Early Retirement

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Tortoise Banker
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Early Retirement

Post by Tortoise Banker »

Hey Bogleheads,

Trying to put together a simplified overview for the individual with, say, $3,500,000 that is 45 years old seeking to retire.

My main question is regarding a safe withdrawl rate for one with a projected 50 year retirement. 2%? 3%? Somewhere in between?

His asset allocation will adjust slightly as follows:

60/40 age 45-60.

50/50 thereafter.

I tried to refer to the trinity study, but the best info I could find related to a 30 year targeted retirement.

Thanks in advance, and sorry so vague.
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Watty
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Re: Early Retirement

Post by Watty »

The best place to start would be to run your numbers through FireCalc to see how you would have done in the past.

http://www.firecalc.com/

It will take a bit of time to learn how to set of some of the options that you will want to look at but it has a lot of flexibility.

You should remember that your withdraw numbers may change when you start receiving social security benefits and when Medicare reduces your health insurance costs.

One thing to keep in mind is that the longer the period of time you look at the more likely it is that there will be some unpredictable financial event that will occur so predicting a 50 year safe withdrawal rate is a lot harder than predicting a 30 year one.
Swampy
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Re: Early Retirement

Post by Swampy »

$3.5 million at 2.5% = $87,500 a year to start, adjusted for inflation.

Having $3.5 million at age 45 insinuates that you were either a high earner, inherited a lot, or had some other windfall.

If you were a high earner, is $87,500 a year going to be enough to maintain what you were accustomed to? Probably not. Unless you move to an area with a very low cost of living - like Equador.

If it's an inheritance or another type of windfall, then chances are, yes, it's enough.

I've run literally hundreds, if not thousands, of numbers in the past decade for a 60 year time frame - because I have a mentally handicapped son who will require lifetime care for decades after I'm gone.

It's daunting.

You will know when you have your answer.

I have mine and I'm 95% comfortable with it.
If I have seen further, it was by standing on the shoulders of giants.
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TheTimeLord
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Re: Early Retirement

Post by TheTimeLord »

I am going to say something nutty here but after making it the first 5 years does the length of retirement really come into play that much? Meaning if you don't hit an airpocket in the market in the first 5 years doesn't time pretty much say your returns should be inline with history, not that past events predict the future. Please feel free to educate me on this subject.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
dbr
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Re: Early Retirement

Post by dbr »

StarbuxInvestor wrote:I am going to say something nutty here but after making it the first 5 years does the length of retirement really come into play that much? Meaning if you don't hit an airpocket in the market in the first 5 years doesn't time pretty much say your returns should be inline with history, not that past events predict the future. Please feel free to educate me on this subject.
No. I think the worst time to retire was 1966 which was the beginning of a stock market that was flat for fifteen years followed by very high inflation from 1972 to 1982 and thereabouts. That market did have a lot of volatility between 1970 and 1975 but not a real "crash" and certainly not in the first five years. Probably the real killer was the inflation which didn't get really serious until after ten years in. One of the best times to retire was 1976 which escaped much of the inflation and benefited from the great bull market in stocks of 1982-2000 and a bull market in bonds at the same time as interest rates ran down.
livesoft
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Re: Early Retirement

Post by livesoft »

One might read/review Jim C. Otar's "Unveiling the Retirement Myth" for more knowledge and ideas.
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jwa
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Re: Early Retirement

Post by jwa »

livesoft wrote:One might read/review Jim C. Otar's "Unveiling the Retirement Myth" for more knowledge and ideas.
I would but I can't afford it. The pages must be gold instead of paper.
terrabiped
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Re: Early Retirement

Post by terrabiped »

jwa wrote:
livesoft wrote:One might read/review Jim C. Otar's "Unveiling the Retirement Myth" for more knowledge and ideas.
I would but I can't afford it. The pages must be gold instead of paper.
Amazon has used copies of the paperback for $500 to $3000. That's for 1 copy. Wow.
dbr
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Re: Early Retirement

Post by dbr »

terrabiped wrote:
jwa wrote:
livesoft wrote:One might read/review Jim C. Otar's "Unveiling the Retirement Myth" for more knowledge and ideas.
I would but I can't afford it. The pages must be gold instead of paper.
Amazon has used copies of the paperback for $500 to $3000. That's for 1 copy. Wow.
Come on. A read-only PDF is available for $5.99 and a printable PDF for $14.99. http://www.retirementoptimizer.com/

Amazon has all kinds of "collector" prices for out of print books, but that is meaningless.
lazyday
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Re: Early Retirement

Post by lazyday »

Tortoise Banker wrote:45 years old seeking to retire.

My main question is regarding a safe withdrawl rate for one with a projected 50 year retirement. 2%? 3%?
Sorry I don't recall where, but I think William Bernstein has warned about danger of early retirees using too high a WR (withdrawal rate). Making a big distinction between "Safe" WR for early retiree and typical retiree.

Historical studies are helpful to get some idea of SWR, but keep in mind that ones like Trinity do not usefully include any retirement dates when both stocks and bonds each had expected returns as low as today. Maybe just bonds, but not both.

Also look at early-retirement.org forums. Few there retire at 45, but there has been discussion on retirements that early.
Grt2bOutdoors
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Re: Early Retirement

Post by Grt2bOutdoors »

Swampy wrote:$3.5 million at 2.5% = $87,500 a year to start, adjusted for inflation.

Having $3.5 million at age 45 insinuates that you were either a high earner, inherited a lot, or had some other windfall.

If you were a high earner, is $87,500 a year going to be enough to maintain what you were accustomed to? Probably not. Unless you move to an area with a very low cost of living - like Equador.

If it's an inheritance or another type of windfall, then chances are, yes, it's enough.

I've run literally hundreds, if not thousands, of numbers in the past decade for a 60 year time frame - because I have a mentally handicapped son who will require lifetime care for decades after I'm gone.

It's daunting.

You will know when you have your answer.

I have mine and I'm 95% comfortable with it.
If you were a high earner but visited this forum, chances are you are living beneath your means. Spending more than $87.5K per year is kind of living the "high life". Chances are if you are living the high life, you aren't living beneath your means and you certainly aren't following Boglehead principals. I hate to say it, but $87.5K in net income spending is a very good lifestyle to begin with in almost all parts of the US, no need to move to Ecuador or any other South American country. The Carribean on the other hand, sounds very appealing right now - in this version of Polar Vortex take 2!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
lazyday
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Re: Early Retirement

Post by lazyday »

Depending on pensions; social security; and the option of keeping some bonds never rebalanced, buying an annuity, or otherwise having some safe assets or income, it may be sensible with such a large portfolio to plan for a moderate or somewhat aggressive WR (such as 3% to 4%) and have a fallback at much lower WR.

One version of this is providing for all spending needs with safe assets and income, then using equity for the rest of assets.
btenny
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Re: Early Retirement

Post by btenny »

I retired at age 52 fourteen years ago and have been taking around 3-3.5% of the current balance since on a much smaller pot than you have. I have a paid for home but I am married. I suffered through the 2000 crash and the 2008 crash. I had around 50% equities during the 2000 crash and that made it tollerable. I went down to 40% equities by 2008. I rebalanced and bought some equities both times near the bottom. That was hard but very profitable. Everything has worked out great. My stash is up some in actual dollars but down if you factor in inflation. I added SS and a small pension to my income over the years to improve my COL.

My key was living on less in retirement than when I worked. I changed lifestyle a lot. We downsized homes. My kids were grown. My wife retired. I got a totally fun low stress job as a ski instructor that took up lots of my time and paid almost nothing. I did that activity for 5 winters. We played the rest of the year. It was great and I got into a new more healthy lifestyle as well. Some of my friends are copying my plan exactly and others are doing golf caddying or golf marshalling instead. Another friend runs a big national charity to fill his time. Some others have businesses they run part time.

What is your plan to fill your time or will you make it up as you go along?? I am pretty sure you have enough money if you stay conservative. I would go to a 50/50 asset allocation if I retired in your position. The key is do you want to live on this level of income?

Good Luck.....
Quickfoot
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Re: Early Retirement

Post by Quickfoot »

We intend to also retire early and SPIAs are a portion of our strategy. We plan to purchase our first SPIA 10 years prior to retirement, the next 5 years prior and a third at retirement. SPIAs will account for 1.5 to 2X our living expenses, probably about 30% of our total portfolio, at that point portfolio return will be gravy. There are consequences to taking payments from SPIAs prior to 59 1/2 but you can purchase deferred annuities or just factor in intent to purchase at certain ages.

Studies have shown that annuitizing 30-40% of a portfolio so far has always increased portfolio withdraw and nicely addresses running out of money. State guarantee associations guarantee between 100K to 300K of principal per insurance company so risk can also be nicely addressed.
jwa
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Re: Early Retirement

Post by jwa »

dbr wrote:
terrabiped wrote:
jwa wrote:
livesoft wrote:One might read/review Jim C. Otar's "Unveiling the Retirement Myth" for more knowledge and ideas.
I would but I can't afford it. The pages must be gold instead of paper.
Amazon has used copies of the paperback for $500 to $3000. That's for 1 copy. Wow.
Come on. A read-only PDF is available for $5.99 and a printable PDF for $14.99. http://www.retirementoptimizer.com/

Amazon has all kinds of "collector" prices for out of print books, but that is meaningless.
Thanks for sharing this as I was not aware of the PDF versions available at this price. With this in mind, I find your "Come on" to be a bit offensive.
The Wizard
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Re: Early Retirement

Post by The Wizard »

Quickfoot wrote:We intend to also retire early and SPIAs are a portion of our strategy. We plan to purchase our first SPIA 10 years prior to retirement, the next 5 years prior and a third at retirement. SPIAs will account for 1.5 to 2X our living expenses, probably about 30% of our total portfolio, at that point portfolio return will be gravy. There are consequences to taking payments from SPIAs prior to 59 1/2 but you can purchase deferred annuities or just factor in intent to purchase at certain ages.

Studies have shown that annuitizing 30-40% of a portfolio so far has always increased portfolio withdraw and nicely addresses running out of money. State guarantee associations guarantee between 100K to 300K of principal per insurance company so risk can also be nicely addressed.
Your SPIA purchase strategy seems wrong.
The "I" in SPIA stands for Immediate, meaning monthly income starting the month after purchase. You don't generally want that in your highest earning years prior to retirement. Exception possibly for working part-time if you need the income.
Plus you get a bit higher payout rate for delaying due to mortality credits...
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Professor Emeritus
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Re: Early Retirement

Post by Professor Emeritus »

The Wizard wrote:
Quickfoot wrote:We intend to also retire early and SPIAs are a portion of our strategy. We plan to purchase our first SPIA 10 years prior to retirement, the next 5 years prior and a third at retirement. SPIAs will account for 1.5 to 2X our living expenses, probably about 30% of our total portfolio, at that point portfolio return will be gravy. There are consequences to taking payments from SPIAs prior to 59 1/2 but you can purchase deferred annuities or just factor in intent to purchase at certain ages.

Studies have shown that annuitizing 30-40% of a portfolio so far has always increased portfolio withdraw and nicely addresses running out of money. State guarantee associations guarantee between 100K to 300K of principal per insurance company so risk can also be nicely addressed.
Your SPIA purchase strategy seems wrong.
The "I" in SPIA stands for Immediate, meaning monthly income starting the month after purchase. You don't generally want that in your highest earning years prior to retirement. Exception possibly for working part-time if you need the income.
Plus you get a bit higher payout rate for delaying due to mortality credits...
I agree. I actually like SPIAs for suitable folks but I cannot understand how this could ever make sense.
There are some repeat some cases for buying delayed annuities with guaranteed payouts.
lazyday
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Re: Early Retirement

Post by lazyday »

The Wizard wrote:Plus you get a bit higher payout rate for delaying due to mortality credits
A deferred annuity should also have mortality credits. Maybe even more, since for example if you make it to 70, then you are more likely to live a long time. You should get mortality credits for between time of purchase and when you would have bought SPIA.

I don't plan to buy one because they are supposedly overpriced, and because of risk of failure of insurance company and guarantee.

If could buy one from fed govenrment at reasonable price, I would consider one to start at, say, 80 or 90.
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midareff
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Re: Early Retirement

Post by midareff »

livesoft wrote:One might read/review Jim C. Otar's "Unveiling the Retirement Myth" for more knowledge and ideas.

+1 a real eye opener.
uncaD
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Re: Early Retirement

Post by uncaD »

I am in pretty much this exact situation - same age, similar assets, retired last November. For my first year withdrawal, I decided to use 2.7%. Here is how I got there (fully recognizing that this is in no way scientific and that I am mashing up two distinct methods of deriving an initial withdrawal rate): If you were to use the VPW withdrawal method (http://www.bogleheads.org/wiki/Variable ... withdrawal) for a 30 year retirement period, you need to assume a real portfolio return of 1.31% to get an initial withdrawal rate of 4%. Assuming this same 1.31% real over a 50 year period, again using VPW, you get an initial withdrawal of 2.7%.
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