Measuring success

[Skylark]

For those who have managed to retire early, I am wondering what was the hardest part, and is there a point when saving for retirement gets easier?

For example, is the first 20,000 the hardest, then it gets easier, or is budgeting always difficult?

I am trying to figure out how far along I am toward retirement. I have 50K out of about 500K that I will need as a bridge to SS and a company pension. Should I be thinking that I am 10% of the way there, or does it get easier as you accumulate capital? It seems like it has taken a long time to get this far, thanks to the stock market bust a few years back.

 

[Cut-Throat]

Sky,

I think getting out of debt and saving the first 10K are the hardest. By then you have the discipline in place and then it's just a matter of time.

So it goes - the first 10K is harder than the 2nd 10K.

The first 100K is harder than the second 100K.

The first 500K is tougher than the 2nd 500K.

The first $1 Mil is tougher than the 2nd $Mil

 

[malakito]

Disclaimer: I have not yet retired early -- I am 34 and should reach FI sometime around September 2020.

I have seen it get easier in one way for me, in that I don't have to take compounding on faith any more; I can just look back at my net worth over the past ten years.

If you keep track of your net worth over time and continue playing with the numbers and various scenarios, over time you will figure out what variables affect the results the most and what variables don't. You can then focus on the variables that affect the results and which are under your control and worry and think less about those that don't.

If you have 50K out of 500K you are probably more than 10% of the way there because that 50K that you have now will grow to something larger than 50K by the time you intend to have that 500K. How much it will grow obviously depends on how long until then and at what rate of growth, but Excel can help you out there -- check out the FV (future value) function.

malakito

 

[5 Years to Retirement]

If you keep track of your net worth over time and continue playing with the numbers and various scenarios, over time you will figure out what variables affect the results the most and what variables don't.  

That's a very good point. I'm 35 and for the past 12 years I've been tracking on a monthly basis my investments and the income they are generating. I know what I will need for retirement and I make sure I meet my monthly goals.

I must admit in the first few years when all I had was one egg and one basket, it wasn't much fun. But as I've become much more diversified and knowledged, it's so much fun to sit down on a quiet Sunday morning at the end of the month and check my financial scorecard.

I also use these amounts to forecast where I will be by ER at age 40. For kicks, I even went back to my February 1999 numbers and found that I am ahead of schedule based on my forecast at the time. But, that only means I will have more spendable money by the time I'm 40!

-Retire Early, Retire Often!

 

[renferme]

I plan to retire soon - probably second qtr this year.
I check my portfolio daily. Am socking away mucho dinero each month and enjoy watching it grow.
Several years ago, I set a goal. After reaching it, I set a new goal and then another goal, etc. etc.
Now I'm at the point where I can't decide which month to leave this job. Each extra month that I stay means more $$ in savings and investments. Also, means a little more in monthly pension payments.
I guess I'm greedy and will have to make a decision soon, as this job really sucks.

 

[unclemick]

What drives me up the wall is the 'crap' they put on public tv - the people who ought to know better.

I'd like to see some simple 'power of compound interest', index - low expenses, asset correlation, DCA, and a little MPT - along with value, growth, dividend models.

Instead they give personalities - I actually like Ruckeyser even though he's totally full of it.

University of Chicago, Fama and French, Bogle, Mailkel, Buffett and others would be much better.

Like Bernstein's rants on Efficient Frontier about the (miss?) use of 401K plans, I could get really wound up so I'd better stop.

What seems to escape grasp - is KISS. Dollar cost average into the lowest cost index fund (Total US or S&P) at the youngest age possible and let time do it's thing.

 

[unclemick]

Sorry - should have posted my rant under very young dreamers - taking a break from doing taxes right now so please forgive me.

 

[BigMoneyJim]

University of Chicago, Fama and French, Bogle, Mailkel, Buffett and others would be much better.

I'm not sure about the rest, but I found a couple of Buffet taped programs at my local library. And of course there are books by Bogle and others.

I'm back up to $60k again and will be mostly debt free in June or July this year. ('Mostly' meaning I will still owe on the car a few months.)

The retirement egg really grows pretty quick once it's started, although the past 3 years have been a perceived setback. Now that I'm almost debt free I see how much monthly cash I'll have available and it boggles my mind. I don't anticipate getting into consumer debt ever again, and I expect my savings accounts to balloon quickly.

 

[newellcr]

skylark,

I'm 36 (will ER by 50) and my experience is that it gets easier to budget (and not feel like you are missing out on something) when your non-productive debt is zero. It also seems a little easier to save for investing when you hit a major milestone. I have hit the quarter million mark twice, once before the latest crash and once last year. The first time I hit the mark it really felt good. The second time I only felt a little relief. Hopefully, I won't have to hit it a third time and figure out what I feel then.

I do find it easier to save to invest when I'm not thinking about it too much.

Hope that helps,

Chris

 

[Whakamole]

Sky,

I think getting out of debt and saving the first 10K are the hardest. By then you have the discipline in place and then it's just a matter of time.

So it goes - the first 10K is harder than the 2nd 10K.

The first 100K is harder than the second 100K.

The first 500K is tougher than the 2nd 500K.

The first $1 Mil is tougher than the 2nd $Mil

Agree 100% here, though I'm still working on that second 100K.

It's not just the discipline - it's that you've got that first 10K helping you make that next 10K. I'm noticing now that, during great market days, I make more on my investments than I did on the job. When this becomes a regular occurance, that's when it's time to RE

 

[unclemick]

I hate to say this and I hope it will be taken ' in context' but I never avoided debt during the accumulation phase.

Maxed every taxed deferred plan availible - "it belonged to some other person(me of course) who would appear at 59 1/2.

Then lived paycheck to paycheck on my money while I was young - extra $ went into 'the market' and successes were spent - failures mean't waiting to build up more play money.

Pay yourself first never worked for me - putting money where I couldn't touch it - early and continously did - always to the max.

I was in debt and out of debt many times - cars, RE, and sometimes CC.

 

[John Galt]

I recall I had a kind of epiphany when I realized that
I was spending an increasing amount of time working
on hanging onto what I had and planning tax
strategy, as opposed to just focusing on my career and a bigger paycheck. Don't remember exactly when that
was, but it was years before I got serious about ER which kind of evolved naturally. Ah, if only I had been
inoculated with Terhorstian serum 10 years earlier

John Galt

 

[TheFIREman]

The first $1 Mil is tougher than the 2nd $Mil

True, but by that time I was wondering if it was necessary to make that 2nd $Mil.

 

[Cut-Throat]

True, but by that time I was wondering if it was necessary to make that 2nd $Mil.

Well, if you believe that inflation will continue.....in 30 years 3 Million will be worth less than 1 Million is today!

 

[Skylark]

I hate to say this and I hope it will be taken ' in context' but I never avoided debt during the accumulation phase.

Maxed every taxed deferred plan availible - "it belonged to some other person(me of course) who would appear at 59 1/2.

Then lived paycheck to paycheck on my money while I was young - extra $ went into 'the market' and successes were spent - failures mean't waiting to build up more play money.

Pay yourself first never worked for me - putting money where I couldn't touch it - early and continously did - always to the max.

I was in debt and out of debt many times - cars, RE, and sometimes CC.

While we hope to be consumer debt free soon, I would rather continue to contribute to the 401k than to direct all funds toward consumer debt payoff. Yes, by the numbers, we would be better off. But I would rather keep investing in the tax deferred fund where we can't get at it until we are ready to retire.

Another pitfall is the advice to keep an emergency fund of 3 - 6 months income. Some say save up the emergency fund first before you start investing. Yes it is a good idea, but I would never have started investing, I would have continually found emergencies to pay off.

From a behavioral point of view, we are better off not even thinking about the money that is going toward the 401k. Out of sight, out of mind is a good thing.

We are still beginners at this. Eventually we will be debt free with a big emergency fund. But right now, it is better to keep putting money in investments rather than build up a big cushion of emergency cash. We keep trying to tell ourselves that we are just poor folk with no money. A lot of people live with less than our take home pay.

Thats the theory anyway, next emergency and we may be looking pretty sorry.

 

[John Galt]

"Out of sight out of mind" has worked well for me.

Even after 11 years of ER, I still tend to find reasons
to spend. Putting it away somewhere is protection against backsliding.

John Galt

 

[sgeeeee]

For those who have managed to retire early, I am wondering what was the hardest part, and is there a point when saving for retirement gets easier?

Your post made me wonder how you might measure the difficulty. I use the software program, Money, to keep track of my finances so I plotted out my net worth as a function of time and built the table below. I retired last year and have normalized my net worth over time to the value at retirement. So column 1 is this normalized final nest egg value. Then I took that value (in increments of 0.005 of the final value) and divided it by the number of days of my life it took to achieve that value.

As an example, if the final net worth at retirement were $2M, then 0.005 of that is $10,000. The first row of the table indicates that it took 11,445 days of my life (I started from birth) to achieve that net worth. The next row shows that I accumulated the next $10,000 at a rate of $10,000 every 5982 days. Note that the second column is not incremental. I achieved the 0.010 final nest egg net worth 518 days after the first 0.005 mark. But the column is calculated by dividing the net worth by my total life time in days at that point.

Net Worth . . . . . . .
as Percent . . . . . . .Days to
of Value at . . . . . . .Earn 0.005
Retirement . . . . . . .of final nest egg
0.005.......................11,445
0.010.........................5,982
0.025.........................2,539
0.050.........................1,342
0.10..............................708
0.25..............................306
0.50..............................163
1.00................................91


Another way to look at this is incrementally. That is shown below.

So in this table, the first row shows that it took 518 days for me to double my net worth from 0.005 of the final value to 0.010 of the final value. The second row shows that it took 487 days to get from 0.010 to 0.020 of the final value.

Net Worth . . . . Days
as Percent . . . . to
of Value at . . . . Double
Retirement . . . . Net Worth
======== ========
0.010..................518.00
0.020..................487.00
0.040..................609.00
0.080..................730.00
0.160................1096.00
0.320..................701.00
0.640................1095.00

My timeline starts in March 1954, but I really didn't get out of grad school and start earning money till July 1984. So the tables above represent my net worth growth through the lated 80's, the 1990's, up till March 2003. It represents moving and buying 3 houses while selling 2, changing jobs and locations twice plus all the career nonsense of raises/promotions etc. I have not included pension values or social security in the net worth calculations.

 

[wabmester]

SG, I'm either confused or impressed. You consistently doubled your net worth every 2-3 years. That translates to something like an annualized growth of 30%. Now, I realize that you were making contributions to your nest egg along the way, but that's still pretty impressive growth. How much do you attribute to savings and how much to investment returns?

(I'm even more impressed that you tracked your net worth for 20 years.)

 

[sgeeeee]

. . .How much do you attribute to savings and how much to investment returns?

(I'm even more impressed that you tracked your net worth for 20 years.)

My investment returns weren't really very good -- especially for the first 10 years of so. My wife and I were both electrical engineers that were very fortunate to be well compensated for our efforts over the 20 years that we worked. Despite the compensation, we lived fairly simple lives and invested most of our take-home pay. My investment history is tabulated below:

YEAR . . . . fraction of final nest egg value invested
1986 . . . . 0.015
1987. . . . 0.011
1988. . . . 0.008
1989. . . . 0.011
1990. . . . 0.009
1991. . . . 0.029
1992. . . . 0.014
1993. . . . 0.014
1994. . . . 0.025
1995. . . . 0.027
1996. . . . 0.040
1997. . . . 0.051
1998. . . . -0.006
1999. . . . 0.078
2000. . . . 0.069
2001. . . . 0.080
2002. . . . 0.045
2003. . . . 0.085
TOTAL . . 0.606

So more than 60% of that growth was new investments. After the 2000 to 2002 years of losses, my average annual return is only about 8.1%

 

[Brat]

Consider using a tool such as Financial Engines.

www.financialengines.com

There have been a couple model portfolios posted on the Fund Alarm BB that might work better for you.

 

[sgeeeee]

Consider using a tool such as Financial Engines.  

www.financialengines.com

There have been a couple model portfolios posted on the Fund Alarm BB that might work better for you.

Thanks. I'll take a look at the site. I am hopefully a much better investor today than I was in 1984, but I always try to get better.

By the way, I did have a typo and my annual % return over the accumulation period should have been 8.7% instead of 8.1%, but I suspect that most people's initial reaction to this number is still dissapointment. But you do have to be careful making direct comparisons to a calculated portfolio performance. The net worth figure includes things that a portfolio performance evaluation does not usually include -- house, checking/savings accounts, etc. If you look at the Shiller data and compute what a 50-50 stock/TIPS portfolio with 0.2% expense ratio would have done between 1983 and 2002, you come up with a figure of 8.84%.

Then you have to consider that my hands were tied on some of the things I invested in because of company 401K rules, etc. By the way, I considered my company's matching investment dollars as my own in these calculations. During most of the 20 years, my wife and I both maxed out our 401K's and got a 75 cent on the dollar match from the company. If you consider those funds as pure return, you would get a much higher return number with a much reduced contribution number.

Also you need to consider that I could not control the housing market in one place where I lived and did not do very well on a house I owned for 13 years.

So, I am not too dissapointed in the net worth return I got over those years. It clearly isn't stellar, but I could have done a lot worse.

Still . . . I would love to do better.

 

[wabmester]

SG, those results look pretty stellar to me. With the exposure I had to Japan, large chunks of my portfolio are about even after 20 years.

The amount of your salary you were able to stash away looks even more impressive, though. I'd guess that you socked away much more than 50% in the years after 1998. That's the secret sauce of early retirement for most people (of course, a windfall or two never hurts).

 

[Nords]

Re:  ER is a pass/fail course

Geez, SG, looks like fine results to me.

Being able to retire early on 7-8% returns says a lot about your ability to save and control expenses, which will serve you far better over the next few decades than hitting it big on company options or tech stocks.

 

[BunsGettingFirm]

There surely are a lot of engineering types on this board. I count Dory, Salaryguru, Cut-throat, the guy who owns the retireearlyhomepage.com site, and myself. Anyone else?

I think I first got the early retirement bug when I had my first minor heartattack at 28. My left arm just went numb for 3 days. Never went to see the doctor. At that point I was running on coffee, 6 hours of sleep on nights when I don't have nightmares about work, and 55+ hours a week, and had not had a day off for 3 weeks straight because I was trying to meet a deadline before Christmas. This was toward the end of an 18-month marathon slog where every three months we would shoot for a project complete deadline without actually getting the project completed. After realizing how close I came to an actual "deadline", I finally woke up.

Also, having the work under people can sometimes make you feel literally as if you are "under" people because their problem can and will become your problem if they have authority over you but do not have the maturity and good sense to know the boundary between work and personal life. I had a woman lead engineer whose boyfriend dumped her, so I became the target of her men loathing because I was the only single guy on the team. For the first 6 months, I thought I was doing a bad job until I figured out that she just didn't know how to seperate her personal problems from her work problems. After I complained to my manager, he asked that I transfer to another group. After finishing the project, I turned in my resignation and found another job within the company. The capper was that he then started lecturing me about loyalty and staying within the lab. Ah, you failed to correct a clear sexual harassment situation, and I can't leave? And I thought the ankle chain to the desk was only metaphorical.

How I measure success is when I can tell people who are unprofessional, who knows not the boundary between what is work and what isn't to shove it. I'll be there in approximately 9 years, when I'm 42.

 

[panhead]

Hey ! Yup, as for engineers, I'm one as well. Electrical (computer) engineer from the same school as "that retireearlyhomepage guy" who we usually refer to as intrcst. I'm still working. I just changed jobs due to a 40% salary increase and the "requirement" by the new company that I work in Europe for 6 months. Free tour of europe ? OK, I'm game ! Yes, I'm single also. As for how I measure success (to get back to the original thread) I measure it by my level of happiness at the given moment. As so many on this (and other) board have pointed out, retiring early is a great goal, but we have to enjoy ourselves along the way, tomorrow is promised to no one. Financially, I'm about 1 year away from a bare bones retirement (ala Terhorst), and a few more years away from a more traditional retirement. When will I go ? When in my mind the drawbacks of working outweigh the benefits.