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Retire in 6 years? |
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thewh00sel  United States. Apr 05 2012 19:17. Posts 2734 | | |
In my last blog I made a comment about retiring in under 6 years if I can save 80% of my income every year. This isn't an estimation, it's simple math and anyone who can save that much will have enough saved up in that time period to live off of the money they've saved for the rest of their lives. Here's a chart of savings rate versus amount of time working assuming a starting point of 0 savings:
So I decided to do a more detailed breakdown of my specific situation and the amount of money in expenses I will need to cover at the time of retirement to determine what my "number" is. That is, the amount of actual money I will need to have saved up so that my wife and I can quit working and defeat the game of life. To keep things simple I'm not going to break things down into individual categories. Instead I'm going to keep things pretty general.
Current Expenses: ~7,000 per month. Let's assume that it stays at 7,000 for the rest of this year and then becomes lower for the years following to make the math easier.
Estimated Expenses after 2012 (cutting out everything we don't really need i.e cost of living after retiring): ~4,500 per month (probably more like 4,000, and significantly lower once we pay off the house, but 4,500 seems safe).
So the goal now is to determine how big of a ball of money can generate an annual income of 4,500 per month. That actually isn't that hard. First you multiply 4,500 by 12 to get 54,000 in annual expenses. Then you take 54,000 and divide by .04 and you get the number: $1,350,000
Seems like a lot.
Then there is the time factor. How much time will it take me to reach that number? This is the cool part because you have the power of compounding on your side.
Let's take my current savings rate for 2012 of 50%. So if I hold on at 50% for the year with 7k/month in expenses, I will have saved up 84,000 (7*12). Now assuming that I don't put any of that into my poker bankroll and invest it into something risk-averse we can assume that the money will generate about 5% on average from investments. So by the end of the year that money will be worth 88,200, not bad. So for years 2-5 let's assume that I can still save 7k per month. By the end of the 5th year my nestegg will be worth 487,360.676. Here's what the year-over-year breakdown would look like:
year 1: 88,200
year 2: 180,810
year 3: 278,050.50
year 4: 380,153.025
year 5: 487,360.676
Now let's add some stuff. Right now my wife isn't getting paid much as a substitute teacher, and will be a full time teacher for next year. She will probably get about 35,000 in after-tax pay. So if I add in her 35,000 per year as savings and also add the 2,500 per month in savings after we are down to 4,500 per month in expenses next year, it brings our total up to 149,000 for years 2-5. Wow! what a difference cutting out 2,500 a month can do; it adds an extra 30k per year in savings, effectively doubling my wife's 35k per year income! Here's what it looks like over 5 years:
year 1: 88,200
year 2: 249,060
year 3: 417,963
year 4: 595,311.15
year 5: 781,526.71
That brings us to 57.8% of our "number" in just 5 years assuming that I can make no more than what I'm making now at 5/10 after expenses/taxes each year. Not bad. Now, let's assume that after the first year I decide that I have enough of a buffer to play 10/20 about half the time that I play poker. And let's assume that I win 1.5x as much as I win at 5/10 even though it's double the stakes and you can buy in for more. How does that affect the numbers?
Well, let's see how much more I would make from playing. If you take the 114k that is saved from my income in years 2-5 and multiply by 1.25 (remember we're only making 1.5x as much as we were half of the time) you get 142.5k. Add in my wife's 35k and we're at 177,500 in savings PER YEAR. Here's the final 10 year breakdown to retirement:
year 1: 88,200
year 2: 278,985
year 3: 479,309.25
year 4: 689,649.71
year 5: 910,507.20
year 6: 1,142,407.56
year 7: 1,385,902.93 Oh yeaaaaaaah beer me we're retiring!
year 8: 1,641,573.08
year 9: 1,910,026.73
year 10: 2,191,903.07
It's pretty sick when you break down the numbers and look at them laid out like this, but I think that retiring in 7 years or less, given that we have some money saved already, is a very likely scenario for me and my family and I'm pretty damn excited about it. What's your number?
note: this is assuming that we continue to make 2k in mortgage payments for the rest of our lives. If I factor in that with minimum payments the mortgage will be paid in 27 years, and assume we live another 50 years after that, the amount of money we actually need to retire will be much MUCH lower. This seems like the best way to do it for now though, since I'm not accounting for future expenses like children's tuition and higher health care costs when we're older so I figure it all balances out this way.
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| A government is the most dangerous threat to man’s rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. - Ayn Rand | |
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Stat.Quo Somalia. Apr 05 2012 19:22. Posts 1227 | | |
looking far ahead, but just remember to look both ways when you cross the road! |
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tapatapaz Brasil. Apr 05 2012 19:50. Posts 1279 | | |
sounds solid man, seeing that you have a family and all.. but imho, in a personal level, retiring is retarded |
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| And what does self awareness have to do with anything you retard? srsly stfu. - baal | |
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dogmeat Czech Republic. Apr 05 2012 19:52. Posts 6374 | | | |
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whamm! Albania. Apr 05 2012 19:53. Posts 11625 | | |
i wish i was this smart in computing finances, i dunno if i still know how to write in paper anymore. lol |
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This looks and sounds pretty good.
Great job if you succeed.
But - (i know you probably do realize this, but it might still be worth mentioning for people interested) - your whole calculation is based on the assumption that you can safely achieve 5% interest over inflation...
While that might be doable - it most likely wont be risk free - and I assume with a plan of retiring from work and sustaining a family you'd be wanting to be relatively risk-averse.
So I guess you might wanna tweak your numbers a bit more to the safer side, because 5% over inflation might not be the most appropriate waytogo...
just a thought though. |
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| Mig hefur alltaf langað til að vitna í sjálfan mig - Ég sjálfur | |
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D_Zoo Canada. Apr 05 2012 20:16. Posts 4013 | | |
i enjoy these blog posts, keep 'em coming |
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| You aint a poet ur just a drunk with a pen | |
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waga United Kingdom. Apr 05 2012 20:20. Posts 2375 | | | |
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thewh00sel United States. Apr 05 2012 20:40. Posts 2734 | | |
| | On April 05 2012 19:04 Hjorturkall wrote:
This looks and sounds pretty good.
Great job if you succeed.
But - (i know you probably do realize this, but it might still be worth mentioning for people interested) - your whole calculation is based on the assumption that you can safely achieve 5% interest over inflation...
While that might be doable - it most likely wont be risk free - and I assume with a plan of retiring from work and sustaining a family you'd be wanting to be relatively risk-averse.
So I guess you might wanna tweak your numbers a bit more to the safer side, because 5% over inflation might not be the most appropriate waytogo...
just a thought though. |
I'm not going to try to predict inflation, but I will say that I didn't include raises in my wife's salary to keep up with inflation so there's that factor as well. I also think 5% return is pretty conservative, but the main point is the chart at the beginning showing that with a high savings rate how fast you can build up enough money to stop working. And that is very simple and is easy to keep track of for anyone. (Expenses/Net Income). And it seems fairly easy to control that as well. You can move where expenses are lower, or cut out a lot of stuff to lower your costs without raising your income much and you can see the finish line based on your percentage of savings. |
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| A government is the most dangerous threat to man’s rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. - Ayn Rand | Last edit: 05/04/2012 20:44 |
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SIG1 United States. Apr 05 2012 20:42. Posts 651 | | |
| | On April 05 2012 19:04 Hjorturkall wrote:
This looks and sounds pretty good.
Great job if you succeed.
But - (i know you probably do realize this, but it might still be worth mentioning for people interested) - your whole calculation is based on the assumption that you can safely achieve 5% interest over inflation...
While that might be doable - it most likely wont be risk free - and I assume with a plan of retiring from work and sustaining a family you'd be wanting to be relatively risk-averse.
So I guess you might wanna tweak your numbers a bit more to the safer side, because 5% over inflation might not be the most appropriate waytogo...
just a thought though. |
This. JUST incase things do not go your way, which is totally possible as a live poker player, I hope you have plans if variance kicks into play. I would incorporate some sort of confidence interval in your calculation to prepare for the worst, and also the best. As seeing that you have a family, I hope only for the best of course but I hope youre just as prepared if things dont go too well. |
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thewh00sel United States. Apr 05 2012 20:48. Posts 2734 | | |
Also, I will make a note that even assuming I keep all of my savings in cold hard cash, 177,500*7 years = 1,242,500. So it adds one extra year to the whole thing. That's why the savings rate is the most important thing.
*again ignoring inflation to emphasize the savings rate |
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| A government is the most dangerous threat to man’s rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. - Ayn Rand | Last edit: 05/04/2012 21:09 |
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Smuft Canada. Apr 05 2012 20:53. Posts 633 | | |
I wish i read this blog 10 years ago |
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2c0ntent Egypt. Apr 05 2012 20:59. Posts 1387 | | |
nice income XD
inflation at 2% for 15 years on 1million dollars leaves $747,014 (-$252,986 in value)
5% market return for 15 years on 1 million dollars results in $2,078,928
Real present value of a 5% market return for 15 years given 2% inflation: $1,825,942
Real 15 year return = ~4.1%
just for planning purposes, the thing is you will probably experience a lot more than an average 2% inflation over any given period of time, 5, 10 or 50 year intervals incl.
anyway it doesn't really matter, it isn't like you're going to just stop doing anything, I'm super jealous of an opportunity to be 95% out of the rat race in 7 years and rly enjoy the blogs :D
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| +- | Last edit: 05/04/2012 21:09 |
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thewh00sel United States. Apr 05 2012 21:19. Posts 2734 | | |
Also I'm pretty interested in rental houses as investments, and that will top a 5% annual return from a cashflow perspective, and gives you more diversification than just stock market investments. Just saying that I think my investment returns are very conservative and I think that using those numbers as a general plan will be perfect for anyone just starting out on the path to early retirement like I am. |
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| A government is the most dangerous threat to man’s rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. - Ayn Rand | |
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one does not simply stop earning at 125k a year |
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player999 Brasil. Apr 05 2012 23:03. Posts 7978 | | |
when I make 2k in one day I think "man I can totally make 730k per year!!"
somehow it just doesn't happen tho |
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| Browsing through your hand histories makes me wonder that you might not be aware these games are possibly play money. Have you ever tried to cash out? - Kapol | |
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Baalim Mexico. Apr 05 2012 23:27. Posts 34250 | | |
| | On April 05 2012 22:03 player999 wrote:
when I make 2k in one day I think "man I can totally make 730k per year!!"
somehow it just doesn't happen tho |
lol word |
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| Ex-PokerStars Team Pro Online | |
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| | On April 05 2012 22:03 player999 wrote:
when I make 2k in one day I think "man I can totally make 730k per year!!"
somehow it just doesn't happen tho |
this |
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whamm! Albania. Apr 06 2012 02:14. Posts 11625 | | |
if poker is where the monies to savings will be coming from, i think its pretty tough to make even conservative estimates. i do hope you and your family do well. |
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Zep United States. Apr 06 2012 02:28. Posts 2292 | | |
you're greatly underestimating certain expenses. You can't assume 2k a month for mortgage and then think 2.5k for living expenses is enough. Not to mention: Kids will drain the shit out of your time and bank account. |
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| NeillyJQ: I really wanted to prove to myself I could beat NL200, I did over a small sample, and believe Ill be crushing there in the future. | |
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