Based on my end goal of financial freedom I’ve accumulated information from various books, blogs and traditional retirement calculators to determine how much I need to save to be able to live off of indefinitely. Overall I’m basing my calculations on the updated Trinity Study from 2009 that reinforces the 4% safe withdrawal rate for investments with a 75% stock, 25% bond asset allocation even when adjusting for inflation every year. Mr. Money Mustache makes a lot of excellent points about how this study in itself even builds in a large safety margin by assuming that a person would not adjust spending to account for economic reality, such as a recession, or substitute goods to compensate for the inflation of an individual item.So to retire in essence I need 25 times my annual expenses so I can live on 4%. Though so far I’ve only lived in New York City and going forward will be paying a lot less in housing, I have calculated that I can happily live on $20,000 including housing and several cross-country and international trips. This past year was an explosion of spending before I started reading Mr. Money Mustache in mid-October and I still only spent $28,365.52. The additional $8,365.52 will easily be cut out when I halve my housing expenses by living outside of NYC. As for 2014, my expenses overall broke down like this:
2014 Expenses
Housing $14,454
Food & Alcohol $6,394
Travel $2,904
Shopping $1,138
Bills & Utilities $916
Gifts & Donations $533
Transport $392
Entertainment $357
Health & Fitness $342
Additional Taxes $266
Personal Care $76
Total: $28,365.52
As a result, to reach financial independence I need $20,000 x 25 = $500,000. Half a million dollars used to sound like a nearly impossible amount, but I’ve calculated that if I live off of $20,000 the next 10 years and save the rest (minus taxes) by maxing out my retirement accounts and adding to a taxable account I can get there. I’ll be tracking my progress below.
YEAR 0: 2014
401k
Contributions (2011-2014): $22,533.99
Gains: $2,002.73
IRA
Contributions: $11,000
Gains: $456.63
Emergency Fund/Cash for Bills: $17,358.68
Total: $53,352.03
Some seriously disciplined spending!! FIREing half time somewhere fun like Thailand or the Yucatan would be super cheap (and at the same spending level, super luxurious!) for someone as disciplined like you, and would make for a cool adventure.
If you think this is impressive you should read my more recent posts 🙂 . I’ve cut this by $10K! FIREing abroad does sound cool and I am planning to include a lot of travel to LCOL areas in my future. At the moment though I would prefer the option to stay in the US (where my family and my partner’s family live). But I’ll come back to this comment when I have a particularly hard day at work. Maybe my answer will change….:) Thank you for the comment!