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How Much Will I Need to Retire (Part 2)
How much will I need to retire (part 2)
In my last Hub I showed how I came up with the figure of $50,000 a year for retirement income. I said that the last figure that I saw for that average household income in the United States was $50,000. I realize that figure is the gross income, however, since I have already started using a net income of $50,000 I will stay with that number.
I believe that Mutual Funds are the best investment available. You can invest in Mutual Funds individually, through IRA's, 401k's or other retirement savings accounts. There are several Mutual Funds that have averaged 10-12% growth over the life of the fund. What you want to look for are funds that have been around for at least 10 years, the longer they have been around the better it will be. Just because a fund has averaged 12% growth does not mean that it has grown by 12% every year. It may have grown 36% one year and lost 12% the next year. Because some funds may fluctuate, you want to find funds that have had growth in at least 70% of the years that they have been around.
For those who may question the possibility of finding such funds, as I am writing this Hub I have next to me printouts from 2 funds. One began in 1967 and has averaged growth in 75% of its life. The growth average of the fund is 12.41%. There is also another fund that began in 1952 that has had growth in 80% of its years with a growth rate of 12.85% over the life of the fund.
We will use a 10% growth rate because it will be easier to calculate. You may say this will be simple, to get $50,000 you need to have $500,000 invested. Sorry but it is not that easy. You have to take taxes and inflation into consideration. Since inflation averages around 4%, you should only take out 6% of the balance of your investment. That will mean your investment base will grow by 4% per year to keep up with inflation.
Next you have to deal with taxes. For this example I will use 15% federal and 5% state and local taxes. That means for that $500,000 investment you will only be taking out $30,000 which is $500,000 at 6%. The government will then take 20% of that $30,000 so you will be left with $24,000. Obviously that is short of the $50,000 we are shooting for. Doubling that $500,000 will only get us to $48,000. We will actually need 1.05 MILLION dollars to net slightly over $50,000 per year.
My next article will look at how you can get in to position to achieve the goal of saving 1.05 million dollars.
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