I am looking to clarify my understanding of the investment growth retirement calculator/graph and playing around with different scenarios (monthly investment, retirement age, etc). I am not necessarily looking to retire early, I just want to make sure I have enough investment value to live comfortably through retirement. Is it important to hit my FI number prior to retirement age? Or, since the investment value continues to grow after retirement, should I be OK as long as I hit my FI at a reasonable age after retirement? Just as an example, if I retire at 65 but do hit my FI number until 76, should I be OK financially through retirement years? Or do I need to plan to hit my FI number prior to retirement age to be comfortable? Appreciate any insight on this… thank you!!
You want to aim for hitting your retirement number before you retire. That’s because the model is assuming a fixed rate of growth, but in real life there’s volatility built in. So if you were to retire, planning on a 7% return, but then there’s 3 bad years in the market, you could be in trouble.
THAT SAID, if you’re looking at 65 you have a couple things working in your favor:
- Social security will (hopefully) be providing some income to you. That will lower your need for income from your portfolio, and thus lower your target FI number.
- The FI number is based on a 4% “safe withdrawal rate” covering your annual expenses. 4% is pretty conservative, but especially later in life. i.e. if you retire at 80 (in an extreme case), you’re simply not gonna live for 30 more years, so you can start looking at much higher withdrawal rates.
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Thanks Jeremy! If things go as planned I will be able to hit my FI number prior to retirement. This adds some clarification and motivation on my investing plan. Encouraging to know my FI is within reach!
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