Is a million enough for early retirement?

BritishInvestor

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”?

"You think so?"
Yes
"The man who came up with the 4% rule has recently suggested it could be higher"
He didn't say it was a rule, the media did, and it applies to very few people in the real world.
"For those who understand and follow Guyton-Klingon rules,"
I would suggest that few fully understand the potential downsides and when they do, not that many would choose to use it as you might think.

BritishInvestor

Mickey666 said:

shinytop said:

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.

Ah, ok, slightly different definition to mine but I totally get your point.  Based on that definition, then £1m should be able to provide significantly more than £40k per year based on 8% growth and 3% inflation as suggested, though much depends on longevity - which is often the hardest part of the equation to judge.

"Based on that definition, then £1m should be able to provide significantly more than £40k per year"
be very wary of using straight line assumptions.

 " which is often the hardest part of the equation to judge."
One approach is to work out when there is a 10% chance of survival. Very roughly 100 years old.

Thrugelmir

BritishInvestor said:

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”?

"You think so?"
Yes
"The man who came up with the 4% rule has recently suggested it could be higher"
He didn't say it was a rule, the media did, and it applies to very few people in the real world.
"For those who understand and follow Guyton-Klingon rules,"
I would suggest that few fully understand the potential downsides and when they do, not that many would choose to use it as you might think.

Affirmation bias.  

Gets forgotten that much of the early research (1994) was based on a 60/40 portfolio. That continued to work well as bond yield  rates continued their decline over subsequent decades. Likewise the original concept was built to a cover a period of 30 years maximum. For UK investors holding purely US Treasuries isn't an option either. 

IvanOpinion

A million would definitely be plenty for me, however I doubt it would keep Mrs O in the lifestyle she became accustomed too before I could afford it.

cfw1994

BritishInvestor said:

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”?

"You think so?"
Yes
"The man who came up with the 4% rule has recently suggested it could be higher"
He didn't say it was a rule, the media did, and it applies to very few people in the real world.
"For those who understand and follow Guyton-Klingon rules,"
I would suggest that few fully understand the potential downsides and when they do, not that many would choose to use it as you might think.

Conveniently ignoring the last Kitces point that 'being flexible' can be a great enabler for retiring early
& the fact that Mr Bengen suggested it could be *higher*.
US bias?  Sure - that has driven much growth...but then, one can invest beyond the UK......
Yes, yes, currency risk....but if you remained UK-focussed for the past 20 years, I doubt the growth would have supported 4%.   Or more, if you consider fees

NONE of this is an actual: the future is unknown! 

The average inflation may well have been 5.7 over the past 50 years....it was 3.8 over the last 40, & 2.9 over the last 30.   
Will the world return to the early 70s style economy?   
Who knows - this isn't a precise science....but I would suggest the world, especially the financial one, is very different now to how it was even in 1980-1990.
Am I right?  Again, who knows....be flexible, be frugal, live a happy & healthy life

bostonerimus

zagfles said:

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!

While you are earning you should take risk.

I agree that annuities are very bad value for money right now and they can be a complex minefield even at higher rates. For that reason I chose a government job with a good DB pension and worked there for 10 years before retiring and bought a rental apartment long before I retired to provide income. The DB pension is ultimately invested in the markets, but I have the insurance of a government guarantee and the rental income has some risk from vacancy, but the flat has only been unoccupied for 3 months out of 24 years and that was for renovations. I'm an advocate for people getting a base income from low risk non volatile investments like DB pensions, annuities, state pension, quality dividends,  interest and rent and then supplementing it from riskier things. Annuities are a really hard sell right now and saving interest and bond returns are very low so it's tough.

Thrugelmir

cfw1994 said:

BritishInvestor said:

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”?

"You think so?"
Yes
"The man who came up with the 4% rule has recently suggested it could be higher"
He didn't say it was a rule, the media did, and it applies to very few people in the real world.
"For those who understand and follow Guyton-Klingon rules,"
I would suggest that few fully understand the potential downsides and when they do, not that many would choose to use it as you might think.

Conveniently ignoring the last Kitces point that 'being flexible' can be a great enabler for retiring early
& the fact that Mr Bengen suggested it could be *higher*.
US bias?  Sure - that has driven much growth...but then, one can invest beyond the UK......
Yes, yes, currency risk....but if you remained UK-focussed for the past 20 years, I doubt the growth would have supported 4%.   Or more, if you consider fees

NONE of this is an actual: the future is unknown! 

The average inflation may well have been 5.7 over the past 50 years....it was 3.8 over the last 40, & 2.9 over the last 30.   
Will the world return to the early 70s style economy?   
Who knows - this isn't a precise science....but I would suggest the world, especially the financial one, is very different now to how it was even in 1980-1990.
Am I right?  Again, who knows....be flexible, be frugal, live a happy & healthy life

Wasn't possible to directly own US stocks in the 70's. Very different investment world back then.  Japanese equities came first. 

BritishInvestor

cfw1994 said:

BritishInvestor said:

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”?

"You think so?"
Yes
"The man who came up with the 4% rule has recently suggested it could be higher"
He didn't say it was a rule, the media did, and it applies to very few people in the real world.
"For those who understand and follow Guyton-Klingon rules,"
I would suggest that few fully understand the potential downsides and when they do, not that many would choose to use it as you might think.

Conveniently ignoring the last Kitces point that 'being flexible' can be a great enabler for retiring early
& the fact that Mr Bengen suggested it could be *higher*.
US bias?  Sure - that has driven much growth...but then, one can invest beyond the UK......
Yes, yes, currency risk....but if you remained UK-focussed for the past 20 years, I doubt the growth would have supported 4%.   Or more, if you consider fees

NONE of this is an actual: the future is unknown! 

The average inflation may well have been 5.7 over the past 50 years....it was 3.8 over the last 40, & 2.9 over the last 30.   
Will the world return to the early 70s style economy?   
Who knows - this isn't a precise science....but I would suggest the world, especially the financial one, is very different now to how it was even in 1980-1990.
Am I right?  Again, who knows....be flexible, be frugal, live a happy & healthy life

"Conveniently ignoring the last Kitces point that 'being flexible' can be a great enabler for retiring early "
If you fully understand the downsides and are willing to live with that, potentially.
"& the fact that Mr Bengen suggested it could be *higher*"
There has historically been a very wide range of outcomes, but SWR numbers tend to be discussed using historical data, and this is fixed. What happens in the future is speculation, no matter how much we respect Bengen's work.

"US bias?  Sure - that has driven much growth...but then, one can invest beyond the UK......"
But you can't avoid UK inflation. SWRs for this side of the bond tend to be global portfolios blended with UK inflation.
"Yes, yes, currency risk"
Not sure why this is relevant

SouthCoastBoy

Currency risk is relevant as global equities base currency will potentially be in a different currency therefore currency fluctuations matter, for example if you are selling units where a large part of the fund is us equities and dollar goes from $1 to the pound to $2 to the pound and the underlying asset is valued at $10 rather than receiving £10 you would receive £5.

BritishInvestor

SouthCoastBoy said:

Currency risk is relevant as global equities base currency will potentially be in a different currency therefore currency fluctuations matter, for example if you are selling units where a large part of the fund is us equities and dollar goes from $1 to the pound to $2 to the pound and the underlying asset is valued at $10 rather than receiving £10 you would receive £5.

But we're talking a multi-decade retirement (hence short/medium term currency fluctuations aren't a major factor (or haven't been historically) in determining SWR), and also not forgetting the bond part of the portfolio is (typically) hedged.
I would suggest currency volatility is second-order vs equity volatility.