Author Topic: How to determine investments exceed income and spending  (Read 395 times)

merlin7676

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How to determine investments exceed income and spending
« on: March 15, 2021, 11:29:10 AM »
Just curious how most people determine when their investment income exceeds their work income and spending.

For example if I had 500K in my investments, then at 4% (500x.04)=20K a year or $1667.00 a month

Obviously for this example, that's gross so it doesn't account for taxes and whatnot.

Or do people do a much more detailed plan which includes taxes and healthcare and everything else?


Catbert

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Re: How to determine investments exceed income and spending
« Reply #1 on: March 15, 2021, 12:00:57 PM »
Taxes and health care are part of your spending just like mortgages and food.

In the early days of saving toward FIRE you might pick a portfolio number to aim for based on your current spending.  As you get closer to actually retiring you'll need to get a more detailed post-retirement budget and adjust what you need.

merlin7676

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Re: How to determine investments exceed income and spending
« Reply #2 on: March 15, 2021, 12:16:57 PM »
That's what I meant. Based on my current spending, my investments (by month) exceed my spending (not including mortgage) but my work pays the health care and taxes, etc.

When I retire, I won't have a mortgage but I will have taxes and healthcare costs.

So to determine if my investment income exceeds my (projected) retirement spending income, I'd need to make a detailed sheet with all the estimated costs correct?

yachi

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Re: How to determine investments exceed income and spending
« Reply #3 on: March 15, 2021, 12:55:22 PM »
Right.  You'll have to figure out what health insurance will cost you: maybe look at pricing on the ACA marketplace using a projected income.  You'll have to figure out what taxes look like based on what you need to withdrawal to cover your expenses including health care and taxes: you could fill out a taxform using these projected numbers to make sure you won't have any surprises.  Some things like the Earned Income Tax go away when you don't have job income.

Then add all this up and divide by 4% to get your target investment goal.*

*If you're young, 4% won't give you 100% success rates in FireCalc, so you may need to adjust and/or be willing to do something Mustachian like spend less or do some side work in retirement.