Not sure what 'most' do, but many shoot for 100% and throw in a buffer.
My thinking is, once I'm too old to go back to work, I don't want to find myself in a position where I'm telling DW we have to cut way back, or I end up needed support from my kids.
Now, if I planned for the worst history has ever thrown at us, and included a buffer, I feel I was being conscientious. If the future is worse, we probably will all be hurting, so maybe no one will notice?
That's the rub. Few of us know when we will die, and we don't know what the economic future will bring, so we just have to decide for ourselves when to jump. It should be an informed decision, but we don't have to agree on what that point is.
-ERD50
I don't have any children to be able to go to for support. If I have to cut back some it shouldn't be a big impact on my lifestyle at that point because it will likely be after I'm 85-90 and probably won't be as active then.
Update on the FireCalc numbers: I found all the little tabs about allocation and delaying retirement, ect. I filled all them out according to my plan and I get a 100% now. So THAT's good.
The only things I'm not sure about is if FireCalc estimates taxes in it's calculations, and there doesn't seem to be any way to account for differences in pre and post tax retirement accounts. I.E. a post-tax Roth account should be worth a lot more than a pre-tax Traditional account. I couldn't find a way to split these out in FireCalc. Anyone know?
And I'll be re-working my spreadsheet to adapt the 72t rule into it. That will be the last piece of my puzzle that will allow me to retire as early as my account balances provide for.
I'd like to thank everyone who mentioned that little tidbit of information.
It was exactly what I was looking for and why I hang out on these forums.
This is how I think also thanks for putting it into words.
I've never been accused of being eloquent (delinquent frequently), but you are welcome.
I plan to leave a lot of money to my grand children. I've always been happy to live well within my means. I did that when I worked which allowed me to save enough to keep doing that in retirement.
I don't have any progeny, so I'm more or less on the "Live Rich - Die Poor" track. An interesting philosophy if you haven't read the book. I probably won't be going heavily into annuities, but do plan to spend the majority of my nest egg prior to checking out.
I'll likely donate to charity what I have left. But I only expect to have something of a "maintenance" amount left at the end.
Well, I just want to thank you for being anal and sharing your information. I'm 54 and have about $1.5M (very similar to your situation) I've done well to save, but I've not done well on planning on how to retire. Your budget and spreadsheet with all its assumptions is a great start for me to kick start my planning. I don't want to use your spreadsheet per se, but the information in it about all the things that need to be considered, laid out like you have, is somewhat of a checklist to see if I've considered all the things I need to address before I pull the trigger (hopefully next year).
One thing I will agree with that you're addressing is that I've not put enough into a non-401k account for the time before 59.5. Your plan to load up an account is good. This came up for me and my wife because we were thinking we might flip a house every now and then. Then I realized, if I take a large amount of money out of a 401K, how much of that will be taxed at the higher tax bracket. My planning to date has been to live simple and stay in the 15% bracket. Now I'm faced with working to pound some more cash away (after tax) so I have more to work with for large, one time purchases.
Anyway, thanks! You've helped me get a few steps ahead on my journey.
Thank you for the kind words. I'm always happy when something I do positively affects others.
And I've started to look into the 72t rule that others have suggested. And it looks like exactly what I was looking for. It should let me retire as soon as I have the funds no matter what account they are in.
I'm not sure how much it will help you if you really need to take out a big chunk of money all at once. But then again you could get a mortgage to buy the house you want to flip and use a required minimum distribution from a 72t to pay that mortgage until you flip the new house. Just a thought. You'd be paying 3 or 4% interest, but that's a lot better than taking a hit on the penalties.
I've switched from paying ahead on my mortgage to putting that money away in a brokerage account so I have more flexibility on large purchases as well. Even if I don't need it due to the 72t rule, I've run the numbers and I should still be about $12,000 dollars ahead anyway due to the difference between the investment return (assumed 6%) and my interest rate on my mortgage (2.875%).
Managing the sources of your income is important. Once the paycheck disappears and you have to create you own, this definitely become a lot more "real". But there are lots of ways to fund the years between ER and 59.5;
taxable investments
401k withdrawals at 55 without penalty (if you qualify)
457 accounts (if you have one)
72t withdrawals
ROTH withdrawals
pension (if you have one)
...and the final 2
part time w*rk
early IRA/401k withdrawals with penalties.
I'm already starting to beef up my taxable investment account.
And the 72t looks like just what the doctor ordered. Thanks!
Roth withdrawals of contributions is already factored into my spreadsheet.
But WORK? Ahhhh! That's one thing I plan to avoid.
+1
Some folks here don't seem to know about
72t rule, which will allow you to take money out of an IRA, without the penalty !
Sure it's complex so read up on it a lot first, but in reality it's only a little more complex than RMD's, which nearly everyone will have to do.
It was something I considered, but we have enough outside $$$
And not that many years to the magic 59.5
that we don't need to use it.
I'm reading up on the 72t rule and I think it's just what I needed. Thanks to everyone who mentioned it!
This all makes sense. The important thing is to monitor and update.
My only suggestion is that I'd account for inflation from the current date, instead of from the retirement date, in column V of the second tab.
I'm not understanding. Column V on the second sheet is where the inflation assumption is used. If you look at each subsequent years numbers, they go up by the inflation percentage.
The budget will be updated as my current expenses change and just prior to retirement. So the expenses numbers at the beginning of retirement should already be inflation adjusted, as it were.
Or am I not seeing something correctly?
If that is how you arrived at the 6.5%, then you have already considered inflation into that number. In my opinion, a 6.5% after inflation return is much more optimistic than pessimistic, but would be interested in what others have to say.
Bottom line is that you have a detailed spreadsheet with many assumptions and are experimenting with the numbers. You are on the right track!
Yes 6.5% assumes a 100% equity allocation and that the future will follow the statistics of the past. I also think that its too optimistic for planning.
I don't know, you may be right. 6.5% is inflation adjusted annualized return. I'm using 6% for the moment which I still think is slightly pessimistic. I'll probably leave it in there for now. I'm still 10 years out at least. But when I retire, I might bump it down a little more before I pull the trigger.
I'm running my equity distribution at 90% on FireCalc and it is giving me a 100% successful for my current plan.