How much do you need to retire at 40?

As an engineer, I am constantly exposed to mathematical equations. Majority of my day job revolves around numbers and how I make sense of them to design and innovate products that we use in our everyday lives.

It is therefore unsurprising for me to perform calculations on almost any topic that can be analyzed. And I mean it. Like literally. I’m almost afraid that it might be an (secret) obsession of mine. Right off the bat, I actually have a couple of Excel spreadsheets that I think might be useful for the content of my blog. After all, numbers always do matter in the financial world, don’t they?

In any case, the spreadsheets have served me well every time I am in doubt, or I have to make a financial decision. The numbers become comforting for me to fall back on. And sometimes, after going through some analysis and thought processes, the numbers aren’t that scary.

I guess it’s the same with having your finances in check. Once you learn how to control or manage your money, it slowly becomes a habit. And then, you realize it isn’t all that difficult after all.

So right, I said numbers. So here they are.

As with all complex mathematical equations. there comes assumptions. But since this is my blog, I made the assumptions related to me.

Let’s perform a simple analysis on how much I (and maybe you) need to retire at 40 years old.

Assumptions:

  • I am 27 years old this year.
  • I am a female.
  • I need money until Age 85. According to Singapore statistics, the average life expectancy for females in 2015 is 84.9 years old.
  • Inflation rate is at 3% annually.
  • My monthly expenses starting from Age 40 will be $3000, and increases with inflation.

Alright! Enter those numbers and let Excel do it’s magic……

Age Monthly expenses Yearly expenses
40 $3,000 $36,000
41 $3,090.00 $37,080
42 $3,182.70 $38,192
43 $3,278.18 $39,338
44 $3,376.53 $40,518
45 $3,477.82 $41,734
46 $3,582.16 $42,986
47 $3,689.62 $44,275
48 $3,800.31 $45,604
49 $3,914.32 $46,972
50 $4,031.75 $48,381
51 $4,152.70 $49,832
52 $4,277.28 $51,327
53 $4,405.60 $52,867
54 $4,537.77 $54,453
55 $4,673.90 $56,087
56 $4,814.12 $57,769
57 $4,958.54 $59,503
58 $5,107.30 $61,288
59 $5,260.52 $63,126
60 $5,418.33 $65,020
61 $5,580.88 $66,971
62 $5,748.31 $68,980
63 $5,920.76 $71,049
64 $6,098.38 $73,181
65 $6,281.33 $75,376
66 $6,469.77 $77,637
67 $6,663.87 $79,966
68 $6,863.78 $82,365
69 $7,069.70 $84,836
70 $7,281.79 $87,381
71 $7,500.24 $90,003
72 $7,725.25 $92,703
73 $7,957.01 $95,484
74 $8,195.72 $98,349
75 $8,441.59 $101,299
76 $8,694.83 $104,338
77 $8,955.68 $107,468
78 $9,224.35 $110,692
79 $9,501.08 $114,013
80 $9,786.11 $117,433
81 $10,079.70 $120,956
82 $10,382.09 $124,585
83 $10,693.55 $128,323
84 $11,014.36 $132,172
85 $11,344.79 $136,137
Total $6,433.43 (average) $3,474,052

Okay, now to the analysis.

If you see the last row of the table with the orange numbers, those are the numbers that I will try to make sense of.

For me to retire at 40, I need to make sure that I earn $3,474,052 in 13 years (!!!!) so that I can have an average of $6,433.43 per month to stop working for 45 years! WHUT!

Hell no! I’m never gonna reach that! Definitely not with my day job. I ain’t no money making genius, or inheriting a huge sum of money in the future.

But wait!!!! What if I don’t really need $3000 per month at Age 40? Say, $2000? And what if inflation is just 2.65%? The numbers change to a total of $2,110,658 and an average of $3,908.63 per month. That’s almost 40% lesser than the original amount!

Realistically speaking though, that’s still a little high. I guess maybe I could work for a few more years, and then maybe still keep my expenses low. Consider retiring at 45 and the numbers go lower to $1,740,904 and $3,626.88 respectively.

Hmm, maybe possible? May not be easy, but definitely possible.

Retiring at 40 may be a dream. But retiring before 50 is surely not a dream. Not with the numbers presented, at least.

From this analysis, I can draw a few conclusions.

  1. Inflation is a pain in the ass.
  2. The later I retire, the more I need for my monthly expenses on average. However as a whole, I would need lesser money in my retirement portfolio.
  3. Adjusting certain assumptions can project a more realistic version of my life.

Perhaps it’s time to see how I can achieve this.

P.S: I did find an online retirement calculator that is more informative than the above analysis I performed. Use it to your own pleasure. 🙂

Thanks for reading!

Miss Niao xoxo

Author: missniao

Hello! I blog about financial matters and things that average people can do to have a better retirement. I want to inspire people to take control of their money and have a better understanding about it. If you are interested to know more, follow me @ missniao.wordpress.com! :)

2 thoughts on “How much do you need to retire at 40?”

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