Financial Independence Probably a better midlife crisis than most — but I’d still love your advice |
- Probably a better midlife crisis than most — but I’d still love your advice
- The Power of Avoiding Lifestyle Creep
- Traditional 401k VS. Roth VS. Taxable Account for FI's
- For those pursuing FIRE and living a frugal life, what does your holiday spending look like?
- Daily FI discussion thread - December 09, 2018
| Probably a better midlife crisis than most — but I’d still love your advice Posted: 09 Dec 2018 07:00 AM PST Please forgive me if this is a little off-topic, but I was searching around on Reddit for the appropriate sub on life planning, and was encouraged by the response u/anon-e-muss got in this thread. I'm in a similar situation, and would be grateful for your thoughts. ABOUT ME: Age: 44 Net worth: Around $1.6M: $700K in after-tax accounts, $700K in pre-tax accounts, $190K equity on a $500K mortgage in Manhattan. Status: Single, never married, no children Education: BA, MBA from top schools I value my health, I'm in excellent shape for my age, and my family tends to be long-lived. I make a little over $100K a year as an individual contributor, never management. But my industry has taken a turn that I don't like, and since I'm getting older, I find myself with younger peers who don't share the same values as me. I'm frugal by nature, and in the past two decades, the most I've spent in a year was $50K (and that included starting a mortgage and paying for graduate school.) Without those expenses, I probably spend around $25K. POTENTIAL PATHS I could retire, but I'm not sure what I would do with the time. I've traveled plenty. I'd probably still want to work. I'd probably spend more time exercising and resting though. A few years ago, I was lucky enough to get a three month sabbatical, so I've had the pleasure of an extended adventure. I liked it, but I'm very goal oriented, so it turned out like work. Work that was fun, got me into better shape, with fewer unpleasant co-workers — but still work. Ten or 15 years ago, I would have immediately set upon planning more travel, but as my youth recedes and death looms larger, I think more about my legacy and effect on the world. A NEW LIFE: For many people, that legacy is kids. But my romantic prospects have never been great. I'm attractive and personable but I'm not especially gregarious. It has passed my mind to retire early and devote myself to developing a social identity in a cheaper city, with the aim of finding a community, a wife, and having kids. I don't especially like kids, but don't hate them either. In all the books I've read, it seems relationships are the most important thing in life. But I'm not sure how I would go about that. And I may be too old for kids. And $1M is doable for an early retirement for a single frugal guy, but women and children require more money. MOVING UP: For legacy, I have also thought about finally putting in the extra effort to vault myself into management, and focus my extra time and energy and desire for impact there. It wouldn't be for money, but for the chance to develop new skills and create that legacy. But I may not have the personality for it, and I grow less enchanted with the industry I'm in daily. A NEW PROFESSION: A third path would be to go into a new profession. I'm confident of my academic skills. I have considered medicine to help people and have a positive effect on the world — but I already have an MBA. I know I would struggle with the long nights and wear and tear on my health. My career would also be shorter too, but medicine is something you can practice until you die. What's more, after seven to ten years, I might wind up where I am today, still vaguely dissatisfied. If anyone's been in a similar situation to mine, I would love to hear from you. Thank you for reading. [link] [comments]  |
| The Power of Avoiding Lifestyle Creep Posted: 08 Dec 2018 10:20 PM PST I was making some scripts today to simulate various savings plans, and I produced some results that really emphasize the potential impact of lifestyle creep. The attached plot is for two different Roth savings scenarios, one where you constantly live off a certain dollar value (adjusted for inflation) and one where you live off a constant percentage of your wage. The two curves both initiate at the same spending rate of $50k/year post tax. In this case there is a pretty massive difference, keeping your lifestyle constant over the years effectively doubles your real rate of return on investment. This is assuming linear real wage growth of about 3% above inflation. The simulation computes taxes and spending each year and saves the remaining earnings in monthly transactions, interest and inflation are compounded monthly. On a side note, this was done with Roth savings simply because there are less variables in the withdrawal tactics and subsequent taxes. Generally a standard IRA / 401k will outperform a Roth for the FI crowd since the yearly withdrawal rates are much lower than previous income, and therefore have more tax savings. Roth certainly has its place, since contributions can be accessed penalty free before standard retirement age. A split distribution and proper timing of traditional account rollovers is definitely the way to go. This is the main topic I was originally interested in investigating, but I digress. [link] [comments]  |
| Traditional 401k VS. Roth VS. Taxable Account for FI's Posted: 09 Dec 2018 11:46 AM PST Summary: The Traditional/Roth question is very common, usually without direct answers because it really does depend on the individual. However for someone pursuing FI there really is a better choice. I thought people might be interested in seeing the results from one particular case which is attached. Results: For someone that is planning on living off of a good portion less than they make, a traditional IRA/401k is definitely the way to go. It would be recommended to put the bulk of savings into traditional accounts, with enough put into a Roth so that one can live off of the contributions penalty free until standard retirement age. If one cannot get enough put into a Roth to accomplish this, you would generally want to use backdoor rollovers to move this money into a Roth before using a taxable account, but you'll need to be mindful of your tax bracket otherwise this can become worse than a taxable account as shown in the full withdrawal option of the plot. For the lucky few that can max out everything and still have plenty left over for taxable brokerage account savings, then it's simplified even further, you'll want to max out your Traditional 401k rather than a Roth 401k given the choice. Methods: This simulation compares traditional IRA/401k savings with Roth IRA/401k and a standard taxable brokerage account. For the traditional accounts, different withdrawal methods are used. Withdrawing a specific dollar value each year (corrected for inflation), withdrawing a specific percentage of your last paycheck (corrected for inflation), and withdrawing a specific percentage of your total savings. At the end of the day though, these withdrawal methods only differ depending on the dollar amount you're pulling out and what marginal tax bracket that falls into. For all the cases, contributions are exactly the same and the only thing that is making any difference is taxes. Each data point corresponds to the effective value of any of the accounts at that exact period of time, assuming the account holder plans on using the corresponding withdrawal method. Early withdrawal penalties are not considered. Parameters: The parameters for this simulation are included below, if anyone wants the scripts for this to compute their own case let me know. Starting Income: $100k Savings Rate of 30% pre-tax Income growth is linear at about 2.4% above inflation Rate of return is 6% nominal Inflation is a constant 3% Current federal marginal tax rates and brackets are used and corrected for inflation Current social security tax rates are used State income tax is ignored (go Washington!) A capital gains tax of 15% is used Withdrawal Option Parameters, as follows: Traditional Full Draw: screw it, pull it all out at once (obviously don't do this, its laughably worse than a taxable account) Traditional Fixed Draw Value: $70,000 constant withdrawal (inflation adjusted) Traditional Last Income % Draw: withdraw 75% of your last paycheck value (inflation adjusted and pre-tax) Traditional % Savings Draw: withdraw 4% of your total savings each year Roth: withdraw method doesn't matter since there's no tax! Standard Taxable: withdraw method doesn't matter, it's all capital gains! I'm not arguing that all these withdrawal methods make sense to compare back to back, it really is about comparing Traditional accounts to Roth accounts at different savings withdrawal rates. [link] [comments]  |
| For those pursuing FIRE and living a frugal life, what does your holiday spending look like? Posted: 09 Dec 2018 11:58 AM PST |
| Daily FI discussion thread - December 09, 2018 Posted: 09 Dec 2018 03:07 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]  |
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