Financial Independence Study: How the year you are born impacts your path to FIRE |
- Study: How the year you are born impacts your path to FIRE
- Moving to Puerto Rico is a realistic option for FIRE
- Daily FI discussion thread - November 05, 2018
- Any FIRE-ees who have been living in early retirement for 10+ years?
- Wrong Career?
- Advice: Negotiating time off in a post FI job
- Weekly FI Monday Milestone thread - November 05, 2018
- Effect of sabbaticals on FIRE?
- Thinking about a career change to fee-for-service or fee-only financial planning
- HELP! I have family and friends who do not believe in FIRE.
- On the road to FIRE, where do people withdraw a source of income before the typical retirement age?
- Fidelity: Q3 RETIREMENT ANALYSIS: ACCOUNT BALANCES HIT RECORD HIGHS 10 YEARS FOLLOWING FINANCIAL CRISIS
- Extra Benefits of the FIRE Mindset
- Getting rid of a big debt on this journey
- EITC
| Study: How the year you are born impacts your path to FIRE Posted: 05 Nov 2018 07:27 AM PST I am a complete nerd when it comes to finances, and programming. Since I couldn't find a simulator to answer the title question, I decided to seek out answering it myself using Shiller's data. The idea is one that is obvious at face value but one that I think a lot of people can't quite wrap their minds around... that is, the market ebb and flow directly impacts our FIRE plans much more than we think. To use an analogy, if you're putting a boat into the ocean... running out when the water is receding can get you there much faster/smoother than deciding to run into the water as it's peaking on the shore and dealing with a shallow launch. The ocean is easy to anticipate in these situations, however the markets we watch... not so much. Getting out of the market when we're in a recession is ideal... though usually the opposite happens and we bail after a bull, just in time for the market to recede. I wrote this a couple years ago and will update the numbers to include that last two years if people are interested... I can also make the salaries and savings rates a bit more aggressive (30%, 40%, 50%) to match what many in the FIRE community are working towards. Let me know your thoughts. It's all just variables in the program, easy to adjust :) I came up with this first pass simplistic model, to outline what a difference a decade can make in when you started your working career. I'm fascinated by this, although it doesn't come as any surprise that getting horrible returns (or a recession) just before retirement would be a bad thing, it is still interesting to think that our ability (or rather the ease at which we get there) to create financial freedom from the market also depends on factors outside of our control. Modeling Wealth Accumulation: In this example I decided to explore what happens when a person consistently saves over their career. For this one I decided to make this accumulation phase 40 years (which could roughly correlate to someone starting to work at 22 and retiring at 62). I could tweak these numbers (and will in future models) but decided to just keep it simple for this first pass. So in this example we will assume the following:
Results: Over a career of 40 years with an initial salary of $30,000 (2016 dollars) and a 1.25% raise each year, setting aside 15% of your salary towards retirement... you would have set aside a total of $231,703 (2016 dollars) into your retirement account. The worst year to have started working would have been 1881, because a combination of inflation an lackluster market conditions in 1915-1920 would conspire to inhibit your retirement account as it reached the finish line. Despite 40 years of compounding and growth, you'd end up with just $370,769 in 2016 dollars (knowing what we know about the great depression... you'd likely experience a roller coaster in retirement as you'd see your account skyrocket in the 20's only to CRASH hard in 1929). It's no wonder my great grandfathers generation was so conservative when it came to investing. Their parents lived this, and they grew up in that environment. The best year to have started your career would have been 1926, makes sense that starting your accumulation phase just as the depression hit would award you a starting point of buying equities on extreme sale. This is why people shouldn't run from recession markets but rather embrace them for the discount that they are. Strong market conditions in the late 60's led this person to a final figure of $2,110,297 Another interesting point is just how big a difference a few years can make... based on when you started accumulating. Someone who started working in 1968 would have seen their retirement account grow to $1,228,427 by 1998... but someone starting just two years later would have ended up with $692,122 because the last year before retirement they would have been hit by the dot com bust. That's an anomaly, the median result of that kind of accumulation period is to end up somewhere in the $900K-$1.1M range. About half of all results fell in that range. But there were periods of time where the market continuously was above it... example starting your career between 1912 and 1934 always left you with above $1.1 million... and a median return around $1.7 million, with four of the cycles ending with above $2 million. This brings me to an important point about this model... it's not all that ideal because people tend to move towards more conservative investments (introducing bonds) as they get closer to retirement. I'm going to track down the inflation adjusted bond return numbers and create an Asset Allocation situation for my next model that will follow this framework but have someone shift slowly towards more conservative investments in the later years of their accumulation phase. Also, what ends up happening is that people who don't quite have enough just work a few years longer... so the strict 40 years isn't all that realistic... but still helps to hammer down the point that even if you're diligent with savings, the market factors still dictate a bit of when you can actually pull the plug on working. What might be more meaningful is to look at how many years (from each start date) it takes to accumulate say $1.5M by saving 15% of your salary every year (using the above figures 15% savings of a $30K salary that grew to $48,699 over your career -- all figures adjusted for inflation to be in today's dollars). Here are the results... What I found particularly remarkable about these results is that someone who started working in 1931 setting aside 15% of their modest pay reached $1.5M in just 34 years... while someone who started just 3 years later in 1934 had to work an extra 15 years longer to achieve the same level of financial security. A combination of inflation in the 70's and a 50% surge in the market in 1933 that got the compounding started early, created this disparity.* As I mentioned above, I'm open to suggestions on how to change the variables to get a more meaningful study of the market as it would fit the FIRE community. My guess is that a larger savings rate and shorter period of accumulation smooths these figures off a bit, however the actual year you start to save will still have a significant say in how market compounding impacts your FIRE timeline. [link] [comments]  | ||
| Moving to Puerto Rico is a realistic option for FIRE Posted: 05 Nov 2018 10:34 AM PST I've spent the last couple months researching act 20 and 22 in Puerto Rico(4% corporate tax and 0% capital gains tax) and of course 0% federal income tax. We went down for a week to visit the island and meet with CPAs, lawyers, and other people who are already doing this. We visited the most popular cities and neighborhoods and found that you can live very well on the island. We have decided to move our business down for 2019 and we plan to save over $300k in taxes year 1. I write this because this has come up on this subreddit and is shut down by many people who haven't ever really looked into this and have never visited the island. Depending on how much you are paying in taxes, moving to PR may be the best financial decision of your life. [link] [comments]  | ||
| Daily FI discussion thread - November 05, 2018 Posted: 05 Nov 2018 03:09 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]  | ||
| Any FIRE-ees who have been living in early retirement for 10+ years? Posted: 05 Nov 2018 09:17 AM PST Hi all, I've read books/blogs by and spoken to several early retirees who have successfully FIREd at 30/40/50 in the past few years, but can't help wondering how they'll be faring in 10/20/30 years from now. Other than Vicki Robbin, do you know of anyone who successfully retired at 30, 40 or 50 and has remained retired for decades after? Thank you! [link] [comments]  | ||
| Posted: 05 Nov 2018 11:05 AM PST I've been lurking for a couple of years here and have learned that the average salary for those on this sub is quite high. I've learned that the route to personal finance involves a 2 thronged approach: Make more, and spend less. (Though many seem to lean hard on one of the other, it's quite apparent that focusing on both is important.) I've got the spend less down part. I'm mega frugal, and have an interesting, enjoyable life. Build the life you want and save for it, and all that. Frugal but not to the point of becoming a miser. Where I feel stuck, is my salary. I work in Television Broadcasting, and have climbed up to one of the highest paid positions in my union. I'm currently making 70k CAD, and if I stick around for 6 more years, I'll be up to 84k CAD (in today's dollars, as salary increases every year at 1.5% to account for inflation.) Now, that's decent money - I'm proud of that and worked hard to get where I am, however even if my career turns to management, I can't see myself ever breaking 100k CAD. I also live in Toronto, where COL is high, and most of the positions in Broadcast Television are based in large cities so I feel frosty when reading the constant advice of moving to a low COL area. I feel like I may have made a mistake. I'm starting to realise that I may have gotten into the wrong industry, as so many of the skills I've learned here, aren't very transferable, and that I'm nearing the cap salary of my career quickly - and it's not as high as I'd like it to be. Those I know who have left my company, have gone into TV or Film freelancing- not much of a change. I work in Technical Production, so I don't have the writing or research skill set that those in editorial have, and my skillset is very job and industry specific. It's a hard pill to swallow, that if I wanted to change industries that I'd have to start back at the bottom and work myself back up, and I would have to make the jump soon if I do or it'll end up being a wash as far as finances go. The silver lining, is that I do enjoy my job. I know not everyone does, and can make life less enjoyable, but I do recognise that I have it good in that regard. Has anyone been in a similar situation and may have any advice? Or anyone in general who has moved careers with their main motivation being financial reasons? [link] [comments]  | ||
| Advice: Negotiating time off in a post FI job Posted: 05 Nov 2018 09:17 AM PST I recently went back to work full time in a job I like. I do not need this job financially. I need this job mentally. The issue is vacation days. The place shuts down every year for 1 week in summer, so as soon as I was hired I used 3 vacation days. Basically no choice. I have to go to a wedding next month (need 2 days) and the issue is next jan. My dad is a pilot and has mandatory retirement in jan. If I do not go on his retirement trip he will be heartbroken. It will be about 7 days in a cool foreign location. How would you aproach this situation? I like my job a lot but I would rather be fired than miss this trip. I know I'm valued by my boss but I'm finding it mentally hard to demand time off for an exotic vacation. [link] [comments]  | ||
| Weekly FI Monday Milestone thread - November 05, 2018 Posted: 05 Nov 2018 03:09 AM PST Please use this thread to post your milestones, humblebrags and status updates 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! 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]  | ||
| Effect of sabbaticals on FIRE? Posted: 05 Nov 2018 07:12 AM PST I'm considering doing FIRE in an alternative way and wondering about the implications of this sort of lifestyle. Most FIREers, from what I've seen, save save save then retire early, perhaps at 50, therefore retiring 15 years earlier than normal. But what if one were to space these 15 years throughout one's life? For example, is it feasible to work two years, take a year off, and repeat all through life, and still save enough to retire at 65? This would add up to 30 years of labor and 15 years of traveling (starting age 20). I am interested in traveling the world while I am young and I consider myself fairly frugal. How can I determine a reasonable sabbatical budget that will still get me through retirement? My understanding is that the latest career years are the most fruitful and also the most difficult to get hired; how does this change the calculus? For reference, I am 20 with 30k in savings, no debt, and expect to earn around $70k pre-tax when I enter the workforce next year. [link] [comments]  | ||
| Thinking about a career change to fee-for-service or fee-only financial planning Posted: 05 Nov 2018 01:07 PM PST I'm a Canadian engineer with a master's degree, a $65k/yr salary and an incredibly stressful job where every day I'm rushed into making decisions on technically complex issues with life safety implications. It keeps me up at night and I hate it. I've been thinking about a career change for the last few years. Personal finance is a hobby of mine and has been for about a decade. I'm a regular on /r/financialindependence and on track to retire in 8-10 years. I spend a fair amount of my spare time listening to podcasts about investing, personal finance, and financial independence and I like to build my own excel models. My friends all know me as the "personal finance guy" and I have basically acted as a financial planner for a dozen or so of them. I'm considering a career as either:
Both options exist in my local market. I'm wondering if you guys would recommend pursuing either option as a career. I know that many of these jobs are basically sales jobs for a big bank. I wouldn't make the career change for that. Instead, I'd like to work for a fee-only financial planning firm that has a fairly established customer base OR with a wealth management firm for high net worth clients that relies on an index investing strategy. Both of the firms I'm looking at have clients beating down their door due to reputation so the job is less about sales and more about service. The wealth management firm in particular doesn't expect junior employees to bring in clients because they only take people with more than $500,000 in AUM. Average book size for a portfolio manager is $50M and they charge 1%. They bring in young people, generally as a portfolio manager assistant, put them on salary for the first few years, then allow you to build your book and eventually buy it back from them once you're more established. I know you guys generally think of wealth managers as a waste of money but the reality is that there are both poor and wealthy people out there who don't care enough about this stuff to figure out the details and they can benefit from the advice of someone acting in a fiduciary capacity on their behalf. Does anyone here work in the industry? Can you provide any insight on whether you'd recommend the career change? Should I take the Canadian Securities Course to help employers take me seriously? Thanks for any advice you can give. [link] [comments]  | ||
| HELP! I have family and friends who do not believe in FIRE. Posted: 05 Nov 2018 04:24 PM PST I will make the long story short. Wall Street Journal recently published an article on FIRE, which I have sent to a lot of my close friends and family. I wanted to promote the idea of financial discipline, minimalism and the ability to live a fulfilling life while spending within your means. I thought I was doing a good thing for sharing a very positive idea. NOOOOOO....I received very negative feedback, and some of my friends even claim that FIRE is not practical or achievable. One person event sent me the recent Bloomberg article that vaguely talks about how FIRE is not practical because saving money is not fun, but spending money is fun. Anyway, I need help. I want to prove to them that FIRE is real. It is achievable, and the model works. For those of you all who successfully achieved FIRE, could you please comment? Thank you in advance. [link] [comments]  | ||
| On the road to FIRE, where do people withdraw a source of income before the typical retirement age? Posted: 04 Nov 2018 04:54 PM PST Sorry if this is a dumb question but how can people retire earlier than the typical retirement age let's say 65 and not withdraw from the pensions plans (401k, 403b or IRAs or Roth IRAs) and still be financially independent from working? I know it's from a lifestyle choice like being frugal and living with below your means and saving a lot of money and investing in all different investment vehicles. Besides all that and even with investing to the maximum that you can afford on your way to achieving FIRE. Where are you getting your income from once you reach your early retirement age let's say at age 48? Obviously you don't want to withdraw before 59 1/2 and take penalties. Does my question make sense? Are you just saving extra money in your savings account and plan to use it later? I know there are other investments options as well. People must have side hustles or plan to be there own boss? Like make a living off owning several rental properties and live off that income. I am currently married in my late 20's. My SO and I max out our 401k's and Roth IRA's every year. We're currently paying off our first home on a year 10 year fixed mortgage. We're saving as much as we can and are trying to diversify our portfolio so we can attempt to retire in our forties. [link] [comments]  | ||
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| Extra Benefits of the FIRE Mindset Posted: 04 Nov 2018 06:50 PM PST I've just recently started working, and am saving for FIRE. Right now it looks like I should be able to hit FIRE at 37. Thing is, my current job isn't amazing, and I'm not sure if I'll be happy doing it for that long. However, after checking on my spreadsheet,s I've realized that in about 2-3 years of working, I'll have saved enough to retire 64, just by waiting for compound interest. So if I decide I hate this career, I can go do something else that doesn't pay as well, but that I enjoy more, and not have to worry about savings. [link] [comments]  | ||
| Getting rid of a big debt on this journey Posted: 05 Nov 2018 06:48 AM PST On the journey of financial independence, I am excited that it finally makes some economic sense to me (and not just for mental reasons) to pay down the remaining mortgage debt. Am already very heavy into equities, and will be moving more money (than the mortgage) into equities in the next couple of months. I see paying down the mortgage as a "risk-free" return of the interest rate, somewhat similar to a bond. So that's why this exposure makes sense to me. Also helps with cash flow as I prepare to be a in a situation where I can retire any time. Sharing with you lot here, even though some of you have gotten meaner & downvote as if getting VTSAX for it! [link] [comments]  | ||
| Posted: 04 Nov 2018 05:56 PM PST There was a lot of discussion earlier today on ACA subsidies and if FIRE people should use them. Has anyone considered the EITC if you have a side hustle? The EITC is limited by not just how much you earn, but also by income received as capital gains/dividends. Strategic use of SpecID for selling shares (or claiming the credit every other year like some people have done for itemizing taxes) could bring in a couple thousand extra a year. Disclaimer: this is not part of my strategy, just curious if people have the same opinions on this as they do about ACA subsidies. [link] [comments]  |
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