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Retirement Formula based on the value of your house?
Old 03-20-2019, 12:37 PM   #1
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Retirement Formula based on the value of your house?

https://www.marketwatch.com/story/th...ome-2019-03-20

"Here’s the idea
1. Take the market value of your house, and multiply by 0.3. That is the income you need in retirement.

2. Take that number, and divide by 0.04. That is the value of the assets you need to retire with."

Does anyone think this makes any sense at all?

Does anyone manage their spending based on the current market value of their house? I don't think I know anyone like that.

Did anyone else laugh wen they read that this "elegant" solution came from someone at Wells Fargo Advisors?

Does repeating "The house drives everything." three times make it true?
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Old 03-20-2019, 12:48 PM   #2
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Oddly enough, both 1 and 2 prove accurate for us.

However, the house we lived in for 30+ years, prior to moving a few years ago, would have totally thrown this number off. That house was worth 1/3 of this one, and I can't imagine living off 1/3 what we are now.
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Old 03-20-2019, 12:52 PM   #3
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Interesting.
For #1 it comes out higher than what I need, but close to the number FireCalc says I can max out to.
For #2 it comes out low to what I have.
In both cases, its sort of in the ballpark.
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Old 03-20-2019, 12:55 PM   #4
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Not anywhere close.
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Old 03-20-2019, 12:59 PM   #5
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Wow. I'm just speechless . So many holes. But I guess it served its purpose by getting my attention. I actually read the article. A sad reflection of what people will do to promote a new angle on a relatively simple problem to solve. A weak correlation argument that has so many variables that it is idiotic.


Personally I have way too much house and a lakehouse to boot. Although expensive it does not fit at all in the parameters established by the author. I do not have the other associated expenses. As a huge DIY'er the expenses are minimal, taxes in my area are moderate, and I don't partake of the activities associated with where I live. To establish a guideline like this much more ludicrous than the 80-120% replacement of your preretirement income stuff these overpaid geniuses spew.

By the formula I'd better go back to work for another 10 years. As usual you'd better figure it out for yourself.
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Old 03-20-2019, 01:19 PM   #6
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Interesting #2 is based on assets, not net worth so silent of debt/liabilities. I guess that gets caught as part of costs in #1.
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Old 03-20-2019, 01:31 PM   #7
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#1 is "in the ballpark" for us.


#2 is simply the "4% rule" (as discussed in the article) if one assumes "invested" in front of "assets".
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Old 03-20-2019, 01:39 PM   #8
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If you live in a HCOLA, these numbers can be waaaayyyyy off! Having just had our house appraised, I can honestly say we do not need (or come close to spending!!) any where near #1.
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Old 03-20-2019, 01:40 PM   #9
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I watch out if anything coming from MarketWatch. Click bait central.
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Old 03-20-2019, 01:41 PM   #10
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#1 is roughly 4 times my annual expense total. And I don't live in a fancy house.

In fairness, in a normal (i.e. non-California) area, my house probably would be worth about 25-35% of it's current value and the estimate might make some sense.
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Old 03-20-2019, 01:45 PM   #11
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LBYM makes those formulas invalid.
Instead of buying a house that is 3-4x annual income (or whatever the banker/realtor recommended ratios are these days) I paid 1.2x.
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Old 03-20-2019, 01:48 PM   #12
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Too many variables. Is the house paid for? Does it have a mortgage?

What are the housing prices in your area? If someone has a $1M paid off home in California (a very modest home in Silicon Valley), they need nowhere near $300K a year to live, or $7.5M in assets to draw from.

Are you planning to retire in place? Are you going to move?

Do you intend a simple "homebody" lifestyle? Are you going to travel more?
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Sheesh....
Old 03-20-2019, 01:51 PM   #13
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Sheesh....

....agreed. Not even in the ballpark. At least for me.
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Isn't the photo in the article a picture of the Brady Bunch house?
Old 03-20-2019, 01:53 PM   #14
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Isn't the photo in the article a picture of the Brady Bunch house?

I agree with the title of the article that it's "Opinion", not fact.

Quote:
Letís say you are fairly well off, and you live in a house whose market value is $1.4 million... So take $1.4 million, and multiply by 0.3, which gives you $420,000. That is the income you are going to need in retirement. You probably think that number is high, and that you can get by on less than $420,000. Let me tell you why you canít.
Lots of pretty ordinary houses in NY and CA would command that price, but how many of their owners earn 420k or anywhere close to it, even while w*rking?

That article reads as if it's based on nothing more than conjecture, but I bet the author was paid something for it. I wonder how I might get some of that action?
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Old 03-20-2019, 02:01 PM   #15
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#1 is fairly close.
#2 is reasonably above what we have, but house is paid for in cash, which probably affects the equation.
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Old 03-20-2019, 04:07 PM   #16
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Just so stupid. What's wrong with estimating your actual expenses to figure out how much income and how much in assets you need? Why the separation from reality?

This "method" is way off for me, btw.
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Retirement Formula based on the value of your house?
Old 03-20-2019, 04:11 PM   #17
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Retirement Formula based on the value of your house?

I saw this in John Maudlin's newsletter. Totally crazy analysis. Talk about FA wanting you to work forever for more assets for them to manage.
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Old 03-20-2019, 04:16 PM   #18
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A) It's marketwatch.

B) The author is an idiot.

not worth the energy of clicking
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Old 03-20-2019, 04:23 PM   #19
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Ha ha - including taxes we spend close the value of our house each year!

So - we need a house 3X more expensive?

I don't see how anything like this could apply across the country where real estate values vary so widely!

I understand where the 0.04 comes from. Once you establish your needed income, you divide by 4% (which is 25x spending) to get to your retirement portfolio that will support a 4% withdrawal. Assuming you will use 4%.
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Old 03-20-2019, 04:38 PM   #20
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How do I count pension in the assets? I would need fewer assets than someone without a pension, wouldn't I?
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