Author Topic: Can I retire with 0,5 million?  (Read 8360 times)

campaign

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Can I retire with 0,5 million?
« on: June 26, 2014, 02:02:26 AM »
Dear MMM, and dear Mustachians!

My question is, if I could retire with 0,5 million?

In a nutshell, actually I live in a Central European capital.
I do not have any debt, and I do not have any house or flat as well, as now we live at my parents. What I only have is a 9 years old car.

My family (wife+1 small kid) yearly living cost is 11.500 dollar/year now. (Of course we could spend much more, but we try to be as Mustachian as possible :-D )

So I would be interested in some Mustachian opinions.
Can I already retire, what do you tink?
« Last Edit: June 30, 2014, 01:25:53 PM by campaign »

campaign

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Re: Can I already retire with 0,5 million?
« Reply #1 on: June 26, 2014, 02:11:48 AM »
And I am 37..

boarder42

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Re: Can I already retire with 0,5 million?
« Reply #2 on: June 26, 2014, 02:52:26 AM »
Assuming you do not plan to increase your spending you have 2x what you need so you will continue to build wealth even if you do not work. I would retire if I was at you budget and retirement account value but you must invest it. It cannot be in cash. 500k in cash will only sustain 43 years not adjusted for inflation. This money needs to be invested to retire

taekvideo

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Re: Can I already retire with 0,5 million?
« Reply #3 on: June 26, 2014, 03:24:12 AM »
Invest it, then yes you have more than enough.
If you don't invest it you'll run out in 27 years or so (when you're 64...) even if your real spending never increases.

campaign

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Re: Can I already retire with 0,5 million?
« Reply #4 on: June 26, 2014, 03:35:29 AM »
It is invested on ~ 4,5% yearly yield in bonds and bank depoists now.

But after a pssible market correction I plan to invest at least one part of it in stocks/EFTs...

boarder42

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Re: Can I already retire with 0,5 million?
« Reply #5 on: June 26, 2014, 03:52:27 AM »
At 4,5% with expected annual inflation of say3%. You could take out 1.5%. On the high side. So you need around three quarters of a million for it to last indefinitely.

campaign

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Re: Can I already retire with 0,5 million?
« Reply #6 on: June 26, 2014, 05:36:37 AM »
the actual yield is not fixed (~4,5%), of course it can change to 8% and to 3% as well...

PloddingInsight

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Re: Can I already retire with 0,5 million?
« Reply #7 on: June 26, 2014, 05:45:53 AM »
I would not wait for a market correction.  I would invest immediately at least 30% of the money in equities.  Ask yourself:  If you already had 30% of your money in equities, would you sell them?  If not, you should make the investment.

Alternatively if you are uneasy with that, you could begin dollar cost averaging:  For instance investing 1% of your money each month in equities until you get to where you need to be.

But to answer your question: yes you can retire.  Stop working and start studying books like the Bogleheads Guide to Investing.  Your time is much better spent learning how to soundly manage the money you have.

Roland of Gilead

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Re: Can I already retire with 0,5 million?
« Reply #8 on: June 26, 2014, 06:53:40 AM »
I would invest 40% with Vanguard large cap multinationals.  Nice dividends and just look at the holdings:

Apple Inc. AAPL 3.09
Exxon Mobil Corporation Common  XOM 2.37
Microsoft Corporation MSFT 1.67
Johnson & Johnson Common Stock JNJ 1.57
General Electric Company Common GE 1.47
Wells Fargo & Company Common St WFC 1.46
Chevron Corporation Common Stoc CVX 1.28
Berkshire Hathaway Inc Class B BRK.B 1.27
Procter & Gamble Company (The)  PG 1.20
JP Morgan Chase & Co. Common St


Can't go wrong with that mix.   A single country may fail economically but if all of those corporations fail, it won't matter if you live with mom or not.

PloddingInsight

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Re: Can I already retire with 0,5 million?
« Reply #9 on: June 26, 2014, 07:37:57 AM »
Roland, why are you avoiding small and mid-caps?  Do you know something the market doesn't know?  OP is much better off fully diversifying his equities.  If the risk of the equities is a concern, rather than trying to predict which equities will fail, OP would be much better off lowering his allocation from, say, 40% to 35% rather than concentrating 40% of his portfolio in a less-than-diversified fund.

Roland of Gilead

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Re: Can I already retire with 0,5 million?
« Reply #10 on: June 26, 2014, 08:03:16 AM »
Roland, why are you avoiding small and mid-caps?  Do you know something the market doesn't know?  OP is much better off fully diversifying his equities.  If the risk of the equities is a concern, rather than trying to predict which equities will fail, OP would be much better off lowering his allocation from, say, 40% to 35% rather than concentrating 40% of his portfolio in a less-than-diversified fund.

I don't think the fund I listed is less-than-diversified.  I think it will hold up much better in a downturn, which is what the OP is afraid of, and I think it will do fairly well if we get stagnant or an up market.   The same can not be said for small cap which can easily drop 70%.  Some of the companies on that list have higher revenues than the entire GDP of some small European countries.

I do own small cap and mid cap myself, but I am more of a risk taker than the OP.

YoungInvestor

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Re: Can I already retire with 0,5 million?
« Reply #11 on: June 26, 2014, 08:19:49 AM »
I'd make sure tat your wife doesn't have different expectations on living with your parents. Otherwise, you're good if you can invest at > 4% (That's assuming inflation where you live is comparable to that of the US).

CommonCents

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Re: Can I already retire with 0,5 million?
« Reply #12 on: June 26, 2014, 08:26:33 AM »
The big question mark is how long do you want to live with your parents/how long do they want you to live there?

+1 And what happens after they pass away.  I wouldn't bank on being able to get the house, you never know what might happen (e.g. used to pay for end of life health care).

Jack

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Re: Can I already retire with 0,5 million?
« Reply #13 on: June 26, 2014, 08:27:54 AM »
Roland, why are you avoiding small and mid-caps?  Do you know something the market doesn't know?  OP is much better off fully diversifying his equities.  If the risk of the equities is a concern, rather than trying to predict which equities will fail, OP would be much better off lowering his allocation from, say, 40% to 35% rather than concentrating 40% of his portfolio in a less-than-diversified fund.

I don't think the fund I listed is less-than-diversified.  I think it will hold up much better in a downturn, which is what the OP is afraid of, and I think it will do fairly well if we get stagnant or an up market.   The same can not be said for small cap which can easily drop 70%.  Some of the companies on that list have higher revenues than the entire GDP of some small European countries.

I do own small cap and mid cap myself, but I am more of a risk taker than the OP.

One thing for us all to keep in mind is that the 4% safe withdrawal rate we usually assume around here is based on US assumptions. For a European, they may not be valid.

PloddingInsight

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Re: Can I already retire with 0,5 million?
« Reply #14 on: June 26, 2014, 09:45:54 AM »
I don't think the fund I listed is less-than-diversified.  I think it will hold up much better in a downturn, which is what the OP is afraid of, and I think it will do fairly well if we get stagnant or an up market.   The same can not be said for small cap which can easily drop 70%.  Some of the companies on that list have higher revenues than the entire GDP of some small European countries.

I do own small cap and mid cap myself, but I am more of a risk taker than the OP.

You seem a bit unclear on what risk is.  One possible scenario is that large caps can go down while small caps are going up.  It sounds like you are looking at historical downturns and assuming that future downturns will resemble them.

But scenarios aside, by definition, fully diversifying the equity portion of your portfolio means you can expect higher returns for the _same_ amount of risk.  The amount of risk you want to be exposed to can be targeted by adjusting what % of your portfolio is in equities, in total.  If you invest in only large caps, or only small caps, or only one country, or whatever... you're leaving money on the table.  The bet that you're making (in this case a bet on large caps) is an uncompensated risk.  It is uncompensated because market prices are set in a world where investors are able to access the midcaps and smallcaps that you're leaving out.

Roland of Gilead

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Re: Can I already retire with 0,5 million?
« Reply #15 on: June 26, 2014, 09:51:25 AM »
I don't think the fund I listed is less-than-diversified.  I think it will hold up much better in a downturn, which is what the OP is afraid of, and I think it will do fairly well if we get stagnant or an up market.   The same can not be said for small cap which can easily drop 70%.  Some of the companies on that list have higher revenues than the entire GDP of some small European countries.

I do own small cap and mid cap myself, but I am more of a risk taker than the OP.

You seem a bit unclear on what risk is.  One possible scenario is that large caps can go down while small caps are going up.  It sounds like you are looking at historical downturns and assuming that future downturns will resemble them.

But scenarios aside, by definition, fully diversifying the equity portion of your portfolio means you can expect higher returns for the _same_ amount of risk.  The amount of risk you want to be exposed to can be targeted by adjusting what % of your portfolio is in equities, in total.  If you invest in only large caps, or only small caps, or only one country, or whatever... you're leaving money on the table.  The bet that you're making (in this case a bet on large caps) is an uncompensated risk.  It is uncompensated because market prices are set in a world where investors are able to access the midcaps and smallcaps that you're leaving out.

Sorry but this is not true.    You are only rewarded for the amount of risk you are willing to take, nothing else.   You can't get higher returns for the same amount of risk otherwise some part of the market would fix that by going long and short and capturing the excess return.

PloddingInsight

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Re: Can I already retire with 0,5 million?
« Reply #16 on: June 26, 2014, 10:06:24 AM »
Quote
You are only rewarded for the amount of _systematic_ risk you are willing to take, nothing else.

There, I fixed your statement.

The point is, the portfolio you're suggesting is not on the efficient frontier, and therefore it is possible to construct another portfolio with the same standard deviation of returns and _higher_ expected returns.

campaign

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Re: Can I already retire with 0,5 million?
« Reply #17 on: June 26, 2014, 12:49:06 PM »
This is an interesting point.
What is your opinion, why tha 4% withdrawal rate is based on US assumptions, and why for an European it may not be valid?
Than what if you move to ex. South-America from the US?

"One thing for us all to keep in mind is that the 4% safe withdrawal rate we usually assume around here is based on US assumptions. For a European, they may not be valid."

arebelspy

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Re: Can I already retire with 0,5 million?
« Reply #18 on: June 26, 2014, 01:25:09 PM »
This is an interesting point.
What is your opinion, why tha 4% withdrawal rate is based on US assumptions, and why for an European it may not be valid?
Than what if you move to ex. South-America from the US?

"One thing for us all to keep in mind is that the 4% safe withdrawal rate we usually assume around here is based on US assumptions. For a European, they may not be valid."

Here you go:
http://wpfau.blogspot.com/2012/05/may-i-add-part-vi-to-retirement.html
http://wpfau.blogspot.com/2011/10/cliff-notes-for-international.html

4% holds for US and Canada.

US SAFEMAX for 1900-1981 was 3.96%
Canada SAFEMAX for 1900-1981 was 3.96%
Australia SAFEMAX for 1900-1981 was 3.5%

Historically withdraw that retiring any year from 1900-1981 (multiple World Wars, etc.) in those countries and you wouldn't have run out of money after 30 years.

Hope that helps.  :)
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Jack

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Re: Can I already retire with 0,5 million?
« Reply #19 on: June 26, 2014, 01:26:08 PM »
This is an interesting point.
What is your opinion, why tha 4% withdrawal rate is based on US assumptions, and why for an European it may not be valid?
Than what if you move to ex. South-America from the US?

"One thing for us all to keep in mind is that the 4% safe withdrawal rate we usually assume around here is based on US assumptions. For a European, they may not be valid."

First of all, the Trinity Study, from which the 4% safe withdrawal rate comes, was done by a US university and based on analysis of the US market.

Second, the US economy is a large fraction of the world economy, which means that US investors who invest in the US stock market are already relatively globally diversified. It also means that they can get such diversification while owning funds denominated in the same currency that they spend (i.e., US dollars).

For a non-US investor, it's different. You have two choices: you can invest in your own country's market (denominated in the local currency) and accept higher lack-of-diversification risk, or you can invest in the US market and accept all the same risks as US investors plus currency risk.

Third, historical returns for most other countries' markets have been lower* than historical returns for the US market. "Past performance does not guarantee future results," as they say, and there may be some good reasons to think the US's previous outperformance is not sustainable (e.g., maybe the outperformance was in part due to the US being the last [capitalist] country standing after WW2), but then again, maybe there are structural (or geopolitical) factors that might cause the US's outperformance to continue.

The EU economy is almost as big as the US's and (hopefully without turning this into a political discussion) I'd say it is similarly-well run and good for business, so I don't think an EU investor investing in EU-denominated securities would necessarily be at a disadvantage compared to a US investor. However, the outcome is certain to be at least different.

(* note: this link shows that Australia and South Africa have done even better than the US, but it's important to remember that they're also much smaller and much less diversified.)

Roland of Gilead

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Re: Can I already retire with 0,5 million?
« Reply #20 on: June 26, 2014, 01:35:49 PM »
One thing that might keep the USA as the safer investment going forward is the massive amount of oil we have found via fracking.

campaign

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Re: Can I already retire with 0,5 million?
« Reply #21 on: June 27, 2014, 12:37:55 PM »
If I am rigth, for retirement you need the following (the 4% rule):
- minimum necessary wealth = 25 times of the yearly spending,
- minimum 4% yield after tax and inflation.

And then your wealth will grow year by year more than inflation.

But the 4% yield after tax and inflation is quite a high number.

Also inflation is a question. Official inflation, and your inflation is completely can be different...


arebelspy

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Re: Can I already retire with 0,5 million?
« Reply #22 on: June 27, 2014, 12:47:45 PM »
If I am rigth, for retirement you need the following (the 4% rule):
- minimum necessary wealth = 25 times of the yearly spending,
- minimum 4% yield after tax and inflation.

And then your wealth will grow year by year more than inflation.

But the 4% yield after tax and inflation is quite a high number.

Also inflation is a question. Official inflation, and your inflation is completely can be different...

(Emphasis added.)

You forgot one key thing - not just after inflation and taxes, but ALSO after fees.

In other words, if you're paying some guy 1% to manage your portfolio, it becomes an even harder goal to hit.  (And if you have a 4% SWR, and they're taking 1%, so you can only spend 3%, then they're taking 1/4th of your retirement funds!  In other words, if you're wanting to spend 40k on a 1MM portfolio, but you have a 1% management fee, you have to give 10k to your adviser and only spend 30k; yikes!)

This is why minimizing loads and fees is so important.
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Re: Can I already retire with 0,5 million?
« Reply #23 on: June 30, 2014, 12:44:26 AM »
Yes, but if you do not have 4% yield after inflation and taxes and cost, still you can compensate the lower yield with more wealth for the same result isn't it?

For example , if you have 50 times of the yearly spending, then you dont need 4% (only 2%) isn't it?

arebelspy

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Re: Can I already retire with 0,5 million?
« Reply #24 on: June 30, 2014, 01:15:04 AM »
Yes, but if you do not have 4% yield after inflation and taxes and cost, still you can compensate the lower yield with more wealth for the same result isn't it?

For example , if you have 50 times of the yearly spending, then you dont need 4% (only 2%) isn't it?

Sure, the lower your WR, the more likely you won't run out of money.

Of course, you'll have to spend extra years working to get that 50x expenses instead of only 25x (a portfolio twice as large).
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Ayanka

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Re: Can I already retire with 0,5 million?
« Reply #25 on: June 30, 2014, 02:14:25 AM »
Campaign, what worries me most is that you live with your parents. I personally think it is a bit of a big gamble to count on free housing for the rest of your life. Further there is quite a lot of difference between the Central European countries, so knowing which one would help. E.g. If you live in Poland you can do a lot more with the same amount of money than in Switzerland. The 4% rules is indeed based on an American study, but this also only portraits a period of 30 years. As I hope you will get older than 67, this will be a bigger problem than it being on an American basis. What I would advice you is to study the subject through, get a lot of info on investing and cheap/frugal living to get your costs down. If you can go to an SWR of 3% after fees/inflation, then you ll probably be good (after adressing the housing problem). If you want to do some calculations, you can also use firecalc to give you an idea on what will happen in X scenario (still American though). I hope I could be of any help.

pom

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Re: Can I already retire with 0,5 million?
« Reply #26 on: June 30, 2014, 03:43:16 AM »
Also inflation is a question. Official inflation, and your inflation is completely can be different...

Your basket of good may not be the same as the official one but over the long run, official inflation and yours should not be all that different.
 
There is a lot of fear mongering and conspiracy theories about inflation, shadow stat being one exemple.

Unless you are talking about "lifestyle inflation", that could go to infinity if you don't control it.

bugbaby

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Re: Can I already retire with 0,5 million?
« Reply #27 on: June 30, 2014, 10:39:33 AM »
My understanding is that Europe countries have a stable public retirement plan ala SS..  If so and if housing is not an issue , you're not concerned about healthcare, college costs or leaving a nice inheritance or having more children, then OK.
« Last Edit: June 30, 2014, 10:41:52 AM by babybug »

campaign

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Re: Can I already retire with 0,5 million?
« Reply #28 on: July 02, 2014, 07:29:24 AM »

you have public retirement plan, but only after 65...
and until that you have to work somewhere...

My understanding is that Europe countries have a stable public retirement plan ala SS..  If so and if housing is not an issue , you're not concerned about healthcare, college costs or leaving a nice inheritance or having more children, then OK.

campaign

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Re: Can I already retire with 0,5 million?
« Reply #29 on: July 02, 2014, 07:35:48 AM »
Ayanka, you are completely right, in Poland 500k worths much more than in Switzerland.

Are you an MMM retiree already or just planning?
In Belgium what wealth is necessery to retire?

Campaign, what worries me most is that you live with your parents. I personally think it is a bit of a big gamble to count on free housing for the rest of your life. Further there is quite a lot of difference between the Central European countries, so knowing which one would help. E.g. If you live in Poland you can do a lot more with the same amount of money than in Switzerland. The 4% rules is indeed based on an American study, but this also only portraits a period of 30 years. As I hope you will get older than 67, this will be a bigger problem than it being on an American basis. What I would advice you is to study the subject through, get a lot of info on investing and cheap/frugal living to get your costs down. If you can go to an SWR of 3% after fees/inflation, then you ll probably be good (after adressing the housing problem). If you want to do some calculations, you can also use firecalc to give you an idea on what will happen in X scenario (still American though). I hope I could be of any help.

pom

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Re: Can I retire with 0,5 million?
« Reply #30 on: July 02, 2014, 08:54:12 AM »
I lived in Belgium in 2003/2005 and spent about 2 500 a month for two people living in a nice apartment (70sqm with a 4th roof patio of 15sqm for drinking beer in the summer) close to the Grand Place, good food and plenty of trips around Europe. With inflation I think that you can have a good life for 3 000 a month so 900k at a 4% SWR.

If you prefer a smaller town I think that you live well on 2 500 or 750k.

Jack

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Re: Can I already retire with 0,5 million?
« Reply #31 on: July 02, 2014, 08:59:57 AM »
Ayanka, you are completely right, in Poland 500k worths much more than in Switzerland.

Are you an MMM retiree already or just planning?
In Belgium what wealth is necessery to retire?

The average cost of living in your area doesn't matter; what matters is your cost of living. You still only need assets relative to the amount of money you actually spend. The difference is just that $X in a low cost of living area might buy the "average" standard of living, while the same $X in a high cost of living area might buy a below-average standard of living. If you are willing to accept that (which anyone on this site is, more or less by definition), then it isn't a problem.

I lived in Belgium in 2003/2005 and spent about 2 500 a month for two people living in a nice apartment (70sqm with a 4th roof patio of 15sqm for drinking beer in the summer) close to the Grand Place, good food and plenty of trips around Europe. With inflation I think that you can have a good life for 3 000 a month so 900k at a 4% SWR.

If you prefer a smaller town I think that you live well on 2 500 or 750k.

Or you can live in the city for 500k if you're willing to accept a less-good apartment, less-good food and fewer trips (how much less-good, I don't know). You just have to ask yourself which you want to do: accept the conditions required to live on 500k, or accept that you'd have to keep working until you accumulated 900k (or whatever the cost is for the standard of living you're willing to accept).

arebelspy

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Re: Can I already retire with 0,5 million?
« Reply #32 on: July 02, 2014, 09:15:58 AM »
Ayanka, you are completely right, in Poland 500k worths much more than in Switzerland.

Are you an MMM retiree already or just planning?
In Belgium what wealth is necessery to retire?

The average cost of living in your area doesn't matter; what matters is your cost of living. You still only need assets relative to the amount of money you actually spend. The difference is just that $X in a low cost of living area might buy the "average" standard of living, while the same $X in a high cost of living area might buy a below-average standard of living. If you are willing to accept that (which anyone on this site is, more or less by definition), then it isn't a problem.

Well sure, but the lower the average is, the easier it is to keep yours low.

For example, 1k/mo (12k annual) is doable in the midwest.  That'd be tough to do in NYC.

All that matters is your COL, but your COL is still based on the prices in the area you're in (gas, food, taxes, rents, etc.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.