How much is enough for certain ages?

[obgyn65]

+1

Not to sound sarcastic, but if you have that much but are still asking this question, then I doubt that would be enough for you.

 

[LARS]

Fidelity investments has done surveys of high net worth investors for the last 3 years. From the last survey, for someone to "feel" rich you would need at least $7.5MM in investable assets.

Below that you feel well off but not rich.

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That is a number that makes sense to me (figure net worth of $10 million with house(s), art, etc included). Like I said, the $25 million in Barrons was simply nuts.

 

[Moemg]

2.4 million at 4% is $96,000 but you still have kids to put through college and a $600,000 house usually comes with high expenses . You are okay and if you have pensions you are in great shape but not filthy rich . Take one really nice trip and then get back to day to day living .

 

[CoopersBeach]

Sorry if this is addressed elsewhere. I looked and didn't see it.

I'm 50, wife is 48, 1st of 2 sons is heading to college next year. 2nd son has another 3 years in high school.

Putting things together for fafsa and CSS financial need forms, I'm realizing a) we're not going to be getting financial aid b) we have a fair amount of money, thanks to inheritances mostly - house worth 600K is paid for, 401Ks and IRAs are about $200K and brokerage accounts (with Charles Schwalb / self managed) of about $2.2 mill. And me playing with margin, wound up losing something like 1 mill in the market with the market collapse (margin calls forced me to sell. Those things bounced back and I would have held on as I did in cash accounts....I am done with margin for sure!)

I remember years ago the WSJ ran an article about different levels of 'rich' - beer & Pretzels, wine and steak, etc.

Nowadays, how much do you need / should you have for certain ages? Wife and I make $110K between us. We live modestly - I have a 5 year old nissan sentra, etc.

Vacations are nothing exotic although I'd like those. so saying I need to replace what I make isn't realistic - I'm not spending like I'd like if I knew I didn't have to worry about money - not gold plated silverware, just not having to debate spending for this or that - just want to loosen the purse strings.

any advice?

I am curious as to how much of your portolio can be attributed to your stroke of good fortune (i.e. inheritance) vs. savings/investments on your part. No offense, but it appears to me that someone who would play with margin account and lose a million before realising it's time to stop, isn't the type of person who would have the needed financial discipline to accumulate a sizable nest egg in the first place.


Without proper financial discipline, or at least a self-awareness of one's (in)ability to invest properly, no amount of money is enough. I can personally cite two examples of people who came into substantial fortune and lost it.


I have a cousin who inherited $10 million a few years back, and rather than being happy and content, decided to go into an investment with a partner, hoping to really make it big, despite the fact that he had never displayed any financial acumen or even common sense, and knew nothing of the line of business he was getting into. He lost everything in 2 years.


Another cousin, who inherited $7 million from his father about 20 years ago, decided to get into buying/developing properties, even though he knew nothing of the business. Needless to say he ended up with a fraction of his money. He had always been profligate so the result really wasn't a surprise. At least his father had the foresight to leave the bulk of the money to his sibling, so that he couldn't blow it all.

As Dirty Harry puts it, a man's gotta know his limitations. Sadly for my two cousins, they didn't. Here's hoping you do better.

 

[LARS]

Without proper financial discipline, or at least a self-awareness of one's (in)ability to invest properly, no amount of money is enough. I can personally cite two examples of people who came into substantial fortune and lost it.

This so reminded me of a serious conversation I had with a Ferrari dealer who remarked when I said how great it must be to sell Ferraris for a living:

"You know how to make $3 million selling Ferraris?" he said.

"How?" I asked innocently.

"Start with $10 million," he responded with a straight face.

 

[haha]

I am curious as to how much of your portolio can be attributed to your stroke of good fortune (i.e. inheritance) vs. savings/investments on your part. No offense, but it appears to me that someone who would play with margin account and lose a million before realising it's time to stop, isn't the type of person who would have the needed financial discipline to accumulate a sizable nest egg in the first place.


Without proper financial discipline, or at least a self-awareness of one's (in)ability to invest properly, no amount of money is enough. I can personally cite two examples of people who came into substantial fortune and lost it.


I have a cousin who inherited $10 million a few years back, and rather than being happy and content, decided to go into an investment with a partner, hoping to really make it big, despite the fact that he had never displayed any financial acumen or even common sense, and knew nothing of the line of business he was getting into. He lost everything in 2 years.


Another cousin, who inherited $7 million from his father about 20 years ago, decided to get into buying/developing properties, even though he knew nothing of the business. Needless to say he ended up with a fraction of his money. He had always been profligate so the result really wasn't a surprise. At least his father had the foresight to leave the bulk of the money to his sibling, so that he couldn't blow it all.

As Dirty Harry puts it, a man's gotta know his limitations. Sadly for my two cousins, they didn't. Here's hoping you do better.

Great stories. These are top drawer flameouts. On a lesser scale, I know a divorced woman who inherited $2million, and who had very little in the way of career proficiency. Twelve years later she is down to where she is working in a call center, and battling for overtime. She didn't even blow it with flamboyant ventures or lifestyle, just really poor choices of financial advisors.

Ha

 

[dizzy]

What's my number?

Short answer:
dizzy's "what's my number" test (tm). Take your current salary, multiply by 3, add a 0. If you have that much or more in investments, FIRE AWAY!

Long answer:
Your "number" is a function of 2 factors: expenses and SWR, i.e:

MyNumber = MyRetirementExpenses * (1/SWR).

SWR is a function of life expectancy, desire to leave a legacy, and the expected real return sequence of your portfolio. Of course none of these terms can be known with certainty, but assuming you follow all the good boglehead advice here, conventional wisdom seems to be that SWR = 4% @ age 65, and SWR = 3% @ age 45. This means MyNumber = MyRetirementExpenses*25 at age 65 and MyNumber = MyRetirementExpenses*33 @ age 45.

(BTW, folks advocating ultrasafe SWR like 1% or 2% are just loony. In the limit of an ultrasafe 0% real return portfolio and no legacy, 1/SWR = YearsToLive (just divide the portfolio into 1/SWR buckets and spend one bucket each year). At an SWR of 1% a portfolio will last 100 years if invested in "risk free" bonds (e.g. bonds that just keep even with inflation). I think we can safely say that 1% SWR is overkill unless you are worried about having more than 100 years in retirement...)

For the expense side, the simplest way to think of expenses is relative to your current standard of living, i.e. MyRetirementExpenses = MyCurrentSalary*MyRetirementLifeStyleFactor. There are a number of things that can be more expensive in retirement and a number of things that will be less:

More expensive (MyRetirementLifeStyleFactor > 1.0)
- health care
- travel & recreation
- hobby expense

Less expensive (MyRetirementLifeStyleFactor < 1.0)
- no need to fund retirement accounts
- kids out of school
- house paid off / downsized
- extra income from pension and/or ss
- lower tax bracket
- senior discounts (!$)

For early retirees, I'd say that there is probably significant increases and decreases, but let's say that overall MyRetirementLifeStyleFactor=1.0. (i.e. you spend a lot more on travel and health insurance, but significantly less on funding retirement, school, etc...) Also since, we're talking early retirement, say mid 40s to mid 50s, I think a SWR of 3.33% is probably workable. Therefore, we have dizzy's "what's my number" test (tm), of 30x current salary.

 

[teejayevans]

The problem is the unknowns:
is my health care going to continue going up at 15% rate?
will SS be there in it's current form?
etc.
Thats why I would aim for <4%, maybe 3%, just in case....
TJ

 

[bltkmt]

If I had $4 or $5 mill... I would be retired...

+1 on this. I work in the hedge fund industry, so see lots of wealth. It amazes me that so many people, with so much money do not retire early. It must be an ego thing, to keep working and try to accumulate more. If I had $5 million in the bank, I would not be coming in to work...that is for sure.

 

[Jay_Gatsby]

+1 on this. I work in the hedge fund industry, so see lots of wealth. It amazes me that so many people, with so much money do not retire early. It must be an ego thing, to keep working and try to accumulate more. If I had $5 million in the bank, I would not be coming in to work...that is for sure.

It's not about the money once you get to a certain level. It's about being admired by your peers. They want to win "the game".

 

[travelover]

OP is MIA

 

[My Dream]

+1 on this. I work in the hedge fund industry, so see lots of wealth. It amazes me that so many people, with so much money do not retire early. It must be an ego thing, to keep working and try to accumulate more. If I had $5 million in the bank, I would not be coming in to work...that is for sure.

I've thought the same thing. Is it possible they truly love there jobs better then home life?

My neighbour told me earlier this year when I asked about there retirement since they're both in there 60's and when it came to his wife his response was, "she really loves her job and would rather be at work then home". Say what?

 

[ziggy29]

travel - if not a specific rule of thumb for my situation, how about in general? Not to sound pompous, but if we have $5 mill in assets, would that be enough? $4 mil? I remember in Barrons years ago there was a winner of something like $300 million. They went on for pages about how to best invest it. And the last paragraph said something like - just put it in treasuries and kick back! That large amount of money would spin off more than enough for most any reasonable middle class person.

It totally depends. Someone who owns their home free and clear, lives frugally and has a $50K COLA'd pension and health insurance may have "enough" even if their retirement savings is zero. Someone who has to retire *only* on their own personal investments may need millions depending on their expenses and their lifestyle.

 

[scrinch]

Well said, dizzy!

 

[cardude]

On NPR this morning they were talking about a poll someone recently did, and only 49% of people polled had even tried to calculate what they would need for retirement, and of that 49%, 14% admitted to just guessing what they would need in the future.

Whay don't our high schools teach this stuff

And to answer your question, if you and your wife make 110K combined, I bet you would need about 3.5MM to keep living like you are used to living, and you still have to put the kids through school so that's probably another 300K needed on top of that. So to feel "rich", I would agree with others that $7.5MM is what you would need.

 

[Spanky]

.. if you and your wife make 110K combined, I bet you would need about 3.5MM to keep living like you are used to living

It should be based on expenses. If the expenses were $60,000, the tax rate was 30%, income required is $85,715 (60000 /(1-30%)). With a SWR of 4%, a portfolio of $2,142,857 should suffice.

So to feel "rich", I would agree with others that $7.5MM is what you would need.

One can feel rich with any amount - it's all relative. On the same token, one can feel poor with billions.

 

[Spanky]

It totally depends. Someone who owns their home free and clear, lives frugally and has a $50K COLA'd pension and health insurance may have "enough" even if their retirement savings is zero.

This is true iff (if and only if) the payee will not default its obligation.

 

[haha]

On NPR this morning they were talking about a poll someone recently did, and only 49% of people polled had even tried to calculate what they would need for retirement, and of that 49%, 14% admitted to just guessing what they would need in the future.

Whay don't our high schools teach this stuff

Maybe because this would require that our grade schools teach arithmetic? Or that our high school teachers understand retirement arithmetic?

 

[LARS]

On the same token, one can feel poor with billions.

Wanna bet.... I'll buy not happy, but poor with billions (even with today's Bernanke induced crappy US $) that's a hard one to agree with.

 

[Rustward]

On NPR this morning they were talking about a poll someone recently did, and only 49% of people polled had even tried to calculate what they would need for retirement, and of that 49%, 14% admitted to just guessing what they would need in the future.

Somewhere I read that those who have tried to do the calculation are much more likely to retire the to the lifestyle they prefer than those who have not.

Whay don't our high schools teach this stuff

Great idea, but could most high schoolers imagine themselves retired?

 

[kyounge1956]

(snip) Whay don't our high schools teach this stuff(snip)

Maybe because this would require that our grade schools teach arithmetic? Or that our high school teachers understand retirement arithmetic?

And if high school teachers understood retirement arithmetic, maybe they would stop being high school teachers? I've heard that lots of teachers' retirement plans are junk, and that 401ks and other retirement accounts are often much better vehicles, with better investment choices and lower fees. Any truth to the rumors?

 

[kyounge1956]

Somewhere I read that those who have tried to do the calculation are much more likely to retire the to the lifestyle they prefer than those who have not.
Great idea, but could most high schoolers imagine themselves retired?

I think, given a little help, they could. The NYT did a retirement supplement a little while ago. I don't have the link immediately to hand, but I think it was about the middle of last month. One of the articles was about a behavioral finance study, in which one group of subjects were shown age-progressed photos of themselves and the other group wasn't. (A sample set of photos was included with the article.) The students who saw their aging selves said they would save more toward retirement than those who didn't. IIRC, their answers also suggested they would invest more realistically—they were less likely to take inappropriate risks and so on. I think these were college students, or possibly post-grads, but they weren't vastly older than high-schoolers.

 

[jacob]

About 300-400 times your monthly expenses. 400 is safe, 300 is close to critical at your age. Now the question is, how much do you want to spend? Consider the worst case scenario e.g. you need expensive medical treatments or you suddenly develop an uncontrollable desire to travel the world first class. Use that expense level and multiply by the above numbers.

Also consider that in most cases it is possible to find the same level of joy for much less than what people normally spend.

 

[kyounge1956]

Short answer:
dizzy's "what's my number" test (tm). Take your current salary, multiply by 3, add a 0. If you have that much or more in investments, FIRE AWAY!

Long answer:
Your "number" is a function of 2 factors: expenses and SWR, i.e:

MyNumber = MyRetirementExpenses * (1/SWR).

SWR is a function of life expectancy, desire to leave a legacy, and the expected real return sequence of your portfolio. Of course none of these terms can be known with certainty, but assuming you follow all the good boglehead advice here, conventional wisdom seems to be that SWR = 4% @ age 65, and SWR = 3% @ age 45. This means MyNumber = MyRetirementExpenses*25 at age 65 and MyNumber = MyRetirementExpenses*33 @ age 45. (snip)

Shouldn't that be "take your current salary, subtract pension &/or SS if applicable, multiply remainder by 3, add a zero"? To be on the safe side, subtract less than the full amount for a non-COLA'd pension, maybe less than the full amount for SS, too. I know you mentioned pensions and SS in the adjustments to MyRetirementLifeStyleFactor, but for many people these two items taken together can make up more than half of the income available in retirement. Ignoring such a large income source would cause such people using the test to vastly overestimate the amount of saving they need.

(BTW, folks advocating ultrasafe SWR like 1% or 2% are just loony. In the limit of an ultrasafe 0% real return portfolio and no legacy, 1/SWR = YearsToLive (just divide the portfolio into 1/SWR buckets and spend one bucket each year). At an SWR of 1% a portfolio will last 100 years if invested in "risk free" bonds (e.g. bonds that just keep even with inflation). I think we can safely say that 1% SWR is overkill unless you are worried about having more than 100 years in retirement...)

Not loony, just cautious. The studies on which the 4% SWR rate is based used a portfolio of, IIRC, 75% equities. If your portfolio has a lower percentage in stocks, your expected returns and hence SWR will be lower too. The same goes for using an "income only" approach rather than "total return".