Navigating the Road to Financial Independence

Your Ideal Route to Financial Independence May Be Off the Beaten Path

Goals, Tools

Financial independence – the concept of establishing a sustainable system where your investments can cover your expenses, making work optional – is an issue of particular interest to me, and from the popularity of the Withdrawal Rates calculator I gather that it is for many others as well.  Of all the things money can buy, I have a difficult time imagining something more valuable than the freedom to live on your own terms free of financial worry.  While I’ve previously discussed the effect of asset allocation on the retirement half of the FI equation, the natural next question is:

 

What’s the fastest path to early retirement?

New Portfolio Comparison Calculator

New Portfolio Comparison Calculator

Tools

When browsing portfolio options, investors rarely study them in isolation.  Whether it’s the S&P500, a second lazy portfolio, or their own current asset allocation, it’s natural to compare a prospective portfolio to a relevant benchmark.  In fact, one of the primary goals of Portfolio Charts is to collect as much information as possible about various strategies in one place to aid in the learning process.

Each of the charts and tools here can be used to study differences in portfolios, but it feels like there’s room for one to do that more directly.  I’ve been experimenting with a few ideas, and have come up with something that I think approaches the problem from a new angle without overlapping the other calculators too much.  I call it the Benchmark calculator.  As a nod to human nature and a reminder to those who use it, you can also think of it as an Envy chart.

Why your SWR is probably wrong

Why Your Safe Withdrawal Rate is Probably Wrong

Retirement, Tools

Several years ago I discovered the concept of financial independence, and the idea was a revelation.  Life too often becomes a series of developed habits, and the process of questioning the basic assumptions behind those habits and envisioning a system where your investments can do the work for you to fund your lifestyle in perpetuity was a life-changing exercise.

As an engineer with a math minor, I was especially taken by a few prominent retirement studies on the subject of safe withdrawal rates.  They famously came to the conclusion that for a traditional mix of stocks and bonds one could have retired with a 4% safe withdrawal rate, adjusted their expenses for inflation each year, and had a successful 30-year retirement with a high amount of certainty historically.  The process they used for back-testing retirement scenarios was fascinating, and the results form the backbone of the vast majority of retirement advice today.

So I dove in and explored the data and assumptions and engaged full-force in various early retirement communities online.  I played with a few of the prominent retirement calculators out there and tinkered relentlessly.  Anyone else who has done the same can understand how intoxicating it all can be.

So much so, that after building my own models I realized a lot of people totally misinterpret the conclusions and get it all wrong!