An Interactive Guide to Early Retirement and Financial Independence

This article is an experiment — a cross between a choose your own adventure book and a calculator while also being a guide to help you understand the numbers behind early retirement and financial independence.

August 1, 2017. 12 min read. Financial Independence, Interactive, Investing.

Let's talk about financial independence and early retirement! These phrases alone have a lot of weight associated with them, and you might have an immediate gut response to just hearing these terms.

You might love your job and wouldn't think about leaving it. Maybe you hate your job and can't wait to leave it. Maybe you're looking for a change. Maybe you feel you never want to retire because you'd just "be bored", Or maybe you plan to work until you can't anymore. For this post, I'm going to ask one request of you:

My request for you:
Don't assume financial independence means retirement.

Instead, for this post, think of financial independence (abbreviated FI) as the point where if for any reason you stopped working, you'd be set for the rest of your life. What you choose to do with your life at that point is up to you!

After making your way through this post and filling in your numbers, you're going to know what you'll need to do in order to make it happen. Here's a rundown of what we'll be talking about.

Part 1: Where am I now?

The most common question when it comes to financial independence and early retirement is the big one:

How much money do I need to retire?

This is going to be the core question we answer in this article, exploring it in a number of different ways. My goal is that after reading this post, you know exactly how much you'd need to retire in your current state, but also give some advice on small tweaks to your lifestyle that could hugely impact this number.

The first step is understanding your current financial footing and where your current path would take you. Depending on your current financial health, this can range from a breath a relief to a sobering realization. Please, bear with it. I guarantee that knowing your financial health is better than not knowing.

This Article Is Interactive!

This whole article is a bit of an experiment. Whenever you see green dotted unlined text yes! just like that! , that indicates this is a place that needs your input! Just hover over it and it'll tell you what to do. The content of this post will change based on your input. Consider it an old-school choose your own adventure blog post like you read as a kid. Give the one in this paragraph a shot. Also consider these estimates rather than hard numbers.

Next, let's dive into your numbers starting with some basics.

Savings Rate Calculator

Try changing the underlined values and see what happens!

My yearly after-tax income is $ and I save $ total for retirement – including 401k and all other means. Using these figures, my savings rate (SR) will be about .

This is calculated with the following formula:

( / ) * 100% = Savings Rate

Adam Says: Nothing filled out here will be sent to any server - it's just for you. These values will NOT be stored in a cookie will be stored in a cookie in your browser, so if you revisit this page, you will NOT will see the same results. If you want you can reset all values to the defaults at any time.

When working towards FI and Retirement, your savings rate is one of the most important numbers. The more you save each year, the faster you'll be able to retire – that's obvious – but how much faster? See where your SR falls on the following chart:

Adam Says: Assumptions abound! This assumes $0 current savings, you save what you don't spend, /yr investment growth, WR, and that your spending will be the same when you retire. If you don't know what these terms mean, don't worry -- we'll get to them.

For your savings rate, , you can see on the chart that you would need to earn enough to be financially independent if you were starting today. If you were to continue saving and investing every year during that time, eventually you would have saved up. At that point, you would be able to retire and withdraw every year.

Throughout this post, we'll be diving into the math behind these numbers, why this is enough, how can you lower this number and what's required of you (and the world) to hit it.

The art is not in making money, but in keeping it.

Part 2: How much should I save?

What floors me about the above chart is that a 10% SR, is often sighted as a "good" savings rate. In practice, it will take you 41 years to save up enough to retire, and that's only if your spending stays the same! If your income and spending go up, it'll take even longer.

If you double that savings rate to 20% though, you can retire in 38 years. That's 25% time working for 10% of your salary.

If you want to retire before you're 65, the common wisdom "save 10% of your income" is terrible advice!

If you're hoping to be financially independent before collecting social security, you'll need to save more. Let's look into ways to reduce this number. These estimates are making a LOT of assumptions. We can refine this a little, but for that, I'm going to need your help – in the form of answering a few more questions.

You could be reading this and think there's no way you could save any money. I know when I was growing up, at times my mom was scrapping to make ends meet, and saving was the last thing on her mind. For those reading in that situation, I empathize with but struggle to find the best advice. You know your situation better than I ever could, as well as what you could do to make it better.

hiking

Saving Money is a Hike

You're starting with a time period of based on just your savings rate. Saving this much isn't a sprint, or even a marathon but a hike. Depriving yourself for a few months, only to be exhausted, or spend more the following months, isn't going to have a positive impact. Pace and progress are the keys.

I've personally tried maxing out my savings some months – spending the least amount I possibly could to get that SR formula looking better. The problem was that the next month I'd reward myself for doing so and things would balance out.

Favor lifestyle changes that help you save over changes that feel like deprivation.

Instead, make changes that make your life better, and that you look forward to week after week and year after year. If you're spending money on something that brings that kind of joy into your life, to me that's well worth it.

Find a way to enjoy saving the same way you'd enjoy a hike. Make it effortless, make it relaxing, make it feel right.

Part 3: How much do I need?

In order to understand how much you need, we'll need to learn a little more about you.

Let's Talk More About You

I'm years old and have a total combined savings of $. Right now, I'm retired saving money for retirement paying off debt .

Each year I spend about $, but when I retire I'll likely spend of that (equal to about /yr).


Minafi's Take On Your Finances

Given your SR and a net worth , if you continue to invest /yr, then you're on track to be financially independent in – at age .

At age , you would have in retirement savings and can start withdrawing /yr.

Adam Says: For these numbers, I'm assuming /yr investment growth and a withdrawal rate. If you're not sure what these numbers mean, don't worry! I'll explain them later on in this post.

This is where things start to get fun! There's now enough information to know a rough estimate of when you'd be financially independent – in at age . Let's dive into how we got to this number.

Financial Independence (FI) is different from retirement. Think of financial independence as the amount of money you'd need in order to never work again. Retirement (RE), on the other hand, is the act of not working.

I'm on track to be financially independent in at age ! Find your FI date at Minafi.

It's possible for people to be FI but continue working – you see it all the time. From CEOs of companies to quiet employees who have saved huge amounts to bloggers talking about retirement (well, some – not me). There are also people who are retired, but who may need to return to work someday down the line when their savings run out, or if social security fails somewhere down the line.

To be FIRE (financially independent + retired) is an aim with the goal of minimizing stress from external sources. It does rely on stock markets to perform in a similar pattern to the last 100+ years, but aside from that, it's not based on too many assumptions.

financial independence

Part 4: How much could I spend then?

Up until this point, we've been a little rosy in our withdrawal rate (WR). The withdrawal rate is the percent of your savings you withdraw each year. This can be calculated as follows:

Withdrawal Rate Calculator

This assumes that you'll spend of your current spending of about $/yr in retirement, which would be /yr.

(Yearly Retirement Spending / Retirement Savings) * 100% = WR
( / ) * 100% =

In other words, at a WR , you'll need to save up before you stop working completely. At your current pace, this will take - allowing you retire at age .

Adam Says: This assumes the same /yr investment growth as before. According to the Trinity Study, 3% WR will work 98% of the time, while 4% WR will work out 87% over 30 years.

Withdrawal rate is one the most talked about (and heavily debated) topics when it comes to early retirement. I'm only going to introduce the topic in this article, but if you want to read more here's a great post on Where'd the 4% Rule Come From Anyway?

My personal withdrawal rate I use for calculations is 3%. I'm in no rush to retire right now, and I'd prefer to rest easy and be overwhelmingly confident -- or at least as much as possible.

investing

Part 5: How is this enough?

When I first saw these numbers and did the math on it, I immediately asked the following question:

If I retire with and spend /yr when I retire, doesn't that mean my cash will run out in / = ?

If you put your money into a savings account, then this is exactly how long your investment would last. There are better places to put your money than a savings account through!

Factoring In Inflation

There is some bad news here unfortunately. Each of those , your spending power would be slightly less due to inflation, which is generally around 3%. Inflation is something we have no control over individually but is something we can plan for.

Inflation means that each year, what you can buy with your money is going down by some small amount. If you've seen prices rise since you were a kid, that's potentially a result of inflation.

In , in order to spend in todays dollars, you would need in the year .

Because of this, we need to increase our total funds by each year just to have the same buying power as today. If you add in your WR, this means that your savings need to increase by /yr in order for you to draw from it long-term!

So why are we using for these numbers rather than ? The reason is that inflation doesn't mean all of your expenses will rise by this much every year, but that the Consumer Price Index and Prodict Price Indexes indicate that this shift in prices.

Your net expenses may even go down! I would recommend setting your percent of spending to be higher if you are farther out than 10 years to FI to buffer for potential increases due to inflation.

Enter Market Investing

The missing piece here is that you can invest that money in the stock market -- both while you're growing it and when you're drawing down from it.

Stock markets in the US have returned on average 7% a year since their beginning. This is an important number! If you're withdrawing at most 4% of this, and 3% of it is going to inflation, then your net worth will last forever. Unfortunately, the stock market has ups and down, so we can't make predictions quite that bold, but we can use it as a baseline. This is why 4% is often sighted as the maximum WR to use in calculations.

Learning how to invest and earn ~7% will sound intimidating at first. It will take trial and error, but more than that it'll take being brave and putting money into the stock market. Using a simple 3-fund portfolio is a great place to start learning how to invest.

Your Numbers with Market Investing

If you put your money into savings and withdrew some of it each year, the total amount you'd spend would be . However, if you invested this and it grew at a pace of /yr, and you withdrew an inflation adjusted /yr, then this amount could provide you with before your 100th birthday.

That wouldn't be all at once but in the form of /yr. This is the true power of compound interest! Imagine how many more years you'd need to work to save this amount without investing. Actually, no need to imagine -- it's ! If you learn how to invest, you can retire years earlier.

This is the number one difference between people who retire early and those who wait until social security -- people who retire early learn how to invest.

When I first did the math on compound interest I was floored. The idea that I'd make more money during retirement than during my working years seemed counterintuitive, but the numbers were right there.

retire sooner

Part 6: What can I do to retire sooner?

Now that you have a baseline of until you've saved up enough at your current pace, let's see what small steps you can take to lower that number!

There are only 2 ways you can affect this number:

Make more money.
Spend less money.

The savings rate calculation we looked at is based entirely on these two numbers (spending/savings). Let's look at a few scenarios and see what impact they have on your FI dates.

What If: You Reduce Spending & Save It?

If you reduce your spending by (saving a year more), then you could retire earlier once you have saved .

By reducing your yearly spending by , you'll need less to retire. Upon retiring, you'd be spending a year.

Adam Says: Are there things in your lifestyle that you'd be happy to cut? Would you rather cut spending by /yr or work for an additional years?

The less you need, the less you'll need to save. If you reduce your spending to $0/yr, you'd need $0 to retire. That's likely unrealistic, but the less you spend, the less you need.

Taking steps to reduce your lifestyle can pay off by reducing the time you'll be required to work to maintain it. Be careful not to go overboard though. Build a life you want, then save for it.

What If: You Earn Money In Retirement?

You're on track to spend /yr during retirement. What if you still spent this exact same amount, but of it comes from income in retirement? This would be finding a way to make /yr in side income.

In that case, you can retire earlier!

Adam says: What can you start doing today to add another income stream? It would reduce your time until retirement, but also add stability for later on.

Finding a small way to supplement your income can reduce the amount you'll need to save. The concept of a side hustle has grown a bunch in the last years, with people opting to find ways to control their financial destiny. I like Side Hustle Nations description of a side hustle:

A side hustle is something you do to earn money outside a traditional job.

If you're like me, and haven't made money outside the boundaries of a W-2 for your career, this might just seem like more work and not FIRE. The distiction to me is in having a side hustle that you love doing. One that you look forward to waking up to work on.

At that point, this additional revenue stream can become another challenge in your life, or another form of self expression.

Lowering expenses and earning money in retirement are three very clear ways to reduce the time until you are financially independent.

What If: Reduce spending & earn income?

You reduce spending by while replacing of your income during retirement () .

This would result in you reaching FI in . That would be earlier than your timeline of by .

Adam says: It's crazy to think that these 2 things could result in a reduction in your working years.

Making more money and spending less while investing is the key to achieving financial independence sooner.

who is this for

Part 7: Who is actually doing this?

You might be surprised by who is pursuing FI. It ranges from people in debt to multi-millionaires who are FI already. There is likely someone who is in a similar situation to you out there.

I was lucky enough to chat with a number of people who are in various states of financial independence and get their takes on the subject.

Adam from Minafi

35m, married, working and saving money in Orlando, FL. $1,050,000 in savings. Spending $55k/yr now and in retirement. FI by 40 in a major city. RE date TBD.

That's me! I'm a web developer, board gamer and cocktail lover who is exploring personal finance and related fields. I've worked for years teaching people how to code at Code School, and want to educate others on FI while learning more myself. You can read more of my story if you'd like the full details.

How did you learn about FI?

Reading The Bogleheads Guide to Investing set me on my journey. It made it clear how little I needed to retire if I was investing it in the stock market.

What was your financial status when you began?

2 months after I graduated college (age 23), my mom passed away and left me her house and $100,000. A few years later I was 28, had experienced investing during the recession and bought my first home. After selling her house, I had $150,000 in investments and -$100,000 in home equity when I started while making about $52,000 a year.

What has been the most impactful change you've made towards FI?

Learning and executing on a long term investing strategy. When I look at my total investments today, more than 1/3 of it is from investment gains alone in the past 7 years. This, coupled with controlling lifestyle inflation.

What, if anything, do you wish you could have done differently?

Does buying Bitcoin count? For me, I underestimated the financial impact of buying a house. I did this prior to learning about FI, and I undertook it without enough thought and planning. The extra yearly expenses (1-2% of the home price every year), the additional time for maintenance and improvements, yard work, cleaning - it's a lot to handle. In retrospect, I would've just continued renting.

What advice do you have for others going down the path of FI?

Save up $3,000 and invest it in your 401k, a Vanguard IRA or a Vanguard Roth IRA. Use that account to learn the basics of investing - how to buy and sell, what investments to pick and how that works. Starting small in an account where you don't have to worry about taxes helped me gain confidence before jumping in completely.

Following that, keeping your spending in check year after year and not letting it grow out of proportion with your happiness.

Read more about Adam Collapse

Gwen from Fiery Millennials

26f, single, working and saving money in the Midwest. $170,000 in savings. Spending $40k/yr now, $25k in retirement. FI by 28 in a ruralish area. RE by 30.

Hey, I'm Gwen! I'm a 26 year old IT professional on my way to early retirement. I enjoy playing sports, cuddling my cat, reading and working on my real estate properties.

How did you learn about FI?

I found Mr. Money Mustache's blog my junior year of college and was immediately hooked. I spent the rest of my time in college soaking up information from blogs, prepping, and strategizing.

What was your financial status when you began?

I graduated from college with $10,000 to my name, a paid off car, and no debt at the age of 23.

What has been the most impactful change you've made towards FI?

Not allowing lifestyle inflation to creep in. Keeping my spending low has been an enjoyable challenge.

What, if anything, do you wish you could have done differently?

I wish I had gone for slightly cheaper housing in 2016. I spent a lot of money to live close to work. It would've been better for me to live slightly further away, but I wanted to bike to work.

What advice do you have for others going down the path of FI?

Keep your expenses low and focus on growing your income as much as you can. You can only cut your expenses so much, but the sky is the limit when it comes to earning more money.

Read more about Gwen Collapse

Early Retirement Dude from earlyretirementdude.com

48m, married and retired in the Southeastern US. $2.3m in savings. Spending $55k/yr. FI & RE at 36 in a ruralish area.

I'm a Deadhead-type GenX'er. Love running and bicycle touring. Averse to the toxicity of consumer culture and the modern workplace. Trying to wake people up to the idea that financial independence/early retirement A) exists, B) can be an antidote to that toxicity, and C) is actually achievable.

How did you learn about FI?

Honestly, I came up with my own version of it in a vacuum. I graduated from MBA school and went corporate in 1993, so I didn't have access to the web-based resources available today. Found myself immediately miserable. At the time defined-benefit pensions were being killed off by 401(k) plans, so between the financial modeling tools I'd learned in school and the idea that I'd have to fund my own retirement, I cooked up a plan to get out of the workforce much earlier than 57 1/2.

What was your financial status when you began?

Started with a few hundred bucks and a beat-up car and a couch from Goodwill that was covered in suspicious purple stains.

What has been the most impactful change you've made towards FI?

When I was twenty-six I got passed over for a great job because I'd stirred up some political problems through sheer arrogance. I really wanted that job, so I called up the hiring managers and asked them if we could get together for a feedback session. What could I learn/do differently/etc. to earn an offer during the next round of hiring? Asked them that in all humility. They gave me straightforward feedback, I got the training and made the changes they recommended, and ended up getting hired. If I hadn't asked for that meeting I'm convinced I'd still be working.

What, if anything, do you wish you could have done differently?

I wish I hadn't put so much pressure on my wife to be frugal. Twenty years into our marriage, now, and she still feels guilty when she spends money.

What advice do you have for others going down the path of FI?

Understand that it's not just a numbers game. If you focus on FI/ER to the exclusion of all else, you can wreck things that are very important to you--relationships, pastimes, creative outlets, etc. It's a serious commitment. Know what you're getting into.

Read more about Early Retirement Dude Collapse

Darrow from Can I Retire Yet?

57m, married and retired in Santa Fe, NM. $1m+ in savings. Spending varies. FIRE at 50 in a city metro.

Early-retired civil and software engineer, author, investor who loves outdoor sports like climbing, biking, and hiking.

How did you learn about FI?

By pursuing my dream of freedom from a 9-5 job.

What was your financial status when you began?

Frugal, relatively high-earning engineer.

What has been the most impactful change you've made towards FI?

Not inflating lifestyle (houses and cars) as I received raises and bonuses in my career.

What, if anything, do you wish you could have done differently?

Hindsight is always 20/20. In reality I think I made the best decisions I could to reach the goals I had at the time.

What advice do you have for others going down the path of FI?

Spend in the few areas that matter to you. Cut back everywhere else. Avoid big houses and cars. Learn to invest prudently for the long haul.

Read more about Darrow Collapse

Part 8: Where can I learn more?

There are a few amazing books on the topic of financial independence and early retirement that go into these topics with much more eloquence than and depth than I could ever explore. If you're curious to learn more, these are all amazing resources.

Books

Here are some of the top sources in different mediums to learn about financial independence

Your Money or Your Life

Your Money is an amazing exploration into developing a relationship with money that goes deeper than just buying things. This book is the origin of many articles and concepts that you'll read about in the FI world, told beautifully.

As great as Your Money is, it borders on self-help as opposed to finance - which actually helps its topics connect deeper for me.

The Bogleheads' Guide to Investing

This is the book that personally got me into investing and thinking about this subject. By introducing things like the 4% for withdrawal rate, understanding investing, diversification, fees, fund types, account types and more, this book served as my education on investing.

The Bogleheads Guide consistently ranks as one of the 3 most influential books I have ever read in my life - serving as an introduction and education all in one.

The Millionaire Next Door

The term "millionaire" has a connotation of lavish spending and abundance in popular culture. This book looks at a different side of that - working millionaires who worked hard to create a life they wanted.

In order to achieve FI, most people will need to earn more than a million dollars. This book put that number into perspective for me, bringing it down to earth.

Communities

There are a number of thriving communities focused on financial independence and early retirement. I can't include them all, but here are a few that I've participated in and enjoyed.

/r/FinancialIndependence on Reddit

This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money.

Bogleheads.org Forum

This was the first forum I discovered when investing. I asked extremely basic questions and people were helpful and welcoming. If you're learning how to invest, and want to do it the smart way, this forum, the associated wiki, is an amazing source of knowledge.

Mr. Money Mustache Community

While Bogleheads leans towards investing, the MMM community ranges from "do it yourself" to "real estate investing" to "taxes" and "entrepreneurship".

Part 9: What Next?

If there's one takeaway you get from this post, it's that the concept of financial independence isn't solely for those who are extremely weathy or for those who are nearing social security.

It's a path that starts with understanding and minimizing your expenses -- a valuable undertaking regardless of your long-term goal. Beyond that, it's about understanding how much you need to save to live the life you want and making a plan for it.

There is no predetermined group that financial independence is for. It could work well for people in extreme debt who want to get out and work towards a different future -- or for people in their career looking for what comes next.

  • Track your spending for a month. Learn where every cent is going.
  • Find a community of people to learn from. This could one of the above places, a blog you enjoy, a podcast you jive with - anything that keeps your learning.
  • Read more about minimalism, mindfulness or financial independence here on Minafi.
  • Start learning the basics of investing. I recommend starting with a Simple Three-Fund Portfolio at Vanguard or in your 401k. Understand what you're investing in there.
  • Stick with investing for a year, putting in more money as you feel comforable, and continuing your education.
  • Make a plan for when you'd want to be FI, and work backwards to understand what changes you'd need to make in your life to get there.

I read an Interactive Guide to Financial Independence and Early Retirement on Minafi and now know when I'll be FI!

If you enjoyed this article, or have any thoughts on it, please share it and let me know what you think. I would love to hear from you!

Credits

Special thanks to the following people for helping out on this!

  • My Wife for reading over various drafts and ideas.
  • Bret Victor for Tangle, the JS library for data binding.
  • Mike Bostock for D3.js. I want to make more chances to use it.
  • John Bogle and The Bogleheads who gave me a great foundational education in investing.
  • Mr. Money Mustache for turning me on to the idea of FI.
  • All of the bloggers who agreed to an interview.
  • Everyone who's shared this post to help spread the word of FI!