Join Date: Mar 2002
Re: Anyone want to talk stocks and retirement?
How good are you at excel? Like easy excel calculations/tables? I'm sure you can find something similar on the web, but I set up a quick and easy calculation table. The nice thing about setting it up in excel is it allows me to quickly change the constants and the vairables. I'd be happy to send you it if you PM me your email address. I'll warn that its very quick/easy if you know even a little about excel you could create you own in 2 minutes, I'm sure there is something better on the net, but I'd be happy to send it along at any rate if you like.
Anyhoo, I put in some constants, basically putting in 1200 now (age 35) and ran it out 30 years. I assumed a 7% return (including dividends) and re-invested all dividends each year, plus an additional 1200 each season. Is it enough to retire? depends on what your needs are, and how much your PERS pays out at age 55 (or beyond)
Using just the 1200 a year, plus 7% return each year 20 years of savings at those returns will generate just under $53,000 at the age of 55. here is the value of compound interst, work another 10 years and achieve those same returns, and you're nest egg will be worth $121,000. Now, lets change things up a bit, lets say you cut out some things from your budget (you say you're tight to begin with, but could you find an extra $100 a month?) Lets bump that up to $2400 a year and still assume a 7% return. In 20 years, you'll have nearly $106,000, while in 30 years you'll have $242,000.
No imagine you had started that at 21 when you began working. You'd retire at 55 with $330,000 in the bank. Not bad. Enough to retire, depends on what you spend, how much your PERS is worth. I've read a retirement theory about the power of 20, or something like that. The theory is, take whatever your anticipated living expenses are at retirement and multiple it by 20. Then when you start retirment, take out 5% (1/20th) each year to live off of and invest the rest. The Motley Fool ran these numbers 10+ years ago when that site was fairly new, I'm sure its been done several times, but they tested it against the worst 20 year time frame (an expected number of years you spend retired before death) using the exact S&P 500 returns each year. I believe the time frame for the worst 20 year period started in the 70s, when over the course of 20 years, the S&P 500 was relatively flat. Even using that period, your return on investment using the rule of 20 you managed to make money before departing this world for whatever lies beyond.
If you need 50,000 a year to live at retirement, that would be $1,000,000 for your rule of 20 net value. I don't know how PERS works, if its like the STRS program that my wife has, you'll get paid a % of your 3 highest earning years. So if you're making $80k in 20 years, you'll get whatever % of that they give you as your pension, then you'll need to make up the rest thru Social Security and any additional investments. Going back to my 1st calculations, using $1200 a year and 7% returns (giving you $53,000) and applying the rule of 20, that would net you a little more than $2,650 a year in addition to PERS and social security.
Regarding your friend and Chipotle, "liking the food" is one of Peter Lynch's aspect, invest in what you know/like. Now just liking food somewhere isn't enough, you've got to put some work in, but certainly one reason why Chipotle sits above $400 a share today is because it has good food that people are willing to pay for despite lines often backed up to the door on a fairly regular basis and its been proven across many markets. However, you have one thing down that I like. It doesn't sound like your interested in "getting rich quick" not that that is a bad thing, just most people who get rich quick in the market, lose it just as quick, think of the tech bubble in the 90s where many stocks shot up above $100 but sit below $5 today. The best way to plan for retirement, the easiest way to plan for retirment, is to get rich slowly. Use the power of time to compound your interest, the earlier you start, the easier it becomes.
Last edited by medford; 05-04-2012 at 11:26 AM.