicely, though I do agree that 5% is pretty aggressive.
At 53, some might assume they would get nothing from SS, and some might assume they would eventually get full SS. It might be good to think of a "Plan B" in case it is needed.
At 53, some might assume they would get nothing from SS, and some might assume they would eventually get full SS. It might be good to think of a "Plan B" in case it is needed.
OP:
Doing some simple math. $4000 x 12 months = $ 48,000 annual income
Divide by $ 950,000 = 5.05% return needed.
This is before taxes. Rule of thumb is 4% withdrawal rate.
You will have to earn more than 5.05 % return to produce a $ 48,000 income.
Also, take into inflation the $ 48,000 will need to increase.
1. Is your pension tied to inflation.
2. Are you elgible for social security
3. Do you have a home paid for. If you rent, your expenses will rise each
year.
Just my 2 cents, but unless you have additional assets, I think your financial advisor is being to optomistic.
Doing some simple math. $4000 x 12 months = $ 48,000 annual income
Divide by $ 950,000 = 5.05% return needed.
This is before taxes. Rule of thumb is 4% withdrawal rate.
You will have to earn more than 5.05 % return to produce a $ 48,000 income.
Also, take into inflation the $ 48,000 will need to increase.
1. Is your pension tied to inflation.
2. Are you elgible for social security
3. Do you have a home paid for. If you rent, your expenses will rise each
year.
Just my 2 cents, but unless you have additional assets, I think your financial advisor is being to optomistic.
OP:
I also agree with ziggy 29. Medical insurance is a top priority.
If you are elgible, does it cover, dental and vision. Medical expenses are very expensive when you retire.
Also, premiums rise every year. I've been retired 8 years now. The first year our premiums were about $ 79 a month.
Currently our premiums are $ 511 a month. Only medical. $ 3000 deductible. No vision or dental included.
I also agree with ziggy 29. Medical insurance is a top priority.
If you are elgible, does it cover, dental and vision. Medical expenses are very expensive when you retire.
Also, premiums rise every year. I've been retired 8 years now. The first year our premiums were about $ 79 a month.
Currently our premiums are $ 511 a month. Only medical. $ 3000 deductible. No vision or dental included.
You really need to determine what you need with taxes, as that too will need to come from your portfolio.
Though personally not a fan, you might consider an annuity, and like others said, take into account social security. I would also assume that perhaps your advisor gave you a written plan as to how you will get to your desired retirement. If you have a spouse, there may be add'l social security. I think you will get SS, how much or when it is available may change however by the time you would like it.
W2R
Moderator Emeritus
Suppose you expect $1500 after taxes from SS at age 62 ($18,000/year). You have 9 years to go, so that would be $162,000. If you subtract that from your nestegg, that leaves you with $788,000.
4% of $788,000 gives you $2627/month before taxes, maybe $2233/month after taxes. $2233+$1500 = $3733/month.
3.5% of $788,000 might be a better withdrawal rate, though, since you are only 53. That would give you $2298/month before taxes, maybe $1954/month after taxes. $1954+1500 = $3454/month.
Like your financial advisor said, you are close (based on the assumptions above, which are probably incorrect anyway!). It might be pretty dicey making ends meet, though, especially if SS doesn't provide as expected.
4% of $788,000 gives you $2627/month before taxes, maybe $2233/month after taxes. $2233+$1500 = $3733/month.
3.5% of $788,000 might be a better withdrawal rate, though, since you are only 53. That would give you $2298/month before taxes, maybe $1954/month after taxes. $1954+1500 = $3454/month.
Like your financial advisor said, you are close (based on the assumptions above, which are probably incorrect anyway!). It might be pretty dicey making ends meet, though, especially if SS doesn't provide as expected.
dex
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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More info needed as to other sources of income from 56 or 57 and what year the income would kick in.
First,... I'm hoping that my portfolio will grow some in the next 3-4 years.
Also, I do have retiree health insurance (Megacorp), and will also start receiving Army Reserve pension when I turn 60 (to include TriCare health insurance). Finally,... I am eligible for SS (if there is any left).
Now what do you think?
Also, I do have retiree health insurance (Megacorp), and will also start receiving Army Reserve pension when I turn 60 (to include TriCare health insurance). Finally,... I am eligible for SS (if there is any left).
Now what do you think?
ziggy29
Moderator Emeritus
Especially if they are in a position to save rather aggressively in the last 3-4 years of w*rking. That could actually tip the scales into making the numbers work.
This makes me more inclined to think the numbers can be made to work. How large is the Army Reserve pension and what do you expect to be able to get from SS? I just read the "after taxes" part, though, which raises the bar.
Keep in mind also that your portfolio has the potential to drop, too. As you get closer to retirement it might be good to keep a few years of income outside of riskier investments so you wouldn't have to sell stocks at low prices into a bear market.
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Bestwifeever
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Oh, yeah, run your own numbers here: FIRECalc: A different kind of retirement calculator
and see what you think!
You have a nice amount of $$ to retire on. Are you planning on the Reserves pension to be in addition to the $4K a month you want?
and see what you think!
You have a nice amount of $$ to retire on. Are you planning on the Reserves pension to be in addition to the $4K a month you want?
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ziggy29
Moderator Emeritus
I didn't forget that. I considered it mostly irrelevant for planning purposes. I for one wouldn't base a financial decision on what I think the market "should" do over a three year period, knowing that the range of potential market outcomes over a three year period range from very good (1996-99 or even 2003-05) to rather terrible (1971-74, 2006-09).
Frankly, if the OP is fairly heavily invested in equities, a bear market in the next 3-4 years is likely to postpone retirement, possibly by several years. The numbers are close enough that a 20% portfolio hit pours cold water on it.
W2R
Moderator Emeritus
Oh, oops! I missed that part of his post saying that he was going to work 3-4 more years. Ignore my figures above.
I guess between that, and the incomplete information provided (we still don't know about SS amount, or the amount of his Army Reserve pension that apparently he forgot to mention) it would have been impossible to get any idea whether or not the OP was close to his $4000/month goal so most/all of our posts up to here and beyond can probably be ignored as well.
dex
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Numbers would be helpful. But you only need 48K for 3-4 years; then 48K-pension at 60, then 48K-pension-SS when you take it - this ignores inflation for simplicity.
Fill in the numbers - What is the net you need from your investments at the age you take SS? Is it doable? What do you think?
Sea Kayaker
Recycles dryer sheets
This post really interests me because it is also my hope to FIRE with hopes of being able to generate $4000 a month.... my portfolio would also be between 1m and 1.2m. But things get a bit murkier for me, considering I will be 45 when I want to exit the rat race ( seven years from now ). Then factor in that my wife actually ENJOYS her job and might want to keep working...
And though I feel like a bit of a dirtbag even thinking about it, I'm likely in line for a considerable inheritance. Don't really know how to quantify "considerable", but the more I think about it, it should allow me to perhaps stray away from the 4% SWR... then again, sometimes I think I really have no idea what the heck I am doing... Thats why I am a frequent lurker, and rare poster on this board.
And though I feel like a bit of a dirtbag even thinking about it, I'm likely in line for a considerable inheritance. Don't really know how to quantify "considerable", but the more I think about it, it should allow me to perhaps stray away from the 4% SWR... then again, sometimes I think I really have no idea what the heck I am doing...
Thats why I am a frequent lurker, and rare poster on this board.
ziggy29
Moderator Emeritus
That actually makes it easier ***if*** both (a) it wouldn't cause you to be bored or restless because you were alone so much and (b) she doesn't resent you not w*rking while she still does. Especially if it's a fairly secure job with health insurance. You'd probably have to promise to do almost all the housework and run almost all the errands, though, or else she'd really be getting a raw deal.
W2R
Moderator Emeritus
You are not a dirtbag to think of it.
As one who has already inherited to one who may, I would urge you to NEVER depend on an inheritance in your ER plans, until the money actually has been distributed to you and is in your bank account. Seriously you never know what might happen. End of life expenses and other unexpected expenses can be monstrous, and if you aren't counting on it then you aren't going to be disappointed.
If you can, do spend some time with your loved one from whom you may inherit. The richest inheritance you can get is the love, caring, and perspectives of such a person. Not to say that you didn't already know that.
More info. Army Reserve retirement shoud be around $800 per month (before taxes). Wife is 12 years my junior and will continue to work for about another 10 years. And I totallly forgot to mention that I draw a tax free VA pension of $1300 per month for a service related disability.
I'd still like to draw between $3500 - $4000 a month after taxes from my investments alone.
Now whatcha think?
I'd still like to draw between $3500 - $4000 a month after taxes from my investments alone.
Now whatcha think?
dex
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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I think you are pulling our chain.
ziggy29
Moderator Emeritus
Agreed. I have a rough idea of what I *think* I'd have coming in my inheritance from my mom, but (a) it's her money to spend as she sees fit (though she's very unlikely to do it as she's a very simple/frugal/LBYM type) and (b) I hope to not see it for a long, long time if it comes. She carries LTCI as well (which already paid for itself helped in my dad's final few months fighting cancer) so medical/LTC costs aren't too likely to break her (but still remotely possible). Still, I'm not assuming anything and the expected inheritance isn't even in my long term financial plan.
She is, on the other hand, starting to gift her kids with money she feels very confident she'll never need from time to time, preferring to see her kids put it to good use in their lives while she's still around to feel good about it. She says that's what Dad would have wanted. Dad's philosophy was to save as much of his SS check as he could because he felt he was getting a good deal from it while his kids would be screwed by it, and he considered saving it for the inheritance as giving his kids a better deal from SS.
Midpack
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
The 4% SWR rule of thumb is based on a 30 year retirement window, so it might pose more longevity risk than a 56-57 year old might be comfortable with.
Don't know if this will help you but....I'm 55 with $1,025,00 in investable assets and with the ability to sock another $80,000 away each year for the next 4 years at which time I plan to officially retire. Hoping the investable asset bucket will be between 1.3 to 1.5 million but there are no crystal balls. If the market does nothing, investable assets will be closer to 1.3m, if it does well it will be closer to 1.5m, if it goes south...well...you know the drill here. In 4 years my home will be paid for. Income will come from board fees of $18,000/year and K1 income from family business which historically runs anywhere from $50,000/yr to $100,000 + a year as well as whatever interest I'm able to get off some CD's (currently running about $30,000 a year).....all of this is before tax. My plan is to live off whatever income is generated from the Board fees, K1 income from famly business, CD interest and any SS I may be entitled to....while allowing my stock market investments to continue to grow( with any luck!). Once my house is paid for ...I need $3,600 a month which is my bare bones budget...meaning being able to pay the bills and expenses....life and owning a home requires. I have to pay for my health care.
Personally I am more comfortable with 1.5M to 2 M in investable assets ...which is why...even though I might be able to draw down my investable assets...I'm going to try not to...living on what actually comes in as income....until my assets get closer to the 2m mark.
The other thing I have done...unlike some advice from the brokers and financial planners ...is I currently have 13-15 years of 50K income NET of taxes socked away in Certificates of Deposit....so that if the market gyrates...I know I have a 13 - 15 year safety net. These last 2 bubbles did me in and ...I need to sleep at night.
I think you are well on your way....and have a comfortable nest egg that will afford you to "change gears" should you need to. But like others here...taxes...are a consideration. Generating $48,000 on a 1M nest egg sounds easy ...on the surface...until taxes are factored in. Save all you can beween now and the moment you retire. It will never be easier to do so.
Personally I am more comfortable with 1.5M to 2 M in investable assets ...which is why...even though I might be able to draw down my investable assets...I'm going to try not to...living on what actually comes in as income....until my assets get closer to the 2m mark.
The other thing I have done...unlike some advice from the brokers and financial planners ...is I currently have 13-15 years of 50K income NET of taxes socked away in Certificates of Deposit....so that if the market gyrates...I know I have a 13 - 15 year safety net. These last 2 bubbles did me in and ...I need to sleep at night.
I think you are well on your way....and have a comfortable nest egg that will afford you to "change gears" should you need to. But like others here...taxes...are a consideration. Generating $48,000 on a 1M nest egg sounds easy ...on the surface...until taxes are factored in. Save all you can beween now and the moment you retire. It will never be easier to do so.
