How much would this person need to retire?

celiboy · #1 11-19-2007, 06:02 PM

Assume an individual that is 40 years old, no wife or kids, home paid off and yearly expenses of $30,000 including taxes. Person is educated and has the ablity to find relatively high paying work fairly quickly if the need arose. Assuming expected life of 90 years old and no inheritence, how much would this person need to have socked away? At this young an age, would 30X annual expenses work? That would be $900,000 - how many would be comfortable retiring at that age with that much money? If this were you, how much many would you need to be comfortable to retire full time?

Henry17 · #2 11-19-2007, 06:16 PM

Assuming 3% return after inflation you'd need ~$850,000 to get $30k a year.

I'm just not sure $30k is a realistic amount to live off. Once retired you have an extra 50+ hours a week to fill up. If your expenses are $30k now I'd assume at least double that when retired.

celiboy · #3 11-19-2007, 06:19 PM

Double that? I don't think so. What would you spend 30K more a year on? I would travel 2 or 3 times a year from the current once a year vacation, play more golf, etc...that doesn't add up to 30K. I'm in Canada, so I don't have to worry about medical

Henry17 · #4 11-19-2007, 06:36 PM

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What would you spend 30K more a year on?

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We are not talking about me. I know I couldn't live on $30k a year and I also live in Canada.

I assumed that $30k a year was your current spending while working thus why I figured doubling it was a safe assumption since you'd have to fill up 50 extra hours a week which increases spending.

Now that you stated you want to travel 2-3 times a year I am 100% sure your estimate is too low.

scotchnrocks · #5 11-19-2007, 06:37 PM

If my house was paid for and I had no wife or kids, I'd be able to retire on that pretty easily in a reasonably affordable city.

celiboy · #6 11-19-2007, 06:43 PM

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What would you spend 30K more a year on?

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We are not talking about me. I know I couldn't live on $30k a year and I also live in Canada.

I assumed that $30k a year was your current spending while working thus why I figured doubling it was a safe assumption since you'd have to fill up 50 extra hours a week which increases spending.

Now that you stated you want to travel 2-3 times a year I am 100% sure your estimate is too low.

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Please tell me what it should be...the average median salary in canada is something like 60K for a family. After taxes there is maybe 35K left and families raising kids get by on that income no problem. These people would be flat broke if they spent what you are suggesting. 60K after tax is like making a 90K salary which is a fairly high salary in Canada although in my profession about the average.

Also, if you don't work anymore you should be able to save money on lunches at home, no work clothes, drycleaning, less mileage on car, etc....

As far as vacations, an all inclusive to Mexico is about $1200 including taxes, fees, etc. I see deals all the time for less than that, but it's last minute deals. If I was retired I could take advantage of those all the time.

maxtower · #7 11-19-2007, 06:46 PM

How much income is needed after taxes?

To earn 30k per year, I would probably dump all my money into one of the Dividend Achiever indexes (dividendachievers.com). I like that for a few reasons.

1. Dividends are taxed less than interest (although Hillary could change this)

2. The dividend achievers companies increase their dividends at a rate that should match or eclipse inflation.

3. You benefit from capital appreciation as well. (11% average over last 10 years total return)

$900,000 is about the low end of how much the guy would need to retire. Living in a cheaper country for a few years or working part time would go a long way to making this work. The chief concern is inflation. While he should easily be able to earn $30k in gains from his 900k investment now, a bad year or two could be a major setback. 20 years from now he'll need to earn $60k/yr just to be able to afford the same stuff he'd buying today. Even though he owns his own home, taxes will continue to increase as well as maintenance costs. If death comes at 50 years from now, thats a long time this money has to last. He really can't afford to touch the principal at all. Keep in mind how much health insurance will cost now that he isn't working. I guess medicare won't kick in for another 20 years at least.

Edited: Just realized you're canadian. Ignore the tax and health care stuff, but worry about your investments that are earning in USD instead of CDN

celiboy · #8 11-19-2007, 06:51 PM

[ QUOTE ]
How much income is needed after taxes?

To earn 30k per year, I would probably dump all my money into one of the Dividend Achiever indexes (dividendachievers.com). I like that for a few reasons.

1. Dividends are taxed less than interest (although Hillary could change this)

2. The dividend achievers companies increase their dividends at a rate that should match or eclipse inflation.

3. You benefit from capital appreciation as well. (11% average over last 10 years total return)

$900,000 is about the low end of how much the guy would need to retire. Living in a cheaper country for a few years or working part time would go a long way to making this work. The chief concern is inflation. While he should easily be able to earn $30k in gains from his 900k investment now, a bad year or two could be a major setback. 20 years from now he'll need to earn $60k/yr just to be able to afford the same stuff he'd buying today. Even though he owns his own home, taxes will continue to increase as well as maintenance costs. If death comes at 50 years from now, thats a long time this money has to last. He really can't afford to touch the principal at all. Keep in mind how much health insurance will cost now that he isn't working. I guess medicare won't kick in for another 20 years at least.

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After taxes would be 25K. Tax rate in canada for the first bracket is fairly low and dividends are taxed extremely favorably in Canada so the 5K estimate for taxes is on the high side if anything. So after taxes we are talking about 2K a month...I think that is fine with paid off house and car.

Henry17 · #9 11-19-2007, 07:18 PM

Can you describe a typical week as you envision it? What type of activities do you see yourself filling your time with?

At 40 you are only 6 years older than me. I don't have a job so I find this interesting.

celiboy · #10 11-19-2007, 07:41 PM

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Can you describe a typical week as you envision it? What type of activities do you see yourself filling your time with?

At 40 you are only 6 years older than me. I don't have a job so I find this interesting.

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Why does it matter? All I know is that grinding it out at the office is about the last thing I would want to do. If I'm in a position not to do that, then I'd be a fool to keep busting my ass.