savings calculator?

[hospitalist md]

am not sure if there is a calculator anywhere to figure this out but here goes

I am trying to figure out exactly how much I should invest every month to reach financial independence in 10 yrs. my goal is 4 million. - a very hypothetical situation

I maximize 403b and 457 at 18500 a yr each. my husband is going to maximize his 401k as well from this yr at 18500.back door roth at 11000 a yr for the 2 of us . am starting with 140000 savings right now.  how much extra should I be investing every month, other than the retirement accounts mentioned above , to reach a goal of 4 million in 10 yrs with a hypothetical return of 6% .

I did look at the POF calculators but could not find one that gives me this exact number.

[Raddoc123]

Starting from 0 dollars, roughly 300k invested annually growing at 6%/yr would get you there.  Subtract your 401ks, Roth’s, 457b etc. to see how much you need to save in a taxable account.   I used a compound interest calculator.

[hospitalist md]

@raddoc- thanks, that helps

[wonka31]

I’m not a big Dave Ramsey guy, but this calculator is quite good and should provide the information you need.

https://www.daveramsey.com/smartvestor/investment-calculator

[Peds]

It's in excel.

[hospitalist md]

@wonka- that was a helpful calculator. Thank you . The difficulty for me has been accounting for pre tax investment and the tax hit I would take from those investments upon withdrawal on retirement  and accounting for that when I calculate post tax contributions . 18500 investment in 401k is not going to be all mine on retirement .

not sure if I will get accurate numbers of I just take out 35% from my retirement account contributions and then use the above calculator .

[wonka31]

35% is likely a far too conservative number. Your current effective tax rate is likely far lower than this. I believe mine was 27-28% last year. If you figure out what your yearly spending will be, you can guesstimate how much of your taxable and non-taxable (likely Roth in your case) you will need to withdraw in order to meet this number. You can then add your effective tax rate based upon these numbers and current tax brackets and determine your FI/goal number.

The only issue is if the tax brackets change for the worse, which may lead to an underestimate of your FI number. I doubt this will happen as there is no quicker way for a politician to lose their seat than to raise income taxes.

[ENT Doc]

You’ll owe tax on the pre-tax accounts, sure, but you get to decide the effective tax on this by picking when you retire and withdraw. You also owe tax on the taxable account on withdrawal. The only way to avoid tax on both is to withdraw from pre-tax the standard deduction amount and then withdraw dividends and sell in taxable up to the 0% tax limit on dividends/cap gains, supplementing the remaining needs with Roth withdrawals.

Point is, taxation is everywhere or it’s not. Depends on what funds you have, your withdrawal strategy, and your spending needs. So maybe bump up the $4M or don’t depending on what your after tax spending needs are and how you came to that $4M figure.

BTW, you can find the payment necessary in Excel’s PMT function:

“=PMT (rate, nper, pv, [fv], [type])”

Where rate is 6%, nper is 10, PV is -140000, FV is 4000000, and type is 0 if the PMT is coming in at the end of the year vs 1 if at the beginning.

More realistically, however, is that you have a monthly contribution. In that case your nper will be 120 and your rate will need to reflect the monthly rate given an APY of 6%, which is 0.004867550565343. The PMT in that situation will yield your monthly payment rather than a yearly PMT. The PV is put in as a negative because it’s money being put in (away from you), and the PMT will yield a negative number too (money being put in, away from you).

Should be around $22,853.91 monthly.

[hospitalist md]

@entdoc - around 22000 was what I came up with as well. thank you for the reply. it seems like a big number but doable when u also take retirement contributions into account. 4 million was a random number I picked out. I think I will be able to retire on that for sure. but its fun to explore these scenarios ...

 

[Dr. Mom]

Here's the one I use:

http://www.zenwealth.com/businessfinanceonline/TVM/TVMCalculator.html

 

[ENT Doc]

I wouldn’t just pick out random numbers. I’d make your goals purposeful, backed with sound financial analysis. The 4% initial withdrawal rule, indexed to inflation is a good starting point for a withdrawal discussion. But the expenses analysis is just as important.

[Peds]

ENT Doc wrote:

Should be around $22,853.91 monthly.

Click to expand...

hospitalist md wrote:

@entdoc – around 22000 was what I came up with as well.

hospitalist md wrote:

 how much extra should I be investing every month, other than the retirement accounts mentioned above , to reach a goal of 4 million in 10 yrs with a hypothetical return of 6% .

Click to expand...

agree, 23K. but that is total.

minus the 66.5K/yr you are already saving (3x 401k, 2x rIRA = 5.5K/m).

so your answer is: 23-5.5 = 17.5K extra in taxable per month

[ENT Doc]

Indeed that was the question. :-)

[q-school]

to me 6% is optimistic but i recognize that historically it's not an unrealistic number.

is SORR a concern here?

if there is a significant correction a few years in, will that likely change the numbers?

 

[hospitalist md]

@q-school- excuse my ignorance ...but whats SORR...

@peds - theoretically if I tighten the belt really hard , then I can contribute 17000 a month but then the question comes , whether to invest all that in taxable or find other investment opportunities like real estate ... it scares me a little to put all that money in the market , even in index funds