Tool for wealth accumulation on the path to financial independence
by FI Designer
Basic Excel tools that project the future value of investment accounts are helpful, but in my opinion, they fall short for individuals with an aggressive savings rate because they fail to consider the changing IRS contribution limits for 401k or IRA accounts. This is one of the reasons why I created the Designing FI Accumulator spreadsheet.
This spreadsheet is intended to track the future value of various investment accounts including Roth IRA, Traditional 401k and taxable investment accounts in the wealth accumulation phase.
The spreadsheet also projects the date at which you achieve your Financial Independence Number, i.e. FI Number, in which your investment assets will support your future annual expenses.
This post is not intended to be a complete resource for all information on early retirement and accessing tax advantaged retirement accounts before age 59 and a half. Some of that information is available in the resources and links provided below.
There are many online services and tools for projecting wealth accumulation, but I find it easier to wrap my head around a concept if I develop my own spreadsheet and run the number.
Additionally this tool was meant to communicate our progress and plan to my wife.
It is challenging to create a spreadsheet that your spouse can understand.
Early in our engagement my wife and I utilized Excel templates for debt snowball repayment so I chose to create the Accumulator in a format that was visually similar to the formats she was familiar with.
Disclaimer
Designing FI is for entertainment purposes only. Nothing on this website or linked to it can be considered advice or guidance for financial decisions or any other matter. The creator of the spreadsheet or anything else on the website makes no claim to the accuracy or applicability to one’s individual circumstances. If uncertain, always consult a financial advisor and/or accountant. If you are utilizing a financial advisor they should be a fee only (non commission) advisor who is a fiduciary in all services they are providing to you.
Time value of money assumption
Let’s get right into the nuts and bolts of the spreadsheet.
The analysis I performed was iterative in nature in that one inputs their annual expenses in today’s dollars (present value) and the analysis computes the future annual expenses, adjusting for inflation, at the date that financial FI is achieved. However when the FI date changes, the future annual expenses change along with it, hence the iterative nature of this analysis.
Possible future developments
As noted above in “Time Value of Money Assumption”, the analysis is iterative in nature because the FI date is based on the inflated future annual expenses. In the future developments of this spreadsheet I may run the entire analysis in present value, with the rate of return (ROR) adjusted for inflation. That may eliminate the iteration needed to compute the FI date.
Another future development may track Roth 401k contributions instead of just the Traditional 401k.
Changing IRS limits
The IRS contribution limits to 401k and IRA plans increase each year as do the age 50+ catchup contribution limits.
That makes it challenging to accurately project how much you can save if you choose to contribute the maximum each year. I have not seen other template spreadsheets prevent the user from inputting contributions that exceed these limits. One of the fundamental reasons I created this spreadsheet was to allow user defined input assumptions of future increases based on historical information.
The Accumulator spreadsheet is intended to track the future value of various investment accounts including Roth IRA, 401k (both traditional and Roth), and taxable investment accounts in the wealth accumulation phase. The Accumulator also projects the date you achieve your Financial Independence Number, i.e. FI Number, in which your investment assets will support your future annual expenses
This post is not intended to be a complete resource for all information on early retirement and accessing tax-advantaged retirement accounts before age 59 and a half. Some of that information is available in the resources and links provided below.
There are many online services and tools for projecting wealth accumulation, but I find it easier to wrap my head around a concept if I develop my own spreadsheet and run the numbers. Additionally, I created this tool to communicate our progress and FI plan to my wife. It is challenging to create a spreadsheet that your spouse can understand as clearly as you can because everyone thinks a little differently. Early in our engagement my wife and I utilized Excel templates for debt snowball repayment so I chose to create the Accumulator spreadsheet in a format that was visually similar to the formats she was familiar with.
Disclaimer
Designing FI is for entertainment purposes only. Nothing on this website or linked to it can be considered advice or guidance for financial decisions or any other matter. The creator of the spreadsheet or anything else on the website makes no claim to the accuracy or applicability to one’s individual circumstances. If uncertain, always consult a financial advisor and/or accountant. If you are utilizing a financial advisor they should be a fee-only (noncommission) advisor who is a fiduciary in all services they are providing to you.
Time Value of Money Assumption
Let’s get right into the nuts and bolts of the Accumulator. The analysis I performed was iterative in that the user inputs their annual expenses in today’s dollars (present value) and the analysis computes the future annual expenses, adjusting for inflation, at the date that Financial Independence (FI) is achieved. However, when the FI date changes, the future annual expenses change along with it, hence the iterative nature of this analysis.
Today’s Dollars Vs Future Dollars
The analysis is set up to allow the user to determine the FI date in today’s dollars or future dollars, i.e. at the date that FI is achieved. Please note that if you wish to run the analysis in today’s dollars the Financial Independence (FI) number will change as your annual expenses change due to inflation. To run the analysis in today’s dollars, input the inflation-adjusted “real” rate of return and set the annual inflation rate to zero. To run the analysis in future dollars, input the nominal rate of return and input an annual inflation rate.
Changing IRS Limits
The IRS contribution limits to 401k and IRA plans may increase each year as do the age 50+ catch-up contribution limits. That makes it challenging to accurately project how much you can save if you choose to contribute the maximum each year. I have not seen other template spreadsheets prevent the user from inputting contributions that exceed these limits. One of the reasons I created the Accumulator spreadsheet was to allow user-defined input assumptions of future increases based on historical information.
Historical Contribution Limits for 401(k) Plans
| Tax Year | Employee Contribution | Total Contribution | Age 50+ Catchup |
| 2022 | $22,500 | $61,000 | $6,500 |
| 2021 | $19,500 | $58,000 | $6,500 |
| 2020 | $19,500 | $57,000 | $6,500 |
| 2019 | $19,000 | $56,000 | $6,000 |
| 2018 | $18,500 | $55,000 | $6,000 |
Historical Contribution Limits for IRA Plans
| Tax Year | Contribution | Age 50+ Catchup |
| 2022 | $6,000 | $1,000 |
| 2021 | $6,000 | $1,000 |
| 2020 | $6,000 | $1,000 |
| 2019 | $6,000 | $1,000 |
| 2018 | $5,500 | $1,000 |
This spreadsheet is intended to track the future value of various investment accounts including Roth IRA, Traditional 401k and taxable investment accounts in the wealth accumulation phase.
The spreadsheet also projects the date at which you achieve your Financial Independence Number, i.e. FI Number, in which your investment assets will support your future annual expenses.
This post is not intended to be a complete resource for all information on early retirement and accessing tax advantaged retirement accounts before age 59 and a half. Some of that information is available in the resources and links provided below.
There are many online services and tools for projecting wealth accumulation, but I find it easier to wrap my head around a concept if I develop my own spreadsheet and run the number.
Additionally this tool was meant to communicate our progress and plan to my wife.
It is challenging to create a spreadsheet that your spouse can understand.
Early in our engagement my wife and I utilized Excel templates for debt snowball repayment so I chose to create the Accumulator in a format that was visually similar to the formats she was familiar with.
Disclaimer
Designing FI is for entertainment purposes only. Nothing on this website or linked to it can be considered advice or guidance for financial decisions or any other matter. The creator of the spreadsheet or anything else on the website makes no claim to the accuracy or applicability to one’s individual circumstances. If uncertain, always consult a financial advisor and/or accountant. If you are utilizing a financial advisor they should be a fee only (non commission) advisor who is a fiduciary in all services they are providing to you.
Time value of money assumption
Let’s get right into the nuts and bolts of the spreadsheet.
The analysis I performed was iterative in nature in that one inputs their annual expenses in today’s dollars (present value) and the analysis computes the future annual expenses, adjusting for inflation, at the date that financial FI is achieved. However when the FI date changes, the future annual expenses change along with it, hence the iterative nature of this analysis.
Possible future developments
As noted above in “Time Value of Money Assumption”, the analysis is iterative in nature because the FI date is based on the inflated future annual expenses. In the future developments of this spreadsheet I may run the entire analysis in present value, with the rate of return (ROR) adjusted for inflation. That may eliminate the iteration needed to compute the FI date.
Another future development may track Roth 401k contributions instead of just the Traditional 401k.
Changing IRS limits
The IRS contribution limits to 401k and IRA plans increase each year as do the age 50+ catchup contribution limits.
That makes it challenging to accurately project how much you can save if you choose to contribute the maximum each year. I have not seen other template spreadsheets prevent the user from inputting contributions that exceed these limits. One of the fundamental reasons I created this spreadsheet was to allow user defined input assumptions of future increases based on historical information.
FI Numbers
The Financial Independence (FI) number in this spreadsheet is defined as 25x your annual expenses and corresponds to a 4% annual withdrawal rate. The Fat FI number is defined as 30x your annual expenses and corresponds to a 3.3% withdrawal rate. The likelihood of the respective withdrawal rates running out of money over a 30 year period is illustrated in Table 2, Portfolio Success Rate with Inflation Adjusted Monthly Withdrawals, of the Trinity Study of safe withdrawal rates. Note, the terms FI and Fat FI are commonly used in the FIRE and ChooseFI podcast community.
Case Study
To illustrate the functionality of the Accumulator and how basic online tools fall short for the aggressive investor I’ll use the following fictitious family. A 30yr old married couple who are aggressively saving for retirement would like to know when they will reach Financial Independence, when their investments will support their annual living expenses. This family has been saving diligently over the years but just now started maxing out all of their retirement savings accounts.
Case Study Given Input
A 30yr old married couple has two children with $120,000/yr in W2 gross income and a 60% savings rate.
W2 Gross Income
$ 72,000/yr Person 1
$ 48,000/yr Person 2
$120,000/yr Total
Traditional 401k – They are both contributing the current IRS maximum and they both have a 50% employer match up to 6% of their salary.
Current 401k Acct. Balances
$ 90,000 Person 1
$ 60,000 Person 2
$150,000 Total
2020 Yr 401k Contributions
$19,500/yr Person 1
$19,500/yr Person 2
$39,000/yr Total
Roth IRA – They are both contributing the current IRS maximum and they both have a 50% employer match up to 6% of their salary.
Current Roth Acct. Balances
$48,000 Person 1
$32,000 Person 2
$80,000 Total
2021 Yr Roth Contributions
$ 6,000/yr Person 1
$ 6,000/yr Person 2
$12,000/yr Total
Sum of Roth Contributions
$28,000 Person 1
$19,000 Person 2
$47,000 Total
Taxable Investments – They both just opened their taxable investment accounts this year so they have a zero starting balance.
Current Taxable Balances
$0 Person 1
$0 Person 2
$0 Total
2021 Yr Taxable Contributions
$4,000/yr Person 1
$4,000/yr Person 2
$8,000/yr Total
Miscellaneous Assumptions
- ROR – A 6% rate of return is assumed for this analysis. Rates of return of 6% or 7% are generally considered reasonable, although some financial advisors would recommend assuming return rates as low as 5%.
- Annual Expenses – I have taken the liberty of assuming $72,000/yr in take-home pay after payroll deductions for things like taxes, employer-provided healthcare, etc. Additionally, I have assumed that the couple will have the annual expenses of $41,500/yr in retirement after reducing for expenses that will not occur in retirement such as after-tax retirement savings, mortgage, etc. Note that the couple will be purchasing their healthcare in the future, instead of employer-provided healthcare, and that must be accounted for.
Analysis Results
The couple will reach approximately 30x their annual expense, which is a 3.3% withdrawal rate, in just 12.3 years (age 42.3). The 3.3% withdrawal rate corresponds to a near 100% chance of success with a 50/50 stock/bond portfolio mix over a 30 year period according to Table 2 of the Trinity Study. Furthermore, the couple will have 5 years of annual expenses in combined taxable savings and Roth IRA contributions. That 5x in annual expenses will allow them to utilize the Roth Conversion Ladder to convert a portion of the 401k to Roth IRA and access the 401k funds in the form of Roth contributions before age 59 and a half. For more information on these techniques see the links below.
$41,500 = Today’s Annual Adjusted Expenses
$57,983 = Future Annual Adj. Expenses (In 12.3Yrs.)
$289,914 = 5x Annual Exp. (Roth Ladder)
$1,449,568 = 25x Annual Expenses (FI)
$1,739,481 = 30x Annual Expenses (Fat FI)
Note that the values adjacent to the graph will change color to green when each milestone is reached.
Let’s not belittle the 4% withdrawal rate which corresponds to a 96% chance of success with a 50/50 stock/bond portfolio mix over the same 30 year period. And that success rate can be increased to near 100% by utilizing a 75/25 stock/bond portfolio mix if you can tolerate the volatility. With this analysis, the couple will reach 25x their annual expense, which is a 4% withdrawal rate, in just 10 years (age 40).
Sensitivity of IRS Limits
This analysis assumes the couple contributes the IRS maximum each year to 401k and Roth IRA accounts and the IRS maximums are increased each year based on historic trends. That assumption results in nearly a 3% ($40,000) increase in the account balance over 10 years and 5% ($100,000) increase over 15 years beyond simply assuming today’s IRS maximums every year.
Download the Accumulator Tool
You can download the latest Accumulator tool to run your particular scenarios by clicking the button below. Please be aware that the spreadsheet is unlocked to allow users to modify it to suit their individual needs.
Latest version:
Latest version:
Accumulator v2021.12
Links for Early Retirement and Investing
- How to Access Retirement Funds Early by Mad Fientist
- The Shockingly Simple Math Behind Early Retirement by Mr. Money Mustache
- Stock Series by JL Collins
- Trinity Study – Sustainable Withdrawal Rates From Your Retirement Portfolio by Philip L. Cooley, Carl M. Hubbard and Daniel T. Walz