### Author Topic: Am I Calculating This Correctly?  (Read 4621 times)

#### kkbmustang

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##### Am I Calculating This Correctly?
« on: March 05, 2014, 10:11:50 PM »
I was just looking at our investments in Mint. Our tax sheltered retirement accounts are just under \$350k. I'm 41 and my husband is 43. If we never put another dime in there but reinvest dividends/earnings, by the time I reach 66, assuming an 8% return, I get that gives us a balance of \$2.4 million and a SWR of \$95k per year.  Is my math right?

#### MDM

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##### Re: Am I Calculating This Correctly?
« Reply #1 on: March 05, 2014, 10:41:19 PM »

Check back in 25 years to see if your assumptions were also.

#### arebelspy

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##### Re: Am I Calculating This Correctly?
« Reply #2 on: March 05, 2014, 11:30:31 PM »
I was just looking at our investments in Mint. Our tax sheltered retirement accounts are just under \$350k. I'm 41 and my husband is 43. If we never put another dime in there but reinvest dividends/earnings, by the time I reach 66, assuming an 8% return, I get that gives us a balance of \$2.4 million and a SWR of \$95k per year.  Is my math right?

Well the math is right if you're assuming a 4% SWR (you'll have about 96k/yr).

Here's the caveat: 2.4MM in 25 years won't be worth nearly what it is now (ditto the 95k income), and an 8% real return (i.e. after inflation) seems unlikely.

Better, IMO, to think of it in real dollars.  So if you assume an 8% return and 3% inflation (so 5% real return), then you'd have 2.4MM in nominal dollars at that time, but that'd be equivalent to ~1,185k in today's dollars, or (at a 4% SWR) about \$47,000 per year in today's dollars.

But yes, all your math was correct, just adding that on as well.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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#### dragoncar

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##### Re: Am I Calculating This Correctly?
« Reply #3 on: March 05, 2014, 11:41:19 PM »
I was just looking at our investments in Mint. Our tax sheltered retirement accounts are just under \$350k. I'm 41 and my husband is 43. If we never put another dime in there but reinvest dividends/earnings, by the time I reach 66, assuming an 8% return, I get that gives us a balance of \$2.4 million and a SWR of \$95k per year.  Is my math right?

Well the math is right if you're assuming a 4% SWR (you'll have about 96k/yr).

Here's the caveat: 2.4MM in 25 years won't be worth nearly what it is now (ditto the 95k income), and an 8% real return (i.e. after inflation) seems unlikely.

Better, IMO, to think of it in real dollars.  So if you assume an 8% return and 3% inflation (so 5% real return), then you'd have 2.4MM in nominal dollars at that time, but that'd be equivalent to ~1,185k in today's dollars, or (at a 4% SWR) about \$47,000 per year in today's dollars.

But yes, all your math was correct, just adding that on as well.  :)

Yep, the historical real total returns of the S&P500 are around 6.7%.  But who knows if you can use the number going forward?

#### crk

• Posts: 10
##### Re: Am I Calculating This Correctly?
« Reply #4 on: March 06, 2014, 04:53:49 AM »
Arebelspy is double counting inflation (real returns are by definition adjusted for inflation) but the other commentators are correct that achieving nominal returns of 8% consistently probably isnt something you can count on.  I think the only people that would tell your this is a realistic assumption would be legislators trying not to use tax dollars to fund their underfunded public pensions, as that is the benchmark they use and you can see where it has got them

#### arebelspy

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##### Re: Am I Calculating This Correctly?
« Reply #5 on: March 06, 2014, 05:43:03 AM »
Arebelspy is double counting inflation (real returns are by definition adjusted for inflation) but the other commentators are correct that achieving nominal returns of 8% consistently probably isnt something you can count on.

I surely am not.  Naturally real returns are adjusted for inflation, but the OP didn't specify real return, just "return."

Thus an 8% nominal return = a 5% real return, a decent conservative estimate (as dragoncar said, historical is 6.7% real). Therefore I put the numbers into real dollars (with the real return of 5%, rather than the nominal 8% return).  OP could have meant 8% real return (11% nominal return), but it wasn't clear, so I gave the inflation adjusted numbers.  As I said, "an 8% real return (i.e. after inflation) seems unlikely."

Hope that clears things up.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

#### soccerluvof4

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##### Re: Am I Calculating This Correctly?
« Reply #6 on: March 06, 2014, 05:59:53 AM »
Arebelspy is double counting inflation (real returns are by definition adjusted for inflation) but the other commentators are correct that achieving nominal returns of 8% consistently probably isnt something you can count on.

I surely am not.  Naturally real returns are adjusted for inflation, but the OP didn't specify real return, just "return."

Thus an 8% nominal return = a 5% real return, a decent conservative estimate (as dragoncar said, historical is 6.7% real). Therefore I put the numbers into real dollars (with the real return of 5%, rather than the nominal 8% return).  OP could have meant 8% real return (11% nominal return), but it wasn't clear, so I gave the inflation adjusted numbers.  As I said, "an 8% real return (i.e. after inflation) seems unlikely."

Hope that clears things up.  :)

Off subject a bit but for my own calculations is there a more conservative number that you use and perhaps an example that you would use or show. Not to debate but simply I like to be a bit conservative as i just mentioned. Knowingly nothing is guaranteed no matter what you use. Thanks

#### arebelspy

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##### Re: Am I Calculating This Correctly?
« Reply #7 on: March 06, 2014, 06:06:14 AM »
Off subject a bit but for my own calculations is there a more conservative number that you use and perhaps an example that you would use or show. Not to debate but simply I like to be a bit conservative as i just mentioned. Knowingly nothing is guaranteed no matter what you use. Thanks

Like I said, 5% real (8% nominal, 3% inflation) is probably what I'd use, but you can go as conservative as you want.

3% real is even more conservative than 5, and 0% real (i.e. returns match inflation) is even more conservative still.  :)

It's sort of a situation where you should research the history as well as the current state of things, and decide for yourself what numbers make you comfortable in your projections.

www.cfiresim.com is a great tool here.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

#### soccerluvof4

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##### Re: Am I Calculating This Correctly?
« Reply #8 on: March 06, 2014, 06:36:28 AM »
Off subject a bit but for my own calculations is there a more conservative number that you use and perhaps an example that you would use or show. Not to debate but simply I like to be a bit conservative as i just mentioned. Knowingly nothing is guaranteed no matter what you use. Thanks

Like I said, 5% real (8% nominal, 3% inflation) is probably what I'd use, but you can go as conservative as you want.

3% real is even more conservative than 5, and 0% real (i.e. returns match inflation) is even more conservative still.  :)

It's sort of a situation where you should research the history as well as the current state of things, and decide for yourself what numbers make you comfortable in your projections.

www.cfiresim.com is a great tool here.

#### crk

• Posts: 10
##### Re: Am I Calculating This Correctly?
« Reply #9 on: March 06, 2014, 07:51:05 AM »
Arebelspy is double counting inflation (real returns are by definition adjusted for inflation) but the other commentators are correct that achieving nominal returns of 8% consistently probably isnt something you can count on.

I surely am not.  Naturally real returns are adjusted for inflation, but the OP didn't specify real return, just "return."

Thus an 8% nominal return = a 5% real return, a decent conservative estimate (as dragoncar said, historical is 6.7% real). Therefore I put the numbers into real dollars (with the real return of 5%, rather than the nominal 8% return).  OP could have meant 8% real return (11% nominal return), but it wasn't clear, so I gave the inflation adjusted numbers.  As I said, "an 8% real return (i.e. after inflation) seems unlikely."

Hope that clears things up.  :)

#### kkbmustang

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##### Re: Am I Calculating This Correctly?
« Reply #10 on: March 06, 2014, 08:26:40 AM »
Arebelspy is double counting inflation (real returns are by definition adjusted for inflation) but the other commentators are correct that achieving nominal returns of 8% consistently probably isnt something you can count on.

I surely am not.  Naturally real returns are adjusted for inflation, but the OP didn't specify real return, just "return."

Thus an 8% nominal return = a 5% real return, a decent conservative estimate (as dragoncar said, historical is 6.7% real). Therefore I put the numbers into real dollars (with the real return of 5%, rather than the nominal 8% return).  OP could have meant 8% real return (11% nominal return), but it wasn't clear, so I gave the inflation adjusted numbers.  As I said, "an 8% real return (i.e. after inflation) seems unlikely."

Hope that clears things up.  :)

Thanks arebelspy. I was, indeed, using 8% to take into account 3% inflation and a 5% real return. And a 4% SWR. I'm simply trying to determine where we are right now with our tax advantaged investments.

#### arebelspy

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##### Re: Am I Calculating This Correctly?
« Reply #11 on: March 06, 2014, 08:30:22 AM »
Arebelspy is double counting inflation (real returns are by definition adjusted for inflation) but the other commentators are correct that achieving nominal returns of 8% consistently probably isnt something you can count on.

I surely am not.  Naturally real returns are adjusted for inflation, but the OP didn't specify real return, just "return."

Thus an 8% nominal return = a 5% real return, a decent conservative estimate (as dragoncar said, historical is 6.7% real). Therefore I put the numbers into real dollars (with the real return of 5%, rather than the nominal 8% return).  OP could have meant 8% real return (11% nominal return), but it wasn't clear, so I gave the inflation adjusted numbers.  As I said, "an 8% real return (i.e. after inflation) seems unlikely."

Hope that clears things up.  :)

Thanks arebelspy. I was, indeed, using 8% to take into account 3% inflation and a 5% real return. And a 4% SWR. I'm simply trying to determine where we are right now with our tax advantaged investments.

Gotcha, that's what I figured.  Well in 25 years, with a 5% real return over that time frame, you'll be able to withdraw about 47k annually in today's dollars.

Sounds like you're good on that part.. just need to fund the next 25 years.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

#### kkbmustang

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##### Re: Am I Calculating This Correctly?
« Reply #12 on: March 06, 2014, 10:01:39 PM »
Yep. I also calculated it assuming we continue to contribute \$25k per year in tax advantaged accounts (to reduce taxable income). Fast forward, that ends up over \$4 million and \$174k per year SWR, Adjusting down for inflation = good to go. That completely excluded SS, equity in our home, 4 year public college tuition for both kids and the high inheritance likelihood we have. Sooo, like you said, we just need to focus on the near term.

#### arebelspy

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##### Re: Am I Calculating This Correctly?
« Reply #13 on: March 07, 2014, 06:13:21 AM »
BTW - the math shows it's (very likely) totally worth continuing to max retirement accounts, and then tapping them when necessary.  Don't just start taxable because your 59.5/65+ bucket is covered.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

#### kkbmustang

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##### Re: Am I Calculating This Correctly?
« Reply #14 on: March 07, 2014, 01:32:03 PM »
BTW - the math shows it's (very likely) totally worth continuing to max retirement accounts, and then tapping them when necessary.  Don't just start taxable because your 59.5/65+ bucket is covered.

Nah. We'll continue to use the tax deferred accounts to the extent permissible. :)