When will I be able to retire?

First things first. We are throwing out the notion that you are “supposed” to work for 40+ years then retire at 65. Doing so is perfectly fine, and many have found fulfillment and financial success that way.

But it shouldn’t be the default.

While there is no inherent problem in working for someone else your entire career, and retiring once you are eligible for social security and other government incentives, we are here to tell you that there is another way. There is no reason why being financially independent at 65 (the traditional retirement age) should be more “normal” than finding financial independence at 40. The “normal” way of going about planning for retirement is just one option among many that people tend to blindly walk into. (click to tweet).

Your financial independence is determined by your passive income, not your age.

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Let’s be mindful about this and consider whether or not financial independence and retiring early (AKA FIRE) is really feasible. Fundamentally, this problem breaks down into two pieces if we are to arrive at something of a retirement calculator that answers the question, when will you be able to retire?

  1. How much money will you need to retire?
  2. How long will it take to obtain the amount from step 1?

Below we will walk through an example before laying out various personal scenarios, so you can find the one that most closely matches your situation!

Step 1:

This one is not too hard.

In general it is recommended that you have a stable source of income of at least 70% of the income you had while working. So, if you make $50,000 now, you will need approximately $35,000 of income in retirement.

Additionally, it is generally accepted that you will be able to withdraw 4% of your nest egg per year based on well established financial instruments.

This puts someone making $50,000 per year at a required nest egg of $875K.

Step 2:

This one is a bit more complicated, but bear with us.

In order to answer the question, how long will it take to save $875K? One needs to consider two factors:

  1. What is your annual savings rate?
  2. What is your expected annual return on your savings?

The higher both of these components are, the quicker you will achieve financial independence. It is also important to note that you cannot simply add up with annual savings you expect to make, given that your savings early on will have more time to grow and compound. Think something like the following:

You will need to work for as many years as it takes the expected future value of savings to exceed $875K (in the example above). See directly below for an illustration of how this works when saving $15K per year at an expected 8% return.

Years Until Financial FreedomRunning Total Savings
22$15,000
21$31,200
20$48,696
19$67,592
18$87,999
17$110,039
16$133,842
15$159,549
14$187,313
13$217,298
12$249,682
11$284,657
10$322,429
9$363,224
8$407,282
7$454,864
6$506,253
5$561,754
4$621,694
3$686,429
2$756,344
1$831,851
Free$913,399
In this example, each year you earn 8% return on the amount you had in the previous year, and add $15K in new savings.

So there you have it, given the above characteristics, it would take 22 years for this person’s passive income from investments to exceed their expenses.

Okay, but what about given MY characteristics? The beautiful thing about thinking this way is that if we assume everyone will need 70% of their income before retirement, and everyone will be able to withdraw 4% of their nest egg, the only things that matter to determine the age at which you will reach financial freedom are your savings rate, and your expected return on investments.

Here is a table which shows the number of years it would take you to reach financial independence given a combination of different savings rates and expected return on investments. Find out when you will be able to retire based on your current savings rate and investment returns!

Percentage of income saved per year

10%20%30%40%50%60%
6%413125221917
7%382924201816
8%352722191715
9%322521181614
10%302320171514
11%282219161513
12%272118161413
Expected investment rate of return on vertical axis

To reiterate these results in an example, if you saved half of your income every year and obtained a 10% average return on your investments, you would obtain a level of passive income that exceeds your expenses in a short 15 years.

The main takeaway is that more savings is going to get you to financial independence much faster. Okay, you knew that already though. So how do you choose which pleasures in life you are willing to forego in the name of financial freedom? Find out a framework for answering this question in any given scenario you may find yourself in here!

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