How much cash to retire?

[NaClyDog]

Originally Posted by Dockhead

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.

Different strokes, different folks.


We invest conservatively but live fairly well. Technically, we may be "set" but we still pay attention enough (truthfully, it's something I really enjoy) to ensure we aren't leaving anything on the table at the end of every quarter.


Whatever is left when my spouse and I are dust in the wind will be going to what we have deemed worthy causes. Why not try at least a little to ensure they get as much free money as possible?

[valhalla360]

Originally Posted by Dougtiff

Hear we go again, with in reason, what ever you income is, except for the 1 % or 10 ?,most of us don't have the resourses of many thousand's of dollar's per month, so make do with what we have, for myself, it's $1000 per month, because of my skill's,[rigger,ect.], it works.

If you are forced into retirement, you do what you have to do with the resources you have.

The OP is PLANNING for retirement so the lifestyle he wants and what it will cost to fund that lifestyle is a critical starting point...very few people would purposely plan on $1000/month budget for retirement.

[valhalla360]

Originally Posted by Dockhead

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 talking about the traditional retire at 65 and die at 80 retirement...yes, burning thru at least some of the principal makes a lot of sense vs saving enough to not touch the principal. (even there assuming death at 80 is questionable).

If you are talking about retiring at 50 and use a more realistic 90-95 age of death. There is very little difference between eating into the principal vs not.

Let's say you expect 7% return.
- If you have $1 million and never touch the principal it will return $70k per year.
- If you assume a 15yr retirement (traditional), need about $640k to generate $70k per year.
- If you assume a 45yr early retirement, need about $960k to generate $70k per year.

As you can see with a 45yr retirement, there isn't much difference from not touching the principal but with a shorter retirement assumption, you can get away with far less by eating into the principal. There's also the advantage not eating up the principal that if you live to 110, you still haven't burnt thru your principal.

Of course, this is a simple example. In reality, you want to account for inflation, social security and other sources of income. You also want a bit of conservativeness in case returns are a little lower or you live a little longer...but the principal still holds true.

[Dockhead]

Originally Posted by NaClyDog

Different strokes, different folks.

We invest conservatively but live fairly well. Technically, we may be "set" but we still pay attention enough (truthfully, it's something I really enjoy) to ensure we aren't leaving anything on the table at the end of every quarter.

Whatever is left when my spouse and I are dust in the wind will be going to what we have deemed worthy causes. Why not try at least a little to ensure they get as much free money as possible?

Well, you have to be clear what question you are asking.


If it's like the OP's question -- "how much do I need as a minimum, in order to be able to support my lifestyle for the rest of my life?" Then you need to figure in spending the capital. That will give you the "minimum" figure and anything above that can be a legacy and/or buffer.


If, on the other hand, you have X amount of money, and the task is to determine how much you need in order for there to be exactly X amount left when you die -- that's the narrow case, where the other analysis is correct.



The way you analyze it, depends on what question you are asking.

[BlackHeron]

How much you need to retire is simple math once you have a lock on how much you will actually be spending, in real money, year after year.

On a boat I think a lot of people really have no clue what that going to be. Most have unrealistic ideas of what kind of budget they will need to make ends meet. The fancier and bigger the boat the more it is going to cost and I have met many new cruisers that are just starting out who get really far over their heads financially. They then royally burn through their budget year after year and tear down their nest egg at such a rate that it becomes impossible to continue after a year or two without going back to work.

It's hard. Even rarely going to marinas, or out to eat, or spending much on fine food & drink, no fancy shows, not jetting back home to visit, and having a smaller older boat that has few bells and whistles and being able to always do our own work and repairs it is difficult to stay in budget.

We found that our biggest budget-blower was upgrades. A new dinghy because we didnt like the old one, a diesel heater because we were cold, a new belowdeck hydraulic autopilot because the old one doesn't cut it, an enclosure because it's cold or buggy, a refrigerator upgrade from an icebox, a better wind turbine and more solar panels to provide power dor the new fridge, maybe even a watermaker in the future if we want to start crossing oceans and a new life raft to boot.

Pretty soon the overall operating budget is getting expanded by 20+ percent each year without even trying very hard.

And then we haven't hit on any of the more major issues like getting sick or injured.with big medical bills, needing a repower after an engine blows, running aground and seriously damaging the keel/rudder/bottom, major rigging repairs or gods-forbid dismasting...

If you really knew how much it actually will cost year over year, in REALITY, then how much you needed would be simple math. Most have no clue and go in with eyes tightly shut regarding just how much that mega-mono or luxo-cat is going to bleed them every time they turn around. Then the earlier you retire the harder it is. The money has to last longer even with recessions and other economic disasters. Medical insurance in the US is major part of our yearly budget and we are years away from seeing retirement/SS/pension.

But we bought a smaller boat and made plans to keep it as simple as we could to control the ongoing perpetual costs and that has saved our bacon

[Mike OReilly]

Originally Posted by Junk Viking

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).

Indeed. It is hard to break any long-term habit. Most of us are used to living high on the hog, as they say. And this kind of lifestyle requires a fair amount of cash. Hence the focus on revenue.

I'm in no way suggesting money isn't important, but as demonstrated even in this short discussion, people spend a huge amount of effort on the expense side of their balance sheet. If they put in the same effort on the expense side they'd find they can reach their security goals a lot faster, and a lot easier.

Originally Posted by NaClyDog

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...".

All true. Which is why my first post on this thread was to simply tell the OP to take what they spend now, multiply it by their life expectancy, and come up with their answer of "what they need."

As humans we do feel loss stronger than gain. And we're not good at making substantial changes in our lives and habits (hence the poor success around dieting, for example). Most people aren't going to change their lifestyle when they move onto the water; I get it. This is why some people suggest a slow, downsizing transition.

As with any change, it takes time and effort. But people are clearly willing to put huge amounts of effort into building the revenue side (as evidenced by this discussion). If they put in an equal amount of effort on the expense side, they'd achieve their financial goals faster and easier.

[ArmySailor]

Originally Posted by Dockhead

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!

All good points. I've been a home owner /resident for 2 years and landlord for 7 years (from a distance, too... Real PITA) and it was a great ride from income and tax side, but still not worth it to me). Especially now so close to retirement.

I like your point about home ownership being a way to force undisciplined savers to save.

I invest about 60% of my income each month. A little over $6K. So I fall into the category of compulsive saver. I've lived on half my income since my first paycheck. Mostly. Some exceptions.

I only have 16 end of month paychecks left. Then, I'm not investing another dime. Time for divesting!

[NaClyDog]

Originally Posted by ArmySailor

All good points. I've been a home owner /resident for 2 years and landlord for 7 years (from a distance, too... Real PITA) and it was a great ride from income and tax side, but still not worth it to me). Especially now so close to retirement.

This is NOT investment advice.


I used to own physical real estate and it became a massive PITA as you put it. I eventually divested those holdings and moved them to various REITs. All the perks / pitfalls of owning the actual real estate without the PITA factor. Everything related to them is easily managed from an internet connected keyboard (buy / sell).

[daletournier]

The problem I see with many investment models is "that times have changed alot" ,most still invest based on past results that came in a completely different economic environment.

60% stocks 40% bonds etc., yet bonds pretty well return zero today, in some cases they are negative, and arguably the stock market is grossly overvalued.

I just sold a house, actually two dwellings on the same block returning about 5%, at 5% this would of been the best return in the area!!! 5%, a good return?

It really wasnt that long ago where I could of left my money in the bank and recieved a return I could live off comfortably, to get the same return today from a fixed term bank deposit I'd need 12-15 million in the account!

Interesting times to invest.

To the OP, most everyday cruising couples that live comfortable life on their boats spend very similar to Sailorboy Imho, for me that's about $1,000 aud/week, I expect that to go down quite abit as I'll now be doing less miles than Ive been doing which means less wear and tear.

[barnakiel]

It is an easy one. BTW not 'cash'. Call it 'retirement capital'. It is not cash.



Short answer:



Pool all your accounts from one year and multiply by the number of years you want to be retired.


This works even if high inflation kicks in as you will be able to lock your money into an inflation-secure instrument and live of the interest+small chunk of the capital.


Example:


- present annual spending 50k (I think very typical for many Westerners),
- intends to retire for 20 years,


50x20=1mio


You want 1 mio to retire.


Etc.


Exact formula here:
https://www.annuitycalc.org/


You can play with drawing periods, capital growth rate, etc. Go play.


Cheers,

barnakiel

[ol1970]

Everyone’s number will vary but if you you want an absolute fail safe $ amount that has not failed in the USA in the last 50 years multiply your annual spend by 33. This is very conservative but that’s max you would need. Now to live a very nice life anything more than $100k a year will not bring you much marginal additional happiness. So max needed is $3.3M. I personally think one could retire to a low cost area and live like a king on much less and be equally happy. The low end threshold would be $1M I think. Lots of other things to consider as well like health care costs, your realistic life expectancy, and also what the heck you will do with all of that time.

I happily retired at 43 (6 years ago now), and haven’t regretted the decision one day.

[Wallaby]

Originally Posted by daletournier

60% stocks 40% bonds etc., yet bonds pretty well return zero today, in some cases they are negative, and arguably the stock market is grossly overvalued.

NOT arguably! Price and yield are inversely related. Negative real interest rates affect the risk-return space, and reduce yield for all risk levels: that is, stock prices go through the roof. The US stick market is a high risk/high uncertainty environment, driven by the Federal Reserve, and made worse by Robinhood investors.

[redneckrob]

Originally Posted by daletournier

It really wasnt that long ago where I could of left my money in the bank and recieved a return I could live off comfortably, to get the same return today from a fixed term bank deposit I'd need 12-15 million in the account!

You need to remember inflation rates before pining for the "good old days" of what you incorrectly remember as high rates of return simply because you remember higher interest rates and forget higher inflation rates. Absolute rates of return, meaning return after you subtract out inflation, are remarkably steady over remarkably long time periods.

[barnakiel]

Originally Posted by daletournier

Interesting times to invest.

Well, if you bought Tesla, Amazon or Google at the right moment. Yes.


Also, if you were risk-averse: Gold.


And if you were all itchy for risk: BTC.


Plenty of options.


b.

[Bruce Lewis]

Saling/Sue and others may enjoy the book; 'Letting Go' by Dr Charlie Corke.