How Long Before I Can Retire?

I set my retirement number a few years ago and I thought it would be interesting to revisit how close I am to reaching it. You may recall that I built my retirement number assuming a few things:

• I wanted to cover my expected retirement expenses.
• In addition, I wanted a reasonable margin of safety in case my expenses were higher than what I estimated.
• I would get nothing from Social Security.

I assumed that the market downturn put a bit of a kink in my plans regarding when I could retire, but I wanted to see how long it would take given where I was now. Of course, this is a function of the following:

• How much I have invested now.
• How much I plan to contribute each year.
• What rate of return I expect to get on my money.
• How long the money is invested.

The first on is set and the second is relatively set (I have much of my savings on autopilot). Given these, if I simply plugged in various return rates, I would have the number of years needed before I hit my retirement number. So I did that, and here are the results:

• At 7% annual return, I can retire in 17 years.
• At 8% annual return, I can retire in 15 years.
• At 9% annual return, I can retire in 14 years.
• At 10% annual return, I can retire in 13 years.
• At 11% annual return, I can retire in 12 years.
• At 12% annual return, I can retire in 11 years.

While I don't think I can get 12% per year over the next 11 years, I think I'll do better than 7% as well (partly because I fudged a bit on the amount I can really save each year). My best guess is I can average 9%, which means I'll be looking at retirement in 14 years. I'll be below 60 years old and my kids will be out of college. Happy days all the way around!!!!! ;-)

Now if I up my annual savings to the level I think I can really contribute, then my 14 years becomes 12 years (at 9%). And remember that all of this assumes I get NOTHING from Social Security. It's likely I'll get something (not much, but any little bit helps.) In addition, I'll probably want to have at least a part-time job in an area of interest to keep life exciting. Put all these together and retirement isn't very far off at all.

Man, I feel old...

Comments

[Rick]

You should make a post on what your own plans are for retirement. You don't seem the type to live in a golf resort and rounds of golf every day.

Do you plan on working in some type of charity, in the likes of Bill Gates?

[FMF]

Rick --

That's a good suggestion. I'll add it to my list of post ideas.

[Pat]

I'll be retiring in 11 years!

[Todd Tresidder]

Assuming you are a conventional buy and hold investor your expected return from a diversified portfolio is inversely correlated to the valuations at the beginning of the holding period. In other words, the lower stocks go during this market decline the higher your mathematical expectation looking out over the next 10-15 years. Most credible analysts would put expected returns in the high single digits up to about 10% as of this writing based on valuations and assuming a return to normal profit margins as opposed to the inflated profit margins of the years prior to 2007. If you want to raise your expectation up to the low-teens then you're going to want to begin your holding period at levels below roughly 600 on the S&P.

Concepts like these are essential for properly estimating how much is enough to retire. Hope it helps...

[Observer]

I expect I will never be able to retire and will have to work until I drop dead.

Since it is statistically unlikely I will be able to work until I drop dead, I expect destitution in my future.

[Mike Hunt]

FMF,

For comparison purposes, would you mind sharing your retirement number in US dollars?

Thanks,

-Mike