I’m going to start a new post going forward to compliment my net worth update post. While that post will continue to focus on tracking current net worth and my expenses for the previous month, this one will be more concerned with the math behind how quickly and how I will be achieving financial independence. I love tracking this sort of thing, because even if it’s so far into the future at this point – it’ll be nice to track the progress that I make towards the goal. And hopefully as that date gets closer and closer, the numbers will form a consensus and I’ll have a more tangible date. A lot of things can change in the next 10-15 years both financially and in life!
I’m going to track this in a few ways, because you can never have enough spreadsheets. I’ll be using my average monthly expenses to calculate expenses, and then also be multiplying the yearly expenses times 25 to get to my “amount needed to retire”. Obviously this will fluctuate a bit, but I think it’s the most accurate way since it’s actually how much I’m spending. The only other input would be how much I’m saving per month which is a combination of 401k contributions, IRA contributions, HSA contributions, and then any checking/savings monthly contributions.
- The first way will actually be with a simple excel calculator that I made. I’ll plug in my current monthly expenses, savings rate, and net worth. And the calculator will say just how long I have until retirement. Maybe it will say that I can retire tomorrow?
- The second way I’ll be calculating this is through an equation and the help of Wolfram Alpha.
- The third and final way I’ll be calculating my early retirement date is with the help of Mad Fientist Laboratory. I’ll input expenses, savings, and net worth and let his calculations do the rest of the work.
I will also be running all three of these estimations at both 4% and 7% growth points (after inflation) in order to better be able to estimate my retirement date, and to get a more realistic spread of what date I might actually be retiring. Over a shorter investment period, the market plays a huge role and volatility can be high.
So here is my retirement estimation based on 4% market growth:
If my ‘worst case’ (the worst 15 year rolling return period is 3.7%, but obviously past results do not guarantee future performance) scenario is not being able to retire for around 17 years, I will easily take that deal. It does sound like a long time to stay working, but compared to a traditional retirement age – that estimation blows that out of the water.
Retirement estimation based on 7% market growth:
Wow! It almost seems surreal that I might be able to retire within 13 years. Obviously this is still a small dataset and plenty of factors may change this, but I do feel like there is some validity here with all the numbers I’ve chosen.
I’ll also be doing a final calculation of how long it would take to retire if I didn’t invest or save a single cent the rest of my career. Some of you may have heard this referred to as your “coast” point when it comes to early retirement.
You can see there is a huge spread between 4% growth and 7% growth in the market, but that’s because it’s considering zero additional contributions. If I did get 7% growth, I would still be on track for an “early” retirement. With 4% growth? Not so much at this point. Luckily I won’t be making zero contributions, but I think this is an important picture to see.