How much money do you need to retire at 40?

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Saundra
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How much money do you need to retire at 40?

Post by Saundra » Mon Sep 26, 2011 4:17 am

$2 million?

I'm thinking if you own your own house outright with no mortgage and have modest annual income requirements of $75,000 or less a year, it's quite do-able.

You may have to move to a low cost of living city, and better yet a state with no state income tax.

The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement and health insurance until medicare kicks in at 65. That's a long 25 years. And it's hell getting private coverage that's affordable if you've ever had a pre-existing condition.


Probably a catastrophic coverage hospital/surgical only policy with a high $5k or $10k deductible makes sense if the premiums are too outrageous.

Another option is going overseas to medical-tourism hospital facilities in Thailand and India for treatment at 1/10th the cost of the states.

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Post by Noobvestor » Mon Sep 26, 2011 4:55 am

For perpetual withdrawal (i.e. non-depleting) i've heard rates around here like 2.5%, which would mean 50K. Probably doable for someone frugal.
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Re: How much money do you need to retire at 40?

Post by nisiprius » Mon Sep 26, 2011 5:49 am

It's easy to get drawn in to trying to get precise numbers, but I'm not sure they're any more reliable than the simplest back-of-the-envelope calculations. Just spitballing here in this post, not an expert. Oh, by the way, there's a well-known early retirement forum, www.early-retirement.org, know almost nothing about it, not a member, might be worth looking at.

Life expectancy at age 65 is on the very rough order of 20 years; at age 40, it is about 40 years. So, to a first approximation, you're going to need roughly double the money, inflation-adjusted, at 40, as you would at 65. So, IF you think you could hack it retiring today with $1 million in savings, $2 million doesn't seem insane for retiring today at age 40.

Now let's look at some of the bigger factors and "ifs." You'll say "Isn't that $2 million going to earn something in the next 25 years" and my answer is "sure, but let's look at the negative factors first." And of course the worst problem is uncertainty factors, bad enough at age 65, but worse at age 40. The starting point for planning is to use today's situation, though.

There's one huge factor that's not taking into account, which is that Social Security benefits don't begin until age 62 at the earliest. And another equally huge one, which is that if you're truly retired, you're not paying in to Social Security after age 40. Spitballing again, because the exact computation is hugely complicated--there's a downloadable calculator called ANYPIA you can get from the SSA but I think there's probably only one person on this forum who knows how to use it :) and it ain't me!--I'm going to guess that an earner who's retiring today at age 65 and has maxed out her contributions might be $2000-$2500. Actually, it is $2366 for someone retiring today at age 66. For someone who maxed out contributions up to age 40 but hadn't worked since 1986, I'm going to guess it might be around $500/month. That's really a wild guess and is based on a couple of personal anecdotes who didn't think they were going to get any Social Security and were pleasantly surprised to find they were getting around that amount. Anyway. To figure what a Social Security benefit difference of, say, $2000/month is worth, I priced a commercial inflation-adjusted annuity paying that much to a 65-year-old woman today, and it costs around $500-$600,000.

So, to our $2 million estimate, you need an extra $500,000 or so to make up for getting little or no Social Security.

Now, an even bigger concern: health insurance. Medicare doesn't begin until age 65, and if you're not working you have no employer insurance, so what do you do? Being uninsured is not a prudent option. Looking up the cost of private, unsubsidized health insurance in a state where it is guaranteed-issue, age-and-community rated, it's around $400/month for a forty-year old, rising to $650/month for a 65-year-old. So, again, just spitballing, it's going to cost, oh, $500/month for 25 years = another $150,000 or so for health insurance.

So, if $1 million is enough for a 65-year old, we're now saying it might take $2.5, $2.75, maybe $3 million for a 40-year old.

Now let's take a wild guess at investment returns. I started by assuming it takes twice as much money to fund 40 years of retirement as it does to fund 20. We then figured that, including private health insurance for the first 25 years, and savings to make up for not getting much Social Security after 65, it might be more like 2.5 to 3 times. If I go into Excel and fiddle around, if I assume that the invested money earns 2% to 3% real (above inflation), and I ask "How much money does it take to withdraw $65,000 or $70,000 a year for forty years and not run out," the answer I get is $1.6 million ($65,000/year, 3% return) to $1.95 million ($70,000/year, 2% return).

The conclusion I come to is that if $1 million is enough for a 65-year-old, then it is not irresponsible to start at age 40 with $2 million. And I honestly don't think you can cut it finer than that, because the uncertainties of investment returns are huge, and the uncertainties of everything else are way huger.
Saundra wrote:The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement and health insurance until medicare kicks in at 65.
That's a matter of personal resources, but I seriously doubt it. One simple answer is to find some work-like thing that you love to do and are willing to spend 20-30 hours a week doing. It can even be some crazy thing that might or might not earn money--some cottage-industry thing that doesn't take a lot of capital to start and, thanks to being retired, doesn't have to make money. Invent a new kind of carrying case for pickleball paddles that is designed to exactly fit the luggage bins in an airliner, make it yourself by hand, sell it a craft fairs and on the Internet. Say.
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Re: How much money do you need to retire at 40?

Post by Valuethinker » Mon Sep 26, 2011 6:43 am

nisiprius wrote:It's easy to get drawn in to trying to get precise numbers, but I'm not sure they're any more reliable than the simplest back-of-the-envelope calculations. Just spitballing here in this post, not an expert. Oh, by the way, there's a well-known early retirement forum, www.early-retirement.org, know almost nothing about it, not a member, might be worth looking at.

Life expectancy at age 65 is on the very rough order of 20 years; at age 40, it is about 40 years. .
Be very careful on that one. In the Royal Borough of Kensington and Chelsea, the average life expectancy for men is over 85.

Why does that matter?

- it's very important whether we are talking about men or women (and if we are thinking about spouse, about the impact of divorce on the situation) re life expectancy

- the sort of people who have enough to voluntarily retire at 40 (ie not ill health) are probably in that elite category of people who could (or their spouses could) live a *very* long time. There is a borough in Glasgow where the life expectancy of men is about 64 years ie over 20 years less. But they won't be retiring at 40 (if they have jobs at all)

Note Americans are not particularly long lived *on average* amongst developed nations. But I suspect there is a slice of Americans, with good jobs, access to medical care, fit lifestyles, that would or will live as long as or longer than almost any other nation.

- 40 years is a long time, and one or two key medical breakthroughs could utterly transform human life expectancy. There is probably a set limit, given to us at birth, around 100 years, which varies by individual (some could be 80-90, some 110-120) but it might be quite common, even normal, in 2052 to live to be 100+.

Of course some dread plague could take 1/3rd of us off before that. That would be consistent with human history and natural observation. But you can't plan your finances around that.

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Post by bungalow10 » Mon Sep 26, 2011 7:07 am

retiring at 40?! I'm so jealous, I think with two kids our lives will probably at the peak of expensiveness from 40-50. If we have a third kid, we will be guaranteeing ourselves to be working folks until at least 55.

Good luck OP! I think 2 mil is doable,. If you are willing to work part-time or seasonally, you can probably do it quite easily.

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Post by beareconomy » Mon Sep 26, 2011 7:09 am

The elephant in the room is health insurance. I think maybe $10 million if you want to self insure yourself.

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Post by TN_INVEST » Mon Sep 26, 2011 8:00 am

beareconomy wrote:The elephant in the room is health insurance. I think maybe $10 million if you want to self insure yourself.
It's not impossible to find a health insurance policy. If for nothing else, the policy would give a person a decent idea of how much to budget (many have maximum out of pocket limits).

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Post by travellight » Mon Sep 26, 2011 8:55 am

I had always thought of two million as a minimum number to retire. Preferably 4 million. I asked a friend what she thought and was shocked at 8 million as her target, but then she represents a couple and I am just one person.

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Post by xerty24 » Mon Sep 26, 2011 9:11 am

bungalow10 wrote:I think with two kids our lives will probably at the peak of expensiveness from 40-50. If we have a third kid, we will be guaranteeing ourselves to be working folks until at least 55.
Yeah, kids are probably another $250k each if you want to send them to a top college, maybe more depending on how young they are and how the tuition bubble goes. How long does it take to work to earn another $500k - maybe a decade or more. That's the price of the family with two kids.

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Post by letsgobobby » Mon Sep 26, 2011 9:17 am

We would not be able to support our family of 4 on partly taxable income of $50,000 annually. Even with a paid off house, it would not be possible to save for college and certainly not possible to provide health insurance and the inevitable copays for that amount.

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Post by nisiprius » Mon Sep 26, 2011 9:40 am

beareconomy wrote:The elephant in the room is health insurance. I think maybe $10 million if you want to self insure yourself.
It may be that it's impossible to be too pessimistic about healthcare costs, but as I noted above, it's possible to get unsubsidized guaranteed-issue age-and-community-rated health insurance in states that offer it for around $400 to $700/month depending on age. Even $700/month for 25 years is only $210,000, not $10 million. Even if you figure healthcare costs rise 3% faster than inflation, allow 15 years of 3% inflation to get a rough average for the overall increase and that's still about $325,000.

Trying to stay nonpolitical, I don't know how it will work out, but I just don't believe the current situation in which people with preexisting conditions are literally forced to self-insure will continue.

But if you don't agree and think you need to budget for true self-insurance, then, yeah, $10 million doesn't seem excessive.
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Post by rcshouldis » Mon Sep 26, 2011 9:43 am

If you need $1 million at retirement you better put $ 2 million in the stock market now. LOL!

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Post by KyleAAA » Mon Sep 26, 2011 9:47 am

I would not be comfortable retiring with $2 million at 40 if I needed $75k per year. Anything more than a 3% WR would make me nervous, and I'd prefer to keep it closer to 2%.

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Re: How much money do you need to retire at 40?

Post by yobria » Mon Sep 26, 2011 9:50 am

Saundra wrote:The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement
Yes, and since you're paying a high price for that long retirement (having to pinch pennies, worrying about health insurance), they had better be some pretty fulfilling activities.

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Post by hicabob » Mon Sep 26, 2011 9:50 am

There is no "magic number" - IMO, the correct question is "how much do you want to spend", then make your assumptions and reverse engineer the total from that.

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Post by VictoriaF » Mon Sep 26, 2011 11:21 am

ncounty wrote:I had always thought of two million as a minimum number to retire. Preferably 4 million. I asked a friend what she thought and was shocked at 8 million as her target, but then she represents a couple and I am just one person.
The problem frequently is that it's a moving target. You think that $2m is sufficient, but once you get there you feel greedy and continue working to accumulate even more. Or worse, you gamble with the existing millions to get even more millions ... and lose millions in the process.

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Post by Lorraine » Mon Sep 26, 2011 11:59 am

KyleAAA wrote:I would not be comfortable retiring with $2 million at 40 if I needed $75k per year. Anything more than a 3% WR would make me nervous, and I'd prefer to keep it closer to 2%.
+1
That's the way I see it too. A lot can change in a few years that would make a huge difference.

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Re: How much money do you need to retire at 40?

Post by ascenzm » Mon Sep 26, 2011 12:19 pm

Saundra wrote:$2 million?

I'm thinking if you own your own house outright with no mortgage and have modest annual income requirements of $75,000 or less a year, it's quite do-able.

You may have to move to a low cost of living city, and better yet a state with no state income tax.

The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement and health insurance until medicare kicks in at 65. That's a long 25 years. And it's hell getting private coverage that's affordable if you've ever had a pre-existing condition.


Probably a catastrophic coverage hospital/surgical only policy with a high $5k or $10k deductible makes sense if the premiums are too outrageous.

Another option is going overseas to medical-tourism hospital facilities in Thailand and India for treatment at 1/10th the cost of the states.
A lot! :) Especially now in today's current low interest rate environment. If I were 40 years old and retiring, I would not want to withdraw more than 2% of my net worth per year. Forget that 4% SWR rule of thumb that you might have read about.

You first need to solve the health insurance problem which is a major stumbling block for most would be early retirees. IIRC, it was in the WWII era when employers first started providing health insurance because they could not increase wages. IMHO, if this had not happened and workers had always been on their own to obtain health insurance, early retirement would be much more common. People would be used to buying their own health insurance and quitting a job would not mean the loss of health insurance. Both of my parents grew up in a time when most people did not have health insurance yet their families could afford medical care when needed. Doctors then charged what patients could afford to pay.

As an introvert, I'd have no problem finding things to do if I was not employed. My personal ER plan is to work until I'm 58 (if my employer will keep me employed). Assuming the current employer benefits don't change in the next three years, I will be eligible for 94% of a normal DB pension (COLA) and I'll have the right to buy into my employer's group health insurance plan until I'm 65.

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Re: How much money do you need to retire at 40?

Post by ascenzm » Mon Sep 26, 2011 12:21 pm

yobria wrote:
Saundra wrote:The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement
Yes, and since you're paying a high price for that long retirement (having to pinch pennies, worrying about health insurance), they had better be some pretty fulfilling activities.

Nick
Sleeping in every weekday morning would be a fulfilling activity for me as well as listening to rush hour traffic reports while I'm eating a nice leisurely breakfast. :)

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Post by ascenzm » Mon Sep 26, 2011 12:26 pm

beareconomy wrote:The elephant in the room is health insurance. I think maybe $10 million if you want to self insure yourself.
Yikes! How many people with ordinary incomes could ever amass USD $10 million in net worth before normal retirement age (unless you start your own business or are a stock picker guru)? I'm an engineer who makes more salary than most Americans and I have worked for 33 years. I am nowhere near being worth USD $10 million and I think I've done a decent Boglehead job of saving and investing. I'd find health insurance that I could obtain or move to a state with a guaranteed risk pool for health insurance. Health insurance is wealth insurance.

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Post by HomerJ » Mon Sep 26, 2011 1:09 pm

VictoriaF wrote:The problem frequently is that it's a moving target. You think that $2m is sufficient, but once you get there you feel greedy and continue working to accumulate even more.
Or nervous. Doesn't have to be greedy.

$2 million is my target... And my plan has a cushion. Once I get there, I may work another year or two just for yet another layer of cushion...

Just in case.

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Post by HomerJ » Mon Sep 26, 2011 1:11 pm

Lorraine wrote:
KyleAAA wrote:I would not be comfortable retiring with $2 million at 40 if I needed $75k per year. Anything more than a 3% WR would make me nervous, and I'd prefer to keep it closer to 2%.
+1
That's the way I see it too. A lot can change in a few years that would make a huge difference.
Yeah $75k is too large a withdrawal from $2 million when you're that young...

I wouldn't do it unless I could meet all my basic needs with $40,000 (2%), and then I'd withdraw a little extra for fun depending on how my investments do that year.

Now if you retire at 55 with $2 million, I'd feel comfortable with $60k a year (3%)... and at 65, I'd go the full 4% ($80k)

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Post by HomerJ » Mon Sep 26, 2011 1:15 pm

ascenzm wrote:
beareconomy wrote:The elephant in the room is health insurance. I think maybe $10 million if you want to self insure yourself.
Yikes! How many people with ordinary incomes could ever amass USD $10 million in net worth before normal retirement age (unless you start your own business or are a stock picker guru)? I'm an engineer who makes more salary than most Americans and I have worked for 33 years. I am nowhere near being worth USD $10 million and I think I've done a decent Boglehead job of saving and investing. I'd find health insurance that I could obtain or move to a state with a guaranteed risk pool for health insurance. Health insurance is wealth insurance.

Mike
$10 million is a bit of an exaggeration...

If you can retire on $2 million (not counting health care), I'd be quite comfortable with $500k or $1 million set aside to just fund private insurance for the next 25 years.

So $3 million would be super conservative. That extra million can be completely spent over the next 25 years if needed... $40k a year just dedicated to paying insurance premiums. Way overkill. Very unlikey you'd need that much.

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Post by Random Poster » Mon Sep 26, 2011 1:18 pm

So are we talking about $2M in taxable investments, or $2M in total investments (taxable and tax-deferred)?

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Post by banrep » Mon Sep 26, 2011 1:21 pm

$2M is pretty reasonable if a good portion of it is tax advantaged, and the $75k is gross not after taxes. The numbers people are throwing around $4M, $8M, $10M? That just seems so crazy pessimistic.

I imagine if someone were intelligent enough to save up $2M by age 40 then they would probably have lots of marketable skills so I don't think you would need to assume that they will never earn another penny from labor in their life. Even if that's their goal, if they kept a high percentage in stocks and things turned south they would still have plenty of time to go back to work.

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Post by smackfu » Mon Sep 26, 2011 2:04 pm

When you have that much savings, wouldn't a high deductible health plan make more sense after a certain point? Assuming you get significant savings for them, a $5k or $10k deductible could work out well, with the high end still being covered to protect your assets.

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Post by 3CT_Paddler » Mon Sep 26, 2011 2:45 pm

banrep wrote:$2M is pretty reasonable if a good portion of it is tax advantaged, and the $75k is gross not after taxes.
If most of it it is tax advantaged, then they might not be able to withdraw the funds without penalties until the are 59 1/2 (unless it is in a Roth... in which case they can only withdraw contributions).

$75k of $2M is close to 4%. That is probably on the high end for a potential 40 or 50 year withdrawal phase.

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Post by newbie001 » Mon Sep 26, 2011 3:04 pm

If you are not a materialistic person, I think 2M is a reasonable sum for retirement at age 40, although I'd be concerned about higher-than-anticipated inflation. Maybe look into an inflation-adjusted annuity?

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Post by VictoriaF » Mon Sep 26, 2011 3:13 pm

newbie001 wrote:If you are not a materialistic person, I think 2M is a reasonable sum for retirement at age 40, although I'd be concerned about higher-than-anticipated inflation. Maybe look into an inflation-adjusted annuity?
Not materialistic is not sufficient. One also has to be non-experiential, i.e., not be interested in spending money on travel, sports, hobbies, and other experiences. In early retirement there are plenty temptations for experiences.

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Post by travellight » Mon Sep 26, 2011 8:43 pm

2 million is doable if your home(s) is paid off and if you had no kids and provided free health insurance. It was my minimum goal to be ABLE to retire at 50 with those benchmarks. Having a kid threw that way off. Now my goal is 4 million+; that is net worth though and includes the value of my home/assets.

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Post by travellight » Mon Sep 26, 2011 8:45 pm

I also think it is insecurity rather than greed, Victoria, that would keep me working after having met a threshold. Also, I am experiential. lol, don't want to compromise the activities worth living for!

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Post by market timer » Mon Sep 26, 2011 9:01 pm

Assuming I wanted $50K/year, inflation adjusted, after tax, and without risk, I'd look at what it would cost to buy a 30-year TIPS ladder with approximately $50K/year real maturing after tax and a SPIA that kicks in at age 70 that pays $50K real minus Social Security benefits. With real rates negative after tax -- say, -0.5% on average after tax -- I'm thinking around $1.6 million for my TIPS ladder and probably somewhere around $600K for the SPIA. If it isn't possible to buy such a SPIA 30 years in advance, I'd put the $600K into a long term TIPS fund until age 70, then buy the SPIA at that time.

Long story short, $2.2 million to live on $50K/year.

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Post by VictoriaF » Mon Sep 26, 2011 9:05 pm

ncounty wrote:I also think it is insecurity rather than greed, Victoria, that would keep me working after having met a threshold. Also, I am experiential. lol, don't want to compromise the activities worth living for!
The problem with the "insecurity" explanation is that we never feel completely secure. No matter how much money we have, we can easily envision some catastrophes that would result in us losing the essential part of this money.

We visualize the risks of running out of money -- even when we have accumulated the amount that we have previously decided would enable us to retire -- and we don't see the risks of running out of life.

And so I still stand behind my designation of such a behavior as "greed", because
(1) it is greed for more money veiled as more security
and
(2) it is a negative trait, as it feeds upon or creates the habit of indecision and deprives us of our best (youngest) retirement years.

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Re: How much money do you need to retire at 40?

Post by Fallible » Mon Sep 26, 2011 9:22 pm

Saundra wrote:$2 million?

I'm thinking if you own your own house outright with no mortgage and have modest annual income requirements of $75,000 or less a year, it's quite do-able.

You may have to move to a low cost of living city, and better yet a state with no state income tax.

The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement and health insurance until medicare kicks in at 65. ...
I think this is the first time I've heard someone wonder what they would do over a 40 or 50-year period. Surely you have some ideas, interests, goals?

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Post by Frobie » Mon Sep 26, 2011 9:44 pm

Speaking as someone who turned 40 earlier this year, this thread is depressing.

At least I (mostly) like my job. I am thankful for that.

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Post by AQ » Mon Sep 26, 2011 11:27 pm

I'm 50 and I have 2 mil. Retirement idea poped up once a while, but the biggest fear is health insurance.

Not sure where I can get an insurance for $700 a month someone cited above? According to my company's benefit sheet, my employer paid close to $1300 a month for premium, and I paid close to $2000 for co-pay, deductiable, etc so it'd add up to almost $20K a year (sure, I picked the most expensive PPO plan). But this is the group rate and I imagine that if I retire and buy it myself, the rate should been much higher.

On the other hand, I have asthama / COPD problems. I wonder should I lower my expectancy, say, I should plan to be done by 70 years old, and thus should retire now? Wish a website to help this sort of more customized decisions..

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Post by scrabbler1 » Tue Sep 27, 2011 12:24 am

Now 48, I retired 3 years ago at age 45. In the ~18 months leading up to my retirement, I was watching the final pieces of my ER plan fall into place. The biggest one was finding an affordable health insurance policy.

I had accumulated nearly $1M in investable assets although that amount took a hit in 2008 before rebounding and now exceeding $1M. I use the $700k in taxable account investments to generate enough to cover my expenses while having a nice surplus or cushion to protect me against unforeseen expenses. Any uspent srplus gets reinvested.

I also have about $300k in an IRA which, along with SS and my frozen company pension, are my "reinforcements" which I can tap into starting at age 60. So what is most importnat is for me to make it to age 60 intact. My overall SWR is about 2% and in my plan will rise a little but stay under 3%.

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Post by MossySF » Tue Sep 27, 2011 12:41 am

AQ wrote:Not sure where I can get an insurance for $700 a month someone cited above? According to my company's benefit sheet, my employer paid close to $1300 a month for premium, and I paid close to $2000 for co-pay, deductiable, etc so it'd add up to almost $20K a year (sure, I picked the most expensive PPO plan). But this is the group rate and I imagine that if I retire and buy it myself, the rate should been much higher.
Health insurance companies don't give any discounts for group rates -- not in California at least. The quotes I got for my company were not much different than sample comparison quotes I got for individual policies. The reality is they can't give any discounts because they can't underwrite based on past medical history so sometimes a small group pays even more than an individual would.

The key is to get a high-deductible HSA-compatible policy. We went from paying $1100/mo per employee to $400/mo and for our older married employees, your $700/mo is about right. The premium difference alone was able to fund everybody's HSA account to the maximum. So if you're going to have to pay $2000/yr in deductibles, why not save on premiums and get an extra tax break to boot?

In any case, to turn this thread back to the original question -- it's not how much you have that determines whether you can retire at 40 but how much you spend. Where I currently live now, medical costs are cheap (CT Scan for $40 USD) so it would be rather easy to retire here at 40 with just $1M -- $250K if you want to live like a local instead of an expat.

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Re: How much money do you need to retire at 40?

Post by SlammingAces » Tue Sep 27, 2011 1:15 am

nisiprius wrote: There's one huge factor that's not taking into account, which is that Social Security benefits don't begin until age 62 at the earliest. And another equally huge one, which is that if you're truly retired, you're not paying in to Social Security after age 40. Spitballing again, because the exact computation is hugely complicated--there's a downloadable calculator called ANYPIA you can get from the SSA but I think there's probably only one person on this forum who knows how to use it :) and it ain't me!--I'm going to guess that an earner who's retiring today at age 65 and has maxed out her contributions might be $2000-$2500. Actually, it is $2366 for someone retiring today at age 66. For someone who maxed out contributions up to age 40 but hadn't worked since 1986, I'm going to guess it might be around $500/month. That's really a wild guess and is based on a couple of personal anecdotes who didn't think they were going to get any Social Security and were pleasantly surprised to find they were getting around that amount...
I think your WAG is off. You build up Social Security benefits quickly at the start of your career. Unfortunately, the return on investment really stinks later on.

The website http://www.retireearlyhomepage.com/soc_security.html has a calculation on SS benefits and its results show that early retirement at 40 still gives you ~70% of max benefits. The calculation was done in 2007, but the relative results should be ok.

If you stop working at age 40 and maxed out SS contributions for 15 years, I think you are looking at $1,500/month in benefits at age 67. Working another 25 years only nets you $800/month more of SS.

Lets say you can live on $50,000 and need to survive 50 years. Assume 0 real return for safety, then you need:

$1.35M to survive until age 67 (27 yrs*($50,000/yr))
$0.75M to survive from age 67 to age 90 (23 yrs*($32,000/yr))
$2.10M required to retire at age 40
"The safest way to double your money is to fold it over and put it in your pocket." | - Kin Hubbard

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Post by mnaspbh » Tue Sep 27, 2011 1:49 am

nisiprius wrote:
beareconomy wrote:The elephant in the room is health insurance. I think maybe $10 million if you want to self insure yourself.
It may be that it's impossible to be too pessimistic about healthcare costs, but as I noted above, it's possible to get unsubsidized guaranteed-issue age-and-community-rated health insurance in states that offer it for around $400 to $700/month depending on age. Even $700/month for 25 years is only $210,000, not $10 million. Even if you figure healthcare costs rise 3% faster than inflation, allow 15 years of 3% inflation to get a rough average for the overall increase and that's still about $325,000.
The issues that I've seen with private insurance are:

Health costs are rising at at least 8%/year

Premiums alone are a small part of one's potential health care costs

If you budget for the insurance premiums alone, you're in deep trouble if you get a chronic condition (diabetes, MS, etc). I know too many people (including those who were in good health) who have come down with chronic conditions that easily max out their deductibles and OOP max every year. Budgeting for this puts the "cheapest" insurance in my state (community ratings, no guaranteed issue except through the state's fallback plan) at well over $10K/year for each of us. That pushes the amount-until-Medicare to over $1M (assuming 5% above inflation), and that assumes that Medicare will cover everything then at least as well as it does today, and that there are no health issues or prescriptions that aren't fully covered by the private insurance.

Another gotcha is that health care makes up only a tiny portion of the CPI. That means that TIPS ladders and I-Bonds will not keep up with one's personal rate of inflation. Instead, one is likely to need an aggregate real rate of return of at least 3%...which means taking on more risk.

The most likely risk/failure scenarios with an early retirement are due to health issues. These are unfortunately the same kinds of issues that may make it wholly impossible to un-retire (even assuming one maintains highly-marketable skills in retirement). So, it doesn't seem safe to assume that one can just get a job to make up for potential shortfalls.

With ~50K/yr estimated expenses (dominated by planned health costs), $2M for a couple with no children doesn't seem like enough to retire at 40. I doubt I'd risk it even at $2.5M, without much better odds on health care. $3M is probably as low as I'd go...and that's depressing given how much the average American family would earn between ages 40 and 65. Political comments pre-deleted. :)

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Post by HomerJ » Tue Sep 27, 2011 9:01 am

MossySF wrote:it's not how much you have that determines whether you can retire at 40 but how much you spend.
Exactly. And people spend a lot less than they think.

Someone with a $100k salary probably only spends $60k a year on living expenses, $40k if the house was paid off.

So you only really need to generate that $40k to live the exact same lifestyle you live now, not the $100k salary.

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Post by manuvns » Tue Sep 27, 2011 9:39 am

pretty simple . have 25x your desired income saved .

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Post by cjking » Tue Sep 27, 2011 10:19 am

Amount = [Target budget] / [Index Dividend Yield]

If you're willing to relocate, index yield in UK is 3% (smoothed earnings yield 7% I think) and in Europe-excl-uk it is 3.3%. :)

For a long period, if invested in volatile assets, you cannot spend more than the (smoothed) earnings yield, otherwise you risk dangerously depleting assets during a downturn that is temporary for the market, but not for you, if your withdrawals are excessive.

Happiness depends on relative wealth, so, for such a long period, you should actually plan for an increasing income. That (and the need for safety margin) explains why you do not spend the part of earnings that isn't in the dividend.

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Post by jh » Tue Sep 27, 2011 10:26 am

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Last edited by jh on Fri May 04, 2012 10:27 pm, edited 1 time in total.

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Re: How much money do you need to retire at 40?

Post by yobria » Tue Sep 27, 2011 11:33 am

ascenzm wrote:
yobria wrote:
Saundra wrote:The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement
Yes, and since you're paying a high price for that long retirement (having to pinch pennies, worrying about health insurance), they had better be some pretty fulfilling activities.

Nick
Sleeping in every weekday morning would be a fulfilling activity for me as well as listening to rush hour traffic reports while I'm eating a nice leisurely breakfast. :)

Mike
Yeah that would be fulfilling...for about two weeks :) .

Nick

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Post by Default User BR » Tue Sep 27, 2011 12:36 pm

AQ wrote:Not sure where I can get an insurance for $700 a month someone cited above? According to my company's benefit sheet, my employer paid close to $1300 a month for premium, and I paid close to $2000 for co-pay, deductiable, etc so it'd add up to almost $20K a year (sure, I picked the most expensive PPO plan).
My companies traditional plan, then one I'm in, is currently costing them $5,037 per year for me. That has $200 yearly deductible and the usual $10-$15 co-pays. Benefits of being with a megacorp, I suppose.



Brian

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Post by travellight » Tue Sep 27, 2011 3:04 pm

"pretty simple . have 25x your desired income saved ."


How did you come up with that, manuvns?

Turns out to be a pretty good ballpark estimate.

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Post by HomerJ » Tue Sep 27, 2011 3:09 pm

ncounty wrote:"pretty simple . have 25x your desired income saved ."


How did you come up with that, manuvns?

Turns out to be a pretty good ballpark estimate.
4% withdrawal rate equals 25x

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Re: How much money do you need to retire at 40?

Post by VictoriaF » Tue Sep 27, 2011 3:25 pm

yobria wrote:
ascenzm wrote:Sleeping in every weekday morning would be a fulfilling activity for me as well as listening to rush hour traffic reports while I'm eating a nice leisurely breakfast. :)

Mike
Yeah that would be fulfilling...for about two weeks :) .

Nick
While I don't care about the morning traffic Schadenfreude, the end of sleep deprivation is one of the greatest attractions of retirement.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: How much money do you need to retire at 40?

Post by ascenzm » Tue Sep 27, 2011 7:27 pm

yobria wrote:
ascenzm wrote:
yobria wrote:
Saundra wrote:The big question mark I would think is finding things to do to occupy your time for a possible 40 or 50 year retirement
Yes, and since you're paying a high price for that long retirement (having to pinch pennies, worrying about health insurance), they had better be some pretty fulfilling activities.

Nick
Sleeping in every weekday morning would be a fulfilling activity for me as well as listening to rush hour traffic reports while I'm eating a nice leisurely breakfast. :)

Mike
Yeah that would be fulfilling...for about two weeks :) .

Nick
To each his own. I finally took two weeks off from work last Christmas time. This was the first time since I started working in 1978 that I'd been away from work for two weeks straight. I loved the time off. Not everybody enjoys the prospects of early retirement and for that I am thankful. Someone has to keep working and paying lots of taxes. :)

To me, the daily rush hour commute is one of the negatives of being employed. As an avid runner and walker, I'd love to have a job where I could walk/run/bicycle to and from work.

Mike
Avatar is a Japanese Cherry tree in Washington, DC during the peak cherry blossom time.

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