Target Number for FIRE

[scrabbler1]

Quote:

Originally Posted by Rianne Consider retiring at 45 or 50. SS requires 35 years of income above (I think $5000, not sure). So if you have 15 years of "0" don't think SS will be much help. Granted if income is $500K and SS is taken out, might be ok.

Remember how the benefit formula works for SS. It replaces (indexed) wage income only at the rate 15 cents per dollar for the highest wage income layer. I stopped working at age 45 (10 years ago), so my SS benefit calculation has a lot of zeroes and a few very small numbers (summer jobs). But, because my average indexed monthly earnings (AIME) are just short of the 15% wage replacement range ("bend point"), most additional earnings I may have had in my career would be replaced at only 15%, not very high. I am still slated to get just over $1,700 per month in current dollars.

[24601NoMore]

Might want to also factor in a 21% cut to projected SS benefits starting in 2034 as a (hopefully) worst case scenario. That's what I plan to do. Going to make a pretty big dent in my plan..hopefully someone comes up with a fix before then to keep benefits at 100%. Would really stink to have paid in all these years and get shorted right when we need the $$S.

[daylatedollarshort]

Quote:

Originally Posted by FIREHacker Do people just ignore factoring in estimated health insurance costs since it's hard to say how much it will be in the future? I'd think having some estimate for this built in is better than none at all. Am I missing something here? How did you calculate your target number?

Initially, we went on a COBRA policy and premiums were under $1K a month plus deductibles /out of pocket max. I budgeted $20K a year for health a family of four at the time. Then our premiums went to over $2k a month a year or so later. We had a $50K year one year for medical alone between premiums, out of network costs, some travel and deductibles. Our premiums now without an ACA subsidy would be $1.7K a month plus some crazy high deductibles + out of pocket max. With ACA our premiums are $2 a month.

Good luck with your health care cost planning. We're close enough to Medicare age to probably muddle through now whatever our future costs will be until we are both 65. If we were further away I might be looking for one of those 30 hours a week with paid overtime kind of jobs for health insurance because otherwise budgeting for individual policy health costs in the U.S is kind of a cr@p shoot.

[enginerd]

I use 3.5% as a target. I'm not a big budget person, so I back into our expected expenses by taking our salary and adding/subtracting expenses that will increase/decrease once I FIRE:

+ Salary
- 401k/ira contributions
- brokerage account contributions
- FICA
- 529 contributions
- mortgage payment
- childcare expenses
- private school
- income tax reduction
+ health insurance and medical increase
+ increased hobby spending
= expenses


Expenses / .035 = Target Number for Fire

I figure this is close enough for planning purposes for now. I will likely try to get a better handle on expenses when I get closer to my target.

[RunningBum]

Quote:

Originally Posted by scrabbler1 Remember how the benefit formula works for SS. It replaces (indexed) wage income only at the rate 15 cents per dollar for the highest wage income layer. I stopped working at age 45 (10 years ago), so my SS benefit calculation has a lot of zeroes and a few very small numbers (summer jobs). But, because my average indexed monthly earnings (AIME) are just short of the 15% wage replacement range ("bend point"), most additional earnings I may have had in my career would be replaced at only 15%, not very high. I am still slated to get just over $1,700 per month in current dollars.

Right; I found my SS benefit wouldn't change much even with a few 0's and some very low years. Surprisingly small change. And a $500K year wouldn't do any more than whatever the max is now, $128K I think?

[Rianne]

Quote:

Originally Posted by scrabbler1 Remember how the benefit formula works for SS. It replaces (indexed) wage income only at the rate 15 cents per dollar for the highest wage income layer. I stopped working at age 45 (10 years ago), so my SS benefit calculation has a lot of zeroes and a few very small numbers (summer jobs). But, because my average indexed monthly earnings (AIME) are just short of the 15% wage replacement range ("bend point"), most additional earnings I may have had in my career would be replaced at only 15%, not very high. I am still slated to get just over $1,700 per month in current dollars.

That is very interesting to me as DH has a few "0" we're 60 now. I was concerned about those "0." Would you mind putting some numbers to what you said. Let's say layered income:
75K - 3 years
125K - 4 years
175K - 5 years
200K - 8 years, for instance. And you say 15% replacement wage for which wage? I know $128 (or so) is the max for a year. I appreciate your knowledge on this.

[COcheesehead]

Quote:

Originally Posted by FIREHacker Do people just ignore factoring in estimated health insurance costs since it's hard to say how much it will be in the future? I'd think having some estimate for this built in is better than none at all. Am I missing something here?

I talked to a broker, though I am still two years out from FIRE, and got actual costs for coverage. It will change of course, but at least I am in the ball park for estimating our pre medicare insurance costs.

[scrabbler1]

Quote:

Originally Posted by Rianne That is very interesting to me as DH has a few "0" we're 60 now. I was concerned about those "0." Would you mind putting some numbers to what you said. Let's say layered income: 75K - 3 years 125K - 4 years 175K - 5 years 200K - 8 years, for instance. And you say 15% replacement wage for which wage? I know $128 (or so) is the max for a year. I appreciate your knowledge on this.

I would need to know which years have which wages, because each wage year is indexed to current year differently.

I created a spreadsheet back in 2008 to mimic the benefit calculation. A few years later, I downloaded the anypia program from the SS website to act as a check. I had some trouble getting it to work, but eventually I got it working. The results were very, very close, off only due to rounding difference between my spreadsheet and the program.

My spreadsheet goes up through 2008 only because my wage earnings history ends there (YAY!). I suggest you download the anypia program and enter a wage history by year.

https://www.ssa.gov/OACT/anypia/download.html

[Nature Lover]

OP,

Lots of really good stuff in this thread to help you. I see from your profile that you're planning to retire in 2030 by age 40. With that early a retirement, you may not want to use 4% necessarily...probably something lower 3.5% or 3%. This is due to the length of your retirement, not lower investment results. If you think investment results could be worse than historical levels, then you'd want to use an even smaller % or plan to work a little as you go, to keep more of your assets working longer.

Also, please consider carefully, the "I can retire super early because I have a very small expense level" rationale. While the math may work out in the planning stage, you need to make sure you have enough for changes/surprises that could increase your ongoing annual cost of living. Going early on the cheap may lock you into that spending level, and limit how much "living" you can do with your newfound freedom until additional income sources (like SS/deferred pensions/etc.) kick in.

The good news: This planning process is a ton of fun! :-)

[pb4uski]

Quote:

Originally Posted by FIREHacker .... How did you calculate your target number?

Mine was based on our then current expenses adjusted for how I expected them to change in retirement. For health care, I substituted the cost of individual health insurance for what we were paying for employer sponsored health insurance and added a provision for deductibles and co-pays. It worked out that I significantly overestimated.

Also, adjust for taxes and any her obvious ones. Also include a provision for periodic car replacements, furnace and roof replacements, etc.

Then divide annualized number by 4% or 3.5% or whatever WR that you are comfortable with.

[FIREHacker]

Quote:

Originally Posted by Nature Lover OP, Lots of really good stuff in this thread to help you. I see from your profile that you're planning to retire in 2030 by age 40. With that early a retirement, you may not want to use 4% necessarily...probably something lower 3.5% or 3%. This is due to the length of your retirement, not lower investment results. If you think investment results could be worse than historical levels, then you'd want to use an even smaller % or plan to work a little as you go, to keep more of your assets working longer. Also, please consider carefully, the "I can retire super early because I have a very small expense level" rationale. While the math may work out in the planning stage, you need to make sure you have enough for changes/surprises that could increase your ongoing annual cost of living. Going early on the cheap may lock you into that spending level, and limit how much "living" you can do with your newfound freedom until additional income sources (like SS/deferred pensions/etc.) kick in. The good news: This planning process is a ton of fun! :-)

Oh yeah, I love planning this all out. I've made quite a few spreadsheets and I've used some calculators like Networthify and FIRECalc. According to Networthify, I can retire in 11.5 years. Inputting two case scenarios into FIRECalc returns 97.9% and 100% success rates if I choose to retire in 2030 AND have the plan last until I'm 90, or 62 years. I don't use this as a definitive means for reassurance, but it is nice to see.




To get my target number for FIRE, I estimated expenses in today's dollars as though I were retired NOW and multiplied by 25 for a 4% WR. Some expense categories are overestimates and I've also built in the possibility for lifestyle upgrades should I choose to or if they just end up happening. So there are a few built-in safety nets. The target number I got was $1.3-1.4 million (in 2030 dollars; $900-965k in 2018 dollars), assuming the overestimates are true and if those lifestyle upgrades happen. I've also set annual inflation at 3% for expenses.

I then built a few different scenarios that factor in market growth, income, taxes, and savings rate to get estimated NW amounts year-by-year. When this number exceeds my target number for that year, then that's when I can retire. At a constant 65% savings rate (which is my minimum savings rate at all times), the year I got was 2029-2030, and the surplus is several thousands of dollars in future dollars (seems consistent with Networthify's results). Also, this NW number actually doesn't include HSA money--just 401k and a taxable account. Nor does the scenario assume SS or any other income in the future. I'm also choosing to forego homeownership and kids as neither appeal to me.

Since the beginning of this year, I've been keeping track of all income and expenses to the penny and I will continue doing so. Overall, I feel pretty good about my numbers at this current time, though I understand things can change from here til 2030. I will adapt accordingly, if necessary.

Thanks for the responses everyone!

[FIREHacker]

Quote:

Originally Posted by pb4uski Mine was based on our then current expenses adjusted for how I expected them to change in retirement. For health care, I substituted the cost of individual health insurance for what we were paying for employer sponsored health insurance and added a provision for deductibles and co-pays. It worked out that I significantly overestimated. Also, adjust for taxes and any her obvious ones. Also include a provision for periodic car replacements, furnace and roof replacements, etc. Then divide annualized number by 4% or 3.5% or whatever WR that you are comfortable with.

This is how I'm estimating my healthcare costs in retirement as well. I intentionally overestimated this cost.

[FIREHacker]

Quote:

Originally Posted by RetireSoon I'd also recommend looking at your NET expenses, after any income streams you may be able to plan for (including pension, SS, dividends, etc). Calculate your 25-40X total from that number. Covering a big part of our planned expenses via incoming income has reduced the number I need to multiple by 25-40 considerably. We don't have a pension and I plan to ER in my mid 50s, so I needed to cover a good chunk of expenses via dividends from divvy paying stocks, CDs, etc. (I also want to avoid burning down our retirement 'kitty' if at all possible but may have to dip into it $20K or so a year for the next 10 years till we're both on Medicare especially due to the unpredictability of HC). Of course, YMMV because none of us know what will happen to any of the programs we need to count on. SS may get cut by 21% in 2034 (more paying out than taking in). ACA may get changed. The big shocker to me the other day was that Medicare is apparently in worse shape than SS. 25X "historically", when one could count on SS and Medicare was good. Nowdays..I literally have no idea what multiplier is going to be "safe" for me to ER - which WAS going to be this year until it hit me that I may wake up one day with no real option on HC (ie: if the ACA goes away) or if SS does indeed find it's only able to pay .79 of every dollar promised in 2034. Yikes. Tough to pick a multiplier number with so many unknowns that could change from what our parents could rely on (SS & Medicare). HC is the big X-factor nowdays also.

Seems like a safe way to estimate HC is to look at some of the top costs for it today and increase that number by at least 15-20% each year. Though that number will grow fast -.-

[Dtail]

Quote:

Originally Posted by FIREHacker Seems like a safe way to estimate HC is to look at some of the top costs for it today and increase that number by at least 15-20% each year. Though that number will grow fast -.-

Not sure you will have a 100% calculator success number with increasing HC by 15-20% per year.
Fidelity's calculator currently uses 5.5% for HC.

[daylatedollarshort]

Insurance rates can really vary by age, state and number of insurers. In 2017 in Arizona, average premiums went up by 116% due to insurers leaving the state. I would suggest leaving a pad for big rate increases from time to time in your retirement budget and also checking out what rates are now in your state for the older years before Medicare, and budget accordingly. This year with the ACA we've spent $12 so far on health care, though who knows what the future holds for ACA plans. California now has laws limiting out of network charges at in network hospitals so that will help reduce any future hospital bills. For us it has really been a wild ride both up and down in terms of retirement health care costs.

[HaveEnough]

Would be some great information if a long term retiree could share what they did during 2000 and 2008 market down turns.

If your minimal expenses are tight at 4%, how did ya handle the down turns? Attempt to lower expenses? Suck it up and hope for better times?

If your minimal expenses are not tight (<3%) don't really know if the question is applicable.

We are always concerned, not sure why because our expenses are so low.

[karen1972]

Most people that are budgeting have a fairly good buffer built in for things like travel so one if one has 25 times a fat number, its a lot different than 25 times a "I spend this every year".

I still think too many people forget to really budget for long term replacement expenses. If your 65 and you just replaced the roof, siding, windows, etc.. sure your likely to outlive any major expenses, but if your 55 and the roof was replaced 10 years ago, then you like still have some big ticket items coming, same with car, etc. I actually just have a lump sum I put aside for such things which I consider my "reserves" and aren't counted in my budget as they are very lumpy.

I budgeted $18k for health care, which was premiums plus max out of pocket, we've been averaging $12k... currently this just keeps our WR low, if everything goes as planned, once I hit 60, any "extra" will then be spent on vacations and such.

[Mark24609]

I don’t like the 4% rule, way too high. I like 2% that way my portfolio should last into perpetuity, In the 2008 crisis my portfolio dropped 250 K and I only had 40% in the market. My portfolio has since doubled, not willing to accept that kind of risk anymore. 20% in stocks and 2% withdrawal rate,

[Mark24609]

Quote:

Originally Posted by DrRoy The 4% rule also assumes past returns. Future returns are likely to be lower. It would be safer to go with 2.5-3%, which is 40-33.3 times complete and total spending. Don't forget taxes, car replacement, and occasional surprises like a new roof or furnace.

The interest free yield is 2.9 % (ten year treasury). At 2.9% you should never have to touch principal.

[marko]

Quote:

Originally Posted by HaveEnough Would be some great information if a long term retiree could share what they did during 2000 and 2008 market down turns. If your minimal expenses are tight at 4%, how did ya handle the down turns? Attempt to lower expenses? Suck it up and hope for better times?

For us preparation was key. If you wait for something bad to happen and then try to react it can be a different story.

We try to have a few years worth of dividends set aside at all times. So we didn't have to suck anything up or lower expenses. We just hoped for a short term event (which it was); the bucket did get lean but not critical and then things recovered. We were/are at a SWR of 4% but had accumulated a cushion of cash before we RE'd.