Author Topic: Reader Case Study - 24yo couple with no debt, FIRE at 30?  (Read 8338 times)

KateD

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Reader Case Study - 24yo couple with no debt, FIRE at 30?
« on: July 27, 2015, 07:01:19 PM »
Hello! We're 24 year old engineers who are getting married next year, currently living together in Denver. Our student loans are paid off in full and we have no other debt. We're renting an apartment until the overvalued local housing market falls.

Our long-term FIRE goals are to buy a few acres in the foothills of the Rockies, build our home, and have at least one of us RE when we're ready to have kids. Right now, we'd like to start trying for kids around 30, which likely means one of us would RE while the other continues working for a few years.

Katy Kirk Together
Monthly Income $9,684
Gross Salary $5,609 $5,371 $10,980
Pre-Tax Medical/Vision/Dental      $63 $77 $140
HSA $327 $ -    $327
401(k) $561 $269 $829 Katy = 10%. Kirk = 5%.
Employer Match $337 $295 $632 Katy = base 3%, match add'l 3%.
Kirk = base 3%, match add'l 2.5%.
Monthly Taxes $2,483
Federal $616 $692 $1,308
State $177 $194 $371
Social Security $322 $329 $651
Medicare $75 $77 $152
Monthly Expenses $2,275
Rent $ -    $ -    $1,490
Renter's Insurance $10 $12 $22
Electricity $ -    $ -    $60 Est. average between current summer & unknown winter bill.
Phone $ -    $23 $23 Katy's paid by employer. Kirk's basic paid by employer,
add'l cost for texting/data.
Internet $ -    $ -    $ -   Hotspot from work phone with unlimited data plan.
Netflix $ -    $8 $8
Car Fuel/Maintenance $ -    $25 $25 Extremely limited personal use of 2000 F250. Business use fully
reimbursed by employer for constant travel to remote jobsites.
Auto Insurance $11 $100 $111 Katy has basic to legally drive & cover her as a cyclist.
Public Transport $ -    $9 $9 Katy has an unlimited RTD pass from employer.
Groceries $150 $ -    $150
Beer/Wine $25 $35 $60
Eating Out $50 $50 $100
Clothing/Shoes $15 $15 $30
Bicycle Maintenance $8 $8 $16
Household Maintenance $15 $15 $30
Gym/Fitness $ -    $ -    $ -   Replaced by bike commuting & apartment fitness center.
Medication $15 $ -    $15
Travel $ -    $ -    $75 Three trips/year, both families & friends across country.
Miscellaneous $25 $25 $50
Assets $121,420
Cash/Savings $7,800 $15,900 $23,700
Vanguard $36,450      $19,620      $56,070     Roughly 70% VTSAX, 25% VTIAX, 5% VBTLX at the moment.
HSA $3,310 $ -    $3,310
401(k) $18,060 $14,580 $32,640
Roth IRA $5,700 $ -    $5,700
Monthly Annual
Income $7,201 $86,411
Expenses $2,275 $27,298
Balance $4,926 $59,113 68.4% savings rate.

Notes
1.   We'll each receive not insignificant amounts of money when we turn 25 from family living trusts. This will go into Vanguard and eventually towards land/home down payment. To simplify, we're considering this amount to be the down payment and expect our future mortgage to be lower than our current rent, since we both have excellent credit.
2.   Rent is a major percentage of our expenses partially thanks to an overvalued housing market, but we also accepted that it was worth it to us for an apartment we love directly on the major bike trail & public transport lines. Without rent, our annual expenses drop under $10k.
3.   We're looking forward to simplifying some of this after we get married next year but don't expect it to change significantly since we already live together.
4.   We both have hobbies that we're excited to pursue in ER that may bring in some money, but we're working towards a SWR of 4% and not counting on additional income.               
5.   Our savings rates for the first two years post-college was very low, primarily due to paying off large student loans ASAP, Kirk purchasing a vehicle (in cash), and Katy working/traveling in Europe for half a year.
6.   Kirk is newer to the Mustachian lifestyle and FIRE planning than Katy, and still is in the process of converting cash to investments, opening/maxing out a Roth for this year, maximizing employer 401(k) matching, etc.

Questions
1.   Retirement funds - we're contributing at least up to the employer matches, but not maxing out our 401(k)s. We also each have a Roth IRA that we're maxing out each year. What is the general Mustachian consensus on 401(k) and Roth IRA contributions when you're hoping to FIRE at 30 or 35? I know MMM & others have written about loopholes for early withdrawals, but it still seems to make more sense to keep those funds accessible. I'd love to understand the pros and cons in our situation!
2.   Any advice on fund allocation? Percentage of VTSAX will increase, but we wanted to hit admiral shares first. We are very new to investing and after our own research are basically just following the advice here.   
3.   We know that building our own home (even a reasonable one) will be more expensive than buying, but it's a dream for both of us. We'll be able to do much of the finishing work ourselves but will hire contractors for foundation, framing, etc. Is there any Mustachian advice on this? Anything we should be thinking about now, a few years early?
4.   We're open to other suggestions for areas to reduce & improve! I know we're capable of reducing grocery/eating out budgets to rice & beans, but quite honestly we love food, cooking, and delicious local beers…

So what do you think, Mustachians? With our current spending, a 4% SWR means we could FIRE at $682,000. Is it reasonable to think that we might be able to do it by 30 or a couple years after? Thoughts, criticisms, advice all very much appreciated! Thanks for reading!

wordnerd

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #1 on: July 27, 2015, 07:07:44 PM »
You guys are doing great!

Given that your tax bracket will probably be higher now than in retirement, I'd focus on the traditional IRA before the Roth. The Roth does have some advantages, like being able to withdraw contributions penalty-free at any time, but you can withdraw funds from a 401k as well. See: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

marblejane

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #2 on: July 27, 2015, 08:40:52 PM »
You are doing great. You need to absolutely start maxing both 401(k)s and your HSA. Start with this Mad Fientist article: http://www.madfientist.com/retire-even-earlier/ and then read literally everything on his website if you want to understand how important tax avoidance is to shaving years off of your FI date.

Not to oversell it, but Mad FIentist also has a good article on Traditional vs. Roth IRAs here: http://www.madfientist.com/traditional-ira-vs-roth-ira/

Jeremy from Go Curry Cracker also has a great post on Roth IRAs and when they make sense here: http://www.gocurrycracker.com/roth-sucks/

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #3 on: July 27, 2015, 08:52:53 PM »
First, it is so awesome that you have your $hit together this early on! I wish we had figured out that the concept of early retirement was possible when we first started working. Being a dual engineer household is a fantastic combo for early retirement because you both have great earnings potential and you will both be comfortable enough with the numbers to really learn and dig into what you need to make it happen.

A few random thoughts:
1) It seems that maxing out the 401(k) is usually a good start unless the fees associated with the funds you can pick from are truly atrocious. Have you looked at that?
2) Have you put a little thought into what your expenses at FIRE will be? Home maintenance plus additional costs associated with a kid and increased insurance will likely bump you up a bit, though you have the awareness and discipline to keep that low. Obviously estimating those expenses is key to knowing when you have reached the magical number.
3) Doing a really simple calculation given your annual savings below and estimating 7% annual compounding will put you at $634,000 in 6 years. That is about $25K/year at a 4% WR which is slightly under what your current expenses are. If you can keep at what you are doing now, allocated all future salary increases to savings, and keep those expenses low once FIRE, I think you have a pretty good plan.
4) I like the admiral shares myself; in your shoes I would probably just shove money into VTSAX until hitting that point and then working on a more sophisticated asset allocation. You can always bump up your portion of bonds and international stocks/bonds in your 401(k) in the interim to make a well rounded AA overall.
5) Finally, we just had a baby a little over a year ago and while I LOVE, LOVE, LOVE being at home with her AND my husband, being off alone with her during maternity leave was one of the hardest things I have ever done. Being a single stay-at-home parent is really tough. I would love to have the freedom to stay at home with my husband and our baby as you are on track to do. Every person is different and you won't known how either of you might respond to being a single stay-at-home-parent, but just something to keep in mind. (You thought engineering was tough: try soothing a screaming newbown!) :)

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #4 on: July 27, 2015, 09:55:11 PM »
Given that your tax bracket will probably be higher now than in retirement, I'd focus on the traditional IRA before the Roth. The Roth does have some advantages, like being able to withdraw contributions penalty-free at any time, but you can withdraw funds from a 401k as well.

You need to absolutely start maxing both 401(k)s and your HSA. Start with this Mad Fientist article: http://www.madfientist.com/retire-even-earlier/ and then read literally everything on his website if you want to understand how important tax avoidance is to shaving years off of your FI date.

Thank you both for the resources, I'll read up on them! I've run across maxing your 401(k) above everything else, but quite honestly still wasn't certain if it was right for FIREing at 30 - what you're saying makes sense & withdrawing early is much more straightforward than I understood. We did know about the HSA - mine is already maxed out and unfortunately Kirk's company didn't offer it this year. Appreciate the advice!

MDM

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #5 on: July 27, 2015, 10:13:48 PM »
Questions
1.   Retirement funds - we're contributing at least up to the employer matches, but not maxing out our 401(k)s. We also each have a Roth IRA that we're maxing out each year. What is the general Mustachian consensus on 401(k) and Roth IRA contributions when you're hoping to FIRE at 30 or 35? I know MMM & others have written about loopholes for early withdrawals, but it still seems to make more sense to keep those funds accessible. I'd love to understand the pros and cons in our situation!
KateD, welcome to the forum.  Very nice first post!  I'll just add to the chorus saying "maximize the 401k plans."  There is a small exception: you might want to do so only until your taxable income drops out of the 25% bracket, but that's still ~$30,650 of traditional 401k contributions.  If you have access to Roth 401k, you could put the remaining $5,350 of your 401k limit there.  Any chance your plans allow you to do a Mega Backdoor Roth?

Quote
2.   Any advice on fund allocation? Percentage of VTSAX will increase, but we wanted to hit admiral shares first. We are very new to investing and after our own research are basically just following the advice here.
For people in your situation I like VTTSX (2060 target date fund) but VTSAX is also defensible.

Quote
3.   We know that building our own home (even a reasonable one) will be more expensive than buying, but it's a dream for both of us. We'll be able to do much of the finishing work ourselves but will hire contractors for foundation, framing, etc. Is there any Mustachian advice on this? Anything we should be thinking about now, a few years early?
If there are parts of the work where you'd like more experience, perhaps working with Habitat for Humanity would give you the opportunity.

Quote
4.   We're open to other suggestions for areas to reduce & improve! I know we're capable of reducing grocery/eating out budgets to rice & beans, but quite honestly we love food, cooking, and delicious local beers…
Basically, keep up the good work!

Quote
So what do you think, Mustachians? With our current spending, a 4% SWR means we could FIRE at $682,000. Is it reasonable to think that we might be able to do it by 30 or a couple years after? Thoughts, criticisms, advice all very much appreciated! Thanks for reading!
Yes, very reasonable.  As has been mentioned, having children might make a significant difference.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #6 on: July 27, 2015, 10:17:53 PM »
First, it is so awesome that you have your $hit together this early on! I wish we had figured out that the concept of early retirement was possible when we first started working. Being a dual engineer household is a fantastic combo for early retirement because you both have great earnings potential and you will both be comfortable enough with the numbers to really learn and dig into what you need to make it happen.

Thank you! We feel like we're in a good starting place, and it's great to hear that other Mustachians think we're on track.

1) It seems that maxing out the 401(k) is usually a good start unless the fees associated with the funds you can pick from are truly atrocious. Have you looked at that?
2) Have you put a little thought into what your expenses at FIRE will be? Home maintenance plus additional costs associated with a kid and increased insurance will likely bump you up a bit, though you have the awareness and discipline to keep that low. Obviously estimating those expenses is key to knowing when you have reached the magical number.
5) Finally, we just had a baby a little over a year ago and while I LOVE, LOVE, LOVE being at home with her AND my husband, being off alone with her during maternity leave was one of the hardest things I have ever done. Being a single stay-at-home parent is really tough. I would love to have the freedom to stay at home with my husband and our baby as you are on track to do. Every person is different and you won't known how either of you might respond to being a single stay-at-home-parent, but just something to keep in mind. (You thought engineering was tough: try soothing a screaming newbown!) :)

1.   Following the links from the above posters, it does look like maxing the 401(k)s definitely needs to be our next step. We're very lucky that Kirk's is through Vanguard and mine offers several Vanguard funds that I've tried to allocate as near to VTSAX as I could figure out (VINIX @ 31%, VMCIX @ 17%, VSCIX @ 17%). I also have VTIAX @ 25% and VBTLX @ 10% for some diversification.

2.   We have... and the complainypants answer is that we don't know. :) I do believe that the Denver market has to crash or at least dip in the next few years, and we'll jump on buying then. Right now, I'm hand-waving a bit and saying that mortgage + maintenance + taxes will replace rent, and at least for the first few years we won't be traveling so that money can contribute towards kids. But you're absolutely right that we should sit down and try to work out real numbers for what to expect.

5.   Really, really appreciate your perspective on this - it's something we've discussed and I have the feeling I might be the same way. Both of us believe that we could be happy being the stay-at-home parent. Right now, Kirk has higher job satisfaction and wants to continue working past 30, which is one of the reasons we're framing it this way. But who knows how we'll feel in five years, and I think staying flexible with how it works out is important - maybe I'll love my job at that time, or maybe we'll both be ready, or maybe we'll try it one way and realize it's not working for us. Great to hear this, and I am absolutely certain that I have no idea how magically difficult parenting will be!

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #7 on: July 27, 2015, 10:34:13 PM »
KateD, welcome to the forum.  Very nice first post!  I'll just add to the chorus saying "maximize the 401k plans."  There is a small exception: you might want to do so only until your taxable income drops out of the 25% bracket, but that's still ~$30,650 of traditional 401k contributions.  If you have access to Roth 401k, you could put the remaining $5,350 of your 401k limit there.  Any chance your plans allow you to do a Mega Backdoor Roth?
Thanks, it's great to get this feedback! I'd never heard of a Mega Backdoor Roth, but it's intriguing from a quick Google (https://www.bogleheads.org/forum/viewtopic.php?t=137366). No idea if either of our plans allow this, but we'll look into it!

If there are parts of the work where you'd like more experience, perhaps working with Habitat for Humanity would give you the opportunity.
This is a great idea, and a fairly obvious answer to what I was looking for! I kept thinking that a contractor wouldn't allow someone who has very little idea what they're doing to tag along, but that's exactly what volunteering with Habitat offers. This is definitely something worth getting involved with for me. (Kirk is far, far ahead of me in this area as he regularly works on plant construction sites.)

Vertical Mode

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #8 on: July 27, 2015, 10:49:40 PM »
First and foremost, you two are CRUSHING it! You're well on your way and will have options, even if you don't opt to FIRE right at your projected date.

I'd second what wordnerd said about prioritizing 401(k) contributions ahead of Roth - based on what you said about your projected expenses/SWR, I'd suspect you'd minimize your tax burden that way during the accumulation phase. You'll also have the benefit of being able to throttle your SWR and optimize your tax situation on the back end with a Roth Conversion Ladder and/or the 72t SEPP (which I understand from others has its pitfalls...) I would suggest that if you're getting a 3% and 2.5% match, respectively, that you may actually come out ahead even if the 401(k) has a slightly suboptimal fee structure.

You clearly have the attitude and have thought about the math part. One other thing I'd recommend is Dr. Doom's blog Living A Fi, particularly this piece from the Drawdown Series which talks a bit about the psychological aspect to investing/asset allocation/drawdown. This may help you in determining what your actual risk tolerance is and whether you want to check your assumptions about how much cushion you want:


http://livingafi.com/2014/05/09/drawdown-part-1-the-basics/


I gather that a downturn feels VERY different if you've never experienced one while having significant skin in the game. Worth considering how you will will FEEL if SHTF, and how you will counter that feeling to stay the course.

You're accumulating wealth at a truly astonishing rate. Keep on doing what you're doing!


surething22

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #9 on: July 28, 2015, 12:13:16 AM »
68.4% savings rate is pretty impressive. Congrats!

I just reallocated to nearly fully fund my 403b after learning about the magical conversion. The Roth conversion ladder has been alluded to, but here's a post on it I really liked:
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

I've seen different bloggers map out their conversions before, but haven't seen a forum post on someone who's currently converting. Hopefully someone can chime in with their experience.

CanuckExpat

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #10 on: July 28, 2015, 02:56:36 AM »
KateD,

Sounds like you guys are doing awesome. With a nearly 70% savings rate you should be well on your way to meeting your goals. Great work

I noticed a couple of small things in your posts that you might want to investigate:

1) Are you holding bond funds in your taxable (regular) Vanguard account? It is more tax efficient to hold your bond funds in your 401k or IRA accounts. For your small bond allocation it won't be a big difference, but might be worth noting

2) It looks like you are trying to approximate total market fund with a large cap fund, mid cap, and small cap, but your allocations don't look like they match the total stock market. Check that link if you are curious.

Anyways, those are both small points, it is your savings rate that will determine things!

Ishmael

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #11 on: July 28, 2015, 05:54:02 AM »
3.   We know that building our own home (even a reasonable one) will be more expensive than buying, but it's a dream for both of us. We'll be able to do much of the finishing work ourselves but will hire contractors for foundation, framing, etc. Is there any Mustachian advice on this? Anything we should be thinking about now, a few years early?
I don't agree that building a house is more expensive. Plus, when you buy a house you're never quite sure what you're getting, and how good/dedicated the builders were. By building, you can get things just the way you want them the first time, know exactly what is in your house, and be able to make decisions based on the lifetime cost of owning something, rather than the upfront cost.
 
Don't trust anybody to do a good job, make sure you educate yourself and then double check everything, at least until you have developed a level of comfort with your contractors. And then, spot check things frequently. Sometimes, it's just easier (and far cheaper) to do the work yourself.

Building a house is like building software - make sure the requirements are clearly understood, and don't let mistakes snowball. To that end:

Make sure you have a good crew of framers, that take the time to make sure everything is plumb, level and square. If your framing isn't perfect, every bit of work after that becomes enormously more complicated, time consuming and therefore expensive. Having to measure and recut drywall 2-3 times, trying to figure out how the flooring should be installed without looking stupid, having to shim and fiddle with cupboards, shelves, doors, etc. Make sure the framing is perfect! (I've been spending the last decade trying to renovate a 110+ year old farm house, and it's been challenging to say the least. Nothing here is even close to square... *ARGH!!*)

Keep the roofline simple, and at least look into metal roofing. You don't need sheathing in that case, and it's simpler to install, so that costs should balance out, plus the metal will last pretty much forever worry free. Choose a colour based on your climate, i.e. if you live in a hot area pick a white (or light) coloured roof.

Look into geothermal heating/cooling. Installing it later is prohibitively expensive, but doing it while you're tearing the yard apart for construction the first time mitigates the up-front costs somewhat. (This is an example of lifetime vs upfront costs).

Insulate the crap out of it, but make sure it can still breathe.

Every good carpenter I know has told me this advice:
"Every old house we tear apart has tar paper on it, and not a drop of water damage. All the new houses get Tyvek because of building codes, and frequently stuffs rots out in 10-15 years. If I were building my own house, I'd put the Tyvek up for the inspection, and as soon as the inspector leaves I'd rip it off and put tar paper up." Something to think about, I guess. Maybe you can do the tar paper first, then put Tyvek over it? (Why is this? Dupont makes Tyvek, and has far too much lobbying influence on building codes, I guess.)

Don't build a house that's too big, but make sure you have your plan as to how you'd expand it/add on if you change your mind down the road.

Just some random thoughts, FWTW. And best of luck of your FIRE goals, looks like you are in great shape!

MetalCap

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #12 on: July 28, 2015, 07:02:52 AM »
Only other thing to add is Max the HSA!  Pre-Tax, Can invest it and if used for Health at any time is Tax Free.  A great supplement to your 401k fund and nice little safety factor.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #13 on: July 28, 2015, 07:40:27 AM »
I'd second what wordnerd said about prioritizing 401(k) contributions ahead of Roth - based on what you said about your projected expenses/SWR, I'd suspect you'd minimize your tax burden that way during the accumulation phase. You'll also have the benefit of being able to throttle your SWR and optimize your tax situation on the back end with a Roth Conversion Ladder and/or the 72t SEPP (which I understand from others has its pitfalls...) I would suggest that if you're getting a 3% and 2.5% match, respectively, that you may actually come out ahead even if the 401(k) has a slightly suboptimal fee structure.

We're lucky enough to have minimal Vanguard fees associated with our 401(k) accounts, and we're fully convinced to max them out - submitting it today!

You clearly have the attitude and have thought about the math part. One other thing I'd recommend is Dr. Doom's blog Living A Fi, particularly this piece from the Drawdown Series which talks a bit about the psychological aspect to investing/asset allocation/drawdown. This may help you in determining what your actual risk tolerance is and whether you want to check your assumptions about how much cushion you want:


http://livingafi.com/2014/05/09/drawdown-part-1-the-basics/


I gather that a downturn feels VERY different if you've never experienced one while having significant skin in the game. Worth considering how you will will FEEL if SHTF, and how you will counter that feeling to stay the course.

This is definitely something that's a concern for me - Kirk is really good at putting money in and never worrying about what the market's doing. I was very risk-adverse pre-MMM, mostly because I had zero understanding of the stock market and it basically sounded like gambling, and while I understand all the wisdom here I know I'm going to really struggle if/when it happens. Thanks very much for the links!

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #14 on: July 28, 2015, 07:42:34 AM »
I just reallocated to nearly fully fund my 403b after learning about the magical conversion. The Roth conversion ladder has been alluded to, but here's a post on it I really liked:
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

I've seen different bloggers map out their conversions before, but haven't seen a forum post on someone who's currently converting. Hopefully someone can chime in with their experience.

Thanks for the link! I've been convinced that fully funding the 401(k)s is the way to go, but I need to read up on how this will work. I'll look around the forums as well.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #15 on: July 28, 2015, 07:49:45 AM »
1) Are you holding bond funds in your taxable (regular) Vanguard account? It is more tax efficient to hold your bond funds in your 401k or IRA accounts. For your small bond allocation it won't be a big difference, but might be worth noting

2) It looks like you are trying to approximate total market fund with a large cap fund, mid cap, and small cap, but your allocations don't look like they match the total stock market. Check that link if you are curious.

1.   The bonds are entirely in my rollover IRA account from a previous employer (which I've just realized I lumped in with 401(k) in my post, oops!). When I was first investing I found some advice to keep bonds in tax-advantaged accounts, but it's good to hear that was a good decision.

2.   You're right, they don't match... this was back when I was first setting everything up and really had no idea what I was doing, so I called Vanguard and asked how they would approximate VTSAX with the funds available (VINIX, VEIRX, VMCIX, VSCIX, VTIAX, VBTLX). Based on that link (thanks!), I'll reallocate to 81% VINIX, 6% VMCIX, 13% VSCIX.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #16 on: July 28, 2015, 07:56:06 AM »
I don't agree that building a house is more expensive. Plus, when you buy a house you're never quite sure what you're getting, and how good/dedicated the builders were. By building, you can get things just the way you want them the first time, know exactly what is in your house, and be able to make decisions based on the lifetime cost of owning something, rather than the upfront cost.
 
Don't trust anybody to do a good job, make sure you educate yourself and then double check everything, at least until you have developed a level of comfort with your contractors. And then, spot check things frequently. Sometimes, it's just easier (and far cheaper) to do the work yourself.

This is all very helpful, thank you! It's still a few years away, but we have every intention of learning as much as possible before we begin. I tend to go overboard with researching every option, so particularly things like energy efficiency and insulation will be looked at very closely. MDM had the great idea to volunteer with Habitat so I can get some more hands-on experience and understanding of what goes into it.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #17 on: July 28, 2015, 07:57:27 AM »
Only other thing to add is Max the HSA!  Pre-Tax, Can invest it and if used for Health at any time is Tax Free.  A great supplement to your 401k fund and nice little safety factor.

Good advice, mine is already maxed out & plan on continuing to do so! Kirk's company unfortunately didn't offer it this year.

Terrestrial

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #18 on: July 28, 2015, 02:22:30 PM »
So what do you think, Mustachians? With our current spending, a 4% SWR means we could FIRE at $682,000. Is it reasonable to think that we might be able to do it by 30 or a couple years after? Thoughts, criticisms, advice all very much appreciated! Thanks for reading!

General observation: It seems unlikely that at 30 and planning to build a custom home and have kids your spending will remain the same as it is now (I say this from personal experience following largely the same path).  If nothing else the increase from child expenses and utilities/maintenance alone on a larger house is going to be a significant amount of money even if you held everything else in check.  However, since it appears that only one of you will stop working, I would say you're in good shape if you assume that the remaining person's salary will cover everything that is added above your current expenses, which seems to be more than reasonable.  Also 6 years from now whoever is still working will probably make a good deal more money than you do now at the beginning of your career.  So I would say, great job you're off to a good start. 

Question:  By what metric are you measuring the overvaluation of the local housing market (I'm not implying that it is or is not, just curious as to your line of reasoning and how you assessed it's overvaluation).  The fact that Denver's housing has been on a tear does not in and of itself mean it's overvalued.  I only ask because, you hear a similar argument alot of the time about why people wont invest in the stock market right now (it's overvalued/at all time high/XXX days without a pullback, etc etc, and consequently must be ready to drop in the near future).  This line of thinking has cost many people a lot of lost earnings as they said this in '12, '13, '14, etc....even when we do get a correction, pulling back 15% now the market would still be worth more than it was in '13 when people were staying out of the market waiting.   San Fransisco and Manhattan's housing market have been characterized as overvalued, but 'expensive' is not necessarily the same as 'overvalued'....both places are thriving mega-centers of finance, technology, and commerce, where land is scarce and very high wage jobs are plentiful, thus the housing prices are supported.  Denver is not exactly the same but it shares some of those traits...it's a very attractive city that has good employment prospects, and while the land around it is plentiful, the land relatively close to the city core is not anymore, so prices may keep trending up (especially for the prime parts of town) as long as their is the demand and wages are there to support it.  If you were flexible on renting/buying this could be mitigated (in SF/the penninsula, and many other expensive markets, it can be much cheaper to rent than to buy)...but if you are stuck on buying/building, may just be something you have to deal with.

Regarding building:  That was always a dream for my wife and I too...both of our sets of parents built their own houses (my in-laws actually physically built their house themselves with friends as my father in law was a tradesman and my wife's grandfather was an architect), we always figured we would too.  I know it varies on the specific market and situation but for us, we just couldn't make the numbers pencil out for what we could buy a nice existing house for on a great lot, and it wasn't really even all that close.  This was including your plan of doing alot of the finish work inside ourselves (father in law is a retired master carpenter and we have extensive gut renovation experience from a previous house).  The land value alone precluded it, because the part of town we wanted to live in (great neighborhood and schools, close-ish to the city center) does not have alot of available vacant plots left and they go for a big premium.  This isn't to say don't build, just that you should always be keeping your options open.  After much back and forth we ended up buying a 15 year old well built custom place on a gorgeous lot and are in the process of doing a renovation/expansion to make it every bit the dream home we wanted to build, and are still going to be almost 100k less than the cheapest I could pencil out for building.  I think when building people also forget about alot of the 'intangibles' that don't add as much to the price of an existing house as they cost to put into a new one.  To landscape a backyard from scratch like ours came and add the property walls/fence would be 30k, to put in the pool would be another 50k, pouring a long driveway (you need one on a few acres) can be 10-20k, doing the slope protection off the back of the lot would be 10k.  These are things that can be mitigated - minimal landscaping, no pool, crushed gravel driveway, getting a flat lot with minimal site prep etc, but they aren't things we wanted to compromise on.  Depends what your vision is of your house I suppose.

Good luck, it's great to have goals and start planning while you're young.  30 year old you will be glad you did.
« Last Edit: July 28, 2015, 02:30:52 PM by Terrestrial »

boarder42

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #19 on: July 28, 2015, 02:43:02 PM »
i'm sure its been said ALOT but Max your 401k's my wife and i are engineers as well and you're throwing away tax dollars by not doing this.  Your income is likely too high to go traditional IRA.  but the money is easy to get out just look up roth ira conversion ladder.

MidWestLove

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #20 on: July 28, 2015, 09:39:59 PM »
Congratulations on thinking ahead!

As others said
-MAX your 401k (you leave 10k on the table right now for the Feds)
-Use (and max if you can) traditional IRAs, they are even further savings at your income levels (another 3k tax savings right away)
-prepare to be flexible (house , kids ,etc.)


aetherie

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #21 on: July 29, 2015, 12:38:47 PM »
Hi KateD! I don't have anything to add that others haven't already said, but I wanted to say hi because we seem to be in very similar situations (although I'm a year younger and on the other side of the country). Having two engineering incomes is great, isn't it? :)

I hope your plan works out exactly as you want it to, and if you start a journal here I'll be following along with interest!

DeltaBond

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #22 on: July 29, 2015, 01:15:08 PM »
Do either of you do any charity work or donations?  You didn't list any of that.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #23 on: July 29, 2015, 08:32:01 PM »
General observation: It seems unlikely that at 30 and planning to build a custom home and have kids your spending will remain the same as it is now (I say this from personal experience following largely the same path).  If nothing else the increase from child expenses and utilities/maintenance alone on a larger house is going to be a significant amount of money even if you held everything else in check.  However, since it appears that only one of you will stop working, I would say you're in good shape if you assume that the remaining person's salary will cover everything that is added above your current expenses, which seems to be more than reasonable.  Also 6 years from now whoever is still working will probably make a good deal more money than you do now at the beginning of your career.  So I would say, great job you're off to a good start. 

Agreed, and we need to work out more carefully what we think those expenses may be. We're thinking about it exactly as you said - if we maintain our current spending level, the additional single income for a few years may cover those extras.

Question:  By what metric are you measuring the overvaluation of the local housing market (I'm not implying that it is or is not, just curious as to your line of reasoning and how you assessed it's overvaluation).  The fact that Denver's housing has been on a tear does not in and of itself mean it's overvalued.  I only ask because, you hear a similar argument alot of the time about why people wont invest in the stock market right now (it's overvalued/at all time high/XXX days without a pullback, etc etc, and consequently must be ready to drop in the near future).

This is a great question, and overvalued might have been the wrong word here - oversaturated fits better. We did look at real estate earlier this year, thinking that we could buy a fixer-upper for the next few years. Even small older houses were on the market for less than a day and more than twice what they were valued at two years ago, and a lot of them were bought for scrapes. Denver is a great place to live & work, we just weren't comfortable with the value for price. Some of the resources linked here, like the NYT Rent or Buy calculator, were helpful for our decision.

Regarding building:  That was always a dream for my wife and I too...both of our sets of parents built their own houses (my in-laws actually physically built their house themselves with friends as my father in law was a tradesman and my wife's grandfather was an architect), we always figured we would too.  I know it varies on the specific market and situation but for us, we just couldn't make the numbers pencil out for what we could buy a nice existing house for on a great lot, and it wasn't really even all that close.  This was including your plan of doing alot of the finish work inside ourselves (father in law is a retired master carpenter and we have extensive gut renovation experience from a previous house).  The land value alone precluded it, because the part of town we wanted to live in (great neighborhood and schools, close-ish to the city center) does not have alot of available vacant plots left and they go for a big premium.  This isn't to say don't build, just that you should always be keeping your options open.  After much back and forth we ended up buying a 15 year old well built custom place on a gorgeous lot and are in the process of doing a renovation/expansion to make it every bit the dream home we wanted to build, and are still going to be almost 100k less than the cheapest I could pencil out for building.  I think when building people also forget about alot of the 'intangibles' that don't add as much to the price of an existing house as they cost to put into a new one.  To landscape a backyard from scratch like ours came and add the property walls/fence would be 30k, to put in the pool would be another 50k, pouring a long driveway (you need one on a few acres) can be 10-20k, doing the slope protection off the back of the lot would be 10k.  These are things that can be mitigated - minimal landscaping, no pool, crushed gravel driveway, getting a flat lot with minimal site prep etc, but they aren't things we wanted to compromise on.  Depends what your vision is of your house I suppose.

Thanks for sharing this, I'm always interested in hearing other peoples' thoughts/experiences with home building! I've been keeping an eye on land prices and there just seems to be a ton of variation - it will help that we aren't trying to stay near downtown. As much as we want to do this, it will come down to the numbers and what's available when we're ready. There are some intangibles that we've considered - Kirk really enjoys landscaping, and we aren't interested in major installations like a pool - but hadn't thought about the significant cost of a long driveway (and I'm sure many other things we aren't aware of yet!). Our vision is pretty simple at the moment, but I'm sure 'extras' can add up very quickly. Thanks for the advice!

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #24 on: July 29, 2015, 08:34:32 PM »
i'm sure its been said ALOT but Max your 401k's my wife and i are engineers as well and you're throwing away tax dollars by not doing this.  Your income is likely too high to go traditional IRA.  but the money is easy to get out just look up roth ira conversion ladder.

-MAX your 401k (you leave 10k on the table right now for the Feds)
-Use (and max if you can) traditional IRAs, they are even further savings at your income levels (another 3k tax savings right away)
-prepare to be flexible (house , kids ,etc.)

Thanks for the advice, both of us maxed our 401(k) contribution limits yesterday! We are both eligible for traditional IRAs so that will likely be our next step.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #25 on: July 29, 2015, 08:43:41 PM »
Hi KateD! I don't have anything to add that others haven't already said, but I wanted to say hi because we seem to be in very similar situations (although I'm a year younger and on the other side of the country). Having two engineering incomes is great, isn't it? :)

I hope your plan works out exactly as you want it to, and if you start a journal here I'll be following along with interest!

Hi aetherie! Yeah, dual-engineers is a pretty great situation. :) I lived in Fairfax VA during high school - no idea if you're in the DC metro area, but I know the COL is crazy so major kudos for living Mustachian out there.

Thanks so much, you too! No plans to start a journal, but who knows... all the great feedback here resulted in even more questions (turns out I can do that Mega Backdoor Roth - so what does that actually mean?) so I'll be asking for more advice soon I'm sure!

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #26 on: July 29, 2015, 08:49:19 PM »
Do either of you do any charity work or donations?  You didn't list any of that.

No major financial donations, and the dollar-here-and-there is wrapped in miscellaneous. I'm in training to volunteer at the local animal shelter (just moved close enough to do so!) and volunteer with local festivals, races, etc. Kirk's job is at rural sites during the week working 10+ hour days, less opportunity there.

It's something that I really want to push myself to do more. MDM had the great suggestion above to volunteer with Habitat - contributing to the community as well as picking up building knowledge. I'm looking into that this week!

Terrestrial

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #27 on: July 30, 2015, 07:02:42 AM »

Thanks for sharing this, I'm always interested in hearing other peoples' thoughts/experiences with home building! I've been keeping an eye on land prices and there just seems to be a ton of variation - it will help that we aren't trying to stay near downtown. As much as we want to do this, it will come down to the numbers and what's available when we're ready. There are some intangibles that we've considered - Kirk really enjoys landscaping, and we aren't interested in major installations like a pool - but hadn't thought about the significant cost of a long driveway (and I'm sure many other things we aren't aware of yet!). Our vision is pretty simple at the moment, but I'm sure 'extras' can add up very quickly. Thanks for the advice!


The other thing I wanted to mention is, put some consideration into 'when' you want to try and do this.  When my wife and I did our first house renovation, we were in our mid 20's, not a ton of demand from our jobs yet (I am an engineer as well), no kids.  We had the ability to spend a lot of time working on our house, which was great for costs, but it DOES take a lot of time to do gut renovations/building.

Now we are in the midst of renovating the second house and are in our mid 30's...we have 2 kids and as I have moved up in my career into management I frequently have work commitments and travel.  This makes it a lot harder to get stuff done in a timely manner; I am frequently working, my wife is much less able to help with it because she's trying to corral 2 kids under the age of 5 from running amok among all the tools/ladders etc trying to see what daddy is doing and 'help', etc.  And sometimes I would rather just spend the day with my kids after a long week or being gone than grinding out every saturday and sunday sun-up to sun-down doing work on my house. We've ended up hiring out more things this time around than last just because of the practicality of it.  Just saying, it gets a lot harder to do this the older you get and as your situation in life changes, be sure to factor this in when considering what you might be able to do yourself.

KateD

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Re: Reader Case Study - 24yo couple with no debt, FIRE at 30?
« Reply #28 on: July 30, 2015, 09:54:39 AM »
The other thing I wanted to mention is, put some consideration into 'when' you want to try and do this.  When my wife and I did our first house renovation, we were in our mid 20's, not a ton of demand from our jobs yet (I am an engineer as well), no kids.  We had the ability to spend a lot of time working on our house, which was great for costs, but it DOES take a lot of time to do gut renovations/building.

Now we are in the midst of renovating the second house and are in our mid 30's...we have 2 kids and as I have moved up in my career into management I frequently have work commitments and travel.  This makes it a lot harder to get stuff done in a timely manner; I am frequently working, my wife is much less able to help with it because she's trying to corral 2 kids under the age of 5 from running amok among all the tools/ladders etc trying to see what daddy is doing and 'help', etc.  And sometimes I would rather just spend the day with my kids after a long week or being gone than grinding out every saturday and sunday sun-up to sun-down doing work on my house. We've ended up hiring out more things this time around than last just because of the practicality of it.  Just saying, it gets a lot harder to do this the older you get and as your situation in life changes, be sure to factor this in when considering what you might be able to do yourself.

You've hit on exactly what we're concerned about. I would absolutely love to be able to build this house together before we have kids, because I see that exact same scenario happening - Kirk, being way more experienced (not to mention much taller and stronger than I am), would end up doing a huge portion of it while I corralled kids. And I very much want to do it together!

We're not ready to buy land today for two reasons: Kirk is at rural sites for two weeks at a time and definitely doesn't want to spend his two days off doing manual labor, and I don't have a car and commute everywhere by bike.  Once we transition to other roles in the next year or two, both of those concerns go down and we'll decide if we're in the right place financially to start buying & building.

Thanks for the advice, great to learn from your experiences!