Plan Early Retirement Using an Online Calculator
According to CNBC, 36% of Americans won't be able to retire due to lack of funds, while another 59% accept that they will have to work past the typical retirement age. Do these statistics surprise you? Many different factors contribute to your early retirement potential, from the age you start investing to the growth rate on your investments. Of course, economic factors weed into the mix, making it more difficult to comprehend when and how much you will have at retirement. Luckily, there are steps you can take to plan for retirement with the assistance of calculators, giving you tangible information on your current financial position and monthly retirement withdrawal.
Step #1: Understand Your Financial Position
The first step in planning for early retirement is to understand your financial position. Your financial position is concerned with how much you make, owe, and have in expenses each year. Understanding your free cash flow will help you uncover how much you are reasonably able to save each month to meet financial freedom and early retirement goals. One calculator that does all the backend work for you is the FIRE Calculator.
This calculator takes into consideration your annual income and expenses, clearly laying out how much you are able to invest each year. Inputting a few simple factors can tell you your expected year of retirement and the age you will achieve financial independence, both of which are critical in your plan. The FIRE Calculator will also give you a line graph that lays out your total deposits compared to the value of your investments, showing the benefits of compound interest.
Step #2: Analyze Expected Monthly Retirement Withdrawals
Once you have a general idea of your financial position, you need to set a plan for how much you expect in monthly withdrawals. Since the FIRE Calculator shows you the total value of your investments based on your retirement date, you can use that number in the Retirement Withdrawal Calculator. This calculator computes your average monthly payment based on the value of your investments once you retire. The monthly payment you are looking to receive should be similar to your annual income, factoring in any government benefits.
You can adjust your desired monthly withdrawal amount to determine how many years your investment portfolio will support you. This is a critical step to ensure you have sufficient funds to support your lifestyle once you retire. In addition, the Retirement Withdrawal Calculator lays out a detailed schedule of distributions to fully understand how monthly withdrawals impact your investment balance.
Step #3: Start Saving
Once you have a general idea of retirement goals, the next step is to start saving. Using the FIRE Calculator and Retirement Withdrawal Calculator gives you a strong basis to create financial independence and early retirement goals. Utilizing the information calculated, you can set up a retirement account, put in the suggested monthly amount, and watch your balance grow.
Living a frugal lifestyle early on and saving every penny will have the biggest impact on your plan for early retirement. Many people use a rough estimate of expenses when using the FIRE Calculator, so take the time to keep track of all expenses for a month to ensure your inputs are accurate. Inaccurate inputs lead to inaccurate projections, which can be detrimental to your plan for early retirement.
Once you make a full list of regular expenses, look for items you can cut out to increase your savings. The extra amount contributed to savings might lead to the opportunity to retire years earlier than you planned.
Step #4: Consistently Review Goals and Market Progress
As you start to earn more income or desire a different retirement lifestyle, hop on the FIRE and Retirement Withdrawal Calculators to ensure you are staying on track. Life changes, meaning your retirement goals do too. Inflation and rate of return will both impact the outlook of your early retirement plan. If you originally calculated an expected rate of return of 8%, but your investments are only averaging 6%, it's time to save more money. Consistent review and oversight of your retirement plan is key to retiring on time and with sufficient funds. Use these calculators as a tool to ensure your goals are in line with what you are currently deferring.
Why Should I Use Retirement Calculators?
There are many different benefits you can enjoy with the use of retirement calculators, like the FIRE and Retirement Withdrawal. The first benefit is a tangible plan for early retirement and financial freedom. Having transparent access into what you need to save now to retire early is crucial. Moreover, these calculators have the ability to change and adapt as your life circumstances do to. When your goals or retirement vision changes, simply head over and put in the update numbers to see how your savings goal moves.
Did we mention that the FIRE Calculator and Retirement Withdrawal Calculator are both free? Hiring a financial advisor can become expensive quickly. You receive a bill for each phone call, email, and meeting; however, this is not the case with the FIRE Calculator and Retirement Withdrawal Calculator as both are completely free. In addition to the free use of the calculators, Hardbacon, the website hosting the calculators, has a plethora of other free information. You can find information on different investment types, including crypto, to ensure the money you are saving is going to the right place.
Next Steps
Getting started using online calculators to plan for early retirement is a simple process. Gather your basic information, input the data into the calculators and analyze the outputs. You aren't likely to get the just right numbers on the first go around so adjust the data to fit your early retirement expectations. Keep in mind that it takes time to build up a strong retirement account, so don't be discouraged at first. Utilizing the calculators are the first steps on your journey to early retirement.