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How much would you need?
Old 05-18-2015, 03:48 PM   #1
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How much would you need?

If you spent 100k a year after tax, how much would you need to retire assuming you are 47 years old and half of your net worth was in a non income producing asset like a primary residence?


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Old 05-18-2015, 03:49 PM   #2
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Would 3.3mm be enough?


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Old 05-18-2015, 03:49 PM   #3
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$2.5-3.0M not counting the house...but that's me
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Old 05-18-2015, 03:52 PM   #4
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FIRECalc should answer your question: FIRECalc: A different kind of retirement calculator

Note: FIRECalc considers taxes to be part of your annual withdrawal so you'll need to gross up your $100K number to include tax payments.
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Old 05-18-2015, 04:01 PM   #5
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How would you tweak firecalc if you assumed your house was 40% of your net worth. I assume you would need more as real estate on average goes up less than the stock market.


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Old 05-18-2015, 04:04 PM   #6
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I don't plan on selling the house to fund retirement, so I don't include it in my FIRECalc numbers.
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Old 05-18-2015, 04:08 PM   #7
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I don't plan on selling the house to fund retirement, so I don't include it in my FIRECalc numbers.
+1

You always need a place to live. If you do plan to take some equity from the house, there is an option in FIRECalc to add a future lump sum.
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Old 05-18-2015, 04:27 PM   #8
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I plan on selling the house in approximately 10yrs when my youngest enters college.


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Old 05-18-2015, 04:36 PM   #9
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What MichaelB said...
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Old 05-18-2015, 04:54 PM   #10
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I plan on selling the house in approximately 10yrs when my youngest enters college.
IIRC, FIRECalc offers the option to add a lump sum to your portfolio at a future date.

Or, what I would do (assumes you can deal with ups and downs in spending each year): I'd use the "percent of year end balance" method rather than the "fixed dollar amount increased for inflation" withdrawal method. Do two runs: Now until 2026 (a ten year run, when you'll sell the house), and a XX year run for the rest of your retirement.
I'd start with the second period (XX years from 2026 until I die): Figure out (based on my input for assets owned) how much I'd need in the portfolio to give me a 95% success rate starting with 100K withdrawals (in this withdrawal method, "success" means you have as much at the end as when you started, so it is pretty conservative.) The starting investment amount in this case would include the difference between the present house and the new one, plus my pre-existing liquid assets.
Then do another run to model the first ten years. With the "total portfolio needed" from the step above, subtract out the house value, put that in as the starting amount, and do a new run from today through 2026 (a ten year run). I'd look to see if that starting amount was enough to produce $100K in spending in 95+% of cases. If not, I'd see how much I'd need to reach that 95% mark. Again, with this withdrawal method in FIRECalc, "failure" just means that the balance at the end of 10 years was less (inflation adjusted) than what you started with.

In theory, this is a very conservative approach: There's a 95% chance (historically) that in ten years when you sell your house you'll have more than what you started with (see the FIRECalc report--on average you might have much more than what you started with). And then you'll have a 95% chance of going the distance without spending down from that original (probably lower than life) level. But there are some strong signs that stock and bond returns for the next 10 years may be significantly below historical averages, so I think a conservative approach is warranted.

Good luck.
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Old 05-18-2015, 04:56 PM   #11
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I plan on selling the house in approximately 10yrs when my youngest enters college.
that's an eternity (from now)

if you want to be conservative don't include it - heck it may not be worth anything in 10 years anyway
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Old 05-20-2015, 09:06 AM   #12
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Minimum I'd feel comfortable with is $2.5M investable assets (i.e. 25x annual expenses).
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Old 05-20-2015, 09:14 AM   #13
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$2.5M and don't include the house. Outcome of a house sale 10 yrs from now and the need to find new housing is too unpredictable. COuld be a net loss even.
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Old 05-20-2015, 09:41 AM   #14
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Minimum I'd feel comfortable with is $2.5M investable assets (i.e. 25x annual expenses).
But wouldn't it be more than 25x because he/she is only 47?
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Old 05-20-2015, 09:50 AM   #15
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But wouldn't it be more than 25x because he/she is only 47?
that's why I would need 3.5M - plus he still has dependents
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Old 05-20-2015, 09:53 AM   #16
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But wouldn't it be more than 25x because he/she is only 47?
Assuming you were willing to lower your expenses in bad years, I'd be ok with 4% at 47. Plus OP might be able to unlock some home equity in 10 years, and SS in 20 years.

If you're not flexible on spending, then yes I would go lower than 4%.
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Old 05-20-2015, 09:58 AM   #17
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that's why I would need 3.5M - plus he still has dependents
And taxes to pay (though it's hard to tell how much they'd be).

Much depends on how "firm" the requirement for $100K per year is. If that's a no-kidding "never a dime less than this, and adjust it for inflation each year" then the required starting amount goes up to get a high degree of likelihood of making it to the finish line. If it is "I need $100K of spending power on average from here forward, but I can tighten my belt if needed to weather the market dips", then the required starting amount goes down and (more importantly), this will do a lot to preserve the nest egg for the long haul.

Edited to add: Oops, I cross-posted with soupxcan.
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