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I'm single, scotch-swilling and have one child (launched and doing well, for which I'm grateful). I agree that makes things a lot easier; the scary scenario of one person still in the house and the other in LTC isn't a consideration.
As you note trying to plan for various later stage scenarios for a couple adds to the puzzle. We think we have but there is so much that can go wrong that would up end everything. On paper it looks great but life doesn't occur on paper.
It's interesting how 4% is considered the 'standard' for retirement, however, actuarial firms only value fixed benefit pension plans at 15-20 times annual payout - more like a 5-6% level.
It's interesting how 4% is considered the 'standard' for retirement, however, actuarial firms only value fixed benefit pension plans at 15-20 times annual payout - more like a 5-6% level.
4% is only a starting point if we are talking 30 years and a portfolio with a minimum of 40% equities and that assumes under worst case scenarios you may actually fail to end with a buck left.. if mostly fixed income it’s is less
4% is only a starting point if we are talking 30 years and a portfolio with a minimum of 40% equities and that assumes under worst case scenarios you may actually fail to end with a buck left.. if mostly fixed income it’s is less
The 4% rule premise was that a balanced portfolio could reasonably be expected to support a withdrawal rate of 4% of the initial balance over a 30-year retirement. For a portfolio with an allocation of 20% or more to equities, the success rate, defined as not running out of money over this 30-year time horizon, exceeds 90%.
A couple of things to note; 1) says balanced portfolio (not 100% in one type of investment) with at least 20% to equities, 2) 30 year timeline (some need to plan longer) and 3) exceeds 90% success rate (not 100%).
The 4% rule has endured for many years but this or any rule of thumb is a quick estimating tool. No rule of thumb is a substitute for diligent planning and number crunching when it comes to retirement.
A somewhat safer rule of thumb for withdrawing from savings is to take out a percent (I would think 5% is ok) of the current value each year, recalculated after taking out gains or losses for the previous year instead of a straight 4% of starting value. This means amount will vary some but allows for down years and ensures always have income from savings. Also if use Bernicke's Reality Retirement Plan, his retirement estimate says income needs drop 2-3% every year until reach 76 years of age so can live with 4-5% to start and ok if drops later.
Last edited by ddeemo; 04-17-2019 at 05:32 PM..
Reason: clarity
The 4% rule premise was that a balanced portfolio could reasonably be expected to support a withdrawal rate of 4% of the initial balance over a 30-year retirement. For a portfolio with an allocation of 20% or more to equities, the success rate, defined as not running out of money over this 30-year time horizon, exceeds 90%.
A couple of things to note; 1) says balanced portfolio (not 100% in one type of investment) with at least 20% to equities, 2) 30 year timeline (some need to plan longer) and 3) exceeds 90% success rate (not 100%).
The 4% rule has endured for many years but this or any rule of thumb is a quick estimating tool. No rule of thumb is a substitute for diligent planning and number crunching when it comes to retirement.
A somewhat safer rule of thumb for withdrawing from savings is to take out a percent (I would think 5% is ok) of the current value each year, recalculated after taking out gains or losses for the previous year instead of a straight 4% of starting value. This means amount will vary some but allows for down years and ensures always have income from savings. Also if use Bernicke's Reality Retirement Plan, his retirement estimate says income needs drop 2-3% every year until reach 76 years of age so can live with 4-5% to start and ok if drops later.
The Trinity study shows the success rate is below 90% with 20% equities and is not acceptable ,in fact 25% is to low clocking in at 87% ... 35-40% is the minimum with 40% in a a non parity portfolio recommended
The idea of a safe withdrawal rate is to provide a relatively Stable income that can be counted on in thick and thin .... so dynamic methods that use yearly balances have to be careful they don’t allow the income to fall to far in poor outcomes ...
Many of us also may see a slight drop in spending on ourselves as we age but that does not mean it is not going to be replaced by spending on others like our kids and grandkids so personally I see no drop in our cards nor would I want a draw method based on anything predicting a fall off .. that spending fall off is also only true for those with a fair amount of discretionary income ... you can’t cut back as you age on things that are non discretionary..
I use a dynamic method that that uses each years balance .. it is bob clyatts 95/5 ....
You get the higher of 4% of the balance or 5% less then you took the previous year in a down year ... the nice thing is it keeps you from taking to steep of a cut in bad times yet rewards you in good times ... I have been using it since the day we retired almost 4 years ago
No one can say if $90k/yr is enough without knowing your expenses and budget. That is something you are going to have to work out by estimating your costs in retirement. Note 2 things, housing is normally the biggest cost in retirement according to govt study (sounds like you have that covered) and health care costs can be a huge expense in retirement so don't budget that cost as just Medicare insurance costs. You probably have sufficient to retire when you want to but until you do a budget, no one knows.
The other thing is many use the rule of thumb of needing to replace 80% of income in retirement. This is a simple rule that fails to take into account the potentially significant payroll deductions such as FICA (7.65%) and 401k contributions that will stop in addition to the normal items lower costs such as transportation (commuting costs), clothes, vacation (can travel when less expensive and without kids) and potentially lower taxes and housing costs if move or downsize.
For example - My wife and I made about $245k/yr when working but about $45k went to 401k and about $20k to FICA and $30K to tax withholdings and other deductions. So take home was about $150k/yr (with about $65k a year to housing in SoCal), left about $85k/yr for other things. With a move to a lower cost, more "tax friendly" (less liberal) area, we make about 50% of our previous income at $120k/yr ($10k/Mo that is our combined pensions) with about $20k/yr going to housing and income taxes and still have significantly more disposable income at $100K/yr than when made 2x as much pre-retirement. Retirement house was paid in full out of equity from SoCal home so some other things have changed. We could have stayed in SoCal and continued on, we have enough from 401k/IRA and in a few years, SSI to make up the difference but why not use it for other things instead of supporting a high taxes and COL location.
Bottom line, need to look at expected costs and have sufficient income in retirement to cover, back out payroll deductions when estimating income needs. Consider moving to lower COL / tax / better weather location unless reason to stay.
If do move, look at temporary move to see if like before take the plunge and don't forget to take into account the cost of physically doing a move.
we have enough from 401k/IRA and in a few years, SSI to make up the difference but why not use it for other things instead of supporting a high taxes and COL location.
you sure you mean ssi ? ssi is a welfare program..
personally i never like to see people calculate by using what their old income was ... once the pay checks stop it becomes irrelevant what was ...all that matters is what your income sources are after the checks stop and how much you saved ... the amount gets backed in to and made to work regardless.
for the record the updated trinity study for 25% equities shows :
for 30 years at 4% it has only a 87% success rate for 30 years , 35 years is 71% 40 years 45%
50% equities is 100% success rate for 30 years , 97% for 35 years and 87% for 40 years ...
so you may want to stop recommending 20% equities which is worse then 25%
Last edited by mathjak107; 04-18-2019 at 03:19 AM..
All the single men on the forums are going to be all over you.
;-)
Maybe. But at 57, maybe not.
Full disclosure.... I’m from New England and a huge Pats/Red Sox fan. That eliminates 90 % of the nation.
Go Pats!!!
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