Author Topic: The Advantage of Starting Early - Slowing Down Contributions Later in Life  (Read 5352 times)

arizonawildcats

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As you know, financial planners stress the importance of starting early with investing.   Let's say you aggressively saved for the first 15-20 years of your career.   You wake up one day and you are in your early 40's and financial independence is within reach or already achieved.   You enjoy your work and decide to wait until your early 50's to fully retire.

Have any of you decided to slow down your contributions after your stash achieves critical mass?   You start looking at the flight plan of your nest egg over the next 10 years with reduced contributions.   The projections look strong even with the lower contribution rate. 

This is actually an optimal position to be in.   It may be a good time to increase the travel budget :-)

shuffler

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It may be a good time to increase the travel budget :-)
So it's not just reducing contributions to savings, but also inflating lifestyle?

I'd just have to run the numbers and be sure I was happy with the projected outcome.  You say you enjoy your work and would be fine working into your 50s, so maybe the numbers would work out for that scenario.  I wouldn't want to work into my 50s.

arebelspy

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Many of us at that point just want to finish out for full freedom. Others slow down work, or go to part time (semi-ER), which would slow down their contributions.  Continuing to work full time but spend more and save less doesn't tend to be a common scenario for most people who are in the FIRE/Mustachian mindset and personality, but if it works for you, go for it!  :)
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MrsPete

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We talked about using "slowing down the contributions" as a back-up plan for paying college expenses for our kids; however, thus far, we haven't needed to do this, but next year we'll have TWO in college, and we might make this choice.  If we hadn't saved aggressively early in our lives, this wouldn't be an option now. 

For multiple reasons I'm glad that we started saving early.  Our oldest will finish college next year, and I am already talking to her and her probable future husband about the benefirts of saving early. 



Taran Wanderer

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I'm 41, DW 38.  We have built up solid retirement savings. We also have young kids and a house we just built.  I've run the numbers on maxing out retirement savings vs. just letting what we have grow. Frankly, the money we already have in retirement investments is what will allow us to retire. Anything we add from now until retirement (@ 45, 50, 55, or 60) bumps up the total up to 50% meaning more money to work with then, but it really doesn't change our date.  But we're still maxing out retirement vehicles - 401k, Roths - and putting some other money away as well. Maybe that will change in a couple of years and we will spend more on travel, but for now, with young kids, it's too hard to go a anywhere, so we might as well save.

Retired To Win

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...Have any of you decided to slow down your contributions after your stash achieves critical mass?...

About 4 or 5 years ago, my stash did achieve critical mass.  I stopped making contributions but continued to let the dividends and gains be reinvested.  One year ago, the mass of the stash had grown enough that I stopped doing that.  Since then, I've let the dividends and realized gains all go to cash instruments "to be spent on demand."  Trouble is, I'm not generating a whole lot of spending demand for that cash.  And so I am now reevaluating whether to go back to reinvesting the income being generated by the stash.  We'll see...

arebelspy

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One situation I can see for this is if you hit a golden handcuffs scenario with a pension or something.

Even then though, spend what will make you happy, and don't waste/blow the rest, even if it's "extra," because it won't make you happier.

But if you know you have to work 5 more years to vest in a pension, then cover a 10 year gap before you can collect it, and have that gap covered, but still have to do the 5 more years, yeah, you might shift some savings to more charity, or whatever.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

begood

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It is quite possible I'm missing something, since math and I are only passing acquaintances, but for us, we're maxing out my husband's 403(b), our HSA, and a tIRA for me more because it helps with our tax burden than because we still need to save that much for retirement.

Also, there's a very good chance that money would be frittered away on clothes for the kid if we didn't do it. ;)

Retire-Canada

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Have any of you decided to slow down your contributions after your stash achieves critical mass?

I'm sort of in this boat. I have enough invested that it will reach FI for me in 3-8yrs without me doing a whole lot. My contributions are less than my nest egg is growing each year.

I'm 46 so working full on for a lot longer is not appealing.

So I'm starting to downshift. Staring 4 day weeks next week. Taking extra months off next year and more the following year.

I'll keep adding to my investments as I can, but my main goal over the next 5yrs or so is to give my $$ time to grow while I work, but work less and have more free time. Not sure where I'll find a happy work - free balance, but as long as I can cover my COL that works for me.

If my investments grow fast and I'm FI in 3yrs I'll downshift again. Not sure if I'll stop working 100%, but it will be nice to have that option. OTOH working less than 6 months a year after a life of full-time work will seem pretty sweet.

What's motivated me to do this is that I have had some relatively minor health issues lately that have made me realize that my active lifestyle options [mtn biking, surfing, etc..] is not something I can count on indefinitely. I'd feel stupid working hard as I can to hit FI in say 5yrs and then not being able to do things that I've wanted more free time to do.

The other two benefits of this approach that come to mind are:

1. reduced sequence of return risks - with part-time work I can work an extra few years if the market crashes just when I was going to pull the plug and take on bit extra work if that happens with in the first 5yrs after I retire.

2. gradual transition - a lot of people have trouble [it seems] going from full-time work to full-time retirement. I'd say I wasn't going to be one of those people, but who knows? Taking it in stages will give me time to figure things out and find a place I'm happy with.

The key in all this FIRE is to work through your options and find a plan that makes the most sense for you.

-- Vik

HappyMargo

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Many of us at that point just want to finish out for full freedom. Others slow down work, or go to part time (semi-ER), which would slow down their contributions...

I'm in this boat. 
I will hit my Full FI number in just more 2 years.  However, DH will continue with his own business for about another 10 years after that.  So I will "semi-retire" by going part-time/ per diem. 

This allows my retirement stash to continue growing (untouched) with more modest/ minimal contributions. (It will be a crazy-nice nest egg come full FIRE!)
But in the meantime, while waiting for DH to close up shop, I will have more free time & ability to travel with him & pursue hobbies too!
« Last Edit: April 05, 2015, 09:25:32 AM by HappyMargo »

arizonawildcats

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It is quite possible I'm missing something, since math and I are only passing acquaintances, but for us, we're maxing out my husband's 403(b), our HSA, and a tIRA for me more because it helps with our tax burden than because we still need to save that much for retirement.

I am still maxing out the tax advantaged investments (401k, etc).   However, I do have a child in college.   I decided early on to maximize retirement savings to reach FI earlier and not set up 529 plans.   The strategy was to cash flow the college expenses as they come due with current income.   The FIRE stash builds earlier and faster with this strategy but it does place a little more pressure on cash flow during the college years.   My goal was always to build the snowball early and let compounding do it's magic over the years.    I have chosen to not retire until my kids are out of college (Age 50-52).  I recognize this retirement date is not as early as many on this board.   

couponvan

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It is quite possible I'm missing something, since math and I are only passing acquaintances, but for us, we're maxing out my husband's 403(b), our HSA, and a tIRA for me more because it helps with our tax burden than because we still need to save that much for retirement.

I am still maxing out the tax advantaged investments (401k, etc).   However, I do have a child in college.   I decided early on to maximize retirement savings to reach FI earlier and not set up 529 plans.   The strategy was to cash flow the college expenses as they come due with current income.   The FIRE stash builds earlier and faster with this strategy but it does place a little more pressure on cash flow during the college years.   My goal was always to build the snowball early and let compounding do it's magic over the years.    I have chosen to not retire until my kids are out of college (Age 50-52).  I recognize this retirement date is not as early as many on this board.

This is almost exactly our plan - is it working for you?  My FIRE date is either 2023 or 2026....Not as RE as many on the board.

We have 3 kids starting college - one in 3 years, then the next 3 years after, and our third 2 years after that.  My plan is to have 1 year for each saved in a college fund before we cash flow college.  I would avoid the double college hit until the last goes to college, and then I'd have a year to lifestyle deflate enough to pay for the 2 at once for the one double year.

I just posted my plan on my newly minted journal.  We've crossed the $1.0MM mark, and are adding to the savings at the rate of $80K per year at least for the next 3 years.  Even with dropping to $50K per year during college we still stand to end between $1.5MM to $2.0MM. 

couponvan

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We talked about using "slowing down the contributions" as a back-up plan for paying college expenses for our kids; however, thus far, we haven't needed to do this, but next year we'll have TWO in college, and we might make this choice.  If we hadn't saved aggressively early in our lives, this wouldn't be an option now. 

For multiple reasons I'm glad that we started saving early.  Our oldest will finish college next year, and I am already talking to her and her probable future husband about the benefirts of saving early.

This is our potential plan - I am glad to hear you haven't "needed" to slow down the contributions, but have you saved "enough" or "too much"?  I worry about oversaving as well as undersaving.

DH complainypants about his job sometimes, and I think at some point we'll FIRE before my 11 year plan.  He says he's working forever.  However, he did buy an extra week of vacation this year, and is thinking about buying an additional week of vacation next year. (You can buy up to 2 additional weeks of vacation at his company.  Last year he sold a week, so it's like getting 75 more hours of free time this year - 37.5 hour work weeks at his job.) In a way, that is slowing down earnings, although we haven't slowed down contributions.

Until the kids' college is set and I know the total cost, I don't want to slow down the contributions or FIRE.


arizonawildcats

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This is almost exactly our plan - is it working for you?  My FIRE date is either 2023 or 2026....Not as RE as many on the board.

We are in the first year of college expenses - - so far, so good.  The kids are responsible for a portion of their own college expenses to make sure they have skin in the game.   It's interesting to note my RE date range is very similar to yours (give or take a few years).  As you know, there are a lot of uncertainties in life.   My kids understand if anything happens to my job, they may need to fund their own college.  I placed achieving financial independence ahead of funding college educations.  Good luck.
« Last Edit: April 05, 2015, 08:01:04 PM by arizonawildcats »

couponvan

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This is almost exactly our plan - is it working for you?  My FIRE date is either 2023 or 2026....Not as RE as many on the board.

We are in the first year of college expenses - - so far, so good.  The kids are responsible for a portion of their own college expenses to make sure they have skin in the game.   It's interesting to note my RE date range is very similar to yours (give or take a few years).  As you know, there are a lot of uncertainties in life.   My kids understand if anything happens to my job, they may need to fund their own college.  I placed achieving financial independence ahead of funding college educations.  Good luck.

Good to hear.  Yes, life is never certain, although we plan as best we can!

mathlete

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This is kind of where I am. Between retirement funds and mortgage principal, I'm probably saving like 30% of my gross income.

My home will be paid off many years before any prospective kids are headed off to college and I'll be able to back the retirement savings down should I need to.

Cookie78

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Before MMM I saved a bunch, then spent most of it travelling because I didn't know what else to do with it. Invested a tiny bit over about 10 years and managed to buy 2 houses and rent 1.5 of them.

Current plan:
I've been saving like crazy for the last 4 months and plan to for another 28 months. If all goes well up until that point I'd like to stop my contributions, and work just enough for a highly reduced cost of living. Live very cheap while travelling for a few (5-10 maybe) years and let the stache grow.

So I'd like to slow down, or possibly eliminate contributions, but also reduce my cost of living.

teacherwithamustache

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Like RebelSpy said... golden handcuffs

MAxing out Roth IRA until Pension kicks in/FIRE date (Age 53).  Then letting Roth sit and not contributing new monies until 70.  The math and logic behind the decision (feel free to comment)

Age 53 Roth Value will be 550k Wife Roth Value 550K (approximately), stop contributing, Let the money compound for another 17 years then start with the withdraws.

We have everything planned out pretty well.  Age 52 house is paid for, Age 51 kids should be out of college.  Basically our pensions + house payment+ college savings rate+ our retirement contributions = Our Current Net income + 800 a month.

partgypsy

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I think this is great, and maybe even ideal, but doesn't fit with most people's experiences of starting out with low salary and only hitting peak earnings in 40's and 50's.
It also doesn't fit those who go on to higher education. For myself, I was in grad school for 5 years (lived off a 12K a year stipend) and then a post doc which earned around 24, 25K for those 3 years, it makes it a) difficult to save a large percentage of one's salary, and b) even if one does save a larger percentage, it is not numerically much at all. If I was giving advice to others, though I enjoyed my graduate and post graduate school experiences, it would have financially been much better to stop at a master's in a bankable/relevant degree and gone earlier into the workforce. this situation is compounded for those who have to pay for graduate school (medical, clinical, law field).