Author Topic: Modeling for FIRE - 401K Assumptions  (Read 1193 times)


  • 5 O'Clock Shadow
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Modeling for FIRE - 401K Assumptions
« on: August 25, 2017, 03:54:11 PM »
Hello MMM community!

First of all, this is my first forum post - I discovered MMM several weeks ago and it was a revelation. The concept of maximizing your savings rate hit me like a brick - DUH! and now I'm seriously excited to start building my 'stash.

If this question has been answered elsewhere on the forum, I apologize and would appreciate a link.

I spent some time building a Google sheets model that will allow me to effectively track my spending. I'm now trying to build a longer term model that can let me play with potential FIRE timelines based on income, savings rate, 401k etc.

In this case, my question is: are there any good rules of thumb for modeling 401K growth? I contribute 5% of my salary, and my employer provides 5% match. Should I then assume a 5% return? In any given year, is it accurate to simply take:

 (Current 401K * 1.05) + ((monthly deposit * 12)*1.05) ?

Or does that not take into account the fact that the January monthly deposit has been providing returns for 11 months by year end, and I should factor that in?

Greatly appreciate any feedback. So happy I found this community!


  • Magnum Stache
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Re: Modeling for FIRE - 401K Assumptions
« Reply #1 on: August 25, 2017, 04:10:22 PM »
Any long-term projection is an estimate - so no need to be super precise.

With that in mind, I personally like to use a 5% real return as my assumption, and then just apply it annually.  Your formula sort of does that, but I'd personally do:

(current 401K * 1.05) + (monthly deposit * 12)

Just to err even further on the side of caution.  If you really want to estimate the earnings on contributions in the year the contribution is made,

(current 401K * 1.05) + (monthly deposit * 12 * 1.025)

is more appropriate, because on average your monthly contributions are only there for an average of 6 months in the 1st year, so they would only get half the growth of money that was already in the plan at the beginning of the year.


  • Senior Mustachian
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Re: Modeling for FIRE - 401K Assumptions
« Reply #2 on: August 25, 2017, 04:18:27 PM »
As dandarc noted, the difference between whatever (e.g., 5%) you assume for growth vs. what will actually happen is likely much greater than any difference in when contributions are made during a year.

If you would like to learn a little more about financial functions such as Future Value (the thing you are estimating here), Time value of money - Wikipedia may be a decent place to start.


  • 5 O'Clock Shadow
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Re: Modeling for FIRE - 401K Assumptions
« Reply #3 on: August 25, 2017, 05:36:14 PM »
Thanks so much for your replies. I'll stick with the conservative, simpler approach. Thanks again!