Am I overdoing it?

[jclarksnakes]

$1M by age 37 would be a great achievement but probably not enough to safely retire unless you can live very cheaply.

 

[Surewhitey]

$1M by age 37 would be a great achievement but probably not enough to safely retire unless you can live very cheaply.

If you can cover expenses and a couple pts for inflation, 1M is fine.... We live quite well down here or most states on $35-40k...$30k in Mexico is high on the carnitas.

 

[Nords]

- No, I don't feel utterly deprived currently. I travel a decent amount, I eat out, and I enjoy my hobbies. The only potential deprivation is that I drive an older car; I've thought about getting something newer, but I think it would just be because I feel like I should rather than actually caring about it.
- Single and no kids. I'm not sure what will happen in the future.

More & more it does feel that I'm on the right path towards very early FI. Obviously the market will drive some of what happens, but based on my current saving it seems entirely possible that I'll hit $1M by around age 37, and I don't expect my spending to change drastically between now and then.

Interestingly, though, when I think about my spending 10-20 years down the line, I typically imagine myself spending in the $75k/year range as opposed to the current $30-40k/year range. I'm not sure if this is anticipation of having kids in the future, worries about health insurance, or just a miscalculation on my part. As a result, I don't feel confident that my savings will signify true FI in the next 5-6 years.

You sound like your spending reflects your values, not someone else's expectations. If you're happy then it's "frugal" or happy living. If it's painful then it's deprivation.
Frugal living is not deprivation | Military Retirement & Financial Independence

If you're interested in playing with your 401(k) options or other advanced investing techniques, then take the time to learn how to do it right. If you're not so interested then don't feel obligated to "streamline your upside potential". Just keep socking it away in your asset allocation and occasionally rebalancing.

Once your portfolio is handling your $36K/year living expenses then you can decide whether working longer is worth getting it to support $75K/year. Or you could decide to quit your day job and focus on part-time employment with your side business.

As far as the spouse/kids/family situation: nobody ever predicts that one.

 

[jclarksnakes]

If you can cover expenses and a couple pts for inflation, 1M is fine.... We live quite well down here or most states on $35-40k...$30k in Mexico is high on the carnitas.

It does look like you are doing great where you are right now. But, what happens if inflation goes crazy sometime during your life? If you and the OP were 20 years older the chances of inflation destroying the value in your savings would be much less and you would have fewer years to have to spread the remainder out over. $1M is a lot of money today. 10 years of 5% to 7% annual inflation and it would not seem like so much. Even 3.5% average annual inflation over the 40+ years you guys have left in your lives will cause serious reductions in your lifestyles. If the OP marries someone who does not share his live WAY below your means mentality he is probably going to need more than $30K a year in todays dollars to live.

 

[FIREd]

Now to get to the point: Since my spending runs under $3k/month and I'm already maxing out 401ks and IRAs, I find myself saving another ~40-50k/year in taxable accounts. Mind you, this level of saving is a somewhat recent development for me, but it appears to be something I'll be able to continue going forward. I expect another significant raise some time this year, which will only solidify my ability to keep this up. So the question is: Am I overdoing this? I don't intend to call it quits for quite a while, as I haven't even determined what I'd do with my time. Should I be balancing things out a little more and not focusing so much on keeping my spending the same as my income rises? It seems at this rate that I might become so accustomed to saving that I'll never be able to let myself retire, so I'm not sure what the point of doing all of this is.

DW and I averaged a pretty high savings rate over the years as we kept our expenses fairly constant while our income grew rapidly. We reached financial independence in our late 30's. Do I think we overdid it? No. Of course, you may not feel this way.

What is the point of all this? Even if you don't retire right away, financial independence gives you choices (choice of location, choice of activity, choice of lifestyle, etc...). To me, this is invaluable.

 

[Finance Dave]

dreamer, one thing I'd point out....as this has started happening to us the past 2-3 years.

Once you get your portfolio to a certain level, the amount you add each year becomes less important to its growth than simply the time it stays in the account at a reasonable rate of return. Let's say you get to $1M by 37, and earn 11% that year. That's $110,000 that your account will grow by. Contrast that with an amount you may contribute...let's say you make $125k and add 20%...so you're adding $25,000.

What does this mean? Well, it means a few things.
1) Once you reach that level, you can afford to cut back a bit on what you contribute and just watch it grow...and therefore spend more of what you make

2) Realize that the exponential impact of TVM is working for you...it's a great feeling!

In 2010, we earned more in our combined plans than our income! That won't happen every year....but when you get to that point, it's pretty exciting.

Think of it this way. If you have $1M in a portfolio that's 70% equities (let's say S&P500), and the market (S&P) goes up by 1% on a given day, then you've just increased your balance by $7,000. While that doesn't sound like a lot...that's one day. There are approximately 250 "business" days in a year...so the amounts can be significant quickly.

I just thought I'd point this out because when your balance is low...you don't really notice this...and it was quite enlightening for us when this started happening. We cut our savings back recently from ~32% of gross to ~20% of gross so that we can pay down the mortgage on our rental properties. But even with this, our account keeps growing.

 

[bizlady]

You've done an awesome job. But you are young and should enjoy life too.

Personally, if in your shoes, I would continue to be very disciplined with savings, but allocate up to 25% of my "disccretionary" money (all your expenses plus fully funding IRA and 401k in this case) to a fun account and enjoy life. No one knows how long a job lasts, or life. Keep building that account so that if you choose to retire early at any point, you can live comfortably and pay for things like medical insurance.

Ask yourself, "If I had 3 months left to live, what would I want to do before I die?". This may help clarify your priorities.

Be sure to set up a will etc if you have not already done so....

 

[ShortInSeattle]

dreamer, one thing I'd point out....as this has started happening to us the past 2-3 years.
.

Think of it this way. If you have $1M in a portfolio that's 70% equities (let's say S&P500), and the market (S&P) goes up by 1% on a given day, then you've just increased your balance by $7,000. While that doesn't sound like a lot...that's one day. There are approximately 250 "business" days in a year...so the amounts can be significant quickly.
.

Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...

 

[FUEGO]

Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...

I'm still working on the first million, but I can definitely say the first $100k was hardest. I'm still measuring in 100k milestones but don't really pay attention when they happen (I have the million milestone in my eyes). I am guessing we passed by 2 $100k milestones this quarter although the books aren't quite closed yet. Market movements this quarter so far have dwarfed our entire annual salaries.

 

[pb4uski]

Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...

The second million is absolutely easier due to magic (the power of compounding).

Say you are saving 20k a year and your contributions are increasing 3% a year and your nestegg earns 7% each year.

After 19 years you would have ~$1 million and it would be roughly 1/2 contributions and 1/2 accumulated investment earnings.

Only 8 years later you would break the $2 million mark and your additional contributions in that 8 years would only be 300k and the rest would be interest.

And $3 million would be just 4 years after $2 million all else held constant.

Year	Contribution	Investment return	Balance
		7%
1	20	1	21
2	21	3	45
3	21	5	71
4	22	6	99
5	23	9	130
6	23	11	164
7	24	13	201
8	25	16	242
9	25	19	286
10	26	22	333
11	27	25	386
12	28	29	442
13	29	33	504
14	29	37	570
15	30	42	643
16	31	47	721
17	32	53	806
18	33	59	897
19	34	65	997
	502	494
20	35	72	1,104
21	36	80	1,220
22	37	88	1,345
23	38	97	1,480
24	39	106	1,626
25	41	117	1,784
26	42	128	1,953
27	43	140	2,136
	312	827
28	44	153	2,333
29	46	167	2,545
30	47	181	2,774
31	49	198	3,020
	186	698
	1,000	2,020	3,020

 

[donheff]

Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...

Yeah, "the rich get richer" is true, provided Mr. Market delivers.

 

[obgyn65]

+1

No, I do not think you are overdoing it, as long as you don't feel deprived.

 

[travelover]

If you decide differently on a SO, get a prenup.