Case Study: Reassessing my financial situation– 37, goal to be FI by 40 (2021)

[FIRERoad]

Hi, new to the site but not the ideas.

Reassessing my financial situation – 37 now, goal to be FI by 40 (2021), want to possibly take some time off to spend with family, travel, then back to a semi-retirement state in my 40s and 50s…  Need to make money work much harder so I can walk away from career…

Life Situation: Single male engineer, project management type role, no kids, no debt, small town somewhere in Indiana

Gross Salary/Wages: $82,000 with raise starting in July (3.9%), expected promotion in fall (7%) – already have been doing the job that merits the promotion, plus variable comp.  I should be hitting the 6 figure income range within the next 2-3 years.

Individual amounts of each Pre-tax deductions
$537/yr medical and dental
$4920 (6% contribution to 401k for full match)

Other Ordinary Income: N/A
Qualified Dividends & Long Term Capital Gains: N/A
Rental Income, Actual Expenses, and Depreciation: Not yet…

Adjusted Gross Income: $77383
Taxes:
Federal tax      $10,324
State+local tax   $3,713
Social Security   $5,103
Medicare      $1,193

Current expenses:  This is my budget and how I break it down.  Total budget/target is $2000 per month.  Average is more like $2500.  I constantly deep dive groceries and miscellaneous to keep in check.  I don’t know how I keep seeing claims of less than $300 per month for food.  I mostly eat at home and don’t even drink!  I do try to eat healthy and not a vegetarian.  Buying gear for hobbies blows my miscellaneous budget but I also try to get rid of other items to make up for some of it but don’t account for that.  Hobbies also keep me from getting fat…

Car
Payment   $0 (2016, Japanese brand, paid cash, think 3 used $8k cars over the next 15yrs )
Insurance   $60
Reg/Maint.   $50
Gas      $125

Housing
Rent      $974
Insurance   $11
Interest    $0
Prop Tax   $0
HOA      $0
Maint.      $0

Utilities/Services
Electric      $100
Water      $15
Cell      $53 (receive $70 stipend since I gave up my desk phone and use my own device)
Internet   $30
Alarm      $0
Trash      $0
Medical      $0 (fairly healthy thank God, employer contributes $500 to HSA per year)

Groceries    $300 (I mostly eat at home, occasionally eat out, more of a target)
Misc      $300 (Everything else that does not fit in other categories, more of a target)

*feedback based edit: travel costs are included in misc category, minimal due to driving rather than flying, stay at mom's, have mom's cooking and pay when we eat out but I have to eat anyway so that is included in food budget.

Expected ER expenses: Employer provides medical, dental, and vision plus $500/yr HSA contribution.  I expect to lose the contribution and guesstimating healthcare plan ~$300-400 for a male my age.

*feedback based edit: travel expenses are minimal but I do expect those to go away as I will move closer, Florida cost of living similar to Indiana at this time (real estate  market could change that) and no state income tax.  So I expect this to be a wash.  My only concern in increased expenses is health insurance

Assets:   Approximately $425000 between retirement accounts and cash


HSA      ~$2400
401K      ~$85000 (6% contribution, 3.5% employer match, fully vested)
Vanguard Wellington Balanced Fund
Pension   ~$33000 (3% employer contribution, fully vested)
IRA      ~$35000 (roll-over from previous employer 401k)
         Vanguard Target Retirement Fund 2045
Roth       ~$60000 (have not been contributing for a few years)
         Mix of individual stocks and big chunk in cash as I have sold off
Savings    ~$205000 (savings and sold and cashed out on my home last year)
Checking   ~$6000


Liabilities: N/A
 
Specific Question(s):
A little background on my situation.  Maybe/hopefully an early mid-life crisis.  I sold my house last year and moved into an apartment for a year to reassess life a bit (original plan was to pay off house last year).  Someone close to me and around my age passed away unexpectedly last year.  My parents are getting older and in retirement.  I live 1000 miles away from family and would like to spend more time with them and doing more meaningful things in life.  I have only been working full time for 10 years and don’t want to work a corporate job for the next 30 years (had a late start and worked through college so no debt).  Have not given up on meeting someone and having a family either.  Don’t want to raise a kid in child care like my friends.

I think I have a good chunk of money and on right track but not sure it is enough right now to cover my expenses.   At least it is not working hard enough or in the right places.  Need some guidance.  Let me know your thoughts or other options?  Am I overlooking anything else?  Are my expectations too high?  Too low?

*feedback based edit: Plan is to move from Indiana to Florida. Investment properties do not have to be in my market necessarily.  I rather stay in the apartment and not tie myself up to real estate here but the rent cost is high and supposed to be a temporary plan (1 year lease)  So I would like to reduce/offset it with real estate income or purchasing a home or multi-family.  I could purchase a condo in Florida now to lock in purchase price (I feel prices are back to realistic levels but maybe back on a path to pre-recession levels) but would need a property manager and have HOA fees that may make it non-cash flowing for now.


Below are my general thoughts:

HSA
Fully fund HSA until retirement.  That should add up to a nice $10-12k medical care cushion and provide some tax shelter.  I’ll have to get my own plan after retirement and adjust budget for this.

Retirement Accounts
Continue to contribute to 401k enough to get the full match.  The 401k and pension I believe I can roll over into my IRA.  The IRA and ROTH should add up to more than $250,000 by the time I am 40.  This I’ll simplify and leave alone in an index fund to grow for the next 20-30 years with some re-allocation over time. I think that should be enough to get me through whatever years of old age I am allowed to have on this earth. 



Cash
Savings I obviously need to do something with.  I plan to use $10-15k to help my mom bridge the gap and pay off her home right as she retires.  That has been a goal of mine for some time and will provide peace of mind for me and less stress for her.  My bills are less than half my paycheck and most of that is rent.  So I have about $200k to start with. 

One option is to invest that cash plus savings in an index fund or a mix of index funds and REITs.  I’m busy at work and have hobbies.  I’m kind of liking the apartment life right now.  This would be the easiest and most passive route but not optimal.  Doing some rough calculations that should grow to ~$300-350k by the time I am 40.  Probably good enough to cover about half my expenses but not all.  I would not feel I have reached FI but probably could semi-retire or work a couple more years if I have to.

Option two would be to take about half or more of this fund and purchase another home.  This time a more economical older and smaller home closer to town.  This cuts my expenses further.  Invest left over and continue to invest additional savings in index fund until it can cover my remaining expenses.  I think this could get me closer to $400k by 40. I think it is doable, still pretty passive, but now I have to sell a house again and I don’t plan on staying here.  Not a huge deal though.  I still don’t think this would be enough to cover all my expenses.

Third option is to take about half or more of this fund and invest in a multi-family or two if I can find the right thing.  There are options in town but they are older, most are in areas that are kind of yucky.  Still, people will pay to live in these places.  I could use proceeds to cover some/most of my expenses and stay in apartment.  If I can find something in a more favorable area, I could also move into one of the units and rent the other(s).  I would be okay with this, won’t do roommates (I rather work longer…) More work to manage and tenants to deal with.  So, expense reduction by knocking down my rent, income from other units, possible appreciation in value with renovation and higher rents.  This might push me past $400k.  Keep saving most of my income in an index fund.

Fourth option is to leverage myself buying multiple properties with loans, do BRRRR strategy I've been reading about, increase net worth at higher rate and have nice cash flow hopefully.  I think there is room for that in this town in the right areas.  At this point, this might affect my job performance and focus and I might as well quit and do this full time.  Sounds like a lot of commitment for a 3 year plan.  I like being debt free.  I would not have to sell the properties if I move however and it would give me an excuse to come visit my friends every now and then and deduct my expenses!  This more aggressive strategy could propel me past the $500k mark and I would definitely feel FI and ready to retire.  Hmm… thinking big here and a bit scary.  I did already go to local landlord lunch, networked with some local landlords, and will become a member.  Older crowd but they were more engaging than most people my age or younger.

Fifth option is to meet someone with a similar goals/mindset, join forces, retire now on passive income, travel the country and the world in a camper van.  Options 1 – 4 seem easier, more likely, and actionable.

[gpyros85]

For a single man, reduce your expenses more, why are you paying $975/month in Indiana? Assuming for a 1 bedroom?

Also, you're paying to much in taxes, increase your 401(k) and reduce the taxes...

Finallay, engineer with project manager @ 83k is very low, you should easily be making 95k+ even 100k+...

[FIRERoad]

Thank you for the reply gpyros85.

The rent is for a 1be/1ba with a one car garage that is not a dump.  Yes, expensive but temporary.  I explained that I would like to change the housing situation to reduce or eliminate this by purchasing another more economical home or move into and rent a multi family.  Sold a 3be/2/ba, 2car  1500 square foot home in suburbia that I had all to myself for 10 years expecting that life might be a little different for me by now.  Do you have any suggestions or preferences over the multiple options I outlined?  Any other specific areas you think should be lower?  Other than rent there is really nowhere else to cut back other than getting rid of only car and that is not an option at the moment and I am a cyclist.... 

I could increase my 401k contribution and contributed heavily in the past but I also explained that I was trying to build up funds and investments outside of retirement accounts so that I can reach FI in 3 years.  I also don't believe I need any more funds tied up in retirement accounts for the next 20-30 years.  The standard deductions this year will more than make up for any itemized deductions related to home ownership I have lost.  I also plan to max the HSA to reduce taxes some as I do want to build that but it is pretty limited at ~$3500 (plus employer already contributes $500 of that).  Any other options to reduce taxes or get around having it tied up in retirement accounts?

I've always wondered where I stand on the pay scale.  I've been  doing the project management job for 6+ months without the promotion.  Expected promotion either spring or fall.  I've been told possibly fall round and I will be firmly expecting that no later.  Yearly raise was higher than usual at almost 4%.  Variable comp was over $10k gross this year.  Assuming all that happens and stays consistent I should be in the ball park you mention.  I could change jobs or employers but they are pretty flexible, have been here 7+ years, and I tend to be pretty loyal to managers as long as they treat me well.  Current one is good.  Also, I'll be wrapping up my current program right when I turn 40 which is part of the reason for shooting for that timing as a target.  I will do a little research though and use that as leverage with my employer if needed.   

Please let me know if there are any other flaws in my plans or logic.  Thanks again!

[reeshau]

2 questions:

You mention that your family is 1,000 miles away, and you want to spend more time with them.  You also mention that you are looking at options, including purchasing a home.  Are you looking to purchase a home near your family?  If you don't move closer, then you need to budget for travel expenses to whatever extent you want to spend more time with them.  If you intend to move there to possibly re-settle, do you know what the cost of living is like in that area?  Your budget may be entirely different.

You also ask several questions on investing options, but you have not made clear what you expect your ER funding plan to be.  You talk a lot of real estate--do you expect to cash flow it?  Will you mega backdoor Roth?  Will you continue to rent, live off your taxable proceeds, and see what comes next?  Some more info on which of these plans you intend, or what you are comfortable / not comfortable with, will very much drive what you should do with your cash.

[fell-like-rain]

First off, if you're planning to FI, you shouldn't necessarily think of your retirement and non-retirement accounts as separate. SEPP or Roth IRA conversions make it possible to take early withdrawals, and it makes the math a lot easier if it's all one bucket. This also means you can reduce your tax bill by upping your contributions now.

Right now, you have way too much money in cash. If you invested the whole 425,000 and got 5% inflation-adjusted returns, in 3 years you'd have around 492,000. Looking at your current cash flow, you put 410 monthly in the 401k, you take home around 4680, and you spend 2500. In theory, you're saving 2100/month. Add 3 years of savings to your NW, and you'd be around 570,000. At a 4% withdrawal rate, that'd support 1900/month in spending. At 3% withdrawal, $1425. So you likely won't be traditionally FI in 3 years without cutting your spending significantly, especially considering the added healthcare costs.

Looking at your spending, you say you're doing these "deep dives", but that doesn't seem to be functioning as a budgeting method. Are you tracking your spending on an ongoing basis? Can you break things down any more than "misc"- clothes, gadgets, bike stuff, entertainment? If you're regularly blowing through your budget targets, they're a useless fiction- figure out what you are spending, not what you wish you were.

Your grocery budget can absolutely be reduced- I spend $130 monthly for one person. Find discount or ethnic groceries, buy cheap meat, meal prep on weekends- there's a thread somewhere about spending $200/month for a family of four, you can find some good tips in there. If someone can feed a family for $200, you should be able to feed yourself for the same or less.

As another poster mentioned, rent could also be cut. When it comes to apartments, you can have cheap, nice, or solo- pick 2. If you want to cut costs and continue having a nice lifestyle, consider roommates. If you want to cut costs and live on your own, find a place that's less nice.

Overall, you're definitely doing better than most people, and if you're actually willing to live out of a camper van, you could absolutely retire in 3 years. However, if you continue spending 2500/month, and healthcare adds 400/month, you'll need $1,160,000 to sustain a 3% withdrawal rate. Which you'll reach in 2029, at the age of 48 or so. So ask yourself, do you want to continue spending extra on rent, food, and toys, or do you want to stop working? It's kinda as simple as that.

[FIRERoad]

2 questions:

You mention that your family is 1,000 miles away, and you want to spend more time with them.  You also mention that you are looking at options, including purchasing a home.  Are you looking to purchase a home near your family?  If you don't move closer, then you need to budget for travel expenses to whatever extent you want to spend more time with them.  If you intend to move there to possibly re-settle, do you know what the cost of living is like in that area?  Your budget may be entirely different.

You also ask several questions on investing options, but you have not made clear what you expect your ER funding plan to be.  You talk a lot of real estate--do you expect to cash flow it?  Will you mega backdoor Roth?  Will you continue to rent, live off your taxable proceeds, and see what comes next?  Some more info on which of these plans you intend, or what you are comfortable / not comfortable with, will very much drive what you should do with your cash.

Thank you for your input.  I've edited the original comment to include those details.  Plan is to move closer, travel costs are minimal by traveling driving but expect those to go away.  Cost of living is similar between specific location in Indiana vs. specific location in Florida.  My main concern is replacing my health insurance and increasing real estate costs.  They are back up to realistic levels now but may be pre-recession in the future.  So that is another concern and open to purchasing my investment property there to lock in real estate prices.  I could then rent it to offset costs but don't think it will be cash flowing due to need of property management. I think I can have cash flowing property and offset my rent here in Indiana, especially if I find a multi-family that I am willing to live in.  Please let me know if you have any other thoughts based on this update.

[FIRERoad]

First off, if you're planning to FI, you shouldn't necessarily think of your retirement and non-retirement accounts as separate. SEPP or Roth IRA conversions make it possible to take early withdrawals, and it makes the math a lot easier if it's all one bucket. This also means you can reduce your tax bill by upping your contributions now.  I have thought about this but don't understand the process of tapping into the the retirement funds prior to retirement well enough.  Need to look into this more.  My understanding is that I maybe able to legally drip some money out now but would barely cover my food bill.  I would love to roll it all out of pre-tax into my ROTH without penalties.  I'll look into this further.  Any specific articles or resources you would recommend?

Right now, you have way too much money in cash. If you invested the whole 425,000 and got 5% inflation-adjusted returns, in 3 years you'd have around 492,000. Looking at your current cash flow, you put 410 monthly in the 401k, you take home around 4680, and you spend 2500. In theory, you're saving 2100/month. Add 3 years of savings to your NW, and you'd be around 570,000. At a 4% withdrawal rate, that'd support 1900/month in spending. At 3% withdrawal, $1425. So you likely won't be traditionally FI in 3 years without cutting your spending significantly, especially considering the added healthcare costs.  I agree with this.  Way too much in cash was strategic part of reassessing.  Been selling off individual stocks in ROTH and sold home that I planned to pay off with a lump sum.  If I can roll out my pre-tax and tap into that income yearly, I could reduce my consumption via economical travel period, I could work part time or a more fulfilling career at lesser pay/hours.  I could also stay with my current employer for a couple more years or work remotely.  My manager is not pro remote work but it has been done, especially if I take on an international program vs. a North America program.  I'd love to do this for a few more years from Florida if they will allow it and I do plan to explore that option.  I don't mind my job or company, just the separation and time with family has hit me more this year and our limited time on this earth has become more apparent to me.

Looking at your spending, you say you're doing these "deep dives", but that doesn't seem to be functioning as a budgeting method. Are you tracking your spending on an ongoing basis? Can you break things down any more than "misc"- clothes, gadgets, bike stuff, entertainment? If you're regularly blowing through your budget targets, they're a useless fiction- figure out what you are spending, not what you wish you were.
Every penny for the past 15-20 years in spreadsheets by the categories I listed.  The deep dives and the $2000 is to force me to look there and where I can cut but the $2500 is realistic without changing any habits.  I am living in exactly half the space I had before so I have minimized further and have about all the gear I can stand to have.  Looking to purge some to offset future purchases.  I have a $4000 time trial bike that I only purchased after I sold $4500 autocross car that I was not using.  I also don't have to pay extra insurance on it or feed it oil and gas.  I have 4 bikes, getting rid of one. I don't plan to live out of a backpack however. Food spending is what I would like to clamp down on.  I already don't eat out much or drink but I do eat healthy and do buy some premium or organic items.

Your grocery budget can absolutely be reduced- I spend $130 monthly for one person. Find discount or ethnic groceries, buy cheap meat, meal prep on weekends- there's a thread somewhere about spending $200/month for a family of four, you can find some good tips in there. If someone can feed a family for $200, you should be able to feed yourself for the same or less.  Yes, see above. Need to dive into this more.  I have not figured it out on my own but I am not going to eat Ramen everyday.

As another poster mentioned, rent could also be cut. When it comes to apartments, you can have cheap, nice, or solo- pick 2. If you want to cut costs and continue having a nice lifestyle, consider roommates. If you want to cut costs and live on your own, find a place that's less nice. That is part of the plans but no roommates.  Hated it every time.  Another cheaper property or a multi family investment is what I would like to explore.

Overall, you're definitely doing better than most people, and if you're actually willing to live out of a camper van, you could absolutely retire in 3 years. However, if you continue spending 2500/month, and healthcare adds 400/month, you'll need $1,160,000 to sustain a 3% withdrawal rate. Which you'll reach in 2029, at the age of 48 or so. So ask yourself, do you want to continue spending extra on rent, food, and toys, or do you want to stop working? It's kinda as simple as that.

I'm willing to live in the van for a period of time in milder climate but not forever.  I would even be willing to give up car eventually and commute in the right area.  Working towards reducing those costs.  Finding a like minded mate would also help. Right now I only plan for myself but situation could change.

Thank you very much for all your input.  Let me know if you have any other suggestions or comments.  This is great!

[Ben Kurtz]

Buying a SFR with the idea of selling it again in 3 years is generally not a recipe for success -- the transaction costs are fairly high and there is a good chance of coming out behind on a transaction like that. The one type of exception is the case where you find a diamond in the rough and put sweat equity into upgrades, increasing the house's value substantially in the relatively brief time you live there. Three years is enough to qualify you for the capital gains tax exemption on your primary home, so that can work out well.

I'm in favor of having investment real estate be a part of someone's portfolio, and even taking on some leverage to do it, so if you are up for becoming a landlord I would suggest looking for a good two or three unit building where you'd be happy to live in one unit and rent out the other(s). Look for good location and layout -- paint, landscaping, flooring and major appliances can be upgraded fairly easily, especially if (again) you're willing to put in a bit of sweat equity, so "good" does not have to mean expensive and pristine.

Long-distance landlording has its own drawbacks, but it possible to clean up a building, put systems in place with local managers and agents whom you've come to know, and then rent out your personal unit when you finally retire and leave town after a few years. You could do the same thing with a SFR that you buy and live in for three years, but usually those suffer from lack of scale and lower yields on your capital so are not really worth it.

Unless you know you're going to love the real estate game, I'd suggest maxing out your tax deductible contributions to retirement accounts and keep your sights on just one small rental building for now. As others have mentioned, with techniques such as SEPP withdrawals and Roth conversion pipelines, we don't tend to think of retirement accounts as untouchable around here. The one thing that pretty much is locked up until your seventh decade is social security -- and worth checking what your projected benefits on your planned working career.

The Roth pipeline is probably the most useful technique for you to learn. Basically, even if you are below the regular withdrawal age you can roll deductible 401k / IRA money into a Roth IRA without paying the 10% early withdrawal penalty -- it's just that the amount of the rollover is classified as income (and taxed) in the year you roll. But, in order not to make things too easy, the IRS requires you to keep the rolled money in the Roth IRA for 5 years before you may withdraw it for spending under the rule which says that the after tax money you put into a Roth can be taken out tax and penalty free (investment gains have to stay in until regular withdrawal age). People will therefore save 5 years of living expenses outside of retirement accounts (or as true after-tax contributions in Roth accounts), quit their day jobs, and then each tax year roll money from their 401ks into Roth IRAs. Usually enough to fill up the lowest tax bracket or two. After 5 years, the first bunch of rolled-over money can be safely withdrawn, and each year after that another bunch of money will "season" into readiness. Hence the "pipeline" name. The contributions receive tax benefits at your higher marginal tax rate while you were working (say, 25% or 33% tax savings), but the rollovers will be taxed at perhaps 10% max, and no additional 10% penalty.

The last point I want to mention here is that you haven't dug into the weeds on what "semi retirement" and part time work might mean. On your numbers, you could almost certainly quit your day job tomorrow, pick up teaching a few math or science classes at the local community college (or substitute some other kind of part-time, low-stress, fairly low paid work) for $15,000 per year, and be set for life. Your nest egg could safely provide the rest of you cash needs, and with a little bit of flexibility or creativity it will most almost certainly snowball you up to millionaire status before you reach conventional retirement age.

This might not be the exact plan for you, but if you hang on to the day job until age 40 and have a $600,000 nest egg you'll be able to do what you like, just so long as you brought home some tiny amount of income each year while still working age. Don't chain yourself do a desk until age 45 just to squeeze another $250,000 or $300,000 into your investment portfolio if you are single, have no wife or children depending on you, and would rather be doing something else.

Heck, if "semi-retirement" means doing something that brings in half of your present income then you're already set -- more to the point, you've pretty much always already been set for "semi-retirement" -- and now there is no reason not to go off and do whatever it is you'd rather be doing.

[FIRERoad]

This is exactly what I was looking for!  Thank you for organizing the thoughts that way and further explaining the pipeline and conversion strategy.   Appreciate all the input.

I've been taking notes and will read up on these topics and put them into action and timeline.

1. Retirement and future savings: I can take action on the 401k and HSA max out now. The ROTH if I have anything left over.  Finish simplifying that into a few low cost funds.  Any recommendations?  The 401k has Vanguard Funds available and the IRA and ROTH are in Scottrade/Ameritrade accounts so pretty much a full menu.

2. Cash and Expenses situation: Start looking for primarily a multi family property that I would be willing to live in with a single family as a secondary option, both with potential for appreciation, multi family also with potential for cash flow.  I know just the area to focus on and that I think has good potential in the next few years based on city planning goals and growth.  Now I need to find the right realtor or make the right contacts. I think the landlord lunches and meetings will help me get there and help me establish the connections for when I decide to cash out or need a good property manager.  Set up those systems. They might be willing to do some mentoring.  I would like use some of my free time to take on a few projects to learn and get a feel for landlording. My previous home I bought new and still looked new 10 years later... I think it would be a good experience.  Plus get rid of or reduce the rent payment and maybe some cash flow.  Invest any left over cash on post tax index fund?

3. Retirement: Continue to plan for semi retirement at 40. I still might be willing to do my job for a few years remotely if employer goes for it. I could do contract work remotely. Otherwise I have a good skill set.  I was a certified ASE mechanic and paid for college doing this part time.  I can do selective/by appointment only light work as there is always a steady supply of cars needing work and people looking for honest mechanics.  Still have my tools.  There is always a steady supply of elderly in Florida that need services like being driven around or things done around the house.  That might be somewhat rewarding.  My mom was a CNA now LPN (career change from human resources manager).  It is hard work but I think she finds it more rewarding.  I consider her semi retired.  Steady supply of snow birds and seasonal tourists that need properties managed.  I would not mind doing any of those things to cover my expenses and on a more relaxed or part time schedule.  I'm also interested in alternative energy and home energy savings/audits.  The power company here sends people to do that at homes for free through a 3rd party and it was kind of a joke since my home was relatively new but I got some free stuff!  I think that would be a fun gig (I've plotted and analyzed my power and water bills for the past 11 years)  A home efficiency assessment business would be fun and interesting, especially if I don't need a steady fixed income when I start out.  I don't think the need to reduce energy consumption will go away even with the current administration.  All kinds of other things I would be willing to do if I was not doing what I am doing now.

4. In the meantime..
Read about and figure out timeline for a roll over strategy/pipeline. 
Look into reducing food costs discussions and take action if possible.
Prepare to defend my salary increase and promotion if needed.
Anything else?

Thank you so much!!

[gpyros85]

Thank you for the reply gpyros85.

The rent is for a 1be/1ba with a one car garage that is not a dump.  Yes, expensive but temporary.  I explained that I would like to change the housing situation to reduce or eliminate this by purchasing another more economical home or move into and rent a multi family.  Sold a 3be/2/ba, 2car  1500 square foot home in suburbia that I had all to myself for 10 years expecting that life might be a little different for me by now.  Do you have any suggestions or preferences over the multiple options I outlined?  Any other specific areas you think should be lower?  Other than rent there is really nowhere else to cut back other than getting rid of only car and that is not an option at the moment and I am a cyclist.... 

I could increase my 401k contribution and contributed heavily in the past but I also explained that I was trying to build up funds and investments outside of retirement accounts so that I can reach FI in 3 years.  I also don't believe I need any more funds tied up in retirement accounts for the next 20-30 years.  The standard deductions this year will more than make up for any itemized deductions related to home ownership I have lost.  I also plan to max the HSA to reduce taxes some as I do want to build that but it is pretty limited at ~$3500 (plus employer already contributes $500 of that).  Any other options to reduce taxes or get around having it tied up in retirement accounts?

I've always wondered where I stand on the pay scale.  I've been  doing the project management job for 6+ months without the promotion.  Expected promotion either spring or fall.  I've been told possibly fall round and I will be firmly expecting that no later.  Yearly raise was higher than usual at almost 4%.  Variable comp was over $10k gross this year.  Assuming all that happens and stays consistent I should be in the ball park you mention.  I could change jobs or employers but they are pretty flexible, have been here 7+ years, and I tend to be pretty loyal to managers as long as they treat me well.  Current one is good.  Also, I'll be wrapping up my current program right when I turn 40 which is part of the reason for shooting for that timing as a target.  I will do a little research though and use that as leverage with my employer if needed.   

Please let me know if there are any other flaws in my plans or logic.  Thanks again!

Yes, your pay is off, we are hiring engineers at 90k with no project manager experience and project managers are around 100k+ in a very low cost of living area. You are comfortable, that could be the problem, even if you mention to HR you have other offers, (go get them if you need the confidence and can't fake it) they will raise your pay, we are in a TIGHT economy for engineers. You have to be reasonable, can't expect 150k for but 100k next month should be your goal.


Also, I didn't comment more on the taxes portion because I knew more would chime in and there is a A LOT of detail out there on reducing the taxes. You being single with no deduction and high income taxes are killing you, when you start taking dividends and in a 40k tax bracket it will be almost $0 and you don't have to pay social security or medicad tax.

[Ben Kurtz]

The 401k has Vanguard Funds available and the IRA and ROTH are in Scottrade/Ameritrade accounts so pretty much a full menu.

The investment section of the forum has plenty of discussion, but the Cliffs Notes version is to invest your 401k in low-cost index funds and rebalance once a year. You can spend infinite time down this rabbit hole, but a reasonable portfolio might look something like: 50% Total U.S. Stock Index, 25% International Stock Index and 25% U.S. Bond Index. If you are managing less than $1,000,000 in stocks and bonds, it probably isn't worth your time geeking out over the details of asset allocation and modern portfolio theory, slicing your portfolio into a larger number of smaller chunks, unless you genuinely find it interesting and enjoy reading up on that. Vanguard has funds covering all these possibilities and more; Schwab and Fidelity also have good index fund choices for 401k plans they run -- just look at the current fund list from the 401k provider and steer clear of actively managed funds with high expense ratios and high portfolio turnover rates.

TD Ameritrade (which took over Scottrade) is a good platform, but with the takeover the costs of buying actual mutual funds has gone up -- at least it did in my taxable account with them. The best thing here is to make your IRA contributions in large chunks (say $1,000 or $2,000 at a time) and then buy the ETF versions of the index funds you want, rather than the mutual fund versions. Three or four letter ticker symbols, versus five, is a good way to distinguish between ETF and mutual fund format. You'll pay the same low commission you would for trading individual stocks.

I was a certified ASE mechanic and paid for college doing this part time.  I can do selective/by appointment only light work as there is always a steady supply of cars needing work and people looking for honest mechanics.  Still have my tools... I'm also interested in alternative energy and home energy savings/audits.  The power company here sends people to do that at homes for free through a 3rd party and it was kind of a joke since my home was relatively new but I got some free stuff!  I think that would be a fun gig (I've plotted and analyzed my power and water bills for the past 11 years)  A home efficiency assessment business would be fun and interesting, especially if I don't need a steady fixed income when I start out.

I've known people who became professional home inspectors in their 50s or 60s as their "encore" careers after working 30-odd years in major corporations. Smart engineering types who, I think, did it to get out of house and stay out of their wives' hair more than out of a need for more income. Not even fancy energy efficiency stuff -- just regular inspection reports for sales and mortgages. Either way, not a bad way to bring in a part-time income, and because it's mainly a series of small gigs, you can really tailor it to your schedule -- only certain days of the week, or only certain seasons of the year. Plus it's a fairly portable skill-set. You can build your own practice or simply work as an hourly employee for an established group that maintains relationships with lenders and other parties who commission reports.

[FIRERoad]

Thank you for the reply gpyros85.

The rent is for a 1be/1ba with a one car garage that is not a dump.  Yes, expensive but temporary.  I explained that I would like to change the housing situation to reduce or eliminate this by purchasing another more economical home or move into and rent a multi family.  Sold a 3be/2/ba, 2car  1500 square foot home in suburbia that I had all to myself for 10 years expecting that life might be a little different for me by now.  Do you have any suggestions or preferences over the multiple options I outlined?  Any other specific areas you think should be lower?  Other than rent there is really nowhere else to cut back other than getting rid of only car and that is not an option at the moment and I am a cyclist.... 

I could increase my 401k contribution and contributed heavily in the past but I also explained that I was trying to build up funds and investments outside of retirement accounts so that I can reach FI in 3 years.  I also don't believe I need any more funds tied up in retirement accounts for the next 20-30 years.  The standard deductions this year will more than make up for any itemized deductions related to home ownership I have lost.  I also plan to max the HSA to reduce taxes some as I do want to build that but it is pretty limited at ~$3500 (plus employer already contributes $500 of that).  Any other options to reduce taxes or get around having it tied up in retirement accounts?

I've always wondered where I stand on the pay scale.  I've been  doing the project management job for 6+ months without the promotion.  Expected promotion either spring or fall.  I've been told possibly fall round and I will be firmly expecting that no later.  Yearly raise was higher than usual at almost 4%.  Variable comp was over $10k gross this year.  Assuming all that happens and stays consistent I should be in the ball park you mention.  I could change jobs or employers but they are pretty flexible, have been here 7+ years, and I tend to be pretty loyal to managers as long as they treat me well.  Current one is good.  Also, I'll be wrapping up my current program right when I turn 40 which is part of the reason for shooting for that timing as a target.  I will do a little research though and use that as leverage with my employer if needed.   

Please let me know if there are any other flaws in my plans or logic.  Thanks again!

Yes, your pay is off, we are hiring engineers at 90k with no project manager experience and project managers are around 100k+ in a very low cost of living area. You are comfortable, that could be the problem, even if you mention to HR you have other offers, (go get them if you need the confidence and can't fake it) they will raise your pay, we are in a TIGHT economy for engineers. You have to be reasonable, can't expect 150k for but 100k next month should be your goal.


Also, I didn't comment more on the taxes portion because I knew more would chime in and there is a A LOT of detail out there on reducing the taxes. You being single with no deduction and high income taxes are killing you, when you start taking dividends and in a 40k tax bracket it will be almost $0 and you don't have to pay social security or medicad tax.

Thanks again for the response.  Before I go have another talk with my manager and/or HR, would you include variable comp/profit sharing in those figures or that is base salary?  They like to play the game of showing the variable comp at a 1.0 payout as part of the compensation package when it is not guaranteed.  Could be less, could be more. 

Also, I am looking into the strategies for rolling money out of the retirement accounts in the semi retirement stage before I make decision to dial up the retirement contributions.  I'm pretty sure I can hit the limits on 401k, ROTH, and HSA and still cover my expenses, even with the 7 months left this year.  I just have to get comfortable with a strategy to be able to get it out of there and tap into it later.  It also seems I will need up to 100k during the 5 year period I am creating a pipeline if I wanted to fully retire after that and rely on those funds but likely I will be in some sort of semi retirement stage.  I need to read up more and plan out a couple scenarios this weekend and start making some decisions!  Tired of just thinking about the possibility of it and just wanting to do it!  Need to build up the knowledge however.

[FIRERoad]

The 401k has Vanguard Funds available and the IRA and ROTH are in Scottrade/Ameritrade accounts so pretty much a full menu.

The investment section of the forum has plenty of discussion, but the Cliffs Notes version is to invest your 401k in low-cost index funds and rebalance once a year. You can spend infinite time down this rabbit hole, but a reasonable portfolio might look something like: 50% Total U.S. Stock Index, 25% International Stock Index and 25% U.S. Bond Index. If you are managing less than $1,000,000 in stocks and bonds, it probably isn't worth your time geeking out over the details of asset allocation and modern portfolio theory, slicing your portfolio into a larger number of smaller chunks, unless you genuinely find it interesting and enjoy reading up on that. Vanguard has funds covering all these possibilities and more; Schwab and Fidelity also have good index fund choices for 401k plans they run -- just look at the current fund list from the 401k provider and steer clear of actively managed funds with high expense ratios and high portfolio turnover rates.

TD Ameritrade (which took over Scottrade) is a good platform, but with the takeover the costs of buying actual mutual funds has gone up -- at least it did in my taxable account with them. The best thing here is to make your IRA contributions in large chunks (say $1,000 or $2,000 at a time) and then buy the ETF versions of the index funds you want, rather than the mutual fund versions. Three or four letter ticker symbols, versus five, is a good way to distinguish between ETF and mutual fund format. You'll pay the same low commission you would for trading individual stocks.

I was a certified ASE mechanic and paid for college doing this part time.  I can do selective/by appointment only light work as there is always a steady supply of cars needing work and people looking for honest mechanics.  Still have my tools... I'm also interested in alternative energy and home energy savings/audits.  The power company here sends people to do that at homes for free through a 3rd party and it was kind of a joke since my home was relatively new but I got some free stuff!  I think that would be a fun gig (I've plotted and analyzed my power and water bills for the past 11 years)  A home efficiency assessment business would be fun and interesting, especially if I don't need a steady fixed income when I start out.

I've known people who became professional home inspectors in their 50s or 60s as their "encore" careers after working 30-odd years in major corporations. Smart engineering types who, I think, did it to get out of house and stay out of their wives' hair more than out of a need for more income. Not even fancy energy efficiency stuff -- just regular inspection reports for sales and mortgages. Either way, not a bad way to bring in a part-time income, and because it's mainly a series of small gigs, you can really tailor it to your schedule -- only certain days of the week, or only certain seasons of the year. Plus it's a fairly portable skill-set. You can build your own practice or simply work as an hourly employee for an established group that maintains relationships with lenders and other parties who commission reports.

Yes!  I've thought about the home inspection gig as well.  Especially in Florida!  I was thinking today I could work full time the snow bird season and take off or significantly cut hours in the off season and train for triathlons or do whatever else I want.  RVrs, campgrounds, other.  There probably is a natural cycle to that which I can ride.

Thanks for the summary of the funds strategy.  I have looked at some of those discussion and will look at a few more this weekend and what is available to me.  Should be easy enough to move things around.  The whole pipeline strategy and roll overs has me intrigued now and need to make sure I understand it well and figure out timing to implement and how to balance how much it makes sense to roll over each year vs. how much semi retirement income I am bringing in.

[gpyros85]

Thank you for the reply gpyros85.

The rent is for a 1be/1ba with a one car garage that is not a dump.  Yes, expensive but temporary.  I explained that I would like to change the housing situation to reduce or eliminate this by purchasing another more economical home or move into and rent a multi family.  Sold a 3be/2/ba, 2car  1500 square foot home in suburbia that I had all to myself for 10 years expecting that life might be a little different for me by now.  Do you have any suggestions or preferences over the multiple options I outlined?  Any other specific areas you think should be lower?  Other than rent there is really nowhere else to cut back other than getting rid of only car and that is not an option at the moment and I am a cyclist.... 

I could increase my 401k contribution and contributed heavily in the past but I also explained that I was trying to build up funds and investments outside of retirement accounts so that I can reach FI in 3 years.  I also don't believe I need any more funds tied up in retirement accounts for the next 20-30 years.  The standard deductions this year will more than make up for any itemized deductions related to home ownership I have lost.  I also plan to max the HSA to reduce taxes some as I do want to build that but it is pretty limited at ~$3500 (plus employer already contributes $500 of that).  Any other options to reduce taxes or get around having it tied up in retirement accounts?

I've always wondered where I stand on the pay scale.  I've been  doing the project management job for 6+ months without the promotion.  Expected promotion either spring or fall.  I've been told possibly fall round and I will be firmly expecting that no later.  Yearly raise was higher than usual at almost 4%.  Variable comp was over $10k gross this year.  Assuming all that happens and stays consistent I should be in the ball park you mention.  I could change jobs or employers but they are pretty flexible, have been here 7+ years, and I tend to be pretty loyal to managers as long as they treat me well.  Current one is good.  Also, I'll be wrapping up my current program right when I turn 40 which is part of the reason for shooting for that timing as a target.  I will do a little research though and use that as leverage with my employer if needed.   

Please let me know if there are any other flaws in my plans or logic.  Thanks again!

Yes, your pay is off, we are hiring engineers at 90k with no project manager experience and project managers are around 100k+ in a very low cost of living area. You are comfortable, that could be the problem, even if you mention to HR you have other offers, (go get them if you need the confidence and can't fake it) they will raise your pay, we are in a TIGHT economy for engineers. You have to be reasonable, can't expect 150k for but 100k next month should be your goal.


Also, I didn't comment more on the taxes portion because I knew more would chime in and there is a A LOT of detail out there on reducing the taxes. You being single with no deduction and high income taxes are killing you, when you start taking dividends and in a 40k tax bracket it will be almost $0 and you don't have to pay social security or medicad tax.

Thanks again for the response.  Before I go have another talk with my manager and/or HR, would you include variable comp/profit sharing in those figures or that is base salary?  They like to play the game of showing the variable comp at a 1.0 payout as part of the compensation package when it is not guaranteed.  Could be less, could be more. 

Also, I am looking into the strategies for rolling money out of the retirement accounts in the semi retirement stage before I make decision to dial up the retirement contributions.  I'm pretty sure I can hit the limits on 401k, ROTH, and HSA and still cover my expenses, even with the 7 months left this year.  I just have to get comfortable with a strategy to be able to get it out of there and tap into it later.  It also seems I will need up to 100k during the 5 year period I am creating a pipeline if I wanted to fully retire after that and rely on those funds but likely I will be in some sort of semi retirement stage.  I need to read up more and plan out a couple scenarios this weekend and start making some decisions!  Tired of just thinking about the possibility of it and just wanting to do it!  Need to build up the knowledge however.

All my salary figures I give are base salary... I never include bonus and it is exactly what it is, a BONUS.. You can't use it to live because you don't know when it will be there next. The bonus would be 8% typically with 4% payout typically...