Author Topic: Where is the formula for how much I need so save per month to retire by age X  (Read 4867 times)

missj

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Hey guys, I'm sure this exists somewhere, but I really cannot find it.  I have looked, believe me I have.  I've been on this website about 2 hours a day for 3 days clicking around trying to find something like this (and I frequently get side tracked and read other awesome articles and posts).

Please help.  So, I know what i am talking about is basically a retirement calculator except traditional retirement calculators are bullshit and make all kinds of stupid assumptions.

here's what I'm trying to figure out.

Say your retirement goal is "X" maybe 10 years from now.  If you're truly talking about early retirement that will probably be before age 59.5

What I want to know is how much do I need to put into my 401(k) my Roth IRA and my taxable brokerage account in order to be able to live off of ONLY the income/dividends without withdrawing any of the principle/capital.

In fact, ideally I'd like to live off of just 80-90% of the income/dividends so that my portfolio can still benefit from the magic of compounding interest and dividend reinvestment.

I'm sure one of you has  link to a calculator like this, or a thread that describes how to calculate it.

thanks!

Otsog

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How much do you spend in a year?


matchewed

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Try this as well.

Sdsailing

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Well start by getting out your crystal ball and telling us what the income / dividends will be per year as a percentage.  Once you know that it is simple arithmetic to determine the amount of principal.

Why would you need a retirement calculator if those are your criteria?

matchewed

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Sorry I misread. You want to have a strategy that utilizes solely dividend without relying on appreciation? Your SWR will equal your dividend then. Since a 4% SWR is 25 x expenses for the sake of simplicity and 3% SWR is 33 x expenses you'll just need to solve for what your particular "SWR" will be or rather your dividend.

I will add that it is an extremely conservative strategy and extremely risky strategy at the same time for different reasons.

missj

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How much do you spend in a year?
Right now I'm spending about $36,000 a year for a family of 3 which equates to 60% of my take home pay, or a 40% savings rate.

With very little effort I think I can get that down to a 50% spending/savings rate almost immediately and then when a few smallish debts are cleared  and I make smarter choices in the future I'm hoping to live on 34% and save 66% in about 3 years.  But for now let's quote the 50/50 figure which means I spend $30,000 a year and save $30,000 a year after taxes.

Would this help?

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

yes! thanks! that is pretty much exactly what I was looking for.  Cool, I was hoping for 15 years and according to his chart my current situation leaves me 17 years away from retirement even if I changed NOTHING!  So, I'm better off than I thought I was.  Just need to tweak a few things, and maybe I can do better than 15 years.

Where do I find advice about how to allocate my savings?  I don't mean specific EFTs and index funds, I mean in what order do I split my savings between paying down the mortgage and funding my 403(b), Roth IRA and taxable brokerage account? 

My savings rate is not big enough right now to max out my 403(b) AND my Roth IRA and have anything left over.  But it seems foolish to put it all in accounts that I cannot touch till I'm 59.5 years old since this plan is based on me retiring at 50 years old.

I realize this thread probably exists but I haven't found it yet, if anyone would be kind enough to post the link I'm happy to do my own legwork after that!

:-)
« Last Edit: August 16, 2014, 03:54:15 PM by missj »

aeliz

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There's also this post:

http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

I'm also thinking about allocating my savings.  I'm maxing out my Roth, but I can't use that for like... 30 years?  I also have a couple of pensions from state work that I can't touch til I'm in my 50s.

Here's another post I've found helpful.
http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

Kind of the upshot is invest in this fund, or the Admiral version with lower fees if you have more than 10k to invest:
https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT

I mean, don't put all your money in it necessarily, but when I have the money, I think that's the account I'm going to invest in.

Nicster

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One perspective on why living on dividends only may not be best option.

http://whitecoatinvestor.com/4-ways-income-investors-get-it-wrong/

What do you all think.

YoungInvestor

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What you want to calculate is fairly simple financial maths. Feel free to read the first sentence below and skip to the last line if you don't care about the reasoning (but you should, because developing a sound financial logic is key to reaching your own conclusions).

Let i = rate by which your investments will outgrow inflation and X = annual amount to invest (Same amount in today's dollars, which you will adjust to inflation with time). In the following, I assume that you invest once a year, but it's quite easy to adjust it for any other rate.

It's fairly easy to figure out that the value of your investments in n years will be.

Value = X * sum(1+(1+i)+(1+i)^2+...+(1+i)^(n-1))

If you currently have any amount of money already invested, or that you will invest at the beginning, let's call it M, add M*(1+i)^n.

From this, the value of your investments in n years will be:

M*(1+i)^n + X*(((1+i)^n)-1)/i) = V

Assuming you know V (25*Expected expenses is common here (4% rule)):

V = (M+X/i)*((1+i)^n)-X/i

Or

(V+(X/i))/(M+(X/i)) = (1+i)^n

OR

(iV+X)/(iM+X) =  (1+i)^n

Or, finally:

n = ln((iV+X)/(iM+X)) / ln(1+i)

You can fairly easily switch it around to get X instead:


M*(1+i)^n + X*(((1+i)^n)-1)/i) = V

X = i*(V-M*(1+i)^n)/(((1+i)^n)-1))
« Last Edit: August 16, 2014, 05:36:13 PM by YoungInvestor »

rmendpara

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One perspective on why living on dividends only may not be best option.

http://whitecoatinvestor.com/4-ways-income-investors-get-it-wrong/

What do you all think.

People usually screw things up when they start investing in things they don't understand the risk/reward for.

As long as a dividend investor understands the need to balance yield/growth and sector/style risk, then they will probably do just fine even if their allocation is a few points off in a certain way.

tommy murph

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Not sure if this exactly what you're looking for but I think it'll help you figure out how much you need to save per month in order to retire by age X:

http://networthify.com/calculator/earlyretirement

Thegoblinchief

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The Shockingly Simple Math defines your retirement stash based on your CURRENT spending, which could be completely off base. Some people spend more in retirement, others less. I will probably spend MORE in retirement because of leisure travel.

A helpful post in determining a retirement budget is this:

http://rootofgood.com/developing-a-retirement-budget/

missj

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Not sure if this exactly what you're looking for but I think it'll help you figure out how much you need to save per month in order to retire by age X:

http://networthify.com/calculator/earlyretirement

cool yes! this is exactly what I wanted.  the graph referenced above was great, but this one is interactive and lets me get credit for the saving I've already done. thanks!