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Retirement Decision Metric
04-23-2014, 11:59 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,659
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Retirement Decision Metric
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.
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04-23-2014, 12:05 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Location: Denver
Posts: 3,499
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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
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04-23-2014, 12:18 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,659
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That is great idea. Should figure out how much income is needed by weather conditions. Let me see, Hawaii or North Pole...
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04-23-2014, 12:23 PM
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#4
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Recycles dryer sheets
Join Date: Mar 2014
Location: Laguna Hills
Posts: 137
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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.
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04-23-2014, 12:27 PM
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#5
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,467
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Quote:
Originally Posted by 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.
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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.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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04-23-2014, 12:33 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,659
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Generous but very conservative. Once retired, only assumes net worth keep up with inflation to keep annual income constant (in real terms).
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04-23-2014, 01:36 PM
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#7
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,137
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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.
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04-23-2014, 01:39 PM
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#8
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Full time employment: Posting here.
Join Date: May 2007
Posts: 880
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Quote:
Originally Posted by RetireAge50
A metric I like is net worth/(90-Age) ...
These are annual income amounts excluding social security.
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Should it be "investment portfolio" instead of networth?
__________________
"It is better to have a permanent income than to be fascinating". Oscar Wilde
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04-23-2014, 01:40 PM
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#9
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,137
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Quote:
Originally Posted by walkinwood
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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.
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Retirement Decision Metric
04-23-2014, 01:50 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,659
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Retirement Decision Metric
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.
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04-23-2014, 07:21 PM
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#11
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,467
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Quote:
Originally Posted by RetireAge50
Generous but very conservative. Once retired, only assumes net worth keep up with inflation to keep annual income constant (in real terms).
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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
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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04-23-2014, 09:02 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,659
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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.
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04-24-2014, 03:10 AM
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#13
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Full time employment: Posting here.
Join Date: Aug 2013
Location: New Jersey
Posts: 892
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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.
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04-24-2014, 08:32 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,659
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The problem of just taking a set percentage is you never get to spend all your money.
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04-24-2014, 08:48 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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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.
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04-24-2014, 11:00 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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Or use your life expectancy, updated each year, for the denominator. That's approximately the RMD based approach.
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04-25-2014, 04:54 PM
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#17
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Recycles dryer sheets
Join Date: Feb 2014
Posts: 249
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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
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04-25-2014, 05:06 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Jul 2007
Posts: 1,085
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Quote:
Originally Posted by rodi
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.
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Quote:
Originally Posted by RetireAge50
Put in the numerator whatever you plan on liquidating for income in retirement. For me this is my entire net worth.
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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.
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04-25-2014, 05:19 PM
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#19
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
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If I had to choose between sunshine or money, I would choose the sun.
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04-26-2014, 03:52 AM
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#20
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Recycles dryer sheets
Join Date: Feb 2014
Posts: 249
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Could you get by with a little money and some partly cloudy days?
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