Arbitrary Savings Goals

[robert]

Some time ago I set an arbitrary savings goal of $1M -- I then decided I would not be "ready" to retire until I achieved this goal. There's no rhyme or reason to my choice other than $1M sounds like a "nice round number" and it has been tossed around by many as a "good number" for retirement purposes. How many others have doggedly pursued an arbitary number -- as I have -- without really crunching the numbers to find out whether that number is sufficient (or perhaps more than you really need)? Just curious.

 

[Robert the Red]

What do you mean by 'crunching the numbers'?  In my head, I estimate I want $60K per year (pre-tax) income from my investments in retirement.  This comes from my monthly expenses (sans mortgage), then multiplying by 2 for taxes, fun, and the fact that multiplying 2 in my head is pretty easy. Using the 4% SWR as a guideline, my goal is $1.5M.  That's about the extent of my number crunching.  Pretty pitiful from an accountant's point of view, but I'm just a mathematician.

 

[SteveR]

Maybe its just me, but I believe that failing to plan before you go ER is a plan for disaster unless you are able to jump back into a job or self employment. Many that ER later in life will have a very hard time finding a job that pays what they are getting in the later stages of their career. If you fail to account for expenses and inflation over the period you are retired you may be eating cat food when you are 80.

This is not rocket science (expect for some here) so anyone can do a basic list of what you need to live on (basic living needs i.e., food, utilities, housing, medical, etc), what you want to do besides live each day (travel, hobbies, etc.) and for inflation (which will eat away at your nest egg over decades).

As many have said here, you don't have to have millions socked away to do it unless you have a need for a high cash flow to cover your lifestyle. The less you need each month to live and have fun is that much less you need to save for and the lower your "magic number."

Living on your nest egg for 30-50 years requires careful planning and thoughful execution. Major down years in the market can reduce your nest egg pretty fast and you will need to adjust expenses during these down times or go back to work. Some choose to have an "excess" in their nest egg to feel more comfortable for the long haul. Others like to fly by the seat of their pants. Choose what works for you but do so with your eyes wide open.

There are lots of folks here with good ideas and helpful information. Read as much as you can and make your own choices. Welcome to the board.

 

[unclemick]

Hmmmm

In the 1980's - had the mythical 1 mil goal - even had a chart showing 1.3 mil at age 63 in my 401k - my idea of 'early' retirement at that time.

300k(his and hers) plus a duplex at age 49 via layoff was what actually happened.

Oh well - it's always nice to have a plan.

 

[maddythebeagle]

- I dont think you should have an arbitrary number. You should have some planning including a budget.

 

[retire@40]

How many others have doggedly pursued an arbitary number -- as I have -- without really crunching the numbers to find out whether that number is sufficient (or perhaps more than you really need)?  Just curious.

I don't think many serious people here have just "picked a number."

It doesn't start with the top down, it starts with the bottom up.  IOW, first you need to determine your annual cash disbursements and then (to simplify) multiply that total by 25 to get to a total.

Ideally, you may also want to determine a "worst-case" cash disbursement scenario based on the bare essentials you need to survive.  That may include taking all the "fluff" out of your budget for things like eating out, travel, contributions to charity, gifts, etc.

When I take the "fluff" out of my budget, it reduces my annual disbursements by about $12K.  $12K is the equivalent of $300K in your spendable net worth, so you may end up with a range of $1.00mil to $1.30mil to get to the point you can be FIRE.

If you go the semi-retired route, you can reduce your total portfolio by a ratio of 25 to 1 for every net dollar that you earn.  So if you think you need $1mil to retire, you can semi-retire with much less.

 

[brewer12345]

Maybe its just me, but I believe that failing to plan before you go ER is a plan for disaster unless you are able to jump back into a job or self employment.  Many that ER later in life will have a very hard time finding a job that pays what they are getting in the later stages of their career.  If you fail to account for expenses and inflation over the period you are retired you may be eating cat food when you are 80.   

(snip lengthy rant)

Take it easy on the poor guy.  I think most of us on the younger side just try to keep plodding along as best we can with either a "magic number" or a rough idea in mind.  If you are more than 5 years away from potential ER, there is no way you can plan everything out.  There are simply too many variables that could change.  Expenses, number of family members, interest rates, asset returns, inflation outlook, etc. could be and probably will be very different by the time any of us young 'uns are even close to ER.

For the OP:

I have run the numbers and keep a very simplistic spreadsheet that I update once a year (August) that just shows a roll-forward of that year's net worth, future expected savings, and an inflation-adjusted expense requirement.  I have a rough idea of what it would take for me to check out and never work another day ($2 million would do it any time in the next 10 years), but I don't have an exact number and I don't track expenses too closely.  When I get closer to the magic time, I will sharpen my estimates.  I also may choose to pursue a different path (semi-retirement or downshifting my career), in which case I will need to get a better handle on it.  For now, at least, "hand grenade close" is good enough.

 

[justin]

I took a straight forward approach to "picking a number". I put my target nest egg amount in a spreadsheet called "goals" at the back of my net worth calculator spreadsheet. It gives me something to shoot for.

I calculated the target nest egg amount by figuring out what I'd need in retirement in today's dollars (ie - set up a retirement budget). Then multiply by 25 to get a nest egg that could support a 4% withdrawal rate. I figured out how long it would take me to accumulate that much money. Then I adjusted the nest egg amount to the future year dollars (adjust for inflation). I'm targeting $2.5 million in 2024 dollars. Nice round number. A little more than "picking a number", but it is a very crude way to set a goal. I'm sure I'll revisit the goal over time as things change.

 

[Eagle43]

Hmmmm

In the 1980's - had the mythical 1 mil goal - even had a chart showing 1.3 mil at age 63 in my 401k - my idea of 'early' retirement at that time.

300k(his and hers) plus a duplex at age 49 via layoff was what actually happened.

Oh well - it's always nice to have a plan.

Hey, the Saints have a plan every year!

 

[sailor]

DW & myself are looking for $50k yearly income in 2005 dollars.
About half of it is fluff, meaning we could cut non-essential budget to about $25k per year if the market tanked.
With 4% SWR annual $50k means 1.25 mil.

sailor

 

[Mountain_Mike]

My first "goal" was $100,000. At the time, you could get 8% interest on CDs, and I thought this would be enough to supplement my pension.

The important thing is, keep throwing as much money as you can into savings. Too much is never a problem...or a nice problem to have.

 

[Texas Proud]

This is actually an interesting questions since I am about to turn 48...

When I was 17, that is right, 17!! I decided that I needed $1 million by the time I was 55 and I could retire... I did have plans for a wife and kids which did not happen, but that is another story... I made a table of where I needed to be in savings way back when.. I have been above the line and below the line a few times, but right now I am a bit above the liine but growing faster than planned 30 years ago..

Now, I am like Robert and the $1.5 is a better number for all contingencies (well, most at least)... but, 55 is a pretty hard number for me.

 

[Mr._johngalt]

This is actually an interesting questions since I am about to turn 48...

When I was 17, that is right, 17!!  I decided that I needed $1 million by the time I was 55 and I could retire... I did have plans for a wife and kids which did not happen, but that is another story...    I made a table of where I needed to be in savings way back when.. I have been above the line and below the line a few times, but right now I am a bit above the liine but growing faster than planned 30 years ago..

Now, I am like Robert and the $1.5 is a better number for all contingencies (well, most at least)... but, 55 is a pretty hard number for me.

What a coincidence! I too decided that I needed a million by 55.
Problem was, I was 55 when I decided it

JG

 

[Jarhead*]

Hey, the Saints have a plan every year! 

Which didn't include at least a full NFL season as "visiting team".

 

[Bourne]

For us, it is $70K pre tax indexed to Jan 1 2003.(Start of a 15 yr plan). The other criteria are a paid off mortgage(can include equity in investment property) and 4.75% withdrawal rate.

We are planning on crossing the moving target around 2015 - 2018.

 

[MasterBlaster]

An amazing thing may happen when you hit your savings goal. That savings is your ace in the hole and a source of comfort.

Your attitude changes at work. Things don't bother you so much like they used to. The manager isn't an A-hole anymore (well less so anyway) he's just a guy doing his best considering the circumstances. Same with some of the difficult co-workers.

You may then find, like I did, that coming to work everyday isn't the strain that it once was. Your outlook on career and moving up the food chain changes to finding your sweet spot at MegaCorp.

Suddenly ER isn't the be-all end-all that it had been. You may decide that it'd be kinda nice to have a few extras when you actually do ER and keep working. Or you may decide to keep working and live a little larger than you had been all your life.

As for me, I've been a saver all of my life so to spend some more money now or to work for an even better retirement makes me feel quite good.

I feel like a lucky guy.

 

[retire@40]

An amazing thing may happen when you hit your savings goal. That savings is your ace in the hole and a source of great comfort.

So I guess money does buy happiness afterall.

 

[MasterBlaster]

So I guess money does buy happiness afterall

happiness isn't the right word. Perhaps the word comfort, that I used, isn't the right word either. It's more a feeling of contentment knowing that your well being and survival isn't absolutely dictated by MegaCorp anymore. That's a heckofa better feeling than being waist deep in debt and worried about paying the rent.

"It is wrong to assume that men of immense wealth are always happy" - John D. Rockefeller

 

[retire@40]

So I guess money does buy happiness afterall
happiness isn't the right word. Perhaps the word comfort, that I used, isn't the right word either. It's more a feeling of contentment knowing that your well being and survival isn't absolutely dictated by MegaCorp anymore.

Definitions of contentment on the Web:

happiness with one's situation in life
wordnet.princeton.edu/perl/webwn

 

[Nords]

So I guess money does buy happiness afterall

happiness isn't the right word. Perhaps the word comfort, that I used, isn't the right word either. It's more a feeling of contentment knowing that your well being and survival isn't absolutely dictated by MegaCorp anymore. That's a heckofa better feeling than being waist deep in debt and worried about paying the rent.

"It is wrong to assume that men of immense wealth are always happy" - John D. Rockefeller.

When you're not financially independent you may feel that you need your employer/boss-- abusive baggage and all. (It may be a prison of your own making but it seems better than the alternatives.) When you're FI, you realize that you don't need to put up with that crap anymore. It gives you a source of confidence and tolerance that you wish you'd had before.

You may never need to use your martial-arts skills to back-kick your boss through a closed door, either, but knowing that you can do it if you need to makes all the difference.

I think that other humans are attuned to pick up on that inner peace and the self-confidence that FI (or a good back kick) radiates around you. If they're intimidated by it, then they should be!

 

[FlowGirl]

Take it easy on the poor guy.  I think most of us on the younger side just try to keep plodding along as best we can with either a "magic number" or a rough idea in mind.  If you are more than 5 years away from potential ER, there is no way you can plan everything out.  There are simply too many variables that could change.  Expenses, number of family members, interest rates, asset returns, inflation outlook, etc. could be and probably will be very different by the time any of us young 'uns are even close to ER.

Exactly.  We are at least 12 years away from ER, so our  savings goal is definitely somewhat arbitrary.  Right now we live overseas, travel a lot, own no property, and have no kids.  At least a few of those factors will likely change before we retire, and then there's the stuff you mention beyond our control (like inflation and returns) that may alter our target.

2005 has been a good year for us, and for the first time we feel very comfortable with our current standard of living.  Right now maintaining that standard of living is our ER target, and it will no doubt change, but its something to shoot for in the meantime.

 

[robert]

Perhaps the point I was inartfully trying to make was that imposing an arbitrary savings goal can be a form of self-imposed tyranny, i.e., the tyranny of having to chase after the arbitrary goal. Personally, I've spent a great deal of energy trying to close in on $1M without ever really sitting down to figure out whether $1M will actually be enough (or more than enough) to fund my retirement goals. That $1M tends to hang out there on the horizon -- taunting me -- and although I am drawing closer, chasing after it is just as mind numbing as the job I am trying to escape. Maybe what I am beginning to realize is that I need to sit down and figure out whether I already “have enough” to satisfy my retirement goals. Doggedly chasing after an arbitrary goal doesn’t seem to make much sense to me anymore.

Robert

 

[mikew]

You may never need to use your martial-arts skills to back-kick your boss through a closed door, either, but knowing that you can do it if you need to makes all the difference. 

I would prefer a good choke hold. Watch him turn purple before he passes out

 

[Jay_Gatsby]

I think that other humans are attuned to pick up on that inner peace and the self-confidence that FI (or a good back kick) radiates around you.  If they're intimidated by it, then they should be!

Indeed. Being on the "receiving end" of such an attitude (not arrogance or cockiness) can be very unnerving. In fact, it's often when you walk in with the "don't give a crap" attitude, along with a healthy dose of bravado, that you get what you want (or believe you deserve).

 

[Gone4Good]

Perhaps the point I was inartfully trying to make was that imposing an arbitrary savings goal can be a form of self-imposed tyranny, i.e., the tyranny of having to chase after the arbitrary goal.  Personally, I've spent a great deal of energy trying to close in on $1M without ever really sitting down to figure out whether $1M will actually be enough (or more than enough) to fund my retirement goals.  That $1M tends to hang out there on the horizon -- taunting me -- and although I am drawing closer, chasing after it is just as mind numbing as the job I am trying to escape.  Maybe what I am beginning to realize is that I need to sit down and figure out whether I already “have enough” to satisfy my retirement goals.  Doggedly chasing after an arbitrary goal doesn’t seem to make much sense to me anymore.

Robert

Sounds like you answered your own question. How much is enough depends on your personal circumstances. If you're a good 20 years away from ER I don't know if you can plan with that much precision - who knows what your expenses will be like by then. Just save like mad, control your spending, and work toward moving ER ever closer. If you're within a few years or so you should have a good idea as to what your expenses are and you should be able to calculate whether $1 MM is enough. I agree that picking an arbitrary number is, well, arbitrary.