A 23 year old who wants to retire young.

bsms1147

KeithFlournoy wrote: »

I don't like traveling, or cooking, or making anything. Sometimes on weekends I play some games with friends, but that's about it. Other than that maybe some low stakes poker or something. But if I'm just bored with that then I'm bored with life, because I don't like doing other stuff. I'm just a boring dude.

Sounds like you need a girlfriend.

jamesd

KeithFlournoy wrote: »

I'm just being ambitious. I'm saving about 65% of my post tax income.

Nothing wrong with ambition or commitment. It took me about eight years to accumulate half a million Dollars at that sort of rate. Early commitment helps a lot so you can get the benefits of compounding for longer.

You'll need to use US sites for tax wrapper advice, probably. We're definitely not the experts in IRAs, Roth or standard or 401Ks.

KeithFlournoy wrote: »

My pay check is about $4850 after taxes, 401K, insurance, etc, and I spend about $1600 of that a month. My 401K is $450 a month, and I said I save about $3000 of my pay check (let an extra $250/month go towards large one-time purchases). I make much more than I need, but would rather retire young than spend more.

The lowish spending is one of the key secrets to achieving your objective. Since a 4% assumed withdrawal rate means accumulating 25 times that much it also really helps to arrange to have a low spending lifestyle in retirement.

You'll have one cost we don't have to worry about here, medical insurance until you qualify for the extensive state medical system provided for those over 65 under Medicare.

KeithFlournoy wrote: »

I rent for $500 a month. I might buy some time but I want to be more certain that I will live here long term before I do that. The typical advice I've heard is that if you're not going to live in a house for at least 5 years, you're better off renting, because of the cost involved in buying and selling the house.

Costs are a factor but so is potential profit. Don't neglect what's happening in your local property market. You may also find that you like the relative security of owning your own home with a mortgage.

Ending your planning at age 85 doesn't seem wise. The UK life expectancy for those who've reached age 65 takes them to around 89 and a substantial number are expected to get to 100: 10%+. Don't be misled by life expectancy at birth numbers that are most often mentioned in the press. What you need is cohort life expectancy numbers for those who have reached your planned retirement age. The at birth numbers include lots of early deaths from childhood disease and youth accidents that those who reach a retirement age have already survived. there are lots of really bad calculators out there that use the at birth numbers instead of cohort ones. Those typically just deduct the age you give from the life expectancy at birth to give you a useless answer when what they should be doing is picking a different cohort life expectancy group based on that age. Definitely don't trust any calculator that doesn't mention the word cohort. SS provides a US table of cohort life expectancy that you can and should use initially. What that says is that a man person who reaches age 5 in 2014 can expect to on average live for 19.0 more years and a woman for 20.9 more years. Same people reaching 65 in 2034 could expect 20.3 and 22.1 years. But those are averages, the variation is substantial and you should expect 5-10% to make it to 100, though I haven't looked at the full US distribution. You can probably find it somewhere if you look, the percentage still alive at a given age based on cohort life expectancy. very crudely, if you're planing for 85, then half the time you're going to be alive with no money left for years.

For early retirement it turns out that the life expectancy calculation matters less than it could. That's because you can't rely so much on drawing capital when you plan to be retired for a long time so you have to get closer to the live forever case. It does make it more sensitive to increases in spending level, though, since any increase has to be paid for for longer.

If you haven't discovered it yet, take a look at Firecalc.

BillJones

KeithFlournoy wrote: »

Hello,

I'm 23 years old and I'm looking at saving up for retirement, because I'd like to retire young.

OK. Fiirst step, work towards getting a job that pays a very large sum of money.

Saving out of what you currently earn is no bad idea, but it will yield a far poorer pension than if you find a route to earning ten times what you now do.

So do that.

atush

retiring at 40 may be too early- you might very well be bored out of your mind. Better to find something you like to do, even if on a tiny salary/income and do that. Something you actually like.

Also, you will have worked only a short time in terms of Soc Sec. I worked only 11 years in the USA, and my soc Sec will only pay around $370 pm. So you might want to think about that in terms of working PT somewhere you like as you will continue to earn years.

Lastly medical insurance is expensive, and if you dont work that is going to be at least 27/8 years of self paid insurance before you get to Medicare if you dont have MI with your employment.

KeithFlournoy

OK. Fiirst step, work towards getting a job that pays a very large sum of money.

Saving out of what you currently earn is no bad idea, but it will yield a far poorer pension than if you find a route to earning ten times what you now do.

So do that.

In the US the best someone can make out of college realistically (unless they start their own company) is about 150K. But that would usually be SF or NYC where the cost of living is really high. I got about 70% of that where rent is 1/4 of what it is in NYC and 1/5 of what it is in SF. It's about the best I can do. The only way to really make all that much more is by starting my own business or winning the lottery. I'm pretty much stuck with what I got, which ain't bad though.

Also, you will have worked only a short time in terms of Soc Sec. I worked only 11 years in the USA, and my soc Sec will only pay around $370 pm. So you might want to think about that in terms of working PT somewhere you like as you will continue to earn years.

Based on what people have said, it looks like I shouldn't rely on ever getting social security. A lot of people are telling me it's only going to go to people who didn't save for retirement but aren't able to work anymore in the future. If I get something great, I'll just take it as an extra or something. For now it's just means I have higher taxes I guess.

The lowish spending is one of the key secrets to achieving your objective. Since a 4% assumed withdrawal rate means accumulating 25 times that much it also really helps to arrange to have a low spending lifestyle in retirement.

You'll have one cost we don't have to worry about here, medical insurance until you qualify for the extensive state medical system provided for those over 65 under Medicare.

As for spending, right now it's something like:

$700-$750 for Rent, gas, utilities, internet, cell phone, and insurance.
$850 for food and alcohol (though roughly $150 is for lunch deducted from my pay check, so only about $700 a month is spent from that pay check)
$200 or so for other random stuff, about half is cigarettes I guess

I'm hoping that once I get more settled I can knock the food spending down to about $700 (so $150 for lunch at work, $550 outside). But I don't think I can reduce much more than that. The part of the town I live in is the nicer part, so $500 is as cheap as I can get. I can live in the worse part, but the main problem is my commute will be longer, and still my rent would probably still be $400 at cheapest. So I can't do much to reduce rent.

But yes, once I quit work my medical insurance will go from $57 to something like $250.

As for life expectancy, I filled out this one: gosset.wharton.upenn .edu/ mortality/perl/CalcForm.html which said 50% chance of 70, 25% chance of 78. And I did this one livingto100 .com /calculator/start/3 which said life expectancy of 68. Even the table, which seems rather optimistic, says that if I live to 65, I could expect to live to 81. I didn't make it to 65 yet though. I'm just not seeing myself living to 90.

Sounds like you need a girlfriend.

Probably. But I'm content to just be my boring self.

If you haven't discovered it yet, take a look at Firecalc.

I tried taking a look, I can't figure out how to have it simulate with my current age, target retirement age, current savings, and yearly savings. Basically, I can't figure out how to use that site at all.

Robisere

You don't mention a Health Plan. Do you have Health Insurance? Perhaps at your young age, you think that there are things that can never happen, but they certainly can, especially given your somewhat sedentary lifestyle.

One thing you can be sure of, is that you will be a different person, with a different outlook on life, and different goals, when you are, say, 10, 20, 30 years older. I think that you need two things: a job that really interests and challenges you, (disregard the salary, if the work interests you enough, you will rise within the job.) and an interest/hobby outside of work that does the same, but in a different way. I understand that you may not be interested in marriage or children now and even in the future. That is your choice and no one should try to change your feelings. Some people are like that, and it is certainly a better choice than the guy who is useless with relationships but keeps trying, with marriages and abandoned children left behind in his wake.

Some of us older people will try to tell you about life and how you should live it, but every human is an individual and there is no point in someone like me (at 69, growing up in a different country) telling you how you will do this or make that choice later in life. Just live it.

atush

Based on what people have said, it looks like I shouldn't rely on ever getting social security. A lot of people are telling me it's only going to go to people who didn't save for retirement but aren't able to work anymore in the future. I

Rely on it. This rumor persists in every Capitalist country. Which are mainly Democratic. And any govt who did that, would NEVER be re elected. Older people vote, younger ones, not so much.


As for your LE, it is thrown out of whack because, guess what- YOU SMOKE!

cut it out, save 200 a month, live longer. Easy peasy.

ou don't mention a Health Plan. Do you have Health Insurance? Perhaps at your young age, you think that there are things that can never happen, but they certainly can, especially given your somewhat sedentary lifestyle.

i mentioned it, haven't had an answer yet?

hugheskevi

The UK Pension Regulator very helpfully publishes details of various assumptions used by pension schemes, here. This is helpful as it takes account of the type of person with a Defined Benefit pension, which helps to strip out the sickliest in society who are unlikely to work, those in professions where pension provision is scarce and so forth, whilst also taking account of latest longevity analysis by actuaries (who may not have the best track record, but where else can you go).

This shows that (page 6) "The average assumed life expectancy for a future male pensioner currently aged 45 is 89.9 years".

The range is from age 85 to 89 for those currently aged 65, and from age 87 to 92 for those aged 45.

KeithFlournoy

You don't mention a Health Plan. Do you have Health Insurance? Perhaps at your young age, you think that there are things that can never happen, but they certainly can, especially given your somewhat sedentary lifestyle.

I have health insurance through work. It's automatically deducted from my pay check (so taken out before that $4850 pay check I get) and costs $57 a month. My employer contributes about $200 a month to it while I work here. So when I'm retired, before Medicare at 65, it will be about $250 a month. That's part of the reason I'll probably need to go with at least the 30K a year option over the 24K option.

As for your LE, it is thrown out of whack because, guess what- YOU SMOKE!

cut it out, save 200 a month, live longer. Easy peasy.

It's only about $100 a month, like 1.5 cartons a month. And I don't want to quit. I'd rather live how I like and accept that it means I die younger.

The advice of changing life expectancy isn't really the advice I'm looking for. I just don't believe I'm going to live till 90.

Rely on it. This rumor persists in every Capitalist country. Which are mainly Democratic. And any govt who did that, would NEVER be re elected. Older people vote, younger ones, not so much.

Well, I just did a SS benefit estimator. What it said was retiring at 40 would lead to about $1327 in 2014 dollars a month taken at age 62. I have no idea at what age I'd actually take it, but age 62 is the earliest and lowest benefit. That amount would pay for a large portion of what I need. But I'm not going to count on that amount being true.

jamesd

KeithFlournoy wrote: »

As for life expectancy, I filled out this one: gosset.wharton.upenn .edu/ mortality/perl/CalcForm.html which said 50% chance of 70, 25% chance of 78.

Ignore the trash they provide. They say that they use this life table which says at the start "http://www.ssa.gov/OACT/STATS/table4c6.html Period Life Table, 2009". Since it is a period life table and not a cohort life table it is not appropriate to use it and it will give ages that are too low. I've looked at the Berkeley data set which is their initial description of what that is and the calculator is using higher death rates than in their cohort data set.

It's not the most current data but the Berkeley cohort data is available here and gives 56.22 years as the general life expectancy for males aged 23 with 1991-00 as the base date. But that'll be too low for your planning of number of years to provide for because you really should be using cohort rate for the age you plan to retire for the year at which you plan to retire.

However, you're a smoker so overall something like 23+56 probably isn't too bad as an estimate for how long you'll need to provide for.

KeithFlournoy wrote: »

And I did this one livingto100 .com /calculator/start/3 which said life expectancy of 68. Even the table, which seems rather optimistic, says that if I live to 65, I could expect to live to 81. I didn't make it to 65 yet though. I'm just not seeing myself living to 90.

That one may be better but it's hard to say since it provides very limited information on how it is producing its results. If I use the Berkeley cohort table the life expectancy for a 65 year old make using 1991-00 row is 18.82 more years, so to age 83.82. Since you're a smoker you should expect lower.

However, that base value in the Berkeley table looks pretty low given general trends in life expectancy so I don't have a lot of trust in it. Berkeley also descries it as old data and recommend using more recent data. I didn't for this post just because it's not available without signing up and being issued a password that you need to get their more recent data.

The values that hugheskevi gave for the UK appear to be the most recent UK cohort numbers. US life expectancies are a little lower than UK because it lacks a national health service, so much of the population has less good care overall. That effect may change as a result of Obamacare, too soon to tell.