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28 years old - what is my realistic age for retirement?
Old 05-22-2008, 09:48 PM   #1
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28 years old - what is my realistic age for retirement?

Hi, first post!

I am 28 years old, married with no kids. My current net worth (savings, mutual funds, stocks, currencies) is around 350k. I have no mortgage or car loan. We live frugal and currently save about $6500/month.

What is my realistic age of retirement so that I can just live off interests if I were to spend, say, 40-50k/year after retirement?

Thanks!
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Old 05-23-2008, 12:04 AM   #2
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Welcome to the board!

It's kind of hard to predict a retirement age but a rule of thumb is that you should have 25x in liquid assets of what you would like your income to be. For example, if you want to live on $10K/yr, you should have $250K (4% SWR rule). Of course, this is using after tax dollars.....
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Old 05-23-2008, 06:48 AM   #3
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Originally Posted by Calgary_Girl View Post
Welcome to the board!

It's kind of hard to predict a retirement age but a rule of thumb is that you should have 25x in liquid assets of what you would like your income to be. For example, if you want to live on $10K/yr, you should have $250K (4% SWR rule). Of course, this is using after tax dollars.....
GWW, congrats on your excellent start towards financial independence/freedom.

I believe the 25X/4% guideline is based on a retirement of 30 years , and whatever it is, it's not indefinite. GWW appears to have a much, much longer window. With that long a window estimating the probability of success is virtually impossible so while we hope you'd be successful when you pull the plug, you'd have to be prepared with contingencies (even going back to work in your later years) even more than someone retiring with 20-30 years to go.
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Old 05-23-2008, 10:24 AM   #4
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Try running a few scenarios with firecalc.
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Old 05-23-2008, 11:58 AM   #5
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Originally Posted by GreenWindwater View Post
Hi, first post!

I am 28 years old, married with no kids. My current net worth (savings, mutual funds, stocks, currencies) is around 350k. I have no mortgage or car loan. We live frugal and currently save about $6500/month.

What is my realistic age of retirement so that I can just live off interests if I were to spend, say, 40-50k/year after retirement?

Thanks!
Welcome to the forum GreenWindwater.

Being ultra-conservative (8% average growth, big buffer 'just in case') with the following assumptions, after a little quick and dirty 'back of the envelope' ciphering, my guess would be age 55 or so (27 years). Of course, save more, better average performance, etc. ... retire earlier.
... buy a boat, have kids, ...etc., i.e. save less, ... retire later.

Assumptions I used:
50k/year expenses
your current portfolio of 350K
saving $6500/month
Avg 8% growth of portfolio
a 4% swr
5 years of living expenses in cds as a buffer (250k)
Total retirement funds @ retirement ~$1,500,000

I think most on this forum might argue that the cd buffer is overkill and you could retire without it (4 years) earlier (@ 51 according to my calcs) without the extra cd buffer.

In either case you get the idea of one way to figure this out.
Go ahead, think about it, make your own assumptions that include your 'risk tolerence' and you will get to some number. Good luck to you.

Full Disclosure: I am not an expert at any of this stuff, just a 'civilian' giving my thoughts on how I would (have) approach this. This 'free' advice is worth every penny that you paid
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Old 05-23-2008, 12:08 PM   #6
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Um... 27 years of $6,500 per month is $2.1 mil without any growth at all.

10-12 years from now is probably the soonest you could expect. Still, that far away, there are so many factors that enter into the equation that it probably isn't worth projecting more accurately than that.
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Old 05-23-2008, 12:20 PM   #7
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Um... 27 years of $6,500 per month is $2.1 mil without any growth at all.

10-12 years from now is probably the soonest you could expect. Still, that far away, there are so many factors that enter into the equation that it probably isn't worth projecting more accurately than that.
WHOOPS... my excel skills really suck ... actually it's my math skills (formula error). Thanks Kronk.
it looks like the 1.25m timeframe is 15 years from now (43 years of age)
and 1.5m is 18 years from now (age 46).
WOW you're going to be in great shape GWW
I agree with Kronk, at this stage, it's for preliminary planning purposes only. Don't make any 'real' decisions using these figures, as their usefulness exceed the precision of the model.

... and I repeat my caveat:
Full Disclosure: I am not an expert at any of this stuff, just a 'civilian' giving my thoughts on how I would (have) approach this. This 'free' advice is worth every penny that you paid
and my math skills are suspect!
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Old 05-23-2008, 01:51 PM   #8
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Originally Posted by megacorp-firee View Post
WHOOPS... my excel skills really suck ... actually it's my math skills (formula error). Thanks Kronk.
it looks like the 1.25m timeframe is 15 years from now (43 years of age)
and 1.5m is 18 years from now (age 46).
WOW you're going to be in great shape GWW
I agree with Kronk, at this stage, it's for preliminary planning purposes only. Don't make any 'real' decisions using these figures, as their usefulness exceed the precision of the model.

... and I repeat my caveat:
Full Disclosure: I am not an expert at any of this stuff, just a 'civilian' giving my thoughts on how I would (have) approach this. This 'free' advice is worth every penny that you paid
and my math skills are suspect!
Good thing it's free advice...cause I still think those numbers all off.
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Old 05-23-2008, 02:09 PM   #9
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Good thing it's free advice...cause I still think those numbers all off.
probably, but they are ball park and rough estimates... atom bomb scale, not sniper rifel.
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Old 05-23-2008, 02:23 PM   #10
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Quote:
Originally Posted by megacorp-firee View Post
Welcome to the forum GreenWindwater.

Being ultra-conservative (8% average growth, big buffer 'just in case') with the following assumptions, after a little quick and dirty 'back of the envelope' ciphering, my guess would be age 55 or so (27 years). Of course, save more, better average performance, etc. ... retire earlier.
... buy a boat, have kids, ...etc., i.e. save less, ... retire later.

Assumptions I used:
50k/year expenses
your current portfolio of 350K
saving $6500/month
Avg 8% growth of portfolio
a 4% swr
5 years of living expenses in cds as a buffer (250k)
Total retirement funds @ retirement ~$1,500,000

I think most on this forum might argue that the cd buffer is overkill and you could retire without it (4 years) earlier (@ 51 according to my calcs) without the extra cd buffer.

In either case you get the idea of one way to figure this out.
Go ahead, think about it, make your own assumptions that include your 'risk tolerence' and you will get to some number. Good luck to you.

Full Disclosure: I am not an expert at any of this stuff, just a 'civilian' giving my thoughts on how I would (have) approach this. This 'free' advice is worth every penny that you paid
I show $6500 per month savings (added to the $350K already saved) at 8% over 27 years to grow to: $10.4 million.

Greenwindwater, I think you are on the right path.

You might want to re-think the $40-50K/year though. In 20 years, that will probably be living below the poverty level. Also, curious how you will be able to go from a lifestyle whereby you can save $6500/month in today's dollars to living on $40K-50K/year in 15-20 years...
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Old 05-23-2008, 03:36 PM   #11
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Here's one of my favorite online calculators. You should check it out and plug in some figures:

Dave's Compound Interest Calculator

Also, I'm not sure I would agree with Megacorp-firee that it's "ultraconservative" to assume an 8% return on your investments. If you want to be "ultraconservative" in your estimates I'd probably use 6% to assume a truly poor return for diversified portfolio of long-term stock investments. I'd be interested in hearing what others would say on that subject though.
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Old 05-23-2008, 05:00 PM   #12
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Here's one of my favorite online calculators. You should check it out and plug in some figures:

Dave's Compound Interest Calculator

Also, I'm not sure I would agree with Megacorp-firee that it's "ultraconservative" to assume an 8% return on your investments. If you want to be "ultraconservative" in your estimates I'd probably use 6% to assume a truly poor return for diversified portfolio of long-term stock investments. I'd be interested in hearing what others would say on that subject though.
yeah, I'll buy that... 5% is what I actually use ... but I've noticed that most on this forum think that higher rates are the norm.
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Old 05-23-2008, 05:50 PM   #13
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Going to make a number of assumptions since there isn't much data, correct me if one of the data points are way off. I will assume a standard tax rate (no city tax). Assuming spending only increases with inflation from the outset.

Present Gross Income: 150k
Percent of Gross Saved: 43%
Income Growth: 6%
Investment return: 8% (this is also assuming the dips will be midway through earning period and evenly distributed, if the poor return years are all in the early portion of direct income earning years, add working years needed, if the poor earning years occur closer to the end of direct income years, decrease working years needed)
Inflation: 3.5%
401k: 100k
Taxables: 250k
Safety Risk: 99.9% (3.6% withdraw rate since it needs to last 50+ years)
Investment expenses: 0.4%


At 37 you would have 1.8M, if your returns remained the same, this would allow you 50k inflation adjusted to spend.

Personally, I wouldn't feel completely safe until about the 4M mark if it was an ultra early retirement, this would require working until 43 at which point the total would be 3.933M. The reason for this is, while your baseline spending may be 50k a year, there will be years where it will simply spike, such as you when you need to pay a large deductible for a/multiple medical operation(s), have to do some sort of major repairs or some other major unexpected expense, they pop up.

This all assumes being able to manage such an extremely high savings rate.
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Old 05-25-2008, 09:52 PM   #14
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Thanks everybody!

Is an 8% investment return realistic? Seems sort of aggressive.
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Old 05-28-2008, 11:15 AM   #15
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You are obligated to work another 40 years ...

This is a "scientific answer", based upon my current age, the year I expect to live to, and your contribution to my (expected) SS income in the future.

What did you expect

- Ron
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Old 05-31-2008, 07:05 AM   #16
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Thanks everybody!

Is an 8% investment return realistic? Seems sort of aggressive.
These guys are being "ultra-conservative". You have the good fortune of youth and the opportunity to take advantage of it.

You could also choose more volatile investments, with an eye towards greater returns. Things like small-cap index funds or international.

I'm not saying to bet it all on one investment - still do a diversified portfolio, but just more weighted towards risk.

That gives you the potential for 10-15% returns. At that rate (plus your phenomenol savings rate) you'd be looking to retire near 35! Of course the risk is that things could take a turn for the worse when you get there, which means you'll have to keep working.

So take a chance and maybe retire really early, or play it safe and definitely retire later. Your choice.

BTW - I'm just some yahoo on the internet. Don't make major descisions based on this post! Go to the library and check out some books from the personal finance shelf and get smart on retirement investing.
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Old 05-31-2008, 07:58 AM   #17
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Thanks everybody!

Is an 8% investment return realistic? Seems sort of aggressive.
History would suggest it's doable, but I don't believe we can expect history to repeat over the next 30-40 years. You are welcome to use whatever you like, I use 7% for my long term planning even though history would say my current portfolio AA will return just over 9.5%. I use Rick Ferri's forecast for long term planning, here it is Portfolio Solutions under 30 Year Market Forecast. No one can tell you for sure, or we'd all be rich.

I'd rather use conservative estimates and be "surprised" when my portfolio grows faster than I projected - guess I'd have to retire earlier. It looks like you're way ahead of the game, and I'd encourage you to stay on your current course for now - it will open up more options in your life than most will have. A lot harder to course correct later in life if you've over estimated returns...I cannot stress this enough at your age - arguably the best advice you can get at your financial stage in life. Best of luck.
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 06-01-2008, 12:19 PM   #18
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+1 on Midpack's approach. I use the same "guesstimates" and fudge everything else in the plan against me. I'd rather be pleasantly suprised then dissappointed.

DD
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