How much is enough?

[TimSF]

For me, 25 - 30x expenses + a paid-off home in an area I was happy living + some modest ability to generate a little part-time income doing stuff I like.

 

[kcowan]

about 40x annual spending

Sounds like you know you have enough. You just need to convince your wife.
<snip>debt free with a NW (exclude house) of 36X expenses and a plan WR of 2.6%. ..

Even with a 45-year time horizon, FIRECalc gives a 100% success rate for 35X, which equates to a WR of 2.9%

40X annual income are quick rules of thumb....

then our 35x will be over 40x..

Sounds like you have the right range in your ROT so it is now a matter of salesmanship!

 

[Big_Hitter]

about 40x annual spending

agreed for 40s retirement - mid-50s retirement I could live with 25x-30x

 

[dayzero]

zeroday rule of thumb

Here is the zeroday "FIRE rule of thumb":

Calculate X - average yearly expenses for the rest of your life in present dollars.
Calculate Y - any large one-time future expenses in present dollars (e.g. college).

FIRENW = X * (85 - age) + Y

Example: 60 year old, $60k budget, wants to buy a $100k sailboat in a few years.

60k * 25 + 100k = $1.6M

Example: 42 years old, $100k budget, one kid to put through college ($200k)

100k * 42 + 200k = $4.5M

For the purposes of this simple rule of thumb, FIRENW includes house equity.

 

[ERD50]

Here is the zeroday "FIRE rule of thumb":

Calculate X - average yearly expenses for the rest of your life in present dollars.
Calculate Y - any large one-time future expenses in present dollars (e.g. college).

FIRENW = X * (85 - age) + Y

Example: 60 year old, $60k budget, wants to buy a $100k sailboat in a few years.

60k * 25 + 100k = $1.6M

Example: 42 years old, $100k budget, one kid to put through college ($200k)

100k * 42 + 200k = $4.5M

For the purposes of this simple rule of thumb, FIRENW includes house equity.

So at age 86, I can spend as much as I want? I don't need any networth, or even negative networth is OK? Or the more I have, the worse I am because it becomes negative? I don't understand what your formulas represent. Looks like the NW I would need to support these expenses?

FIRENW = (average yearly expenses) * (85 - age) + (any large one-time future expenses)

so for $60K budget and no special expenses:

$60K * (-1) + $0 = -$60K I can be in debt and be OK ?

or $60K budget and a $150K one time expense:

$60K * (-1) + $150K = $90K I can buy the $150K RV with only $90K?

I like how it works, but I don't think it does work.

And by the way, for a couple at age 60, there is a 66% chance one of them will make it to age 86. That will probably be DW. Wow, I'm gonna have fun spending all this money, but DW might not be so happy one day!

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

-ERD50

 

[FI_RElater]

Zero

I don't see why it would include home equity-- it should only be investable assets: those you can live off of in retirement

The number may also be somewhat low in that you only go to 85, whereas a portion of the retirees live beyond that timeframe. (Suggest that you add about ten years-- that would give your guideline about the right level of conservative estimation relative to survivorship and SWR estimates)

{I use 3.5% SWR and 2% inflation in prior planning// now retired }

 

[Blue Collar Guy]

Here is the zeroday "FIRE rule of thumb":

Calculate X - average yearly expenses for the rest of your life in present dollars.
Calculate Y - any large one-time future expenses in present dollars (e.g. college).

FIRENW = X * (85 - age) + Y

Example: 60 year old, $60k budget, wants to buy a $100k sailboat in a few years.

60k * 25 + 100k = $1.6M

Example: 42 years old, $100k budget, one kid to put through college ($200k)

100k * 42 + 200k = $4.5M

For the purposes of this simple rule of thumb, FIRENW includes house equity.

Glad this wasnt a question on my job exam, I would still be pumping gas.

 

[dayzero]

So at age 86, I can spend as much as I want? I don't need any networth, or even negative networth is OK? Or the more I have, the worse I am because it becomes negative? I don't understand what your formulas represent. Looks like the NW I would need to support these expenses?

FIRENW = (average yearly expenses) * (85 - age) + (any large one-time future expenses)

so for $60K budget and no special expenses:

$60K * (-1) + $0 = -$60K I can be in debt and be OK ?

or $60K budget and a $150K one time expense:

$60K * (-1) + $150K = $90K I can buy the $150K RV with only $90K?

I like how it works, but I don't think it does work.

And by the way, for a couple at age 60, there is a 66% chance one of them will make it to age 86. That will probably be DW. Wow, I'm gonna have fun spending all this money, but DW might not be so happy one day!

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

-ERD50

You can make up your own rule of thumb for 86 year olds and older. Mine is for people considering early retirement.

 

[mpeirce]

Something to consider is paying for kids college.

I FIREd at 49 with a son almost ready for college. We set aside money for this - it was still "our" money, but it wasn't part of our net worth that we used to calculate what we could spend.

This has worked well for us. He's now in grad school and those expenses are completely accounted for.

 

[dayzero]

Zero

I don't see why it would include home equity-- it should only be investable assets: those you can live off of in retirement

The number may also be somewhat low in that you only go to 85, whereas a portion of the retirees live beyond that timeframe. (Suggest that you add about ten years-- that would give your guideline about the right level of conservative estimation relative to survivorship and SWR estimates)

{I use 3.5% SWR and 2% inflation in prior planning// now retired }

Because it is a "rule of thumb", including home equity is a simple way to account for people in different housing situations (rent vs own, HCOL area vs LCOL). The FIRE decision for someone with $2.5M portfolio + $500k house should be identical to someone with $3M portfolio and zero house. The situations are essentially fungible.

 

[Luck_Club]

Way too conservative IMO... plus, what is "passive income"... just interest and dividends or interest, dividends and capital gains?

Aren't pensions, Social Security, royalties, licencing fees and rents also passive income? I think capital gains require active gambling to harvest and repeat successfully.

I need passive income to feel comfortable. Others may not need that level of security and feel comfortable eroding savings.

 

[Niuatoputapu]

zeroday - thank you for offering your formula.

Here is the zeroday "FIRE rule of thumb":

FIRENW = X * (85 - age) + Y


For the purposes of this simple rule of thumb, FIRENW includes house equity.

I was trying to put to formula my own thinking and I arrived at the more aggressive,

X * (75 - age) +Y (excluding house equity) as being valid for RE age 55 to 65, noting that before age 55, one might want more cushion.

X * (85 - age) + Y seems to be reasonable advice to the 45 year olds and younger, but those of us closer to FRA should be able to work with (75 - age) * Annual expenses.

FYI, I FIRED at 58 with about 17 times annual expenses in investments, so I sure hopes it works. Being closer to SS than a 45-y-o provides me additional comfort.

 

[Helena]

.

How much is enough largely depends on your lifestyle and your priorities.

Those who retire in a less expensive part of the country, with a paid off house, zero debt and a thrifty mentality and lifestyle can retire on much less than the average American.

I was a single working mom most of my life who thank God managed to retire at age 55. Now 10 years later, my nest egg is much larger than when I retired. If I can do it, anyone can.

.

 

[pb4uski]

....I think capital gains require active gambling to harvest and repeat successfully...

.... I need passive income to feel comfortable. Others may not need that level of security and feel comfortable eroding savings.

Huh? Then you need to learn more about capital gains. Also the difference between investing and gambling.... big difference. It is very possible to invest and not erode savings.... there are many people on this forum who have been living off of their retirement savings for many years and have more now than when they retired even though their spending exceeds their passive income. I seem to recall a poll on that recently.

If your passive income exceeds your spending as you suggest then it is very likely that you worked longer than you really needed to.... not for me!

 

[Car-Guy]

Also the difference between investing and gambling.... big difference.

Depending on what someone is investing in, I'd agree with that.

 

[Perryinva]

Huh?.......
If your passive income exceeds your spending as you suggest then it is very likely that you worked longer than you really needed to.... not for me!

I don't think that is true, unless one includes saving as part of spending, which is not normally. I think most everyone would agree that one can not stop working until there is a definite level of savings that must be achieved unless passive guaranteed income greatly exceeds the cost to live. Naturally, just as Firecalc demonstrates it takes far more savings to FI if one is not invested and only reducing inflation with safe vehicles, like TIPS, CDs, bank accounts etc. I certainly disagree that FI is only when ones passive income meets their living expenses. Savings and passive income are loosely interdependent. Certainly the more passive income, the less needed to save, and the more savings, the less passive income needed, but as always, YMMV.

DW was quite upset when I told her we would always be 50% equities after retirement, at least until a point where it was obvious that our money would far outlive us. She thinks that is way too risky in retirement. The idea of long term money and short term money is not reasonable to her. She HATES investing. As did my parents, and all my siblings. It takes more than an education about dividends, LTCGs, etc, etc to make one a comfortable invester. I dare say that the vast majority of Americans are not comfortable investing. My passive income (pensions and SS) right now exceeds what I need to live. And I have a modest investable NW of about 1M. But until the two combined total with a reasonable SWR gives me a number that I know will take care of 95% of possibilities of meltdowns, inflation, out of the oridinary health costs, luxuries etc, etc, I would not feel right RE. Since I enjoy my work to a large extent, the 2-3 extra years I am not ERd do not bother me...much. ;-). Some of us just do not want to shoulder the risk for FIRE, regarless of a 95% thumbs up from Firecalc. I'm watching my brother continue down a ( very legal but financially irresponsible IMHO) path that will likely destroy any chance of a comfortable stress free, financially secure retirement because he is convinced the risk is worth the payoff. But if he's wrong, he will never recover. To me, no amount of reward is worth that.

 

[timemoveson]

Seems like a reasonable guideline but in practice this is not really that concrete for a 40 year old.

The issue is that many retirement expenses are backloaded into old age. Especially medical and long term care. At 40, you might spend nothing more than premiums.

Re: passive income and Enough

I would offer the alternative view that if you can position your capital base as neutral-inflation (as a minimum objective) using equities and real estate (for example), this formula leads to a perpetual state of "enough" and a very high degree of risk mitigation.

It is essentially exactly what perpetual funds and their institutions set out to do, successfully. It is what I am doing.

 

[traineeinvestor]

Re: passive income and Enough

I would offer the alternative view that if you can position your capital base as neutral-inflation (as a minimum objective) using equities and real estate (for example), this formula leads to a perpetual state of "enough" and a very high degree of risk mitigation.

It is essentially exactly what perpetual funds and their institutions set out to do, successfully. It is what I am doing.

That's a nice way of expressing it.:cool smiley:

An alternative: enough is when you sleep well at night

 

[Another Reader]

Diversified passive income for the win! Pensions, Social Security, inherited IRA's and rental real estate. 30 percent haircut in SS? No problem. CalPERS goes bankrupt? Big deal. Stock market tanks 50 percent? RMD's go down and I won't pay off the mortgages as quickly.

Oddly, I still stress over money, probably because of the somewhat lumpy cash flow. But if I step back and look at the big picture, things are just fine.

 

[pb4uski]

I don't think that is true, unless one includes saving as part of spending, which is not normally. I think most everyone would agree that one can not stop working until there is a definite level of savings that must be achieved unless passive guaranteed income greatly exceeds the cost to live. Naturally, just as Firecalc demonstrates it takes far more savings to FI if one is not invested and only reducing inflation with safe vehicles, like TIPS, CDs, bank accounts etc. I certainly disagree that FI is only when ones passive income meets their living expenses. Savings and passive income are loosely interdependent. Certainly the more passive income, the less needed to save, and the more savings, the less passive income needed, but as always, YMMV.

DW was quite upset when I told her we would always be 50% equities after retirement, at least until a point where it was obvious that our money would far outlive us. She thinks that is way too risky in retirement. The idea of long term money and short term money is not reasonable to her. She HATES investing. As did my parents, and all my siblings. It takes more than an education about dividends, LTCGs, etc, etc to make one a comfortable invester. I dare say that the vast majority of Americans are not comfortable investing. My passive income (pensions and SS) right now exceeds what I need to live. And I have a modest investable NW of about 1M. But until the two combined total with a reasonable SWR gives me a number that I know will take care of 95% of possibilities of meltdowns, inflation, out of the oridinary health costs, luxuries etc, etc, I would not feel right RE. Since I enjoy my work to a large extent, the 2-3 extra years I am not ERd do not bother me...much. ;-). Some of us just do not want to shoulder the risk for FIRE, regarless of a 95% thumbs up from Firecalc. I'm watching my brother continue down a ( very legal but financially irresponsible IMHO) path that will likely destroy any chance of a comfortable stress free, financially secure retirement because he is convinced the risk is worth the payoff. But if he's wrong, he will never recover. To me, no amount of reward is worth that.

IMO, people who insist on either 1) living totally off passive income (let's say interest, dividends, pensions and SS) or 2) never dipping into principal are irrationally fearful. My point is that one can have a prudent plan long before going to such extremes. Consider this quote from a Vanguard research piece:

Many investors focus on the yield or income generated from their investments as the foundation for what they have available to spend. The higher the portfolio’s yield, the more the investor can potentially spend. The challenge today, and going forward, is that yields for most investments are historically low, and both yields and returns for traditional income investments are forecasted to remain low for the next several years.

As a result, income-oriented investors have three broad choices: (1) spend less; (2) reallocate their portfolios to higher yielding investments; or (3) spend from total returns instead of income alone. Given that spending less is generally not a desirable option for most investors, this paper focuses instead on the second and third options. We conclude that moving from an income or “yield” focus to a total-return approach may be the better solution.

For those not yet retired who are not willing to spend less then insisting on an income or yield approach equates to working longer.

Or put another way, it is very functional to be reasonably prudent and conservtive (as I think I am and Vanguard is) but it is dysfunctional to be uber-conservative and in my opinion, and that of most knowledable planners, to insist that you never touch principal and have passive income sufficient to cover spending is irrationally conservative.

In my case, I have invested since I was in my early-20s... so for 40 years... and have seen a lot of ups and downs and am comfortable with the potential volatility of a 60/35/5 portfolio. I also spent my career in accounting and finance and tend to look at these things rationally and not emotionally.

Besides, I save that money for my retirement, why would i now desiced that I am unwilling to spend it on my retirement?

 

[pjigar]

It's matter of personal preferences. We need perpetual portfolio for my heirs so spending yield is the only prudent way.

 

[Another Reader]

"IMO, people who insist on either 1) living totally off passive income (let's say interest, dividends, pensions and SS) or 2) never dipping into principal are irrationally fearful....

...Or put another way, it is very functional to be reasonably prudent and conservtive (as I think I am and Vanguard is) but it is dysfunctional to be uber-conservative and in my opinion, and that of most knowledable planners, to insist that you never touch principal and have passive income sufficient to cover spending is irrationally conservative."

If you buy well priced income real estate, it will produce higher cash yields and benefit from preferential tax treatment. You can get to where you are comfortable a lot faster if you have the stomach for it. Irrationally conservative? The paper asset markets did not exist 150 years ago, and it's only the last 50 years or so that individuals have participated in them in any meaningful way. I got out in 2007 at 53, just before the stock market and the real estate market crashed and have had no problems. Looking back, I probably could have done it a lot earlier.

 

[bradaz2488]

+1 pb4uski

I would have never ER'ed at 49 if the requirement was to have enough passive income to replace our living expenses. I'm very comfortable with our ER plan and made sure there is flexibility and buffer to mitigate possible risks. I do not understand why it is so impotent to preserve principle unless you want to leave a lot of money to your heirs. We plan to spend our principle down to 50% of starting value (today's $). This give us the buffer I need to sleep at night. We will receive no pensions and I assume no SS benefits as well. BTW: For people not making a average return rate of WR+CPI are actually spending their principle even if the total net egg is higher then when they retired. Inflation is a slow erosion factor over time.

 

[Danmar]

Many people are very conservative. When I see people posting of 1-2% WR's it seems overly conservative to me. I often wonder if they understand they are very likely to leave a large legacy, and if this is part of their plan.

I retired about 11 years ago and since then have generally only spent divs and pensions( excluding some large incentive comp cashouts). My current yield is about 3.5% on my portfolio. I have recently started liquidating small amounts of principal which will bring my WR to about 4.25%. If the market declines I will suspend liquidations, My portfolio has increased quite a bit since retiring.

Seems to me the amount you need will depend upon how badly you want to retire. This will depend on many things such as your age, how you view your job, how much comp you would be giving up, health of you and any partner, age of kids, hobbies, how much you would need to spend in retirement and whether you would like to spend more if you could, etc. The conventional wisdom would suggest a WR in the 3-4% range will work for most fairly conservative portfolios. Very personal decision that only you can answer. You should feel lucky you are in a position to ask this question.

 

[mpeirce]

BTW: For people not making a average return rate of WR+CPI are actually spending their principle even if the total net egg is higher then when they retired. Inflation is a slow erosion factor over time.

To each his own, but...

It seems to me folks who focus on preserving principal are often over looking other types of risk. Primarily inflation.

Everyone picks the risks they are most comfortable with, but thinking you are avoiding all risks is unfounded.