As I’ve discussed in prior blog posts, Mrs. Miser isn’t entirely sold on financial freedom. She is super supportive and excited to reach it, but she is definitely more tempted to spend than I am. At times we butt heads about spending that I deem frivolous and she deems typical. The fact we can discuss it and usually come to a compromise is a great part of our marriage. I truly believe the ability to compromise is key to any successful relationship. [Read more…] about Have Your Cake And Eat it Too
We’ve already seen how easy it is to calculate how long it will take you to retire using the simple savings rate calculator, but what if you are trying to figure something else out, specifically, how much money you need in order to be able to retire?
There is a little shortcut to reaching this figure and it’s known as “the 4% rule”, or the “safe withdrawal rate” in other circles.
The safe withdrawal rate, or 4% rule, tells you exactly how much you can spend during your retirement, without your money running out.
Now that might sound really simple, but it’s actually quite an elusive figure to accurately estimate. There are various different assumptions that need to be made, most of which you simply cannot know in advance. One of the major assumptions is how much inflation there will be between now and when you retire. Will your rent remain at $1,500 a month, or be closer to $2,500? You can’t possibly know that.
People can make wild guesses, maybe you need a million, two, five? A more accurate way to calculate it could be to multiply your annual expenses by a certain figure. If you’re following the 4% rule, you simply multiply your annual expenses by 25, and that is what you would need to be able to live off of. However, this is also a ballpark figure, more conservative people may want to use a rule of 3%, multiplying their annual expenses by 33.3 instead. Assuming your annual expenses are $50,000, the rule of 4% states you will need $1,250,000 to retire, whereas a 3% rule gives $1,665,000. Let’s assume you go with 4%, where does this number come from? [Read more…] about How Much Money Do I Need to Retire?
For any veterans of the financial independence / early retirement world, you’ve probably already ingrained this calculation into your brain, never to be forgotten. You might even have a poster on your wall that you bow down to each night that simply states four words, “Maximize Your Savings Rate”.
This article might not add a lot of value to you if you are one of these people, but there are many, many people who don’t really know the simplicity of financial independence, and this calculation is basically the gospel that the entire financial freedom world is based upon. So for those who aren’t familiar with this, let’s get to business.
When searching for an online retirement calculator, you will be inundated with bloody tons of them. This leads people to get all flustered and confused, only to turn to the dreaded financial advisor who will probably recommend some God awful GIC to you. Anyway, the truth is it’s not hard at all to calculate when you can retire, all you need is a bit of data on your earnings and expenses, and a couple of assumptions along the way, and you’re golden. [Read more…] about The Only Calculation Needed to Determine Your Expected Retirement Date