### Author Topic: Silly Question: How Do I Calculate Retirement Date?  (Read 896 times)

#### sunflower_yellow

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• Posts: 58
##### Silly Question: How Do I Calculate Retirement Date?
« on: December 07, 2017, 09:48:03 AM »
I'm not particularly interested in FIRE as a goal, but I wonder if my family might get there accidentally (which, of course, makes me wonder how much more quickly we could get there if we actually worked toward that goal).

I know our approximate annual expenditure. Per MMM himself, multiply that by approximately 25 to get a rough guesstimate of the necessary nest egg.

I know how much we are saving for retirement/ generally investing each month, and I know how much we have "saved" to date.

I put "saved" in quotes, because that amount is partially our actual savings, and partially the investment returns on that principle. Lemme tell you, there's no way we're going to be able to retire early without investment returns, and it might be difficult to retire at all without them!

So, when calculating how long I expect it will take for our family to become financially independent, how do I factor in investment returns? Let's say I am aiming for approximately \$900,000 in "savings" - how much do I actually need to save, and how much might I count on the magic of compounding interest?

How have you all calculated your retirement dates?

Please and thank you!

#### PhilB

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##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #1 on: December 07, 2017, 10:03:52 AM »
There are various online tools or ways of calculating net present value of future returns, but the easiest thing is probably a simple spreadsheet.  I usually just use ones that have columns:
A2  B/Fwd  -the amount at the start of the year - plug in your starting point on first row and = c/fwd from previous year thereafter
B2  Contribution - the amount saved each year
C2 Investment Income =(A2 +B2/2) * E\$1
D2 C/Fwd = sum(A2:C2)
In cell E1 you put your budgeted real investment growth %age - I personally use 4% generally.

Keep adding rows to the spreadsheet until you get to your target.
« Last Edit: December 07, 2017, 11:20:33 AM by PhilB »

#### sunflower_yellow

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• Posts: 58
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #2 on: December 07, 2017, 10:27:24 AM »
There are various online tools or ways of calculating net present value of future returns, but the easiest thing is probably a simple spreadsheet.  I usually just use ones that have columns:
A2  B/Fwd  -the amount at the start of the year - plug in your starting point on first row and = c/fwd from previous year thereafter
B2  Contribution - the amount saved each year
C2 Investment Income =(A2 +B2/2) * E\$1
D2 C/Fwd = sum(A2:B2)
In cell E1 you put your budgeted real investment growth %age - I personally use 4% generally.

Keep adding rows to the spreadsheet until you get to your target.

Oh my! It can be that simple? I have a very similar one to calculate the estimated date our mortgage will be paid off. I do love spreadsheets.

A few follow up questions:
In column C, why do you divide B2/2?
In column D, shouldn't it be =SUM(A2:C2)?

Thank you!

#### SC93

• Bristles
• Posts: 358
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #3 on: December 07, 2017, 10:32:36 AM »
This might help some people that read this in the future.

https://www.chrishogan360.com/riq/

#### PhilB

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• Posts: 116
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #4 on: December 07, 2017, 11:20:13 AM »
There are various online tools or ways of calculating net present value of future returns, but the easiest thing is probably a simple spreadsheet.  I usually just use ones that have columns:
A2  B/Fwd  -the amount at the start of the year - plug in your starting point on first row and = c/fwd from previous year thereafter
B2  Contribution - the amount saved each year
C2 Investment Income =(A2 +B2/2) * E\$1
D2 C/Fwd = sum(A2:B2)
In cell E1 you put your budgeted real investment growth %age - I personally use 4% generally.

Keep adding rows to the spreadsheet until you get to your target.

Oh my! It can be that simple? I have a very similar one to calculate the estimated date our mortgage will be paid off. I do love spreadsheets.

A few follow up questions:
In column C, why do you divide B2/2?
Because on average your current year contributions are only there for 6 months
Quote
In column D, shouldn't it be =SUM(A2:C2)?
Oops!  It should indeed.  Corrected.

#### sunflower_yellow

• 5 O'Clock Shadow
• Posts: 58
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #5 on: December 07, 2017, 11:41:34 AM »
Because on average your current year contributions are only there for 6 month

Ah yes, I see.

So, really what I need to do is create a row for each month, and in column E, enter the expected monthly return.

(Alternatively, enter no contributions for the first year, and in the second year, calculate 100% of the previous year's contributions being present for 100% of the following year?)

Anyway. Changing absolutely nothing about our lifestyle except investing our daughter's daycare payment when she enters public school and investing our mortgage payment when we pay off our mortgage in 2026, it looks like my husband and I could easily retire when we turn 48/50 (we are 33/35 right now). Wonder what we could do if we really tried...

#### PhilB

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• Posts: 116
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #6 on: December 07, 2017, 02:39:35 PM »
There's really no point doing it at the row per month level - given the variability you can expect in investment returns that would be a prime case of measuring with a micrometer and cutting with an axe.  Great to hear that you are on track for 50 or below.  Add in a few pay rises without accompanying lifestyle inflation and you will really be flying.
The more interesting question for me is what happens if you continue the spreadsheet beyond the FI point?  The money snowballs like crazy and that's where you really have to stop and think about whether all that extra is actually worth anything to your happiness or not.

#### MDM

• Walrus Stache
• Posts: 7187
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #7 on: December 07, 2017, 02:40:46 PM »
How have you all calculated your retirement dates?
Excel's NPER function will do it in one cell (if you know the function's inputs).

For a "time to FI" formula derivation, see http://forum.mrmoneymustache.com/ask-a-mustachian/fire-in-8-years/

#### sunflower_yellow

• 5 O'Clock Shadow
• Posts: 58
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #8 on: December 07, 2017, 03:07:15 PM »
The more interesting question for me is what happens if you continue the spreadsheet beyond the FI point?  The money snowballs like crazy and that's where you really have to stop and think about whether all that extra is actually worth anything to your happiness or not.

The money certainly won't add any more happiness.

The work that it takes to earn it - absolutely, it does.

(I say this as a 35-year old working a job that I genuinely enjoy, that challenges me and helps me grow, for a company that does good in the world, working for a boss that I admire. A lot can change in 15 years...)

RE: pay raises - my husband and I both work a little less than full time. Once our child is a little older, we'll get a pay raise by virtue of returning to full-time work (maybe?).

I think the point of FIRE is more FI and less RE. Wouldn't it be great to continue working on something that is challenging and worthwhile, but would never pay the bills? Tutoring math and science to children underrepresented in STEM career fields... volunteering for more in my religious community... helping at the community garden... assisting a non-profit with organizational development... so many things to do, so little time. But much more time if I could recoup the time spent working!

Is that what you mean?

#### sunflower_yellow

• 5 O'Clock Shadow
• Posts: 58
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #9 on: December 07, 2017, 03:08:38 PM »
Excel's NPER function will do it in one cell (if you know the function's inputs).

:-O

#### WSUCoug1994

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• Posts: 220
• Location: Bay Area, California
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #10 on: December 07, 2017, 03:57:01 PM »
https://www.schwab.com/public/schwab/investing/retirement_and_planning/saving_for_retirement/retirement_calculator

this will basically get you to the same place - sort of - once you have entered your data there are sliders at the end you can play with if you want to go the Excel route.

#### Bateaux

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• Posts: 849
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##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #11 on: December 07, 2017, 05:30:40 PM »
Find out how much health care will cost annually when you're 60.  Multiply x 25.  Then, multiple all the other things you need to live for a year by 25.  Simple.
“Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.”
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##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #12 on: December 07, 2017, 05:45:03 PM »
How have you all calculated your retirement dates?

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Here is ^^^ a simple calculator. Just plug in:

- savings to date
- expected return after inflation
- years to retirement

....It will give you an amount invested that many years in the future in today's dollars. A couple tries should get you to to an estimated number of years till you hit your FIRE \$\$ target. The nice thing is anyone in your family above 10 can play with it and see the numbers for themselves depending on who you are wanting to show this to.

#### sunflower_yellow

• 5 O'Clock Shadow
• Posts: 58
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #13 on: December 08, 2017, 08:03:26 AM »
Find out how much health care will cost annually when you're 60.  Multiply x 25.

May I borrow your crystal ball? :-D

Yes, that will get me to the amount needed to retire... but to figure out how LONG it would take to accumulate that much in investments, I can't simply divide by the amount per year that I'm saving, as that ignores the magic of compounding interest.

But yes, the "take your annual spending and multiply it by 25" rule of thumb is indeed how I calculated the amount needed!

--------------------------

Thank you to Retire-Canada and WSUCoug1994 for the calculators. I'll play around with them when I have a chance. The hard part is deciding what a "safe" rate of return would be... the shorter the horizon, the more difficult the question.

Now that I know I'm looking at closer to a 15-year horizon, rather than a 30-year horizon, I'm wondering if I need to re-examine my risk tolerance, as well. Then again, as I mentioned above, I'm not particularly attached to the idea of retiring early, so I suppose if I had to work a few years longer to ride out a bear market, meh, no big deal.
« Last Edit: December 08, 2017, 08:06:00 AM by sunflower_yellow »

• Walrus Stache
• Posts: 5254
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #14 on: December 08, 2017, 08:46:16 AM »
You can calculate 5%, 7% & 9% returns which will give you a range of dates to plan with. Nobody  knows what will happen so there is no way to pin down a specific date

#### maizeman

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##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #15 on: December 08, 2017, 09:16:55 AM »
But I think part of Bateaux's point is you should add in the cost of buying private health insurance to your current annual spending (assuming your family currently receives subsidized health insurance through one of your employers). On the plus side, since you're planning to pay off your mortgage you could also subtract out the portion of your mortgage payment currently going to principle and interest in calculating you corrected annual spending needs for FIRE.
"It’s a selective retirement," Richard explained, "a retirement from boring s**t."

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#### moof

• Bristles
• Posts: 398
• Location: Beaver Town Orygun
##### Re: Silly Question: How Do I Calculate Retirement Date?
« Reply #16 on: December 08, 2017, 04:22:33 PM »
I'm not particularly interested in FIRE as a goal, but I wonder if my family might get there accidentally (which, of course, makes me wonder how much more quickly we could get there if we actually worked toward that goal).
...
While you might become financially independent "accidentally", I don't recommend it.

Ten years ago I was mostly maxing out my 401k, and little else.  I enjoyed my job and fully expected to keep liking my work until I was in my 60's or beyond.  In the intervening time I have been through all sorts of BS in my career that has sucked the fun out of it and left me wanting out.  My current job is tolerable, pays well, but the idea of working another 20 years into my 60's is just miserable.  My priorities are now more family oriented more than work oriented and I look back wishing I had spent less and saved more.

I now have about 7 years left before I can FIRE.

It is far better to be financially independent and still working because you are lucky enough to love your work that much rather than to be in the opposite position of hating work and have no real option of quitting.