Sample Scenario 002 – Investing $100,000 in Stocks at Fixed 8.97% per Year while Earning and Spending $5K per Month

This is our second “Sample Scenario” that you can use as a template to copy into your own Real Estate Financial Planner™ software.

This Sample Scenario 002 is just a tad bit simpler than Sample Scenario 001.

The Difference

The difference between Sample Scenario 001 and this Scenario is that we’ve added a Rule to model receiving a paycheck of $5,000 per month and personal expenses of $5,000 per month.

We used the Paycheck and Personal Expenses rule with the following settings:

  • Paycheck gets deposited to the Account that is investing in VTSMX and earning a fixed rate of 8.97% per year.
  • We set the paycheck to stop when you reach your Goal of financial independence. Financial independence in this Scenario is defined when 4% of your VTSMX Account balance is enough to replace this $5,000 per month in income.
  • Taxes are paid on the $5,000 per month income at a rate of 18.84% (the Effective Tax Rate is actually defined in the Scenario settings).
  • There are personal expenses of $4,058.00 per month that are subtracted from the same VTSMX Account.
  • Both the paycheck and the personal expenses adjust with the inflation rate set for the Scenario in the Scenario settings. It is set to 3% inflation rate.
  • Using these values for their paycheck, taxes and personal expenses means this person is saving exactly zero dollars per month.

Net Worth

Here’s a sample of the Net Worth for this Scenario for you to look at. Realize there are dozens of additional Charts you can dive into as well.

Sample Scenario 002 - Net Worth
Sample Scenario 002 – Net Worth

Do you see what happens to your Net Worth when you stop working and receiving a paycheck?

You can quickly see when this happens by looking at the Gross Paychecks chart.

Sample Scenario 002 - Gross Paychecks
Sample Scenario 002 – Gross Paychecks

If you’re wondering why your paycheck seems really high, remember we are adjusting for inflation. If we click on the “Inflation Adjusted” button below the Chart we can see your paycheck really just keeps pace with inflation and is still worth $5,000 per month in today’s dollars.

Sample Scenario 002 - Gross Paychecks - Inflation Adjusted
Sample Scenario 002 – Gross Paychecks – Inflation Adjusted

You can also easily see that in this Scenario you’re not saving any money. In fact, once you hit retirement, you’re pulling money from your investments which shows up as “negative savings” as shown in the Chart below.

Sample Scenario 002 - Total Saved
Sample Scenario 002 – Total Saved

You might be wondering why it seems like such a large dollar amount? It is because you’re looking at “future, inflated dollars”. If we adjust back for inflation (by clicking on the “Inflation Adjusted” button beneath the Chart), you can see that it is the same $4,058.00 per month in expenses.

Sample Scenario 002 - Total Saved - Inflation Adjusted
Sample Scenario 002 – Total Saved – Inflation Adjusted

Copy To Your Own Planner™

If you want to use this… very basic Scenario… as a starting point for doing your own modeling, please register for a forever FREE Planner™ account and copy “Sample Scenario 002″ to your own Planner™ using the button below:

Please Login to copy this Scenario to a Free Plan, Plus Plan, Copper Plan or better.

Copy Scenario into my Real Estate Financial Planner™ Software

SS 002 Investing $100,000 in Stocks at 8.97%/yr and Earning and Spending $5,000/mo with 2 Accounts, 0 Properties, 1 Rule, 1 Goal

Consider This…

Here are a few different things to consider testing to see the impact of your changes using this Scenario as a starting point.

Increase Income

What if, after you copy the Scenario to your own Planner™, you modify the Rule for Paycheck and Personal Expenses and increase the income from $5,000 to $5,100 per month?

  • What impact does making an extra $100 per month mean?
  • Look at the Net Worth chart to see how much wealthier you end up with just an extra $100 per month. If you have Premium, consider comparing the two Scenarios on the same Net Worth chart.
  • Look at the Goal to see when you reach financial independence… that is when your investments using your Safe Withdrawal Rate that we defined in the Scenario settings page is providing you enough income to replace your income.

$100 more in income is merely a suggestion for you to start with. What if you raise it $200, $500 or even $1,000 per month. What impact does this have? Remember, if you increase your income significantly you may also want to change your Effective Tax Rate as well to better reflect reality.

Reduce Expenses

What if you live a little more frugally and are able to reduce your monthly personal expenses from $4,058.00 per month to $100 less: $3,958.00?

  • Is spending $100 per month less the same as earning $100 more month?
  • What difference does it have on net Worth? View the Chart to find out and Premium folks can view comparison Charts of more than one Scenario at a time.
  • Does this get to your financial independence faster or slower? Check out the Goals Chart to find out.

Change Your Target Income for Financial Independence

For this Scenario and Sample Scenario 001 we defined your Target Monthly Income in Retirement to be the $5,000 you were earning.

What if you really don’t need to earn $5,000 per month in retirement? What if you can “get by” on $4,500 per month? Adjust the Target Monthly Income in Retirement from $5,000 per month to $4,500 in the Scenario settings.

  • What impact does this have on when you achieve your Goal of financial independence?
  • How much quicker or slower does it take for you to “retire”, stop working and stop receiving a paycheck? You can look at the Gross Paychecks chart to see when this happens.

What If The Federal Tax Rate Changes

What if your Effective Income Tax increases? Or, what if you are able to catch some additional tax breaks and your Effective Income Tax goes lower? Adjust the Effective Income Tax under the Scenario settings to see how this will impact this Scenario.

What impact does that have on the Scenario?

Runaway Inflation?

What happens if we start to see runaway inflation? How will this impact your plans?

Adjust the Inflation Rate on the Scenario settings to see what happens if your income, expenses and your target income in retirement are all amplified over time by a higher than 3% Inflation Rate than we originally assumed.

Just Stocks

Here are some of the other “Sample Scenarios” that only have stocks in case you want to look for other ones that are similar to this one.

More posts: Scenario With Only Stocks

Scenarios with Fixed Rate of Return on Stocks

Looking for other “Sample Scenarios” that have fixed rates of return for the stock market? I thought you might, so here are some other Scenarios where the stock market rate of return is fixed for the duration of the Scenario.

More posts: Scenario with Fixed Stock Market Rate of Return

Income and Expenses

Looking for other “Sample Scenarios” that have income and expenses as a Rule? Check out these:

More posts: Scenario With Income and Expenses

Comments, Questions?

If you have any comments or questions about this Scenario (or anything else related), please do leave a comment below.

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