Simple Early Retirement Calculator

Feel free to skip the intro and jump straight down to the early retirement calculator.

The calculator below is designed to provide some very high level indicative numbers around how your money will last if you decide to retire early. There are a number of inputs, and an output table, that are explained below.

Assumptions

There are a few notable assumptions that have been made when creating this calculator. I may update it in the future to accommodate some of these, but at the moment, please take not of the following key assumptions:

• As the calculator is looking at early retirement, it assumes no active income, only passive income from investments.
• No allowance is made for any tax benefits that superannuation provides, or for any age related accessibility limitations around superannuation. Everything is just bundled up into a single total investment pool.
• As I can't predict the tax rates in the future, I have taken the 2016/2017 tax rates and brackets and increased the bracket boundaries in line with inflation while leaving the rates the same. No allowance is made for any more complicated tax (eg Medicare levy); if you need that level of details, go and find an accountant (and probably bring along an actuary too!)

Inputs Explained

The following are the inputs to the calculator, and what they are used for/mean:

• Current age:
  • This is your current age, it is used to (along with the year) to provide a reference point to the numbers.
  • Scale: 0 to 100, in increments of 1
• Retire early in:
  • This is the number of years from now that you will retire in. The output table will start at this age.
  • Scale: 0 to 100, in increments of 1
• Inflation rate:
  • The average inflation rate to use for the calculations.
  • Scale: 0.0 to 10.0, in increments of 0.1
• Investment return:
  • The average return on your investments used for the calculations. This includes all increase associated with the investments, so remember to take into account potential capital gains as well as income such as dividends or rental income.
  • Scale: 0.0 to 20.0, in increments of 0.1
• Investment:
  • The total amount of income producing assets you (want to) have saved before you retire early. This figure is the total nest egg that will be "in your bank account" on the day you decide to retire early, so there is no inflation adjustments here. So if you think that $100k today is a good amount, then in 20 years you need to be thinking $150k. I recommend playing around with this number the most to see how things change.
  • Scale: $100k to $10 million, in increments of $10k
• Living expense:
  • The average annual cost of living you expect when you retire in todays dollars. Please note that this is in todays dollars, and does increase with inflation. So the number you enter here will be notably higher in the table below to keep pace with inflation. Again this is a number to play around with to see how much lower expenses can impact length of retirement.
  • Scale: $0 to $1 million, in increments of $1k

Outputs Explained

The outputs from the calculator are produced in the table under the inputs. Each row shows your investments at the start of that year/age and the expenses occurred during that year. The table finishes when one of the following occurs:

1. You run out of money
2. You turn 130 (which seems acceptable given the oldest verified person was just shy of 123 years, and even the oldest unverified person is just shy of 130 years)

The following are the column headings and their meanings:

• Year & Age:
  • The calendar year and your age as a reference point.
• Investments:
  • The amount of income producing investments remaining at the start of that year. These investments produce an average rate of return defined in the inputs.
• Gross Income:
  • The income produced by the Investments for that year. This is based on the Investment return input and includes both any capital gains (eg share or house price rises) as well as income (eg rental income or dividends). So remember to keep the Savings column positive if you want or expect capital gains, or want to maintain your principal.
• Tax
  • The tax needed to be paid on the Gross Income earned using 2016/2017 Australian tax data accounting for inflation of the bracket boundaries while the rates remain the same.
• Net Income
  • This is simply the Gross Income less the Tax.
• Expense
  • This lists the living expenses incurred each year. This number increases along with inflation to keep up with the ever increasing cost of living. Sort of the definition of inflation really. This starts with an inflation adjusted number based on your input and keeps going up with inflation.
• Savings
  • This is the amount of income left over after paying tax and living expenses. This represents the portion of your investments that you reinvest back into your investment pool, or the capital gains of your investments. If this is negative, then you will be eating into your capital. If it is positive, then your capital will increase; just remember to consider how large this is if you want to maintain the buying power of your investments.
• Buying Power
  • This describes the Investments balance in the dollar terms of the year you retire. An example may help:
    • If you had $100 in investments in the year you retire (lets say 2020), and could buy a crate of mangoes that year for $100, the buying power of that $100 is $100. Fast forward 20 years (to 2040), and if you had managed to maintain that $100 investment balance, how much could it buy you? Well inflation at 2% over those 20 years would see those mangoes cost about $150. So your $100 would only buy you two-thirds of a crate of Mangoes. So in 2020 dollar terms, the buying power of your $100 is only $66.66 (two-thirds of $100).

Simple Early Retirement Calculator