I listen to a lot of podcasts on financial independence, investing and early retirement. Today I listened to one and I was shocked at the podcaster’s response to a question. I do not know this podcaster personally but I have listened to many of her podcasts and I think she is bright, knowledgeable and very entertaining. Also, I know myself well enough to know that just because I disagree with someone doesn’t mean they are wrong, so let me paraphrase this person’s question and the podcaster’s answer and you tell me if you think she missed it or if I’m just out of my mind. Because I am not going to throw mud at someone I enjoy listening to I’m going to call my unnamed and androgynous podcaster Heather and I’ll call the person who asked her a question Seth.
Seth from San Francisco called in to her show and gave Heather these facts. He and his wife have no kids and a $400,000 combined income. They have a paid for house or condo worth $300,000 and no debt of any kind. They have $2.6 Million dollars in investments and savings and will grow that by another $400,000 by the time they reach their planned retirement age of 52 in four years. About half of the money is in tax deferred accounts and the other half is in Roth and taxable accounts. They will be able to access over a million dollars of the money with no age restrictions and the rest will be available when they reach 59.5 years of age. In four years they plan to retire early and will sell their place and move to a low cost of living area and use the sale proceeds to purchase another home. They can live comfortably on $50,000 per year plus whatever health insurance costs. Seth’s question to Heather was, “Is $3 million enough to retire on at age 52?”
Now as a listener to this podcast at that point I did what you do, I immediately tried to guess the expert’s answer before she revealed it. And again, like you, I mentally reviewed the dozens of podcasts and blog posts I have read where people gave their “number”, the magic amount they had determined would fund the rest of their lives without working, at the standard of living they wanted. These are usually based on multiplying the annual living cost of the family by 25. This in turn is based on studies that show you can withdraw an inflation adjusted 4% of your investments every year and generally you won’t run out of money either for 30 years or probably forever.
About equal numbers of people seem to think you can safely pull as much as 5% or maybe only 3% depending on your own risk tolerance and how well the markets do over the next few decades. I think the lowest magic number I’ve seen was around $350,000 and I’ve seen a lot of people who felt $400-$450 thousand was more than adequate. I’ve seen a few people propose that the number could be as high as one million or perhaps as high as $1.5 million. And one of the great ones, the Financial Samurai, points out that if you intend to live in San Francisco you are going to need a lot more than you think! But remember, Seth expressly said he and his spouse are moving to a low cost area somewhere in the US. In fact they were making exploratory trips right now to locate the ideal retirement spot. And to top it all off they are kid free and plan to stay that way.
I expected Heather to say, “You’ve got this! You don’t even have to wait to age 52 you are good to pull the trigger on retirement today!” That would be in keeping with almost every bit of advice I’ve seen floated in this community of bloggers and podcasters. Instead she said it was “pretty risky to call it quits at age 52 with three million”. Yikes!!! Further she suggested they either consider continuing to work until age 55 or plan to work part time in retirement. Double Yikes!!!
What do you think? Did Heather step in it this time? I’m not really sure because usually when I question an expert it becomes very apparent why they are the expert and I am the grasshopper. But when I look at the facts as presented I cannot find a shred of risk in Seth’s plan. Remember, he is not going to stay in high cost San Fran, he is headed for somewhere where costs are low. If he can indeed live on $50,000 per year comfortably (plus health insurance) then using the conventional rules of thumb let’s run the numbers. First take health insurance, my wife and I are older than Seth so our insurance is more expensive than theirs will be. Using our costs of $16,000 per year added to their base cost of living of $50,000 results in a total cost of living of $66,000 per year. Applying the 4% rule Seth needs only $1.65 Million in investments to fund retirement but he will have $3 Million! Instead of a 4% withdrawal rate Seth’s actual withdrawal rate will be only 2.2%. Or to look at it another way Seth could afford to spend $120,000 per year safely from his investments and he is only going to need to spend about half of that.
Very few people, as in absolutely nobody, as far as I know, until now, have suggested that a safe withdrawal rate of 2.2% is “risky”. Barring the Zombie Apocalypse or the Illuminati Uprising Seth should be solid gold with his numbers. Think about it, if the Seth’s, with no kids, three million dollars, no debt, paid for house, willing to move to a low cost area, and perfectly happy at $50k plus insurance annual cost, can’t retire at 52 then how can any of the thousands of thirty somethings and forty somethings out there be doing it right now with only a fraction of three million dollars? So am I missing something or did Heather (not her real name!) just jump the shark?
Somebody help me here, explain why this retirement plan is too risky to execute, because I’m just not seeing the problem.
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Which podcast is this from?
I disguised it because I hate to say, I’m from a business background that was highly litigious and lawsuits scare me now that I no longer have a team of company attorneys to protect me. I was careful to listen to the whole thing twice and take notes before I wrote my blog so I would have my facts straight but still, I’d rather not say out of an abundance of caution.
i’ve never heard a podcast. i would pull the trigger with 3 mil right now. i wouldn’t finish out the day. put a million in cash and just spend that for 10 years or more with a 1.85% yield. my worry is that a person listen to internet advice without considering a variety of opinions.
it’s like tripadvisor. i sometimes read reviews of my favorite places like restaurants or hotels i’ve been to many times. i’ll see the occasional horrible review of these favorites of mine and know right away they don’t know what the hell they’re talking about, but their one star gets as much weight as somebody who is a legit expert. buyer beware.
I agree, that’s exactly what I thought. I was shocked when they acted like that was super risky. If that guy can’t retire early everybody else may as well forget about it!
Based on this information, I am aligned with you and think this person will have more than enough to cover their retirement. I will say that lately I have been looking at a bit more conservative SWR of 3% given the uncertainty of the market, but even at that level they still are adequately covered.
I would be interested to hear why the podcaster did not feel that they could retire at 52, because I am not seeing any rationale unless she is overly pessimistic on what the market will return over the next 10+ years. However, even with that, a 2.2% SWR is awfully conservative.
I wonder too, this podcaster is not in the FIRE crowd, more of an old school type and sometimes they reject early retirement out of hand as a bad idea for people’s mental health, which is more of a prejudiced than fact based opinion. I listened to the whole thing twice and there never was a concrete reason given, just that it was “risky”. Maybe she was just having a bad day?
Wow. I too was shocked that what was proposed was considered too risky (tell Seth next time try my Doctors Bill can I afford it segment instead 😂).
Not sure what she expects someone to have banked to retire at 52 if 3 million is not enough to support a 65k/yr withdrawal. The odds are more likely be ends up with more than he started out with in 30 yrs if sticks to that plan
I’m glad my savvy commenters are backing me up, I wondered if I was losing it. Thanks xrayvsn!
I think $3.0M is plenty for just about any age with a $50-70K annual spend, even with a slight travel budget lifestyle increase.
The only risky area that I noticed is that based on the scenario all of their money is tied up in the markets, How much cash do they have without liquidating their taxable accounts? Do they have $150-200K in cash to float if the markets tank? Also, why count on touching the tax deferred accounts at 59.5. Wouldn’t you want to let that ride as long as possible while performing your Roth conversion ladders?
Another point, they say that they would move to a less a expensive area, do they have a plan for that? Is family in S.F. If so, that a pretty big anchor that keeps tied to an area.
I think Seth was pretty diversified but the podcaster never asked him about that so her concern was more about the amount of money invested rather than how it was invested or their planned withdrawal strategy. I could have understood her concern if they had a bad plan for the next ten years but she didn’t even ask about it. They are not tied to San Francisco and in fact are taking mini-vacations over the next three years to locate the perfect low cost area. That is why it was so puzzling, everything she asked about they had covered, so why did she feel it was a risky move?
My opinion is they have enough. I have seen plenty of people in the blogosphere with less than that amount who are “retiring” or “mini-retiring” with the option of side hustling, part-time work, etc. But I think Seth and the Mrs. have plenty without having to side hustle, etc. They are invested, so their money will continue to grow in their retirement.
Well thanks for confirming my sanity and for stopping by! I couldn’t agree more.
Not sure why she would say that $3M wasn’t enough, based on the info you gave. Did she say why she thought it wasn’t enough?
Based on all the basic FIRE math (4% rule, etc.) he should be OK.
No, she did not elaborate, I would have loved to be able to ask her. I’m guessing she is “old school” and doesn’t think retiring makes sense for anyone who isn’t at Medicare/Social Security age because they will just sit in a rocker and age prematurely. That is certainly not the experience of this community or my own but I think my generation of Boomers did tend to see life that way. I probably would not have retired even slightly early if my mind had not been altered, in a good way, by the FIRE community. I think of it like divorce, nobody in my family ever became divorced so I grew up with it being a foreign notion, something “other people” did but that would never make sense for me. And 40 years later, still married. Of course I married an angel so that is a really bad example but the fact is people limit life choices to a group of options and rarely think outside that box of alternatives when the best choice may not even be on their list. I think early retirement is not really in that podcaster’s box of options. But I’m extrapolating a lot to get there, some of it based on having listened to dozens of her episodes.
Steveark,
I would love to listen to that podcast but understand your reasons for not wanting to divulge. Anyway, $3M is more than enough as mentioned multiple times.
Thanks for sharing.
Semper FI,
Luis
Thanks Luis, having a lot of experience with lawsuits from my past job and my current side hustle I’m very careful not to invite one. Plus even though I totally disagree with this podcaster on this issue the body of her work is very good. She isn’t one of the mainstream listened to by this community or someone would have already blown her cover! Or is she really even a she or is that one of the things I altered to protect the innocent?
Too bad you can’t share:)
That person would have lost credibility as far as I am concerned.
I agree, I’m kind of surprised nobody else heard the podcast.
Suze Orman just released a podcast and has plenty to say about the FIRE movement. She seems to Hate It! She doesn’t think youngish early retirees realize all the negative events that life can throw at them given a long retirement. She seems to say that you need !0 million to retire young and not have to worry about any future health or life crisis!
I listened to that interview with Paula Pant. She had very similar views to the podcaster I was talking about! I think it must be a boomer generation thing. Very few of the people I worked with in my boomer generation even consider the thought of retiring early no matter what their finances look like. It just isn’t on their list of alternatives. It wasn’t on mine either until I stumbled across the smart bloggers and podcasters in this space. I totally disagree with Suze of course, she was digging up preposterously unlikely scenarios like they should be everyone’s base case.
Looks like you were onto a similar thread as Suze Orman over about a week ago. Very good financial representation of what $3.0M should allow you to do. Thanks for frequenting my blog as well, I appreciate the comments!
It was strange timing, the podcast I was referring to happened before Suze stirred up the waters with her comments. Nobody even noticed the remarks of the podcast guest I was referring to, probably because her audience is more mainstream, full retirement age people. Love your blog!