The Sliding Scale

Sydney over at Retirement: A Full Time Job wrote a great post on how much you need to retire, which addressed the sliding scale issue of the earlier you retire and the more money you are going to need. The concept is obvious in some respects but she specifically looked at the longer time horizon and the fact you need a lower withdrawal rate to safely get through.

Typically most people like to talk about needing 25 times your yearly spending (or the 4% safe withdrawal rule). Yet in the case of very long retirement periods of 50 years you may require up to 33 times your yearly spending for a safe withdrawal (or around 3% withdrawal rate). Rates like this will typically insure you will survive any period of history that has already occurred including the great depression.

Rules like this always give me a headache. Why? Because everyone keeps looking for this ‘safe’ amount of money to retire on and rather ignores the fact by working an extra five years to be safe, you could just drop dead the day after you retire. Both sides are extremes. Life is constantly about risk and trying to avoid it entirely just seems silly to me.

I do totally agree with some risk management and contingency planning when planning your retirement. Stuff will not go according to plan. So having a few backup plans isn’t a bad idea, but trying to plan for everything is just a waste of time. Life happens, so adjust as you go along (oh, just like the rest of your life before retirement).

In the end, beyond all the math and investments you will one day decide that your horde is enough and retire. The decision won’t be purely rational, but rather heavily emotionally involved as well. I’ve seen both sides where the emotion overruled a person who was light on cash, and a person who really didn’t need a dime more but keeps working. In the end, your choice will be yours. No one but you can make it.

PS: I’ve got an interview with Sydney coming up soon. I just have to finish up the editing. So hang on as we meet both blogger and an early retiree next week.

3 thoughts on “The Sliding Scale”

  1. Thanks Tim! You point out a really important issue. Each person should take the “rule of thumb” numbers and decide not only where they fall on the issue of risk of running out of money, but also how willing they are to be a little bit creative. Perhaps they are willing to go get a little part-time job if they choose a higher risk approach. Or cut back on some discretionary spending. Or as mentioned at Early Retirement Extreme, looking into volunteer opportunities that might pick up some expenses for you such as room and board in the location of the project.

  2. Forsooth, I think that whenever we are talking “early” the old rules become invalid. We are not saving up for the time when we no longer will be able to do anything and when we will be sitting in a senior home. We are saving up that we will do other things during our retirement. In fact I don’t even consider it a retirement anymore. More like a career break.

  3. I agree about working until you’ve got 35 years in and then you drop dead in retirement and don’t even get to enjoy it.

    My father was worried about his retirement and hated his job. He kept at it and had 27 years in, got diagnosed with cancer, lived another 4 months and died. I learned a very valuable lesson. Live your life now, spend your money with an early retirement, invest in real estate rentals to allow yourself to have some back up but not have to go to work 9-5… I won’t work until I die, and I am helping my husband to retire early at 48 years old so he can be home with our kids while I work (I’m a tad bit younger). The magic 35 kills a lot of people who are only worried about having $$$ when they are older and then they are too unhealthy to spend and enjoy it on anything other than health care.

Comments are closed.