How much to retire at age 55? We are 50

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Two thoughts. First retirement is not a one way street but if you decide to reenter the labor market you will take a hit. Second, what’s your return assumption? Have you processed the fact that real interest rates are negative? What do you think that means?

Of course. If we retire , it would be very difficult to find jobs in our field again as we are very specialized unless we are willing to move etc. We are right now invested very aggressively for our age and have most in equities. Obviously if the stock market takes a big hit in the next few years we’ll be singing a different tune. My plan is before we retire to move 1M into safe assets. In 2008, our portfolio dropped by half and as traumatic as that was it was only 400k or so at that time- now it would be a much different story.

Yeah.. Tell me about it. We prob. had close to $1.5m at that time and it dropped to less than $1M. Now at $7.5, a 50% drop would be terrible. In my spreadsheet model, I assume a 50% drop sometime during the current year so the projected beginning balance for the next year is adjusted down 50% (if it doesn't happen this year, I just push it out to next year in my model on Jan 1). I just got to the point where things don't turn negative over the next 50 years even with the 50% drop in the next year. I also assume 5% investment growth, 3% expenditure growth and try to model in all known large expenses - college, home remodel, car purchase every 10 years, etc.

NP. So what is your plan if the market drops by 50%? Will you keep enough in cash for expenses to ride out the drop or plan your retirement based on 50% drop or just plan to live in less? Are there any other mitigation strategies?

Couple of more details.. The model assumes that we will begin drawing living expenses only in 2031 when spouse retires. Until then, the only drawdowns will be for car replacement, home renovations and college expenses for kids. I was only stating that even with a 50% drop (that never recovers), we should be fine. Per the model, our current $7.5M will get cut down to about $3.8 in '22 with a 50% drop but will grow back to to $4.5M by 2031 even factoring in all withdrawals. Good enough for our target withdrawals.

Also, we do carry at least 10% in cash at all times for emergencies as well as to capitalize on market opportunities. We will continue this into retirement.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My husband and I make 300k combined and have close to 5M saved. Our house is worth 700k and we have 500k in college savings for 2 kids.

Fidelity’s retirement investment calculator calculates that we’ll only be able to spend about 10k a month to weather a significantly below average market.m but an average market would give our kids 100M when we die. Planning for the significantly below average scenario seems crazy conservative. I’d like to retire before age 55 with hopefully 6M.

Is 6M too low? The 4 percent rule would suggest that we would be able to spend 240k per year which would be more than enough.

Thoughts?
TIA

Surely you mean 10 million lol.

DP. I'm sure they mean 100mil. Compound interest is a wonderful thing.

How could they possibly get from $5 million to $100 million by the time they die if they're also planning to start spending their savings? Compound interest is wonderful but it doesn't get you 20x your starting point in 30 years if you're taking out 4 percent a year. Or if it does, I'm saving too much money myself, as our net worth is nearly $3 million and we have no plans to retire for another 20-25 years.

In 30 years ---- $5 should be at least $80. In addition they are adding each year when only pulling out $120. So they are continuing to save and that compounds. $100 million sounds right.

In 30 years, $5 million would only be "at least $80" if you assume 10 percent growth per year, according to the compound interest calculator on investor.gov. That doesn't seem like a realistic expectation over a 30-year span, though, does it? I usually use 5 or 6 percent in calculating my own savings and future growth rates.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My husband and I make 300k combined and have close to 5M saved. Our house is worth 700k and we have 500k in college savings for 2 kids.

Fidelity’s retirement investment calculator calculates that we’ll only be able to spend about 10k a month to weather a significantly below average market.m but an average market would give our kids 100M when we die. Planning for the significantly below average scenario seems crazy conservative. I’d like to retire before age 55 with hopefully 6M.

Is 6M too low? The 4 percent rule would suggest that we would be able to spend 240k per year which would be more than enough.

Thoughts?
TIA

Surely you mean 10 million lol.

DP. I'm sure they mean 100mil. Compound interest is a wonderful thing.

How could they possibly get from $5 million to $100 million by the time they die if they're also planning to start spending their savings? Compound interest is wonderful but it doesn't get you 20x your starting point in 30 years if you're taking out 4 percent a year. Or if it does, I'm saving too much money myself, as our net worth is nearly $3 million and we have no plans to retire for another 20-25 years.

In 30 years ---- $5 should be at least $80. In addition they are adding each year when only pulling out $120. So they are continuing to save and that compounds. $100 million sounds right.

In 30 years, $5 million would only be "at least $80" if you assume 10 percent growth per year, according to the compound interest calculator on investor.gov. That doesn't seem like a realistic expectation over a 30-year span, though, does it? I usually use 5 or 6 percent in calculating my own savings and future growth rates.

Should double every 7 years on average.

[Anonymous]

Double every 7 year assume 11% return on average, is that realistic? Especially for the allocation of someone already retired.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My husband and I make 300k combined and have close to 5M saved. Our house is worth 700k and we have 500k in college savings for 2 kids.

Fidelity’s retirement investment calculator calculates that we’ll only be able to spend about 10k a month to weather a significantly below average market.m but an average market would give our kids 100M when we die. Planning for the significantly below average scenario seems crazy conservative. I’d like to retire before age 55 with hopefully 6M.

Is 6M too low? The 4 percent rule would suggest that we would be able to spend 240k per year which would be more than enough.

Thoughts?
TIA

Surely you mean 10 million lol.

DP. I'm sure they mean 100mil. Compound interest is a wonderful thing.

How could they possibly get from $5 million to $100 million by the time they die if they're also planning to start spending their savings? Compound interest is wonderful but it doesn't get you 20x your starting point in 30 years if you're taking out 4 percent a year. Or if it does, I'm saving too much money myself, as our net worth is nearly $3 million and we have no plans to retire for another 20-25 years.

In 30 years ---- $5 should be at least $80. In addition they are adding each year when only pulling out $120. So they are continuing to save and that compounds. $100 million sounds right.

In 30 years, $5 million would only be "at least $80" if you assume 10 percent growth per year, according to the compound interest calculator on investor.gov. That doesn't seem like a realistic expectation over a 30-year span, though, does it? I usually use 5 or 6 percent in calculating my own savings and future growth rates.

Should double every 7 years on average.

I suppose I plan on doubling every 10-15 years. Maybe I’m being too conservative but I’d rather have more money than I planned for than not enough.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My husband and I make 300k combined and have close to 5M saved. Our house is worth 700k and we have 500k in college savings for 2 kids.

Fidelity’s retirement investment calculator calculates that we’ll only be able to spend about 10k a month to weather a significantly below average market.m but an average market would give our kids 100M when we die. Planning for the significantly below average scenario seems crazy conservative. I’d like to retire before age 55 with hopefully 6M.

Is 6M too low? The 4 percent rule would suggest that we would be able to spend 240k per year which would be more than enough.

Thoughts?
TIA

Surely you mean 10 million lol.

DP. I'm sure they mean 100mil. Compound interest is a wonderful thing.

How could they possibly get from $5 million to $100 million by the time they die if they're also planning to start spending their savings? Compound interest is wonderful but it doesn't get you 20x your starting point in 30 years if you're taking out 4 percent a year. Or if it does, I'm saving too much money myself, as our net worth is nearly $3 million and we have no plans to retire for another 20-25 years.

In 30 years ---- $5 should be at least $80. In addition they are adding each year when only pulling out $120. So they are continuing to save and that compounds. $100 million sounds right.

In 30 years, $5 million would only be "at least $80" if you assume 10 percent growth per year, according to the compound interest calculator on investor.gov. That doesn't seem like a realistic expectation over a 30-year span, though, does it? I usually use 5 or 6 percent in calculating my own savings and future growth rates.

Should double every 7 years on average.

I suppose I plan on doubling every 10-15 years. Maybe I’m being too conservative but I’d rather have more money than I planned for than not enough.

What is your planned investment strategy? What is portfolio size?

For a largely equity invested portfolio that has significant value --- 10 years to double would be fine for planning. 15 is way too conservative. If the portfolio is more bond focused, maybe.

[Anonymous]

Anonymous wrote:Double every 7 year assume 11% return on average, is that realistic? Especially for the allocation of someone already retired.

Key question -- what is allocation? the 4% rule assumes you are largely invested in equities. I will not be adjusting allocation very much in retirement. We feel pretty comfortable riding out down times.

[Anonymous]

According to Standard and Poor's, the average annualized return of the S&P index, which later became the S&P 500, from 1926 to 2020 was 10%. At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My husband and I make 300k combined and have close to 5M saved. Our house is worth 700k and we have 500k in college savings for 2 kids.

Fidelity’s retirement investment calculator calculates that we’ll only be able to spend about 10k a month to weather a significantly below average market.m but an average market would give our kids 100M when we die. Planning for the significantly below average scenario seems crazy conservative. I’d like to retire before age 55 with hopefully 6M.

Is 6M too low? The 4 percent rule would suggest that we would be able to spend 240k per year which would be more than enough.

Thoughts?
TIA

Surely you mean 10 million lol.

DP. I'm sure they mean 100mil. Compound interest is a wonderful thing.

How could they possibly get from $5 million to $100 million by the time they die if they're also planning to start spending their savings? Compound interest is wonderful but it doesn't get you 20x your starting point in 30 years if you're taking out 4 percent a year. Or if it does, I'm saving too much money myself, as our net worth is nearly $3 million and we have no plans to retire for another 20-25 years.

In 30 years ---- $5 should be at least $80. In addition they are adding each year when only pulling out $120. So they are continuing to save and that compounds. $100 million sounds right.

In 30 years, $5 million would only be "at least $80" if you assume 10 percent growth per year, according to the compound interest calculator on investor.gov. That doesn't seem like a realistic expectation over a 30-year span, though, does it? I usually use 5 or 6 percent in calculating my own savings and future growth rates.

Should double every 7 years on average.

I suppose I plan on doubling every 10-15 years. Maybe I’m being too conservative but I’d rather have more money than I planned for than not enough.

What is your planned investment strategy? What is portfolio size?

For a largely equity invested portfolio that has significant value --- 10 years to double would be fine for planning. 15 is way too conservative. If the portfolio is more bond focused, maybe.

I don't have a formal strategy other than "don't take money out of savings," "put as much in as you can," and "max out your 401(k)s." We have a financial adviser managing our non-401(k) accounts, which we pay low fees for because the same adviser is also handling my parents' significantly larger investments. What we have is about 90 percent equities, total value of about $1.3 million, plus another $500,000 in 401(k)s and $330,000 in 529s for elementary-school aged kids.

I guess I don't see any real downside to having saved more money than we need. Could we spend more now? Sure. But are we perfectly happy not spending more now? Yes. So why not just save it? At some point, I imagine, we'll also inherit some significant money from my parents, but hopefully that's decades off, and I'm not really accounting for that in my planning, either.

[Anonymous]

Anonymous wrote:According to Standard and Poor's, the average annualized return of the S&P index, which later became the S&P 500, from 1926 to 2020 was 10%. At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).

I get this. But OP's $100 million figure assumes that they will spend nothing, not a penny, for 40 years.

[Anonymous]

Anonymous wrote:

Anonymous wrote:According to Standard and Poor's, the average annualized return of the S&P index, which later became the S&P 500, from 1926 to 2020 was 10%. At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).

I get this. But OP's $100 million figure assumes that they will spend nothing, not a penny, for 40 years.

The will spend 120k of income from investments. On average over that time their stash will continue to grow as the are only using about a third of their expected gains.

[Anonymous]

Anonymous wrote:According to Standard and Poor's, the average annualized return of the S&P index, which later became the S&P 500, from 1926 to 2020 was 10%. At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).

I think money doubling every 7 years is realistic during your working years when you are mostly in equities, you are contributing money to your savings, you are not withdrawing cash, you are not paying taxes on forced withdrawals (RMD). In retirement, you are likely not 100% equities, not contributing, withdrawing money for expenses/forced to withdraw and pay taxes. 5% net worth appreciation on average is more reasonable IMHO and not conservative at all. That's 14.4 years to double your net worth. Actual return would be higher (6-9%) to account for withdrawals and taxes on RMDs.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:According to Standard and Poor's, the average annualized return of the S&P index, which later became the S&P 500, from 1926 to 2020 was 10%. At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).

I get this. But OP's $100 million figure assumes that they will spend nothing, not a penny, for 40 years.

The will spend 120k of income from investments. On average over that time their stash will continue to grow as the are only using about a third of their expected gains.

I know that. But the $100 million figure assumes that everything earned will be invested and continually compounded. Yes, the principal will continue to grow if OP spends less than the principal earns. But taking out 1/3 of the earnings changes the equation considerably.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Two thoughts. First retirement is not a one way street but if you decide to reenter the labor market you will take a hit. Second, what’s your return assumption? Have you processed the fact that real interest rates are negative? What do you think that means?

Of course. If we retire , it would be very difficult to find jobs in our field again as we are very specialized unless we are willing to move etc. We are right now invested very aggressively for our age and have most in equities. Obviously if the stock market takes a big hit in the next few years we’ll be singing a different tune. My plan is before we retire to move 1M into safe assets. In 2008, our portfolio dropped by half and as traumatic as that was it was only 400k or so at that time- now it would be a much different story.

How did you get from 400k to 5 mil in 14 years?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:According to Standard and Poor's, the average annualized return of the S&P index, which later became the S&P 500, from 1926 to 2020 was 10%. At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).

I get this. But OP's $100 million figure assumes that they will spend nothing, not a penny, for 40 years.

The will spend 120k of income from investments. On average over that time their stash will continue to grow as the are only using about a third of their expected gains.

I know that. But the $100 million figure assumes that everything earned will be invested and continually compounded. Yes, the principal will continue to grow if OP spends less than the principal earns. But taking out 1/3 of the earnings changes the equation considerably.

It does. But over that time period $100 million still makes sense. Remember -- those gains include inflation as the assumption is that the market will move over time more or less even with inflation.