Author Topic: Goal: FI by 40, and not investing in 401k till FI'd.  (Read 30868 times)

LowER

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #50 on: April 03, 2013, 06:07:22 PM »
Freeyourchains: The more taxes you pay, theoretically, the less taxes I will pay, so please, by all means, carry on with your strategy!  Thank you for subsidizing the rest of us.

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #51 on: April 03, 2013, 06:10:06 PM »
I am so sorry to post a non-contributing comment, but I just want to say this is one of the funniest threads of all time!

Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #52 on: April 04, 2013, 12:38:24 PM »
There is one big elephant in the Room that is a bottleneck power switch to the before Age 59.5 withdrawal.

The very new, and maybe temp, Rollover from 401k to IRA options. If this goes away, you will have to take a 10% penalty + normal income taxes(besides the 72(t) grocery loophole)

You talk about a problem, then present multiple solutions: Rollover, and 72t.

Both work great!

Here's another one: put some in taxable (and Roth) and some in tax free, which you use as "after 59 1/2 money."  You don't have to go all out one way or the other, a balance may in fact be best, depending on your circumstances.

Here's another one: shrug, say "okay" and pay the 10% penalty.  If you're at a 25% tax rate now, and will be at 0% when you retire, even paying a 10% penalty will save you 15%!  That's a worst-case scenario of having to pay it (and not using the many alternatives to avoid paying it).

Very interesting, I will also have to consider combination option.

I saw this article on CNN today, warning about IRA's having Higher Expense Ratio fees, and Rollover fees in the thousands, that they intentionally don't tell others, or bury in the hard to find documentation.

NEW YORK (CNNMoney)
"Retirement plan providers are offering misleading or even false information about 401(k) rollovers that can cost participants thousands of dollars in additional fees, according to a government investigation released Wednesday.
Financial firms often encourage workers who are leaving a job to roll over existing 401(k) assets into an IRA also managed by the firm, even if remaining in the employer's plan or rolling it into a new employer's plan would be the better move, an investigation by the Government Accountability Office found. And, in some cases, they misrepresent the costs involved in an IRA switch.

Undercover investigators hired by the GAO called 30 of the largest 401(k) providers to study how the firms market products to 401(k) account holders. Eleven firms encouraged a rollover to an IRA, while 12 raised doubts about the caller's ability to roll over to a new employer's plan and 16 touted IRAs for having more investment options.

In addition, 7 incorrectly said that there were no fees to open or maintain an IRA, according to the report. And 5 out of 10 large firms advertised free IRAs on their websites, while scattering fee information among hard-to-find documents.
"As the GAO investigation shows, the financial services industry spends substantial time and effort into marketing IRAs that may not be in the best interests of account holders," Democratic Rep. George Miller, who released the report along with Sen. Tom Harkin and Sen. Bill Nelson, said in a statement. "This comes as no surprise since IRAs often come with higher costs when compared to a 401(k)."
[/end article]

I realize these unknown opening IRA fees, and unknown rollover from employer to IRA fees, do exist. Can anyone whom has rolled over their 401k's to IRA enlighten mee on the average fee's associated with this?

(I am a man whom hates customer surcharge fees on 0 usage of a Gas/Electric/Sewer/Internet/Waste/other utilities etc. bill for "adminstrative fees, bonuses, or salaries 36x greater then their employees + the hardly ever update to their utility system/grid that they say "residents are responsible for any damages to their meters or housing systems" anyway." This is why I love self-sufficiency and maximum automated efficiency for sustainable necessities to live!)




jpo

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #53 on: April 04, 2013, 12:45:29 PM »
I realize these unknown opening IRA fees, and unknown rollover from employer to IRA fees, do exist. Can anyone whom has rolled over their 401k's to IRA enlighten mee on the average fee's associated with this?
I rolled over an old 401k into an IRA with TD Ameritrade. It cost me $0 in fees. However, TD Ameritrade has fees for rolling OUT of their accounts, but I knew that going in.

JohnGalt

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #54 on: April 04, 2013, 01:51:30 PM »
I realize these unknown opening IRA fees, and unknown rollover from employer to IRA fees, do exist. Can anyone whom has rolled over their 401k's to IRA enlighten mee on the average fee's associated with this?
I rolled over an old 401k into an IRA with TD Ameritrade. It cost me $0 in fees. However, TD Ameritrade has fees for rolling OUT of their accounts, but I knew that going in.

Same here

FYC... you don't seem to grasp that there is a difference between 401k/IRA/Taxable as account types that differentiate based on their tax treatment and the brokerages that manage them with their associated fees, breadth of options, etc.  Most of what you seem to have issues with are brokerage issues.  The brokerage charges the fee - one might charge $0 maintenance fees while another may charge an exorbitant amount.  The brokerage determines what options there are - one might allow a fully self directed option that would even let you buy physical assets such as real estate with the funds, one might let you invest in any stock out there, and one might limit you to only investing in one front loaded, fee heavy mutual fund.  The specific brokerage that you choose to use (or with a 401k are forced to use) may make the option more or less desirable - but that doesn't mean that the 401k/IRA/roth IRA account types are not. 

You have full freedom to choose any brokerage you want for your IRA accounts.  I personally use Ameritrade right now.  No fee to set it up, no annual maintenance fee, (fairly) low cost transaction, and I can invest in any stock that I can with my taxable account.  I have 3 accounts with them.  A roth IRA that I fund annually, a taxable account that I fund monthly, and an IRA that is a rollover from a previous employer 401k.   I also have a 401k account through a brokerage chosen by my current employer.  I don't like the options - they are more expensive than they should be and not as varied as I would prefer.  I will promptly roll the funds into my Ameritrade IRA whenever I leave my current job.  I still max it out to the full amount allowed by the IRS because the tax savings and other advantages of having money in the 401k/IRA retirement account status far outweigh the disadvantages from dealing with the broker that manages the account.

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #55 on: April 04, 2013, 02:34:26 PM »
What JohnGalt said.

There may bebad ones (ala that article), but that they aren't ALL like that.  It's not an inherent problem with 401ks/IRAs, but the brokerage operating it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

brewer12345

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #56 on: April 04, 2013, 06:09:41 PM »
There is one big elephant in the Room that is a bottleneck power switch to the before Age 59.5 withdrawal.

The very new, and maybe temp, Rollover from 401k to IRA options. If this goes away, you will have to take a 10% penalty + normal income taxes(besides the 72(t) grocery loophole)

You talk about a problem, then present multiple solutions: Rollover, and 72t.

Both work great!

Here's another one: put some in taxable (and Roth) and some in tax free, which you use as "after 59 1/2 money."  You don't have to go all out one way or the other, a balance may in fact be best, depending on your circumstances.

Here's another one: shrug, say "okay" and pay the 10% penalty.  If you're at a 25% tax rate now, and will be at 0% when you retire, even paying a 10% penalty will save you 15%!  That's a worst-case scenario of having to pay it (and not using the many alternatives to avoid paying it).

Very interesting, I will also have to consider combination option.

I saw this article on CNN today, warning about IRA's having Higher Expense Ratio fees, and Rollover fees in the thousands, that they intentionally don't tell others, or bury in the hard to find documentation.

NEW YORK (CNNMoney)
"Retirement plan providers are offering misleading or even false information about 401(k) rollovers that can cost participants thousands of dollars in additional fees, according to a government investigation released Wednesday.
Financial firms often encourage workers who are leaving a job to roll over existing 401(k) assets into an IRA also managed by the firm, even if remaining in the employer's plan or rolling it into a new employer's plan would be the better move, an investigation by the Government Accountability Office found. And, in some cases, they misrepresent the costs involved in an IRA switch.

Undercover investigators hired by the GAO called 30 of the largest 401(k) providers to study how the firms market products to 401(k) account holders. Eleven firms encouraged a rollover to an IRA, while 12 raised doubts about the caller's ability to roll over to a new employer's plan and 16 touted IRAs for having more investment options.

In addition, 7 incorrectly said that there were no fees to open or maintain an IRA, according to the report. And 5 out of 10 large firms advertised free IRAs on their websites, while scattering fee information among hard-to-find documents.
"As the GAO investigation shows, the financial services industry spends substantial time and effort into marketing IRAs that may not be in the best interests of account holders," Democratic Rep. George Miller, who released the report along with Sen. Tom Harkin and Sen. Bill Nelson, said in a statement. "This comes as no surprise since IRAs often come with higher costs when compared to a 401(k)."
[/end article]

I realize these unknown opening IRA fees, and unknown rollover from employer to IRA fees, do exist. Can anyone whom has rolled over their 401k's to IRA enlighten mee on the average fee's associated with this?

(I am a man whom hates customer surcharge fees on 0 usage of a Gas/Electric/Sewer/Internet/Waste/other utilities etc. bill for "adminstrative fees, bonuses, or salaries 36x greater then their employees + the hardly ever update to their utility system/grid that they say "residents are responsible for any damages to their meters or housing systems" anyway." This is why I love self-sufficiency and maximum automated efficiency for sustainable necessities to live!)

Are you really this clueless?  You must be a troll.

Vanguard, Schwab and Fidelity all offer to roll IRAs over for you without a fee.  What you invest in after that is up to you.

GreenGuava

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #57 on: April 05, 2013, 08:25:08 AM »

I realize these unknown opening IRA fees, and unknown rollover from employer to IRA fees, do exist. Can anyone whom has rolled over their 401k's to IRA enlighten mee on the average fee's associated with this?


This is akin to saying "a brand new custom Rolls Royce is expensive;  how can anyone ever afford a car?"

There are companies that will take some of your assets just for holding them, and even more when you buy or exchange funds.  The former is called AUM and the latter is a sales load.  Edward Jones, for example, is notorious for high levels of both.

However, there are plenty of asset companies that won't do that, just as there are plenty that won't do that for holding non-tax-advantaged assets.  One of many reasons Vanguard is so popular.

shedinator

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #58 on: April 05, 2013, 08:30:03 AM »
Vanguard, Schwab and Fidelity all offer to roll IRAs over for you without a fee.  What you invest in after that is up to you.

Yup. If Fidelity is planning to hit me with a rollover fee, they're waiting a LONG time to do it- 15 months and counting.

Will

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #59 on: April 06, 2013, 10:49:09 PM »
This is from the Fidelity website:

1. There is no brokerage account fee on Fidelity's Traditional, Roth, SEP, and Rollover IRAs. Fund expenses and brokerage commissions still apply. Depending on your situation, fees may include low-balance fees, short-term trading fees and account closing fees. Other fees and expenses applicable to continued investment are described in the fund's current prospectus.

Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #60 on: April 10, 2013, 09:30:35 AM »
Let's talk about a dividend growth strategy portfolio without 401k/IRA contributions for a second.

Math of Option 1.

Assumptions: Age 25, FI goal at age 40, $60k income in wages, $15k expenses/year (could be lowered). $14.5k in all working class taxes including $1k in health insurance premiums. 5% returns and growing 0.5% per year on long term high quality dividend growth stocks in a 25 hand picked positions portfolio. Not including end results of 25 positions' Capital Gains, which could be substantial.

Without dividend growth, this person could attain $700,000 in 15 years.

With dividend growth, this person could attain $700,000 in roughly 12 years, plus then have returns of 10% per year after FI and growing for life.

Now after looking closely at 2011, 2012, 2013 tax information. Once FI'd at 40, and income is solely that of long term dividends, with no taxes on long term dividends as long as you are under the 25% income bracket; ($87,560 + standard deductions) then, you have 0% federal taxes at the age of 40 and for life. Plus a recommended move to Florida or so to not have to pay state income taxes on investment growth. (0-12% for some states)

0% taxes and income of $70,000/year and growing 0.5%/ year in long term dividend growth investment returns by the age of 40.

Bonus: Negative taxes if you decide to have children at the currently $3,900/child/year in credits, and ~$180k long term dividend income increase limit if married before taxes begin on it, including standard deductions, not including 401k contributions still.


15 years of taxes paid for Option 1 = $217,500 lost for the worker of the middle class.

Retiring when you desire to around age 40 then has the benefits of:

  • Not worrying about "fermenting" 401k to IRA roll over of principal only which may delay your FI'd date.
  • No age restrictions of any kind on any principal or returns.
  • No limitations of any kind for withdraws.
  • Less Risk of government controlling/taking your money, or Fund's producing extreme losses one year, or extreme fee increases, etc. but lets not count "what if" scenarios, though not forget completely about the risk of it.
  • You do pay more taxes for 15 years. Even more if your worker income increases gradually, but you are guareenteed to retire sooner, compared with all the restriction haggles of 401k/IRA/Penalties. No five year min restrictions from IRA's to start withdrawing principal.
  • Your assets are quite liquid in extreme emergencies of all kinds even unimaginable kinds, not just ones listed by a 401k Account. In a 401k/IRA, your fund could not predict the unpredictable and at fund's will can say "No" to your extreme need for the money for any extreme disaster. Kind of worse then a real estate investment, where it takes time to sell your house or properties. Though of course there is always inherent risk of Stocks going bankrupt over night, or dividends not being paid out by a dividend growth company, which may trigger a huge stock price decrease because of the changed business model, which i would recommend reviewing the company to see if you which to sell the position too.
  • Dividendmantra.com, a friend of MMM's mentioned in a few articles does this stratedgy, pays his taxes now; so there are no restrictions of any kind on his own money on any day, even if tax savings incentives exist.
  • All financial experts throughout all Media channels are "selling" and "advertising" that you max out 401ks/IRAs. They also recommend getting a mortgage for an over sized house, saying you'll need $8 Million dollars to retire, and buying new cars on affordable car loans. These financial experts have lost my trust years ago, after learning about Financial Independence.

Math of Option 2 (401k maxing toward FI by age 40) coming soon!

I am not a closed minded "Troll", mind you. I am listening to all responders advice, and learning as was the intention of this thread. Be mindful of alternative ways and choices too.

I might chose to do both options eventually, and find an employer with a 401k match for free money, though locked up for a longer time frame and not contributing to my goal of FI by 40.
« Last Edit: April 10, 2013, 12:03:01 PM by Freeyourchains »

matchewed

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #61 on: April 10, 2013, 10:41:48 AM »
Quote
Assumptions: Age 25, FI goal at age 40, $60k income in wages, $15k expenses/year (could be lowered). $14.5k in all working class taxes including $1k in health insurance premiums. 5% returns and growing 0.5% per year on long term high quality dividend growth stocks in a 25 hand picked positions portfolio. Not including end results of 25 positions' Capital Gains, which could be substantial.

Without dividend growth, this person could attain $700,000 in 15 years.

With dividend growth, this person could attain $700,000 in roughly 12 years, plus then have returns of 10% per year after FI and growing for life.

Now after looking closely at 2011, 2012, 2013 tax information. Once FI'd at 40, and income is solely that of long term dividends, with no taxes on long term dividends as long as you are under the 25% income bracket; ($87,560 + standard deductions) then, you have 0% federal taxes at the Age of 40 and for life. And a recommended move to Florida or so to not have to pay state income taxes on investment growth. (0-12% for some states)

0% taxes and Income of $70,000/year and growing 0.5%/ year in long term dividend growth investment returns.

At the age of 40.

Your assumptions are too rigid. What if the federal government decides to change the rules? They've done it before and they will do it again. How do you know Florida will maintain their policy? You need to be flexible with your tax strategies when you retire. Having several different buckets that you can draw down from that have different tax advantages allows you to be flexible to a changing tax atmosphere. Having one big bucket can screw you if the tax atmosphere turns against you.

Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #62 on: April 12, 2013, 11:50:03 AM »
Quote
Assumptions: Age 25, FI goal at age 40, $60k income in wages, $15k expenses/year (could be lowered). $14.5k in all working class taxes including $1k in health insurance premiums. 5% returns and growing 0.5% per year on long term high quality dividend growth stocks in a 25 hand picked positions portfolio. Not including end results of 25 positions' Capital Gains, which could be substantial.

Without dividend growth, this person could attain $700,000 in 15 years.

With dividend growth, this person could attain $700,000 in roughly 12 years, plus then have returns of 10% per year after FI and growing for life.

Now after looking closely at 2011, 2012, 2013 tax information. Once FI'd at 40, and income is solely that of long term dividends, with no taxes on long term dividends as long as you are under the 25% income bracket; ($87,560 + standard deductions) then, you have 0% federal taxes at the Age of 40 and for life. And a recommended move to Florida or so to not have to pay state income taxes on investment growth. (0-12% for some states)

0% taxes and Income of $70,000/year and growing 0.5%/ year in long term dividend growth investment returns.

At the age of 40.

Your assumptions are too rigid. What if the federal government decides to change the rules? They've done it before and they will do it again. How do you know Florida will maintain their policy? You need to be flexible with your tax strategies when you retire. Having several different buckets that you can draw down from that have different tax advantages allows you to be flexible to a changing tax atmosphere. Having one big bucket can screw you if the tax atmosphere turns against you.

You can also be screwed if 401k and IRA's have no way out to cash for Financial Independence goals and into your hands without growing... 10% penalty rates + income tax rates + healthcare tax rates + age restrictions + policy "updates" + fund fees + fund management withholding fears + Government forced borrowing of accounts money if they need/want it.

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #63 on: April 12, 2013, 12:30:46 PM »
Stop it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

grantmeaname

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #64 on: April 12, 2013, 01:11:10 PM »
I am shocked that people are still feeding the troll almost a month into the thread.

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #65 on: April 12, 2013, 02:14:30 PM »
I am shocked that people are still feeding the troll almost a month into the thread.

I enjoyed brewer's latest response.  The best part was when the OP reported the post to moderators for trolling him.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

brewer12345

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #66 on: April 12, 2013, 02:18:06 PM »
I am shocked that people are still feeding the troll almost a month into the thread.

I enjoyed brewer's latest response.  The best part was when the OP reported the post to moderators for trolling him.

That is some funny shit!

unitsinc

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #67 on: April 14, 2013, 10:14:06 AM »
I am shocked that people are still feeding the troll almost a month into the thread.

I enjoyed brewer's latest response.  The best part was when the OP reported the post to moderators for trolling him.

I'm really glad the mods here have a good sense of humor.

brewer12345

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #68 on: April 14, 2013, 10:19:10 AM »
I am shocked that people are still feeding the troll almost a month into the thread.

I enjoyed brewer's latest response.  The best part was when the OP reported the post to moderators for trolling him.

I'm really glad the mods here have a good sense of humor.

Hey, all I did was respond to absurdity with absurdity.  Dada-ist forum posting.

grantmeaname

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #69 on: April 14, 2013, 11:02:54 AM »
Ceci n'est pas une forum post.

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #70 on: April 14, 2013, 12:06:52 PM »
I'm really glad the mods here have a good sense of humor.

I figure: we're all adults here.

I didn't delete brewer's post for the same reason I didn't lock this thread weeks ago.  Let people say what they will, and unless it crosses a line into personal attacks, sometimes you gotta take the good with the bad.

With free and open discourse, the truth filters out to the top (hat tip to J.S. Mill).

And, of course, Mr. or Mrs. MM can always override if they feel something is inappropriate.  Moderating is kind of a tricky thing at times.

Luckily the users of this forum make it easy, being generally more polite and well-mannered than most areas of the internet (especially when it comes to discussing some of the things we do, like politics, which tends to get very tribal.)

Cheers to all of you.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #71 on: April 15, 2013, 09:25:59 AM »
So an interesting personal finance blogger, DividendMantra, that MMM has referred to in some of his articles, has a new article on the fees of dividend growth investing versus the fees of index fund investing..

When approaching $500,000 in either a 401k or taxable account, fees are an important consideration, because even in a 401k, index funds fee your non-taxable accounts.

His very good article is here http://www.dividendmantra.com/2013/04/why-i-vastly-prefer-dividend-growth.html

Stating a yearly average of $168 in taxable account transaction fees $7/trade, of buying more dividend growth stocks himself, compared to 0.13% fees in index funds of  total holdings per year, which is paying $650 in annual fees .

When FI'd, you can stop buying individual stocks, and the transaction fee's stop, while index fees keep occuring while fermenting your stache's escape back into your own hands.

You didn't have to jump through IRA Policy hoops and 5 years of 'fermenting' income in IRAs once 401k is rolled over, and have your earned returns withheld till age 59.5.

It's a great alternative investment strategy to anyone living frugally, and wishes to retire extremely early at any age, with their savings of 50% or more per paycheck, and doesn't want to  put all their savings into an age restricted, very hard to withdraw assets of 401k/IRA.

Of course doing both is a reasonable option too if your income is over $60k, and may have some taxable income to invest after maxing out a 401k & IRA for then tax reductions. I just wish to start investing for my 60's-90's with any additional income I make after FI'd. Instead of locking my investments up into 401k/IRA restricting policies while working to accumulate my stache.

Dividend growth investment strategy with complete control and withdraw at any time of my money sounds great prior to FI; then 0% taxes while retired, and then 401k/IRA contributions after retirement at any age, like 40 or 35 like Jacob at Early Retirement Extreme http://earlyretirementextreme.com/



brewer12345

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #72 on: April 15, 2013, 09:41:52 AM »
FYC, do you know what a "hot lunch" is?  You seem to be badly in need of one.

grantmeaname

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #73 on: April 15, 2013, 09:44:29 AM »
What do the fees we incur as a result of our investment policy have to do with the withdrawal rules of IRAs (which you're still misrepresenting)?

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #74 on: April 15, 2013, 09:50:46 AM »
What do the fees we incur as a result of our investment policy have to do with the withdrawal rules of IRAs (which you're still misrepresenting)?

This.

Also, the article has a very big flaw.

As I posted on the ERE forums when the article was being discussed:
Quote
Most of the article, to my mind, is based on irrelevant premises.

Most index investors would not be buying that dividend index fund discussed, but a broader fund. There are a number of reasons one might choose to do a total return or a divided strategy, but someone choosing the latter isn't buying a fund like the one in the [article].

YMMV.

If he seeks to actually compare the two (index versus dividends), he should make it a genuine comparison. 
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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grantmeaname

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #75 on: April 15, 2013, 09:55:54 AM »
Not to mention that the tiny difference in fees (we're talking a handful of basis points a year here, c'mon!) is totally swamped by the incredible tax inefficiency of dividends for investors with sufficiently high taxable income.

Will

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #76 on: April 15, 2013, 11:47:02 AM »
What do the fees we incur as a result of our investment policy have to do with the withdrawal rules of IRAs (which you're still misrepresenting)?

This.

Also, the article has a very big flaw.

As I posted on the ERE forums when the article was being discussed:
Quote
Most of the article, to my mind, is based on irrelevant premises.

Most index investors would not be buying that dividend index fund discussed, but a broader fund. There are a number of reasons one might choose to do a total return or a divided strategy, but someone choosing the latter isn't buying a fund like the one in the [article].

YMMV.

If he seeks to actually compare the two (index versus dividends), he should make it a genuine comparison.

Not to get too far off-topic here (if there even is a topic anymore):

Assuming one has a nice diverse (broad) asset allocation already (Total Stock Market, TIPS, Total Return, REIT fund, Small Cap, International) in 401(k) and IRAs, VIG would be okay for a taxable account, wouldn't it?

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #77 on: April 15, 2013, 12:16:45 PM »
Assuming one has a nice diverse (broad) asset allocation already (Total Stock Market, TIPS, Total Return, REIT fund, Small Cap, International) in 401(k) and IRAs, VIG would be okay for a taxable account, wouldn't it?

Why would you put it in taxable, instead of a tax advantaged account, and put something more tax efficient in the taxable?
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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #78 on: April 15, 2013, 12:22:14 PM »
I probably already have too many different things going on in the "retirement" accounts, and since the taxable will be new, I was thinking a dividend fund might be a good option.

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #79 on: April 15, 2013, 12:34:13 PM »
I probably already have too many different things going on in the "retirement" accounts, and since the taxable will be new, I was thinking a dividend fund might be a good option.

Sell the tax efficient ones that are in the retirement accounts, buy the same in the taxable (careful to avoid wash sale rules, if relevant), and buy dividend one in the retirement accounts.

Total market > dividends, in taxable.

Also, see attached chart.
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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #80 on: April 15, 2013, 04:33:52 PM »
Does anyone know of an online calculator I can use to check to see how the different fees/taxes/past returns would have panned out if I had invested in them?  All the ones I've seen so far just show results that don't account for taxes or fees (in comparison to others, at least) or take the fees etc. into account but assume identical performance.

Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #81 on: April 16, 2013, 08:11:48 AM »
Other big reasons and restrictions of investing all your savings into 401k/IRA/HSA's for those whose income is average:

1) No cash to start a Business or many businesses, unless you borrow money or get venture capitalists to take a piece of the rewards of your creation.

2) No cash to invest in more real estate.

3) You can only choose among a limited selection of funds that other "experts" have chosen.

4) You simply can not buy one stock at will when you see opportunity.

5) I highly recommend, even if you chose to invest all your savings into 401k/IRA's, to learn about the stock market, experience the highs and lows, experience how to keep emotions out of investing decisions, etc. That you may not fully experience if some other managers where managing your money in funds.

6) You can't have better control over any changes in businesses, losses, or transfers when you see fit, the "12 per year only" transfers allowed by your 401k fund's policy restrict your controls over your non-taxable retirement staches.

Though i do understand the tax efficiencies the government, employer's, and media tempt everyone with, with regards to 401k/IRA's/HSA, etc; because they wish to retain their employees and/or have them work all their lives for more taxing power. I just hope other mustachians are aware of the freedoms they are giving up in regards to investing into these. Especially the mustachians with medium to lower incomes, whom may just be learning about various investments, and may wish to hold onto their savings or have it under their control, even though they are taxed for it now, with some of the lowest taxes in recent years. (though granted there was no income tax in America until 1913).

Of course the benefits and restrictions are complex and others just wish to help clarify both various forms of investments.

Last related topic to cover forthcoming is, What is the FI time delay to maxing out 401k, or the time delay to maxing out a taxable account stratedgy such as Long term Dividend Growth?
« Last Edit: April 16, 2013, 08:47:37 AM by Freeyourchains »

Mactrader

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #82 on: April 16, 2013, 09:30:19 AM »
This guy serves as exactly what is wrong with American financial attitudes today, jesus.

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #83 on: April 16, 2013, 11:02:12 AM »
Last related topic to cover forthcoming is, What is the FI time delay to maxing out 401k, or the time delay to maxing out a taxable account stratedgy such as Long term Dividend Growth?

Other way around - what is the FI delay you are suffering not utilizing the tax advantaged accounts?

401k savings over taxable (for most of their career) will certainly help most Mustachians become FI quicker.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Undecided

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #84 on: April 16, 2013, 11:36:27 AM »
Other big reasons and restrictions of investing all your savings into 401k/IRA/HSA's for those whose income is average:


2) No cash to invest in more real estate.

3) You can only choose among a limited selection of funds that other "experts" have chosen.

4) You simply can not buy one stock at will when you see opportunity.


Of course the benefits and restrictions are complex and others just wish to help clarify both various forms of investments.


You say you want to clarify, but (at least) half of your claims are false with respect to IRA choices and with respect to many 401(k) plans.

grantmeaname

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #85 on: April 16, 2013, 11:40:39 AM »
1 and 6 are false too, and 5 isn't really a point at all and doesn't even deal with the investment vehicle.

Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #86 on: April 18, 2013, 08:08:14 AM »
Here is an interesting article from Time Business with a quote from a former treasury official and president's Economic Adviser, Alicia Munnell, suggesting stopping "leakages" from 401k/IRA accounts until participants are at the restricted age levels for retirement.

"The retirement-savings crisis in America is so acute that at least one prominent thinker on the subject is calling for a mandatory savings program above and beyond existing 401(k) and other pension plans.

“The nation requires a new, mandatory tier of retirement accounts, initiated by the federal government but managed by the private sector, that will replace about 20% of preretirement earnings,” Alicia Munnell, director of the Center for Retirement Research at Boston College, told Bloomberg News.
Munnell is a former Treasury official and former member of the President’s Council of Economic Advisers. Her voice carries a lot of weight on pension matters, and her comments seem to open the door to a back-to-the-future kind of pension system.
Along with a new, additional type of savings program, Munnell wants to delay Social Security payments “a few years longer” and encourage people to stay at work to age 68 or 69 or later. She’d like to see 401(k) plans reworked so that autoenrollment and autoescalation of default contribution rates are required in every plan.

She also wants to further limit opportunities for plan participants to cash out early — stemming what’s known as 'leakage', which has emerged as a serious flaw in 401(k) plans as a primary source of retirement savings. These steps, she says, would return the 401(k) “to its original purpose of providing supplementary income” [and forcing all workers to work till death, because it would be like a forced tax, like Social secutiry] as opposed to being a primary vehicle.

The eye-catcher in her proposed overhaul, though, is the new tier of mandated savings accounts. Numerous studies have shown that Americans are not saving enough for retirement. Even working longer isn’t a cure-all, Munnell suggests.
What’s needed is a new kind of account where a large enough kitty would build to replace 20% of preretirement income. This extra tier of savings along with Social Security benefits and other sources should be enough to get most people to 70% of preretirement income; that’s a level that many financial planners say is a minimum for a comfortable retirement.

How this new savings program would work is something of a mystery. Presumably, it would be incumbent on employers to make the accounts available to workers — and possibly even to fund them. Ideally, such a plan would earmark savings in this new tier for a guaranteed-lifetime-income product, like an immediate fixed annuity.

With the dramatic shrinking of traditional defined-benefit pensions over the past 25 years, guaranteed income has surfaced as the sorest need in most retirees’ portfolios. Policymakers and plan managers have been exploring various ways to ensure an income component with moderate success. A new tier of retirement accounts that must convert to guaranteed income would advance this cause and move us one step back toward the kind of old-style pension that may have helped make your grandfather’s retirement financially secure."

 http://business.time.com/2013/04/17/a-new-idea-to-fix-the-retirement-savings-crisis/#ixzz2Qp3zgQKe


Though trying not to get this thread into Political What If's, but it could easily becomes reality once legislation proposes a new Bill to vote on in the near future.

You could have maxed your savings and collected $200,000 in a 401k, rolled it over to an IRA, then have your ability to withdraw early without penalty cancelled by legislation, until you turn age 59.5 or higher. Again it's THEIR Policies, and up to them at their WILL, since it's THEIR money now.

But of course, to play the other side of political sphere, Long term dividend and capital gains taxes could be placed on all tax brackets, from anything from 5% to 100%, at legislation's leisure, and/or the Government could Nationalize all taxable accounts by nationalizing the banks.

The Power of Politics is major consideration before investing any amount of money into a 401k/IRA for Tax reduction savings reasons at the sacrifice of greater political powered risk of your money not in your control. This comes down to  your political bias and future predictions over the course of your lifetime.

We think Money matters, when in truth Money is governed and controlled by Power.




arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #87 on: April 18, 2013, 09:04:20 AM »
I tried to get a picture of the boogey-man to post, but he's surprisingly elusive in the light of day.

At least I can say this for you: you're keeping your trolling to one thread, so anyone who wants to avoid it easily can.  Thanks.
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Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #88 on: April 19, 2013, 11:39:58 AM »
Last related topic to cover forthcoming is, What is the FI time delay to maxing out 401k, or the time delay to maxing out a taxable account stratedgy such as Long term Dividend Growth?

Other way around - what is the FI delay you are suffering not utilizing the tax advantaged accounts?

401k savings over taxable (for most of their career) will certainly help most Mustachians become FI quicker.

If you can't withdraw your life savings/stache, then you can't be FI early. Maxing out 401ks/IRA won't allow you to FI quicker if a simple policy update in legislation occurs. This will probably occur as soon as the governments and investment firms media marketing strategy has convinced all investors in the US to max out their 401k/IRA contributions to "defer their taxes" until taxes have risen to post WW2 levels because of huge National "defered" debts. Then in a few years, they completely shut off all loop holes that would other wise allow you to withdraw early without penalty.

The government wants everyone to keep working and keep paying maximum taxes while doing so, especially to tax you upon death and not have to pay out any medicare, medicaid, or social security if you die of a heart attack or cancer before their chosen "age" of retirement.

It's Mustachians Vs. Anti-mustacian U.S. Government right now and in the future tax policies, where the Mustachian citizens have no real power in voting.

I don't think the tax savings, justifies investing $22.5k every year for 15 years, to an Employer sponsored, Government Sponsored, Investment Firm fee's Sponsored, Media Sponsored account is a great idea.

It looks great, but don't feel bad when they completely force/age restrict your now $400k accounts until age 59.5-70, and say "tough luck, it was always our money, but you can have some after 10-50% penalties + 15-50% income Taxes on all income classes " in 2016-2050.

Note: A comparison of Savings of 401k Vs Dividend Growth Investment stradegy is still coming. Taxes plus projected financial futures are complex and filled with many many variables.

Small example, Prior FI projections of: qualified drip dividends increasing by 1% from 5-7% returns for 15 years + increases in Capital Gains VS 401k fund options - fund fees at average return gains or losses per year.


Undecided

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #89 on: April 19, 2013, 04:31:59 PM »

The government wants everyone to keep working and keep paying maximum taxes while doing so, especially to tax you upon death and not have to pay out any medicare, medicaid, or social security if you die of a heart attack or cancer before their chosen "age" of retirement.


While not directly related, I'm curious as to whether you think that the past few national elections have been rigged at the ballot box.

Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #90 on: May 01, 2013, 01:27:49 PM »
Ok, i bunkered down and did the projected MATH with an intentional Post FI look... Pre-FI Math is a future post for a projected decade of growth on both strategies below.            
            
A simple 401k investment of a max contribution of $17,500 per year into a fund that yields 4% on average yearly, gives you profits of $574,000 after 40 years.   *though yields fluctuate to the Markets, we'll keep it simple.*   (include tax savings from making $60k/year at even $6k/year for 40 years [$257,600]=    $825,000)
            
High quality Dividend growth investment in a taxable account of $17,500 per year for buying shares of a high quality dividend growth company that grows it's 4% dividend at 10% per year; gives you profits of $3,127,962 after 40 years.   (currently no income taxes for long term dividend investments until around $95k for single USA citizens after deductions, then 20% taxes [$190k for married, additional $4k/child for families in deductions]. Even after 20% taxes which comes into play round year 21 for a single filier, the Government then taxes 20% off of every growing dividend branch of the tree. A loss of about $900k after 40 years [from year 21 to 40 of this model], thus resulting in profits of $2,027,962)      
            
This is because every year, even in 401k's you are technically buying new fund units that pay a 4% average per year and some years will give you higher returns and some years negative returns.  Just taking 4% as an average return.            
            
With DGI in higher quality companies, your dividend payout grows yearly. Possibly even reaching a payout of 164.58% after 40 years with a solid business.            
            
This doesn't even include possible capital gains/losses over 40 years of holding the high quality stock, though you wouldn't have to take any losses unless it goes bankrupt (but we are talking about companies like Coca-Cola, Johnson and Johnson, Exxon Mobile, etc etc.).            
            
Dividend Growth Investing is truly a growing Tree model, with every new branch investment growing, compared with some either very volatile with growth, expensive ratio funds or solid only 4% growth, low fee'd index funds found in all non-taxable accounts, 401k's, index funds, ETF's, etc.                        
« Last Edit: May 01, 2013, 01:41:08 PM by Freeyourchains »

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #91 on: May 01, 2013, 02:59:27 PM »
stop.

trolling.

I have a self-directed IRA.  I can buy that same company inside it.

You are basing your math off false assumptions that we have called you on multiple times and you ignore.

stop it.
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sherr

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #92 on: May 02, 2013, 08:21:18 AM »
Arebelspy: Since it's fairly obvious at this point that he's doing this on purpose, any chance of locking the thread?

arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #93 on: May 02, 2013, 10:12:59 AM »
Arebelspy: Since it's fairly obvious at this point that he's doing this on purpose, any chance of locking the thread?

Yeah, I just usually don't like to go that far.  Especially since there was some other discussion between members (not the OP) that was useful.  Plus it keeps his trolling to this one thread.

And, since people are apparently not rising to the bait anymore, it's not too bad.

But man, what a ridiculous thread if you read it.  :D
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Freeyourchains

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #94 on: May 02, 2013, 12:12:06 PM »
stop.

trolling.

I have a self-directed IRA.  I can buy that same company inside it.

You are basing your math off false assumptions that we have called you on multiple times and you ignore.

stop it.
"A troll can disrupt the discussion on a newsgroup, disseminate bad advice, and damage the feeling of trust in the newsgroup community. Furthermore, in a group that has become sensitized to trolling – where the rate of deception is high – many honestly naïve questions may be quickly rejected as trollings. This can be quite off-putting to the new user who upon venturing a first posting is immediately bombarded with angry accusations. Even if the accusation is unfounded, being branded a troll is quite damaging to one's online reputation."~wikipedia

I am not trolling in this thread. I am listening to everyone's thoughts and keeping on topic. I am just discussing other alternative ways to invest a stache, instead of putting your stache behind mounds and mounds of company and government "policies" and "age restrictions" and "only withdraw through these exemptions" at the discretion of Managers and Companies, whom follow Federal Government Incentive to get their citizens to work and spend for forever so they can get waves of taxes off of the hard working citizens whom save frugally and invest. A little bias, yes, but so are the people fully encouraging middle class mustacians to max 401k investments to IRA rollover to a "maybe" withdraw of principal only without penalty though taxes after 5 years, else penalized severely for withdrawing before age 59.5.

Why give them all your savings and jump through their hoops inside of a non-taxable account?

Yes you can buy the same company with investment limitations, age limitations, withdraw fees and taxes, and when to withdraw limitations;

however...

I have a stache in a brokerage taxable account under my control, when i can freely buy/sell shares of many companies at any time i determine in my life, plus can access the cash or dividends to pay for expenses at any time, before or after FI. Under changing tax policies that aren't "age restrictive", only "income restrictive", i can freely change investment strategies like going into rentals, or just take cash and go overseas with it after FI.

FI: This journey is all about freedom and flexibility. One day the dividend income this portfolio generates will fully replace my day job's income and my time will be completely my own. Why would i possibly want to "age restrict" my Financial Independence?

YMMV on these investment strategies. lol, there i finally said it. And it is quite a nice benefit if your company matches your 401k contributions, so go for the match if offered, if you plan on using it as supplemental retirement income at THEIR "normal" retirement ages that they determine.

But the "tax savings", in regards to a 401k/IRA , may not be a great idea when instead you can encourage yourself to learn more about stocks/bonds/dividend growth strategies, and control all of your own money in a taxable account without having to deal with any "policy updates, admin fees, expense ratio fees, upload carry fees, government changes to 401k limits, max contributions, age limits, etc."

The cons outweigh the pros (in my opinion) for investing max savings and contributions to a 401k/IRA/Roth IRA; when fees for high quality dividend growth investing are less than $150/years, with compounded interest growth of re-investing dividends, plus annual dividend growth from quality companies. Plus the flexibility to take long term dividend cash to pay for all expenses and become FI early while income grows from annual dividend increases.





arebelspy

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Re: Goal: FI by 40, and not investing in 401k till FI'd.
« Reply #95 on: May 02, 2013, 01:58:07 PM »
"A troll can disrupt the discussion on a newsgroup, disseminate bad advice, and damage the feeling of trust in the newsgroup community."

A description of you that seems right on the money.  Perhaps the most accurate point you've made.

After more requests, I'm going to go ahead and lock this.  I won't be deleting anything, so anyone can read your arguments in this thread and decide for themselves.  Please don't start any more threads on investing outside versus inside a retirement account. 

Thanks for your cooperation.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.