I read a blog post today abut the topic of how much you need to save. It was a Pareto principal analysis, 20% of the dope gets you 80% of the results. The analysis was a typical FIRE blog analysis which starts at year one (say 30) and ends at year retirement (say 45) and uses the hokey 25 x, or an even safer 30 x. It was 100K/yr and it was decided 2.5M or a safer 3M was enough to get the job done.
Here is the analysis of 3M @ 3% inflation and 5% return a 45 year retirement
A 45 year retirement will cost 9.27M. In this analysis the portfolio fails in year 44 (age 90). The analysis does not include SS with SS it would likely not fail. Let’s see:
This is a guesstimate of SS taken at age 70 and inflation adjusted to age 90, SS=1.1M So you’d wind up with about 700K in the bank at 90.
This is what is wrong with Pareto. This analysis took 10 minutes with explicitly defined assumptions and results. If you Pareto it you end up broke if you work through it you are far clearer in your understanding.
Would you be temped to quit @ age 45 with 2.5M in the bank? Remember this does not account for end of life issues, increasing taxes (note the last year you are in the 32% bracket) or SORR. 2.5M is dicey
Even with SS the portfolio fails in year 35 (age 80). 100,000K x 25 = 2.5M to start. This is why I think it is necessary to plan not from the year of retirement but from the year of presumed death. You can also see the effect of working more years on portfolio longevity and the effect of everything like SS.
Here is a 35 year retirement 2.5M @ 5% and 3% inflation, beginning at age 55 and ending at 90. Notice how the portfolio still fails at age 88 but the longer SS leaves you with 900K in the bank
Would you quit @ 55 with 2.5M in the bank? I’ll leave the consideration up to you but clearly making 25x last 35 years much less 45 years without the safety of SS is nuts. I must admit Pareto got you 80% there BUT 80% WASN’T A GOOD ENOUGH ANALYSIS.