Lately I’ve been thinking more and more about the future. Planning a wedding, getting married, and merging finances with your partner will do that, at least in regards to your financial situation. But aside from money, having a baby on the way has me re-evaluating what I want to do with my life. Not just right now, but many years into the future, both professionally and personally.

One philosophy has been on my radar for years, but I never realized (until recently) that it’s actually possible. That philosophy is Financial Independence and Retiring Early (aka FIRE đŸ”„).

Financial Independence means that you have enough wealth to live without having to work. And the key is the “independence” part. If you want to watch the entire Netflix catalog, start a business, travel, or keep working, you can! The key is that you have the choice. This is what most of us are working toward with our savings, 401Ks, IRAs, etc. But the Retiring Early part highlights the fact that you might not need to wait for 65 to do it.

You might be thinking “Yeah obviously if I had a buttload of cash I could retire.” But stay with me. I’m not saying it’s easy, just possible with the right mindset, even without winning the lottery.

My goal with this post is to help you understand how possible it is for you. At the end of this, you’ll have an estimate of how many years it will be before you can retire. Hopefully it’s sooner than you expect. If not, maybe it will help you figure out what you could do to get closer to FIRE.

We’re going to use two financial calculators to come up with our retirement estimate.

To continue, you need to know:

  1. Your salary/annual pay
  2. Your annual expenses OR annual savings

I’ll follow along with a made-up example of a guy named Bob:

  • $50,000 salary
  • $1,500/month expenses
  • No contribution to 401k
  • No savings

1. Calculate your Income after Taxes

Post-Tax Income Calculator

You know how much your job pays you a year, but it’s not always easy to figure out what your take home pay is after Uncle Sam takes his cut. Head over to Smart Asset to use their Income Tax Calculator.

Mandatory

  • Enter your annual salary into ‘Household Income’.
  • If there is anything you don’t know, just leave the default value.

Optional

  • Change ‘Location’ and ‘Filing Status’.
  • Enter values in the ‘Advanced’ section. Note that 401K contributions will lower how much tax you pay.

That’s it! Look for the ‘Income After Taxes’ value. This is an estimate of your take home pay after taxes and we’ll use that in Step 2. In my example, Bob’s $50K salary is down to $36,456 after taxes.

2. When can you Retire?

When can you Retire?

Now the fun part! Head over to Networthify to check out their Early Retirement Calculator.

Mandatory

  • Enter the Income After Taxes value from Step 1 into ‘Current Annual Income’.
  • Enter EITHER ‘Current Annual Savings’ OR ‘Current Annual Expenses’.
    • You only have to enter one and the other is auto-calculated.
    • Current Annual Savings should include any retirement contributions.

Optional

  • Enter your ‘Current Portfolio Value’
    • This includes any savings, retirement accounts, etc.
  • Click ‘Show More Options’ if you are curious.
  • Click ‘Show Assumptions’ for some explanation.

That’s it! You’ll be shown how soon you can retire. In Bob’s case, he’s saving 50% of his take home pay, and spending the other 50%. Based on that savings rate, Bob can retire in 16.6 years. Not too shabby for a man with no savings and no retirement contributions.

At this point, tinker around with the calculators. See what happens if you cut your expenses by 10% and get a 15% raise. You’ll be surprised at how some simple changes in your lifestyle can bring you years closer to retiring early.

The math isn’t complicated. What is complicated is figuring out what you want right now AND down the road. Do you want children? Do you need that bigger house in the nicer neighbourhood? Or do you want to downsize to a studio apartment? Are you interested in switching careers to make more money? Can you become a 1-car family?

Too bad there aren’t any calculators for the tough questions. But I hope this helps you think critically and financially when considering those questions.

Thanks for reading!