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Old 06-19-2008, 07:13 PM   #21
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Depends on your planned expenditures.

However, in 2005 the median household income was $46,326. It is probably more now. But based on that number, and a 4% SWR, the portfolio would be $1,158,150. A range of 1 - 1.5 seems reasonable.

I also think it also depends a bit on home ownership and debt. If you own your home and have no serious debts, $45k/yr will go much further.
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Old 06-19-2008, 07:54 PM   #22
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So a basic question comes to mind when I read this thread......

If a person has a pension that is $40K per year, can you consider that as having $1MM in a 401K drawing 4% per year?

It seems to me that the answer should be "yes" but I was wondering what others might think about this?
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Old 06-19-2008, 08:28 PM   #23
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So a basic question comes to mind when I read this thread......

If a person has a pension that is $40K per year, can you consider that as having $1MM in a 401K drawing 4% per year?

It seems to me that the answer should be "yes" but I was wondering what others might think about this?
Assuming it is cola'd and not subject to change without notice at some point down the road...

DD
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Old 06-19-2008, 08:33 PM   #24
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Assuming it is cola'd and not subject to change without notice at some point down the road...
And on the other side of the coin, that past performance is indicative of future performance, in the market..

If you make certain assumptions, I think they are equal.
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Old 06-19-2008, 08:54 PM   #25
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I would say that anything above $1M is overkill--
Are you assuming everyone retires at SS age? I'm planning to rehire at 53...and there's no way $1M would be enough. Oh sure, you can say I spend too much. I need enough in my account to keep me going until I reach SS age. My health insurance alone will be $6k-$8k /year for my wife and I from age 5 to medicare age.

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Old 06-19-2008, 08:54 PM   #26
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Assuming it is cola'd and not subject to change without notice at some point down the road...
Yes, some things have to be assumed.

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And on the other side of the coin, that past performance is indicative of future performance, in the market..

If you make certain assumptions, I think they are equal.
Thanks for the replies. I don't want to hijack the thread so I'll get back on track.
For me, being FI means that money will not be a factor in your day-to-day activities. Everyone has a different level of spending and lifestyle. Members of this thread exemplify that. FI is a very personal thing to each person's own situation.
When you quit w**king and have no desire to ever get a conventional paycheck again then you are FI I would think. (I'm still w**king though)
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Old 06-19-2008, 09:26 PM   #27
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Are you assuming everyone retires at SS age? I'm planning to rehire at 53...and there's no way $1M would be enough. Oh sure, you can say I spend too much. I need enough in my account to keep me going until I reach SS age. My health insurance alone will be $6k-$8k /year for my wife and I from age 5 to medicare age.

Dave
I think that Nords was saying that in the context of the example I used in my OP, anything over a 1M would be overkill... Of course 1M could be more than enough or not even close depending on your individual situation.
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Old 06-19-2008, 11:08 PM   #28
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"rehire"
Man I hope that's a typo.

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Are you assuming everyone retires at SS age? I'm planning to rehire at 53...and there's no way $1M would be enough.
No, I'm not assuming SS age. I'm still 14+ years away from that myself.

My answer was to the original question of $40K/year expenses being handled by a $1M portfolio for at least 30 years. That's the gist of the Trinity study and the foundation for the 4% SWR.

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Oh sure, you can say I spend too much. I need enough in my account to keep me going until I reach SS age. My health insurance alone will be $6k-$8k /year for my wife and I from age 5 to medicare age.
Well, that's for you to decide. If the extra work brings you value then it's a personal choice to either cut back to a life you can afford or to keep working for a life you want.

Or, as I've said before, take a variable SWR approach like that of UncleMick's or from Bob Clyatt's "Work Less, Live More". The Trinity study doesn't apply to that situation!
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Old 06-20-2008, 08:28 AM   #29
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Using the 4% SWR rule, would you consider that person financially independent when his/her portfolio reaches 1M (only enough to cover mandatory expenses) or when it reaches 1.5M? With 1M in the bank that person could theoretically stop working and still pay his bills...

Or do you have a completely different definition for financial independence? I am looking for some kind of consensus here...
I have a different definition -- simply put, the time at which they accumulate enough financial resources that they can live their desired lifestyle without *needing* to keep a job.

If you want to bring SWR into it, I guess that means it would be at the point where they could live on less than about 4% of their liquid net worth each year.
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Old 06-20-2008, 10:15 AM   #30
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FI for me is having enough (850K-1 MIL) to pay for the basic things so I can play, paint, volunteer, lay on the hammock, and just have a goofy smile on my face all day.
If health care gets reformed and we get national coverage (I'm wishing and praying!), then I am getting out at 500K.
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Old 06-24-2008, 01:21 PM   #31
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My definition of FI has long been when my FIRE stash equals 50x my last six months actual expenses per Quicken.

My FIRE stash is essentially my net worth minus my home equity.

The 50x number is basically the 4% rule -- the inverse of 4% is 25x and I double it because I use six months expenses instead of a year.

I use my last six months actual expenses because (a) I know I can live on that amount because I have been doing so already, (b) six months is short enough to where changes I am making to reduce expenditures are reflected in the moving average, and (c) six months is long enough to include all of my semi-irregular expenses (such as property taxes) and thus is relatively stable over time.

Full FIRE for me today is projected at a FIRE stash of about $1.1M on December 24, 2015 at age 46.58. It bounces around from day to day a little bit depending on the markets.

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Old 06-24-2008, 01:48 PM   #32
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Hey, 2Cor521

You mentioned your calculation several times now and I would like to replicate it just for the fun of it. Would you mind sharing with us the inner workings of your calculation? I understand the basic concept, but I don't understand how you compound your returns and how you can come up with a particular date. I use an excel spreadsheet and the best I can do is come up with an approximate year.
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Old 06-24-2008, 02:23 PM   #33
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FIREdreamer,

Sure. As you can tell, I enjoy talking about my spreadsheet ;-). I'll give you a general high-level outline and walkthrough; from there feel free to ask any clarifying questions you want, either on this thread or via PM.

I use an Excel spreadsheet.

Each row in the spreadsheet represents a particular month: row 1 in the spreadsheet represents today, row 2 in the spreadsheet represents one month from now, row 3 in the spreadsheet represents two months from now, etc.

Each column in the spreadsheet represents a particular piece of data that I need to use or calculate to get to my FIRE date. Here are most of my column headings with a description of what they are:

General - date :: This is the date that the row in the spreadsheet represents.
General - my age :: This is how old I will be on that date.
General - kid #1 age :: This is how old my oldest kid will be on that date.
General - kid #2 age :: This is how old my second kid will be on that date.
General - kid #3 age :: This is how old my third kid will be on that date.

Contributions - 401(k) contribution :: This is what my contribution to my 401(k) will be that month.

Assets - checking :: This is what my checking account balance is or will be on that month.
Assets - savings :: This is what my savings account balance is or will be that month.
Assets - taxable account :: etc.
Assets - traditional IRA
Assets - Roth IRA
Assets - 401(k)
Assets - kid #1 college fund
... there are several more that I'll leave out for simplicity's sake.

Liabilities - Mortgage :: This is what my mortgage balance is or will be that month.
Liabilities - Non-mortgage debt :: This is what my non-mortgage debt (credit cards and student loan) is or will be that month.
Liabilities - kid #1 college expenses NPV
...

Net worth :: Calculated based on the above assets minus the above liabilities.

Spending - Quicken :: What I am currently spending monthly based on my actual expenses for the previous six months. This comes from a separate tab.
Spending - Mortgage Interest :: What my mortgage interest is or will be for the given month.
Spending - Net :: Actual monthly spending minus mortgage interest. (This column is included because I assume I'll pay off my house before retirement and my mortgage balance is already being accounted for in the Liabilities section above.)

FIRE - Ratio :: This is a calculated field that represents my net monthly spending divided by my net worth for the given month. I multiply by 12 to annualize it.

FIRE - Age :: This is a calculated field. If the FIRE ratio for the current month is greater than 4% and the FIRE ratio for the following month is less than 4%, then this field shows my current age that month; otherwise it is blank.

The first row of my spreadsheet is special because it is actually where I am: the date is today's date, my age is my current age, my assets and liabilities are at their current values, etc. These values are either pulled from my net worth spreadsheet (on a separate tab within the same Excel file) or are calculated via formulas.

The second and subsequent rows are generally calculated from the cells above them and my assumptions (which come from yet a third tab in the same Excel file). For example, my mortgage balance for future months can be calculated based on the previous months value, the interest rate, and the payment. The date for next month is just the previous row's date plus one month. My future 401(k) balance is equal to the previous month's value plus my monthly contribution plus an amount of growth based on my assumed rate of return.

It may be helpful to know that you can compound monthly by using the formula (1+APR)^(1/12)-1 - that will convert an annual APR into the appropriate monthly amount.

There are some other Excel tricks as well in there. Hopefully that gives you the general outline. Again, let me know if you have questions...

2Cor521
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Old 06-24-2008, 04:00 PM   #34
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Thanks 2Cor521,

Your explanation was crystal clear. I've set up the spreadsheet and those are my dates:

FI using Unclemick's definition (enough to cover bare bone expenses): August 31, 2013 (I'll be 39.3)
FI using your definiton: December 15, 2019 (I'll be 45.7).

Pretty cool!
Thanks for sharing.
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Old 06-24-2008, 04:21 PM   #35
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And on the other side of the coin, that past performance is indicative of future performance.
No. My DW asked me the same question on our honeymoon (oh wait, that was another subject )...

- Ron
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Old 06-24-2008, 04:23 PM   #36
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FD, You're very welcome; glad it made sense. Good dates, too!

2Cor521
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Old 06-24-2008, 05:56 PM   #37
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After my recent trip, I have rediscovered my dislike for travel. Oh, the destinations are wonderful, but spending 13 hours for a supposedly 4 hour flight and 1 hour drive is ridiculous, so I can definitely cut out travel as a required expense. Anywhere I can't drive to in a day, I probably won't go all that often.
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