Quote:
Originally Posted by Slava
Yeah and I'm definitely jaded because I think that the entire fire movement is questionable. For instance, $2500/month after tax (which is essentially what this is), for two people s fine if you don't actually plan to do much of anything. If you want to pursue any hobbies or travel though, it's not much money. And the bigger concern is that relying on CPP/OAS is all well and good, until one of those two people die. Suddenly that $2500/month gets reduced further.
And as far as that calculator itself goes, there are a number of assumptions made there. One is that the equity exposure is 100% throughout retirement. That said, there is a darker issue lurking for a lot of these types of models. Bonds and Fixed Income was a good contributor to retirement plans for the past thirty years; you could get a good yield, stability in price and everyone was thrilled. Interest rates also declined from say %6-7 down to under 1% though, so you had a nice longer term tailwind for the retiree to ride down. How does that look going forward with rising rates and less of a contribution from that FI sleeve? Suddenly those 60/40 balanced mandates that gave you a nice even 7-9% a year and made that projection work on a historical basis are giving you more like 3-5% a year (say 7-8% from the equities and 1-2% from the FI). And make no mistake when people retire they're not super interested in seeing the markets decline 13% (which is the longer term average that we see on the S&P 500 each year). It's quite a conundrum.
Anyway...tl;dr: I personally wouldn't prepare for retirement based on $200k in savings and $40k/year pre-tax income, but YMMV.
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Yeah, 100% US equities is definitely more risk than the average retiree could handle I suspect. 30 years of dropping interest rates probably also increased the average equity market return, if you compare the market multiple now to the multiple in 1982 it seems like there could be some upcoming sequence of returns risk...