What is Your Magic Retirement $ Number?

I've read a number of posts on this site from young people who talk about not wanting to take the traditional path and "work 'til I'm 65;" early retirement seems to be a paramount goal for a lot of of people.

My question is, what is the nest egg you would feel retiring with? Of course there's going to be inflation, so a dollar today is gonna be worth more than it will be in 20 years. And of course your retirement number will depend on your personal situation -- will you have kids, where will you live...?

But I figure if I have 4-5 million saved up, I can probably come close to earning 10 percent a year just by investing in the S&P and make 350,000-500,000 per year... I think I can live pretty comfortable with that kind of annual income.

What's your magic retirement $ number?

Comments (88)

Aug 2, 2018

What's your number?

Aug 2, 2018

I figure, depending on where I live, 4-5 million in the bank would set me up to make 300-500k per year. Granted, in 20 years that won't have the buying power it does today, but I would think that I could live pretty comfortably on that.

Aug 2, 2018

You'd be comfortable deploying that much capital in the stock market?

Aug 2, 2018

80 percent, well diversified? Yes.

Aug 8, 2018

you're insane if you're going to put (roughly) your entire nest egg into equities and assume that you'll earn 10% on that. I highly doubt you'll actually do that as you mature, but this is how people blow up in retirement

twitter: @CorpFin_Guy

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Aug 9, 2018

Why is this insane? The historical annual return for S&P 500 is 9.8 percent per year. I'm just assuming that my diversified portfolio can mirror the historical returns of the S&P. Seems like a reasonable assumption.

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Aug 9, 2018

It is insane and it is not a reasonable assumption.

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Aug 9, 2018

Can you please explain why it's insane to expect what has, historically, been the norm? I'm not saying you're not right -- I'd just like to know for my own edification.

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Aug 9, 2018

For one thing, historical average comes from a much longer period than what you will have post retirement til you die. What will you do if you put all your money into the stock market and it flips shit on the first year? The stock market will most likely recover to get back to the historical mean but idk how well you will do while it recovers.

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Aug 10, 2018

I see your point. The period from 2001-2012 was brutal, as far as the Index clawing it's way back to where it was. Just seems crucial to have cash on hand to invest when market has > 10 percent dips. That way, you're not reliant on market "getting back to where it was," because you have fresh money being invested at or near lows to appreciate from a lower cost basis.

Aug 11, 2018
MichaelScarn:

Why is this insane? The historical annual return for S&P 500 is 9.8 percent per year. I'm just assuming that my diversified portfolio can mirror the historical returns of the S&P. Seems like a reasonable assumption.

Did you live through the last recession? Every 25-30 years there's a brutal recession that tears into the equity markets.

Aug 18, 2018

If you're talking about 2008-2009, yes -- and since then, the SP 500 is up 250 percent in 10 years. That's roughly 25 percent per year. So if you had some fresh cash to deploy near the lows -- let's assume you didn't buy at the low, 'cause you can't predict that -- annual returns for 10 years would be about 20 percent if you invested in index fund... so let's look at what happened to a portfolio of a hundred grand from pre-crash to now.

Let's say you had a 100,000 portfolio in 2008, pre-crash. 80 percent is in index funds, 20 percent in cash. After crash, your 80k in equities is now 56,000. If that 56,000 grew 200 percent over the next 10 years, then that 56,000 in equities is now roughly 178,000.

Now, for the cash portion. If you invested your 20 percent cash (20,000) NEAR the market lows in 2009 (again, I'm not assuming one could call the market bottom, so I'll conservatively assume that you'd earn LESS than the market average over the next 10 years), you would have earned 200 percent on that cash deployment, so your 20k in cash-- after invested in the S&P -- would now be worth 60,000. Add this to the 178,000 that was originally in your equity account (the post-crash 56 grand that has tripled), and you have a total portfolio of 238,000.

Now, pre-crash, you had a 100,000. So, even after the crash, if you stayed in Index funds and invested the cash portion of your portfolio in index funds NEAR the market lows, in 10 years, your account would have appreciated 138,000 from the pre-crash 100,000... which is probably 10-12 percent annual return.

Therefore, although these numbers aren't exact and does not take into account an extended time frame (100 years), I think this example illustrates how, if you have some cash on hand to deploy after a market crash and a time frame of 10 years post-crash -- you can certainly earn near historical returns of 10 percent per year.

I know this example is more anecdotal than scientific, and I would welcome responses regarding why this example and these assumptions are wildly erroneous... but the example and assumptions seem to make sense to me.

Aug 18, 2018

Your position makes no sense. You're deploying what would be--in this example--your primary financial assets used to produce your on-going ANNUAL income right now; if you deployed your primary savings today and a terrorist attack like 2001 happened or the stock market gets crushed like it did in 2008-2009, it would completely change your entire plans forever. For all you know, next year the stock market blows up because of a terrorist attack, or because interest rates get raised through the roof to counter runaway inflation, or war breaks out, or a series of horrific natural disasters happens.

No rational human being would deploy assets used to produce annual, on-going income heavily into the stock market. Your pro-stock market arguments are not relevant to the discussion at hand. Everyone knows that the stock market is, objectively, a great LONG-TERM investment.

Aug 2, 2018

The comfortable rule is 4% a year, so you need 25x your expenses to retire. This allows you to have the same real (post-inflation) standard of living for the rest of your life.

It fails a few % of the time, but on average you end up with 2-3x your starting point (again, in real dollars).

Google 'FIRE.' To all those who are FIREing, allow me to say my favorite phrase - go f yourself :) -- this means congrats!

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Aug 2, 2018

Just for future reference, fire is a pretty common word so whatever acronym you're trying to tell the forum about is likely to get covered up by the news of the current California fire.

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Aug 2, 2018

Generally agree, but if you put 'FIRE retirement' you get a million results...

Aug 2, 2018

25M. Totally arbitrary, but it's a number that I have burned into my head. Realistic or not, I don't care. I live in a mindset where W2 Salary is small-time and means to an end. I've brainwashed myself to where I lead a life that would be consistent with someone who has 25M at the end of the day. It provides a perspective that holds me to extremely-high standards in all facets of career, a degree of calculated risk that MUST be taken and grand aspirations that define a lot of what I would call my personal identity. Before calling it vain, it's not about the money. It's the time spent going for it all with the time that I have on this planet.

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Aug 2, 2018

Aiming high... I like it.

Aug 2, 2018

$5 million. Provides me $200K in yearly, real income. Enough to have a family and travel at will. Not enough for private planes.

Not saying I wouldn't pursue some entrepreneurial aspirations, but this would get me to 'phase 1' retirement.

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Aug 2, 2018

$5,000,000 in the bank allows one to live off of $100,000 for 50 years. If you contiually invest that money into low-risk mutual funds or CDs, you could have even more. I think that's a good number.

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Aug 2, 2018

You're really just gonna plop all your savings in a bank paying 1 percent? Or I guess, 2 or 3 percent if you've got a large enough CD?

Aug 2, 2018
MichaelScarn:

You're really just gonna plop all your savings in a bank paying 1 percent? Or I guess, 2 or 3 percent if you've got a large enough CD?

Good decision making prowess as always from theaccountingmajor

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Aug 2, 2018

I'm not an experienced investor so my risk tolerance hasn't built up yet

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Aug 9, 2018

You seem to fail in understanding of risk. There is a reason people shift their investment strategy to 80/20 bonds/equity by the time they retire. If you lose 50% of your portfolio value in retirement you are fucked.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 2, 2018

More

Get your facts first, then you can distort them as you please.

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Aug 2, 2018

Honestly I think its always changing. The more money you're making, the more you get accustomed to that lifestyle then start to look forward to what's "next".

Say for example you're making $500k now, and you have $12.5M saved in the bank (25x). Will you be content living off $500k per year forever? Probably not, human nature is to want "more". Which is why its very difficult to walk away.

I think in reality, when you've become too burned out and don't care for "more", that's when you've reached your number.

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Aug 2, 2018

That's the key -- wanting more. My friend's dad is a CEO making 5 mil a year... he lives comfortably, but conservatively (no fancy cars, no outrageous vacations... and NOT in NYC)... if he makes that two years in a row and lives fairly conservatively, he can quit after those 2 years of making 5 mil/year and live the next 18 years as if he's STILL earning 500 k a year. If you save, don't waste money on $80,000 cars and $10,000 watches, you don't need 25 mil to retire comfortably. Obviously, to each his own -- people are entitled to spend their money however they want... I'm just saying, you can lead what most people would call a "nice/comfortable" life (luxury car, 2-3 family vacations a year, 3000 square foot house, eat out pretty much whenever you want... and, of course, get Sirius radio and NFL Package) on 250-350,000 a year (assuming you don't live in NYC/SF, and don't fall into debt... and I'm talking about post-kids/paying for college).

Aug 11, 2018

Most people who are earning $5 million per year are doing so because they are driven and passionate about what they do--they are highly industrious people who would be intellectually miserable in retirement.

For me, I would determine how likely it is for me to continue to earn $xx million next year and the year after and into perpetuity. If I felt like it was highly likely--like, I had a system where I could say the n-word on Twitter and still make $5 million next year--then I'd live like I made $5 million/year. If it was one of those things where I was a salaried CEO living and dying on quarterly earnings then, yeah, I'd live like I made a fraction of $5 million.

Aug 2, 2018

Relevant article -- kinda clickbaity, but you get it:

https://www.businessinsider.com/how-to-invest-earl...

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Funniest
Aug 2, 2018

2 Wendy's 4 for $4s a day for 20 years, $58400. Give me that and I'm golden

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Aug 2, 2018

by the time you're ready to retire they may be $6-7...

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Aug 9, 2018

Probably a good retirement plan. I keep hearing how one of the biggest issues with retirement planning today is living well past your expected plan and there is no way you will live for more than 20 years eating 2 of those a day.

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Aug 2, 2018

More.

Aug 8, 2018

The goal is to be able to pull $1M a year passively from portfolio companies. Ideally just the odd board meeting here and there so I can focus on building a biotech company. Most of that is for the biotech co though not me. I'm a simple boy.

Aug 12, 2018
m_1:

The goal is to be able to pull $1M a year passively from portfolio companies. Ideally just the odd board meeting here and there so I can focus on building a biotech company. Most of that is for the biotech co though not me. I'm a simple boy.

Cool. Yeah I hope to build companies as well at some point.

What kind of biotech are you thinking about? What kind of focus?

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Aug 8, 2018

You guys are funny. If you wait for retirement, sure you'll have (more) money.

But your joints will ache. Your skin will sag. Your stamina will be subpar.

The whole society is backwards, in that one's lifetime earnings is (nearly) entirely rear-loaded.
Rationally, it's ideal. But then you realize that humans are organisms that age, and it's sad.

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Aug 8, 2018
MonacoMonkey:

You guys are funny. If you wait for retirement, sure you'll have (more) money.

But your joints will ache. Your skin will sag. Your stamina will be subpar.

The whole society is backwards, in that one's lifetime earnings is (nearly) entirely rear-loaded.
Rationally, it's ideal. But then you realize that humans are organisms that age, and it's sad.

I agree - the power of compound interest / exponential growth is pretty wild, but I'm also trying to front-load travel in any way possible (between jobs, etc)

Aug 8, 2018

I have ~20 years until kids are out of college (undergrad at least - I'm not responsible for grad school). My plan/goal is to not work fulltime too much longer than that. There are some on and off type consulting gigs that I could see myself settling into. There are a few places that specialize in temp CFO type roles that might be interesting.

At that point I intend to have some passive income coming in as well, so something that is flexible, keeps me stimulated and brings in a few $ would be ideal. I'm not too familiar with smaller or non-public boards (yet), but that could certainly be an attractive option as well.

I will personally be completely fine walking away from a 9-5 in my late 50s/early 60s, but it is different as a dad. My kids will not be spoiled growing up, but it'll be hard to pass up a year of working at 60 for $XXX and more equity vesting when they're right out of school and probably a little tight on cash.

twitter: @CorpFin_Guy

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Aug 8, 2018

It's amusing to read the assumptions of the younger posters (assuming they'll earn 10%, assuming you'll be tired and saggy at 60 etc.) I get it. You have your life in front of you. You also have no experience or perspective on reality. There's this thing called "Life Happens". Regardless of what you do or how much you make, there will be market crashes, wars, weather based catastrophies, illness, family emergencies, etc. Not trying to be a bummer, but these things will and do happen and they alter your plans.

Also a thing I've noticed over time is that focusing on income (even to reach a certain number) isn't enough rocket fuel to actually get you there. You really need to focus on the work, with the income being a byproduct. Otherwise you'll get comfortable along the way and not be wiling to continue pushing for that extra something to get you there. Hard to believe but at some point, money can't be the motivator.

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Aug 9, 2018

exactly, once you have the money, if the work doesnt motivate you, you could end up depressed.

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Aug 9, 2018

Agreed. Humans need purpose. Money is not purpose, it's simply a resource. Resource to do what is the question. Some will be quite happy making a clean break, playing golf 3 days a week, volunteering somewhere (I like that combo), others will need to stay in the game because they love the game.

Personally, in a few yrs, (I'm 54), I see myself enjoying a hobby (golf, hiking, etc), volunteering, travel, AND staying in the game at a level I choose. Working with the right clients that keep me engaged and generate additional revenue. It won't be steady, everyday work. More like when it's necessary. I won't NEED to do that from a financial standpoint, but I'll WANT to do that because that part of the game is fun. If it's fun, why would I want to stop?

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Aug 11, 2018
rickle:

Agreed. Humans need purpose. Money is not purpose, it's simply a resource. Resource to do what is the question. Some will be quite happy making a clean break, playing golf 3 days a week, volunteering somewhere (I like that combo), others will need to stay in the game because they love the game.

The volunteer part rarely happens. My mother might be the only senior I know that actually does volunteer (she visits a senior care facility several times each month). The golfing 3-times-a-week (or a female equivalent) is usually what happens.

Aug 11, 2018

Lots of ways to volunteer. Personally I spent 10 yrs coaching youth sports in our community. Organized fundraising golf tournaments for local high school team for 3 yrs (raised enough $ for uniforms, practice gear, tournaments, summer season) Have many friends active on boards (YMCA, Church, Hospital, Chamber, etc.)

Think I'd like to teach financial literacy to high school students.

Aug 11, 2018

Right, but there is the IDEA of volunteering and then there is actually volunteering. My point is, the vast majority of people will never end up actually volunteering any meaningful amount of time in retirement. Their minds will just turn to goo and they'll die relatively quickly post-retirement.

Aug 9, 2018
rickle:

Regardless of what you do or how much you make, there will be market crashes, wars, weather based catastrophies, illness, family emergencies, etc. Not trying to be a bummer, but these things will and do happen and they alter your plans.

I find it funny that the older people get, the more worried they become about such events. I don't know if we get fragile as we age, or just find what we want in life and don't want to lose it.

I used to get excited at the thought of major things that stirred the pot. It's easier to rise in chaos if you know what you're doing.

It may be because I don't see retirement as slowly withering away, and trying to avoid pain or inconvenience. That probably does show that I still have a young person mindset. I know a lot of people making more now in "retirement" than they did most of their working lives, and they're be in a better place to adapt to major catastrophes.

Banking on being able to adapt and change later may be stupid, but I think waiting on retirement because I'm not 100% covered is a fool's game.

Aug 9, 2018
urmaaam:
rickle:

Regardless of what you do or how much you make, there will be market crashes, wars, weather based catastrophies, illness, family emergencies, etc. Not trying to be a bummer, but these things will and do happen and they alter your plans.

I find it funny that the older people get, the more worried they become about such events. I don't know if we get fragile as we age, or just find what we want in life and don't want to lose it.

I used to get excited at the thought of major things that stirred the pot. It's easier to rise in chaos if you know what you're doing.

It may be because I don't see retirement as slowly withering away, and trying to avoid pain or inconvenience. That probably does show that I still have a young person mindset. I know a lot of people making more now in "retirement" than they did most of their working lives, and they're be in a better place to adapt to major catastrophes.

Banking on being able to adapt and change later may be stupid, but I think waiting on retirement because I'm not 100% covered is a fool's game.

Poignant response

Aug 9, 2018

Interesting post and I don't disagree. At some level aging creates a shift from accumulation to preservation. However, if you stay young at heart (and in health), there's no reason to abandon a life of abundance for a life of scarcity. I think it's wise to plan for a preservation minimum (what do you need vs what you want) and then go do whatever rocks your world to continue living as abundantly as possible. At 54, I'm still in great shape, go on 20 mile bike rides, do p90X, still can crush a golf ball (although my freaking 19 yr old blows it by me now but that's alright - I'd rather have my score!). When both kids are out of school, we'll reduce our footprint and burn rate and do whatever the hell we want. But certain assets will be removed from harms way (still appreciate, just not like the gogo yrs) just in case...

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Aug 8, 2018

$10,000,000-Gives a high risk free income forever. No thoughts about spending habits... at least for a normal reasonable spender.

Aug 8, 2018

Don't have a magic retirement number as I feel anyone who actually gets to that point would just grow accustomed to that wealth and keep going.

But I have a minimum # in my head of $3m which would provide me a huge sense of safety as it's enough (assuming 5% returns after taxes/fees) for a decent upper middle class lifestyle for a wife and two kids if everything goes to sh**.

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Aug 9, 2018

I want to work forever. Ideally with breaks at times. Playing golf and laying on the beach is suicide.

Enough money to not have to worry about money is nice. But ideally a few mini retirements in life and then back to work. Life is meant to be lived. Not retired. And that's a mix of experiences and contributing to society.

Array
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Aug 9, 2018

Yeah, by "retirement" I didn't necessarily mean stop working -- but stop working a job that you don't enjoy. I hear you regarding always doing something... but if you've got enough cash saved up, hopefully that something can be a pursuit of passion.

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Aug 9, 2018

I might be legit the only person here who can say its billion(s) or bust.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

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Aug 9, 2018

Believe me, after the some of the flak you got during your Q&A, I am so rooting for you to hit the billions. If WSO is still here you have to come rub it in.

Aug 9, 2018

Eh I don't give a shit about random people on the internet.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

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Aug 10, 2018

Are you genuinely trying to make a billion dollars?

Aug 11, 2018

I genuinely can.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 11, 2018

Can you explain your strategy?

Aug 11, 2018

Alternative real estate, there is a thread and a Q&A I made on here about it.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 11, 2018

Do you really think it's worth it to try and make $1B? What would you even spend that all on?

Aug 11, 2018

Making more money.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

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Aug 11, 2018

I'm confused lol. What would you realistically do with a billion dollars?

Aug 12, 2018

Use it to make more, not sure how that is hard to understand.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

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Aug 12, 2018

I know, but what I'm asking is what is the point of amassing more and more money if you never plan on spending it on anything?

Aug 13, 2018

Dude, unless you are HNW, you would not truly understand. Money just being used to consume consumer goods and services is ultimately useless; the entire point of having money is so that it can be reinvested to create more income/capital gains/net profit. The mentality that people have as to "hey look I have this much money/how should I spend it now" is why this country is 20T in debt with less than 10% of the population as millionaires (even lower if we only count for pure investable assets + non-primary residence assets). Wealthy people see first how they can invest and grow money further; that's generally why they are able to remain wealthy.

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Aug 13, 2018

Why have a billion dollars if you realistically can't spend it all?

Aug 14, 2018

Why do you shit post so much?

Aug 15, 2018

So I can fuck your wife.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 15, 2018

Can you link to the post? I searched and wasn't able to find it

Aug 16, 2018

Search "alternative assets + Heister" that should let you find it.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Aug 9, 2018

I still have money in the stock market but I have a 20 year loan on properties that pay me 57k a year. Given my age, 26, I'll have those properties paid off by 46. Assuming nothing bad happens and taking inflation into account, they may be paying me 80-90k a year. I'll keep investing in real estate and can use the cash thrown off from these paid off investments to put down payments on more properties, creating a snowball. My goal is $100,000 a month free and clear by 65.

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Aug 9, 2018

So you take on leverage to invest in the same asset class with a geographical concentration and a ton of idiosyncratic risk. Sounds sooo smart

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Aug 9, 2018

I dont own any rental property (although is certainly could become a part of my passive income at some point), but I feel that the risk is relatively low. Could his rental income and real estate value drop? Certainly. However if his $57k/year falls to $45k/year and the market value goes from $400k (made up) to $300k he's not belly up. Actually, given his long term holding strategy he'd still probably end up ok.

The other side of this near worst case scenario is that interest rates rise and the trend of increasing rental demand continues. What does that look like in 15 years? Maybe $80k/year of revenue and a $400k asset. That's a very good outcome and not even close to a best case scenario.

The risk/reward seems justified to me as long as he never allows the properties to fall into disrepair and they're at least in a decent area.

twitter: @CorpFin_Guy

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Aug 9, 2018

My mortgage is approximately $23,000 a year. I have $34,000 leftover to pay for repairs, taxes, landscaping, insurance, etc. Inflation will continue as the years go by while my mortgage payments stay the same.

Aug 9, 2018

$5,000,000 in the bank with a 5-10% return

Aug 9, 2018

I don't need alot, 3-4M withdrawing 3% a year. If the kids are through college and the house is paid off, which should be the case, I think this is attainable by 50. Then travel the world and relax.

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Aug 9, 2018
Marti Kahn:

I don't need alot, 3-4M withdrawing 3% a year. If the kids are through college and the house is paid off, which should be the case, I think this is attainable by 50. Then travel the world and relax.

Same but less (no house paid off, pre-college costs) -- hoping to also attain by 50, or to "coast' earlier and let $1M snowball into more

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Aug 9, 2018

$1mm.

Though I see retirement as quitting a bs job to pursue passion projects with the intent of making money and having fun. My lifestyle will definitely inflate after awhile (won't stay a bachelor eating ramen, chicken, and rice my whole life), but then I'll have to work to provide for that. The $1mm is basically a safe coverage of the necessities. Shit apartment, food, some travel money, insurance, etc.

Aug 9, 2018

The one thing that many of you are missing is healthcare. If there isn't some fix, healthcare costs (insurance, deductibles, etc) for you and a spouse might very well be $50k/year by the time you young guys retire. I'm not looking to start a debate on this topic, but it certainly has the potential to alter a lot of plans.

twitter: @CorpFin_Guy

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Most Helpful
Aug 9, 2018

10% is crazy. Even the "4%" rule is shockingly aggressive for someone who is young. We're going to have a lot of bankrupt retirees at this rate.

The 10 year market trend we have experience will almost definitely not continue indefinitely. I'm not a bear, I am not in cash, I believe in investing throughout market cycles. But these rules of thumb leave a few important points on the table.

  • Folks start with a % rule but need dollars to maintain a lifestyle. If the market returns 0% in a year, I know very few people with $1-5MM that then spend zero from their portfolio if they're not working. Usually spending goes down marginally (~10%) if at all.
  • If you experience a market downturn, or even one year where you don't earn 10%, you are eating principal of your account. This affects future earnings, and compounds over time.
  • It doesn't take a long downturn for that effect to magnify considerably. I had a client who spent $250k/year out of her $4MM account consistently through the market crash. She kept spending $250k/year after, assuming the markets would recover and she can earn it back. She's down to $2MM/year.
  • There are life surprises that pop up (new roof for the house, kids going to college, major illness, etc) that can cause one to draw principal. If you're taking out 4%+ on top of that, it also compounds over time.
  • Folks think that 2% inflation will last forever. A run of 4-6% inflation or higher is absolutely feasible, especially with the way monetary policy works these days, and can have disastrous effects on a portfolio that is living on the edge.
  • Taxes are understated in most of these calculations, and frankly, tax law is likely to change, not necessarily for the better.
  • Early retirement leaves an enormous amount of future social security earnings on the table

These are hiccups that someone of retirement age can potentially weather, they don't need their money to last forever. But if you're under 40 (really, under 60) it is very very difficult to make this up over time. It takes an incredible willingness to be extremely frugal proactively, to mitigate the future risks that will definitely occur.

Working sucks. Not working sounds fun. I get sick to my stomach, however, when I hear about 35-40 year olds retiring with $750k or even a few million but with six figure lifestyles. It's really hard to reenter the work force late in life with a good job if you've been in retirement for 10 years.

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Aug 9, 2018

Good response. Answers in bold below:

BreakingOutOfPWM:

10% is crazy. Even the "4%" rule is shockingly aggressive for someone who is young. We're going to have a lot of bankrupt retirees at this rate.

The 10 year market trend we have experience will almost definitely not continue indefinitely. I'm not a bear, I am not in cash, I believe in investing throughout market cycles. But these rules of thumb leave a few important points on the table.

  • Folks start with a % rule but need dollars to maintain a lifestyle. If the market returns 0% in a year, I know very few people with $1-5MM that then spend zero from their portfolio if they're not working. Usually spending goes down marginally (~10%) if at all. This is incorporated in the rule/study - it's calculated from your starting portfolio and accounts for inflation
  • If you experience a market downturn, or even one year where you don't earn 10%, you are eating principal of your account. This affects future earnings, and compounds over time. This is incorporated in the rule/study -- sequence of returns risk is real, which is why it works 95%+ of the time and not 100%
  • It doesn't take a long downturn for that effect to magnify considerably. I had a client who spent $250k/year out of her $4MM account consistently through the market crash. She kept spending $250k/year after, assuming the markets would recover and she can earn it back. She's down to $2MM/year. See above
  • There are life surprises that pop up (new roof for the house, kids going to college, major illness, etc) that can cause one to draw principal. If you're taking out 4%+ on top of that, it also compounds over time. This just means that someone's projections are bad. This is a good reason to leave a buffer for "fluff"/unanticipated expense. Otherwise, my retirement number would be even lower
  • Folks think that 2% inflation will last forever. A run of 4-6% inflation or higher is absolutely feasible, especially with the way monetary policy works these days, and can have disastrous effects on a portfolio that is living on the edge. This is accounted for in the study. As long as market returns keep steady, everything is fine. If not, agreed
  • Taxes are understated in most of these calculations, and frankly, tax law is likely to change, not necessarily for the better. Agreed, hence a buffer is needed. Cap. gains tax are especially nice with <$100K in income for those looking for middle-class retirements
  • Early retirement leaves an enormous amount of future social security earnings on the table Vast majority of social security payout comes from the first $__M of earnings, and any earnings beyond this are very inefficient (you pay a lot more in tax then you get back). Everyone on this forum will probably get past that "2nd bend point" even if they retire at 40

These are hiccups that someone of retirement age can potentially weather, they don't need their money to last forever. But if you're under 40 (really, under 60) it is very very difficult to make this up over time. It takes an incredible willingness to be extremely frugal proactively, to mitigate the future risks that will definitely occur.

Working sucks. Not working sounds fun. I get sick to my stomach, however, when I hear about 35-40 year olds retiring with $750k or even a few million but with six figure lifestyles. It's really hard to reenter the work force late in life with a good job if you've been in retirement for 10 years. Stick to the 4% rule (or maybe even a little safer) and to spend $100K annually, you need $2.5M. Again, this works 95%+ of the time -- not 100%. If you have literally 0 risk appetite, then keep working

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Aug 9, 2018

I'm not saying that the match doesn't work out on paper. My point is - I've managed hundreds of investment portfolios, in an upward trending market environment, and see these plans fall through all the time. The folks who tend to succeed with early retirement plans spend well below their needs. 2-2.5% per annum from the portfolio before taxes, and own their one home. Otherwise, the small shifts catch up eventually. It might work 60-80% of the time. But if you're in the 20-40% who over spend (easier than it sounds) or inappropriately invest (also easier than it sounds), this is a lifelong hit that you can't recover well from. The job market moves on.

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Aug 9, 2018

20,012,023,012.23 Zimbabwean dollars

What concert costs 45 cents? 50 Cent feat. Nickelback.

Aug 9, 2018

$5M should work - no parents to take care of, and no plans for starting a family and fairly certain things will remain that way. My annual expenses are super low -and predictable- even when I factor in my fancy vacations. 3-4% a year on $5M would be more than enough.

Though I doubt I'll ever retire outright. It's the having a boss part that sucks when you think about it. So I'll probably do something that gives me a decent amount of autonomy/minimal time commitment to keep some pocket change on hand.

Aug 9, 2018
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Aug 13, 2018

What concert costs 45 cents? 50 Cent feat. Nickelback.

Aug 18, 2018