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Subject:  Re: Am I naive? Date:  12/29/2002  1:34 PM
Author:  otterrivervalley Number:  88041 of 888931

No. But heres a couple of things that we are thinking in our planning :

-we are estimating that to maintain our STANDARD of living that goes into calculating my annual budget, our cost of living goes up 4% annually. That means that in say 10 years, the 60K starting salary jumps to around 85K needed for that year (note, that only reflects an increase of around 3K/year in the cost of living, question is, how much does your cost of living increase NOW over last year).
if you aren't going to touch the principle, that means your 600K would have to grow to 700K which isn't all that unreasonable. Whats questionable is where to put the 600K to guarantee that it grows to meet your increasing budget needs as you syphon off the returns from the year before.

-our starting budget of (and its the same as yours 60K for the first year) reflects approx 40% over what we will need as a minimum baseline income. But the 40% pays for a few nice vacations, car payment IF we need to make one, etc. And if we don't spend it all, then its a "carry-over" to the next year, but as we fully plan on taking those nice vacations annually (calling them "field trips" for our homeschooling), not anticipating much "carry over".

-we are low balling our annual investment returns to 5%. If we get more in reality, we are ahead. But if we have a few years like the last few, they could eat up a chunk of principle. What this means tho is that we have to start with a lot more than the minimum if one was to plan on say 6% or 7% returns.

in your case, I would think the main concern is getting the returns on your assets. Think if you use 600K and expect 10% returns as a minimum, you would find yourself falling short of your needs, let alone having the ability to increase your w/ds annually as needed to maintain your standard of living.

recommendation, like you, we aren't too interested in the amount we can w/d per year. Its more important to be able to w/d what we need. And as you mentioned, its going to require a lot more than the minimum and would recommend you use a conservative "return" rate on what you do have in assets in your planning... Of course, it also depends on how long you intend to live only on the interest versus starting to syphon off the assets themselves. Good luck.
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