Posted by Tim Stobbs on December 25, 2007
Ok, I wasn’t planning on giving you a gift, but I’ve broke down and decided to release a little side tool I’ve developed while working on the retirement spreadsheet to predict when you become financially independent.
The Excel file is listed below and called “Crossover Play” in honour of the cross over point from the book Your Money or Your Life. To use the file you need to input the dollar value of your current retirement savings. Then you enter your expected rate of return for your investments and your expected inflation rate. Then you add in your expected expected annual expenses in retirement (in today’s dollars). The last parameter is used to show if you are constantly getting raises in excess of inflation and assumes you are adding that money to your retirement pool of cash. So basically you are increasing you savings by this annual amount on annual basis.
After that just check out when your light blue line on the graph crosses over the dark blue one and note the year. At that moment you don’t have to work any more. You can continue to work, but that would just provide more income (ie: follow the light blue line as it goes up).
Notes: This is only based on annual returns and is to be used only as an illustration. Basically it allows you to determine how sensitive your cross over point is to changing factors. Please beware I’m making no guarantees or warranties if you use this file. It’s strictly as is and to be used at your own risk. By downloading this file you have agreed that you have read this warning and agree to it.