The FIRE time to retirement calculator
I added a simple but dynamic time to retirement calculator to the website. The calculator is based on the financial independence, retire early (FIRE) principles of accumulating a retirement nest egg and then using a safe withdrawal rate (SWR) to fund all retirement expenses.
For those not familiar with FIRE, a quick rule of thumb is that you can retire using a safe withdrawal rate of 4% or less. This means that you have enough money to retire when your nest egg reaches 25x your annual expenses. In FIRE circles, this is known as your “FI number”. You don’t necessarily need to retire when you hit this number, but you do achieve true financial independence.
The calculator takes inputs including your annual expenses, your annual investment contributions, and your current portfolio size, as well as your desired safe withdrawal rate (SWR) in retirement and your projection of future investment returns to calculate the number of years needed. You can change any one variable in isolation, or change all of these variables simultaneously to find out how long it will take for you to reach FI.
Most traditional retirement calculators tell you whether you are “on track” or not to retire by a certain age, such as 65, by calculating how much retirement savings you’ll accumulate by that age given your current trajectory. Many will also ask you for your life expectancy as well as the percentage of your current income you want to spend in retirement. They will then tell you whether you need to save more or not. The FIRE community, however, is interested in how quickly you can reach financial independence, and wants to remain financially independent thereafter regardless of retirement length or life expectancy.
You can access the calculator here:
A Frugal Doctor’s Time to Retirement Calculator
There’s also a link to the calculator prominently on the main page, as I imagine this blog article will eventually be shuffled into obscurity :)
For anyone interested in the technical aspects, the calculations are made in Excel with the NPER function. NPER stands for number of periods (to pay off a loan or reach an investment goal). In Excel, the NPER function takes the syntax =NPER(rate, pmt, pv, fv), where rate is the interest rate per period, pmt is the payment or contribution, pv is the present value of the loan or portfolio, and fv is the future value.
The calculator is just a script that lets you dynamically modify the values for rate, pmt, and pv. It calculates fv from your annual expenses and SWR and nestles this within the NPER function. Finally, with all four variables, it can show the resulting NPER.
In fact, Excel has a whole family of functions related to these 5 variables. Any variable can be computed if the other 4 are known. The 5 functions are as follows:
NPER(rate, pmt, pv, fv)
RATE(nper, pmt, pv, fv)
PMT(rate, nper, pv, fv)
PV(rate, nper, pmt, fv)
FV(rate, nper, pmt, pv)
All of these functions can take an optional additional argument, type, at the end of the function syntax, where 0 means payments are due (or investments are made) at the end of the time period, and 1 means payments are due at the beginning of the period.
For example, let’s say you have student loans in the amount of $300,000 and the interest is 6.5% annually. You want to fully pay off your student loans in 10 years. What is the annual payment required? In this case, we can use the PMT function, where rate is 0.065, nper is 10 (years), pv is 300000 (current loan balance), and fv is 0 (future balance in 10 years; i.e, full repayment). So, the formula PMT(0.065, 10, 300000, 0) yields $41,731.41 per year. This also means, of course, that over the 10 years you will have paid $417,314 in total for the original loan of $300,000.
Anyways, this is the first calculator I’ve made on the blog. I may include more calculators in the future, as long as they’re useful and are within my technical abilities to make. Feel free to leave any comments or feedback below.
Please read the explanations and the caveats on the page of the calculator itself, as that information is very important. I have also included a more in-depth explanation of FIRE, safe withdrawal rates, and what retirement means from a FIRE perspective on the calculator’s page. I hope you find the calculator useful. Thanks for trying it out and happy investing!
The finish line