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Old 09-20-2009, 10:21 AM   #21
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Originally Posted by friar1610 View Post
I'm not sure that's entirely true. When I was looking at early retirement as a possibility, I ran across John Greaney on the web. IIRC, he retired at 38 or some ridiculously young age an did not have a windfall. . . .
As mentioned by others, the point wasn't about retiring early, it was about replacing 100% of your peak earnings on a recurring basis at a very early age.

Just to show how nearly impossible this is I ran some numbers. Assuming our retiree earns 100% of his peak earnings every year of his 20 year working career, earns a 5% real return on his investments, and plans to withdraw 4% of his portfolio at retirement (a high WR for a ~38 year old retiree), our retiree would have to save 76% of his GROSS pay (before taxes), every year. Many people pay more than 24% of their earnings in taxes.

If we assume he gets even a modest 2% raise every year, he would need to save 96% of his gross pay.

While this might be an interesting mathematical exercise, the bigger question is why anyone would set this as a goal in the first place. If one is capable of living on a fraction of their pre-retirement salary, why would they need to replace 100% of their peak earnings anyway?

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Old 09-20-2009, 12:21 PM   #22
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Originally Posted by . . . Yrs to Go View Post
If one is capable of living on a fraction of their pre-retirement salary, why would they need to replace 100% of their peak earnings anyway?
Yup, I'm sure it's been mentioned in these forums before, this is the flaw in the oft-bandied about need to replace 70% of pre-retirement income. Everyone's situation is so different that it's a completely pointless number to state even as a general barometer.

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Old 09-20-2009, 04:32 PM   #23
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Agreed. At best, you only need to replace 100% of what your adjusted income was.

"Adjusted" means after subtracting out FICA, 401K & IRA contributions, etc. FICA is 7.2%, 401K is maybe 10%-15% ($15,500 max), IRA is $6000 max. Plus back out most of your income tax, since most of your post-retirement income will be either not taxed or taxed at a lower rate.

Plus, for us, moving to another state and trading my $13,000 real-estate tax bill for a $2500 one.

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