FIRE in 12 yrs... starting with a portfolio of $0, 100K a year. Strategy?

[live4soccer7]

I want to run this by you guys for the best way to tackle this. I have the notion that I could perhaps live off 3% SWR on a 1-1.5M portfolio.

Currently, I am self employed and opened a ROTH account and a SEP (I'm the only employee). I plan to max the ROTH each year and also any other avenues that are adavantageous for investing through the business structure.

2015 I was a sole prop and have I have switched to an s-corp for 2016 for the tax saving advantages. I am transferring 20-30k in to the SEP for 2015 and will then make a 2016 transfer to ROTH from the SEP to help balance out the taxes between 2015 and 2016. In a few months, unless otherwise advised, I will have about 40k in a roth account.

It seems getting funds to the ROTH is the way to go because contributions can be withdrawn after 5 years from when they were transferred over.

Assuming there aren't any issues with the above plan, how should I go about getting additional funds in to the ROTH each year? If that is the best way to go, that is. Can I simply make after tax contributions to a traditional IRA and then nearly immediately transfer to a ROTH? Is this frowned upon or bring upon additional penalties? Is there a better way to do this? I'd like to put about 100K a year for the next 12 years give or take a few based on the market at the time of alleged FIRE. The timeline isn't extremely strict, but a ballpark.

I can open a solo 401K and make that ROTH and then the employer side would be traditional, however the investment options for me and flexibility is tough too. At least from what I've read. It also seems that the ability to move money from those accounts, if one wanted, to your typical roth account would be tough or impossible while still involved in the plan.


Any thoughts? I'd like to "squirrel" away as much money as possible into a retirement account that will be most beneficial. I'm not afraid to do the leg work to side step any possible restrictions on accounts etc...

[Eucalyptus]

Simple answer to get your thread rolling, assuming you have read this?
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

If so, as long as you are saving 60-65% of your income at the moment, you'll get there regardless of your ROTH and 401k, and other advantages business related expenses.

Age now and at planned FIRE date?
Savings rate?

[Rubic]

Keep in mind that after you've maxed out your tax deferred accounts you can (and should) invest in taxable accounts.  When you FIRE, you'll only be paying taxes on your long-term capital gains:

https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

So at your 3% SWR for $1.5M, you could have a healthy return on your equities before you'd ever pay capital gains taxes on the $45K you'd withdraw each year, assuming it's your only source of income when you FIRE.

For example, let's say you invest $7500 in a taxable account this year.  At the end of 12 years, it's now worth $45,000 for an extremely unlikely 600% return.  Taxes?  You'd pay nothing on the first $37K (at today's capital gains rate, which will probably be higher 12 years hence) and then 25% on the remain $8K, assuming you're filing single.  However, it's much more likely that you won't be paying anything on the $45,000 that you withdraw(*).  Keep careful records of what you contribute each year, so you can step up your cost basis for each withdrawal.

* If you can manage a 16% CAGR over the next 12 years, I want you as my investment advisor.  ;-)

[wienerdog]

* If you can manage a 16% CAGR over the next 12 years, I want you as my investment advisor.  ;-)

I can do that for you and I only charge 6%!  :>P

[arebelspy]

FIRE in 12 yrs... starting with a portfolio of $0, 100K a year. Strategy?

Is that 100k income, or 100k savings/yr you can manage?  If savings, 100k x 12 years = 1.2MM, you'd just need a CAGR of just under 4% (real, assuming all dollars are kept in present value).

If it's income of 100k, to hit 1.5MM in 12 years, you'd need to save ~69% of it, or 70k or so, and live on 30 (including taxes, so hopefully that 100k is net, or you can get your taxes really low).

Of course, that assumes you're only spending 30k for the next 12 years, but your ER spending is 45k (3% of 1.5MM), which is a disconnect.  Maybe you want to spend more (traveling or whatever) in ER, but a 50% spending boost is a big bump.  Or you'll have to have big cuts for the next 12 years.

I would submit that you may be doing it a bit backwards, picking a date (12 years from now) first.  Instead set your spending level and look at your income, and calculate the FIRE time from there:
http://networthify.com/calculator/earlyretirement

Then work on moving it sooner, if it's more than the 12 years you want, by playing with decreasing spending/increasing income.

Good luck!

[live4soccer7]

Thanks all for the information. You have definitely given me some information to chew on. I did not receive an email from mmm stating I had replies, but figured I would check it now anyways. Great surprise to see some replies.

I'm 28 and would like to be FIRE at 40. At the current time I do not have any debts and can invest 100K a year.

I will be looking at the links you guys provided and start reading them over!

[arebelspy]

I'm 28 and would like to be FIRE at 40. At the current time I do not have any debts and can invest 100K a year.

Nice. You should be good.  Start tracking your spending.

[steveo]

I would submit that you may be doing it a bit backwards, picking a date (12 years from now) first.  Instead set your spending level and look at your income, and calculate the FIRE time from there:
http://networthify.com/calculator/earlyretirement

This is my approach. Your FI date should be based on what you spend now.

One point and it's just my take on figuring out your spending. I just figure out my savings. Savings = Income - spending or Spending = Income - savings. I work on the second formula and it means I don't track my spending at all. I know my income and I know my savings. I think there is much less to track this way.

[arebelspy]

I would submit that you may be doing it a bit backwards, picking a date (12 years from now) first.  Instead set your spending level and look at your income, and calculate the FIRE time from there:
http://networthify.com/calculator/earlyretirement

This is my approach. Your FI date should be based on what you spend now.

One point and it's just my take on figuring out your spending. I just figure out my savings. Savings = Income - spending or Spending = Income - savings. I work on the second formula and it means I don't track my spending at all. I know my income and I know my savings. I think there is much less to track this way.

That's a pretty good way to do it if you don't care what categories your spending is in.

Knowing the categories can be useful though.  A lot of people use it to try and decrease their spending, or optimize in a certain area, or whatever.  Even if you don't care about that, because you're happy with your spending, it's useful to know so you can estimate what your post-FIRE spending will be.  Some categories will go up, some down, etc., so it can be useful to have more precise spending figures to more accurately estimate your FIRE spending (and thus your stache needed, and time to FIRE).

So your way is great for rough estimates, but when you get close (within a few years, maybe), it may be worthwhile going more precise.

[live4soccer7]

They are both good points. My spending is pretty minimal. I'm not one to get caught up in the consumer world and am quite crafty/creative with what I have. I've already made a speadsheet with current spending and it was a bit generous, so I know there is extra 'wiggle' room and I created a buffer as well on the SWR # for additional expenses that aren't regular.