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400x your expected monthly expenses for retirement
Posted on 1/21/24 at 5:09 pm
Posted on 1/21/24 at 5:09 pm
Anybody subscribe to this rule of thumb?
$10K to spend per month * 400 = Need to save $4M before you can retire as an example.
$10K to spend per month * 400 = Need to save $4M before you can retire as an example.
Posted on 1/21/24 at 5:17 pm to hikingfan
That’s a pretty dumb “rule of thumb”.
$4M portfolio generates $200K annually with only a 5% return (conservative portfolio) which is $80K in excess of spending (before taxes, albeit can typically be quite tax efficient in withdrawals in retirement if well planned).
In this scenario, you would never touch principle, cover all expenses, and probably die with $10M in the portfolio.
$4M portfolio generates $200K annually with only a 5% return (conservative portfolio) which is $80K in excess of spending (before taxes, albeit can typically be quite tax efficient in withdrawals in retirement if well planned).
In this scenario, you would never touch principle, cover all expenses, and probably die with $10M in the portfolio.
Posted on 1/21/24 at 5:59 pm to hikingfan
Shouldn't your expected monthly expenses decrease when you're retirement ago though? Ideally, no kid expenses and mortgage paid off or downsize to smaller house.
Posted on 1/21/24 at 6:03 pm to Civildawg
The article linked talks a little about that. In theory, yes, but inflation, nature of rules of thumb, etc…
Posted on 1/21/24 at 6:06 pm to turkish
Are you trying to create a plan where principle never gets touched?
Posted on 1/21/24 at 6:14 pm to lynxcat
Just a balance with a solid chance of outliving me. “Solid chance” is the subjective part. What percentage are you Ok with? I’ve had folks tell me 75% was the success threshold, and that wasn’t quite good enough for me.
This post was edited on 1/21/24 at 6:15 pm
Posted on 1/21/24 at 6:18 pm to turkish
If it’s 75% and you are projecting forward 30-40 years, it is assuming no change in behavior along the way. So, it’s under estimating the success profile. As with all things retirement, one can be as conservative as they wish but it does create some relatively high requirements.
Posted on 1/21/24 at 6:19 pm to Civildawg
quote:You're not saving for retirement anymore, but you have to pay more for healthcare.
Shouldn't your expected monthly expenses decrease when you're retirement ago though?
Posted on 1/21/24 at 7:49 pm to lynxcat
x300 (or 25x annual expenses) would align w 4% rule. x400 seems overly conservative but maybe useful for an extended early retirement. You have to account for drawing less than projected annual growth in order to protect against sequence of returns risk. Investments don't go up in a straight line. Inevitably there will be down years and if they hit early you can rapidly deplete your nest egg and never catch up. That's why withdrawal rates much over 4% increase failure risk. 4% safe withdrawal (w annual inflation increase) has ~95% success rate over 30 years.
This post was edited on 1/21/24 at 7:51 pm
Posted on 1/21/24 at 7:50 pm to RoyalWe
quote:
but you have to pay more for healthcare.
and that is what is screwing things up for many with these exorbitant healthcare costs
Posted on 1/21/24 at 7:54 pm to Fat Bastard
I agree. Depending on options, I would have to buy a non-subsidized policy for $12K - $18K per year. That's less than what I am saving for retirement, but it still sucks.
Posted on 1/21/24 at 8:23 pm to TorchtheFlyingTiger
Eh, you can address the sequence of returns risk based on portfolio allocation where you utilize cash and bonds that are more stable than the market to fund cash flow in the down years. This avoids being required to sell when your stocks are down 30%.
Posted on 1/21/24 at 8:37 pm to hikingfan
No. Most of these calculations leave out the fact that you will be receiving SS also. And it’s not going bankrupt, that’s just a scare tactic that politicians use. Government can print all the money they want.
Posted on 1/21/24 at 8:53 pm to hikingfan
Seems overly conservative. The other thing that people don’t keep in mind is that if you live on a conservative budget and save some of what you don’t spend, you can use that on overly expensive years.
Using the 4% rule of 3 million for $120,000 of income then one year you only spend $110,000 or do well in the stock market now you have a good chunk ‘extra’. It’s not like people that want $120,000 earn exactly that and spend exactly that every year.
If you live 1-2 years behind your market performance financially then it’s very easy to budget. In other words, don’t spend what you are currently earning. Spend what you made in the market last year or 2 years ago. So if you have an expensive year or a down year in the market, you adjust your spend accordingly and don’t dig yourself in a hole.
Using the 4% rule of 3 million for $120,000 of income then one year you only spend $110,000 or do well in the stock market now you have a good chunk ‘extra’. It’s not like people that want $120,000 earn exactly that and spend exactly that every year.
If you live 1-2 years behind your market performance financially then it’s very easy to budget. In other words, don’t spend what you are currently earning. Spend what you made in the market last year or 2 years ago. So if you have an expensive year or a down year in the market, you adjust your spend accordingly and don’t dig yourself in a hole.
Posted on 1/22/24 at 6:09 am to hikingfan
quote:Your rule of thumb equates to an anticipated 3% ROI.
Anybody subscribe to this rule of thumb?
That is pretty conservative.
I used 4% as my walkaway threshold which would drop your number from 400x to 300x with no planned drawdown in principle. I've seen others here using 5%.
But in the end, to each his own. It's about individual investor confidence, competence, risk tolerance, age, and intent.
E.g., if you plan to retire in your 40's, your 400x number is probably a good target. If you intend to retire at 65, and plan on a standard 40yr portfolio drawdown (using up all your holdings by age 105) along with interim ROI, 400x is far too conservative in my opinion.
Posted on 1/22/24 at 8:59 am to Civildawg
quote:
Shouldn't your expected monthly expenses decrease when you're retirement ago though? Ideally, no kid expenses and mortgage paid off or downsize to smaller house.
This part is pretty wild to think about as a 40yo with 3 kids in high school.
I mean just a rough list of expenses is retirement could look like-
car insurance
utilities
Health care (but on medicare)
Food
Travel
Entertainment
But you can live a pretty wild life with no dependents, no mortgage, no car payments!
Posted on 1/22/24 at 12:34 pm to Civildawg
quote:
Shouldn't your expected monthly expenses decrease when you're retirement ago though? Ideally, no kid expenses and mortgage paid off or downsize to smaller house.
13 years into what began as early retirement and that hasn't been my experience. Maybe if I still lived in ATL and could get future yr 62 and then yr 65 state income tax reductions in the future, lower property taxes with exemptions, and cost of repairs etc. Never had to pay ~ $17k - $20k for ACA costs then and contractors/repair people are extortionists here as well. Sent in 5 digit 4thQ Fed/state estimated taxes 2 weeks ago, I won't miss 2023 at all.
Posted on 1/22/24 at 1:15 pm to hikingfan
I am never going to make it.
Dang it
Dang it
Posted on 1/22/24 at 1:45 pm to KillTheGophers
quote:
I am never going to make it.
Dang it
NEVER say those words again!
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