The 4% rule, stemming from the famous Trinity Study, determined that a 4% withdrawal rate worked 95% of the time in historical retirements. In my post on how much you need to retire, I talked about the 4% rule of thumb. One of the most important assumptions is how much you need to retire. If you want to do your own calculation, you can adjust any of these to your liking. Since there are some unavoidable uncertainties, it’s important to clarify what assumptions I’m making. The assumptions I’m making for calculations Unfortunately, predicting inflation isn’t easy either.īy the way, I wrote a crash course on inflation and another post on how I’m beating inflation if you’re interested. The hope would be that income increases as fast, or preferably faster, than inflation. Inflation plays a big part in this type of prediction. I have a slightly better perspective on my expenses, but even so, there is uncertainty. But if you asked me to predict what I’ll earn when I’m 30, I really don’t have a great idea. I have a bit of an idea of when I can expect raises, and by how much, for the next couple of years. Second, predicting income and expenses can be challenging. If anyone tells you they do, they’re trying to steal your money. I use historical returns as a baseline, but we never really know. We’ll have to make some guesses about this because nobody knows what the market returns are going to be in 30 years from now. It’s impossible to know what a safe withdrawal rate is without knowing the future. The further you are from retirement, the larger the impact of investment returns on your portfolio.Īn even larger impact is how your portfolio does after you retire. Real investment returns, meaning inflation-adjusted investment returns, will influence how quickly your wealth grows while you’re working, so it will play a big role in how quickly you have enough to retire. The unpredictability of investment returnsįor one, it is very difficult to predict investment returns. This uncertainty will influence a couple of things. A theoretical retirement date is always just a prediction, nothing more than that. When you can retire will never be more than a predictionīefore we start, a word of caution. You’ll need to know a few things about your personal finances, and you’ll have to make a few assumptions. Luckily, this isn’t actually a very hard prediction to make. This is unfortunate, because, if you’re like me, you’re often asking “When can I retire? Am I on track?” If the retirement calculators don’t do the job very well, we might have to do it ourselves. So last week I talked about how a lot of retirement calculators really suck. If you prefer, you can even work backward from a target retirement date. Even better, there are calculators that can help. You’ll have to make a few assumptions concerning income, savings, and investment returns, but the math is simple. TLDR: Do you ever ask “When can I retire?” Many retirement calculators aren’t made for people seeking early retirement, but we can do the math ourselves.
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