clifp, after reading your post, I put some more time cooking up the facts until I understood the situation a little bit better.
I did some math based on you and Cheddar Stacker's (mmmmmm, cheeeeeese) suggestions. Maybe I did this wrong - I literally skipped a night of sleep a couple nights ago because I'm so excited about the idea of early retirement that I can't stop reading and reading and thinking and thinking about it, and I've been paying the price - but hopefully my reasoning is sound.
Here's what the tax brackets look like for 2014 (loosely defined for brevity's sake):
Taxable income | Tax |
less than $36,900 | $907.50 + 15% of salary |
less than $89,350 | $5,081.25 + 25% of salary |
Here's what happens after I subtract $17,500 of my salary into my 401k before I get taxed:
At a salary of $53,000, I'd keep $35,500. This would put me in the first tax bracket, which means that after taxes I'd make $35,500 - ($907.50 + $5,325) = $29,267.50 a year. After $900/mo. of expenses, that leaves me with an extra $17000 per year for investing (assuming more than $100 a month of social security tax, medical/dental, etc.).
At a salary of $66,000, I'd keep $48,500. This would keep me in my current tax bracket, which means that after taxes I'd make $48,500 - ($5081 + $12,125) = $31,294 a year. After expenses, that leaves me with an extra $19000 per year for investing (after other taxes and insurance).
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So with those two figures in mind, I'm looking at my 401k now, with the 3% employer match. If I keep making $53,000, and if things hold steady at a 4% interest rate, I'll end up with $169,000 in the 401k after 7 years with the employer match (I used a simple savings calculator to figure that out, maybe that was wrong). If I go back to making $66,000, that would be $172,400.
On top of that, if I invest at the lesser income with 4% interest, I'll end up with $136,600 more.
If I invest at the higher income, I'll end up with $152,700 more.
Living off 3% interest on 401k and 4% interest on the other investments
7 years of Part-time: $4581 + $5464 = $10,045 total interest per year
7 years of Full-time: $5172 + 6108 = $11,280 total interest per year
Okay, so 7 years seems totally unrealistic if I wanted to make $21,000 a year. I was kinda copying the original Mr. Money Mustache on that one and shooting for a little less than he did. But now that I think about it, I'm also not trying to pay for a whole family with all of this, just myself, so $12,000 would probably be fine for me too, if I kept living in a pretty frugal manner. I think I'd just need to add another year or two of working to get there. And I'm 100% certain that I would want to do
some kind of work while I'm "retired." I might even stay at my current job for a while longer because it's a pretty nice place to work. I think what I'm really saving for is the feeling that if I wanted to be financially independent, I could...the idea of freedom. Maybe that is too lofty... But I'd really like to start taking steps with this and see where it goes. From what everyone here is saying, I can cut down my cell phone bill by a significant amount, as well as my grocery bill. I could probably also cut down on my bus pass spending if I choose to ride my bike more often.
Another question, if I may. Student loans aren't quite the opposite of invested money, are they? With invested money, you keep adding to it, and it keeps growing at a certain interest rate. But with student loans, you keep subtracting from the amount that you owe, even though they're growing at an interest rate, so it's not like the growth into debt is as great as the growth into wealth is with investments, right? Plus I get the interest that I paid back at tax-refund time every year, and I usually get a $1500 bonus from work every year too (after taxes). Forgot about that!!!
Okay. Maybe I will be able to sleep now!? :) Feel free to rip all of this to shreds thoroughly; I just started thinking about this stuff a few days ago, and I'm sure there are some problems with my analysis. Anyway, thank all of you guys for your help again, wow, I can't believe I can get this kind of advice for free, you guys rock.