How can I figure out my Financial independence targets and years to FI?

Trying to figure out my target for financial independence and is about to start building an investment portfolio for 3 lifetimes. (3 lifetimes as in I want to inherit it to my kids and grandchildren: 80 x 3 = 240 years horizon).

I'm looking for help to figure out my Financial independence (FI) target. I have been to the subreddit of said subject and found this thread here: https://money.stackexchange.com/questions/69993/

• I have also used this calculator: Networthify
• I have also used the formula from the wiki (see above answer)

I want to figure out my FI target and years to FI in my own calculations. I record all my income and expenses every month and I have made an excel sheet to update this as time goes by.

Here are some relevant figures:

• Age: 28 y/o
• Annual income: \$31,000 after tax
• Annual expenses: \$21,000
• Portfolio: \$10,000 (zero tax on all financial investments)
• SWR (withdrawal rate): 4%
• Nationality: Non-US (401k etc. does not apply to me)
• ROI: 4%
• Savings rate: 32%
• Multiple: 25

Here is a quote by a money.stack user that uses some parameters I've found everywhere on the web (also from the Trinity study).

Which in turn means that I estimate I need investments 1/.04 times the yearly spending estimate to declare the "forever" independence/retirement, or 25x the yearly. @Keshlam

I have also visited the Monevator, a blog that recommended this process:

``````http://monevator.com/financial-independence-plan/#footnote_2_24108
``````
1. Annual income / Withdrawal rate = FI target
2. Take FI target
3. monthly saving figure
4. real return rate assumption
5. Feed numbers into calculator
6. = Years until you are FI!

Here are my calculations so far:

``````FI target using 4% SWR: annual expenses / SWR = FI: 21000/0.04=\$525,000

FI target using multiple of 25: annual expenses * multiple = FI: 21000*25=\$525,000

FI target using annual income and SWR: annual income / SWR= FI: 31000/0.04=\$775,000

Years to FI using wiki formula: ((21000/0.04)-10000)/(31000*0.32)= 51.5 Years
``````

Perhaps I am overcomplicating things, but I want this to work as I track the expenses on a rolling 12 month period and regularly watch my savings rate. Basically, I don't know if I can trust my calculations to be "fair". (they will never be the truth, I get that).

• I am having a really hard time generating a good answer, but it started out like this: TLDR: I think you are over complicating things. In the end keep up the good work and you will be more than fine. – Pete B. Jan 25 '17 at 16:57
• See many past answers replanning for eventual retirement. It's the same question, really. – keshlam Jan 25 '17 at 17:02
• @PeteB. Thank you for your honesty. I realize that I might be. I will revise and go with something like 1/0.04 – Robin Wiman Jan 26 '17 at 7:20

First, notice that `.04 = 1/25`, so your first two calculations are really doing the exact same thing. Multiplying by 25 is just given as an easier way to do the calculation, but it will always give you the same number as dividing by `0.04`.

A withdrawal timeframe of 240 years requires practically the same target as an infinite timeframe, but it is simpler to calculate for the infinite case.

Note that if your ROI is only 4%, then 4% cannot also be your SWR. You need your ROI to be at least than your `SWR + inflation` to be able to withdraw 4% indefinitely (and you need it to be almost equal to `SWR + inflation` to be able to withdraw for 240 years).

Other considerations:

• Do you have or expect to have just one kid who will also have exactly one kid? If you expect to have more than one then you might want to plan to have an even bigger gap between your ROI and your SWR to allow the investment to double or triple in size before your kids inherit it
• The 240 year target is still quite strange. For you to have a grandkid alive in 240 years, assuming you have a kid around now and your kid has a kid around 30, your grandkid would be 210 years old before 240 years from now. Maybe that is possible, 240 years is a long time for healthcare innovations in the modern era; but it doesn't correspond well with your 80x3 calculation.
• If you plan to have years of overlap, where the withdrawals are doubled or tripled, because you and your descendants are withdrawing at the same time, then you need to plan for your 4% SWR to include double your annual expenses. That means doubling your target. You cannot just add up the years of overlap and count them as extra years, because you would be withdrawing more than your SWR during those years and you can't do that without your investments being depleted.
• Thanks for your comment! So considering the FI target for myself only, would you say that I should take the 31000/0.04=\$775,000 or 21000/0.04=\$525,000 – Robin Wiman Jan 26 '17 at 7:23
• @RobinWiman It depends on your goals and expectations. If you think you will achieve a fairly consistent ROI of `4% + inflation` then \$525,000 is what you need to be able to withdraw \$21,000 (plus inflation) through every year indefinitely. On the other hand, \$775,000 would allow you to withdraw \$21,000 and have \$10,000 extra every year to continue growing your investment (and therefor grow your withdrawal amount faster than inflation). – Paul Jan 26 '17 at 21:07
• @RobinWiman I don't have firsthand experience, but from what I have read, most people's annual spending tends to decrease when they retire, so you might find that \$21,000 is more than you need anyway. However depending on where you live and whether you own a home, \$21,000 already seems fairly low. – Paul Jan 26 '17 at 21:12
• @RobinWiman You should also consider that your target is in "today's dollars". When you reach your target it should be `\$525,000` of today's dollars. Assuming your salary increases over time at the rate of inflation and you keep the same savings rate (then the \$10,000 you save yearly will also grow at the same rate as inflation). It will take the same amount of time to reach the target in future dollars, as you calculated based on todays dollars, as long as your salary and therefore the amount you save increases too. – Paul Jan 26 '17 at 21:16
• @RobinWiman For example, if you consider an inflation rate of 2% for 40 years, you will need \$1,159,220 to retire and be able to withdraw \$46,368 every year (which is the equivalent of \$21,000 in today's dollars). However your salary should grow at the same rate as inflation or faster, and if you continue to save 32% of it you will reach the goal in future dollars in the same amount of time. – Paul Jan 26 '17 at 21:26