So let's see how that plays out, bro. Let's talk about how to retire early, how to be part of the FIRE movement if your income is $100,000. Remember, these are our assumptions: we're going to work for 25 years, starting with a $100,000 salary. Our wage increase on average is going to be three percent per year over that working career. We're going to start our portfolio earning eight percent and then decrease it each year until we're at five and a half percent. We'll assume different savings rates: 25, 30, 35, and 40 percent. Our goal is to replace some of our pre-retirement income, and since we're doing FIRE, we're going to have a three percent sustainable long-term withdrawal rate. The question is, with a starting income of $100,000, does that allow us to achieve FIRE?
Yeah, by the way, this is genuinely interesting. I mean, I think that a lot of people, when they reach six figures, they're like, "Man, this is what I aspire to. This is why I went to college." But then when you look at the actual results, you realize that with a 25 percent savings rate all the way up to 40 percent, not one of these scenarios crosses the threshold of 60 percent of the income you were making before reaching FIRE. Now, some people might say, "Oh, you guys aren't taking into account Social Security. You're not thinking about it." Well, remember, these are FIRE calculations, and Social Security kicks in much later in life, well into your 60s, if not 70s. So even for the most aggressive savers in this $100,000 income range, not quite hitting 60 percent is still going to be a challenge.
It's important to note that health insurance and other factors, like the cost of living, come into play in the FIRE movement. To give the numbers to the podcast listeners who can't see the visuals, if you're saving 25 percent of your $100,000 income, you'll be able to replace 33 percent. Saving 30 percent will replace 40 percent, saving 35 percent gets you to 40 percent of your pre-retirement income, and saving 40 percent will get you to 53 percent. Since none of these numbers cross the 60 percent threshold, let's talk about how you can still consider yourself successful in the FIRE movement, even with these results.
You have to be prepared to live a more modest lifestyle through discipline. That's what the results show. When you're living 40-plus years off of only working and saving for 25 years, sacrifices will need to be made. It's hard because we live in a society where income is idolized, and the idea is that making more money will expand our lifestyles and give us more freedom. But if you're planning on FIRE, even with a six-figure income, you cannot live like that. You have to have an aggressive savings rate of 35-40 percent just to come close. So, come to terms with the fact that even though you're making good money, you can't live like you're making good money if your goal is true Financial Independence.
This leads to "Choose Your Own Adventure" part one. You'll need to calibrate between being disciplined and frugal versus being miserly. Consider that squeezing on family vacations and making decisions about family growth and home purchases may be necessary. Watch that calibration between being great with money and disciplined versus missing out on key life milestones due to overly restrictive choices.
Now, I don't want to suggest that achieving FIRE on a lower income is impossible, but it does look difficult. When you raise your income to a hundred thousand dollars, it may be possible to achieve FIRE, but it's still not easy. It won't be a walk in the park; it will require an extreme amount of discipline and the understanding that my life won't be super cushy with a lot of margin for error. I have to be disciplined and budgeted both in my pre-retirement years and especially during my post-retirement years. So, it can be done, but it's not super easy.
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