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Subject:  Re: Retiring @ 55 Date:  10/14/2013  2:50 PM
Author:  BruceCM Number:  73546 of 91132

I pretty much agree with the previous general recommendations of getting into the habit of saving, but also the habit of not spending excessively and in particular, never carrying short term (credit card) debt. Using credit cards is fine (and convenient), but if you can't pay the CC bill at the end of the month, don't use the credit card(s).

A quick run on your numbers (this is only an estimate based on reasonable assumptions):

$160,000 current household gross income.
75% income replacement at 55
$120,000 income requirement (today's dollars)
Annual average wage inflation of 3%
$192,500 income requirement at age 55 growing by 3%/yr over life expectancy
Assume average annual investment rate of return of 7% and annual average inflation rate of 3%, for an annual average real (inflation adjusted) rate of return of 3.88%
Currently $170,000 saved towards retirement
Assume 35 years in retirement (to age 90)
$3,800,000 (rounded) required at age 55
$118,000 required annual savings rate beginning this year

This is a linear calc, and like all linear calcs will not take into account sudden changes, such as you retiring at 55 and wife working another 5 years. To take this into account, I use the uneven cash flow function (Excel XIRR) of my financial calculator, which tells me....if I input the numbers correctly.... that if your wife works another 5 years, you'd need to save at the annual rate of $111,250 for 16 years.

The one other factor not considered here is Social Security. Yes, I know, some say it won't be there for you younger folks....but I say we've been here before with a SS crisis and Congress changed the FICA rate and other stuff to extend its life, and I suspect they'll do it again unless, I suppose, Congresspersons don't value their good health and don't object to being hanged in public....I know, BIG assumption....but for now, lets say they do. If you have a SS PIA of $2,200/mo at 67 and wife has a PIA of $1,400/mo at 67 and you both begin at the earliest age of 62, with you beginning 5 years before she, using the same uneven cash flow function, the annual savings requirement drops to $81,300.

Again, this is only an estimate based on assumptions....but it should give you an idea of the savings requirement you have ahead of you to be able to retire at 55.

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