What X are we at? [Multiple of future years' expenses]

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kd2008
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What X are we at? [Multiple of future years' expenses]

Post by kd2008 »

Total Annual spending: 67K/yr
Mortgage share included in above number: 16K/yr

Assets 1850K

DH SS @70 yrs age in 9 yrs: 32.5K/yr

Current Mortgage balance 188K

Bridge till SS starts = 32.5K x 9 = 292.5K

Ok now calculation of X:

Without mortgage we need 67K - 16K = 51K/yr

Assets remaining after paying off mortgage = 1850K -188K = 1662K

Considering SS bridge is fully funded, we need 51K - 32.5K = 18.5K/yr as withdrawal from our portfolio for the rest of our lives (from age 61 onwards)

Assets remaining after paying for SS bridge = 1662K - 292.5K = 1369.5K

X = 1369.5K/18.5K = 74

Something seems wrong!

(Simplified to today's value, not considering any future growth, or that I am currently working etc)

[Title clarified and topic moved to Personal Investments forum. -- moderator Kendall.]
Last edited by kd2008 on Tue Jan 24, 2023 7:53 pm, edited 2 times in total.
Exchme
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Re: What X are we at?

Post by Exchme »

It may be better than you think, you seemed to leave out your SS benefit. Even if you never worked outside the home, you would be entitled to 1/2 of your DH's PIA amount, so you could get $13K/yr once he claims.

It sounds like you are OK, try some simple calculators like FireCalc to see how you situation would have fared historically.
sailaway
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Re: What X are we at? [Percentage of future years' expenses]

Post by sailaway »

Without any adjustments, you are at 27x current spending. So once you add in SS and the fact the mortgage will be paid of someday, etc. the multiplier is going to be quite high.
Topic Author
kd2008
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Re: What X are we at? [Percentage of future years' expenses]

Post by kd2008 »

In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
JS-Elcano
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Re: What X are we at? [Percentage of future years' expenses]

Post by JS-Elcano »

kd2008 wrote: Mon Jan 23, 2023 4:44 pm In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
Keep in mind though that property taxes and home owners insurance will still need to be paid every year. Usually this is rolled into the monthly payment to the lender while one is paying off the mortgage. Make sure the 16k you are subtracting from your expenses is just the principal + interest payment and does not include taxes and insurance. In my case, taxes and insurance make up 23% of my current monthly "mortgage" payment, not a trivial amount.

Also, make sure that your estimated expenses for retirement are your best guess. We have more leisure time than when working, so may spend more money on things because we do them more often or spend on things we don't spend any money on now. I, for example, will also not have a mortgage payment, but will spend more than what that was on travel. I anticipate my expenses to be higher in retirement than they are now while I am working all week.
dbr
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Re: What X are we at? [Multiple of future years' expenses]

Post by dbr »

The whole exercise is one of successive approximations.

However it is true that people who anticipate typical Social Security and intend a moderately frugal lifestyle can end up not needing a lot of investment income. The trick is how much contingency to have in expected spending, especially for taxes, home owner expenses/rent, medical costs generally, and other contingencies.

Note the maximum SS benefit for a couple if taken at age 70 is now over $100,000/year. It is an off topic discussion what that might be in the more distant future.
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Re: What X are we at? [Multiple of future years' expenses]

Post by Jack FFR1846 »

In my opinion, the X number only gives you an "am I anywhere near where I need to be to retire?" kind of number.

Firstly, I would encourage you to make a Retirement List to get the real number, which is the X. Your working number won't be the same at all. Sure, you know the mortgage will be gone and the college costs behind you. But what will health insurance cost? Do you plan more vacation time than you do now?

Of course, there's often a wait after retirement to take social security. That's a bit more difficult to figure in. I tend not to beyond subtracting it from my X number past that age.

That said, I like doing an annual spread sheet. This lists assets, income and expenses. Going to forward years, each year has a % gain attached that can change every year. This helps because you can have future years projected and sudden changes like the start of social security can easily be included. I look out to when I expect to go and look to see what kind of money is projected to be left. I started my spread sheet before my kids went to college so things worked pretty well.
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Navillus1968
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Re: What X are we at? [Multiple of future years' expenses]

Post by Navillus1968 »

kd2008 wrote: Mon Jan 23, 2023 11:38 am Total Annual spending: 67K/yr
Mortgage share included in above number: 16K/yr

Assets 1850K

DH SS @70 yrs age in 9 yrs: 32.5K/yr

Current Mortgage balance 188K

Bridge till SS starts = 32.5K x 9 = 292.5K

Ok now calculation of X:

Without mortgage we need 67K - 16K = 51K/yr

Assets remaining after paying off mortgage = 1850K -188K = 1662K

Considering SS bridge we need 51K - 32.5K = 18.5K/yr

Assets remaining after paying for SS bridge = 1662K - 292.5K = 1369.5K

X = 1369.5K/18.5K = 74

Something seems wrong!

(Simplified to today's value, not considering any future growth, or that I am currently working etc)

[Title clarified and topic moved to Personal Investments forum. -- moderator Kendall.]
I'm pretty dang far from an expert on Social Security bridge calculations, but after the mortgage is paid, won't you be spending $51k/year for 9 years until DH is 70, not $32.5k? Total of $459k vice $292k?

Then, when SSA kicks in, you will spend $18.5k/yr out of pocket going forward. I don't see how you are accounting for the $18.5k/yr from 61 to 70.

Discounting future growth & your current job income, won't your total at DH age 70 be:
$1850 - $188k (mortgage) = $1162k.
$1662k - $459k (9 years x $51k/yr living expenses) = $1203k

$1203k divided by $18.5k/yr living expenses= 65 times X.

Sorry, looks like it's the poorhouse for you!

Just kidding, I think this means you've won & can quit your job- unless you enjoy it. If so- carry on!

PS- what is your mortgage rate? If it's low, you might consider not paying it off since there's a good chance your money will do better invested in the market. YMMV

Edited to add: OK, after staring intently at the screen for 5 more minutes, 15 watt light bulb just turned on. Your numbers are for today, my calculations of X are for DH age 70. Got it. As Emily Litella said, "Never mind!"
Last edited by Navillus1968 on Mon Jan 23, 2023 6:11 pm, edited 1 time in total.
KlangFool
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Re: What X are we at? [Multiple of future years' expenses]

Post by KlangFool »

kd2008 wrote: Mon Jan 23, 2023 11:38 am
Total Annual spending: 67K/yr
Mortgage share included in above number: 16K/yr

Assets 1850K
kd2008,

It is very simple.

1850K / 67K = 27.6X

Why do anything else?

How much is the TI (Property Tax and Insurance) portion of your 16K mortgage PITI payment?

KlangFool
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KlangFool
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Re: What X are we at? [Percentage of future years' expenses]

Post by KlangFool »

kd2008 wrote: Mon Jan 23, 2023 4:44 pm In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
kd2008,

Then, why look at the future expense? Just use your current annual expense. If you want to retire tomorrow, could you?

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
Wannaretireearly
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Re: What X are we at? [Multiple of future years' expenses]

Post by Wannaretireearly »

The folly is trying to triangulate X. It’s really a range to overestimate, a bit. 100k and it’ll be non craft beer, 2 star accommodation and hopefully healthcare. More will buy better beer and vacations. Reality is over a 40 year+ retirement, X will be all over the place.
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Marseille07
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Re: What X are we at? [Multiple of future years' expenses]

Post by Marseille07 »

Seems like 27X to me as another poster already mentioned. Subtracting mortgage is fair game because that'd reduce your expenses. But subtracting SS from expenses doesn't make sense. You still spend 51K/year while getting additional income via SS.
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sailaway
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Re: What X are we at? [Multiple of future years' expenses]

Post by sailaway »

Marseille07 wrote: Mon Jan 23, 2023 6:10 pm Seems like 27X to me as another poster already mentioned. Subtracting mortgage is fair game because that'd reduce your expenses. But subtracting SS from expenses doesn't make sense. You still spend 51K/year while getting additional income via SS.
The point is that you don't need to cover that amount with your own portfolio. Your portfolio only needs to cover what other income, such as pensions and SS, don't cover.
Marseille07
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Re: What X are we at? [Multiple of future years' expenses]

Post by Marseille07 »

sailaway wrote: Mon Jan 23, 2023 6:16 pm
Marseille07 wrote: Mon Jan 23, 2023 6:10 pm Seems like 27X to me as another poster already mentioned. Subtracting mortgage is fair game because that'd reduce your expenses. But subtracting SS from expenses doesn't make sense. You still spend 51K/year while getting additional income via SS.
The point is that you don't need to cover that amount with your own portfolio. Your portfolio only needs to cover what other income, such as pensions and SS, don't cover.
Oh I totally understand the point. But the conversation should then be if you need 25X or 20X or 15X, not calculating X as 74 and wondering why.
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sailaway
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Re: What X are we at? [Multiple of future years' expenses]

Post by sailaway »

Marseille07 wrote: Mon Jan 23, 2023 6:21 pm
sailaway wrote: Mon Jan 23, 2023 6:16 pm
Marseille07 wrote: Mon Jan 23, 2023 6:10 pm Seems like 27X to me as another poster already mentioned. Subtracting mortgage is fair game because that'd reduce your expenses. But subtracting SS from expenses doesn't make sense. You still spend 51K/year while getting additional income via SS.
The point is that you don't need to cover that amount with your own portfolio. Your portfolio only needs to cover what other income, such as pensions and SS, don't cover.
Oh I totally understand the point. But the conversation should then be if you need 25X or 20X or 15X, not calculating X as 74 and wondering why.
I was under the impression that OP thought they were at 27x and maybe that was still a little tight, but once they sat down to it, they realized they were closer to 70x.
Marseille07
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Re: What X are we at? [Multiple of future years' expenses]

Post by Marseille07 »

sailaway wrote: Mon Jan 23, 2023 6:27 pm I was under the impression that OP thought they were at 27x and maybe that was still a little tight, but once they sat down to it, they realized they were closer to 70x.
As mentioned, personally I don't like to subtract SS from expenses. If my expenses were 31K/year and if I receive 32K/year from SS, is my X infinity? It gets ridiculous very quickly.
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sailaway
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Re: What X are we at? [Multiple of future years' expenses]

Post by sailaway »

Marseille07 wrote: Mon Jan 23, 2023 6:34 pm
sailaway wrote: Mon Jan 23, 2023 6:27 pm I was under the impression that OP thought they were at 27x and maybe that was still a little tight, but once they sat down to it, they realized they were closer to 70x.
As mentioned, personally I don't like to subtract SS from expenses. If my expenses were 31K/year and if I receive 32K/year from SS, is my X infinity? It gets ridiculous very quickly.
Seems more ridiculous to save some safe multiple of expenses without counting SS at all if one is anywhere close to collecting.
Marseille07
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Re: What X are we at? [Multiple of future years' expenses]

Post by Marseille07 »

sailaway wrote: Mon Jan 23, 2023 6:48 pm
Marseille07 wrote: Mon Jan 23, 2023 6:34 pm
sailaway wrote: Mon Jan 23, 2023 6:27 pm I was under the impression that OP thought they were at 27x and maybe that was still a little tight, but once they sat down to it, they realized they were closer to 70x.
As mentioned, personally I don't like to subtract SS from expenses. If my expenses were 31K/year and if I receive 32K/year from SS, is my X infinity? It gets ridiculous very quickly.
Seems more ridiculous to save some safe multiple of expenses without counting SS at all if one is anywhere close to collecting.
Sure, and that's why I previously said "But the conversation should then be if you need 25X or 20X or 15X." In other words, 27X provides plenty and they needn't think that was still a little tight.
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Tom_T
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Re: What X are we at? [Multiple of future years' expenses]

Post by Tom_T »

Marseille07 wrote: Mon Jan 23, 2023 6:34 pm
sailaway wrote: Mon Jan 23, 2023 6:27 pm I was under the impression that OP thought they were at 27x and maybe that was still a little tight, but once they sat down to it, they realized they were closer to 70x.
As mentioned, personally I don't like to subtract SS from expenses. If my expenses were 31K/year and if I receive 32K/year from SS, is my X infinity? It gets ridiculous very quickly.
Then you will never run out of money. :sharebeer
Topic Author
kd2008
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Re: What X are we at? [Percentage of future years' expenses]

Post by kd2008 »

JS-Elcano wrote: Mon Jan 23, 2023 5:04 pm
kd2008 wrote: Mon Jan 23, 2023 4:44 pm In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
Keep in mind though that property taxes and home owners insurance will still need to be paid every year. Usually this is rolled into the monthly payment to the lender while one is paying off the mortgage. Make sure the 16k you are subtracting from your expenses is just the principal + interest payment and does not include taxes and insurance. In my case, taxes and insurance make up 23% of my current monthly "mortgage" payment, not a trivial amount.

Also, make sure that your estimated expenses for retirement are your best guess. We have more leisure time than when working, so may spend more money on things because we do them more often or spend on things we don't spend any money on now. I, for example, will also not have a mortgage payment, but will spend more than what that was on travel. I anticipate my expenses to be higher in retirement than they are now while I am working all week.
Yep, mortgage amount is principal and interest only. Interest rate is 2%. Not paying that off for now.

Yes, leisure may be more. The annual spend listed includes 3x our normal travel spend.

It would be nice to have options.
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kd2008
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Re: What X are we at? [Multiple of future years' expenses]

Post by kd2008 »

dbr wrote: Mon Jan 23, 2023 5:12 pm The whole exercise is one of successive approximations.

However it is true that people who anticipate typical Social Security and intend a moderately frugal lifestyle can end up not needing a lot of investment income. The trick is how much contingency to have in expected spending, especially for taxes, home owner expenses/rent, medical costs generally, and other contingencies.

Note the maximum SS benefit for a couple if taken at age 70 is now over $100,000/year. It is an off topic discussion what that might be in the more distant future.
I agree. Contingency estimation is hard. I like how you put it. Successive approximation.
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kd2008
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Re: What X are we at? [Multiple of future years' expenses]

Post by kd2008 »

Jack FFR1846 wrote: Mon Jan 23, 2023 5:41 pm In my opinion, the X number only gives you an "am I anywhere near where I need to be to retire?" kind of number.

Firstly, I would encourage you to make a Retirement List to get the real number, which is the X. Your working number won't be the same at all. Sure, you know the mortgage will be gone and the college costs behind you. But what will health insurance cost? Do you plan more vacation time than you do now?

Of course, there's often a wait after retirement to take social security. That's a bit more difficult to figure in. I tend not to beyond subtracting it from my X number past that age.

That said, I like doing an annual spread sheet. This lists assets, income and expenses. Going to forward years, each year has a % gain attached that can change every year. This helps because you can have future years projected and sudden changes like the start of social security can easily be included. I look out to when I expect to go and look to see what kind of money is projected to be left. I started my spread sheet before my kids went to college so things worked pretty well.
Health insurance - medicare part B & D premiums, prescriptions and my ACA out of pocket costs via HSA. Medigap premiums (if we go that route) and ACA premiums will come out of the annual spend. If we do Medicare advantage then all those expenses including our of pocket can be from HSA.

Travel more? yes. Possibly. We are amping it up now and getting the major ones out of the way while I am still working.
Last edited by kd2008 on Mon Jan 23, 2023 7:47 pm, edited 1 time in total.
Topic Author
kd2008
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Re: What X are we at? [Multiple of future years' expenses]

Post by kd2008 »

Navillus1968 wrote: Mon Jan 23, 2023 5:46 pm
kd2008 wrote: Mon Jan 23, 2023 11:38 am Total Annual spending: 67K/yr
Mortgage share included in above number: 16K/yr

Assets 1850K

DH SS @70 yrs age in 9 yrs: 32.5K/yr

Current Mortgage balance 188K

Bridge till SS starts = 32.5K x 9 = 292.5K

Ok now calculation of X:

Without mortgage we need 67K - 16K = 51K/yr

Assets remaining after paying off mortgage = 1850K -188K = 1662K

Considering SS bridge we need 51K - 32.5K = 18.5K/yr

Assets remaining after paying for SS bridge = 1662K - 292.5K = 1369.5K

X = 1369.5K/18.5K = 74

Something seems wrong!

(Simplified to today's value, not considering any future growth, or that I am currently working etc)

[Title clarified and topic moved to Personal Investments forum. -- moderator Kendall.]
I'm pretty dang far from an expert on Social Security bridge calculations, but after the mortgage is paid, won't you be spending $51k/year for 9 years until DH is 70, not $32.5k? Total of $459k vice $292k?

Then, when SSA kicks in, you will spend $18.5k/yr out of pocket going forward. I don't see how you are accounting for the $18.5k/yr from 61 to 70.

Discounting future growth & your current job income, won't your total at DH age 70 be:
$1850 - $188k (mortgage) = $1162k.
$1662k - $459k (9 years x $51k/yr living expenses) = $1203k

$1203k divided by $18.5k/yr living expenses= 65 times X.

Sorry, looks like it's the poorhouse for you!

Just kidding, I think this means you've won & can quit your job- unless you enjoy it. If so- carry on!

PS- what is your mortgage rate? If it's low, you might consider not paying it off since there's a good chance your money will do better invested in the market. YMMV

Edited to add: OK, after staring intently at the screen for 5 more minutes, 15 watt light bulb just turned on. Your numbers are for today, my calculations of X are for DH age 70. Got it. As Emily Litella said, "Never mind!"
Thank you for crunching the numbers. No worries.

We will be spending 51K/yr for 9 yrs? Yes.

32.5 x 9 = 292.5 is separated out to match/provide for until SS starts.

The rest 18.5K/yr come from the remainder of portfolio and this will continue for forever till the end (this is the withdrawal amount/rate, if you will, because everything else is provided for already)
Topic Author
kd2008
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Re: What X are we at? [Multiple of future years' expenses]

Post by kd2008 »

KlangFool wrote: Mon Jan 23, 2023 5:48 pm
kd2008 wrote: Mon Jan 23, 2023 11:38 am
Total Annual spending: 67K/yr
Mortgage share included in above number: 16K/yr

Assets 1850K
kd2008,

It is very simple.

1850K / 67K = 27.6X

Why do anything else?

How much is the TI (Property Tax and Insurance) portion of your 16K mortgage PITI payment?

KlangFool
KF,

Zero. 16K is Principal & Interest only.

It is important for me to understand how income streams of future affect our situation.
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kd2008
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Re: What X are we at? [Percentage of future years' expenses]

Post by kd2008 »

KlangFool wrote: Mon Jan 23, 2023 5:50 pm
kd2008 wrote: Mon Jan 23, 2023 4:44 pm In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
kd2008,

Then, why look at the future expense? Just use your current annual expense. If you want to retire tomorrow, could you?

KlangFool
Yes, financially. No, emotionally and maritally. 😀
Topic Author
kd2008
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Re: What X are we at? [Multiple of future years' expenses]

Post by kd2008 »

Wannaretireearly wrote: Mon Jan 23, 2023 6:07 pm The folly is trying to triangulate X. It’s really a range to overestimate, a bit. 100k and it’ll be non craft beer, 2 star accommodation and hopefully healthcare. More will buy better beer and vacations. Reality is over a 40 year+ retirement, X will be all over the place.
Yes, I concur.
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kd2008
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Re: What X are we at?

Post by kd2008 »

Exchme wrote: Mon Jan 23, 2023 11:58 am It may be better than you think, you seemed to leave out your SS benefit. Even if you never worked outside the home, you would be entitled to 1/2 of your DH's PIA amount, so you could get $13K/yr once he claims.

It sounds like you are OK, try some simple calculators like FireCalc to see how you situation would have fared historically.
I agree. I am just trying to be pessimistic assuming SS cuts etc...so didn't include mine. FireCalc said it would be ok based on past patterns.
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Re: What X are we at? [Percentage of future years' expenses]

Post by KlangFool »

kd2008 wrote: Mon Jan 23, 2023 7:44 pm
KlangFool wrote: Mon Jan 23, 2023 5:50 pm
kd2008 wrote: Mon Jan 23, 2023 4:44 pm In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
kd2008,

Then, why look at the future expense? Just use your current annual expense. If you want to retire tomorrow, could you?

KlangFool
Yes, financially. No, emotionally and maritally. 😀
But, if you are laid off and unemployed in the coming recession, it could just happened. I am prepared.

KlangFool
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Re: What X are we at? [Percentage of future years' expenses]

Post by kd2008 »

KlangFool wrote: Mon Jan 23, 2023 8:05 pm
kd2008 wrote: Mon Jan 23, 2023 7:44 pm
KlangFool wrote: Mon Jan 23, 2023 5:50 pm
kd2008 wrote: Mon Jan 23, 2023 4:44 pm In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
kd2008,

Then, why look at the future expense? Just use your current annual expense. If you want to retire tomorrow, could you?

KlangFool
Yes, financially. No, emotionally and maritally. 😀
But, if you are laid off and unemployed in the coming recession, it could just happened. I am prepared.

KlangFool
Like you, I have been laid off before. So it may feel "not new" if it happens. Since being FI, my concerns lie elsewhere. Health and wellness. Making most of the time that we do spend together...just making sure not all of it together all the time 😀 Thankfully we have different hobbies.
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Re: What X are we at? [Percentage of future years' expenses]

Post by KlangFool »

kd2008 wrote: Mon Jan 23, 2023 8:16 pm
KlangFool wrote: Mon Jan 23, 2023 8:05 pm
kd2008 wrote: Mon Jan 23, 2023 7:44 pm
KlangFool wrote: Mon Jan 23, 2023 5:50 pm
kd2008 wrote: Mon Jan 23, 2023 4:44 pm In a way I feel I was exposed to the folly of looking at X (multiple of future expenses saved so far) for retirement readiness. Income streams and their starting dates matter a whole lot including whether mortgage is paid off or not.
kd2008,

Then, why look at the future expense? Just use your current annual expense. If you want to retire tomorrow, could you?

KlangFool
Yes, financially. No, emotionally and maritally. 😀
But, if you are laid off and unemployed in the coming recession, it could just happened. I am prepared.

KlangFool
Like you, I have been laid off before. So it may feel "not new" if it happens. Since being FI, my concerns lie elsewhere. Health and wellness. Making most of the time that we do spend together...just making sure not all of it together all the time 😀 Thankfully we have different hobbies.
Then, 27X is the right number. You are FI and you are prepared to retired at any time. Why worry or plan about retiring in the future? If you can retire now, you can retire in the future with social security.

KlangFool
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kd2008
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Re: What X are we at? [Multiple of future years' expenses]

Post by kd2008 »

Thank you all for chiming in. I am still absorbing in the new found understanding.

We will process DH's retirement in 80 days. Let's see how we navigate that transition and make necessary adjustments.

One step at a time.
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