What's your retirement nut?

[juschuma]

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.

[Thremp]

[ 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.

[Scorpion Man]

[ 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.

[Thremp]

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.

[mo42nyy]

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.

[DespotInExile]

[ 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.

[Thremp]

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.

[lala]

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.