More investment advise please

[Moohooya]

OK, so I can figure out how much a year I need to live off once I am retired. The next thing I need to figure out is how large a lump sum I need to do this. Not knowing when I will die, and figuring I could easily live 30 years once retired, I'd rather my lump sum not diminish, but rather keep up with inflation. Is there a formula to determine the typical expected income attainable from a sum of money?

Once I know how much money I need, I now need to figure out how to get there from here.

Over the long haul, what are the difference in returns between large, mid-cap and small? What about value vs income? Which should I go for investing now for retirement in 30 years?

Finally inflation and fees. What is a realistic expectation of my return in a mutual fund after inflation and fees? many of them have great claims of 15%, but if I'm losing several % to inflation and fees, it makes a HUGE difference. For a "I'm going to leave my money in there for 30 years" kind of mutual fund (so I don't care about long periods of poor growth as long as it catches up) what is reasonable?

Thanks all for any info.

 

[GasX]

Get clippy the annoying paperclip to help you with Net Present Value calculations in excel.

If you want to plan for the long term like that, you need to plan conservatively.

If all of your money goes into growth funds expect an average return of 12% (you may do better, but you want to be prepared for a few bad years in a row) This conservative number relative to historic numbers also factors in portfolio adjustments as you get closer to retirement.*

use this this calculator to see how much you need to save to get your target amount.

So what is you goal income and how much do you need?

Simple way: what AFTER-TAX income do you want to live on? Divide that by 0.06 to get your target.

Why 0.06? that is the approximate return on a tax free bond, which is a baseline for your income.

If you have a better return that 12% along the way or if you find better income generating vehicles during retirement you will be better off.

This should get you started...

 

[kranky]

Kiplinger's also has a good retirement calculator here.

You are asking the right questions about retirement planning!

 

[Total Refected Power]

Here is a great site for many financial calculations.

Calculators

 

[IJump]

Whatever the web sites/experts say, I usually drop two percent off of their return estimates or add a little to what they tell me I need to save. That way you are puttin gback more than you need in case your returns aren't as good as they say. If the returns stay good, you have extra to retire with.

 

[Moohooya]

Thanks for the responses. I'm guessing I'll need 30K a year of todays money. (This no doubt will be at least 60K in 30 years.) It is a tough call with the SSI unknown, but I figure if I do get SSI I'll be sitting pretty, if I don't think will be tigh but not bad.

Actualy the kiplinger calculator says my 30K will be 84300.00 in 30 years! Yikes

 

[Moohooya]

Kranky,

I like the Kiplinger's calculator. Nice and simple to use. However, what type of mutual fund is agressive vs conservative? This comes back to the question I asked about the difference in returns between large, mid-cap and small? and also value vs income?

thanks

 

[GasX]

large, mid-cap and small perform differently in different economic climates.

value vs. income? neither.

If you pick ONE fund for the long term, it should be Growth or Aggressive Growth.

Value funds are good during downturns in the economy. Income funds become important as you near retirement and want some income from your account to live off or dish into other investments.

 

[Moohooya]

Thanks Mwilding.

Moohoo