Author Topic: Retire with just $620,000?  (Read 13317 times)

RookieStache

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Retire with just $620,000?
« on: June 05, 2018, 11:09:50 AM »
I mess around with all of my accounts on an excel sheet I made and found out the following:

Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.

Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?

Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.

 

jim555

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Re: Retire with just $620,000?
« Reply #1 on: June 05, 2018, 11:13:02 AM »
Plug your numbers in https://firecalc.com/ and see your chances.

Gronnie

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Re: Retire with just $620,000?
« Reply #2 on: June 05, 2018, 11:20:28 AM »
You will be highly susceptible to sequence of returns risk. If you are willing and able to go back to work, you could certainly try.

BTDretire

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Re: Retire with just $620,000?
« Reply #3 on: June 05, 2018, 11:23:11 AM »
If we had a 20% market correction, you would be under $500,000.
Stuff happens, have a plan.

RookieStache

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Re: Retire with just $620,000?
« Reply #4 on: June 05, 2018, 11:43:41 AM »
Plug your numbers in https://firecalc.com/ and see your chances.

Thanks for this, surprised I haven't come across this yet.

44% success rate, actually higher than I thought.

95% success rate if that portfolio was $1,000,000. That's promising.

Eric

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Re: Retire with just $620,000?
« Reply #5 on: June 05, 2018, 11:46:34 AM »
I mess around with all of my accounts on an excel sheet I made and found out the following:

Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.

A 6.45% WR is unlikely to work, because the stock market is not a savings account.  While 7% may be the long term average, there's a ton of volatility.  www.cFIREsim.com says that historically you would've had greater than $0 after 30 years only 47% of the time.  If your retirement period is longer than 30 years, the odds decrease.  Does that inspire a lot of confidence in your plan?

Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?

Mostly crazy, yeah.  Or at least, your "retirement" will likely contain lots of lots of mandatory work.  So that would be up to you whether you consider that worth it.

Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.

I don't see anyone advocating for a 2% WR, let alone "so many".  Where are you seeing that?  But yes, I think it's safe to conclude that a 2% WR would indeed be overkill.  However, there's a large space between 2% and 6.45% for which it would be more reasonable.


But an even better plan may be to spend less than $40,000.  That way you can choose a WR with a high likelihood of success AND not have to save as much.


boarder42

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Re: Retire with just $620,000?
« Reply #6 on: June 05, 2018, 11:49:11 AM »
basically what Eric said

Eric

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Re: Retire with just $620,000?
« Reply #7 on: June 05, 2018, 11:50:39 AM »
Plug your numbers in https://firecalc.com/ and see your chances.

Thanks for this, surprised I haven't come across this yet.

44% success rate, actually higher than I thought.

95% success rate if that portfolio was $1,000,000. That's promising.

This is derived from the Trinity Study.  You should probably read it, considering that you're likely to base your retirement on it.

https://www.onefpa.org/journal/Pages/Portfolio%20Success%20Rates%20Where%20to%20Draw%20the%20Line.aspx


2Birds1Stone

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Re: Retire with just $620,000?
« Reply #8 on: June 05, 2018, 12:07:04 PM »
I see others have already demystified this for you.

I plan on retiring on less than that, but I also spend a heck of a lot less than $40k/yr.

RookieStache

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Re: Retire with just $620,000?
« Reply #9 on: June 05, 2018, 12:20:28 PM »
I see others have already demystified this for you.

I plan on retiring on less than that, but I also spend a heck of a lot less than $40k/yr.

A couple above made it seem as this is my plan, clearly not... Just found it interesting that it seems feasible. I selected $40,000 as it seems like it would be a standard that would easily be able to be hit. When a retire, i'd expect closer to $28,000-$30,000 a year.

Good to hear someone is retiring on less than that, as many make it seems like a grave mistake.

ontheway2

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Re: Retire with just $620,000?
« Reply #10 on: June 05, 2018, 12:24:43 PM »
I see others have already demystified this for you.

I plan on retiring on less than that, but I also spend a heck of a lot less than $40k/yr.

A couple above made it seem as this is my plan, clearly not... Just found it interesting that it seems feasible. I selected $40,000 as it seems like it would be a standard that would easily be able to be hit. When a retire, i'd expect closer to $28,000-$30,000 a year.

Good to hear someone is retiring on less than that, as many make it seems like a grave mistake.

The number you need is directly correlated to what you plan to spend. Many don't need 2mil because they don't plan to spend 80k.
You do have to account for inflation though, and it doesn't seem as you are

2Birds1Stone

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Re: Retire with just $620,000?
« Reply #11 on: June 05, 2018, 12:36:22 PM »
Right on @RookieStache , 7% is not sustainable because all it would take is a few years of negative returns to eat away at your principal where you would not be able to recover.

Now if you had some way of earning 7% guaranteed return (inflation adjusted) then you would be set!

My #'s work because my average spend over the past 4 years has been ~$22-23k/yr.

ChpBstrd

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Re: Retire with just $620,000?
« Reply #12 on: June 05, 2018, 01:25:55 PM »
I'm kinda old, but I remember when one could earn 7% in safe corporate bonds. My online savings account paid 5.5% in 2007. The economy has been in Oz for so long most people have forgotten what historically normal looks like. Compared to historical norms, we are in an everything bubble.

For an example of someone retired on a half-mil with expenses around 25k, see http://velociraptor.cc. Understand that his approach of using options and CEFs has yet to be tested by a recession, but then again, there he is doing it.

Fishindude

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Re: Retire with just $620,000?
« Reply #13 on: June 05, 2018, 02:30:33 PM »
Whole lot of people have retired with less and done OK, but they probably learned how to live on less than $40K per year.
Heck, I know a few folks that probably live on only $25K per year and are happy.   It's just a matter of what your needs are.

Bendigirl

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Re: Retire with just $620,000?
« Reply #14 on: June 05, 2018, 02:33:22 PM »
Iím even older and remember when BF, now husband, was paying 17 or18% on his mortgage.  Ten percent on a term deposit was insulting...

I had never used the fire calc before so I just played with that...fun.  Totally need to start spending far more! 

rob in cal

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Re: Retire with just $620,000?
« Reply #15 on: June 05, 2018, 02:51:57 PM »
  Also, where does social security fit in this equation.  If you are closing in on it, then 620k with a lower wr starts to look a lot better.

Financial.Velociraptor

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Re: Retire with just $620,000?
« Reply #16 on: June 05, 2018, 04:36:28 PM »
I'm kinda old, but I remember when one could earn 7% in safe corporate bonds. My online savings account paid 5.5% in 2007. The economy has been in Oz for so long most people have forgotten what historically normal looks like. Compared to historical norms, we are in an everything bubble.

For an example of someone retired on a half-mil with expenses around 25k, see http://velociraptor.cc. Understand that his approach of using options and CEFs has yet to be tested by a recession, but then again, there he is doing it.

Hey!  I resemble that remark!

Seriously though... I retired on a withdrawal rate higher than the 6.45% you are proposing.  That situation is a little different as my exit date was 5OCT2012 with a huge federal reserve stimulus program providing a tailwind.  Also different, I budget only 25,000 a year and so far have spent less for all five years of ER.  Finally, my home is paid for so stache is technically larger than ~500k.  I'll also note, I intended to take on part time work for 5-7 years upon ER to bridge any gaps.  I was very fortunate with my timing to coincide with the aforementioned stimulus and thus never needed the extra income due to rapid stache growth.

If you insist on doing this:

[1] See if you can get spending under 40k.  This will improve your chances while simultaneously supercharging your savings for the final months of stache building.
[2] Sequence of returns risk is going to be huge for you.  You are going to need a larger than normal bond allocation.  I don't like open ended funds for bonds.  When bonds are falling, shares get liquidated resulting in forced selling (at a loss) for the fund.  Closed End Funds do not have this risk and tend to hold notes to maturity, e.g. your duration risk will eventually expire.  There are lots of CEF funds invested in bonds and/or other debt instruments that yield around 10%.  (Else, lots of municipal oriented funds that yield around 6%.)  A forty percent allocation to 10% yielders gets you to the 4% rule while leaving 60% of your portfolio available to chase additional income or growth.  In your case, the 60% would need to yield 4.08% to achieve the remaining portion of 6.45% withdrawal rate.  Completely achievable with a bundle of REITs, BDCs, MLPs, and dividend stocks.  But seriously work on number [1] first.
[3] My concept for the remaining 60% of my portfolio not tied up in debt instruments is to sell options.  Dividend growth investing would equally valid.  The idea is to be income centric.  I'm not looking to sell appreciated assets for long term capital gains.  I'm looking to generate enough income to cover my budget plus taxes and nominal stache growth thus becomes unimportant.  (On the taxes note, recognize my approach is not tax efficient.  Getting spending down has helped me live a life where my tax bracket is sufficiently low that I have collected the maximum ACA subsidy three times now; number [1] above is really important and deserves repeating yet again.)

HTH and I'm available by PM if you want something more specific in private.

DreamFIRE

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Re: Retire with just $620,000?
« Reply #17 on: June 05, 2018, 04:57:06 PM »
Too much missing detail in the OP.   I don't know where people are recommending $2M to retire.   That number would be tied to your expenses in retirement, including healthcare and taxes, how many years you're going to live off the stash and the amount of SS and pension (and when) you will receive, etc.  For me personally, $620,000 would be plenty to pay my bare bones expenses with several hundred extra to spend before I draw SS in another 16 years, dependent on ACA.

2Birds1Stone

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Re: Retire with just $620,000?
« Reply #18 on: June 05, 2018, 05:02:04 PM »
Clearly y'all didn't read the rest of the thread where OP stated that this was NOT his plan, just a thought exercise.

nkt0

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Re: Retire with just $620,000?
« Reply #19 on: June 06, 2018, 06:29:58 AM »
following

boarder42

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Re: Retire with just $620,000?
« Reply #20 on: June 06, 2018, 07:10:17 AM »
i think the better thought exercise here is what if bonds get back up to 7-15% yields on them.  could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.

i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year.  and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term. 

i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.
« Last Edit: June 06, 2018, 07:12:17 AM by boarder42 »

dude

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Re: Retire with just $620,000?
« Reply #21 on: June 06, 2018, 09:39:14 AM »
I mess around with all of my accounts on an excel sheet I made and found out the following:

Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.

Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?

Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.

There is a pretty widespread current of thought out there (based on PE10 and other factors) that returns going forward, for the next decade or so, will underperform historical averages, and that 4% real return is likely. Obviously, know one can know the future for certain, and prognosticators often get it wrong, but I do think (from my research) that they are likely to be right. 

RookieStache

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Re: Retire with just $620,000?
« Reply #22 on: June 06, 2018, 10:05:23 AM »
I mess around with all of my accounts on an excel sheet I made and found out the following:

Starting with $620,000, if I took out $40,000 a year at a 7% growth rate, this would still grow at $500 a year.

Would it be crazy to retire with $620,000 in your retirement account if $40,000 would be easily feasible?

Not saying I would do this, but it makes me think that maybe aiming for $2 million (like so many suggest) would be overkill.

There is a pretty widespread current of thought out there (based on PE10 and other factors) that returns going forward, for the next decade or so, will underperform historical averages, and that 4% real return is likely. Obviously, know one can know the future for certain, and prognosticators often get it wrong, but I do think (from my research) that they are likely to be right.

I figure this to be the case as well. I also figure that after that decade of lower returns would come quite the spike to even it out. I just turned 30, so I guess I'll have a better understanding on what my portfolio will need to look like if I want to RE in 15 years or so.

I understand this isn't the most trusted of websites, but I see articles like this all the time.

https://www.thestreet.com/story/13465544/1/you-ll-need-2-million-before-you-can-think-of-retirement.html

Not to mention, many of the Boggleheads posters state that you should max out 401K and IRA before you pay down mortgage/529's/save out of retirement/taxable accounts etc to be able to retire early.

If you were to start maxing out 401K and IRA at 28, with a 7% rate of return, you would have $2 million at 55.
You would also have $647,000 at the age of 43. Which some would argue it being enough to retire on at $40,000 a year if you were to downswing to $25,000 on bad years.

Again, not going to even attempt to retire with anything less than $1.25 million in retirement accounts... I just find it interesting that the math and logic lends itself to this being a successful approach about 45% of the time. (Not even including SS, as I don't want to bank on that mess)

« Last Edit: June 06, 2018, 10:07:51 AM by RookieStache »

boarder42

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Re: Retire with just $620,000?
« Reply #23 on: June 06, 2018, 10:18:25 AM »
1. the PE10 figure and lower returns for the next 10 years could all come in one year
2. why would there be a spike after a correction to the norm
3. the PE10 figure doesnt have to recede to the norm thru decrease in returns - it could return to the norm thru increases in profits
4. if you remove 2008 and 2009 from the calculation we're not abnormally high
5. accounting practices have changed which many believe equates to a higher norm for the Shiller

you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.

You're in the MMM forums quoting the general heard think of americans saying you need X to retire isnt worth they time or effort. 

you need to do more than max retirement accounts if you really want to retire early.

ChpBstrd

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Re: Retire with just $620,000?
« Reply #24 on: June 06, 2018, 10:23:05 AM »
i think the better thought exercise here is what if bonds get back up to 7-15% yields on them.  could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.

i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year.  and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term. 

i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.

It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.

A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.

For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.

boarder42

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Re: Retire with just $620,000?
« Reply #25 on: June 06, 2018, 11:06:36 AM »
i think the better thought exercise here is what if bonds get back up to 7-15% yields on them.  could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.

i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year.  and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term. 

i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.

It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.

A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.

For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.

its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.

again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.

boarder42

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Re: Retire with just $620,000?
« Reply #26 on: June 06, 2018, 11:11:17 AM »
so for instance the peak of the bond market happens again - ~11% yield on a 10 year treasury note in 1985 the 5 year didnt exist in 85 but it was 8.67% in 1990 the 20 year was 8% in 1995 the 30 year was 8.26% in 1990 ...

in theory couldnt one buy a bunch of bonds that matured across different time horizons for each year with yield between 8 and 11% - there by guaranteeing the growth of their money over time.

chasesfish

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Re: Retire with just $620,000?
« Reply #27 on: June 06, 2018, 09:03:16 PM »
You'd be crazy to retire, but you wouldn't be crazy to scale back work and only earn what you need to live on and me the $620,000 keep growing.

maizeman

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Re: Retire with just $620,000?
« Reply #28 on: June 06, 2018, 09:30:35 PM »
its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.

again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.

If inflation spikes, but people expect it to quickly recede back to our (abnormal) low levels, interest rates won't change nearly as much as inflation does, and they'll change much less for 30 year bonds than for shorter duration bonds.

The inflation increase is only beneficial if we get a spike in inflation that then drops again rapidly, but interest rates still rise a lot because people expect high inflation to continue indefinitely, but you still go heavily into bonds because you're expecting inflation to drop, and it turns out that you were right and the market as a whole was wrong.

It could happen, but it's like trying to time the market. You might strike it rich, but you're more likely to end up losing an awful lot of money.

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Re: Retire with just $620,000?
« Reply #29 on: June 07, 2018, 02:53:37 AM »
You'd be crazy to retire, but you wouldn't be crazy to scale back work and only earn what you need to live on and me the $620,000 keep growing.





This^

chasesfish

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Re: Retire with just $620,000?
« Reply #30 on: June 07, 2018, 06:39:57 AM »
I'll add a little bit more detail...

I've gone back and looked at my net worth tracking year over year.   I signed up for a pretty big promotion and disruptive life events with just over $700,000 in net worth just under five years ago.   That $700,000 invested has been predominately responsible for my net worth today, even more so than the additions.   You get to a critical mass where the money snowballs if you just don't draw it down.

I look back and think I was faced with two options, both of which would create regret:  Will I wonder if I ever could have climbed the corporate ladder one more, to the job I thought I always wanted?  or, Will I regret not taking off and moving to the beach and picking up enough part-time work to cover basic living expenses.

FI doesn't have to mean grinding it out in a cubicle or office for 15-20 years, once you get to that critical mass you can really scale back

boarder42

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Re: Retire with just $620,000?
« Reply #31 on: June 07, 2018, 06:44:32 AM »
I'll add a little bit more detail...

I've gone back and looked at my net worth tracking year over year.   I signed up for a pretty big promotion and disruptive life events with just over $700,000 in net worth just under five years ago.   That $700,000 invested has been predominately responsible for my net worth today, even more so than the additions.   You get to a critical mass where the money snowballs if you just don't draw it down.

I look back and think I was faced with two options, both of which would create regret:  Will I wonder if I ever could have climbed the corporate ladder one more, to the job I thought I always wanted?  or, Will I regret not taking off and moving to the beach and picking up enough part-time work to cover basic living expenses.

FI doesn't have to mean grinding it out in a cubicle or office for 15-20 years, once you get to that critical mass you can really scale back

yeah i've got some strong golden handcuffs that keep me at work - but those handcuffs only require that i work 1000 hours a year to keep them growing - really i think i'd have to work 24 hours a week and still probably get some frowns from upper management.  but i'm strongly considering a cut back to 4 day weeks this year. and possibly 3 day weeks in the future - our next egg has reached "critical mass" as you call it with 750k total value.  but it is an issue as the next 2 years could get me up to a level where money just pours from the heavens- but on the flip side do i really need any of it- that answer really is no not really.  not a bad place to be in but a tough decision to make.

chasesfish

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Re: Retire with just $620,000?
« Reply #32 on: June 07, 2018, 06:54:58 AM »
@boarder42

Its interesting, I hit that moment where "money pours in from the heavens" at the same time I hit the point of "my time is worth more than anything you can pay me".  My wife asked me "what if they offer you a lot more money to stay?".   I thought about it and told her I'd probably need an up front, cash retention bonus of $300,000 to commit for another year, on top of what they'd pay me.  I also thought I might always switch employers because people are "made whole" in the industry, but I wouldn't do that for the $300,000 - $400,000 plus one year waiting period just because my time is worth more.


boarder42

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Re: Retire with just $620,000?
« Reply #33 on: June 07, 2018, 11:22:59 AM »
@boarder42

Its interesting, I hit that moment where "money pours in from the heavens" at the same time I hit the point of "my time is worth more than anything you can pay me".  My wife asked me "what if they offer you a lot more money to stay?".   I thought about it and told her I'd probably need an up front, cash retention bonus of $300,000 to commit for another year, on top of what they'd pay me.  I also thought I might always switch employers because people are "made whole" in the industry, but I wouldn't do that for the $300,000 - $400,000 plus one year waiting period just because my time is worth more.

yeah thats the paradox - when is your time more important.  its funny b/c up until a year ago when i thought my bonus each year would be in the mid 5 digits when it maxed out i didnt really care - but apparently i love money too much still b/c i found out they would be in the 6 digits possibly in a couple years that flipped a switch where now i'm like - can i really leave all this money on the table. - i'm assuming if i drop to part time i wont get bonus growth to that level.  on the flip side my golden handcuffs - ESOP - basically just continues to kill it whether i work 4 days a week or 3 days a week or 60 hours a week none of that effect the insane returns.  so basically every hour worked in pursuit of 60-70k more in bonus in a couple years loses value each year at the compounding of the company stock.  its really a tough mental battle i fight b/c i can see  that 6 figure bonus - and right now i'm around 30.  if i'd never been told this 6 digit light existed at the end of this tunnel i'd likely be having a convo with my boss in a couple weeks about dropping to 4 day weeks.

oh the struggles of the oversaving but not quite there early retiree

RookieStache

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Re: Retire with just $620,000?
« Reply #34 on: June 07, 2018, 12:58:21 PM »

you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.

you need to do more than max retirement accounts if you really want to retire early.

This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.

Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.   

maizeman

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Re: Retire with just $620,000?
« Reply #35 on: June 07, 2018, 01:07:49 PM »
What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.

Quote
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.   

Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.

If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.

Padonak

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Re: Retire with just $620,000?
« Reply #36 on: June 07, 2018, 01:08:52 PM »
ptf

boarder42

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Re: Retire with just $620,000?
« Reply #37 on: June 07, 2018, 01:38:03 PM »

you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.

you need to do more than max retirement accounts if you really want to retire early.

This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.

Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.

you can use a spreadsheet to project a rate of return to determine when you can FIRE but you should look at historical data to determine a withdrawal rate and strategy that you're comfortable with.  when projecting a FIRE date if you're wrong about the returns in your projections (which you will be b/c we just assume constant return)  you just get to RE earlier or later.  but retursn really dont drive FIRE dates savings rates do esp if you're talking about an income and spending low enough to FIRE on less than maxing retirement accounts - the numbers you were proposing here were 40k and 25k which if you're maxing retirement accounts at 24k a year would take you 17 years to get there if you were spending 25k or ~24 years to get there if you were spending 40k .  so yes to retire in 15 years you need to do more than max retirement accounts.

You should go read the investment order to understand the order in which you should invest.  Tax advantaged accounts are the most cost effective way to acheive FIRE when using equities.

yes i balk at it b/c there is a calculator that was shown above that can calculate exactly what you want to know but first we'd have to know what historical failure rate youre comfortable with. 

there arent hypotheticals here given parameters savings and withdrawal strategies can all be back tested. 

for instance in cFIREsim
40k retirement withdrawal with a variable withdrawal ability to drop to 25k and ceiling of 40k  would result in a nest egg of

620k - only inceases that 44% to 53%
750k - 88%
850k - 99.07%
900k - 100%

if we run the variable withdrawal inversely meaning we start out only withdrawing 25k and use it to increase our sending up to 40k you get a success rate of 91.67% with 620k
« Last Edit: June 07, 2018, 01:48:51 PM by boarder42 »

RookieStache

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Re: Retire with just $620,000?
« Reply #38 on: June 07, 2018, 01:44:58 PM »
What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.

Quote
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.   

Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.

If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.

Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.

I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return.  I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...


boarder42

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Re: Retire with just $620,000?
« Reply #39 on: June 07, 2018, 01:49:48 PM »
What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.

Quote
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.   

Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.

If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.

Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.

I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return.  I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...

you keep changing the rules and the parameters of the equation - the answer is you dont fucking work til your 55  not a single person here is advocating for oversaving.

but no one here considers saving 20% of your income from 25 -55 really seaking early retirement - your first statement was 15 years.  whats your end goal what are you trying to learn here.

you're only saving 20% of you income at 24k which works out to spending 96k based on these numbers you're on track to retire in 37 years or at normal age of 62

MOD NOTE: You can argue without being rude.
« Last Edit: June 08, 2018, 11:51:49 AM by arebelspy »

RookieStache

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Re: Retire with just $620,000?
« Reply #40 on: June 07, 2018, 01:52:07 PM »

you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.

you need to do more than max retirement accounts if you really want to retire early.

This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.

Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.

you can use a spreadsheet to project a rate of return to determine when you can FIRE but you should look at historical data to determine a withdrawal rate and strategy that you're comfortable with.  when projecting a FIRE date if you're wrong about the returns in your projections (which you will be b/c we just assume constant return)  you just get to RE earlier or later.  but retursn really dont drive FIRE dates savings rates do esp if you're talking about an income and spending low enough to FIRE on less than maxing retirement accounts - the numbers you were proposing here were 40k and 25k which if you're maxing retirement accounts at 24k a year would take you 17 years to get there if you were spending 25k or ~24 years to get there if you were spending 40k .  so yes to retire in 15 years you need to do more than max retirement accounts.

You should go read the investment order to understand the order in which you should invest.  Tax advantaged accounts are the most cost effective way to acheive FIRE when using equities.

yes i balk at it b/c there is a calculator that was shown above that can calculate exactly what you want to know but first we'd have to know what historical failure rate youre comfortable with. 

there arent hypotheticals here given parameters savings and withdrawal strategies can all be back tested. 

for instance in cFIREsim
40k retirement withdrawal with a variable withdrawal ability to drop to 25k and ceiling of 40k  would result in a nest egg of

620k - only inceases that 44% to 53%
750k - 88%
850k - 99.07%
900k - 100%

if we run the variable withdrawal inversely meaning we start out only withdrawing 25k and use it to increase our sending up to 40k you get a success rate of 91.67% with 620k

So you agree with the calculator and the calculator states that 900k has a 100% success rate with $25K to $40K variable withdraw rate correct?

It's quite easy to hit $900,000 without maxing retirement accounts.

boarder42

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Re: Retire with just $620,000?
« Reply #41 on: June 07, 2018, 01:55:23 PM »

you can go on and on here but the way you actually retire in 15 years and have an understanding of that is to just build a spreadsheet project your returns and savings rate and go from there.

you need to do more than max retirement accounts if you really want to retire early.

This is exactly why I made this thread... Because I built a spreadsheet with projected 7% rate of return. With these numbers, it states that the $620,000 will stay exactly there at a $40,000 withdraw rate. I understand the market fluctuates and that not all years will be created equal, this is why I chose $40,000, so you could withdraw less on bad years.

Your statement about maxing out retirement accounts to retire early seems to be the opposite of what the others posted on here. What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.

you can use a spreadsheet to project a rate of return to determine when you can FIRE but you should look at historical data to determine a withdrawal rate and strategy that you're comfortable with.  when projecting a FIRE date if you're wrong about the returns in your projections (which you will be b/c we just assume constant return)  you just get to RE earlier or later.  but retursn really dont drive FIRE dates savings rates do esp if you're talking about an income and spending low enough to FIRE on less than maxing retirement accounts - the numbers you were proposing here were 40k and 25k which if you're maxing retirement accounts at 24k a year would take you 17 years to get there if you were spending 25k or ~24 years to get there if you were spending 40k .  so yes to retire in 15 years you need to do more than max retirement accounts.

You should go read the investment order to understand the order in which you should invest.  Tax advantaged accounts are the most cost effective way to acheive FIRE when using equities.

yes i balk at it b/c there is a calculator that was shown above that can calculate exactly what you want to know but first we'd have to know what historical failure rate youre comfortable with. 

there arent hypotheticals here given parameters savings and withdrawal strategies can all be back tested. 

for instance in cFIREsim
40k retirement withdrawal with a variable withdrawal ability to drop to 25k and ceiling of 40k  would result in a nest egg of

620k - only inceases that 44% to 53%
750k - 88%
850k - 99.07%
900k - 100%

if we run the variable withdrawal inversely meaning we start out only withdrawing 25k and use it to increase our sending up to 40k you get a success rate of 91.67% with 620k

So you agree with the calculator and the calculator states that 900k has a 100% success rate with $25K to $40K variable withdraw rate correct?

It's quite easy to hit $900,000 without maxing retirement accounts.

not sure what game your playing here but you're smelling more and more like a troll. and yeah if you're going to say over 30 years its easier to hit 900k with out maxing retirement accounts but again none of these were your original parameters.  you were at 15 years. and to retire in 15 years you need to be saving 55% of your income from the start. which would max retirement accoutns for most make 120k a year.

maizeman

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Re: Retire with just $620,000?
« Reply #42 on: June 07, 2018, 01:57:37 PM »
What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.
Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.

Unfortunately "low" and "high" are very hard to quantify, and different people will read the same words and come to very different conclusions.

Perhaps you should investigate this yourself with one of the many online tools like cFireSim, since you can program in your own values for flexibility, and also make your own assessments of what an acceptably low level of risk is.

Quote
Quote
Quote
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.   

Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.

If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.

I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return.  I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...

See here were are getting into default assumptions again. I see no reason to assume people are married unless they tell me that they are, yet that's an assumption you're apparently bringing to the discussion of what a reasonable amount to save for retirement is.

Similarly, I realize in the general public that retiring at 55 is considered early. But on this forum specifically, I wouldn't be comfortable making the default assumption that sometime here speaking about wanting to "retire early" == "planning to work for 30 years to save enough money."

Anyway, it sounds like we have very different frames of reference so further discussion is unlikely to prove fruitful. However you've clearly got a plan that you feel comfortable with, even though I would still urge you to read up a lot more on sequence of returns risk.

Good luck to you.

RookieStache

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Re: Retire with just $620,000?
« Reply #43 on: June 07, 2018, 02:02:55 PM »
At the risk of using this word for the first time, I believe your first post was the behavior of a "troll".

I simply posted that 7% rate of return on $620,000 statistically shows that it will grow with a withdraw rate of $40,000. I brought it up for discussion because I was surprised and found it interesting.

You then state that I need to max accounts, that it's a crazy plan, and I need to learn the investment order.

I understand how powerful all tax advantaged accounts are and am utilizing them to the best of my abilities. But with a combined gross of $120,000 (again, very LCOLA), and two children, throwing $48,000 at retirement accounts doesn't seem too realistic at this point in our lives.

And you did answer my question, and I thank you for that. From a numbers point of view, if flexible ($25K-$40K withdraw) retiring on $620,000 has a 91% chance of succeeding.

RookieStache

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Re: Retire with just $620,000?
« Reply #44 on: June 07, 2018, 02:05:03 PM »
What number would you say you need to retire at $40,000 a year withdraw rate on average years of return while pulling out $25,000 a year on lower years of return? It's one thing to balk at a hypothetical, it's another to throw numbers at it yourself.

What risk of failure are you willing to accept? Once we've got that, it's much easier to run numbers.
Would want the risk of failure to be low, but the flexibility is quite high. And by flexibility, I mean lowering expenses to $25,000 a year would be quite easy.

Unfortunately "low" and "high" are very hard to quantify, and different people will read the same words and come to very different conclusions.

Perhaps you should investigate this yourself with one of the many online tools like cFireSim, since you can program in your own values for flexibility, and also make your own assessments of what an acceptably low level of risk is.

Quote
Quote
Quote
Maxing out retirement accounts isn't necessary to retire early when you have no debt in a LCOLA, unless you want to move on from this life with millions in your estate.   

Are you saying you want to retire early while saving less than $24,000/year (401k + Roth)? If so, yes you can do that if your expenses are low enough.

If you're saving putting your savings into retirement accounts (at least until they're maxed out) doesn't matter if you have no debt and live somewhere LCOL.... without knowing your reasoning I'd say that seems like a false statement.

I'm currently putting in 20% of our household income into retirement. This is circa $24,000 but that's combined savings between my wife and myself. I don't believe stashing away $48,000 a year for 30 years is needed to retire early (I consider age 55 early). Doing so, would put you at 4.8 million with a conservative 6% rate of return.  I understand that some people don't believe in the 4% rule but this comes out to less than 1% withdraw rate at $40,000...

See here were are getting into default assumptions again. I see no reason to assume people are married unless they tell me that they are, yet that's an assumption you're apparently bringing to the discussion of what a reasonable amount to save for retirement is.

Similarly, I realize in the general public that retiring at 55 is considered early. But on this forum specifically, I wouldn't be comfortable making the default assumption that sometime here speaking about wanting to "retire early" == "planning to work for 30 years to save enough money."

Anyway, it sounds like we have very different frames of reference so further discussion is unlikely to prove fruitful. However you've clearly got a plan that you feel comfortable with, even though I would still urge you to read up a lot more on sequence of returns risk.

Good luck to you.

I appreciate your response, but it seems you skipped ahead a bit. I stated multiple times that I would never even think of retiring without upwards of $1.2 million (aiming for $2). This was simply a discussion topic.

ChpBstrd

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Re: Retire with just $620,000?
« Reply #45 on: June 07, 2018, 02:22:49 PM »
i think the better thought exercise here is what if bonds get back up to 7-15% yields on them.  could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.

i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year.  and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term. 

i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.

It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.

A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.

For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.

its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.

again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.

To illustrate, suppose you put your entire $1M portfolio in bonds yielding 7%. The bonds pay your accounts exactly $70k each year. You plan to withdraw $40k each year for living expenses. The other $30k gets added to your account. You start year 2 with $1,030,000.

This sounds great except that prices increased 8% that year. In year 2, your living expenses rise to $43,200. You just surpassed your 4% withdraw plan because you'd need $1,080,000 to support that level of spending and you only have $1,030,000. So your WR increases to 4.2%.

You can spreadsheet this out to see that as long as ( inflation > bond interest - WR ) the portfolio's purchasing power will decline and the WR will increase. After several years of this, the portfolio's long term survival is seriously impaired.

Stocks are more volatile, but their ability to raise earnings is why the Trinity study emphasized that any portfolio with at least some equity exposure is likely to survive. The illustration above demonstrates the riskiness of safe bonds.

boarder42

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Re: Retire with just $620,000?
« Reply #46 on: June 07, 2018, 03:04:18 PM »
i think the better thought exercise here is what if bonds get back up to 7-15% yields on them.  could you shift your entire portfolio into bonds and live off of those for an inordinantly long amount of time.

i'm not exactly sure how this works or how you'd go about setting it up so you could get money out each year.  and the only time this happenened was also during the hyperinflation period so you wouldnt be keeping up with inflation in the short term. 

i really dont understand how individual bonds work b/c i've never planned to own more than 10%(in VBTLX) but if yields got up there again i think there would be some interesting discussions going on here.

It's a story of inflation. Stocks and real estate with their rising earnings over long periods of time eventually catch up to inflationary spikes, but the fixed payments of bonds decrease in purchasing value every year when there is not a deflationary crisis occurring.

A few years of high inflation would be a gift to today's highly indebted companies. They'd raise prices, raise margins in dollar terms, and outgrow their interest payments.

For the early retiree with a portfolio consisting of 7% bonds, the picture is reversed. Deduct 4% for living expenses and you have 3% remaining that you must reinvest in order to keep up with inflation. But if inflation exceeds 3%, your portfolio starts losing real value. This is the sad story of many 1960s-70s early retirees.

its not necessarily reversed if you can lock in the rate for a long period of time like the inverse of a mortgage i have a mortgage fixed at 3.25% for 30 years if i can lock in a ladder of bonds that pay out over 7% for the next 30 years during a time of high inflation i reap the rewards in the future. taken in a vacuum yes its awful but if we assume things will receed to the norm why would something like this not be extremely beneficial to anyone not just an early retiree.

again this guy(me) doesnt get how bonds work exactly or if something like this would be possible.

To illustrate, suppose you put your entire $1M portfolio in bonds yielding 7%. The bonds pay your accounts exactly $70k each year. You plan to withdraw $40k each year for living expenses. The other $30k gets added to your account. You start year 2 with $1,030,000.

This sounds great except that prices increased 8% that year. In year 2, your living expenses rise to $43,200. You just surpassed your 4% withdraw plan because you'd need $1,080,000 to support that level of spending and you only have $1,030,000. So your WR increases to 4.2%.

You can spreadsheet this out to see that as long as ( inflation > bond interest - WR ) the portfolio's purchasing power will decline and the WR will increase. After several years of this, the portfolio's long term survival is seriously impaired.

Stocks are more volatile, but their ability to raise earnings is why the Trinity study emphasized that any portfolio with at least some equity exposure is likely to survive. The illustration above demonstrates the riskiness of safe bonds.

completely understand but again you're looking at it in a vacuum of specifically this year.  i agree if we have sustained high inflation that bonds stay at levels that high it fails.  but that likely also starts to erode stock portfolios as well just like the 1960's.  if the bond yield for a 30 year treasury note exceeds the avg 30 year return for equities i think some very interesting conversations will start around here. 

@RookieStache best of luck i'm done playing whatever random game you want to play b/c you're mixing what you want with hypotheticals on a consistent basis while constantly changing the rules of the game.

Financial.Velociraptor

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Re: Retire with just $620,000?
« Reply #47 on: June 07, 2018, 03:38:03 PM »
To illustrate, suppose you put your entire $1M portfolio in bonds yielding 7%. The bonds pay your accounts exactly $70k each year. You plan to withdraw $40k each year for living expenses. The other $30k gets added to your account. You start year 2 with $1,030,000.

This sounds great except that prices increased 8% that year. In year 2, your living expenses rise to $43,200. You just surpassed your 4% withdraw plan because you'd need $1,080,000 to support that level of spending and you only have $1,030,000. So your WR increases to 4.2%.

You can spreadsheet this out to see that as long as ( inflation > bond interest - WR ) the portfolio's purchasing power will decline and the WR will increase. After several years of this, the portfolio's long term survival is seriously impaired.

Stocks are more volatile, but their ability to raise earnings is why the Trinity study emphasized that any portfolio with at least some equity exposure is likely to survive. The illustration above demonstrates the riskiness of safe bonds.

Just for discussion, the academic literature suggests the minimum volatility portfolio is 72% bonds, 28% equity.  Going 100% bonds is nonsensical as it actually starts increasing your volatility after 72% due to all the assets being highly correlated. 

boarder42

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Re: Retire with just $620,000?
« Reply #48 on: June 07, 2018, 04:51:32 PM »
I don't know if I said 100%. But if a 30 year bond is yielding 15% I think we'd all be pretty dumb to not place a larger stake in bonds.

maizeman

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Re: Retire with just $620,000?
« Reply #49 on: June 07, 2018, 05:49:15 PM »
I don't know if I said 100%. But if a 30 year bond is yielding 15% I think we'd all be pretty dumb to not place a larger stake in bonds.

If bonds were yielding 15 percent, we'd definitely be in an at least double digit inflation environment, and I would run away screaming from bonds to equities.