How much is enough?

[Perryinva]

Also, the Trinity study does not address the success of retirement based on a 4% withdrawal rate. It simply reports the likelihood of zero or more left after 30 years of 4% WR. I DO NOT consider someone FI that just has enough income to live on an inflation adjusted 4% SWR. Expenses will not be linear. One or two serious expenses early on can derail ones SWR because of the drastic long term effect of loss of principle. The 4% rule does not address this, nor intended to. It is naive to assume over a 35 - 40+ year retirement that no years will greatly exceed the average income.

Mentioned in other threads is that the importance of the 4%SWR depends on how much of ones income is discretionary, which can be due to higher guaranteed annuities or excess savings. I personally, similar to the OP, even if I was single, would never choose to live on only $3300/mo, even tax free "just" to be not working and retired. I didn't work my whole life to achieve that level of FI. I wouldn't starve, since I own my home, and I acknowledge that millions live just fine on that. Just not me.

 

[daylatedollarshort]

Cutting $10K/year off and investing that money instead will net you far more than $500K in 50 years through the magic of compounding, but yes, point taken!

We invest conservatively and real interest rates are pretty low right now so we focused on expense optimization rather than portfolio growth. We had a lot of fat in our budget and expenses we could eliminate without a major lifestyle impact so for us this is where we could get the highest guaranteed return on our time. With lower expenses we receive ACA subsidies and the kids received financial aid for college so that has also been a budget plus. And with lower expenses, SS and pensions cover a bigger percent of our annual spend rate than they would have with our previous spending habits.

 

[Fermion]

Re-read what I was responding to... it was suggesting that dividends were loans based on low interest rates.... essentially that corporations were using borrowed money to pay dividends.... I'll bet that in the vast majority of cases that cash flow from operations exceed dividends.

Yeah you obviously never invested in Seadrill.

 

[FREE866]

Also, the Trinity study does not address the success of retirement based on a 4% withdrawal rate. It simply reports the likelihood of zero or more left after 30 years of 4% WR. I DO NOT consider someone FI that just has enough income to live on an inflation adjusted 4% SWR. Expenses will not be linear. One or two serious expenses early on can derail ones SWR because of the drastic long term effect of loss of principle. The 4% rule does not address this, nor intended to. It is naive to assume over a 35 - 40+ year retirement that no years will greatly exceed the average income.

Mentioned in other threads is that the importance of the 4%SWR depends on how much of ones income is discretionary, which can be due to higher guaranteed annuities or excess savings. I personally, similar to the OP, even if I was single, would never choose to live on only $3300/mo, even tax free "just" to be not working and retired. I didn't work my whole life to achieve that level of FI. I wouldn't starve, since I own my home, and I acknowledge that millions live just fine on that. Just not me.

One thing I don't get is given this is an earlier retirement board and to me that means under 60 won't the withdrawal rate decrease as SS kicks in?
I know in my case the % I'm taking from my portfolio will go down dramatically once SS kicks in so I'm fine with a 4-5% withdrawal rate initially if in fact that happens due to portfolio decline.

 

[IrishMoss]

One thing I don't get is given this is an earlier retirement board and to me that means under 60 won't the withdrawal rate decrease as SS kicks in?
I know in my case the % I'm taking from my portfolio will go down dramatically once SS kicks in so I'm fine with a 4-5% withdrawal rate initially if in fact that happens due to portfolio decline.

It should unless your standard of living has increased.

 

[IrishMoss]

I personally, similar to the OP, even if I was single, would never choose to live on only $3300/mo, even tax free "just" to be not working and retired. I didn't work my whole life to achieve that level of FI. I wouldn't starve, since I own my home, and I acknowledge that millions live just fine on that. Just not me.

So your "how much is enough" number is millions.

I DO NOT consider someone FI that just has enough income to live on an inflation adjusted 4% SWR.

Then what do you consider FI for an individual if it's not that? This is important, IMO, because all the various early retirement bloggers and such use the 4% as a benchmark to determine when FI has been reached. That doesn't necessarily mean affluence, it means investment returns + some withdrawal covers all expenses.

I know I don't want to be working to my mid to late 60's if I can help it. At some point time becomes important. There's also the enjoyment factor. If you like what you do and you have the opportunity to do it, then there's no reason to quit or even retire. But many are in a different situation. Not enjoying the job, no pension forthcoming, feeling done, tired of the BS and job hunting in your late 50's is no picnic. To me hitting FI means options can be explored. It doesn't mean one has to retire, only that one can opt to do something else, even something that earns less money but is more enjoyable, and be okay.

 

[daylatedollarshort]

One thing I don't get is given this is an earlier retirement board and to me that means under 60 won't the withdrawal rate decrease as SS kicks in?
I know in my case the % I'm taking from my portfolio will go down dramatically once SS kicks in so I'm fine with a 4-5% withdrawal rate initially if in fact that happens due to portfolio decline.

I also see many here not include SS benefits in their calculations and I have wondered about that. Michael Kitces values the maxed our earnings benefit for men at $572K and $683K for women and $280K/$335K for average earners. That is not the kind of money I can afford to just ignore in my retirement spreadsheets.

 

[IrishMoss]

I think some folks are thinking SS either won't exist anymore or will be cut drastically by the time they get to full retirement age and so are not counting it in their calculations.

For someone who intends to only withdraw 2% and wants $100K to live on per year in 2017 dollars, and is not expecting to have any SS benefits, they'll need a nest egg of $5MM.

 

[CaliKid]

I think some folks are thinking SS either won't exist anymore or will be cut drastically by the time they get to full retirement age and so are not counting it in their calculations.

For someone who intends to only withdraw 2% and wants $100K to live on per year in 2017 dollars, and is not expecting to have any SS benefits, they'll need a nest egg of $5MM.

I always assume SS at zero. Basically it's a bonus if we ever get it.

I think 2% is conservative but your quick math does give validity to my wife's concerns that maybe it's not enough.

 

[daylatedollarshort]

I think some folks are thinking SS either won't exist anymore or will be cut drastically by the time they get to full retirement age and so are not counting it in their calculations.

For someone who intends to only withdraw 2% and wants $100K to live on per year in 2017 dollars, and is not expecting to have any SS benefits, they'll need a nest egg of $5MM.

From Money / CNN -

"That doesn't mean retirees will get nothing by 2034. It means that at that point the program will only have enough revenue coming in to pay 79% of promised benefits."

I personally have more faith in the SS 79% number than I would in any Firecalc future predictions (for all the various reasons previously discussed.) That and old people are a big voting block.

 

[FREE866]

From CNN -

"That doesn't mean retirees will get nothing by 2034. It means that at that point the program will only have enough revenue coming in to pay 79% of promised benefits."

I personally have more faith in the SS 79% number than I would in any Firecalc future predictions (for all the various reasons previously discussed.) That and old people are a big voting block.

The system can change. Congress has changed Social Security before and can do so again. Amendments in 1956, 1961, 1962, 1965, 1972, 1977 and 1983 made minor changes to ensure Social Security’s solvency.

 

[daylatedollarshort]

The system can change. Congress has changed Social Security before and can do so again. Amendments in 1956, 1961, 1962, 1965, 1972, 1977 and 1983 made minor changes to ensure Social Security’s solvency.

Taxes, inflation, stock market returns, interest rates - everything is open to change over 50 years. I'm not assuming an unlikely worst case on SS (zero instead of 79%?) and not much change on everything else.

 

[RobLJ]

I figure that planning on about 65% of projected SS is a relatively safe assumption. This ignores nuklar war and the Zombie Apocalypse.

 

[Geld ist Freiheit]

In reading a bunch of different posts across the forum, I'm struck by how little $$$ by comparison I have and consider myself now "FI." Right now I have $950K investable assets (I don't include the equity I have in my house).

I determined I reached FI because a SWR of 4% on average, over a span of 35 years, as confirmed by several retirement calculators and FIREcalc, will pay for all my current and anticipated expenses pre and post receiving social security. I am counting on receiving my SS at age 67 and that's part of my calculation. I have no heirs or dependents so it's just me. There will be an inheritance I receive, but I'm not counting that in my calculations.

Yet I see some people in their 50's biting their nails with $1.3M or more in investments, not counting their house, no debt, some not even counting SS, and wondering if they can make a go of it and quit their job. Seriously?

The very definition of "FI" is that the income/dividends earned from investments along with a 4% SWR or less, per the Trinity Study, will fully cover one's expenses. I suppose if someone is planning on a more luxorious retirement, above their current lifestyle, that FI number will necessitate being higher.

If you have $1M in investments and you can easily live on $40K/year on average, and you're going to get SS benefits, then I'd say you are "FI" even if you don't think you are.

We are in very similar circumstances wrt assets, dependents, expenses, etc...

4% would cover my current expenses. Factoring in SS (even with a haircut) at 67 drops that to around 2% so I should really be good to go.

Is it possible we've concentrated so much on saving that we've sailed passed the finish line and didn't notice?

 

[Perryinva]

So your "how much is enough" number is millions.



Then what do you consider FI for an individual if it's not that? This is important, IMO, because all the various early retirement bloggers and such use the 4% as a benchmark to determine when FI has been reached. That doesn't necessarily mean affluence, it means investment returns + some withdrawal covers all expenses.

I know I don't want to be working to my mid to late 60's if I can help it. At some point time becomes important. There's also the enjoyment factor. If you like what you do and you have the opportunity to do it, then there's no reason to quit or even retire. But many are in a different situation. Not enjoying the job, no pension forthcoming, feeling done, tired of the BS and job hunting in your late 50's is no picnic. To me hitting FI means options can be explored. It doesn't mean one has to retire, only that one can opt to do something else, even something that earns less money but is more enjoyable, and be okay.

The. number is different for everyone. But to be FI, IMHO, requires enough income to cover living expenses, plus income to build an adequate buffer. The you ger one is and the higher ones COL, the bigger that buffer has to. be. Since I am already 59.5, and never even considered retirement before 60 (for various life reasons), I readily admit that I don't have a real feel for the amounts needed. If all ones income is strictly from saved investments, then I agree with the consensus here. The younger and more in the family, the more needed and the lower the SWR. For couple planning to retire at 61, with already established spending patterns and a paid off home, 2/3's of gross working income either from pension and SS, or saved investments (any combinations) plus about a $1m saved means total FI. The Mil allows one to buy the SS annuity at whatever age makes sense based on health, market etc.

The idea, to me, is to ignore a SWR until SS is filed. Based on my income (under $150k) the difference, long term, of claiming SS (which is the max permitted amount for me) at 62 vs 70 is about $5k a year, more from delaying. The plan is to live on the amount I will get at 70, starting at retirement, just it will come from the savings accounts, not SS. Then I back calculate a conservative approximation of what will remain after delayed filing, and THEN apply The 4% rule to that remaining amount. Which, coincidentally, is about the same as what RMDs would be.

So I reduce my RMDs, live as if I claimed SS at 70, and evaluate each year whether I am on track and the economy of the situation works. This way, I enjoy and spend more when I have the most saved. When SS kicks in I no longer worry about a SWR, because while my income never changed, a much smaller percent comes from savings and a much larger amount is all annuities and covers all my living expenses and most of the discretionary as well. SS alone dor the two of us, when I am 70, would be kver $60k. Savings then can grow if needed with only RMDs as the drain. I can meter perceived risk against market health, and claim any time acter FRA. In addition, as a belt and suspender move, I have a $160k ROTH that is not figured in at all, By 70, it should be well over $200k if not used. Or it may be half gone if I buy a vacation place overseas. Total splurge money.

 

[IrishMoss]

2/3's of gross working income either from pension and SS, or saved investments (any combinations) plus about a $1m saved means total FI.

So let's say we're not talking about a couple, but just one person, 60 years old, no dependents, no spouse.

And let's assume this person has a yearly gross income of $100K (round numbers for ease of calculations), no pension, just 401Ks, IRAs, and in the future SS.

Let's assume yearly current expenses for this person are $35,000 and upon leaving their job, they assume yearly expenses will rise to $50,000 to cover additional healthcare costs & premiums.

You're suggesting for FI this person would need:

2/3 of gross working income x $100K per year + $1MM

That's $66,667 per year in "gross working income" + $1MM in addition for some kind of additional annuity, to cover yearly expected expenses of $50K, and by your definition this person has not reached FI until that point?

Thus this person would need a lump sum of $1,666,675 (to generate the $66.67K/yr working income) + $1,000,000 = $2,667,675 to be "FI."

Sorry, but that is not the definition of FI. It's gone way beyond.


Here's the standard definition of FI:

Let's say a person says they'll need $60K/year for expenses. Their expenses are actually $50K/year in retirement and the extra $10K/year is a buffer just in case.

A total amount of $1,500,000 would allow this person to take out $60k/year at a maximum withdrawal rate of 4% or, if they chose instead to only take out $50K/year for actual expenses their withdrawal rate would be 3.33%/year. That's not counting any SS they might get, which would decrease their withdrawal from their investments starting the year they take SS.

 

[Danmar]

I agree that most people look at how much they want to spend in retirement and then decide how much they need to save to achieve this. Once this(FI) is achieved, retirement can be considered.

There are others however, (myself included) that approached it the other way around. That is, save as much as you can (within reason) then set your spending in retirement to match the funds available. Works best if you can end up with a fairly large portfolio or have a generous pension. Could certainly backfire if you don't save very much.

 

[FIREmenow]

I agree that most people look at how much they want to spend in retirement and then decide how much they need to save to achieve this. Once this(FI) is achieved, retirement can be considered.

There are others however, (myself included) that approached it the other way around. That is, save as much as you can (within reason) then set your spending in retirement to match the funds available. Works best if you can end up with a fairly large portfolio or have a generous pension. Could certainly backfire if you don't save very much.

Agree with this. Our decision(s) is actually a hybrid of the two methods above.

The first paragraph is our step 1, using this to insure (really)bare minimum spending costs covered.

After that core baseline trigger point is achieved, the second method takes over and it is a sliding-window/grey-area of "excess" savings amount vs. bored/frustrated/exhaused from w*ork.

In any case after that second trigger point, we will lower (if needed) our lifestyle to make it work.

 

[Perryinva]

Well, no, I was outlining a couple, and for a net retirement income that about equals preretirement net income based on a roughly $150k salary and INCLUDES SS. Certainly it makes sense that the if there is one person only plus the less one needs, the less one needs to save. And I assume the couple wants no change in lifestyle, except some extra delayed retirement gratifications during the first 10-15 years as is typical.

If one was a single $100k inflation adjusted earner for 35 years (easily could be, retiring at 60), so assume FRA SS of $30k/yr, $40k at 70, and as a single with that income, instead of $1M extra, use only $666k. So using your numbers, only $30k is needed from just savings, or $750k, plus $.666M, for a $1.416m total. When he retires at 60, he assumes SS annuity @70 of of $40k, so his WR is just over 4% from 60 - 70. At 70 he only needs an inflation adjusted $20k, from his now ~$1.2m remaining. So regardless if SS takes a haircut, or LTC is needed, or any major expense expense requires a principal reduction, he is covered. In actuality, I would agree to an even lower amount needed, at that income level, because SS would be entirely tax free. In my example, 85% of SS is taxed at 25% bracket, so $8500 is needed for taxes. So I would use $52k, not $60k, as the final calculation point, but still assume $60k gross, so only $550k is needed plus the $666k, or $1.216M. So at 70, about $950k is left as the WR bumps up to a ~5% for the 10 years before SS. After that, its easy street even if there are hard times. So, if you want to use my original $1M instead of $666 to bring it to your $1.5 needed, that works too...

At that income, the tax torpedo at RMD time becomes very viable, so delayed filing is extremely beneficial. Collect SS at 62 of only $22k/yr and suddenly enough income to cover $38k is needed. So 1/2 SS of $11k plus $38k is $49k & will bring a single person to paying taxes on SS PLUS the $38k. If he delays until 70, 1/2 SS is $20k plus the $20k WR is only $40k, so likely no tax on SS, just the $20k. Big net difference. Of course, at age 70.5, if there is $1m in pretax savings.. then RMDs jump the WR to $40k and the tax bite is back. At that income level, to ignore SS is silly, (how can you ignore the equivalent of a tax benefited $40k/yr, equal to $1m with 4%SWR!!) IMHO, UNLESS you are only 30 now where the future is too murky. In which case this is all an academic exercise, as there is no idea what healthcare, your future marital status would be, etc etc. Or your income is planned to be $300k a yr in which case SS is incidental.

That is why I say it always depends on net income wanted and is age and taxable status specific. My definition was roughly based on a couple that is close to or at 60 today. SS is a given for us. But, with a lower income, one can easily not realize that at 70.5, an added $10k in taxes will be levied, eroding your nest egg far faster than assumed because one has not been paying that tax for the previous 10 years in retirement. Hence the term, tax torpedo.

 

[IrishMoss]

I think you've made this an overly complicated determination by bringing in tax issues, RMDs and whatnot and making lots of other complicated if/or/then assumptions.

Determining the point where your investments with a specific withdrawal rate will fully cover your expenses isn't supposed to be that difficult. At the point investments with a specific withdrawal rate cover current expenses, that is considered "FI". FI means a person no longer needs to rely on a job and salary and if they want to explore other options they can.

The RE part is separate. One doesn't have to retire at the point they reach FI. That's a separate decision. Some will choose to stop working altogether, others won't or will leave a corporate type job to pursue something else.

 

[Perryinva]

I apologize.. you are absolutely correct...I WAS thinking about and assuming FIRE, not just FI. In fact, I myself in other threads have said that I have been FI for a few years, but not ready to RE, because of what I listed. It is on my mind a lot with 22 months to go, even though I have fairly flexible hours, no oversight, a low stress job, insignificant commute and am paid well with great benefits, I still look forward to in eagerness.

 

[FREE866]

seriously , some you people really overanalyze and confuse this issue
-track your expenses for a couple years prior
-take your liquid net worth and see if with your expenses you can take 4-5% per year out of that net worth up until SS comes in
-run those numbers through a retirement calculator with your comfortable asset allocation
90% + success ratio you will be fine

 

[rodi]

<snip>


The very definition of "FI" is that the income/dividends earned from investments along with a 4% SWR or less, per the Trinity Study, will fully cover one's expenses.

<snip>

I agree with almost everything you've posted... but the line I highlighted isn't correct. The trinity study considers total returns... so you can't have your dividends and interest AND 4% SWR on top of that. The dividends and interest are part of the portfolio - reinvested or taken as PART of the withdrawal.

 

[daylatedollarshort]

seriously , some you people really overanalyze and confuse this issue
-track your expenses for a couple years prior
-take your liquid net worth and see if with your expenses you can take 4-5% per year out of that net worth up until SS comes in
-run those numbers through a retirement calculator with your comfortable asset allocation
90% + success ratio you will be fine

Doesn't 90% success ratio leave a 10% potential failure rate? And that assumes Firecalc is 100% accurate at predicting worst case future returns.

 

[rodi]

Doesn't 90% success ratio leave a 10% potential failure rate? And that assumes Firecalc is 100% accurate at predicting worst case future returns.

The 10% failure rate can be modified by cutting back on spending if there are bad years in the market... Trinity study and other spending models tend to be rigid, and not follow real world reactions to down markets.

I think it was Unclemick who said it pays to be agile and flexible in retirement to adjust to the circumstances... If you rigidly maintain the inflation increased withdrawal rate after a series of down years... you risk being part of that 10% failure.

Firecalc doesn't claim to predict the future... but it backtests the plan. Most folks here put in a margin of safety... either discounting an income stream (SS for example), over estimating spending, or setting aside some money outside of firecalc... No one can predict the future market returns... not even firecalc... but firecalc considers the worst of the actual past performances.