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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 734745  
Subject: Re: How much needed to bail out? Date: 2/6/2000 7:53 AM
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Question: At what figure of net worth can we seriously begin planning for early retirement?

I have found that it is helpful to think about what resources are needed to retire early (or at any other time) by breaking the problem into two components. The first component is social and the second is technical. Determining the resources required to retire is an intensely personal matter which is going to have a unique solution for each individual. To that end, I suspect it is not terribly helpful in the early planning stages to attempt to arrive at a magic net worth figure.

The chief consideration of the social component is living expenses. In my opinion, the most important thing here is to develop a high degree of self-knowledge regarding the cash flow required to maintain the lifestyle you desire. "Retiring in style" to one person may look like abject poverty to another depending on what his lifestyle expectations are. Get a good handle on how you spend your money today. This is an extremely important first step to undertanding and predicting what your income needs will be after retirement. If you are not already, get and use personal financial software to better enable the analysis of your current spending patterns. A retirement planned around substantial or drastic reductions in these types of expenses (especially for those married with children) is in my opinion on shakey ground.

Other social aspects of this problem include such things as your desire to have further children and how you feel about college and your role in its funding, where you would like to live, etc.

The question of how to generate sufficent income to meet your future cash flow needs is more technical in nature. A good first step is to identify all potential sources of retirement income and to assess the reliability, size and probable growth of each income stream. Conservative assumptions are the rule here since unlike your personal spending patterns and other social considerations, your span of control is more limited. A key element of your projection of future income streams is the accommodation of inflation by including provisions for continued growth of your networth and income stream and the anticipation of economic/market downturns and their possible impact on the long term validity of your plan.

Early financial independence is a worthwhile goal and like most good things requires a lot of work, thought and planning to achieve. There are no magic bullets or pat answers. The responsibility for working through these issues is yours alone. This message board and the Retire Early Website are an immense source of tools and information which will enable you to discover a solution which works for you and your family. Best of luck.

Regards,
FoolMeOnce



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