Retirement Formula based on the value of your house?

[jkern]

I'll have to throw the challenge flag on that one.

1) My cost to sustain my standard of living is 1/6 of his formula
2) My portfolio is 1/10 of his formula

 

[38Chevy454]

Any general rule is not going to be accurate. For #1, it is highly dependent on where you live and the cost of housing in your area. For #2, that is just the 4% rule written a different way, but the same mathematically. The whole premise of "some multiple of something equals your retirement needs" is just not accurate.

 

[Crewer]

I live in the midwest and oddly enough both fit us pretty closely, though for 1 it's amount we make - we actually spend much less so 2 is about right.

Here the cost of a home is as much the property taxes as the original mortgage - and we're not even in NY, Conn, or NJ. those suburban school districts will continue to need a certain amount of money and taxes will keep going up to pay for them.

 

[joeea]

I guess we should all hope that the market value of our homes suddenly plummets.

That way we'll be able to retire early, or at least on time.

 

[Bir48die]

I’d be dead if I needed that much

 

[Luck_Club]

https://www.marketwatch.com/story/t...is-based-on-the-value-of-your-home-2019-03-20

"Here’s the idea
1. Take the market value of your house, and multiply by 0.3. That is the income you need in retirement.

I need more income in retirement then I had while working!

 

[CRLLS]

That is a very oversimplified calculation. Let's see if we can make it simpler: .3/.04= 7.5 so simply multiply the that house value by 7.5. Done.

If only retirement planning was that simple.

 

[bingybear]

The last couple years have really helped my house value. I guess I need to spend more.

I'm sure there is some data that says that a slice of people spend 1/3 of their house value. This may even be for retirees that use financial advisor.... maybe.

The /.04 is just for the 4% rule. So not surprised with that term.
But I'd expect some retirees buy smaller places and do more travelling. This would likely screw up the formula.

 

[Offgrid Organic Farmer]

https://www.marketwatch.com/story/t...is-based-on-the-value-of-your-home-2019-03-20

"Here’s the idea
1. Take the market value of your house, and multiply by 0.3. That is the income you need in retirement.

2. Take that number, and divide by 0.04. That is the value of the assets you need to retire with."

Does anyone think this makes any sense at all?

No. not at all.

I am in process of getting a mortgage on my home, so I am aware of how much it is worth.

My home value is X0.2 my annual pension income.

... Does anyone manage their spending based on the current market value of their house? I don't think I know anyone like that.

Did anyone else laugh wen they read that this "elegant" solution came from someone at Wells Fargo Advisors?

Does repeating "The house drives everything." three times make it true?

No.

 

[Franklin]

Too many variables. Is the house paid for? Does it have a mortgage?

What are the housing prices in your area? If someone has a $1M paid off home in California (a very modest home in Silicon Valley), they need nowhere near $300K a year to live, or $7.5M in assets to draw from.

Are you planning to retire in place? Are you going to move?

Do you intend a simple "homebody" lifestyle? Are you going to travel more?

Oh crap! I live in LA and my house is way expensive (but paid off!). Now based on this method I gotta go back to work.....shoot me now.

 

[pb4uski]

... My home value is X0.2 my annual pension income. ...

Huh? If your home is worth $100k then your annual pension would be $500k... $500k X 0.2 = $100k.

Do you mean that your home value is 2x your annual pension income?

 

[EarlyBirdly]

Here's an equal or better "Method":

Procure a live Chicken, tie 3 rocks to it and proceed to throw it in the water. If it floats take the weight of the rocks in grams and divide by 73 ( The Little known RULE of 73 ).

Multiply that number by estimated number of feathers on the Chicken and determine square root thereof. This number times 10.178 will give you an estimated required annual income from all investments combined.

If the Chicken sinks and drowns...Find another "Method".

Alternately, get another Chicken and some more rocks.

This Method is 100% accurate, almost 60% of the time.

 

[pb4uski]

^^^^ given your screen name I would think that you would be kinder to chickens....they are birds too.

 

[Offgrid Organic Farmer]

Huh? If your home is worth $100k then your annual pension would be $500k... $500k X 0.2 = $100k.

Do you mean that your home value is 2x your annual pension income?

My home value is $90k. My pension gives me $19k/year.

[home value] X 0.2 = pension

 

[LARS]

Oh crap! I live in LA and my house is way expensive (but paid off!). Now based on this method I gotta go back to work.....shoot me now.

Me, too! Based on this formula I would have to turn back the clock twenty four years and unretire. Which pretty much means this formula is utter nonsense as 99% have agreed.

 

[joeea]

Here's an equal or better "Method":

Procure a live Chicken, tie 3 rocks to it and proceed to throw it in the water. If it floats take the weight of the rocks in grams and divide by 73 ( The Little known RULE of 73 ).

Multiply that number by estimated number of feathers on the Chicken and determine square root thereof. This number times 10.178 will give you an estimated required annual income from all investments combined.

If the Chicken sinks and drowns...Find another "Method".

Alternately, get another Chicken and some more rocks.

This Method is 100% accurate, almost 60% of the time.

I tried that. It says I should have retired 20 years ago.
Perhaps I shouldn't have used fried chicken?

 

[pb4uski]

My home value is $90k. My pension gives me $19k/year.

[home value] X 0.2 = pension

Got it. If you had flipped "is" and "X0.2" it would have been clear.

 

[cathy63]

If you live in a $1.4 million house, you live in a pretty nice neighborhood. Those houses have pretty nice cars in front of them, and so will yours. Maybe you think you will have an old rust bucket sitting in front of your $1.4 million house. Then you will be that guy.

If you are living in a $1.4 million house, you are not buying your clothes at Old Navy. You are not getting your furniture from Bob’s Discount Furniture. You are not getting your jewelry from Kay. You are not getting your groceries from Walmart WMT, -0.44% — you are going to Whole Paycheck.

OMG! We have been an embarrassment to our entire neighborhood for 30 years! Why, oh why didn't anyone tell me that I'm not supposed to shop at Old Navy? And to think I've just been walking to Vons for groceries all these years instead of driving miles to Whole Foods! Well, at least we have always parked our low-cost-but-fully-paid-for vehicles in the garage.

 

[Big_Hitter]

1. Take the market value of your h... does not, at all 1 should be "annual spend"

 

[tmm99]

This is totally absurd IMO.

 

[Winemaker]

Spot on here.
$320,000 house, not including 3 other rental properties. x.3= 96,000


Divide by 0.04, gives $2,400,000 nut. Did not include pensions, SS, or rentals.

Life is good, God is great. It'll be 5 years in October.

 

[pb4uski]

Spot on here.
$320,000 house, not including 3 other rental properties. x.3= 96,000


Divide by 0.04, gives $2,400,000 nut. Did not include pensions, SS, or rentals.

Life is good, God is great. It'll be 5 years in October.

That and a broken (analog) clock is right twice a day.

 

[youbet]

At first glance it sounds ridiculous to me. What if one million dollar house is paid off and the other has 25 years to go on the mortgage? Seems those two examples would need different incomes?

A mortgage on a property does not effect its "market value."

 

[Winemaker]

That and a broken (analog) clock is right twice a day.

I agree the ratio is meaningless, but you don't have to be condescending. But the numbers fit my situation, and I didn't base them on the ratio 5 years ago.

 

[ckelly78z]

#1 wasn't too far off (a bit high), but #2 is difficult to measure with so many variables to consider. Just in assets, #2 is about twice what I will have, but add in a pension, and SS, and I don't know where i'm at.