Isn't this something which everyone asks oneself at some time or other? So I've decided to do the math and work it out. I hope it makes for interesting reading.
If you save 20% of your income before tax in a mutual fund which returns 20% per annum and if you consider inflation to be at 10%, how long will you take to be financially free? To truly answer that, you need to know what you will need to survive on when you retire and also you will need to know what your investments will earn after you retire. The answer isn't difficult to calculate with an excel sheet and I've done that for you. I assume you wish to leave your corpus behind for your heirs, but if you wish to spend down to the end of life, you will need to make an assumption on how long you will live. Now that is a question that Aubrey de Grey has answered in his TED talk here.
Of course if you save more, or earn a higher interest on your investments, you could be financially free much sooner. Or if inflation is lower than you expected, then you would not need to save more or or for too long!
If you save 20% of your income before tax in a mutual fund which returns 20% per annum and if you consider inflation to be at 10%, how long will you take to be financially free? To truly answer that, you need to know what you will need to survive on when you retire and also you will need to know what your investments will earn after you retire. The answer isn't difficult to calculate with an excel sheet and I've done that for you. I assume you wish to leave your corpus behind for your heirs, but if you wish to spend down to the end of life, you will need to make an assumption on how long you will live. Now that is a question that Aubrey de Grey has answered in his TED talk here.
Of course if you save more, or earn a higher interest on your investments, you could be financially free much sooner. Or if inflation is lower than you expected, then you would not need to save more or or for too long!
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