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Old 10-06-2007, 10:19 PM   #41
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Most folks here have pretty sharp pencils. I got the "today's dollars" part in my first reply to you and the "after tax" part after you mentioned it later.
Sorry, I did not mean to say you did not understand.

I was referring to the poster mentioning the $70k based on $3.5M when in reality I think it will be closer to $123k on $3.5M



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You might want to familiarize yourself with FIRECalc: A different kind of retirement calculator and see what it says about you retiring at 50. Just plug the numbers in for where you expect to be at that age and it'll tell you the historical chances of success.
yes I have been using it quite a bit since it was first mentioned in this thread. Thanks!

If I can get to the $3.5M and using the $123k number and hoping to last 43 years, (which is the amount I model to spend in my first year of retirement at age 50), I will get a 91.4% success rate.

Not sure if that is a highest enough number to feel safe, which is why I think I need between $3.5 and $4M.
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Old 10-06-2007, 10:33 PM   #42
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Originally Posted by maldini View Post
I was referring to the poster mentioning the $70k based on $3.5M when in reality I think it will be closer to $123k on $3.5M
Ah.

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yes I have been using it quite a bit since it was first mentioned in this thread. Thanks!
Whoops, I scanned the thread but didn't notice that it had been mentioned before. (Where's the blushing smiley?)

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If I can get to the $3.5M and using the $123k number and hoping to last 43 years, (which is the amount I model to spend in my first year of retirement at age 50), I will get a 91.4% success rate.

Not sure if that is a highest enough number to feel safe, which is why I think I need between $3.5 and $4M.
Yeah, I personally calculate my retirement date based on a 4% withdrawal rate, which is something like 95% safe over 40 years. I guess part of me figures I'll wing it if things go south and I'm actually in the 5% failure mode.

There are sort of two extremes in mental perspective I've seen here. One is the more conservative approach which is to try to cover every base and every eventuality and not count on any safety nets such as inheritances, part time work, reverse mortgages, Social Security, etc. The other is the "I want to retire now" approach which usually says something like, "Well, we probably won't hit the Great Depression, and if we do I can always [get a part time job | take SS early | get a reverse mortgage | spend less]."

The nice thing is that if all goes according to your plans or better, you'll have more and more options with each passing day. So if you wake up at 47 and one or the other of you is laid off, or work becomes toxic, or whatever, you'll have choices.

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Old 10-06-2007, 10:35 PM   #43
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I was referring to the poster mentioning the $70k based on $3.5M when in reality I think it will be closer to $123k on $3.5M
Well, that was me. And you're right, I was mentally normalizing to today's dollars. Most of the time you'll find that monetary discussions here use current spending power. It is usually easier to reduce the expected returns by inflation prior to adding it all up.

Of course, if you are using future dollars, at a 4% inflation rate and a not-unreasonable 5% real return, you'll be up to $3.15 mil from your current $1.3 mil without adding any more to it. Add in your $100k/year (increased for inflation) and you'll be pushing $5 mil in 10 years. If you assume a 4% SWR (which it sounds like you prefer a smaller SWR), your expected pre-tax income would be $200k per year.

Now, I'm nowhere near a tax expert but I did stay at a Holiday Inn Express last night, but it looks like half your assets are already post-tax accounts, and you'll be contributing more heavily to post-tax accounts as well. So not all of your spending power will be taxed as income (maybe half?), and so that 20% effective tax rate doesn't seem right there.
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Old 10-06-2007, 10:48 PM   #44
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Well, that was me. And you're right, I was mentally normalizing to today's dollars. Most of the time you'll find that monetary discussions here use current spending power. It is usually easier to reduce the expected returns by inflation prior to adding it all up.
Yah that is my mistake. I think I have been mixing todays expenses with tomorrow's portfolio needs and its confusing the discussion. I apologize for that.


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Of course, if you are using future dollars, at a 4% inflation rate and a not-unreasonable 5% real return, you'll be up to $3.15 mil from your current $1.3 mil without adding any more to it.
My goal is 7.5% or a 3.5% real return. I have been doing better than this on average, but that is the goal.


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Add in your $100k/year (increased for inflation) and you'll be pushing $5 mil in 10 years.
We don't expect that we will be able to continue our savings rate which is why the goal is to save $30k a year.

Believe me, if I thought for even a second that the $5M number was achievable in 10 years, I don't think I would even post here as I would be as certain as could be that I could retire at 50.


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Now, I'm nowhere near a tax expert but I did stay at a Holiday Inn Express last night, but it looks like half your assets are already post-tax accounts, and you'll be contributing more heavily to post-tax accounts as well. So not all of your spending power will be taxed as income (maybe half?), and so that 20% effective tax rate doesn't seem right there.
You are right and I struggle with this.

There will be some combination or income tax from the retirement accounts and capital gains from the non retirement accounts. What the rate will be is anyones guess. It could be 10%, it could be 25%. Impossible to guess without knowing what the tax laws will be.

As always I would rather skew towards more conservative rather than less conservative.
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Old 10-06-2007, 10:54 PM   #45
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There are sort of two extremes in mental perspective I've seen here. One is the more conservative approach which is to try to cover every base and every eventuality and not count on any safety nets such as inheritances, part time work, reverse mortgages, Social Security, etc. The other is the "I want to retire now" approach which usually says something like, "Well, we probably won't hit the Great Depression, and if we do I can always [get a part time job | take SS early | get a reverse mortgage | spend less]."
I definitely skew much more towards the first group.

My goal is to try and cover everything I can understand today and then for all the unknowns that 40+ years will throw at me, I hope to cover that with items like social security, reverse mortgages, inheritances or even simply reducing our retirement expenses.
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Old 10-06-2007, 11:03 PM   #46
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Yup, you're a lot more conservative than most people on the board. Your assumptions across the board are pretty much worst case scenarios -- inflation, low returns, high taxes. And if that's what it takes for you to enjoy retirement, that's what you should do.

Most of us are a lot more willing to go with the 90% (or less) scenario and modify spending if the bottom does fall out of the market. So that's why you're getting a lot more of the "why wait until 50 when you could retire at 45?" comments than you are getting encouragement to keep plugging for another 10 years.
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Old 10-06-2007, 11:13 PM   #47
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Yup, you're a lot more conservative than most people on the board. Your assumptions across the board are pretty much worst case scenarios -- inflation, low returns, high taxes. And if that's what it takes for you to enjoy retirement, that's what you should do.
not sure I buy this as worst case.

4% "real" inflation (not the one quoted by the media) is not worst case IMO. Items like health care alone should make people realize this.

Also, anyone who lived through the dot com bubble knows that a geometric mean of 7.5% is not really worst case either.

Conservative? Yes
Worst case? Not IMO


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Most of us are a lot more willing to go with the 90% (or less) scenario and modify spending if the bottom does fall out of the market. So that's why you're getting a lot more of the "why wait until 50 when you could retire at 45?" comments than you are getting encouragement to keep plugging for another 10 years.
Believe me, no one will be happier than I if my estimates are proven to be conservative over the next 5 years and I can actually retire at or before 50.



Thank you for all your help in this thread. If anything that fact that people are telling me that I am being conservative is great because that is my intention. It would have been much worse if people said I was being realistic or even worse I was being too aggressive that would have been crushing.

To use your words, if retiring at 50 is close to "worst case", then thats not too bad
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Old 10-06-2007, 11:48 PM   #48
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While that was a good note to end things on, I just couldn't resist, since you took my phrase and ran with it. Obviously having the stock market go up over the next 10 years isn't worst case. You're right, conservative is a better word. But, heck, you're planning for the year 2057.
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Old 10-06-2007, 11:54 PM   #49
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While that was a good note to end things on, I just couldn't resist, since you took my phrase and ran with it. Obviously having the stock market go up over the next 10 years isn't worst case. You're right, conservative is a better word. But, heck, you're planning for the year 2057.
lol, how insane is that?

Most people I know aren't planning for next year

oh well, it is a hobby
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Old 10-07-2007, 01:32 AM   #50
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Welcome to the board, Maldini.

It sounds like the last 40+ posts have been along the lines of "Help me find the mistakes, if there are any" and "I sure hope I don't #$%^ this up". Between FIRECalc and your spreadsheets you'd have found any holes big enough to matter. If you go looking for a financial advisor you may spend a lot of time correcting their math and being frustrated by their lack of attention to detail.

If you want to get a feel for tweaking the parameters, though, it's well worth the $40 for a three-month membership at FinancialEngines. With your spreadsheet skills and their modeling you'll be able to figure out if you've left out any significant factors. Monte Carlo is a little more conservative than FIRECalc's historical record but you'll be able to test all sorts of assumptions & asset allocations.

You may also be able to access FE for free through one of your fund companies.
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OK couldn't resist
Old 10-07-2007, 04:32 AM   #51
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OK couldn't resist

You touched a nerve when suggesting for this gentleman to talk to a financial planner. Just humor yourself. Go find a financial planner who is either

a) your same age (38, i think you said) and has the same or more net worth than you (I think you said about $1.8M)

or

b) a financial planner who is older, but had the equivalent of what you have today when he/she was your same age.

You'll be hard pressed to find one that fits the criteria.

I searched for 2 years to find a fee-only advisor that fit the criteria and never found one. Plenty of snake charmer insurance salesmen out there - but few with any real personal skin in the game. Point is - be careful. You've done well without seeking "expert" advice. Financial expertise is not rocket science - anyone with an analytic bend can do it themselves - as an engineer, you've easily got 98% of it down and the other 2% wont really make much of a difference to the taste of your Cheerio's when you do retire!
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Old 10-07-2007, 07:17 AM   #52
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Interesting thread. I was surprised to see the skepticism about OPs need for $3+M since he is aiming for 10 years out and needs to anticipate inflation during those years. But the strangest thing was to diss his savings. Heck, they are doing great. How can you knock $100K+ at their income level? Should they live like paupers so they can shave a year off work? It seems to me they have a solid plan that balances a reasonable work life period with a nice extended ER. They will beat me by 6 years and I am the youngest guy to pull the plug on my block.
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Old 10-07-2007, 08:43 AM   #53
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Using a retirement calculator on the MSN Money site, I figure you'll have at least $140,000 in todays dollars to spend each year when you hit 50. That's making a lot of assumptions, however.

Congrats, I think your plan is working great.

Jim.
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Old 10-07-2007, 11:10 AM   #54
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I'm a newguy here as well, and Maldini you seem to be all over it - congrats on your efforts, plus your thread has added a few more ideas for consideration on my side. this is good stuff.

thanks and best of luck.
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Old 10-07-2007, 11:33 AM   #55
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Using a retirement calculator on the MSN Money site, I figure you'll have at least $140,000 in todays dollars to spend each year when you hit 50. That's making a lot of assumptions, however.

Congrats, I think your plan is working great.
Thanks for running the numbers.

I do understand the assumptions. As an earlier poster astutely pointed out, planning today for what may happen 40-50 years from now is pretty much fraught with assumptions.
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Old 10-07-2007, 11:34 AM   #56
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I'm a newguy here as well, and Maldini you seem to be all over it - congrats on your efforts, plus your thread has added a few more ideas for consideration on my side. this is good stuff.
Thanks and thats cool. Feel free to post here with any questions you might have on what I have done and how it may be useful to you.
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Old 10-07-2007, 07:57 PM   #57
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But the strangest thing was to diss his savings. Heck, they are doing great. How can you knock $100K+ at their income level? Should they live like paupers so they can shave a year off work? .
This puzzled me as well.

I even went back today and updated all my numbers and happily things look even better than what I first posted(which was based on last months numbers).

Retirement savings are up to $1.42M now and the separate 529 plan is up to $84k.
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Old 10-07-2007, 08:37 PM   #58
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Maldini, sounds like you've done a great job in both your current financial situation and your projections. It's taught me that I've not been conservative enough in my own projections. I've now modified my spreadsheet to assume a 7.5% return (instead of 8%) and a 4.5% inflation rate (instead of 3.5%). I just have to figure out how to better figure taxes in as I was just winging it up until now.
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Old 10-08-2007, 03:19 AM   #59
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Maldini
I agree with Papadad111...you probably won't find a fee based financial planner who has done or will be able to do better than you have.

I took a look at your numbers and your assumptions, which are conservative, but strikingly similar to what I have used in my own calculations. I think you have done a great job with the calcs as well as getting this far at age 39.

We (DW and I) are looking at a similar endgame but hopefully a slightly larger starting point for FIRE (trying for about 5M at about 48). That gives us a little more to leave behind, or for unexpected expenses. FireCalc says we can manage with a SWR of 3.38% (given conservative inflation and rates of return), but we are shooting for a more conservative 2.75% + or -. The reason is the ups and downs in the market, always having 3+ years worth of after-tax living expenses in liquid accounts (tiered CDs or state muni MM, or some mixture of those), and a hope to leave a little behind for the kids (not telling them...want them to do their best on their own). We've got around 18-20 months to go until the FI part...RE will depend on the FI as well as being able to get my replancement in place and trained.

Personally I think you will end-up closer to (or a little higher than) 4m than 3.5m. If you applied the 3.38% rate, giving you somewhere on the order of 135-140k.

Hope you get there! Good luck.

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Old 10-08-2007, 06:44 AM   #60
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Maldini, sounds like you've done a great job in both your current financial situation and your projections. It's taught me that I've not been conservative enough in my own projections. I've now modified my spreadsheet to assume a 7.5% return (instead of 8%) and a 4.5% inflation rate (instead of 3.5%). I just have to figure out how to better figure taxes in as I was just winging it up until now.
Thank you for your kind words.

If you do figure out how to handle the taxes please let me know. My effective tax rate in retirement is almost a total guess at this point.
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