Big Numbers Big
If we were following the 4% rule we would need $1,375,000 ($55,000 / .04). As stated before, we are thinking that drawing down 4% is too aggressive for us financially conservative folks. Indexes are breaking records this summer and we are in the longest bull run of all time, so we are targeting a 2.5% withdrawal rate which lines up with the dividend payments we expect to receive.
When we pull the trigger we want to NEVER have to work again because of a need for money.
A 1.5% difference makes a big impact on what we require though: $2,200,000 ($55,000 / .025). Well, good thing we have a palace we can sell!
So Zillow says our house is worth $690,000. And we own it outright (no mortgage). So that means we can just convert that into stocks when we retire right? NOPE. We have to put some money into the house to get it “sell ready”. We also have to pay off realtors, lawyers and the government for the privilege of getting out of the castle. We are also being conservative and thinking it will only net us $610,000 in the end.
Well good thing we have had a high savings rate our entire adult lives. When I add up all of our retirement and investment accounts we currently have $1,236,000.
What do we have left to save?
$2,200,000 – ($610,000 + $1,236,000) = $354,000
By living way below our means we are currently netting $14,600 per month and our dividends on our current investments account for another $2,000 per month ($6,000 per quarter).
So how much time will it take before we can take our World Tour Victory lap?
Let’s map out a few scenarios:
If the housing and stock market are flat (conservative estimate)
$354,000 / ($14,600 + $2,000) = 21 months
If the housing and stock market increase 4% (seems reasonable)
Total assets: $610,000 + $1,236,000 = $1,846,000
Monthly appreciation of 4%: $1,846,000 * .04 / 12 = $6,153
$354,000 / ($14,600 + $2,000 + $6153) = 16 months
If the housing and stock market increase 7% (hoping but not expecting)
Monthly appreciation of 4%: $1,846,000 * .07 / 12 = $10,768
$354,000 / ($14,600 + $2,000 + $10,768) = 13 months
If the housing and stock market increase 10% (wishful thinking)
Monthly appreciation of 4%: $1,846,000 * .07 / 12 = $15,383
$354,000 / ($14,600 + $2,000 + $15,383) = 11 months
It took us many years to get to this point where our investments are like having a third income in our household. The velocity of money has gotten ridiculous the last few years with the S&P going nuts.
If the stock market stays the same or continues to climb we will be executing our plan between 1 to 2 years from now. With close to an 80% savings rate already and not much room to grow our existing corporate job incomes over such a short window of time, our fate is mostly determined by the market.
This is scary, yet not, all at the same time.
Since our plan is to only withdraw the dividend percentage post retirement and not sell the actual shares we aren’t too worried about big market swing downs. We believe that we have the willpower to buy and hold forever. This is key. There will be black swan events in the future. We have seen them before and we will see them again. Just think back to the dot-com bubble bursting or the 2008 Financial crisis. There may be a crisis this year, next year or five years from now.
Big numbers go up and big numbers go down.
Remember, when share prices go down, that doesn’t necessary mean that the yield percent (or dividend percent) will also go down. Most likely the percent will go up when you are looking at a basket of hundreds of companies. We are not stock pickers. We are investing in all of civilization. We expect smart people at companies that don’t even exist yet will create value and become part of the indexes we are already investing in.
Stay tuned for monthly financial updates and let the countdown begin! (FI Girl cringes)