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BHAG RETIREMENT SUMMARY

15/10/2013

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Over the past week I set a BHAG and laid out a plan on how to get there.  If you're lazy and don't want to read it all, I'll make it easy for you and summarize it.  If you want to more detail though you're going to have to put on your big girl panties and read the previous posts. 

1. Define your retirement: this means that you need to visualize how you want to live when you retire.  Whether that's helping the poor in Africa or riding horses in the Carolinas, you need to visualize it.  When that's done, you need to come up with a yearly dollar figure on what that is going to cost you.  This is a critically important number because it tells you how much in assets you need.  

2. How much do you need for retirement: take the number from step 1 and divide it by 0.04 (I prefer 0.03 to be conservative). This gives you the needed asset base for investments that generate cash flow.  These assets could be anything from stocks, bonds, private businesses, or real estate.  Your home, car, jewelry, gold, etc. do not apply because they do not generate cash flow.  There's an element of inflation here that I did not previously address, but since it's my BHAG and I plan to accomplish it in less than 7 years, I'm hoping that inflation won't be a huge factor.  The next step will also help address this though. 

3. Only withdrawal money at a rate of no greater than 4% (preferably 3%): as an example if you have assets of $1,000,000 you can't withdrawal more than say $40,000.  At this withdrawal rate you have around an 84% chance of your money lasting 50 years given 50 different types of past stock market conditions.  Bring this down to 3% and there's around a 95% chance of it lasting for the rest of your life, regardless of how long you live.  

4. Retirement crossover point: when you are officially getting more consistent income from your investments than  from your expenses (or more conservatively than your regular take home pay).  You can seriously start to look at retiring.  This is the whole goal!  Even when you get to this point though I would still find a part time job and also work a bit longer to build up an extra cushion since you're going to deal with potential future inflation issues.      

If you're wondering how much of your income you need to save in order to retire at a certain age.  Then reference the chart on "How much for retirement" post. For instance, since I've set my BHAG at 7 years, that means that I need to save around 75% of my take home pay (assuming a 6% return).  WTF have I gotten myself into?!  I currently save around 25% just in retirement accounts, so this is going to be a big leap even for me.  Note, that saving at a 25% rate means that you could retire in 30 years (10 of which have already passed).  
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    This website was created due to the atrociously misguided financial advice that I've heard over the decades.  Financial freedom is not intellectually strenuous, but it takes discipline. 

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