Keep your minimum expenses in a safe place

[Live And Learn]

Keep reading financial guidance that says you need to keep your lifetimes worth of "minimum" living expenses in a safe place (short term bonds, mm, etc).

I ran the following assuming a 45 year retirement:

• Years 1 - 20 : 54k expenses (of which 20k is HI)
• Years 21 - 45: 48k expenses (assumes HI drops due to Medicare)
• Years 21 - 45: 8k incremental income for SSi
• .25% expense ratio.
• 100% in 5 year treasuries
• Desire 95% success ratio

Portfolio needed - 2.5mm !

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My "real" numbers:

• Years 1 - 20 : 72k expenses (of which 20k is HI)
• Years 21 - 45: 64k expenses (assumes HI drops due to Medicare)
• Years 21 - 45: 8k incremental income for SSi
• .45% expense ratio.
• 52% equities, 48% 5 year treasuries
• Desire 95% success ratio

Porfolio needed - 2.0mm

(note: if I wanted to fund the above income / expense scenario at 100% 5 year treasuries the portfolio needed is 3.5mm)

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I don't know whether to laugh or cry !

 

[samclem]

Yep, and that's with FIRECalc's historical 5 year Treasury return, not starting with the 5 year treasuries available now (yielding 0.62%).

Those are some beefy ERs.

 

[David1961]

This illustrates the importance of having a good chunk of your portfolio in equities. When you factor in taxes and inflation, 5 year treasuries actually lose value.