How much is enough?

[bradaz2488]

To each his own, but...

It seems to me folks who focus on preserving principal are often over looking other types of risk. Primarily inflation.

Everyone picks the risks they are most comfortable with, but thinking you are avoiding all risks is unfounded.

We are saying the same thing. Not sure why you commit "to each his own".

 

[dayzero]

zeroday - thank you for offering your formula.



I was trying to put to formula my own thinking and I arrived at the more aggressive,

X * (75 - age) +Y (excluding house equity) as being valid for RE age 55 to 65, noting that before age 55, one might want more cushion.

X * (85 - age) + Y seems to be reasonable advice to the 45 year olds and younger, but those of us closer to FRA should be able to work with (75 - age) * Annual expenses.

FYI, I FIRED at 58 with about 17 times annual expenses in investments, so I sure hopes it works. Being closer to SS than a 45-y-o provides me additional comfort.

I would be very careful about excluding home equity. As I said, a person with $2.5M and a $500k house should be thinking about ER in the exact same way as a person with $3.0M and no house - their situations are interchangeable.

I'm not sure the rule of thumb is invalid for 55-65. After all, at 60 it reduces to exactly the 4% rule.

 

[mpeirce]

We are saying the same thing. Not sure why you commit "to each his own".

Sorry, that wasn't directed at you. I WAS agreeing with you.

I should learn not to sprinkle in such weasel words ("to each his own") and stand by my principles.

 

[Car-Guy]

+1 pb4uski

I do not understand why it is so impotent to preserve principle unless you want to leave a lot of money to your heirs. We plan to spend our principle down to 50% of starting value (today's $). This give us the buffer I need to sleep at night.

Everyone on this board has an opinion (some of them have several ) but I agree with what you said above. For me, I don't plan to leave much of an estate, but if I do, it's not because I was living below my means.

I worked long and hard and saved during my working years. Now that I'm retired, I'm going to do my best to enjoy what I worked for all those years, while I can. A large chuck (but not all) of my types of enjoyment are expensive. So be it!

 

[LARS]

How much do you need to retire?

50% more than you have... (at least for most folks [emoji6]).

 

[2017ish]

...

Seems to me the amount you need will depend upon how badly you want to retire. This will depend on many things such as your age, how you view your job, how much comp you would be giving up, health of you and any partner, age of kids, hobbies, how much you would need to spend in retirement and whether you would like to spend more if you could, etc. The conventional wisdom would suggest a WR in the 3-4% range will work for most fairly conservative portfolios. Very personal decision that only you can answer. You should feel lucky you are in a position to ask this question.

Good summary, IMO. I emphasized the distinction between "needed" spending and discretionary spending. As I've mentioned before, our "income" from variable withdrawal initially will be spent predominantly on discretionary expenses. When portfolio tanks, we can cut way back and still be fine. On one level, we worked too long, as we have far more than we "need." OTOH, the whole reason to retire early (well, not for this forum) was to have expensive fun ...

And agree that OP is in a great position!

 

[bradaz2488]

Everyone on this board has an opinion (some of them have several ) but I agree with what you said above. For me, I don't plan to leave much of an estate, but if I do, it's not because I was living below my means.

I worked long and hard and saved during my working years. Now that I'm retired, I'm going to do my best to enjoy what I worked for all those years, while I can. A large chuck (but not all) of my types of enjoyment are expensive. So be it!

+1... I want to spend every cent before we leave this rock, but with a 44 year ER plan and not knowing our expiration dates makes spending 50% of our ER "start" net egg value doable. This allows for a, what if, 30% drop in our investment portfolio tomorrow and running out of money at 95. If I throw SS benefits in then I'm back at ~40% of starting net egg. We will increase/decrease spending as we age and given the state of healthcare I anticipate that it will eat into our buffer over time.. Odds are we will leave a good chuck on the table when we die, but the fear of running out of money and a 44 year ER plan forces us to spend less now ...

 

[Senator]

Seems like a reasonable guideline but in practice this is not really that concrete for a 40 year old.

The issue is that many retirement expenses are backloaded into old age. Especially medical and long term care. At 40, you might spend nothing more than premiums.

Not only that, but you may enjoy things at 40, that you would not even think about at 55+. Riding a bicycle everywhere and skipping a car. Driving a clunker, as you do not mind walking when it strands you. Shoveling snow and mowing the grass. Staying home, vs. traveling. Having another (whoops...) kid. Always worrying about the extra $20 that you spend, vs. spending what you want.

It doesn't take much money to sit at home at watch TV or read a book. Some people are perfectly happy with that. Prisoners do it all day. It takes a lot more to enjoy life and the freedom that financial independence offers you.

At 40, it is exponentially more risky to retire than at 55+.

 

[Luck_Club]

OP's question: HOW MUCH IS ENOUGH.. Can mean many different things to many different people. I claimed when passive income exceeded active spending. Many say that is too conservative.

Another way of looking at the question of "enough" is when the marginal utility of future returns is diminished below the effort required through work is too great.

For example: For every year I continue to work I replace a low earning year with a higher earning year in social security benefits. From what I can gather it works out to be about $20-40 per month extra per year of effort. So the heavy lifting has all been done, and now only marginal increases are possible.

So given the choice of working 10 years to add $300 a month into my passive income bucket doesn't make sense. Though no one would ever refuse an extra $300 a month, the sacrifice is too much for the marginal utility that all that effort would offer.

 

[Niuatoputapu]

I'm not sure the rule of thumb is invalid for 55-65. After all, at 60 it reduces to exactly the 4% rule.

zeroday - agree that your (85 - current age) calculates to 25 times annual expenses at age 60 and that equates to a starting 4% WR rate.

I simply counter that that is too conservative for anyone who believes Social Security will fund a portion of their retirement. Your formula seems to ignore SS, and that may be good advice for the 35-year-old, but it is too conservative for those of us soon eligible for SS.

 

[dayzero]

zeroday - agree that your (85 - current age) calculates to 25 times annual expenses at age 60 and that equates to a starting 4% WR rate.

I simply counter that that is too conservative for anyone who believes Social Security will fund a portion of their retirement. Your formula seems to ignore SS, and that may be good advice for the 35-year-old, but it is too conservative for those of us soon eligible for SS.

Agreed, but I would fix it by reducing the annual spending budget in the formula by the amount you expect to be covered by SS. Same for people with pensions.

 

[Helena]

Or put another way, it is very functional to be reasonably prudent and conservtive (as I think I am and Vanguard is) but it is dysfunctional to be uber-conservative and in my opinion, and that of most knowledable planners, to insist that you never touch principal and have passive income sufficient to cover spending is irrationally conservative.

It may seem irrational to you. But to those whose nature is to be thrifty and save for the future and prefer that lifestyle, it is very logical.

As I mentioned previously, I have been retired a decade. I have more of a nest egg today, than when I retired, yet I still have a comfortable life.

A friend of mine [who always earned a higher income than I before retirement] has been retired half that time and is now totally broke.

The difference between my friend and I is our priorities and lifestyle. She hasn't changed her liberal spending habits and I haven't changed my conservative saving habits.

It's been said that if socialists redistributed the wealth and everyone was given the exact same amount of money today, tomorrow some will have more money than others.

.

 

[Danmar]

It may seem irrational to you. But to those whose nature is to be thrifty and save for the future and prefer that lifestyle, it is very logical.

As I mentioned previously, I have been retired a decade. I have more of a nest egg today, than when I retired, yet I still have a comfortable life.
.

I am in a similar osition to you except that I have decided to start liquidating some principal and up my spending/giving. If I didn't do this, we would be leaving one very large legacy that just seemed too big and too late to us.

Obviously, you have decided to keep saving right till the end and presumably are comfortable with leaving a large legacy? Or are you worried about end of life health care? This is not a concern for us.

 

[Helena]

It doesn't take much money to sit at home at watch TV or read a book. Some people are perfectly happy with that. Prisoners do it all day. It takes a lot more to enjoy life and the freedom that financial independence offers you.

Obviously "freedom" means different things to different people.

As you say, some people are happy with the freedom to be couch potatoes.

Others think they must use their freedom [and their money] to be constantly doing something and/or going somewhere.

My definition of freedom is what I have now... to wake up every morning with the freedom and funds to go wherever I want and do whatever I want [including the freedom to spend most of the day at home reading a good book] and not be subject to anyone else dictating or censoring my choice. Life is good. I am blessed.

.

 

[Nemo2]

My definition of freedom is what I have now... to wake up every morning with the freedom and funds to go wherever I want and do whatever I want [including the freedom to spend most of the day at home reading a good book] and not be subject to anyone else dictating or censoring my choice. Life is good. I am blessed.

.

+1

 

[scrabbler1]

Obviously "freedom" means different things to different people.

As you say, some people are happy with the freedom to be couch potatoes.

Others think they must use their freedom [and their money] to be constantly doing something and/or going somewhere.

My definition of freedom is what I have now... to wake up every morning with the freedom and funds to go wherever I want and do whatever I want [including the freedom to spend most of the day at home reading a good book] and not be subject to anyone else dictating or censoring my choice. Life is good. I am blessed.

.

+2

 

[Helena]

I am in a similar position to you except that I have decided to start liquidating some principal and up my spending/giving. If I didn't do this, we would be leaving one very large legacy that just seemed too big and too late to us.

Obviously, you have decided to keep saving right till the end and presumably am comfortable with leaving a large legacy? Or are you worried about end of life health care. This is not a concern for us.

I'm not worried about a thing, thanks to my God-given nature
and lifestyle that allows me to live comfortable and stress-free.
My conservative nature has benefited me throughout my life.
There is no reason to change and deviate from a proven path.

.

 

[Danmar]

I'm not worried about a thing, thanks to my God-given nature
and lifestyle that allows me to live comfortable and stress-free.
My conservative nature has benefited me throughout my life.
There is no reason to change and deviate from a proven path.

.

Must be nice. You can only spend it or give it away, now or later. Looks like you will be giving it away.

 

[Teacher Terry]

WE are enjoying it while we can)

 

[pb4uski]

It may seem irrational to you. But to those whose nature is to be thrifty and save for the future and prefer that lifestyle, it is very logical.

As I mentioned previously, I have been retired a decade. I have more of a nest egg today, than when I retired, yet I still have a comfortable life. ......

I hate to break it to you one doesn't need to be uber-conservative to be thrifty and save for the future.... we do too,.... that is why we were able to comfortably retire at age 56. We have been retired 5 1/2 years and like you, have a larger nestegg than when we retired (20% higher if I ignore the new two-car garage that we built or winter condo that we bought for cash, and over 30% higher if I include those investments).

Interest and dividends are about 1/2 of our annual spending... the rest is funded by a small pension and equity appreciation (some realized and most unrealzed).

 

[Alex The Great]

My definition of freedom is what I have now... to wake up every morning with the freedom and funds to go wherever I want and do whatever I want [including the freedom to spend most of the day at home reading a good book] and not be subject to anyone else dictating or censoring my choice. Life is good.
.

Good point. But this is not a freedom, as I understand it. There are plenty of limitations. First, you need to eat something. Second, you cannot do many things you want, just because you cannot afford it with budget you have. Third, your entire life depends on our government: what would you do, if for example tomorrow ACA or even Medicare is not with us anymore? And you have to buy health insurance for the price with no discount? And many other factors. My point is that there is no freedom in this world: our job is just one limiting factor.

 

[RothReady2Retire]

I used to believe that "Too Much Was never Enough" and now live by a different belief, " Those that know when enough is enough, will always have enough"

 

[pb4uski]

Good point. But this is not a freedom, as I understand it. There are plenty of limitations. First, you need to eat something. Second, you cannot do many things you want, just because you cannot afford it with budget you have. Third, your entire life depends on our government: what would you do, if for example tomorrow ACA or even Medicare is not with us anymore? And you have to buy health insurance for the price with no discount? And many other factors. My point is that there is no freedom in this world: our job is just one limiting factor.

She has all the money she needs to eat. She also has all the money she needs to do what she wants (within reason). She is not dependent on the government.... if ACA or Medicare is not with us anymore she will adapt like everyone else will but she'll have more choices because she has money.

To say there is "no freedom in this world" is a bizarre statement to me... I enjoy lots of freedom.... no many constraints here.

Even if the worst happens and the SHTF, we'll still be in a better position that those with less resources.

 

[Alex The Great]

no many constraints here.

This is exactly my point. Yes more money you have, less traditional constraints are around you. But other constraints will come up. Constraints will be always there, no matter how rich and healthy you are and how long do you live

 

[pb4uski]

Actually, I was being conservative... I can't think of any constraints on my life (other than DW, but that is a whole different kettle of fish).