For the past few years, despite thinking I’ve been spending a lot of money at times, I’ve actually kept my spending to around $22K, excluding rent, despite living in the most expensive places in the U.S. If I move out into a cheaper living arrangement, then I can keep my expenses under $30K a year. Let’s assume for the sake of argument that if I get married, I’ll make the wife work to earn her share and if we have kids, then I’ll jump in part time to save for college expenses. Otherwise, I won’t do a thing. To determine whether I can retire early, I used a website called www.firecalc.com.
What is FireCalc, you ask? Well, after you enter in your variables (e.g., desired income, retirement assets, asset allocation, retirement date, life expectancy, etc.), it determines how much money you would have left assuming you started investing in various years. Basically, it runs your numbers through all of the historical data it has. Then it tells you the percentage of time periods you would have run out of money. If you are successful 100% of the time, chances are you won’t go busto.
So I can FireCalc using $200K as a starting point, with $70K in contributions a year for five years and a 75%/25% stock to bond allocation. My withdrawal rate is $30K. I need this money to last until I’m 60 and can start drawing down my retirement funds, which hopefully will be sufficiently large that I can live off of that from 60 onwards. I’m not sure about the last part though…
Here are the FireCalc results:
As this chart shows, after five years, my savings could last for 30 years over all historical periods for which data is available. At a minimum, I would have $800K and at a maximum, $6.7M in 2045 dollars. Not too shabby. In five years, my retirement account will have an extra $75K in 401(k) contributions and $25K in IRA contributions, doubling my current retirement savings to $200K. Let’s say I get 6% return on that money — I’ll have $1.2M in 30 years. So I’ll likely start retirement with $2M, even in the worst 30 year period! Not too shabby!