Author Topic: How long till we FIRE?  (Read 3289 times)

nara

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How long till we FIRE?
« on: February 07, 2017, 06:46:59 PM »
Net worth is $475,054. We are unsure of how much we can put away each year because we run a business and and don't know about long-term stability. We believe that we can save a minimum of $60k this year. We plan to spend $40-$50k post FIRE annually.

Any thoughts about how soon we could reach FIRE? It's hard to predict how much we will save in subsequent years but $20k-$30k would most likely be the minimum.


Retire-Canada

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Re: How long till we FIRE?
« Reply #1 on: February 07, 2017, 06:55:53 PM »
Net worth is $475,054. We are unsure of how much we can put away each year because we run a business and and don't know about long-term stability. We believe that we can save a minimum of $60k this year. We plan to spend $40-$50k post FIRE annually.

Any thoughts about how soon we could reach FIRE? It's hard to predict how much we will save in subsequent years but $20k-$30k would most likely be the minimum.

How much of the $475K NW is liquid investments and how much is your home?

Retire-Canada

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Re: How long till we FIRE?
« Reply #2 on: February 07, 2017, 06:57:10 PM »
For $50K/yr spending [assuming this includes taxes] you need $1.25M in liquid investments to support that.

nara

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Re: How long till we FIRE?
« Reply #3 on: February 07, 2017, 07:01:29 PM »
 
Net worth is $475,054. We are unsure of how much we can put away each year because we run a business and and don't know about long-term stability. We believe that we can save a minimum of $60k this year. We plan to spend $40-$50k post FIRE annually.

Any thoughts about how soon we could reach FIRE? It's hard to predict how much we will save in subsequent years but $20k-$30k would most likely be the minimum.

How much of the $475K NW is liquid investments and how much is your home?

$659,054 Total Assets (home included with est. value at $384k)
Minus total debt of $184000 (remaining mortgage and student loan $8k with 1.6% interest)
= $475,054

Retire-Canada

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Re: How long till we FIRE?
« Reply #4 on: February 07, 2017, 07:05:23 PM »
$659,054 Total Assets (home included with est. value at $384k)
Minus total debt of $184000 (remaining mortgage and student loan $8k with 1.6% interest)
= $475,054

So starting from $659K invested and adding $30K/yr at 6% means you'll need ~7yrs to hit $1.25M invested and FIRE. This assumes your debts are paid off by then or payments are included in your $50K/yr FIRE budget.

The market could be much nicer to you or it could be nasty. No way to tell.


Ignore my post. That assumed you had $659K invested, which you don't. If it's actually $659K - $384K = $275K invested then adding $30K/yr at 6% after inflation will take ~14yrs to hit $1.25M and FIRE.

Again assuming you paid off the debts or they payments are included in your FIRE budget.
« Last Edit: February 07, 2017, 08:35:32 PM by Retire-Canada »

nara

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Re: How long till we FIRE?
« Reply #5 on: February 07, 2017, 07:10:52 PM »
Thanks. Not very good at the math here obviously! If 7 years is the most conservative estimate in the scenario does it matter where the money is invested? We are maxing out IRAs before taxable investments... but is this a bad strategy if we are are looking at 10 years or less?

Retire-Canada

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Re: How long till we FIRE?
« Reply #6 on: February 07, 2017, 07:13:11 PM »
Thanks. Not very good at the math here obviously! If 7 years is the most conservative estimate in the scenario does it matter where the money is invested? We are maxing out IRAs before taxable investments... but is this a bad strategy if we are are looking at 10 years or less?

I'm in Canada so I'm not going to give you tax advice. But, I will suggest you read this thread hidden at the top of the page:

http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

nara

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Re: How long till we FIRE?
« Reply #7 on: February 07, 2017, 07:22:44 PM »
Don't have a 401K unfortunately. We have a SIMPLE IRA and therefore I don't think we could take advantage of this. But we are only able to contribute $12,500 annually for each of us to the our Simple IRA, which leaves us with $35,000 a year left over (-$11,000 for Roth IRA contributions).

SwordGuy

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Re: How long till we FIRE?
« Reply #8 on: February 07, 2017, 07:49:04 PM »
Are you going to live in your current home when you retire?

If Yes, your home has $0 value for retirement income.  Ignore it in any further calculations, other than for taxes, repairs and insurance expenses in retirement.

Unless you intend to rent out a room or more in it.  In that case, consider it as an income source for that amount of income.

If no, are you going to rent out the house or sell it?

If you are going to rent it out, that's a whole discussion on its own as to whether it's going to be a money maker or loser.

If not, how much will it cost to buy a new, smaller home and move there?   If you will still have any money left over, you can count it.


ysette9

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Re: How long till we FIRE?
« Reply #9 on: February 07, 2017, 08:22:49 PM »
It isn't completely clear to me how much invested assets you have. Start with that number (ignore your house value and mortgage for now). Then estimate how much you will add to that stash each year and run those numbers through a compound interest calculator. I think 7% real growth rate is what most people use to estimate the stock market returns (will obviously depend on what your asset allocation is).

As for your house, how many years until it is paid off? If it will be paid on by the time you retire, then only include housing expenses such as insurance and property taxes, but not the mortgage. If it isn't paid off, then I think the best thing to do is use cFIREsim to model paying your mortgage as an extra expenditure for the Y number of additional years it will take before it is paid off.

Give us some more specifics ($ invested, how many years left on mortgage, average expenses with and without mortgage, average yearly savings rate, asset allocation) and we can model this for you.

oldtoyota

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Re: How long till we FIRE?
« Reply #10 on: February 07, 2017, 08:24:21 PM »
Don't have a 401K unfortunately. We have a SIMPLE IRA and therefore I don't think we could take advantage of this. But we are only able to contribute $12,500 annually for each of us to the our Simple IRA, which leaves us with $35,000 a year left over (-$11,000 for Roth IRA contributions).

Wondering why you don't have a 401K if you own a business?

nara

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Re: How long till we FIRE?
« Reply #11 on: February 07, 2017, 08:48:20 PM »
It isn't completely clear to me how much invested assets you have. Start with that number (ignore your house value and mortgage for now). Then estimate how much you will add to that stash each year and run those numbers through a compound interest calculator. I think 7% real growth rate is what most people use to estimate the stock market returns (will obviously depend on what your asset allocation is).

As for your house, how many years until it is paid off? If it will be paid on by the time you retire, then only include housing expenses such as insurance and property taxes, but not the mortgage. If it isn't paid off, then I think the best thing to do is use cFIREsim to model paying your mortgage as an extra expenditure for the Y number of additional years it will take before it is paid off.

Give us some more specifics ($ invested, how many years left on mortgage, average expenses with and without mortgage, average yearly savings rate, asset allocation) and we can model this for you.

Roth IRA (His) $17,484
Roth IRA (Her) $15,378
SEP IRA $7,698
SIMPLE IRA $12,162
HSA $6,527
Total IRA:$59,249

Brokerage Total: $18,139

CD: $140,531 

Cash: $47,608

Gold: $12,000

My husband received a windfall last year, which is why a large portion of the money is in a one year CD (following Booglehead advice)
We purchased our home last year on a 30 year mortgage at 3.5% interest.  We aren't sure if we should pay it off early or put all savings towards investments. The $50k-$60k annual spending estimate does include our mortgage.


Viking Thor

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Re: How long till we FIRE?
« Reply #12 on: February 07, 2017, 10:20:13 PM »
It looks like you portfolio is like 20-30% stocks. That is not what boggleheads or any conventional advice would recommend. You have little to no chance at a decent return on investment with this allocation.

nara

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Re: How long till we FIRE?
« Reply #13 on: February 08, 2017, 06:08:02 AM »
It looks like you portfolio is like 20-30% stocks. That is not what boggleheads or any conventional advice would recommend. You have little to no chance at a decent return on investment with this allocation.

The allocation is temporary. It's Bogglehead's recomendation to park a windfall in a CD for a year to avoid impulsive spending and to come up with a financial plan. The CD matures in April. https://www.bogleheads.org/wiki/Managing_a_windfall

boarder42

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Re: How long till we FIRE?
« Reply #14 on: February 08, 2017, 06:17:23 AM »
You want to max your tax advantaged investments it accelerates your path to FIRE.  There are many ways to withdraw from these prior to 59.5.

http://www.madfientist.com/how-to-access-retirement-funds-early/#ck_modal2

I'd also educate yourself on math and tax code.  I consider this part of your FIRE "job"


nara

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Re: How long till we FIRE?
« Reply #15 on: February 08, 2017, 06:18:06 AM »
Don't have a 401K unfortunately. We have a SIMPLE IRA and therefore I don't think we could take advantage of this. But we are only able to contribute $12,500 annually for each of us to the our Simple IRA, which leaves us with $35,000 a year left over (-$11,000 for Roth IRA contributions).

Wondering why you don't have a 401K if you own a business?

I guess we could. I just didn't want to contribute more than 50% of our savings to an IRA and the SIMPLE IRA seemed to fit with this plan and was cheaper and easier to set up. I can look into it though if it gives us the opportunity to withdraw early from the Roth.

boarder42

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Re: How long till we FIRE?
« Reply #16 on: February 08, 2017, 06:22:12 AM »
Don't have a 401K unfortunately. We have a SIMPLE IRA and therefore I don't think we could take advantage of this. But we are only able to contribute $12,500 annually for each of us to the our Simple IRA, which leaves us with $35,000 a year left over (-$11,000 for Roth IRA contributions).

Wondering why you don't have a 401K if you own a business?

I guess we could. I just didn't want to contribute more than 50% of our savings to an IRA and the SIMPLE IRA seemed to fit with this plan and was cheaper and easier to set up. I can look into it though if it gives us the opportunity to withdraw early from the Roth.

it avoids taxes. you need to leverage that as much as possible.

a few things

1. You run a business but are self proclaimed "bad at math"- educate yourself FIRE and business are both math games.
2. You need to be maximizing your tax savings by minimizing your exposure - educate yourself on taxes and the best way to setup your business
3. Treat FIRE like its a side hustle job when it comes to figuring out how to maximize tax savings and FIRE earlier.  It's really not difficult to figure out many CPAs around here will even give you advice if you show a willingness to learn and understand from them. 
4. if you dont want to learn you could pay an accountant to figure out the best optimized plan for your business.  but how would you know its the best if you dont understand.

pbkmaine

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Re: How long till we FIRE?
« Reply #17 on: February 08, 2017, 06:37:20 AM »
Find an accountant who specializes in working with small businesses and pay him or her to help you figure this out.

nara

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Re: How long till we FIRE?
« Reply #18 on: February 08, 2017, 07:59:01 AM »
So what you are all saying is to invest 100% of our retirement savings into IRA accounts whenever available (before all taxable accounts) because there are ways to withdraw early? I will meet with the accountant this week to run this by him. If we have the ability to contribute all of our savings to a 401k plan, etc. I am guessing we would also make this the priority over paying off mortgage early also?

neo von retorch

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Re: How long till we FIRE?
« Reply #19 on: February 08, 2017, 08:20:19 AM »
To answer your questions, I'll point to this very helpful thread:
http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153

It will outline what order to prioritize investment vehicles/accounts to optimize for taxes and returns.

boarder42

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Re: How long till we FIRE?
« Reply #20 on: February 08, 2017, 08:24:34 AM »
So what you are all saying is to invest 100% of our retirement savings into IRA accounts whenever available (before all taxable accounts) because there are ways to withdraw early? I will meet with the accountant this week to run this by him. If we have the ability to contribute all of our savings to a 401k plan, etc. I am guessing we would also make this the priority over paying off mortgage early also?

Yes there are easy ways to withdraw early read the post i laid down above.  - Most accountants wont really be aware of these methods so you should read that and understand it first - then you may be educating him.

Assuming you're in the US with a low fixed rate mortgage (5%) or less (if its not refinance it).  Then you never want to pay down the mortgage early. there are many threads debating this but if you can remove emotion and go off of strictly math and numbers you will FIRE sooner. and be safer in FIRE with a mortgage.

Viking Thor

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Re: How long till we FIRE?
« Reply #21 on: February 08, 2017, 07:17:35 PM »
It looks like you portfolio is like 20-30% stocks. That is not what boggleheads or any conventional advice would recommend. You have little to no chance at a decent return on investment with this allocation.

The allocation is temporary. It's Bogglehead's recomendation to park a windfall in a CD for a year to avoid impulsive spending and to come up with a financial plan. The CD matures in April. https://www.bogleheads.org/wiki/Managing_a_windfall

I guess 1 year of nonproductive asset usage is better than wasting but still not ideal. You are a long ways from FIRE with $280k and especially with an investment mix that is mainly cash etc and will not even keep pace with inflation. In addition to saving aggressively, it's really important that you get a decent return on investment and also minimize taxes.

My recommendation would be to read the investment info series on jlcollinsnh website and then create a simple mix of 2 or 3 total market index funds (U.S., Bond, and International). The website is a great resource and can help you figure out a basic portfolio that will essentially mirror the market return with low costs.