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I know the answer to these questions is almost always it depends or no but I would be curious to know what people think.

Current net worth is about 80k. Age 33. Renter with no plans to buy

The 80k works out as follows:
45k - Retirement Accounts
16k - Cash Efund High Interest Account
9k - Stocks
6k - Stock Buying fund
4k - Short Term Cash/Bank Acct

No debt, credit card or otherwise. Car in good shape no need for any major expenses forseen. I'm also single and no kids.

My biggest vice is that I spend 5k each year on a nice vacation. No immediate plans to change that.

I make about 55k/year currently. I currently save 10% for the retirement accounts. My goal is to retire early/mid 50's with at least 1million total net worth excluding a home if I buy one.

Thoughts are appreciated.
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I make about 55k/year currently. I currently save 10% for the retirement accounts. My goal is to retire early/mid 50's with at least 1million total net worth excluding a home if I buy one.

Thoughts are appreciated.


You are off to a good start.

You might want more than a million dollars. At a 4% withdrawal rate, that's $40,000 per year, and it will be $40,000 that will have depreciated considerably in value due to inflation.

Have you run any savings scenarios to see if you are likely to reach your goal?
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The 80k works out as follows:
45k - Retirement Accounts
16k - Cash Efund High Interest Account
9k - Stocks
6k - Stock Buying fund
4k - Short Term Cash/Bank Acct

No debt, credit card or otherwise. Car in good shape no need for any major expenses forseen. I'm also single and no kids.

My biggest vice is that I spend 5k each year on a nice vacation. No immediate plans to change that.

I make about 55k/year currently. I currently save 10% for the retirement accounts. My goal is to retire early/mid 50's with at least 1million total net worth excluding a home if I buy one.


The numbers you gave are a bit hard to put into perspective without knowing your expenses. For example, how many months' expenses is that $16K? If it's 3 months' expenses, that's good. If it's 6 months' expenses, it's great. If it's more than that, you might want to invest the amount above six months' worth.

Also, as someone else who plans to FI/RE at age 50, I think 10% is much too little for retirement savings. I currently save ~20% of my gross and I'm trying to inch that up to 25% of my gross. Of course, YMMV.

-Steph
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The numbers you gave are a bit hard to put into perspective without knowing your expenses. For example, how many months' expenses is that $16K? If it's 3 months' expenses, that's good. If it's 6 months' expenses, it's great. If it's more than that, you might want to invest the amount above six months' worth.

I was thinking about this very topic. I believe in six months worth of money, but between short and mid term savings, I am too much in cash and not enough in stocks. I'm trying to balance this out but there are legitimate reasons for the items in my budget. Its just that when I am done meeting the legitimate reasons, I've little more left over for stocks. (I'm investing 10.3% of my gross income along with 13% in the 401k(includes company match)). I am investing 23.57% of my gross income, but have double that in cash- mostly because I am saving for the next house.

fredinseoul
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Some simple number runs on you:

If you have 54k invested with a potential return of 12% a year with 5.5k added a year, you have 1 million at 54 years of age. However, as pointed out, this will be a smaller million because of inflation. How much smaller? Let me add in inflation of 3% a year, and you are at $555 thousand at 54.

Now lets take your stock buying fund, and your short term cash, and invest it.

Now we are looking at starting with 64k with 12% a year with 5.5k added a year. At 54 you have 1.14 million, or 613k.

Increase savings to 10k a year, now you are looking at 1.5 million at 54 or 810k with inflation biting you.

So I'd say that you should cut back your vacation to 2k a year, increasing your investments by another 2k elsewhere so you are saving 10k a year total.
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I know the answer to these questions is almost always it depends or no but I would be curious to know what people think.

Current net worth is about 80k. Age 33. Renter with no plans to buy

The 80k works out as follows:
45k - Retirement Accounts
16k - Cash Efund High Interest Account
9k - Stocks
6k - Stock Buying fund
4k - Short Term Cash/Bank Acct

No debt, credit card or otherwise. Car in good shape no need for any major expenses forseen. I'm also single and no kids.

My biggest vice is that I spend 5k each year on a nice vacation. No immediate plans to change that.

I make about 55k/year currently. I currently save 10% for the retirement accounts. My goal is to retire early/mid 50's with at least 1million total net worth excluding a home if I buy one.


Hi Roland465,

I used intercst's FIRE calculator:
http://www.retireearlyhomepage.com/software.html

to estimate whether you are on track. Caveats: I had to guess at a lot of stuff, like your expected longevity, your state income tax rate, your investment expenses, your expected salary increases, your living expenses in retirement etc. AND this calculator ignores completely any social security or pension money.

That said, with the inputs I guessed at, the FIRE spreadsheet suggests that at your current savings rate you will be able to retire at age 65, with about 1.4 million.

You might want to download the spreadsheet and play around with it, to get an idea of what an increase in your savings rate could buy you in terms of years shaved off of FIRE.

Not many 33 year olds can boast being debt free, let alone saving in a disciplined way; I think you have built a strong foundation and you're in a good position to increase your savings rate if you are so inclined.

FIgirl
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Hi All,

Just to clarify a few points. The 16k E-Fund is a comfortable 6 months of expenses. That's basically keeping up my rent, investments and everything else. I also consider it my sleeping well at night money.

I've raised my savings to 11% this year. As someone has already pointed out I could start doing different vacations or travel cheaper and invest the difference. That's not something I'm willing to do just yet. I have a stressful job and I like nice vacations to relax.

My actual take home pay is about $3200/mo after taxes and such.

Thanks for the thoughts and encouragement. I'll give some thought to finding a few extra dollars each month to invest.
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I've raised my savings to 11% this year. As someone has already pointed out I could start doing different vacations or travel cheaper and invest the difference. That's not something I'm willing to do just yet. I have a stressful job and I like nice vacations to relax.

My actual take home pay is about $3200/mo after taxes and such.


I was not going to say anything about the vacation -- you can do with your money as you please -- but this prompted me. You are talking about more than 1.5 months worth of take-home pay for this vacation. This is not much less than you are saving each year for retirement.

Will you be able to eventually retire saving 11% of your income each year? Yes. Will you FIRE? Doubtful. There's nothing wrong with that; it's just something you should understand -- the vacation is clearly moving your retirement date back significantly.

But beyond that, you said "I have a stressful job and I like nice vacations to relax." Do you really think you need to spend $5000 to have a nice vacation? If so, fair enough. As I said before, it is your money. But you can have really nice vacations for a lot less.

Really, though, it is all about choices. You can have the more expensive vacations and retire later; or you can have nice, but less expensive vacations and retire earlier. It's your choice. And you clearly understand the trade-off, so do what you think is best.

Acme
(Who notes that his household income is 4 times yours and he budgets only about 15% more each year for vacations. And he believes his vacations are top notch including an upcoming 7-night Disney cruise in a room with a veranda.)
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>> I've raised my savings to 11% this year. As someone has already pointed out I could start doing different vacations or travel cheaper and invest the difference. That's not something I'm willing to do just yet. I have a stressful job and I like nice vacations to relax. <<

I certainly understand the need to relax from a stressful job. I don't necessarily *think* it needs $5,000 each year. Occasionally for a special trip maybe, but year after year, it sounds like a lot.

Have you ever ran the numbers to see how many more years that amount of money, each year, is keeping you locked into the stressful job?

You're in pretty good shape overall, much better than most -- fully funded emergency fund, no debt, more than 10% being saved for retirement. Ultimately there's a tradeoff between how much you spend on recreation and other indulgences (to help cope with the stressful job) and how soon you can get away from that stressful job for good. For example, consider these three scenarios:

* Continuing to spend this much on your vacations and being able to retire at 55
* Cutting out the vacation/travel budget completely and being able to retire at 50
* Cutting the vacation/travel budget by 2/3 and being able to retire at 52

And obviously, there would be other points in the graph this would plot. You have to contrast your own need to "get away" at your current level with your desire to get out of the rat race and set your finances accordingly. For example, you may find that you can't cope with cutting out completely but that by scaling back how much you spend (not necessarily how LONG you spend) on your vacations you can knock 2-3 years off your working life...and that could be worth it. (The trick is to develop in an interest in "budget travel" or some such.)

One of my biggest concerns here is that NOW may be the best time to put a LOT of money away for retirement -- for two reasons. First, compound interest is your best friend when you are young; a dollar set aside at 25 is likely to grow a LOT more with a market rate of return than one set aside at 35 or 40. Secondly, if there may be marriage, children and a mortgage in your future, your ability to fund retirement may be seriously dented for a few years -- making it even more important to aggressively fund it *now*, while you don't have those other financial obligations that must be met before you can set money aside for retirement.

#29
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Looks like peple are getting after you for spending $5K on vacations.

Seems like you have the right idea to me. Saving a bunch of money and the dieing early is no way to live either. I'm watching this happen to one of my best friends now. 53 and he has GBM (Cancer). However, he always took great trips in the summer and had an excellent time doing it. Just think if he hadn't.

Volucris
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If you have 54k invested with a potential return of 12% a year...

IMHO, this is too big of an assumption. Is it doable, probably, but I would stick with a more conservative 8-10% return.

As far as the rest of the thread talking about expensive vacations. It is a balancing act, enjoying yourself now while saving for the future. As long as you are happy with when you can retire, I say keep taking the vacations, live a little now. Life is a journey not a destination, blah, blah, blah.

Food for thought. Hopefully you'll be getting pay raises in the future. Decide now that you'll save 30-50% of your future pay raises.

JLC
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IMHO, this is too big of an assumption. Is it doable, probably, but I would stick with a more conservative 8-10% return.

As far as the rest of the thread talking about expensive vacations. It is a balancing act, enjoying yourself now while saving for the future. As long as you are happy with when you can retire, I say keep taking the vacations, live a little now. Life is a journey not a destination, blah, blah, blah.

Food for thought. Hopefully you'll be getting pay raises in the future. Decide now that you'll save 30-50% of your future pay raises.

JLC


IMHO, the OP would need to save much more than 30-50% of future raises if he really wants to FI/RE. Why not strive for saving ALL (or maybe 90%) of future raises? He's living just fine on the amount he makes now. Increasing one expenditures as salary increases is an almost sure-fire way NOT to meet the FI/RE goal.

I think 10-11% (the OP's current savings rate) is a bare minimum for retirement (at the standard retirement age) for an age group that can't depend on SS and/or a pension. To achieve FI/RE requires much more aggressive saving.

-Steph
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IMHO, the OP would need to save much more than 30-50% of future raises if he really wants to FI/RE. Why not strive for saving ALL (or maybe 90%) of future raises?

It would be hard to disagree, but I didn't want to sound greedy. However, potential life changers like wife and kids, maybe wanting/needing nicer wardrobe as you move up the corporate food chain. Or, to be consistant with the thread, maybe wanting an even nicer vacation. So spit it 50/50.

JLC
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Thanks to everyone for their great advice. While I don't plan to cut out my vacations I will give some thought to where the money goes. I visit Europe yearly and prefer not to live/travel backpacker style.

Assuming I get raises each year, I'll plan accordingly and try to save more of them.

Thanks all.
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I agree you will need more than $1M to retire.

But I also support you with the vacations. It may be that you can't both retire in mid-50's and have the vacations, but personally I would delay my retirement a few years in an instant to be able to travel now while I am young. I don't spend quite what you do on vacations, but almost. But I do earn a fair bit more than you do.
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Secondly, if there may be marriage, children and a mortgage in your future, your ability to fund retirement may be seriously dented for a few years -- making it even more important to aggressively fund it *now*
While I agree with this in principle, the fact is that IF travel is important to you those same things can impact it. It's hard to travel with kids, having just bought a house, with ailing parents needing support, or (sometimes) in later years if illness happens.

When I was a renter, I traveled a LOT (way more than I do now as a business owner and home owner). And I'm very happy I did those trips when I did. For some places the political climate is worse now. My work situation now is totally different. And I don't know what the future holds as far as family obligations, health issues, etc.

I did set myself back a fair bit towards my retirement probably. But to travel then is something I would never have given up. It's all a matter of choice.
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...Thoughts are appreciated...

I would add a car fund to save up to pay cash for your next car.

This is a doubly good thing since not only do you avoid paying interest on a car loan, but while the money is invested it is earning some income for you.

It takes some discipline, but if you do it right then you really need to do this once in your life since after that you then make the “car payments” to yourself and are ready for your future cars.

...While I don't plan to cut out my vacations I will give some thought to where the money goes. I visit Europe yearly and prefer not to live/travel backpacker style....

I suspect that you have never traveled as a backpacker. Excluding airfare, I would estimate that even with the current crummy exchange rate that by “backpacking” and doing things like not always eating at restaurants and staying in hostels (which can actually be fun) that you could easily travel in Europe for less (probably a lot less!) than $75 per day per person by traveling in “backpacker style”.

There is a wide gap between a backpacker’s budget and what you are spending. You should check out Rick Steve’s books that are widely recommended. Part of his travel philosophy is to travel like a middle class European.

There is a “Best Travel Spots/Tips” board that has lots of knowledgeable travelers with great suggestions.

http://boards.fool.com/Message.asp?mid=26799885

Greg
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I'll start the post by saying that we are also looking to retire early but are not there yet so many will consider this foolish advice...

As a couple in our 20s we completely understand AND SUPPORT your wish to travel now. I backpacked thru Europe, staying with friends and living off macaroni and animal crackers in my early 20s. I did Asia on my own for a few weeks. It was fun but not very safety minded. I choose not to travel that way now. My back would hurt in the morning after sleeping in a seat on a train or on a floor of someone's dorm. Back then I was travelling after 2.5 months of summer work. Now I'm escaping from a lot of adult responsibility and a hefty 50 hr+/week work schedule. Totally different agenda.

Our annual international vacation (we like to vary the continent!) is something we look forward to all year long. It is something that contributes to our personal growth and development as we learn about new cultures and places and experience new things. We often return from vacation very grateful for the simplicity and monotony of home life and, at the same time, for the luxuries we have here in the US that we often take for granted.

Plane tickets, hotels, food... it adds up even when you scour the net for deals and travel off-season. We spend 4-6k (for two people for 7-14 days) and enjoy every minute of it. That's anywhere from 5-10% of our annual pre-tax income. Once we start including continents like Asia, Australia and Antarctica (they're on the 10 year plan at present to allow income to catch up with the cost of those destinations) I know that will easily double to 6-10k for the two of us for a couple weeks.

But, while saving to retire early is an important goal, it has to include some enjoyment now. Nobody can examine your spending habits but you. Perhaps your trips are 20% of your income. If you deem then worth it, they're worth it. If you can cut back on alcohol or find a hotel with buffet breakfast included, do it. But don't sacrifice EVERY LAST BIT OF EXCITEMENT, travel and adventure for the almighty dollar. Travel in our 20s and 30s comes at a different price than it would in our 50s... but it also provides different opportunities.

At some point, you have to enjoy the journey and not just the destination.

Keep travelling and live it up (within your budget!) when you do,
SweetP (reckless International vacationer!)
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>> But, while saving to retire early is an important goal, it has to include some enjoyment now. Nobody can examine your spending habits but you. Perhaps your trips are 20% of your income. If you deem then worth it, they're worth it. If you can cut back on alcohol or find a hotel with buffet breakfast included, do it. But don't sacrifice EVERY LAST BIT OF EXCITEMENT, travel and adventure for the almighty dollar. Travel in our 20s and 30s comes at a different price than it would in our 50s... but it also provides different opportunities. <<

Well, to me this is the thing. Someone posts on a board about how to retire early and mentions nearly 9% of pre-tax income on travel. Clearly this person can afford to do that because he has no debt and is still able to set about 10% aside for retirement.

But let me try this again, because it sounds like some people think a few of us are being a little harsh on the travel expenses.

If he's to make the early to mid 50s target (let's call it 20 years since he's 33), he needs to turn what amounts to $60K in current retirement savings (not including e-fund and short term savings here) into $1M in 20 years. If this is $1M in nominal dollars in 20 years, it's likely to fall woefully short of needs due to inflation. So I am going to assume it means $1M in real dollars.

If one assumes $6,000 a year in real dollars added to retirement accounts and a rather optimistic 6% REAL return, in 2028 he'll only have about one-third of a million starting from $60K.

If we assumed he means nominal dollars and we assume a fairly optimistic 10% return and 4% annual contribution increases, in 2028 we still have only $725,000 or so by my calculations.

So for all you travel buffs out there, I'm not saying his priorities are wrong, just that unless he can grow his income considerably faster than inflation, a million in 20 years seems rather unlikely even in nominal dollars and a virtual impossibility in real dollars (at or near current contribution rates). So in the end, the OP has to weigh the tradeoffs and make some decisions about how important early retirement is relative to vacations and travel. Only the OP can decide that.

But in order to have a decent chance of coming close to the goal -- turning $60K into $1M in two decades -- then clearly quite a bit more money needs to be channeled into retirement savings.

#29
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<<If he's to make the early to mid 50s target (let's call it 20 years since he's 33), he needs to turn what amounts to $60K in current retirement savings (not including e-fund and short term savings here) into $1M in 20 years. If this is $1M in nominal dollars in 20 years, it's likely to fall woefully short of needs due to inflation. So I am going to assume it means $1M in real dollars.
>>


I spent twenty years saving half of my after tax income to become financially independent, and that was with the benefit of the stock market at my back from 1979-1999.

The guy likes his travel, and that's fine. But it means that it's very unlikely that he'll be retiring in twenty years, in my opinion.

I found travel refreshing from time to time as well --- but that was usually a car trip around the state for 2-3 days. Travel for me was therapy, preparing me to return to a disciplined life.


If you like travel as excitement and such, that's fine. But traveling about the world on jet transports seeking excitement isn't especially compatible with the disciplines that lead to early retirement, unless you have a lot of income.


My assessment of the comments of this person is that he likes travel a good deal more than early retirement, and that he is going to do a lot more travel than retiring early unless he steps into some potsfull of money.



Seattle Pioneer
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So in the end, the OP has to weigh the tradeoffs and make some decisions about how important early retirement is relative to vacations and travel. Only the OP can decide that.

Along these lines...

The title of the thread is "On Target?" In the first post, the OP states that the goal is to retire in early/mid 50s and gives some financial information. If all the OP only wants to know is if he is on a path for that goal, then we can simply say one thing -- "NO" -- and move on.

But the OP did say "Thoughts are appreciated" at the end of the post. So, one would assume giving suggestions on how to actually meet that goal would be appropriate. The clearest suggestion is to reduce the travel budget and increase the amount being set aside for retirement. Anyone that is being critical of that suggestion is ignoring the OPs own post. (That would include the OP if he wants to criticize the suggestions.)

As I said in my post, the OP will eventually be able to retire if he is setting 11% of his income aside each year. But it won't be an early retirement. Running the calculations and assuming:
(1) Retirement starts when he has 20 times his annual income set aside;
(2) Inflation adjusted growth of 5%/yr (6% is just too optimistic for me);
(3) Retirement contributions grow with inflation;
(4) Current age is 33;
(5) Current retirement portfolio is 1.09 times his annual income ($60K in retirement portfolio divided by $55K annual income).

Using these assumptions, the OP would be able to retire at age 71. If we assumed he only needed 15 years income to safely retire, he would be able to retire at 66.

On the other hand, if we take $2000 out of the travel budget and move it to the retirement budget, this increases the amount he is saving for retirement from 11% of him annual income to 15%. With this change, he hits 20 years income at age 68 and 15 years income at age 63. Not a huge difference, but it is a real difference.

If the OP wants to retire at 55, he has to DRAMATICALLY ramp up his retirement savings. To reach 15 years income by 55, he needs to be saving 28% of his income annually; to reach 20 years income by 55, he needs to be saving about 40% of his income.

So, I would say the answer to "On Target" is an emphatic NO! And maybe those that are suggesting decreasing the vacations should have stopped there and not bothered giving the thoughts that are supposedly appreciated.

Acme
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I've raised my savings to 11% this year. As someone has already pointed out I could start doing different vacations or travel cheaper and invest the difference. That's not something I'm willing to do just yet. I have a stressful job and I like nice vacations to relax.


I found it really helpful to enter all my spending for the last several years into Quicken with each expenditure categorized. (I had kept all my check-book registers and credit card statements.) It was easy to find ways to spend less so that I could save more. I got to keep all my vacations by cutting back on things I didn't care about.

Vickifool
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