rogersteciak
Recycles dryer sheets
- Joined
- Apr 14, 2006
- Messages
- 143
HaHa said:Maybe not a bad idea, but this degree of margin of safety implies that you will need a pretty hefty wad.
$2000*12=$24,000 pa. For a 4% SWR, this implies almost $1mil.
Twice that $2 mil, 3x $3 mil!
The correct way to size up one's financial capital needs for retirement is to do a bottoms-up analysis by estimating one's annual money needs to cover expenses and then using a 4 percent (or whatever) safe withdrawal rate to derive the financial net asset need.
A top-down sanity check is that you will likely need somewhere in the $500K to $5 million range of financial net assets. That's a big range, but if you live in an area where the cost of living is low and your needs are low, then $500K to $1 million is probably doable.
If you live in an area where the cost of living is high and your needs are high (but still within reason), then $3 million to $5 million is probably required.
The more financial net assets you can accumulate relative to your basic need, the safer you are in case the market goes through a major prolonged downturn (as it did in the 1930s and 1970s).
One alternative is to have a sideline business going that could support you at a basic level should the market tank and your financial net assets were marginal to begin with.
It all boils down to what you feel comfortable with doing and how much "insurance" you need to sleep well at night. I like to err on the side of caution and have more net assets than I really need. I can always give away the excess to charity if I end up with too much money.