How does one determine their "number" and what exactly does it mean?

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Lieutenant.Columbo
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Re: How does one determine their "number" and what exactly does it mean?

Post by Lieutenant.Columbo » Fri Apr 07, 2017 6:29 am

David Jay wrote:...2.5% of the originating portfolio balance, with inflation adjustment, can be withdrawn each year, indefinitel
willthrill81 wrote:You take 3.4% of the balance as of the beginning of the withdrawal period (i.e. $34,000 of a $1M portfolio). Each year thereafter, you take out the same nominal amount of money ($34,000) plus the inflation for the prior year (i.e. if 2% CPI, then you withdraw 102% of $34,000 or $34,680). This continues throughout the withdrawal period (i.e. the following year you withdraw $34,680 plus the added inflation from the prior year). This is referred to as the "fixed plus CPI" withdrawal method.
thank you, guys, this is exactly what I was wanting to understand; I wasn't sure if it was the way you both described or if the withdrawal percentage was calculated on each year's specific portfolio balance rather than the original balance
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Re: How does one determine their "number" and what exactly does it mean?

Post by Tom Tomato » Fri Apr 07, 2017 6:56 am

Is there a catalog or range or something for these "numbers". I mean what do I get if someone's "number" is ____?

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mattyfu1
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Re: How does one determine their "number" and what exactly does it mean?

Post by mattyfu1 » Fri Apr 07, 2017 7:05 am

I struggle with this question as well:

My wife and I are teachers in NY. We are 35 years old and should make the following at retirement:

These are POST tax numbers:

Her: $48,300
Me: $63,000
TOTAL: $111,300
MONTHLY: $9,275

*I have a trust that will pay for my 2 kids college education
*No debt

I do not foresee myself needing more than 9k a month in retirement.

Regardless I still put about $400 a month away in my ROTH and 4 Fund Portfolio as is seen in my signature.

-MattyFu

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Re: How does one determine their "number" and what exactly does it mean?

Post by carolinaman » Fri Apr 07, 2017 8:58 am

willthrill81 wrote:
LeeMKE wrote:I just finished reading Jim Otar''s book, Unveiling The Retirement Myth. It is a highly recommended book, and I found it very worthwhile.

He had an interesting chapter about reaching "your number." Once you reach "your number" you can take any reasonable withdrawal strategy and be likely to come out with similar outcomes. It is only when you are trying to work with savings that are less than "your number" that the consequences are risky and dire. But once you reach that tipping point, many roads lead to success.

Now, I just hope I've calculated "my number" correctly!
I would tend to agree that success is so likely, based on the historical data, with all of the common withdrawal methods that it's not worth getting into a dither about it. People seem to me at least to be too worried about managing every potential risk they can conceive (as if they can conceive them all) and may be so concerned about their portfolio during retirement that they don't enjoy it. That's actually a common problem for retirees; Todd Tresider calls it the "poverty mentality" among retirees, and even some of those worth millions have it.

Yes, there have been a few instances where something like the "4% + CPI" method would have almost entirely depleted the portfolio at the end of 30 years, but how many people are going to just keep on spending from a suffering portfolio and do nothing about it, like reducing their withdrawals? Kitces has argued that a possible "failure" of a withdrawal strategy doesn't actually mean "run out of money" but rather "make adjustments to your withdrawals."

Regarding what the number should be, I personally think that 30 times projected annual expenses is a solid estimate. You can likely use a greater withdrawal rate than this size would suggest, but your expenses may be greater than you think as well, so this gives you a cushion.
People rarely state the context of these guidelines to determine their number. If someone needs $XXX annual expenses, is that gross or net of taxes? How do they consider SS or other income streams in retirement other than investments? It is never clear what the context is and it obviously makes a big difference. Some people might oversave or undersave if they have not considered these factors. I think ideally people should strive to save what is a realistic estimate of their retirement needs with some cushion and consider these other factors in the process. IMO, someone who saves 30 times their expenses without taking these other factors into consideration are likely oversaving if they plan to retire at or near FRA.

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Re: How does one determine their "number" and what exactly does it mean?

Post by TomatoTomahto » Fri Apr 07, 2017 9:16 am

Tom Tomato wrote:Is there a catalog or range or something for these "numbers". I mean what do I get if someone's "number" is ____?
Hi! Are you my cousin on my father's side? Welcome to the forum.

LeeMKE
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Re: How does one determine their "number" and what exactly does it mean?

Post by LeeMKE » Fri Apr 07, 2017 9:35 am

Is there a catalog or range or something for these "numbers". I mean what do I get if someone's "number" is ____?
You can't tell much from most people's "number."

Some have larger pensions or other income streams, and some have lower or higher expenses. But it isn't sophisticated math to figure out your own annual expenses, expected income, and adjustments for special circumstances like retirement before social security payments begin.

But it tells you they reached an important milestone, without having to discuss their net worth in any detail.
The mightiest Oak is just a nut who stayed the course.

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Re: How does one determine their "number" and what exactly does it mean?

Post by TheTimeLord » Fri Apr 07, 2017 9:54 am

LeeMKE wrote: Now, I just hope I've calculated "my number" correctly!
That is obviously key. We are currently at 128.5% of our number and it seems likely we will be at 150%-175% by the time we both retire. I hope to spend most of the excess between the time I retire and age 70. So I expect to withdraw at a much higher rate early in my retirement than a decade or so in to take advantage of better health and stamina.
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Re: How does one determine their "number" and what exactly does it mean?

Post by Lieutenant.Columbo » Fri Apr 07, 2017 9:58 am

TheTimeLord wrote:...We are currently at 128.5% of our number...
TheTimeLord,
how did you calculate "your number"? thanks.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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TheTimeLord
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Re: How does one determine their "number" and what exactly does it mean?

Post by TheTimeLord » Fri Apr 07, 2017 10:21 am

Lieutenant.Columbo wrote:
TheTimeLord wrote:...We are currently at 128.5% of our number...
TheTimeLord,
how did you calculate "your number"? thanks.
I don't know if this is right or wrong but this is the approach I would take in calculating your number. I offer this as an example/illustration not a fact since I am sure there are many different ways to calculate your number. Someone please double-check my math.

Determined the level of my basic expenses by tracking them for a year. Multiplied those expenses by 1 + a fudge percentage to cover infrequent big ticket items like cars, roofs, etc. Then added an annual travel/hobby budget on top of that. Then multiply it by (1/Projected Tax Burden). Then subtract annual income streams such as SS or pension. And multiply that by the number you get by dividing 100 by your expected real rate of return (i.e. if you expect a 4% real rate of return then 100/4=25).

My Number = ((((Base Expenses * ( 1 + Fudge Factor)) + Travel/Hobby Budget) *(1/(1-Projected Tax Burden))- Income Streams)*(100/Projected Real Rate of Return)

Example:

Base Expenses = $60,000
Fudge Factor = 10%
Travel/Hobby Budget = $10,000
SS = $24,000
Pension= $12,000
Projected Tax Burden = 15%
Expected Real Rate of Return = 3.5%

$60,000 * 1.1 = $66,000
$66,000 + $10,000 = $76,000
$76,000 * (1/(1-.15) =$89,411
$89,411 - ($24,000 + $12,000) = $53,411
$53,411 * (100/3.5) = $1,526,028

If you were to use 4% as your Expected Real Rate of Return your number ends up being $1,335,275 or 12.5% less than using 3.5%.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Lieutenant.Columbo
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Re: How does one determine their "number" and what exactly does it mean?

Post by Lieutenant.Columbo » Fri Apr 07, 2017 11:10 am

TheTimeLord,
thank you very much for elaborating
TheTimeLord wrote:...My Number = ((((Base Expenses * ( 1 + Fudge Factor)) + Travel/Hobby Budget) *(1/(1-Projected Tax Burden))- Income Streams)*(100/Projected Real Rate of Return)...
a few questions about your formula:
1. (how) does it account for inflation?
2. what length of retirement will it apply to?
3. it assumes pension and SS are income sources from Day 1 of retirement, doesn't it?
Thank you very much again.
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Re: How does one determine their "number" and what exactly does it mean?

Post by willthrill81 » Fri Apr 07, 2017 11:35 am

carolinaman wrote:
willthrill81 wrote:
LeeMKE wrote:I just finished reading Jim Otar''s book, Unveiling The Retirement Myth. It is a highly recommended book, and I found it very worthwhile.

He had an interesting chapter about reaching "your number." Once you reach "your number" you can take any reasonable withdrawal strategy and be likely to come out with similar outcomes. It is only when you are trying to work with savings that are less than "your number" that the consequences are risky and dire. But once you reach that tipping point, many roads lead to success.

Now, I just hope I've calculated "my number" correctly!
I would tend to agree that success is so likely, based on the historical data, with all of the common withdrawal methods that it's not worth getting into a dither about it. People seem to me at least to be too worried about managing every potential risk they can conceive (as if they can conceive them all) and may be so concerned about their portfolio during retirement that they don't enjoy it. That's actually a common problem for retirees; Todd Tresider calls it the "poverty mentality" among retirees, and even some of those worth millions have it.

Yes, there have been a few instances where something like the "4% + CPI" method would have almost entirely depleted the portfolio at the end of 30 years, but how many people are going to just keep on spending from a suffering portfolio and do nothing about it, like reducing their withdrawals? Kitces has argued that a possible "failure" of a withdrawal strategy doesn't actually mean "run out of money" but rather "make adjustments to your withdrawals."

Regarding what the number should be, I personally think that 30 times projected annual expenses is a solid estimate. You can likely use a greater withdrawal rate than this size would suggest, but your expenses may be greater than you think as well, so this gives you a cushion.
People rarely state the context of these guidelines to determine their number. If someone needs $XXX annual expenses, is that gross or net of taxes? How do they consider SS or other income streams in retirement other than investments? It is never clear what the context is and it obviously makes a big difference. Some people might oversave or undersave if they have not considered these factors. I think ideally people should strive to save what is a realistic estimate of their retirement needs with some cushion and consider these other factors in the process. IMO, someone who saves 30 times their expenses without taking these other factors into consideration are likely oversaving if they plan to retire at or near FRA.
Generally, it is assumed that your number will be inclusive of taxes, meaning that you treat them as a line item along with utilities, groceries, etc.

SS is a whole other issue, and there's a thread currently ongoing about it as it relates to Millennials, of which I am one. Personally, I'm planning on 'retiring' a solid decade before I reach full SS age and am not expecting 100% of my 'promised' benefits either, so I'm not directly incorporating it into my number. Whatever I get from it will be the cherry on the icing on my cake.

And regarding 'oversaving', I think that that is likely not a significant issue to be concerned about. I've not heard of anyone who said later in life that they wished they had saved less along the way. Further, I think that the 'don't oversave' argument is mostly predicated on the idea that saving means less happiness, and I don't think that that's usually true.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: How does one determine their "number" and what exactly does it mean?

Post by TheTimeLord » Fri Apr 07, 2017 11:51 am

Lieutenant.Columbo wrote:TheTimeLord,
thank you very much for elaborating
TheTimeLord wrote:...My Number = ((((Base Expenses * ( 1 + Fudge Factor)) + Travel/Hobby Budget) *(1/(1-Projected Tax Burden))- Income Streams)*(100/Projected Real Rate of Return)...
a few questions about your formula:
1. (how) does it account for inflation?
A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time.
2. what length of retirement will it apply to?
Interesting question. The standard answer would be 30 years but this method does not it theory eat into your portfolio value. To be safe I would lower my Expected Rate of Return for a planned retirement of over 30 years.
3. it assumes pension and SS are income sources from Day 1 of retirement, doesn't it?
It does, things definitely get a little more interesting if you are going to retire a substantial period of time prior to receiving SS or pensions. One suggestion would be add the value of your income streams multiplied by the number of years you will be retired without them to your number. That would be the conservative approach. So in the example if you were retiring 10 years before collecting your SS and pension you would add (10*($24,000+$12,000)) or $360,000 to the number in the example. But I am sure someone there is a more exact way to make that estimate that would yield a lower amount to be added.
Thank you very much again.
Hope the answers give you some ideas you can use in your calculations. Always remember this is not an exact science but rather an estimate based on assumptions that your could be subconsciously manipulating to see the answer you want to see. I think one of the really important things when calculating your number is don't let your desire to retire lead you to cut the margin for error razor thin or lead you to assume you can live without some regularly occurring expense unless it is truly justified.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

LeeMKE
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Re: How does one determine their "number" and what exactly does it mean?

Post by LeeMKE » Fri Apr 07, 2017 11:56 am

SS is a whole other issue, and there's a thread currently ongoing about it as it relates to Millennials, of which I am one. Personally, I'm planning on 'retiring' a solid decade before I reach full SS age and am not expecting 100% of my 'promised' benefits either, so I'm not directly incorporating it into my number. Whatever I get from it will be the cherry on the icing on my cake.

And regarding 'oversaving', I think that that is likely not a significant issue to be concerned about. I've not heard of anyone who said later in life that they wished they had saved less along the way. Further, I think that the 'don't oversave' argument is mostly predicated on the idea that saving means less happiness, and I don't think that that's usually true.
+1

When I was younger, I left Social Security out of my calculations because I doubted it would be available for my retirement. I didn't put it back into the equation until 7-8 years before our final retirement. And even so, if I'd believed the straight line projection of my early savings, I might have cut back on savings because it looked good without social security.

Luckily, I got good advice that it was folly to believe a straight line analysis in just about anything, so I kept up my savings rate. Good thing. Lots of stuff happens that you didn't expect, and that cushion may save you from a nasty drop later in life.

For example, my original retirement was planned for Jan 2009. :annoyed
That plan had to change, and I'm lucky I was able to put off retirement. And that was just one of the unexpected bumps along the way. Most of us will not have a straight line progression in our lives, so I save carefully and live beneath my means.
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Re: How does one determine their "number" and what exactly does it mean?

Post by TravelforFun » Fri Apr 07, 2017 12:01 pm

Word of caution: Even if you have achieved your number, the achievement could be temporary because the market could crash on us at anytime. Accumulate, accumulate...

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Re: How does one determine their "number" and what exactly does it mean?

Post by TheTimeLord » Fri Apr 07, 2017 12:04 pm

TravelforFun wrote:Word of caution: Even if you have achieved your number, the achievement could be temporary because the market could crash on us at anytime. Accumulate, accumulate...
It could happen once you retire also so don't spend, don't spend, ....

But you make a good case for making sure your number has some real wiggle room in it instead of a razor thin margin of error.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: How does one determine their "number" and what exactly does it mean?

Post by jackholloway » Fri Apr 07, 2017 12:16 pm

willthrill81 wrote:
carolinaman wrote:
willthrill81 wrote:
LeeMKE wrote:I just finished reading Jim Otar''s book, Unveiling The Retirement Myth. It is a highly recommended book, and I found it very worthwhile.

He had an interesting chapter about reaching "your number." Once you reach "your number" you can take any reasonable withdrawal strategy and be likely to come out with similar outcomes. It is only when you are trying to work with savings that are less than "your number" that the consequences are risky and dire. But once you reach that tipping point, many roads lead to success.

Now, I just hope I've calculated "my number" correctly!
I would tend to agree that success is so likely, based on the historical data, with all of the common withdrawal methods that it's not worth getting into a dither about it. People seem to me at least to be too worried about managing every potential risk they can conceive (as if they can conceive them all) and may be so concerned about their portfolio during retirement that they don't enjoy it. That's actually a common problem for retirees; Todd Tresider calls it the "poverty mentality" among retirees, and even some of those worth millions have it.

Yes, there have been a few instances where something like the "4% + CPI" method would have almost entirely depleted the portfolio at the end of 30 years, but how many people are going to just keep on spending from a suffering portfolio and do nothing about it, like reducing their withdrawals? Kitces has argued that a possible "failure" of a withdrawal strategy doesn't actually mean "run out of money" but rather "make adjustments to your withdrawals."

Regarding what the number should be, I personally think that 30 times projected annual expenses is a solid estimate. You can likely use a greater withdrawal rate than this size would suggest, but your expenses may be greater than you think as well, so this gives you a cushion.
People rarely state the context of these guidelines to determine their number. If someone needs $XXX annual expenses, is that gross or net of taxes? How do they consider SS or other income streams in retirement other than investments? It is never clear what the context is and it obviously makes a big difference. Some people might oversave or undersave if they have not considered these factors. I think ideally people should strive to save what is a realistic estimate of their retirement needs with some cushion and consider these other factors in the process. IMO, someone who saves 30 times their expenses without taking these other factors into consideration are likely oversaving if they plan to retire at or near FRA.
Generally, it is assumed that your number will be inclusive of taxes, meaning that you treat them as a line item along with utilities, groceries, etc.

SS is a whole other issue, and there's a thread currently ongoing about it as it relates to Millennials, of which I am one. Personally, I'm planning on 'retiring' a solid decade before I reach full SS age and am not expecting 100% of my 'promised' benefits either, so I'm not directly incorporating it into my number. Whatever I get from it will be the cherry on the icing on my cake.

And regarding 'oversaving', I think that that is likely not a significant issue to be concerned about. I've not heard of anyone who said later in life that they wished they had saved less along the way. Further, I think that the 'don't oversave' argument is mostly predicated on the idea that saving means less happiness, and I don't think that that's usually true.
I know quite a few people who over saved. My parents had two big trips they delayed for the sake of safety, then health problems prevented them from going.

Their parents, on the other hand, had enough money to take their trips, and still had enough to end solvent despite a decade in assisted living post stroke.

A third couple I know saved carefully and worked into their 70s so they would make it to 90, then one died at 80 and the other at 82. Both regretted not retiring earlier today nactuakky spend time with those they loved. The jobs kept them from relocating until their grandkids had spread throughout the country.

All three of these examples saved, budgeted, planned, and adapted their lifestyle to circumstances. Everyone should do that. Almost any algorithm can work - real terms, nominal terms, tax adjusted - as long as you are consistent. The alternative to saving over all other priorities is not spending like a sailor, but saving to a reasonable margin of safety

So, yes, saving is important, but only here would the old saw "nobody on their deathbed wishes they had spent more time at work" be controversial.

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Re: How does one determine their "number" and what exactly does it mean?

Post by jackholloway » Fri Apr 07, 2017 12:45 pm

My plan was as follows

We have tracked our expenses across fifty categories for over a decade. We know what we spend.

I divide those into baseline, which we would shift to if I lost my job, good life which is the lifestyle I want indefinitely, and luxury that I spend, but look at as a luxury. I picked my retirement number based on the good life number. (Since I am a ways from retirement, I am shooting for a higher number than today's spend.)

I put half of every raise into savings and half into expenses, and have for years. This does mean that a series of raises might end up with the good life number nearing at planning number. That would be nice.

That covers expenses.

I do not tax discount Trad IRAs or 401k, as I expect at least a few low income years where I can draw them down or Roth convert.

I also do not count social security yet, as I do not plan on filing for more than a decade.

Once I am closer, I will value SS at the funded 70% and the 401k at whatever tax rate the implied income would suggest, and see if I need a course correction.

Budgeted spend gets reduced by whatever I value SS at, and from that comes an annual number. I suspect it will be pretty close to a wash once I discount traditional 401ks

Turning that into a "number" requires a multiplier.

4% has worked well over the last century; 3% assumes that things are worse than before the Great Depression or the stagflation period. Or that we will have great increases in medical costs or longer nonworking lives. I am ok with a 3% number for now, but when I actually get near 33x, I am going to replan and decide whether I want to downshift or whether I want to earn for others. You can do a lot of giving once you are not working for yourself.

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Re: How does one determine their "number" and what exactly does it mean?

Post by carolinaman » Fri Apr 07, 2017 1:32 pm

willthrill81 wrote:
carolinaman wrote:
willthrill81 wrote:
LeeMKE wrote:I just finished reading Jim Otar''s book, Unveiling The Retirement Myth. It is a highly recommended book, and I found it very worthwhile.

He had an interesting chapter about reaching "your number." Once you reach "your number" you can take any reasonable withdrawal strategy and be likely to come out with similar outcomes. It is only when you are trying to work with savings that are less than "your number" that the consequences are risky and dire. But once you reach that tipping point, many roads lead to success.

Now, I just hope I've calculated "my number" correctly!

Regarding what the number should be, I personally think that 30 times projected annual expenses is a solid estimate. You can likely use a greater withdrawal rate than this size would suggest, but your expenses may be greater than you think as well, so this gives you a cushion.
People rarely state the context of these guidelines to determine their number. If someone needs $XXX annual expenses, is that gross or net of taxes? How do they consider SS or other income streams in retirement other than investments? It is never clear what the context is and it obviously makes a big difference. Some people might oversave or undersave if they have not considered these factors. I think ideally people should strive to save what is a realistic estimate of their retirement needs with some cushion and consider these other factors in the process. IMO, someone who saves 30 times their expenses without taking these other factors into consideration are likely oversaving if they plan to retire at or near FRA.
Generally, it is assumed that your number will be inclusive of taxes, meaning that you treat them as a line item along with utilities, groceries, etc.

And regarding 'oversaving', I think that that is likely not a significant issue to be concerned about. I've not heard of anyone who said later in life that they wished they had saved less along the way. Further, I think that the 'don't oversave' argument is mostly predicated on the idea that saving means less happiness, and I don't think that that's usually true.
I think it is dangerous to assume that everyone will assume that their number is inclusive of taxes. My issue is that these numbers are cited but rarely is there any qualifiers to give it proper context.

IMHO, oversaving can be an issue if people oversave for their future and sacrifice excessively in the present. They may forego nice vacations with family, fail to provide adequate support for their children's education and any number of things. I have seen it happen and it is unfortunate. Ironically, health issues often deprive people from doing things in retirement that they could have done 10 years earlier. For example, international travel is very challenging if you have mobility or other issues. You never know what the future holds. I believe we need to balance our present needs and desires with those in the future and try to achieve a happy medium.

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Re: How does one determine their "number" and what exactly does it mean?

Post by DaftInvestor » Fri Apr 07, 2017 1:59 pm

LarryAllen wrote:My number keeps going up as I am aware of new "risks" I hadn't considered before. Lol.
Mine keeps going up with Lifestyle creep (nicer vacations and more expensive wine - I want these to continue into retirement - otherwise why bother).

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Re: How does one determine their "number" and what exactly does it mean?

Post by willthrill81 » Fri Apr 07, 2017 2:11 pm

carolinaman wrote:I think it is dangerous to assume that everyone will assume that their number is inclusive of taxes. My issue is that these numbers are cited but rarely is there any qualifiers to give it proper context.

IMHO, oversaving can be an issue if people oversave for their future and sacrifice excessively in the present. They may forego nice vacations with family, fail to provide adequate support for their children's education and any number of things. I have seen it happen and it is unfortunate. Ironically, health issues often deprive people from doing things in retirement that they could have done 10 years earlier. For example, international travel is very challenging if you have mobility or other issues. You never know what the future holds. I believe we need to balance our present needs and desires with those in the future and try to achieve a happy medium.
I think that most reasonable people will know whether they will have to pay taxes on their retirement income (i.e. traditional IRA or 401k) or not (i.e. Roth). But perhaps not.

I consider retirement savings a more important goal than saving for kids' college expenses. You can always help them out with student loan repayment if you did indeed over-save in retirement accounts, and, to a certain degree, part of the onus is on the kids themselves. And what good does it do to save for your kids' college expenses if it inhibits your own financial independence? I've heard of many who have done that.

Balance between the present and the future is indeed important; we have spent a lot of money on traveling, for instance, that could have been saved, but enjoying the present was more important to us than saving that money, and we have no regrets. But also remember that Americans' average savings rate is 6%. The typical American has a long way to go from there to over-saving.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: How does one determine their "number" and what exactly does it mean?

Post by Tom Tomato » Fri Apr 07, 2017 2:29 pm

TomatoTomahto wrote:
Tom Tomato wrote:Is there a catalog or range or something for these "numbers". I mean what do I get if someone's "number" is ____?
Hi! Are you my cousin on my father's side? Welcome to the forum.
Yes I am :D :wink:

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Re: How does one determine their "number" and what exactly does it mean?

Post by Grt2bOutdoors » Fri Apr 07, 2017 3:01 pm

As much as everyone talks about retirement; my number, when I get there I'm going to do X,Y and Z, 1,2,3 don't lose sight of living TODAY - time goes by quickly. You can only control so much, yes save, save some more, but if the markets take a big hiccup and stay down for a period longer than you anticipated or planned for or longer than past history says it should, are you going to keep plugging away until you drop? Doesn't matter how much you have in the bank, on the day of or after, it will not have any value at all - your number will be a big fat ZERO. If other world events happen, it doesn't matter what your contract says or what you were promised, it could still be a big fat ZERO.

Here's another way to think of your number with the above in mind (all hypothetical):
Annual salary 60,000
Taxes: (10,000)
Savings: (9,000)
Health: (5,000)
Net Disposable income: 36,000 (numbers could be way off but you will get the idea).

If you did not invest the money, if you left it in a savings account and if inflation was zero, every 4 years you would have accumulated enough to equal one year of spending money. If you work 40 years, you'd accumulate roughly 10 years of disposable income and that is before social security. All big IFs, but if you invested it in a conservative/moderate account you could likely have enough to survive in retirement. You may or may not have a bigger kitty than everyone else, but that isn't the whole idea, the whole idea is to be able to "retire". Those who don't plan, plan to fail.
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Re: How does one determine their "number" and what exactly does it mean?

Post by LarryAllen » Fri Apr 07, 2017 7:32 pm

DaftInvestor wrote:
LarryAllen wrote:My number keeps going up as I am aware of new "risks" I hadn't considered before. Lol.
Mine keeps going up with Lifestyle creep (nicer vacations and more expensive wine - I want these to continue into retirement - otherwise why bother).
Ya, that too. :)

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Re: How does one determine their "number" and what exactly does it mean?

Post by LadyGeek » Fri Apr 07, 2017 7:51 pm

This thread is now in the Personal Finance (Not Investing) forum (retirement planning).
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Re: How does one determine their "number" and what exactly does it mean?

Post by BlackStrat » Sat Apr 08, 2017 7:49 am

Like Taylor says, the SWR is just a guide we reference with the intention of being flexible if the market takes (or gives) more than expected.

My current plan, if forced into an early retirement at 57, will be to take 3.3% until 65, and if the market has been generous increase to 4% (based on Trinity`s 30-year forecast).

At 70, I'll begin Social Security and (perhaps) decrease my withdrawal rate accordingly. This is all with the hopes of leaving something for the kids as well.

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Re: How does one determine their "number" and what exactly does it mean?

Post by CyclingDuo » Sat Apr 08, 2017 8:18 am

What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

https://www.fidelity.com/viewpoints/ret ... -to-retire

That article mentions a nice and simplistic, easy way to understand what you'll need...

12 X your income if you retire at 65
10 X your income if you retire at age 67
8 X if you retire at 70

The graphic shows the number you should have saved along the way in order to meet the "number" at retirement...

Image

The article has the usual assumptions for that graphic attached such as saving 15% of your income per year along the way starting at age 25, retiring at age 67, keeping more than 50% of your savings in stocks along the way, and maintaining your preretirement lifestyle upon retirement.

It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
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Re: How does one determine their "number" and what exactly does it mean?

Post by jlcnuke » Sat Apr 08, 2017 8:53 am

CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

https://www.fidelity.com/viewpoints/ret ... -to-retire

That article mentions a nice and simplistic, easy way to understand what you'll need...

12 X your income if you retire at 65
10 X your income if you retire at age 67
8 X if you retire at 70

The graphic shows the number you should have saved along the way in order to meet the "number" at retirement...

Image

The article has the usual assumptions for that graphic attached such as saving 15% of your income per year along the way starting at age 25, retiring at age 67, keeping more than 50% of your savings in stocks along the way, and maintaining your preretirement lifestyle upon retirement.

It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
I think it's a great rule of thumb for people too lazy to learn about their own finances and who tend to end the year with no larger net worth than they started it. Those rules of thumb are the "you work until you collect SS and hopefully if you somehow manage to reach these numbers the amount should cover your spending that SS doesn't.

It also assumes that you're going to work for 47-53 years of your adult life. Which, granted, many people do. However, I think people should aim for higher rates of saving/investments so they don't have to spend all of their prime years working full-time and can thus spend longer in retirement while they are (presumably) younger and healthier than they will be at 70 years old. Of course, that often requires minimizing lifestyle creep and most people would prefer to "keep up with the Jones's" instead, so at least it's a reasonable guide for those people.

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Re: How does one determine their "number" and what exactly does it mean?

Post by LadyGeek » Sat Apr 08, 2017 9:01 am

^^^ That's a great example illustrating what's in the wiki. See: Importance of saving early, read the section "What does it take to catch up if you start late?"
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Re: How does one determine their "number" and what exactly does it mean?

Post by LeeMKE » Sat Apr 08, 2017 9:06 am

+1

Simple is good for most people. And these numbers are pretty shy of what I'd want to have saved, but if you are behind, these numbers will give you hope to help you get started. The first step. . .

But we Bogleheads tend to relish getting down and dirty with the particulars of our own situation and opportunities. For me, this forum is like a 12 step program for someone who might otherwise wander off and start drinking again/individual investing. I went looking for a recovery group when I realized I was veering off into dangerous behavior, and it has really helped me Stay the Course, having a place to feed my hunger for more assurance that we will be fine, and confirmation of that with spreadsheets, online tools and calculators.

YMMV
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Re: How does one determine their "number" and what exactly does it mean?

Post by TomatoTomahto » Sat Apr 08, 2017 9:59 am

CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

[snip...]

It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
I'm sorry, but I consider it simplistic (bad) rather than simple (good). IMO, basing retirement needs on a multiple of income is, sorry to be blunt, stupid. An obvious example: my wife is making much more money today than a few years ago. We were well positioned for retirement then, are we now behind? Stupid.

A multiple of expected net income requirements (i.e., the expenses after SS and pensions) makes sense as a heuristic. It is simple, but probably good enough. I personally prefer using ESPlanner.com's software (I don't use the free online version), as I like to see what the Monte Carlo shows.

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Re: How does one determine their "number" and what exactly does it mean?

Post by TheTimeLord » Sat Apr 08, 2017 10:08 am

CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

https://www.fidelity.com/viewpoints/ret ... -to-retire

That article mentions a nice and simplistic, easy way to understand what you'll need...

12 X your income if you retire at 65
10 X your income if you retire at age 67
8 X if you retire at 70

I think it is a good basic guide for the vast majority of people who don't have large increases or decreases in their salary. It even helps with those to the extent that if you change your lifestyle to sync with a large change in your salary it does change whether you are ahead or behind in savings. Figuring out what your expenses will be 20, 30 or 40 years hence can be complicated and just guessing you will need $X annually is no more exact. Now once someone is nearing retirement the numbers fall into focus and you realize where you actually are. So to me it is a good primer.
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Re: How does one determine their "number" and what exactly does it mean?

Post by CyclingDuo » Sat Apr 08, 2017 10:35 am

TomatoTomahto wrote:
CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

[snip...]

It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
I'm sorry, but I consider it simplistic (bad) rather than simple (good). IMO, basing retirement needs on a multiple of income is, sorry to be blunt, stupid. An obvious example: my wife is making much more money today than a few years ago. We were well positioned for retirement then, are we now behind? Stupid.

A multiple of expected net income requirements (i.e., the expenses after SS and pensions) makes sense as a heuristic. It is simple, but probably good enough. I personally prefer using ESPlanner.com's software (I don't use the free online version), as I like to see what the Monte Carlo shows.
Do Monte Carlo simulations include Black Swan events? We've used the simulations at Fidelity, TIAA, Vanguard, and seen it displayed for us in a consultation as well.

T.Rowe Price uses a similar "take 30 seconds to measure your progress" along the path using pretty much the same formula as Fidelity (a multiple of your current salary), and the same assumptions (you start at age 25, save 15% per year, keep a 60/40 balance).

Many other simplistic views say you'll need 70-80% of your pre-retirement income each year to maintain a similar lifestyle in retirement. Others throw out the oft seen simplistic "you need 25 X your expenses". Of course, we all know at age 25, 35, 40, 50, etc... it's nearly impossible to predict what our expenses will exactly be at age 65, 70, 75 compared to age 25 - 50 (or whatever earlier age we are talking about). The reason we ask all of this is we are in our 50's and going through the check up process, trying to guesstimate expenses 10 - 15 years from now.

JP Morgan asset management uses a different multiple based on your income...

Image

To us, it seems the simplistic element of the Fidelity/T.Rowe Price/JP Morgan, etc... covers the reality that one is most likely living "within their current salary" and will automatically adjust their lifestyle along the path from age 25 - 65 to remain "within their salary" throughout their working careers. Thus when you get to the retirement age and are living "within your salary", that will simply continue. Hence the multiple of savings based on that salary, when combined with the pensions, Social Security, and average rate of return on the investments at retirement may seem overly simplistic, but how complex does the calculation really need to be?

We've currently got 13.79 X our income set aside, but have 10-12 years to go until our desired retirement age (one of us will also have a pension, and we both plan on receiving SS when we hit the appropriate ages).
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Re: How does one determine their "number" and what exactly does it mean?

Post by CyclingDuo » Sat Apr 08, 2017 10:43 am

TheTimeLord wrote:
CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

https://www.fidelity.com/viewpoints/ret ... -to-retire

That article mentions a nice and simplistic, easy way to understand what you'll need...

12 X your income if you retire at 65
10 X your income if you retire at age 67
8 X if you retire at 70

I think it is a good basic guide for the vast majority of people who don't have large increases or decreases in their salary. It even helps with those to the extent that if you change your lifestyle to sync with a large change in your salary it does change whether you are ahead or behind in savings. Figuring out what your expenses will be 20, 30 or 40 years hence can be complicated and just guessing you will need $X annually is no more exact. Now once someone is nearing retirement the numbers fall into focus and you realize where you actually are. So to me it is a good primer.
That's what we thought. At least at our current ages and point in life. We will experience at least some salary raises over the next decade which will alter our multiple saved at this point in a natural progression as we continue to sock away more.
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Re: How does one determine their "number" and what exactly does it mean?

Post by willthrill81 » Sat Apr 08, 2017 10:50 am

CyclingDuo wrote:Do Monte Carlo simulations include Black Swan events? We've used the simulations at Fidelity, TIAA, Vanguard, and seen it displayed for us in a consultation as well.
By definition, a 'black swan' effects cannot be modeled because you don't know what they could be. This is part of the reason why many Bogleheads 'over-save', as a hopeful form of insurance against such events. Further, it seems to me that diversification beyond 'paper assets' seems prudent if one is concerned about preparing for a Black Swan.
Last edited by willthrill81 on Sat Apr 08, 2017 10:51 am, edited 2 times in total.
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Re: How does one determine their "number" and what exactly does it mean?

Post by TomatoTomahto » Sat Apr 08, 2017 10:51 am

CyclingDuo wrote:Do Monte Carlo simulations include Black Swan events? We've used the simulations at Fidelity, TIAA, Vanguard, and seen it displayed for us in a consultation as well.
If by Black Swan you mean distortions along the lines of living in caves and using bullets as currency, no. But, as an example, I don't reach a 1% possibility of our standard of living falling to 0-25% of our conservatively specified spending (defined by ESPlanner as real returns halfway between 0 and mean) until the year 2037, and in addition to conservative spending, I've specified a conservative portfolio. That's on a report called "Probability that Living Standard Lies Within Specified Range of Projected Trajectory," where living standard is in current dollar terms for each living adult. The same report puts the probability of our living at 2x or better living standard at 16% in year 2037.

I personally find the consumption smoothing of ESPlanner useful and interesting. One could argue that I should save the annual renewal fee, since we're so far in the comfort zone, but, whatever . . . I keep it up to date and run the reports twice a year or so, as my wife extends her employment :D

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Re: How does one determine their "number" and what exactly does it mean?

Post by CyclingDuo » Sat Apr 08, 2017 6:34 pm

TomatoTomahto wrote:
CyclingDuo wrote:Do Monte Carlo simulations include Black Swan events? We've used the simulations at Fidelity, TIAA, Vanguard, and seen it displayed for us in a consultation as well.
If by Black Swan you mean distortions along the lines of living in caves and using bullets as currency, no. But, as an example, I don't reach a 1% possibility of our standard of living falling to 0-25% of our conservatively specified spending (defined by ESPlanner as real returns halfway between 0 and mean) until the year 2037, and in addition to conservative spending, I've specified a conservative portfolio. That's on a report called "Probability that Living Standard Lies Within Specified Range of Projected Trajectory," where living standard is in current dollar terms for each living adult. The same report puts the probability of our living at 2x or better living standard at 16% in year 2037.

I personally find the consumption smoothing of ESPlanner useful and interesting. One could argue that I should save the annual renewal fee, since we're so far in the comfort zone, but, whatever . . . I keep it up to date and run the reports twice a year or so, as my wife extends her employment :D
I guess when I mentioned Black Swan, I meant things like the Twin Towers going down/Pentagon being attacked, the housing bubble/burst subsequent financial crisis, and such things that will unfortunately happen in the future when we least expect it.

We are definitely on board to save for all possible scenarios, just wondered how accurate these Monte Carlo simulations are. Just trying to weed through all the formulas that range from simplistic, to those that are rather elaborate, and more complex.

I imagine the clarity starts to emerge the closer one gets to actual retirement age...
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Re: How does one determine their "number" and what exactly does it mean?

Post by willthrill81 » Sat Apr 08, 2017 8:07 pm

CyclingDuo wrote:I guess when I mentioned Black Swan, I meant things like the Twin Towers going down/Pentagon being attacked, the housing bubble/burst subsequent financial crisis, and such things that will unfortunately happen in the future when we least expect it.

We are definitely on board to save for all possible scenarios, just wondered how accurate these Monte Carlo simulations are. Just trying to weed through all the formulas that range from simplistic, to those that are rather elaborate, and more complex.

I imagine the clarity starts to emerge the closer one gets to actual retirement age...
Depending on which data your MC simulation is using, data going back to at least 1925 includes a world war, a terrible depression, several other wars, terrorist attacks, high inflationary periods, stagflation, periods of high unemployment, etc. FIRECalc is a good simulator, but it's not a MC simulation since it examines what would have actually happened to your portfolio in its 116 years of data. There could always be worse events in the future, but if you really want to be prepared for those, I think that you should at least take a look at some of the precepts of 'modern survivalism' (i.e. keeping lots of water, food, cash, first aid supplies, precious metals; preparing how to live in your home if no utilities are working, learning how to garden, etc.).
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Re: How does one determine their "number" and what exactly does it mean?

Post by Tamales » Sat Apr 08, 2017 9:33 pm

Frankly, it's a challenge to be helping someone in their mid 80's figure out their "outlive their money" number (even if they are currently healthy for their age, have frugal and consistent living expenses but poverty-level of social security income and no other income to speak of, and very limited retirement savings).

Even at this late age, there are still wide ranges in possible outcomes, considering best-to-worst-case ranges for future price inflation, best/worst assumptions on what the stock/bond portion of their meager portfolio could do, how much social security income will increase, and potential large unexpected expenses for health, home repair, car, etc.

But you have other considerations you don't have when younger like, do you really want to tell someone (or come to the realization on your own) that even under the best case collection of assumptions, if you live to be x (where x is plausible) you will be out of money? It's one thing to calculate hypotheticals when you're younger, but quite another when it's in the near future and very real. Imagine the psychological impact on them as they get close to x.

So I guess my point is, while these estimation exercises are interesting, the "accuracy" doesn't really get that much better as you get closer to the end, but the gravity of the calculations sure gets more intense as you get closer to the end (unless you have tons of margin).

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Re: How does one determine their "number" and what exactly does it mean?

Post by KarenC » Sun Apr 09, 2017 7:36 am

TomatoTomahto wrote:
CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

[snip...]

It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
I'm sorry, but I consider it simplistic (bad) rather than simple (good). IMO, basing retirement needs on a multiple of income is, sorry to be blunt, stupid. An obvious example: my wife is making much more money today than a few years ago. We were well positioned for retirement then, are we now behind? Stupid.

A multiple of expected net income requirements (i.e., the expenses after SS and pensions) makes sense as a heuristic. It is simple, but probably good enough. I personally prefer using ESPlanner.com's software (I don't use the free online version), as I like to see what the Monte Carlo shows.
One way I try adjust for variability in Income is to use the AIME (average indexed monthly income) number, which is part of the calculation for social security, and multiply that by 12.
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Re: How does one determine their "number" and what exactly does it mean?

Post by TomatoTomahto » Sun Apr 09, 2017 7:47 am

KarenC wrote:
TomatoTomahto wrote:
CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

[snip...]

It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
I'm sorry, but I consider it simplistic (bad) rather than simple (good). IMO, basing retirement needs on a multiple of income is, sorry to be blunt, stupid. An obvious example: my wife is making much more money today than a few years ago. We were well positioned for retirement then, are we now behind? Stupid.

A multiple of expected net income requirements (i.e., the expenses after SS and pensions) makes sense as a heuristic. It is simple, but probably good enough. I personally prefer using ESPlanner.com's software (I don't use the free online version), as I like to see what the Monte Carlo shows.
One way I try adjust for variability in Income is to use the AIME (average indexed monthly income) number, which is part of the calculation for social security, and multiply that by 12.
With respect, that just smooths the variability in a number that doesn't go to the question.

The question is how much you will need in retirement. The answer to that isn't based on how much you've made in the past, but on how much you'll need/want in the future. I have worked up 3 budgets, based on adjusted current spending (e.g., tuition goes to $0 once kids are finished) and then adjusted further for expected future spending in three buckets: minimum required to support decent life (e.g., groceries but few restaurants), comfortable living, and living large. There is little danger that we won't have the financial means for living large, but it's good to know that we also are likely to be able to afford a decent lifestyle if our assets drop like a stone.

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Re: How does one determine their "number" and what exactly does it mean?

Post by KarenC » Sun Apr 09, 2017 7:59 am

TomatoTomahto wrote:
KarenC wrote:
TomatoTomahto wrote:
CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?

[snip...]

It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
I'm sorry, but I consider it simplistic (bad) rather than simple (good). IMO, basing retirement needs on a multiple of income is, sorry to be blunt, stupid. An obvious example: my wife is making much more money today than a few years ago. We were well positioned for retirement then, are we now behind? Stupid.

A multiple of expected net income requirements (i.e., the expenses after SS and pensions) makes sense as a heuristic. It is simple, but probably good enough. I personally prefer using ESPlanner.com's software (I don't use the free online version), as I like to see what the Monte Carlo shows.
One way I try adjust for variability in Income is to use the AIME (average indexed monthly income) number, which is part of the calculation for social security, and multiply that by 12.
With respect, that just smooths the variability in a number that doesn't go to the question.

The question is how much you will need in retirement. The answer to that isn't based on how much you've made in the past, but on how much you'll need/want in the future. I have worked up 3 budgets, based on adjusted current spending (e.g., tuition goes to $0 once kids are finished) and then adjusted further for expected future spending in three buckets: minimum required to support decent life (e.g., groceries but few restaurants), comfortable living, and living large. There is little danger that we won't have the financial means for living large, but it's good to know that we also are likely to be able to afford a decent lifestyle if our assets drop like a stone.
I agree an expense-based approach is better. I was just noting that, for those that are comfortable with using some income-based approach, you can do better than using your most recent income.
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Re: How does one determine their "number" and what exactly does it mean?

Post by CyclingDuo » Sun Apr 09, 2017 8:27 am

willthrill81 wrote:
CyclingDuo wrote:I guess when I mentioned Black Swan, I meant things like the Twin Towers going down/Pentagon being attacked, the housing bubble/burst subsequent financial crisis, and such things that will unfortunately happen in the future when we least expect it.

We are definitely on board to save for all possible scenarios, just wondered how accurate these Monte Carlo simulations are. Just trying to weed through all the formulas that range from simplistic, to those that are rather elaborate, and more complex.

I imagine the clarity starts to emerge the closer one gets to actual retirement age...
Depending on which data your MC simulation is using, data going back to at least 1925 includes a world war, a terrible depression, several other wars, terrorist attacks, high inflationary periods, stagflation, periods of high unemployment, etc. FIRECalc is a good simulator, but it's not a MC simulation since it examines what would have actually happened to your portfolio in its 116 years of data. There could always be worse events in the future, but if you really want to be prepared for those, I think that you should at least take a look at some of the precepts of 'modern survivalism' (i.e. keeping lots of water, food, cash, first aid supplies, precious metals; preparing how to live in your home if no utilities are working, learning how to garden, etc.).
We'll check out FIRECalc. Thanks.

No, we are not pessimistic folks feeling the need to stockpile anything (outside of our favorite olive oil from Italy - and that only has a one year shelf life before it has to be used. :D

Good article here by Michael Kitces on Black Swans...

https://www.kitces.com/blog/black-swan- ... etirement/
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Re: How does one determine their "number" and what exactly does it mean?

Post by ubermax » Sun Apr 09, 2017 10:20 am

Chuck wrote:Let's say I'm 40, expect to live until 90, and want $70,000 per year in income. I have to make another assumption, that is what real rate to expect from my investments. 5% real from stocks, 1% real from bonds, 50/50 for an average of 3% for the portfolio. (See the hands waving?)
=PV(3%,50,-70000,0) [3% per year, 50 years, taking out 70K each year, end balance zero)
The result is $1,801,083. That's my "number."
jebmke wrote:Some people don't have a number. I never did. I just retired when things stopped looking interesting. I probably could have retired much earlier but I just didn't pay any attention to the financial side until near the end.
Like Jeb I never had a number and then when I got close to retirement I got curious about asset sufficiency ; as you get closer to retirement pension and SS amounts become known and I think you're in a better position to know what your budget should be - I then essentially did what Chuck outlined above where the 70K is the difference between budget and the total of pension and SS - I put it on a spreadsheet so that I could accommodate assumptions for cola/inflation ( "hand waving" as Chuck would say) for the various inflows but in reality I just update the SS and pension amounts, if any, each new year and look at the new PV's from 5 to 30 years in increments of 5 years.

I think , as important as "the number" , is giving some thought when you're younger to the tax ramifications when RMDs kick in, especially if you are fortunate enough to have eventually built up a good size treasure chest - 85% of SS can be taxed as well as roughly 4% of TIRA assets; of late I've been reading more and more posts about people who have portfolios that are top heavy with TIRA accounts as they approach retirement and are now scrambling to pull off Roth conversions .

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Hitting "the number" -- when it is enough?

Post by sitout » Tue Aug 15, 2017 8:40 pm

There is so much written about retirement goal targets, etc. But when do you really breath easy?

$5 million investable assets (not real property) at age 55?

$8 million investable assets at age 60?

Is $10 million needed to be firmly safe?

It's understood a number of factors involved, but some simple numbers should be recognized guideposts. Thoughts on those guidesposts?

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Re: How does one determine their "number" and what exactly does it mean?

Post by LadyGeek » Tue Aug 15, 2017 9:26 pm

Welcome! I moved your post into a similar discussion.
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Re: Hitting "the number" -- when it is enough?

Post by HomerJ » Tue Aug 15, 2017 9:55 pm

sitout wrote:
Tue Aug 15, 2017 8:40 pm
There is so much written about retirement goal targets, etc. But when do you really breath easy?

$5 million investable assets (not real property) at age 55?

$8 million investable assets at age 60?

Is $10 million needed to be firmly safe?

It's understood a number of factors involved, but some simple numbers should be recognized guideposts. Thoughts on those guidesposts?
The most important factor is your expenses in retirement. You cannot calculate a "number" without knowing your expenses.

Not your income, your expenses.

25x your expenses is a good number to shoot for around 60. Maybe 30x-33x your expenses if you are retiring earlier.

$5 million, $8 million, $10 million... all meaningless unless you know how much you will spend each year. If you spend $50,000 a year in retirement, you'd be able to retire at $1.5 million. If you spend $600,000 a year in retirement, $10 million will not be enough.

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Re: Hitting "the number" -- when it is enough?

Post by IMO » Wed Aug 16, 2017 2:57 am

HomerJ wrote:
Tue Aug 15, 2017 9:55 pm
The most important factor is your expenses in retirement. You cannot calculate a "number" without knowing your expenses.

Not your income, your expenses.
Agreed on expenses.
However expenses on 3 levels:
a) The "bare minimum to have a low end, but still decent quality of life, and
b) The within reason "higher quality of life" standard for yourself/family.
c) Level a or b expenses (or somewhere inbetween) along with "potential expenses" such as healthcare costs, long term care in the future, etc.

Current income is not relevant, but future income from all retirement sources, investments, pension, social security, should definitely be above your level "a" expenses because things unpredictable things come up in life. Get to "c" above using a higher quality of life expense standard and you've got probably a pretty solid number.
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Re: Hitting "the number" -- when it is enough?

Post by The Wizard » Wed Aug 16, 2017 6:02 am

IMO wrote:
Wed Aug 16, 2017 2:57 am
sitout wrote:
Tue Aug 15, 2017 8:40 pm

The most important factor is your expenses in retirement. You cannot calculate a "number" without knowing your expenses.

Not your income, your expenses.
Agreed on expenses.
However expenses on 3 levels:
a) The "bare minimum to have a low end, but still decent quality of life, and
b) The within reason "higher quality of life" standard for yourself/family.
c) Level a or b expenses (or somewhere inbetween) along with "potential expenses" such as healthcare costs, long term care in the future, etc.

Current income is not relevant, but future income from all retirement sources, investments, pension, social security, should definitely be above your level "a" expenses because things unpredictable things come up in life. Get to "c" above using a higher quality of life expense standard and you've got probably a pretty solid number.
Current income IS relevant for many people with stable income, since it helps define your standard of living.
Best simplest way to figure "expenses" is to start with gross income and subtract out FICA and all long-term retirement savings.

Someone with $100,000 salary might have $25,000 going to FICA, 401(k) and Roth IRA. So around $75,000 annual expenses for that person. That number could be a good retirement income amount for that person.

You can fine tune that number with adjustments for income tax, healthcare, and additional taxable savings but be careful not to include $500/month going to the New Car Fund as long term retirement savings...
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Re: Hitting "the number" -- when it is enough?

Post by smitcat » Wed Aug 16, 2017 8:26 am

The Wizard wrote:
Wed Aug 16, 2017 6:02 am
IMO wrote:
Wed Aug 16, 2017 2:57 am
sitout wrote:
Tue Aug 15, 2017 8:40 pm

The most important factor is your expenses in retirement. You cannot calculate a "number" without knowing your expenses.

Not your income, your expenses.
Agreed on expenses.
However expenses on 3 levels:
a) The "bare minimum to have a low end, but still decent quality of life, and
b) The within reason "higher quality of life" standard for yourself/family.
c) Level a or b expenses (or somewhere inbetween) along with "potential expenses" such as healthcare costs, long term care in the future, etc.

Current income is not relevant, but future income from all retirement sources, investments, pension, social security, should definitely be above your level "a" expenses because things unpredictable things come up in life. Get to "c" above using a higher quality of life expense standard and you've got probably a pretty solid number.
Current income IS relevant for many people with stable income, since it helps define your standard of living.
Best simplest way to figure "expenses" is to start with gross income and subtract out FICA and all long-term retirement savings.

Someone with $100,000 salary might have $25,000 going to FICA, 401(k) and Roth IRA. So around $75,000 annual expenses for that person. That number could be a good retirement income amount for that person.

You can fine tune that number with adjustments for income tax, healthcare, and additional taxable savings but be careful not to include $500/month going to the New Car Fund as long term retirement savings...
We always use retirement expenses for our number and while I am sure income will have relevance to that number for some it does not come close for us. Our budgeted retirement expenses are much different than our current situation for a lot of reasons so current income is not really relate to future expenses.
So we use budgeted expenses in retirement to figure out our 'safe' numbers.
Just a few of the many reason why current income does not fit:
- currently cash flowing college costs
- moving to new home in retirement
- moving to new state with varied taxes in retirement
- Savings both pre and post tax now
- vehicles will change in retirement (both type and quantity)
- larger travel costs in retirement

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Re: Hitting "the number" -- when it is enough?

Post by The Wizard » Wed Aug 16, 2017 9:49 am

smitcat wrote:
Wed Aug 16, 2017 8:26 am

We always use retirement expenses for our number and while I am sure income will have relevance to that number for some it does not come close for us. Our budgeted retirement expenses are much different than our current situation for a lot of reasons so current income is not really relate to future expenses.
So we use budgeted expenses in retirement to figure out our 'safe' numbers.
Just a few of the many reason why current income does not fit:
- currently cash flowing college costs
- moving to new home in retirement
- moving to new state with varied taxes in retirement
- Savings both pre and post tax now
- vehicles will change in retirement (both type and quantity)
- larger travel costs in retirement
Relocating to a new home in retirement can majorly impact your finances, yes.

I found that targeting the same "take-home pay" as my last year or two of full-time employment made a lot of sense. By then I'd finished paying college costs, so my cashflow picture was rather simple.

I do travel more now in retirement than the 5-6 weeks of my latter working years, so that requires more funds. My AGI and Taxable Income has been higher each year in retirement than it ever was during working years, so I've achieved my goal...
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