Financial Independence Daily FI discussion thread - December 01, 2020 |
- Daily FI discussion thread - December 01, 2020
- Blasted past "FI #," still employed, loss of ambition/motivation?
- 9.1% Permanent Reduction In Social Security Benefits To The 4 Million Turning 60 In 2020 Due to COVID-19 - Misleading
- Importance of Bank Choice for early stages of FIRE
- Fully Amortizing Loan @ 80% vs IO Loan @ 75% for Condo
- FI homeowners from HCOL regions...what advice do you have for a first time purchaser in 2020?
| Daily FI discussion thread - December 01, 2020 Posted: 01 Dec 2020 12:09 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]  |
| Blasted past "FI #," still employed, loss of ambition/motivation? Posted: 01 Dec 2020 08:18 AM PST My wife and I have eclipsed our $2.5mm investment goal and now stand at $3.5mm invested. Our spend would be about 2.5% of our nest-egg at this point. This does not include the value of my $27k per year non-COLA pension which will kick in at age 65 (that's 17 years from now, God willing). By any discernible measure, we could spend our days doing whatever we wish, which was the motivation for FI in the first place. Yet, our respective grinds continue. Neither of us are particularly enamored with our work but are highly competent and thus paid well. We ratcheted down our lifestyle a while back "to hasten FI" ... which flat out sucked. So, we ratcheted up our lifestyle again ... which has been great and a return to normalcy for us. And, 2.5% SWR is where we presently stand, even after re-inflating our lifestyle. I am beginning to wonder if I, specifically, have some mental hurdle that I will never clear. I daydream about hiking national parks, reading, oil painting, learning a new instrument or volunteering my time for financial literacy causes. Instead, I find myself making (SUPER) dull drives across the Midwest, making sales calls and staying in Marriott Courtyards. The corporate minions are pleased but, more and more, I am not. It is as though I am experiencing an inverse relationship between our net worth and my job satisfaction and, in turn, my general happiness. To change things up with work, I recently moved to a sexier division (more attractive technology) and this does not seem to be hitting the mark either. It is the same game with a different widget and a bigger paycheck. It is exceedingly difficult to stay motivated when we have already won the game. If anyone has been in a similar situation then I am all ears. How did you get off of the hamster wheel? [link] [comments]  |
| Posted: 01 Dec 2020 11:06 AM PST BackgroundA co-worker sent me an article I can't seem to link to properly - https://www.morningstar.com/news/marketwatch/20200912157/a-drop-in-social-securitys-average-wage-index-could-hurt-four-million-people The article purports that the affect of COVID-19 in 2020 will permanently reduce their Social Security benefits by 9.1% because of the Adjusted Wage Index. I read the article and found that while a good portion of it was sound, the conclusions were misleading. I am posting here for two reasons:
How Social Security Is CalculatedI actually found this article and the ssa.tools results easier to understand than what was on the SSA website. Step 1 - Determine Your Wages For Each YearThis can be done using the Social Security website and going to your earnings history. A couple of things to note:
Step 2 - Adjust The Wages For InflationThis is the step the article is saying will result in a permanent 9.1% drop in benefits but I believe is misleading. This is done using the Average Wage Index. Things I think the article got right
What I disagree with in the article is: Assuming these declines come to pass, about four million people will receive benefits that are 9.1% less than expected Instead, I think it should read: Assuming these declines come to pass, about four million people will receive benefits that are based on earnings 9.1% less than expected. I have already made this section long enough because this is the crux of the issue but suffice it to say, the AWI is used to adjust the earnings history from step 1 Step 3 - Calculate Your Average Indexed Monthly Earnings (AIME)
This is what you made on-average per month through your 35 highest earning years and will be what your SS benefit will be based on Step 4 - Identify Your Primary Insurance Amount (PIA)You can think of the next step almost like reverse tax brackets. Essentially a progressively smaller portion of your AIME contributes to your benefit amount. There are only 3 brackets - called bend points. Here is a table of them as they change each year. I will use 2021 for the purposes of the example applying the PIA formula:
Step 5 Adjust for Cost Of Living & Age Of Starting BenefitsCost Of Living Adjustments apply but aren't really germane to the conversation. Additionally, the amount of your PIA (monthly benefit) is adjusted based on the age you retire. For most everyone, the PIA in the previous step is based on starting benefits at age 67. You can take benefits as early as 62. The benefits can even increase beyond the PIA in the previous step if you delay taking the benefits past 67 but it maxes out at age 70. ConclusionBecause of the way the bend points work, I don't believe the impact of the AWI in 2020 can have the impact the article suggests. Social Security is intentionally capped in two ways
I did one calculation based off a AIME of 8333 (100K annually) and the difference was a hair under 4% - still substantial and worth fighting over but less than half of the number claimed by the article. What did I miss?I am going to share this post with my co-worker so please provide any comments about mistakes I made or things that would be worth adding. [link] [comments]  |
| Importance of Bank Choice for early stages of FIRE Posted: 01 Dec 2020 03:51 PM PST Hi All, I have followed this sub for a while and tried to absorb as much of it as I could during school. I have now finished law school and will be starting full time work in 2021. My question is this: how important is choosing "the right bank" for my early years of building towards FIRE? My plan is as follows: - Aggressively pay down student loan debt - Max out 401(k) (no employer match unfortunately) - Traditional and Roth IRA for taking advantage of the backdoor Roth IRA contribution loophole - Personal investment account mostly in VSTAX, potentially with some set aside for more high risk investments I'd like to have the personal accounts (IRA, Roth IRA, personal investment) all at the same bank for ease of use. Is there a big difference in one vs the other? For instance, will I be better off with Fidelity than I would be with TD Ameritrade? Or in my early years of FIRE, does the institution not make a significant difference? Thanks! [link] [comments]  |
| Fully Amortizing Loan @ 80% vs IO Loan @ 75% for Condo Posted: 01 Dec 2020 03:33 PM PST What would you choose and why?
I'm leaning towards the IO product as my opportunity cost (investing in equities) > the cost of my debt (<3%). Thoughts? [link] [comments]  |
| FI homeowners from HCOL regions...what advice do you have for a first time purchaser in 2020? Posted: 01 Dec 2020 03:17 PM PST I know the FIRE sub tends to be anti home purchase but I've been renting for 20 years (I'm 39) and live in a HCOLA where RE only goes up (LA) - just a matter of how slowly/quickly. I'd like to be settled. I'm tired of renting. Given the insanity in the market right now in LA, and other HCOL regions...I'm unsure how to proceed. My partner and I make a modest living ($185k hh) and have $200k liquid for downpayment/closing costs, etc. We're very unsure how to even start this process in a place where you have to get creative about your expectations unless you're RICH or want to commute 3 hours a day once COVID goes away. Condo? What about insane HOA fees? House? Our price range ($500-$620k seem to be dumps or a fixer upper). Location (in the LA metro this can be one of 50 cities)? So many questions. On top of all this, his job is 100% remote and mine is WFH now, but there's no reason for me to ever go back to the office with my profession, I'm just unsure if my current company will accept a primarily remote position after it's safe to go back. So this is a huge unknown factor that makes us hesitant to pull the trigger on a house close to my office, in area that is very expensive. I want to just rent for 6-12 months until the ambiguity of WFH and covid settles a bit, but we're financially we're ready to buy, the rate of increase of housing prices in LA (currently) scares me, and most importantly we're about to kill each other in our 1 bedroom rental after 10 months of WFH and lockdown. We need out. Should we just move into a 2 bedroom rental? Seems like throwing away money when our current place is oddly cheap (we each pay $700!) Help a newbie out on the biggest purchase of her life!! [link] [comments]  |
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