Author Topic: Retire with just $620,000?  (Read 7826 times)

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #50 on: June 07, 2018, 07:10:59 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.

I think this would be shortsighted. Like paying down the crazy low mortgage we have now. Buying a 30 year note that yields 15% with part of your portfolio.   If you assume we'll stay in the crazy high inflation environment forever you should probably run back to work. As equities die in this environment too. As can be seen by the worst year to FIRE ever 1966. 

I still feel like you're all looking at this in a vacuum of the year you buy the bond. The us stock market has never averaged 15% ROI over 30 years.

If you put 10% of a 2MM portfolio into a 30y yielding 15% and you subtract out avg inflation it's going to be worth 6MM in 30 years in today dollars. 

And as I said earlier if we assume inflation will maintain the high levels everyone has problems big problems
« Last Edit: June 07, 2018, 07:16:16 PM by boarder42 »
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

maizeman

  • Handlebar Stache
  • *****
  • Posts: 2351
Re: Retire with just $620,000?
« Reply #51 on: June 07, 2018, 07:42:11 PM »
If you assume we'll stay in the crazy high inflation environment forever you should probably run back to work. As equities die in this environment too. As can be seen by the worst year to FIRE ever 1966.

In rapidly increasing inflation environments equities have short term problems, but eventually though they catch back up, because they're earning profits in inflated dollars.

In high inflation environments, the interest AND principal of bonds eventually becomes worthless and you're out of the FIRE game for good.

Quote
If you put 10% of a 2MM portfolio into a 30y yielding 15% and you subtract out avg inflation it's going to be worth 6MM in 30 years in today dollars. 

If you find 30 year bonds (without significant default risk, so let's constrain ourselves to us government bonds) with a yield of 15%, it means the as a whole is market is expecting inflation to stay high for a very, very long time.

To me, trying to outguess the market and say that you're sure interest rates will return to the exceptional lows we have today, seems like any other form of timing the market. A person may win, and they may lose, but statistically it seems likely that they'll eventually lose more than they gain.

Now I know very little about what inflation rates will be 25 or 30 years from now, and so my inclination is to trust the market's collective best guess.* You are certainly free to do otherwise.

*Subject to a couple of constraints:
1) I'm pretty confident interest rates in the USA won't go significantly negative for any length of time.
2) If the average interest rate on the national debt today was 15%, interest on the $21.2 trillion dollar debt ($3.18 trillion) would approximately equal total federal revenue from all sources, so the fed would either need to print money (extremely high inflation), or we'd need to default on the debt, neither of which seems good for bond holders.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #52 on: June 07, 2018, 07:55:21 PM »
If you assume we'll stay in the crazy high inflation environment forever you should probably run back to work. As equities die in this environment too. As can be seen by the worst year to FIRE ever 1966.

In rapidly increasing inflation environments equities have short term problems, but eventually though they catch back up, because they're earning profits in inflated dollars.

In high inflation environments, the interest AND principal of bonds eventually becomes worthless and you're out of the FIRE game for good.

Quote
If you put 10% of a 2MM portfolio into a 30y yielding 15% and you subtract out avg inflation it's going to be worth 6MM in 30 years in today dollars. 

If you find 30 year bonds (without significant default risk, so let's constrain ourselves to us government bonds) with a yield of 15%, it means the as a whole is market is expecting inflation to stay high for a very, very long time.

To me, trying to outguess the market and say that you're sure interest rates will return to the exceptional lows we have today, seems like any other form of timing the market. A person may win, and they may lose, but statistically it seems likely that they'll eventually lose more than they gain.

Now I know very little about what inflation rates will be 25 or 30 years from now, and so my inclination is to trust the market's collective best guess.* You are certainly free to do otherwise.

*Subject to a couple of constraints:
1) I'm pretty confident interest rates in the USA won't go significantly negative for any length of time.
2) If the average interest rate on the national debt today was 15%, interest on the $21.2 trillion dollar debt ($3.18 trillion) would approximately equal total federal revenue from all sources, so the fed would either need to print money (extremely high inflation), or we'd need to default on the debt, neither of which seems good for bond holders.


I disagree with the premise that it will be high for a very very long time. The fed just dropped rates to 0 and that time was very very short in the grand scheme of things.

If you look at the relationship between the 10 and 30 we could assume 30year bonds would have peaked in the 80s around 12- 13 %.  This beat the market if you'd bought one of those over the last 30years. So again explain to me why it has to stay high for a long long time and what would make it worse than equities. 
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

maizeman

  • Handlebar Stache
  • *****
  • Posts: 2351
Re: Retire with just $620,000?
« Reply #53 on: June 07, 2018, 08:11:26 PM »
If you look at the relationship between the 10 and 30 we could assume 30year bonds would have peaked in the 80s around 12- 13 %.  This beat the market if you'd bought one of those over the last 30years. So again explain to me why it has to stay high for a long long time and what would make it worse than equities.

So I'll note that you're now trying to change my position from what I said to one that is easier to argue with but has the disadvantage of not being one I feel any need to defend, since it's not something I ever said.

If you find 30 year bonds (without significant default risk, so let's constrain ourselves to us government bonds) with a yield of 15%, it means the as a whole is market is expecting inflation to stay high for a very, very long time.

I'd be happy to continue this discussion with you, but if you're going to be arguing with me about how I was wrong about things that I didn't say, it doesn't seem destined to be particularly productive, now does it?

ChpBstrd

  • Pencil Stache
  • ****
  • Posts: 971
Re: Retire with just $620,000?
« Reply #54 on: June 07, 2018, 09:36:35 PM »
In the early 80's when US treasury bonds hit double-digits, nobody knew that inflation would not stay that high (or higher) for a very long time. We have the benefit of hindsight only now.

Had you bought Venezuelan bonds a while back when they were yielding 10-15%, you would have lost a significant amount of purchasing power by now. Conditions worsened instead of getting better, and the bonds now yield 33% in selective default.

You can buy 9y bonds from the government of Argentina right now yielding 17.47%, but I strongly advise against it. Their central bank rate is 40%!

http://www.worldgovernmentbonds.com

We in the U.S. enjoy hindsight bias when looking back at the 1980s as a great time to buy treasury bonds. Inflation does not always return to normal. It was not clear at the time that Volker's policy changes would work, when government policies had already failed to contain inflation for a decade.

Perhaps bonds from Egypt, Turkey, Argentina, Venezuela, Kenya, Uganda, or Brazil will pay off with stock market beating returns for the next 30 years. Investors who weathered the Greek panic 3 years ago were handsomely rewarded as yields have fallen from 15% to 4.57%. But good luck selecting the future's Greeks and not the future's Venezuelans.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #55 on: June 08, 2018, 02:21:49 AM »
I agree hindsight is 20/20. But in general for FIRE we assume thing receed to the norm.

@maizeman you litterally said it means the market is expecting inflation rates to stay high for a very long time. To which I presented the counterpoint that the market just had an insanely low inflation and interest rate environment that we're still coming out of and I wouldn't call that a very long time so if it works in one extreme why not the other. And the 80s are a perfect example of a time it was very short in that window.

I agree we can't predict the future. But the examples of many of these other countries I don't think compare as much to the US. Maybe they do. I hope they never get there. But if they do it really doesn't matter if you're in bonds or equities at that point bc FIRE will be failing unless you make some great market timing moves. If we assume it's a very long time of high inflation. 

In the us the fed works to control inflation to around 2-3%. If it's higher I assume they will work to bring it down and lower the opposite. Will what they do work we don't know but they are actively trying to control it.

And again o still go back to mortgage rates.  Everyone who was paying down their mortgage the last few years kept making the point that it was the best risk free return and that banks are lending this low bc rates are gonna stay low for awhile. Why else would they lend so low. My bank calls me everyother week to try to get me to refi.out of my 3.25% 30 year rate.

Im probably not doing much if rates ever get that high but I think we all are having some interesting conversations here about rates. Just like we had some interesting conversations when they were at the other extreme and we could leverage that to our advantage. I guess the only real difference was if you locked in a rate on your mortgage. And rates continued lower you could always go refi in my case for free. With buying a bond if rates continue higher or stay the same you get screwed and you only benefit if things receed to the norm.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

maizeman

  • Handlebar Stache
  • *****
  • Posts: 2351
Re: Retire with just $620,000?
« Reply #56 on: June 08, 2018, 05:28:10 AM »
I agree hindsight is 20/20. But in general for FIRE we assume thing receed to the norm.

We do have to assume inflation adjusted market returns will revert to historical norms. I don't know that we have to generalize that to all things.

Quote
@maizeman you litterally said it means the market is expecting inflation rates to stay high for a very long time.

Yes, that is indeed what I said. Do you not see the incredibly important difference between that and the way you described my position in your previous post?

Quote
To which I presented the counterpoint that the market just had an insanely low inflation and interest rate environment that we're still coming out of and I wouldn't call that a very long time so if it works in one extreme why not the other. And the 80s are a perfect example of a time it was very short in that window.

Absolutely the expectations of the market will be wrong sometimes.

In 1997, apple stock hit a new low at 13 1/16 a share. ($0.56/share diluting for future stock splits). Over the next 21 years the stock has provided a 31.1% CAGR.

The market clearly was wrong about the value of apple stock in 1997.

If apple stock is ever back to selling at $13 a share, I won't assume it means the market must be wrong again, or that, if the market is wrong, it will necessarily be wrong in the same direction and the same magnitude as last time Apple was selling for $13/shae.

It seems to me this is what you're doing with the one case in the historical record where the united states saw interest rates and inflation well into the double digits.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #57 on: June 08, 2018, 05:44:18 AM »
I agree hindsight is 20/20. But in general for FIRE we assume thing receed to the norm.

We do have to assume inflation adjusted market returns will revert to historical norms. I don't know that we have to generalize that to all things.

Quote
@maizeman you litterally said it means the market is expecting inflation rates to stay high for a very long time.

Yes, that is indeed what I said. Do you not see the incredibly important difference between that and the way you described my position in your previous post?

Quote
To which I presented the counterpoint that the market just had an insanely low inflation and interest rate environment that we're still coming out of and I wouldn't call that a very long time so if it works in one extreme why not the other. And the 80s are a perfect example of a time it was very short in that window.

Absolutely the expectations of the market will be wrong sometimes.

In 1997, apple stock hit a new low at 13 1/16 a share. ($0.56/share diluting for future stock splits). Over the next 21 years the stock has provided a 31.1% CAGR.

The market clearly was wrong about the value of apple stock in 1997.

If apple stock is ever back to selling at $13 a share, I won't assume it means the market must be wrong again, or that, if the market is wrong, it will necessarily be wrong in the same direction and the same magnitude as last time Apple was selling for $13/shae.

It seems to me this is what you're doing with the one case in the historical record where the united states saw interest rates and inflation well into the double digits.

i was just posing the scenario of what if bonds got back to that level - i dont think THE US BOND MARKET is equivalent to a single stock this is not apples to apples.  Apple may not be too big to fail but the US is pretty much too big too fail and if it does we have other issues regradless. 

Nonetheless discussions will start if bonds and inflation get that high and i personally dont think its a large risk to put 5-10% of your portfolio into some 30 year notes when they are yielding higher than the average stock returns over 30 years.  10 years is a completely different story as i can see it taking over 10 years to get it back under control.  but going for extended hyper inflation will criple the entire economy.  likely the world economy as the US is one of the largest players in it. 

we're already assuming it wont be worse than the worst of the past when we FIRE.  so why not take advantage of an opporunity that presents itself.  could it compound some sequencing risk yes but only mildly when its such a small percentage but thats the same thing some plan to do caring mortgages - except SORR for what will more than likely be a safer long term value of money.

on a side note have you seen Mr. Green's analysis on SORR i think you'd like it https://forum.mrmoneymustache.com/post-fire/chalanging-the-4-'rule'/msg2030250/#msg2030250

« Last Edit: June 08, 2018, 06:06:18 AM by boarder42 »
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

chasesfish

  • Handlebar Stache
  • *****
  • Posts: 2197
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Retire with just $620,000?
« Reply #58 on: June 08, 2018, 05:53:59 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

Its always going to be a difficult decision, you eventually have to look at what you have relative to your money needs/desires and decide when enough is enough.  For us, we couldn't see how how I could ever want/need more than $2mil enough to continue working full time for someone else, doing some things I enjoy and some I really don't.   Sure, I'm walking away from somewhere between $9mil and $13mil in additional earnings I could get over the next 27 years, but I can't find enough value in giving away/spending the money to exchange my time at this pace.   I'll also end up picking up some income in early retirement, my skills are too valuable not to (and there are pieces I really enjoy)
Check out our journal, counting down the days until I Stop Ironing Shirts

We hit $1mil by 33 and will retire at 36!  Stop by over at my site Stop Ironing Shirts

maizeman

  • Handlebar Stache
  • *****
  • Posts: 2351
Re: Retire with just $620,000?
« Reply #59 on: June 08, 2018, 05:55:29 AM »
was just posing the scenario of what if bonds got back to that level - i dont think THE US BOND MARKET is equivalent to a single stock this is not apples to apples.  Apple may not be too big to fail but the US is pretty much too big too fail and if it does we have other issues regradless. 

So are you saying the entire US Bond market is a less efficient market (and hence less subject to the efficient market hypothesis) than the market for an individual stock? *eyebrow raise*

Because while I agree they aren't necessarily equivalent, if anything I'd think the US Bond market is more likely to be efficient than the market for an individual stock.

Quote
we're already assuming it wont be worse than the worst of the past when we FIRE.  so why not take advantage of an opporunity that presents itself. 

We're already assuming real market returns won't be worse than the worst observed in the past when we FIRE. I don't see why you're saying that assumption has to extend to other economic factors.

I'm confident FIREing without any solid assumptions about what inflation will do over the next 30 years. It sounds like we just disagree on this point. Which is perfectly okay.

chasesfish

  • Handlebar Stache
  • *****
  • Posts: 2197
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Retire with just $620,000?
« Reply #60 on: June 08, 2018, 06:05:49 AM »
Oh, and on this great bond debate, consider using REITs as a nice "tweener" asset class.  You have to pick specific ones, but they're already a fund themselves.

Yes, they went down even more than stocks in 2009, but that was due to the crash being a real estate driven crash, the good ones still paid their monthly/quarterly checks and did fine.
Check out our journal, counting down the days until I Stop Ironing Shirts

We hit $1mil by 33 and will retire at 36!  Stop by over at my site Stop Ironing Shirts

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #61 on: June 08, 2018, 06:08:24 AM »
was just posing the scenario of what if bonds got back to that level - i dont think THE US BOND MARKET is equivalent to a single stock this is not apples to apples.  Apple may not be too big to fail but the US is pretty much too big too fail and if it does we have other issues regradless. 

So are you saying the entire US Bond market is a less efficient market (and hence less subject to the efficient market hypothesis) than the market for an individual stock? *eyebrow raise*

Because while I agree they aren't necessarily equivalent, if anything I'd think the US Bond market is more likely to be efficient than the market for an individual stock.

Quote
we're already assuming it wont be worse than the worst of the past when we FIRE.  so why not take advantage of an opporunity that presents itself. 

We're already assuming real market returns won't be worse than the worst observed in the past when we FIRE. I don't see why you're saying that assumption has to extend to other economic factors.

I'm confident FIREing without any solid assumptions about what inflation will do over the next 30 years. It sounds like we just disagree on this point. Which is perfectly okay.

we're not just assuming the market will perform as it has - we're assuming the market will continue to perform as it has in relation to inflation - the WORST time to FIRE was 1966 this wasnt due to the markets specifically and was more effected by inflation - we are making many assumption not just equity return.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #62 on: June 08, 2018, 06:10:54 AM »
Oh, and on this great bond debate, consider using REITs as a nice "tweener" asset class.  You have to pick specific ones, but they're already a fund themselves.

Yes, they went down even more than stocks in 2009, but that was due to the crash being a real estate driven crash, the good ones still paid their monthly/quarterly checks and did fine.

in general i'm not a big fan of bonds and have considered using REITs in FIRE to dampen the downtimes in lieu of bonds.  this was just a question on the lines of if it happened hopefully it never does but i think there will be some very indepth analysis done here when it does - we'll just have to wait and see i really dont care to debate it much longer as historically we dont have enough data to not just cherry pick the single time of hyper inflation when US treasury notes existed. if we had multiple cylces of it then we could actually analyze it.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

chasesfish

  • Handlebar Stache
  • *****
  • Posts: 2197
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Retire with just $620,000?
« Reply #63 on: June 08, 2018, 06:25:28 AM »
Oh, and on this great bond debate, consider using REITs as a nice "tweener" asset class.  You have to pick specific ones, but they're already a fund themselves.

Yes, they went down even more than stocks in 2009, but that was due to the crash being a real estate driven crash, the good ones still paid their monthly/quarterly checks and did fine.

in general i'm not a big fan of bonds and have considered using REITs in FIRE to dampen the downtimes in lieu of bonds.  this was just a question on the lines of if it happened hopefully it never does but i think there will be some very indepth analysis done here when it does - we'll just have to wait and see i really dont care to debate it much longer as historically we dont have enough data to not just cherry pick the single time of hyper inflation when US treasury notes existed. if we had multiple cylces of it then we could actually analyze it.

REITs can be more volatile in their repricing, but there are some REITs that to me are more stable than corporate bonds.  I'd recommend being disciplined and buying them with limit orders over time.  The entire asset class will get whacked by 10-15% right now when someone comes out and starts talking about interest rates.   I have some I bought too high and some I bought 15% lower than where they are.

STAG is the closest one I can find to a diversified corporate bond index, their asset/tenant mix is incredible, carries minimal leverage, and pays a dividend monthly.   Yield depends on the price you pay, but I've been a buyer anywhere from $23 to $27/share.
Check out our journal, counting down the days until I Stop Ironing Shirts

We hit $1mil by 33 and will retire at 36!  Stop by over at my site Stop Ironing Shirts

Anon in Alaska

  • 5 O'Clock Shadow
  • *
  • Posts: 92
Re: Retire with just $620,000?
« Reply #64 on: June 08, 2018, 06:29:29 AM »
Why do you need $40,000 a year to live on? That's $3,333.33 a month. I spent $3,087 last month and that included $1,384 in (yearly) taxes and $537 in (unexpected) medical bills. In April I spent $1,350. I live in Anchorage, Alaska; which has a higher than average cost of living.

Pay cash for a modest condo or small house in a low cost area. Have a small older car that you don't drive much. Don't eat out. Don't have a smart phone. Don't vacation every year. Don't buy fancy clothes.

I will retire when I have $500,000 and I will withdraw 4% a year, or $20,000. I will spend less than $1,500 a month, with $2,000 a year for unexpected expenses.
"Homines est! Dici omnes! Soylens viridis HOMINES EST!"

ontheway2

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: Retire with just $620,000?
« Reply #65 on: June 08, 2018, 02:27:36 PM »
I might have missed it, but it seems the most surface level argument against a 40k drawdown on 620k was missed. The 4% rule accounts for inflation whereas a 6.5%-with-7%-returns rule does not.

maizeman

  • Handlebar Stache
  • *****
  • Posts: 2351
Re: Retire with just $620,000?
« Reply #66 on: June 08, 2018, 02:36:07 PM »
I might have missed it, but it seems the most surface level argument against a 40k drawdown on 620k was missed. The 4% rule accounts for inflation whereas a 6.5%-with-7%-returns rule does not.

No. The long term CAGR of the stock market with dividends reinvested is close to 7% after accounting for inflation. Without inflation it'd be up above 9%.

The reason it's the 4% rule and not the 7% rule is because of the effects of volatility (sequence of returns risk), not because of inflation.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #67 on: June 09, 2018, 05:40:48 AM »
Why do you need $40,000 a year to live on? That's $3,333.33 a month. I spent $3,087 last month and that included $1,384 in (yearly) taxes and $537 in (unexpected) medical bills. In April I spent $1,350. I live in Anchorage, Alaska; which has a higher than average cost of living.

Pay cash for a modest condo or small house in a low cost area. Have a small older car that you don't drive much. Don't eat out. Don't have a smart phone. Don't vacation every year. Don't buy fancy clothes.

I will retire when I have $500,000 and I will withdraw 4% a year, or $20,000. I will spend less than $1,500 a month, with $2,000 a year for unexpected expenses.

Good advice except for paying cash for where you live. That's shortsighted in today's interest rate environment. You're lowering your monthly expenses but increasing risk in almost all cases
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

Anon in Alaska

  • 5 O'Clock Shadow
  • *
  • Posts: 92
Re: Retire with just $620,000?
« Reply #68 on: June 09, 2018, 06:15:28 AM »

Good advice except for paying cash for where you live. That's shortsighted in today's interest rate environment. You're lowering your monthly expenses but increasing risk in almost all cases

Let me put it this way - I paid cash for my condo. If I had put it all in the stock market I would be a lot better off BUT with what I would have otherwise paid in rent or on a mortgage I would have drastically increased the risk of being homeless when life happened and I had no job and would not have been able to pay my rent or mortgage.
"Homines est! Dici omnes! Soylens viridis HOMINES EST!"

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #69 on: June 09, 2018, 06:51:48 AM »

Good advice except for paying cash for where you live. That's shortsighted in today's interest rate environment. You're lowering your monthly expenses but increasing risk in almost all cases

Let me put it this way - I paid cash for my condo. If I had put it all in the stock market I would be a lot better off BUT with what I would have otherwise paid in rent or on a mortgage I would have drastically increased the risk of being homeless when life happened and I had no job and would not have been able to pay my rent or mortgage.

You use the money you invested. It's pretty simple. Your fear is mostly unwarranted and highly improbable.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #70 on: June 09, 2018, 09:13:38 AM »

Also, there's no guarantee of ANY real growth over a decade, as this shows no real growth (including dividends, inflation adjusted) in the S&P over a recent 13 year period:

https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973

Also from that thread:

Thanks for bringing it up DreamFIRE.  I will add that it's happened numerous times. 

Here are a couple more

Sept 1929 - Sept 1947, -.1% per year or -2% cumulative, with dividends, inflation adjusted.  18 years with negative real return.

Jan 1966 - Jan 1982,  -1.4% per year or -20% cumulative, with dividends, inflation adjusted.  16 years with negative real return.

Jan 1906 - Jan 1921, -1.9% per year or -25% cumulative, with dividends, inflation adjusted.  15 years with negative real return.

chasesfish

  • Handlebar Stache
  • *****
  • Posts: 2197
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Retire with just $620,000?
« Reply #71 on: June 09, 2018, 11:30:01 AM »
Those are 13-15 year periods people can point out.   Looking back, I should have turned to "Barista FI" at $600,000, especially getting there in my early 30s.   That leaves 35+ more years for the money to work for me while I just do enough in passion projects to support our $2,000 - $3,000/mo plus housing cost spending.   The nice thing about projects is you can often create annuitized income when you don't have the immediate need for all the cash up front.
Check out our journal, counting down the days until I Stop Ironing Shirts

We hit $1mil by 33 and will retire at 36!  Stop by over at my site Stop Ironing Shirts

2Birds1Stone

  • Magnum Stache
  • ******
  • Posts: 4118
  • Age: 31
  • Location: New York
  • Peter Gibbons
Re: Retire with just $620,000?
« Reply #72 on: June 09, 2018, 12:15:00 PM »
y'all are making me want to barista, but I don't have $600k yet -_-

ixtap

  • Pencil Stache
  • ****
  • Posts: 983
Re: Retire with just $620,000?
« Reply #73 on: June 09, 2018, 12:22:27 PM »
y'all are making me want to barista, but I don't have $600k yet -_-

My issue with my current job is that people are stupid, barista means I really failed.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1076
Re: Retire with just $620,000?
« Reply #74 on: June 09, 2018, 12:54:43 PM »

Also, there's no guarantee of ANY real growth over a decade, as this shows no real growth (including dividends, inflation adjusted) in the S&P over a recent 13 year period:

https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973

Also from that thread:

Thanks for bringing it up DreamFIRE.  I will add that it's happened numerous times. 

Here are a couple more

Sept 1929 - Sept 1947, -.1% per year or -2% cumulative, with dividends, inflation adjusted.  18 years with negative real return.

Jan 1966 - Jan 1982,  -1.4% per year or -20% cumulative, with dividends, inflation adjusted.  16 years with negative real return.

Jan 1906 - Jan 1921, -1.9% per year or -25% cumulative, with dividends, inflation adjusted.  15 years with negative real return.

These are cherry picked dates and even with that they are all positive when they are not inflation adjusted.  A fixed rate mortgage would not be affected by inflation.  When inflation is out of control a fixed rate mortgage is a huge hedge against inflation.  https://dqydj.com/sp-500-return-calculator/

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #75 on: June 09, 2018, 01:33:42 PM »

Also, there's no guarantee of ANY real growth over a decade, as this shows no real growth (including dividends, inflation adjusted) in the S&P over a recent 13 year period:

https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973

Also from that thread:

Thanks for bringing it up DreamFIRE.  I will add that it's happened numerous times. 

Here are a couple more

Sept 1929 - Sept 1947, -.1% per year or -2% cumulative, with dividends, inflation adjusted.  18 years with negative real return.

Jan 1966 - Jan 1982,  -1.4% per year or -20% cumulative, with dividends, inflation adjusted.  16 years with negative real return.

Jan 1906 - Jan 1921, -1.9% per year or -25% cumulative, with dividends, inflation adjusted.  15 years with negative real return.

These are cherry picked dates and even with that they are all positive when they are not inflation adjusted.

Simply stating times frames that the S&P had no gains is not cherry picking, it's simply stating the facts of what has happened in the past multiple times with specifics on the dates.   Unless you have a compelling argument why you think it can never happen again, then it's something to keep in mind.

Quote
A fixed rate mortgage would not be affected by inflation.  When inflation is out of control a fixed rate mortgage is a huge hedge against inflation.

I never said anything about a mortgage, and neither did the OP.   If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1076
Re: Retire with just $620,000?
« Reply #76 on: June 09, 2018, 01:38:50 PM »
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.

The scary thing that I see with a lot of people is that they do not fully understanding what their expenses are going to be in the future.  I think that is the number one thing to do.  Once you have that then you can figure out how much you will need to support that lifestyle.

If you are single are you saving enough for a spouse, or are they expected to continue to work while you are retired?  Do you have parents/family that may need help in the future?  Do you have enough fluff in your budget to take advantage of the amazing changes that technology will be bringing us.

For a lot of people, employer benefits are significant.  If you are paying $350 a month for medical, your employer is probably subsidizing in excess of a $1,000 a month for a family plan.  As a business owner with a family I pay over $25,000 for medical, dental, and vision.  My employees pay $4,000.  Many would say that you could get subsidized ACA insurance.  How stable do you think this is?  I would probably budget at least $15k for a family for medical expenses. 

If your employer is providing you with a cell phone, gym membership, Costco membership, credit card mileage points, etc.  Make sure that you are truly figuring out what all of these are going to cost when they stop paying for them.

The other significant area is that when you are young and spry, you can do everything.  Moving a house can be done on your back.  When you are 45 you value your back more.  Your health, teeth, eyes, and everything are great when you are under 30.  As you age, expect the costs to go up.

I think MMM sometimes paints a glamourous ideal that since we are Mustachian that we can do everything until we die.  As someone who is in his 40's, I can see more medical expenses, more hiring out physical work, and more expenses that you would not imagine when you are young.  Your brain slows down.  My father was the President of a sizable company.  My parents are 80 and use an asset advisor.  On MMM we would say that is stupid.  Based on their cognitive abilities, I think that is a good safeguard of their assets. Losing 1%, so they don't do stupid financial mistakes is genius.   

MMM's budget has also exploded with wastefulness according to him.  He is getting older, he is like 44.  He has not experienced putting kids through college, helping out with a wedding, house, and all of the other things that are going to pop up.  Even in elementary through high school there are tons of expenses that pop up.

For professionals you have one shot at banking the money. Once you have been out of the workforce for 15 years, you will not command the premium that you do at the height of your career.  Make sure that you have truly figured out what the future holds.

Lastly, the sequence of risk and the amazing success that our country has had over the past 100 years may provide rosier models than what the future holds.  Your retirement is going to effect how much you will receive in Social Security payments for the rest of your life.  SS is projected to only be able to pay out 75% in the future.  Will our government shore up this program or will they let it wither?

Lots of unknowns!!  It should be exciting!  Make sure you have the ammunition to weather what life throws you.           

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1076
Re: Retire with just $620,000?
« Reply #77 on: June 09, 2018, 01:41:22 PM »
I never said anything about a mortgage, and neither did the OP.   If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.

Go get a 30 year fixed rate mortgage and your inflation risk is gone.

2Birds1Stone

  • Magnum Stache
  • ******
  • Posts: 4118
  • Age: 31
  • Location: New York
  • Peter Gibbons
Re: Retire with just $620,000?
« Reply #78 on: June 09, 2018, 01:57:17 PM »
Jeez tom, way to be a party pooper.

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #79 on: June 09, 2018, 02:12:42 PM »
I never said anything about a mortgage, and neither did the OP.   If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.

Go get a 30 year fixed rate mortgage and your inflation risk is gone.

LOL.  I wouldn't consider it.  My mortgage lasted less than 2 years, and that was 15 some years ago!  The 30 year mortgage rate back when I bought my house was even higher than the mortgage I had gotten and paid off.  I think some of you think mortgage rates have always been in the 3 to 4% range.  Mine was more than double that.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #80 on: June 09, 2018, 06:31:43 PM »
I never said anything about a mortgage, and neither did the OP.   If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.

Go get a 30 year fixed rate mortgage and your inflation risk is gone.

LOL.  I wouldn't consider it.  My mortgage lasted less than 2 years, and that was 15 some years ago!  The 30 year mortgage rate back when I bought my house was even higher than the mortgage I had gotten and paid off.  I think some of you think mortgage rates have always been in the 3 to 4% range.  Mine was more than double that.

Seems extremely shortsighted and head in the sand to present an issue be presented with a solution and just say no. That is if you actually care about historical data.

His point wasn't go get a mortgage from when you had one his point was go get a new fucking mortgage now. If you actually care about solving the problem you presented above. I know you don't bc from other posts here you've extremely oversaved to protect against nothing that's ever happened.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

2Birds1Stone

  • Magnum Stache
  • ******
  • Posts: 4118
  • Age: 31
  • Location: New York
  • Peter Gibbons
Re: Retire with just $620,000?
« Reply #81 on: June 09, 2018, 06:43:07 PM »
^ =D

lhamo

  • Walrus Stache
  • *******
  • Posts: 7152
  • Location: Seattle
Re: Retire with just $620,000?
« Reply #82 on: June 09, 2018, 07:24:45 PM »
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.

If you think you can live on 25-40k in retirement, why is maxing your retirement accounts on 120k a year in a LCOLA unrealistic?  Maybe if you are trying to Roth everything, including 401ks, but if you choose traditional 401k plus Roths and HSAs on the side you can shelter plenty from taxes and get the full advantage of the child tax credit (if that still exists), etc.

Wherever you go, there you are

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #83 on: June 09, 2018, 08:50:54 PM »
I never said anything about a mortgage, and neither did the OP.   If I had, I would have said I paid off my house when interest rates were much higher and have been mortgage free for 15 years or so, and I bought my house during the early point in that first time range I provided when the S&P didn't see "real" gains for over 13 years.

Go get a 30 year fixed rate mortgage and your inflation risk is gone.

LOL.  I wouldn't consider it.  My mortgage lasted less than 2 years, and that was 15 some years ago!  The 30 year mortgage rate back when I bought my house was even higher than the mortgage I had gotten and paid off.  I think some of you think mortgage rates have always been in the 3 to 4% range.  Mine was more than double that.

Seems extremely shortsighted and head in the sand to present an issue be presented with a solution and just say no. That is if you actually care about historical data.

I wasn't asking or needing a solution to a mortgage I paid off some 15 years ago.  I stated above about a recent time period (and others) where there were no real gains in the S&P over 13+ years.  And this was based on historical data!  I never referenced anything about mortgages.  That was brought up in tom's first response to me.  Heck, 15 years ago, I wasn't even thinking about FIRE.  I figured I would work until the full retirement age of 67.

Quote
His point wasn't go get a mortgage from when you had one his point was go get a new fucking mortgage now.

He responded to me after I provided the fucking historical time frames in a previous post, and again after I said I had paid my mortgage off 15 years ago.  I don't need a mortgage now.  And I might be selling my house in another year with no plans to buy another one anytime soon.  I've mentioned this in previous threads.  Several years from now, who knows.

Quote
If you actually care about solving the problem you presented above.

I have no problem to solve.  I was merely pointing out some historical data.  He said I was cherry picking data and started talking about mortgages.

Quote
I know you don't bc from other posts here you've extremely oversaved to protect against nothing that's ever happened.

I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

gerardc

  • Pencil Stache
  • ****
  • Posts: 599
  • Age: 34
  • Location: SF bay area
Re: Retire with just $620,000?
« Reply #84 on: June 10, 2018, 01:38:22 AM »
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

So, do you regret not moving to the beach?

chasesfish

  • Handlebar Stache
  • *****
  • Posts: 2197
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Retire with just $620,000?
« Reply #85 on: June 10, 2018, 05:50:15 AM »
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

So, do you regret not moving to the beach?

To an extend, but who knows how much I'd feel if I didn't try to do a role that I'd always wanted (I also happen to be damn good at that job too).  "What if's" are a dangerous line of thought!
Check out our journal, counting down the days until I Stop Ironing Shirts

We hit $1mil by 33 and will retire at 36!  Stop by over at my site Stop Ironing Shirts

steveo

  • Handlebar Stache
  • *****
  • Posts: 1599
Re: Retire with just $620,000?
« Reply #86 on: June 10, 2018, 07:47:54 PM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #87 on: June 10, 2018, 08:31:22 PM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

Yeah, that's what they call a "one trick pony".

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1076
Re: Retire with just $620,000?
« Reply #88 on: June 10, 2018, 08:36:50 PM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

Each and every negative stock US stock market return has corresponded to high inflation. If people had a mortgage, a large portion of their expenses would be shielded by a low rate 30 year fixed mortgage. The fact that some people fail to see this gift from the government is baffling. Rates are moving up but nothing like historical averages. Use cfiresim or firecalc to figure out how much safer you are having a 4% 30 year fixed rate mortgage when you are retired.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #89 on: June 11, 2018, 05:51:16 AM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

bull shit I know much more that mortgages but the number of people who apply emotion to mortgages like its some special little candle that no one can blow out is baffling when the hinderance on both RE and time to RE are immense in most cases.

if you ever care to go toe to toe and savings withdrawals and tax strategies let me know.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #90 on: June 11, 2018, 05:55:07 AM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

Yeah, that's what they call a "one trick pony".

and you can both quit the personal attacks btw - my attacks were on your ideas not anything else.  you're attacking me in these posts - not my ideas. 

and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.

so please quit.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

RookieStache

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: Retire with just $620,000?
« Reply #91 on: June 11, 2018, 08:31:57 AM »
Why do you need $40,000 a year to live on? That's $3,333.33 a month. I spent $3,087 last month and that included $1,384 in (yearly) taxes and $537 in (unexpected) medical bills. In April I spent $1,350. I live in Anchorage, Alaska; which has a higher than average cost of living.

Pay cash for a modest condo or small house in a low cost area. Have a small older car that you don't drive much. Don't eat out. Don't have a smart phone. Don't vacation every year. Don't buy fancy clothes.

I will retire when I have $500,000 and I will withdraw 4% a year, or $20,000. I will spend less than $1,500 a month, with $2,000 a year for unexpected expenses.

$40,000 would be far more than I would need, again this was more of a hypothetical exercise than a plan of mine.

The point of my numbers, was to give an extremely easy withdraw number to hit or go below ($40,000) and see what number you would have to stash away at 7% return to have your stash keep growing without contributing to it anymore. I selected $40,000 because I understand that 7% won't happen every year and this would give room to lower withdraw number to match returns.

I love your post though, I agree with everything you said in regards to spending. My only major expense at the moment is daycare!

RookieStache

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: Retire with just $620,000?
« Reply #92 on: June 11, 2018, 08:38:14 AM »
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.

If you think you can live on 25-40k in retirement, why is maxing your retirement accounts on 120k a year in a LCOLA unrealistic?  Maybe if you are trying to Roth everything, including 401ks, but if you choose traditional 401k plus Roths and HSAs on the side you can shelter plenty from taxes and get the full advantage of the child tax credit (if that still exists), etc.

We currently have a $1,400 mortgage, $9,500 a year in daycare expenses, saving $200 a month for 529's, 3 years left on 0% interest car payment, etc. Our current annual savings with 401K/HSA/IRA's are at circa $25,000 a year. Even with the majority being tax deferred, a 50% savings rate at $54,000 would be stretching it.

At the age of 55, we won't have any mortgage/any other debt/college expenses etc. so expenses will be quite low. Also maxing out HSA so health care should be more than covered.

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #93 on: June 11, 2018, 06:14:46 PM »
I selected $40,000 because I understand that 7% won't happen every year and this would give room to lower withdraw number to match returns.

Sure it won't happen every year, and we've had occurrences of no net real gain for well over a decade, which was what I was stating a few posts back based on historical data.

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #94 on: June 11, 2018, 06:18:26 PM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

Yeah, that's what they call a "one trick pony".

and you can both quit the personal attacks btw - my attacks were on your ideas not anything else.  you're attacking me in these posts - not my ideas. 

and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.

so please quit.

You can relax.  My comment wasn't meant as an attack, but I wasn't the one who brought up the commentary about a mortgage.  I'm well aware of the math involved if I actually needed one.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #95 on: June 11, 2018, 06:56:35 PM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

Yeah, that's what they call a "one trick pony".

and you can both quit the personal attacks btw - my attacks were on your ideas not anything else.  you're attacking me in these posts - not my ideas. 

and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.

so please quit.

You can relax.  My comment wasn't meant as an attack, but I wasn't the one who brought up the commentary about a mortgage.  I'm well aware of the math involved if I actually needed one.

I didn't bring it up either but you replied to someone who did with a comment of ignorance. That would not indicate you understood it. I still find it absolutely hilarious when people say i understand the math yet do the opposite. It may be the absolute worst thing on this forum a thread dedicated to likely one of the top 3 things one can do to fire earlier and be safer post re but I'm glad y'all get the math.

I believe name calling is in rule one regardless of your intent of was an attack on my knowledge.

My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 657
Re: Retire with just $620,000?
« Reply #96 on: June 11, 2018, 08:37:34 PM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

Yeah, that's what they call a "one trick pony".

and you can both quit the personal attacks btw - my attacks were on your ideas not anything else.  you're attacking me in these posts - not my ideas. 

and see tomsang's post above you can keep your heads in the sand thats fine but personally attacking someone isnt how you end up with better knowledge.

so please quit.

You can relax.  My comment wasn't meant as an attack, but I wasn't the one who brought up the commentary about a mortgage.  I'm well aware of the math involved if I actually needed one.

I didn't bring it up either but you replied to someone who did with a comment of ignorance. That would not indicate you understood it. I still find it absolutely hilarious when people say i understand the math yet do the opposite. It may be the absolute worst thing on this forum a thread dedicated to likely one of the top 3 things one can do to fire earlier and be safer post re but I'm glad y'all get the math.

No, my comment was providing historical data where there were times of no net real gains in the S&P500 over more than a decade.   It was not about mortgages.  I've never had a mortgage when rates were near this low nor am I looking to purchase a home now.  Just selling soon.  So I certainly didn't "do the opposite" because I haven't had that choice to make.  My S&P data was correct, and again related to the OP's recent comment.

You mischaracterized  my reason for saving, so I hope I got you straightened out about that.

Quote
I believe name calling is in rule one regardless of your intent of was an attack on my knowledge.

I never actually called you a name.  I was responding to another poster stating that's what they call someone who only knows and talks about one thing.  So unless that applies to you, then I must have not been talking about you.  Anyway, welcome to the interwebs.  Take a few deep breaths.  Everything will be ok.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1599
Re: Retire with just $620,000?
« Reply #97 on: June 12, 2018, 10:28:56 PM »
I never said anything about a mortgage, and neither did the OP.
....
I don't care about solving a problem that I don't fucking have.  That's MY point.  It's completely irrelevant to my historical data points provided, but since you brought up my savings for some reason, I've saved because I'm a natural saver - over 80% so far this year.  I don't regret that.  But to correct you, I'm not saving for protection, although that's another benefit, but rather, saving is just something I've always done (albeit, not always to the 80% level.)   There's nothing I'm lusting after.  I wouldn't have wanted to FIRE on barebones alone, so the extra will provide more options in FIRE, like traveling, that I haven't done much of while working.  I have a target to FIRE in a year, even though I enjoy my job, have excellent benefits, have my own office, and am able to save 70 to 80% of my take home pay year after year.  Everything is fine.

Boarder loves his mortgage. It's all he knows and he sees a problem everywhere and has to tell you if you don't have a mortgage. Some of us are mortgage free and are completely fine with it.

Each and every negative stock US stock market return has corresponded to high inflation. If people had a mortgage, a large portion of their expenses would be shielded by a low rate 30 year fixed mortgage. The fact that some people fail to see this gift from the government is baffling. Rates are moving up but nothing like historical averages. Use cfiresim or firecalc to figure out how much safer you are having a 4% 30 year fixed rate mortgage when you are retired.

I'll just clarify this point. I live in Australia and we have a mortgage system that is actually somewhat resembling the free market. Your points are completely invalidated if you have mortgages that are true to market. No fool would make a 30 year bet that interest rates will remain at 2%. That means that at some point you would think the government gets out of the business and then you will have mortgage rates that move with the market and the market won't offer 30 year fixed term loans. So although what you are stating may be accurate it may actually fail over the time period that you are considering.

The analysis that is being completed by people who love mortgages to me is simply not well thought through. In my opinion it's a clear case of the people who stress this idea not actually having the knowledge to understand what they are prescribing.

It may work out okay but it may not. For me personally the idea of retaining a mortgage makes no sense at all. I'd much rather not try and leverage my mortgage to potentially increase returns especially in the markets that are available to me today. There is no such thing as a 30 year fixed mortgage in Australia (and no country with a mortgage system that is based on the free market). I have heard of 10 year fixed rates but I haven't seen a large financial institution do this. The maximum term is 5 years. If you want to re-fix your loan you also will have to pay a penalty to pay back the costs incurred to the bank of breaking that term. That is how mortgage markets work without government intervention.

I should add that I'm cool with people doing whatever they want when it comes to using mortgage debt to finance their investments.
« Last Edit: June 12, 2018, 10:51:01 PM by steveo »

boarder42

  • Walrus Stache
  • *******
  • Posts: 7163
Re: Retire with just $620,000?
« Reply #98 on: June 13, 2018, 04:39:07 AM »
Yeah Australia is different thanks for analysis that doesn't pertain to the conversation.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

ChpBstrd

  • Pencil Stache
  • ****
  • Posts: 971
Re: Retire with just $620,000?
« Reply #99 on: June 13, 2018, 12:27:21 PM »
Children! Be nice to one another!

Yes, the government-subsidized mortgages in the U.S. are a gift to homeowners. Mine is 3.625% for 30 years, which is negligible in the context of compound inflation. A ratty apartment rented at the price of my mortgage payment would be a third to a half the size of my home. Yet somebody at some point invested on the assumption that buying my mortgage was the best risk-adjusted real return they could obtain. Not only that, but the national debt taken on by the U.S. government to subsidize my mortgage makes inflation all the more likely. The net result is McMansions, overpriced housing markets, and probably a national debt crisis someday. In such an environment, the average Aussie would probably choose to be a subsidized seller of debt too.

Given the much less favorable borrowing environment in Australia, I'm a bit surprised to see real estate prices so far beyond economic fundamentals. Perhaps this market is propped up by money laundering, like in London and Vancouver. Maybe local laws are set up to restrict housing supply, like in California. Or perhaps the legendary stability of the Australian economy (due partially to not subsidizing shit like McMansions so much) earns a pricing premium in itself.

For me, mortgage payoff is not a priority. If I was to move to Australia (which is looking like a better and better idea with each news headline here in the States), my priorities might change with the incentives.