I recently had the opportunity to give a brief presentation to my partnership. Don't worry, I didn't charge them. One statement I made seems to have stuck with more people than any other. I had said something to the effect that I was on track for retirement in 5 years. This was apparently very surprising to a lot of them, especially since I'm the newest partner in the group. I had run some numbers a week or two before to see where we were really at, and figured that IF WE REALLY WANTED TO, we could retire in 5 years.
Those of you who have hung around this blog for a while won't find this all that surprising. That's because you know the equation. We use this equation all the time around here. There are five variables in it, and if you know four of them, you can always solve for the fifth.You know, that Future Value (FV) one (also repurposed as RATE, PV, PMT, and NPER in Excel.) There are five variables in this equation
1) How many years until you retire-number of periods (NPER)
2) The rate of return of your investments (RATE)
3) How much you have- Present Value (PV), always a negative number
4) How much you will save each year- the payment (PMT), always a negative number
5) How much you need to spend each year-divide by a reasonable withdrawal rate such as 4% to get Future Value (FV)
Now let's run an example. Let's say a doctor wants to retire in 5 years. He has $750K and figures he can make 8% on his money. He's a pretty frugal doc and his student loans and mortgage are gone. He figures he can live on $60K a year. $60K divided by 4% = $1.5M. If we solve for how much he has to save per year (PMT), we get $63K per year. Sound doable? Sure. Most docs who can live on $60K a year can probably put away $63K toward retirement each year for the next five years.
What if the doc needs $120K a year in income? Well, now he needs a nest egg of $3M. If he wants to retire in 5 years, he's going to need to put away $300K a year for five years. That's going to be a stretch for most docs, but even if he can put away $100K a year, he can be done in less than 10 years.
So, why are some doctors flabbergasted when I throw out a phrase like “I'm on track to retire in 5 years?” There are as many reasons as there are variables in the equation.
1) RATE too low
-
- Not taking an appropriate amount of risk
- Went to cash in 2008-2009 bear market
- Paying too much for investment advice
- In low-returning “investments” like whole life insurance
- Inadequate financial education
2) PV too low
- Did not start saving in residency
- Inadequate savings rate
- Past investing mistakes
- Failure to take advantage of tax-advantaged accounts
3) PMT too low
- Set lifestyle too high to allow adequate savings rate
- Value spending now more than early retirement (nothing wrong with that)
4) FV too high
- Still have student loans
- Still have a mortgage
- Poor spending habits
- Prefer higher retirement spending to early retirement (nothing wrong with that)
Will I Retire in 5 Years?
At current spending levels, we need about $80K a year. Of course, if I were retired, I'd probably spend more time and money traveling and playing. Also, it's probably a good idea to have a little extra for those big one time expenses you never budget for. So let's round it up to $100K. Our retirement portfolio is now in the upper 6 figures, we'll call it $750K. This year I'm putting away something like $150K toward retirement, and could probably keep that up for 5 years. My returns over the last decade are over 9%, so we'll use that. The NPER function says I'm 6 years out. I would also need to get that mortgage paid off and top off the college accounts, but I think I could manage all that, if we really wanted to.
But the fact remains that I'm not sure I have something to retire to in 5 years, so I probably won't. Besides, I think I'd rather work a little less or spend a little more, both now and in retirement. As I've written before, retiring early has a lot of costs. Add another 10 years on to my career and I could retire with 3 times the retirement income given that same savings rate. Or I could cut my savings rate in half and just retire with 2 times the retirement income. It's nice to have options.
What Could Go Wrong?
Well, the astute observer probably noticed I totally ignored inflation in those calculations. It's worked in to the 4% withdrawal rule, and given our currently low levels of inflation, it's not so unreasonable to just completely ignore it over a short period, like 5 years. But if you get out much further than that, you'd best start paying attention and adjust your returns downward by 2-4%.
Sequence of Returns risk could also rear its ugly head. The reason I've managed 9%+ returns over the last decade is because I take on quite a bit of investment risk. If that risk shows up in the next 5 years, and especially the first five years after retirement, that would blow this plan apart.
My income could also fall, making it difficult to sustain my PMT each year for 5-15 years.
I could die or get disabled or cancer could be diagnosed in my spouse or me.
So what's the solution to all of these issues?
First, make sure we're insured- disability, life and health. Second, work a couple more years. If there's a big bad bear. Keep working. If inflation has spiked, work a couple more years. If I don't save enough or reach my goals, a couple more years of compounding will work wonders. Retiring at 47, or even 57, instead of 45 or 55 isn't the end of the world, especially when I haven't found anything to retire to that I would enjoy more than what I'm doing now.
Run the numbers yourself using these excel functions. What would it take for you to retire in 5 years? Possible? Why or why not? Comment below!
Thanks for this post. I enjoy reading your blog and appreciate all of the advice.
My situation is similar to yours in assets and savings rate but I struggle with idea that I could be “done” in 5 or 10 years. I am shooting for a 100-125k income indexed to inflation but I tend to be much more conservative with my return on investment calculation, use 2.5% real with a SWR of 3.5%. However, I am currently 25+ years away from “retirement age” and having the ability to access 401/403b funds. Despite the fact that I could have 3M in 10 years, a large portion of that would not be accessible. What is your plan for this? Any recommendations of how to change investment or savings strategy? I hate to give up the tax benefits of a retirement plan. My plan currently is to simple work less, pay off 15 year mortgage, save a bit less and retire at 55.
I think you’re doing fine. It doesn’t sound to me like you need a new savings or investment strategy. You are aware that there are many ways to tap money in retirement accounts penalty-free prior to age 59 1/2, right?
https://www.whitecoatinvestor.com/how-to-get-to-your-money-before-age-59-12/
But if you don’t want to do SEPP, and can’t save enough to both max out available retirement accounts and save in a taxable account, then you’ve got a decision to make!
It sounds to me like you’ve “frontloaded” the retirement savings quite a bit. That allows you lots of options- like cutting back on work, doing international mission work, or just spending more money on fun trips and stuff while still being able to comfortable retire at a more typical retirement age. Or if you start hating your job, you can keep the pedal to the metal and retire in 10 years.
Jim,
you left out option 3: As an ER doctor you have the option of working as much or as little as you want. Which means you can semi retire especially if you still enjoy your work. Do 8 or 9 shifts a month which will give you enough to cover your cost of living, and even add a little to your retirement account, and let your investments do the rest of your heavy lifting for you.
I’m in my late 30s looking to semi retire in my mid to early 40s. I hope to continue to enjoy work, but by my late 40s, early 50s I hope to never have to work again. I wonder how much more I would enjoy my job if I only worked 2 days a week.
Absolutely, and that’s the most likely option.
That is precisely what one of my ER buddies did. Kinda makes me wish I went the ER route….
I am 49. I am on track to easily retire at 55, but instead I am planning to retire from medical practice at or before age 52. I am actively working toward a career switch, like to a non-clinical role in health care, possibly to something completely different. My goal is to find something less intense and more enjoyable to do from age 52-67 or so.
It helps that my wife, though not a physician, has a “physician like” salary and even better benefits in her corporate job. We have had a lot of good offense for the last ten years. As our kids enter their teens, the defense is being strained a bit, but overall the financial position is pretty strong, such that I have cut the equity risk from 80% to 70% and now to 60% over the last four years. No debt, of course, and substantial savings in 529 and UTMA accounts, which I do not count as part of our net worth.
Would it be possible to put up a generic spreadsheet, where one could input the numbers to see how many years it would take?
Thanks
Excel challenged 🙂
I bet I could figure out how to do that.
Because I love the whole concept of Financial Independence and calculating PV/using Excel, I put this together. I wasn’t sure how else to sent it to you but here is the link:
http://www.physiciansense.com/retirement-calculator/
You’ll find an Excel form that runs through how long it will take you to retire and another on how much you need to save to retire in 5 years. I also run through the examples that Jim had above.
Thank you
Thanks for the link!
I ran my numbers and interestingly they don’t match up. For example, when I run years until retirement and use a PMT of 80,000 I’ll get 12.8 years (NPER). However, if I use that number in the yearly savings to retire in X years (I plug in 13 years), the amount is $111, 029 (PMT).
I made sure I’m using the same PV, rate, inflation rate and FV.
Why the discrepancy between the two?
So … That’s because I decided to include inflation in one calculation and not the other.
It’s fixed now.
The formulas should be just about the same.
Thanks for the spreadsheet.
was playing with it.
Appears based on 4% SWR.
Is it possible to make a spreadsheet, where one can input SWR?
Thanks
I updated it to include SWR.
http://www.physiciansense.com/retirement-calculator/
Great , thats exactly what I was looking for.
Thank You
I am on track for semiretirement by 45. Will keep working for health insurance, 401k, and to stay a little mentally active. I am thankful for this website because I cannot relate to my partners who enjoy or must work fulltime in their 60s.
If you start investing at an early age, even in your teens, reaching your goal is easy.Too many start to late. TIME IN THE MKTS CREATES WEALTH. Do not wait Get started and sock it away asap, rather than paying down loans
Congratulations, that is awesome. If you did retire in 5 years, how would you get your $80K a year out of your retirement accounts? While there are exceptions to the 59 1/2 rule, early retirement isn’t one of them.
Sure it is. Look up SEPP.
That is great. Glad to hear that the government allows you access to your money as you need and see fit. It does beg the question then, why have the penalty at all?
Well, you can’t just take it out willy-nilly. It has to be the same amount each year from retirement to age 60. I think the government just wants you to use it for retirement rather than a boat. They’re perfectly fine with you retiring a few years early. I doubt very many people start SEPP payments before age 50.
The nice thing about the rule is it doesn’t force you to use a taxable account (whether you invest it in stocks or real estate) just in case you want to retire before 59 1/2.
I suspect your biggest risk is sequence of returns. I’d also be a touch worried about the 4% withdrawal rate since the research showing that’s a safe rate is based on a 30year retirement so it might not apply if you retire early enough.
On the plus side, I’d also guess that you’ll have some income in your post-medical life. (You’re not going to end the blog are you? That would bum me out.) I retired at 48 (corporate life, not the medical profession) and I make a small amount of income in a second career. That was not part of my retirement calculations, but it reduces my withdrawal rate to 1-2%.
I worried about the 4% rule, until I read this article. To be honest, I don’t see myself increasing my spending at inflation rates, I don’t do it now, why will I during retirement? In fact, I have 2 more kids, but still spend the same amount as I did 5 years ago. This year that will change a little, but it’s still less than inflation would have been for the last 5 years.
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/
There’s no doubt that your personal inflation will be different from CPI. It will be higher for some and lower for others.
You’re correct that sequence of returns is the big risk. You’re also right that I could completely fund my lifestyle on just the blog income. I’d be saving a lot less of course. More on spending later this week.
My wife and I are in somewhat similar situation although with 3 school-age girls we aren’t thinking any kind of retirement yet until we are at least certain to have their college paid for.
I’m a teacher and she is in family medicine. Our thinking is that our initial years of semi-retirement will be to take the occasional locum tenens position around the country or even internationally and live off that money to avoid early withdrawals of our retirement funds. Basically cruise into semi-retirement and do the traveling doc thing so that she keeps her feet wet and skills up until we are sure we are done. The one HUGE advantage to the medical profession over pretty much any other profession is that you can do this. You can travel and work as much or little as you want pretty much anywhere. My wife also does OB which means she is always getting calls.
But this lifestyle isn’t something we are really contemplating until the last child is out of the house. At that point we would be on trajectory to do full retirement but knowing my wife she’ll want to keep her feet wet.
I couldn’t help but laugh at your frequent use of “keeping her feet wet” when I think of your wife doing OB. I went through a lot of shoes on that rotation.
But you’re right, there are a ton of advantages to going part-time for a few years before retiring completely. Much more doable for many specialties.
Do you have any concerns about retiring early setting a bad example for your kids. We’ve been lucky to do pretty well and We’re quite frugal, so we could retire at 40 and live very comfortably with a 2% withdrawal rate. By then kids will only be 4 & 2. Part of what keeps me working (in addition to really liking my job) is that I can’t imagine that it would be good for the kids to see us barely working (or not at all). It’s very hard to instill the value of working hard if all you have to go on is “Trust me I worked really hard to get to this point” and they never really see it.
I struggle with this issue as well and Im interested on how others are addressing this. I grew up without any money and through the hard work my kids never saw have been blessed with a fairly significant amount of wealth from my career. One of the reasons I dont spend as much as I can is because I don’t want my kids to think this is easy.
I can see where that might be a concern if your idea of retirement is living on a beach and crawling out of bed every morning at 10:30 to wander aimless about the house in shorts and flip flops. Perhaps not the best role model for young adults just starting out in life.
But my wife and I plan to do working travel and do active volunteer work to keep busy and stay busy with projects which for me would be things like restoring old campers or boats, running a micro-farm, doing community-based environmental projects, etc. My kids visit me I’ll drag them out of bed at 7 am to go work on stream restoration projects or something.
I don’t plan to stop working when I retire, I just plan to stop working for “the man”
I worry about that with respect to hiring a housekeeper. I’m getting over it though.
I think of it this way. If you’re engaged and contributing to the community, it isn’t a bad example. I mean, my wife has technically been retired since 2004, but I don’t think her bad example is doing anything but helping the kids.
I struggle with this notion as well. I want them to remember the days when daddy had to sleep in because he was up all night. I don’t want to miss a lot of family dinners, but I want them to know that it happened.
It might seem disingenuous to expect them to find jobs when they’re 16 for minimum wage if I haven’t worked for a dime in 10 years.
If I were to retire at 45, my 2 boys would be 10 and 12. That seems a little more reasonable.
AR-RETIRING AT 40 HOW?
Basically same as WCI, but with more income. Also not having kids until somewhat later in life allowed a lot of savings when we were younger.
Using the 4% SWR, I could have retired lat fall @ 39. I’m not at all ready to stop working and I plan to double my nest egg by about age 45. We’ll see how I feel about retirement when I get there.
If I retired now at age 40, I’m fairly certain I would have some regret about retiring too soon. At some point, the possibility of feeling regret over working too long may come into play. The best time to retire might be at the point of intersecion when the odds of regret are 50 /50, i.e. you feel just as likely to regret working one more year than you would regret retiring too soon. I’m not sure how to calculate that, but I expect I’ll know when the time comes.
Great post! And I love the topic (perhaps too much).
The key to early retirement is your savings rate.
Your investment rate of return matters much less if you want to retire very quickly (within 5 years or so). I actually just went through this here:
http://www.physiciansense.com/retire-quickly/
In your own example, even if your rate of return is 5%, you’ll still retire in about 6 years (just one year more).
Thanks for sharing. You’re absolutely right that the key to an extremely early retirement (a la Mr. Money Moustache) is a high savings rate. Not only does raising your rate save more money, but it also means you need to save less to maintain the same after-savings income.
Don’t forget about the tax obligations during retirement on tax-deferred income and even appreciated assets in taxable accounts. If you live off a low withdrawal amount, that may not be much of an issue, but the more you pull out each year to live off of during retirement, the higher the tax bill.
Given that most of us plan to draw down less in retirement than in our working years, this is a minor problem. Roths are still useful for estate planning and for retirement prior to 59.5 purposes (draw down contributions/conversions-after-5-years without penalty), but tax-deferral is generally the better option for physicians.
Maybe minor, but not insignificant. If you assume your effective tax rate will be 10% in retirement plus an additional 5% in state, if you do not take this into account, you are underestimating your retirement nest egg by 15%. If you assume you need $3MM for retirement and do not take this into account, you will be nearly $500,000 short in retirement savings. I’m just saying that this was not mentioned in the post and should be considered as part of one’s retirement “number”.
Using the excel document kindly provided by an above commentator, I will need to save $610,038.12/year for the next 5 to be able to retire after 5 years. My assumptions included a 7% return and 3% inflation with yearly retirement expenditure of 120k. Note that my current retirement value is in the large negative due to med school debt (basically -250k).
Obviously at this point the only way for me to retire in 5 years is if I win a multi-state lottery jackpot. 😀
Getting rid of the debt is obviously key. Hard to retire with it.
Very very true. I’m making small dents with the IRB payment while I’m currently in my PGY-2 residency year.
After graduation, I’ll be looking to make very large dents to the debt. Hopefully be able to pay off the entire loan in about 3-4 years while living on a resident’s salary. Then only modestly inflate lifestyle while aggressively saving a large portion of the paycheck BUT conservatively invest in passive index fund for the long-haul.
I fixed the formula. You can download the newest excel form here:
http://www.physiciansense.com/retirement-calculator/
I think running your numbers, I got $550K or so (better, but a heck of a lot of money).
Thanks, what was fixed I’m curious?
Oh, and yeah basically impossible for me to retire in 5 years. Unless I win the lotto though, hehe. 😀
Had an errant negative sign and wasn’t accounting for inflation in one of the calculations.
Having a large amount of debt is not necessarily bad, and does not necessarily need to be paid off ASAP if it is at a low rate. You will likely have more wealth after 20 years making minimum payments on low interest debt and investing the savings.
Having practiced and lived through two bear markets (2000-2002 and 2008-2009) colors my perspective. The return on one’s investments is not guaranteed, but the commitment to debt service is. As we drift further from the last bear market, I see the argument that you just made come up more and more. That and the incessant message board postings like:
” I am 25 and expect to retire with a $4M nest egg in ten years on my $100k yearly salary…”
We have had so many years of good investment times that people forget the years when our 401k’s were chopped into 201k’s!
Finally, a wise senior partner once told me, “You can survive significant financial duress if you own your own home (without a mortgage).”
Yes, likely, but not guaranteed. It’s always a debate with low interest rate debt.
This comment relates to this post in conjunction with the next post “Loosening the purse strings”. One thing to keep in mind, if one starts to “loosen the purse strings” due to their comfort of getting closer to their retirement goal, then you may be increasing your life-style to the point that your previous expectation for how much you will spend in retirement is actually going up to the point that your previous nest egg goal is no longer large enough to support your new, more expensive life-style with the SUVs, boat, nicer house, etc. Most won’t want to cut back on their life-style to “make-do” levels when they have been living a higher lifestyle after “loosening the purse strings.” As life-style increases, retirement nest egg levels need to be adjusted as well.
To further compound the problem, as one’s life-style goes up, their retirement spending goes up, which pushes you into a higher effective tax rate which further pushes up the need size of one’s retirement nest egg. This is not a bad thing, but it does need to be considered when setting one’s nest egg goal.
Absolutely correct and an important reason why you should never completely grow into your income. It can be a problem after paying off the mortgage or getting the kids through college too. All these expenses go down, but the income doesn’t necessarily go down. If that extra income is used to increase lifestyle, you may never be able to retire. We try to be very careful to avoid permanent increases in lifestyle in case of significant drop of income. For example, we could have spent over $100K less this last year without really affecting our lifestyle (where we live, how often we eat out, how much we spend shopping, internet/cell phone/netflix, clothing, # of vacations, # of ski days etc) at all, simply by eliminating the purchases discussed in the Loosening the Purse Strings series. Since all the purchases were paid for with cash, there is no ongoing debt payment for them. Since most were one-time purchases, rather than a lifestyle increase, they have nothing to do with future spending.
Is there a moral issue relating to early retirement for physicians? There is a shortage of md’s and a shortage of medical school and residency slots. By taking one of those precious slots, a physician, in effect, has taken a slot that could have gone to someone willing to serve through normal retirement age. Further, notwithstanding the high tuition and long hours, the government and donors to schools, colleges, hospitals, etc. have contributed to a physician’s education and training, as have mentors and senior physicians. Society invests in new physicians for the well being of all, but the investment is for a long-term commitment in return. I am paraphrasing a physician I heard on NPR make this argument more cogently than I can but it raised some important points. When one decides to become a physician, if you are doing it to be able to retire early, you are in the wrong field (unless the plan is to retire and do volunteer medical work close to full time as some I know have done).
Let’s extend the argument to show the problems with it:
We shouldn’t let women into medical school because so many of them take too much time off to have babies or go on the mommy track. Then they just want to work part-time. In fact, no doctor should be allowed to work part-time. In fact, forget 40 hour work weeks. Better yet, 40 hour a week dermatologists should be required by law to moonlight as hospitalists to hit a total of at least 80 hours a week. Etc etc etc See the issue? You can make the same arguments about anyone who attended a state college or even a public elementary school.
Society paid for my entire medical education. I assure you they got their pound of flesh out of me after 4 years in the military. I would feel zero guilt walking away from medicine today if I didn’t enjoy it. The guy from NPR sounds like all those guys arguing against the 80 hour work week for residents. “You know what the problem with Q2 call is?,” they say. “You miss half the good cases.”
If society wants more doctors or wants doctors to work more hours, it can pay for it with respect and money. I feel neither from patients who assault me and my staff and those who expect to be seen for free and are often legally entitled to be seen for free by society/government. Every fifth patient I see (we have ~20% no-pay patients) is plenty of payback to society for my education.
An AMA study published in May of 2003 found that the average ER doctor provides $138,300 of EMTALA-related charity care each year…….Paid-In-Full several times over.
Well said, WCI. We are supposedly free individuals, not permanenty indentured servants. If there is an intended commitment of x number of years of service, it should be contractually agreed to by all parties, like WCI’s military obligation. Otherwise, create an environment that one wishes to stay, one with rewarding and meaningful work, a positive work environment, stable pay, and few hassles.
Currently, my work environment does not meet these criteria, and, as a result, I plan to be doing something else in a few years. Perhaps I can contribute to society in other meaningful ways, but it will not be as a practicing physican. Nor does it need to.
Exactly. Most doctors I know who want to retire early or transition out of medicine have not lost interest in treating patients — that is what makes them reluctant to leave. It is the administrative and regulatory burdens that drive people away. Two doctors I know recently stopped seeing inpatients the same day the hospital launched its new EMR. If society wants doctors to keep practicing, they need to make it attractive for doctors to keep practicing.
I would add that aiming/planning for an early retirement does not always mean doctors leave the healthcare system completely, it simply allows them to remain on their own terms more easily than the terms of an employer or group practice. I dream of the day I am working in medicine or elsewhere because I want to, not because I need to in order to support my family now and in retirement one day.
your tax rate in retirement with income over 100 wil probably be in the 25% range
I will be changing residency to FLORIDA to escape state income taxes and the NJ dreaded state ESTATE TAX where the exemption is 675k/pp
Not necessarily. Take a couple with an income of $100K, 30% from Social Security, 40% from tax-deferred accounts, 10% from a taxable account, and 20% from a Roth account. There are no payroll taxes. Let’s say you get $20K out of exemptions and deductions. You only pay tax on 85% of your Social Security income. 1/2 of your taxable account spending is basis and muni interest, the rest is LTCG/qualified dividends. What’s your tax bill?
First $20K= $0
You then have 85%*30K+100%*$20K=$45,500. The first $18,450 of that is taxed at 10%. The rest is taxed at 15%. So that’s a total of $1845+$4058. You’ll then pay 15%*$5K= $750
You’ll pay nothing on the Roth withdrawals. Total tax bill on $100K is $6,653, or 6.7%. Nowhere near 25%. If you add on state taxes in my state, that’s another 5%*45500=$2,275. That gets you up to 8.9%. The tax bill for many retirees is very low. Sure, if your retirement income is $3-400K, you’re going to be paying some significant taxes. But I’ve only had an income over $300K for 2 or 3 years of my life, and I’ve never spent anywhere near that amount in a year, even when splurging on expensive crap I don’t need like crazy.
This is a great post. It really got me thinking. I currently still love what I do, but it is nice to have options. Even if I wouldn’t stop working completely it would be great to know that I am financially independent. If the employers or government powers that be make rules that compromise how I want to practice, I could walk. I like monte carlo simulations to account for variable returns. Here is a free one at Fire Calc for example. I’m 48. I could cut down to part time for the next 5 years and then stop at age 53.
Input Data for this model
Withdrawals 120,000 (10k per month income)
Plan End 40 (long retirement!)
Current Age 48
Starting Portfolio 2,500,000
Percent in Stocks 50%
Expense Ratio 0.18%
Retirement Year* 2020
Contributions until then* 50,000
Social Security* 34,000
Starting in* 2037
Spouse Social Security* 30,000
Starting in* 2041
Other withdrawal change* +0
Starting in* 2018
Inflation adjusted* yes
Inflation Rate selected* CPI
Fixed income model * LongInterest
Override start year* 1871
Terminal Value* 0
US Micro Cap** 10
US Small** 10
US Small Value** 10
S&P 500** 40
US Large Value** 40
US LT Treasury** 10
LT Corporate Bond** 15
1 Month Treasury** 5
* – Used in Advanced FIRECalc
FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
Because you indicated a future retirement date (2020), the withdrawals won’t start until that year. Your contributions will continue until then. The tested period is 5 years of preretirement plus 35 years of retirement, or 40 years.
FIRECalc looked at the 104 possible 40 year periods in the available data, starting with a portfolio of $2,500,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 104 cycles. The lowest and highest portfolio balance throughout your retirement was $937,861 to $20,378,745, with an average of $6,282,343. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 40 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Understanding the charts below: Don’t try to follow any individual line — with most scenarios, there are just too many of them. But if you look at the mass of lines, and the zero axis, you can get a clear visual representation of how frequently your strategy would have failed (dropped below zero) or succeeded. The objective of presenting the information this way is to allow you to get a “big picture” sense of the way your strategy would have performed historically.
Year-by-Year Portfolio Balances
The zero line is shown in red.
The year-to-year portfolio balance is presented on the website but cannot be pasted into this text box.
Year-by-Year Spending
Since you elected to spend the same amount (after inflation adjustment), the graph of annual spending has been omitted. In variable spending models, you would see a graph of the year-by-year spending, so you could determine if the changes in spending would put you outside your comfort zone.
Yes, for most it’s not when they want to retire, it’s at what income.
WCI,
Yes I think I understand and agree. On the FireCalc website there is a tab (in the upper right) to try different scenarios. You can ask it to recommend equity per cents or retirement years. It isn’t bad as a starting point.
I set 10k /mo + inflation as the income since that is above our current expense level. We can live comfortably on that since we have no debt or major expenses. I likely could stop working sooner but it is always nice to have a margin of safety. Of course over time “My Number” may drift higher as I continue to earn.
I am not a doctor, and I have some ideas of what I’ll retire to. Ideally I’d like to work part time at a fun job, to keep benefits and 401k contribution but with flexibility and less stress. One idea is to work for a brewery, winery or distillery, serving up fun. 🙂 I still have 5-10 years in my corporate job so I can save up enough that the part time pay difference makes the fun job possible.
As for the question of early retirees not going to jobs and what will the kids think…my dad retired before 60, but has been involved in different committees and boards, where he is almost as busy as when he was working. This may not work if your goal is international travel for long periods of time, but my dad does things like go to his alma mater and give talks to students about his career choice, which can be done around travel. My mom also retired early and is a ‘snow bird’, and has found volunteer opportunities at both places. She ended up on her HOA board, which means meetings (I have been there for the phone calls- bored meetings I call them!) and other work. Then she spends time crafting both for fun and to donate. Plenty of ‘work’ going on.
And sometimes the kids don’t care, if dad & mom are there to play after school, chaperone the school trips, be a scout leader, or at practice & games and be there that’s what counts. Other parents are available to do it for many reasons. Work ethic can be self starting (look at me vs some friends), not just watching your parents.