How soon can I reach my FIRE Final Investment Portfolio Value Goal?

[nico08]

I am trying to figure out how soon I may be able to FIRE. I have a particular amount that I need to have in my investment portfolio in order for me to FIRE comfortably and with a reasonable degree of success. I relied, in part, on FIRECalc when establishing this figure. Let's say that amount equals 100 percent. Below, I have documented my investment portfolio value based on an annual basis as a percentage of the final needed investment portfolio value.
2005 12.7%
2006 17.8%
2007 23.6%
2008 25.7%
2009 20.5%
2010 32%
2011 42.5%
2012 48.9%
2013 63.3%
2014 81.3%
4/2014 83.8%
Based on the data above, or other data that I may access to, is there a way for me to estimate how long it will take me to reach 100% of my investment portfolio goal? I guess I am trying to figure out how much of a role compounding will play in the near term as I approach my final goal. The percentages above are a combination of both investment portfolio returns and savings. It seems like, on average, for the last four months the monthly increase to my investment portfolio amounts to about .8% of the total investment portfolio value. Is there an equation or a calculator that may help?

 

[Meadbh]

Your metric is one that I used in my Excel spreadsheet on Net Worth. Each year I would calculate Investable Assets (NW minus primary residence) and Investable Assets as a percentage of my target. Next I inserted a cell for annual additions (or subtractions) to the portfolio. I added a cell for portfolio returns (which I could alter to simulate scenarios) and calculated the number of years at that savings rate and rate of return which it would take to reach my target. As Investable Assets as a percentage of my target went up, the number of years to reach the target went down. The exceptions were 2008 and the year when I paid off a lot of debt, leaving less to add to the portfolio. All very simple math and easy to play with.

 

[Animorph]

All well and good for past results. But can you tell us what the future returns will be? Then we can tell you how long it will take to reach 100%. What are your contributions? How much do you have in stocks (diversified or all U.S. large caps?). What kind of fixed income investments do you have?

Assuming an appropriate average investment gain will allow you to do the math. But it won't tell you how long it will take to reach 100% if the stock market tanks this year or goes crazy like 2013. Or if interest rates jump, or if inflation jumps (or both most likely).

 

[nico08]

All well and good for past results. But can you tell us what the future returns will be? Then we can tell you how long it will take to reach 100%. What are your contributions? How much do you have in stocks (diversified or all U.S. large caps?). What kind of fixed income investments do you have?

Assuming an appropriate average investment gain will allow you to do the math. But it won't tell you how long it will take to reach 100% if the stock market tanks this year or goes crazy like 2013. Or if interest rates jump, or if inflation jumps (or both most likely).

Hi. Here is the additional information that you asked for:

Stock 60%
Large cap 33%
Small/Med Cap 9%
International 18%

Bond 30%
Investment Grade 21%
Hi Yield 3%
International 6%

Short Term Securities 10%

I contribute annually through savings approximately 2.4% of the total goal investment portfolio amount.

 

[pb4uski]

Quicken Lifetime Planner will tell you. You can use the what-if to delay your retirement until it succeeds.

A quick and dirty way would be to use Excel's nper (number of periods) function to see how long it would take a pv of 83.8 plus annual contributions of 2.5 to grow to 100 at a given growth rate. Remember that the beginning amount and contributons are input as negative numbers.

Assuming a 5% return it is about 2 1/2 years and at 7% it is about two years.

How lucky do you feel?

 

[Andre1969]

Just out of curiosity, at what point in the year are you taking these totals? I would presume the first day of the year, since your 2009 number is lower than 2008?

At the rate things have taken off these past couple years, I'd say you could hit your number very quickly. For instance, if 2014 is as good as 2013 was, you'll be there at the end of the year! I think I saw a 15.9% rate of return in 2012, and about 22% in 2013. However, so far this year, I'm only up about 1%.

 

[nico08]

Quicken Lifetime Planner will tell you. You can use the what-if to delay your retirement until it succeeds.

A quick and dirty way would be to use Excel's nper (number of periods) function to see how long it would take a pv of 83.8 plus annual contributions of 2.5 to grow to 100 at a given growth rate. Remember that the beginning amount and contributons are input as negative numbers.

Assuming a 5% return it is about 2 1/2 years and at 7% it is about two years.

How lucky do you feel?

Thank you for the information about the Excel program. I will try the nper function out.

 

[nico08]

Just out of curiosity, at what point in the year are you taking these totals? I would presume the first day of the year, since your 2009 number is lower than 2008?

At the rate things have taken off these past couple years, I'd say you could hit your number very quickly. For instance, if 2014 is as good as 2013 was, you'll be there at the end of the year! I think I saw a 15.9% rate of return in 2012, and about 22% in 2013. However, so far this year, I'm only up about 1%.

Hi. Your numbers are very similar to mine. Yes, I was using a date in January for taking these totals. And even though the investment portfolio only returned between 1 and 3 percent YTD for 2014, my goal toward completion percentage went up about 2.5 percent, from 81.3% at the beginning of 2014 to 83.8 in 4/2014.

 

[photoguy]

You can stick your portfolio into firecalc and use a negative withdrawal rate (=savings) and run it forward based a few years.

This will give you a distribution of returns. And you can check to see when the individual runs cross the threshold.

Sent from my Nexus 5 using Early Retirement Forum mobile app

 

[Midpack]

Another way using FIRECALC itself might be to use the "Investigate Delaying Retirement" option in the Investigate tab (below). Leave the default at 10 years (more if that doesn't reach 100%) and enter your current portfolio, spending and (plan) years. Submit and voila.

But no calculator can predict the future anyway.

 

[ggbutcher]

I am trying to figure out how soon I may be able to FIRE. I have a particular amount that I need to have in my investment portfolio in order for me to FIRE comfortably and with a reasonable degree of success. I relied, in part, on FIRECalc when establishing this figure. Let's say that amount equals 100 percent. Below, I have documented my investment portfolio value based on an annual basis as a percentage of the final needed investment portfolio value.
2005 12.7%
2006 17.8%
2007 23.6%
2008 25.7%
2009 20.5%
2010 32%
2011 42.5%
2012 48.9%
2013 63.3%
2014 81.3%
4/2014 83.8%
Based on the data above, or other data that I may access to, is there a way for me to estimate how long it will take me to reach 100% of my investment portfolio goal? I guess I am trying to figure out how much of a role compounding will play in the near term as I approach my final goal. The percentages above are a combination of both investment portfolio returns and savings. It seems like, on average, for the last four months the monthly increase to my investment portfolio amounts to about .8% of the total investment portfolio value. Is there an equation or a calculator that may help?

I wanted to easily play with various options in what I call a 'distribution', which I define to be a savings plan where money is pitched in monthly, it compounds at a postulated rate of return, and then the balance is drawn on monthly as income for a specified duration. So, I wrote a javascript program in a web page to do it:

Income/Expense Analyzer

There are three tabs on the left, and an empty graph on the right. In the Globals tab, enter your birthyear; with that, you can enter either calendar years or your age in various fields. Now click the Item Entry tab, and enter the following:

Name: Savings
Category: click "Distribution"
Amount: 2300
Inflation: 3 (a COLA, if you will)
Start: 62 (age of retirement)
End: 90 (plan to be dead by then?)

Balance: 100000 (what you already have in savings)
Contribution: 700 (this is a monthly amount)
Interest Rate: 5 (anticipated rate of return on the invested savings)
Savings Start: 40 (or your current age)
Savings End: 62 (when you plan to stop contributing to savings)

Click Add/Change, regard the graph, should look something like this:

The red line is your savings balance, plotted against the right y axis, and the gold line is your distributed monthly income, plotted against the left y axis. You can play with the numbers to fit your situation, and see the effect of various alternatives, like savings rate of return.

I got tired of dorking with my spreadsheet every time I wanted to add something, so I wrote this. It doesn't use a server for storing or calculating, so it's relatively safe from hacking. You can save your work, see the "View Scenario Storage" button on the Globals tab, but you have to copy and paste that to Notepad or some other text editor and save it on your computer. You can add other things, like SSA, or expenses, and they just add to the appropriate line.

 

[Midpack]

Wasn't on a PC so I couldn't play with your scenario in my earlier post, but here's what the output of the approach I suggested using FIRECALC. Since I don't know your age, I left years at 30, and backed into a 2014 success rate of 83.2%. I also don't know your AA, so I left it at default, you would want to enter something that more accurately reflects your AA. IOW, you can generate a more meaningful result with your own specific inputs.

Here's the delaying retirement output from FIRECALC.

As you probably know, getting from 95% to 100% success rate is a high hurdle, and this chart shows that once again.

 

[nico08]

Wasn't on a PC so I couldn't play with your scenario in my earlier post, but here's what the output of the approach I suggested using FIRECALC. Since I don't know your age, I left years at 30, and backed into a 2014 success rate of 83.2%. I also don't know your AA, so I left it at default, you would want to enter something that more accurately reflects your AA. IOW, you can generate a more meaningful result with your own specific inputs.

Here's the delaying retirement output from FIRECALC.

As you probably know, getting from 95% to 100% success rate is a high hurdle, and this chart shows that once again.

Thank you for running the scenario in FIRECalc. I am 43 and I will be 44 in June. I came up with a chart similar to the one you produced. So it looks like my prison sentence (work) may end sometime between 2016 and 2017 if I want a 95 percent success rate. I was hoping I could leave by the end of 2015, but oh well.

 

[nico08]

I wanted to easily play with various options in what I call a 'distribution', which I define to be a savings plan where money is pitched in monthly, it compounds at a postulated rate of return, and then the balance is drawn on monthly as income for a specified duration. So, I wrote a javascript program in a web page to do it:

Income/Expense Analyzer

There are three tabs on the left, and an empty graph on the right. In the Globals tab, enter your birthyear; with that, you can enter either calendar years or your age in various fields. Now click the Item Entry tab, and enter the following:

Name: Savings
Category: click "Distribution"
Amount: 2300
Inflation: 3 (a COLA, if you will)
Start: 62 (age of retirement)
End: 90 (plan to be dead by then?)

Balance: 100000 (what you already have in savings)
Contribution: 700 (this is a monthly amount)
Interest Rate: 5 (anticipated rate of return on the invested savings)
Savings Start: 40 (or your current age)
Savings End: 62 (when you plan to stop contributing to savings)

Click Add/Change, regard the graph, should look something like this:

The red line is your savings balance, plotted against the right y axis, and the gold line is your distributed monthly income, plotted against the left y axis. You can play with the numbers to fit your situation, and see the effect of various alternatives, like savings rate of return.

I got tired of dorking with my spreadsheet every time I wanted to add something, so I wrote this. It doesn't use a server for storing or calculating, so it's relatively safe from hacking. You can save your work, see the "View Scenario Storage" button on the Globals tab, but you have to copy and paste that to Notepad or some other text editor and save it on your computer. You can add other things, like SSA, or expenses, and they just add to the appropriate line.

Thank you for providing this program. I am trying better understand and use it. Can you tell me how the 2300 as the amount variable was determined?

 

[Ready]

Remember that you need to plan for volatility in your portfolio in the short term. If you believe that your magic number to reach FI is investable savings of $1M, and you have $950K this year, you may forecast that you're likely one year away from retirement.

But what if we have a major correction in the market this year - say a 30% drop. If 60% of your $950K is in stock, your portfolio is now worth $779K. So if the real number you need to live on is $1M, many would suggest that you have something closer to $1.3M so that you can sustain a 30% correction at the beginning of your retirement and still be OK.

If we could all count on a steady 8% return with no drops, there wouldn't be much to talk about in this forum! But that's what keeps these conversations interesting.

 

[nico08]

Remember that you need to plan for volatility in your portfolio in the short term. If you believe that your magic number to reach FI is investable savings of $1M, and you have $950K this year, you may forecast that you're likely one year away from retirement.

But what if we have a major correction in the market this year - say a 30% drop. If 60% of your $950K is in stock, your portfolio is now worth $779K. So if the real number you need to live on is $1M, many would suggest that you have something closer to $1.3M so that you can sustain a 30% correction at the beginning of your retirement and still be OK.

If we could all count on a steady 8% return with no drops, there wouldn't be much to talk about in this forum! But that's what keeps these conversations interesting.

Thanks for the insight. Does that suggested additional 30 percent apply when you are using FIRECalc in with the "Display the results of the retirement plan
The success rate of your portfolio and withdrawal plans" So if 95 percent is the success rate, would the additional 30 percent as a suggested increase to the investment portfolio, help to insure that I don't end up in the 5 percent failure rate?

 

[Ready]

Sequence of returns is a significant risk in the early years of retirement. Many on the forum will pad their numbers to account for this. For example, if your real expenses are $40K per year, you will want to see in Firecalc that you are good for up to $50K or $55K per year, knowing that you can increase your expenses if things go well, but live on $40K if we have a big drop.

Imagine two couples going to a financial advisor and asking if they are ready to retire. Each has a portfolio of $1M, and each wants to spend $40K per year in retirement. The advisor tells both couples they can withdraw 4% per year, so they are good to go.

Couple A decides to retire. Couple B succumbs to one more year syndrome and continues to work. During the next twelve months, we have a 25% market correction. Couple B now only has $900K in their portfolio. They go back to their advisor at the end of the 12 month period and tell him they are ready to retire. But the advisor says "WAIT!", you don't have enough in savings, you need to keep working.

They are stunned. Their friends retired a year ago with the same amount in their savings. They worked an extra year just to be safe, but now they are told they don't have enough. It doesn't make sense.

And that is why the simple 4% SWR doesn't make sense, other than as a baseline to begin evaluating your FI readiness. In my modeling, I always assume a 30% bear market in the first year of my retirement just to make sure I can pass the stress test and still be OK. Not everyone will do this, but I believe it helps me to sleep better at night.

 

[ducky911]

so you have 84 dollars and you need 100

if you figure you make about 7 % on investments and inflation is 3 % (past performance is no guaranty of future returns)

plus you are saving 2.4%

than you could plan to go up by 6.4% per year.

84 times 1.064 =89.4
89.4 times 1.064 =95.1
95.1 times 1.064 =101.2

so with average stock market goals ..3 years...but it could be 6 months or 10 years .

 

[ggbutcher]

Thank you for providing this program. I am trying better understand and use it. Can you tell me how the 2300 as the amount variable was determined?

What I do with it is to plug in the beginning balance, monthly contribution, anticipated rate of return, savings start and end, then I play with different incomes until I get the curve to do what I want, which is usually be close to $0 balance at the end. I did that to produce the posted graph, and $2300/month is where I ended up with $0 balance at age 90. I messed with HTML spinners to allow "scrolling" through various parameters, but that proved to be a little taxing on my 'lil laptop.

Oh, I used age 90 as an end for this example, but for my personal planning I use age 100. All depends on what sort of conservatism upon which you want to build your analysis.

I do need to reinforce a point made by others, rate of return as a linear assumption is not one you should rely on for a long investment period. My little program assumes a linear rate, so it's not really good for analyzing such variance, the monte carlo mode of FireCalc is. But, mine does the present-future value thing pretty well, in my warped and ethnocentric opinion...