Simple Retirement Calculator

Sep 6, 2017 / Finance / retirement / financial independence retire early (FIRE)

 

After I stumbled into this idea of Financial Independence Retire Early (FIRE), I became obsessed with creating a simple retirement calculator for office workers like me who have a full-time day job but want to do something else. How many years would it take to become financially independent?

That’s the purpose of this retirement calculator.

But first a disclaimer. This blog post is not a substitute for legal and financial advice. Consult a legal & financial professional for specific advice about your situation. The Terms & Conditions page has more details on this point.

Retirement Calculator Variables

Having said that, there are six variables to this retirement calculator, and I’ll explain each one below.

Take-Home salary is what you receive in your bank account every month x 12. This amount is net of all the income taxes and health insurance premiums and other deductions that are taken from your salary.

Savings Rate. The more you save, the faster you’ll achieve retirement so that you can become what you want to be. Enter a percentage from 0–100%. It would not make sense obviously to input 100% unless all your living expenses are paid by your parents or a fairy godmother.

Salary Growth Rate. Enter your salary rate increase. Entering 0–3% would be reasonable, but if you think you’ll get salary increases higher than that, then enter that percentage.

Starting Portfolio are funds that are liquid—meaning you can convert them into cash without any problems. This includes tax-deferred vehicles like the Canadian RRSP, the US 401(k) and its many variations, and what’s in your brokerage and taxable savings accounts. I would -not- include the value of your house or car unless you are willing to sell them and invest the proceeds.

Portfolio Growth Rate. Enter what you think you can achieve as a return in your investments. 1% - 6% would be reasonable. You can put your money in a high yield savings account, with virtually no risk, at 1.2% right now at Barclays, so that is doable. 6% is a conservative rate of return if you put your money in an index fund. 1% is conservative and 6% is riskier.

Expenses During Retirement. Enter how much you’ll need once you retire from your day job. The amount should include all your living expenses from housing + food + health insurance + art expenses + entertainment + vacation + car operating expenses. For example, I’ve estimated that I will need 40,000 per year to cover these expenses. Yours will be different. What does an average retirement look like? According to a 2016 Bureau of Labor Statistics study,  retirees over 65 years old spend an average of $45,756 per year or $3,800 a month during retirement. As a comparable, all U.S. households spend about $4,800 per month on expenses. So my annual number of $40,000, which is $3,333 per month, is lower. I’m not 65 yet. I live a relatively frugal lifestyle. Your annual target number will be different.

You can play around with this number and make it lower. If you estimate you can earn 10,000 (net of commissions) annually from your future business, then you could enter 30,000. That’s the amount that your investment portfolio will have to cover annually. To be conservative I would put in the full amount (the 40,000) without reducing it for income generated from your business. In this way, if the world comes to an end and your dream doesn’t generate minimal income, you’re still covered by the income generated by your portfolio.

Once you input your estimates, the graph will update and you will see the number of years that you will need on the x-axis. It’s where the red line and one of the bars intersect.

What we can learn from this calculator

You can play around with this calculator. You will then realize that all these factors are all interrelated, but some factors are more important.

Obviously, the higher your pay, the faster you can get to financial independence. So if you are in a high paying job, congratulations! The key now is to save like hell, retire early and become a full-time entrepreneur later.

Your savings rate determines financial independence more than anything. As you can see in the graph, the power of compounding is minimal at the beginning of the process (the gray portion of the vertical bars). What you put in (the green bars) comprise most of your investment portfolio. Your goal is to retire early so you can be free, so the most important thing to do is save. Pay yourself first as they say.

The optimal scenario

If you are fresh out of school from an accounting degree and say you get a job where your take-home pay is 70K. If you save 50% (or 35,000 per year), assume a 3% raise per year, a 6% return in your investments, and cash needs of 40K/year at “retirement,” then if all goes well, you could retire in 16 years!

That’s not bad. If you graduate at 24, you could be a full-time entrepreneur at 40 years old. You have your whole life ahead of you without any worry that you’ll make money.

And the thing is, you will make money because you are free to fail and try again.  It will happen if you have faith. Anything you earn just becomes extra money.

All it took was to save like crazy for 16 years and then retire early. It is a lot of sacrifice, but to earn your financial freedom at 40 years old, I think it’s worth it.

If you can’t save 50%, then save 40% or 30%. Put it in the calculator and see what it says.

For Artists Who Started In Another Career

As for me, I wanted to be an artist.

The simplest and widely accepted way to become an artist is to go to art school, create your art, and make money from it. Over time, hopefully, you become successful financially.

But what if you didn’t start out this way? What if you already are something else, like an IT person, a nurse, or an accountant. What then?

An alternate way that FIRE suggests is to stay in your job, save a lot, build a sizable portfolio, retire early, and then become an artist. In this method, you don’t worry about making money at all since all your expenses are covered by your investment portfolio. This is now the path that I’m following because I didn’t start art early enough. Inputting my numbers into this calculator, I estimate I’m about 2 years away from “retirement.” Then I will be a full-time artist. And I did it by charting my own path to art.

Online Retirement Calculators

Now that I’ve sparked your interest in financial planning and retirement, here are other retirement calculators to check out.

Retirement Calculators for everyone (general purpose)

Retirement Calculators for USA Residents Only

Haircutting 101: the Coronavirus Edition
Coronavirus vs FIRE
What I Would Have Done Differently To Become An Artist

About the Author

Jonah Calinawan

Hello! I’m Jonah Calinawan, an accountant turned artist.

I create cyanotype art that makes you think and write about the creative mindset to help and inspire you.

When not shooting photos, I teach myself piano and recommend pianist Josh Wright’s Propractice tutorials (affiliate link).

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