Why Your Financial Independence Retire Early (FIRE) Plans May go Faster Than You Planned

Sequence of returns might go in your favor

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Photo by SpaceX on Unsplash

You have carefully mapped out everything. Your salary, how much you are putting away into your 401K, IRA and HSA. How much you’re putting aside in non-retirement accounts.

Perhaps even you even try to calculate out your raises and figure out how fast your equity in your home is building, how much of your mortgage payment goes to the principal and every other detail you are thinking of.

I was there. I remember spending time with the excel charts and playing around with all the variables and thinking, ok if I can save this much, I should be able to retire in five years.

With the above information you can project out based on what your net worth currently is, how much you are putting away each month and how fast your investments are going to grow and when exactly you are going to retire.

But there is one big, big variable that is going to either speed things up a great deal or slow them down a great deal.

S&P Average Returns

The average return over the last 92 years has been approximately 10% (according to this source 9.9%). After adjusting for inflation of approximately 2–3% most people use 7–8% when they are mapping out their FIRE plans.

But that is the average. And the realty is when the market has good years it is usually well above the average and when they have bad years it is well below the average. And generally, the market follows economic cycles which is several years of growth followed by a crash.

The good news is overall, the good years outnumber the bad years. The bad news (and good as well) is when there is a crash it generally is a steep drop over a short period of time.

Take a look at this chart of the average S&P return by year to see what I am talking about:

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Average S&P Return by Year from macrotrends.net

Sequence of returns

The average return for positive years in the above chart is 18.9% and the average return for negative years is 14.4%.

As the number of positive years outnumbers the negative years there is a fairly good chance that you will hit a streak of positive years closer to a 18.9% return for the next several years.

So, let’s say that you are at 100K currently in savings and are able to save and invest 3K a month. Most people will use a growth rate of 7.5% (average S&P return minus 2.5% for inflation) and your next five years might look like this.

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5 Year Net Worth Projection @ 7.5% return ~ by author

But take a look at that chart of S&P returns above again. What if you catch the time period from 2009 to 2019 or from 2003 to 2007. Or best of all from 1995 to 1999 when the average return was 26.3%!

On average the positive years above remember were 18.9%. So, what if the next years are part of the upswing in the economic cycle after this Covid crash that we just had.

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5 Year Net Worth Projection @ 18.9% return ~ by author

That’s a big difference isn’t it? In five years you are $556K vs the $364K you were expecting.

My own plan went much faster than I expected

“I was there. I remember spending time with the excel charts and playing around with all the variables and thinking, ok if I can save this much, I should be able to retire in five years.” by the author

Remember what I wrote here from above. Well funny thing is six months after this I calculated it and realized I would be there in four years. Then in six more months I realized it would be three years.

What the hell was going on? Well I was hitting closer to 15% returns versus what everyone was telling me to use.


Ok, now don’t take this information the wrong way. You cannot change your target number of much you need to save. The S&P returns will always revert to the mean over a long enough span of time. Which means you cannot factor this in to your projections for after you retire if you plan on being retired for multiple decades.

But it does mean that if you end up getting to your number a little faster. Then great!

I know everyone you hear from is probably telling you we are at the top of the market right now. And that seems to be a the prevalent opinion out there.

Which to be honest that being the prevalent opinion tells me that we are not at the top. But that’s another article.

But even if we are at the top. Well good. If we are that means we are due for a crash and in a year or so, after hitting bottom, we’ll have a great several year run recovery hitting those approximately 20% returns we did from 95' to 99' or 03' to 07' or 09 to 19'. And if things don’t crash and we have a great three or four year run now due to pent up demand from the shit show that 2020 was, then even better.

But the great thing, is either way, there’s a pretty good chance your FIRE plans go faster than you think.

I remember searching for articles just like this to see if it was possible things would go faster than I expected. So, just doing by little part to try to provide some motivation!

Finance professional with a passion for reading, writing, history, economics and the world.

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