Author Topic: Question About the MMM Calculations  (Read 3007 times)

oldtoyota

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Question About the MMM Calculations
« on: July 08, 2013, 12:34:56 PM »
Hi there--

In the Shockingly Simple Math to Early Retirement, MMM lays out a chart that shows how work years can be reduced by increasing savings.

The chart assumes a net worth of zero.

Anyone have a formula or spreadsheet that would allow me to input a current net worth and still figure out the calculation?

dragoncar

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Re: Question About the MMM Calculations
« Reply #1 on: July 08, 2013, 01:21:27 PM »
It stops being shockingly simple because then you need to include your annual expenses.  In that case, it's easier to just multiply your annual expenses by 25, subtract net worth, and divide by annual savings. 

velocistar237

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Re: Question About the MMM Calculations
« Reply #2 on: July 08, 2013, 01:51:53 PM »
T = ln([1+ROI*(1/SR-1)/SWR]/[1+ROI*(1/SR-1)*AoE])/ln(1+ROI)

T = time to retirement, in years
ROI = return on investment during accumulation, in real terms (4% is 0.04)
SR = savings rate (50% = 0.5)
SWR = safe withdrawal rate
AoE = assets over expenses, number of years worth of expenses you have saved

Edit: fix equation
« Last Edit: July 19, 2013, 12:53:23 PM by velocistar237 »

snshijuptr

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Re: Question About the MMM Calculations
« Reply #3 on: July 08, 2013, 01:59:44 PM »
Or you can use FIREcalc and put in different contributions. That's what I do.

arebelspy

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Re: Question About the MMM Calculations
« Reply #4 on: July 08, 2013, 02:03:34 PM »
Here.

Networthify.

It's one of the best online ones.
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.

psu256

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Re: Question About the MMM Calculations
« Reply #5 on: July 08, 2013, 03:27:19 PM »
It stops being shockingly simple because then you need to include your annual expenses.  In that case, it's easier to just multiply your annual expenses by 25, subtract net worth, and divide by annual savings.

Yeah, but don't forget ROI. If you use the 25x annual expenses method, I like to mess with http://www.bankrate.com/calculators/savings/saving-goals-calculator.aspx

dragoncar

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Re: Question About the MMM Calculations
« Reply #6 on: July 08, 2013, 04:51:03 PM »
I hand wave ROI because its not significant at high savings rates, and not even high likelihood of being positive over short time frames (I'm negative right now)

oldtoyota

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Re: Question About the MMM Calculations
« Reply #7 on: July 08, 2013, 08:54:50 PM »
Thank you, all. You are extremely helpful!