Do They Have Enough?

[robnplunder]

Quote:

Originally Posted by 43WorkYears Based on their age and what their spend is, I don't see how can retire with less than 5million. 40 years is a long time.

I was going to react violently to this reply but saw the poster's post count of 2 ...

If one can't retire with $5M & $100k yearly expense + SS kicking it at some point, there is no hope of RE for anyone. Sharing opinion is good and encouraged in this forum but, but, but ....

[eta2020]

Quote:

Originally Posted by robnplunder I was going to react violently to this reply but saw the poster's post count of 2 ... If one can't retire with $5M & $100k yearly expense + SS kicking it at some point, there is no hope of RE for anyone. Sharing opinion is good and encouraged in this forum but, but, but ....

Right! Even simple dividend yield of S&P 500 on 5 Million would give you 100k. Throw in few other indexes and you will get more like 120k-130k.

You would have to be fool if you can not generate more then 100k WITH inflation protection from 5 million dollar portfolio.

[aim-high]

BTW...I took some of this advice and applied it to my own situation. I'm actually much more comfortable about pulling the plug this year too. Thanks.

I took our budget and figured out what is essential and what isn't. I figured if we were desperate, we could cut about 33% of our spending. One advantage I have is that I don't have to guess what my tax situation is going to be like. I should be able to manage it to keep it at 0.

[robnplunder]

Quote:

Originally Posted by eta2020 Right! Even simple dividend yield of S&P 500 on 5 Million would give you 100k. Throw in few other indexes and you will get more like 120k-130k. You would have to be fool if you can not generate more then 100k WITH inflation protection from 5 million dollar portfolio.

... or, even a 3% annuity can result in $150k payout per year for life. Put $50k of it back in investment every year, and before the Op's friend realizes it, he is sitting on another million or two some 20 years later.

Anyway, the op's friend has about $3m which I would not think twice about retiring if it was me.

[fh2000]

Quote:

Originally Posted by aim-high Here is a friend's scenario. They are 50/51 and planning for a 40 year retirement. Current Portfolio - $2,700,000 Annual Projected Expenses - $100,000 including taxes. Projected Combined Annual Social Security @ 70 - $36,000 Home Equity - $500,000in No Pension.

I have very similar numbers. I set aside $200K, and 2 homes as my cushion. I get 100% from FireCalc without these.

My expense estimation is $105K. In it, there is $20K travel, and $20K ACA. If we spend more on healthcare in one year, we cut down travel. So, that would be another cushion.

If I were them, maybe I would work for another year or two to add more cushion since they are younger than us. For me, ready or not, we plan to ER early next year.

[daylatedollarshort]

Quote:

Originally Posted by robnplunder I was going to react violently to this reply but saw the poster's post count of 2 ... If one can't retire with $5M & $100k yearly expense + SS kicking it at some point, there is no hope of RE for anyone. Sharing opinion is good and encouraged in this forum but, but, but ....

I think saving up (annual expenses X years in retirement) in safe, low yielding assets is not popular here but seems to be what Bill Bernstein is recommending these days:

Social Security Benefits: The New Normal| Complete Senior

and what Zvi Bodie has recommended for some time:

http://www.nytimes.com/2012/05/19/yo...oney.html?_r=0

If they are on the fence and want a greater margin of safety, instead of working longer and saving more, if it were me, I would look at cutting expenses.

[ejman]

This is a very interesting thread. For some people there is not enough money in the world to make them feel safe. For many of the LBYM crowd however, I suspect that the extensive training allows a great deal of roll with the punches flexibility. Once the BS bucket is full there are so many paths thru this forest that close enough is good enough.

[eta2020]

It is also very interesting thread because it tells me that there is a balance of age and money. When you retire earlier you trade healthy age for bit less money when you retire later you trade safety for loss of time.

I wish I had 5 million at age 30 and brain that I have now at 50 when I was 30. That way I could had retired superbly at age 30.

But fine...it is what it is and I will quit in 66 months at age 55. I am sure of that

[pb4uski]

I think saving up (annual expenses X years in retirement) in safe, low yielding assets is not popular here a good idea if you never want to retire or retire so late that you don't get to have any fun

[robnplunder]

Quote:

Originally Posted by eta2020 It is also very interesting thread because it tells me that there is a balance of age and money. When you retire earlier you trade healthy age for bit less money when you retire later you trade safety for loss of time. I wish I had 5 million at age 30 and brain that I have now at 50 when I was 30. That way I could had retired superbly at age 30. But fine...it is what it is and I will quit in 66 months at age 55. I am sure of that

$5M is good for me whether I am 30 or 50 (er, 52). Unfortunately, I have to work 8 more years to get there. At my age, 8 years is a lot more precious than getting to $5M. I will be retiring much sooner than that.

Getting back to OP, from my surfing this forum, it seems having $2M in investment asset is where I saw a lot of folks taking the RE plunge. Some RE'd with less than that but they had smaller expense. Then there are those lucky few who retired with $5M or more.

[urn2bfree]

Quote:

Originally Posted by eta2020 Right! Even simple dividend yield of S&P 500 on 5 Million would give you 100k. Throw in few other indexes and you will get more like 120k-130k. You would have to be fool if you can not generate more then 100k WITH inflation protection from 5 million dollar portfolio.

No portfolio should be 100% equities, so a $5Million portfolio is not going to generate 100k in dividend yield...also I believe the current S&P yield is 1.9% not quite going to get you the needed 100k even if 100% equities...

Quote:

Originally Posted by robnplunder ... or, even a 3% annuity can result in $150k payout per year for life. Put $50k of it back in investment every year, and before the Op's friend realizes it, he is sitting on another million or two some 20 years later. Anyway, the op's friend has about $3m which I would not think twice about retiring if it was me.

In the current low interest rate environment, locking in on an annuity at a young age seems dangerous--inflation could quickly kill this plan...and again, the idea of putting 100% of a $5Million portfolio in one type of investment seems reckless. Also, given the limited insurance that states give on annuities, you would have to divide up between many different companies...just not realistic to me.

Still, I think anyone with $5 million who cannot retire in many instances does not have a saving problem, they have a spending problem.



Sent from my iPad using Early Retirement Forum

[daylatedollarshort]

Quote:

Originally Posted by pb4uski I think saving up (annual expenses X years in retirement) in safe, low yielding assets is not popular here a good idea if you never want to retire or retire so late that you don't get to have any fun

Many posters here seem to be able to do both. In the case of the couple in the thread, $36K SS X 30 years, would cover $1.08M of retirement funding. If their expenses were $75K a year instead of $100K, the 50 years funding total required would be $3.75M, less $1.08M SS = $2.75M.

Their SS seems pretty low for the net worth, so a couple getting $40K+ combined at 66 would fare better. Add in a 1 - 2% return on TIPS purchased in prior years and the portfolio requirement keep getting lower and lower, the more retirement income streams they can add in or the annual expenses they can reduce.

Good for you guys who can take the 50% ups and downs and still sleep at night, the odds are good you will make more money over time and have more retirement income to spend. But as Bernstein has noted in many interviews post 2008, many retirees he has worked with cannot handle that kind of volatility.

[pb4uski]

Quote:

Originally Posted by daylatedollarshort ...Good for you guys who can take the 50% ups and downs and still sleep at night, the odds are good you will make more money over time and have more retirement income to spend. But as Bernstein has noted in many interviews post 2008, many retirees he has worked with cannot handle that kind of volatility.

That's the thing you just don't get - you would never have a 50% down! If you were 100% equities, yes, but no one is advocating that. The S&P 500 index has had two severe declines since 1975 and each were about 50%. However, if you were conservative and had a 40/60 portfolio, then the decline in your portfolio would only be 20% and perhaps even less depending on what the fixed income portion of the portfolio does. In the 2008 great recession Wellesley declined 19% with dividends reinvested.

I guess if one can't stomach a potential 20% decline then perhaps you deserve to continue working.

For those who have more money than they know what to do with Bernstein's current approach may work, and it works for his very affluent and risk-averse clients, but it is a recipe for not retiring for most people.

Also, who knows whether he'll just change his tune to something different later on. OTOH, those who advocate a reasonably balanced portfolio and periodic rebalancing do well through good times and bad times and is a time tested investing strategy rather than the strategy du jour.

[HFWR]

Quote:

Originally Posted by urn2bfree Still, I think anyone with $5 million who cannot retire in many instances does not have a saving problem, they have a spending problem.

Yeah, that...

[daylatedollarshort]

Quote:

Originally Posted by pb4uski That's the thing you just don't get - you would never have a 50% down! If you were 100% equities, yes, but no one is advocating that. The S&P 500 index has had two severe declines since 1975 and each were about 50%. However, if you were conservative and had a 40/60 portfolio, then the decline in your portfolio would only be 20% and perhaps even less depending on what the fixed income portion of the portfolio does. In the 2008 great recession Wellesley declined 19% with dividends reinvested. I guess if one can't stomach a potential 20% decline then perhaps you deserve to continue working. For those who have more money than they know what to do with Bernstein's current approach may work, and it works for his very affluent and risk-averse clients, but it is a recipe for not retiring for most people. Also, who knows whether he'll just change his tune to something different later on. OTOH, those who advocate a reasonably balanced portfolio and periodic rebalancing do well through good times and bad times and is a time tested investing strategy rather than the strategy du jour.

Many posters here are 100% equity invested. The Fidelity Growth model portfolio has a historical worst year performance of -52.93% and balanced fund worst year of -40.64% during the great depression. A person with a $5M portfolio could live an upper class life with a very low risk portfolio. To them even losing 20% in a year would be losing in $1M and a black swan year could be returns like the great depression or potentially worse.

I do not think the only options available are to follow the mutual fund approach or continue working. Many posters here have enough savings, pensions, SS, rental income, low enough expenses or other forms of retirement income to retire early as well as have a low volatility portfolio. I believe this is why Bernstein called it the "won the game" approach.

There are many households on the MMM forum making very high incomes and living middle class lives or still living like college students so they can retire early. They are saving enough for 4 years of retirement for every 1 year they work:

What should my savings rate be? Early Retirement Extreme: — a combination of simple living, anticonsumerism, DIY ethics, self-reliance, and applied capitalism

All they have to do is keep up with inflation and they can have 4 years of not working for every year they work, less SS, stock option and pensions earnings.

This may not be the right approach for you and you may not agree with it, but simply saving up the money one needs for retirement and then only having to invest to keep up with inflation and not relying on portfolio returns that are not guaranteed or not yet earned may be a sleep better approach for risk adverse retirees:

More on sequence of returns risk:
http://www.marketwatch.com/story/how...isk-2013-09-28

GCgang posted this link and comment in another thread on the new Bernstein methodology"

"http://mebfaber.com/2014/07/29/112-y...od-not-enough/

IMHO, Above helps give background why Bernstein is so conservative for retired folks who need to draw on their assets."

[mpeirce]

Quote:

Originally Posted by urn2bfree No portfolio should be 100% equities

Personally, when one has a 40+ year investment horizon, I think equities are the place to be.

Of course you have be comfortable with not panic selling when equities periodically crash - and THEY WILL CRASH sometime in the next 40 years, probably many times. Some people WILL panic, and they shouldn't invest this way. I'm not talking about them.

But for people who can weather a storm (and have weathered a few and have come out fine), I just can't see why owning the US economy (focused on Total Market indexes) plus some international exposure isn't a good strategy.

To make this work, we personally keep roughy three years of expenses in "cash" (a CD ladder right now) so we don't necessarily have to sell too many equities when markets are way down. We also base our budget on a weighted average of the portfolio value over the last few years. This means we will have to spend less during a longer downturn. The budget has enough flexibility in it for this to work for us. And frankly, we have yet to spend our entire yearly budget so far.

I'm certainly open to changing this strategy as we get older, but for now, this is working for us.

As to the OP, we had roughly what they have (I was younger, DW was older) and we took the plunge a few years ago. We're loving it.

[GTFan]

Quote:

Originally Posted by pb4uski That's the thing you just don't get - you would never have a 50% down! If you were 100% equities, yes, but no one is advocating that. The S&P 500 index has had two severe declines since 1975 and each were about 50%. However, if you were conservative and had a 40/60 portfolio, then the decline in your portfolio would only be 20% and perhaps even less depending on what the fixed income portion of the portfolio does. In the 2008 great recession Wellesley declined 19% with dividends reinvested. I guess if one can't stomach a potential 20% decline then perhaps you deserve to continue working. For those who have more money than they know what to do with Bernstein's current approach may work, and it works for his very affluent and risk-averse clients, but it is a recipe for not retiring for most people. Also, who knows whether he'll just change his tune to something different later on. OTOH, those who advocate a reasonably balanced portfolio and periodic rebalancing do well through good times and bad times and is a time tested investing strategy rather than the strategy du jour.

+1000. A 50% S&P decline is NEVER a true port decline with a reasonable AA. I am fully prepared to sustain 30% in mine and that's about what it was for me during the great recession.

This is also why I'm not a believer in dumping everything in fixed income, because the inflation risk (to me) is much higher than another depression. That's also been borne out by much more recent history.

[mpeirce]

Quote:

Originally Posted by GTFan because the inflation risk (to me) is much higher than another depression.

I agree with this. I worry more about inflation than a 30's style depression.

I struck me that this may be because I grew up in the 70's when inflation was howling. It made an impression on me while I was growing up.

Sorta like the folks who grew up during the 30's depression and how that made such a lasting impact on how they saved and invested.

[pb4uski]

Quote:

Originally Posted by daylatedollarshort ....GCgang posted this link and comment in another thread on the new Bernstein methodology.. "http://mebfaber.com/2014/07/29/112-y...od-not-enough/

And if you go to the Patrick O’Shaughnessy "This is a great chart" link in link you provided his main point is that equity investors need to invest globally, which most of us do and Vanguard recommends about 30% international equities IIRC. In the very last sentence O’Shaughnessy writes:

Quote:

If you are an investor with a long time horizon, the global stock market should be the central part of your portfolio.

[NW-Bound]

Many posters commented on the "$5M retirement stash", but that's not what OP's friends have.

Quote:

Originally Posted by aim-high They are 50/51... Current Portfolio - $2,700,000 Annual Projected Expenses - $100,000 including taxes. Projected Combined Annual Social Security @ 70 - $36,000 Home Equity - $500,000 No Pension...

I agree with earlier posters about the $2.7M being sufficient for most people, except for the couple's $100K expense. And the $36K SS at age of 70 is indeed low. The home equity is OK, but I suspect there's still some mortgage.

Bottom line: They should be able to cut their expenses by another $10K to $20K for a more relaxed retirement. If they can't, then they may still be OK, but may have some sleepless nights in the decades ahead.