Hi all! Excited and nervous to post a case study here. I just discovered MMM and FIRE late last year. Before that I was keeping all of my savings in cash! Since then I have been moving my money more into investments and I would like y'alls help. My employer offers everything I need to do a mega backdoor Roth - so should I do it? I've read religiously all the threads discussing the finer points of Go Curry Cracker's anti-Roth arguments and tax diversification. I ended up choosing to throw my bonus into a Roth IRA, but deciding on the future is a much more difficult task. Please help!
Me: 26, single, southern california, engineer. Ideal ER goal: ~35-37 years old. Definitely before 40 years old! I plan to travel in low cost areas cheaply immediately after retirement to keep those initial expenses low. And/or do a thru-hike. No house and no intention of owning. No intention of kids. I want to be location independent. ER expenses between 30,000-40,000. I have some chronic health problems that will likely be expensive as I age. How do you plan for that anyway? I will err on assuming larger annual expenses before I retire from the job.
OK so, I'm working on my expenses. Ideally I want to get them down to $2,000 a month for basic costs + some float money for travel. I will solicit additional help on the expenses later in a separate post.
I'm more interested in how to invest what money I do save.
I'm 10% cash and 90% stock - either some form of VTSAX or VIIIX as offered in my 401(k). Some company shares from the employer match are around - I plan on moving them when they aren't at their current market low. Market timing, sure, but I have plenty of time and my industry is in a rut right now.
Since I'm 10 years out from retirement, I'm hard pressed to care much about bonds right now when interest rates are so low. Maybe in five years I'll adjust my 401(k) asset allocation to include 10-20 to smooth the ride. My job is stable and I expect it to be around through the next market crash.
So, my 2015 savings plan is roughly this:
Max out 401(k) -> 18000
Discretionary savings -> minimum 12,000
(before you ask - I have a full PPO healthplan because of my health concerns, and no HSA. Maybe next year, but probably not.)
That discretionary savings is at least 1,000/month and hopefully closer to 1,500/month as I tighten down my expenses. But where should I put it?
Right now I have an automatic deposit into my Vanguard taxable brokerage account. Should I put some or all of this automatic deposit into the after tax portion of my 401(k), and roll it into my Roth? I know the Roth growth will be shielded from taxes, and that this is a very unique opportunity. I also know that I have 10 years of upcoming taxes on my taxable account. I was into the 28% tax bracket last year, and my salary will only go up until retirement.
But what about the flexibility of accessing my money pre five year conversion? What can I count on touching, exactly, before my Roth Pipeline comes through? Is there really an advantage if I keep my income low after retirement?
I've read a lot about this on the forum and elsewhere, and now I'm finally asking for your opinion based on my situation. I hope it's not too much of a cop-out :) Many thanks in advance!!
**made some edits to remove specific asset/income numbers. I realized I can be rather identifiable on this forum for those that know me in real life!