Author Topic: Case Study-29, Possible to FIRE by 45-50?  (Read 2200 times)

tuotuo1988

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Case Study-29, Possible to FIRE by 45-50?
« on: May 17, 2018, 12:32:04 PM »
Hi all, first post here. Discovered FIRE 3 years ago but only recently got serious about the lifestyle. Looking to understand if it's feasible to retire by 45-50.

Life Situation:
Currently 29, wife is also 29. No children but plan to have one or two in the coming few years. In NJ, so Medium to High cost of living (but not super high like NYC or SF)

Gross Salary/Wages:
My earnings: 95k (usually with a 3k to 5k bonus every year).
Wife's earnings: 115k.

Individual amounts of each Pre-tax deductions
My 401k: 120k (maxing, this is a combination of traditional 401k and roth 401k)
Wife's 401k: 38k (traditional 401k, only recently started maxing)

Other Income:
Wife has a small side business that she just started, earning $400 profit per month. Likely to grow at least a little bit throughout the year. Pretty much buying products in the States and selling it at 10-15% higher to foreigners who want American products.
Renting out a room to a friend for $1k per month--short term; she will only be here for 7 months this year ($7k)

Current expenses:
Need to provide more details later, but overall expenses are around $3k-4k per month.
Consistent expenses are: HOA ($375), student loans ($100), property tax ($500).

Assets:
House: $400k. Payed off, no mortgage, but there are HOA fees and quarterly property tax
Cars: 2 cars, total KBB value is ~15k. Payed off, but plan to sell one and buy an economy SUV this year or next year.
Crypto: ~80k, but half of that is sitting in USD on an exchange
Cash: 20k

Liabilities:
Student loans: 6k loans, avg 5% interest rate. Thinking of paying this off right now...

Specific Question(s):
1. After maxing 401ks, what should I be investing in? Just open a Vanguard and DCA a few hundred dollars every month into VTSAX? Backdoor roth?
2. Still overwhelmed by the wealth of FIRE information, but I read about fatFIRE. I don't want to live extravagantly, but what would I need to change to fatFIRE by 45-50?
3. Anyone with experience with how having 2 kids will affect the FIRE plan?
4. General advice?
« Last Edit: May 17, 2018, 12:37:04 PM by tuotuo1988 »

jlcnuke

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #1 on: May 17, 2018, 12:40:56 PM »
Hi all, first post here. Discovered FIRE 3 years ago but only recently got serious about the lifestyle. Looking to understand if it's feasible to retire by 45-50.

Life Situation:
Currently 29, wife is also 29. No children but plan to have one or two in the coming few years. In NJ, so Medium to High cost of living (but not super high like NYC or SF)

Gross Salary/Wages:
My earnings: 95k (usually with a 3k to 5k bonus every year).
Wife's earnings: 115k.

Individual amounts of each Pre-tax deductions
My 401k: 120k (maxing, this is a combination of traditional 401k and roth 401k)
Wife's 401k: 38k (traditional 401k, only recently started maxing)

Other Income:
Wife has a small side business that she just started, earning $400 profit per month. Likely to grow at least a little bit throughout the year. Pretty much buying products in the States and selling it at 10-15% higher to foreigners who want American products.
Renting out a room to a friend for $1k per month--short term; she will only be here for 7 months this year ($7k)

Current expenses:
Need to provide more details later, but overall expenses are around $3k-4k per month.
Consistent expenses are: HOA ($375), student loans ($100), property tax ($500).

Assets:
House: $400k. Payed off, no mortgage, but there are HOA fees and quarterly property tax
Cars: 2 cars, total KBB value is ~15k. Payed off, but plan to sell one and buy an economy SUV this year or next year.
Crypto: ~80k, but half of that is sitting in USD on an exchange
Cash: 20k

Liabilities:
Student loans: 6k loans, avg 5% interest rate. Thinking of paying this off right now...

Specific Question(s):
1. After maxing 401ks, what should I be investing in? Just open a Vanguard and DCA a few hundred dollars every month into VTSAX? Backdoor roth?
2. Still overwhelmed by the wealth of FIRE information, but I read about fatFIRE. I don't want to live extravagantly, but how what would I need to do to fatFIRE by 45-50?
3. Anyone with experience with how having 2 kids will affect the FIRE plan?
4. General advice?

1. Check out the investment priorities posts (someone will link it shortly). HSA, 401k, backdoor or mega-backdoor Roth, and then taxable accounts is a general outline though.

2. First you'd need to decide what kind of spending your idea of fatFIRE would require. Then run the numbers to see what it requires.

3. Kids will make it harder as your spending will almost certainly increase. How much it increases will depend upon you.

4. Do your best to minimize lifestyle creep and you should do great. At $4k/month, you're spending less than $50k and earning over $200k/year, so FI should come quickly. What you do with that will be up to you. Make sure you're reaching "for" something though.

Laura33

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #2 on: May 18, 2018, 08:54:20 AM »
IMO, you have every ability to hit your goal, but your current investment approach may not get you there. 

--  You have paid off your mortgage.  It's good to have a paid-off house by the time you FIRE, but mortgage interest debt is some of the lowest-interest debt you can have; you would have been much better off putting that money in VTSAX.  Go do the math yourself -- look at how much extra you paid, and then run the math on what that money would have made in VTSAX over that timeframe.  I guarantee you you'd have enough to pay off the mortgage today with tens of thousands of dollars left over.

--  Almost all of your accessible money is in crypto.  That is not an "investment," it is speculation, pure and simple.  This is very likely to crater at some as-yet unidentified future time.  If you want to play the crypto market with a small part of your investments (3%?), that's fine.  But you shouldn't bank your family's financial future on it. 

-- The rest of your accessible money is in cash.  This is fine as an EF -- just don't count it in your FIRE calculations.

Bigger-picture, your time to FIRE is based largely on your savings rate.  See https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/.  If you are making over $200K gross and spending $50K, that is more than a 50% savings rate, even including the high NJ taxes.  If you're saving a flat 50%, that puts you at 17 years out, assuming you're starting from scratch -- but you're probably saving more than that, and you already have several years' expenses covered, so you are closer than that.  Really, if you keep it up, re-allocate your investments to something more conservative to crypto, and keep your expenses down, you should hit your target age with no problem.

Also, you and your DW should consider the backdoor Roth option -- you make too much to contribute directly, but you can open a nondeductible traditional IRA and then roll it over to a Roth.  You are young enough that doing this for the next @15 years will help you pile up a significant amount of tax-free cash when you are ready to pull the plug.

BobTheBuilder

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #3 on: May 18, 2018, 10:14:05 AM »
First of all, congrats, you seem to be positioned well!

Hi all, first post here. Discovered FIRE 3 years ago but only recently got serious about the lifestyle. Looking to understand if it's feasible to retire by 45-50.

Assets:
House: $400k. Payed off, no mortgage, but there are HOA fees and quarterly property tax
Cars: 2 cars, total KBB value is ~15k. Payed off, but plan to sell one and buy an economy SUV this year or next year.
Crypto: ~80k, but half of that is sitting in USD on an exchange
Cash: 20k

Liabilities:
Student loans: 6k loans, avg 5% interest rate. Thinking of paying this off right now...


I would move 6k out of Crypto immediatly to get rid off the student loans. Whatever your stance on crypto is (mine is: speculation, I only have 200 in there which I am not counting as net worth), if you kill your student loans you have 5% return guruanteed and one thing less in your life to care about.

But imo, you should move a large part of Crypto to a world stock index. And you should make an investment statement for yourself.

Having kids should be fine, you have your house in order so to say... bad pun intended :-)

tuotuo1988

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #4 on: May 18, 2018, 11:42:07 AM »
Thanks for the replies all. I plan to move half of my crypto money into index funds, starting with a traditional IRA and will max that up to the 5.5k every year. Maybe the extra I'll do the backdoor conversion or just buy an index fund in a taxable account.

I do regret paying off the house--I was supposed to only put 20% down and get a mortgage but the mortgage agent messed up before the closing deadline. Ended up just paying cash.

Laura33

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #5 on: May 19, 2018, 01:15:52 PM »
FYI, since you have a 401(k) and make what you make, you do not qualify for a traditional deductible IRA.  You also probably make too much to do a direct Roth. So your choices are a nondeductible IRA or a backdoor Roth.  Of those two, a backdoor Roth is better, because you get the tax-free withdrawals. 

Manchester

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #6 on: May 21, 2018, 04:59:55 AM »
Thanks for the replies all. I plan to move half of my crypto money into index funds, starting with a traditional IRA and will max that up to the 5.5k every year. Maybe the extra I'll do the backdoor conversion or just buy an index fund in a taxable account.

I do regret paying off the house--I was supposed to only put 20% down and get a mortgage but the mortgage agent messed up before the closing deadline. Ended up just paying cash.

You're doing really well!

There are two routes you can go down really: simple or ambitious.  The type of money you're earning, you should reach FIRE no problem, just depends how stressful you want your life to be until then.

Simple would be selling all crypto, paying off all debt (especially Student Loans) and maxing out tax advantaged accounts before investing in something like VGLS100. 

Ambitious would be attempting to raise your NET worth as much as possible.  You could re-mortgage your house and invest the capital into rental properties.

If you're happy with the extra work you'd really benefit from rental properties.  If you're planning on having children I'd go for a more simple approach so you have less headaches! :P

tuotuo1988

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #7 on: May 21, 2018, 07:00:51 AM »
Thanks for the replies all. I plan to move half of my crypto money into index funds, starting with a traditional IRA and will max that up to the 5.5k every year. Maybe the extra I'll do the backdoor conversion or just buy an index fund in a taxable account.

I do regret paying off the house--I was supposed to only put 20% down and get a mortgage but the mortgage agent messed up before the closing deadline. Ended up just paying cash.

You're doing really well!

There are two routes you can go down really: simple or ambitious.  The type of money you're earning, you should reach FIRE no problem, just depends how stressful you want your life to be until then.

Simple would be selling all crypto, paying off all debt (especially Student Loans) and maxing out tax advantaged accounts before investing in something like VGLS100. 

Ambitious would be attempting to raise your NET worth as much as possible.  You could re-mortgage your house and invest the capital into rental properties.

If you're happy with the extra work you'd really benefit from rental properties.  If you're planning on having children I'd go for a more simple approach so you have less headaches! :P

I do want to get into rental properties at some point, but not recently I read The Simple Path to Wealth and some other blogs recommended here and most just recommend index funds. Not sure if the ROI is high enough to justify the effort--if I were to get similar ROI from average stock returns, wouldn't that just be the better option? Real estate would only be to diversify and mitigate risk at that point

Manchester

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #8 on: May 23, 2018, 05:05:17 AM »
I do want to get into rental properties at some point, but not recently I read The Simple Path to Wealth and some other blogs recommended here and most just recommend index funds. Not sure if the ROI is high enough to justify the effort--if I were to get similar ROI from average stock returns, wouldn't that just be the better option? Real estate would only be to diversify and mitigate risk at that point

I'd recommend reading Rich dad, poor dad.  it's a brilliant book.

You're right in terms of getting similar stock returns if you were to buy a property outright and rent it out for roughly 6%+ it's value.  But you wouldn't be buying the property outright.  You'd be putting a 10% deposit down, perhaps on 2 or 3 rental properties.

Let's say you have $80k to spend (your crypto money).  OPTION 1: You can put that into an index fund and earn a 7% yield over 15 years.  At the end of the 15 years that would have grown to $220,722.52*

OPTION 2: You could use the $80k as a deposit on 2 properties worth $350k.  Rent those out to cover mortgage payments for 15 years.  You're equity grows and you gain leverage with the banks.  Lets say you still owe $200k on the mortgages, but the properties have probably risen in value to $500k.  So your assett is worth $300,000 (Value-mortgage). 

You also benfit from owning an asset worth $350k from day one, so next year you'll earn $12k** from property investment (6%) as opposed to $5,600 from investing in Index funds (7%).  If you make the minimum payments on your mortgage you'll have an extra $6k to invest next year.  That's kinda the point I'm making - use your leverage to get money from the bank, the interest you pay is less than the interest you earn so it means you accumulate more money more quickly. 

If you started gaining a lot of equity in the rentals you can refinance and add another to your portfolio, so in 30+ years time you might own 10 properties worth $5m+ all from an initial $80k investment and a bit of elbow grease!  If you used your crypto money for that you'd be in no worse position in terms of plowing money into index fund and obviously all your tax adavantaged accounts.

Set out your target - when you want to retire, how much you need for FIRE, what type of lifestyle you envisage having.  if you're going to smash your targets with simple index investments than go for that, but if you want bigger/earlier FIRE property isn't a bad thing to get into.

ALSO - don't think of property as diversifying.  That's what index funds are for.  Properties are bad for this as a big amount of your N/W is tied up in a single asset!



*I used this basic calculator to check this sum. http://www.online-calculators.co.uk/interest/compoundinterest.php

**If you hit a 6% yield on the properties you'd turnover $21k.  Your mortgage at 3.5% would mean your cost in year one is $9k interest.  21-9=12.

Bracken_Joy

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Re: Case Study-29, Possible to FIRE by 45-50?
« Reply #9 on: May 23, 2018, 09:56:04 AM »
Thanks for the replies all. I plan to move half of my crypto money into index funds, starting with a traditional IRA and will max that up to the 5.5k every year. Maybe the extra I'll do the backdoor conversion or just buy an index fund in a taxable account.

I do regret paying off the house--I was supposed to only put 20% down and get a mortgage but the mortgage agent messed up before the closing deadline. Ended up just paying cash.

You're doing really well!

There are two routes you can go down really: simple or ambitious.  The type of money you're earning, you should reach FIRE no problem, just depends how stressful you want your life to be until then.

Simple would be selling all crypto, paying off all debt (especially Student Loans) and maxing out tax advantaged accounts before investing in something like VGLS100. 

Ambitious would be attempting to raise your NET worth as much as possible.  You could re-mortgage your house and invest the capital into rental properties.

If you're happy with the extra work you'd really benefit from rental properties.  If you're planning on having children I'd go for a more simple approach so you have less headaches! :P

I do want to get into rental properties at some point, but not recently I read The Simple Path to Wealth and some other blogs recommended here and most just recommend index funds. Not sure if the ROI is high enough to justify the effort--if I were to get similar ROI from average stock returns, wouldn't that just be the better option? Real estate would only be to diversify and mitigate risk at that point

I think it's a little crazy that you're talking about diversifying and mitigating risk, when you have all your "free" money tied up in a speculative "investment". https://youtu.be/g6iDZspbRMg =\ That would be the very first thing to remedy, IMO. Don't put any money in crypto that you're not willing to lose 100% of.