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Before RE; did you belive the numbers?
Old 10-04-2005, 07:15 PM   #1
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Before RE; did you belive the numbers?

I have a spread sheet that project my current net worth and estimated expenses. It is very conservative.

My current net worth as of today is $1.5m (I just sold my house, so I do not have any debts and is in money market funds - it is a solid number - no doubt about it).

I estimate that I will buy a $275K home in 1 year and estimate my living expenses at 45K/year (after taxes) growing at 4%/year.

I estimate my $1.225m will grow at 5%/year after taxes or about 6.5% before taxes.

I get social securty (highest rate at 62) and 13K pension at 61.

So my spread sheet tell me that when I die at 84 (34 years from now) I will have $2.3m in investments and a home worth about 500K (assuming 2% growth each year).

The spread sheet tells me it is true so why should I doubt it?
The spread sheet tells me I've made it to the promised land.
It is hard to belive but, I'm beginning to belive it.




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Re: Before RE; did you belive the numbers?
Old 10-04-2005, 07:44 PM   #2
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by dex
I estimate my $1.225m will grow at 5%/year after taxes or about 6.5% before taxes.
Hi Dex,

I'm curious how you calculate the expected after tax return. It seems like the early years would have lower taxes since any sales of stock would be close to their basis value. Later sales would be at the capital gain rate.

This topic is a big concern for me in calculating whether my prospective ER income would match my current after tax worker boy income.

-D
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Re: Before RE; did you belive the numbers?
Old 10-04-2005, 08:23 PM   #3
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Re: Before RE; did you belive the numbers?

Currently, I do not have any stocks. My money is in money market funds. I plan to invest in high yield bond funds, bonds and stock funds in the future - next year - I'm not is a rush.

My math is rather simple. I like the assumptions simple and conservative so that my expectation are conservative.
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Re: Before RE; did you belive the numbers?
Old 10-04-2005, 08:30 PM   #4
 
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Re: Before RE; did you belive the numbers?

Quote:
So my spread sheet tell me that when I die at 84 (34 years from now) I will have $2.3m in investments and a home worth about 500K (assuming 2% growth each year).

The spread sheet tells me it is true so why should I doubt it?
The spread sheet tells me I've made it to the promised land.
It is hard to belive but, I'm beginning to belive it.

When you're dead a net worth of 2 cents or 2 Billion is exactly the same. Death is the great equalizer.

Ideal Financial Planning is the check to the undertaker bounces.
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Re: Before RE; did you belive the numbers?
Old 10-04-2005, 08:45 PM   #5
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Re: Before RE; did you belive the numbers?

6.5% before taxes (5% after taxes)? A rather high expectation in my view unless very highly leveraged to equities.
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Re: Before RE; did you belive the numbers?
Old 10-04-2005, 08:57 PM   #6
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by AltaRed
6.5% before taxes (5% after taxes)? A rather high expectation in my view unless very highly leveraged to equities.
What would you recomend as a pre and post tax rate appreciation?

That is a 23.08% tax rate
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Re: Before RE; did you belive the numbers?
Old 10-04-2005, 09:21 PM   #7
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by Cut-Throat
When you're dead a net worth of 2 cents or 2 Billion is exactly the same. Death is the great equalizer.

Ideal Financial Planning is the check to the undertaker bounces.
If I did that my kids might just cremate me in the backwoods..thus avoiding having to pay the undertaker themselves...
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Re: Before RE; did you belive the numbers?
Old 10-04-2005, 11:19 PM   #8
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Re: Before RE; did you belive the numbers?

7 years ago on 9/30/98 I projected where I would be today.* When I saw the number back then I thought of all the things that could go wrong in 7 years and that the number seemed too high.* Call it luck, but nothing seriously wrong happened and I am within $10K of that projected number as of 9/30/05.*

Part of the success was that back then I didn't have a lot in the stock market and when I didn't meet my monthly net worth goals, I just worked more to pull in more earnings.

Now I don't work as hard and depend more on that luck continuing to a certain degree since most of my net worth is tied to equities.
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 07:10 AM   #9
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Re: Before RE; did you belive the numbers?

dex, I am still pretty early in the process, but when I look at me earliest roll-forward spreadsheets, I am way, way ahead of where I projected. I don't spend a lot of time worrrying about what my numbers will look like in 30 years, since a lot could change between now and then. However, I tend to take the out put of monte carlo and other smulators pretty seriously.

Do yourself a big favor:

Hold off on the junk for now. That market is far from rational at the moment, and I strongly suspect that that will change in the next 6 to 12 months.
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 08:03 AM   #10
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by brewer12345
Do yourself a big favor:
Hold off on the junk for now. That market is far from rational at the moment, and I strongly suspect that that will change in the next 6 to 12 months.
Brewer,
I agree on the junk bond funds; that is why I am in cash. I think there will be an opportunity next year to lock into some good returns in junk next year. Until then I'm using money market funds with high returns and treasury bills.

retire@40,
It is good to hear your story. It gives a confidene boost. I want to get to the point where I'm invested and the plan is working for me.
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 08:07 AM   #11
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by dex
Brewer,
I agree on the junk bond funds; that is why I am in cash. I think there will be an opportunity next year to lock into some good returns in junk next year.* Until then I'm using money market funds with high returns and treasury bills.

retire@40,
It is good to hear your story.* It gives a confidene boost.* I want to get to the point where I'm invested and the plan is working for me.
If you want to get fancy in the meantime, you could buy HPF and short, say, 20% of the amount in IDU.
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 08:49 AM   #12
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Re: Before RE; did you belive the numbers?

I really only started towards ER about 14 years ago...after my divorce. My spreadsheets then were pretty thin on $$ but high on debt (thanks to exwife). As time went by, I started to get more specific in my expectations and my numbers started moving ahead of my forecasts. However, 1999 was a bad year for my company stock (most of DW's retirement) and we lost 40% almost overnight. Am just now getting back on track from this loss so I guess I am breaking even with 1999 with a bit more progress since then.

My projections of what I will need vs what I will have are pretty much locked in now. The past does not assure the future and we are building a cushion to the numbers to give us some wiggle room, especially in the early years of ER. Projections show we will die with far more than we have today. We are shifting our spending to assure we are OK in our 90s but can also cover our not so frugal desires in the early years of ER while we are both able to do stuff.

We know it does not cost as much to sit on the front porch with our Ensure while watching the world go by at the age of 90; if we live that long. Family history has not been very good for either of us in the longevity area. But, just in case, we will have enough for premium cat food if need be.
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 09:11 AM   #13
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Re: Before RE; did you belive the numbers?

SteveR,
I agree with the idea that spending will decrease as we advance in age.

My spread sheet is telling me that my after tax goal of spending $45K in 2006 will grow to
$60K in 2015 - age 60
$73K in 2020 - age 65
$108K in 2030 - age 75
$161K in 2040 - age 85

Again - assuming a 4% growth rate of expenses and a home paid in full.

The 2015 and 2020 numbers feel right. The later numbers feel high. Then again in 1970 did a 50 year old think think they would need $50K after tax income in 2005 when they would be 85? Or another way of thinking about it - How much does an 85 year old need in income in 2005?
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 10:57 AM   #14
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by Cut-Throat
When you're dead a net worth of 2 cents or 2 Billion is exactly the same. Death is the great equalizer.

Ideal Financial Planning is the check to the undertaker bounces.
Great in theory, but difficult to achieve in practice. There are, however, 2 methods that will likely accomplish this:

1) cash out all net worth and buy a lifetime annuity. Be sure to die after you have spent most of your last annuity check on beer & cigars so the undertaker doesn't get the money

or

2) Buy a S&W 44 mag and one round. Live it up with a 20% withdrawal rate. Upon spending last dime, leave bogus check to undertaker on kitchen table, and employ pistol. Be sure to request funeral arrangements that exceed the market value of the firearm. (caution: may only be an option for Americans--if Canadian or European, see 1, or try shotgun, but much clumsier and less hip)

yes, I am at work and got paid for this innovative thinking!
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 10:59 AM   #15
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by dex
The spread sheet tells me I've made it to the promised land.
Welcome!

Have you checked your spreadsheet against FIRECalc, Financial Engines, or T. Rowe Price's calculators?
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 11:31 AM   #16
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Re: Before RE; did you belive the numbers?

dex, you might want to add a constant dollars column to your spreadsheet, next to the inflated nest egg amount. I did, it helps me keep it in perspective better. X millions in the future sounds great at first, but if it equates to $500k in today's dollars, it's not so great!

I didn't understand your SS amount in your original post.

For SS, I'm taking the amount from the last year's special statement that I requested, and Wage Indexing it upwards at a 2.5% rate each year till age 60. At 60, it rests at that amount for 2 years (because when they run the official W.I. for your benefit amount, they stop 2 years short of whatever year you apply for benefits, and I'm going to take mine at 62).
Then, I whack off an arbitrary 27%, and call that my SS benefit. Then I use an annual COLA of 1% less than whatever inflation rate I'm using for expenses. I think that gives me an extremely extremely conservative amount for SS!

With a click here and there I can easily change all the % parameters to whatever I want. Playing with a spreadsheet is a good way to see how deadly a couple double-digit loss years up-front are!

So far, all my ER years have been up, but that won't last forever...
I'm continuing to save grain for the lean years.
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 12:46 PM   #17
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by Telly
I didn't understand your SS amount in your original post.
For SS, I'm taking the amount from the last year's special statement that I requested, and Wage Indexing it upwards at a 2.5% rate each year till age 60. At 60, it rests at that amount for 2 years (because when they run the official W.I. for your benefit amount, they stop 2 years short of whatever year you apply for benefits, and I'm going to take mine at 62).
Then, I whack off an arbitrary 27%, and call that my SS benefit. Then I use an annual COLA of 1% less than whatever inflation rate I'm using for expenses. I think that gives me an extremely extremely conservative amount for SS!
Telly,
I looked at the estimate provided by the SS. I'm estimating I will be getting $22K when I'm 62 in the year 2018 - in 2018 dollars not current dollars.
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 01:12 PM   #18
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Re: Before RE; did you belive the numbers?

"I estimate my $1.225m will grow at 5%/year after taxes or about 6.5% before taxes."

Dex,

When I use a spreadsheet similar to what you described, I find it useful to do "what if" scenarios where earnings vary significantly from year to year but average about what I expect. For example, try putting in huge losses the first few years followed by enough years of gains to average your projection. You'll get different results that assuming level earnings over time and a lesson on why using level averages as an assumption is not wise.

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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 03:06 PM   #19
 
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Re: Before RE; did you belive the numbers?

Quote:
expenses at 45K/year (after taxes)
Sorry, does "after taxes" mean "excluding taxes" or "including taxes?"
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Re: Before RE; did you belive the numbers?
Old 10-05-2005, 04:06 PM   #20
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Re: Before RE; did you belive the numbers?

Quote:
Originally Posted by dex
So my spread sheet tell me that when I die at 84 (34 years from now) I will have $2.3m in investments and a home worth about 500K (assuming 2% growth each year).
Dex, I'm assuming somebody didn't already cover this; isn't 84 a pretty young age by today's standards for estimating when you check out?
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