What's the ideal safe retirement net worth target?

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Mlm
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Re: What's the ideal safe retirement net worth target?

Post by Mlm » Tue Jul 04, 2017 4:18 pm

I feel so inadequate :shock:
Reality has a way of catching up with you

RAchip
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Re: What's the ideal safe retirement net worth target?

Post by RAchip » Tue Jul 04, 2017 4:20 pm

"If somebody wants to be able to spend $25k a year or so then $10mm is a decent number."

With $10mm you could spend $25,000 PER MONTH ($300k per year) with no worries.

My expenses are high (over $1mm per year). $25mm does not feel like enough to me. We could cut back on spending (quitting net jets would save a lot and I could sell a vacation house or two). But Im only 52 so health insurance for me, my wife and 6 kids for decades of retirement is still a major concern.

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HomerJ
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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:32 pm

afan wrote:If you enter the home at 70 and figure 100 as a maximum plausible lifespan for someone who spent 30 years in a nursing home
Nobody lives 30 years in a nursing home. And especially not if they start out at 70 with the highest cost for 24/7 round the clock care.
Last edited by HomerJ on Wed Jul 05, 2017 3:40 pm, edited 1 time in total.

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HomerJ
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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:40 pm

Lowndes wrote:$10mm is my goal as that allows me to have a conservative 3% retirement withdrawal at my current base salary ($300k a year).
Just FYI, you don't need to replace your current salary to live the same lifestyle in retirement. Your current expenses are far less than $300k, because you obviously must be saving a good chunk of it to accumulate $10 million.

I would hate to see you work 10 more years than necessary (and possibly die at your desk), because you didn't understand this.

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HomerJ
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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:42 pm

zaboomafoozarg wrote:
bobcat2 wrote:1980s 11.3% annual real return with dividends reinvested before any expenses or taxes.
1990s 14.1% annual real return with dividends reinvested before any expenses or taxes.
One decade of returns like that would leave me set for life, let alone 2 decades! But I don't think I will see any decades like that in the next 60-70 years.
We've seen 7 years of returns like that just now. 2010-2017 - around 12% annual real returns

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Re: What's the ideal safe retirement net worth target?

Post by ETadvisor » Wed Jul 05, 2017 3:47 pm

$2.5 m

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HomerJ
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Re: What's the ideal safe retirement net worth target?

Post by HomerJ » Wed Jul 05, 2017 3:50 pm

sfchris wrote:When people say things like "25x investable assets" is that before tax or after tax? The tax on standard IRA withdrawls could be considerable in high tax states. Do I count them at 65% of their value for this purpose?
You won't pay 35% effective tax on your IRA withdrawals. Unless you're withdrawing $500,000 a year I guess.

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Re: What's the ideal safe retirement net worth target?

Post by David Jay » Wed Jul 05, 2017 5:48 pm

N10sive wrote:this 25 times calculation based on the average salary you think you would need to live off of in old age, do you subtract what you expect to get in SS? I know some argue that it won't be there when millenials retire but just wondering about this calculation
Yes, subtract out SS. 4% withdrawal (25x) is based on actual expenses.
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1210sda
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Re: What's the ideal safe retirement net worth target?

Post by 1210sda » Wed Jul 05, 2017 8:13 pm

If someone is 33 yrs old, earns 300,000, wants $10,000,000 by age 63 and can generate a 7% cagr, they would need to invest about 25% of their income every year ($75,000, Beg of Yr in the first year) assuming a 3% salary increase every year.

Their taxes would be about $75,000 per year in the first year. So they are really only spending $150,000 per year (in the base year)

If inflation is 3%, the PV of their 10,000,000 would be about $3,750,000 at age 63. At a 4% swr, that's about $150,000 per year.

These are very general assumptions, esp the taxes paid every year. Don't know what the California state income tax is or what the San Francisco city tax (if there is one) might be.

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Re: What's the ideal safe retirement net worth target?

Post by The Wizard » Wed Jul 05, 2017 8:21 pm

sfchris wrote:When people say things like "25x investable assets" is that before tax or after tax? The tax on standard IRA withdrawls could be considerable in high tax states. Do I count them at 65% of their value for this purpose?
You could do it either way.
In my case, I deal with before tax since the bulk of my assets prior to retirement were in tax deferred accounts and I'm trying roughly to match my previous net employment income...
Attempted new signature...

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Re: What's the ideal safe retirement net worth target?

Post by zaboomafoozarg » Wed Jul 05, 2017 8:54 pm

HomerJ wrote:
zaboomafoozarg wrote:One decade of returns like that would leave me set for life, let alone 2 decades! But I don't think I will see any decades like that in the next 60-70 years.
We've seen 7 years of returns like that just now. 2010-2017 - around 12% annual real returns
That's true. Maybe it'll continue!

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Re: What's the ideal safe retirement net worth target?

Post by munemaker » Wed Jul 05, 2017 10:16 pm

avalpert wrote:It has to be defined in terms of target spending - the 'average' number would be meaningless to everyone except that mythical average person.

I would say 25-30 times expenses is a safe target.
In this case, expenses would be net expenses, meaning after deducting cash flow from other sources such as pensions and social security.

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Re: What's the ideal safe retirement net worth target?

Post by Top99% » Wed Jul 05, 2017 10:23 pm

I think once you get beyond enough to cover your fixed minimum expenses comfortably, the incremental amount you need comes down to how much longer you are willing to work to pay for non-essential items like good food, expensive toys, travel etc. That will be different for everyone. In my case I would rather retire a decade early and forgo expensive material goods but I did work an extra 5 years to afford expensive food and some moderate travel. The key thing is to think long and hard about what truly makes you happy. For some people well under $1m + SS is enough while as others have pointed out for some $10m or more is needed. For those of you needing a perspective different from the "need >$10m" crowd spend some time on MrMoneyMustache.com
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Re: What's the ideal safe retirement net worth target?

Post by Noobvestor » Wed Jul 05, 2017 11:24 pm

SuzBanyan wrote:
avalpert wrote:
jharkin wrote:
ticker wrote:$10M is a very standard number that people talk about in the Bay Area. That means decent but not too big house, small property in the mountain and some money in the bank. Nothing very fancy, pretty much basic stuff. More and more i hear 50M as THE Number. (In each bubble the number goes up, then it comes crashing down when the reality hits).

invst65 wrote:
That was meant as some kind of joke, right?
Part of living in a bubble, is that you do not realize though are living in it. Try taking a roadtrip through the Midwest or deep south and then tell us what's average.

You should realize that "the bay area" is something like only a couple % of the US population and is the extreme outlier, by a couple orders of magnitude, for cost of living. Its so far from average you almost need to exclude it from statistical studies of income in this country to get numbers that make sense for the rest of us.
Also keep in mind that when people use 'the Bay Area' in this context they are referring to a fairly small slice of the actual population of the Bay Area that exist in an insulated circle of like-minded individuals.
My retired parents live in the Bay Area in a 2500 sf home on quarter acre with a view of the Bay and the City, a cabin in the Sierras, and a rental property, also in the Bay Area. Their net worth, including their home, is probably less than $2M. They are comfortable with pensions from the school system and military. Yes, even in the Bay Area it is possible to retire on less than $10M.
Setting aside the two *additional* properties, I would love to know where in the Bay you can have a 2500 SF home on a quarter acre with a view of the Bay and the city for less than, say, 1MM (I'm assuming the other 1MM is tied up in the other two properties and liquid spending needs). I'm casting my mind's eye over the entire region and I can't figure it out. I'm not doubting it exactly, mostly just marveling I guess?
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: What's the ideal safe retirement net worth target?

Post by baw703916 » Thu Jul 06, 2017 12:35 am

Noobvestor wrote: Setting aside the two *additional* properties, I would love to know where in the Bay you can have a 2500 SF home on a quarter acre with a view of the Bay and the city for less than, say, 1MM (I'm assuming the other 1MM is tied up in the other two properties and liquid spending needs). I'm casting my mind's eye over the entire region and I can't figure it out. I'm not doubting it exactly, mostly just marveling I guess?
My guess would be Vallejo. A place whose previous mentions on this board have been mostly in the context of municipal bonds defaulting.

More generally, what I see in this thread is kind of interesting and disturbing. The vast majority of Americans retiring will do so on far less than $1 million, and many (likely even most) of them will do just fine. So what leads Bogleheads to think we need such a large nest egg, one that the vast majority of people will never achieve (and the economy would probably be wrecked if they tried--essentially no demand for any discretionary product, and a huge run-up in asset prices due to excessive savings). I confess that in trying to super-size my nest egg, I'm just as guilty as the next person...

But I don't think anybody is necessarily being irrational. You can probably have a comfortable retirement (in an LCOL area anyway) with a modest nest egg. But to be absolutely sure of not running out of money (given things like LTC, future healthcare costs, uncertainty in returns), requires a whole lot more in assets, given that in these cases one must assume at least some of the risk, as insurance options are inadequate. There are probably a lot of policy implications in people feeling the need to accumulate so many assets, but those are beyond the scope of this board.
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Re: What's the ideal safe retirement net worth target?

Post by nova1968 » Thu Jul 06, 2017 7:01 am

They say the milestone is $75,000 a year but its also a matter of being content with what you have. There are plenty of people who have accumulated $10,000,000 who are not satisfied with what they have and want more.

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Re: What's the ideal safe retirement net worth target?

Post by bengal22 » Thu Jul 06, 2017 11:27 am

I really try not to overthink the whole net worth target thing. I retired when it felt right and just knew that I had enough.

To justify my feeling, I know what my annual expenses are and I know what my eventual SSA payouts will be and I know what my pension is and will be. To me the first place to start is Expenses minus known income. In my case, when I turn 70 and start SSA and RMD's, my shortfall will be about 15K a year. I also look at the earning potential of my portfolio. Based on that, I am sure that a $1million portfolio would be plenty and will in fact grow during my retirement.

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Re: What's the ideal safe retirement net worth target?

Post by finite_difference » Thu Jul 06, 2017 6:55 pm

I have been thinking about this recently.

I think $50,000 (2017 dollars) per year would be enough to live quite well assuming a paid off house. Worst case scenario I can relocate to a LCOL area of the US or move to a LCOL country. And hopefully get some SS on top of that.

With a SWR of 3.5% that's a portfolio of $50,000/0.035 = $1.4 million.
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Re: What's the ideal safe retirement net worth target?

Post by sfchris » Fri Jul 07, 2017 2:47 am

HomerJ wrote:
sfchris wrote:When people say things like "25x investable assets" is that before tax or after tax? The tax on standard IRA withdrawls could be considerable in high tax states. Do I count them at 65% of their value for this purpose?
You won't pay 35% effective tax on your IRA withdrawals. Unless you're withdrawing $500,000 a year I guess.
What if you are in a state with 10% tax?

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Re: What's the ideal safe retirement net worth target?

Post by Noobvestor » Thu Aug 03, 2017 1:27 am

baw703916 wrote:
Noobvestor wrote: Setting aside the two *additional* properties, I would love to know where in the Bay you can have a 2500 SF home on a quarter acre with a view of the Bay and the city for less than, say, 1MM (I'm assuming the other 1MM is tied up in the other two properties and liquid spending needs). I'm casting my mind's eye over the entire region and I can't figure it out. I'm not doubting it exactly, mostly just marveling I guess?
My guess would be Vallejo. A place whose previous mentions on this board have been mostly in the context of municipal bonds defaulting.

More generally, what I see in this thread is kind of interesting and disturbing. The vast majority of Americans retiring will do so on far less than $1 million, and many (likely even most) of them will do just fine. So what leads Bogleheads to think we need such a large nest egg, one that the vast majority of people will never achieve (and the economy would probably be wrecked if they tried--essentially no demand for any discretionary product, and a huge run-up in asset prices due to excessive savings). I confess that in trying to super-size my nest egg, I'm just as guilty as the next person...

But I don't think anybody is necessarily being irrational. You can probably have a comfortable retirement (in an LCOL area anyway) with a modest nest egg. But to be absolutely sure of not running out of money (given things like LTC, future healthcare costs, uncertainty in returns), requires a whole lot more in assets, given that in these cases one must assume at least some of the risk, as insurance options are inadequate. There are probably a lot of policy implications in people feeling the need to accumulate so many assets, but those are beyond the scope of this board.
Vallejo is definitely on my radar, though most of the people I know in the Bay live much closer in and interact more because of that. What's weird is that I think everyone (friends who rent and myself as well) knows this is a temporary game - eventually, we/they will have to move out if we/they don't want to spend our life's savings on a home. I'm richer than most I know, but can still not afford a decent place right in the Bay.

It creates a strange culture over time of 'well I won't be here forever' which I find sad - makes it hard for me personally to invest in my time here in some ways, because unless something changes in terms of (a) the market or (b) my personal wealth, it's just not realistic for me to stay close by long term - at best, I can move a ways out and see how that works out. Of course, I could live well in a low COL area, but ...

I guess what I'm trying to point out here is human connections and relationships, which I find harder to make and maintain as I get older, will suffer. The idea that I'll have to move away from my present location makes it harder to invest in developing those. And presumably a lot of people I know now who can't afford to say even in the area will leave entirely. So where does that leave me as I slowly head toward retirement?

As a relatively younger person on this forum, I have a question: how do folks living in high COL areas feel about eventually having to move away from everyone you know in those areas in order to retire? Sure, you can do it to survive, but what will/does it do to your life goals, particularly if those life goals involve growing to know people in your area over time both personally and professionally?
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: What's the ideal safe retirement net worth target?

Post by baw703916 » Sat Aug 05, 2017 7:30 pm

Noobvestor wrote: Vallejo is definitely on my radar, though most of the people I know in the Bay live much closer in and interact more because of that. What's weird is that I think everyone (friends who rent and myself as well) knows this is a temporary game - eventually, we/they will have to move out if we/they don't want to spend our life's savings on a home. I'm richer than most I know, but can still not afford a decent place right in the Bay.

It creates a strange culture over time of 'well I won't be here forever' which I find sad - makes it hard for me personally to invest in my time here in some ways, because unless something changes in terms of (a) the market or (b) my personal wealth, it's just not realistic for me to stay close by long term - at best, I can move a ways out and see how that works out. Of course, I could live well in a low COL area, but ...

I guess what I'm trying to point out here is human connections and relationships, which I find harder to make and maintain as I get older, will suffer. The idea that I'll have to move away from my present location makes it harder to invest in developing those. And presumably a lot of people I know now who can't afford to say even in the area will leave entirely. So where does that leave me as I slowly head toward retirement?

As a relatively younger person on this forum, I have a question: how do folks living in high COL areas feel about eventually having to move away from everyone you know in those areas in order to retire? Sure, you can do it to survive, but what will/does it do to your life goals, particularly if those life goals involve growing to know people in your area over time both personally and professionally?
I don't necessarily have an answer for your last question, but I appreciate your thoughts. I guess the irony about a lot of HCOL areas is that one you've bought your "forever" residence and paid it off, it's no longer an HCOL area! That's certainly true where I now live, and may be even more true in CA, due to the property tax advantages of being a long-term owner. Of course that just limits the number of houses for sale, with the consequent increases in price for people wanting to move there.
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Re: What's the ideal safe retirement net worth target?

Post by Johnnie » Sun Aug 06, 2017 9:22 am

Mlm wrote:I feel so inadequate :shock:
In the land of the blind the one-eyed man is king.

In the region of <$100,000 median home values, the Boglehead retiree with $1m investible assets and who waits until 70 to collect SS is an aristocrat.
"I know nothing."

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Re: What's the ideal safe retirement net worth target?

Post by hudson » Sun Aug 06, 2017 11:36 am

Johnnie wrote:
Mlm wrote:I feel so inadequate :shock:
In the land of the blind the one-eyed man is king.

In the region of <$100,000 median home values, the Boglehead retiree with $1m investible assets and who waits until 70 to collect SS is an aristocrat.
Johnnie, I think you're on to something; below US News Money 10 Places to Buy a Retirement Home for Under $100,000

https://money.usnews.com/money/retireme ... der-100000

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Re: What's the ideal safe retirement net worth target?

Post by Johnnie » Sun Aug 06, 2017 12:11 pm

hudson wrote:
Johnnie wrote:
Mlm wrote:I feel so inadequate :shock:
In the land of the blind the one-eyed man is king.

In the region of <$100,000 median home values, the Boglehead retiree with $1m investible assets and who waits until 70 to collect SS is an aristocrat.
Johnnie, I think you're on to something; below US News Money 10 Places to Buy a Retirement Home for Under $100,000

https://money.usnews.com/money/retireme ... der-100000
Thanks. I'll add this well known psychological caution: Having regular social companions who have a lot more money than yourself is a recipe for unhappiness.

~~~~~~~~~~

FWIW, my own retirement home is a 3-bedroom, one-level lakefront ranch not far from two places on that US News list, in a part of the world that gets cold in the winter but which many inhabitants refer to as "God's Country." I've owned it for years as a good rental unit and it's probably worth $150k right now.

My all-in annual living expenses there would be around $30k (a modest health insurance benefit helps). At that level 4% distributions from a $1 million portfolio plus Social Security at 70 would generate around $35,000 in pure after-tax discretionary income. Mad money.

I'm aiming a bit higher but it ain't bad. Not caviar and Lear jets, but not bad.
Last edited by Johnnie on Sun Aug 06, 2017 7:56 pm, edited 1 time in total.
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Re: What's the ideal safe retirement net worth target?

Post by Portfolio7 » Sun Aug 06, 2017 2:02 pm

Mlm wrote:I feel so inadequate :shock:
Yeah. Near as I can figure, DW and I are in top 5% of savers in this country for age and income, and this place is still an eye opener.
An investment in knowledge pays the best interest.

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Re: What's the ideal safe retirement net worth target?

Post by Nearing_Destination » Sun Aug 06, 2017 2:21 pm

Interesting but long thread...

From upthread, the 25x (4%) comes from a thirty year retirement and 50/50 allocation (with info from 1926-2014)--- same allocation but 35 year retirement gives 96% survival at 4%, 40 year retirement only has 86% survival at 4%, while 20 year retirement gets 99% at 5% (80% at 6%) so length of retirement and hence when you retire has a reasonable impact on multiple needed.

AFA "Bay Area ", I remember a few decades ago being recruited for the area-- but even then the salaries were not commensurate for the costs (nor were those in the NYC metro). Therefore I spent my years away from those UHCOL areas. I suspect the same thing occurs today in that a few can afford housing and the "nice things "-- but I suspect that it would have eluded me had I tried living there.

Now, recently retired in a medium COL area, but which due to lower normal salaries is beyond the ability for average working residents to afford their own house (many buyers are relocating retirees like myself or come from HCOL areas and pay cash for houses). We have over two large in investable assets plus pension and have paid off house and no debt, and haven't yet started SS as still early sixties-- and are pulling less than 1% WR even with repairs like new Furnace/heat pump, refinishing deck, and completing the build out of a reasonable size outbuilding. We figure that if we can't make it with what we have that the rest are scr€wed with their savings levels.

( note from upthread that fewer than 1.5 million have investable assets over 5 million, so that's nowhere near the "normal " retirement)

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