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Old 04-08-2016, 02:00 PM
 
71,811 posts, read 71,919,037 times
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Quote:
Originally Posted by GeoffD View Post
That's an expected long term inflation-adjusted return on a balanced portfolio based on historical data. It doesn't mean you'd automatically get $30K to spend in 2016 plus another $15K added to that $750,000 to stay even with 2% inflation.
that is exactly what it means ,you can take that day 1 regardless . .

a safe withdrawal is not based on the returns of a particular portfolio or any particular portfolio return yearly . the trinity study tested and graded everything with a success rate from 100% bonds to 100% stocks trying all different withdrawal rates over the worst of times..

it is based on how much you can draw under the worst case conditions from different allocations and have made it through the worst case scenario's we have ever seen and have the money last 30 years . it can be drawing 2% inflation adjusted from just fixed income or 3% from 25% equity and 75% bonds or 4% from 100% equity's or any combo you like .

the safe withdrawal rate anticipates bad years up front happening and the most awful scenario's . it is not based on any particular return being needed yearly .

if it wasn't based on the worst of the worst a safe withdrawal rate would have been 6.50% , that is a whopping 60% increase in your pay .

it is easy to monitor thanks to micheal kitces crunching the numbers and realizing you need to hold at least a 2% real return average the first 15 years of a 30 year time frame to support a 4% inflation adjusted withdrawal rate ..

if 7 or 8 years in you are not holding at at least a 2% real return a cut in spending would be wise , perhaps 1/2 a %.
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" The Trinity Study measures the "success rate" of various portfolios from 1926 to 1995. The "success rate" is the percent of time a retiree could sustain a given withdrawal rate without depleting his retirement assets. One portion of the Trinity study adjusted withdrawals for inflation/deflation, much like the Harvard study. This analysis showed that of the portfolios considered, the optimal asset mix is 75% stock/25% long term corporate bonds. For a 30 year payout period and a 4% withdrawal rate, this mix had a 98% success rate. At a 3% withdrawal rate, the 75/25 mix had a 100% success rate. Interpolating these results would give you a "safe" withdrawal rate of slightly less than 4%, virtually identical to the Harvard study."

in 1996, William Bengen produced a figure showing that the safe withdrawal rate from a historical perspective varied very little for stock allocations between 35% and 90%. Using data for the S&P 500 and intermediate-term government bonds, he found that the historically-safe withdrawal rate was always above 4% for rolling 30-year periods since 1926 for stock allocations between 35% and 90%. [4]

The difference in data choice for the fixed income component between William Bengen's work and the Trinity study deserves mention. William Bengen used intermediate-term government bonds, which allows for a 100% success rate for the inflation-adjusted 4% withdrawal rate rule. Meanwhile, the Trinity study uses more volatile long-term corporate bonds, which caused the maximum inflation-adjusted withdrawal rate for new retirees in 1965 and 1966 to dip below 4%.

Last edited by mathjak107; 04-08-2016 at 02:52 PM..
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Old 04-08-2016, 02:08 PM
 
Location: Sierra Nevada Land, CA
8,411 posts, read 9,162,606 times
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Quote:
Originally Posted by my post View Post
Here in Texas I run into a lot of refugees from California. They lived in LA or the SFO Bay Area most of their working life and were home owners. They saw the quality of life go down hill and decided to retire early and get out of California. One guy told me he sold his house in Palo Alto CA for over a million he had bought in 1980 for $90K and took the profits and bought a home in TX for $350K which was twice as nice and retired on the rest. (Along with a small bit of savings.)


Anyone here with a similar story? Lets discuss.


Quote:
Originally Posted by dmills View Post
I think the answer to your question is "probably." My main concern would be their spending habits. Do they know how much it would cost to live in Texas, to determine whether the $750k plus would be sufficient.

My suspicion is they have less than $750, because there would have been capital gains tax on the sell of their home. I am also concerned that they have only a small amount of retirement savings (other than the house) which suggests a high consumption lifestyle. Hard to say without more info.
Yes you are correct. $1,000,000 - $350,000 = $650,000.


Quote:
Originally Posted by Petunia 100 View Post
Well, 350k of it was spent immediately to purchase the new place in Texas. 400k is a nice chunk of money, but depending on how much you need to live, it can go very fast when it is going in only one direction.
Boy, this thread has the worst math I have ever seen.
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Old 04-08-2016, 02:13 PM
 
8,870 posts, read 5,149,988 times
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Quote:
Originally Posted by Mr5150 View Post
Yes you are correct. $1,000,000 - $350,000 = $650,000.


Boy, this thread has the worst math I have ever seen.
Thanks. Can you share your calculations showing realtor's fees and capital gains taxes on this transaction equaling $0? Perhaps that would help some of us out.
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Old 04-08-2016, 02:27 PM
 
Location: Sierra Nevada Land, CA
8,411 posts, read 9,162,606 times
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Quote:
Originally Posted by Petunia 100 View Post
Thanks. Can you share your calculations showing realtor's fees and capital gains taxes on this transaction equaling $0? Perhaps that would help some of us out.
If you include the 6% realtor fee ($60,000) that would take the net even further south from $750,000. Now we are talking $590,000 instead of $650,000. >sigh<

6% is the standard in CA, but some outfits charge less.

Capital gains Tax depends on many unmentioned (by the OP) factors, such as one's tax bracket and improvements to said property.
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Old 04-08-2016, 02:33 PM
 
8,870 posts, read 5,149,988 times
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Quote:
Originally Posted by Mr5150 View Post
If you include the 6% realtor fee ($60,000) that would take the net even further south from $750,000. Now we are talking $590,000 instead of $650,000. >sigh<

6% is the standard in CA, but some outfits charge less.

Capital gains Tax depends on many unmentioned (by the OP) factors, such as one's tax bracket and improvements to said property.
Exactly. That's why people are ball-parking it.
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Old 04-08-2016, 02:38 PM
 
Location: Sierra Nevada Land, CA
8,411 posts, read 9,162,606 times
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Quote:
Originally Posted by Petunia 100 View Post
Exactly. That's why people are ball-parking it.
Ball parking in the wrong direction! Should have gone with $650,000 and under instead of $750,000, which is $100,000 higher than the math indicates, before realtor fees-assuming one used a realtor.

When we sold our last house, we did not use a realtor. The market was hot and the place sold in nine days.
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Old 04-08-2016, 02:40 PM
 
1,825 posts, read 2,485,042 times
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Quote:
Originally Posted by Mr5150 View Post
Yes you are correct. $1,000,000 - $350,000 = $650,000.


Boy, this thread has the worst math I have ever seen.
If you want to get technical about it, he said the bous esas sold for OVER a millón dollars. Last time I checked "over" meant "more than." Apparently it's not just the math skills that are lacking here.
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Old 04-08-2016, 02:45 PM
 
12,058 posts, read 5,156,615 times
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Quote:
Originally Posted by ansible90 View Post
That sounds like the ultimate downsizing story. The only thing I would be wary of in that situation would be the culture shock of moving from CA to TX.
I think it's a good culture shock. Not everyone appreciates the "progressive" way of life that dominates in most parts of CA.
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Old 04-08-2016, 02:55 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,953,845 times
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My father didn't retire on his home equity - but his later retirement years became a lot easier when he sold the house he and my mother bought in SE Florida for $66k in the 60's for $1.5 million in late 2005 - when he was in his late 80's. Even after paying capital gains taxes. He wasn't a great market timer in terms of the real estate market (which peaked here in 2005-6). My mother just happened to die in early 2005 - and he sold that year to take advantage of the higher capital gains exemption on joint returns (this is something anyone with big capital gains in a house should look into if a spouse dies - especially if you're at an age where your current house doesn't make sense anymore).

After my father sold the house - he moved into a senior independent living facility near us - which costs about $4500/month now. An amount he can easily afford. In he needs a higher level of care - he'll be able to afford that too. I handle his finances - and his house sale has certainly made my work easier. Robyn
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Old 04-08-2016, 02:58 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,953,845 times
Reputation: 6717
P.S. My father did have culture shock when he moved from south Florida to north Florida. Like everyone here speaks English. And people hold the doors open for old people. And offer to help them when they need help (he tells several stories again and again about how people have helped him on numerous occasions). Not a bad kind of culture shock . Robyn
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