Yes, I would be game for that as well haha! An MMM-Recommended Bonus as of August 2020: If you have a mortgage or student loans, the current lowest interest rates in history (like mortgages for 2.9%!) And remember too, the more you save into RRSPs, the lower your net tax rate becomes. An awesome early retirement calculator that I keep coming back to. Inharmonious Wow pvp beginners guide. Almost all of the comments above address the contribution side of what is proposed. Also, if you are in the accumulation phase, 2008 did not matter because you were not selling shares, you were buying them as aggressively as possible right? I hate the idea of leaving tax-free money on the table, so I’m torn. April 19, 2017, 10:52 am. In part 2, I discuss where I want my early retirement accounts to end up POST FIRE. We must learn his ways. If I had aimed on simply buying in to the S&P-500 every single time I made a deposit, my lifetime APY as of today would be 3.35% And right now happens to be a good period – the vast majority of the time between 1993 and now, that APY would have been negative. Do you really think over 8% ROI is a conservative assumption for a portfolio? In fact, for the MMM lifestyle the differences are probably much smaller than for most. (Plus you can still save a substantial portion of that pension income and re-invest it into index funds, creating a rapidly rising income for life). Am I missing something? To keep things non-promotional, please use a real name or nickname(not Blogger @ My Blog Name). At first I was psyched because they would even let me change the default 85% assumption. If you are spending 0% of your income (you live for free somehow), and can maintain this after retirement, you can retire right now. But now I just crunched a few numbers and I’m thinking: Bullshit! I agree, I love this post, its been specifically bookmarked and I visit it weekly. Here’s one simple-to-use S&P return calculator on someone else’s blog: Bullseye (Man, I should write one of those calculators myself using the publicly available data, it could be a great magnet for potential new readers searching on Google!). I’d rather pay $5k than $10k, but $10k doesn’t keep me from sleeping at night like $500k would. “…if you can get 5% after inflation.” After tax? January 13, 2012, 2:22 pm. It’s all getting out of debt or spending less, not even GRS or The Simple Dollar talk about that. Every time I get a bump in my pay, I usually bump up my contribution another 1% and currently I’m adding about $13,000/year to the account. That’s a really good deal. This calculator makes assumptions Your current annual expenses equal your annual expenses in retirement; You will never draw down the principal. How do you plan to pay for long term care when you and your wife need it? Now it tells my my APY (had I bought VFINX on each date) would have been 5.22%, not the 3.35% I mentioned above. Right now my blog doesn’t really have much of a readership, so it wouldn’t make that much sense. I found this at the perfect time. Don’t bank on it, but also don’t follow the crowd! However, if your pension starts on or near your retirement, you can multiply the annual payout by 25 and add it to your net worth calculation (or subtract it from your ‘Stash goal – same result). Anyway, in reference to this blog post, you mention that other retirement calculators account for money for kids college and $100k per year for assisted living – what do you think specifically about that? But it is an expense they did not have while working. Your model works if it used average take home pay for the career opposed to using salary as a constant. Obviously YMMV, but take it all with a grain of salt, not a dollop of fear mongering. I am going to make it a goal to figure that out for 2011, at least sometimes in the next month. One thing I would like to caution super-early retirees on is to allow some slack in your budget for increased health expenses as you get older. Many of us have discovered that a simple life, with a few luxuries here and there, is far better than wasting cash on lattes and cable TV. I understand the desire to be conservative, but I would still totally disagree with the idea of going for an even lower SWR. If you make sacrifices (i.e., don’t spend money that would make your life more comfortable) so that you can retire earlier, you have to be prepared to live that lifestyle for the rest of your life. re: RRSP’s, as MMM says, you can withdraw these at any time without penalty. Well, I have a surprise for you. Then do a “substantially equal distribution” from the IRA. – Save a chunk of money and use a withdrawl rate of more than 4% to account for the pensions and other stuff that kicks in at 65. But potential medical expenses do scare me a bit – just wanted to hear your thoughts on that specifically. I consider myself financially saavy and am pretty frugal (ok…cheap). Even better, such a relationship could easily build into the “time to retirement” plot with a single coefficient. 20% is a lot less than having had paid 33% during your work years. But what I don’t get is how do we account for a safe 4% when the markets have done so poorly recently. January 13, 2012, 8:55 am. Here’s a much more exciting and practical example: Guess what the dividend yield on CIBC stock is right now? But my current balance shows as $10,000, or more than double the account value after adding money in March. User:Blood Lines Of Darkness - Wikipedia, The Free Encyclopedia The best long term indicators I’ve found of equity performance (Shiller’s 10 yr adjusted P/E, GMO’s formula for 7 yr returns, or the following 5 yr returns based on current real interest rates), which use different inputs, point to real equity returns in the 2 to 4 percent range for the next 5-10 years. It’s worth noting that when times are good, the market tends to be up, and when times are bad, the market tends to be down. So yes, you might want a more expensive lifestyle in some ways after retirement, but you can also offset the shift financially by effectively reallocating your expenses from work needs to personal wants; a nice change! So when I first read this I thought it was all BS!!!! By retiring pre-65 and keeping withdrawls low, you essentially game the system. Are you perhaps being slightly hyperbolic here? etc. But, it does put us behind on the retirement savings. Author Topic: retirement calculators for MMM? 321GleichReich The popular personal finance blogger Mr. Money Mustache has a retirement calculator on his post that details “The Shockingly Simple Math Behind Early Retirement.” He argues that your savings rate is the most important number you’ll need to pay attention to when looking to retire early. Money Mustache by Pete Adeney. If I am saving retirement funds at the same time as saving for down payments on rental properties then it is a little more complicated. (My overall tax rate was less than 5% last year). If you subtract inflation, that would be 3.83% . Money Mustache has since garnered a massive, cult-like following at his blog, where he dishes out early-retirement wisdom to his "Mustachian" readers. As long as the dividend increases match or exceed inflation (most increases exceed it, as there is also profit margin increases), then my $25k original buying power will always be the same. Also, if you read more articles here you’ll see, the point isn’t to always regard work as a chore but rather to give you the flexibility to decide as you go. With something like that, I could plug in a bunch of hypotheticals and be endlessly entertained. Just did a number crunch. If want to retire within 10 years, the formula is right there in front of you – simply live on 35% of your take-home pay**, which is approximately what I did without even realizing it during my own younger years. January 18, 2013, 10:05 am. With your own experiential arguments that spending drops in early phases of retirement, it seems unlikely that average real spend is exactly 1:1 before and after retiring. January 13, 2012, 3:15 pm. (*) Taking the 72t forces you to continue taking distributions even if you no longer need the income– say because you had an unusually good year due to a side job/project. I suppose it’s not impossible. Then we got new management and it all went downhill. I’m only 29 and have about $100,000 between my 401(k), mutual funds, and Roth IRA but 2 out of 3 of those accounts are untouchable until I’m 59 1/2 without severe penalties to Uncle Sam. I am still working and desperate to retire and spend time with him, but we both thought we needed to save a lot more money first. Love the remark “I am not super rich, I am just Canadian”. By using IRC Section 72(t), it is possible to eliminate the 10% early withdrawal penalty normally due for distributions from an IRA prior to age 59 1/2. . And as usual, the number of work years saved through small lifestyle changes boggles the mind. Literally started the ‘Maximum Mustache’ effort this morning and hope to read ALL the posts! Tweet This . So when you hear a habitable Earth like planet is 22 light years to 5,000,000 light years away, don’t rule out traveling to it! Luckily, it’s a harmless bit of tomfoolery, since the saving benefits you as well. I am pretty frugal but if they beg me over and over again like my 11 year old son did for two years to play hockey, then I will try to accomodate their requests. Thanks for the great post! Glad I (finally) stumbled onto this blog. MMM has some great posts on this! If you think you are hardcore enough to handle Maximum Mustache, feel free to start at the first article and read your way up to the present using the links at the bottom of each article.. For more casual sampling, have a look at this complete list of all posts since the beginning of time or download the mobile app. I am wondering, do we count in the contributions our employers put into retirement accounts for us toward the percentage we are saving? 1. Thanks, Jeff. As of today, the APY of that approach would be 6.22% . Actually, it is pretty much the same, since you could take the money you are not paying on the mortgage and invest/compound it elsewhere. 5 O'Clock Shadow; Posts: 33; Early Retirement Calculator Overstates Returns? This is a good question I hope mmm gets to it. “In 2016 we attended Camp Mustache and Chautauqua where we decided to leave our fancypants jobs and build the Mr Money Mustache App for the Mustachian community. Hi Chris.. I’d start by maxing out 401(K) instead of having the money stagnate in an after-tax savings account. Sorry if this is complainy pantsy. First comment here – although I have been obsessively reading for the past 3 weeks after I heard your Tim F podcast. Financial independence and early retirement are two terms for the same concept: You’ve saved enough money that — in theory – you shouldn’t ever have to work for income again…unless you want to. Please proceed to forums for more assistance if you haven’t found them yet. We pay no universtiy education but we try to help them out in other ways ie. One of the reasons I love this blog is MMM’s concept of the safety margin. While the chart Mr. Money Mustache shares is great for a general rule of thumb, if you want to more accurately predict how soon you’ll reach Financial Independence you’ll have to use a more detailed calculator or run the numbers yourself. Add it up and you’re at 35-50% of your money you are technically not currently living on? In my home country so many people, websites, and blogs bother about life insurances, Rürup, Rieser, direct insurances (all government supported ways of saving for retirement in Germany), ETFs, and fonds, so that it is easy not to see the woods for the trees. All that said, I thought your post was very useful as the reader will REALLY grasp the concept after reading it! So the secret is to wait until your income is $0/yr, then withdraw $10,000 per year from your RRSPs – you won’t pay any income tax, which means you’ve got that money income tax free (because you didn’t pay any when it went in either). Choosing a Compact RV or Camper for Retirement Travel. His entertaining and informative articles, which can be found at MrMoneyMustache.com , give you the “punch in the face” you need to get you on the right track to financial independence. Taking tabs on the market in well into a long bull run always results in lower forecast growth. I think it’s worth focusing more on getting to retirement than worrying about differences in the exact expenses when you get there. The Mr. Money Mustache app includes many Financial Independence blogs bringing a variety of perspectives. MMM readers like spreadsheets, so I think some people will enjoy playing around with it. I think I have just learned we are certainly SUKKA’s. Health – As others have said, without the health insurance I’d had from my employer the two serious illness I had (neither preventable; childbirth complications and brain tumor) my assets would have been wiped out. The unstated assumption here is that your cost of living before retirement is satisfactory after retirement. Your mortgage payment has a 3.9% return. Yeah, Mr. Money Mustache, Good for You, but What About Real People? pachipres For the calculation to work, you simply add back the match to your top-line income. If someone starts out their career making $78k per year, and after 12 years are making $178k per year, and during that entire time are saving 40% of their income, your model states they could retire after 22 years on 60% of $178k. Interesting set of results tunesmith, although I’m not sure I believe you (I could be convinced with a spreadsheet). However, we also have a world record i taxation, which makes the savings rate perspective ever so relevant. what country are you in? “Oh well, at least I’m earning 9%,” I thought. I did a Wolfram Alpha query for the inflation since then, and it came back with 61.32%. You’ll have so much more time after retirement, if you’re active at all you’ll likely find ways to make a bit of extra income. Does this sound reasonable? In the early years of a mortgage, the house is highly leveraged so the compound growth rate can be quiet large if the house grows at any significant rate at all. Other people I have been talking to are also recommending this path. Thanks for the post, It’s easy for a thirty-something to assume they will maintain a superior lifestyle and stay healthy. This is still pretty good, because most people are financial illiterates, meaning they are doomed to the even lower level of Shitocrity. The second calculator shows how many years it takes to go from $0 to financial independence for different savings rates (this calculator was inspired by Mr. Money Mustache’s post on The Shockingly Simple Math Behind Early Retirement). Cutting down on spending is better than making more money when you consider the tax implications. January 13, 2012, 9:22 am. January 13, 2012, 3:23 pm. Buy stocks like that, and the stock price will on average keep up with inflation or greater, plus you’ll get 4.57% to take home every year as well. It’s posted at the bottom of Nord’s post, and is also here: Look at the $25k of expenses in the Google docs spreadsheet I posted above so see how this works in detail. 3,2,1, soon – independent! For more casual sampling, have a look at this complete list of all posts since the beginning of time or download the mobile app. I’d also like to add that cutting spending becomes more and more powerful as your savings rate increases. Then your income goes up, and your savings rate goes up, because you don’t go out and blow your raises on a McMansion and a Mercedes GL450. Expected Retirement Annual Expenses: Put how much money you expect to spend annually once you retire but in today’s dollars because the calculator adjusts it to what you will need back on the inflation rate you entered. For more casual sampling, have a look at this complete list of all posts since the beginning of time or download the mobile app. That’s not the greatest rebuttal, because it doesn’t take into account a stream of investments like you made, but rather a lump sum in 1993. I like that basically all time-dependent functions are simplified to scalar quantities by defining variables as averages through two time periods: the “career” and “retirement”. You were recommended by my brother. I’m a 20something professional living in a Third World country (which makes it harder, but also more imperative, to save). I have saved for retirement pretty consistently since then, and that consistency has been affected only by things that would reasonably affect anyone. I simply have a goal of having it paid off when I retire and I base my extra payments on that goal. At 2.75%, your table above would change. My retired friends think it is great if they run into someone to sit down and have a coffee. Not in debt and the one thing that makes my expenses MORE than the 50% cutoff is college! At Warp 8, you can be there in 3 seconds or 7 days, respectively. While the investment shows an obvious compounding effect. Sure, we spend money regularly, but it has nothing to do with entertainment. Most people focus on earning more, and unfortunately this also often results in spending more. I don’t remember one of those articles where their house was paid off. Most people have trouble even matching the market, and simply buying into an S&P-500 index fund is a useful approximation of that. Keep on compounding. 70 to 80% of my highest income, absurd. The house itself is an asset, worth whatever the current market value might be. Note that with these numbers, if you're saving less than 20% take-home pay, you're basically committing to a future of no retirement, and working for the rest of your life. High income (and savings rate) people that hire a house cleaner and claim their time is better spent at work than cleaning their house are wrong. But life has a way of catching up with you, and who wants to face having to go back to work when you’re not well? Unless you want to leave a large amount of money for your future generations, it makes no sense to not use the principal. For a savings rate of 20%, the number of years needed goes up from 37 to 49. There’s no point in making yourself miserable so you can retire a few years earlier so you can continue to live in misery. After watching The Minimalist, Food Inc., Forks over Knives, etc. Does the relationship assume cost-of-living (or “spend level”) in the “before” and “after” timing buckets (with all the averages, assumptions, escalations applied) to be the same? I don’t want them waiting on my death to get rich and feeling rooked if I preserve my life and drain my funds to do it. I’m guessing that during one of my many OS upgrades on the Mac, the upgraded version of Finance::QuoteHist changed how they reported “closed” versus “adjusted closed”. I stumbled onto your blog via Early Retirement Extreme. But it is pretty extreme – a 50% savings rate works perfectly well for most people too. Retirement isn’t for everyone. If you earn an extra $1,000 in a year, it’s really more like $850 after taxes. Early retirement is now 50% simpler than it was even this morning! No, he hadn’t won Powerball or lucked into a big inheritance. If you need some of the funds from your tax-deferred accounts, start doing SEPP and Roth conversions right now. My experience in having five children is that even though I didn’t want to believe it, they do get more expensive. Thanks in advance. At least not until you are at that age. Where I live the credit cards don’t offer almost anything in return, so I don’t use them, as they really have no value. Here’s the other thing, from June 1993 to November 2012, inflation went up 59.43% Yearly, that is 2.45% APY. You can save your own copy to change the numbers. Now that I’m reaping the rewards I would suggest two big factors that influenced my results. So you start saving 60% of that. BAH!! MacGyverIt We will become loyal followers after today. It is an interesting table. If you save $1,000, that’s like earning an extra $1,176! A paid-off home is thus a tremendous source of life-long security. As a civil servant and military reservist, I have a couple of those in my future, though I plan to FIRE well before they kick in so I generally exclude them from my math. Your current expenses are still a good proxy for what your retirement expenses will be. Heather – banks are complicated businesses, and they get to employ leverage on your deposits to get greater returns, plus they have various consumer fees, consultancy and brokerage stuff, and other profit streams. This was just running as-is numbers and increasing savings by a bit, without even going down the path of cutting expenses. :). Unattentive My part time gig is great and doesn’t take up a lot of time. Help!! Nords did a similar post with the math behind early retirement here: Mr. Money Mustache If you save a reasonable percentage of your take-home pay, like 50%, and live on the remaining 50%, you’ll be Ready to Rock (aka “financially independent”) in a reasonable number of years – about 16 according to this chart and a more detailed spreadsheet* I just made for myself to re-create the equation that generated the graph. Isn’t this taken care of by the second footnote: Bullseye January 16, 2012, 5:32 pm. Not the cheapest years to buy shares, but not awful, looking at the market value today. Books. The point being, yes, your concern is a legitimate one, but it doesn’t even have to be an issue if you work it right. Excitedly, I think I actually might be well ahead of my retirement track if I take on a few more of your suggestions. There’s a lot of confusion out there on this topic. This gives me such motivation – thank you for sharing! I’m trying to find one, but there seems to be nothing about that on the site. He had actually been retired for six years before he started writing. Your mileage may very depending on your state taxes, unless you living in the 7 states that have none. From 1993 to today, the CAGR of the S&P including dividends is 5.65% per year after inflation: http://www.moneychimp.com/features/market_cagr.htm. And she said that saturday is the day of the week that she spends the most money and when you’re retired everyday is saturday. What isn’t addressed is the lifestyle after retirement. $15k per year is required from the savings, which calls for a nest egg of about $375k. I have still never written any examples like that. Don’t you think it’s a good idea to factor in what you get for “free”, in your case, the rent or mortgage? We have enough saved already in locked in pensions that even if we never added another penny, we’d be able to live off a 4% SWR from 65 onwards. They saved about 50% of their income in low-cost Vanguard funds, according to his website. Thank you for any pointers. I’m sure someone will brag that they have done so, but if it’s not as easy and repeatable as buying into the S&P-500 index fund, I don’t consider that valuable “advice”. PeachFuzz Then Calamos cut their dividend from 14 cents a share to 9.5 cents. So, you pay 10%, then 10% on top of that. No income, early retirement? Yes, I was going to steer you to the moneysmart retirement calculator because it can remove the old age pension (using the "how it works" button which is really the "change default settings" button). I have the exact same question! Do the banks make so much off of extra hidden fees, that they are actually making the equivalent of 8% on the mortgages? My goal for early retirement is a nest egg of $1,000,000. Perhaps his most famous post is The Shockingly Simple Math Behind Early Retirement. I know the stats on how people can’t reliably beat the market, and how it’s unreasonable for anyone to expect they can beat the market year in and year out. If you plug in 4%, you’ll get numbers close to what you have in the table above: ln(.50) / 0.04 = 17.329 years to retire at 50% savings rate There is something very reassuring about the simplicity of the math. Hello, I’m Not Mr. Money Mustache . ;-), Benoit Essiambre (Warp = 1 LY/sec, in my/this instance.). I was just looking for a quick, dropBox style referral link to share with friends, but I’ll keep that in mind for the future if I decide to get serious about it! Hate to be pedant but I ran the numbers and found that your explanation of how to calculate savings rate is a teeny bit misleading given there are all of these tax advantaged savings accounts out there. Renting vs. Buying: The True Cost of Home Ownership . Should I stop putting so much into the 401(k) and instead pile it into my mutual fund account at Morgan Stanley? Fishingmn Using 2.5% instead of 5%, here’s a re-do of the table above, comparing savings rate to # of years needed for retirement: You can see that as the savings rate goes up, it starts to converge with the table in the blog post, but at the lower savings rates (< 40%) the differences are drastic. If you drew this “savings rate” story into a graph, it would not be a straight line, it would be nice curved exponential graph, like this: Working years vs. Savings Rate (screenshot from networthify.com). I’ve only read a few posts thus far, but this one actually surprised me. . I’ve never figured out my total savings rate before – it never occurred to me to just add the pre-tax savings to my post-tax income amount. Socially Responsible Investing: Is It Also More Profitable? I currently reside in a state with 7% income tax and no sales tax (though they try to get us to vote in a sales tax every couple years and I’m sure soon they’ll succeed.) The reason is that every permanent drop in your spending has a double effect: So your lifetime passive income goes up due to having a larger investment nest egg, and it more easily meets your needs, because you’ve developed more skill at living efficiently and thus you need less. That was a crazy figure for this reason. .. even better is the fact that I actually have a good portion rental real estate right now.. which yields much more and will soon exceed 8% annually after expenses and after inflation (and many of your fellow readers are in the same boat)! Both of these are workable problems, if you plan for it, though. A share may indeed one day pay dividends that are 8.7% of what you paid for it originally, but the ratio of dividend to (current) share price is actually semi-stable in the long run. You start with making $78k per year, and that’s when you set your mind to early retirement. 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