Retirement Ahead – Do You Have Enough Gas? (photo credit.)
When a sign on the highway states Next Gas Station 167 Miles, the ride is a lot more enjoyable when you know there is enough gas in the tank. “I think we can make it” doesn’t quite cut it.
The 4% Rule tells us if our Retirement has enough gas, but we don’t know if we will coast into the next gas station on fumes or if we have enough to drive across the entire country without refueling.
As life expectancy continues to increase and the ERE movement sees people expecting 60+ year retirements, there is need for an improved withdrawal plan.
In this post I outline my own thinking on how to ensure our portfolio lives longer than we do.
In Y2K I arrived in Seattle for a new job and immediately set out to buy a house. I have no idea why; I was just following the rules society had laid out.
I had just received an offer on my Chicago area house for 178k. Houses close to work started at $550k. I was experiencing major sticker shock.
Price forced me to widen my search to nearby commuter communities, where I found a great looking house in a nice neighborhood. It had easy highway access, a nice view from the upstairs office, and was barely in my price range at $292,500. Nearby was a newly constructed office park that would attract potential future buyers, and an elementary school in a good school district was a 5 minute walk up the hill
With a 20% down payment of $58,500, I had just purchased the biggest house I could afford, the smallest house in a good neighborhood. Remaining in my bank account was a lonely $20.
“Beep you, you beeping beep!! I’ll kick your beepity beep!!!”
Hmmm, who is that? I don’t recognize her voice
“I ain’t lying, I can’t have you be talking to my Momma like that”
That’s Carl. Good for him standing up for his mother.
A few weeks earlier Carl had introduced himself by handing me a burger across the hedge separating our houses. He and his buddies were cooking out in the back yard and tossing back a few cold ones on a fine summer day, celebrating his release from prison. He had just moved in with his Momma while he got his life back on track
“Beep you Carl! You can’t have her treat me like this!”
That must be Carl’s new girlfriend. Classy
*BAM!!!* A door slammed, followed by the sound of crying and a car racing off. Then silence. This would become a regular occurrence.
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Life has been busy as of late. Newborn babies are exhausting little creatures, and sometimes we aren’t sure if it is day or night. To parents who survive these early days while holding down a job, we salute you.
But each day is a little brighter. GCCjr sometimes sleeps 3 hours before screaming bloody murder, a big improvement over the usual 2. He’s also figured out that his left hand is really tasty, which has improved his self soothing skills. And I’ve learned to change a diaper without getting peed on.
All of this to say we are beginning to feel less like one of the Walking Dead, and a little more like our old selves. Sometimes we even have a brief moment of clarity during which we actually accomplish something! I took advantage of one of these moments recently to process all of our income & expenses for the 1st Half of 2015 (Yeah, I know how to party! Woot!)
Imagine my surprise when… *GASP*… this little blog accidentally made some serious bank!
Instead of continuing the income trend of previous years…
After years of commitment, dedication, and hard work, your early retirement plan has come together nicely
By living well below your means and investing in stocks and bonds, total assets have eclipsed $1 million, 25x your budgeted annual spending of $40k/year (all in 2014 inflation adjusted dollars, of course)
Everything you’ve read says that if you remain flexible, this should be enough to provide a relatively constant standard of living for the next 50 years, a must for somebody retiring in their mid 30s
The last few years at work have been a little stressful, so it will be nice to take time to recharge before diving into your new life’s ambitions… a little travel, learning a new language, writing a novel, communing with nature, creating music and art… all of the things that were put on hold due to the demands of career
People are a little confused on your last day of work. “But… what will you do all day?” “You are going to live off of your investments? I could never do that, the stock market is too risky” “How could you save so much, we can’t seem to save anything”
Your coworkers mean well, but their questions remind you of why you felt so compelled to gain freedom from the need to work in the first place. You walk out the door, a weight lifting off your shoulders for the first time in years (more…)
Trinity University: Birthplace of Early Retirement Research
So you want to retire. Perhaps even earlier than most people.
Sounds like a great idea. But… How much (or how little) money do you need? $500k? $1 million? $10 million? What is your retirement number?
Pick a number that is too low, and you might end up begging for change, working at Wal-Mart, or worse. Pick a number that is too high, and perhaps trade years of life working for money that will benefit only your heirs
Determining the right amount starts with some basic questions
How much does your target retirement lifestyle cost?
How long do you expect to be retired? 15 years? 30 years? 60 years? More?
How many dollars do you want to leave to your children or to charity?
Each person will answer these questions in their own way, with no answer necessarily better than another
“I plan to retire at the age of 57 with a cost of living of $10,000/month, mostly for golf club membership and my wine collection. Society never gave me nothing, and I’ll return the favor.”
“We will retire in our 30s to travel the globe, which we estimate will average around $3,000 per month. Ideally we will leave behind a large endowment to fund charitable hospitals”
There are other important questions that are more subtle and nuanced
Do I have to change my shorts every time the stock market drops?
Am I so set in my ways that I will refuse to make life changes regardless of the cost?
“Wow, 2008 was a wild ride! Stocks dropped 50%, but businesses took advantage of opportunities and made changes to enable future growth. Next time that happens, if our cash flow isn’t what we would like we can spend next year in South America instead of Europe”
“I don’t care what it costs, I’m driving the stretch RV to Florida every winter and dining on steak and lobster every night! And those Wall Street guys are crooks! No way am I putting my money in the stock market”
Somebody with low risk tolerance and great resistance to change will need a larger bank account than somebody that goes with the flow and enjoys a bit of excitement.
For better or worse, the older we get the less any of these things matter. But for somebody that plans to retire extremely early, all of these factors are of utmost importance
With all of this complexity, no wonder every bit of retirement advice in the press seems contradictory or not actionable.
Fortunately, some really smart people found a way to cut to the core of the question, “What is your retirement number?”
