Author Topic: simple kiss retirement?  (Read 7011 times)

offroad

  • 5 O'Clock Shadow
  • *
  • Posts: 88
simple kiss retirement?
« on: September 21, 2013, 07:01:30 AM »
So from reading for months here and other places, they simple KEEP IT SUPER SIMPLE method to retire is:

1)  Save up $250,000 in your retirement fund.
2)  Get 10% interest on this fund.
3)  Live super cheap on $25,000 per year only
4)  Buy a super cheap fixer upper single family house.  Fix it up.  sell it.  Repeat until you get into a house you want to live in.

Of course there are pitfalls to each of these instructions.  many many pitfalls. But this seems the way that most are doing it.

a)  hard to save this amount for many.  Ten year plan started at 25 years old, and no financial events (divorce, major sickness, etc.)
b)  Hard to find a good way to get this level of interest safely. more risky investments can cause a loss. 
c)  not hard to live super cheap. no car helps. 
d)  You have to learn a lot about real estate, and houses, and construction, and neighborhoods, etc.     



matchewed

  • Magnum Stache
  • ******
  • Posts: 4322
  • Location: CT
Re: simple kiss retirement?
« Reply #1 on: September 21, 2013, 07:16:36 AM »
Your FIRE plan is based on a 10% SWR rate and assumes 10% annual gains? You'll need way more than $250k. It just seems like you need to read more blog posts, some of your assumptions are a bit unrealistic, and some of your pitfalls are off base as well. It's in fact not hard to save that money, consider that 39.5% of the people who answered in this forum have a net worth of over $250k, in a few years what seems to be deprivation at first just becomes your life.

Flipping houses may or may not be profitable, it is as much of a market as other things so your pitfall d) is valid. I wouldn't say this is the way most are doing it though. Most are probably just saving money, and using a 3-4% SWR with some supplemental income through being a landlord or continued work.

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 2974
  • Age: 81
  • Location: The laboratory
  • Typical Ghoul Next Door
Re: simple kiss retirement?
« Reply #2 on: September 21, 2013, 09:01:46 AM »
No way I'd try to FIRE with the idea I'd get 10% off my investments. That's an unrealistic number for sure - everything I read said that a 4% withdrawal/draw-down rate is what to hope for. Once you hit financial independence, you open yourself up to working the kind of jobs you actually enjoy, so chances are good that many if not most folks that are doing early retirement are still earning money, just in a different way, and that also supplements the living expenses and reduces the amount you need to tap your savings/investments... allowing it to continue to grow.

One of the most basic assumptions I've come across is that you need 25x your current expenditures. So if you spend $25K a year, you'd need a minimum of $625,000 to be okay.

And there are plenty of FIRE plans that have nothing to do with flipping houses or becoming a landlord. I don't plan on doing this at all (and I'm already FI, just waiting a bit longer to ER).

So for a simple FIRE plan for me might be more like:

1) Save up enough to cover 25x your expenses
2) Put said savings into low-fee index funds to generate passive income
3) Find something you like to do for fun AND profit if at all possible
4) Live where you like that is affordable to you

« Last Edit: September 21, 2013, 09:04:50 AM by Frankies Girl »

SnackDog

  • Handlebar Stache
  • *****
  • Posts: 1284
  • Location: Latin America
Re: simple kiss retirement?
« Reply #3 on: September 21, 2013, 12:45:32 PM »
Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

offroad

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: simple kiss retirement?
« Reply #4 on: February 12, 2014, 09:25:27 AM »
Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

No one will have that low amount to live on in 20 years.  Your worst case situation is $20,000 on Social Security.  Yes i know everyone and their brother believes SS will be gone, but guess what, unless you will allow old people and handicapped people to starve in the streets you will always have about $20,000 per year or whatever is needed to live on. 

thinking its still possible with $250,000 but difficult.


schimt

  • Bristles
  • ***
  • Posts: 308
  • Age: 33
  • Location: New Jersey
Re: simple kiss retirement?
« Reply #5 on: February 12, 2014, 09:58:55 AM »
thinking its still possible with $250,000 but difficult.
Thinking its possible with $250,000 but RISKY

IMHO $250,000 is a good chunk of "F-you" money as JL Collins likes to put it. It is enough money to allow you to quit your 9 to 5 and pursue another avenue of interest which will be a passion of yours but still profitable

Iron Mike Sharpe

  • Bristles
  • ***
  • Posts: 397
Re: simple kiss retirement?
« Reply #6 on: February 12, 2014, 10:17:28 AM »
Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

No one will have that low amount to live on in 20 years.  Your worst case situation is $20,000 on Social Security.  Yes i know everyone and their brother believes SS will be gone, but guess what, unless you will allow old people and handicapped people to starve in the streets you will always have about $20,000 per year or whatever is needed to live on. 

thinking its still possible with $250,000 but difficult.

$20,000/year from SS?  Not if you retire early.

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5148
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: simple kiss retirement?
« Reply #7 on: February 12, 2014, 10:19:00 AM »
it might be alot of F-you money BUT thats about it. Good start but I wouldnt go jumping into ER on it! if only 25 + 10 years at 35.

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1081
Re: simple kiss retirement?
« Reply #8 on: February 12, 2014, 10:28:38 AM »
Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

No one will have that low amount to live on in 20 years.  Your worst case situation is $20,000 on Social Security.  Yes i know everyone and their brother believes SS will be gone, but guess what, unless you will allow old people and handicapped people to starve in the streets you will always have about $20,000 per year or whatever is needed to live on. 

thinking its still possible with $250,000 but difficult.

$20,000/year from SS?  Not if you retire early.

Did you run some numbers? If I follow my planned retirement date, I'll have made 20 years of the maximum contribution (every year after I finished school), plus a few years of minor contributions while I was in school. The additional potential 15 years doesn't add much to my forecast benefit, as I recall. I'll check my numbers. Of course, I won't collect any social security for decades after I retire, if that was your point.

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: simple kiss retirement?
« Reply #9 on: February 12, 2014, 10:45:07 AM »
Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

No one will have that low amount to live on in 20 years.  Your worst case situation is $20,000 on Social Security.  Yes i know everyone and their brother believes SS will be gone, but guess what, unless you will allow old people and handicapped people to starve in the streets you will always have about $20,000 per year or whatever is needed to live on. 

thinking its still possible with $250,000 but difficult.

$20,000/year from SS?  Not if you retire early.

Did you run some numbers? If I follow my planned retirement date, I'll have made 20 years of the maximum contribution (every year after I finished school), plus a few years of minor contributions while I was in school. The additional potential 15 years doesn't add much to my forecast benefit, as I recall. I'll check my numbers. Of course, I won't collect any social security for decades after I retire, if that was your point.

If I retire at 45 and start collecting SS at 62, it's supposed to be about $9800/yr.  Subject to change of course.  This is obviously variable based on salary.  Run your own numbers here:
http://www.ssa.gov/estimator/

2)  Get 10% interest on this fund.

No Problem!  I make 10% just getting out of bed in the morning!

Iron Mike Sharpe

  • Bristles
  • ***
  • Posts: 397
Re: simple kiss retirement?
« Reply #10 on: February 12, 2014, 12:28:38 PM »
Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

No one will have that low amount to live on in 20 years.  Your worst case situation is $20,000 on Social Security.  Yes i know everyone and their brother believes SS will be gone, but guess what, unless you will allow old people and handicapped people to starve in the streets you will always have about $20,000 per year or whatever is needed to live on. 

thinking its still possible with $250,000 but difficult.

$20,000/year from SS?  Not if you retire early.

Did you run some numbers? If I follow my planned retirement date, I'll have made 20 years of the maximum contribution (every year after I finished school), plus a few years of minor contributions while I was in school. The additional potential 15 years doesn't add much to my forecast benefit, as I recall. I'll check my numbers. Of course, I won't collect any social security for decades after I retire, if that was your point.

I was responding to the OP who seems to have problems creating more than a $250K stash. 

Isn't SS benefit calculated off of your highest 35 years of income.  If you retire early, won't you have a lot of years of 0 which brings your benefit down? 

I haven't done a whole lot of calculations on my own benefit, b/c I am planning my retirement stash off of the assumption of no SS.  And then when I finally get it, that is gravy on top for me. 

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8616
  • Registered member
Re: simple kiss retirement?
« Reply #11 on: February 12, 2014, 12:37:15 PM »
Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

No one will have that low amount to live on in 20 years.  Your worst case situation is $20,000 on Social Security.  Yes i know everyone and their brother believes SS will be gone, but guess what, unless you will allow old people and handicapped people to starve in the streets you will always have about $20,000 per year or whatever is needed to live on. 

thinking its still possible with $250,000 but difficult.

$20,000/year from SS?  Not if you retire early.

Did you run some numbers? If I follow my planned retirement date, I'll have made 20 years of the maximum contribution (every year after I finished school), plus a few years of minor contributions while I was in school. The additional potential 15 years doesn't add much to my forecast benefit, as I recall. I'll check my numbers. Of course, I won't collect any social security for decades after I retire, if that was your point.

If you make the max contribution yes.  But then you will save way more than the $250k OP is working with.

Btw it's totally possible to retire on $250k.  Just head on over to ERE, not MMM

offroad

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: simple kiss retirement?
« Reply #12 on: February 13, 2014, 07:44:18 AM »
everyone is into codes.  what is ERE?

lackofstache

  • Bristles
  • ***
  • Posts: 313
Re: simple kiss retirement?
« Reply #13 on: February 13, 2014, 07:46:42 AM »
early retirement extreme...

Thegoblinchief

  • Guest
Re: simple kiss retirement?
« Reply #14 on: February 13, 2014, 03:26:35 PM »
I would say the (deceptively simple) core is getting expenses down, down, down. Learn to live well on very little. It's not only rewarding, but it's freeing as well.

After you do this for a couple years, track expenses, and log averages in a spreadsheet, you'll have a really good idea of what your retirement budget will look like.

For me, $250K is about what my "FU" threshold is. Once we hit that, our retirement budget works if we drop to a combined $15-20K part time income. We'd only be drawing $5K off our principal. But to have zero income at all, you need 25x your annual expenses (whatever that number is), which is a much bigger number as others have pointed out. In our case, it's about $700K based on my current projections.

The reason 25x (for a 4% withdrawal rate) is the key is because of the Trinity study. Read up on that. TL;DR, it's a number that survives in nearly 100% of historical situations.

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: simple kiss retirement?
« Reply #15 on: February 13, 2014, 03:54:01 PM »
It does. For example have maxed out SS for the past ~18 year and right now my benefits look like

 work til 62 - 1928
 retire with 35 years of credits (I might be off by a year about when I first maxed out it looks like)-1915
 retire with 20 years of credits - 1452

As you can see those 0's really reduce your benefits. The double whammy is that right now my wife would probably draw off my SS if we retire before 70 between the extended education and gap years staying home with the kids so I don't go from 1900 to 1452. It is more like 3350 to 2160

4% doesn't survive 100%. It survives 95%.

And even if you make 10%/yr, taking 10% will not work. In 30 years, inflation will have cut your buying power in half. You might still have 250k, but ti will be worth what 125k is to day.

And why on earth does everyone want to be a frickin contractor when they "retire"? It that the new idealized job (remember when it was running a B&B or opening a coffee shop or bar) that sounds fun to someone that has never done it?

Your plan would work pretty well for a year or two.  After 20 years at 4% inflation your spending power would be cut in half and at 37 years in half again. Can you live on $6,250/year?  That's about $525/mo.

No one will have that low amount to live on in 20 years.  Your worst case situation is $20,000 on Social Security.  Yes i know everyone and their brother believes SS will be gone, but guess what, unless you will allow old people and handicapped people to starve in the streets you will always have about $20,000 per year or whatever is needed to live on. 

thinking its still possible with $250,000 but difficult.

$20,000/year from SS?  Not if you retire early.

Did you run some numbers? If I follow my planned retirement date, I'll have made 20 years of the maximum contribution (every year after I finished school), plus a few years of minor contributions while I was in school. The additional potential 15 years doesn't add much to my forecast benefit, as I recall. I'll check my numbers. Of course, I won't collect any social security for decades after I retire, if that was your point.

I was responding to the OP who seems to have problems creating more than a $250K stash. 

Isn't SS benefit calculated off of your highest 35 years of income.  If you retire early, won't you have a lot of years of 0 which brings your benefit down? 

I haven't done a whole lot of calculations on my own benefit, b/c I am planning my retirement stash off of the assumption of no SS.  And then when I finally get it, that is gravy on top for me.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8616
  • Registered member
Re: simple kiss retirement?
« Reply #16 on: February 13, 2014, 04:00:06 PM »

And why on earth does everyone want to be a frickin contractor when they "retire"? I

Because a lot of us like what we do, but want to do it less.

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1081
Re: simple kiss retirement?
« Reply #17 on: February 13, 2014, 05:57:14 PM »
It does. For example have maxed out SS for the past ~18 year and right now my benefits look like

 work til 62 - 1928
 retire with 35 years of credits (I might be off by a year about when I first maxed out it looks like)-1915
 retire with 20 years of credits - 1452


Interesting; I get a difference of only $332/month on my 20 years of max (plus a few years of small contributions before that) vs. 35 years of max (all assuming starting to collect at 62, since that's what the calculator here http://www.ssa.gov/OACT/quickcalc/index.html works with). Granted, that's a more than 20% difference, which isn't nothing, but it's only a few percent of what I expect to have in an annual safe withdrawal. It's also completely out of scale to making 75% more maximum contributions. Did you use the same calculator? Perhaps the difference is narrower because my maximum contributions started at a relatively young age.

curler

  • Stubble
  • **
  • Posts: 111
Re: simple kiss retirement?
« Reply #18 on: February 13, 2014, 06:52:54 PM »

And why on earth does everyone want to be a frickin contractor when they "retire"? I

Because a lot of us like what we do, but want to do it less.

I think foobar was referring to the people who plan to retire than then renovate houses/landlord.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8616
  • Registered member
Re: simple kiss retirement?
« Reply #19 on: February 13, 2014, 07:00:03 PM »

And why on earth does everyone want to be a frickin contractor when they "retire"? I

Because a lot of us like what we do, but want to do it less.

I think foobar was referring to the people who plan to retire than then renovate houses/landlord.

WOW I totally misread that one.

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 2974
  • Age: 81
  • Location: The laboratory
  • Typical Ghoul Next Door
Re: simple kiss retirement?
« Reply #20 on: March 07, 2014, 01:22:43 PM »
Well then, I suggest someone retire and open a construction company that only renovates B&Bs with a coffee bars inside. :)


payitoff

  • Guest
Re: simple kiss retirement?
« Reply #21 on: March 07, 2014, 01:54:14 PM »
wow basing on this simple formula, to retire in california, we will need about $1,200,000 *sweating*  provided we can save $60,000/month that's still about 20 years.

can you cash out your dividends when you live outside of the country?  might move to Asia because of this >___<