Investments to retire by 50

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Bb073084
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Investments to retire by 50

Post by Bb073084 »

I am curious. If one amassed $2m in investment assets by age 40. Could you fully or mostly retire by age 50 assuming continuing contributions of $50k per year and annual after tax spending of $150k?

How much do people have who retire around 50 but with a family? Looking for successful examples.

Updated with more details:

Expecting a $1M aftertax windfall bringing total investments to $2.0M ($800K 401k/Traditional IRA and $1.2M after tax). Currently invested in a 80/20 stock bond split allocation. We currently earn $375K and save $80K annually due to paying for 3 daycare tuitions. We would like to continue working for 10 more years and have the flexibility to fully retire ( or partially retire worst case) at age 50. Our current expenses are ~$13,500 a month of which $5K is daycare. Ideally we would like to increase our housing costs by $2-3K/month to upgrade our house immediately after this windfall (we would roll current home equity into new home and finance the difference to preserve investment capital). This accounts for the $30K drop in savings rate I represented. In these numbers I am excluding $100K current investment balance in a 529 plan for my 3 children's college costs (ages 1, 4, and 4).

When I run the math assuming a 5.5% nominal rate of return and 3.5% real rate of return this seems reasonably possible but curious if that is aggressive on returns or conservative on expenses as children get older. Hope these details provide further insight.
Last edited by Bb073084 on Tue Nov 30, 2021 3:40 pm, edited 5 times in total.
02nz
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Re: Investments to retire by 50

Post by 02nz »

Bb073084 wrote: Sun Nov 28, 2021 5:02 pm I am curious. If one amassed $2m in investment assets by age 40. Could you fully or mostly retire by age 50 assuming continuing contributions of $50k per year and annual after tax spending of $150k?

How much do people have who retire around 50 but with a family? Looking for successful examples.
So you'd accumulate maybe $3M by retirement. At $150K, a 5% withdrawal rate is probably too aggressive to be sustainable, esp. starting at age 50.
Last edited by 02nz on Mon Nov 29, 2021 8:31 am, edited 2 times in total.
Jaymover
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Re: Investments to retire by 50

Post by Jaymover »

$150K per year after tax is alot of spending. You haven't provided enough info for anyone on this forum model your situation but it isn't that hard to do some financial modelling and I recommend giving it a go.

If you want your nest egg to last 4 decades then a 3% drawdown might be safe disregarding taxes you might need to pay. So 150K/.03 means that you need $5 million. If you are saying that your net expenses will be $100K then maybe all you need is $3.3 million (in todays dollars of course).

If you can work out how to live more cheaply then of course $2 million would easily be enough. If you worked a bit or had some other income sources then of course the income needed would be lower. THere are lots of calculators available to help work things out.

The trouble I find with dreaming about retirement is the less motivated you are at work and career. Work out what is important to you and your family and then work out how to live and fund that. Frequent overseas holidays, expensive houses etc might not actually be what you want. You might be craving more time and less stress for instance and maybe you don't really want to retire completely.
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Re: Investments to retire by 50

Post by tibbitts »

Bb073084 wrote: Sun Nov 28, 2021 5:02 pm I am curious. If one amassed $2m in investment assets by age 40. Could you fully or mostly retire by age 50 assuming continuing contributions of $50k per year and annual after tax spending of $150k?

How much do people have who retire around 50 but with a family? Looking for successful examples.
I'm not sure why you're asking the question because you can do the math as well as anyone else, and none of us knows what assumptions you want to use for returns, inflation, tax filing status, federal and state rates, etc.

Regarding successful examples, surely you realize that there are very few if any Bogleheads who have actually survived a 40-year retirement starting at age 50 on the inflation-adjusted equivalent of the amount you indicated, and budget you anticipate.
delamer
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Re: Investments to retire by 50

Post by delamer »

After-tax spending is necessary but not sufficient information. Unless the savings is in a non-interest earning checking account or in a Roth IRA/401(k), there will be income taxes due.

If you get a 3% real annual return on the $2 million, you’ll have sbout $2.7 million in 10 years. The $50,000 deposited for 10 years, also with a 3% real return, would give you another $600,000.

So $3.3 million total.

At a reasonable withdrawal rate of 3.5%, that’s $115,500/year. At a conservative withdrawal rate of 3%, that’s $99,000.

So you are short, based on a 3% real return. But presumably your portfolio withdrawals would go down once you claimed Social Security. Whether those payments would be high enough to make the plan sustainable is unknown. And, again, this ignores income taxes due.

Try inputting the information here to get an estimate of after-tax spendable income: https://www.i-orp.com/Plans/extended.html
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JoeRetire
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Re: Investments to retire by 50

Post by JoeRetire »

Bb073084 wrote: Sun Nov 28, 2021 5:02 pm I am curious. If one amassed $2m in investment assets by age 40. Could you fully or mostly retire by age 50 assuming continuing contributions of $50k per year and annual after tax spending of $150k?
Do you mean the contributions would continue from 40 - 50? So the portfolio would be somewhere at least $2.5m at 50? And then start spending $150k/year plus taxes at age 50?

Seems risky. The 4% rule says you could spend about $100k/year for about 30 years. This scenario would spend about 6%, and probably for more than 30 years.

If you will receive a pension or social security benefits, it might be more viable.
Or if "mostly retire" means you still have additional income after 50, it might be more viable.
How much do people have who retire around 50 but with a family?
Enough to cover their expenses for somewhere around 40-45 years, minus whatever other income streams (social security, pensions, etc) provide.
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Bb073084
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Re: Investments to retire by 50

Post by Bb073084 »

Thank you. I did mean contributing $50k from 40-50 so portfolio without any returns would be $2.5M. I can do the math but wondering if anyone was in a similar situation and where they landed at 50 and how it worked out.

I have not send many examples of those retiring that early and curious to see what it took.
fortunefavored
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Re: Investments to retire by 50

Post by fortunefavored »

Well I'm only 1 year into early retirement, but pretty close to 50.. but I also don't have kids, just a spouse.

Our plan is about $150K spending plus $50K for taxes and healthcare. A big chunk of this is housing, at some point (likely when spouse stops their job) we'll pay off the mortgage. Portfolio will drop by $1M, expenses by ~$30K.

Planning on 3.5% withdrawal rate max.

So around a 5.8M portfolio, mostly in taxable.

70/30 world weighted portfolio. Nothing really interesting. I'd prefer 60/40, but low bond yields chased me off that idea.

The #1 issue is always always always expenses. Family or kids add more margin of error to that number. You need to get real confident over the next 10 years in your expenses. Some are unknown, like healthcare - you'll just have to pick a number and hope.

The #2 issue is sequence of returns. For early retirement, you can't ignore this. You need a good sequence early on (first 5 to 10 years) to really be sure you'll be "ok." There is a current thread on mitigating that. My plan is for the first few years my spouse will continue to work at a (low paid) job that will keep our withdrawal rate sub-2%. After that, if things go really south, I will pick up a low paid job.

Good luck.
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Sandtrap
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Re: Investments to retire by 50

Post by Sandtrap »

Bb073084 wrote: Sun Nov 28, 2021 5:02 pm I am curious. If one amassed $2m in investment assets by age 40. Could you fully or mostly retire by age 50 assuming continuing contributions of $50k per year and annual after tax spending of $150k?

How much do people have who retire around 50 but with a family? Looking for successful examples.
Depends:
1. What is the nature of your "investment assets"?
a) Business ownership (sole proprietor/operator) entrepreneur?
b) Pension fund or 401k as an "employee"?
. . . 1) The nature of those funds and portfolio structure.

2. You quote annual after tax spending 150k and contributions of 50k. Does that mean income at 200k????
a) What if you had an income of 200k, contributions to employee 401k at 50k, and outside investments of 50k?
b) What is the total income stream? Net income stream (after debt)?
c) Is the income stream diversified?

3. Debt?
a) mortgage?
b) expenses (base and/or "high on the hog?"

4. Lumpy expenses
5. Black swans, personal and financial, career, health, etc?
6. Sequence of Returns Risk (if market based investments).

Read: "Millionaire Next Door".
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Topic Author
Bb073084
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Re: Investments to retire by 50

Post by Bb073084 »

Sandtrap wrote: Sun Nov 28, 2021 7:32 pm
Bb073084 wrote: Sun Nov 28, 2021 5:02 pm I am curious. If one amassed $2m in investment assets by age 40. Could you fully or mostly retire by age 50 assuming continuing contributions of $50k per year and annual after tax spending of $150k?

How much do people have who retire around 50 but with a family? Looking for successful examples.
Depends:
1. What is the nature of your "investment assets"?
a) Business ownership (sole proprietor/operator) entrepreneur?
b) Pension fund or 401k as an "employee"?
. . . 1) The nature of those funds and portfolio structure.

2. You quote annual after tax spending 150k and contributions of 50k. Does that mean income at 200k????
a) What if you had an income of 200k, contributions to employee 401k at 50k, and outside investments of 50k?
b) What is the total income stream? Net income stream (after debt)?
c) Is the income stream diversified?

3. Debt?
a) mortgage?
b) expenses (base and/or "high on the hog?"

4. Lumpy expenses
5. Black swans, personal and financial, career, health, etc?
6. Sequence of Returns Risk (if market based investments).

Read: "Millionaire Next Door".
j :D
See revised initial post for more details. Investments are excluding cash $100K and home equity $400K.
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Wiggums
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Re: Investments to retire by 50

Post by Wiggums »

We retired at 56 with two high school age. No debt. We slowly lowered our AA to 65/35. We assumed 40 years in retirement. Withdrawal rate starts at 3% and drops after SS kicks in. We kept the same budget for retirement and backed out only those expenses that go away in retirement. For example, 401k contributions. Dental, vision and health insurance came in higher than we expected. Overall, we have been spending less than the budget and we also stopped contributing to the kids college funds. They are well funded.

We used conservative returns on our portfolio and 2.25% inflation rate. Equities, fixed income and cash get very different returns over time. Doing Roth conversions using cash. Be careful not to introduce too many variables into your calculations. If your numbers are marginal at age 50, keep working.
Last edited by Wiggums on Tue Nov 30, 2021 8:39 pm, edited 5 times in total.
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babystep
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Re: Investments to retire by 50

Post by babystep »

I would try to look at post mortgage paid off. How much assets are you expecting to have at the age of 50 assuming mortgage is paid off.
Your current expenses are about 100k excluding day-care. What is the break-down of 150k expenses?
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Re: Investments to retire by 50

Post by superbobbyg »

“nobody knows nothing”.

It is absurd for anyone to answer this question.

At age 40 you have many more decisions to make; and who knows what happens to the economy/ inflation, etc for the next 40 years.

Is this a joke?
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Bb073084
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Re: Investments to retire by 50

Post by Bb073084 »

superbobbyg wrote: Sat Dec 04, 2021 7:16 pm “nobody knows nothing”.

It is absurd for anyone to answer this question.

At age 40 you have many more decisions to make; and who knows what happens to the economy/ inflation, etc for the next 40 years.

Is this a joke?
Not particularly helpful. I know this is somewhat open ended but hoped for real experiences from people. Wiggums was very helpful.

I never thought we would be this fortunate so young so none of these scenarios were ever explored until now. Absolutely get everything can change but if you plan for the world to flip upside down then you would never retire or really live your life for that matter.
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Bb073084
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Re: Investments to retire by 50

Post by Bb073084 »

Wiggums wrote: Tue Nov 30, 2021 8:05 pm We retired at 56 with two high school age. No debt. We slowly lowered our AA to 65/35. We assumed 40 years in retirement. Withdrawal rate starts at 3% and drops after SS kicks in. We kept the same budget for retirement and backed out only those expenses that go away in retirement. For example, 401k contributions. Dental, vision and health insurance came in higher than we expected. Overall, we have been spending less than the budget and we also stopped contributing to the kids college funds. They are well funded.

We used conservative returns on our portfolio and 2.25% inflation rate. Equities, fixed income and cash get very different returns over time. Doing Roth conversions using cash. Be careful not to introduce too many variables into your calculations. If your numbers are marginal at age 50, keep working.
Thank you. These types of examples are helpful. What return assumption did you use? Is 4% for a 70/30 reasonable on a real basis?
sailaway
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Re: Investments to retire by 50

Post by sailaway »

Bb073084 wrote: Sun Dec 05, 2021 9:48 am
Wiggums wrote: Tue Nov 30, 2021 8:05 pm We retired at 56 with two high school age. No debt. We slowly lowered our AA to 65/35. We assumed 40 years in retirement. Withdrawal rate starts at 3% and drops after SS kicks in. We kept the same budget for retirement and backed out only those expenses that go away in retirement. For example, 401k contributions. Dental, vision and health insurance came in higher than we expected. Overall, we have been spending less than the budget and we also stopped contributing to the kids college funds. They are well funded.

We used conservative returns on our portfolio and 2.25% inflation rate. Equities, fixed income and cash get very different returns over time. Doing Roth conversions using cash. Be careful not to introduce too many variables into your calculations. If your numbers are marginal at age 50, keep working.
Thank you. These types of examples are helpful. What return assumption did you use? Is 4% for a 70/30 reasonable on a real basis?
Personally, I don't use return assumptions, because even if I guess right, a difference in sequencing can throw off the calculations. I use SWR as a guide and multiply our portfolio by 3/3.5/4% each time we run the numbers to have an idea of the range of possibilities. Then we adjusted retirement possibilities as needed.

A lot will change for you over the next decade. It sounds like you are currently counting on being home free as childcare expenses drop, but most people in your income level have the kids in a variety of extra curricular activities that add up, so that number is unlikely to drop to zero.

Don't worry about what other people do to retire at 50. Compare your savings to your expenses and redo the calculations as each changes over time.
dbr
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Re: Investments to retire by 50

Post by dbr »

In general there is a whole universe of retirement planning models designed to answer questions like this. Because the future is uncertain all such models are estimates of probabilities that have to be taken with a band of "error." An example of this kind if thing might be www.firecalc.com. The "fire" in FireCalc stands for Financial Independence Early Retirement and was written by some people over on the Early Retirement Forum:

https://www.early-retirement.org/forums/

You can do some research and see what sort of answer you come up with.
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Bb073084
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Re: Investments to retire by 50

Post by Bb073084 »

dbr wrote: Sun Dec 05, 2021 10:42 am In general there is a whole universe of retirement planning models designed to answer questions like this. Because the future is uncertain all such models are estimates of probabilities that have to be taken with a band of "error." An example of this kind if thing might be www.firecalc.com. The "fire" in FireCalc stands for Financial Independence Early Retirement and was written by some people over on the Early Retirement Forum:

https://www.early-retirement.org/forums/

You can do some research and see what sort of answer you come up with.
Thank you!
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Bb073084
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Re: Investments to retire by 50

Post by Bb073084 »

sailaway wrote: Sun Dec 05, 2021 10:35 am
Bb073084 wrote: Sun Dec 05, 2021 9:48 am
Wiggums wrote: Tue Nov 30, 2021 8:05 pm We retired at 56 with two high school age. No debt. We slowly lowered our AA to 65/35. We assumed 40 years in retirement. Withdrawal rate starts at 3% and drops after SS kicks in. We kept the same budget for retirement and backed out only those expenses that go away in retirement. For example, 401k contributions. Dental, vision and health insurance came in higher than we expected. Overall, we have been spending less than the budget and we also stopped contributing to the kids college funds. They are well funded.

We used conservative returns on our portfolio and 2.25% inflation rate. Equities, fixed income and cash get very different returns over time. Doing Roth conversions using cash. Be careful not to introduce too many variables into your calculations. If your numbers are marginal at age 50, keep working.
Thank you. These types of examples are helpful. What return assumption did you use? Is 4% for a 70/30 reasonable on a real basis?
Personally, I don't use return assumptions, because even if I guess right, a difference in sequencing can throw off the calculations. I use SWR as a guide and multiply our portfolio by 3/3.5/4% each time we run the numbers to have an idea of the range of possibilities. Then we adjusted retirement possibilities as needed.

A lot will change for you over the next decade. It sounds like you are currently counting on being home free as childcare expenses drop, but most people in your income level have the kids in a variety of extra curricular activities that add up, so that number is unlikely to drop to zero.

Don't worry about what other people do to retire at 50. Compare your savings to your expenses and redo the calculations as each changes over time.
Safe withdrawal rate essential assumes a return based on the rate which is close to a real return. Same risk of sequence of returns applies to SWR. Sounds like you essentially assume a 3-4% real return.
sailaway
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Re: Investments to retire by 50

Post by sailaway »

Bb073084 wrote: Sun Dec 05, 2021 11:38 am
sailaway wrote: Sun Dec 05, 2021 10:35 am
Bb073084 wrote: Sun Dec 05, 2021 9:48 am
Wiggums wrote: Tue Nov 30, 2021 8:05 pm We retired at 56 with two high school age. No debt. We slowly lowered our AA to 65/35. We assumed 40 years in retirement. Withdrawal rate starts at 3% and drops after SS kicks in. We kept the same budget for retirement and backed out only those expenses that go away in retirement. For example, 401k contributions. Dental, vision and health insurance came in higher than we expected. Overall, we have been spending less than the budget and we also stopped contributing to the kids college funds. They are well funded.

We used conservative returns on our portfolio and 2.25% inflation rate. Equities, fixed income and cash get very different returns over time. Doing Roth conversions using cash. Be careful not to introduce too many variables into your calculations. If your numbers are marginal at age 50, keep working.
Thank you. These types of examples are helpful. What return assumption did you use? Is 4% for a 70/30 reasonable on a real basis?
Personally, I don't use return assumptions, because even if I guess right, a difference in sequencing can throw off the calculations. I use SWR as a guide and multiply our portfolio by 3/3.5/4% each time we run the numbers to have an idea of the range of possibilities. Then we adjusted retirement possibilities as needed.

A lot will change for you over the next decade. It sounds like you are currently counting on being home free as childcare expenses drop, but most people in your income level have the kids in a variety of extra curricular activities that add up, so that number is unlikely to drop to zero.

Don't worry about what other people do to retire at 50. Compare your savings to your expenses and redo the calculations as each changes over time.
Safe withdrawal rate essential assumes a return based on the rate which is close to a real return. Same risk of sequence of returns applies to SWR. Sounds like you essentially assume a 3-4% real return.
No, it doesn't, as SWR will allow the balance to go to zero, whereas keeping up with inflation + the SWR will maintain the original balance.
Last edited by sailaway on Sun Dec 05, 2021 12:07 pm, edited 1 time in total.
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Vulcan
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Re: Investments to retire by 50

Post by Vulcan »

Bb073084 wrote: Sun Nov 28, 2021 5:02 pm I am curious. If one amassed $2m in investment assets by age 40. Could you fully or mostly retire by age 50 assuming continuing contributions of $50k per year and annual after tax spending of $150k?
A handy calculator to quickly ballpark such scenarios.

https://walletburst.com/tools/coast-fire-calc/

I plugged in your numbers with default assumptions, and the result is:

"You need to increase your monthly contribution to reach Coast FIRE before age 50"
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Watty
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Re: Investments to retire by 50

Post by Watty »

Unless I missed it I did not see any mention of college costs so be sure to plan for what you want to do with that.
Bb073084 wrote: Sun Nov 28, 2021 5:02 pm Ideally we would like to increase our housing costs by $2-3K/month to upgrade our house immediately after this windfall (we would roll current home equity into new home and finance the difference to preserve investment capital).
There are endless opinions about paying off a house or not but when you get the windfall I would pay cash for it and not get a mortgage. That would greatly increase your monthly savings and lower your income needs for when you retire. If you are ten years from retirement then you might also want to have something like 30%(???) of your portfolio in bonds. Having a $100K mortgage(or whatever) and paying 3% while you have the same amount in bonds that are paying 1.5% does not make a lot of sense.

If you do not want the house enough to write a large check for it then maybe you don't want the house enough to buy it.

There are lots of threads about considering a mortgage as a negative bond that you can look up. It is not exact but there is a lot of truth to that and using a large mortgage for leverage messes up your asset allocation.

Investing the money and earning a higher return is harder than it sounds because you have the ongoing mortgage payments which give you a sequence of return risk. Here is a very simplistic example of that which I have posted before. It would be good to look at your own numbers this way if you are into number crunching.
If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To pay off the mortgage at the end of the second year you would need about $96.5K so you would need to gain back $12.5K and another $6,000 for the next years mortgage payments which combined is $18.5K. That would take a 22% return on the remaining $84K to get back to the point where you could pay off the mortgage.

In the past portfolios have declined in roughly one of four or five years depending on the asset allocation. (20 to 25 percent of the time)

https://investor.vanguard.com/investing ... allocation

The sequence of returns risk can also go the other way and you could get lucky and have the first couple of years get good returns that would put you on the path for large gains over the years. There will sometimes be very optimistic projections on just how much better not paying off the mortgage could be but one limiting factor that needs to be considered is that few people actually keep a 30 year mortgage for the full 30 years. It is difficult to put a number on it but many people who own a home will sell it in less than 10 years.
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Watty
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Re: Investments to retire by 50

Post by Watty »

Jaymover wrote: Sun Nov 28, 2021 5:33 pm $150K per year after tax is alot of spending.
+1

Especially once the house is paid off, the kids are through college and off on their own, and you are on Medicare.

You really need to look at your different income needs in different phases of your life.
dbr
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Re: Investments to retire by 50

Post by dbr »

Watty wrote: Sun Dec 05, 2021 12:27 pm
Jaymover wrote: Sun Nov 28, 2021 5:33 pm $150K per year after tax is alot of spending.
+1

Especially once the house is paid off, the kids are through college and off on their own, and you are on Medicare.

You really need to look at your different income needs in different phases of your life.
One can contemplate whether retirements have to do with having enough money to retire at a given standard of living or if the issue is accepting the standard of living one has enough money to support. It is probably good to be open minded about what one really wants. Either way there is a need to somehow forecast what a given amount of money will support.
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