Author Topic: Am I going to be ok?  (Read 2630 times)

FiguringItOut

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Am I going to be ok?
« on: July 14, 2020, 09:57:31 AM »
I'm feeling a bit down the past week or so.  I think pandemic and resulting limitations are finally starting to get to me.  So I keep staring at my spreadsheet and playing with numbers, but it's not making me feel better.

So the question is - Am I going to be ok?

I feel that once I hit $1M mark in my NW I will be FI and will have options and be able to decide then how to proceeds further in my life. So $1M is my goal at the moment.

As of end of June (all numbers rounded to '000 so there are rounding errors)
NW of $437K -
$54K cash,
$390K investments (VTSAX or the like, $20K in BND, all but $9K in tax deferred accounts (401K, Roth IRA, tIRA, HSA),
$7K of remaining student loan at 3.375% which will be paid of in 2025 if I don't pay it off sooner in a lump sum which I don't plan on doing
No other debt, no mortgage, no car, I rent, no pensions in the future.

I am roughly projecting that I will hit $1M mark around 2026 assuming 7% market growth and annual contributions to investments of $29K ($19.5K 401K, $6K RothIRA, $3,550 HSA).  Basically maxing out all available tax deferred accounts. I have no employer match.  I may be adding a little to brokerage account here and there, but next few years will be tight past few thousands a year.

My cash balance will vary some over the next few years due to medical expenses and older kid starting college this Sept, but will most likely float around $40K.  I know I will not be comfortable with anything less.

Is this reasonable?   Am I calculating this correctly?

I am not putting more info here about my current income/expenses because I don't think it is relevant beyond the fact that I am able to max out tax deferred accounts and have very little left to invests after that, however I have a rather bloated monthly budget by this forum's standards which I don't think I want to change much though I try time to time with little effort to be honest.

In 2026 my living situation will change and as of right now I cannot predict where I will be living or what my expenses will be like, but they will decrease for sure.  My income will also decrease in 2024 by about $6K and then in 2026 by another $14K. I am single, mom of two teens 18 and 16, 45yo, as of now no plans to ever remarry.
I'm not sure what additional information to include here.  But I'll answer questions if you ask.









« Last Edit: July 14, 2020, 09:59:50 AM by FiguringItOut »

ender

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Re: Am I going to be ok?
« Reply #1 on: July 14, 2020, 11:17:27 AM »
What does "ok" mean to you?


talltexan

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Re: Am I going to be ok?
« Reply #2 on: July 14, 2020, 11:21:57 AM »
There are a lot of people who would look at a NW of $400,000+ and conclude that it's better than okay.

It sounds as though you have a pretty good plan. Based on your FI NW, do you expect to live on about $3,300/month in retirement (implied by the $1 million NW goal)? If your current expenses are there, it suggests a savings rate of 44%, which is impressive. It looks from your profile that you're in NYC, do you think executing a move to a cheaper area would help you? I could understand wanting to wait until your younger child leaves the house, but being able to cut those expenses would really speed things up.

Glenstache

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Re: Am I going to be ok?
« Reply #3 on: July 14, 2020, 11:26:13 AM »
I think you are on a good track. It seems that your investments are highly weighted to 401k, Roth etc. Make sure you understand how withdrawals will work for those accounts relative to age and taxes. Your 2026 schedule has you FI in your early 50s, but this could impact your ability to RE. On the whole, you are in a good financial position, and have a good trajectory. So yes, you will be ok, but make sure that you figure out the logistics of the transition.

vand

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Re: Am I going to be ok?
« Reply #4 on: July 14, 2020, 12:05:35 PM »
Yeah, you'll be just fine. People who worry about their long term plan holding together are well ahead of the curve just because they have a long term plan in the first place which puts them ahead of 90% of people. It might take a year or two more than your fairly optimistic projection, but keep going and you'll get there. Most people would kill to be in OP's position.

FiguringItOut

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Re: Am I going to be ok?
« Reply #5 on: July 14, 2020, 12:08:33 PM »
What does "ok" mean to you?

Good question.  I think I meant "Do my numbers make sense?"  Not sure.  I'm all over the place these days. :)


There are a lot of people who would look at a NW of $400,000+ and conclude that it's better than okay.

It sounds as though you have a pretty good plan. Based on your FI NW, do you expect to live on about $3,300/month in retirement (implied by the $1 million NW goal)? If your current expenses are there, it suggests a savings rate of 44%, which is impressive. It looks from your profile that you're in NYC, do you think executing a move to a cheaper area would help you? I could understand wanting to wait until your younger child leaves the house, but being able to cut those expenses would really speed things up.

I am far far away from 44% savings rate.  My savings rate right now is about 25%; this includes my salary and child support that I receive. 
Yes, I am in NYC.  Yes, it is very expense.  No, I don't like it here.  No, I cannot move until 2026 when younger kid finishes college.  I'm basically stuck here through my divorce agreement and the choice kid's colleges.  I am planning to move out of NYC as soon as I can though.  Also, older one will age out of child support in 2024 and younger one will age out in 2026, so the timing will be perfect.

Do I expect to live on $3,300 at that time?  I think it is very doable for me, but will depend on where I end up living and other variable that i can't predict right now.  I can't look at my current expenses (NYC, 2 teens, etc) and predict what my life will cost in 6 years (MCOL, single, traveling, etc).  It's too far off for me to be plotting hypothetical budgets.


I think you are on a good track. It seems that your investments are highly weighted to 401k, Roth etc. Make sure you understand how withdrawals will work for those accounts relative to age and taxes. Your 2026 schedule has you FI in your early 50s, but this could impact your ability to RE. On the whole, you are in a good financial position, and have a good trajectory. So yes, you will be ok, but make sure that you figure out the logistics of the transition.

I agree, that I may reach FI but not RE.  And your point of figuring out logistics of the transition is very very valid.  When should I start looking at that?  How far in advance of the potential Dday?  I have basic understanding of various withdrawal options, but I haven't considered a comprehensive plan as of yet.   

helloyou

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Re: Am I going to be ok?
« Reply #6 on: July 14, 2020, 12:13:54 PM »
I think while it's possible, it might be a bit optimist depending on how the stock market perform.

Market can give 7% or give much less or even be negative depending on the time period. So really, you should look at it at 5% grow max and consider that you may not reach $1M by 2026.

So although it's a possibility you could reach that by 2026 you better be prepared you may also need few more years depending on how the market perform.

FiguringItOut

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Re: Am I going to be ok?
« Reply #7 on: July 14, 2020, 12:15:40 PM »
Yeah, you'll be just fine. People who worry about their long term plan holding together are well ahead of the curve just because they have a long term plan in the first place which puts them ahead of 90% of people. It might take a year or two more than your fairly optimistic projection, but keep going and you'll get there. Most people would kill to be in OP's position.

Thank you.
Why do you think my projections are optimistic? I'm asking because I see people posting here their projections using 8%-10% gain assumptions. 
What do you think would be more realistic assumptions?  I'd like to model different scenarios.

Glenstache

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Re: Am I going to be ok?
« Reply #8 on: July 14, 2020, 12:17:19 PM »
Start looking at it now. I am not an expert in your investments, so I can't offer anything specific to your situation. Personally, I would get organized by making an excel table with each investment account as a row and a column for the account name, general account type (401k, Roth, taxable investment), account balance, age restrictions on disbursements, expected taxes on disbursement (pre-tax account, etc), any other expenses on disbursement such as trading fees on disbursement (not likely to be a big chunk of the pie, but still). This will be the basics. If you do end up being in a $$ position to RE, but you would run into penalties, then maybe it is a good idea to have a taxable account to draw down early until you get to the tax sheltered accounts. This table will give you a simple version of where you stand and how you are allocated. I am absolutely certain there are many on this forum that could give much better guidance, but this is where I would start.

FiguringItOut

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Re: Am I going to be ok?
« Reply #9 on: July 14, 2020, 12:20:51 PM »
I think while it's possible, it might be a bit optimist depending on how the stock market perform.

Market can give 7% or give much less or even be negative depending on the time period. So really, you should look at it at 5% grow max and consider that you may not reach $1M by 2026.

So although it's a possibility you could reach that by 2026 you better be prepared you may also need few more years depending on how the market perform.

Good point.  I just changed 7% to 5% in my spreadsheet and it showed me one additional year to get to $1M - 2027.  So not a huge difference.  But definitely something to watch out for. 

helloyou

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Re: Am I going to be ok?
« Reply #10 on: July 14, 2020, 12:29:12 PM »
I think while it's possible, it might be a bit optimist depending on how the stock market perform.

Market can give 7% or give much less or even be negative depending on the time period. So really, you should look at it at 5% grow max and consider that you may not reach $1M by 2026.

So although it's a possibility you could reach that by 2026 you better be prepared you may also need few more years depending on how the market perform.

Good point.  I just changed 7% to 5% in my spreadsheet and it showed me one additional year to get to $1M - 2027.  So not a huge difference.  But definitely something to watch out for.

And also start with $390k of invested money (because this is the money that will grow at 5%) and include the reduced income in later years. That should give you a more accurate view.

helloyou

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Re: Am I going to be ok?
« Reply #11 on: July 14, 2020, 12:34:18 PM »
I got this at 5% with $27k yearly earning and starting from £390k:

Year   Year number   Total invested   Yearly Earning
2021   1   £436,500   £19,500
2022   2   £485,325   £21,825
2023   3   £536,591   £24,266
2024   4   £590,421   £26,830
2025   5   £646,942   £29,521
2026   6   £706,289   £32,347
2027   7   £768,603   £35,314
2028   8   £834,034   £38,430
2029   9   £902,735   £41,702
2030   10   £974,872   £45,137
2031   11   £1,050,616   £48,744

Glenstache

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Re: Am I going to be ok?
« Reply #12 on: July 14, 2020, 12:40:23 PM »
This tool may be useful for scenario testing.
http://www.cfiresim.com/

Also keep in mind that these are all probability estimates based on prior data and there is always an assumed probability of success in the numbers. An assumed % return is just that. If you RE in your 50s, you are likely to see some ups and downs during your retirement. Make sure you think about how that would play out both in terms of actual portfolio value, risk tolerance, and ability to adjust budget and/or employment in the future.

FiguringItOut

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Re: Am I going to be ok?
« Reply #13 on: July 14, 2020, 12:51:11 PM »
I got this at 5% with $27k yearly earning and starting from £390k:

Year   Year number   Total invested   Yearly Earning
2021   1   £436,500   £19,500
2022   2   £485,325   £21,825
2023   3   £536,591   £24,266
2024   4   £590,421   £26,830
2025   5   £646,942   £29,521
2026   6   £706,289   £32,347
2027   7   £768,603   £35,314
2028   8   £834,034   £38,430
2029   9   £902,735   £41,702
2030   10   £974,872   £45,137
2031   11   £1,050,616   £48,744

I'll have to check my formula in my spreadsheet.  Thank you. 
I just did quick and dirty one and got this at 5%

    Investment     Additional     Yearly Earning     Cash     Total 
Jun-20    390,000     15,000     10,125     54,000     469,125
2021    415,125     30,000     22,256     50,000     517,381
2022    467,381     30,000     24,869     50,000     572,250
2023    522,250     30,000     27,613     55,000     634,863
2024    579,863     30,000     30,493     55,000     695,356
2025    640,356     30,000     33,518     60,000     763,874
2026    703,874     30,000     36,694     60,000     830,567
2027    770,567     30,000     40,028     60,000     900,596
2028    840,596     30,000     43,530     60,000     974,126
2029    914,126     30,000     47,206     60,000     1,051,332
2030    991,332     30,000     51,067     60,000     1,132,398
2031    1,072,398     30,000     55,120     60,000     1,217,518
2032    1,157,518     30,000     59,376     50,000     1,296,894
2033    1,246,894     30,000     63,845     50,000     1,390,739


And this at 7%

    Investment     Additional     Yearly Earning     Cash     Total 
Jun-20    390,000     15,000     14,175     54,000     473,175
2021    419,175     30,000     31,442     50,000     530,617
2022    480,617     30,000     35,743     50,000     596,360
2023    546,360     30,000     40,345     55,000     671,706
2024    616,706     30,000     45,269     55,000     746,975
2025    691,975     30,000     50,538     60,000     832,513
2026    772,513     30,000     56,176     60,000     918,689
2027    858,689     30,000     62,208     60,000     1,010,898
2028    950,898     30,000     68,663     60,000     1,109,560
2029    1,049,560     30,000     75,569     60,000     1,215,130
2030    1,155,130     30,000     82,959     60,000     1,328,089
2031    1,268,089     30,000     90,866     60,000     1,448,955
2032    1,388,955     30,000     99,327     50,000     1,568,282
2033    1,518,282     30,000     108,380     50,000     1,706,661


This is helpful.  I need to do more work on my calculations and projections.

FiguringItOut

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Re: Am I going to be ok?
« Reply #14 on: July 14, 2020, 12:54:36 PM »
This tool may be useful for scenario testing.
http://www.cfiresim.com/

Also keep in mind that these are all probability estimates based on prior data and there is always an assumed probability of success in the numbers. An assumed % return is just that. If you RE in your 50s, you are likely to see some ups and downs during your retirement. Make sure you think about how that would play out both in terms of actual portfolio value, risk tolerance, and ability to adjust budget and/or employment in the future.

Yes. I agree.
It's not necessarily that i want to retire the second I hit $1M mark.  I want options that come with that.
It also so happens that in 2026 I can move out of NYC which will change my projections/assumptions and my earnings/savings rate further. 



helloyou

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Re: Am I going to be ok?
« Reply #15 on: July 14, 2020, 12:57:02 PM »
Yes that's how you should plan I think. I suppose from 2026 even if your earning is lower, you base portfolio would be big enough to grow over your earning reduction.

I think planning to 2029 is much better in term of expectation. And with some luck you could retire much earlier but you won't be too disappointed especially if there's a crash mid point!

FireLane

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Re: Am I going to be ok?
« Reply #16 on: July 14, 2020, 01:15:27 PM »
This part of your post stuck out to me:

$54K cash,
$390K investments (VTSAX or the like, $20K in BND, all but $9K in tax deferred accounts (401K, Roth IRA, tIRA, HSA),
$7K of remaining student loan at 3.375% which will be paid of in 2025 if I don't pay it off sooner in a lump sum which I don't plan on doing

Is there a reason you're holding $54K in cash? That's a lot, especially with interest rates near zero. I wouldn't keep that much unless I feared imminent job loss or I was saving up for a down payment on a house.

If neither of those applies to you, then unless you're earning more than 3.375% interest on that cash, it doesn't make mathematical sense to sit on while paying interest on your student loan. If I were in your shoes, I would withdraw $7K and wipe out the loan.

(In your position, I would also withdraw another $10 to $20K and invest it in a taxable brokerage account. Put those green employees to work for you, as MMM says. But that's more dependent on your personal risk tolerance.)

FiguringItOut

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Re: Am I going to be ok?
« Reply #17 on: July 14, 2020, 01:26:01 PM »
This part of your post stuck out to me:

$54K cash,
$390K investments (VTSAX or the like, $20K in BND, all but $9K in tax deferred accounts (401K, Roth IRA, tIRA, HSA),
$7K of remaining student loan at 3.375% which will be paid of in 2025 if I don't pay it off sooner in a lump sum which I don't plan on doing

Is there a reason you're holding $54K in cash? That's a lot, especially with interest rates near zero. I wouldn't keep that much unless I feared imminent job loss or I was saving up for a down payment on a house.

If neither of those applies to you, then unless you're earning more than 3.375% interest on that cash, it doesn't make mathematical sense to sit on while paying interest on your student loan. If I were in your shoes, I would withdraw $7K and wipe out the loan.

(In your position, I would also withdraw another $10 to $20K and invest it in a taxable brokerage account. Put those green employees to work for you, as MMM says. But that's more dependent on your personal risk tolerance.)

Haha, I totally hear you.  But I won't do it.  I am basically hording cash. 
Until 5 years ago before my divorce I lived with $200 in the bank at most, small 401K in my ex's name, no other investments, paycheck to paycheck, and huge credit card debt.  I haven't slept at night for years worrying about money.   I walked out of that marriage with $105K personal NW after selling the house in 2015.  And here I am today.

This cash is ensuring that I am getting a good night sleep.  And that is very valuable to me.



vand

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Re: Am I going to be ok?
« Reply #18 on: July 14, 2020, 01:59:28 PM »
Yeah, you'll be just fine. People who worry about their long term plan holding together are well ahead of the curve just because they have a long term plan in the first place which puts them ahead of 90% of people. It might take a year or two more than your fairly optimistic projection, but keep going and you'll get there. Most people would kill to be in OP's position.

Thank you.
Why do you think my projections are optimistic? I'm asking because I see people posting here their projections using 8%-10% gain assumptions. 
What do you think would be more realistic assumptions?  I'd like to model different scenarios.

Equity and Bond valuations are negatively correlated with valuations, and right now we have considerably higher than historical valuations in these asset classes.

It might happen and I would not be surprised if markets did indeed return your projections over 5 yrs which is quite a short holding period over which the correlation coefficient is not as strong as for longer periods (of course, this can mean results are worse that mean projections, too), but everything suggests that we should expect a period of lower returns than normal from our current levels.

a good reader's digest summary here: https://awealthofcommonsense.com/2020/07/it-depends/

« Last Edit: July 14, 2020, 02:03:32 PM by vand »

Laura33

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Re: Am I going to be ok?
« Reply #19 on: July 14, 2020, 03:47:20 PM »
This part of your post stuck out to me:

$54K cash,
$390K investments (VTSAX or the like, $20K in BND, all but $9K in tax deferred accounts (401K, Roth IRA, tIRA, HSA),
$7K of remaining student loan at 3.375% which will be paid of in 2025 if I don't pay it off sooner in a lump sum which I don't plan on doing
[snip]

Until 5 years ago before my divorce I lived with $200 in the bank at most, small 401K in my ex's name, no other investments, paycheck to paycheck, and huge credit card debt.  I haven't slept at night for years worrying about money.   I walked out of that marriage with $105K personal NW after selling the house in 2015.  And here I am today.

This cash is ensuring that I am getting a good night sleep.  And that is very valuable to me.

There's a lot I could say here -- in particular, that it is literally impossible to tell you whether your plan will get you where you want to be without knowing what your expenses are, because even $1M in savings is irrelevant if your expenses are $300K/yr, you know?

But I'm going to skip all that, and go with this:  you will be fine.  You yourself, on your own, are the woman who has managed to go from $105K NW to almost $450K NW in five years, despite being a singe mom.  So I have every confidence that, despite whatever other challenges are coming your way in terms of medical and college costs, that same woman is going to find a way to hit her financial goals and put herself in a position where she can do whatever the fuck she wants.  Because that's the kind of badass she is. 

Freedomin5

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Re: Am I going to be ok?
« Reply #20 on: July 14, 2020, 05:02:18 PM »
You will be fine. If the pandemic is getting you down, looking at numbers is only mildly beneficial. Go find something to do that gives you joy. Learn something. Create something. Improve something.

FiguringItOut

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Re: Am I going to be ok?
« Reply #21 on: July 14, 2020, 06:43:58 PM »
This part of your post stuck out to me:

$54K cash,
$390K investments (VTSAX or the like, $20K in BND, all but $9K in tax deferred accounts (401K, Roth IRA, tIRA, HSA),
$7K of remaining student loan at 3.375% which will be paid of in 2025 if I don't pay it off sooner in a lump sum which I don't plan on doing
[snip]

Until 5 years ago before my divorce I lived with $200 in the bank at most, small 401K in my ex's name, no other investments, paycheck to paycheck, and huge credit card debt.  I haven't slept at night for years worrying about money.   I walked out of that marriage with $105K personal NW after selling the house in 2015.  And here I am today.

This cash is ensuring that I am getting a good night sleep.  And that is very valuable to me.

There's a lot I could say here -- in particular, that it is literally impossible to tell you whether your plan will get you where you want to be without knowing what your expenses are, because even $1M in savings is irrelevant if your expenses are $300K/yr, you know?

But I'm going to skip all that, and go with this:  you will be fine.  You yourself, on your own, are the woman who has managed to go from $105K NW to almost $450K NW in five years, despite being a singe mom.  So I have every confidence that, despite whatever other challenges are coming your way in terms of medical and college costs, that same woman is going to find a way to hit her financial goals and put herself in a position where she can do whatever the fuck she wants.  Because that's the kind of badass she is.

@Laura33  Screw the pandemic, I just want to give the biggest hug right now. Thank you for your reply.  I literally chocked up reading it.

PS:  I don't spend $300K/yr. LOL  Right now, my expenses average to about $5K per month.  It will go up with medical and college by about $10K a year for few years.  Then it it will come back down again.  This $5K includes my $2,400 rent, food for 3, clothing for 3, household, cell phones, gym, transit, travel, birthdays, etc.  We do not live lean life and I am ok with that.  None of it is extravagant, but I am comfortable here.  Once kids are on their own and I move out of NYC my rent will be way down, my regular expenses will be way down (food alone will be a huge difference), etc.   




 

Wow, a phone plan for fifteen bucks!