How much do you need when approaching retirement?

[Liberty]

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

 

Did I misread or did you misread? Dying with 2x your principal isn't safe?

 

Man, you must not drive or use stairs or invest in equities if that's your safety requirement...

 

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.

 

I never said anything about that. My wife likes her job and the structure of the office job life, so she works. But she's not worried about money, she can take months or years off at any time if she wants, or she can change jobs while taking her time and without stress. To her that's the level of freedom that makes her most happy.

 

Personally, I'm more independent-minded, I like to be 100% in control of my time and my projects and I don't need as much social interactions, so I'm happy sitting here in my home office or in the backyard doing my stuff on my schedule.

 

To each their own, that's my point. Having options. If I liked it more than the alternatives, I could go get a job tomorrow. Many people would like to retire or work less or change job, but they can't or won't because they imagine that they need $5m to be safe and they're spending everything they're earning because they think buying crap is what will make them happy, causing all kinds of stress because they have all those bills to pay and all those things to worry about on the great treadmill to retirement at 65 while keeping up with the Jones or whatever...

 

 

Have you watched the video I linked above? Clearly this isn't about "not working", it's about freedom. I didn't pick the name Liberty for no reason. It's one of the things I value most.

[Cigarbutt]

By the way, initially in the thread, I thought that one of the key variables was that the median retirement savings for the US American family in the 56-61 age group was 17000$!

I know, with the safety net and all, this figure may not be that relevant.

But, just for fun, if you apply the 4% rule for the median family, that comes to about 13$ per week! Even Mr MoneyMoustache would have a hard time here.

 

However, what has become of the thread is very interesting. Good perspective. Value investors are typically unconventional so many recipes for success here.

Liberty, thank for the link and video. I also highly value independence (not just the financial meaning).

 

From Freedom! George Micheal

 

Heaven knows I was just a young boy

Didn't know what I wanted to be (Didn't know what I wanted to be)

I was every little hungry schoolgirl's pride and joy

And I guess it was enough for me (said I guess it was enough for me)

To win the race? A prettier face!

Brand new clothes and a big fat place

On your rock and roll T.V.

But today the way I play the game is not the same, no way

Think I'm gonna get myself happy

 

You may be interested in getting a book written by Pierre-Yves McSween. It goes something like: Do you really need this? 

[stahleyp]

Liberty, I was just playing around. For the most part, I'm in agreement with you.

[Liberty]

Liberty, I was just playing around. For the most part, I'm in agreement with you.

 

Ah, hard to tell sometimes with text. Cheers!

 

Update: All this got me ruminating on the topic, so here's one way to think about it for those who are interested:

 

If certain conditions are met, like being healthy, then what we are, essentially, is our time. It's our most finite resource, and anything we want to do or learn or be necessitates the time for it.

 

When we work we sell our time (and energy) to others. We're kind of selling our lives to them. It doesn't need to be terrible if you have a good job (I had what I considered to be a great job with lots of freedom), but that's still what it is.

 

If most of what you do with your money is buy lots of stuff (fancy cars, fancy gadgets, fancy house, fancy furniture, expensive hobbies, etc), what you are in essence doing is trading your time (life-time, literally) for stuff. Just make sure that the trade is really worth it, and that there isn't another way to allocate your time that you'd prefer.

 

By saving a lot and investing, what I essentially wanted to do was buy back my own time, purchase my freedom. I could've driven a fancier car and lived in a bigger house or whatever, but I don't think it would've made much of a dent on my happiness level (the acquisition of stuff usually makes you happier when you anticipate it, then you get it and there's a mini spike, and the you revert to your mean - that's why I often space out my fun purchases rather than do them all at once). In fact, it never felt at all like making sacrifices because I had a much better goal than a fancy car. Every dollar that goes in the kitty felt much better than a dollar spent on whatever crap that people spend tens of thousands of dollars on every year (I wish I knew).

 

There are good books on what actually makes people happy vs what people think will make them happy. 'Stumbling on Happiness' by Dan Gilbert is one that I remember reading years ago, if the topic interests you.

 

On the other hand, having my time to myself does have a big impact. I can spend more time with my kid, with my wife, I can read more books, listen to more music, spend my time working on my own projects (I like investing these days) rather than an employer's priorities. When I feel like taking a walk or going out I can, etc. So that was a trade worth making for me. Others will have different priorities, but they should carefully consider the options and tradeoffs rather than just follow in the path that everybody travels on of "spend nearly everything you make chasing some 'standard of living', saving 5-10%, work until you are old and gray, and then have a big vacation". Financial independence can even be a good way to work even harder than before - start a business, even - because when you are doing the things that interest you most, that's what tends to happen but it's way more fulfilling. Or even the very same job because a lot more fun - and less stressful - when you don't need it.

 

Just my 2 cents. YMMV.

[John Hjorth]

...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.

 

Why else?

[oddballstocks]

Fascinating thread.  This is how these always go, everyone outside the US is blown away that it's costly to retire in the US.  US people are freaking out.

 

My parents are retirement age.  My dad gets medicare, he's had cancer, hip replacements etc.  The guy was athletic, had state records, went to college for free on athletic scholarships etc.  He was the ideal of healthy.  He ran when I was younger, my mom purchased natural foods at a really off the wall place in the 1980s, we weren't allowed to eat sugar etc.  Guess what...time caught up to him.  He "retired" for five years.  My mom continued to work for health care and finally my dad just got another job.  He enjoys doing something, but medicare doesn't cover enough either. 

 

Is this typical? I don't know, but anecdotally it is.  Every single retired person in my family complains about one thing, the cost of medicare and what it doesn't cover.  I know relatives who just nurse injuries forever to avoid paying the doctor.  As I said I come from a family of athletes (both my family and my wife's family), people who were healthy and in shape.  They were really the model of health, coaches for teams, worked out daily, ate right, but time and age caught up.

 

When you're young you think you're invincible, it's a myth.  Even the health can have freak things happen.  My doctor said I'm a model of health, every blood test is perfect, heart is perfect, I run 5-6 miles a day.  I ran 12 miles today, I eat well.  In September I had a stroke, no damage, but still had it.  Freaky event.  Literally one second I'm perfectly fine, and the next I'm having trouble writing my name and talking.  Time and chance happen to us all.  Being healthy doesn't protect you from random things like that.  Of course there are a ton of really lucky people.  Maybe Liberty and MMM are like that.  They'll just sail through life without an issue.  One of my best friends is like that, no one in their family went to the doctor last year.  He's lucky, pure luck, but that's how life works.

 

I've said this in other threads, but people glorify retirement too much.  At times I've had terrible jobs and I wanted to retire.  I wanted to save as much as I could and get out.  The thing is it was the job and terrible circumstances.  I work from home now.  I see my kids all the time.  I can go running at lunch.  In the summer if it's nice I might knock off at 2pm and swim with the kids or go to the zoo.  I enjoy what I do and I have flexibility.  I can also work at 11pm at night after I have a great idea.  When I was in some bad jobs I'd dread doing anything a minute past 5pm.  Now when I think about it I can see myself working forever. 

 

I'd hate to be like my retired neighbors.  Like the guy who's out picking up leaves by hand mid-February because he's bored out of his skull.  I enjoy challenges and the projects I'm doing.  Maybe as I get older I'll slow down, that's fine, but I don't know if I ever want to stop.  I enjoy sitting at the beach, but while I'm there I'm furiously taking notes because during the down time my mind is working 200mph.

 

To retire now I'd need a few million dollars, plus money for health care.  I've received quotes for health care and it's about $450/person/month.  I have a family of six, so $2,700/mo forever.  That's $32k per year, and at a 4% withdrawal rate I'd need just under a million to fund it.  Except health care increases 15-30% a year, so in reality I'd need $2-3m to protect against future increases.  All in maybe I'd need $5-6m to retire today?  Of course if I lived in Canada I'd just need $2m or so.  Maybe even less in Europe.  I live in the East, it's a lot more costly than the Midwest, but not NYC prices.

 

The math on all of this is insane.  Except if you keep working.  I told my dad if he were to make $20k doing something part time that's like having $500k saved.  This is how most retirees do it, they keep doing something, anything part time.

 

For most people in the US making $50k, the median salary it works like this.  You work until you're in your mid-60s.  You maybe save $30-50k max.  You earn $30k from SSN and then work a part time job for another $15k for about $45k total.  SSN is taxed less so it's about the same.  The part time job is something to do and eventually trickles as they get older.  And when they're older they aren't doing as much and can get by on the $30k from SSN.  My gut says most retirees don't have their houses paid off.  Stats I've seen say about 25-30% of homes nationwide are paid off. 

 

To whomever posted earlier about the financial advisor.  I remember that post very clearly as well.  It was excellent.  He said most retire with less than $500k in their 60s or late 60s and do just fine. 

 

[Liberty]

I've said this in other threads, but people glorify retirement too much.

 

Agreed. I don't think retirement is probably the best word for this because of all the baggage that comes with it, but I don't really have a better one. Financial independence, maybe? It's not like most FI/"retired" people just lay around on the beach all day doing nothing... Highly motivated and active people stay highly motivated and active when they are independent, and less motivated people like your neighbours were probably not that great back when they had a job... What I do all day is still "work" in many ways, but it's really different in many others.

 

Before, I used to work all day and then never feel like I had enough time for my own stuff. I worked maybe 40 hours a week, and then spent maybe 20 hours a week on investing, and then tried to read history books and see my friends somewhere in there, on top of spending enough time with my wife... and then we had a kid so even more investing and reading and friends stuff got axed. Only so many hours in the day.

 

I never liked reading in school, because I "had to do it" and someone else picked the books. But now I read all the time whatever I want.To me this whole thing feels similar. Lots of things would be really fun to do as a project, but if it was a job, it'd be a lot less fun.

 

Maybe it's the way I'm wired, I know I'm not typical.

[rkbabang]

To be truly ready to retire, in my opinion anyway, regardless of age is to have enough to live off of earning 2%.  This way if you earn 3-5% per year you can have the principle continually growing by 1-3% per year to keep up with inflation.  This way you can maintain your lifestyle regardless of how long you live.  This will work if you retire at 30 or 65. The principle required will depend on how much you need.  2% of 1.5M is $30K.  I'm thinking $3M is the minimum, so that you have $60K to live off of.

 

[wachtwoord]

Liberty I'm exactly like you in what you describe above. Extremely relatable.

[John Hjorth]

Very weird to read this topic - somehow,

 

No matter how you model this [Excel or I do not know what],basically it all depends on what you do retire. I can't imagine anyone on this board disagreeing with me on this.

 

It all comes back to - investing - again! - Old or not!

[Cigarbutt]

Maybe that's the fascinating part.

I would venture to say that a society could not function very well as a whole with a bunch of unconventionals.

But somehow, value investing can be an tool that allows to deviate from the norm in a way that you decide.

Assuming that basic luck is on your side too.

[Liberty]

I would venture to say that a society could not function very well as a whole with a bunch of unconventionals.

 

Because it's working so well right now? ;)

 

To me it's just a manifestation of the engineering and investing mindsets: Decide what you want to optimize for (personal happiness? figure out what causes personal happiness for you and then what would increase those things), then allocate your resources in the way that maximises it (how do you want to allocate your time and capital to achieve your goals). I think the world could use more people who try to be rational about these things, rather than just do whatever everybody else is doing and then expect better result than the average (which doesn't seem that great to me).

[Cigarbutt]

Libertyarian?

[stahleyp]

I think society would actually function better with unconventionals (I use that in a frugal way).

 

We'd have less pollution, less war, less waste, etc. Sure, we may not have quite the level of innovation but we also wouldn't have the amount of waste.

[thepupil]

$1mm education

$1mm healthcare

 

$3.5mm everything else  ($140k gets you to top 10% U.S.)

 

That's kind of where I'm at in terms of what I think I would "need" to feel zero pressure to work for $.

 

That's enough to have most of the niceties of the mass affluent and fit in with my fellow coastal elite scum on a relatively permanent basis.

 

In reality, I'll probably punch out of the w-2 world before I hit those numbers and will probably revise down over time.

 

 

[Uccmal]

So, People ask me what I do these days.  I tell them that I manage money, mosty for myself.  The response I get varies.  But a typical one is "oh, so your retired".  Well not really.  I run a business managing money for myself, and my family.  I am sure that I put in more time doing this than I would at any job I might hold, short of being a senior executive somewhere.  Is it all quality work?  That's doubtful, but then I have worked in private sector, health care, and government, where the majority of employees do a hell of a lot less useful work than I do.  When I worked for a sub of GE on contract I watched engineers go to meetings, walk around with papers all afternoon, go to more meetings, put in 11 hours of face time, and accomplish nothing most of the time. 

 

Many businesses buy stuff and resell it at a higher price and "live" off the margins.  I buy pieces of companies, collect some of the profits along the way, and hopefully sell them for a higher price and live off the margins.  What is the difference? 

 

I left my job because I could.  I was bored to tears, fed up with mindless number crunching, and in the last 3 years, after tax, I was making 30 k per year.  The taxes were so high because of investment gains.  Today on an after tax basis I make more than I did from my paid job - My last T4 was 95,000, and take home after normal payroll taxes was about 60 k. 

 

So there is your answer.  When you can make more from your investments than you did working for someone else then its time to quit, if you want.  I make nearly as much from dividends alone as I made after tax three years ago.  Add in capital gains and I am fine.  My wife still works at a great job she loves which is fine.  She could quit today and we would be fine.  She wants more security.  It is hard for non value investors to comprehend where the money actually comes from. 

 

There are caveats of course:

1) Health care in Canada is paid out of general tax revenues.  I have paid mine forward for a decade or two, so I dont feel guilty. 

2) I have a partial work pension that will kick in when I reach 60, as well as CPP.  It wont be much since I didn't work the full 30 years or whatever but its something.  Then there is OAS at some later date.  Chances are that every cent of this will go in taxes. 

 

And no matter how hard I have tried I cant avoid taxes.  I paid $4700 this year... far cry better than the 70,000 I paid 3 years ago. 

 

One other thing I have noticed from travels in Italy, Spain, and France is the value of real estate.  People in those countries have generational real estate.  It has survived wars, and dictatorships, and coups.  So here I sit typing this is my overvalued house, with my overvalued stocks, and my overfed ego. 

 

I am with Liberty all the way on this.  I dont really want anything material.  And anything I do want I buy.  I long ago learned the value of activity versus materialism. 

 

And, if I get alzheimers or dementia in my later years I am not sure I will give a damn about where I live as long as they keep me pumped full of valium (which is dirt cheap) until I meet my maker.

 

[sys]

i don't think people have explicitly mentioned it, but i think some of the divergence in what people think they need is based on some people estimating what they need to live until they die and some people estimating what they need to live until they die and leave an inheritance to their children.

[Paarslaars]

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.

 

Agreed, I have no intention on retiring early but I do plan on reducing my 50h work week gradually towards a 25h work week over the next 10-20 years.

 

[petec]

Petec, you are not in US.

 

 

No, but then nor do you need to be.  Part of this discussion is about moving to lower cost living areas, so it seems reasonable to make statements that don't apply solely to the US.

 

That said, I part agree with your statement.  I would *not* want to rely on the NHS for chronic care and don't plan to.  I plan for elevated medical costs for a period of time (and I plan to eat into my principal to pay them). 

[Liberty]

So, People ask me what I do these days.  I tell them that I manage money, mosty for myself.  The response I get varies.  But a typical one is "oh, so your retired".  Well not really.  I run a business managing money for myself, and my family.  I am sure that I put in more time doing this than I would at any job I might hold, short of being a senior executive somewhere.  Is it all quality work?  That's doubtful, but then I have worked in private sector, health care, and government, where the majority of employees do a hell of a lot less useful work than I do.  When I worked for a sub of GE on contract I watched engineers go to meetings, walk around with papers all afternoon, go to more meetings, put in 11 hours of face time, and accomplish nothing most of the time. 

 

Yes! That's why earlier in this thread I mentioned that I don't think "retirement" is quite the right word, because it conjures up images of playing golf and sitting around relaxing all day.

 

I'm pretty sure that I "work" as hard or more than most people who have jobs. I have this investment journal that I've been keeping for a few years, and just YTD I have 105k words in it (not all mine, some excerpts from things I read - notes on conference calls, 10Ks, interviews, etc), and last year I ended the year with 254k words in my journal. So I basically have a novel's worth of highlights each year just for investing, and I read a lot more things than what I decide it worth keeping.

 

But there's still a huge difference doing something that you've chosen because you want to and doing something that you like, but that is for someone else and that they have ultimate control over. If I decided investing wasn't what I wanted to do, I could put everything in index funds or with a manager I trust and then do something else with my time.

[DooDiligence]

 

I'm pretty sure that I "work" as hard or more than most people who have jobs. I have this investment journal that I've been keeping for a few years, and just YTD I have 105k words in it (not all mine, some excerpts from things I read - notes on conference calls, 10Ks, interviews, etc), and last year I ended the year with 254k words in my journal. So I basically have a novel's worth of highlights each year just for investing, and I read a lot more things than what I decide it worth keeping.

 

 

Paper or electronic?

 

(I smell a content marketing deal!)

[Liberty]

Paper or electronic?

 

(I smell a content marketing deal!)

 

Ha! It's all worthless to anyone but me. But I like it. I tag everything by ticker so I can do a search and find everything I have on a certain company, I highlight key passages so that it's easy to skim and see what each part is about, etc. I like the ability to go back and see what I was really thinking at the time to study past mistakes or missed opportunities, etc.

 

It's digital. Basically just an encrypted Pages document that syncs to all my devices via iCloud, reverse chronological, with today's stuff on top tagged with the date, each part separated by dashes. Very simple.

[SharperDingaan]

Couple of different spins ....

 

Time. We're really talking about contribution margin/hour of 'freedom'. When you are working you don't have much free time; so to give it up - you need to get paid very well. But when you are 'retired' you have a lot more free time; so to give up some of it - you need to get paid less. So what? ...in retirement; even working for just a few hours/week as a Walmart 'greeter' (for the people contact) may be as valuable to you, per hour of 'freedom' - as your previous job was.

 

Optimization. Do the things with the highest CM/Hour first; pretty obvious, but very few actually do it - it's also the whole idea behind the 3 'retirements'/'bucket list approach. The quality of your hour of 'freedom', is a wasting asset depreciating at an accelerating rate over time - so some things have to get done first.

 

Small is beautiful. Craft industries (brewing/distilling/cheese/baking) are great little 'cottage' business, & almost ideal for retirement - because they are all about small volume, and NOT GROWING the business. 2-3 partners, plus 2-3 staff = a pretty relaxed largely break-even business - paying an hourly rate a lot better than Walmart. For the time that you do work, do something that you like doing.

 

.... & what does this say about 'investment' ???

 

The 'stash' is there to generate a cash flow that you will start to use in your 2nd & 3rd retirements, the only real restriction is that a small portion of the stash needs to be readily liquid (quality bonds) in case of emergency - but that's really about it. The time honored tradition in most parts of the world, is that the bulk of the stash is in paid off real estate collecting rents; you live on the rents, & if/when you need the money - mortgage against the property. Not exactly what your financial adviser is telling you?   

 

Think for yourself.

 

SD

[stahleyp]

...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.

 

Why else?

 

Because it's a passion. Buffett doesn't work for money.

[Cigarbutt]

I would tend to agree that Mr. Buffett doesn't work for money.

He simply has a passion to make money.

Not exactly the same. Yet.