the process

How We Calculated Our Numbers for Each Phase of Early Retirement

today’s post comes out of several requests we got in response to our reader survey (which you can still take if you’re interested!), asking how we arrived at our magic numbers for the amount we need to save to retire early. and even for those of you who’ve built loads of spreadsheets like we have, we know that it’s often helpful to look at other people’s calculations to test your own thinking. this is probably our most math-heavy post ever, so please let us know — how can we make mathy posts like this as helpful as possible? we’d love the feedback!

in some ways, people who retire at the traditional retirement age have it easy. they really just have to calculate one number: how much do i need to save for retirement? that can happen pretty painlessly if you know approximately how much you’d like to spend each year and apply the 4 percent rule (which, in practical terms, means multiplying your yearly budget by 25). voila: retirement magic number. (of course it can be much more complicated if you expect to have income from multiple sources, or have other circumstances to factor in, but you can still look at all your money as a whole if you’re planning to retire past age 60, which is not something early retirees can necessarily do.)

in our case, if we looked at how much we hope to spend each year in retirement and applied the 4 percent rule (25x), it would look like we could already retire already, or at least we could once we finish paying off the mortgage on our house, because the combined balanced of our 401(k)s and taxable savings is roughly equal to what the 4 percent rule says we should have saved. there’s only one little problem: a large majority of our cash is saved in our highly restricted 401(k)s, which we can’t legally touch without penalty until age 59 1/2. and sure, we could do the roth conversion ladder trick, except 1. as risk-averse investors generally, we like knowing that we’ll have a bigger pot of gold waiting for us in our later years, so don’t want to dip into our 401(k)s very much or at all, and 2. the conversion ladder wouldn’t let us move over enough cash each year to make enough of a difference, or it could mess with our obamacare subsidy eligibility. if we just retired today and started spending according to the 4 percent rule, we’d run out of accessible cash long before we can legally get at our 401(k) funds. so we needed a way other than the 4 percent rule to calculate what we’d need in each phase of our retirement.


Calculating Your Numbers for Each Phase of Early Retirement // Our Next Life -- financial independence, calculations, personal finance, 401(k), IRA, taxable investments

defining the phases of our retirement

the chart below will look familiar to regular readers. this is how we believe our income will break out over the years of our early and traditional retirement:

Income Over Time

essentially, we think of our retirement as happening in two phases:

phase 1: until mr. onl turns 59 1/2 (let’s call it 60), when we’ll be relying primarily on taxable accounts (this post has more detail on the allocations within those accounts), and later on a combo of taxable accounts and rental income once our rental property mortgage is paid off. we think of phase 1 as our “dirtbag years” (borrowed lovingly from eat the financial elephant), when we’ll live and travel more cheaply (think lots of camping, staying in hostels and pensiones abroad, being willing to work in exchange for services and/or food, etc.).

phase 2: after mr. onl turns 60, when we’ll live off of our tax-deferred accounts, currently our 401(k)s, but which will become rollover iras after we leave our careers. (and hey, maybe we’ll get some social security, too, but we’re not banking on that.) these are the years that we hope to make our “golden years,” living and traveling with a little more comfort since, if all goes as planned in phase one, we’ll be darn tired from circling the globe and adventuring, and in need of some pampering by the time we reach phase 2! ;-)

building our projection

to figure out how much money we need in each phase, we need to have several pieces of info handy:

  1. how much we plan to spend per year in each phase (we expect a lower total during phase 1 — the dirtbag years — than in phase 2), in 2016 dollars
  2. where that income will come from in each phase or sub-phase (like our rental income kicking in partway through phase 1)
  3. a guess on how we expect the markets to perform between now and then, based on historical averages, factoring in historical averages for inflation as well

we know there are lots of calculators out there like cfiresim, which let you enter different assumptions and forms of income that will kick in at certain dates, but we wanted to build our own projections that we could keep handy and fiddle with.

a sample projection

because we don’t share numbers (though we do share charts!), we’re sharing a sample projection to show how we went about thinking through our retirement math. it’s based on fictionalized scenarios that loosely mirror our own situation, but with different numbers. the whole calculation is based on the following assumptions:

  1. an “income”/spending target of $30,000 each year for the first part of phase 1, until our fictionalized rental mortgage is paid off, then dropping to $15,000 per year for the rest of phase 1, with rental income making up the difference.
  2. an increase to $60,000 a year in our more baller “golden years” of phase 2.
  3. everything is represented in 2016 dollars for the sake of understanding, and interest rates are decreased accordingly. given that the s&p 500 index has historically returned between nine and 10 percent a year, and that inflation is typically around three percent a year, that means that a high-end assumption of six percent growth (9 percent historical return minus 3 percent inflation) is a good starting point. however, because we’re somewhat conservative as investors, we also built out the projection to include lower returns of four percent and five percent. (and you could just as easily go lower still — not a crazy idea, given recent market returns, and the more pessimistic future projections of some analysts.)
  4. a decent amount in tax-deferred accounts in this scenario — let’s say $500,000 just to have something nice and round to include. those will grow without withdrawals until age 60.
  5. we’re okay spending down our taxable funds by age 60, when we switch to tax-deferred. (not counting an emergency fund, which isn’t factored in here.)

here’s what a projection with these made-up numbers might look like at different interest rates:


Fictional Two Tier Math

in the taxable column, which funds phase one through age 59, for each of the first nine years, we subtract $30,000 and then add the applicable interest rate for that projection to see what we’d have leftover at the end of the year. for the next ten years, we only subtract $15,000 before adding interest. by fiddling with the starting numbers, we can see how much we’d have to save to have funds to sustain us until age 60. in the tax-deferred column, we let the fixed starting amount grow at the assumed interest rate for the first 19 years, and then begin taking out $60,000 worth of 2016 dollars per year before adding interest.

we see, for these imaginary numbers and assumptions, that we’d want to have at least $275,000 saved in taxable savings before retiring, assuming those funds need to get us through 19 years supplemented by rental income, but that number assumes a six percent return, which is basically the historical average, adjusted for inflation, for every year of our early retirement. that feels a bit aggressive to us. to be safer, and to allow for the possibility that market returns may be declining over the long run, we should probably save $305,000 or more in this scenario, which only relies on a four percent return (seven percent minus inflation). in our real life numbers, we’re saving quite a bit more.

the tax-deferred side is where we see what a giant difference interest rates can make. a two percentage point difference could mean a variance of more than $400,000 by the time we reach age 60, almost equal to our starting balance when we stop contributing. and if you could get a consistent six percent return (nine percent minus inflation), you would never deplete your principle at that spend rate. even at five percent (eight minus inflation), the principle depletion is minimal. the tax-deferred projections are largely academic to us, since we already have more than we expect to need in that column (again, not our real numbers in the chart, but we’re well padded in that column). but if you need to figure out how much to have saved in 401(k)s and iras before retiring, you could structure that half of the chart the same way we set up the taxable side, so that you can fiddle with the starting number to figure out what you need to save in your tax-deferred accounts before calling it quits.

just for fun, we zoomed down into the true golden years, with those same interest rates, and assuming we have $500,000 in tax-deferred funds when we early retire, as well as a $60,000 a year (in 2016 terms) annual withdrawal from those accounts:

Hypothetical Golden Years Capital

this is just a continuation of the same chart above, and you can see that with a four percent return (really seven percent market average, but adjusted for average inflation), we’d run out of money in this imaginary scenario when mr. onl is 85, and i’m 82. i’m still not convinced that immortality is off the table, but in any case, i prefer to see our money last until i’m 100 (making mr. onl 103), just to be safe. crazy, isn’t it, what a huge difference a single percentage point can make over time? the difference between a seven percent market return on average over those years compared to an eight percent return (represented as 4 and 5 percent on this chart) is the difference between a $1.5 million deficit and a three-quarters of a million surplus. the difference between eight and nine percent is a whopping five million inflation-adjusted dollars. if that isn’t a case for making sure you’re not paying 1% fees on your investments, i don’t know what is.

obviously we hope the last scenario comes true, so we can do some major charitable giving and leave big, fat bequests to some worthy groups. but if it’s looking like the first column is more in line with reality, we’ll have to adjust our spending accordingly (or maybe we get social security or sell a house or any number of other contingency measures). in our actual planning, we will calculate a new spend total for our “true” retirement/phase two based on the 4 percent rule, once we get closer to age 60 and have a bit more clarity about what else is out there in 20+ years (social security? medicare? soylent green? universal socialism? the zombie apocalypse?). only time will tell!

has anybody used a projection like the one we made (and then remade here with pretend numbers)? we haven’t done such a math-heavy post like this one before so let us know: was this helpful? what other info would be helpful to think about your own projections and planning? share, share away!

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123 replies »

  1. I love it guys. Yes, we’ve made tiered projections…..though with fewer categories. I think a tiered method, denoting the various stages of life, is the only practical way to do it. I would suspect your projections will change over time, just like ours have. Still, “we miss 100% of the targets we don’t aim for”…… great work on this. Assumptions will change, but now you have a ballpark idea on your goals and the associated costs. Have a great week!

    • Absolutely assumptions will change (and these aren’t even our real ones — ha!), so totally agree with you that we all have to remain flexible and adapt to the situation. We’re thinking of that as part of the fun. :-)

    • I’ve never done projections that were that precise myself… I should probably. One of my wife’s biggest fears is that I am not precise enough in my plans, not taking into account future expenses correctly enough.

  2. Yup, we’ve made a ton of projections too – what if we retire NOW? What if we retire in two years? What if we spend $35k instead of $30k? What if we drop our spending down to $25k? My wife is the spreadsheet queen and can plug numbers into her sheet and have everything update nicely, which gives us something to at least target, even if it’s only a ballpark figure.

    I think these are all fun numbers to look at, but to be perfectly honest, I don’t rely too heavily on these projections in our situation.

    While I do believe these calculations can be helpful, more and more, I am beginning to realize how much of a swag it all is, too. There is a good chance that all of our numbers will change in a couple years anyway based on the circumstances at the time. We don’t have any idea what’s going to happen after we retire so a lot of our numbers will probably turn out to be wrong…or at least not completely representative of our situation at the time. Like you guys, we are flexible creatures and will do what it takes to make this whole thing work. We’ll adjust as we go, tweak our spending and our willingness to work, etc.

    But, at least in my case, I look at these numbers as an interesting factoid in this whole process, not necessarily what I’m relying on to get it done, because to me, we’ll make it work however we need to. The key is to just jump in and get started.

    Most early retirees that I’ve spoken with (and read about) state uniformly and unequivocally that they only wish that they started sooner. Opportunities abound when you’re not tied up with full-time work. The ability to make money is there, as is the opportunity to live frugally or less frugally as the situation requires.

    Once you’re entirely flexible with your lifestyle, all the rest just comes out in the wash.

    Great post, as always!

    • This shouldn’t come as a surprise, but that sounds a lot like what we do! “What if we can spend $5,000 less per year? What if we get fun jobs that make $6-7K?” etc etc etc. :-) These aren’t our real numbers, of course, but it’s important to us to know that our money will last — we don’t want to become destitute once we’re past an age where we can go out and hustle for extra funds! Of course, this fake projection and our real one both assume no social security, so we hope to be pleasantly surprised on that front. :-) But we’ve heard the same thing from retirees that you have, that everything kind of changes when you pull the plug, and so you have to learn to adapt regardless! So once again, flexibility is the key. :-)

  3. Will you have enough income during your first phase to at least use up the standard deduction and personal exemptions? If not, you could do a small Roth conversion each year to use that tax free space.

    • Hi Kyleko — These aren’t our real numbers, and to answer your question: We think so, but we aren’t totally sure yet. We’re still figuring out exactly what we want our post-retirement income to be to hit the sweet spot of low taxes and low-cost ACA health care. So stay tuned!

  4. Great post. I love all the calculations, especially the illustration about how big of a difference 1% can make over time (and why to avoid fees). This stuff can get a big complicated so it’s great to see you breaking it down. It helps others know what to watch out for and consider. Looks like you have a pretty solid plan.

    • Thanks, Neil! The craziest thing of all is how big a difference it is in our *real* numbers, which have bigger starting points than the ones here. Yet again, compound interest is amazing. :-) But those fees — we have all got to make sure we’re not paying big fees!

  5. OMG – the amount of spreadsheets and projections we’ve made is mind blowing. Like you, we also have our own calculators and I literally get at least 1 different scenario emailed to me a week by Mrs. SSC. We also hope that our Golden Years turn into some “baller years” if investment growth is on the upper end of our forecast, or we’ve used less because one or both of us found a cool gig supplementing our income.

    Yeah it’s sobering playing with different % points, spending cuts, increases, market downturns, etc… It lets us know that – in most every situation, we’ll be okay when we pull the trigger and enact our Lifestyle Change – whether we work again or not. Any side work will help cushion any downturns or rough spending years – like this past year when we’re replaced/repaired $12k worth of home maintenance stuff… Ugh…

    It’s comforting having those numbers and calculators and getting some assurance that we’re not all crazy and contrary to public/popular opinion our FIRE/FFLC plans CAN work. :)

    • At least a new projection every week?? Wow! Mrs. SSC has great imagination — I like that! This sheet with fake numbers is adapted from the one that Mr. ONL “owns” — I manage the ones that are more about spending and budget scenarios, and tracking actual savings/net worth over time. That is our marital division of labor — like he does dishes, I scrub bathrooms. :-) And yeah, those percentage rates are super sobering! It’s crazy what a difference 1% can make! But I’m super excited for you guys that your different projections all show success for you. Wohoo!

      • Like Steve pointed out, the numbers are probably all wrong to some degree. :) Plus, no matter what happens, I know we will make it work, even if it isn’t at the lifestyle we might have hoped for. We’ll make it work because that’s what we do. Mrs. SSC is a planner and likes to deal with and be comfortable with any scenario, any day of the week, lol.

    • I mean, who knows if we’ll make it to 100 — if we only make it to 80, the difference between the low projection and high projection is *only* $2 million. :-) But yes! Fees are the difference between success and failure!

  6. Thanks for this post guys! I’ve looked at my calculations at a higher level, but I’m just starting to push things a little deeper because I always have that self-doubt of “is this plan really going to work?”.

    I actually like the way you break this down and I think I’m going to use it to see how things add up for our family. I’m afraid of overthinking every detail because everything can change at a moment’s notice, but on the flip-side, better safe than sorry!

    — Jim

    • Totally true that everything can change, but it’s also a sad but true fact of retirement that people run out of money all the time! So better to run some projections and know your numbers are safe than to guess. :-) Good luck going deeper with your planning!

  7. I really like how you guys are approaching this, two things in particular.
    First, you’re not strictly trying to follow the 4% rule. We are taking a bit of a different approach and just planning to do some part-time work in our early years to avoid drawing down our investments too much in our early years and let them grow. We anticipate a W/D rate of more like 0% (i.e. not saving anything, but not spending any investments) to 2% basically living off of dividends and interest and not touching principal for the first couple years. This should be pretty easy for us as we each have opportunities for well compensated part-time work and are currently living comfortably off of Mrs. EE’s salary even after maxing out her retirement accounts and saving some cash each year. With the recent dip in the markets, we don’t anticipate we’ll hit 25X our expenses, but plan to quit regardless of where we are b/c we’re equally worried that we’ll stay too long b/c of our conservative nature as we are of ever running out of money.
    Second, I like your tax planning approach and not overly relying on Roth conversions which can screw up other things, most importantly health care subsidies. Unfortunately, we can only plan based on the info we currently have though as after the next election we could have the exact same system or something completely different.

    • Thanks, EE! Yeah, the 4 % rule is great, but doesn’t feel like it fits our situation, at least not until we hit traditional retirement age. As you said, there are other things to worry about, like maximizing our Obamacare subsidy and minimizing taxes (also why we haven’t been tax loss harvesting during this market slide!). I like the plan that’s coming together for you guys, including perhaps some part-time work. I hope you’ll do a post on where your thinking is on this stuff these days, if you aren’t planning to wait until you hit 25x. :-)

  8. Do your calculations take into account the impact of taxes, especially for mandatory withdrawals from your IRA once you are 70? You assume annual spending of 60,000 in the “golden years”, which I assume is after tax spending. However, you are likely going to be required to take out more than that from your IRA’s, and will need to pay tax on the distributions. This is going to reduce the amount of principal available. I realize if you are able to do a Roth conversion, that fixes the tax issue in the golden years, but you indicated that you don’t plan to do that.

    Thanks for your posts, I really enjoy reading your blog.

    • Thanks for the great question, HBR! These are fictional and oversimplified numbers, and we didn’t explain every assumption for fear of it becoming a 3000 word list of caveats. :-) But in our real life projections, we are factoring in taxes, though we assume we’ll owe very little in our “dirtbag years” because we’ll keep income low, and that we’ll owe a little more in our later years. We expect to tap our IRA funds well before the mandatory contribution age, btw, though we’re keeping an eye on the rules about those withdrawals and how that could affect our planning!

  9. You’ve done a remarkable job covering as many bases as possible, particularly given such a long timeline to work with! Anytime we try to project into the future we’re essentially playing a giant game of what if, and since your actual figures are healthier than the sample, you’re obviously well situated for any eventuality. Some of the challenges we’ve dealt with, now that we are actually retired, include when to start pulling from Mr. AR’s IRA (current plan is to lag until the last possible moment, the year after he turns 70 1/2), when to begin collecting SS for me (current plan is to wait until age 70 since I can no longer file a restricted application at full retirement age and receive half of the spousal benefit while retaining my own), and how to handle the need for potential long term medical care (VA benefit is currently available for both of us, but would fall woefully short of the funds needed). Income taxes have been much higher than my optimistic projections, as have medical premiums and out of pocket costs, so our goal continues to be to avoid depleting assets (the market is doing that for us, sadly), while moving to tax free investments as the market dictates. Expenses can increase at a healthy clip (medical insurance premiums went up 20% for me alone this year, but coverage was reduced even at the same “Gold” level), so I would certainly pad those inflation numbers heavily. Utility and food costs can also greatly exceed conservative estimates. We’ve noticed grass fed, organic, farm raised non-GMO foods have increased in cost far beyond supermarket price increases for like items. I frequently ponder what these costs will look like in even five years, let alone forty or fifty. Mr. AR and I were just contemplating whether or not we should have purchased a smaller place with more flat land so we could grow our own food (we’ll make do with garden boxes for the present), so for us retirement continues to be a work in progress.

    • You point out SO MANY reasons why anyone seriously planning for retirement has got to take inflation seriously, and maybe budget for additional inflation as you suggest. We see a lot of people saying “well, the markets average 10 percent annually, so I’ll have 10 percent more money every year!” and it’s not true. First of all, the markets fluctuate, but inflation also eats into a ton of those gains, and it’s critical to account for that!

  10. You guys are rocking it. I think I like the idea of targeting different $$ amounts in tax-advantaged space and taxable space, rather than just looking it as one big pot.

    • Thanks, TJ! Not our real numbers of course, but at least it shows how we’re thinking about things. :-) And yeah, looking at the two pots separately is pretty essential given the restrictions on the tax-advantaged accounts!

  11. Love the calculations and projections. A thinking post for sure. :)

    Our biggest decision point right now is where are we going to retire. I’m not 100% sure where we are living right now will be the spot. It’s something we have been discuss for a little bit now. In the mean time we continue to save and invest.

    • Thanks, Brian! And yes, WHERE is a hugely important question that has big budget/saving implications. We’re big fans of living somewhere that feels like vacation, so that you don’t have to travel to feel like you’re living the dream. :-)

      • This is something that I like to think about also! While the on-the-go nomadic “dirtbag” life definitely has it’s appeals (especially for me whose favorite moments in life have been stepping out of the cushy comfort zone), I think that after I get that “dirtbag” fix out of my system, the thought of putting down roots somewhere where my environment has a lot of the things that I enjoy and value built-in to my day-to-day and my community, whether that is aspects of nature itself and/or social/volunteer opportunities, is a very appealing thought because it eliminates that need to feel like you have to “go somewhere else” for vacation to “escape the grind”. When every weekend (and in retirement, every day?) feels like a vacation, you can maybe allot more of your travel budget to visiting family or perhaps do some volunteerism with your labor. I don’t think those who have the wanderlust spirit ever lose it, but I like the options that such a lifestyle opens up…

        …and perhaps an enjoyable job in that “dream locale” can even be had to avoid spending down the nest egg as quickly/ to allow the transition to happen even sooner.

      • You raise a lot of good points, TJ! You should read the interview we did a few weeks ago with the Charltons, who started out their ER as nomads, and ended up wanting a home base.

      • I actually read that one when it was first published, but thanks for pointing me towards that again, because you’re right, it’s good information and what’s especially neat about their story is that they were doing it before there were all these internet resources available.

  12. I definitely do some similar projections, playing with interest rates and rates of spend all the time. I like your (or mr. onl’s) layout–I have been simply changing the interest rate back and forth, but putting three different levels side by side gives a better perspective.
    I also am looking at different buckets, because like you guys we have some big 401(k) funds, but the taxable accounts aren’t where they need to be to get us through the early years. Also, we plan on having some more expensive early retirement years due to the kids and our desire to fund college, and then life becomes much cheaper once they are out of the house.
    My next task is to tackle the question of taxes, and how to draw from different accounts with different tax liabilities to minimize taxes and maximize subsidies. We have a cash balance plan as well as the 401(k)s, which has its own unique rules. I think I’ll procrastinate on that until after the election–who knows what impact that will have on the numbers!

    • So your timeline might actually have more phases — taxable early retirement with kids, taxable ER without kids but paying for college, tax-deferred retirement, etc. And yeah, taxes are a whole other thing. We’re expecting to pay very little in our dirtbag years, but will have to do some bigger calculations around our later years — and waiting until post-election is probably smart. :-)

  13. I love the way you have charted things out. My charts only currently show they year when early retirement is possible but not beyond that. But I am curious why you are only showing the rental income once the property’s mortgage is paid off. Do you not receive any income from the property currently? Although having no mortgage would be great it is not feasible for us in early retirement but we are still planning on using the income from the property to fund part of our retirement expenses.

  14. These charts help put things in perspective for me when understanding what is appropriate to retire with. When you say you want to prepare to live until 100, that is where I struggle. How do I estimate the longevity of my life to know what’s best? But I guess it’s better to be safe than sorry.

    “because we’re somewhat conservative as investors, we also built out the projection to include lower returns of four percent and five percent”

    Are you more conservative because you know you aren’t leaving your money held for as long so if something happened you wouldn’t have the appropriate amount of time to recover? Or have you always been conservative with investments? Sorry if the question is too personal – I am just conservative as well but am wondering if I should take more risks.

    • Others who know way more about this stuff than we do could tell you about life expectancy, and what to budget for. *Theoretically* the 4% rule should make sure your money lasts forever, so could be a good rule to follow outside of a projection like this. And on the conservative note, we just never want to rely on big returns for our plan to work. We want to know that we’ll be okay even if the markets just barely chug along (um, hello recent history). But we also tend to invest 70/30 stocks/bonds, which seems to qualify as conservative among FIRE types, even though that’s moderately aggressive among normal people. :-)

  15. So interesting! We haven’t done a ton of projections because of our flexible goal of semi-retirement and our current focus on paying off debt. But I will definitely be referring to these metrics as a model for our projections, in a few more years. Thanks!

  16. This is an awesome post. And now my productivity is shot because I’m off to go run more numbers in ALL the spreadsheets! You guys are so close to my projections, so thanks for doing most the work for me. :) (We won’t have the rental income)

  17. This is totally awesome, gotta love these Excel sheet projections. You’re just like me, a spreadsheet nerd in heart. :D

    We’ve ran a few projections on our side as well but your taxable vs. tax-deferred and age tier income projection is very interesting, should run that for us too.

  18. Thanks for sharing – ive done a fortnightly cash flow till we are 100 too (see I can admit this in a forum like this) for the same reasons – we have a rental property which is cash flow positive now but like you guys we still have a mortgage. The cash flow allows more flexibility eg if the year we have to replace a car, or renovate a bathroom, our travel expense is lower.
    You (and others reading) have built a simple economic model (hey it’s what I do!) and assumptions are your friend ;) As you get more information, you update the model, just like you are doing.
    I’ve done scenarios too, they have been really helpful to help me undrestand the cost of the trade-offs.
    So far I’ve only done 1 investment returns assumption so you have inspired me to try a few options. I think like you guys the risk is more in the years when we are under 60 (and I’m estimating our investment property would cover our essentials) but it is worth thinking about it especially since you’ve shown how different the outcomes are.
    From one nerd to another – appreciate such a great post.

    • Thanks for weighing in to say that our model is an acceptable one — always appreciate hearing that from financial pros! This scenario isn’t our real numbers, of course, but it follows the same logic. And yeah — the earlier years of ER are definitely going to be the toughest ones for a lot of us, it seems!

  19. the number nerd in me loves this post! and yes, I have a similar spreadsheet that calculates my FIRE date. And yes, I reworked it to put it online Great stuff! Mine focuses on a build up scenario to see when I reach my number. This is great inspiration for a breakdown of spending/using money after FIRE.
    Working in current euros is also something that I do. And I also use 3 different annual returns. So, that all makes sense to me.

    Good that you fiddle with the numbers to reach a point where these accounts are almost 0 by the end date. Gives you an idea of what you need.

    The idea of thinking about phazes in your retirement is a good one. For now, I assume a fixed cost of livivng all the way through retirement. I guess I need to upgrade my FIRE date calculator.

  20. The numbers and scenarios are great and as ONL get’s closer to the official FIRE date, I’m sure this will be on your mind more and more. I probably over simplify things today with my current situation and take all of my expenses and ask will I have all of them when I hit FIRE, for example mortgage, health care, food, etc. Once I get the FIRE expenses I take that and put it against our projected income from real estate as of today to keep things simple. Everything else beyond that is going to be a bonus/fluffer/emergency fund, etc. So while we don’t have the same ranges per se our plans are similar and will become more similar as our taxable accounts start to take form a little more. We also look at major milestones, including paying off debt, a mortgage, and really start evaluate what’s this is going to mean financially moving forward. Love the post, like I love a good craft beer, so thank you:)

    • If you’re planning for your real estate investments to yield the bulk of your income, then that approach is great! We do find the projections to be pretty fun to do, though. Not as good as a craft beer, but still pretty fun. :-)

  21. Okay – I love spreadsheets, but I have to admit I do not have any that quite nearly resemble FIRE. This is to be done in the future after the fiance & I have worked quite a little while to then generate projections. :) My question is: have you designated a hypothetical income stream/channel for all that money you will be making off publishing your first novel?!

    • I fully expect that this type of projection is not right for everyone… yet. :-) When it’s time, you’ll feel that itch to build out a big spreadsheet like this one! And ha… I’ve heard that book publishing is not super profitable, so we’re not factoring that in. ;-P

  22. I haven’t yet done full on long term projections like this covering all investment accounts. Guess that’s a project for the year because I’ve been thinking a lot more about long term planning over the last couple months.

    Just searching for some more clarification because the math doesn’t make sense for what I assume your scenario is going to be. Are y’all planning to sell the rental property before swapping to the tax deferred account drawdown? Or are you planning on actually living off $75k ($60k drawdown + $15k rental income)?

    It looks like the rental income isn’t accounted for if the plan is $60k total expenses/income. So the tax deferred drawdown would only be $45k per year.

    • Definitely recommend doing a big projection like this for the long term! And to answer your clarifying Q — these aren’t our real numbers or a perfect mirror to our real assumptions. But, our general thinking, because we’ve oversimplified things here like the taxes, that the rental income would either cover income taxes on our higher income, or cover higher health care costs, or maybe we’d sell it and use the proceeds to buy an RV, or any number of other scenarios. So basically we would still be planning to spend $60,000 a year in this projection after age 60, and the rental would create whatever buffer is needed to make sure that can still happen. The projection itself *is* based on a $60K per year drawdown. Hope that helps!

  23. Yes, I’ve done projections like this for my household. I do two, actually: one like yours which accounts for all the sources we have or can reliably expect, and one where I pretend we have only one layer of investments to depend on. (no social security, no house equity to free up, no family resources) The one-layer is the one I pay more attention to, since I know success there means definite success with extra resources and buffers in play.

    Eight years five months until FI-ready! ( fidget fidget :-) )

    • I can definitely appreciate doing a second projection that’s a bit more “worst case scenario” or at least builds in more of a buffer by assuming fewer resources. That’s a good call, to be safe! And I bet you’ll end up getting to FI in fewer than 8 years… these things have a way of accelerating! ;-)

  24. I can’t even tell you how invaluable this post was for me! We’re very early in our journey to FIRE and I’ve been managing lots of spreadsheets but I had not thought to break down the phases of spending by account types. Right after I read this I spent over an hour creating my own schedule and realized that by maxing out our tax-deferred accounts we will be leaving ourselves too little in our taxable accounts to get by until we can access the rest of our money. This has allowed me to course correct our savings plan and improve my calculations for taxes and penalties we may pay depending on our draw-down rates. Thank you!!

    • You win comment of the day. :-D What a cool thing for you to share! I’m so happy that our post helped inspire you to crunch some of those numbers and refine your plan! We definitely think that people in the FIRE blog space don’t talk enough about how to actually structure your savings, instead just relying on the 4 percent rule, which as you have now calculated, doesn’t quite work for everyone! Keep us posted on how things come along for you guys! :-)

  25. Hi! New to following, but loving your blog.

    A question, and hopefully I’m not way off base here. When you do your 4%, what age are you using? For me, I’m creating age tiers (like you, our expectations change over time–but also the difference of the FV of money is vastly different when I will be 55 vs 95).

    The way my model looks now, a 25X at 55-60 valued income looks quickly attainable. When I look at the FV of of what I need when I’m 95 and multiply it by 25 it makes me want to cry!

    Hopefully this makes sense and is not too “newbie” a question.

    • Hi KB! Thanks for your nice note. :-) We’re actually only applying the 4% rule to our age 59 1/2+ money, because we’ll definitely need more than 4% of our taxable accounts per year during our “phase 1.” For the phase 1 stuff, we’re doing conservative projections on growth, and assuming that we subtract the amount we need to live on each year, so we gradually spend that money down if the markets grow slowly, or hold steady or grow the money if the markets do well. Then once we can access our 401ks, we’ll switch to the 3% or 4% approach. Does that all make sense? It’s hard to calculate a two-phase approach, which is what most of us early retirees are aiming for, with something as overly simplistic as the 4% rule. Downside: more math and calculations. Upside: more math and projections. Haha. And to your point about needs at different ages, it’s impossible to know what the future holds, but we’re for sure planning to reserve more of our nest egg for our later years to accommodate higher health care costs and things like long-term care (hopefully we won’t need it, but we’re realistic). And we factor 2-3% inflation into everything, accomplished by chopping that off the interest rate to begin with. Is this helpful at all?? Feel free to respond back…

  26. Great post! Very insightful. Forgive me if this question has been asked already, but I would like to know how you guys prioritize how much to allocate towards your taxable accounts opposed to your tax deferred accounts? Seeing as how you plan to live off of your taxable account for your first phase of early retirement. Do you max out your 401K & IRA then once those are maxed you begin funding your taxable accounts, or do you place more of an emphasis on funding your taxable accounts first?

    • Great question, and our answer probably doesn’t apply to most people! We got ahead of the game on 401(k)s early and well before we had a FIRE plan, and then by the time we were thinking about early retirement, we were above the IRA and Roth thresholds in income. So short answer is: We’ve continued maxing or almost maxing our 401(k)s each year and then have allocated all the rest to taxable savings.

      BUT, if we were starting fresh now, I’d definitely do some projections to figure out how much we need in those early retirement years vs. later and do a more balanced approach. It helps if you can afford to max 401(k)s and still do taxable savings, of course, but what’s most important is your own timeline and plan!

  27. Amazing post.. had a couple of q’s on your table

    1. Did you include “home equity” under the taxable or tax-deferred income or didnt include at all?
    2. Did you personally include “home equity” in your tax or tax-deferred income calculation?

    • Thanks! We don’t include home equity under anything you see here. We have three versions of our net worth on our own spreadsheets (investable asset NW, investable assets + rental property equity and investable plus home and rental equity, which is our total net worth), but don’t count it for income or withdrawal rate purposes. That’s not to say that’s the right way to do it, but we don’t want to have to sell either property, so don’t count them.

  28. You are my hero! I’ve been working on spreadsheets for years, taking what I learn from other blogs and catering it to our plan. We have the same 2 phased approach as you, and I’m so happy I found your blog because you laid it out perfectly! Thank you!!! I’m gonna read everything you have now 😀.

    There’s one thing that keeps bugging me in my spreadsheets, and that’s inflation. I was able to reproduce your numbers, and you’re showing your investments growing 6% a year, removing 3% inflation and withdrawing a consistent 40k a year. I’ve put that in my spreadsheet. I also tried to run numbers assuming a 9% growth and adjusting my withdrawal by 3% a year to account for inflation. The final numbers years down the road are drastically different and I don’t understand why. The area I’m most concerned with estimating is the 401k withdrawals in 20ish years (im the same age as you). If I go with the 60k number you picked for 2016 dollars, how can you realistically apply that in 20 years? I inflated the 60k to 111k (3% a year). I ran the same numbers assuming 6% growth and consistent 60k withdrawal and 9% growth and inflating the withdrawal 3% a year and the end results are crazy different.

    I hope this isn’t too wordy and confusing to understand! I also realize I’m asking a very detailed financial question and wish I had an accountant friend to ask! I hope I’m just missing something obvious. Thanks for reading!

    • Good question! You can do two different things to account for inflation. Either keep everything in today’s dollars and shave 3% off your projected growth every year. (I recommend this approach because only today’s dollars make sense in your brain.) Or you can adjust EVERYTHING for inflation, including the amount you withdraw each year. (Though note that the Trinity Study didn’t account for a full bump up of inflation, but instead to increase your withdrawals each year in line with the Consumer Price Index, CPI.) Possible you’re not accounting for inflation on some number? You can also try a withdrawal calculator like this one to check your math:

  29. Im so glad i came across your blog, as I’m just discovering the FIRE community and ideas! Im SO fascinated by it and can’t wait to implement it into my families life style.

    I have a question that i keep coming across as i read through your blog, and forgive me if this is a silly question. In your Phase 1 you talk about “Taxable Accounts” and in Phase 2 you talk about “Tax-deferred Accounts.” What is a Taxable account? What is a Tax-Deferred account?

    I understand the typical retirement account like a 401K, which we have in place. Just trying to wrap my head around all these new (to me!) terms!

    • Hi Michelle — Welcome! And no worries on your question. It’s not self-evident if you aren’t steeped in this stuff! Tax-advantaged is any account that has some kind of tax benefit for the purpose of retirement: 401k, 403b, 457, IRA, Roth IRA, health savings account, etc. In our case, we save all that stuff for “Phase 2” after age 59 1/2 (the age at which you can access all of those accounts with no penalties or hoops to jump through). And taxable is everything else. Savings accounts, regular brokerage investment accounts, etc. Let me know if that doesn’t clarify it for you. Glad to have you in the community! :-)

  30. Fantastic post, I am trying to re-create your spreadsheet but am having a little trouble with a formula for the eligible for tax-deferred section. Would you mind letting me know the formula you used to arrive at the first figure of $991,024.59 (i.e. the first entry for age 60 where you deduct the 60k and then add the 4% interest). I`m sure it is probably a simple formula but I have so far failed to find it. Thank you for your assistance. p.s. Is there a section where I can download the spreadsheet?

  31. My big concern with all of these discussions is that I haven’t seen one that takes a Monte Carlo approach to looking at investment returns. It is one thing to look at ranges of S&P returns and think that you are being conservative, but S&P returns have a very large standard deviation. It can go down 40% one year and back up 25%. If you get caught in a big downturn the first year and have to withdraw from your accounts, you might not catch up. That is where some of the firesim calculators shine in that they run the analysis and give you a % success figure.
    I realize that these posts are old and that I may read new information as I read through to more recent posts, but I want to caution people who may read all this and think that simplistic assumptions are sufficient to base life decisions are. I firmly believe that major life decisions such as early retirement need to be based on sound, conservative plans backed up with a Plan B.
    I’m anxious to see how your actual experience pans out.
    I do find your musings about life and relationships very interesting and wish you all the best.