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Old 04-24-2014, 11:51 AM
 
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I will respond more tonight but the input is appreciated and helpful...

I agree with the posters that said PT work is the wise choice..
That will give me time to do the other persuits as well...


Regarding the 4% rule of thumb for retirement calculations...
If 4% is not a good rule of thumb , what is...
I have always heard that 4 is the safe percent to calculate
investment & retirement times...

I do get financial advice but find that forum input is helpful also....

My thoughts are that when 4% of my investments easily covers my yearly
expenses, then I should be close to being able to retire..The SS will
kick in and give me extra in about 10 years...
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Old 04-24-2014, 11:53 AM
 
Location: Haiku
4,188 posts, read 2,605,525 times
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Quote:
Originally Posted by mathjak107 View Post
your assumption is not correct at all.

the rule is not a rule ,it is a guide . the amount of money left varies over 30 years from zero to more than you started with.
Call it a "guide" or "rule of thumb" but it is exactly what she said it is.

It is useful to look at where it comes from - the historical average return off the broad stock market is about 7%. The average historical inflation is about 2%. Fees and taxes are harder to calculate so call it 1%. That gives about 4% of actual, inflation adjusted historical gain, without touching the principal.

That is the source of the 4% rule of thumb. It is a very good rule of thumb for estimating the average return, assuming you are not touching the principal, which is exactly what she asked.

Of course the actual return in any one year will vary, and that is why I said she should talk to a financial planner.
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Old 04-24-2014, 12:06 PM
 
2,043 posts, read 1,954,332 times
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Quote:
Originally Posted by TwoByFour View Post
Call it a "guide" or "rule of thumb" but it is exactly what she said it is.

It is useful to look at where it comes from - the historical average return off the broad stock market is about 7%. The average historical inflation is about 2%. Fees and taxes are harder to calculate so call it 1%. That gives about 4% of actual, inflation adjusted historical gain, without touching the principal.

That is the source of the 4% rule of thumb. It is a very good rule of thumb for estimating the average return, assuming you are not touching the principal, which is exactly what she asked.

Of course the actual return in any one year will vary, and that is why I said she should talk to a financial planner.
I believe the long-term historical return of the S&P500 since its inception is actually 10% annualized. Obviously there will be years where it is down 30% and up 30%.
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Old 04-24-2014, 12:51 PM
 
Location: SoCal desert
8,093 posts, read 13,249,708 times
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Quote:
Originally Posted by kelly237 View Post
I am a 56 year old widow with grown kids and have just been through 2 years of downsizing stuff/house repair/listing/selling/moving. I bought a nice townhouse that I can clean in about an hour..woohoo !!

My house is paid for and HOA fees are 120/month...I will be able to live fine on 2000 per month..
I have about 580K in retirement investments...No loans or depts..

I worked as a Speech Pathologist before the kids were born and could easily find work because of a shortage in the field...I could do part time, hourly PRN work, or take temporary assignments....

My question is , Do I really need to work with my home owned and almost 600K invested...
SS will kick in before too long..

I have lots of goals, hobbies & adventures that I would love to focus on if I could be free to not work..
Do you have other investments/savings that you can use before you are 59.5 years old?
Myself, I hate paying penalties .....

And don't let the naysayers get you down.
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Old 04-24-2014, 02:39 PM
 
Location: Charlotte, NC dreaming of other places
983 posts, read 2,180,114 times
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Great thread Kelly.. thanks for sharing with us. I am looking at the most responses and as someone else said it is conservative. I am not at "retirement age" but I want to quit working full time soon to be able to do the things that I really want to do not have to :-). Saying that.. I think you are doing great for thinking of quitting to help others for free, not many people with lots of money even think about this.. good for you and God bless you for it (I believe you get back for what you do) .

I read a book called "live rich and die broke" which really is what I plan on doing, enjoy the money I earned and leave nothing behind. Keeping a nest egg for too long to the point that I can't enjoy because I'm too old or sick to travel or go out eat is just crazy. I have a good sized nest egg for my age I think, and been doing all kinds of math and running numbers and really all I need is enough money to get me going till I reach 59.5 to withdraw from my 401K. If I am still alive by then I plan on enjoying the money as much as I can and share it with others too. I did the life expectancy calculation and really it doesn't help much but I know the family history so for me mid 70 is a stretch.

Conclusion, do your math, be careful but don't let fear stop you from doing what you really want to do. one step at a time and you will get there. you are already on your way.
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Old 04-24-2014, 02:53 PM
 
59 posts, read 189,013 times
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Quote:
Originally Posted by kelly237 View Post
I will respond more tonight but the input is appreciated and helpful...


My thoughts are that when 4% of my investments easily covers my yearly
expenses, then I should be close to being able to retire..The SS will
kick in and give me extra in about 10 years...
I would agree that the 4% rule is a good starting point for someone retiring at a 'normal' age who will begin receiving a pension or SS immediately. Then the math is easy - monthly needs less pension and/or SS = unmet need .......unmet need / 4% = pool of money necessary to be able to retire

I don't think that the 4% guideline fits an early retirement situation. You have two distinct periods. I'd look at what you need to fund the first ten years. Assuming your $24K annual expenses, that is $240,000 before inflation, perhaps $275,000 at 2.5% inflation. After that you need to cover the unmet need from the prior paragraph. If inflation has pushed your spending to $30K in ten years while SS has gone up the same 25% from $20K to about $25K per year, your annual unmet need is $5K. $5K / 4% = $125,000. Total pool needed for you to retire today is $400,000. With $580K in the bank, you have a decent cushion. This is before even looking at your investment returns over future years.This also explains why the cfiresim calculator suggested you are golden today. The calculator tools are way more sophisticated than my back of envelope calculations above and allow for many different assumptions.

The key is knowing your expenses. All the calculations blow up if you are underestimating your expenses. You seem pretty sharp to me so I have no doubt you can nail it down, run the math above or use the various planners and get comfortable. I'm not a fan of using 'investment professionals' I don't want to pay 1% fees and then be steered to high cost investments. Lots of people on a number of sites will be happy to help you help yourself.

Part time work - sounds good if that's what you want to do but I don't think you will find that you need to from a financial perspective.

Best wishes in whatever you decide to do.

Last edited by woodguy00; 04-24-2014 at 03:08 PM..
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Old 04-24-2014, 03:37 PM
 
Location: NE Mississippi
13,716 posts, read 8,612,921 times
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Quote:
Originally Posted by kelly237 View Post
I am a 56 year old widow with grown kids and have just been through 2 years of downsizing stuff/house repair/listing/selling/moving. I bought a nice townhouse that I can clean in about an hour..woohoo !!

My house is paid for and HOA fees are 120/month...I will be able to live fine on 2000 per month..
I have about 580K in retirement investments...No loans or depts..

I worked as a Speech Pathologist before the kids were born and could easily find work because of a shortage in the field...I could do part time, hourly PRN work, or take temporary assignments....

My question is , Do I really need to work with my home owned and almost 600K invested...
SS will kick in before too long..

I have lots of goals, hobbies & adventures that I would love to focus on if I could be free to not work..
No.
You don't need to work.
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Old 04-24-2014, 04:18 PM
 
71,909 posts, read 71,942,576 times
Reputation: 49446
Quote:
Originally Posted by TwoByFour View Post
Call it a "guide" or "rule of thumb" but it is exactly what she said it is.

It is useful to look at where it comes from - the historical average return off the broad stock market is about 7%. The average historical inflation is about 2%. Fees and taxes are harder to calculate so call it 1%. That gives about 4% of actual, inflation adjusted historical gain, without touching the principal.

That is the source of the 4% rule of thumb. It is a very good rule of thumb for estimating the average return, assuming you are not touching the principal, which is exactly what she asked.

Of course the actual return in any one year will vary, and that is why I said she should talk to a financial planner.
that is not true one bit. if you know anything about where the safe withdrawal rate came from it has nothing to do with any of that.

it comes from analyzing actual returns and actual inflation individually each year over rolling 30 year time frames. no averages are used so actual sequence of gains and losses is figured ..

bill bengans work and the trinity study are the basis for the 4% safe withdrawal rate and was based on the fact we had 2 very very bad time frames out of 111 time frames tested since 1926.

various withdrawal rates were back tested with various allocations and assigned a success rate of not having to reduce their income when retirees tried to make it through the 2 worst time frames and end 30 years later without being broke.

it wasn't until you hit just around 4% that all groups passed without being broke taking 4% inflation adjusted withdrawals with a 50/50 mix..

if you eliminate the two very worst time frames the actual average safe withdrawal rate is 6.5%.

in fact if you want to know what kind of numbers make up the 4% safewithdrawal rate michael kitces recently computed them.

it would take us getting less than a 2% real return as an average for the first 15 years of a 30 year retirement time frame.

to see how those success rates look you can see the results here.


Last edited by mathjak107; 04-24-2014 at 04:59 PM..
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Old 04-24-2014, 04:27 PM
 
71,909 posts, read 71,942,576 times
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Quote:
Originally Posted by TwoByFour View Post
That is correct - when someone quotes that 4% rule of thumb, they are referring to skimming off the gains made off the principle.

You should talk to an financial planner. There are lots of things to think about when trying to live off investments.
this is again false. the 4% rule is figured in terms of success rate of the income stream not having to be lowered, allowing it to be adjusted upward for inflation while the only thing fluctuating through good and bad markets is the bucket of money left for heirs at the end. that bucket can range from zero to more than you started with.

the idea is the income stream should stay safe ,consistant and steady no matter what. each time frame was allowed to run down to as low as zero money left on the 30th year if need be.
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Old 04-24-2014, 04:35 PM
 
71,909 posts, read 71,942,576 times
Reputation: 49446
Quote:
Originally Posted by biscuitmom View Post
Right. And simply put, in years where the value of her investment drops 10-15% (it happens), her income drops 10-15%.
Collecting SS will mitigate that drop, but those 6-10 years without it could get hairy.
this is false as well. the whole idea behind a safe withdrawal rate is the income should not have to be adjusted because of bad times . the only thing that changes is your pile of money at the end which at the end of 30 years can be zero or more than you started with.

4% represents the level of income that could be drawn without a break or reduction in the flow of income based on the absolute worst of times we had. the great depression , the world wars , the 20 crappy market years in the 1960's followed by double digit inflation all made it through with that income stream unaltered .

it is also based on the fact you need a certain amount of equities in your portfolio as well.

depending on your mix your odds change as far as the success rate of that income stream having to be reduced.
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