What's your retirement nut?

[Scorpion Man]

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.

[Thremp]

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.

[zimmer879]

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.

[Scorpion Man]

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

[zimmer879]

You have an odd definition of poverty.

[celiboy]

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.

[Thremp]

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?

[celiboy]

[ 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.

[DespotInExile]

[ 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?

[Thremp]

celiboy,

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