What Will FastTrack Do for Me?

Updated 01/31/14

The following is the story of a typical FastTracker. Our hero is a composite of many conversations with FastTrackers over the years. As we move into the new millennium, we assume that it won't be as easy as it was in the 1990's to get 20%+ annual returns.

Our FastTracker was born in 1945. Wife born in 1948. In late 1997, he sold his small chemical services company to a much larger company for $350,000(after taxes). Over his years starting the company, he had sunk every penny he had  into it. Other than his home in California, his net worth was entirely from the sale of the company. He will be retained to operate the new division and an annual salary of $120,000 through age 65. He will participate fully in the company's 401(k) plan. He and his wife plan to live on $70,000 (today's dollars) annually both after retirement and $75,000 annually before retirement. All excess income will be invested in the 401(k) to the maximum extent and then in taxable investments.

Can he retire in Comfort at age 65 in 2010

We used Quicken Financial Planner's highest return investment recommendations. Pre-retirement, our hero will invest in a mix of domestic and international stocks and will net 10% annually before taxes. Post- retirement, he will live on a mix of 75% bonds and 25% stocks. This mix nets 8% annually before taxes. The home is projected to be sold on his demise in 2028.

Note: Everything is reported in today's dollars assuming no inflation of income, returns, and no corresponding increases in expenses. We could use Quicken to figure everything in inflated dollars without changing the success or failure of the plan.

The plan succeeds to the extent that our hero lives comfortably till he departs in 2028. BUT the plan continues to the average life expectancy of his wife. In reality, she might easily live a healthy life for 10 years beyond the plan's end leaving her penniless for her last 20 years. More return is needed.

Better: FastTrack Helps You Do Better

With FastTrack it is reasonable to expect that our fellow can increase his pre-retirement returns to 12% and post-retirement returns to 9%, a very modest improvement from 10% and 8%. The following results:

Of course, this doesn't leave anything much for the kids or to cover the wife for 10 years beyond the plan, but it is a BIG improvement.

Even Better

Add 1% more to both pre and post-retirement return, now standing at 13% and 10%. The following results:

This is a scenario that literally never runs out of money even through 2047. Further, it should leave several hundred thousand dollars to the kids tax-free. A little bit of extra return produces BIG benefits even for investors beginning to plan late in their working lives.

Retire Early?

Here's what happens to our "Even Better" scenario if our subject retires three years early at age 62.

Retiring early is difficult. This scenario would work a 1.5% increase post-retirement return to 11.5%. Pre-retirement increases would help, but they wouldn't be enough in themselves since the period is so short. Also, age makes it tougher to focus on investing working against investors taking too much risk.