Over the last several months my mind has been drifting towards thinking about whether I’m ready to retire.
Okay. Not really pondering whether I’m ready to retire; more like trying to decide when I’m going to be ready.
For me the matter of retirement – be it early or not – is not mixed with longing for twisty, ribbed stockings, bubbly cardigans and watching daytime TV. I can’t stand daytime TV.
For me, the matter of retirement is tangled with the lust for independence, the desire to create without restrictions and contribute to people’s lives with no limitations. While I’m employed this is not possible.
‘Oh, but you are a university professor.’ – I hear you say. ‘If you are not able to create and contribute value to people’s life, who can.’
You’d be surprised. In the past, I have made some positive contributions through my research; like contributing to a very substantial increase of the science budget in the UK in mid-1990s. I have touched the destinies of generations of Doctoral, Masters and undergraduate students…reputedly. Still the changes in Higher Education and the universities over the last decade or so, have been consistently robbing my life of meaning.
I want the meaning back. After all, we are all mortal and we are not born to make money, spend money and die with regrets.
So I’ve been trying to decide whether I’m ready to retire – and when I’ll be ready if I’m not there yet – and have had a big problem. Before making this decision, I made sure I had sorted my money out.
So, I played around a bit with our retirement calculator. It is fun but…I had to make too many assumptions that are highly problematic. Like my annual spending in ten years’ time.
While looking for something else, I came across an easy formula that helps you decide whether you are ready to retire; it was introduced by Quora reader Doug Massey and is known as F*ck That Index (or FTI).
Are you ready to retire: what is FTI?
FTI, or your readiness to retire, is calculated using the following:
Your Age * Your Net worth/Annual spending
The index should be greater than 1,000 for you to be ready to retire.
I love this one! I love it not only because it is the kind of thing that tells you ‘yes’ or ‘no’ but also because it allows you to play with the conditions for readiness. For instance, you may be closer if you reduce your annual spending; or you need to wait several more years.
Where do I stand in all this retirement lark?
Remember when I was telling you how important it is to know your net worth and that you should follow it religiously. Hope you did! I do know my net worth exactly and update it every month so calculating my FTI is easy.
And…
…my index is 1,705.
(Had to correct this one up after carefully calculating my net worth. What am I waiting for, I wonder.)
Which is over 1,000 anyway and this means that I can jack my job tomorrow is I want to. And this makes me feel all warm and glowing inside. This is without changing our current level of spending at all.
(Just for the record, John’s FTI is well over 1,000 as well. I haven’t factored keeping a teenage son through university but this may be why I have to make a lot of money some other way.)
What is your FTI value? Are you ready to retire?
My FTI index is 120, which makes sense as I still have a few more years to go.
By the time I retire, my FTI index should be around 1200.
@SmartProvisions: Keep going, friend :); a bit longer left. When do you plan to retire?
Mine is 1,861, which is why I’m already retired. 😉
The one thing this index doesn’t account for is income generated by your assets. Since my assets generate enough income to cover my annual expenses, I never have to spend any of my assets in retirement. Hence I could be retired in perpetuity. Ha!
Something to think about — how to add income into the index.
@ESIMoney: Well done! You see, we are in very similar situation. We have investments in businesses (we own half of a car maintenance garage, for example) and very good pensions. I suspect that we won;t need to draw down the capital. The Index is a bit ‘rough and ready’ but its beauty is in telling you when you could leave work without much risk – and it feels great to know (I always seem to think that my situation is worse than it is).
Mine is 960, and by the time I retire it will be 1200. Good to know that I am right on target with my plan. Almost there…
@Joanne: Well done and keep going :).
Thanks for this – it’s great to know another calculation to help work out when you’ll be financially ready to pull the plug. I’m about 383 at the moment, so still a way to go but I’ll keep at it.
@Weenie: Sounds good so far :). Keep going, friend.
Thanks for the kind words about my formula, Maria. The one caveat that I would emphasize is that the FTI is definitely a rule-of-thumb — when you’re over 1000 and you think you’d like to move on from your career, you’ll definitely want to look at your finances in much more detail than just comparing three numbers. For example, your expenses might shoot up if you have to carry your own insurance, your investments might be ill-suited for post-retirement income (and rearranging them might incur tax consequences you haven’t thought of) — things like that.
As always, if you’re not 100% comfortable with all these issues, spent a few bucks on an hourly-fee financial advisor and get a professional opinion.
@Doug: Thanks for stopping by, Doug (and I enjoy quite a few of your post on Quora :)). Thanks for emphasising this point for my readers – that the FTI is a rough rule of thumb and not a fast a cut rule. All these also is different in different countries: in the UK, for instance, we still have a national health service that is largely free. There are, however, other expenses that go up in older age.