Questioning the 4% plan in retirement

[RetiredHappy]

Sailing/cruising is something that I am quite familiar with. Our good friends sold off their home and lived on their boat for a year before quitting from their jobs and decided to go sailing around the world. About a year into, they had many detours to visit families in various states and finally when they did set off, after 6 months, they came to the realization that storms and "one step over the boat and they were dead" - in their words. They came back, sold off their boat and went back to work.

I was married to a sailor (at heart). He now owns 2 boats, one a 40-ft sailboat and another trawler. I spent many years helping him maintain his sailboat and I was quite tired of it. We had sailed to many international destinations. He also owns 3 rental homes and several million dollars in the bank. He and his girlfriend wanted to go sailing around the world, which I had refused when we were married. After facing many storms, with a broken mast and toe, they realized that they could die at sea. He now has a trawler in Washington where they spend summers sailing, and a sailboat in Mexico and Carribean where they spend their winters. He pays to have the boat moved from Mexico, Carribean and Florida depending on where they want to be for the winter. Their lifestyle is also not inexpensive, as they frequent restaurants and pubs by the marina and wherever they land.

 

[Pablo1]

A lot of recent replies. Well, as some said, if it doesn't work out after a year or 2, I could sell the boat, move back into the townhouse. The average full time cruiser lasts about 4 or 5 yrs I read. Get bored, seen most of what one wanted and experienced , or stop for health reasons. But I'm not new to boating and the upkeep involved. My spending could be adjusted down 20% and still work, a boat for less, in the $ 250K -300K range could suffice, could work part on the boat .Flexibility, no debt, my health, no wife or dependent children are in my favor. Yes ,restaurants and marinas are big expenses, if used a lot. Also, my SS for working 30 yrs I haven't mentioned either as its not in the 4% rule , as I understand. One thing I haven't got an answer to, among all the great advice, is some sort of spend down of assets calculator. I understand ones health is the unknown but besides that, I don't want to die with a large chunk of money. I do have a 29 yr old son, who is a patent attorney for one of the big known pharma companies . The way he is going , he sure won't need any inheritance from me.

 

[Looking4Ward]

A lot of recent replies. Well, as some said, if it doesn't work out after a year or 2, I could sell the boat, move back into the townhouse. The average full time cruiser lasts about 4 or 5 yrs I read. Get bored, seen most of what one wanted and experienced , or stop for health reasons. But I'm not new to boating and the upkeep involved. My spending could be adjusted down 20% and still work, a boat for less, in the $ 250K -300K range could suffice, could work part on the boat .Flexibility, no debt, my health, no wife or dependent children are in my favor. Yes ,restaurants and marinas are big expenses, if used a lot. Also, my SS for working 30 yrs I haven't mentioned either as its not in the 4% rule , as I understand. One thing I haven't got an answer to, among all the great advice, is some sort of spend down of assets calculator. I understand ones health is the unknown but besides that, I don't want to die with a large chunk of money. I do have a 29 yr old son, who is a patent attorney for one of the big known pharma companies . The way he is going , he sure won't need any inheritance from me.

Many seem focused on the boat, but I get your math. Four years ago I "stole" a twin engine Mainship for $20k - put another $20k into it and people think it's a new boat when they see it. Would cost me $700k at today's prices to replace it with something new. I could live on it if I wanted to. My biggest expense is the marina slip, and I'm surrounded by similar boat owners who do live on theirs. They seldom leave the dock, so it's not like they're accumulating hundreds of hours on the engines and thousands in fuel costs. No property taxes, repairs are parts costs only when you can do much of it yourself, and you've got plenty of time each day to wash, wax, lube, adjust, and maintain.

I say go for it. Worse case you decide it's not for you anymore, you sell the boat and walk away.

 

[Sunset]

........Flexibility, no debt, my health, no wife or dependent children are in my favor. ........ One thing I haven't got an answer to, among all the great advice, is some sort of spend down of assets calculator. .......

Your girlfriend should know she is not wife material, just a crew member

The spend down calculator is firecalc.

You haven't said when you would take SS, give us your thoughts on that and the thread will go many more pages

 

[Sunset]

Many seem focused on the boat, but I get your math. Four years ago I "stole" a twin engine Mainship for $20k - put another $20k into it and people think it's a new boat when they see it. Would cost me $700k at today's prices to replace it with something new. I could live on it if I wanted to. My biggest expense is the marina slip, and I'm surrounded by similar boat owners who do live on theirs. They seldom leave the dock, so it's not like they're accumulating hundreds of hours on the engines and thousands in fuel costs. No property taxes, repairs are parts costs only when you can do much of it yourself, and you've got plenty of time each day to wash, wax, lube, adjust, and maintain.

I say go for it. Worse case you decide it's not for you anymore, you sell the boat and walk away.

If OP would buy a boat for $20K + $20K , everyone would probably think it's a great idea. You got yourself a FANTASTIC deal.

 

[Looking4Ward]

If OP would buy a boat for $20K + $20K , everyone would probably think it's a great idea. You got yourself a FANTASTIC deal.

Yeah he should probably scale back on the purchase costs - there are plenty of older single engine diesel trawlers in decent condition available under $100K. They aren't "sexy" like Cruiser or Silverton or Cantius yachts but they get the job done.

Example right there in Miami:

https://www.yachtworld.com/yacht/1981-mainship-40-trawler-8170803/

 

[tb001]

The spend down calculator is firecalc.

:

This. This is why you keep getting sent there. There is an alternative withdrawal method which has your spend decreasing with age and gives you more up front—you can look at this on firecalc. Another alternative is a variable withdrawal method which usually lets you pull a bit more in the early years. There is a good spreadsheet for this on the bogleheads forums. Just be careful about where you set your floor spending.

 

[Pablo1]

Wife material? We' ve only been together 1 yr. and both are far from thinking marriage again for both of us would be some mágical solucion to further happiness. My SS will be around $ 2300 at 65 and 70 , no idea. Again I'm 54 now. Yes a less expensive boat could work. $250k can buy alot of boat for 2 .Also probably 20% less on yearly upkeep. Say a savings of $500 a month.

 

[corn18]

I am a rainbows and unicorns kindof guy, so I lean heavily towards go for it. My current litmus test is what I will think on my death bed. For example, we have been driving our 26 year old DD to work every day for the past two years because she lost her license. We do this because she has been clean and sober and this helps her get her life back on track. We are both retired and cannot travel because of being tied to her. I do not complain for one moment. I never say "Gee, I wish I didn't have to drive Em today." I get to see her every day. Our friends obtusely hint that we should grow a pair and make her figure it out on her own so we can have more fun. I tell them that when I am on my death bed, I will not think "Gee, I wish I didn't have to drive Em around so we could have travelled more", I hope I get to think "I sure enjoyed spending time with my Em to help her put her life back together." Maybe she has a relapse and goes back to drugs and alcohol, but for now, she's got a chance and I want to help.

If I had a boat captain's license and the skill to do it, I would take a leap and do what you are planning. The stories you will tell would be worth it.

We have this hanging in our kitchen:


“Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming "Wow!"

One of my favorite movies is Second Hand Lions. If you haven't seen it, it is wonderful and germane.

 

[Pablo1]

Great quote! I try to live my life that way. You would be surprised at the number of cruisers in there 70's out there. They just got to pay abit more to have maintance and upkeep issues done for them. Regarding a Captains license, it sounds like a big title, like a captan of a comercial jet but in reality, one can get the license studying at home in a week or 2. Now a comercial captain license is something different for work, charter is different. As I said before many cruisers out there in the coastal waters off the East Coast of the US and the Bahamas in comfortable liveaboard boats less than 100k and crusing budgets of less than $3k a month.As long as you dont have a set schedule ,watch your weather windows and keep the boat/ engine maintained, you'll be fine. It is a nice lifestyle if one is healthy. The cruiser community as a whole are happy and friendly, willing to lend a hand or advice of experience

 

[Pablo1]

LOOKING 4WARD..Yes Yachtworld is a good site to understand whats out there for purchase. Also trawerforum.com and cruiserforum.com will keep one busy for years!

 

[pb4uski]

....Also, my SS for working 30 yrs I haven't mentioned either as its not in the 4% rule , as I understand. One thing I haven't got an answer to, among all the great advice, is some sort of spend down of assets calculator. ...

...The spend down calculator is firecalc.

You haven't said when you would take SS, give us your thoughts on that and the thread will go many more pages

This. This is why you keep getting sent there. There is an alternative withdrawal method which has your spend decreasing with age and gives you more up front—you can look at this on firecalc. ...

Yes, FIRECalc is the answer that you are seeking. Go to firecalc.com

Note the tabs going from left to right about an inch down from the top. In the Start Here tab input your annual spending, portfolio ($1.4m less $350k for the boat) and years (41 or 46... 95 or 100 less your current age of 54). Click on the Other Income/Spending tab and input your SS and the year that your SS begins. For now, I would use your full retirement age amount or 75% of your full retirement age amount if you want to be conservative... you can get that info from your SS statement at SSA.gov. Go to the Your Portfolio tab and replace the 75% with the percentage of equities in your total portfolio. Go to the Investigate tab and select the radio button that says Spending Level towards the bottom and leave the 95%.

Then click Submit. The results page will include a sentence like this:

Looking for a spending level that will result in 95% success rate . . . . . . . . . . . . . . . [done]

A spending level of $38,129 provided a success rate of 96.4% (110 total cycles, of which 4 failed). This spending level is 3.63% of your starting portfolio.

Above is based on $30,000 spending, $1,050,000 portfolio, 41 year time horizon (live to 95 - your current age of 54), no SS, 75% equities. Note it is less than the 4% from the 4% rule because you have a 41 year time horizon rather than a 30 year time horizon... if you change the 41 years to 30 years then you get 4.04%.

If keep the 41 years and add $25,000 SS starting in 2034 then I get:

Looking for a spending level that will result in 95% success rate . . . . . . . . . . . . . . . [done]

A spending level of $51,152 provided a success rate of 95.5% (110 total cycles, of which 5 failed). This spending level is 4.87% of your starting portfolio. (Your spending is assumed to come from any Social Security and pensions you entered, as well as from the portfolio.)

What FIRECalc does is solve for a level of spending that combined with SS results in 95% success over a 41 year time horizon which is why the year 1 withdrawal can safely exceed 4%... SS reinforcements come in beginning in 2034.

The above numbers ignore the paid off townhouse so if the townhouse cashflows at $30k a year you can add $30k to the above numbers.

Play around with the numbers to see how sensitive the result is to different assumptions.

 

[Pablo1]

Jeez PB4USKI. Thanks alot! If I ever start another business I'm hiring you..

 

[rodi]

Jeez PB4USKI. Thanks alot! If I ever start another business I'm hiring you..

I think you'd have to pay him a LOT - since he'd have to come out of retirement. LOL

 

[pb4uski]

^^^ You got that straight!

 

[pb4uski]

Jeez PB4USKI. Thanks alot! If I ever start another business I'm hiring you..

You're welcome... but you need to put in your numbers and play around with it some... YMMV.

 

[DireWolf]

I did a quick read thru this thread and had a handful of thoughts.

1) The 4% Rule covers a traditional 30 year retirement when you retire in a random market based on age. This would not apply to you. You are retiring with a longer retirement period. And, you wouldn’t be retiring in a random year, you’d be retiring based on hitting a number. This is something that gets glossed over by too many early retirees. The 4% rule still failed 5% of the time against all years for 30 year terms. If you looked at needing, say, 45 years and only compared against bull markets hitting market highs (CAPE > 25 or something), you’d see drastically lower success rates. I urge you to dive into the excellent Early Retirement Now blog, specifically the series about SWRs and SORRs.

2) 4% Rule (which probably needs to be 3.5 or lower in your case) also I believe assumes a mixed portfolio with a certain level of stocks and bonds. Iirc, at least 40% equities.

3) you keep asking about a way to spend down your assets. The 4% Rule is not about protecting your assets. Success is defined by not running out of money. There’s ways you can model spending less as you age, but you want to at least have a floor that you can get by on and a plan for LTC. Firecalc, mentioned often, let’s you have an “off-chart spending reduction” that starts in a given year. You could do something like have a $10K/yr spending reduction at age 70 (or whatever number and age). This would let you have more while younger and presumably more active.

4) because the 4% rule has to handle nearly worst historical case, if you don’t hit a case that bad, you end up with a lot of money at the end. If you do something like #3 above in your initial planning, you very likely will get to 70 and not need to drop your spending after all. But at least you’ve planned for it.

 

[Spudd]

A true spend-down calculator sounds like VPW. This is a method where your withdrawal varies from year to year, based on how much money you have at the end of each year. If the market has done poorly, your withdrawal amount will be lower, and conversely, if it's done well you will be able to live a bit higher on the hog. The amount to withdraw each year is calculated using a spreadsheet. You tell it when you plan to die and it's designed to exhaust all your money by then.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

 

[DireWolf]

I like VPW a lot, but it really only works well when you have a solid floor from pension/SS and have either over-saved or had an incredible run early in FIRE and are switching to it going forward. If you hit a bad SORs, it can mean needing to live on like a 2.5% WR for many, many years.

 

[Sconie]

According to Morningstar, 3.3% is the new 4.0%

https://www.morningstar.com/articles/1068684/is-33-the-new-40

 

[kgtest]

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!

I follow this family Sailing Zatara on YouTube. Keith is a retired ditch digger from TX. Sold the biz and set sail with his family. Watching him and all the repairs he has done, the long multi week passages taking their toll, navigating all the COVID rules with different ports and jurisdictions and basically how limiting living on sea can be has been both refreshing and entertaining...thankfully at their expense and not mine. I am an avid sailor, grew up around boats my whole life but in freshwater with land on all sides. I definitely feel the draw of open sea navigation and the freedom it might present but appreciate the limits and nuances mother nature can provide. YMMV.

 

[hmango]

My reply is regarding your comment: "isn't there another plan, like a spend down plan and enjoy the assets slowly?"

The answer is yes, there is. On the FireCalc website there is a reference to a book named Nest Egg Care by Tom Canfield. In this book, the author outlines and approach for how to estimate maximizing your safe spending amount and enjoy more now. The book includes templates and worksheets to help you calculate what your own SSA.

 

[Reach]

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

The marine insurance business has changed significantly, following recent catastrophic hurricanes. My DH and I live aboard our sailing catamaran full time and our insurance doubled recently after being fairly steady (for the last 13 yrs), even being outside of hurricane zone in season.

It is also becoming harder to obtain by many of our cruising friends, for various reasons, and the market constantly shifting. You might want to be prepared for a different insurance quote (e.g., double your $3k estimate to $6k or more). Lots to watch for in fine print for full replacement value vs. depreciation policy, etc.

With the right expectations, it can be a wonderful lifestyle. Best of luck!

 

[Optionality]

I would also caution against the 4% rule in the current environment. There are two economic things that can jeopardize an early retirement: high inflation, and high asset prices. We unfortunately have both going on right now. What this, I think, means is that retiring now is relatively likely to end up in the worst 10% of scenarios - so that 5% failure rate might be more like 25% or even worse. I personally have solved this problem by aiming for a withdrawal rate of about 3.25%, and I would even say that 3% at this moment is not unreasonably conservative.


Not pleasant news, but neither is running out of money

 

[ychuck46]

It can work

There is a well known couple in the FIRE field named the Kaderlis who have FIREd at 35 years of age, over 30 years ago, with $500K banked. They looked at the 4% rule and showed how it would have affected them over that time. Granted, there is no guarantee that the next 30 years will have a similar market, but this shows what happened even during significant downturns like we experienced in 2008 and 2018-19. They state that they left their monies in Vanguard index funds, primarily the S&P500, and I have no reason to suspect this is not the case. Good luck on your own journey.

https://retireearlylifestyle.com/aaa/4_percent_withdrawal.htm