When can I retire?

Maybe you've had a bad day at work or maybe you're just wondering when you'll be able to retire if you keep going like this.  It doesn't really matter why you are here, we are just happy you are! Katie (my wonderful wife) has created a retirement calculator that will help you work out when you can retire.  

Our friend Carl had a really bad day at work, he thought he had made a mistake in some code he was writing which was for medical purposes and suddenly feared he had put many lives at risk.  As it turns out, his code was ok but that fear was enough to make him start googling "How can I retire early?"

There is some simple maths behind early retirement which I wrote about here:  "How much do I need to retire?".  Even then it can be hard to get your head around the numbers, so Katie created this calculator to make it even easier and to give you the ability to instantly play with the numbers and see how it affects your retirement date. 

How to use the calculator

This calculator is designed to predict your retirement date based on your inputs.  It needs to know your age, pensions and more details to be able to work it all out.  The more accurate you are with what you put in, the more accurate the result will be.

The pre-retirement assumptions are on the left hand side in yellow and the post-retirement assumptions are on the right in blue.  We have split it like this as your income and expenditure may be different pre and post retirement!

Firstly have a play with the calculator and if you want to know what all the inputs mean scroll down and you will find a guide to each one.  Then afterwards we will show you different ways you can shave years off your retirement date and the assumptions that this is all built on!

This calculator assumes you're ready to invest. You are only ready to invest once you have no high interest rate debt and you have an emergency fund of 3-6 months of living expenses. You can still use this retirement calculator if you're not ready to invest. Just work out how long it will take you to pay off the debt (using a tool like this one) and have your emergency fund. Then when you use this calculator put your age as how old you'll be when you are ready to invest.

​If you use a different currency than pounds sterling, please just pretend it has your currency symbol! The answers are the same, it doesn't matter what currency you're talking about! ​

We'd love to know what you think of the calculator. Please send us a message and tell us!

Guide to using the calculator

There are lots of different terms in the calculator above! We wrote this so you can work out what all the different sections mean!  Yay.  ​

Current Situation
​This is where you are today and how your finances are right now!  We will base this on your current situation. 

• Age: fairly self explanatory.  How old are you? If you have your finances as a couple pick one of you to put here. 
• Amount already invested:   This is the amount you have invested in the stock market.  It does NOT include the home you live in as we don't see this as an asset.  How much do you have in defined contribution (DC) pensions, SIPPs, stocks and shares ISAs or other places you have invested in index funds. It does NOT include defined benefit (DB) pensions, this is allowed for separately... read on below! Not sure how much you have? Check out this article and net worth calculator
• Annual income: this is how much you earn a year after tax. If your income varies a lot put your best guess.  This number is used to calculate your wealth-building rate 
• Assumed investment growth:  The financial industry uses 7% growth as it's a conservative guess of what investments in broad based index funds will grow to over the years.  Katie and my investments have grown faster than that over the years we have been investing at 12.57%.  This is a slider so you can test the conservative numbers and then see what happens if you manage to get 10% plus through index investing each year!
• Inflation: Big topic at the moment! It's averaged 2.7% in the UK over the last 30 years so we've put 2.7% as the default for you.  Have a play and see the impact (remember this is an average over the long term) 
• Annual amount you'll invest in low cost index funds: this final slider asks you how much you can invest each year into index funds.  This whole calculator is built on the assumption that you are going to be investing, as we teach on the Rebel Finance School, in broad based index funds such as the Vanguard FTSE Global All Cap.  Want to know what an index fund is? Click here. 
  
  Include any and all money that's going into low cost index funds (employer contributions to your DC pension, your contributions to your DC pension, contributions to your SIPP and contributions to your stocks and shares ISA). If the combined figure for these is £500 a month then multiply that by 12 to get the annual amount and that is what you put on the slider. You might want to see the impact on your retirement age by increasing the amount you save or reducing it!
  
  ​This does NOT include contributions to you or your employer's contributions to defined benefit pensions as this is covered elsewhere.

Situation in retirement
This changes over the years so to make this calculator far more flexible and accurate we wanted you to be able to adjust things like spending and income in retirement.  Here are the things you can set on this side:

• ​Spending in retirement:  Maybe the kids have moved out and you will be spending less in retirement?  Maybe you want to spend more in retirement and live like kings and queens in the most expensive city in the world?  Maybe you want to live like kings and queens in Thailand and will half your spending in retirement?  This allows you to set a guestimate of what you want to live off in retirement. When Katie and I did this we predicted £40,000 a year as our combined spending in retirement. Put the annual amount in today's prices as the calculator and the withdrawal rate below will automatically allow for inflation.
• Withdrawal rate: This allows you to play with the withdrawal rate if you want to.  Withdrawal rate means the amount you will take out annually from your investments to live off.   Katie and I personally think 4% is conservative so that is what we use.  Alan likes to set it to 5% sometimes to see what the impact is on the time to retirement. Most of the FI world uses 4% here. If you want to learn more about this go here!  
• DB Pensions:   Some of you work for the NHS, Government or companies that give you defined benefit (DB) or final salary pensions.  This is where you can allow for them.  Get them to give you a predicted figure for your retirement and an age you can access that.  It should be on your pension statements or paperwork.  Then insert the annual amount you will get and at what age, then Katie's fancy spreadsheet will go off in the back ground and use that to predict your retirement date! If you have more than one DB pension (lucky you!), add the annual predicted figures together. If you are still contributing put the annual figure you have accrued to date. 
• State Pension:  In the USA you get Social Security checks later on in life.  In the UK you get a state pension at a certain age.  This is where you enter those details.  You need the age you can get to it and the projected amount you will get.  Insert this into these boxes. If you're in the UK, you can go here to find out how much state pension you'll get and here to find out what age you can get to it. 
• Rental Properties:  Maybe you have a rental property that is producing cash flow (profit) for you each month? Multiply the monthly figure by 12 and put it in here.
• Side-Hustle: some of you might be building a side-hustle that will give you purpose and meaning in retirement and make you a few extra bob! If that is you then put in your projected side hustle income per year here and you can play with it to see the impact on your retirement date. Alan has a whole podcast all about this! 

What the calculator can't do!

As much as Katie would like it to be, this calculator is not all singing and dancing! For one thing, it won't be able to make you a cup of tea to your liking. There's also a few other things it currently can't do....(we may think about adding these things for version 2!)

1. The big thing the calculator can't do is allow for the split between accounts that you can access at any age (ISAs in the UK) and accounts where you have to wait until a certain age (pensions/SIPPs in the UK). For example, if your target to retire is £500,000, the calculator assumes you can retire as soon as you hit this age even if you can't actually access it yet. This is something we want to improve in future versions!  
2. The other main limitation of the calculator is it doesn't allow for the fact that you can use up some accounts before you can access the ones that are based on your age. To take an extreme example to illustrate this point, imagine you have a defined benefit pension that will pay you £40,000 a year for the rest of your life from age 60. Your expenses are £40,000 a year so once you hit age 60 you're sorted! Happy days! Say you want to retire one year before that at age 59. The calculator does not allow for the fact that you only need enough to bridge that one year gap. It assumes you have to have enough saved and invested to hit full retirement without having that £40,000 coming in one year. 
3. There's a couple of bits around defined benefit pensions that it doesn't allow for. If you're contributing to a defined benefit (DB) pension your wealth-building rate will look lower than it actually is. The calculator doesn't ask you how much you're contributing towards your DB pension because it doesn't directly impact your retirement figures. Also the calculator asks for your annual DB pension accrued to date. It doesn't allow for the fact that you might continue to contribute and accrue more!  You just need to come back here and update it once a year when you get your annual statement.  Maybe make updating the retirement calculator part of your annual finance review?
4. Finally it doesn't currently work for couples that want to use this calculator together who are different ages and can access their SIPPs/pensions at different ages.

You also HAVE to make certain assumptions when doing these sorts of calculations. Scroll down for the assumptions if you're interested!

More accurate predictions

The answer to all of these limitations is to come along to our Financial Planning workshop which will show you how to allow for all these things and all the nuances of your situation!

A calculator has to make assumptions and by doing so can not allow for everyone's different situations.  The only way to do this is to build your own spreadsheet!

It's on Monday 1st August 2022 at 8pm UK time. All the details are here or we'll be streaming to YouTube which you can catch up on if you miss the live workshop.

How to shave years off your retirement date

You have three main levers to pull in getting to early retirement and this calculator allows you to play with them so you can see the impact.  We wrote a longer article here showing you the three. 

The main ones are how much you make (your income), how much you spend (expenditure) and then your investments.  If you can reduce your expenditure and increase your income to create a big gap between the two then you can take that money and invest to buy your freedom!

Here are 5 ways to shave years off your retirement date:

1. Reduce your expenses - For every £1000 you can save off your yearly expenses you will save £25,000 off the target amount of money invested you need to retire.  Do you need a BMW, an expensive gym membership or a new diamond ring?  The further down your expenses go the quicker you can retire?
2. Increase income - Easier said than done?  I inspired Sally May to ask for a rise and she agreed a 3% rise in her income just by asking.  Is it always that easy?  No but you might well be able to increase your income.  I wrote 10 ideas for how you can increase your income here. 
3. Monthly finance meeting - what gets measured gets improved.  If you really want to get this stuff sorted then the Donegans believe that one of the best tools in your arsenal is the monthly finance meeting where you look at what you have spent, what you earn, what you have invested and do a quick review.  This has helped us to stay focused on our investments and financial independence journey over the years.   For a full guide to running a monthly finance meeting click here
4. Optimise your investments - this means two things.  Firstly reduce the fees on your accounts which is the biggest predicter of long term success and secondly minimise tax by using tax advantaged accounts.  Your homework for this section is to go and see what fees you have on your current investments and then use Katie's Fees Tool to analyse the impact over time.  For some of the lowest fees and simplest investments then just go to Vanguard directly. 
5. Side hustle - you need something to do in retirement.  Happiness doesn't come from solely sitting on the beach drinking virgin mojitos.  You need a purpose as well and if that purpose creates a little side income as well that can shave years of your retirement date.  If you could create £10,000 a year in retirement by going a little consulting, running a small side hustle, helping someone else in their business you could reduce your retirement target by £250,000!  That could save you a decade off your retirement date!​

One other super important thing to remember is that the calculator thinks in binary terms.  You are either retired or not retired.  Computers think mainly in 1 or 0 and life isn't actually like that. 

There are so many shades of grey between the black and white of "retirement".  For inspiration read one of our latest articles on the bin man that was 50% retired.  We met him on the coast of Ecuador surfing for 6 months.........

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What is stress testing?

I looked up the definition of stress testing and this is what I found:

"Stress testing is the process of determining the ability of a computer, network, program or device to maintain a certain level of effectiveness under unfavourable conditions."

What this means is adjusting the numbers to see if shit hit the fans what will happen.  For example if inflation goes high how does that affect our retirement date, if stocks and shares don't perform as well and only get us 7% return over the long term how does this affect our retirement dates?

People don't do this.  A huge example of this was people investing in property and being over-leveraged right before the 2008 financial crisis.  They had taken out loans to buy properties at inflated figures and with SUPER low interest rates and then when the world situation changed their investments all came tumbling down.  

​You can't prepare for every eventuality but you can test your numbers to give yourself a little bit of wiggle room to deal with the challenges the world will throw at you.  

Assumptions

When you are predicting the future you always have to make assumptions.  Your assumptions can be based on past data but they are still assumptions about the future and NO ONE has a crystal ball (despite what they might tell you when trying to get you to invest your money with them!)

So here are the assumptions that this model is built upon. With a lot of these assumptions you can stress test them within the calculator by moving the sliders.  For example you can stress test the predicted growth rate by setting it to 5, 6 or 12% and seeing how it affects your retirement date

• Savings, earnings, spending, inflation and investment return will stay the same until you retire
• Once you retire, spending (inflation adjusted), inflation and investment growth will stay the same 
• You will not earn/save another penny once you hit the age you can retire
• You will withdraw exactly what you say your spending in retirement is every year from retirement onwards (minus what you get from side hustle, rental properties, state pension and DB pensions)
• Your state pension won't change 
• You stop working the year after you retire
• All investments and withdrawals are made at the beginning of the year  (you will actually be significantly better off in retirement if this is not the case!)
• You are investing 100% in low cost broad based index funds like the Vanguard FTSE Global All Cap
• No allowance is made for fees
• No allowance is made for tax (you should be using tax-advantaged accounts as much as possible - ISAs and pensions/SIPPs in the UK). 
• There will be no changes to your state pension age, amount or eligibility
• There will be no changes to your defined benefit amount, eligibility or age it pays out 

Disclaimer

This calculator is NOT investment advice or retirement advice. We are NOT financial advisers. This calculator is designed to give an indicative age of retirement based on some broad assumptions about what might happen in the future. Noone has a crystal ball!   Read our full disclaimer here

Final message from the Donegans

Financial independence (FI) is amazing.  We have been FI for 3 and a half years now and have had so much fun travelling the world, visiting cool places, creating the Rebel Finance School course and giving it away and enjoying all the food the world has to offer.  FI gives you the freedom to live life on your terms no matter what that means.  That is what we have and what we want to help you achieve.  

Take the Rebel Finance School Course.  Work on your finances and then come and hang out on a beach with us or meet us for steak in Argentina or help us run the next Rebel Finance School course just because you want to!

We wish you a fun and adventurous journey to finance independence.  Sending you huge love

​The Donegans