Poll: What was NW/Yr. Exp. ratio when you retired?

[David1961]

For folks who have ERd, what was your Net Worth/Yearly Expenses ratio when you retired? I'm sure it would depend on many factors, such as whether you had a pension.

[rodi]

Oh boy.
Not retired but already thinking about this in too many ways.
Do I include my home equity? (Expensive area - so big part of net worth - but not planning to sell.... so not really spendable.)
We have rental income from the same home (granny flat on our lot) - do I take that piece of equity (a guess) and add that to net worth since it's generating income?

How do you account for pensions? SS?

I didn't answer the poll for 2 reasons (not retired, not sure about the above questions...) but my ratio of "investible assets" / annual spend is about 18. But because of other sources of current income (DH's SS, rent) , not including my SS and pension starting in the future) our WR, if I were to retire today would be 3.8%. And it would only drop from there when the pension and SS kick in and the kids move out.

[NW-Bound]

1/0.035 = 28.6, so I entered accordingly.

Then, it occurred to me that I did not include home values in my networth, which would bump it to the next bracket. Oh well, it's close enough.

[pb4uski]

I guess I don't see the relevance of this measure. I was more focused on my WR or conversely the ratio of my retirement investments (IOW, NW excluding home equity, cars, personal property, etc) to my annual living expenses . and after deducting from retirement investments a provision for certain special expenses (kids college, weddings, etc).

[kcowan]

We were not that well covered when we retired in 2002. Two things happened to improve it. We started spending winters in Mexico. That improved our ratio by 35% and made us whole for our statistical lives (based on the top decile of longevity, worst case).

Then we received significant inheritance. Who knew? So now we can live forever and still leave a significant legacy.

One thing that has changed is our investing style. We used to take risks and mostly win. Now we are very conservative, with capital preservation as the number one objective.

[David1961]

Quote:

Originally Posted by rodi Oh boy. Not retired but already thinking about this in too many ways. Do I include my home equity? (Expensive area - so big part of net worth - but not planning to sell.... so not really spendable.) We have rental income from the same home (granny flat on our lot) - do I take that piece of equity (a guess) and add that to net worth since it's generating income? How do you account for pensions? SS?

I know it says "Net worth" but IMO, I'd not include the equity in your residence, but would include your rental properties.

And when I set up the poll, I kind of wanted to factor in whether the retiree was receiving a pension and/or SS or not, but thought it'd make the poll more complicated. Also, looking at the results, I should have included a few more possibilities at the high end.

[MichaelB]

I don't include some assets, including our main residence, when I calculate withdrawal rate, but I did include them in this poll because they are part of our net worth and that is the poll question.

[Theseus]

Quote:

Originally Posted by rodi Oh boy. Not retired but already thinking about this in too many ways. Do I include my home equity? (Expensive area - so big part of net worth - but not planning to sell.... so not really spendable.) We have rental income from the same home (granny flat on our lot) - do I take that piece of equity (a guess) and add that to net worth since it's generating income? How do you account for pensions? SS? I didn't answer the poll for 2 reasons (not retired, not sure about the above questions...) but my ratio of "investible assets" / annual spend is about 18. But because of other sources of current income (DH's SS, rent) , not including my SS and pension starting in the future) our WR, if I were to retire today would be 3.8%. And it would only drop from there when the pension and SS kick in and the kids move out.

I find the idea of NW/Expense interesting, but really can't answer this poll for the same reason. For my own calculation I use NPV of pensions and SS as an indicator, but not necessarily thinking of it as a bird in the hand. Home is a bird in the hand, but as long as we still want to have a roof over our heads it isn't exactly money that can be used for expenses, unless downsizing would provide significant extra cash. Including various combinations of those numbers in NW, I can obtain results of anywhere from 10 to 32 for the NW/Expense ratio. I agree that WR is probably a better indicator in such cases. Our pensions are not overly generous by any means, but between DW and myself are projected to cover 21.4% of our retirement expenses, so it is significant enough to make a difference.

[REWahoo]

When I saw this poll posted my first thought was, "What are the odds this thread will turn into a debate about how to define net worth..."

[Dd852]

Not including main residence - 30x. I was 52 when I left. In other words a simplistic way of looking at it is I need to make "inflation" in the markets to hit 82, the age my father died; to live longer I will need to make some appreciation too. Obviously a bad run on the markets that doesn't recover well is the nightmare, but most normal ups and downs should be cool.

[sengsational]

This number also needs an estimated number of years to the "end of the planning horizon", hehe.

I did not include either the college savings accounts and college expenses. I also ignored all non-investable assets. Ignored social security and measly pension, but only because I was too lazy to do an NPV on 'em and they're interest rate sensitive (I'm 55).

Yearly expenses "when you retired" probably included income taxes that you're not going to be paying at that level.

So if I substitute a retirement tax level, I'm quite a ways above 35. Even if I included the high income tax, I'm still above 35.

[gauss]

~20, BUT we have non-cola'd pensions that will cover ~ 3/4 of our living expenses initially (when DW retires in a few years) and then both of us also have Social Security coming online at age 70 to help smooth out the reduction in value of the non-cola'd pensions down the line.

-gauss

[ERD50]

Quote:

Originally Posted by David1961 For folks who have ERd, what was your Net Worth/Yearly Expenses ratio when you retired? I'm sure it would depend on many factors, such as whether you had a pension.

What do you hope to learn from this?

I'm not saying this to be critical, I'm just trying to point out that I don't think a number like this will tell you anything. And if you think it will, I'd suggest you re-think any retirement plans you have.

One very big variation you will get is - some people retire before they are collecting any pension/SS. Let's look at an extreme example to illustrate (but not unfeasible, I think we've had some people post something pretty similar):

Let's say a person needs $XXK annual, and will adjust with inflation. They are three years away from collecting a COLA'd pension and SS that will provide $XXK annual. They can theoretically retire with a ratio of about 3X.

But w/o all that background, the number means nothing to you.

There are people on the forum who fear equities, and desire to have a large cushion, they probably have a number ~ 50. How does any of that affect you?

WR (or its inverse portfolio/spending) will vary over time for most of us. You need a plan that fits your situation, not some average or comparison of what others do.

-ERD50

[Mulligan]

Quote:

Originally Posted by ERD50 What do you hope to learn from this? I'm not saying this to be critical, I'm just trying to point out that I don't think a number like this will tell you anything. And if you think it will, I'd suggest you re-think any retirement plans you have. One very big variation you will get is - some people retire before they are collecting any pension/SS. Let's look at an extreme example to illustrate (but not unfeasible, I think we've had some people post something pretty similar): Let's say a person needs $XXK annual, and will adjust with inflation. They are three years away from collecting a COLA'd pension and SS that will provide $XXK annual. They can theoretically retire with a ratio of about 3X. But w/o all that background, the number means nothing to you. There are people on the forum who fear equities, and desire to have a large cushion, they probably have a number ~ 50. How does any of that affect you? WR (or its inverse portfolio/spending) will vary over time for most of us. You need a plan that fits your situation, not some average or comparison of what others do. -ERD50

That is true, because when I retired it was less than 3X. Now it is all the way near 7. The day I die will probably be about the time I would have a "normal" figure ( if my offspring is lucky).


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[Alan]

I have non-COLA pensions, which covered 70% of expenses at the time of retirement, so I divided retirement savings by the amount I withdrew to make up the difference that first year, then voted. (it was 39 back then)

[FIREd]

Based on my records, we were at 25x annual expenses when I stopped working, but that did not include things like stock options and real estate. No SS anytime soon, no pension, but DW kept her job.

[David1961]

Quote:

Originally Posted by ERD50 What do you hope to learn from this? I'm not saying this to be critical, I'm just trying to point out that I don't think a number like this will tell you anything. And if you think it will, I'd suggest you re-think any retirement plans you have. One very big variation you will get is - some people retire before they are collecting any pension/SS. Let's look at an extreme example to illustrate (but not unfeasible, I think we've had some people post something pretty similar): Let's say a person needs $XXK annual, and will adjust with inflation. They are three years away from collecting a COLA'd pension and SS that will provide $XXK annual. They can theoretically retire with a ratio of about 3X. But w/o all that background, the number means nothing to you. There are people on the forum who fear equities, and desire to have a large cushion, they probably have a number ~ 50. How does any of that affect you? WR (or its inverse portfolio/spending) will vary over time for most of us. You need a plan that fits your situation, not some average or comparison of what others do. -ERD50

Actually, I agree with your points about the different situations and how this will affect their answers. Trust me, I'm not using the answers to modify any plans that I have. The only thing I'm trying to learn is what others' situations were and was more interested in reading the replies about their specific situations than the results of the poll. And I've gotten some good replies so far.

[ERD50]

Quote:

Originally Posted by David1961 Actually, I agree with your points about the different situations and how this will affect their answers. Trust me, I'm not using the answers to modify any plans that I have. The only thing I'm trying to learn is what others' situations were and was more interested in reading the replies about their specific situations than the results of the poll. And I've gotten some good replies so far.

OK, that's good. That didn't come across in you OP, so it kinda concerned me.

Carry On!


FWIW, my initial WR was/is fairly low as DW is still choosing to work, but at a relatively low paying, part-year job that she enjoys. But it offsets ~ 1/3 of our planned spending. Then our WR will go up between her retiring and when we decide to take pensions/SS. Fortunately, our portfolio has grown in that time, so it might have been ~ 3% WR initially, that has dropped (our spending has been pretty constant - likely due to kids leaving the nest), so the increase will likely be small. It will drop when SS/pensions kick in, then likely rise over time as my pension is not COLA'd, DW's small pension is a COLA-lite - 3% non-cumulative.

Of course, a 50% market drop would change those numbers! But I survived the recent roller coaster, never lost sleep.

-ERD50

[W2R]

Quote:

Originally Posted by David1961 The only thing I'm trying to learn is what others' situations were and was more interested in reading the replies about their specific situations than the results of the poll.

Oh, OK! Then I'll post instead of just answering the poll.

I am very cautious by nature, and acutely aware of the fact that if I don't take care of myself nobody else will. So, my retirement planning was pretty doggone conservative to begin with. I added extra to my planned nestegg to allow me to self insure for long term care, and for planning purposes I ASSUMED inflation, a huge market crash, failure of the SS system, and nearly every other possible retirement-wrecker that you can imagine (except for the housing market crash which blindsided me).

Then, once I had enough to retire comfortably under all these assumptions, I kept working to get to the point where I would be eligible for health insurance and mini-pension. I kept saving as always and LBYM'ing so my savings just kept increasing. I figured I'd enjoy the extra after retiring, when I had the time to do so, instead of during my last working years.

Then, just before I retired, I unexpectedly inherited a modest amount. OOPS. Never thought of that happening.

All this is compounded by the fact that I was still "living like a student" and LBYM'ing a whole lot more than I am now.

As John Lennon said, "Life is what happens while you are busy making other plans." Much to my surprise, my net worth on the day of retirement (11/9/2009) divided by my 2009 spending (minus mini-pension) produces an answer of about 59 without the house included, 67 with.

Being a rational person, I have gradually yet markedly increased my spending since that time.

[NW-Bound]

Quote:

Originally Posted by David1961 ... The only thing I'm trying to learn is what others' situations were and was more interested in reading the replies about their specific situations than the results of the poll...

Here's my story.

No spreadsheet, no expense projections for me. Expense tracking with Quicken, after the fact mind you, shows that my expenses were 3.5% of invested accounts, dropping to 3.1% in the last 12 month periods. So far so good.

What if the market tumbles and crashes? If it persists and my WR stays consistently high and my accounts suffer significant shrinkage, I will make major lifestyle changes. It may even go as far as liquidation of the homes, dragging my wife kicking and screaming into the motorhome, and driving off to the east, to a NM state park. Well, perhaps even further east, to the land of crawfish, catfish, and nutria to experience what Uncle Mick was talking about. Heh heh heh... What an adventure...

Or the market keeps on rising, and as it is unlikely that I will up my spending to match, the WR may drop further. And then SS and Medicare come online, and as I withdraw even less, I will be rolling in dough, with the Quicken bottom line providing sublime pleasure as I watch it everyday when the market closes.

See how one can be happy either way, as long as he has his health? It's only money, and while I'd much rather have more than less, it is not that big a deal. And it's certainly not the end of life!