I took a look at your worksheet, but I’m wondering if you could label your columns? I’m sure I could figure it out, but isn’t that the nice thing about Google Docs – someone else does all the work? :)

]]>Here’s my rudimentary stab at this:

http://spreadsheets.google.com/pub?key=pQmY2tyk-bfcGTc64A7BaXA

]]>I ran a similar calculation quite independently last night and came to the same conclusion: the lower my salary is now the lower it will be in 20 years, and the less I’ll have to save to reach the crossover point. I might have to save 25% to 30% of 30,000, but it won’t be 36%…

]]>easier to hit the crossover with less income? I beg to differ. One can with effort save 36% of a 40,000 income (leaves you with 25,600 to live on).

But to save 36% of a 30,000 income leaves you with $19,200. This is an amount which is much more difficult to live on. Perhaps possible depending on debts and the area of the country.

At 25,000 you have only 16,000 to live on. There comes a point where you cannot reduce the amount expenses proportionally to the income.

But the reverse is true. As your income increases it is easier to _not_ increase your expenses proportionally…. ]]>

as i was pasting left and right, something that’s fairly obvious struck me: the lower your income (and, hence, spending), the sooner your crossover point will come. who knew living frugally/modestly could buy you several years of freedom?

p.s. true, there is inflation, fluctuations in the market, etc., but i think the point still stands.

p.p.s. if anyone’s interested, i’ll be happy to provide the spreadsheet.

If inflation is 3% you need to save that much from your 5% so your interest next year keeps up with inflation. But your friendly Uncle Sam is going to tax the entire 5%. Say your combined federal and tax rate is 20%. 20% of 5% is 1%. So after taking 3 of the 5% interest to compensate for inflation and 1% for taxes you’re left with 1%. If you had $1 million in the bank, that’s only $10,000 to live on. If you managed to have that much in a tax-deferred IRA, then you’d get to take out 2% on which you’d have to pay taxes. $20,000 less taxes. Better than $10,000, but you’re still eating cat food.

And that’s also a point to Trent. Yes, having your investment gain equal your salary is noteworthy. But it’s not good enough on which to fully retire. If gains minus inflation minus taxes is greater than expenses, then you could think about it. That is if you can expect the gains to continue consistently. A few bad years in a row can put a serious dent in your portfolio.

]]>Aside: Inflation is actually a much debated quantity. Many people think the US government is now under-reporting inflation. Others think it barely exists at all (see *Your Money or Your Life*).

Keep up the good work.

]]>Trent, please post a spreadsheet, or go into more detail about how you calculated this — there isn’t enough information in your post to really understand what’s going on.

Thanks,

Jeremy

Plus, if you’re retiring at 45 or so, you can probably stand to work a little on the side in a down year ;). Or at least reduce your number of European vacations to say, 3 a year, instead of 6.

]]>http://www.retireearlyhomepage.com/restud1.html

Basically it comes down to your risk tolerance and time horizon. There are lots of other good articles on this site.

]]>initial salary*(1+ percentage of yearly raise/100)^number of years

or

40000*(1.04^20)

It’s similar to the way you would calculate interest earned if it were compounded yearly…ie invest 40000 at 4% over 20 years.

]]>