[MOVED TO ANCA]
Knowing when you’ll have enough to retire typically involves calculating your FI number, which is the amount of money you need to live off your investments for the rest of your life. Here’s how to can determine that (but if you don’t want to do the calculations yourself, there’s a free excel calculator for you below):
- Calculate Annual Expenses: Calculate your current annual expenses and multiple by 25 or 30. (If you want to get more detailed with it, look into how the #s in the different expense categories might change in future years. Examples of major expenses: housing, healthcare, food, travel, and other necessities.) For example, if you’re spending $50,000 per year to live, you’ll need to save up $50k x 25 = 1,250,000.00
- The 4% Rule: You can safely withdraw 4% of your investment portfolio each year in retirement without running out of money. If you factor that withdrawal rate into your calculations, your FI number would be $50k x 25 x 1.04 = $1,300,000.00. This means you would need to save up to 1,300,000.00 in order to retire.
Caveat: the earlier you want to retire, the more you shouldn’t use the 4% rule. This rule is only for a 30-year retirement period and shouldn’t be used for a 50-year retirement plan.
But I do feel like if you retire early, you’re not going to want to just lounge around (well, maybe for a bit, but I’m pretty sure after a couple of months you’ll get antsy, or at least I would). Being financially independent would just allow you more freedom to pursue other goals, which I’m hoping will be lucrative for you. Like Mr. Money Mustache (one other takeaway from that video: you could focus on earning more, but if you don’t get a handle on your spending, you’ll never have enough, spoke to my soul because I couldn’t agree more…but I would say you should do both: earn more & save more so that you can earn your freedom to live life how you want to live it).
Now you might not be able to reach permanent retirement, what if instead you ‘retired’ for 10-15 years instead? Think of what you could do during that time to explore passion projects that could possibly build your income even further than if you just held down a 9-to-5 job?
Another tip from the same video: if you use a dynamic spending strategy, you could stretch your nest egg a bit further. Dynamic spending strategy: if your investments are performing well, you can withdraw more funds or spend more. If the market underperforms, you reduce your withdrawals to preserve your portfolio and avoid running out of money.
Another tip to stretch your retirement funds: move to a lower cost of living area. A far-off dream of mine is to either relocate to Lisbon, Portugal or Malaysia. Beautiful places, better cost of living. Blissful freedom.
FIRE CALCULATOR
Track your progress using the free calculator below. Create a new tab for each year to keep a historical record of your progress as you experience pay increases, etc.
Or another quick method: once your assets are producing more income than you are, you’re ready to retire:
Green Where You Water It 
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