jIM_Ohio is Investing to retire early

Using a retirement calculator

jim.wickens@siemens.com (jIM) — Mon, 05 Jan 2009 14:32:13 PST

My preferred retirement calculator is

http://www.flexibleretirementplanner.com/java/LaunchFRPWeb.h...

Here are inputs I use (and how I interpret them):

Current age, retirement age and life expectancy. Mostly self explanatory. Always make sure you have a 30 year retirement for best planning (better to die with money than to die destitute).
In my example I am entering 35 for current age and 53 for retirement age.

Inflation- 3.5% I use default then will adjust upward some once I see core numbers with 3.5%. Use default for example.

Investment tax rate- 15% is current long term capital gains rate. This has impact to point where you have taxable accounts. If you have state taxes, you need to add that to the 15% (for example if state rate is 4.5% and fed is 15%, total is 19.5%. Use 20% for example.

Income tax rate is federal+state income tax rate. If you are married making more than 70k taxable income this is 25% federal+ whatever your state bracket is. Use 30% for best planning (this is worst case- I think- for most people). Use 30% for example.

Taxable portfolio- enter present value of taxable accounts. I would NOT include EF in this.
In my example I am using $1000.

Tax deferred portfolio- enter current value of 401ks, rollovers and money you have NOT paid tax on yet. Use 92000 for the example.

Tax free portfolios. Enter current value of roth accounts here. Use 27000 for example.

Min 401k/IRA withdraw age- enter age you will begin withdraws from 401k/IRA. Use 53 for the example.

Taxable annual savings- Enter amount you put into taxable accounts on a yearly basis. Enter 6000 for example ($500/mo).

Tax deferred annual savings. Enter amount you contribute to 401ks, traditional IRAs or similar. Use 24000 for the example.

Tax free annual savings. Enter amounts you contribute to ROTH accounts. In example use 10500 ($5000 for me, $5000 for wife in IRA, plus wife contributes 1% of gross to a Roth 401k).

Investing style- choose aggressive. Note it gives %stocks-%bonds-%international (70-7-23). Also note it gives avg return and standard deviation (10.5% and 15.8).
--
write down the following
moderate risk is 41-45-14
with returns of 8.5% and std deviation of 9.9%.

below avg risk is 30-60-10 with returns of 7.5% and std deviation of 7.1%.
--
Annual retirement income- enter income from a job you will WORK at once retired. Leave at 0 for example.

Retirement income starts at age what? List age for new job. does not matter if income is blank for the example.

Annual retirement spending. Enter your annual expenses you will need in retirement. Enter 60k for the example.

In upper right corner there is an "additional inputs", click that button.

set 3 different portfolio return criteria:

1) start of plan to end at age 45; rate ot 10.5%, std deviation of 15.8 (this is the aggressive choice). Click add.

**this is because I plan to be aggressive in investing style until age 45. 8 years from retirement the plan is to tone this down some.**

2) age 46 to retirement year, use a rate of 8.5 and a std deviation of 9.9. Click add.
**this is a move to a 60-40 type portfolio while working but before retirement**

3) retirement year to end of plan, use a rate of 7.5% with a std deviation of 7.1%. Click add.
**This is a 40-60 portfolio which is quite moderate (and should yield more than 4%).**

At bottom of this same window, add SS.

cashflow type: SS
start year age 62
end year (end of plan)
annual amount: $12000 (this is less than one half my projected benefit- I plan to take SS early at age 62).
Taxable percent: 85 (this is because if gross income+ 1/2 of SS is over 44k, SS gets taxed).

click add

add in SS for spouse. I want my wife to get her full benefit. She'll probably live longer, so this is "worst case".

start:Age 71
end: end of plan
annual amount: 24000 (full benefit in todays dollars)
taxable percent: 85

click add
click done

at top of screen there is a "run simulation" button.

Click run simulation.
You see a probability of success of 84.7%. That works for me. I make note a few numbers:
Starting withdraw rate is 4.2% (goal is for 4%).
Portfolio value at retirement $1.4 M (goal is $1.5 M).

Now tweak some settings- note how the Roth account is depleted (green bars).

There is a spending config button in lower right of inputs.
Click config.

At bottom of form click the following
"take withdraws from taxable, then tax deferred, then tax free"
**this means tap the Roth accounts last (let them grow for as long as possible)**

click run simulation again.

Note the roth account has a higher balance in 2069 (age 96 for me).

There are some finanical planning things this calculator does not take into account, care to discuss?

Retirement calculators

jim.wickens@siemens.com (jIM) — Sat, 03 Jan 2009 02:34:01 PST

I put a date on my retirement in 2008 (2026) and had not ran thru retirement calculators with it.

T Rowe Price would not let me retire that early on their calculator.

Firecalc suggested I have 100 percent success with 27k of annual contributions (need to find a way to keep that...

New Years resolutions- control or no control?

jim.wickens@siemens.com (jIM) — Fri, 02 Jan 2009 12:35:39 PST

My wife told me her new years resolution was no hospital stays which last for more than 6 months of the year.

She pointed out that in 2008 half of our year was spent in the hospital. Because it was Jan-June I kind of forgot how tough 2008 was.

Wife was in hospital from late...

College savings plan

jim.wickens@siemens.com (jIM) — Thu, 01 Jan 2009 09:55:57 PST

There was a thread in forums which discussed 529 plans and I want to detail my stance here.

My plan includes the following (done in order listed):

1) Have a budget which is 15/5.
Meaning 15 percent to retirement plans
Meaning 5 percent to short term financial goals (pay down...

Early retirement plan

jim.wickens@siemens.com (jIM) — Mon, 29 Dec 2008 11:25:33 PST

I've added some milestones to the author bio. The top money numbers have been there for a while, the bottom are the details I need to fulfil to make that happen.

Here are some details:

If I get a 3 percent raise, I can increase my 401k by 2 percent and not see take home pay...

New investment

jim.wickens@siemens.com (jIM) — Mon, 22 Dec 2008 14:47:30 PST

We added a new investment to our mix over last several months. Wife's Roth IRA was completely revamped with many new holdings, which included one mutual fund only a few months old.

Here are the new holdings (starting from Sep 2008):

T.ROWE PRICE GLOBAL TECHNOLOGY PRGTX
T.ROWE...

2009 goals

jim.wickens@siemens.com (jIM) — Wed, 17 Dec 2008 15:33:24 PST

I am reading through many other people's goals for 2008 or 2009. Most of my goals are long term, and I just make sure I do certain things towards the goals each year.

goal 1: 15% retirement contribution (my 401k, wife's 401k, my Roth, her Roth). If all adds up (current plan) it...

Busy weekend

jim.wickens@siemens.com (jIM) — Tue, 16 Dec 2008 16:48:56 PST

I had Thursday-Monday off.

Thursday was a sick day because both boys had outpatient surgery. DS1 had hypospadius repaired (that means he can now write his name in the snow without a slant to it when he is older if you know what I mean). DS2 had a bilateral hernia repaired.

My...

My kids xmas

jim.wickens@siemens.com (jIM) — Wed, 10 Dec 2008 07:17:51 PST

Our santa gifts are all wrapped and under the tree.

The boys will be getting 5 gifts from Santa.

They will share a big thing my wife wanted to get them. It is a multifunctional thing. It has this cool thing which blows plastic balls in the air, lets kid fetch it, then put it...

Free internet radio

jim.wickens@siemens.com (jIM) — Mon, 08 Dec 2008 11:16:16 PST

I use a free internet radio station called pandora. If you listen to music on a PC, pandora will do a good job of two things:

Playing the artists you like
Finding other music similar to the artists

Here is a url

http://www.pandora.com/

I hope that works. I have been listening to pandora for more than 2 years.

You can customize the stations to play what you want. Tell it which songs you like or dislike as it plays them and it adjusts what it plays. For example last xmas I created a few holiday stations and around 40% of the songs I did not like. This year when it is playing those stations I like most of the songs it is playing based on my feedback.

FREE!

HR block is NOT giving objective financial advice

jim.wickens@siemens.com (jIM) — Mon, 08 Dec 2008 10:39:56 PST

I went to my first HR block employee orientation on Saturday.

Interesting...

Part of the claim HR block makes is the following (paraphrased- I do not have the article in front of me)-

"We are in a unique position to offer lower and middle-class people financial advice".

I...

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jim.wickens@siemens.com (jIM) — Mon, 08 Dec 2008 10:31:32 PST

I have decided to start my own financial planning business.

For now I am going to concentrate on 4 areas:
1) Taxes
2) Retirement saving
3) college planning
4) budget/spending

I am going to work on obtaining an enrolled agent status with IRS. I am also planning on taking...

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jim.wickens@siemens.com (jIM) — Mon, 01 Dec 2008 10:28:20 PST

I passed my tax course with an 85% overall. I think my final exam score was a 4.2/4.4. I only glanced at the final exam score once I saw that I passed.

The final was WAY WAY too easy. I could have passed it 5 weeks ago with what was taught (hint- if you have not taken the course,...

2008- a time to be truly thankful

jim.wickens@siemens.com (jIM) — Wed, 26 Nov 2008 12:23:43 PST

What are you thankful for?

I am thankful that my twins are home and healthy. That above all else makes this thanksgiving truly the best ever.

I am thankful my wife still tolerates me, loves me and takes care of my kids when I am not around.

Review for tax course #10

jim.wickens@siemens.com (jIM) — Tue, 11 Nov 2008 17:36:48 PST

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What types of income are subject to mandatory federal income tax withholding?

2 What types of income may be subject...

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jim.wickens@siemens.com (jIM) — Tue, 11 Nov 2008 17:24:07 PST

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What is the full retirement age for taxpayers born before 1938? 1938? 1939? 1940? 1941?

2 On what form are social...

Review for tax course #8

jim.wickens@siemens.com (jIM) — Tue, 11 Nov 2008 16:58:36 PST

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What does the term non refundable credit mean?

2 What does the term refundable credit mean?

3 What requirements...

Review for tax course #7

jim.wickens@siemens.com (jIM) — Tue, 11 Nov 2008 16:42:48 PST

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What types of income should be reported on schedule C?

2 What income reporting form will an independant contractor...

Review for tax course #6

jim.wickens@siemens.com (jIM) — Tue, 11 Nov 2008 16:22:13 PST

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 How does one determine the taxable income of taxpayers who itemize deductions?
2 Who may itemize?
3 The cost of most...

Review for tax course #5

jim.wickens@siemens.com (jIM) — Tue, 11 Nov 2008 15:23:15 PST

Answers will be posted in responses section in about 1 day.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 How much may an eligible educator deduct for qualified classroom expenses as an adjustment to income?
2 Who is an eligible...