What's your number? Why?

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Grt2bOutdoors
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Re: What's your number? Why?

Post by Grt2bOutdoors » Thu Mar 07, 2013 10:50 am

KyleAAA wrote:I haven't determined my number yet, so I'd like to ask a related question. Is it worth it for investors in the 25-35 age range to go through the exercise or trying to come up with a number given the huge uncertanties involved? My current strategy is just to save as much as I can.
Not a bad strategy - I'm using that myself, but not to the point of denying myself the basic creature comforts. I've seen the pauper strategy and the outcome is not pretty at all - family discord, etc If you're married, it's important your partner is on the same page as you, let me underscore "very" important. I'm a tad bit older and find trying to come up with a precise number can be an exercise in frustration - too many unknowns and much of it is based on being able to stay employed through a certain age. Lack of cashflow can sink the tightest of ships.
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Re: What's your number? Why?

Post by Grt2bOutdoors » Thu Mar 07, 2013 10:51 am

LH wrote:
bobcat2 wrote:Taking into consideration the current level of real interest rates is extremely important when developing an investment strategy for retirement, because the higher real interest rates are, then the higher the income stream that can be supported by any particular level of wealth. Since the goal of retirement planning is income in retirement, setting a retirement target of a given level of wealth at retirement is faulty retirement targeting. That's because the amount of retirement income that wealth will support is conditional, among other things, on the level of real interest rates at retirement age. This is a key reason that the price of a real life annuity at your retirement age, which takes longevity, real interest rates, and inflation expectations into account, is instead the appropriate target for retirement planning. (Everyone needs to recognize that setting a level of wealth at retirement as the target takes none of these three salient retirement planning factors into account.) In other words, the level of real wealth to support a targeted real retirement income level changes over time and it can change by a large amount.

BobK
Ok Bob,

I am 43, I plan to retire at 55.

What is the price and conditions offered of a real life annuity for me at 55 years old, 12 years hence in 2025?

You have an answer? Or is it conditional?

Also, what are the chances that the annuity company will fail over a 30 to 40 year time period?

just wondering,

LH
How many annuity companies have failed? Not many - Executive Life was one. However, I believe the insurance regulators cooked up a "quick" marriage with more solvent companies to ensure beneficiaries lost nothing.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ResNullius
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Re: What's your number? Why?

Post by ResNullius » Thu Mar 07, 2013 10:52 am

Rick Ferri wrote:Having worked with thousands of people to help find their "number" for an investment portfolio, I can make a few observations:

Your "number" in saving depends on:

1) the percentage of retirement spending for basic needs, which cannot be reduced, and discretionary which can be reduced and is reduced with age.
2) other sources of income (pensions, rental income, inheritance, annuities, Social Security, etc)
3) whether other assets can or will be sold over time (land, second home, airplane, collectibles)
4) how much a person want's to leave behind for heirs or charity to inherit.

In very general terms, I find that most people who have lived an modest middle-class lifestyle can live well in retirement if they accumulate $2 million in an investment portfolio (2012 dollars). This is enough to supplement income from Social Security and perhaps other income sources, and assumes no burning desire to leave heirs with anything except what's left.

Rick Ferri
Rick, I just wanted to inquire about your idea of a modest middle-class lifestyle taking $2M in investable assets, over and above SS. In order to accumulate $2M by retirement, a person would need to have had a reasonably good paying job, likely something in middle management or a lower paid profession, and that would mean that they (single or joint) would have SS income of at least $20K to $25K per year plus Medicare. Even using a low withdrawal rate of 3%, and including SS, this would give that person/couple at least $85K before taxes. After taxes, they likely would have around $70K. Given that such a person/couple likely would have their home paid for by retirement, it strikes me that $70K would place them well above a modest middle-class lifestyle. Just saying.

Edit: I just googled income ranges. According to several reasonably authoritative sources, an income of $100K during working life, or a little higher, puts a person/family in the top 5% in America. Even if this is off a bit, the fact is that a retired person/couple would need less than their total annual income during their working years, because they were paying into retirement, paying a mortgage, paying for education, saving and investing during their working years. These are not things they would need to allocate money to in retirement, because they would have already accumlated their retirement nut.
Last edited by ResNullius on Thu Mar 07, 2013 11:03 am, edited 1 time in total.

Grt2bOutdoors
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Re: What's your number? Why?

Post by Grt2bOutdoors » Thu Mar 07, 2013 10:59 am

Sheepdog wrote:I was going to retire at 65. I planned on taking my pension in a lump sum so I was going to live off of Social Security and the pension buyout plus savings. About 5 to 6 years before retiring I kept track of all of my spending for 2 years. In those years I took a vacation to Europe and purchased a car, so that was a good base expense amount for retirement. I took that spending average and subtracted my Social Security payment. The result would be the income needed from savings and the pension buyout, so I divided that by 0.04 (4%) to determine the minimum amount I would need. I increased that by 25%. I subtracted the pension buyout and the result was my number. My number was around $750k. That was enough as my present net worth is over $1 mil.
Jim
I like your advice. I think about using that strategy and then I keep wondering about just how much tinkering if any will be done to a decent chunk of retirement income called Social Security. In my calculations, I've discounted expected S.S. by 25% and 50%, but it still a long way off. Any corporate pension I may have been entitled to has been frozen, and the vested benefit may pay for my electric bill, if that. What's left? Save.Save.Save. Invest.Invest.Invest. I assume it was always like this before the creation of pensions, or the alternative was to work until the work completely dried up. Still, I will admit it as the years go by, I envy those who don't have to plan, it'd be a load off my mind.
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lwfitzge
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Re: What's your number? Why?

Post by lwfitzge » Thu Mar 07, 2013 11:01 am

I met my number this year at 48 yrs old. What is meant to me was not retirement but to "downshift", to quit the torrid pace and lifestyle that got me there (lots of fun but lots of stress and inadequate time for family/self). I'm now a consultant and part-time educator that works out of my home... no commute, no boss, time for soccer games, time for hobbies, more flexibility to do what I want, where I want and when I want.

key circumstances

1) $2M nest egg (60:40 split equity:fixed income, significant value and small company tilts; follow Boglehead principles
2) Part-time, self employed; spouse that works FT and provides healthcare for family
3) other sources of income to tap later: inheritance, SS, healthy pensions for me and spouse
4) expect to fully retire at 59
5) will likely have money to leave as inheritance but it's not a requirement for me/my wife
Last edited by lwfitzge on Thu Mar 07, 2013 11:03 am, edited 1 time in total.

scone
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Re: What's your number? Why?

Post by scone » Thu Mar 07, 2013 11:01 am

One million in liquid investments (not real estate). That gives a withdrawal of about 2.5%. This plus Social Security, adds up to a little more money than we spend now. At our current savings rate, we should reach this number by the time we retire, even if the market is flat. In fact, we might be safer if we took even less risk than we do.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: What's your number? Why?

Post by Grt2bOutdoors » Thu Mar 07, 2013 11:03 am

ResNullius wrote:
Rick Ferri wrote:Having worked with thousands of people to help find their "number" for an investment portfolio, I can make a few observations:

Your "number" in saving depends on:

1) the percentage of retirement spending for basic needs, which cannot be reduced, and discretionary which can be reduced and is reduced with age.
2) other sources of income (pensions, rental income, inheritance, annuities, Social Security, etc)
3) whether other assets can or will be sold over time (land, second home, airplane, collectibles)
4) how much a person want's to leave behind for heirs or charity to inherit.

In very general terms, I find that most people who have lived an modest middle-class lifestyle can live well in retirement if they accumulate $2 million in an investment portfolio (2012 dollars). This is enough to supplement income from Social Security and perhaps other income sources, and assumes no burning desire to leave heirs with anything except what's left.

Rick Ferri
Rick, I just wanted to inquire about your idea of a modest middle-class lifestyle taking $2M in investable assets, over and above SS. In order to accumulate $2M by retirement, a person would need to have had a reasonably good paying job, likely something in middle management or a lower paid profession, and that would mean that they (single or joint) would have SS income of at least $20K to $25K per year plus Medicare. Even using a low withdrawal rate of 3%, and including SS, this would give that person/couple at least $85K before taxes. After taxes, they likely would have around $70K. Given that such a person/couple likely would have their home paid for by retirement, it strikes me that $70K would place them well above a modest middle-class lifestyle. Just saying.
Not Rick, but if I wanted to continue living in my paid-off Northeast home if it were, in today's dollars, you are hardly well above a modest middle-class lifestyle. It's expensive to live here and that includes renting as well. Medicare doesn't pick up a lot of things, and if you have bad teeth though no fault of your own (genetic or just plain bad luck), you may find those $2K+ root canals to be a real budget buster.
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Rick Ferri
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Re: What's your number? Why?

Post by Rick Ferri » Thu Mar 07, 2013 11:04 am

ResNullius wrote:
Rick Ferri wrote:Having worked with thousands of people to help find their "number" for an investment portfolio, I can make a few observations:

Your "number" in saving depends on:

1) the percentage of retirement spending for basic needs, which cannot be reduced, and discretionary which can be reduced and is reduced with age.
2) other sources of income (pensions, rental income, inheritance, annuities, Social Security, etc)
3) whether other assets can or will be sold over time (land, second home, airplane, collectibles)
4) how much a person want's to leave behind for heirs or charity to inherit.

In very general terms, I find that most people who have lived an modest middle-class lifestyle can live well in retirement if they accumulate $2 million in an investment portfolio (2012 dollars). This is enough to supplement income from Social Security and perhaps other income sources, and assumes no burning desire to leave heirs with anything except what's left.

Rick Ferri
Rick, I just wanted to inquire about your idea of a modest middle-class lifestyle taking $2M in investable assets, over and above SS. In order to accumulate $2M by retirement, a person would need to have had a reasonably good paying job, likely something in middle management or a lower paid profession, and that would mean that they (single or joint) would have SS income of at least $20K to $25K per year plus Medicare. Even using a low withdrawal rate of 3%, and including SS, this would give that person/couple at least $85K before taxes. After taxes, they likely would have around $70K. Given that such a person/couple likely would have their home paid for by retirement, it strikes me that $70K would place them well above a modest middle-class lifestyle. Just saying.
You are correct in that this is an upper middle class number. I had written upper middle initially, then changed it because most people who are upper middle-class don't think they are. I was trying to adjust "modest" to what I believe someone who reads this board would consider modest.

Rick Ferri
The Education of an Index Investor: flounders in darkness, finds enlightenment, overcomplicates strategy, embraces simplicity.

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Skinut
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Re: What's your number? Why?

Post by Skinut » Thu Mar 07, 2013 11:06 am

Grt2bOutdoors wrote:
KyleAAA wrote:I haven't determined my number yet, so I'd like to ask a related question. Is it worth it for investors in the 25-35 age range to go through the exercise or trying to come up with a number given the huge uncertanties involved? My current strategy is just to save as much as I can.
Not a bad strategy - I'm using that myself, but not to the point of denying myself the basic creature comforts. I've seen the pauper strategy and the outcome is not pretty at all - family discord, etc If you're married, it's important your partner is on the same page as you, let me underscore "very" important. I'm a tad bit older and find trying to come up with a precise number can be an exercise in frustration - too many unknowns and much of it is based on being able to stay employed through a certain age. Lack of cashflow can sink the tightest of ships.
Agreed. Communication and agreement on goals is necessary and will avert future arguments, fights, and possibly divorce. Living a modest lifestyle early, then adding some luxuries as you earn more will also help avoid debt and boost savings, it's much easier to reduce savings later than increase.

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Re: What's your number? Why?

Post by Grt2bOutdoors » Thu Mar 07, 2013 11:08 am

Just one question? What amount of disposable income after paying for necessary needs (food,taxes,rent,utilities,medical) would put you in upper middle income levels? Is it $1k, $2K, $4k?
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grap0013
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Re: What's your number? Why?

Post by grap0013 » Thu Mar 07, 2013 11:08 am

KyleAAA wrote:I haven't determined my number yet, so I'd like to ask a related question. Is it worth it for investors in the 25-35 age range to go through the exercise or trying to come up with a number given the huge uncertainties involved? My current strategy is just to save as much as I can. A general secondary goal is to have $5 million in 2010 dollars at the point of retirement but I'm not going to base whether or not I retire on that because I don't really need anywhere close to that much to live comfortably.
I've never really liked the "save as much as I can" strategy. It's too vague for me personally. I could cut cable, I could spend less on travel, I could spend less on etc...I would end up living under a bridge and eating Ramen noodles. :)

I think it is a good idea to set a target, make some assumptions with confidence intervals for investment returns, and have some wiggle room for minor adjustments along the way.
There are no guarantees, only probabilities.

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Matigas
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Re: What's your number? Why?

Post by Matigas » Thu Mar 07, 2013 11:12 am

Whatever the true number ends up being, you will live with it.

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Cosmo
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Re: What's your number? Why?

Post by Cosmo » Thu Mar 07, 2013 11:14 am

I have no number here. Retiring is all about when:

1) You have enough.
2) You had enough.

Not close to #1 yet but the good news is I am also not very close to #2 either.

Cosmo

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bobcat2
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Re: What's your number? Why?

Post by bobcat2 » Thu Mar 07, 2013 11:16 am

LH wrote:
bobcat2 wrote:Taking into consideration the current level of real interest rates is extremely important when developing an investment strategy for retirement, because the higher real interest rates are, then the higher the income stream that can be supported by any particular level of wealth. Since the goal of retirement planning is income in retirement, setting a retirement target of a given level of wealth at retirement is faulty retirement targeting. That's because the amount of retirement income that wealth will support is conditional, among other things, on the level of real interest rates at retirement age. This is a key reason that the price of a real life annuity at your retirement age, which takes longevity, real interest rates, and inflation expectations into account, is instead the appropriate target for retirement planning. (Everyone needs to recognize that setting a level of wealth at retirement as the target takes none of these three salient retirement planning factors into account.) In other words, the level of real wealth to support a targeted real retirement income level changes over time and it can change by a large amount.

BobK
Ok Bob,

I am 43, I plan to retire at 55.

What is the price and conditions offered of a real life annuity for me at 55 years old, 12 years hence in 2025?

You have an answer? Or is it conditional?

Also, what are the chances that the annuity company will fail, defined that I do not get my money as promised, over a 30 to 40 year time period?

just wondering,

LH
The point here isn't that you have to buy a real life annuity at retirement, you don't. It is instead that a real life annuity is the best way to price your retirement. For example, if your retirement plan calls for your portfolio to generate $30,000 per year in retirement income, then the size of your portfolio at retirement needs to be approximately what it would cost to buy a $30,000 real life annuity at your retirement age. The best estimate of that is the current price of such an annuity at your retirement age, perhaps adjusted upward slightly to account for expected growth in life expectancy by the time you reach retirement. Notice that the size of such a portfolio will vary over time because of changes in real interest rates, life expectancy at your retirement age, and inflation expectations. Just setting a target level of portfolio wealth at retirement takes none of these very important aspects of being able to meet your retirement income goal into account. In other words the level of either nominal or real wealth needed to finance a $30,000 real retirement income stream is not going to be a constant between now and your retirement date.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: What's your number? Why?

Post by baw703916 » Thu Mar 07, 2013 11:31 am

VictoriaF wrote:Five years ago, I created a spreadsheet that produced three numbers. The first number represented my projected expenses, and the other two numbers represented my projected retirement income and assets at two different dates. My plan was to retire between these two dates when my income and assets would meet my expenses.

All my numbers and calculations were heavily padded to accommodate variability in external circumstances and personal whims (but not Black Swans). Only now I am realizing that my asset calculations were based on the market highs of the Fall of 2007, and thus had some optimistic bias. However it did not matter. My projected income and assets have met my projected expenses well before the first date. The day when these numbers have met would have been my day to post, "I hit my number," but I did not notice it until much later. And I like numbers too much to hit them {in response to CaliJim's inquiry}.

My numbers were not nice round numbers, they were produced by a spreadsheet and had many significant digits. I know the perils of false precision, and when I do sanity checks I use rounded numbers, but I still like to see digits {embarrassing smile}.

Apart from my preferences, I'd like to challenge what seems to be a general assumption here that The Number must be nice and round, with one or two digits on the left and lots of zeros on the right. In personal finance, really beautiful numbers are as untrustworthy as really precise numbers.

Victoria
Hi Victoria,

I suggest e^[e}*2pi^[2pi] as a mathematically appealing number that doesn't end in lots of zeroes! (I have not achieved it). :)

Brad
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Re: What's your number? Why?

Post by dad2000 » Thu Mar 07, 2013 11:48 am

I am in my mid 40s. I hope to retire in 10 years.

I am budgeting $110K annually, $30K of which will cover medical expense/insurance. I am also assuming that our SS benefits will be reduced by 50% one way or another, so we'll need to withdraw about $90K annually.

Playing around with Otar-ORB/Firecalc, I've determined my number to be between $3-3.5M depending on timing.

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Re: What's your number? Why?

Post by bobcat2 » Thu Mar 07, 2013 11:49 am

Rick Ferri writes.
I find that most people who have lived an modest middle-class lifestyle can live well in retirement if they accumulate $2 million in an investment portfolio (2012 dollars).
The latest numbers I looked at showed that about 3% of American households at retirement have portfolios of $2 million or more. So the working definition of "modest middle-class lifestyle" being used here is the top 3% or so of the US wealth distribution. In this case what happens to the lower 97% who have failed to reach "modest middle-class status"? :D

Median family income in the US is about $60,000 per year. How are a typical working husband and wife raising children supposed to accrue anything close to a portfolio of $2 million or more by retirement?

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: What's your number? Why?

Post by ObliviousInvestor » Thu Mar 07, 2013 11:51 am

KyleAAA wrote:I haven't determined my number yet, so I'd like to ask a related question. Is it worth it for investors in the 25-35 age range to go through the exercise or trying to come up with a number given the huge uncertainties involved? My current strategy is just to save as much as I can. A general secondary goal is to have $5 million in 2010 dollars at the point of retirement but I'm not going to base whether or not I retire on that because I don't really need anywhere close to that much to live comfortably.
I don't think it's crazy to calculate a goal number. For example, using the method I outlined above, as long as you re-run the numbers periodically, changes in spending are accounted for, changes in Social Security outlook are accounted for, and changes in real interest rates and life expectancies are accounted for.

But, to then try and calculate a "how much do I need to save per year" figure (which is what really matters in terms of action-steps you can take right now) requires an estimate of the dollar-weighted returns you'll earn between now and retirement. That's where things get really messy.
Mike Piper, author/blogger

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Re: What's your number? Why?

Post by carolinaman » Thu Mar 07, 2013 12:06 pm

I retired 2 years ago and have a pension plus social security to cover our living expenses with funds to spare. I also have a decent portfolio with no plans to use any of that unless we do some serious traveling. My pension is not indexed to inflation but historically had tracked inflation. Since the market downturn in 2008 the pension fund has not given any COLAs and probably will not for years to come (they must have surplus funds to declare a COLA). I saw no need for inflation protection when I initially retired but obviously that has changed with my pension. My plan is to not use any of my investments until I am at least 75 (currently 68) and to invest in some inflation hedges (more equities and some TIPS). Fortunately, we are living well below our current income so this is likely a reasonable plan. There are many people I know who are affected by this pension situation who will likely have a serious problem with their income in 5 to 10 years. An example of how plans can go astray.
Last edited by carolinaman on Thu Mar 07, 2013 12:33 pm, edited 1 time in total.

ResNullius
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Re: What's your number? Why?

Post by ResNullius » Thu Mar 07, 2013 12:22 pm

bobcat2 wrote:Rick Ferri writes.
I find that most people who have lived an modest middle-class lifestyle can live well in retirement if they accumulate $2 million in an investment portfolio (2012 dollars).
The latest numbers I looked at showed that about 3% of American households at retirement have portfolios of $2 million or more. So the working definition of "modest middle-class lifestyle" being used here is the top 3% or so of the US wealth distribution. In this case what happens to the lower 97% who have failed to reach "modest middle-class status"? :D

Median family income in the US is about $60,000 per year. How are a typical working husband and wife raising children supposed to accrue anything close to a portfolio of $2 million or more by retirement?

BobK
This is the point I was trying to make before. For a family with a median income of $60K, they are supporting usually two adults and one or more kids. They are paying a mortgage, funding their IRAs or 401Ks, covering the cost of the kids and education, and lots of other stuff that won't be relevant during their retirement years. By the time they retire, they obviously have adapted to a lifestyle that can be covered by less than $60K per year, more like $45K. SS for these folks should be around $20K per year, give or take. This means that all they need is another $25K to match their lifestyle cost of living. A retirement portfolio of around $500K, give or take, should do the trick for them. When financial advisors throw out the $1M number or the $2M number, they are discouraging, not encouraging, normal working folks from thinking they have any chance. People who don't think they have a chance tend to simply stop trying, which would be a huge mistake, since even a little extra to supplement SS can make a big difference for many lower middle class (or less) folks. Just saying.

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Re: What's your number? Why?

Post by Peter Foley » Thu Mar 07, 2013 12:32 pm

I estimated a number in a very traditional way - 30 years of withdrawals @4%/year. The starting point was estimated expenses less defined pension. (For simplicity of calculation, 25 X expenses is the same as a 30 year withdrawal rate.) I hit the number 3 years in advance of qualifying for a full defined pension. That was the end of 2007. As luck/timing would have it, the recession dropped me well below my number by the spring of 2009. With some rebalancing on the way down and rebalancing plus a glide path to a more conservative AA as the market recovered, I was back on track by 2010. I continued to work for a year and half beyond by pension date because the work was rewarding enough and my wife is five years younger. We both retired last year.

The padding in my calculatuion was social security. I knew that when I started to take SS my withdrawal rate would fall by a percentage point or more and it would fall again when my wife begins to take SS. The extra year and a half of savings plus market gains provided a lot of additional margin for error. My non equity holdings @ 55% of my AA are now equal to my original number. I went to this AA, 45/55, when I set my retirement date last spring.

Critical to my success were the written plan I established after I started reading this forum, Taylor's advice to stay the course, and Larry Swedroe's advice to balance one's ability to take risk with one's need to take risk.

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Re: What's your number? Why?

Post by kingsnake » Thu Mar 07, 2013 12:48 pm

I think my number is 4 or 5 million because I'm pretty sure at that point I wouldn't run out of money. I have not run any calculatioins though. I decided I would work very hard until age 40 and then back it off. At age 40 I hope to have 2 million saved, with 380K left on mortage and no other debts. We'll see...
Last edited by kingsnake on Thu Mar 07, 2013 1:06 pm, edited 1 time in total.

bradshaw1965
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Re: What's your number? Why?

Post by bradshaw1965 » Thu Mar 07, 2013 12:50 pm

Grt2bOutdoors wrote: If you're married, it's important your partner is on the same page as you, let me underscore "very" important.
I agree and I think it's also important to be at peace with what life presents. With things like medical bills it doesn't pay off to show visible distress at the cost unless there is a clear path of action to change the situation. It only adds stress to a difficult situation.

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Re: What's your number? Why?

Post by Flashes1 » Thu Mar 07, 2013 12:51 pm

bobcat2 wrote:Rick Ferri writes.
I find that most people who have lived an modest middle-class lifestyle can live well in retirement if they accumulate $2 million in an investment portfolio (2012 dollars).
The latest numbers I looked at showed that about 3% of American households at retirement have portfolios of $2 million or more. So the working definition of "modest middle-class lifestyle" being used here is the top 3% or so of the US wealth distribution. In this case what happens to the lower 97% who have failed to reach "modest middle-class status"? :D

Median family income in the US is about $60,000 per year. How are a typical working husband and wife raising children supposed to accrue anything close to a portfolio of $2 million or more by retirement?

BobK
Bobcat: regarding the lower 97%: "let them eat cake." We've won the game, my man. To the victors go the spoils.

ResNullius
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Re: What's your number? Why?

Post by ResNullius » Thu Mar 07, 2013 1:06 pm

I'm surprised that 3% of households have $2M at retirement. Good to hear, because I thought it would be less. That means that a lot more have at least $1M. Success is good, except in certain circles.

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Re: What's your number? Why?

Post by RenoJay » Thu Mar 07, 2013 1:12 pm

umfundi wrote:
RenoJay wrote:$10,000,000. Nice round number with lots of digits.
You have a plan to get there?
Keith
I'm already most of the way there due to a successful business venture, so it's not as much of a pie-in-sky goal as it appears. Just a few more years of indexing will hopefully do the trick.

goldendad
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Re: What's your number? Why?

Post by goldendad » Thu Mar 07, 2013 1:27 pm

My number was/is 2.0 million - 1.8 for yearly expenses plus 200k for extra expenses during the first 10 years of retirement (cars, travel, house expenses, etc). The 1.8 is for 50 - 60k of personal income per year with some margin thrown in so I can sleep better at night. I am 57 and got there about 6 months ago. Social Security goes on top of that. I am only planning on spending 2/3 of the bond income and reinvesting the difference (to account for inflation). The company I work for bankrupted the pension so what remains is not much of a factor. I am considering retiring at the end of this year.

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pennstater2005
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Re: What's your number? Why?

Post by pennstater2005 » Thu Mar 07, 2013 1:31 pm

bobcat2 wrote:Rick Ferri writes.
I find that most people who have lived an modest middle-class lifestyle can live well in retirement if they accumulate $2 million in an investment portfolio (2012 dollars).
The latest numbers I looked at showed that about 3% of American households at retirement have portfolios of $2 million or more. So the working definition of "modest middle-class lifestyle" being used here is the top 3% or so of the US wealth distribution. In this case what happens to the lower 97% who have failed to reach "modest middle-class status"? :D

Median family income in the US is about $60,000 per year. How are a typical working husband and wife raising children supposed to accrue anything close to a portfolio of $2 million or more by retirement?

BobK
My wife and I make slightly over 60k per year. I don't have an exact number in mind. We save as much as possible while raising a kid with another on the way. It isn't easy but I know it will be worth it in the long run. Once the student loans are paid off look out cause I'm going to be a saving machine!
“If you think nobody cares if you're alive, try missing a couple of car payments.” – Earl Wilson

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floydtime
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Re: What's your number? Why?

Post by floydtime » Thu Mar 07, 2013 1:36 pm

900k, which we'll probably hit this year (if not next month). Spouse and I are both 48. We became addicted to a frugal lifestyle a few years ago and wouldn't go back if we were paid to. Social Security (or even 50% of what is promised) will make us rich. :beer
"Do not value money for any more nor any less than its worth; it is a good servant but a bad master" - Alexandre Dumas

buckstar
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Re: What's your number? Why?

Post by buckstar » Thu Mar 07, 2013 1:46 pm

My number = the number at which I could stop generating any earned income. I use $3M in today's dollars. Now if I don't get there, it's not the end of the world because that is a very generous $120k/yr in 2012 dollars, not accounting for SS.

Having said that, we're on track to reach that number at age 65 (20 years) using the assumption of 2% real return on our portfolio.

MathWizard
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Re: What's your number? Why?

Post by MathWizard » Thu Mar 07, 2013 1:47 pm

Right now it would be 1 million minimum. That would handle basic lifestyle and private health
insurance.

That number goes down as time goes on because I get closer to SS
(SS does not go up much each year since I am beyond the second bend point in the benefit formula now.)

My portfolio generally goes up each year and my "number" goes down each year. I project that they will
cross in 6 to 7 years. After that, extra years will bring discretionary money for fun stuff, maybe travel,
spoil the grandkids, maybe contribute to a scholarship fund at my alma mater, maybe trade houses for
one without steps.

Bungo
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Re: What's your number? Why?

Post by Bungo » Thu Mar 07, 2013 1:49 pm

In today's dollars my number is $2 million and zero mortgage. $1.5 million would work if market conditions permit selling the California house and moving somewhere cheap enough to make up the difference. This isn't counting any income from social security, but it does assume the ability to buy health insurance without going bankrupt, which in practice may require waiting until Medicare eligibility.

Dulocracy
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Re: What's your number? Why?

Post by Dulocracy » Thu Mar 07, 2013 1:54 pm

My number is $100,000, but I compute it differently. Not knowing what the future holds and whether or not my money will be worth more or less, I can only say that I want to have an income stream of $100,000 in 2010 dollar value without tapping principal. Whether through bonds, REITs, dividend funds, real estate investments, business, or some other means, I want an income stream as discussed above, and I want no mortgage on my primary residence. (Mortgages on rental properties are ok, as long as the income stream overall is there. I will not take money out of them, but focus on getting those paid off as well, should they have mortgages).
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

Bacchus01
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Re: What's your number? Why?

Post by Bacchus01 » Thu Mar 07, 2013 2:19 pm

I must have a bigger goal than most.

I'm 39, wife is 44.

My goal is $10M and I plan to be there between 47 and 52 years old (round it to 50 and you got a deal). Our net worth has to grow about 15%+ for that to happen, which is entirely doable considering my working income.

Why $10M? Well, because I like that number. No other reason. Its got one more zero than most peoples' plans. :D

If I simply look at what the minimum number is, its much smaller. It's closer to $4M, which we could hit by he end of this decade.

The only reason I will likey work past 50, if things go as planned, is because I want to and not because I have to.

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Meg77
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Re: What's your number? Why?

Post by Meg77 » Thu Mar 07, 2013 2:26 pm

I think it's impossible and ridiculous to try to come up with any meaningful "number" even if you are close to retirement age but especially if you are under age 50. Any such calculation includes too many assumptions and too many volatile variables to be useful. I'm 28 and have no way to project future interest rates, inflation, average stock market returns, the timing of market crashes, health problems, layoffs, disabilities, wars, natural disasters, tax rates, expensive family situations, social security payouts or any number of other factors that may impact me between now and retirement. My plan is to save as much as I can, work as long as I can, and find a way to live off whatever I have when I can't work anymore.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Confused
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Re: What's your number? Why?

Post by Confused » Thu Mar 07, 2013 2:27 pm

[Blanked for privacy]
Last edited by Confused on Fri Nov 06, 2015 1:39 am, edited 2 times in total.

Rodc
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Re: What's your number? Why?

Post by Rodc » Thu Mar 07, 2013 2:36 pm

I have no specific number.

I am 5-10 years out, likely closer to 10 than 5.

It will come down to the balance between what I get out of work (intrinsic value, money, lifestyle) vs what I pay (time, energy, possible frustration, etc.) and how that balance would look if I stop working.

And of course there is the possibility of simply working part time. Might make sense to work a few years longer, but semi retire earlier.

I will simply monitor our situation (along with my wife) and at some point we'll simply say we have enough.

Frankly if we got pushed out tomorrow it would be a real blow, but by downsizing and moving to a cheap area we would be ok if only marginally so. So for now the balance is clearly in favor of working (and I enjoy my job anyway).
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Blues
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Re: What's your number? Why?

Post by Blues » Thu Mar 07, 2013 2:49 pm

The "base number" was predicated upon Bill Bernstein's recent mantra:
You want to end up with a portfolio that matches your liabilities, meaning the amount you'll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses -- that is, the yearly shortfall you have to make up after Social Security and any pension.
This portfolio should be in safe assets: Treasury Inflation-Protected Securities, annuities, or even short-term bonds.
Anything above that, you can invest in risky assets. That's your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn't do well, at least you're not pushing a shopping cart under an overpass.
Having fulfilled the requirements of the "liability matching portfolio" and salting it safely away, the "risk portfolio" (conservatively invested in stock & bond index funds) is the icing on the cake going forward.
“Tactics without strategy is the noise before defeat.” - Sun Tzu | "Everybody has a plan until they get punched in the mouth." - Mike Tyson

dbr
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Re: What's your number? Why?

Post by dbr » Thu Mar 07, 2013 2:53 pm

I think a person should retire, and I did retire, when they think it is time for a change in what one wants to do with one's life. It can be related to where the people around you, spouse, children, and parents are, and it can be related to where one has arrived in one's career or careers.

There is no number because one can always arrange how one lives to match what one can support with one's resources.

I think the concept of having a number is about exactly backwards.

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floydtime
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Re: What's your number? Why?

Post by floydtime » Thu Mar 07, 2013 2:56 pm

Confused wrote:My number is $700,000. My spouse and I spend $22,000/year. In order to cover that for 30 years, we'll need $660,000. Rounding up to be better safe than sorry. I believe that number to include home equity, because once we pay off a mortgage, our expenses will go down dramatically.

We're almost 6% of the way to our goal.

Then again, we'd probably be fine with $600,000.
Dang, somebody who spends less than we do (30k per year). Congratulations, and keep your eye on the prize! :beer
"Do not value money for any more nor any less than its worth; it is a good servant but a bad master" - Alexandre Dumas

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Ice-9
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Re: What's your number? Why?

Post by Ice-9 » Thu Mar 07, 2013 3:11 pm

Never had an official number, but after seeing this thread, I tried to come up with one. Here's what I did:

I happen to like, in addition to Firecalc which is often recommended here, Scottrade's Retirement Calculator. Scottrade gives you three lines based on outperforming 25%, 50%, and 75% of Monte Carlo simulations. After inputting my info, I decided to play with the contribution sliders until I got the 25% confidence mark to run out of money just as I hit age 95. The corresponding balance at age 67 along this line was $898,407. I think I'll just round up to $1 million and call that my number.

Image

umfundi
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Re: What's your number? Why?

Post by umfundi » Thu Mar 07, 2013 3:28 pm

dbr wrote:I think the concept of having a number is about exactly backwards.
Well, yes. We all have different styles. But, as the saying is, "If you don't know where you're going, any road will take you there."

"Save as much as I can" sounds fuzzy to me. I look at it this way: Companies that have old style defined benefit pension plans spend about 15% of your salary to fund them. And, if you spend your career at Megacorp Inc., that pension will be about a third of your final salary.

Guess what? Total Social Security and Medicare taxes are 15.30%. Another leg of the stool.

My point is simply that if you save 15% of your salary you should be able to replace a third of it when you retire. A rule of thumb. I saved 25% and have that DB pension, so we are quite fine, thank you. If you do not save at some rate north of 15%, you may be facing a dramatic decline in your lifestyle during retirement. In my opinion.

Keith
Déjà Vu is not a prediction

Levett
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Re: What's your number? Why?

Post by Levett » Thu Mar 07, 2013 3:34 pm

My number was 2000.

I swore to God (and my family) that I would be a millenial retiree!

Y2K+, baby. 8-)

Lev

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linenfort
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Re: What's your number? Why?

Post by linenfort » Thu Mar 07, 2013 3:43 pm

For many of us, having a number to reach for gets the endorphins going. It doesn't have to be logical.

Last year, I hit the number that I most often dreamed of throughout my life. Since then, it hasn't been as much fun to look at my grand total.
I'm now producing some endorphins by looking toward doubling that figure.

My fantasy number, though, = enough that I could put everything into ten-year treasury notes and live off the interest, never having to sell, even at an interest rate of 1%.
$5,000,000 would do it.
On Vanguard's main page, you can just start typing your username to log in.

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VictoriaF
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Re: What's your number? Why?

Post by VictoriaF » Thu Mar 07, 2013 3:45 pm

baw703916 wrote:
VictoriaF wrote:Five years ago, I created a spreadsheet that produced three numbers. The first number represented my projected expenses, and the other two numbers represented my projected retirement income and assets at two different dates. My plan was to retire between these two dates when my income and assets would meet my expenses.

All my numbers and calculations were heavily padded to accommodate variability in external circumstances and personal whims (but not Black Swans). Only now I am realizing that my asset calculations were based on the market highs of the Fall of 2007, and thus had some optimistic bias. However it did not matter. My projected income and assets have met my projected expenses well before the first date. The day when these numbers have met would have been my day to post, "I hit my number," but I did not notice it until much later. And I like numbers too much to hit them {in response to CaliJim's inquiry}.

My numbers were not nice round numbers, they were produced by a spreadsheet and had many significant digits. I know the perils of false precision, and when I do sanity checks I use rounded numbers, but I still like to see digits {embarrassing smile}.

Apart from my preferences, I'd like to challenge what seems to be a general assumption here that The Number must be nice and round, with one or two digits on the left and lots of zeros on the right. In personal finance, really beautiful numbers are as untrustworthy as really precise numbers.

Victoria
Hi Victoria,

I suggest e^[e}*2pi^[2pi] as a mathematically appealing number that doesn't end in lots of zeroes! (I have not achieved it). :)

Brad
Hi Brad,

Is this a strategy of having my pi and e(ating) it, 2?

Victoria
Last edited by VictoriaF on Thu Mar 07, 2013 3:51 pm, edited 1 time in total.
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EternalOptimist
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Re: What's your number? Why?

Post by EternalOptimist » Thu Mar 07, 2013 3:47 pm

No number here. Retired 2 years ago based on some back of the envelope calculations. So far, so good. Sometimes you just have to pull the trigger in life and believe in yourself. "All the days of the worrier are wretched, but the cheerful heart has a continual feast." :sharebeer
"When nothing goes right....go left"

MGBGTV8
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Re: What's your number? Why?

Post by MGBGTV8 » Thu Mar 07, 2013 3:59 pm

Meg77 wrote:I think it's impossible and ridiculous to try to come up with any meaningful "number" even if you are close to retirement age but especially if you are under age 50. Any such calculation includes too many assumptions and too many volatile variables to be useful. I'm 28 and have no way to project future interest rates, inflation, average stock market returns, the timing of market crashes, health problems, layoffs, disabilities, wars, natural disasters, tax rates, expensive family situations, social security payouts or any number of other factors that may impact me between now and retirement. My plan is to save as much as I can, work as long as I can, and find a way to live off whatever I have when I can't work anymore.
Amen to this. However- I find value in having a goal. It's not just a number, but I'm 38 and started saving aggressively at age 23. Given some early projections on salary growth & investment performance, it seemed reasonable to retire at 70 with my own personal endowment that could replace my salary and provide for cost of living adjustments. 15 years in, that goal is still realistic. Over the years, I have reduced my expectations of investment returns and raised my 403(b) contributions to the max. It took 10 years to ramp up to saving that much! If having my own personal endowment ever becomes an unreasonable goal, I will have to readjust, but right now, that would be the kind of financial security I aspire to.

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Phineas J. Whoopee
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Re: What's your number? Why?

Post by Phineas J. Whoopee » Thu Mar 07, 2013 4:04 pm

My number is based on my current living expenses, which I expect will vary with inflation. It has several implications in my IPS. As I get closer to taking social security (at age 70, subject to change depending on the outcome of federal negotiations presently under way) the rules will evolve.

Let x = the taxable annual income required to meet my current living expenses, plus enough to pay my full employment-based health insurance premiums (diminishing this number as I approach age 65), plus a moderate increment to account for likely increasing health care expenditures. x is always expressed in then-current dollars. Note - it would be possible for me to become more frugal and modestly decrease my living expenses without having to move. If reasonably doable I would like to lead a more expensive lifestyle in retirement, living where I am today.

My number is 25x. Let's call that n. Because x varies with my actual expenses (assuming I keep my lifestyle constant), n does so as well, always being expressed in then-current dollars.

Implications:

Retirement portfolio = 0.67n --> Modestly reduce risk (achieved).

Retirement portfolio = n --> Modestly reduce risk and worry less about the future. If disabled, retire. If unemployed and unable to find suitable work, consider retiring.

Retirement portfolio = 1.33n --> Incorporate emergency reserves into the retirement portfolio. Modestly reduce risk and consider retiring in the near future. If disabled or unemployed and unable to find suitable work, retire.

Retirement portfolio = 1.67n --> Consider saving less and spending more. Consider immediate retirement.

Retirement portfolio = 2n --> Save less and spend more. Retire immediately unless staying on the job would be more satisfying as a lifestyle choice.

PJW

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baw703916
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Re: What's your number? Why?

Post by baw703916 » Thu Mar 07, 2013 4:08 pm

VictoriaF wrote:Hi Brad,

Is this a strategy of having my pi and e(ating) it, 2?

Victoria
Yes, although it is probably an irrational goal.

Brad
Most of my posts assume no behavioral errors.

umfundi
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Re: What's your number? Why?

Post by umfundi » Thu Mar 07, 2013 4:12 pm

baw703916 wrote:Yes, although it is probably an irrational goal.

Brad
:D :D
Keith
Déjà Vu is not a prediction

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