Author Topic: the-shockingly-simple-math-behind-early-retirement question  (Read 7195 times)

fmzip

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the-shockingly-simple-math-behind-early-retirement question
« on: November 20, 2013, 07:03:58 PM »
I read the article below and have a question.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

If I am currently at a 36% savings rate, its says starting with zero, it would take me roughly 25 years to retire.

Is there a calculator that can be used to also plug in your current savings? Or is not that simple?

Where I am at, $4122 take home biweekly, $1500 saved

Current savings, $482,000. How many more years to call it quits based on ROI of 7-8%?

Thanks for the help




LauraG

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #1 on: November 20, 2013, 07:27:10 PM »
This little model based on the "shockingly simple math" concept should help you with your calculations: http://networthify.com/calculator/earlyretirement?income=50000&initialBalance=0&expenses=20000&annualPct=5&withdrawalRate=4

fmzip

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #2 on: November 20, 2013, 07:43:31 PM »
Thank you!

Damn, need to save more. 14.1 years is too long! :)

Our social security benefits would already been paid out 12 years from now at age 62. $3300 per month, that covers a large percentage of what we need.


Would be nice to find a calculator that you could edit the return field and the assumption of same expenses after retirement as well
« Last Edit: November 20, 2013, 08:35:30 PM by fmzip »

huadpe

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #3 on: November 20, 2013, 08:48:56 PM »
I read the article below and have a question.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

If I am currently at a 36% savings rate, its says starting with zero, it would take me roughly 25 years to retire.

Is there a calculator that can be used to also plug in your current savings? Or is not that simple?

Where I am at, $4122 take home biweekly, $1500 saved

Current savings, $482,000. How many more years to call it quits based on ROI of 7-8%?

Thanks for the help

Not a super simple calculator, but FIREcalc is awesome.  You can plug all that in and get an answer, simulated to every market condition since the mid-1800s.  http://www.firecalc.com/

arebelspy

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #4 on: November 20, 2013, 10:51:26 PM »
http://www.cFIREsim.com is a better, more updated version of FIRECalc.

You can edit the return assumptions on Networthify - click the "show more options" button. 

As far as editing your expenses in retirement on it, just rijigger the numbers (including your income and current expenses) to make it match your expected proportionally.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Left

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #5 on: November 21, 2013, 04:25:13 AM »
hm... says I can retire in 2027 or so, seems so far away :(

schimt

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #6 on: November 21, 2013, 05:14:34 AM »
2027 does seem far away, but don't forget the biggest raise you can give yourself is to reduce you spending! And also by reducing spending, you can reduce your stache goal because you will be financially independent sooner, assuming you need less passive income from your investments.

You also have the option of building a stache that is large enough to semi support you and allow you to just do some side work to support your needs.

There are so many options! That what I am most excited. Right now I have FI in mind, but I have no clue what I will decide in years to come, regardless of the final decision, we will all be in the position to make that decision, as oppose to other who are stuck in the rat race to pay for their consumerism.

fmzip

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #7 on: November 21, 2013, 06:03:45 AM »
http://www.cFIREsim.com is a better, more updated version of FIRECalc.

You can edit the return assumptions on Networthify - click the "show more options" button. 

As far as editing your expenses in retirement on it, just rijigger the numbers (including your income and current expenses) to make it match your expected proportionally.

Thanks,

Where is "networthify"?

catccc

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #8 on: November 21, 2013, 06:48:39 AM »
http://www.cFIREsim.com is a better, more updated version of FIRECalc.

You can edit the return assumptions on Networthify - click the "show more options" button. 

As far as editing your expenses in retirement on it, just rijigger the numbers (including your income and current expenses) to make it match your expected proportionally.

Thanks,

Where is "networthify"?

that was the first reply by LauraG, I think...

fmzip

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #9 on: November 21, 2013, 07:14:37 AM »
The networthify link is dead.....

arebelspy

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #10 on: November 21, 2013, 07:32:16 AM »
Indeed, it does seem to be down.

http://www.networthify.com/calculator/earlyretirement

It was up yesterday, so try again later.  If it still isn't working, the author is here on the MMM forums, so you can try to PM them and inquire.

In the meantime, use cFIREsim for a robust tool, or some of these for a quick one:
http://www.calcxml.com/calculators/retirement-calculator?skn=#results
http://www.marketwatch.com/retirement/tools/planner
http://heliosophiclabs.com/~mad/RetCalc/html/retsim.html
http://www.dinkytown.net/java/RetirementPlan.html

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Heart of Tin

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #11 on: November 21, 2013, 04:34:12 PM »
You don't need to work for 14 more years under these assumptions. I can't recommend any online calculators, but I can do the math for you based on what you've already given us.

We can break your situation down into two time periods: before social security and after social security. After social security, you will be getting $39,600 per year in income from the government lowering your current $68,172 in expenses to only $28,572 that needs to be covered by investment income. Following the 4% safe withdrawal rate, you will need $714,300 in twelve years to sustain this spending level. At 7% interest you would need $714,300*(1.07)^-12 = $317,157.70 in today's money to secure this retirement income.

Congratulations! You already have enough to retire twelve years from now. If we reserve that $317,157.70 for later, we are left with $482,000 - $317,157.70 = $164,842.30 in unreserved savings.

That takes care of the period of time after social security, but what about the next twelve years, before social security? According to the above math and the information you provided, you have $164,842.30 in unreserved savings, a yearly income of $107,172, and yearly expenses of $68,172. What we need to figure out is how many years the $107,172 income will need to accrue to provide for twelve years of $68,172 in yearly expenses with $164,842.30 in current savings. Since we know that the $68,172 yearly expenses will occur each year for the next twelve years, we can find that the present value of these expenses is $541,468.81 at 7 % interest (for more information on how to calculate this look up time value of money and annuity valuation). That means we need $541,468.81 - $164,842.30 = $376,626.61 in salary discounted at the 7% rate. Using a salary of $107,172 we find that only 4.1733 years are needed to earn this much.

If you want to stay more consistent with your after social security withdrawal rate, then we can value the expenses at a 4% rate instead of 7%. In that case, $639,799.25 is the present value of your expenses over the next 12 years necessitating $474,956.95 in salary discounted at the 7% rate (since we're still assuming 7% ROI). 5.498 years will be needed to earn this much.

As always, keep in mind that real returns are not usually guaranteed, and fluctuations in ROI, especially during the early years of retirement, will affect how long your savings last. Also, the above example assumes level expenses and does not take into account taxes or inflation. Additionally, all calculations were performed using nominal yearly values compounded at the end of the year; in real life money would be going out or coming in at various time throughout the year. YMMV on how applicable these numbers are to your real world situation.

fmzip

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Re: the-shockingly-simple-math-behind-early-retirement question
« Reply #12 on: November 21, 2013, 05:47:12 PM »
Thanks for all that information!

The clearest part was that I already have enough to retire 12 years from now :)

You lost me on the rest!

To make it simple, if we can save $50K per year starting now, when can we call it quits based on our current expenses
« Last Edit: November 21, 2013, 05:52:34 PM by fmzip »