It’s a debtor’s salvation and a creditor’s or pensioner’s nightmare. For lots of reasons, not the least of which is simply these things go in cycles. ???? Actually, I’d like to see why not contributing to a tax-advantaged account allows you to retire earlier. If I were making the calculator, I’d make the LOWER end of the slider at least 25%, and the upper end would become more granular as you got above 90% and 99%, since a Mustachian might easily save 99.9% or more of take-home pay if faced with a $20M income! But then your cost of living would go up accordingly — along with your leverage. The author has given a brilliant analysis of the Trinity study and the various factors affecting how long your retirement funds last. For most good Mustachians then the question is “do you count your paid-for home into the equation for SWR”? Mr. Money Mustache Great link and again Pfau references on several occasions that his SWR chart assumes perfect foresight assumption, which is of course not possible. To people like you and me who will enjoy 60-year retirements, that would not be successful – we want our money to last much longer than 30 years. Oh sure, you say, that’s what they all say. So your $600k will just sit in the market and continue to grow rapidly, with monthly additions from your ongoing surplus. And now you want to spend $100 and so sell that amount of stock. New comments cannot be posted and votes cannot be cast. Vanguard have some of the lowest MERs that I have seen. It’s easy to say to yourself I’m only going to need $40K/yr in retirement so I’ll be taxed at a low marginal rate for my RRSP withdrawals and then 71 rolls around and that successful $1.2M RRSP account means you have to take out ~$84K + CPP + OAS + any pension or other income you have and you are suddenly over $100K/yr and paying a lot more tax than expected. To apply it in real life, just take your annual spending level, and multiply it by 25. I believe that you can live below your means and still enjoy luxury items. Mr. Money Mustache is a thirty-something retiree who now writes about how we can all live a frugal, yet awesome, life of leisure. Store some seeds, rice, cooking oil – but not too much – being too well-off in the war can kill you. I didn’t need college to teach me that, all I needed was 8 years making minimum wage in a sweat shop restaurant, and auto shop (5 something an hour at the time) since age 14 to realize that debt is bad and so is working at a crap job. It might also mean you need to save more money if you’re planning on retiring in your 30’s or 40’s and planning for five or six decades of retirement. The money you invest needs to be in stocks and bonds. There’s a lot of evidence that in times of significantly lower returns (especially bond returns) the 4% rule is not as safe as it used to be. Bill has published a couple of books on the topic that Wayne and others have commented upon. If investments are throwing off dividends at the rate of 4% annually would that mean that a SWR could be increased to 8%? I think this underlines the importance of keeping investing expenses as low as possible. Take a look around. Enter your email to get our free PDF cheat sheet on overcoming money fears. Say the average return is 7%, inflation is 2% and the calculated SWR is 5%. (B) My passive income is 3 times that $15,000 amount, so it’s not a question of having to watch pennies. It seems unlikely that your government would decide to institute a 50% tax rate on people living in the lowest quartile of income.. on the other hand, if you’ve planned a very high-spending retirement, there is more risk from rising taxes. The original post is located here: http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement. Mr Money Mustache believes (and lives it – well, sorta) that a family of three can retire with $625K in stock/bond investments and no debts, which includes a paid-off house (no mortgage). Avoid having children (worst thing that can happen to any human being is not dying, or getting sick – it is watching your kids go through the war). BeyondtheWrap according to dr pfau the old 4% rule may be a thing of the past with only 3% going to be the new rule going forward. They analyzed what would have happened for a hypothetical person who spent 30 years in retirement between the years 1925-1955. then 1926-1956, 1927-1957, and so on. Pay off the mortgage, build up assets of 500k-750k (and at least become a paper millionaire in total net worth inc home! That’s how much you need to retire, at the most. January 17, 2013, 9:09 pm. Questions like housing, health insurance, car, etc. You would have $50 of “basis” in stocks you sold, meaning only $50 of tax gain. Mr. Money Mustache is the website and pseudonym of 47-year-old Canadian-born blogger Peter Adeney. $25k/year income married couple would have close to or at zero federal income tax and likely zero state income tax liability. I admit it: that is the idealized and simplified version. My war bike saved my life more than once – from avoiding snipers, to finding food and water – and when I got home, it was used to turn the alternator (from my useless car that got bombed first day of war) which in turned charged my battery, which in turn powered the radio. You’d be so rich by the time the 1929 crash and the Great Depression hit, that you’d barely notice the trouble in the streets from your rosewood-paneled tea room. All the SWR math and ensuing arguments just make my head spin. If they live with roommates and don’t buy a new car or take a vacation for 4 years, it is easy to clear the debt. In any event, when you retire, you can roll your 401K into a Traditional IRA and have full control over it. Mustachians will adapt and improvise, as Gunny Sergeant Thomas Highway says in the classic movie Heartbreak Ridge. they validate the 4% rule..! December 10, 2012, 3:33 pm. June 19, 2013, 10:27 pm. “The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other expenses. JL Collins: Stocks - Part XIII: The 4% rule, withdrawal rates and how much can I spend anyway? Tax can complicate matters, but in the UK, if the majority of this portfolio can be assembled inside a (almost) tax free ISA, then that is not a problem. Inflation eats 3% on average, leaving you with 4% to spend reliably, forever.”. For me, I think a mixed strategy which draws 50% of income from 401k-type funding (or alternatively traditional IRA), with 50% of income being drawn from Roth IRAs is dominant. His first lecture is listed as having been given in 1969 and it was based upon his paper “The Forgotten Fundamentals of the Energy Crisis”. Go ahead and click on any titles that intrigue you, and I hope to see you around here more often. August 14, 2013, 2:54 pm. One thing I was sceptical about was our TFSA’s (Tax Free Savings Accounts – for US peeps – gov’t allows you to stick some of your post-tax money into these accounts each year, but any money you make with that money, presuming increase in investment value, is yours to keep – tax free) – but I am now very much on board! which means you’d have a biased sample (sick people). One thing has hit a ceiling and that is oil, as in Peak Oil. So, you basically have to add your expected CPP, OAS and RRIF withdrawals for both you and your spouse, and you will see your taxable income. It is always best to look at data sets in the most unbiased way possible (since be completely unbaised can never really be achieved) and draw valid conclusions from the data. 2. you don’t get to 71 and find your forced withdrawal rates shoot you up into a really high tax bracket. It is the only tool that really makes sense to me and gives me a very high level of confidence. Often I find myself asking how can the machine keep functioning?? But in the hands of Mustachians, nothing is scary. April 28, 2014, 11:52 am. May 29, 2012, 8:31 am. In many years, retirees could have spent 5% or more of their savings each year, and still ended up with a growing surplus. Most pundits know nothing more than average Joe when it comes to future market swings. More recently, the great financial crash and a slicing in half of of real estate and stock values. Ugh. Enter your email to join our free 5-day ecourse on getting started with minimalism. Contrary to that quote, people tend to believe that things will stay the same, and that’s why we get things like the housing bubble. For those not content to retire at/below the poverty line, you can exploit the use of a Roth IRA. Thanks for clearing that up. If you have just a little bit of flexibility or have a tiny inkling of being a true mustachian you have no worries. =D, Mr. Money Mustache We are lucky enough to have salvaged a conventionally-aged retirement and are using a system that I haven’t seen mentioned here. Exponential growth curves is too much of a global blanket statement. My state income tax rate here in Nevada is zero. You must withdraw 4% of your savings. But it never does. May 29, 2012, 8:27 am. Hm. Bad years in investments means reducing withdrawals the next year. Ying and yang are the norm. Looking at the source material Planning for a 4% withdrawal rate is a shiny, bulletproof limousine of a retirement plan and you can ride it all the way to the party at Mr. Money Mustache’s house. From the Tao Te Ching, chapter 77: “The Tao of heaven / Reduces the excessive / And adds to the lacking”. ): many larger charities offer Charitable Annuities – with the added advantage that the $$ you annuitize are a current tax-deduction (i.e. Both of them are important to my success. khalestorm Yes I am. getagrip Do you count your savings in non-RRSP dollars? November 16, 2015, 12:45 pm, Let’s not fall for the greatest shortcoming of the human race. This was achieved not through luck or amazing skill, but simply by living a lifestyle about 50% less expensive than most of their peers and investing the surplus in very boring conservative Vanguard index funds and a rental house or two. Careful. I just need to earn a little money and my bills will be covered. @Joe: I’ve noticed a similar concept, though I’ve never framed it quite like you did. Everyone keeps screwing with this fundamental concept by saying “oh I need X dollars so I have to have Y dollars in my account”. Gold, stocks in companies like Alcoa, real estate, commodities, etc. So that, at last is the long-awaited Safe Withdrawal Rate article. Just don’t live off of your non-registered and TFSA accounts until 71 and then get a shock with how your RRSP withdrawals are taxed. There is good info there, but you are almost always better off reading the source material yourself and coming to your own conclusions. On the flip side, it gives me a measure of asset need changes for expense changes. No growth in economy = zero or negative returns on investments. His book “Conserving Client portfolios during retirement” by the FPA press has all of the details not given in the Journal articles. The 4% rule is a “rule of thumb” relating to safe retirement withdrawals. If you’re so stuck on the idea of “annuity” then combine having one with charitable giving(! Mr. Money Mustache Stay tuned! Mike is mostly correct about ‘substantially equal payments’, however you need to be careful to follow the rules since breaking them can get you a 10% penalty and retroactively at that. While the Mr. Money Mustache definition of the 4% rule may still be standing, the conventional one put forward originally by William Bengen and then expanded by Wade Pfau is in serious jeopardy. Property taxes on house and autos? I understand that your point of view is fairly US centric, and I don’t know that the US tax on capital gains or the like is. Tax consequences are the *real* difference between capital appreciation returns versus dividend returns. So does that magic number you multiply by 25 apply to today’s money? And now I just landed another even better job. Enjoy luxury items been on exponential growth curves in population, resource usage, debt practically! S even lower than 15 % ( or whatever ) is Risky an interesting logic behind the name a flattening! 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