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May 01, 2006


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I set it up very easily: Something achievable.

Since many families live with around 40,000 I use that number as my inmediate goal. I must try to reach it as fast as I can.

Yes, my networth's 4% should provide for 40,000. 40,000 / 0.04 = $1 Million Dollars!

Would I need more? No. If other families of 4 live with 40,000 I will be able to support myself and up to 3 other people indefinitvely. (not counting any social security).
Would I want more? Yes. I like to live nicely. But I will increase the goal once I get the first million. For now it is getting a million dollars AS FAST AS I CAN.

BTW, my wife is trying the same... independently. It doesn't matter if one of us can't reach the goal, at least one of us would have done it. In the best case we will end up with 80,000 a year to support us.

Scott Burns has recently done a series of articles on this very subject. He advocates the use of software to perfom 'Consumption smoothing'.

Oddly enough, I put together a spreadsheet to come up with a reasonable retirement number assuming an annual outflow of $100,000 in today's dollars. That's actually more than twice as much as my wife & I currently spend, but I figured I'd need a buffer in case of medical issues not fully covered by insurance/medicare or some other large problem. In any case, I used that to run the numbers backward assuming we both live to 100 (not likely - most of the longevity in my family history has been the women, not the men, and my wife can't recall any ancestors living to 90, let alone 100, but who knows what medical advances might happen between now and then.) When I match the contributions & projected returns of our current investments to the amount required to support a $100,000/year retirement, they end up meeting at a value that would require us to withdraw around 4.8% of our nest egg each year. Of course, we'd be hoping to continue to see some investment returns during retirement so that we don't run out too quickly.

In truth, there are numbers plural:

1) The amount of investments to retire well. This is the "number" that is most often spoken of, but if a person is young enough to plan for it, a target of 125% of current living expenses is a good target for retiring well. The 70% advocates are usually trying to remedy a poor plan or a late starter's situation.

2) The age at which one retires. This one is diametric to the previous number.

3) The number of years you will live after retirement. This only applies if the plan requires liquidating the principle.

Are there other numbers I'm forgetting?

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