The simplest retirement equation.

[jollystomper]

No 5% WR for me. I'm at 2-3%.

+1

I still have my "simple" equation from my planning, in my retirement spreadsheet. I looked at my 5 and 10 year average expenses (simple when using "Quicken") along with expected "lumpy" and "extravagant" expenses to come up with a starting expense number. Since I have a pension, I subtracted that from the annual target expense. I did not count SS at all as I was targeting age 60, and figured if I could do it with just my pension and savings/investments, SS was a nice 3rd leg for the future.

I looked at the result as a percentage of my investments and cash; my target was to get to 2.5% or lower.

The more "complex" estimates (Firecalc, financial planner, etc.) looked a higher SWRs. But I figured, to use something simple, I would target a much lower SWR. At my actual retirement date my spreadsheet had my target SWR at 2.18%. In retirement reality, so far it has been less than that.

 

[PatrickA5]

Heck, I want to use a 10% WR so I need less. I guess using poor inputs makes it easier to meet my goals- NOT! Really, a 5% WR is not a SWR, unless you are 80 years old to start.

Simpler even still is expenses * 25 = savings needed. Ignore SS. Ignore pensions, Ignore any other income streams. It may take a bit longer to get to your goal. Then when you do retire and are receiving SS, pension & other income you can BTD.

"a bit longer"?? The vast majority of people (including me) would never be able to retire if we didn't include SS (or pensions).

 

[Bird1970]

100k/.05 instead of 2mm:/.05

Then you need 1.4 mm nest egg instead pf 2mm, because you get the 30k ss each year not one time.

Correct?

So...on this note, I am 53 and at the 1.4mm invested and expect 2 ss checks. Those would begin in 9 years for me and 11 years for wife.

How would I figure this into the equation? I assume i either live on less until ss or i have to pull more from savings, but how much more and when would be safe to begin?

 

[CRLLS]

"a bit longer"?? The vast majority of people (including me) would never be able to retire if we didn't include SS (or pensions).

Yeah, in deference to those of us who need SSA, that was written tongue-in-cheek.

 

[COcheesehead]

I built a spreadsheet that acts as a financial dashboard. One the “gauges” is how many years of expenses I have. I calculate one based on my current assets and one that includes social security. It’s pretty interesting. Right now I have 41 years of expenses without SS. If I include SS, the number jumps to 82.

 

[Music Lover]

The problem with all of these that I have seen is the false premise that expenses can be predicted with good accuracy and that they are level and not lumpy. Neither is true in the real world.

A lot of lumpy expenses can be (really should be) planned for. Houses will need a new roof or HW tank every XX years. Automobiles need to be replaced, etc. Set aside some money every month and when something comes up you have the funds on hand.

 

[Markola]

Is this software only available if you pay for advisory services?

Correct. VPAS is their AUM program. We have a dedicated CFP, the software, access to various planning tools for healthcare, etc. and it costs thirty basis points. Works great for us as a couple with different spending styles, and for me as our household money manager it is cheap mistake prevention insurance.

Vanguard also has a robo-advisor service, which must have projection software, too, though I don’t know what.

 

[Ronstar]

Your formula for the amount of portfolio with SS isn't right. It should be ($100k spending -$30k SS)/5% WR = $1.4 million portfolio

Oops. Thanks for the correction!

 

[NW-Bound]

... He suggests as long as Expenses=SS+5% withdrawal from liquid assets you are good to go...

As others have pointed out, what is new and different from what everyone has been saying, that

Expenses = SS + Pension (if you have it) + Side job income (if you need it) + 4% WR?

And the 5% WR is kind of high, but most people will not live another 30 years, so it may be OK too.

The lower that WR, the better the chance for your stash to grow, to give you the content of watching it (instead of spending it).

 

[youbet]

what is new and different from what everyone has been saying?

Nuttin' really. SOS.

 

[PatrickA5]

Yeah, in deference to those of us who need SSA, that was written tongue-in-cheek.

LOL! I can't relate to those "I don't need SS" threads.

 

[daylatedollarshort]

LOL! I can't relate to those "I don't need SS" threads.

The combined NPV of our SS benefits when we retired was 7 figures. Even if a retiree has a $10M portfolio, $1M+ is still significant. I never know if the people who don't need SS have super high savings, really low SS or ? But for us, SS certainly isn't anything trivial.

 

[jazz4cash]

I guess I want to give him credit for his #1 most important thing=expenses. I agree lots and lots of presentations skip over expenses. Maybe due to so many living paycheck to paycheck it is assumed that expenses are 100% of pay. How could you ever know if you are ready If you cant estimate/predict expenses within some ballpark range? Legitimate question. Worst case Is to assume expenses will be less than 100% of income while working.

 

[Samsung4321]

This seems similarly simple:

= RATE((92 - 67), 5%, -1, 0)
= 1.80%

It is the [minimum] required real rate of return to withdraw 5% with $1 in fund (hence -1) commencing age 67 leaving $0 [or more] age 92.

Vary the inputs to reflect circumstances, feasibility and necessity.

 

[GATime]

Know what you spend

I guess I'm always surprised that most people do not know their expenses and what they spend to live. While, Josh is an acquired taste with occasional good info, I agree that you can't correctly estimate retirement unless you know what it costs to live.

I've used a leading financial application for 30 years and have tracked every penny spent. About 5-6 years ago, we set a retirements budget tracked and tried to live at that budget. We have been +-10% each year so that factors in some lumpy spending. So I take that spending number and gross it up to account for taxes and that becomes the target annual need.

Final piece is that the OP put a target 35 years of retirement with starting SS in 2022. To me that's optimistic. Even being healthy today, that target goes against the odds. We try to be realistic and at 62, I put in a 28 year retirement to give a bit of a cushion and allowing for the 20% chance we live to 90.

 

[Sunset]

I guess I'm always surprised that most people do not know their expenses and what they spend to live. While, Josh is an acquired taste with occasional good info, I agree that you can't correctly estimate retirement unless you know what it costs to live.

..........

Final piece is that the OP put a target 35 years of retirement with starting SS in 2022. To me that's optimistic. Even being healthy today, that target goes against the odds. We try to be realistic and at 62, I put in a 28 year retirement to give a bit of a cushion and allowing for the 20% chance we live to 90.

I think you are shorting yourself in terms of lifespan:
While a male ager 65 has a 20% chance of living to age 90, a couple is longer
"... a 65-year-old couple has a 45 percent chance -- almost 50-50 -- that one of them will survive to age 90."

https://www.cbsnews.com/news/living-too-long-is-a-risk/#textA2065-year-old20woman20has20almost20one20in20threeone20of20them20will20survive20to20age2090

By not being optimistic, you could run out of money for the last few years of life.