Author Topic: Reader Case Study - Overanalyzing millenial looking for advice  (Read 938 times)

icyappraiser

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Reader Case Study - Overanalyzing millenial looking for advice
« on: September 18, 2017, 07:39:08 PM »
Hey fellow mustachians! Been reading for a while, but first time poster.

Goal/Question: to be FI within 10-15 years! Not yet sold on running away from my cubicle by then, but would like to have the stache to do so should I choose. Looking for advice on how to allocate savings and investments to most efficiently achieve this. (investment priorities, etc.) Any other tips also appreciated. Current savings rate is ~65%.

Life Situation: Single 26yo male, no kids. Hope to have a family some day!

Gross Salary/Wages: $83k base (+ est. $10k bonus--can range from $0-25k)
Take home pay is ~$4700/mo (not incl. bonus) after all taxes, SS, medical, and 401k deductions

Current monthly expenses:
Mortgage: $900 (~250 Principal, 375 Interest, 225 Prop Tax, 50 Insurance)
Utilities: $150 (average Gas+Electric+Water/Sewer+Internet, no cable TV)
Home Maint: $50
Food/Household: $250
Car Insurance: $115
Gas for Car: $100
Car Maint: $35
Restaurants/Beer: $200
Personal/Entertainment (clothes and other non-mustachian expenses): $100
Charity: $50
Travel: $100
Total: ~$2050
Remaining: ~$2650

Savings/Assets:
Home: mkt value $175k, 30y fixed @ 4.5%, $102k balance, currently I pay ~$375 extra per month, will pay off in 2028 (age 37) @ current rate
Car: own outright, $7k mkt value
401k (Fidelity): $25k (invest only to match, 4% of my money + 8% company match, 12% total which is ~10k annually)
Roth (Vanguard): $26.5k (I max this out at $5.5k annually)
Brokerage (Vanguard): $10.5k (I opened this account with a one time investment since I wanted to start investing somewhere I could get to w/o penalty before I'm 59.5.)
HSA: $1.5k (my company puts $1.5k in this annually, I have not invested any of my money)
Savings Bonds: $19k (I am kinda using this as an emergency fund, they all earn ~4% since they were bought in the early 90s, they mature in 3-7 years)
Liquid: $12.5k
NW: $173k

So I still have about $1800-1900/mo left that doesn't have a clear purpose right now. Definitely not complaining as I know I'm in a great place and I'm super thankful for that everyday :) The conservative side of me wants to pay my mortgage off in 3-5 years. The reason I haven't upped my 401k is b/c I am thinking I want to have assets I can access if I were to fully retire at ~40. Would also like to have a rental property someday but feel like my mind is running too many different directions right now so I'm looking for some wisdom. What would you do in my situation?

Appreciate any thoughts in advance! Cheers!

swashbucklinstache

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Re: Reader Case Study - Overanalyzing millenial looking for advice
« Reply #1 on: September 18, 2017, 07:50:47 PM »
The first thing I'd do in your situation is read this: https://forum.mrmoneymustache.com/investor-alley/investment-order/

Then I'd search these forums for ways you can legally access your 401k and HSA money before full retirement age without penalty under certain circumstances that you'll likely be in with similar spending in the future.
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ixtap

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Re: Reader Case Study - Overanalyzing millenial looking for advice
« Reply #2 on: September 18, 2017, 07:51:20 PM »
Read up on accessing your accounts earlier than 59.5. For example, you can withdraw the principle from a Roth IRA at any time. You can use this to rollover 401k funds, plus there are other loopholes for 401k.

I would really recommend that you max 401k and HSA before looking for other vehicles. After that, continue to build the brokerage account until you think you are ready to purchase that rental property.

icyappraiser

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Re: Reader Case Study - Overanalyzing millenial looking for advice
« Reply #3 on: September 18, 2017, 08:30:16 PM »
The first thing I'd do in your situation is read this: https://forum.mrmoneymustache.com/investor-alley/investment-order/

Then I'd search these forums for ways you can legally access your 401k and HSA money before full retirement age without penalty under certain circumstances that you'll likely be in with similar spending in the future.

Great link, thanks. I'm aware of Roth principal withdraw being penalty free, but will read up on other ideas. Appreciate it!

icyappraiser

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Re: Reader Case Study - Overanalyzing millenial looking for advice
« Reply #4 on: September 18, 2017, 08:32:09 PM »
Read up on accessing your accounts earlier than 59.5. For example, you can withdraw the principle from a Roth IRA at any time. You can use this to rollover 401k funds, plus there are other loopholes for 401k.

I would really recommend that you max 401k and HSA before looking for other vehicles. After that, continue to build the brokerage account until you think you are ready to purchase that rental property.

Got it, appreciate the recommendations. Am aware on the Roth principal but will definitely look into the other loopholes further. Thanks.

MDM

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Re: Reader Case Study - Overanalyzing millenial looking for advice
« Reply #5 on: September 18, 2017, 08:44:50 PM »
See below for what your cash flow might be if maximizing HSA, 401k, and Roth IRA.  Use the case study spreadsheet if you would like to refine the numbers.

I suspect you may be missing some expenses unless you track them in detail (because that applies to most people), but even allowing for that it appears you are doing well indeed.  Keep up the good work!

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$7,750$93,000
Pretax Health Ins.$200Guess$2,400
Employer-sponsored HSA$158Room to increase?$1,900
FICA base salary/wages$7,392$88,700
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Employer Match$745$8,940
Subtotal 1$5,892$70,700
Federal Total Income (for IRS tax)$5,892$70,700
Federal tax$8702017 rates, S, item. ded., 1 exempt.$10,440
State/City tax$0Guess, using 0.00% * (AGI - Exempt'n)$0
Soc. Sec. tax$458Assumes 1 earner paying$5,499
Medicare tax$107$1,286
Total income taxes$1,435$17,226
Income before other expenses  $4,456$53,474
Monthly Average Expenses:
Mortgage$625Input to Itemized Deductions$7,500
Property Tax$225Input to Itemized Deductions$2,700
Home/Rent Insurance$50$600
Car Insurance$115$1,380
Car Maintenance, Registration, etc.$35$420
Charitable contributions$50Input to Itemized Deductions$600
Dining (Lunch/Dinner/Etc.)$200$2,400
Electricity$150$1,800
Entertainment$100$1,200
Fuel/Public Transport$100$1,200
Groceries$250$3,000
Household; Maintenance$50$600
Travel/Vacation$100$1,200
Non-mortgage total$1,425$17,100
Other tax-advantaged investments:
Roth IRA$458At maximum$5,500
Total Expense$2,508$30,100
Total to invest$1,948$23,374
Additional Mortgage Principal$375$4,500
Available for taxable investment:$1,573$18,874
Summary:
"Gross" income$7,750$93,000
Income taxes$1,435$17,226
After-tax income$6,315$75,774
IRA+401k/403b/TSP/457$1,958$23,500
HSA$158$1,900
Living expenses$2,250$27,000
After-tax investable$1,948$23,374
Time to FI?:
Time to FIRE6years
Safe Withdrawal Rate4.00%percent
Real return on tax-deferred investments5.00%percent
Real, after tax, return on taxable investments4.25%percent
Current Savings
Taxable stocks & bonds$29,500
Tax-deferred (e.g. trad. IRA/401k)$25,000
Roth + HSA$28,000
Projected Savings at Retirement
Taxable$163,850
Tax-deferred (e.g. trad. IRA/401k)$216,746
Roth + HSA$87,857
Total projected stash$468,453
Projected Expenses in Retirement
Non-loan, non-work expenses$17,100
Annual non-tax retirement expense$17,100
Total$17,100
Total loan principal due at FI$51,068
Stash needed for retirement @4.0% SWR$478,568
Need $10,115 more.


Filing Status11=S, 2=MFJ, 3=HOH
# Exemptions1
Adult #1
Age26
# of earners1
Total Income$70,700
Std. Deduct.$6,350
Act. Deduct.$7,844
Exemption$4,050
AGI$70,700
MAGI$70,700
Taxable$58,806
1040 Tax$10,440
Tax after n-r credit$10,440
Education Credit$0
Net Tax$10,440
Mtg. Int. (approx.)$4,544
Prop tax$2,700
Charity$600
Item. Deduct.$7,844
VersionV9.03

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Mortgage$123,35030$102,000114.500%



Fire2025

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Re: Reader Case Study - Overanalyzing millenial looking for advice
« Reply #6 on: September 18, 2017, 08:50:08 PM »
Here's a great Roth conversion ladder post from the madfientist:
http://www.madfientist.com/how-to-access-retirement-funds-early/

I would definitely use more of your tax advantaged spaces.  Even consider switching to a tRoth for the tax deduction instead of the Roth now that you have a good cushion in that account.

Here's a good article on how the tax advantage accounts can really speed up you savings:
http://www.madfientist.com/guinea-pig-year-1/