Is a million enough for early retirement?

BritishInvestor

Mickey666 said:

ex-pat_scot said:

£1m at 55 has a nice round feeling to it.
Long term, global equities have returned 8% and inflation 3% - so should be able to support sustainable withdrawal of roughly 4% / £40,000 pa.

Perhaps, but I'd say that unless you have a burning ambition to leave £1m in your will, I wouldn't worry too much about "sustainable withdrawal".  I can't see anything wrong with spending capital, especially in the early years of retirement when you're likely to be fit and healthy enough to enjoy it.

I've always thought that the 'aim of the game' is to die just as we go broke.  The trick is to get the timing right, of course, so prudence generally means we leave something 'up our sleeve' when we finally croak.  But, to my mind, the smaller the better. 

That's not to say we should leave nothing for others, more that we should give it away as soon as we can so they can make the best use of it.  After all, it's quite common for offspring to be in their 60s by the time parents die and while an inheritance is always welcome, by the time someone is 60 they really should be financially independent and set up for their own retirement.  In which case, leaving everything to grandchildren, perhaps even great grandchildren, might be more helpful.

Just IMO of course.

Sustainable withdrawal (rate) includes spending the capital

shinytop

I think having a zero balance just as you take your last breath counts as sustainable.  All returns and capital gone.  Not sustainable is having zero while still alive and having bills to pay.

kuratowski

It doesn't need to last forever, though.  Because you are going to die.  In this context, "sustainable" just means that you die before the money runs out.

bostonerimus

How can it be sustainable if you're spending the capital? 

Sustainable implies forever, ie the money will not run out, whereas spending the capital implies not forever, ie the money will run out eventually.  That might not be a practical problem but it does introduce a 'time' element.

SWR does not exclude spending down capital. The point is that a SWR comes with lots of conditions and caveats ie it has a probability of leaving you with some amount of money given defined, spending, investment returns, inflation and longevity.

ErinGoBrath

At age x I think 100 / (100 - x ) % would be sustainable. So 2.5% at 60, 3.33% at 70 and 4% at 75 would be sustainable. Replace the 100 in the denominator by 90 if you want to take a bit more of a risk, e.g. 4% at 65.

Thrugelmir

ErinGoBrath said:

At age x I think 100 / (100 - x ) % would be sustainable. So 2.5% at 60, 3.33% at 70 and 4% at 75 would be sustainable. Replace the 100 in the denominator by 90 if you want to take a bit more of a risk, e.g. 4% at 65.

Easy to make suggestions when it's someone else's capital that's at risk. 

ErinGoBrath

Thrugelmir said:

ErinGoBrath said:

At age x I think 100 / (100 - x ) % would be sustainable. So 2.5% at 60, 3.33% at 70 and 4% at 75 would be sustainable. Replace the 100 in the denominator by 90 if you want to take a bit more of a risk, e.g. 4% at 65.

Easy to make suggestions when it's someone else's capital that's at risk. 

I can only make suggestions as I do not have the necessary qualifications to give advice.

bostonerimus

ErinGoBrath said:

Thrugelmir said:

ErinGoBrath said:

At age x I think 100 / (100 - x ) % would be sustainable. So 2.5% at 60, 3.33% at 70 and 4% at 75 would be sustainable. Replace the 100 in the denominator by 90 if you want to take a bit more of a risk, e.g. 4% at 65.

Easy to make suggestions when it's someone else's capital that's at risk. 

I can only make suggestions as I do not have the necessary qualifications to give advice.

I wouldn't take the advice of many people who are officially qualified to give it.

ErinGoBrath

bostonerimus said:

ErinGoBrath said:

Thrugelmir said:

ErinGoBrath said:

At age x I think 100 / (100 - x ) % would be sustainable. So 2.5% at 60, 3.33% at 70 and 4% at 75 would be sustainable. Replace the 100 in the denominator by 90 if you want to take a bit more of a risk, e.g. 4% at 65.

Easy to make suggestions when it's someone else's capital that's at risk. 

I can only make suggestions as I do not have the necessary qualifications to give advice.

I wouldn't take the advice of many people who are officially qualified to give it.

Fair point well made.

cfw1994

BritishInvestor said:

ex-pat_scot said:

£1m at 55 has a nice round feeling to it.
Long term, global equities have returned 8% and inflation 3% - so should be able to support sustainable withdrawal of roughly 4% / £40,000 pa.
That's the simple high level view.
There are realms of threads on safe withdrawal rates, sequence of return risks etc that caution against aggressive depletion of funds. You will also need to be mindful of costs, which can drag 0.5% off your annual returns as a minimum.
It's hard to know where you are now and where you will be in your life at 55, never mind what your "number" is for required spending.  All of these need to be fed into the mix.

For me, £1m feels enough.
Or £1.073m or whatever the LTA might be. It doesnt have to be an exact science.
My broad plan is to get close to LTA in 3 years' time, when I hit 55.
At that point, one will be finished uni; two at uni (requiring £500pm each parental contribution towards accommodation costs), and one in private school with a year remaining before A-levels and then university. 
There are lots of arguments on why "more" would be better, naturally, to cover house deposits, car purchases, student loan costs etc etc. The list could go on (and on)- children will soak up every penny and more, whether those pennies are "spare" or not.

I guarantee that when I hit 55, my pot will not be as I have calculated. Frankly it doesn't matter. I'll get to that point and ponder what life is throwing at us, what the finances look like, and stop / change / continue / adapt depending on circumstances.
It's enough to have a broad plan and take comfort that the basics are in place, and that the plan can be refined as the milestones approach.

Whatever, £1m is a nice vantage point to consider one's future. Most people are way off that.

so should be able to support sustainable withdrawal of roughly 4% / £40,000 pa.
Finishing at age 55? That's punchy.

Punchy?  You think so?
Sounds to me like the writings of someone who has a decent plan to me.  

Remember ex-pat_scot added “ the plan can be refined as the milestones approach”.

The man who came up with the 4% rule has recently suggested it could be higher: https://www.marketwatch.com/story/the-inventor-of-the-4-rule-just-changed-it-11603380557
For those who understand and follow Guyton-Klingon rules, that start point could be as high as 5.2-5.6%
As Kitces put it, a 50% probability of success is likely enough if the person can adjust as they move on https://www.kitces.com/blog/monte-carlo-retirement-projection-probability-success-adjustment-minimum-odds/

Why is 4% “punchy”?