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Could you please elaborate a bit on the second point (25x spending)? How does that work out? I'm a bit skeptical about this. At 25, people have much lower expe

Could you please elaborate a bit on the second point (25x spending)? How does that work out? I'm a bit skeptical about this. At 25, people have much lower expenses than when they have a family and kids, mortgage, etc. Also you're living longer than to 50, so I assume there's some investing involved. Thanks

k2xl 9y ago
It's a typical financial independence "rule" Once you've accumulated enough cash, if you begin to withdraw around 4% per year and invest the rest, it is unlikely you will run out of money. The 25x rule relatively decent estimation.
baccredited 9y ago
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
xapata 9y ago
It's based on the assumption that the stock market will offer annualized returns of 6% to 8% and inflation will be between 2% and 4%. With 25x your annual spending as invested capital you can expect to keep the same real spending power in perpetuity (real, not nominal). I'm more nervous, so I'm aiming for 40x annual spending. The stock market growth of the last 100 years might have been an anomaly. Healthcare costs may cause my annual spending to increase as I age.
- thatwebdude 9y ago
  Agreed, compound interest is something most people find hard to visualize. I understand your aim for annual spending, and that's totally within means for you (whatever you're comfortable with). With the right goals, numbers, and savings you can live mostly off of interest, and that will get you furthest in retirement. In my experience, seeing and hearing of people's general retirement goals and savings; they simply don't have enough to not feel it when they're done. A mindset like the OP or yours makes that stage in life much more enjoyable and worry-free.
- xapata 9y ago
  > last 100 years might have been an anomaly I should expand on this. The historical returns of the US stock market are about 7% annually over the long haul. The US GDP has grown about 2% annually over the last 150 years. There were a few decades when it was about 3.5% and we felt pretty good, but that's been done for a while now. So... economic growth is at 2% and capital returns are 7%. As Thomas Piketty pointed out, this is probably unsustainable. I suggest a healthy skepticism when someone uses the last 50 years to predict the next 50 years.

k2xl 9y ago

It's a typical financial independence "rule" Once you've accumulated enough cash, if you begin to withdraw around 4% per year and invest the rest, it is unlikely you will run out of money. The 25x rule relatively decent estimation.

baccredited 9y ago

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...

xapata 9y ago

It's based on the assumption that the stock market will offer annualized returns of 6% to 8% and inflation will be between 2% and 4%. With 25x your annual spending as invested capital you can expect to keep the same real spending power in perpetuity (real, not nominal). I'm more nervous, so I'm aiming for 40x annual spending. The stock market growth of the last 100 years might have been an anomaly. Healthcare costs may cause my annual spending to increase as I age.

thatwebdude 9y ago
Agreed, compound interest is something most people find hard to visualize. I understand your aim for annual spending, and that's totally within means for you (whatever you're comfortable with). With the right goals, numbers, and savings you can live mostly off of interest, and that will get you furthest in retirement. In my experience, seeing and hearing of people's general retirement goals and savings; they simply don't have enough to not feel it when they're done. A mindset like the OP or yours makes that stage in life much more enjoyable and worry-free.
xapata 9y ago
> last 100 years might have been an anomaly I should expand on this. The historical returns of the US stock market are about 7% annually over the long haul. The US GDP has grown about 2% annually over the last 150 years. There were a few decades when it was about 3.5% and we felt pretty good, but that's been done for a while now. So... economic growth is at 2% and capital returns are 7%. As Thomas Piketty pointed out, this is probably unsustainable. I suggest a healthy skepticism when someone uses the last 50 years to predict the next 50 years.