Financial Independence Daily FI discussion thread - January 03, 2020 |
- Daily FI discussion thread - January 03, 2020
- Social Security Survivors Insurance – A hidden gem for families
- I made an advanced budget/income/net worth/FIRE spreadsheet for newbies. Easy to use, lots of analysis. Critiques welcome!
- 200K Net Worth at 28 - My Journey
- Weekly FI Frugal Friday thread - January 03, 2020
- Zero Tax Funds Drawdown Strategies?
| Daily FI discussion thread - January 03, 2020 Posted: 03 Jan 2020 12:08 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]  |
| Social Security Survivors Insurance – A hidden gem for families Posted: 03 Jan 2020 11:52 AM PST I realize that the reddit crowd trends younger, and that the younger cohort in general might tend to be more distrustful of social security (I know that I was when I was younger). They also might not understand it as well as those who are starting to see social security peeking over the horizon. I thought I'd create a post about a benefit of social security that most are probably unfamiliar with; I certainly was until recently. For me, this discovery was actionable: I will be able to cancel my term life insurance before I had otherwise planned, because the survivor benefits more than make up the gap between our current retirement stash and our FIRE number. In addition, the knowledge gives me a great deal of comfort moving forward, as my wife is 'uninsurable' due to being a cancer survivor. Social Security is actually made up of several components. You'll note on your paychecks that it is designated 'OASDI.' This is three benefits in one – Old Age, Survivors, and Disability (Insurance). Most of what is discussed when we talk about Social Security is the Old Age benefit. I'd like to discuss the Survivors benefit. Note that I'm not going to proclaim myself an expert on Social Security, so I'll welcome any corrections. I'll assume you know the basics of Social Security and won't rehash them here. The relevant information is that each of us who has earned income and paid OASDI taxes (employer+employee) has accrued a benefit level known as our Primary Insurance Amount (PIA), which is calculated from our Average Indexed Mean Earnings (AIME). Your PIA is the monthly benefit you would receive if you retired today at Full Retirement Age - typically 67 - assuming you have accrued the minimum level of credits. For Old Age insurance, this is 40 credits, of which you generally accrue 4 per year. For Survivors insurance, you actually need fewer than 40 credits in most cases. The survivor benefit level is 75% of your PIA. If you've accrued a PIA of $1000, your survivor benefit level is $750. Not too bad, since normally you'd have to reach 67 to get 100% of your PIA. Easy peasy, right? Well, not quite…read on. Who can receive benefits? From https://www.ssa.gov/planners/survivors/ifyou.html Certain family members may be eligible to receive monthly benefits, including:
So…for the FIRE crowd, this generally means that your spouse will receive benefits if you have children 16 or under AND each of your children who are in high school, or younger, will ALSO receive benefits. That's the key point of this entire post. Each one of your spouse and your children, subject to the age ranges described above, will receive benefits. With 1 child, family receives 150% of your PIA. 2 kids, family receives 225%, 3 kids, family receives 300%. 12 kids, the family receives 975%. Ok, not really, because there's a family cap: (a) 150 percent of the first $1,226 of the worker's PIA, plus (b) 272 percent of the worker's PIA over $1,226 through $1,770, plus (c) 134 percent of the worker's PIA over $1,770 through $2,309, plus (d) 175 percent of the worker's PIA over $2,309. Still, that cap is substantial. My current PIA is just under $2,000. With that formula, this results in a family cap of $3626.88. That's a pretty hefty monthly check for the FIRE crowd, and in my opinion should absolutely be considered in our planning. There's one final fly in the ointment: income-based reduction of benefits. If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240. If my wife continued to work at her current job after my demise, that would kill off her survivor benefit for years she worked (though our current plans wouldn't require her to work). However, the kids' benefits - we have two - would continue. Since we'd bump up against the family maximum with all 3 receiving benefits, the reduction wouldn't be so bad, down from $3636.88 to $3000. There are some other stipulations, but mostly they don't apply to this sub. The spouse remarrying would be one that does apply, but I'll leave worrying about that to the new guy. Hopefully this information is useful to others with kids out there, or at least will generate some discussion! I'd prefer that it not devolve into the politics of social security and/or its prospects for the future. For the purposes of survivor insurance discussion, it's worth noting that social security is currently fully funded through 2037 without changes, so presumptions about the long-term viability of the program aren't that relevant for any kids currently in existence. [link] [comments]  |
| Posted: 03 Jan 2020 12:04 PM PST Make a copy of the blank spreadsheet for yourself: https://docs.google.com/spreadsheets/d/1UKBknHUvup_U_Q_4FWiKGROYiVYq0KVsTA7itl9zDBE/edit?usp=sharing See how it looks filled out up to October 2020 with phony data: https://docs.google.com/spreadsheets/d/1bjr_BW2BxaEtl13UY5JWigftGDWyY_iUXgHTlBUOEYw/edit?usp=sharing I figured I'd share my personal calculator. Influence for this calculator comes from several Redditors here (trying to find their posts now so I can properly credit, if anyone recognized any tables from the SWR sheet as being a previous post here lmk) as well as the creator of the financialindependencesheet. It may help to follow along with this explanation by looking at the filled-in spreadsheet as well as your own blank spreadsheet. White/blue column = manually input. Gray/green column = don't touch, it performs automatic calculations for you. There are essentially 3 tiers of use for this spreadsheet: budgeting, budgeting + net worth, and budgeting + net worth + FIRE. Just Budgeting: What to fill in: If you just want to budget, then the only tabs you need to use are "Out" and "Monthly Budget" as well as the left third of the "Dashboard." You start with the Monthly Budget sheet. The only column meant to be manually input is the Budget column. Input your monthly budget. Then, go into the "Out" sheet and track your spending as you normally would. If you would like to add a note explaining the purchase you made that day, you can do so with the notes or comments feature of Google Sheets. You can see that in the "Out" columns of Gifts, Fees, and Misc, I've included notes where there is a value. The 2nd row of "Out" and "Monthly Budget" will show you a mini graph (sparkline) of your total spending. The 3rd row of "Out" and "Monthly Budget" will show you that category's spending for the current month. Adding or removing a budget item: unless you're familiar with Google Sheets, I would encourage you to not delete nor add columns, since this breaks some of my graphs and aggregated tables. What you can do is rename a column in the "Out" sheet to something applicable to you, if one of the categories you see is not applicable. I've set the Dashboard and Monthly Budget sheets to automatically change the column headings when you change a budget item in the Out sheet. This will not work if you rename a column anywhere except for Out. Viewing the Dashboard: For budgeting, the only thing you should edit in the Dashboard is the month and year you'd like to view. The day *has* to be 1. If you want a yearly view of 2020 and a monthly view of October, type 10/1/2020 into cell B5 and scroll down to see the pie charts and tables update. Budgeting + Net Worth: All of the info above is still applicable. Now we introduce the "In" and "Net Worth" sheets, as well as the middle third of the Dashboard. "In": This is the first place you want to go for the rest of the sheet to work. In the white/blue columns, input information from your paychecks. If you don't have traditional 401k contributions/HSA contributions, feel free to leave those blank or replace the titles with any other pre-tax items you have such as health insurance premiums. If you have more than 2 pre-tax paycheck deductions, you can add columns between Pre-Tax HSA and Pre-Tax 401k. For the Net Income column, my recommendation is to put whatever your income for that month would have been if you had no pre-tax deductions/contributions, because I calculate savings rate as contributions/savings/debt repayment divided by net income, and if your net income is 19.5k lower due to 401k contributions you might artificially increase your SR number. SR is really whatever you want it to be, though. Up to you. "Net Worth": I've hidden row 4. If you've ever made contributions to your retirement accounts, open row 4 and put the total contributions since before 1/1/2020 in columns I through M. Then hide row 4. If columns D through G don't reflect your investments, you can rename them. Input your account balances at the end of the month in columns B through G. Enter your debt in column H (it has to be negative, if you have any). Enter your contributions and payments for the proper month in columns I through N. The last thing you need to manually do in this sheet is scroll to the right and fill in the Savings Rate Goal for that month as a percentage. The rest updates automatically. "Dashboard": Once you've done all that for the month, check out the dashboard. You don't need to manually do anything for the Net Worth part. Budgeting + Net Worth + FIRE: This is where the fun begins. All spreadsheet tabs are now applicable, everything above is still applicable. The new additions are "SWR" and the final third of the Dashboard. If you've completed all the steps above, you're pretty much done save for a few manual inputs. "Dashboard": First, in the Dashboard, update your Withdrawal Rate, Age, and the Return Rate - return rate is just the amount after inflation that you believe the total stock market will, on average, return. By default, I've set this value to 7% as the average return of the market is 10% before inflation. Scroll down your Dashboard to see more FIRE metrics such as % until FIRE and the total net worth amount you would need to cover your average yearly expenses (boring note about this formula: the average spend calculations take your spending from "Out", average them not including zeroes, and mutliplies by 12. This means that if you had unusually high spending in a category (in my example, I had 1 monthly expense of over $600 for medical), it will take $600 * 12 = an average of $7200 per year. Because of this, the NW number you need to cover all expenses may be inflated. Consider it a "worst-case scenario" table and don't put too much stock in the "Needed" number for unusually high expenses.) "SWR": The first table shows annual withdrawals based on your current Net Worth and selected withdrawal rate (Dashboard), if it were to be left alone, until a certain age (Y axis) and at a certain average total stock market return (X axis). There is 1 manual input for this chart: F1. If you want to view what your annual withdrawals could be at a certain age and at a certain stock return rate, type "[Age] @ [Return Rate]%" and the cell underneath will automatically pull the number. In the next table, you see the % you are under you've reached CoastFI for your LeanFIRE, FIRE, and FatFIRE numbers at a certain age (Y axis). There are 2 potential manual inputs here: cells H2 and J2. Currently, H2 is your LeanFIRE number and I've just calculated it as 2/3 of your FIRE number. The FatFIRE number is just 1.5x bigger than your FIRE number. You can change them manually if you want. Finally, the table next to that shows the monthly amount you would need to contribute to your Net Worth to reach your numbers at a certain age. Extras: I've also thrown in an amortization schedule (designed for a 30-year mortgage but adjustable to fit your needs, be it a car loan or student loan etc). At the top you can input your loan's terms. On the right half of the spreadsheet, you can see what happens to the loan if you pay extra that month. At the very end of the spreadsheet is a free math section. Just a blank sheet in case you want to do random calculations. Critiques and questions are welcome! [link] [comments]  |
| 200K Net Worth at 28 - My Journey Posted: 02 Jan 2020 05:04 PM PST It's not the biggest or craziest number out there at 28 years old, but it's something (most) people can probably attempt to replicate if they are just starting out. These numbers are all mine, there is no second income taken into account and I don't have any support from anyone else (I.e., someone living with me and splitting rent). Obviously, some things have had to break my way to get here. The most importantly being I started my career in 2013, so the returns in the market over the last 6+ years have certainly helped. I also chose to live at home for almost four years after college until age 26. I know not everybody is afforded this opportunity, and some people would rather pay to live on their own than with their parents, but it was a choice I made that greatly helped, and I'm extremely grateful to my parents for letting me do this. I've obviously seen good growth in my salary over the last 6+ years as well, and while that's due to a lot of hard work, there's obviously some lucky breaks needed there as well. I graduated college with a little over $50,000 in student loans, but no other real debt to my name. Up until 2017 my rent expenses were $0, but I was dating someone who lived in a HCOL city, who earned a low salary, so I covered everything we did together (~1000/month). In 2017, my rent expenses went up to $1,300/month, and in 2018 when I purchased my home my mortgage/taxes/insurance went to $2,200/month. I try to live frugally for the most part, but still enjoy traveling (R/churning funds most of this), eating at nice restaurants, and trying to say "yes" to most things I get asked to do/go. I started my career in 2013 at an insurance company in a MCOL area. I've stayed with this same company over the last 6+ years and have held a few jobs within the company over that time. I hold a bachelor's degree in Business Administration (concentration in Finance) with no designations and no master's degree. My Career (Salary wise) has looked like this: 2013: $53,000 2014: $56,000 (raise) 2015: $61,500 (raise) 2016: $64,500 (raise) 2016: $73,500 (promotion) 2017: $75,000 (raise) 2018: $77,000 (raise) 2019: $111,000 (promotion) 2019: $117,500 (lateral move) I grew up in a household with financially responsible parents and I studied finance in college so I understood compounding interest and the effect it would have on my 401K. The first 5 years of my employment I contributed 18% with an 8% match. When I purchased a house in 2018, I dropped that number to 7% with an 8% match. My 401K over that time has looked like this: 2013: $2,000 2014: $15,000 2015: $27,000 2016: $46,000 2017: $75,000 2018: $86,000 2019: $123,000 Part of the reason I've never left my company is because I've seen opportunity for growth here (Not every millennial is bouncing around different companies to leverage raises), but another big part is the benefits. 5 Weeks PTO (6 weeks in 2 more years), 8% 401k match, $30/month for Health Insurance, $1500 a year towards student loan repayments, $6000 a year towards tuition assistance, 8 minute commute to work, starbucks on campus, free gym on campus, work from home occasionally, and a pretty good culture and work life balance, which I weight all of that heavily. I really can't see myself leaving even if another company offered me a pretty decent raise. I started keeping track of my Net Worth on a monthly basis in October of 2016. The link below is a screenshot of my graph. [link] [comments]  |
| Weekly FI Frugal Friday thread - January 03, 2020 Posted: 03 Jan 2020 12:08 AM PST Please use this thread to discuss how amazingly cheap you are. How do you keep your costs low? How do become frugal without taking it to the extremes of frupidity? What costs have you realized could be cut from your life without pain? Use this weekly post to discuss Frugality in general. While the Rules for posting questions on the basics of personal finance/investing topics are more relaxed 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]  |
| Zero Tax Funds Drawdown Strategies? Posted: 03 Jan 2020 11:20 AM PST I was looking to form a discussion here regarding funds. I didn't find this topic in the FAQ and I've noticed that this is talked about here and there in the daily discussion threads. However, if there is already a topic that goes into this in detail, I have no problem with the mods closing the thread. Otherwise, I would love to have the discussion happen here so we have all good tips/strategies in one spot and can easily be referenced. From my understanding, you want to be in one of the following positions when in retirement you're beginning to draw from your portfolio annually:
Now with the first position, it's highly unlikely you'll start retirement with 100% of your funds in Roth accounts, so obviously you'd need to employ a Roth conversion ladder throughout the remainder of your retirement. Are there any more specific strategies tactics when doing this Roth conversion? Regarding the second position, I'm struggling to see where tax-deferred (aka Traditional 401k or Traditional IRA) comes into play. For example, let's say I calculated my annual expenses to be $60k per annum in retirement. I can first draw from my taxable brokerage up to $39,375 in capital gains at a 0% tax rate. However, I'll also naturally be drawing my principal and dividend components, which say for simplicity of math is $10,000. That means I would just need to draw $10,625 from my Roth account to ensure I pay $0 in taxes all around. Now where does Traditional 401k come into play? Is it as simple as converting Traditional 401k to Roth 401k over the years while I'm employing this strategy? [link] [comments]  |
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