Today I have a guest post from a fellow engineer, Mr. Need2Save. Mr. Need2Save, along with his wife, Mrs. Need2Save, write excellent articles on personal finance topics over at Need2Save.com. The Need2Save family is exceptional when it comes to saving, and four years ago they jumped on the early retirement train. Their journey toward early retirement is awesome to watch, and I enjoy reading what they write about early retirement strategies. With that, I’ll turn it over to Mr. Need2Save.
Flashback to 1995. The median household income was around $34,076, E.R. was the top show on television, and Mr. and Mrs. Need2Save just finished college and were starting their careers.
I (Mr. Need2Save) graduated with an Electrical Engineering degree. I had a few interviews during my final semester of college but probably jumped too quickly on the first job offer I got. It wasn’t the type of work I was looking for and the pay wasn’t quite what I was hoping for – $28,000 per year (I thought I started at $30k per year, but Social Security records show an underwhelming $28k). Mrs. Need2Save graduated with a general business degree and was working for a small consulting company making around $26,000 per year.
Grounded Engineer: Wow! Starting salaries have increased quite a bit over time. In 2010, I started around $57k…
Early Investing Years
Although we both worked for small businesses, we were lucky that they offered 401(k) plans and provided a company match. I didn’t really know what a 401(k) plan was back then, as personal finance wasn’t discussed in high school or college. However, saving for retirement already seemed like a good idea, and the fact that the company was going to give me ‘free’ money made it even better. We didn’t save our tax records from that long ago, but I would venture to guess that we were contributing about 6% to 8%.
Right from the beginning of our careers, we developed the habit of automatically investing money through our 401(k) plans. Note the highlight on investing. Simply saving for retirement in a savings account just isn’t going to cut it – you need to invest. Even though our site name is Need2Save, you really Need2Invest ? We were also saving during this time for our first house, which we purchased within 9 months of starting full-time work (the required down payments were only around 5% back then).
Grounded Engineer: This is eerily similar to how I started. I saved about 8% my first year out of school. I gradually increased that amount until I maxed out my retirement accounts around age 28.
Our incomes grew nicely over the next few years, as we both moved on to larger established companies. Then… we had two sons in rapid succession. Numero uno in 1998 and numero dos in 1999. For numerous reasons, we decided that Mrs. Need2Save would stop working and stay home with the kids . Although living on one income with two kids was a bit tough at times, we still contributed to my 401(k) – at least enough to get the company match. This time period happened to be right after the .com bubble and then 9/11 and the markets weren’t doing so great as the S&P 500 Performance Table shows below.
But poor market performance didn’t deter us from continuing to invest. We also continued to save for more immediate needs. We were outgrowing our townhouse with two growing boys and a dog. In 2002, we sold our townhouse and purchased a single-family home.
Re-Entering The Work Force
Once our sons made it to elementary school, Mrs. Need2Save returned to the workforce on a part-time basis. This is when our retirement savings really started to take off. We had lived on one income for around 6 years, so it felt like we had ‘extra’ money. I admit that we experienced some lifestyle creep – nicer cars, better vacations, etc. However, we also significantly increased our savings and investing. Even during the Great Recession in 2008 when the stock market was down nearly 37%, we still continued to invest without hesitation – we understood that we had a long time horizon.
We really shifted into high gear when our youngest son went into middle school and Mrs. Need2Save transitioned to full-time work. Her responsibilities increased significantly and she was compensated accordingly. By this time (around 2011), we were both maxing out our 401(k) accounts. And this is where the beauty of compounding started to shine.
Recent Investment Performance
The graphs below are from Mint (check out our review of Mint). Over the years, our 401(k) and Traditional IRA accounts have changed ‘ownership’ a bit as we moved money around and corporate structure changes. Essentially, we each have a 401(k) account and Traditional IRA account for a total of 4 retirement accounts. These graphs do not show our taxable brokerage and other savings accounts – just retirement.
In the middle of 2012, we had just under $400,000 in our retirement accounts as shown in the graph below.
Over the 5-year span from June 2012 to June 2017, we contributed the maximum amount to our 401(k) plans and received the employer match. Those contributions come out to around $270,000. Except for 2015 (see table above), the market has done well over the past 5 years. The graph below shows our current retirement account balance – just over $1,100,000! Doing some basic math shows that we’ve earned over $435,000 during the last 5 years. Not too bad if you ask me.
Grounded Engineer: Well if that isn’t motivation to invest, I don’t know what is. That is tremendous growth!!
We aren’t trying to show off by presenting the balance in our retirement accounts. The key for us has been to develop the habit of automatically investing a portion of every paycheck we get – no matter what was happening in our lives and the economy. Of course, having higher incomes has helped us max out our contributions in recent years, but we’ve always contributed something.
So that’s how the first 22 years have gone for us. Along the way we had two kids, a span of 10 years living on 1.0 to 1.5 income, and two bear markets. If things go moderately well in the coming years, we think we have another 6 to 7 years to go before we can retire with the lifestyle we want.
Here’s to hoping that your first 22 years go even better.
Thanks again to Mr. Need2Save for taking the time to write this post. I personally thought it was inspiring and provides me motivation to continue investing heavily into my retirement accounts.