How Much Do I Need To Retire Early Calculator

What Is The Average Retirement Age

The average retirement age is 64 for men and 62 for women, but before you start counting the number of years you have left in the workforce, you may want to know some crucial factors.

About half of workers intend to continue working past age 65, and many retirees return to work. Some cut their workload to part-time, and others choose to change careers. Some retirees even return to working full-time and retire again later. In other words, the average retirement age isnt very clear-cut.

Additionally, if you base your decision on the average retirement age of 61, you wont be able to collect your Social Security benefit and you wont be eligible for Medicare.

Basing The Calculation On Spending

For many, a better method for calculating retirement savings is to base the calculation on spending instead of income. This method can be useful for anyone, regardless of whether you are a spender or a saver.

The amount you spend in retirement will likely differ from what you spend today. For instance, you could pay off your mortgage before retirement, so you will not have a monthly mortgage payment. If you have children, they may be living on their own, so you no longer need to financially support them. You will also no longer have costs associated with work, like child care, commuting and business attire.

However, you might have new expenses in retirement. The most significant financial concern for seniors is medical care costs, including out-of-pocket prescriptions. Health care can be expensive, and it may be wise for you to have enough saved to ensure you can cover these costs without incurring debt or burdening your children.

You may also want to outsource some of your housekeeping tasks such as shoveling snow, cleaning gutters, and raking leaves all of which you could struggle to perform yourself or possibly not want to deal with in your golden years. Many retirees also use their retirement years to travel and explore hobbies, which can get expensive.

Considering that your current expenses can decrease, but you will also have new ones in retirement, it can be reasonable to assume that what you currently spend is close to the amount you will spend in the future.

So How Much Do I Need To Retire Early

To figure out how big of a portfolio you need, just take your budget and divide by the withdrawal rate. For a $40k budget, the amounts you would have to save are as follows:

$40k ÷ 4% = $1 million$40k ÷ 3.5% = $1.14 million$40k ÷ 3% = $1.33 million

While it sounds nice to have an invincible portfolio, saving additional hundreds of thousands of dollars can take some time. The odds are still pretty favorable for the 4% rule, and really good for the 3.5% rule.

Optimally, I would die having spent my last penny, or maybe even in debt take that banks. But I know my brain loathes uncertainty and wont let me optimize that much. For me, a 3.5% withdrawal rate is more than safe enough.

The thing is, some flexibility might allow you to retire earlier. Even with the 4% rule, there is 81% chance youd end a 60 year retirement with a portfolio the same size or even bigger. You could always tighten your budget during a recession, or go back to work while stocks are on sale. Earning a little supplemental income could also get you back down to a safer withdrawal rate.

The trouble with making these decisions is the possibility of regret later in life. If you retire earlier, there is a chance of running out of money. If you work longer, you might run out of time. When making this decision, it may be helpful to consider that most older people wish they had traveled more, worked less, spent more time with friends and family, and taken more risks.

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How Much Do I Need To Retire Early At Age 50

This couple recently left their twenties, and theyre starting out slow and steady. Their home is modest, and their expenses moderately low. And although they have a fair amount of debt and pay higher interest rates than some, theres still time to pay debt down and refinance for better rates to save more money. One thing this couple is doing right is investing a larger percentage of their savings in stocks. Over time, that should pay off and help their plans to retire in 20 years, at age 50. But they still have room to improve.

Heres a snapshot of where they are today:

• Ages: 30
• Amount added to savings each month: $900
• Percentage of savings in stocks: 30%
• Other debt: $15,000

This couple is starting young to retire young. But at the rate theyre going, their savings is projected to dwindle by the time they turn 69. With their income, they can afford to max out their 401 and IRA contributions and save more than their current savings contribution of about $900 monthly.

A nick of time strategy where savings is projected to deplete when projected life expectancy comes could easily create a shortfall. Many people live well past their late 70s, and that is a time when health care costs could skyrocket.

Theyre on track to have between $560K and $990K when they retire at age 50. But their projected retirement needs fall between $700K and $4.4M. If they added a lifetime annuity, Medicare Supplemental Insurance, and long-term care insurance, their need could change to $1.4M.

Whether You’re Still Working

Once you reach your full retirement age, you can continue to work and still get your full Social Security benefits penalty-free. Individuals under full retirement age for the entire year who have already begun claiming benefits and earn over the annual limit will be penalized with a $1 deduction from their benefit payment for every $2 earned above that limit . You’ll still get credit for those earnings, and the SSA will recalculate your benefit once you reach full retirement age.

» CALCULATOR: How much money will you need to retire at 67?

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Income And Percent Of Income To Save

Deciding what percentage of your annual income to save for retirement is one of the big decisions you need to make when planning. If youre just starting out on your retirement planning journey, saving any amount is a great way to begin. Just keep in mind that youll need to keep increasing your contributions as you grow older.

So how much is enough? Financial services giant Fidelity suggests you should be saving at least 15% of your pre-tax salary for retirement. Many financial advisors recommend a similar rate for retirement planning purposes.

But even then, the 15% rule of thumb assumes that you begin saving early. It also assumes youd be comfortable replacing 55% to 80% of your pre-retirement income. If you start later or expect youll need to replace more than those percentages, you may want to contribute a greater percentage of your income.

How Does It Work

A 401 plan helps you save pre-tax dollars, which can grow without being taxed until you start withdrawing amounts from the plan. This feature is especially beneficial if, like most people, you will retire in a lower tax bracket. Your 401 also has the ability to grow faster than similar investments made to ordinary taxable accounts, because the interest you earn on your investment grows tax-free.

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How Little Do I Need To Retire

If you decide you only need an income of $40k, instead of $60k, you can quit your job much earlier. You just pocketed a few years of your life back, and likely saved yourself a couple hundred grand!

Maybe youd be happy working part-time or having a house-mate. Or getting away from the noise and traffic of the city.

It wouldnt be too hard to use a couple of these strategies in combination with a smaller portfolio to retire much, much earlier. Make no mistake, the FIRE journey is not about sacrifice.

What Is A Fire Calculator

If youâre not familiar with FIRE or the FIRE movement, a FIRE calculator might seem like something youâd use in physics or chemistry or maybe at Burning Man. In personal finance, FIRE stands for Financial Independence Retire Early and a FIRE retirement would apply to anyone who leaves their job or career because they arenât dependent on the income anymore.

Some people have achieved a FIRE retirement at 35 or earlier based on being able to maximize their income, savings and investment style and minimize their expenses down to only spending on things that bring joy and fulfillment.

Many FIRE retirees spend their time traveling the country or world. Ultimately, you donât have to make a ton of money or start from silver spoon beginnings to achieve this new definition of financial success. Anyone can join the FIRE movementâand thereâs a pretty compelling case for why everyone should retire earlier than 65, as the government would have it.

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Non Tax Deferred Individual Retirement Account

The Roth IRA was named after Senator William Roth of Delaware. It’s an individual retirement account similar to the traditional IRA except that you are taxed upfront. This makes the money tax free when withdrawn in retirement. For reference, the 2014 contribution limits were $5,500 with an additional $1,000 for those 50 years or older. One small twist with the Roth IRA is that there are income limitations. If you are single and your adjusted gross income is greater than or equal to $114,000 there is a reduced contribution amount. For couples the limit is greater than or equal to $181,000. See IRS Publication 590

Start Testing Your Retirement Budget

Youll have a much better picture of your retirement spending if you start living as close to your dream retirement life as possible before you quit.

On our journey to financial independence, we did work and save a lot, but we also pursued our passions as much as possible we just found ways to do them cheap.

Chillin on the cheap in Puerto Rico

By the time we quit our jobs, we had a very good idea how much it would cost us to practice our hobbies, eat and drink like kings, and go on tropical vacations like surfing in Costa Rica multiple times a year. So far, our spending has looked about the same, if not a bit less than when we were working.

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If You’re Eligible For Benefits On Someone Else’s Record

If you’re half of a twosome even a divorced twosome the effect of all the issues above should be considered for both parties and, if living together, on you as a couple. For example, a spouse in poor health may want to start benefits earlier while the healthier one delays filing. Or if you’re the higher earner, you may want to delay receiving a heftier benefit while you’re still alive and, if you die first, leave behind higher survivor protection for your spouse.

Comparison Of Best Retirement Plans

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Am I Eligible For Old Age Security

Eligibility for Old Age Security depends on how much income you earn. The default value in the calculator is the 2019 maximum monthly payment regardless of your marital status. You can check the latest Old Age Security payment amounts to find out exactly how much money you’ll receive – and add it to the calculator for more accuracy.

Using This Retirement Calculator

• First, enter your current age, income, savings balance and how much you save toward retirement each month. Thats enough to get a snapshot of where you stand. The calculator assumes increases in salary and inflation.

• Want to customize your results? Expanding the Optional settings lets you add what you expect to receive from Social Security, adjust your spending level in retirement, change your expected retirement age and more.

• Hover over or tap on the color bars in your results panel to get further insight into where you stand.

• You can adjust your inputs to see how various actions, like saving more or planning to retire later, might affect your retirement picture.

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Increase Your Savings By 20x

Weve talked a lot about saving here on this blog so far. And thats because Im lazy!

Not lazy because I cant think of anything else to say. But lazy because saving is the easiest money you can make. I hinted at it before, but let me explain

Lets say weve got a household who spends $60k per year. Perhaps they read an article about treating their finances like a business.

Then, they read my article of how we retired in less than 10 years, by building up our investments and cash to 20 times our annual spending.

After this, they decided to optimise their spending and live on $50k per year instead. Its only 10k per year difference, which doesnt sound like a lot. But in reality they are better off by $200,000!

How?

Well, their $60k annual spending required a net worth $1.2m to sustain them. But with their new $50k spending, now they only need $1m. Hence, they are now $200k closer to financial independence!

If they can only manage to shave their expenses down by $5k, they still move their target closer by $100k!

Basically, this means any reduction in annual spending has a 20x benefit!

Make no mistake, there is a direct link between desired spending and retirement. Folks can happily work for decades building their equity well into the millions, to pay for the lifestyle they apparently need.

Thats fine, but its not for me. And if I had to guess, Id say theres plenty of people out there who would rather just get their life back first.

Savings And Spending Shape Outcomes

The first question posed when considering early withdrawal often relates to the amount of money saved. How much of a nest egg is required, before bowing out becomes a realistic possibility? While certain standard calculations are used to identify a number, others factors influence projections. Spending habits, for instance, may have more impact on departure scenarios than income.

Investment advisors have been known to float an 80% income replacement ratio as the bare minimum needed for a comfortable retreat. In other words, keeping pace with expenses after retiring will call for 4/5 of your standard annual income earned while working. While the ratio provides a starting point for advanced planners, it is theoretical, and may not reflect your actual needs. According to one noted Wall Street Journal columnist, Jonathan Clements, there is a strong likelihood a cozy lifestyle might be maintained for far less. In fact, a 2014 survey conducted by T. Rowe Price showed content retirees living on an average of 66% of their pre-retirement incomes.

Spending behavior works alongside savings, shaping available resources. Are you mindful of household cash flow, devising ways to trim unnecessary spending? Or do you cycle through monthly income without recognizing exactly where your money goes? The latter is an uphill battle toward departure from the workforce, because break-even budgeting does not adequately accommodate post-retirement income needs.

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Budgeting Builds Retirement Resources

Too often, spending mirrors income, overtaking need, in favor of ill-advised purchases. As a result, disposable income disappears before it can be earmarked for retirement. And even worse, unsound spending practices continue beyond working years, depleting post-employment income faster than it can be replaced. To lay the groundwork for early retreat from employment and enjoy comfort beyond working years, prudent planners devise workable budgets and stick to their terms.

Household budgeting balances income and expenses, with a purpose. For those struggling to keep pace with daily spending, the function is simply to cover outstanding obligations. But with other objectives in mind like retirement accounting for personal finances takes on additional aspects.

Successful budgeting establishes spending categories, which break-down cash flow into manageable segments. The idea is to track money spent in each area, uncovering opportunities to trim spending, without compromising lifestyle. Typical categories include:

• Housing/Mortgage/Rent
• Insurance
• Automobile

While an addition category accounting for savings is a good idea for anyone crafting a personal budget, those aiming for early withdrawal from gainful employment are well served by a classification earmarked exclusively for the purpose of setting-aside funds to make it happen.

What Percentage Of My Income Should I Contribute To My 401

You can use the 401 calculator to get straightforward, dollars-and-cents answers to many important questions about your retirement. When it comes to how much you ought to be saving, however, things arent quite so simple. It depends on your age, how many years you plan to work and, ultimately, on the kind of lifestyle you want to have after you retire.

Some advisors recommend saving 10-15% of your income as a general rule of thumb. If you save that much from the time you first start working in your 20s until you retire, that may be fine. If youre starting your retirement savings later in life, however, you will want to save more than that to try to catch up. While there are few hard and fast rules on exactly how much you should save, here are some general guidelines:

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