Retirement savings modeling

The retirement scenario generated by FPO (we’ll randomly post different retirement scenarios) shows the importance of the cash flow concept mentioned in the previous post.  This is also the bread and butter for FPO; growing your income, shrinking your expenditures, and maintaining/grow your quality of life.

Here’s an example of what would be a working solution based on FPOs model for figuring out how much money is needed to retire.

Year: 2012

Age: 47, Spouse: 46

Earned income before taxes: $60,000/yr

Taxes on earned income: $6000/yr

Earned income related expenses = $6000/yr

Last year of mortgage. Payment = $12,500/yr

Other expenses: $17,500/yr

Saving rate: $18000/yr

Starting in 2013: Primary residence is paid off.

Assets: $500000 rental property, $500000 high dividend and master limited partnership (think oil+gas income)

After tax income: $27500 real estate, $27500 high divident, etc. total: $55000

Note that $1000000 is assets completely replaces the earned income in transistion. These assets were building up over several decades prior to 2013. The result is cutting income by half in 2012 if there is no more earned income, but the assets still generate $55000 in income. There are only the normal expenses of $17500 year. The only unknowns would be health insurance and long term care insurance. even budgeting $12500/year for these two categories still leave $25,000 in savings rate per year. Take some of that for vacation and fun. An added plus is that someone following this example will likely figure out in some spare time to make some extra money at a high rate per hour, but that parts optional.

About Steve @ FPO
Hello FPO readers, I have been writing on financial topics for about 12 years now, but I have only recently reignited the fire of publishing online. I have to say, its good to be back. I am an electrical engineer by trade who enjoys all topics engineering and financial. I started Financial Place Online (FPO) to create a value added financial news and education website that would provide a refreshing daily financial read. Financial Place Online websites are built around the principles of consumer empowerment, leveling the playing field, zero spam tolerance, and none of those annoying sidebar or banner ads. For us, it's all about enjoying a good read.

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