How much of a buffer did you have before ER?

[Ready]

I worked until it was no longer enjoyable. When I stopped working I was only spending about 2% WR. So I could have probably retired earlier but I was more focused on whether I was enjoying what I do rather than if I have enough.

[Nature Lover]

My buffer was unplanned, as I wasn't waiting for a number in order to retire. However, when I retired @55, I had enough that the calculators said I could spend 2.5x what I had as my most generous retirement budget until age 95.

[scrabbler1]

I can't say I could quantify my initial ER buffer using the common terms described by others, for several reasons. I was moving quickly toward being able to retire at age 45, back in 2008.

One reason was that I was best vaguely familiar with terms such as SWR and multiples of expenses. Given that I was planning to ER at 45, I would only have unfettered access to the taxable portion of my overall portfolio for the next ~15 years, at which time I could access my rollover IRA (after leaving work and converting the 401k to it). So, a SWR using my entire portfolio would not really mean much. Similarly, a SWR using only the taxable part of my portfolio would not really mean much because it would count for only 15 years.

I did, however, have access to two important things. One was Fidelity's RIP program which, with the help of my Account Executive, I completed and ran it. In early 2008, my AE gave me a green light to ER, the first outside evaluation of my ER plan. Two was my own spreadsheet which looked in more detail at the next 15 years of projected income and expenses, after I did the rollover IRA and cashed out about $300k in company stock.

My plan was to have the projected income from the $300k now in a "big" bond fund cover or just about cover my projected expenses. This would leave the remainder of the income generated by my taxable portfolio act as a buffer. This represented a buffer of about 25%. My spreadsheet had this buffer shrinking over the 15-year period to the point where it might disappear and I'd have to tap into principal the last few years. That was fine because once I turned 59.5, the first of my "reinforcements" would arrive. Those reinforcements are the aforementioned rollover IRA, then SS and my frozen company pension a few years later. IOW, just get me to age 59.5 intact and things improve after that.

A lot of things happened since then. First, the ACA was created and that has kept my HI costs under control, unlike the skyrocketing premiums I faced in 2010 and 2011. Then, the markets improved a lot starting in 2009. On the downside, the big bond fund's returns have shrunk considerable although I had added many more shares of it to offset the return. I never had to tap into principal, which is nice, so my buffer has only grown.

[GravitySucks]

No buffer. Planned a 4.5% WR and that gave about a 10 - 15% discretionary spend. I stuck to that for 5 years and my nest egg grew almost 50%. At that point I was 59.5 and figured I could bump spending up to a max of 5.5% of the new value for the next 5 years and reevaluate when I was Medicare eligible. Haven't come close to spending that.
Turned out part of the essential expenses are discretionary. New car every 5 years wasn't necessary. Food is less when you shop careful and have the time to cook beans and soups.
Also had back up plans to down size or move into a duplex and let the renter pay taxes.

Turned out I was miss informed about SS survivor benefits and started collecting a small monthly check and that makes a big difference.

[CyclingInvestor]

After I hit my # I had 2.3 years of easy and pleasant job before everything inevitably turned to &%&* and left me with about 60% more than planned when I finally retired.

[brett]

I had no number. I estimated what we we need over and above our pension incomes and compared same to our financial resources. Our withdrawal rate on investments is less than one percent.

[1242Vintage]

I have a COLA adjusted pension and I worked until the estimated pension was 20% over our monthly expenses.

[Spudd]

I went as soon as I got there, no buffer. I hated my job. However, I was flexible to the idea of taking on part-time work post retirement. I haven't needed to, but I have done it anyways just to pass the time. Rather than doing corporate mumbo-jumbo I've been doing minimum wage retail stuff, which I actually enjoy. But only for like 6 hours a week, because I'm lazy and I don't really need the money. An extra 5-10k per year is a lot when your spending needs are 30-40k.

[daylatedollarshort]

We didn't have any particular buffer, except we were prepared to downsize or move to a lower cost of living city, if need be. We looked at the Consumer Expenditure Survey as to what other retirees spent and realized we had more than enough for a nice middle class life, if we got a better handle on our expenses. So we did. In the end we kept the house as we like the location but optimized everything else like making the house more water and energy efficient, putting solar lights outside and LEDs inside, buying groceries at ethnic markets and discount stores instead of the overpriced supermarkets in our neighborhood (small change - huge difference in prices), and a 100+ other small changes that really added up.

[dheb]

My buffer is less of an amount than it is an approach to my plan. First, I assume a long life. My grandfather made 92, so I'm planning to 102. I currently spend under 36k a year, and even though I have it figured so I'll be at 0 fed tax until I hit RMDs or collect SS, I've set my FIREcalc spending number at 52k. I left the equity in my house out of my calculations even though I plan to sell it, get a new mortgage, and plunk most of my equity into my portfolio. And I left any potential inheritance out of my calculation. Finally, if I wanted to reduce my drawdown, I could always do some work -- but I'm not counting on it.

[Koolau]

I guess I had a couple of buffers. I figured I could start SS earlier than my planned age 70. Also, even though I became Financially Independent, I continued to w*rk because I was suddenly "digging" it again - long story explained several times. YMMV

[gooddog]

Income 4 times yearly expenses was our magic number. Didn't want any surprises.

[DireWolf]

My yearly spending was based on some especially high years (major medical). I added several thousand a year to that as a buffer. I used a conservative WR of 3.5%. Between my actual spend being lower without the medical, and my returns, my portfolio is way up since I pulled the trigger. Starting to transition over to VPW as an upper bounds of what I could spend each year. Suspect I won’t come close, but nice to know I can. When we have days in the market like today, I’m no longer fazed

[WhenIsItTime]

Quote:

Originally Posted by disneysteve We often talk about the number we need/needed to retire. How much of a buffer do you factor into that number? Let's say your expenses are 40K and you're using the 25x income for your number, so $1M. Would you actually retire when you hit $1M or would you want 10% or 20% or some other amount over $1M before you felt comfortable walking away from the paycheck?

Most of the replies are about what other people did. I think the ? depends on circumstances. How old are you? Health? Any dependents? What is the current employment income annually as a % of net worth to determine if OMY makes a difference. How rigid is $40k spend - can it flex in a down year or years? What is housing situation - potential for big expenditures?

[plex]

I am very close to giving notice and pulling the plug at 37, if I had to give a base WR, it is going to be about 2.5% for my normal spending, but I expect a few years to spike above that, such as for house buying costs (I am not buying in the current bad buy vs rent climate), or a small spike for moving costs/car replacement. I will someday have SS, a small pension, and a likely moderately sizeable inheritance, none of which have much of an effect when considering the buffer I want before retirement, due to the long time horizon.

Work is flexible but I have a new supervisor I like significantly less, a non-work lifestyle I really enjoy, and I simply don't see the need to go too crazy building a buffer for expenses I don't reasonably expect.

[Koolau]

Quote:

Originally Posted by plex I am very close to giving notice and pulling the plug at 37, if I had to give a base WR, it is going to be about 2.5% for my normal spending, but I expect a few years to spike above that, such as for house buying costs (I am not buying in the current bad buy vs rent climate), or a small spike for moving costs/car replacement. I will someday have SS, a small pension, and a likely moderately sizeable inheritance, none of which have much of an effect when considering the buffer I want before retirement, due to the long time horizon. Work is flexible but I have a new supervisor I like significantly less, a non-work lifestyle I really enjoy, and I simply don't see the need to go too crazy building a buffer for expenses I don't reasonably expect.

I applaude FIRE at 37 but can't quite relate to it. In my case, that would have left too many loose ends (primarily health care). I considered myself to be FI (Financially Independent) when my company vested my pension (albeit, reduced level) AND more importantly, vested their Retiree Health Insurance supplementation. This all happened at age 51. Not too young, but certainly "early" by most definitions.

With THOSE 2 biggies in hand PLUS my "stash" I was good to go - though (told many times) I didn't go for a few years because I was happy doing what I was doing - until I wasn't. YMMV as always.

[Delawaredave5]

Having a buffer in the number depends on the on one's "spending latitude".

If the $40k spending is a "hard minimum", then there's a 5% chance of running out of money.

If the spending can be adjusted downward if there's a down market after ER - then that's your "buffer"

[indiajust]

Hmm. I thought i was unemployed for 7 years while i invested and fixed and sold the house. Turns out I was retired at 44. Had less than 20k when the house sold. But it has been a few good years in the markets. I suspect the Roth might break 2Meg before I even need it.

From a buffer perspective, I was greatly negative as homeowner, now greatly positive as a renter.

[disneysteve]

Quote:

Originally Posted by Delawaredave5 Having a buffer in the number depends on the on one's "spending latitude". If the $40k spending is a "hard minimum", then there's a 5% chance of running out of money. If the spending can be adjusted downward if there's a down market after ER - then that's your "buffer"

That's a really good point. I hadn't thought of it that way. Yes, if your planned expense number includes a fair amount of discretionary spending, then your buffer is already built in. You can trim your vacation spending one year, for example, or eat out less for a while if you need to reduce spending.


The pandemic has taught us this big time. Our current spending is about $2,000/month less than it was pre-COVID. And we're perfectly content (okay, maybe not perfectly, but pretty content). If, in retirement, we found we needed to trim back, we know we could do that and still be very happy with our lifestyle.

[teetee]

Quote:

Originally Posted by disneysteve That's a really good point. I hadn't thought of it that way. Yes, if your planned expense number includes a fair amount of discretionary spending, then your buffer is already built in. You can trim your vacation spending one year, for example, or eat out less for a while if you need to reduce spending. The pandemic has taught us this big time. Our current spending is about $2,000/month less than it was pre-COVID. And we're perfectly content (okay, maybe not perfectly, but pretty content). If, in retirement, we found we needed to trim back, we know we could do that and still be very happy with our lifestyle.

I am still working on reducing my online shopping spree that I developed since the pandemic started. Something are more expensive online than in store..

I should really learn that being isolation does not mean I have to be surfing online all day.