The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: oldtoyota on October 02, 2013, 07:27:58 AM

Let's say you saved $40K per year and needed $400K to retire. If you wanted to do a sloppy calculation, couldn't you just say you'd have the necessary $400K in 10 years?
This would not factor in compound interest, so you'd actually end up with more if the market did not completely tank. Is that right?
I realize this doesn't factor in how much you'd need to withdraw, but this calculation makes the assumption that $400K is what is needed so future expenses would have been calculated already.
The above might seem like a nutty question, but I think it will help me understand how to calculate something else.

It would be extraordinarily simplified but yeah you could say that.

The only thing I'd think would mess up that calculation is inflation  40k in year 1 is different than the 40k you save in year 10. But otherwise yes I don't see how you could come to another conclusion, mathematically.

Sure, but you'd be losing out on a ton of money. Assuming 3% inflation and 7% return (for a 4% overall rate), you'd be 90k over the mark by year 9.
Also, if you include the interest above, you'd hit 400k in between year 8 and 9.

A rough way to estimate how much $X/year turns into after 10 years of investing:
Add half to $X, maybe rounding down a little. Multiply by 10. (this is closeish to dividing X by 12 and multiplying by 173, which is the multiplier for monthly savings after 10 years, taking interest into account)
So in your case, you could ballpark the $40k/year at $600k after 10 years.

Thank you! I am poking around and looking at numbers from different angles. This has been educational. =)

Sure, but you'd be losing out on a ton of money. Assuming 3% inflation and 7% return (for a 4% overall rate), you'd be 90k over the mark by year 9.
Also, if you include the interest above, you'd hit 400k in between year 8 and 9.
Very good point! Being over would be okay though.