Retire with a million dollars

So, we all have heard variations of retiring with a million dollar.

Version 1: Without society security, you will need a million dollar saved up for retirement.

Version 2: If I have a million dollar, I will retire.

Version 3: I want to retire by age X, I will work and save. At age X, I will have a million dollar and move to an island.

Many other versions exist...

So, today, I got curious, what does a million dollar really mean?

Age	Years in Retirement	Withdrawal	Account Value
64	0	$ -	$ 1,000,000.00
65	1	$ 87,345.51	$ 976,540.31
66	2	$ 89,092.42	$ 949,569.24
67	3	$ 90,874.27	$ 918,803.62
68	4	$ 92,691.75	$ 883,939.70
69	5	$ 94,545.59	$ 844,651.70
70	6	$ 96,436.50	$ 800,590.27
71	7	$ 98,365.23	$ 751,380.80
72	8	$100,332.53	$ 696,621.64
73	9	$102,339.18	$ 635,882.23
74	10	$104,385.97	$ 568,701.00
75	11	$106,473.69	$ 494,583.23
76	12	$108,603.16	$ 412,998.67
77	13	$110,775.22	$ 323,379.09
78	14	$112,990.73	$ 225,115.55
79	15	$115,250.54	$ 117,555.55
80	16	$117,555.55	$ 0.00

So, the above table assumes several things. The biggest assumption is an annual inflation rate of 2%. This is probably on the low end. It also assumes that your investment would earn a rate of return of 7%.

This means that if my 65^th birthday is tomorrow. I have a million dollar at the bank right now. I could withdraw an annual income of $87K. But this assumes that I will only live till age 80. Now, if I live till age 85, I could withdraw an annual income of $73K. Each year after, I will be allowed to give myself a raise equal to the rate of inflation.

So, $70-80K sounds pretty good… but it gets more complicated…

One word: Inflation.

If I am only 30 years old now, $87K at age 65 is the equivalent of a $43K salary. Okay, so I may have totally confused you. Let me rephrase. If I earn $43K today, and give myself a raise each year equal to the rate of inflation (2%), next year, I would earn near $44K. The year after, near $45K, so on and so forth. But, this “raise” is artificial. Since, even though the income is higher, stuff cost more due to inflation. So, your purchasing power does not change. So, $87K 35 years from now has the purchase power of $43K.

Hmm… interesting… That’s what a million dollar means…

Disclaimer: I am not a financial advisor. This is ONE scenerio.

Endless source of information

So, $$$ has been a personal obsession for a while now. Along the way, I have signed up for various newsletters, etc. Quite frankly, I have lost track on what I have signed up and what I have not. Also, from being registered as a stock trader in my previous life, I am sure I am on some sort of lists... Because I get a lot of random mails about trading and investing. Within the last 24 hours, I have received the following:

1. The Motley Fool's FoolWatch Weekly newsletter
2. Elite Stock-Market Advisory stock profile
3. SFO: Stock, Futures and Options Magazine

This list shows that there is virtually an endless source of information with regards to personal investing. But, be advised: not all information source is created the same.

1. The Motley Fool's newsletter
I am going to guess that at one point and time I have given Motley Fool (http://www.fool.com/) my email address. It is a website that is tailored to the average investors. You can find a lot of good information on this site. However, information sources such as this are not without their problems.

In the investing world, it is a popular to use history as an indication of future success. But history is exactly that: history. Too often at the beginning of a new year, such sources would provide a list of best performers from the prior year. However, what had happened in the prior year is unlikely going to happen this year. Thus seriously undermining the usefulness of such information.

For example, within this newsletter was an article about dividend paying stocks. I am a big fan of dividend paying stocks. Good downside hedge. However, searching for the right one is not always that easy. The newsletter highlighted Bank of America (NYSE: BAC). It highlighted many good reasons on why it would be a good investment. But interestingly, just today, a major piece of news surrounding Bank of America's purchase of the troubled mortgage lender Countrywide Financial (NYSE: CFC) changed everything.

So, the bottom line: I personally would never take these cookie cutter advice without a grain of salt. I generally appreciate the general information that they are able to provide, but I would rarely rely on such sources for specific investment advice.

2. Elite Stock-Market Advisory stock profile
The people at Fools.com is going to die when they see their newsletter mentioned along side with this one. This professional looking piece of newsletter arrived in my mailbox suggesting a specific stock that I could purchase for $2.00 and sell for $40. However, make sure you read the fine print: "This stock profile should be viewed as a paid advertisement..."

The bottom line: For most investments, if it appears to be too good to be true, it probably is.

This is a good point for me to familiarize the readers with a popular scam: Pump & Dump. If you have watched the movie "Boiler Room", you'd know what I am talking about. Apparently legit looking financial service professionals will try to pump up a stock. You become the buyer for a stock that they want to dump. However, after the originally owners finish selling their stock, they have no more reasons to keep the stock priced inflated, the price would likely fall. At this point, you may want to sell, but no one want to buy... If I am not clear, just go rent the movie ;)

3. SFO: Stock, Futures and Options Magazine
This magazine found its way into my mailbox, along with an offer for a free subscription. I found this self proclaimed "The Official Journal for Personal Investing" surprisingly informative. Though, I would say that the content is too sophisticated for your average investor. It is geared toward more active traders.

The bottom line: Free subscription to a source of information is never a bad thing. Just know that it is only one piece of information. You should view each piece of information with a critical eye, and never rely on a single source. Do your homework!

Disclaimer: Once again, this is a personal blog. Don't buy or sell stock names mentioned in this blog base on information provided here. Also, I am not qualified to judge the legimacy of the information sources.

What are my guiding principals?

So, I am guided by several principals when it comes to money.

1) Live for Today. Plan for Tomorrow.
This means that I am not anti-consumerism. In fact, I like to spend, and am very willing to buy the various luxuries in life. However, my spending is balanced with diligent savings. I try my best to put money aside into a savings account at all time. Also, I am quite diligent in saving for retirement.

2) Invest for the Long Term.
I am young. I am willing to take risks. I focus on the long term. This is also a lesson I learned when I visited with Warren Buffett, one of the most important names in investing. He invests for the long term, and look for investments that he believe would do well for a long time. This means that despite my prior profession as a stock trader, I do not focus on day-trading. Quite frankly, that takes too much work. I do not have enough time to do the homework necessary to do that.

What is this about?

So, blogging about money is certainly not a new concept. In fact, money blogs have been receiving media attention for a few years now. So, why am I starting a blog? Well, I figure, I am obsessed about this subject. I am constantly learning more about this subject. So, I thought I'd start a blog to have a place to collect what I have learned.

This is what this blog is going to be about. It will be a collection of everything from credit cards to retirement to whatever. Basically, I will cover whatever topic that was of importance to me at that moment. And since money is what makes the world go around, that pretty much limits to subject matter to everything ;)

As of today, I am a late twentysomething in grad school. Prior to grad school, I had a full-time job as a stock trader for a major full-service brokerage. So, some of my doctrines are influenced by the mainstream thoughts. However, as you continue to read the blog, you would realize that I have not been brainwashed. In fact, I have some very controversial ideas of my own.

In case you are wondering, my grad school concentration is in marketing. My post graduate job will be in marketing for a pet food manufacturer. So, I am no longer one of the drones in the financial services industry. (This is probably a good thing considering what's going on in that sector.) However, I am forever grateful to have had that stock trader job right out of college. It had instilled in me the importance of managing my personal finances.

I know some bloggers are very open with their finances. I am not yet quite comfortable with that. But here is what I will share. I have a small (and I mean small) five figure Roth IRA at my former employer. Other than that, I have basically no savings. In fact, I have racked up quite a bit of student loans over the past few months. I live off of student loans at the moment, and my loan checks are stored at a high yield savings account. I have a small credit card loan at 4%. I decided to keep that card open because the rate is too favorable. I pay off the balance of every other card every month.

Of course, last but not least, the disclaimer: This is a blog. Nothing more. This is a blog of my personal lessons and personal opinions. Please do not take this as your sole source of information in making your decisions. I do not claim to be qualified to give any professional advice.