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The reference blog post from Mr Money Mustache is: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmo

by Two9A 11y ago

The reference blog post from Mr Money Mustache is: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... Essentially, your income in retirement should not be dictated by your current income, but by your current level of expenses. If you can save a multiple of your current annual expenses, and that multiple is high enough to account for real-terms investment gains, you're financially independent: you don't need to work any more. The number generally used is 25x, which corresponds to real-terms gains of 4% per year on your savings.

wstrange 11y ago
It's a great read. The one thing that concerns me is the assumption that your investments will earn 5% after inflation. That has been very difficult (at least for me) since 2008.
siberianbear 11y ago
@wsstrange: The S&P 500 is 50% above its 2008 peak on May 8, 2008.[1] That's a 5% annual compounded return ((210/140)^(1/7)). And that's using the 2008 peak: if I use the lowest price from 2008 (in December), your return would have been 8.8% annually. Inflation (at least in USD) has been benign during this period, so probably there has been a real 4% return during that period. I don't know how you concluded that you didn't get a 4% real return during this period. If you look at the stock market over any short-term (<15 years) it will be quite volatile. Over very long periods it is more regular. If you're investing in the stock market, you must take a very long time horizon. If you really want to understand this topic in more details and whether your portfolio is likely to fail over some period of time, I encourage you to play with FireCalc [2]. [1] http://tinyurl.com/poz7trc http://tinyurl.com/poz7trc [2] http://www.firecalc.com/ http://www.firecalc.com/

by Two9A 11y ago

wstrange 11y ago

It's a great read. The one thing that concerns me is the assumption that your investments will earn 5% after inflation. That has been very difficult (at least for me) since 2008.

siberianbear 11y ago

@wsstrange: The S&P 500 is 50% above its 2008 peak on May 8, 2008.[1] That's a 5% annual compounded return ((210/140)^(1/7)). And that's using the 2008 peak: if I use the lowest price from 2008 (in December), your return would have been 8.8% annually. Inflation (at least in USD) has been benign during this period, so probably there has been a real 4% return during that period. I don't know how you concluded that you didn't get a 4% real return during this period. If you look at the stock market over any short-term (<15 years) it will be quite volatile. Over very long periods it is more regular. If you're investing in the stock market, you must take a very long time horizon. If you really want to understand this topic in more details and whether your portfolio is likely to fail over some period of time, I encourage you to play with FireCalc [2]. [1] http://tinyurl.com/poz7trc http://tinyurl.com/poz7trc [2] http://www.firecalc.com/ http://www.firecalc.com/