minimum necessary to retire at defined expense level

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Scorpion
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minimum necessary to retire at defined expense level

Post by Scorpion » Mon Jan 23, 2017 3:31 pm

So I'm reluctant to post my exact asset dollar figures, but I thought I would go at the question another way. I'm getting very close to early retirement, and I just want to make sure I have enough (getting a little more nervous the closer it gets = 1 month away from announcing to my company). I posted a long thread about it here, but you don't need to read it: viewtopic.php?f=1&t=207877

Fundamentally, how much in assets would you think are needed to safely withdrawal $49,000 a year? How about $87,000 a year? I'm guessing your answers, or rules of thumb, will be significantly less than what I have and will give me comfort. For example, I have read that you need 30x expenses for a 3.25% SWR or 43x for a SWR. Please let me know if your answer assumes a specific asset allocation - you can send my present allocation in the linked thread.

As a related issue, I am getting more concerned about the future of the markets and am considering moving from 16% bonds to 25% bonds. I have never been a market timer and always a buy and hold person, but I also haven't held bonds before, so the potential future rise in interest rates vs. my perception of increased political risk is testing my resolve. Would really love any thoughts! If you think I should just post my exact assets, I suppose I could do that if I haven't provided enough data.

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Re: minimum necessary to retire at defined expense level

Post by Jack FFR1846 » Mon Jan 23, 2017 3:35 pm

It's all just math. You have to decide what sustainable withdrawal rate you feel is correct for the number of years you have left. 4% is 25 times spending (1/4%). 3% is 33 1/3 times spending etc. The Trinity study said 4% for 30 years, right?

% of bonds has a number of rules of thumb. Age in bonds. Age minus 10. I'm at just about age minus 10 and 50/50 and sleep just fine with that.
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Nestegg_User
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Re: minimum necessary to retire at defined expense level

Post by Nestegg_User » Mon Jan 23, 2017 4:11 pm

From your earlier post, you both are mid 40 and could therefore have 35-40 year retirements ahead. If the new normal is 3.5% versus 4% for a 30 year retirement then it would seem that you would need to be somewhere in the 3.0-3.25% range for SWR over your period.

While "portfolio charts " seems to still show a 4% for 35-40 year periods {https://portfoliocharts.com/portfolio/withdrawal-rates/}; Pfau and others have suggested the more conservative value as I noted above-- and for my planning purposes I used 3.5% for 30-35 year retirement. (Now retired)

So you are looking at about 2.5 M needed for your 88k/ year for planning-- guyton-klinger or variable portfolio withdrawal may give you needing slightly less (see wiki)

I used a rolling CD ladder for my near term cash flow needs (3-4 year) so as to reduce the concern over drops of value of bond funds.

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Re: minimum necessary to retire at defined expense level

Post by The Wizard » Mon Jan 23, 2017 4:29 pm

I'm a bit nervous about OP's term Defined Expense Level.
I'd rather see Desired Income Level, where DIL is maybe 50% higher than DEL. This gives more wiggle room and discretionary income to deal with more free time in retirement...
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JDCarpenter
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Re: minimum necessary to retire at defined expense level

Post by JDCarpenter » Mon Jan 23, 2017 4:56 pm

How flexible is your spending?

If you are retiring in your 40s, the procrustean bed of SWR spending models is probably not the best way to go. I project DW to live to 105. Because of that, I didn't set a retirement year until I was projecting portfolio of 45X our current spending level (turns out to be 49 year projected retirement). We can cut that spending in half (but then add in additional healthcare $), but we hope to spend quite a bit more in retirement (4.5% of portfolio in the first year). Variable withdrawal rates can give a lot more room to maneuver as long as you can slash spending in bad years.
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bigred77
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Re: minimum necessary to retire at defined expense level

Post by bigred77 » Mon Jan 23, 2017 5:10 pm

- 60/40 AA
- Be as tax efficient as possible
- Accurately determine your annual expenses including insurance premiums, taxes, and other large capital expenses (cars, property maitenance, etc.)

In your mid 40s, once you get to 25x expenses you can think about retiring. Once you get to 33x expenses you have no financial reason to not retire if you want. Between 25x - 33x you have to consider your own personal comfort with risk of asset depletion, legacy desires, and willingness/ability to decrease current expense levels if markets are especially unfavorable.

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PhysicianOnFIRE
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Re: minimum necessary to retire at defined expense level

Post by PhysicianOnFIRE » Mon Jan 23, 2017 5:20 pm

Minimum would be 25x for 4% SWR, but think about contingencies, particularly if we have poor returns in the next decade.

More comfort would come from 30x to 33x allowing for a 3 to 3.3% SWR. (Divide by 100).

We probably have similar ages and assets. I don't know if you have kids, but that's an obvious wildcard. We've got two boys, age 6 and 8. I'll likely take an extended and possibly permanent sabbatical starting mid-to-late 2018.

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Re: minimum necessary to retire at defined expense level

Post by Call_Me_Op » Mon Jan 23, 2017 5:30 pm

33X...
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Scorpion
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Re: minimum necessary to retire at defined expense level

Post by Scorpion » Mon Jan 23, 2017 5:34 pm

These are helpful responses that indicate I have more than enough. Thank you. Still a little worried about the sequence of returns risk, but I shouldn't be, I guess, since I make it to the end even if the sequence goes horrendously against me.

Quick somewhat related question that I can post in a new thread if needed: It seems that, as a general matter, many (most?) companies pay a constant or growing absolute dividend per share, regardless of stock price, including in market downturns. This means that the dividend yield stays the same or even goes up as stock prices go down. If I can survive on say, a 2% dividend yield from my current assets, does that mean I have already reached escape velocity (since the absolute amount of dividends is relatively safe, regardless of share price gyrations)? I guess the one concern would be inflation, but stocks are a much better hedge against inflation than bonds. My essential point is that, once your portfolio is large enough and your expenses low enough, should you just hold 100% equities and live off the dividends? To me that seems safer than where I think bonds are at right now, given unknown inflation possibilities.

EDIT - the above about the dividends was moronic and I should have done a little more thinking/research before posting - so please ignore... :oops:
Last edited by Scorpion on Tue Jan 24, 2017 5:41 pm, edited 1 time in total.

2Birds1Stone
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Re: minimum necessary to retire at defined expense level

Post by 2Birds1Stone » Mon Jan 23, 2017 5:34 pm

A 3.5% withdrawal rate has never failed for a 75% Stock/25% Bond portfolio.

That would mean 29X desired annual spending and you should be good to go.....

....this doesn't even take into consideration SS, inheritance, other possible income in early retirement. etc.

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Nestegg_User
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Re: minimum necessary to retire at defined expense level

Post by Nestegg_User » Mon Jan 23, 2017 6:02 pm

Scorpion

Dividends are ** NOT ** guaranteed nor do they have to be constant-- look at the 2000 and 2008 periods and you will see that a great number of companies cut or even eliminated their dividends under market stress.

As others will note, look at a total return model for your withdrawals ; achieving enough income via dividends requires a much larger pile of assets.

invst65
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Re: minimum necessary to retire at defined expense level

Post by invst65 » Mon Jan 23, 2017 6:03 pm

There are a lot websites on the internet that will give you the answer you are looking for free of charge. Personal Capital is a great one. Also FireCalc and Fidelity also has a good retirement planner.

So I would just input my figures into all of them and see what they say. I got laid off and basically had to retire last year at age 67. They had all been saying I was good to go for a few years prior so it didn't bother me much when they came to escort me out of the building.

Are they right? Who knows? Only time can answer these questions. Under certain circumstances even Bill Gates might not have enough.

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Will do good
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Re: minimum necessary to retire at defined expense level

Post by Will do good » Mon Jan 23, 2017 6:20 pm

Didn't you mention your wife will continue to work? Does the $49K you need is additional to DW income? How safe is her job?
The good news is in 20 years you can start to collect SS and lower your SWR :D
It only matter to how comfortable you feel. I personally would aim much higher that 30X at your age.

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Re: minimum necessary to retire at defined expense level

Post by bigred77 » Mon Jan 23, 2017 6:25 pm

Scorpion wrote:These are helpful responses that indicate I have more than enough. Thank you. Still a little worried about the sequence of returns risk, but I shouldn't be, I guess, since I make it to the end even if the sequence goes horrendously against me.

Quick somewhat related question that I can post in a new thread if needed: It seems that, as a general matter, many (most?) companies pay a constant or growing absolute dividend per share, regardless of stock price, including in market downturns. This means that the dividend yield stays the same or even goes up as stock prices go down. If I can survive on say, a 2% dividend yield from my current assets, does that mean I have already reached escape velocity (since the absolute amount of dividends is relatively safe, regardless of share price gyrations)? I guess the one concern would be inflation, but stocks are a much better hedge against inflation than bonds. My essential point is that, once your portfolio is large enough and your expenses low enough, should you just hold 100% equities and live off the dividends? To me that seems safer than where I think bonds are at right now, given unknown inflation possibilities.
Interest income from fixed income is HECK of a lot more safe and stable than dividends from equity. Plus their principal is also a HECK of a lot more stable.

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Re: minimum necessary to retire at defined expense level

Post by KlangFool » Mon Jan 23, 2017 6:44 pm

OP,

33X is safe unless you do not have enough set aside for your kid's college education and you need to spend more.

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Re: minimum necessary to retire at defined expense level

Post by Grt2bOutdoors » Mon Jan 23, 2017 8:25 pm

Just ask holders of bank stock just how well the theory of dividends being better than bonds worked out in 2009 and over the last 8 years.
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Peter Foley
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Re: minimum necessary to retire at defined expense level

Post by Peter Foley » Mon Jan 23, 2017 8:37 pm

At your age I would plan on a 3% SWR.

As to asset allocation and sequence of returns, I suggest you read Wade PFau's article regarding a Rising Equity Glide Path in retirement. His thesis is that you should be more conservative around the time you retire because that is when you will the most at risk and would be the most susceptible to a bad sequence of returns. For me this would mean nothing higher than 50%, but that is just me with my risk tolerance.

I will edit this to post the link to his article. https://retirementresearcher.com/reduci ... glidepath/

Done.

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Re: minimum necessary to retire at defined expense level

Post by AlohaJoe » Mon Jan 23, 2017 8:43 pm

Scorpion wrote:It seems that, as a general matter, many (most?) companies pay a constant or growing absolute dividend per share, regardless of stock price, including in market downturns. This means that the dividend yield stays the same or even goes up as stock prices go down. If I can survive on say, a 2% dividend yield from my current assets, does that mean I have already reached escape velocity (since the absolute amount of dividends is relatively safe, regardless of share price gyrations)?
As others have pointed out, this is so 100% wrong that you need to do a fair bit more research before you seriously consider retiring. The wiki here lists numerous very good books on investing that are worth looking into.

swl
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Re: minimum necessary to retire at defined expense level

Post by swl » Mon Jan 23, 2017 8:47 pm

Assuming mid-40's targeting worst-case scenario of living until 100, I would aim for something around 3.3% SWR and a portfolio allocation of 60/40 to 70/30. So, ~1.5mm for 49k / yr and ~2.7mm for 87k / yr.

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jainn
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Re: minimum necessary to retire at defined expense level

Post by jainn » Mon Jan 23, 2017 10:30 pm

I found this recently from a post by livesoft. I think it's a good read.

https://earlyretirementnow.com/2016/12/ ... t-1-intro/

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patriciamgr2
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Re: minimum necessary to retire at defined expense level

Post by patriciamgr2 » Mon Jan 23, 2017 10:53 pm

I'm sure you've already taken this into account (either by including taxes in your expense estimates or in deducting expected taxes from your savings figure), but I'll repeat it for others' planning. Withdrawals from tax-deferred accounts (either voluntary to meet expenses or required RMD withdrawals) result in taxes. In effect, the government owns part of our TIRAs.

Also, given the current turmoil in the health insurance marketplace, I'd want to be certain of guaranteed coverage before taking early retirement today.

Good Luck.

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Re: minimum necessary to retire at defined expense level

Post by cherijoh » Mon Jan 23, 2017 11:13 pm

Scorpion wrote:So I'm reluctant to post my exact asset dollar figures, but I thought I would go at the question another way. I'm getting very close to early retirement, and I just want to make sure I have enough (getting a little more nervous the closer it gets = 1 month away from announcing to my company). I posted a long thread about it here, but you don't need to read it: viewtopic.php?f=1&t=207877

Fundamentally, how much in assets would you think are needed to safely withdrawal $49,000 a year? How about $87,000 a year? I'm guessing your answers, or rules of thumb, will be significantly less than what I have and will give me comfort. For example, I have read that you need 30x expenses for a 3.25% SWR or 43x for a SWR. Please let me know if your answer assumes a specific asset allocation - you can send my present allocation in the linked thread.

As a related issue, I am getting more concerned about the future of the markets and am considering moving from 16% bonds to 25% bonds. I have never been a market timer and always a buy and hold person, but I also haven't held bonds before, so the potential future rise in interest rates vs. my perception of increased political risk is testing my resolve. Would really love any thoughts! If you think I should just post my exact assets, I suppose I could do that if I haven't provided enough data.
You are close to retirement and only have 16% bonds? That is very low IMO. I am also close to early retirement and have over double what you have in bonds.

There is a FAR greater risk that your stocks are going to see a sharp decline in value than that rising interest rates will hit the value of your bond funds. Reducing your % stocks as you get closer to retirement is a perfectly acceptable and prudent thing to do - I wouldn't consider going from 18 - 25% bonds market timing. (Now going at to all cash - as another poster recently posted - IS market timing IMO).

lapuce
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Re: minimum necessary to retire at defined expense level

Post by lapuce » Mon Jan 23, 2017 11:20 pm

jainn wrote:I found this recently from a post by livesoft. I think it's a good read.

https://earlyretirementnow.com/2016/12/ ... t-1-intro/
These studies on safe withdrawal rate for extended retirement periods really need to be put in perspective according to life expectancy. In the one quoted above, a 50/50 bond/equity portfolio with a 3.5% withdrawal rate accrued for inflation has "only" a 93% chance of survival after 50 years. Nobody wants to be in that non-negligible 7% of failure. But, as a (fictitious) 50-year old newly retiree, the actuary table (https://www.ssa.gov/oact/STATS/table4c6.html) tells me that the probability of being alive at 100 is 935/92,940, which is about 1%. So the expected scenario in 50 years is that:
- there is a 99% chance that I don't need to worry about running out of money because I am not around anymore,
- there is a 1% x 93% = 0.93% chance that I am alive and funded,
- there is a 1% x 7% = 0.07% chance that I am alive and destitute.

How much should I reduce my withdrawal rate to avoid the last case? I would thing that if one really fears outliving one's assets, the rational way of dealing with it is to buy an annuity at some point. That is, I pool my assets with like-minded people. The statistics will ensure that most of us will just die "on time", and the few of us who do survive will be funded.

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Re: minimum necessary to retire at defined expense level

Post by Goal33 » Mon Jan 23, 2017 11:29 pm

See my username for appropriate goal times spending
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Re: minimum necessary to retire at defined expense level

Post by celia » Tue Jan 24, 2017 12:09 am

Setting aside finances for a bit, how do you plan to spend your time when you retire? For some people, that is difficult to answer since they've spent so much time working that they haven't grown other interests. The more travel and entertaining you foresee as opposed to learning and volunteering, the more discretionary expenses you will need.

Are your plans in sync with your wife's? The more they are, the more you can "share" those expenses (ie, when traveling, you can share accommodations and car rentals whereas you each need airfare and food; but if you have an expensive hobby and she takes classes, you need to pay for two separate sets of leisure expenses).

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Re: minimum necessary to retire at defined expense level

Post by AlohaJoe » Tue Jan 24, 2017 12:12 am

lapuce wrote: These studies on safe withdrawal rate for extended retirement periods really need to be put in perspective according to life expectancy. [...] But, as a (fictitious) 50-year old newly retiree, the actuary table (https://www.ssa.gov/oact/STATS/table4c6.html) tells me that the probability of being alive at 100 is 935/92,940, which is about 1%
While I agree with your broader point (a 1% chance of running out of money and a 1% chance of still being alive = extremely conservative), in the article you refer to the author is also trying to account for a spouse who is a decade younger. That means there is a 25% chance of at least one of them living for another 57 years.

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Watty
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Re: minimum necessary to retire at defined expense level

Post by Watty » Tue Jan 24, 2017 12:39 am

Scorpion wrote:Fundamentally, how much in assets would you think are needed to safely withdrawal $49,000 a year? How about $87,000 a year?


One way to cross check you answers would be to get a quote on an inflation adjusted annuity if you can find a good one.

Another way to set an UPPER limit for what you would need $49,000 year is that for 50 years it would cost $2,450,000 (49,000 * 50) to buy a enough TIPS to cash out $49K a year. In practice you would need to do this in a retirement account because of the way the TIPS are taxed. The TIPS would also small interest payment each year.

I would not recommend actually doing either of these but if both of those would be enough to retire on then that would help your confidence.

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Re: minimum necessary to retire at defined expense level

Post by Call_Me_Op » Tue Jan 24, 2017 8:34 am

KlangFool wrote:OP,
33X is safe unless you do not have enough set aside for your kid's college education and you need to spend more.
If that's the case, then I argue you do not have 33X. All expenses must be incorporated into X. Either that or you account for other expenses separately and put money aside for them.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Scorpion
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Re: minimum necessary to retire at defined expense level

Post by Scorpion » Tue Jan 24, 2017 11:30 am

Thanks for all the thoughts so far. I shouldn't have even put in my musings on dividends - I knew it was probably wrong, but I checked a couple of stocks quickly to see what they did in the downturn, saw they didn't decrease their dividends, and decided to see what people thought. A quick search a few minutes after I posted revealed a boglehead discussion from 2013 that fully discussed the issue, so shouldn't have muddled issues here. I'll try to have a thick internet skin regarding whether my musings on this suggest I'm idiot on investing generally, as I'm quite certain I'm not, as hopefully my other posts will attest. I'm certainly fine with slapping a dumb idea down hard, though, so that others don't get the wrong idea.

Based on Firecalc, my own analysis many times over and this thread, I know I definitely and without doubt have enough to retire. My wife has a secure job as a elementary school teacher and loves it. We will have health insurance through her job. I think we could also make it with her retiring immediately (it would be closer, for sure - a little more risk than I would want to take right away), but she has no interest in doing that, which I completely support.

Regarding the bonds vs. stocks AA though, I have read some of the Early Retirement Now articles, and he seems very down on bonds (and obviously his SWR articles show a 75stocks/25bonds allocation looking the best, which is antithetical to most of what I have read on bogleheads). For those recommending a higher bond allocation, how do you react to the arguments in this article? https://earlyretirementnow.com/2016/05/ ... tock-risk/

I also have looked at portions of Otar's article on a "perpetual" withdrawal rate, where he recommends a maximum of 50% equity. How to reconcile these two conflicting views?

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Re: minimum necessary to retire at defined expense level

Post by Random Poster » Tue Jan 24, 2017 12:14 pm

Nearing_Destination wrote:If the new normal is 3.5% versus 4% for a 30 year retirement then it would seem that you would need to be somewhere in the 3.0-3.25% range for SWR over your period.
JDCarpenter wrote: . . . I didn't set a retirement year until I was projecting portfolio of 45X our current spending level . . .
bigred77 wrote:In your mid 40s, once you get to 25x expenses you can think about retiring. Once you get to 33x expenses you have no financial reason to not retire if you want.
PhysicianOnFIRE wrote:Minimum would be 25x for 4% SWR, but think about contingencies, particularly if we have poor returns in the next decade.

More comfort would come from 30x to 33x allowing for a 3 to 3.3% SWR. (Divide by 100).
Call_Me_Op wrote:33X...
swl wrote:Assuming mid-40's targeting worst-case scenario of living until 100, I would aim for something around 3.3% SWR and a portfolio allocation of 60/40 to 70/30. So, ~1.5mm for 49k / yr and ~2.7mm for 87k / yr.
All of these percentages and the resulting portfolio numbers seem to be both too high and too low.

Maybe they make mathematical sense, I don't know.

But they do not give me any sort of real confidence that things will be okay in the future, let alone for this year.

I mean, if someone needs/wants $49K a year, I personally would not feel comfortable with only $1,617,000 (33 times $49K) in investments. Nor would I feel safe with $2,205,000 (45 times $49K). The markets move upward and downward every day, and it sure seems to me like they can move downward a lot easier and quicker than they move upward.

I don't know what the answer is, and I keep going back and forth on the matter in my head. I wish that things would be clearer and more absolute, because it would certainly help me feel a lot better about things, but only having $1.5M to $2.2M and being able to know that such an amount will sustain a $49,000 burn every year for decades and decades is simply something that I cannot get my head around. Although I truly wish that I could.

But, ultimately, I don't care what the math says. I care what that little voice in my head that always seems to be calling out "Danger, Danger" is saying.

So my only advice, as erroneous as it may be, is to loosely take the wisdom of Niles Standish from Crank Yankers and essentially take whatever portfolio number you have, and double it (but keep the $49K amount the same).

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Re: minimum necessary to retire at defined expense level

Post by BigJohn » Tue Jan 24, 2017 12:54 pm

Scorpion wrote:These are helpful responses that indicate I have more than enough. Thank you. Still a little worried about the sequence of returns risk, but I shouldn't be, I guess, since I make it to the end even if the sequence goes horrendously against me.
If you have more than enough you've "won the game" but I think sequence of return risk is still important to consider, especially at 85% stock allocation. To me that seems way too high for someone in your position and will just exacerbate the issue if you get a bad sequence of return early in retirement. Sure, Firecalc says don't worry but why take the chance.

There are ways to mitigate that risk and you might read the rising glide path article linked above. I'd also suggest reading Dr Bernstein's "The Ages of the Investor" https://www.amazon.com/Ages-Investor-Cr ... B008CM2T2A. The section on the transition from working to retirement was very helpful to me in a situation somewhat like yours.

Best of luck :beer

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Re: minimum necessary to retire at defined expense level

Post by JDCarpenter » Tue Jan 24, 2017 1:05 pm

Random Poster wrote:...

I mean, if someone needs/wants $49K a year, I personally would not feel comfortable with only $1,617,000 (33 times $49K) in investments. Nor would I feel safe with $2,205,000 (45 times $49K). The markets move upward and downward every day, and it sure seems to me like they can move downward a lot easier and quicker than they move upward.

I don't know what the answer is, and I keep going back and forth on the matter in my head. I wish that things would be clearer and more absolute, because it would certainly help me feel a lot better about things, but only having $1.5M to $2.2M and being able to know that such an amount will sustain a $49,000 burn every year for decades and decades is simply something that I cannot get my head around. Although I truly wish that I could.

But, ultimately, I don't care what the math says. I care what that little voice in my head that always seems to be calling out "Danger, Danger" is saying.

So my only advice, as erroneous as it may be, is to loosely take the wisdom of Niles Standish from Crank Yankers and essentially take whatever portfolio number you have, and double it (but keep the $49K amount the same).
There is a big difference between needs and wants. If you have a lot of slack in your spending wants (say 50-75% discretionary), you can handle bad sequence of returns a lot more easily. The problem with waiting for 100% assurance (which can never exist) and no more cautionary voices in your head is that you can never retire. (Excluding .01% net worth people, or US Government Pension people--although even in those cases, the collapse of Western Civilization would cause their plan to fail.)
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Re: minimum necessary to retire at defined expense level

Post by bigred77 » Tue Jan 24, 2017 1:14 pm

Random Poster wrote:
All of these percentages and the resulting portfolio numbers seem to be both too high and too low.

Maybe they make mathematical sense, I don't know.

But they do not give me any sort of real confidence that things will be okay in the future, let alone for this year.

I mean, if someone needs/wants $49K a year, I personally would not feel comfortable with only $1,617,000 (33 times $49K) in investments. Nor would I feel safe with $2,205,000 (45 times $49K). The markets move upward and downward every day, and it sure seems to me like they can move downward a lot easier and quicker than they move upward.

I don't know what the answer is, and I keep going back and forth on the matter in my head. I wish that things would be clearer and more absolute, because it would certainly help me feel a lot better about things, but only having $1.5M to $2.2M and being able to know that such an amount will sustain a $49,000 burn every year for decades and decades is simply something that I cannot get my head around. Although I truly wish that I could.

But, ultimately, I don't care what the math says. I care what that little voice in my head that always seems to be calling out "Danger, Danger" is saying.

So my only advice, as erroneous as it may be, is to loosely take the wisdom of Niles Standish from Crank Yankers and essentially take whatever portfolio number you have, and double it (but keep the $49K amount the same).
Hi Random Poster,

I think I've replied to some of your posts in the past and if I recall correctly you are of similar age to the OP and are also considering an early retirement.

I can only say that absolutely nothing will be 100% certain. Even if you drive the initial withdrawal rate down to 0.79% there are still catastrophic scenarios (war, famine, global disease) that can cause portfolio failure. You simply cannot get to 100%. Governments can default on sovereign debt. Insurance companies selling annuities can go bankrupt. Social safety nets can be revised. There is just no way to guarantee against this.

That being said, most of these cases will negatively impact your day to day life just as much if you continue working. You have no personal control over these situations so there's not a lot to be gained from worrying about or using these remote possibilities as primary decision factors. If something really bad happens in 10 years wouldn't you at least feel a little bit better knowing you spent those years doing what you wanted instead of working along for a bigger buffer that ultimately didn't matter?

All I can tell you is an internationally diversified portfolio with a reasonable stock/bond split has never failed using a 3% initial withdrawal rate and adjusted upwards for inflation each and every year. That portfolio seems to have been sustainable in perpetuity. I started a thread about it in the past when I was getting frustrated reading about 2.x and even 1.x SWRs (viewtopic.php?t=199145). You can use even higher initial withdrawal rates than 3% (even for extremely long retirement planning time frames) and still observe perfectly acceptable success rates (I know that's objective, it's a personal preference).

What it comes down to is if someone insists on working beyond the point where their portfolio has exceeded 33X expenses strictly because they don't feel secure about the risk of running out of money, then they are implicitly saying they are continuing to work to guard against the case that the day they retire is the absolute worse day to retire in the last century or two, by a significant margin. If you really want to retire, I don't think that trade off makes any sense.

Good luck.

rgs92
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Re: minimum necessary to retire at defined expense level

Post by rgs92 » Tue Jan 24, 2017 1:50 pm

I remember after the 1987 crash, GM was paying a 10% yield. Eventually it went bankrupt.

Scorpion
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Re: minimum necessary to retire at defined expense level

Post by Scorpion » Tue Jan 24, 2017 2:35 pm

BigJohn wrote:
Scorpion wrote:These are helpful responses that indicate I have more than enough. Thank you. Still a little worried about the sequence of returns risk, but I shouldn't be, I guess, since I make it to the end even if the sequence goes horrendously against me.
If you have more than enough you've "won the game" but I think sequence of return risk is still important to consider, especially at 85% stock allocation. To me that seems way too high for someone in your position and will just exacerbate the issue if you get a bad sequence of return early in retirement. Sure, Firecalc says don't worry but why take the chance.

There are ways to mitigate that risk and you might read the rising glide path article linked above. I'd also suggest reading Dr Bernstein's "The Ages of the Investor" https://www.amazon.com/Ages-Investor-Cr ... B008CM2T2A. The section on the transition from working to retirement was very helpful to me in a situation somewhat like yours.

Best of luck :beer
I took a look at the resources you mentioned - not the full article and book, but summaries for the moment. So at some point, if you have 60x or 75x or 100x, the sequence of return risk is pretty much moot, right? Are there prevailing views about what that "_X" is? I will note that I have greater than the 60x number if my wife keeps working as planned.

Dottie57
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Re: minimum necessary to retire at defined expense level

Post by Dottie57 » Tue Jan 24, 2017 2:50 pm

Scorpion wrote:
BigJohn wrote:
Scorpion wrote:These are helpful responses that indicate I have more than enough. Thank you. Still a little worried about the sequence of returns risk, but I shouldn't be, I guess, since I make it to the end even if the sequence goes horrendously against me.
If you have more than enough you've "won the game" but I think sequence of return risk is still important to consider, especially at 85% stock allocation. To me that seems way too high for someone in your position and will just exacerbate the issue if you get a bad sequence of return early in retirement. Sure, Firecalc says don't worry but why take the chance.

There are ways to mitigate that risk and you might read the rising glide path article linked above. I'd also suggest reading Dr Bernstein's "The Ages of the Investor" https://www.amazon.com/Ages-Investor-Cr ... B008CM2T2A. The section on the transition from working to retirement was very helpful to me in a situation somewhat like yours.

Best of luck :beer
I took a look at the resources you mentioned - not the full article and book, but summaries for the moment. So at some point, if you have 60x or 75x or 100x, the sequence of return risk is pretty much moot, right? Are there prevailing views about what that "_X" is? I will note that I have greater than the 60x number if my wife keeps working as planned.

Could your wife's salary pay all non-negotiable bills if necessary?

Avtually you look golden to me. The more you can reduce your spending during a seriously bad market, The shinier your gold becomes.

BigJohn
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Re: minimum necessary to retire at defined expense level

Post by BigJohn » Tue Jan 24, 2017 4:49 pm

Scorpion wrote:I took a look at the resources you mentioned - not the full article and book, but summaries for the moment. So at some point, if you have 60x or 75x or 100x, the sequence of return risk is pretty much moot, right? Are there prevailing views about what that "_X" is? I will note that I have greater than the 60x number if my wife keeps working as planned.
Yes, at some point you are essentially bullet proof and can have almost any asset allocation and be OK. Not sure I know how to answer the question at what point that is so I'll come at it from a different angle.

I am in the 50x - 60x range and was contemplating what I thought was a fairly aggressive 65/35 or 60/40 allocation. I retired at 58 and after some reading, I decided to consider 25x - 30x my "floor". You are retiring even younger so your floor might be higher. My planning basis is that if I protect that amount, there is a high likelihood that my retirement will not be significantly impacted by financial problems. To protect this floor, I invest it a high quality intermediate term bond fund. The result is an asset allocation of about 50/50. This is similar to the Dr Bernstein's concept of a liability matching portfolio. It is a great SWAN (sleep well at night) approach that works for me because even if stocks are hit hard, I know I still have my floor. Yes, I could probably afford to be more aggressive but the only benefit would be to my heirs and I decided that my peace of mind was more important than a marginally larger inheritance.

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KlingKlang
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Re: minimum necessary to retire at defined expense level

Post by KlingKlang » Tue Jan 24, 2017 5:21 pm

Scorpion wrote:It seems that, as a general matter, many (most?) companies pay a constant or growing absolute dividend per share, regardless of stock price, including in market downturns. This means that the dividend yield stays the same or even goes up as stock prices go down.
Probably a little late chiming in here, but the answer to your question is that companies pay a constant or growing absolute dividend per share until they don't, and when they do cut dividends it can be substantial. A good example is General Electric (I own it) which for decades was a Dividend Aristocrat and "The one stock that everyone should own". Then in July 2009 they slashed their dividend by 66%.

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