How much do you actually need to retire? I have read several articles listing x, y and z expenses that you need to have for retirement. Most of the are adding up to ridiculous amounts of money. In the millions kind of amounts, 10’s of millions! Now, I would love to have 10 million sitting around but unfortunately, I would need to save beyond retirement to have that, or win the lottery (not that lucky I am afraid)!
All this retire early talk is fantastic and I get a little giddy thinking about it, so much so that I usually get up and start pacing every few minutes when I am writing these posts. But let’s get down to the nitty gritty number crunching and deal in hard facts and figures.
My yearly expenses
Currently, I am earning €42,000 a year after tax. I am averaging €2,000/month in expenses including housing (currently renting) and groceries which I outline here. This comes out to be €24,000 a year.
Therefore, I technically need a nest-egg* that will provide €24,000 of passive income each year. I am actually going to round this up to €25,000/year. But how can I be certain that my passive income will stand the test of time? Will it last if I plan to retire nearly 30 years before I am traditionally supposed to?
Drawing down safely
Using the 4% withdrawal rate, and my annual expenses being €25,000/year, my required nest-egg is:
€25,000 divided by 4% = €625,000
Great! I currently have €20,000 so only €605,000 to go. The sooner I get there, the sooner I retire!
At my current savings rate of €1,500/month, compounding at 7% in the S&P index tracker, assuming no raises, no extra savings and no significant other who could possibly be convinced to join this FIRE life, I will be able to retire at 45, almost to the day! Plug your numbers here, when can you retire?
Of course, this entire plan revolves around the assumption that after retirement, I will never work or have any other form of income again. From reading the bloggers who have achieved FIRE, this seems to invariably not be the case, be it a hobby the becomes monetized, a blog that brings in cash monies or even getting a different part time job!