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Basic numbers for a successful retirement.
Old 11-04-2011, 11:03 AM   #1
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Basic numbers for a successful retirement.

There are 5 fundamental numbers that radically influence your retirement projections.

1) Your initial spending
2) Your income
3) Your capital
4) Rate of return
5) Rate of inflation.

and your control over these numbers decreases as you go down the list. Here are my current assumptions (annually)

1) $30000
2) $15000
3) $750000
4) 4%
5) 3%

The worry is that numbers 4 and 5 are most dependent on factors out of your control. If you can beat the market or can live with risk you have some control over your rate of return, but you're not immune to economic conditions and interest rates - and inflation is the real joker in the pack.

So what are your numbers?
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Old 11-04-2011, 12:17 PM   #2
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is 4 a real return then, as in 7% including inflation and 4% without?


I use 6% real return and 3% inflation, but test with a range of possibilities to ensure there is a plan B available.


The rest is a mish-mash of different incomes and expenses coming and going well into retirement, not amenable to single numbers.
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Old 11-04-2011, 12:28 PM   #3
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4) Rate of return
Especially rate of return in first N years when you start withdrawing funds. These years will matter much more than following years - I suggest having 2 rates for returns for first N years and thereafter... Then see how much things change when you change the first number to something smaller or even negative... (since chances of few bad years are more likely than average bad returns over longer periods of time)
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Old 11-04-2011, 12:32 PM   #4
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is 4 a real return then, as in 7% including inflation and 4% without?
4% is the nominal return before taxes, so it's just the interest rate on the CD etc. I account for taxes in my annual spending an then inflate that each year.
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Old 11-04-2011, 12:42 PM   #5
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Quote:
Originally Posted by nun View Post
There are 5 fundamental numbers that radically influence your retirement projections.

1) Your initial spending
2) Your income
3) Your capital
4) Rate of return
5) Rate of inflation.

and your control over these numbers decreases as you go down the list. Here are my current assumptions (annually)

1) $30000
2) $15000
3) $750000
4) 4%
5) 3%

The worry is that numbers 4 and 5 are most dependent on factors out of your control. If you can beat the market or can live with risk you have some control over your rate of return, but you're not immune to economic conditions and interest rates - and inflation is the real joker in the pack.

So what are your numbers?
1) $30000 (initial withdrawal)

4) 6% (unadjusted target return)
5) 3% (inflation)
6) 3% SWR Target

Personal returns as of 10/31/2011

1yr --3yr --5yr --10yr
5.2% 9.9% 3.3% 5.1%

SWR
1st year 1.14%
2nd year 1.63%
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Old 11-04-2011, 01:17 PM   #6
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Originally Posted by nun View Post
...
4) Rate of return
5) Rate of inflation.

...

4) 4%
5) 3%

The worry is that numbers 4 and 5 are most dependent on factors out of your control. If you can beat the market or can live with risk you have some control over your rate of return, but you're not immune to economic conditions and interest rates - and inflation is the real joker in the pack.

So what are your numbers?
What do you hope to derive from any numbers posted here? I can't see the point.

FIRECALC will use historical returns and inflation since 1871, and you can see how you would fare in the worst of those scenarios. Isn't that a better perspective than whatever some of us posters might pick for those numbers? You are correct that we have little control over them - picking a number, or averaging other's picks doesn't change that.

-ERD50
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Old 11-04-2011, 01:20 PM   #7
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3) my capital.
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Old 11-04-2011, 01:22 PM   #8
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I start at the top and work down.

In this way I see us in a trailer in Spokane, or ?
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Old 11-04-2011, 01:29 PM   #9
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Originally Posted by ERD50 View Post
What do you hope to derive from any numbers posted here? I can't see the point.

FIRECALC will use historical returns and inflation since 1871, and you can see how you would fare in the worst of those scenarios. Isn't that a better perspective than whatever some of us posters might pick for those numbers? You are correct that we have little control over them - picking a number, or averaging other's picks doesn't change that.

-ERD50
I do some stuff in FireCalc, but have my own spreadsheet as well. As I don't have Monte Carlo calc in that I have to come up with some numbers that I think are sensible. Small initial changes to return and inflation obviously compound over time and I was interested to see the basic assumptions others make.
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Old 11-04-2011, 01:38 PM   #10
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1) $30000 (initial withdrawal)

4) 6% (unadjusted target return)
5) 3% (inflation)
6) 3% SWR Target

Personal returns as of 10/31/2011

1yr --3yr --5yr --10yr
5.2% 9.9% 3.3% 5.1%

SWR
1st year 1.14%
2nd year 1.63%
I consider 6) to be part of 1)

Looking back over the last 5 years my returns have been very variable

Personal returns as of 10/31/2011

1yr ----3yr ----5yr
5.8% 12.4% 1.2%
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Old 11-04-2011, 04:28 PM   #11
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I consider 6) to be part of 1)

Looking back over the last 5 years my returns have been very variable

Personal returns as of 10/31/2011

1yr ----3yr ----5yr
5.8% 12.4% 1.2%
I include 6) as another item because if I exceed it, I reduce 1)
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Old 11-04-2011, 06:24 PM   #12
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I just tried reviewing this with my DW. Her only response was that in the event of my demise she would try to spend it sloowwly. This is what I face every day
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Old 11-04-2011, 06:31 PM   #13
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I just tried reviewing this with my DW. Her only response was that in the event of my demise she would try to spend it sloowwly. This is what I face every day
This sort of thing is why I have enough life insurance so that DW will be a wealthy woman if I get hit by a bus. Covers some of the abject ignrance on investing/money topics.
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