There is a Youtube video out there “How these penny-pinchers retired in there 30s” it exposes a reality about FIRE: In this instance a Champion of the fire movement peter Adeney a.k.a. Mr. Money Mustache (MMM). When asked how much he spends each year, he said it usually ends up being around $25,000 -the interviewer adds plus “health insurance in the low thirties.” Which adds up to roughly $57,000. The fact that he pays roughly $32,000 in insurance confirms what we already know about MMM, the successful blogger has a MAGI (Modified Ajusted Gross Income) of more than 65,000 a year. If we use that $57,000 and apply rule 4% he touts, that means he needed a nest egg of $1.425 Million. A tidy sum indeed, But wait a minute, William Bergen’s 1994, 4% rule is dated, ignores current Health Care realties. It concluded no one would run out of money before 33 years if the withdrew 4%. MMM is 44 years old if we take 44 + 33 = 77. The average life expectancy in America today is 80 for males 84 for females. MMM suggestion might leave you broke.
The fact of the matter is anyone 44 years old with 1.425 Million in his 401K has to continue to work. If we reduced the 4% to a 3% withdrawal rate (57,000/.03)=1.9 Million. Our young FIRE candidate would need to save another $500K. - which of course is no small accomplishment. $57,000/12 gives him $4,750 a month to live on before income tax We can estimate average tax on that $57,000 income is $5,840 federal and 2,393 Colorado or $8,233 a year or 686 a month. So if we start with $4,750 subtract Income tax of $686, Health Insurance of $2,667 and you are left with $1,397 to pay real estate taxes, buy food, clothes, insure the car and house and well you know. As a guy with 2 metal knees I can tell you insurance doesn’t cover it all. I think the average deductible is like 5-10 grand.
Ah but one more thing MMM has a son and we all know what children can cost when they reach 18. Lets assume MMM son is a average kid with good but not brilliant grades. What will 4 college cost? I paid $100,000 per kid.
Now don’t get me wrong I am a fan of MMM; I only wish I had figured out what he did when I was 25 but, the vision he is selling is a disingenuous one. It takes more money at 44 ten the 4% rule would suggest. Suzie Orman may have overstated it but she may have been on to something.
Saying to someone 44 you need 2.5 million or more doesn’t sell books or bring you to podcasts or websites does it? Especially when 4 out of ten Americans are living paycheck to paycheck.
The fact of the matter is anyone 44 years old with 1.425 Million in his 401K has to continue to work. If we reduced the 4% to a 3% withdrawal rate (57,000/.03)=1.9 Million. Our young FIRE candidate would need to save another $500K. - which of course is no small accomplishment. $57,000/12 gives him $4,750 a month to live on before income tax We can estimate average tax on that $57,000 income is $5,840 federal and 2,393 Colorado or $8,233 a year or 686 a month. So if we start with $4,750 subtract Income tax of $686, Health Insurance of $2,667 and you are left with $1,397 to pay real estate taxes, buy food, clothes, insure the car and house and well you know. As a guy with 2 metal knees I can tell you insurance doesn’t cover it all. I think the average deductible is like 5-10 grand.
Ah but one more thing MMM has a son and we all know what children can cost when they reach 18. Lets assume MMM son is a average kid with good but not brilliant grades. What will 4 college cost? I paid $100,000 per kid.
Now don’t get me wrong I am a fan of MMM; I only wish I had figured out what he did when I was 25 but, the vision he is selling is a disingenuous one. It takes more money at 44 ten the 4% rule would suggest. Suzie Orman may have overstated it but she may have been on to something.
Saying to someone 44 you need 2.5 million or more doesn’t sell books or bring you to podcasts or websites does it? Especially when 4 out of ten Americans are living paycheck to paycheck.
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