Retirement Formula based on the value of your house?

[joeea]

https://www.marketwatch.com/story/t...is-based-on-the-value-of-your-home-2019-03-20

"Here’s the idea
1. Take the market value of your house, and multiply by 0.3. That is the income you need in retirement.

2. Take that number, and divide by 0.04. That is the value of the assets you need to retire with."

Does anyone think this makes any sense at all?

Does anyone manage their spending based on the current market value of their house? I don't think I know anyone like that.

Did anyone else laugh wen they read that this "elegant" solution came from someone at Wells Fargo Advisors?

Does repeating "The house drives everything." three times make it true?

 

[SumDay]

Oddly enough, both 1 and 2 prove accurate for us.

However, the house we lived in for 30+ years, prior to moving a few years ago, would have totally thrown this number off. That house was worth 1/3 of this one, and I can't imagine living off 1/3 what we are now.

 

[COcheesehead]

Interesting.
For #1 it comes out higher than what I need, but close to the number FireCalc says I can max out to.
For #2 it comes out low to what I have.
In both cases, its sort of in the ballpark.

 

[Teacher Terry]

Not anywhere close.

 

[foxfirev5]

Wow. I'm just speechless . So many holes. But I guess it served its purpose by getting my attention. I actually read the article. A sad reflection of what people will do to promote a new angle on a relatively simple problem to solve. A weak correlation argument that has so many variables that it is idiotic.


Personally I have way too much house and a lakehouse to boot. Although expensive it does not fit at all in the parameters established by the author. I do not have the other associated expenses. As a huge DIY'er the expenses are minimal, taxes in my area are moderate, and I don't partake of the activities associated with where I live. To establish a guideline like this much more ludicrous than the 80-120% replacement of your preretirement income stuff these overpaid geniuses spew.

By the formula I'd better go back to work for another 10 years. As usual you'd better figure it out for yourself.

 

[bobandsherry]

Interesting #2 is based on assets, not net worth so silent of debt/liabilities. I guess that gets caught as part of costs in #1.

 

[SevenUp]

#1 is "in the ballpark" for us.


#2 is simply the "4% rule" (as discussed in the article) if one assumes "invested" in front of "assets".

 

[Fireup2020]

If you live in a HCOLA, these numbers can be waaaayyyyy off! Having just had our house appraised, I can honestly say we do not need (or come close to spending!!) any where near #1.

 

[Red Badger]

I watch out if anything coming from MarketWatch. Click bait central.

 

[stepford]

#1 is roughly 4 times my annual expense total. And I don't live in a fancy house.

In fairness, in a normal (i.e. non-California) area, my house probably would be worth about 25-35% of it's current value and the estimate might make some sense.

 

[Spock]

LBYM makes those formulas invalid.
Instead of buying a house that is 3-4x annual income (or whatever the banker/realtor recommended ratios are these days) I paid 1.2x.

 

[ziggy29]

Too many variables. Is the house paid for? Does it have a mortgage?

What are the housing prices in your area? If someone has a $1M paid off home in California (a very modest home in Silicon Valley), they need nowhere near $300K a year to live, or $7.5M in assets to draw from.

Are you planning to retire in place? Are you going to move?

Do you intend a simple "homebody" lifestyle? Are you going to travel more?

 

[Canoesmith]

Sheesh....

....agreed. Not even in the ballpark. At least for me.

 

[Mdlerth]

Isn't the photo in the article a picture of the Brady Bunch house?

I agree with the title of the article that it's "Opinion", not fact.

Let’s say you are fairly well off, and you live in a house whose market value is $1.4 million... So take $1.4 million, and multiply by 0.3, which gives you $420,000. That is the income you are going to need in retirement. You probably think that number is high, and that you can get by on less than $420,000. Let me tell you why you can’t.

Lots of pretty ordinary houses in NY and CA would command that price, but how many of their owners earn 420k or anywhere close to it, even while w*rking?

That article reads as if it's based on nothing more than conjecture, but I bet the author was paid something for it. I wonder how I might get some of that action?

 

[Dtail]

#1 is fairly close.
#2 is reasonably above what we have, but house is paid for in cash, which probably affects the equation.

 

[RunningBum]

Just so stupid. What's wrong with estimating your actual expenses to figure out how much income and how much in assets you need? Why the separation from reality?

This "method" is way off for me, btw.

 

[LARS]

I saw this in John Maudlin's newsletter. Totally crazy analysis. Talk about FA wanting you to work forever for more assets for them to manage.

 

[Aerides]

A) It's marketwatch.

B) The author is an idiot.

not worth the energy of clicking

 

[audreyh1]

Ha ha - including taxes we spend close the value of our house each year!

So - we need a house 3X more expensive?

I don't see how anything like this could apply across the country where real estate values vary so widely!

I understand where the 0.04 comes from. Once you establish your needed income, you divide by 4% (which is 25x spending) to get to your retirement portfolio that will support a 4% withdrawal. Assuming you will use 4%.

 

[MissMolly]

How do I count pension in the assets? I would need fewer assets than someone without a pension, wouldn't I?

 

[CardsFan]

A) It's marketwatch.

B) The author is an idiot.

not worth the energy of clicking

+1

 

[marko]

Utter. Sheer. Nonsense.

Might work in some parts of the country. Not in the North East.

 

[audreyh1]

How do I count pension in the assets? I would need fewer assets than someone without a pension, wouldn't I?

Yeah - they are totally ignoring other sources of income during retirement when calculating the size of the assets needed.

Idiots.

 

[swakyaby]

Strangely, #2 is right on the money for me.

 

[CardsFan]

Strangely, #2 is right on the money for me.

Sometimes even the blind squirrel gets an acorn.