# The Money Mustache Community

## Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: BTDretire on February 23, 2017, 11:39:18 AM

Title: Data to stop the FIRE naysayers
Post by: BTDretire on February 23, 2017, 11:39:18 AM
historically a certain saving for a median income family could FIRE.

To prove that a median income family can save enough to retire early.
I’m looking for someone with the expertise to take the historical median income
and invest 30% of it in the market (S&P, Nasdaq, ?index) and see what it grows
to over 30 yrs, 20 yrs, etc.
I found median income here,
http://www.davemanuel.com/median-household-income.php
Further explaination,
Say, in 1984 the Median income was \$21,100, 30% is \$6,330,
if this amount was invested Jan 1 ,1985, then the growth plus dividends was
added, and the same thing was done every year, how many years before
4% of the equity would equal 70% of median income. (live on 4% rule)
What if you lowered that to a 20% saving rate? 10%?
Can anyone help with that?
Maybe, median income earners can't do it, it would be nice to see the data.

Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 23, 2017, 11:49:36 AM
what do you mean this is as simple as the shockinly simple math post.  save 30% and it takes you 28 years to retire still earlier than most people retire assuming you start at 23 you'd be done by 51

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 23, 2017, 11:51:50 AM
Anyone CAN do it on a median income

you just have to be willing to adjust your level of living.  less income means more years worked or spend less its a pretty simple mathematical system.
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 23, 2017, 12:07:53 PM
what do you mean this is as simple as the shockinly simple math post.  save 30% and it takes you 28 years to retire still earlier than most people retire assuming you start at 23 you'd be done by 51

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

OK, that shows basically shows saving 30% of the median income for 30 years will earn you 30% less than the median income, with a 4% SWR.
MMMs calculator uses 5% after inflation growth rate, I think hisory shows higher than that.
I would still like to see actuall stock market returns and savings % of median income over the last 30 years.
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 23, 2017, 12:11:00 PM
what do you mean this is as simple as the shockinly simple math post.  save 30% and it takes you 28 years to retire still earlier than most people retire assuming you start at 23 you'd be done by 51

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

OK, that shows basically shows saving 30% of the median income for 30 years will earn you 30% less than the median income, with a 4% SWR.
MMMs calculator uses 5% after inflation growth rate, I think hisory shows higher than that.
I would still like to see actuall stock market returns and savings % of median income over the last 30 years.

so do it yourself.
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 23, 2017, 12:28:22 PM
I also see a flaw with extrapolating the shockingly simple math to 30% of the median income.
In 1984 median income was \$21,100, in 94 it was \$31,500 and 04 it was \$53,000.
Looking at it with lower contribitions in the early years, puts you behind several more years.
I would do it myself if I had more knowledge of Excel.
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 23, 2017, 12:43:41 PM
you need more knowledge of math too it sounds like.  the shockingly simple math factors out inflation it doesnt matter what median is today vs 20 years from now you figure everything in today dollars and factor out inflation.  53k would buy 29k worth of stuff in 1984 based on inflation so discressionary spending has increased if you really want to point a finger at something. somone in 1984 could be spending/saving almost 33% of their salary with the CPI adjusted median of 2004.
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 23, 2017, 12:46:07 PM
this is really basic stuff for how FIRE works.

markets avg ~10% over time.  inflation avgs ~ 3% over time.  the shockingly simple math takes this into account and more with the assumed 5% real market returns.

Title: Re: Data to stop the FIRE naysayers
Post by: marty998 on February 23, 2017, 01:19:34 PM
this is really basic stuff for how FIRE works.

markets avg ~10% over time.  inflation avgs ~ 3% over time.  the shockingly simple math takes this into account and more with the assumed 5% real market returns.

SSM doesn't take into account taxes though. Over the 30 year period you're describing there would be multiple different ways to either get slammed with taxes or loopholes to take advantage of.
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 09:35:12 AM
you need more knowledge of math too it sounds like.  the shockingly simple math factors out inflation it doesn't matter what median is today vs 20 years from now you figure everything in today dollars and factor out inflation.  53k would buy 29k worth of stuff in 1984 based on inflation so discretionary spending has increased if you really want to point a finger at something. someone in 1984 could be spending/saving almost 33% of their salary with the CPI adjusted median of 2004.

EDIT, sorry Slow2FIRE, I did my calcs before I saw your post.

OK, I slogged through an OpenOffice calculation.
I used a starting date of 1987 with \$25k of earnings and a 30% of gross savings rate.
I incremented income by the yearly inflation rate using this calculator.
http://www.westegg.com/inflation/
I used 1987 to 2016, ending income was \$55,474.
I checked each year and increased the income by that years inflation rate.
For each year, I used  A=P(1+r/n)^(nt)
to calculate the growth at 5%.
Where;
A = Future Value
P = amount invested each year
r = Interest Rate
n = The number of times that interest is compounded per year.
t = The number of years money is invested.
I then added all the investments and growth for each year with a result of,
\$791,2555 at 4% SWR this is \$31,650.
At the end 2016 my \$25k inflation adjusted was up to \$55,474.
\$55,474 - 30% = \$38,832.
So the 4% SWR will not earn you \$38,832 that you have been living on, But,
1- Your income will probably grow faster than inflation as you gain experience.
2- I think the 5% growth is a little low, for a market return.
4 - I was more than fair adding interest 12 times a year.
4 - This also assumes Zero taxes on savings.
I may do this again using median income which is slightly lower that
the incomes used above.

Looks to me, that if you are a median income earner, and you do everything right,
ER is will not be very early, BUT you will live very well with your stash and SS.

If anyone wants to massage my numbers or check them,
I could send the Open Office file to you, (you might need to tell me how).
Might be easier to start from scratch, it only took about an hour and 15 minutes,
and that was with me searching google to learn how to do certain functions in Open Office.

Title: Re: Data to stop the FIRE naysayers
Post by: JoseS on February 24, 2017, 09:47:56 AM
Who are the naysayers and why do they need to be convinced?

Is it your father-in-law? Just nod, grab another brew and don't bother.
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 12:11:32 PM
Who are the naysayers and why do they need to be convinced?

Is it your father-in-law? Just nod, grab another brew and don't bother.

Well there are many threads about people saying it can't be done,
but the idea was generated by the thread here,

Welcome and General Discussion »
Pay Yourself First is a Selfish Capitalist Ideology

But if you followed what I wrote, it is very difficult for those earning the
median income to retire in less than 30 years. You would need to live on
70% of median income, and then after 30 years, you still may not have all it takes,
unless you want to live on \$30k.
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 24, 2017, 12:17:37 PM
the market has never had a 30 year period with inflation adjusted returns of 5% ... and when you're compounding that for that long it matters.  7% is still low and the worst 30 year period in history.  also where are you pulling the 30% from ... it appears you are trying to support the naysayers with this post by intentionally using pour inputs.
Title: Re: Data to stop the FIRE naysayers
Post by: tarheeldan on February 24, 2017, 12:39:00 PM
Here's a template starting in 1974
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 24, 2017, 01:18:48 PM
yeah so it beats the SSM meaning its even easier.
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 01:44:31 PM
the market has never had a 30 year period with inflation adjusted returns of 5% ... and when you're compounding that for that long it matters.  7% is still low and the worst 30 year period in history.  also where are you pulling the 30% from ... it appears you are trying to support the naysayers with this post by intentionally using pour inputs.

I used the rate MMMs used in his SSM BLOG page.
To quote from the blog,
"Assumptions- You can earn 5% investment returns after inflation during your saving years"
The 30%, I pulled it from the air, it that to high or to low?
I wasn't trying to support anyone's post, you tell me what inputs you think are good and I'll rerun the numbers.
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 01:49:32 PM
Here's a template starting in 1974
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0

Hi tarheeldan,
Did you do this calculation or find it somewhere?
What is "Median Pers Inc 2015 Dollars" and where did you get it.
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 24, 2017, 01:57:52 PM
Here's a template starting in 1974
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0

Hi tarheeldan,
Did you do this calculation or find it somewhere?
What is "Median Pers Inc 2015 Dollars" and where did you get it.

median income in 2015 dollars. i would guess he used the CPI calculator

https://data.bls.gov/cgi-bin/cpicalc.pl
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 24, 2017, 02:11:07 PM
you can even run this in CfireSIM its harder.  but if you made 55775 the median household income in 2015 today.  and you wanted to spend all of that in FIRE but were willing to spend just 70% now and save the rest.  you would have a 96% chance of FIRE lasting 30 years for you after working for 20 years with no social security etc included.

the power of compounding is real ...
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 02:19:19 PM
Here's a template starting in 1974
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0

Hi tarheeldan,
Did you do this calculation or find it somewhere?
What is "Median Pers Inc 2015 Dollars" and where did you get it.

median income in 2015 dollars. i would guess he used the CPI calculator

https://data.bls.gov/cgi-bin/cpicalc.pl

That calculator says \$23,144 of 1974 dollars is equal to \$111,220 in 2015 dollars.
Also the median income in 1974 was \$9,900, inflation adjusted to 2016 is \$48,497,
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 24, 2017, 02:23:13 PM
Here's a template starting in 1974
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0

Hi tarheeldan,
Did you do this calculation or find it somewhere?
What is "Median Pers Inc 2015 Dollars" and where did you get it.

median income in 2015 dollars. i would guess he used the CPI calculator

https://data.bls.gov/cgi-bin/cpicalc.pl

That calculator says \$23,144 of 1974 dollars is equal to \$111,220 in 2015 dollars.
Also the median income in 1974 was \$9,900, inflation adjusted to 2016 is \$48,497,

then do it your self the numbers are all there.  to do it plug in 9900 and see what it says.
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 24, 2017, 02:39:04 PM
if you dont understand this no amount of DATA we provide will help you stop any naysayers.

and at the end of the day you have to want to do this ... if you want to complain you cant then no one can help those people.
Title: Re: Data to stop the FIRE naysayers
Post by: stoaX on February 24, 2017, 02:42:59 PM
Who are the naysayers and why do they need to be convinced?

Is it your father-in-law? Just nod, grab another brew and don't bother.

Well there are many threads about people saying it can't be done,
but the idea was generated by the thread here,

Welcome and General Discussion »
Pay Yourself First is a Selfish Capitalist Ideology

But if you followed what I wrote, it is very difficult for those earning the
median income to retire in less than 30 years. You would need to live on
70% of median income, and then after 30 years, you still may not have all it takes,
unless you want to live on \$30k.

I don't talk to people about ER so I don't hear the naysaying, and probably wouldn't argue with them if I did.  Hence the "nod and don't bother" comment is appropriate.

And regarding the "pay yourself first is a selfish capitalist ideology" naysayer - that kind of person doesn't want to discuss it and doesn't want to hear the math, they just want to make their political statement and signal their virtue.  They are all mouth and no ears.

Finally, it is difficult.  That's why badass mustachians frequently flex their frugal muscles.  After 30 years of saving, living on \$30k may not be that bad in a LCOL area if your house is paid off, you have social security waiting in the wings and healthcare is somehow taken care of (gotta wait a while to see how that aspect of ER is going to play out).
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 03:17:22 PM
Here's a template starting in 1974
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0

Hi tarheeldan,
Did you do this calculation or find it somewhere?
What is "Median Pers Inc 2015 Dollars" and where did you get it.

median income in 2015 dollars. i would guess he used the CPI calculator

https://data.bls.gov/cgi-bin/cpicalc.pl

That calculator says \$23,144 of 1974 dollars is equal to \$111,220 in 2015 dollars.
Also the median income in 1974 was \$9,900, inflation adjusted to 2016 is \$48,497,

then do it your self the numbers are all there.  to do it plug in 9900 and see what it says.
Apparently the numbers are not all there, that's why I ask tarheeldan some questions.
Maybe he has different data than I found at, http://www.davemanuel.com/median-household-income.php
and we need to reconcile that problem first.
I probably don't have a great understanding, but I don't know why others want to use inflation adjusted dollars.
Ex:
Let's use Median Income starting in 1986, 30% of \$23,457 = \$7,037. Putting this into an S&P calculator
gives me \$153,901 in 2016.
If I do that for 1987, 30% of median income, \$24,164 = \$7,390, that grows to \$135,763 in 2016.
Now if I do this for the next 28 years and add it all up, that is the amount I will have in savings.
(not subtracting taxes and fees) The savings are worth whatever 4% will buy today.
Is there a problem with my method?
Data page and calculator page.
http://www.davemanuel.com/median-household-income.php
http://www.moneychimp.com/features/market_cagr.htm
Title: Re: Data to stop the FIRE naysayers
Post by: tarheeldan on February 24, 2017, 03:23:26 PM
Sure, you can do everything in nominal terms too. I don't understand what the big issue is.
Title: Re: Data to stop the FIRE naysayers
Post by: farmerj on February 24, 2017, 03:41:56 PM
Past performance, future results, though.

Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 03:57:46 PM
Past performance, future results, though.

Ya, is it time to invest in Japan? I did hear some talking heads discussing it a few days ago.
I'm just curious to actually run some numbers for median income people investing over the last
30, 20 and 10 years and it's getting a little wild. :-)
Fully aware back testing does not guarantee future returns.
But it's fun!
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 24, 2017, 04:00:13 PM
Sure, you can do everything in nominal terms too. I don't understand what the big issue is.
Hi tarheeldan,
I don't think there is a big issue, although people seemed to get a little excited when
I posted some numbers that said it might not be easy as a median income earner to reach FIRE.
Now let's clarify some things.
In your Historical Calc.xlsx, you show 'Median Pers Inc 2015 Dollars'  (what does that mean?)
In 1974 that shows \$23,134 and in 2016 it shows \$30,240.
I don't understand those numbers, Median income in 1974 was \$9,990 inflated to 2016 dollars is \$48,634
Median income in 2016 is \$55,xxx, Where did you get the numbers for Median Pers Inc 2015 Dollars. And again what does it stand for.
Title: Re: Data to stop the FIRE naysayers
Post by: boarder42 on February 24, 2017, 04:51:08 PM
Past performance, future results, though.

So your point is what. Save until you have so much money. You don't know what to do with it. Past performance is what dictates the entire FIRE 4% swr.

So feel free to be as pessimistic as you want I'm not working extra just because
Title: Re: Data to stop the FIRE naysayers
Post by: tarheeldan on February 24, 2017, 07:25:59 PM
Sure, you can do everything in nominal terms too. I don't understand what the big issue is.
Hi tarheeldan,
I don't think there is a big issue, although people seemed to get a little excited when
I posted some numbers that said it might not be easy as a median income earner to reach FIRE.
Now let's clarify some things.
In your Historical Calc.xlsx, you show 'Median Pers Inc 2015 Dollars'  (what does that mean?)
In 1974 that shows \$23,134 and in 2016 it shows \$30,240.
I don't understand those numbers, Median income in 1974 was \$9,990 inflated to 2016 dollars is \$48,634
Median income in 2016 is \$55,xxx, Where did you get the numbers for Median Pers Inc 2015 Dollars. And again what does it stand for.

Oh. But doing the math with historical values is irrelevant then.

Either you agree that a. It is possible to live on 70% or 65% of the median household income and b. That 25x expenses (4% rule) is sufficient, or not.

b. is based on empirical study, so one can just refer to those works.

a. Is probably where you are trying to make a point, since there is some common minimum subsistence spending and the higher the income, the easier it is then to save a higher percentage of income. But, I think 70% of the median is pretty darn safe.

On the data:
I pulled up real median personal (not household, which you were looking at) income by year, I think from the St. Louis Federal Reserve -  it's a great site for economic indicators. It's in 2015 dollars so it makes no sense to apply yet another inflation adjustment to the early numbers in the series, which led to your confusion - they are already adjusted for inflation so we can compare them as they stand. Hope that clears it up!

Edited to add: Maybe you could look at federal poverty level data for a. ?
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 25, 2017, 06:17:12 AM
Sure, you can do everything in nominal terms too. I don't understand what the big issue is.
Hi tarheeldan,
I don't think there is a big issue, although people seemed to get a little excited when
I posted some numbers that said it might not be easy as a median income earner to reach FIRE.
Now let's clarify some things.
In your Historical Calc.xlsx, you show 'Median Pers Inc 2015 Dollars'  (what does that mean?)
In 1974 that shows \$23,134 and in 2016 it shows \$30,240.
I don't understand those numbers, Median income in 1974 was \$9,990 inflated to 2016 dollars is \$48,634
Median income in 2016 is \$55,xxx, Where did you get the numbers for Median Pers Inc 2015 Dollars. And again what does it stand for.
Quote
Oh. But doing the math with historical values is irrelevant then.
I don't see in my remarks what that is in response to, but historical figures don't
guarantee the future to be the same, though we hope and expect it to be.
Quote
Either you agree that a. It is possible to live on 70% or 65% of the median household income and b. That 25x expenses (4% rule) is sufficient, or not.
I agree it is possible to live on 70% of the median income, 51.5% of families are doing it.
I agree that 4% rule is a reasonable rule.
Quote
b. is based on empirical study, so one can just refer to those works.

a. Is probably where you are trying to make a point, since there is some common minimum subsistence spending and the higher the income, the easier it is then to save a higher percentage of income. But, I think 70% of the median is pretty darn safe.

On the data:
I pulled up real median personal (not household, which you were looking at) income by year, I think from the St. Louis Federal Reserve -  it's a great site for economic indicators. It's in 2015 dollars so it makes no sense to apply yet another inflation adjustment to the early numbers in the series, which led to your confusion - they are already adjusted for inflation so we can compare them as they stand. Hope that clears it up!
Not really clear, I don't know how you apply historical stock market returns to numbers inflated to 2015.
That's OK, I have the data for median income for all those years and can grow them at stock market rates to see where they get you as an investor.

Quote
Edited to add: Maybe you could look at federal poverty level data for a. ?
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 25, 2017, 07:24:47 AM
I pulled median income from the US Census Bureau Data.
I used >http://www.moneychimp.com/features/market_cagr.htm< to calculate an investment in the S&P.
It would take 25 years of saving and investing to retire on 70% of median income, which was \$39,561 in 2015.
Assumes you started saving 30% in 1991 and stopped in 2015.
I was generous in that I put the savings in at the beginning of each year. (just easier)
You would need to shield all the 30% and any growth from any taxes.
Fees were not subtracted.

Title: Re: Data to stop the FIRE naysayers
Post by: tarheeldan on February 25, 2017, 11:01:47 AM
The 25 years looks right. Here's the same thing but using the annual growth rates instead of CAGR, which I find much more intuitive. You can also change the savings rate in cell S2 and it will update and recaculate how many years to FIRE in row 35 for each starting year from 1984-1990.
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0
(I just updated the same file)
Title: Re: Data to stop the FIRE naysayers
Post by: BTDretire on February 25, 2017, 11:21:38 AM
The 25 years looks right. Here's the same thing but using the annual growth rates instead of CAGR, which I find much more intuitive. You can also change the savings rate in cell S2 and it will update and recaculate how many years to FIRE in row 35 for each starting year from 1984-1990.
https://www.dropbox.com/s/c6p8enew7mgr7r8/Historical%20Calc.xlsx?dl=0
(I just updated the same file)

I can find something else to do now :-)
The numbers show even those making the median income can save \$1,000,000
before retiring. If they started early at 20 years old they could retire at 45 yrs old.
We have provided data to support what MMM said about, "The Shockingly Simple Math
behind Early Retirement".