When you have enough?

[Markola]

The proper amount needed to retire is always:



TWICE WHAT YOU HAVE.



Regardless of Net Worth it is always a decision regarding the future which involves factors that you cannot precisely, or perhaps even accurately, determine. So there will be a risk. The alternative is to work until you die.

LOL. Also, CUT YOUR EXPENSES IN HALF.

 

[street]

My feeling is prepare for the worst and hope for the best. In saying that, my plan was to have enough in cash/CD's to live plus SS, so if I lost all in the markets, I wouldn't loose a beat. That was my plan and I'm working that plan now. If everything goes according I should never have to spend a dime from my investments if I choose to do so.
That is how I knew I had enough.
My stash has 15% in CD's which I call cash. The rest (85%) if I lost it, I could still live my life with what I need and be very comfortable. I hope that never happens but I'm prepared for the worse.
Again that was when I felt comfortable and knew when enough was enough.

Good Luck.

 

[targatom2019]

When you have to withdraw less then 3% a year to live off then you have enough.

 

[KarlH]

When you have to withdraw less then 3% a year to live off then you have enough.

I think this is a bit conservative (I really have been planning for several years with 3.5-4% in mind). That said, when I look at the numbers, I calculate 3% and ask myself "could I live off of that?". I am planning a budget of 3.5-4%, but wouldn't be surprised if I found myself living on 3% or less.

 

[Koolau]

Not to be too flip about it, but I suppose you have enough when you stop asking yourself the question "Do I have enough?"

I went well beyond my 'comfortable-to-spend-4%-of-stash' by w*rking longer. (I actually WANTED to stay as relayed elsewhere.) BUT, when the time came, I didn't even really think about it. Gave my notice (and due to saved vacation) left at the end of the week. Didn't recheck my numbers. I don't recommend this method because YMMV.

 

[Badger]

During my accumulation years I played with Firecalc and a few other similar programs. I would put in my annual expenses needed (with a little buffer) along with the amount saved/invested at the time without consideration of SS and any small pensions we might have. When the results came up 100% under all conditions then I figured I had enough saved Being a belt and suspenders person I saved a little more after that. Easy Peasy!



Cheers!

 

[Retired Expat]

How do you know when you have enough to retire when the stock market is so wild? Even with diversification, it is crazy.

I think we have plenty but as March showed us, one could lose tens of thousands of dollars in one day.

Run all your firecalc or other Retirement Calculators starting with today’s numbers then at 10% less, 20%, 30% etc. can you handle a 20% fall right at the beginning? Similarly look at your retirement budget, could you reduce it 20-40% if needs be? If you are good after a Crash like we had this year then you should be fine.

Our spending this year will be down 40% for example but we travel a lot and go out to eat regularly. Or we did....

 

[Retired Expat]

Certainly true from an accounting point of view. The portfolio is marked to market.

I prefer to think of it, though, as some of my money being temporarily unavailable. In history, the market has always come back. So as long as I have SORR handled with my AA, I am relatively unconcerned. Just like @swakyaby, in post 23.

I think the people who get most spun up on market dips are mistakenly thinking/fearing that their money is permanently gone.

Well if your shares were in Sears for example that money isn’t coming back.....

But timing is a an issue here and I agree in the long term or even the medium term you will get back to where you were before the fall. But if you are planning from day 1 and on day 2 lose 30%.... That is different than growing your money for 10 years and then losing 30% in year 10. This pandemic was/is a catastrophic event, like a once in a hundred year storm, which doesn’t mean we won’t have another one next year!

Like earthquakes in California it is not a question of if, but when will the next crash come?

How we prepare for it and the various calamities that we may face is the question? Not a “prepper” living in a bunker but I am sure those folks have a different attitude than most, so we all need to find that level of preparedness that makes us comfortable. How many xtra rolls of toilet paper are you keeping in the closet? That might give you an indication....

 

[lordjust]

VPW spreadsheet does that in the retirement tab - it shows a hypothetical 50% reduction in the stock portion of your portfolio (you specify your AA) and calculates the decrease to the suggested withdrawal based on that possible portfolio hit. If you believe you can cover your expenses with that decreased amount, you have a high probability of success.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

spreadsheet is at link...

so line 35 (Portfolio Withdrawal) if the market has crashed and line 14 if things are normal??

 

[tenant13]

It's really impossible to know since none of us knows what the future brings. I think flexibility is the key: assume that you'll die at 90 but when you get a heart attack (as I just did) shave a few years off that estimation and live a little Hope for the best when it comes to the stock market but be ready to stay at Holiday Inn instead of Belmond during your travels. Count on Social Security but prepare to move to a cheaper location if it gets cut in a half - and I don't mean a shack in the middle of a corn field. There are great options all over the world if you're willing to be somewhat adventurous (clearly that's not quite feasible now).

I wonder if there are RE folks around this forum who look back and say: "I wish I worked 5 more years"....

 

[indiajust]

I like how Monte Carlo simulators work with Schwab. If the future looks like the past, they give a good statistical feel for how likely your assumptions are achievable. And then you can fudge your assumptions to see what is good enough if you are short. Or see how much you can splash out to spend it all.

Helps to have your historical returns available so you can compare yourself relative to market returns.

 

[HI Bill]

So, none of you had any doubts when you were looking at pulling the trigger? You just made your decision, left your job, set your retirement AA, and fell soundly asleep as your head hit the pillow?

ETA: Perhaps you did, if you saved twice as much as you need to, as some of you seem to be saying. Others of us didn't want to wait that long to retire though.

While I haven't FIRED yet, we did save 'twice as much as we needed to', because, we wanted a budget that was 50% travel (100% of this is discretionary). Yes, I could have FIRED at my original goal of age 50, but my travel would have been severely curtailed, and there would have been little buffer for large economic downturns. Still, when I hopefully FIRE (in January), I certainly won't be able to ignore the markets and sleep soundly. I'll be looking for periods where assets are up to sell enough to make the year's expenses. Right now (w$rking), I update the stock values every day. When this year's big COVID crash happened, I was travelling in NZ, and saw $30-40K disappear per day. It wasn't easy, but I didn't panic and sell, even though I had paper losses of $950K. But I did defer ER, mostly due to travel restrictions.

 

[HMMY]

The wild market confirmed that I had enough. My original goal was 25x expenses, excluding SS, my buffer. I ended up working an extra year because I needed surgery and rehab. I retired at ~27x expenses. Starting two years before retirement, I reduced my allocation from 80/20 to 55/45 so the portfolio could survive a 50% drop in equities and allow me to sleep at night.

When the March decline happened, I did some tax loss harvesting and rebalancing. Even though I had lost 6 figures, I realized my life would not change at all. In fact, I realized that I wanted a 50% drop so I could pick up more equities. That's when I realized that I had enough. In fact, due to my inability to travel, eat out or shop, I am going to spend less than 2.5% this year rather than 4.0%.

 

[samcat]

Thank you everyone for your thoughtful comments!

When you figure out your annual expenses, do you include taxes?

 

[daylatedollarshort]

Thank you everyone for your thoughtful comments!

When you figure out your annual expenses, do you include taxes?

Yes and don't forget taxes on RMDs if you have retirement accounts.

 

[daylatedollarshort]

It's really impossible to know since none of us knows what the future brings. I think flexibility is the key: assume that you'll die at 90 but when you get a heart attack (as I just did) shave a few years off that estimation and live a little Hope for the best when it comes to the stock market but be ready to stay at Holiday Inn instead of Belmond during your travels. Count on Social Security but prepare to move to a cheaper location if it gets cut in a half - and I don't mean a shack in the middle of a corn field. There are great options all over the world if you're willing to be somewhat adventurous (clearly that's not quite feasible now).

I wonder if there are RE folks around this forum who look back and say: "I wish I worked 5 more years"....

Sorry to hear about the heart attack. I hope you are well on the road to recovery now.

I do have a fiend who retired early and now regrets not saving more, and some that went back to work. But I get the feeling they all didn't do as much upfront research and crunch the numbers like most of the posters here seem to do.

 

[WhenIsItTime]

You know when you have done the homework, understand your expenses, and your Income as % return. Ratio depends on risk tolerance, age, and willingness to flex

 

[deserat]

so line 35 (Portfolio Withdrawal) if the market has crashed and line 14 if things are normal??

Yes - you can also adjust line 11 with regard to frequency (monthly, quarterly or annually) and then line 19 tells you how much you would need to decrease the projected amount for that frequency.

The Boglehead who developed the spreadsheet using the VPW principles also has a thread on the forum that is forward testing the model with a 'smoothing' mechanism; it basically averages out the annual suggestion with the monthly suggestion allowing the user to adjust more finely due to stock market fluctuations throughout the year. He's been doing the forward test for a year; he posts every month going through the sequence of steps using the model and the smoothing mechanism using a hypothetical case that exercises all of the model: portfolio, asset allocation and pension.

Thread is here: https://www.bogleheads.org/forum/viewtopic.php?t=284519

 

[Closet_Gamer]

I'm 3-4 years away from landing the plane, so this sort of question is on my mind as well.

Setting aside sequence of returns risk, I think market volatility is sort of a red herring. It's pretty easy to overcome with AA and cushion.

As I think about ready-or-not, I have three things in mind:

1) Step away from the spreadsheet on spending. Its easy to think "if I don't have $x, we will starve and die." What options would you have to cut spending if things got rocky? If the answer is "none", then you can't retire. If the answer is "quite a bit", you're OK.

2) The risk I am worried about, and that is very hard to hedge, is interest rates. With full deference to the old joke that "this time is different", we have never seen anything like what's going on with the Fed and Congress. An interest rate snap back would be brutal and a long term impact. And it's very hard to hedge because it would hit all asset classes.

3) Life (and Death) happen. 8 months ago none of us knew what Covid was. There are lots of people who are suddenly ill/deceased from something they didn't see coming. Its worth using the "Rich, Broke, or Dead" calculator to recenter oneself on the actual mortality rates.

https://engaging-data.com/will-money-last-retire-early/

My $0.02.

 

[Andre1969]

I recall a posting saying that Firecalc updated its recent market data, does this include the great recession of 2020 data in its models?

Unless the market tanks again soon, this "great recession of 2020" might end up being little more than a hiccup. I hit the bottom on March 23, when I was down about 30.5% YTD. But, the bounce back came fast. I finished March down about 21.5%, by April's end I was down about 13.3%. At the end of July I was only down about 2.3%. There have been a few days in August where I've been into slightly positive territory for the year. Last time I added up my numbers on 8/12, I was up 0.15% YTD. I'm sure that 8/13 and 8/14 trimmed that a bit, though.

Of course, the year isn't over yet.

 

[jimbee]

Well if your shares were in Sears for example that money isn’t coming back.....

Adequate diversification will remedy that situation.

 

[indiajust]

I always have doubts. My flex response is to return to work, probably Home Depot, since I have already cut costs to the bone.

 

[Markola]

It's really impossible to know since none of us knows what the future brings. I think flexibility is the key: assume that you'll die at 90 but when you get a heart attack (as I just did) shave a few years off that estimation and live a little [emoji4] Hope for the best when it comes to the stock market but be ready to stay at Holiday Inn instead of Belmond during your travels. Count on Social Security but prepare to move to a cheaper location if it gets cut in a half - and I don't mean a shack in the middle of a corn field. There are great options all over the world if you're willing to be somewhat adventurous (clearly that's not quite feasible now).



I wonder if there are RE folks around this forum who look back and say: "I wish I worked 5 more years"....

This is really how DW and I are approaching it. There’s about a thousand different levers one could pull to manage an uncomfortable financial situation if it emerges. The other part of knowing “When you have enough” is the w*rk part, i.e. burnout, lack of interest, obligations to managers and staff, endless meetings, yada yada. We are both grateful for the careers we had but have “been there, done that” and have had “enough” of that half of the equation. We will just figure the other financial half of and manage through it. I’m not totally sanguine but I’m also aware that the BS Bucket overfloweth.

Best wishes for your recovery and long health, too. That’s a whole additional motivation to not give more precious life energy to some office.

 

[RunningBum]

Thank you everyone for your thoughtful comments!

When you figure out your annual expenses, do you include taxes?

Yes, but I have two categories.

1) "Regular" taxes, which is the mostly predictable interest and dividends from my investments/savings. These are included along with all other annual expenses.

2) "Other" taxes, which is cap gains on sales, and funds converted or withdrawn from my tIRA. These are noted in a separate column from total expenses.

This way if I happen to do a large conversion to a RothIRA my expenses aren't skewed by the taxes I pay. It's fallout from years ago when much of my net worth was in the form of vested but unexercised employee stock options. Not many here seem to do it, but it makes sense to me, at least for my situation.

 

[cyber888]

I check my balance every day .. and assess when I need to change my asset allocation every 2 - 4 weeks .. depends on whether the stock market is over-heated or there's a big dip.