Author Topic: 25X your annual spending? Quick question  (Read 2418 times)

zada0002

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25X your annual spending? Quick question
« on: January 29, 2016, 01:02:54 PM »
I understand the 4% rule and am very comfortable sticking to that plan.

My question is this:

Am I only using the money in my taxable accounts to get to the number where the dividends and growth sustain me during retirement? Or do you include 401k/403b's in the 25X annual spending calculation. I know that there are ways to roll over the tax-deferred accounts into an IRA. If that is the case, then it would make sense to include the 401k to achieve that 25X annual spending number.

If you do not include retirement plans, then it will take me a lot longer to reach a number in my taxable accounts that is 25X my annual spending. I want to make sure I understand how most people are coming up with that number and how they justify it.

Thanks for any clarification on this.

Tyler

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Re: 25X your annual spending? Quick question
« Reply #1 on: January 29, 2016, 01:13:36 PM »
Personally, I include both taxable and tax-deferred accounts in my calculations.  But I also calculated for myself when the taxable accounts are likely to become depleted so that I could formulate a target amount in those accounts and a strategy for transitioning to tax-deferred money. 

johnny847

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Re: 25X your annual spending? Quick question
« Reply #2 on: January 29, 2016, 01:19:22 PM »
I would count any money in your accounts that would be used for retirement (regardless of when  you start retirement), while also making sure that I have at least 5 years worth of expenses in a taxable account (if I don't have a 457b*) to start the Roth Conversion Pipeline, which allows you to access your retirement account money penalty free before 59.5.

*You can withdraw money from a 457b penalty free once you leave your employer, unlike 401k's and 403b's which require you to be 59.5, unless you were at least 55 when you left your employer.

BlueHouse

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Re: 25X your annual spending? Quick question
« Reply #3 on: January 29, 2016, 01:33:54 PM »
I understand the 4% rule and am very comfortable sticking to that plan.

My question is this:

Am I only using the money in my taxable accounts to get to the number where the dividends and growth sustain me during retirement? Or do you include 401k/403b's in the 25X annual spending calculation. I know that there are ways to roll over the tax-deferred accounts into an IRA. If that is the case, then it would make sense to include the 401k to achieve that 25X annual spending number.

If you do not include retirement plans, then it will take me a lot longer to reach a number in my taxable accounts that is 25X my annual spending. I want to make sure I understand how most people are coming up with that number and how they justify it.

Thanks for any clarification on this.
I think my definition of "retirement" funds may be different than yours.  ALL of my money, other than a small checking account and my Emergency Fund is counted as "retirement" because the purpose of my saving and investing is to be able to survive on it once I'm no longer working.  So whether it's in a 401k or a taxable account, I count it towards "my number"

soccerluvof4

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Re: 25X your annual spending? Quick question
« Reply #4 on: January 29, 2016, 02:13:06 PM »
I understand the 4% rule and am very comfortable sticking to that plan.

My question is this:

Am I only using the money in my taxable accounts to get to the number where the dividends and growth sustain me during retirement? Or do you include 401k/403b's in the 25X annual spending calculation. I know that there are ways to roll over the tax-deferred accounts into an IRA. If that is the case, then it would make sense to include the 401k to achieve that 25X annual spending number.

If you do not include retirement plans, then it will take me a lot longer to reach a number in my taxable accounts that is 25X my annual spending. I want to make sure I understand how most people are coming up with that number and how they justify it.

Thanks for any clarification on this.
I think my definition of "retirement" funds may be different than yours.  ALL of my money, other than a small checking account and my Emergency Fund is counted as "retirement" because the purpose of my saving and investing is to be able to survive on it once I'm no longer working.  So whether it's in a 401k or a taxable account, I count it towards "my number"


Then why would you not include your small checking account and emergency fund. Thats part of ALL your money? at the end of the day if you tap into it its spending.  Just curious not trying to create an argument.


I use 25x's ALL money but do not count house because need to live somewhere and its at the cost I would probably spend if I moved. 

BlueHouse

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Re: 25X your annual spending? Quick question
« Reply #5 on: January 29, 2016, 02:19:35 PM »
I understand the 4% rule and am very comfortable sticking to that plan.

My question is this:

Am I only using the money in my taxable accounts to get to the number where the dividends and growth sustain me during retirement? Or do you include 401k/403b's in the 25X annual spending calculation. I know that there are ways to roll over the tax-deferred accounts into an IRA. If that is the case, then it would make sense to include the 401k to achieve that 25X annual spending number.

If you do not include retirement plans, then it will take me a lot longer to reach a number in my taxable accounts that is 25X my annual spending. I want to make sure I understand how most people are coming up with that number and how they justify it.

Thanks for any clarification on this.
I think my definition of "retirement" funds may be different than yours.  ALL of my money, other than a small checking account and my Emergency Fund is counted as "retirement" because the purpose of my saving and investing is to be able to survive on it once I'm no longer working.  So whether it's in a 401k or a taxable account, I count it towards "my number"


Then why would you not include your small checking account and emergency fund. Thats part of ALL your money? at the end of the day if you tap into it its spending.  Just curious not trying to create an argument.


I use 25x's ALL money but do not count house because need to live somewhere and its at the cost I would probably spend if I moved.

I guess because I expect to spend the emergency fund eventually and the checking account gets depleted each month -- but you're right.  If I don't spend it, it certainly does become part of my retirement money.  I really despise using my Emergency fund (which is really just a savings account...so yes...you're 100% right.) 
By that point, I could also assign part of the equity in my home because I do plan to downsize eventually.  But I don't do that because I like to be conservative. 

Geekenstein

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Re: 25X your annual spending? Quick question
« Reply #6 on: January 29, 2016, 04:10:42 PM »
For these sorts of scenarios I use this:

http://www.i-orp.com/

You can use it to spitball allocations to tax-deferred, Roth, cash, other as well as play with inflation and investment returns.  It's an easy way to see how long a given pot of assets will last under whatever scenario you want to test.

There's also FireCalc (http://www.firecalc.com/) that lets you see how a stash would have held up across previous market periods.  Although past performance doesn't mean much, at least you can get an idea whether your retirement assets would get you through something like the Great Depression.

You may already be aware of these, in which case, oops :)