Author Topic: New to MMM! Help me tweak my retirement planning?  (Read 3388 times)

Archa3opt3ryx

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New to MMM! Help me tweak my retirement planning?
« on: September 28, 2015, 05:59:23 AM »
Hi all, first post here. The advice here is similar to what I've been doing anyway: live frugally, invest in index funds, don't chase the near term. Here's where I'm at so far...would you all mind giving me some ideas for tweaking my plan?

About me:
  • 27, military member 3 years into a 10 year commitment.
  • Currently making about $75k per year, expecting that to be about $110k per year after my commitment is up.
  • Using the 4% rule, I'd like to have a savings of $2.5M when I retire, whenever that happens to be. This works out to $100k/year in annual deductions.

My investing:
  • Max out my Roth TSP ($18k) and Roth IRA ($5500). Investments are the L2050 fund and VTSAX, respectively. I don't use betterment currently, but have looked into it. Currently have $32.6k in the Roth TSP and $23k in the Roth IRA.
  • Invest $500 in Lending Club every month, using bluevestment's bluepicks robo investing service (highly recommended!). Currently have $13,500 invested.
  • Whatever I don't spend out of my paycheck, I put it into one of a few other Vanguard funds I have. That total is currently sitting at $83k. I don't really have a plan for investing in these non-retirement funds, nor do I budget my daily living...I just live frugally, spend what I need, and whatever is left goes in here. Usually it's $500+ per month.

So, as you can see, I'm sitting at about 6% of my $2.5M goal. What could I do better to reach that goal faster?

Dee18

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #1 on: September 28, 2015, 06:49:05 AM »
Maybe reduce the goal. The most important thing I learned from MMM is that I do not need nearly as much money saved to retire as the popular press suggests.  Is the 2.5 million what you actually need for a full life in retirement?  Your estimate of $100,000 per year is far more than most mustachians.  If you have tracked your expenses and that's the correct number, go for it, but reducing the goal may speed up your retirement most easily.

Evolven

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #2 on: September 28, 2015, 06:52:33 AM »
Maybe reduce the goal. The most important thing I learned from MMM is that I do not need nearly as much money saved to retire as the popular press suggests.  Is the 2.5 million what you actually need for a full life in retirement?  Your estimate of $100,000 per year is far more than most mustachians.  If you have tracked your expenses and that's the correct number, go for it, but reducing the goal may speed up your retirement most easily.
Great suggestion. I am in a very similar position (except I am 31, am 8 years out of potentially my first "retirement", and am not yet maxing out my TSP but have 55k). My end goal is $1.5 million, Id have to eat beans and rice or gaspacho daily to hit that goal.

Sent from Cyber Space


Mntngoat

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #3 on: September 28, 2015, 09:31:36 AM »
$100K/ year?    Id live like a  Effin king and wouldn't know what to do....  I think it can be done on 1/3rd that!

ML

KCM5

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #4 on: September 28, 2015, 09:38:36 AM »
Well, you're living on $39500 right now, including higher taxes. What makes you think you need $100k/yr in retirement? Sure, maybe you want to loosen up a little. But there's a big difference from "a little" and spending 1.5x your current annual expenses.

radram

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #5 on: September 28, 2015, 09:52:52 AM »
To the OP:  This is my first "advice" post.  Hopefully, others will comment with advice for you AND me.

1st of all:  Thank you for serving.

In order to get the most out of the advice you seek, you need to provide a lot more information.  Here is a great link that tells you the information this community would like to see from you.  You might want to re-post there with more information included.

http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/


Here is what I can say based on the information provided:

You are really kicking it.  Congratulations.  27 y.o pulling in 75k.  WAY TO GO.  Saving about 50% of income is FANTASTIC.

I am 46 now.  At 27, We were frugal like you, but back then, FIRE was not even a formulated idea yet, so we weren't thinking about FIRE.  The wife and I were living simply and investing the rest, without any real reason why we were doing it and no focused plan.  You are already way ahead of us om this front.

As Dee stated, your goal may be WAY too high.  We cannot know for sure, because the only thing that matters is what you plan to spend in retirement.  Your post said almost NOTHING about spending.  That is really all that matters to you at this point.  Here is my advice to you:

1.  Figure out how much you spend now.  This step sucks, but it must be done.  You will most likely see glaring mistakes in your spending.  It is humbling, but then allows you to act to change it.  Embarrassingly, my wife and I did this about 15 years ago, but then expenses went way up without paying much attention (we did not have a FIRE goal then and were saving so much so why pay close attention.  Oops :(  lesson learned, but it took too long).  Once we got serious about FIRE, those spending mistakes improved.  We now consider this a permanent work in progress.
2.  Try to calculate how spending might change in FIRE, in BOTH DIRECTIONS.  Big changes to this might be travel, healthcare (will you get help here being a veteran?), and spending for your job and housing. Are you a rent-only often-moving military person, or a 9-5 one location person while in military.  Will that change once your service is up?.  This step can be fun, because you get to add "dream" spending to see if the numbers work out, like a $10,000 annual travel allowance.   
3. Pad your FIRE number as a safety net (or agree to yourself FIRE will include some part time income adventures).
4. Now you have your better estimated FIRE number. Now you are ready to ask your question from your first post.  Step #1 should clearly show you where you can trim.

Here is a jump start on step 1 based on what you have told us so far:

You spend the following annually:

75,000 (salary) - 18,000 - 5,500 - 6,000 - 6,000 = $39,500  Make sure this is correct before continuing.

My first question to you is:  If my calculation is correct, how are you going to spend 2.5 times current spending EVERY YEAR of FIRE?  That may be correct, but only you can say for sure.

If your step #2 say's you will spend exactly the same amount in FIRE, your new FIRE number might be $1M instead of $2.5M, putting you at 15% of your goal.

As far as where to put your stache, am I seeing that Lending Club is close to 10% of your savings?  That might be a little high, but I have no experience with peer-to-peer lending.  This investing option is rather new, and has not been through enough bull/bear cycles in my opinion to risk much more than a "play" amount of my portfolio (<5%).  As for the rest, we have no idea where it is to give an opinion to make it better.

For example, what is the breakdown of the 2050 fund?  Is it 90/10 stocks/bond, 50/50, 10/90.  What is the robot buying in Lending tree?  Are you 100%high risk, 10%? The "Other Vanguard funds" could be in anything.  Your post does not say.  I do love low cost index funds, but it is important to decide what % you want in each category, and then purchase and adjust accordingly.  You might think 30% large cap, 20% mid-cap, 10%small-cap, 15% REIT, 10% international and 15% bonds is appropriate for you.  You might also think 100% total stock market is for you.  Without knowing where it is now, we really can not give good advice as to how to change it.

I think you are in much better shape than you realize.  Congratulations, and good luck.

seattlecyclone

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #6 on: September 28, 2015, 02:09:50 PM »
Consider traditional TSP contributions instead of Roth contributions. It's rare for a person with a high savings rate to need to withdraw enough during retirement that they push themselves up into a higher tax bracket than they were in while working. Given your stated withdrawal goal of $100k per year you may be the exception though.

Financial.Velociraptor

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #7 on: September 28, 2015, 02:19:37 PM »
I find 2800 bucks a month for spending money lets me live pretty damn high (house paid for).  Are you sure you need to draw down 100k/yr?  What I found post-college was making more money and having more money legitimately made me happier!  And that stayed true until I hit about 50k/year in salary.  After that, it was just more responsibility traded for only a microscopic increase in well being.  Not worth the trade off.  I have good friends who report they reached the same point around 70 or 80k. 

My point is once I realized more money didn't necessarily equal more happiness, I had a heart to heart with myself to get to the bottom of what is WAS that made me happy.  That's the best advice I can give: get to know your own core values.  I quickly figured out I could increase my happiness at the same time I spent less, saved more, retired earlier.  I walked away from the Corporate Gig for the last time on 5OCT2012 at the tender age of 40. 

The best way to beat the "rat race" is to never become a contestant.

Archa3opt3ryx

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #8 on: September 30, 2015, 02:10:12 AM »
Wow, thanks for all the advice! I really appreciate it.

I guess you're all right: I didn't post what I plan on doing with $100k/year. And honestly, that's a great question. As I read through the site and the forums, I guess I have a fundamental disagreement with the basic premise of MMM, which seems to be "work sucks, so retire early". Sure, lots of parts about my job sucks, but a lot of parts are absolutely amazing. Regardless, I'm committed to it for another 7ish years, plus there's a few other jobs that I would love to do that would take me until at least 40 or 45. So given that, a highball number for what to have in the bank 15-20 years from now doesn't seem too unreasonable.

A few things that are important to me and my wife that we won't compromise on are fairly expensive, like travelling a lot (probably $5-10k/year) and living in a large (read: expensive!) city like Vancouver or San Francisco. We don't plan on being homeowners anytime soon (or possibly ever. Though an investment property might not be a bad idea at some point), so there's like $30k/year in rent. Again, I know that goes against the core of the philosophy being preached here, but we have some fairly unique circumstances that make it worth it to us to save up for that goal. I don't plan on retiring from the military, so I don't get those amazing benefits like free healthcare so there's another few thousand. Add in groceries, transport (public transit or a car), etc, and you're looking at maybe $50k in basic living expenses. Could we cut that number in half? Sure, but that's not a life we aspire to living.

So what does the other $50k go to? Great question. I'm not really sure. It's a highball figure. I think you're right, I'll have to do some more thinking about what we really need to live comfortably. If we drop it to $75k, that works out to $1.9M in the bank, which puts me at 7.9% of the way there. Better, but not by a lot.

I think one sticking point that I'm just now realizing is that my life making $75k today will be significantly different than my life in retirement drawing $75k/year, for the obvious reason that half of it wouldn't be going into savings. The equivalent would be like if I were making $150k today, which I think would meet both my wants and needs for retirement.

Hmmmm...lots to think about! Thanks!

mrpercentage

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #9 on: September 30, 2015, 06:14:00 AM »
I like it. I'm more in tune with the FI than the RE. If by smart planning and learning efficiency you can achieve the ability to live a little more grandiose later by all means do so. Granted the path required to achieve that will mean less of a desire to live that way. We are creatures of habit.

One of my primary attractions to dividend investing is that it increases my income. Income that could be used anytime. This is a little different of a mind set than increasing your net worth. More to do with cash flo then nest egg. But I digress.

100k may be overshooting unless you plan on traveling a lot. Hopefully a home is in your picture. You may want to pick one where you want to retire and a rent it out and let others help pay it off for you. No rent is one of the greatest increases of wealth there is. Cheers

kendallf

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #10 on: September 30, 2015, 11:13:07 AM »

I think one sticking point that I'm just now realizing is that my life making $75k today will be significantly different than my life in retirement drawing $75k/year, for the obvious reason that half of it wouldn't be going into savings. The equivalent would be like if I were making $150k today, which I think would meet both my wants and needs for retirement.

Hmmmm...lots to think about! Thanks!

Yep.  Trick is to de-couple the "what I'm making now" from "what I need to spend in retirement".  Instead, start with what you're spending now, and consider how that will differ in retirement.  I'm assuming you're commissioned from your stated salary; I'm also assuming that this number includes BAQ/BAS and that you're renting now.  If this is correct, your expenses may not balloon as badly as you are thinking.

I use Mint to track all of my spending the lazy man's way; I don't want to write it all down or enter it in a spreadsheet.  Do this for a year and you'll have great numbers for your expenditures in a lot of categories, and you can estimate the differences (such as your expensive city rent) and calculate a more realistic number.

Archa3opt3ryx

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Re: New to MMM! Help me tweak my retirement planning?
« Reply #11 on: October 01, 2015, 03:16:26 AM »
Yep.  Trick is to de-couple the "what I'm making now" from "what I need to spend in retirement".  Instead, start with what you're spending now, and consider how that will differ in retirement.  I'm assuming you're commissioned from your stated salary; I'm also assuming that this number includes BAQ/BAS and that you're renting now.  If this is correct, your expenses may not balloon as badly as you are thinking.

I use Mint to track all of my spending the lazy man's way; I don't want to write it all down or enter it in a spreadsheet.  Do this for a year and you'll have great numbers for your expenditures in a lot of categories, and you can estimate the differences (such as your expensive city rent) and calculate a more realistic number.
Correct on all accounts. Pinning on Captain in about 6 months.

I've tried Mint in the past, but never really found a use for it as I've never really been one for budgeting. I'll give it a shot again though and look at it from a bigger picture perspective...yearly instead of monthly. That said, one frustrating thing about moving overseas is that purchases on my credit card often show up with really strange names and categories, which makes it a little harder to track. Thanks for the suggestion though!