"2.5% is all I need to live on"

[SecondCor521]

I want to withdraw the maximum amount possible (as per firecalc) and let that determine my standard of living which will be extravagant compared to how we live now as opposed to continuing to live like we do now and letting my assets grow to millions and millions for someone else to enjoy.

...

As I said, I live well below my means now so I understand that mindset but I dont understand why people want to continue to do it after retirement.

Thoughts?

My approach is to take my current living expenses, my FIRE stash, and the 4% rule, and FIRE when those three variables line up. Depending on how accurate my assumptions and spreadsheets turn out to be, that's around age 49, or about 10 years from now.

There is the possibility of me inheriting something from my parents. It could be anywhere from $0 to about 15x my current FIRE stash, sometime between now and 20 years from now. If it is sooner and on the larger side, then I would end up in a situation where I would probably be FI immediately and be facing a 1% withdrawal rate. In that case I would probably still live way below my means. I will cross that bridge when I come to it.

I personally am planning on following, as best I can, the model where I rerun FIREcalc every year with my new portfolio balance and reduced life expectancy, and raise my spending accordingly. But beyond a nice standard of living, I'll probably start feathering my children's retirement, or becoming more involved in charities or something.

2Cor521

 

[Bestwifeever]

Not to mention the effect on the nest egg of a possible bear market when one first retires, correct? Someone whose expenses are well below the 4% swr may be sleeping a little better these days (even though their nest egg presumably would still be okay with Firecalc's computations for the 4% swd).

 

[TeeRuh]

What Nords said. My excitement about my pending retirement is time related. Wow, get up when I wake up, do what I want, when I want without w*rk getting in the way!! My belief is I'll be spending significantly less than now if I consider the reduction in savings and taxes.

t.r.

 

[ERD50]

... but assumming that FireCalc is correct and withdrawing 4% will allow you to never run out of money, there will be plenty left for inheritance anyway.

Big assumptions, and some errors.

4% gives a 95% success rate for 30 years. 30 years is not forever. 5% failure is not 'never'. And it is a guide based on history - who knows what the future will bring?

If the ER is age 50, and wants a good confidence that they will not financially burden their children if they make it to age 95, 4% is too high. That's 45 years. People are living well past 100 today - it may be much more common 40-50 years from now.

And if you try to do FireCalc runs for 50 years, it cannot include the most recent 50 years in the analysis, and there were some bad times in there.

-ERD50

 

[lazygood4nothinbum]

with luck of the womb, and having very fun parents, i've lived pretty well all my life. raised in new jersey with big boat in marina for weekend cruising the hudson or a week out off long island. i lived in a condo on a beach in the usvi with a boat in a marina. i had friends with boats. everyday after school we were waterskiiing and splashing tourists for fun. i lived on the water in florida with a big boat in the backyard. heck, i've even lived on the boat.

through friends i've flown in private planes and cruised on large yachts (100 footers) and enjoyed a life i could never afford on my own, allowing me to be pretty frugal with my own money while living the so-called good life.

now that i'm financially independent i'm considering downscaling by a longshot my lifestyle and living for a few years in third world and developing countries. maybe after that i'll live on a sailboat in guatamala. you don't have to spend a lot of money to enjoy a fulfilling life. i think i would be happier pulling into $250/month dock on the rio dolce than i would paying $1500/month for a slip in fort lauderdale.

not being able to buy what you need would sure suck. but happiness doesn't come from spending money, not for me anyway. i've always had just as much fun without it.

 

[RunningBum]

Big assumptions, and some errors.

4% gives a 95% success rate for 30 years. 30 years is not forever. 5% failure is not 'never'. And it is a guide based on history - who knows what the future will bring?

If the ER is age 50, and wants a good confidence that they will not financially burden their children if they make it to age 95, 4% is too high. That's 45 years. People are living well past 100 today - it may be much more common 40-50 years from now.

And if you try to do FireCalc runs for 50 years, it cannot include the most recent 50 years in the analysis, and there were some bad times in there.

-ERD50

Yeah, what he said. And I don't know how acurate my budget is to guarantee I won't blow past 4% by accident.

 

[youbet]

Sure I want to leave money for my son, but assumming that FireCalc is correct and withdrawing 4% will allow you to never run out of money, there will be plenty left for inheritance anyway.

ERD50 already said it, but I'll reiterate.......

You need to look carefully at the output of FireCalc and make sure you understand the results. A 4% WR and 30 year span, with the usual AA, depletes your portfolio completely in about 5% of the trials. And an additional percentage of trials leaves the portfolio well below it's starting point.

If you want to assume "there will be plenty left for inheritance anyway," be sure to use the option where you call out the minimum amount you want left at the end and FireCalc will use that number instead of zero in defining a failure.

It's all very interesting and a bit of a crap shoot! One person can withdraw at a 5% rate for 30 years and make it OK with money left over. Another can withdraw at 4% rate for 30 years and go broke before the grim reaper arrives on the scene. All depends on investment return and inflation during their 30 year period.

I do agree with you that some folks do seem to use excesively conservative WR's. I just wanted to point out that your statement seemed to be unrealistically optimistic.

 

[Nords]

http://www.early-retirement.org/for...etirement-calculator-hell-articles-32828.html

 

[kumquat]

ERD50 already said it, but I'll reiterate.......

You need to look carefully at the output of FireCalc and make sure you understand the results. A 4% WR and 30 year span, with the usual AA, depletes your portfolio completely in about 5% of the trials. ...

WADR, that's 1 time in 20. Would you bet $1,000,000 on a coin toss if you won, 19 times out of 20?

 

[Spanky]

WADR, that's 1 time in 20. Would you bet $1,000,000 on a coin toss if you won, 19 times out of 20?

may be a smaller amount -- say 100,000.

 

[Spanky]

People are living well past 100 today - it may be much more common 40-50 years from now.

The probability is pretty small, however. For planning purpose, I use 90.

 

[youbet]

WADR, that's 1 time in 20. Would you bet $1,000,000 on a coin toss if you won, 19 times out of 20?

Hi kumquat.....

I don't get your point or understand the bet. That is, I don't understand your bet in regards to my post. Please clarify.

 

[Khan]

My SWR, including pension, will be about 100K if I retire in 2 years and 150K if I retire in 5 years (I could retire today at 48 but I'm hanging on for lifetime medical). Not including my mortgage, which I may or may not pay off when I retire, my current expenses are about 18K/yr (this includes about 5K in charity/gifts). Hence, my expected withdraw rate at my current standard of living will be about 1% or less. I see no reason for this to significantly change, except for possibly 1 or 2 one-time high cost activities (e.g., Everest summit). OK. Maybe it will bump up to 25K. I can't fathom spending more than 30K. But it's still at the 1% level.

For me, like many others, the point of retirement is to spend my time, not specifically my money. The way I currently enjoy my time is through activities that are either free or inexpensive (running, bicycling, hiking, reading, puzzles, etc). I'd much rather go to fast food restaurants than expensive restaurants. My idea of heavy drinking is orange and grape soda. If I had the choice of a free car, I'd still go with a Corolla or Civic. The reliability, gas mileage, and ease of getting around make them ideal. I'm still driving my 1980 Corolla. It gets me to where I want to go. I don't need anything different. I live alone, not counting pets. My house is already big enough for one person. The one thing that the money will provide is the priceless feeling that it is there should I ever need it (e.g., take care of parents or myself in very old age).

Many people say that they want to die broke, meaning that they want to spend down their retirement assets as they age. Not me. I want to die filthy rich. The more the better. I'll be quite happy after I die knowing that my money has gone to the charities that I support. I don't see the problem.

I am much the same.

Minus taxes and saving for retirement, for several years I spent $15k-$20k, and that includes $2k to charity.

My spending hasn't increased much, and it's still less than my pension. My withdrawal rate is still 0%.

I have everything I need.

House, paid for, ~1000sf, more than needed for one person (and one cat). Replaced 1989 car (with a 2005) this summer, don't want to go to restaurants, don't want to travel.

It's good to know the money is there if I need it.

Several charities will be enriched when I die.

 

[megacorp-firee]

Chromed, high-lift, supercharged, NOx-injected bedpan...

be sure to get the chrome dual 'exhaust' ...
sorry

 

[LRS]

Why is the choice always yachts or dogfood? We're aiming to replace our middle-class lifestyle, not create a new jet-set one. If we continued working to 65 we'd really have it made ... until our health failed. No amount of money could replace freedom from the workplace for me. Just my opinion.

 

[ERD50]

The probability is pretty small, however. For planning purpose, I use 90.

OK, but according to this calculator:

https://personal.vanguard.com/us/planningeducation/retirement/PEdRetPicLongRetireContent.jsp

18% of the current 55 YO Males will make age 90. (35 years of SWR)

And in terms of the OP -

38% of the current 55 YO Males will make age 85. (30 years of SWR)

So a 30 year time span for most 'early' retirees seems a bit short-sighted.

And I don't consider an 18% occurrence to be something I can ignore. Many of us insure against much lower rates of risk than that.

I don't want to be 90 YO and say to my kids " You know, when your Dad decided to retire, he knew there was about a 1 in 5 chance that he'd live to 90 and run out of money, and guess what.....".

Add a spouse to the mix: there is a 5% of one reaching 100 (45 year span), a 17% of one reaching 95 (40 year span).

I'm assuming these calculators are based on current actuary tables. I don't think they try to project increased life spans into the future, so things could be 'worse' than that.

-ERD50

 

[ERD50]

http://www.early-retirement.org/for...etirement-calculator-hell-articles-32828.html

Specifically:

The Retirement Calculator from Hell, Part III, including the quote "Thus, any estimate of long-term financial success greater than about 80% is meaningless."

On one hand, since we cannot predict the future, it is ALL pretty meaningless.

OTOH, FireCalc does not 'predict' anything. It is actual historic data. And since the future could be worse than the past, I see no reason to accept a 95% success rate as 'good enough'. The data really says 'we KNOW this WILL FAIL in 5% of the previous sequences'.

It's a baseline. I feel more secure knowing that an X% SWR actually survived 100% of the historical sequences. That still leaves lots of unknowns - my spending could increase, the future could be worse than the past, and I or my spouse might live to an old age.

I'd need to check my notes, but IIRC going down to 3.7-3.5% SWR adds a lot of margin to the plan. 3.25% seemed to be getting into the 'forever' range.

-ERD50

 

[RunningBum]

WADR, that's 1 time in 20. Would you bet $1,000,000 on a coin toss if you won, 19 times out of 20?

But it's not an even bet, so that question makes no sense at all.

If I win, I got to spend a bit more each year. If I lose, I'm out of money and out on the street at age 90. I don't like the losing bet at all. The winning bet isn't big enough to be worth the risk of losing, even if it was a small chance.

I don't see why it's anyone else's concern if I chose to be cautious with my SWR.

 

[Spanky]

Here is the Actuarial Life Table
Actuarial Life Table

Life expectancy for a man of 50 year of age is 28.09, and 31.91 for a woman. I guess it does not hurt to plan for a higher number (just in case).

 

[ladelfina]

I second Want2Retire...

as to "why stick to 4%" aenlighten has a good response.
Things will go up and down. While our basic living costs are under 4%.. we did spend almost 2x that last year due to some major home expenses. So this year we will try and tighten our belts some. It also doesn't help that for us "4% is the new 3%"!!

 

[utrecht]

If you could comfortably live on 2.5% but withdraw and spend 4% anyway because you deserve and can afford to live better in retirement than you did in your saving years.....and then the market starts tanking 10 years later or whatever, you can always pull back to 2.5% with no problems.

Not too mention the fact that if the reason you want to spend more at the beginning is to travel extensively, you will probably naturally spend less when you hit 80 than when youre 55 anyway because you probably will cut way back on travel at that point due to declining health and energy levels.

So even if the 95% survival rate of 4% withdrawals worries you, I still dont see a problem.

 

[megacorp-firee]

Not too mention the fact that if the reason you want to spend more at the beginning is to travel extensively, you will probably naturally spend less when you hit 80 than when youre 55 anyway because you probably will cut way back on travel at that point due to declining health and energy levels.

Not me ... I'm going to have 'one of dem' body parts transplants....
I got dibs on Brad Pitts!
Sorry ..l getting punchy again .. It's 1:15am here.

 

[ERD50]

Here is the Actuarial Life Table
Actuarial Life Table

Life expectancy for a man of 50 year of age is 28.09, and 31.91 for a woman. I guess it does not hurt to plan for a higher number (just in case).

I think that many people misinterpret that number. A dangerous thing to do, IMO.

Please do not forget - that is a MEDIAN life expectancy! Half of the people live longer. So don't plan on a higher number 'just in case' - plan on a higher number because there is a 50-50 chance that you WILL exceed the number.

Even 'worse' when you factor in a spouse'. The vanguard calculator is much better for this - it shows the % chances of hitting any age you enter, and will factor for the 'last surviving'.

A better than 50-50 chance that a 50 year old couple will have one person exceeding a 38 year span. That's 8 years of eating dog food, and maybe many more years ahead - no thanks!

https://personal.vanguard.com/us/pla...ireContent.jsp

-ERD50

 

[growing_older]

Okay, I'm going to plan a comfortable retirement with a LBYM lifestlye that I enjoy and feel fortunate to have. I may spend less than I could, but it's a choice not a deprivation. In fact, I'm planning on living on less than 4% SWR and here's why:

1. I don't believe in the goal of maintaining a given standard of living accounting for inflation. I want to fund a slowly rising standard of lving even into my very old age. I've read the studies that older folks spend less and I believe there are factors overlooked in the research and don't believe the conclusions. I watched my parents and grandparents become progressively more dependent on others for help as they aged. If I can afford to retire to a small cabin on a lake when I FIRE, I want to be able to afford to stay there even when I'm so old I need to hire a handyman or housekeeper to stop in and do stuff I used to take care of myself. Likewise if I want to travel a bit in FIRE, I may enjoy cheap off the beaten path adventures when I'm younger, but I'm expecting I'll be more inclined to pricey comfortable accomodations when I'm older. Should I live so long, I want to have the option of the nicest possible care facility if I need one. I'd like to plan to have the means to take care of myself as these kinds of expenses increase later in life.

2. Freedom. I've done a lot of planning, but no matter how much I do I cannot include all future optoins. I may develop a new hobby or interest and wish I had means to enjoy it. My family circumstances coud change and I need money I didn't expect to need. New technology could be developed that I want to use to change my life, health, lifestyle or who knows what. I want to have choices, more than I want to have maximum current spending power.

3. Contingencies. Markets may not behave as they have historically. Over the 50 years or more I hope to be retired there could be all sorts of social changes, wars, diseases, tax laws, flood, earthquake, whatever. With excess capacity in my savings and SWR comes safety in that I should be able to adapt and accomodate whatever might happen, or not. I want to have security more than I want to make maximum use of my savings. If some is leftover because I was buying safety with it, then I will be happy to pass it on to family and charities when I no longer need it.

 

[old woman]

I will move when I retire and have not a perfect idea what it will cost me. So I plan to have way too much money. I will build or buy a nice home in the country on acreage. The first year I will have a start up budget to build sheds, fences and get it to my comfort level. Then I will hope it doesn't cost more than a little bit to live so I can live on a small percentage of my assets. Then after I see what it actually cost will adjust to spending more on things I don't need like a new boat. I will spend a little less the first few years because I will have roommate income so won't need as much. If I outlive my roommate that income will be gone. Then I would need to no only draw out more but replace his labor, hire someone to things I don't know how to do. Also in my elderly years being in the country I may have to start paying for things like someone to drive me places if I lose my license or don't feel safe driving. I can always ramp up spending but it is harder to reduce things you are used to.