Author Topic: Retire with just $620,000?  (Read 28974 times)

gerardc

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Re: Retire with just $620,000?
« Reply #150 on: June 16, 2018, 10:54:15 PM »
It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)?  Defining success as basically having 80% of your stache left or working toward that seems unnecessary.

Strategy 1: You end up with $0 stash 20 years post FIRE.
Strategy 2: You end up with your original stash, say $1M, after 20 years.

Do you really think the difference between scenario 1 and 2 is 2-3 years of $5k budget cut and minimal income?

3.3% WR vs 4% WR makes a difference only when it's sustained for 30-50+ years.

However I agree with you that attacking the problem from both cut and income is helpful. Also ERN didn't optimize the guardrails to minimize cuts and time to side-hustle. Most likely we can do a better job than 70-80.

Maybe I'm not following your post, but I'm not sure how my strategy would lead to $0 in 20 years.  There is a lot of territory between $0 remaining, and 80% of the original retirement amount.  And yes, I do think that a difference about ~$15k in the amount withdrawn (roughly $5k in cuts and $10k in income, for example) for a few years, if those are the down years, could make an extremely significant difference in one's FIRE success.

You're correct it's why variable withdrawal increases success. You can use cfiresim to calc this. With my own numbers including a mortgage and dropping my withdrawal from my stashe by 10k in fire if I need to the only year that still fails after 40years is 1966

If by "a few years" you mean around 15 then yes $10-15k can make a difference, if you mean 2-3 like in your original post then not sufficient.

Scommm

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Re: Retire with just $620,000?
« Reply #151 on: June 16, 2018, 11:48:38 PM »
Nobody mentions taxes in these 4 pages...

DreamFIRE

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Re: Retire with just $620,000?
« Reply #152 on: June 17, 2018, 12:42:54 AM »
Nobody mentions taxes in these 4 pages...

I mentioned taxes in my first post on page 1.

Villanelle

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Re: Retire with just $620,000?
« Reply #153 on: June 17, 2018, 04:08:17 AM »
It would be 22 years to get back to 80%, but would just 2-3 years of pretty minimal income and cuts create a pretty high success % overall (meaning CFireSim success)?  Defining success as basically having 80% of your stache left or working toward that seems unnecessary.

Strategy 1: You end up with $0 stash 20 years post FIRE.
Strategy 2: You end up with your original stash, say $1M, after 20 years.

Do you really think the difference between scenario 1 and 2 is 2-3 years of $5k budget cut and minimal income?

3.3% WR vs 4% WR makes a difference only when it's sustained for 30-50+ years.

However I agree with you that attacking the problem from both cut and income is helpful. Also ERN didn't optimize the guardrails to minimize cuts and time to side-hustle. Most likely we can do a better job than 70-80.

Maybe I'm not following your post, but I'm not sure how my strategy would lead to $0 in 20 years.  There is a lot of territory between $0 remaining, and 80% of the original retirement amount.  And yes, I do think that a difference about ~$15k in the amount withdrawn (roughly $5k in cuts and $10k in income, for example) for a few years, if those are the down years, could make an extremely significant difference in one's FIRE success.

You're correct it's why variable withdrawal increases success. You can use cfiresim to calc this. With my own numbers including a mortgage and dropping my withdrawal from my stashe by 10k in fire if I need to the only year that still fails after 40years is 1966

If by "a few years" you mean around 15 then yes $10-15k can make a difference, if you mean 2-3 like in your original post then not sufficient.

Based on what?  I'm admittedly too lazy to run CFireSim or other numbers, but that seems counter-intuititve.  Reducing withdraws during the down years by about 25% (10k of a 40k spend) and maybe a year or two after seems like it would be pretty damn effective.  But my intuition could certainly be wrong. 

Dicey

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Re: Retire with just $620,000?
« Reply #154 on: June 17, 2018, 11:06:28 AM »
Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses.  You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?

Seems this would depend on the reason(s) for having a mortgage.

jim555

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Re: Retire with just $620,000?
« Reply #155 on: June 17, 2018, 11:45:01 AM »
The answer is not simple since it depends on so many factors that are individual related like current health status, location, age, regional market, housing cost, general budget, type of policy, income, state.






anotherAlias

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Re: Retire with just $620,000?
« Reply #156 on: June 17, 2018, 11:47:01 AM »
I've done the math many others here have as well and no one has shown math that actually makes it beneficial to not have a mortgage for ACA subsidies. If you care to share actual numbers.

I have always been on the side of having a mortgage and keeping my money invested until we started talking about buying a new home recently.  I'm getting close to FIRE so I've been analyzing the impact on my FIRE date and was surprised at the results.  Since I have a spreadsheet of possible budgets with/without both subsidies and a mortgage, I plugged them into CFiresim for comparison.  Below are the inputs that I used:

Current Savings: $655k $599k
Retirement years: 2021-2061
Asset Allocation 80% stocks/20% bonds
additional savings 2018-2020: $60k

House purchase in 2021
30K down payment vs 150k cash purchase

Expenses in both scenarios include ACA subsidized healthcare & taxes.  The 11k difference is from the mortgage expense, less subsidized healthcare and resulting higher taxes.
with mortgage: $37k
(in 2051 reduced spending because of mortgage payoff $11k)
cash purchase: $26k

cash purchase: 92.31% success
mortgage: 78.85% success. 92.31% success when treating P&I as non-inflationary.

ETA: fixed a typo in the current porfolio balance and changed the mortgage success ration when not adjusting for inlfation of P&I.
« Last Edit: June 17, 2018, 12:44:41 PM by justchristine »

maizefolk

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Re: Retire with just $620,000?
« Reply #157 on: June 17, 2018, 12:08:48 PM »
Hi justchristine,

You may have already accounted for these in your calculations, but are you including your mortgage as regular spending (which gets adjusted for inflation each year) or as a fixed, non-inflating, expense? The former makes things look a lot worse for the with-mortgage scenario than it otherwise would be.

The other thing I've seen some other people run into trouble with is remembering to break out the escrow part of their monthly mortgage payment (for property taxes and home insurance), as they'll end up paying these expenses whether they pay cash or take on a mortgage, and these will continue to increase roughly with inflation, while the principal and interest components do not.

anotherAlias

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Re: Retire with just $620,000?
« Reply #158 on: June 17, 2018, 12:39:35 PM »
Hi justchristine,

You may have already accounted for these in your calculations, but are you including your mortgage as regular spending (which gets adjusted for inflation each year) or as a fixed, non-inflating, expense? The former makes things look a lot worse for the with-mortgage scenario than it otherwise would be.

The other thing I've seen some other people run into trouble with is remembering to break out the escrow part of their monthly mortgage payment (for property taxes and home insurance), as they'll end up paying these expenses whether they pay cash or take on a mortgage, and these will continue to increase roughly with inflation, while the principal and interest components do not.

Ah good catch.  I had the escrow broken out separately but I wasn't treating the mortgage P&I as non-inflationary.  When I made that adjustment, the success percentage with a mortgage rises to 92.3%. So basically a wash whether I pay cash or take a mortgage.  That's still not what I would have initially expected.

maizefolk

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Re: Retire with just $620,000?
« Reply #159 on: June 17, 2018, 01:30:55 PM »
Yeah, that's consistent with what I've seen as well. Having a mortgage tends to increase your final net worth almost all the time,* or a significant majority of the time,** but doesn't move the needle for overall success/failure rates for FIRE that much (partially because once you get down to 3.5-4% withdrawal rates the risk of failure is so low to begin with).  Back in the great mortgage debate blow up of '17 there was also the potential argument about the deductibility of interest on a home mortgage, but under the new tax code that's an issue for far fewer people than it used to be.

*If you assume historical stock market returns and today's low 30 year fixed mortgage interest rates

**If you assume historical stock market returns and impute what 30 year fixed mortgage interest rates would be at the start of retirement if they'd existed based on the strong correlation between government debt and mortgage interest rates)

DreamFIRE

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Re: Retire with just $620,000?
« Reply #160 on: June 17, 2018, 01:48:10 PM »
Expenses in both scenarios include ACA subsidized healthcare & taxes.  The 11k difference is from the mortgage expense, less subsidized healthcare and resulting higher taxes.
with mortgage: $37k
(in 2051 reduced spending because of mortgage payoff $11k)
cash purchase: $26k

Are you calculating only based on the ACA PTC and assuming that you won't use much healthcare services?  The CSR subsidy drops off more quickly with higher incomes needed to pay higher expenses of a mortgage, the higher ACA premiums, and other greater out of pocket healthcare costs due to no CSR subsidies.

tomsang

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Re: Retire with just $620,000?
« Reply #161 on: June 17, 2018, 04:21:59 PM »
Hi justchristine,

You may have already accounted for these in your calculations, but are you including your mortgage as regular spending (which gets adjusted for inflation each year) or as a fixed, non-inflating, expense? The former makes things look a lot worse for the with-mortgage scenario than it otherwise would be.

The other thing I've seen some other people run into trouble with is remembering to break out the escrow part of their monthly mortgage payment (for property taxes and home insurance), as they'll end up paying these expenses whether they pay cash or take on a mortgage, and these will continue to increase roughly with inflation, while the principal and interest components do not.

Ah good catch.  I had the escrow broken out separately but I wasn't treating the mortgage P&I as non-inflationary.  When I made that adjustment, the success percentage with a mortgage rises to 92.3%. So basically a wash whether I pay cash or take a mortgage.  That's still not what I would have initially expected.

Did you account for the payment and interest for only 30 years?  Some people accidentally have it going for life.

DreamFIRE

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Re: Retire with just $620,000?
« Reply #162 on: June 17, 2018, 04:54:36 PM »

Did you account for the payment and interest for only 30 years?  Some people accidentally have it going for life.

Looks like it:

(in 2051 reduced spending because of mortgage payoff $11k)

Threshkin

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Re: Retire with just $620,000?
« Reply #163 on: June 19, 2018, 09:27:46 AM »
Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses.  You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?

Seems this would depend on the reason(s) for having a mortgage.

Citation?  This is just math.  The reason for having a mortgage is unimportant.  Having a mortgage and the associated payment requirement is the issue. 

Simple example: 

No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month

With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month.  Cost reduction goal not met.

If you need additional references and lots more maths, ERN has a blog post on this.  https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

boarder42

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Re: Retire with just $620,000?
« Reply #164 on: June 19, 2018, 11:00:59 AM »
Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses.  You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?

Seems this would depend on the reason(s) for having a mortgage.

this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed.  you know if we care about the historical worst case scenarios which we all base our spending plans on.

may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.

Citation?  This is just math.  The reason for having a mortgage is unimportant.  Having a mortgage and the associated payment requirement is the issue. 

Simple example: 

No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month

With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month.  Cost reduction goal not met.

If you need additional references and lots more maths, ERN has a blog post on this.  https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

Threshkin

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Re: Retire with just $620,000?
« Reply #165 on: June 19, 2018, 07:04:13 PM »
Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses.  You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?

Seems this would depend on the reason(s) for having a mortgage.

this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed.  you know if we care about the historical worst case scenarios which we all base our spending plans on.

may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.

Citation?  This is just math.  The reason for having a mortgage is unimportant.  Having a mortgage and the associated payment requirement is the issue. 

Simple example: 

No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month

With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month.  Cost reduction goal not met.

If you need additional references and lots more maths, ERN has a blog post on this.  https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

Everyone has their own risk tolerance. 

As I said, the example was very simple.  It does not matter what the numbers are, if you have higher fixed expenses you have to cut your remaining discretionary spending deeper to achieve the overall spending cut desired.  This is simple math

Also, it is easy to look at the past and say, "That drop was short lived I didn't need to cut much to get through it."  As they say, hindsight is 20/20.  It is much harder to look into the future and know how much you need to cut to protect your portfolio. 

The Dow is down for the last 6 days.  This drop has essentially wiped out all the index gains for the year.  Are we done?  Or is the decline just getting started?  Is this the start of a black swan or just a momentary distraction? 

There is no way to tell if this or any future drop is going to last a few months followed by a strong recovery or if it is the beginning of a decade of stagflation.  No one knows until after it is over.

Dicey

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Re: Retire with just $620,000?
« Reply #166 on: June 20, 2018, 09:44:27 AM »
Here's some even simpler math:
http://www.helpfulcalculators.com/compound-interest-calculator

Pay particular attention to the green bars on the right side of the graph. Exponential growth is the key.

The more years your money has to compound, the more money you will have to do Anything You Want with. And you won't have to lift a finger to earn it.

Here's another good explanation, with more words:

https://www.ck12.org/book/CK-12-Math-Analysis/section/3.6/

boarder42

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Re: Retire with just $620,000?
« Reply #167 on: June 20, 2018, 10:32:36 AM »
Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses.  You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?

Seems this would depend on the reason(s) for having a mortgage.

this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed.  you know if we care about the historical worst case scenarios which we all base our spending plans on.

may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.

Citation?  This is just math.  The reason for having a mortgage is unimportant.  Having a mortgage and the associated payment requirement is the issue. 

Simple example: 

No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month

With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month.  Cost reduction goal not met.

If you need additional references and lots more maths, ERN has a blog post on this.  https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

Everyone has their own risk tolerance. 

As I said, the example was very simple.  It does not matter what the numbers are, if you have higher fixed expenses you have to cut your remaining discretionary spending deeper to achieve the overall spending cut desired.  This is simple math

Also, it is easy to look at the past and say, "That drop was short lived I didn't need to cut much to get through it."  As they say, hindsight is 20/20.  It is much harder to look into the future and know how much you need to cut to protect your portfolio. 

The Dow is down for the last 6 days.  This drop has essentially wiped out all the index gains for the year.  Are we done?  Or is the decline just getting started?  Is this the start of a black swan or just a momentary distraction? 

There is no way to tell if this or any future drop is going to last a few months followed by a strong recovery or if it is the beginning of a decade of stagflation.  No one knows until after it is over.

what you also dont account for is the fact that those "fixed" expenses when talking about mortgages actually arent fixed they decrease over time at the rate of inflation.  so its actually a decreasing expense over time.

you're talking about volatility tolerance i absolutely hate when the pay off your mortgage crowd uses the word risk(like stocks going down is the only risk) and since its emotionally safer for most to see the volatility risk side of the equation while completely ignoring the life expectancy of money risk side of the equation - personally and for most young FIREes the greater risk is money longevity than SORR - b/c finding work again or odd jobs early in FIRE is much more likely to be had than at 75 when your stache runs out due to inflation or other issues with a lower volatility risk portfolio. 

Threshkin

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Re: Retire with just $620,000?
« Reply #168 on: June 27, 2018, 09:28:44 AM »
Having a mortgage in FIRE also increases your sequence of returns risk by increasing your fixed expenses.  You might be able to cut your personal spending when your portfolio is down but the mortgage company is not going to take less money.
Citation, please?

Seems this would depend on the reason(s) for having a mortgage.

this is an extreme example that has never actually needed to happen in the past- spending cuts of 15% or less as a max are typically all that is really needed.  you know if we care about the historical worst case scenarios which we all base our spending plans on.

may as well just show the math behind a portfolio that goes to 0 you have to cut spending 100% holy shit they both fail.

Citation?  This is just math.  The reason for having a mortgage is unimportant.  Having a mortgage and the associated payment requirement is the issue. 

Simple example: 

No mortgage:
Personal expenses of $2K/Month
Portfolio drops, you need to cut expenses by 50%
New new personal expenses $1K/Month

With mortgage:
Personal expenses of $2K/Month plus mortgage of $1K/Month = total expenses $3K/Month
Portfolio drops, you need to cut expenses by 50% but mortgage cost is fixed.
Option 1: Cut personal expenses by 75% to $500/Month plus $1K/Month mortgage = Goal met but painful!
Option 2: Cut personal expenses by 50% like the no mortgage example. = Total expenses cut by only 33% to $2K per month.  Cost reduction goal not met.

If you need additional references and lots more maths, ERN has a blog post on this.  https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

Everyone has their own risk tolerance. 

As I said, the example was very simple.  It does not matter what the numbers are, if you have higher fixed expenses you have to cut your remaining discretionary spending deeper to achieve the overall spending cut desired.  This is simple math

Also, it is easy to look at the past and say, "That drop was short lived I didn't need to cut much to get through it."  As they say, hindsight is 20/20.  It is much harder to look into the future and know how much you need to cut to protect your portfolio. 

The Dow is down for the last 6 days.  This drop has essentially wiped out all the index gains for the year.  Are we done?  Or is the decline just getting started?  Is this the start of a black swan or just a momentary distraction? 

There is no way to tell if this or any future drop is going to last a few months followed by a strong recovery or if it is the beginning of a decade of stagflation.  No one knows until after it is over.

what you also dont account for is the fact that those "fixed" expenses when talking about mortgages actually arent fixed they decrease over time at the rate of inflation.  so its actually a decreasing expense over time.

you're talking about volatility tolerance i absolutely hate when the pay off your mortgage crowd uses the word risk(like stocks going down is the only risk) and since its emotionally safer for most to see the volatility risk side of the equation while completely ignoring the life expectancy of money risk side of the equation - personally and for most young FIREes the greater risk is money longevity than SORR - b/c finding work again or odd jobs early in FIRE is much more likely to be had than at 75 when your stache runs due to inflation or other issues with a lower volatility risk portfolio.

As I said before, everyone has their own risk tolerance.  No one FIRE formula fits everyone. 

I agree that longevity risk is a bigger issue than SORR especially for young FIREes.  But SORR is much more immediate and stressful for recent FIREes like me.  I have no idea where my portfolio will be in 20, 30 or 40 years but I certainly know what has happened to it in the last two weeks!

IMO the best way to address longevity risk is to have an aggressive investment strategy, coupled with sufficient liquidity and capitalization to bridge the inevitable downturns.  For me, the riskiest strategy of all is being too risk adverse.

ATM I am just a little concerned that I jinxed things by asking if this current market drop might be the start of a longer term slump. <GRIN>

Threshkin

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Re: Retire with just $620,000?
« Reply #169 on: July 10, 2018, 10:07:25 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.
I don't think too many people on the MMM forum advocate for saving $2 million...or even $1 million. It just depends on your expected spending levels. Lots of people here (including myself) retired early on much less than a million or even less than $600k in NW because we don't need $40K/year. Or even $20K/year to fund our desired lifestyle. Just depends on your personal circumstances.

Exactly,  Everyone has different needs and risk tolerances.  What is ample for one person is no where near enough for another.  For some, SORR is a major concern, for others not so much.  Going back to work is easy for some, very hard for others.  Some people have large post FIRE income streams (rentals, pensions, etc.) others have little or none. 

Just because $620K (or any other number) is plenty for you does not mean it is right for the next person.  One size does NOT fit all.

tomsang

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Re: Retire with just $620,000?
« Reply #170 on: July 10, 2018, 10:24:53 AM »
Some people have large post FIRE income streams (rentals, pensions, etc.) others have little or none. 

Just because $620K (or any other number) is plenty for you does not mean it is right for the next person.  One size does NOT fit all.

The apples and oranges occurs all over these boards.  Some people don't count the value of their paid off house.  Some people have a pension that they don't calculate the value in their number.  Some people are retired, but their significant other is continuing to work.  Some people only count their number vs. their family's number.  If someone is willing to move to the Philippines for their FIRE life is different if someone wants to live in San Francisco. 

As I posted earlier, I think the younger you are the more likely you feel like you can live on a minimal amount.  Costs go up significantly with kids, age, paying for 100% of your medical, etc.