How much is enough?

[rayvt]

Enough is when passive income exceeds active spending without touching the principal.

This is so silly...it's meaningless for stocks.

In a stock investment, what does "principal" even mean?
A stock isn't a bond, where they will pay you the face value when it matures.

If you buy $10,000 worth of a stock and later on it is worth $20,000, what is your "principal"? $10,000? or $20,000?

 

[ERD50]

This is so silly...it's meaningless for stocks.

In a stock investment, what does "principal" even mean?
A stock isn't a bond, where they will pay you the face value when it matures.

If you buy $10,000 worth of a stock and later on it is worth $20,000, what is your "principal"? $10,000? or $20,000?

And dividends are really only return of principal. They aren't some magic 'extra money' that came from nowhere, or all anyone would want to own are heavy div payers!

-ERD50

 

[Perryinva]

Let's not be obtuse. For this discussion, principal refers to the amount one started with at FI and/or ER. It means ending with the same amount, either adjusted for inflation, or not, based on ones definition, when they or both spouses are dead. Everything is just a plan. It has to be, because no one really knows their expiration date. I certainly plan on spending most of my principal.

 

[ERD50]

Let's not be obtuse. For this discussion, principal refers to the amount one started with at FI and/or ER. It means ending with the same amount, either adjusted for inflation, or not, based on ones definition, when they or both spouses are dead. Everything is just a plan. It has to be, because no one really knows their expiration date. I certainly plan on spending most of my principal.

What's your plan? Unless it includes a large % of annuities, it seems like a tough thing to do. Maybe you found another way?

-ERD50

 

[dallas27]

And dividends are really only return of principal. They aren't some magic 'extra money' that came from nowhere, or all anyone would want to own are heavy div payers!



-ERD50

Or they are loans/issuances based on suppressed corporate borrowing rates.

 

[Perryinva]

What's your plan? Unless it includes a large % of annuities, it seems like a tough thing to do. Maybe you found another way?

-ERD50

No, no other way. High percentage of annuities. I will not be very RE (61/62) despite being FI for a few years already, simply with decent annuities in pensions and SS. They more than cover non- discretionary costs, and at retirement will equal about 2/3s of working gross. If my $1M+ savings totally disappeared at age 70, it would mean less luxury travel and luxuries in general, actually no hardship. But with everything paid for, actual living expenses (taxes, utilities, food, commodities, insurance etc) only total $40k/yr and just our SS covers all that easily. So our pensions which total more than that cover emergency funding and smaller luxuries. I have no required SWR. RMDs will simply transfer pre tax to after tax savings, another reason I want take advantage of fungibility to delay SS. I like a higher fixed income more than having to deal with the uncertainties of investing the rest of my life. I'd rather have $5-10k/yr less if it was guaranteed than the possibility of it being here based on market performance, especially as I age. I also have to consider that DW can not invest and has no interest in learning to invest. If I leave $200k as a min, I am fine with that.

 

[pb4uski]

Or they are loans/issuances based on suppressed corporate borrowing rates.

Daft response.

 

[LARS]

Daft response.

Not daft at all. Many corporations have been borrowing at these generational low interest levels and using the money through share buybacks to shrink shareholder base thus influencing dividend payments/policies and more importantly share price/appreciation.

Again not daft at all...

 

[pb4uski]

Re-read what I was responding to... it was suggesting that dividends were loans based on low interest rates.... essentially that corporations were using borrowed money to pay dividends.... I'll bet that in the vast majority of cases that cash flow from operations exceed dividends.

 

[dallas27]

Daft response.

Not sure why you would take my one-liner comedic commentary on the historically unique state of buybacks and dividends as a personal affront to your sensibilities, but I shall acquiesce. Good day.

 

[MichaelB]

Daft response.

Maybe time to brush up on your Dale Carnegie? https://www.amazon.com/How-Win-Friends-Influence-People/dp/0671027034/ref=asap_bc?ie=UTF8

 

[CaliKid]

Back to the topic I still don't have the elusive answer!

 

[pb4uski]

Not sure why you would take my one-liner comedic commentary on the historically unique state of buybacks and dividends as a personal affront to your sensibilities, but I shall acquiesce. Good day.

I didn't take it personally at all... it just wasn't at all funny to me. Keep trying.

 

[daylatedollarshort]

Back to the topic I still don't have the elusive answer!

Can you downshift first - take on a partner or hire someone to replace you at your business and then reduce your hours over time? Or sell the business and do consulting work?

 

[ERD50]

No, no other way. High percentage of annuities. I will not be very RE (61/62) despite being FI for a few years already, simply with decent annuities in pensions and SS. They more than cover non- discretionary costs, and at retirement will equal about 2/3s of working gross. If my $1M+ savings totally disappeared at age 70, it would mean less luxury travel and luxuries in general, actually no hardship. But with everything paid for, actual living expenses (taxes, utilities, food, commodities, insurance etc) only total $40k/yr and just our SS covers all that easily. So our pensions which total more than that cover emergency funding and smaller luxuries. I have no required SWR. RMDs will simply transfer pre tax to after tax savings, another reason I want take advantage of fungibility to delay SS. I like a higher fixed income more than having to deal with the uncertainties of investing the rest of my life. I'd rather have $5-10k/yr less if it was guaranteed than the possibility of it being here based on market performance, especially as I age. I also have to consider that DW can not invest and has no interest in learning to invest. If I leave $200k as a min, I am fine with that.

OK, with a big chunk of annuities, and spending covered by SS and pensions, you've got a plan. The annuities would be 'second-to-die', to protect each of you, right? Also need to consider the drop in SS and/or pension if one passes, and higher tax rates as a single, but you've probably already thought that through.

-ERD50

 

[RetireAge50]

Www mn

 

[CaliKid]

Can you downshift first - take on a partner or hire someone to replace you at your business and then reduce your hours over time? Or sell the business and do consulting work?

That's what I have been doing the last year or so. It's gone ok but I would like to downshift a lot more. For the moment this is the plan though. Looking at consulting options to see if I can find something that fits my needs even better.

 

[IrishMoss]

In reading a bunch of different posts across the forum, I'm struck by how little $$$ by comparison I have and consider myself now "FI." Right now I have $950K investable assets (I don't include the equity I have in my house).

I determined I reached FI because a SWR of 4% on average, over a span of 35 years, as confirmed by several retirement calculators and FIREcalc, will pay for all my current and anticipated expenses pre and post receiving social security. I am counting on receiving my SS at age 67 and that's part of my calculation. I have no heirs or dependents so it's just me. There will be an inheritance I receive, but I'm not counting that in my calculations.

Yet I see some people in their 50's biting their nails with $1.3M or more in investments, not counting their house, no debt, some not even counting SS, and wondering if they can make a go of it and quit their job. Seriously?

The very definition of "FI" is that the income/dividends earned from investments along with a 4% SWR or less, per the Trinity Study, will fully cover one's expenses. I suppose if someone is planning on a more luxorious retirement, above their current lifestyle, that FI number will necessitate being higher.

If you have $1M in investments and you can easily live on $40K/year on average, and you're going to get SS benefits, then I'd say you are "FI" even if you don't think you are.

 

[CaliKid]

In reading a bunch of different posts across the forum, I'm struck by how little $$$ by comparison I have and consider myself now "FI." Right now I have $950K investable assets (I don't include the equity I have in my house).

I determined I reached FI because a SWR of 4% on average, over a span of 35 years, as confirmed by several retirement calculators and FIREcalc, will pay for all my current and anticipated expenses pre and post receiving social security. I am counting on receiving my SS at age 67 and that's part of my calculation. I have no heirs or dependents so it's just me. There will be an inheritance I receive, but I'm not counting that in my calculations.

Yet I see some people in their 50's biting their nails with $1.3M or more in investments, not counting their house, no debt, some not even counting SS, and wondering if they can make a go of it and quit their job. Seriously?

The very definition of "FI" is that the income/dividends earned from investments along with a 4% SWR or less, per the Trinity Study, will fully cover one's expenses. I suppose if someone is planning on a more luxorious retirement, above their current lifestyle, that FI number will necessitate being higher.

If you have $1M in investments and you can easily live on $40K/year on average, and you're going to get SS benefits, then I'd say you are "FI" even if you don't think you are.

The "problem" with a higher income is a lot of us spend too much. I am not seeking sympathy but just stating a reality. So if one makes $500k+ a year for a long time but only saves $50k a year they can run into a "problem" if they want to continue their same, or similar, lifestyle in retirement.

 

[2017ish]

...

Yet I see some people in their 50's biting their nails with $1.3M or more in investments, not counting their house, no debt, some not even counting SS, and wondering if they can make a go of it and quit their job. Seriously? hah, you just described me, sans the nail biting!

The very definition of "FI" is that the income/dividends earned from investments along with a 4% SWR or less, per the Trinity Study, will fully cover one's expenses. I suppose if someone is planning on a more luxorious retirement, above their current lifestyle, that FI number will necessitate being higher.

If you have $1M in investments and you can easily live on $40K/year on average, and you're going to get SS benefits, then I'd say you are "FI" even if you don't think you are.

The Trinity study is backwards looking and a useful indicator. It is not definitive.

Otherwise, as you allude, it all depends upon your desired spend rate. We desire to spend a lot more than 40,000 a year; indeed, we are planning on about double our pre-retirement spending (stripped of savings and taxes)--and are planning on DW living to 105 ... So yeah, $1,000,000 for us wasn't going to cut it and it isn't as if we hated our careers; thus, we are retiring at 57 & 56, rather than really early. For others, it easily will suffice.

 

[IrishMoss]

The "problem" with a higher income is a lot of us spend too much. I am not seeking sympathy but just stating a reality. So if one makes $500k+ a year for a long time but only saves $50k a year they can run into a "problem" if they want to continue their same, or similar, lifestyle in retirement.

Right, then the FI amount is by necessity higher. I put a qualifier in my post that if someone has $1M in assets (not including house) AND can live on $40K per year today, then that meets the classic definition of being FI. That's just one example. And yes I know nothing in life is guaranteed and 4% SWR may still seem too risky despite the studies done.

I calculated and confirmed through various retirement calculators that I can actually withdraw 4.5% until I reach full SS age of 67 in 10 years, then will be able to drop down to a withdrawal rate of 3% with estimated SS and not run out of money before I run out of time. I can spend all my money down since I don't have any heirs.

I agree for 2 people, more than $1M is likely needed. The ones I saw stressing out though were not part of a couple, but single people, like myself, who aren't supporting anyone else and already have way more than $1M in investable assets. I'm talking assets like $1.5M and above and not living in cities like NY/SF/LA. I say, with those kinds of assets there's no reason to stress out.

 

[daylatedollarshort]

The "problem" with a higher income is a lot of us spend too much. I am not seeking sympathy but just stating a reality. So if one makes $500k+ a year for a long time but only saves $50k a year they can run into a "problem" if they want to continue their same, or similar, lifestyle in retirement.

That was one of the points in the Millionaire Next Door book. Thomas Stanley's blog had many posts on income statement affluent vs balance sheet affluent. Our path to being FI was not by saving more money but by optimizing our expenses.

 

[IrishMoss]

That was one of the points in the Millionaire Next Door book. Thomas Stanley's blog had many posts on income statement affluent vs balance sheet affluent. Our path to being FI was not by saving more money but by optimizing our expenses.

Controlling expenses and maximizing savings & investments are powerful when combined. I cut various expenses (like cable TV and my expensive monthly cell plan for a prepaid one) and it wasn't a sacrifice, it allowed me to invest those extra monies instead. MMM (Mr. Money Mustache) talks about trimming expenses as being super powerful because once you no longer have a certain expense you won't need to cover it in the future. But everyone has their own standard of living and their own journey to FI and that's fine.

It's the "how much is enough" that is an interesting topic to me. The definition of 'enough' seems to not follow the standard/classic definition of FI but is more supersized, requiring a SWR under 3%, not counting SS, a longer time frame for retirement than living to age 95 - 97. At that level I don't think I'd ever get to retirement.

 

[daylatedollarshort]

Controlling expenses and maximizing savings & investments are powerful when combined. I cut various expenses (like cable TV and my expensive monthly cell plan for a prepaid one) and it wasn't a sacrifice, it allowed me to invest those extra monies instead. MMM (Mr. Money Mustache) talks about trimming expenses as being super powerful because once you no longer have a certain expense you won't need to cover it in the future. But everyone has their own standard of living and their own journey to FI and that's fine.

We were savers most of our lives as well, but realized at one point that cutting $10K a year off our budget for 50 years meant needing $500K less in total retirement funding and had more of an impact than working one more year and saving even an extra $100K.

 

[IrishMoss]

We were savers most of our lives as well, but realized at one point that cutting $10K a year off our budget for 50 years meant needing $500K less in total retirement funding and had more of an impact than working one more year and saving even an extra $100K.

Cutting $10K/year off and investing that money instead will net you far more than $500K in 50 years through the magic of compounding, but yes, point taken!