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About Our Early
Retirement Calculator​

I’m always talking about financial independence and the value of protecting your time. But when could you actually retire?

Well, that’s a difficult question to answer… which is why I created the early retirement calculator.

The calculator works fairly simply and should give some insight into your own timeline. Have a play around – you may be surprised by how soon retirement is possible. For the best results, I also highly recommend reading the full details below.

How the Early Retirement Calculator Works

The calculator is actually fairly straightforward – despite taking me an unreasonable amount of time to create!

It basically calculates two things. The first is the amount of money that you’ll need to retire early. This is calculated using your yearly spending, and the withdrawal rate you’re going to use (more on this later).

The second number calculated is the growth of your portfolio over time. To do that, we consider your current investment portfolio as well as your yearly savings. We then factor in your compound interest*. You’ll be able to retire early when your investment balance reaches the required total amount.

Note: The calculator assumes your investments are in one asset (usually a stocks and shares index fund). To include individual stocks or cryptocurrencies would be far too complicated – think of them as a bonus!

Input Variables

The first input variable is easy – Yearly Net Income (after taxes).

The early retirement calculator then subtracts your Yearly Spending from your Yearly Net Income to calculate the amount you can invest every year.

Your Yearly Spending also happens to be the amount you’ll need to generate from your investments each year in order to retire. This is a little oversimplified as your retirement spending is likely to be lower than your current spending. You’ll (hopefully) no longer have mortgage payments and your kids may be relatively self-sufficient. However, it’s better to err on the side of caution and assume your costs will remain fairly static.

Current Investments is super important. Your yearly savings are important, but your current investment balance can start compounding from day 1!

Expected Return is the average percentage return that you expect to make over your investment lifetime. I defaulted this number to 7%. I believe this is close to the actual inflation-adjusted return that such equities generate over long periods of time. You can use any number you want, just make sure to work with inflation-adjusted numbers.

The calculator uses Your Current Age to report on the age at which you will be able to retire early. As a nice little gift, the early retirement calculator also calculates the age at which you’ll become a millionaire.

The Withdrawal Rate is a highly contentious topic to say the least! It’s basically the percentage of your portfolio that you’ll withdraw each year to live off. A higher withdrawal rate means you can retire with less money, but you will risk running out of money. A lower withdrawal rate requires a larger nest egg, but increases the chance your portfolio will survive.

Generally, 3.5-4% is accepted as the safest withdrawal rate. Some years the markets may be down, but having a buffer between your withdrawal rate and your average return (7%) makes up for that.

*A note on Compound Interest. Compounding allows your savings to grow exponentially, disproportionate to your own annual contributions. This is because you effectively earn interest on your interest, year on year. This is what makes it possible to save vast sums, with relatively low monthly payments.

Why does "the curve" flatten off?

Once you hit the retirement mark (the orange dotted line) you’ll start withdrawing a yearly amount – say 3.5%. This means your account will hopefully still grow, just not as quickly. You’re also unlikely to be adding further savings into the account – you’ve already achieved financial independence!

The Principles of Financial independence, Retire early (FIRE)

The early retirement calculator is a nice, shiny tool (I hope) but it’s of limited use without explaining financial independence. Whilst many of you will already know this from reading my blog, here’s a quick recap:

Financial Independence Retire Early (FIRE) is essentially about becoming financially self-sufficient. This is most often achieved by consistently depositing savings into long-term investment accounts such as index funds. Once you’re able to withdraw an amount that covers your annual expenses, without the investment pot going down, you’ve reached financial independence. Congratulations, on building a perpetual money making machine!

An example: Let’s say you need $21,000 per year to cover your living expenses. Fortunately, you have $600,000 in an investment fund with an average yearly return of 7%. You withdraw 3.5% every year ($21,000) but the account continues to grow, despite your withdrawal. You could therefore do this forever… and are therefore financially free!

This is the FI stage of FIRE. Many stop here, comfortable in the knowledge that they can walk away from their job whenever they decide to. This shift of mindset from having to work to wanting to work can be extremely liberating.

Conversely, many will follow through and retire early (FIRE) the very second they become financially free!

Personally, I sit somewhere in the middle. Financial Independence for me is the ability to work in an area of my choosing, without worrying about the income. For example, as I’m passionate about entrepreneurial ventures – why not pursue my new business ideas if i’m already financially secure? I therefore wouldn’t technically “retire” in my 30’s or 40’s. However, I certainly would “retire” from paid employment… and having a boss.

The achievement of Financial Independence Retiring Early may therefore mean different things for different people.

What would Financial Independence look like for you?

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