How much is enough?

[jjim6954]

I retired early two years ago. I based it upon the trinity study. However, my time horizon is more like 40-50 years - not 30. I've taken down my withdrawal rate to 2% of liquid assets (stocks/bonds/cash). I have about 25% cash because these valuations are ridiculous regardless of what Warren Buffet says.

I'm starting to have concerns that that isn't low enough of a withdrawal rate. I don't see how we don't have a major issue like 2008 given the debt and current valuations. What am I missing? Am I wrong about the debt being a problem?

 

[2017ish]

2% withdrawal rate for 40-50 years and concerned about the safety of that number; why only 25% in cash?

Seems like you could put it all in CD ladders and spend 2% of your current portfolio, inflation adjusted, a year. When inflation goes up, the rates on CDs would follow; if you have any flexibility at all in your spending, you should be fine.

(I am looking at 45-50 years for DW, but with a fixed percentage withdrawal of 4% to start with; 2% strikes me as unreasonably low, even for inflation-adjusted fixed amount.)

 

[exnavynuke]

I retired early two years ago. I based it upon the trinity study. However, my time horizon is more like 40-50 years - not 30. I've taken down my withdrawal rate to 2% of liquid assets (stocks/bonds/cash). I have about 25% cash because these valuations are ridiculous regardless of what Warren Buffet says.

I'm starting to have concerns that that isn't low enough of a withdrawal rate. I don't see how we don't have a major issue like 2008 given the debt and current valuations. What am I missing? Am I wrong about the debt being a problem?

What makes you think the debt is a problem? The world seems to still have full faith and confidence that the US can afford its debt, so what makes you think otherwise?

Barring the government defaulting on the debt (or threatening to etc), I see absolutely no way that would impact the equity markets in any significant manner. As for valuations, it depends on what measure of "valuation" you use to determine if we're "high" currently (some say yes, some say no, some say by a lot, etc). Remember, for the entire history of the stock market, it's spent most of the time at or near "record highs" and still continued to move up anyway.

 

[Sojourner]

I remember reading somewhere that 2% is the rate used by large institutional trusts and foundations, and also that 2% has historically been extremely safe even under the worst market conditions. Not sure why this particular moment in time (or upcoming decades) would be the exception to that. I wouldn't lose any sleep whatsoever with a 2% WR... but I might lose a bit of sleep worrying about the erosive effect of inflation on that 25% cash allocation over time.

 

[jjim6954]

thanks for the responses 2017ish & exnavynuke - the reason i see debt as a problem is because we continue to run substantial budget deficits. There's no end in sight to getting it under control. The interest is a significant part of that deficit. BTW - what have we received as a society for that massive increase in debt over the last 20 years? Nobody thought their mortgage debt was a problem until it was. The world not worrying about it doesn't seem to me to be enough of a reason to run towards the light. When you run into issues because of debt, it tends to be very painful and very sudden.

 

[exnavynuke]

thanks for the responses 2017ish & exnavynuke - the reason i see debt as a problem is because we continue to run substantial budget deficits. There's no end in sight to getting it under control. The interest is a significant part of that deficit. BTW - what have we received as a society for that massive increase in debt over the last 20 years? Nobody thought their mortgage debt was a problem until it was. The world not worrying about it doesn't seem to me to be enough of a reason to run towards the light. When you run into issues because of debt, it tends to be very painful and very sudden.

I agree that countries that experience problems due to debt tend to have the negative effects be significant and rapid. However, by all relative measures (debt/GDP, spending to GDP, etc) we're still well below our own historic highs and less than halfway to the levels that most countries who actually experience negative effects reached when they did face problems. As such, we seem to have a very, very, very long way to go before anything "bad" is likely to happen as a result.

 

[MichaelB]

This sub-forum is for member intros. Tell us a little about yourself, why you're here, your goals and objectives, and that kind of thing. Discussions about deficits, debt, and all those related topics are a better for for either "Fire and Money" (here) or "FIRE Related Public Policy" (here).

 

[DrRoy]

I remember reading somewhere that 2% is the rate used by large institutional trusts and foundations, and also that 2% has historically been extremely safe even under the worst market conditions. Not sure why this particular moment in time (or upcoming decades) would be the exception to that. I wouldn't lose any sleep whatsoever with a 2% WR... but I might lose a bit of sleep worrying about the erosive effect of inflation on that 25% cash allocation over time.

+1 I think 2% is reasonable and conservative. I have the same belief that for 40+ years going forward, 3-4% may not work.

 

[jjim6954]

sorry michaelb. my name is jim and i'm here to understand if i'm a fool or seeing things for what they truly are.

My goal is to outlive my money. I've had people tell me that my allocation is too conservative, but I'm hesitant to put new money to work in the SPY at these valuations.

 

[REWahoo]

My goal is to outlive my money.

I'm always impressed when someone sets a challenging goal and really works at achieving it.

 

[rodi]

Jim -
None of us have a crystal ball - we do the best with historical data and analysis of current conditions. Many here consider 2% WR to be very conservative and safe. You, it seems, do not. You, and only you, can make the determination if it's a low enough WR for *you*.

If you're trying to convince others that we all should lower our WR to something less than 2% you might run into trouble succeeding. Many of us have a) other income streams besides our nest eggs, b) enough flexibility in our budgets to pull in the spending if the markets decline c) the willingness to go back to work if there market decline is long enough.

Only you can make financial decisions for yourself. Just as only my husband and I can make the decisions on WR for ourselves. We happen to feel our 2.8% WR is plenty conservative... especially knowing that it will go down again when I start drawing SS and that we're sitting on significant home equity if things really go south.

 

[jjim6954]

Thanks rodi. Nope - I'm not trying to convince anyone, just myself. I've never seen market conditions like this in the equity or bond market. 2008 didn't surprise me because what was happening was insane.

You bring up some good points. I have home equity as well and do a little part-time stuff. I'm not so sure ss will be there in any meaningful way once I get there. I'm also not convinced there will be a feasible solution to health care from an affordability standpoint. Our insurance premium has more than doubled in two years and our deductible has risen by about 8%. There are only two providers in our market right now. I'm going to guess that the new plan will offer less coverage at similar rates if not higher ones. I can't see any insurance company going backwards in margins.

 

[MichaelB]

sorry michaelb. my name is jim and i'm here to understand if i'm a fool or seeing things for what they truly are.

My goal is to outlive my money. I've had people tell me that my allocation is too conservative, but I'm hesitant to put new money to work in the SPY at these valuations.

Welcome to the forum. You'll find many differing opinions about valuations, withdrawal rates, and everything else.

The thread was moved to the Fire and Money forum, it's a better fit there.

 

[lhamo]

So you think a 2% WR is not safe enough. Most of us would disagree. But the real question is, can you live comfortably on less? If so, then by all means reduce your WR to whatever makes you comfortable. If not, then I guess you should probably go back to work.

If the market tanks, health care becomes unaffordable, SS disappears, etc. I predict you'll make changes to adjust. There is no law that requires you to seek expensive medical treatment--you can always choose to forego heart surgery, cancer treatment, etc. If you aren't comfortable with the very small risk that ER on a 2% WR presents, then your choice is basically to go back to work. Personally, I think that would be silly, but do what lets you sleep better at night.

 

[NW-Bound]

...My goal is to outlive my money...

I'm always impressed when someone sets a challenging goal and really works at achieving it.

I'd rather my money outlives me. I think I will not die penniless, barring some cataclysmic events, in which case I will have plenty of company, and we all know what misery loves.

Back on the OP's question of "how much is enough", I have to ask back "what for". To maintain a comfortable life, I think I have enough. And I can be very frugal when I need to be. But can I ever have too much when it comes to the joy of counting it? Hah!

Has Uncle Scrooge ever declared that he has enough? And I have but a infinitesimal fraction of his stash, which has been estimated by his accountant as "607 tillion 386 zillion 947 trillion 522 billion dollars and 36 cents"

 

[Live And Learn]

My horizon is also 40 - 50 years and I am at a 3% WR and feel comfortable that I will be ok.

Will you get SSI at some point ? Pension ? If your WR is based upon your current assets and does not yet include these future source of funds then you are actually spending less than 2%.

Don't worry - be happy !

 

[daylatedollarshort]

At a zero real return, for 50 years you could withdraw 2% before your funds would be depleted (100 / 50 years = 2% WR). For forty years at a zero real return, you could withdraw 2.5% before running out of money. If you can do better than zero, then you can withdraw more or make your money last even longer. Personally, I am more concerned about avoiding big losses than I am making more money from the stock market, so we invest more along the lines of a matching strategy for retirement, as outlined here in the Boglehead's wiki:

https://www.bogleheads.org/wiki/Matching_strategy

Theoretically, if you had an all TIPS ladder portfolio you started from scratch today, you could do a bit better than zero real return these days, but not by an astounding amount. Current TIPS rates are here:

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

We have other income streams and relatively low overhead for where we live so a matching works for us for our portfolio.

 

[marko]

There might be such a thing as "RE remorse" (?)

Maybe the OP is watching too much CNBC?

At 2% WR I'd be finding a nice beach somewhere and order an extra pina colada and after the second one, I think the national debt would be out over the horizon somewhere as far as concerns.

I'd run my numbers again, stop listening to the news, be prepared somewhat for the unexpected and go have a good time.

 

[Koolau]

This discussion reminds me of an epiphany I had when a couple of years pre-ER I was contemplating whether to curtail my afternoon Diet Coke because the price had just escalated 10 cents from the previous day's purchase from the machine. I compared the new "outrageous" price to my nest egg value and was struck with the fact I was very likely going to die with way more money than I could spend - even based on the classic 4% withdrawal rate I had picked up here on this forum. Not only did I purchase the Diet Coke, I also bought a bag of peanuts to go with it.

As I munched the peanuts and drank the DC in my cube, it occurred to me that I had just effectively doubled my cash-burn on "frivolous" purchases. It pretty much erased my epiphany and put me back on the straight and narrow regarding my "new" profligate spending pattern.

My take away message, if any, is that 12 years in, I still vacillate between fearing running out of money and fearing dying with way too much left over. I suppose it's part of the (my) human condition. YMMV

 

[audreyh1]

I retired early two years ago. I based it upon the trinity study. However, my time horizon is more like 40-50 years - not 30. I've taken down my withdrawal rate to 2% of liquid assets (stocks/bonds/cash). I have about 25% cash because these valuations are ridiculous regardless of what Warren Buffet says.

I'm starting to have concerns that that isn't low enough of a withdrawal rate. I don't see how we don't have a major issue like 2008 given the debt and current valuations. What am I missing? Am I wrong about the debt being a problem?

2% is low enough especially if your fund expense ratios are very low. This is super safe. Even with 25% cash I think you're fine assuming the cash is earning something (like 1%?). Once you get to 40 years left you can perhaps start to relax a wee bit?

 

[Ready]

Requiring that you live on a 2% WR is ridiculous, unless you just have so much money that that's all you need to be comfortable. I tend to lean toward the ultra conservative side, even for this forum. But if I was only comfortable retiring on a 2% WR, I think my time would be better spent worrying about what happens if an asteroid hits earth during my retirement.

If a 3% WR survived the great depression, and the worst cycles in the stock market history, what would lead you to believe it won't survive these times?

 

[ejman]

This might be the appropriate place to reference the calculator from hell series, particularly part III. The Retirement Calculator from Hell, Part III

 

[NW-Bound]

I have a different problem. I don't think I will even live for another 30 years like the default FIRECalc scenario. So, I should spend more than 3.5%, in fact way more if I consider my future SS. But I do not want to go to a higher WR because I do not want to die with less money. Some people talk of dying a "thousandaire" being their goal. Heck no, I want to die with at least as much as I have now. Make it inflation adjusted please.

Still, my horizon is a lot closer than what other people think of theirs. No 2% for me.

 

[ejman]

I have a different problem. I don't think I will even live for another 30 years like the default FIRECalc scenario. So, I should spend more than 3.5%, in fact way more if I consider my future SS. But I do not want to go to a higher WR because I do not want to die with less money. Some people talk of dying a "thousandaire" being their goal. Heck no, I want to die rich.

Still, my horizon is a lot closer than what other people think of theirs. No 2% for me.

Good points. Nothing like a little cardiac arrest episode to concentrate the mind on that business of taking an unlimited future for granted.

 

[pb4uski]

.....I'm starting to have concerns that that isn't low enough of a withdrawal rate. I don't see how we don't have a major issue like 2008 given the debt and current valuations. What am I missing? Am I wrong about the debt being a problem?

Most major declines are relatively short but many of us hold bonds as well as stocks... if you use Wellington as a proxy for a 60/40 portfolio, it was just a few years from peak to trough and back to peak again so even if a 2008 happened again after a few years things would likely be back on track.

http://quotes.morningstar.com/chart...dDay":"10/01/2010","chartWidth":955,"SMA":[]}