How much cash to retire?

[introverted]

I prefer to reverse engineer this question. look at how much you have right now. figure out what that means in terms of the boat you can afford to buy/maintain and what kind of lifestyle that would afford you for how long you want to live it and how secure you will be after cruising. If the answer isn't good enough, then you have to keep working/saving until you can afford the lifestyle you want at that moment. at some point you will find yourself satisfied with what you can afford even if it isn't exactly what you always dreamed of.

[NPCampbell]

I don't plan on drawing principal down ever, so my formula is easy:

Yearly required cash flow = investments * return.

If you want to take inflation into account it's yearly cash flow = investments * (return - inflation).

Obviously everyone needs buffers depending on the types of investments you keep. Since I invest 95% in stocks I am planning on 4 years of cash flows as buffer to get past rough market conditions.

Your return rate is obviously dependent on the type of investments you have. In my case, I am 95% stocks. The CAGR for the S&P 500 over the past 25 years is 9.8% and my actual return is 11.5%. However, since the money I have set aside for opportunistic buying will be reserved for buffer at retirement, I am using a more conservative 7% return rate.

So for example, if I wanted $100k yearly income (using 2% for inflation) the formula would be: $100k / (7% - 2%) + 4 * $100k in buffer or around 2.4 million.

Obviously, if you draw down your principal or are relying on some form of social security then your amount of investments can be less.

[wingssail]

Originally Posted by Clipper4730

So question, how much cash do think you want/need to retire and be comfortable. We have several friends in our age bracket 49 me and 39 admiral who have retired completely however they are quite hazy on how much they have in the bank etc. we know their budget but we are curious to know how much is enough. Given the current state of things we are seriously thinking of bailing out and enjoying life. Assume no mortgages or other major debts a million enough 2 million just not sure. Mine is not a job you could leave and come back to at the same pay so the decision would be final. Thoughts? Just spitballing and since we can’t discuss it on the cruisers beach though I would throw it out here.

Cheers

I find it a little wondering why someone who throws around figures like 1 Million or 2 Million and shows a 50 ft boat in his profile would need to ask this question.

But maybe the simplicity of it just went way over your head.

Make a budget of what you spend and think you will need to spend after you quit work. Surely you know what you spend now. Some things go away, but most of your expenses will remain. Figure monthly expenses and annual ones. (there have been several threads on this forum about what other people spend, but it varies quite a lot, so you must use your own experience as the basis.)

Then figure out how you will generate that amount as income, and I'd recommend you don't cut into your capital to maintain the monthly and annual expenses, so how much capital (invested of course, mostly) will generate that expense level.

There, you have it.

You need that much.

[fabgo]

Originally Posted by Clipper4730

So question, how much cash do think you want/need to retire and be comfortable. We have several friends in our age bracket 49 me and 39 admiral who have retired completely however they are quite hazy on how much they have in the bank etc. we know their budget but we are curious to know how much is enough. Given the current state of things we are seriously thinking of bailing out and enjoying life. Assume no mortgages or other major debts a million enough 2 million just not sure. Mine is not a job you could leave and come back to at the same pay so the decision would be final. Thoughts? Just spitballing and since we can’t discuss it on the cruisers beach though I would throw it out here.

Cheers

Do some research on safe withdrawal rates (SWRs). 4% is assumed safe under all conditions for a 30 year horizon if all the saving are in a tax-advantaged account (an important caveat). I believe this is for a 50/50 mix of stocks and bonds.

I assume 4% does not include fees, so the actual withdrawal rate is likely to be lower.

But at age 39 you have to factor in a longer horizon than 30 years. More like 50+ years.

Consider also that todays environment is one of the most unfavorable to invest in. With the S&P CAPE > 30 and bonds yielding less than 1%, assuming that future returns may be close to the worst in history may not be a bad idea.

Taking all these factors into account, the SWR is probably closer to 3%. All this assumes nerves of steel - that you don't make any investment mistakes next time the market turns against you - whether it's a 50% drop or a long drawn-out period of low (or even negative returns).

Personally I would consider semi-retirement even if you feel you have enough. You could plan to work just enough to cover your expenses, while allowing savings to grow. At least for a while? That may also allow you to keep your skills current in case the SHTF.

P.S. You will get all kinds of numbers from people already "retired". But they aren't dead yet, and likely their savings will have to last for many more years, so no-one knows how successful they will be.

P.P.S Consider also that even a 5% failure rate means a 1 in 20 chance that you will run out of money. Again, that assumes no mistakes or unforeseen mishaps along the way.

[Mook1e]

My wife and I ponder this as well. I admit, I think about it a lot more than she does.
The easy answer is that it depends on your expected living expenses.
There are scores of blog and YouTube videos with people living very inexpensively overseas (OCONUS) and in the USA.
As far as cruisers, the same can be said about people living and cruising along the spectrum of budgets.
Know your expected budget first, then figuring out how much is needed is pretty easy. If you don't have income and your budget is high ($50K plus per annum) you'll need A LOT of money/investment.
We're trying to plan for about $750K in assets and $100K/year passive income before we're ready to retire for good.
We're 3 years from that goal now.

[Michael Cobbe]

I was able to retire when was I 50 because I sold shares in a company I bought with three other people and two I started, even after tax it was lot of money. I bought a yacht and went long distance sailing for six years with my other half Jane, it was funded by two properties we owned in London which were rented. Then at 60 I got my state and private pension, also quite a lot of money because I owned two companies and the pay and dividends were high.


Bottom line is you need to work out how much you will spend when retired and do have enough money to do it.

[mvweebles]

For me, there is a simple math part to the answer, and a complex contingency /assumption part.

The simple part is adding up expenses - I'd like around $80k/yr reliable income.

Hard part is the assumption to deliver $80k. If you've been invested in FAANG stocks for past few years, answer seems to be $400k principle easily delivers a 20% return ($80k). Pretty high risk though for a retired person.

For me, I use 7% return so around $1.2 m gets me to $80k/yr. What blocks me from retirement is first that I enjoy my work and am having trouble mentally pivoting. Second is contingency of unknown - Healthcare being a biggie. Third is also a mindset problem-- trading high return portfolio for reduced risk.

Peter

[valhalla360]

Originally Posted by S/V Illusion

This is the only sound advice. Asking a bunch of strangers for financial advice on an Internet forum is silly as are most of the answers they will provide.

Have to disagree.

Financial Planners can have a conflicting interest. Also, they may not fully understand the implications of cruising on finances.

So getting feedback from other sources and understanding the finances yourself is a smart approach. A sampling of cruisers out there actually doing it can give a much better idea of what it takes.

Always better to know as much as possible and use a wide variety of sources to supplement that information.

[valhalla360]

Some things to figure out:
1) What are your annual expenses? If it's $25k/yr, $1million may be way too much. If it's $200k/yr, $1 million is likely way too little. Now how will that change when you go cruising (use your best estimate, maybe bumping up a bit for contingency).
2) What is your plan when cruising is done? Boats are depreciating assets and most people reach a point where they can no longer handle the boat.
3) How are you going to handle health insurance?
4) How much social security or pension will you be getting (look up the formula and calculate it for yourself, the estimates usually assume you keep working)?
5) What type of investor are you? You should be a little conservative but it doesn't have to be silly. On the positive side, by the time you get much beyond 20yrs, you reach a point there it takes incrementally tiny increases in total savings to increase how much you can withdraw. The reason is the longer the term, the more you are limiting your withdrawals to investment returns as opposed to principal. With decades ahead of you, you will need massive amounts of cash if you stick to conservative investments like CDs...better keep 3-5yrs of expenses in conservative investments, so if there is a market downturn, you can ride it out. The rest you keep in higher return investments (which by nature come with higher short term risks that tend to average out over long term).

Once you can answer these questions with solid answers, you will know if you are ready to go.

[NaClyDog]

Originally Posted by NPCampbell

Your return rate is obviously dependent on the type of investments you have. In my case, I am 95% stocks. The CAGR for the S&P 500 over the past 25 years is 9.8% and my actual return is 11.5%. However, since the money I have set aside for opportunistic buying will be reserved for buffer at retirement, I am using a more conservative 7% return rate.

So for example, if I wanted $100k yearly income (using 2% for inflation) the formula would be: $100k / (7% - 2%) + 4 * $100k in buffer or around 2.4 million.

Just a couple of quick points. Some people say my 6% is too aggressive in this day and age and think 5% is more appropriate.



And lastly, your formula needs a little tweaking.

[NaClyDog]

One other point I should add, since I retired I have been spending much less than when I was actively working. This came as a bit of a surprise to me.


That said, we haven't started cruising yet (thanks covid). Will be interesting to see how the math works out when that situation works out.

[valhalla360]

Originally Posted by NaClyDog

Just a couple of quick points. Some people say my 6% is too aggressive in this day and age and think 5% is more appropriate.

People say similar things after every economic downturn...no guarantees, but they've always been wrong, so far.

I could see using a planning number down in the 7-8% range, so that it's a bit on the conservative side but taking it to extremes has some big negative effects as most people overlook the downside of being too conservative.

If you try to go extremely conservative, you wind up needing a massively larger nest egg when looking at a retirement that can last decades (when looking at a 10-15yr time horizon, it has less impact).

[NPCampbell]

Originally Posted by NaClyDog

Just a couple of quick points. Some people say my 6% is too aggressive in this day and age and think 5% is more appropriate.



And lastly, your formula needs a little tweaking.

If you are using the conventional approach of diversifying a sizeable portion of your assets into investment grade corporate bonds then 7% is too high. If you plan on focusing on government bonds then 5% is too high. The only place I plan on using bonds is for protecting my buffer cash.

My formula is a exactly correct for what it is. A ballpark estimate of retirement assets required if you don't draw down on principal.

[meirriba]

I do not think that} you will get a comprehensive answer here (although many factors were mentioned).
I guess you are not a financial/pension analyst, as in this case you would not need to raise the question.
I did the calculations you ask about (but I was/am well versed in the issue).
My advice is to consult a professional, as a mistake will be very costly.
He will collect your financial data, your exoectation for future level of living, any forecasts of one time expenses (boat, children university fees), long term incomes (pensions etc) one time incomes (inheritance?). Do you want to leave something upon your death to your family? Do you have health insurance? Current investments? Current wealth, etc. etc.
Then, he can mix it together and come with intelligent answer. Needs use if financial functions (that can be found in Excel sheet)

[Wallaby]

Originally Posted by S/V Illusion

This is the only sound advice. Asking a bunch of strangers for financial advice on an Internet forum is silly as are most of the answers they will provide.

Having studied with CFAs, investment advisors and the like, I beg to disagree. In fact, there are some good answers so far. I'd point out that when investing, it is easy to make money in a rising market, also easy to make the average return in the long term. Less easy is structuring a portfolio for appropriate risk and optimum return. Surviving 2008 is one thing, doubling or tripling one's principal is another.

What is usually missing in financial advice is any notion of economic/financial risk beyond the blatantly obvious, let alone uncertainty. Worse, the general presumption when forecasting is the past predicts the future. Good luck on that.


The discussion above addresses rates of return, both expected and market. No one has mentioned the prolonged decline of real interest rates. It is global in nature. The long term effect has been to energize stock and bond prices. The resulting bubble, enhanced by vast debt and derivatives is close to bursting. It has been for that way for 10 years. Real interest rates are now significantly negative. How much longer will lenders subsidize borrowers is anyone's guess, but I suspect it will not be more than a few years.