Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

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JoeRetire
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by JoeRetire »

marcopolo wrote: Thu Jul 22, 2021 4:22 pm
JoeRetire wrote: Thu Jul 22, 2021 10:14 am
lgb wrote: Thu Jul 22, 2021 9:42 am How does everyone generally figure whether you can retire early, or wait until age 59.5, or wait until age 67 etc...
Determine what you want to spend annually in retirement.
Subtract however much is covered by social security, pensions, etc - basically any guaranteed income stream.
This yields how much needs to be handled by your savings.

Total all your spendable assets.
If you want to leave a specific legacy amount, subtract that.
Multiply by around 4% (some say to use less)
This yields how much your assets can generate each year.

Compare how much you need versus how much you have.
Does not seem right for evaluating early retirement.
Those income streams would not turn for a number of years. The portfolio needs to cover that gap. Also 4% "rule" was not meant for an early retirement.
I was responding to the "generally" part and trying to give only the basic overview.
We could always add a boat load of "but what about"s to any scenario supplied here.
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marcopolo
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by marcopolo »

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Last edited by marcopolo on Thu Jul 22, 2021 10:01 pm, edited 1 time in total.
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chassis
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by chassis »

Your spouse's family of origin plays a role with the skepticism. Possibly his/her family of origin had parents that worked until advanced age and had seemingly little financial resources to retire on. Just a guess, and possibly off base. Or not.

Does spouse have peers to compare notes with? Ideally said peers will be 5-10 years older than spouse, and thus will provide spouse with an increased sense of confidence and lower the skepticism.
Last edited by chassis on Fri Jul 23, 2021 11:54 am, edited 1 time in total.
redmaw
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by redmaw »

I'll echo the 3%-3.5% of nest egg > yearly expenses as a decent estimate. I will note though that you really can only count assets that are going to continue to earn money. All of the research on this topic includes only stock and bonds. That means the value of your house doesn't count, and counting that cash is questionable as well, which becomes problematic since its 1/3 of your networth. If you can put that to work for you, then you are pretty close, if you are going to sit on that much cash, I would say you have a ways to go still.
hudson
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by hudson »

lgb wrote: Thu Jul 22, 2021 9:42 am So I know our present Net Worth (almost 2MM) (1MM Investments, 650K Cash, 250K Paid house, zero personal/business debt), I know our present annual expenses (I'd suggest 60K actual expense a year covers things, maybe less) and could spitball potential future expenses (very hard to estimate this and figure healthcare medical expense the biggest ticket item until Medicare/Medicaid age reached presumably - but maybe much less if no longer working and can go on ACA plans?). Age mid 40's. Couple kids school mostly paid/accounted for and will be done over next 6 years or so

There is probably a future inheritance at some point 15 to 20 years from now of 1MM or more. Don't like to figure or count on something like that.

How does everyone generally figure whether you can retire early, or wait until age 59.5, or wait until age 67 etc...

Spouse feels like money in retirement isn't even real (like it is in a lock box unable to touch for 20 more years) - so doesn't feel like there will ever be enough for either of us to stop working. Wish I had a way to help spouse understand we are doing allright and probably more importantly to have a way to come up with an actual target goal to reach to - to say 'we're out' we can work if we want to.
Age mid 40s.
2 Kids
Need to pay a retirement from 45 to 95...for 50 years
Need to pay medical from 45 to 65...20 years
Need to cover possible nursing home care.

I would read W. Bernstein's Ages of the Investor.
I wouldn't retire early without a substantial liability matching portfolio...3-5 M....not counting business or house.
Maybe plan for medicare age or social full retirement age; if you pile up enough safe assets maybe go a little earlier?

It would be best to keep working, but you have enough that you have options, choices, and possibilities. :)
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lgb
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by lgb »

TheHouse7 wrote: Thu Jul 22, 2021 9:56 am There is a very good personal finance tool box spread sheet to help you estimate better than the back of napkin. Find it in the wiki under tools. :beer
I went to this, but wasn't ever able to locate any specific excel sheet mentioned. If there is a direct link or something I'd love to take a look at it.

Thanks for your input.
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by retired@50 »

lgb wrote: Sat Jul 24, 2021 11:45 pm
TheHouse7 wrote: Thu Jul 22, 2021 9:56 am There is a very good personal finance tool box spread sheet to help you estimate better than the back of napkin. Find it in the wiki under tools. :beer
I went to this, but wasn't ever able to locate any specific excel sheet mentioned. If there is a direct link or something I'd love to take a look at it.

Thanks for your input.
See item # 13 on this wiki page. Personal Financial Toolbox. Click on 2021 Case Study Spreadsheet.
https://www.bogleheads.org/wiki/Tools_and_calculators

Regards,
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lgb
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by lgb »

KlangFool wrote: Thu Jul 22, 2021 4:07 pm OP,

1) At mid-40, aim for 30X your annual expense plus medical insurance.

2) I would run a serious audit of your actual current annual expense. I do not think it is 60K per year.

A) Your current annual savings per year.

B) Your taxes

C) Your gross income

D) Your annual expense

Gross income = annual expense + annual savings + taxes

3) Back of the envelope, I would say that you do not have enough. At 60K per year, you need 30X = 1.8 million. You only have 1.65 million. Then, to be safe, you need to add in 10K per year for medical insurance/expense. So, 30X 70K = 2.1 million.

4) But, I do not believe your actual annual expense is 60K per year. It is much higher.

KlangFool
So I asked the spouse who has a better handling and at least year to year actual collection of data of our actual 'expenses' - which we did do fairly accurately. At least presently (and we are sloppy and not on any sort of tight budget, if we want something we go get it (we aren't big travelers and lavish by any means) - but there isn't a lot of 'we can't do that this month' going on, and that only comes into question for larger unnecessary expenses just to make sure we're not getting screwed over or considering that maybe we don't actually need xy or z at the moment.... but we determined so far this year we were at 55K in expenses (mid year) and compared that to last year and it was on target to be the same. So this means our expenses might be more like actually 105K a year (not accurate math, but our agreed amount) and not 60K a year.

But that is presently with kids expenses/drain. So Klangfool is entirely correct, we're not 'presently' at 60K a year in expenses, but as we discussed it we do feel that once kids have left the nest and if we actually focused attention to our spending on actual expenses that 60K might not be too unreasonable (not too tight, still good breathing room), but we're just not there presently. We certainly presently are bringing in more income than we're spending annually, and we could still bring in additional income in future years if we needed or wanted to doing whatever. We just go through this cycle of wondering, do we need to move to somewhere else with more income potential opportunities and (risks/unknowns) or can we safely park those thoughts that many people deal with constantly as not entirely necessary and just work within our current confines.

I've learned through these posts, that nobody knows in reality and there is some broader back of napkin laid out, with some getting lost in the weeds.

We appreciate the thoughts and insight!
EddyB
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by EddyB »

marcopolo wrote: Thu Jul 22, 2021 4:30 pm
chassis wrote: Thu Jul 22, 2021 11:35 am @OP sorry couldn’t copy your userid on the mobile version.

4% is the napkin math guideline. It’s conservative.

Ignore the arch-conservativeness of most posters on this site. Chances are that most posters are twice your age, and as much as 3 times your age. People who collect social security are vastly more conservative that people in the asset accumulation phase as you appear to be.

Nothing wrong with collecting social security or being conservative, for people in the preservation and liquidation phase. It’s just not good advice for people in the accumulation phase.
Do you have some data to support your claim that 4% is conservative for a early retirement, which is what the OP is asking about?

Any data to support your claim that such conservative thinking is due to collecting social security.
Depends on what “conservative” means, but I always like to look back at this chart: viewtopic.php?t=312450
pantsmachine
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by pantsmachine »

mr_brightside wrote: Thu Jul 22, 2021 2:21 pm i just recently did this -- check back with me in 15 years and I'll tell you how its going ! :D

-------------------------------
Same here! Part retired at 50 as a trial baloon, now full retired at 52. A large part of our expenses has been offset by installing solar pv and battery system. £2,500 pa home fuel bill is now around £400. Also drive an EV in our fleet of vehicles so fuel costs for day to day are near zero pa. The mind changes once you step thru that door. I think you'll be fine. Go for it! :) In $ we have around $3.5m incl house so around $2.75m in accesible assets.

I have been a huge fan of the book 'your money or your life'. If you haven't read it, you should.
TheHouse7
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by TheHouse7 »

lgb wrote: Sat Jul 24, 2021 11:45 pm
TheHouse7 wrote: Thu Jul 22, 2021 9:56 am There is a very good personal finance tool box spread sheet to help you estimate better than the back of napkin. Find it in the wiki under tools. :beer
I went to this, but wasn't ever able to locate any specific excel sheet mentioned. If there is a direct link or something I'd love to take a look at it.

Thanks for your input.
https://www.bogleheads.org/wiki/Tools_and_calculators

Under personal finance tool box.

Prepare your mind to be blown. :mrgreen:
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.
KlangFool
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by KlangFool »

lgb wrote: Sun Jul 25, 2021 12:10 am

So I asked the spouse who has a better handling and at least year to year actual collection of data of our actual 'expenses' - which we did do fairly accurately. At least presently (and we are sloppy and not on any sort of tight budget, if we want something we go get it (we aren't big travelers and lavish by any means) - but there isn't a lot of 'we can't do that this month' going on, and that only comes into question for larger unnecessary expenses just to make sure we're not getting screwed over or considering that maybe we don't actually need xy or z at the moment.... but we determined so far this year we were at 55K in expenses (mid year) and compared that to last year and it was on target to be the same. So this means our expenses might be more like actually 105K a year (not accurate math, but our agreed amount) and not 60K a year.

But that is presently with kids expenses/drain. So Klangfool is entirely correct, we're not 'presently' at 60K a year in expenses, but as we discussed it we do feel that once kids have left the nest and if we actually focused attention to our spending on actual expenses that 60K might not be too unreasonable (not too tight, still good breathing room), but we're just not there presently. We certainly presently are bringing in more income than we're spending annually, and we could still bring in additional income in future years if we needed or wanted to doing whatever. We just go through this cycle of wondering, do we need to move to somewhere else with more income potential opportunities and (risks/unknowns) or can we safely park those thoughts that many people deal with constantly as not entirely necessary and just work within our current confines.

I've learned through these posts, that nobody knows in reality and there is some broader back of napkin laid out, with some getting lost in the weeds.

We appreciate the thoughts and insight!
lgb,

<<So this means our expenses might be more like actually 105K a year (not accurate math, but our agreed amount) and not 60K a year.

But that is presently with kids expenses/drain.>>

Spending and saving is a habit. It is not certain that you would only spend 60K per year when the kids leave the nest. I kept my spending at the same level of 50K to 60K per year with or without the kids.

<<I've learned through these posts, that nobody knows in reality and there is some broader back of napkin laid out, with some getting lost in the weeds.>>

This statement is false. Some people has a system. They use "Pay Yourself First" saving method. They save first and leave $X to spend. They could only spend less not more. I know my annual expense is only 50K to 60K per year because I only have 50K to 60K to spend each year.

All my bills are pay through one checking account and two credit cards. The same checking account pay my credit cards too. I only have one account to track. I only deposit 5K per month into that account and I keep a minimum 10K balance in that account. I know exactly whether I overspend or underspend each month. I adjust my future spending to keep it on track.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Topic Author
lgb
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by lgb »

pantsmachine wrote: Sun Jul 25, 2021 2:51 am
mr_brightside wrote: Thu Jul 22, 2021 2:21 pm i just recently did this -- check back with me in 15 years and I'll tell you how its going ! :D

-------------------------------
Same here! Part retired at 50 as a trial baloon, now full retired at 52. A large part of our expenses has been offset by installing solar pv and battery system. £2,500 pa home fuel bill is now around £400. Also drive an EV in our fleet of vehicles so fuel costs for day to day are near zero pa. The mind changes once you step thru that door. I think you'll be fine. Go for it! :) In $ we have around $3.5m incl house so around $2.75m in accesible assets.

I have been a huge fan of the book 'your money or your life'. If you haven't read it, you should.
Reading it now!
KlangFool
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by KlangFool »

lgb wrote: Sun Jul 25, 2021 8:47 am
pantsmachine wrote: Sun Jul 25, 2021 2:51 am
mr_brightside wrote: Thu Jul 22, 2021 2:21 pm i just recently did this -- check back with me in 15 years and I'll tell you how its going ! :D

-------------------------------
Same here! Part retired at 50 as a trial baloon, now full retired at 52. A large part of our expenses has been offset by installing solar pv and battery system. £2,500 pa home fuel bill is now around £400. Also drive an EV in our fleet of vehicles so fuel costs for day to day are near zero pa. The mind changes once you step thru that door. I think you'll be fine. Go for it! :) In $ we have around $3.5m incl house so around $2.75m in accesible assets.

I have been a huge fan of the book 'your money or your life'. If you haven't read it, you should.
Reading it now!
https://www.pbs.org/kcts/affluenza/show/joe.html

<<The following are excerpts of an interview with Vicki Robin and Joe Dominguez, pioneers in the sustainability movement. Dominguez died of cancer in Seattle January 11, 1997.

At 31, Joe Dominguez retired from a job as a technical stock analyst on Wall Street.>>

Joe was 58 years old when he died. He get to enjoy his life over 27 years by retiring at 31 years old.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Topic Author
lgb
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by lgb »

KlangFool wrote: Sun Jul 25, 2021 8:54 am
lgb wrote: Sun Jul 25, 2021 8:47 am
pantsmachine wrote: Sun Jul 25, 2021 2:51 am
mr_brightside wrote: Thu Jul 22, 2021 2:21 pm i just recently did this -- check back with me in 15 years and I'll tell you how its going ! :D

-------------------------------
Same here! Part retired at 50 as a trial baloon, now full retired at 52. A large part of our expenses has been offset by installing solar pv and battery system. £2,500 pa home fuel bill is now around £400. Also drive an EV in our fleet of vehicles so fuel costs for day to day are near zero pa. The mind changes once you step thru that door. I think you'll be fine. Go for it! :) In $ we have around $3.5m incl house so around $2.75m in accesible assets.

I have been a huge fan of the book 'your money or your life'. If you haven't read it, you should.
Reading it now!
https://www.pbs.org/kcts/affluenza/show/joe.html

<<The following are excerpts of an interview with Vicki Robin and Joe Dominguez, pioneers in the sustainability movement. Dominguez died of cancer in Seattle January 11, 1997.

At 31, Joe Dominguez retired from a job as a technical stock analyst on Wall Street.>>

Joe was 58 years old when he died. He get to enjoy his life over 27 years by retiring at 31 years old.

KlangFool
Part of my interest. I have seen parents and family members die earlier than seemingly right. Realizing they worked all that time and saving for 'retirement' and they didn't even get to enjoy it. That or its people that aren't in good health or other ailments now that they are 'close'. I realize now, why would I think I'm any different and that I'm not on the same path. I likely am.
KlangFool
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by KlangFool »

lgb wrote: Sun Jul 25, 2021 9:23 am
Part of my interest. I have seen parents and family members die earlier than seemingly right. Realizing they worked all that time and saving for 'retirement' and they didn't even get to enjoy it. That or its people that aren't in good health or other ailments now that they are 'close'. I realize now, why would I think I'm any different and that I'm not on the same path. I likely am.
lgb,

My oldest brother retired and passed his full physical exam without problem. Then, he fainted in the bathroom and was rushed to the hospital. They found an inoperable brain tumor in his head. He died a few months later.

A) He retired for a few months.

B) Nobody scan a person's head for brain tumor. So, even if a person is assumed to be in good health, it may not be true.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
pantsmachine
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by pantsmachine »

lgb wrote: Sun Jul 25, 2021 8:47 am
pantsmachine wrote: Sun Jul 25, 2021 2:51 am
mr_brightside wrote: Thu Jul 22, 2021 2:21 pm i just recently did this -- check back with me in 15 years and I'll tell you how its going ! :D

-------------------------------
Same here! Part retired at 50 as a trial baloon, now full retired at 52. A large part of our expenses has been offset by installing solar pv and battery system. £2,500 pa home fuel bill is now around £400. Also drive an EV in our fleet of vehicles so fuel costs for day to day are near zero pa. The mind changes once you step thru that door. I think you'll be fine. Go for it! :) In $ we have around $3.5m incl house so around $2.75m in accesible assets.

I have been a huge fan of the book 'your money or your life'. If you haven't read it, you should.
Reading it now!
That's excellent, it was a real eye opener for me and confirmed a lot of my existing thoughts back then. Another cracker of a read is 'the millionaire next door'. I have multiple copies at my homes so I can pick up and flick at leisure. I have no regrets about leaving the working world'early'. :) In fact, I left late!
delamer
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by delamer »

KlangFool wrote: Sun Jul 25, 2021 8:39 am
lgb wrote: Sun Jul 25, 2021 12:10 am

So I asked the spouse who has a better handling and at least year to year actual collection of data of our actual 'expenses' - which we did do fairly accurately. At least presently (and we are sloppy and not on any sort of tight budget, if we want something we go get it (we aren't big travelers and lavish by any means) - but there isn't a lot of 'we can't do that this month' going on, and that only comes into question for larger unnecessary expenses just to make sure we're not getting screwed over or considering that maybe we don't actually need xy or z at the moment.... but we determined so far this year we were at 55K in expenses (mid year) and compared that to last year and it was on target to be the same. So this means our expenses might be more like actually 105K a year (not accurate math, but our agreed amount) and not 60K a year.

But that is presently with kids expenses/drain. So Klangfool is entirely correct, we're not 'presently' at 60K a year in expenses, but as we discussed it we do feel that once kids have left the nest and if we actually focused attention to our spending on actual expenses that 60K might not be too unreasonable (not too tight, still good breathing room), but we're just not there presently. We certainly presently are bringing in more income than we're spending annually, and we could still bring in additional income in future years if we needed or wanted to doing whatever. We just go through this cycle of wondering, do we need to move to somewhere else with more income potential opportunities and (risks/unknowns) or can we safely park those thoughts that many people deal with constantly as not entirely necessary and just work within our current confines.

I've learned through these posts, that nobody knows in reality and there is some broader back of napkin laid out, with some getting lost in the weeds.

We appreciate the thoughts and insight!
lgb,

<<So this means our expenses might be more like actually 105K a year (not accurate math, but our agreed amount) and not 60K a year.

But that is presently with kids expenses/drain.>>

Spending and saving is a habit. It is not certain that you would only spend 60K per year when the kids leave the nest. I kept my spending at the same level of 50K to 60K per year with or without the kids.

<<I've learned through these posts, that nobody knows in reality and there is some broader back of napkin laid out, with some getting lost in the weeds.>>

This statement is false. Some people has a system. They use "Pay Yourself First" saving method. They save first and leave $X to spend. They could only spend less not more. I know my annual expense is only 50K to 60K per year because I only have 50K to 60K to spend each year.

All my bills are pay through one checking account and two credit cards. The same checking account pay my credit cards too. I only have one account to track. I only deposit 5K per month into that account and I keep a minimum 10K balance in that account. I know exactly whether I overspend or underspend each month. I adjust my future spending to keep it on track.

KlangFool
While my approach is different than KlangFool’s — I keep a budget that I update weekly and make adjustments as necessary — i agree with him that you need a system that controls your spending. Whether it’s budget or a funneling spending through one account, it’s an improvement over “if we want something get it.” You have a finite amount of money and you want to spend according to your priorities.

You mused about Increases in income, but they often come at a price in terms of time, stress, relocation, etc. Why not make effort to come up with a system that controls how you spend the income that you have now as a first step to improving your finances?

In addition, the idea that you’ll become somehow more focused spenders when the kids are gone isn’t realistic. Your expenses might go down some but, as KlangFool said, managing your money and spending is a habit. You’ll find other things you want once you aren’t feeding the kids anymore.

My parents literally had envelopes of cash to cover certain expenses each month and once the money was gone, spending stopped. I’m sure that there were months when the grocery money got raided to cover the heating bill, but the money was accounted for.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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lgb
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by lgb »

Oh, we're more than capable of being very focused on our spending. It is just that we've created this buffer of excess that we've become much sloppier. If we have a goal (and that is the problem presently I feel, no exactly defined goal of how much to have) we can usually stay right on track on the expense side. It is how we were able to have what we do have.

You're exactly right.
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lgb
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by lgb »

delamer wrote: Thu Jul 22, 2021 12:10 pm
chassis wrote: Thu Jul 22, 2021 11:35 am @OP sorry couldn’t copy your userid on the mobile version.

4% is the napkin math guideline. It’s conservative.

Ignore the arch-conservativeness of most posters on this site. Chances are that most posters are twice your age, and as much as 3 times your age. People who collect social security are vastly more conservative that people in the asset accumulation phase as you appear to be.

Nothing wrong with collecting social security or being conservative, for people in the preservation and liquidation phase. It’s just not good advice for people in the accumulation phase.
I’d really like to hear the secrets of any posters who are 3X the OP’s age, since he’s in his mid-40’s.

A 4% withdrawal rate is not conservative for a couple in their mid-40’s. They have to plan for a 40-year (or more) retirement, not a 30-year retirement which is the basis for a 4% SWR.

For most people who retire at 55 or older, their expenses go down when they hit Medicare eligibility. And within a few years (plus or minus) of that time, their income goes up because they begin Social Security. The net effect is that they need to withdraw less from their portfolio. So for early retirees, there will be variations in portfolio withdrawals at different stages of retirement.

The OP should check the ACA website for their state and find out what unsubsidized premiums cost. He may be in for an unpleasant surprise.


That's quite funny actually. :happy Since we don't qualify for a Group health insurance plan (not enough employees and related) and since we make too much income to qualify for an unsubsidized plan and because the ACA in our state has basically driven the insurers out of the state, guess what our option is - basically exactly that - an unsubsidized premium cost from one main carrier... and it is like $1,800 a month for the family with a high deductible ~$7K we are unlikely to ever reach annually unless there is a big problem going on... oh, and we didn't get that $2,500 per family cost reduction, nor did we get to keep any of our doctors that were promised back then... :sharebeer my point being, we are too familiar with previously paying for our healthcare insurance and now realize we are still paying for that, and many others who aren't paying. I'd feel better if it was my idea and decision to do that and I'd call it charity, but being forced to pay that increase it feels like what it is - a tax/theft. (in my opinion) :happy
mrjohnanderson007
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by mrjohnanderson007 »

lgb wrote: Mon Nov 08, 2021 6:57 pm
delamer wrote: Thu Jul 22, 2021 12:10 pm
chassis wrote: Thu Jul 22, 2021 11:35 am @OP sorry couldn’t copy your userid on the mobile version.

4% is the napkin math guideline. It’s conservative.

Ignore the arch-conservativeness of most posters on this site. Chances are that most posters are twice your age, and as much as 3 times your age. People who collect social security are vastly more conservative that people in the asset accumulation phase as you appear to be.

Nothing wrong with collecting social security or being conservative, for people in the preservation and liquidation phase. It’s just not good advice for people in the accumulation phase.
I’d really like to hear the secrets of any posters who are 3X the OP’s age, since he’s in his mid-40’s.

A 4% withdrawal rate is not conservative for a couple in their mid-40’s. They have to plan for a 40-year (or more) retirement, not a 30-year retirement which is the basis for a 4% SWR.

For most people who retire at 55 or older, their expenses go down when they hit Medicare eligibility. And within a few years (plus or minus) of that time, their income goes up because they begin Social Security. The net effect is that they need to withdraw less from their portfolio. So for early retirees, there will be variations in portfolio withdrawals at different stages of retirement.

The OP should check the ACA website for their state and find out what unsubsidized premiums cost. He may be in for an unpleasant surprise.


That's quite funny actually. :happy Since we don't qualify for a Group health insurance plan (not enough employees and related) and since we make too much income to qualify for an unsubsidized plan and because the ACA in our state has basically driven the insurers out of the state, guess what our option is - basically exactly that - an unsubsidized premium cost from one main carrier... and it is like $1,800 a month for the family with a high deductible ~$7K we are unlikely to ever reach annually unless there is a big problem going on... oh, and we didn't get that $2,500 per family cost reduction, nor did we get to keep any of our doctors that were promised back then... :sharebeer my point being, we are too familiar with previously paying for our healthcare insurance and now realize we are still paying for that, and many others who aren't paying. I'd feel better if it was my idea and decision to do that and I'd call it charity, but being forced to pay that increase it feels like what it is - a tax/theft. (in my opinion) :happy
Not forcing you as they no longer penalize monthly for not having health insurance. But I hear what you're saying. Subsidize insurance for low income is a minimalist dream for early retirement. That's my plan. Until they change it...
delamer
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by delamer »

lgb wrote: Mon Nov 08, 2021 6:57 pm
delamer wrote: Thu Jul 22, 2021 12:10 pm
chassis wrote: Thu Jul 22, 2021 11:35 am @OP sorry couldn’t copy your userid on the mobile version.

4% is the napkin math guideline. It’s conservative.

Ignore the arch-conservativeness of most posters on this site. Chances are that most posters are twice your age, and as much as 3 times your age. People who collect social security are vastly more conservative that people in the asset accumulation phase as you appear to be.

Nothing wrong with collecting social security or being conservative, for people in the preservation and liquidation phase. It’s just not good advice for people in the accumulation phase.
I’d really like to hear the secrets of any posters who are 3X the OP’s age, since he’s in his mid-40’s.

A 4% withdrawal rate is not conservative for a couple in their mid-40’s. They have to plan for a 40-year (or more) retirement, not a 30-year retirement which is the basis for a 4% SWR.

For most people who retire at 55 or older, their expenses go down when they hit Medicare eligibility. And within a few years (plus or minus) of that time, their income goes up because they begin Social Security. The net effect is that they need to withdraw less from their portfolio. So for early retirees, there will be variations in portfolio withdrawals at different stages of retirement.

The OP should check the ACA website for their state and find out what unsubsidized premiums cost. He may be in for an unpleasant surprise.


That's quite funny actually. :happy Since we don't qualify for a Group health insurance plan (not enough employees and related) and since we make too much income to qualify for an unsubsidized plan and because the ACA in our state has basically driven the insurers out of the state, guess what our option is - basically exactly that - an unsubsidized premium cost from one main carrier... and it is like $1,800 a month for the family with a high deductible ~$7K we are unlikely to ever reach annually unless there is a big problem going on... oh, and we didn't get that $2,500 per family cost reduction, nor did we get to keep any of our doctors that were promised back then... :sharebeer my point being, we are too familiar with previously paying for our healthcare insurance and now realize we are still paying for that, and many others who aren't paying. I'd feel better if it was my idea and decision to do that and I'd call it charity, but being forced to pay that increase it feels like what it is - a tax/theft. (in my opinion) :happy
So you currently are getting your insurance through ACA at unsubsidized rates?

And you don’t like the fact that your taxes are subsidizing other families’ premiums?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by willthrill81 »

If one is invested in 'total' indices for stocks and bonds, then early retirees need to plan on about a 3%-3.5% initial withdrawal rate.

But for portfolios with a factor tilt and a little gold, the initial withdrawal rate for early retirees has been significantly higher (e.g., potentially 4.5% or higher).
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by dbr »

willthrill81 wrote: Tue Nov 09, 2021 9:42 am If one is invested in 'total' indices for stocks and bonds, then early retirees need to plan on about a 3%-3.5% initial withdrawal rate.

But for portfolios with a factor tilt and a little gold, the initial withdrawal rate for early retirees has been significantly higher (e.g., potentially 4.5% or higher).
I once asked Larry Swedroe on this forum (or maybe the Diehards Forum) if the "Larry Portfolio" should sustain a higher SWR and he did agree it should. This would be logical as reduced low tail risk should remove some portfolio failures. You don't hear much about that anymore.
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HomerJ
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by HomerJ »

dbr wrote: Tue Nov 09, 2021 9:48 am
willthrill81 wrote: Tue Nov 09, 2021 9:42 am If one is invested in 'total' indices for stocks and bonds, then early retirees need to plan on about a 3%-3.5% initial withdrawal rate.

But for portfolios with a factor tilt and a little gold, the initial withdrawal rate for early retirees has been significantly higher (e.g., potentially 4.5% or higher).
I once asked Larry Swedroe on this forum (or maybe the Diehards Forum) if the "Larry Portfolio" should sustain a higher SWR and he did agree it should. This would be logical as reduced low tail risk should remove some portfolio failures. You don't hear much about that anymore.
Because anyone who retired with the "Larry Portfolio", especially with a higher SWR, hasn't done as well as a "normal" portfolio.

He figured "expected" returns could be counted on, so he had people put less money in SCV and Emerging Markets because that would quite likely pay off more. And then keep more in bonds.

But "likely" isn't "guaranteed", so not only do people on the Larry portfolio have LESS in equities, the equities they do have have gotten less return than expected, and if they have been taking a higher SWR for the past 10 years, they are not doing great...

Larry Portfolio:
15% U.S. SVC (IJS)
7.5% ex-U.S. SVC (DLS)
7.5% Emerging Markets (EEM)
70% Intermediate Treasury Bonds (IEI)

So he apparently created the Larry Portfolio in 2014... Not sure about that - some website said Swedroe originally presented the Larry Portfolio in a book with Kevin Grogan in 2014 titled Reducing the Risk of Black Swans.

Since 2014:
4% withdrawals of Larry Portfolio - $1 million has turned into $800,000, inflation-adjusted.
5% withdrawals of Larry Portfolio - $1 million has turned into $700,000, inflation-adjusted.

4% withdrawals of 60/40 Total Stock/Total Bond - $1 million has turned into $1,300,000, inflation-adjusted.
5% withdrawals of 60/40 Total Stock/Total Bond - $1 million has turned into $1,200,000, inflation-adjusted.
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by MathWizard »

I doubt that 60K is going to cover all your expenses.
I'm looking at a bare minimum of $74K which includes taxes and health care in current dollars and we aren't big spenders.

Health care is about $7K per person and I build in a 2% raise in health care cost per year above standard inflation.

I estimate about $100K retiring at my current age of 64.

This includes health care, and an average of $14K in state and federal taxes.

So the $100K is really $72K net after taxes and health care.
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by willthrill81 »

MathWizard wrote: Thu Feb 03, 2022 10:47 pm I doubt that 60K is going to cover all your expenses.
I'm looking at a bare minimum of $74K which includes taxes and health care in current dollars and we aren't big spenders.
Our net spending last year was $50k. At that income level, income taxes would be negative for us due to the child tax credit, and a bronze ACA plan would be essentially free, though deductibles obviously apply.
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by Devil's Advocate »

willthrill81 wrote: Thu Feb 03, 2022 10:52 pm
MathWizard wrote: Thu Feb 03, 2022 10:47 pm I doubt that 60K is going to cover all your expenses.
I'm looking at a bare minimum of $74K which includes taxes and health care in current dollars and we aren't big spenders.
Our net spending last year was $50k. At that income level, income taxes would be negative for us due to the child tax credit, and a bronze ACA plan would be essentially free, though deductibles obviously apply.
Does the 50k include the new motor home?

DA
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by willthrill81 »

Devil's Advocate wrote: Fri Feb 04, 2022 4:52 am
willthrill81 wrote: Thu Feb 03, 2022 10:52 pm
MathWizard wrote: Thu Feb 03, 2022 10:47 pm I doubt that 60K is going to cover all your expenses.
I'm looking at a bare minimum of $74K which includes taxes and health care in current dollars and we aren't big spenders.
Our net spending last year was $50k. At that income level, income taxes would be negative for us due to the child tax credit, and a bronze ACA plan would be essentially free, though deductibles obviously apply.
Does the 50k include the new motor home?

DA
Expenses related to maintenance and upgrades is included in the $50k. The payments we made to our HELOC, which we used to initially buy it, are not included in the $50k.
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by loukycpa »

HomerJ wrote: Thu Jul 22, 2021 10:38 am First off, don't count your house if you can help it.

Yes, if you run out of money near the end, you can sell your house or get a reverse mortgage (which is usually a terrible deal, but something you could do if desperate), but normally the equity in your house is hard to access for living expenses...

The normal "rule of thumb" is 4% withdrawals of your LIQUID assets. (25x your retirement expenses) But that's generally for 30 year retirements, although your money will likely last longer.

I'd be comfortable retiring at 60+ with 4% withdrawals, 55+ if you have a good chunk of discretionary expenses built into that 4%, and could cut back on a vacation or two during bad return years.

50-55, I'd probably want 3.5% (28x your retirement expenses)

Retiring before 50, I'd want 3% (33x your retirement expenses). 3% is usually considered a "perpetual" withdrawal rate, where so far, in the past, you could pull 3% a year and never run out of money, even in 60 year retirements.

But we don't have a lot data points for 60 year retirements... :)

Anyway, those are what I would consider "back of the napkin" calculations.

Pensions and Social Security lower the amount of money you'll need to pull. If your expenses are $60k, and you're going to get $20k in Social Security, then you only need to pull $40k a year from your retirement accounts.

Of course, if you retire early, you have to account for the gap years before you get SS.

If you're 35, should probably just ignore Social Security, and see it as a extra security blanket (You have to make it through 30 years without SS anyway)

If you're 50+, I'd definitely calculate in SS, by calculating the money you need until SS kicks in, and the money you need after SS.

For instance, if your expenses are $60k, you retire at 55, and your SS at 70 is $40k, I'd plan around two buckets. 15 years of $60k = $900k, then you'd need to pull $20k from 70-on... So figure 25 (4% withdrawals) times $20k, or another $500k,

So $1.4 million or so...

Well, sorry... my back of napkin math turned into a full notebook page or two... :)
Approaching 50, I would think the OP could calculate the PV of their future SS benefits and include this as a portfolio asset. If they want to be conservative, discount 0% to 25% for unfavorable future policy changes.

Once the PV of SS is considered part of the portfolio, the math is simplified. Use a perpetual withdrawal rate with respect to the total portfolio that includes the PV of SS.
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Re: Early Retirement - No longer needing to work - Back of Napkin formulas to determine when?

Post by chassis »

loukycpa wrote: Sat Feb 05, 2022 10:17 am
HomerJ wrote: Thu Jul 22, 2021 10:38 am First off, don't count your house if you can help it.

Yes, if you run out of money near the end, you can sell your house or get a reverse mortgage (which is usually a terrible deal, but something you could do if desperate), but normally the equity in your house is hard to access for living expenses...

The normal "rule of thumb" is 4% withdrawals of your LIQUID assets. (25x your retirement expenses) But that's generally for 30 year retirements, although your money will likely last longer.

I'd be comfortable retiring at 60+ with 4% withdrawals, 55+ if you have a good chunk of discretionary expenses built into that 4%, and could cut back on a vacation or two during bad return years.

50-55, I'd probably want 3.5% (28x your retirement expenses)

Retiring before 50, I'd want 3% (33x your retirement expenses). 3% is usually considered a "perpetual" withdrawal rate, where so far, in the past, you could pull 3% a year and never run out of money, even in 60 year retirements.

But we don't have a lot data points for 60 year retirements... :)

Anyway, those are what I would consider "back of the napkin" calculations.

Pensions and Social Security lower the amount of money you'll need to pull. If your expenses are $60k, and you're going to get $20k in Social Security, then you only need to pull $40k a year from your retirement accounts.

Of course, if you retire early, you have to account for the gap years before you get SS.

If you're 35, should probably just ignore Social Security, and see it as a extra security blanket (You have to make it through 30 years without SS anyway)

If you're 50+, I'd definitely calculate in SS, by calculating the money you need until SS kicks in, and the money you need after SS.

For instance, if your expenses are $60k, you retire at 55, and your SS at 70 is $40k, I'd plan around two buckets. 15 years of $60k = $900k, then you'd need to pull $20k from 70-on... So figure 25 (4% withdrawals) times $20k, or another $500k,

So $1.4 million or so...

Well, sorry... my back of napkin math turned into a full notebook page or two... :)
Approaching 50, I would think the OP could calculate the PV of their future SS benefits and include this as a portfolio asset. If they want to be conservative, discount 0% to 25% for unfavorable future policy changes.

Once the PV of SS is considered part of the portfolio, the math is simplified. Use a perpetual withdrawal rate with respect to the total portfolio that includes the PV of SS.
Agree on counting SS either as a present value or as a stream of future cashflows.

The future cashflow treatment belongs in a retirement planning spreadsheet such as RPM or one's own home grown Excel model. I recommend home grown models for the educational benefit of knowing one's financial condition.

The present value treatment belongs in the portfolio allocation discussion. SS is a guaranteed, fixed and inflation adjusted, stream of income. Therefore it serves as one's bond position.
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