4 ms·

If I recall right, Mr. M.M. defines retirement basically as financial independence, regardless of how you spend your time. Working because you want to is very d

If I recall right, Mr. M.M. defines retirement basically as financial independence, regardless of how you spend your time. Working because you want to is very different from working because you have to, so I'll buy it. And as far as I know, he and his wife earned their money in tech jobs. The math is believable: let's say your household makes $130,000 a year (which I haven't done), and lives on $30,000 a year (which I've done... not fully voluntarily mind you but it wasn't hell on Earth either). You're saving $100,000 a year. In about 10 years you're a millionaire and could continue living on $30,000 forever without working. (Assuming 3% interest, which is doable without much investing effort, luck or expertise.) That's financial independence. Keep working at that point, and you only improve your lot. You can earn $10,000 a year as a full-time musician and live on $40,000. Or stay in tech and put 100% of your salary into principal while interest or dividends pay your living expenses. Increase your monetary needs, i.e. your financial dependence, and it takes longer. Which is what most people do.

toomuchtodo 8y ago
To live off of $30k/year, you only need $750k saved, not $1MM (@ 4% annual withdrawal rate).
- falcolas 8y ago
  Don't forget to include the percentage required to offset inflation. EDIT: Missed that this was for a fixed period of time - 30 years. But... what happens if you live more than 30 years past your retirement? It would really suck to retire on $750,000 (or $1M) savings at 45, and live to be 100.
  - toomuchtodo 8y ago
    Included in the rate I quoted, per the trinity study, although you might need to reduce your withdrawal rate below that some years depending on your asset holdings (see below for detailed info). EDIT: Again, the rate quoted is for withdrawals in perpetuity. It doesn't guarantee your savings will outlive you, but it's highly confident it will. https://www.bogleheads.org/wiki/Trinity_study_update https://www.bogleheads.org/wiki/Trinity_study_update
  - monktastic1 8y ago
    Some research suggests that a 3.5% withdrawal rate will last basically forever. See, e.g. https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-to-the-retirees-time-horizon/ https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-...
  - yeahsure 8y ago
    I know it's not what most people want, but if you retired to a country with a low cost of living that $1M would be more than enough to live really comfortable till you die.
- kentm 8y ago
  The 4% withdrawal rate has been challenged, and one shouldn't use it as a guaranteed safe rate. It included massive bull runs that may not be repeated going forward. A lot of research has predicted lower real rates of return (around 4% average) in the next date.
  - toomuchtodo 8y ago
    It is based off of the best available information.
  - kudokatz 8y ago
    > one shouldn't use it as a guaranteed safe rate of course not - there are no certainties > It included massive bull runs that may not be repeated it also worked through times like the great depression; on aggregate it's amazingly resilient > A lot of research has predicted lower real rates of return This is a SUPER-important thing for making your own FI models!
aboodman 8y ago
No you need to work 15-20 years, depending on tax rates. Unless you meant 130k after tax (which is doable today for many engineers).
- muzz 8y ago
  This is a very important point because taxes affect decisions around money. For example, the ability to contribute to a 401k plan can defer $18,500 a year from taxes per person (more if over age 50, and more if there is a company match). For someone with a $130k gross, the employer having a 401k plan or not could affect the choice of which job they choose.
  - arielweisberg 8y ago
    Only per person if you are are dual or multiple income. For some asinine reason 401k limits are not only very low, but don't take into account how many people are going to depend on that 401k.
    - dlp211 8y ago
      In what world are 401k limits low? Between you and your employer, you can contribute up to $55.5k/yr to a 401k, more if you are over a certain age, I think it's 50.
    - muzz 8y ago
      I should have said "per employee" not "per person" which could be misconstrued as "per household member". As the other commenter pointed out, why do you think 401k limits are low?
- emit_time 8y ago
  You're missing the part where you invest the money as you save it.
  - aboodman 8y ago
    Ah, so I was. Fair enough.
skookumchuck 8y ago
> You're saving $100,000 a year. In about 10 years you're a millionaire Much quicker than that if you invest it at 7% (average real return on the S&P 500).

toomuchtodo 8y ago

To live off of $30k/year, you only need $750k saved, not $1MM (@ 4% annual withdrawal rate).

falcolas 8y ago
Don't forget to include the percentage required to offset inflation. EDIT: Missed that this was for a fixed period of time - 30 years. But... what happens if you live more than 30 years past your retirement? It would really suck to retire on $750,000 (or $1M) savings at 45, and live to be 100.
- toomuchtodo 8y ago
  Included in the rate I quoted, per the trinity study, although you might need to reduce your withdrawal rate below that some years depending on your asset holdings (see below for detailed info). EDIT: Again, the rate quoted is for withdrawals in perpetuity. It doesn't guarantee your savings will outlive you, but it's highly confident it will. https://www.bogleheads.org/wiki/Trinity_study_update https://www.bogleheads.org/wiki/Trinity_study_update
- monktastic1 8y ago
  Some research suggests that a 3.5% withdrawal rate will last basically forever. See, e.g. https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-to-the-retirees-time-horizon/ https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-...
- yeahsure 8y ago
  I know it's not what most people want, but if you retired to a country with a low cost of living that $1M would be more than enough to live really comfortable till you die.
kentm 8y ago
The 4% withdrawal rate has been challenged, and one shouldn't use it as a guaranteed safe rate. It included massive bull runs that may not be repeated going forward. A lot of research has predicted lower real rates of return (around 4% average) in the next date.
- toomuchtodo 8y ago
  It is based off of the best available information.
- kudokatz 8y ago
  > one shouldn't use it as a guaranteed safe rate of course not - there are no certainties > It included massive bull runs that may not be repeated it also worked through times like the great depression; on aggregate it's amazingly resilient > A lot of research has predicted lower real rates of return This is a SUPER-important thing for making your own FI models!

aboodman 8y ago

No you need to work 15-20 years, depending on tax rates. Unless you meant 130k after tax (which is doable today for many engineers).

muzz 8y ago
This is a very important point because taxes affect decisions around money. For example, the ability to contribute to a 401k plan can defer $18,500 a year from taxes per person (more if over age 50, and more if there is a company match). For someone with a $130k gross, the employer having a 401k plan or not could affect the choice of which job they choose.
- arielweisberg 8y ago
  Only per person if you are are dual or multiple income. For some asinine reason 401k limits are not only very low, but don't take into account how many people are going to depend on that 401k.
  - dlp211 8y ago
    In what world are 401k limits low? Between you and your employer, you can contribute up to $55.5k/yr to a 401k, more if you are over a certain age, I think it's 50.
  - muzz 8y ago
    I should have said "per employee" not "per person" which could be misconstrued as "per household member". As the other commenter pointed out, why do you think 401k limits are low?
emit_time 8y ago
You're missing the part where you invest the money as you save it.
- aboodman 8y ago
  Ah, so I was. Fair enough.

skookumchuck 8y ago

> You're saving $100,000 a year. In about 10 years you're a millionaire Much quicker than that if you invest it at 7% (average real return on the S&P 500).