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by mindingdata
3335 days ago
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They take the 85% of 100k because it's assumed when you retire, you won't be saving any of your income, just drawing down. This calculator is often uses to demonstrate different savings rates : https://networthify.com/calculator/earlyretirement The reason why saving more quite rapidly lowers your retirement age is because it's a twofold saving. Firstly you are saving more money which is good, and secondly you are learning to live on less. To take a super simple example. Let's say you can live on 50k a year. And you can get 3.5% on term deposit rates (You can in NZ). Then you should need 50,000 * (100/3.5) = 1.4 million approx to retire and be able to earn 50k a year off interest alone. |
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But in the article, they link to the calculator that gave them the 4 mil figure, and that asks how much you make, and how much you are saving. But it doesn't take the savings out first. So it's saying you can live on 85% of what you need now, if you save 0% or 50%. Since they have the number you are saving, it doesn't make sense to me to bake that into the 85% number, when they can calculate it based on the info you provide. I really think it's that on average, you only need 85% of your income, likely due to some smaller cost of living changes, but also tax implications, etc.
Your calculator is much better, and assumes you have enough money to draw down only the gains, and not the principal, but that's not what the calculator in the article does (as they mentioned in the fine print), they buy a fixed income inflation adjusted annuity at 6%.