When you have enough?

[RunningBum]

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.

 

[rodi]

It is definitely a leap of faith to pull the plug on salary income and depend on investments and savings and any other income streams you might have. I was very nervous the first year or so of retirement and am still paying attention to sequence of returns risk 6 years in.

You need to look at several factors:
- What's your asset allocation? If you have it 100% in equities - then you feel the pain of market swings even stronger. Most people here have a percentage in equities, a percentage in fixed income, and a percentage in cash. And rebalance to those percentages periodicallly (annually, whenever there are big swings, quarterly). The fixed income and cash may not make as much money - but they give you a cushion during market down turns to NOT sell everything in a panic.
- You mention the market swings of March - but.... the market has recovered. So if you panicked and sold - you locked in the losses... Remember to stay calm and maintain your asset allocation... DON'T PANIC. Sometimes it takes a bit longer to recover (2007-2009). But stay the course.
- Look at your withdrawal rate. If you are withdrawing 4% you are likely ok for a 30 year requirement. Historically you were ok 95% of the time. If you are withdrawing 3.5% you are golden... If you are lower than that - you will be making your heirs rich. This assumes a withdrawal rate based on the starting date portfolio value, increased each year for inflation. Your portfolio will likely go up (a lot) but that is what the 95% success for 4% withdrawal was based on.
- Consider a variable withdrawal... if you have extras built into your budget then on years the market is down you withdraw less... on years the market goes up you can withdraw more. This is based on value of your portfolio each year. Several members here withdraw a fixed 3.5% of their portfolio at the beginning of the year. You will never run out of money since you withdraw only 3.5% each year.

Take a deep breathe and read this post:

https://www.early-retirement.org/forums/f47/some-important-questions-to-answer-before-asking-can-i-retire-69999.html

 

[rodi]

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.

Just wanted to also say - yeah March was crazy. There was a week that we lost (on paper) several years worth of withdrawals. Yikes. But staying the course we're just fine now.

 

[Markola]

We have a dedicated Vanguard advisor and he and their expensive software tell us we have enough to fund the comprehensive plan we’ve built carefully with him. Good enough for me.

 

[flyingaway]

If 50% of what you have is enough, then you probably have enough, provided you do not panic sell when a 50% downturn comes.

 

[jazz4cash]

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.

I dunno. Maybe I had doubts but they were more related to some type of black swan event, markets being worse than any time in recorded history, underestimating expenses or SORR. I knew I had enough to execute Plan A and if that didn’t work I had B, C, and D as fallbacks. I’m still keenly aware of a possibility for SHTF and maintain fallback plans 5 yrs in.

 

[RobbieB]

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.

Yup, had no doubts, gave my 30 days and out the door. No lost sleep. Easy.

 

[COcheesehead]

25-30 times your desired retirement budget. We pulled the plug with 35x our desired budget which included everything like planned car replacement, healthcare, travel, fun, etc. So a fat budget.

 

[daylatedollarshort]

Our retirement calculations didn't include stock returns. We based our plans on a 0% real return from TIPS and other fixed income assets, plus pensions and Social Security. At a 0% real return (just keeping up with inflation, but not incurring any big capital losses), a 30 year safe withdrawal rate 3.33% (100 / 30 years = 3.33%). Plus we still live below our means in retirement and have a buffer. When we retired 30 year TIPS were at inflation + 2%, and we just thought good enough, especially with the relative safety of U.S. Treasury bonds. Our retirement M.O. is focused more on sustainable living, low consumption and hacking expenses rather than relying on stock market gains.

 

[daylatedollarshort]

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.

I can't say we never had any doubts, but we both grew up blue collar, and worst case thought we could downsize or move to a lower cost of living area if it meant not having to work anymore. We looked at the Consumer Expenditure Survey of what other households lived on and felt between our savings, pensions and Social Security we were in pretty good shape. Plus we reviewed our plan with our 401K rep and ran our numbers through their retirement planner using only the short term bond allocation and it showed we would be fine.

 

[Toocold]

We lived on our passive income for 3 years before pulling the trigger. Could have done it earlier, but I liked work. When I saw an opportunity to receive a package, you didn't have to ask me twice.

Enough for me was building out a financial fortress, so I had high confidence we'd be ok.

 

[Eucerin]

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.

To me, Asset Allocation is the key to alleviate your portfolio in the event of market downturn. Also use the financial tools to verify your AA scenarios to meet your goal.

That being said, I have notice some people that doesn't matter how many times the financial models generated 100% results, they still scared of "what if". People like such, they may want to consider less stock in their portfolio.

 

[Out-to-Lunch]

My take is (and this is/was directed at myself): If the 30% plunge in March made your retirement questionable, then you aren't ready to retire.

As someone described upthread, you should take your equity stash and assume it loses half its value. Is the remaining stash enough to sustain you? If not, keep working and/or change your AA.

 

[deserat]

The other exercise I do, imagine your equities are priced at 50% (or lower if you are really pessimistic) of what they are now. What does that do to your numbers? If you can still sleep at night, fine. If not - reconsider your AA.

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...

 

[racy]

25-30 times your desired retirement budget. We pulled the plug with 35x our desired budget which included everything like planned car replacement, healthcare, travel, fun, etc. So a fat budget.

+1 I had a similar thought: Subtract annual guaranteed income (i.e. pension, SS) from annual expenses. Take that result X 33 and that's your number.
YMVM

 

[Markola]

+1 I had a similar thought: Subtract annual guaranteed income (i.e. pension, SS) from annual expenses. Take that result X 33 and that's your number.
YMVM

Yes, agree that these are the kinds of major factors that blow a simplistic 4% rule or whatever all to heck. Also the TIMING of such factors makes a big difference to one’s portfolio value. I like the Personal Capital Retirement Planner for the reason that it accommodates every anticipated cost and revenue one can think of, as well as their timing, plus the graphic displays of the data are clear and attractive.

 

[mrfeh]

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

Won't make a difference if it is included. Equities are near where they were at the start of the year.

 

[big-papa]

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.

If you're not comfortable with the wild swings of the market, you can always change your AA to be more conservative. That of course also means that you're giving up potential returns and your withdrawals during retirement may be reduced. Everything's a tradeoff and absolutely nothing is guaranteed.

I will be using an approach called "Time Value of Money" which was described over on bogleheads. It's a variable withdrawal approach that not only uses what's in your portfolio, but also the net present value of any future income streams (such as Social Security, if you're delaying it). At any given time I have my first year's withdrawal calculated. I also know, historically, what the average withdrawal was and the worst case withdrawal was. I add some margin to that and as long that number is above my expenses, I consider myself to have "enough". It does require some spreadsheet savvy-ness, though.

Described here: https://www.bogleheads.org/forum/viewtopic.php?t=274243

If you dig through the thread, there are some links to some example spreadsheets.

Cheers,
Big-Papa

 

[teetee]

Stop being dramatic if you don't sell there's no loss.

 

[ShokWaveRider]

When you have "won the game" based on your own measurements of a comfortable retirement. That is what we did. We do not invest in the stock market anymore and still have more than we need.

 

[COcheesehead]

Stop being dramatic if you don't sell there's no loss.

You do, though. If the asset’s value has dropped, you no longer have the original value. It’s still a loss. You may have the same number of shares, but not the same value.

 

[OldShooter]

You do, though. If the asset’s value has dropped, you no longer have the original value. It’s still a loss. You may have the same number of shares, but not the same value.

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.

 

[Car-Guy]

When you have "won the game" based on your own measurements of a comfortable retirement. That is what we did. We do not invest in the stock market anymore and still have more than we need.

Similar to what I've done with "bucket 1". I retired almost 10 years ago with zero debt. I allocated 2m in fixed income investments at that point in time (bucket 1 - or my safety net). Then I've been using the rest of my cash (bucket 2) for my on-going living expenses, hobbies and playing the market. Hey, you never know... The way it looks now, almost ten years into retirement, I may never need to touch bucket 1 unless the whole thing falls apart or I get really sloppy with bucket 2... It's working for me but YMMV....

 

[Navigator]

Before I retired I analyzed my finances every way I could, using Firecalc, Monte Carlo simulators and modeling ‘what-if’ scenarios. I looked at social security claiming strategies, scrutinized different longevity tables and closely looked at expenses. I did 10x as much analysis as was necessary because I was terrified of not “earning” money. As a result, though, I don’t worry about market variations because I know what I should do over a wide variety of market conditions (usually nothing!).

I would say that you are ready to retire when you know what you would do under your worst-case scenarios and feel comfortable with that.

 

[phil1ben]

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.