Author Topic: realistic FI plan? fear of a correction?  (Read 2043 times)

bliss88

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realistic FI plan? fear of a correction?
« on: June 16, 2018, 02:27:23 PM »
Hi Guys,
I've thought about career change for some time, but given my current income/savings, I am thinking maybe wait for "career change" when I reach FI? Thoughts? Also, I need help overcoming my fear of a market correction b/c currently 66% of my savings stay as cash and the other 33% are being robo-invested into 401K. Would much appreciate any advice for
1. making my savings work more for me; 2. is my post-FI budget realistic? I think I would be making an FI life OUTSIDE of SF Bay!

Situation: age 41, living in SF Bay as a renter since the mid-90s when I came out here for college; working in biotech industry doing scientific sales (not too stressful, lots of work hours flexibility; biggest stress comes from driving all over SF Bay mostly SSF + South Bay to meet w/ clients). Not sure how stable my income will be but I DO work for a very large (>60,000 employees) multinational company.

Income:
90000   base
25800   3 qtr bonus (say I miss a quarter)
115800   total
97300   income minus max 401K contribution
1110           6% match
19610   total tax free income
68110   post-tax income (assume 30% total taxes?) not including  401K
87720   total net income post taxes

Expenses:
$900/mo rent + util
$200/mo car (insurance + car from company; I pay personal miles)
phone + internet paid by company
being VERY generous w/ groceries, and ...
total monthly = $2100-2300
say most expensive scenario = $2600/mo (eg i had a long distance relationship for the last year so lots more travel expenses)

savings:
$56K/year of which which 19.6K will be in 401K growing tax free
leaving about $36K accumulating in my checking account b/c i'm being illogical and afraid the market will correct any moment and i'll lose that $36K


current holdings:
Cash: $145K right now
too much as a % of my net worth! I know I shouldn't try to time the market but seems a correction is inevitable?! I was holding onto cash as well thinking I might put in a downpayment for a Bay Area house but now thinking maybe not worth it and invest this instead either in properties outside of SF Bay, or into the stock market (friends have shared the headache of longdistance landlording)... given I have not yet decided, I really need to put the cash into the market but again, afraid about a correction.

$365K invested in ...
$104K = IRA (betterment)
$118.5 = ROTH IRA (vanguard, paying the small fee for guided investing)
$7.4K = IRA (self-managed), 100% in VTSAX
$4.4K = stock (biotech company, ex-employer, purchased at a discount)
$53K = taxable robo-investment account (wealthfront)
$78K = 401K via Fidelity account provided by employer; all invested in a target date retirement fund (I max $18K/year)

BUDGET   FI scenario w/ a car: $2000/mo (? is this realistic in a college town like say Corvallis, OR?):
food   300
healthcare including suppments, exercise, insurance, etc. (self-care)   300
cell phone, etc   75
transportation    100
housing   900
gym   50
travel   100
gifts, donations   $25
car (insurance, maintenance)   150
plus I'll need to buy a car

MDM

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Re: realistic FI plan? fear of a correction?
« Reply #1 on: June 16, 2018, 06:20:50 PM »
I know I shouldn't try to time the market but seems a correction is inevitable?!
Can you do better than the world's worst market timer?

bliss88

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Re: realistic FI plan? fear of a correction?
« Reply #2 on: June 16, 2018, 11:07:04 PM »
Thank you MDM for pointing out that awesome article!!! My concern though is that I WOULD like to semi-retire in 10 years... so if I were to put all my cash in now, and we were at the peak, then in 10 years, maybe my stash would still be recovering??? Thoughts?

Thank you again for your comment!!! :)

Sun Hat

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Re: realistic FI plan? fear of a correction?
« Reply #3 on: June 17, 2018, 02:28:46 PM »
One strategy that you can adopt if you're afraid that share values will drop the day after you buy them* is to spread your purchases over 6 to 12 months, in what is called dollar-cost averaging https://www.investopedia.com/terms/d/dollarcostaveraging.asp

Set yourself a goal to invest that $145k in a good ETF (an index that aims to follow either the whole US market or the S&P500 index) over a year, and every month buy as many shares as $145k/12 will buy you. That way, instead of panicking at a price drop, you can celebrate the ability to buy shares on sale.

If you want to set yourself up to avoid having to sell at a loss, you can either keep a cash buffer of a year's spending, or buy bonds. There are others on the forum who are better equipped to advise on strategies for that though.

As to your FI spending plan, you're in terrific shape! To support $24000 in spending, you need about $700k in savings (I'm factoring having to pay some taxes on withdrawal). Considering that you've already got $510k saved and put another $56k aside every year, you should be FI in far less than your planned retirement in 10 years.

*Nearly every time that I buy shares, they immediately drop in price. The trick is to stay the course and avoid selling in panic.
« Last Edit: June 18, 2018, 08:41:36 AM by Sun Hat »

MDM

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Re: realistic FI plan? fear of a correction?
« Reply #4 on: June 17, 2018, 02:43:04 PM »
... maybe ....
Maybe yes, maybe no.  Perhaps the only guarantee is that cash in a savings account will lose purchasing power due to inflation.  Money in the market may due worse or better.

JLee

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Re: realistic FI plan? fear of a correction?
« Reply #5 on: June 17, 2018, 02:45:50 PM »
FYI, it's costing you about $240/month in inflation to keep that money in cash.

alex753

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Re: realistic FI plan? fear of a correction?
« Reply #6 on: June 28, 2018, 10:01:15 AM »
I'm in a very similar situation except looking for career change instead of FIRE...

43, Single, no dependents.

Net worth:

Retirement Accounts   $356,509
HSA   $6,298
Taxable   $23,664
Taxable Cash (SHV + Cash)   $2,878
Cap 360 MM   $63,209
Checking   $9,814
Total: $459,494

Budget:

Rent   $780
Car $221 (But I pay $400) Remaining Balance loan ~2.65% interest is $4568.  I'd rather be cash rich right now than pay off the loan. 2014 Corolla, low miles.
Car insurance   $46
Gas   $30
Utilities   $60
Target   $80
Food   $565
Internet/Cable   $42
Cell Phone   $52
Savings   $0
Ent.,Netflix, Pandora, X   $43

Total:   $2,098

Without car payment Total:     $1698

My personal portfolio: $63K cash @1.60%, 10K checking, 10K Total bond (AGG) 14K stocks Total Intl., Total Domestic (IXUS, ITOT)

My 401K has 105K cash and growing in SHV (short term treasury fund @ ~1.6%), rest Vanguard 2035 fund and small tilt towards international small cap and emerging markets.

I am making the same behavioral mistake by waiting for a bear market to deploy my cash into the 2035 fund and some of my taxable funds into ITOT.  I know it's not technically correct but that's where I've put myself. Plus my personal funds depend on where my life takes me- Emergency/FU fund, house down payment, stocks when they're cheaper, time off for career change (graduate school, certification, etc.)

I'm living in Appleton WI (hate it) and am trying to engineer a move back to SoCal (Orange County - Irvine area).

My income has been just shy of 90K here for the last three years, saving approximatley 45K year between 401K, HSA, company match, Taxable accounts.

I can confidently say that it is possible to live/FIRE on about 2K in a low cost of living area because I have been, and could continue to do so. 




« Last Edit: June 28, 2018, 10:08:09 AM by alex753 »