$2.5 million to retire (Legg Mason PR story)

[Live And Learn]

How much of your budget have you been spending per year? Do you put the remainig $$ back into your portfolio?

For 2012 - 2014 my average spend has been 82k per year. Since I still have employer HC I am "only" spending 8k per year vs my 25k budget. I have left the difference in the portfolio which has an AA of 55/40/5.

 

[rodi]

My budget is 100k per year and I do not "live large". My HC budget is 25k annually (because I am conservative I've including hitting the OOP max each year), my "accruals" are 11k per year (and include new roof every 15 years, updated used car every 15 years, updated furniture every 10 years, new appliances every 10 years, new HVAC every 10 years, repainting every 15 years, and regular ongoing home repairs/maintenance at 1%). I have 5k for travel. I have no mortgage and live in a very modest 30 year old 1400 sq ft house. I have two cars- one is 16 yo and the other is 5. I do not belong to a country club, I do not eat out more than 1x a month .... I do not "live large". I know I have alot budgeted for "worst case scenarios" but once ER'd its a hard road back into the w*rkforce so I'd rather save a bit more than I need. In 10 years when I am 62 I can re-evaluate and if I need to spend more on travel to deplete my portfolio I'm sure I can find a way to do so.

You've mentioned budgeting for max OOP for healthcare. I get that - this is my first year on a high deductible plan and by the end of February we were at 46% of our max OOP thanks to unexpected events with my kids.

That said - for years you DO NOT hit the max OOP - do you roll the balance over to the next year's max OOP? Do you spend it?

I'm thinking we have a sinking fund (like for new cars/roofs/heaters, etc) for the amount above our AVERAGE OOP... I don't see a reason to fund for max OOP each year unless someone in my family develops a condition that requires expensive, ongoing treatment that will cause us to hit max OOP each year. (Chemo would be an example.)

 

[Live And Learn]

You've mentioned budgeting for max OOP for healthcare. I get that - this is my first year on a high deductible plan and by the end of February we were at 46% of our max OOP thanks to unexpected events with my kids.

That said - for years you DO NOT hit the max OOP - do you roll the balance over to the next year's max OOP? Do you spend it?

I'm thinking we have a sinking fund (like for new cars/roofs/heaters, etc) for the amount above our AVERAGE OOP... I don't see a reason to fund for max OOP each year unless someone in my family develops a condition that requires expensive, ongoing treatment that will cause us to hit max OOP each year. (Chemo would be an example.)

For me I will hit the OOP each year (ongoing non-life threatening condition needing monthly treatment). DH may not hit OOP.

My theory is that I will roll 1/2 the unused OOP max to the subsequent years travel budget and leave the other 1/2 in the portfolio during the first 10 years of ER. At 62 I will reevaluate the entire portfolio and up the annual travel budget if I can.

 

[foxfirev5]

This one scary thread for those of us looking to ER in the next year. Just like Bogleheads, as mentioned by an earlier poster, the numbers have taken off faster than, dare I say, medical costs over the last 6 years.
However, my situation really hasn't changed all that much. The value of my portfolio is greater than what I projected and I have enough stashed away for the next 10-15 years no problem. The rest is tucked away to grow for future use which I hope I'll need.
I can either mentally account for it with a total return approach, or use the buckets. A 45/40/15 allocation with considerably less than 2.5 mill suites me fine.
LBYM

 

[Cassius King]

It depends on what type of assets they are as well. Brokerage, IRA, 401k, etc. If I had $2.5m in a brokerage account, I could invest it and live off the dividends and income alone. $2.5m in tax free muni's would provide a good amount of income.
With that being said, I live below my means, don't have expensive taste and enjoy the simpler things in life.

 

[marko]

I think it's an insanely high number that is obviously targeted to high cost of living areas and/or people already used to living high on the hog. And it completely ignores the impact of SS, any available pensions etc.

Way too high.

It does depend on where you live. In the Northeast, $100K ($2.5M X 4%) is far from "living high on the hog".

You're not starving, but that amount is far from exorbitant living; it's pretty much the income (with overtime) of many mid-career firefighters/cops around here; not exactly high rollers.

 

[Jack_Pine]

I totally agree.... the inevitable dilemma is that you likely won't know whether you are on the -$796k track or the $12.5 million track or the $48.2 million track until you are probably too old to enjoy that higher level of spending. In a way, a WR with high success rate means almost spending to an investment results worst case scenario.

Taking the situation above, I suspect that once I got to some $ level that I would probably just spend anything that accumulates above that $ amount being careful not to use thse surplus funds to buy things that would increase my annual expenses so I could scale back if I needed to.

That is exactly how we look at it. We are almost as concerned about having too much at the end as not enough. Both concern me.

We also agree with your earlier post about a higher WR rate the beginning, scaling back later when SS kicks in.

 

[Walt34]

Looks like Legg Mason is trying to make folks that do not have $2.5M put aside think that they need to get on the Legg Mason band wagon (horse, train) and invest in one of their many actively managed mutual funds.

I'm probably just going to stay with my boring Vanguard passive portfolio.

No, no, no, you've got it all wrong! That is NOT why they published that report. How is Legg Mason going to make any money if people do that?

 

[petershk]

The funny thing about these articles (and most investment articles) is that they try to be precise at the cost of accuracy.

What makes firecalc and similar tools so great is that they measure a range of possible outcomes and the likelihood that they would have occured and then assume that similar ranges exist in the future.

So firecalc only tells you that based on the past your have a certain likelihood of outliving your savings given your spending situation projected over time.

That's it.

So there's two tmmajor factors. How much you have and how much you spend.

The more you have the less likely you are to run out. The less you spend the longer it's likely to last.

What it doesn't take into account for example, is that every year you get older the chances of dying go up. Every mile you commute the odds of getting killed in a car accident go up. Every stressful minute at work chances of a heart attack go up. (Of course there are also risks with retiring ).

In the end... It's all probabilities and we can make ourselves insane thinking about them. Thus it seems the best thing is to pick the big factors... Get to a psychologically safe mix of savings and spending and then try and enjoy it.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[papadad111]

Some things to reconsider--
Disability insurance? In retirement? What is that?

Car insurance for teen drivers? I know it may sometimes feel like it, but they are not teens forever. The cost to insure them is not something that has to be budgeted for the entire 40+ years of retirement. That cost goes away-- or should, anyway.

A good Health insurance plan is clearly going to be the major monthly expense, but should be less than $2000 a month.....it too should go down a little when you reach Medicare age.

Depending on local tax rates, property/real estate taxes can be the next most likely large on-going expense

Yes. Good inputs. Health insurance will be 24k per year worst case max oop.

For me, I Will likely keep disability for a few more years - 3-5 years post FIRE. Retiring mid 40's and want the option to go back to work as is the insurance if I can not go back due to injury etc. since i may need to eventually pay for mothers assisted living in the future. Likely a 5 year expense ...and then decide how handle mother care and for how long (could be never. She could live to 100).

Same for 2xDS on car insurance. For next 7 years likely we need to keep them on and eventually they launch.

Savings in these two categories will eventually go into HSA or healthcare sinking fund. That will carry the growing healthcare costs from age 50-65 before Medicare kicks in.

Even below budget does not cover a full annual oop/deductible for a year. We are hoping we don't hit the max oop or deductible every year... More like a every 2 years.

Here is our likely FIRE monthly budget:


House Upkeep/Lawn/Trees 200
Prop Taxes 130
Homeowners Insurance 200
House Repair Capital Fund 200

Health insurance 1200
Disability Ins 230
Umbrella Ins 130
Fund- Health Ins OOP 400
DW term life insurance 25
Dog Care/Pet Food 50

Car Ins 300
Gasoline 250
license plates 40
Car capital fund repair/replace :150

Electric 100
Natural Gas 200
Water 80
Garbage 60
Satellite/Cable TV 60
Internet 60

cellphone 200
Food 500
Eat Out/Entertainment 200
Clothes / Technology 100
Haircut/Personal care 50
Kid x2 Edu/Sports 220


TOTAL Monthly EXP: 5335

That's bare bones - no added vacations or travel, fairly Spartan basics of living and our property taxes are very low. Maybe a little insurance heavy but not outlandishly so. No long term care insurance yet. And not even covering the annual max oop for healthcare.


Looking for advice on this budget. That's 64K/year and Hypothetically at At age 45 years old I think $2.5M @ 2.5% SWR from the article seems about in line with what we would need as a lower end to fund 50 years of retirement.

Maybe budget can really be squeezed by 1k/month and way out there SS kicks in some 22 years later - who knows what or if that will exist. No pension.

Thanks

 

[golfnut]

Yes. Good inputs. Health insurance will be 24k per year worst case max oop.

For me, I Will likely keep disability for a few more years - 3-5 years post FIRE. Retiring mid 40's and want the option to go back to work as is the insurance if I can not go back due to injury etc. since i may need to eventually pay for mothers assisted living in the future. Likely a 5 year expense ...and then decide how handle mother care and for how long (could be never. She could live to 100).

Same for 2xDS on car insurance. For next 7 years likely we need to keep them on and eventually they launch.

Savings in these two categories will eventually go into HSA or healthcare sinking fund. That will carry the growing healthcare costs from age 50-65 before Medicare kicks in.

Even below budget does not cover a full annual oop/deductible for a year. We are hoping we don't hit the max oop or deductible every year... More like a every 2 years.

Here is our likely FIRE budget:


House Upkeep/Lawn/Trees 200
Prop Taxes 130
Homeowners Insurance 200
House Repair Capital Fund 200

Health insurance 1200
Disability Ins 230
Umbrella Ins 250
Fund- Health Ins OOP 400
DW term life insurance 25
Dog Care/Pet Food 50

Car Ins 300
Gasoline 250
license plates 40
Car capital fund repair/replace :150

Electric 100
Natural Gas 200
Water 80
Garbage 60
Satellite/Cable TV 60
Internet 60

cellphone 200
Food 500
Eat Out/Entertainment 200
Clothes / Technology 100
Haircut/Personal care 50
Kid x2 Edu/Sports 100


TOTAL Monthly EXP: 5335

That's bare bones - no added vacations or travel, fairly Spartan basics of living and our property taxes are very low. Maybe a little insurance heavy but not outlandishly so. No long term care insurance yet. And not even covering the annual max oop for healthcare.


Looking for advice on this budget. That's 64K/year and Hypothetically at At age 45 years old I think $2.5M @ 2.5% SWR from the article seems about in line with what we would need as a lower end to fund 50 years of retirement.

Maybe budget can really be squeezed by 1k/month and way out there SS kicks in some 22 years later - who knows what or if that will exist. No pension.

Thanks

Are you really spending $250 per month for your umbrella insurance??

 

[papadad111]

Yes. Via USAA. $5M coverage. Teen drivers.

Sorry. Just double checked and it's around 1500/yr. I moved dollars from that umbrella to kids sports and school cost of events.

 

[golfnut]

Yes. Via USAA. $5M coverage. Teen drivers.

Wow, that's a big umbrella. We pay about $280 a year for a $1mm thru Farmers. Got a 21 yr old son hangin around.

 

[papadad111]

Wow, that's a big umbrella. We pay about $280 a year for a $1mm thru Farmers. Got a 21 yr old son hangin around.

Sorry. See above. Adjusted budget - keypunch error. Am at around 1500/yr for 5m. About 5x your 1m policy.

 

[golfnut]

Sorry. See above. Adjusted budget - keypunch error. Am at around 1500/yr for 5m. About 5x your 1m policy.

Hey, I saved you some dough.

 

[papadad111]

Thanks !!! Appreciated !!!!

 

[Spanky]

Here is our likely FIRE monthly budget:


House Upkeep/Lawn/Trees 200
Prop Taxes 130
Homeowners Insurance 200
House Repair Capital Fund 200

Health insurance 1200
Disability Ins 230
Umbrella Ins 130
Fund- Health Ins OOP 400
DW term life insurance 25
Dog Care/Pet Food 50

Car Ins 300
Gasoline 250
license plates 40
Car capital fund repair/replace :150

Electric 100
Natural Gas 200
Water 80
Garbage 60
Satellite/Cable TV 60
Internet 60

cellphone 200
Food 500
Eat Out/Entertainment 200
Clothes / Technology 100
Haircut/Personal care 50
Kid x2 Edu/Sports 220


TOTAL Monthly EXP: 5335

That's bare bones - no added vacations or travel, fairly Spartan basics of living and our property taxes are very low. Maybe a little insurance heavy but not outlandishly so. No long term care insurance yet. And not even covering the annual max oop for healthcare.


Looking for advice on this budget. That's 64K/year and Hypothetically at At age 45 years old I think $2.5M @ 2.5% SWR from the article seems about in line with what we would need as a lower end to fund 50 years of retirement.

Maybe budget can really be squeezed by 1k/month and way out there SS kicks in some 22 years later - who knows what or if that will exist. No pension.

Thanks

Sounds like you are living in a big house as your utility bills and homeowners insurance are high albeit the property tax is only $130? Your car insurance seems high (ours is $1,200 per year for two adults + 1 kid). Cell phone for $200? Wow. Ours is $90 for 4 phones (no data plan though) since we do not need internet access. Do you really need cable TV? Anyway, you probably have have more than $2.5M based on the amount covered by the umbrella insurance. Therefore, your current budget is fine!

 

[GTFan]

It does depend on where you live. In the Northeast, $100K ($2.5M X 4%) is far from "living high on the hog".

You're not starving, but that amount is far from exorbitant living; it's pretty much the income (with overtime) of many mid-career firefighters/cops around here; not exactly high rollers.

Well as I said, the counterpoint to 'needing' $2.5mil to ER because you're in a high COL area or enjoy spending $100k a year is obvious. Otherwise, enjoy working and saving longer because you're determined to stay put with your existing standard of living. It's all a tradeoff.

A lot of folks here really don't get that it's very easy to live on less than $35-40k a year, all expenses included (yes, including healthcare factoring in ACA), in a low COL area when your house is paid for. My monthly bills, including HC premiums and assuming average deductible usage (which may not get used at all since we're healthy), including car/home maint. allowances etc. are less than $3k a month. That's a 2.4% draw on $1.5mil. And it's not like I'm sacrificing quality of life because I live in a suburb of the ATL, btw.

There are many other ways to go even cheaper out in the country.

 

[papadad111]

Thanks !!! Appreciated !!!!

 

[Mulligan]

I hope we don't need $2.5 million to retire, because we are only going to have about half of that, plus a little bit of rental income a few years after retirement when the mortgage is paid off. I will be 40 & my S.O. will be 58. I may still work part time just to reduce our risk a little more. We live in a less expensive metro area in the Midwest. I can't imagine how many more years we would have to work to double our nest egg. Ugh!

Dreaming, if I was S.O. other and things did get tight, I know what "plan B" is.... ....Age 40, Dreaming is going back to work!


Sent from my iPad using Tapatalk

 

[papadad111]

Sounds like you are living in a big house as your utility bills and homeowners insurance are high albeit the property tax is only $130? Your car insurance seems high (ours is $1,200 per year for two adults + 1 kid). Cell phone for $200? Wow. Ours is $90 for 4 phones (no data plan though) since we do not need internet access. Do you really need cable TV? Anyway, you probably have have more than $2.5M based on the amount covered by the umbrella insurance. Therefore, your current budget is fine!

Nope. House is smallish by today standards -- House is valued at around 225K. We live in 1900 sq ft on about 5 acres of land.

Utilities- nat gas is winter run rate. I think they normalize across a year so should be pretty close to what's stated above - winters are cold. Summers are hot so it's year round hvac of one form or another.

Car insurance - let's see 4 drivers. 2 adults. 2 teens. No tickets or accidents . We have 4 practical vehicles but only one has comprehensive and collision. And a motorcycle. The kids and I drive 15+ year old beaters with liability cover only.

Cell phones are ATT prepaids. 2.5g of LTE data plan as at-home high speed broadband is not available. Same reason we like sat - cable TV as Netflix is not an option. Kids use the data plan for homework stuff. with their phones tethered to their pc's.

Umbrella available only in increments of 1M or 5M. Feel 1M is too small considering Teen drivers and a small rental unit.

Seems to me, not covering full annual OOP, and without any money set aside for vacations/travel and driving and replacing beater cars with slightly newer beater cars it's a fairly Spartan budget.

One may be able to chop 200-300 off the run rate but the point is that the spend rate in even middle America for family of 4 is going to probably be around 2.5% SWR of a $2.5M nest egg. SS is 22 years away. No pension.

The math in the article makes sense to me and can rationalize it based on my own current experience and proposed budget.

 

[GTFan]

And I just posted my experience where there's no way you'd need $62.5k a year if you were serious about LBYM in a low COL area, even with teen drivers still at home (my son is still living with us). And this isn't in the country, it's in the ATL.

YMMV. It's all about tradeoffs.

 

[eta2020]

A lot of folks here really don't get that it's very easy to live on less than $35-40k a year, all expenses included (yes, including healthcare factoring in ACA), in a low COL area when your house is paid for.

It certainly is doable if what you want/like to do is spend most of the time at home with inexpensive hobbies and you live in low COL area. And there is nothing wrong with that.

But what if you want to go for 4 months to Amsterdam or Granada Spain? Or what if most of the places you like are medium to high COL areas?

Retirement is enjoying life and not having great restrictions what one can or can not do. Hence personally I would not want less than 100k a year once retired.

BTW it seems to me more interesting/enjoyable to live for example in Mill Valley CA then suburb of Atlanta.

 

[GTFan]

Our travel is basically free (outside of food) because we know how to work credit card rewards and bonuses (hint: google 'manufactured spending' sometime).

As I said, YMMV. If you like to live in a high COL area or want to blow a lot of cash on travel, be prepared to delay retirement. I personally think telling folks they'll need $2.5 mil to retire comfortably is a really bad message to send because of that, but they're not targeting us.

 

[W2R]

That's bare bones - no added vacations or travel, fairly Spartan basics of living and our property taxes are very low. Maybe a little insurance heavy but not outlandishly so. No long term care insurance yet. And not even covering the annual max oop for healthcare.


Looking for advice on this budget. That's 64K/year

It doesn't include income tax. Also I'm not sure if it includes miscellaneous expenses or fitness expenses, but these might be rolled into other categories. So if they are then that's fine.

Kids and spouses cost money, and we apparently live in different parts of the country. Still, your expenses blow me away. They came to substantially more than mine in almost every single category. Your total yearly budget is considerably more than twice what I spent last year. And I spent more last year than I have ever spent before in my life. I live alone in a slightly smaller house, but gosh, I have been spending freely and buying whatever I want, whenever I want it. I am definitely not living a Spartan lifestyle any more, that's for sure. Unlike me, you do not seem to be spending a lot on "fun stuff" at all, but all the rest seems to be frightfully expensive in your situation.

My advice would be to go through your budget line by line, and try to figure out how to lower each expense as much as possible. Start with your various utilities' costs, which add up to more than twice mine, and maybe your insurance costs. I'd think that by carefully examining your overall spending, it shouldn't be too hard to cut back at least $500-$1000/month. Then when you are done with that, for sure add some "fun money"! You aren't going to want to sit and stare at the walls all day in retirement.

Honestly I think the biggest problem with your spending might be those teenaged kids! They won't stay kids for long (drat, I miss my grownup kid!). So enjoy them when you can, and realize it won't last forever. Before you know it, they'll be grown and gone and paying for their own insurance and cell phones, so that hopefully your expenses will go down.