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November 11, 2013

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Hi #13,

You have a great philosophy. I too like having a dividend stock portfolio and although mine is still small, it is growing bit by bit.

#6

Perfect lesson plan and you are doing very well. Bravo!

50% savings ratio - that's really impressive !

Love the advice to "control fear". That was/is the toughest obstacle for me. Many pearls of wisdom in your interview. Thanks for sharing your story.

Please explain in further detail how you achieved $2.2M in savings. I am assuming you haven't made $250K for the last 20 years and you didn't save 50% you entire career. Is this correct? If so, I can't seem to calculate how you saved that amount assuming 6% return with 9% salary increases to get to your present salary of $250K. Is there another source of your savings? Can you provide some quick savings numbers? I am curious because I make approximately the same salary, have been saving at least 15-20% of my income since I graduated from school and have less than half of what you have saved. BTW - I am with you on the advisors - have had to switch 3 times now...Thanks for any other insight!

Trout, There is really no reason they couldn't have saved ~50% the entire time. Their raises might not have averaged 9% but could have averaged 5%. THey didn't say how much money they started with. If they bought into the stock market regularly over the past 18 years their cumulative return would be closer to 7%. If they started making $125k in 1995 and then their wages grew 5% a year and they saved 50% then they could hit $2.6M in investments. ... or maybe they got lucky with certain investments in certain years. If they rode the dotcom bubble int he late 90's they could have ammassed a relatively large early that then grew gradually over 15+ years.

Jim, it is true that it is possible to have saved 50% of his salary since he started working, but I don't consider it a likely scenario. I am not questioning the authenticity, but would just like to know how much he saved each year and what return he attained to achieve that amount in retirement savings. I am pretty sure they didn't make $125K right out of university, but again, I could be wrong. For instance, I graduated around the same time, i.e. 1999, with a starting salary of $40K out of school and got up to ~ 250K salary, but again, I have only saved about 1/3 of their $2.2M retirement fund. He also mentions the 50% portfolio loss, so that just makes me question whether there was some other lump sum amounts contributing to their savings.

When someone is saving 50% of a robust household income, very good things can happen. Great example of financial success here, well done!

@Trout, sorry to hear your NW is not where you want it to be. There is something odd about your tone, as if you expect an inheritance, lottery win, lawsuit award, etc. to be the reason why #13 has triple your NW.

So what if it was? (and I'm not asking). Would it make you feel better about your own situation? Do you think you will learn something and apply it? Think his math is wrong and he is not a real millionaire? Weird, first that you question someone who chose to share their story and second that you would feel the need to demand an explanation (yes, you are demanding one and you aren't entitled to anything).

I'm not understanding the posters to the Millionaire Series who make unconstructive or challenging comments.

Interview 13 is 43, so let's say he and his wife have been working 20 years. They start at $40K/yr each, and save an average of 40% over the years. Get 6% raises, and today 20 years later they would be making $256K/yr. Get 5.6% return on their savings, and they would be at $2.2 million. Very doable.

1.06 1.056
Year Salary savings 40% compounded at 5.6%
Start 80,000 32,000 33,792
1 84,800 33,920 71,504
2 89,888 35,955 113,477
3 95,281 38,113 160,078
4 100,998 40,399 211,704
5 107,058 42,823 268,781
6 113,482 45,393 331,767
7 120,290 48,116 401,157
8 127,508 51,003 477,481
9 135,158 54,063 561,311
10 143,268 57,307 653,261
11 151,864 60,746 753,991
12 160,976 64,390 864,210
13 170,634 68,254 984,682
14 180,872 72,349 1,116,225
15 191,725 76,690 1,259,718
16 203,228 81,291 1,416,105
17 215,422 86,169 1,586,401
18 228,347 91,339 1,771,694
19 242,048 96,819 1,973,150
20 256,571 102,628 2,192,022

Interview #9, Thanks for posting the scenario above. That is really helpful! My intent was not to post an inflammatory message. It is difficult to determine "tone" in postings. To answer your questions, which you said I could answer (will skip the first one where you asked, but didn't ask)

Would it make you feel better about your own situation? No, but it would be helpful to have an accurate representation of how realistic it would be to achieve such numbers.

Do you think you will learn something and apply it? I would like to learn as much as possible about the subject obviously given my sub par results thus far in my retirement savings.

Think his math is wrong and he is not a real millionaire? No, as I stated previously, just wanted to see how realistic it would be for someone with that salary to achieve a retirement account of $2.2M. He said he had been working 18 years, which would tweak your calculation slightly, but you could adjust the rate to get the same result. Also, he never stated that he was saving 50% his entire career. In conclusion, I would still assume some sort of lump sum was received during those 18 years to achieve the result above.

Also, you are not taking into account income taxes, which would greatly skew your projections and make his savings rates much higher than the 50% he stated.

Trout - I'm not sure this is what you are looking for. In 2000, we saved 30% of our gross. Every year this has increased as we never spend our raises or our bonuses. In 1997 I received a 7% increase and in 1999, 2000, and 2001 I got 10-15% increases every year as a larger company bought out the company I worked for at the time. Every promotion we get a 6-10% increase. One thing that skews the numbers a little is that our gross does not include the company match in our 401Ks. These accounts are 20% of our total portfolio. We've never had an inheritance, lottery or any other money given to us. It is entirely possible to have our net worth, just takes work and a lot of self control. Hope that helps.

FWIW: My wife tells me we got where we are because she is frugal and doesn't like to spend money. :-)

Everyone Else - Thanks for the encouragement. I stress quite a bit about if I am doing the right thing to not. The encouragement makes me feel more confident.

First, #13 congratulations on your success and perseverance. We are very similar in age and numbers, 41 and portfolio of 2.56m (I was interview #3).

We invested 50-60% of our gross every year, and don't think we've had a year under 40%.

Trout, saving 15% is often the recommended savings rate if you want to retire at the "gov't suggested age," but if you visit early-retirement.org, you will find a whole community of people saving 50% or more each year and set on financial independence/early retirement.

Over the last 15 years, my draw from the business I own has grown from $48k to $300. Last year, our gross was $320k with my wife's part time pay, and we added $180k to our investment portfolio.

Our home is paid. No car payments. We take a very nice family vacation each year and I don't think we skimp on life.

I know people that don't have the discipline to save $180k in their entire life. We could have spent that on new cars, new furniture, new whatever. But our goal is to save for the opportunity to retire early -- or get to the point we can decide to do whatever we want to do!

Interview 9, I don't think there is any reason to perceive an accusation or negative tone in Trouts remarks. Nor was Trout voicing dissatisfaction with their own net work. Tone is hard to read on the internet so I can see how you might have read it that way. But Trout was just asking how the math worked out. There were no accusations there. We WERE missing a significant detail in that the 401k match is separate and 20% of the total. 20% is pretty big difference if you're trying to figure out how the math works.

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