September 28, 2004
When to retire?
Most everyone wants to retire as soon as possible and enjoy life. But, it is never clear when would be a good time to do that and one always doubts if s/he has enough resources to live in retirement. This is something I read in Kiplinger's magazine. It can be a rough guide to help in making these decisions. If a person takes out 4-5% of the funds in first year of retirement and then, keep taking the same amount (adjusted for inflation), those funds (invested 50/50 in stocks and bonds) will last for at least 30 years or more.
For example: If one has $1,000,000 portfolio at the time they stop working, they can take out $40,000 to $50,000 in the first year and then same amount adjusted for inflation year after year for 30years and can leave an inheritance.
- Find out your life expectancy (X yrs) from how long your grandparents and other blood relatives lived.
- How much you would need per year ($Y) to live the kind of life you decide to live.
- Set a target to have $25*Y ready by the time you are X-30 years old. This is a good estimate for the 'when should I retire' question.
I mean this is depressing.. i will have to live really long and retire late to enjoy the benefits.. i mean if i am going to live till 70 (hahaha which is too long).. to enjoy the retirement based on this euqation i will have to retire at 40.. then i am not saving enough.. i mean i just have three choices win the lotto, rob a bank or committ suicide right now out of depression caused by this formula..
Posted by: sujit at September 28, 2004 04:20 PMSujit: Everyone doesn't want to spend 30 years in retirement. That is one of the assumptions. If you don't want it to last that long, you don't have to start with that much or you can take out more each year. You can adjust it to fit your plan. This just tells you how to go about doing the calculations necessary.
Posted by: Parag at September 28, 2004 05:36 PMi know brother i was just kidding abt it.. looks like no early retirement for me unless!!!
Posted by: sujit at September 28, 2004 09:45 PMHmm..interesting calculation...has it factored in the cost of healthcare that progressively increases as one grows older?
Posted by: Nandan at September 29, 2004 09:17 AMRetirement is a tricky thing, especially when you're raising children and will need to figure out how to pay for college, weddings etc... It's also hard to know how much you'll need to live on in the future, since inflation keeps going up. At least this article gives people a way to make a calculated guess. That's always a good thing. Thanks for posting this cause it will make people start to think about their future finances.
Posted by: KP at May 26, 2005 02:07 PM
