The other day a reader left the following comment;
I read a lot and figure someone needs $2M to really have a good shot at living well and retiring with few worries. Roger your thoughts?
The reader also shared that he is 58 with the implication that he is close to retirement age. Another reader left a comment on a Seeking Alpha post of mine agreeing that $2 million is the figure. Between the two comments I feel like I am being asked in part for my personal views and choices.
The best generic advice I can give is to live below your means, don't accumulate debt, save a lot and if you ever do need to fund your expenses/lifestyle out of your savings take no more than 1% per quarter. My use of the word generic is not meant as a slight, I believe the above combo is an essential foundation to a successful financial plan and we live by the first three now (we are a few decades from the withdrawal stage).
Assuming the 4% rule, a $2 million portfolio would allow for $80,000 in portfolio withdrawals. Are you then going to assume getting social security or not? How does the $80,000 (plus social security or not) compare with how much you live on now? Not how much you earn but how much you live on.
There are several types of expenses that we have to contend with and try to plan for one way or another. I've written about these before; things that probably can be easily planned, those that cannot and one-offs--things like vet bills, new tires and home repair.
Our recent three foot snow storm lead me to come up with another category which is things we probably will need. At some point I may not be able to shovel out a three foot snow storm. If we want to stay where we are, then at some point we will need either a snow blower or an ATV that we put a plow blade on. These are not disastrous expenses but also not $100 to go to a baseball game either. We have a long uphill driveway which probably rules out a snow blower-- the cheapest option. A more expensive option would be the ATV and blade and an even more expensive option would be moving. Where we are it would not be wise to rely on being able to hire someone to do this for us.
This category is vague and obviously not completely knowable. There is visibility for needing to spend money on snow removal. This will take shape over time and become more visible. For some people there might be visibility for taking in a parent. Figuring out your variables here is obviously very important.
Once you figure your expenses (as best you can) you probably need to figure out what you need to be happy, what that costs and whether you can afford it as you envision or whether you need to make some sort of concession. Maybe you want to spend a month in France but you should really only spend a week. Maybe you want to spend $1000 on World Series tickets when you should really watch on TV from home. The compare and contrast possibilities are endless but you get the idea.
The other day I shared that we spent a lot (relative to us) on our New Zealand trip but that we incurred no debt in doing so which means the trip won't weigh on our finances in the future. The reason to mention this example is that spending on things that then stay with you for a couple of years will obviously add to the monthly financial burden which should be avoided at all cost--my own sense of priority would make an exception for medical events.
It is important for both partners to be on the same page with this issue and I know from professional experience that is not always the case. Getting the monthly nut down, saving a lot and doing some things that cost nothing creates a lot of options for doing other things and going places. We hike a lot and it costs us nothing. We spend a lot of hours on our volunteer endeavors which does not have to cost much if anything.
I also hit this topic with the idea of working much later than 65 or some other traditional retirement age. This will sound snobby but I have developed a low tolerance for staying with a job I don't like. This is a "life's too short" sort of thing. I realize I have been given a luxury that many people do not have but I think many people who read this site may have been given a similar luxury. I have three jobs that I love, two that pay and one that does not. I hope to do all three as long as I possibly can and with Mr. Backhoe as an example that could be a very long time.
This leads me to believe that plenty of people can find something they love that can pay them a little such that it removes some portion of the income burden they would otherwise place on their portfolios. Success here requires thought, time and planning.
I realize that was long winded but it addresses how I personally come at trying to figure this out. My nut is low enough that ex-a medical catastrophe we get by within the 4% rule. Let me be clear this is about living cheaply not having millions in the bank.
In today's dollars how much do you need to feel fulfilled in life and can you make the numbers work? If not, then something will have to give.
