Author Topic: 26y current FI tracking + points I'm puzzled about  (Read 1086 times)

xtreme1

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26y current FI tracking + points I'm puzzled about
« on: April 22, 2018, 04:38:59 PM »
Hey FI-thusiasts,

I'm grateful a co-worker mentioned that FI is a thing. I've stumbled upon this community and it may be one of the most life-changing stumbles of my life. I'm posting here because it turns out I'm well on my way to keep pace with MMM, and I'm just wondering if someone could see if this is really as realistic as it seems.


Current Asset Balance:
40k 401k (I don't get 401k matching)
15k stocks: VSTAX
Home Value: 225,000 (bought for 198,000, zillow things 225k)
Remaing Mortgage at 2.85 interest, 15y fixed, 1.8k payment monthly until 2029: 145,000 (225-145 = 80k net)
two cars: 6k
30k Cash. 4.5 months worth of emergency funds (18k). 12k without a plan (? Need help with this one)

Net Worth: ~170k


Timeline

Age: 23
2015: Net Worth: 23k, Spending: 45k/ Take Home Pay:66
MMM Year 1 全tash: $5000
Got Married

24
2016: 70k net, 63k/76
MMM Year 2 全tash: $23,000
Bought house, 20k~ of home improvements

25
2017: 123k net, 52k/102
Year 3 全tash: 67k
No vacation this year, saving 10k for next year's vacation

26
2018: Current: 180k net, 18k/110k~
MMM DINK Year 4 全tash: $150k

See Current Assets at top.
Projected: stocks: 80k
Projected: 200 net

27
2019
300k
Year 5 全tash: $250k

28
2020
400k
Year 6 全tash: $365k

29
2021, Wife graduates, DINK 150k, 40k spending, 50/150k
500k
Year 7 全tash: $490k

30
2021
650k
Able to quit, wife wants to keep working to cover expenses at 60k~ a year
Year 8 全tash: $600k

31
2022
700k
Year 9 全tash: $720k

32
2023
750k
FI
Year 10 全tash: 800k or so

37
2029, last home payment



Current questions:
Investing:
1. Since I'm on path to be FI in 5 years, what stocks should I be putting most of my money in? MMM recommended VSTAX, but with recent dips, would it be a good idea to dip into VTIAX with my 12k that I'm waiting to invest? Or should I just smack it into VSTAX, and wait to invest in VTIAX until I have more assets in VSTAX? Should I be spreading it into other indexes (NASDAQ, DOW, etc.)?

2. I'm completely ignoring IRA's and bond's. Am I ok in assuming that when I'm a little older, 40~ I should re-evaluate, or is that too late?

3. I've essentially stopped contributing to my 401k. If I'm FI in 5 years (32y), there doesn't seem like much of a point worry about my 401k now. When should I?

4. Like MMM, I'm counting real estate/cars towards my net worth. I have no aspirations of being a landlord, or of selling for that matter. But that would also mean my dividends are only going to be off of 600k~ or so if 200k~ is in my house, so I may need to wait another year or so to consider myself FI right?


In the end, FI is an amazing avenue to controlling my most limited resource, time. Anyone who can actually achieve FI, regardles of age, is so incredibly fortunate. Thanks so much for the time, and help.

Aunt Petunia

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Re: 26y current FI tracking + points I'm puzzled about
« Reply #1 on: April 22, 2018, 05:01:41 PM »
Congratulations, you are doing great!!

1. VTSAX is a good choice. Read j Collins's stock series for more information

2 and 3. You will want to Max out your 401k and IRA to save money on taxes now while you have a high marginal tax rate. Again, J Collins explains it better than I can, but basically any money you put in these saves you the highest tax rate that you would otherwise pay. You can each put 18k in a 401k and 5500 in an IRA. If you are over the income limit for the IRA deduction you can do a backdoor Roth. There are also other tax deductions and credits that you can qualify for if you bring your income down by putting money in retirement accounts.

There are ways to get the money out before the traditional retirement age, either a 72t or Roth conversion ladder. Your tax rate will probably be lower at that time. You only need to have five years worth of expenses in taxable accounts. I believe there is also a forum  sticky on this topic. A bond allocation is not necessary at this point.

4, MMM doesn't count cars. You can count real estate as part of your net worth, but not as part of the 25x expenses you will need for FI. However, you don't have to count the principal part of your mortgage as spending, as it is just moving money from one asset to another. A mortgage is considered a good hedge against inflation because the amount of interest, which is considered "spending" goes down each year to counterbalance the increase in prices of other things you need.

Besides J Collins, the Mad Fientist and Early Retirement Now have a lot of the technical information about how to optimize your accounts
« Last Edit: April 22, 2018, 05:20:46 PM by MrsWolfeRN »

xtreme1

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Re: 26y current FI tracking + points I'm puzzled about
« Reply #2 on: April 22, 2018, 09:25:38 PM »
I just found out about jcollins from MadFientist today, so I'll definitely be reading here:
http://jlcollinsnh.com/stock-series/

So 2 and 3 are definitely points I need to research more. My original understanding was that I won't be able to touch them easily. I thought if I put more in stocks I'd be able to live off dividends quicker since my wife would still be working at around the 60k range and my dividends should still be bringing in at least 25k...

According to this at my current expense rate I will be FI in 10 years:
https://networthify.com/calculator/earlyretirement?income=110000&initialBalance=100000&expenses=60000&annualPct=7&withdrawalRate=4

When I quit my job, my wife will still be working for a couple years. She will cover the 60k expenses (which drops to 50k when house is paid off in 2029). So really I should've plugged 50k as my spending for the above graphs(updating now). I assume I can at least get 4% back in dividends, that we won't even need as long as she continues to work. SO assuming I can get a measily 4% from my 650k stash at that time it should continue to grow like so: https://networthify.com/calculator/earlyretirement?income=85000&initialBalance=650000&expenses=60000&annualPct=7&withdrawalRate=4

My most immediate take a way is that I should open a Roth for me and my wife and put 11k of my 12k excess cash stash into it.
« Last Edit: April 22, 2018, 09:31:34 PM by xtreme1 »

Radagast

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Re: 26y current FI tracking + points I'm puzzled about
« Reply #3 on: April 23, 2018, 12:26:41 AM »
Current questions:
Investing:
1. Since I'm on path to be FI in 5 years, what stocks should I be putting most of my money in? MMM recommended VSTAX, but with recent dips, would it be a good idea to dip into VTIAX with my 12k that I'm waiting to invest? Or should I just smack it into VSTAX, and wait to invest in VTIAX until I have more assets in VSTAX? Should I be spreading it into other indexes (NASDAQ, DOW, etc.)?

2. I'm completely ignoring IRA's and bond's. Am I ok in assuming that when I'm a little older, 40~ I should re-evaluate, or is that too late?

3. I've essentially stopped contributing to my 401k. If I'm FI in 5 years (32y), there doesn't seem like much of a point worry about my 401k now. When should I?

4. Like MMM, I'm counting real estate/cars towards my net worth. I have no aspirations of being a landlord, or of selling for that matter. But that would also mean my dividends are only going to be off of 600k~ or so if 200k~ is in my house, so I may need to wait another year or so to consider myself FI right?


In the end, FI is an amazing avenue to controlling my most limited resource, time. Anyone who can actually achieve FI, regardles of age, is so incredibly fortunate. Thanks so much for the time, and help.
1. VTSAX is good for a majority holding. VTIAX and VBTLX make up the other three parts of "the three fund portfolio" which is what I would call the minimum fully diversified portfolio. I have a rule of thumb for whether you are diversified which is at least 50% stocks, not more than 50% in stocks in the US, and 10-40% in bonds. NASDAQ and DOW are heavily represented in VTSAX and not useful additions. Some people say REIT or small cap value indices are.

2. Max out Roth/IRA and other tax advantaged accounts. This is a huge benefit. See sticky on top of this forum.
2b. Bonds are useful for near- to mid-term things. As you get close to retirement there is "sequence of returns risk". Most people on this forum have some of it simply because the plan on quitting so soon. Anything within 15 years has some, and within 5 years it gets pretty high. One way to minimize this is to grow to around 40% bonds approaching quit date, and then "reverse glide path" by dropping to 20% bonds 5 years after and 10% 10 years after, or so. Keep 10%+ if you need investments for living expenses.

3. See 2.

4. I don't count vehicles. Houses are debatable, but I view them as an expense/expense reduction rather than an asset, it's only an asset if you plan to sell for cash. It is the 4% rule of your stock-heavy (60-90%) investments, generally with rebalancing. Another resource, also for 2^: https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/

5. Be sure your wife is actually OK with working while you lounge around. Make sure you actually save enough of your own money to avoid friction.

6. Technically you are not getting 4% dividends. You are currently getting like 1.9%, and would need to sell shares to make up the difference.