If you are reading our blog then you are probably somewhat into financial math. I truly enjoy it, although I am not a math whiz by any means. Although I do find it kind of fun to analyze investment figures, savings rates, rates of return, compound interest, etc. Yes, money nerd alert, code red!
One great way to get into personal finance numbers is to mess around with the many amazing online calculators available for free. God bless the people that design these! I have to admit though, I prefer the free online ones that do not require me to sign up for anything and in this post we introduce a couple to mess around with. Plug your numbers in, see where you are and where you want to go.
We all know the basic rules of thumb for savings and investment goals. The most popular one being to save 20-25 times your annual salary and then withdraw 4% per year. If you make and live off $50,000/year, then you need to save/invest $1,000,000 to $1,250,000 to live off of and “retire”. But I also highly encourage folks to play around with the many amazing retirement calculators that are available, crunch various numbers and savings rates. I personally like the Vanguard calculator, but there are many great ones available. Here are a few tips and ideas:
The Vanguard Calculator can be found through this link:
Vanguard Retirement Calculator
What is cool about this calculator is that it will let you know about how long your nest egg will last. This is very important when working towards financial independence.
The Financial Mentor “Ultimate Retirement Calculator”
Another calculator to check out is the Ultimate Retirement Calculator by the site The Financial Mentor. This one is very detailed and gives a nice idea of the investment account required to produce a specific desired income each year. I messed around and said I wanted $40,000/year from the age 50 to 90. Based on this I needed about $1,000,000 in my investment account at 50.
Add and subtract contribution amounts
One thing that is fun about some calculators is that you can see what a difference it will make in your life to up your contribution amounts. See what it looks like to save 10% vs 20% of your pay. Perhaps this could result in retiring 4 years earlier than expected. Maybe that is worth it to you or maybe the current lifestyle reduction choices are too important to you?
Use conservative returns
No one knows what the market will return in the future. It could be higher or lower, but so many unknowns are out there. I like to use a conservative 6% return. Any extra is either added security or a cool trip to Europe. Some analysts are saying we are in for a decade of lower returns on equities/stocks over the next decade, therefore a person may want to use a more conservative 4-5% return.
Factor in Social Security or Pensions
Perhaps your stash of investments could support an early retirement if you have a pension or social security that could kick in at a later date. Again, play around with the numbers and see what you can build to support your future self.
Most people never run a calculator like this and just fly through life by the seat of their pants. I think it is very informative to mess around with numbers. One advantage is that you may discover that you do not need as much as you previously thought in order to live comfortably in retirement. I meet many people that say hey are not sure why they waited so long.