Fire cohort - how to figure which year?

[tampaite]

Say, our annual expenses is about 80k and we have saved 500k in retirement account so far and annual savings is about 40k.

How to calculate our fire cohort year?

[achvfi]

I would start with 4% rule, if you learn more about it you will see that you will need

25 x Annual expenses  ( 25 x 80K= 2  million)

to be relatively, safely financially independent for 30 years.

It will take about 12 years for 40K savings addition to existing 500K per year at 7% compound rate to reach 2 million.

So add 12 years to 2019,  2031 Cohort. This is a starting point. You can make it all kinds of adjustments to calculation depending on your risk profile.

[nereo]

what achvfi said... but then I'd advise going on a financial diet and shrinking that annual spend rate.

going from $80k/year to $64k/year trims $400,000 off of your "FI" number, and gives you an extra $16k to save.  That results in trimming about 40 months off your FI/RE date, putting you firmly in the 2028 cohort. That level of spending still exceeds about 80% of households in the US.

Want to go deeper?  cut expenses down to $40k/year (still solidly middle class levels) and you could cut out by 2023 - just four years from now.

[jeroly]

It’s a whole lot more complicated.

1. You need to calculate your ‘stache based on what your spending will be in retirement not what it is now.  You may need to pay more or less for healthcare, for example, and there will be other expenses (dry cleaning work clothes, commute costs, etc.) that will go away while others will emerge (more travel, new hobbies, etc.).  You may also have paid off your mortgage by then or become eligible for senior rates on property taxes.

2.  You can factor in some expected income from social security (to be conservative take 75% of the amount calculated by the SSA to reflect the chance that current funding does not change and payouts need to be reduced to match the level of payroll tax receipts).

3.  If you think that you will be able to reduce your spending if the market crashes, and/or you anticipate that your spending will decline over time as you age, you can use a higher withdrawal rate than 4%.  Bogleheads has an interesting calculator for using variable percentage withdrawal where your withdrawal amounts change monthly based on your current liquid net worth.

4.  If you plan a super-early retirement and are not prepared to return to work in the event of a major market correction, you may need to use a lower withdrawal rate to assure yourself of not running out of money. Some folks use as low as 2% for 60 year timeframes.

There’s a lot more but those points are a good starting point for thinking about it all.

[Arbitrage]

Thank you all.

Will target for $2M since the $80k is the current actual annual expense with little room for cuts but may likely go up for next decade or so(kids will be in college) so saving more likely will get harder unless our income changes significantly higher.

2031 or 2028,the year itself likely doesn't matter since end goal is the $2M target.

Though it's all just an academic exercise, especially that far out, keep in mind that inflation will affect your FIRE target.  $80k or $2M in 2031 is not the same as $2M today.  Inflation has been very tame since the Great Recession, but if we revert to the historical norm of 3% or so, then that $2M in 2031 will only be about $1.45M in today's dollars, supporting an annual spend of about $58k. 

[Metalcat]

Though it's all just an academic exercise, especially that far out, keep in mind that inflation will affect your FIRE target.  $80k or $2M in 2031 is not the same as $2M today.  Inflation has been very tame since the Great Recession, but if we revert to the historical norm of 3% or so, then that $2M in 2031 will only be about $1.45M in today's dollars, supporting an annual spend of about $58k.

great suggestion. I think by 2031, we will be closer to getting social security and we are definitely counting it to continue to meet the $80K spend in 2030s

Harder part is continuing to save at current rate, be employed and hope that markets would return positive gains for next 2 decades.

I really recommend you do some reading, the MMM blogs, JL Collins, or even the Choose FI podcasts, etc, so that you can better understand your options and realize that what you really want is a massive recession within the next 2 decades.