FI number calculation 101 question..
I wanted to check if I'm doing the math right for the FI Number calculation.
- are the expenses amount what I think I will need after retirement? If I have 10 year mortgage left to go should I be including it? (Answer might be it depends.. depends how?)
- the savings rate or investment rate (30, 40, 50%) , that would include what I'm saving for 401k + any brokerage accounts I am investing in? I guess that would answer my question on savings amount as well.
I'm sure this is very basic question for many but thank you for your insight ahead!
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You are correct that it depends. You definitely want to leave out the savings part, since that is an expense only while you are approaching retirement. The mortgage is a bit trickier. You can leave it and calculate your FI number with it in (just know that you will be overshooting a bit). You can also use one of the simulators that allows you include different streams of expenses and cash flows over time (like this housing expense ending in 10 years, kid1 college expenses starting in 4 years, kid2 college expenses starting in 7 years, social security income starting in 27 years, etc). But if you are calculating your FI number for the first time, you probably don't need that level of detail. Just leave the mortgage payment in and use the resulting FI number as your "ballpark", then refine it as time goes on.
This makes a lot of sense. Thank you! I wasn't even sure if I was getting the baseline right. Based on this, I'm gonna see where I can adjust my savings amount now to get there sooner. Thank you so much!!
Roberto nailed the answer right on the head. Once you get more familiar with calculating your savings rate and FIRE number, you'll be in a good place to explore how to get a more detailed picture of your FI journey.