When will you be able to retire?

[ricochet]

If you follow any of the FIRE (financial independence / retire early) posts or blogs, a simple place to start is to take your current annual household expenses and multiply by 25. Using that number, if you stick to a 4% withdraw annually you will never run out of money.

Example - if you spend $80,000 last year (house, groceries, car, etc...) multiply by 25.

80,000 X 25 = $2,000,000. You will never run out of money if you stick to a 4% withdrawal annually.

LOTS of caveats and assumptions but it gives a GENERIC starting point that's close to being in the ball-park.

Your results WILL vary.

Personally I've used numerous on-line models and have a financial planner because I don't want to get this one wrong.

I think the 4% rule is misunderstood and now lots of places claim it is something other than what it is or at least what it originally was. As far as I know the original 4% rule said that you withdraw 4% the first year and each subsequent year the withdrawal rate increases to match inflation. This provides money for a 30 year retirement (not forever). It has been back tested and I believe it has always worked but of course past results don't guarantee future results. It also assumes some stock/bond mix but I don't remember the percentages.

The always withdraw 4% and never run out of money rule might work too, but I don't know. In your example do you withdraw $80,000 every year or 4% of that years balance? Neither one seems that great. The former is going to be pretty meager 30, 40, or 50 years down the road. The latter is probably assuming something like a 7% growth in your investments and 3% inflation. That might be true in the long run but short term volatility might be a huge problem.

 

[NWICY]

A lot of people just don't understand the time value of money. I was helping a 20-something in our office setup her 401k. She just wanted to put in 1%. I said at least take all the free money (50% match up to 6%).

I said,"Based on your current salary, growth rate of 8%, what do you think that will be worth in 30 years?"

"I don't know. 30 grand?"

"About 500 grand. And that's assuming you never get a raise."

(Eyes pop out of head.)

Rux, that was pretty darn good of you to enlighten her on what it would be.

 

[SpokaneCY]

I think the 4% rule is misunderstood and now lots of places claim it is something other than what it is or at least what it originally was. As far as I know the original 4% rule said that you withdraw 4% the first year and each subsequent year the withdrawal rate increases to match inflation. This provides money for a 30 year retirement (not forever). It has been back tested and I believe it has always worked but of course past results don't guarantee future results. It also assumes some stock/bond mix but I don't remember the percentages.

The always withdraw 4% and never run out of money rule might work too, but I don't know. In your example do you withdraw $80,000 every year or 4% of that years balance? Neither one seems that great. The former is going to be pretty meager 30, 40, or 50 years down the road. The latter is probably assuming something like a 7% growth in your investments and 3% inflation. That might be true in the long run but short term volatility might be a huge problem.

The only purpose it serves is to ballpark what you may need. Your burn rate, returns, etc... all have serious impacts on it.

Nobody in their right mind would use that as their retirement calculator - just gives you a number to aim at while you do serious in-depth planning.

 

[cowgirl836]

Thankfully no

Lots of businesses went belly up in 2008

I'm curious. How many folks in banking/finance have a pension? I always associate those with government and blue collar jobs.

I've never had one.

Husband's business (insurance company) has one. Kinda surprised because I always associated with blue collar/gov like you as well.

 

[cowgirl836]

OP here, I plan to be finished with teaching and retired after 4 more years, but that could change depending on health, satisfaction with the job ect. In four years I will be 62 and plan on starting to draw SS or at least have that option. From that point on its basically a year to year decision.

So I called and spoke to a very well informed gal at IPERS today, I told her what I was thinking about doing, and she found my file. She is going to run the numbers and send them out tomorrow by snail mail or I will be able to see them on the web site tomorrow.

Basically the numbers that I stated were correct, $2,830 a month for life, then it could be lower if I chose a different plan. Right now I am at 30.5 years and 57 which only equals 87.5, so I would be forced to pay a 6% loss if I started collecting at the end of the school year. Not going to do that no matter what. If I get the Missouri job, I can start drawing IPERS in November, the month of my birthday, 30.5 + 58 = 88.5 in service. Every year after that I can get a 1% increase up to a total of 5% more. if I continue to teach in Iowa. She will also be sending me that figure.
I did ask if she sees a lot of educators doing this, and she replied that "yes", this is common for people that live right on the border and can bounce over to another state.

When I asked my principle today about taking the day off, her first words out of her mouth was, "tell me you are not leaving!" It told her "maybe". She said she would give me a good recommendation.

So now, its up to the interview, and if they offer the job, making a decision after running the numbers. Thanks to everyone that offered advice, it was very helpful, no matter what option I chose to take.

Good luck to you and I hope your current school decides to offer you a raise but not sure it works that way in teaching.

 

[CascadeClone]

I think the 4% rule is misunderstood and now lots of places claim it is something other than what it is or at least what it originally was. As far as I know the original 4% rule said that you withdraw 4% the first year and each subsequent year the withdrawal rate increases to match inflation. This provides money for a 30 year retirement (not forever). It has been back tested and I believe it has always worked but of course past results don't guarantee future results. It also assumes some stock/bond mix but I don't remember the percentages.

The always withdraw 4% and never run out of money rule might work too, but I don't know. In your example do you withdraw $80,000 every year or 4% of that years balance? Neither one seems that great. The former is going to be pretty meager 30, 40, or 50 years down the road. The latter is probably assuming something like a 7% growth in your investments and 3% inflation. That might be true in the long run but short term volatility might be a huge problem.

I've looked into this quite a bit, to figure out what kind of nest egg I need.

The 4% rule, increasing for inflation every year, is like 90% chance of not running out of money EVER. Basically, you are living on the interest - you are counting on a 4% real return, which should be fairly reasonable over long periods with a fairly safe stock/bond mix. You will have some bad years, but also some much better years, but in the long run you should be OK and you have enough of a cushion to survive the bad years. What I read on this was done with Monte Carlo analysis.

If you go 3%, then it's like 99%+ chance of not running out. You need @KnappShack level Series of Unfortunate Events to run out of cash. Of course, you are also needing a 33% larger nest egg, or live on 25% less...

EDIT: I was a little optimistic on the %s and timeframe, but here is a link to the numbers:
<https://www4.troweprice.com/gis/con... Income/Monte Carlo/Monte Carlo Hard Card.pdf>

 

[BCClone]

Good luck to you and I hope your current school decides to offer you a raise but not sure it works that way in teaching.

School are union based for teachers. All get the same, whether you are the best instructor in the school or basically incompetent but managed to get lucky and land a job.

 

[Cyched]

Husband's business (insurance company) has one. Kinda surprised because I always associated with blue collar/gov like you as well.

My public sector counterparts have IPERS, but beyond that the only private company I’ve heard of that still has one is Union Pacific (friend of a friend works there).

 

[BCClone]

I've looked into this quite a bit, to figure out what kind of nest egg I need.

The 4% rule, increasing for inflation every year, is like 90% chance of not running out of money EVER. Basically, you are living on the interest - you are counting on a 4% real return, which should be fairly reasonable over long periods with a fairly safe stock/bond mix. You will have some bad years, but also some much better years, but in the long run you should be OK and you have enough of a cushion to survive the bad years. What I read on this was done with Monte Carlo analysis.

If you go 3%, then it's like 99%+ chance of not running out. You need @KnappShack level Series of Unfortunate Events to run out of cash. Of course, you are also needing a 33% larger nest egg, or live on 25% less...

EDIT: I was a little optimistic on the %s and timeframe, but here is a link to the numbers:
<https://www4.troweprice.com/gis/content/dam/fai/Collections/Retirement Income/Monte Carlo/Monte Carlo Hard Card.pdf>

Mine gets complicated somewhat. As long as I'm alive, I will be fine. It's after me that I'm concerned. I could live on my wife's income which is 25-33% of our income. My wife will struggle to live on our combined incomes, unfortunately I'm not joking or being mean. There is no money management ability there whatsoever. She won't even listen to me when I try to explain anything. Her family is like this also.

Another factor, men in my family don't go much past 70 period. So working into my 60s means I'm probably fine anyhow. Women who marry into my side seem to live into their 90s. So I have to figure out how to care for my wife, who can't handle money, for 25 years after I pass away. Needless to say, men in my family usually live dirt cheap and carry decent life insurance along with accumulating income earning assets.

 

[CascadeClone]

Mine gets complicated somewhat. As long as I'm alive, I will be fine. It's after me that I'm concerned. I could live on my wife's income which is 25-33% of our income. My wife will struggle to live on our combined incomes, unfortunately I'm not joking or being mean. There is no money management ability there whatsoever. .

This is not uncommon. Maybe have one of the kids manage the money, and give her an allowance? Set up a trust, and have it manage the investments and dole her out "paychecks" from the trust?

I know a lot of couples like this, where one wears the financial hat, and the other has no interest and/or ability. It's a risk, as it is in your situation.

 

[ruxCYtable]

20k a year for daycare is only $385 a week which with 2 kids, is probably on the low end a lot of places...

I see it now. I guess when my kids were in daycare I focused on the weekly payment or my head probably would have exploded. We were paying $13K a year 12 years ago, so $20K doesn't seem at all out of line with that in perspective. It's a mind-boggling number though, wow.

 

[ruxCYtable]

My public sector counterparts have IPERS, but beyond that the only private company I’ve heard of that still has one is Union Pacific (friend of a friend works there).

And I think the railroad pension is government run, isn't it?

 

[Cyched]

And I think the railroad pension is government run, isn't it?

No idea. Worth looking into, if they have that info available to non-employees

 

[ruxCYtable]

No idea. Worth looking into, if they have that info available to non-employees

https://www.rrb.gov/Resources/LegalInformation/PartitionofRRA/The_RRA

Looks like they have their own version of SS. Says gov does not administer their private plan.

 

[BCClone]

This is not uncommon. Maybe have one of the kids manage the money, and give her an allowance? Set up a trust, and have it manage the investments and dole her out "paychecks" from the trust?

I know a lot of couples like this, where one wears the financial hat, and the other has no interest and/or ability. It's a risk, as it is in your situation.

An allowance won't matter. She finds a way.

I have set things up somewhat with the wills. I will inherit roughly 20x what she will (if not higher if her family keeps drunken sailor spending). It's set up for her to get income but not sell any major real estate assets to avoid second marriage kids/husbands or even her from spending everything and my kids' starting over. Her's is the same as mine, but I'm not concerned due to the disparity of the situations. I also am not banking on inheritance. I plan on getting 0, so anything i get will just make life easier. It's a more, just in case situation.

She will get IPERS, I feel a cashout is positive for our financial situation, but with her spending, it may be one way to solve the issues a little.

 

[AuH2O]

I've looked into this quite a bit, to figure out what kind of nest egg I need.

The 4% rule, increasing for inflation every year, is like 90% chance of not running out of money EVER. Basically, you are living on the interest - you are counting on a 4% real return, which should be fairly reasonable over long periods with a fairly safe stock/bond mix. You will have some bad years, but also some much better years, but in the long run you should be OK and you have enough of a cushion to survive the bad years. What I read on this was done with Monte Carlo analysis.

If you go 3%, then it's like 99%+ chance of not running out. You need @KnappShack level Series of Unfortunate Events to run out of cash. Of course, you are also needing a 33% larger nest egg, or live on 25% less...

EDIT: I was a little optimistic on the %s and timeframe, but here is a link to the numbers:
<https://www4.troweprice.com/gis/content/dam/fai/Collections/Retirement Income/Monte Carlo/Monte Carlo Hard Card.pdf>

I think if you look at the Trinity study on which much of this is based and some other subsequent studies, it would say that your odds of never running out of money using the 4% rule is higher than 90% if you stay heavier in stocks throughout retirement. While I do utilize bonds in my portfolio, rather than use typical stock/bond shifts over time I tend to shift more toward dividend yielding stocks. The 4% rule is actually quite conservative if you hit that number and don't account for any income in retirement or SS. When my wife and I do the SS estimates, as it stands now it will cover a good chunk of our living expenses.

Like you said, if someone is really risk averse or they have some plans for second homes or lavish lifestyle in retirement, if they use a 3% real return as their estimate, they are going to be in great shape.

 

[Bobber]

Mine gets complicated somewhat. As long as I'm alive, I will be fine. It's after me that I'm concerned. I could live on my wife's income which is 25-33% of our income. My wife will struggle to live on our combined incomes, unfortunately I'm not joking or being mean. There is no money management ability there whatsoever. She won't even listen to me when I try to explain anything. Her family is like this also.

Another factor, men in my family don't go much past 70 period. So working into my 60s means I'm probably fine anyhow. Women who marry into my side seem to live into their 90s. So I have to figure out how to care for my wife, who can't handle money, for 25 years after I pass away. Needless to say, men in my family usually live dirt cheap and carry decent life insurance along with accumulating income earning assets.

That's a tough situation. Fortunately my wife and I pretty much think the same when it comes to financial manners. We're both good savers and neither one of us are big spenders.

My brother unfortunately married someone quite different and that ended up in a divorce. His ex exhibits a lot of the issues your spouse has. It's a real challenge for him to continue to deal with her and to try to teach the children some common sense on money matters(his ex has none...)

If I get the genes from my dads' side I could live to 100. If it's my mothers, may be like you! So far so good!

 

[tim_redd]

The only purpose it serves is to ballpark what you may need. Your burn rate, returns, etc... all have serious impacts on it.

Nobody in their right mind would use that as their retirement calculator - just gives you a number to aim at while you do serious in-depth planning.

This is a fun calculator to play with to see some historical examples.

https://firecalc.com/index.php

 

[Bobber]

This is a fun calculator to play with to see some historical examples.

https://firecalc.com/index.php

That's interesting. It's pretty much telling me I can retire today and be pretty safe...

Isn't happening!

 

[diaclone]

Thankfully no

Lots of businesses went belly up in 2008

I'm curious. How many folks in banking/finance have a pension? I always associate those with government and blue collar jobs.

I've never had one.

I worked for an insurance company and have a pension. I think alot of big insurers had them for a while. My org, in about maybe a decade or so ago, transitioned to a 401k with % match for all new employees. Current employees got a choice to (1) stay on the pension or (2) convert to the 401k with match and forego the pension or (3) Stay on the pension and contribute to the 401k/no match.

Well managed insurers tend to have lots of cash and talented investment staffs.