January Safe Withdrawal Rate – 80.47%

January’s safe withdrawal rate was 80.47%. This was a big improvement from 104.5% in January. The way I am determining my SWR is by tracking my trailing 12 months expenses divided by the amount of my investments. Since I don’t think the preceding 12 months accurately reflect my expenses going forward I am using my monthly expenses starting in November 2012 to set the average. The much lower expenses in January made a big difference in my average monthly expense total. Once the average monthly expense total is smoothed out I should see a slow decline in the SWR every month.

I did manage to save some money in January. I saved $1500 of the $2694.87 I made for a savings rate of 55.67%. That is pretty good, but I expect to do even better this month. Since I want to save 50% of my income this year and my full time job ends in April I need to be saving an even larger percentage of my current income to meet my goal.

The common rule is that you need to get your safe withdrawal rate down to 4% in order to be able to safely retire. My goal is to eventually get my SWR down to 4%, at which point I will consider myself financially independent. The 4% SWR translates into having 25x your annual expenses in savings. That would be 300 months of expenses in savings. I have 14.91 months of living expenses saved now. I should be able to add another month’s of living expenses to my savings this month. Seeing my SWR go down every month and my months of living expenses saved go up every month should keep me motivated.