You will be able to read a model that turns savings rate and an assumed return into years to independence.
Search for "FIRE calculator" and you will find dozens. You type in a few numbers, a date appears, and it feels like an answer. What you are looking at is the output of four or five assumptions, most of them hidden, and changing any one of them can move the date by years. Before you build your own model in lesson 4.4, it helps to see exactly what goes into one and what comes out.
This lesson walks through the simplest useful version, the one behind the figures in lesson 4.1, Savings rate works twice.
The model needs four things.
The first is income: your yearly take-home pay. The second is your savings rate, the share of it you save and invest. Everything you do not save, you spend, so these two inputs also give your yearly spending.
The third is an assumed return after inflation, the real return from How money works, lesson 4.2, Real return is roughly the nominal return minus inflation. Using a real return keeps everything at today's prices, matching the spending base you built in lesson 1.4.
The fourth is the target, written as a multiple of yearly spending. At a 4% withdrawal rate, that multiple is 25, as lesson 2.1 showed. At 3.5% it is about 28.6.
The model goes one year at a time. Each year, it takes last year's balance, adds a year's return on it, then adds this year's savings. When the balance reaches the target, it stops and counts the years.
Here is a made-up example. Someone takes home S$60,000 a year and saves 20%, so S$12,000. They spend S$48,000, and at 25 times, their target is S$1,200,000. They start from zero and assume a 4% real return.
After year one, the balance is S$12,000. In year two, it earns 4% on S$12,000, which is S$480, and then S$12,000 more is added, for S$24,480. Year three earns about S$979 on that, and with another S$12,000 the balance reaches about S$37,459. Early on, the yearly savings dwarf the return, so almost all the progress comes from saving. In this example, the return in a single year does not overtake the S$12,000 going in until year 19.
Run that forward and the balance first passes S$1,200,000 in year 42.
Notice that income cancels out. Double the income and you double both the savings and the target, so the years stay the same. For a given savings rate and return, the date does not depend on how much you earn. That is a surprising result the first time you see it, and it is why savings rate is the figure to watch.
Now hold the target at 25 times and change one input at a time. These are outputs of the same model with illustrative assumptions, all starting from zero.
At a 4% real return, a 20% savings rate takes about 42 years, while a 50% savings rate gets there in about 18. Savings rate alone accounts for a gap of twenty-four years.
At a 20% savings rate, a 2% real return takes about 56 years. A 6% real return takes about 34. That is a big change, from a wide spread of return assumptions that you cannot choose.
Put the two side by side and the pattern from lesson 4.1 shows up clearly. Moving the savings rate across a range that people do reach changes the date more than moving the return across a range that markets may or may not deliver.
Every figure here is an output of assumptions, and none of them is a forecast. Returns never arrive smoothly at 4% a year. Lesson 2.3, Sequence risk: why the first years matter most, showed that order matters once you start withdrawing, and while you are saving, a bad decade can still delay the date.
The simple model also starts from zero, which almost nobody does. Your current invested balance is a head start, and it can take years off the result. It ignores CPF, which in your plan does real work through the two-part number from lesson 3.4. It assumes your income and savings rate never change, when in real life both usually rise in the early years of a career and may fall later.
So treat the simple model as a way to understand which lever matters, and leave the planning to something more detailed. Lesson 4.4, Build your FI model, replaces it with a year-by-year sheet that uses your own balance, your own contributions and your two-part number as the target.
Before you build that sheet, gather what it will need. Your take-home income you found for lesson 4.1. Your savings rate came from the same exercise. Your current invested balance is everything you could draw on for the bridge, such as investments in your own name and money set aside for the long term, but not CPF and not your emergency fund. For the return, pick a figure after inflation that you could defend to a cautious friend, and be ready to test lower and higher ones as well. The activity asks you to write them down in one place.
Write down your own income, savings rate, current invested balance and an assumed return, ready for the model.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).