We all want to retire as early as possible, no matter if you have worked all your life, been born into money or been lucky enough to win the lottery.
If winning the lottery is your goal, did you know that programs have been developed for those who want professional tools for creating and studying lottery games? One of the best is Programa Lotofacil.
When to Retire
Ever wondered how much money you need to retire, and thus when you can retire? Can you afford the expensive boat or expensive house? Read on…..
There are several ways to work out when you can retire, such as the highly regarded “FIRE number” method.
Retiring early relies upon on 4 essential variables:
Your lifestyle.
How long you live.
Upcoming medical fees.
How much you spend nowadays – and how much you count on to spend in retirement dictates how much you need to save before you may live your perfect existence on a seashore or golf course someplace far from the workplace.
Whether or not your dream is to retire in your 20s, 30s,40s, or
50s, there are plenty of successful examples oF the way to follow.
However, everybody who has managed to retire early is aware of the
magic way, having sufficiently saved up so that you can only use your
investment returns every year, without ever touching your
savings.
There’s a simple way to calculate how much cash
you’ll need to have stored up before you can retire. Take your
preferred annual retirement income, and multiply it by 4% (the most
you will withdraw out of your financial savings each year to pay for
your living costs in retirement).
for instance:
$US50,000 x 4%
= $US1,250,000
$US60,000 x 4% = $US1,500,000
$US100,000 x 4%
= $US2,500,000
Now, you’ve got an idea of how much money you want to keep to
create sufficient returns to finance your retirement lifestyle. To
stay on $US50,000 for 12 months, you could see, you’d want
financial savings of $US1.25 million. check the chart below to see
how much you want for retirement earnings starting from $US40,000 a
year to $US250,000 a year.
One caveat: The 4% withdrawal strategy best works if you are capable of earn at least a 5% return (after taxes and inflation) on your retirement savings. Maintaining all your savings in cash won’t do the trick.
Once you know your magic quantity, you can leave work as quickly
as you attain it. If you realize you’ll want $US80,000 a 12 months
in retirement, then you may call it quits the day your account
balance hits $US2 million. Even if you’re just in your 20’s .
While figuring out your magic retirement range, be sincere with
your self. If you make $US100,000 nowadays and spend all of your
take-home pay, you aren’t likely able to live happily on $US50,000
a yr in retirement.
To get to your intention, saving sporadically in reality won’t
reduce it. Even saving 10% per year constantly during your career
means you’ll need to work nearly 52 years before you may afford to
achieve your lifestyle in retirement. If you’re 22 today, this
means getting a paycheck till you’re to your 70s. If you only save
6% – the common savings rate in the US – you’ll have to put in
sixty two years before you’ll have sufficiently saved to match your
current income in retirement.
You probably already recognize that the sooner you begin, the
sooner you could take advantage of funding growth (and the much less
you may have to keep out of pocket). However no matter how old you
are these days, you can usually write – or rewrite – your very
own journey to early retirement story.
Obtain that intention, and then you can flip your attention to perfecting your tan and your golf.
Can you earn that money gambling?
What is a FIRE number?
Your FIRE number is the number you need to retire. Its the amount in investments you need to reach before you can officially say you have enough money to no longer work for the rest of your life.
While many European Countries give a pension this pension only comes at a late age. In Belgium its 67! It might be that by this age the age has moved back again. You shouldn’t take the risk to let the government decide on when you can retire. At the very least you need a backup plan.
How do you find your FIRE number?
So how do you calculate that number? The first thing you need to do is to track your expenses. If you don’t know what you are spending you will not know if you can retire or not.
Once you have written down your monthly expense every month for at least a year, then you can calculate your fire number. You just add all months up together then you divide it by 3.5 and you multiply it by 100.
3.5% is the number you could withdraw reasonable safe every year from your portfolio without needing to worry about money for the rest of your life. The stock market still goes up 6-7% by average so normally your portfolio should even grow with this number.
There is different numbers out there. Most of the FIRE community choose 4%, and actually 4% is quite safe for the majority of the time. But I feel its always good to build in a little bit extra safety. But if the stock market goes up 6% per year why not choose 6% as withdrawal rate.
Well first there is inflation you need to keep into account, but secondly if you choose your number to high and you retire just before a big financial crisis hits then you could be in trouble. The worst year to retire was actually 1929. The second worst was March 2020, just before the dot com bubble busted.
On reddit I found a post of someone who tracks the portfolios of people who retired early in march 2000. This is how their portfolio survived based on their withdrawal rate. Check out what happened bellow:
It is not looking so good with their portfolios. However do not panic, we need to keep in mind this was the second worst period to retire. The odds that this happens to you are rather slim. And even in these times of big economic crashes, most portfolios are still surviving. We can see the 2% and lower are very safe choices.
So why did I chose 3.5%? Well firstly at 67 I expect a government pension. So I do not need my money to last a lifetime. If all else fails I can fall back on that. As you can see on the graph 3.5% can easily survive long enough to reach 67, even in the worst of times. Secondly I will also diversify with property so that if one investment is doing bad I can fall back temporarily on the other. 3.5% return net is realistic in Belgium on property. Should my retirement age get closer to my pension age (such as 55 for example), I will probably switch to the 4% rule.
So lets calculate my FIRE number
Now as I have been tracking my expenses rather well last year, and even better this year, I feel its really time to calculate how much I need to retire early.
According to my data in 2019 I had a total expense of 29501. Now there is some notes to make here. I drive a company car, have a company laptop and my company pays for my mobile phone subscription. These are all items I would need to take into account. So normally I should foresee some budget for that. However I am also currently paying off three loans (as you can see in my yearly expense). I do feel that I will make sure that I am loan free by the time I retire, so these will balance off.
So if I count make the calculation 29501 / 3.5 * 100 my FIRE number in 2019 was 983350 EUR! This is the amount I need to have in investments to be able to retire.
I guess this is why I never calculated it. I expected it to be HUGE. And it is. It shows that in 2019 my expenses were way to high. Most months I spend around 3000 EUR and now its clear that this was just way to high and I should live more frugal. Corona really helped me with that. Instead of going to restaurants or to bars I ended up having picnics outside. True…it did came on the right time, it was spring and we had some really nice months, but I still feel I can beat my last years expenses and do much better without going back on life quality!
So when can I retire?
Some people set their FIRE number and then do not change anymore. I noticed that my expenses change slightly every year. If I manage to lower my expenses then my FIRE number drops. If I spend more then my FIRE number goes up. I decided I will update my FIRE number every year based on the expenses of the last 12 months.
Now that I know how much I need to retire based on my expenses of 2019, I can also calculate when I can retire. However in this phase of my life there is just to much uncertainty. I am looking for a house, I might still have children, I don’t know how much my future partner would make, if she would be on board with FIRE or not,…
But I can calculate how far I am along. I know it will be depressingly low but seeing the number go up every year will be so motivating, that’s why its important to write it down, even if there is such a long way to go!
Now when looking at my monthly portfolio I only want to take into account my liquid investments. I do have a portfolio with retirement savings as well, but they will not come free until I’m 67. While I really do support to have them, as they will give an extra boost at retirement, I will not be able to use them right away if I retire early.
I have a total of 37256 EUR in my portfolio. First the good news, having this amount of money means that every year I would able to safely withdraw 1303 EUR. While this is a nice amount, nobody can really live from that. The bad news is that if I calculate that its only 3.7% along to retire early. But at the same time if I listed this in 2018 it would have been even a lot lower.
What I don’t want to do at this point is calculate how long it will take me to reach that. Even in the very short term I feel so much can change in my life, I rather just measure it every year and once I am closer to the end I will add a timeline.
I plan to work on both raising my investment portfolio and lowering my expense ratio. I feel if I manage to keep improving both sides then I will grow faster and reach that early retirement. Remember its a marathon not a sprint and creating your first fire number is the first step in reaching the finish line!
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