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Simple math shows that you will need to save up much more for early. Use these tools within your control to get rich If you retire early, you shorten your time to earn and lengthen your time to spend. Front Loading Savings for a Successful Dividend Retirement Early retirees need their nest egg to last longer than 30 years, so they should plan on a 3.5 withdrawal rate (see Certified Financial Planner Michael Kitces. How to retire in 10 years with dividend stocks I started out in my early 20s, and am pretty close to being financially independent by my early 30s. Earn 5 investment returns after inflation during your saving years 2. Starting out as early as possible helps tremendously too. The Simple Math Behind Early Retirement 1. However, we can somewhat control our savings rate, and the investments we make. We have no control over stock market returns, or expected dividend growth rates. What this exercise shows you is that you need to focus on things within your control, in order to reach your goals.
This post was inspired by this article from the Mr Money Mustache blog. For those who strive to retire early, it is quite possible that they will exclusively rely on the income produced from their investments. In most situations, a person would have pension income and social security income or even some part time job income to rely upon, when they retire. I am also assuming that this investment income is the only income to provide the essentials for a basic retirement income. If that math doesn’t work for your situation, you can change each of those three variables as needed. More complications are probably going to confuse people, rather than make it clear for them. I also am ignoring the effect of taxes on investment income, since everyone’s taxes are different, and I didn’t want to complicate too much this simple truth. I assume a “real salary” that does merely keep up with inflation, and investment returns that are also “real” and therefore are after inflation.
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You can download it, and play with your own assumptions. You can view the spreadsheet behind the calculations from this link. This chart shows how long it would take for the investment income to exceed the amount of savings, given the return, the dividend growth, dividend reinvestment and savings assumptions.
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