Quote:
Originally Posted by aida2003
I found this interesting, but I missed a little bit more of elaborate explanation about annual spending. Does he refer to 'this number' times your CURRENT spending? E.g. we invest in taxable accounts + save. It seems like a cash out as if spending. What about mortgage payments and childcare costs? Then there will be healthcare insurance costs once retired.
I like the concept though.
|
yes, current spending I believe. Not savings like investments. But would include mortgage and childcare costs.
However, you can tweak this if you know your retirement spending will be much higher than current spending. In that case I would go with expected retirement spending, personally.
Though I personally expect more expenses in retirement, I don't expect them to suddenly rise dramatically in retirement. Plus we will be trading in costs like raising children for costs like more expensive healthcare. So I am quite happy with the "current spending" formula. Our income has been all over the place for the last 10 years but ever since we have owned a home our annual expenses have been in the same ballpark. So I personally like this methodology. It also accounts for the fact that you should be saving a larger amount as you age (&/or realizing higher investment return as your investments grow).
It's also very in line with an "It's not what you make, but what you keep" mentality. IF you live on less it is easier to reach these goals.
