A small step, but...

[brewer12345]

I have a fairly simplistic spreadsheet I use to track how close I am to the "zone" where I can potentially ER. I assume an income need and step it up for inflation, assume an annual savings amount, and assume a uniform 10% annual return on all investments. The house, changes in standard of living, and (most sigbificantly) future college costs are all ignored. Like I said, it is crude, but it roughly allows me to track how close I might be to seriously thinking about ERing.

I haven't updated this sheet for about a year, but I was noodling around the PC this weekend and came across it. When I tossed in my current balance and boosted investment contributions to get closer to reality, I found that rather than being 15 or 16 years away, I am more like 12 years away. Not too shabby. Realistically, I probably won't even think about it until the mortgage is paid off (14 years) and I have some sort of plan for financing kiddies college costs. Still, its nice to know that we are at least making some progress.

 

[samclem]

brewer12345,
- I asume you used FIRECALC (not your spreadsheet) to obtain the target value you'd need to begin ESR, right?
- Only time will tell, but my guess is that most folks here believe the next 12 years are unlikely to see 10% overall returns from a diversified portfolio. If your portfolio isn't diversified, you could do much better--or much worse.

samclem

 

[trumpeting_angel]

Hey, are the kids born yet? If so, start a 529 plan for them. You already know this, but, the earlier you start, the less you have to put in.

Check out: www.savingforcollege.com

I think that's the url. Good luck!

Anne

 

[yelnad]

Even if the kids aren't born yet, you can start a 529 for them. I have one with my husband listed as the beneficiary, and as long as it's within the family, it will only cost me $10 to change it over to my child's name (when I get one!).

 

[brewer12345]

samclem:

I haven't bothered using FIREcalc to get anything like an exact value. I am quite far away (in years and assets) from even the possibility of FIRE and there are a lot of variables that can change between now and then. For now, it is enough to have a rough guess of what I will need and when I get closer to "the zone" I can be a bit more exacting. I am not interested in going out with a knife's edge of safety margin anyway.

As far as my return assumptions, I am aware they are aggressive compared to what all the pundits are saying. I use 10% as my bogey and I am aware that it could be too high or too low an assumption. I primarily manage my own money, buying individual equities and the like. I have an intentionally concentrated portfolio and I try very hard NOT to replicate the indexes (aside from an intentionally indexed portfolio in a 401k). Over the past 5 years, I have had a pretty good track record, and I made plenty of nice shekels through the bear market. No guarantees that this will continue, but if t becomes clear that I don't have time for this anymore, I will turn into an indexer and live with it.

On the 529:

I am suspicious of the whole 529 deal for a number of reasons. Most of these programs are more expensive than typical mutual funds, and most of them allow far less control over participant funds than I am comfy with. Perhaps of most concern, the tax goody that motivates these things is subject to a sunset provision in 2009 or 2010. Its not at all clear that this will in fact be rectified by Congress, especially since we are in heavy deficits already and the Repugs are making noises about the whole international policeman act going on indefinately ("I am not sure we can win this war" but we are still going to spend untold billions on it). How do you guys get past the tax issue here? My kiddo was just born in June, so depending on Congress to do the right thing in 18 years is a real stretch in my mind. I'm not even convinced that Roths will truly end up being tax free (slap a national sales tax on everything and there goes a lot of your "tax free" status).

 

[yelnad]

Also - the PA 529 (called the TAP program) just increased fees. There are some that are definitely better than others, but do your homework regardless.

 

[azanon]

I'm not even convinced that Roths will truly end up being tax free (slap a national sales tax on everything and there goes a lot of your "tax free" status).

I agree here.  Personally, i think that's the strongest argument for a traditional IRA.  One bird in the hand>two in the bush.  You can be absolutely positive you'll get your tax break if you use traditionals.

 

[retire@40]

Predicting the tax laws

I agree here.  Personally, i think that's the strongest argument for a traditional IRA.  One bird in the hand>two in the bush.  You can be absolutely positive you'll get your tax break if you use traditionals.

My friend, nothing regarding taxes is absolute. For example, if you make a deductible traditional IRA contribution in the 10% bracket, and take distributions out when you are in the 28% bracket, you have just lost 18% of your money.

Don't try to predict what the tax laws will be in the future, just go with what the tax laws are right now.