Today I learned I may need way less than I assumed to retire
I was watching a youtube video that worked backwards from full retirement age including social security and also worked backwards from the remaining (prior to pulling social security) years. She then worked backwards one more time for a bridge amount. She didn't explain the formulas she used, but I was able to google it and learned about the present value formula.
My retirement goal had always been a little higher than leanfire at 50k/year solo, because I aim to travel and will likely always rent. I took this to mean I should aim for 1.25 million (25x yearly spend.) What this doesn't include however is that if I start pulling 24k/year at age 67 with full retirement (current estimated benefit if I stop working at 51) then the "25x" amount really only matters with the leftover balance to hit 50k (or any amount you set as your yearly spend). Then you can use the present value formula to see how much you need when you retire to have it grow into the correct amount by age 67. I assume coastfi people use this formula along with other planning numbers. That solves the largest block of money.
Next up you need to calculate from 59.5 (or rule of 55) to 67. The goal here is to end in 0. This is a slightly different equation called Present Value of an annuity due. But the step doesn't end there. If you retire sooner than 59.5 or rule of 55, this money also grows interest during your bridge years of early retirement. In my example, I'd like to retire at 51. So if I have x balance needed by 59.5, I'll need y balance at 51 that then grows into x balance at 7% interest rate (or whatever rate you'd like to use). This y balance is then added to the first steps 25x balance. Now we just have one more step to solve; the initial bridge amount needed.
This last step can either be done in straight cash, or stuff like bonds/hysa/tbills etc. I want the amount to end in 0, with a much lower interest rate or none at all. If you have an interest rate, you can use the same formula as step 2. I chose to use a very conservative 2% interest rate, and some cash for the initial year.
I went from believing that I needed 1.25 million to retire, to being reasonably sure that I can withdraw 50k/year starting at age 51 with 3 different buckets with a combined total of 715k invested + 50k starting cash. There is plenty of room and reason to start with more up front cash, and assume less returns.
(the scenario I've calculated uses a 2% return on $323,599 +50k cash from 51-59.5, 7% return on $185,938 from 59.5-67 and 25x annual spend from $205,773 67+)
Curious if I've missed anything glaring in this deep dive into restructuring how I look at my retirement numbers.
Someone below asked for a link to the video I had watched so I thought I'd post it up here as well.
https://www.youtube.com/watch?v=ht4aNJkXzzc