Save 50% question

[CrazyIT]

I have been just browsing this site for a few months now but have a question regarding saving

Seems everywhere I read there is a chart of formula for retiring early:

Save 40% and retire in 18 years
Save 50% and retire in 14 years
Save 60% and retire in 11 years

I get the formula but I need help with the calculations.

Let’s say this year I made $112,000 at my day job.

• Contributed $24,000 in my 401K  (over 50)
  About $32,000 Taxes (SS, Fica, fed, state)
  After all that my take home was around  $56,000
  For argument sake let’s say I have $4,000 more in the bank then I did the prior year.
  So I saved $28K --------- 4K in savings and 24K in 401K

Here’s where I am confused:
1:  I took home $56K and saved $28K therefore I saved 50%  (nice! I’ll retire in 14 years,,,,, but wait)
2:   I made $112,000 and saved $28K  therefore I saved  25% (yikes 25 years to retire!)

What the heck!  Lol

Let’s get some clarification on this!   I can’t be the only one??

[VoteCthulu]

You need to read the fine print on whatever chart you're using. The one on this site: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
looks a bit different than yours, and says 17 years saving 50% of net (after tax) income. The one below may well be referencing gross income, I'm not sure where it came from.

Other factors include the assumed CAGR of your investment returns and the withdrawal rates. In the end, take these charts as the generic rules of thumb they are instead of a hard rule everyone can depend on without any customization.

[sirdoug007]

The math is based on after-tax amounts.  MMM outlines the process here: http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

So in your case your "take home pay" would be $112k - $32k = $80k.

Your savings rate is then $28k/$80k = 35%

35% savings rate at 7% real return yields a time to retirement of about 21 years.  If the yield is only 5% real then 24 years.

(http://networthify.com/calculator/earlyretirement?income=80000&initialBalance=0&expenses=52000&annualPct=7&withdrawalRate=4)

[Miss Piggy]

I think I understand your question.

There's an inherent assumption that the more you make, the more "inflated" your lifestyle, so people who make more money will "need" more money to live on in retirement. People who make less but save a comparable percentage to the higher money-makers live a simpler lifestyle and therefore need less money to live on in retirement.

Does that help?

[Seppia]

Most importantly, your savings rate is completely irrelevant.
What really matters is how much you saved compared to what your yearly expenses will be in "retirement".

If you make $240.000 net in NYC and save $80.000 per year your savings rate is 33%

But if you plan to spend $20,000 per year in retirement because you want to move in a hut in the Appalachian region, you only need to save $500,000 (if you blindly follow the 4% withdrawal rate).

In this scenario you would need to work 5 years assuming zero returns during the timeframe.

[kpd905]

I would say your savings right is probably 24,000/(112,000-32,000)= 30%

Whether you include the extra $4,000 of savings depends what that is for.  If it will just be spend in the relative short term like most people do with "savings" (vacation funds, luxury items) than I would probably not consider that in my savings rate.  It is just deferring spending for a few months.

[Classical_Liberal]

Sirdoug007 and Seppia are correct.  If you live in the US and are over 50, don't forget your SS.  It's oft-ignored on these forums (treated as a safty margin http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/) since we tend to deal with very early retirement.  A person of your age who has worked for many years with high income will get a substantial benefit.  Right now you are spending less than $4500 a month, your SS could be a big chunk of that. 

I plan on getting 70% of my estimated benefit, as this is a "worst case" prediction based on current funding.  I also like to plan on an extra 10K a year in medical expenses after 65 (medicare).  These are personal preferences only.

https://www.ssa.gov/retire/estimator.html  SS estimator
http://www.cfiresim.com/  Excellent historical retirement planner
https://portfoliocharts.com/calculators/  Planner with different options and more advanced portfolios, data only from 1972

[sol]

I agree that you're at 30 to 35%, depending on whether the $4k in the bank is truly savings, or just short term buffer. 

The 50% target means that you save as much as you spend.  It looks to me like you spend $56k and save $24k per year.  Thats 30%.

But it gets a little worse than that.  How much does your employer pay for health insurance on your behalf?  Will you have to assume that cost in retirement?  My calculations are complicated by the fact that my retirement expenses will be notably higher than my current expenses, because I will lose some employer benefits that are not included in my salary.

[CrazyIT]

Thanks all for the replies.

I really like this link

(http://networthify.com/calculator/earlyretirement?income=80000&initialBalance=0&expenses=52000&annualPct=7&withdrawalRate=4)

That is very helpful.  Like with everyone I have a unique financial situation so its helpful to look at different scenarios.

Fortunately I have been able to save a good chunk an have the count down to 4.5 years.

[Retire-Canada]

Fortunately I have been able to save a good chunk an have the count down to 4.5 years.

That sort of time goal is useful to give you a general sense of what to expect, but your actual FIRE date could vary quite a bit based on the performance of your investments. So stay flexible and update your calculations every year. Don't get too disappointed if it's actually 5.5yrs or 6yrs.

[robartsd]

For retirement projection savings rate, I would only count money put into investments (preferably tax advantaged) as "savings". I would not include any amount I happened to accumulate in an everyday "savings" account. Put that $4k into an  IRA to get your 35% after tax savings rate.

[CrazyIT]

Well this is the post that started it all for me here at the MMM forum.

It’s a cold morning in January, I don’t post often and haven’t visited this site in a while but here’s my update.
I started using Personal Capital in Dec 2016 so I have been able to track my income and expenses since 2017-Present

Thought I would give a 4 year update:
2017: Income 127K after tax,  Expenses 57K (bought 9K car for cash), Cash flow 70K plus 25K into 401K
2018: Income 130K after tax,  Expenses 47K ,  Cash flow 83K plus 25K into 401K
2019: Income 130K after tax, Expenses 43K,  Cash flow 87K plus 25K into 401K
Retired March 2020 at age 55(literally just as the world was shutting down from Covid)
2020:  Income 70K after tax, Expenses 38K Cash flow 32K plus 25K into 401K

I own 3 rental units and 2 investment properties that cover most all of my expected expenses now.  401K and IRA can continue to grow.  My former company supported the “Rule of 55” so I have that money available if needed.  ACA is affordable with my expected income in 2021.

I can’t even begin to express how much this site had/has helped me over those years.  The knowledge I gained from reading other posts has been incredible.  I am very thankful and grateful for this community of like-minded people.
I have not had a bad retired day yet.

Good luck to everyone else who is on this FIRE journey too!

[HPstache]

Well this is the post that started it all for me here at the MMM forum.

It’s a cold morning in January, I don’t post often and haven’t visited this site in a while but here’s my update.
I started using Personal Capital in Dec 2016 so I have been able to track my income and expenses since 2017-Present

Thought I would give a 4 year update:
2017: Income 127K after tax,  Expenses 57K (bought 9K car for cash), Cash flow 70K plus 25K into 401K
2018: Income 130K after tax,  Expenses 47K ,  Cash flow 83K plus 25K into 401K
2019: Income 130K after tax, Expenses 43K,  Cash flow 87K plus 25K into 401K
Retired March 2020 at age 55(literally just as the world was shutting down from Covid)
2020:  Income 70K after tax, Expenses 38K Cash flow 32K plus 25K into 401K

I own 3 rental units and 2 investment properties that cover most all of my expected expenses now.  401K and IRA can continue to grow.  My former company supported the “Rule of 55” so I have that money available if needed.  ACA is affordable with my expected income in 2021.

I can’t even begin to express how much this site had/has helped me over those years.  The knowledge I gained from reading other posts has been incredible.  I am very thankful and grateful for this community of like-minded people.
I have not had a bad retired day yet.

Good luck to everyone else who is on this FIRE journey too!

Amazing 4 year update!  Nice work!

[Dicey]

There is nothing I love more on this site than an update with a success story. Although I did get a small thrill seeing @sol's name [He's back!] before I realized it was a necropost.

Congratulations! Any time you want to flesh out the story of your journey, we're all ears!

[ardrum]

Congrats!  I love these update threads.

[ysette9]

Nicely done. One of the best necroposts I’ve seen. :)

And if you FIREd just as Covid shutdowns were happening then we are twinsies. My last day of work was lucky Friday the 13th of March, 2020.

[Adventine]

Wow, amazing work! Thank you for updating us.

[minority_finance_mo]

WOW, you are an inspiration, CrazyIT! The progress you've made in less than four years (from thinking you may have to work 15-25 years to retire, to now actually being retired) boggles the mind. Would love to read about how you did that if you find you have the time to share. Way to go!