You can use this KFF website to estimate your cost: Health Insurance Marketplace Calculator.Ī key question is to figure out the income once you are no longer working. Health Insuranceįor people in the US who get their health insurance through employers, and are less than 65 years old (Medicare is not there for you yet), you need to buy health insurance (known as ACA or Obamacare) to bridge to Medicare. Want to play with different portfolio assumptions? Use this nice simulator: cFIREsim (Crowdsourced Financial Independence and Retire Early Simulator). You keep buying the shares of your selected funds, until one day you see the portfolio value reaches your magic number!
These index funds are passively managed so they have very low fees. You can buy Index Funds represent S&P 500 from almost every investment management company. That means your stocks can be just S&P 500. And almost all of them either do not tell you exactly what stocks they selected, or just use historical US market data. Investment PortfolioĪlmost all the research that leads to 4% assumes some investment portfolio like 75% stocks and 25% bonds. My post dives into the original 4% paper: The 4% Maximum Safe Withdrawal Rate. See Table 1 & 2 in the updated Trinity Study and decide for yourself: Portfolio Success Rates: Where to Draw the Line. Some people may argue 5% instead of 4%, because they are feeling lucky. That’s why people say to live below your means, and don’t do lifestyle inflation as you earn more.
This is a number to maintain your current life style. Note that the magic number does not include if you need something extra, like health insurance, additional traveling, or that you suddenly want something expensive. The research assumes 30 years of portfolio longevity and uses historical US market data, so if you want the portfolio to last longer, divide your annual expense by 3.5% or 3% if you want 100% success rate. For example, if your annual expense is $40,000, then you need $1 million as your magic number. The general idea is that you figure out how much you spend in an average year (or more precisely, how much you think you would spend on an average retirement year), and divide that number by 0.04 or 4%, and what you get is the magic number you need to achieve in order to buy you financial independence. Prior researchers (William Bengen and Trinity Study) already put effort on this, so we have a direction. The first question people ask is how much money do I need, and obviously that depends on your life style. While this guide is heavily focused on the US, I share the French perspective that life begins when work ends, rather than the typical American view that work enriches and enhances life. If you follow the guide and do well, you can achieve retirement before the normal retirement age.
#THE SHOCKINGLY SIMPLE MATH EARLY RETIREMENT HOW TO#
This guide will provide more information on how to get there, but not so much on life after.
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