Author Topic: When Can I (Semi) Retire?  (Read 1707 times)

ardrum

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When Can I (Semi) Retire?
« on: September 09, 2015, 07:50:38 PM »
Wow, my first post!  I recently came across this amazing site, and I've been reading MMM's posts from the beginning (though I'm still back in 2011!).  I thought I'd "cheat" a bit and come back to the present to see if anyone has any commentary on my situation.

Life Situation:

Single, no kids/pets (don't plan on having kids), 32 years old, Dayton OH.  I am a career changer.  I graduated this past May and started working this summer.  Although I have about $55,856 (@ 6.8% interest rate) in student loan debt, I also have a $45,831 Roth IRA at Vanguard invested in the Target Retirement 2045 fund (haha...from my old career).  That particular fund is invested in 55.4% total stock market index fund, 34.4% total international stock market index fund, 7.0% total bond market II index fund, 3.2% total international bond market index fund (0.18% expense ratio).  I have no credit card or other forms of debt of any kind.  I own a 1999 Honda Accord that runs great and don't want to replace it anytime soon despite its 152k miles...If anything, I would replace it with a used car in a few years at the earliest that would get even better gas mileage (while strategizing to live as close to my workplace as possible to minimize its usage).  I am renting an apartment at this time (1 year lease that began in July).  It is unfortunately kind of pricy, but in a very nice and safe area that I enjoy.  I am determined to live on half of my take-home pay as an absolute max cost of living.  I have no other income besides my new career as a physical therapist.  I have $3,639 in my checking account (I know, it would be nice to get some interest from this instead). 

Gross Salary/Wages:

$68,000 (after taxes I get paid $1870 every two weeks, or $48,620/yr...includes my catastrophic insurance premium payments taken out).

My Current Plan: 

I plan on setting aside $2000/month as "untouchable," to be used for investing/paying off loans.  I have maxed my Roth IRA ($5,500) already this year, and I plan to pay student loans for the rest of the year with this amount.  Anything more I can save beyond $2000 is gravy, but I would like to maximize this by following the awesome tips I have been learning on this website.  I may use this to build up my "emergency fund," pay some extra on the student loans, or some kind of combination.  Not sure yet!  Starting in 2016 I plan to take advantage of any employer-matching retirement contributions first, then max my Roth IRA (while making the required student loan payments), and then attack student loans for the rest of the year with that $2k+/month. 

Specific Questions:

1.  If I can save at least $24,000/yr in this manner (hopefully more), would you suggest I maintain this plan until I can finally replace my student loan payments with maximizing my 401k contribution as well?  I'm just wondering if I'll really have enough to save beyond that to justify opening a taxable Vanguard account like MMM advocates as his "stashe."  It just seems like the tax benefits are too good to pass up in the 401k/IRA options.
2.  If my goal is to switch to working part-time (let's say, taking home about $30,000 in today's dollars w/benefits) by the time I'm 45, is this going to be viable if I continue saving over 50% of my take-home income now?  I would hopefully be saving enough to be "comfortable" when I can access my retirement accounts at 60.  I would likely still be able to have a positive savings rate in the part-time stage of my career (but more like 10-15% instead of 50-55%), but I would have more freedom to work on my own terms.  This is basically the subject of my main question:  When can I semi-retire??? :D
3.  What are your thoughts for a better spot for my emergency fund?  I used to have a money market account at Vanguard for this, but it seems to have a very poor interest rate.  I don't like how I can't access money in CDs too.
4.  Do you have any other questions or feedback for me?  (Anything would be appreciated, and I don't take offense to any criticism!)
« Last Edit: September 09, 2015, 09:07:52 PM by ardrum »

MDM

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Re: When Can I (Semi) Retire?
« Reply #1 on: September 09, 2015, 08:28:58 PM »
1.  If I can save at least $24,000/yr in this manner (hopefully more), would you suggest I maintain this plan until I can finally replace my student loan payments with maximizing my 401k contribution as well?  I'm just wondering if I'll really have enough to save beyond that to justify opening a taxable Vanguard account like MMM advocates as his "stashe."  It just seems like the tax benefits are too good to pass up in the 401k/IRA options.
2.  If my goal is to switch to working part-time (let's say, taking home about $30,000 in today's dollars w/benefits) by the time I'm 45, is this going to be viable if I continue saving over 50% of my take-home income now?  I would hopefully be saving enough to be "comfortable" when I can access my retirement accounts at 60.  I would likely still be able to have a positive savings rate in the part-time stage of my career (but more like 10-15% instead of 50-55%), but I would have more freedom to work on my own terms.  This is basically the subject of my main question:  When can I semi-retire??? :D
3.  What are your thoughts for a better spot for my emergency fund?  I used to have a money market account at Vanguard for this, but it seems to have a very poor interest rate.  I don't like how I can't access money in CDs too.
3.  Do you have any other questions or feedback for me?  (Anything would be appreciated, and I don't take offense to any criticism!)
ardrum, welcome to the forum.

A1. Taxable investments aren't in the cards for you in the near future.  It's actually a close call on the Roth IRA vs. putting everything toward the SLs.  In the list below, with the 10-year Treasury note at ~2.2%, paying on the SLs just misses #2 and drops to #7 - but if you were to pay off the SLs first that would be defensible.

In the lists below, thinking "first your 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct.
Also, differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules).

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money   
2. When the guaranteed return is this high, take it.   
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.   
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see   
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/
   if you want even more details on that topic.)
5. See #4 for choice of traditional or Roth for 401k   
6. Applicability depends on the rules for the specific 401k   
7. Again, take the risk-free return if high enough   
8. Because earnings, even if taxed, are beneficial   

A2.The short answer to "When can I semi-retire???" is "any time your semi-retired income covers your expenses".  For full retirement, a quick calculation gives:
Quick calculation of "Time to FI"
Planned Withdrawal RateWR4.0%
Annual Savings InvestedS$24,000$/yr
Annual Retirement ExpensesE$24,000$/yr
Current Assets InvestedA-$10,000$
Investment returnr_5.0%
Time to FIt17.1yr
Of course, change any of the inputs and that answer will also change.  See the 'Misc. calcs' tab in the case study spreadsheet to roll your own.

A3.  Nope.  Good post - and good luck!

ardrum

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Re: When Can I (Semi) Retire?
« Reply #2 on: September 09, 2015, 08:41:39 PM »
Thanks, and wow a very quick reply!