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Old 08-23-2010, 02:32 PM
 
531 posts, read 2,893,081 times
Reputation: 579

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I’ve created a few simple projections in Excel for retirement to try and get a sense of what a realistic estimate is for what I will need at retirement. I am currently 42 years old and hope to retire in 25 years.

The variables in the projection are:
  • Number of years living after retirement: I assumed 30 years, which has me dying at 97.
  • Amount withdrawn per year: I assumed $40,000 per year. This comes out to $3,333 per month. In addition, I would hope for $2,500 or so from Social Security. I also have a pension but I’m not factoring that into this estimate, just based on the possibility that it will not exist in 25 years.
  • Investment return: I assumed both 3% and 6%.
  • Balance at retirement: I created projections assuming $500,000, $750,000, and $1 million.
I also tried to project what my 401k balance will be in 25 years. I currently have $140,000 in my 401k balance. To project what I will have, I simply took the $140,000 and added 5% per year in investment returns. I did NOT include my contributions/employer match, just to be extremely conservative. Adding 5% per year to my current balance for 25 years, I would have $475,000 at age 67. Obviously this is extremely unscientific but it is also extremely conservative.

Below are results:

Scenario 1:
Balance at retirement: $1 million
Investment return: 3%
Remaining balance after 30 years: $467,000

Scenario 2:
Balance at retirement: $1 million
Investment return: 6%
Remaining balance after 30 years: $2.4 million

Scenario 3:
Balance at retirement: $750,000
Investment return: 3%
Remaining balance after 30 years: -($140,000)
Number of years before balance hits $0: 26

Scenario 4:
Balance at retirement: $750,000
Investment return: 6%
Remaining balance after 30 years: $956,000

Scenario 5:
Balance at retirement: $500,000
Investment return: 3%
Remaining balance after 30 years: -($745,000)
Number of years before balance hits $0: 15

Scenario 6
Balance at retirement: $500,000
Investment return: 6%
Remaining balance after 30 years: -($480,000)
Number of years before balance hits $0: 21

Obviously these results are all over the place. I think if I’m able to work for another 25 years without interruption, and my annual investment returns are 5%, then scenario 3 is probably most likely. In that case, I run out of money at the age of 93. Not ideal, obviously, but with 2 children who will be in their early 40’s at that point, it’s not like I’ll be on the streets or anything. Even in the worse case scenario, which is number 5, I run out of money at age 82.

It's not something that I'm basing on really plans on, but it is an interesting exercise anyway...
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Old 08-23-2010, 03:48 PM
 
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That's interesting. Thanks for posting your results.
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Old 08-23-2010, 04:55 PM
 
20,793 posts, read 61,105,495 times
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A 5% withdrawal rate is and "ideal" target for retirement funds, meaning if you can take 5%/year from your investments and live off that the money should sustain you for your entire life. Now, coming up with what that 5% needs to be is another thing.

One thing to keep in mind is that while you are in your early retirement years you will probably spend as much as you made when you retire-hobbies, travel, medical insurance, etc. but as you age that number goes down so if you are looking at $6000/month to start, chances are by age 80-85 you may only need $5000/month or less.
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Old 08-23-2010, 05:07 PM
 
2,714 posts, read 4,266,077 times
Reputation: 1314
Quote:
Originally Posted by golfgal View Post
A 5% withdrawal rate is and "ideal" target for retirement funds, meaning if you can take 5%/year from your investments and live off that the money should sustain you for your entire life. Now, coming up with what that 5% needs to be is another thing.

One thing to keep in mind is that while you are in your early retirement years you will probably spend as much as you made when you retire-hobbies, travel, medical insurance, etc. but as you age that number goes down so if you are looking at $6000/month to start, chances are by age 80-85 you may only need $5000/month or less.
I would have thought you would need more as you age-- due to more medical expenses?

Am I wrong about this?
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Old 08-23-2010, 09:11 PM
 
531 posts, read 2,893,081 times
Reputation: 579
To me, the hugest factor in all of this is whether or not you have a mortgage. And I don't think I've really heard anyone factor that into any equations about what you'll need when you retire. Ideally, if you can have the mortgage paid off by the time you retire, that's your biggest expense off the table.

Also, I did not factor in inflation into my projection, so that would need to be included.

What I keep coming back to is the idea that yes, there is a real possibility that I could run out of money, and that is obviously a concern. But that presumably wouldn't happen until I was well into my 80's. I wouldn't be looking for a handout or anything but I can't imagine I would just be left to live like a pauper.
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Old 08-24-2010, 07:09 AM
 
20,793 posts, read 61,105,495 times
Reputation: 10691
Quote:
Originally Posted by cyclone8570 View Post
I would have thought you would need more as you age-- due to more medical expenses?

Am I wrong about this?
That would depend on what kind of medical insurance you have.
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Old 08-24-2010, 09:57 PM
 
Location: Apex, NC
3,292 posts, read 8,526,459 times
Reputation: 3039
Quote:
Originally Posted by usedtobeanyer View Post
I’ve created a few simple projections in Excel for retirement to try and get a sense of what a realistic estimate is for what I will need at retirement. I am currently 42 years old and hope to retire in 25 years.

The variables in the projection are:
  • Number of years living after retirement: I assumed 30 years, which has me dying at 97.
  • Amount withdrawn per year: I assumed $40,000 per year. This comes out to $3,333 per month. In addition, I would hope for $2,500 or so from Social Security. I also have a pension but I’m not factoring that into this estimate, just based on the possibility that it will not exist in 25 years.
  • Investment return: I assumed both 3% and 6%.
  • Balance at retirement: I created projections assuming $500,000, $750,000, and $1 million.
I also tried to project what my 401k balance will be in 25 years. I currently have $140,000 in my 401k balance. To project what I will have, I simply took the $140,000 and added 5% per year in investment returns. I did NOT include my contributions/employer match, just to be extremely conservative. Adding 5% per year to my current balance for 25 years, I would have $475,000 at age 67. Obviously this is extremely unscientific but it is also extremely conservative.

Below are results:

Scenario 1:
Balance at retirement: $1 million
Investment return: 3%
Remaining balance after 30 years: $467,000

Scenario 2:
Balance at retirement: $1 million
Investment return: 6%
Remaining balance after 30 years: $2.4 million

Scenario 3:
Balance at retirement: $750,000
Investment return: 3%
Remaining balance after 30 years: -($140,000)
Number of years before balance hits $0: 26

Scenario 4:
Balance at retirement: $750,000
Investment return: 6%
Remaining balance after 30 years: $956,000

Scenario 5:
Balance at retirement: $500,000
Investment return: 3%
Remaining balance after 30 years: -($745,000)
Number of years before balance hits $0: 15

Scenario 6
Balance at retirement: $500,000
Investment return: 6%
Remaining balance after 30 years: -($480,000)
Number of years before balance hits $0: 21

Obviously these results are all over the place. I think if I’m able to work for another 25 years without interruption, and my annual investment returns are 5%, then scenario 3 is probably most likely. In that case, I run out of money at the age of 93. Not ideal, obviously, but with 2 children who will be in their early 40’s at that point, it’s not like I’ll be on the streets or anything. Even in the worse case scenario, which is number 5, I run out of money at age 82.

It's not something that I'm basing on really plans on, but it is an interesting exercise anyway...
Just one question. When do you plan on having your 2 kids? Looks like they haven't been born yet according to this post.
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Old 08-24-2010, 10:32 PM
 
48,505 posts, read 96,540,710 times
Reputation: 18301
Quote:
Originally Posted by usedtobeanyer View Post
To me, the hugest factor in all of this is whether or not you have a mortgage. And I don't think I've really heard anyone factor that into any equations about what you'll need when you retire. Ideally, if you can have the mortgage paid off by the time you retire, that's your biggest expense off the table.

Also, I did not factor in inflation into my projection, so that would need to be included.

What I keep coming back to is the idea that yes, there is a real possibility that I could run out of money, and that is obviously a concern. But that presumably wouldn't happen until I was well into my 80's. I wouldn't be looking for a handout or anything but I can't imagine I would just be left to live like a pauper.
Mortgaes are opretty easy to figuire really. Even maintenace is hard on a home as afr as cost as is taxes. But then many find that the payments on medical care can be the most expensive.
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Old 08-25-2010, 07:51 AM
 
531 posts, read 2,893,081 times
Reputation: 579
Quote:
Originally Posted by Waterboy526 View Post
Just one question. When do you plan on having your 2 kids? Looks like they haven't been born yet according to this post.
I am 42, in the scenario I describe, I would run out of money when I am 93, or 51 years from now. I got my math wrong, in that case my kids would be in their early-mid 50's.
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Old 08-25-2010, 08:16 AM
 
105,839 posts, read 107,820,907 times
Reputation: 79440
Quote:
Originally Posted by golfgal View Post
A 5% withdrawal rate is and "ideal" target for retirement funds, meaning if you can take 5%/year from your investments and live off that the money should sustain you for your entire life. Now, coming up with what that 5% needs to be is another thing.

One thing to keep in mind is that while you are in your early retirement years you will probably spend as much as you made when you retire-hobbies, travel, medical insurance, etc. but as you age that number goes down so if you are looking at $6000/month to start, chances are by age 80-85 you may only need $5000/month or less.
as alot of us age the spending on ourselves may go down in the later years of retirement however there is a good chance spending on kids and grandchildren will pick up as you do more for them while your still alive to enjoy doing it.
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