50 year plan, best way to plan

[kat]

Dory and others,

I'm about to take steps to do something I've kicked around for 15 years: buy a getaway place. A small two bedroom place in the mountains.

FIRECalc gives me a 96.6% success rate for a 50 year plan, without even selling the getaway place in the future. But my withdrawal rate is over 4% with the smaller portfolio.

Is there a "best way" to plan a fifty year plan? I'm 45 and my grandparents lived past 90, one past 100.

I tend to do things on the back of an envelope. No spreadsheets. I figure I can always sell the place, can always sell the house in the city, etc.

I'm very likely to go ahead and do it (finally), but just looking for ideas to think it through.

I'm sensing 96.6% is not reliable.

Any thoughts?

Thanks.

kate

[jIMOh]

would you being paying cash or financing the second residence?

96.6% works for me.

[Nords]

Originally Posted by kat

I'm sensing 96.6% is not reliable.

It's not reliable statistically, either:

The Retirement Calculator From Hell - Part I
The Retirement Calculator From Hell - Part II
The Retirement Calculator from Hell, Part III, including the quote "Thus, any estimate of long-term financial success greater than about 80% is meaningless."
Retirement Calculator from Hell, Part IV
The Retirement Calculator from Hell, Part V

[kat]

jIMOh, I'd be paying cash.

Nords, I read but forgot about those Retirement Calculator from Hell articles. Fell into being comfy with FIRECalc. I'll go read them again.....

One thing that unnerved me a bit..... My port worked out to pay enough in divs/int for basic needs, a nice reality. When I take out the money for this purchase, I'll also have to change my approach to covering expenses. That's do-able, but it's a change.

[jIMOh]

if you can live off dividends now, and 96.6% was success rate, my assumption is the calculator is wrong... IMO anyone living off dividends should be at 100%, assuming your yield is around 3-3.5%.

are any dividends reinvested each year? how does this amount compare to cost of property?

[kat]

Maybe I wasn't clear. Did not buy it yet. Currently can live off divs/int for basic expenses.

After I buy the property and reduce my port with the same allocations as before, same equities/bonds split, I can't cover it all with divs/int. Port has gone down, so distributions have, and expenses have gone up.

But when I plug in numbers assuming I bought it, FIRECalc gives me 96.6% success, and I don't quite trust it. Seems too good to be true.

[dory36]

If the comet hits, or the dollar is discontinued in favor of barter with livestock, we're all screwed.

Otherwise, most studies I have seen seem to show withdrawal rates close to 4% for 75/25 stock/bond investments for 30 years, diminishing to ballpark 3.5% with 85/15 allocations, for 60+ years.

That seems to reasonably define the boundaries for most of us.

If you are comfortably within those boundaries, and have a fallback, then it seems like a reasonable decision. If you are at or beyond the boundary, and it is a stretch with no fallback, then maybe not.

dory36

[jIMOh]

Originally Posted by kat

Maybe I wasn't clear. Did not buy it yet. Currently can live off divs/int for basic expenses.

After I buy the property and reduce my port with the same allocations as before, same equities/bonds split, I can't cover it all with divs/int. Port has gone down, so distributions have, and expenses have gone up.

But when I plug in numbers assuming I bought it, FIRECalc gives me 96.6% success, and I don't quite trust it. Seems too good to be true.

I caught all this before, so if directed at me, no problem.

I understand portfolio would reduce because of the purchase.
What is the income shortage? (like 40k income needed, but dividends only supply 33k...)

If you own more property, maybe the allocation needs to adjust based on higher real estate exposure? Are REITs part of dividend stream? Financial stocks?

[kb56]

Think of buying a 2nd property as any investment

a - It should be a good time to buy (there are deals out there)
b - The property has value
c - The value usually increases (~5% per year) like a bond
d - You can always sell it in the future (when you get to be 90)

Since you took the value out of your numbers, and still get a 96% sucess rate, you should be good to go.

Good Luck & Enjoy

[Purron]

Kat, As others have pointed out, nothing is 100% reliable. You have dreamed about this place for 15 years and having it would increase your happiness and quality of life. I would be inclined to purchase it as your success rate is so high with FIRECalc. It wouldn't hurt to have some fall back plans such as selling the place down the road if you need the cash. The bottom line is most of us choose ER over working longer to live life. Go live it!

[unclemick]

This is the part where I slip in with:

Psssst Welesley for due consideration.

heh heh heh - just a thought. .

[lazygood4nothinbum]

i also figure long-term. having many relatives living into their mid 90s i figure on 100. before i lost so much of what i thought was my net worth to the bubble burst i was figuring at a 95% success rate. now i find i only figure at 100% which reduces my spendable but gives me more peace of mind. if i have to party hard in my 80s, so be it. (i'm gonna be a fun old man.)