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

Title: Crazy, Sloppy Math Question
Post 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.

Title: Re: Crazy, Sloppy Math Question
Post by: matchewed on October 02, 2013, 07:36:47 AM
It would be extraordinarily simplified but yeah you could say that.
Title: Re: Crazy, Sloppy Math Question
Post by: Kira on October 02, 2013, 07:52:11 AM
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.
Title: Re: Crazy, Sloppy Math Question
Post by: eyePod on October 02, 2013, 08:08:01 AM
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.
Title: Re: Crazy, Sloppy Math Question
Post by: KittyFooFoo on October 02, 2013, 09:45:02 AM
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.
Title: Re: Crazy, Sloppy Math Question
Post by: oldtoyota on October 02, 2013, 02:00:10 PM
Thank you! I am poking around and looking at numbers from different angles. This has been educational. =-)
Title: Re: Crazy, Sloppy Math Question
Post by: oldtoyota on October 02, 2013, 02:01:18 PM
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.