Author Topic: Other than 4% rule, what....  (Read 1871 times)

retired?

  • Pencil Stache
  • ****
  • Posts: 661
Other than 4% rule, what....
« on: October 08, 2014, 12:03:53 PM »
Guidelines do you use to a) determine when you are FI and b) withdraw and spend?  c) what do you apply the withdrawal rate to?  total net worth, financial assets, ?

I ask c) since my assets are in cash, taxable stock, real estate and retirement accounts.  Do you count primary real estate?  For example I have about 280k equity in my main house.  Cannot use it, but the house is appreciating and when kids are gone we'd downsize.  So, in some sense it is usable.

Thanks.

Bob W

  • Magnum Stache
  • ******
  • Posts: 2947
  • Age: 60
  • Location: Missouri
  • Live on minimum wage, earn on maximum
Re: Other than 4% rule, what....
« Reply #1 on: October 08, 2014, 12:23:56 PM »
Guidelines do you use to a) determine when you are FI and b) withdraw and spend?  c) what do you apply the withdrawal rate to?  total net worth, financial assets, ?

I ask c) since my assets are in cash, taxable stock, real estate and retirement accounts.  Do you count primary real estate?  For example I have about 280k equity in my main house.  Cannot use it, but the house is appreciating and when kids are gone we'd downsize.  So, in some sense it is usable.

Thanks.

On the house I would include the equity that you anticipate the spread on when you sell and rebuy. 

Conversely,  at these interest rates you could refi out most of the equity and invest it the market for a 5-6 percent average annual pop on that equity. 

You say main house?  Do you have a second home?   

cheapdad

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Other than 4% rule, what....
« Reply #2 on: October 08, 2014, 02:47:39 PM »
Every month I tally up all my investments including taxable through vanguard, IRA and 401k.  I find 3.3% of that and divide it by 12 months to see what my monthly income would be if I retired that day.  I then trend it on a chart that hangs in my closet. I'm using 3.3% as my withdrawal rate because that seemed to work out most comfortable for me using the fire calc.  I also figure that means I only need te market to average 1.3% gains per year since most of my earnings are from dividends.  Once my theoretical income crosses over my monthly expenses, I am technically FI.

I don't count my house as an asset for a couple reasons.  When I retire, I will not sell my house for spending money.  I will sell my house and hopefully be able to take that money and pay for a smaller house in cash.  That will significantly drop my cost of living.  This extra money will now be travel and emergency money.  This plan should supply 26k for living expenses per year plus an additional 10k per year for travel and unexpected purchases or emergencies.  I also plan to keep two years worth Of living expenses in cash so if the market drops like in 2008, I can live for up to two years on cash without having to find work or pull money out of investments at a loss.

I think this is a "too safe" plan and probably adds a couple years of work to my life, but it gives me some wiggle room along with safety nets that help me sleep.

Most of this system (the charting and crossover point) came from the book MMM Recommended called your money or your life.

retired?

  • Pencil Stache
  • ****
  • Posts: 661
Re: Other than 4% rule, what....
« Reply #3 on: October 09, 2014, 08:57:53 AM »
Yes, have a second home in FL rented out.  The return on that can be calculated conservatively without too much effort.  Hope to eventually use it as primary residence.

cheapdad - any science behind the 3.3%?  Any inflation assumption built in?