Note that looks like you are assuming 4% investments after retirement. Per the passive investment chart, this implies a fairly high level of risk? I'm unclear if you're also assuming we will live forever?
* It is looking at a 30 year time horizon. For longer periods you'd need a but more money, but not double. 3% is incredibly safe, and wouldn't take that much longer to acquire once you're at 4%.
* Slight reductions in expenses during down years have a huge effect on the overall success of the portfolio. If you could reduce expenses to 3.5% during severely down years, that would significantly help the success and longevity of your portfolio.
I like the UI, I really do, but all these calculators are flawed in that they can't predict the future. What do I mean? Well, I have ~$1.5M right now and I'm 45 and I want to retire ~50. Seems doable, no? But it's not because I have no idea what the cost of health insurance will be even 10 years from now, not to mention over the course of my full retirement. Also, I have two kids whom I will likely want to send to college, another outrageous expense whose total cost is completely unknowable.
I attempted to retire in 2017. Health insurance via COBRA was a total disaster. I was paying $1400/mo. for my family, so even though I have no mortgage and just the monthly bills, I now did have a mortgage of sorts! It completely fucked my calculations as well as my expectations about retirement.
Folks, here is the truth: You need something like $10M these days in order to retire early and not just be a miser ekeing out some cheapo existence. I don't live extravagantly at all, and I read sites like Bogleheads and Mr. Money Mustache, but I have resolved that the best I can do is to retire--as a software engineer, that is, and maybe, MAYBE work part-time in some boring, dispensible, throw-away shit jobs.
If anyone knows of how to work part-time in IT please post. I am not only a developer, I'm good at DevOps, databases, hardware. I wouldn't mind configuring laptops or setting up servers, as long as it's only part-time and pays something. I just don't want to work at Target or Home Depot, because that is even more soul-crushing than what I already do every day.
Having hand rolled my own retirement calculator (excel) with a lot of other variables that seem like overkill at first, I think this is very misleading if you don't at least account for inflation. It gets complicated real quick when you start realizing that if you need amount X and it takes Y years to get that X amount, the goalposts have moved by the time you actually save up to X, and now may need 1.2X. Not to mention that the passive income buying power will go down each year, so you actually need to have passive income growing at the same rate of inflation. Yes, this complicates and it would be nice to have a simple calculator, but the reality is there is no real utility for this other than to highlight the principle of "gotta have money to make money".
Have you looked into engineering economics? The formulas you'd need are already developed depending on the scope you're building. Present value calculations will handle most of the hard work, letting you talk about everything in "today" dollars.
I've taken a macro course and am more or less using those formulas (and translating them into basic examples in the grandparent). Present value only does so much lifting though, as my scope is a lot wider. Life is more complicated than that. You can't forget about different taxation treatment when comparing Roth/Traditional savings, savings outside of retirement accounts when applicable, etc.
Excel also acts as a wrapper to allow for me to change my annual budget easily, my expected salary over time, expected inflation, etc and see the results. I'm not reinventing the wheel here, just making my own instance of the wheel. But the point remains: it's a heck of a lot more complex than this calculator.
One of my "ideas to do if I had time" it to take that and make it into a "simpler" service that could actually be useful to people. I know most retirement helper companies try to do this but wow are they bad in my experience. The problem they are fighting of course is balancing the simplicity with the customization though, which I suspect is the crux. Still, to whoever finds that solution first, a pot of gold will follow.
But currently I'm rather searching for a path towards part-time work. Sadly that's challenging as a project manager, maybe slightly less as a product manager (I always filled both roles in smaller startups, so I'm flexible here).
I'd be happy to, though I suspect it's too specific to be of use to a wider audience, and certainly could be improved as they were made out of need, not designed perfectly.
And it's not even that "easy". Say you make $1mm from the sale of some stock in a startup. First off, this is incredibly rare. Second, your take home is roughly $600k in the U.S. after federal and state taxes. So even $1mm doesn't get you much. Good luck starting a business with only $600k.
At 600k you could work a job that covers your expenses only while investing the money, and have ballpark 1.2M in a decade. Another decade could put you around 2.4M. Saving just 10k/year would massively inflate these numbers.
I encourage you to think in terms of percents. The Trinity Study says you'll need about 25x your expenses saved. If you can lower your expenses by 5k/year, you can not only invest that money, but your target also lowered by 125k. That double whammy allows diligent savers to do very well and retire on a much shorter timeline than those spending 95%+ of their paycheck.
And while that is completely lovely, it places you far short of what is necessary. The trick that is played on US citizens is the goal posts keep moving further and further out because or buying power is eroded so horribly by insidious inflation.
A $50K/yr. job in the early 1980s is today's $120K/yr. job. It took me 15 years to make it to $120K, though. And most people don't even make what I make!
Pretty much this. It’s a rough trek and requires a lot of saving. And even once you get there, you don’t feel rich — not with a few kids and more expenses. Having said that, I estimate around 30k passive per month should do it if you have a family and are living in a major city.
That's still 180k a year post-tax. That's still enough to fund an absolutely lavish lifestyle, even in the highest cost of living locations. It's not MTV Cribs rich, but it'll still put you in the 95%ile in Manhattan, to say nothing of more reasonable locales.
If not, I would like to see an option to input your tax rate and get a more accurate number. If I want to get $10,000 in passive income a month, a 12% return from a $1,000,000 investment per year won't do it because I'll need to pay taxes on the $120,000.
I think that comments here are really negative towards capitalism and generally saving for passive income. I would just like to say that even if it's difficult to achieve 1000$ passive income it's always good to generate any passive income at all. Even if it's 5$ it's good once you calculate how much it will give you in your whole life (if you are young of course). Saving is like a snowball that accumulates money. I am nowhere close to FIRE or 1000$ passive income but I like to think that I have savings that allow me not to work for at least X years (mine number is between 3-4 years now). It gives me some 'fuck you' approach towards my job that helps a lot with the stress and improves my assertiveness.
>Even if it's 5$ it's good once you calculate how much it will give you in your whole life (if you are young of course).
Please be extremely careful when you tell young people that.
I am 30 now. I am used to be a person who worked aggressively towards FIRE philosophy in the last 3 years. I have saved a whooping 30% of my income over 3 years with my meager grad student salary. I think I had seen both the positive and negative sides of the FIRE philosophy.
Positives:
- It doesn't matter how much my income is, as long as I'm bothered to do the calculation and be wise when I spend money, I'd be well off.
- It reminds me of being creative with my pleasures - many/most good things in life doesn't cost money.
- Life is much cheaper when I have spare money. I don't have to sweat for the bank fucking me over when I receive a paycheck a week late. Or I have a flat tire. Or I have a tooth acting up. Or I want to invest in that new thing called buttcoin years ago.
Now negatives:
- There is an incredibly thin line between being frugal and being cheap. If saving money causes me inconveniences, strangers stare at me for trying to save a couple of bucks doing funny stuff, would it be worth it?
- The perception that I need to retire early someday because all jobs are boring. I think that's wrong. If I do the right job, I will want to do it after I retire. If I do the wrong job, three years and it burns me out (which it does). I can always switch jobs and take a cut in my paycheck. The thing I can't do is to suffer from a shitty job with a good salary and hope that one day I will save enough 'fuck you' money to quit. At the point I put in that 'fuck you' note, I will realize that I am a bitter loser who hates everything all my life.
- The $5 adds up philosophy. A counterexample for that is Steven Dubner's philosophy: If it's < $X dollars and I want it, I will get it and not think about it. My income, in general, will only ever go up. Saving $5 here and there for that overpriced bottle of water or that sandwich at the airport, having to fight with my inner self for 10 minutes deciding that is a waste of time and energy.
- Everyone I love and I myself won't stay young forever. When I am young, money buys me a lot of good shit when I can still enjoy it. Plus, people like surprises, things I would go above and beyond their expectation, money included. Although my girlfriend appeared to be very frugal, and I myself might saw no appeal in the latest iPhone X, but my girlfriend would have appreciated it if I had bought it for her. She also would have deserved and appreciated that fancy meal on the weekend because she has been cooking for me a couple of meals during the week when we were both busy. What's the point of having money when I only have it for myself with no one to share? I am glad cases I was more generous than I would, and I regret cases where I could have been more generous to the people I love.
Overall, I am less aggressive now. I keep the FIRE philosophy in mind, but I don't work aggressively towards it. The present is to enjoy, not to suffer as to hope for the future that might never come.
Focus on total return, not yield. A company that returns money to shareholders primarily through stock buybacks is not inherently less valuable than a company that only pays dividends. In a taxable account, capital gains are usually preferable to dividend income. Read about "shareholder yield".
I think the main problem is by the time you've made the $2.5M required to passively make $5k/month your lifestyle and expenses probably exceed $60k/year.
It's hard to imagine this reduction in expenses but I guess that's the reality of retirement.
That goes to show how frugality and not allowing lifestyle creep makes all the difference. At the end of the day, it's not your salary that matters but your percent of income saved. Two people can follow the same trajectory even when starting at different salaries and retire at the same time even if one makes double the other. There are of course some caveats. 40k/year has less room for cuts if there's a down year than 80k/year.
Also, 2.5 M for 60k/year is not a great strategy (100% CD's). While it's for all intents and purposes guaranteed, it's incredibly conservative. That's a 2.4% withdrawal rate. That would hardly keep up with inflation. The Trinity study shows 4% to have not than a 0 balance 95% of the time on a 30 year time horizon (I believe with an 80/20 split of stocks and bonds, but that's from memory). Many times you'd end up with far more than you started retirement with. A 3% withdrawal rate (while invested in stocks and bonds) would almost guarantee perpetual money on a 50+ year horizon.
To quote one of the top posts on /r/financialindependence, build the life you want then save for it. Find what makes you happy and spend money on that. Cut money on things that don't add much marginal happiness.
It's sort of like capitalism in a nutshell. Have money? Great, live a grand old life off the dividends. Don't? Get bent. Work your butt off the the rest of your life for scraps.
There is middle ground though. Yes, if you don't have marketable, non-easily replaceable skills you'll have a harder time, but many people could make a median income, live a modest lifestyle, and retire 10+ years before 65.
>> You are much more likely to accumulate a lot of money by starting a business and selling it, only then can you expect to reliably live off of passive income.
Did you account for the principal also accruing value while you're saving up?
E.g. In the HY Savings account for a 1K/month passive income, you need $827,586. If you saved $1K/month, and reinvested that income until you got the $827K, it should only take you 20 years, not 23.
The error gets bigger when looking at longer time frames and higher returns.
Buying junk bonds sounds like the worst idea ever. Buying Facebook/Google/TSLA shares or Bitcoin has risk as well, but at least I'm closer to knowing what I'm buying.
Nice job! I made some interactive visualizations to calculate something very similar:
https://www.workfortime.com/investment-calculator/
https://www.workfortime.com/retirement-calculator/
I tried to show how age and length of investment really impact how much wealth you can create.
Note that looks like you are assuming 4% investments after retirement. Per the passive investment chart, this implies a fairly high level of risk? I'm unclear if you're also assuming we will live forever?
4% returns are a very cautious estimate, one that would have worked even for a period spanning the Great Depression, or any other stock market crash.
I agree, but to add a few more details:
* This is typically cited from the Trinity study (https://en.m.wikipedia.org/wiki/Trinity study).
* It is looking at a 30 year time horizon. For longer periods you'd need a but more money, but not double. 3% is incredibly safe, and wouldn't take that much longer to acquire once you're at 4%.
* Slight reductions in expenses during down years have a huge effect on the overall success of the portfolio. If you could reduce expenses to 3.5% during severely down years, that would significantly help the success and longevity of your portfolio.
I like the UI, I really do, but all these calculators are flawed in that they can't predict the future. What do I mean? Well, I have ~$1.5M right now and I'm 45 and I want to retire ~50. Seems doable, no? But it's not because I have no idea what the cost of health insurance will be even 10 years from now, not to mention over the course of my full retirement. Also, I have two kids whom I will likely want to send to college, another outrageous expense whose total cost is completely unknowable.
I attempted to retire in 2017. Health insurance via COBRA was a total disaster. I was paying $1400/mo. for my family, so even though I have no mortgage and just the monthly bills, I now did have a mortgage of sorts! It completely fucked my calculations as well as my expectations about retirement.
Folks, here is the truth: You need something like $10M these days in order to retire early and not just be a miser ekeing out some cheapo existence. I don't live extravagantly at all, and I read sites like Bogleheads and Mr. Money Mustache, but I have resolved that the best I can do is to retire--as a software engineer, that is, and maybe, MAYBE work part-time in some boring, dispensible, throw-away shit jobs.
If anyone knows of how to work part-time in IT please post. I am not only a developer, I'm good at DevOps, databases, hardware. I wouldn't mind configuring laptops or setting up servers, as long as it's only part-time and pays something. I just don't want to work at Target or Home Depot, because that is even more soul-crushing than what I already do every day.
Having hand rolled my own retirement calculator (excel) with a lot of other variables that seem like overkill at first, I think this is very misleading if you don't at least account for inflation. It gets complicated real quick when you start realizing that if you need amount X and it takes Y years to get that X amount, the goalposts have moved by the time you actually save up to X, and now may need 1.2X. Not to mention that the passive income buying power will go down each year, so you actually need to have passive income growing at the same rate of inflation. Yes, this complicates and it would be nice to have a simple calculator, but the reality is there is no real utility for this other than to highlight the principle of "gotta have money to make money".
Have you looked into engineering economics? The formulas you'd need are already developed depending on the scope you're building. Present value calculations will handle most of the hard work, letting you talk about everything in "today" dollars.
I've taken a macro course and am more or less using those formulas (and translating them into basic examples in the grandparent). Present value only does so much lifting though, as my scope is a lot wider. Life is more complicated than that. You can't forget about different taxation treatment when comparing Roth/Traditional savings, savings outside of retirement accounts when applicable, etc.
Excel also acts as a wrapper to allow for me to change my annual budget easily, my expected salary over time, expected inflation, etc and see the results. I'm not reinventing the wheel here, just making my own instance of the wheel. But the point remains: it's a heck of a lot more complex than this calculator.
One of my "ideas to do if I had time" it to take that and make it into a "simpler" service that could actually be useful to people. I know most retirement helper companies try to do this but wow are they bad in my experience. The problem they are fighting of course is balancing the simplicity with the customization though, which I suspect is the crux. Still, to whoever finds that solution first, a pot of gold will follow.
Would you share you excel sheets? I'm curious.
But currently I'm rather searching for a path towards part-time work. Sadly that's challenging as a project manager, maybe slightly less as a product manager (I always filled both roles in smaller startups, so I'm flexible here).
I'd be happy to, though I suspect it's too specific to be of use to a wider audience, and certainly could be improved as they were made out of need, not designed perfectly.
Exactly; $1000 / month might be nice now, but 30 years later could be equivalent to $500.
If you assume 3% inflation, it only takes 23.44 years for the value of money to halve
It seems the hardest problem is (always) finding the first million with which one can invest.
And it's not even that "easy". Say you make $1mm from the sale of some stock in a startup. First off, this is incredibly rare. Second, your take home is roughly $600k in the U.S. after federal and state taxes. So even $1mm doesn't get you much. Good luck starting a business with only $600k.
> Good luck starting a business with only $600k.
Some of the most popular, profitable YC startups (even just regular 'ol startups) were started on a fraction of $600k.
There is a school of thought that argues that too much money at the initial stage is actually harmful.
At 600k you could work a job that covers your expenses only while investing the money, and have ballpark 1.2M in a decade. Another decade could put you around 2.4M. Saving just 10k/year would massively inflate these numbers.
I encourage you to think in terms of percents. The Trinity Study says you'll need about 25x your expenses saved. If you can lower your expenses by 5k/year, you can not only invest that money, but your target also lowered by 125k. That double whammy allows diligent savers to do very well and retire on a much shorter timeline than those spending 95%+ of their paycheck.
And while that is completely lovely, it places you far short of what is necessary. The trick that is played on US citizens is the goal posts keep moving further and further out because or buying power is eroded so horribly by insidious inflation.
A $50K/yr. job in the early 1980s is today's $120K/yr. job. It took me 15 years to make it to $120K, though. And most people don't even make what I make!
Pretty much this. It’s a rough trek and requires a lot of saving. And even once you get there, you don’t feel rich — not with a few kids and more expenses. Having said that, I estimate around 30k passive per month should do it if you have a family and are living in a major city.
360K in passive income a year?
Pretty sure, but not 100%, that I could just maybe scrape on 360k/yr. /s
*Before taxes?
That's still 180k a year post-tax. That's still enough to fund an absolutely lavish lifestyle, even in the highest cost of living locations. It's not MTV Cribs rich, but it'll still put you in the 95%ile in Manhattan, to say nothing of more reasonable locales.
It's probably more than that if you've structured your passive income such that decent chunks of it are long-term capital gains at 20% federal.
Check out https://firecalc.com for a great utility to estimate what you need to retire on.
Firecalc is amazing, but be sure to read all the instructions carefully.
I assume this does not take into account taxes?
If not, I would like to see an option to input your tax rate and get a more accurate number. If I want to get $10,000 in passive income a month, a 12% return from a $1,000,000 investment per year won't do it because I'll need to pay taxes on the $120,000.
It's more for illustrative purposes, not to be used as an actual calculator
I think that comments here are really negative towards capitalism and generally saving for passive income. I would just like to say that even if it's difficult to achieve 1000$ passive income it's always good to generate any passive income at all. Even if it's 5$ it's good once you calculate how much it will give you in your whole life (if you are young of course). Saving is like a snowball that accumulates money. I am nowhere close to FIRE or 1000$ passive income but I like to think that I have savings that allow me not to work for at least X years (mine number is between 3-4 years now). It gives me some 'fuck you' approach towards my job that helps a lot with the stress and improves my assertiveness.
>Even if it's 5$ it's good once you calculate how much it will give you in your whole life (if you are young of course).
Please be extremely careful when you tell young people that.
I am 30 now. I am used to be a person who worked aggressively towards FIRE philosophy in the last 3 years. I have saved a whooping 30% of my income over 3 years with my meager grad student salary. I think I had seen both the positive and negative sides of the FIRE philosophy.
Positives:
- It doesn't matter how much my income is, as long as I'm bothered to do the calculation and be wise when I spend money, I'd be well off.
- It reminds me of being creative with my pleasures - many/most good things in life doesn't cost money.
- Life is much cheaper when I have spare money. I don't have to sweat for the bank fucking me over when I receive a paycheck a week late. Or I have a flat tire. Or I have a tooth acting up. Or I want to invest in that new thing called buttcoin years ago.
Now negatives:
- There is an incredibly thin line between being frugal and being cheap. If saving money causes me inconveniences, strangers stare at me for trying to save a couple of bucks doing funny stuff, would it be worth it?
- The perception that I need to retire early someday because all jobs are boring. I think that's wrong. If I do the right job, I will want to do it after I retire. If I do the wrong job, three years and it burns me out (which it does). I can always switch jobs and take a cut in my paycheck. The thing I can't do is to suffer from a shitty job with a good salary and hope that one day I will save enough 'fuck you' money to quit. At the point I put in that 'fuck you' note, I will realize that I am a bitter loser who hates everything all my life.
- The $5 adds up philosophy. A counterexample for that is Steven Dubner's philosophy: If it's < $X dollars and I want it, I will get it and not think about it. My income, in general, will only ever go up. Saving $5 here and there for that overpriced bottle of water or that sandwich at the airport, having to fight with my inner self for 10 minutes deciding that is a waste of time and energy.
- Everyone I love and I myself won't stay young forever. When I am young, money buys me a lot of good shit when I can still enjoy it. Plus, people like surprises, things I would go above and beyond their expectation, money included. Although my girlfriend appeared to be very frugal, and I myself might saw no appeal in the latest iPhone X, but my girlfriend would have appreciated it if I had bought it for her. She also would have deserved and appreciated that fancy meal on the weekend because she has been cooking for me a couple of meals during the week when we were both busy. What's the point of having money when I only have it for myself with no one to share? I am glad cases I was more generous than I would, and I regret cases where I could have been more generous to the people I love.
Overall, I am less aggressive now. I keep the FIRE philosophy in mind, but I don't work aggressively towards it. The present is to enjoy, not to suffer as to hope for the future that might never come.
Focus on total return, not yield. A company that returns money to shareholders primarily through stock buybacks is not inherently less valuable than a company that only pays dividends. In a taxable account, capital gains are usually preferable to dividend income. Read about "shareholder yield".
I think the main problem is by the time you've made the $2.5M required to passively make $5k/month your lifestyle and expenses probably exceed $60k/year.
It's hard to imagine this reduction in expenses but I guess that's the reality of retirement.
That goes to show how frugality and not allowing lifestyle creep makes all the difference. At the end of the day, it's not your salary that matters but your percent of income saved. Two people can follow the same trajectory even when starting at different salaries and retire at the same time even if one makes double the other. There are of course some caveats. 40k/year has less room for cuts if there's a down year than 80k/year.
Also, 2.5 M for 60k/year is not a great strategy (100% CD's). While it's for all intents and purposes guaranteed, it's incredibly conservative. That's a 2.4% withdrawal rate. That would hardly keep up with inflation. The Trinity study shows 4% to have not than a 0 balance 95% of the time on a 30 year time horizon (I believe with an 80/20 split of stocks and bonds, but that's from memory). Many times you'd end up with far more than you started retirement with. A 3% withdrawal rate (while invested in stocks and bonds) would almost guarantee perpetual money on a 50+ year horizon.
To quote one of the top posts on /r/financialindependence, build the life you want then save for it. Find what makes you happy and spend money on that. Cut money on things that don't add much marginal happiness.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
It's sort of like capitalism in a nutshell. Have money? Great, live a grand old life off the dividends. Don't? Get bent. Work your butt off the the rest of your life for scraps.
There is middle ground though. Yes, if you don't have marketable, non-easily replaceable skills you'll have a harder time, but many people could make a median income, live a modest lifestyle, and retire 10+ years before 65.
>> You are much more likely to accumulate a lot of money by starting a business and selling it, only then can you expect to reliably live off of passive income.
Yep. That pretty much sums it up.
Great tool, will have to show my family
Did you account for the principal also accruing value while you're saving up?
E.g. In the HY Savings account for a 1K/month passive income, you need $827,586. If you saved $1K/month, and reinvested that income until you got the $827K, it should only take you 20 years, not 23.
The error gets bigger when looking at longer time frames and higher returns.
It definitely does not.
Great... so you either need a lot of money or a lot of time. It takes money to make money and it takes a lot of time to make money to make more money.
Typo: "Widthdrawal"
Buying junk bonds sounds like the worst idea ever. Buying Facebook/Google/TSLA shares or Bitcoin has risk as well, but at least I'm closer to knowing what I'm buying.