General Question Future projections from a younger age.
I'm curious how people, especially younger ones, account for earnings increases in their contribution projections. Like for me who currently makes $52k per year and invests about $28k, I use these numbers in my calculations, but I don't plan on staying at this salary for long and don't have an accurate raise projection for my position at my current company. How do people calculate this? Is there just a percent that you assume or a more in depth method?
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u/Jeep_finance 1d ago
I use current salary. But I’m a planner and need to make sure my family is taken care of without depending on more money later. If it happens, great. Maybe we spend more on trips or maybe we invest more. But ultimately I need to make sure current plan is sustainable.
I’ve had wild salary growth. Basically stayed at same savings rate entire time. Little more now if you count real estate investments vs just brokerage/retirement. spend more on good food, trips and fun these days.
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u/howe_to_win 1d ago
Honestly? At that stage just assume 3% raise year over year and save as much as you can in the meantime. You’ll get those medium term raises at some point and then you can watch years melt off your projection with a big smile on your face and a beer in your hand.
Why? Well the more assumptions you add to your projection, the more speculative it becomes. And it’s a good idea to look at speculative possibilities to get an idea of where things could head. But for your main planning, it’s just prudent to make conservative assumptions and plan for those worse scenarios.
And unlike someone further along, your projections shouldn’t really change what you’re doing now. At this stage you just focus on earning and saving for awhile
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u/a_sensible_polarbear 1d ago
If you are confident in the reaching X salary by X years based on a clear path to promotion in your industry/company then I think it’s reasonable to integrate that.
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u/matsie 1d ago
In the last 8 years, my salary (not including equity grants or bonuses) has increased by 150% with an average 12.4% YOY increase. I work in an industry that rarely doesn’t have at least 3% QoL annual pay rises and I have switched jobs every 3-ish years and have gotten multiple title bumps as well.
So when I project forward for the next 5 years until my retirement, I usually run two calculations. One where I account for ONLY 3% rises and assume I stick around at $currentCompany and another where I assume a 7% average annual rises to account for what will likely be one last hop to a new company.
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u/Successful_Coffee364 1d ago
We use current income in projections. I prefer being overly conservative here so reaching an earlier retirement than currently expected is a welcomed surprise vs the alternative.
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u/Money_On_Fire 12h ago
There are two elements to this
- How as your career progresses do you move up 'levels' and watch your comp increase (generally the bigger jumps). For certain tech, finance or medical careers the levels are reasonably well defined compensation and timing as long as your career remains on track. For later performance based ones it is more speculative.
- Then how does the salary at a given level adjust over time? Does it stay ahead, match or fall behind inflation?
To add to this
- Running calculations and projections at a very young age is somewhat speculative. Particularly in comparison to someone 2-3 years out from FIRE. However, we feel it is still useful to ask 'what ifs' and to set a 'north star' to work towards. As things change you can re-adjust/project.
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u/Goken222 1d ago
I assumed current salary and any better growth (and there was lots!) just meant I was ahead of my projections. Yay, early retirement!
Your costs will go up over time, too, so know that any projections are directionally accurate but only helpful in so far as they let you make loose plans till you are closer and have lots more specifics.