Financial Independence Major Milestone met - just need to share |
- Major Milestone met - just need to share
- Feels like a weight has been lifted
- Houston, TX financial independence meetup! Sunday January 7, 1pm at Under the Radar Brewery
- Annual Post #1 - Middle Class Path to Fire
- Daily FI discussion thread - January 04, 2018
- For people already FIRE'd, with 'barista' jobs
- The Rate of Return on Everything
- What allowed you to accept the FI/RE idea?
- To quit or not to quit
- Components of the CPI Measure and Realistic Inflationary Considerations
- Should backdoor Roth conversions only be done as much each year so as to make sure that RMDs won’t need to be taken in the future?
- What was your net worth at the end of 2017?
- Tax Advantages, how much does it really make a difference?
- FIRE Audit - Looking for Constructive Criticism
- Financial advisors. Yay or nay?
- Backdoor Roth IRA - Afraid that I painted myself into a corner
- Back Door Roth vs Brokerage
- Input on spreadsheet
| Major Milestone met - just need to share Posted: 04 Jan 2018 08:15 AM PST So like many others, I (46m) feel the need to share here since I can't talk about this to anyone else (other than my wife (39f), and she was like "Meh - we didn't already?"). Today, we hit $1m in NW. I wasn't born into wealth, and one of the major driving factors of my FI journey is that I am still traumatized by my early memories of my parents fighting about money because they couldn't pay the bills. I did this on my own (except the portion listed below attributable to my wife's 401k). I guess my (now deceased) grandmother helped me a few times during college when I would have starved, so I'd be remiss not to mention that. I've been on my own, financially, since I was 16. Here's the breakdown (rounded to the nearest 1000):
Most amazing (to me) is how quickly NW snowballs (in a rising market): * 2014 NW $564k * 2015 NW $619k * 2016 NW $737k * 2017 NW $991k * first 4 days of Jan market rising earned the other $10k. I admit that between my wife and I we make a lot, and save a lot (last year, we saved an average of $10.3k per month, including 401ks). Our savings rate could be higher. I am frugal, but not even close to some people on this reddit. Our goal: $2.6m - $3m. The lower figure if I don't want to help my parents and sister every month, the higher so that I can be sure they don't starve and have somewhere to live. Sorry for the long post. I just needed to share. [link] [comments]  |
| Feels like a weight has been lifted Posted: 04 Jan 2018 03:20 AM PST Haha no, I have not become FI at age 26. But after posting about how much I should spend on a car in /r/personalfinance, I got some feedback and realized what I truly want is freedom. I've only been out of school for a year and have already come to dread the idea that I will have to do a job I don't like for essentially the rest of my life. At the same time, I don't want to waste the schooling my parents paid for and take the risk of starting my own venture. Reading the stories on here has opened my eyes and has shown me that the life I've wanted is within reach. My journey is just getting started. I have roughly $75K saved up right now and have been reading all about where to put my money to use. Seems like $1-2mil is where people feel comfortable quitting their job. I'm so happy I found this sub I could not be more excited to be a part of it! [link] [comments]  |
| Houston, TX financial independence meetup! Sunday January 7, 1pm at Under the Radar Brewery Posted: 04 Jan 2018 07:50 AM PST Hello all! There's a Houston Area Mustachians (from the Mr. Money Mustache forums) Facebook group and we're planning a meetup this Sunday at Under the Radar Brewery, starting at 1pm. The address is 1506 Truxillo St Houston TX 77004. They have a grass parking lot and plenty of street parking for cars, as well as lots of places to lock your bike. Hope to see you there! [link] [comments]  |
| Annual Post #1 - Middle Class Path to Fire Posted: 04 Jan 2018 06:41 AM PST Hi reddit, I've been thinking about posting here for a few months now and finally am getting around to it. I thought it might be helpful for some to read a post from a household that doesn't have 100,000k+ income. We're two people that have taken an unconventional path but that work in stereotypically low paying jobs (teaching/social work). I plan on posting an update once yearly to (hopefully) illustrate that you don't need a crazy high income to achieve FIRE. Story After graduating undergrad with just over 50k in student loans, my girlfriend (now wife) and I decided to go abroad to China to teach English to pay it off at an accelerated rate. This job required us to work about 10 hours/week, included an apartment and provided a salary of 15k/year each, which we supplemented with a very large amount of tutoring that more than doubled our income. That year we reduced student loan debt to 28k. While SO loves teaching, I quickly learned it wasn't for me and spent much of this year soul searching through a wife variety of reading. That year we lived quite frugally, spent an average of $100/week, got a strong foundation in Chinese, and traveled extensively. I didn't track NW until a year later, but my best guess puts our NW at -28k (student loan debt), as we didn't stay very liquid. Overall NW ($-28k) Year two we got new gigs teaching English at a university (through a tutoring contact) that doubled our income to 32k/each. The new job included a free apartment (major upgrade from previous year) and shifted us to working 20 hours/week. We dropped almost all tutoring gigs because of the added stress load from work (much more demanding environment) and the pressure from some tiger mom colleagues that wanted us to teach their kids. Instead of focusing on increasing income/optimization, we enjoyed a bit of lifestyle inflation (restaurants, Uber, western food, etc.) Our language skills got significantly better as well, contributing to the lifestyle creep. Thanks to my personal reading/soul searching, I finally identified a field I was more passionate about and was lucky to find an INGO operating on our campus in a parallel field and volunteered there for 9 months before being hired on full time after interviewing in Chinese---Thank you Chinese classes! I also applied for and was accepted to a graduate program for my field that allowed distance learning if working in the field. Additionally, at the conclusion of this contract, SO started a hybrid masters program that allows students to work in the year and complete classes in the summer. Overall NW $14k Year three we continued out work at the university, SO teaching and me with the INGO. We received pay increases putting us both at just shy of 35k, with SO working 25 hours/week and me at 40 hours/week. SO continued loving her work, but while I loved my area of work I was less enthused with the morality and flagrant waste of my office. I recognized some of the friction I was feeling was due to cultural differences, but at the end of the day I just couldn't reconcile it with my conscience. I focused on my schoolwork, timing Brexit and the subsequent drop of the pound with paying tuition in advance, and stayed on for 7 months before a random application with a dream employer led to a job offer back in the States. Overall NW 36K Moving back was expensive. Everything we owned fit in 4 suitcases and 2 backpacks, so apartment deposits, rent (this took some getting used to), furniture, cars (biking/sharing didn't work, though we tried), and the jump to higher COL and temporary single income cut our nest egg by 2/3. SO got a job teaching that wasn't due to start until the next semester and we soon after bought a house to reduce her commute time since apartments weren't feasible in the area we needed. I finished my thesis somewhere in the craziness of the move as well. This brings us to the present where we're both very happy with our jobs, though often nostalgic of our lives abroad. Which leads me to our current numbers… Income -Me- 40,000/year +1800 employer contribution/year -SO – 42000/year -Churning – 4k cash, 5k worth of airline miles ***SO will be finishing up masters this summer, leading to a significant paybump. ***Planning on/hoping to pay for half of SO tuition through churning. Assets -403(b) – $5000 -Cost of house minus mortgage – $6000 -Cash – $5000 -Crypto - $500 (Play money) -Airline Miles – Valued at approximately $7500 US, but not included in NW ***Investments as of Jan 18 are 50/25/25 – US Index/International/Emerging Markets. Going to ride this for awhile as it fits us. Overall NW $16,500 Moving back to the States, buying a house, and adjusting down our spending (China was so cheap that we ate out 80% of our meals) has been a real learning curve. That being said, our spending has finally leveled out that I'm confident we'll made some gains in the upcoming year. Overall goal for FI is 1,000,000 by 2032. This number isn't adjusted for inflation, but we plan to pick up low stress work in retirement for visa purposes, which should help offset this over time. Goals for 2018 -Max 403(b) -Max 457 -Max Roth IRA -Overall NW - $60,000 Feel free to reach comment if you have any questions! [link] [comments]  |
| Daily FI discussion thread - January 04, 2018 Posted: 04 Jan 2018 03:08 AM PST Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| For people already FIRE'd, with 'barista' jobs Posted: 03 Jan 2018 07:01 PM PST If you were working full-time in a higher-paying corporate job, and FIRE'd to a life of mostly leisure but with a low-paying part-time job, here's my question. What was it like transitioning from working with 'corporate' co-workers to working with low-wage workers? Did you experience a big difference? For example, let's just say I like to make donuts, enough that I would be willing, upon leaving my corporate job, to do it at Casey's for eight hours a week - two hours each morning for four mornings per week. It pays a pittance, but it covers a few bills, nothing special, and I get to do something I already enjoy for eight hours per week. But the people I worked with would be totally different. For those who have experienced something like that, what did you think about it? [link] [comments]  |
| The Rate of Return on Everything Posted: 04 Jan 2018 08:08 AM PST Came across an article that claims the real return of Real Estate was high than that of equities when considering the 16 wealthiest countries since 1870. The link to the white paper is in the article. I don't have access but I thought someone smarter than me might be able to speak to their methodology and findings. Seems like this flys in the face of what I have always read and heard that "housing appreciation only keeps up with inflation in aggregate and over a long period." Not going to change my 100% equities and 100% passive strategy anytime soon, but this type of research makes one wonder about future results and SWR. Link: https://qz.com/1170694/housing-was-the-worlds-best-investment-over-the-last-150-years/ [link] [comments]  |
| What allowed you to accept the FI/RE idea? Posted: 04 Jan 2018 09:44 AM PST It seems people either reject or accept FI/RE concepts when initially exposed to them. I'm curious what makes one accepting of the idea? [link] [comments]  |
| Posted: 04 Jan 2018 06:15 AM PST I've been struggling with this question for a while and want some additional perspective on it. I own 2 properties one worth $230k or so ($180k mortgage) that will become a rental property in May 2018 that should produce a monthly income of $500-$600 a month WITH the mortgage and about $1k-$1,200 WITHOUT the mortgage. I own another property that is not fully moved into yet, but have a $306k balance on that one currently. I work F/T in IT (just barely 6 figures) and also have a side hustle (also in IT) that made another 250K+ in 2017. If you're wondering why my savings and retirement numbers are so low with this income, see why I started back at zero here: https://www.reddit.com/r/fatFIRE/comments/7fwb22/help_evaluate_my_strategy/ Anyway, (97.5% of the time) I hate my F/T job and had plans to quit at the end of summer 2017, but an accident earlier that summer derailed my plans and had me second guessing my decision. My hesitation is that my F/T job has some pretty significant pros: I am in a management position so I can delegate as much or as little as I want. I work 100% remotely (which allowed me to make this move from a HCOL state to a LCOL state), I like the people I work WITH (not so much the "FOR" part). Benefits, etc. Here are the cons: I am in a management position so when humans make mistakes it's actually my fault no matter what. It sucks away 8 to 10 hours of my life daily and the enjoyment factor has declined from my first year until now. I'm not entirely sure how easy it would be to find a job in my area (let alone at this pay grade) which is fear of the unknown I suppose. I know I can get a job in a heartbeat in my soon to be former HCOL state, but I really don't want to live there (hence the reason for moving). I was thinking about it this morning and I realized that with literally just one additional Reseller (I sell technological services wholesale only) I can make up the difference in what I make from my job. Not that I would necessarily need it considering the business already makes more than my job. My plan is contribute the max of $54K to my SEP IRA through my business, pay an additional $5K per month towards my new residence ($306K balance), invest about 10K per month into an after tax brokerage account, run the business for another 3 to 4 years and sell it for a windfall. My biggest worry (as I'm sure all business owners have) is that one day the money can dry up completely and I'll have to get a job, which may not be as easy as I have it now (see above). I have no kids, but getting married summer 2018 if that makes any difference. What would you do if you were in this position? EDIT: When I said $5K additional towards my new residence I meant an additional $5K in principal on top of the regular payment (to hopefully pay it off within 4 years when my income is lower hopefully due to FIRE). EDIT: Thank you everyone so much! You've really helped me to put things in perspective and I've decided to take the leap to quit in May 2018 because that's when I'll be fully moved into my new house (hopefully have the old house rented), my fiance will be done with school, and things will be a bit more settled down at that point. Until then, I'll continue doing what u/sleepingredneck suggested. And then when I tell my boss I'm out, I'll remind myself of what u/misskinky said! [link] [comments]  |
| Components of the CPI Measure and Realistic Inflationary Considerations Posted: 04 Jan 2018 08:12 AM PST It seems like the Trinity Study SWR spending methodology (a given percentage of assets, increased upwards over time with inflation) overestimates spending increases for many people, especially the FI/frugal crowd. Here's a list of the relative importance of items in the CPI measure from 2016: https://www.bls.gov/cpi/tables/relative-importance/2016.pdf Just browsing the list, a few takeaways: 1) If you own your home, housing inflation for you is far lower than CPI considers it to be. From a brief internet browse, this is because it considers how much your home would rent for if it were rented: http://www.slate.com/blogs/moneybox/2014/02/24/housing_inflation_the_cpi_is_a_disaster.html 2) Cost of "food away from home" is significant in the food component (ie restaurants). 3) Relative importance of new cars is twice that of used cars. 4) Cable/Satellite TV is significant in the recreation component. 5) Tuition is significant in the education component. These are from a brief review of the tables, but the conclusions match my personal anecdote. Our spending has stayed the same or dropped over the past 5-8 years (yes, in a tame inflationary environment, but still...). Many of the significant components of the CPI measure don't apply as heavily to us, and over time we discover new ways of cutting expenditures. This is significant when considering a safe withdrawal rate. If many of the CPI calculation components are areas that don't really apply to you, then increasing your spending with inflation isn't necessary to maintain the same lifestyle over the years, and you'd require a lower FI number. Do any of you apply a different inflationary measure (or just a different prediction for expenditure increases over time in general) to your own withdrawal strategy? If so, what is it? For retirees, how has your actual spending changed over time? [link] [comments]  |
| Posted: 04 Jan 2018 10:57 AM PST What I mean is that, when planning a Roth ladder for five years from now, should you convert to Roth the amount that will keep you from having RMDs in the future, but then getting the rest of your income for expenses from taxable accounts? Other then to prevent RMDs that could move you up into a higher tax bracket, would there ever be a reason to withdraw from IRAs/401(k)s before taxable? [link] [comments]  |
| What was your net worth at the end of 2017? Posted: 04 Jan 2018 12:17 AM PST |
| Tax Advantages, how much does it really make a difference? Posted: 03 Jan 2018 08:35 PM PST A lot of people I talk to don't really understand the difference taxable accounts make on their overall returns. They might know that with the 401(k) you don't pay tax, either upfront or at the end, but that is about it. Here is a little table I put together to show the impact. The scenario & assumptions:
https://i.imgur.com/EB9Sn97.png Take Aways:
This is why it is important to maximize your tax advantages. Side note: For the first two tax brackets of income (Up to about $38,000 for a single person) you pay no Capital Gains Tax, if in FIRE your 4% withdrawal is less than this, then there is no difference between the taxable brokerage and the Roth other than paying taxes on your dividends along the way. [link] [comments]  |
| FIRE Audit - Looking for Constructive Criticism Posted: 03 Jan 2018 08:12 PM PST About me:
Finances:
For several years now, I max my 401k and ROTH IRA. I save another 2k or so. I live in New York City and pay pretty high taxes. (~6% state, ~3% city + Fed) I'm a web developer for a living. I'm trying to get a vision for financial independence in 5-8 years. I don't see myself wanting to 'retire' from working but definitely going to a 20-25 hour work week in my 40's and beyond. I'm most interested in hearing what ground work I should be laying to manage cash flow if I stopped working full time in 6-8 years. What can I do to be more tax optimal - besides leaving New York lol. Am I better off pursuing a better paying job or starting a business on the side? Beyond maxing 401k and ROTH ira, where should I put excess money? Should I be moving money out of these accounts into other accounts at all, (ie. backdoor roth)? I rent an affordable apartment. I have been putting off buying a house as I feel prices are incredibly high. I would be happy to hear arguments for or against this reasoning. Any general advice is welcome and appreciated! [link] [comments]  |
| Financial advisors. Yay or nay? Posted: 03 Jan 2018 08:46 PM PST What do people think of using a financial advisor to help them plan for their future? My resolution this year is to make saving money a bigger priority and I thought it would help for someone much more qualified than myself to review my 401k, ESPP, IRA etc contributions. I'm meeting with a financial advisor for the first time tomorrow. In our intro phone call he mentioned it would cost about $1000 a year for his services. Is it worth it in the long run? Any experience or advice you share would be appreciated. [link] [comments]  |
| Backdoor Roth IRA - Afraid that I painted myself into a corner Posted: 03 Jan 2018 04:07 PM PST Hi all I'm a longtime lurker, but posting with a throwaway for obvious reasons. I've been pursing FI for about a year and a half now. I'm 28 and would like to be FI by 40 (but not necessarily RE). I feel like I have a pretty solid game-plan, but a mistake a made a few years back is a really minor thorn in my side. It probably isn't a huge deal, but like a lot of FI-folks, I am all about optimizing. Background:
We then contribute additional savings into a taxable investment account. So now the crux of our problem. I have a traditional IRA that I started before I realized that I would someday be unable to contribute to a Roth IRA due to my income. The value of that pre-tax IRA is around $14K. My understanding of the backdoor Roth IRA conversion is that it if you have money in a pre-tax IRA, it isn't really worth doing the backdoor conversion because you'll end up having to convert that pre-tax amount along with your backdoor contribution. I am unable to transfer the traditional IRA $ to my work's 401k, so my only option to get rid of it would be to convert it to a Roth IRA. Is it worth taking the tax hit by converting the pretax $14K to my roth RIA (this would be around $3,500 in taxes based on us being in the 25% tax bracket?) or should I just call it a loss and stop contributing to an IRA once we go over the income limit? My wife still could, so it would be a loss of investing $5500 a year tax free. I am guessing that we will exceed the income limit in 2019 or 2020. I know we'll have to pay taxes on that $14K in retirement anyway, so maybe I should just do it now. However, I'm thinking we will be in a much lower tax bracket at that time. Thought? [link] [comments]  |
| Posted: 03 Jan 2018 06:58 PM PST So I've been reading about the mega back door roth strategy to funnel additional extra post-tax money into your Roth IRA. I am struggling to understand why this would be better than putting this extra money (after maxing out 401k and standard Roth IRA contributions) into a standard brokerage account. In retirement , my income should be effectively 0, so taxes on the capital gains on my brokerage funds should be 0 as well. This seems to be accomplishing the same tax advantages as a Roth IRA. The brokerage doesn't have the age 59.5 limit. The brokerage account is also a whole lot easier than the hoops of transferring the 401k funds -> IRA -> Roth IRA -> complicated tax forms. Am I just completely missing something? [link] [comments]  |
| Posted: 03 Jan 2018 10:26 PM PST Looking for input on my FIRE spreadsheet download here that I put together with the hope of making quick calculations about how future spending and earnings will impact when my wife and I (each 36) can retire, taking into account various assumptions about the future. The spreadsheet works by tweaking the various input cells (orange) until the final available spending cell (M21) is close to current spending input (P9). B3:E5 is just our current savings, separated by account-holder and tax category. G3 is a post-tax "windfall" input variable that lets us imagine what winning lottery jackpot would allow us to achieve freedom. I3 is the assumption for inflation used in future value calculations. The growth assumptions below (column G) are all pre-inflation. All of the future value calculations in the "savings at start" columns use inflation-adjusted growth to keep the future values of expenses, spending, and savings in today's dollars. (For purposes herein, "expenses" are things that eventually go away or change, like mortgage P&I and health care costs, and "spending" is everything else, including all other bills.) Mortgage principal and interest (P&I) is the exception in that it does not increase with inflation, so an inflation discount is applied for future years, to keep the value in today's dollars - based on the current year's expense (L3). (The spreadsheet calculates this discount using an arithmetic mean, which is technically inaccurate because the decay in future value is non-linear, but the exact solution would require calculating an definite integral which adds a lot of complication for a small amount of increased precision which is useless in light of the inevitable larger inaccuracies resultant with growth and inflation assumptions). The mortgage inflation discount uses a different annual assumption input (J3) than inflation used for adjustments to investment growth (I3) to allow for conservative rounding in each assumption (up for investment growth, down for the mortgage discount). This also allows the user to enter 0% for mortgage inflation (J3) and increase the spending (P9) to account for closing costs, and model a scenario where we move every so many years. A separate calculation is required to determine how much to increase the spending by in that case. In any case, real estate taxes and insurance need to be included in the spending assumption (P9) because they are affected by interest. K3 is the safe withdraw rate - it's only used for the last step in the calculation (row 21) after all of the foreseeable changes have occurred and the model becomes steady-state/fixed-income for the remainder of life. Unlike all of the other growth assumption numbers on this spreadsheet, this is POST-inflation. The default value is 4%, which represents approximately 6% growth and 2% inflation annually. M3 is the income tax that my state and city charge - both are calculated as straight percentages, and this cell represents the sum of the two taxes. O1:Q4 are the current US federal tax brackets, with the maximum tax paid in each bracket in the adjacent R-column cells, and the standard deduction in S1. As the laws inevitably change in the future, these cells can be updated to update the plan. By use of inflation-adjusted growth, future value calculations assume the same rules apply but are adjusted for inflation (tax brackets remain 10, 12, 22, and 24%, but the limits for each bracket increase with inflation). Row 9 represents the working years (now through ASAP) where we earn more than we spend and save the rest in our traditional 401ks, Roth IRAs and a taxable brokerage accounts. The maximum allowable 401k contribution is entered in M9. The Roth IRA and taxable accounts are calculated based on the funds available after taxes, the mortgage (L9), and spending (P9) Rows 14-17, and 21 represent various phases of our potential future life, over which time we see changes to our income and expenses, and become more conservative with our investments as the option to work becomes more difficult with age (thus decreasing the growth assumption with age). With the input assumptions (orange cells) on the initial download that's an income reduction to $20k/year at the age of 40, continuing until the age of 55 when we quit working altogether. At the age of 57 we start receiving income from a pension, and at the age of 65 we pay off the mortgage. Health care (column K) is introduced as an independent input for these years, because we would not expect to get it through our employers any more and costs may increase with age faster than with inflation. Columns L through N for rows 14-17 account for conversions from traditional to Roth that we will choose to make after we start living partially off of savings and earning much less than we are now. At a minimum we'll convert enough to ensure that our taxable income is below the standard deduction. We'll probably also want to convert enough each year to max out the 10% bracket, but the spreadsheet allows this as an option in column M to show the impact of this potential decision. In Rows 14-17, withdraws are made with priority to taxable accounts, then Roth, and with Traditional savings becoming available at the age of 60 (actually it's 59.5 but 60 is close enough). This does allow the spreadsheet to over-draw from the Roth accounts beyond what is available before the age of 60 (contributions and conversions only), so a separate calculation is required to confirm that you are not over-drawing from Roth accounts early. After the age of 60, in row 17, you can decide what % you want to take out tax-free from traditional accounts. After the age of 65 (C17), the changes stop and for the rest of life we withdraw from whatever % we have in each account type, to ensure that in all future we pay the same, equal amount in tax. I'm primarily interested in any doubts about the math involved in putting together this spreadsheet. There is a lot of grey area in all of the assumptions, but what I'm hoping for here is an accurate model that allows me to see through various iterations how changes to those assumptions impact the results. Input into the assumptions is welcome as well, but my main goal here is confirm that the math is correct. [link] [comments]  |
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