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need some grounding
Old 08-21-2014, 04:44 PM   #1
Confused about dryer sheets
 
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need some grounding

Here is my situation:
Age 62, DW 61.
Nest Egg: $1.7 million….$1.3 million in 401Ks and 400K in CDs.
Home all paid.
Kids all done…out of house and college paid.

So:
I plug $1.7 million into my trusty HP12c financial calculator present value.
Plug in 35 for number of years…so run is until I am 97.
Put in 2.5 annual percentage rate of return…most here put in between 5 and 7% but also figure 3% inflation..so I take mid and subtract 3 and assume an average rate of return over next 35 years of 2.5%...conservative.

I also put $500,000 as a future value for an estate to leave the daughters.

Now, I press payment and I get $64,346.70 a year withdrawals.
DW and I can pull social security at 62 amounting to $42,000 and when added to above comes to $106,347 per year gross.
Now that is over $106K per year for the next 35 years well into our nineties! And all we have to do is average 2.5 percent per year for next 35 years.

So, should I continue to run for the train, or should I head to the beach?
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Old 08-21-2014, 04:58 PM   #2
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Head to the beach as long as you can live on $100k a year in current dollars. But first, check over a couple other things.

One thing you are missing in an analysis like what you did is "sequence of returns" risk, the risk that investment returns will be poor early in retirement and prematurely deplete your portfolio but the $500k future estate value that your included is a backwards way of providing for sequence of returns risk. Your $64k a year is a 3.76% WR which is slightly below the "4%" rule.

Run your situation through Firecalc, but I think you're probably all set.

What is the asset allocation that you intend to provide that 5-7% return? if it includes a healthy slug of equities then you are fine, if you intend to invest only in bonds then you better continue to run for the train.

What will you do for health insurance and what will that cost?
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Old 08-21-2014, 05:04 PM   #3
Confused about dryer sheets
 
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Thanks...point here is that I don't really need 5-7% return. Just maintain an average of 2.5% per year.

If i continue to keep a diversified portfolio, I think I should be able, over 35 years, to beat that.

So either 2.5% is to conservative, or a good way to pace myself...can't really see needing that much per year in my late 90s.
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Old 08-21-2014, 05:11 PM   #4
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No, if you take out $64k the first year you need the 5-7% a year because your $64k will increase 3% each year for inflation (it'll be $66k the second year, $69k the third year, etc) just like your SS will increase for inflation so you need the 5-7%. 3% of the 5-7% keeps you whole in buying power and the remaining 2.5% is built into the withdrawals that begin at $64k.
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Old 08-21-2014, 05:36 PM   #5
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I'm laughing because you gave absolutely no clue what your annual spending is and what it will be. For all we know, you spend annually $500,000 to maintain your lifestyle.
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