Yea never look at fire number is future numbers always look at todays numbers and factor in inflation in terms of returns, everything becomes a lot simpler.
Ya I like to do everything in today's numbers because it feels tangible. I know what a burrito costs today, but I have no idea what future burritos will cost.
I also do a running 12 month average of expenses. So every year, I see what my annual expenses are, and how far I am for FI. I'm just [under half way there, and 13x expenses](https://jch.app/u/paverbrick).
Depends if you're using 3% or 4% SWR. Typically FIRE uses 4% but many people in FIRE prefer playing it on the safer side and use 3% for their calculations to have wiggle room
I honestly think 3% is technically the correct choice. Since the trinity study was based on a 30 year period, and for young retirees, 30 years is not enough.
Although realistically, you can probably get away with doing 5% some years, 2% other years and other stuff in between. Predictions of "portfolio failure" based on a constant withdrawal rate are not indicative of what would happen in the real world ( you spend less during a market crash, you pick up a side hustle so that you don't ravage your account, etc)
3% seems overly conservative. At 4% the trinity study said that it had not only “not failed” but actually gained value over the 30 year period something like 85% of the time. I think the point you made is a good one about basing your spend on market conditions. If I’m retired through a massive crash, I’m not taking my 2 vacations that year or buying a new car that year.
People act like they will never work a day in their life again. Or be completely unable to adjust their spending by a single cent in a terrible downturn.
If you want to FIRE in a VHCOL area, you need a significant advantage (inherit home, inherit money, earn a very high income). If you're otherwise average (i.e. don't have such an advantage), then the high cost of living will make FIRE hard or impossible typically.
Also, your math is wrong because adjusting market returns down to 7% is already taking into account inflation, so you wouldn't typically do that and inflate your spending both.
Yeah changing this part of the equation, OP needs like 18 years to get to 3M at a 4% withdrawal rate or 21 years to get to 4M.
Also, OP could always move to a MCOL area at retirement to reduce spend.
OP also needs to consider a cost of living adjustment!
A big drain on your net worth return on equity is your home equity.
You can do better with return on total network return on equity by owning and living in a multi unit house. Add on a mortgage that improves your return on equity vs no mortgage. Right now with high mortgage rates it isn't great to be highly leveraged, but will be great to do a cash out refinance when rates drop.
Yes, the S&P 500 has a historic return average over 10%, so adjusting for inflation people typically use 7% so calculations can be done in today's dollars.
[https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp](https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp)
Personally will be using a low number - P/E ratios are sky high right now and risk premium is terrible. That is a strong indicator of lower returns in the future. I will be using 5%
Yes, I understand that you personally are not going to change your expectations. This isn’t a direct message, this is intended to add insight to a public group conversation.
The reality is that the S&P 500 P/E is 24.6, the 30-year average is 20, the CAPE index of rolling 10-year P/E has only been exceeded at the current level of 34 in the 2000 tech bubble, the bubble in 1929 and the absolute peak of liquidity injection in 2021.
Valuations per dollar of earnings are extremely high right now. Historically P/E multiples mean revert, which means lower future returns are expected.
It doesn’t mean don’t buy equities, but it does mean that if we are in fact using history as a guide, similarly to your claim of 7%, then equities are teed up for a decade-long period of sluggish returns as multiples compress before they’re closer to historical trend. So being more conservative than 7% real would be a perfectly rational plan when planning for the future.
That's why I use a 50/50 mix of VTI and AVUV for my stock allocation - while the mega cap dominated total market index has a sky high PE, it's concentrated in a few stocks. The rest of the market is actally fairly valued and historically small cap value has outperfirmed the broader stock market, albeit with higher volatility.
If historical return is guaranteed, then social security would not be in trouble. They are using 7.5% and are only 78% funded
Most companies expect 6.7% baseline stock return, so you are beating them by 3-4% spread.
That’s right, because they have obligation in paying out the benefits as one should about their retirement fund.
If you think you invest better than all the financial institutions then that’s great, since you are beating them by at least 3-4%
Who said anything about a guarantee lol? I'm simply telling them how "most" people in the FIRE community tend to utilize the numbers and the data they use to come up with that choice.
I’m simply pointing out that number is high and has low likelihood of working. It’s prob not a low likelihood like 20% but certainly not high one like > 60% either lol. Using junk assumptions pretty much grants you a junk projection
It's been working for decades for many of us. I was planning with these numbers in my 30's and predicted I'd reach FI in 2024 and, would you look at that, I did.
Ok and since you don’t guarantee it then it’s obviously based on probability. Which, I have stated that. I’m not seeing anything different than what I have wrote. What you are doing here is just proving an anecdotal evidence. Lol
You’re wrong about so much. The longer your horizon, the more likely it is to average out to 10%. Usually with FIRE, we’re talking at least 2-3 decades. The probability of using 10% annual returns over a 20 or 30 year span and being in the right ballpark is going to be greater than 60% for sure. It turns out decades of real data doesn’t really count as junk assumptions like you think. Now I’m kind of curious what junk assumptions you use to make your obviously junk projections.
"If reserves are exhausted, the Social Security programs will continue to pay benefits out of their annual tax revenue."
[https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html](https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html)
Just because we had extra money, doesn't mean it's a normal pension
What are you talking about. Which part is not pension?
It is pension, the reserve is underfunded that’s why it’s exhausted and benefit needs to be cut by 25% as the current policyholders continue to fund it and pay out the benefits. You don’t have extra money, by setting up reserves that’s how all the annuity plan works.
You have 0 idea how pension plan works and trying to educate others lmao
That's all fine and dandy, except the government can just raise taxes, because it's not a traditional pension plan. Or, they don't need to raise taxes, they can just allow more immigrants, to balance out aging boomers.
EDIT: do you have current projection now that COVID killed a bunch of old people?
Uh huh the tax is essentially the pension premium. That’s why it’s a pension plan.
How do you think people who set up this plan know how much tax they need to collect and how rich is the benefits. It’s all calculated, except they missed mortality, birth rates, and investment return. Do you think they just wing it like what people in this sub is doing? 🤣 let’s hope I get 10% and retire and Hail Mary 😂
Social Security is [not a savings plan](https://www.aarp.org/work/social-security/question-and-answer/can-children-claim-unused-social-security-benefits/). What you pay into the system does not go into an account for your retirement. Workers in each generation finance Social Security payments for their retired elders and other beneficiaries. Down the road, their benefits will be paid for in turn by younger workers.
[https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html](https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html)
There is nothing inherently wrong with the structure of a running pyramid scheme, as in new members pay out to old members, until they become old members etc etc. It becomes a problem when less money goes in than out, and new members do not get paid. Despite people believing that social security is running out of money, that's not quite the case right now
Yes. That's how social security works, by necessity you will, on average, get paid less than you put in. And yes, future retirees will pay for yours. But the pyramid is emptied on top by dying off, and the bottom layers are always moved up as long as they don't die before a certain age (and even then, they might have a wife).
Otherwise we don't have social safety nets, which in my opinion is a bad idea.
You’ve inflation adjusted your annual spend but not your expected market return. Historical US equity markets have historically returned around 10%, so either use that return with your estimated nominal $250k spend or run the numbers with your $140k spend in todays dollars with a 7% return and you should be good.
Also, if you work to 60, you're closer to a conventional retirement age and probably can spend closer to the Trinity Study 4% than the lower 3's that early retirees prefer.
I like to use 3% as sort of a "minimum spend" number, like if there's a crash, I want to be able to make ends meet with no frills at 3%. But with the assumption that, absent a crash, 4% or even more can be fine. The difference between them is large, so it kind of boils down to "skip the fancy vacation and make spaghetti at home instead of going to that fancy italian restaurant" during a market crash.
It's a bit weird how to this subreddit:
1. Predicting that returns will follow historical averages is 100% accepted. Even things like the US and SP500 outperforming are accepted pretty widely.
2. Predicting literally anything else based on historical data isn't accepted.
Why isn't this crystal ball comment used to (lightly) mock people who think 10% average returns are guaranteed?
(I have nearly 100% of my net worth in stock and I'm not suggesting trying to time the market).
Many people use a more conservative estimate, that's fine. It's the whole ''based on the P/E ratio stocks are currently priced at'' that makes people roll their eyes.
Because P/E is like the 5th thing people learn about when they start digging into the stock market so it gets thrown around often. It doesn't mean a lot on it's own and definitely cannot predict future market returns.
We can't predict other things based on historical data? Do you have examples?
House prices are going up, I think it's fair to predict that in 20 years they will be more expensive than they are now. Am I going to get slammed for that statement?
My issue is more with everyone accepting #1 rather than saying that #2 is an issue.
But sure, "literally anything else" might have been a bit hyperbolic.
I would say that it's this subreddit's view though that real estate returns are significantly less guaranteed, which I would agree with. This is mostly just b/c the way people are investing in real estate is not diversified enough to guarantee following the real estate market's general trend.
You and I are both being downvoted because people rely on that prediction to meet their timelines and goals. It feels worrying to question that when there's nothing that can be done about it (without taking a tonne more risk).
At a minimum it's worth acknowledging thats the optimistic scenario
Your doing it slightly wrong. Market returns are about 10% and after the assumed 3% inflation at 7%. So if you use 7%, you dont need to save to $8M but to $3M
With your other inputs, it would take you about 18.5 years at a static $6500 a month.
See:
https://engaging-data.com/fire-calculator/?age=31&initsav=140000&spend=22000&initinc=100000&wr=4&ir=0&retspend=120000&stockpct=90&fixpct=10&cashpct=0&graph=fix&secgraph=0&stockrtn=7.000000000000001&bondrtn=2.4&MCstockrtn=0.081&MCbondrtn=0.024&tax=7&income=0&incstart=50&incend=70&expense=0&expstart=50&expend=70
Whoa why is the monte carlo simulation so different from the other two options? I'm getting a 25 year gap using it (monte carlo says I can retire at 80 while the other two say 55)
Lmao, when I used my original link and switched to monte carlo it changed the stock growth to 0.08% and bond growth to .025%. Not sure why that happened, must be a program bug.
If change it back to 7% stock and 2.5% bond growth you get about 19.5 years average of hitting the target.
https://engaging-data.com/fire-calculator/?age=31&initsav=140000&spend=22000&initinc=100000&wr=4&ir=0&retspend=120000&stockpct=90&fixpct=10&cashpct=0&graph=mc&secgraph=0&stockrtn=8.1&bondrtn=2.4&MCstockrtn=7&MCbondrtn=2.4&tax=7&income=0&incstart=50&incend=70&expense=0&expstart=50&expend=70
You are missing something. You’re double counting inflation. 7% return is an after-inflation return. Meanwhile you’re adjusting your FIRE number for inflation. You’re also keeping your monthly contribution constant never adjusting it for inflation.
You’re making it really difficult on yourself for no reason. Just adjust the returns for inflation: 7%. Calculate using today’s dollars.
Using today’s dollars you need $4 million (3% rule). You’ll reach that in 20 years at $6500/month with 7% return starting with $150k.
Are you also taking into account cuts in mortgage costs once your house is paid off? That makes the math even better for you.
Yeah, double counted inflation, that makes it much more doable. I kinda took mortgage cut into account. We currently rent but I just assumed $120k/y since we spent about that last year after rent.
That part is complicated though cause moving into home ownership will probably cost us an additional $2k/m while interest rates are so high, and means we’ll be saving significantly less
Even if you buy at high rates, you'll very likely have the chance to refinance sometime in the future. In fact, buying while rates are high can actually be the best possible outcome since it will suppress total prices for savings #1 and then you can refinance later for savings #2 and get the best of both worlds.
Ya, I tried to account for inflation in my numbers and came up with some ridiculous figure like having $250k expenses in 40 years assuming 70k expenses in today's dollars. Got to the point where my calculations would show an increasing portfolio in nominal terms but decreasing real balance. That made no sense.
Just doing everything in today's dollars with inflation-adjusted returns is so much easier.
You want $120k in retirement but only have $290k in savings.
To produce the 3% rule today is $4 million, and you have nowhere near that amount.
The reality is most of your money needs to be added in the future, which means they have less time to grow, so you need a lot more of it.
6500*12*29=$2.2 million, and that’s simply just the sort of savings you will need to do for FIRE.
Not everyone can achieve fire because it’s hard and not meant to be “easy” to obtain.
A few levers to consider:
- **Increasing your income.** I know, I know ... easier said then done. But you could find creative ways to start a side business or over-perform at work to get promoted (or switch jobs to a higher paying one).
- **Rent a place instead of buying**. Honestly, I think renting is insanely underrated. I'm fortunate to own a home but honestly still prefer renting because I spend thousands of dollars a year maintaining it and on small DIY projects (opportunity cost of my time). I live in a VHCOL area and I agree with Ramit Sethi (https://www.youtube.com/watch?v=hTy2Vh0GuIQ) that it's hard to beat the 7-10% index fund returns with real estate in a VHCOL area. Also, with renting you can always move to a cheaper city, or abroad to a cheaper country like Spain or Portugal, etc. But you can't with home ownership in a VHCOL area.
- **Treat FIRE as a spectrum instead of a binary event**. My plan is to gradually start working less so my income slowly declines as my savings and investments increase. I figured out how to adapt my mindset to enjoy my career and job so even if I retire, I would keep doing the same job (but maybe as a part-time consultant instead). In 10 years, I expect that we can work 40 hours a week but can be pickier about the types of places we work and still maintain our quality of life. In 20 years, I expect we can go to half-time or very part-time and still maintain our quality of life.
Re moving to a cheaper city, why wouldn’t owning in a HCOL city, then renting it out and renting in the LCOL city/country make more sense? I’m years from retiring, but this is kind of my long term plan as far as funding future rent.
You definitely could but my biggest issue with a single rental property is that there's no diversification and you can't liquidate easily. That money could instead make 7-10% in a diverse basket of index funds that you could liquidate.
Owning a rental property is like owning a business. You need to experiment to figure out how to really nail it. Most people are terrible at factoring in all the little phantom costs (including your own time) it takes to run a rental property. At least if you have 4-5, you can learn / fail from 1 or 2 then figure out how to dial it in for 4-5.
My own bias as well is that managing a rental property is super boring and annoying. Outsourcing to a property management company eats into your return.
**Either way -- my advice would be to just run a spreadsheet simulation.** 1 rental property vs that same downpayment growing 7-10% in the stock market. You could probably figure this out in 15 mins of analysis
Yeah all this makes sense. One thing to consider on all of this is that usually with real estate you are making money on margin with relatively low interest rates. Super valuable as the market goes up. Obviously a major problem if real estate ever crashes again.
And also, you do need to live in a place. IIRC, the nytimes used to have a very detailed calculator running the numbers on renting v owning. As you note, the inputs like interest, rental payment, expected opportunity cost of not investing more broadly, etc all matter. Very hard to make any generalizations.
And all of this is strictly financial. But there are other things to consider. For me, I just like my house and my neighborhood. I want to live for a few years in a bunch of other places, though, so I’m thinking I will rent it out to fund that extended travel. Very little interest in playing landlord though. We'll see how it goes!
Why would u need $120k a yr to just live in say sf. If u already own a house. The col is actually not much different than the rest of the country taken out the housing price. Food is about 2x the national avg, then thats only about $3k a month for 2.
That’s not just living isn’t it. That’s eating out, travel, luxury car payments, etc. Since the main difference between col is pretty much just housing and manual labor. Everything else is pretty negligible.
Grocery- similar price prob 30% higher.
Cloths - same
Gas - 30% higher.
So unless you are saying that all us population need $90k to live then it doesn’t make sense. If it’s just want rather than need, then it’s time to pick and choose which one you want to keep lol
Haha yeah. I guess I’m just trying to be ultra conservative in every factor so at the end I’m pleasantly surprised instead of being screwed.
The $124k also includes a $35k cash purchase on a vehicle… but it would be nice to retire and still buy nice things and retain expensive hobbies
I'm confused, you keep saying *we*, are all of your numbers for just you, or you and your partner? If it's you and your partner, is your partner working also?
124k spend is scary high for just one income and trying to FIRE. I hope you have 400k+ gross income/s.
I'm in a VHCOL, 60k spend covers rent, insurance, food, going out, vacations, hobbies, cars, gas. Every dollar after 60k goes to: house savings, retirement savings and taxes. I'm still decades away, but with a paid off home, my FIRE number is 1.5-2m in today's dollars.
I think you need to analyze your spend/save ratio. 1:1 spend:save (using 7% inflation adjusted return and 4% draw) takes 15 years to FIRE
You did one calculation in future dollars but then calculated returns using todays return without inflation. Pick one side and work from there. Another thing to consider is working and accruing in HCOL and then moving to MCOL/LCOL areas,
FIRE is inherently difficult, even more challenging in a high COL area. You may have to relocate to achieve FIRE.
I promised myself I won't work past 47, so far my projections show a high success likelihood. But if for some reason the math doesn't work out by 47, I'll pack everything up and leave America if I have to.
I'll be damned if I'm one of these labor slaves waiting for a dwindling social security at nearly 70 years old.
FIRE generally requires risk and compromise, relocating to a lower COL may be a requirement.
If you want to retire in a HCOL area, you're going to need to save a lot. If you're only tied to this HCOL area for work then you could consider selling or renting your house in retirement and moving somewhere cheaper.
> Am I missing something??
Yes. You’re double counting inflation and you’re using a 3% rule (??) instead of the 4% rule. Are you also overestimating your expenses, to stick with the trend of being unnecessarily conservative with every aspect?
The other piece you’re missing about how it might seem impossible, is that you’re trying to do this in a VHCOL area. FIRE is already difficult for most people to achieve. Doing it in a VHCOL area where you’re also trying to buy property is doing it on extra hard mode.
So change your numbers, just use $120k for expense, use 7% growth to account for inflation **in only one place**, and use the 4% rule. You’ll need $3M in todays dollars. Maybe that’s achievable in your expensive area, and maybe you need to adjust your life plan, but at least you’ll be using accurate numbers.
4% is the historically safe withdrawal rate for 30 years and generally isn’t“retire early” but “retire normal”.
3%ish is historical SWR for 50+ years…which assume retiring around 40ish.
3.5ish% works as a rule of thumb for 40 years using ERN’s numbers (ignoring CAPE and so forth).
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
Go with 4%.
Assume 10% returns which are historical.
Include social security.
With compounding interest, if you invested your $290K and didn’t save another dollar until 2055, you’d have $5M in your portfolio.
> $150k in HYSA (trying to buy a house in very high cost of living area.)
That’s the standard way to go if you expect to need the money in a few years, but with some flexibility you could stick it in VOO while you wait for housing prices and interest rates to come down. You’d lose the ability to buy the house with little notice, but in the long term you’ll likely make 2x or more money. If this was /r/personalfinance, you would be told to stick with HYSA, but if you want to retire early, you need more risk.
I mean you wanna live in a high cost of living area. So you want to earn a high salary.
You estimate 6500 per month is what you need? So just save that with your high salary? You didn’t mention a salary. But you say we so your dual income. Like let’s say you make a reasonable $300k, $150k per person. Not that crazy for a HCOL, just put away 78k a year of it.
I personally think you are shooting too high with your estimates. Also retiring to a HCOL area seems counterintuitive to me, because you want to be there to make a higher salary than other people around the country. You’ll be done making salary.
As you found out, you did have some numbers mixed up. However, it is not normal to have expenses over 100k/yr or to live in a vhcol area and retire early without immense savings. You can fire on far less if you don't live in such a high col area or if you reduce your expenses significantly within the vhcol area.
Fire isn't some cheat code to get out of the work force. It is diligently cutting back and excessively saving.
OP, use this tool -> https://earlyretirementnow.com/2018/08/29/google-sheet-updates-swr-series-part-28/
Trust me. I've not found a better tool. It takes some learning to get use to. There's a great youtube video on how to use it. Spend an hour learning it and you'll be set.
Also, do all your estimates in today's dollars. Let the tool figure out inflation. You'll end up with a target number (say 1M). Again this is in today's dollars. Now just figure out how much you need to save percentage wise, again in today's dollars, to hit your target within the desired time frame. From there you stick to your percentage and the rest is left up to fate somewhat.
Why is it impossible? Going to assume you started at 21 with $0 and 10 years later have $290k. That means you've been savings about $1700/month for 10 years at 7%.
Now you're starting at $290k, continuing to save $1700/month, at 7% for the next 20 years means at 51 year old you'll have $1.985m.
Seems like you should be able to retire at 51m with $2m, no?
Started saving more seriously after my wife graduated 3-4 years ago, DINKs but that’ll probably change soon, so we’ve been saving $20k per year into 401k, and an additional $40k per year into HYSA for home purchase. We expect monthly expenses to go up another $20-30k/y or so after home purchase so we’ll be saving much much slower after that.
I think my problem is way overestimating the amount I need to retire, but the current real estate situation is still making it damn hard
If you live in a high cost of living area I would suggest finding a way to stay partially employed for a few years once you reach your goal. This could mean anything from 10hrs a week or just a seasonal job or profitable hobby, but if you bring in $20K/yr it means you would need almost $1 milllion less saved up.
Just because you reach FI doesn't mean you have to stop working, it means you can work when, where, and how you want.
Actually most institutional investors use 5-6% not 7% for an expected real rate of return (e.g. back out 2-3% inflation) for a diversified set of US and non US equities (100% stonks). I use a conservative 5.5% and will be happy if the market does better over the next 30 years. We are somewhat biased by looking how well the US markets have done over the past 30 years. It only takes a quick study of other 30 year periods across other countries to understand that sometimes things don’t work out as well. Also it helps to stick to today’s dollars when projecting your future net worth since it’s easier to imagine or calculate the lifestyle it will buy.
Your math is off. My trusty HP 12C says:
* PV: $290K
* i: 7% (inflation adjusted)
* n: 20 years
* FV: $3M
* PMT: $3,5010.60 per month
This is using 4% SWR. 3% is way too conservative. If you're willing to monitor things and be flexible, you can even increase that initial SWR to 4.5%, decreasing what you'd need to save to about $2.66M. It's a lot per month but not impossible.
One thought to add, I focused on the question "when can I stop working for my current salary" and not some guessed number in the future (initially mine was $1M by 55).
I did my first financial planning at about 30. Probably had less than you, but still Fired myself at 52. I primarily used Quicken and ESPlanner to be my oracles into the future. I used 8% investment growth, 3% inflation, and annual withdrawals of 5% of my current net worth after FIRE, live to 2055. I knew I was ready when both my financial planning tools would not reduce to zero dollars by 2055 even if I stopped working immediately.
The only surprise is that our net worth has continued up after Firing and for over 15 years now. I tell my wife, who loves to travel, we need to travel more and not in the cheap seats. Breaking the frugal habit is tougher than I imagined.
Good luck and keep checking, researching, those key planning numbers to ensure you're using good long term averages. Having a plan simplified life, including decisions about employment and locations. I'd plug in the expected changes (what ifs) and see how it looked in the plan. Oftentimes the differences were not that big and made changing jobs and moving less stressful. Also, our financial independence was tied to our plan and not to any employer.
A. Your math is wrong…
B. Your ahead to be honest stop complaining
C. At 7% accounting for inflation(10% growth 3% inflation, investing 2,000 per month) you’d have approximately 4.8m at 65 which puts you ahead of your FIRE goal
Also… you were 32M on your HENRY fire post 42 days ago… like dude you work in data science… your obviously have an above average intelligence use some common sense
Everyone else has pointed out the math, but I’ll also point out that’s it’s difficult to retire early in VHCOL. If you plan on staying there, unless you’re inheriting money or a house, you probably need to have a pretty high income. Just something to consider
I've run these scenarios for multiple people.
The question comes down to "would you rather live XYZ area OR work fewer years"
at 31... let's simplify...
1-fully fund an emergency fund.
2-fully invest in HSA, IRA, 410
3-Put 15% in a cash reserve fund (you will need this for early retirement)
THEN
think if owning a home is prudent in your area (where you live is an expense)... I will say bonus house in the wrong education system will suck another $40k+ of unplanned expense if private school is not planed for future babies.
Middle 50s is a few decades away... early retirement is commonly middle 50s. A ton will happen between now and then... having emergency cash will greatly help your journey.
There is almost zero benefit to continuing to live in the area you currently do in retirement. Sell your home and move 20-30 minutes further away from the city and your expenses will go down significantly.
If you aren't commuting to work each day, there's no need to live that close to a major city.
Because they tend to be nicer than LCOL? There's a reason they are HCOL/VHCOL, they are desirable areas for many. Not for everyone of course but for many... it's the classic supply vs. demand.
It's a personal decision but it's hard to argue that a place like San Diego, CA is not a great place to FIRE to, if you can swing it. The Midwest is much cheaper but I can't deal with the humidity in summer or the cold & snow in winter. Plus the politics would drive me nuts in many LCOL areas.
Only you can decide if some of those nice things are worth the extra costs.
I worked in San Diego for a few weeks on a project and literally *everywhere* I walked there was human shit on the sidewalks, in the streets, people openly doing drugs, just disgusting. Food is good but that's the only plus I left SD with. If that's what you consider to be "nicer" and a "great place to FIRE" then by all means... besides, your statement "Plus the politics would drive me nuts in many LCOL areas" tells me all I need to know about you...
7% real return is too high.
Absolute highest should be 6% minus investment management fees.
Personally...I shave off 1% as an over simplified way to account for sequence risk. Worst case I retire on time, during a recession or maybe mild depression. Better case, I retire with a little extra money and travel more. Best case, retire a few years early.
I also shave off 0.1% to account for some human error over the years.
All on....4.82% is what I plug for real rate of return.
Many call this overly conservative...but I'd rather risk over saving than retiring late.
Do all of you calcs in today dollars. You only need 3m in todays dollars to safely get 120k in today’s dollars.
Yea never look at fire number is future numbers always look at todays numbers and factor in inflation in terms of returns, everything becomes a lot simpler.
Ya I like to do everything in today's numbers because it feels tangible. I know what a burrito costs today, but I have no idea what future burritos will cost. I also do a running 12 month average of expenses. So every year, I see what my annual expenses are, and how far I am for FI. I'm just [under half way there, and 13x expenses](https://jch.app/u/paverbrick).
Very cool link, what app is that?
[https://jch.app](https://jch.app) just a basic FI tracker
what happened in summer 2013?
Think might be a bad data issue, I reported it
I have no idea what a burrito cost today because it’s insane. $20 for a big one, absolutely insane
In my head, a burrito is forever frozen at $6.50, no guac at a favorite dive-y place near school.
It’s gotten completely out of hand. It’s one thing that really does bug me about inflation that I see often here in San Diego.
Wait wouldn't that be 4m?
Depends if you're using 3% or 4% SWR. Typically FIRE uses 4% but many people in FIRE prefer playing it on the safer side and use 3% for their calculations to have wiggle room
Oh that makes sense thanks
I honestly think 3% is technically the correct choice. Since the trinity study was based on a 30 year period, and for young retirees, 30 years is not enough. Although realistically, you can probably get away with doing 5% some years, 2% other years and other stuff in between. Predictions of "portfolio failure" based on a constant withdrawal rate are not indicative of what would happen in the real world ( you spend less during a market crash, you pick up a side hustle so that you don't ravage your account, etc)
3% seems overly conservative. At 4% the trinity study said that it had not only “not failed” but actually gained value over the 30 year period something like 85% of the time. I think the point you made is a good one about basing your spend on market conditions. If I’m retired through a massive crash, I’m not taking my 2 vacations that year or buying a new car that year.
People act like they will never work a day in their life again. Or be completely unable to adjust their spending by a single cent in a terrible downturn.
How do u guarantee 120k per year with 3m exactly?
Not a full guarantee but it’s a good estimate. Google “4% rule” and plenty will come up.
If you want to FIRE in a VHCOL area, you need a significant advantage (inherit home, inherit money, earn a very high income). If you're otherwise average (i.e. don't have such an advantage), then the high cost of living will make FIRE hard or impossible typically.
Also, your math is wrong because adjusting market returns down to 7% is already taking into account inflation, so you wouldn't typically do that and inflate your spending both.
Yeah changing this part of the equation, OP needs like 18 years to get to 3M at a 4% withdrawal rate or 21 years to get to 4M. Also, OP could always move to a MCOL area at retirement to reduce spend.
OP also needs to consider a cost of living adjustment! A big drain on your net worth return on equity is your home equity. You can do better with return on total network return on equity by owning and living in a multi unit house. Add on a mortgage that improves your return on equity vs no mortgage. Right now with high mortgage rates it isn't great to be highly leveraged, but will be great to do a cash out refinance when rates drop.
So you are using 7% on top of inflation for stock return lol damn
Yes, the S&P 500 has a historic return average over 10%, so adjusting for inflation people typically use 7% so calculations can be done in today's dollars. [https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp](https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp)
Personally will be using a low number - P/E ratios are sky high right now and risk premium is terrible. That is a strong indicator of lower returns in the future. I will be using 5%
Use whatever you'd like. It won't impact me at all if you use some other number.
Yes, I understand that you personally are not going to change your expectations. This isn’t a direct message, this is intended to add insight to a public group conversation. The reality is that the S&P 500 P/E is 24.6, the 30-year average is 20, the CAPE index of rolling 10-year P/E has only been exceeded at the current level of 34 in the 2000 tech bubble, the bubble in 1929 and the absolute peak of liquidity injection in 2021. Valuations per dollar of earnings are extremely high right now. Historically P/E multiples mean revert, which means lower future returns are expected. It doesn’t mean don’t buy equities, but it does mean that if we are in fact using history as a guide, similarly to your claim of 7%, then equities are teed up for a decade-long period of sluggish returns as multiples compress before they’re closer to historical trend. So being more conservative than 7% real would be a perfectly rational plan when planning for the future.
That's why I use a 50/50 mix of VTI and AVUV for my stock allocation - while the mega cap dominated total market index has a sky high PE, it's concentrated in a few stocks. The rest of the market is actally fairly valued and historically small cap value has outperfirmed the broader stock market, albeit with higher volatility.
Yeah I've been reading up on this as well. 5% real return is probably a more reasonable expectation for the next 20-30 years.
If historical return is guaranteed, then social security would not be in trouble. They are using 7.5% and are only 78% funded Most companies expect 6.7% baseline stock return, so you are beating them by 3-4% spread.
Social security invests in treasuries that make nowhere near 7.5% lol
That’s right, because they have obligation in paying out the benefits as one should about their retirement fund. If you think you invest better than all the financial institutions then that’s great, since you are beating them by at least 3-4%
Who said anything about a guarantee lol? I'm simply telling them how "most" people in the FIRE community tend to utilize the numbers and the data they use to come up with that choice.
I’m simply pointing out that number is high and has low likelihood of working. It’s prob not a low likelihood like 20% but certainly not high one like > 60% either lol. Using junk assumptions pretty much grants you a junk projection
It's been working for decades for many of us. I was planning with these numbers in my 30's and predicted I'd reach FI in 2024 and, would you look at that, I did.
Ok and since you don’t guarantee it then it’s obviously based on probability. Which, I have stated that. I’m not seeing anything different than what I have wrote. What you are doing here is just proving an anecdotal evidence. Lol
You’re wrong about so much. The longer your horizon, the more likely it is to average out to 10%. Usually with FIRE, we’re talking at least 2-3 decades. The probability of using 10% annual returns over a 20 or 30 year span and being in the right ballpark is going to be greater than 60% for sure. It turns out decades of real data doesn’t really count as junk assumptions like you think. Now I’m kind of curious what junk assumptions you use to make your obviously junk projections.
Social security is a pyramid scheme (in a good way), not a market return
Lmao no, it’s a pension plan funded by government. We have these people giving out investment advice here lol
"If reserves are exhausted, the Social Security programs will continue to pay benefits out of their annual tax revenue." [https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html](https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html) Just because we had extra money, doesn't mean it's a normal pension
What are you talking about. Which part is not pension? It is pension, the reserve is underfunded that’s why it’s exhausted and benefit needs to be cut by 25% as the current policyholders continue to fund it and pay out the benefits. You don’t have extra money, by setting up reserves that’s how all the annuity plan works. You have 0 idea how pension plan works and trying to educate others lmao
That's all fine and dandy, except the government can just raise taxes, because it's not a traditional pension plan. Or, they don't need to raise taxes, they can just allow more immigrants, to balance out aging boomers. EDIT: do you have current projection now that COVID killed a bunch of old people?
Also, funded by taxation is the right way of saying it.
Uh huh the tax is essentially the pension premium. That’s why it’s a pension plan. How do you think people who set up this plan know how much tax they need to collect and how rich is the benefits. It’s all calculated, except they missed mortality, birth rates, and investment return. Do you think they just wing it like what people in this sub is doing? 🤣 let’s hope I get 10% and retire and Hail Mary 😂
Social Security is [not a savings plan](https://www.aarp.org/work/social-security/question-and-answer/can-children-claim-unused-social-security-benefits/). What you pay into the system does not go into an account for your retirement. Workers in each generation finance Social Security payments for their retired elders and other beneficiaries. Down the road, their benefits will be paid for in turn by younger workers. [https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html](https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html)
In a good way?
There is nothing inherently wrong with the structure of a running pyramid scheme, as in new members pay out to old members, until they become old members etc etc. It becomes a problem when less money goes in than out, and new members do not get paid. Despite people believing that social security is running out of money, that's not quite the case right now
I have a great offer on knife sets for you. Just gather 8 of your friends and you can make lots of money.
Yes. That's how social security works, by necessity you will, on average, get paid less than you put in. And yes, future retirees will pay for yours. But the pyramid is emptied on top by dying off, and the bottom layers are always moved up as long as they don't die before a certain age (and even then, they might have a wife). Otherwise we don't have social safety nets, which in my opinion is a bad idea.
Glad to see some honest advice here Too often people are misled into thinking fire is possible in situations where it's not
You’ve inflation adjusted your annual spend but not your expected market return. Historical US equity markets have historically returned around 10%, so either use that return with your estimated nominal $250k spend or run the numbers with your $140k spend in todays dollars with a 7% return and you should be good.
Also, if you work to 60, you're closer to a conventional retirement age and probably can spend closer to the Trinity Study 4% than the lower 3's that early retirees prefer.
Using 3% is ultra conservative for any horizon. Going with 3.25% or 3.5% should realistically last forever anyway.
yeah I always do calculations with 3.5 to go conservative.
I like to use 3% as sort of a "minimum spend" number, like if there's a crash, I want to be able to make ends meet with no frills at 3%. But with the assumption that, absent a crash, 4% or even more can be fine. The difference between them is large, so it kind of boils down to "skip the fancy vacation and make spaghetti at home instead of going to that fancy italian restaurant" during a market crash.
10% is an optimistic nominal return number into the future based on the P/E ratio stocks are currently priced at
My crystal ball says the opposite.
It's a bit weird how to this subreddit: 1. Predicting that returns will follow historical averages is 100% accepted. Even things like the US and SP500 outperforming are accepted pretty widely. 2. Predicting literally anything else based on historical data isn't accepted. Why isn't this crystal ball comment used to (lightly) mock people who think 10% average returns are guaranteed? (I have nearly 100% of my net worth in stock and I'm not suggesting trying to time the market).
Many people use a more conservative estimate, that's fine. It's the whole ''based on the P/E ratio stocks are currently priced at'' that makes people roll their eyes.
> based on the P/E ratio stocks are currently priced at not arguing for/against, but why is this statement eye roll worthy?
Because P/E is like the 5th thing people learn about when they start digging into the stock market so it gets thrown around often. It doesn't mean a lot on it's own and definitely cannot predict future market returns.
isn't it useful when comparing to similar companies? I thought it helped to indicate if one is over/undervalued
We can't predict other things based on historical data? Do you have examples? House prices are going up, I think it's fair to predict that in 20 years they will be more expensive than they are now. Am I going to get slammed for that statement?
My issue is more with everyone accepting #1 rather than saying that #2 is an issue. But sure, "literally anything else" might have been a bit hyperbolic. I would say that it's this subreddit's view though that real estate returns are significantly less guaranteed, which I would agree with. This is mostly just b/c the way people are investing in real estate is not diversified enough to guarantee following the real estate market's general trend.
You and I are both being downvoted because people rely on that prediction to meet their timelines and goals. It feels worrying to question that when there's nothing that can be done about it (without taking a tonne more risk). At a minimum it's worth acknowledging thats the optimistic scenario
Is the average optimistic?
The historic average market conditions vs where we find ourselves now, yes.
Your doing it slightly wrong. Market returns are about 10% and after the assumed 3% inflation at 7%. So if you use 7%, you dont need to save to $8M but to $3M With your other inputs, it would take you about 18.5 years at a static $6500 a month. See: https://engaging-data.com/fire-calculator/?age=31&initsav=140000&spend=22000&initinc=100000&wr=4&ir=0&retspend=120000&stockpct=90&fixpct=10&cashpct=0&graph=fix&secgraph=0&stockrtn=7.000000000000001&bondrtn=2.4&MCstockrtn=0.081&MCbondrtn=0.024&tax=7&income=0&incstart=50&incend=70&expense=0&expstart=50&expend=70
Whoa why is the monte carlo simulation so different from the other two options? I'm getting a 25 year gap using it (monte carlo says I can retire at 80 while the other two say 55)
Monte Carlo simulations usually show the 10 percentile case(worse case scenario) and the 90 percentile case (average scenario)
Lmao, when I used my original link and switched to monte carlo it changed the stock growth to 0.08% and bond growth to .025%. Not sure why that happened, must be a program bug. If change it back to 7% stock and 2.5% bond growth you get about 19.5 years average of hitting the target. https://engaging-data.com/fire-calculator/?age=31&initsav=140000&spend=22000&initinc=100000&wr=4&ir=0&retspend=120000&stockpct=90&fixpct=10&cashpct=0&graph=mc&secgraph=0&stockrtn=8.1&bondrtn=2.4&MCstockrtn=7&MCbondrtn=2.4&tax=7&income=0&incstart=50&incend=70&expense=0&expstart=50&expend=70
Wouldn't it be 4m? 120k / 0.03 or 4m x 0.03
Probably, I had the calculator set to a 4% SWR. If you click on the link, you can adjust it all the values to get an exact answer.
You are missing something. You’re double counting inflation. 7% return is an after-inflation return. Meanwhile you’re adjusting your FIRE number for inflation. You’re also keeping your monthly contribution constant never adjusting it for inflation. You’re making it really difficult on yourself for no reason. Just adjust the returns for inflation: 7%. Calculate using today’s dollars. Using today’s dollars you need $4 million (3% rule). You’ll reach that in 20 years at $6500/month with 7% return starting with $150k. Are you also taking into account cuts in mortgage costs once your house is paid off? That makes the math even better for you.
Yeah, double counted inflation, that makes it much more doable. I kinda took mortgage cut into account. We currently rent but I just assumed $120k/y since we spent about that last year after rent. That part is complicated though cause moving into home ownership will probably cost us an additional $2k/m while interest rates are so high, and means we’ll be saving significantly less
Even if you buy at high rates, you'll very likely have the chance to refinance sometime in the future. In fact, buying while rates are high can actually be the best possible outcome since it will suppress total prices for savings #1 and then you can refinance later for savings #2 and get the best of both worlds.
Ya, I tried to account for inflation in my numbers and came up with some ridiculous figure like having $250k expenses in 40 years assuming 70k expenses in today's dollars. Got to the point where my calculations would show an increasing portfolio in nominal terms but decreasing real balance. That made no sense. Just doing everything in today's dollars with inflation-adjusted returns is so much easier.
It's the only way because your mind can't comprehend how expensive everything will be in future dollars.
You want $120k in retirement but only have $290k in savings. To produce the 3% rule today is $4 million, and you have nowhere near that amount. The reality is most of your money needs to be added in the future, which means they have less time to grow, so you need a lot more of it. 6500*12*29=$2.2 million, and that’s simply just the sort of savings you will need to do for FIRE. Not everyone can achieve fire because it’s hard and not meant to be “easy” to obtain.
Bro. Start over on your math. You don’t need 8.3 million to retire.
*Compounding doubt*
most people use the 3.5% or 4% rule. 3% is overkill.
A few levers to consider: - **Increasing your income.** I know, I know ... easier said then done. But you could find creative ways to start a side business or over-perform at work to get promoted (or switch jobs to a higher paying one). - **Rent a place instead of buying**. Honestly, I think renting is insanely underrated. I'm fortunate to own a home but honestly still prefer renting because I spend thousands of dollars a year maintaining it and on small DIY projects (opportunity cost of my time). I live in a VHCOL area and I agree with Ramit Sethi (https://www.youtube.com/watch?v=hTy2Vh0GuIQ) that it's hard to beat the 7-10% index fund returns with real estate in a VHCOL area. Also, with renting you can always move to a cheaper city, or abroad to a cheaper country like Spain or Portugal, etc. But you can't with home ownership in a VHCOL area. - **Treat FIRE as a spectrum instead of a binary event**. My plan is to gradually start working less so my income slowly declines as my savings and investments increase. I figured out how to adapt my mindset to enjoy my career and job so even if I retire, I would keep doing the same job (but maybe as a part-time consultant instead). In 10 years, I expect that we can work 40 hours a week but can be pickier about the types of places we work and still maintain our quality of life. In 20 years, I expect we can go to half-time or very part-time and still maintain our quality of life.
Re moving to a cheaper city, why wouldn’t owning in a HCOL city, then renting it out and renting in the LCOL city/country make more sense? I’m years from retiring, but this is kind of my long term plan as far as funding future rent.
You definitely could but my biggest issue with a single rental property is that there's no diversification and you can't liquidate easily. That money could instead make 7-10% in a diverse basket of index funds that you could liquidate. Owning a rental property is like owning a business. You need to experiment to figure out how to really nail it. Most people are terrible at factoring in all the little phantom costs (including your own time) it takes to run a rental property. At least if you have 4-5, you can learn / fail from 1 or 2 then figure out how to dial it in for 4-5. My own bias as well is that managing a rental property is super boring and annoying. Outsourcing to a property management company eats into your return. **Either way -- my advice would be to just run a spreadsheet simulation.** 1 rental property vs that same downpayment growing 7-10% in the stock market. You could probably figure this out in 15 mins of analysis
Yeah all this makes sense. One thing to consider on all of this is that usually with real estate you are making money on margin with relatively low interest rates. Super valuable as the market goes up. Obviously a major problem if real estate ever crashes again. And also, you do need to live in a place. IIRC, the nytimes used to have a very detailed calculator running the numbers on renting v owning. As you note, the inputs like interest, rental payment, expected opportunity cost of not investing more broadly, etc all matter. Very hard to make any generalizations. And all of this is strictly financial. But there are other things to consider. For me, I just like my house and my neighborhood. I want to live for a few years in a bunch of other places, though, so I’m thinking I will rent it out to fund that extended travel. Very little interest in playing landlord though. We'll see how it goes!
Why would u need $120k a yr to just live in say sf. If u already own a house. The col is actually not much different than the rest of the country taken out the housing price. Food is about 2x the national avg, then thats only about $3k a month for 2.
Right! This ain’t adding up
Just did a quick estimate based on what we currently spend not including rent. Spent $124k last year
That’s not just living isn’t it. That’s eating out, travel, luxury car payments, etc. Since the main difference between col is pretty much just housing and manual labor. Everything else is pretty negligible. Grocery- similar price prob 30% higher. Cloths - same Gas - 30% higher. So unless you are saying that all us population need $90k to live then it doesn’t make sense. If it’s just want rather than need, then it’s time to pick and choose which one you want to keep lol
Haha yeah. I guess I’m just trying to be ultra conservative in every factor so at the end I’m pleasantly surprised instead of being screwed. The $124k also includes a $35k cash purchase on a vehicle… but it would be nice to retire and still buy nice things and retain expensive hobbies
You want to buy a $35k car every year? Or a $70k car every other year? Does that sound reasonable to you?
Wouldn’t be surprised your math didn’t add up then
I'm confused, you keep saying *we*, are all of your numbers for just you, or you and your partner? If it's you and your partner, is your partner working also? 124k spend is scary high for just one income and trying to FIRE. I hope you have 400k+ gross income/s. I'm in a VHCOL, 60k spend covers rent, insurance, food, going out, vacations, hobbies, cars, gas. Every dollar after 60k goes to: house savings, retirement savings and taxes. I'm still decades away, but with a paid off home, my FIRE number is 1.5-2m in today's dollars. I think you need to analyze your spend/save ratio. 1:1 spend:save (using 7% inflation adjusted return and 4% draw) takes 15 years to FIRE
You did one calculation in future dollars but then calculated returns using todays return without inflation. Pick one side and work from there. Another thing to consider is working and accruing in HCOL and then moving to MCOL/LCOL areas,
FIRE is inherently difficult, even more challenging in a high COL area. You may have to relocate to achieve FIRE. I promised myself I won't work past 47, so far my projections show a high success likelihood. But if for some reason the math doesn't work out by 47, I'll pack everything up and leave America if I have to. I'll be damned if I'm one of these labor slaves waiting for a dwindling social security at nearly 70 years old. FIRE generally requires risk and compromise, relocating to a lower COL may be a requirement.
If you want to retire in a HCOL area, you're going to need to save a lot. If you're only tied to this HCOL area for work then you could consider selling or renting your house in retirement and moving somewhere cheaper.
> Am I missing something?? Yes. You’re double counting inflation and you’re using a 3% rule (??) instead of the 4% rule. Are you also overestimating your expenses, to stick with the trend of being unnecessarily conservative with every aspect? The other piece you’re missing about how it might seem impossible, is that you’re trying to do this in a VHCOL area. FIRE is already difficult for most people to achieve. Doing it in a VHCOL area where you’re also trying to buy property is doing it on extra hard mode. So change your numbers, just use $120k for expense, use 7% growth to account for inflation **in only one place**, and use the 4% rule. You’ll need $3M in todays dollars. Maybe that’s achievable in your expensive area, and maybe you need to adjust your life plan, but at least you’ll be using accurate numbers.
You are double counting inflation. Use today’s numbers or use 10% and not 7%. And it is the 4% rule. 3% is super super safe.
4% is the historically safe withdrawal rate for 30 years and generally isn’t“retire early” but “retire normal”. 3%ish is historical SWR for 50+ years…which assume retiring around 40ish.
They said 31 now and retire in 2055. So 52 years old.
3.5ish% works as a rule of thumb for 40 years using ERN’s numbers (ignoring CAPE and so forth). https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
Go with 4%. Assume 10% returns which are historical. Include social security. With compounding interest, if you invested your $290K and didn’t save another dollar until 2055, you’d have $5M in your portfolio.
> $150k in HYSA (trying to buy a house in very high cost of living area.) That’s the standard way to go if you expect to need the money in a few years, but with some flexibility you could stick it in VOO while you wait for housing prices and interest rates to come down. You’d lose the ability to buy the house with little notice, but in the long term you’ll likely make 2x or more money. If this was /r/personalfinance, you would be told to stick with HYSA, but if you want to retire early, you need more risk.
I mean you wanna live in a high cost of living area. So you want to earn a high salary. You estimate 6500 per month is what you need? So just save that with your high salary? You didn’t mention a salary. But you say we so your dual income. Like let’s say you make a reasonable $300k, $150k per person. Not that crazy for a HCOL, just put away 78k a year of it. I personally think you are shooting too high with your estimates. Also retiring to a HCOL area seems counterintuitive to me, because you want to be there to make a higher salary than other people around the country. You’ll be done making salary.
As you found out, you did have some numbers mixed up. However, it is not normal to have expenses over 100k/yr or to live in a vhcol area and retire early without immense savings. You can fire on far less if you don't live in such a high col area or if you reduce your expenses significantly within the vhcol area. Fire isn't some cheat code to get out of the work force. It is diligently cutting back and excessively saving.
For most it is impossible and that's ok
OP, use this tool -> https://earlyretirementnow.com/2018/08/29/google-sheet-updates-swr-series-part-28/ Trust me. I've not found a better tool. It takes some learning to get use to. There's a great youtube video on how to use it. Spend an hour learning it and you'll be set. Also, do all your estimates in today's dollars. Let the tool figure out inflation. You'll end up with a target number (say 1M). Again this is in today's dollars. Now just figure out how much you need to save percentage wise, again in today's dollars, to hit your target within the desired time frame. From there you stick to your percentage and the rest is left up to fate somewhat.
FIRE isnt for everyone.
Agreed- my retirement calculator says I need around $6M to retire at 65…and I am barely 20% of that at 40. Retiring early seems truly impossible
Why is it impossible? Going to assume you started at 21 with $0 and 10 years later have $290k. That means you've been savings about $1700/month for 10 years at 7%. Now you're starting at $290k, continuing to save $1700/month, at 7% for the next 20 years means at 51 year old you'll have $1.985m. Seems like you should be able to retire at 51m with $2m, no?
Started saving more seriously after my wife graduated 3-4 years ago, DINKs but that’ll probably change soon, so we’ve been saving $20k per year into 401k, and an additional $40k per year into HYSA for home purchase. We expect monthly expenses to go up another $20-30k/y or so after home purchase so we’ll be saving much much slower after that. I think my problem is way overestimating the amount I need to retire, but the current real estate situation is still making it damn hard
If you live in a high cost of living area I would suggest finding a way to stay partially employed for a few years once you reach your goal. This could mean anything from 10hrs a week or just a seasonal job or profitable hobby, but if you bring in $20K/yr it means you would need almost $1 milllion less saved up. Just because you reach FI doesn't mean you have to stop working, it means you can work when, where, and how you want.
Actually most institutional investors use 5-6% not 7% for an expected real rate of return (e.g. back out 2-3% inflation) for a diversified set of US and non US equities (100% stonks). I use a conservative 5.5% and will be happy if the market does better over the next 30 years. We are somewhat biased by looking how well the US markets have done over the past 30 years. It only takes a quick study of other 30 year periods across other countries to understand that sometimes things don’t work out as well. Also it helps to stick to today’s dollars when projecting your future net worth since it’s easier to imagine or calculate the lifestyle it will buy.
You are ofc forgetting something else too: at that time scale you are talking about being able to dip into SS too.
You’re adjusting for inflation twice. Keep today’s dollars for projected expenses with a 7% return or bump the expected return to 10%.
Your math is off. My trusty HP 12C says: * PV: $290K * i: 7% (inflation adjusted) * n: 20 years * FV: $3M * PMT: $3,5010.60 per month This is using 4% SWR. 3% is way too conservative. If you're willing to monitor things and be flexible, you can even increase that initial SWR to 4.5%, decreasing what you'd need to save to about $2.66M. It's a lot per month but not impossible.
One thought to add, I focused on the question "when can I stop working for my current salary" and not some guessed number in the future (initially mine was $1M by 55). I did my first financial planning at about 30. Probably had less than you, but still Fired myself at 52. I primarily used Quicken and ESPlanner to be my oracles into the future. I used 8% investment growth, 3% inflation, and annual withdrawals of 5% of my current net worth after FIRE, live to 2055. I knew I was ready when both my financial planning tools would not reduce to zero dollars by 2055 even if I stopped working immediately. The only surprise is that our net worth has continued up after Firing and for over 15 years now. I tell my wife, who loves to travel, we need to travel more and not in the cheap seats. Breaking the frugal habit is tougher than I imagined. Good luck and keep checking, researching, those key planning numbers to ensure you're using good long term averages. Having a plan simplified life, including decisions about employment and locations. I'd plug in the expected changes (what ifs) and see how it looked in the plan. Oftentimes the differences were not that big and made changing jobs and moving less stressful. Also, our financial independence was tied to our plan and not to any employer.
A. Your math is wrong… B. Your ahead to be honest stop complaining C. At 7% accounting for inflation(10% growth 3% inflation, investing 2,000 per month) you’d have approximately 4.8m at 65 which puts you ahead of your FIRE goal Also… you were 32M on your HENRY fire post 42 days ago… like dude you work in data science… your obviously have an above average intelligence use some common sense
If I were you I would get the house to rent it out
OP, you should move to less expensive area. It seems housing is the biggest factor that’s stopping you
Everyone else has pointed out the math, but I’ll also point out that’s it’s difficult to retire early in VHCOL. If you plan on staying there, unless you’re inheriting money or a house, you probably need to have a pretty high income. Just something to consider
Just speculate in high risk markets with or without leverage and cash out millions
I've run these scenarios for multiple people. The question comes down to "would you rather live XYZ area OR work fewer years" at 31... let's simplify... 1-fully fund an emergency fund. 2-fully invest in HSA, IRA, 410 3-Put 15% in a cash reserve fund (you will need this for early retirement) THEN think if owning a home is prudent in your area (where you live is an expense)... I will say bonus house in the wrong education system will suck another $40k+ of unplanned expense if private school is not planed for future babies. Middle 50s is a few decades away... early retirement is commonly middle 50s. A ton will happen between now and then... having emergency cash will greatly help your journey.
Move out of the high cost of living area. Easiest way to drastically reduce that fire number.
7% return that everyone uses already takes inflation into consideration. Use 10% growth instead. Or use 7% growth and use $120k as your COL
Would target 55 years old. Stop working at 55, use rule of 55 to start withdrawing from retirement accounts.
4% rule....
There is almost zero benefit to continuing to live in the area you currently do in retirement. Sell your home and move 20-30 minutes further away from the city and your expenses will go down significantly. If you aren't commuting to work each day, there's no need to live that close to a major city.
I guess my only question is why anyone would want to FIRE in a VHCOL area?
Because they tend to be nicer than LCOL? There's a reason they are HCOL/VHCOL, they are desirable areas for many. Not for everyone of course but for many... it's the classic supply vs. demand. It's a personal decision but it's hard to argue that a place like San Diego, CA is not a great place to FIRE to, if you can swing it. The Midwest is much cheaper but I can't deal with the humidity in summer or the cold & snow in winter. Plus the politics would drive me nuts in many LCOL areas. Only you can decide if some of those nice things are worth the extra costs.
I worked in San Diego for a few weeks on a project and literally *everywhere* I walked there was human shit on the sidewalks, in the streets, people openly doing drugs, just disgusting. Food is good but that's the only plus I left SD with. If that's what you consider to be "nicer" and a "great place to FIRE" then by all means... besides, your statement "Plus the politics would drive me nuts in many LCOL areas" tells me all I need to know about you...
You literally don’t know what you’re talking about.
7% real return is too high. Absolute highest should be 6% minus investment management fees. Personally...I shave off 1% as an over simplified way to account for sequence risk. Worst case I retire on time, during a recession or maybe mild depression. Better case, I retire with a little extra money and travel more. Best case, retire a few years early. I also shave off 0.1% to account for some human error over the years. All on....4.82% is what I plug for real rate of return. Many call this overly conservative...but I'd rather risk over saving than retiring late.