Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next
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: of 19224  
Subject: Re: which reminds me -- Date: 8/10/2008 12:19 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
The conventional wisdom is that 4% will probably last at least 30 years.

Others have very sophisticated answers and there are even calculators that will calculate exact numbers for you based on whatever.

To me it makes sense that 4% will last you if your investment portfolio is intended to earn you 8% pretax in a typical year. That 4% includes any income taxes you pay.

So if you are invested very conservatively in T-bills earning say 2%, I don't think you can expect 4% to last you.

But if you earn 8% and spend 4%, your net worth increases every year because you are saving half of what you are earning.

And if 11% is a typical yield of an S&P 500 Index fund and you have say 30% invested in fixed income securities, the numbers seem to work. An 8% total return seems a reasonably acheivable target.

If you have tax free bonds in the mix, their income is tax free, so the calculation is the same, but your expenses are lower because your income taxes are lower.

If your investments are in 401Ks and IRAs that are taxable on distribution, I think you have to base your calculations on a higher tax rate than otherwise. Or you reduce the value of those holdings by the percentage taxes to be paid on distribution when you calculate your assets to do the 4% on.

One size does not fit all. These are all approximate calculations. None of these calcs are likely to be a precise predictor. But they are guidelines that can cause you to do more detailed calculations. Treat them not as a law but as a blinking yellow light.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement