Author Topic: How do you measure the size of your stash?  (Read 2840 times)

gmuk

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How do you measure the size of your stash?
« on: October 14, 2013, 10:03:52 AM »
Hi folks.

My partner and I are heads down planning for our early retirements. We've become a bit confused because something isn't all that clear to us: how do you measure the size of your stashe?

In the "Shockingly simple math" post (http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/), MMM recommends calculating your total spending per year and multiplying it by 25. For most people, that's a lot of money. But I'm assuming this total isn't just "stashe = savings + stock market investments". How are people calculating their total stash? What do you take into account?

Do you count home equity? (Even if it doesn't return a monthly dividend?). What about retirement accounts? (Do these count towards the stash even if you can't touch the money for years? I'm in the UK, and there's not early withdrawal). How do you know when you'll have enough money to retire early?

Your thoughts are welcome. Thanks in advance!

JessieImproved

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Re: How do you measure the size of your stash?
« Reply #1 on: October 14, 2013, 10:15:05 AM »
Your 'stache is the money that you will live off of in retirement.  For example, if you're not planning to sell/rent out your house, then it is not a part of your 'stache (although a paid off mortgage certainly lowers your target number).  Use that simple rule and you should be able to figure out how much you have.

Trirod

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Re: How do you measure the size of your stash?
« Reply #2 on: October 14, 2013, 10:16:09 AM »
I don't include home equity since I don't plan on generating any revenue out of my primary residence.  I guess if you were planning on downsizing in the future then you could include the excess of home equity over the cost of the downsized home.

I do include retirement accounts, even though I can't touch these for a while.  You have to be a little careful with these if you plan to retire well in advance of being able to withdraw from these accounts.  You  need to make sure you have enough in taxable accounts to get you to that point.  In the US you can make 72(t) withdrawals from retirement accounts before you hit 59.5 - not sure if there's something similar in the UK.

One interesting wrinkle is whether to include social security/other state pension.  For no I just include that as extra cushion when I get to age 67, or whatever, but I could see an argument for using a higher withdrawal rate than 4% initially, knowing that it will come down in the future once social security starts.

nawhite

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Re: How do you measure the size of your stash?
« Reply #3 on: October 14, 2013, 10:19:37 AM »
There are 2 issues, when calculating if you can retire. First, do you have enough so that it wont run out by the time you die. Second, will you have enough cashflow at all times.

For instance the house question. If you rent, and rent is $1000/month, then you need 300k in accessible investments to cover that. If you own a house outright, the value of the house doesn't really matter, it just decreases your monthly expenses because you don't need to pay a mortgage or rent. You can go either way in your decision making, just know that you need to include your mortgage/rent in your "spending" number.

The retirement accounts are another damper on cashflow but not necessarily on "will you run out before death." The question changes to, how much do you need to last until you can access those retirement accounts? The 25x your spending number is based on your savings lasting 30 years. So if you have 25x you spending in accessible non-retirement accounts, you could probably safely retire 30 years before you can access your retirement accounts. But you better have another 25x in the retirement accounts by that point. (Note this is pretty darn conservative but it is the math for retiring in your late 20's - early30's)

Frankies Girl

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Re: How do you measure the size of your stash?
« Reply #4 on: October 14, 2013, 10:32:17 AM »
Net worth is everything - liquid money, investments (both taxable and retirement funds), house, property.

My stache is just the liquid money/investments. If I plan on living in the house, then I can't count the money tied up in it.