The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: kpd905 on August 16, 2015, 07:12:06 PM
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I just calculated this today in case to run numbers in case I want to semi-retire and just work enough to cover expenses until my portfolio hits the magic number for full retirement. It is a liberating feeling to know that these few years I have been contributing should already be enough to give me a very comfortable retirement at traditional retirement age.
For my calculations, I figured out what my portfolio should look like every year based on my current contributions, then figured out at what age that resulting portfolio would hit $1 million without any further contributions.
Since we've only been investing about 2 years, it would take until age 62 for us to hit $1 million without any further contributions (assuming 7% growth). But if we invest one more year at our current rates, that portfolio will hit $1 million at age 57.
These were my results (number is projected portfolio in X years):
current: 92k, 1 million at 62
1 year: $139k, 1 mil at 57
2 years: 198k, 1 mil at 53
3 years: 260k, 1 mil at 50.5
4 years: 328k, 1 mil at 48
5 years: 400k, 1 mil at 46
6 years: 477k, 1 mil at 44.5
7 years: 560k, 1 mil at 43.5
8 years: 649k, 1 mil at 42
9 years: 744k, 1 mil at 41
10 years: 847k, 1 mil at 40.5
11 years: 957k, 1 mil at 39.5
Now to go plug away at a few side hustles and trim the years down even more.
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Yes, I occasionally (like today) tweak some of the variables in my spreadsheets to see when we'll hit various targets if we save more or less along the way. My hope is that it will help me have a better sense about whether it's worth it to take a job that might pay less but be more enjoyable or move to a HCOL area or do both.
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Yeah, this is an interesting exercise. As you build your 'stache, at some point, early FI becomes inevitable (provided you don't withdrawal the money or otherwise take it out of being invested).
One point to consider with this exercise is that 7% is a very long term real return average. The range of outcomes of a 10 year holding period is between about -1% and +19%. You would have to wait 20 years to be more sure of a decently good outcome (see the figure attached).
However, that said, the market will do what it will do and we don't have any control over it. Keep saving money and you will reach your goal, but the exact timing will be determined by the whims of the finanical markets.
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I used to do this all the time when I had less of a stash. I would calculate how much I had in then-current dollars with no additional deposits by the time I was 60 years old (i.e. 59 ˝). Once that projected amount at 60 reached my retirement number plus a factor of safety, that was a milestone for me.
After that point I have thought of additional investments as going to buy back years. And since I’m still buying back years with my new savings and investments, I don't think I have run that “no further contributions” number again.
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No, I have never looked at future portfolio growth without new contributions. I'm pretty sure it would just motivate me to quit my job even earlier, and I'm trying to avoid that.
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After that point I have thought of additional investments as going to buy back years.
That is how I am thinking of it, especially since at this point one year of my contributions is buying me 4-5 years at the end.
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Hmmm...this is an interesting way to think about it. Here are my current results:
0yr: FI in 2024
1yr: FI in 2023
2yr: FI in 2022
3yr: FI in 2021
4yr: FI in 2020
Each year of contributions only buys me one year of FI. Maybe I should reduce my work to "cover expenses" mode now? Then only 9 years until FI.
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One point to consider with this exercise is that 7% is a very long term real return average. The range of outcomes of a 10 year holding period is between about -1% and +19%. You would have to wait 20 years to be more sure of a decently good outcome (see the figure attached).
However, that said, the market will do what it will do and we don't have any control over it. Keep saving money and you will reach your goal, but the exact timing will be determined by the whims of the finanical markets.
Very good point. Average returns do not tell the whole story.
If you can forgive promoting a personal project for a moment, I have a pretty good tool for this exercise: http://portfoliocharts.com/portfolio/hurricane/ You can specify your own asset allocation, starting value, and savings rate, and it will simultaneously display returns for every start date since 1972 for your personal portfolio. This will give you the full range of portfolio endpoints over a wide variety of economic conditions.
(http://s10.postimg.org/gvaazpc5l/portfoliocharts.jpg)
BTW, the "Funnel" chart on the same site can generate custom versions of sirdoug007's nice chart for your own portfolio.
Personally, when I started looking at portfolio growth without new contributions it helped me decide to take a lower paying job that I would enjoy a lot more before FIRE. In retrospect, that was a great decision.
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No, I have never looked at future portfolio growth without new contributions. I'm pretty sure it would just motivate me to quit my job even earlier, and I'm trying to avoid that.
This is basically what happened to me.
Once it was like "this may be enough...but if it isn't, and we go earn some more money to cover our expenses (and maybe save some) and bank all the rental income and portfolio increases while we do that, we should be fine for sure" and pulled the trigger a few years early.
Once the mindset sets in of "I can always earn more money," not FIREing becomes silly quickly.
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No, I have never looked at future portfolio growth without new contributions. I'm pretty sure it would just motivate me to quit my job even earlier, and I'm trying to avoid that.
This is basically what happened to me.
Once it was like "this may be enough...but if it isn't, and we go earn some more money to cover our expenses (and maybe save some) and bank all the rental income and portfolio increases while we do that, we should be fine for sure" and pulled the trigger a few years early.
Once the mindset sets in of "I can always earn more money," not FIREing becomes silly quickly.
Hmmmmmm....;)
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Yep. We have a 10 year FIRE plan that involves working part time for 5 years to cover expenses, before considering depending on the the portfolio. Based on our savings rate, return etc, we could stop working in 8 years, execute the same plan (working for 7 years PT) and end up at age 45 with the same numbers... Working less for 2 extra years sounds nice, but returns are not guaranteed, while our contributions should be pretty predictable. We'll probably just play it by ear as we get closer and closer.
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If you can forgive promoting a personal project for a moment, I have a pretty good tool for this exercise: http://portfoliocharts.com/portfolio/hurricane/
Forgiven! That is a really interesting representation of growth potential and I really appreciate you sharing! Any chance of opening that up to more scenario years (prior to 1976)?
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No, I have never looked at future portfolio growth without new contributions. I'm pretty sure it would just motivate me to quit my job even earlier, and I'm trying to avoid that.
This is basically what happened to me.
Once it was like "this may be enough...but if it isn't, and we go earn some more money to cover our expenses (and maybe save some) and bank all the rental income and portfolio increases while we do that, we should be fine for sure" and pulled the trigger a few years early.
Once the mindset sets in of "I can always earn more money," not FIREing becomes silly quickly.
Hmmmmmm....;)
Yeah, that absolutely applies to you! You can always earn more, so not FIREing is silly. (Though you're already way past enough.) ;)
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Yeah, this is an interesting exercise. As you build your 'stache, at some point, early FI becomes inevitable (provided you don't withdrawal the money or otherwise take it out of being invested).
One point to consider with this exercise is that 7% is a very long term real return average. The range of outcomes of a 10 year holding period is between about -1% and +19%. You would have to wait 20 years to be more sure of a decently good outcome (see the figure attached).
However, that said, the market will do what it will do and we don't have any control over it. Keep saving money and you will reach your goal, but the exact timing will be determined by the whims of the finanical markets.
I like this graph a lot, over a 5 year period the risk difference between 50/50 stock/bonds is only 3%, whereas the reward difference is more than twice as much at 7%! I already knew it was better but didn't know for sure that it was so much better over so short of a period.
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If you can forgive promoting a personal project for a moment, I have a pretty good tool for this exercise: http://portfoliocharts.com/portfolio/hurricane/
Forgiven! That is a really interesting representation of growth potential and I really appreciate you sharing! Any chance of opening that up to more scenario years (prior to 1976)?
1972 seems to be the current limit on the (freely available) source data for the widest variety of assets. But I may eventually offer more tools for narrower/longer data sets and am always on the hunt for more data.
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You just inspired me to do such calculation. I used 7% annual growth. I am 40 right now.
If I don't make any additional contributions, I will hit $1 mil at the ripe old age of 72.
If I keep contributing $40K per year as I expect (max 401k, HSA, and IRA plus $10K on top of that) for 11 years, at the age of 51 I will have $1M.
I should add that I will have a lump sum of $67K to drop in to my rollover IRA within next 18 months and I incorporated it into my calculations.