|Financial Independence Analyzer|
|(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!)|
Welcome to your Financial Independence (FI) analyzer!
I created this simple tool to help you figure out how much you would need to save and invest to achieve financial independence.
*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.
Let's get started!
‣‣ On the first sheet, FI Calc & Scenario Analysis, you can manipulate the four numbers in teal boxes:
Yearly Expenses in Today's Dollars
This is the amount of money you would need to spend today to maintain your current lifestyle. Make sure to factor in things like:
|• Housing||• Utilities||• Food||• Clothing||• Insurance|
Initial Withdrawal (WD) Rate
This is the initial percentage of your portfolio that you could withdraw to cover your expenses.
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.
However, the 4% Rule was based on a traditional 25-30 year retirement horizon and may leave you short over longer periods.
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).
The longer you expect to need income for, the lower the initial withdrawal rate you should use.
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.
Inflation Rate Assumption
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.
Historically, inflation in the US has averaged 2% to 3% per year. Using 3% would give you more conservative estimates.
Average Investment Return Assumption
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.
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.
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).
Have fun manipulating this number to see how market returns can drastically help or hurt you over time!
‣‣ 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.
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?".
The percentage of your income that you would have to save/invest to reach FI at that age will appear in the gold box.
Try entering different values into each of the teal boxes to see how each variable would impact your situation!
‣‣ 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.
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.
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.
If you want to achieve Financial Independence sooner, try increasing your savings percentage, your annual income, and/or reducing your yearly expenses.
Play with these numbers until you're happy with the age at which you could become financially independent!
This spreadsheet is to be used for personal informational and educational purposes only.
ReisUP LLC makes no guarantee that the calculations nor estimates are correct, nor that they are suited to your situation.
These calculations are merely meant to serve as guidelines for your personal planning purposes.
As always, past investment performance is not indicative of future investment results. Do research and consult a professional advisor / fiduciary before making investment decisions.
© ReisUP 2017