Author Topic: FI planning advice  (Read 1592 times)

Saltsunandtime

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FI planning advice
« on: July 30, 2017, 04:24:58 PM »
Hi,

I'd love some opinions about whether I'm thinking about this smartly.

I'm married, under 40 with no kids (planning to have them). I have a stressful job that pays well but I want to change this for a better lifestyle over the next few years, to reduce stress and live a longer and healthier life.

I am tentatively planning to leave the 9-5when I reach $1M in cash investments. The plan is to leave the money untouched, making 5% per year on average so that it can grow to ~$1.5M over the following 10 years. I'll find work that takes fewer hours and pays less income, to cover living expenses.

I currently have debt of $175,000 in mortgage and none in consumer (e.g. credit cards). My assets are $325,000 in home equity and $600,000 in cash investments. My cash is half in index investments and half with a wealth brokerage (higher fees) because I'm tested what strategy I prefer.

What should I do to get to my goal asap? Any other advice about what I'm not seeing or planning for?

Thanks!
Saltsunandtime
« Last Edit: July 30, 2017, 06:46:43 PM by Saltsunandtime »

Cossack

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Re: FI planning advice
« Reply #1 on: July 30, 2017, 05:00:28 PM »
First thing I would do is pay off the mortgage.

Next, I would look for high yield investment properties. Go for cashflow over captal gain.




FIRE'd at few years ago. I am 43, DW 39. 5 young kids 10,8,7,4 and a newborn. We have lived in Auckland, Melbourne, Guangzhou, Zhuhai, Suva and currently living in Brisbane.

My new blog lives here: financeliberation.com

Saltsunandtime

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Re: FI planning advice
« Reply #2 on: July 30, 2017, 05:34:33 PM »
My mortgage has me locked into a 10% lump sum payment once yearly. I've done that every year including this year. I did the math it makes more sense to wait for maturity next May to pay it off, than take the penalty today. Unfortunately, my wife and I live in 700 sq ft and we'll need a larger home to have children, so a larger mortgage is in my future.

John Doe

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Re: FI planning advice
« Reply #3 on: July 30, 2017, 06:34:31 PM »
How much do you currently make at your job and how much can you save? Those variables will assist in giving any advice. 

Saltsunandtime

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Re: FI planning advice
« Reply #4 on: July 30, 2017, 06:44:16 PM »
Family net income should be $100-150k / year. We have jobs that have commissions based on performance, so only $100k is guaranteed.

sirdoug007

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FI planning advice
« Reply #5 on: July 30, 2017, 06:48:51 PM »
A few questions:

1.  What do you mean by high fees. How high?

2. Is your wealth manager offering financial planning?  I'm guessing no or they may have answered these questions.

3. What is your wealth manager doing to earn their fees?

The things you can do are to save more and optimize your asset allocation to your goals and risk tolerance.

You are in great shape. I think 7% real is a reasonable estimate which would get you to $1.5 million in 14 years or so with no additional savings. It's just a matter of time!


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SwordGuy

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Re: FI planning advice
« Reply #6 on: July 30, 2017, 06:56:12 PM »
What stock market are you investing in?  US?   US historical average returns are around 7% in today's dollars and 10% in inflation-adjusted dollars.

According to this calculator, https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator, you can expect $1,000,000 earning 5% per year, compounded annually, to be worth about $1,600,000 in 10 years.

At the historical US average return in today's dollars, you're looking at ~$1,967,000 in the same timeframe.

Compounding growth may be more powerful than you realize.

Mortgage terms?  What rate, payments and length of payments?
If you have really good terms you should delay paying it off too early and invest the amount instead.

My own mortgage is a 2.75% fixed rate mortgage for 15 years, with 14 years to go.  If I can average 10% (7% growth plus 3% inflation) over those 14 years and only pay 2.75%, it would be silly to pay off the mortgage early.   There's about a 2% chance, assuming the future is no worse than the past, of it being better to pay off the mortgage early.   Given that you're expecting to work another 12-15 years before your FIRE date, you'll know ahead of time if that's going to be a concern.


Saltsunandtime

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Re: FI planning advice
« Reply #7 on: July 30, 2017, 10:15:04 PM »
Thanks for the feedback. You're confirming my plans to just keep buying the index in all times (growth or loss) and to rely on compounding over the next 10 years.

Doug - I'm investing in a few areas:

1) I have corporate stock for a tech company that I worked for, worth ~$90,000. I know this company very well and plan to hold a little longer.

2) I have an index / ETF portfolio with a 70% equities and 30% fixed income mix. This is also mixed across funds that track the index of the S&P 500, TSX (Canada) and various other exchanges. The MER on this is below 0.2%.

3) My active portfolio is with a wealth company that is buying a portfolio of US and Canadian equities. The MER is 1.6% but it's far outgrown the index portfolio this year, making the higher fees worth it.

Unfortunately i'm missing on financial planning around taxes in particular.


sirdoug007

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Re: FI planning advice
« Reply #8 on: July 31, 2017, 02:27:42 PM »
You're confirming my plans to just keep buying the index in all times (growth or loss) and to rely on compounding over the next 10 years.

That's how it's done!  Just keep buying.   When you have doubts, just read this: https://ofdollarsanddata.com/just-keep-buying-7d31402231c9

It sounds like you have a good plan but there are a couple areas that you might improve.

One is the 15% of your portfolio you have in one tech stock.  That is quite a lot of concentration for a single stock.  I would recommend reducing this to 5% of your portfolio so it doesn't have such a large effect should bad news surface.

For a total of 1.6% your wealth manager really should be bending over backwards to help you, including helping you with all kinds of tax savings strategies.  If they are not you should consider a different advisor who does this.  1.6% for just managing a portfolio is high even for full service wealth managers (more typically around 1%). 

FIREby35

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Re: FI planning advice
« Reply #9 on: August 01, 2017, 07:01:41 AM »
You definitely need to fire the financial advisor charging 1.6% fees. There is no performance that can justify such high fees. Do not over-emphasize past returns. I would be thinking, "Wow, I got lucky he actually made money while robbing me blind. Now's the time to get out while the getting is good." That's just me but at least you know now.

You are at or near the point of "retirement inevitability." http://frugalvagabond.com/the-point-of-retirement-inevitability/

That gives you some big-time freedom to take whatever job will allow you to cash flow your life and let your savings grow. Good work.