Author Topic: 6-8 yrs from reaching FIRE. What's the next step?  (Read 1393 times)

Silverback761

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6-8 yrs from reaching FIRE. What's the next step?
« on: January 24, 2024, 08:55:46 AM »
So after five years my wife in finally completely on board with the FIRE movement. Prior to that we paid off all our student loans, own our car outright and have no debt whatsoever at this point. Both of us have our 401k's and tIRA's maxed out with her playing catch up on both. We are making a few tweaks this month to save more money on cellphone plans, entertainment and hobbies. She is a lifelong seamstress who also does leather working and 3d printing. We are talking about opening up a small Etsy store and see about selling the things she likes to make for fun to help cover her hobbies and anything extra into savings. We're talking about either getting mopeds, electric bikes or just old fashion leg power bikes, of which I already have one myself and she sold her's a while back, to get to work during the warmer seasons in NY. Needless to say we, like everyone else here, have been busting our humps to reach our target. My two questions are:

1. Would the extra money we have left after bills each month continue to go into our high interest savings account, it's currently at 4.75%, or should we be splitting it between that account and a stock account that pays dividends?

2.What's the next step as we get closer to reaching FIRE? I've been following the FAQ to get us to this point but I'm not sure what to now. Do we just keep doing what we are doing or is there something I'm missing or missed in the reading? We are about 6-8 yrs max from reaching FIRE. It will depend on a couple factors at work whether we stay that long or not. Playing it year by year at this point.

That's about it. Thank you to everyone who has taken the time to answer all my questions, good, bad and ugly, past and present. Thank to everyone who's taken the time to write up everything that has allowed my wife and I to get to this point. I am very much looking forward to retiring up in the mountains, fishing, hunting and enjoying absolute peace and quiet completely secluded from society for the rest of my days except to visit family, friends and travel with my wife on occasion because happy wife happy life. LoL

Have a SMASHING good day everyone!!!

maizefolk

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #1 on: January 24, 2024, 09:02:39 AM »
Congratulations!

I am guessing you have already read the investment order post? https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Assuming you are all the way to step 8 (including a cash emergency fund that is big enough for you to sleep well at night), yes I would recommend starting to invest in a taxable stock account. This can also serve to help bridge your cost of living expenses between when you retire and when you're able to access your traditional 401/tIRA balances via a Roth conversion ladder or hitting an eligible age for penalty free withdrawal, whichever comes first

Silverback761

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #2 on: January 24, 2024, 09:59:18 AM »
@maizefolk

Actually no funny enough. I have been following this post, linked below, in the FAQs section for the last 5 years and posted a case study where some incredibly people took alot of time and had incredible patience in answering my questions. I spent my entire 40th birthday weeks vacation doing nothing but reading, researching and asking questions in that posted case study.

https://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/

I never ventured much at all into the investors alley because I thought it was for hardcore investors where as I am a noob. LoL, the few questions I did ask it was obvious I had no clue and still don't know the correct questions to ask in there. I just took out a book from the library called Financial Freedom as it seems to be at the top of everyone's list of books to read on this topic of reaching FIRE.

If I remember correctly, I start moving monthly withdrawals over to a Roth IRA when I'm with in 5 years of "Retiring" correct? So as to avoid the tax penalty.

We have enough in saving ATM to take an entire year off together and not lose any sleep. Should we go all in now on a taxable account or split it between savings and stocks?

Thank you for help and everyone elses.

ixtap

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #3 on: January 24, 2024, 10:10:22 AM »
I would recommend that once you reach the investment stage, you focus on broad index funds and don't chase dividends. Total return is what matters in the long term and chasing dividends will just result in a higher tax bill while you are accumulating. There are a number of discussions on the irrelevance of dividends, as they don't increase returns and can give some people a false sense of security. If your safe withdrawal rate is 4%, higher dividends don't make higher withdrawals any safer because dividends need to be reinvested to get the total return.

maizefolk

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #4 on: January 24, 2024, 10:16:21 AM »
Okay, in that case I suggest just walking through the different questions on the investment order and make sure you've comfortable with all of them, including a sufficiently large cash emergency fund.

If you have a big enough emergency fund, then I'd put all your monthly surplus into a taxable investment account. If not, then it makes sense to keep saving cash to the point where you aren't going to be stressed/worried before redirecting your surplus cash firehose into a Fidelity/Schwab/Vanguard account.

You are remembering right that you need to start moving funds from traditional to Roth five years before you need to access them. But, if you have enough money outside of retirement accounts to bridge five years, it is much more tax efficient to wait and start moving traditional 401k/IRA funds into a Roth IRA after you stop working rather than before. Given the extremely low taxable incomes most people have in "retirement" the conversions will be taxed at very low rates.

But you only have the opportunity take advantage of that tax optimization if you can use cash, taxable investments, or existing Roth contributions to bridge the gap of spending needed between when you are no longer bringing home a paycheck and when the post-retirement Roth contributions become available.

Silverback761

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #5 on: January 24, 2024, 12:15:21 PM »
@ixtap

That's kind of what I figured. I'd essentially do the same thing as with my retirement accounts and just let it ride til we are ready. I want to keep it as simple as possible as I have enough complexity in my daily life. LoL, Index funds all the way!

@maizefolk

My wife is out of town for the week visiting the kids while I'm stuck home working covering for her. I'll talk to her this weekend when she returns about starting a taxable account and get that show on the road. We planned on one of us, probably me, working part time for insurance purposes and to give us a little extra spending cash while also waiting for those 5 years to pass. My wife and two daughters are the in process of starting their own business which my wife wants to help with until who knows how long. I'm just the meat head. LoL, I pick things up and put them down.

I will definitely go through that investment page thoroughly. Thank you to both of you and have a great day!

leevs11

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #6 on: March 13, 2024, 03:24:36 PM »
Start buying as much VTI/VTSAX as possible every time you have any extra money laying around. Don't get into debt. Wait 5-6 years. Retire.

Alternatively, do all of that, but actively look to increase your income. Look for a new job or get promoted at work. You might just be able to cut this number in half with a few big pay bumps over the next few years. Good luck!

FlytilFIRE

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #7 on: March 13, 2024, 04:21:42 PM »
Another aspect of FIRE is to ensure that your investments are going to get you through. Have you done a thorough tracking of your spending? If you don't have a really good idea on where your money is going, it makes it much more difficult to determine your comfortable savings position. I can't imagine the stress of retiring and then finding out that the life you wanted to live was out of reach.

Also, it's not too early to begin thinking of what retirement will look like. Your wife sounds interested in spending at least some time working with your daughters. But it's also helpful to think about hobbies and desires. Golf? How often? Love to read? How about the library? Travel? Where and how often? What are the activities that you always wished you could pursue, but felt you didn't have the time.

I think a lot of people enjoy the THOUGHT of retirement, but found that the reality wasn't what they expected. And thinking of what your retirement life might look like should be a fun, motivating activity.

RWD

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #8 on: March 13, 2024, 06:13:11 PM »
Highly recommend reading JL Collins' stock series to help gain understanding and confidence in investing.
https://jlcollinsnh.com/stock-series/

Freedomin5

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #9 on: March 13, 2024, 08:41:13 PM »
Highly recommend reading JL Collins' stock series to help gain understanding and confidence in investing.
https://jlcollinsnh.com/stock-series/

+1 for JL Collins' stock series, as well as the investment order. I credit these two resources for getting us to FI in less than 10 years.

Turtle

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #10 on: March 14, 2024, 10:08:42 AM »
Welcome to the "mushy middle" accumulation phase!  Sounds like you've built a good base so far.

In addition to the excellent advice so far, I'd also recommend finding activities which help you maintain your motivation.  Podcasts, message boards like this one, maybe local meetup groups if you're lucky, checking out finance themed books from your local library, etc.

Now is also a good time to look into finding free or nearly free activities which you can enjoy in the present.  That helps retirement not seem quite so far away, if you are also enjoying your current time.  & if you already have several such hobbies and activities, more power to you!

Ron Scott

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #11 on: March 14, 2024, 01:19:34 PM »
If you have a year in a savings account that would be useful in emergencies, investing the rest is a good idea.

A few other thoughts:

1. Have you thought through your asset allocation and asset location strategies? Any thought about the purpose of a Roth for you, if interested, and how to invest there?

2. Do you and your wife have a clear vision of your desired income level after retirement that reflects any changes in attitude either of you might have over time about spending, family interests, unforeseen health and later, age-related expenses?

3. How many years of retirement are you planning for and at what withdrawal rate? How did you determine WR?

BTW, (I can’t believe we actually have to articulate this now but) “human powered” bikes rule!


ScreamingHeadGuy

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #12 on: March 14, 2024, 06:19:50 PM »
As someone who learned about FIRE only two years before FI and four years before RE I can only imagine how much more mental strain a six to eight year runway must have.  So here's my advice. 

Be patient.

Don't check your balances daily or even weekly.  Not more than once a month. 

Start getting your life in order.  Don't wait until FI/RE to start living the lifestyle you want. 

jimmyshutter

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Re: 6-8 yrs from reaching FIRE. What's the next step?
« Reply #13 on: March 14, 2024, 08:25:42 PM »
I would take a questionnaire such as the one included to come up with an asset allocation that you and your wife are comfortable with (I think the questionnaire is a little conservative but its a decent guideline).

https://investor.vanguard.com/tools-calculators/investor-questionnaire/questions

Read up on investment policy statements and create your own. It doesn't have to be anything elaborate but it will help having something in writing in which you and your wife have thought about and can agree on.

As others have mentioned, a taxable account is good and easy to open and great to purchase index funds. Being 6-8 years out I personally would be heavy in stocks vs CDs, cash, or MM but that's a personal question that you and your wife should decide on.

There are way too many variables for anyone to really  answer but keep educating yourselves and asking questions. The more you learn the more you'll save by not paying a financial advisor in the future.