Posted by Tim Stobbs on February 24, 2010
Alright in the interest of time I’m going to make a simplifying assumption here. I’m going to assume that I don’t have much of a problem pulling money out of taxable and tax sheltered accounts once I semi-retire (ie: I can pull enough from my non-locked in/taxable accounts to hold off until I can need to pull money out of my locked accounts). So that way I can just pile all the money into one number as I sort out how much will I have at 39. Please note that all my calculations are in present dollars, so all investment returns have been reduced by 1.5% to adjust for inflation. I’m aware that official inflation is higher than that over a longer time frame, but my personal inflation rate is usually less than that.
Another thing I’m going to do is adjust my start time slightly forward to this summer. Why? Because the final mortgage payment will occur about the middle of summer. So it makes everything then occur on a nice neat yearly basis. So as of Jan 1, 2010 I had about $100,000 in investments/savings. Adjusting for my pension contributions and RRSP contributions till July 1, I will add in $5000. Then to simulate growth on that I’ll add another $2500. So my starting value of investments is $107, 500.
I will grow that forward at 5% for two years at $1250/month in contributions, which puts me at around $150,000. I went with 5% since I’m not changing my investments during this time. At which point the mortgage is paid off. So now rolling all that money over that I used to put on the mortgage means I can save in total $3965/month. This doesn’t include my school board income. Yet my school board term doesn’t expire until late that fall, so with that in mind I’ll just adjust my starting point up by $6000.
So growing $156,000 at 4% for five years at $3965/month I end up with $453,000. I reduced this to 4% to cover off a significant shift over to fixed income in the portfolio that will occur during this time. Now that value of $453,000 is actually highly significant. Since I’m only taking out $18,000/year in this scenario, that would mean I can take that every year from my stash of money and never drawn down the principle as long as my returns stay at 4% + my personal inflation adjustment. Nice eh?
Tomorrow I’ll try to wrap this scenario up as I link up the semi-retirement phase to full blown retirement when I turn 60. Please let me know if you have any questions. I’ll try to include answers in the post tomorrow or the comments on this one.