ReisUP Financial Independence Analyzer
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Financial Independence Analyzer
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(Psst... To edit this sheet and enter your own info, click "File" and either make a copy, add to your Drive, or download to your desktop!)
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Welcome to your Financial Independence (FI) analyzer!
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I created this simple tool to help you figure out how much you would need to save and invest to achieve financial independence.
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*Caution: Grey and gold boxes contain important formulas and should not be changed. To get the most out of this tool, please only change numbers in teal boxes.
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Let's get started!
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‣‣ On the first sheet, FI Calc & Scenario Analysis, you can manipulate the four numbers in teal boxes:
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Yearly Expenses in Today's Dollars
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This is the amount of money you would need to spend today to maintain your current lifestyle. Make sure to factor in things like:
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• Housing• Utilities• Food• Clothing• Insurance
• Transportation
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Initial Withdrawal (WD) Rate
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This is the initial percentage of your portfolio that you could withdraw to cover your expenses.
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The 4% Rule used for traditional retirement planning suggests a 4% initial withdrawal rate. Each year after that, you may need to increase the $ amount you withdraw to keep pace with inflation.
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However, the 4% Rule was based on a traditional 25-30 year retirement horizon and may leave you short over longer periods.
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If you want to become financially independent in your 40s, let's say, you'll likely need income for at least 40 years (assuming you live to be 80 or 85 years old).
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The longer you expect to need income for, the lower the initial withdrawal rate you should use.
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As a guideline, use 3% if you want to live off of your portfolio for 40 to 50 years. Use 4% if you expect to only live off of your portfolio for 25 to 30 years.
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Inflation Rate Assumption
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Don't forget about cash's worst enemy - INFLATION! As prices increase over time, you'll need to withdraw larger dollar amounts just to cover your same expenses.
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Historically, inflation in the US has averaged 2% to 3% per year. Using 3% would give you more conservative estimates.
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Average Investment Return Assumption
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To live solely off of your portfolio, you'll need to strike a delicate balance between protecting the principal you've saved and earning money on your investments.
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To accomplish this, you'll want to take on just enough risk to achieve growth, but not too much that you expose yourself to signifcant drops in market downturns.
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One possible solution is to invest your money in a moderate-conservative to moderate fashion. Doing so would earn you an average return of roughly 4% to 6% per year (historically).
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Have fun manipulating this number to see how market returns can drastically help or hurt you over time!
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‣‣ On the second sheet, I Want to Be FI at # Years Old, the calculator will tell you the % of your income that you would have to invest to reach Financial Independence at a desired age.
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Want to become Financially Independent at 45? Awesome. Enter "45" into the teal box next to "At what age do you want to reach FI?".
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The percentage of your income that you would have to save/invest to reach FI at that age will appear in the gold box.
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Try entering different values into each of the teal boxes to see how each variable would impact your situation!
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‣‣ On the last sheet, How Long Until I Reach FI, you'll see how many years it will take you to achieve FI based on your current saving and spending habits.
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In addition to the first set of variables, enter how much you currently have saved, your annual income, and what percentage of your income you can save. Anything in a teal box can be adjusted.
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In the gold boxes, the calculator will tell you how many years you are away from Financial Independence based on your inputs, and how old you'd be when you reach FI.
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If you want to achieve Financial Independence sooner, try increasing your savings percentage, your annual income, and/or reducing your yearly expenses.
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Play with these numbers until you're happy with the age at which you could become financially independent!
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*** Disclaimer:
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This spreadsheet is to be used for personal informational and educational purposes only.
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ReisUP LLC makes no guarantee that the calculations nor estimates are correct, nor that they are suited to your situation.
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These calculations are merely meant to serve as guidelines for your personal planning purposes.
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As always, past investment performance is not indicative of future investment results. Do research and consult a professional advisor / fiduciary before making investment decisions.
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© ReisUP 2017
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