I have been thinking about this for a long time and am going to start planning in ernst for fire now. My wife and I have been saving and investing for a long time. Not sure if we are making enough progress. However I would like to really get started this working fore my goal. Any suggestions?
You need to take inventory of where you are, what you have, where you want to go, what you need when you get there.
The plan for how to get there might then become obvious.
Here are some thoughts:
take your current take home income (annual) and divide by .04. This is a reasonable savings goal. Compare this to what you have saved already.
take your current annual expenses, and divide by .04. This is an alternate savings goal. Compare this to what you saved already.
If you have more saved than the result of dividing by .04, you might be able to retire today.
second step, take the expense calculation above (expenses/.04) and use this as probable retirement goal (if 4% of your savings can pay for current expenses, that is a positive step towards retireing).
Choose an age you want to retire.
The put the age and goal on one line.
subtract 8 from your age, then divide the goal in half.
subtract 8, then divide the above in half again.
Keep repeating (subtract 8 from age and halving the goal)
Once the age column comes close to your current age, compare the "goal" of the formula with what you have saved. If your savings exceed the goal, this is a good sign you have already set aside enough to retire on, you just need to let compounding work over time.
Example:
My take home pay is 48k per year (after taxes, 401k contributions etc..)
48/.04=1.2 M
so 1.2 M is the goal for me to retire and maintain my current expenses.
age of 60 is when I choose to retire
age 60 goal 1.2 M
age 52 adjusted goal $600,000
age 44 adjusted goal $300,000
age 36 adjusted goal $150,000
age 28 adjusted goal $75,000
age 20, adjusted goal of $37,500
I am older than 28 and less than 36, with close to $125,000 in retirement accounts. Meaning if I can get $25,000 in my retirement accounts within next 2-4 years, more than likely retiring at 60 will be easy. Assumes 9% return (money doubling every 8 years assumes 9% return using rule of 72)
The next goal would be to skip down a full 8 year period. Like $600,000 by age 44... this means early retirement is clearly viable.
Note that if your expenses go up over time, then readjust the calculation as needed (I expect my expenses to go up, so I know my final goal will be north of the 1.2 M goal I have set.
