How much cash to retire?

[wsmurdoch]

This forum has a sister forum, https://www.early-retirement.org/forums/ ,which is focused on the OP's question. From its early days "dory36", a fellow boater, was instrumental in the development of https://www.firecalc.com/ which seeks to answer the OP's question in a numerical manner. I have been a follower almost since inception and an occasional contributor, wsmurdoch there as well as here. I retired in 2004 at age 53, bought a PSC34 that fall after my wife had a brush with death, and we have been sailing 5/12 of the year since enjoying being at home with the grandchildren, children, and our long time friends the remainder of the year. So far, so good.

Bill
irish-eyes-to-the-bahamas.blogspot.com

[SalingSue]

Originally Posted by jim King

It really depends on your lifestyle. I met some world cruisers that lived on a 25' ancient boat and never paid for a mooring in five years and ate beans and rice everyday with an occasional splurge on instant ramen. Then there are those who live on a mega yacht and eat steak and caviar daily while staying moored to a club dock for $$$ daily. There is also the end of life question whether you want to sail until you cruise off to Valhalla alone or have a nurse attend to your needs when you cant.

Having worked in medicine, there is such a thing as a good death, and such a thing as too long a life.

[Bruce Lewis]

Twenty times your annual expenditure

[Santor1234]

I actually think that’s a reasonable question. My wife and I are 56/55 and decided three years ago that May 2021 was the day we call it quits. Our thought process? Youngest son graduates grad school at that time (Masters degree in epidemiology - very timely) and we plan to carry his health care until then. Besides this, the 3 year timeframe gave us time to downsize - we’ve gone from a 4,800 square foot home to a 1,000 square foot home which we plan to rent our while we’re cruising.

Aside from this, we have a “bank” of $270,000 to buy our forever boat (for cash) and live on for a couple of years until we can touch our 401k.

Bottom line, everyone is different. The biggest thing for us was to have a home we could come back to when our cruising days are done. Also, We’re assuming our boat will have no resale value (just to be conservative) when we’re done cruising so making money from selling it isn’t part of our financial plan.

Hope this helps..

[leboyd]

There are a lot of errors in the answers. Thus is why you need to visit a planner/advisor. Here are but two:

Available money is not (Starting value) * (return - inflation). Look up the Fisher Equation.

And there is more than one way to get to your 401(k) without penalty before age 59 1/2. Look up the age 55 rule and the 72(t) rule.

Any good advisor will know these and a lot more. There are a number of other errors in the advice provided. Get it right and you'll get a better answer for your specific goal(s). You're planning to spend hundreds of thousands of dollars in retirement, why not spend a couple of thousand to get a plan for you? Are you going to hire a surveyor? Why?

(I don't point out that there are errors to dis anyone. I only do it to show why advice and knowledge is worth an investment.)

[thunderhoof]

There are several good posts documenting the cruising lifestyle. Read a bunch of them and pick the one that is nearest your expected lifestyle.
Then do the math. "Magic" planning, expecting a series of windfalls, is foolish.
How much money will be coming in over the next 10-15 years, at what rate?
This should cover your expenses planning on no more than 4%/yr from your savings.

I personally think, and I realize this is my issue, l that I cannot plan more than 15 years ahead. Every two years you need to get out your crystal ball, stop by the real world, and plan for the future.

[jmc42]

wsmurdoch thank you for that firecalc site. I love the idea. It is like a risk of ruin calculator for poker or blackjack players. What percentage do you think is best? Of course 100% is great, nut is 95% acceptable?

It seems to like it should be fine as long as one is prepared to decrease income or reenter the workforce if something bad happens. Anyway, the data and presentation made me more comfortable with our plans going forward.

[Mike OReilly]

These discussions always focus on only one side of the balance sheet: the revenue side. But as any business person knows, a balance sheet consists of both revenue and expenses.

Expenses are almost fully within our control. Income, or revenue, is more affected by external forces, most of which are out of our control. My focus has been on keeping expenses low. That way I am less affected by the vagaries of the market, or global affairs, or whatever else is going on out there.

Instead of only looking to income, and trying to guess what your ROI is going to be 5, 10 or 15 years out, try focusing on the things that are fully (or largely) within your control. Focus on what you actually need to live a fulfilling life.

[Junk Viking]

Originally Posted by Mike OReilly

These discussions always focus on only one side of the balance sheet: the revenue side. But as any business person knows, a balance sheet consists of both revenue and expenses.

Expenses are almost fully within our control. Income, or revenue, is more affected by external forces, most of which are out of our control. My focus has been on keeping expenses low. That way I am less affected by the vagaries of the market, or global affairs, or whatever else is going on out there.

Instead of only looking to income, and trying to guess what your ROI is going to be 5, 10 or 15 years out, try focusing on the things that are fully (or largely) within your control. Focus on what you actually need to live a fulfilling life.

Couldn't agree more!!!

Expenses side is so much in our own control.
Try out how comfortable you can be on a small income!
Test how caught up in consumerism you are!

How low you are willing to go?
This is a very personal thing and it takes time to break old habits.
I'd say a few years easily (my experience).

Scenario for a trial:
You have a reasonable boat with a reasonable galley.
Move on board and rent out your home (or stop renting).
Try to be as self sufficient as you are comfortable with.
Keep track of monthly expenses.
Review every 3 months.

Most importantly: do it now if at all possible.
If nothing else, it'll increase your savings and give you a feel for the lifestyle.
Develop your skills in the many boat related areas.
Think of it as a game and a prototype for your future life.
Perhaps it's not even for you.


FYI
"Retired" from corporate life at 45 (2011)
Working a little from time to time on "worthy causes"
Danish citizen, so free health care, gov pension from 67 etc.
Monthly spending stabilised at €2000 = USD 2350 in Mediterranean
Spending within 4% of my net worth invested very broadly
Gf paying her own way, not running boat expenses
Boat 34' fully paid, all work done by myself.


My time is precious, and I enjoy my freedom.
Try it.

[NaClyDog]

Originally Posted by Mike OReilly

These discussions always focus on only one side of the balance sheet: the revenue side. But as any business person knows, a balance sheet consists of both revenue and expenses.

Expenses are almost fully within our control. Income, or revenue, is more affected by external forces, most of which are out of our control. My focus has been on keeping expenses low. That way I am less affected by the vagaries of the market, or global affairs, or whatever else is going on out there.

Instead of only looking to income, and trying to guess what your ROI is going to be 5, 10 or 15 years out, try focusing on the things that are fully (or largely) within your control. Focus on what you actually need to live a fulfilling life.

While technically true, people don't seem to like to give up things that they are used to having. Be that goods or services. My guess is that is also why many "advisors" start with "how much do you spend now" in their retirement planning calculations.


From there they can move to the "if you cut back on $X a month, you can do this, etc...".

[sailorboy1]

Glad I never asked CF this question!!!

[wsmurdoch]

Originally Posted by jmc42

wsmurdoch thank you for that firecalc site. I love the idea. It is like a risk of ruin calculator for poker or blackjack players. What percentage do you think is best? Of course 100% is great, nut is 95% acceptable?

It seems to like it should be fine as long as one is prepared to decrease income or reenter the workforce if something bad happens. Anyway, the data and presentation made me more comfortable with our plans going forward.

When I retired in 2004 our firecalc derived success ratio was in the mid 90s. Since then with some lucky financial market history and lower than expected spending it is 100.

Another recommendation similar to mine is from Off Trail in his post #36 earlier in the thread.

Bill

[Dockhead]

Originally Posted by ArmySailor

. . . I don't own a home. I don't want to. I'm fine with renting. No, I'm not "throwing away money'... Let's not go there. I'm paying for a service. Housing. . . .

There's nothing wrong with that -- so long as you are investing a substantial part of your income. You are living like a German -- few Germans own their own homes, but they are prodigious investors.


Houses as investments have two advantages (a) easy to leverage, which can greatly enhance performance (and magnify losses, too); (b) no discipline required so long as you pay your mortgage.


The second one is really important, because most people have a natural tendency to just spend as much as you make. So if you're a good saver and competent investor, there's nothing wrong with your plan.


I'm lifelong homeowner and landlord who envies renters -- a whole raft of problems that you just don't have -- let the landlord worry about it. Chances are whatever rent you pay doesn't even cover his costs (that's certainly true of my tenants). So -- enjoy!

[dannc]

Originally Posted by wsmurdoch

...From its early days "dory36", a fellow boater, was instrumental in the development of https://www.firecalc.com/ which seeks to answer the OP's question in a numerical manner. I have been a follower almost since inception and an occasional contributor, wsmurdoch there as well as here...

Yep, FireCalc is a really interesting website.

I have used it to run a bunch of what if scenarios which is an interesting and informative process.

Bottom line I got out of FireCalc, and what has been mentioned in this discussion many times, is the 4% number. If we live off of 4% of our investments that are in the market, we will not run out of money unless the system collapses.

I did find any risk above 95% acceptable. If the money started to run low for some reason one could adjust.

The hard part of this discussion, at least to me, is not how much will the boat cost to maintain. There are all sorts of "rules" our there, some that make sense and some that do not. One can't have a budget until one knows the cost to maintain the boat, and without a budget, you can't know how much money one needs.

The Morgan's Cloud website has a spreadsheet that can guestimate the costs to maintain a boat. It has a variables such as complexity, who does the work, how well the boat is kept up, NM sailed, but the big variable is displacement. I have checked the Morgan's Cloud estimate with a cruisers 10 year' budget and they were close to each other.

Later,
Dan

[Dockhead]

Originally Posted by 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.

If you have a couple million dollars, then budgeting on income without withdrawing capital is excessively conservative. What's the point? Unless it's so much more than you need that you are consciously preserving a legacy for your children or grandchildren.



If you are stress-testing your annual budget against your portfolio, you should include withdrawal of capital. That Firecalc app posted above is perfect for this. Just set a long period in the "years" field. If you're set up to live off dividends then the whole exercise is a waste of time -- you're set. But Firecalc will give you different scenarios and give you an idea of the risks.