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Question-retiring early

March 12th, 2014 at 12:23 pm

Question guys. and I know there is all sorts of advice on this on the web but that pertains mostly to saving $ for retirement and how much to save. but trying to figure if I have monthly income how much to save and I guess trying to figure out what I want too..

I was at a get together last weekend and 4-5 people were RETIRING at 53 or something. They all worked at a company their whole life and had pensions etc.

I do not have a pension. but I want to retire early..

So.. if I were to retire in 5 years (is that realistic? 7 years??) I figure I need the house paid off, emergency funds built for me and rentals, the rentals paid off and how much in the bank??

Rentals will throw off between $5500-6000/month NET.

Monthly estimated costs (w house paid off). These are estimated high and not my true costs now

$1200 real estate taxes
$450 health insurance
$400 food/household
$400 travel entertainment misc
$350 gas for car
$100 house insurance
$350 utilities
$100 phone
$220 cable/internet
$350 car allowance (to save for car or for repairs)
$300 misc??

$4220 a month.

I do not want to retire and do nothing. more want to feel I do not 'have to work' making a big time income. Always been the thought but seeing these guys retire on pensions made me think about it much stronger.

So how much do you thikn would be a fair savings amount? $500k, $750 (to add to my monthly net income)

thanks for any and all feedback

I know I have low savings right now but I will work on that once I have a #. My original goal was $300k in 5 years I think I want more than that.

11 Responses to “Question-retiring early”

  1. Another Reader Says:

    For paper assets, the rule of thumb is a 4 percent safe withdrawal rate per year for a 30 year retirement. For a longer retirement, the general rule is 3 to 3.5 percent. The idea is to take the initial amount out the first year and index up for inflation after that. So if you have a $1M portfolio, you withdraw $40k the first year, and index that initial amount every year by the inflation rate.

    For more information on early retirement finances, try early-retirement.org, the Mr. Money Mustache blog and forums, Darrow Kirkpatrick's Can I Retire Yet blog, and the Mad Fientist blog. Also read the bogleheads investing wiki's and JL Collins' stock investing series. There are many others, a lot of which are referenced and/or linked in these sites.

  2. TashaC. Says:

    I don't know what those numbers need to be- but its good to be thinking of it and planning. Keep in mind that rentals have a shelf life- everything needs to be repaired/replaced at some point. I try to keep a revolving repair fund for each property that contains enough money for the most expensive repair possible. Like the roof, or septic replacement.

    Also maybe consider taking a year off before you retire. To get all the adventures out of your system- then in 9-10 months you might be hungry too return to work.

    I feel like I go in 3 yr cycles. I work for 3-4 yrs and then quit and take time off. In a year or so I start looking for a new job.

  3. TashaC. Says:

    Taking a year or so "sabbatical" can be much cheaper than retiring early.

  4. PatientSaver Says:

    I would suggest crunching your numbers using the T. Rowe Price or Vanguard retirement calculator. There are so many variables that even with the info you provided, it would be difficult for anyone here to offer you an accurate number.

  5. Another Reader Says:

    Unfortunately, the standard retirement calculators don't work well with real estate income. You have to separate the paper portfolio from the real estate portfolio. Make a conservative estimate of the net rental income and go from there.

    The OP's situation is also complicated by retiring before she is eligible for Social Security.

    The early retirement sites will probably be helpful in your situation. I think the mindset of the participants in the forums at those sites would be similar to yours. The discussions are about investing a high percentage of your income, using leverage to acquire income producing assets, and retiring much earlier than most folks.

    There's a calculator used by a lot of those folks called FIREcalc that is somewhat useful. You will find references and links if you want to try it out.

  6. snafu Says:

    Retirement isn't a number because we all have different values and lifestyles. Along with having a plan to fund retirement you need a plan to stay as healthy as possible since that can unhinge everything. Most retirees need a plan, 1st 5 yrs, next 10 yrs. etc. So many retirees return to work volunteered or paid employment because they're bored.

  7. Rachael777 Says:

    Thanks everyone. I really like the idea of the 'sabbatical'.. VERY good idea and intriguing and I am sure I will want to return to work in sometthing. Interesting. Will also refer to those websites. I am working on builidng my $36k rental fund now and the plan is to keep it at that and monitor the costly things (roofs etc) so I already have money set aside.. Great ideas.. thanks guys. I think though I am stuck with figuring out how much money per year I will need and does the 4% withdrawal rate assume that comes from interest or we are touching the principal each year?

  8. Another Reader Says:

    The four percent means decumulation over time. Some years you will make more than you take out, some years less. What the calculators do is analyze the past behavior of asset markets and apply all the different periods from the past to determine if you would end with anything left at the end of the retirement period assumed under those scenarios (Monte Carlo simulation). So if the calculator gives you a 90 percent success ratio, in 90 percent of the calculations you end up with a positive value at the end. Ten percent of the time you run out of money.

    I personally am not convinced that past performance is any more predictive of future performance in these models than it is of anything else in asset markets. My retirement is not only not built on decumulation, it's built on taking part of the income from the assets for expenses and reinvesting the remainder to accumulate more assets.

    Furthermore, these models do not consider taxes or leverage. They are designed for people that hold stocks and bonds, not real estate.

  9. Rachael777 Says:

    Question to another reader. Thsi may seem crazy (but have to learn somehow).. Above you were saying 4% year 1 one ($40k) then every other year 4% PLUS inflation. If inflation runs at 3%.. this means that in year 2 we are taking 7% ($70k), year 3 10% ($100k) , year 4 13% $130k)etc .. and that does not seem right. If that was the plan. I can see how folks would run out of money.. is my assumption for inflation wrong? I am NOT assuming any interest return (which would help some) but still seems like the withdrawl rate goes up fairly fast. Thoughts?

  10. Another Reader Says:

    If you take $40,000 the first year, and inflation is 2 percent, you take $40,000 x 1.02, or $40,800 the second year. If inflation is 2 percent during the second year, you take out $40,000 x 1,02 x 1.02, or $41,616 in the third year. The idea is the amount you take out covers the same items every year, adjusted for inflation.

    The asset markets generally increase over time, but values can go down. What the models assume is you take out the base 4 percent, in this case $40,000, adjusted up for inflation every year. When the markets go up by more than what you take out, assets increase. When the market goes down or increases by less than the rate of inflation, you eat into the principal. Make sense?

  11. Rachael777 Says:

    I get it!! Makes so much more sense (hellooo?) I know something was wrong. I have it now.. thanks so much for the quick explanation. Smile

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