### Author Topic: Is a 10-year plan a pipe dream?  (Read 6035 times)

• Posts: 14
• Age: 36
• Location: Iowa
• Lip Broom
##### Is a 10-year plan a pipe dream?
« on: August 13, 2014, 09:01:45 AM »
Dear Mustachians,

How can it be done?  I desperately want a 10-year plan, and we are fortunate to have a higher income than most, but I can't make the numbers add up.

Much thought could be given to expenses and saving, but even when focusing on the much simpler income side of things, I'm at a loss.

Our monthly (take home) income is \$5,338.24, a lavish amount to some, I’m sure.

I have a wife and three sons.  I'd like them to live a happy, healthy life.  To accomplish this, I'd like us to have \$30,000 per year, not far from MMM's \$26,885 figure from his early “Exposed!...” article.

At the 4% rate of withdrawal, I calculate that would require us to have \$30,000/.04 = \$750,000 in savings.

Using the suggested 7% rate of return and my ten year time table, I used Microsoft Excel's What-If Analysis to calculate that I would need to save (and invest) \$4,333.14 every month for the next ten years.

\$5,338.24 - \$4,333.14 leaves us with \$1005.10 per month for our expenses.  I don't understand how my family of five can possibly live on that amount, even if we had no unnecessary expenses.  Unfortunately, due to past mistakes, we still carry the remnants of a consumerist lifestyle.  Not very Mustachian, I know.

If we increase our badassity ten fold, I believe we can escape our debts, pay off our mortgage, student loans, and (*groan*) car payments in ten years.  Then, if my wife returns to work, maybe our new-found massive dual income will allow us to accumulate the required savings in another ten years.

But Mustachians, this is a 20-year plan full of skimping and struggling.  Is it really better than the usual 30-year plan that could be achieved while also living a life of plenty?

Thanks so much for your time and valuable insight.

#### Cromacster

• Handlebar Stache
• Posts: 1696
• Location: Minnesnowta
##### Re: Is a 10-year plan a pipe dream?
« Reply #1 on: August 13, 2014, 09:16:32 AM »
Well if everything remains the same, yes it sounds like a pipe dream.  To save that amount in 10 years starting from 0 it would take 4,333 per month @7%.

A better way to go about it might be to create shorter plans.  Student loans, car payments, and other consumer debt should be eliminated ASAP.  I'd be less worried about your mortgage...depending on the amount and interest rate.  The whole idea of FIRE is more than just saving money.  It needs to become a way of life.  A life of not wasting your money on things society tells you that you need.

You don't provide much info to go off of.  If you want better advice consider a case study.

#### tmd012

• Bristles
• Posts: 323
##### Re: Is a 10-year plan a pipe dream?
« Reply #2 on: August 13, 2014, 09:17:59 AM »
There are many variables-  we have a 10 year plan but for ours to really work it involves cashing in on our home in a higher COL area (Chicago) in a very desirable neighborhood and school district and moving to our hometown with a lower COL area (central IL) to live closer to family.

I think if we time it right we could end up living mortgage free in central IL and pocket about \$300k to pad our stash (stache?)

So that along with us living with a 50-60% savings rate over the next 10 years will hopefully get us there.

Although we love our area now and I could totally see us in 10 years with a paid off house and FI with kids in school and just choosing to stay put.

#### hybrid

• Handlebar Stache
• Posts: 1686
• Age: 54
• Location: Richmond, Virginia
• A hybrid of MMM and thoughtful consumer.
##### Re: Is a 10-year plan a pipe dream?
« Reply #3 on: August 13, 2014, 09:29:14 AM »
In your situation, yes, a 10 year plan is a pipe dream. You need to earn far more than you do right now to pull off retiring in 10 years. Recall, the MMM family introduced their only child after the money had been put away and not before.

I would ditch the plan and modify it to a goal of retiring earlier. There are going to be so many unforeseen circumstances that come up between now and that far off retirement date that the best thing you can do for yourself and your family in the short term is point yourself in the right financial direction. Recall a lot of folks guesstimate their savings based on a 7% return over time. If that time period was 2000-2009, they would have been sorely disappointed indeed.

If it helps, and I've used this example before, here is what I mean between the difference in a plan and a goal. We have a plan for the missus to retire on October 1 2016 (barring unforeseen circumstances, a very real possibility). If there are no major bumps in the road along the way for the next 26 months we are prepared to set a hard date. I am younger than the missus and my goal is to retire in twelve years. That number could be significantly smaller or larger depending on a huge number of variables, the key being that there will surely be far more variables that come into play over twelve years than two. For you the time frame is even longer, ergo a greater likelihood of significant variables.

Work toward your goal, and the rest takes care of itself eventually.  Good luck, and happy saving.

#### dragoncar

• Walrus Stache
• Posts: 9564
• Registered member
##### Re: Is a 10-year plan a pipe dream?
« Reply #4 on: August 13, 2014, 09:37:27 AM »
You need to earn far more than you do right now to pull off retiring in 10 years.

Or spend less.

#### JoyBlogette

• Stubble
• Posts: 242
##### Re: Is a 10-year plan a pipe dream?
« Reply #5 on: August 13, 2014, 09:48:11 AM »
Based on this post: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

You need to be saving 65% of your income to retire in 10 years.  So if you take home \$5338, you need to save \$3470 per month and live on \$1868.  This will provide \$1868 per month in retirement or an annual spending of \$22,420.

If you want to spend more than this now and/or in retirement you need to work longer or earn more.

#### Gone Fishing

• Magnum Stache
• Posts: 2842
• So Close went fishing on April 1, 2016
##### Re: Is a 10-year plan a pipe dream?
« Reply #6 on: August 13, 2014, 10:05:52 AM »
One reason retirement planning is so difficult for so many people is that small changes in the variables make a huge difference in the timelines we are talking about 10-20-30-40 years.  Try running your model again with a 8% return (which is not outlandish at all) and see what a difference it makes.   Over a ER plan time frame, the numbers will swing significantly as you get raises, the market swings, layoffs ect.  Setting a plan in stone right now can set you for failure as you will be discouraged with every set back.

The most important thing is just to get started as a journey of a thousand miles starts with one step. And believe me it felt a lot longer than a thousand miles at times! Knock off the easy targets first: cable, a gashog of a car, lattes ect.  They probably won't even hurt, and even if they do you'll probably get used to it in short order.  Try posting a list of your expenses and letting members deliver much needed face punches.  You will find your pain point.  Once you get there, come back for more help.

Our plan has changed so many times I can not count.  Do you remember back in the 90's during the tech boom when it was suggested that you could have an 8% safe withdrawl rate!?  Yep, my first plan was based on a 8% SWR, how'd that work out?  It didn't, but I just kept saving and I'm staring ER in the face 2 years EARLIER than my orginal projection, thanks to some nice career advances and a market that gave me the opportunity of a lifetime (also known as a great recession).

Just remember, even the 30 year plan is not that easy, as it still requires a significant saving rate.  It is up to you to say if it is worth it.

#### The Mobile Mustachian

• Posts: 65
##### Re: Is a 10-year plan a pipe dream?
« Reply #7 on: August 13, 2014, 10:27:35 AM »
There are many variations of the plan too - you are in control. For example, you could target 10 years as the point that 70% of your savings goals are met at which you start working part-time.

#### seattlecyclone

• Walrus Stache
• Posts: 6005
• Age: 36
• Location: Seattle, WA
##### Re: Is a 10-year plan a pipe dream?
« Reply #8 on: August 13, 2014, 11:39:16 AM »
Based on this post: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

You need to be saving 65% of your income to retire in 10 years.  So if you take home \$5338, you need to save \$3470 per month and live on \$1868.  This will provide \$1868 per month in retirement or an annual spending of \$22,420.

If you want to spend more than this now and/or in retirement you need to work longer or earn more.

The shockingly simple math post is a great starting point. Remember that it gives you a ballpark estimate of how long it will take you to save up enough to retire with the same spending level as when you're saving and it assumes you're starting at zero. In your case you have some debt, so you need to estimate how long it will take to get yourself to zero net worth and start the clock from there based on your expected savings rate at the time.

#### MustacheNY

• Posts: 30
##### Re: Is a 10-year plan a pipe dream?
« Reply #9 on: August 13, 2014, 12:32:45 PM »
One thing to keep in mind is that your income, hopefully, will not stay stagnant over the next ten years.  Therefore, you should also factor into your calculations what you think your income will be over the next ten years.  It is highly likely that even if you are not saving the full 4000+ a month today, if you are able to make some current expense improvements, and factor in salary raises, that you can get closer to that 750,000 then you think right now.  You did not mention what your actual expenses and budget are like, but if they are around that \$25,000 that you mentioned, and factoring in Income growth of 5% a year and Expense growth of 2% a year, and 7% investment returns you will end up at over 700,000 by year 10.  See diagram below.  If your current expenses are \$3000 a month you will still end up with over \$500,000.  You also didn't mention what your current debts are so you will have to factor that into the equation as well.  In summary, if you are aggressive in reducing and keeping your expenses down, and keep working on increasing the income side of the equation, you are well positioned to accomplish your goals in 10-15 years.  Also, if your wife starts to work part-time while the kids are in school, you could also boost the income side of the equation and put all additional income towards debt and/or savings.

Income      Expense       Monthly   Annual    Cumulative
Savings     Savings    Savings

Year 1    5,300     2,083     3,217     38,600     38,600
Year 2    5,565     2,125     3,440     41,280     82,582
Year 3    5,843     2,168     3,676     44,109     132,472
Year 4    6,135     2,211     3,925     47,095     188,840
Year 5    6,442     2,255     4,187     50,245     252,304
Year 6    6,764     2,300     4,464     53,569     323,534
Year 7    7,103     2,346     4,756     57,076     403,258
Year 8    7,458     2,393     5,065     60,774     492,260
Year 9    7,831     2,441     5,390     64,675     591,393
Year 10    8,222     2,490     5,732     68,787     701,578

• Posts: 14
• Age: 36
• Location: Iowa
• Lip Broom
##### Re: Is a 10-year plan a pipe dream?
« Reply #10 on: August 13, 2014, 12:40:54 PM »
Thanks, everyone, for the advice.  I'm surprised at the number of comments in such a short time.  I really enjoy hearing your stories and input.

I guess my plans are to just get a handle on things, and just sort of "do the next right thing" at every turn I can.  That's a good point about the income increases.  I was ignoring them (and tax returns, and my yearly bonus, too, somehow) in hopes of keeping my plans grounded in reality, but there's a fine line between staying grounded and selling yourself short.  I guess it's time to pull all the information together and make a case study.

#### Kaspian

• Handlebar Stache
• Posts: 1534
##### Re: Is a 10-year plan a pipe dream?
« Reply #11 on: August 13, 2014, 02:07:00 PM »
\$750K is my magic number as well.  For a result of \$30K a year.  At that point I can pretty much give the finger to my pension or trod along an extra 2 years and get an early one.  Is your stache (currently) starting out at 0?

I use the following simple calculator:  http://networthify.com/calculator/earlyretirement

I'm sure it's not dead-on 100% accurate, but close enough for my liking.  (And I'm a bit of an addict--checking it monthly.)  I've also read a lot of documentation which says 3.8% is probably the ideal planned withdrawal rate.

I think 10 years is a bit of a pipe dream for an annual \$30K.  Unless you up your savings rate somewhere near 65%+.

#### Thegoblinchief

• Guest
##### Re: Is a 10-year plan a pipe dream?
« Reply #12 on: August 13, 2014, 03:14:43 PM »
The Alchemist and I are at approximately \$0 NW and are targeting 10 years out, but our (for us, quite lavish) retirement budget is more like \$25K. We will see how it goes, but we've made amazing progress so far this year (gain of \$21,000 NW on \$27,000 net income).

We're also a family of 5 with debt baggage.

#### Helvegen

• Pencil Stache
• Posts: 569
• Location: PNW
##### Re: Is a 10-year plan a pipe dream?
« Reply #13 on: August 13, 2014, 04:51:35 PM »
There are many variations of the plan too - you are in control. For example, you could target 10 years as the point that 70% of your savings goals are met at which you start working part-time.

This is basically what I am doing, except my target date is 3-5 years out.

#### swashbucklinstache

• Bristles
• Posts: 406
• Location: Midwest U.S.
##### Re: Is a 10-year plan a pipe dream?
« Reply #14 on: August 13, 2014, 06:59:00 PM »
I think "doing the next right thing" is absolutely the right next step. As others have alluded to, though as x% (7% quote above) might be the long term average returns, nothing is guaranteed about these next 10 years in particular. It's not like you have to say "I will absolutely retire on this exact date 12 years in the future," and stick with that no matter what happens. Also think of it this way, if you create a 10 or 15 year plan via reduced expenses and you don't get the 7% return in your plans for < 15 years to retirement, don't get too down. y% real returns, y < x, might make a 15 year retirement plan take 20 years, but if you never changed your lifestyle your 30 year plan just turned into a 40 year plan, or more likely much longer than that. I say more likely because a shorter retirement plan is going to be more based on your contributions and reduced expenses than investment returns by construction, while in a longer plan you'd be counting on investment returns more heavily. Would you rather be 10 years from today after (x+n)%+ annual returns saying I wish I spent an extra z% each year, or 50+ years from now saying I wish I spent w% less? Even if you end up with lower investment returns after retiring or something, if your expense are only \$30,000 a part time job making even half that or less gives you a huge safety net.

And there is no time like the present - nothing new to say here but to reiterate that investing more now gives your money more time to compound.

EDIT:
1. I used a lot of variables.
2. TL;DR - save yo money, is good.
« Last Edit: August 13, 2014, 07:12:26 PM by swashbucklinstache »