FIRE - or Financial Independence, Retire Early - is becoming increasingly popular. The math behind FIRE is that you save and invest a higher-than-usual percentage of your income until you reach a “crossover point”. At this crossover point, you have enough invested that you can withdraw a small percentage of your portfolio every year to cover your expenses. The rest of your money continues to grow to fund future years' withdrawals.
Sounds pretty cool, yeah?
One potential obstacle is that retirement accounts, such as the 401(k) and Roth IRA, are popular vehicles for saving up this nest egg. These accounts come with some tax-advantaged accounts, but you also cannot withdraw from them until you are 59.5 years old. So, what if you retire at 40? How are you going to get your money?
Can I retire early?
Considering the restrictions on retirement accounts, the question of retiring early is two-fold:
- Do I have enough money to last until I'm 59.5 years old and I can withdraw from my retirement accounts?
- Do I have enough money in my retirement accounts to last the rest of my life thereafter?
This calculator answers the first question. It looks at how much money you have saved in total - and how much of that is available before the age of 59.5. You can then plug in your expected investment return, the expected inflation rate, your age, and how much money you need to withdraw from your investments every year.