FIRE isn't about how much you earn, it's about how much you save.
A lot of people like to excuse themselves as to the reason why they don’t save for retirement by saying:
I just don’t make enough to ever retire, no matter how much I save. It’s better to have fun now and enjoy life while I can
This is a common sentiment, and I’m sure that if you ask people around you, you will find people expressing it.
I know I have seen friends and family saying these sorts of things, and it’s always difficult to handle it because calling them out directly for the bullshit they’re saying isn’t conducive to keeping a good relationship with them…
Because that’s what it is… Bullshit.
This may be a surprise to those who make those statements, but the fact of the matter is…
Your retirement does not depend on your income
That’s a strong statement, but it’s true.
The reason for that is simple, it’s plain math! There are only 2 things that affect your ability to retire:
Your savings rate
Your safe withdrawl rate
Don’t believe me?
Let’s imagine 2 situations, in one we make $100 000 a year, in the other, we make $100 a year:
Do you see? The number of years it takes you to retire are exactly the same! And as your savings rate increases, the time it takes for you to save enough to retire decreases as well!
And not just in a linear way! Going from 5% to 10% savings rate you cut 250 years of work!
Even a minor change in your habits can make a huge impact! And note how that change has the exact same impact no matter how much money you make!
Even if you only ever make minimum wage, you still have a chance to retire early if you set enough aside every month.
A person making minimum wage, and saving half his income every month will be able to retire after 25 years (assuming your investments went nowhere during that period you’ve been saving).
A person making a million dollars a year, and saving 0% of his income will never retire.
Your savings rate is the primary factor in your retirement.
What about the safe withdrawl rate?
First of all, what’s a safe withdrawl rate?
The safe withdrawal rate (SWR) method is one way that retirees can determine how much money they can withdraw from their accounts each year without running out of money before reaching the end of their lives.
The safe withdrawal rate method is a conservative approach that tries to balance having enough money to live comfortably with not depleting retirement savings prematurely. It is based largely on the portfolio’s value at the beginning of retirement.
In other words, it’s how much you can take out of your nest egg every year without running out before you die!
What happens if you change it?
Well, let’s see!
That’s looks pretty good, right?
Unfortunately the safe withdrawl rate is not something that is in your hands!
The fact is that your safe withdrawl rate depends heavily on the returns you’re getting in the market, and the 4% we’re showing here is the maximum you should take out!
If you take anymore, your risk of running out of cash at some point in your retirement is high, and you don’t want to be 85 years old, and have to go back to work because you ran out of money to pay your bills!
Keep it below 4%.
And remember, as long as you keep saving some money every month, and you invest it cautiously and wisely you too will be able to retire early! No matter how much money you make!
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