FI/re?
10-14-2016, 12:58 PM
#1
Moderator Alumnus
Thread Starter
FI/re?
Out of curiosity, Does anyone ever ponder the concept of FI/re?
as per the financial independence reddit group?
I've brought it up to several people, who seemed surprised by the whole idea.
I thought it would be interesting to post/discuss here.
It's basically based on two ideas:
1) The Four percent rule aka the trinity study, which says that you can spend roughly 4% of your savings a year and last 30 years before you are broke. (assuming it's invested appropriately)
2) The S&P/Dow grows roughly 7-8% every year (averaged over decades), and likewise low cost indexes should average roughly the same amount.
So the FI/re crowd (financial independence/Retire Early) consists of people who:
1) start investing ASAP, ideally as soon as they start working.
2) Keep their annual spending (roughly) under control to X dollars a year
3) Wait until their savings, via compounding, grows to 25*X (4% rule), and then they retire.
Or, if they retire longer than 30 years, typically they drop back to 3% (33x).
My wife and I have been playing with numbers using retirement calculators.
It's eye opening to just punch into a compound interest calculator (Save $X for Y years at 7% growth)
I was fortunate (lucky?) enough to start saving in my 401K as soon as I started working.
I sure wish I'd saved more though, and my wife is now inspired to start saving more, which is great.
One interesting thing, for example, is the sequence of:
Work until age X
Retire
take SS at year Y
Most people assume X=Y and for many people that's true.
It was quite the relevation to see the retirement calculator tell us that for our goal,
X was less than Y. I.e. we could retire, spend savings for a few years, then take social
security. That was not something we'd really considered. (Did you know max payout at 70
is $3576 a month but the average person gets $1300?)
Will we actually retire on that day? Probably not. Life happens. Regulation changes happen.
We'll recheck the numbers once or twice a year, and see how things are going. It's
very interesting, though. (I admit to being a numbers geek)
as per the financial independence reddit group?
I've brought it up to several people, who seemed surprised by the whole idea.
I thought it would be interesting to post/discuss here.
It's basically based on two ideas:
1) The Four percent rule aka the trinity study, which says that you can spend roughly 4% of your savings a year and last 30 years before you are broke. (assuming it's invested appropriately)
2) The S&P/Dow grows roughly 7-8% every year (averaged over decades), and likewise low cost indexes should average roughly the same amount.
So the FI/re crowd (financial independence/Retire Early) consists of people who:
1) start investing ASAP, ideally as soon as they start working.
2) Keep their annual spending (roughly) under control to X dollars a year
3) Wait until their savings, via compounding, grows to 25*X (4% rule), and then they retire.
Or, if they retire longer than 30 years, typically they drop back to 3% (33x).
My wife and I have been playing with numbers using retirement calculators.
It's eye opening to just punch into a compound interest calculator (Save $X for Y years at 7% growth)
I was fortunate (lucky?) enough to start saving in my 401K as soon as I started working.
I sure wish I'd saved more though, and my wife is now inspired to start saving more, which is great.
One interesting thing, for example, is the sequence of:
Work until age X
Retire
take SS at year Y
Most people assume X=Y and for many people that's true.
It was quite the relevation to see the retirement calculator tell us that for our goal,
X was less than Y. I.e. we could retire, spend savings for a few years, then take social
security. That was not something we'd really considered. (Did you know max payout at 70
is $3576 a month but the average person gets $1300?)
Will we actually retire on that day? Probably not. Life happens. Regulation changes happen.
We'll recheck the numbers once or twice a year, and see how things are going. It's
very interesting, though. (I admit to being a numbers geek)
