7 Ways to Calculate When & If You’ll Be Able to Retire + Achieve Financial Freedom 

You have a big, bright future ahead of you! Really.

Reaching financial freedom is an attainable goal! Our system helps you figure how to get to that point as well as how and when you can retire. It’s actually pretty simple. 

When we say retire here, we mean financial independence. That term is less understood, so we’ll take a moment to explain it before we begin. Financial independence is all about having options. When you have financial independence, you can choose to work or choose not to work. You can change jobs without concern. You can pursue a passion without worrying about money. You can take a year sabbatical and go do missionary work. You can take a few months off to help your child with their first child. It’s all about options. When we say retire, know that this is what we mean. We do not mean sitting at home on a recliner watching Wheel of Fortune (unless that’s what you want to do).

First, let’s figure out what you need to retire.

  1. Determine how much you will need each year when you are retired. Consider housing, food, transportation, healthcare, travel, kids, pets, hobbies, fun money and everything else that will be part of your expenses (even how often you will need a new vehicle). 
  2. Next, you can consider any other income you may have coming in for retirement other than your savings. This may be dividends, social security, pensions, disability or anything else.
  3. With those two numbers, you now know how much you will need to pull out of your investments every year to live the lifestyle you want to live.
  4. We recommend you live off of a 4% withdrawal from your investments each year, so you need to do some calculations. The 4% Rule is a good guideline, but you may want to increase the percentage by a small amount each year to adjust for inflation.
    1. So, let’s say you came up with $50,000 is how much you’ll need each year (remember you’ll have paid off your home!). 
    2. Subtract any income you’ll receive. For example, $50,000 – $20,000 from a Social Security Benefit, dividends, etc. Your new number is $30,000. Now you can divide that by 4% to get $750,000. So, you will need $750,000 in retirement if you live off the 4% Rule to be able to last you through retirement. With the rate of inflation increasing as compound interest increases, you will likely never run out of money. Obviously that can not be guaranteed, but it is a very reasonable estimation.

Now you need to get yourself into a position to get to that number. How?

  1. Calculate your current net worth.
  2. Follow all the other systems until you’re completely out of debt and saving money.
  3. Invest 15% or more of your income depending on whether you’re behind or not.
    1. Your invested money will compound over time. For example, if you invest $1000 monthly for 20 years at a (modest) return rate of 8%, you’ll have over $500,000 in the bank. The Rule of 72, the idea that your money will double every so often, is a fun calculation to do when running these numbers. In order to determine how many years it will take for that to happen, you divide 72 by the average or fixed rate of return for that specific investment.
      1. Example: You have a mutual fund that is averaging about 8% annual rate of return. You would then take 72/8 and determine that it will take 9 years for your money to double, as long as you don’t withdraw from that account.
    2. You may need to be more or less aggressive depending on your age and your retirement goals. Many companies allow for a “catch-up” program if you are over 55 years old and would like to contribute more yearly into your retirement. 
  4. You also want to diversify your funds. This means don’t put all your eggs in one basket. Spread it out into different types of accounts. Do some research and make sure you only invest in what you understand, or hire a financial advisor to help you make the right choice. We recommend splitting your investments into four categories: 
    1. Growth and Income Funds (also called large-cap funds). These are the most predictable funds in terms of market performance. 
    2. Growth Funds (also called mid-cap funds). These are fairly stable funds in growing companies, the reward and risk are moderate. 
    3. Aggressive Growth Funds (also called small-cap funds). These are the most unpredictable, they are high-risk, high-return.
    4. International Funds. These are foreign-owned businesses you’ll want some diversification with because they can protect you against any big change in the American market that does not affect other markets.
    1. Some great options for investing are:
      1. ROTH IRA
      2. Traditional IRA
      3. 401k
      4. Brokerage Account
      5. Mutual Funds
  5. Pay off your home so that you can add it as an asset to your net worth without it being a liability. 
  6. Set up an annual time to discuss your financial goals, your dreams and your progress. We call this the Dream Date because you’re dreaming as a couple just like you did when you first got together. We want you to dream about your future and what’s possible! This can be a weekend getaway or an extended date night. You’ll look at your net worth, all of the components of your budgets and your goals to see if you’re on track. Then you’ll set new goals for the year.

Your version of happily ever after is possible. Now, just run through the steps and make it happen!

Book Your Free Call Now!

We are excited to create the time & space to talk to you about your current money situation. This is a free, no-obligation call where we can answer questions you may have and maybe find some quick wins for your budget.

What do you have to lose?

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