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Old 07-11-2008, 08:24 AM   #21
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If I want to retire early at 45 or 50, does that mean I need 10 years of retirement savings and misc life expenses (new roof, whatever) saved up outside my retirement accounts and no other incomes?
Yes, but it's actually even a little worse than that.

I can't speak about specifics in the US, but in Canada, if you retire early and live off your savings until you can begin claiming CPP (Canada's Social Security) at age 60 (the earliest you can start to collect it), then keep in mind that your benefit will be reduced because of the period you weren't working. That is, if you quit work at age 50 and plan to start claiming the government pension at age 60, then when they calculate your entitlement, they'll include the 10 years during which you contributed nothing to the plan, and will reduce your benefits accordingly. You can't even contribute during those years, just to preserve your benefits, because your contributions have to be based off earned income.
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Old 07-11-2008, 08:25 AM   #22
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kombat, I don't think you need to include the inflation numbers into the calculation, usually the 4% SWR covers the growth in your expenses and inflation so you have 4% each year (as it grows, so do your expenses).
I was using inflation to estimate what his expected expenses will be at the time he retires. Obviously, 30 years from now, he will not be able to get by on the same amount he is spending this year.

After he retires, he'll need to adjust his 4% withdrawals for inflation. Before he retires, he needs to use inflation to calculate his required nest egg.
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Old 07-11-2008, 09:14 AM   #23
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I thought you can take contributions back out of a Roth IRA at any time, just not any profits earned over the contributions until retirement.

-Raymond
I was talking about 401Ks. With 401Ks you can start taking money out penalty free if you are at least 55 years old and if you quit (or get laid off by) the company administering the plan no earlier than the year in which you turn 55. If you quit (or get laid off) sooner or if you are not 55 yet, and if you need to access the 401K money now, then doing an IRA rollover and setting up 72(t) distributions is probably the best option.

For a Roth IRA, you can access your contributions anytime, penalty free. If you take any earnings out of the Roth before the age of 59.5, you will have to pay a 10% penalty on the earnings in general, though there are exceptions.
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Old 07-11-2008, 09:45 AM   #24
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I was using inflation to estimate what his expected expenses will be at the time he retires. Obviously, 30 years from now, he will not be able to get by on the same amount he is spending this year.

After he retires, he'll need to adjust his 4% withdrawals for inflation. Before he retires, he needs to use inflation to calculate his required nest egg.
You are right in saying that before he retires he needs to use inflation to calculate his nest egg, and he needs to adjust his 4% withdrawals for inflation (nominally, not percentage-wise though). The 4% assumes that you will slightly grow over time, even WITH an increasing deposit nominally. But, if he has 15-20 years to go before retirement, you are right he needs to factor in inflation. If he is looking at today or tomorrow? The 4% supposedly covers it.

BTW, for such a long retirement and the UNCERTAINTY of markets/inflation, I would still hedge on 33-40x your yearly expenses in savings to retire.
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