Really how many times your annual spending?

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watchman1675
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Really how many times your annual spending?

Post by watchman1675 »

Living in the bit more affordable Midwest, how many times your annual spending do you realistically need to save to retire by 55?
I've seen multipliers 25X or 33X. Is this still accurate?
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Re: Really how many times your annual spending?

Post by Triple digit golfer »

It doesn't matter what part of the country you live in.
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David Jay
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Re: Really how many times your annual spending?

Post by David Jay »

25X is the normal recommendation when retiring in your mid- 60s. Mid-50s is good at 33x.

Now that "X" is your anticipated living expenses in retirement, not your current income (current income usually includes FICA taxes, 401k deductions, etc.).

In contrast, early retirement usually includes a significant cost for health care.
Last edited by David Jay on Mon Jul 26, 2021 7:10 pm, edited 1 time in total.
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Re: Really how many times your annual spending?

Post by retired@50 »

watchman1675 wrote: Mon Jul 26, 2021 7:05 pm Living in the bit more affordable Midwest, how many times your annual spending do you realistically need to save to retire by 55?
I've seen multipliers 25X or 33X. Is this still accurate?
I'd say it's still accurate. If the Midwest is a "bit more affordable" then your total dollar amount might be lower, but it's still 33X your annual spend.

I wouldn't retire by 55 if I only had 25X.

Regards,
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Re: Really how many times your annual spending?

Post by Triple digit golfer »

retired@50 wrote: Mon Jul 26, 2021 7:10 pm
watchman1675 wrote: Mon Jul 26, 2021 7:05 pm Living in the bit more affordable Midwest, how many times your annual spending do you realistically need to save to retire by 55?
I've seen multipliers 25X or 33X. Is this still accurate?
I'd say it's still accurate. If the Midwest is a "bit more affordable" then your total dollar amount might be lower, but it's still 33X your annual spend.

I wouldn't retire by 55 if I only had 25X.

Regards,
I would. In a decade or less, Social Security would be taken and the 4% withdrawal rate would drop.
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Re: Really how many times your annual spending?

Post by David Jay »

I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
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Re: Really how many times your annual spending?

Post by retired@50 »

Triple digit golfer wrote: Mon Jul 26, 2021 7:11 pm
retired@50 wrote: Mon Jul 26, 2021 7:10 pm
watchman1675 wrote: Mon Jul 26, 2021 7:05 pm Living in the bit more affordable Midwest, how many times your annual spending do you realistically need to save to retire by 55?
I've seen multipliers 25X or 33X. Is this still accurate?
I'd say it's still accurate. If the Midwest is a "bit more affordable" then your total dollar amount might be lower, but it's still 33X your annual spend.

I wouldn't retire by 55 if I only had 25X.

Regards,
I would. In a decade or less, Social Security would be taken and the 4% withdrawal rate would drop.
I guess I'm cautious. I had 40X when I retired. I'm still hoping for Social Security, but I think I'd be okay without it, which is sort of what I was aiming for. Predicting the future is hard.

Regards,
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Re: Really how many times your annual spending?

Post by Triple digit golfer »

David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
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Re: Really how many times your annual spending?

Post by reln »

watchman1675 wrote: Mon Jul 26, 2021 7:05 pm Living in the bit more affordable Midwest, how many times your annual spending do you realistically need to save to retire by 55?
I've seen multipliers 25X or 33X. Is this still accurate?
Depends on how muchis coverer by social security and pensions you'll have at 65ish. If you're SS and pensions covers 50% of your spending, then you'd need a lot less in financial assets. On the other hand if your SS and pensions make up a tiny portion (say 5 or 10 percent), then you'll need a lot more.

Go for 36x of uncovered spending and you'll be safe.
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Re: Really how many times your annual spending?

Post by David Jay »

Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm
David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
I do #2 dollar-for-dollar, so you would be taking 7 years expenses right off the top, using any small growth in that money as safety margin (It probably shouldn't be in Stocks with less than 7 year time horizon). Then calculate 25X with the remainder of the assets.
Last edited by David Jay on Mon Jul 26, 2021 7:43 pm, edited 1 time in total.
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Re: Really how many times your annual spending?

Post by Slacker »

Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm
David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
Various calculators online allow you to enter in pensions. Check cfiresim and firecalc
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Re: Really how many times your annual spending?

Post by TheNightsToCome »

David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
I handle this by estimating the net present value of SS payments.

For example, I will use a safe withdrawal rate of 3% and take SS at age 70, so at age 70 the SS perpetuity will be equivalent to a lump sum =
(SS payment)/0.03.

I don't expect to earn even a 3% real return on my portfolio between now and 70, but I discount the future (age 70) value by 3% to be conservative. So the value today is the value of the perpetuity at age 70 divided by 1.03^n, where n is the number of years between now and age 70.
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Re: Really how many times your annual spending?

Post by FoolMeOnce »

Triple digit golfer wrote: Mon Jul 26, 2021 7:08 pm It doesn't matter what part of the country you live in.
Arguably your multiplier could be lower in a high cost area because you have the option to move somewhere more affordable.
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Re: Really how many times your annual spending?

Post by Triple digit golfer »

FoolMeOnce wrote: Mon Jul 26, 2021 8:00 pm
Triple digit golfer wrote: Mon Jul 26, 2021 7:08 pm It doesn't matter what part of the country you live in.
Arguably your multiplier could be lower in a high cost area because you have the option to move somewhere more affordable.
Sure, but then your expenses drop. In terms of the safe withdrawal rate, 25x in one city will last you the same as 25x in another city.
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Re: Really how many times your annual spending?

Post by Calico »

I like this thread. I never heard of the 25X or 33X. My question is, how do you determine X? I know for sure I won't have 25X when I retire if X is my annual spending now. If X is what I spend now, I won't reach 25X until I am 68 years old.

I think, right now, I am spending more money than I would in retirement. I currently live in a HCOLA and I have a daughter in high school (soon to be college). I have no clue what I my spending will look like after moving to a LCOLA (which I intend to do after she graduates from high school) and what my spending will look like after I am no longer supporting her after college. Is there a cheat way to figure that sort of thing out?

Of course, maybe that's all moot. I am saving as much as I possibly can. That's all I've ever done and all I can do.
Last edited by Calico on Mon Jul 26, 2021 8:30 pm, edited 1 time in total.
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Re: Really how many times your annual spending?

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watchman1675 wrote: Mon Jul 26, 2021 7:05 pm Living in the bit more affordable Midwest, how many times your annual spending do you realistically need to save to retire by 55?
I've seen multipliers 25X or 33X. Is this still accurate?
X is smaller in the Mid-west.

You still need 25x. The 25 doesn't change.

Maybe 28x-30x since you are retiring a little early at 55, unless you are completely ignoring Social Security, in which case you'll probably be fine at 25x.
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Re: Really how many times your annual spending?

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Calico wrote: Mon Jul 26, 2021 8:27 pm My question is, how do you determine X?
...
Is there a cheat way to figure that sort of thing out?
...
Of course, maybe that's all moot. I am saving as much as I possibly can. That's all I've ever done and all I can do.
Personally, I downloaded all the data from my checking account for the prior two years and did some analysis. Since I was living a comfortable life in the two years prior to retirement, I figured that was "about" what I spent (or needed to spend) per year. My spending has changed with regard to "what" I spend on, but not the "how much I spend" part.

In your case, you could eliminate things that will no longer be part of your budget, and guess at new things that will be part of your budget. It's an art, not a science.

Regards,
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Re: Really how many times your annual spending?

Post by HomerJ »

Calico wrote: Mon Jul 26, 2021 8:27 pm I like this thread. I never heard of the 25X or 33X. My question is, how do you determine X? I know for sure I won't have 25X when I retire if X is my annual spending now. If X is what I spend now, I won't reach 25X until I am 68 years old.

I think, right now, I am spending more money than I would in retirement. I currently live in a HCOLA and I have a daughter in high school (soon to be college). I have no clue what I my spending will look like after moving to a LCOLA (which I intend to do after she graduates from high school) and what my spending will look like after I am no longer supporting her after college. Is there a cheat way to figure that sort of thing out?

Of course, maybe that's all moot. I am saving as much as I possibly can. That's all I've ever done and all I can do.
Just do the math, and get a rough number.

Look at your current spending. How much of that is your mortgage and property tax? How much equity do you have? It's likely that if you moved to the Midwest, you might be able to buy a house for cash, and maybe even have some left over...

So subtract the mortgage from your current spending. Calculate property tax where you live now compared to where you want to live.

Just do rough calculations like that. You don't have to have exact numbers. $80,000 a year? $100,000 a year? Health care will be an added expense (but only for 10 years if you retire at 55).

I have no idea what you spend money on, but if you can swing a paid-off house in the Midwest, most people can live very well on $60,000 or $80,000 a year. $100,000 a year with a paid-off house is living large... :) Get a lake house with a boat. :)
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Re: Really how many times your annual spending?

Post by HomerJ »

retired@50 wrote: Mon Jul 26, 2021 8:33 pmyou could eliminate things that will no longer be part of your budget, and guess at new things that will be part of your budget. It's an art, not a science.
This... you are just shooting for rough numbers until the daughter moves out, college is done, and then maybe you get a better idea.

Moving from HCOL to LCOL makes it a little bit harder to calculate (but a lot easier to retire!)
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Re: Really how many times your annual spending?

Post by David Jay »

Calico wrote: Mon Jul 26, 2021 8:27 pm I like this thread. I never heard of the 25X or 33X. My question is, how do you determine X? I know for sure I won't have 25X when I retire if X is my annual spending now. If X is what I spend now, I won't reach 25X until I am 68 years old.
The "%%X" language is just the inverse of annual withdrawal percentage. 25X is the same as 4% (.04), if you have 25 times your expenses, you can meet those expenses if you withdraw 4% of your portfolio. 33X is a 3% (.03) withdrawal rate. In either way of writing it, the number is your expected spending in retirement, not your current salary.

And don't forget to subtract SS and any pension from your living expense before calculating your 25X.
Last edited by David Jay on Tue Aug 03, 2021 4:19 pm, edited 1 time in total.
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Re: Really how many times your annual spending?

Post by iceman99 »

Are people using “after-tax” savings, tax-deferred or both for this calculation?

25x annual expenses would require more $ if the majority of my savings were locked in a tax-deferred 401K versus a Roth for example…
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Re: Really how many times your annual spending?

Post by HomerJ »

Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm
David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
I do it in buckets.

If I want to spend $100,000 from 65 until death, and I get $40,000 from Social Security, then I'll need to pull $60,000 from investments... 25x $60,000 is $1.5 million.

If I retire at 55, I need another $1 million to bridge the gap from 55 to 65.

So I would retire at 55 with $2.5 million.

So two different calculations. Sure, I'm ignoring growth during the 10 years from 55 to 65, so maybe I could get by with $2.2 million, but let's play it safe if I'm retiring early.
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Re: Really how many times your annual spending?

Post by Calico »

retired@50 wrote: Mon Jul 26, 2021 8:33 pm
Calico wrote: Mon Jul 26, 2021 8:27 pm My question is, how do you determine X?
...
Is there a cheat way to figure that sort of thing out?
...
Of course, maybe that's all moot. I am saving as much as I possibly can. That's all I've ever done and all I can do.
Personally, I downloaded all the data from my checking account for the prior two years and did some analysis. Since I was living a comfortable life in the two years prior to retirement, I figured that was "about" what I spent (or needed to spend) per year. My spending has changed with regard to "what" I spend on, but not the "how much I spend" part.

In your case, you could eliminate things that will no longer be part of your budget, and guess at new things that will be part of your budget. It's an art, not a science.

Regards,
Thanks! The hard part will be calculating things like groceries, electricity, etc, etc. Maybe it will be easier to calculate these things after I move next year (to the LCOLA) and I don't have my daughter with me eating food, turning the AC to 70 from 75, etc.
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Re: Really how many times your annual spending?

Post by Calico »

HomerJ wrote: Mon Jul 26, 2021 8:43 pm
retired@50 wrote: Mon Jul 26, 2021 8:33 pmyou could eliminate things that will no longer be part of your budget, and guess at new things that will be part of your budget. It's an art, not a science.
This... you are just shooting for rough numbers until the daughter moves out, college is done, and then maybe you get a better idea.

Moving from HCOL to LCOL makes it a little bit harder to calculate (but a lot easier to retire!)
Yeah, I was thinking the same after I read retired@50's suggestion. I plan to move in 10 months to that LCOLA (that's when my daughter graduates form high school). After I move and get settled in my new place and my daughter goes off to college, it might be easier to calculate things.

Thanks for the tips!
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Re: Really how many times your annual spending?

Post by Triple digit golfer »

HomerJ wrote: Mon Jul 26, 2021 9:13 pm
Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm
David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
I do it in buckets.

If I want to spend $100,000 from 65 until death, and I get $40,000 from Social Security, then I'll need to pull $60,000 from investments... 25x $60,000 is $1.5 million.

If I retire at 55, I need another $1 million to bridge the gap from 55 to 65.

So I would retire at 55 with $2.5 million.

So two different calculations. Sure, I'm ignoring growth during the 10 years from 55 to 65, so maybe I could get by with $2.2 million, but let's play it safe if I'm retiring early.
Thank you. That makes a lot of sense. Conservative, but simple, safe, and logical.
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Re: Really how many times your annual spending?

Post by HomerJ »

iceman99 wrote: Mon Jul 26, 2021 9:11 pm Are people using “after-tax” savings, tax-deferred or both for this calculation?

25x annual expenses would require more $ if the majority of my savings were locked in a tax-deferred 401K versus a Roth for example…
Annual expenses include taxes.

If the vast majority of your money is in your 401k, you will be stuck paying taxes on your withdrawals as "income".

If you have some in the bank or taxable accounts, you can smooth it out a bit and pay pretty low taxes...

I plan to spend $80k - $100k, but I'll spend $40k each year from the bank and a brokerage account for the first 10 years, and my "income" from the 401k will be only $40k-$60k which is pretty low taxes for those years.
Last edited by HomerJ on Mon Jul 26, 2021 9:19 pm, edited 1 time in total.
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Re: Really how many times your annual spending?

Post by HomerJ »

Calico wrote: Mon Jul 26, 2021 9:14 pm
retired@50 wrote: Mon Jul 26, 2021 8:33 pm
Calico wrote: Mon Jul 26, 2021 8:27 pm My question is, how do you determine X?
...
Is there a cheat way to figure that sort of thing out?
...
Of course, maybe that's all moot. I am saving as much as I possibly can. That's all I've ever done and all I can do.
Personally, I downloaded all the data from my checking account for the prior two years and did some analysis. Since I was living a comfortable life in the two years prior to retirement, I figured that was "about" what I spent (or needed to spend) per year. My spending has changed with regard to "what" I spend on, but not the "how much I spend" part.

In your case, you could eliminate things that will no longer be part of your budget, and guess at new things that will be part of your budget. It's an art, not a science.

Regards,
Thanks! The hard part will be calculating things like groceries, electricity, etc, etc. Maybe it will be easier to calculate these things after I move next year (to the LCOLA) and I don't have my daughter with me eating food, turning the AC to 70 from 75, etc.
It will be easier next year. It is harder when you plan to live somewhere else, but you can make good guesses based on your current spending.
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Re: Really how many times your annual spending?

Post by Calico »

David Jay wrote: Mon Jul 26, 2021 8:52 pm
Calico wrote: Mon Jul 26, 2021 8:27 pm I like this thread. I never heard of the 25X or 33X. My question is, how do you determine X? I know for sure I won't have 25X when I retire if X is my annual spending now. If X is what I spend now, I won't reach 25X until I am 68 years old.
"X" is just the inverse of annual withdrawal percentage. 25X is the same as 4% (.04), if you have 25 times your expenses, you can meet those expenses if you withdraw 4% of your portfolio. 33X is a 3% (.03) withdrawal rate. In either way of writing it, the number is your expected spending in retirement, not your current salary.

And don't forget to subtract SS and any pension from your living expense before calculating your 25X.
Thanks! You know, I wasn't even considering SS (I don't have any pensions--no place I worked offered them except one, but not to new employees). I tend to not consider SS because, for my whole working life, I was convinced it wouldn't be there when I get older. Or, if it was there, it would be a shadow of what it was. I no longer think that, I think it will still be there in 15 years. But it's a hard habit to break, planning it won't be there. My calculations of 17 years until i have 25X are wrong if I add SS. It will be less years. I'll have to recalculate things
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Re: Really how many times your annual spending?

Post by Wiggums »

retired@50 wrote: Mon Jul 26, 2021 7:10 pm
watchman1675 wrote: Mon Jul 26, 2021 7:05 pm Living in the bit more affordable Midwest, how many times your annual spending do you realistically need to save to retire by 55?
I've seen multipliers 25X or 33X. Is this still accurate?
I'd say it's still accurate. If the Midwest is a "bit more affordable" then your total dollar amount might be lower, but it's still 33X your annual spend.

I wouldn't retire by 55 if I only had 25X.

Regards,
+1
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Re: Really how many times your annual spending?

Post by Triple digit golfer »

Triple digit golfer wrote: Mon Jul 26, 2021 9:16 pm
HomerJ wrote: Mon Jul 26, 2021 9:13 pm
Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm
David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
I do it in buckets.

If I want to spend $100,000 from 65 until death, and I get $40,000 from Social Security, then I'll need to pull $60,000 from investments... 25x $60,000 is $1.5 million.

If I retire at 55, I need another $1 million to bridge the gap from 55 to 65.

So I would retire at 55 with $2.5 million.

So two different calculations. Sure, I'm ignoring growth during the 10 years from 55 to 65, so maybe I could get by with $2.2 million, but let's play it safe if I'm retiring early.
Thank you. That makes a lot of sense. Conservative, but simple, safe, and logical.
For early retirees, say age 45, this seems ultra conservative. It would mean $3.5 million or a 2.85% withdrawal rate. Isn't 3.3 or 3.5% usually considered perpetual?

For a 35 year old it would mean only 2.2%.

I suppose the earlier the retirement, the more conservative it becomes because we're assuming no growth in this pre SS years, and there are a lot of those if retiring at 35 or 45. Also didn't factor in that SS will be lower if retiring earlier, but I didn't want to complicate it.

I'd amend it to say either that formula or 33x expenses. In other words, consider 33x expenses perpetual.

Yes, I realize that this isn't a science or anywhere close to it. :happy
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Re: Really how many times your annual spending?

Post by delamer »

iceman99 wrote: Mon Jul 26, 2021 9:11 pm Are people using “after-tax” savings, tax-deferred or both for this calculation?

25x annual expenses would require more $ if the majority of my savings were locked in a tax-deferred 401K versus a Roth for example…
You need to take taxes into account for the 25X. They are an expense just like groceries.

You are right that two people withdrawing the same amount are going to pay different amounts of taxes if one has all tax-deferred and one has all taxable, for example.

Estimate taxes under current rates using TaxCaster or other tax software. That’s about the best you can do. The closer you get to retirement, the more accurate your estimates for expenses, income, amd taxes will be.
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: Really how many times your annual spending?

Post by flyingaway »

That X is usually frustrating. I can estimate an X1 based on my current spending and probable retirement spending. I will have 25X1.

If I am not happy with the 25 multiplier, I can reduce my spending, for example, reduce the travel and entertainment allocation, and get a new X2. So I will have 30X2.

If I am still nervous with the 30 multiplier, I can downsize my house to a smaller one, reducing property tax, insurance cost, utility cost, and get another new X3. So I will have 50X3.

I can retire on a day and think I have 25X, 30X, or 50X.
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Re: Really how many times your annual spending?

Post by Normchad »

HomerJ wrote: Mon Jul 26, 2021 9:17 pm
iceman99 wrote: Mon Jul 26, 2021 9:11 pm Are people using “after-tax” savings, tax-deferred or both for this calculation?

25x annual expenses would require more $ if the majority of my savings were locked in a tax-deferred 401K versus a Roth for example…
Annual expenses include taxes.

If the vast majority of your money is in your 401k, you will be stuck paying taxes on your withdrawals as "income".

If you have some in the bank or taxable accounts, you can smooth it out a bit and pay pretty low taxes...

I plan to spend $80k - $100k, but I'll spend $40k each year from the bank and a brokerage account for the first 10 years, and my "income" from the 401k will be only $40k-$60k which is pretty low taxes for those years.
Yep, this is my plan as well. I expect “income taxes” in retirement to be near zero. I think federal taxes on 60K of 401K withdrawals would be zero for MFJ prior to SS, right? And then whatever state tax you may owe.

Essentially, I’m planning on paying very close to zero taxes from retirement until 65. I will like.y not bother with Roth Conversions.
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Re: Really how many times your annual spending?

Post by HomerJ »

Triple digit golfer wrote: Mon Jul 26, 2021 9:32 pm
Triple digit golfer wrote: Mon Jul 26, 2021 9:16 pm
HomerJ wrote: Mon Jul 26, 2021 9:13 pm
Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm
David Jay wrote: Mon Jul 26, 2021 7:14 pm I actually do the calculation in 2 parts:

1. Amount I will need after start of Social Security + any pensions, I use 25x for this calculation

2. The amount I will need to get to SS + pensions
This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
I do it in buckets.

If I want to spend $100,000 from 65 until death, and I get $40,000 from Social Security, then I'll need to pull $60,000 from investments... 25x $60,000 is $1.5 million.

If I retire at 55, I need another $1 million to bridge the gap from 55 to 65.

So I would retire at 55 with $2.5 million.

So two different calculations. Sure, I'm ignoring growth during the 10 years from 55 to 65, so maybe I could get by with $2.2 million, but let's play it safe if I'm retiring early.
Thank you. That makes a lot of sense. Conservative, but simple, safe, and logical.
For early retirees, say age 45, this seems ultra conservative. It would mean $3.5 million or a 2.85% withdrawal rate. Isn't 3.3 or 3.5% usually considered perpetual?

For a 35 year old it would mean only 2.2%.

I suppose the earlier the retirement, the more conservative it becomes because we're assuming no growth in this pre SS years, and there are a lot of those if retiring at 35 or 45. Also didn't factor in that SS will be lower if retiring earlier, but I didn't want to complicate it.

I'd amend it to say either that formula or 33x expenses. In other words, consider 33x expenses perpetual.

Yes, I realize that this isn't a science or anywhere close to it. :happy
Yes, the farther away from 65, the more silly conservative it becomes...

I think the gap year method works if you retire at 60 or 55, but earlier than that, it doesn't really work (55 barely works - 10 years is a long time to ignore growth)

At 45 or 35, I'd probably just go for 3% perpetual withdrawal and completely ignore Social Security (use it to take the whole family on cruises when you finally get it)
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Re: Really how many times your annual spending?

Post by anon_investor »

I am aiming for 33x to achieve "FI" by 50 (or less).
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Re: Really how many times your annual spending?

Post by techiegirl »

Is there a guide (for us newbies) of a SWR by age. Like 4% is for those retiring 65+, how about those retiring at 60, 55, 50, and so on?
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Re: Really how many times your annual spending?

Post by Normchad »

HomerJ wrote: Mon Jul 26, 2021 9:49 pm
Triple digit golfer wrote: Mon Jul 26, 2021 9:32 pm
Triple digit golfer wrote: Mon Jul 26, 2021 9:16 pm
HomerJ wrote: Mon Jul 26, 2021 9:13 pm
Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm

This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
I do it in buckets.

If I want to spend $100,000 from 65 until death, and I get $40,000 from Social Security, then I'll need to pull $60,000 from investments... 25x $60,000 is $1.5 million.

If I retire at 55, I need another $1 million to bridge the gap from 55 to 65.

So I would retire at 55 with $2.5 million.

So two different calculations. Sure, I'm ignoring growth during the 10 years from 55 to 65, so maybe I could get by with $2.2 million, but let's play it safe if I'm retiring early.
Thank you. That makes a lot of sense. Conservative, but simple, safe, and logical.
For early retirees, say age 45, this seems ultra conservative. It would mean $3.5 million or a 2.85% withdrawal rate. Isn't 3.3 or 3.5% usually considered perpetual?

For a 35 year old it would mean only 2.2%.

I suppose the earlier the retirement, the more conservative it becomes because we're assuming no growth in this pre SS years, and there are a lot of those if retiring at 35 or 45. Also didn't factor in that SS will be lower if retiring earlier, but I didn't want to complicate it.

I'd amend it to say either that formula or 33x expenses. In other words, consider 33x expenses perpetual.

Yes, I realize that this isn't a science or anywhere close to it. :happy
Yes, the farther away from 65, the more silly conservative it becomes...

I think the gap year method works if you retire at 60 or 55, but earlier than that, it doesn't really work (55 barely works - 10 years is a long time to ignore growth)

At 45 or 35, I'd probably just go for 3% perpetual withdrawal and completely ignore Social Security (use it to take the whole family on cruises when you finally get it)
I have no idea how the super early retirees manage to convince themselves it will be okay. I am much more comfortable predicting my portfolio longevity than I am projecting expenses 20 or more years from now.

At 35 or so, there won’t be much SS to backstop them. 30 years away from Medicare. In theory they could go back to work if things go sideways, but still……

The “cheap student life” I was living in my 20s was perfectly fine, when I was young. I couldn’t physically tolerate now….

I worry for them. They just don’t know enough. But im sure somehow it will manage to work out for them.
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Re: Really how many times your annual spending?

Post by delamer »

Normchad wrote: Mon Jul 26, 2021 9:44 pm
HomerJ wrote: Mon Jul 26, 2021 9:17 pm
iceman99 wrote: Mon Jul 26, 2021 9:11 pm Are people using “after-tax” savings, tax-deferred or both for this calculation?

25x annual expenses would require more $ if the majority of my savings were locked in a tax-deferred 401K versus a Roth for example…
Annual expenses include taxes.

If the vast majority of your money is in your 401k, you will be stuck paying taxes on your withdrawals as "income".

If you have some in the bank or taxable accounts, you can smooth it out a bit and pay pretty low taxes...

I plan to spend $80k - $100k, but I'll spend $40k each year from the bank and a brokerage account for the first 10 years, and my "income" from the 401k will be only $40k-$60k which is pretty low taxes for those years.
Yep, this is my plan as well. I expect “income taxes” in retirement to be near zero. I think federal taxes on 60K of 401K withdrawals would be zero for MFJ prior to SS, right? And then whatever state tax you may owe.

Essentially, I’m planning on paying very close to zero taxes from retirement until 65. I will like.y not bother with Roth Conversions.
With $60,000 in 401(k) withdrawals as the only income for a married couple, you’d pay about $4,000 in federal income taxes (based on current tax law).

So low, but not zero.
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Re: Really how many times your annual spending?

Post by anon_investor »

Normchad wrote: Mon Jul 26, 2021 9:55 pm
HomerJ wrote: Mon Jul 26, 2021 9:49 pm
Triple digit golfer wrote: Mon Jul 26, 2021 9:32 pm
Triple digit golfer wrote: Mon Jul 26, 2021 9:16 pm
HomerJ wrote: Mon Jul 26, 2021 9:13 pm

I do it in buckets.

If I want to spend $100,000 from 65 until death, and I get $40,000 from Social Security, then I'll need to pull $60,000 from investments... 25x $60,000 is $1.5 million.

If I retire at 55, I need another $1 million to bridge the gap from 55 to 65.

So I would retire at 55 with $2.5 million.

So two different calculations. Sure, I'm ignoring growth during the 10 years from 55 to 65, so maybe I could get by with $2.2 million, but let's play it safe if I'm retiring early.
Thank you. That makes a lot of sense. Conservative, but simple, safe, and logical.
For early retirees, say age 45, this seems ultra conservative. It would mean $3.5 million or a 2.85% withdrawal rate. Isn't 3.3 or 3.5% usually considered perpetual?

For a 35 year old it would mean only 2.2%.

I suppose the earlier the retirement, the more conservative it becomes because we're assuming no growth in this pre SS years, and there are a lot of those if retiring at 35 or 45. Also didn't factor in that SS will be lower if retiring earlier, but I didn't want to complicate it.

I'd amend it to say either that formula or 33x expenses. In other words, consider 33x expenses perpetual.

Yes, I realize that this isn't a science or anywhere close to it. :happy
Yes, the farther away from 65, the more silly conservative it becomes...

I think the gap year method works if you retire at 60 or 55, but earlier than that, it doesn't really work (55 barely works - 10 years is a long time to ignore growth)

At 45 or 35, I'd probably just go for 3% perpetual withdrawal and completely ignore Social Security (use it to take the whole family on cruises when you finally get it)
I have no idea how the super early retirees manage to convince themselves it will be okay. I am much more comfortable predicting my portfolio longevity than I am projecting expenses 20 or more years from now.

At 35 or so, there won’t be much SS to backstop them. 30 years away from Medicare. In theory they could go back to work if things go sideways, but still……

The “cheap student life” I was living in my 20s was perfectly fine, when I was young. I couldn’t physically tolerate now….

I worry for them. They just don’t know enough. But im sure somehow it will manage to work out for them.
I think it depends how much money you have. Someone retiring at 35 with $1M is in a much different position than someone retiring at 35 with $5M.
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Re: Really how many times your annual spending?

Post by Wannaretireearly »

Been talking about X on the early retirement forum. Some of the gotchas are estimated healthcare cost, and projected travel spend. Both seem to be items folks in ER have underestimated, in general...other items perhaps overestimated like gas, clothes etc.

Also other items that popped up new to me: sinking funds for house repairs, hvac etc. Car maintainance and car replacement funds. Potentially helping kids with grad school or weddings. Long term care insurance (I've still not figured out how to estimate that one...)

My takeaway was X was not the ballpark $100K I had thought. More like $130 to $150k.

I guess it gives me a new 33X target to aim for over the next 5 to 8 years of work before we hit our 50s!
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Re: Really how many times your annual spending?

Post by MoonOrb »

techiegirl wrote: Mon Jul 26, 2021 9:54 pm Is there a guide (for us newbies) of a SWR by age. Like 4% is for those retiring 65+, how about those retiring at 60, 55, 50, and so on?
My own rule of thumb for this is 25x at 65, 33x at 55, I haven't really considered younger than 55, but it wouldn't need to be that much more than 33x. I agree with what people are saying about this being more art than science, especially as you are more than 5 years or so out.
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Re: Really how many times your annual spending?

Post by David Jay »

techiegirl wrote: Mon Jul 26, 2021 9:54 pm Is there a guide (for us newbies) of a SWR by age. Like 4% is for those retiring 65+, how about those retiring at 60, 55, 50, and so on?
My thoughts:

4% for 65
3.5% for 60
3% for 55
2.75% for 50
2.5% for 45 or younger (I saw a study that calculated 2.57% for a perpetual portfolio, one that never runs out)

But there are a lot of folks who want extra safety margin...
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Re: Really how many times your annual spending?

Post by FoolMeOnce »

Triple digit golfer wrote: Mon Jul 26, 2021 8:04 pm
FoolMeOnce wrote: Mon Jul 26, 2021 8:00 pm
Triple digit golfer wrote: Mon Jul 26, 2021 7:08 pm It doesn't matter what part of the country you live in.
Arguably your multiplier could be lower in a high cost area because you have the option to move somewhere more affordable.
Sure, but then your expenses drop. In terms of the safe withdrawal rate, 25x in one city will last you the same as 25x in another city.
Right, but the amount of your 25x in San Francisco is worth 35x or more in, say, Branson, MO. So for example you could take a chance retiring in San Fran on 20x if you are willing to move to Branson if the finances aren't looking too good after a while.
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Re: Really how many times your annual spending?

Post by sailaway »

MoonOrb wrote: Mon Jul 26, 2021 10:43 pm
techiegirl wrote: Mon Jul 26, 2021 9:54 pm Is there a guide (for us newbies) of a SWR by age. Like 4% is for those retiring 65+, how about those retiring at 60, 55, 50, and so on?
My own rule of thumb for this is 25x at 65, 33x at 55, I haven't really considered younger than 55, but it wouldn't need to be that much more than 33x. I agree with what people are saying about this being more art than science, especially as you are more than 5 years or so out.
33x is already below what are projected to be perpetual withdrawal rates. For those of us that are also ignoring SS in our calculations, 4% would probably work, but I figure it could be 30 years until DH starts drawing and although I am older, my own record doesn't add up to much. So, we are aiming for the middle ground at 28x/3.5%. Actually, we are already there and still saving, so we are either aiming for a lower withdrawal or a higher spend. Just waiting on DH to be ready to leave behind those golden handcuffs. Being halfway through a two year lease doesn't help (unless the help you want is another excuse for OMY).
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Re: Really how many times your annual spending?

Post by ChiKid24 »

I'll be a bit contrary here and say that 25x should work in most cases and that 33x is ultra conservative. Here's why:

Mathematically 33x will last you 33 years if your invested portfolio just keeps pace with inflation. Historical long term inflation average is about 3.2% I'm pretty confident that my portfolio will outpace inflation over a long term retirement horizon If I can average even 6.4% nominal growth (seems realistic), that 33 years doubles to 66 years and a 25x portfolio would last you 50 years. My portfolio did 30% last year and is up 15% this year already. Sure there is recency bias and I won'tbe 90/10 like I am today, but since 1926 a 70/30 portfolio has averaged close to 10%. I do acknowledge this is out of my control.

That said, a thing that I can control is my spending. If my portfolio is down 10, 20, 30% in a prolonged recession over 1-5 years, I think I could cut some spending from my X to weather the storm. My X assumes my current lifestyle comfort and expenses which reflects a dual income household that allows for nice restaurants, hotel upgrades, whole foods groceries, etc. If one of us lost a job, we'd find ways to cut soending. That's no different in retirement. I suppose this is different if the X you use is necessary expenses and doesn't include leisure spending that could be cut

Obviously more is better and safer. But life is short and I think many people postpone retirement and continue to work for fear of running out. If you've got 25X invested, you are likely a prudent saver and reasonable spender and that should continue in your retirment years.
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Re: Really how many times your annual spending?

Post by GuyInFL »

HomerJ wrote: Mon Jul 26, 2021 9:49 pm
Triple digit golfer wrote: Mon Jul 26, 2021 9:32 pm
Triple digit golfer wrote: Mon Jul 26, 2021 9:16 pm
HomerJ wrote: Mon Jul 26, 2021 9:13 pm
Triple digit golfer wrote: Mon Jul 26, 2021 7:26 pm

This is how I would ultimately like to do it. How would one do the calculation or determine what's enough?

Just as an example, let's say you're 55 with 22x expenses and can take SS in 7 years. SS will be 0.33 years of expenses each year.

So essentially you'd be taking withdrawals of 4.54% for 7 years and then 3.03% (of initial balance at least) thereafter. How do you know if that's sustainable?

Or does one just assume you'd start year 8 with 14 years of expenses to be safe? Or something different?
I do it in buckets.

If I want to spend $100,000 from 65 until death, and I get $40,000 from Social Security, then I'll need to pull $60,000 from investments... 25x $60,000 is $1.5 million.

If I retire at 55, I need another $1 million to bridge the gap from 55 to 65.

So I would retire at 55 with $2.5 million.

So two different calculations. Sure, I'm ignoring growth during the 10 years from 55 to 65, so maybe I could get by with $2.2 million, but let's play it safe if I'm retiring early.
Thank you. That makes a lot of sense. Conservative, but simple, safe, and logical.
For early retirees, say age 45, this seems ultra conservative. It would mean $3.5 million or a 2.85% withdrawal rate. Isn't 3.3 or 3.5% usually considered perpetual?

For a 35 year old it would mean only 2.2%.

I suppose the earlier the retirement, the more conservative it becomes because we're assuming no growth in this pre SS years, and there are a lot of those if retiring at 35 or 45. Also didn't factor in that SS will be lower if retiring earlier, but I didn't want to complicate it.

I'd amend it to say either that formula or 33x expenses. In other words, consider 33x expenses perpetual.

Yes, I realize that this isn't a science or anywhere close to it. :happy
Yes, the farther away from 65, the more silly conservative it becomes...

I think the gap year method works if you retire at 60 or 55, but earlier than that, it doesn't really work (55 barely works - 10 years is a long time to ignore growth)

At 45 or 35, I'd probably just go for 3% perpetual withdrawal and completely ignore Social Security (use it to take the whole family on cruises when you finally get it)
As an example of retiring at 55 and taking SS at 70, I think holding 15X in fixed assets is too conservative for this time period. Perhaps put 15* bare minimum expenses and then take 5% of the remaining nest egg till 70 then drop to 4%. That effectively gives you a rising glide path that Kitces writes about.
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Re: Really how many times your annual spending?

Post by MoonOrb »

I am not expecting to have more than 33x before age 55 so it is an academic question for me not one I will need to confront practically, but if I were in that position I would probably want to have about 35x and have 2-3x in cash to manage a poor sequence of returns to start things out.
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Re: Really how many times your annual spending?

Post by almostretired1965 »

For me much of it was psychological. My informal number was 40x, but even after we hit it, I still felt very anxious when I faced losing my job a year or so later in my early 50s. To be honest, it wasn't until we zoomed past 60x that I began to relax, as it were.
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Re: Really how many times your annual spending?

Post by retired@50 »

techiegirl wrote: Mon Jul 26, 2021 9:54 pm Is there a guide (for us newbies) of a SWR by age. Like 4% is for those retiring 65+, how about those retiring at 60, 55, 50, and so on?
For me, it was 2.5% at 50 (or 40X annual expenses). With the bull market we've been enjoying, I'm well over 40X now. I think my withdrawal rate is under 1.5% lately.

Regards,
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59Gibson
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Re: Really how many times your annual spending?

Post by 59Gibson »

David Jay wrote: Mon Jul 26, 2021 11:00 pm
techiegirl wrote: Mon Jul 26, 2021 9:54 pm Is there a guide (for us newbies) of a SWR by age. Like 4% is for those retiring 65+, how about those retiring at 60, 55, 50, and so on?
My thoughts:

4% for 65
3.5% for 60
3% for 55
2.75% for 50
2.5% for 45 or younger (I saw a study that calculated 2.57% for a perpetual portfolio, one that never runs out)

But there are a lot of folks who want extra safety margin...
These are reasonable conservative #s. Another option For folks in their 50s and younger(especially 30s,40s), they can be Much more aggressive with their w/d % if they're willing to go back to work p/t for a period.
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