Dec 3 2012

Can I retire early? How much you need to safely retire.

There seems to be a serious movement online of life hackers and aggressive savers in the pursuit of early retirement.  This is a great movement and frankly turns the entire consumption driven economy on its head.  Most retirement planners and financial pundits on the media advocate saving a miniscule 5 to 10 percent per year and then when (if) you reach 65, you will be set to enjoy your million dollar nest egg.  Yet people are realizing that maybe slaving away for 40 years just to have infinite amounts of Margaritas on the beach isn’t exactly an ideal way to end your career.  Most people will end up getting bored a few years into retirement.  Many in the early retirement community aggressively save.  Some will save 70 to 80 percent of their take home pay.  So how much do you need to retire?

To answer that question, it all depends on two simple things:

-1.  Your savings

-2.  Your spending

Say you spend $30,000 a year.  Many will argue that you need 25 times your annual expenses to be in good shape.  So in this case, you would need $750,000.  What is interesting is this coincides with the 4 percent safe withdrawal rates (SWR).

$750,000 x 4% = $30,000

Now some that are socking away $50,000 a year will get there in 15 years (quicker than 40) even if they simply save it in a no interest account.  Add a little bit of compounding and you are looking at 10 to 12 years depending on your returns.

Yet many Americans are not saving much.  The personal savings rate is a testament to that:

savings rate

The current savings rate is 3.9 percent.  Even with a household income of $100,000 (this puts you in the top 20 percent of households) a 3.9 percent savings rate is only $3,900.  To save $750,000 would take 192 years!  No wonder why so many people end up relying on Social Security when they retire.

More realistically, the typical household pulls in $50,000 per year.  Even if you are able to sock away $15,000 to $20,000 a year, you will be in a much better position.  It also all depends on your spending.  If you spend nothing, then technically you can retire today.  Spend only $10,000 because your house is paid off?  You might need less than 10 years to retire.  Ultimately cutting your spending will bring a much more dramatic impact to your retirement plans.

How much do you need to retire?  That depends on how much you spend.

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Nov 22 2012

US Manufacturing data; Treading water US still lead manufacturer.

US Manufacturing has remained rather resilient in the last few years and has recovered nicely from the depths of the recession.  Some tend to think that manufacturing in the US is somehow gone but the US is still the leading manufacturing country in the world.  A good portion of manufacturing requiring large labor forces has been outsourced yet many of the higher end manufacturing functions are still within this country.  High level technology, engineering, medical devices, and other such industries are still doing very well in this country.  This kind of manufacturing data although positive for overall growth trends does not do much for those out of work.  If we look at actual manufacturing data we are very close to contracting.  Clearly this has been a very slow recovery.  The chart below highlights this and any figure below 50 signifies a contraction:

The above is showing slow growth in US manufacturing.

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Nov 14 2012

Fiscal cliff 2013 – What are the big implications of the fiscal cliff for 2013?

Now that the election is over we can go back to cat food and automobile commercials.  After all, we need to get you consumers out of your house to blow money on Black Friday after you blow out your intestines on Thanksgiving.  The fiscal cliff is the given name of the impending fiscal collapse of our government.  Okay, that might be a bit extreme but we do have some gigantic challenges ahead.  The country is in deep debt.  I mean we have over $16 trillion in our national debt and are looking at trillion dollar deficits (that is, spending more than we make for many years to come).  So what options are on the table?  Given the massive costs in programs like Medicare that will see a big boost in costs courtesy of the fiscal wave of baby boomers, a perfect storm is arising.  Ultimately we are going to have to cross this bridge very carefully.

Taxes and cuts are in the future.  Unless we can get GDP to increase and create household income growth then we are destined to muddle through.  Over half of the S&P 500 companies make a sizeable portion of their profits abroad (and many have increased abroad in other countries).  As a mature economy, it is hard to expect massive GDP growth.  This is typical.  With an older population and a younger less affluent population, some hard decisions will need to be made.

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