What's your retirement nut?

[mwgr5]

Interesting post. Personally, I would rather not take the risk of having a low-income retirement that is significantly restricted by a lack of retirement income. Because of this I think having substantial assets to retire with is important. Others have highlighted the many problems such as inflation and poor market returns that can hurt retirement. Scorpio’s point about the horrible market performance from 68-82 is a great example, and I think a good emotional and financial acid test for people who want to retire early. It would be interesting to see how a well-diversified portfolio of US, international, REITS, and bonds would have performed in this period though, as it would be foolish to have a porfolio entirely composed of a large cap US index. Additionally, if I were planning to retire early today I would not count on the same amount of income from social security and Medicare.

Also, thinking that at age 40, for example, you will know what income you will need for the rest of your life maybe poor planning. It would be a shame to find an activity that really interests you in retirement that you cannot do because you can’t afford it on the 80K income you though you would need for retirement at age 40.

Also, each year you delay retirement your assets grow exponentially if invested. If the market goes down then you are simply buying more stock at lower prices instead of having to sell stock at low prices to fund your retirement. This is dependent on how conservative the portfolio is though.

Last, it seems like people are assuming that once you retire you cannot go back to work. If the worst-case scenario comes true or your assets don't prove to be enough to live on, you could always go back to work. Although this may be more difficult after a long time not working, you can always make money if your plan doesn’t work. Many people also have enjoyable part time jobs in retirement, which is another way to generate more income.

Overall, I would rather have a large nest egg before I retire so I know that I wouldn't ever have to work again after I retire.

[ISF]

Scorpion,
No not married and not sure I plan on ever having that change.
I still dont think it is a utility maximizing decision for most people with > 3 mil even married to be spending > 70% of their non speeping hours doing something they dont want to in order to consume more.

[bav]

[ QUOTE ]
Fair enough, my friend. I am curious. Are you married? Do you have children? If no, do you plan to? How old are you?

[/ QUOTE ]
And this is why simplistic "how much do I need to retire" debates are pretty pointless. If you are single and living on $30K/yr and have no desire for anything beyond that, your answer will be radically different from someone who lives in 3500sqft on half an acre in one of the highest-cost areas in the country, is married, has youngish kids (and perhaps plans more) and who thinks he has to provide each kid an Ivy education.

Given that 16% of households today have incomes >$100K, using that (or something much higher) as a guideline for a basic retirement seems out of touch; sort of a "let them eat cake" mindset.

Forbes or Money or one of those guys did a "how much do I need to retire" article a few years ago. I liked how they broke it into categories of retirement. Beer & Pretzels retirement was $2M. Champagne and Caviar retirement was $6M. They had a couple higher categories as well, for the folks who wanted to be able to do yachts and private jets and Aspen vacation homes and such.

The basic 4% per year withdrawl is very conservative. If you invest poorly, don't try that. If you're a hedgefund sorta genius, you can probably plan on more. If you get seriously unlucky and begin retirement just as a new record-setting bear market starts (in whatever you invest in), it may all fall apart. If you start just as a new record bull market starts, you'll be able to ramp up your lifestyle. There ain't many certainties. 'Course if you really want a (nearly) sure thing, you can hand the cash to an insurance company and get a lifetime annuity...let them take the risk. $3M will generate about $10,000/mo of inflation adjusted return at age 45 for the duration of your lifetime (this came out of an insurance web page calculator, but oddly enough it works out to exactly 4% of the $3M).

[Scorpion Man]

[ QUOTE ]
Scorpion,
No not married and not sure I plan on ever having that change.
I still dont think it is a utility maximizing decision for most people with > 3 mil even married to be spending > 70% of their non speeping hours doing something they dont want to in order to consume more.

[/ QUOTE ]

You know, I have much more your view than you think...my numbers are just different. I walked away from a job I never would have thought I could have let go when I was in my 20's.

I agree that life is for living...but the point I made earlier, which is powerful in practice, is that when you make a material % of your net worth in a single year, the payoff to working a while longer is huge in terms of SECURITY, for modest incremental effort. This has nothing to do with "consuming more". For example, my lifestyle, from a consumption standpoint, is basically unchanged over the last 5-8 years, despite a materially different financial situation. I concur that money does not buy happiness. I can tell you, though, that security and flexibility go a long way towards buying happiness. THAT is why it matters that you retire with enough cushion to not sweat the small stuff.

Lastly, to make your long term financial decisions based on the assumptions of never having kids or being married (unless you are gay, not that there is anything wrong with that) may turn out to be wildly short sighted.

[Thremp]

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I concur that money does not buy happiness.

[/ QUOTE ]


Poverty, though, has a direct correlation with unhappiness.

[SomethingClever]

Someone stake me for retirement plz. Just ship $100,000 into my Stars account and I'll quick my [censored] job tomorrow.

I will sustain myself with part-time poker and the occasional freelance writing gig.

Prop bet?

[maxtower]

[ QUOTE ]

Poverty, though, has a direct correlation with unhappiness.

[/ QUOTE ]

Actually the some of the poorest people I know are happy. But that doesn't really apply here, because they are also really dumb.

[Thremp]

maxtower,

There are outliers. Like people with 80 mil who are unhappy as well. FFS buy your ass some medication. They can make it work out.

[captZEEbo]

some of these people saying they need 5M to retire, let me plug in some numbers:

Let's say I earn 50k/year from age 20-80, lifetime I will have made 3M pretax. These people retire too. On top of them being able to retire, the 5M can earn interest while you are retired....

[PokerNeophyte]

It's sounds like the best retirement plan is to invest a lot of time early on into finding a job you actually enjoy, so that you enjoy your working years as much (or almost as much) as your retirment years. Then, you won't reduce your quality of life much by retiring later and, when you do, you'll be more financially secure.