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Old 11-10-2008, 11:33 AM   #21
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If you invest $1.5M in something giving you a 4% return for 10 years you can take out $184,936.42 a year. You will have $0 a the end of 10 years. It is basically a pmt formula in Excell.
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Old 11-10-2008, 11:51 AM   #22
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If you invest $1.5M in something giving you a 4% return for 10 years you can take out $184,936.42 a year. You will have $0 a the end of 10 years. It is basically a pmt formula in Excell.
True, but if the fund does less than 4% there will be months at the end when you are trying to live on zero. The advantage of the percentage withdrawal is that you always have some money to live on.

I think you need to add a little to the plan - recalculate the pmt every year or every month.
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Old 11-10-2008, 11:57 AM   #23
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If you investment is a bond or other guaranteed fix interest account, either method should work.
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Old 11-10-2008, 12:28 PM   #24
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Is there a similar formula I can use if I want to start the 1st year (or 1st month) with a certain withdrawal and then get a 3% raise each year?
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Old 11-10-2008, 01:50 PM   #25
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You can get a good approximation by subtracting the increase rate from the rate you think you are going to earn. In Rustic's example, if you think you will earn 4%, and you want annual 3% increases, then you run the pmt function with a rate of 1%. You'll get $158,373 instead of $184,936.

Note that the pmt function allows you to specify whether you are taking you withdrawals at the beginning or the end of the period. This is significant if the period is a year.

Of course, most people on this board would set up a detailed worksheet when the amount is $1.5 million.
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Old 11-10-2008, 06:41 PM   #26
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I would not set up any kind of spread sheet at all! If I knew I could take out $160,000 to $180,000 a year, and know I live on less than $50,000, case closed! I'll bet two married police officers from Dallas can live on just about that!
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Old 11-10-2008, 07:29 PM   #27
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I would not set up any kind of spread sheet at all! If I knew I could take out $160,000 to $180,000 a year, and know I live on less than $50,000, case closed! I'll bet two married police officers from Dallas can live on just about that!
Sure we can live on $50K which is somewhat near what we live on right now, but we plan to move to Fort Lauderdale and increase our standard of living as much as our pensions and other investments will allow. We LBOM now so that we can enjoy retirement and travel the world, not so we can pass on several million $$ to our heirs.

I know we can retire with 100% success rate if we keep our standard of living anywhere near what it is now. What we want to do is figure the maximum amount that we can safely spend and then set our retirement expenses based on that number and live it up. Its going to be tough to learn to be a big spender after so many years of living below our means, but Im going to enjoy learning the ropes.
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