Financial Independence Daily FI discussion thread - Tuesday, December 14, 2021

Daily FI discussion thread - Tuesday, December 14, 2021
Important note about retirement account beneficiary designations
What are your FI milestones? Let's make the boring middle less boring.
Senate revisions to BBB tax provisions maintain elimination of Backdoor Roth

Daily FI discussion thread - Tuesday, December 14, 2021

Posted: 14 Dec 2021 02:02 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.

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Important note about retirement account beneficiary designations

Posted: 14 Dec 2021 06:44 AM PST

Today I learned that retirement account and life insurance beneficiary designations usually supersede any designations you have in your will.

I wrote a will a few years back when I bought a house, and I assumed it covered my entire estate.

I was wrong.

I checked my retirement account beneficiaries today. I opened one of my IRAs 20 years ago before I got married and had kids, and I had never changed the beneficiary on it. All that money (about 450K) would have gone to the wrong person if I had died.

Check your beneficiaries, y'all, especially if you get married (or divorced).

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What are your FI milestones? Let's make the boring middle less boring.

Posted: 14 Dec 2021 09:12 AM PST

The so-called "boring middle" is the period of financial independence wherein you are over the honeymoon stage of building up initial savings, but have a ways to go before a safe withdrawal rate can support your lifestyle.

If you are anything like me, your boring middle is probably the longest part of your FI journey and it probably starts relatively soon after you discover FI, but the discovery of FIRE and the concepts therein has changed your behavior to have fun planning, forecasting, and reaching milestones for your finances.

What I have found helpful is to create fun 'milestones' that keep me feeling like I'm making real steps up through the boring middle phase. I thought it would be interesting to provide the list I have, and ask the community here for other boring middle milestones, as an emotional tool to make the boring middle a little less… boring.

I'd love to hear what milestones other people have concocted for themselves. Meaningful to fanciful, and anywhere inbetween, as a way to fill the boring middle with excitement. I'd be happy to follow up with a doc that compiles the responses with an absolute constellation of milestones that folks can cherry pick to give them their next near term goal to achieve.

Here's my list:

Yearly Milestones: These feel good on a cadence throughout the year, though depending on your strategy they may all hit at once if you are dollar cost averaging your retirement contributions. I specifically contribute to each at different intervals that 'complete' them throughout the year so I can look forward to checking things off on a ~quarterly basis.

Maxing out your IRA.
Maxing out your 401k.
Maxing out a mega backdoor roth (if available to you)
If your income is high enough, max contribution to social security - and seeing the bump in your paycheck.
Savings goal for the year achieved
Maxing out your savings for a dependents higher education

Brain hack milestones using investment returns These milestones exist to give you nearer term goals you can be proud of and imagine the impact of. These are all about what the 4% (or whatever you choose) safe withdrawal rate now covers in terms of your costs. Some examples include your investments:

Covering your gas costs
Covering your grocery bill
Covering your utility bills. One at a time, and then another one when they are completely covered.
Covering your fun/hobby budget
Covering all your monthly expenses besides rent
Covering rent/mortgage payment
Covering your monthly expenses
Covering dependant expenses

FI Journey Milestones These are milestones that are more coarse, and help give you big goals you'll be excited to hit that have a meaningful impact on your financial security/your FI journey.

Discover compound interest, and the concept of financial independence
Ratify a salient plan to get to FI, by modeling your projected savings and determining 3 FI dates by modeling it through the lenses of pessimism, optimism, and rationalism.
Emergency fund filled! Sigh of relief.
Zero net worth (debt less than assets)
Symbolic numerical milestones at 10k, 25k, 50k, and 100k. Thereafter, every 50k in net worth until you feel like only 100k intervals matter. Big milestones therein being 250k, 500k, and 1m.
- I like to treat myself to a fun dinner/purchase on ones that feel meaningful to me whose budget is determined by my expected yearly return divided by 10. So at 10k, buy a 70 dollar fun dinner. At 100k, upgrade your PC to the tune of $700. At 1m, take an amazing dream vacation with a budget of 7k. This isn't very lean, but it's a great way of realizing some gains along the way, and generally won't have a substantive impact on your FI date.
If buying a house, having a mortgage down payment saved.
If you own property, paying off your house. If you plan on renting in perpetuity, yearly investment income equal to that of your rent.
Your investments return more than you're contributing
Every pay raise.
CoastFI achieved, you now have the flexibility to take lower paying jobs you enjoy more, and still retire
LeanFI achieved, you now have the ability to stop working, if you are willing to have a lean budget in perpetuity.
FI achieved, you can now live a reasonable lifestyle at your current spend rate based of the return on your investments.