Realistic INCOME question. Thinking of retiring.

[fancy free]

Your budget is not aligned with your values.

You're spending way too much to solve nonexistent problems. ... When you figure out what's important to you-- to you, not to others-- then you can spend your money where it makes you happy... and you won't have to worry about status symbols.

On the up-side, you know what your values are. They're just tangled up with your goals, your fears, your past experiences, and etc.

You've already received a lot of good advice, but I thought I'd speak up because I have been where you are. Retired at 42 with two kids, burned out from a long-term business, etc.

My advice would be to give yourself a definite year or two of sabbatical. Spend that time just relaxing and recovering from the burn-out. Be with your family. Enjoy life. Refill the well.

I guarantee that time will be chock-full of education. You will find out things you did not realize about yourself, the people around you, your kids, your day-to-day life, your wants, your needs. You may enjoy life so much that you realize you are willing to sacrifice some things in order to keep your freedom and that time with your family.

You'll also be in better shape to decide what you want to do work-wise for the next chunk of time. After you take a breather, you may realize there's something you *want* to do. There are *many paths* -- you are on one, and maybe that's your preferred path and you will want to stay there. But you have plenty of time and money to explore what else is out there. You have the freedom to pursue whatever you want -- why not give yourself as much information as you can? Not just about businesses you can buy, but lives you can live?

 

[jclarksnakes]

This thread has certainly been an interesting one. We are a varied group. There has even been some hint of private school mentality versus public school mentality. I have a granddaughter in public school here. Have there been any problems? Yes, but though different I think there would have been as many problems if she was in private school instead. Overall she has done very well. Kids can be pretty tough on each other no matter what their background. It seems to me that comparing private and public schools in this area the drug use and the level of entitlement mentality is pretty similar. Kids using drugs and harboring a strong entitlement mentality whether from good neighborhoods or the ghetto want to hang out and not work on their education. Good kids who want to learn can mostly ignore them and get a pretty good education whether in public or private school.

 

[jkern]

The simple answer to your question, NO!

Not counting Social Security, the Initial Withdrawel Rate for a 60 year time frame should be no more than 2.5%. That means your porfolio should be at least 9M. Your 3M porfolio can sustain 75K per year.

Best advice is to keep working and reduce expenses and maybe retire in 10 years. Good luck!

 

[Midpack]

There has even been some hint of private school mentality versus public school mentality. I have a granddaughter in public school here. Have there been any problems? Yes, but though different I think there would have been as many problems if she was in private school instead. Overall she has done very well. Kids can be pretty tough on each other no matter what their background. It seems to me that comparing private and public schools in this area the drug use and the level of entitlement mentality is pretty similar. Kids using drugs and harboring a strong entitlement mentality whether from good neighborhoods or the ghetto want to hang out and not work on their education. Good kids who want to learn can mostly ignore them and get a pretty good education whether in public or private school.

From someone who went to public and private schools I agree. The worst kids I went to school with were a bunch of wealthy Catholic kids my senior year in high school. They were wilder in general than the norm at any of the public schools I went to. I live in a well to do neighborhood now, and the rich kids in the neighborhood are causing nuisance problems all the time (vandalism in all forms, drunk driving, etc.). There are good and bad everywhere it seems...

 

[Nords]

There has even been some hint of private school mentality versus public school mentality.
Kids can be pretty tough on each other no matter what their background. It seems to me that comparing private and public schools in this area the drug use and the level of entitlement mentality is pretty similar. Kids using drugs and harboring a strong entitlement mentality whether from good neighborhoods or the ghetto want to hang out and not work on their education. Good kids who want to learn can mostly ignore them and get a pretty good education whether in public or private school.

When I think of the private vs public debate, I remember that most of the band members of Aerosmith went to private schools.

Why? Because they'd been expelled from the public ones!

The simple answer to your question, NO!
Not counting Social Security, the Initial Withdrawel Rate for a 60 year time frame should be no more than 2.5%. That means your porfolio should be at least 9M. Your 3M porfolio can sustain 75K per year.
Best advice is to keep working and reduce expenses and maybe retire in 10 years. Good luck!

Gosh, you seem pretty certain that the answer is "no" and that the withdrawal rate should be 2.5%. Got a link to back that up?

 

[Alan]

@Rescueme post #36. Couldn't have said it better myself. The OP was asking about long term returns not spending levels. Obviously if you can't realistically fund a certain spending level, you need to save more or spend less. Once you have the savings though, spending at a conservative SWR ,no matter how high the dollar amount is, is not morally wrong. At least in my view anyway.

+1

It doesn't matter what the spending level is, the op asked a question on sustainable long term returns.

 

[Nords]

+1
It doesn't matter what the spending level is, the op asked a question on sustainable long term returns.

Unlike many other "I'm rich but I still can't ER" posters that we've seen here before, this OP actually seemed uncomfortable with having to set a higher spending level.

 

[GandK]

@OP:

My husband and I are about your age. We invest more aggressively than you seem inclined to invest. To answer your question, I think it is possible (probable, even) to get those real returns, but only if a portion of your portfolio is in physical real estate (not just REITs, although some of those are good investments too, IMO).

Regarding spending: do you track your spending, or do you just spend? Because if you just spend, you may end up spending money that isn't necessary or beneficial without even realizing it... and if you track it, you can reclaim that money for yourself and lower your monthly expenses without anything sacrificed except waste.

I'm wondering if it might be worth your while to write down everything that you spend for the next few months, and then sit down with your spouse and decide if there's anything you're paying too much for relative to the value your family got out of it.

For example: my husband and I LOVE watching movies. One month a few years ago (before we became FIRE chasers) we counted it up and we ended up spending ~$400 at movie theaters in one month. That's just... well, it's stupid. There's no other word for it. We knew that if we had waited for the DVD on just half of those we could have stayed at home with our own snacks and saved over $150 and still seen the same movies. Because of that eye-opening calculation, we now choose to only go to the theater for something we were anticipating for months (e.g. the next installment of "The Lord of the Rings" or a midnight showing of "Harry Potter" with the kids). This not only saves money, but it makes going out to the movies a real treat again... reclaims a bit of the magic that the movies had when we were kids. And we still see all the movies we want to see (Redbox is awesome!). No real sacrifice.

I'll bet you can do the same if you'll take a look at what you spend and ask yourself questions about each expense like, "OK, did I really get $250 worth of use/joy out of my health club membership? Premium cable? Do I overdo it with dry cleaning? Does my child truly benefit from all 4 sets of lessons?" If the answers are "yes," then keep the purchases without any guilt. It's your money, and you earned it! If not, however, you will know you can scale back or drop the item without giving up the nice things and experiences your family has come to expect.

I think you'll surprise yourself by how much of your money you can keep in the family without ANY guilt or sacrifice if you just become fully mindful of how you spend.

 

[redduck]

Hello everyone, what a marvelous forum here.
Bottom line: I need a "gross income" in retirement of $230,000 to retire.

This means, on $3 million....I'd need 7.7% annual returns.

I've got some mentors, who are very successful...telling me that it can be done.

I've got other advisors, telling me....no way.

Does 7.7% annual return seem realistic?

Thanks for ANY opinions and be blunt as possible.

These successful mentors of yours, did they actually tell you how you could be reap 7.7% annual returns? If so, could you let us in on it? And, could you be really specific re: their suggestions?
Thanking you in advance...

 

[Midpack]

These successful mentors of yours, did they actually tell you how you could be reap 7.7% annual returns? If so, could you let us in on it? And, could you be really specific re: their suggestions?
Thanking you in advance...

WK hasn't been here since 2/6, but he could come back...

 

[HpRyder]

Since this thread has drifted a bit from WiltonKnight's question:

I'd need 7.7% annual returns....
Does 7.7% annual return seem realistic?

I'll repeat my original 02-04 12 response since it is probably lost by this time:

Yes you can get in the 7%-8% total yields in equities, but you will have to substantially up your risk level. Nice safe equities yield dividends in the 2% - 4% range, plus appreciation in the 7% - 50% range, but you'll have temporary 15% - 30% value drops. Can you stomach this? Not so safe equities have dividends in the 4% - 10% range with value fluctuations in the 25%-50% range, with a risk of permanent principal loss. Is this for you? Rock solid guaranteed return with no risk of loss is in the 0% - 3% range. Does this meet your criteria, I don't think so.

So you'll have to asses your risk level to achieve the 7.7% yield you want.

These numbers come from my own portfolio tracking over the past 2 years. So, at least for me, they are real, not made up and demonstrate WiltonKnight could achieve the 7.7% return he originally asked about.

 

[Alan]

Since this thread has drifted a bit from WiltonKnight's question:
I'll repeat my original 02-04 12 response since it is probably lost by this time:



These numbers come from my own portfolio tracking over the past 2 years. So, at least for me, they are real, not made up and demonstrate WiltonKnight could achieve the 7.7% return he originally asked about.

I've managed >7.7% for the last 2 years as have many, but WK is only 36 and is going to have to do 7.7% for the next 50 years. Consistency is also a big issue as he would be in a withdrawal phase, and since average returns that big means volatility, then if he has some losing years during the first few years of his withdrawals he won't make it.

 

[Nords]

WK hasn't been here since 2/6, but he could come back...

In other situations like this one, how often has that happened before?

 

[travelover]

In other situations like this one, how often has that happened before?

Good point. I'm still holding out hope for the return of MMND.

 

[Midpack]

In other situations like this one, how often has that happened before?

You're right, happens often with low post count members. I just feel bad when I see a reply that's obviously taken some effort and I see the OP seems to be long gone. And I've seen mods point it out before, thought it was helpful...

 

[MBAustin]

You're right, happens often with low post count members. I just feel bad when I see a reply that's obviously taken some effort and I see the OP seems to be long gone. And I've seen mods point it out before, thought it was helpful...

Although it's OP's loss for not returning, I'm sure other members and lurkers learned a lot from the thread, so it's not wasted effort.

 

[Rustward]

Although it's OP's loss for not returning, I'm sure other members and lurkers learned a lot from the thread, so it's not wasted effort.

The OP did not get the answer he was looking for so he left. His entire history of posting is in this one and only thread.

I do agree with most of the answers that generally advise against what he is wanting to do. Especially at 36 with a wife, a 4 year old and another rolling down the runway. He would potentially be looking at a 54-64 year retirement. One would need multiple crystal balls to plan this. Who even knows if the balls will still be made of crystal in 50 years? He probably just needs a good sabbatical.

 

[wolfbay]

I'm 61 also and retired. I thought we were being fairly conservative living on 60000 yr with 2.4 M portfolio but compared to you we look down right irresponsible. I'm hoping you are being more conservative than is really necessary to maintain your level of spending. Maybe you want to leave more assets to your heirs?

 

[wolfbay]

I will spend only about 2% of the gross asset.

As analogy, I am much older at 61 yrs old and will retire this year with a very diversified asset of about 5.6M. I do not have any big expenses and no kids to support.

I'm actually thinking of living on $5000 a month or $60,000/year, and
another $20,000 for discretionary spending like travel, etc, fun stuff.
I will stay on a budget of $80,000/year, unless I happen to trade or replace my vehicles.

Don't try to buy your kids nice stuff. Give them education and motivation to work hard, perhaps start a business on their own.

BTW, those two kids are your biggest expense, specially if you send them to college. So you should reduce your yearly expenses.

YOu can still have fun at about 90-100K/year.

I guess my post made no sense without this quote.

 

[Nords]

Good point. I'm still holding out hope for the return of MMND.

Yeah, I doubt she was getting much love from her fellow personal-finance bloggers, too. Her blog's been dark for 18 months so I guess that means she has a waiting list for coaching clients!

You're right, happens often with low post count members. I just feel bad when I see a reply that's obviously taken some effort and I see the OP seems to be long gone. And I've seen mods point it out before, thought it was helpful...

I don't know if the mods have new statistics, but for every active poster there are roughly 10 lurkers.

Sometimes I wonder whether the MIAs ever find a site that helps them answer their questions. I haven't heard of that happening yet. Maybe Bogleheads, but if you get your feelings hurt on this board then Bogleheads isn't exactly going to kiss it and make it all better...

 

[WiltonKnight]

And 6 days later.....he rose again.

Greetings and salutations everybody......

1st off I do apologize for not responding sooner but indeed I've been reading ALL your replies a few times a day. Between helping pregnant DW take care of our 3.5 year old cute-yet-benevolent dictator of daughter, AND the legal and mental convulsions of selling a somewhat sizable business....I just didn't have quality time to respond. All replies were thoughtful and wise and I expected nothing less....and I didn't want to reply with the canned "thanks, i'll take it under advisement".

Also feel free to Google me. I'm busy launching the Foundation for Law and Government

I gotta cook breakfast for the kid in a few minutes, so I'll reply to more posts later, but in the meantime I'd say this:

1.)NO QUESTION my spending is higher than should be. My lifestyle, is totally different than my upbringing and the only saving grace when I look in the mirror is, most of the stuff we buy has NOTHING to do with "showing off", and also that AMEX green is the only credit card ever used...paid off monthly. So, I feel I'm not the "yuppy" who has to show off Coach handbags to others. Instead, we've been very subtle, nobody would ever guess what we have...and we were content to privately enjoy the lux life. I do however plead guilty.....yeah, I just should not have been spending at this rate.

2.)The whole reason for my questions here was that I KNEW spending is too high. I am suspicious of myself....maybe I "want" to see that having $3 million, and generating $235k per year is very possible. But thus far in my life I've need been too optimistic, I've always 'aimed low' and it has served me well.....and in my guts I know that $235k yearly income....was not aiming low, it's hoping that everything goes perfect all the time which is rarely the case, especially when morons (yes, i said it) are running key components of our country and world.

3.)I'm so torn. On one hand i feel 'attached' emotionally to the business, and some of my employees. I've done very well at it...but lately things have gotten somewhat soft. I THINK I can turn it around again and do okay......but what if I can't? While it's not probable, it's POSSIBLE that things can get ugly and then....there's no $3 million, there's me leaving in disgrace and begging the bank not to come after me. My business IS instantly affected by things like oil prices, world events, etc and while there's 10 reasons I'm going to be just fine, there's 10 reasons why I won't be fine, or at best......I'll stagnate.

Socking away $3 mill I feel alleviates SOME risk in my life. It allows me to either gear down to a more realistic lifestyle and retire, OR it allows me to leverage into a higher quality business....but STILL having a nice chunk of cash left over.


4.)Nobody is right 100% of the time. The 'mentor' I refer too is very successful....he put away millions in his 30's and then started a TOTALLY new enterprise which now nets him $500k/yearly. He's a great businessman, great family man, he's now 50 and doing just fine.

He has a wealth manager he's used for 20 years. Mentor is hardly a passive investor, I'd say they work together and formulate investment plans.

He says it's not "100% certain" but he thinks 7% per year is doable. He's given me countless examples of preferred stocks, individual stocks that he's traded in and out of...and maybe the guy is just lucky. He makes 10-15% on his trades just for fun and sport. In 20 years he's average 12% returns, and when I pointed out that those were glory years for most....he points out that it wasn't all glory. The dot-com bust, and the Wall-Street bust are included in that time where he made 12% a year.

Since the 2008 bust, he's doubled his money. I talked to him the day after Lehman went down in 2007........and he told me that he sold all his stocks, and put 70% of his net worth into gold....and has held on to this day. Y'all can do the math.

But he's cautioned me that he is not retired and therefore can take chances in the market....whereas my situation will be different. He also (rightly) points out that I bask in the glory of fear, and that I'm too risk-averse and conservative for my own good. (Totally accurate)

I've been doing lots of soul searching. Lots. I'm wondering, how did a "kmart kid" raised by frugal immigrants end up "needing" $14k net monthly income to live? Why the hell do I need that much money, especially with home and cars paid off? Isn't there something wrong with that picture?

I think I could do much better alleviating waste and we've been working on that. Certainly, via looking for 'deals' I can save money here and there but the "prize" here is cutting back the lifestyle.

I'm 100% HAPPY to cut back the lifestyle if I have to. Heck during 2008 crash I started brown-bagging just to set an example at work, just out of principle.

But, I'm not sure if I can ELECT to cut back the lifestyle. This is an anonymous forum, AND there's folks here with more money than me so I'm in no way bragging. But for the last 10 years..........I've become used to not even thinking twice about money. 20k vacation? Ok, no prob. Extra cash to see a doctor? Ok. Gas and food expenses? What are those? And I was indeed adding to my savings while living like this..........so now it's a hard paradigm shift.

I do believe that "WEALTH" isn't material goods. "WEALTH" is money that works for you. I'd like to put away SOME real wealth and I see $3 mill as just that.

I'd LOOOOOOOOOOVE to retire. I think the labor force of the future will stink. The text-message-facebook generation I really don't want as employees. I'm tired of customers, I'm tired of my government telling me that I make too much money, that I don't deserve it, and that I ought to be taxed more for my success. I ALMOST pleasure myself dreaming of sending the I.R.S a note with next year's taxes saying "Instead of the normal 200k, here's 7k. I took the hint well. Enjoy your deficits on your own you putzes".

But, I still want some niceties. Eating out, vacationing, I still want some modicum of care-free finances.

So here's what I'm leaning towards....................

Make the deal, cash the $3 million. Take a short break....and then buy another similar business. With $1 million, I could indeed leverage into a similar, but higher quality business and that would yield an income of around $230k per year, after debt servicing.

So now, I'll have the income I want........but JUST in case doomsday happens, I don't come home to food stamps, I come home to a paid off house and $2 million in the bank....so I have time and money to regroup.

Trust me, I'm STILL thinking about how to pare back the lifestyle and retire....possibly delve into land lording thru college housing, net-leased properties, whatever.

But this is how I'm leaning.

I gotta go beg a 3 year old to eat an egg now. I'll write more later.

In the meantime thank you all for your replies........I agree with a majority of what you all have wrote.

 

[Midpack]

Welcome back, your story is unique and interesting. It appears you're coming to the conclusion you need to save some more and plan on spending a little less, and you can still enjoy a relatively lavish lifestyle...nothing wrong with that despite what others may tell you (loved the IRS note, I look forward to paying far less in taxes starting this year as well).

 

[redduck]

WiltonKnight says:

"And 6 days later.....he rose again." :

Geez, Wilton, that's not so good for a guy who's only 36 years old. Perhaps this thing about earning 7.7% is affecting you more than you thought. You might want to try for 4.2% and see what happens.

 

[jclarksnakes]

Most of us on this forum reached FI or are on the way to it because of our LBYM mentality. For many of us along with the LBYM mentality there is also a very strong inclination to be conservative in our business and investing decisions. We stuck to our jobs long enough to qualify for a pension and/or saved with a vengeance for years and here we are at FI. Just because it works for us does not mean it is the only way to go. Many people who are less risk averse, like the OP have reached FI or are rapidly moving towards it because they are more willing to build their own business and then ready to sell it and buy another. It is no surprise that those people are less willing than we are to go it slow and steady with the saving and investing. Most of us have seen at least a few of our investments do REALLY well. If we had been "smart" enough to pick lots more of those investments we would be much richer today. It is not unrealistic for someone who is willing to take more risk to do much better, and of course also possibly much worse with their investments than we do. Maybe the OP can average 8% over the next 30 years and maybe not. Somehow I think that either way he would be able to find a solution and make money again if needed.

 

[haha]

Maybe the OP can average 8% over the next 30 years and maybe not. Somehow I think that either way he would be able to find a solution and make money again if needed.

It is not at all hard to average 8+% if capital gains are included, but one cannot withdraw 7% from this account. Don't forget volatility. It is really a high wire act without a net.

If someone needs, for example, 3% from a portfolio, he should save until he has enough invested assets to make 3% from conservative dividend paying and dividend growing stocks and or TIPS. Then stay out of principle, including inflationary gains to the principle. For me, I want the corpus to grow a bit in real terms, as I like a slowly increasing standard of living, not a slow death of the portfolio, and not a lot of hoping and nail biting.

But hey, it might be a terrible method, it's only worked for 25 years so far.

Ha