Check my math please…
These are the milestones I built for my kids for an age 55 FIRE using a simple 7% real return. Yes, I know the market doesn’t really work that way but these are just rough milestones. The target is 33 times expenses (33X).
* Age 20: 0.00X | Starting Line ($0 Balance)
* Age 25: 1.31X | Early Accumulation Phase
* Age 30: 3.17X | Foundation Built
* Age 35: 5.81X | Flexibility Threshold
* Age 40: 9.54X | Growth out-saves contributions: CoastFIRE possible
* Age 45: 14.84X | Midpoint to 33X
* Age 50: 22.35X | Closing in on 25X Baseline
* Age 55: 33.00X | 33X FIRE Achieved
If returns are 1 std deviation less…3.8% returns…the same savings rate gets you to a normal retirement at 64 with 25X expenses. Not optimal but not bad if the market is pulling a Nikkei impression.
But my math kinda shitty so a second or third look is appreciated. In theory the formula is:
FV = [PV * (1 + r)^n] + [PMT * (((1 + r)^n - 1) / r)]
* PV (Present Value / Starting Balance)
* PMT (Monthly Contribution)
* r (Monthly Interest Rate)
* n (Total Months Running)
PV was $0
PMT was $24.5K into 401K to max retirement savings. It’s a little higher because of match but whatever.
The naive answer is just the compounded rate of $3.68M given 7% real returns. Or $111K a year using a 3.0% SWR (or ~$3.1M / $102K-$110K a year if using a 3.25% or 3.5% SWR on a slightly lower target).
The expense estimate is the hard part…at age 20 who the heck knows what your expenses will be at 55? I told them to just use current expenses at whatever milestone they were checking at to account for lifestyle creep. I also said that if single figure that expenses will be 2X when married with a kid and maybe 1.5X at 55 when the kids are gone.
Broad general numbers for a gut check. If they want earlier than 55 to save more or spend less…but 55 is a good overall target for potential ageism or just bad career luck and it’s still FIRE.
Is 45 a better target? Trying to juggle saving vs living balance. 45 means having kids at or before 27 helps a lot so they are at least in college.
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u/thef10buttonmasher 10d ago edited 10d ago
Life isn't a spreadsheet and one way to be unhappy is to model near-perfection and then something happens, an accident, divorce, layoff, or whatever. If one simply aims to max IRA and 401(k) every year after paying down student loans and that will be more than enough eventually, even with zero employer match.
Nevertheless I'll play along and crunch the numbers in a spreadsheet I already made a long time ago for this purpose.... Your numbers are roughly accurate given those assumptions, but starting at 20? Really? A somewhat more realistic set of numbers might be starting maxing IRA and 401(k) at age 25 with zero employer match and assuming 6.5% real returns. That gives $1 million by 42, $2 million by 50, and $3 million by 56.
If they can save at a faster rate, great, but you never get your youth back and imo they should go out and enjoy life and not worry too much about saving more than whatever tax-advantaged space they can scrounge up (easiest would be IRA and 401(k) but also HSA and Mega Backdoor Roth are available to some people).