Reader Case Study - Overanalyzing millenial looking for advice

[icyappraiser]

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]

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.

[ixtap]

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]

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]

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]

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!

Category	Monthly	Comments	Annual
Salary/Wages for earner #1	$7,750		$93,000
Pretax Health Ins.	$200	Guess	$2,400
Employer-sponsored HSA	$158	Room to increase?	$1,900
FICA base salary/wages	$7,392		$88,700
401(k) / 403(b) / TSP / etc.	$1,500	At 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	$870	2017 rates, S, item. ded., 1 exempt.	$10,440
State/City tax	$0	Guess, using 0.00% * (AGI - Exempt'n)	$0
Soc. Sec. tax	$458	Assumes 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	$625	Input to Itemized Deductions	$7,500
Property Tax	$225	Input to Itemized Deductions	$2,700
Home/Rent Insurance	$50		$600
Car Insurance	$115		$1,380
Car Maintenance, Registration, etc.	$35		$420
Charitable contributions	$50	Input 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	$458	At 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 FIRE	6	years
Safe Withdrawal Rate	4.00%	percent
Real return on tax-deferred investments	5.00%	percent
Real, after tax, return on taxable investments	4.25%	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 Status	1	1=S, 2=MFJ, 3=HOH
# Exemptions	1
	Adult #1
Age	26
# of earners	1
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
Version	V9.03

Loans:	Orig. Prin.	Orig. Length	Curr. Prin.	Yrs left	Rate
Mortgage	$123,350	30	$102,000	11	4.500%

[Fire2025]

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/

[icyappraiser]

Wanted to post an update, mostly to say thanks to the MMM community for how much I've learned over the past just over 5 years since I originally posted this.

I added up our net worth this morning, and my wife (29F) & I (31M) officially hit the $1M mark, just over 5 years since I was at a net worth of $173k upon posting this case study!

My wife brought about $90k of her own money when we got married in 2020, speeding up the process, of course. About $750K is in investments (mostly retirement accounts + brokerage), with the rest in a paid off house. We have streamlined expenses and are maxing all retirement accounts (including mega backdoor roth 401k) and have learned a ton of what I know from this forum. We are not quite FI yet, with annual spend in the $40K range, but I would say we are Lean FI. But we are only a year or two away at the rate things are going (75-80% savings rate), a great position to be in as we are planning to start trying for our first kid this year. Still not 100% certain on if/when we will quit our jobs, but we have some amazing flexibility to make whatever decisions are best for us and our family.

No specific advice requested at this time, just wanted to provide the update and say thank you!

[nouseforausername]

Great job!

[ChpBstrd]

@icyappraiser that's an impressive run! I did something similar about 10 years ago.

I like your $40k-ish annual spend. Care to share a bit about your lifestyle, e.g.
 -Area where you live, LCOL or HCOL?
 -Car choices
 -Housing choices (e.g. size of house)

[icyappraiser]

@icyappraiser that's an impressive run! I did something similar about 10 years ago.

I like your $40k-ish annual spend. Care to share a bit about your lifestyle, e.g.
 -Area where you live, LCOL or HCOL?
 -Car choices
 -Housing choices (e.g. size of house)

Thanks! It's been a good run for sure.

We live in a major Midwest metro. Definitely not HCOL, but not the lowest either (pretty car-dependent area so hard to cut down on vehicles / go vehicle free). Real estate in my area is running ~$250-$300/sf - about $400-450k for a 3/2 1500sf, for perspective.

We live in a small 2br SFH, about 900sf. Bought in 2016 for $155k and it's worth around $240k now. We may upsize at some point depending on how big our family grows and if one/both of us continue to WFH, but it serves us well for now.

We have 2 vehicles, a 2017 hatchback (paid $17k lightly used in 2018) and a 2021 SUV (paid $32k new in 2021). Both in cash. The new vehicle was a bit of a splurge, but used prices were just starting to get out of control and the new market hadn't gone bonkers yet so we decided to go that direction. Planning to keep the hatchback a few more years before getting an EV, and will keep the SUV for a while unless we need something larger.

Of the $40k spend last year, ~$24k was the basics--housing (utilities, TI - no mortgage), vehicles, grocery/household, various insurances, medical, etc. The other $16k was spending - restaurants, entertainment, travel, shopping, etc. Pretty comfortable in this range as it's not overly restrictive. No debt so this helps keep it pretty low even with some fun money.

Income growth for both of us has been a tailwind too. I was making ~$90k back in 2017 when I posted and wife was making $70k-ish when we met. In 2022 we made nearly $250k combined (~$140k me, $110k wife)

[zolotiyeruki]

That *is* an impressive run.  Good for you guys!  Nearly tripling your household income while keeping expenses reasonable.  Nice!

Do you have your assets arranged so that you can do a Roth Conversion Pipeline, i.e. 5x expenses in Roth contributions and taxable accounts?

Having a kid might make your 900 sq ft feel cozy, especially if you have another.  Do you have a plan for a potential move?  How does that tie into your ER plans?

[icyappraiser]

That *is* an impressive run.  Good for you guys!  Nearly tripling your household income while keeping expenses reasonable.  Nice!

Do you have your assets arranged so that you can do a Roth Conversion Pipeline, i.e. 5x expenses in Roth contributions and taxable accounts?

Having a kid might make your 900 sq ft feel cozy, especially if you have another.  Do you have a plan for a potential move?  How does that tie into your ER plans?

We're pretty retirement account heavy, but in a good spot there. We have ~$120k in brokerage, and ~$80k in ROTH IRA contributions. In addition, I have a substantial amount (~$100Kish, would have to look) of mega backdoor roth contributions still in my 401k plan (they get automatically converted from after tax to ROTH 401k as soon as the contributions hit).

A move could definitely happen within the next few years. Don't want to put the house before the kids, but we are thinking seriously about it and my wife will likely be ready to upsize after the first is born (she WFH full-time and I WFH 3-4 days a week). It will probably be $400-500K for the next house. I don't worry too much about how it affects ER plans since we are still plugging away for now, and we will be able to afford to do it. My company has generous parental leave policy and great health insurance so I plan to at least work a few more years until we are done having kids. Wife isn't certain if she wants to be SHM or keep working yet.

Either way, we have a lot of flexibility and options which I feel pretty good about. That's the whole point of this FIRE thing, right? ;)

[BicycleB]

Either way, we have a lot of flexibility and options which I feel pretty good about. That's the whole point of this FIRE thing, right? ;)

Heck yeah! Overall, good job!