Welcome to Richer by the Day, a blog about personal finance, investing, and all things money. Take some time to read my latest blog posts, browse the categories and archive, and subscribe to my feed via RSS or Email. You can also stay up to date by following me on Twitter. If you find the information here useful, you can help support this site by visiting our advertisers and sponsors. Thanks for visiting!

Before I begin, let me issue a little warning about this post.  What follows is a stream of consciousness type account of some of the things I’ve been thinking about lately regarding calculations for early retirement. I hope that this post generates a discussion rather than provides any answers on its own merits.  I make many assumptions below, but I hope to focus on the method of thinking rather than the merits of those assumptions themselves.  Now that that’s out of the way, let’s proceed:

First, Some Background

A general rule of thumb is that you need 25X your yearly expenses saved/invested to be able to retire.  I’ve discussed this previously in my post, Deciding Early When to Retire.  That number comes from the fact that withdrawing 4% historically allows your investments to last indefinitely.  Assuming the 25X number is correct, you might still be miscalculating your retirement needs.  It’s in this area that my latest calculations come into play.

The two main factors of influence are my mortgage and the fact that retirement investment accounts can’t be accessed until much later in life then I hope to retire.

Assume a 32-1/2 year old with expenses of $6000 a month including a new 30 year mortgage that is $3500.  Using the 25X calculation, you’d say that $1.8 Million is necessary for retirement.   If the inflation-adjusted equivalent was finally achieved in a 401K by age 45, however, retirement still wouldn’t be possible, since that money couldn’t be touched without penalty for many more years.

The Solution

To solve this problem, I’ve been considering retirement in two stages: the first part is

Continue >>

I recently discussed how your savings rate can determine when you’ll be able to retire.  To go along with the table in that post, I developed the Saving Retirement Calculator below.  You can enter specifics for your situation to see when you might be able to retire.  Once you have an answer, you can copy the badge code and paste it into your webpage or blog to get a badge that looks like this:

Note that changing income will have no effect on the answer, unless you currently have a non-zero amount saved.  That is due to the fact that calculations are all made on a relative basis, i.e. if you are saving 10% (and thus living on 90%) 90% x 25 is the amount you’ll need to save, which does not need absolute current income to be  calculated.

Here’s the calculator:

Continue >>

I’ve been reading a lot of books about normal and early retirement lately and I’m realizing how important it is to decide early when to retire.  This doesn’t mean that you should necessarily decide to retire young, just that you should make a plan for when you’d like to retire as soon as possible.  Anyone asking “When Can I Retire” would be well served to keep reading.

The main reason why you should decide early when to retire is that you’ll have the most options available to you.  While you may ultimately decide to retire at the “normal” age or work until the day you die, those default choices will probably not be what a majority of people choose to do.  If you’re young,

Continue >>