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This is a great question. Anyone can do math but the huge change in mindset is a challenge.
I would create a mathematical financial model and treat this as a "project" with a cost performance index type approach - are you "ahead" or "behind" the curve? Keep it objective and minimally emotional. I have D dollars and assume I'll live Y years so I can only spend D/Y dollars per year - factoring in any income streams too.
The math isn’t just Dollars/Years with investments. Maybe it works okay as a general rule of thumb in some scenarios. But inflation, sequence of return risks, CAGR, etc. all come into play. You’d have just a 3.33% WR for a 30 year term, compared to the 4.5% Bengen says is “safe” for a blended asset allocation for 30 years (updated research from his original study/Trinity study).
The reason you can go to 4% is there was only a 5% chance you would not make it through 30 years....in practice 4% has been far to conservative..
You ended 30 years 90% of the time with more than you started and 2x what you started with 67% of the time . 50% of all the 119 30year cycles you ended with 3x what you started with..
The odds of failing at 4% are the same odds that you could end 30 years with 6x what you started with... if you eliminate the 5 failure periods a safe withdrawal rate would be 6-1/2% .
So it could be important to take raises at 4% in anything but the worst of outcomes ....in fact when you include the statistics of life expectancy in to the mix , the fact is most of us will not last 30 years in retirement and that makes 4% draws with 40-60% equities almost 99.90% successful.
3.33% is fine for someone using no equities
Last edited by mathjak107; 08-02-2019 at 04:05 PM..
My husband and I both had good paying careers and were able to save a lot for retirement. We are not big spenders. We have no debt. I retired a few years ago at 52. He wants to retire next year at age 59. Our financial advisor ran some numbers for us and said we are fine, and even if we live to 90 we will still have a substantial amount to leave to our only child.
My question is this.... After working and saving our entire lives up to now, how do we transition emotionally to living off our savings? It seems like it will be discouraging to see our savings going down instead of up.
Yes it takes some getting used to.
My recommendation is to "run the numbers" yourself and completely understand them. There are many ways to run them so you should understand what are the assumptions that went into his calculation. My feeling is if you did your homework and you are 100% confident in what the numbers say, just put it on autopilot, stick to your plan, and otherwise ignore it and don't hover over your accounts. I rarely look at ours other than to pull money out every 6 months or so.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Originally Posted by beezle1
Yes we have always maxed out our 401ks, and also have additional non-retirement account investments, as well as other things. I think we are ok financially. I also have kept detailed records of what we spend each month for the past 15 years and I know our spending habits (FYI this is a great exercise for anyone out there and I have a pretty easy system I use, but then I am a nerd). Will also have to figure in more for insurance too.
I must admit.... I haven't tracked my spending since JR High. 15+ yrs retired, still waiting for age 65. Been using healthcare cost sharing to reduce costs, as well as getting tuned up while in Thailand.
The way I see it, taxable events are good. That means I have enough money to tax. My goal is to manage my taxable events so that Uncle Sam claims the least amount of my money, not none of my money.
OP, the only thing that I would be concerned about is health care costs, since neither of you is eligible for Medicare and won't be for many years. Hopefully you've already factored that in but you didn't mention it at all, and health care costs seem to be a huge factor in keeping people in the workforce. (As another poster in this thread put it, "Health care is the great unknown.")
If that's already worked out, then go and have a great retirement!
The emotional part definitely is challenge. We consulted several financial planners, and I evaluated the math of their methods fairly closely. All of their models showed we had far more than enough. Intellectually, we believed the models and their projections. In our stomachs, it just didn't feel right.
I think it is a bit like doing a bungee jump off a tall tower or bridge. Intellectually, you know you'll be safe, but there is a sense of visceral terror as you're getting ready to take the jump.
At the end of the day, you close your eyes and jump - and after about 10 seconds you'll be having the time of your life.
Looking forward to hear what my FP guy will tell me about retiring...i have 3 years until I can be on medicare....so I still need to work for health ins.
OP, the only thing that I would be concerned about is health care costs, since neither of you is eligible for Medicare and won't be for many years. Hopefully you've already factored that in but you didn't mention it at all, and health care costs seem to be a huge factor in keeping people in the workforce. (As another poster in this thread put it, "Health care is the great unknown.")
If that's already worked out, then go and have a great retirement!
Yes, we factored in healthcare costs, but thanks for mentioning.
Looking forward to hear what my FP guy will tell me about retiring...i have 3 years until I can be on medicare....so I still need to work for health ins.
Cobra in California is 36 months if you work for a reasonably decent employer, otherwise it’s 18 months for most states. You may not have to wait that long.
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.... I haven't tracked my spending since JR High. 15+ yrs retired, still waiting for age 65. Been using healthcare cost sharing to reduce costs, as well as getting tuned up while in Thailand.
