How much do you need when approaching retirement?

[Guest longinvestor]

Some years ago this same topic was discussed ad nauseam. One poster(please step forward if you're the one) basically called the real situation out after having helped many many retirees during their retirement years. The conclusion was that folks ended up needing rather modest amounts and they leave behind something despite starting with way smaller amounts than those being suggested here. 

 

When I've some time, will dig up that post. The experience of that poster jumped off the page.

[no_free_lunch]

I would personally aim lower than 4pct. 4pct doesnt always work and what they dont tell you is how many times it does work but only after putting you through insomniac decade.  Last thing i would call retirement is stressing over money and holding back on purchases.

 

70 30 and a 3 pct withdrawal you weather near everything.

 

Agree though that there are ways to limit expenses without hurting quality of life. Mexico for sure but south america and asia has many safe  cheap options as well.

 

Also agree you dobt need to sit and relax in retirement.  Sounds like hell to me. I would try to start a capital light business.

[Jurgis]

Some great points here. Vinod1 - totally agree, your bullets are my concerns too.

 

Regarding retiring abroad, I've thought about it. However, I am concerned about security/crime. Might be funny for some, but I feel way safer in US than in most expat retirement countries. I know about situation in Lithuania firsthand (or close secondhand) - not a typical retirement destination, but could be one for me. I've been to Mexico, Costa Rica and seen the situation there. So far I'd rather stay in US (and possibly MA). Things may change, who knows. I might be interested in Australia, New Zealand, but I haven't been there, they are currently expensive AFAIK, and they don't like old immigrants (work immigration <50y old, maybe capital immigration not so limited).

 

And, yeah, retirement does not necessarily mean sitting on porch reading paper. I might not retire for long time (or at all). Especially if I'm gonna keep toiling on that $50M nest egg. 8)

[SharperDingaan]

Talk to any snowbird - you don't have to live abroad.

Just visit for 6 months less a day, to keep your healthcare  ;)

 

You don't need to own the place you're going to either.

Most people simply rent a place over winter with friends, & go to a different place every year. This year a villa in Madeira or the Canary Islands, travelling to/from by cruise ship; next year a Raja's palace in India. The year after - time in Sydney & Wellington, or a safari in Africa. Lots of options.

 

You aren't going to be spending anything remotely close to the numbers being thrown around on this thread.

 

SD 

[petec]

The simplest and safest maths would be to divide your desired income by the dividend yield on (say) the SP500.  Today that's 2%.  So if you want $100k, you need $5m.  Invest in an etf and you're insulated against inflation and market drops, and in fact you are likely to compound wealth in real terms by the rate of real earnings growth less any valuation reversion to mean.  Really your only risk would be a margin reversion to mean, and that would wash out over the decades.

 

Personally I think that's too conservative - I use 3% - but that's the only way to bullet-proof yourself.

 

I also like Gregmal's variable method.

[petec]

 

You aren't going to be spending anything remotely close to the numbers being thrown around on this thread.

 

 

Quite.  $100k a year is $2k a week on average.  Once the mortgage is paid off and the kids are edumacated, the wife's gonna have to buy a lot of shoes to get close to that.

[Liberty]

Some years ago this same topic was discussed ad nauseam. One poster(please step forward if you're the one) basically called the real situation out after having helped many many retirees during their retirement years. The conclusion was that folks ended up needing rather modest amounts and they leave behind something despite starting with way smaller amounts than those being suggested here. 

 

When I've some time, will dig up that post. The experience of that poster jumped off the page.

 

The financial industry has a big incentive in convincing people that they need a lot more than they actually do. Just more fees for them.

[Hielko]

The simplest and safest maths would be to divide your desired income by the dividend yield on (say) the SP500.  Today that's 2%.  So if you want $100k, you need $5m.  Invest in an etf and you're insulated against inflation and market drops, and in fact you are likely to compound wealth in real terms by the rate of real earnings growth less any valuation reversion to mean.  Really your only risk would be a margin reversion to mean, and that would wash out over the decades.

 

Personally I think that's too conservative - I use 3% - but that's the only way to bullet-proof yourself.

 

I also like Gregmal's variable method.

You don't need money when you're dead. With a 3% withdrawal rate you can earn nothing and still survive for 33 years. Retire at 65 and that would last till you're 98.

[stahleyp]

Wouldn't the 4% rule already include a margin of safety? I believe the rule works even if you retired right before the Great Depression. If you wanted $100,000 a year, on a $3,000,000 portfolio is 3.3%. I think a 50% increase on the next is a kinda extreme. Keep in mind that a lot of your income if you're retired is taxed at substantially lower rates than ordinary income (possibly as low as 0% for 95% or so of the $100,000).  Plus, if the market implodes, one can always lower their costs. $100,000 a year post tax seems like a ton for me for a baseline (especially if one doesn't have any debt). Keep in mind the rule is for roughly a 30 year retirement. I've seen some numbers that a 3.5% withdrawal rates lasts indefinitely.

 

Many differences with the Great Depression. The dividend yield on Dow I think is in double digits at its lows at that time. So at a 4% withdrawal at that time you are actually investing more into the market at its lows.

 

Vinod

 

Yes but that's still an 80% or so draw down. If the market dropped 80% from today the yield would still be about 10% (assuming dividends stayed constant).

[petec]

The simplest and safest maths would be to divide your desired income by the dividend yield on (say) the SP500.  Today that's 2%.  So if you want $100k, you need $5m.  Invest in an etf and you're insulated against inflation and market drops, and in fact you are likely to compound wealth in real terms by the rate of real earnings growth less any valuation reversion to mean.  Really your only risk would be a margin reversion to mean, and that would wash out over the decades.

 

Personally I think that's too conservative - I use 3% - but that's the only way to bullet-proof yourself.

 

I also like Gregmal's variable method.

You don't need money when you're dead. With a 3% withdrawal rate you can earn nothing and still survive for 33 years. Retire at 65 and that would last till you're 98.

 

Agreed, but for me the value of not worrying about money at the age of 97 is significant.  I fully intend to die with a decently positive net worth.

[Liberty]

It's interesting how people who are willing to handle a lot of risk by investing in individual stocks that they hand-pick are so risk-averse in other aspects of their lives.

 

ie. It's fine putting your net worth in a dozen companies' stocks, but dog forbid you might have to cut back a bit on your three luxury vacations per year when you're old and wrinkly. So in the meantime you'll work a couple decades longer - years' you'll never get back - to make sure to avoid even the possibility of even having to cut back later on, sacrificing the present for some unknown future.

 

Expenses are not fixed. You can have as much fun taking a vacation close to home as on the other side of the planet. A normal car will get you around just as well as a luxury vehicle. Happiness doesn't come from spending money past a pretty low level, which might be counter-intuitive because so many have a vested interest in selling that idea, but it's the truth; happiness comes from having meaningful things to do, good relationships with friends, kids, and romantic partners, health, challenges, art, helping others, control over your time, low stress environments, learning new things, etc.

 

This video explains it well:

 

That's how I view things, anyway. Each had to find out for themselves, but I feel too many just follow the path well travelled without ever questioning if it's actually a good one.

[petec]

It's interesting how people who are willing to handle a lot of risk by investing in individual stocks that they hand-pick are so risk-averse in other aspects of their lives.

 

ie. It's fine putting your net worth in a dozen companies' stocks, but dog forbid you might have to cut back a bit on your three luxury vacations per year when you're old and wrinkly. So in the meantime you'll work a couple decades longer - years' you'll never get back - to make sure to avoid even the possibility of even having to cut back later on, sacrificing the present for some unknown future.

 

Expenses are not fixed. You can have as much fun taking a vacation close to home as on the other side of the planet. A normal car will get you around just as well as a luxury vehicle. Happiness doesn't come from spending money past a pretty low level, which might be counter-intuitive because so many have a vested interest in selling that idea, but it's the truth; happiness comes from having meaningful things to do, good relationships with friends, kids, and romantic partners, health, challenges, art, helping others, control over your time, low stress environments, learning new things, etc.

 

This video explains it well:

 

That's how I view things, anyway. Each had to find out for themselves, but I feel too many just follow the path well travelled without ever questioning if it's actually a good one.

 

+1

[wachtwoord]

+2

[Jurgis]

 

You aren't going to be spending anything remotely close to the numbers being thrown around on this thread.

 

 

Quite.  $100k a year is $2k a week on average.  Once the mortgage is paid off and the kids are edumacated, the wife's gonna have to buy a lot of shoes to get close to that.

 

Petec, you are not in US. Please research high quality long term care costs and then claim this again. Maybe you and your family won't have Alzheimer's or any other long term debilitating chronic disease. But a lot of people do.

 

Everybody on this thread except Vinod1 seems to forget things like that.

 

And I really should shut up and not interrupt the joyous chorus of healthy people who don't even live in US.  ::)

[Liberty]

Petec, you are not in US. Please research high quality long term care costs and then claim this again.

 

Everybody on this thread except Vinod1 seems to forget things like that.

 

So every retiree in the US is a multi-millionaire? I hadn't realized that.

[Jurgis]

Petec, you are not in US. Please research high quality long term care costs and then claim this again.

 

Everybody on this thread except Vinod1 seems to forget things like that.

 

So every retiree in the US is a multi-millionaire? I hadn't realized that.

 

No, not everyone in US is multimillionaire. Yes, people suffer because they don't have enough money in old age. Of course, you gonna be different and you gonna be very proud by advising people that they should not be conservative. And obviously you won't see results of your advise since hopefully people won't listen to you. And even if they do, you're not gonna be around when they have to go BK because they listened to you.

 

[Liberty]

No, not everyone in US is multimillionaire. Yes, people suffer because they don't have enough money in old age. Of course, you gonna be different and you gonna be very proud by advising people that they should not be conservative. And obviously you won't see results of your advise since hopefully people won't listen to you. And even if they do, you're not gonna be around when they have to go BK because they listened to you.

 

I'm not telling people to do anything. I'm telling them to take into account BOTH sides, because there are risks on both. One side is very visible and people like you constantly tell them about it, but the other side is mostly invisible and almost nobody ever talks about it.

 

So take into account both sides when you calibrate your life plans, but do your own thinking.

[valcont]

It's interesting how people who are willing to handle a lot of risk by investing in individual stocks that they hand-pick are so risk-averse in other aspects of their lives.

 

ie. It's fine putting your net worth in a dozen companies' stocks, but dog forbid you might have to cut back a bit on your three luxury vacations per year when you're old and wrinkly. So in the meantime you'll work a couple decades longer - years' you'll never get back - to make sure to avoid even the possibility of even having to cut back later on, sacrificing the present for some unknown future.

 

Expenses are not fixed. You can have as much fun taking a vacation close to home as on the other side of the planet. A normal car will get you around just as well as a luxury vehicle. Happiness doesn't come from spending money past a pretty low level, which might be counter-intuitive because so many have a vested interest in selling that idea, but it's the truth; happiness comes from having meaningful things to do, good relationships with friends, kids, and romantic partners, health, challenges, art, helping others, control over your time, low stress environments, learning new things, etc.

 

This video explains it well:

 

That's how I view things, anyway. Each had to find out for themselves, but I feel too many just follow the path well travelled without ever questioning if it's actually a good one.

 

+1

I think Liberty's posts are the most insightful on this topic. Years ago, I realized that I would fine tune my consulting business to the last penny but there was significant discretionary personal spending that I ignored since they were either too boring to address or required a new perspective. 

Liberty,

It seems like you are walking the walk. You should share some snippets from your life experience. Its one thing to talk about numbers another to tell a real life story.

[Jurgis]

With all respect to Liberty and MMM, the issue is that their story is not about being 70-80 year old and bed ridden. It is about being young and healthy. If their "retirement" does not work out, they can get a job and continue. Someone who's older and sick do not have these options. Someone in Canada might have social safety net if they run out of money when old and sick. Or maybe they won't run out of money because of the healthcare safety net. But that can be quite different in US.

 

So sure, please listen to Liberty. Just don't extrapolate the story linearly to the future.

 

Have fun.

[Liberty]

I'd say ~$3M to retire in US.

 

So 95%+ of the US will never retire, right?

 

btw, you subtly imply that I'm advocating retiring on not enough money. I don't. I just say that there's such a thing as bad tradeoffs possible between time and money, and in the real world, a lot of people find out that they don't spend nearly as much as they expected in retirement because there's a difference between making up numbers on paper and listening to what the financial industry tells you you need and actually living life, and so it's useful to learn from people's real experiences (f.ex. people in their 30s and 40s forget that housing and kids don't cost the same a few decades later).

 

If you think the point of money is buying stuff, and that more stuff is better, then you'll never have enough. But if you think the point of money is buying freedom/independence, then you can realize that this is pretty cheap and that there's such a thing as "enough".

 

By all means save up 3m or 5m or 10m before you retire just to be extra safe while you take big risks daily investing in individual equities, it's your life.

 

But it is about being bed ridden: If you wait until you are old and sick to retire, you might regret all these 9 to 5 decades that'll end up just ensuring that you die very rich with lots of toys...

[Hielko]

Exactly. Sure, it's nice to have (a lot of) money when you get Alzheimer to get good and professional care. But perhaps it's even nicer to not work 60 hours a week when you are between your 30's and 50's. Perhaps having a better quality of life in your early decades in way more valuable than potentially having a lower quality of life when you are old and sick. Having both is of course better, but to some extent it is a trade-off. And not one that many people are making consciencely.

[rb]

Wow, retirement in the US seems to be very scary.

[rolling]

Just to reinforce: living in your 80s does not cost the same as living in your 40s.

- you no longer have kids at home

- you no longer have a mortgage

- you no longer travel as much

- you feel safer using your low mileage 20yr old car than driving a new technological car, so you don't have to pay for new cars;

- you don't need 3 or 4 cars at home, even if both you and your wife drive, one car is enough to keep the garage almost permanently occupied

- soon enough you'll definitely stop driving and only leave the vicinity sporadically

- you don't eat out as much; actually you find out that those young "so called chefs" at the restaurant don't know how to cook proper food

- expensive hairdressing, make up and state of the art technological gadgets are of less frequent need

- etc

 

offsets:

-health care costs are higher

-when you are no longer able to drive you have increased general costs in food etc because you must pay someone to get you those things or buy things at the lady across the road, who charges about double Walmart

[Liberty]

Just saw this tweet go by, thought it was apropos:

 

When using the 4% rule, clients end up w/ their principal 96% of the time at death, and 2x principal 50% of the time @MichaelKitces #2017RIS

 

 

(No, haven't verified the numbers yet, feel free to do so.)

[stahleyp]

2x principal or 96% principal isn't enough margin of safety. need more.

 

With that being said, unless you really hate your job, it's not bad to work - just don't do it only because of the money.