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Nest eggs calc
Old 06-22-2009, 07:56 PM   #1
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Nest eggs calc

Is it possible to back into what one needs in his nest egg?
Here’s the calculation. In general I listed only my monthly household expenses (I have no mortgage). The gross up factor of .33 is based upon the premise that one’s household expenses should represent one-third of one’s income. I believe the rate of return of .03 is on the conservative side.
Your comments please.
Thanks.
PopVR
Total monthly household expenses..... $ 710
Gross up factor......................................33
Total monthly expenses.....................$2152
Annual expenses............................$25,824
ROR............................................... ......03
Nest egg needed...........................$860,800
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Old 06-22-2009, 08:00 PM   #2
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Rule of thumb: 25x annual expenses.
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Old 06-22-2009, 08:04 PM   #3
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25 x expenses, with taxes considered an expense, and of course decrease expenses by any pensions, ss, etc.

It is surprising how often this comes close to the fancy retirement calculators.
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Old 06-22-2009, 08:08 PM   #4
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33x for some of us planning to live more than thirty years.
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Old 06-22-2009, 08:12 PM   #5
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33x for some of us planning to live more than thirty years.
I think you left off "...in retirement".
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Old 06-22-2009, 08:16 PM   #6
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I think you left off "...in retirement".
One can only hope.
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Old 06-23-2009, 08:27 AM   #7
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When you say "Annual Expenses", make sure you are considering your expenses in retirement. They may be far different from your current expenses.

Medical/Dental insurance? Other expenses? Other income (pension/SS) or offsets (lower income taxes)?

Property Tax and Insurance make up a big chunk of my annual expenses, and those have been increasing faster than inflation.

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Old 06-23-2009, 08:30 AM   #8
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Property Tax and Insurance make up a big chunk of my annual expenses, and those have been increasing faster than inflation
The problem with retirement planning is that it seems like the "necessities" -- property taxes, insurance, energy, food, health care -- are rising much faster than the inflation rate, and it's all the discretionary stuff that is experiencing the deflation that keeps the overall stated inflation low. So for most people who don't buy a lot of discretionary "stuff," inflation tends to feel much higher than the stated CPI. If that keeps up, then LBYMers will need to assume a higher inflation rate than other folks.
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Old 06-23-2009, 08:42 AM   #9
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Not sure about your fudge factor...

Don't forget to factor in home maintenance (water heater, HVAC), and factor in a car or two over the next 20-25 years. Add in any trips-around-the-world you might want to take.

Also, factor in inflation. Did I mention FIREcalc?

Or, ballpark 25x, as mentioned...
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Old 06-23-2009, 09:09 AM   #10
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25 x expenses, with taxes considered an expense, and of course decrease expenses by any pensions, ss, etc.

It is surprising how often this comes close to the fancy retirement calculators.


The the dirty CB's among us who sometimes make sure their portfolio SEC = 4% when they get gervous and nerky.

After dinking around 15 years in retirement maybe I'll tighten up and nail down the the real formula.

25 times is ok with me for now.

heh heh heh -
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Old 06-23-2009, 11:52 AM   #11
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What you will need will also depend on how long you will be retired, and your health and medical coverage.

You might do well, to run some calulation is FireCalc.com as a check and balance.
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Old 06-23-2009, 12:51 PM   #12
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The gross up factor of .33 is based upon the premise that one’s household expenses should represent one-third of one’s income.
I think you need to figure out your own estimates for the rest of your expenses such as taxes, maintenance, repairs, etc, rather than use some rule-of-thumb that could be way off for you. It can be difficult to make these estimates, but it's a lot more meaningful. I've never heard of the .33 factor, but if it's a valid estimate, you might double check yours if it's way off of that, especially if it's low. But I wouldn't use it for anything more than a sanity check.
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Old 06-23-2009, 02:02 PM   #13
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My egg has a crack in it.
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Old 06-24-2009, 07:10 PM   #14
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If that keeps up, then LBYMers will need to assume a higher inflation rate than other folks.
Good point.

The other aspect of that is if you are already living a bear bones existence, you should probably plan on a little extra cushion in the portfolio because cutting back on expenses is not really an option.
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Old 06-28-2009, 08:36 PM   #15
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If it is 25X annual expenses without considing SS and other annuity type income, I'm in trouble, but it makes no sense to not reduce your expenses by those incomes imo.
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Old 06-28-2009, 10:23 PM   #16
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Mine did a Humpty Dumpty.
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Old 06-29-2009, 09:58 PM   #17
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The problem with retirement planning is that it seems like the "necessities" -- property taxes, insurance, energy, food, health care -- are rising much faster than the inflation rate, and it's all the discretionary stuff that is experiencing the deflation that keeps the overall stated inflation low. So for most people who don't buy a lot of discretionary "stuff," inflation tends to feel much higher than the stated CPI. If that keeps up, then LBYMers will need to assume a higher inflation rate than other folks.
You just need to start eating computer chips instead of potato chips.
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