Author Topic: How exactly do I determine how much money I'll need?  (Read 3273 times)

EconDiva

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How exactly do I determine how much money I'll need?
« on: April 07, 2014, 11:57:44 AM »
How do people derive an exact number needed for retirement?

I've been using online calculators and they've ranged from $1.5M to $3M.

Where do I start in trying to determine how much I'll need?

Maybe it's time I get a financial advisor?


matchewed

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Re: How exactly do I determine how much money I'll need?
« Reply #1 on: April 07, 2014, 12:03:11 PM »
First start with the basics. It is all about your expenses. Calculators which rely on income for future post FIRE expense predictions have put the cart before the horse.

Second - networthify - a basic calculator while you learn the other items which underpin FIRE. Those underpinnings are the 4% Safe Withdrawal Rate and the Trinity Study, there are a couple more but starting there is good.

Third - when you're more comfortable with the broad stuff start digging into the nitty gritty with your specific plan for FIRE (whether that plan be based around traditional investment assets, pensions, real estate income, business income, or any combination of the above). Run that plan through cfiresim.

JohnGalt

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Re: How exactly do I determine how much money I'll need?
« Reply #2 on: April 07, 2014, 12:11:06 PM »
It depends on what kind of investments you're comfortable with, your age, how flexible you are, risk tolerance, etc

Start here maybe? http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/



Cheddar Stacker

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Re: How exactly do I determine how much money I'll need?
« Reply #3 on: April 07, 2014, 01:16:44 PM »
Maybe it's time I get a financial advisor?

May I suggest this forum community as your financial advisor? You have 500 people who will give you objective advice while keeping your best interest in mind (for free), 24 hours/day, rather than 1 person who is likely looking at you as a $.

Take the advice of the posters right above me, keep poking around the forum and asking questions when necessary, and learn as much as you can. Figure out your expenses, then get your passive income to exceed them.

Unless your annual expenses are north of $125,000, or you plan to invest in only cash, you will not need to save $3M to retire.

Thegoblinchief

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Re: How exactly do I determine how much money I'll need?
« Reply #4 on: April 08, 2014, 07:50:34 AM »
Track your monthly budget, if you don't already.

Make some reasonable assumptions about future costs of car replacement, house repairs if you own, and how much travel you want to do.

A good guideline on how to categorize is this post:

http://rootofgood.com/developing-a-retirement-budget/

I used some of Justin's numbers as placeholders for things like health insurance that I don't yet have a great handle on, since we're lucky to have a relatively generous package through my DW.

Once you have an idea of your annual expenses, multiply by 25x for the minimum safe number you would need (aka the 4% rule).

Exflyboy

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Re: How exactly do I determine how much money I'll need?
« Reply #5 on: April 08, 2014, 01:43:26 PM »
As a ROUGH guide, most people here plan on about $25 to 30k a year for expenses for a couple assuming the house is paid off.

Taking 30k * 25 = $750,000 Plus paid off house.

That however is a minimum because it does not allow for unforseen circumstances.. eg a prolonged Stock market down turn, Medical calmity etc..

For me i just retired at 52 with $1.3M with a paid off house. Remember though that has a bunch of safety factors involved.

I.e..

1)  Assumes a SWR of $52k per year (4%) but I think our expenses will be closer to $30k .. another way to view this is assume expenses will be $35k, then that is a 2.7% SWR.. I.e very conservative.

2) We get rental income of $16k per year (less expenses)... Will we be in this business in say 20 years from now?.. Will I be able to (or want to) deal with the upkeep?

3) My Wife and I have a SMALL pension.. Will a "Detroit" happen?

4) My Wife will work for 3 more years (about $29k/year)

4) Non of the above includes social security.

So you can see we have a number of safeties involved, probably in aggregate all of these are overly conservative, but there are things you simply cannot predict e.g, how will the Healthcare costs go in the next few years? Will SS really be there? etc.

The other thing worth a look is "www.firecalc.com" By far the best predictor of how your investments will hold up over the life of your retirement. You can plug in some similar numbers to what I have above and in 20 minutes get a very good prediction. Since Firecalc will automatically calculate what would happen if you retired in 1871.. for say 30 years.. then 1872 etc etc... It will calculate each possible scenario (about 113 of them) using the ACTUAL returns for the market in each year, and give them to you in one huge graph, even including the great depression. This will give you a great start.

Frank

Exflyboy

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Re: How exactly do I determine how much money I'll need?
« Reply #6 on: April 08, 2014, 01:51:43 PM »
Oh yes.. I also have about 2.5 years worth of cash within our stash.. Part of that may get moved into stocks if we have a big market pullback.. The idea is to have enough safety margin where we can fund our expenses without selling any stock at the bottom of the market.

Frank