Calculate a Goal
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- Опубліковано 25 сер 2024
- The #4% Rule helps determine how much of your #retirement fund you can draw on monthly to meet living expenses while still protecting most (or all) of the retirement nest egg.
If you have a good estimate of post-retirement expenses and believe the #4% rule is conservative enough, then you can easily determine how much your retirement fund needs to be to live a life of contentment.
Inspiration: www.cnbc.com/2...
You an OUTSTANDING teacher!!! Thank you for this!!!!
Wow this was great Ralph, thank you for posting! So here's a question...I have a few mutual funds in a regular individual brokerage account so they're subjected to regular taxes. I bought the funds years ago when I was young and knew nothing. I haven't contributed much to them because I haven't had the money to do so other than the dividend reinvestments that I had initially set up for them. I've decided recently that I would like to put a few hundred dollars in each fund (let's say a total of $900 per month), but what I didn't realize is that the funds have transaction fees so it's going to cost me about $100 in processing/load fees every time I contribute plus the funds have expense ratios that aren't necessarily high, but I feel like could be better so I wanted to sell the funds and buy new ones, but of course the issue is the long-term capital gains taxes (I'm subjected to both federal and state) so it's going to cost me around $5,000.00 in taxes to do this. I've already reduced my taxable income as much as I can by fully contributing to a 401K and HSA. The other option is to just make 1 big contribution at the beginning or end of each year, but I feel like I would be missing out on gains/growth if I didn't make them every month. So is it possible to use Excel to determine if it makes more sense to sell the funds and incur the taxes versus holding onto them and either incurring a monthly transaction fee or waiting to make 1 big contribution each year and possibly miss out on some growth for the rest of the year? I guess the other factor would be the new funds would have lower expense ratios which I would think would also factor in (assuming performance old vs. new funds is basically the same). Sorry for such a long winded scenario, but just curious if this is something that could be determined on my own with Excel or something better left to a tax expert or financial planner.
Hi N Gee,
Yeah, Excel can help you compare different funds/costs/scenarios. But the big factor is going to be in finding funds in the category that you want that have the lowest expenses. I too invest in some non-retirement brokerage because I'd like to use those funds in retiring before 59-years-old. I'm also in a federal and state tax state.
- Definitely max out the HSA fund. That's like a Roth with tax-free growth plus it lowers your taxable income. See if you can connect your HSA account to a brokerage to increase access to stocks and ETFs. I'm able to connect HSA Bank to Ameritrade.
- Max out the Roth IRA. Although those contributions won't lower your taxable income, the tax-free growth is more valuable.
- Look for no load funds (loads are fees on the front-end or back-end of a mutual fund). I use Vanguard (any big fund company has no-load funds) for no-load funds, then you just need to look for low expense ratios compared to the returns you're getting. Index funds will have the lowest expense ratios since they require the least management. However, you may be OK with an expense ratio in a managed fund if you feel you're getting a larger-than-index return.
- The turnover rate for the fund can give you an idea of what % of the fund is sold during the year--and that creates a taxable event. Honestly though, I don't factor that much into my buy decision.
- I'm in a Vanguard Mid-cap Index fund that has .05% expense and a 24% turnover rate. I'm also in a Vanguard Healthcare fund that has .35% expense and 11% turnover rate. The healthcare fund is more expensive and has had less than stellar returns. The mid-cap index fund has been great for me and is quite low in cost.
- Long story short, look for those funds that have as low as cost as reasonable. I'd only go with a 1-3% cost managed fund if I felt like I was consistently getting 3-6% above a comparable index or low-managed fund.
@@SixMinutesSmarter thank you so much, this is awesome advice. Seriously, you could start a financial advice channel with all the knowledge you have. I think thats a great point about tolerating a higher expense ratio if you can justify the cost with higher returns. Would you compare fund returns over a 5 year period or 10 year or perhaps the life of the fund? Most of the expense ratios between the funds I have and the funds I want differ from .26 vs. .02 and differences like that which don’t seem like much, but I did look at a few fund expense calculators online and the differences add up (not sure how reliable those calculators are, perhaps I can check the validity using Excel). The performance of those funds seems similar, but again it varies depending on the time frame I’m looking at. If I look at a 5 year period they look fairly close/competitive, but over a 10 year period and I start to see more differences, but I don’t know if that’s because the expense ratios are being factored in and making more of an impact over time of if the performance of the cheaper funds was truly higher. It doesn’t really indicate what they’re favoring in when comparing them. Too bad they didn’t teach all of this stuff in school, haha.
Goal seek? Its just =(F1*0.04)/12. That's for if the retirees accidentally live 'forever' and never die.
There is also a closed-form solution for if you want the Retirement Fund to decline to zero value after a specific number of years at the 4% safe withdrawal rate, which is using the Excel 'PMT' function.
There are little nuances involved like whether you are taking your draw at the beginning or the end of the period, etc., but this type of calculation does not involve a 'transcendental function' which would not have a closed form solution. LOL.