my 401k by age equation
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 04-24-2012, 02:36 PM #2 Recycles dryer sheets   Join Date: Mar 2012 Posts: 89 I assume you mean: (( 2^(Y/6.45) ) - 1) * (Current Salary - Current Salary*.25) or RET ACCOUNT = (( 2^(Y/6.45) ) - 1) * (Current Salary*.75) Anyways, cool idea. By your equation I'm right on due to aggressive savings, however when I started working at age 15 I was making \$50 a week! Thanks!! __________________ __________________
 04-24-2012, 03:12 PM #3 Moderator Emeritus   Join Date: May 2007 Posts: 11,044 When I was planning for retirement, I came up with "net worth goals" as a function of annual expenses. Age 35 NW=6 x annual expenses Age 40 NW=11 x annual expenses Age 45 NW=17 x annual expenses Age 50 NW=24 x annual expenses Age 55 NW=32 x annual expenses I started working at age 27. Pretty close to your results, maybe a tad more aggressive. Why not calculate our net worth goals as a function of income? Because our income increased so fast that income-based formulas always made it look like we were falling behind. Income-based formulas may work well for people with stable incomes, but they did not work well for us. Our expenses, on the other end, have been much more stable over time and I thought they made for a better measuring stick. Finally, the assumption that people with high incomes could not happily retire on modest incomes, while probably valid for the general population, undoubtedly breaks down with the FIRE crowd. __________________
04-24-2012, 03:13 PM   #4
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Quote:
 Originally Posted by FIREd Finally, the assumption that people with high incomes could not happily retire on modest incomes, while valid for the general population, probably breaks down with the FIRE crowd.
Particularly this. When someone is a prodigious saver -- and I think we have more than our share here -- chances are they will have living expenses that are much lower than their incomes.
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04-24-2012, 04:43 PM   #5
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Quote:
 Originally Posted by FIREd Why not calculate our net worth goals as a function of income? Because our income increased so fast that income-based formulas always made it look like we were falling behind. Income-based formulas may work well for people with stable incomes, but they did not work well for us. Our expenses, on the other end, have been much more stable over time and I thought they made for a better measuring stick.
Good point. This works a lot better for someone in a very stable and reliable job sector (like a software engineer). The goal was to have a way to look at my progress towards retirement... getting to that magic 20-25x salary mark.

Obviously, having an understanding of how these numbers all work and what they mean is required. Example: I'd never turn down a 100% raise... thinking it would extend retirement plans 12 years according to my equation .

As a person nears retirement and has a better sense of their goal for retirement spending, it makes more sense to substitute in EXPECTED SPENDING IN RETIREMENT in place of CURRENT SALARY
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04-24-2012, 06:18 PM   #6
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Quote:
 Originally Posted by EvrClrx311 Good point. This works a lot better for someone in a very stable and reliable job sector (like a software engineer). The goal was to have a way to look at my progress towards retirement... getting to that magic 20-25x salary mark.
Actually, there is nothing magic about that 20-25x number. For example, someone making \$400K and living on \$80K might only need to hit the 5-7x salary mark. Someone making \$100K and living on \$50K might only need to hit the 12-17x salary mark. Savings rates matter.

The "magic" number - if there is such a thing- is 25-33x your expected annual expenses in retirement. Granted, it may be hard to estimate how much you will spend in 20-30 years, but your current spending pattern could give you clues. If you still prefer to use your salary as reference, then you must incorporate your savings rate in the equation.
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