14 thoughts

  1. Morning…you know, I haven’t got one set up, or at least not yet. I’ve got a Twitter feed and a Facebook page–see the links in the menu at upper right–and do you think that would serve the same purpose? Or should I go ahead and set a list up? I just started blogging here, and I’m not sure, so I’d welcome your opinion.

  2. Okay, my question is should I use the Roth or Traditional option for my 457b? My situation is this. I’m 30 and I work in public service. I want to be financially independent by 40. With an annual income of 40k.

    I have access to a pension that is one of the best funded in the nation as far as public retirements go (I lucked out greatly there). My pension is an afterthought as I want to retire early and won’t be putting the time in to greatly take advantage of it, I will get some small benefit at 50 though. I currently make $54,828 a year, and will be getting a 15% raise to $63,348 in Jun. I’ll be receiving a 5% annual raise after that for 5 years at which point I’ll top out at about $80,880. I do make slightly more with holiday and over time but I’m not factoring that as it’s just extra for the taxable but it’s so inconsistent that it’s hard for me to estimate. Between 1-4k a year. I also make $18,600 untaxed annually. My current net worth is 9k.

    I have a 457b through fidelity, Roth Ira though vanguard, and I’m opening an HSA after I switch to a HDHP in June during open enrollment. I’m maxing all three accounts every year. I just got started and am I’m maxing contributions monthly in the amounts I need to max them annually and I’m still able to maintain my lifestyle.

    I was contributing the Roth option of my 457b but I’m now wondering if I should be using the traditional and then investing the different in a brokerage account, then use a Roth conversion ladder later to bridge the gap between the $18,600 I receive annually to reach my desired $40k.

    Since I’m using a 457b my understanding is after I quit my job, I’ll be able to withdraw not only my contributions but my earning as well before the normal 59 ½.

    Do I need to even mess with the conversion ladder and traditional 457, or should I just use the Roth?

    1. Hey…with the disclaimer that I’m not a financial professional and what I’m about to tell you is for informational purposes only and not to be construed as actual advice:

      Would you send me your current modeling? Email to earlyretirementdude@gmail.com? I ran some *extremely* rough calculations, full of assumptions like your post-tax savings rate (which you don’t mention), and what I saw looked like even if you didn’t make post-tax contributions and saved all that money for the twenty-year gap between 40 and 59.5, your target withdrawal might be cutting it close. I’d like to see your assumptions and projections before commenting. Thanks.

  3. How do you handle insurance? I did a 6 month run on ACA which was basically $1000 a month for me and spouse and had a $6000 deductible before it paid 80% of your expenses. This is what drove me back to work. And I don’t think we have seen the last of the Republican’s plans to repeal and replace. The first iteration I saw was so much worse than ACA for someone my age, 54. It is so frustrating. I’m ready to retire and work part time and enjoy myself a little more but I just don’t how with this country’s health care situation.

    1. Hi, Joe…thanks for the question.

      One strategy a lot of ER-types use is to tax loss harvest as much as possible so as to lower their adjusted gross income to the level at which subsidies kick in. If you haven’t seen it, there’s a very good subsidy calculator here. Try running a few scenarios through it…hopefully it’ll help.

      As far as managing healthcare risk in the current legislative environment…well, no matter what the repeal/replace plan is there’s likely to be a transition period between the ACA’s expiry and the new law, during which time current and prospective retirees will have a little more situational certainty so they can make plans.

      If this state opt-out legislation should go through, I imagine the red states will be more likely to opt out, and consequently we’ll see a sort of itinerant health-care refugee population that moves around from blue state to blue state based on their insurance situation.

      Beyond that, my family and I are trying to eat healthy and keep as fit as possible. I used to have an EMT license and I know how to treat basic medical emergencies at home–sprains and such. Also, look into the walk-in clinics in your area–it’s becoming more and more common for them to take cash.

  4. ER Dude,

    I’m right on the bubble of retirement. I have done all the math and I believe I am in good shape but the leap is big (wife, two kids). I am at 30x my 5 year average expenses. A good portion (20%) has come in the last 6 months with the market being significantly up. I haven’t worried about money since I was in college. Do you find yourself worrying more about money since you retired? I am 85% stock and 40 years old. Did you shift your investments prior to retirement even at your young age? Appreciate your time.

    1. Hi there…nice to meet you!

      >30x my 5 year average expenses

      Sounds like an excellent position to be in…even more conservative than the 25x guideline.

      >A good portion (20%) has come in the last 6 months with the market being significantly up

      Quite a run. How are you fixed for cash? We like to keep an amount on hand that’s anywhere from six months to a year’s worth of our annual budgetary expenses.

      >Do you find yourself worrying more about money since you retired?

      I don’t think I “worry” about money in the sense that other people do. Retiring before and surviving the collapse of the housing bubble gave me an entirely new perspective: the planning and modeling I did for over a decade has now all been through a severe stress-test, so I’m much more confident in it. As long as we manage our money responsibly, I don’t worry. Our disaster recovery plan has reduced to, “We’ll figure it out.”

      >Did you shift your investments prior to retirement

      I’ve only done some sector rotation and picked up some index funds. This isn’t ideal, though…I’ve maneuvered myself into a hell of a tax problem. Working on a new article on that subject, which I hope to have up in the next week or so.

      But again, it sounds like you’re close to ready to pull the trigger. Congrats!

  5. Hey ER Dude,

    A lot of FI websites mention an aggressive savings rate at or above 50%. While you were still working, what was your rate?

    What is the proper way to calculate your savings rate if you’re saving both in tax deferred (401k in my case) and post tax (Vanguard)? Is it as simple as 401k $ + Vanguard $ / gross salary?

    1. Hi there. Thanks for the questions!

      To your first one: given that I started saving for FI/ER over twenty years ago, and that I’ve used at least four spreadsheet apps and lord knows how many versions of same, and that I’ve created so many different tracking models, and used Quicken and Mint and Personal Capital as my bookkeeping systems…and that I’ve run rental real estate on top of everything…jeez, dude, I have no idea what my savings rate was. Never bothered to calculate it. I saved as much as I could possibly put back given my budget and cash flow. I was more interested in knowing how much closer I was to my goal, including capital gains and dividends and everything. If my net worth moved for any reason at all, that’s what I wanted to know. In other words I took a mark-to-market approach.

      And you know how people will sneak around and spend money behind their SO’s back? I snuck around and saved money.

      To your second question: I don’t think there’s a “proper” way to calculate your savings rate. That’s endlessly debated. Develop and use the one that most strongly motivates you towards maxing it out.

      If I used a SR approach, my personal preference would be to track every single nickel you actively “earn”–pre-tax and post-tax and gifts and everything–and from that to total up and include each of those nickels that you allocate to savings. That said, I wouldn’t personally add stock dividends, employer matching of pre-tax contributions, or anything like that to my savings rate. To my way of thinking you didn’t actually “earn” or “save” that money. (Note the implication that you earned royalty and rental income and such.) But I’ve always preferred to include additions to home equity from mortgage payments in my savings rate, as well as tax refunds.

      I like this approach because it takes your entire financial picture into account–including how effectively you’re managing down your tax liability–and therefore gives you the most accurate work-to-savings ratio.

      Another way to do it is to only include income that actually produces more income. Investments, say, but not home equity.

      But yeah, savings rate seems like an arbitrary metric that means nothing when taken out of context. One person’s 30% SR is another’s 70%. Check it out: 70% of ten bucks a year will never get you to FI/ER, whereas 30% of ten million will get you there in six months. All that matters in the end is making your number as soon as you can reasonably justify.

  6. >And you know how people will sneak around and spend money behind their SO’s back? I snuck around and saved money.

    LOL, I understand this concept perfectly. I don’t think my wife understands that I stop Paying SS Tax during the year. When I do that money gets “Banked”

    I don’t think she understands the size of the yearly bonus, just that it enables us to go on a family vacation every year. in fact 20-25% of the bonus goes to that, the rest gets “Banked”

    I am sure she does not understand the size of the yearly RSU’s when they vest, and so those get “Banked”

    (Banked = Invested)

    My wife is more of a spending and I am a saver. (Not that I don’t spend but I save first, and then spend on needs.) I was wondering if you and your SO have the same type of relationship and if so how does that work and what challenges have you run into over the years. Have you Blogged on this subject?

    1. >I was wondering if you and your SO have the same type of relationship

      I’ve definitely over-pressured her through the years, especially during the accumulation phase, which has caused her somewhat of a guilt complex even though she enjoys the benefits of not having to get up and go to work in the morning. This still causes some friction between us, but after almost twenty years of marriage it’s much better than it was.

      >Have you Blogged on this subject?

      I have not. I try to be very sensitive to airing out our differences in public. I’ll be frank about my own problems when blogging, but I always give her a chance to read/review/veto any ideas I have that concern our relationship. We had a big blowout about one article in particular. It’ll never see the light of day.

      1. Smart man! However it would be nice to discuss the spender saver relationship dynamic. Maybe if you let her right the article. 😉

        Amazing, I would say I too was more of a ‘Hard-Ass” during the accumulation phase, especially early on when there were no guarantees of Job safety, or advancement. Now that it seems the only things that could derail “The Plan” are WWIII or a Zombie Apocalypse (neither of which keep me up at night) things that used to drive me nuts just don’t any more.

  7. Howdy!

    Came to you via Firey Millennial (I’m 27). I just read The Simple Path to Wealth and am feeling very motivated.

    Would you agree that there is no point in getting worried about anything (i.e. different investment options) until a) your debt it 100% paid off and b) your 401K is maxed out?

    I’ve got zero debt other than DH’s 10K of student loan debt–and that should be gone in the next 6 months. Contributing to, but not maxing out my 401K. I read so much stuff about FI/RE and get really hyped–but it seems like I need to complete those 2 steps before worrying about anything else. Would you agree?

    Thanks!

    1. >Would you agree that there is no point in getting worried about anything (i.e. different investment options) until a) your debt it 100% paid off and b) your 401K is maxed out?

      Great question. Answer is: not quite.

      I don’t believe all debt is bad, so I take it on a case-by-case basis. See commandment #8 in my article “The Ten Commandments of Early Retirement.”

      Example: say for whatever reason I’m carrying a 0% APR/$1,500 loan on a new flatscreen TV. Hypothetically, if I was getting a 6% 401(k) match up to the first 3% of my $50K salary, I’d therefore be locking in a 6% return on $1,500. I’ll borrow 0% to get back 6% any day of the week, so no, I wouldn’t pay off that TV loan. I WOULD, however, pay off any debt greater than 6%–like a 17% APR credit card, for instance–before I maxed out my 401K or paid off any debt with an APR lower than that, with the possible exception being a mortgage. Mortgage math can get a lot more complicated, and there’s a strong emotional component.

      BUT…as far as whether to forego any other investment opportunities until you get your 401(k) matched out…well, at a $50K salary I most likely wouldn’t be able to max out my 401(k) at all, even living very frugally, so the question becomes what mixture of pre and post-tax investments I would make. Personally, and I’m not necessarily advising this, being an ER-seeker I’d split the middle since 401(k) money isn’t generally available until comparatively late in life.

      Don’t forget saving into your HSA, either, assuming you have access to one.

      When you say “anything” are you including emergency situations? You need to have some cash on hand for your…well, call ’em “routine emergencies”…so you won’t have to dip into your credit cards if, say, your dishwasher should explode. You’ll hear anything from three months to a year’s worth of your normal monthly expenses.

      So my plan given the hypotheticals above would be to 1) get at least a couple of months of emergency expenses on hand, 2) pay off my loans in order from most expensive to least (down to whatever my 401(k) match limit is), and 3) set a preferred investment blend–possibly 100% 401(k), but not necessarily–and start saving that way.

      Hope that helps!

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