Author Topic: very basic retirement scenario...  (Read 8011 times)

FuckRx

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very basic retirement scenario...
« on: January 17, 2014, 01:59:28 PM »

I know there is calculators out there and I've played with them ad nauseam but here is my scenario.

I've done the math and I can live off of about 3,200/mo (38,400/yr).
I'm 35 years old and can put away $5,000/mo maximum.
I am familiar with betterment.com so I could invest the 5k into that.
Based on this info, is it possible to calculate when I can have a passive income that would cover my 38,400 annually?


Shor

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Re: very basic retirement scenario...
« Reply #1 on: January 17, 2014, 02:11:47 PM »
From napkin math, let's do this:
Let's run with an average passive income of 4% to conveniently cover the suggested SWR which will be about the rate you can withdraw and expect your investments to grow without drawing down the principal.
38400 * 25 = 960,000

So close to around 1 mil and you will be set. At a very basic napkin level assumption.

 If you had just started at the beginning of this month at 5k per month, we're looking at 192 months of saving or 16 years from when you start. Naturally your 401k and savings might already be a much larger starting point for this to begin from..

If you're feeling glum looking over these numbers, then might I suggest you take a harder look at your expenses and see where we can take the axe to reduce your cash outflow? A lot of generous souls on this forum are willing to take a close inspection with your expenses and give out face punches and optimizations (for free even!).

Remember, early retirement is achievable if you let go of the material wants which are holding you back form retiring sooner. IMO $3200 is a fairly large amount of expenses per month, so more details would definitely be interesting to review.

FuckRx

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Re: very basic retirement scenario...
« Reply #2 on: January 17, 2014, 02:23:40 PM »
Ok I'm wearing a face mask so let 'em rip....

apartment rent   $825
grocery   $400
Cell   $30
household goods   $50
Gasoline   $100
home wifi   $50
car insurance   $30
car repairs   $30
Restaurant   $300
entertainment   $500
medical    $30
car registration   $20
travel   $500
parking/travel   $20
laundry   $25
clothing   $10
Netflix   $8
staff dinners   $200


Eric

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Re: very basic retirement scenario...
« Reply #3 on: January 17, 2014, 02:24:38 PM »
If you had just started at the beginning of this month at 5k per month, we're looking at 192 months of saving or 16 years from when you start.

Only if you invest in a savings account at 0.00001% interest.  If you figure in yearly average stock market returns of 7%, starting from $0 and adding $5000 per month, you'll hit $1MM in 132 months, or 11 years.

unpolloloco

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Re: very basic retirement scenario...
« Reply #4 on: January 17, 2014, 02:31:00 PM »
Also, if you manage to decrease expenses or increase income over that time period, that 11 year number is sooner.

Your potential areas to cut back are:
1) entertainment - that's potentially a bit high - what does that include?
2) food (you're spending $900 a month there between groceries and restaurants and staff dinners - almost a third of your budget!!!)

dragoncar

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Re: very basic retirement scenario...
« Reply #5 on: January 17, 2014, 02:39:59 PM »
If you had just started at the beginning of this month at 5k per month, we're looking at 192 months of saving or 16 years from when you start.

Only if you invest in a savings account at 0.00001% interest.  If you figure in yearly average stock market returns of 7%, starting from $0 and adding $5000 per month, you'll hit $1MM in 132 months, or 11 years.

I certainly wouldn't use 7% on an 11 year timescale.  To make everything easy, maybe 4% inflation-adjusted (since expenses are in today's dollars)

Shor

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Re: very basic retirement scenario...
« Reply #6 on: January 17, 2014, 02:50:31 PM »
If you had just started at the beginning of this month at 5k per month, we're looking at 192 months of saving or 16 years from when you start.

Only if you invest in a savings account at 0.00001% interest.  If you figure in yearly average stock market returns of 7%, starting from $0 and adding $5000 per month, you'll hit $1MM in 132 months, or 11 years.

Of course! You're correct. I missed that step..

and unpolloloco hit all the items I was going to point out, nice!

I would start with looking at those categories for places where you can cut out your losses, or more likely come to a compromise. Abject poverty is not the intent, but each expense makes a much larger gap between you and your financial goal (Aside from my poor napkin math!)

FuckRx

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Re: very basic retirement scenario...
« Reply #7 on: January 17, 2014, 02:56:09 PM »
Agreed, I can cut out the staff dinners, that's unnecessary.
Entertainment really is going out for wine/drinks and going on dates. I can cut that down to $200 without too much sacrifice.
My restaurant budget hasn't actually been 300, more like 200 (looking through YNAB).
So this brings my total to $2,400/mo or almost 29,000/yr.


arebelspy

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Re: very basic retirement scenario...
« Reply #8 on: January 17, 2014, 04:07:48 PM »
I know you've said you've played with them, but this seems like the simple answer: http://networthify.com/calculator/earlyretirement

You can plug in the numbers as easy as us and tweak them based on savings and such.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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dadof4

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Re: very basic retirement scenario...
« Reply #9 on: January 17, 2014, 05:23:12 PM »
Your travel, entertainment, restaturant and staff dinners make up half your budget - or $1500.

You are currently on target to retire in just over 12 years. Still enviable by almost any standard.

But if you cut the above luxuries in half (to $750 a month), and you can retire in less than 9 years.

Or go full monk and cut them off completely, and you can retire in as little as 6 years.


Shor

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Re: very basic retirement scenario...
« Reply #10 on: January 17, 2014, 05:48:14 PM »
Full monk! Full monk!
Even if you reach your targeted net worth goal, it doesn't mean you have to stop working. You could very well keep on working and slowly raise your expenses to a comfortable level as your Net Worth increases until you hit a nice happy middle-ground.

Or you might even find that most of that entertainment flippity-flop was pretty silly anyway, and how could you ever have wanted to spend so much every month for so little gain?!

FuckRx

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Re: very basic retirement scenario...
« Reply #11 on: January 17, 2014, 08:41:02 PM »
It's interesting that you never really think about how much more effective it is to spend less vs earn more... makes a lot of sense. 2 years is a huge difference. Thanks for the numbers and I like that calculator, it helps a lot, messed around with it quite a bit.
« Last Edit: January 18, 2014, 12:15:03 AM by mashori »

Eric

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Re: very basic retirement scenario...
« Reply #12 on: January 17, 2014, 09:12:06 PM »
It's interesting that you never really think about how much more effective it is to spend less vs ear more... makes a lot of sense.

By "you" I'm assuming you're referring to yourself in the 2nd person, because I think about that shit all the time.  It definitely works.


Stache In Training

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Re: very basic retirement scenario...
« Reply #13 on: January 17, 2014, 10:55:06 PM »
Sorry, I'm also going to harp on what everyone else is: grocery bills are 400, restaurants are 300, and staff dinners (not sure what those are, exactly.  If they are discounted meals from where you work, then your grocery bill should drop a bunch.) are 200.  That means 900 a month on food! And just one person?!?

I have a family of two for 400 groceries (which I know some people on here still think is high), and about 50 on restaurants.  So cut out staff dinners and reduce restaurants to like 2-3 times a month, and you're from 900 to 450.  So a savings of 5400 a year right there.  So expenses go from 38400 a year to 33000.  Plug that into the networthify calculator, and I bet you'll see at least a year come off.  Half your entertainment costs (by going outside, go to free concerts at a local college, free movies, books and videos games from the library, etc.), and you're down to 30,000.!

Definitely worth it in my opinion.

rubybeth

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Re: very basic retirement scenario...
« Reply #14 on: January 19, 2014, 06:24:08 PM »
Another thing to think about: what costs would go away once you're no longer working? Assuming some of these costs are sort of work-related, like gas, parking, and staff dinners. But also, you might pay more for medical insurance.

I have a few different spending plans figured out; one that's our current level of spending, one that takes into account a mortgage vs. rent (utilities costs would go up), one that assumes more travel since we'd be retired, etc. They are all within a few thousand of each other, but they help me think about the kind of lifestyle we'd have upon retirement.

FuckRx

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Re: very basic retirement scenario...
« Reply #15 on: January 19, 2014, 06:53:14 PM »

true, I didn't take that into account. Certainly the work dinners (I buy the staff food on long shifts) and gas will be cut back a lot as long as I don't replace it with increase entertainment expense.

oldtoyota

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Re: very basic retirement scenario...
« Reply #16 on: January 19, 2014, 07:30:11 PM »
Mashori--You are a doctor, right? It might be more cost effective to have healthy snacks for people rather than take everyone to dinner. Will your practice pay for the food? I thought you were a part owner. If you are, indeed, an owner, then you could make that a business expense paid from the business.


FuckRx

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Re: very basic retirement scenario...
« Reply #17 on: January 23, 2014, 12:29:33 AM »
yes doctor, but I can't dictate what other people like to eat. but as I mentioned that expense would certainly disappear.

dude

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Re: very basic retirement scenario...
« Reply #18 on: January 23, 2014, 06:30:06 AM »
It's interesting that you never really think about how much more effective it is to spend less vs earn more... makes a lot of sense. 2 years is a huge difference. Thanks for the numbers and I like that calculator, it helps a lot, messed around with it quite a bit.

Yep, that is the essence of Mustachianism; the great wake up call; the epiphany if you will.  It was staring me right in the face all the time, too, but I didn't see it until I came to this website.  I know this has been the case for many others as well.