How long is it until you can retire? Are you on track with your current savings? What’s the chance you’ll run out of money?
These calculations can get complex. That’s where a useful financial independence or retirement calculator comes in handy.
Knowing when you can retire, no matter where you’re at in your financial journey is incredibly insightful.
The free financial independence calculators below can help you make better financial decisions today.
# 1 – Personal Capital’s Retirement Planner
With Personal Capital’s Free Retirement Planner, you’ll know exactly where you stand on your journey to financial independence. It’s the most accurate and easy to use calculator out of the dozens I’ve tried.
Here’s what I like about Personal Capital’s Retirement Planner:
- Uses Real Data – The Retirement Planner pulls your actual savings and spending numbers–not your estimates.
- Monte Carlo Simulation – It runs over 5,000 simulations from different time horizons. It then gives you a percentage of the likelihood of a successful retirement. This is much more powerful and accurate than assuming a certain steady 7% rate of return–as this isn’t how the market works.
- Customization – Not all financial independence calculators allow you to insert variables such as other retirement income and social security. You could test hundreds of different scenarios with Personal Capital’s Retirement Income Planner, e.g. what if I increase my savings by 10% a year or what if I take a part-time job that pays $15,000 per year in retirement.
Here’s a screenshot from my own Personal Capital account.
It calculates that I have a 51% chance my portfolio will support my goals based on my desired retirement age of 45, current investments, and annual spending. Since I have a few outside, private investments this number isn’t totally accurate. However, this is incredibly helpful to know today and even more helpful to track overtime.
Beyond this informative feature, another tool I really enjoy is the Investment Checkup.
When I log go to the tool, I see a screen that says:
As you can see, I’m a fairly risky investor. I keep most of my money in stock index funds (primarily Vanguard’s Target Date 2050). But it also recognizes I’m fairly aggressive with my U.S. based allocation.
Their algorithms for asset allocation are good. If you knew nothing about investing and followed their recommendations you will do quite good and outperform the vast majority of investors.
Another useful tool is the 401k Fee Analyzer. It’s common to have quite a few old 401(k)s floating around. Most 401(k)s have outrageous fees. Often 20X the fees of investing the account on your own.
When I login to my 401(k) fee analyzer, I’m proud to see that I’m paying only .05% in annual fees. The benchmark is .50%, so yea employer!
Personal Capital’s Retirement Income Planner & other financial tools are first class. And they are free. I highly recommend you sign up.
# 2 – FireCalc
What if you decided to retire right before the Great Recession of 2008? What about The Great Depression? Would your money have survived?
FireCalc is a comprehensive financial independence calculator that runs simulations using stock market history.
To start, you can run a simulation based on 3 inputs
For an example, I inserted
- Spending: $48,000
- Portfolio: $1,000,000
- Years: 50
FireCalc then provides me the following data:
FIRECalc looked at the 96 possible 50 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 96 cycles. The lowest and highest portfolio balance at the end of your retirement was $-4,827,837 to $15,004,621, with an average at the end of $1,501,648. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 40 cycles failed, for a success rate of 58.3%.
After you have this number, you can then start to insert variables such as:
- Social security and other income such as pensions
- Delaying retirement
FireCalc is much like Personal Capital’s Retirement Income Planner. While Personal Capital’s Retirement Income Planner is a bit more slick and easy to use, FireCalc‘s one advantage is it doesn’t require a subscription.
# 3 – Paper & Pen (4% Withdrawal Rate or 25X your Annual Expenses)
A general rule of thumb in financial independence is one may withdrawal 4% of their portfolio every year. For example, if you have $1,000,000 in your portfolio, you can safely withdrawal $40,000 per year.
By limiting withdrawals to 4% and investing the rest wisely, there’s a very low chance (if any) you’ll run out of money.
This number isn’t perfect but it’s close enough for a quick calculation.
It’s also useful for everyone, not just those knocking on the door to financial independence.
I use the 25X or 4% withdrawal rate number almost daily to help make better financial decisions.
For example, say you’re considering purchasing high-speed cable and Internet for $150 a month or $1,800 a year. To keep things simple, say you make $100,000 a year.
Here’s what you now know, thanks to the 4% withdrawal rate:
You would need to accumulate $45,000 (1,800 x 25) more to pay for this expense during retirement
This expense would delay financial independence by 164 days (365 x .45). As it would take you 45% of a working year to accumulate $45,000 in additional savings.
Yes, I’m missing a few variables with these quick pen and paper calculations, but that’s missing the point…
…this small decision to forego a monthly expense allows you to reach FI around 164 days earlier. Now, combine this with other small decisions such as eating out one less, using the library, and other ways to save smart…
…and you can knock off years of your working life.
Free Financial Independence Calculator
A good financial independence calculators like Personal Capital’s Retirement Income Planner can make balancing dozens of variables and unknown outcomes easy. Having used dozens of calculators and spreadsheets, the above three are my favorite.