Realistic INCOME question. Thinking of retiring.

[WiltonKnight]

Hello everyone, what a marvelous forum here.

I'm going to spare everyone the history and details, but feel free to ask anything. Here is my general question and quandary:

I'm 36. And while I've been rather successful in the small-business world, I've got NO college education...point being, tough to find a job.

I'm about to sell my business and here will be my financial picture:

$3,000,000 cash in bank. House paid off. Cars paid off.

Family: Wife, 4 year old, 1 baby on the way.

Lifestyle: While we NEVER lived over our means, I am kind of used to a 'nice' lifestyle, i.e. never worrying about money, nice travel, eating out, etc...and don't want to "give up" a lot of that.

(For argument's sake, I don't want to include inflation in any equation here)

I could go into another business venture, but to be honest...I'm sick of it. I'm sick of customers, employees, the government, the whole nine yards. I'd LOVE to just retire but due to lifestyle,..not sure if I can do it.

Bottom line: I need a "gross income" in retirement of $230,000 to retire.

This means, on $3 million....I'd need 7.7% annual returns.

I've got some mentors, who are very successful...telling me that it can be done.

I've got other advisors, telling me....no way.

Does 7.7% annual return seem realistic?

Thanks for ANY opinions and be blunt as possible.

 

[GrayHare]

If you want that money to last 50+ years, I believe Firecalc will not paint you a pretty picture. IMO w*rk longer, cut spending, or both.

 

[Midpack]

Back of the napkin says, reduce annual spending to $90,000-$105,000/yr plus inflation or increase assets to about $6,500,000-$7,500,000 and you're all set. I am curious how you can exclude inflation though? Maybe you're analyzing in today's dollars (nothing wrong with that) and you're asking if a 7.7% real return is reasonable? I wouldn't count on that...

And taxes could be interesting in several respects.

 

[devans0]

The good news is that there is room to cut expenses and still stay above the mythical "above $75000 annual income gives diminishing happiness returns" report that was flying around.

How Much is Enough? On Average, About $75,000 Per Year

I am still working when I could do well at 4% SWR, and I have much less time to draw down on. IMO, the salespeople that are giving you the 7.5% line are looking to their commissions, not your long time financial well being.

 

[HpRyder]

Yes you can get in the 7%-8% total yields in equities, but you will have to substantially up your risk level. Nice safe equities yield dividends in the 2% - 4% range, plus appreciation in the 7% - 50% range, but you'll have temporary 15% - 30% value drops. Can you stomach this? Not so safe equities have dividends in the 4% - 10% range with value fluctuations in the 25%-50% range, with a risk of permanent principal loss. Is this for you? Rock solid guaranteed return with no risk of loss is in the 0% - 3% range. Does this meet your criteria, I don't think so.

So you'll have to asses your risk level to achieve the 7.7% yield you want.

 

[nun]

Any answers would must include inflation.

You can get 7.7% from things like mREITS, junk bonds and equities........but the next year your returns might be negative. Have you thought about rental property?

You need to do a real budget and decide what you need to maintain the lifestyle you want.

 

[Spanky]

I could go into another business venture, but to be honest...I'm sick of it. I'm sick of customers, employees, the government, the whole nine yards. I'd LOVE to just retire but due to lifestyle,..not sure if I can do it.

Bottom line: I need a "gross income" in retirement of $230,000 to retire.

You need at least $5.8M at 4% withdrawal rate. You might have to put up with people longer, reduce your income requirement or face the risk of running out money during retirement.

 

[Midpack]

You need at least $5.8M at 4% withdrawal rate.

Would you recommend 4% for someone at age 36...

 

[FIREd]

I am 37 and I think that your scenario is not realistic. I would personally not draw more than $80K-$90K gross per year from a $3m portfolio.

 

[RetireBy90]

One option, you could try say 1 year on say $120,000 and see how that works for you. Then you could stick with it or find a way to make the pot larger or supplement the income with something else.

 

[pb4uski]

Good for you. $230k is a lot of spending if you have no debt. Does that include income taxes or just your living costs? Are you sure you need that much?

In order to generate the returns that you want you would probably need to use leverage, which would add risk, but with a $3m portfolio some prudent leverage might not be so bad. For example, you could take $1m and invest in a handful of residential/commercial real estate properties. Assuming 70% leverage, you could buy $3.3m of income producing properties with $1m down.

The other $2m could be invested in a diversified 60% equities/40% fixed income.

Let's say the real estate earns 10%, that would be 330, less financing cost of say 2,330 at 5% of 117 for a net of 213. Then let's say that the investment portfolio has a gross return of 5.5% or 110. That would give you 323 of income or 242 after income taxes at an effective rate of 25%.

Something like that anyway.

 

[WiltonKnight]

Good for you. $230k is a lot of spending if you have no debt. Does that include income taxes or just your living costs? Are you sure you need that much?

In order to generate the returns that you want you would probably need to use leverage, which would add risk, but with a $3m portfolio some prudent leverage might not be so bad. For example, you could take $1m and invest in a handful of residential/commercial real estate properties. Assuming 70% leverage, you could buy $3.3m of income producing properties with $1m down.

The other $2m could be invested in a diversified 60% equities/40% fixed income.

Let's say the real estate earns 10%, that would be 330, less financing cost of say 2,330 at 5% of 117 for a net of 213. Then let's say that the investment portfolio has a gross return of 5.5% or 110. That would give you 323 of income or 242 after income taxes at an effective rate of 25%.

Something like that anyway.

Thanks everyone for all the responses, please keep them coming!!!

This leveraging idea is a creative one, I've not thought of that yet. The $230k income figure is GROSS income. After taxes, I'd need to clear $170k.

Thanks

 

[Amethyst]

Not sure I get your point. Taxes are expenses. When using Firecalc, I enter gross income, including the tax I/we expect to pay in retirement, as the amount we need to generate.

By the way, welcome aboard!

Amethyst

The $230k income figure is GROSS income. After taxes, I'd need to clear $170k.

Thanks

 

[WiltonKnight]

Whether it's gross or net, everyone can break it down any way.

I was just specifying, $230,000 in gross yearly income.

Could also say $170,000 in net yearly income. Same thing.

 

[Culture]

Personally, while I am sure you can get a 7.7% return, the risk to accomplish this is so high it is unlikely to be successful in the long term. Would you be happy with a 20% change of success and 80% chance of losing you nest egg (not saying that these are the exact chance of making a long-term 7.7% return, but I am sure it is much less than 100%, is most likely less than 25%.)

 

[aaronc879]

I think you should seriously consider reducing expenses to $90K/yr or less. If you don't then you'll have to work for a living

 

[WiltonKnight]

Yeah, sadly...I've been concluding that a realistic spend rate is around $105-120k per year. If it were just me, this wouldn't be a debate, I'd be retired and totally opted out of the 'system'.

It's just that, while I want to teach my kids to be good with money, I also want them to have many of the things I didn't. I don't want to deprive them of stuff just because daddy didn't want to work.

I think I will go thru with the sale of the business, just to put 'real money' into the bank.

Probably take 6 months to 12 months off, and get back into a new business, albeit with a bigger cushion in the bank.

If it wasn't for employees and customers, I'd sure love my work.

 

[GrayHare]

You've mentioned "bank" a few times. If you really are thinking of stashing all of it in a bank, note typical bank interest rates won't generate much earnings currently. You may want to allocate those funds with some diversity.

 

[Spanky]

Yeah, sadly...I've been concluding that a realistic spend rate is around $105-120k per year. If it were just me, this wouldn't be a debate, I'd be retired and totally opted out of the 'system'.

That's probably more realistic at about 4% withdrawal rate.

It's just that, while I want to teach my kids to be good with money, I also want them to have many of the things I didn't. I don't want to deprive them of stuff just because daddy didn't want to work.

A $100K+ income is definitely not deprivation.

I think I will go thru with the sale of the business, just to put 'real money' into the bank.
Probably take 6 months to 12 months off ..

It's always good to take some time off to think about what you really want to do in the future.

.. and get back into a new business, albeit with a bigger cushion in the bank.

Just curious - what kind of business?

If it wasn't for employees and customers, I'd sure love my work.

What kind of work?

Anyway, good luck!

 

[FANOFJESUS]

Thanks for ANY opinions and be blunt as possible.

Well the average family lives on 50k a year and they have debt. You are almost five times that number with no debt. You have done a great job making money that is half the battle. The other half is to be a wise spender. To be blunt your spending is at a crazy level. I am guessing 90k to 120k is a good level for many years ahead.

 

[Spanky]

Would you recommend 4% for someone at age 36...

I think 2% is better - 4% is plausible but risky.

 

[Aiming_4_55]

Congrats on the pending sale of your business.

While 230k gross is nice, do you really have working knowledge of your true needs and expenses? Don't be a Lotto winner one day and be broke in a few years.

We are a family of 4 with a SAHM, eat out, have nice things, no debt, and can live fine on less than 75k.

Maybe take some time off and get a better understanding of your expenses and create a budget.

 

[pb4uski]

Yeah, sadly...I've been concluding that a realistic spend rate is around $105-120k per year. If it were just me, this wouldn't be a debate, I'd be retired and totally opted out of the 'system'.

It's just that, while I want to teach my kids to be good with money, I also want them to have many of the things I didn't. I don't want to deprive them of stuff just because daddy didn't want to work.

I think I will go thru with the sale of the business, just to put 'real money' into the bank.

Probably take 6 months to 12 months off, and get back into a new business, albeit with a bigger cushion in the bank.

If it wasn't for employees and customers, I'd sure love my work.

Assuming that you were NOT born with a silver spoon in your mouth, I don't think your kids would be deprived at a family spending of $100-120k a year.

More importantly, Dad would be around a lot to go to sports and other activities that your kids end up doing, perhaps volunteering as a coach or whatever and that is worth a bunch in a kid's mind.

 

[Birchwood]

I will spend only about 2% of the gross asset.

As analogy, I am much older at 61 yrs old and will retire this year with a very diversified asset of about 5.6M. I do not have any big expenses and no kids to support.

I'm actually thinking of living on $5000 a month or $60,000/year, and
another $20,000 for discretionary spending like travel, etc, fun stuff.
I will stay on a budget of $80,000/year, unless I happen to trade or replace my vehicles.

Don't try to buy your kids nice stuff. Give them education and motivation to work hard, perhaps start a business on their own.

BTW, those two kids are your biggest expense, specially if you send them to college. So you should reduce your yearly expenses.

YOu can still have fun at about 90-100K/year.

 

[justplainbll]

Hello everyone, what a marvelous forum here.

I'm going to spare everyone the history and details, but feel free to ask anything. Here is my general question and quandary:

I'm 36. And while I've been rather successful in the small-business world, I've got NO college education...point being, tough to find a job.

I'm about to sell my business and here will be my financial picture:

$3,000,000 cash in bank. House paid off. Cars paid off.

Family: Wife, 4 year old, 1 baby on the way.

Lifestyle: While we NEVER lived over our means, I am kind of used to a 'nice' lifestyle, i.e. never worrying about money, nice travel, eating out, etc...and don't want to "give up" a lot of that.

(For argument's sake, I don't want to include inflation in any equation here)

I could go into another business venture, but to be honest...I'm sick of it. I'm sick of customers, employees, the government, the whole nine yards. I'd LOVE to just retire but due to lifestyle,..not sure if I can do it.

Bottom line: I need a "gross income" in retirement of $230,000 to retire.

This means, on $3 million....I'd need 7.7% annual returns.

I've got some mentors, who are very successful...telling me that it can be done.

I've got other advisors, telling me....no way.

Does 7.7% annual return seem realistic?

Thanks for ANY opinions and be blunt as possible.

Try to remain gainfully employed / establishing a new business for another 5 - 9 years. With your prior success / knowledge / experience you might well find an endeavor that's rewarding and more pleasant. Retirement at 41 or 45 is still pretty early.