What\'s your retirement nut?
 

Mine is $10M liquid, with housing paid for. $5M liquid (after housing) also works, but would require us to take more long term market risk.

Re: What\'s your retirement nut?
 

yes but is your penis 8" ?

Re: What\'s your retirement nut?
 

so you are saying this is what you have, or what you will need for retirement?

Re: What\'s your retirement nut?
 

Is it just me or does this dude need a 5mil in houses for his "nut"?

Re: What\'s your retirement nut?
 

I guess he's saying that with $10M he'd be living off the income from zero-risk assets, but with only $5M he'd have to hold equities.

Re: What\'s your retirement nut?
 

For those that want to try and figure out what they will need, a rough estimate is a 4% withdrawal rate at retirement. Meaning you'll need roughly 25 times your desired annual income.

So, if you expect to live off of $100,000 per year in retirement, you'll need $2.5m saved by the time you retire.

4% is a rough guideline and YMMV, but it's a good target to plan for.

Re: What\'s your retirement nut?
 

[ QUOTE ]
For those that want to try and figure out what they will need, a rough estimate is a 4% withdrawal rate at retirement. Meaning you'll need roughly 25 times your desired annual income.

So, if you expect to live off of $100,000 per year in retirement, you'll need $2.5m saved by the time you retire.

4% is a rough guideline and YMMV, but it's a good target to plan for.

[/ QUOTE ]

On this same topic its interesting to see how a 10% market downturn if you're fairly aggressively invested (or just a nasty bond market) can really eff up your entire retirement.

Re: What\'s your retirement nut?
 

[ QUOTE ]
Mine is $10M liquid, with housing paid for. $5M liquid (after housing) also works, but would require us to take more long term market risk.

[/ QUOTE ]

In my experience, this is a moving target for people. When they get within sniffing distance of the first target, they simply move it. We used to play this game all the time in biz school. Everybody started at $5m, then got to $10m pretty quickly. People who got there did not pass go and went directly to $20m. I have a good friend who just got there and is still agonizing about whether its enough. And he does not even live a big lifestyle.

These are SF, NYC, Boston numbers. They can be lower elsewhere, I guess.

I often see on these boards people thinking they are going to retire young on $1-2m. I don't see how that is possible unless you continue to live like a student.

Re: What\'s your retirement nut?
 

$2 mill will give you $80K/yr inflation adjusted at a 4% withdrawal rate. That seems like it would be reasonable for most people.

Re: What\'s your retirement nut?
 

[ QUOTE ]
$2 mill will give you $80K/yr inflation adjusted at a 4% withdrawal rate. That seems like it would be reasonable for most people.

[/ QUOTE ]

I assume you mean you own your house outright so your networth is more like $2.5m?

I know people write that, but I don't really get it. For one, if I am retired, I don't want to be on a shoe string budget. Secondly, short term munis pay 3.5%. Total. And that leaves nothing to account for inflation.

I spend over $15k on healthcare insurance alone. $4k for aut0 insurance. $10k for property taxes and that is only because i bot the house a decade ago - it would be $20k if i bought it today. And its not a big deal house - its 3700 sq ft on a half acre. Something goes wrong with the house that costs $15k pretty much every year. Vacations? Even just flying Jetblue home to see the parents a couple times a year with the kid scosts $5k. Have any charitable aspirations at all? Family that needs money? A wife that likes jewelry? Private school for the kids? COLLEGE? Um, that will cost you $35k per year at LEAST in 10 years if they go to private college. And if you have 2 kids? I guess you will be living high off the hog on your $10k of income while inflation eats away at you and you are actually going backwards.

We are talking about RETIREMENT. Not a couple years off. They are very different things.

It's all well and good that the stock market goes up over time. However, it often goes down first and you have relatively little cushion if that happens.

I spend multiples of the figure you quote per year. Again, many on these boards are 21 years old and $80k sounds like a ton, but the only risk free way to make this is munis and if you plow 2% back in for inflation (not enough) you have $30k. If you dont, you will still be making $80k when it spends like $40k.

If you go longer duration on munis you dont get a lot better yield and you take a ton of risk.

Maybe in Iowa. Maybe in a $100k house. But who the hell retires to a $100k house and a 1982 Buick?

Re: What\'s your retirement nut?
 

Oh. Sorry for replying to myself here, but I left out something very important. IMO, the key to deciding when to retire is the ratio of what you have in savings vs. what you make in earnings. If, for example, you have $2m and have earnings power of $750k per year, you are nuts to retire. If you have $2m and earnigns power of $15k, it makes a lot of sense.

Also, I do not mean to suggest that people need $20m to retire. I understand that is a ton of money. I am just saying that most people who make millions just ratchet up their expectations and lifestyles.

Re: What\'s your retirement nut?
 

Also retiring young increases exponentially what you need. Also... Most models are done with a 4% withdraw rate. If you wanna retire at 60 and don't have any major health problems you are ~50/50 to live for another 30 years. Retirement isn't something you wanna coinflip.

Re: What\'s your retirement nut?
 

Scorpion,

Most people don't have your level of expenses. For those that do obviously retiring on $2 mill would be a bad idea.

I also disagree about having to invest solely in munis. While it certainly is a good idea to limit your risk during retirement, investing risk free would be foolish imo. Getting some exposure in stocks and other types of bonds can give your portfolio some juice with an acceptable level of risk.

For those interest there's some good info on all this stuff at http://www.retireearlyhomepage.com/

And also using earnings power to determine suggested savings seems to be an overly simplistic way to look at things, unless you'rre assuming the retiree is going to live the same lifestyle that he had while working which is usually not the case. There's a tradeoff between the freedom of not having a job and the ability to spend at will. Most people are diehard consumers and if they choose to give that up, they'll be able to reire much earlier. And if you choose to reduce necessary expenses during retirement, i.e. move to a smaller house or a less expensive area, you probably need a lot less than you imagine.

Re: What\'s your retirement nut?
 

Cool. I dont call that retirement. I call that poverty.

Re: What\'s your retirement nut?
 

You have an odd definition of poverty.

Re: What\'s your retirement nut?
 

Being an accountant I've worked all this out in a huge Excel spreadsheet as I'm often bored at work. $1.3 Mil is what I would need to semi-retire at 45 (work part time for 5 or so years) to be comfortable I would have enouch, or just over $2Mil at the age of 51 (working fullt time until then). Even running pesimistic scenarious in terms of expenses and yearly returns I still have plenty of money if I reach 100 years old under the second scenario.

Re: What\'s your retirement nut?
 

celiboy,

Unless you are moving to Thailand or the pan handle of Texas, you are way off the mark. Maybe you are forgetting inflation or perhaps a downturn in income or overstating your ROI?

Re: What\'s your retirement nut?
 

[ QUOTE ]
celiboy,

Unless you are moving to Thailand or the pan handle of Texas, you are way off the mark. Maybe you are forgetting inflation or perhaps a downturn in income or overstating your ROI?

[/ QUOTE ]

I'm using 8% return during my earning years and in retirement I'm forecasting 4% return. 3% inflation for all years. I have best/worst/probable case scenarios as well. I live in Canada, so one big cost we do not have to factor in is medical/health insurance. My house is paid off in full and right now my monthly nut is $1300 a month so I guess I don't spend as much as other people. Most people die with significant $ left over. I'd rather retire early rather then work until 65 blindly.

Someone already mentioned the earlyretirement forum and I've learned alot from that - some very good info on there.

Re: What\'s your retirement nut?
 

[ QUOTE ]
I also disagree about having to invest solely in munis. While it certainly is a good idea to limit your risk during retirement, investing risk free would be foolish imo. Getting some exposure in stocks and other types of bonds can give your portfolio some juice with an acceptable level of risk.

[/ QUOTE ]

Market risk is overrated. Most people take it because they need the extra returns and compound interest to hit their nut. However, if for whatever reason you are able to hit your nut through the lottery, an inheritance, a few good yeats on Wall Street, whatever--going crazy with market risk is a fool's errand. My goal would be to get 1% real return (ie, after taxes and inflation) with $10M in the bank. With $5M, I'd need 2% real return, which is harder to get, and you introduce a volatility to your nest egg. Dont forget that if you're looking to retire early, and you figure you might well live to 100, you've got to figure that you're already facing a fair amount of unavoidable volatility just from things like inflation, interest rate fluctation, political/taxation risk, government entitlement risk, healthcare cost risk, etc. Why add to it by stacking market risk?

Re: What\'s your retirement nut?
 

celiboy,

That is poverty man. Good luck. You should be able to spend many years in retirement like that.

Re: What\'s your retirement nut?
 

[ QUOTE ]
You have an odd definition of poverty.

[/ QUOTE ]

How old are you Zim? Married? Kids? Just curious.

Oh .... and in the Bay Area Celi...$1300 per month is basically property taxes for any homeowner. You cannot retire on those numbers in major metro areas.

in general...perhaps other people think of retirement differently than I did. I wanted to do it young... and I wanted it to be enjoyable and stress free. I did not want, at age 30something, to be donwsizing my house, cutting out my vacations, and selling my car. That is a weird sort of retirement.

And I love how everyone saying $1-2m is enough conveniently leaves out college and the $150k per head in current dollars ($300k by the time your kids get there) it costs. I guess you just tell Johnny he can't go to Harvard, he has to go to State.

The funny thing is...I am not even advocating living high on the hog...just having enough flexibility to do what you want and not be pinching pennies. I would rather work longer and have a relaxed retirement than be snipping coupons.

Re: What\'s your retirement nut?
 

[ QUOTE ]
[ QUOTE ]
celiboy,

Unless you are moving to Thailand or the pan handle of Texas, you are way off the mark. Maybe you are forgetting inflation or perhaps a downturn in income or overstating your ROI?

[/ QUOTE ]

I'm using 8% return during my earning years and in retirement I'm forecasting 4% return. 3% inflation for all years. I have best/worst/probable case scenarios as well. I live in Canada, so one big cost we do not have to factor in is medical/health insurance. My house is paid off in full and right now my monthly nut is $1300 a month so I guess I don't spend as much as other people. Most people die with significant $ left over. I'd rather retire early rather then work until 65 blindly.

Someone already mentioned the earlyretirement forum and I've learned alot from that - some very good info on there.

[/ QUOTE ]

ANy of you guys students of the markets? Do you realize that between 1966 and 1982 (that is almost a lifetime for many on these boards) the dow was FLAT in nominal terms and DOWN 40% in real terms? That is was down 90% (yes, that is not a typo) from 1929-1933? That the NDX was down 80% 00-mid 03? That long bonds were down 20-25% in 1994? Anyone here actually had to manage a portfolio and LIVE on it? Models don't pay bills. And drawdowns are MAJOR problems when you are living off the cash flow. Retiring and NEEDING 8% per year to hit your spending is insane. And people are way underreserving for inflation -- its at least 3% of whatever return you are getting. Education and healthcare, 2 major expenses, have gone up much faster than that for years.

Re: What\'s your retirement nut?
 

[ QUOTE ]
For those that want to try and figure out what they will need, a rough estimate is a 4% withdrawal rate at retirement. Meaning you'll need roughly 25 times your desired annual income.

So, if you expect to live off of $100,000 per year in retirement, you'll need $2.5m saved by the time you retire.

4% is a rough guideline and YMMV, but it's a good target to plan for.

[/ QUOTE ]
This is great if you make sure to DIE.

Re: What\'s your retirement nut?
 

Scorpion,

Two comments:

1) I think you are way overestimating college costs. Don't have dumb children and college costs will likely be lower than their education before that. Or atleast have the decency to have children who, if stoopid, can play basketball etc. On a more serious note... I assume your comments on paying for kids education extend mostly for people who want to retire young? Since the vast majority of retirees aren't putting kids through college.

2) I agree with all the retirement stuff. I've looked at some of the models for "normal" retirements (2-3mil taking 4% out) and taking a 8% loss your first year [censored] you over pretty bad. I could imagine that a decent hit to the bond market could cause something similar for most people.

Now I have questions:

1) What are your thoughts on putting some of your equity into semi-passive income? Renting out property or managing a business etc.

Re: What\'s your retirement nut?
 

unless your kid ois going to an ivy league school pissing away 35 k a year on an average college is just stupid,unless ofcourse you are filthy rich.

Re: What\'s your retirement nut?
 

[ QUOTE ]
ANy of you guys students of the markets? Do you realize that between 1966 and 1982 (that is almost a lifetime for many on these boards) the dow was FLAT in nominal terms and DOWN 40% in real terms? That is was down 90% (yes, that is not a typo) from 1929-1933? That the NDX was down 80% 00-mid 03? That long bonds were down 20-25% in 1994? Anyone here actually had to manage a portfolio and LIVE on it? Models don't pay bills. And drawdowns are MAJOR problems when you are living off the cash flow. Retiring and NEEDING 8% per year to hit your spending is insane. And people are way underreserving for inflation -- its at least 3% of whatever return you are getting. Education and healthcare, 2 major expenses, have gone up much faster than that for years.

[/ QUOTE ]

Scorpion is so right in this post. The 4% rule is just a rule of thumb, and whether you make it to death with your nest egg is essentially a function of whether the volatility that hits you (particularly early in your retirement) is upside or downside. The 4% "rule" is a rule based on monte carlo simulations of market volatility for somebody who retires more or less at the standard retirement age. For people who retire earlier, it doesnt apply as well.

I also agree that you are all discounting the pernicious effect of inflation. I think 3% is too high, since historically US inflation has fluctuated between 2% and 2.5%, but it isn't far off. The other corrosive effect to consider is taxes--money in a tax deferred account (e.g., 401k) needs to be considered in after-tax dollars. Additionally, you need to consider the possibility that the marginal tax rates you will face in the future will be much higher than what you currently have, or that federal entitlement programs will be means tested (so in effect, income withdrawn from a 401k is offset by reduced social security or Medicare benefits). And of course, there's the problem that tax deferred money is illiquid due to the lockup until 59 1/2, so it can't be drawn down for ordinary spending in the interim.

Despite all of this, I fully realize how ridiculous it is for me to set the retirement nut at $5-$10M, since most American will never have their lifetime earnings--let alone their net worth--anywhere near this ballpark. However, I've done the math, and determined that, this is what is required to live an upper middle class retirement in most major metro American cities. (By the way, I dont think the $5M number works in the high cost cities like NY or SF, and our own retirement scenario contemplates living in a lower cost tax haven like Texas or Nevada).

I also see Scorpion's point, though about how the retirement nut is a moving target--the moment you get within a stone's throw of the low end, you just lift the bar. There's some truth to that for our own situation, since I expect that we'll hit the low end of the range in a few years, independent of how the market performs. That said, there's no point in working forever if you dont have to and you dont love your work. My wife and I enjoy our jobs, but we enjoy each other and our family time more.

Re: What\'s your retirement nut?
 

[ QUOTE ]
Being an accountant I've worked all this out in a huge Excel spreadsheet

[/ QUOTE ]

This isn't something that can be done in Excel. You cant think in terms of low, base, and high case. This is something that needs to be modelled, through a monte carlo simulation, based on historical data about market performance for various asset classes, and historical inflation data. For a good treatment of the problem, see the books by William Bernstein.

Re: What\'s your retirement nut?
 

[ QUOTE ]
1) I think you are way overestimating college costs.

1) What are your thoughts on putting some of your equity into semi-passive income? Renting out property or managing a business etc.

[/ QUOTE ]

Not that you asked me, but I'll volunteer a thought. I actually dont think Scorpion is overestimating the cost of education. That category of spending, like medical costs, has historically outstripped the inflation rate. So just as a rule of thumb, if you were to take the cost of a private, 4-year education (and $150 sounds right), and then double it (which is 4% annual cost increases), Scorpion's $300k per head is about right for somebody with an infant.

Which is why my plan is to prefund as much as possible of our daughter's educational costs in the early years, when we are still working, by maxxing out the 529 and Coverdell accounts. We can and do take substantial market risk with this money, since the cost of failure for us on this investment is low--we're still working. My hope is to have sufficient amount pre-funded for education so that we can count on being carried by the market for this, and not having to draw down from the nest egg.

2. As for semi-passive income activities like running a business, renting out real estate, I'm generally opposed to this. Running a business is a good way to turn a large fortune into a small one if you dont know what you're doing. (I know one couple at least that has put $1M plus into their "business" on capex, opex, etc., and has yet to start taking back out a meaningful amount of salary. And this is a highly educated couple, with two law degrees and a CFA, and they're running a low-tech service business.)

Real estate is a different matter. If you're in at a low enough cost basis, I think rental properties can be great investments. My 45-year old dog walker is a millionaire because he has a bunch of rental apartments here in NYC; he was buying them in the 1980s when nobody was, and now each studio probably generates $1700 net before taxes for him each month. I generally dont like the idea of buying property to rent it out; I think you get a negative carry on it, and you basically are speculating that the asset class will go up. Based on historical trends (and common sense), housing can't really outstrip the rate of inflation for that long, which means we're due for some mean reversion. We currently rent for this reason.

Re: What\'s your retirement nut?
 

Despot,

Yes, but I think its a little optimistic to book them down for a private school education at this point in their life. Especially for many state programs you can prepay today and fund all their tuition for ~20-23k for an infant. Just move to Virginia and be done with it. But I do see what he was saying about college being more expensive. I just don't think those costs will be realized for majority of kids/parents, even wealthy ones.

On the second point it makes sense. I guess there would be some timing aspects in some markets. I was referring to businesses you ran previously and now turned over to someone semi-trusted, but you still did book work and other work each week so it was semi-auto pilot. Though I do agree that starting a new business in retirement for someone who never has probably isn't the best idea.

Thanks for the response.

Re: What\'s your retirement nut?
 

I agree with the posts about some people underestimating inflation. Inflation for IMPORTANT needs like housing, food, medical, transportation, utilities have gone up a lot more than 2-3% and I don't see why it wouldn't continue in the future. It annoys me how many books brush off inflation lightly when it can seriously damage anyone's assets, considering the compounding of it after many years.

Re: What\'s your retirement nut?
 

[ QUOTE ]

ANy of you guys students of the markets? Do you realize that between 1966 and 1982 (that is almost a lifetime for many on these boards) the dow was FLAT in nominal terms and DOWN 40% in real terms? That is was down 90% (yes, that is not a typo) from 1929-1933? That the NDX was down 80% 00-mid 03? That long bonds were down 20-25% in 1994? Anyone here actually had to manage a portfolio and LIVE on it? Models don't pay bills. And drawdowns are MAJOR problems when you are living off the cash flow. Retiring and NEEDING 8% per year to hit your spending is insane. And people are way underreserving for inflation -- its at least 3% of whatever return you are getting. Education and healthcare, 2 major expenses, have gone up much faster than that for years.

[/ QUOTE ]

First of all he was referring to 8% returns during his earnings years so settle down.

Secondly there are studies that incorporate safe withdrawal rates for both the 1929- and 1966- 1982 periods. I linked to the page earlier but this site has a lot of good info and here's an article referring to 1929: http://www.retireearlyhomepage.com/restud1.html

Also note that this article and all articles on this site are using inflation adjusted withdrawal rates.

What this comes down to is how safe is safe when it comes to determining withdrawal rates for retirement. If you want a 100% guaranteed risk free retirement nut, wait until you have $20 mill in the bank and invest in munis like Scorpion says. If you are willing to add just a modicum of risk to your portfolio then you can benefit from the far superior returns of the stock market and still be 99% sure that your nut will remain intact. Also rememebr that the biggest risk to your retirement savings comes the first few years after you retire, so you'll know relatively quickly whether you're in trouble or not. Some people will be comfortable with the idea of getting to retire years earlier knowing that if within the first few years the stock market drops 90%, they might have to go back to work. Or if they're maintaining the same lifestyle they had when working, they can choose to reduce their expenses instead. Point being, there are a lot of options for people when it comes to retirement if they choose to consider them.

Re: What\'s your retirement nut?
 

Something to keep in mind is housing costs may be simply property taxes and bills in retirement.

Also, why does everyone want to retire so early? Find a job/profession you enjoy, there are very well off folks at the firm I work for who still come in part time in their 70's and I know they don't need the money.

What is there to do when you retire? I can't imagine being much fun. Traveling gets old. I guess you have more time to knit sweaters and surf the forums.

Re: What\'s your retirement nut?
 

scotch,

You seem like a boring person if you can not imagine how one with complete financial independence can't pass their time. I'm not out of college, but am positive with complete financial independence I would have very full and satisfying days if I had to start tomorrow.

Re: What\'s your retirement nut?
 

[ QUOTE ]
I spend over $15k on healthcare insurance alone. $4k for aut0 insurance. $10k for property taxes and that is only because i bot the house a decade ago - it would be $20k if i bought it today. And its not a big deal house - its 3700 sq ft on a half acre. Something goes wrong with the house that costs $15k pretty much every year. Vacations? Even just flying Jetblue home to see the parents a couple times a year with the kid scosts $5k.

[/ QUOTE ]

Those costs are pretty ridiculous to most of the USA outside CALI and NY.

Re: What\'s your retirement nut?
 

[ QUOTE ]
scotch,

You seem like a boring person if you can not imagine how one with complete financial independence can't pass their time. I'm not out of college, but am positive with complete financial independence I would have very full and satisfying days if I had to start tomorrow.

[/ QUOTE ]

Hey nutsack, I appreciate the personal attack. You did nothing as far as responding to my conjecture. You seem like someone with few real friends.

FYI, I'm one of those hot boys who owns a high rise condo, breaks bread with his crew 3 nights a week, whips an M3, and provides service to the community at my satisfying engineering job. Don't holla.

Re: What\'s your retirement nut?
 

[ QUOTE ]
I can't imagine being much fun. Traveling gets old.

[/ QUOTE ]

Umm... Great. Maybe a life of work, "breaking bread" with your "crew", and driving your M3 is awesome. I think I'll take a life of no work, travel, and doing whatever the [censored] I want whenever the [censored] I want to.

Re: What\'s your retirement nut?
 

[ QUOTE ]

I think I'll take a life of no work, travel, and doing whatever the [censored] I want whenever the [censored] I want to.

[/ QUOTE ]

Thremp,

I know how dense you are, so this is the last comment I'll bounce off your head.

In general you want to contribute little to your community, think you'll enjoy traveling 25 years in a row seizing the day, and will be able to find something to do everyday not involving watching TV or a computer when you're 55-60+? Why wait until you're 55 when you can just play poker for a living your whole life and start retiring right now? You will have already accomplished all of your goals.

Re: What\'s your retirement nut?
 

Scotch,

We will see how long I can keep myself satisfied with this lifestyle. It starts in May.

Re: What\'s your retirement nut?
 

This arugment has come up before on the board, and it usually ends up the same way, a squabble between rich people who can't imagine living on less than 100k/yr, and more modest people who know that will NEVER be a reality for them.

Retirement is easy. If you need X amount per year, then just do the 4% thing if you have about 25-30 years left.

Inflation of REAL costs, like food, energy, and housing have gone up more than 3% per year. Those are things the gov't doesn't really figure in to their equations, and they are also the only things I consume on a daily basis. Weird huh?

Just to add flames to the fire, you rich guys are aware that most of the people you meet each day will never have $2.5 million (what you consider a modest retirement)? They probably will never have $1 million either. Some of them still manage to stop working.

It is possible to retire early with less. You just need to think a little more creatively. Costs in this country are too high. Fortunately, there are really cheap places with great weather for half the cost. You'll also have to really think about what is important to you. Spending $4,000 a year on auto insurance is a little ridiculous to me and probably unnecessary for most retirees.

Re: What\'s your retirement nut?
 

A lot of this comes down to what people are really asking on this board. If you are talking about geezer, no choice, rural nebraska retirement at age 67, its different. And the things we dont bring up here at all are(1) social security and (2) Medicare. These help an enormous amount for that crowd.

The question I am answering (whether it was the one asked or not) is when you can just QUIT and ANY age because you have enough. Since everyone on this board is like 20 years old and seems to be asking it in a practical way (i.e....if I save enough playing poker am I done) I am answering it from the practical standpoint of a young person, with kids probably in their future (not their past), with healthcare to be taken care of (not Medicare), with aspirations to live in a nice (not extravagant, nice) house, wherever they happen to live or want to live (not to have to move in your wonderful retirment away from friends and family).

As you point out, the car insurance piece is a choice. The rest of them are, for where I live, very run of the mill numbers.

What, are people really going to "retire" to an apartment at age 35 with a kid on the way? I thought that was what most people here are talking about.

My grandfather has zero money, other than what I give him and social security. Father in law has like $500k. But one is 91 and one is 76. That is very different than trying to outlast that money when you are in your 30s/40s and have no social security. I don't want to have to live like these people live at that age, and neither will you or most of the people on these boards.

Retirement at an early age is a joy. Making it a coupon clipping prison in your own home for lack of financial flexibility would suck.