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28 and Can't Wait!!
Old 07-10-2010, 06:33 AM   #1
Confused about dryer sheets
 
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28 and Can't Wait!!

I've been lurking for a while and finally thought I would join in on some conversation. My DW and I are both 28 with no kids, although we plan on having 1 or 2. We both just hate having to get up and go to w*rk everyday. We are very, very frugal and live in a very low cost of living area. Our current monthly expenses are between $800 - $900. Our income is a little above $90,000 with both of us having regular jobs and running a couple minor small businesses on the side. Our goal is to have $800,000 -$1,000,000 in investments by the time were 38-40. It's not about being rich to us it's about being free. At that point in time we plan on pursuing our small businesses(nothing major just some part time things) to help pay the bills. If we need to use the interest of the investments we could just do that as well.

Assets
401K - $21,000
Roth - $28,000
Emergency - $5,000
Other Investments(Mainly Index Funds) - $90,000
Both new cars were paid for with cash!
No Debt, Never have had any!
We do not own a home, we have an extremely low rent of $275 and I see no point in buying a home when I can stash all the extra money away and buy a home with the interest of the investments 10-15 years down the road.

I have one major dilemma that hopefully someone could help me out with. We currently max out both of our Roths but not our 401k's, we just put in up to the company match. We can max out our 401k's(or close to it), but we take around $3,000 every month and put it into index funds. My original thought for doing this is when we do decide to leave the workplace we may need to rely on the money/interest that is not in the 401k to live off of. But of course there is the 72T rule, it just concerns me that something might not go as planned, government changes ect.. How has everyone's experiences been with the 72T rule? Do you think it would be in our best interest to max out the 401k instead of the taxable accounts? Sorry for Rambling!
Thanks in advance.
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Old 07-10-2010, 08:50 AM   #2
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Hi Alex, and welcome!

Your question should provoke some lively discussion. I don't have any experience with 72T myself, but here are my thoughts anyway. If I were in your position I would max out my 401k's, for several reasons. First, I hate paying taxes -- it's money out the door. Second, you are extreme savers -- even if you max them out I think you'll end up with considerable after-tax savings. Third, you can access your Roth contributions tax-free before age 59 and a half. Fourth, you sound like you'll always have some earnings, with your businesses. And finally, you are superb at LBYM. My bet would be that you would never need to use the 72T provisions.

Congratulations on a truly impressive savings pattern! And best wishes as you work your way to FI. I think you'll get there pretty damn quick.

Coach
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Old 07-10-2010, 12:01 PM   #3
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Welcome Alex,

I had to chuckle at the rent of $275. When DH and I were first married we spent about 8 years in a tiny, but very cheap ($140/mo in the early 1980's) 1 BR apartment. We both worked and although we didn't save as much as you and your wife have, we saved everything we could toward a house. When the time came to buy we had a 25% down payment and no other debt.

Having a good sized down payment kept our mortgage payment low so that I could be a stay at home mom and we could live on just DH's income. Because the payment was low we could pay it off early.

We have a lot of fond memories of our years in that tiny place and when we moved to the house we appreciated how much space we had and how much of it we already owned.

I don't have advice about your 401K but you have a great beginning to your financial life.
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Old 07-10-2010, 01:02 PM   #4
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I went from living with the parents to moving into a really cheesy condo for several years, for which I was paying a monthly mortgage akin to some people's car payments in size. (The car I paid for free and clear.) I was able to save up enough to put 50% down on my current home, got a 15-year mortgage which I paid off in 13 years. Unfortunately I wasn't able to make any money on the sale of the condo as that was during the early '90's downturn.

I don't know enough about your 401K question, but you seem to be be going in the right direction overall.
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Old 07-12-2010, 08:56 AM   #5
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Nice to see some other young people around; although you are far ahead of me and my fiance. I would at least start tiering the 401k upwards. I've been raising mine 2% on a regular basis (just raised to 9%).
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Old 07-12-2010, 04:49 PM   #6
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Nice to see some other young people around; although you are far ahead of me and my fiance. I would at least start tiering the 401k upwards. I've been raising mine 2% on a regular basis (just raised to 9%).

Yeah after thinking about it a bit, that's what I am going to do. I'm probably going to jump up to about 15%, because some of the income is getting taxed at 25% and I don't plan on being in that high of a bracket when I quit work. Another bad thing is the 401k investment choices, the lowest expense ratio is %.70.
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Old 07-12-2010, 05:09 PM   #7
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We do not own a home, we have an extremely low rent of $275 and I see no point in buying a home when I can stash all the extra money away and buy a home with the interest of the investments 10-15 years down the road.
With that rent payment i'll assume you're sharing a house or apartment with someone else. As long as you stay childless i'd agree you should not buy a home of your own but if you do have a kid you'll need to get your own place. With that in mind, you should max your 401K's but make sure you save enough for at least 20% down on a decent house for when/if you extend your family. You're off to a great start. Good luck!
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Old 07-12-2010, 05:13 PM   #8
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Another bad thing is the 401k investment choices, the lowest expense ratio is %.70.
Although .7% isn't good, i'd think that the deferred taxes would more than make up for that.
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