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Bodhi

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I'm still pretty far off from Retirement but want to get there as quickly as possible.  I honestly have no idea how much I need to have saved.  I just arbitrarily chose the number $4.5M for my wife and I a decade ago.  I spoke with a friend recently who thought that number was unnecessarily high knowing us.  Most of the online resources I have come across are too simplistic to use effectively.  For instance, if we want to live in a cheaper country for part of our retirement how much does that lower the amount needed?  If I want to retire by 55 how much does that increase the amount necessary?  I will die before my wife and want her to live in a situation that makes her happy when I'm dead, how much for that?  Just curious what resources people on this board use to determine how much they need to be able to retire by certain ages?  

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Pay off your house. Have reasonable auto expenses. No revolving debt. Kids have to be off the tit. $4.5M will easily net you $180-200k per year while never touching the balance. At 62, you can add another ~$2K/month each in social security income.

Keep in mind that health insurance from 55-Medicare eligibility will be obnoxiously expensive.

Also make sure some of that retirement money isn’t in a retirement fund because you will pay a steep penalty withdrawing funds before age 59.5 from a 401K or IRA.

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47 minutes ago, Bodhi said:

I'm still pretty far off from Retirement but want to get there as quickly as possible.  I honestly have no idea how much I need to have saved.  I just arbitrarily chose the number $4.5M for my wife and I a decade ago.  I spoke with a friend recently who thought that number was unnecessarily high knowing us.  Most of the online resources I have come across are too simplistic to use effectively.  For instance, if we want to live in a cheaper country for part of our retirement how much does that lower the amount needed?  If I want to retire by 55 how much does that increase the amount necessary?  I will die before my wife and want her to live in a situation that makes her happy when I'm dead, how much for that?  Just curious what resources people on this board use to determine how much they need to be able to retire by certain ages?  

I run my numbers through the calculator on the website below several times a year as I am getting a few years away from walking away from my job.   If you create a login with a donation of a couple of bucks, you get an extra area in the expenses so you can fill in up to 50 years of expenses.  

https://www.firecalc.com/

Good luck

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Rule of thumb in early retirement circles is you need to have saved 25x your spending. So if you spend 100k per year, you need 2.5MM saved. Retirement planners talk about replacing your income, but ignore that. It's really about replacing your spending. That 25x would theoretically allow you to safely withdraw 4% annually forever basically. But keep in mind that the math evolves, so read up on "safe withdrawal rates." If you're just starting to read up on this, Mr. Money Mustache is a good blog to get a bunch of the basic concepts.

Regardless, the first step will be to figure out how much you'll need to spend annually. If you don't already know what you spend annually today, start there.

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6 hours ago, Bodhi said:

 I honestly have no idea how much I need to have saved.  I just arbitrarily chose the number $4.5M for my wife and I a decade ago.  I spoke with a friend recently who thought that number was unnecessarily high knowing us.

did you tell him the money needs to cover your wife's boyfriend as well?

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16 hours ago, CooterBrown said:

Kids have to be off the tit.

If you ever listen to advisors who assist well-off retirees, they all have stories of mom and dad helping their adult children start businesses that almost always fail. If parents want to help out their kids, they need to think of it as a gift and not some loan that will be returned.

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28 minutes ago, statsman said:

I have never seen a really good financial calculator, with really clear inputs for expected/assumed inflation and expected investment returns with respect to inflation. Does anyone have one to link?

No. Not because their are good ones out there, but because they all make assumptions that don't reflect how you actually live/spend/save. I made my own (as someone up in the thread pointed out). 

It's amazing how tweaking 1/2 percent on inflation or 1/2 percent on expected returns moves the dial.  

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Yes, as we enter an era of higher inflation (thanks, Modern Monetary Theory!), people on pensions that don’t grow with inflation (the few non-government pensions) are going to feel pain. People relying on savings are going to have to take on some risk, to keep their assets growing with inflation. 

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17 hours ago, CooterBrown said:

Also make sure some of that retirement money isn’t in a retirement fund because you will pay a steep penalty withdrawing funds before age 59.5 from a 401K or IRA.

That is true.  You can avoid this however if you use a 72(t) election and take substantially equal periodic payments for a period of time.

72(t) can also be used to arbitrage marginal tax rates in the event someone might expect higher income later in life (when RMDs kick in), allowing you to draw down IRA balances faster than if waiting until 59.5.....not common but can happen.

18 hours ago, Bodhi said:

Most of the online resources I have come across are too simplistic to use effectively. 

That software does exist, but is usually inside a fee-based program to which financial planners subscribe.  It allows for lots of variable inputs, changes in rates of return, inflation rates for specific items (healthcare vs. housing), varying expenses as you age, and differential capital or income streams over time (inheritance / buy-out / deferred comp, etc). 

You could probably spend a few hundred bucks and have a fee-only planner run a bunch of scenarios for you, but for most of the DIY online stuff, you're stuck with the cookie-cutter input/output.

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19 hours ago, Cheeseweasel said:

No. Not because their are good ones out there, but because they all make assumptions that don't reflect how you actually live/spend/save. I made my own (as someone up in the thread pointed out). 

It's amazing how tweaking 1/2 percent on inflation or 1/2 percent on expected returns moves the dial.  

That's always the difficult part with this analysis especially the younger you are. You basically need a monte carlo analysis that will produce every realistic scenario and then you see how well you perform in the worst cases. 

If you have your base housing cost covered (i.e. paid-off house) and you have a plan to cover high, unexpected healthcare bills, you remove much of the uncertainty. There's always home repair bills and the constant transportation costs but those be manageable with planning.

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When I started my first professional job out of UT, in 1984, the old guys all told me, “You need to save in this 401k  (401ks we’re relatively new). Social Security won’t be there for you when you retire”. I took their advice to heart. 
They were wrong. The 1986 SS reform strengthened SS to where it better be there for me when I retire (as crappy a use of savings funds as it is). 
Nobody expected the pensions to go away like they did. Does anyone besides the government offer them anymore? Are any besides the government’s protected against inflation?

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1 hour ago, statsman said:

When I started my first professional job out of UT, in 1984, the old guys all told me, “You need to save in this 401k  (401ks we’re relatively new). Social Security won’t be there for you when you retire”. I took their advice to heart. 
They were wrong. The 1986 SS reform strengthened SS to where it better be there for me when I retire (as crappy a use of savings funds as it is). 
Nobody expected the pensions to go away like they did. Does anyone besides the government offer them anymore? Are any besides the government’s protected against inflation?

Not really, I'm stoked that my business does 10% no matter what we put in so I'm at 21% using 11% of my funds. That feels like a steal, but it isn't a sweet sweet pension.

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Yes. Savings are great, and there are a lot of ways to protect them against inflation (mainly by owning assets that inflate), but my observation is that the greatest threat to retirement savings is the aging retiree having to make vital investing decision even in advanced old age. 
I have observed my FIL and my father make the same mistake in the last two big downturns- freaking out and selling near the bottom, locking in the loss. We know, rationally, all the reasons those decision are wrong, but they were two old guys watching their savings cut in half and terrified they would cut again (honestl, the big mistake was holding more equities than they could tolerate losing). Pension managers don’t have that problem- they like a bear market because their monthly outflow is constant and they now have buying opportunities. 
My dad has a federal government pension, and he is fine. His pension check is larger (after 20 years of COL adjustment) than his last paycheck. My FIL didn’t have a pension and died with financial stresses and pressures, near broke, after 55 years of working. (FIL made another big mistake- he started drawing SS as soon as he could, not because he needed it but because he wanted that money right away. He worked another 15 years. If he had waited ten more to draw it, he and MIL would have been a lot better off.)

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23 hours ago, Reagan1k said:

That software does exist, but is usually inside a fee-based program to which financial planners subscribe.  It allows for lots of variable inputs, changes in rates of return, inflation rates for specific items (healthcare vs. housing), varying expenses as you age, and differential capital or income streams over time (inheritance / buy-out / deferred comp, etc).

Yes.  The software we use is extremely complex, custom, and expensive.   A good planner will charge you $200/hour.  Even a fairly simple financial plan is 10 hours worth of work.   People with def comps etc can easily be double or triple that.   Anyone cheaper either doesn't know what they are doing or are going to try to hit you with sales.   

Monte carlo gets really out of whack when you are young due to the time horizon.  

Edited by midtown
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I've heard that the people with the worst retirement planning are those that earn high incomes but don't do much more than max their 401ks.

For poorer people, SS is geared to help them out the most.  For middle income people who do a good job of 401k savings, their SS and 401k are enough.  Some high earners think that they only need to max out 401k and they're set. But between that and SS, it might not cover their expenses. the more you earn, the more you need to max 401k AND do even more.

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There are two retirement dates possible:

1. When you have enough income (generated by savings, or pensions) to replace salary. 
2. When you are aged to where you are physically or mentally unable to be in the workforce. 

The goal is to reach #1 (not guarantee) before you reach #2 (guaranteed, unless you die first). 
The good news is that you have 40ish years to do it. My advice?

-live within your means

-save and invest

-diversify (income from savjngs, income from property, pensions)

-be smart with your marriage (try to minimize the times you have to cut your wealth in half)

-try to have your home paid off around target retirement age (don’t take out a 30 year mortgage for that aspirational mansion at age 60)

-if you hit age 65 or so and have hardly anything saved? Investigate jobs you can work at extreme old age. Hey, a lot of people get a lot of enjoyment from smoking, drugs and alcohol- maybe you can look into that?

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44 minutes ago, statsman said:

-try to have your home paid off around target retirement age (don’t take out a 30 year mortgage for that aspirational mansion at age 60)

This as a blanket statement without regard to a persons individual finances is half right.  Who cares if you pay a mortgage until your 80 if you have the cash flow.

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38 minutes ago, statsman said:

There are two retirement dates possible:

1. When you have enough income (generated by savings, or pensions) to replace salary. 
2. When you are aged to where you are physically or mentally unable to be in the workforce. 

The goal is to reach #1 (not guarantee) before you reach #2 (guaranteed, unless you die first). 
The good news is that you have 40ish years to do it. My advice?

-live within your means

-save and invest

-diversify (income from savjngs, income from property, pensions)

-be smart with your marriage (try to minimize the times you have to cut your wealth in half)

-try to have your home paid off around target retirement age (don’t take out a 30 year mortgage for that aspirational mansion at age 60)

-if you hit age 65 or so and have hardly anything saved? Investigate jobs you can work at extreme old age. Hey, a lot of people get a lot of enjoyment from smoking, drugs and alcohol- maybe you can look into that?

good points. I would add a sub bullet point item under date #2:  When your employer no longer wants you working for them. The reason could be your high salary or you're in the way of younger workers being promoted.

I've worked in a couple of companies where you start to get on thin ice after 55 depending on your role. This was actually more dangerous for mid-to-senior level folks because they could struggle to replace their salary with a new employer.

If you prepare for it, the tap on the shoulder at age 57 can include a package deal plus you immediately roll into another, perhaps even a high-paying job. 

 

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Oh, sure. Or the other one-when they tap you on the shoulder and tell you that your job is moving to some distant rural shithole, like OKC or Wichita. You’re 55, your kids are in school, and nobody in your family wants to move. 
The good news is that if you started saving early, you should have enough savings that there are limits to the shot you have to put up with. 
(This new work-from-home era has been great for the older employee)

 

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28 minutes ago, statsman said:

Oh, sure. Or the other one-when they tap you on the shoulder and tell you that your job is moving to some distant rural shithole, like OKC or Wichita. You’re 55, your kids are in school, and nobody in your family wants to move. 
The good news is that if you started saving early, you should have enough savings that there are limits to the shot you have to put up with. 
(This new work-from-home era has been great for the older employee)

 

Right? When I was at ConocoPhillips in Houston, they asked me to take a promotion by moving to Bartlesville OK or find a new job on my own in Houston. I opted for the new job elsewhere.

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If you have a 30 year mortgage at a low rate, paying it off early is only beneficial if it's within the first 10 years or so. Most of the interest will be paid by then, and after that it is simply cheap money to have and invest elsewhere instead of paying off your home.

I have a half million left on my mortgage with a 3% rate and 29 years to go, if I get a big chunk of change in the next few years I may consider it, but I'm pretty sure I can do a lot better than a 3% return over that time. 

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On 2/17/2022 at 11:59 AM, Dutchrudder said:

If you have a 30 year mortgage at a low rate, paying it off early is only beneficial if it's within the first 10 years or so. Most of the interest will be paid by then, and after that it is simply cheap money to have and invest elsewhere instead of paying off your home.

I have a half million left on my mortgage with a 3% rate and 29 years to go, if I get a big chunk of change in the next few years I may consider it, but I'm pretty sure I can do a lot better than a 3% return over that time. 

I don’t disagree with that at all but to find out the true arbitrage your do have to compare a tax free 3% rate of return to your actual taxable, variable rate of return of the funds invested elsewhere and your risk appetite. That’s where the personal comes into play in personal finance.  No one right answer for sure. 

 

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