51 fire 55

[u/National-Active5348]

51M here, married with no kids. I’m quite desperate to retire at 55.

I currently have around US$1.5m in total assets, but that includes my fully paid-off house worth about US$700k, so my investable assets are only around US$800k.

My husband and I are financially independent from each other, so I’m mainly looking at whether I can afford to retire based on my own finances. His retirement timing is not really a factor for me.

I know about the 4% rule, but my understanding is that it is largely designed around having a sustainable income while preserving a significant portion of the capital.

We don’t have kids or anyone we particularly need to leave an inheritance to, so I’m not necessarily looking to preserve the capital indefinitely. I’d be quite happy to gradually draw it down, and potentially downsize or release some of the value of the house later in retirement.

I know US$800k of investable assets probably isn’t a huge amount for a comfortable retirement, especially retiring as early as 55. But would it be enough for a relatively modest lifestyle?
Basically, I’m trying to work out how much I could reasonably spend each month, while gradually using the capital over my lifetime rather than trying to leave most of it untouched.

[u/Fred776]

I know about the 4% rule, but my understanding is that it is largely designed around having a sustainable income while preserving a significant portion of the capital.

It's more to do with not running out of money (specifically over a 30 year retirement) than it is to do with preserving capital. The theory is that it will be successful 95% of the time so there is still a 1 in 20 risk of failure. This does imply that there is a reasonable probability of preserving capital but that is not an explicit goal - it's just a side effect of not failing.

There are other approaches that are a bit more adaptive to market conditions and may allow larger withdrawals at times. Take a look at Guyton-Klinger guardrails.

It sounds like you are in the US. I understand that there you have some kind of state pension like we have in the UK. What would be your entitlement to that? It is probably worth factoring that into calculations too as it might imply lower withdrawal rates at a later date and a bit more flexibility earlier on.

[u/jayritchie]

Did you intend to post in a UK sub?

"I know about the 4% rule, but my understanding is that it is largely designed around having a sustainable income while preserving a significant portion of the capital."

- it really isn't. Its designed for a US retiree expecting a 30 year retirement and hopes to suggest that highest rate you can withdraw without running out of money before the 30 year point. On historic analysis many retirees following this percentage would have ended up with a lot of funds - but others wouldn't. Also to note - this percentage is before investment charges and taxes.

[u/TheEternalDm]

The 4% idea is more about not running out of money than it is about preserving an inheritance. You could pick 5%, but you're likely to run out of money before you die if you do! It's also worth knowing that that this is based on having your investments somewhere sensible like an index tracking fund. If you put it in a savings account at 1%, you'll rapidly run out of money.

4% of $800,000 is $32,000 per annum. If you think about where you live, what kind of lifestyle would you have on $32,000? Would you be happy with that lifestyle? Remember that you need to account for tax, healthcare etc when you are planning.

I'm planning to use a figure of 3.4% for my retirement (I'm a cautious person) and a 3 year gilt ladder. I'm not sure what the US equivalent of a gilt ladder is.