Author Topic: Case Study - Am I on the right track?  (Read 1930 times)

MrFire22

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Case Study - Am I on the right track?
« on: October 10, 2019, 02:50:53 PM »
All:

I'd like advice on my Fire Journey. Here's my info:


1. Life Situation: 35 year old lawyer in NYC. Single Debt free (paid off $150K in student loans 2 years ago). Graduated law school in 2008.
2. Income: $158K + $20-$40K bonus
3. Assets: $125K stocks (VTI, VYM, Facebook and Apple)
4. 401K: $25K from previous employer. My current job does NOT have a 401K, but they may set one up next year.
5. Rent: $1,200
6. Spending: Approx $1000 to $1,200 per month on food, groceries, entertainment, utilities, personal travel. I know I could probably cut this down.

After tax, I get about $8K per month. $5K of that goes to an ETF like VTI. I know I could probably get better on eating out less and cutting down my expenses. I make too much for a ROTH IRA, but my job may begin offering a 401k going forward. Its a small law firm that just started out and growing rapidly. I'm tracking my spending with Nerdwallet.

Anything else that I should be doing? I hear after the first $100K saving becomes easier due to compounding / dividends reinvesting themselves. My goal is to become FI by age 40 maybe age 42. I expect salary to increase and cost of living to maintain the same / slightly more due to inflation over the next few years.

When I do become FI, I plan on living abroad. Top contenders: (Brazil, Mexico, and Philippines). Living abroad for most of the year and maybe coming back to NYC in the summers. I know NYC is expensive, but I was born and raised here. Family and friends here.

Thoughts?

Bernard

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Re: Case Study - Am I on the right track?
« Reply #1 on: October 10, 2019, 10:40:23 PM »
I'd say you are doing VERY well!
Your savings rate is over 60%, and that on a very high income in a HCOL area.

In regard to retirement destinations, look into Portugal (no income tax for 10 years on foreign sourced income) and Thailand . . . instead.

ericrugiero

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Re: Case Study - Am I on the right track?
« Reply #2 on: October 11, 2019, 06:45:30 AM »
You should be able to do a backdoor Roth IRA. 

oldmannickels

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Re: Case Study - Am I on the right track?
« Reply #3 on: October 11, 2019, 07:05:32 AM »
Just some quick math. (1200+1200) x 12 months = 28,800 Annual Expenses

28,800 / .04 = 720,000 Total Stash Needed

720,000 - 308,000 = 412,000

So you need to save/earn $412 over the next 5 years so lets say save about $75,000 per year.

The $8k you take home is that after 401k because the $5k you are saving monthly after tax won't get you there by 40.

Something I don't see in your spending is healthcare.

Like someone else said if you old 401k is still in the 401k you could do a backdoor Roth IRA.

MrFire22

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Re: Case Study - Am I on the right track?
« Reply #4 on: October 11, 2019, 07:55:03 AM »
That's true, that's why I said 40-42 years old! Haha. The 8K is after healthcare, HSA, and Flexible spending accounts. Also, I get a bonus each year of $20-40K (after taxes that is about $13K to $26K). Also, I assume that I will see some growth in salary throughout the years. Plus natural growth of the stash throughout the years sitting in the stock market. My expenses / rent should come down once I leave NYC too.


Any one have some good material on the pros and cons of a backdoor IRA? I googled it, but if anyone has a trusted resource, I'd appreciate it!

oldmannickels

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Re: Case Study - Am I on the right track?
« Reply #5 on: October 11, 2019, 01:14:27 PM »

Any one have some good material on the pros and cons of a backdoor IRA? I googled it, but if anyone has a trusted resource, I'd appreciate it!

The backdoor Roth IRA is just a Roth IRA so its advantages are the same as any Roth account. Here's a good article. https://www.physicianonfire.com/backdoor/


Laura33

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Re: Case Study - Am I on the right track?
« Reply #6 on: October 11, 2019, 05:20:59 PM »
Do a traditional IRA until they start a 401(k).  At your income level and with no deductions, any tax deferred growth you can get will pay off in the end.

MrFire22

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Re: Case Study - Am I on the right track?
« Reply #7 on: October 14, 2019, 12:17:11 PM »
Good idea Laura. I just read up on the tax benefits. I have a traditional IRA setup from a rollover from my prior employer. I'll start there!

jimphillips

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Re: Case Study - Am I on the right track?
« Reply #8 on: November 18, 2019, 11:57:47 PM »
Do a traditional IRA until they start a 401(k).  At your income level and with no deductions, any tax deferred growth you can get will pay off in the end.

Ah, you're right.

Freedomin5

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Re: Case Study - Am I on the right track?
« Reply #9 on: November 19, 2019, 03:33:09 AM »
Just some quick math. (1200+1200) x 12 months = 28,800 Annual Expenses

28,800 / .04 = 720,000 Total Stash Needed

720,000 - 308,000 = 412,000

So you need to save/earn $412 over the next 5 years so lets say save about $75,000 per year.

The $8k you take home is that after 401k because the $5k you are saving monthly after tax won't get you there by 40.

Something I don't see in your spending is healthcare.

Like someone else said if you old 401k is still in the 401k you could do a backdoor Roth IRA.

I donít see where youíre getting 308k. Current stash by my calculations is $150k, so OP will need to save $570k within the next five to seven years. $570k / 7 years = $81k per year or ~$6800/month.

At current savings rate, reaching FI in five years is a stretch. Seven years is possible if all bonuses and salary increases go toward savings.

freya

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Re: Case Study - Am I on the right track?
« Reply #10 on: Today at 07:46:55 AM »
You definitely need to think about ways to defer taxes, because you're in the worst possible situation for that - high state/local taxes and no deductions.  Could you ask your employer to pay you at least part of your salary (e.g. bonus) on a 1099?  That would be your bonus PLUS the money that they would normally spend on payroll taxes, because you'll have to pay those yourself.  Then you could classify it as self-employment income, and funnel it into a solo 401K:  20% "profit sharing" off the top, then up to the 401K limit from what remains.  Plus you can deduct any non-reimbursed professional expenses directly on Schedule C.  This is actually a better deal for you than any company 401K could possibly be, unless they intend to provide a match.  If they don't, definitely push for this!

Your expenses are astonishingly low for NYC.  Can you give us a little more info on the rent situation?  Is that half of a shared apartment, or a subsidized apartment?  I was not aware that $1200 could get you anything more than living under a sewer grate in this city, would really like to know how you pulled that off.  The next question of course is whether that level of housing expense is sustainable in retirement.   Your retirement plan apparently includes living in more than one place (NYC plus abroad) which could get expensive.

You definitely need some more concrete info to calculate your FI savings:  health insurance and expenses, any benefits provided by your employer like transportation pre-tax deductions that you may not be adding in, income taxes on retirement withdrawals, future costs such as...are you thinking about getting married and having kids, buying a house, etc?  Are you planning to start your own company or do some form of consulting work in retirement?  On the good news side, the calculations in the previous posts ignore investment returns on your retirement savings.  With a savings rate of over 60% you shouldn't need more than 7-10 years depending on answers to above questions.  Don't know about 5 years though.  If you posted some more specifics you can get a better estimate (or run yourself on cfiresim/firecalc).
« Last Edit: Today at 07:51:22 AM by freya »