What are your financial ER goals?

[OldPro]

Presumably, everyone here has certain financial goals that want to achieve or did achieve before FIREing. A goal of what amount they will be able to live on initially after FIREing. A goal of how much passive income they will be able to generate initially. A goal of how much capital they will need to accumulate to provide the first two initially. I say initially, simply because they will all change over time.

When I FIREd, I hoped to be able to live on less than $12k per year. I hoped to generate an income of $20k per year from a capital of $200k. Those numbers worked out fine initially for me. That was of course 26 years ago. IF FIREing today, my numbers would be quite different to reflect the changes since then.

My question is what are your initial numbers? (Or use percentages if you don't want to give specific $ amounts) My concern is that for some, there may not be enough difference between the first two numbers to allow for the changes that will happen over time. IF they are too close to one another, then you could be leaving yourself with too little 'cushion' to deal with changes.

I have that concern because I have met quite a few people who retired with those two numbers too close together and as a result were not able to cope financially with changes that occurred. You don't have to just FIRE, you hopefully want to remain FIREd and to do that, the bigger the gap between those first 2 numbers, the better.

[jacob]

Those 6--10% are some very aggressive numbers but I guess understandable when put into the bull market context of the time (the 1980s and 1990s). I can see how people would fail when taking those rates for granted for the far future.

Over the past 10-15 years ... especially the past 10 years, firecalc and the Trinity study has defined the planning target for all but a few desperate/optimistic outliers.

The standard targets are, therefore, somewhere between 3 and 4% depending on age and personal fragility.

Some will be more conservative than that.

Because these rates avoid the one worst care out of many, people who use the standard 3--4% targets tend to end up with more money than they need.

[A Life of FI]

Oldpro - If you look through people's journals on the forum the vast majority of people aim for a 3% to 4% full (including travel and things that aren't really needed) spending rate in ERE which is much more conservative than your 6% spending rate ($12,000/$200,000). I have seen a few that exceed this, in the neighborhood of a 5% spending rate, but those people are typically much younger than the average person here and still want to work part-time work or have some type of small business or other income generating activity during their ERE.

So I would think that if you were happy to ERE with a 6% spending rate you shouldn't be too worried about the people here who effectively have 50% (your 6% spending rate/their 4% spending rate) to 100% (your 6% spending rate/their 3% spending rate) more money than you when you EREd.

[Dragline]

We could live on about 2-3% of what we have accumulated in capital, but would prefer to have up to 6% available in any given year. Passive income (i.e., not including any capital gains) is currently around 3%, although I have not calculated it this year.

[llorona]

Old Pro, I'm curious about how your original projections have panned out over the past 26 years, and what your recommendations are for anyone considering ER/ERE.

Our goals are probably more MMM than ERE but here they are: Keeping in mind that ER is 8-10 years in the future, my financial goal is to reach $1.25 million. This amount would be sufficient to: (1) buy a decent house with cash for $250K or less in a small town/suburbs, probably on the West coast, and (2) live on $40K per year (4% WR) per year for the two of us. Of the 4%, we would live on 2%, allocate 1% for health insurance and medical expenses, and 1% as a buffer for travel or large expenses like replacing a roof, water heater, etc. Our projections do not account for social security, which would be a nice bonus if it pans out.

[Did]

I'm happy to earn a few bob along the way. I'm out of the office, away from the nightmare. I won't be returning. But I'm not shy of doings bits and pieces in a sustainable way to top up our bank account. I don't mind disclosing. I have a house worth A$520k, and live in house worth A$100k. No debt. A$550 rent a week from the house (excluding expenses and tax). Also get US$150 a month say from royalties. A$400 a month for some high level remote consulting (dead easy with an old mate over the phone). That's mainly it. Wife is starting to do some UpWork consulting. I'm digging around for some more remote part time work, but I'm pretty chilled.

[Did]

we also have A130k or so in forced investment (super)

[C40]

My retirement target net worth would result in the following spending rates (This is yearly spending divided by capital, or the minimum SWR needed to support that spending)

• Southeast Asia or Cental/South America, low spending: 1%
• U.S. - low spending: 2%
• U.S. - Moderate spending: 3%
• U.S. - High spending: 4%

In addition to the numbers above, I already earn some income from hobbies and this will likely increase after I quit my job. I'm pretty sure this could easily amount to an income of 1% of my capital. That would lower each of the SWR numbers above by 1% (it would cover all of my spending in the first bullet point). I'll have many years left after quitting where I'm in good working age so if I do decide I want to work more, that will be more money on top of this.

The low, moderate, and high spending are relative to me. The difference between low and high spending is significant enough to buy a used car that I'd expect to last >10-15 years.

Healthcare is included in the spending, but of course it will fluctuate. I expect my healthcare costs to increase with old age and to cover those by additional income that comes from capital increase due to having lower withdrawal rates for the first 20 or so years of retirement. Plus whatever I get from social security. Plus capital drawdown (I won't have children and thus not much need for an estate to pass on)

[cmonkey]

Our goal is to use dividends and Lending Club interest, essentially taking a 'pick the fruit from our tree of wealth' path.

My FIRE date will be determined when the amount we need from Lending Club to cover the gap between our expenses (averaged over the last year) and the amount of dividends we receive on an annual basis reaches 3%. Since real returns at Lending Club should be well north of 7%, this leaves a large margin that will allow us to do other stuff (HSA, millionaire, survive any road bumps in the P2P space, etc..). At that point our entire SWR will be something like 3.2% and will drop substantially in the years following when I'm done. Should happen in mid 2020.

I haven't entirely written off getting another job in my space of work after I'm FI. The work is fun/easy and a new environment would be nice. I have a friend that works full time from home, makes double what I do and has talked of how they need more help. The only issue with that (as jacob pointed out) is that we'd have way to much at that point and tax strategy starts coming into play.

We have plans later in life to move to a smaller town and would thus have lower property taxes as well. At that point, I'm sure we'll be near or under 1%.

[disparatum]

Before I left my job at the end of March, my annual expenses came out to about a 3.6% withdrawal rate. If we had stayed in the midwest, I think that would have been maintainable. However, it was primarily my savings and would have really only covered my expenses. I think at some point we'd like to have a kid and my wife would probably stay at home for a number of years, so those plans required some additional considerations. We are in a higher cost of living area now and current monthly expenses are working out to about a 5-6% withdrawal rate on the capital I have right now. However, I am doing a phd program with a fellowship, wife is working part time, and I have two or three other streams of income (incl. interest and dividends) that cover all expenses and still let us max our 401ks and IRAs and put some in taxable accts. By the time I am done with the program, we think that our capital should be enough for both of us to FIRE. Not sure what we'd like to do after that. I think I would like to do something related to my degree for two or three years at least, but my wife might have other ideas.

[steveo73]

For me personally I'm aiming for a 5% WR @ $800k aussie dollars invested outside of my house. Currently we spend about $38k per year.

My buffer comes from the following points:-

1. I own 75% of my house which is worth over $1 million. I could downsize this easily and have more money available to live off.
2. I intend to work part time for 5 years or have savings/leave to last that long on top of the $800k. This includes already having close to 6 months full time long service leave available right now.
3. I have 3 kids and I believe our expenses will drop over time.
4. I don't include any inheritance in my figures. My parents and in-laws have a lot of money.
5. I don't include social security in my figures.

[Did]

@steveo Do you think you would struggle actually doing that? Many become attached to their homes and locations. If you were locked in you would well see the 250k mortgage as a liability that needs to be discharged through work or drawing on the investments before you pull the pin. Or to put it another way, you have a home plus 550k. Same as me even though my home is worth less than a tenth of yours.

Of course if you are cool with selling the money is available.

edit: I mean struggle with downsizing your home.

[LiberateMind]

I am planning to have 1.5 times of expenses from rental & deposits along with own home and farm.

[IlliniDave]

I start with my retirement plan and work back from there.

Long story short, about $750K (2015 dollars) in invested assets seems to allow me a reasonable probability of meeting my goals as on average I will need about 3% of that per year (more early on, less later) from my financial assets. 'Reasonable' of course being my definition of reasonable.

An average annual withdrawal of 3% of that combined with a couple fixed income sources allows me to take, as needed, a pre-tax income of up to $45K/yr from age 55 onward. The $45K is based on detailed records of my spending habits over the last several years (with a plus-up for taxes). My basic/routine expenses seem to run just under $30K/yr, and if I spread all the normal larger/occasional expenses over time I tend to average another ~$1k/mo.

I expect to spend somewhat less than that, but it seems prudent to plan a little more conservatively now while my earned income is relatively high. I am perfectly happy having a a decent estate leftover for my heirs if it comes to that.

Some random points:

-I exclude my real estate from the $750K above. To me, invested assets means stocks and bonds. My two properties are for my personal use/enjoyment.

-I will be selling my current home and downsizing significantly along with moving to a different state immediately upon retiring.

-I intend to spend about half the year living in a semi-remote cabin (the warm half) and the other half in my primary residence. So if I hit a streak of bad luck I can consolidate there.

-I leave open the possibility to work for wages, but my plan intends for that to be completely optional and something I would elect for personal enrichment/enjoyment.

[steveo73]

@steveo Do you think you would struggle actually doing that? Many become attached to their homes and locations. If you were locked in you would well see the 250k mortgage as a liability that needs to be discharged through work or drawing on the investments before you pull the pin. Or to put it another way, you have a home plus 550k. Same as me even though my home is worth less than a tenth of yours.

Of course if you are cool with selling the money is available.

edit: I mean struggle with downsizing your home.

I could sell my house with no problems. I have one more payment prior to paying off the mortgage so there is no debt on it. My in-laws own 25% of our house hence the no debt but not owning the whole house.

Truthfully I don't think that I would have to anyway. I reckon our costs will decrease (kids growing up and no cost of actually going to work) and if I work for part time post becoming FI it won't even be an issue.

[jacob]

Some firecalc benchmarks. I ran these for 60 years.

1%: 100% success
2%: 100% success
3%: 100% success
4%: 82.4% success
5%: 48.2% success
6%: 34.1% success
8%: 2.4% success
10%: 0% success

[FRx]

I am very happy to report that I just paid off my student loans and I was able to buy a little studio condo in cash with low monthly HOA dues. So my annual expenses should be (shoulda-woulda-coulda) $15,000-20,000/yr. And for a some time I really thought I was spending only $2k/mo until I went back and looked at every single penny that's left my pocket for the past few months. So I'm closer to $36k/yr of spending (ehem!).

So, I got about $300k invested. $30k in taxable and $270k in tax-deferred. Once I get the Taxable closer to $400k-500k I figure I can walk away. So I would be somewhere in the 3% range. I, too, will allow for a little wiggle room because I anticipate making a bit of income most months in retirement. I don't know what the source of that income will be yet but like others here I'm resourceful.

[OldPro]

First, a few clarifications on what I originally wrote regarding my own initial figures.

1. Cost to live does not include any discretionary spending, only actual necessary spending. The gap between cost and income is what allows for discretionary spending and continued savings added to capital.
2. Passive income does not include any form of drawing down capital, only actual income generated by the invested capital.
3. Capital invested does not include a home. That does not generate income, it gives you a place to live and keeps #1 lower.

In my own case, my initial $12k per year living costs included paying rent (I owned a home 100% but did not live in it and did not generate income from it, my ex lived in it). My $20k income did not include drawing from principal, it was all earned (from capital invested) income. The gap of $8k allowed for discretionary spending and addition savings going to capital investment.

As far as I can see, only LiberatedMind (and possibly Dragline but it isn't clear) actually appears to intend to live on earned income and not eat capital. That many of you plan to eat income based on your belief in the Trinity study and a SWR is your choice and providing a response to my questions based on that is fine, but don't try to compare it to my own figures which do not include it. Apples and oranges. I'm not concerned about how you plan to do it or comparisons to how I have done it, I am just asking what your figures are.

A Life of Fi, my 6% was based on actual ROI of 10%. At the time, it was perfectly acceptable to expect a 10% ROI on capital invested in various ways. If you plan on an SWR of 3%, it does not tell me if there is a gap between your costs and the income amount that 3% represents. You are giving me a number that represents income but no number that represents costs of living. So it doesn't tell me how much if any gap you are allowing between the two. Forget comparing mine to others, tell me what gap there is between your living costs and your planned income.

Clearly, others are also talking about only one $/% for both living and discretionary spending. To say you plan on 3%, without separating those two does not show how much cushion you are planning on initially. If you say you plan to live on 1% and have a 2% cushion that is quite different from saying you plan to live on 2.5% and have a .5% cushion. That was the whole point of my question. What is the gap between necessity and planned income?

Owning a home does not provide that cushion/buffer. The difference between cost of living and income is the cushion I am asking about. That a home could be sold or downsized is possible of course but it isn't part of a plan that has a gap between living cost and income.

Comments about potentially working part time etc. are irrelevant to the equation. Either you plan to be/remain FI which means never having to work, or you do not plan to be FI and instead are counting on working to some degree. FI does not preclude choosing to do something that earns you money which supplements your FI but FI does preclude having to work to eat. I have exchanged time for money from time to time since I FIREd but I have never HAD to do so. As IlliniDave puts it, "I leave open the possibility to work for wages, but my plan intends for that to be completely optional and something I would elect for personal enrichment/enjoyment." Again, the question is do you plan to have enough income to pay your costs and have a gap between the costs and the income?

Ilorona, as I read it you plan to have 4% income and live on 3% leaving you a maximum 1% cushion. I do not consider health insurance or a new roof as discretionary spending. They are part of your living costs. So while travel is discretionary, the roof etc. isn't, which makes even your 1% discretionary cushion iffy. I consider that insufficient cushion and would advise a rethinking of it.

I go from 3 basic principles. First, never touch the capital, you must live on income generated. Second, plan on the basis of thirds. One third of income to living costs; one third discretionary; one third to continued savings added to capital. Not many here will want to hear that advice obviously. Third, invest only in what you have knowledge of. I don't believe in SWR and find relying on the past to predict the future very iffy indeed. But you asked what I would advise and there it is.

As for how it has panned out after 26 years, our costs are around $30k(with a house 100% owned) and our income this year around $72k. So as you can see, not an exact 3 times income to cost ratio but workable. It has varied more or less like that for the entire 26 years. Sometimes the gap between cost and income has been larger and sometimes smaller. There has never been a time without any gap however and therefore I have never HAD to work to eat. I have known other ERs who did have to eat capital or choose to work instead. I recall one wife being quite angry when her husband refused to eat capital and insisted they both had to get part time jobs until he could find a way to once again generate enough income from the capital to not have to work. At one time, I had living costs of near $0 and a 100% gap between costs and income. But that's another story. Regarding Social Security (or it's equivalent government pension in any country), That has added to our income in recent years. Without it, income would be closer to $50k but we would also probably choose to live on less than $30k. More income does allow you to increase your standard of living obviously if you want to.

So to repeat, I am asking for a clear understanding of what gap if any people are planning on having between their cost and their income. That is where your cushion to weather the 'hiccups' that will arise comes from. Not from getting a part time job, not from your house.

[A Life of FI]

A Life of Fi, my 6% was based on actual ROI of 10%. At the time, it was perfectly acceptable to expect a 10% ROI on capital invested in various ways. If you plan on an SWR of 3%, it does not tell me if there is a gap between your costs and the income amount that 3% represents. You are giving me a number that represents income but no number that represents costs of living. So it doesn't tell me how much if any gap you are allowing between the two. Forget comparing mine to others, tell me what gap there is between your living costs and your planned income.

When I FI'ed my planned ROI was 11% and my spending rate was less than 1% - So my planned income was more than 10 times my expenses.

[C40]

As far as I can see, only LiberatedMind (and possibly Dragline but it isn't clear) actually appears to intend to live on earned income and not eat capital.

You seem to be making negative assumptions rather than positive or neutral assumptions

In my case, I'm expecting 4% income from my investments, and to spend 2-3% most years. My bare necessity spending would be around 1%. Some years I might spend 1.5%, and I'd buy more stocks with the 2.5% excess income, so my net worth and income would grow. Some years I might spend 4.5% and sell off 0.5% of my capital.

Potential capital gains will add more income. Hobby income, even more. Eventual social security, even more.