I was scrolling through my posts from the last year when I stumbled across <a href="http://www.fierymillennials.com/my-10-year-plan/">My 10 Year Plan</a> article. I looked over it and immediately noticed several things that were tragically wrong now and could be updated.
So far, things are going mostly according to THE PLAN. Just like Colonel Smith says in The A‑Team, I love it when a plan comes together.
In my first post, I had an estimated net worth goal of $103k by the time January 2017 rolled around. I’m just on the cusp of that now, so it’s safe to say I should update that for where I think I’ll be based on the numbers I currently have available.
So far, my target number hasn’t changed, although once 2016 is over I’ll look at my spending from the last few years and see if my targeted spend of $23,500/year is still realistic. I’m using the assumption the market will continue to get me 7% returns. Is this optimistic? Yep. Am I taking these numbers as written in stone? Nope. This also doesn’t take into account what should happen if the market tanks and/or goes on a crazy run. I’m also using the assumption I will be maxing out my 401k/Roth IRA/HSA and maybe do a backdoor Roth should my income get high enough. I built in a 10% raise at the end of 2016, and a 2.4% raise every other year. I might get a higher paying job/position (I hope anyways) but this model is assuming I don’t get promoted or switch jobs.
One thing I get asked A LOT is what I’m going to do when/if I get married/have kids. I recognize the significant impact of these major life events, but my answer is “I don’t know”. I would like to get married and start a family at some point, but I’m nowhere near that stage in life right now. You kind of need a partner for both of those, and I don’t even have one at the moment. The cost estimate for having kids is something ridiculously crazy like 500 million per offspring (I made that up. I’m too lazy to look up the official government estimate). I anticipate finding a partner who is of like mind with regards to finances. I received some really great relationship advice from multiple people I respect at Camp Mustache, and they hammered home how important it is to find a good partner for life. One even said it was probably the thing that would have the most impact on my finances, which I readily believe after hearing some divorce horror stories from friends and family. I would like to spend some time as DINK’s before introducing mini-me’s into the mix, both to solidify our relationship and have a nice cushion of money. I have mad respect for my mom at being able to raise 3 kids by herself on minimum wage, but I have no wish to experience that myself.
My Plan
Goal: $587,500 (23,500 x 25)
Start: Age 23, Net worth $10,000
| Year 1 (2014): Age 24 Net worth $45k Partially maxed 401k Maxed Roth IRA rented |
Comments: I made a mistake when calculating how much went into my 401k. I included the company match. So, while I ended up with almost $18k saved like I thought I would, I actually only saved $13k. I did max out my Roth IRA though, and also rented a house. |
| Year 2 (2015): Age 25 Net worth: $83k Maxed 401k Maxed Roth IRA rented |
Comments: As of December 2015, my net worth was $83,000 (ish). I maxed out my 401(k) for real and vested my employer contributions, in addition to maxing out my Roth IRA. I rented an apartment for the last 6 months of 2015. |
| Year 3 (2016): Age 26 Net worth e$124k Max 401k Max Roth IRA rent |
Comments: My last year in the Early Development program. I tried to buy a rental property that didn’t work out, so I continue to rent. I should be getting a nice raise when I get a new position this fall, along with probably moving to a new location! I estimate my net worth will be around $123k at the end of the year. |
| Year 4 (2017): Age 27 Net worth e$168k Max 401k Max Roth IRA rent/buy |
Comments: Hopefully working overseas! If I go overseas I’ll rent. If not, I’ll find a short-term rental while I look for a multi-family property to buy. I will be maxing out my Roth IRA and 401(k), with an estimated net worth at $162k by the end of the year. |
| Year 5 (2018): Age 28 Net worth e$216k Max 401k Max Roth IRA Backdoor Roth rent/buy |
Comments: Assuming I stay with my current company, my pension will vest this year. I also anticipate making significantly more money, so I’ll experiment with doing a backdoor Roth while I max out my Roth IRA and 401(k). I’m hoping my net worth easily crosses over the $200k mark by the end of the year. |
| Year 6 (2019): Age 29 Net worth e$267k Max 401k Max Roth IRA Backdoor Roth/taxable rent/buy |
Comments: Living overseas? Rent. Domestic? Buy a portfolio of rentals. I’ll be doing the whole max out Roth/401(k)/Backdoor Roth while also hopefully being able to put some away in my taxable investment account. Estimated net worth will hopefully be over the $250k mark by the end of the year! |
| Year 7 (2020): Age 30 Net worth e$323k Max 401k Max Roth IRA Backdoor Roth/taxable rent/buy |
Comments: I’m really hoping I hit the $300k mark before I turn 30. I think it sounds nicer that way. |
| Year 8 (2021): Age 31 Net worth e$382k Max 401k Max Roth IRA Backdoor Roth/taxable rent/buy |
Comments: Like Dory says in Finding Nemo: Just keep swimming! |
| Year 9 (2022): Age 32 Net worth e$446k Max 401k Max Roth IRA Backdoor Roth/taxable rent/buy |
Comments: Getting closer.…… closer.….…. |
| Year 10 (2023): Age 33 Net worth e$515k Max 401k Max Roth IRA Backdoor Roth/taxable rent/buy |
Comments: Hopefully, I will have multiple sources of income at this point and can boost my savings rate even more. |
| Year 11 (2024): Age 34 Net worth e$588k Max 401k Max Roth IRA Backdoor Roth/taxable rent/buy |
Comments: I’m very narrowly there. However, I’ll need to work part of the next year to be able to get the year end bonus, so I will work until August of 2025 and retire then by the age of 35! |
What does your plan look like? Have your numbers changed at all since you calculated them?
What is the backdoor roth strategy that you would employ for high income? Would you put in $5500 in traditional and then roll over to Roth? What is the benefit? I have read a little bit about this but am still confused. I thought this was something you did when you stopped working not while you are still working. Thanks in advance!
It’s very similar to a Roth IRA ladder, which is what you’re talking about. The ladder lets you get money out of the Roth tax free. I’m talking about the mega backdoor Roth strategy. You make after-tax, non-deductible contributions to your 401k. You can then rollover your contributions to the Roth IRA and voila! More money in your Roth IRA. Check out the Mad Fientist’s post on it! http://www.madfientist.com/after-tax-contributions/
Thanks!! 🙂 Will have to check it out.
I actually do have a yearly goal much like this. Last year was the first year we missed the target, but that probably has more than a little to do with the stock market. You have to build in leeway for the whims of the market.
I love it when I see plans like this laid out year over year. Who cares if you have to re-calculate or adjust. The point is: at least you’ve got a plan. Like the last commentor said, you never know what the market is going to do. So be ready for that. I personally like to model my plan with really low growth assumptions. This forces me to save more to pick up the slack. Then we really do have a 10% or better year, I’m incredibly excited by my progress.
I actually like adjusting the plan. It lets me see how much progress I’m actually making!
Looks like a plan, all right. 😉
My own plan has changed dramatically over its twenty-plus years. The nest-egg target follows tweaks to my vision of a fulfilling FI life, because the monthly expense target changes. As I learn more about investing, how I expect to invest changes the nest-egg target more dramatically. My expense target has shifted somewhat, while my nest-egg target has shrunk by half.
The unknown of the potential future spouse is definitely the hardest part of long range financial planning for me. I love the idea of a few years of togetherness before kids (whether for saving $$ reasons, or just for fun life reasons), As a dude, the older I get, the more limited the dating pool becomes, assuming I want to stay near my own age and not shack up with someone who already has kids.
I’m curious what the Camp Mustache folks told you. That sounds like an interesting post for us single FIRE-minded folk.
Ideally, I’d like to find someone on the same $$ path…but people with this saving mentality are pretty rare, and how would you even target that niche? And with the general public, you don’t want to be interpreted as greedy or too money-focused or what have you. This is a real world struggle that all of these married FIRE folks will never have to experience…which is wonderful for them.
Wait for next week! 🙂
I’m curious about how you decided on some of your goals. I assume the $23,500 number is a rough estimate of your annual spending based on what you are currently seeing go out the door every year. While using that number may be high or probably low (I would adjust it by 2 or 3% annually for inflation, especially given the exceptionally long period you are looking to project for), what I wanted to know is why you are only multiplying it by 25? If you are planning on retiring at age 35 and spending $23,500 every year from 25 years, doesn’t that mean your money might run out by age 60 (35+25), especially if the number turns out to be low, depending on what you earn on your nest egg. Assuming you have a life expectancy closer to 85 or 90 years of age, don’t you need to save $23,500 x 50 or 55 to be safer? Just curious because I was always using a multiplier that went to age 85 or 90.
Thanks and great blog.
C
Hey Chris, I feel comfortable using 25 as I will be continuing to earn money in the years after I quit working my 9–5 office job. Otherwise, I’m waiting to see what my spending looks like this year to adjust the number I need. Thanks for reading and commenting!
A plan is essential I think. I have had a plan for twenty years, the number changed all the time but the plan went on, and I reached my goals.
I didn’t even start until the age you plan to finish though!. Especially if you “think” you are going to get 7% returns every year (lol). You may be too young to know what a true bear market is. But you have enough wherewithall to defend it. So I made it to age 54 financially independent, not luxurious by any means and I do wish I had a bit more, but I have my freedom, and I can take jobs here and there and make extra money as needed.
Thomas, I only use 7% as that is the historical return of the market. Past returns don’t predict the future, but I feel it’s a pretty safe number to use. Thanks for commenting.