Hello!
My wife and I currently have $200k in taxable investments (VTSAX), and $170k in IRAs/401(k)s. We're 36 and 35, and would like to retire in 12 years. For example purposes, say we want to withdraw $80k / year once we retire.
I'm getting inconsistent results when I try to figure out how much we'll need to have in 12 years (so we know how much we need to invest per month), so I'd appreciate if you could tell me where I'm going wrong.
Simple Calculation4% rule: $80,000 * 25 = $2,000,000 required to retire
This shows, to get to $2,000,000 in 12 years, we have to invest $7,700/mo for 12 years (I entered 7% return - 3% inflation = 4% return):
https://www.calculator.net/investment-calculator.html?ctype=endamount&ctargetamountv=36500&cstartingprinciplev=370000&cyearsv=12&cinterestratev=4&ccontributeamountv=7700&ciadditionat1=monthly&printit=0&x=0&y=0Slightly Less Simple CalculationWe need our VTSAX withdrawals to last from my age 48 till 59.5 = 11.5 years (for simplicity, assume we don't plan to withdraw from retirement accounts early).
So, working backwards, this shows if we withdraw $6,666/mo ($80k / year) in today's dollars and we have $742k in VTSAX, it'll last 11.5 years (I entered 7% return - 3% inflation = 4% return):
https://www.calculator.net/retirement-calculator.html?cneededamount=742000&cmonthlywithdraw=6666&cinterestrate=4&ctype=4&x=0&y=0#howlongtowithdrawIs that right though? If we say a 7% return rate, but take out 3% for inflation, does that mean we'll be withdrawing $80k / year in today's dollars, i.e. we'll actually increase the withdrawals each year by inflation, assuming that's 3% each year?
If that is correct, then to get $742k in VTSAX, we need to invest $2,300/mo for the next 12 years into VTSAX, assuming a 4% return rate (7% return - 3% inflation):
https://www.calculator.net/investment-calculator.html?ctype=endamount&ctargetamountv=36500&cstartingprinciplev=200000&cyearsv=12&cinterestratev=4&ccontributeamountv=2300&ciadditionat1=monthly&printit=0&x=0&y=0So that gets us to age 59.5. Then we'll tap retirement accounts.
Now, to see how long our retirement accounts will last, we'll invest the remaining amount from the Simple Calculation to retirement accounts. That said that we need to invest $7,700/mo, so $7,700 - $2,300 to VTSAX = $5,400/mo should go to retirement accounts.
If we do that for 12 years, we'll have $1,200,000 in retirement accounts:
https://www.calculator.net/investment-calculator.html?ctype=endamount&ctargetamountv=36500&cstartingprinciplev=170000&cyearsv=12&cinterestratev=4&ccontributeamountv=5400&ciadditionat1=monthly&printit=0&x=0&y=0Then that sits another 12 years (to take me to age 60), and becomes $2,000,000:
https://www.calculator.net/investment-calculator.html?ctype=endamount&ctargetamountv=36500&cstartingprinciplev=1263000&cyearsv=12&cinterestratev=4&ccontributeamountv=0&ciadditionat1=monthly&printit=0&x=99&y=22This shows $2,000,000 with an $80k / year (today's dollars) withdrawal rate would last *102 years*:
https://www.calculator.net/retirement-calculator.html?cneededamount=2000000&cmonthlywithdraw=6666&cinterestrate=4&ctype=4&x=71&y=20#howlongtowithdrawI'm not ruling it out, but I don't think we'll live to 162 years old.
So my main question is why does a $7,700/mo investment until ER in 12 years, as the 4% rule seems to suggest we need, seem like overkill? I know this doesn't take into account taxes, and I know I shouldn't count on 7%, but I'd be fine if our retirement accounts lasted ~30 years, not 102 years.
Or it's entirely possible some of my calculations are wrong. I just feel like I'm going in circles here.
Thank you!