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Subject:  Re: Balancing debt vs Investing Date:  12/31/2012  5:06 PM
Author:  aj485 Number:  306570 of 312161

Every time I feel like I am making progress I get over whelmed by the complexity of the numbers and trying to calculate what I really need for retirement. At the point my goal is to "just have a lot". :)

That probably works well as long as you don't have a specific goal for retirement in mind, but since you do have a goal of 15 years, if you want to meet that goal, you will have a better chance if you do figure some numbers. A fairly simple way to start is to take your current annual costs from that budget you are working on over on the budgeting board, subtract any costs you don't plan on having in retirement (contributing to a 401(k), IRA or ESPP; SS & medicare taxes; mortgage P&I if you plan on having a paid off house; lower food costs because you will only be feeding 1; etc.) then add some additional costs if you think you will be traveling more, will have to pay more for medical insurance or have some other additional costs. Just use estimates of what those things might cost you now - it will still give you a starting point. You're basically looking for an estimate of how much it would cost you if you were retired today.

Then choose an inflation rate and apply it to the estimate you came up with for 15 years, and that's the income you will need when you retire. You can then multiply by 25 if you believe that a 4% withdrawal rate is reasonable, and that's your goal.

Revisit every year, and as you get closer to your 15 year goal, you should start to zero in on your estimates, and see if your goal is reasonable.

Yes, it takes some work, and yes, it deals with numbers. But if you want to successfully retire in your early or mid 50's without a lot of risk of having to go back to work, you will be better off taking these steps now.

My ESPP is with a company on the SA core so I think I am a little safe.

There were a lot of people recommending Enron, WorldCom, HealthSouth and others not that long before they tanked either. Take it from someone who has watched several companies she has worked for drop precipitously in short order - it's a risk. Go ahead and take it if you want, but realize that you are taking it.

You also mentioned that the 7% on my student loan was not "good" debt. Why is that and what would be good?

People often say that student loan debt and mortgage debt are 'good' debt. I just wanted to point out that if you are paying 7% on your student loan, and can borrow elsewhere significantly cheaper, a 7% debt is not 'good'.

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