Do I have Enough Money to Retire?

I first asked myself this question in early 2019.  I was nearing the end of a bad run with a new boss.  He had joined the company in Q4 2018 as a Sales Manager after being demoted from the same position at his previous firm.  Why the company thought it would be a good idea to hire someone that had been demoted by his previous firm is beyond me.  

Things got bad enough with him that I started to think about an exit strategy (there were other factors at play but he was one of the primary reasons).  The way I saw it, I could A) try to get a job at another company, B) Stay where I was so I could keep collecting a check (I was making way more than I needed), or C) Retire.  Option A didn’t really sit well with me because I’d still have to deal with the things that come with being a member of Corporate America.  I didn’t like option B even though I was going to have a new boss soon.  That left option C.  

I was 39 when I was trying to figure out what I was going to do.  Retiring at such an early age didn’t seem scary to me.  Not being certain that I had enough money to walk away did.  I had passed the exams so I could hold myself out as a Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) a number of years before.  I had never gone through the exercise to determine if I had enough money to retire though.  

I recalled some of the crazy numbers that were spit out when I used a popular financial planning software earlier in my career.  My experience with the software soured my interest in wanting to go down that path again.  

I was aware of the approach to use a distribution rate (4% is always a popular figure) to estimate the amount you could live on in a given year.

I was all too familiar with time value of money calculations from my days studying for the CFP and CFA.

Out of all of these, the approach that resonated with me the most came from articles that I had come across when reading about the FIRE movement.  As you may know, the acronym FIRE stands for Financially Independent Retire Early.  There is a treasure trove of information available on the money decisions that everyday people (singles and couples earning $60,000/yr - $100,000/yr) make in order to be able to retire in their 30s and 40s.  I was in disbelief when I started reading about individuals making a lot less money than I was taking all of these vacations after retiring at age 35 (Sometimes sooner!!!).  That really started giving me the confidence that I could retire too.

One method I found especially useful in estimating whether I had enough to retire was incredibly simple: multiply your annual expenses by 25. If you had that much in savings, you were good to go. There was also something called Super FIRE, which meant having at least 50 times your annual expenses saved. When I looked at my own numbers, I saw that I was very close to hitting that Super FIRE target.

I felt pretty good about my financial standing, but I did have one concern: estimating my annual expenses. While it was easy to calculate fixed expenses like rent and utilities, things like food, gas, entertainment, and other variable costs were harder to pin down. These numbers fluctuated month-to-month, which made the whole exercise a little nerve-wracking.

To address this, I decided to estimate on the higher side when it came to my expenses. By overestimating my spending, I created a cushion that made me feel more confident in my FIRE number.

Now, nearly five years into retirement, my net worth continues to grow.  No anxiety about running out of money.

Now that you know how to calculate it, what’s your FIRE number?