Lance --- you lucky dog you!! I like the name FurKids!! LOL - Perfect description.
I just went thru this discussion with one of my buddies. He has extremely modest needs... was doing "fine" on just a union pension / SS / Savings account. House had a very small mortgage that he'd taken out to make some upgrades.... no other debt. Overall a really nice condition financially. Then came some new dough. That needed to be invested... he's single. One kid. So far so good. But he's very active - and finally wanted to be more like "me" (that's what he kept telling me). He also wanted to help "the kid" pay off his house etc.... which I advised AGAINST.
So let me tell you what I told him.
Let's make a plan to invest "X" dollars (seven figures) and see what that looks like on paper - using just dividend paying stocks.... And then figuring that you'll have 20% dividend taxes.... So we did all that - and Schwab now transfers automatically $6,000 a month. HE THINKS HE'S RICH NOW!! And frankly - compared to most people - he is doing pretty dang well!!! Since he was doing fine with what he had coming in -- this is all play money... that that play money is being played with I tell ya!!
A couple of things -- he's too old to want to travel anymore... so that expense is not part of his planning. People kind to fail to think about "trips" (they're no longer vacations cause you don't work!). Hotels and all that are expensive!!
Anyway let's get back on track....
What I told him to do is what I do. On a good year -- I skim some of the big fat gains... in the bad or down or flat years - I don't take anything extra other than just the income. So what's that look like?? On a million bucks invested - on a good year maybe 12 or 15% growth. Dude! That's like 120 grand!! So if you take HALF that - that's 60 grand gross. That's an extra 5 grand a month gross... There's the new car -- or a month in Hawaii... or the fishing boat.... or major home repairs.
Now -- if you really do the math -- and calc how long a guy is going to live.... a guy that's 65 maybe lives 30 more years?? IDK... that's the hard part!! You can't drain the bank and you MUST leave some growth in there -- otherwise you're going to run out of money. But not really..... because you won't buy a new car when you're 85 -- and who cares about going anywhere when you're 90.... so really -- expenses like that kind of dwindle. But what you will have is increases medical expenses! Even with good insurance - medical is going to play a MAJOR role in your expenses.
The "pros" will tell you that you can plan to take out 4% of your capital each year... so on a million bucks - that's 40 grand... and it should replenish that with "growth" in the good years. If you're in decent dividend stocks - they should also be increasing the dividend payout percentage - so your income should be keeping abreast of inflation.
Here's what worries me.... I look back at what I paid for stuff 30 years ago -- and it was OMG cheap! Meals - movies - cars - clothing.... it cost NOTHING compared to what that stuff costs today.... so we have to fast forward 30 years of retirement -- and we know stuff is going to go up. What I think happens is we just use LESS STUFF as we get older. We just won't want stuff.... we'll have been there and done that.
I think it's the FIRST 10 years of retirement that might prove to be the greatest challenge. I know that at 61 -- I have LOTS of things I plan to do or I am doing. So those that say it costs less to be retired - I say BS!! Costs more to be retired because you have all this time on your hands and you want to go do things! A round of golf here is $135 -- play that twice a week and you've blown a grand just on the golf -- add lunches - beer -- and a bucket of balls... it ain't cheap!
I think this is a fundamental reason people plan to MOVE in retirement to somewhere that costs less to live. A resident of Indian Wells for example - plays golf for $35 !!! But then - if I lived there and it was that cheap - I might play every day!!
Lance -- there is NO ANSWER which is why nobody can tell you what the magic number is. I think you play it as it comes. In a good year you do some extra - in a bad year you suck it up and live within your means. At least - that's the way I've done it for the past 23 years.
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