Author Topic: I have a job that pays 220k, a 15% direct 401k contr. What else can I do? (FIRE)  (Read 1939 times)

g4downin

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Hi all. New the MMM forums and I have been thinking about FIRE and fat FIRE for some time. I recently got a promotion to airline captain and got a significant raise, along with an admittedly massively rich 401(K) plan. After maxing my 401(k) personal contribution, I will have around 80-90,000 dollars (increasing to about 120k in 5 years) left to invest and I'm not quite sure what I should do. I am 35 and would like to have the option to retire at 45, although I really love my job and could see working till I'm forced out by old age. I've thought about a blend of taxable retirement accounts in the VTSAX and buying some rental properties over the next 10 years or so, but I'm not sure that these are necessarily the best or only options out there. Do you all have any advice?



Many of my colleagues seem to go out and buy Porches, intracoastal front properties, and expensive sportfishers, but I don't want to be a gilded slave, nor do I want to be tied to my company forever. The airlines are a fickle place to work and many have lost their jobs overnight (liquidation and bankruptcy) and had to start over at MUCH lower wages at new airlines.

Sibley

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There's an investment order post which should help:

https://forum.mrmoneymustache.com/investor-alley/investment-order/

g4downin

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Thanks for the information!

marty998

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Is your 401k protected if your employer goes bust?

terran

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Is your 401k protected if your employer goes bust?

Yes.

g4downin

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Aren't all 401ks protected from employer chicanery? It goes into my separate Schwab account every paycheck and I'm 100% vested. Thanks again!

use2betrix

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What’s your current total amount saved vs debt? What’s your spouse/children situation like?

g4downin

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What’s your current total amount saved vs debt? What’s your spouse/children situation like?


$5,000 auto loan debt. $15,000 student loans. Wife is a lawyer with her own very small practice, but the $$ isn't steady income. It's around 80k/year. No plan for having children at this time. Current 401k balance is $130,000 and $45,000 in savings.

acepedro45

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Is your 401k protected if your employer goes bust?

Your 401k is yours and yours alone in the event of an employer bankruptcy.

A closely related question is if your DB pension is protected if your employer goes bust. For many workers int he U.S. there is the quasi-federal backstop of the Pension Benefit Guaranty Corporation to continue making payments, but the protections are limited for higher-income workers (in fact airline pilots are often a textbook example of this). So if you've got a DB pension coming, something to look into.

g4downin

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Is your 401k protected if your employer goes bust?

Your 401k is yours and yours alone in the event of an employer bankruptcy.

A closely related question is if your DB pension is protected if your employer goes bust. For many workers int he U.S. there is the quasi-federal backstop of the Pension Benefit Guaranty Corporation to continue making payments, but the protections are limited for higher-income workers (in fact airline pilots are often a textbook example of this). So if you've got a DB pension coming, something to look into.

No pension at my airline.

SimpleCycle

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I'd follow the investment order.

I'd also take a good look at your current income and expenses, including taxes.  I want to be diplomatic, because you are doing better than average, but you are 35 and have a net worth that is only 50% of your household income.  Even with the recent income increase, your savings rate is not on track for FIRE in 10 years, assuming you keep current spending levels and my back of the envelope math is correct.

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

g4downin

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I'd follow the investment order.

I'd also take a good look at your current income and expenses, including taxes.  I want to be diplomatic, because you are doing better than average, but you are 35 and have a net worth that is only 50% of your household income.  Even with the recent income increase, your savings rate is not on track for FIRE in 10 years, assuming you keep current spending levels and my back of the envelope math is correct.

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Thanks for the info. It was a recent promotion and pay increase. I plan on saving 80-90k per year, going forward plus my 401k will max at $57,000 for 2020. I will check out the article. I just didn't know if I should keep it simple and all in the market (VTSAX/etc) or diversify, the latter of which I have no idea where to start (rental housing, etc)

FatFI2025

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Congratulations on a truly milestone achievement Captain! Saving $80K+ per year will put you on track to FIRE in ten years. One nice thing about your profession is the potential to buy a nice property in a LCOL area and commute in. Free travel will also be helpful buying and managing rentals around the country.

If you're interested in RE, I'd plan to get started slowly. Maybe invest in a SFR, up to fourplex, and see how the financials play out over a year. Then buy another and wait...and so on. It's actually better to have a bad experience early on than to have good luck, overextend due to overconfidence, then have your first big lesson happen on a huge deal.

I treat RE as an investment class and a part-time job. So I allocate 25%-33% of my portfolio and I expect to work, even though I put managers in place. This means that RE should have substantially higher returns than purely passive equities. Some investments work out and some don't.


g4downin

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Congratulations on a truly milestone achievement Captain! Saving $80K+ per year will put you on track to FIRE in ten years. One nice thing about your profession is the potential to buy a nice property in a LCOL area and commute in. Free travel will also be helpful buying and managing rentals around the country.

If you're interested in RE, I'd plan to get started slowly. Maybe invest in a SFR, up to fourplex, and see how the financials play out over a year. Then buy another and wait...and so on. It's actually better to have a bad experience early on than to have good luck, overextend due to overconfidence, then have your first big lesson happen on a huge deal.

I treat RE as an investment class and a part-time job. So I allocate 25%-33% of my portfolio and I expect to work, even though I put managers in place. This means that RE should have substantially higher returns than purely passive equities. Some investments work out and some don't.

Thank you for the advice!

MilesTeg

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Hi all. New the MMM forums and I have been thinking about FIRE and fat FIRE for some time. I recently got a promotion to airline captain and got a significant raise, along with an admittedly massively rich 401(K) plan. After maxing my 401(k) personal contribution, I will have around 80-90,000 dollars (increasing to about 120k in 5 years) left to invest and I'm not quite sure what I should do. I am 35 and would like to have the option to retire at 45, although I really love my job and could see working till I'm forced out by old age. I've thought about a blend of taxable retirement accounts in the VTSAX and buying some rental properties over the next 10 years or so, but I'm not sure that these are necessarily the best or only options out there. Do you all have any advice?



Many of my colleagues seem to go out and buy Porches, intracoastal front properties, and expensive sportfishers, but I don't want to be a gilded slave, nor do I want to be tied to my company forever. The airlines are a fickle place to work and many have lost their jobs overnight (liquidation and bankruptcy) and had to start over at MUCH lower wages at new airlines.

Step 1: don't contribute more than the 19,500 tax deductible limit to your 401k. Put anything >19.5k into a regular taxable account. Putting it in your 401k just locks that money away with no benefit.

ixtap

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Hi all. New the MMM forums and I have been thinking about FIRE and fat FIRE for some time. I recently got a promotion to airline captain and got a significant raise, along with an admittedly massively rich 401(K) plan. After maxing my 401(k) personal contribution, I will have around 80-90,000 dollars (increasing to about 120k in 5 years) left to invest and I'm not quite sure what I should do. I am 35 and would like to have the option to retire at 45, although I really love my job and could see working till I'm forced out by old age. I've thought about a blend of taxable retirement accounts in the VTSAX and buying some rental properties over the next 10 years or so, but I'm not sure that these are necessarily the best or only options out there. Do you all have any advice?



Many of my colleagues seem to go out and buy Porches, intracoastal front properties, and expensive sportfishers, but I don't want to be a gilded slave, nor do I want to be tied to my company forever. The airlines are a fickle place to work and many have lost their jobs overnight (liquidation and bankruptcy) and had to start over at MUCH lower wages at new airlines.

Step 1: don't contribute more than the 19,500 tax deductible limit to your 401k. Put anything >19.5k into a regular taxable account. Putting it in your 401k just locks that money away with no benefit.

If you can roll it into Roth, it has a significant benefit and is accessible with few stipulations.

MilesTeg

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Hi all. New the MMM forums and I have been thinking about FIRE and fat FIRE for some time. I recently got a promotion to airline captain and got a significant raise, along with an admittedly massively rich 401(K) plan. After maxing my 401(k) personal contribution, I will have around 80-90,000 dollars (increasing to about 120k in 5 years) left to invest and I'm not quite sure what I should do. I am 35 and would like to have the option to retire at 45, although I really love my job and could see working till I'm forced out by old age. I've thought about a blend of taxable retirement accounts in the VTSAX and buying some rental properties over the next 10 years or so, but I'm not sure that these are necessarily the best or only options out there. Do you all have any advice?



Many of my colleagues seem to go out and buy Porches, intracoastal front properties, and expensive sportfishers, but I don't want to be a gilded slave, nor do I want to be tied to my company forever. The airlines are a fickle place to work and many have lost their jobs overnight (liquidation and bankruptcy) and had to start over at MUCH lower wages at new airlines.

Step 1: don't contribute more than the 19,500 tax deductible limit to your 401k. Put anything >19.5k into a regular taxable account. Putting it in your 401k just locks that money away with no benefit.

If you can roll it into Roth, it has a significant benefit and is accessible with few stipulations.

Ummm. No. You can only contribute 19,500 per year to a 401k (or a roth 401k, or split between the two) If you contribute more, bad things happen:

 https://www.doughroller.net/retirement-planning/happens-contribute-401k/

Tl;dr If you contribute more than the limit you have to take it back and and pay taxes on it (in the case the the roth,  taxes only on the interest). If you don't do that in a timely manner, you can get double taxed.

Most 401k admins will prevent over contribution, but not all will or can in the event you have more than one 401k.

The best thing to do, if you are in the position to max out a 401k, it to contribute exactly the limit spread out over 12 months to ensure you get the match and put other funds into other investments. In some very lucky cases, companies will still give you the match if you front load but that's rare.

Note: company match dollars don't count toward the 19500 limit, but there is an overall limit something like 50k per year.

The OP, by trying to contribute 33k per year is just causing hassle and or potententially losing out on match.

Telecaster

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I'd follow the investment order.

I'd also take a good look at your current income and expenses, including taxes.  I want to be diplomatic, because you are doing better than average, but you are 35 and have a net worth that is only 50% of your household income.  Even with the recent income increase, your savings rate is not on track for FIRE in 10 years, assuming you keep current spending levels and my back of the envelope math is correct.

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Thanks for the info. It was a recent promotion and pay increase. I plan on saving 80-90k per year, going forward plus my 401k will max at $57,000 for 2020. I will check out the article. I just didn't know if I should keep it simple and all in the market (VTSAX/etc) or diversify, the latter of which I have no idea where to start (rental housing, etc)

100%  VTSAX is fine for now.  I'm a big believer in diversification, but there's a bit of philosophy involved in portfolio construction.   Once you start deviating from 100%  VTSAX  there will be likely be periods when you underperform (the opposite is true as well).   So you have to look at your portfolio and understand why you own the things you own and stick to the plan.

But good news is there is no rush.   You can invest in VTSAX now and figure out your asset allocation later. 


Dave1442397

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If you're interested in real estate, I'd recommend following Graham Stephan. Actually, all his investment advice seems spot on.

https://www.youtube.com/playlist?list=PLPdoRGhsS-tuA2NCFXV9xpEJbXUoAIFQL

ender

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Ummm. No. You can only contribute 19,500 per year to a 401k (or a roth 401k, or split between the two) If you contribute more, bad things happen

Depends if OP is able to do aftertax contributions (and megabackdoor Roth IRA) or not.

Fuzz

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Your wife as a small biz owner has some neat options with a solo-401K. Congrats--you're in a great spot. You might look at the physician on fire email sequence for some ideas on investments. You're in that high income zone where fine-tuning a few things makes a difference.

EngineerOurFI

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Ummm. No. You can only contribute 19,500 per year to a 401k (or a roth 401k, or split between the two) If you contribute more, bad things happen:

@MilesTeg - Google Mega Backdoor Roth and look at the Investment Order stickied thread in MMM forum.  This is a very well-researched point.  Agree, don't contribute more than $19,500 through the "standard" method.  But if you are saving $80-90k a year, it would be silly to overlook the major tax advantages of a Mega Backdoor Roth.  Quick google search showing headline posts from Mad Fientist and Bogleheads on this topic.

https://www.madfientist.com/after-tax-contributions/
https://www.bogleheads.org/wiki/After-tax_401(k)
https://forum.mrmoneymustache.com/taxes/confused-by-mega-backdoor-roth-i-made-a-video-explaining-it/

FatFI2025

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What’s your current total amount saved vs debt? What’s your spouse/children situation like?


$5,000 auto loan debt. $15,000 student loans. Wife is a lawyer with her own very small practice, but the $$ isn't steady income. It's around 80k/year. No plan for having children at this time. Current 401k balance is $130,000 and $45,000 in savings.

Oh this is a very relevant detail. You should look into a defined benefit cash balance plan for your wife's practice. That will allow you to get more into the tax deferred space as opposed to doing a mega backdoor Roth.

JetBlast

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As others have pointed out, mega backdoor Roth, is a possibility. If you contribute $19,500 pre-tax and get the 15% contribution on $220k earnings you should have room for $4,500 in after tax contributions that you can convert. Not sure which airline you are at, but you should check your plan to see if it allows after tax contributions and conversions.

As others have pointed out, your wife establishing a solo 401k or a cash balance plan would open a lot more tax advantaged space.

jmwagner5

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If you're interested in real estate, I'd recommend following Graham Stephan. Actually, all his investment advice seems spot on.

https://www.youtube.com/playlist?list=PLPdoRGhsS-tuA2NCFXV9xpEJbXUoAIFQL

Is his advice actually that helpful?  I genuinely want to know since I assumed his results would not translate that well for other people.