How much time will this cost me?

[corn18]

I have been crunching numbers like a madman trying to determine if we could retire this year. We can't, but I did find it interesting to look at spending time vs. money. This is what I came up with for us. It's not exact math, but it helps me talk to my wife about what a new pool might cost us WRT delayed retirement. It is also interesting that ongoing monthly spend in retirement has a much larger impact vs. one time spending now. Anyway, here's the data:

One time expenses before retirement
$1,000 = 1 more day of work
$10,000 = 2 more weeks of work
$100,000 = 6 more months of work

Monthly Expenses in retirement
$10 = 3 more days of work
$100 = 6 more weeks of work
$1,000 = 1.5 more years of work (this one surprised me)

[disneysteve]

Very interesting. That's a neat way of looking at things.

[kork13]

I expect that it's largely a factor of how close to retirement you presently find yourself. Not seeing the numbers in the background, and even without you saying you're not ready, those numbers tell me that you're very close to having what you deem to 'need' for retirement, but not in excess yet. Large expenditures now can essentially be cashflowed without radically impacting your numbers in retirement. But in retirement, you're going to be drawing a continuous income for 20-30+ years (presumably). So if you take your $1k one-time purchase pre-retirement, multiply it by 12 to be a monthly spending requirement, then again by 20-30 to reflect that requirement over the course of your retirement years, the cash necessary balloons rapidly. That's just basic math without compounding involved, but it makes the point. Now, if you already had what you deem 'necessary' for retirement, and at this point you're building cash for excess spending, the numbers are effectively the same, but less dramatic because you've already got a head-start on that extra cash requirement.

By contrast, for someone way out from retirement, the difference is minimal (magic of compounding). I won't run the numbers, but a 30 y/o with 30 years until retirement could probably achieve that extra $1k/mo in retirement by merely saving an extra $200/mo over time. Once again, a good reminder to folks that saving early & often is much easier than trying to catch up late in the game (although corn, you've done a fantastic job of doing so).

[corn18]

I expect that it's largely a factor of how close to retirement you presently find yourself. Not seeing the numbers in the background, and even without you saying you're not ready, those numbers tell me that you're very close to having what you deem to 'need' for retirement, but not in excess yet. Large expenditures now can essentially be cashflowed without radically impacting your numbers in retirement. But in retirement, you're going to be drawing a continuous income for 20-30+ years (presumably). So if you take your $1k one-time purchase pre-retirement, multiply it by 12 to be a monthly spending requirement, then again by 20-30 to reflect that requirement over the course of your retirement years, the cash necessary balloons rapidly. That's just basic math without compounding involved, but it makes the point. Now, if you already had what you deem 'necessary' for retirement, and at this point you're building cash for excess spending, the numbers are effectively the same, but less dramatic because you've already got a head-start on that extra cash requirement.

By contrast, for someone way out from retirement, the difference is minimal (magic of compounding). I won't run the numbers, but a 30 y/o with 30 years until retirement could probably achieve that extra $1k/mo in retirement by merely saving an extra $200/mo over time. Once again, a good reminder to folks that saving early & often is much easier than trying to catch up late in the game (although corn, you've done a fantastic job of doing so).

Great observation. If I had 20 years of compounding available, the time cost of $1,000 spent now would be a lot less. I am within 3 years of retirement so compounding is not a huge factor.

I can say that Sequence of Returns (SOR) risk is a huge factor. If the market tanks 50% the day I retire, then that has a significant impact on my retirement. The 4% rule is supposed to take this into account, but it's still a risk that needs to be mitigated.

[disneysteve]

I can say that Sequence of Returns (SOR) risk is a huge factor. If the market tanks 50% the day I retire, then that has a significant impact on my retirement. The 4% rule is supposed to take this into account, but it's still a risk that needs to be mitigated.

That is the big unknown, but also speaks to the importance of diversification and having a less aggressive asset allocation as you approach retirement.

If you are 90/10 and the market loses 50%, you lose 45% of your nest egg. If you're 60/40, you only lose 30%. Both are big hits but the latter is easier to deal with and recover from.

It's also why most advisors recommend keeping 1-2 year's worth of expenses in cash. That way you don't need to touch your investments immediately. If there is a downturn, you have some time to wait it out (other than RMDs).

ETA: I know you know all this stuff. I was just posting educationally for others.

[srblanco7]

Has anyone else used the site firecalc? I find it to be an interesting high level tool for estimating your chances of running out of money in retirement. You input your portfolio value, annual withdrawal, and a retirement duration and the tool simulates every historic stock market cycle over your estimated retirement duration.

To corn18's point, imagine retiring and a few days later the Great Depression starts...this would be one of the simulations included. Though past performance is, of course, not an indicator of future returns, it can provide insight into the impact of varying your withdrawal rate in retirement.