In retirement, a $100 monthly expense needs $30,000 in your portfolio

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HomerJ
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by HomerJ »

Ron wrote: Tue Sep 10, 2019 8:58 am Be it a cellphone, a mortgage note, or any other expense in retirement, remember that you not only have to pay the monthly charge/bill, but you also have to account for the taxes due on the withdrawal from your account or income in computing your actual expense.
Another good reason to pay off the mortgage before retirement. Keeps your "income" lower, since you'll need to pull less from your retirement accounts, and your taxes lower.
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EnjoyIt
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by EnjoyIt »

HomerJ wrote: Tue Sep 10, 2019 11:55 am
RickBoglehead wrote: Tue Sep 10, 2019 7:13 am What I don't get is the perspective that paying off the mortgage before retirement results in less assets being needed.

If I owe $400,000 on my mortgage now, I can pay it off before I retire, and not have $400,000 in assets invested in the market, i.e. I'd be selling a mutual fund, or not investing cashflow, in order to pay off that mortgage. Right now my mortgage is 2.875%, so I want to keep that $400,000 invested in the market, because I'm earning more.
(1) You're not guaranteed to earn more in the stock market
(2) If you have any money in bonds, you're not earning more, so why not pay off the mortgage with bond money?

(3) The 2.875% is interest only. Principal makes the payment even higher. Because of the 3%-4% withdrawal limits we've set on ourselves, paying off the mortgage before retirement makes a ton of sense.

If one's mortgage is $400,000, your payment is $20,000 a year.

But at 4% withdrawals, you need $500,000 to generate $20,000 a year. At 3% withdrawals, you need $600,000

So paying it off makes total sense.
In retirement when you add a payment expense like a mortgage it can add increased taxes, loss of subsidies, decreased ability for Roth conversions before 70, selling equities at 0% long term capital gains tax, and I'm sure a few other undesirable consequences. No decision should be done in a vacuum.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
EnjoyIt
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by EnjoyIt »

CyclingDuo wrote: Tue Sep 10, 2019 11:41 am
willthrill81 wrote: Mon Sep 09, 2019 11:28 pm I know that this is something very simple, but it still kind of amazes me. Perhaps it will help someone, especially someone who isn't a Boglehead and potentially already aware of such things, to see how much of an impact expenses in retirement make on their needed portfolio size.

Assuming 4% portfolio withdrawals in retirement, this means that you need 25x your annual expenses in retirement (at least those that will be funded by portfolio withdrawals). It also means that you need 300x your monthly expenses.

(For early retirees or those that just feel more comfortable with a 3% withdrawal rate, that works out 400x your monthly expense.)

This means that you need $30,000 in your portfolio to cover a $100 monthly expense in retirement.

That's about what our cell phone service bill is. $30,000, more than 18 months of maxing out a 401k, just in order to pay for our cell phone service in retirement. :shock:

For me at least, this really puts into perspective how much expenses drive how much we need to retire.
Excellent perspective.

:sharebeer

I always think about how much portfolio one needs to produce $10,000 bucks a year ($833 per month) in retirement. If using the 4% SWR, then we could assume each $250K has the potential to produce supplemental income to couple with other sources of income in retirement such as a pension, Social Security, annuities, part-time work, etc... during retirement.

Or, the easier round figure number of producing $1000 bucks a month requires a $300K portfolio at the 4% SWR.

That will keep us motivated in the final working years/transition years into our retirement for each $1000 we will need...
This year we were pretty much at 25x + mortgage value. This year we decided to increase our expenses by 20% to make life easier/more fun. At 4% real returns it will take us 5 years to get to our new 25x. At 5% real returns it will take us 4 years. If we contribute an additional 40% of our yearly living expenses to savings and earn 5% a year it will take us 2.75 years to get back to our new 25x.

That's the thing, once you are 25x, it does not take much more effort to increase potential spending in retirement. That is how you keep getting all those one more year folks. Honestly, if we hated our jobs we would have been long retired by cutting back on expenses and eliminated work completely.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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HomerJ
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by HomerJ »

EnjoyIt wrote: Tue Sep 10, 2019 12:04 pmIn retirement when you add a payment expense like a mortgage it can add increased taxes, loss of subsidies, decreased ability for Roth conversions before 70, selling equities at 0% long term capital gains tax, and I'm sure a few other undesirable consequences. No decision should be done in a vacuum.
Yes, exactly...

Without a mortgage payment, we will probably qualify for ACA subsidies. With a mortgage, I'd have to pull more from retirement accounts, and my apparent "income" will be higher, and we would lose the subsidies.
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Harry Livermore
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Harry Livermore »

Such a great way to think about it. I "get it" intuitively, but usually approach it from the other direction (I have a "best-guess" budget for Retirement Year One) and look at what my portfolio spins off at 3%. I'm also budget-focused so I'm always looking for things to cut, but I know a lot of folks just don't try hard enough on the budgeting end.
This is a great way to frame it for younger folks, and for those who don't necessarily focus enough on expenses.
Thanks Will.
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LiterallyIronic
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by LiterallyIronic »

corn18 wrote: Tue Sep 10, 2019 10:33 am This chart can be made for any level of income. This one is for $600k income. And it isn't exact. Just a way to help convince my wife that if we can somehow manage to live on $100k / year, I could retire now. She likes $150k a lot better. And $200k even more. I might be dead by then.
How did you make the calculations? To determine how long I need to work to pay a one-time $1,000 item, for example, would vary. If I stopped my 401k contributions, it would take fewer days to have that $1,000 in my pocket than it would normally take. For the monthly increase, did you just multiple that by 12 to get the annual expense and then multiply by 25 to know how much more you would need to have 25x that in retirement and then divide that by your daily amount saved for retirement to determine how much longer you would need to work?
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Walkure »

LiterallyIronic wrote: Tue Sep 10, 2019 12:45 pm
corn18 wrote: Tue Sep 10, 2019 10:33 am This chart can be made for any level of income. This one is for $600k income. And it isn't exact. Just a way to help convince my wife that if we can somehow manage to live on $100k / year, I could retire now. She likes $150k a lot better. And $200k even more. I might be dead by then.
How did you make the calculations? To determine how long I need to work to pay a one-time $1,000 item, for example, would vary. If I stopped my 401k contributions, it would take fewer days to have that $1,000 in my pocket than it would normally take. For the monthly increase, did you just multiple that by 12 to get the annual expense and then multiply by 25 to know how much more you would need to have 25x that in retirement and then divide that by your daily amount saved for retirement to determine how much longer you would need to work?
I'm puzzling over this formula, but on the recurring expense side. Let's say your projected annual expenses are 50k, so 25x gives you a "number" of $1,250,000, which you will reach in year 'n.' Now you decide to add a recurring expense of $500 a month, so 56k x 25 = $1,400,000 as your new target. You need to retire with an extra $150k. But that doesn't mean you need to save an extra $150k. You have two basic choices, save more every month starting now, or continue to save the same amount each month and work a little longer. Let's assume you are already maxed out on savings rate and so you will work longer. If it now takes you to year n+1 to reach your number, the $1,250,000 you already had saved gets an extra year to grow - a modest 4% real gain adds $50k, so you only need to save $100k more to fund the $6k in annual expense.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by EddyB »

willthrill81 wrote: Tue Sep 10, 2019 10:22 am
RickBoglehead wrote: Tue Sep 10, 2019 7:13 am
roadnottaken wrote: Tue Sep 10, 2019 7:03 am This is why I've concluded that I have to pay-off the mortgage ASAP - before retiring is plausible...
I'm always puzzled when someone mentions this. I get the psychological piece - not having a mortgage payment could possibly relieve some stress in retirement when one doesn't have income from a job.

What I don't get is the perspective that paying off the mortgage before retirement results in less assets being needed.
The problem with any kind of debt, including a mortgage, in retirement is that it increases your sequence of returns. This is because you must continue servicing the debt even if your portfolio suffers. Debt is leverage, and leverage works both ways.
Plus it may come at an accelerating tax rate, as one draws more income to offset the expense.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by corn18 »

LiterallyIronic wrote: Tue Sep 10, 2019 12:45 pm
corn18 wrote: Tue Sep 10, 2019 10:33 am This chart can be made for any level of income. This one is for $600k income. And it isn't exact. Just a way to help convince my wife that if we can somehow manage to live on $100k / year, I could retire now. She likes $150k a lot better. And $200k even more. I might be dead by then.
How did you make the calculations? To determine how long I need to work to pay a one-time $1,000 item, for example, would vary. If I stopped my 401k contributions, it would take fewer days to have that $1,000 in my pocket than it would normally take. For the monthly increase, did you just multiple that by 12 to get the annual expense and then multiply by 25 to know how much more you would need to have 25x that in retirement and then divide that by your daily amount saved for retirement to determine how much longer you would need to work?
I don't remember how I did it.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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I may be looking at it too simply, but the one potential expense which appalls / amazes me is the fee asset management companies charge. A typical fee is 1% of invested assets. Well, if you're supposed to be living on 4% of your assets each year in retirements, you will be paying 25% of your asset withdrawal to the asset management company.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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MotoTrojan wrote: Tue Sep 10, 2019 6:17 am An espresso a day from most coffee shops is getting close to needing $50K, yikes!
Not sure why anyone is surprised that small numbers get much bigger when you turn them into a perpetual annuity.

Buy a reasonable house, drive a reasonable car, control eating out and buy whatever coffee your heart desires. Those will cost you waaaay more.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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Texanbybirth wrote: Tue Sep 10, 2019 8:14 am One thing that struck me: this helps me appreciate the value of Social Security retirement benefits. If my benefit will be $2,500 at FRA, then I could say it’s equivalent to $750k in my portfolio. Not bad!
And let’s not forget, these aren’t entitlements. You earned this benefit by paying into the system for years!
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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MN-Investor wrote: Tue Sep 10, 2019 2:23 pm I may be looking at it too simply, but the one potential expense which appalls / amazes me is the fee asset management companies charge. A typical fee is 1% of invested assets. Well, if you're supposed to be living on 4% of your assets each year in retirements, you will be paying 25% of your asset withdrawal to the asset management company.
You're absolutely right. Paying a 1% AUM fee means that you need a 25% larger portfolio in order to have the same after-fee withdrawal. So instead of needing $1 million, you need $1.25 million, for instance.

I know a financial adviser that until recently charged a 1.4% AUM fee. :shock:
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by prd1982 »

Saying you need $30,000 for a $100/month expense (4% rule) is over-stating how much you need for many expenses. The 4% rule is designed to minimize running out of money. In most cases, you will die still having a lot of money. So sure, you want 25x saved for expenses such as utilities, food, medical. But a lot of expenses are not mandatory (e.g., vacations, dining out, expensive foods, take-out coffee, charitable giving). Not sure what % you need to have a 70% chance of having enough for these optional expenses, but that seems like a reasonable target. This forum often seems intent on telling people they are not saving enough, or are spending too much.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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prd1982 wrote: Tue Sep 10, 2019 5:34 pm Saying you need $30,000 for a $100/month expense (4% rule) is over-stating how much you need for many expenses. The 4% rule is designed to minimize running out of money. In most cases, you will die still having a lot of money. So sure, you want 25x saved for expenses such as utilities, food, medical. But a lot of expenses are not mandatory (e.g., vacations, dining out, expensive foods, take-out coffee, charitable giving). Not sure what % you need to have a 70% chance of having enough for these optional expenses, but that seems like a reasonable target. This forum often seems intent on telling people they are not saving enough, or are spending too much.
You make a good point. However, there are many here who firmly believe that many of their discretionary expenses, such as traveling and dining out, will one day be replaced with higher medical costs and long-term care expenses.

Personally, we plan on front-loading our withdrawals somewhat because we plan to spend more in our 50s and 60s than in our 70s and 80s, which is what the data suggest that most retirees' spending actually looks like.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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willthrill81 wrote: Tue Sep 10, 2019 5:16 pm
MN-Investor wrote: Tue Sep 10, 2019 2:23 pm I may be looking at it too simply, but the one potential expense which appalls / amazes me is the fee asset management companies charge. A typical fee is 1% of invested assets. Well, if you're supposed to be living on 4% of your assets each year in retirements, you will be paying 25% of your asset withdrawal to the asset management company.
You're absolutely right. Paying a 1% AUM fee means that you need a 25% larger portfolio in order to have the same after-fee withdrawal. So instead of needing $1 million, you need $1.25 million, for instance.

I know a financial adviser that until recently charged a 1.4% AUM fee. :shock:
Actually one would need $1.33 million to get the desired $40k after AUM fee.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by willthrill81 »

Eagle33 wrote: Tue Sep 10, 2019 9:04 pm
willthrill81 wrote: Tue Sep 10, 2019 5:16 pm
MN-Investor wrote: Tue Sep 10, 2019 2:23 pm I may be looking at it too simply, but the one potential expense which appalls / amazes me is the fee asset management companies charge. A typical fee is 1% of invested assets. Well, if you're supposed to be living on 4% of your assets each year in retirements, you will be paying 25% of your asset withdrawal to the asset management company.
You're absolutely right. Paying a 1% AUM fee means that you need a 25% larger portfolio in order to have the same after-fee withdrawal. So instead of needing $1 million, you need $1.25 million, for instance.

I know a financial adviser that until recently charged a 1.4% AUM fee. :shock:
Actually one would need $1.33 million to get the desired $40k after AUM fee.
Yes, you're right.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by inbox788 »

Walkure wrote: Tue Sep 10, 2019 1:07 pmI'm puzzling over this formula, but on the recurring expense side. Let's say your projected annual expenses are 50k, so 25x gives you a "number" of $1,250,000, which you will reach in year 'n.' Now you decide to add a recurring expense of $500 a month, so 56k x 25 = $1,400,000 as your new target. You need to retire with an extra $150k. But that doesn't mean you need to save an extra $150k. You have two basic choices, save more every month starting now, or continue to save the same amount each month and work a little longer. Let's assume you are already maxed out on savings rate and so you will work longer. If it now takes you to year n+1 to reach your number, the $1,250,000 you already had saved gets an extra year to grow - a modest 4% real gain adds $50k, so you only need to save $100k more to fund the $6k in annual expense.
(SP500 year end value 2016-2018: 2240 2675 2500)

Year n+1 can be fickle. If it was 2018, a negative year, you'd need to save not only the $150k, but some extra for the market loss the year of retirement. If you retired 2017, a year that was up nearly 20%, a 60/40 AA would have gained just about $150k on the $1,250,000. In one case, you'd be looking at cutting some expenses, while in the other, you could spend your extra $500 a month. It's like winning a new car...no make that 10 new car leases if you live long enough to enjoy it.

https://www.ssa.gov/planners/lifeexpectancy.html
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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inbox788 wrote: Tue Sep 10, 2019 9:38 pm
Walkure wrote: Tue Sep 10, 2019 1:07 pmI'm puzzling over this formula, but on the recurring expense side. Let's say your projected annual expenses are 50k, so 25x gives you a "number" of $1,250,000, which you will reach in year 'n.' Now you decide to add a recurring expense of $500 a month, so 56k x 25 = $1,400,000 as your new target. You need to retire with an extra $150k. But that doesn't mean you need to save an extra $150k. You have two basic choices, save more every month starting now, or continue to save the same amount each month and work a little longer. Let's assume you are already maxed out on savings rate and so you will work longer. If it now takes you to year n+1 to reach your number, the $1,250,000 you already had saved gets an extra year to grow - a modest 4% real gain adds $50k, so you only need to save $100k more to fund the $6k in annual expense.
(SP500 year end value 2016-2018: 2240 2675 2500)

Year n+1 can be fickle. If it was 2018, a negative year, you'd need to save not only the $150k, but some extra for the market loss the year of retirement. If you retired 2017, a year that was up nearly 20%, a 60/40 AA would have gained just about $150k on the $1,250,000. In one case, you'd be looking at cutting some expenses, while in the other, you could spend your extra $500 a month. It's like winning a new car...no make that 10 new car leases if you live long enough to enjoy it.

https://www.ssa.gov/planners/lifeexpectancy.html
Yes. And an investor with a 20% savings rate and a 60/40 (all U.S.) AA who was at 25x in the year 2000 and who was trying to reach 33.3X (i.e. 3% withdrawals) would not have done so until 2012.

Sequence of returns risk impacts both accumulators and retirees, most especially in the 10-15 years leading up to and immediately following retirement.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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A new poster was recently asking about this topic, and I think that it might be worth bumping for newer folks.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

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Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by HomerJ »

Triple digit golfer wrote: Sun Aug 02, 2020 1:12 pm Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
If you play that much golf in retirement, you might have to change your username to "Double digit golfer"!
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by willthrill81 »

Triple digit golfer wrote: Sun Aug 02, 2020 1:12 pm Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
If nothing else, I think that it illustrates the value in taking a very critical look at one's planned expenses in retirement. That $55 a month fee for a storage facility means you need $16,500 in your portfolio. The $200 a month for mowing needs $60,000. $3,000 of annual property taxes for a vacation property is $75,000. Importantly, re-framing these expenses in this way demonstrates how much additional life energy (i.e. time) you must give up in order to pay for such things. All of these expenses and countless others may be worth it to someone, but they may elect to mow their own yard and retire a year earlier than otherwise, for instance.

I've heard several pundits say that you 'can't frugal yourself to achieving wealth', but by the same token, you can't 'earn your way to achieving wealth' without some level of LBYM.

It's still almost unreal to me that maxing out a 401k for a year only provides $65 of monthly, inflation-adjusted, pre-tax income in retirement.
“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: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Triple digit golfer »

HomerJ wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 1:12 pm Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
If you play that much golf in retirement, you might have to change your username to "Double digit golfer"!
I may request the name change now!

I actually am not a horrible golfer, at least by my standards. I shot a 48 on 9 holes a couple weeks ago. Par 36.

I hold my own with most casual golfers like guys from work.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Triple digit golfer »

willthrill81 wrote: Sun Aug 02, 2020 2:29 pm
Triple digit golfer wrote: Sun Aug 02, 2020 1:12 pm Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
If nothing else, I think that it illustrates the value in taking a very critical look at one's planned expenses in retirement. That $55 a month fee for a storage facility means you need $16,500 in your portfolio. The $200 a month for mowing needs $60,000. $3,000 of annual property taxes for a vacation property is $75,000. Importantly, re-framing these expenses in this way demonstrates how much additional life energy (i.e. time) you must give up in order to pay for such things. All of these expenses and countless others may be worth it to someone, but they may elect to mow their own yard and retire a year earlier than otherwise, for instance.

I've heard several pundits say that you 'can't frugal yourself to achieving wealth', but by the same token, you can't 'earn your way to achieving wealth' without some level of LBYM.

It's still almost unreal to me that maxing out a 401k for a year only provides $65 of monthly, inflation-adjusted, pre-tax income in retirement.
Agree with all of that. Regarding the last part, that's just the contribution. How much would $19.5k be worth compounded? For the vast majority of people, enough to retire very comfortably at or before age 65. With no real return, 40 years of it gets you $31k annual income, in addition to Social Security.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by willthrill81 »

Triple digit golfer wrote: Sun Aug 02, 2020 3:03 pm
willthrill81 wrote: Sun Aug 02, 2020 2:29 pm
Triple digit golfer wrote: Sun Aug 02, 2020 1:12 pm Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
If nothing else, I think that it illustrates the value in taking a very critical look at one's planned expenses in retirement. That $55 a month fee for a storage facility means you need $16,500 in your portfolio. The $200 a month for mowing needs $60,000. $3,000 of annual property taxes for a vacation property is $75,000. Importantly, re-framing these expenses in this way demonstrates how much additional life energy (i.e. time) you must give up in order to pay for such things. All of these expenses and countless others may be worth it to someone, but they may elect to mow their own yard and retire a year earlier than otherwise, for instance.

I've heard several pundits say that you 'can't frugal yourself to achieving wealth', but by the same token, you can't 'earn your way to achieving wealth' without some level of LBYM.

It's still almost unreal to me that maxing out a 401k for a year only provides $65 of monthly, inflation-adjusted, pre-tax income in retirement.
Agree with all of that. Regarding the last part, that's just the contribution. How much would $19.5k be worth compounded? For the vast majority of people, enough to retire very comfortably at or before age 65. With no real return, 40 years of it gets you $31k annual income, in addition to Social Security.
Yes, we certainly hope that our contributions will compound nicely. I was just referring to the contribution itself and certainly not trying to dissuade anyone from saving early, often, and substantially.
“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: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Clever_Username »

Triple digit golfer wrote: Sun Aug 02, 2020 3:00 pm
HomerJ wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 1:12 pm Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
If you play that much golf in retirement, you might have to change your username to "Double digit golfer"!
I may request the name change now!

I actually am not a horrible golfer, at least by my standards. I shot a 48 on 9 holes a couple weeks ago. Par 36.

I hold my own with most casual golfers like guys from work.
Get a home practice setup. Good full swing practice will do more to transform your 48 to a lower score. Get a decent mat and a net to hit into; you can get this for under $1000. Use balls that survived rounds but that aren't ones you want to still put into play for this practice. After it has paid for itself in saved range fees, it's like having more money in your retirement accounts.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Triple digit golfer »

Clever_Username wrote: Sun Aug 02, 2020 3:07 pm
Triple digit golfer wrote: Sun Aug 02, 2020 3:00 pm
HomerJ wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 1:12 pm Good bump. I like these simple rules of thumb because they put into perspective the impact of spending and highlight the relationship between spending and saving.

If I can do without that $100 monthly cable subscription, I can retire with $30k less.

It works the other way, too, obviously. If I save a little bit more now, have an extra $30k saved when I retire, I can fund an extra $60 a week for 20 weeks on golf each year.

There are a thousand ways to slice it.
If you play that much golf in retirement, you might have to change your username to "Double digit golfer"!
I may request the name change now!

I actually am not a horrible golfer, at least by my standards. I shot a 48 on 9 holes a couple weeks ago. Par 36.

I hold my own with most casual golfers like guys from work.
Get a home practice setup. Good full swing practice will do more to transform your 48 to a lower score. Get a decent mat and a net to hit into; you can get this for under $1000. Use balls that survived rounds but that aren't ones you want to still put into play for this practice. After it has paid for itself in saved range fees, it's like having more money in your retirement accounts.
I love the justification on the saved range fees!
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Mr.BB »

Do I calculate the total value of our SS and pension against this number to simply look at only our savings needed for a lifetime?
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Mr.BB »

conservativeinvestor wrote: Tue Sep 10, 2019 10:00 am looking at it this way is terribly demotivating.
There are many ways to look at numbers to help you get to your end result. Someone once told me they were told they needed to lose 100 lbs. They talked about how long this will take and how far away 100 lbs. seemed. I told them that they just had to lose 10 lbs. at a time (after all 10 comes before 20 or 30 etc..) Don't think about how long it will take, just make 10 hash-marks on a piece of paper, and after they lose 10 lbs. just cross off one of those hash-marks.

This is no different, you can either work on saving more or reducing your debt, both will help you achieve your goals. Attitude is everything.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by willthrill81 »

Mr.BB wrote: Sun Aug 02, 2020 3:16 pm Do I calculate the total value of our SS and pension against this number to simply look at only our savings needed for a lifetime?
No, you don't need to calculate the value of SS or a pension. You just subtract how much those will be from your spending needs. Whatever spending needs aren't funded by those will need to be funded by your savings.
“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: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Dantes »

Mr.BB wrote: Sun Aug 02, 2020 3:16 pm Do I calculate the total value of our SS and pension against this number to simply look at only our savings needed for a lifetime?
Thats a good start. If your guaranteed income meets your expenses then you are home free - if you really know your expenses, have a buffer for irregular expenses, aren't self-insuring for long-term care, and aren't caught by some catastrophic uninsured disaster.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Inframan4712 »

Good thread. I came to this same conclusion independently last year and used it to avoid buying myself the $40k-ish Tesla I have wanted for a long time.

When I explained my reasoning to my teenage boys it was a literal eye opener for them.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Triple digit golfer »

willthrill81 wrote: Sun Aug 02, 2020 3:29 pm
Mr.BB wrote: Sun Aug 02, 2020 3:16 pm Do I calculate the total value of our SS and pension against this number to simply look at only our savings needed for a lifetime?
No, you don't need to calculate the value of SS or a pension. You just subtract how much those will be from your spending needs. Whatever spending needs aren't funded by those will need to be funded by your savings.
Right. If you need $50k a year and those will give you $25k, then you can retire with half as much because you only need $25k a year from your investments/savings.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by SantaClaraSurfer »

Side note that is directly to the point of this thread:

My wife had a small vested pension from her 20's that had been closed down by her employer.

When we started down our pre-Boglehead, Dave Ramsey path of snowballing our way out of debt we were VERY tempted to cash out and take the lump sum offer on that pension.

We are VERY glad we did not.

Her "small pension" will pay $1500+ a month starting in 2043.

Let's just say the lump sum offer was nowhere near the amount required for us to hit an equivalent 300x number in 2043. Not even remotely close.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Triple digit golfer »

SantaClaraSurfer wrote: Sun Aug 02, 2020 3:53 pm Side note that is directly to the point of this thread:

My wife had a small vested pension from her 20's that had been closed down by her employer.

When we started down our pre-Boglehead, Dave Ramsey path of snowballing our way out of debt we were VERY tempted to cash out and take the lump sum offer on that pension.

We are VERY glad we did not.

Her "small pension" will pay $1500+ a month starting in 2043.

Let's just say the lump sum offer was nowhere near the amount required for us to hit an equivalent 30x number in 2043. Not even remotely close.
Nice job. Always do your own calculations with your own reasonable assumptions.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by vitaflo »

I did somewhat opposite of this, where I broke large purchases down into yearly costs. For example, even though I keep cars on average 7 years and pay cash for them, if I break that down into cost per year it's about $6,500 per car per year, including taxes, insurance and maintenance. That's almost $200k I need in my portfolio just for a car. Or, if in retirement we decide to go down to one car, that's $200k less I need, which allows me to retire several years earlier (at our current savings rate).

There are of course other options here (keep cars longer, buy used, have a beater for a 2nd car), but when I broke it down like this it was eye opening. Owning a car costs more than health insurance for us.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by willthrill81 »

vitaflo wrote: Sun Aug 02, 2020 4:11 pm I did somewhat opposite of this, where I broke large purchases down into yearly costs. For example, even though I keep cars on average 7 years and pay cash for them, if I break that down into cost per year it's about $6,500 per car per year, including taxes, insurance and maintenance. That's almost $200k I need in my portfolio just for a car. Or, if in retirement we decide to go down to one car, that's $200k less I need, which allows me to retire several years earlier (at our current savings rate).

There are of course other options here (keep cars longer, buy used, have a beater for a 2nd car), but when I broke it down like this it was eye opening. Owning a car costs more than health insurance for us.
We did something similar when we decided to downsize from two vehicles to one a couple of years ago. Since my DW is a SAHM, it's been quite painless. We thought that we might have to buy a beater since we were planning on our daughter starting private school this fall and we would need to drop her off and pick her up three days a week, but due to circumstances surrounding the COVID situation, we pulled the plug on that in favor of homeschooling and saved a lot of money in the process.

The key point I was trying to get across in the OP is that seemingly small expenses have big portfolio implications. I'm always amazed at how many here seem to have little more than a vague idea of what their expenses are now, much less what they anticipate will be the case in retirement.
“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: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Rowan Oak »

willthrill81 wrote: Mon Sep 09, 2019 11:28 pm I know that this is something very simple, but it still kind of amazes me. Perhaps it will help someone, especially someone who isn't a Boglehead and potentially already aware of such things, to see how much of an impact expenses in retirement make on their needed portfolio size.

Assuming 4% portfolio withdrawals in retirement, this means that you need 25x your annual expenses in retirement (at least those that will be funded by portfolio withdrawals). It also means that you need 300x your monthly expenses.

(For early retirees or those that just feel more comfortable with a 3% withdrawal rate, that works out 400x your monthly expense.)

This means that you need $30,000 in your portfolio to cover a $100 monthly expense in retirement.

That's about what our cell phone service bill is. $30,000, more than 18 months of maxing out a 401k, just in order to pay for our cell phone service in retirement. :shock:

For me at least, this really puts into perspective how much expenses drive how much we need to retire.
Great post.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by zie »

Mr.BB wrote: Sun Aug 02, 2020 3:16 pm Do I calculate the total value of our SS and pension against this number to simply look at only our savings needed for a lifetime?
Willthrill81 and others are right, you just subtract it, but if your pension is not COLA adjusted(i.e. not adjusted up to account for inflation), then you need to subtract out inflation *first* and then subtract out your expenses. Inflation is usually calculated at 2-3% a year.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Inframan4712 »

SantaClaraSurfer wrote: Sun Aug 02, 2020 3:53 pm Side note that is directly to the point of this thread:

My wife had a small vested pension from her 20's that had been closed down by her employer.

When we started down our pre-Boglehead, Dave Ramsey path of snowballing our way out of debt we were VERY tempted to cash out and take the lump sum offer on that pension.

We are VERY glad we did not.

Her "small pension" will pay $1500+ a month starting in 2043.

Let's just say the lump sum offer was nowhere near the amount required for us to hit an equivalent 300x number in 2043. Not even remotely close.
I would be very surprised if that pension fund is solvent or in existence in 2043.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by SQRT »

While I agree with the math, obsessively focussing on this issue throughout one’s working life might tend to prevent someone from a balanced lifestyle. That is “over saving” and overly deferring enjoyment to retirement. Sometimes we forget there is more to life than saving for retirement. Balance is important.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by BuckyBadger »

I don't disagree, but it's not really shocking, is it?

Everyone makes choices. Some choose to retire earlier with less and live on a bare bones budget.

Some choose to retire later with more and live a more luxurious retirement.

Some split the difference.

And whatever some may say on this board, neither is incorrect. If you don't hate your job THAT much and don't mind working a few more years so that you can fly business class, go ahead. I only moderately hate my job, so I'll work another 10 years and have a pretty plush retirement. If we cut to the bone, i could retire right now. But i don't want that.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by frugalmama »

Great thread! It is a reminder not to let lifestyle creep into your life and is why a budget is so critical.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by EnjoyIt »

SQRT wrote: Mon Aug 03, 2020 8:04 am While I agree with the math, obsessively focussing on this issue throughout one’s working life might tend to prevent someone from a balanced lifestyle. That is “over saving” and overly deferring enjoyment to retirement. Sometimes we forget there is more to life than saving for retirement. Balance is important.
Our pathway was to allow a very slow lifestyle creep once out of school and into real work. Our income kept growing much faster than our expenses did. By giving in to slow lifestyle creep we kept “improving” our lifestyle and feeling like we are enjoying life which we most definitely were and still are.

This pathway let use become financially independent very early in our careers (early 40s.) Today we still work although part time and we continue slowly adding lifestyle creep. What’s nice is knowing we have the freedom at anytime to just walk away from paid employment. That in conjunction with working part time has made life so much more enjoyable (pre-covid.) We have more days off per week than workdays.

Saving a lot early on was the best financial decision we ever made which far outweighs any potential frivolous expenses we may have spent on when younger.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by SQRT »

EnjoyIt wrote: Mon Aug 03, 2020 9:26 am
SQRT wrote: Mon Aug 03, 2020 8:04 am While I agree with the math, obsessively focussing on this issue throughout one’s working life might tend to prevent someone from a balanced lifestyle. That is “over saving” and overly deferring enjoyment to retirement. Sometimes we forget there is more to life than saving for retirement. Balance is important.
Our pathway was to allow a very slow lifestyle creep once out of school and into real work. Our income kept growing much faster than our expenses did. By giving in to slow lifestyle creep we kept “improving” our lifestyle and feeling like we are enjoying life which we most definitely were and still are.

This pathway let use become financially independent very early in our careers (early 40s.) Today we still work although part time and we continue slowly adding lifestyle creep. What’s nice is knowing we have the freedom at anytime to just walk away from paid employment. That in conjunction with working part time has made life so much more enjoyable (pre-covid.) We have more days off per week than workdays.

Saving a lot early on was the best financial decision we ever made which far outweighs any potential frivolous expenses we may have spent on when younger.
Sounds like a very balanced approach? Good for you. Agree that becoming FI is life changing.

As an aside. I think “lifestyle creep” is a pretty negative term around here and often refers to unnecessary or frivolous spending. Of course, that isn’t always the case. When I think back to my lifestyle just out of school and compare it to my lifestyle now (just turned 70, fully retired 14 years) there has been a lot of “creep”. Actually more like a quantum leap. I don’t view this as a negative at all as we can easily afford it.
Last edited by SQRT on Thu Aug 13, 2020 8:29 am, edited 2 times in total.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by SantaClaraSurfer »

Inframan4712 wrote: Mon Aug 03, 2020 6:32 am I would be very surprised if that pension fund is solvent or in existence in 2043.
Not sure why you would make that claim since I shared no details about the specific employer/pension fund.

But I'm happy to read any link you have about why someone in our situation should not count on employer-based pensions in general. Please share.

For me, the lump sum is an interesting question to face. We get periodic offers to take a lump sum that "sweeten" the deal for a specific window of time. It doesn't pencil out even then, as far as I can see.
Last edited by SantaClaraSurfer on Mon Aug 03, 2020 10:29 am, edited 1 time in total.
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by jrbdmb »

orthros wrote: Mon Sep 09, 2019 11:40 pm I'd rather overwhelmingly eat at home and save $200/month than need to save an additional $60K to cover eating out.
My wife would strongly disagree with this. :happy
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by Mr.BB »

jrbdmb wrote: Mon Aug 03, 2020 10:28 am
orthros wrote: Mon Sep 09, 2019 11:40 pm I'd rather overwhelmingly eat at home and save $200/month than need to save an additional $60K to cover eating out.
My wife would strongly disagree with this. :happy
Happy wife Happy life
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Re: In retirement, a $100 monthly expense needs $30,000 in your portfolio

Post by sean.mcgrath »

willthrill81 wrote: Mon Sep 09, 2019 11:28 pm This means that you need $30,000 in your portfolio to cover a $100 monthly expense in retirement.

That's about what our cell phone service bill is. $30,000, more than 18 months of maxing out a 401k, just in order to pay for our cell phone service in retirement. :shock:
9-5 Suited wrote: Tue Sep 10, 2019 8:43 am
corn18 wrote: Tue Sep 10, 2019 1:17 am I keep this prominently posted in my retirement spreadsheet:

Image
I love this! If really highlights (for me anyway) that even large one time expenses are really just a flesh wound. It’s the recurring expenses that deserve more attention. I’m sure that is obvious but your graphic does a great job of highlighting that.
I really like these kind of thought exercises as well. Now that we're at a stage where we are thinking through when I will retire, it's helpful to make it concrete. We've started to think about things like savings required to budget in a gardener: $250k or so, but enables travel for longer periods, and the option to stay in the house when we are older.
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