FIRE Prowess Gauge

[SumDay]

I've been following a couple of early retirement/finance blogs and stumbled on this yesterday: The Swan’s FIRE Prowess Gauge // Savings Rates be Damned - The Green Swan

If someone else has shared, Mods feel free to combine.

I collected my numbers and am at 2.0 for the last five years, so for us, especially since I'm pulling the plug next year.

1.0x and over – You are killing it! Don’t make any stupid mistakes and FIRE will be within your grasp in no time. In this scenario, your net worth is more than your lifetime earnings which Joe at Retire By 40 recently wrote about. This is certainly a tough milestone to reach, but maybe one day I can make this claim!

 

[pb4uski]

Interesting idea is used in moderation. One thing to note is that in good investment markets that those with an aggressive AA will shine, so I like the idea of looking at a 5-year moving average.

For us in ER, my score would approach infinity as my NW increases over 5 years but our income is zero since I'm not working for pay.

 

[Luck_Club]

I've been following a couple of early retirement/finance blogs and stumbled on this yesterday: The Swan’s FIRE Prowess Gauge // Savings Rates be Damned - The Green Swan

If someone else has shared, Mods feel free to combine.

I collected my numbers and am at 2.0 for the last five years, so for us, especially since I'm pulling the plug next year.

@2.0 your investments are growing at a rate that more then enough to cover your income. Why are you planning to work 2 more years, and what is keeping you motivated to do so?

 

[SumDay]

@2.0 your investments are growing at a rate that more then enough to cover your income. Why are you planning to work 2 more years, and what is keeping you motivated to do so?

Not 2 more years it's 10 more months (288 days, 18 hours and 25 minutes, to be exact). That's the day DH becomes eligible for Medicare, then I'm outta there.

 

[mrWinter]

Doesn't seem like a useful metric for what the author intended, in their words: "it’s a factor showing how efficient your lifestyle is compared to income (reflecting how well you do at Earning and Saving)". I'd argue no it's not, the 'prowess' number is really a reflection of how close you are to FIRE, and is actually a rather poor measure of that as well. The number basically boils down to an indication of how well your investment portfolio has been performing lately compared to your income.

A 22 year old fresh out of school saving 40% of their income would be in the following category: "You’ve got the ball rolling and you’re certainly trying! Keep investing wisely, perhaps add a side-hustle or few lifestyle tweaks to lower expenses and FIRE can be within your grasp." This doesn't sound right, they certainly aren't just trying, they are crushing it from a savings perspective, and definitely don't need to pick up any more jobs or lower their lifestyle any more to achieve early retirement.

Or maybe they are older and have big stash saved up in the market, but it's a bear year or series of years. Even if they are saving 50% of their salary, they could easily be in the negative-0% "Not even on the path toward retirement" group, which is simply wrong. Once their portfolio grows big enough, it's change in value will dwarf their savings that year, effectively ignoring their savings from the equation

IMO this doesn't in any way reflect how well you are saving, and since it's so dependent on this years stock returns I don't think it really tells you how ready you are to retire either. If you want to determine how well you are saving for retirement, a much simpler equation (and easier to calculate) of savings/expenses would be a much better metric. If you want to determine how ready you are to retire I think the old 25x or 30x expenses method works pretty well.

 

[joylesshusband]

+1 to mrWinter's take.

Pretty useless metrics, and absolutely not indicative of its declared goal.
Nothing to do with prowess.

 

[Koolau]

Yeah, I'm in the "infinite" category as well, having FIRE'd 12 years ago. I'm not certain how valuable this "gauge" is. The inputs could make the results look "good" when in fact, one is not much closer to ER. Still I won't critique further. I just find the concept in MILLIONAIRE NEXT DOOR a bit more useful. Haven't looked it up in a long time, so I may be wrong - especially on the details. IIRC, MND index is something like what X factor of all the money you've ever made do you now have as your NW. I see that as useful in gauging how successful you have been at LBYM as well as investing.

Having said this, I think i'll bookmark the blog and check it out. Sounds interesting. YMMV

 

[SumDay]

Having said this, I think i'll bookmark the blog and check it out. Sounds interesting. YMMV

I also find the Retirement Manifesto interesting. He's not all about $$$ all the time. I'm kind of nosey by nature, so I enjoy his real life stories and struggles.

 

[jollystomper]

Doesn't seem like a useful metric for what the author intended, in their words: "it’s a factor showing how efficient your lifestyle is compared to income (reflecting how well you do at Earning and Saving)". I'd argue no it's not, the 'prowess' number is really a reflection of how close you are to FIRE, and is actually a rather poor measure of that as well. The number basically boils down to an indication of how well your investment portfolio has been performing lately compared to your income...


...IMO this doesn't in any way reflect how well you are saving, and since it's so dependent on this years stock returns I don't think it really tells you how ready you are to retire either.

+1

IMHO it focuses on gross income instead of expenses. Expenses are what matter when you FIRE - it doesn't matter how much your gross income was when working, it matters more how you saved/invested that income to cover your expected retirement expenses.

 

[JW Brooks]

Mr Winter, as I explained in the post it is best measured on a five year basis or even on a lifetime basis. This would smooth out market performance which is more volatile annually.

Have you tried calculating yours yet? [Mod edit]

Doesn't seem like a useful metric for what the author intended, in their words: "it’s a factor showing how efficient your lifestyle is compared to income (reflecting how well you do at Earning and Saving)". I'd argue no it's not, the 'prowess' number is really a reflection of how close you are to FIRE, and is actually a rather poor measure of that as well. The number basically boils down to an indication of how well your investment portfolio has been performing lately compared to your income.

A 22 year old fresh out of school saving 40% of their income would be in the following category: "You’ve got the ball rolling and you’re certainly trying! Keep investing wisely, perhaps add a side-hustle or few lifestyle tweaks to lower expenses and FIRE can be within your grasp." This doesn't sound right, they certainly aren't just trying, they are crushing it from a savings perspective, and definitely don't need to pick up any more jobs or lower their lifestyle any more to achieve early retirement.

Or maybe they are older and have big stash saved up in the market, but it's a bear year or series of years. Even if they are saving 50% of their salary, they could easily be in the negative-0% "Not even on the path toward retirement" group, which is simply wrong. Once their portfolio grows big enough, it's change in value will dwarf their savings that year, effectively ignoring their savings from the equation

IMO this doesn't in any way reflect how well you are saving, and since it's so dependent on this years stock returns I don't think it really tells you how ready you are to retire either. If you want to determine how well you are saving for retirement, a much simpler equation (and easier to calculate) of savings/expenses would be a much better metric. If you want to determine how ready you are to retire I think the old 25x or 30x expenses method works pretty well.

 

[JW Brooks]

+1

IMHO it focuses on gross income instead of expenses. Expenses are what matter when you FIRE - it doesn't matter how much your gross income was when working, it matters more how you saved/invested that income to cover your expected retirement expenses.

That wasn't the intention of the FIRE Prowess. The intention is to measure how well you're doing on the road to FIRE. It takes into consideration not only income, but expenses and investment performance too and can measured on any length of time horizon. I prefer five or more years.

[Mod Edit]

Thanks.

 

[JW Brooks]

Yeah, I'm in the "infinite" category as well, having FIRE'd 12 years ago. I'm not certain how valuable this "gauge" is. The inputs could make the results look "good" when in fact, one is not much closer to ER. Still I won't critique further. I just find the concept in MILLIONAIRE NEXT DOOR a bit more useful. Haven't looked it up in a long time, so I may be wrong - especially on the details. IIRC, MND index is something like what X factor of all the money you've ever made do you now have as your NW. I see that as useful in gauging how successful you have been at LBYM as well as investing.

Having said this, I think i'll bookmark the blog and check it out. Sounds interesting. YMMV

The FIRE Prowess score wasn't intended for those who have already retired. The number definitely gets skewed when you no longer have income.

I hadn't come across the measure from The Millionaire Next Door but they actually sounds very similar in that they compare growth in net worth over a certain time period to earnings. And this can be measured over your working life.

Given you already successfully FIRE'd I'd be curious your score over your working years. [Mod Edit]

 

[JW Brooks]

+1 to mrWinter's take.

Pretty useless metrics, and absolutely not indicative of its declared goal.
Nothing to do with prowess.

Hi joyless,

Care to explain further why it's useless? Any suggestion on how to make it better? Do you not think the FIRE Prowess Score was accurate for you?

Constructive feedback welcome.

 

[JW Brooks]

I also find the Retirement Manifesto interesting. He's not all about $$$ all the time. I'm kind of nosey by nature, so I enjoy his real life stories and struggles.

Fritz from The Retirement Manifesto is great! He has a great story to share. [Mod Edit]

 

[Gumby]

+1

IMHO it focuses on gross income instead of expenses. Expenses are what matter when you FIRE - it doesn't matter how much your gross income was when working, it matters more how you saved/invested that income to cover your expected retirement expenses.

It doesn't measure income properly. My net worth has grown substantially in the past five years, but the vast majority of that growth has come from the performance of the equities in my tax-sheltered accounts (401K, 403b, 457, IRA). None of that growth shows up as AGI on my tax returns. So, if I'm calculating the "prowess number" correctly, it shows > 1.0x even with anemic savings.

In my mind, the question is as simple as it has always been -- How close are you to covering your estimated retirement expenses at a reasonable SWR? And if your retirement lies further into the future, are you on the glide path to get there by the age you have chosen?

Hi joyless, your name says it all!

MOD HAT ON -- We can and often do challenge each other's conclusions and methodology here. We do not attack each other personally. MOD HAT OFF

 

[prudent_one]

Doesn't seem like a useful metric for what the author intended, in their words: "it’s a factor showing how efficient your lifestyle is compared to income (reflecting how well you do at Earning and Saving)". I'd argue no it's not, the 'prowess' number is really a reflection of how close you are to FIRE, and is actually a rather poor measure of that as well. The number basically boils down to an indication of how well your investment portfolio has been performing lately compared to your income.

A 22 year old fresh out of school saving 40% of their income would be in the following category: "You’ve got the ball rolling and you’re certainly trying! Keep investing wisely, perhaps add a side-hustle or few lifestyle tweaks to lower expenses and FIRE can be within your grasp." This doesn't sound right, they certainly aren't just trying, they are crushing it from a savings perspective, and definitely don't need to pick up any more jobs or lower their lifestyle any more to achieve early retirement.

Or maybe they are older and have big stash saved up in the market, but it's a bear year or series of years. Even if they are saving 50% of their salary, they could easily be in the negative-0% "Not even on the path toward retirement" group, which is simply wrong. Once their portfolio grows big enough, it's change in value will dwarf their savings that year, effectively ignoring their savings from the equation

IMO this doesn't in any way reflect how well you are saving, and since it's so dependent on this years stock returns I don't think it really tells you how ready you are to retire either. If you want to determine how well you are saving for retirement, a much simpler equation (and easier to calculate) of savings/expenses would be a much better metric. If you want to determine how ready you are to retire I think the old 25x or 30x expenses method works pretty well.

Agreed with above. This metric is not useful because of too many exceptions where it is misleading. Someone with 50x in savings but all of it invested in CDs would fare poorly. Anyone who used this in a period of poor market returns would look bad as well, no matter how much they had saved.

There may be some situations where it is informative but not enough to be proposed as a general purpose metric.

 

[JW Brooks]

Sounds like you are well on your way to FIRE then which is exactly what the Prowess Score would indicate. Congrats to you. And I think my gauge nailed it then...

I didn't see Joyless's comment as a challenge or constructive for this thread. It sounded grumpy just like his name would indicate. I didn't make his name... He did...

 

[MichaelB]

I didn't see Joyless's comment as a challenge or constructive for this thread. It sounded grumpy just like his name would indicate. I didn't make his name... He did...

In case you missed Gumby's advice, there's no need to make it personal.

 

[JW Brooks]

Agreed with above. This metric is not useful because of too many exceptions where it is misleading. Someone with 50x in savings but all of it invested in CDs would fare poorly. Anyone who used this in a period of poor market returns would look bad as well, no matter how much they had saved.

There may be some situations where it is informative but not enough to be proposed as a general purpose metric.

I respectfully disagree. The individual with 50x savings would probably have a good FIRE Prowess if his high income offset his poor returns since they're held in CDs. Or maybe it is a low score as you indicate which I would argue would be deserving since CDs aren't an ideal investment for folks seeking FIRE. Either way the lifetime FIRE Prowess Score would be indicative of the truth.

In the scenario of a down market you're right, that year score would be low bc not much progress toward FIRE was made. But still over a longer period of time such as five years would be more indicative of true and longer term returns and their progress toward FIRE.

Thanks for the constructive comment.

 

[JW Brooks]

In case you missed Gumby's advice, there's no need to make it personal.

Ok point taken. I'll edit my comment.

 

[Toocold]

For what it's worth, I updated my spreadsheet to include this new metric. I find that it's an interesting stat to look at.

 

[JW Brooks]

For what it's worth, I updated my spreadsheet to include this new metric. I find that it's an interesting stat to look at.

Your the best, TooCold! I hope you enjoy tracking it over the years as much as I have.

 

[FI by 2024]

I'll be using it too. Is it the pinnacle of measurements? No, but then I'd argue that no measurement tells the full story. It's one more tool in my tool bag as I build my financial house.