Thursday, 29 November, 2007

1. By SuperPlay. Comment posted 29-Nov-2007 @03:23pm:

   Hey I can retire when I am 130 ;0)
   
   Thanks for this John, I have enjoyed playing around with it.
   
   Regards
   
   Lee (From the UK)
2. By . Comment posted 29-Nov-2007 @03:24pm:

   I'm 51 now,calling it quits at 52....false!
   53....true!!!!!!!!!!!
3. By . Comment posted 29-Nov-2007 @03:26pm:

   oops,unless there is another terrorist attack.
4. By Dick. Comment posted 29-Nov-2007 @04:09pm:

   "This would be a good spreadsheet example. I'll do it when I retire."
   
   Are you trying to tell us something?
5. By . Comment posted 29-Nov-2007 @04:33pm:

   This may sound silly, or perhaps obvious to most of us, but who in heck can afford to put away 20% of his gross yearly income every year?
   
   A person making a gross of $35,000 a year is supposed to save nearly $600 a month? Yeah, right.
   
   Ever notice how numbers on paper never do translate properly into reality?
6. By Anyone. Comment posted 29-Nov-2007 @04:43pm:

   The key to retiring early isn't putting away a constant percentage of income into a bank account. That's just the bankers talking, hoping to use YOUR money to make THEMSELVES richer. Here's what you really need to do:
   
   Figure out how much every month you are willing to budget for food, utilities, and the other basic neccessities of living. Then, with whatever money is left over (regardless of percentage of your income), pay off ALL credit cards. Stop using credit cards in the first place.
   
   Then, pay off any other debts, starting with the highest interest fees first. As you churn through each debt, the amount of money left over each month will increase. If you happen to pay off all of your debts, including a home, AT THAT POINT you begin using stock markets and other investments. Not before.
   
   It's stupid to pay 20 percent interest on a credit card, 8 percent on a car loan, and 7 percent on a home loan, when you are only going to earn 8 percent (on average) in investments.
7. By Anyone. Comment posted 29-Nov-2007 @04:47pm:

   When you are totally debt free, look at how little you are actually spending each month in living expenses. You'll be amazed. It's typically less than $1,000 a month for a very comfortable lifestyle if you have NO DEBTS.
   
   Why would you need $6,000 a month from retirement income if you don't have a house payment, a new car, and other high-priced items? Look at what your actual LIVING expenses are and plan accordingly, instead of accepting a lifetime of interest payments.
8. By . Comment posted 29-Nov-2007 @06:03pm:

   Do you have any statistics on what percentage of 20 year olds are employed at the $35K per year level?
9. By . Comment posted 29-Nov-2007 @06:11pm:

   If you play around with the spreadsheet, you'll find that the income level doesn't matter. If a 20-year old started out at $15,000 per year, he could still retire at age 40. In 20 years, he would be earning interest of about $33K per year.
   
   Keep in mind that this is a simplistic financial model. The original author was trying to make a point that one way to retire early is to have a disciplined savings plan.
10. By Nick. Comment posted 29-Nov-2007 @06:29pm:

    How does the value in the retirement interest column being greater than the retirement balance column make you able to retire? I'm not being sarcastic, I don't know this stuff. Please explain.
11. By . Comment posted 29-Nov-2007 @06:39pm:

    When the annual retirement income (i.e., interest) exceeds the annual salary (not retirement balance, as you stated), then you can retire. Why? Because you can live off of the interest and still earn the same amount as you were earning. The Retirement Balance column will remain the same because you keep drawing the interest every year.
    
    And you'll still have all that Retirement Balance money when you die. If you knew exactly when you were going to die, you could plan better and retire even earlier -- or retire in style.
12. By Nick. Comment posted 29-Nov-2007 @09:22pm:

    Thanks a lot JWalk! That makes sense.
    
    One more question. Which of your books would you recommend for someone who doesn't know a lot about Excel, but would like to learn to do some relatively basic but powerful things. I want to be able to do what you did here in this spreadsheet.
13. By Blayne. Comment posted 29-Nov-2007 @09:58pm:

    Nick, or is it NickVadar? I recommend "Excel for DumbWads - 1985".
14. By . Comment posted 30-Nov-2007 @04:52am:

    The killer number here is the 4% annual income increase - at or just above the inflation rate. I don't think that any individual who can go 20 years without a real-terms pay increase is actually going to consider saving 20% of their gross income. My income over the last 24 years has grown by an annualised 10%, for example.
    
    Actually, that's another gotcha: the assumption that you can fork over 20% of your gross from your net pay, which after I bought my first house would have comprised about 400% of my disposable income.
    
    And here's another tax-related gotcha: can you get that 12% tax-free? I'm pretty sure I couldn't do that for 20% of my gross income invested per year, not in the UK anyway.
    
    And the S&P 500 since 1960 has return a little over 10% per year on average, if my hurriedly-located source is correct...
15. By wally the duck. Comment posted 30-Nov-2007 @06:32am:

    If you assume you make a million a year starting at age 20 and save half of it and earn 20% a year interest it works out well. I'd recommend it to anybody.
16. By Jim. Comment posted 30-Nov-2007 @06:55am:

    Thanks for this fun spreadsheet, but it has a fundamental flaw. Once we meet the retirement requirement, it continues to assume that we are earning a salary (growing by 4% every year), and continues to add 25% of that salary to the retirement balance. Since we should not be earning income in retirement, this flaw can be fixed by changing the formulas in column F so that if we've retired, we only add 25% of the retirement interest to the retirement balance. From this form: [=F8+E9+D9] to this form: [=IF(G8=TRUE,F8+0.2*E9,F8+E9+D9)]
    
    J-Walk's comment above ("you can live off of the interest and still earn the same amount as you were earning") would be correct if our income wasn't increasing by 4% each year. Because of this, using the original interest assumptions, in order to keep our interest payments equal to our salary requirements we would need to return to the workforce for 2 years after 9 years of retirement, and then again for 2 years after 12 more years off, etc.
17. By Imagineer. Comment posted 30-Nov-2007 @06:57am:

    We're just hoping to make it to the end of the Mayan calendar and putting any extra income into gold, cat food, and ammunition.
18. By Jim. Comment posted 30-Nov-2007 @06:59am:

    OK, I just looked at the original article (I had linked straight here), and I see that they mentioned that you would need to work two additional years in order to save enough to account for the annual 4% increase in salary/inflation/cost-of-living. I suppose my previous comment was unnecessary.
19. By Gary. Comment posted 30-Nov-2007 @07:38am:

    Anyone, I think you said in a previous post that you are actually doing the low cost retirement thing. Outside of taxes, health related costs (insurance and direct expense) seem to be the largest expense. How do you handle this since one major medical problem can bankrupt most people who don't have insurance.
20. By Geeza. Comment posted 30-Nov-2007 @10:21am:

    Gary,
    
    'How do you handle this since one major medical problem can bankrupt most people who don't have insurance.'
    
    You move to a country that is not run by right-wing nutcases.
    
    That way you get a National Health Service or a National Health Insurance scheme that works.
    
    What's the definition of a Canadian? An American with health care.
21. By FFSteve. Comment posted 30-Nov-2007 @01:48pm:

    Thanks J-Walk, interesting spreadsheet. OK, anyone feel like adding an assumption for annual inflation rate and changing the annual income increase to increase over inflation, and then I think this spreadsheet would be more realistic. (Maybe J-Walk could post it). As it is now, if your retirement balance stays the same you will actually be losing every year in retirement because of inflation.
    
    I followed one of these charts when I started working and saved religiously at a very high level. Based on the charts, I thought that I might be making more in investment income after 25 years. Now, after 20 years, I see that I will not even be close. Unfortunately, suffered some heavy losses like after 911, etc and was never able to come close to my projected return of what I believe was 10%.
22. By . Comment posted 30-Nov-2007 @03:57pm:

    A few comments from an insurance guy:
    
    1. Don't count om getting 12% for 20 consecutive years. Even 7% is not safe.
    2. Those who say a percentage of your income is not right, are right. But see 3.
    3. Yes, a pension is that expensive, certainly if you want to retire at 40. You miss 25 (or so) years to build up the capital, and you have to live off it 25 years longer. Almost impossible!
    4. When you retire, don't live off the interest, but buy an annuity from an insurance company. That way you offload the "risk" of getting very old. Of course they charge you a considerable amount, but the older you are at retirement, the more favorable it is. You can include (reduced) payments to your partner or, temporarily, your children if they survive you. You can also buy a declining annuity, if you think your requirements will lower with the years (very likely); that will increase the initial payments.
    But don't try to take the money with you to heaven or hell, just spend it here.
23. By mmmark. Comment posted 30-Nov-2007 @05:32pm:

    The key is STARTING EARLY. If you saved $150 per month from age 20 to age 30, (receiving the same 12% interest per year as in the above example), and then NEVER SAVED another dime... at age 65 you would have over $2.25 million dollars.
    
    Change the interest and the amounts all you want. It's time that will help you the most. Impress this on your kids, or if you are still young get started now.
    
    As for me... I wish someone had told me this a very long time ago.
24. By Imagineer. Comment posted 30-Nov-2007 @06:52pm:

    It's never too late to start saving up a million, mmmark, but what's the point of being dead with a million dollars?
    
    Never forget the words of a Polish immigrant telling me about decades of scrimping and saving, skipping Sunday drive because you might have to buy the kid an ice cream cone on top of the price of gas, saving every penny you could, getting legally swindled by accountants and lawyers and--like many others losing your life savings, somehow finally retiring and selling your Ontario house and buying an Okanagan lake-view house while on an all-Canadian waiting list for heart surgery...so you could drop dead any minute...anyway. After all of that, "We forgot to live," he said.
    
    Pretty impressive numbers in boxes, J-Walk, but there should be a button to click to enter the Unknown factor and skew the desired results. The injury, the illness, the divorce...Kind of random and capricious like life itself.
25. By Imagineer. Comment posted 30-Nov-2007 @07:06pm:

    Sure you get all sorts of people fawning over the Mr. Spreadsheet persona but since your recent "joke and experiment" Mr. Short-Sheet is more like it.
26. By Cubbybear. Comment posted 30-Nov-2007 @08:47pm:

    In regards to what ANYONE wrote, I think it was M.K. Gandhi that said "The less you have, the less you need".

Original content © 2010, John Walkenbach