Is a million enough for early retirement?

Dh6

Another thing to consider, ( I’m the same age as you Maxi ) if you’re looking to retire around 50 your children will only be teenagers. 

I’d like to retire around 50 also but my son, who’s 7, has it in his mind that he wants to take over my business.

If that’s the case I may be spending my early 50’s working with my son showing him the ropes. 

I’m not sure how the teenage mind would work having to go out to work/university while their 50 year old father is retired and waving them off every morning before putting his feet up on the couch.

DH

Thrugelmir

BritishInvestor said:

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. 

Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months. 

£ has already recovered 17% in just 3 months since it's low point in December 2020. Currencies I suspect are far more volatile than you realise. 

zagfles

bostonerimus said:

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.

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, it's like buying one company's shares instead of a fund. Also an illiquid investment, one you can't partially sell, and if you want to fully sell it could take months, particularly if you have to give the tenant notice.

As well as vacancies, there's the risk of unexpected maintenance costs, or a bad tenant that ignores any rules about smoking, pets etc and damages the property, or refuses to pay rent and you have to go through a long convoluted costly legal process to get them out which apparently takes around 6 months, during which time you get no rent and they'll probably trash the place.

0% risk? I don't think so. Personally, I sleep much better at night with a diverse equity portfolio than I ever would as a landlord!

bostonerimus

zagfles said:

bostonerimus said:

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.

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, it's like buying one company's shares instead of a fund. Also an illiquid investment, one you can't partially sell, and if you want to fully sell it could take months, particularly if you have to give the tenant notice.

As well as vacancies, there's the risk of unexpected maintenance costs, or a bad tenant that ignores any rules about smoking, pets etc and damages the property, or refuses to pay rent and you have to go through a long convoluted costly legal process to get them out which apparently takes around 6 months, during which time you get no rent and they'll probably trash the place.

0% risk? I don't think so. Personally, I sleep much better at night with a diverse equity portfolio than I ever would as a landlord!

Maybe not zero risk exactly, but a different risk from my equities and bonds. I bought a nice flat in a great neighbourhood and the rental market is very strong where I live and I've always had good long term tenants. After expenses and taxes the rent is returning  6% of the current value of the apartment and the capital appreciation has been 5% a year over 24 years so it's basically tripled in value. Also I don't pay much tax on the rental income because of depreciation and deductions, but that will come to an end in three years.

GunJack

zagfles said:

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, 

However, isn't boston living in the US? Where rentals seem to be far more stable & common than in the UK?

zagfles

bostonerimus said:

zagfles said:

bostonerimus said:

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.

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, it's like buying one company's shares instead of a fund. Also an illiquid investment, one you can't partially sell, and if you want to fully sell it could take months, particularly if you have to give the tenant notice.

As well as vacancies, there's the risk of unexpected maintenance costs, or a bad tenant that ignores any rules about smoking, pets etc and damages the property, or refuses to pay rent and you have to go through a long convoluted costly legal process to get them out which apparently takes around 6 months, during which time you get no rent and they'll probably trash the place.

0% risk? I don't think so. Personally, I sleep much better at night with a diverse equity portfolio than I ever would as a landlord!

Maybe not zero risk exactly, but a different risk from my equities and bonds. I bought a nice flat in a great neighbourhood and the rental market is very strong where I live and I've always had good long term tenants. After expenses and taxes the rent is returning  6% of the current value of the apartment and the capital appreciation has been 5% a year over 24 years so it's basically tripled in value. Also I don't pay much tax on the rental income because of depreciation and deductions, but that will come to an end in three years.

As with buying a shares in a single company, you can get lucky and it can soar in value. But it's certainly very risky. Property prices are more stable than shares in general, but owning a single one comes with local market risks as well as global, for instance if some bail hostel opens nearby, the area gets a reputation for drugs, or some development that blights the area, or simply the area loses its "trendyness". Plus if you gear the investment, something very often done with property investments but rarely for equity investments, you magnify the risk.

Personally the only way I'd invest in property would be through a property fund that diversifies risk. With the added bonus that a property fund isn't going to phone you at 3am saying the toilet won't flush

zagfles

GunJack said:

zagfles said:

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, 

However, isn't boston living in the US? Where rentals seem to be far more stable & common than in the UK?

Don't know, this is UK forum so I'd assumed he/she was in the UK. Mind you it was US property price plummets that led to the global financial crisis!

BritishInvestor

Thrugelmir said:

BritishInvestor said:

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. 

Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months. 

£ has already recovered 17% in just 3 months since it's low point in December 2020. Currencies I suspect are far more volatile than you realise. 

"Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months"
I'm not sure what this is in reply to?
"£ has already recovered 17% in just 3 months since it's low point in December 2020."
Can I please double-check what that is in relation to?

ErinGoBrath

zagfles said:

GunJack said:

zagfles said:

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, 

However, isn't boston living in the US? Where rentals seem to be far more stable & common than in the UK?

Don't know, this is UK forum so I'd assumed he/she was in the UK. Mind you it was US property price plummets that led to the global financial crisis!

Maybe it is Boston, Lincolnshire?

Thrugelmir

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

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. 

Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months. 

£ has already recovered 17% in just 3 months since it's low point in December 2020. Currencies I suspect are far more volatile than you realise. 

"Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months"
I'm not sure what this is in reply to?
"£ has already recovered 17% in just 3 months since it's low point in December 2020."
Can I please double-check what that is in relation to?

•  not forgetting the bond part of the portfolio is (typically) hedged.

• I would suggest currency volatility is second-order vs equity volatility.