What assets are used to calculate true FIRE total?

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NotYourAverageJones
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What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 6:18 am

Need some help. For our own benefit and since we are relatively new to the blog, I wanted to ask about something we are unclear on. We've been seeing a wide range of retirement numbers posted by people across the forum. Some numbers I see make us feel on track and others, well, "inadequately funded" comes to mind. That said, I do understand we all have different retirement requirements, relative to our lifestyle choices or out of some specific necessity. What's enough for one, may not be for another.

When we see questions on the forum where people post "I have $2mil or $3mil saved and wonder if I reached my FIRE # or my target,” or “what’s your number?” or “are we on track to retire early?” etc., should we assume the amount they are throwing out is their TOTAL balance to draw from to fully fund their retirement goals? From our perspective, we just figured they were only quoting their totals in 401ks, IRAs, taxable, etc. and that their numbers do not including any pensions, retirements, disability, or SS payments they will receive down the road. We do understand that not everyone will draw a pension and that SS projections by individual are varied. But just not sure if the assumptions should be calculated on all or some of your potential retirement income. Does this make sense?

For example in our case, we turn 56/49 this year, $754k annual income. We have roughly $3mil saved in taxable and non-taxable accounts and plan to retire in 3 years (end of 2021) and with additional investment and modest interest accumulation, we should see another $1mil in those accounts at that time. But in addition to that total above we will receive the following income in retirement:
  • $35K annual COLA Military retirement (since 2002 - current)
  • $19k annual COLA Tax-Free Combat Disability (since 2002 - current)
  • $38K annual Non COLA Pension @ age 65 (2028)
  • $66k annual Social Security benefits at age 70/63 (2033)


We figured the amount of our retirement income would be based on all the above Plus the SWR of 4-5% from our taxable accounts. Our planned SWR is more like 6% for first 5 years. When we draw Social Security and if hubby draws his pension later age 65, will reduce that down. Expenses in retirement (rough estimate) of around $200k to start, then will teeter off as we settled down and not travel as much. So are we missing something, or is there really no set way to calculate it since so many variables as to whats considered in the retirement income total? We also see that some people are accounting for the equity in their house, etc as well which makes it seem like an "Everyone in the Pool" calculation. We do not use any home equity in future calculations. When or if we sell, and the money goes in the bank, then we will account for it.

We aren't too set on having to withdrawal a specific amount each year until we have to at age 70 1/2. But if/when we need to, we can adjust our SWR to fit our lifestyle needs. That said, our question is more about the best advice on which totals to include in the overall calculation to get a better idea of what we are up against when we retire in a few years.

Appreciate the clarification and advice on subject!
Last edited by NotYourAverageJones on Fri Jul 05, 2019 2:47 am, edited 5 times in total.

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Re: What assets are used to calculate true FIRE total?

Post by MikeG62 » Mon Feb 11, 2019 7:29 am

In trying to give you advice, can you clarify one point.

You say you have $3 million in taxable and deferred tax (which you expect to grow to $4 million by the time you both retire) and then talk about withdrawing 4%-5% of your "taxable" account value in addition to your guaranteed sources of income. What about the tax deferred account(s)? Where do those accounts figure into your analysis (if at all)?

I do think, by the way, that you should be looking at all sources of retirement income in calculating your initial WD rate. So no problem there.

I would not include any portion of the equity in my house unless I were planning on selling that house at some point and downsizing to a smaller (less expensive) home and moving that excess to my taxable account and commingling it with the rest of my taxable funds.
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Re: What assets are used to calculate true FIRE total?

Post by Jack FFR1846 » Mon Feb 11, 2019 7:35 am

You'd be a good candidate to build yourself a "life spreadsheet" where you put in all income, expenses, big purchases, big sales year by year. I have built this and limited time events like paying for college or selling a house and incomes that eventually start like social security and pension and changes in insurance with medicare are easily included.

Another advantage is that you can go into great detail with tax treatment using brackets based on what you expect to make and how taxes apply.
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Re: What assets are used to calculate true FIRE total?

Post by CyclingDuo » Mon Feb 11, 2019 7:47 am

NotYourAverageJones wrote:
Mon Feb 11, 2019 6:18 am
Need some help. For our own benefit and since we are relatively new to the blog, I wanted to ask about something we are unclear on. We've been seeing a wide range of retirement numbers posted by people across the forum. Some numbers I see make us feel on track and others, well, "inadequately funded" comes to mind. That said, I do understand we all have different retirement requirements, relative to our lifestyle choices or out of some specific necessity. What's enough for one, may not be for another.

When we see questions on the forum where people post "I have $2mil or $3mil saved and wonder if I reached my FIRE # or my target,” or “what’s your number?” or “are we on track to retire early?” etc., should we assume the amount they are throwing out is their TOTAL balance to draw from to fully fund their retirement goals? From our perspective, we just figured they were only quoting their totals in 401ks, IRAs, taxable, etc. and that their numbers do not including any pensions, retirements, disability, or SS payments they will receive down the road. We do understand that not everyone will draw a pension and that SS projections by individual are varied. But just not sure if the assumptions should be calculated on all or some of your potential retirement income. Does this make sense?

For example in our case, we turn 56/49 this year. We have roughly $3mil saved in taxable and non-taxable accounts and plan to retire in 3 years (end of 2021) and with additional investment and modest interest accumulation, we should see another $1mil in those accounts at that time. But in addition to that total above, we currently receive and will receive the following income in retirement:
  • $35K annual Military retirement (since 2002)
  • $19k annual Tax-Free Combat Disability (since 2002)
  • $30K Mega Corp Pension, if DH draws early @ 60 (2023) or it will be $38K annually if he waits to 65 (2028)
  • $66k annual Social Security benefits at age 70/63 (2033)

We figured the amount of our retirement income would be based on all the above Plus the SWR of 4-5% from our taxable accounts. Our planned SWR is more like 6% until we draw Social Security and if hubby draws his pension later age 65. So are we missing something, or is there really no set way to calculate it since so many variables as to whats considered in the retirement income total? We also see that some people are accounting for the equity in their house, etc as well which makes it seem like an "Everyone in the Pool" calculation.

We aren't too set on having to withdrawal a specific amount each year until we have to at age 70 1/2. But if/when we need to, we can adjust our SWR to fit our lifestyle needs. That said, our question is more about the best advice on which totals to include in the overall calculation to get a better idea of what we are up against when we retire in a few years.

Appreciate the clarification and advice on subject!
What are your current household annual expenses? The expenses are key to all answers. You mention others list "their number", but "their number" usually has to do with expenses.

With the two pensions right now, you have an annual of $54K coming in. Before even considering the Corporate Pension and the Social Security Income streams in the future, it would appear a portfolio of $3M could throw off enough right now at a conservative SWR to fill in gap years until the other income streams begin. Example 2% would begin with $60K, or 1.5% would begin with $45K which, when added to the $54K military income stream may or may not cover your current annual expenses.

What's the gap between the military income streams and covering the remainder of your expenses? Before even touching the risk portfolio, the income streams look to be...

2019: $54K income stream
2023: $74K income stream
2033: $140K income stream
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Re: What assets are used to calculate true FIRE total?

Post by corn18 » Mon Feb 11, 2019 8:00 am

The Flexible Retirement Planner is a great tool to model all of this.

We are in a similar situation with a military pension only. Assumption is we retire @ 55 (2021). SS @ 70 will be $55k. Military pension is $45k. $100k annual expenses in retirement. Would love an additional $25k to blow each year.

I built a spreadsheet to model a bridge from 55-70.

55-70
$45k pension
$55k SS bridge ($825k required)

70-dead
$45k pension
$55k SS

So, if we want to live on $100k, we need $825k to bridge to SS. But we will have more than $825k in 2021. So, the extra is assumed @ a 4% withdrawal rate and spent on blow that dough stuff (more vacations, nicer cars, charity or legacy). We should have $1.825M in 2021, so we can SWR the extra $1M. That gives us an extra $40k if we use the 4% rule.

For you, you will need to decide how to model the MC pension. Your model might look like this:

55-65
$54k pension+disability
$38k bridge to pension @ 65 ($380k required, more if this is not a COLA pension)
$66k bridge to SS @ 70 ($990k required)
$158k

70-dead
$54k pension+disability
$38k MC pension
$66k SS

So, you need $1.4M to build your bridges. If you expect to have $4M, just SWR the remainder. So $4M-$1.4M = $2.6M. 3% is $78k (4% would work as well but depends on your expenses).

Now your annual income is:

$54k pension+disability
$38k MC pension
$66k SS
$78k SWR

$236k

A $4M, 60/40 portfolio will have $1.6M in fixed income, which is just about right to cover your bridge amounts. See how simple that works out?

That's what the math showed me and now I like my 60/40 AA even more. Just seems to work out no matter what fork I encounter.
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Re: What assets are used to calculate true FIRE total?

Post by Watty » Mon Feb 11, 2019 8:21 am

NotYourAverageJones wrote:
Mon Feb 11, 2019 6:18 am
....or is there really no set way to calculate it since so many variables as to whats considered in the retirement income total?
Part of the problem is that people try to figure out one "right" number when the correct way to answer the question is with what is called a "probabilistic answer " where you state the odds of the various outcomes.

For example I you ask "I have three million dollars invested in stocks and bonds, what will it be worth in three years when I am ready to retire?" and someone might answer it by saying, "With a 5% return it will be worth $3.5 million dollars". That would be the incorrect way to answer it. Instead the right way to answer it would be with the odds that would be worth various ranges of amounts like; <$2.5 million, between 2.5 and 3 million, between 3 and 3.5 million, or more than 3.5 million.

You also would need to plan on ranges of possible outcomes for things like expenses, inflation, tax rate changes, or how long you will live.

People do try to build very complex models to predict these but there are two additional major problems.
1) They assume that the future will be pretty similar to the past.
2) With lots of calculations the cumulative margin of error increases.

If that was not bad enough there is also feedback since people will adjust their spending based on how their portfolio is doing so that "failure" in a spending model does not mean that someone ends up broke and homeless, instead it might mean that they have to cut their spending by 10% when they are 70 which might not be a terrible hardship if they were not already on a tight budget.

Basically that makes some complex calculation little better than a quick back of the envelope calculation.

All that said something like looking at a simple 4% safe withdrawal rate calculation is still very useful to letting people know when they have an unrealistic expectation.
NotYourAverageJones wrote:
Mon Feb 11, 2019 6:18 am
That said, our question is more about the best advice on which totals to include in the overall calculation to get a better idea of what we are up against when we retire in a few years.
A few points.

1) A paid off house will reduce your income needs, do not count it as part of your SWR calculations. That could double count the home equity.

2) Be sure to run your numbers three ways, as a couple and as is one of you will survive the other since your pensions, Social Security, expenses, and taxes will change if one of you dies.

3) Forget the SWR calculations other than for a high level reality check, they were just for academic studies. Your expenses will not be constant.

4) Don't overestimate your ability to spend. I have seen relatives get to be in their mid 70s and naturally slow down even though they were in relatively good health. At that point their spending really went down since they didn't want to do things like travel much and they were more interested in downsizing than buying more stuff.

5) Instead of worrying about having enough money you should probably be more worried about estate tax planning. With those pensions to live on most of the money could be invested 40+ years and grow to be a very large amount by then.

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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 8:33 am

CyclingDuo wrote:
Mon Feb 11, 2019 7:47 am


What are your current household annual expenses? The expenses are key to all answers. You mention others list "their number", but "their number" usually has to do with expenses.

2019: $54K income stream
2023: $74K income stream
2033: $140K income stream
Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts? So basically when figuring out "the number" should you take into account ALL your assets to include future pensions, SS, retirements, housing equity, etc. Or just go with the non taxable/taxable accounts as you jumping off point? I know we have to add in expenses, but my husband and I haven't been saving based on future expenses. We just been saving based on not having to worry about future expenses.

But with that in mind, we prob won't spend more than $200k a year in retirement, except in the beginning while we are younger since we definitely want to travel. We spend about that much now on annual expenses. But our focus has been on saving as much as we can, while he is still working over these next few years. So we just invest as much as we can. The $54K in military/disability pension above is in addition to annual salary of about $700k. But of course that goes away later, so just trying to figure out if we need to maybe do some backwards math and figure out all the money we will have coming in on an annual basis in retirement, then we can figure out how much as a percentage of our assets in those other accounts we can draw to live how we want and obviously pay or recurring annual expenses.

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Re: What assets are used to calculate true FIRE total?

Post by Watty » Mon Feb 11, 2019 8:41 am

NotYourAverageJones wrote:
Mon Feb 11, 2019 8:33 am
Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts?
People are not consistent in how they use it so it sometimes means net worth, which would include your house and sometimes as what is in their investment accounts.

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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 8:45 am

corn18 wrote:
Mon Feb 11, 2019 8:00 am
The Flexible Retirement Planner is a great tool to model all of this.

We are in a similar situation with a military pension only. Assumption is we retire @ 55 (2021). SS @ 70 will be $55k. Military pension is $45k. $100k annual expenses in retirement. Would love an additional $25k to blow each year.

I built a spreadsheet to model a bridge from 55-70.

55-70
$45k pension
$55k SS bridge ($825k required)

70-dead
$45k pension
$55k SS

So, if we want to live on $100k, we need $825k to bridge to SS. But we will have more than $825k in 2021. So, the extra is assumed @ a 4% withdrawal rate and spent on blow that dough stuff (more vacations, nicer cars, charity or legacy). We should have $1.825M in 2021, so we can SWR the extra $1M. That gives us an extra $40k if we use the 4% rule.

For you, you will need to decide how to model the MC pension. Your model might look like this:

55-65
$54k pension+disability
$38k bridge to pension @ 65 ($380k required, more if this is not a COLA pension)
$66k bridge to SS @ 70 ($990k required)
$158k

70-dead
$54k pension+disability
$38k MC pension
$66k SS

So, you need $1.4M to build your bridges. If you expect to have $4M, just SWR the remainder. So $4M-$1.4M = $2.6M. 3% is $78k (4% would work as well but depends on your expenses).

Now your annual income is:

$54k pension+disability
$38k MC pension
$66k SS
$78k SWR

$236k

A $4M, 60/40 portfolio will have $1.6M in fixed income, which is just about right to cover your bridge amounts. See how simple that works out?

That's what the math showed me and now I like my 60/40 AA even more. Just seems to work out no matter what fork I encounter.
That's sorta what we were trying to figure out. Like to keep it simple and straight forward. I just need to get all the numbers together, including all the expenses we assume to have each year, to see how much we need to fill the gaps (like you have above) until we start getting other sources of income. Just see people say "I have $3mil." Well, I have $3mil but I also have this, that, and this happening, all at different times potentially. Its not a horrible problem to have so we are very grateful, but its not as uncomplicated as "$3mil is all I will have, period. So when I hear SWR is norm 4% or 5%, that isn't as cut and dry when you start adding in other income or needing to bridge the gaps as you explained above. But I get that and I appreciate your time to explain in as well. Thanks!

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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 8:47 am

Watty wrote:
Mon Feb 11, 2019 8:41 am
NotYourAverageJones wrote:
Mon Feb 11, 2019 8:33 am
Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts?
People are not consistent in how they use it so it sometimes means net worth, which would include your house and sometimes as what is in their investment accounts.
Thank you on BOTH above posts. It makes sense, especially as to the eventual estate tax planning part. My parents have a few investment properties that were done via 1031 exchange. My sister and I are going to inherit those properties, plus their main home and saved assets. But like you mentioned in above post, and it is so true. They retired at 55, they did what they wanted to do for those beginning years; built a new house on some land, traveled, etc. But by the time they were 65, had settled down and were just happy being at the house and being grandparents. So their spending went way down and even with their rental incomes pensions and others income sources, they don't spend it much. Even though I really, really wish they would, its just not in their DNA to waste money growing up in the silent generation and so very poor. They are in early 80 so eventually my sister and I will have to take over everything. Again, that's not a bad problem to have, but I sure wish they would have spent more of it on themselves. They worked so hard to get there. But they are happy so that's their choice. Anway, thanks again for the info. :happy
Last edited by NotYourAverageJones on Mon Feb 11, 2019 9:09 am, edited 1 time in total.

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Re: What assets are used to calculate true FIRE total?

Post by MikeG62 » Mon Feb 11, 2019 8:52 am

NotYourAverageJones wrote:
Mon Feb 11, 2019 8:33 am
CyclingDuo wrote:
Mon Feb 11, 2019 7:47 am


What are your current household annual expenses? The expenses are key to all answers. You mention others list "their number", but "their number" usually has to do with expenses.

2019: $54K income stream
2023: $74K income stream
2033: $140K income stream
Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts? So basically when figuring out "the number" should you take into account ALL your assets to include future pensions, SS, retirements, housing equity, etc. Or just go with the non taxable/taxable accounts as you jumping off point? I know we have to add in expenses, but my husband and I haven't been saving based on future expenses. We just been saving based on not having to worry about future expenses.

But with that in mind, we prob won't spend more than $200k a year in retirement, except in the beginning while we are younger since we definitely want to travel. We spend about that much now on annual expenses. But our focus has been on saving as much as we can, while he is still working over these next few years. So we just invest as much as we can. The $54K in military/disability pension above is in addition to annual salary of about $700k. But of course that goes away later, so just trying to figure out if we need to maybe do some backwards math and figure out all the money we will have coming in on an annual basis in retirement, then we can figure out how much as a percentage of our assets in those other accounts we can draw to live how we want and obviously pay or recurring annual expenses.
You should be using all the financial accounts that you intend to use to fund your living expenses (taxable, tax deferred and tax free). I already commented on home equity.

Be sure to include all income taxes in your estimated spending in retirement. They are an expense like any other and need to be captured in your AWD rate.

If the 4%-5% initial AWD rate assumes taping into all of your financial accounts (and this is over and above any guaranteed sources of income) then I'd say you are taking on more risk than I would be comfortable taking. I think you should be looking at an initial AWD rate no higher than 4%.

Could it be a bit higher in the years before the guaranteed income streams kick in - yes. However, 6% may be a bit too high especially if your plan is to drop it back to 4%-5% once those income sources come on stream (vs. say 3.0%-3.5%).

Now having said that, if these figure includes a very large amount for discretionary expenses (that can be (and you would be willing to) cut if future market returns are poor and/or inflation kicks up) then maybe your money will last. This is why there is no one size fits all answer to your question.
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Re: What assets are used to calculate true FIRE total?

Post by NotWhoYouThink » Mon Feb 11, 2019 9:05 am

Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts? So basically when figuring out "the number" should you take into account ALL your assets to include future pensions, SS, retirements, housing equity, etc. Or just go with the non taxable/taxable accounts as you jumping off point? I know we have to add in expenses, but my husband and I haven't been saving based on future expenses. We just been saving based on not having to worry about future expenses.
Most people on this forum draw a distinction between assets and future cash flow.

My 401k, IRA, taxable accounts, etc. are my assets
My pensions and SS are my future cash flow.

If I say I have $3M in assets, that does not include hypothetical present value of pensions and SS but may be ambiguous with respect to home equity.
If I say I have $3M in investible assets and I own my house with no debt, that is more informative.

But really it is hard and not necessarily productive to compare your situation in detail to anyone else's situation. Some people here are just starting out, some have retired after successful careers, and as hard as it is to believe on an internet forum, some are just making stuff up. But there is a lot of good information shared about how to make the best of the assets and future income streams you have.

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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 9:15 am

NotWhoYouThink wrote:
Mon Feb 11, 2019 9:05 am
Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts? So basically when figuring out "the number" should you take into account ALL your assets to include future pensions, SS, retirements, housing equity, etc. Or just go with the non taxable/taxable accounts as you jumping off point? I know we have to add in expenses, but my husband and I haven't been saving based on future expenses. We just been saving based on not having to worry about future expenses.
Most people on this forum draw a distinction between assets and future cash flow.

My 401k, IRA, taxable accounts, etc. are my assets
My pensions and SS are my future cash flow.

If I say I have $3M in assets, that does not include hypothetical present value of pensions and SS but may be ambiguous with respect to home equity.
If I say I have $3M in investible assets and I own my house with no debt, that is more informative.

But really it is hard and not necessarily productive to compare your situation in detail to anyone else's situation. Some people here are just starting out, some have retired after successful careers, and as hard as it is to believe on an internet forum, some are just making stuff up. But there is a lot of good information shared about how to make the best of the assets and future income streams you have.
Thank you. I agree on many parts, especially the smoke and mirrors financial reporting. I understand that we have to be flexible for sure because stuff does change and can be out of our control. We live a pretty darn nice life right now, on less income than what we are planning on drawing out in retirement. So something is really wrong with us if we can make it work on $4mil and multiple retirements. :)

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Re: What assets are used to calculate true FIRE total?

Post by CyclingDuo » Mon Feb 11, 2019 9:15 am

NotYourAverageJones wrote:
Mon Feb 11, 2019 8:33 am
CyclingDuo wrote:
Mon Feb 11, 2019 7:47 am


What are your current household annual expenses? The expenses are key to all answers. You mention others list "their number", but "their number" usually has to do with expenses.

2019: $54K income stream
2023: $74K income stream
2033: $140K income stream
Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts? So basically when figuring out "the number" should you take into account ALL your assets to include future pensions, SS, retirements, housing equity, etc. Or just go with the non taxable/taxable accounts as you jumping off point? I know we have to add in expenses, but my husband and I haven't been saving based on future expenses. We just been saving based on not having to worry about future expenses.

But with that in mind, we prob won't spend more than $200k a year in retirement, except in the beginning while we are younger since we definitely want to travel. We spend about that much now on annual expenses. But our focus has been on saving as much as we can, while he is still working over these next few years. So we just invest as much as we can. The $54K in military/disability pension above is in addition to annual salary of about $700k. But of course that goes away later, so just trying to figure out if we need to maybe do some backwards math and figure out all the money we will have coming in on an annual basis in retirement, then we can figure out how much as a percentage of our assets in those other accounts we can draw to live how we want and obviously pay or recurring annual expenses.
Understood about the question in bold above. The answer is different for each situation. We currently do not count our home equity into the equation of utilizing the equity as an asset we will pay our expenses with in the majority of years in retirement because if sold, we would need immediate replacement housing of some sort (downsized home, a condo, or a rental). Either way, a roof over your head appears on the expense side of the balance sheet whether it is home ownership with PITI, -TI + maintenance & repairs + utilities or if it was rent + renter's insurance + utilities. If it comes to a point where one can no longer take care of a residence, then it would be sold and the proceeds used to help cover the replacement housing expenses. That may not occur until late into one's years. Others may stair step down from a large home, with one or more downsizing moves over a number of years between each until ending up in their final residence. Others stay put and never leave the main residence until death. Others may secure a reverse mortgage at some point and utilize the money to cover day to day expenses if the risk portfolio and other income streams are not sufficient to cover their expenses. Plenty of scenarios one could plan for and explains why you might not see a standard in terms of including or excluding an illiquid asset such as a home when counting one's assets to cover expenses in retirement.

Have you plugged your information into some of the more beloved retirement planners?

Plug your information into:

https://www.firecalc.com/

https://www.i-orp.com/bequest/index.html
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NotYourAverageJones
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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 9:24 am

MikeG62 wrote:
Mon Feb 11, 2019 8:52 am
NotYourAverageJones wrote:
Mon Feb 11, 2019 8:33 am
CyclingDuo wrote:
Mon Feb 11, 2019 7:47 am


What are your current household annual expenses? The expenses are key to all answers. You mention others list "their number", but "their number" usually has to do with expenses.

2019: $54K income stream
2023: $74K income stream
2033: $140K income stream
Maybe I am over complicating my original question. I just want to know when we see people on here post " I have 3mil saved for FIRE or retirement", is that $3mil number taking into account ALL their assets, or just non taxable and taxable accounts? So basically when figuring out "the number" should you take into account ALL your assets to include future pensions, SS, retirements, housing equity, etc. Or just go with the non taxable/taxable accounts as you jumping off point? I know we have to add in expenses, but my husband and I haven't been saving based on future expenses. We just been saving based on not having to worry about future expenses.

But with that in mind, we prob won't spend more than $200k a year in retirement, except in the beginning while we are younger since we definitely want to travel. We spend about that much now on annual expenses. But our focus has been on saving as much as we can, while he is still working over these next few years. So we just invest as much as we can. The $54K in military/disability pension above is in addition to annual salary of about $700k. But of course that goes away later, so just trying to figure out if we need to maybe do some backwards math and figure out all the money we will have coming in on an annual basis in retirement, then we can figure out how much as a percentage of our assets in those other accounts we can draw to live how we want and obviously pay or recurring annual expenses.
You should be using all the financial accounts that you intend to use to fund your living expenses (taxable, tax deferred and tax free). I already commented on home equity.

Be sure to include all income taxes in your estimated spending in retirement. They are an expense like any other and need to be captured in your AWD rate.

If the 4%-5% initial AWD rate assumes taping into all of your financial accounts (and this is over and above any guaranteed sources of income) then I'd say you are taking on more risk than I would be comfortable taking. I think you should be looking at an initial AWD rate no higher than 4%.

Could it be a bit higher in the years before the guaranteed income streams kick in - yes. However, 6% may be a bit too high especially if your plan is to drop it back to 4%-5% once those income sources come on stream (vs. say 3.0%-3.5%).

Now having said that, if these figure includes a very large amount for discretionary expenses (that can be (and you would be willing to) cut if future market returns are poor and/or inflation kicks up) then maybe your money will last. This is why there is no one size fits all answer to your question.
Noted on the AWD. Figured we would just take a larger (estimated) 6% withdrawal in the first 5 years or so when we are doing more spending on travel, etc. Then when we settle down and grow up, we can take that back down to 3 or 4%. We are not against cutting back down the road either when additional income kicks in or when needed due to market pullbacks. We have lived through the worst, been a poor struggling military family so we are not unfamiliar with what being frugal or conservative looks and feels like. But with proper planning and smart money management, hopefully that never comes to pass. Thank you for the insight. Oh and I always focus on taxes, my husband not so much. But I know they can't be ignored or underestimated, literally. :)

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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 9:31 am

CyclingDuo wrote:
Mon Feb 11, 2019 9:15 am
NotYourAverageJones wrote:
Mon Feb 11, 2019 8:33 am
CyclingDuo wrote:
Mon Feb 11, 2019 7:47 am


Have you plugged your information into some of the more beloved retirement planners?

Plug your information into:

https://www.firecalc.com/

https://www.i-orp.com/bequest/index.html
We have with firecalc, but not familiar with the second link yet. I will take a look at it and see what it says. Firecalc is an awesome tool! We have done all kinds of saving/spending scenarios, etc. It's been fun to see what a few small changes up or down can make. Thanks again for your time. :happy

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Re: What assets are used to calculate true FIRE total?

Post by goingup » Mon Feb 11, 2019 9:35 am

When posters say they have $2m or $3m to retire, I think they're referring to total investable assets. Usually they're not referring to pensions, SS, etc. I have never found it particularly instructive to compare nesteggs with strangers though. Too many variables at play.

There are good retirement calculators on this forum's Wiki. I like the I-Orp calculator which allows future inputs like pensions, SS, etc. https://www.i-orp.com/bequest/index.html

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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Mon Feb 11, 2019 9:41 am

MikeG62 wrote:
Mon Feb 11, 2019 7:29 am
In trying to give you advice, can you clarify one point.

You say you have $3 million in taxable and deferred tax (which you expect to grow to $4 million by the time you both retire) and then talk about withdrawing 4%-5% of your "taxable" account value in addition to your guaranteed sources of income. What about the tax deferred account(s)? Where do those accounts figure into your analysis (if at all)?

I do think, by the way, that you should be looking at all sources of retirement income in calculating your initial WD rate. So no problem there.

I would not include any portion of the equity in my house unless I were planning on selling that house at some point and downsizing to a smaller (less expensive) home and moving that excess to my taxable account and commingling it with the rest of my taxable funds.
Sorry wasn't clear. As to the $3mil we have now, that includes all our taxable, non taxable and tax deferred accounts such as 401k, Schwab Brokerage, Vanguard, Roth IRAs, etc. The extra $1mil estimated will be from saving investments over the next 3 years before we retire. We put about $300k a year into all these account combined, maxing out our 401k, Backdoor Roth IRA etc. No mortgage to worry about and we don't count its equity as part of any planning until its sitting in our bank account. :) Will work with a tax advisor to figure out the best strategy on what accounts to tap into first when the time comes. We don't want to screw stuff up by taking money from the wrong account at the wrong time.

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Re: What assets are used to calculate true FIRE total?

Post by MikeG62 » Mon Feb 11, 2019 1:16 pm

NotYourAverageJones wrote:
Mon Feb 11, 2019 6:18 am

...For example in our case, we turn 56/49 this year. We have roughly $3mil saved in taxable and non-taxable accounts and plan to retire in 3 years (end of 2021) and with additional investment and modest interest accumulation, we should see another $1mil in those accounts at that time. But in addition to that total above, we currently receive and will receive the following income in retirement:
One follow-up question on the bold and underlined wording above. How is this $3 million (soon to be $4 million) invested. From the wording you choose, it appears to be just earning interest? Thus, is it sitting in the bank or otherwise invested in fixed income?

The reason I point this out is that the SWR research that has been done assumes a broadly diversified investment portfolio (roughly 50% equities +/-10% points). So if your financial assets do not include a fair allocation to equities, that would impact upon (reduce) the SWR you should be using from what you are reading in the published literature or otherwise here on the forum.
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Re: What assets are used to calculate true FIRE total?

Post by NotYourAverageJones » Tue Feb 12, 2019 12:43 am

MikeG62 wrote:
Mon Feb 11, 2019 1:16 pm
NotYourAverageJones wrote:
Mon Feb 11, 2019 6:18 am

...For example in our case, we turn 56/49 this year. We have roughly $3mil saved in taxable and non-taxable accounts and plan to retire in 3 years (end of 2021) and with additional investment and modest interest accumulation, we should see another $1mil in those accounts at that time. But in addition to that total above, we currently receive and will receive the following income in retirement:
One follow-up question on the bold and underlined wording above. How is this $3 million (soon to be $4 million) invested. From the wording you choose, it appears to be just earning interest? Thus, is it sitting in the bank or otherwise invested in fixed income?

The reason I point this out is that the SWR research that has been done assumes a broadly diversified investment portfolio (roughly 50% equities +/-10% points). So if your financial assets do not include a fair allocation to equities, that would impact upon (reduce) the SWR you should be using from what you are reading in the published literature or otherwise here on the forum.
This is what we are invested in and its mostly equities:
  • 401k: VTI, VTSMX, VHDYX, FB, AMZN (held for many years) plus 8% in company stock and cash in FDRXX sweep. We just recently added VTI and were planning on just moving all our assets still held in VTSMX and VHDTX into VTI (100% of all contributions are now investing in VTI)
  • Fidelity: rIRAs (from Mega Backdoor conversions)
  • Schwab: VTI, Thomas Partners, Pimco Muni Bond Ladder, CASH in SWSXX until its replaced soon. (We have recently parted ways with Private client in favor of Self Managed) The account had over 25 different ETFs and Mutual Funds in it. TP, and Pimco we still have to hold in Schwab managed accounts. We have to figure out an exit strategy on TP since we have a pretty sizable cap gain in that account. But the fees are too high along with other things. Pimco is too convoluted and confusing, so we decided going forward, if we don't fully understand WTH is going on or how our money is invested, then we shouldn't have it. Our Pimco Muni bond investment is right around $300k so we prob should add bond exposure in our tax deferred accounts, perhaps VBTLX?
  • HSBC: Was a huge mishmash of ETFs and the fees were out of control (We have very recently parted ways with our Spectrum Managed Platform in favor of Self Managed) We need to keep HSBC because we are overseas and we need a local bank that we can write checks from. So any money we hold there will just be invested in VTI as well.
  • Cash in MMA/short term CDs
We are in the process of streamlining all our overall investments. The only reason I said "modest interest" was because I don't think we are going to see any huge returns as we have in the past, for a long time. So we plan for the worst case scenario and hope for the best. "Under-promise and Over-deliver" has been a good mindset for us to have in most cases. Not that anyone can correctly predict squat, we just need to get all our ducks in a row and make it as simplistic as possible for when we are in retirement in the next 3 years. :)

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