How much does one need to retire securely?
I've been trying to answer this age-old question ever since I learned how to spreadsheet. In fact, my Google Drive is littered with the desiccated remains of various retirement projection spreadsheets that I've attempted over the years, but could never figure out how to finish. Usually, it ends with me throwing up my hands and going, "It's a pointless crapshoot to try to guess 40 years into the future, but it's impossible to overshoot it at this juncture, so just maximize the sh*t out this, and you can figure out the details later."
That has been a pretty good approach up to now, but if I really want to FIRE it up in the next decade or so, I need to set actual goals and criteria for success.
I know that the standard guideline for having enough retirement savings is the 4% rule. So if your expenses total no more than 4% of your nest egg, then your nest egg can sustain you indefinitely, assuming a 7% rate of return with inflation at 3%.
And that's where I start getting twitchy. Can you really count on 7% returns in perpetuity? I know that's (more or less) the historical long-term stock market average, but there's no way to know for sure what future returns will look like. Plus, I would need to be sustained for many decades longer than a normal retiree, which makes projections even more difficult to make. I don't want to run out of money, especially given the fact that I can easily continue working and I don't have to take early retirement at all in the first place.
What I'm getting at is that I am very risk-averse and financially conservative. And I don't mean risk-averse in the sense of investing; on the contrary, I'm fairly risk-tolerant there because I know my timelines are flexible. I'm risk-averse in the sense that my mind always jumps to worst-case scenarios. I don't like being on the edge. My natural tendency is to save and save and save, because I don't know what could happen tomorrow and I might need that cushion. I could lose my job. (Actually, been there, done that. :P) Or come down with cancer. A tree (or a meteor) could fall on the house. The SO's Beetle could get creamed by a Mack truck. The possibilities for catastrophe are endless.
As a result of this rampant paranoia, I need to build in a large safety margin. I need to know that I can survive anything, and I'm not decreasing my financial resilience by giving up a fairly nice income. But I also want to be somewhat realistic and not let irrational fears and rampant goal inflation make FIRE unattainable, even though the honest truth is that I'd be terrified.
But I'm gonna force myself to come up with something just to get the ball rolling.
My current thought process is that I have two criteria that must be fulfilled before I would feel comfortable declaring FIRE -- a paid-off house, and two million in assets.
The paid-off house is pretty straightforward. As detailed in my recent spending review, the mortgage is by far our largest fixed expense, and knocking that out alone would drop our annual spending from $40K down to $25K, with another $5K being shaved off when I stop renting in and driving to/from NY. Furthermore, the mortgage is something that needs to be done sooner or later. We're already paying extra towards the mortgage every month, and we're on track to paying it off in about ten years.
As for the two million in assets... We already have $1M, which, according to a 4% withdrawal rate, could already (in theory, with proper allocations, etc.) support our current $40K in annual expenses. But as I've already said, I don't feel even remotely safe enough with a 4% SWR. With a two million dollar portfolio and ~$20K in expenses, that would be a 1% SWR, which I think is conservative enough. And even if something horrible were to happen to the SO, I should still be able to handle a 2% SWR on my half of the two million. And there's even wiggle room to increase spending if it really came to that.
So I think the preliminary goals for FIRE should be no mortgage and $2M. I would not be too surprised if I chicken out and raise/revise it later, but this seems reasonable for the time being. I'm already thinking that home equity and inaccessible retirement vehicles shouldn't be included in the $2M, but we'll cross that bridge when we come to it.
And I've also got some time before we reach the goal to work on emotional readiness and all that jazz.
Goals for FIRE and SWRs
How much does one need to retire securely?