Is a million enough for early retirement?

zagfles

cfw1994 said:

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”?

As usual, US articles based on the US market. If you bother looking outside the US, 4% is optimistic

https://retirementresearcher.com/4-rule-work-around-world/

Parking_Trouble

Have I missed something?
How old is the OP and his wife? When are they each planning to retire?
Another 22 years before the first child leaves Uni and hopefully starts earning. Maybe some siblings for child 1?
Will the tax breaks still be the same for pension savers?
When will state pension kick in?
£1m might seem enough today but what will it be worth in real terms in 15, 20, 25 years time?

MaxiRobriguez

Parking_Trouble said:

Have I missed something?
How old is the OP and his wife? When are they each planning to retire?
Another 22 years before the first child leaves Uni and hopefully starts earning. Maybe some siblings for child 1?
Will the tax breaks still be the same for pension savers?
When will state pension kick in?
£1m might seem enough today but what will it be worth in real terms in 15, 20, 25 years time?

We're both 33 and expecting/hoping for a second child in a couple of years. £1m was in today's money - ie, factoring in inflation (or trying to, at least). Forecasted state pension from 68 but who knows eh?

Would like to retire around 50. Wife doesn't have a target date yet but I assume she would also like the option of early retirement if it can be done. 

Obviously a lot can change in that timeframe - not taking anything for granted.

m_c_s

With 17 yrs to retirement you also have scope to make some significant changes to your strategy on the way. It would be prudent to review the strategy every 5 years so that you take stock and intervene if it is going off course. The last 5 to 7 years may offer little scope to make significant changes other than to allow more time before retiring.

Good luck. 

ErinGoBrath

I hope to retire at 55 in 2025 but even with decent assets by then i think it is unlikely that i can do this.

SouthCoastBoy

zagfles said:

Thrugelmir said:

ex-pat_scot said:

Long term, global equities have returned 8% and inflation 3% 

Investors generally don't have the benefit of a 120 year time frame. To quote the Credit Suisse year book. 

" Consider, for example, an investor at the start of 2000 who looked back over the previous twenty years, regarding this as “long-run” history, and hence providing guidance for the future. At that point in time, the historical real annualised return on global equities over the previous 20 years had been 10.5%. But, over the next decade, our investor would have earned a negative real return on world stocks of −0.6% per annum."

(For a US investor trading in US$). 


Myths are too easily borne out of misinformation and broad generalisations. That become increasingly diluted as they are passed on. 

Plus over the long term (100 years or so) historic average inflation was something like 5.5%

Using the BoE Inflation calculator, https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator, inflation has averaged 3.9% per year over the last 100 years.

BritishInvestor

Mickey666 said:

BritishInvestor said:

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

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.

 

Correct, there is a time element, which is why many people might come unstuck if they base their retirement planning on the infamous 4% rule of thumb. So for example, a 30 year SWR of 3.4% could reduce to below 3% if extended out to 44 years (which might be prudent if finishing at 55). 

zagfles

SouthCoastBoy said:

zagfles said:

Thrugelmir said:

ex-pat_scot said:

Long term, global equities have returned 8% and inflation 3% 

Investors generally don't have the benefit of a 120 year time frame. To quote the Credit Suisse year book. 

" Consider, for example, an investor at the start of 2000 who looked back over the previous twenty years, regarding this as “long-run” history, and hence providing guidance for the future. At that point in time, the historical real annualised return on global equities over the previous 20 years had been 10.5%. But, over the next decade, our investor would have earned a negative real return on world stocks of −0.6% per annum."

(For a US investor trading in US$). 


Myths are too easily borne out of misinformation and broad generalisations. That become increasingly diluted as they are passed on. 

Plus over the long term (100 years or so) historic average inflation was something like 5.5%

Using the BoE Inflation calculator, https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator, inflation has averaged 3.9% per year over the last 100 years.

Ah yes apologies - last time I worked it out it was only 50 years not 100. Over the last 50 years average inflation was 5.7%.

bostonerimus

cfw1994 said:

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”?

Various withdrawal and asset allocation strategies can produce sustainable withdrawal rates higher than 4%, but these are just models and when you have to do things for real your path will not be simple or smooth. I would not even consider any set up with only a 50% probability of success, the usual threshold is 95% success rate for historical parameters. How much risk you are willing or able to take on is a very personal thing...for me it was 0% as I decided long ago that I was not going to rely directly on the stock or bond markets for my retirement income. I was very glad of that last year when the markets crashed and I get the feeling that I will be again.

zagfles

bostonerimus said:

cfw1994 said:

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”?

Various withdrawal and asset allocation strategies can produce sustainable withdrawal rates higher than 4%, but these are just models and when you have to do things for real your path will not be simple or smooth. I would not even consider any set up with only a 50% probability of success, the usual threshold is 95% success rate for historical parameters. How much risk you are willing or able to take on is a very personal thing...for me it was 0% as I decided long ago that I was not going to rely directly on the stock or bond markets for my retirement income. I was very glad of that last year when the markets crashed and I get the feeling that I will be again.

The trouble is the only way to get close to 0% risk is buying an index linked annuity, and the rates for those are appaling. A million would get you about £20k pa at 60, or less if you want spouse benefit. And if you took 0% risk during the accumulation phase too, you'd have nowhere near a million anyway.

When faced with that, even the most risk averse often decide to take some risk!