The Savings Rate Grid

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snarlyjack
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The Savings Rate Grid

Post by snarlyjack » Sat May 26, 2018 7:11 pm

The Savings Rate Grid
by fourpillarfreedom.

This is a excellent set of grid's that can help you achieve fire (retirement).

Enjoy...

http://www.fourpillarfreedom.com/the-savings-rate-grid/

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willthrill81
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Location: USA

Re: The Savings Rate Grid

Post by willthrill81 » Sat May 26, 2018 7:25 pm

I prefer the early retirement calculator from Networthify, but most of these calculators get the job done.

https://networthify.com/calculator/earl ... awalRate=4
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

guyesmith
Posts: 200
Joined: Fri Mar 23, 2018 11:16 am

Re: The Savings Rate Grid

Post by guyesmith » Sat May 26, 2018 7:28 pm

snarlyjack wrote:
Sat May 26, 2018 7:11 pm
The Savings Rate Grid
by fourpillarfreedom.

This is a excellent set of grid's that can help you achieve fire (retirement).

Enjoy...

http://www.fourpillarfreedom.com/the-savings-rate-grid/
Neat! Helps me see why I’ll be working till 70! :o

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cfs
Posts: 4154
Joined: Fri Feb 23, 2007 1:22 am
Location: ~ Mi Propio Camino ~

Re: The Savings Rate Grid

Post by cfs » Sat May 26, 2018 7:30 pm

All good.
Never used one.
I just saved and invested like crazy and at the end of the day it all worked out fine.
Good luck, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: The Savings Rate Grid

Post by snarlyjack » Sat May 26, 2018 7:33 pm

Hi Willthrill81,

Thank You for the calculator.

It's all about the savings rate!

I've been averaging 65% of after tax income going
straight into my funds. It's surprising how fast they
are building up. I've seen the light & it's bright :happy

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willthrill81
Posts: 5042
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Location: USA

Re: The Savings Rate Grid

Post by willthrill81 » Sat May 26, 2018 7:38 pm

snarlyjack wrote:
Sat May 26, 2018 7:33 pm
Hi Willthrill81,

Thank You for the calculator.

It's all about the savings rate!

I've been averaging 65% of after tax income going
straight into my funds. It's surprising how fast they
are building up. I've seen the light & it's bright :happy
Yes, the savings rate is what really reduces the time to FI, especially as the savings rate increases. At a low savings rate (<20%), the rate of return matters a lot. For a high savings rate (>50%), the rate of return doesn't move the needle much. Brute force wins! :beer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Snowjob
Posts: 1445
Joined: Sun Jun 28, 2009 10:53 pm

Re: The Savings Rate Grid

Post by Snowjob » Sat May 26, 2018 8:31 pm

willthrill81 wrote:
Sat May 26, 2018 7:38 pm
snarlyjack wrote:
Sat May 26, 2018 7:33 pm
Hi Willthrill81,

Thank You for the calculator.

It's all about the savings rate!

I've been averaging 65% of after tax income going
straight into my funds. It's surprising how fast they
are building up. I've seen the light & it's bright :happy
Yes, the savings rate is what really reduces the time to FI, especially as the savings rate increases. At a low savings rate (<20%), the rate of return matters a lot. For a high savings rate (>50%), the rate of return doesn't move the needle much. Brute force wins! :beer
Fun little tool.

I have a # in mind that I'd like to hit and this tool confirms what I've run on my own spreadsheets. Basically saving extra, doesn't make a HUGE difference at this point. I could sacrifice more today, in order to hit FI sooner but it doesn't seem worth it. Saving SOMETHING clearly has a benefit, after that it diminishes quite a bit. The problem is trying to rewire myself save less and spend more. Its a slow process but I'm working on it.

Savings Rate --- 00%---- 15.60 Years to FI
Savings Rate --- 10%--- 13.00
Savings Rate --- 20%---- 11.70
Savings Rate --- 30%---- 10.30
Savings Rate --- 40%---- 9.40

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willthrill81
Posts: 5042
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Location: USA

Re: The Savings Rate Grid

Post by willthrill81 » Sat May 26, 2018 9:55 pm

Snowjob wrote:
Sat May 26, 2018 8:31 pm
willthrill81 wrote:
Sat May 26, 2018 7:38 pm
snarlyjack wrote:
Sat May 26, 2018 7:33 pm
Hi Willthrill81,

Thank You for the calculator.

It's all about the savings rate!

I've been averaging 65% of after tax income going
straight into my funds. It's surprising how fast they
are building up. I've seen the light & it's bright :happy
Yes, the savings rate is what really reduces the time to FI, especially as the savings rate increases. At a low savings rate (<20%), the rate of return matters a lot. For a high savings rate (>50%), the rate of return doesn't move the needle much. Brute force wins! :beer
Fun little tool.

I have a # in mind that I'd like to hit and this tool confirms what I've run on my own spreadsheets. Basically saving extra, doesn't make a HUGE difference at this point. I could sacrifice more today, in order to hit FI sooner but it doesn't seem worth it. Saving SOMETHING clearly has a benefit, after that it diminishes quite a bit. The problem is trying to rewire myself save less and spend more. Its a slow process but I'm working on it.

Savings Rate --- 00%---- 15.60 Years to FI
Savings Rate --- 10%--- 13.00
Savings Rate --- 20%---- 11.70
Savings Rate --- 30%---- 10.30
Savings Rate --- 40%---- 9.40
Yes, I've come to the very same conclusion lately. We could really stretch ourselves by extending it to about 60% in a couple of years from our current 50%, but it wouldn't make more than a couple of years difference at most and would really restrict some of the things that we really enjoy. It's just not worth it. I'm still planning on retiring no later than 55, and that's still better than the average bear.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Snowjob
Posts: 1445
Joined: Sun Jun 28, 2009 10:53 pm

Re: The Savings Rate Grid

Post by Snowjob » Sun May 27, 2018 7:12 am

willthrill81 wrote:
Sat May 26, 2018 9:55 pm
Snowjob wrote:
Sat May 26, 2018 8:31 pm
...
Savings Rate --- 00%---- 15.60 Years to FI
Savings Rate --- 10%--- 13.00
Savings Rate --- 20%---- 11.70
Savings Rate --- 30%---- 10.30
Savings Rate --- 40%---- 9.40
Yes, I've come to the very same conclusion lately. We could really stretch ourselves by extending it to about 60% in a couple of years from our current 50%, but it wouldn't make more than a couple of years difference at most and would really restrict some of the things that we really enjoy. It's just not worth it. I'm still planning on retiring no later than 55, and that's still better than the average bear.
Have you played with lowering your savings rate and seeing what you'd be giving up in terms of years? At one point I was saving 40%, each 10% decline adds a little more than a year of work. But going from 10% to 0% adds almost twice that 2+ years, clearly there seems to be a sweet spot.

staythecourse
Posts: 5813
Joined: Mon Jan 03, 2011 9:40 am

Re: The Savings Rate Grid

Post by staythecourse » Sun May 27, 2018 8:04 am

I agree with the couple posters above the most useful aspect of the calculators is NOT how to speed up ER by saving more (the intention), but to show how little it makes a difference in relation to your current quality of consumption by saving more then the average boglehead already does. Saving more nowdoes not move the needle much. For many, it means retiring a year or 2 earlier.

I figured this myself about 5 years ago. I figure it is much better (at least for me) to enjoy life a bit more then be preoccupied trying to save even more just to retired 1-2 years earlier. Just didn't make sense as a trade off.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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willthrill81
Posts: 5042
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: The Savings Rate Grid

Post by willthrill81 » Sun May 27, 2018 9:53 am

Snowjob wrote:
Sun May 27, 2018 7:12 am
willthrill81 wrote:
Sat May 26, 2018 9:55 pm
Snowjob wrote:
Sat May 26, 2018 8:31 pm
...
Savings Rate --- 00%---- 15.60 Years to FI
Savings Rate --- 10%--- 13.00
Savings Rate --- 20%---- 11.70
Savings Rate --- 30%---- 10.30
Savings Rate --- 40%---- 9.40
Yes, I've come to the very same conclusion lately. We could really stretch ourselves by extending it to about 60% in a couple of years from our current 50%, but it wouldn't make more than a couple of years difference at most and would really restrict some of the things that we really enjoy. It's just not worth it. I'm still planning on retiring no later than 55, and that's still better than the average bear.
Have you played with lowering your savings rate and seeing what you'd be giving up in terms of years? At one point I was saving 40%, each 10% decline adds a little more than a year of work. But going from 10% to 0% adds almost twice that 2+ years, clearly there seems to be a sweet spot.
Compared to a 60% savings rate, a 50% savings rate would add 1-2 years to the time it takes us to reach FI. There's not really any point in us reducing our savings rate below 50% since it gives us the lifestyle we want and doing so might result in me not being able to retire at age 55, which is about my desired maximum.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 10:45 am

Willthrill81,


Apparently, your plan is together & your pretty zeroed in on your goals.

As for me, I've been working on & studying this since I was 20 years old.
My numbers indicate my FI age to be about 35. 35-20 = 15 years. I have
11 years to go to build the perfect portfolio. It seems once you understand
what your doing then putting the perfect portfolio together takes about 10 to
15 years, if a person is pretty zeroed in.

Fire is possible but you need to know what your doing, the numbers behind it
and the time it takes to build the perfect portfolio. It's all achievable.
You have to want it....

marcopolo
Posts: 956
Joined: Sat Dec 03, 2016 10:22 am

Re: The Savings Rate Grid

Post by marcopolo » Sun May 27, 2018 10:53 am

staythecourse wrote:
Sun May 27, 2018 8:04 am
I agree with the couple posters above the most useful aspect of the calculators is NOT how to speed up ER by saving more (the intention), but to show how little it makes a difference in relation to your current quality of consumption by saving more then the average boglehead already does. Saving more nowdoes not move the needle much. For many, it means retiring a year or 2 earlier.

I figured this myself about 5 years ago. I figure it is much better (at least for me) to enjoy life a bit more then be preoccupied trying to save even more just to retired 1-2 years earlier. Just didn't make sense as a trade off.

Good luck.
Are you using the same target savings/spending in retirement to compute this impact?
I think an additional risk could be lifestyle creep.

Let's say you earn $100K, pay $10k in taxes, save $40k, and have $50k in expenses as a baseline.
To get to 25x spending, you would need to accumulate $1.25M

Now let's say you decide to loosen the purse strings a bit. and change the savings to $30k and spending to $60k. You now need to accumulate $1.5M to support your new lifestyle that you have become accustomed to, and you need to do it with lower contributions, so it might extend the working years a bit more than if you are assuming the same

Not at all saying it is still not the right decision, but just that it should probably be taken into account.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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#Cruncher
Posts: 2615
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Location: New York City
Contact:

Re: The Savings Rate Grid

Post by #Cruncher » Sun May 27, 2018 10:55 am

Snowjob wrote:
Sat May 26, 2018 8:31 pm
Savings Rate --- 00%---- 15.60 Years to FI
Savings Rate --- 10%---- 13.00
Savings Rate --- 20%---- 11.70
Savings Rate --- 30%---- 10.30
Savings Rate --- 40%----- 9.40
Snowjob, I don't see how you can get these numbers with the Networthify calculator referenced in willthrill81's first post. Assuming a 5% investment return rate and a 4% withdrawal rate, to get 15.6 years for a 0% savings rate I had to assume current portfolio value 11.68 times annual income. Then for 10%, 20%, 30%, and 40% savings rates I get quite different number of years than you did.

Code: Select all

 0%    15.6 
10%    11.9 
20%     8.7 
30%     5.8 
40%     3.2
Do your figures assume -- as do both the Networthify calculator and the Savings Rate Grid from the original post -- that expenses during retirement will equal annual income less savings? E.g., if one saves 40%, one needs to fund only 60% of the retirement spending as if one saves 0%.

For those wishing to see the Savings Rate Grid with other than a 5% investment return rate or with a non-zero starting portfolio balance, it can be easily duplicated in an Excel spreadsheet:

Code: Select all

Row  Col A  Col B  Col C  Col D  Col E  Col F  Col G
  1  Rate      5%
  2  Start    0.0
             --------- Multiple of Expenses --------
  3   Save      5     10     15     20     25     30

Code: Select all

  4    80%    1.2    2.4    3.5    4.6    5.6    6.5 
  5    75%    1.6    3.2    4.6    5.9    7.1    8.3 
  6    70%    2.1    4.0    5.7    7.3    8.8   10.2 
  7    65%    2.6    4.9    7.0    8.8   10.5   12.1 
  8   [60%]   3.2    5.9    8.3   10.5   12.4  [14.2]
  9    55%    3.8    7.0    9.8   12.3   14.4   16.4 
 10    50%    4.6    8.3   11.5   14.2   16.6   18.8 
 11    45%    5.5    9.8   13.3   16.4   19.0   21.3 
 12   [40%]   6.5   11.5   15.4   18.8   21.6  [24.2]
 13    35%    7.8   13.5   17.9   21.5   24.6   27.3 
 14    30%    9.4   15.8   20.7   24.7   28.0   30.8 
 15    25%   11.5   18.8   24.2   28.4   31.9   34.9 
 16    20%   14.2   22.5   28.4   33.0   36.7   39.9 
 17    15%   18.1   27.5   34.0   38.9   42.8   46.1 
 18    10%   24.2   34.9   42.0   47.2   51.4   54.8 
 19     5%   35.9   48.2   55.8   61.4   65.8   69.4
Here is the key formula in cell B4 that is copied down to row 19 and right to column G. It uses the Excel NPER function.
B4: 1.2 = NPER($B$1, -$A4, -$B$2, (1 - $A4) * B$3, 0)

Here is the spreadsheet modified to use a 0% growth rate [*] with a starting portfolio value of one year's income. Look at 60% and 40% savings to see how retirement expenses are defined as the difference between income and savings:
30 = (18.3 * 0.6 + 1.0) / 0.4
30 = (42.5 * 0.4 + 1.0) / 0.6

Code: Select all

Row  Col A  Col B  Col C  Col D  Col E  Col F  Col G
  1  Rate      0%
  2  Start    1.0
             --------- Multiple of Expenses --------
  3   Save      5     10     15     20     25     30

Code: Select all

  4    80%    0.0    1.3    2.5    3.8    5.0    6.3 
  5    75%    0.3    2.0    3.7    5.3    7.0    8.7 
  6    70%    0.7    2.9    5.0    7.1    9.3   11.4 
  7    65%    1.2    3.8    6.5    9.2   11.9   14.6 
  8   [60%]   1.7    5.0    8.3   11.7   15.0  [18.3] 
  9    55%    2.3    6.4   10.5   14.5   18.6   22.7 
 10    50%    3.0    8.0   13.0   18.0   23.0   28.0 
 11    45%    3.9   10.0   16.1   22.2   28.3   34.4 
 12   [40%]   5.0   12.5   20.0   27.5   35.0  [42.5] 
 13    35%    6.4   15.7   25.0   34.3   43.6   52.9 
 14    30%    8.3   20.0   31.7   43.3   55.0   66.7 
 15    25%   11.0   26.0   41.0   56.0   71.0   86.0 
 16    20%   15.0   35.0   55.0   75.0   95.0  115.0 
 17    15%   21.7   50.0   78.3  106.7  135.0  163.3 
 18    10%   35.0   80.0  125.0  170.0  215.0  260.0 
 19     5%   75.0  170.0  265.0  360.0  455.0  550.0
* By the way, the Networthify calculator craps out with a 0% growth rate.

staythecourse
Posts: 5813
Joined: Mon Jan 03, 2011 9:40 am

Re: The Savings Rate Grid

Post by staythecourse » Sun May 27, 2018 11:39 am

marcopolo wrote:
Sun May 27, 2018 10:53 am
staythecourse wrote:
Sun May 27, 2018 8:04 am
I agree with the couple posters above the most useful aspect of the calculators is NOT how to speed up ER by saving more (the intention), but to show how little it makes a difference in relation to your current quality of consumption by saving more then the average boglehead already does. Saving more nowdoes not move the needle much. For many, it means retiring a year or 2 earlier.

I figured this myself about 5 years ago. I figure it is much better (at least for me) to enjoy life a bit more then be preoccupied trying to save even more just to retired 1-2 years earlier. Just didn't make sense as a trade off.

Good luck.
Are you using the same target savings/spending in retirement to compute this impact?
I think an additional risk could be lifestyle creep.

Let's say you earn $100K, pay $10k in taxes, save $40k, and have $50k in expenses as a baseline.
To get to 25x spending, you would need to accumulate $1.25M

Now let's say you decide to loosen the purse strings a bit. and change the savings to $30k and spending to $60k. You now need to accumulate $1.5M to support your new lifestyle that you have become accustomed to, and you need to do it with lower contributions, so it might extend the working years a bit more than if you are assuming the same

Not at all saying it is still not the right decision, but just that it should probably be taken into account.
For us (wife and I) we chose to spend more time with the kids (2 toddlers) and cut down on our work to do it. We spend the same (just different now that we are not doing nanny and one is done with day care) and save a bit less which means we work a 1-2 years longer.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

marcopolo
Posts: 956
Joined: Sat Dec 03, 2016 10:22 am

Re: The Savings Rate Grid

Post by marcopolo » Sun May 27, 2018 11:44 am

staythecourse wrote:
Sun May 27, 2018 11:39 am

For us (wife and I) we chose to spend more time with the kids (2 toddlers) and cut down on our work to do it. We spend the same (just different now that we are not doing nanny and one is done with day care) and save a bit less which means we work a 1-2 years longer.

Good luck.
Well done. That is one way to lower savings rate without ballooning expenses.
I had (wrongly) assumed people were talking about maintaining similar income while lowering savings rate to have more to spend now.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Snowjob
Posts: 1445
Joined: Sun Jun 28, 2009 10:53 pm

Re: The Savings Rate Grid

Post by Snowjob » Sun May 27, 2018 11:57 am

#Cruncher wrote:
Sun May 27, 2018 10:55 am
Snowjob wrote:
Sat May 26, 2018 8:31 pm
Savings Rate --- 00%---- 15.60 Years to FI
Savings Rate --- 10%---- 13.00
Savings Rate --- 20%---- 11.70
Savings Rate --- 30%---- 10.30
Savings Rate --- 40%----- 9.40
Snowjob, I don't see how you can get these numbers with the Networthify calculator referenced in willthrill81's first post. Assuming a 5% investment return and a 4% withdrawal rate, to get 15.6 years for a 0% savings rate I had to assume current portfolio value 11.68 times annual income. Then for 10%, 20%, 30%, and 40% savings rates I get quite different number of years than you did.

Code: Select all

 0%    15.6 
10%    11.9 
20%     8.7 
30%     5.8 
40%     3.2
Do your figures assume -- as do both the Networthify calculator and the Savings Rate Grid from the original post -- that expenses during retirement will equal annual income less savings? E.g., if one saves 40%, one needs to fund only 60% of the retirement spending as if one saves 0%.
....
Sort of.

I am sitting at ~ 16x my estimated retirement expenses right now. I also adjusted the estimated growth rate of the portfolio down to match my desired withdrawal rate of 3.6% just for simplicity.

Currently, I'm saving around 20% of income. (It was 40% when I was younger and ultra-cheap. 20% gives me a much better quality of life.) The 20% savings rate coincidentally works out just fine for the calculator since 80% of my salary is actually my estimated expenses in retirement.

In order to see what saving more or less would do in terms of years till FI, I had to adjust the income line in order to control both the expenses and savings levels.

In my case, tightening the belt now, ruins quality of life for 10 years just so I can retire a few years earlier. Not very appealing for many reasons -- I've become a much bigger fan of consumption smoothing and enjoying the time I have now while still healthy and physically able to do almost anything I want.

On the other hand reducing my savings even further could increase quality of life, without adding more than a year or two. The risk of course here is I'll be accustom to the nicer lifestyle and I'll actually need to move the goal posts. There may be several other ways to look at this newfound surplus however. 1.) I'm young enough where having kids is not out of the question, in which case I know where that extra 10-20% is going. Another might be the a change or jobs to take work that pays less etc. I'm just thinking through these possibilities now. But I'm sure there are plenty.

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 12:17 pm

Here are some wonderful graphs & insights.

10 charts and 10 insights .

Enjoy...

http://www.fourpillarfreedom.com/10-charts-10-insights/

HoleInTheAir
Posts: 63
Joined: Sun Aug 28, 2016 8:47 am

Re: The Savings Rate Grid

Post by HoleInTheAir » Sun May 27, 2018 12:27 pm

Question on the net worthify calculator - does it assume that your income is gross? I ask because we save 36% gross, but it works out to closer to 85% of our actual living income. We live on about $4000 a month and save about $3400 a month.

Snowjob
Posts: 1445
Joined: Sun Jun 28, 2009 10:53 pm

Re: The Savings Rate Grid

Post by Snowjob » Sun May 27, 2018 12:36 pm

HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? I ask because we save 36% gross, but it works out to closer to 85% of our actual living income. We live on about $4000 a month and save about $3400 a month.
I ended up tweaking the income $$ and savings % in order to get the Savings $$ and the Expense $$ i wanted to see in the calculations. Dollars saved and Expenses your wish to cover that are the real important numbers.

WanderingDoc
Posts: 968
Joined: Sat Aug 05, 2017 8:21 pm

Re: The Savings Rate Grid

Post by WanderingDoc » Sun May 27, 2018 1:59 pm

willthrill81 wrote:
Sat May 26, 2018 7:25 pm
I prefer the early retirement calculator from Networthify, but most of these calculators get the job done.

https://networthify.com/calculator/earl ... awalRate=4
That calculator doesn't seem valid for me. Does it assume a 4% withdrawal rate from a mutual fund portfolio? Rental income from real estate already covers my living expenses. I'm already FI. But that calculator tells me I need 8 years before I retire? This is why I encourage people to invest in real estate. Not to mention, the tax code allows you to pay no tax (or even declare a paper loss against your W-2 income) on buy and hold real estate. Tenants also pay of your mortgage so that your monthly income will instantly triple once your loans are payed off in the future.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

drk
Posts: 698
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: The Savings Rate Grid

Post by drk » Sun May 27, 2018 2:03 pm

snarlyjack wrote:
Sun May 27, 2018 10:45 am
Willthrill81,


Apparently, your plan is together & your pretty zeroed in on your goals.

As for me, I've been working on & studying this since I was 20 years old.
My numbers indicate my FI age to be about 35. 35-20 = 15 years. I have
11 years to go to build the perfect portfolio. It seems once you understand
what your doing then putting the perfect portfolio together takes about 10 to
15 years, if a person is pretty zeroed in.

Fire is possible but you need to know what your doing, the numbers behind it
and the time it takes to build the perfect portfolio. It's all achievable.
You have to want it....
Wait, you're 24, looking to FIRE at 35, and still advocating high-dividend strategies? Come on, man, listen to what triceratop keeps telling you.

Snowjob
Posts: 1445
Joined: Sun Jun 28, 2009 10:53 pm

Re: The Savings Rate Grid

Post by Snowjob » Sun May 27, 2018 2:15 pm

drk wrote:
Sun May 27, 2018 2:03 pm

Wait, you're 24, looking to FIRE at 35, and still advocating high-dividend strategies? Come on, man, listen to what triceratop keeps telling you.
Complete tangent - I'm curious what words of wisdom triceratops has to say! I'm still young enough to learn the secrets!

drk
Posts: 698
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: The Savings Rate Grid

Post by drk » Sun May 27, 2018 2:28 pm

Snowjob wrote:
Sun May 27, 2018 2:15 pm
Complete tangent - I'm curious what words of wisdom triceratops has to say! I'm still young enough to learn the secrets!
This recent thread has most of the goodies. The root of the issue is that dividends (even qualified ones that are reinvested) are tax-inefficient and introduce a drag on your total returns. That drag compounds every year. Intentionally tilting towards high-dividend equities exaggerates that drag, sometimes significantly (e.g., 50% higher by using 3.09% for VYM rather than 1.84% for VTI). With few exceptions, anyone accumulating and looking to retire early should be trying to defer as much of their tax burden as possible.

Snowjob
Posts: 1445
Joined: Sun Jun 28, 2009 10:53 pm

Re: The Savings Rate Grid

Post by Snowjob » Sun May 27, 2018 2:36 pm

Yeah I've structured my portfolio with taxation in mind.

Wasn't a huge concern of mine early on I've seen the light. Efficient allocation and harvesting can make a world of difference.

User avatar
willthrill81
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Re: The Savings Rate Grid

Post by willthrill81 » Sun May 27, 2018 3:09 pm

WanderingDoc wrote:
Sun May 27, 2018 1:59 pm
willthrill81 wrote:
Sat May 26, 2018 7:25 pm
I prefer the early retirement calculator from Networthify, but most of these calculators get the job done.

https://networthify.com/calculator/earl ... awalRate=4
That calculator doesn't seem valid for me. Does it assume a 4% withdrawal rate from a mutual fund portfolio? Rental income from real estate already covers my living expenses. I'm already FI. But that calculator tells me I need 8 years before I retire? This is why I encourage people to invest in real estate. Not to mention, the tax code allows you to pay no tax (or even declare a paper loss against your W-2 income) on buy and hold real estate. Tenants also pay of your mortgage so that your monthly income will instantly triple once your loans are payed off in the future.
It's assuming that retirement income is coming exclusively from an investment portfolio, not real estate or Social Security.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: The Savings Rate Grid

Post by willthrill81 » Sun May 27, 2018 3:13 pm

HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? I ask because we save 36% gross, but it works out to closer to 85% of our actual living income. We live on about $4000 a month and save about $3400 a month.
Yes, the savings rate you enter should be your pre-tax savings rate (i.e. the amount you're saving divided by your gross income). An implicit assumption is that your tax rate will be the same in retirement as before; it's usually lower, but this doesn't usually shift the numbers much.

All of these FIRE calculators are only rough tools to get you in the ballpark.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

snarlyjack
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Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 4:41 pm

Drk,

The dividend strategy resonates with me for a couple of reasons.

1). I plan on never selling any shares. It's part of my Mom's estate &
I want to keep it for her name sake. Eventually handing the portfolio
down to my kids (generational).

2). I' am invested in 4 funds (tech fund in the 401k),
Dividend Appreciation fund in the Roth IRA. High Dividend Yield fund
& Mid Cap Value fund in my personal brokerage accounts.

3). Long term buy & hold. No trading, only investing. Studied
Jack Bogle & love Vanguard. All of my funds except for the 401k
are index funds. I truly consider myself a Boglehead.


Thank You...

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willthrill81
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Re: The Savings Rate Grid

Post by willthrill81 » Sun May 27, 2018 5:01 pm

snarlyjack wrote:
Sun May 27, 2018 4:41 pm
1). I plan on never selling any shares. It's part of my Mom's estate &
I want to keep it for her name sake. Eventually handing the portfolio
down to my kids (generational).
What does selling shares have to do with generational wealth? It's not as though selling shares means you will eventually run out of shares.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

snarlyjack
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Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 5:27 pm

Hi Willthrill81,

Let's take drk's numbers that he just posted.

Assume your living off of dividends & interest, $1,000,000.

VHDYX = 3.09%
VTSAX = 1.84%

1,000,000. x 3.09% = $30,900. VHDYX.
1,000,000. x 1.84% = $18,400. VTSAX.

If your not going to sell off any shares & you let the
principal amount float in the market. Which fund will
support your income needs better?

Remember, I promised my Mom that I would not touch the principal
and only use the dividends. Right now I' am letting the High Dividend
Yield Index Fund float in the market without any more contributions.
All of my monies are going into the Roth IRA & Vanguard Medium Cap.
Value Fund (I need to build up both of those funds).

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willthrill81
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Re: The Savings Rate Grid

Post by willthrill81 » Sun May 27, 2018 5:47 pm

snarlyjack wrote:
Sun May 27, 2018 5:27 pm
Hi Willthrill81,

Let's take drk's numbers that he just posted.

Assume your living off of dividends & interest, $1,000,000.

VHDYX = 3.09%
VTSAX = 1.84%

1,000,000. x 3.09% = $30,900. VHDYX.
1,000,000. x 1.84% = $18,400. VTSAX.

If your not going to sell off any shares & you let the
principal amount float in the market. Which fund will
support your income needs better?

Remember, I promised my Mom that I would not touch the principal
and only use the dividends. Right now I' am letting the High Dividend
Yield Index Fund float in the market without any more contributions.
All of my monies are going into the Roth IRA & Vanguard Medium Cap.
Value Fund (I need to build up both of those funds).
Why would you refuse to sell shares?

If I have a $1 million portfolio and it increases in value by 5%, it doesn't matter whether that 5% came from dividends or capital appreciation. The idea that there is something to be gained by never selling shares is a pervasive but completely false idea.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 6:04 pm

Willthrill81,

In my mind it get's back to a couple of things.

My mortality is age 100 - age 24 = 76 years.

The trinity study only goes out 30 years. Then it's questionable how
much money is left. My mortality age 100 - my FIRE age 35 = 65 years.
So I need to go way beyond the Trinity study. In my studies of millionaires
most were using dividend strategies. Think of the Janitor Next Door &
the Walgreens Millionaire & Warren Buffett. None of these investors
were selling off the portfolio or using the Trinity Study.

So it's a mathematical fine balancing act. Between the Trinity Study &
the dividend strategy going out for 65 years. It's a fine balancing act
using mathematics. (Which I think is more your field than mine).
That is why I said investors need to understand what they are doing &
how the numbers work.

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willthrill81
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Re: The Savings Rate Grid

Post by willthrill81 » Sun May 27, 2018 6:11 pm

snarlyjack wrote:
Sun May 27, 2018 6:04 pm
Willthrill81,

In my mind it get's back to a couple of things.

My mortality is age 100 - age 24 = 76 years.

The trinity study only goes out 30 years. Then it's questionable how
much money is left. My mortality age 100 - my FIRE age 35 = 65 years.
So I need to go way beyond the Trinity study.
The Trinity study doesn't have anything to do with dividends. It doesn't matter whether you're returns come from dividends or capital appreciation.
snarlyjack wrote:
Sun May 27, 2018 6:04 pm
In my studies of millionaires
most were using dividend strategies. Think of the Janitor Next Door &
the Walgreens Millionaire & Warren Buffett. None of these investors
were selling off the portfolio or using the Trinity Study.
Buffett at least isn't retired, so this is all moot for him.
snarlyjack wrote:
Sun May 27, 2018 6:04 pm
So it's a mathematical fine balancing act. Between the Trinity Study &
the dividend strategy going out for 65 years. It's a fine balancing act
using mathematics. (Which I think is more your field than mine).
That is why I said investors need to understand what they are doing &
how the numbers work.
Sequence of returns risk is indeed a big, unknown factor, and the only ways to deal with it are to start with a low withdrawal rate (in your case, perhaps 3-3.5%) and/or to be flexible (e.g. reducing withdrawals when your portfolio suffers).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

snarlyjack
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Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 6:42 pm

Hopefully this whole conversation will be informative to people
that is my goal.


True, the Trinity Study has nothing to do with dividends. However,
the Trinity Study only goes out for 30 years. What has happened is
as retirees go out longer than 30 years the advice has been to withdraw
less than 4%. To approx. 3%. Sequence of return risk is the big unknown.

When a investor is going out 40, 50, 60 years it changes the calculations.
All kinds of things can & will change. Regulations, taxes, market conditions, etc.
Your right we have to start with a low withdrawal rate & be very flexible. The 401K &
Roth IRA buckets do not open up for another 36 years (just left to compound out).
The brokerage account needs to be as large as possible. Most important I
think is a investor needs to understand the math behind the whole thing.

It's a mathematical problem but also the type of portfolio problem. We learn
from our elders who went before us...

Snowjob
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Re: The Savings Rate Grid

Post by Snowjob » Sun May 27, 2018 7:04 pm

willthrill81 wrote:
Sun May 27, 2018 6:11 pm
...
snarlyjack wrote:
Sun May 27, 2018 6:04 pm
So it's a mathematical fine balancing act. Between the Trinity Study &
the dividend strategy going out for 65 years. It's a fine balancing act
using mathematics. (Which I think is more your field than mine).
That is why I said investors need to understand what they are doing &
how the numbers work.
Sequence of returns risk is indeed a big, unknown factor, and the only ways to deal with it are to start with a low withdrawal rate (in your case, perhaps 3-3.5%) and/or to be flexible (e.g. reducing withdrawals when your portfolio suffers)
Jack,

Why can't you just use a total market index and live off those dividends if your plan is to live off dividends?

If your talking a huge time horizon, and not needing the income for a very long time, the superior growth of the total market index will make up the lower starting yield in the long run. (IMO)

In the last 10 years, the dividend in the total market index has increased 80%, while it has increased only 70% for the High yield fund you mentioned. Additionally this similar return on paper actually ended up costing you more -- 50% more -- in taxes! The only good news of having paid all those taxes is that your cost basis of the fund is now higher. Unfortunately that's only relevant if you sell... which you wont... so there is no upside right now. Seems like you wont actually need the money for decades so why not get there more efficiently with a total market index?

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Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 7:30 pm

Snowjob,

(History) After my Mom died I realized I needed to get my act together.
I started searching the web & landed on JL Collins site (the stock series).
That is how I found Bogleheads & Vanguard because of JL Collins.

I was analyzing his stock series (which is excellent & highly recommended).
JL Collins loves the TSM. But it always came back to would you rather have
$30,000 in dividends or $18,000. in dividends. It would take me approx.
2 million in TSM or 1 million in HDY. So I started analyzing HDY. I really
like big blue cap. stocks. Exxon, Microsoft, Coke, Pepsi, just spoke to me
(it speaks to you or it doesn't). Then I went into studying Jack Bogle &
Vanguard. (What a great, great study). I' am 100% pro Vanguard & Bogleheads.

If you look at the 3 charts of TSM, S & P, and HDY the 5 & 10 year charts are
within hairs of each other. I think HDY keeps up with them, it's not getting
blown out of the water. The Big Difference is Taxes. T is correct when he says
that HDY is the tax inefficient of the 3 funds. But it's still all qualified dividends,
no short/long term cap. gains (and more tax efficient than most mutual funds).

Also you have to realize that my goal isn't to have the largest portfolio balance.
My goal is to live off of dividends & have financial freedom. Does is really matter
if you have 10 Million dollars or 9.5 Million dollars? I' am more interested in the
quarterly check...

Snowjob
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Re: The Savings Rate Grid

Post by Snowjob » Sun May 27, 2018 8:54 pm

snarlyjack wrote:
Sun May 27, 2018 7:30 pm
Snowjob,

(History) After my Mom died I realized I needed to get my act together.
I started searching the web & landed on JL Collins site (the stock series).
That is how I found Bogleheads & Vanguard because of JL Collins.

I was analyzing his stock series (which is excellent & highly recommended).
JL Collins loves the TSM. But it always came back to would you rather have
$30,000 in dividends or $18,000. in dividends. It would take me approx.
2 million in TSM or 1 million in HDY. So I started analyzing HDY. I really
like big blue cap. stocks. Exxon, Microsoft, Coke, Pepsi, just spoke to me
(it speaks to you or it doesn't). Then I went into studying Jack Bogle &
Vanguard. (What a great, great study). I' am 100% pro Vanguard & Bogleheads.

If you look at the 3 charts of TSM, S & P, and HDY the 5 & 10 year charts are
within hairs of each other. I think HDY keeps up with them, it's not getting
blown out of the water. The Big Difference is Taxes. T is correct when he says
that HDY is the tax inefficient of the 3 funds. But it's still all qualified dividends,
no short/long term cap. gains (and more tax efficient than most mutual funds).

Also you have to realize that my goal isn't to have the largest portfolio balance.
My goal is to live off of dividends & have financial freedom. Does is really matter
if you have 10 Million dollars or 9.5 Million dollars? I' am more interested in the
quarterly check...
Sorry for your loss first off --

To each their own. I know I once thought about living off the dividends but I've come to re-evaluate everything from tax standpoint the more I seriously start considering withdrawal rates and the benefits of having a very low taxable income -- they are just to hard to ignore for me. Efficient planning and income reduction can save 6-10k a year. That's a big number for me. That can buy some really nice vacations each year. Anyway. good luck.

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Re: The Savings Rate Grid

Post by snarlyjack » Sun May 27, 2018 10:03 pm

Snowjob,

Thank You...it's been quite the challenge.

Let's talk taxes for a minute...

My Vanguard accounts are all dividend paying funds. I have yet to pay any taxes
on my accounts out of my pocket. (I have moved my work tax withholding (w-4)
to zero 0, just in case). My State charges 6.9% dividend tax, I paid no Federal
Tax). I got money back from both the Fed's & State. Turbo tax figured out my taxes.

Currently, I have over $300,000. invested. Someday it might be a problem?
My plan is to pay the taxes I owe & go and have a nice life... Currently I have
quit funding High Dividend Yield & I' am concentrating on the Roth IRA &
Medium Cap. Value Fund. I need to bring up the other funds to proportion.
I' am finding that it's a balance when building a portfolio.

I think the bottom line is...you either identify with the strategy or you don't.
Some investors love the strategy others hate it. Who am I to say what is right
for everyone. Some people like Coke, some people like Pepsi.

snarlyjack
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Re: The Savings Rate Grid

Post by snarlyjack » Mon May 28, 2018 7:36 am

Here is a video of Warren Buffett (2018 Berkshire Investor Conference).
In my opinion it is a great video...

Enjoy Warren Buffett giving advice...


https://www.youtube.com/watch?time_cont ... zw9IYR_5gw

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Re: The Savings Rate Grid

Post by smitcat » Mon May 28, 2018 8:00 am

willthrill81 wrote:
Sun May 27, 2018 3:13 pm
HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? I ask because we save 36% gross, but it works out to closer to 85% of our actual living income. We live on about $4000 a month and save about $3400 a month.
Yes, the savings rate you enter should be your pre-tax savings rate (i.e. the amount you're saving divided by your gross income). An implicit assumption is that your tax rate will be the same in retirement as before; it's usually lower, but this doesn't usually shift the numbers much.

All of these FIRE calculators are only rough tools to get you in the ballpark.
It looks like a great quick tool to use but taking a % of gross salary makes inacurate for us to use. Our tax rate in retirement will be greatly differnet that it is now - is there another tool than takes that into consideration?

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willthrill81
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Re: The Savings Rate Grid

Post by willthrill81 » Mon May 28, 2018 9:20 am

smitcat wrote:
Mon May 28, 2018 8:00 am
willthrill81 wrote:
Sun May 27, 2018 3:13 pm
HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? I ask because we save 36% gross, but it works out to closer to 85% of our actual living income. We live on about $4000 a month and save about $3400 a month.
Yes, the savings rate you enter should be your pre-tax savings rate (i.e. the amount you're saving divided by your gross income). An implicit assumption is that your tax rate will be the same in retirement as before; it's usually lower, but this doesn't usually shift the numbers much.

All of these FIRE calculators are only rough tools to get you in the ballpark.
It looks like a great quick tool to use but taking a % of gross salary makes inacurate for us to use. Our tax rate in retirement will be greatly differnet that it is now - is there another tool than takes that into consideration?
If you scroll down below the results that the Networthify calculator provides, you'll see your net worth (i.e. portfolio value) over time and can determine when you'll reach FI.

But unless your savings rate is low, I doubt that even dropping your tax rate from 40% to 20% would make more than a few years difference in the time it will take you to reach FI. The variability of your returns will almost certainly be a bigger factor.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

marcopolo
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Re: The Savings Rate Grid

Post by marcopolo » Mon May 28, 2018 9:46 am

willthrill81 wrote:
Mon May 28, 2018 9:20 am
smitcat wrote:
Mon May 28, 2018 8:00 am
willthrill81 wrote:
Sun May 27, 2018 3:13 pm
HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? I ask because we save 36% gross, but it works out to closer to 85% of our actual living income. We live on about $4000 a month and save about $3400 a month.
Yes, the savings rate you enter should be your pre-tax savings rate (i.e. the amount you're saving divided by your gross income). An implicit assumption is that your tax rate will be the same in retirement as before; it's usually lower, but this doesn't usually shift the numbers much.

All of these FIRE calculators are only rough tools to get you in the ballpark.
It looks like a great quick tool to use but taking a % of gross salary makes inacurate for us to use. Our tax rate in retirement will be greatly differnet that it is now - is there another tool than takes that into consideration?
If you scroll down below the results that the Networthify calculator provides, you'll see your net worth (i.e. portfolio value) over time and can determine when you'll reach FI.

But unless your savings rate is low, I doubt that even dropping your tax rate from 40% to 20% would make more than a few years difference in the time it will take you to reach FI. The variability of your returns will almost certainly be a bigger factor.
Given the amount of discussions we have on things like shaving a few basis points off expense ratios, the tax drag on dividends in taxable accounts, factor tilting, trend following, etc., I find it curious how cavalier several commenters have been about working a few extra years to achieve the same outcome. If you are willing to work a few extra years, most of those twiddling optimizations to your portfolio/plan will not make a significant difference, relatively speaking.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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willthrill81
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Re: The Savings Rate Grid

Post by willthrill81 » Mon May 28, 2018 10:03 am

marcopolo wrote:
Mon May 28, 2018 9:46 am
willthrill81 wrote:
Mon May 28, 2018 9:20 am
smitcat wrote:
Mon May 28, 2018 8:00 am
willthrill81 wrote:
Sun May 27, 2018 3:13 pm
HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? I ask because we save 36% gross, but it works out to closer to 85% of our actual living income. We live on about $4000 a month and save about $3400 a month.
Yes, the savings rate you enter should be your pre-tax savings rate (i.e. the amount you're saving divided by your gross income). An implicit assumption is that your tax rate will be the same in retirement as before; it's usually lower, but this doesn't usually shift the numbers much.

All of these FIRE calculators are only rough tools to get you in the ballpark.
It looks like a great quick tool to use but taking a % of gross salary makes inacurate for us to use. Our tax rate in retirement will be greatly differnet that it is now - is there another tool than takes that into consideration?
If you scroll down below the results that the Networthify calculator provides, you'll see your net worth (i.e. portfolio value) over time and can determine when you'll reach FI.

But unless your savings rate is low, I doubt that even dropping your tax rate from 40% to 20% would make more than a few years difference in the time it will take you to reach FI. The variability of your returns will almost certainly be a bigger factor.
Given the amount of discussions we have on things like shaving a few basis points off expense ratios, the tax drag on dividends in taxable accounts, factor tilting, trend following, etc., I find it curious how cavalier several commenters have been about working a few extra years to achieve the same outcome. If you are willing to work a few extra years, most of those twiddling optimizations to your portfolio/plan will not make a significant difference, relatively speaking.
It's not that paying attention to any of those things can't provide real value to investors nor that I'm cavalier about it, but it ignores the elephant in the room: we don't know what future returns will be, and those returns will likely be the biggest driver of them all, with the possible exception of a very high savings rate (i.e. brute force can overcome poor returns).

For my own purposes, I'm anticipating that it will take me about 14-18 years from now to reach FI. You'd better believe that I'd like 14 over 18, but I just don't know what returns will be going forward. Perhaps your crystal ball is working better than mine.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

snarlyjack
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Re: The Savings Rate Grid

Post by snarlyjack » Mon May 28, 2018 10:25 am

Marcopolo,

That is a good point.
I looked at the expense ratio's of VHDYX & VTSAX.

VHDYX ER .15 (10,000 over 10 years) $353.00
VTSAX ER .04 (10,000 over 10 years) $95.00

$353.00 - $95 = $258.00 difference over 10 years.

$353 / 10years = 35.30 year.
$95. / 10 years = 9.50 year.
Difference of $25.80 year.

VHDYX is a "dividend paying" income fund.
VTSAX is a "balanced" growth fund.

The other difference is VTSAX is using admiral shares. The VHDYX is using investor shares.
When Vanguard announces admiral shares for VHDYX these numbers will change for the better even more.

My taxes are so low, I only make $31,500 per year. Taxes are the least of my problems.
My long term solutions to taxes are my Roth 401K & Roth IRA that are building up tax free.
My standard of living will not be determined by $25.80 per year.

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Re: The Savings Rate Grid

Post by #Cruncher » Mon May 28, 2018 1:51 pm

willthrill81 wrote:
Sun May 27, 2018 3:13 pm
HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? ...
Yes, the savings rate you enter should be your pre-tax savings rate (i.e. the amount you're saving divided by your gross income). An implicit assumption is that your tax rate will be the same in retirement as before; it's usually lower, but this doesn't usually shift the numbers much.
I believe the Networthify calculator (and also the Savings Rate Grid) work better if savings are computed as a percent of after tax income. In this case your tax rate while accumulating will have no effect on the number of years to reach the goal. Consider the case of a 0% investment return rate and 40% savings rate with $100,000 of pretax income. Whether the tax rate is 0% or 50%, it will take 37.5 years to reach 25X annual spending:

Code: Select all

Tax rate                0%       50%
After tax income   100,000    50,000 
Save                40,000    20,000 
Spend               60,000    30,000 
25X              1,500,000   750,000 
Years                 37.5      37.5
However the tax rate during retirement does make a difference. If it were 20%, instead of 37.5 years in the example above, it would take 46.9 years (1500 / (1 - 20%) / 40 or 750 / (1 - 20%) / 20). I've modified the spreadsheet from my post above to accept retirement tax rate as an assumption. Here is the first example from that post (which corresponds to the Savings Rate Grid) modified to use a 20% tax rate on spending during retirement. It now takes 16.6 years instead of 14.2 to reach 30X spending with a 60% savings rate, and 27.4 years instead of 24.2 with a 40% savings rate.

Code: Select all

Row  Col A     Col B  Col C  Col D  Col E  Col F  Col G
  1  Return       5%
  2  Start       0.0   
  3  Retire tax  20%
               --------- Multiple of Expenses ---------

Code: Select all

  4   Save         5     10     15     20     25     30
  5    80%       1.5    3.0    4.3    5.6    6.8    7.9 
  6    75%       2.0    3.9    5.6    7.1    8.6   10.0 
  7    70%       2.6    4.9    6.9    8.8   10.5   12.1 
  8    65%       3.2    5.9    8.4   10.5   12.5   14.3 
  9    60%       3.9    7.1   10.0   12.4   14.6  [16.6]
 10    55%       4.7    8.5   11.7   14.4   16.9   19.1 
 11    50%       5.6   10.0   13.6   16.6   19.3   21.6 
 12    45%       6.6   11.6   15.6   19.0   21.9   24.4 
 13    40%       7.9   13.6   18.0   21.6   24.7  [27.4] 
 14    35%       9.4   15.8   20.7   24.6   27.9   30.7 
 15    30%      11.2   18.4   23.8   28.0   31.5   34.5 
 16    25%      13.6   21.6   27.4   31.9   35.6   38.8 
 17    20%      16.6   25.7   31.9   36.7   40.6   43.9 
 18    15%      20.9   31.0   37.8   42.8   46.9   50.3 
 19    10%      27.4   38.8   46.0   51.4   55.6   59.1 
 20     5%      39.7   52.4   60.1   65.8   70.2   73.8
Here is the modified key formula in cell B5 that is copied down to row 20 and right to column G:
B5: 1.5 = NPER($B$1, -$A5, -$B$2, (1 - $A5) * B$4 / (1 - $B$3), 0)

Note: The starting portfolio value assumption in cell B2 should be years of after tax income. For example, continuing the example above, if it is $100,000 one should enter 1.0 if after tax income is $100,000; but 2.0 if it is $50,000.

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willthrill81
Posts: 5042
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: The Savings Rate Grid

Post by willthrill81 » Mon May 28, 2018 2:12 pm

#Cruncher wrote:
Mon May 28, 2018 1:51 pm
willthrill81 wrote:
Sun May 27, 2018 3:13 pm
HoleInTheAir wrote:
Sun May 27, 2018 12:27 pm
Question on the net worthify calculator - does it assume that your income is gross? ...
Yes, the savings rate you enter should be your pre-tax savings rate (i.e. the amount you're saving divided by your gross income). An implicit assumption is that your tax rate will be the same in retirement as before; it's usually lower, but this doesn't usually shift the numbers much.
I believe the Networthify calculator (and also the Savings Rate Grid) work better if savings are computed as a percent of after tax income. In this case your tax rate while accumulating will have no effect on the number of years to reach the goal. Consider the case of a 0% investment return rate and 40% savings rate with $100,000 of pretax income. Whether the tax rate is 0% or 50%, it will take 37.5 years to reach 25X annual spending:

Code: Select all

Tax rate                0%       50%
After tax income   100,000    50,000 
Save                40,000    20,000 
Spend               60,000    30,000 
25X              1,500,000   750,000 
Years                 37.5      37.5
However the tax rate during retirement does make a difference. If it were 20%, instead of 37.5 years in the example above, it would take 46.9 years (1500 / (1 - 20%) / 40 or 750 / (1 - 20%) / 20). I've modified the spreadsheet from my post above to accept retirement tax rate as an assumption. Here is the first example from that post (which corresponds to the Savings Rate Grid) modified to use a 20% tax rate on spending during retirement. It now takes 16.6 years instead of 14.2 to reach 30X spending with a 60% savings rate, and 27.4 years instead of 24.2 with a 40% savings rate.

Code: Select all

Row  Col A     Col B  Col C  Col D  Col E  Col F  Col G
  1  Return       5%
  2  Start       0.0   
  3  Retire tax  20%
               --------- Multiple of Expenses ---------

Code: Select all

  4   Save         5     10     15     20     25     30
  5    80%       1.5    3.0    4.3    5.6    6.8    7.9 
  6    75%       2.0    3.9    5.6    7.1    8.6   10.0 
  7    70%       2.6    4.9    6.9    8.8   10.5   12.1 
  8    65%       3.2    5.9    8.4   10.5   12.5   14.3 
  9    60%       3.9    7.1   10.0   12.4   14.6  [16.6]
 10    55%       4.7    8.5   11.7   14.4   16.9   19.1 
 11    50%       5.6   10.0   13.6   16.6   19.3   21.6 
 12    45%       6.6   11.6   15.6   19.0   21.9   24.4 
 13    40%       7.9   13.6   18.0   21.6   24.7  [27.4] 
 14    35%       9.4   15.8   20.7   24.6   27.9   30.7 
 15    30%      11.2   18.4   23.8   28.0   31.5   34.5 
 16    25%      13.6   21.6   27.4   31.9   35.6   38.8 
 17    20%      16.6   25.7   31.9   36.7   40.6   43.9 
 18    15%      20.9   31.0   37.8   42.8   46.9   50.3 
 19    10%      27.4   38.8   46.0   51.4   55.6   59.1 
 20     5%      39.7   52.4   60.1   65.8   70.2   73.8
Here is the modified key formula in cell B5 that is copied down to row 20 and right to column G:
B5: 1.5 = NPER($B$1, -$A5, -$B$2, (1 - $A5) * B$4 / (1 - $B$3), 0)

Note: The starting portfolio value assumption in cell B2 should be years of after tax income. For example, continuing the example above, if it is $100,000 one should enter 1.0 if after tax income is $100,000; but 2.0 if it is $50,000.
Thanks for that analysis #Cruncher. You're always good at crunching numbers. :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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CyclingDuo
Posts: 1596
Joined: Fri Jan 06, 2017 9:07 am

Re: The Savings Rate Grid

Post by CyclingDuo » Mon May 28, 2018 6:24 pm

willthrill81 wrote:
Sat May 26, 2018 7:25 pm
I prefer the early retirement calculator from Networthify, but most of these calculators get the job done.

https://networthify.com/calculator/earl ... awalRate=4
That calculator is very favorable. :mrgreen:
"Everywhere is within walking distance if you have the time." ~ Steven Wright

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: The Savings Rate Grid

Post by snarlyjack » Wed May 30, 2018 7:25 am

The math behind why net worth goes crazy after the first $100,000.

Charlie Munger (Warren Buffett partner) said the first $100,000. is the hardest.

Enjoy...

http://www.fourpillarfreedom.com/the-ma ... irst-100k/

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