But you can get closer by making smart decisions, avoiding debt, and living simply. Safely, meaning you will never run out of money. If your savings rate is 25%, you can retire in 31.9 years. 50%, you can retire in 16.6 years. And if you can somehow save 75% of your income, you can retire in 7.1 years. Now getting to that savings rate might not be easy in our world of societal pressures, keeping up with the Joneses, and bad habits. If your savings rate is 10%, you will be able to safely retire after 51.4 years. For example, if you have a $1,000,000 net worth, and you live on $40,000. Let’s break it down further to know when you can retire. The most important concept is knowing your savings rate, basically how much you make minus your expenses. If you spend 100% of your income, you will never retire, because you will never be able to invest any money that earns money for retirement. If you spend 0% of your income, you can retire right now, because somehow you are living without needing to make any more money.īetween 0% and 100% are a number of savings rates that correlate with the years it will take to retire. For this, let’s assume your annual investment return is 5% (which is conservatively low) and your withdrawal rate is 4%… meaning you spend 4% of your net worth each year. As soon as your investments earn enough money for you to live on each year, you are able to retire. This could be investing in stocks or bonds, real estate, or any other of investment vehicles. You need to invest money so that it earns more money. While the ability to retire may seem like a distant and unreachable goal for many, the premise comes down to one thing. Also, check out this cool early retirement calculator. I credit a lot of this work/theory to Mr Money Mustache. What do you think? Is this amazing or crazy? What is your savings rate? What other personal finance questions do you have?
I hope you enjoy! And like I say in the video, please like and share this video, then leave a comment. Since I make videos, I wanted to take his theories and break them down into a digestible video.
Money Mustache who wrote a great article on the shockingly simple math behind early retirement. I’ve been a personal finance nerd for a while, and the idea of early retirement is really interesting.
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