Author Topic: Case study - 24 year old forward thinking towards retirement  (Read 4965 times)

johnpoe50

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Case study - 24 year old forward thinking towards retirement
« on: February 07, 2015, 09:21:02 AM »
Hey everybody, nice site you have here! I've spent the last hour voraciously reading the blog and feeling that tingly feeling in my gut I get before something great happens in my life - and that great thing is going to be getting myself on an accelerated track towards early retirement.

About me: I just turned 24 last month and have just made my final payment on the student loans I took out for college (this milestone is what got me searching for financial advice).

Current income - a hair over $3000 a month. No real windfalls to speak of.

Current assets - one fully paid off Camry (should last me a while), $5000 in simple savings account, 1.5 years worth of teacher pension (doesn't mature for 20 years, but I don't know if I wanna work for that long if I don't have to... love my job, but I'd love freedom as soon as possible more)

Current expenses - Rent - $880 dollars living alone in an apartment. I live in Frisco, TX - it's close to my family and the apt. is literally 5 minutes from work so it seems worth the expense. Also it's nice... but I feel that I should be going cheaper here. $75 for internet/cable. I barely watch tv but when I neglected installing cable, friends visiting would complain and a girl I was dating at the time did as well, so I caved. $75 for electric. $50 water/waste management/misc fees my apartment likes giving me. $40 a month or so for gas, although that's been cheaper lately. $200-$250 on food. Mostly unhealthy stuff that lasts a long time so I don't have to throw it out, haha. Add usually $200 a month for restaurants, computer games, movies, etc. Add an extra couple hundred bucks if I'm dating someone.

Rounding a bit, I've been spending $1500 a month, or half my paycheck. Up to this point, I've been putting $1000 towards student loans and socking $500 a month in the savings account. Now my current plan was to sock away $1000 a month until I had ten grand and then to take it to the stock guys at my Chase bank and get into some mutual funds or whatever the heck people do. The extra $500 was to go to my parents (even though all student loans in MY name are paid off, they had to take out plenty as well and since they're currently putting my sister through college, I want to help out by paying that loan too. They told me I didn't have to, but I insisted.)

What can I be doing better, and what steps should I take to get 500,000 paying me back interest to live on as soon as possible? My end goal is to stop working while still making $1500 a month in interest, moving somewhere cheaper, and living a more leisurely lifestyle. BIG CONCERN - I'm torn between this desire and the desire for a wife and kids. Can I have my cake and not have to pay for it too?

Yankuba

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #1 on: February 07, 2015, 09:42:20 AM »
Stay away from the investment professionals at commercial banks. Open an account at Vanguard and fund a Roth IRA.

Cheddar Stacker

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #2 on: February 07, 2015, 09:42:57 AM »
Welcome to the forum.

401K - max it out ($18K/year). If you don't have one, max out an IRA instead ($5,500/year). Or do both if you can swing it. Tax deferral/avoidance will accelerate things greatly.

Don't give any money to the Chase bank guys. You can do it yourself and save a ton in fees. Just keep reading around here and you'll learn the tricks. Get a diverse set of low cost index funds, buy and hold.

Some often linked reading materials to get you started:
http://jlcollinsnh.com/stock-series/
http://www.madfientist.com/retire-even-earlier/
http://www.gocurrycracker.com/never-pay-taxes-again/

johnpoe50

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #3 on: February 07, 2015, 09:52:12 AM »
Huh, hadn't thought about being so independent with the stocks thing. I'm admittedly a bit clueless with finances beyond "don't let credit card interest accrue" and "save money" but I guess if I'm doing this I should be able to understand the markets and all enough to jump in myself. When it comes to Roth IRA's, how liquid are they? Do I get burned if I try to take money out before retirement age? And does Vanguard have mutual funds? I dislike the idea of picking my own stocks and bonds - I'm not NEARLY smart enough for that junk and money is safer in a big pile with other peoples' right? Forgive me if I sound totally stupid about anything, I've only had my dad's anecdotal advice on this to go on.

And I don't get a 401k (or social security) as a teacher. Pension only.

But thanks for the reading, Cheddar! I know the most important thing to do right now is get informed. It's just all a bit intimidating, haha.

sirdoug007

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #4 on: February 07, 2015, 09:54:31 AM »
DO NOT take $10k to the "stock guys" at your local bank. By reading the links above you will be smarter about the stock market than they are!

First work on maxing your traditional 401(k)/IRA, then open an account with index funds or ETFs with vanguard.

You are in great shape, best of luck!


Sent from my iPhone using Tapatalk

johnpoe50

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #5 on: February 07, 2015, 09:57:25 AM »
Cool - IRA, then index funds. From the look of it, it's solid and well-respected advice and that's what I look into.

Thanks so much guys, happy to have found this place!

phillyvalue

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #6 on: February 07, 2015, 10:01:37 AM »
A Roth IRA is just a type of account which offers tax advantages - once you fund a Roth IRA, it's up to you as to what to buy within it. If you want to maintain the tax advantage and avoid penalties, you should not withdraw money you contribute pre-retirement. However, if you need to, since a Roth is post-tax money, you can always withdraw the *principal* you have contributed at any time penalty-free, just not the *gains* you've made on the contributed principal.

The Vanguard funds will be highly liquid and will not require you to make decisions about what stocks to buy. For example, you can buy a fund which tracks some of the largest stocks in the U.S. (an S&P 500 index fund) or one which tracks the broader U.s. stock market (The Vanguard Total Stock Index fund).

johnpoe50

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #7 on: February 07, 2015, 10:08:36 AM »
The Vanguard funds will be highly liquid and will not require you to make decisions about what stocks to buy. For example, you can buy a fund which tracks some of the largest stocks in the U.S. (an S&P 500 index fund) or one which tracks the broader U.s. stock market (The Vanguard Total Stock Index fund).

Those index funds are handy to know about, awesome. Roth IRA's still kinda make my head spin, but I'm sure I'll get it eventually. I still need my parents' help with my taxes, so I probably have a ways to go on this front.

mozar

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #8 on: February 07, 2015, 10:10:08 AM »
Well you've only been reading for a few hours. It took me about 6 months to absorb everything on the site.

Yes you can have your cake and eat it too. Paramount is finding a woman who shares your values. Get rid of your cable again and that's an easy way to see what your date values. If she wants cable that can be an opening to a discussion about what she wants in life. The hardest part is sticking to your guns, but if you do you can get a frugal wife and retire early together.

And if your parents say they don't need the money, believe them. If it was a gift it was important to them to give you that gift, so you should honor that.

surfhb

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #9 on: February 07, 2015, 10:12:43 AM »
Google "boglehead wiki"

Read it....then read it again!   Understand it and you will have all the investment knowledge you need for life.     You're welcome :)

johnpoe50

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #10 on: February 07, 2015, 10:23:50 AM »
Paramount is finding a woman who shares your values.

Difficult with this particular value I've found, but that's probably because of the area. Frisco is a "keep up with the Jones's" sorta town with nothing to do but shop and go out to eat for fun. But it's safe and the folks are here so I like it.

And if your parents say they don't need the money, believe them. If it was a gift it was important to them to give you that gift, so you should honor that.

I think it'd be great to have that extra $500 a month, don't get me wrong, but mom and dad have both been working hard for me a long time. Had me as teenagers and there were hard times. But I was put first and had a great childhood. There's the usual debt and mortgage now and I know Dad doesn't love his job, so it's important to me to know I'm at least taking responsibility for these loans they had to take out. I want retirement at a decent age for them to be a reality as well!

Google "boglehead wiki"

Thanks, I'll add it to the pile, haha.

mozar

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #11 on: February 07, 2015, 04:15:21 PM »
Well those are your parents choices, not yours. And for all you know they aren't saving the money you give them or using it for debt. You would be better off investing that money and using it to take care of them in their old age.

There aren't many places in the US that aren't 'keep up with the joneses' type places. There are frugal people everywhere you just have to look and be patient.

Ricky

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #12 on: February 07, 2015, 06:39:48 PM »
Paramount is finding a woman who shares your values.

Difficult with this particular value I've found, but that's probably because of the area. Frisco is a "keep up with the Jones's" sorta town with nothing to do but shop and go out to eat for fun. But it's safe and the folks are here so I like it.


I'm afraid your search for a frugal woman begins and ends with you. It occurs on the micro level, not the macro, meaning there is no particular "Frugal City", America. Once you find a girl and you click, there's a chance you'll be able to create a plan together to achieve the goals you want in life.

It doesn't sound like you've been far out of Texas. Things really aren't that different anywhere else as far as general American culture. Sure, there are places with different geography, things to do, and opportunities, but it's all the same. People are the same. The good news is that people are malleable. I'm sure there are plenty of practical women in your city. So YES, you can have both. It doesn't mean it won't take work though. No girl out there is wearing a shirt that says "I know how to manage money and I'm smart".

lpep

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #13 on: February 07, 2015, 07:55:05 PM »
Hi Frisco! You've got a nice IKEA in your town.

I'm 25 and just discovered this site last year. You and I seem similar - kinda naturally frugal, and finally found a good goal to use it for. Welcome!

For now I think the most important thing for you is to set up a savings plan. Read the links above Cheddar linked you to - it'll take time to wrap your head around. As soon as you're comfortable with it, open a Roth IRA at Vanguard. You'll need to put in $3k to get started, and you can invest it in VTSMX (you'll read a lot about VTSAX - this is VTSAX for people with less than $10k, it has slightly higher fees - still lower than Chase or Merrill Lynch or other investment companies - and you can roll it over into VTSAX once you hit $10k). VTSMX/VTSAX are index funds, so you'll own a chunk of a bunch of companies' stocks and basically ride the wave of the economy's growth, which is always up over a long enough time. Roth IRAs are post-tax money, and you can withdraw whatever you put in without paying taxes on it (but you can't withdraw anything your contributions earn without a 10% tax hit, with some exceptions for putting a down payment on your first house... I don't know much about this, but that info is out there). You can contribute $5,500 to an IRA every year. Once you hit that amount - in just a couple months, probably - open a taxable account at Vanguard and start putting money in it. The money you put in this account is after taxes as well, and it's called a taxable account because what your investments earn can be taxed when you withdraw it in retirement (Roth IRAs can't, as long as you withdraw after age 59.5). This is all what I'm doing too!

Once you have a plan set up, and some time has passed, you might think about adjusting your spending. Just keep in mind that there's frugal, and then there's cheap - you're already pretty frugal, and cutting where it affects your happiness is cheapness. I did a bit of that because I got so into the idea of retiring early, and I'm dialing it back now. (This doesn't go for canceling cable - make that call!)

When I first started with all this investing stuff, I got really excited and into it, and a little frustrated when things weren't moving as quickly as I wanted. This is a long-term plan, and it's awesome we're starting so early. Keep that in mind if you get impatient :)

astvilla

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #14 on: February 07, 2015, 08:49:57 PM »
can we sticky a thread with some of the most popular and important links that influence people towards saving enough for retirement? Like jcolinsh, boglehead wiki, madfientist, etc and organizing them into one thread instead of constantly posting up links? i think it'd be easier for new comers and easy for even experienced mustachians to just go there and click to see the info again. or at least we can make a list of many good articles/links?

Cheddar Stacker

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Re: Case study - 24 year old forward thinking towards retirement
« Reply #15 on: February 07, 2015, 08:53:50 PM »
can we sticky a thread with some of the most popular and important links that influence people towards saving enough for retirement? Like jcolinsh, boglehead wiki, madfientist, etc and organizing them into one thread instead of constantly posting up links? i think it'd be easier for new comers and easy for even experienced mustachians to just go there and click to see the info again. or at least we can make a list of many good articles/links?

You can ask the mods if you want. The big problem is no newbies would even know where to find it.