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Is it this simple? Retirement planning.

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  • Is it this simple? Retirement planning.

    So approaching 50 next year and thinking things out.

    Stats:
    A little over 2.6 mil total invested in market. ~780k in 401k all in mutual funds; ~ 550k in IRA (mostly Roth); 1.2 mil in taxable account mostly stocks; 60k in HSA, 20k in 529. With cars, home equity and cash add up to around 3.3 million overall.

    If I work full time for the next 6 years and add the 401k and IRA, not touch my investment the ‘online calculators’ give me around 5 million in money, at an average return of 9%. Not counting cash or home equity here, strictly market. 401k is usually 19 to 20k from me and my practice pays the other 35k, IRA would be back door for me and spouse (total around 70k a year). Basically adding about 31 to 32k of my own money each year. I realize these numbers aren’t exact as the amount you can contribute change every few years. Does this mean I can ‘blow’ the rest of my income after contributing the IRA and 401k and still end up with 5mil in 6 years. If the average return in less than 9, I could end up with 4 to 4.5 million range, still not bad. It seems that investment return rate and time are way more important than contributing more money. If I do the calculation with adding 40k additional money each year, the final number isn’t affected all that much. But if I change the time of investment or return rate by a few, it makes huge differences. So rather than adding more money, I would like to spend it in the now.

    I currently make about 600k and hope to go half time in 6 years making around 200 to 250k. The ‘5 million’ or so that I should have in 6 years should keep growing if untouched to about 7.5 million when I am around 60 (with no additional contribution). I would then fully retire at that point and start withdrawing from the 7 million. At 4%, that’s over 250k a year pre tax; basically half time working salary. And in another 10 years, I collect SS.

    I’ve never talked to a financial advisor and so not sure if what I’m typing up is sound??

    I guess I’m asking, does a few paragraph correctly summarize what my next 20 year financial plan/goal is?

    Thoughts and comments are appreciated. For instance how do you account for inflation? In 10 years will that 7 million dollar be that much? 25x my salary is 15 million. I doubt I need that much to retire completely. I know someone is going to say, save more of your money in the next 5 years and retire early, but I think I’m just not there yet mentally to walk away. I think I can do it full time at least for another 5 years. And definitely half time. I like to work hard and play hard. I don’t want to be 65, all grey haired with 15 million dollars but not have the desire nor physical strength to enjoy the money I made. Trying to balance wealth building but at the same time not missing out on things. I have no plans to leave ‘millions’ to my kid. I’ll leave some, but not 7 millions. Seems to me that the 4% rule is meant to keep your principle intact (in my example 7 million). I would be fine going to the grave with 2 million left.




  • #2
    Originally posted by STATscans View Post
    So approaching 50 next year and thinking things out.

    Stats:
    A little over 2.6 mil total invested in market. ~780k in 401k all in mutual funds; ~ 550k in IRA (mostly Roth); 1.2 mil in taxable account mostly stocks; 60k in HSA, 20k in 529. With cars, home equity and cash add up to around 3.3 million overall.

    If I work full time for the next 6 years and add the 401k and IRA, not touch my investment the ‘online calculators’ give me around 5 million in money, at an average return of 9%. Not counting cash or home equity here, strictly market. 401k is usually 19 to 20k from me and my practice pays the other 35k, IRA would be back door for me and spouse (total around 70k a year). Basically adding about 31 to 32k of my own money each year. I realize these numbers aren’t exact as the amount you can contribute change every few years. Does this mean I can ‘blow’ the rest of my income after contributing the IRA and 401k and still end up with 5mil in 6 years. If the average return in less than 9, I could end up with 4 to 4.5 million range, still not bad. It seems that investment return rate and time are way more important than contributing more money. If I do the calculation with adding 40k additional money each year, the final number isn’t affected all that much. But if I change the time of investment or return rate by a few, it makes huge differences. So rather than adding more money, I would like to spend it in the now.

    I currently make about 600k and hope to go half time in 6 years making around 200 to 250k. The ‘5 million’ or so that I should have in 6 years should keep growing if untouched to about 7.5 million when I am around 60 (with no additional contribution). I would then fully retire at that point and start withdrawing from the 7 million. At 4%, that’s over 250k a year pre tax; basically half time working salary. And in another 10 years, I collect SS.

    I’ve never talked to a financial advisor and so not sure if what I’m typing up is sound??

    I guess I’m asking, does a few paragraph correctly summarize what my next 20 year financial plan/goal is?

    Thoughts and comments are appreciated. For instance how do you account for inflation? In 10 years will that 7 million dollar be that much? 25x my salary is 15 million. I doubt I need that much to retire completely. I know someone is going to say, save more of your money in the next 5 years and retire early, but I think I’m just not there yet mentally to walk away. I think I can do it full time at least for another 5 years. And definitely half time. I like to work hard and play hard. I don’t want to be 65, all grey haired with 15 million dollars but not have the desire nor physical strength to enjoy the money I made. Trying to balance wealth building but at the same time not missing out on things. I have no plans to leave ‘millions’ to my kid. I’ll leave some, but not 7 millions. Seems to me that the 4% rule is meant to keep your principle intact (in my example 7 million). I would be fine going to the grave with 2 million left.


    On quick glance some thoughts:

    1. Don’t count on a 9% return forever. The last 10 years have been ridiculous and valuations are high.
    I would expect 4-7% and be happy with anything over. The next 10 years could be painful and have a negative return. no one knows. 9% is too hopeful.

    2. If forced I would use 3.5% for a safe withdrawal rate (not 4%)

    3. Saving too much is a better problem than too little.
    I would save more than you think you need.

    4. When it comes time to pull the RE trigger have a plan for sequence of returns risk (SORR)
    Cash reserve etc.

    5. More on SORR and withdrawal rates:
    https://www.google.com/amp/s/earlyre...-series/%3famp

    Comment


    • #3
      Yeah I calculate 6-7% returns for planning.

      If RE calculate 3% swr to err on the side of caution. This is of your liquid net worth and not total.

      You have a big salary now but you also pay a lot in taxes and retirement contributions.

      Figure out a realistic spend in retirement and plan from there. Make sure this includes taxes and health insurance. Also make sure this includes any additional spending you may do because you have a lot more free time.

      Once RE have a plan for cash flow.

      Once you figure out/hit your number then yeah you can slow down or increase your lifestyle. Just keep in mind once you increase your lifestyle it changes your calculations and it’s hard to pull back.

      As for living it up now, make calculated increases in lifestyle. Allot yourself a certain amount increase in lifestyle purchases slowly.

      Comment


      • #4
        Make sure you look at a few calculators.

        try
        cfiresim
        firecalc.

        market goes up and it goes down, so be prepared for a nonlinear path for your nest egg. Your asset allocation will affect both your volatility and surprisingly less, your total return.

        Comment


        • #5
          Yes, saving at the beginning of the investment journey is how you will build a nest egg. Compound interest is how you will build the nest egg later in the journey, where you are at now.

          I also would advise a 3-3.5% withdrawal rate and personally expect 6% returns rather than higher. That said, the return could be lower and higher in the future. No one knows. Most people figure valuations are artificially high and so it's a greater than 50/50 chance that it'll be lower in the future. I do not believe that. I think it's a 50% chance it could be lower and 50% chance it could be higher. No more no less. But for you, 9% probably is too high because you need to worry about SOAR and therefore should make your asset allocation more conservative as you get closer to age 60. This will pull your overall return down but the upside for you is you're likely locking in gains.

          Nothing wrong with blowing your income at this point because you're close to your goal. The more you save the more you'll have and the more you save the faster you'll get to your goal, but I don't think you need to follow the 20% gross income to retirement rule anymore if that's going to give you a nest egg that is much larger than expected. You only get one life and you don't want to look back and decide you could have spent more in your 50s to enjoy life.

          Make a plan on what you are going to do to reduce RMDs (i.e. do some roth conversions)

          Job very well done I say.

          Comment


          • #6
            FWIW if you are invested aggressively I also thin 6-7% is a good return estimation for planning HOWEVER
            you should also game out what happens with much, much better returns e.g. 11%.
            we are correct to talk about and worry about sequence of returns risk, but if recent history is any guide the converse is much more likely -- explosive growth of well invested wealth early in retirement.
            many people on this forum will likely die with massive amounts of money in the bank.

            there is absolutely no, i repeat no, reason to think that the DJIA won't be 100k in 2031.

            Comment


            • #7
              Some good points here. At a certain inflection point your investments massively outperform your work income. When I noticed this for myself I started to cut the number of patients per day and the number of days per week because I could. I would recommend drilling down on your spending to get a better idea of what you might actually spend when retired. This will help you plan. As others have said 9% is too high a return to plan for.

              Comment


              • #8
                I'm intrigued by the Roth amount, given your age and income. Do tell.

                Comment


                • #9
                  If you forecast 9% returns and 3-4% withdrawals, with a good chunk invested your kids will inherit millions. That said, you really need to dig into those percentages as mentioned above.
                  Market returns: Real returns vs nominal returns is the place to start.
                  https://themoneyafrica.medium.com/no...n-a84a10535638
                  9% is nominal and probably influenced by your personal experience. The nominal growth and low inflation since the GFC 2009 seems to be an aberration from a historical perspective.
                  Just understand that and run multiple scenarios long term. 4, 5, or 6% are very possible. Just as 7 to 11% as well. Plan for significantly below, below and average.
                  Plan for the worst and hope for the best.

                  For withdrawal rates, tops down is the 3.5%-4% technique. Bottoms up is to dig into your retirement spending and transition costs (healthcare, taxes, LTC and the normal COL ).
                  See how that matches up as a withdrawal rate.
                  Run your plan for the end of life for you and the spouse. Don’t stop at retirement, life goes on, What you will find is a lot of unknowns.
                  As MPMD indicated is that you will probably end up over saving. Just to be safe.

                  That said, if you hit the 20% retirement savings, I wouldn’t blame you for treating yourself. The caution would be not to inflate the fixed living expenses too much. Discretionary is much easier to cut back if needed.
                  By definition, the crystal ball is cloudy.


                  Comment


                  • #10
                    Originally posted by MPMD View Post
                    FWIW if you are invested aggressively I also thin 6-7% is a good return estimation for planning HOWEVER
                    you should also game out what happens with much, much better returns e.g. 11%.
                    we are correct to talk about and worry about sequence of returns risk, but if recent history is any guide the converse is much more likely -- explosive growth of well invested wealth early in retirement.
                    many people on this forum will likely die with massive amounts of money in the bank.

                    there is absolutely no, i repeat no, reason to think that the DJIA won't be 100k in 2031.
                    I sure hope you are right.

                    Comment


                    • #11
                      Originally posted by Tim View Post
                      Plan for the worst and hope for the best.

                      By definition, the crystal ball is cloudy.
                      That is it in a nutshell 🌰

                      Comment


                      • #12
                        Originally posted by G View Post
                        I'm intrigued by the Roth amount, given your age and income. Do tell.
                        lots of TSLA shares

                        Comment


                        • #13
                          Thanks guys for the comments. I will reevaluate with 5 to 6% average return.

                          Comment


                          • #14
                            Good job OP!
                            -Didn't see retirement spending goal/budget -

                            -ROI: Yes 5% true return (return-inflation) is better planning and for SORR run 0-3% scenarios.

                            Comment


                            • #15
                              Why does everyone on here seem to want to push down the 4% number for RE? I understand that the longer the horizon, the less likely that is to be successful - but I also feel like a doc who has amassed a 7 figure net worth by 40 who wants to punch out early is probably fine with a 5-6% withdrawal rate. If I can live off 6% a year and am unhappy at work, I’m out - sure I could fail RE, but I’d have several years to figure out my next move. Even if I leave clinical medicine in my young 40s, I doubt most people who have amassed that sort of wealth that quickly would be truly retired with absolutely no income for the next 50 years. Plus, a tailwind in the market could push 5% down to 3.5% pretty quick.

                              Comment

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