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Time Value of Money
Old 04-01-2014, 02:28 PM   #1
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Time Value of Money

Kinda interesting that the first 10 years of retirement takes more present dollars than the last 40.

Present Value Needed for 50 Year Retirement.

Future a Years:
First 10 $600,000
Next 10 $300,000
Next 10 $150,000
Next 10 $75,000
Next 10 $37,500
Total $1,162,500

Assumptions:
$60,000/year income

Portfolio Real Value Doubles Every 10 Years calculated as
72/(10% investment return -3% inflation)=About 10 years.

No pension, social security, etc

First 10 years get zero return.
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Old 04-01-2014, 03:28 PM   #2
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Interesting, as usually it is done in reverse showing how investment in early years turns into a big amount in future years. Principle is the same though, the value of compounding.

It does have a pretty optimistic long term return of 10% per year returns. That may not be a good realistic value, and certainly subject to variations. This also assumes a complete drawdown to zero by the end.

I would guess most here would start with the $1,162,500 amount and then do a conservative withdrawal rate to preserve the capital for past 50 years. Or at least start conservative and then ramp it up later.
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Old 04-01-2014, 04:24 PM   #3
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Yeah, that annualized 10% investment return would make me raise the bull$#!t flag in a hurry.
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Old 04-01-2014, 04:27 PM   #4
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I think your conclusion that the pv of the first 10 years > the pv of the next 40 years is right even though I think your math isn't. However the 10% rate is probably very optimistic.

I would compare the pv of $60,000 a year for 10, 20, 30, 40 and 50 years so even the first 10 years would get some discounting.
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Old 04-01-2014, 05:53 PM   #5
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The 50 years part... no, too unlikely, but for 35 to 40 years is working for me.
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Old 04-01-2014, 06:00 PM   #6
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This math is quick and dirty but it does illustrate the last last 20 or so years (of a 50 year retirement) can be funded with very little current dollars.

Why is 10% such a stretch? If I own my own business and can't make 10% on my investment than I suck at business.

I'm thinking 100% invested for years 30 to 50 from now (ages 80-100). Spend all the other money when I am still functioning well.
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Old 04-01-2014, 09:19 PM   #7
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Quote:
Originally Posted by RetireAge50 View Post
Why is 10% such a stretch? If I own my own business and can't make 10% on my investment than I suck at business.
That's the cost of diversification.

This yields dramatic results if you use high real returns. As the real returns tend to zero, equal amounts are needed for each period. (Maybe obvious to most)
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