Retire Ch -1 Intro Flashcards
What is the basis of the 25 times annual expenses target for financial independence under the FIRE movement?
It attempts to create a larger asset base than normal retirement strategies. It is an arbitrary number chosen as a goal. It allows for annual investment income equal to 4% of accumulated assets to cover expenses. It is based on average returns in the stock market.
The correct answer is: C
The 25 times expenses target comes from the 4% safe withdrawal rate used in retirement planning. At a 4% withdrawal rate, 25 times expenses would generate investment income equal to annual expenses.
Choice A is incorrect. The asset base created is equivalent to that in retirement strategies, 25x expenses so that one can have a 4% withdrawal rate. While additional growth would be beneficial, the purpose of 25 times expenses is to generate sufficient investment income at a 4% withdrawal rate to cover annual expenses.
Choice B is incorrect. The 25 times target is not an arbitrary number, but rather is based on the safe withdrawal rate concept.
Choice D is Incorrect. While historical market returns are important, the 25 times expenses target specifically comes from the safe withdrawal rate of 4% used in retirement planning.
Each of the following describe a potential source of money conflict EXCEPT:
Determining the work life balance and deciding which partner will fulfill the roles of the family. Establishing and working towards savings goals. Categorizing spending between wants and needs. One partner controlling all financial decisions, often referred to as financial enabling
The correct answer is D.
Choices A, B, and C are all true statements and are causes of potential money conflict.
Financial enabling is displayed by continuing to give money in ways that keeps the recipient from taking responsibility and solving their own problems.
What choice D is describing is undue financial influence, which is displayed when one partner exerts control over decisions concerning finances.
