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19 y/o student planning to retire around 40
Old 05-12-2008, 01:36 PM   #1
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19 y/o student planning to retire around 40

The title may scare you, as I do not have that many assets as of yet, but I feel that I can obtain my ultimate goal by the age of 40.

Some information about me:
-19 year old rising junior majoring in Mathematics and Economics at the University of Notre Dame
-Plan on heading into the financial industry after college, possibly a mutual fund accountant or into equity research, the I-banking tip doesn't really seem like it would fit me
-I have been budgeting out much of my planned expenses for when I graduate and have estimated around 25,000 in a city and 20,000 in a more rural area (ignoring, perhaps ignorantly, some major one time expenses). This combined with an expected starting salary of around 65,000 leaves me about $20,000 a year after tax to invest. My plan involves trying to invest 20% pretax money and 30% aftertax money every year into a Roth IRA, 401(k) (if offered) and brokerage/taxable accounts.
-I created a calculator on Excel to try to estimate my retirement plans using different rates, historical rates and the variance in those to obtain reasonable goals and expectations about my plans.
-Books I have read include: The Millionaire Next Door, A Random Walk Down Wall Street, Value Investing, The Evolution of Cooperation, Liar's Poker as well as many economics (not finance) related books
-Books I plan to read include: Security Analysis, The Intelligent Asset Allocator and Beating the Street (Peter Lynch)


As far as my investing (not personal finance issues) goes, I feel the more I learn (taking classes at schools, reading Burton Malkiel ) the less I know. This is not to mean that I am overwhelmed with the wealth of knowledge out there, but that I am torn between index funds and individually investing. As of now, planning my accounts I would invest about 50% in US index funds, 40% in international equity, 5% bonds, 5% cash as I feel I can handle a large amount of risk at this age.

According to my calculations, at the rate I would be going, by the age of 40 I would have between 1.8 and 2.4 mill, assuming I get no raises and no promotions / bonuses, which I obviously expect will grow to the point where I can save a much larger dollar amount than would previously be able to. Assuming the raises / promotions at 3-5% a year would give a reasonable estimate of 4 to 5.4 mill by the age of 40. Obviously, things in personal finance come up as I hope that my health will be able to hold out and I will eventually be able to have children and a family (probably the largest investment left to make) which will make things as of now far less predictable.

Just thought I would like to introduce myself to these boards, and am still wondering if I am the youngest person on these boards... it could be possible.

-Dan
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Old 05-12-2008, 01:54 PM   #2
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Hi Dan. Welcome to the board.

Congrats on your early planning. What rate of return are you using to get 1.8 to 5.4mm in 20 years?

Are you saving for a house?
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Old 05-12-2008, 04:28 PM   #3
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I did an average of 11% on my three investment options (brokerage/taxable, Roth IRA, 401(k) if it is offered). I plan on spending very little money and being able to put away about 15000 a year outside of my expenses.

I do plan on buying a house, soon after leaving college, and have included this as a possibility in some of my expenses. Outside of a solid 15 year mortgage, I still think with 70k pretax, I would be able to invest about 9k a year.
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Old 05-12-2008, 05:22 PM   #4
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Welcome, Dan!

20 years is a long time, and lots of unforeseen things can happen. I have absolutely no idea whether you will reach financial independence by age 40. I do feel confident that if you stick to your plan, you will be better off than the average 40-year-old.

Another investment classic worth reading: Common Stocks and Uncommon Profits, by Philip Fisher.

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Originally Posted by CitricAcid View Post
majoring in Mathematics and Economics at the University of Notre Dame
That's the one they mispronouce Noter Daymm, right? Strange things happen when Americans try to speak French!
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Old 05-13-2008, 07:16 AM   #5
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So you will have 15k to start saving after school?

I would change your projections to a more conservative 8% earnings per yr. So starting with 15k with a 5% increase/yr earning 8% annually, I get around 1.1mm after 20 years. 1.55mm using 11% earnings.

It's a great start. I started saving when I was 17 but had no idea what I was doing, so you're way ahead of the game.
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Old 05-13-2008, 04:36 PM   #6
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Welcome! I have a few comments

1) Congrats on your planning. One can never plan enough.

2) 11% is unrealistic IMO for a geometric mean. I would use something more like 8%

3) I won't say whether 40 is attainable or not with your starting salary since the variables are massive, but its always great to have a goal

4) Life is going to throw you curves. If you remain single, your plan will be easier to achieve but if you get married and have kids, you are likely going to have to change

5) Have goals, but be flexible enough to change them as life throws you different situations.
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Old 05-13-2008, 05:25 PM   #7
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I think 8% is more realistic the more I have been looking at it, but given a certain mdoest raise rate of 4% I believe 40 is attainable. (if not 45 seems OK, heh)

Kids and a family would definitely change things from what I have planned now, but I can just plan everything based off my best information as of now, and will adjust accordingly when/if the time comes to make the adjustment.
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Old 05-13-2008, 06:17 PM   #8
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Originally Posted by maldini View Post
4) Life is going to throw you curves. If you remain single, your plan will be easier to achieve but if you get married and have kids, you are likely going to have to change
I was actually going to say the opposite. If you get married and have 2 people working together, you have double the income, double the savings, and roughly the same expenses.
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Old 05-14-2008, 08:55 AM   #9
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Well, it depends. DINK certainly increases earning power, although the "roughly the same expenses" part can vary widely.

But throw one or two children into the mix and the expenses usually grow significantly ... and the income often simultaneously decreases, if one spouse stays home to look after the kids. Even if that spouse subsequently returns to paid employment, their career has been interrupted and may have suffered a permanent setback.

Anyway, such contingencies are well in Dan's future, and aren't really worth planning for now. There's many a slip 'twixt cup and lip!
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Old 05-24-2008, 01:31 PM   #10
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Dan,
....The numbers will vary and stuff will happen in your life but any 19 year old who talks about saving and investing and even knows about 15 year mortgages impresses the heck out of me. YOU can do it by 40 or 45 because you have your head screwed on right. Just do not let some very pretty gold digger mess it up.
Jeff
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Old 05-24-2008, 02:55 PM   #11
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If you're good at the equity research part, you'll make a lot more than $65k a year. Someone who can consistently find alpha is worth a lot of money.
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Old 05-24-2008, 04:22 PM   #12
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First off... congrats on coming to the board....

And also on thinking about this so early...

A few thoughts from someone who did a worksheet when he was 17....

The future will not follow what you have down on paper... so don't sweat it... You have a 'plan' on saving and investing... the rest will take care of itself... and you might make it at 40, or maybe as late as 55... but that is still better than a huge majority of the people...

As for you calcs..... you did not say you threw in inflation on your spending...

You might marry and have kids... a big cash 'sucker'...

You might decide that only spending half your income is not what you want to do all your life... take some trips... buy a house, buy a condo...

Your parents might or might not have enough when they are old and you might have to help

The market could be in a big slump and not grow for the next 20 years... ie ZERO increase.... so an 11% is very aggressive...

SO, as I said, do YOUR part and hope that the rest takes care of itself... and if it does not... you still are ahead of the game...
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