On Jun 22, 7:36*pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:

- quote -

It's difficult to be precise since it depends on what rate of return
one can get on investments and whether those investments are tax
sheltered.

Working people get additional benefits by working that isn't included
in simple income such as medical insurance, pension contributions and
SS contributions.

If a person looks at the worst case situation where one could end up
in a nursing home, income needs would probably be as much as $100,000/
year.

There is the added problem that immediate annuities don't pay much for
people under normal retirement age (wait until age 70).

--
Ron

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

I think we agree. That is, I continue to like these "what it
takes to retire /right now/" calculations, elaborating with
the usual caveats, and gosh willing with conciseness and
good "editors" in follow up posts. Like kastnna suggested,
it is instructive and there's also a bit of needed shock
value to it for some folks.

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Elle wrote:

- quote -

My bad, I believe I forgot to scroll, maybe my browser was stuck.

- quote -

Fair enough. Given all the variables, I view it as a moving target.
First, for 80% replacement, one needs 20X their income at the moment
they retire, no? If one found himself in this position at 45 or 50, they
could make the decision to quit. The 12.5X was making the assumption
that the thread's OP is counting on social security, and using the
figures available now. But it's 12.5X his final year's pay.

Joe

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kastnna <kastnna[at]auburnalum.org> wrote:


- quote -

It seems like there is a lot of opportunity to rationalize yourself into
trouble. "I can't save 24K a year, so I'll assume 8.5% return." At best, this
commits you to accepting a lot of volatility.

You need iron nerve to avoid bailing out of the market at low points. I've
seen studies that show, while the market averages 10%, the typical investor
actually gets 3% because of really bad market timing.

-- Doug

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On Jun 20, 1:43*pm, "Elle" <honda.lion...[at]spamnocox.net> wrote:

- quote -

I was just glad they respected my opinion enough to ask for it. In my
usual attempt to impress, I now know more than I should every need to
know about DLP, LCD, and plasma TVs :-)

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"kastnna" <kastnna[at]auburnalum.org> wrote
- quote -

I hated to snip anything from your fine post. I agree 100%
with almost all points made, and maybe 90% with just a few
points.

Car and TV shopping? This is sure comprehensive! I can
certainly imagine how learning how to carefully select such
items goes toward instilling a mindset of budgeting and so
financial planning.

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On Jun 20, 11:38*am, "Elle" <honda.lion...[at]spamnocox.net> wrote:

- quote -

No ill intent received! To answer your question, my use of the 4% rule
is largely confined to the groups and informal social events. It's a
generality AT BEST. The reason: Due to lack of time, information, and
fiscal incentive, a generality is often the best that can be provided
in those situations. I concur that the assumed returns are a bit high,
but "the rule" also entails perpetuity. For many, 25-35 years is the
goal. So 10 may be too high, but forever might also be too long.

Amongst my clients, the 4% rule is totally unacceptable. I am paid to
advise them, can dedicate more time to their lives, and know much more
about their finances. I feel that NO rule of thumb is an acceptable
answer when I have the information and resources to give them
personalized and specific answers. As we all know from personal
experience, life is more than just working towards retirement. It's
grandkids, and unexpected house guests, and boats, and wanting to tour
the country in an RV, and lawyers for your kid's divorce, and
disability, etc, etc... My clients have asked me to go both car and TV
shopping with them before. Our lives are just too unique for rules of
thumb.

By the way, that $24k-$26k I provided above was the amount needed to
be able to withdraw 70% of today's salary, minus $20k SS, beginning at
age 62, adjusted annually for 3% inflation, with a $205k beginning
nest egg, at a 7% return.

- quote -

Agreed totally. My aside was, at least partially, a commentary on the
psychology of investors. I imagine the OPs jaw dropped when he saw the
amount he needs to save. His (and many other's) response was "it's
just not possible". But as you say above, $1k just ain't gonna cut it,
and sometimes people need that reality check. Hopefully, the OP will
save the $12k-$16k that he needs and maybe he'll get lucky enough to
have "The Return Gods" help him along the way.

Lastly, one last thought I've been tossing around lately. I'm all for
getting you money in as early as possible. That's where the power of
compounding plays such a huge role. But I do have a problem with
linear savings in a non-linear environment. The $24k the OP needs to
save today is worth a lot more than the $24k he'll need to save when
he's 61. Perhaps the OP should start below $24k and increase his
savings annually. That way he may only be saving $16k today, but $32k
when he's 61. He may find that he made that $24k average target
afterall. [The math isn't perfect, it's just a concept].

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"kastnna" <kastnna[at]auburnalum.org> wrote
- quote -

Good anecdotal data point.

- quote -

Just curious here, so this is truly gently meant query (to
learn!): How big an advocate of the 4% rule are you, and
why? That $24k figure you helpfully offered was based on the
4% drawdown-never exhaust one's portfolio guide, right?
(It's also based on something like 10% returns... )

Trying to refine ideas here, not slam your calculation. The
assumptions in all these calculations are all large but I
still maintain they all get a person in the ballpark. E.g.
saving $1k a year just will not do. But $6k a year might be
okay. $12k a year is way better. $24k a year is fat city. At
least the OP can probably manage something between $6k and
$24k.

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On Jun 19, 10:57*pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:

- quote -

We (my firm) also leans towards 7%. Better safe than sorry, I guess.

As an aside: setting an agreeable rate of return is one of the hardest
parts of the job. The OP's response to saving $24k is pretty typical
when confronted with a number like that, but the numbers don't lie.
However, even the slightest change in the assumptions can play a big
role. Frex, change that 7% to an 8.5% and the amount needed to save
drastically drops to a more managable number. 8.5% isn't "playing it
safe" but it's not historically unreasonable either. Finding that
balance is often one of the biggest hurdles to overcome.

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

Hi Joe, did you scroll down on the output for the
fincalc.com calculator? I saw a year-by-year breakdown.
Though I would like to urge folks to try as many reputable
calculators (like Joe's and I think fincalc.com's) as
possible, because experimenting with them teaches some
fundamentals.

- quote -

What I think may be confusing is that this is something like
a moving target, or it is vague. He wants 12.5x current
income in today's dollars? Or in dollars five years from
now? Or in dollars 24 years from now? I think what folks
need is a target for each year, accompanied by a projection
that continued savings at such-and-such rate will result in
Y% of current income at retirement.

- quote -

Plus many economists and financial gurus expect a return
somewhat less than the historical return of about 10%.
There's really no saying, except to err on the safe side for
many years before retirement.

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Elle wrote:

- quote -

I posted a sheet at my site, http://www.joetaxpayer.com/retirement.html
to download. Elle's advice is sound, I just prefer a different format
for the calculator, a spreadsheet vs a calculator that doesn't show year
by year. My sheet allows you to input your current assets next to your
current age, income, savings each year (as a percent of income)
projected inflation, and it will track your ratio of savings to income.
If we presume a 4% withdrawal rate is the safe level for the first year
of retirement withdrawals, and you need 70% replacement, your target
would be about 12.5X current income at retirement. (This assumes SS will
replace about 20%)
Elle suggests using 7% as a rate of return. Many advisors suggest higher
but here's why I am in Elle's camp - if you use 8-10% and the market
returns 6-7% over the next decade, it will be far harder to catch up to
your goal than if you use that 7% figure. If the market indeed exceeds
the 7%, you'll face the tough decision of early retirement, or as you
get into your 50's increasing your lifestyle a bit.
(please ignore that the sheet offers 8%, I wrote it some time back)

Joe

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"JACK-UK" <ijulianandrachel[at]gmail.com> wrote
- quote -

Why not mutual funds? A Roth IRA is an account you open up
with a financial institution such as a bank or stock
brokerage house. Once you have put the money into the Roth
account, then it will most likely sit in a money market fund
until you select mutual funds, stocks, CDs, etc. to buy with
the money in the Roth IRA. For you, I strongly suggest index
mutual funds or index ETFs.

So you have to start considering an allocation plan. For
ideas, on some weekend try some of the free, interactive
online tools linked at
http://ellessite.googlepages.com/assetallocation

- quote -

I suggest abandoning buying real estate with any of this
savings. The reason is that you have three kids, and real
estate still seems to me to offer too much risk for too
little return, especially if one has not a lot of time to
research particular properties.

I would allocate the $105k as follows:
--$40k as emergency fund in a money market account or
three-month CD.
--$10k as a Roth IRA contribution for 2008 for your wife and
you. You did not say whether your wife had income. If she
does, more discussion is necessary. For now, I am taking the
$120k of income you mentioned earlier to be close to your
Married Filing Jointly form 1040 modified adjusted gross
income.
-- $55k to index mutual funds in a taxable account,
allocated per a plan you determine.

Other things to consider:
-- life insurance (if you do not have any)
-- paying down the house sooner rather than later. Though
given the low interest rate on the mortgage, I would be
inclined not to.
-- saving in special tax-advantaged plans for your kids'
college education.

Further comment on how much to save, improving on the crude
calculations of earlier: Go to www.fincalc.com, click on
"Consumer Calcs" on the left, then on the right select "Are
my Current Retirement Savings Sufficient?" Put $12k for your
savings; put 40 years for how long your wife and you plan to
be in retirement (say age 62 to 102); 70% income replacement
(Will Trice, yes another boo boo earlier); 7% return on
investment; and include SS benefits. The result "looks
fine," especially considering that by retirement, you
hopefully will not have mortgage payments, mouths to feed,
etc. You may be tempted to save less, even. But if you can
comfortably do $12k a year, I would.

"Looks fine" is in quotation marks because it is somewhat
subjective.

Revisit this plan yearly. Things change, like health care
costs, kids' needs, spouse's employment, etc. It is
perfectly appropriate to contribute something other than
$12k a year, depending on your needs and ability. Though you
should anticipate possibly needing to catch up at some
point. Or maybe cutting back on saving and, say, taking a
big vacation. It depends. This is not an exact science.
Personally, I think
folks should save like crazy in their first ten years or so
of employment. Doing so develops good habits, and it gives
peace of mind. Then if and when it becomes apparent that
they are rolling in dough, they can cut back and spend on
more recreation, jr.'s college education fund, etc. For you,
I would save like crazy until at least age 45.

Do consider posting separately on some of the individual
themes here, like asset allocation or college savings plans.
The moderators urge short posts. Rightly so, since for one,
I think it helps keep focus. This post is too long.

Two cents. Others often chime in here to offer a whole other
plan or, more likely in this case, refine the basic ideas
here. (Or fix the blunders in a post!)

Disclosure: I have been investing in stocks, mutual funds,
bonds, and CDs for some 25 years so as to secure an early
retirement. I have never received compensation for financial
advice.

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Actually... to the contrary, I've just been super busy with work.. but
I've read all of the posts with great intrigue. Living in southern
California it just is not realistic to save $24k a year, while living
in a house, gas, bills, a wife, 2 kids and another one on the way...
I could probably double the $5K (because of the 401K limitation my
company has) to $10-12K... What I'm taking from all of this is that I
will increase my savings to $12K/year, with the non 401K being put
into a RothIRA (not mutual funds, right?)

The 105K that is in savings...? Should I a) leave it where it is in
horrible WellsFargo savings. b) find a higher savings interest bank
like E-Trade or online? c) put into a mutual fund? d) CD's
(laddering?) e) something else..

Thank you for all your insightful help.
JACK

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On Wed, 18 Jun 2008 18:47:48 -0500, "Elle"
<honda.lioness[at]spamnocox.net> wrote:


- quote -


- quote -

writing is that if you can't get into the meat of a story/idea on page
one, you'll lose the reader.

Writing or speaking on financial planning is no different. Some get
to the meat of a matter quickly and speak/write simply, others wander
forever. Practice, practice, practice.


-HW "Skip" Weldon
Columbia, SC

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"Will Trice" <wtrice[at]notmonitored.com> wrote
snip for brevity
- quote -

As always, my writing could have been better.

Lately I have been trying to use fewer paragraphs to express
thoughts, plus trying to keep posts shorter in general.
Hence the collision of a few notions in my earlier post.

I have reached a point where I do not really like the
back-and-forth extrapolating of incomes to the future,
mixing in the 4% rule and SS, returning to how much needs to
be saved each year starting now, and how much it should be
increased yearly, assuming X return and Y inflation and this
much matching and that much taxes. Then one gets to explain
the virtues (hm... ) of never depleting one's portfolio via
the 4% rule and why on earth we should assume the person's
income rises only by inflation each year. I am trying to
send people to the online calculators that tend to include
things easily missed. I like fincalc.com because it delivers
a spreadsheet with year-by-year results, so one can usually
do some kind of common-sense check and experiment and see
what makes a big difference and what does not. The idea
being to give a person some kind of loose handle on what is
realistic.

Most importantly, has the OP flown the coop? Is he now
totally baffled? Can't blame him.

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Elle wrote:

- quote -

I guess I was confused when you said,

"A crude estimate of how much you would need to retire today is about
$1.6 million dollars. This assumes you (1) need 70% of your current
income in retirement; (2) have about $20k of social security income; and
(3) drawdown at 4% a year from your retirement portfolio... It appears
if you continue saving $6k a year, and allocate your investments
properly to achieve say a 7% return each year, you should...in the next
24 years...reach your goal of $1.6 million dollars (or so)..."

That sounds like your saying his goal in 24 years is reachable at his
current savings rate of $6k - making the goal $1.6M under the assumption
of 7% returns. But given kastnna's response, perhaps I misunderstood
your point.

-Will

william dot trice at ngc dot com

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"Will Trice" <wtrice[at]notmonitored.com> wrote
snip for brevity; look back
- quote -

You're right. My mistake came from too often comparing RIRA
to TIRA. We are comparing RIRA to a taxable account, and so
on.

- quote -

I said the $1.6 million would be sufficient to retire
/today/, meaning if he quit his job /today/, the theorists
state that he could withdraw 4% from his $1.6 million and
never run out of money. This also assumes he could draw $20k
from SS a year /today/, which of course with good health and
at age 38 is not allowed. It's crude. It does not consider
taxes, for example.

snip
- quote -

One has to fool the calculators to get the sum of the
portfolio income and SS income to be about 70% of age 61
income. To "fool" them, I put in about 50% for the "income
replacement at retirement" figure. Also, I think I
originally used 2.5% inflation, though using 3% does not
change the result much. I think 2.5 was sticking in my head
from a recent long term inflation calculation using actual
SS figures.

Using the "Are My Current Retirement Savings Sufficient?"
calculator, and assuming for input {age 38, current annual
income $120k, no spouse, current retirement savings balance
= $165k, saving $6k a year for retirement, 0% annual savings
increase, 2.5% inflation, retirement age = 62, 40 years of
retirement income (that's the most the calculator allows),
45% of income replaced, returns of 7%, "include SS
benefits," and single} shows that the person would last
beyond age 102 with significant room to spare.

But I prefer to argue for more conservative planning, since
so much of planning is crude guesswork. E.g. I ignored
taxes, health care inflation, etc. above. The calculators
make assumptions as well. Saving around $12k a year is a
ballpark I propose the OP consider for now, understanding
that this should be revisited once a year or so. It was not
intended to fulfill the 4% drawdown rule. I was using the 4%
rule only for perspective on what he would need at age 38,
etc.

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On Jun 17, 9:27*pm, Will Trice <wtr...[at]notmonitored.com> wrote:

- quote -

Elle said he would need $1.6M _today_ to retire on 70% of his income
minus SS, not when he's 62. If he had that quantity of money today,
and it continued to grow at the assumptions stated above, the OP could
retire on that amount today and the money would last 40 years past age
62.

Perhaps more usefully: If at age 62 the Op began taking $130,098 ($64k
adjusted for inflation) and he continued to increase withdrawals 3%
for inflation (annually), he would need about $2.6M dollars by age 62
(assuming 7% annual return). To get to $2.6M from the $205k he
currently has, he needs to be saving around $27k annually and earning
7%.

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Elle wrote:

- quote -

Sure, Elle. Distributions from the Roth (assuming current tax laws hold
and all other relevant legal caveats are met, such as minimum age, etc.)
are not taxable, nor are gains along the way. In a taxable account, you
will pay taxes on the gains along the way. In this sense, the Roth
always wins no matter what the tax rate in retirement (even if it goes
to zero).

- quote -

Well, if the OP wants to retire on 70% of his current income,
supplemented by $20k of social security, he'd be withdrawing $64k/year.
To maintain that spending level in 24 years, when the OP retires at
62, the OP would need to withdraw $130,100 per year due to the effects
of inflation (assuming 3% inflation). The calculators you mention above
show that the OP will run out of money in 19 years given your
assumptions above, not the 40 years you imply. If the OP increases
withdrawals to keep up with inflation after the first year of
retirement, they'll run out in 14.5 years. My earlier point was that I
think you forgot to factor in inflation when you said that $1.6M would
be sufficient for the OP's retirement.

-Will

william dot trice at ngc dot com

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"Will Trice" <wtrice[at]notmonitored.com> wrote
- quote -

Will, would you please compare the current pros and cons of
contributing (1) to a Roth IRA (at age 38) when one expects
to have a lower income tax rate in retirement (say in one's
60s); and (2) to a taxable account instead?

- quote -

You are right. I used the two retirement calculators at
fincalc.com , under "Retirement," 2nd and 3rd calculators,
for my crude calculations. They have other assumptions that
I failed to mention. For example, there is not a way to
input a 4% drawdown rate, so I assumed the retiree would
draw money from his account until about age 102 years.

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