Hi.... I have no clue!

[er dr]

Hi everyone.... my name is Paul and I just came across this site an hour ago. Never knew it existed but have been trying to figure out my early retirement situation for years and now I'm getting to crunch time and so have started to surf some websites for answers. This is my situation. 8 years ago at the age of 35 I decided, for various reasons, I was going to retire early. I gave myself 10 years to get my financial situation in a postion where I could feasably do it. Now with 2 years left I'm starting to wonder if I'm going to have enough money saved to actually transition into retirement. I'll give specifics as to my financial situation in a future post but for now I was wondering what is a good rule of thumb to use for rate of return on various investment vehicles (like 401K, real estate etc). Obviously depending on what the actual rate of return turns out to be will make a huge difference as to what I will have to draw from during the next possibly 40-50 years. looking at different web sites, various people rec using anywhere from 4-11% growth from your investment portfolio. That is a huge range. If you factor is 3% inflation that in essence gives you 1-8% true growth. What is a good rule of thumb? Thanks for any advice and I look forward to reading other posts and hopefully getting some pearls of wisdom!

 

[Surewhitey]

Hi er dr,
We look at expenses we anticipate to have. We currently w*rk and spend $5-6k monthly, but that's living in LA, 2 cars, $2,100 rent, etc.

When we retire (early too), we anticipate only 1 car & total expenses to be more like $3-3.5k monthly & 3-4% inflation (except for this year, right?).

So worst case, we need to make appx. $43,680-ish off our investments, after taxes. We plan to have $1 million to work with until SS & pensions kick in, so we need to make about 5% to get us there.

Be realistic on your healthcare expenses as that's probably the biggest question in my mind.

Hope this helps.

 

[er dr]

Be realistic on your healthcare expenses as that's probably the biggest question in my mind.

Thanks for the response. Luckily healthcare is not a huge concern being a Canadian Citizen. I do spend a lot of time in the US so I'll probably need some sort of minimal emergency/hospital coverage while in the US which should keep my healthcare costs relatively low especially if it is a high deductible plan.

 

[DayDreaming]

Rather than looking for a good rule of thumb for return rates, what about using FireCalc, plug in the numbers for your investments. FireCalc uses historical market performance data and will show you the wide range of possibilities that you might experience in the future.

 

[donheff]

Rather than looking for a good rule of thumb for return rates, what about using FireCalc, plug in the numbers for your investments. FireCalc uses historical market performance data and will show you the wide range of possibilities that you might experience in the future.

+1 You can't just assume some rate will exist over the course of your retirement. Rates will vary significantly from year to year, decade to decade and you can't predict them. The best you can do is see how a plain vanilla portfolio would do in the worst periods we have experienced in the past and plan accordingly. Firecalc is good for that.

Edit: By the way, if you started working on this 8 years ago and are still potentially on track after the worst recession in decades you did something right.

 

[er dr]

Rather than looking for a good rule of thumb for return rates, what about using FireCalc.

Ahhhhhh....... Ok! Just came across this calculator. This is basically what I was looking for! Thank you. I will plug in my numbers and lets see what it says.

 

[er dr]

By the way, if you started working on this 8 years ago and are still potentially on track after the worst recession in decades you did something right.

Actually 3 years ago after my 401K tanked about 40% I pretty much gave up on the idea of retiring at age 45. I assumed I would have to work at least 2-5 more years which, though not something I relished, I guess was still not the end of the world. I could still retire before 50. However... with strong growths in those same 401K's the past 2 years (20+%), I think I may be right back on track. I'll check out the FIRECalc and see where I stand. I was basically looking for something like this as previously I was just plugging in a guesstimate for % growth over the next couple of decades and wondering if my portfolio would be enough to sustain me.
Thanks

 

[Webzter]

You may also want to check out Optimal Retirement Calculator and Retirement Decision Support System. Also, one thing to keep in mind is that, while FIRECalc is excellent for running what-if scenarios with your nest egg, it's all based on historical performance. You may want to adjust your numbers accordingly. That is, while historical runs include some crashes and a great depression, they also include, arguably, one of the best growth periods the US has seen... and may not see again, or may, this is is where your gut comes into play as well.

oh, and welcome to the forum!

 

[youbet]

Don't use averages for rate of return or inflation. While it's possible you might have a, say, constant 4% rate of return and a constant 3% inflation year after year, it's unlikely. You'll probably live through periods of high variability in these numbers, even if the final outcome does indeed result in an average of 4% and 3%. And the chronological order of this variability is key. Early high inflation coupled with low returns is a retirement fund killer. Low early inflation coupled with high returns can put you on easy street. And this is the case even if both situations eventually average the predicted rate of return and inflation numbers over time.

Calculators like FireCalc or the Monte Carlo tools are very helpful in this regard. When using FireCalc, be sure to learn enough about the tool that you're able to download data to a spreadsheet. There are lots of interesting things to note and learn. For example, the inflationary period of the 70's was tougher on retirement portfolios than the Great Depression of the 30's.

 

[er dr]

Thanks Webzter and youbet for your thoughts. This is exactly the sort of stuff I was hoping for and now I only wish I had seen this forum years ago. Never too early to think about retirement!!! Anyways... I plugged in my numbers into FIRECalc and looked at the ORC that Webzter mentioned. the sense I am getting is that no one can really predict the future to any degree of certainty but I guess using historical models and some common sense, one can only hope that barring a complete melt down of the financial system, one should be OK if the calculators say so. I have so many options that I guess I am not truly screwed if I quit my current position and go into "retirement". I don't also want to let go of a financially good situation just because I am not truly happy doing what I am doing until I feel comfortable that I won't have to resort to going back to work as a backup plan incase 10 years from now the financial calcs I use to decide my retirement date fail to live up to my expectations. I still have 2 more years before I truly "retire" so there is still time to build on my net worth and I'm thinking whatever happens in the next 2 years will give me a good sense if I'm ready or not. ..... I hope I am!

 

[youbet]

Excellent Paul. Situations such as yours where the potential early retiree really is retiring early and SS and/or a pension of some sort are many years in the future are very interesting to me so I appreciate the opportunity to follow along. You'll find that most on this board either didn't retire until shortly before normal retirement age, have pensions, have a working spouse, earn some sort of part time income or a combination. True early retirees living exclusively off self-managed passive income are fairly rare. In my own case, I didn't FIRE until 58 (5 yrs ago) and about 50% of my retirement income will eventually be made up of SS and pension. By today's standards, that's retiring early I guess. But it's cases such as yours where all the marbles are in the FIRE portfolio and individual health care insurance basket that are really fun to analyze.

Yes, you're correct that the future is a bit of a crap shoot. I think that's what makes it interesting.

Please keep us posted.

 

[obgyn65]

Welcome.

 

[er dr]

Ok.. so this is my plan....first some background.
I have 10 rental properties with varying amounts of equity in each and with minimal cash flow loss each month. I've bought approx 1 property/year for past 10 years. Total equity in all 10 properties is about $600,000 currently. I'm done buying property at this point. My personal home has about $200,000 in equity and no matter where I live, I plan on paying down the mortgage until it is full paid off. I own the business where I work at and it's worth about 1.2 million right now. I have about $560,000 built up between me and my wife's various IRA's and I have about $80,000 in cash. I figure I'll need about $10 000/mo to sustain the kinda life I want (in todays dollars).
Now that you have a picture of my sitaution, this is my plan and let me know if there are any concerns.
I plan on selling my business in 2 years and leaving NY and going back to Canada. I'm still a Canadian citizen. I hope to have about $250,000 in liquid cash saved up by then. I want to try and live off the $1.2 million that I get from the sale of my business (what's left of it after capital gains tax) over the next 7-8 years and hopefully not touch the $250,000 in cash (to be used only for emergencies) or my rental properties or my IRA. Once the money from the sale of my business is depleted then for the following 10-12 years I plan on selling 1 property every 1-2 years and live off the equity I've built up in those which by then should be at least $100,000 each (i hope) and use the $250,000 cash I still should have to supplement any years that I do not get as much as I hoped on the sale of a property. That should take me to approx age 65 where I have my original $560,000 in the IRA's left to grow for those 18-20 years which might be worth (maybe 2 million+), plus I should have my home paid off and the free healthcare that the Ontario government provides. that 2 million+ will have to be the source of my income for hopefully the rest of my life (I hope to have enough to sustain me for at least 30 years just in case I live that long).
Not that I want this to be a part of my retirement income but I do plan on doing some side work (teaching, consulting) for the next 10 years but not really for the money but rather because I like it. I'll be very part-time and whatever I make from that will just be bonus and partly given to charity. Plus I didn't even count any SS or pension my wife or I might recieve at age 65. It'll be very minimal anyways. Maybe $2000 tops.
Hopefully this gives a clear enough idea of my current sitation and what I've been trying to build up for the past 8-10 years and what I hope my life will be going forwards. I really, really want to sell my business and get out of that position in 2 years. It has been a great source of money but also a great source of stress. I want to spend more time with my only son who is 10 and spend more time with family.
Does anything sound improbable or unlikely or out of whack with this plan? Am I missing anything that I didn't consider? Can I "retire" in 2 years?
Paul
PS: thanks for the replys so far. I really like the FIRECalc! Much better than one of the online calculators I have been using in the past.

 

[Nords]

I figure I'll need about $10 000/mo to sustain the kinda life I want (in todays dollars).
Does anything sound improbable or unlikely or out of whack with this plan? Am I missing anything that I didn't consider? Can I "retire" in 2 years?

You "figure" you'll "need" an income of "about" $10K/month?!?

Too many new posters focus on the assets without devoting enough attention to the liabilities. Yet it's a heckuva lot easier to control the liabilities than it is to boost the assets.

You don't need to be figuring. You need to be tracking your expenses, determining your annual spending, and then tweaking that spreadsheet into a retirement budget. Until you get a good cash flow picture, both income & outgo, then you're just wishing & hoping.

These posts are oriented at members of the U.S. military and their families, yet they're applicable to any retirement plan. You already have the big picture, but this will help you zoom in on the details:
Retirement budgeting | Military Retirement & Financial Independence
Retirement finances: what will I spend? | Military Retirement & Financial Independence
Military retirement spending: how much will I need? | Military Retirement & Financial Independence
Military retirement: how much can I really spend? | Military Retirement & Financial Independence

 

[Nemo2]

Here's a Canadian financial forum that you might find interesting:

Financial Webring Forum • Index page

 

[er dr]

You "figure" you'll "need" an income of "about" $10K/month?!?

Too many new posters focus on the assets without devoting enough attention to the liabilities. Yet it's a heckuva lot easier to control the liabilities than it is to boost the assets.

You don't need to be figuring. You need to be tracking your expenses, determining your annual spending, and then tweaking that spreadsheet into a retirement budget. Until you get a good cash flow picture, both income & outgo, then you're just wishing & hoping.

Ok... so the way I wrote it makes it sound like I'm guessing but I meant it more like it is hard to know exactly how my spending habits will change when retiring. I actually do track everything. Since august 1997, I have tracked every penny coming in and out of my life. I'm actually kinda obsessed in this way. I use MS Money (i'm peeved that Microsoft has recently decided to stop supporting it but that's another thread) and I have every penny coming in and out tracked and can tell you exactly how much I have spent on any given area for any time period. The figuring part will come when I stop working at my current position and pursue other interests. For example, I will likely travel more and so my travel costs will defiitely increase (how much?... it is hard to say right now). other things like gas costs will likely decrease. the exact amount is not really known to me but over time by tracking it I'll have a better idea.
Thanks for the book list. There is so much more to planning retirement than just making sure finanacially one is in control.

 

[er dr]

Here's a Canadian financial forum that you might find interesting:

Financial Webring Forum • Index page

I looked over this site a bit this morning. Thanks for passing it along. Will have to spend more time reviewing this site but it looks to have great information.

 

[kcowan]

I looked over this site a bit this morning. Thanks for passing it along. Will have to spend more time reviewing this site but it looks to have great information.

If you are experienced with living in NY and Toronto, $10k/mo is probably OK but on the high side. $80k a year plus residence costs is more typical.

If you are flexible on where you live, $30k might be more appropriate.

 

[flyfishnevada]

I have to agree with some of the other posters. Analyze your spending. $10,000 a mo is a lot of money, even in an urban center. Don't guess, track your spending for a while and get a real number. Then you have choices. Work until you can finance that lifestyle, cut out some spending to shorten the time that will take or dramatically cut your spending and retire now. What's more important to you? Financing a certain lifestyle or having your freedom. Only you can answer that.

 

[Surewhitey]

We live in Los A. & only spend $6-7k tops, that's including some long-weekend vacations... for point of reference...
Rent - $2,200
"living" - $4k-ish

 

[Webzter]

I have to agree with some of the other posters. Analyze your spending. $10,000 a mo is a lot of money, even in an urban center.

Unless it's also financing trips abroad and paying to not fly econo class. OP said that's the big unknown in retirement, things like more travel...


Personally, I'd live somewhere cheap and then fly to nice places, but I know I'd miss the urban center culture (I still do, but it's always pointed out to me that I'm uncultured anyway )

 

[er dr]

I have to agree with some of the other posters. Analyze your spending. $10,000 a mo is a lot of money, even in an urban center. Don't guess, track your spending for a while and get a real number. Then you have choices. Work until you can finance that lifestyle, cut out some spending to shorten the time that will take or dramatically cut your spending and retire now. What's more important to you? Financing a certain lifestyle or having your freedom. Only you can answer that.

I guess I'm a little greedy. I want a certain lifestyle but I want to reach it very soon. I'm estimating $10K/mo which includes cost for a home in Canada (approx $2200-2500 total monthly cost including mortgage, utilities, taxes, ins etc), a small home in West Florida (approx $1000/mo for everything) which leaves me approx $6500/mo for everything else including food/travel/car/clothes/charity/entertainment/taxes/misc expenses. I'd rather over estimate slightly than under estimate. Once I've paid off the mortgage on the 2 homes then $7K would be ideal, but that will be 15+ years from now.

After evaluating things and plugging my current data into FIRECalc and other calculators as well as assessing my spending and aources of income, I feel pretty comfortable that I'm GOING TO RETIRE IN 2 YEARS! I know there are a lot of variables that one cannot control completely (ie housing market, stock market, health etc) but if I am careful to diversify and give myself options for additional income on the side (ie wife may keep on working... he he he), then I think I'll be ok.

I love reading about others who have retired early or are at that point now! Gives me a lot of encouragement!

 

[robbridg]

It sounds like your thread title is quite false. You definitely have a clue.

 

[er dr]

It sounds like your thread title is quite false. You definitely have a clue.

Well.... actually what I had no clue on was what rate of return I should use for my investment. basically a 3% ROR over 20 yeras is vastly different than 10% ROR. I was hoping to get some ideas as to how to figure out where I stand and I've learned a lot by going through other threads as well as from responses to this thread. here's an exact quote from my initial thread...

"looking at different web sites, various people rec using anywhere from 4-11% growth from your investment portfolio. That is a huge range. If you factor is 3% inflation that in essence gives you 1-8% true growth. What is a good rule of thumb? Thanks for any advice and I look forward to reading other posts and hopefully getting some pearls of wisdom!"

I really had no clue how to figure out what was appropriate. I found the FIRECalc posted here and I love it! It seems to be alot more accurate as compared to just using a number like 5% ROR! For now this is the one I am using to help me plan my strategy.

Other than that I agree I'm not completely clueless!!

 

[meekie]

Ok.. so this is my plan....

Sounds like you have a lot of things going for you. The only thing I'd worry about on your detailed plan is waiting till a certain year to start selling your real estate, and then needing to sell on a regular basis for income. Real Estate is so variable that I'd be keeping an eye on the markets and selling places when it's a good market, and not when you need the money.