Questionaire for people starting retirement planning

[disneysteve]

Originally Posted by Beppington

Yes, mutual funds; actually index mutual funds. So, the chance of one/ any of these folding should be about the same as the chance of the global financial markets folding.

In that case, I agree.

Originally Posted by jIM_Ohio

Steve- remember this started with me asking a question if you invested $5000 and the market turned into $2500...

a newbie reading the questionaire at some point will be advised to open an IRA with $5000, and the goal is to make sure they stay the course through the first 12-13 months of their plan.

Jim, I totally understand and agree. I think using numbers makes things more real to people, especially those who aren't so good at math.

I just wanted to point out that buying on drops isn't always a good idea if you don't understand the reason for the drop.

[Snodog]

Nice job Jim.

[jIM_Ohio]

Originally Posted by Snodog

Nice job Jim.



Personally I don't think a person needs to save this much especially if they are in a lower tax bracket where Social Security will amount to a large part of their income.

There is a difference between a target, and the real amount you need.

I labeled that as a target to project what is needed 30-50 years from now.

You quoted the disclaimer

This number is a target, it is not exact science... if you plan to retire in 30 years, the 40k you spend now might change depending on paying for kids college, paying off a mortgage, moving to a state with higher (or lower) taxes. The purpose of the target is to establish sticker shock only. Because of taxes, social security, pensions, inheritances, selling of a business and many other factors, the sticker shock can be reduced when you are within 5-10 years of retirement.

To do a retirement income worksheet, you would include the SS which would reduce the $1 M target, you would include pensions, possibly being in a lower tax bracket, and other reduced (or increased) expenses relative to the current expenses used to calculate the target. Moving to a smaller house, travel expenses, health care expenses and similar are not built into the target, it is only a means to help a person estimate what they might need to save based on historical data.

The target is important because based on the trinity study, if you hit the 25X target and are willing to stick with a 60-40 portfolio for 30+ years, you can retire immediately. (60-40 portfolio lasted 30 years in 95% of time periods dating back to before great depression).

Meaning if you spent 40k per year, and won the lottery tonight earning a $1 M prize after taxes, you could retire. If you need to learn more about the 25X number, search the web for trinity study.

25X is a 4% withdraw rate, that is a moderate withdraw rate. I know someone drawing down 8% in retirement, which to me is borderline psychotic, but his health is also not the best, so he probably does not need to plan for a 30 year retirement either.

If you adjust withdraw rate based on various parameters, you can account for:
a) less need for full income in retirement (lower income=higher withdraw rate)
b) live longer (lower withdraw rate)
c) more conservative portfolio than 60-40 (lower withdraw rate)

and more... this was meant to get someone in the ball park for how much they need, it possible a person spending 40k needs less than $1 M, but I would contend they need closer to $1 M than they do to $500k (meaning the target gives them the "max" amount, but target is only a target until you know your actual retirement expenses.

Thx for reply.

[Snodog]

Originally Posted by jIM_Ohio

You quoted the disclaimer

Yes I carelessly missed the disclaimer. Sorry bout that.