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

Posted: Mon Sep 09, 2019 11:28 pm
by willthrill81
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.

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

Posted: Mon Sep 09, 2019 11:40 pm
by orthros
Simple but sobering.

It also means that if you can eliminate or at least mitigate costs - looking at what you need to save vs. what you lose by giving it up - you can make some practical decisions.

I'd rather use Mint and pay $45/month including taxes for 2 lines, even if the service isn't as reliable as $100/month Verizon service, and forego needing to save an extra $16,500.

I'd rather overwhelmingly eat at home and save $200/month than need to save an additional $60K to cover eating out.

One variation: For those of us targeting 3.5% or 3% withdrawal rates, the effect is magnified. A $200/month expenses under a 3% withdrawal rate requires $80K vs. $60K @ 4%.

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

Posted: Tue Sep 10, 2019 12:02 am
by HawkeyePierce
This is why I’m a staunch advocate for maintaining a personal budget. It’s the only way to accurately understand your expenses IMO.

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

Posted: Tue Sep 10, 2019 12:36 am
by RobLyons
This brings up a good point however I'm not giving up crystal clear service 24/7 for 2-3 decades of dropped or wonky calls just to save a few grand. But overall point is understood.

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

Posted: Tue Sep 10, 2019 1:07 am
by jh
This is why I would probably need to expat if I wanted to retire right now.

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

Posted: Tue Sep 10, 2019 1:17 am
by corn18
I keep this prominently posted in my retirement spreadsheet:

Image

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

Posted: Tue Sep 10, 2019 5:57 am
by student
Good post. It puts expense in perspective.

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

Posted: Tue Sep 10, 2019 6:17 am
by MotoTrojan
An espresso a day from most coffee shops is getting close to needing $50K, yikes!

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

Posted: Tue Sep 10, 2019 6:52 am
by bengal22
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.
If $12000 in your portfolio earns 1 percent doesn't that cover your phone bill. I may be the lone ranger but I think people overstate what they need to retire.

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

Posted: Tue Sep 10, 2019 7:03 am
by roadnottaken
This is why I've concluded that I have to pay-off the mortgage ASAP - before retiring is plausible...

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

Posted: Tue Sep 10, 2019 7:09 am
by Mountain Doc
bengal22 wrote:
Tue Sep 10, 2019 6:52 am
If $12000 in your portfolio earns 1 percent doesn't that cover your phone bill. I may be the lone ranger but I think people overstate what they need to retire.
Check you math... the $12000 would have to earn 10% annually to pay the phone bill, and that doesn't take into account sequence of returns risk.

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

Posted: Tue Sep 10, 2019 7:13 am
by RickBoglehead
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.

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.

Now, when I enter retirement, I can either enter with say $1 million in assets and a $400,000 mortgage, knowing that I'll sell off pieces of those assets during retirement to make the mortgage payments, plus those assets will grow in the market (assuming no downturn) and earn even more. Or, as I enter retirement I can pay off the mortgage and retire with $600,000 in assets invested.

Yes, I get that the market could go down, and could stay down for an extended period of time. But that's not what's being espoused here, it's the idea that to make mortgage payments you need $xx,xxx in your portfolio.

We will likely be selling our home at retirement and that mortgage will go away. Depending on interest rates at the time, as well as the amount of house we buy for retirement, I may or may not choose to get a mortgage. I see no difference, besides long term downside market performance, in getting a mortgage for $xxx,xxx or paying $xxx,xxx to buy a house, except I lose any potential for growth of that $xxx,xxx.

In addition, I do not consider a home an investment, it's simply not paying rent. On our first home, we lost a bit when we sold, less than $15,000. On our second home, we made over $100,000. On our current home, which we've owned now for 12+ years, I expect to clear $100,000 when we sell in 2 years. That's a return of say 14% over 14 years, which is awful as compared to a return of say 6 to 8% annually in the market.

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

Posted: Tue Sep 10, 2019 7:45 am
by David Jay
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 paid off the last chunk of principal with my final check (for vacation and sick time) when I retired. :musical_note: Feels So Good :musical_note: (Chuck Mangione).

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

Posted: Tue Sep 10, 2019 7:47 am
by soundwave
willthrill81 wrote:
Mon Sep 09, 2019 11:28 pm
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.)
When I discovered & fully absorbed this concept early in my "preparing for retirement" education, my entire budget went through a total analysis. Any non-essential expense I had or was thinking of adding came under review. Most budgeted items simply did not warrant the portfolio needed to fully fund the expense.

This is why I've chosen to clean my own home. Every time I'm tempted to hire it out I review the numbers & grab my own mop 8-)

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

Posted: Tue Sep 10, 2019 8:02 am
by finite_difference
RickBoglehead wrote:
Tue Sep 10, 2019 7:13 am

In addition, I do not consider a home an investment, it's simply not paying rent. On our first home, we lost a bit when we sold, less than $15,000. On our second home, we made over $100,000. On our current home, which we've owned now for 12+ years, I expect to clear $100,000 when we sell in 2 years. That's a return of say 14% over 14 years, which is awful as compared to a return of say 6 to 8% annually in the market.
A house is an investment because it generally holds its value. Nobody said anything about it being a good investment!

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

Posted: Tue Sep 10, 2019 8:13 am
by cherijoh
bengal22 wrote:
Tue Sep 10, 2019 6:52 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.
If $12000 in your portfolio earns 1 percent doesn't that cover your phone bill. I may be the lone ranger but I think people overstate what they need to retire.
The 3 - 4% SWR already includes portfolio earnings. You don't get to take that in addition.

Also 1% of $12K is $120 not $1200. Phone bill was $100/mo

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

Posted: Tue Sep 10, 2019 8:14 am
by Texanbybirth
I like this simple way of approaching expenses in retirement. (And usually if I like something simple it means I’m missing an important subtlety.) Of course, it implies one is actually good at tracking their expenses before/in retirement, but that’s a separate issue.

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!

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

Posted: Tue Sep 10, 2019 8:18 am
by jayk238
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.
This is not jarring. Nor is it all that impressive

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

Posted: Tue Sep 10, 2019 8:20 am
by jayk238
orthros wrote:
Mon Sep 09, 2019 11:40 pm
Simple but sobering.

It also means that if you can eliminate or at least mitigate costs - looking at what you need to save vs. what you lose by giving it up - you can make some practical decisions.

I'd rather use Mint and pay $45/month including taxes for 2 lines, even if the service isn't as reliable as $100/month Verizon service, and forego needing to save an extra $16,500.

I'd rather overwhelmingly eat at home and save $200/month than need to save an additional $60K to cover eating out.

One variation: For those of us targeting 3.5% or 3% withdrawal rates, the effect is magnified. A $200/month expenses under a 3% withdrawal rate requires $80K vs. $60K @ 4%.
Is it really sobering? If you take the idea of 4% withdrawl you also need to look at why it exists. The purpose of it is to help your money last for 30 years or so.
This means that really what you are saying is that you need 30 k so that for 20- 30 years you can spend 1200 a year for 20-30 years = 24k to 36k. Is that so unreasonable?

In that context saving money for this isnt really that expensive.

Frankly ive never owned a cell phone for that many years!

More importantly, i dont think i will need 100 dollar celphone for that many years. Regardless, asking me to set aside that much in retirment for that many years for something that i potentially will use that long even beofre retirement makes sense. Its not going to make my drastically change my life today.

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

Posted: Tue Sep 10, 2019 8:36 am
by av111
30000 for cell service for all of the retirement may sound excessive but it is just 1200 spent every year for 25 years. You can make same calculation about food and shelter and be shocked.

If you have saved 25 x expenses you can spend the money wherever you planned to spend while forecasting your monthly spend. No need to be shocked by counting expenses over a long period of time later. Can't take it with you

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

Posted: Tue Sep 10, 2019 8:41 am
by 9-5 Suited
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.
Fantastic post for keeping proper perspective. Thanks Will.

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

Posted: Tue Sep 10, 2019 8:43 am
by 9-5 Suited
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.

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

Posted: Tue Sep 10, 2019 8:58 am
by Ron
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.

With the exception of withdrawals from a Roth account, taxes have to be paid on TIRA/401(k), SS, pensions, SPIA etc. for any money used to fund your retirement.

That's one of the main reasons that my wife/me were motivated to pay off our mortgage/note before retirement. In our case, we were at a 6.875% rate (initiated in 1994, paid off in 1999) which would have required us to withdraw or have income (including taxes due) in retirement to support that monthly payment. BTW, if you think 6.875% is bad, our two previous homes incurred a mortgage/note rate of 10%.

While working, we rarely think about the total cost of an ongoing payment commitment. Most often we forget that its not only the cost of the monthly bill/payment, but the taxes on the income (from any source) to make that payment are not considered.

One could argue in today's low interest rate environment, it makes sense to invest rather than pay off a mortgage/note. However, remember you also need to the returns to cover the taxes due on that payment.

FWIW,

- Ron

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

Posted: Tue Sep 10, 2019 9:12 am
by finite_difference
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.
Presumably this depends upon your income.

I think I would rather spend $1k extra per month and work an extra 1.5 years :) Retiring at 56.5 vs 55 sounds swell.

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

Posted: Tue Sep 10, 2019 9:39 am
by PhilosophyAndrew
This also helps illustrate why social security or other pension benefits are so important to so many retirees.

Andy.

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

Posted: Tue Sep 10, 2019 9:42 am
by Sandtrap
Here's an interesting context:

A wage earner or salary person working for many years earns a pension paying monthly.
Benefits are good while working and after with COLA and health covered.
The company or gov't pension fund . . .later perhaps a FA. . . oversee everything.
Everything has always been on "auto deposit" at the bank.
Things continue this way while working and into retirement.
"Auto deposits" and "auto pilot".

There are many that have travelled this path fairly unaware, oblivious, and/or unconcerned about anything financial beyond the above process at a surface level.
This simple math related to real life helps a lot.

j :happy

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

Posted: Tue Sep 10, 2019 9:42 am
by PhilosophyAndrew
To add to your point, keep in mind that the assets aren’t normally depleted after a normal-length retirement. So, it isn’t the case that the lifelong monthly expense will necessarily (or even likely) use up those assets.

Andy.

av111 wrote:
Tue Sep 10, 2019 8:36 am
30000 for cell service for all of the retirement may sound excessive but it is just 1200 spent every year for 25 years. You can make same calculation about food and shelter and be shocked.

If you have saved 25 x expenses you can spend the money wherever you planned to spend while forecasting your monthly spend. No need to be shocked by counting expenses over a long period of time later. Can't take it with you

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

Posted: Tue Sep 10, 2019 9:49 am
by LiterallyIronic
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 is a fun way to look at it, but I prefer looking at it the other way around. I can look at the $90k I have in retirement and think "I can cover $300/month worth of expenses." Of course, that's not enough to retire on, but as my account value grows, I can see how much of my monthly expenses I can cover.

Also, your phone bill is painful.
finite_difference wrote:
Tue Sep 10, 2019 9:12 am
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.
Presumably this depends upon your income.
Indeed. Whoever made that chart earns a lot of money.

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

Posted: Tue Sep 10, 2019 9:50 am
by inbox788
willthrill81 wrote:
Mon Sep 09, 2019 11:28 pm
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.
Remember, that's each and every month! Aside from basic necessities, how many $100 monthly expenses do you plan for in retirement when you're 65? 95? Food, rent, electricity, transportation, sure. But after the first dozen, I'm having trouble adding more.

Cell phone? I'm guessing there's room for compromise, like lower cost prepaid today. Cable? Gym membership? Coffee? Clothing? Have some discretion.

https://www.fool.com/retirement/general ... et-lo.aspx

I'm more worried about large unplanned expenses, especially early on or higher inflation than budgeted. An electric bill that doubled every decade would be more than I'm planning and could be 10X difference from beginning to end of retirement. Despite what they say about no inflation, I can tell you my utility bills have crept up each and every year, and they're substantially more today than 10 years ago.

https://www.eia.gov/todayinenergy/detail.php?id=34932

One more thought using this line of thinking, if you had an extra $150k in your portfolio, it would cover a $500 lease payment (above and beyond average budgeted transportation) each and every month -- that's 10 brand new 3 year lease cars from 65 to 95!

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

Posted: Tue Sep 10, 2019 10:00 am
by conservativeinvestor
looking at it this way is terribly demotivating.

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

Posted: Tue Sep 10, 2019 10:12 am
by dbr
conservativeinvestor wrote:
Tue Sep 10, 2019 10:00 am
looking at it this way is terribly demotivating.
It shouldn't. As another poster pointed out spending $100/mo for 30 years of retirement is total spending of $36,000. Having to save up $30,000 by the start of retirement to pay for this makes perfect sense. A good part of that saving will come from returns on savings invested, which is what this forum is mostly all about.

If one wants to do this more exactly accounting for returns, withdrawals, inflation, etc., then that is what the analysis that generates the 4% withdrawal rate is all about.

A missing ingredient in the calculation is other sources of income such as Social Security. If you don't save anything then you can figure out how to get that $100/mo paid for out of Social Security. If you save a lot you won't have to rely on Social Security so much. Some people will still have possible pensions as well.

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

Posted: Tue Sep 10, 2019 10:14 am
by willthrill81
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.
More than three years of maxing out a 401k....yeah, that's a lot. But darn it, those Popeyes chicken sandwiches are sooooo good!
corn18 wrote:
Tue Sep 10, 2019 1:17 am
I keep this prominently posted in my retirement spreadsheet:

Image
That's another useful way of looking at things, but sadly I don't earn that much. :(
student wrote:
Tue Sep 10, 2019 5:57 am
Good post. It puts expense in perspective.
Thanks!
MotoTrojan wrote:
Tue Sep 10, 2019 6:17 am
An espresso a day from most coffee shops is getting close to needing $50K, yikes!
Sobering, isn't it? Our french press does a great job every single morning.
soundwave wrote:
Tue Sep 10, 2019 7:47 am
willthrill81 wrote:
Mon Sep 09, 2019 11:28 pm
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.)
When I discovered & fully absorbed this concept early in my "preparing for retirement" education, my entire budget went through a total analysis. Any non-essential expense I had or was thinking of adding came under review. Most budgeted items simply did not warrant the portfolio needed to fully fund the expense.

This is why I've chosen to clean my own home. Every time I'm tempted to hire it out I review the numbers & grab my own mop 8-)
A gentleman once told me that our modern conveniences are working us to death. Put in this context, it might be true.
9-5 Suited wrote:
Tue Sep 10, 2019 8:41 am
Fantastic post for keeping proper perspective. Thanks Will.
Thanks!
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.
Good point.

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

Posted: Tue Sep 10, 2019 10:14 am
by PhilosophyAndrew
conservativeinvestor wrote:
Tue Sep 10, 2019 10:00 am
looking at it this way is terribly demotivating.
Over a thirty year retirement, $30,000 secures $32.000 worth of spending AND your estate is likely to retain those assets after all that consumption. Doesn’t sound bad at all.

Andy.

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

Posted: Tue Sep 10, 2019 10:19 am
by willthrill81
conservativeinvestor wrote:
Tue Sep 10, 2019 10:00 am
looking at it this way is terribly demotivating.
Sorry to hear that. For me, it's a reminder of the importance of saving as much as we can and for reducing expenses in retirement.

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

Posted: Tue Sep 10, 2019 10:22 am
by willthrill81
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.

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

Posted: Tue Sep 10, 2019 10:33 am
by corn18
LiterallyIronic wrote:
Tue Sep 10, 2019 9:49 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.
Presumably this depends upon your income.
[/quote]

Indeed. Whoever made that chart earns a lot of money.
[/quote]

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.

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

Posted: Tue Sep 10, 2019 10:37 am
by bengal22
cherijoh wrote:
Tue Sep 10, 2019 8:13 am
bengal22 wrote:
Tue Sep 10, 2019 6:52 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.
If $12000 in your portfolio earns 1 percent doesn't that cover your phone bill. I may be the lone ranger but I think people overstate what they need to retire.
The 3 - 4% SWR already includes portfolio earnings. You don't get to take that in addition.

Also 1% of $12K is $120 not $1200. Phone bill was $100/mo
My bad on math. I always take expected expense minus expected income and that is what I have to cover with portfolio. Is that factored in?

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

Posted: Tue Sep 10, 2019 10:44 am
by EnjoyIt
May I add some more perspective to this thread? When spending an extra $100/month on something, if you want to continue this expense in retirement you will need to save for it.

Let us look at this $100/month in the context of 30 years of work and a 5% real return on investments. It takes $35.84 a month invested over 30 years to get to $30k so that one can enjoy that $100/month expense in retirement. Which in affect is costing this person $135.84 every month. This value gets even larger if this person is forgoing pre-tax contributions in leu of this expense.

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

Posted: Tue Sep 10, 2019 10:45 am
by willthrill81
bengal22 wrote:
Tue Sep 10, 2019 10:37 am
cherijoh wrote:
Tue Sep 10, 2019 8:13 am
bengal22 wrote:
Tue Sep 10, 2019 6:52 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.
If $12000 in your portfolio earns 1 percent doesn't that cover your phone bill. I may be the lone ranger but I think people overstate what they need to retire.
The 3 - 4% SWR already includes portfolio earnings. You don't get to take that in addition.

Also 1% of $12K is $120 not $1200. Phone bill was $100/mo
My bad on math. I always take expected expense minus expected income and that is what I have to cover with portfolio. Is that factored in?
The '4% rule' (i.e. that you can withdraw 4% of your portfolio's balance in year 1 of retirement and withdraw that same dollar amount adjusted for inflation each subsequent year) is based on 30 year retirements and includes returns. Most of the time, you could withdraw significantly more, 5-7%, but 4% represents the worst-case historic period for the U.S.

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

Posted: Tue Sep 10, 2019 10:46 am
by willthrill81
EnjoyIt wrote:
Tue Sep 10, 2019 10:44 am
May I add some more perspective to this thread? When spending an extra $100/month on something, if you want to continue this expense in retirement you will need to save for it.

Let us look at this $100/month in the context of 30 years of work and a 5% real return on investments. It takes $35.84 a month invested over 30 years to get to $30k so that one can enjoy that $100/month expense in retirement. Which in affect is costing this person $135.84 every month. This value gets even larger if this person is forgoing pre-tax contributions in leu of this expense.
That's a good point.

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

Posted: Tue Sep 10, 2019 10:51 am
by PhilosophyAndrew
This reasoning assumes that a 4% inflation-adjusted constant withdrawal will deplete one’s assets over the course of a standard-length (for example, thirty years) retirement.

But the research suggests that this is not the case. Far from it.

Andy.

EnjoyIt wrote:
Tue Sep 10, 2019 10:44 am
May I add some more perspective to this thread? When spending an extra $100/month on something, if you want to continue this expense in retirement you will need to save for it.

Let us look at this $100/month in the context of 30 years of work and a 5% real return on investments. It takes $35.84 a month invested over 30 years to get to $30k so that one can enjoy that $100/month expense in retirement. Which in affect is costing this person $135.84 every month. This value gets even larger if this person is forgoing pre-tax contributions in leu of this expense.

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

Posted: Tue Sep 10, 2019 10:59 am
by rich126
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.

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.

Now, when I enter retirement, I can either enter with say $1 million in assets and a $400,000 mortgage, knowing that I'll sell off pieces of those assets during retirement to make the mortgage payments, plus those assets will grow in the market (assuming no downturn) and earn even more. Or, as I enter retirement I can pay off the mortgage and retire with $600,000 in assets invested.

Yes, I get that the market could go down, and could stay down for an extended period of time. But that's not what's being espoused here, it's the idea that to make mortgage payments you need $xx,xxx in your portfolio.

We will likely be selling our home at retirement and that mortgage will go away. Depending on interest rates at the time, as well as the amount of house we buy for retirement, I may or may not choose to get a mortgage. I see no difference, besides long term downside market performance, in getting a mortgage for $xxx,xxx or paying $xxx,xxx to buy a house, except I lose any potential for growth of that $xxx,xxx.

In addition, I do not consider a home an investment, it's simply not paying rent. On our first home, we lost a bit when we sold, less than $15,000. On our second home, we made over $100,000. On our current home, which we've owned now for 12+ years, I expect to clear $100,000 when we sell in 2 years. That's a return of say 14% over 14 years, which is awful as compared to a return of say 6 to 8% annually in the market.
Having or not having a mortgage gets complicated and w/o knowing the future I don't think you can know the correct answer.

Instead of paying off a $500K house, let us assume you have that $500K in investments. 4% of $500K is $20K to cover your payments. That isn't quite accurate since you only need to cover mortgage payments for 30 years and not forever. Also your mortgage payments are fixed (assume a fixed rate) so unless we have deflation, you are paying a mortgage that is worth less due to inflation. That needs to be factored in as well.

IMO under normal investing times, I think you are better off with the mortgage but if returns end up poor for an extended period of time, then it doesn't look good.

So at a minimum you have:
1. Inflation
2. Interest rate of mortgage
3. Investment returns
4. Taxes
5. Your lifespan
6. House value (if you remain there, then this doesn't matter as much, but if you need to sell it and it won't cover the mortage then you have to lose money from investments, if it is paid off then the money has already been removed from investments).

Right now if you can get a 3% or less 30 year mortgage, it seems like a bargain but........Or how many people here would really commit to a 3% nominal investment return for the next 30 years? I'm guessing very few.

And back to the OP, yeah I have to admit now that I'm close to retirement I often think "An extra $25K in savings means.....an $1,000 a year in retirement". While it is important to realize this, I think some will obsess over this too much.

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

Posted: Tue Sep 10, 2019 11:10 am
by willthrill81
rich126 wrote:
Tue Sep 10, 2019 10:59 am
IMO under normal investing times, I think you are better off with the mortgage but if returns end up poor for an extended period of time, then it doesn't look good.
Correct. That's the way leverage works.

If we turned this around and asked whether it would be a good idea for a new retiree with a paid off home to do a cash out refinance and put the proceeds into stocks, we'd be very reticent about it and with good reason.

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

Posted: Tue Sep 10, 2019 11:12 am
by sd323232
PhilosophyAndrew wrote:
Tue Sep 10, 2019 9:39 am
This also helps illustrate why social security or other pension benefits are so important to so many retirees.

Andy.
Social security sounds like great investment. $2000/month in social security is equivalent to $600k in funds.

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

Posted: Tue Sep 10, 2019 11:19 am
by bhsince87
rich126 wrote:
Tue Sep 10, 2019 10:59 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.

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.

Now, when I enter retirement, I can either enter with say $1 million in assets and a $400,000 mortgage, knowing that I'll sell off pieces of those assets during retirement to make the mortgage payments, plus those assets will grow in the market (assuming no downturn) and earn even more. Or, as I enter retirement I can pay off the mortgage and retire with $600,000 in assets invested.

Yes, I get that the market could go down, and could stay down for an extended period of time. But that's not what's being espoused here, it's the idea that to make mortgage payments you need $xx,xxx in your portfolio.

We will likely be selling our home at retirement and that mortgage will go away. Depending on interest rates at the time, as well as the amount of house we buy for retirement, I may or may not choose to get a mortgage. I see no difference, besides long term downside market performance, in getting a mortgage for $xxx,xxx or paying $xxx,xxx to buy a house, except I lose any potential for growth of that $xxx,xxx.

In addition, I do not consider a home an investment, it's simply not paying rent. On our first home, we lost a bit when we sold, less than $15,000. On our second home, we made over $100,000. On our current home, which we've owned now for 12+ years, I expect to clear $100,000 when we sell in 2 years. That's a return of say 14% over 14 years, which is awful as compared to a return of say 6 to 8% annually in the market.
Having or not having a mortgage gets complicated and w/o knowing the future I don't think you can know the correct answer.

Instead of paying off a $500K house, let us assume you have that $500K in investments. 4% of $500K is $20K to cover your payments. That isn't quite accurate since you only need to cover mortgage payments for 30 years and not forever. Also your mortgage payments are fixed (assume a fixed rate) so unless we have deflation, you are paying a mortgage that is worth less due to inflation. That needs to be factored in as well.

IMO under normal investing times, I think you are better off with the mortgage but if returns end up poor for an extended period of time, then it doesn't look good.

So at a minimum you have:
1. Inflation
2. Interest rate of mortgage
3. Investment returns
4. Taxes
5. Your lifespan
6. House value (if you remain there, then this doesn't matter as much, but if you need to sell it and it won't cover the mortage then you have to lose money from investments, if it is paid off then the money has already been removed from investments).

Right now if you can get a 3% or less 30 year mortgage, it seems like a bargain but........Or how many people here would really commit to a 3% nominal investment return for the next 30 years? I'm guessing very few.

And back to the OP, yeah I have to admit now that I'm close to retirement I often think "An extra $25K in savings means.....an $1,000 a year in retirement". While it is important to realize this, I think some will obsess over this too much.
Another factor which can be HUGE for some folks is ACA subsidies.

With a mortgage, your income must be higher to cover the mortgage payments.

If you're on a pension or Social Security, that might not be such a big deal, since that money will be coming in irregardless. However, it could still limit your ability to withdrawal from investment accounts if you need more cash flow.

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

Posted: Tue Sep 10, 2019 11:41 am
by CyclingDuo
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...

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

Posted: Tue Sep 10, 2019 11:43 am
by unclescrooge
corn18 wrote:
Tue Sep 10, 2019 10:33 am
LiterallyIronic wrote:
Tue Sep 10, 2019 9:49 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.
Presumably this depends upon your income.


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.
I told my wife that the house she picked out would delay retirement by 10 years, and she said she was okay with that.

On the other hand, is I could be homeless and not need coffee or Internet, I could be retired long ago! :mrgreen:

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

Posted: Tue Sep 10, 2019 11:53 am
by dbr
unclescrooge wrote:
Tue Sep 10, 2019 11:43 am

I told my wife that the house she picked out would delay retirement by 10 years, and she said she was okay with that.
Her retirement or yours?

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

Posted: Tue Sep 10, 2019 11:55 am
by HomerJ
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.

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

Posted: Tue Sep 10, 2019 12:00 pm
by sd323232
unclescrooge wrote:
Tue Sep 10, 2019 11:43 am
corn18 wrote:
Tue Sep 10, 2019 10:33 am
LiterallyIronic wrote:
Tue Sep 10, 2019 9:49 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.
Presumably this depends upon your income.


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.
I told my wife that the house she picked out would delay retirement by 10 years, and she said she was okay with that.

On the other hand, is I could be homeless and not need coffee or Internet, I could be retired long ago! :mrgreen:
Ouch!!!! May not have to do anything with retirement 😂, she maybe just wants u keep on working.