The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Cup of Joe on January 04, 2019, 02:20:55 PM
-
So the assumption is that your STASH may need to sustain you for 60-70 years.
I also plan to continue working through out my life. I just want to NOT HAVE to work if I have an injury occurs, want to travel, etc.
Im wondering how to calculate this?
GOAL: RETIRE BY 40 (31 NOW) 9 YEARS TO ACCOMPLISH!!! BOLD I KNOW
YEARS OF "RETIREMENT": 60
YEARLY EXPENSES: $22,000$
TOTAL AMOUNT: $1,320,000
I am trying to reverse engineer using compounding for the $1,320,000 to see how much I need to input for the subsequent years until 40.
Present Value Year 1:5,000
Interest Rate: 7%
# of Periods: 9
Future Value: 1,320,000
Year 1 $5000
Year 2 ?
Year 3 ?
Year 4 ?
Year 5 ?
Year 6 ?
Year 7 ?
Year 8 ?
Year 9 $1,320,000
Any suggestions?
-
https://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx
You need 9k/mo to save up ~$1.3M in 9 years at 7% interest.
Not sure why you are projecting $1.3M for $22k/yr expenses; at 4% withdrawal rate used around here you only need $550k saved, which you would reach contributing 3600/mo.
-
Oh I see you aren't considering the compounding during the withdrawal phase, only during accrual. That doesn't make sense. Keep earning interest on the money you aren't withdrawing each year!
-
@Cup of Joe, have you read MMM's article on how to calculate the amount you need to retire?
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Find the table of savings rates in that. I think it will give roughly 70% rate for 8.5 years of saving. Try basing your calculations on that. Something like 22,000 / 30% = about 73k take home, I guess. Thus your target can be thought of in take home pay, as a means to obtain the 550k mentioned by @galliver. Maybe you need 90k-95k income depending on your state income tax rate. Feel free to offer more detailed examples to refine your calculation.
-
You are making things far more complicated than they need to be. The 4% rule is a perfectly reasonable approach for calculating how much you can withdraw annually in retirement. Therefore, all you need to do is multiply your desired post-retirement income by 25 to figure out how much you need to have saved (hint: it's not [desired income per year in retirement] x [number of years in retirement]). Then use a web calculator to figure out how much you need to put aside each year to get there.
As you get closer, you will need to do some slightly more complicated analysis to consider inflation, taxes, etc. But for right now, just start socking away as much as you can.
-
As per the shockingly simple retirement math, to retire in 9 years you need to save 70% of your income if starting from 0. Good luck!
-
Why do you expect to live to 100? It shouldn't affect your retirement number math (a 40 year retirement is very close to infinite in terms of investment outcomes), but it's odd. Less than .02% of Americans currently live to 100.
-
Any suggestions?
Use the 4% rule, as suggested by other comments here. Your scenario is waaaaay over saving. The shockingly simple math post linked above is a great starting point.
Other resources:
https://en.wikipedia.org/wiki/Trinity_study
http://www.cfiresim.com/
https://jlcollinsnh.com/2012/12/07/stocks-part-xiii-withdrawal-rates-how-much-can-i-spend-anyway/
https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/
-
Yes, I agree with using the 25x amount of $550K, don't over complicate it.
I think this is the biggest issue that everyone has when first exposed to these concepts are years of drinking the kool-aid that marketing and traditional investment sources toss at you is that this is not that complicated. We are made to think that retirement is hard and therefore the concepts to get there are hard and making it work is hard. In the end spend less than you make, save the rest, and drive that number up to a level you need to hit your target. You do not need 80% of your current income to retire like traditional sites will tell you. You need to get familiar with the base concepts of FI and once you make peace with that, it all flows from there.
-
Looks like I had began with some incorrect assumptions. I read the article but did not truly grasp the compounding and the 4% rule. I still don't really haha but I am one step closer, so I ran some rough numbers.
In order to roughly hit my timeline these are the numbers that were spit out.
Annual Salary: $70,000
Annual Expenses: $21,000
Annual Savings: $48,000
Monthly Savings: $4,083
8.8 Years at 70% savings rate!!!
I know this may change but it seems now I have a much more clear target to aim for.
Thanks for all of the comments. Please interject more!!!!
-
Bear in mind that the 70,000 annual salary in the post above should be annual salary after tax.
What is your actual gross annual salary, and salary after tax?
Or, are you between jobs figuring out what will happen if you get a certain job?
Is the $22,000 annual expenses a real number reported from your actual life?
-
Good point about the post tax income.
No idea what my salary is. Full time student with military ed benefits, side gigs and at times 9-5 work.
I am realizing consistency my biggest weakness.
the 22,000$ is a ball park.
I am starting the habit of expense tracking.