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I've heard some about the 4% "safe" withdrawal rate, and I was just wondering if anyone here has used another metric for knowing when it's time to retire.

I'm probably at around 10% right now. However, my CAGR in 2017 was 57%, and I'm up another 10% so far this year. Don't get me wrong, I don't expect that to be the norm. But I do expect to earn more than 4% on average each year.

I think it's obvious what I'm getting at...I don't see why I should wait until I have 25x yearly expenses to retire. Sure, if a severe market downturn hit in the next year or two, I would have to tighten the belt or maybe even get a part time job. If I'm ok with that, why wait?

Thanks,
Bear
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If I'm ok with that, why wait?

Go for it. Enjoy your retirement.
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Go for it. Enjoy your retirement.

Haha, thanks for the permission.

Bear
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I think it's obvious what I'm getting at...I don't see why I should wait until I have 25x yearly expenses to retire. Sure, if a severe market downturn hit in the next year or two, I would have to tighten the belt or maybe even get a part time job. If I'm ok with that, why wait?

There has been some discussion of this in the past on this and related boards. One often-suggested approach is a tiered system.

Pre-Social-Security (also include any other pensions you will be able to draw on sometime in the future) budget: however much you believe you'll get from Social Security eventually, set aside assets to replace it from actual retirement date to when you'll be able to draw Social Security.

Austerity budget: cheap tiny apartment, doing all your own cooking, the public library a major source of entertainment... to the extent that it's in excess of your pre-Social-Security budget, fund that extremely-safely for at least 25 years.

Comfortable budget: decent living quarters, the occasional movie and dinner out (whatever you would consider one step up from austerity)... fund the additional cost of that safely for 20-25 years.

Living-well budget: not rich, but quite comfortable... fund the additional cost for about 5 fewer years.

Flamboyant budget: twice-a-year cruises, a week in Paris every spring... fund this additional cost for 5-10 years (it gets a boost from the likelihood that you won't live THAT flamboyantly EVERY year). Another approach to this one is to simply demand a certain minimum balance in the tier, and you're free to spend ONLY what's above that balance. So if your investments do well you can take a bunch of cruises, but if not then you stay home until your investments recover.

Now, once you retire, watch those tiers carefully. If one goes broke, you MUST drop down to the next lower tier.
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Now, once you retire, watch those tiers carefully. If one goes broke, you MUST drop down to the next lower tier.

I think that makes a lot of sense, thanks. Maybe the simplified version would be to fund the Austerity budget for 25 or 30 years, retire, and then live Austerely unless/until you your nest egg is up to 25x the comfortable budget (or one of the others).

Bear
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Bear,

warrl hit a lot of good touch points. Lifestyle has a lot to do with it.

The most important point for us pulling the plug 13 year ago was expenses.

We saved every receipt from everything we spent money on. for stuff with no receipt, I made a slip with what it was and an amount. I used a little cardboard box. After the 1st each month, I dumped out last month's slip and sorted them out. I did a rough categorization and put the numbers into a spreadsheet.

I used 2 main areas:

1. Expenses that would continue like food utilities, taxes, etc.

2. Expenses that would stop like work expenses, coffee and lunch, etc

Beyond those 2, I made another column where I knew some things like real estate taxes and food cost would go down.

The categories I used in the 2 areas above were just what you would think: food, clothing, gas and maintenance, utilities, all taxes by type, etc.

This didn't really take much time at all. It wasn't exact but it didn't need to be. However it was surprisingly accurate!

The expense estimates I made are still holding true today. Yes, 13 years later.

IMPORTANT POINT: Knowing a realistic expense level made our decision for us. We built this house, sold the other one and that was it.

We had talked with a planner in 1996 and was disappointed with the approach he gave us. The standard of 75% of wages that he proposed would have delayed our retirement significantly.

If you know your expenses, and I mean KNOW them, you can do this simple math:

Expenses - (SSA, pension) = Shortfall

If 4% of your portfolio will cover the shortfall, you should be Ok.

The more accurate the expenses number is the more confidence you should have for deciding to retire or not.

Remember, retirement is financial independence, not withdrawing from like or even work. Make sure you have a plan for your time. I know people that went gang-busters for 6 months then ran out of things to do.

Does that help you?

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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I used 2 main areas:

1. Expenses that would continue like food utilities, taxes, etc.

2. Expenses that would stop like work expenses, coffee and lunch, etc


Thanks Gene. Yes, one thing I've thought about is, I'll no longer have a 401k contribution deducted from my paycheck...b/c I'll no longer have a paycheck!

Thanks,
Bear
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Yes, one thing I've thought about is, I'll no longer have a 401k contribution deducted from my paycheck...b/c I'll no longer have a paycheck!

Nor will you have OASDI (SS) and Medicare taxes that take 7.65% off the top, at least until you hit the SS limit for the year.

AJ
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I plan to use the IRS Required Minimum Distribution table as a guideline for safe withdrawal rate.
https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

Note these tables change now and then as life expectancies shift.
SubGuy
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