I get a lot of questions about retirement.
This might not come as a surprise to you since I write so much about the topic.
Most of the questions are one of these two: 1) When can I retire? (Yes, literally that simple.) and 2) I don’t think I have enough to retire. What do you think? (This is really just another form of the question above.)
I have penned several posts attempting to address these questions including:
- Three Steps to Determine if You Have Enough to Retire
- Four Steps to Determine Your Retirement Number
- How to Retire Early
- Retirement Math
You would think these would do the trick for most people, but admittedly they don’t exactly answer the question. It’s because they are general examples and don’t address a person’s individual money situation. How can they?
Well, now I have a place to point people who wonder if they have enough to retire. Today I am introducing my “When Can I Retire?” calculator.
Also to note: You may not want to retire but still want to know when you’ll be financially independent. The calculator is designed to equate “financial independence” and “retirement”, so it works for either one. I’ll use “retirement” more throughout this post but I could just as easily use “financial independence”.
Retirement Calculator Purpose
This calculator is not meant to be a sophisticated financial planning tool.
Instead it’s designed to give a ballpark estimate of when you can retire (which may be today, BTW) which, when coupled with some margins of safety, should give you a sense of how close you are. From there you can make detailed plans and do a bit more planning and work.
And for me, I now have a place to send people where they can run their own numbers. It’s awesome. 🙂
Let’s begin with the calculator itself, then I’ll add explanations below on how to use it (in case some have questions) plus some suggestions on speeding up retirement/financial independence.
Retirement Calculator Inputs
Like other calculators, this one begins with inputs. It starts by determining your retirement spending and income as follows:
- Retirement Spending Needs — This is the annual amount you’d spend in retirement if you were retiring today.
- Annual Spending Inflation — This is your estimate of what inflation will be from today until you reach your retirement age (the calculator will tell you how many years until you can retire.) The result is that it’s going to take more money to retire in 10 years than it will to retire today.
- Assumed Withdrawal Rate or Earnings on Assets — This could represent several options depending on your circumstances: 1) what percentage of your assets you’re willing to spend/withdraw during retirement (4% is the standard, but you can pick a lower percentage for more safety), 2) the earnings you might have from your assets (for instance, your retirement assets might all be in real estate which churns off 8% annually in income), or 3) a blended rate of the two (an example would be 4% withdrawal of assets and 10% earning on real estate for a blended rate of 7% per year). Put in a percentage that fits your circumstances.
- Annual Side Hustle Income at Retirement — The amount in extra income you’ll earn annually during retirement. This could be from any source (and could even be multiple sources).
Next we move to the assets that will help you retire. The inputs include:
- Current Assets to be Used for Retirement Drawdown or Earnings — This is the amount you currently have saved to either drawdown or earn income from in retirement.
- Annual Return on Investments — This is the growth rate for the retirement funds you have already saved and for those you plan to save between now and retirement.
- Annual Contributions to Assets — This is the annual amount you’ll contribute to your retirement assets for this year.
- Annual Increase in Contributions — This is the percent you’ll increase retirement contributions each year between now and when you reach retirement.
Once you have all these inputted, you’re ready for the results.
Retirement Calculator Results
Once the inputs are completed you’ll see big, bold letters that read:
YOU ARE ON TRACK TO RETIRE IN:
And then there’s a red bar which will give you the answer (in years)!
That is unless you’re already there. In that case it’ll tell you that instead. 🙂
Once you have the results, here’s how to think about them:
- The “answer” is designed to give you a general feeling for when you can retire based on your current circumstances and plans. It’s just a ballpark estimate, but from here you can dig deeper and begin formulating a specific plan to retire (if that’s what you want).
- Next you’ll want to play with it to see the results of your actions. If you don’t like the answer it gives, then change what you’re doing (the inputs) to retire earlier. This is where it can help you formulate a plan to retire when you want to.
It’s not rocket science, but a simple, basic guide to get you started on your path to retirement.
How to Retire Early (Or Reach FI)
The tips to making retirement/financial independence happen as early as possible are pretty clear from the calculator and we’ve discussed them quite often on this blog. But just for the sake of being clear, let’s quickly review ways you can retire as quickly as possible:
- Learn to live on less. It’s certainly easier to retire faster with a $40k spending need rather than a $60k one.
- Grow your side hustle. I’ve detailed the fact that a side hustle is so powerful that it can help you retire in 10 years. This calculator illustrates this point. If you’re looking for opportunities, here are some side hustle ideas worth considering. If you’re a writer, you may want to consider starting your own blog.
- Maximize your assets. Obviously the more you have saved already the better off you’ll be. But you can also work to deploy your assets in different ways to make them more productive. For instance, I took some of my savings, invested in real estate, and started to earn 10% on my money instead of 5% or less. I also bought a business and turned cash earning almost nothing into a 50% return on my money annually.
- Save more. Save as much as you can as soon as you can as often as you can. By saving more now and adding to that amount aggressively each year, you will be able to retire faster.
So that’s it. Test it out and let me know what you think.
Checked out your calendar and it works just fine…. said I have achieved FI …. I still like to work though as an international school teacher … it gets free tuition for your kids, 3 months of paid vacation and you can teach around the world like I do … CPO, From the far side of the planet 🙂
Ooops that should read “checked out your calculator” 🙂 … bit tired and start holidays Friday … have the whole summer off … 🙂
Not bad! I think it could be improved slightly if you could figure out a way to include Social Security in some way (although maybe you could include it yourself by reducing your annual spending needs to account for what Social Security may pay you), but a pretty interesting calculator overall (and a reminder I need to keep hustling!)
You can include SS by putting in in the “side hustle” section.
You actually can add any income you make in retirement in this area.
Might be helpful to include a few ‘reminders’ regarding the annual number. Health Care, for example, is likely a major monthly expense most of us need to include as we consider true annual spending needs. I think many people may be too optimistic in how little they can live on.
Looks good! And seems pretty accurate based on the numbers I’ve run for myself.
Now, just to have my side hustle income pick up 😉
TPP
Doesn’t include category for any large windfalls such as sale of appreciated Home , sale of business or inheritance.
Yeah, when you make these you have to decide what’s likely and what’s not. If you don’t the thing is the size of Texas.
If you did have a windfall, you’d simply add that to the amount you have saved for retirement and re-run the numbers.
Couple of items to refine the process.
Is the annual spending before or after tax?
Taxation can have a major impact.
No where to include social security or a pension.
Include extra income in the income box as noted above.
As for taxes, I include taxes in my retirement budget, just like I include any other expense.
Great tool! Have you considered something simple like an annual expenses budget calculator for retirement with prepopulated options? I think a lot of people have a hard time thinking about what that looks like later on, and then considering the future cost given inflation.
Not yet, but it’s on my list now! 😉
Trying it on my old mobile phone with Chome…
“Set to retire in 10 years”
Yup, that’s about right ha!! Nice. Our situation is pretty simple though and taxes are hard to predict.
Something is not right…..
I put in 2 MUSD of current assets and 4% growth, $100,000 of annual spend……no more contributions or side hustle as I am retired……
I’m age 60 it says I can retire in 14 years!!! One would think 2 million today would get me to the end…..
$2 million at 4% gets you $80k a year…if you spend $100k, you don’t have enough. You need to either cut your retirement spending or save more.
I think a persons age has a lot to do with this? a 20 year old has a lot more time left than an 80 year old??
There aren’t many 20 year olds who have even what’s close to retirement money, so I think we can eliminate them without a calculator.
And the same holds true for most in their 30’s as well.
So, if you have the assets to withdraw at 4% to cover your needs, the Trinity study says you should be good:
https://en.wikipedia.org/wiki/Trinity_study
And that’s if you make NOTHING extra — which you will. Very few 40-year-olds will make nothing for the rest of their lives.
I so love this calculator. I’ve been using one of Dave Ramsey’s to do my projections, but I’m definitely making the switch and bookmarking this post.
And I’m excited because I got “You’re Already There”. Woot!
Lisa
Great post — would also recommend factoring in age.
I’m not sure what you mean…
I agree?
See the comments above and below about the Trinity study and how it relates to age.
Nice calculator. As I have a defined benefits pension to look forward to (lucky me I know) I input that in as a side hustle retirement income. Came out where I thought – less than 2 years! Yes!
I’ve ignored social security because here in the UK many doom mongers are convinced it will become means tested at some point. Complete vote loser in my opinion and unlikely to ever happen but that doesn’t stop the naysayers.
It says I can retire now which actually scared me. We only have $610,000 invested in equities, but we are pretty frugal and have a side hustle or two. Who is the best person to talk to regarding how much to takeout of IRAs and 401Ks without paying too much in taxes? Thanks!
Probably a professional. Do you have anyone that you can go to?
Yeah but a professional what? We only have a H&R Block tax preparer.
I would find someone you know who has done what you want to do and worked with a planner/advisor specializing in withdrawing from IRAs. If they like that person, use him or her.
If you don’t know anyone like that, email me as I might have a recommendation for you.
Thanks, no we don’t know anyone who can help us make these decisions.
A fee only financial advisor. Interview a few. https://www.edelmanfinancial.com/education-center/financial-planning-and-investing/financial-advisors
I would also like a function added to see how outputs change based upon what TYPE of accounts you have.
I have most of my money in IRA/401k and have to figure out a strategy to get that money out early because it will be large enough by then to meet the 4% rule but taxes and penalties are a big factor
I think that would be an entirely different calculator…
Curious what some of the assumptions are ? For example – how long will I live?
If you set the withdrawal percentage correctly (I’d use 3% or 3.5% to be safe), the money is to last you throughout your lifetime. If you want to know more about this, Google the “4% rule” or “Trinity study” or check this out:
https://en.wikipedia.org/wiki/Trinity_study
Thanks! This is really a nice tool. Helps me remember that my ‘money to live on’ number is very different then my net worth number.
Would be great to hear how others got the ‘nerve up’ to exit the workaday world. That is my biggest barrier. Math says one thing (next year) but I’m not sure I can get my head around that.
I am so ready to leave my job, but financial prudence (i.e I vest in my pension in two years) keep me coming to work. That’s OK, I will be 54 and the wife 53 when we quit the rat race and start to have unlimited vacation days.
This would be a GREAT topic to cover. Perhaps I will. 😉
If we knew when we were going to die, we would all blow the money the month before we go.
Haha! That is true…but it’s a hard thing to predict.
“You’re already there!” – and yet, I just don’t feel that way! I’m hardwired to worry. Getting over the mental hurdle is the next challenge.
Exactly where I am. Would be great to see a dedicated thread on this subject – how others knew they were ready (not the financial part but the mental part).
I realized I was a workaholic and always put work ahead of most other things. I left to force myself to focus on other aspects of life.
I don’t think you ever know for sure. If you are a worrier, you will never stop worrying. Just have to do it and then be flexible. If your company offers LOA or sabbatical, that’s a great way to test out the waters.
I’ve been early retired for 11 years and I still worry. I worry about the fate of health insurance and maintaining or increasing standard of living. I have over 100x of living expenses, so I worry even though there’s nothing to worry about…
I’m a kindred spirit. Even though I know we are in solid financial shape, I still worry, but not as much as I used to. I left a corporate career in 2015 after working for 36 years. I transitioned to a founding executive role of a startup for the last 3 years. In some ways, it has been like taking a 3-year sabbatical. Some days are long and grinding but other days have been open to whatever I wanted to do. Now the business is starting to see a solid monthly recurring revenue and we are about to take the next step with a Series A raise to fund our growth and scale the business toward a possible buyout in a few years.
Of course, just as we begin liftoff of this startup business, I’ve been approached about possibly taking a very senior level job in a related field with all the perks and the opportunity to really finish my working career on a high. I’m 60 and part of me wonders what in the world I’m thinking but I’m more energized than ever having had time to recharge over the last 3 years and kind of excited about this new possibility.
I will know in a couple of weeks if this new opportunity turns into a real offer. Worst case, I continue to work the startup and hope we maintain the positive trend. In the final analysis, there is never really a right or wrong answer as the decision to retire and determine when “enough is enough” is such a personal assessment.
Hi, I enjoyed your interview and it was one of my favorite ones. Which do you love more, launching a new career/company or pursuing other interests such as traveling or other hobbies? I’ve wondered that since you have more than enough to do whatever you want. And I’m very impressed by your energy level.
My work was fulfilling, rewarding, and impactful, but honestly I didn’t enjoy it all that much at the end. Burnout, I guess. Looking back now, I look at what the company accomplished and am in awe.
Thank you, Joe. Launching the new company was very fulfilling and gave me an extra spark that I did not have at the end of my corporate career. However, starting a business from scratch does take a lot out of you and there are more lows than highs initially.
Because I have traveled so much throughout my career, that part of life is not as appealing as it once was. However, once my wife and I decide to hang it up and can travel together purely for pleasure, I may enjoy it more.
I do seem to have a knack for either starting or rebuilding a team and getting things to a point where they start to flourish but at this time in my life, I’m not sure I have the energy/desire to hang on for the long haul. This new potential opportunity has me thinking about one more good adventure for the last 3-5 years of my career and then walking away for good. We’ll see if an offer comes through and if it is as good as they made it sound. If not, I will soldier on with the startup a little longer but would probably only give that another 12 months or so and move on.
If my wife were to come home one day and say, “that’s it, I’m done” then I would probably hang it up right then and there and let us ride off into the sunset together. I’m sure that day will come at some point, just not sure when.
Love this! Apparently we are “already there”. Music to my eyeballs ?
Thanks for this! You made my Independance Day!
2 years to go!!!
I have 737 days left.
Wow. This has made my day. I’m 61, my husband is 67 and already retired. I just lost my job and was so worried about finding another one. I used your calculator and I’m already there! I had no clue.
Out of curiosity, what are your numbers?
$890K in a mix of 401k, IRAs, mutual funds and cash.
So you must either 1) have lots of retirement income or 2) have very low costs in retirement, correct?
Very low cost of living and no debt. I plan on going back to work (hopefully)
Thank you for doing this. It just shows what I all ready know. I can retire now if I wanted too, as I put what my wife’s pension would be in the side hustle. I also bumped up my spending by $20k over what we currently spend and it still said I have enough.
I am still going to work that extra 4 years as $24k in 401k and $6500 in Roth and $6500 in Roth for the wife will give us that extra cushion when I do retire at 59 1/2. I will ride out this wave of enjoying my job and earning that extra little bit before the next economic down turn.
Nice little calculator. I love your line, “If you don’t like the answer it gives, then change what you’re doing (the inputs) to retire earlier.” It’s that simple. Of course simple doesn’t necessarily mean easy.
ESI,
What are your assumptions regarding not depleting your assets before you expire? I’m more accustomed to seeing Monte Carlo simulation calculators that show a probability of depleting your assets by a certain age. Typically, these calculators show if you have a 90% probability of not running out of money before you die in “worse than average” market conditions, then you are OK. And in these calculators, you put in an expected survival age so you must have made another big assumption here.
It’s based on the Trinity study. Reference material:
https://en.wikipedia.org/wiki/Trinity_study
Here are charts with successes and ages (page 2):
https://www.forbes.com/sites/wadepfau/2018/01/16/the-trinity-study-and-portfolio-success-rates-updated-to-2018/
A simple version is that as long as you withdraw 4% or less, you should have enough money to last through your lifetime.
If you want some margins of safety (which I advise having), these do it:
*Earn a bit more in retirement
*Spend a bit less in retirement
*Withdraw less than 4% — if you can make it on 3%, things are very solid
The tool is meant to provide guidelines like this — not be and end-all solution. It’s meant to show the impact of one decision versus another and how a few, simple changes, can make a big impact.
Hope this helps…
Got it and agree. I’ve played around with some other Monte Carlo simulation calculators and found that if you go with 3%, you get close to 90% probability of not depleting your assets assuming you live longer than roughly 90% of the people in the US population. And in retirement, I’m going to assume I don’t work at all for pay so that’s my target. Thanks!
I love this calculator. It says I am FIRE a lot quicker than I would’ve thought. Now that is making some assumptions, but I like it nonetheless. I don’t know if I will RE when it says, but having this out there made my day.
Plugged in my figures and it showed that my plans are bang on target.
🙂
ESI – I’ve run some different scenarios through your calculator and found something that doesn’t seem right…spending of $125k, spending inflation of 2.5%, withdrawal rate of 4%, side hustle of $0, current assets of $3,045,000, annual investment return of 1%, $1 annual contribution to assets, and 0% annual increase in contributions produces a result saying I can’t retire for more than 100 years. If I leave everything the same but change the current assets to $3,050,000, an increase of only $5k, the calculator says I can retire in 0 years. Am I doing something wrong or are there some weird points of inflection or transition in the calculator formulas that are not self evident?
I emailed the developer to see what his thoughts are but here’s my guess:
Because you have the investment return, contributions, and return on contributions set so low, your money earns almost nothing — and before that $3,045,000 can get to the point where you can cover your $125k, inflation KILLS you and you never catch up.
The $5k added boost is enough to get you over the top (and keep you there) before inflation robs you.
That’s my estimation of what’s happening, but we’ll see what the developer says.
Hey – Chris (the developer) here. Happy to answer your question about the scenario you saw.
The conflict here comes from having the annual investment growth rate set lower than the inflation rate. In this case, the amount of money you have invested isn’t enough to substantiate a 4% safe withdrawal rate yet. Furthermore, having inflation exceed the investment growth rate would mean that every year in the future, you get *further* away from hitting your retirement number.
The reason that amounts of $3,050,000 and higher don’t show this is because it actually clears the safe withdrawal rate in the first year. $3,050,000 covers a first-year SWR of $122,000. Because of the nuances of the calculation, we back-calculate inflation against the first year spend, so $125,000 becomes $121,951.22. In this case, the SWR applied to assets is enough to cover spending.
That said, from a practical perspective, the expected investment growth rate should meet or exceed (inflation + safe withdrawal rate).
Hopefully that helps explain things a bit!
Thanks for this explanation, Chris!
This still doesn’t make sense to me. So I’m going to go back to the 2 examples I provided initially. If I start with assets of $3,045,000, grow those by 1% in the first year, add $1, and then treat my annual spend of $125,000 as though it happens at the end of the year (which is the most optimistic assumption that can be made as far as asset sufficiency/longevity is concerned), I end year 1 with assets of $2,950,451. If I grow that year 1 ending asset balance by 1% in the second year, add $1, and then treat my annual spend of $128,125 ($125k * 102.5%) as though it happens at the end of the second year, I end year 2 with assets of $2,851,832. If I keep rolling those same calculations forward into the future, I run out of funds in year 22. If I change my starting assets to $3,050,000, keep all other assumptions unchanged, and perform the same set of calculations, I still run out of money in year 22. But it was this latter scenario with starting assets of $3,050,000 instead of $3,045,000 that changed the calculator result from “can’t retire for more than 100 years” to “can retire today”, which according to ESI means that I should have enough assets to last me throughout my lifetime, regardless of how long that might be. Using my assumption set, can you show me how starting assets of $3,050,000 won’t ever be depleted during my lifetime?
First of all, I think you need to re-read what Chris said. It does make sense, at least to me.
Second, you know you should never base your entire life and financial security on any calculator, right? This and other calculators on the web are meant to be guidelines, not definitive answers, and if you’re basing any decisions on any calculator exclusively, that’s not wise IMO.
Third, is this an actual scenario you are facing or are you just trying to find a scenario that doesn’t play nice? I’m asking because some of the assumptions seem “unique” at best.
Finally, see my comments below to Jon…
I’m curious about some of the fringe solutions. For sake of discussion, if I change the annual expenses to $4,000, 20% inflation, $0 side hustle, keep the default 4% withdraw and $100,000 current assets, and set rate of return to 1%, it says I’m “already there”. Seems like that situation is a bit more “it’s complicated” than “pour the champagne”.
All in all, a very useful tool, primarily due to the simplicity. Sometimes the multi-tab spreadsheet model can only distract you from the point at hand.
Almost every calculator I’ve tried can get “wonky” with unrealistic or “fringe” assumptions. If you want to mess with almost any one of them, they can give strange results if you put in the right combination of factors.
I believe as long as you stay with realistic assumptions (will we really have 20% inflation — especially with a 1% return?) the calculator will give you a fairly accurate output. If you want to play with it to see if it gets “strange”, that will certainly happen as well, though those inputs are very unlikely to happen in the real world.
All in all, this is a tool to enable people to see: 1) roughly how close they are and 2) the changes/decisions they can make now to get them closer to retirement.
BTW, no one should EVER (at least IMO) retire when they hit the exact dollar to get them there — they should have enough cushion in case problems arise or unforeseen expenses happen.
Great calculator … Once I read you can add ‘additional’ income from other sources as a side hustle, the results came in …drum roll please … 8 years . I guess if I cut down on my expenses i could get to retirement sooner …but what fun would that be … ??
We can retire now and spend $100K a year for 40 years and be fine, but I have two more years til I vest in my pension. At this point, two years is worth an extra $35K a year. But we have extensive travel plans, so working two more years will make it so spending $175K a year is easier.
This is a great calculator. It does not have a cell for pension income. I just added that in the side hustle cell. The numbers look good. We are on track.
Nice widget – I like the quick check approach.
Can the pension and social security included in hustle money ?
My husband is 51, although we have 2.3 million not including the residential house . We don’t invest every single penny . I guess we just invest 1.7 millions . the rest of 500K are in money account that have very little interest all over the places. . I assume we just calculate the ROI based on 1,7 million ?
Yes. You can actually put any extra income in that spot.
As for the other money, you can do one of two things:
1. Just put in the $ you think you’ll earn a decent return on (i.e. 8% in stocks) and use that amount and return rate.
2. Put in ALL the assets you have and use a blended return rate that reflects 8% on some on 0% on others.
ESI,
Another straight forward and reasonable article to follow. Thanks for sharing. It May be beneficial for some of the new readers to your site if you could add a couple features to your already easy to manage calculator. Current age, married or single to define duel incomes, SS and/or pension projects and lastly number of remaining years you will be making annual contributions to your portfolio.
The reasoning being, some of us in the FIRE community can factor the other variables intuitively and mathematically to get a more precise calculation based on all variables in our specific situation.