How Much Is Enough?
How Much Is Enough?
I've been reading well know book called 'you money or your life', and that has the concept of having 'enough' money.
e.g. enough for the basics, treats and minor luxuries but not so much that the individual is induced into consumer acquisitions that create clutter.
I appreciate that everyone's idea of enough is different, but nonetheless ignoring costs associated with housing and healthcare, how much
is enough for early retirement extreme people? Did this change pre-retirement and post retirement?
e.g. enough for the basics, treats and minor luxuries but not so much that the individual is induced into consumer acquisitions that create clutter.
I appreciate that everyone's idea of enough is different, but nonetheless ignoring costs associated with housing and healthcare, how much
is enough for early retirement extreme people? Did this change pre-retirement and post retirement?
Re: How Much Is Enough?
If we include bills in housing, we're managing quite well on ~£300 per person per month (2ppl). About half of that goes towards food and household, and the other half are non essentials like clothes or travel. We don't feel deprived but also don't really see any point chopping further, current level seems natural. I think I would have hard time consistently spending all my disposable income. I can see us spending more if we start some expensive hobbies or travel a lot.
Re: How Much Is Enough?
The figure boils down to personal circumstance and the choices you make about lifestyle, but the total figure has the potential fall as your progress up the various ERE wheaton levels. If you use your time accumulating wisely, what you might assume you needed when you set out on your journey has the potential to drop markedly by the time you pull the plug as you find ways to substitute skills and other resources for money. I can think of many reasons why my post retirement spending might be much less than when I am tied into full time work, a larger proportion of my discretionary spending is related to my work and associated regrettable conveniences that get me through the week.
Once retired, I'll no longer be tied to expensive housing locations, pay for fancy office wear, wear and tear of transportation (I'd just get about on foot) I'll have more time for home cooking, less need for convenience purchases, vacations etc.
Whilst DW would never go for it, I could put an embargo on all spending other than food, sell the house, join a commune or build a tiny house and live off the proceeds of the house sale, retiring tomorrow. To stay put where we are, continue pay the bills, support DD through university and keep DW in the lifestyle we are accustomed to, I'll have to stay in work for a while to come.
Once retired, I'll no longer be tied to expensive housing locations, pay for fancy office wear, wear and tear of transportation (I'd just get about on foot) I'll have more time for home cooking, less need for convenience purchases, vacations etc.
Whilst DW would never go for it, I could put an embargo on all spending other than food, sell the house, join a commune or build a tiny house and live off the proceeds of the house sale, retiring tomorrow. To stay put where we are, continue pay the bills, support DD through university and keep DW in the lifestyle we are accustomed to, I'll have to stay in work for a while to come.
Last edited by vexed87 on Fri Feb 15, 2019 10:10 am, edited 1 time in total.
-
- Posts: 991
- Joined: Fri May 04, 2018 8:30 pm
- Location: Texas
- Contact:
Re: How Much Is Enough?
This is also dependent on how risk tolerant you are. For example it takes a decent bit more to FIRE at the same standard of living at a 3% SWR than at a 4% SWR. Which SWR you go with has a lot to do with what you believe the market is going to be doing for the duration if your FIRE/ERE.
Enough to cover me personally at this time would be $800 a month which would be $9600 a year and in turn would require $240,000 at 4% SWR or $316,800 at 3% SWR. At this time I'm at least confident I'll have a place till somewhere in the first quarter of 2020. However, that's me living in a rented bedroom which isn't a very secure situation as I am dependent on both the ones leasing the place continuing to let me rent there, plus of course their landlord continuing to extend their lease/not raise the rent etc. So I would like to own the house and do the renting out of extra rooms rather than be renting out the extra room. Eventually I would also like to have a wife and at least one kid. For this reason I wouldn't feel comfortable calling myself fully FIREd until I have enough to cover about $20,000 annually along with owning a house(or at least having a 15 year mortgage with 20% down).
I'm open to potentially moving to a lower COL place in the US once my accumulation phase is over which could lower costs further, but this is also dependent on whether I'm in a relationship at the time and whether they would be willing to do the same of course.
Enough to cover me personally at this time would be $800 a month which would be $9600 a year and in turn would require $240,000 at 4% SWR or $316,800 at 3% SWR. At this time I'm at least confident I'll have a place till somewhere in the first quarter of 2020. However, that's me living in a rented bedroom which isn't a very secure situation as I am dependent on both the ones leasing the place continuing to let me rent there, plus of course their landlord continuing to extend their lease/not raise the rent etc. So I would like to own the house and do the renting out of extra rooms rather than be renting out the extra room. Eventually I would also like to have a wife and at least one kid. For this reason I wouldn't feel comfortable calling myself fully FIREd until I have enough to cover about $20,000 annually along with owning a house(or at least having a 15 year mortgage with 20% down).
I'm open to potentially moving to a lower COL place in the US once my accumulation phase is over which could lower costs further, but this is also dependent on whether I'm in a relationship at the time and whether they would be willing to do the same of course.
-
- Posts: 1606
- Joined: Thu Nov 19, 2015 11:20 am
- Location: Earth
Re: How Much Is Enough?
This is going to vary sooooo much from individual circumstances.
Personally I live extremely comfortably spending ~$1k on housing/food/health/transportation. Throw in another $250-500/month on travel, entertainment/hobbies, gifts/charity, and non essential purchases and I feel very extravagant. This is in a fairly HCOL area too.
My "number" therefore would be ~$500k in assets with a ~3-3.5% WR
Personally I live extremely comfortably spending ~$1k on housing/food/health/transportation. Throw in another $250-500/month on travel, entertainment/hobbies, gifts/charity, and non essential purchases and I feel very extravagant. This is in a fairly HCOL area too.
My "number" therefore would be ~$500k in assets with a ~3-3.5% WR
- unemployable
- Posts: 1007
- Joined: Mon Jan 08, 2018 11:36 am
- Location: Homeless
Re: How Much Is Enough?
A withdrawal rate significantly above 4% may feel like living on the edge, especially if that withdrawal rate doesn't account for major unexpected expenses.
OTOH anything significantly under 3% will likely result in exponential growth. With a zero real return 3% gives you 33 years before you run out of money, and by that time you're likely either dead or collecting a pension. This assumes you're reasonably diversified compared to, say, 100% gold from early 1980 or 100% NKY from December 1989. I think you'd be OK so far with 100% Nasdaq from March 2000. You'd definitely be OK with 100% broad US stock market from ANY starting point. (Worst-case scenario gives you ~73% of original portfolio after 33 years, and that's in original-year-dollar terms, so like another 25 years after you've lived through the shittiest 33-year period ever.)
So I'd say "enough" is being able to comfortably accommodate a 3% WR if you don't own your house and 4% if you do, that 4% counting the carrying costs of said house in the numerator but not your equity in it in the denominator.
OTOH anything significantly under 3% will likely result in exponential growth. With a zero real return 3% gives you 33 years before you run out of money, and by that time you're likely either dead or collecting a pension. This assumes you're reasonably diversified compared to, say, 100% gold from early 1980 or 100% NKY from December 1989. I think you'd be OK so far with 100% Nasdaq from March 2000. You'd definitely be OK with 100% broad US stock market from ANY starting point. (Worst-case scenario gives you ~73% of original portfolio after 33 years, and that's in original-year-dollar terms, so like another 25 years after you've lived through the shittiest 33-year period ever.)
So I'd say "enough" is being able to comfortably accommodate a 3% WR if you don't own your house and 4% if you do, that 4% counting the carrying costs of said house in the numerator but not your equity in it in the denominator.
- unemployable
- Posts: 1007
- Joined: Mon Jan 08, 2018 11:36 am
- Location: Homeless
Re: How Much Is Enough?
I mean withdrawal rate in the strict sense, actually spending from your portfolio. In that case you're lowering your withdrawal rate.
If you have $1 million in assets, a job that pays $50K and you spend $60K, that's a withdrawal rate of 1%, not 6%.
Some people doing journals post a "withdrawal rate" based on their spending as a percentage of their assets, but if they're spending income from work their actual withdrawal rate is zero or negative.
Re: How Much Is Enough?
It's not a matter of enough. It is about if hardship in accumulating is worth the extra safety. I couldn't take work anymore when i only had a half paid housse. It was enough. Still, if getting paid was easy, i would pay it, and get the équivalent of a second house in financial capital before retiring.
Re: How Much Is Enough?
While that's true it's also surprisingly easy to get to a 3% SWR. If you want $40k at a 4% SWR you need a $1m. Waiting to achieve a 3% SWR would require $1.33m. But what is that really? 3 years on average at historical market returns. Granted it might take 1 year...or 10 years instead due to market declines, but if that was the case you'd likely have been happy with the delay.prognastat wrote: ↑Fri Feb 15, 2019 10:09 amThis is also dependent on how risk tolerant you are. For example it takes a decent bit more to FIRE at the same standard of living at a 3% SWR than at a 4% SWR.
-
- Site Admin
- Posts: 15979
- Joined: Fri Jun 28, 2013 8:38 pm
- Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
- Contact:
Re: How Much Is Enough?
@arcyallen - I'm nitpicking here, but technically, even if the market rises 33%, you're still on your original 4% SWR. You're just in one of the Monte Carlo outcomes that are on the high side. It looks like 3% WR but [technically, again], it is still 4% SWR.
Of course you could claim that you unretired for 1 second and then retired again to reset the counter. You'd then be at 3% SWR. However, you now also know that the last 3 years have been much better than average and so should expect future trajectories to fan out with a low-side bias.
This argument will make no sense to those who assume that the market is completely random (autocorrelation = 0). However, for me it's the reason why I felt very confident retiring at 4% in 2009 whereas I would be very concerned retiring on 4% in 2019.
Of course you could claim that you unretired for 1 second and then retired again to reset the counter. You'd then be at 3% SWR. However, you now also know that the last 3 years have been much better than average and so should expect future trajectories to fan out with a low-side bias.
This argument will make no sense to those who assume that the market is completely random (autocorrelation = 0). However, for me it's the reason why I felt very confident retiring at 4% in 2009 whereas I would be very concerned retiring on 4% in 2019.
Re: How Much Is Enough?
As my house is paid for, my personal spending budget is around £1350-1500 per month which equates to about $1750-1950 a month.
Does that sound realistic?
I am hoping to have net worth in a couple of years of around £360k or $468k.
Then aged 53 is that plausible?
Does that sound realistic?
I am hoping to have net worth in a couple of years of around £360k or $468k.
Then aged 53 is that plausible?
Re: How Much Is Enough?
@Nomad - your numbers look very comfortable to me. Also, retiring at 53 you'll be just over a decade from state pension which will add another ~9k pa. Plenty of people retire with paid off house & state pension alone, with 360-470k you'll be way ahead of that crowd with an option to cut down if necessary.
Even if your investments only keep up with inflation and you retire at the lower end of your range and your spending will be at the top of your range (18k pa), you'll still only eat through half of your stash before state pension kicks in. After that, the pension will cover 50% of your expenses and the remaining stash will last ~20 years at again 0% real return. So, the worst case scenario of 0% return for 30 years, spending at 18k pa and no extra money ever, you'll be down to 'only' state pension and paid off house at 85.
Even if your investments only keep up with inflation and you retire at the lower end of your range and your spending will be at the top of your range (18k pa), you'll still only eat through half of your stash before state pension kicks in. After that, the pension will cover 50% of your expenses and the remaining stash will last ~20 years at again 0% real return. So, the worst case scenario of 0% return for 30 years, spending at 18k pa and no extra money ever, you'll be down to 'only' state pension and paid off house at 85.
-
- Posts: 2283
- Joined: Sun Mar 20, 2016 6:05 am
Re: How Much Is Enough?
I've thought about this a great deal lately. I'm going to take this a step further and say 5% is about the perfect initial WR rate for ERE (allowing for macroeconomic condition variance). It's enough to maintain a sense of freedom and autonomy; anyone at this level can say goodbye to an unfulfilling 9-5. It is almost certainly allows for optionally, capital for opportunities, and provides stress free time for projects which may never result in monetary rewards. Yet this amount is likely not enough to live off forever. As a result, anyone at this WR still has "skin in the game" of life, this is a really good thing for a variety of reasons.
-
- Posts: 3872
- Joined: Wed Apr 02, 2014 7:46 pm
Re: How Much Is Enough?
Yeah, that's one of the things about about "SWR math"--you can play all kinds of games with it. If instead of an SWR approach a person said I'm going to limit myself to X% of my Jan 1 balance each year it's the same as retiring anew every year at an X% SWR (the rub being whether the resulting variation in spending is tolerable). Maybe I misread but I thought arcyallen was talking about delaying retirement until the stash grows enough to support the spending at 3%. I've always been leery of the spread of outcomes and focused on the low extremes (which is actually worsened if one assumes uncorrelated outputs and runs enough trials) and so I took the cowards way out and penciled in spending well above historical combined with (arguably insanely) low WRs. Gives a little more resilience in the face of a few of the vagaries that could come up.jacob wrote: ↑Sat Feb 16, 2019 9:53 am@arcyallen - I'm nitpicking here, but technically, even if the market rises 33%, you're still on your original 4% SWR. You're just in one of the Monte Carlo outcomes that are on the high side. It looks like 3% WR but [technically, again], it is still 4% SWR.
Of course you could claim that you unretired for 1 second and then retired again to reset the counter. You'd then be at 3% SWR. However, you now also know that the last 3 years have been much better than average and so should expect future trajectories to fan out with a low-side bias.
...
-
- Posts: 2283
- Joined: Sun Mar 20, 2016 6:05 am
Re: How Much Is Enough?
Right, income tends to scale with inflation over longer period too. So the PT work idea is a great inflation hedge.
From a peripheral glimpse this seems very much like a "capital for life" wheaton level... but I think done purposefully, it's actually a step beyond. External motivations are a big driver for most humans. Having that little extra push towards reduced future consumption and/or value creation is really important for most. Of course, that's a bit abstract and theoretical. Looked at practically, how many ERE folks, post-FI, have ended up either reducing consumption further or creating some form of value with either financial or social capital for compensation? It isn't a matter of not being able to find things to do with your time, hence needing to work. Rather, it's an acceptance that one will want do things with their time.
I would agree that age is an important consideration There are many factors which conspire against us to reduce this possibility with age. Of course, that's not a forgone conclusion either. Someone who is already 70 has a much better idea of what they will be capable of at 71 than someone in 30's or 40's, where it remains more of a crap-shoot.
Last edited by classical_Liberal on Sun Feb 17, 2019 3:34 pm, edited 1 time in total.
-
- Posts: 8
- Joined: Fri Feb 08, 2019 5:31 am
- Contact:
Re: How Much Is Enough?
For me enough is that I have enough savings to sustain current spending until the end off life. By working a bit extra you can lift that spending level. For myself I don't like the idea and going super frugal.
Re: How Much Is Enough?
I struggle with this too. By any scenario that I run at my current spending of ~$25K/year I’m <3%. However, my life now is not going to be my life forever. I’ll be getting married and hopefully having children, probably buying a house instead of renting, etc. Hard for me to say whether that spending stays about the same, or goes up but I imagine it will probably go up and when I take into account being responsible for other human beings.
So I stay working, partly because of the above, partly because the firehose of money comes with a high pressure, and partly because I actually enjoy my job (though could do with less hours).
I agree with classical_liberal that it’s easier to know what you’ll be like at 71 when you’re 70, but not so much when you’re 30. Same goes for $$ I think. It’s not a reason to not pull the cord but for me I would want to be “settled” in my life such that I could properly analyse the costs before jumping off the train.
So I stay working, partly because of the above, partly because the firehose of money comes with a high pressure, and partly because I actually enjoy my job (though could do with less hours).
I agree with classical_liberal that it’s easier to know what you’ll be like at 71 when you’re 70, but not so much when you’re 30. Same goes for $$ I think. It’s not a reason to not pull the cord but for me I would want to be “settled” in my life such that I could properly analyse the costs before jumping off the train.
Re: How Much Is Enough?
Mortgage-free very small dilapidated or hand- built house on two acres half wooded plus about $5000 worth of tools. So, maybe $25,000 total plus sweat equity and around one month per year working to pay property taxes and get some sociability.
Re: How Much Is Enough?
I am dabbling other career opportunities rn. Whatever capacity I have to put up with employer-employee bs. I will make do with what I got until the next go around.
I'd say I'm at 7% wr and odd jobbing to keep the principal & growth.
I'd say I'm at 7% wr and odd jobbing to keep the principal & growth.