Retirement Decision Metric

[RetireAge50]

A metric I like is net worth/(90-Age)

Mine is currently $48,000

At my savings rate and 5% return on investments:

In 4 years $71,000

In 8 years $105,000

So it is a big decision which I still have not made.

These are annual income amounts excluding social security.

 

[walkinwood]

I really prefer (net worth)/ 100 - age + (sunny days this year)


but seriously, what you're proposing is the IRS RMD calculations modified for a fixed life span of 90 years.

http://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

 

[RetireAge50]

That is great idea. Should figure out how much income is needed by weather conditions. Let me see, Hawaii or North Pole...

 

[longranger]

Even though this calculation ignores a lot of variables like SS I like it. Just one more way to get perspective on my readiness(or not) for fire.

 

[W2R]

A metric I like is net worth/(90-Age)

Mine is currently $48,000

At my savings rate and 5% return on investments:

In 4 years $71,000

In 8 years $105,000

So it is a big decision which I still have not made.

These are annual income amounts excluding social security.

Wow, that is awfully generous. Makes me feel like I am underspending to a much greater extent than I had thought. I guess I don't need to feel guilty about my new iPhone 5s.

 

[RetireAge50]

Generous but very conservative. Once retired, only assumes net worth keep up with inflation to keep annual income constant (in real terms).

 

[rodi]

I'm assuming by net worth you're considering investible assets (savings, 401ks etc) you'll have available at retirement... So if you plan on selling your house and using that equity for retirement, you'd include it. If you don't plan on selling, you'd exclude the home equity.

The number jumps substantially if I include home equity... but I live in an expensive real estate market, and don't plan to sell my house.

 

[racy]

A metric I like is net worth/(90-Age) ...
These are annual income amounts excluding social security.

Should it be "investment portfolio" instead of networth?

 

[rodi]

I really prefer (net worth)/ 100 - age + (sunny days this year)


but seriously, what you're proposing is the IRS RMD calculations modified for a fixed life span of 90 years.

http://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

Wow - talk about penalizing someone for living in a sunny climate! More sunny days means a bigger divisor, and a smaller result. If that metric were real, I'd be moving back to Bellingham, WA, where I lived 20 years ago, instead of living in sunny climes.

 

[RetireAge50]

Put in the numerator whatever you plan on liquidating for income in retirement. For me this is my entire net worth.

Albeit the house will likely be last to go and I hope to keep it a small part of my net worth. Can do it both ways to see how much income you are sacrificing for a high priced home.

 

[W2R]

Generous but very conservative. Once retired, only assumes net worth keep up with inflation to keep annual income constant (in real terms).

I am 65 years old, and one out of every four 65 year olds will live past age 90. So if my net worth only keeps up with inflation, by this method I would have a 25% failure rate. Kind of like Russian roulette.
Calculators: Life Expectancy

 

[RetireAge50]

Funny, Russian Roulette where if you fail you live.

At least there will still be social security and my bet is assets will outpace inflation.

Or just modify denominator to 100-age but this is way too conservative.

 

[Al18]

Or you could just set your withdrawal rate at some percentage (say 3.5%) and withdraw the same percentage every year. This ensures you'll never run out of money.

 

[RetireAge50]

The problem of just taking a set percentage is you never get to spend all your money.

 

[Independent]

Note that, if I happen to be 65, the formula becomes:

(disposable assets)/(90-age) = (disposable assets)/25 = 4% of disposable assets.

This is a quick and dirty SWR formula, varying by age.

That doesn't make it a "bad idea", most people can understand it, and that's important.

Most people here would say it's somewhat conservative if you're 40 and somewhat aggressive if you're 80.

 

[Animorph]

Or use your life expectancy, updated each year, for the denominator. That's approximately the RMD based approach.

 

[Derslickmeister]

Great, just what I needed; another data point for helping me decide when to retire But seriously, I added this to my spreadsheet projecting our yearly income for ages 53-59. It looks like if we work until 59 as opposed to retiring at 53 we can pretty much double our investment income (assuming a lot of things continue to go right of course). Here comes the OMY syndrome

 

[David1961]

So if you plan on selling your house and using that equity for retirement, you'd include it. If you don't plan on selling, you'd exclude the home equity.

Put in the numerator whatever you plan on liquidating for income in retirement. For me this is my entire net worth.

I agree with these. And if you don't own a house but plan on buying one, I'd subtract the estimated house price from the new worth. And to be a little more cautious, I'd use (100 - age) in the formula.

 

[Ready]

If I had to choose between sunshine or money, I would choose the sun.

 

[Derslickmeister]

Could you get by with a little money and some partly cloudy days?

 

[razztazz]

If I had to choose between sunshine or money, I would choose the sun.

That's fine....... till the money runs out.