Questioning the 4% plan in retirement

[Gumby]

Regarding your portfolio - is the money in an after tax account or in something like an IRA where it has not yet been taxed? If it is the latter, you will need to take into account the taxes when you start drawing out. If you are single, draw $40,000 per year from an IRA, and use the standard deduction, you will pay $3041 in federal income tax, so you'll only net $36,959.

People have recommended FIRECalc http://firecalc.com/ to you. Just keep in mind that it does not do taxes for you. So you need to gross up your expenses by the amount of tax you'll pay. So, if you want to net $40 after tax for your living expenses, you need to put expenses of $43,455 into FIRECalc.

 

[HenryD]

Regarding your portfolio - is the money in an after tax account or in something like an IRA where it has not yet been taxed?

OP stated the investments are not in IRAs.

 

[HenryD]

My plan and numbers are not too dissimilar from the OPs, and FWIW I've concluded that we need to look at boats in the 150k range, rather than the 300k-400k range we'd prefer. To gain ownership and maintenance experience, we already own a 50k boat for weekends and vacations while finishing up w*rk.

Our biggest cost by far is the marina, which the OP would largely avoid, but at least that's predictable. My biggest concern is unforeseen major expenses, which can be astronomical with a boat; blown engine, wrecked in a named storm, etc. Insurance is becoming extremely expensive if it's even available to a first-time big boat owner. That's what keeps me up at night with this kind of plan, and makes living on the water much riskier than on land. OP gets that, I see. It'd be too rich for my blood is all. I need a boat we can walk away from and go back to land with our tail between our legs if we lose the whole lot.

Good luck OP. If you can make it work you'll truly be living the dream (of some of us).

 

[Gumby]

OP stated the investments are not in IRAs.

You are right. I missed that.

 

[Pablo1]

Well, the townhouse would rent without problem ,year round or the best 6 months (Winter) in South Fl for $3700-$4000. Its 2 blocks from the beach in Ft Lauderdale. I could also also sell it and live on the boat year round, but would like the 6 months to start. Living on it and cruising yr round or 6 months, would run about 4K a month all in , even $3k if I wanted( insurance, food, diesel, etc and no property tax. I don't drink and don't need any luxuries out on the water living) Regarding the boat, I could always go down to 300K for a slightly older boat with all the comforts. This isn't my 1st boat ,so most repairs I can do which is the biggest expense, not diesel, unless cruising long distances. The only multi millionaires comment is simply not true. Many couples cruise on similar sized boats, not quite the same quality of a $300 to 400k for 1/2 my cruising budget(without a bank loan) A trawler bought correct in the 45 foot range, self maintained, is not a only for multi millionaires toy. Especially in South Fla. As I mentioned before , I could consult with my 30 yrs in my field for $25/hr part time from the boat, if needed. Only internet data connection needed ,which is available these days everywhere. So, I'm flexible in all aspects. P.S. as Henry D mentioned, a blown engine would be the worst case. But I would have small diesels, 120hp each, if maintained correctly could outlive me. Worst case, rebuilding one would cost $8K. Full insurance would cover most other catastrophes. Again this isn't a yacht with large engines and a crew needed )

 

[DjBrown]

I don't think 4% withdrawal rate is reasonable at current value of "inflated" assets.

3% or below is more reasonable.

 

[Pablo1]

Something like this boat about would cost around 300k

 

[HenryD]

Something like this boat about would cost around 300k

Have you priced insurance yet? I'm in the sailboat world and I've got friends trying to buy and insure a relatively modest multihull, and having a devil of a time. They are selling their house though, and I know that insurance was much easier for us to get by going through our homeowners. Could be a major benefit of keeping the condo.

 

[pb4uski]

Well, the townhouse would rent without problem ,year round or the best 6 months (Winter) in South Fl for $3700-$4000. Its 2 blocks from the beach in Ft Lauderdale. I could also also sell it and live on the boat year round, but would like the 6 months to start. Living on it and cruising yr round or 6 months, would run about 4K a month all in , even $3k if I wanted( insurance, food, diesel, etc and no property tax. I don't drink and don't need any luxuries out on the water living) Regarding the boat, I could always go down to 300K for a slightly older boat with all the comforts. This isn't my 1st boat ,so most repairs I can do which is the biggest expense, not diesel, unless cruising long distances. The only multi millionaires comment is simply not true. Many couples cruise on similar sized boats, not quite the same quality of a $300 to 400k for 1/2 my cruising budget(without a bank loan) A trawler bought correct in the 45 foot range, self maintained, is not a only for multi millionaires toy. Especially in South Fla. As I mentioned before , I could consult with my 30 yrs in my field for $25/hr part time from the boat, if needed. Only internet data connection needed ,which is available these days everywhere. So, I'm flexible in all aspects. P.S. as Henry D mentioned, a blown engine would be the worst case. But I would have small diesels, 120hp each, if maintained correctly could outlive me. Worst case, rebuilding one would cost $8K. Full insurance would cover most other catastrophes. Again this isn't a yacht with large engines and a crew needed )

So let's say that you rented the townhouse for a year, bought a boat and lived on the boat.... what would that look like? You'd get what... $36k in rental income.... and have how much in expenses between property taxes, HOA fees, electricity, maintenance, etc?

Once you buy the boat for say, $350k you would have $1,050k left... and at 3.65% WR because you are so young that would be $38k. If you're living on a paid for boat can you live for $38k a year plus the net cash flow from the townhouse?

If so, and you like it you can just keep on doing it.

I think what I would do is run a scenario in FIRECalc of selling the condo and buying a boat and a 40 year retirement but including 75% of Social Security and calculating your maximum safe spending at 95% success using the Investigate tab. If you really believe that you can live within that safe sending then the plan should also be able to stand an initial year renting ut the townhouse and living on the boat.

 

[Pablo1]

HenryD.. Full insurance is about $3k a year staying out of the summer hurricane zone. Getting my captains license helps. For you in sailing , it would be ASA 101, 103, 104 and 114(Cats), though don't need them all, insurance companies like to see a couple completed

PB4 . I would get closer to $42 to $44K in this crazy Fla market. About 10K in taxes and HOA. Yes I could sell it, but I see the Fla market cont to go up here another 8 to 10% in South Fla this yr..then sell in 2023 maybe. Yes I could basically live off the rental income on the boat and also spend $10K of the WR( $38K) for other expenses or the unknown.. part time work if I get bored too

 

[corn18]

Like I asked earlier, assume the annual boat costs are offset by the rental income. Can you live off of $40k/year?

 

[CRLLS]

I do not see an itemized budget mentioned. Until those things are all identified, with some in there for unexpected expenses, one cannot do an analysis. I think real estate & income taxes, plus maintenance on the rental and possibly the cost of a rental manager (you will be out of country) will quickly add up and take away from that 36-40K per year. It is way too rough an estimate and too many unknowns for me to be comfortable exercising the plan as stated. I wouldn't do it. But who am to say this? Just SGOTI.

 

[viking111]

I understand the townhouse is not included in the 4% but it would generate 35k to 38K after taxes a year rented
Nothing is in tax deferred accounts. Stocks, cash and index funds
Actually the boat 42 to 45ft I like, could be bought used for 300K not 400K, would be very economical. It would be a trawler with 120hp 4 cyl diesel engines using 3 to 4 gallons an hour combined. Slow 8 knots. So if I stayed in the Bahamas for 6 months anchored out mostly between various Islands, monthly diesel costs to be around $500. Boat maintenance is the bigger expense, depending on how much one can do. (oil, filter, belt changes, general water maker and generator maintenance) A couple can live on this type of boat for $3k a month nicely. (food, diesel, internet, wash machine, air cond ,though not needed 6 months a yr in the Islands ,anchoring out, insurance and NO property tax) If fishing, diving, exploring, and nice boating community people are your thing, its a great lifestyle with most comforts of home. But that's for another forums!

I think your boat idea sound great. If I had any boat experience I would do something like that. With that said, I agree that 4% WR is a little high. I'm very conservative in my WR. I'm your age and chose a range of 3 to 3.2 WR right now. You can also consider some part time work on the off season when you are not traveling the islands.

 

[Pablo1]

I didn't know I was suppose to provide an itemized budget .. Besides the $35K-$40 from the townhouse , I can still take another $38K from WR and work part time @ $25/hr online consulting, if needed

Corn 18 ...Can I live off $40 a yr cruising fulltime? Yes. $50k to be safe, oh yes and well. No property taxes on the boat, no car expenses, no rent and fish and dive for great food. I currently have 20 lobster tail and 30 lbs of Dolphin (mahi mahi) and Grouper in my freezer from a fish/ dive trip last weekend on a friend's boat. Also you all don't take into consideration the friends and family flying out to wherever my girlfriend and I would be, to stay a few days to a week on the boat . It sleeps 6 . They already ask what they could bring/gift me in exchange for a week in paradise. Also my girlfriend teaches English online part time and could contribute to whatever, though I won't need her $$.. It's not for everyone, but if you're into adventure, putting some sweat equity into basic upkeep and maintenance, keep fit doing it, its a great lifestyle for however long one wants to do it. Ya got one shot at this life. No retakes. If its not for you, I encourage young or older FIRE people to get out there. Even buy an RV and travel at your own pace. I did that for 6 months with a friend a decade ago. Great fun across Canada and the US

 

[Pablo1]

Viking 111..You could learn so fast by taking the many boating courses avail., especially in South Fl. (online and in person). You could take a 5 day hands motor boat course learning basic maintenance, driving the boat, navigation and you would be ahead of 50% of the boaters out there in 1 week. If sailing is your thing, all the courses you want are avail (Florida). Also decent liveaboard power boats and sailboats can be bought for under $100K to cruise full time (the US and Bahamas) with monthly cruising budgets with boats under $100K under $3k a month. It can be done

 

[viking111]

Viking 111..You could learn so fast by taking the many boating courses avail., especially in South Fl. (online and in person). You could take a 5 day hands motor boat course learning basic maintenance, driving the boat, navigation and you would be ahead of 50% of the boaters out there in 1 week. If sailing is your thing, all the courses you want are avail (Florida). Also decent liveaboard power boats and sailboats can be bought for under $100K to cruise full time (the US and Bahamas) with monthly cruising budgets with boats under $100K under $3k a month. It can be done

When I was younger I lived in the Islands. Very nice. I'm going to have to look into the training courses. TY.

 

[GTP2022]

Viking 111..You could learn so fast by taking the many boating courses avail., especially in South Fl. (online and in person). You could take a 5 day hands motor boat course learning basic maintenance, driving the boat, navigation and you would be ahead of 50% of the boaters out there in 1 week. If sailing is your thing, all the courses you want are avail (Florida). Also decent liveaboard power boats and sailboats can be bought for under $100K to cruise full time (the US and Bahamas) with monthly cruising budgets with boats under $100K under $3k a month. It can be done

After reading all the Travis McGee novels decades ago I have always thought that would be a great life. I think you're on the right track. Following your dream and trying to be pragmatic about your finances.

As others have said the budget is the big one. Use firecalc.com and try a free excel budget sheet online to tighten up the numbers. You're obviously smart enough to run a business and worldly in travel in language. Why not chase that dream? Worst thing that could happen in losing the boat, busting a budget, fight with girlfriend, etc. You can always come back from that.

If you have good info on the schools-forums you mentioned private message them to me, I'd be interested to do something like that on my upcoming retirement. Which is coming up very quick.

Wish you the best on the adventure, update us as you go!

 

[youbet]

I don't think 4% withdrawal rate is reasonable at current value of "inflated" assets.

3% or below is more reasonable.

Could you elaborate on that? Since 4% worked historically, in earlier but similar periods of "inflated" assets, what are you seeing that makes that different now?

 

[Exchme]

This boat and all the attendant operating and maintenance costs are entertainment spending. If he had $4M, then spending 10% up front plus a few tens of thousands per year in operating costs and depreciation to have a cool lifestyle for a few years might be an awesome experience, but I vote "No" at this asset level. Way too much chance of destroying a lifetime of savings for a few years of living it up.

 

[Dtail]

This boat and all the attendant operating and maintenance costs are entertainment spending. If he had $4M, then spending 10% up front plus a few tens of thousands per year in operating costs and depreciation to have a cool lifestyle for a few years might be an awesome experience, but I vote "No" at this asset level. Way too much chance of destroying a lifetime of savings for a few years of living it up.

Unfortunately, I have to agree.

OP - There have been a bunch of requests to try Firecalc. Have you tried it yet?

 

[Music Lover]

Theoretically your rental income will offset the cost of living on the boat. And it's not like you can't change your mind or adjust your spending if things don't work out as planned. Worst case scenario you have to sell the boat in a few years if it doesn't work out.

If it does work out then you're living the dream.

 

[pb4uski]

Could you elaborate on that? Since 4% worked historically, in earlier but similar periods of "inflated" assets, what are you seeing that makes that different now?

I read what he wrote to mean that near term SORR is higher because of unusually high stock valuations based on P/Es so a lower WR would be prudent... and I think it is a fair point.

 

[pb4uski]

Unfortunately, I have to agree.



OP - There have been a bunch of requests to try Firecalc. Have you tried it yet?

+1. I suspect that once he includes SS... or even 75% of SS... that he'll find that his safe spending at 95% success will be more than what he plans to spend... but he needs to do some number crunching. We have no idea what he AA is either and if it is too conservative that could impact success rate too.

 

[Stashu]

I wouldn’t risk it yet. I own a boat and the acronym BOAT for Break Out Another Thousand seems to apply to boats much less expensive than $400K. I’d be counting on breaking out another ten thousand, when it come to a boat of that size.

 

[rodi]

Only you can decide if you are comfortable with your numbers. People have retired with less... This tends to be a conservative crowd.

But... you should understand some stuff. The 4% rule is not a "rule"... but refers to a study done that showed a nest egg (investible assets, NOT net worth) could support a 4% plus inflation adjustments for 95% of the cases for 30 years. 5% of the cases failed. Some things to note about this - 30 years is probably shorter than you need. The 4% is inclusive of ALL expenses - that includes healthcare, taxes, the periodic new car or boat repair.... It assumes a mix of equities and fixed income. If you're all in cash, the failure rate is a lot higher.

You're pretty close to the edge... but if you are flexible if the market takes a downturn... being willing to cut back on expenses, go back to work, or some combo of that, then it's probably ok. Only you know what the bare minimum of your spending is and what your tolerance for work is.

I'm never one to discourage retiring early... But if you decide to do it know your numbers are not ok by the 4% rule... you're a bit short for that.