All the calculations that you do for retirement and many of the calculators, advisors and everybody (everybody not in the FIRE) that you talk to says you need 80% of your last income. Whaaaat! It does not make any sense.


Let´s make some numbers


We are going to use $100.000/year for income to make easy calculations.


-If you need 80% you need $80.000 when you retire.


-But, wait, if you have been saving and investing, let´s say 50% (not uncommon in the FIRE community, actually, it´s kind of the entry level if you are pursuing FIRE). Then, you have been living on 50% of your income, that´s $50.000, why would you need almost double that amount?


-Let´s add taxes. If you have been saving 50% of your income pre-tax, that means you have been saving $50.000. The tax bracket for $100.000 is 24%, that´s, $24.000.


-So, you are living on $100.000-taxes($24.000)-savings($50.000)=$26.000. That translates to $2166.6/month. Can you live on that?


-So you are actually living on $26.000, more than 3 times less the $80.000 everybody is telling you that you need.


Some conclusions


If everybody is telling you that you need 80% replacement, and also the nest egg paralleling that, then you are being advise to save 3 times more than what you actually need. I like to have some safety margin, but 3 times more is going to make your goal unattainable and you are more likely to spend more and work less towards achieving FIRE as you feel is too high of a mountain to climb. Don’t be fooled, you need way less. Remember less is more?


Like the song . . .

Spending, Saving and Investing


By spending less, saving more, and investing strategically, you´ll be able to get away from the crazy 80% replacement rate that does not make any sense, frustrates everyone and forces everyone to stay on the rat race . . .


So . . . can you live on $2166.6/month? Remember, the total nest egg that you need is way less than what everybody wants you to think.

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