60% Rule

Tuesday, April 8, 2008

Trent over at The Simple Dollar had an interesting post the other day. I guess it is an older idea, but I had never heard it. If you are able to put away 40% of your income a month into an account that gets an average of 10% return (which stocks do over time, as well as other forms of investments even with ridiculously low interest rates) after 11 years the interest on your account will be equal to the 60% of your income that you have using for living expenses. After 15 years, the interest will be equal to 100% of your income.

Using this formula, I could retire when I'm 45, and move back down south where the cost of living is 10%-15% less than where we live now, and live very comfortably, and still put away for retirement. Now, we are no where near being able to put 40% of our income away. We just started putting anything away Sunday. But talk about a motivating factor. My mom raised me and my sister on half of what I make now, and we had a very good upbringing.

So, that will be one of my mid term goals, putting away 40% of my current income. I am sure there will be a decent reward when I hit that one. Don't know what yet, but I have plenty of time to figure that one out.