How to Calculate When It's Safe to Retire?

[oldtoyota]

Hi there--

My goal is to retire in 9-10 years.

Before coming to this board, I was thinking of the SWR only. How would I go about calculating dividends from mutual funds? I do not understand how to calculate potential earnings from a mutual fund in the future.

For instance, let's say I have $100K in VTSAX (just as an example). How would I figure out how much of that I could use for living in expenses in 10 years? And would I need to calculate how much it would be worth then? I figure yes, so how would I do that too?

[matchewed]

Well you can handle dividends one of two ways.

With it reinvested it is just a portion of your yield. So if the dividend is 1.5% per year just add 1.5% to the performance of the investment.

If you decide to receive that dividend then consider that a "withdrawal" of 1.5% from that particular investment.

It is tough to answer your question with only looking at a portion of an example. You really need to take into account the entire pie. When calculating the safe to retire you have your SWR number and what the net worth in liquid assets/income would be that would cover that. Once you know the goal you work backwards from there. X amount is in tax deferred, Y amount is in taxable, Z is an income stream from rentals or some such. Once you have all your variable plan out how to withdraw from them in a way that is most tax advantageous to you (mind you the plan may change given tax laws or other unknowns so revisit your plan every year or two). Be flexible.

I know it is not a direct answer but I hope it helps some.

[Mr Mark]

Answer 1:it all depends and it's very complicated, though not hard. See the investor alley threads.

Answer 2: in the usa, you need a stash ( net worth, moderate liquidity) of
Ultra-Mustashian lifestyles, living costs 25-35 k/yr,
-$600, 000

Normal Mustashian life skills, living costs 35-45k/yr
-$1, 000, 000

Partial mustashian life skills, living costs 45-60/ yr
- $1, 500, 000

Face punch-city, you really need more than that?
-$2, 000, 000 to infinity

[gooki]

Multiply your annual expenses by 25 and when your investments reach that number it's safe to retire.

[arebelspy]

Multiply your annual expenses by 25 and when your investments reach that number it's safe to retire.

Hah, good one.

If only it were that simple.

[oldtoyota]

Well you can handle dividends one of two ways.

With it reinvested it is just a portion of your yield. So if the dividend is 1.5% per year just add 1.5% to the performance of the investment.

If you decide to receive that dividend then consider that a "withdrawal" of 1.5% from that particular investment.

It is tough to answer your question with only looking at a portion of an example. You really need to take into account the entire pie. When calculating the safe to retire you have your SWR number and what the net worth in liquid assets/income would be that would cover that. Once you know the goal you work backwards from there. X amount is in tax deferred, Y amount is in taxable, Z is an income stream from rentals or some such. Once you have all your variable plan out how to withdraw from them in a way that is most tax advantageous to you (mind you the plan may change given tax laws or other unknowns so revisit your plan every year or two). Be flexible.

I know it is not a direct answer but I hope it helps some.

Yes. That helps. Thank you. It makes sense to take the whole pie into consideration. For the sake of example, I just listed one sample investment.

Also, I should take into consideration whether I rent out my house or not. I tend to focus on non-real-estate investments and have to remember I may make some changes in that area. =-)

[Nords]

Multiply your annual expenses by 25 and when your investments reach that number it's safe to retire.

Hah, good one.
If only it were that simple.

"For up to 30 years, 95% of the time, with the proper allocation of stocks & bonds, assuming past U.S. stock market performance can be projected into the future."

Adding the rest of the caveats & disclosures would make this read like an annuity contract...