Planning to die broke

[FlogBlogger]

Let's say I've decided my nest egg of $500k, 49 years in the making, need only last me until the age of 70, when whatever remains of social security, pension, Medicare and 401K will see me to the end. With a few simple assumptions plugged in a calculator (http://www.planningtips.com/cgi-bin/retire.pl) …3.5% inflation and 8% returns, I can expect that egg to produce $36k in pre-tax income to carry me through the next 21 years of ER, adjusted annually for inflation. With no mortgage, dependents or health issues, this seems a reasonable set of terms on which to pull the trigger and submit my resignation from the j-o-b. Anything wrong with this plan?

PS: Love this board!

 

[CybrMike]

Seems like your making a lot of assumptions. 8% for starters, would scare me. Most people are saying 5 - 7% at the moment.

 

[Mr._johngalt]

Anything wrong with this plan?

Nope!

JG

 

[JPatrick]

Same thought as Cybr-mike.
The 8% could be tough, plus factor in,  a not impossible,  25%decline your first year out and you are totally screwed the rest of the way.
You say no health issues. Does that mean your insurance is covered??
Welcome to the board.

 

[FlogBlogger]

Nice to be a-board.

"No health issues" means I'm fit and without any chronic complaints, and a low-premium catastrophic policy, coupled with an HSA, is within budget. I wouldn't be averse to seeking low-cost care across the border, either.

You say 8% ROI is high? Many relatively-conservative indexed funds are hitting that mark, and a stop-loss would preclude drastic declines in portfolio value.

Wish I was as confident as I sound.

 

[JPatrick]

I haven't run the numbers, but from here I notice a couple of issues.
I think 500K may be a little light to provide 36K unless you start pushing an 8% withdrawal rate.  That's risky.  Your 8% return stands up if you look at historical returns.  Nonetheless, I'd recommend you not exceed 6% for planning purposes.  Don't get fixed on the past returns of some hot index like an extended index, cause you may want to be a little less aggressive in the later years.  

 

[FlogBlogger]

"I think 500K may be a little light to provide 36K unless you start pushing an 8% withdrawal rate."

I'm aware of the 4% rule, which assumes preservation of capital. My numbers, however, assume a declining nest egg that would take me to $0 in 21 years. $500k with 3.5% inflation and 8% return provides $36k/year.

 

[Rustic23]

My calculations have you going broke in 20 - 22 years. If inflation is 4% and you get 8% return it is 20 years. 3.5% inflation and 8% 22 years. That as someone said does not account for a few years at -2% or worse in the first couple of years. Inflation moves your $35000 required in year 1 to around $73,000 in 20 years at (4%). If you are really expect $35,000 in expences each year and need that much to make this work, I think you will be working again. If you can adjust your spending in the lean years this might work.

 

[FlogBlogger]

"If you are really expect $35,000 in expences each year and need that much to make this work, I think you will be working again."

...and that's the $35,000 question. FIREs can budget and run numbers until the cows come home, yet reality has a way of sidestepping expectations. That is the risk we're all faced with, and to some extent it is clearly a matter of psychology as to whether one feels this set of numbers provides the requisite safety margin over that set.

With so many unpredictables I find it's simpler to budget down to $0 than to some "safe" amount.

 

[haha]

Go for it man. You can join our list of coal mine canaries. Can't have too many of those!

Ha

 

[Zipper]

Choose a % you want to withdraw ( 5%, 6%, 7%, 8%) and take it from your portfolio balance each December 31.

First year 8% of $500 000 is $40 000.

If you have a bad year and your balance next year is $400 000 then you take $32 000.

If you had a good year and the December 31 balance is $600 000 then take $48 000.

Keep a 60/40 balance and you will be fine.

I've been doing this since 1997, and using 5%.

I'm now 62, and expect to last much longer than 70.

 

[cute fuzzy bunny]

I think you might find yourself a little disappointed when you hit 70 and social security isnt paying squat, your pension "went away" and medicare isnt paying for most of your medical costs anymore.

I would really, really, really not recommend a plan that has you shooting your wad and then leaning on the social programs and charity of your federal government and fellow man...

 

[Martha]

Nice to be a-board.

"No health issues" means I'm fit and without any chronic complaints, and a low-premium catastrophic policy, coupled with an HSA, is within budget. I wouldn't be averse to seeking low-cost care across the border, either.

This is not something I would rely on for planning purposes.

Where do you get your insurance? Can the company increase your premiums as you age? If you become ill?

 

[wildcat]

FB -

Sounds like you had your mind made up from jump street. Keep us posted...

 

[tryan]

I think you will be working again

Going back to wo-wo-wo-oork wouldn't be the end of the world.

Watched the game last night with a friend who finally exausted his stash (planned a 4 year "break"; he's nearly broke after 3 1/2 years). So he reports that he can work at Home Depot 20 hrs/wk and get health bennies! No debt, owns a home; just needs spending $$ (and tax $$). This will be an improvement since he's been without health coverage for 3.5 years (something I could NEVER do). To each, his own.

 

[REWahoo]

...he reports that he can work at Home Depot 20 hrs/wk and get health bennies!

I considred that very same thing...until I realized to get the second I would have to do the first.

 

[FlogBlogger]

"You have 'enough' money from SS, Pensions, and 401K to last after age 70 until the bitter end? Am I correct here?" --SO IT SEEMS. "What's the value of your 401k?"--I purposely didn't include 401k, IRA, pension and ss data, since that total value in 2027 dollars is even less clear.

Interesting, is it, the range of responses, from "right on, go for it" to "whoaaa..still looking thin in the wallet!" I suppose that is a reflection of varying risk tolerances, a most personal choice.

I like the middle way...flex the budget in accordance with returns. Try living with less. And perhaps find pleasureable work that provides income or benefits...but then, this is not the early-semi-retirement forum!

If you must know, I have $150k in tax-deferred investments, and a couple grand in ss/pension to come...

 

[JPatrick]

I like the middle way...flex the budget in accordance with returns. Try living with less. And perhaps find pleasureable work that provides income or benefits...but then, this is not the early-semi-retirement forum!

Well see flog, your original post didn't mention that you could eat canned corn if need be, or continue working---- Given all this new flexibility I'd change my vote to "go for it", I suspect your 500K will now last as long as you want it to.

 

[FlogBlogger]

Well see flog, your original post didn't mention that you could eat canned corn if need be, or continue working---- Given all this new flexibility I'd change my vote to "go for it", I suspect your 500K will now last as long as you want it to.

Well, JP, I never said I was inflexible...in fact, canned corn is a fundamental staple of us bachelor RV-ers! I suspect, however, if I suggested counting bison for the park service at Yellowstone twenty hours a week in exchange for free RV space, I would be considered blasphemous and barred from further posts.

 

[JPatrick]

Well, JP, I never said I was inflexible...in fact, canned corn is a fundamental staple of us bachelor RV-ers! I suspect, however, if I suggested counting bison for the park service at Yellowstone twenty hours a week in exchange for free RV space, I would be considered blasphemous and barred from further posts.

Oh I know canned corn.  It's not just for RVers, it's the desperation food of all bachelors.  During the shotgun phase of my life it was corn 7 nights a week.  Paydays we'd have creamed corn and every Friday night we'd put a ton of pepper on the corn, put a "rolling Stones" album on, play it backwards and pretend we were eating in a fancy Mexican restaurant with live music.

I've been to Yellowstone, but I've never counted bison for a parking space.  Those rangers always have had a strange sense of humor.  I'd guess the counting is straight forward enough though, just count feet and divide by four eh? 
I do know where you can get plenty of hot water to heat your corn.
I  don't think you need to worry about being barred from posting.  However, if you have any trouble just let me know.  I do have a fair amount of pull around here.  Since crossing the 800 post mark I've pretty much been runnin with the big dogs. : If you know what I mean.

 

[Helen]

I think you might find yourself a little disappointed when you hit 70 and social security isnt paying squat, your pension "went away" and medicare isnt paying for most of your medical costs anymore.

I would really, really, really not recommend a plan that has you shooting your wad and then leaning on the social programs and charity of your federal government and fellow man...

This is exactly what I was thinking. I have more confidence in relying on myself as opposed to the promises of anyone else (especially the Government). No one care about me or my family as much as I do.

Also, the writing is on the wall. The Government has used Social Security as a general slush fund. We have high deficeits and no cushion in the budget for the upcoming bell curve of retiring baby boomers. They will have to reduce the benefits. I cannot imagine running my finances the way the Government does. It's not exactly a suprise that a large portion of the citizens will be retiring soon - it didn't sneak up on us, it's flat out poor planning.

What pisses me off is the so called "entitlements". We've been paying into this system for a long time. I don't call that an entitlement.

-helen

 

[FlogBlogger]

I think you might find yourself a little disappointed when you hit 70 and social security isnt paying squat, your pension "went away" and medicare isnt paying for most of your medical costs anymore.

I would really, really, really not recommend a plan that has you shooting your wad and then leaning on the social programs and charity of your federal government and fellow man...

The higher one's net worth, the less risk required to RE. To reach that level (say, a few million), now that I'm looking at fifty, I'd either have to continue working until it's no longer early, or take wild gambles in the market. I'm not willing to do either, since the former is decidedly a waste of time, and the latter is too plain risky. My solution is to say, okay, give me a few decades to pursue my life's calling. That seems a fair tradeoff, rather than regretting what could have been. Don't we regret the things we DON'T do in life?

 

[Martha]

Well, JP, I never said I was inflexible...in fact, canned corn is a fundamental staple of us bachelor RV-ers! I suspect, however, if I suggested counting bison for the park service at Yellowstone twenty hours a week in exchange for free RV space, I would be considered blasphemous and barred from further posts.

No blasphemy. Several of us are semi retired. ESR Bob even wrote a book about it. (which you can buy through amazon by clicking the link at the bottom of the page).

I have met a number of RVers who have a relatively small income and make it fine doing work-camping. The biggest worry I would have is making sure you have access to affordable health insurance. I assume you read the Escapees web site?

 

[Cut-Throat]

What pisses me off is the so called "entitlements". We've been paying into this system for a long time. I don't call that an entitlement.
-helen

Not sure what you have against the word 'entitlements'. What word would you use?

Here is the definition:
*************************************************************
entitlement
One entry found for entitlement.
Main Entry: en·ti·tle·ment
Pronunciation: -'tI-t&l-m&nt
Function: noun
1 a : the state or condition of being entitled : RIGHT b : a right to benefits specified especially by law or contract
2 : a government program providing benefits to members of a specified group; also : funds supporting or distributed by such a program
*************************************************************

 

[cute fuzzy bunny]

Hell, I wouldnt count the bison for a free rv spot.

I'd let someone else count the bison and let them wonder why every once in a while they come up one short.

Does bison go with creamed corn?

Flogblogger - you're on the ragged edge. If you had a home or something similar to tap into as an emergency fund it'd be a little more comfortable. The biggest danger you're in is hitting 70, no money, no SS, no pension, your RV is old and busted, and you're not healthy enough to work.

Some of the folks saying "go ahead!" do live a low cost subsistence lifestyle. A lot of them also own one or more homes, have working wives, and a fair number of them could conceivable slam into 70 with no money as well.

Its a good idea to smell the roses. Make sure you're not pushing up daisies before your time