25x-50x living expenses?

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EddyB
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Joined: Fri May 24, 2013 3:43 pm

Re: 25x-50x living expenses?

Post by EddyB » Mon Jan 13, 2020 5:29 pm

ohai wrote:
Mon Jan 13, 2020 3:00 pm
EddyB wrote:
Mon Jan 13, 2020 1:30 pm
ohai wrote:
Mon Jan 13, 2020 12:03 pm
30x expenses for early retirement does not sound unreasonably conservative at all.

25x expenses (4% withdrawal rate) is based on a study of 30y retirement. This is the level where no 30y retirement portfolios have failed in some 100 year history of US assets.

Now consider this chain of thought:

Since the 4% withdrawal rate is where some 30y portfolios begin to fail, by definition, the marginal 30y portfolio (the first 30y portfolio to fail) reached 0% in year 30. Therefore, the marginal 31y portfolio must have a withdrawal rate of less than 4%

Now, extend this to more and more years. The marginal 31y portfolio must have had a withdrawal rate of less than 4% (from above). The marginal 32y portfolio must have had a withdrawal rate that is lower still. Even further on... the marginal 50y portfolio must have a withdrawal rate substantially lower than 4%. 3.33% even sounds aggressive!

One could argue that the historical test of "no failures in history" is too conservative. However, if you subscribe to the "4% rule" for normal retirement, rationally, you must believe in a much lower withdrawal rate for early retirement.
I'm not sure what you mean by "much lower," but you haven'r "rationally" proven your point. It's sort of like someone saying that the perpetual withdrawal rate has been X%, and 50 years is short than perpetual, so the SWR must be higher than X%, forty years must be higher still, and 30 years even higher, so the SWR for thirty years must "rationally" be much higher than the perpetual withdrawal rate. Admittedly, "much lower" and "much higher" are loose terms, but there's nothing "rational" about either approach. Sadly, the past SWRs for 30, 40 or 50 year retirements haven't been radically different.
From the 4% study, we can/must reasonably conclude that some 31y portfolios will fail under 4% withdrawal. Otherwise, we'd be assuming 0% volatility between years 30 and 31. Extend that - again this is just math - and the conclusion is declining withdrawal rates by length of retirement. This is both intuitive (others above suggest the same thing without referring to this math) and mathematically necessary if we accept the 4% withdrawal rate conclusion for 30y.
How have you "proven" that it's not just barely lower? And, if there's any perpetual rate, then the decrease in the rate must eventually stop as you extend the period. That's just math.

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willthrill81
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Location: USA

Re: 25x-50x living expenses?

Post by willthrill81 » Mon Jan 13, 2020 5:41 pm

EddyB wrote:
Mon Jan 13, 2020 5:29 pm
ohai wrote:
Mon Jan 13, 2020 3:00 pm
EddyB wrote:
Mon Jan 13, 2020 1:30 pm
ohai wrote:
Mon Jan 13, 2020 12:03 pm
30x expenses for early retirement does not sound unreasonably conservative at all.

25x expenses (4% withdrawal rate) is based on a study of 30y retirement. This is the level where no 30y retirement portfolios have failed in some 100 year history of US assets.

Now consider this chain of thought:

Since the 4% withdrawal rate is where some 30y portfolios begin to fail, by definition, the marginal 30y portfolio (the first 30y portfolio to fail) reached 0% in year 30. Therefore, the marginal 31y portfolio must have a withdrawal rate of less than 4%

Now, extend this to more and more years. The marginal 31y portfolio must have had a withdrawal rate of less than 4% (from above). The marginal 32y portfolio must have had a withdrawal rate that is lower still. Even further on... the marginal 50y portfolio must have a withdrawal rate substantially lower than 4%. 3.33% even sounds aggressive!

One could argue that the historical test of "no failures in history" is too conservative. However, if you subscribe to the "4% rule" for normal retirement, rationally, you must believe in a much lower withdrawal rate for early retirement.
I'm not sure what you mean by "much lower," but you haven'r "rationally" proven your point. It's sort of like someone saying that the perpetual withdrawal rate has been X%, and 50 years is short than perpetual, so the SWR must be higher than X%, forty years must be higher still, and 30 years even higher, so the SWR for thirty years must "rationally" be much higher than the perpetual withdrawal rate. Admittedly, "much lower" and "much higher" are loose terms, but there's nothing "rational" about either approach. Sadly, the past SWRs for 30, 40 or 50 year retirements haven't been radically different.
From the 4% study, we can/must reasonably conclude that some 31y portfolios will fail under 4% withdrawal. Otherwise, we'd be assuming 0% volatility between years 30 and 31. Extend that - again this is just math - and the conclusion is declining withdrawal rates by length of retirement. This is both intuitive (others above suggest the same thing without referring to this math) and mathematically necessary if we accept the 4% withdrawal rate conclusion for 30y.
How have you "proven" that it's not just barely lower? And, if there's any perpetual rate, then the decrease in the rate must eventually stop as you extend the period. That's just math.
Correct. The historic SWR has decreased at a decreasing rate as the withdrawal period has lengthened. Eventually, the 'safe' withdrawal rate and the perpetual withdrawal rate are basically equal.

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“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

Silence Dogood
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Re: 25x-50x living expenses?

Post by Silence Dogood » Mon Jan 13, 2020 5:49 pm

willthrill81 wrote:
Sun Jan 12, 2020 11:01 pm
So when you rollover a Roth 401k to a Roth IRA, does the custodian of the Roth 401k alert the new custodian as to how much of the account is the holder's contributions? If not, do you have to keep records of all of your Roth 401k contributions so that you can withdraw them after the funds are rolled over to a Roth IRA and so you can withdraw those contributions before 59.5?
1099-R Box 5 will show Roth basis (contributions/IRR).

The taxpayer is responsible for keeping track of Roth basis.

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willthrill81
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Re: 25x-50x living expenses?

Post by willthrill81 » Mon Jan 13, 2020 5:50 pm

Silence Dogood wrote:
Mon Jan 13, 2020 5:49 pm
willthrill81 wrote:
Sun Jan 12, 2020 11:01 pm
So when you rollover a Roth 401k to a Roth IRA, does the custodian of the Roth 401k alert the new custodian as to how much of the account is the holder's contributions? If not, do you have to keep records of all of your Roth 401k contributions so that you can withdraw them after the funds are rolled over to a Roth IRA and so you can withdraw those contributions before 59.5?
1099-R Box 5 will show Roth basis.

The taxpayer is responsible for keeping track of Roth basis.
So does this prevent the Roth IRA custodian from withholding a portion of the Roth withdrawals prior to age 59.5?
“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

Silence Dogood
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Re: 25x-50x living expenses?

Post by Silence Dogood » Mon Jan 13, 2020 5:56 pm

willthrill81 wrote:
Mon Jan 13, 2020 5:50 pm
Silence Dogood wrote:
Mon Jan 13, 2020 5:49 pm
willthrill81 wrote:
Sun Jan 12, 2020 11:01 pm
So when you rollover a Roth 401k to a Roth IRA, does the custodian of the Roth 401k alert the new custodian as to how much of the account is the holder's contributions? If not, do you have to keep records of all of your Roth 401k contributions so that you can withdraw them after the funds are rolled over to a Roth IRA and so you can withdraw those contributions before 59.5?
1099-R Box 5 will show Roth basis.

The taxpayer is responsible for keeping track of Roth basis.
So does this prevent the Roth IRA custodian from withholding a portion of the Roth withdrawals prior to age 59.5?
I'm not sure if I understand your question correctly.

I don't believe that Roth IRA custodians are in the business of preventing people from taking money out of a Roth IRA prior to 59.5 (they might give you a warning about potential tax/penalty consequences).

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willthrill81
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Location: USA

Re: 25x-50x living expenses?

Post by willthrill81 » Mon Jan 13, 2020 6:01 pm

Silence Dogood wrote:
Mon Jan 13, 2020 5:56 pm
willthrill81 wrote:
Mon Jan 13, 2020 5:50 pm
Silence Dogood wrote:
Mon Jan 13, 2020 5:49 pm
willthrill81 wrote:
Sun Jan 12, 2020 11:01 pm
So when you rollover a Roth 401k to a Roth IRA, does the custodian of the Roth 401k alert the new custodian as to how much of the account is the holder's contributions? If not, do you have to keep records of all of your Roth 401k contributions so that you can withdraw them after the funds are rolled over to a Roth IRA and so you can withdraw those contributions before 59.5?
1099-R Box 5 will show Roth basis.

The taxpayer is responsible for keeping track of Roth basis.
So does this prevent the Roth IRA custodian from withholding a portion of the Roth withdrawals prior to age 59.5?
I'm not sure if I understand your question correctly.

I don't believe that Roth IRA custodians are in the business of preventing people from taking money out of a Roth IRA prior to 59.5 (they might give you a warning about potential tax/penalty consequences).
It's my understanding that IRA custodians, whether the IRA is traditional or Roth, will withhold 20% of the funds withdrawn prior to the investor turning age 59.5 for taxes.
“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

Silence Dogood
Posts: 1230
Joined: Tue Feb 01, 2011 9:22 pm

Re: 25x-50x living expenses?

Post by Silence Dogood » Mon Jan 13, 2020 6:45 pm

willthrill81 wrote:
Mon Jan 13, 2020 6:01 pm
Silence Dogood wrote:
Mon Jan 13, 2020 5:56 pm
willthrill81 wrote:
Mon Jan 13, 2020 5:50 pm
Silence Dogood wrote:
Mon Jan 13, 2020 5:49 pm
willthrill81 wrote:
Sun Jan 12, 2020 11:01 pm
So when you rollover a Roth 401k to a Roth IRA, does the custodian of the Roth 401k alert the new custodian as to how much of the account is the holder's contributions? If not, do you have to keep records of all of your Roth 401k contributions so that you can withdraw them after the funds are rolled over to a Roth IRA and so you can withdraw those contributions before 59.5?
1099-R Box 5 will show Roth basis.

The taxpayer is responsible for keeping track of Roth basis.
So does this prevent the Roth IRA custodian from withholding a portion of the Roth withdrawals prior to age 59.5?
I'm not sure if I understand your question correctly.

I don't believe that Roth IRA custodians are in the business of preventing people from taking money out of a Roth IRA prior to 59.5 (they might give you a warning about potential tax/penalty consequences).
It's my understanding that IRA custodians, whether the IRA is traditional or Roth, will withhold 20% of the funds withdrawn prior to the investor turning age 59.5 for taxes.
I understand your question now.

Unfortunately, I don't know how much/if Roth IRA custodians are required to withhold.

basspond
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Re: 25x-50x living expenses?

Post by basspond » Mon Jan 13, 2020 10:41 pm

I look at dividing the nnX number into 100 to calculate my yearly return rate. Unless you are planning to spend down your CD ladder, I think 5% return is too high, which would be a 20X number. I myself use 35X.

smitcat
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Joined: Mon Nov 07, 2016 10:51 am

Re: 25x-50x living expenses?

Post by smitcat » Tue Jan 14, 2020 9:18 am

KlangFool wrote:
Mon Jan 13, 2020 12:09 pm
smitcat wrote:
Mon Jan 13, 2020 12:05 pm
KlangFool wrote:
Mon Jan 13, 2020 12:01 pm
geerhardusvos wrote:
Mon Jan 13, 2020 11:54 am
KlangFool wrote:
Mon Jan 13, 2020 11:51 am


geerhardusvos,

You would change your mind as soon as you attended too many funerals. My 49 years old healthy ex-coworker died from a fall during X'mas.

KlangFool
I'm sorry, KF, it was sarcasm; will keep that to a minimum in the future.
geerhardusvos,

No problem. I just wanted to point out that there is a risk of delaying retirement too. I had too many first-hand observations of how it went bad.

My older brother retired and passed the full physical exam cleanly. A few months later, he fainted in the bathroom and they found an inoperable brain tumor in his head. He died a few months later. In summary, he retired for less than two years.

KlangFool
"My older brother retired and passed the full physical exam cleanly. A few months later, he fainted in the bathroom and they found an inoperable brain tumor in his head. He died a few months later. In summary, he retired for less than two years."

Sorry for you loss.
Never wait for retirement to live you life.
smitcat,

Thanks.

<<Never wait for retirement to live you life.>>

So true!! I try to achieve a balance between saving and spending. I save as much as I spend every year. I save 1 year of expense every year. But, I am not frugal. I spent 50K to 60K per year. With the kids leaving the nest, that is a lot of spending for two persons.

KlangFool
"I try to achieve a balance between saving and spending."
Congrats - I believe this is the key answer to most every post on this forum.

"With the kids leaving the nest, that is a lot of spending for two persons."
Good luck - they are not gone until they are really fully out (lol).

KlangFool
Posts: 14574
Joined: Sat Oct 11, 2008 12:35 pm

Re: 25x-50x living expenses?

Post by KlangFool » Tue Jan 14, 2020 9:26 am

smitcat wrote:
Tue Jan 14, 2020 9:18 am


"I try to achieve a balance between saving and spending."
Congrats - I believe this is the key answer to most every post on this forum.

"With the kids leaving the nest, that is a lot of spending for two persons."
Good luck - they are not gone until they are really fully out (lol).
smitcat,

My kids have their own savings/investment of 20K to 30K. So, hopefully, they would not be calling me for financial help.

KlangFool

smitcat
Posts: 4613
Joined: Mon Nov 07, 2016 10:51 am

Re: 25x-50x living expenses?

Post by smitcat » Tue Jan 14, 2020 9:29 am

KlangFool wrote:
Tue Jan 14, 2020 9:26 am
smitcat wrote:
Tue Jan 14, 2020 9:18 am


"I try to achieve a balance between saving and spending."
Congrats - I believe this is the key answer to most every post on this forum.

"With the kids leaving the nest, that is a lot of spending for two persons."
Good luck - they are not gone until they are really fully out (lol).
smitcat,

My kids have their own savings/investment of 20K to 30K. So, hopefully, they would not be calling me for financial help.

KlangFool
They have already moved out and are self supporting?

KlangFool
Posts: 14574
Joined: Sat Oct 11, 2008 12:35 pm

Re: 25x-50x living expenses?

Post by KlangFool » Tue Jan 14, 2020 9:37 am

smitcat wrote:
Tue Jan 14, 2020 9:29 am
KlangFool wrote:
Tue Jan 14, 2020 9:26 am
smitcat wrote:
Tue Jan 14, 2020 9:18 am


"I try to achieve a balance between saving and spending."
Congrats - I believe this is the key answer to most every post on this forum.

"With the kids leaving the nest, that is a lot of spending for two persons."
Good luck - they are not gone until they are really fully out (lol).
smitcat,

My kids have their own savings/investment of 20K to 30K. So, hopefully, they would not be calling me for financial help.

KlangFool
They have already moved out and are self supporting?
1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool

smitcat
Posts: 4613
Joined: Mon Nov 07, 2016 10:51 am

Re: 25x-50x living expenses?

Post by smitcat » Tue Jan 14, 2020 9:50 am

KlangFool wrote:
Tue Jan 14, 2020 9:37 am
smitcat wrote:
Tue Jan 14, 2020 9:29 am
KlangFool wrote:
Tue Jan 14, 2020 9:26 am
smitcat wrote:
Tue Jan 14, 2020 9:18 am


"I try to achieve a balance between saving and spending."
Congrats - I believe this is the key answer to most every post on this forum.

"With the kids leaving the nest, that is a lot of spending for two persons."
Good luck - they are not gone until they are really fully out (lol).
smitcat,

My kids have their own savings/investment of 20K to 30K. So, hopefully, they would not be calling me for financial help.

KlangFool
They have already moved out and are self supporting?
1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?

"2) The 20K to 30K is their own savings/investment since childhood."
That is great - our daughter has sizable Roth and after tax savings upon graduation from Grad school as well.

KlangFool
Posts: 14574
Joined: Sat Oct 11, 2008 12:35 pm

Re: 25x-50x living expenses?

Post by KlangFool » Tue Jan 14, 2020 9:57 am

smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am
smitcat wrote:
Tue Jan 14, 2020 9:29 am
KlangFool wrote:
Tue Jan 14, 2020 9:26 am
smitcat wrote:
Tue Jan 14, 2020 9:18 am


"I try to achieve a balance between saving and spending."
Congrats - I believe this is the key answer to most every post on this forum.

"With the kids leaving the nest, that is a lot of spending for two persons."
Good luck - they are not gone until they are really fully out (lol).
smitcat,

My kids have their own savings/investment of 20K to 30K. So, hopefully, they would not be calling me for financial help.

KlangFool
They have already moved out and are self supporting?
1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?

"2) The 20K to 30K is their own savings/investment since childhood."
That is great - our daughter has sizable Roth and after tax savings upon graduation from Grad school as well.
Just PMed you.

KlangFool

aerosurfer
Posts: 172
Joined: Fri Feb 02, 2018 6:10 am

Re: 25x-50x living expenses?

Post by aerosurfer » Tue Jan 14, 2020 9:59 am

iraconfused wrote:
Mon Jan 13, 2020 12:35 pm
aerosurfer wrote:
Mon Jan 13, 2020 12:03 pm


Still seems like you more overly complicating things, as well as not strategizing your tax planning.

If your expenses are that low and you already have 7 figures you can do whatever you want at retirement age. It supports it.

Why are you paying into a Roth 401k instead of traditional? You are locking in your taxes now. What's your tax rate now and would you expect it to be higher or lower in retirement? Do you live in an income tax free state now or do you plan to in the future? Just because its tax free doesnt mean it's more money at the end. Gotta run the math.

As far a tithing, that's a portion of your expenses, either give it tax free via a DAF or simply factor it in when calculating your yearly costs
Admiral,

I do 15% Traditional and 5% Roth. I get a profit share check yearly that is minimum 6k. Goes in pretax. I am high end 22% bracket. I max out Roth IRA that we be separate when I retire that my daughter will get. When truck paid off that 200 per week will be after tax rollover to Roth 401k. I am trying to keep my 401k 30-35% Roth minimum so when I retire I have 3 sources of income. Tithe money is not expenses. GOD's money. Comes out first thing. I set aside weekly money for monthly bills and live off the rest. If I do not need it it gets invested
Getting back to the OP topic...

As long as you have a plan you can understand, that’s fine. What was the original question again?

From what you have posted, and there is some incomplete information, I think you can strategize better and simpler for the future

How do you plan to give your IRA to your daughter when you retire? That’s more of a transfer on death transaction. At least in Roth form. What if you need the money prior?

Do you expect to be in the 22% bracket in the future? Are you paying state taxes now? If either are yes, I’d likely put 100% of 401k in pretax as you can convert between retirement and SS at a lower tax rate. Otherwise you are locking those taxes now, although 5% R401k is an ok compromise. Are you at least making out the 401k?

3 sources of income is a perspective, and like stated above can be manipulated to give the results you want.

We can agree to disagree on the perspective of tithing (or other charitable contribution) but that doesn’t change the fact there are strategic ways to give that optimize both you (the giver) and the receiving party. You can call it whatever you want, it’s money you have that’s coming out of your total nest egg. It can still be under Gods criteria. Even Dave Ramsey, talks about donar advised funds.

Savings rate and expected expenses during retirement are the two big things that everything else revolves around. If your planned expenses are really that low, I think any scenario is going to work. The question becomes, what if they are not? Either by choice, as in you want to travel more or spend more. Or by other factors; low returns, lawsuit, disability or long term care.

Topic Author
iraconfused
Posts: 33
Joined: Tue Apr 16, 2019 4:05 pm

Re: 25x-50x living expenses?

Post by iraconfused » Tue Jan 14, 2020 11:23 am

aerosurfer wrote:
Tue Jan 14, 2020 9:59 am
iraconfused wrote:
Mon Jan 13, 2020 12:35 pm
aerosurfer wrote:
Mon Jan 13, 2020 12:03 pm


Still seems like you more overly complicating things, as well as not strategizing your tax planning.

If your expenses are that low and you already have 7 figures you can do whatever you want at retirement age. It supports it.

Why are you paying into a Roth 401k instead of traditional? You are locking in your taxes now. What's your tax rate now and would you expect it to be higher or lower in retirement? Do you live in an income tax free state now or do you plan to in the future? Just because its tax free doesnt mean it's more money at the end. Gotta run the math.

As far a tithing, that's a portion of your expenses, either give it tax free via a DAF or simply factor it in when calculating your yearly costs
Admiral,

I do 15% Traditional and 5% Roth. I get a profit share check yearly that is minimum 6k. Goes in pretax. I am high end 22% bracket. I max out Roth IRA that we be separate when I retire that my daughter will get. When truck paid off that 200 per week will be after tax rollover to Roth 401k. I am trying to keep my 401k 30-35% Roth minimum so when I retire I have 3 sources of income. Tithe money is not expenses. GOD's money. Comes out first thing. I set aside weekly money for monthly bills and live off the rest. If I do not need it it gets invested
Getting back to the OP topic...

As long as you have a plan you can understand, that’s fine. What was the original question again?

From what you have posted, and there is some incomplete information, I think you can strategize better and simpler for the future

How do you plan to give your IRA to your daughter when you retire? That’s more of a transfer on death transaction. At least in Roth form. What if you need the money prior?

Do you expect to be in the 22% bracket in the future? Are you paying state taxes now? If either are yes, I’d likely put 100% of 401k in pretax as you can convert between retirement and SS at a lower tax rate. Otherwise you are locking those taxes now, although 5% R401k is an ok compromise. Are you at least making out the 401k?

3 sources of income is a perspective, and like stated above can be manipulated to give the results you want.

We can agree to disagree on the perspective of tithing (or other charitable contribution) but that doesn’t change the fact there are strategic ways to give that optimize both you (the giver) and the receiving party. You can call it whatever you want, it’s money you have that’s coming out of your total nest egg. It can still be under Gods criteria. Even Dave Ramsey, talks about donar advised funds.

Savings rate and expected expenses during retirement are the two big things that everything else revolves around. If your planned expenses are really that low, I think any scenario is going to work. The question becomes, what if they are not? Either by choice, as in you want to travel more or spend more. Or by other factors; low returns, lawsuit, disability or long term care.
Original ?
hypothetically when I retire inside my 401k I have 800k Roth and 1.2 mill traditional. I rollover to Vanguard and put 800k into VWEAX that pays me 40k per year tax free. I want 40k per year out of trad. so is it safe to say I can put 800k into cd ladder at 40k each so every year I get 40k and starting the 2nd year add 3% for inflation and take THAT out of the 400k invested in VFIAX? That gives me 40k per year and 20 years for VFIAX to grow.

FIDO Roth IRA will go to my daughter at death. If I need money tap into it but if not she gets what it has.401k rollover to Vanguard will go to local charities.

right now high end of 22% bracket and not maxed out in pay. Once my truck paid for I will go back to 20% pre and the 200 per week I pay on truck figure the % and after tax Roth conversion every week in 401k. Pay state taxes Michigan but plan on Florida retirement. Maxing out 401k and Roth IRA

3 sources, 4 if count ss. 2 Roth(FIDO & VANGUARD) and IRA

deikel
Posts: 924
Joined: Sat Jan 25, 2014 7:13 pm

Re: 25x-50x living expenses?

Post by deikel » Tue Jan 14, 2020 12:11 pm

iraconfused wrote:
Sun Jan 12, 2020 10:52 pm
I am just trying to figure out what I read about 25X+ living expenses and how people decide which to take from. Stocks or Bonds? Or Both?
I think you are mixing up a couple of items and that's why its confusing.

The 25x your expenses comes from the the Bengen study and the '4% rule'. It basically states that at an asset allocation of your investments of 75stock 25 bonds (or 50stock 50bonds), you can draw an initial 4% of your investments a year - every year (including inflation adjustments for the following years). This was backtestet and you will not run out of money for 30 years at a very high probability, even in horrible market conditions (early in the retirement phase).

This is across all your assets and does not account for taxes you pay on them or considers the order of the draw. In that sense, its a rule of thumb and you should do so in a tax smart way (IRA first, roth items later, conversions if you have the tax space ect).

Other numbers like 30x or 35x of your expenses reflect a lower withdrawal rate of 3.5 or 3%. This was suggested by folks because they see current bond rates to be fairly low (compared to the time Bengen published his study and the time frame he backtested against) - however, when you look at Bengen and a 100% stock portfolio (taking bonds out of the equation), I think its clear that this is unnecessarily conservative - but opinions differ. In reality Bengen's magic number is really more like 4.5% (he said so himself) AND covers really bad stock markets already...so, a '4.5 % rule' would already be conservative based on his studies.

You could consider your CDs as the bond portion in this approach. But you usually don't plan to draw only CDs first, then IRA, then Roths in later years - you should consider all your assets as one big pile to draw from uniformly to minimize taxes over the entire 30year draw time (or whatever time it might be)

Hope this helps
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

Topic Author
iraconfused
Posts: 33
Joined: Tue Apr 16, 2019 4:05 pm

Re: 25x-50x living expenses?

Post by iraconfused » Tue Jan 14, 2020 12:20 pm

deikel wrote:
Tue Jan 14, 2020 12:11 pm
iraconfused wrote:
Sun Jan 12, 2020 10:52 pm
I am just trying to figure out what I read about 25X+ living expenses and how people decide which to take from. Stocks or Bonds? Or Both?
I think you are mixing up a couple of items and that's why its confusing.

The 25x your expenses comes from the the Bengen study and the '4% rule'. It basically states that at an asset allocation of your investments of 75stock 25 bonds (or 50stock 50bonds), you can draw an initial 4% of your investments a year - every year (including inflation adjustments for the following years). This was backtestet and you will not run out of money for 30 years at a very high probability, even in horrible market conditions (early in the retirement phase).

This is across all your assets and does not account for taxes you pay on them or considers the order of the draw. In that sense, its a rule of thumb and you should do so in a tax smart way (IRA first, roth items later, conversions if you have the tax space ect).

Other numbers like 30x or 35x of your expenses reflect a lower withdrawal rate of 3.5 or 3%. This was suggested by folks because they see current bond rates to be fairly low (compared to the time Bengen published his study and the time frame he backtested against) - however, when you look at Bengen and a 100% stock portfolio (taking bonds out of the equation), I think its clear that this is unnecessarily conservative - but opinions differ. In reality Bengen's magic number is really more like 4.5% (he said so himself) AND covers really bad stock markets already...so, a '4.5 % rule' would already be conservative based on his studies.

You could consider your CDs as the bond portion in this approach. But you usually don't plan to draw only CDs first, then IRA, then Roths in later years - you should consider all your assets as one big pile to draw from uniformly to minimize taxes over the entire 30year draw time (or whatever time it might be)

Hope this helps

Thank you

PaulF
Posts: 207
Joined: Wed Aug 06, 2008 10:07 pm
Location: Wisconsin

Re: 25x-50x living expenses?

Post by PaulF » Tue Jan 14, 2020 1:07 pm

How does one retire a $44k truck loan in 3 years at $200/wk? Did you mean 5 years?

Admiral
Posts: 2593
Joined: Mon Oct 27, 2014 12:35 pm

Re: 25x-50x living expenses?

Post by Admiral » Tue Jan 14, 2020 2:00 pm

PaulF wrote:
Tue Jan 14, 2020 1:07 pm
How does one retire a $44k truck loan in 3 years at $200/wk? Did you mean 5 years?
More to the point why does someone with $1.8m in assets, 45k in income, and almost zero expenses need a truck loan?

The OP has STILL (after two days) not posted anticipated yearly expenses, expected SS, or any sort of even ballpark budget.

aerosurfer
Posts: 172
Joined: Fri Feb 02, 2018 6:10 am

Re: 25x-50x living expenses?

Post by aerosurfer » Tue Jan 14, 2020 2:02 pm

Admiral wrote:
Tue Jan 14, 2020 2:00 pm
PaulF wrote:
Tue Jan 14, 2020 1:07 pm
How does one retire a $44k truck loan in 3 years at $200/wk? Did you mean 5 years?
More to the point why does someone with $1.8m in assets, 45k in income, and almost zero expenses need a truck loan?

The OP has STILL (after two days) not posted anticipated yearly expenses, expected SS, or any sort of even ballpark budget.
To add to that... I'm not even sure if this numbers are actual or hypothetical amounts.

almostretired1965
Posts: 161
Joined: Mon Nov 13, 2017 2:02 pm

Re: 25x-50x living expenses?

Post by almostretired1965 » Tue Jan 14, 2020 2:07 pm

smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.

Admiral
Posts: 2593
Joined: Mon Oct 27, 2014 12:35 pm

Re: 25x-50x living expenses?

Post by Admiral » Tue Jan 14, 2020 2:11 pm

almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
I don't know about the norm but it is quite common, yes, though it may be specific to some professions that don't pay well. I too did not know anyone who moved back home (early 90s). The percentage of Millennials and Gen Zers who have high debt is much larger (and the amounts are higher) than those who were born in the 60s and 70s. (Which is why many cannot afford to buy a home, among other reasons.)

PaulF
Posts: 207
Joined: Wed Aug 06, 2008 10:07 pm
Location: Wisconsin

Re: 25x-50x living expenses?

Post by PaulF » Tue Jan 14, 2020 2:30 pm

aerosurfer wrote:
Tue Jan 14, 2020 2:02 pm
Admiral wrote:
Tue Jan 14, 2020 2:00 pm
PaulF wrote:
Tue Jan 14, 2020 1:07 pm
How does one retire a $44k truck loan in 3 years at $200/wk? Did you mean 5 years?
More to the point why does someone with $1.8m in assets, 45k in income, and almost zero expenses need a truck loan?

The OP has STILL (after two days) not posted anticipated yearly expenses, expected SS, or any sort of even ballpark budget.
To add to that... I'm not even sure if this numbers are actual or hypothetical amounts.
I am pretty sure these are hypothetical amounts. I believe these are the amounts the OP hopes to accrue upon retirement in 16 years. See: viewtopic.php?f=1&t=278991&p=4497740#p4497740

JakeyLee
Posts: 66
Joined: Sun Dec 31, 2017 11:34 am

Re: 25x-50x living expenses?

Post by JakeyLee » Tue Jan 14, 2020 5:55 pm

iraconfused,

I always had 25x expenses as a general goal.. I'm a bit over 30x and still employed. Why? I realized that I might want to expand my spending in the future. I have no plans to do so, but I want to leave the options open. That truck you plan on paying off... maybe you will need to buy another one in 8-10 years. What if TWO new neighbors moved in on both sides of me that made my life a living hell? I want the option to sell and go wherever I want without worrying about a bump up in expenses to do so. In addition, as I approach 50 this year, I've seen way to many friends/colleagues that had unexpected costs related to extended family members, elder care, you name it. So yeah, I will probably land on that 33x-35x number. If there's a big nasty black swan, I will sleep a bit better. Just a thought

CnC
Posts: 846
Joined: Thu May 11, 2017 12:41 pm

Re: 25x-50x living expenses?

Post by CnC » Tue Jan 14, 2020 6:01 pm

Dottie57 wrote:
Sun Jan 12, 2020 8:48 pm
What are your expense and do they include healthcare and income tax?

25 x expenses = 25 year retirement
50 x expenses = 50 year retirement

Hopefully your portfolio is structured to keep up with inflation after taking your yearly allotment.

I am tired an not making sense of what you wrote.
It would be easier to read in a more tabular format, instead of narrative.

I disagree whole heatedly with this.

50x expenses will last you forever. 25x expenses will last you 30 years with 75% of situations you end up with more money than you started.

You are insinuating that you need the same x years of expenses as your retirement as long must assume some absolutely terrible investments. Investments that are so bad you will never reach 50x expenses...

GrowthSeeker
Posts: 787
Joined: Tue May 15, 2018 10:14 pm

Re: 25x-50x living expenses?

Post by GrowthSeeker » Tue Jan 14, 2020 7:17 pm

OP. My intent here is not to insult you but rather is a plea for better communication. I have now spent maybe 20 minutes reading through this entire post, and some of your very first post. I find your writing style rather terse with key words sometimes missing to the point where I find it very confusing to follow what you are saying. I sense you may not be a native English speaker which may account for some of this. But you have been repeatedly requested to enter information in the usual BH format and you have not done so (I'm not going to link to it, others have already done so and have been ignored).

The term "25x" of course refers to a portfolio size which is 25 times total annual expenses. You have said that your expenses are $1,000 per month. You're telling us that your total expenses are $12,000 per year. It cannot possibly be that low. Expenses (given as an annual number, rather than monthly) is intended to include every expense: truck payments, food, vacations, home repairs, income taxes ... everything. We still don't know what your expenses are, or for that matter what your portfolio value is. Maybe you don't want to divulge that much personal information - and that's fine.

I think maybe the essence of your question on this thread could be stated this way:
Hypothetically, if someone at retirement had accumulated:
Taxable account: ????
Traditional IRA: $ 800K
Roth account: $ 1.2M
And was at 25x (meaning annual expenses of 80k, or 80k + .04*taxable account),
then how does one decide from which account to take withdrawals,
and how does one decide whether to take from CDs, bonds, stocks, etc.

Is that close to the question you have?
Just because you're paranoid doesn't mean they're NOT out to get you.

smitcat
Posts: 4613
Joined: Mon Nov 07, 2016 10:51 am

Re: 25x-50x living expenses?

Post by smitcat » Tue Jan 14, 2020 8:11 pm

almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
"But that was over 30 years ago."
Before computers, cell phones and maybe even color TV?

smitcat
Posts: 4613
Joined: Mon Nov 07, 2016 10:51 am

Re: 25x-50x living expenses?

Post by smitcat » Tue Jan 14, 2020 8:14 pm

CnC wrote:
Tue Jan 14, 2020 6:01 pm
Dottie57 wrote:
Sun Jan 12, 2020 8:48 pm
What are your expense and do they include healthcare and income tax?

25 x expenses = 25 year retirement
50 x expenses = 50 year retirement

Hopefully your portfolio is structured to keep up with inflation after taking your yearly allotment.

I am tired an not making sense of what you wrote.
It would be easier to read in a more tabular format, instead of narrative.

I disagree whole heatedly with this.

50x expenses will last you forever. 25x expenses will last you 30 years with 75% of situations you end up with more money than you started.

You are insinuating that you need the same x years of expenses as your retirement as long must assume some absolutely terrible investments. Investments that are so bad you will never reach 50x expenses...
"50x expenses will last you forever. 25x expenses will last you 30 years with 75% of situations you end up with more money than you started.
Exactly !!

KlangFool
Posts: 14574
Joined: Sat Oct 11, 2008 12:35 pm

Re: 25x-50x living expenses?

Post by KlangFool » Tue Jan 14, 2020 8:23 pm

almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
almostretired1965,

30 years ago, the starting pay for fresh grad engineer is about 25K to 30K. Now, the fresh grad engineer earned about 50K to 60K. The salary has not kept up with inflation at all.

By the way, the engineers are a luckier bunch in terms of starting pay. Other professions did not keep up the pay increase over 30 years like the engineers.

KlangFool

Topic Author
iraconfused
Posts: 33
Joined: Tue Apr 16, 2019 4:05 pm

Re: 25x-50x living expenses?

Post by iraconfused » Tue Jan 14, 2020 11:51 pm

GrowthSeeker wrote:
Tue Jan 14, 2020 7:17 pm
OP. My intent here is not to insult you but rather is a plea for better communication. I have now spent maybe 20 minutes reading through this entire post, and some of your very first post. I find your writing style rather terse with key words sometimes missing to the point where I find it very confusing to follow what you are saying. I sense you may not be a native English speaker which may account for some of this. But you have been repeatedly requested to enter information in the usual BH format and you have not done so (I'm not going to link to it, others have already done so and have been ignored).

The term "25x" of course refers to a portfolio size which is 25 times total annual expenses. You have said that your expenses are $1,000 per month. You're telling us that your total expenses are $12,000 per year. It cannot possibly be that low. Expenses (given as an annual number, rather than monthly) is intended to include every expense: truck payments, food, vacations, home repairs, income taxes ... everything. We still don't know what your expenses are, or for that matter what your portfolio value is. Maybe you don't want to divulge that much personal information - and that's fine.

I think maybe the essence of your question on this thread could be stated this way:
Hypothetically, if someone at retirement had accumulated:
Taxable account: ????
Traditional IRA: $ 800K
Roth account: $ 1.2M
And was at 25x (meaning annual expenses of 80k, or 80k + .04*taxable account),
then how does one decide from which account to take withdrawals,
and how does one decide whether to take from CDs, bonds, stocks, etc.

Is that close to the question you have?
GrowthSeeker,

Thank you. I will edit

User avatar
geerhardusvos
Posts: 171
Joined: Wed Oct 23, 2019 10:20 pm

Re: 25x-50x living expenses?

Post by geerhardusvos » Wed Jan 15, 2020 12:10 am

willthrill81 wrote:
Mon Jan 13, 2020 5:41 pm
EddyB wrote:
Mon Jan 13, 2020 5:29 pm
ohai wrote:
Mon Jan 13, 2020 3:00 pm
EddyB wrote:
Mon Jan 13, 2020 1:30 pm
ohai wrote:
Mon Jan 13, 2020 12:03 pm
30x expenses for early retirement does not sound unreasonably conservative at all.

25x expenses (4% withdrawal rate) is based on a study of 30y retirement. This is the level where no 30y retirement portfolios have failed in some 100 year history of US assets.

Now consider this chain of thought:

Since the 4% withdrawal rate is where some 30y portfolios begin to fail, by definition, the marginal 30y portfolio (the first 30y portfolio to fail) reached 0% in year 30. Therefore, the marginal 31y portfolio must have a withdrawal rate of less than 4%

Now, extend this to more and more years. The marginal 31y portfolio must have had a withdrawal rate of less than 4% (from above). The marginal 32y portfolio must have had a withdrawal rate that is lower still. Even further on... the marginal 50y portfolio must have a withdrawal rate substantially lower than 4%. 3.33% even sounds aggressive!

One could argue that the historical test of "no failures in history" is too conservative. However, if you subscribe to the "4% rule" for normal retirement, rationally, you must believe in a much lower withdrawal rate for early retirement.
I'm not sure what you mean by "much lower," but you haven'r "rationally" proven your point. It's sort of like someone saying that the perpetual withdrawal rate has been X%, and 50 years is short than perpetual, so the SWR must be higher than X%, forty years must be higher still, and 30 years even higher, so the SWR for thirty years must "rationally" be much higher than the perpetual withdrawal rate. Admittedly, "much lower" and "much higher" are loose terms, but there's nothing "rational" about either approach. Sadly, the past SWRs for 30, 40 or 50 year retirements haven't been radically different.
From the 4% study, we can/must reasonably conclude that some 31y portfolios will fail under 4% withdrawal. Otherwise, we'd be assuming 0% volatility between years 30 and 31. Extend that - again this is just math - and the conclusion is declining withdrawal rates by length of retirement. This is both intuitive (others above suggest the same thing without referring to this math) and mathematically necessary if we accept the 4% withdrawal rate conclusion for 30y.
How have you "proven" that it's not just barely lower? And, if there's any perpetual rate, then the decrease in the rate must eventually stop as you extend the period. That's just math.
Correct. The historic SWR has decreased at a decreasing rate as the withdrawal period has lengthened. Eventually, the 'safe' withdrawal rate and the perpetual withdrawal rate are basically equal.

Image
Very helpful visual, saved it
VTSAX and chill

Topic Author
iraconfused
Posts: 33
Joined: Tue Apr 16, 2019 4:05 pm

Re: 25x-50x living expenses?

Post by iraconfused » Wed Jan 15, 2020 12:27 am

JakeyLee wrote:
Tue Jan 14, 2020 5:55 pm
iraconfused,

I always had 25x expenses as a general goal.. I'm a bit over 30x and still employed. Why? I realized that I might want to expand my spending in the future. I have no plans to do so, but I want to leave the options open. That truck you plan on paying off... maybe you will need to buy another one in 8-10 years. What if TWO new neighbors moved in on both sides of me that made my life a living hell? I want the option to sell and go wherever I want without worrying about a bump up in expenses to do so. In addition, as I approach 50 this year, I've seen way to many friends/colleagues that had unexpected costs related to extended family members, elder care, you name it. So yeah, I will probably land on that 33x-35x number. If there's a big nasty black swan, I will sleep a bit better. Just a thought
JakeyLee, Your post made me smile. I hope my truck last until retirement 15-20 years. I live in the country on 4.5 acres just about in the middle of it so should be good there. By the time I retire I should be 30x+. Nice buffer

Topic Author
iraconfused
Posts: 33
Joined: Tue Apr 16, 2019 4:05 pm

Re: 25x-50x living expenses?

Post by iraconfused » Wed Jan 15, 2020 12:32 am

PaulF wrote:
Tue Jan 14, 2020 1:07 pm
How does one retire a $44k truck loan in 3 years at $200/wk? Did you mean 5 years?
PaulF,

I base my bills on 40 hr week. I work A LOT more than 40hrs. Anything over 40 goes to truck. 3.5 years tops pay off truck

Topic Author
iraconfused
Posts: 33
Joined: Tue Apr 16, 2019 4:05 pm

Re: 25x-50x living expenses?

Post by iraconfused » Wed Jan 15, 2020 12:37 am

Admiral wrote:
Tue Jan 14, 2020 2:00 pm
PaulF wrote:
Tue Jan 14, 2020 1:07 pm
How does one retire a $44k truck loan in 3 years at $200/wk? Did you mean 5 years?
More to the point why does someone with $1.8m in assets, 45k in income, and almost zero expenses need a truck loan?

The OP has STILL (after two days) not posted anticipated yearly expenses, expected SS, or any sort of even ballpark budget.
Admiral,

Sorry it has taken me so long to respond. I do not have $1.8m. My DW makes $45k. Truck loan bc I didn't have $48k to pay cash. Please read my edited op. Thank you

PaulF
Posts: 207
Joined: Wed Aug 06, 2008 10:07 pm
Location: Wisconsin

Re: 25x-50x living expenses?

Post by PaulF » Wed Jan 15, 2020 10:59 am

iraconfused wrote:
Sun Jan 12, 2020 8:26 pm
Hi Bogleheads.

I am rewording this due to A LOT of confusion from people. Thank you GrowthSeeker.

Hypothetically, if someone at retirement had accumulated a 401k of $2 mil between traditional and Roth and wanted $80k per year total money how feasible is this plan?
Traditional 401k $1.2 mil
Roth 401k $800k

rolled over to vanguard and put into
Roth $800k VWEAX HY corp bond earns $40k per year
Traditional $400k VFIAX S&P 500 admiral
$800k CD ladder for $40k per year

Each year when $40k cd comes in take 1% from VFIAX for inflation and let VFIAX grow for 20 years.

I am not worried about taxes or expenses or anything else. Just how feasible this plan sounds.

Okay, I totally didn't understand that your initial question was one about withdrawal and asset allocation (AA) strategies. (The title didn't exactly help.)

What you are proposing is an AA close to a 20/40/40 (equity/bond/cash). But with some wrinkles. Wrinkle #1 is that you will use junk bonds for your bond portion. Wrinkle #2 is that you will shift the cash portion to zero over 20 years.

One way to approach Wrinkle #1 is to realize that junk bonds behave as something of a hybrid between equities and investment grade bonds. So you could model that portion as having something like 20% equities and 80% investment grade bonds. (You could use portfoliovisualizer, as I did, to cook up your own preferred combinations.)

Firecalc allows you to choose different components of your portfolio. However, it happens that it does not have a choice for junk bonds. But, portfoliovisualizer says that long-term corporates have historically behaved ~similarly to junk bonds, so you can choose long-term corporates in Firecalc as a reasonable substitution.

But that leaves us dealing with Wrinkle #2. So, what I did was leave the cash out of the picture entirely; let's be optimistic and assume it keeps up with inflation. I then told Firecalc that you had a portfolio of $1200k, and wanted to draw $40k annually, and that your AA was 33/67 (S&P500/long-term corporate). I ran this for 20 years.

The results are okay, but not great. There was some good news and bad news. The good news is that this combination never failed historically over 20-year periods. The bad news is that the final portfolio value averaged ~$1M, with a fair number of cases of about half that amount. Remember, in 20 years, you will have exhausted your CD stash, so now this portfolio would need to support an $80k withdrawal going forward. In almost all historical cases, a remaining portfolio of $1M would last between 10 and 15 years.

So, now that I have spent a good amount more time thinking about it than you have, I would conclude that this strategy is not terrible, but you could very likely do better with a more conventional, say, 60/40 AA, with a 4% WR, and yearly rebalance.

Topic Author
iraconfused
Posts: 33
Joined: Tue Apr 16, 2019 4:05 pm

Re: 25x-50x living expenses?

Post by iraconfused » Wed Jan 15, 2020 11:46 am

PaulF wrote:
Wed Jan 15, 2020 10:59 am
iraconfused wrote:
Sun Jan 12, 2020 8:26 pm
Hi Bogleheads.

I am rewording this due to A LOT of confusion from people. Thank you GrowthSeeker.

Hypothetically, if someone at retirement had accumulated a 401k of $2 mil between traditional and Roth and wanted $80k per year total money how feasible is this plan?
Traditional 401k $1.2 mil
Roth 401k $800k

rolled over to vanguard and put into
Roth $800k VWEAX HY corp bond earns $40k per year
Traditional $400k VFIAX S&P 500 admiral
$800k CD ladder for $40k per year

Each year when $40k cd comes in take 1% from VFIAX for inflation and let VFIAX grow for 20 years.

I am not worried about taxes or expenses or anything else. Just how feasible this plan sounds.

Okay, I totally didn't understand that your initial question was one about withdrawal and asset allocation (AA) strategies. (The title didn't exactly help.)

What you are proposing is an AA close to a 20/40/40 (equity/bond/cash). But with some wrinkles. Wrinkle #1 is that you will use junk bonds for your bond portion. Wrinkle #2 is that you will shift the cash portion to zero over 20 years.

One way to approach Wrinkle #1 is to realize that junk bonds behave as something of a hybrid between equities and investment grade bonds. So you could model that portion as having something like 20% equities and 80% investment grade bonds. (You could use portfoliovisualizer, as I did, to cook up your own preferred combinations.)

Firecalc allows you to choose different components of your portfolio. However, it happens that it does not have a choice for junk bonds. But, portfoliovisualizer says that long-term corporates have historically behaved ~similarly to junk bonds, so you can choose long-term corporates in Firecalc as a reasonable substitution.

But that leaves us dealing with Wrinkle #2. So, what I did was leave the cash out of the picture entirely; let's be optimistic and assume it keeps up with inflation. I then told Firecalc that you had a portfolio of $1200k, and wanted to draw $40k annually, and that your AA was 33/67 (S&P500/long-term corporate). I ran this for 20 years.

The results are okay, but not great. There was some good news and bad news. The good news is that this combination never failed historically over 20-year periods. The bad news is that the final portfolio value averaged ~$1M, with a fair number of cases of about half that amount. Remember, in 20 years, you will have exhausted your CD stash, so now this portfolio would need to support an $80k withdrawal going forward. In almost all historical cases, a remaining portfolio of $1M would last between 10 and 15 years.

So, now that I have spent a good amount more time thinking about it than you have, I would conclude that this strategy is not terrible, but you could very likely do better with a more conventional, say, 60/40 AA, with a 4% WR, and yearly rebalance.
PaulF,

Kind of a 2 part question. I guess depends on how "safe" you want to be depends on the 25x+ amount you have. Whatever I have when I retire is what I have. I know BH do not like "junk bonds" but my way of thinking is if I take my Roth money inside 401k and put into VWEAX that gives me monthly income regardless which is what I want. For the tIRA part I would like a equal amount of what Roth is throwing out per year for 20 years put into CDs set to mature every year. Rest of go into VFIAX. So first year take just say 40k from tIRA. Next year take the matured CD and like 1% from VFIAX for inflation. I spend down "cash" over 20 years but VFIAX grows for 20 years. If I get SS that is icing on the cake.

Jerry

PaulF
Posts: 207
Joined: Wed Aug 06, 2008 10:07 pm
Location: Wisconsin

Re: 25x-50x living expenses?

Post by PaulF » Wed Jan 15, 2020 12:28 pm

iraconfused wrote:
Wed Jan 15, 2020 11:46 am
PaulF wrote:
Wed Jan 15, 2020 10:59 am
iraconfused wrote:
Sun Jan 12, 2020 8:26 pm
Hi Bogleheads.

I am rewording this due to A LOT of confusion from people. Thank you GrowthSeeker.

Hypothetically, if someone at retirement had accumulated a 401k of $2 mil between traditional and Roth and wanted $80k per year total money how feasible is this plan?
Traditional 401k $1.2 mil
Roth 401k $800k

rolled over to vanguard and put into
Roth $800k VWEAX HY corp bond earns $40k per year
Traditional $400k VFIAX S&P 500 admiral
$800k CD ladder for $40k per year

Each year when $40k cd comes in take 1% from VFIAX for inflation and let VFIAX grow for 20 years.

I am not worried about taxes or expenses or anything else. Just how feasible this plan sounds.

Okay, I totally didn't understand that your initial question was one about withdrawal and asset allocation (AA) strategies. (The title didn't exactly help.)

What you are proposing is an AA close to a 20/40/40 (equity/bond/cash). But with some wrinkles. Wrinkle #1 is that you will use junk bonds for your bond portion. Wrinkle #2 is that you will shift the cash portion to zero over 20 years.

One way to approach Wrinkle #1 is to realize that junk bonds behave as something of a hybrid between equities and investment grade bonds. So you could model that portion as having something like 20% equities and 80% investment grade bonds. (You could use portfoliovisualizer, as I did, to cook up your own preferred combinations.)

Firecalc allows you to choose different components of your portfolio. However, it happens that it does not have a choice for junk bonds. But, portfoliovisualizer says that long-term corporates have historically behaved ~similarly to junk bonds, so you can choose long-term corporates in Firecalc as a reasonable substitution.

But that leaves us dealing with Wrinkle #2. So, what I did was leave the cash out of the picture entirely; let's be optimistic and assume it keeps up with inflation. I then told Firecalc that you had a portfolio of $1200k, and wanted to draw $40k annually, and that your AA was 33/67 (S&P500/long-term corporate). I ran this for 20 years.

The results are okay, but not great. There was some good news and bad news. The good news is that this combination never failed historically over 20-year periods. The bad news is that the final portfolio value averaged ~$1M, with a fair number of cases of about half that amount. Remember, in 20 years, you will have exhausted your CD stash, so now this portfolio would need to support an $80k withdrawal going forward. In almost all historical cases, a remaining portfolio of $1M would last between 10 and 15 years.

So, now that I have spent a good amount more time thinking about it than you have, I would conclude that this strategy is not terrible, but you could very likely do better with a more conventional, say, 60/40 AA, with a 4% WR, and yearly rebalance.
PaulF,

Kind of a 2 part question. I guess depends on how "safe" you want to be depends on the 25x+ amount you have. Whatever I have when I retire is what I have. I know BH do not like "junk bonds" but my way of thinking is if I take my Roth money inside 401k and put into VWEAX that gives me monthly income regardless which is what I want. For the tIRA part I would like a equal amount of what Roth is throwing out per year for 20 years put into CDs set to mature every year. Rest of go into VFIAX. So first year take just say 40k from tIRA. Next year take the matured CD and like 1% from VFIAX for inflation. I spend down "cash" over 20 years but VFIAX grows for 20 years. If I get SS that is icing on the cake.

Jerry
Yes, I understood (at last) your proposal before my last post. As I say, it does not seem terrible to me. The good news is that you have lots of time to refine your thinking, and to decide if this is the withdrawal plan you settle on or not.

I am grappling with the decumulation stage too, although it is imminent for me. I will admit that I find it harder to strategize for than the accumulation phase, as I think you are also finding.

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Wiggums
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Re: 25x-50x living expenses?

Post by Wiggums » Wed Jan 15, 2020 12:46 pm

KlangFool wrote:
Mon Jan 13, 2020 11:51 am
geerhardusvos wrote:
Mon Jan 13, 2020 11:35 am

I'm not retiring until I have at least 100x expenses!!!! :twisted: :wink: :beer
geerhardusvos,

You would change your mind as soon as you attended too many funerals. My 49 years old healthy ex-coworker died from a fall during X'mas.

KlangFool
Sorry to hear about your ex-coworker.

KlangFool
Posts: 14574
Joined: Sat Oct 11, 2008 12:35 pm

Re: 25x-50x living expenses?

Post by KlangFool » Wed Jan 15, 2020 1:45 pm

Wiggums wrote:
Wed Jan 15, 2020 12:46 pm
KlangFool wrote:
Mon Jan 13, 2020 11:51 am
geerhardusvos wrote:
Mon Jan 13, 2020 11:35 am

I'm not retiring until I have at least 100x expenses!!!! :twisted: :wink: :beer
geerhardusvos,

You would change your mind as soon as you attended too many funerals. My 49 years old healthy ex-coworker died from a fall during X'mas.

KlangFool
Sorry to hear about your ex-coworker.
Thanks.

KlangFool

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Re: 25x-50x living expenses?

Post by GrowthSeeker » Wed Jan 15, 2020 3:02 pm

I'm sure that your plan is feasible.

The CD ladder of 800k producing 40k/year for 20 years sounds like the proceeds from CDs are being spent, so the 800k is gone in 20 years. Except that all the interest they produced isn't gone, so either that interest went toward paying for inflation (i.e. you don't have to take the 1% from VFIAX) or the "CD subaccount" still has maybe 100k to 200k.

After 20 years:
- the 400k in VFIAX has likely doubled once or twice: it's now $0.8 M to $1.6 M
- the 800k Roth VWEAX has had the dividends taken out for spending, so presumably the same number of shares remain; here is a big unknown - did this junk bond fund lose half its value or not? Maybe it's worth 400k now; maybe 800k; probably 400k.
- 100k to 200k unspent CD interest

So my back-of-fictitious-envelope in my head math says after 20 years, these 401k plans would still have $1M to $1.5M in them; plus whatever is in taxable; plus SS.

Or, looking at it another way, 4% withdrawal rates generally work out OK.

But let me challenge one of your assumptions:
From inside a tax-deferred or tax-free account, you don't need high yielding, "income-producing" bonds to get "income". You could, for example, have a 100% stock fund or ETF and just sell some shares once a year, or once a month - no tax consequence inside the 401k - and then take out the cash.
To me, choosing junk bonds so you can "have income" (especially in a tax advantaged account) feels like the tail wagging the dog. Because selling some shares just takes a few mouse clicks, done in 1 minute; or maybe can be automated at some brokerages. I'm not saying make it all stock, I'm saying whatever your AA is, it's easy to sell some shares in the 401k and turn it into income.

I'm not there yet, but what some folks do is look at how their AA has drifted from their target, and then sell from stocks or sell from bonds, whichever brings their AA closer to their target.
Just because you're paranoid doesn't mean they're NOT out to get you.

CnC
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Re: 25x-50x living expenses?

Post by CnC » Wed Jan 15, 2020 4:47 pm

KlangFool wrote:
Tue Jan 14, 2020 8:23 pm
almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
almostretired1965,

30 years ago, the starting pay for fresh grad engineer is about 25K to 30K. Now, the fresh grad engineer earned about 50K to 60K. The salary has not kept up with inflation at all.

By the way, the engineers are a luckier bunch in terms of starting pay. Other professions did not keep up the pay increase over 30 years like the engineers.

KlangFool
I graduated at the height of the 2008 catastrophe and I never asked not received a single thing from my parents post graduation, I got a job bought a house got a loan and then proceeded to pay it off.

The job was not high paying ±45k in 2008 but we lived frugally until my wife graduated and got a job effectively doubling our income.

Granted people's mileage may vary and we made sure to make rational choices and had no major health issues. But as recently as 10 years ago atleast where I am from living with your parents after graduation was extremely rare and only as a response to some big devastating event such as major health problems or injury or being left single with children.

Has it really changed that much over the last decade?

KlangFool
Posts: 14574
Joined: Sat Oct 11, 2008 12:35 pm

Re: 25x-50x living expenses?

Post by KlangFool » Wed Jan 15, 2020 4:55 pm

CnC wrote:
Wed Jan 15, 2020 4:47 pm
KlangFool wrote:
Tue Jan 14, 2020 8:23 pm
almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
almostretired1965,

30 years ago, the starting pay for fresh grad engineer is about 25K to 30K. Now, the fresh grad engineer earned about 50K to 60K. The salary has not kept up with inflation at all.

By the way, the engineers are a luckier bunch in terms of starting pay. Other professions did not keep up the pay increase over 30 years like the engineers.

KlangFool
I graduated at the height of the 2008 catastrophe and I never asked not received a single thing from my parents post graduation, I got a job bought a house got a loan and then proceeded to pay it off.

The job was not high paying ±45k in 2008 but we lived frugally until my wife graduated and got a job effectively doubling our income.

Granted people's mileage may vary and we made sure to make rational choices and had no major health issues. But as recently as 10 years ago atleast where I am from living with your parents after graduation was extremely rare and only as a response to some big devastating event such as major health problems or injury or being left single with children.

Has it really changed that much over the last decade?
CnC,

<<I graduated at the height of the 2008 catastrophe and I never asked not received a single thing from my parents post graduation, I got a job bought a house got a loan and then proceeded to pay it off.

The job was not high paying ±45k in 2008 but we lived frugally until my wife graduated and got a job effectively doubling our income.>>

1) In order to provide a proper context for your post, what was the median house price in your area? What was your house's price and size?

2) If you have a job in 2008, you probably got a great deal buying that house.

I have no idea what is the norm. But, my goal in life is to make sure that my children are not the norm. Aka, they do not live and behave like average people.

KlangFool

almostretired1965
Posts: 161
Joined: Mon Nov 13, 2017 2:02 pm

Re: 25x-50x living expenses?

Post by almostretired1965 » Wed Jan 15, 2020 5:25 pm

KlangFool wrote:
Tue Jan 14, 2020 8:23 pm
almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
almostretired1965,

30 years ago, the starting pay for fresh grad engineer is about 25K to 30K. Now, the fresh grad engineer earned about 50K to 60K. The salary has not kept up with inflation at all.

By the way, the engineers are a luckier bunch in terms of starting pay. Other professions did not keep up the pay increase over 30 years like the engineers.

KlangFool
I certainly agree that the value of a generic BS/BA is not what it used to be, in part, I think, because our secondary education system is sending too many people to college who frankly, should be doing something else to enhance their job market opportunities.

But I just checked the CPI index at BLS and the cumulative inflation from 12/1989 to 12/2019 is 104% so that would suggest that for engineers, based on the numbers you posed, starting pay has kept up with inflation, more or less.

Anyway, my surprise was not that things are not worse than before but that things have gotten so bad that this behavior has gone from fairly unusual, say < 5% to typical > 50%.

KlangFool
Posts: 14574
Joined: Sat Oct 11, 2008 12:35 pm

Re: 25x-50x living expenses?

Post by KlangFool » Wed Jan 15, 2020 6:00 pm

almostretired1965 wrote:
Wed Jan 15, 2020 5:25 pm
KlangFool wrote:
Tue Jan 14, 2020 8:23 pm
almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
almostretired1965,

30 years ago, the starting pay for fresh grad engineer is about 25K to 30K. Now, the fresh grad engineer earned about 50K to 60K. The salary has not kept up with inflation at all.

By the way, the engineers are a luckier bunch in terms of starting pay. Other professions did not keep up the pay increase over 30 years like the engineers.

KlangFool
I certainly agree that the value of a generic BS/BA is not what it used to be, in part, I think, because our secondary education system is sending too many people to college who frankly, should be doing something else to enhance their job market opportunities.

But I just checked the CPI index at BLS and the cumulative inflation from 12/1989 to 12/2019 is 104% so that would suggest that for engineers, based on the numbers you posed, starting pay has kept up with inflation, more or less.

Anyway, my surprise was not that things are not worse than before but that things have gotten so bad that this behavior has gone from fairly unusual, say < 5% to typical > 50%.
almostretired1965,

30 years ago, my tuition and fee per semester are about $500 to $1,000. My kids' tuition and fee now are about $6,500 to $7,000. So, for engineering, the salary barely keeps up with inflation. But, the cost of a college education is several times inflation.

I do not understand why you are surprised. It is obvious from the numbers.

KlangFool

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1789
Posts: 603
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Location: OR

Re: 25x-50x living expenses?

Post by 1789 » Wed Jan 15, 2020 8:46 pm

KlangFool wrote:
Mon Jan 13, 2020 11:51 am
geerhardusvos wrote:
Mon Jan 13, 2020 11:35 am

I'm not retiring until I have at least 100x expenses!!!! :twisted: :wink: :beer
geerhardusvos,

You would change your mind as soon as you attended too many funerals. My 49 years old healthy ex-coworker died from a fall during X'mas.

KlangFool
I love this. I have no idea why people around me assume they will live 100 years. I will feel blessed if i can live 70 years. Good enough for me.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

smitcat
Posts: 4613
Joined: Mon Nov 07, 2016 10:51 am

Re: 25x-50x living expenses?

Post by smitcat » Thu Jan 16, 2020 8:46 am

almostretired1965 wrote:
Wed Jan 15, 2020 5:25 pm
KlangFool wrote:
Tue Jan 14, 2020 8:23 pm
almostretired1965 wrote:
Tue Jan 14, 2020 2:07 pm
smitcat wrote:
Tue Jan 14, 2020 9:50 am
KlangFool wrote:
Tue Jan 14, 2020 9:37 am

1) Son did. Daughter about to graduate in May. She should have a few things lined up.

2) The 20K to 30K is their own savings/investment since childhood.

KlangFool
Please note I did put (lol) at the end of my post indicating I know these things do not go smooth.

"1) Son did. Daughter about to graduate in May. She should have a few things lined up."
Unusual - typically they do not move out and pay all their own rent, transportation, food, insurance etc for a couple of years.
What industry? What first job?
Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago.
almostretired1965,

30 years ago, the starting pay for fresh grad engineer is about 25K to 30K. Now, the fresh grad engineer earned about 50K to 60K. The salary has not kept up with inflation at all.

By the way, the engineers are a luckier bunch in terms of starting pay. Other professions did not keep up the pay increase over 30 years like the engineers.

KlangFool
I certainly agree that the value of a generic BS/BA is not what it used to be, in part, I think, because our secondary education system is sending too many people to college who frankly, should be doing something else to enhance their job market opportunities.

But I just checked the CPI index at BLS and the cumulative inflation from 12/1989 to 12/2019 is 104% so that would suggest that for engineers, based on the numbers you posed, starting pay has kept up with inflation, more or less.

Anyway, my surprise was not that things are not worse than before but that things have gotten so bad that this behavior has gone from fairly unusual, say < 5% to typical > 50%.

"Seriously, is that the norm now? Granted I went to an engineering school but I don't remember a single friend who graduated with me who went home to sponge off the parental units ..... But that was over 30 years ago."

How about an alternate view...
About the same 35 years back when I was in college I lived at home. I also lived at home for some time after I graduated. During most of the college years I worked on a full time basis and always at least on a part time basis. It took more than the typical time frame to graduate while at the same time contributing to the household expenses. After college I increased the household contributions when I worked in various jobs often more than one at a time. I did purchase a home that I rented out to enhance income although I still lived at home for a while after that.

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Riprap
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Re: 25x-50x living expenses?

Post by Riprap » Thu Jan 16, 2020 9:07 am

willthrill81 wrote:
Mon Jan 13, 2020 5:41 pm
Correct. The historic SWR has decreased at a decreasing rate as the withdrawal period has lengthened. Eventually, the 'safe' withdrawal rate and the perpetual withdrawal rate are basically equal.

Image
Would you mind sharing the source of this graph please?

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willthrill81
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Location: USA

Re: 25x-50x living expenses?

Post by willthrill81 » Thu Jan 16, 2020 9:42 am

Riprap wrote:
Thu Jan 16, 2020 9:07 am
willthrill81 wrote:
Mon Jan 13, 2020 5:41 pm
Correct. The historic SWR has decreased at a decreasing rate as the withdrawal period has lengthened. Eventually, the 'safe' withdrawal rate and the perpetual withdrawal rate are basically equal.

Image
Would you mind sharing the source of this graph please?
I created it using data from FIRECalc.
“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

User avatar
Riprap
Posts: 476
Joined: Thu Jan 29, 2009 2:08 pm

Re: 25x-50x living expenses?

Post by Riprap » Thu Jan 16, 2020 10:02 am

willthrill81 wrote:
Thu Jan 16, 2020 9:42 am
I created it using data from FIRECalc.
Thanks, Appreciate the quick reply.

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