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    Thursday, February 7, 2019

    Home Unlabelled Financial Independence Marketwatch: "The problem with the FIRE movement" ...LOL.

    Financial Independence Marketwatch: "The problem with the FIRE movement" ...LOL.

    February 07, 2019

    Financial Independence Marketwatch: "The problem with the FIRE movement" ...LOL.

    Marketwatch: "The problem with the FIRE movement" ...LOL.

    Posted: 07 Feb 2019 07:50 AM PST

    Don't click the link. we dont want to encourage this kind of unqualified opinion.

    TLDR: Suze says $5M. Most people have less. $68k not enough to retire on.

    Carry on.

    The FIRE movement is doing a major disservice to retirees and soon-to-be-retirees.

    I'm referring, of course, to the so-called "Financial Independence, Retire Early" movement. Followers save a disproportionately large portion of their salaries in their 20s and 30s, in order to retire early—say at age 40—and live on their savings for the rest of their lives.

    The debate about this movement so far has been largely about the assumptions behind the financial model that shows how it's possible to retire at age 40 with what has been saved over the prior 15 years. My beef with FIRE is not with either those assumptions or the model itself, but with something even more fundamental.

    This more fundamental problem is that the FIRE movement is irrelevant to almost all individuals, and as a consequence is dangerous. Only a very small minority of individuals have sufficient assets to retire early at more than a subsistence level. And when they realize how much smaller their 401(k)s are from what would be needed, they may very well decide to incur far riskier strategies than they would have otherwise—and end up worse off than they would have been had the movement never existed.

    To be sure, there is a debate raging today among retirement advisers over how many assets you need in order to retire early. Suze Orman, the personal finance guru, believes you need at least $5 million. Others, such as Mitch Tuchman, believe that's "nonsense" and calculate that the requisite number is closer to $1 million.

    Regardless of what that number is, however, I think we can all agree that the vast majority of investors don't come anywhere close.

    Take a look at the accompanying chart, which plots data from Vanguard on the typical size of 401(k) balances as a function of age. Consider investors in the 35-44 age group, which presumably is the target cohort for retiring early. On average, they have just $68,935. The median account size—the level for which half have larger balances and half smaller—is $25,800.

    An investor who retired with a 401(k) balance this size and who utilized the so-called 4% spending rule would therefore have to retire on yearly income between $1,032 and $2,757. Good luck with that.

    And note carefully that Vanguard's survey reflects account balances among investors who have a 401(k) in the first place. Many more do not.

    Of course, because of Social Security, the picture painted by the meager average 401(k) balance may be too bleak. But Social Security doesn't kick in until age 62, at the earliest. So it doesn't do much to help during a retiree is his 40s and 50s.

    So what good does the FIRE movement do to tell someone that they can retire at age 40?

    It's akin to luring a young basketball player to drop out of school with visions of someday making into the N.B.A. The net result in virtually all cases, of course, is that the player will be worse off for the rest of his life. In that regard, I note that we're already seeing articles about the successful few who have retired early, complete with beautiful photos of the happy retirees lounging on a beach somewhere.

    My recommendation is not to even read those articles. To the extent young investors take them seriously, they will be shocked upon recognizing how far short their 401(k) accounts are of what is needed to retire early. And that, in turn, could very well lead them to take on much-greater-than-market risk in hopes of building up a portfolio of requisite size by age 40—akin to a "Hail Mary" pass in football. In my four decades of tracking the performance of investment newsletters, such high levels of risk almost always, sooner or later, crash and burn.

    In no way do I intend this discussion to discourage investors from spending less on current consumption and investing more in the future. That remains good and sound financial advice, and to the extent the FIRE encourages these behaviors it will have a positive impact.

    Unfortunately, slowly and steadily building up retirement wealth over a lifetime does not appear sexy or exciting, especially when compared with the allure of retiring at age 40. But, deep down in, we all know that slow and steady wins the race.

    For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email [mark@hulbertratings.com](mailto:mark@hulbertratings.com).

    ​

    submitted by /u/TrashPanda4Prez
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    Vanguard SEC filings drop ‘at-cost,’ ‘no profit’ claims that were dear to late founder John Bogle

    Posted: 07 Feb 2019 02:15 PM PST

    Daily FI discussion thread - February 07, 2019

    Posted: 07 Feb 2019 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.

    submitted by /u/AutoModerator
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    Fire workshops?

    Posted: 07 Feb 2019 08:49 AM PST

    I've heard of financial peace university but am a bit turned off and am curious if there are other things out there like it.

    I've been working on turning my finances around for about six months. I've paid off a ton of debt, made detailed budgets, saved all of my receipts but I feel like I need something in person and in depth to really get on top of this.

    I have bad habits and weird issues around money I'm finding and I think I could use some real help. I could be making so much more money yet I'm slowly chugging along instead.

    Like I have a ton of guilt asking to be paid. Yep weird.

    submitted by /u/wellsfargostillsucks
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    Whwre should I invest my efforts? (Money, time, mental energy)?

    Posted: 07 Feb 2019 03:44 PM PST

    38 yo. 2 kids age 16 and 3. Head of household. (-140k) in graduate loans at 4.5%, paying off at 1500/mo. AGI 150-200k depending on how much I work. Last year worked 55+ hours a week, would like to decrease hours for my own mental health, but that would mean a $25-40k paycut. HCOL. High state tax rate. Very high property tax area. Rent 2 bedroom: rent+util=3000/mo. To buy equivalent property would mean 400k mortgage + $1000/mo in HOA and property taxes (so $3000+ per month not counting probably $500 month in other maintenance). Savings 70k cash. 20k in 529 plan for oldest kid. Have 160k in 401 plan. Oldest kid want to goto college in 2020. Maybe an expensive private school. I feel that I'm enabling entitlement...or maybe I'm just trying to fulfill her dream...?

    Grew up poor. Enjoy cheap things in life. Afraid to invest in RE market (overpriced, correction coming, etc). Also enjoy dreaming about creating passive income. But in my opinion $1 a day spent is $9125 in your savings account ($365 per year × 25) so hard to accumulate enough $$$$ to live off 4% rule.

    Putting cash into my student loans seems like a sure thing at 4.5%. But would be stupid move if inflation goes up. Buying more stocks might give me more money in retirement, but that's likely far away (assuming my investments do better than inflation over the next 25+ years).

    The things that likely would make me happier are: psychotherapy, dental work (lol), and buying a stupid sports car that makes no financial sense. Freedom from owning things (too much clutter in my house). Minimalism.

    submitted by /u/Mymarathon
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    How is the Roth IRA conversion ladder legal?

    Posted: 07 Feb 2019 02:55 PM PST

    Most of you are familiar with the Roth IRA conversion ladder. If you're not, there are lots of articles about it - Mad Fientist's being a fairly good one to read.

    ​

    Moving on. How is this legal? I don't understand how this is possible. I've read the tax code and I don't see how these could be qualified distributions. Look at this flowchart from irs.gov: https://www.irs.gov/publications/p590b#en_US_2018_publink1000231069. So, they're non-qualified distributions, and you may owe tax and/or penalties as a result, plain and simple.

    ​

    Is it that you can only withdraw the basis of your contributions tax- and penalty-free? (Where "contributions" are basically what you originally paid into your 401(k) or traditional IRA and have now paid tax on when you did the Roth conversion). Because if that's the case, then I understand. But what I don't understand is this seems to allow you to withdraw earnings that you've already paid tax on, before age 59 1/2, with no penalty.

    ​

    Scenario:

    ​

    I contribute $1000 pre-tax to my 401(k). Let's say I get $500 in earnings. I then roll this over to a traditional IRA. I then convert this to a Roth IRA. I pay tax on the $1500. Let's say, for simplicity, that the tax was $0. So now I have $1500 on a Roth IRA. Let's say I'm 35 years old. How much can I withdraw after 5 years? $1000, or $1500? If it's $1500, this sounds like cheating and I'd really like specific passages from irs.gov that show how this is legal.

    ​

    Let's establish another scenario similar to the one above:

    ​

    I make a deductible $1000 contribution to my traditional IRA. I get $500 in earnings after a while. Then, I convert to Roth, pay tax. Let's again say it was $0. I'm 35 years old. I know for a fact that I cannot legally withdraw more than $1000 from that Roth IRA before age 59 1/2 (even after 5 years!) without paying a 10% penalty.

    ​

    How is the Roth conversion scenario any different than the second scenario I've established?

    submitted by /u/DueRequirement1
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    Evaluating job offers based on work/life balance vs FIRE

    Posted: 07 Feb 2019 01:46 PM PST

    So I declined a job offer because I felt that they didn't offer enough flexibility with PTO. I have a chronic health condition that means I have to go to the doctor quite often and take a sick day/work from home anywhere from 2/month to couple times a year. It fluctuates so I don't know what to expect. This new job only offers 15 PTO Days, annual and sick included, and no flexibility for appointments (ie work late or earlier to make up the hours). I figured 5 of those days would be needed just for appointments.

    They keep calling me to offer again but haven't actually changed any of the offer.

    My current job allows me to save a lot but the salary is not guaranteed. (Currently 60% savings rate). This job would be a little lower (take home) to start but with bonuses and promotions, probably exceed my current salary within 5 years. I don't feel confident on getting such a good offer again (whether or not that's justified I don't know). They don't have 401k matching but do profit sharing that vests after 6 years. Since I don't know if I'll be there after 6 years, I kind of ignored that.

    What are your guys opinions on evaluating offers? What about 401k vesting? I really want to FIRE but my fluctuating health makes me really nervous about change. I know I could save a bunch of money for the next year and switching to a lower savings rate while working more doesn't sit well with me.

    TLDR: how do you evaluate taking a job with a lower savings rate but higher potential while immediately losing flexibility?

    submitted by /u/JustStruggleThru
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    Consequences of opening an HSA when not eligible?

    Posted: 07 Feb 2019 01:07 PM PST

    Looking to take advantage of an HSA but I have no idea if my plan counts. I am not intending to deliberately break the law by opening an HSA without a HDHP. However I cannot figure out whether or not my plan is eligible. I have gone through all of my plan documents, contacted the provider, and my own HR and no one can give me a straight answer. As far as I can tell from reviewing the IRS guidelines it is a HDHP.

    Lets assume I am wrong, what would the consequences be for opening and funding an HSA?

    submitted by /u/GhanimaAtreides
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    How to value pension in FIRE number?

    Posted: 06 Feb 2019 04:52 PM PST

    Short background, I'm 22, single, living in a MCOL-HCOL area, I make 66k a year, 8 months out of graduation. I currently am building my Efund which is at 3k and putting 20% in to a 401k with no company match that has a total of 10K in it. My job is very secure and my company has a century long history of stability.

    My company, who I have been very happy with so far, has a pension plan that I will be fully vested in at 5 years. Do any of you plan on pension money when you retire? Or have enough set aside to live safely until you can pull from the pension without penalty?

    Apologies if this is more of a PF question.

    submitted by /u/Jpoa
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    Do I have too much in my retirement accounts?

    Posted: 07 Feb 2019 06:47 AM PST

    ​

    I am weighing the option of starting to invest in taxable accounts or Roth 401(k) versus 401(k) and tIRA. I have about:

    401(k) = $150k

    tIRA = $30k

    taxable accounts = $0

    ​

    Considering I am 33 years old and my plan is not to withdraw from these accounts until RMD. If i was to stop contributions today and let these accounts grow at a 5% rate within 30 years I am estimated to have around $648,291! At 70.5 my RMD will be $24,660 annually.

    ​

    I have thought about building a Roth ladder once I FIRE in 2029. However, I am worried my tax deferred accounts will grow too large and I might not be able to stay in the 12% tax bracket because I plan to continue a side hustle.

    ​

    So should I start shifting my contributions to taxable accounts or Roth 401(k) ?

    Added more information:

    The past several years I have been maxing out my tIRA and 401(k). This year I plan to:

    Maxing out 401(k) = 19k

    Maxing out tIRA = 6k

    HSA = $3,450

    My goal is to hit the $1 million mark and FIRE but I will be pursuing my side gig after FIRE.

    If I stop contributing to my 401(k) now, I don't plan to touch my 401(k) until RMD age. However, if I continue to contribute to my 401(k) I plan on building a Roth ladder conversions and only if it keeps me under the 12% bracket.

    Hope this helps and I am happy to provide even more information if needed.

    ​

    submitted by /u/FIRE2029
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    what would you do?

    Posted: 07 Feb 2019 05:41 AM PST

    wanted to get perspective from likeminded internet peeps. I am increasingly frustrated at work. The work is not the problem (I like it), needless friction at getting obvious things done is wearing me down. Here are the numbers:

    ​

    invested: about 4.5M (net of debt / very little debt)

    annual expenses: 120k (net of taxes)

    annual comp: 600k

    ​

    Am late 30s. I've been telling myself that I should work for 2 more years and then call it a day. But am getting annoyed by even little disagreements at work (this is unusual for me). Seems I've lost a good bit of patience to put up with what I see as BS. What would you do in my shoes, put up with it for 2 more years or call it a day now?

    submitted by /u/firechoice85
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    What song best describes why you want to FIRE

    Posted: 07 Feb 2019 04:55 AM PST

    The song that I listen to every year on my birthday is Time by Pink Floyd https://youtu.be/JwYX52BP2Sk . It helps me remind myself why I'm doing what I'm doing. How about the rest of you? Is there a song that keeps you on track?

    submitted by /u/njiin12
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