Author Topic: Help in setting reasonable expectations for early retirement  (Read 3051 times)


  • 5 O'Clock Shadow
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Help in setting reasonable expectations for early retirement
« on: March 20, 2017, 01:41:03 PM »
Hello :)

I'm 27, been working full time the past 6 years, summer jobs off and on for 5 years before that, and I've just recently realized that I have basically no idea what I'm doing when it comes to my retirement savings.
Ever since I got my first job, my older brother encouraged me to contribute the max contribution limit to a traditional IRA CD each year, or at least as much as I could afford, so that's what I've been doing most of the years that I've worked.  I haven't really been keeping track of these accounts at all, though.  I've just been lazily throwing my bank statements in a box.  Sometimes renewal notices come in, and I don't even bother to see if I could be moving that money into a higher-yield account.  They just go right into the cardboard black hole of shame, lol.
Anxiety/depression is mostly to blame here.  I'm working on that, too.  Dealing with money still does cause me quite a bit of anxiety, but only in the sense that I feel like I'll have to justify all of my financial decisions to other people.  This may make early retirement a more difficult decision for me.

I realized a couple of years ago that I had never looked at my 401k, either.  I think my contribution was set at like 1-3% by default, so I bumped that up to 12%.
I just recently realized I can contribute a lot more than that, up to $18,000 a year, which I could easily afford to do.  I guess I should just shoot for the maximum, or maybe put that money in an index fund instead? I don't really know.

So, I'm making my way through the box of shame right now, trying to figure out what to do going forward.  My portfolio is as follows:
$36,000 in IRA CDs (some of the returns have been pathetically low.  I'll need to figure out how/when/where to transfer these)
$31,000 in my 401k (90% stocks, 10% bonds right now.  I just set it to whatever Vanguard recommended)
$40,000 in a money marking savings account (it earned, uhh... $2.50 in interest last year :/ )
$100,000 in my primary checking account (yikes :(  I need to do something about that NOW)
The debit card number associated with that account was stolen last year, too, which makes this my #1 priority.  Fortunately, my bank caught it very quickly, reissued a new card, and I lost nothing.

Annual salary (before tax): $76,000
Annual spending $36,000

Never been in debt, and no plans for a mortgage any time soon.  I'm renting an apartment now, and plan on renting a house soon.
I just recently got my first secured credit card, so I can start building credit, like adults are apparently supposed to do, lol.
There's some kind of gamified incentive point system that my health insurance company is doing, and I've been missing out on that free money for years, around $800 per year.  I'll have to do better about that, too and finally get around to finding a primary care physician.

Spouse/kids? Nope, never had any desire for either of those things.  Hey, what can I say, I'm a Single Pringle :P

I'd like to retire as early as possible, but I'm not really sure what age range I should target, what kind of nest egg I could reasonably expect to have, or what my worst-case scenario of potentially high medical expenses and all-time low stock returns would look like.  I've tried plugging some numbers into various retirement calculators, but it's hard to know what inputs to use.  For instance, Vanguard thinks I'll need 85% of my income in retirement.  I just can't see my expenses ever being that high, but I guess it depends largely on cost of living, medical fees, house payments, etc.

I have a lot of post-retirement plans: travel, mountain biking, freelance software development (possibly for profit, and on a "whenever I feel like it" basis), writing music (just for fun, not necessarily for profit), volunteering at nursing homes, more travel (btw, "a lot" of travel for me would be like 3 to 4 weeks out of the year, usually camping or visiting relatives)

I think I'm doing pretty well in my savings right now, I guess, but it just stresses me out not knowing what exactly I'm doing with my money, or how much I'm losing out on by not investing it.  I really wish I were taught this stuff in school.  I think I would be a lot less confused right now.
« Last Edit: March 20, 2017, 01:47:13 PM by ND »


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Re: Help in setting reasonable expectations for early retirement
« Reply #1 on: March 20, 2017, 02:15:20 PM »
Read these and it should answer most of your questions:


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Re: Help in setting reasonable expectations for early retirement
« Reply #2 on: March 20, 2017, 02:51:42 PM »
You'll need to figure out your spending in retirement. It's typical, and stupid, to recommend a slightly lower 'percentage of your income'. But most people just spend whatever they earn, so it usually works for most financial sites to tell people to aim for spending a little less than that.

You're already far ahead of this by spending far less than you earn. Is this how much you'd expect to spend in retirement, too? For now, you can call your current $36K spending a good rough guess.

Sounds like you've got a good bit of money saved up, but all in low/no earning places, so you'll be looking to shift all of that ASAP.

You'll have to figure out what you want to invest in instead. Read 'Asset Allocation' articles ASAP (like the previous poster linked), but the easiest, generic, very reasonable answer is to move most/all of what you've got to the US Total Stock Market or 500 Index. Vanguard's business and low fees are well promoted here and elsewhere.

From there you can decide if you also want some bonds or other investment alternatives if you're afraid of stock market drops, and want more diversification of types of investments. There are those of us 100% in stocks, but you have to know you won't freak out and sell in a crash. I also actually recommend the Vanguard MidCap fund as my primary fund. At least consider mixing it with the Total Market or 500 Index. Over almost any timeframe it follows the market closely, but does a lot better. It'll also let you rebalance between it and the Total/500 Index at times while remaining in all-stocks.
Many will also recommend you have a good amount in international funds. I think it's sound enough advice, but probably not a big deal either way. 0-20% at most is safe and fine, IMO. You might do better, you might do worse. Probably about the same.

There's a lot of variables to all this, so we can't just say when you'll hit your target. Having said that... 10 years.

If you've got ~$200+K now that you can switch to mainly stocks, add ~$40K a year, and the market averages ~7% (lower than typical, but what's more likely expected over the next decade), you'll get to ~1M in 10 years. Depending on your spending in 2027, low inflation, your continued frugal habits, you'll be about set (give or take). Along the way you'll get a better and better handle on exactly what you're aiming at and when it looks like you'll hit it. Poor market returns might set you back a few years. Getting more frugal and packing away more cash might get you there sooner. Both happening might cancel each other out? No one can say.

And retiring with depression and not enough planned for what to do and being alone is a great way to die REAL early. Don't let that happen.


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Re: Help in setting reasonable expectations for early retirement
« Reply #3 on: March 20, 2017, 10:07:31 PM »
See also Investment Order (and all the links in that post). 

It won't answer all your questions, but should answer some, and might help you develop more specific questions that many here could answer.


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Re: Help in setting reasonable expectations for early retirement
« Reply #4 on: March 20, 2017, 10:41:44 PM »
Hey! I just want to say congrats! You've done an AMAZING job socking away money, and you are in a GREAT position for whatever you want to do in the future, including early retirement.

I also want to say that while the best time to act is soon-ish, it's also ok to wait a little bit and do some reading and get a better idea of what course of action will best meet your goals. No matter what, you are working on long-ass time scales, so acting tomorrow or next week or next month, it'll all come out in the wash. And with your great salary and ability to sock away money, you'll continue to be in great shape!


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Re: Help in setting reasonable expectations for early retirement
« Reply #5 on: March 21, 2017, 07:42:53 AM »
Hi ND!  FWIW, I think the best thing you can do for yourself and your future is to get treatment for the depression and anxiety.  My sense from your post is that you feel sort of overwhelmed by all of these decisions, by all of these complicated issues, and you don't feel competent to learn it all and figure it all out and it just seems to take *so* much energy and that triggers your anxiety and so it's just sooooo much easier to toss everything in a box and forget about it.  And then that becomes the Box O' Guilt, because every time you see the pile of stuff to deal with and think about everything you need to do you feel ashamed and even more overwhelmed.

Am I close?  I'm gonna go with "yes" -- BTDT, I know that feeling pretty exactly (just not about money).  :-)  So, get treatment.

Once you do that, here's the key:  it's really not as hard as your brain is making it out to be -- that is the depression talking.  You are a competent, capable individual who has figured out how to manage a good-paying job and run your life; this is easy by comparison.  So your next task is to read as much as you can about investing and MMM as possible and let it all sink in.

While you are doing that, go to your HR Department, right now, and increase your 401(k) to the $18K federal maximum.  You don't even need to worry about what it is invested in -- just increase the amount, now.  This is called "don't let the perfect be the enemy of the good" -- the more complicated something seems, the more your depression is going to tell you you can't do it.  So fight that by making everything as simple as possible so you can take that first step and get the momentum going in the right direction.

The next step is to get your cash investments (bank account, money market, and IRA) moved over to Vanguard or Fidelity or some other investment company like them.  Do each account one at a time to keep yourself on track.  Start with the checking account:  Call Vanguard, tell them you want to open an account with money from your checking account, and you want to put it in the Total Stock Market Index.  They will walk you through it -- they can probably do an electronic transfer right there on the phone, but if not, so what?  You just write a check for however much (leave enough in the account for your living expenses of course!).  Celebrate!  It really does not have to be more complicated than that -- sure, do the research, learn about asset allocation and all that.  But while you're doing it, just stick your money in that one fund and you are head and shoulders above 90% of the population. 

Then you just rinse and repeat.  Money Market first, as it works similarly to a bank account -- you can probably instruct them to close the entire account and send it to your new Vanguard account.  Celebrate.  Then the CDs -- this might take more attention, because you will need to catch each CD as it matures (usually they roll automatically into another term -- so if it's a 6-month CD, if you don't catch it in month 5, as of month 6 it will roll over into another 6-month CD).  For these, you need to instruct your bank to stop rolling them over and just leave the proceeds in your checking/money market account as they expire.  Then call Vanguard again and tell them you want to move your IRA to them and put it in the Total Stock Market Index -- this will be a different account, because it is an IRA, but it can be the exact same investments.   

And you have time.  This can take months or even a year if it just seems overwhelming all at once.  The key is to get started, and then just eat that elephant one bite at a time.

One basic thing to keep in mind is the difference between the investment product itself and the bucket.  The investment is the specific thing your money is in -- CDs, money market funds, index funds, stock funds, stocks, bonds, bond funds, etc.  The "bucket" is the type of account you hold that investment in -- you can have a normal taxable account, or you can have tax-protected accounts like an IRA or 401(k).  So right now, you have your IRA invested in CDs, which have very low returns; you would be much better-off in the market (again, Vanguard Total Stock Market Index to the rescue!).  So move your IRA to Vanguard -- the only thing you really need to keep in mind here is that you need to keep the same money in the same bucket, so when you switch this bucket of money to Vanguard, it needs to go back into another bucket labeled "IRA."  Same thing with the 401(k):  here, you are stuck with whatever company your employer has chosen, but you can put that money in any fund they offer.  So when you say "should I put more money in my 401(k) or into an index fund" -- you probably don't have to choose.  If your 401(k) provider offers an index fund, just invest in that!

Part of the confusion is that different sellers offer different products. So Vanguard and Fidelity and others like them are investment companies -- they buy up a huge amount of individual stocks and bonds and CD and the like, and they bundle them together into mutual funds, and then they let people like you and me buy pieces of that mutual fund.  So their Total Stock Market Index fund is a mutual fund that is designed to mirror the entire stock market -- sort of one-stop shopping at very low costs.  Some of these companies will also let you open an individual brokerage with them (where they will help you buy and sell individual stocks directly), but you don't need to worry about that.  OTOH, companies like Bank of America and others are banks; they tend to offer bank accounts, money market accounts, and CDs (i.e., more cash-savings type products that mutual funds or stocks).  The reason it gets confusing is that banks have discovered there is a lot of profit in mutual funds, so now your bank will probably try to tell you you can keep all your money with them and they will sell you their own version of index funds or whatever.  The problem is that the banks are usually very expensive compared to the independent companies like Vanguard.  So I like to use each type of company for what they are "best" at:  for my *cash* savings that I want/need access to quickly, I rely on my bank; for my *investments*, I rely on investment companies like Vanguard and T. Rowe Price.


  • 5 O'Clock Shadow
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Re: Help in setting reasonable expectations for early retirement
« Reply #6 on: April 29, 2017, 10:41:31 AM »
Thanks for the advice, everyone :)

My therapist wants me to just focus on accomplishing one small task each weekend, and if I miss a weekend, it's not a big deal.
So first things first, my cardboard box is now a fireproof safe with everything properly sorted. Easier said than done, because I had important bank documents hiding around in random places in old school binders and stuff.  So that literally took me a whole weekend of spring cleaning.  -_-

I set my 401k contribution up to the yearly max.  (Well, close to it.  I would guess that Vanguard automatically prevents over-contribution, but I'm not 100% on that.)

I'm keeping $6000 in my primary checking account and 6-9 months of spending in my emergency fund.  Probably 12+ months if I had to stretch it.  I go out to restaurants a lot, but I'm okay with that :P

For now I'm just putting everything else in VTSAX, and the traditional IRA I already had set up at Vanguard, with a 2055 Target Retirement fund in it, same as my 401k.

I set calendar reminders for all my IRA CD maturity dates.  I juuuust missed one of the deadlines by like a week, too, so that got bumped back to 2019. lol

2 factor authentication on all the accounts that matter to me

Next on my list:

I've been reading about credit freezes.  It sounds like a bit of a PITA, but it's probably a good idea, considering my long history of not shredding my paper trails.

Move my emergency fund to a higher yield savings account

Figure out if I should be opening Roth IRAs.  I went ahead and contributed to my traditional IRA again for 2016.

Figure out Blue Cross Blue Shield's ridiculous wellness points thing.  It's like a labyrinth of interconnected partnering websites, apps, and services designed to waste as much of my time as possible.  I haven't even figured out how to make a contribution to my Payflex HSA yet.  Also, I'm really not a fan of linking multiple online accounts together in any way.  After the recent Yahoo breach... yeah no thanks.

Asset allocations... Nope, still too confusing.  Too many competing economic theories.  I don't know nearly enough to pick a "favorite" yet, so that's still up in the air.

My Econ 101 professor would always talk about the "time value of money."  I had absolutely no idea what she was talking about and was like "Yep, $5 today equals $5 next year."  I failed the first test, committed a few cryptic formulas to my short term memory, passed that class with a B-, and still had no idea what she was talking about until after college when I finally looked into this stuff for myself and was like "Oooh, that's what she meant by exponential growth."  Somehow this concept was less intuitive to me than differential equations.
I blame pop culture. *shakes fist* "Curse you, pop culture."  Wow, I must really be close to retirement age after all, lmao
« Last Edit: April 29, 2017, 10:52:59 AM by ND »


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Re: Help in setting reasonable expectations for early retirement
« Reply #7 on: April 30, 2017, 06:54:12 AM »
Wow! That's an awesome set of accomplishments!

I could have written your post about a year ago (down the the same numbers basically) and I understand how getting organized and planning is the hardest thing with depression. You're doing great!


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Re: Help in setting reasonable expectations for early retirement
« Reply #8 on: April 30, 2017, 08:33:26 AM »
WOW!  This is a LOT of progress even for someone without depression and anxiety.  Really, really well done.  You have already done the most important stuff: you have secured your critical documents and upped your savings in basic Vanguard funds.  All the rest is fine-tuning.  Really, really proud of you here.

And I bet it wasn't as hard as you feared, was it?