Author Topic: What does my working-part-time-forever + rock-bottom-expenses do to my plan?  (Read 1864 times)

heybro

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Does the 25X rule apply to me when figuring out how much I need for retirement when working part-time, having rock bottom expenses, and not needing to touch retirement funds until age 65?

« Last Edit: November 08, 2018, 12:14:36 AM by heybro »

MDM

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1. Does the 25X rule apply to me when figuring out how much I need for retirement when working part-time, having rock bottom expenses, and not needing to touch retirement funds until age 65?  (Do I really need 25X expenses at age 65 with a paid off place, rock bottom expenses, and only 30 years to live?)
In short, yes.  Elaborating, you need 25X "expenses minus guaranteed inflation-adjusted income" to meet a commonly used safe withdrawal rate.

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2. Now that my mortgage is paid, should I save for my next place or fully fund retirement to the max?
See Investment Order for the usual suggestions that apply to most people.  You may be an exception, but that would be...unusual. ;)

capoevename

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Your situation is different since you plan to keep working to cover expenses. Use a fire calc that takes that into account. For example, https://firecalc.com/ allows you to add a side-income. Plug your numbers there.

FIREby35

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If you have a paid for home and low expenses, you can work enough to cover expenses and save a little for old age. You don't have to "race" to "FIRE." That is something that is really common here, but not required.

You only need 25X expenses if you plan to stop working and live off withdrawals of your investments. If you plan to work to cover expenses then you don't need 25X expenses. However, if you never get to 25X expenses then you are always required to work, at least a little bit.

If you take the attitude that you are just going to work to cover your modest expenses then I would personally suggest staying in your paid off house (why are you buying a second house??). Then work for your expenses and save via the company match and other investments as noted by MDM. Save as much as possible for as long as you are going to work full time.

Know that when you "quit working" if you don't have 25X expenses then you do not have enough money. But you can stop saving, work for your expenses and let your investments grow. Read this article about "the point of retirement inevitability." That might be a good saving goal. http://frugalvagabond.com/the-point-of-retirement-inevitability/

I think it is important to remember that some huge number of Americans don't have $400 to for an unexpected expenses. So, if you own your house, are working, you earn enough for all your expense, you save $1800 per month and you have tens of thousands of dollars invested then you ARE very financially secure. Congratulations.


Linea_Norway

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25x Expenses is necessary if you want to be able to forever take out 4%, without the stash becoming smaller.

In my case, we think we have enough retirement funds from the age of 67 to cover our expenses after that. We need our FIRE stash to cover the 20 years before that. We intend to do that with a stash that initially covers 16 x expenses, where we take out the 4% per year and eat up the stash for remaining sum. The stash will be 0 when reaching 67. In addition to that we will have a paid down home. (and cabin) In case it doesn't work out financially, we will do some part time consulting work.

MDM

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I either work part-time now and risk not having enough later.
Or.
I work for the next 30 years full time and have way way way too much money in retirement.
Or work for [something less than] 30 years full time and have [enough] money in retirement.

What do you get for "something less than" if you use the simple "Time to FI" calculation in the case study spreadsheet, and/or more sophisticated tools such as those mentioned in Best and/or Recommended Retirement Calculator?

maizeman

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Why make your age 67 retirement account 'last forever.'  Why not plan for an amount that will reach zero at age 120 or 110 or something?  Wouldn't you need less if you did so? 

That would make intuitive sense. However, given the volatility of inflation and stock market returns the difference between the savings required to reliably support a withdrawal rate forever, and reliably support the same withdrawal rate for 50+ years is essentially within the margin of error.

Linea_Norway

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We intend to do that with a stash that initially covers 16 x expenses, where we take out the 4% per year and eat up the stash for remaining sum. The stash will be 0 when reaching 67.

How are you getting that money out of the account?  Is it in a non-retirement account?

Yes, it is in a normal non-retirement account. We have other retirement accounts (drawn from our salaries by employers) that we cannot reach until the age of 67.

heybro

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We intend to do that with a stash that initially covers 16 x expenses, where we take out the 4% per year and eat up the stash for remaining sum. The stash will be 0 when reaching 67.

How are you getting that money out of the account?  Is it in a non-retirement account?

Yes, it is in a normal non-retirement account. We have other retirement accounts (drawn from our salaries by employers) that we cannot reach until the age of 67.

Can you tell me more about how you set up and structure this taxable account.  I am very interested in doing this.  Can you tell me about taxes and your strategy there?

mistymoney

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If you have a paid for home and low expenses, you can work enough to cover expenses and save a little for old age. You don't have to "race" to "FIRE." That is something that is really common here, but not required.

You only need 25X expenses if you plan to stop working and live off withdrawals of your investments. If you plan to work to cover expenses then you don't need 25X expenses. However, if you never get to 25X expenses then you are always required to work, at least a little bit.

If you take the attitude that you are just going to work to cover your modest expenses then I would personally suggest staying in your paid off house (why are you buying a second house??). Then work for your expenses and save via the company match and other investments as noted by MDM. Save as much as possible for as long as you are going to work full time.

Know that when you "quit working" if you don't have 25X expenses then you do not have enough money. But you can stop saving, work for your expenses and let your investments grow. Read this article about "the point of retirement inevitability." That might be a good saving goal. http://frugalvagabond.com/the-point-of-retirement-inevitability/

I think it is important to remember that some huge number of Americans don't have $400 to for an unexpected expenses. So, if you own your house, are working, you earn enough for all your expense, you save $1800 per month and you have tens of thousands of dollars invested then you ARE very financially secure. Congratulations.

That article was pretty simplistic, except for this gem of an equation, which I loved!

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UPDATE: Math whiz and nice guy reader Mark helpfully provides the actual mathematical means of solving for time directly, for those comfortable with using natural logarithms:

t = ln(A/P)/ln(1 + r)

Where t is time, A is the goal amount, P is the starting principal, and r is the interest rate/rate of compounding.


Cassie

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I worked part time from 58-65 and really enjoyed it. Helped with preservation of savings also.