How much $ do i need to live to age 80 w/expenses = $30k/yr?

Discussion in 'Off Topic' started by JEDI, Nov 7, 2010.

  1. JEDI

    JEDI Lifer

    Joined:
    Sep 25, 2001
    Messages:
    23,185
    Likes Received:
    6
    At age 60 i can withdraw from my 401k w/o penalty.

    Expenses = $30k/yr
    Interest rate = 4% (for simplicity, compounded annually)

    How much $ do i need at age 60 so that at age 80, i have $0?

    And whats the formula?
     
    #1 JEDI, Nov 7, 2010
    Last edited: Nov 7, 2010
  2. rcpratt

    rcpratt Lifer

    Joined:
    Jul 2, 2009
    Messages:
    10,186
    Likes Received:
    1
    (P/A, 20, 4%)

    P=A(((1+i)^n-1)/(i(1+i)^n))

    P=$30000*13.590

    P = $407,709.79

    Keep in mind that your expenses are likely to increase with inflation...

    Also, that money is going to be taxed.
     
    #2 rcpratt, Nov 7, 2010
    Last edited: Nov 7, 2010
  3. Fear No Evil

    Fear No Evil Diamond Member

    Joined:
    Nov 14, 2008
    Messages:
    5,922
    Likes Received:
    0
    ...
     
    #3 Fear No Evil, Nov 7, 2010
    Last edited: Nov 7, 2010
  4. JEDI

    JEDI Lifer

    Joined:
    Sep 25, 2001
    Messages:
    23,185
    Likes Received:
    6
    wow..THX! cant believe i forgot about that!

    25% fed + 5% state = 30% tax

    408k/.7 = 583k

    as for inflation... hm.. i could just assume inflation = 4% to negate the 4% rate of return

    so $30k/yr * 20yrs = 600k

    600k/.7 = $857k is about what i need in my 401k at age 60 to last me 20yrs
     
    #4 JEDI, Nov 7, 2010
    Last edited: Nov 7, 2010
  5. JTsyo

    JTsyo Lifer

    Joined:
    Nov 18, 2007
    Messages:
    10,080
    Likes Received:
    8
    how about if I want to retire and need H/B once a week. How much extra do I need to save?
     
  6. dud

    dud Diamond Member

    Joined:
    Feb 18, 2001
    Messages:
    7,169
    Likes Received:
    1



    Suggest you revisit your estimate of 25% Federal tax. Unless you have other (significant) sources of income and expect to gross well over $100K a year OR the Government significantly raises the tax rates in the future ... the 25% rate is too high.
     
  7. rcpratt

    rcpratt Lifer

    Joined:
    Jul 2, 2009
    Messages:
    10,186
    Likes Received:
    1
    25% is definitely too high, 20% is probably a better starting point unless there is a bunch of other income you haven't mentioned.

    Inflation is something like 3% on average. With conservative investments on your 401k after you retire you should still be able to pull 5% average or so. We can call it +2%/yr and probably be fairly accurate.

    $30,000(P/A, 2%, 20)

    P = $30,000*16.351

    P = $490,543

    After tax = $490,543/.75 = $654,057

    All we've shown is that these calculations vary widely based on the assumptions you use and you should try to have more than any of these numbers to be safe. Also, 20 years is a seriously short assumption and that has a huge effect.
     
  8. 911paramedic

    911paramedic Diamond Member

    Joined:
    Jan 7, 2002
    Messages:
    9,451
    Likes Received:
    0
    That sounds exactly like one of the questions my sister was going over back when she was getting her CFP at the bank. If you need med calculations done I can help, however this is not in my scope of practice.
     
  9. blinblue

    blinblue Senior member

    Joined:
    Jul 7, 2006
    Messages:
    890
    Likes Received:
    0
    You could use a Roth IRA and not have to worry about paying taxes on it at retirement. Depending on how much you make now, and if you are willing to bet that you'll pay more in taxes later, its probably a good idea to open one up.
    And there's a missing "k' in the title, $30/yr would be very easy :)
     
  10. Bignate603

    Bignate603 Lifer

    Joined:
    Sep 5, 2000
    Messages:
    13,900
    Likes Received:
    0
    Beyond 20 years being relatively short you probably will have at least a few large expenses over that time. That could be medical expenses above what is covered by medicare, a large home repair if you own a home, or even something fun like deciding to go on a big trip. Don't plan your retirement based on a budget that only covers the bare minimum living expenses, something will happen and you'll chew through a year's worth all at once.
     
  11. bignateyk

    bignateyk Lifer

    Joined:
    Apr 22, 2002
    Messages:
    11,291
    Likes Received:
    0
    What happens if you live past 80? Just gonna off yourself?
     
  12. Binarycow

    Binarycow Golden Member

    Joined:
    Jan 10, 2010
    Messages:
    1,239
    Likes Received:
    2
    if that's the case then you need to add in the expenses of buying a gun and ammo.
     
  13. JEDI

    JEDI Lifer

    Joined:
    Sep 25, 2001
    Messages:
    23,185
    Likes Received:
    6
    thx! 20yrs to age 80 is too short? Avg life span of a US male is 74?


    Fixed. :blush:
     
  14. techs

    techs Lifer

    Joined:
    Sep 26, 2000
    Messages:
    28,567
    Likes Received:
    0
    Have you figured in the increasing cost of health insurance? It's averaging 10 percent a year. AND it compounds.
     
  15. Kroze

    Kroze Diamond Member

    Joined:
    Apr 9, 2001
    Messages:
    4,052
    Likes Received:
    0
    Yea at that age, take into account of medical care.

    You're better off living in another country where it's cheaper and easier to live with less money.
     
  16. rcpratt

    rcpratt Lifer

    Joined:
    Jul 2, 2009
    Messages:
    10,186
    Likes Received:
    1
    Pretty much everything compounds...

    And yes, you need to plan beyond 80. You can't just plan for the average (or slightly higher), you pretty much have to plan for the worst case with these kinds of things. Depending on your personal health and family history, I suppose. Most planners will recommend you plan to at least 90.
     
  17. Dr. Detroit

    Dr. Detroit Diamond Member

    Joined:
    Sep 25, 2004
    Messages:
    6,851
    Likes Received:
    1
    My theory on retirment:

    Traditional 401K and IRA over ROTH: Most likely you will be paying a higher tax rate today than you would in the future. You can put in more today based on the tax savings and that 20+yrs of compounding interest will more than outdo your duture tax payments.

    And - you can move to some 3rd world H&B country like Thailand or Panama and never pay US taxes again. Sure you'dd be a fugitive and never come back without penalty but hey - not paying the tax man will be well worth it.

    Retirment to age 59.5 - gotta survive on cash
    59.5 - 72 - gotta surivie on 401K & IRA
    72 - and onward you gotta surivive on SSI

    SSI will be trimmed down by the time you retire but it will still be paying out so factor it in.
     
  18. kranky

    kranky Elite Member

    Joined:
    Oct 9, 1999
    Messages:
    20,841
    Likes Received:
    12
    Plan for living to age 90. Assume a tax rate of about 15-20%. Add in expected income from Social Security (you can get an estimate from their site).

    And I would plan for more than $30K/year income. That seems pretty low.

    Worth spending a little time with a good retirement calculator. There's one on this page. http://individual.troweprice.com/public/Retail/Retirement/Retirement-Planning
     
  19. DaveSimmons

    DaveSimmons Elite Member

    Joined:
    Aug 12, 2001
    Messages:
    38,737
    Likes Received:
    33
    At some point during retirement you can put money into an immediate annuity and "earn" more than 5% on it.

    It pays much more interest than a CD, but it does so because your principal is gone and your estate gets nothing. It's like buying a pension. They bet you die when the actuary tables say you will, you bet that you'll live longer.

    http://www.immediateannuities.com/
    70 year old male, currently paying about 7.8%
     
  20. Lifted

    Lifted Diamond Member

    Joined:
    Nov 30, 2004
    Messages:
    5,756
    Likes Received:
    1
    This is assuming public health care and SS don't cause a large increase in taxes in 20 or 30 years.

    If you want to play it safe max out the ROTH and then put into the 401k (401k is about 3x ROTH at the moment?). If your employer matches the 401k, you should be able to get more into the 401k than the ROTH, ideally maxing it out.
     
  21. Engineer

    Engineer Elite Member

    Joined:
    Oct 9, 1999
    Messages:
    37,909
    Likes Received:
    3
    Depends on how much money you (or household) makes. IRA's are phased out after a certain income level (starting at $89,000 for household IIRC).
     
  22. Zee

    Zee Diamond Member

    Joined:
    Nov 27, 1999
    Messages:
    5,143
    Likes Received:
    3
    live on your credit cards
     
  23. Engineer

    Engineer Elite Member

    Joined:
    Oct 9, 1999
    Messages:
    37,909
    Likes Received:
    3
    Shit, move in with the kids and live off of them and their credit cards.
     
  24. dud

    dud Diamond Member

    Joined:
    Feb 18, 2001
    Messages:
    7,169
    Likes Received:
    1


    How the hell do you move in with your kids (and live off of them) when they haven't finished living with you?

    There is a large number of the "boomerang" generation that are just now coming home after finding out that the world is not the rosy place they were told it was ...
     
  25. Engineer

    Engineer Elite Member

    Joined:
    Oct 9, 1999
    Messages:
    37,909
    Likes Received:
    3
    Well, I guess you have a point. Generation Y might be the first generation in US history that lives a lower standard of living then their parents....and I'll be damned if I'm not the parent of two of them. Doh! ^_^