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Basic numbers for a successful retirement.
11-04-2011, 10:03 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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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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11-04-2011, 11:17 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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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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11-04-2011, 11:28 AM
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#3
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Recycles dryer sheets
Join Date: Sep 2009
Posts: 353
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Quote:
Originally Posted by nun
4) Rate of return
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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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11-04-2011, 11:32 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by Animorph
is 4 a real return then, as in 7% including inflation and 4% without?
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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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11-04-2011, 11:42 AM
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#5
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,124
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Quote:
Originally Posted by nun
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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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%
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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11-04-2011, 12:17 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,888
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Quote:
Originally Posted by nun
...
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?
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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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11-04-2011, 12:20 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,588
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3) my capital.
__________________
I have outlived most of the people I don't like and I am working on the rest.
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11-04-2011, 12:22 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,588
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I start at the top and work down.
In this way I see us in a trailer in Spokane, or ?
__________________
I have outlived most of the people I don't like and I am working on the rest.
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11-04-2011, 12:29 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by ERD50
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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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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11-04-2011, 12:38 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by Alan
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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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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11-04-2011, 03:28 PM
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#11
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,124
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Quote:
Originally Posted by nun
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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I include 6) as another item because if I exceed it, I reduce 1)
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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11-04-2011, 05:24 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,985
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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
__________________
Took SS at 62 and hope I live long enough to regret the decision.
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11-04-2011, 05:31 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by foxfirev5
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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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.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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