What's Your Number?

[theprincereturns]

I like jacob's suggestion on the P/E ratio. However this can get skewed by poor earnings in a given year. Jan 2009 S&P 500 P/E was 70, but it was one of the best time to invest in history. A current price / 5 year rolling average earnings would probably be a better overall market indicator as it would smooth out events that hit earnings for a short time.

[BobLandish]

@jacob

Interesting idea - I just had to plug some numbers into a spreadsheet to see what the implications are. Using your formula there, that means that a SWR would be 60% of (10 year average real) earnings. I guess the other 40% need to be kept in the businesses for inflation protection or maybe to cover the GM's and Lehman's in the portfolio. I'm currently liking the idea of looking at earnings rather than dividends and other metrics, kind of helps take your focus off of the day to day price fluctuations.

More on the subject of SWR and the PE10, I think this report (short, easy read) is good reading for many here. At least, it might help with a lot of SWR questions:

http://www.kitces.com/assets/pdfs/Kitce ... y_2008.pdf

@theprincereturns

In hindsight yes a PE10 of 5 would be a great time to invest, however that seems to only happen when everyone thinks the sky is falling. We didn't even get close to 5 during the last financial crises for example.

[workathome]

It's absolutely astounding (now that I know) that people talk about today's P/E without averaging earnings or at least accounting for corporate profit margins http://pragcap.com/when-will-corporate- ... s-contract.

The data is widely published, and it makes sense in a very obvious and simple way.

I've never seen it mentioned wrt retirement until yesterday, but that makes a lot of sense and is really cool to see.

[Papers of Indenture]

My wife and I only net $56,000.00 combined annually so this is a number i'm struggling to pinpoint. I'm thinking 400k as I doubt either of us will quit working forever.

It's going to be tough to do without increasing my earning power. A lot of things could go wrong over 15 years. I'm pondering whether it would be better to just endure a set back by quitting full time work and going back to school full time. But I just finished off my undergrad loans so the idea of pouring more money back into school is tough to swallow.

[workathome]

If 56k is after taxes, it's actually pretty good. Assuming a budget of 19k/year for your family (MMM's "no frills" budget: http://www.mrmoneymustache.com/2014/01/ ... -spending/) you can put-away 37k/year. If you already have 37k saved, continue contributing 3083/month, and compounded it at 2%, you'd have $405k in 9 years. If there's a pullback in the market and you "dollar cost average" and earn an average of more like 4%, you could see 390k in 8 years. If you actually got good at something like value investing and pulled in 6%, you could see 425k in only 7 years.

If you went full-out ERE and only spent 12k/year and earned 4% (and started with the same 37k) you'd have 283k in 5 years, which would give you a "SWR" of 4.2%. Returns might be lower starting out, but maybe you or your wife could also get raises over the next 5 years and hopefully do more buying if/when the market is lower.

[steelerfan]

Our current number would put us in FI range right now of a typical poster's goal in this thread but there is no way we are close to FI given our current spending and the fact that I have 2 kids at home. If the bottom dropped out right now we could liquidate and move to a cheaper locale and live on about 2K per month at 4% WR with a paid off (cheaper) house. Everybody's story is different and not sure this thread is helpful and as someone pointed out it could discourage people from striving for FI. Of course I am 52 so far out of the typical range of the group other than a few veterans (who no doubt far exceed me in NW) I am no longer a wage slave but unfortunately I am a careerist....

[Papers of Indenture]

If 56k is after taxes, it's actually pretty good. Assuming a budget of 19k/year for your family (MMM's "no frills" budget: http://www.mrmoneymustache.com/2014/01/ ... -spending/) you can put-away 37k/year. If you already have 37k saved, continue contributing 3083/month, and compounded it at 2%, you'd have $405k in 9 years. If there's a pullback in the market and you "dollar cost average" and earn an average of more like 4%, you could see 390k in 8 years. If you actually got good at something like value investing and pulled in 6%, you could see 425k in only 7 years.

If you went full-out ERE and only spent 12k/year and earned 4% (and started with the same 37k) you'd have 283k in 5 years, which would give you a "SWR" of 4.2%. Returns might be lower starting out, but maybe you or your wife could also get raises over the next 5 years and hopefully do more buying if/when the market is lower.

I appreciate the pep talk

MMM's 2013 spend of 25k is about where we expect to be this year. That should dip some over time as we become more experienced at budgeting and bargain hunting. 19k is indeed a good number to aim for.

We are renters so housing costs are the biggest single portion of the budget. We're fortunate to have found an apartment (very small) that is only $680/mo. This is really cheap for my region. Not sure how long I can keep the wife happy in 400 square feet though

[jacob]

@theprincereturns - The Shiller P/E uses a 10 year trailing average. Which is what I suggested using.

[Scott 2]

The closer I get, the less I find myself thinking about an absolute number, or concerned with it. Even half way there, I need to generate so little income, what I am doing for money doesn't really matter. I used to view the number as finish line, but when I started to really consider "then what?", the line faded away.

My attention is focused on making my work as engaging and enjoyable as possible. Ideally when there's no rational financial reason to keep working, I am deriving enough other benefits from work, that I don't want to stop.

[Tyler9000]

The closer I get, the less I find myself thinking about an absolute number, or concerned with it.

That's my experience as well. You get caught up in precision early on, but after a while you start to notice the variability in life that gives you a greater appreciation for accuracy. And once you're in the home stretch, the finish line is a lot more wide and gray than it looked from a distance.

[JohnnyH]

The closer I get, the less I find myself thinking about an absolute number, or concerned with it. Even half way there, I need to generate so little income, what I am doing for money doesn't really matter.

Very much this... Living well on little money makes me feel much "safer" than SWR. Even if I lost it all I am confident I could do some labor for a few days a month to pay for my living expenses.

I'm kinda curious at the higher %swr some people who have successfully abandoned their higher paying jobs in exchange for "enjoyable" jobs or none at all.

I always like these success stories too... People who were forced into ERE with 10% SWR, and 2, 5, 20 years later are thriving without having to resort to FT employment.

[1taskaday]

My number is age 50.

Ready or not I'm cutting out at this age.(Will I last until then?)

We should have saved 100,000 for 2 kids college.
100,000 cash lump sum-emergency fund.
DB pensions of approx 3,000 per 4 weeks.

3 paid off properties (includes 1 that we live in) worth at least 600,000.
Holiday rental income of approx 5,000 profit per year on 2 other properties.

Will it be enough?

Who knows-living expenses without mortgages at present approx 25,000 per year for 2 adults and 2 teens.

Scary to think about...

I think that I will never want to work again but I do like learning, challenge and change so who knows...

[Mag]

My target goal was $300k, to pay for my $12k annual spending. I recently achieved that goal, but I might keep working for a while longer and make another $100k just in case.

[tylerrr]

The closer I get, the less I find myself thinking about an absolute number, or concerned with it. Even half way there, I need to generate so little income, what I am doing for money doesn't really matter.

Very much this... Living well on little money makes me feel much "safer" than SWR. Even if I lost it all I am confident I could do some labor for a few days a month to pay for my living expenses.

I'm kinda curious at the higher %swr some people who have successfully abandoned their higher paying jobs in exchange for "enjoyable" jobs or none at all.

I always like these success stories too... People who were forced into ERE with 10% SWR, and 2, 5, 20 years later are thriving without having to resort to FT employment.

I agree, i'm one year away from finish line because i'm just finishing my job to lock my pension. I will have almost 100k in savings at that point. I feel the finish line is wide and flexible at this point because there are so many things i can control to lower my expenses, especially once retired.

Like YMOYL mentions, once you quit your job, you usually become even more efficient and save more money because now you have time to dedicate to efficiency and you don't spend as much money on things you needed with a job. My food bill should go way down because i'm forced to eat out a little bit because of geography. I can't take all my meals with me, only breakfast and sometimes lunch.

In addition, it will be easier to go car-less when i'm not employed by my current job.

You have more TIME to shop for food deals, clothing deals, free stuff, etc. and you have more TIME to build up skills like bike maintenance, construction, home repair, etc. More TIME to cook for yourself, give yourself haircuts, do your laundry, make your own coffee, etc. etc. etc.

These are just some examples of why I think people actually start saving even more money once they are retired.

[JamesR]

I am 32 years old, and I am starting from nearly zero and saving approx. $44k/year. My number will be based on two things: $500-600/mo spending, and a willingness to work on side income. This means I would probably aim for 5% or even 6% SWR level, and just make up the difference.

So 6% at $600/mo is $120k. That's probably my number, and I likely can get there within 2.5 years.

Once I ERE, I can go back to travelling/living abroad. I could withdraw 3% ($300/mo), and find ways to earn an extra $300. This would include freelancing work, as well as building websites & writing books, etc. Excess income would obviously go back into investments and start increasing my margin of error right away.