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Keep your minimum expenses in a safe place
Old 09-06-2012, 03:39 PM   #1
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Keep your minimum expenses in a safe place

Keep reading financial guidance that says you need to keep your lifetimes worth of "minimum" living expenses in a safe place (short term bonds, mm, etc).

I ran the following assuming a 45 year retirement:
  • Years 1 - 20 : 54k expenses (of which 20k is HI)
  • Years 21 - 45: 48k expenses (assumes HI drops due to Medicare)
  • Years 21 - 45: 8k incremental income for SSi
  • .25% expense ratio.
  • 100% in 5 year treasuries
  • Desire 95% success ratio
Portfolio needed - 2.5mm !

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My "real" numbers:
  • Years 1 - 20 : 72k expenses (of which 20k is HI)
  • Years 21 - 45: 64k expenses (assumes HI drops due to Medicare)
  • Years 21 - 45: 8k incremental income for SSi
  • .45% expense ratio.
  • 52% equities, 48% 5 year treasuries
  • Desire 95% success ratio
Porfolio needed - 2.0mm

(note: if I wanted to fund the above income / expense scenario at 100% 5 year treasuries the portfolio needed is 3.5mm)

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Old 09-06-2012, 04:00 PM   #2
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Yep, and that's with FIRECalc's historical 5 year Treasury return, not starting with the 5 year treasuries available now (yielding 0.62%).

Those are some beefy ERs.
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Old 09-06-2012, 04:20 PM   #3
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This illustrates the importance of having a good chunk of your portfolio in equities. When you factor in taxes and inflation, 5 year treasuries actually lose value.
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