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Author: RECCLES4 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75336  
Subject: Test Done, Game Over Date: 5/27/2000 3:00 PM
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Hey it was very informative. I read some very interesting post and e-mails on this one. Opinions varried from impossible to they have a chance.

Basicaly this is what I was told about this.

Because of the tremendous uptick of various markets around the world and the current steady increase in value of many investment vehicles, this couple should be able to retire on what they want by age 50.

Basicaly, for them to retire with an annual income from investments of 35K and they would expect to garner a modest 11% annual return on thier investment (which is highly likely with the proper mix of investments) They would only need about 300,000 (thats right 300,000). Lets see an annual return of 11% on 300k is 33k

When I questioned this and asked about the mega amounts needed to retire as quoted and believed by everyone, the response was basicaly this.

We are conditioned to believe that we need to have enough so that we can survive on returns in the single digits not to mention we are conditioned to believe that we need to withdraw principle along with the interest. Both of these are false. Millionaires all over the world have their money working for them and they are able to live very well without touching the principle.

Ross Perot is a prime example. His investments total about 2 billion dollars and he garners income from those investments of about 160 million.\

True, 35k in 15 years will not be as much as it is today, but take into account that this couple expects to live on half of its current income. So they could max out 401k and other employer savings plans. They could increase thier savings to a total of 20% and garnering a modest 15% annual return they could easily eclipse 550k. Add to this the purchase of a home and paying it off in 15 years and the purchasing of other income producing assets and you will see that in 15 years this couple could easily retire in comfort.

I went back and did some recalculating on my part using this information. I am 35 and have been saving in some fashion since I was 23. My goal was to retire at 50 or 55. If I pushed myself and saved a whole lot I could retire at 45. I now see, that if I should find myself tired of running two businesses I could retire in lavish comfort in 5 years at the age of 40 and still have enough to pay my kids college tuition in full.

It made me realy think. Do I realy need 3 to 5 million bucks in order to retire? Not if I have the proper mix of investments.

How about you?

rec
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22236 of 75336
Subject: Re: Test Done, Game Over Date: 5/27/2000 3:36 PM
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If this kind of analysis gets you started saving toward that $300K needed in your analysis, great. Go for it.

However, Fools suggest that you spend no more than about 4% of your investments per year (ie burn rate) in retirement. So that would require $875K if you expect to not outlive your savings. Also don't forget that in 15 yrs you will probably need about twice as much to buy as much as that $35K.

So, best of luck, but don't be too quick to give up that day job.

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22238 of 75336
Subject: Re: Test Done, Game Over Date: 5/27/2000 5:10 PM
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They would only need about 300,000 (thats right 300,000). Lets see an annual return of 11% on 300k is 33k

If their investments can consistently return 11%, that sounds great!

However, for 11% return, the money would have to take on a certain amount of risk, such as equities, which are known for a large amount of volatility.

Averages may be fine for long-term planning, but when one is relying on year-to-year returns, the story becomes quite a bit different--some years the returns will be far less than 11% and may even be negative! (Right now, for example, my nicely diversified portfolio is down 6% YTD.) Other years the returns will be far greater so, even though in the long run it tends to average out, in the short run it could be an expensive lesson, particularly if the stock market goes into a multi-year bear market right at the start of retirement.

Also, the estimates don't take into account even an estimate of inflation, which if one accepts the 10.7% gains in the stock market (large caps 1926-1998) one should also accept 3.6% inflation rate (also 1926-1998 annualized). At that rate, the cost of living would double approximately every 20 years, which is another issue that one has to account for. (More recently inflation has been less.)

So between the volatility of the stock market, and the effects of inflation, I would be reluctant to base my retirement on just $300,000 on retirement day.


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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22260 of 75336
Subject: Re: Test Done, Game Over Date: 5/30/2000 3:05 PM
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A 15% steady return going forward is not realistic. In some years the market will be up; in some years it will be down. Or you could have a string of down years. That causes the portfolio to get depleted faster.

How exactly is this couple going to maintain its standard of living while paying down debt, contributing to 401K, buying a house, and buying after-tax investments? It doesn't add up.

It is unconscionable to expect that worldwide markets will continue their steady rise indefinitely into the future.

Plus your source did not take inflation into account.

The only way you will be able to get by on only the interest is if your portfolio is bonds or outright ownership of companies. Bonds don't give you the growth you need.

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Author: AnnV777 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22365 of 75336
Subject: Re: Test Done, Game Over Date: 6/4/2000 10:29 AM
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Because of the tremendous uptick of various markets around the world and the current steady increase in value of many investment vehicles, this couple should be able to retire on what they want by age 50.


Assuming the recent past is an accurate prediction of the long term future.

Lets see an annual return of 11% on 300k is 33k

So, the first year is almost covered. Aren't you the least bit concerned with the effects of inflation after 10 or 25 years? The reason you don't spend all of the interest in the beginning is that you have to allow for inflation which creates a need for ever larger annual withdrawals. Or else you eat cat food in your later years.


True, 35k in 15 years will not be as much as it is today, but take into account that this couple expects to live on half of its current income. So they could max out 401k and other employer savings plans. They could increase thier savings to a total of 20% and garnering a modest 15% annual return they could easily eclipse 550k. Add to this the purchase of a home and paying it off in 15 years and the purchasing of other income producing assets and you will see that in 15 years this couple could easily retire in comfort.



How?? They are barely making it on their current income, with no money going to savings. How can they max out the savings plans AND purchase a home and other income producing assets? I see a critical need for additional income in order to make this scenario turn out. Second job, anyone?

AnnV


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