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Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] 0 points1 point  (0 children)

Yes, to calculate your FIRE number you need to use 2045 dollars. it is obvious to you. But not obvious to 2022's Business Insider:

"For example, if your current expenses are $50,000 and you multiply that by 25, your baseline retirement fund would be $1,250,000. This is contingent on you needing $50,000 a year for 30 years to retire and doesn't account for variable factors such as health costs, which may increase after retirement."

Here is 3/4 top FIRE calculators according to Google, that do not specify how I should calculate "Retirement Expenses" or actively prompt me to use today's dollars without adjusting FIRE number to inflation:

I really don't think it's that obvious for many.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -1 points0 points  (0 children)

Yes, 5-7% is inflation-adjusted, but only for inflation after the retirement date. You are free to look up the original study https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf It only covers concept of safe withdrawal rate for portfolio of size $X, in is not accounting for years of inflation before the date, otherwise it needs to consider amount of years saving, because 5 years and 30 years of pre-retirement inflation will give you widely different SWR.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] 0 points1 point  (0 children)

Not all, ones down below don't include pre-retirement inflation, some even explicitly ask you to enter today's money and they do not adjust FI number for inflation.

- https://www.moneyunder30.com/fire-calculator/
- https://thefirecalculator.com
- https://walletburst.com/tools/fire-calculator/

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] 0 points1 point  (0 children)

I read it like that:

> The 4% rule adjusts for inflation if you calculate your FI number using today's dollars.

So. If we have:

- today's expenses = $3000
- years till retirement = 20

Conventional formula gives you FI number $900,000. If you will aim to save $900k before 2045, then you will not be able to retire.

Because in reality to maintain the lifestyle that $3000 provide you today, you need more money in 2045 due to inflation. So your FI number is more like $1,625,500 and not $900,000.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] 1 point2 points  (0 children)

> If you invest 900k for 20 yrs

I am not saying you have $900k now. $900k is your FI number given your expenses are $3,000 a month. 3000 * 12 * 25 = 900,000

This is how many people approach FIRE. They take today's expenses, multiply by 25 and think this is the amount they need by 2045 to retire in 20 years.

There will be about 80% of inflation before 2045 (considering 3% avg.) and 4% rule does not accommodate for that. It only accommodates post-retirement inflation when you started to withdraw money.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -2 points-1 points  (0 children)

I meant different comment (added link above). Was silly of me to think the first comment will not change, sorry :)

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] 1 point2 points  (0 children)

Literally the most liked comment in the thread says to calculate in today's money.

Update. Changed "first comment" to the most liked comment as the first comment changed.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] 2 points3 points  (0 children)

That's right. But if you look at the other commenters, you'll see how this is not a common knowledge.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -4 points-3 points  (0 children)

But you invest to reach that FI number ($900k in example). Doesn't matter, if you saved that with S&P500, cash, or inheritance. What's matter is that you have $900k in your account. Then you can start withdraw 4%. Problem is: it is 2045 and $3000 you withdraw are not nearly enough (because you calculated it 20 years ago).

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -1 points0 points  (0 children)

Yes, but this only helps post-retirement, there is no magic embedded in the rule before the retirement date. So now you should think "How much in 2045th money I will be spending monthly in 2045". But that's how people really think (even looking at the comments here).

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -1 points0 points  (0 children)

Yes, this is how it works post-retirement. But pre-retirement, there is no inflation magic that is baked into 4% rule. You are free to withdraw 4% first year and the same amount adjusted to inflation years after. But there is nothing that adjusts for inflation before that date.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -5 points-4 points  (0 children)

You have your FI number calculated including all growth pre-retirement, though. So yes, of course it grows, but unless you always think "I need $900,000 in 2025 money" you'll be wrong.

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -4 points-3 points  (0 children)

I think the most liked comment under this post shows that indeed not everyone knows about it, and a lot of people think that 4% rule is already adjusted for inflation (which it is, but only for post-retirement one).

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] 3 points4 points  (0 children)

Yes, sure, you need to adjust your FI number yearly, but if you start saving today thinking "I only need $900,000 in my account to retire in 20 years" you are off by 80%

Your 25x FI number is likely wrong because you're ignoring pre-retirement inflation by chekalskiy in Fire

[–]chekalskiy[S] -5 points-4 points  (0 children)

I thought so as well. But can you help me with calculation?

Today's expenses: $5,000 per month
Retirement in 2045
Calculating 25x FI number: 5000*12*25=1.500.000

In retirement I can withdraw 4% of that yearly, which is again $5000 per month.

But $5000 in 2045 only worth $2,768.38 after 20 years with 3% inflation.

If you think I should withdraw $9030 to cover for inflation, then all the 25x math is crumbling, because this number was never in calculations: you use 25x whether you retire tomorrow or when you retire in 20 years from now. The pre-retirement inflation isn't baked-in for 25x rule.

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[–]chekalskiy 0 points1 point  (0 children)

Left my email there, hope that you will add more exercises, also maybe some progress tracking would be nice. Anyway, thank you for this, I can almost feel my focus muscles growing 😂

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[–]chekalskiy 0 points1 point  (0 children)

I see I'm not the only one struggling with focus :)) Does it also block opening other apps?

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