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TheBadger wrote:
In a way, I am implicitly suggesting that there might be more than one test in order to retire and stay retired. Test one we regularly beat to death, e.g. somewhere between 3% & 5% of investable assets can be consumed each year and one can remain highly confident to certain of dying before becoming broke. I am suggesting that test two is some relationship between non-income producing assets & income producing assets, but I don't know where the frontier is.

When applying for mortgage loan approval, most lenders qualify applicants based on not exceeding a ratio of total housing/non-investment debt to income of 33 to 40%. So this probably represents a reasonable limit to what can be carried and still remain economically viable. This level would also represent that at which virtually nothing is being set aside for the future. I am not sure it is reasonable to prescribe a specific test for the level of noninvestment assets. Most of this will be represented by the cost of housing yourself. The ratio of housing cost to total assets will be very high when first starting out but should reduce thereafter. In order to retire early, it would appear difficult to designate a specific ratio beyond saying that noninvestment assets should be kept to a level which does not prevent set aside of at least 10% (and preferably much more) of your income for investment purposes. It is probably easier to look at this from the standpoint of percent of income invested rather than percent spent on housing and toys.

In order to stay retired .....
Test 2: Funds required to acquire and maintain noninvestment assets should not be so large as to cause Test 1 to be violated.


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