How much cash to retire?

[Wallaby]

Originally Posted by NPCampbell

I don't want to withdraw from capital for a number of reasons.

If you withdraw from capital then you are having to guess or gamble on how long you live. If you live longer than your target then obviously you will run out of money with no means of generating more income.

Tools like FireCalc stress test against market conditions but not against life conditions like unexpected nursing home, legal, medical bills or the occasional impulse buy of a 50 foot catamaran. In 30+ years of retirement a lot can happen and I have first hand experience with my parents. My father retired at 52 but he had Alzheimers which required care over and above insurance, a pension fund dried up and stopped paying out and an insurance policy that was supposed to last a lifetime starting requiring supplemental payments. Burning through your capital sucks and I don't want to put the burden of taking care of me on my children or the make other people pay for my care (the government).

Finally, someone who understands what is really at issue.



These are just some of the unknowns confronting us in deciding how much is required/able to be taken out. At a minimum, do an optimistic, realistic, and pessimistic study. It is clear that many US pension funds are not in good shape. The same issues that will cause them to fail will also affect 401Ks etc. This is why I have adjusted my living expenses to accumulate capital.

[ArmySailor]

Originally Posted by NaClyDog

Thanks for your condescending uninformed opinion.


I answered the OP in post #5.

Ah. My apologies. The flatness of text. I was agreeing with you and putting my own post in it's place. Acknowledged... My post was zero advice... And I seemed to have thus reduced myself to the usual rabble who make points and counterpoints about things that don't help the poster.

You were totally right. I was agreeing. Sorry that came across wrong.

[Mook1e]

Was pretty clear to me.
Good lord the internet is serious business.

Originally Posted by ArmySailor

Ah. My apologies. The flatness of text. I was agreeing with you and putting my own post in it's place. Acknowledged... My post was zero advice... And I seemed to have thus reduced myself to the usual rabble who make points and counterpoints about things that don't help the poster.

You were totally right. I was agreeing. Sorry that came across wrong.

[Pizzazz]

The financial considerations aside, you may want to think what fulfilling life means to you and how long you want to live. If you worked for five more years, you could probably extend your retirement cushion by 10 years. However, you would lose the next five years forever. In the same way as money today is worth more than money tomorrow, a good life is worth more today than tomorrow. At the age of 50 you can do many things that would have great impact. Would you want to lose these five years, so that you can have ten years of life at the age of 80 to 90, when you will be weak, many of your friends may not be around and your health may not be ideal?

Or if your investments go according to plan, and you end up donating a sizeable portion to charity at life end, would it have been worth it, to miss five years of fun now? Technically, this means you may be working for charity right now.

[Dockhead]

Originally Posted by NPCampbell

I don't want to withdraw from capital for a number of reasons.

If you withdraw from capital then you are having to guess or gamble on how long you live. If you live longer than your target then obviously you will run out of money with no means of generating more income.

Tools like FireCalc stress test against market conditions but not against life conditions like unexpected nursing home, legal, medical bills or the occasional impulse buy of a 50 foot catamaran. In 30+ years of retirement a lot can happen and I have first hand experience with my parents. My father retired at 52 but he had Alzheimers which required care over and above insurance, a pension fund dried up and stopped paying out and an insurance policy that was supposed to last a lifetime starting requiring supplemental payments. Burning through your capital sucks and I don't want to put the burden of taking care of me on my children or the make other people pay for my care (the government).

Sure, but just understand that "not touching the capital" is an arbitrary metric. How are you even measuring the capital? In nominal terms, or adjusted for inflation? The nominal sum of capital is pretty meaningless in an inflationary cycle, and we are now bound to have one.


This analysis only tells you the MINIMUM capital you need to have a certain income for a certain number of years. It's a very good way of looking at it, giving a true picture of the power of a given pot of capital, giving you a clear conversion including risk analysis of capital into income. Don't muddy it up by fudging it in this direction or another.



For all the reasons you state, capital in an income fund predicted to run out, more or less, when you're 95, or whatever, should not be your ONLY capital. You should have significant reserves on top of that, to cover different contingencies. You should work out very carefully your insurance program. And you should spend LESS than what your income fund provides -- the calculation gives you MAXIMUM spending, not what your normal spending should be.


Then if all goes well you will leave a nice inheritance for your descendants, and if something goes wrong, you will at least not be a burden on them.


I think it takes a few million dollars to have a reasonable middle class life for a few decades of not working. I'm not interested in "not working" myself -- I would never have started a career in anything I would be willing to give up at 50 or 60. My work gives me as much flexibility and time off to do as much sailing and other things as I like; I have no plans on quitting. But one's health can give out at any moment, so you can't count on working until you die even if you would like to.

[valhalla360]

Originally Posted by Dockhead

Sure, but just understand that "not touching the capital" is an arbitrary metric. How are you even measuring the capital? In nominal terms, or adjusted for inflation? The nominal sum of capital is pretty meaningless in an inflationary cycle, and we are now bound to have one.

Assuming you are looking at 30-40yrs in retirement...the original question was about early retirement.

Not touching capital and reinvesting 2-3% to cover inflation makes a lot of sense. It adds very little to the size of the nest egg needed but is a pretty safe assumption to make sure you don't run out.

Obviously, a lot of things "could happen" but this is a nice balance between having enough to be secure and not working too long saving for an early retirement.

[MicHughV]

Financial Planners typically have one goal, which is to line their own pocket, with your money.

With the internet, a bit of homework and some research and effort, a multitude of trading sites, you can be your own financial planner. Doing this yourself, means no-one to blame if things go south....but plenty to gain.....being diversified is always good. There are a multitude of dividend paying stocks to chose from, most with some capital appreciation.

A key issue though, for retired people, is good health coverage, that is always an unknown...a variety of health insurance plans are available. Again, do some research.

Finally, and most importantly, reduce and eliminate debt. Don't be liable for a mortgage, boat payment, car payment, etc. Carrying debt of any kind is a one way downhill street. Pay off credit cards each month, etc....

After that, simplify your life, Plenty of opportunities around to work a side job, should you want to do this. Have one car, instead of two, limit dining out, etc....

I've surprised myself, by how little I actually need.....

[Dockhead]

Originally Posted by valhalla360

Assuming you are looking at 30-40yrs in retirement...the original question was about early retirement.

Not touching capital and reinvesting 2-3% to cover inflation makes a lot of sense. It adds very little to the size of the nest egg needed but is a pretty safe assumption to make sure you don't run out.

Obviously, a lot of things "could happen" but this is a nice balance between having enough to be secure and not working too long saving for an early retirement.

I would suggest that that is a crude way of looking at it, which obscures what is really going on. Much better divide your capital into two or three funds:


1. Income fund. Invest this into running-yield oriented assets. Set a maximum expense budget and put enough money into this fund so that it is very unlikely to run out -- including spending the capital -- before you are as old as you could possibly live. Then spend less than the maximum budget.

2. Reserve fund. This can be invested into non-yielding capital appreciation assets. Should be big enough to cover whatever unexpected things might come up. How much do you need? I keep a million set aside just for this, myself, even after I lost 90% of my net worth in 2009.

3. Capex/growth fund. In case you expect to make any kind of capital expenses (house renovation, boat refit, or moving house, whatever), invest this separately in assets appropriate to the time horizons. Maybe take more risk with this fund, invest in growth stocks, real estate projects, etc.

And then DO NOT FORGET ABOUT INSURANCE. It is foolish to block a bunch of capital to cover expenses which can be insured against.

As to the risk of ending up in a nursing home -- I believe I will shoot myself if that ever happens to me, but normally you will want a fully paid off house which you can trade for nursing home care if you need it. OR add an adequate amount of money to the Reserve Fund.

I guess anyone going through this analysis is ipso facto a member of that notorious 1%, or to be precise, 3% ($5 million net worth is 97th percentile in 2020). But I guess many, if not most CFers are in this category at least.


I realize this was the premise of the OP, but "30 or 40 years of retirement"? Why in God's name would someone want to be retired for 30 or 40 years? Is it really so hard to find work that you really love?


For me, life without work would be like life without sex -- not worth living.

[Joli]

We break the income side down into three groups. Floor, cash reserves and investments.

The floor is mailbox money, it's coming unless the world ends. It can be social security, pension, dividends, bond ladders, deferred compensation, annuities...

The next is cash reserves. These are reserves that don't vary with the vagaries of the market and are liquid.

Finally there are investments. Mostly market holdings but they can be real estate or other high yield products.

The safest position is to cover all expenses with mailbox monies with enough cash assets to cover emergencies.

The riskiest position is a minimal floor, little cash assets and a reliance on investments to draw against. The problem with counting on investment is sequence of returns risk.

This can be minimized by very conservative withdrawals of investments but a floor and cash assets will help carry you through a secular bull market.

Anyway, this is how we look at the income side. I'm sure there are many other ways of looking at it as well.

[Dockhead]

Originally Posted by Pizzazz

. . .If you worked for five more years, you could probably extend your retirement cushion by 10 years. However, you would lose the next five years forever. . . .

WTF? Five years working are five years LOST? Does no one actually even like their work? Does that mean 65 years before retirement are LOST? so that you only get to actually live for 20 more or whatever it is? This is seriously forked up. What kind of lives do you guys live.


Reminds me of Nabokov, commenting on Tolstoy's dictum, that "Life is a tartine du merde, which we all are obliged to eat, slowly.” Nab said: "Dirty old bugger, wasn't he? He should speak for himself. Mine is fragrant freshly baked bread, spread with butter."

[Joli]

I don't think most mean that, rather, there are other things they would like to do other then "punch a clock".

I enjoyed my work so much that I started my own company but still left it to go sailing. Am I wrong?

[BlackHeron]

I retired at 50 and wish I would have told the boss man bye-bye years earlier.

Do you love your job so much that you'd do it for free? Maybe even pay for the privilege of showing up at work because it is so rewarding?

I bet not...

We do it for the money. When we have enough money then to hell with that noise and a bag of broken hammers. When you are gone they will replace you and in a few months or years they will have forgotten all about you.

[Yihang]

I would gladly do my job for free if I didn't need the money. If you are an artist, designer or a creator of some kind then there is endless ideas to explore. Those jobs do exist, but i wouldn't recommend it if your goal is to make money and retire.

Personally actual retirement from doing what I'm doing doesn't sound that good. For me the point is to have enough funds to be more selective in the commissions I take. Maybe just one or two meaningful projects a year, or probono work.

Once I was in the office making a paper model of a building, it was so much fun I actually said to my colleague can you believe we get paid to come to work and do this? Of course it's not always like this. But I know some 65yo partner in the office that still stay late to make a model because they enjoy it. It's like play for them.

[Dockhead]

Originally Posted by Yihang

I would gladly do my job for free if I didn't need the money. If you are an artist, designer or a creator of some kind then there is endless ideas to explore. Those jobs do exist, but i wouldn't recommend it if your goal is to make money and retire.

Personally actual retirement from doing what I'm doing doesn't sound that good. For me the point is to have enough funds to be more selective in the commissions I take. Maybe just one or two meaningful projects a year, or probono work.

Once I was in the office making a paper model of a building, it was so much fun I actually said to my colleague can you believe we get paid to come to work and do this? Of course it's not always like this. But I know some 65yo partner in the office that still stay late to make a model because they enjoy it. It's like play for them.

That is the criterion and hallmark of good work --"can you believe we get paid to come to work and do this?"

[Dockhead]

Originally Posted by BlackHeron

. . . Do you love your job so much that you'd do it for free? Maybe even pay for the privilege of showing up at work because it is so rewarding?. . .

Yes, actually. And in fact I HAVE done it for free, or you might even say, paid for the privilege, and for years after 2009, not taking any salary at all so I could keep my employees paid after the crash.


And I'm not the only one -- see Yihang's post above.