• How much money you need to retire at every age

    From a425couple@21:1/5 to All on Fri Aug 16 08:08:10 2019
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    from https://www.businessinsider.com/how-much-money-need-to-retire-early-on-investment-income-2019-8

    How much money you need to retire at every age and comfortably live on investment income
    Tanza Loudenback

    To retire early and live comfortably on investment income from a taxable investment account, you need millions.
    We consulted Brian Fry, a certified financial planner and the founder of
    Safe Landing Financial, to run a simulation that estimates the lump sum
    an investor would need the day they retire to live on a target annual
    income of $100,000 a year or $65,000 a year, after investment income taxes. Although many early retirees continue to earn money after leaving their
    9-to-5, these figures represent the minimum investment balance you would
    need to leave work and never turn back.
    Visit Business Insider's homepage for more stories.

    Early retirement is having a major moment. Whether you're 25 or 55,
    there's a heightened allure to turning in your time card and exiting the corporate world for good.

    But how much money does it really take to leave your 9-to-5 and never
    look back? It depends on several factors, including your lifestyle and
    how your money is invested, but generally you'll need millions.

    To figure out how much money someone would need to have invested when
    they retire in order to live comfortably on investment income until age
    90, we consulted Brian Fry, a certified financial planner and the
    founder of Safe Landing Financial.

    Read more: 7 people who retired by age 45 reveal their top tips

    It's worth noting that many early retirees continue to earn income after leaving their 9-to-5, whether through real-estate investing, blogging,
    or some other monetizable hobby, not to mention Social Security income
    for older retirees. The distinction, for many, is that in retiring from corporate life, they're free to create their own schedule and pursue the projects they're most passionate about without worrying about earning a paycheck.

    Fry used a Monte Carlo simulation to estimate the starting balance
    someone would need in a taxable investment account the day they leave
    work to live on either $100,000 a year or $65,000 a year in dividends
    (fixed income from bond investments) and capital gains (income from
    equity investments), after paying taxes.

    To run the simulation for a hypothetical retiree, Fry had to make
    assumptions about the retiree's investments and tax treatments. A full
    list of these assumptions is available at the end of this post, but in
    short, he used JPMorgan long-term return estimates used for investments,
    a conservative 3% inflation estimate, assumed no state or local taxes,
    and did not factor in Social Security. The investments are assumed to be
    held in a taxable investment account, not a retirement account like an
    IRA or 401(k), since you can't withdraw money from those accounts
    without penalty before age 59 and a half.

    Fry notes that the Monte Carlo simulation has two clear limitations: The outputs are only as good as the inputs and it does not factor in the
    behavioral aspects of finance, or how investors react to swings in the
    markets.

    Read more: How to retire early so you can work, travel, and relax on
    your own schedule

    "Investors tend to be their own worst enemy when experiencing investment losses," Fry said. "If you don't have the time, interest, discipline,
    and expertise, it's better to work with a fee-only certified financial
    planner that can tailor your investments to track to your financial plan."

    It's also important to update your financial plan yearly, or whenever
    you experience a significant life change, Fry said. For example, if the
    market had lower than expected returns in any given year, the investor
    would be advised to scale back spending, he said.

    Below, check out how much you need to invest the day you retire at 25,
    35, 45, 55, or 65, if your target annual income is $100,000 or $65,000.

    (I have moved the age 25 to age 45 info, to the bottom.)




    Age 55: You need a starting balance of $3,450,000 to live off $100,000 a
    year
    Age 55: You need a starting balance of $3,450,000 to live off $100,000 a
    year
    Cavan Images/Getty
    To live off $100,000 a year in dividends and capital gains, after taxes,
    an investor who leaves work at 55 would need $3.45 million in a taxable investment account.

    The ideal asset allocation would be 70% stocks and 30% bonds, a more conservative allocation than a younger investor.

    Age 55: You need a starting balance of $2,200,000 to live off $65,000 a year Age 55: You need a starting balance of $2,200,000 to live off $65,000 a year Thomas Barwick/Getty Images
    To live off $65,000 a year from dividends and capital gains, after
    taxes, a 55-year-old investor would need a starting balance of $2.2
    million, with 70% invested in stocks and 30% invested in bonds.


    Age 65: You need a starting balance of $2,525,000 to live off $100,000 a
    year
    Age 65: You need a starting balance of $2,525,000 to live off $100,000 a
    year
    iStock
    For a six-figure annual income, a 65-year-old investor would need to
    invest a lump sum of $2,525,000 on the day they retire. The ideal asset allocation is 60% stocks and 40% bonds.

    It's important to note two factors that are not included in this
    simulation but would likely look different in the real world: retirement accounts and Social Security.

    An investor who retires at 65 is likely to have contributed to
    tax-advantaged retirement accounts during their career, which they would
    now be able to withdraw funds from, so the taxable investment account
    probably wouldn't be their sole source of income. In addition, anyone
    who qualifies for a Social Security benefit can opt to claim reduced
    benefits as early as age 62, and full benefits between ages 66 and 67.

    Age 65: You need a starting balance of $1,620,000 to live off $65,000 a year Age 65: You need a starting balance of $1,620,000 to live off $65,000 a year Hinterhaus Productions/Getty Images
    To live on dividends and capital gains of $65,000 a year, after taxes, a 65-year-old would need a lump sum investment of $1.62 million in a
    taxable investment account, allocated as 60% stocks and 40% bonds.

    The same considerations regarding tax-advantaged retirement accounts and
    Social Security income apply.


    The assumptions about taxes and investments used in this simulation are
    listed below.
    The assumptions about taxes and investments used in this simulation are
    listed below.
    Alyssa Powell/Business Insider
    Fry used a Monte Carlo simulation to estimate the starting balance
    someone would need in an investment account the day they leave work to
    live on either $100,000 a year or $65,000 a year in dividends (fixed
    income from bond investments) and capital gains (income from equity investments), after paying taxes.

    The following assumptions were used in the simulation:

    Investments

    All investments are in a taxable account
    Used $8,333/month for $100,000 target annual income and $5,417/month for $65,000 target annual income
    JPMorgan long-term return estimates used for investments, 3% inflation
    used for conservative amount
    Assumed younger investors can take on more risk than older investors
    5% annual portfolio turnover
    $0 capital loss carry over
    No asset-under-management fees included
    Lump-sum is invested at start of simulation as cash with no built-in gains Taxes

    No state or local/city tax factored in
    Standard deduction taken for a single filer
    No Social Security payments factored in for older investors
    Dividends — 85% are qualified dividends, 15% are non-qualified dividends Capital gains — 90% long-term capital gains, 10% short-term capital gains
    Tax law — TCJA sunset 2025: reflects all updated provisions related to
    TCJA, including the sun-setting of most individual income tax provisions
    in 2025
    Fry notes that the Monte Carlo simulation has two clear limitations: The outputs are only as good as the inputs and it does not factor in the
    behavioral aspects of finance, or how investors react to swings in the
    markets.

    SEE ALSO: How to retire early so you can work, travel, and relax on your
    own schedule
    DON'T MISS: A couple who retired early with $1.5 million despite never
    earning 6 figures uses a 'bucket' system for their money so they'll
    never run out
    More: Features Retirement Early retirement Retirement Savings
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    Age 25: You need a starting balance of $6,000,000 to live off $100,000 a
    year
    Age 25: You need a starting balance of $6,000,000 to live off $100,000 a
    year
    Mauricio Santana/Getty Images
    If you leave your desk job at age 25, you'll need about $6 million
    invested in a taxable account in order to live off $100,000 a year,
    after paying taxes for capital gains and non-qualified dividends.

    The ideal asset allocation is 80% stocks (known as equity holdings) and
    20% bonds (known as fixed income), Fry said.

    Age 25: You need a starting balance of $3,800,000 to live off $65,000 a year Age 25: You need a starting balance of $3,800,000 to live off $65,000 a year Westend61/Getty Images
    To live on $65,000 a year, an investor would need to start with $3.8
    million in a taxable investment account the day they retire.

    Again, the investments are held in 80% stocks and 20% bonds, which is considered an "aggressive" asset allocation, due to the age of the investor.

    Age 35: You need a starting balance of $5,225,000 to live off $100,000 year
    Age 35: You need a starting balance of $5,225,000 to live off $100,000 year FilmMagic/Getty Images
    An investor who leaves work at age 35 would need over $5 million in
    their taxable investment account to be able to live on dividends and
    capital gains amounting to about $100,000 a year, after taxes.

    The ideal asset allocation is 80% stocks, and 20% bonds.

    Age 35: You need a starting balance of $3,250,000 to live off $65,000 a year Age 35: You need a starting balance of $3,250,000 to live off $65,000 a year Kacey Klonsky/Getty
    A 35-year-old investor would need about $2 million less on the day they
    retire if their target annual post-tax income is just $65,000. This
    assumes the same asset allocation of 80% stocks, 20% bonds.


    Age 45: You need a starting balance of $4,300,000 to live off $100,000 a
    year
    Age 45: You need a starting balance of $4,300,000 to live off $100,000 a
    year
    Shutterstock/Monkey Business Images
    An investor who leaves their 9-to-5 at age 45 and has a target annual
    income of $100,000 a year, after taxes, would need to invest a lump sum
    of $4.3 million in 80% stocks and 20% bonds.

    Age 45: You need a starting balance of $2,750,000 to live off $65,000 a year Age 45: You need a starting balance of $2,750,000 to live off $65,000 a year Thinkstock Images/Getty
    A 45-year-old investor with a target annual income of $65,000 in
    dividends and capital gains, after taxes, would need a lump sum
    investment of $2.75 million on the day they retire, with an 80/20 asset allocation.

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