Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Compounding - Saving early then stopping
Old 02-21-2007, 12:52 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2007
Posts: 71
Compounding - Saving early then stopping

Question for you...Have any of you considered (or actually done it) saving early in your career, then letting compounding take over?

I'm considering getting out of engineering to follow a path that pays "a lot less" money (like 60% less). I think that I can make ends meet on a month to month basis but I know I won't be able to save much more fo retirement.

I've been saving for a long time now and I'm thinking that if my current retrirement savings balance continues to compound at a market rate (say 8%) for another ten years, I'll be okay, even without additional contributions.

Have any of you done something similar? Any advice?

thanks,
cataman
__________________

__________________
emi guy is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Compounding - Saving early then stopping
Old 02-21-2007, 12:56 PM   #2
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Compounding - Saving early then stopping

Quote:
Originally Posted by CATAMAN
Question for you...Have any of you considered (or actually done it) saving early in your career, then letting compounding take over?
Yes. For many of us, that's the definition of early retirement.

Have you run FIREcalc? Look on the advanced/options page, and you'll find a place to tell it when you plan to start your retirement.
__________________

__________________
wabmester is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 12:58 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Nov 2005
Location: North of Montana
Posts: 2,753
Re: Compounding - Saving early then stopping

Quote:
Originally Posted by CATAMAN
if my current retrirement savings balance continues to compound at a market rate (say 8%) for another ten years, I'll be okay, even without additional contributions.

Have any of you done something similar? Any advice?

thanks,
cataman
Works great if you're < 30, a bit of a problem if you're 57.
__________________
There are two kinds of people in the world: those who can extrapolate conclusions from insufficient data and ..
kumquat is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 12:59 PM   #4
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Re: Compounding - Saving early then stopping

Cataman:

I have not done what you suggest, however I have considered it.

I could cut back all of my savings now and let it compound and I'll be just fine. There are two issues with this approach though:

1) Once you get into a saving stride it is kind of hard to break (believe it or not)

2) I can't help but think that if the markets take a long break (ie big drop for a long time) that I'd be better off saving more money now. So I continue my saving ways.

__________________
MasterBlaster is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 01:11 PM   #5
Recycles dryer sheets
 
Join Date: Feb 2007
Posts: 71
Re: Compounding - Saving early then stopping

Quote:
Originally Posted by kumquat
Works great if you're < 30, a bit of a problem if you're 57.
Good point. I assume you are referring to having enough time to weather a down market? I was hoping that I could retire ten years from now, after working at a job that pays less between now and then. As WAB mentioned, I guess that "is" early retirement for some.
__________________
emi guy is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 01:32 PM   #6
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: Compounding - Saving early then stopping

I think the point is that the first invested money is the most valuable......esp. the money before 30 or 35ish....and allowing compounding to really work....some folks here post about saving latter in life and it is a lot harder since they have to put more money in....

I would suggest tracking expenses to know what you really need to live on....If you cut back some, you probably will still find some to invest with the pay downgrade...
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 01:42 PM   #7
Full time employment: Posting here.
Sandy's Avatar
 
Join Date: Dec 2006
Location: Florida
Posts: 855
Re: Compounding - Saving early then stopping

you may also find that after a lower salary start, as your income increases, you can start to save again; maybe not the same $$, but a reasonable %. Afterall, if you stay in the new profession for any length of time, there should be some increase in compensation.
__________________
I would not have anyone adopt my mode of living...but I would have each one be very careful to find out and pursue his own way, and not his father's or his mother's or his neighbor's instead. Thoreau, Walden
Sandy is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 01:44 PM   #8
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 197
Re: Compounding - Saving early then stopping

This is basically my parents strategy. My dad took about an 80% pay cut after leaving Mega corp 6 months ago and taking a part-time job at 50. My mom also went from sahm to a part-time job. This income covers most expenses. While they are earning a lot less they are not saving anything else towards retirement that I know of besides contributing 9k to Roths from money received from the sale of the house when we moved.
I think they plan on doing this for probably 5-10 years depending on what the market does because I think they need the 401k to increase by another 40% so hopefully the market will be kind.

Although my dad might have to work a few more years than he would have if he stayed at Megacorp, I don't think he regrets his decision. He is much happier, less stressed, and enjoying more time away from work.
__________________
RedHawk is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 01:45 PM   #9
Thinks s/he gets paid by the post
Sheryl's Avatar
 
Join Date: Apr 2004
Posts: 1,459
Re: Compounding - Saving early then stopping

Not exactly compounding of interest, but sort of similar: Thanks to my dad's encouragement and support, about 12-13 years ago I put a relatively small amount of money into Fidelity's Low Priced Stock (FLPSX) and Contra Fund (FCNTX). He made it a game, for each of us to pick a fund and see whose did better. We just left the money there, and it is now a relatively large amount.

It was very educational.
__________________
Sheryl is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 09:49 PM   #10
Recycles dryer sheets
 
Join Date: Jun 2005
Posts: 301
Re: Compounding - Saving early then stopping

I haven't exactly done it in that I'm 43 and still an engineer money-whore. But I think if I stopped contributing today and just let it ride for another 10 years I'd probably be fine.

What I wanted to say though, is if you are single and don't have to support anyone else, and this less-money route would be more soul-satisfying, then there's no better time to do it than now. Once you have a family, hanging on to that engineer salary is much more of a requirement.

Ignore all of the above if you aren't single though

- John
__________________
runchman is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-21-2007, 11:50 PM   #11
Dryer sheet wannabe
Sandman's Avatar
 
Join Date: Feb 2007
Posts: 18
Re: Compounding - Saving early then stopping

Hi

I have been lurking at this site for several months now and finally decided to contribute something. I find the information on the site to be extremely useful and Firecalc has been a great tool for retirement planning I am (somewhat) following the strategy described above:

I took an early retirement package from Mega corp two years ago at age 50. I am still working full-time (for less money), but with a much lower-stress job and in a great location. I contribute a portion of my paycheck to savings – just not as much as before. The main thing is that my savings accounts (from nearly 30 years as engineer-whore) are untouched and they are allowed to compound at market rate. After this “soft landing” - I will FIRE in two more years. This strategy has worked great for me.
__________________
Sandman is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-22-2007, 01:45 AM   #12
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
Re: Compounding - Saving early then stopping

Yep, I suppose I'm doing something similar... I early "retired" at 35 years old, but really I'm pretty sure I'll end up taking on some sort of work in the future. Because I have enough to live on a bare bones budget without working forever, I now have the flexibility to choose work that will be fulfilling rather than just lucrative. I think this thread is important because it makes clear that the classic "work hard to save big bucks, then stop working completely" formula isn't the only way to go.

Quote:
What I wanted to say though, is if you are single and don't have to support anyone else, and this less-money route would be more soul-satisfying, then there's no better time to do it than now. Once you have a family, hanging on to that engineer salary is much more of a requirement.
Right on. I can only do this because I'm single. If I end up doing the wife and kids thing I'll definitely need to spend a lot more time working. I really value the opportunity to take time for myself now before I get on the breadwinner treadmill.

__________________
free4now is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-22-2007, 08:01 AM   #13
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Compounding - Saving early then stopping

Quote:
Originally Posted by free4now
Yep, I suppose I'm doing something similar... I early "retired" at 35 years old, but really I'm pretty sure I'll end up taking on some sort of work in the future.
My curiosity is not intended as implied criticism, but IIRC you've been ER'd for about a year and you're one of the few who was able to test-drive the process with an extended sabbatical. Similar to Jarhead, you're a canary in the ER coal mine.

You seem to have made the transition pretty well! So what would drive you back to working for money? Even if you met the woman of your dreams and incurred a bunch of future college-fund expenses, you'd be probably able to adopt CFB's/my lifestyle of providing home/child care for a working spouse, right?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-22-2007, 08:50 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: Compounding - Saving early then stopping

Hmmm - yes but only lefthandedly - layed off in 1993, tapped IRA in 2005 - I guess that's compounding.

Temp job, sold and ate duplex, some cash/MM savings from severance pay, small pension when reaching 55, etc.

Compounding was good - it was the 90's and did I mention I was really cheap in those days.

heh heh heh
__________________
unclemick is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-22-2007, 12:38 PM   #15
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Compounding - Saving early then stopping

At an 8% return, your money should double in 9 years.
IMHO, 8% is a bit much to assume. If we have another downturn,
like 2000 thru 2002, ... well... you can guess what will happen to your money.
.
Real life story: a friend of mine retired in May 2000 with $600,000 in investments - almost all mutual funds (stocks). His plan was live on $36,000 per year (6% withdrawal) and the market would continue to do like it did thru the 90's.
Needless to say, after taking a beating from 2000 to 2002, he's back to work full-time
again !
.
Bear markets scare the hell out of me! Anyone that retired in 2000 really took a hit and may never recover.
__________________
renferme is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-22-2007, 01:51 PM   #16
Recycles dryer sheets
 
Join Date: Dec 2002
Posts: 129
Re: Compounding - Saving early then stopping

Figuring on a real 8% (as in assuming <>3% inflation erosion) seems a tad aggressive. Overly simplified method = calculate annual increases over inflation so you get some results in today's dollars and do the math:

Starting with 500k, gaining 4%annually over COL:
1 520000
2 540800
3 562432
4 584929
5 608326
6 632659
7 657965
8 684284
9 711655
10 740122
11 769727
12 800516
13 832536
14 865838
15 900471
16 936490
17 973950
18 1012908
19 1053424
20 1095561
__________________
WRBT is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-22-2007, 02:54 PM   #17
Recycles dryer sheets
 
Join Date: Jun 2005
Posts: 223
Re: Compounding - Saving early then stopping

I'm also taking this approach. I'm 30. My tentative plan is to save like crazy till I'm about 42, then start working part time, or maybe switching careers completely to something different (and probably low-paying). I'll stop building the nest egg, and I won't tap into it either. It will just grow and grow until I can start withdrawing from it in my 60s.

Who knows whether all of this will actually happen, but it's my plan.
__________________
SLC Tortfeasor is offline   Reply With Quote
Re: Compounding - Saving early then stopping
Old 02-23-2007, 10:47 AM   #18
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
Re: Compounding - Saving early then stopping

Quote:
So what would drive you back to working for money? Even if you met the woman of your dreams and incurred a bunch of future college-fund expenses, you'd be probably able to adopt CFB's/my lifestyle of providing home/child care for a working spouse, right?
The main thing that would drive me back to working for money would be wanting more money :-) Right now I'm spending just a little over 4% a year, and living on a barebones budget that feels a bit restrictive compared to what I was used to spending (roughly 1.5x as much while working). Right now the free time is totally worth feeling a little restricted, but I suspect as I get older I'll want more of the comforts that money buys.

I don't have the surplus to support my share of kids without working. Also the only reason my budget works is due to being aggressive about cost control, and that's something that is much easier to maintain as a single person.

I will say that the longer I spend not working, the more interested I am in possibly being a stay at home dad. I'm really enjoying preparing healthy food at home, something I missed out on when I was working and only had time for convenience foods.
__________________

__________________
free4now is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
500 search phrases for 2006 dory36 Other topics 2 01-16-2007 08:00 AM
Saving for early retirement: the point of diminishing returns Silhan FIRE and Money 17 05-15-2006 12:49 PM
I thought I'd post a Picture of my Wife naked..... TromboneAl Life after FIRE 13 10-19-2005 10:14 AM
How people find us... asian carp?? dory36 Forum Admin 4 05-27-2005 01:07 PM

 

 
All times are GMT -6. The time now is 09:02 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.