![]() I started out in my early 20s, and am pretty close to being financially independent by my early 30s. Formulae: (Annual spending 25) Retirement portfolio 50,000 25 1.25 million. Starting out as early as possible helps tremendously too. For example, If your annual spending is 50,000 per year, by saving 25X of annual spending you can achieve early retirement. However, we can somewhat control our savings rate, and the investments we make. We have no control over stock market returns, or expected dividend growth rates. What this exercise shows you is that you need to focus on things within your control, in order to reach your goals. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. This post was inspired by this article from the Mr Money Mustache blog. Early retirement reduces benefits In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. For those who strive to retire early, it is quite possible that they will exclusively rely on the income produced from their investments. It details how frugality is able to slash the time it takes to reach Financial Independence (FI). Money Mustache, we talk about all sorts of fancy stuff like investment fundamentals, lifestyle changes that save money, entrepreneurial ideas that help you make money, and philosophy that allows you to m. Money Mustache articles is the Shockingly Simple Math post. This is the blog post that shows you how to be wealthy enough to retire in ten years.Here at Mr. In most situations, a person would have pension income and social security income or even some part time job income to rely upon, when they retire. The Shockingly Simple/Complicated/Random Math Behind Saving For Early Retirement One of my favorite Mr. I am also assuming that this investment income is the only income to provide the essentials for a basic retirement income. 36,000 each year is 4 of a 900,000 total retirement savings nest egg. ![]() If your expenses will cut back to 80 of that number in retirement, it means youll expect to spend 36,000 a year. Lets say you have current expenses of 45,000 a year. It’s not going to be a smooth path up to your FIRE number. Its the same math whether you retire early or later. Pull the pin in 1969 and you’d have run out of money in 1996. More complications are probably going to confuse people, rather than make it clear for them. Retire in 1968 with a million dollars (inflation adjusted) all in Aussie equities and you’re up to nearly 5 million as of 2016. If you spent 55,000 to maintain your lifestyle, then you need the equivalent of 55,000 a year starting at age 57. I also am ignoring the effect of taxes on investment income, since everyone’s taxes are different, and I didn’t want to complicate too much this simple truth. Jot down the amount of money you spent last year. I assume a “real salary” that does merely keep up with inflation, and investment returns that are also “real” and therefore are after inflation. You can download it, and play with your own assumptions. You can view the spreadsheet behind the calculations from this link. This chart shows how long it would take for the investment income to exceed the amount of savings, given the return, the dividend growth, dividend reinvestment and savings assumptions.
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