Author Topic: Age 30, How am I doing?  (Read 6146 times)

jasman18

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Age 30, How am I doing?
« on: February 09, 2014, 02:05:17 AM »
I have been reading MMM for 3 years now and have become obsessed with getting to FIRE. Unfortunately I don't know how reasonable by goals are.
Goal: Have the Option to retire at 45. Assuming expenses will be 45k AFTER taxes.

Question 2-I keep reading/hearing about 72(t) but nobody here has actually done a 72t. Should I dial back my 401k to fund taxable to ensure I have enough access to retirement money instead of it being locked away?
(Based on 72t caluclators I can get better yields from dividend stocks than 72t payouts.)

Any and all feedback would be appreciated.

« Last Edit: April 25, 2014, 10:48:25 PM by jasman18 »

shuffler

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Re: Age 30, How am I doing?
« Reply #1 on: February 09, 2014, 03:33:00 AM »
Question 1
For a rough approximation, with a number of assumptions/simplifications that you can tweak:

Use this: http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

Start with your $225k net worth (not including the value of your house), adding $4.5k monthly, w/ a return of (say) 5.5% (which you could say is an 8% return less a 2.5% inflation).

The results show $1.75MM after 15 years, when you're 45.

From that future nest egg, we often talk about a 4% year safe-withdrawal rate.  That would be $70k, which goes well beyond your $45k expenses.  But 4% is often considered to be safe for 30 years (IIRC), and you'd only be 75 years old at that point, so perhaps you want something safer than 4%.

A 3% SWR gives an annual spend of $52k.
If you want to get $45k after-tax, then $52k pre-tax is pretty near satisfying that number.

Feel free to play with the numbers to reflect either what you feel the future holds and/or how large of safety margins make you comfortable.  We all do it.  ;^)

Question 2
Just an opinion, since I've not done it either ...

I'm not dialing back my 401k, nor do I think you should.  If I did the math right, you're saving $17.5k in 401k, $11k in IRAs, and $25k in taxable yearly.  So you're already pretty evenly split between sheltered/taxable savings.  That's pretty good IMO.  Over the next 15 years your income will grow.  Since you've run out of tax-sheltered room, and since you're guarding against lifestyle inflation, you're going to end up putting that extra money into taxable accounts.  So via a "natural" process you will begin to save more in taxable than you do in sheltered.  I'd leave it at that and call it good.

FWIW, I do plan on doing the 72(t) in the future.  So I suppose that may color my perspective.

(Does your company's 401k plan support non-sheltered after-tax contributions w/ roll-overs into a Roth 401k?  Mine does, and I'm able to save an additional $20k/year into a Roth 401k that works basically like a Roth IRA.  The ability to have future access to these contributions before retirement age is comforting.  There are a number of threads on this approach, if you search.)

arebelspy

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Re: Age 30, How am I doing?
« Reply #2 on: February 09, 2014, 09:46:57 AM »
Well done so far!

I think you need to get more aggressive with your goals.  :)
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Another Reader

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Re: Age 30, How am I doing?
« Reply #3 on: February 09, 2014, 10:31:38 AM »
At $100 a month, it sounds like you might have the wrong life insurance.  It's general much less expensive to buy term insurance than whole life.  If you have whole life, I would look at making the switch.

jasman18

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Re: Age 30, How am I doing?
« Reply #4 on: February 09, 2014, 11:26:20 AM »
Thanks for reviewing so far. I like having the perspective.

My term life=$25
Her term life=$25
My OLD whole life =$50.
The old whole life doesn't cost be much and I like the idea of knowing I will use it one day.
If i got rid of it, it would not really move the needle much. I could probably get 2k cash value out of it.


Cash is at 30K because its my emergency fund.
I will be bringing children into the world in a year and I view it as a HUGE responsibility that should not be taken lightly.
People in my area don't understand this and just keep having babies without the means to support them. (can ya tell its a hot button for me? lol)
I need to ensure I have enough liquid capital to cover all child costs and unforseen costs.


I plan on deploying more cash in the coming years to support my goal of FIRE.
However I cannot decide if I should have it all in securities (dividend growth stocks in a taxable accounts) or get a rental property.

arebelspy

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Re: Age 30, How am I doing?
« Reply #5 on: February 09, 2014, 11:28:43 AM »
I plan on deploying more cash in the coming years to support my goal of FIRE.
However I cannot decide if I should have it all in securities (dividend growth stocks in a taxable accounts) or get a rental property.

That completely depends on you - your personality, temperament, etc.

I'm a big fan of real estate, but I know it isn't for everyone.

It can also depend on your local real estate market, and how comfortable you are in investing outside your local market if your local market isn't an ideal place to invest.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

jhartt3

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Re: Age 30, How am I doing?
« Reply #6 on: February 09, 2014, 11:45:41 AM »
shuffler in 15 years his current spending adjusting for your assumed inflation will be 63k  still well with in the SWR for that time at 1.75MM with 70k being that ... am i thinking this thru the right way

arebelspy

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Re: Age 30, How am I doing?
« Reply #7 on: February 09, 2014, 12:18:51 PM »
shuffler in 15 years his current spending adjusting for your assumed inflation will be 63k  still well with in the SWR for that time at 1.75MM with 70k being that ... am i thinking this thru the right way

Depends if you are using real numbers or nominal numbers.

He posted a 5.5% return assumption, which he said was an 8% assumption minus a 2.5% inflation assumption.

So the 1.75 MM would be in real dollars, meaning his spending should be in real dollars as well and not in the inflation adjusted dollars as you put it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

shuffler

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Re: Age 30, How am I doing?
« Reply #8 on: February 09, 2014, 03:59:26 PM »
So the 1.75 MM would be in real dollars, meaning his spending should be in real dollars as well and not in the inflation adjusted dollars as you put it.
Yep, exactly.

I'm smart enough for most things, but not smart enough to have an intuitive feeling for how much inflation will inflate costs/budgets ten or twenty or thirty years from now.  So for my own sanity, I always try to use "present day" dollars in all my calculations.  The results are so much easier to understand.

arebelspy

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Re: Age 30, How am I doing?
« Reply #9 on: February 09, 2014, 05:08:28 PM »
So the 1.75 MM would be in real dollars, meaning his spending should be in real dollars as well and not in the inflation adjusted dollars as you put it.
Yep, exactly.

I'm smart enough for most things, but not smart enough to have an intuitive feeling for how much inflation will inflate costs/budgets ten or twenty or thirty years from now.  So for my own sanity, I always try to use "present day" dollars in all my calculations.  The results are so much easier to understand.

Ditto. And while I think 2.5% is a low estimation for inflation, I don't think a 5.5% real return is unreasonable, depending on how long your time to FIRE is.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

jasman18

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Re: Age 30, How am I doing?
« Reply #10 on: February 09, 2014, 06:11:40 PM »
I think you need to get more aggressive with your goals.  :)

What were you thinking?

arebelspy

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Re: Age 30, How am I doing?
« Reply #11 on: February 09, 2014, 06:40:21 PM »
You said your goal would be the option to FIRE (and by at I'll assume you mean hit FI) by age 45.

Right now a non-ambitious goal based on your current savings and income would be age 40.  You should almost definitely hit that.  A slight challenge would be age 38, and an aggressive challenge would be age 35.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

jasman18

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Re: Age 30, How am I doing?
« Reply #12 on: February 09, 2014, 09:18:43 PM »
I like where you are going......
I am just doubting myself that I can continue to save this much when kids come into the picture.

I wont buy them anything new but I also want to save a little for their college. By the time they are of college age tuition should be about 250k a piece.

I also say 45 because that leaves me a "buffer" should I have bumps along the way.


randymarsh

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Re: Age 30, How am I doing?
« Reply #13 on: February 09, 2014, 10:41:21 PM »
I wont buy them anything new but I also want to save a little for their college. By the time they are of college age tuition should be about 250k a piece.

I have doubts that college will become that expensive or that you will be on the hook for all of it. Right now my state school's tuition is 9K a year. Even if that triples over the next 18 years (for your kids), we're only at 108K for 4 years. Room and board, while expensive, is usually only required for one year. Most people move into off campus apartments and split rent/utilities with 2 or 3 roommates. Or if you live close enough, they can commute.

This also assumes no scholarships or your kids' own savings or working while in school. My best GPA was the semester I lived next to campus, worked 20 hours a week and spent many weekends indulging in activities of questionable legality. Plenty of time to work a bit. Also a good way to make friends.

arebelspy

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Re: Age 30, How am I doing?
« Reply #14 on: February 10, 2014, 07:44:33 AM »
I wont buy them anything new but I also want to save a little for their college. By the time they are of college age tuition should be about 250k a piece.

I have doubts that college will become that expensive or that you will be on the hook for all of it. Right now my state school's tuition is 9K a year. Even if that triples over the next 18 years (for your kids), we're only at 108K for 4 years. Room and board, while expensive, is usually only required for one year. Most people move into off campus apartments and split rent/utilities with 2 or 3 roommates. Or if you live close enough, they can commute.

This also assumes no scholarships or your kids' own savings or working while in school. My best GPA was the semester I lived next to campus, worked 20 hours a week and spent many weekends indulging in activities of questionable legality. Plenty of time to work a bit. Also a good way to make friends.

On top of this, I think fully paying for a child's college can be detrimental, rather than having them have some "buy in" where they are invested (via a job or student loans) which makes them take it more seriously.

Read The Millionaire Next Door's section on paying for things for your kids for more research around the topic.

In any case, kids are (from what I hear, mine is still about 2 years away) as expensive as you make them.

I took that into account when making those goals.  Looking at your budget now, and your goal for an end budget (45k), the numbers I put are fairly reasonable.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

jasman18

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Re: Age 30, How am I doing?
« Reply #15 on: September 19, 2018, 08:28:51 AM »
Wanted to provide an update after all this time because I'm surprised how much the market gave during this time.

I was 30 in 2014 when I started this thread.
It was just me and my wife.
I now have a 3 yr old and a 1 yr old.
Felt cramped in our 2 br house and moved into a bigger home
Had a NW of 225k.
4 years later I am now at 860k.
I went from 0 rental properties and I now have 6 condos with another duplex in a partnership.
(All the real estate is valued what I bought it for in my NW calculation.)

Funny enough.
I feel even farther away from FI than in 2014 since the life expenses went up so much with daycare and housing costs.

Without the encouragement here I wouldn't have much motivation to keep going. It definitely feels like a marathon at times and I am very unsure now where the finish line is because child expenses are so volatile. Hopefully as they age I can get a better grasp.

arebelspy

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Re: Age 30, How am I doing?
« Reply #16 on: September 19, 2018, 08:43:39 AM »
625k net worth growth in 4 years is phenomenal! Over 150k/yr.

And big progress on the real estate investments, that's awesome. Make sure you don't overleverage.

That you pushed back FI a bit to have a family, a good house for them to live in, etc. is totally fine, and sounds aligned with values around having a good life.

Kids cost what you let them.

Do you track your spending? FI might be closer than you think, depending on your annual expenses.

I'm in a similar spot as you (a 2.5 yr old and 7 month old--sounds like my kids are 6 months behind yours). I know it's crazy/tiring. Keep going, it's all worth it. Prioritize your relationship with your wife.

Congratulations on your success, and the family! :)

I love when people update years later.  :D  Keep us posted.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.