How much $ to retire and how to fund your lifestyle in retirement

[Nocturnal]

Don't forget, that once you retire you don't need to save anymore. That's something we often miss.

So far I'm more or less targeting using a 5% withdraw rate. I'm pretty damned sure I can at least get 8% from the SP500 and probably far more but that's a safe number. My current income is the goal which will allow me to increase my lifestyle or grow the pot. I need Tesla to 3.5x from here to get there with just my TSLA holdings. If my other stuff does well (mostly SQ) then Tesla will only need to 3x from here. If that doesn't happen then I'll work until 50 instead of 45.

What I don't have a plan for is how to invest at that point. Obviously I'd keep a chunk of Tesla if it looked like it was still running. Aside from that, dividend stocks seem pretty worthless all in all. Perhaps a portion there and the rest in standard growth.

 

[Oil4AsphaultOnly]

That market watch article with its $8m number for $40k per year is total BS!

We all die at some point, and seeing my grandparents wither away at 95 in a nursing home, because my 68 yo mother is physically unable to care for them (changing the adult diapers, bathing, changing clothes, etc), makes me not want to live too long. A good life is more important than a long one. Besides, I'm not sure I can stay in good health past 90 (genetically pre-disposed to high cholesterol and diabetes, and I love my carbs!)

Further more, rental properties will return 5% annually, 4% minus a property management fee. That makes a 4% drawdown a pretty reliable basis. That 0.5% number is excessively conservative.

That being said, my retirement target is $5m. Not because I live life modestly (or lavishly depending on ones perspective), but because I'm relatively young. At mid-40's, my IRA is now over $1m, and most of it (85%) in TSLA. I'm expecting TSLA to reach $10,000/shr (pre-split) between 5-10 years from now. At that point, I will HAVE to retire in order to carry out a Roth conversion ladder (otherwise, most of the conversion will be taxed at the 30%+ bracket)! And during that time, I will still be holding TSLA shares as long as Musk is in charge, which means by the time I reach 59.5, I might have at least $10m in my IRA and it will STILL be growing.

And this is where the mandatory retirement math comes in. At 59.5, I have to withdraw the fund at a rate that at least matches its growth for the next 12 years (at 72, required minimum distributions kick in). A 5% return (significantly lower than the S&P 500) on a $10m IRA requires a $500,000 withdrawal to stay even!! I will be taxed significantly higher in retirement years than my prime earning years?!?! That's not how it's supposed to happen!

Granted, it's a nice problem to have, but because I put too much money into my IRA when I was younger, I'm now on track (futures can change and TSLA could fail to grow after all) to paying uncle sam over 50% of my retirement income! But that's how I've reached the point of worrying about retirement with a $1m IRA.

And if anyone suggests selling TSLA into more stable, yet slower growing investments ... talk to the hand! I'll sell my TSLA shares when Elon leaves for Mars.

 

[Xepa777]

Reposting from investor thread...

I could retire right now honestly in the Philippines. Gorgeous views, cheap beachside property, daily fresh seafood, amazing adventure activities. And that's what takes the pressure off me, knowing that financial independence is a relative term. For many people around the world, even having $100k USD can mean you live like a damn KING. Get all the attention of everyone locally and be a celebrity with life stories of America to share. And they speak English well in the Philippines but this also applies to many countries like India, SE Asia, Latin America, etc.

For the US? I could honestly do it on $1 million with a family and a modest retirement job. Most people could. It's amazing how little so many people live with in America paycheck by paycheck.

Retirement is a mindset. You can choose to be "financially free" anytime you want, and that's a pretty powerful mentality to have in the back of your mind to relieve yourself of stress. You just need your inbound cash to even or exceed your outbound cashflow.

At $2.5 million I could pay for childrens' college, go on vacations whenever I want, live in a decent house (not in a major city), and live stress free. That's the goal.

Of course, my target is $10 million+ and I have an active plan for that. Then again, my equivalent plan is to live until I'm 100, so want to make sure the $10 million plan doesn't come at the expense of the 100 year old plan.

It's all just an optimization equation.

 

[Oil4AsphaultOnly]

That market watch article with its $8m number for $40k per year is total BS!

We all die at some point, and seeing my grandparents wither away at 95 in a nursing home, because my 68 yo mother is physically unable to care for them (changing the adult diapers, bathing, changing clothes, etc), makes me not want to live too long. A good life is more important than a long one. Besides, I'm not sure I can stay in good health past 90 (genetically pre-disposed to high cholesterol and diabetes, and I love my carbs!)

Further more, rental properties will return 5% annually, 4% minus a property management fee. That makes a 4% drawdown a pretty reliable basis. That 0.5% number is excessively conservative.

That being said, my retirement target is $5m. Not because I live life modestly (or lavishly depending on ones perspective), but because I'm relatively young. At mid-40's, my IRA is now over $1m, and most of it (85%) in TSLA. I'm expecting TSLA to reach $10,000/shr (pre-split) between 5-10 years from now. At that point, I will HAVE to retire in order to carry out a Roth conversion ladder (otherwise, most of the conversion will be taxed at the 30%+ bracket)! And during that time, I will still be holding TSLA shares as long as Musk is in charge, which means by the time I reach 59.5, I might have at least $10m in my IRA and it will STILL be growing.

And this is where the mandatory retirement math comes in. At 59.5, I have to withdraw the fund at a rate that at least matches its growth for the next 12 years (at 72, required minimum distributions kick in). A 5% return (significantly lower than the S&P 500) on a $10m IRA requires a $500,000 withdrawal to stay even!! I will be taxed significantly higher in retirement years than my prime earning years?!?! That's not how it's supposed to happen!

Granted, it's a nice problem to have, but because I put too much money into my IRA when I was younger, I'm now on track (futures can change and TSLA could fail to grow after all) to paying uncle sam over 50% of my retirement income! But that's how I've reached the point of worrying about retirement with a $1m IRA.

And if anyone suggests selling TSLA into more stable, yet slower growing investments ... talk to the hand! I'll sell my TSLA shares when Elon leaves for Mars.

And for those curious. I intend on turning my IRA into rental real estate by taking out a 30y mortgage loan with the IRA distributions as the source of income. As long as you can put a 20% down payment, most lenders will underwrite anything. Should work shouldn't it?

 

[adiggs]

I think my # is $4M, which means I'll be scheduling time with a financial advisor and figuring out how Rule 72t distributions work in the next few weeks. Conceptually - 72t distributions enable you to get some of the money out of your retirement accounts each year, before age 60, without penalties (you still pay taxes). I've got several years to get to 60, and it'd be hard to make things work without getting some of the money out of retirement accounts.

I've mostly arrived at the $4M number through the 4% rule - I figure that provides my wife and I with $160k / year to live on. That's a bit less than the paycheck / job provides right now, but between some of that money being tax free (withdrawal from Roth) plus no longer saving and contributing to a 401k (we do both right now), I think that'll work out. I guess the big assumption here is that we can live in retirement on what we live on while I'm still working.

Another assumption, excessively conservative, is that we won't touch the principal.

Oh - and that there isn't any Social Security which obviously isn't true, even if it turns out to be a lot less than it has been historically.

And that TSLA isn't going to keep going higher from here (hah!).


I also figure out that there are a bunch of expenses, even if they're the minority, that we'll just naturally adjust up and down as the resources adjust.

 

[Silicon Desert]

the big question is retirement WHEN. Some people seem to think numbers being tossed out are for retiring soon, while it likely means the amount a young person will need when they retire.

 

[dakh]

This article came out today and it made me depressed

The new savings target for a modest retirement: $8 million?

4% withdrawal or 25X expenses is the most accepted rule.

Either the author deliberately created something controversial to gain clicks or they are clueless. Who the hell puts a few mil of long-term capital all into bonds?

I think overall we already saw this and we'll see this accelerating: the pace of innovation is increasing. It used to be that a revolution in a big industry like communication or transportation only happened every 100 years. Now we not only have those revolutions happening much quicker, we see new big industries emerge and some industries die wholesale. It only is a bit over 20 years since the Internet got into mainstream, and now we got AI about to blow the doors off of a lot of ways we used to do things. Just spreading capital across all kinds of assets won't work like it used to, counting on slow and steady growth like that. This does not at all mean you have to become super pessimistic about your capital throwing off enough gains/dividends to live off of, it just means you have to evolve the ways you put your capital to work with the times.

 

[dakh]

I think my # is $4M, which means I'll be scheduling time with a financial advisor and figuring out how Rule 72t distributions work in the next few weeks. Conceptually - 72t distributions enable you to get some of the money out of your retirement accounts each year, before age 60, without penalties (you still pay taxes). I've got several years to get to 60, and it'd be hard to make things work without getting some of the money out of retirement accounts.

I've mostly arrived at the $4M number through the 4% rule - I figure that provides my wife and I with $160k / year to live on. That's a bit less than the paycheck / job provides right now, but between some of that money being tax free (withdrawal from Roth) plus no longer saving and contributing to a 401k (we do both right now), I think that'll work out. I guess the big assumption here is that we can live in retirement on what we live on while I'm still working.

Another assumption, excessively conservative, is that we won't touch the principal.

Oh - and that there isn't any Social Security which obviously isn't true, even if it turns out to be a lot less than it has been historically.

And that TSLA isn't going to keep going higher from here (hah!).


I also figure out that there are a bunch of expenses, even if they're the minority, that we'll just naturally adjust up and down as the resources adjust.

Keep us posted on how that goes please! There's also the 5-year IRA ladder that you can utilize. The big question is how to handle health insurance.

Another great resource on the topic is Mr. Money Moustache, although probably most people here will not subsribe to their ideology of rather extreme frugality. For me, there's a ton of things I would like to do myself that will occupy my time and save me money, but I don't do because I got my day job. So I suspect I'll spend quite a bit less if I stop working.

 

[Zaxxon]

The biggest question for me (over two decades to go before Medicare kicks in) is health insurance (since the US is a nightmare for non-employer-provided healthcare). If we were to retire anytime soon, we'd both likely continue working half-time in a job we enjoy in order to maintain insurance for some period of time.

As for number, I've always eyeballed $5M and a 3% withdrawal rate to be conservative. Realistically could likely do with a lower # if we continue working for several years part-time.

Great idea for a thread, as there's no perfect answer so reading everyone's thoughts is enlightening.

 

[astrotoy]

A good estimate of the amount you need to retire is to find out how much a lifetime annuity (preferably one with some inflation rider if possible) would cost to buy for the age you want to retire. Obviously, you are paying the insurance company whatever profit they make, but they are taking the actuarial risk if you live beyond your projected lifetime. However, if the insurance company is top rated, you will never outlive your annuity payments. You can then determine whether you think your investment (in TSLA) will grow faster than the actuarial projections of the insurance company and self fund your annuity so there will be plenty of money left when you die.

One thing to consider. Do you want to leave anything to anyone when you die? If not, then an annuity might be the safest approach, since you will never outlive it. There are also variations on this, like an annuity with a guaranteed minimum number of payments, in case you drop dead the next day, or one that pays until the death of your spouse. These cost more. You can also donate to a charity and buy a charitable remainder trust or a charitable gift annuity which provides lifetime income with a partial tax deduction for the value of the donation. This also has the benefit of doing good for a charity of your choosing.

 

[astrotoy]

Three hints about retirement (I've been retired for 13 years, and am now 75).

One, if you are thinking of retiring really early (say in your 40s or 50s or maybe earlier), you may find retirement not as meaningful unless you are doing something of value. That usually means giving of yourself to help others. That can be the most valuable thing your do - for yourself.

Two, make friends and social acquaintances who have less money than you do, and live a lifestyle that matches them or doesn't exceed theirs in any substantial way. You will always have enough money and never feel you have to keep up with your friends. You can always spend extra money in ways that your friends don't know about - or are jealous about. Like staying in an expensive hotel when you are on vacation, or buying the upscale version of that Model S, or donating anonymously to a charity.

Three, if your investment in TSLA reaches the heights that Cathie Wood is predicting, or even if it doesn't quite get there, you may have another issue, that is, paying estate tax (in the US - currently it mean assets over $11.5M if you are single, double that if you are married). Estate tax is currently 40% federal and some states charge an additional tax. This means another layer of complication in terms of planning your retirement, bequests to your children or grandchildren, charitable gifts and bequests, etc. The estate tax limit sunsets in 2026 in the US and returns to $5M per person plus inflation, unless extended. 1000 shares of TSLA at $5000 per share is $5M, so that is not crazy to imagine for many investors by 2026. Roth IRAs can be very effective estate planning tools if you have substantial assets in regular pretax IRAs, 401(k), 403(b), 457 accounts and are willing to convert them into Roths. If you find yourself getting near the estate limit, then a conversion of all or part of your pretax IRA's will lower your estate and prevent a double taxation of an inherited IRA.

 

[LN1_Casey]

I personally think that having a fat wad of cash sitting somewhere, or even invested in stocks, would be a poor way of saving for retirement if that's all you have.

I think a key aspect would be to own properties that provide a steady source of income, and those properties are paid off so it's almost pure income. Hire a management company, and don't worry about them. Ideally, there will be a couple different properties, probably 4 or 5, so can cover each other if one goes empty for a month or two, or if there is a repair needed like a water heater.

I am also trying to retire in the military, and get that sweet, sweet pension, which guarantees me at least *some* income, probably $2-3k a month. Combined with the maybe $7k a month from the rent, and it's a comfortable life, even if combined the assets are around the $1-2mil mark.

Any savings/stocks after that is just gravy, or used if there is a major downturn in the economy, like another plague.

 

[MR-MY]

This is absolutely correct. Having enough financial resources to fund your lifestyle is only the first half of the retirement challenge. Finding meaning an happiness in how you spend your time is a huge challenge for those who do not plan for it when they retire. Money increases happiness to a certain point and not much beyond that.

Three hints about retirement (I've been retired for 13 years, and am now 75).

One, if you are thinking of retiring really early (say in your 40s or 50s or maybe earlier), you may find retirement not as meaningful unless you are doing something of value. That usually means giving of yourself to help others. That can be the most valuable thing your do - for yourself.

Two, make friends and social acquaintances who have less money than you do, and live a lifestyle that matches them or doesn't exceed theirs in any substantial way. You will always have enough money and never feel you have to keep up with your friends. You can always spend extra money in ways that your friends don't know about - or are jealous about. Like staying in an expensive hotel when you are on vacation, or buying the upscale version of that Model S, or donating anonymously to a charity.

Three, if your investment in TSLA reaches the heights that Cathie Wood is predicting, or even if it doesn't quite get there, you may have another issue, that is, paying estate tax (in the US - currently it mean assets over $11.5M if you are single, double that if you are married). Estate tax is currently 40% federal and some states charge an additional tax. This means another layer of complication in terms of planning your retirement, bequests to your children or grandchildren, charitable gifts and bequests, etc. The estate tax limit sunsets in 2026 in the US and returns to $5M per person plus inflation, unless extended. 1000 shares of TSLA at $5000 per share is $5M, so that is not crazy to imagine for many investors by 2026. Roth IRAs can be very effective estate planning tools if you have substantial assets in regular pretax IRAs, 401(k), 403(b), 457 accounts and are willing to convert them into Roths. If you find yourself getting near the estate limit, then a conversion of all or part of your pretax IRA's will lower your estate and prevent a double taxation of an inherited IRA.

 

[gavine]

When my dad first retired, he calculated what it costs to live and he was able to retire at 62. What he didn’t account for is the expense of entertaining himself those extra 10 hours per day when he used to be working. He assumed his spending would be the same after retirement, but he quickly realized that entertainment was becoming expensive. Ten extra hours is a lot of time to kill daily and boredom promotes spending. He wound up going back to work. He did say that going back to work was nice in a way because he wasn’t really there because HAD to be. Rather, he was there because he WANTED to be and that makes the job much less stressful.

 

[MR-MY]

Boglehead rule #1 no financial advisors jk

Fair enough. I tried to "like" your post, but I guess I too much of a newbie to have that option. PS: I'm thinking about retiring to Greenville, SC. Maybe I'll look you up and we can discuss it over a beer.

 

[juanmedina]

Keep us posted on how that goes please! There's also the 5-year IRA ladder that you can utilize. The big question is how to handle health insurance.

Another great resource on the topic is Mr. Money Moustache, although probably most people here will not subsribe to their ideology of rather extreme frugality. For me, there's a ton of things I would like to do myself that will occupy my time and save me money, but I don't do because I got my day job. So I suspect I'll spend quite a bit less if I stop working.

I been following the Mr. Money Mustache for years. We been maxing out 401K's and IRA's for a while and I haven't had a mortgage payment in 5 years. We been saving between 80-60% percent of our income and I have no idea what we would spend that money on if we wouldn't save it. My goal is or was smaller than most people here only around 45-40k a year or 1.1-1M. Thanks to Tesla we already passed my goal and I am not sure what to do . We have a rental house that makes around 10-8k a year after expenses, Tesla makes up about 60% of market investments while the rest is in index funds. The biggest issue that we see is healthcare specially if Trump wins. We know some people that have Obamacare and it's been great for them and they got to keep their doctors; for our family of 4 it should be around $300-200 depending on how much we decide to draw. I also think we can supplement our income by selling covered calls. There could be also inheritances that I am not counting on and some social security eventually in 30 years.

 

[juanmedina]

Fair enough. I tried to "like" your post, but I guess I too much of a newbie to have that option. PS: I'm thinking about retiring to Greenville, SC. Maybe I'll look you up and we can discuss it over a beer.

Greenville, SC is awesome is been growing at a really fast pace. My in-laws are moving down in October from Michigan for most of the year. Housing is still affordable.

 

[Mokuzai]

You can also donate to a charity and buy a charitable remainder trust or a charitable gift annuity which provides lifetime income with a partial tax deduction for the value of the donation. This also has the benefit of doing good for a charity of your choosing.

Looked up a charitable remainder trust...mind blown. Thank you.

Bypassing the Capital Gains Tax with Charitable Remainder Trusts

 

[Sanny]

The biggest issue that we see is healthcare specially if Trump wins. We know some people that have Obamacare and it's been great for them and they got to keep their doctors; for our family of 4 it should be around $300-200

We are buying our own health insurance for a family of 3 since 2013. As far as I know, Obamacare is a subsidized plan for low income, and my personal choice is do my best not to qualify.
Plan prices are growing like crazy and probably outpace tsla. Since I see it first hand since 2013, it is a bit difficult for me to put a blame on Trump.
Currently I can only justify a catastrophic plan for me and my wife and a very good plan for my son. Every year since 2013, the coverage goes down significantly and the price goes up.

 

[ammulder]

We are buying our own health insurance for a family of 3 since 2013. [...] Every year since 2013, the coverage goes down significantly and the price goes up.

Well, I have an employer-provided health plan, and it could be summed up in exactly the same way. They keep jumping through increasingly awkward hoops to simply minimize the annual changes for the worse.