24 ms·
I'll have to read the book for more but the math you explain seems incomplete. The earlier I retire, the more would be my expected number of years in retiremen
by alok-g 13y ago
I'll have to read the book for more but the math you explain seems incomplete. The earlier I retire, the more would be my expected number of years in retirement (assuming a given life expectancy). If in one scenario my retirement is 40 years away and I need to save for 20 more years, then in he other scenario where I retire in ten years, I need to save for fifty! That's a factor of 2.5 in this example!
Ignoring growth rates and inflation is also a huge simplification. E.g. 3% yearly growth doubles your money in about 24 years. So it may again be a factor bigger than two between the two scenarios above.
- stephenbez 13y agoI think the idea is that if you have a large pile of money and take out a small portion of it each year to live on, due to growth the money will last indefinitely. So if you have 25 years of living expenses and each year take out 1 year of living expenses, that is 4% of your money. If you earn ~4% a year then your account balance stays the same. The 4% number matches the 4% rule: http://www.investopedia.com/terms/f/four-percent-rule.asp http://www.investopedia.com/terms/f/four-percent-rule.asp Of course after the great recession now the common wisdom is that the 4% rule can't be trusted: http://online.wsj.com/article/SB10001424127887324162304578304491492559684.html http://online.wsj.com/article/SB1000142412788732416230457830... Personally I think it would be foolish to plan on retiring with only 20 years of living expenses. However some people also plan on holding a part time job at least in early retirement.
- alok-g 13y agoThanks. This answers my original question too.