I tried to show how age and length of investment really impact how much wealth you can create.
* This is typically cited from the Trinity study (https://en.m.wikipedia.org/wiki/Trinity study).
* It is looking at a 30 year time horizon. For longer periods you'd need a but more money, but not double. 3% is incredibly safe, and wouldn't take that much longer to acquire once you're at 4%.
* Slight reductions in expenses during down years have a huge effect on the overall success of the portfolio. If you could reduce expenses to 3.5% during severely down years, that would significantly help the success and longevity of your portfolio.
Excel also acts as a wrapper to allow for me to change my annual budget easily, my expected salary over time, expected inflation, etc and see the results. I'm not reinventing the wheel here, just making my own instance of the wheel. But the point remains: it's a heck of a lot more complex than this calculator.
One of my "ideas to do if I had time" it to take that and make it into a "simpler" service that could actually be useful to people. I know most retirement helper companies try to do this but wow are they bad in my experience. The problem they are fighting of course is balancing the simplicity with the customization though, which I suspect is the crux. Still, to whoever finds that solution first, a pot of gold will follow.
But currently I'm rather searching for a path towards part-time work. Sadly that's challenging as a project manager, maybe slightly less as a product manager (I always filled both roles in smaller startups, so I'm flexible here).
Some of the most popular, profitable YC startups (even just regular 'ol startups) were started on a fraction of $600k.
I encourage you to think in terms of percents. The Trinity Study says you'll need about 25x your expenses saved. If you can lower your expenses by 5k/year, you can not only invest that money, but your target also lowered by 125k. That double whammy allows diligent savers to do very well and retire on a much shorter timeline than those spending 95%+ of their paycheck.
If not, I would like to see an option to input your tax rate and get a more accurate number. If I want to get $10,000 in passive income a month, a 12% return from a $1,000,000 investment per year won't do it because I'll need to pay taxes on the $120,000.
Please be extremely careful when you tell young people that.
I am 30 now. I am used to be a person who worked aggressively towards FIRE philosophy in the last 3 years. I have saved a whooping 30% of my income over 3 years with my meager grad student salary. I think I had seen both the positive and negative sides of the FIRE philosophy.
- It doesn't matter how much my income is, as long as I'm bothered to do the calculation and be wise when I spend money, I'd be well off.
- It reminds me of being creative with my pleasures - many/most good things in life doesn't cost money.
- Life is much cheaper when I have spare money. I don't have to sweat for the bank fucking me over when I receive a paycheck a week late. Or I have a flat tire. Or I have a tooth acting up. Or I want to invest in that new thing called buttcoin years ago.
- There is an incredibly thin line between being frugal and being cheap. If saving money causes me inconveniences, strangers stare at me for trying to save a couple of bucks doing funny stuff, would it be worth it?
- The perception that I need to retire early someday because all jobs are boring. I think that's wrong. If I do the right job, I will want to do it after I retire. If I do the wrong job, three years and it burns me out (which it does). I can always switch jobs and take a cut in my paycheck. The thing I can't do is to suffer from a shitty job with a good salary and hope that one day I will save enough 'fuck you' money to quit. At the point I put in that 'fuck you' note, I will realize that I am a bitter loser who hates everything all my life.
- The $5 adds up philosophy. A counterexample for that is Steven Dubner's philosophy: If it's < $X dollars and I want it, I will get it and not think about it. My income, in general, will only ever go up. Saving $5 here and there for that overpriced bottle of water or that sandwich at the airport, having to fight with my inner self for 10 minutes deciding that is a waste of time and energy.
- Everyone I love and I myself won't stay young forever. When I am young, money buys me a lot of good shit when I can still enjoy it. Plus, people like surprises, things I would go above and beyond their expectation, money included. Although my girlfriend appeared to be very frugal, and I myself might saw no appeal in the latest iPhone X, but my girlfriend would have appreciated it if I had bought it for her. She also would have deserved and appreciated that fancy meal on the weekend because she has been cooking for me a couple of meals during the week when we were both busy. What's the point of having money when I only have it for myself with no one to share? I am glad cases I was more generous than I would, and I regret cases where I could have been more generous to the people I love.
Overall, I am less aggressive now. I keep the FIRE philosophy in mind, but I don't work aggressively towards it. The present is to enjoy, not to suffer as to hope for the future that might never come.
It's hard to imagine this reduction in expenses but I guess that's the reality of retirement.
Also, 2.5 M for 60k/year is not a great strategy (100% CD's). While it's for all intents and purposes guaranteed, it's incredibly conservative. That's a 2.4% withdrawal rate. That would hardly keep up with inflation. The Trinity study shows 4% to have not than a 0 balance 95% of the time on a 30 year time horizon (I believe with an 80/20 split of stocks and bonds, but that's from memory). Many times you'd end up with far more than you started retirement with. A 3% withdrawal rate (while invested in stocks and bonds) would almost guarantee perpetual money on a 50+ year horizon.
To quote one of the top posts on /r/financialindependence, build the life you want then save for it. Find what makes you happy and spend money on that. Cut money on things that don't add much marginal happiness.
Yep. That pretty much sums it up.
Did you account for the principal also accruing value while you're saving up?
E.g. In the HY Savings account for a 1K/month passive income, you need $827,586. If you saved $1K/month, and reinvested that income until you got the $827K, it should only take you 20 years, not 23.
The error gets bigger when looking at longer time frames and higher returns.