Where we Stand
These calculations are based on our portfolio’s current $150,000 value (a nice even number to work with, which is part of why we’re running the simulations now!). The monthly savings for the first year assume $2500 – the $1500 to max out Mr. T’s 401k (automatic) and a mix of employer contributions and my savings for another $1000/month. This is our current savings rate. Then, after the first year, those monthly savings amount skyrocket to $4500 because in 2019, we will start the year with a paid off house and we can throw our mortgage payment directly into savings! To make these calculations, I use my very favorite compound interest calculator to plug in the numbers.
The Recession Starts Tomorrow!
In this scenario, our entire portfolio takes a 25% hit before the end of the year and then grows at 3% forevermore. Let’s look at the numbers:
End of 2017: $112,500 – A 25% drop from today’s portfolio value.
End of 2018: $146,337 – $2500/month savings, 3% return
End of 2019: $205,536 – $4500/month savings, 3% return
Based on continuing at that same savings rate ($4500/month) with a solid 3% return, we would hit $1,000,000 by the end of 2031 ($1,073,303). So, in this terrible financial scenario, we would have to keep up our contributions (and thus work) for another 14 years. If we were going for $2,000,000 (just to throw in more numbers), we would have to tack on another ten years, so we could hit $2,000,000 by the end of 2041, or 24 more years.
Bogle’s 4% Return Prediction
Jack Bogle is predicting a 4% return from the stock market for the next decade. Let’s say he’s right (to be clear, I don’t think ANYONE can predict the future of the markets), but the 4% return last forever. In this scenario, the market doesn’t take an initial nosedive (though I’m conservatively estimating our portfolio at the end of 2017 to remain at $150,000), but instead, returns 4% forever. In this scenario:
End of 2017: $150,000
End of 2018: $186,667 – $2500/month savings, 4% return
End of 2019: $249,273 – $4500/month savings, 4% return
Based on continuing at that same savings rate ($4500/month) with a solid 4% return, we would hit $1,000,000 by the end of 2029 ($1,034,248) – 12 years away – just 2 years before the terrible recession followed by years of 3% returns! Again, to throw more numbers at you, we would hit $2,000,000 by the end of 2038.
Let’s go with 6% in this “good” market scenario. No big dip (though, again, for ease mainly, we’ll end 2017 with our current portfolio balance of $150,000.
End of 2017: $150,000
End of 2018: – $190,090 – $2500/month savings, 6% return
End of 2019: – $257,324 – $4500/month savings, 6% return
That extra 2% return shaves off a total of 1 year from the 4% scenario! At the end of 2028, we would have $1,083,306.
Dave Ramsey says to count on a 12% market return. To be clear, I do NOT agree with him for your calculations, but for the experiment, let’s say HE’S the one that’s right (again, no one can predict the future of the market). With the same savings patterns, but a 12% return, the numbers look like this:
End of 2017: $150,000
End of 2018: – $200,730 – $2500/month savings, 6% return
End of 2019: – $283,258 – $4500/month savings, 6% return
Now the real question: Does TRIPLING market returns in my calculations cut the amount of time needed to work in half as one might hope? Not exactly. In this scenario, we reach millionaire status by the end of 2025 ($1,051,053), or just 4 years earlier than the 4% scenario. And $2,000,000 by the end of 2030.
- Savings Amounts Count – Because we are saving a good amount of money consistently in each of these scenarios, that makes more of an impact on our portfolio than the scenario. The difference in the amount of years worked between the terrible recession scenario and the bonkers market scenario is only 6 years!
- The Higher the Total, the More Return Counts – In the bonkers market scenario, we got to $1,000,000 just 4 years earlier than the 4% scenario. But we got to $2,000,000 8 years earlier! As our portfolio climbs, our monthly savings end up being less and less of a percentage of the whole. This means market returns start to impact the portfolio way more.
- Our Future is Bright – None of these scenarios include any savings beyond what I mentioned. No raises. No potential for me to earn more money when all the kids are in school. They just assume our current savings amounts with mortgage payments added in at the end of 2019. In these very conservative parameters, we will hit $1,000,000 in the next 8-14 years. Regardless of what the market does for the next two decades, we’ve set ourselves up to be just fine and retire early. Even if we wait 15 years to retire, we will still be younger than 50 and that’s a full 15 years earlier than “traditional retirement.”
- Riding the Wave is Important – I will re-emphasize that I firmly believe no one can predict the future of the market, and being able to time when to pull out and when to buy is impossible. These scenarios all assume we’re putting the same amount of money into the market no matter what. If we tried to pull out at any point, we would be worse off.
When will our investments hit 1 and 2 million without any contributions at all? Starting with our current $150,000 and assuming no further savings, here’s the breakdown:
At 3% Return – We would hit $1,000,000 in 2081 and $2,000,000 in 2104 (I really hope to be dead by then)
At 4% Return – $1,000,000 at 2065 and $2,000,000 by 2082 (just in time for us to turn 100!)
At 6% Return – $1,000,000 at 2049 (a reasonable 32 years away) and $2,000,000 by 2061.
At 8% Return – $1,000,000 by 2041 and $2,000,000 by 2050
At 12% Return – $1,000,000 by 2033 and $2,000,000 by 2039 (If Dave Ramsey is right, we can all retire early without saving anything at all!)