Early Retirement, the Dummy Calculation

Planning for retirement

If you were to believe the dumbass who calls himself (herself?) arvaldeco at Infobarrel.com, anyone can retire early: all it takes is some self-discipline. To prove it's possible, because (according to Arvald in his post "How to Retire at 40"), 

"Retiring at 40 is the dream for many. You have spent a good twenty years working to achieve your retirement but still have long life ahead of you and are young enough to enjoy it in a very active way..."

The guy lays out what he claims is the simple math. If you believe this dumbass (and you dream of retiring at age forty like so "many"), all you need to do is use a simple formula

"Number of years to retirement = 25 (%living expenses / %saved)"

to figure out how much you need to save. So, according to his formula, if you want to retire in 25 years, you must save as much of your income as you spend (the formula works out to 25 = 25 * (0.5/0.5) - the two numbers in parentheses must sum to 1.0). Of course, that's only if you're fifteen years old at the moment and want to retire on your current income... If you're 25 right now, that formula becomes a little more interesting: 15 = 25 * (0.38 / 0.62) - that's right, you have to save almost ²⁄₃ of your income. 

Arvald also lets an interesting factoid slip: according to him, that number 25 is for how long your savings will last in retirement: 

"This is based on the assumption that having a 4% drawdown from our capital in retirement will last us in perpetuity."

Ummm, an annual 4% drawdown from capital is based on the assumption that the average retiree will live 25 years after retirement. According to Arvald's plan, you'll run out of money in your retirement account at 65, just in time to start drawing social security too; though you wouldn't make jack in SSN, having only worked 18-20 years. You also won't make jack from your savings, since you'll retire long before your peak earning years. Arvald also doesn't address inflation, nor does he mention that if you want to retire in 15 years, you'll need to save 62% of your pretax income, leaving about 12% of your income for living expenses. Of course, all you have to do to increase your savings is sell stuff on eBay and write for InfoBarrel (for which he kindly provides a referral link).

The only idea that be more of a dumbass concept than this one might be to tell people "How to Retire at 30"... and guess what: Arvald wrote that one, too... What a blithering dumbass – a Dumbass of the Day.

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