Ready to retire - how I calculated it.

[Marquette]

Yes, it's a lot of work. But probably not as much work and worry as living in old houses which constantly are in need of repairs, driving old unsafe cars which also need constant repairs, sending one's children to marginal, crime-ridden public schools, and watching every penny as a retirement strategy. Obviously, there's a reason why people strive to live a good lifestyle, despite it being a lot of work.

Wow, that side of the spectrum seems like a lot of work too... I'm not sure that I know anyone like that either.

 

[Milton]

In this case, this person is 37, which could mean a 50-60 year retirement (or more), with the possibility of major long-term family obligations. As has been suggested, inflation is one of the major problems for planning a secure retirement in this case.

Yes, I realize that Case. That's why I said: "That 48% should provide an ample buffer against any reasonably foreseeable negative contingencies down the road.... Looking at it another way, the $108,000 the o/p requires works out to a 2.6% withdrawal rate, which is substantially more conservative than the 4% commonly recommended."

I wonder if you are really taking into account today's cost of living for an upper middle class lifestyle, including a typical mortgage in a good neighborhood, private school tuition, and new cars every 5 years or so.

Well, I dunno. I live a fairly upper middle class lifestyle, though my house in the aforementioned good neighbourhood is fully paid for (I wouldn't expect any upper middle class person to have a mortgage), and I don't spend $160,000.

More to the point, what matters is not what you or I think constitutes a reasonable lifestyle, but what the o/p's actual lifestyle is. He has already told us that he needs $52,000 (or 1/3) less than the $160,000 his investments earn for him, and that the investment income has a demonstrated track record of keeping up with inflation. That information is much more significant than idle speculation about how much a hypothetical high roller might require.

While your comment that "$160k/year is probably not sufficient, nor is a net worth of $4.1M" is obviously true for someone like Larry Ellison, it is apparently irrelevant to 37andhappy.

 

[plex]

Ah, the big thing is the 16% tax rate, that is great when coupled with a low six figure income, which is probably the case if you are in a lucrative type of law while working at a firm. I am just starting off my law career, but regardless, my actual income tax rate, even with taking deductions, is going to range from 28.5% to 33% all combined (so about twice as much).

It seems like real estate is reaching the low point you are speaking of during the end of this year in the US, or perhaps early next year. Sadly though, I won't be in a position to make a major investment in real estate for at least a few more years though (when I am an associate). For now, all I can take advantage of are Roth/401k accounts and low interest rate school loans (well under 6%).

Anyways, in your situation, I think you are fine, though you may want to setup some sort of other low-time requirement passive income sources (such as continuing with real estate investing to a degree). I believe the number someone needs to stick to with a 50-60 year horizon is about 3.5% withdrawal rate. As such, when/if you get married/have kids, you may have to take a look at your passive income sources and make sure you are staying pretty close to or below the 3.5% draw rate. As your retirement horizon decreases to 30-40 years, you can evaluate your portfolio based on 4% draw rate.

Good luck and enjoy the fruits of your labor, I pretty much hope to follow the exact same path (except in the US) so that I can reduce the number of years I have to work, rather than the amount of years I want to work, as you have.

 

[Milton]

Ah, the big thing is the 16% tax rate, that is great when coupled with a low six figure income, which is probably the case if you are in a lucrative type of law while working at a firm. I am just starting off my law career, but regardless, my actual income tax rate, even with taking deductions, is going to range from 28.5% to 33% all combined (so about twice as much).

You don't know how good you have it. 33% is quite modest, relative both to many other countries and to rates historically imposed in the US.

As a Canadian lawyer, I pay combined federal and provincial income taxes at a top marginal rate of 46.4%. On the other hand, we're running surpluses rather than huge deficits; our infrastructure is not crumbling; and (unlike social security) the Canada Pension Plan is on firm ground. And of course early retirees here don't have to worry about paying for health care.

Like everything else in life, there are tradeoffs.

 

[Martha]

How things change! We used to argue about whether a couple under 40 who had kids could retire with 1 million or needed 2 million. Now people aren't sure if 4 million is enough.

 

[ERD50]

Yes, I realize that Case. That's why I said: "That 48% should provide an ample buffer against any reasonably foreseeable negative contingencies down the road.... Looking at it another way, the $108,000 the o/p requires works out to a 2.6% withdrawal rate, which is substantially more conservative than the 4% commonly recommended."

It depends who is doing the recommending.

Not only is the 4% rule for 30 years, it includes a 5% rate of going broke. Sometimes that happens in 23 years. Much more often, your NW drops in half, and that can happen in about 10 years.

From some other threads (search for 'dips' that I started, it is a thread on the Dips in Net Worth), it looks like for very long time periods a 2% SWR is what it takes to avoid the 50% drops in NW.

Plus, I think the OP may need health ins? He may marry a young women (esp with all that money!), and want to provide for her for life. We could be looking at 70 years.

I guess my view is this, after accumulating all that money, would he really want to take a chance of running out along the way? I'd stick at 2% myself, see how things go, and adjust along the way. Sounds like the OP can have plenty of fun on 2%. I wouldn't even call it conservative, I would call it prudent.

-ERD50

 

[CaseInPoint]

Yes, I realize that Case. That's why I said: "That 48% should provide an ample buffer against any reasonably foreseeable negative contingencies down the road....

Well, I don't know if one would consider marriage and kids to be "negative contingencies," but... It sure would change his financial requirements.

Looking at it another way, the $108,000 the o/p requires works out to a 2.6% withdrawal rate, which is substantially more conservative than the 4% commonly recommended."

Not to repeat my assessment of this case, but in general, the 4% rule is very commonly used as a base number. I think that should be modified downward to what a very highly rated triple tax-free muni bond will yield.

Well, I dunno. I live a fairly upper middle class lifestyle, though my house in the aforementioned good neighbourhood is fully paid for (I wouldn't expect any upper middle class person to have a mortgage), and I don't spend $160,000.

That's simply not how things are in any of the places I've lived (NY, CA, FL). In fact, the vast majority of upper middle class people in my neighborhood (including many middle class millionaires) do have mortgages, and very expensive ones at that. It's true that some people who bought their houses decades ago may have paid it off, but other than that, it's rare that the mortgage is paid off before its time.

More to the point, what matters is not what you or I think constitutes a reasonable lifestyle, but what the o/p's actual lifestyle is. He has already told us that he needs $52,000 (or 1/3) less than the $160,000 his investments earn for him, and that the investment income has a demonstrated track record of keeping up with inflation. That information is much more significant than idle speculation about how much a hypothetical high roller might require.

It's not idle speculation at all. It's a response to his question, and it's my opinion that $160k/yr is more than enough to party as a bachelor, but maybe not enough to raise a family in an upper middle class American neighborhood in places like NY or CA.

While your comment that "$160k/year is probably not sufficient, nor is a net worth of $4.1M" is obviously true for someone like Larry Ellison, it is apparently irrelevant to 37andhappy.

You're entitled to your opinion, of course. But you might be surprised to know the true cost of living for many upper middle class people who are not nearly in the league of the Larry Ellisons of the world. It's pretty shocking how much money many people spend, and still would not view themselves as wealthy by any means.

 

[Spanky]

Plus, I think the OP may need health ins? He may marry a young women (esp with all that money!), and want to provide for her for life. We could be looking at 70 years.

OP does not live in the U.S. He is living either in HK or Singapore. If I remember correctly, these places used to offer social medicine.

P.S. It seems that most of responses are based on the premise that the OP is living or will be living in the US. One can live a very, very comfortable life in countries such as Thailand, Vietnam, India with a 4.6 mil asset.

 

[ERD50]

OP does not live in the U.S. He is living either in HK or Singapore. If I remember correctly, these places used to offer social medicine.

P.S. It seems that most of responses are based on the premise that the OP is living or will be living in the US. One can live a very, very comfortable life in countries such as Thailand, Vietnam, India with a 4.6 mil asset.

Well, he needs to consider if he can count on that - I have no idea.

Regardless, my point was that the 2% number is not really 'conservative' when you are talking about 50, 60, 70 years for a portfolio. A 37 YO with a possible future bride should consider those terms.

I'm not going to judge whether or not the OP can live the lifestyle he wants on that 2%, that's for him to decide. I'm just saying that a 50 year portfolio does not follow the same rules as a 30 year portfolio, and why risk going broke? The 2% number is pretty realistic for that.

-ERD50

 

[Spanky]

I'm not going to judge whether or not the OP can live the lifestyle he wants on that 2%, that's for him to decide. I'm just saying that a 50 year portfolio does not follow the same rules as a 30 year portfolio, and why risk going broke? The 2% number is pretty realistic for that.

-ERD50

Agreed -- A 2% SWR is definitely a conservative yet a good number to use for a young retiree.

 

[Milton]

In fact, the vast majority of upper middle class people in my neighborhood (including many middle class millionaires) do have mortgages, and very expensive ones at that. It's true that some people who bought their houses decades ago may have paid it off, but other than that, it's rare that the mortgage is paid off before its time.

Well, what can I say Case? The "vast majority" of people are stupid. But that doesn't mean the o/p is.

It's not idle speculation at all. It's a response to his question

The questions of marriage, children, private school tuition, new cars, crazy mortgages, etc., are indeed idle speculation. There was no indication in the original post that the o/p is contemplating marriage, or that s/he will have children, or that s/he plans to live in downtown Manhattan, etc.

Admittedly, those things could happen. On the other hand, it's also possible that the o/p could get hit by a bus next week: which of course would dramatically reduce his or her retirement savings needs.

 

[CaseInPoint]

Well, what can I say Case? The "vast majority" of people are stupid.

Maybe.

But paying off a motgage prematurely isn't always the right financial move, even if people can afford to do so.

The interest rate and amount outstanding may be such that keeping an extra $500-$2M liquid during uncertain economic times, may be a smarter move than paying off a mortgage. That's more of the calculation, I suspect.

 

[juanagonzalez]

no brainer for someone/anyone taling millions, I get the impression you like to show off... go spend your money!