How-To Use NumberWalk: Martin's Story

This article demonstrates how Martin entered data into NumberWalk with his financial independence plan and the resulting analysis . His situation might resonate with many readers. This article provides insights into using the system and demonstrates potential applications for financial independence planning. The following sections explore his plan in detail.

The Brief Scenario: Martin's Financial Independence Simulation

Martin is 45 and, like many of us, wonders if retiring earlier than the traditional age 65 is possible. He's thoughtfully considering all aspects of his financial future:

He expects some expenses to decrease as he ages

Martin wants to know: If he retires at 50, will his money last? And how should he protect himself against market volatility?

Note: Some scenarios are for simulation purposes and may not apply to your situation.

Important Considerations:The Reality

While NumberWalk helps simulate financial independence scenarios, Martin is aware of the limitations of the plan and app:

• Unplannable Events: Some life events are too extreme or unpredictable to reasonably include in simulations, such as extended serious illnesses with massive medical costs spanning many years.
• Real-time Adjustments: In actual scenarios, Martin need to make tactical adjustments to his financial strategy that high-level plans cannot anticipate.
• Risk Strategies Aspects: What sounds effective in theory might yield different results when tested against real market history. Testing the plan with various strategies across different historical periods gives Martin valuable perspective on what approaches align with his personal comfort level and financial goals.

The Information About Age, and Saving Information

Age

This year is 2025. Martin, 45, is planning to retire early at 50.

Savings

Martin currently has a pension fund worth $1,000,000, which he expects to grow at a rate of 5.5%. However, he can only start withdrawing from this fund when he turns 55. This means for the first five years after retiring at 50, Martin will need to rely solely on his investment funds to cover all his expenses.

He has $500,000 invested in the S&P 500. Instead of assuming a consistent return rate, he worried about the impact of retiring during a poor market, so he want to backtest against one of the worst market periods 1999 as the year not rely on salary for income. For years beyond historical data, he uses a more typical 7% return. By planning for the worst, Martin can have better awareness how he want to adjust his plan based on his comfort level.

Dynamic Expenses Following Basic, Desire Lifestyle, and Risk Consideration

Let's look at how Martin anticipates his needs will evolve over time. He doesn't believe his spending will stay the same always- instead, he expects his needs and wants will naturally change as he ages.

Travel Budget: Dream Of Global Travel

Martin plans to spend $100,000 on travel during his first two years. After that, he'll spend about $10,000 each year until he's 75. He's not spreading his travel budget evenly across years - It is because he know that:

• Health and mobility tend to be strongest in those early years. The same money spent at different ages gives completely different experiences.
• Martin doesn't know how long his health will allow him to travel
• Life often brings unexpected responsibilities, like caring for aging parents, that can restrict travel later

Housing Loan Installment: To Be Settled Until Age 60

He currently has a housing loan, which requires him to pay $10,000 a year. This loan will continue until he turns 60, after which he will no longer have this expense.

Martin has deliberately chosen not to pay off his housing loan soonest. His loan's interest rate is significantly lower than both his pension fund returns and his expected investment returns. By keeping this lower-interest debt while his money grows in higher-return investments, he maintains more flexibility with his assets. This approach allows him to better manage his overall financial picture and optimize returns while maintaining liquidity for other needs.

Insurance: Upgrade After 10 Years With Inflation Consideration

Martin currently allocates $4,000 annually for insurance. Looking ahead to age 56, he plans to enhance his coverage with an additional $3,000 per year to ensure protection until age 80.

While Martin's current plan is to upgrade at age 56, he's also weighing another option: upgrading his coverage sooner while still in good health. This is due to insurance companies typically assess risk based on health status at the time of application, and if later might lead to exclusions or even application rejections.

Martin has allocated insurance expenses through age 80, which is the maximum his policy will cover. To Martin personal viewpoint, after 80s, he may prefer natural life progression over extensive medical interventions.

Medical Bills: Prepare For High Expenses In Later Years

Starting at age 70, Martin allocates $20,000 annually (in today's dollars) for potential health-related expenses—medicines, specialist follow-ups, and physical therapy sessions—recognizing that insurance typically won't cover everything. He projects these costs will increase at a higher 8% inflation rate, reflecting the reality of rising healthcare costs.

While his current plan doesn't include funding for long-term care facilities, Martin acknowledges this as an area for future consideration. His perspective is that family support combined with his medical budget might be sufficient, but he's keeping an open mind as he refines his plan over time.

Food: Luxury Now, Simple Later

Martin currently enjoys occasional fine dining, spending about $20,000 yearly on food. As he gets older, he expects his tastes to become simpler. By age 60, he plans to reduce his food budget to $15,000 a year.

He's factored in food inflation at 6% annually - higher than general inflation. And he's built in some flexibility too: if his investments perform poorly, he can cut back to 80% of his normal food budget until things improve.

Car Replacement Every 7 Years

Martin includes regular car replacements starting at age 51, setting aside $60,000 (after trade-in value) for a new car every 7 years. This is because getting car loans becomes difficult once financially independent! So, he plans these expenses every few years, not as yearly expenses.

Looking at his driving needs as he ages, Martin figures his last car purchase will be around age 72 (which may last another 7 years or beyond). By then, rideshare services or family help might make more sense. He estimate a modest 2% annual price increase for cars, which tends to be lower than other expenses.

While planning for these periodic car purchases, Martin also have separate ongoing expenses of his car

Car Related Expenses: More Driving Now, Less Later, Stop Afterward

Today. he spends about $4,000 a year on transport, covering costs such as petrol, insurance, parking, and maintenance. However, he expects these expenses to reduce to $3,000 a year after age 65, as he plans to drive less. By the time he reaches 80, he anticipates that he will stop driving altogether, eliminating these expenses. He expected these expenses to increase by about 4% annually due to inflation.

Other Expenses

He estimates that his annual expenses for bills, clothes, gadgets, repairs, and other miscellaneous items will be around $20,000. He assumes a general inflation rate of 3.5% for these expenses over the years.

Martin sees this category as more than just everyday items - it's also his 'backup money'. This budget allow him to handle small overruns budget or lets him occasionally buy something he like. This will make him feel more relaxed without too calculative every cents with stress.

Incomes

Pension Fund Contributions (Working Years)

During working years, He and his employer together contribute $36,000 a year to his pension fund. This amount is expected to grow at a rate of 2% per year, in line with his salary increases.

Index Fund: Extra Savings (Working Years)

Martin knows his pension fund alone won't get him to early financial independence at 50. That's why he puts an extra $20,000 a year into an index fund. Since his income comfortably exceeds his expenses, he plans to increase this savings amount by 10% each year, putting the extra from his salary growth directly into savings.

This is what Martin can save after paying for his day-to-day life. He wonders if this amount is enough, too much, or too little. If it's not enough, he might need to consider to save more now (which means cutting back on things he enjoys), push his working age later than 50, or plan for a simpler lifestyle when he left his work. Right now, he's starting with what feels comfortable for his current lifestyle and will adjust based on what his calculations show.

Rental Income

Martin earns $10,000 a year from his rental property, which he invests in the same index fund during working years. He expects this rental income to grow by 5% annually until age 55, then slow to 2% yearly growth afterward.

Martin is not planning to sell this property someday later. He views his rental property as an important part of his "safe money" portfolio so he currently plans to keep the rental property for the long term. It also serves as his backup plan - if someday he needs a large amount of money, he could sell the property, especially if it has appreciated well over time.

Investment Risk Management: Minimum Spending, Load Balancing, Pause Selling, Asset Allocation

Knowing the market volatility could affect his plan, Martin is thinking about ways to minimize the impact of running out of money too early - like at age 60, when he'd still have many years ahead.

If his personal investment returns drop below 3%, he'll switch to minimum spending - hopefully reduce the money lost impact due to less selling for expenses. He'll also chose to pause on rebalance to sell saving fund to risky fund while it is bad market.

Martin also gradually shifts his asset allocation as he ages - from 70% stocks/30% bonds to a more conservative mix in later years. This approach is to reduce the risk of market volatility impact his money when he get older.

How The App Generally Works:

There are four steps to consider when simulating financial independence scenarios. The first and second steps are essential, while the third and fourth steps are optional. The first step focuses on basic info and savings, while the second step involves allocating budgets to various expenses. The third step pertains to defining income, and the fourth step addresses risk management related to investments. Users can jump to any step without following the sequence.

Save and Load Plan

NumberWalk allows users to save financial independence plan configurations and load them later, making it easy to iterate on plans over time or try different scenarios. This feature is particularly useful when refining financial independence strategies and comparing different approaches.

Once financial independence plan details have been entered, they can be saved to a local computer by clicking the Save button. The plan will be saved as a .numberwalk.json file.

The Load feature supports flexibility in financial independence planning by allowing multiple scenarios to be saved and revisited. When accessing a previously saved .numberwalk.json file, NumberWalk displays progress messages during loading. This feature enables users to build a library of different financial independence scenarios, facilitating easy comparison between conservative and optimistic projections or exploring how different life choices might affect long-term financial security.

Interpret Result: Excel

After submitting a financial independence plan, NumberWalk generates an Excel file containing detailed calculations and projections. For a complete guide on how to read and interpret the Excel results, please refer to the dedicated article: Reading Excel Results.

Conclusion: Testing Financial Independence Plans for Peace of Mind

NumberWalk supports financial independence planning that reflects close to real life with all its changes and complexities. Martin's example demonstrates how he uses this application to create a plan aligned with his specific financial independence goals.

NumberWalk models various financial independence scenarios, from early financial independence possibilities to healthcare cost projections and lifestyle changes throughout the years. The application offers a platform where individuals can explore options based on their unique priorities and personal circumstances.

The flexible nature of NumberWalk enables exploration of personalized scenarios, adapting to different planning approaches and financial situations.