Progress Toward FIRE

[EvrClrx311]

I keep records of these figures in excel so thought I'd attempt to make some sense of it now that it contains 10 years.

I am 33, and entered the work force full time when I was 23. I find it is better to give percentages in place of actual figures.

fys = first year salary

Salary Progress
2005 | 1.00(fys)
2006 | 1.15(fys)
2007 | 1.29(fys)
2008 | 1.38(fys)
2009 | 1.50(fys)
2010 | 1.51(fys)
2011 | 1.69(fys)
2012 | 2.04(fys)
2013 | 2.31(fys)
2014 | 2.32(fys)
2015 | 2.72(fys) <--- changed companies

Notes: My salary has grown a lot. That said, I'd say I was making in my first year a very comfortable amount that I could live on in retirement. I try to live modestly, and although life certainly follows income I've decided to track my retirement account relative to both my salary each year and this initial salary. It's hard to say exactly how much I'll require in retirement on a yearly basis because I have no idea where inflation is going to go... and where my lifestyle will end up. Because of this I think it's good to have both charts.

Here is the first, which tracks my retirement growth as a percentage of my fixed first years salary.

Retirement Progress Based on First Year Salary
2005 | 0.03
2006 | 0.20
2007 | 0.46
2008 | 0.71
2009 | 0.72
2010 | 1.16
2011 | 1.12
2012 | 1.37
2013 | 2.11
2014 | 2.95
2015 | 3.76

If you told me a decade ago my retirement account would be almost 4 times my income (in my first year of work) I'd be very happy with that. I do realize however, that 40 years from now... 2006 money isn't going to get you anything close to what it could buy today. Because of this a chart that tracks my retirement progress in relation to my year by year salary would be more ideal... it hedges against lifestyle increases (spending) and inflation.

Retirement Progress Based on Each Year Salary
2005 | 0.03
2006 | 0.17
2007 | 0.36
2008 | 0.51
2009 | 0.48
2010 | 0.77
2011 | 0.67
2012 | 0.67
2013 | 0.91
2014 | 1.27
2015 | 1.38

Still a loooooooong way from the 25.0 I need to even consider retirement, but I'm on my way

So one other chart I wanted to make was my assumption about how fast this number would grow. I have set aside 20% of my income towards retirement every year since I started working (with exception of the first 6 months I worked). Just last year I increased this to 25%

If I made an assumption that my income would rise 5% a year and I'd contribute 20% a year and the stock market would return 7% a year where should I be after 10 years? My math points to 2.57 of my 2015 income, or 4.19 times my first year salary. Projecting that same formula forward it puts my retirement account at 25 times my first year salary in another 15 years.

Since we've had a pretty dismal decade for stocks I'd say I'm doing ok... I have a pretty large nest egg ready waiting for the tidal forces of the market to take over a larger part of the growth work than my contributions. That said I'll continue setting aside the max the IRS will allow.

Does anyone have similar statistics. I'm curious to hear from people who have FIRE'd... what plan did you have and where did you sit 10 years in?

 

[MBAustin]

I don't have similar stats, but congratulations for being serious about your financial future at a time when many of your peers haven't thought about it for 2 seconds! If you keep that up, you are likely to be FI in your 50s (or earlier) and that's what gives you freedom.

 

[DrRoy]

I think you are well on the way. I had a higher multiple of my income after the first 10 years but I also had a much better market (the 80's), and my income did not grow as fast - mostly just kept a little ahead of the inflation rate. My only comment is that I would not base my tracking on the first year's salary. After 10 years of 2.5% inflation, you lose 28% of your first year's purchasing power. Keep updating what you want your RE income to be in current dollars.

 

[nash031]

DrRoy raises a good point about inflation.

Another point to raise is that if you're aiming for a 4% WR, you don't need 25X your income. You need 25X your expenses. Aiming for 25X income is more conservative, but also means you will work longer and potentially much longer than you need to in order to retire comfortably. To wit, our family saves more than 40% of our gross income each year, and that's a significant portion of income that we don't need to replace with retirement income streams. Instead of a pure 25X income, we need only to replace 15X our current income to retire. You see the effect there.

I don't have exact figures, but I started working at 22, got married at 34.

By the end of year 1, my accounts had roughly 0.2xFYI (First Year Income).
By age 30, I had more than 5xFYS and roughly 1xCYI at that point.
On new year's this year (now 38), we had 40xFYI saved, but less than 4xCYI.

Note that these numbers are largely affected by a 10-fold increase between FYI and CYI. This includes the incorporation of my wife's income. If I included her income right off the bat, we'd have 20xFYIs right now. Income includes not only salary, but dividends and DW's side work as well, the combined effect of which raised our overall income by a little less than 10%. The dividend portion of that should keep going up over time, and can no longer be ignored.

Bottom line is that income can be a very fluid number, and expenses are more meaningful and usually less fluid. Focusing on multiples of expenses is also useful in that it helps you keep focus on lifestyle creep which can insidiously drive your expenses (and thus your working lifetime) up. We're sitting right around 13xExpenses right now. Get that one up to 25, and we're golden.

(Note: none of this counts home equity in the event that we downsize/move to lower COL area).

 

[Whisper66]

Does anyone have similar statistics. I'm curious to hear from people who have FIRE'd... what plan did you have and where did you sit 10 years in?

I don't have statistics that far back in my life. But here's what I can offer. Started working in 1982. Was married at 22 and had 3 children early in life. Got serious about finances in early 1990's after realizing we might one day have 2 kids in college while still paying on a house loan and maybe a car loan. Was a "wake-up" moment for us. Basic plan we began was to pay of all loans ASAP and when those were paid off, push those "extra" monthly funds into savings. Also take "reasonable" amount of any future raises and push those also into savings. Lastly we tracked expenses closely and agreed with DW on all major expenses before we progressed. We did raise our standard of living significantly over the years but it was always with a good understanding of the cost to us and possible future retirement. Plan worked as we planned because my DW and I were in strong partnership on it. Retired in 2015.

Below are a couple data points I have for the various ratios you calculate:

Years of work
Salary to First year salary
Savings to first year salary
Savings to current salary

20 yrs
3.8
13.3
3.53

25 yrs
6.7
34.6
5.18

30 yrs
7.9
79.2
9.9

I know these numbers are a bit further down the career road than 10 yrs but maybe still useful if you can estimate / extrapolate where you think you might be then. From looking at your numbers and thinking of the current economic environment, I suspect you are doing very well to date.

 

[EvrClrx311]

Appreciate the feedback and numbers!

Very good point about living expenses vs income as well as how insignificant my first years salary will be in another couple decades.

Since I'm setting so much of my income towards retirement/savings and plan to have a paid off house in retirement (just property taxes and no mortgage)... it really only need to hit about 13-15x salary to maintain the same level of spending. I like that, it also incentives me to increase the savings rate, because the higher it is the more I'm saving, but also the less that is able to creep into my standard of living. Maybe I'll start increasing that savings rate 2% a year, I could probably achieve that by allocating half of my raises to savings.

 

[2017ish]

Appreciate the feedback and numbers!

Very good point about living expenses vs income as well as how insignificant my first years salary will be in another couple decades.

Since I'm setting so much of my income towards retirement/savings and plan to have a paid off house in retirement (just property taxes and no mortgage)... it really only need to hit about 13-15x salary to maintain the same level of spending. I like that, ...

That is the proper way to think about it. We will be quitting for good with [investment portfolio] less than 10x final "income" (expansive definition including what we route through "employer" contributions to 401k, etc.). But, we'll likely have more discretionary spending than ever before (well--except for all the spending that resulted from deciding to have three kids and paying for all spending through four years of college!).

I agree with others that you are off to a great start. Far better than we were at your age!

Edited to add [ital]

 

[latexman]

Any chance of any company pensions?

 

[jollystomper]

For the OP - I do keep some similar numbers. I have been working since college for 36 years. So for comparison...

- Salary progress after 1st 10 years was 2.39.

- Savings based on 1st years salary after 10 years: 3.39

- Savings after 10 years to 10th year salary: 1.42

However, at this point our oldest child was just 5, and we had more on the way... so our expenses hadn't yet ramped up. It slowed our savings for a while, but then the dotcom boom and W2K hit to ramp up income, and then the kids started leaving home to drive down expenses...

I agree with the point made above that you want to look and a multiple of your expenses, not your income. For example, last year our savings rate against our gross income was 31%, when you add in all taxes and charitable, and gifts, we lived off of 37 percent of our income, which made making the 25x multiplier much easier.

You are off to a great start - keep doing what you are doing BUT also remember to not get too caught up in savings, enjoy some of that income now.