1,000th post and a 'NoFail' Retirement Formula

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1,000th post and a 'NoFail' Retirement Formula
I’m proud to submit my 1,000th post. I’m as proud doing this as when I was joining the twocomma club. That’s crazy, isn’t it? So for my onecomma post, I’ll put out this ‘nofail’ retirement formula for all to see.
If you’re in mid 50’s and start thinking about retirement. You can calculate whether you have enough money to retire, or how much longer you have to work before you can retire, or how much you can withdraw from your investment without depleting it if you were to retire today.
P = Xn + (XSS) ÷ 0.03
P = The size your portfolio (401K, IRA, Roth, taxable, etc..). It doesn’t include your home or rental properties
X = Your annual expenses before taxes minus passive income including dividend, rental, or other passive income. Note the ‘beforetaxes’
n = Number of years before drawing SS or pension
SS = Your annual pension and / or social security benefits
Let’s look at some examples.
Example 1
Although John has rental income and stock dividends, he still needs to withdraw $100K a year frogm his investment portfolio when he retires. He plans to retire now and five years from now he would receive $40K a year from his company pension and social security. How big his portfolio would have to be to support this plan?
P = ($100K x 5) + ($100K  $40K) ÷ 0.03
P = $500K + $60K ÷ 0.03
P = $500K + $2,000K = $2.5 million
Example 2
Bob has $1 million in savings. He wants to retire now and in (2) two years, he would get social security benefits of $25K a year. How much a year could he withdraw without depleting his savings?
$1,000,000 = 2X + (X  $25,000) ÷ 0.03
Multiply both sides by 0.03
$30,000 = 0.06X + X – $25,000
$30,000 + $25,000 = 1.06X
$55,000 = 1.06X
X = $51,887
Bob could withdraw $52K a year after he retires and $27K a year after social security kicks in
Example 3
Mary is working now. She has $1.5 million invested in various accounts and when she retires, her annual needs before taxes would be $75,000. She plans to claim social security at age 67 at which time she would receive $39K a year. When can she retire?
$1,500,000 = $75,000 (n) + ($75,000  $39,000) ÷ 0.03
$1,500,000 = $75,000n + ($36,000) ÷ 0.03
$1,500,000 = $75,000n + $1,200,000
$1,500,000  $1,200,000 = $75,000n
$300,000 = $75,000n
N = 4 years
Mary could retire at age 674 = 63
Stick to this formula and your money will not run out regardless of how long you live especially if your asset contains at least 30% stocks. This formula should only be used by people who are close to retirement because it’s too conservative for younger folks.
You should also modify the formula to include special situations like this:
Example 4
Although John has rental income and stock dividends, he still needs to withdraw $100K a year from his investment portfolio when he retires. He plans to retire now and five years from now he would receive a pension of $20K a year from his company; and two years after that, he would receive $32K a year from social security. How big his portfolio would have to be to support this plan?
P = ($100K x 5) + ($100K  $20K) x 2 + ($100K  $20K  $32K) ÷ 0.03
P = $500K + $160K + $1,600K
P = $2.27 million
If you’re in mid 50’s and start thinking about retirement. You can calculate whether you have enough money to retire, or how much longer you have to work before you can retire, or how much you can withdraw from your investment without depleting it if you were to retire today.
P = Xn + (XSS) ÷ 0.03
P = The size your portfolio (401K, IRA, Roth, taxable, etc..). It doesn’t include your home or rental properties
X = Your annual expenses before taxes minus passive income including dividend, rental, or other passive income. Note the ‘beforetaxes’
n = Number of years before drawing SS or pension
SS = Your annual pension and / or social security benefits
Let’s look at some examples.
Example 1
Although John has rental income and stock dividends, he still needs to withdraw $100K a year frogm his investment portfolio when he retires. He plans to retire now and five years from now he would receive $40K a year from his company pension and social security. How big his portfolio would have to be to support this plan?
P = ($100K x 5) + ($100K  $40K) ÷ 0.03
P = $500K + $60K ÷ 0.03
P = $500K + $2,000K = $2.5 million
Example 2
Bob has $1 million in savings. He wants to retire now and in (2) two years, he would get social security benefits of $25K a year. How much a year could he withdraw without depleting his savings?
$1,000,000 = 2X + (X  $25,000) ÷ 0.03
Multiply both sides by 0.03
$30,000 = 0.06X + X – $25,000
$30,000 + $25,000 = 1.06X
$55,000 = 1.06X
X = $51,887
Bob could withdraw $52K a year after he retires and $27K a year after social security kicks in
Example 3
Mary is working now. She has $1.5 million invested in various accounts and when she retires, her annual needs before taxes would be $75,000. She plans to claim social security at age 67 at which time she would receive $39K a year. When can she retire?
$1,500,000 = $75,000 (n) + ($75,000  $39,000) ÷ 0.03
$1,500,000 = $75,000n + ($36,000) ÷ 0.03
$1,500,000 = $75,000n + $1,200,000
$1,500,000  $1,200,000 = $75,000n
$300,000 = $75,000n
N = 4 years
Mary could retire at age 674 = 63
Stick to this formula and your money will not run out regardless of how long you live especially if your asset contains at least 30% stocks. This formula should only be used by people who are close to retirement because it’s too conservative for younger folks.
You should also modify the formula to include special situations like this:
Example 4
Although John has rental income and stock dividends, he still needs to withdraw $100K a year from his investment portfolio when he retires. He plans to retire now and five years from now he would receive a pension of $20K a year from his company; and two years after that, he would receive $32K a year from social security. How big his portfolio would have to be to support this plan?
P = ($100K x 5) + ($100K  $20K) x 2 + ($100K  $20K  $32K) ÷ 0.03
P = $500K + $160K + $1,600K
P = $2.27 million
Last edited by TravelforFun on Fri Jan 19, 2018 9:45 pm, edited 8 times in total.
 randomizer
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Re: 1,000th post and a 'NoFail' Retirement Formula
Congratulations on both milestones. If you're past two commas and you've made 1,000 posts, that works out to $1,000 per post. Pretty good deal, I'd say.TravelforFun wrote: ↑Wed Jan 17, 2018 10:04 pmI’m proud to submit my 1,000th post. I’m as proud doing this as when I was joining the twocomma club. That’s crazy, isn’t it?
 Taylor Larimore
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Re: 1,000th post and a 'NoFail' Retirement Formula
TravelforFun:
Congratulations!
Every one of your 1,000 posts was either a contribution to help others or a learning experience for yourself.
It doesn't get much better than that.
Best wishes.
Taylor
Congratulations!
Every one of your 1,000 posts was either a contribution to help others or a learning experience for yourself.
It doesn't get much better than that.
Best wishes.
Taylor
"Simplicity is the master key to financial success."  Jack Bogle

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 Joined: Tue Dec 04, 2012 11:05 pm
Re: 1,000th post and a 'NoFail' Retirement Formula
Thank you Taylor.Taylor Larimore wrote: ↑Wed Jan 17, 2018 10:26 pmTravelforFun:
Congratulations!
Every one of your 1,000 posts was either a contribution to help others or a learning experience for yourself.
It doesn't get much better than that.
Best wishes.
Taylor

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 Joined: Fri Jan 17, 2014 10:19 am
Re: 1,000th post and a 'NoFail' Retirement Formula
How about the 4% rule? You are too conservative.

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Re: 1,000th post and a 'NoFail' Retirement Formula
4% presents a possibility of failure that I can't accept. I don't want to have to cut back on my living standards when the market slides.
TravelforFun
 RetiredMule
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Re: 1,000th post and a 'NoFail' Retirement Formula
TravelForFun,
Congrats on your hitting these milestones  twoinone
From your original post, for X as well as the values for X in the examples provided: is the inflation for expenses (X) is assumed to be compensated (or even more) by the growth in the total portfolio, P?
Congrats on your hitting these milestones  twoinone
From your original post, for X as well as the values for X in the examples provided: is the inflation for expenses (X) is assumed to be compensated (or even more) by the growth in the total portfolio, P?
Re: 1,000th post and a 'NoFail' Retirement Formula
Congrats Travel on both, and thanks for the formula. According to it I need 2.53 million. Doable, but I'm along ways from it . Thanks again and congrats.
Re: 1,000th post and a 'NoFail' Retirement Formula
Does the formula account for people who are already in retirement but not yet drawing SS?
Kalo
Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money."  Ben Stein/Phil DeMuth  The Little Book of Bullet Proof Investing.

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Re: 1,000th post and a 'NoFail' Retirement Formula
I would delete the Xn term from right side of the equation.
If I have 5 years remaining until retirement, I'll fund those expenses from employment income, not from portfolio...
If I have 5 years remaining until retirement, I'll fund those expenses from employment income, not from portfolio...
Attempted new signature...

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Re: 1,000th post and a 'NoFail' Retirement Formula
And I still prefer to model retirement cashflow streams with a spreadsheet that shows the variation year to year.
Typical example: retire at 65 but postpone SS until 70. So withdraw more from portfolio first five years, possibly with Roth conversions. Then withdraw less once SS starts...
Typical example: retire at 65 but postpone SS until 70. So withdraw more from portfolio first five years, possibly with Roth conversions. Then withdraw less once SS starts...
Attempted new signature...

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 Posts: 1072
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Re: 1,000th post and a 'NoFail' Retirement Formula
If you work until the day you start drawing SS, then ‘n’ would be 0 and Xn would be 0.The Wizard wrote: ↑Thu Jan 18, 2018 4:13 amI would delete the Xn term from right side of the equation.
If I have 5 years remaining until retirement, I'll fund those expenses from employment income, not from portfolio...
TravelforFun

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Re: 1,000th post and a 'NoFail' Retirement Formula
Then X would be the amount you need at 65, n would be 5, and (XSS) would be the amount you need after 70. I’ve done the spreadsheet and the results are similar.The Wizard wrote: ↑Thu Jan 18, 2018 4:18 amAnd I still prefer to model retirement cashflow streams with a spreadsheet that shows the variation year to year.
Typical example: retire at 65 but postpone SS until 70. So withdraw more from portfolio first five years, possibly with Roth conversions. Then withdraw less once SS starts...
TravelforFun

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Re: 1,000th post and a 'NoFail' Retirement Formula
Yes. That’s correct!RetiredMule wrote: ↑Thu Jan 18, 2018 2:30 amTravelForFun,
Congrats on your hitting these milestones  twoinone
From your original post, for X as well as the values for X in the examples provided: is the inflation for expenses (X) is assumed to be compensated (or even more) by the growth in the total portfolio, P?
TravelforFun

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Re: 1,000th post and a 'NoFail' Retirement Formula
Very nice for a quick estimate.
It would be less confusing to me if the formula were written:
P = Xn + ((XSS) / 0.03)
Sorry, I don't have a divide sign on my keyboard. "/" means divide.
Unless I misread it.
1210

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Re: 1,000th post and a 'NoFail' Retirement Formula
You didn’t misread it but there is really no need for another set of parentheses if you follow the order of operations meaning division occurs before addition.
TravelforFun
Last edited by TravelforFun on Thu Jan 18, 2018 8:43 am, edited 1 time in total.
Re: 1,000th post and a 'NoFail' Retirement Formula
Can you run through your math again with me for Example 4, especially line 2?
I'm having an hard time understanding where you got $240k from?
four
I'm having an hard time understanding where you got $240k from?
four
 DaftInvestor
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Re: 1,000th post and a 'NoFail' Retirement Formula
Congrats on your milestone.
The one thing your formula doesn't answer is "How much do I need to save for the next X years to hit the number I need for retirement".
As such  I will share my formulas (I assume you have already deducted and determined how much you need to withdraw per year  but if you haven't  its simply C=ExpensesSSPension).
Very easy to put this in a spreadsheet:
The inputs:
1) Total postinflation return prior to retirement (r)
2) Total postinflation return during retirement (R)
3) Number of years until retirement (n)
4) Amount invested per year up until retirement (c)
5) Number of years in retirement (N)
6) Amount spent per year in retirement (C)
7) V = Value of current portfolio
Amount Needed = (C/R)(1(1/(1+R))^N)
Value of Past Investments = V(1+r)^n
Value of Future Investments = (c/r)(1(1/(1+r))^n)(1+r)^n
Total Value at Retirement = (Value of Past) + (Value of Future)
Overage (or Shortage) = [Total Value at Retirement]  [Amount Needed]
I came up with this as I got tired of different retirement calculators telling me different things without understanding their hiddenmath.
For "C" I do deduct out a SocialSecurity assumption (no pension for me). I keep all my numbers in today's dollar value for simplicity.
My math is also more complex than OPs allowing you to model different portfolio growth scenarios prior to and after retirement.
I do like the simplicity of the OPs formula though (Mine takes some time to think through but once its in excel  has a lot of power in my opinion).
The one thing your formula doesn't answer is "How much do I need to save for the next X years to hit the number I need for retirement".
As such  I will share my formulas (I assume you have already deducted and determined how much you need to withdraw per year  but if you haven't  its simply C=ExpensesSSPension).
Very easy to put this in a spreadsheet:
The inputs:
1) Total postinflation return prior to retirement (r)
2) Total postinflation return during retirement (R)
3) Number of years until retirement (n)
4) Amount invested per year up until retirement (c)
5) Number of years in retirement (N)
6) Amount spent per year in retirement (C)
7) V = Value of current portfolio
Amount Needed = (C/R)(1(1/(1+R))^N)
Value of Past Investments = V(1+r)^n
Value of Future Investments = (c/r)(1(1/(1+r))^n)(1+r)^n
Total Value at Retirement = (Value of Past) + (Value of Future)
Overage (or Shortage) = [Total Value at Retirement]  [Amount Needed]
I came up with this as I got tired of different retirement calculators telling me different things without understanding their hiddenmath.
For "C" I do deduct out a SocialSecurity assumption (no pension for me). I keep all my numbers in today's dollar value for simplicity.
My math is also more complex than OPs allowing you to model different portfolio growth scenarios prior to and after retirement.
I do like the simplicity of the OPs formula though (Mine takes some time to think through but once its in excel  has a lot of power in my opinion).
 sunny_socal
 Posts: 1410
 Joined: Tue Mar 24, 2015 4:22 pm
Re: 1,000th post and a 'NoFail' Retirement Formula
DaftInvestor, is there a way you could post a copy of your Excel here? I would like to try it out.DaftInvestor wrote: ↑Thu Jan 18, 2018 9:00 amCongrats on your milestone.
The one thing your formula doesn't answer is "How much do I need to save for the next X years to hit the number I need for retirement".
As such  I will share my formulas (I assume you have already deducted and determined how much you need to withdraw per year  but if you haven't  its simply C=ExpensesSSPension).
Very easy to put this in a spreadsheet:
The inputs:
1) Total postinflation return prior to retirement (r)
2) Total postinflation return during retirement (R)
3) Number of years until retirement (n)
4) Amount invested per year up until retirement (c)
5) Number of years in retirement (N)
6) Amount spent per year in retirement (C)
7) V = Value of current portfolio
Amount Needed = (C/R)(1(1/(1+R))^N)
Value of Past Investments = V(1+r)^n
Value of Future Investments = (c/r)(1(1/(1+r))^n)(1+r)^n
Total Value at Retirement = (Value of Past) + (Value of Future)
Overage (or Shortage) = [Total Value at Retirement]  [Amount Needed]
I came up with this as I got tired of different retirement calculators telling me different things without understanding their hiddenmath.
For "C" I do deduct out a SocialSecurity assumption (no pension for me). I keep all my numbers in today's dollar value for simplicity.
My math is also more complex than OPs allowing you to model different portfolio growth scenarios prior to and after retirement.
I do like the simplicity of the OPs formula though (Mine takes some time to think through but once its in excel  has a lot of power in my opinion).
Thanks

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 DaftInvestor
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Re: 1,000th post and a 'NoFail' Retirement Formula
I'll see if I can find a place to post it anonymously and then link to it (If anyone has any suggestions please chime in).sunny_socal wrote: ↑Thu Jan 18, 2018 9:54 am
DaftInvestor, is there a way you could post a copy of your Excel here? I would like to try it out.
Thanks
Re: 1,000th post and a 'NoFail' Retirement Formula
Hmmm. I guess I could have retired 6 years ago, then...
BH87

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 sunny_socal
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Re: 1,000th post and a 'NoFail' Retirement Formula
User '#Cruncher' does it by posting the actual excel code here, example:DaftInvestor wrote: ↑Thu Jan 18, 2018 10:48 amI'll see if I can find a place to post it anonymously and then link to it (If anyone has any suggestions please chime in).sunny_socal wrote: ↑Thu Jan 18, 2018 9:54 am
DaftInvestor, is there a way you could post a copy of your Excel here? I would like to try it out.
Thanks
viewtopic.php?f=2&t=236881&p=3708669&hi ... l#p3708669
Re: 1,000th post and a 'NoFail' Retirement Formula
Well, you've got me figured out, that's for sure. I am of mixed feeling myself.TravelforFun wrote: ↑Thu Jan 18, 2018 11:39 amShould I offer you congratulations or condolences? You’re one of those who can but won’t. Lol.
TravelforFun
We are planning to spend about $85k max per year in retirement (up from $60k) now. When I ran your numbers the first way, assuming social security at age 70, I got the "six years ago" number.
A bit later, i reran it using our existing nest egg and solving for an annual expense allowance if we retired 1 year from now. That returned a number of $109k. So I guess we are set!
Your formula is very handy! Thanks!
BH87
Re: 1,000th post and a 'NoFail' Retirement Formula
Based on your formula, my expenses divided by the portfolio size is a 2.4% withdrawal rate. That is way too conservative. I think this is a result of two factors. Choosing a SS age of 70 results in more years of using a portfolio based on 0% growth and using a 3% withdrawal rate on amounts after one starts SS is too conservative if you're starting at age 70.
Re: 1,000th post and a 'NoFail' Retirement Formula
Maybe I'm a bit dense, but what are my "expenses before taxes" and how is that relevant? Seems only relevant as a percentage of pre or aftertax income.
My mortgage is $2,500/ month and my electric bill is $100 per month. How does my tax rate change those and all of my other expenses?
In addition to that, how does the formula account for an expense (mortgage, $2,500) that I have now but that I won't have in ten years when I retire?
My mortgage is $2,500/ month and my electric bill is $100 per month. How does my tax rate change those and all of my other expenses?
In addition to that, how does the formula account for an expense (mortgage, $2,500) that I have now but that I won't have in ten years when I retire?
Re: 1,000th post and a 'NoFail' Retirement Formula
Good questions... 1) because taxes are an expense and using before tax makes the formula generic wrt tax bracket. 2) Model your retirement income needs to not include the mortgage if it won’t be there.Admiral wrote: ↑Thu Jan 18, 2018 1:15 pmMaybe I'm a bit dense, but what are my "expenses before taxes" and how is that relevant? Seems only relevant as a percentage of pre or aftertax income.
My mortgage is $2,500/ month and my electric bill is $100 per month. How does my tax rate change those and all of my other expenses?
In addition to that, how does the formula account for an expense (mortgage, $2,500) that I have now but that I won't have in ten years when I retire?
Re: 1,000th post and a 'NoFail' Retirement Formula
Ah, got it, thanks.Lloydo wrote: ↑Thu Jan 18, 2018 2:09 pmGood questions... 1) because taxes are an expense and using before tax makes the formula generic wrt tax bracket. 2) Model your retirement income needs to not include the mortgage if it won’t be there.Admiral wrote: ↑Thu Jan 18, 2018 1:15 pmMaybe I'm a bit dense, but what are my "expenses before taxes" and how is that relevant? Seems only relevant as a percentage of pre or aftertax income.
My mortgage is $2,500/ month and my electric bill is $100 per month. How does my tax rate change those and all of my other expenses?
In addition to that, how does the formula account for an expense (mortgage, $2,500) that I have now but that I won't have in ten years when I retire?
This is an interesting mental exercise but I think would only work for someone without kids approaching college age (Travel did note that one had to be in their 50s).
In my case, the numbers showed that I could retire in 4.9 years (I am 46), mostly due to a combination of a fairly decent sized portfolio and a combination of pension and max SS that would cover all of our expenses, such that we could basically deplete our portfolio from age 51 until claiming SS.
But who would do that?
And, with no income and two kids in college, I would have to pay for their tuition from my portfolio, most of which is tax sheltered, though some is Roth. This can be done of course but is clearly not a solution that most here would advise. I suppose I could take out big loans and pay them down over time, slowly and inexorably depleting both taxable and Roth. But that is also something I don't intend to do.

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Re: 1,000th post and a 'NoFail' Retirement Formula
Those would be my answers too.Lloydo wrote: ↑Thu Jan 18, 2018 2:09 pmGood questions... 1) because taxes are an expense and using before tax makes the formula generic wrt tax bracket. 2) Model your retirement income needs to not include the mortgage if it won’t be there.Admiral wrote: ↑Thu Jan 18, 2018 1:15 pmMaybe I'm a bit dense, but what are my "expenses before taxes" and how is that relevant? Seems only relevant as a percentage of pre or aftertax income.
My mortgage is $2,500/ month and my electric bill is $100 per month. How does my tax rate change those and all of my other expenses?
In addition to that, how does the formula account for an expense (mortgage, $2,500) that I have now but that I won't have in ten years when I retire?
TravelforFun

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Re: 1,000th post and a 'NoFail' Retirement Formula
This is why it will work 100% of the times. Nofail.remomnyc wrote: ↑Thu Jan 18, 2018 12:50 pmBased on your formula, my expenses divided by the portfolio size is a 2.4% withdrawal rate. That is way too conservative. I think this is a result of two factors. Choosing a SS age of 70 results in more years of using a portfolio based on 0% growth and using a 3% withdrawal rate on amounts after one starts SS is too conservative if you're starting at age 70.
TravelforFun
Re: 1,000th post and a 'NoFail' Retirement Formula
Travel, how would you model the following scenario:TravelforFun wrote: ↑Thu Jan 18, 2018 3:00 pmThis is why it will work 100% of the times. Nofail.remomnyc wrote: ↑Thu Jan 18, 2018 12:50 pmBased on your formula, my expenses divided by the portfolio size is a 2.4% withdrawal rate. That is way too conservative. I think this is a result of two factors. Choosing a SS age of 70 results in more years of using a portfolio based on 0% growth and using a 3% withdrawal rate on amounts after one starts SS is too conservative if you're starting at age 70.
TravelforFun
Pension pays 40k per year, and begins paying out in 12 years, at age 60 (spouse's age). SS would add 70k per year, but would not begin until age 70 (so, ten years later).
Clearly if one has expenses that will be less than 40k+70k, then one is set at age 70. However, there are the gap years. A simple answer would be gap amount x # of years before SS kicks in. But this can't really be solved using your formula if one wants to, say, retire before the pension is available.

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Re: 1,000th post and a 'NoFail' Retirement Formula
Your situation can be modeled but the missing input is X, the pretax annual amount you need before pension and SS.Admiral wrote: ↑Thu Jan 18, 2018 3:16 pmTravel, how would you model the following scenario:TravelforFun wrote: ↑Thu Jan 18, 2018 3:00 pmThis is why it will work 100% of the times. Nofail.remomnyc wrote: ↑Thu Jan 18, 2018 12:50 pmBased on your formula, my expenses divided by the portfolio size is a 2.4% withdrawal rate. That is way too conservative. I think this is a result of two factors. Choosing a SS age of 70 results in more years of using a portfolio based on 0% growth and using a 3% withdrawal rate on amounts after one starts SS is too conservative if you're starting at age 70.
TravelforFun
Pension pays 40k per year, and begins paying out in 12 years, at age 60 (spouse's age). SS would add 70k per year, but would not begin until age 70 (so, ten years later).
Clearly if one has expenses that will be less than 40k+70k, then one is set at age 70. However, there are the gap years. A simple answer would be gap amount x # of years before SS kicks in. But this can't really be solved using your formula if one wants to, say, retire before the pension is available.
TravelforFun
Re: 1,000th post and a 'NoFail' Retirement Formula
Say 100k for kicks and giggles (current dollars).TravelforFun wrote: ↑Thu Jan 18, 2018 3:58 pmYour situation can be modeled but the missing input is X, the pretax annual amount you need before pension and SS.Admiral wrote: ↑Thu Jan 18, 2018 3:16 pmTravel, how would you model the following scenario:TravelforFun wrote: ↑Thu Jan 18, 2018 3:00 pmThis is why it will work 100% of the times. Nofail.remomnyc wrote: ↑Thu Jan 18, 2018 12:50 pmBased on your formula, my expenses divided by the portfolio size is a 2.4% withdrawal rate. That is way too conservative. I think this is a result of two factors. Choosing a SS age of 70 results in more years of using a portfolio based on 0% growth and using a 3% withdrawal rate on amounts after one starts SS is too conservative if you're starting at age 70.
TravelforFun
Pension pays 40k per year, and begins paying out in 12 years, at age 60 (spouse's age). SS would add 70k per year, but would not begin until age 70 (so, ten years later).
Clearly if one has expenses that will be less than 40k+70k, then one is set at age 70. However, there are the gap years. A simple answer would be gap amount x # of years before SS kicks in. But this can't really be solved using your formula if one wants to, say, retire before the pension is available.
TravelforFun

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Re: 1,000th post and a 'NoFail' Retirement Formula
Say $100K after tax = $115K before tax.Admiral wrote: ↑Thu Jan 18, 2018 4:24 pmSay 100k for kicks and giggles (current dollars).TravelforFun wrote: ↑Thu Jan 18, 2018 3:58 pmYour situation can be modeled but the missing input is X, the pretax annual amount you need before pension and SS.Admiral wrote: ↑Thu Jan 18, 2018 3:16 pmTravel, how would you model the following scenario:TravelforFun wrote: ↑Thu Jan 18, 2018 3:00 pmThis is why it will work 100% of the times. Nofail.remomnyc wrote: ↑Thu Jan 18, 2018 12:50 pmBased on your formula, my expenses divided by the portfolio size is a 2.4% withdrawal rate. That is way too conservative. I think this is a result of two factors. Choosing a SS age of 70 results in more years of using a portfolio based on 0% growth and using a 3% withdrawal rate on amounts after one starts SS is too conservative if you're starting at age 70.
TravelforFun
Pension pays 40k per year, and begins paying out in 12 years, at age 60 (spouse's age). SS would add 70k per year, but would not begin until age 70 (so, ten years later).
Clearly if one has expenses that will be less than 40k+70k, then one is set at age 70. However, there are the gap years. A simple answer would be gap amount x # of years before SS kicks in. But this can't really be solved using your formula if one wants to, say, retire before the pension is available.
TravelforFun
P = ($115K x 12 years) + ($115K  $40K) x 2 years
P = $1,530,000
You would need a mill and a half.
TravelforFun
Re: 1,000th post and a 'NoFail' Retirement Formula
Excellent, thanks for that additional clarification!TravelforFun wrote: ↑Thu Jan 18, 2018 4:40 pmSay $100K after tax = $115K before tax.Admiral wrote: ↑Thu Jan 18, 2018 4:24 pmSay 100k for kicks and giggles (current dollars).TravelforFun wrote: ↑Thu Jan 18, 2018 3:58 pmYour situation can be modeled but the missing input is X, the pretax annual amount you need before pension and SS.Admiral wrote: ↑Thu Jan 18, 2018 3:16 pmTravel, how would you model the following scenario:TravelforFun wrote: ↑Thu Jan 18, 2018 3:00 pm
This is why it will work 100% of the times. Nofail.
TravelforFun
Pension pays 40k per year, and begins paying out in 12 years, at age 60 (spouse's age). SS would add 70k per year, but would not begin until age 70 (so, ten years later).
Clearly if one has expenses that will be less than 40k+70k, then one is set at age 70. However, there are the gap years. A simple answer would be gap amount x # of years before SS kicks in. But this can't really be solved using your formula if one wants to, say, retire before the pension is available.
TravelforFun
P = ($115K x 12 years) + ($115K  $40K) x 2 years
P = $1,530,000
You would need a mill and a half.
TravelforFun
Re: 1,000th post and a 'NoFail' Retirement Formula
Congrats on both! Now get to work joining the two comma post club.
Re: 1,000th post and a 'NoFail' Retirement Formula
Say we need 108,000 a year in retirement before taxes. Of that a total of $33,000 a year would come from a small pension and social security, both to be started at age 70. We are age 65. How much do we need to have in our portfolio ( how much saved ) to retire at age 70 and what would be the assumed withdrawal rate?
Do I need to provide more info?
Do I need to provide more info?

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 Joined: Tue Dec 04, 2012 11:05 pm
Re: 1,000th post and a 'NoFail' Retirement Formula
Assuming you're working now and your income is taking care of your expenses. When you retire at 70, and all income is the $33K a year, you should have this amount in your portfolio:Jackson12 wrote: ↑Fri Jan 19, 2018 12:37 amSay we need 108,000 a year in retirement before taxes. Of that a total of $33,000 a year would come from a small pension and social security, both to be started at age 70. We are age 65. How much do we need to have in our portfolio ( how much saved ) to retire at age 70 and what would be the assumed withdrawal rate?
Do I need to provide more info?
P = ($108K  $33K) /0.03 or $2.5 million. This is based on a 3% withdrawal rate which is a very safe rate.
For every $10K reduction in your annual expenses, you can lower your portfolio by $330K.
TravelforFun

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 Joined: Tue Dec 04, 2012 11:05 pm
 DaftInvestor
 Posts: 3544
 Joined: Wed Feb 19, 2014 10:11 am
Re: 1,000th post and a 'NoFail' Retirement Formula
Okay  I was trying to find a easy anonymous place to upload the spreadsheet but can't do so without signing up for something so here goes (Sorry  you won't benefit from my color coding, etc. and will have to recreate what I have):sunny_socal wrote: ↑Thu Jan 18, 2018 12:11 pmUser '#Cruncher' does it by posting the actual excel code here, example:DaftInvestor wrote: ↑Thu Jan 18, 2018 10:48 amI'll see if I can find a place to post it anonymously and then link to it (If anyone has any suggestions please chime in).sunny_socal wrote: ↑Thu Jan 18, 2018 9:54 am
DaftInvestor, is there a way you could post a copy of your Excel here? I would like to try it out.
Thanks
viewtopic.php?f=2&t=236881&p=3708669&hi ... l#p3708669
First the inputs (in my spreadsheet I have the numbers in column F and descriptions in Column G)
Code: Select all
F1 c=Amount invested each year until retirement
F2 C=Per Year Draw (How much you need to withdraw every year  expensesSSpensions)
F3 r=Postinflation return on your portfolio prior to retirement
F4 R=Postinflation return on your portfolio after retirement
F5 n=Number of years until your retirement
F6 N=Number of years you will be in retirement
F7 V=Total Value of your current retirement Portfolio
So the first calculation I do is Amount Needed for Retirement
which is calculated as Amount Needed = (C/R)(1(1/(1+R))^N)
Code: Select all
B1 =(F2/F4)*(1(1/(1+F4))^F6)
which is calculated as Value of Future Investments = (c/r)(1(1/(1+r))^n)(1+r)^n
Code: Select all
B2 =(F1/F3)*(1(1/(1+F1))^F3)*(1+F3)^F5
which is Value of Past Investments = V(1+r)^n
Code: Select all
B3 =F7*(1+F3)^F5
Code: Select all
B4 =B2+B3 (Gives Total Value of Portfolio at Retirement)
B5 =B4B1 (Gives Amount you will be left with or (Shortage))
I work all my inputs to see how close I can get B5 to Zero (or have an overage)
NO GUARANTEES but I have been using it awhile and relatively confident in it. If you find any errors please let me know so I don't retire prematurely
 DaftInvestor
 Posts: 3544
 Joined: Wed Feb 19, 2014 10:11 am
Re: 1,000th post and a 'NoFail' Retirement Formula
As an example to above if I add 53,000 per year in retirement investments, will need to withdraw 120,000 per year in retirement, expect my portfolio to grow by 4% yearly before and after retirement, have 15 years until I retire, and plan to live for 30 year after I retire I have:
F1 = 53000
F2 = 120000
F3 = 0.04
F4 = 0.04
F5 = 15
F6 = 30
F7 = 1,200,000
I get:
B1=2,075,044 (What I need to retire)
B2=1,061,250 (The Value of my future investments when I retire)
B3=2,161,132 (The Value of my past investments when I retire)
B4=3,222,382 (The Total Value of my portfolio when I retire)
B5=1,147,338 (What I will be left with when I'm dead).
I realize unlike firecalc and other more sophisticated mechanisms I'm not accounting for sequence of returns, etc. But, hey, we are all just taking the best SWAGs we can.
(One thing you will notice is that if you change F4=0.02 and increase F6 to 35 you will essentially see the SWR of 4% between F2 and B1  in this example you will notice that F2 is higher than the SWR given these inputs).
F1 = 53000
F2 = 120000
F3 = 0.04
F4 = 0.04
F5 = 15
F6 = 30
F7 = 1,200,000
I get:
B1=2,075,044 (What I need to retire)
B2=1,061,250 (The Value of my future investments when I retire)
B3=2,161,132 (The Value of my past investments when I retire)
B4=3,222,382 (The Total Value of my portfolio when I retire)
B5=1,147,338 (What I will be left with when I'm dead).
I realize unlike firecalc and other more sophisticated mechanisms I'm not accounting for sequence of returns, etc. But, hey, we are all just taking the best SWAGs we can.
(One thing you will notice is that if you change F4=0.02 and increase F6 to 35 you will essentially see the SWR of 4% between F2 and B1  in this example you will notice that F2 is higher than the SWR given these inputs).
Re: 1,000th post and a 'NoFail' Retirement Formula
Re the OP i have a couple of questions.
1) Where does the .03 come from in the formula? Does it represent a safe withdrawal rate? How did you choose that value?
2) How is it that this formula doesn't need to consider the portfolio's AA? Or expected return?
I did the calculation for my own situation, and the P was much lower than I would have thought (much lower than my actual portfolio value). So as an experiment, I set X equal to a value that would force P to equal my current portfolio. Then I calculated the percent of X/P, and it came out to about .0435.
Intuitively this is not that surprising to me since my SS will decrease my need to withdraw from my portfolio (or put another way, it will enhance my spending, or X in the formula). So I would have guessed that if I included SS as part of my withdrawal rate, it would be higher than the .0325 my value of X is based on.
So the result I got kind of makes sense to me, but I'm still a little confused as to how this calculation compares to SWR models. I suppose it's similar to just incorporating the SS into the SWR, but usually SWR (like Firecalc or cFireSim etc) takes into account the AA of the portfolio. I also wonder, does this model assume spending the portfolio down? Or that the portfolio balance is maintained?
Thanks,
Kalo
1) Where does the .03 come from in the formula? Does it represent a safe withdrawal rate? How did you choose that value?
2) How is it that this formula doesn't need to consider the portfolio's AA? Or expected return?
I did the calculation for my own situation, and the P was much lower than I would have thought (much lower than my actual portfolio value). So as an experiment, I set X equal to a value that would force P to equal my current portfolio. Then I calculated the percent of X/P, and it came out to about .0435.
Intuitively this is not that surprising to me since my SS will decrease my need to withdraw from my portfolio (or put another way, it will enhance my spending, or X in the formula). So I would have guessed that if I included SS as part of my withdrawal rate, it would be higher than the .0325 my value of X is based on.
So the result I got kind of makes sense to me, but I'm still a little confused as to how this calculation compares to SWR models. I suppose it's similar to just incorporating the SS into the SWR, but usually SWR (like Firecalc or cFireSim etc) takes into account the AA of the portfolio. I also wonder, does this model assume spending the portfolio down? Or that the portfolio balance is maintained?
Thanks,
Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money."  Ben Stein/Phil DeMuth  The Little Book of Bullet Proof Investing.
Re: 1,000th post and a 'NoFail' Retirement Formula
I suggest a tweak to the OP's formula: define x as expenses before taxes AND after subtracting any passive income that will continue  such as a present day retirement or rental income.

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Re: 1,000th post and a 'NoFail' Retirement Formula
I tried to show that in Example 1 but will add your note to my definition.
TravelforFun

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 Joined: Tue Dec 04, 2012 11:05 pm
Re: 1,000th post and a 'NoFail' Retirement Formula
1) .03 is the 3% withdrawal rate. This is my safe withdrawal rate, not 4%.Kalo wrote: ↑Fri Jan 19, 2018 1:19 pmRe the OP i have a couple of questions.
1) Where does the .03 come from in the formula? Does it represent a safe withdrawal rate? How did you choose that value?
2) How is it that this formula doesn't need to consider the portfolio's AA? Or expected return?
3) I also wonder, does this model assume spending the portfolio down? Or that the portfolio balance is maintained?
Thanks,
Kalo
2) I mentioned your AA should be at least 30% stocks, and if it is, your portfolio should be able to make a 3% real return over a long period of time and hence, could support a 3% withdrawal rate forever.
3) Balance would be maintained if your real return was 3%, but more likely, it the balance should grow over time.
TravelforFun