Author Topic: Reader Case Study - 26 Years Old, Can I Retire by 35?  (Read 7787 times)

nexus

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Reader Case Study - 26 Years Old, Can I Retire by 35?
« on: July 12, 2016, 04:40:22 PM »
Howdy MMM community!

I stumbled across the MMM blog about a month ago and started reading the posts from the very beginning. I'm up to August 2012, meaning I'm still four years worth of posts behind!

I love what I've read so far and have had the idea of retiring early for quite some time prior to reading up on the ways of MMM. Given my situation, what do you guys think I should do differently?

Life Situation: Single, claiming 1 (should I claim 0??). East Bay of California. 26 years old. Male.

Gross Salary/Wages: Under an 18 month contract position making $65.25 (or ~135k/yr). Contract expires in Jan '17. I expect any job after this one to pay closer to $80-$100k given my skills and experience. I just got really lucky this time because I knew someone.

Pre-tax deductions: I'm paid weekly. Right now only health insurance which is bare minimum and costing me $45/month

Other income: On average I bring in $600/month from doing tennis lessons and stringing rackets. I charge $40/hr for lessons and usually net $10 per racket. Stringing is more a labor of love than it is anything else. Plus I can do it from the comfort of my living room while drinking beer and watching movies.

This also more than covers any tennis expenses I may incur such as team fees, club membership, tournaments, shoes --I always buy the ones with the 6 month warranty--, or any equipment. You can let my tennis expenses and tennis income cancel itself out if you'd like, but I know I don't spend $600/month on tennis even if you factor in transportation.


Passive Income: $600 in a ROTH IRA that yields a few bucks each month. I'm not planning to add any more to this account. I'll just use it when I need to rollover 401k funds.

$8,000 in a brokerage account that yields $88/month in monthly dividends. ($1,064 annually) My current "strategy" is to buy stocks and closed end mutual funds that pay a monthly dividend. I like having the monthly frequency far better than quarterly dividends and I can reinvest more frequently. This is the first year I've been adding to this account (about $1,500 per month). I never withdraw from this account. I'm curious to see how much I'm taxed on these earnings come tax filing time.

My idea is simply to keep investing in the dozen or so stocks and closed end mutual funds that comprise my portfolio until the net passive income meets or exceeds my monthly expenses. Then I'll have F You money and can choose whether or not to retire.

Savings: $25,200 just sittin' there making about $2 per month in interest.
Checking: $1,500 I keep $1,500 in checking at all times. When I get paid the balance is reset and anything extra goes towards car debt, into my brokerage account, or into my savings account.

Adjusted Gross Income:
As a temp employee I don't get paid time off or holiday pay (4th of July was just a day of lost income) Weekly pay: 65.25 x 40 =  2,610 per week. My weekly paychecks are $1,640. Monthly income from day job = $6,560 after taxes and healthcare deductions.

Expenses:
Rent: $1,125 (live alone, 1bd 1ba.) It's a steal for where I'm living
Car Payment: $315. Owe $10.6k @ 2%. 2014 Ford Focus SE w/ 34,000 miles. It is going back in the shop for the 2nd time for the 'recall repair' on 7/13/16. I'm hoping after a couple more visits it will qualify for the lemon law. I'll take the net proceeds and put towards buying a used car outright.
Car Insurance: $101/month through Geico. Full coverage since the car is financed
Cell Phone: $90
Internet: $50
Gym: $39 (going to change this to the new 9.99 gym that just opened up down the street)
Electricity: $25 (last bill was $12)
Netflix: $10
Total "fixed" expenses: $1,760 per month

Other expenses:
Groceries: $300
Fast Food/Restaurants: $150 at most (that includes paying for my girlfriend's meals too)
Shopping: $200, which is mostly tennis stuff covered by my tennis income
Gas: Averages to $100 per month including oil changes every 3 months

$200 for tennis club membership. (annual fee. Tennis income covers it no problem. Made more than that last weekend teaching tennis)

Monthly expenses: $2,500. Let's round up to $3,000 in case I forgot anything. I could easily maintain my current standard of living with $36,000 per year. $36k has been my target passive income amount after taxes. How much pre-tax dividend income would I need to pull this off assuming once I hit my target amount I quit my day job and just make tennis-related income under the table from there forward?

I figure when I get to that point I'll continue to work for at least another year to continue to invest and build a better safety margin.

So I have a lot of extra income left over. Roughly $3,500 each month. I've been spreading this money out over the year in paying off my car, adding to my savings, and adding to my brokerage account. I did have some credit card debt when I first started this job late July 2015, which is the first thing I eliminated. I also just took a 2.5 week vacation to Europe that my tennis side hustle funded. It didn't, however, make up for the 2.5 weeks I went unpaid during this _____ trip of mine.

You've been working this job and ONLY HAVE THAT MUCH SAVED??!! WHERE DID IT ALL GOOO?
-Credit card debt ($5,000)
-Purchased a mattress and box spring from amazon $300 (to replace mattress that was on bedroom floor)
-Purchased sofa to replace beat down futon I was using for a couch also from Amazon $400.
-Took a trip to Vegas for new years. We drove, didn't fly. Gas was $60 round trip. 3 nights hotel $500. Food/gambling/entertainment $750.
-Took a trip to Indian Wells to see pro tennis tournament (drove again) Gas/Tickets/Food: $350
-Europe: $1,200 round trip plane tickets. $1,000 for hotels (10 nights). $600 food & misc transportation

Money I blew on frivolous things & debt repayment: $10,160. Ouch. Could have paid off my car with that money. Wow. #epiphany

The good news? I'm all tripped-out and mustache'd up so no more big trips or furniture in the near future!

Other notes: I bought a bike recently and am using it to get to tennis when I'm not teaching (can't carry ball basket & racket bag on bike) & biking to work when I'm not teaching tennis after work. Tennis courts are 8 miles from my apartment.

My questions:
1. I've been encouraged to try and get prequalified to see if I can afford a condo or townhome around here, but am afraid of spending my savings on a down payment when I know my job is going to end in 6 months. Given my current high income I may be able to get a better rate, but am afraid of having to rely on unemployment to make a mortgage payment. I'm also uncertain how long it will take to find another job. At the same time I think it is dumb to throw $1125 out of the window each month on rent. Regardless of the decision I make I'll still have to find a job in January. I'll obviously begin looking before my contract runs out and unemployment will only be a safety net. Should I go for it or hang tight until I secure a full-time position somewhere?


2. Given my potential lemon law case with my car, should I make just the minimum payments for the next month or two until I see whether or not this most-recent repair actually fixes the shuddering problem this supposed "automatic" transmission'd car has? Anyone have any insights or similar experiences?

3. Can you think of making any cuts anywhere?
The one non-negotiable is my rental situation. I only have 1 bedroom so I can't take in a roommate, nor do I want to move out and try and find a roommate to save a few hundred bucks a month. Typical two bedroom apartments in my area go for at least $1,600/month in crappy areas so I'd be saving $300/month only to have to put up with someone in my living space. Plus its hard to "play house" with your girlfriend when you've got a third wheel!
 
« Last Edit: July 12, 2016, 05:00:23 PM by nexus »

2Birds1Stone

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #1 on: July 12, 2016, 05:01:01 PM »
I would NOT buy anything given your employment situation.

If you believe the car is a lemon I would pursue getting that resolved asap.

randymarsh

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #2 on: July 12, 2016, 05:06:21 PM »
With spending of 36K and going with the 4% rule, you need $900,000. Starting from 33K in assets and assuming 7% stock market growth, you need to save ~$5,500/month and in 9 years you'll have 900K.

waltworks

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #3 on: July 12, 2016, 05:24:14 PM »
-Don't buy a condo. Or a house. Or anything house-like.
-Read some of the investor alley threads about beginner investing. Your "strategy" is, charitably, overcomplicated. Less charitably, it's suboptimal and a big waste of your time. Buy a target retirement fund and just chunk money into it and don't think about when the dividends are paid or anything like that.
-You can easily carry tennis stuff on your bike with a tiny bit of creativity, or alternately a visit to a bike shop that sells commuter stuff. Ditch your car, the weather is great where you are and it sounds like the car is toast anyway.
-Your cash/emergency fund is ridiculously big. Put a large portion of it into the aforementioned target retirement fund.

Finally, forget worrying about fixed dates for retirement. If you have cool opportunities to do neat stuff, go do them. You are young and employable, make sure you have fun. Nobody gives a rat's ass in the real world if you retire at 35 or at 40.

Good luck!

Mariposa

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #4 on: July 12, 2016, 07:45:12 PM »
Congrats on the >50% savings rate. Agree with all of the above.

You didn't say specifically, but it goes without saying that you should be maxing out all your tax-advantaged accounts (401k / Roth IRA / etc) before putting any money in a taxed brokerage account. Your marginal rate is probably 40-50% right now with your high income & high local taxes in CA. There are multiple threads on how to withdraw 401k funds penalty-free before retirement age. If you do things right, you should be able to withdraw your retirement funds (nearly) tax-free.

Also your cell phone bill is high. I'm using Ting myself, and there are other options.

MDM

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #5 on: July 12, 2016, 08:09:29 PM »
Life Situation: Single, claiming 1 (should I claim 0??).
You should always claim the maximum legal number of exemptions on your W-4.  In your case, one.  If you are asking about W-2 allowances, that depends on your other income and what you need to get into one of the Income Tax "safe harbors".  See also Best Way to Calculate W-4 Exemptions for 2016?

Quote
$600 in a ROTH IRA that yields a few bucks each month. I'm not planning to add any more to this account. I'll just use it when I need to rollover 401k funds.
Since you mention 401k - do you have access to one?  Given that your current fed+state marginal rate is probably >34%, putting the most you can into traditional accounts seems best.  E.g., use a 401k if available, and use a tIRA if you aren't eligible for a retirement plan at work.

Quote
Savings: $25,200 just sittin' there making about $2 per month in interest.
Might as well put this into one of The 5 Best Online Savings Accounts - MagnifyMoney or similar.

Quote
How much pre-tax dividend income would I need to pull this off assuming once I hit my target amount I quit my day job and just make tennis-related income under the table from there forward?
Depends how much of that illegal income you plan to have. ;)

Seriously, why not just fess up and pay the self-employment tax?  You can probably deduct a bunch of your tennis expenses against the income, and that also allows you access to a Solo 401(k) plan - Bogleheads.

Quote
My questions:
1. ...Should I go for it or hang tight until I secure a full-time position somewhere?
Hang tight.  See also http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/ for some thoughts.

Quote
2. Given my potential lemon law case with my car, should I make just the minimum payments for the next month or two until I see whether or not this most-recent repair actually fixes the shuddering problem this supposed "automatic" transmission'd car has? Anyone have any insights or similar experiences?
Lemon law considerations aside, a 2% interest rate is not likely worth paying off any faster than required.

Quote
3. Can you think of making any cuts anywhere?
There are no doubt places and things you can cut, but you might want to focus first on putting at least $18K + $5.5K + $3.35K = ~$27K/yr into 401k, IRA, and HSA accounts respectively.

Civex

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #6 on: July 13, 2016, 10:09:11 AM »
This has been touched on, but I would definitely look into your eligibility for opening a solo 401k (I'm assuming a contract position doesn't offer a 401k)-- you have a great income, but are missing out on the tax and liability protections that a 401k would give you.

What field are you in and have you begun applying/networking for a position for once your current contract is complete? This is very location/field dependent, but I just finished a 14 month job hunt that I really thought would be wrapped up in 3-6 months ( I was employed during this time.) I would really be hesitant to make any long term financial commitments like purchasing a house or condo until you have a steady position and know you want to be in that geographic location.

Definitely check out Bogleheads forum (and the books.) I would also recommend the 3 Pillars of Investing by Bernstein. I have a feeling your dividend plan is not the most tax efficient option.

Overall, you are doing well, you just need to keep making good decisions and stay the course.

Axecleaver

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #7 on: July 13, 2016, 11:20:21 AM »
Primary focus should be on establishing a tax-deferred account - assuming you don't have access to a 401k at work on account of working contract, a SoloK would probably be ideal for you with all of your income coming from self-employment. Then you can leverage the SEPP rules to set up withdrawals and Roth conversion ladders to take advantage of it once you pull the trigger. Shrinking your expenses will help you both lower the amount required to retire, and get there faster. If we assume $24k is a reasonable spending target, you only need 600k in total to generate that.

I would also verify your estimate of $1064 a year in dividends from an $8,000 investment. That is a 13.3% dividend, not sure how sustainable (or accurate) that is. The top dividend stocks I'm aware of are paying 3-4% yields. $88/quarter is more likely than $88/month with that investment.


nexus

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #8 on: July 13, 2016, 12:47:41 PM »
Great insights everyone, I really --really-- appreciate it. I'll definitely hold tight and not change my living situation.

Additional info: My staffing agency offers a 401k plan after 12 months and 1,000+ hours of work. I hit my 1 year mark  on 7/23 and then should be getting a letter in the mail from Fidelity. The company will match 50 cents per every dollar I put in up to 6%.

I'm currently doing database analytics. I also have previous experience in management and HR. I had a great talk with my boss/mentor yesterday, who would hire me in a heartbeat if they had capacity within his department. Anyway, he basically said it's go-time in terms of trying to find a FTE position for me within one of the other groups. My pay would not be near as great as it is as a contractor, but I'd have much better benefits and be bonus eligible each year. Total compensation would still be around 100k with a better 401k employer match (100% up to 6%). So, I'll be starting to apply for internal positions.

As for my holdings, they are listed below. Each one pays monthly dividends. (and I'm sure most of you are going to confirm that this isn't sustainable or smart, but it is what it is.) You can verify on the NASDAQ dividend history page their frequency and payout. They bring in just under $88/month in passive income. My very novice idea was just to keep evenly distributing funds to each one. After reading MMM, I'm going to save enough to buy into an Index fund before investing any more.

In this scenario, what is the worst case? That the closed end mutual fund (or company) stops/cuts dividends or completely goes out of business? I'm not by any means trying to justify my decision, just trying to learn. I've never worked with a financial advisor and obviously my knowledge is pretty limited here, but what makes this a fundamentally bad idea?

In a oversimplified example, let's say I put $500,000 into NCV @ $6.30 per share. NCV pays $0.78 annually per share, which is $0.065 per month. I'd get 79,365 shares, a monthly payout of $5,158.73, which is $61,904.70 before taxes.

I'd much rather put 50k into 10 funds instead of 500k into one, but the above example is for the sake of simplicity.  Assuming I only spend 36k/year, I'd be able to take the rest that isn't eaten up by taxes and funnel it into "safer" investments like index funds, right?

Why is this such a bad idea?
What's the average lifespan of a closed end mutual fund?
If I take a few seconds to simply check my holdings each day, or place limit orders on them such as sell if value falls below 40% of my purchase price to mitigate losses, what's the big deal? What am I missing here? 


Holdings
CLM 38 shares
NCV 145 shares
ARR 26 shares (their reverse stock split wasn't too fun)
ORC 50 shares
PSEC 71 shares
NCZ 102 shares
PHK 55 shares
SCM 50 shares
IGD 197 shares
ACP 45 shares
GGN 100 shares
CRF 16 shares

waltworks

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #9 on: July 13, 2016, 01:05:14 PM »
Go read the investor alley threads. Most of them. Or at least a bunch. Among folks who spend time studying this, the consensus is that you won't beat the market except by luck, so you shouldn't bother trying. Just buy a broad based index fund based on your appetite for volatility (meaning: stock/bond ratio). Put the money in as soon as you have it, and forget about it. You'll match the returns of the broad market with zero effort on your part and next to no fees/taxes.

If you prefer old school physical books, A Random Walk Down Wall Street is a classic:
https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393330338

You can also go read all J Collins stuff here:
http://jlcollinsnh.com/stock-series/

Come back when you're done and ask specific questions in Investor Alley. The biggest thing to note here is that you have a ton of money that is not working for you right now. Invest that.

-Walt

nexus

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #10 on: July 13, 2016, 01:43:37 PM »
Thanks Walt!

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #11 on: July 13, 2016, 02:17:46 PM »
yea i agree... Buy a target date fund or index funds, dont try to be a stock picker. Be diversified as much as you can be.

Axecleaver

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #12 on: July 13, 2016, 03:09:20 PM »
Sorry, I missed where you said "closed end mutual funds." These don't distribute dividends, they're highly managed mutual funds, typically with high expenses, which follow a distribution policy to generate reliable monthly income. They can borrow money to meet their distributions, so they tend to be riskier (they're leveraged). These can include "return of capital" - basically, the way they hit their distribution policy is to borrow it or to give you back some of the money you paid for it. This might be nice for someone who needs reliable monthly income and doesn't care so much about long term performance. Not sure how that works in taxable accounts, sounds taxable as income to me, but I don't really know.

So for example CLM, has an expense ratio of 1.31%. Every month they distribute one twelfth of 21% (annualized) of the NAV value set in October of the prior year. That's how they got to 6.5 cents a share per month. You can see the details here: http://www.morningstar.com/cefs/XASE/CLM/quote.html.

To evaluate a closed end fund, you compare the NAV - what the underlying stuff they own is worth - to the price - what it's trading at. In CLM's case, today it's trading for a 17.5% premium. That means you'd do better just buying the underlying individual stocks, than you would paying CLM's managers to buy them on your behalf. I assume CLM has a great track record with a manager that people love, which is why it's trading at a premium.

I don't know much about closed end mutual funds and don't own any myself, so hopefully someone will jump in here and correct me if I've misstated anything. You might have better luck in the investing forum on this topic. In general I think ETF's are used a lot more often today than closed end funds, and they're more tax-efficient. You pay for the convenience of a monthly check.

sirdoug007

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #13 on: July 13, 2016, 03:41:45 PM »
Quote
My current "strategy" is to buy stocks and closed end mutual funds that pay a monthly dividend. I like having the monthly frequency far better than quarterly dividends and I can reinvest more frequently.

This is a horrible reason to invest in a stock/mutual fund. 

You've just shut yourself out of a huge number of great companies and funds just because you don't like getting quarterly dividend payments.

Just because you get dividends monthly is no reason why you couldn't reinvest on a monthly or even daily basis.

I second (or third or wherever we are) on reading the jlcollinsnh.com stock series.  Then get over the monthly dividend thing and learn to love VTSAX/VTI!

http://jlcollinsnh.com/stock-series/

Cottonswab

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #14 on: July 13, 2016, 08:15:20 PM »
Quote
My current "strategy" is to buy stocks and closed end mutual funds that pay a monthly dividend. I like having the monthly frequency far better than quarterly dividends and I can reinvest more frequently.

This is a horrible reason to invest in a stock/mutual fund. 

You've just shut yourself out of a huge number of great companies and funds just because you don't like getting quarterly dividend payments.

Just because you get dividends monthly is no reason why you couldn't reinvest on a monthly or even daily basis.

I second (or third or wherever we are) on reading the jlcollinsnh.com stock series.  Then get over the monthly dividend thing and learn to love VTSAX/VTI!

http://jlcollinsnh.com/stock-series/

^+1

Expected total return on investment is much more important than dividend frequency.  Even if you limit yourself to investments that produce a regular dividend at any frequency, you will have way, way more options with potential for higher ROI.

uwp

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #15 on: July 14, 2016, 11:14:36 AM »
So for example CLM, has an expense ratio of 1.31%. Every month they distribute one twelfth of 21% (annualized) of the NAV value set in October of the prior year. That's how they got to 6.5 cents a share per month. You can see the details here: http://www.morningstar.com/cefs/XASE/CLM/quote.html.

To evaluate a closed end fund, you compare the NAV - what the underlying stuff they own is worth - to the price - what it's trading at. In CLM's case, today it's trading for a 17.5% premium. That means you'd do better just buying the underlying individual stocks, than you would paying CLM's managers to buy them on your behalf. I assume CLM has a great track record with a manager that people love, which is why it's trading at a premium.

I don't know much about closed end mutual funds and don't own any myself, so hopefully someone will jump in here and correct me if I've misstated anything. You might have better luck in the investing forum on this topic. In general I think ETF's are used a lot more often today than closed end funds, and they're more tax-efficient. You pay for the convenience of a monthly check.

Pretty much right. 
CLM paid out roughly $4 in distributions this past year ~20% yay!  But the value of the fund went down about $4... yay! 
Whether or not this individual fund is quality, I have no idea.  But I find people usually don't understand what they are getting when they look at those juicy 10%+ yields on closed end funds: a lot of the time, they are paying you back your own money (not profits or income) in little monthly increments.

homestead neohio

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #16 on: July 14, 2016, 12:46:25 PM »
You have crazy high income now, now is not the time to receive additional income via dividends in taxable accounts.  It is the time to defer taxes until FIRE when you pay a LOT less tax.  So buy stuff that increases in value and pay no dividends, or smaller quarterly dividends that do not substantially depreciate the stock.  Then sell them much later at a profit, namely after you give up full-time employment.  Then it is taxable income only when you are below the threshold for paying tax on long term capital gains.

If I were you I'd:

1) Get out of these investments and into index funds for tax efficiency reasons.  You can always change to a dividend heavy income portfolio when you have 25x expenses or more saved if you want regular income.

2) Defer taxes! This may be via employer 401k as soon as it is available, max your 18k contribution limit this year, or via self-employment for the tennis gig and a Solok.  Employer plans are awesome, go get that match!  Put the max in HSA if offered.  Put the max in IRA each year, tIRA if tax deductable and Roth IRA if not.

nexus

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #17 on: July 14, 2016, 05:30:21 PM »
Thanks again for the additional guidance! I only have a few minutes to type so here are some of my takeaways
1. Stay put in the apartment.
2. No more monthly dividend payers until I get 25x my annual expenses invested in index funds. VTSAX seems to be the best choice in this matter.
3. Read The Stock Series (been reading it today, up to the 14th article)
4. Utilize (max out) tax-advantaged accounts & employer 401ks
5. Don't necessarily put an exact deadline on FI, but obviously work really hard towards it!

I'm sure I'm missing some key points here, so I'll re-read all of your comments and edit this post as needed. :)
 

With This Herring

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #18 on: July 15, 2016, 09:27:30 AM »
Thanks again for the additional guidance! I only have a few minutes to type so here are some of my takeaways
1. Stay put in the apartment.
2. No more monthly dividend payers until I get 25x my annual expenses invested in index funds. VTSAX seems to be the best choice in this matter.
3. Read The Stock Series (been reading it today, up to the 14th article)
4. Utilize (max out) tax-advantaged accounts & employer 401ks
5. Don't necessarily put an exact deadline on FI, but obviously work really hard towards it!

I'm sure I'm missing some key points here, so I'll re-read all of your comments and edit this post as needed. :)

2. No more monthly dividend payers outside of tax-deferred accounts until I get 25x my annual expenses invested in index funds. stop full-time work and fall into a lower tax bracket.

6. Don't invest in anything with an expense ratio over Vanguard's highest for comparable funds unless I have a REALLY good reason.  Remember that Vanguard charges you 0.16% per year to own the entire US stock market in small quantities ($3,000 to $9,999.99 investment VTSMX) and only 0.05% to own it in larger quantities ($10,000+ in VTI).  At 1.31% expense ratio for CLM, they are charging you over 8 times as much as Vanguard's more expensive entire US market option charges.

nexus

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #19 on: July 15, 2016, 05:26:42 PM »
So with VTSAX I get a lower fee because of a larger initial investment of $10,000 compared to VTSMX which has a minimum initial investment of $3,000?

I notice the prices are fairly close to each other (around ~$53.80 when I last looked) and the only difference in the name is 'Admiral' vs 'Investor.'

Assuming the initial buy in isn't a factor, it would be a better choice to go with VTSAX due to the lower fees, right?

I also get the feeling I'd get some high fives if I sold CLM due to its high expense ratio.  :p


waltworks

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #20 on: July 15, 2016, 06:34:40 PM »
You're getting it, son!

Seriously, nice work posting and you're getting great info. VTSAX is where it's at if you're ok with 100% US stocks. I would recommend reading more (IMO, you want some international, and you may or may not want some bonds depending on how you feel about volatility) but you're on the right track.

Sell everything, buy $10k of VTSAX, never look back. The future is bright.

-W

With This Herring

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #21 on: July 15, 2016, 08:07:36 PM »
So with VTSAX I get a lower fee because of a larger initial investment of $10,000 compared to VTSMX which has a minimum initial investment of $3,000?

I notice the prices are fairly close to each other (around ~$53.80 when I last looked) and the only difference in the name is 'Admiral' vs 'Investor.'

Assuming the initial buy in isn't a factor, it would be a better choice to go with VTSAX due to the lower fees, right?

I also get the feeling I'd get some high fives if I sold CLM due to its high expense ratio.  :p

Oh, yes, I should have explained.  They are the EXACT same fund, except that Vanguard is able to cut the expense ratio even further than their already low rate "Investor" shares rate if you get their $10,000 "Admiral" shares.  Vanguard has this setup for most (all?) of their index funds.  If you look at the Vanguard page for VTSAX, you will see that at the top it says "Also available as Investor Shares mutual fund and an ETF."  The ETF has the same expense ratio as the Admiral shares and may be a better way to buy if you are going through a different broker.  Look into straight mutual/index funds versus ETFs if this interests you.  (Also, if you start with Investor VTSMX shares and $3,000 but your investment grows to $10,000+, Vanguard will convert your shares to Admiral VTSAX shares with the lower expense ratio if you ask or whenever they catch it in their reviews.  They are really an excellent company.)

Yes, please kill off CLM!  Pull up an interactive chart on your favorite stock website, and then click the drop-down for "Benchmark" and select "S&P 500."  Note that the S&P is in orange.  Now set the time period for 10 years.  Look at how the S&P has gained while CLM has fallen.  If I am understanding other posters correctly, the value is so far behind the S&P due to the high expense ratio, returning your large portions of your investment to you (instead of just earnings), ...and possible inefficiencies of active management.  I'm not familiar with that kind of fund, though, so everyone please correct my errors!

nexus

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #22 on: July 21, 2016, 11:05:07 AM »
Update:

I sold some of my investments you guys suggested I ditch (thank you!) to free up enough cash to make an initial $3k investment on VTSMX. The rest of my monthly dividend payers will stay and their proceeds will be reinvested in VTSMX. $900k was the number we came up with using the 4% rule to earn $36k/year, but now I have another question. See below.

Showing that I own slightly over $3000 in VTSMX it projects that I'll make a little over $50 per year in annual dividends. $900k is 300 times larger than $3,000. Using that idea, I can multiply both my current annual dividend yield and my balance to 'estimate' what I'd be earning per year if I had the 900k.

3,000 x 300 = $900,000 (portfolio balance)
50 x 300 = $15,000 (dividend income)

So with an investment of $900,000 I'd earn $15,000 in passive dividend income. My target amount for retirement is $36,000 per year. Where does the other $21,000 come from?

Is it assumed that VTSMX will increase in value enough each year so that I can sell off $21,000 worth of shares? Obviously I won't just withdraw $15k and sell off $21k in shares on Jan 1 each year, but how exactly does this work? For my brief investing life (2 years), I've always wanted to buy and hold forever.

Another update:
I'll be paying off my car next week, which frees up $315/month, or $3780/year. I'll then be able to drop full coverage insurance which I'm hoping will save me at least $25/month, or $300/year. I will also be cancelling my $40/month gym membership in September and replacing it with a $10/month one, saving another $30/month or $360/year.

Total reduction in annual spending: 3780 + 300 +360 = $4,440, meaning I no longer require $36,000 per year to be financially independent.

New Financial Independence Target: $31,560

Using the 4% rule, $775k will produce $31,000 per year, meaning that's $125k less that I will have to save! Yay!

By reducing my expenses, this has the nice double whammy of increasing my savings rate, further accelerating the process!

I'm 110% certain that I can cut $560 in spending over the course of 12 months. That's spending $46.67 less per month which can be accomplished by biking more or eating out less. Gas consumption will decrease after the 9-5 stops anyway. Or, I can just keep up the tennis business and be golden since that brings in an average of $600/month anyway (and yes, I'll report my earnings and write off my expenses).

Next on my list is to clean out my closet and dressers. I have one of those sliding door closets that's pretty standard in apartments. Currently half of it actually has stuff I wear and the other half is storing crap I don't use. Pokémon cards, Yu-Gi-Oh cards, several tennis trophies I'd like to display but cannot because my lease won't let me install shelves in my apartment.  I have a finicky desktop that I don't use anymore because it randomly freezes that I may be able to unload on craigslist 'for parts' and just clear up some more space. I plan on donating some of the clothes I never wear. I don't have much to start with, but it always feels good to go on a cleaning rampage.

Anyone have success selling Pokémon or Yugioh cards and not getting completely ripped off by comic book stores? I'm pretty good with eBay and may resort to unloading my collecting piece by piece there.

Obstacles I need to overcome:
> Tedious and time consuming to take pictures, create detailed listings and list them piece by piece.
> Concern of buyer complaints if card(s) show up damaged/bent from mail. Results in double-loss for me because I have to give at least a partial refund & I lose the card.
> Anyone know of some sturdy, economical, thick plastic sleeves I can slip a trading card into, put in an envelope, slap a stamp on and kiss goodbye? (Amazon research commencing!)

My end game could be a couple things:
> Free up enough space so that I can eventually downsize from my 1bd/1ba to a studio. Plus, the less crap I have the easier & cheaper it is to move!
> Make it easier for the girlfriend to move in (unlikely since she has it made living at home with virtually no expenses/bills.)
area.
> Bring in extra cash to pour into VTSMX until it evolves into VTSAX

Cwadda

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #23 on: July 21, 2016, 11:26:57 AM »
Quote
Next on my list is to clean out my closet and dressers. I have one of those sliding door closets that's pretty standard in apartments. Currently half of it actually has stuff I wear and the other half is storing crap I don't use. Pokémon cards, Yu-Gi-Oh cards, several tennis trophies I'd like to display but cannot because my lease won't let me install shelves in my apartment.  I have a finicky desktop that I don't use anymore because it randomly freezes that I may be able to unload on craigslist 'for parts' and just clear up some more space. I plan on donating some of the clothes I never wear. I don't have much to start with, but it always feels good to go on a cleaning rampage.

Anyone have success selling Pokémon or Yugioh cards and not getting completely ripped off by comic book stores? I'm pretty good with eBay and may resort to unloading my collecting piece by piece there.

Check out the Amazon selling guide in my signature. I've had success selling trading cards on there.

Other than that, great progress!

Axecleaver

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #24 on: July 21, 2016, 01:27:37 PM »
Now you're getting it! Take a look at some example drawdown plans here: https://www.bogleheads.org/wiki/Withdrawal_methods.

Some folks deposit a year's worth of expenses into their account on some arbitrary day of the year. Others keep two or three years of expenses liquid, so they aren't forced to sell off equities during a downturn.

In the three year model, you have two years of expenses in three year CD's (bought one and two years prior to FIRE), and one year in cash. Every year, if the market is up on January 2 (or whatever your date is), sell a year's worth of expenses and deposit it into a new three year CD. If the market is down, keep your investments in and spend down your liquid cash. This plan lets you last up to three years during a downturn; the downside is that more of your money (about 10%) is not working for you during FIRE. Some folks use the CAPE average to decide what to sell, some folks keep one year in cash and sell bonds when the market is down, and stocks when it's up.

MDM

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #25 on: July 21, 2016, 02:29:13 PM »

boarder42

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Re: Reader Case Study - 26 Years Old, Can I Retire by 35?
« Reply #26 on: July 21, 2016, 02:35:00 PM »
many people confuse the value of dividends ... if a stock pays a 10 dollar dividend and is worth 100 dollars.  at the beginning and end of the year then it could have easily just gone up to 110 dollars.  and you as a share holder sell your shares to live off of an you're in a similar situation similar b/c taxes on your dividend is technically worse.  selling shares isnt a bad thing its actually how this all works.