### Author Topic: Looking for a formula!  (Read 2554 times)

• Posts: 25
##### Looking for a formula!
« on: September 26, 2017, 09:35:15 PM »
If I could move to a really low cost of living area, like Chapala Mexico, and stop working, when would I reach my same FIRE number (\$1,125,000) through passive income/investments just accruing interest on their own?

According to the rule of 72, my investments should double on their own in about 7 years, using a return rate of 5%.  I currently have \$472K.  If I were able to reduce my annual expenses to \$20K, and stop working, how long would it take me to reach my FIRE number?
« Last Edit: September 26, 2017, 09:40:01 PM by BadassEm »

#### sparkytheop

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• Posts: 960
##### Re: Looking for a formula!
« Reply #1 on: September 26, 2017, 09:43:34 PM »

http://www.bankrate.com/calculators/savings/savings-withdrawal-calculator-tool.aspx

Started with your current balance, 5% rate of return, 50 years of \$20k withdrawals 1/year, compounded monthly.

#### sparkytheop

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##### Re: Looking for a formula!
« Reply #2 on: September 26, 2017, 09:49:45 PM »
Not sure how you're using the rule of 72, but at 5%, it takes closer to 14 years to double.  To get 7 years, you need to have a rate over 10.5%.

#### lost_in_the_endless_aisle

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• Posts: 1331
##### Re: Looking for a formula!
« Reply #3 on: September 26, 2017, 09:51:26 PM »
No, sparky seems to be right without doing all the math. Also, at 5%, your investment will double in 14.2 years, not 7, without touching the principal and reinvesting any gains:

1.05^x = 2
x*ln(1.05) = ln(2)
x = ln(2)/ln(1.05) ~=14.2 years

• Posts: 25
##### Re: Looking for a formula!
« Reply #4 on: September 26, 2017, 10:12:11 PM »
Oy, are you serious?  My next question:how should i solve this problem?  How long do you think it will take my portfolio to double in today's climate/market or reach my FIRE number?  If you were in my position, you had \$472K invested mostly in Vanguard index funds, you were considering quitting the rat race, moving to a LCOL area and spending \$20K/year, but still wanted to maintain a FIRE number of \$1,125,000, how much would you need in your portfolio in order to execute this strategy, and how many years until FIRE?

« Last Edit: September 26, 2017, 10:17:01 PM by BadassEm »

#### ysette9

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• Posts: 7630
• Location: Bay Area at heart living in the PNW
##### Re: Looking for a formula!
« Reply #5 on: September 26, 2017, 10:53:22 PM »
I feel like something is missing. Are you quitting and living off of your portfolio nowor are you continuing to invest? If continuing to invest, are you saving more each year because of reduced living expenses?

#### sparkytheop

• Pencil Stache
• Posts: 960
##### Re: Looking for a formula!
« Reply #6 on: September 26, 2017, 10:53:38 PM »
You can plug numbers into firecalc until you find a success rate you are happy with.  The current desire shows only a 73% success rate (after 50 years).  However, if you earn \$10k/year, and only have to withdraw \$10k/year (instead of \$10k), it shows 100% success rate.

If I really hated my job, HCOL, etc, but wasn't opposed to living cheap and working a "fun job" in a LCOL area, I'd probably move to the LCOL area and find a part time job.  My son had one as a weekend security guard.  12 hour shifts, about \$11/hour, and he was allowed to read, do homework, watch movies, etc, as long as he did his required rounds and readings.  Rent in our area has gone insane though, so it's not near as LCOL for a renter as it was at one time.  But, there are fun, low wage jobs out there that could work if you are willing to work.  However, spending \$20k and not working again is pretty much retiring before you are at FIRE, and will make the FI part a long time to achieve.

#### terran

• Magnum Stache
• Posts: 3476
##### Re: Looking for a formula!
« Reply #7 on: September 27, 2017, 07:46:43 AM »
I think you need to play around with the present and future value, and nper formulas a bit in excel (or google sheets).

For example with a 5% after inflation return, spending 5 years in the LCOL location, \$20k withdrawals, and a desired final portfolio value of \$1,125,000, =PV(0.05,5,-20000,1125000) tells us you would need a total of \$794,877.40.

Going the other way, the same 5% return, 5 year time frame, \$20k withdrawals and your current portfolio value of \$472K, =FV(0.05,5,-20000,472000) tells us you will have \$491,892.27

With a 5% return, \$20k withdrawals, \$472k present value and \$1,125,000 furture value =NPER(0.05,-20000,472000, -1125000) tells us it will take 47.33 years.

Don't let the decimals in any of this fool you. There's nothing precise or scientific about this because the average rate of return is totally up in the air and they certainly won't be constant.

In fact, your current portfolio won't even support your desired withdrawal rate using the commonly accepted 4% "rule" let alone a more reasonable (in this CAPE environment. See: https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/) 3.5% withdrawal rate. So even if you weren't hoping grow your portfolio, retiring with \$472k and \$20k in expenses would be risky given sequence of returns risk.

#### Playing with Fire UK

• Magnum Stache
• Posts: 3403
##### Re: Looking for a formula!
« Reply #8 on: September 27, 2017, 08:06:06 AM »
What are you spending now? How much did you add to the stache last year?

I'm not familiar with Chapala Mexico, but \$20k goes a long way in many LCOL places in the world. If you could cut the expenses in Mexico, we might be able to get you to FIRE there... any interest in that?

If your work can be done remotely (even part time) from a LCOL area that could bring the FIRE date earlier.

#### Laura33

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• Posts: 2921
• Location: Mid-Atlantic
##### Re: Looking for a formula!
« Reply #9 on: September 27, 2017, 08:54:07 AM »
I don't quite follow this:  if you can retire to a LCOL and live off your 'stache indefinitely, aren't you already FIRE in that area?  Why would you need the 'stache to continue to grow?  Are you envisioning the LCOL as sort of a "temporary" FIRE before you move back to where you really want to be?

My rule of thumb, based on said rule of 72, is that an existing 'stache will just about double every decade - assuming you do NOT draw from it.*  So one option would be to move to a LCOL area now and work a low-pay job that covers your expenses for 12-15 years, until your 'stache hits your target amount (or work until your 'stache hits around half of your desired total, then move and do the subsistence job for a decade or so -- pick the combination of 'stache size and years to FIRE that suits you).

But if you need to draw anything from the 'stache, that is going to significantly extend the timeframe before you hit your permanent FIRE target -- if your 'stache earns around 7% after inflation, and inflation is 2%, and you withdraw 2% of the 'stache value to live on, then your "real" growth for that year is only 3%, which pushes you out to @24 years.

*This also ignores inflation, which becomes meaningful in projections over several decades.  E.g., if you think the market is going to return 8% on average over the next two decades, and that inflation will stay low like it has been (say 2%), then your after-inflation return is only 6%, which means that it will take 12 years for your 'stache to double (in purchasing power) instead of 9 (when it doubles in terms of pure monetary value).

• Posts: 25
##### Re: Looking for a formula!
« Reply #10 on: September 30, 2017, 11:57:24 AM »

http://www.bankrate.com/calculators/savings/savings-withdrawal-calculator-tool.aspx

Started with your current balance, 5% rate of return, 50 years of \$20k withdrawals 1/year, compounded monthly.

Love this calculator @sparkytheop, thanks so much!!

• Posts: 25
##### Re: Looking for a formula!
« Reply #11 on: September 30, 2017, 12:24:59 PM »
Thanks all for the great intel!

@ysette9: I’m not quitting yet to live off my portfolio, I therefore need to continue living in my HCOL city while I save & grow my stache.

@sparkytheop; again, great information!  Earning \$10K a year is soo doable.  I could waitress or bartend on a seasonal basis and quit the rat race.  Amazingly, my favorite jobs as a teenager and college student were in the food service industry…  Though I imagine it could suck as a middle aged person lol.  I’d also love to have a part-time gig at a university that would allow me to take classes tuition free…

@terran; thanks so much for the intel, your formulas a great…

@Playing with Fire UK: I’m spending \$45K - \$50K this year with a take home pay of \$111K after taxes.  Everything else pretty much goes in my stache.  I know I need to reduce my spending…

@Laura33: I still want my stache to reach my target of over \$1M, as even if I move to a LCOL area, I want to keep my options open.  My family lives in a HCOL area, so if I ever need to move back, I’d need to be able to afford it.

Thanks again!!

#### sparkytheop

• Pencil Stache
• Posts: 960
##### Re: Looking for a formula!
« Reply #12 on: September 30, 2017, 02:31:44 PM »
Thanks all for the great intel!

Amazingly, my favorite jobs as a teenager and college student were in the food service industry…  Though I imagine it could suck as a middle aged person lol.  I’d also love to have a part-time gig at a university that would allow me to take classes tuition free…

I hated working food service, but...  There is a local restaurant that has a group of retired people who use the "large table" every morning, where they all sit and drink coffee.  There are about 10 tables?, one room.  I think being an early morning waitress there could be fun.  I get along really well with "old people" :)

Free classes would be great too-- I keep thinking I need to look into a ceramics class that would fit with my work schedule.  I enjoyed that class.