30 YO wants to retire at 50...how am i doing?

[Eastfolk]

Hello everyone

30 year old FIRE hopeful here. Had thought about early retirement way before I found this site but it’s very refreshing to see there are others with the same goals. Not sure if this belongs in the young dreamers section so mods feel free to move this if necessary. Onto my stats:

* Age: 30 and married, DW also 30
* Household income: 210k - 230k, the 20k difference is because DW is working 6 days a week but will likely scale it down to 5 over the next few years when we have kids. This also doesn’t include variable comp (cash bonus and equity) which can vary significantly year over year but generally around 10k conservatively.
* Total current net worth: 270k broken down as follows:
- 50k cash of which about half is in CapitalOne360 MM fund at 1.5% and the other half in a FCU at 1%
- 140k in 401k
- 14k in vanguard brokerage account
- 26k Roth IRA
- 10k in tIRA
- 11k in HSA
- 19k between company’s ESPP and equity grants
* Bought a house last year. 15 year mortgage at 3.125%. 386k left. House worth about 540k.
* Never did a complete budget of our expenses but would estimate around 80k/year.


Current annual contributions to 401k is roughly $35,700 which includes own contributions as well as company match. Have been maxing out the hsa at $6,900 but will probably stop when we have kids. Also contributing 11k to Roth IRA through the Backdoor. With the $4k monthly mortgage payments which includes property tax and insurance, it’s a bit tough to add to the vanguard brokerage account but we try to add whatever excess we have in our MM accounts. I also get annual equity awards at my company but those are too hard to estimate as they can vary widely


My plan is to retire at age 50 with $2M net worth not including the house. I’ve been told this is a bit aggressive but that’s the goal and if I miss it by a couple of years no big deal. Ran my numbers into a spreadsheet with a very conservative 3% growth rate and other conservative assumptions (left out annual equity grants which could be between 10-20k, no pay raises or increases in 401k federal limit, no additional contributions to vanguard account, etc) and landed at about $1.6 million at 50.


I figure if I could invest the $2M in a 3% - 5% CD by the time we’re 50, we could live off of the interest. DW works in the medical profession and has flexibility in her work hours. She could pick up a day (20k) or two (40k) and make up any shortfalls in our income. One more thing to mention is that I’m fortunate in that my parents were frugal throughout their working careers and should be able to cover potential college costs for our kids.


Not sure if I’m missing anything but wanted to see if anyone had any advice/comments. Appreciate all comments.

 

[Lukeee]

I wished I had the financial and mental headstart you had when I was 30. I probably had all of 30-40K saved and was probably at 6-7% contribution rate for the 401K. If I met my younger self I would knock some financial sense into myself. That said, I ramped up soon after and have a plan to retire at 52 with 2M+ between 401K and non retirement accounts.

The most important part i never really thought about till much later was having enough outside the 401K to bridge you to 59.5. I would say you have huge headstart but be prepared to adjust spending due to kids (daycare is expensive as are many kid activities).

Remember that 2M today is worth $1.2-1.3M in 20 years. So you might want to bump that number up a bit.

 

[cooch96]

Looks like you’re doing great. Conventional wisdom would advise you figure out where all your expenses are going and delete obvious waste and uncherished luxuries.

I’d also read a couple investing books on the site’s reading list. I dare say few members would approve of the mention “cd’s only in retirement” plan. But you shouldn’t just take my word for it; understanding the philosophy and history behind certain investment plans will give you much more confidence in executing them and staying the course.

Bravo, though. Seems you are doing quite well for yourself.

 

[Oz investor]

Hello everyone

30 year old FIRE hopeful here. Had thought about early retirement way before I found this site but it’s very refreshing to see there are others with the same goals. Not sure if this belongs in the young dreamers section so mods feel free to move this if necessary. Onto my stats:

* Age: 30 and married, DW also 30
* Household income: 210k - 230k, the 20k difference is because DW is working 6 days a week but will likely scale it down to 5 over the next few years when we have kids. This also doesn’t include variable comp (cash bonus and equity) which can vary significantly year over year but generally around 10k conservatively.
* Total current net worth: 270k broken down as follows:
- 50k cash of which about half is in CapitalOne360 MM fund at 1.5% and the other half in a FCU at 1%
- 140k in 401k
- 14k in vanguard brokerage account
- 26k Roth IRA
- 10k in tIRA
- 11k in HSA
- 19k between company’s ESPP and equity grants
* Bought a house last year. 15 year mortgage at 3.125%. 386k left. House worth about 540k.
* Never did a complete budget of our expenses but would estimate around 80k/year.


Current annual contributions to 401k is roughly $35,700 which includes own contributions as well as company match. Have been maxing out the hsa at $6,900 but will probably stop when we have kids. Also contributing 11k to Roth IRA through the Backdoor. With the $4k monthly mortgage payments which includes property tax and insurance, it’s a bit tough to add to the vanguard brokerage account but we try to add whatever excess we have in our MM accounts. I also get annual equity awards at my company but those are too hard to estimate as they can vary widely


My plan is to retire at age 50 with $2M net worth not including the house. I’ve been told this is a bit aggressive but that’s the goal and if I miss it by a couple of years no big deal. Ran my numbers into a spreadsheet with a very conservative 3% growth rate and other conservative assumptions (left out annual equity grants which could be between 10-20k, no pay raises or increases in 401k federal limit, no additional contributions to vanguard account, etc) and landed at about $1.6 million at 50.


I figure if I could invest the $2M in a 3% - 5% CD by the time we’re 50, we could live off of the interest. DW works in the medical profession and has flexibility in her work hours. She could pick up a day (20k) or two (40k) and make up any shortfalls in our income. One more thing to mention is that I’m fortunate in that my parents were frugal throughout their working careers and should be able to cover potential college costs for our kids.


Not sure if I’m missing anything but wanted to see if anyone had any advice/comments. Appreciate all comments.

will DW be able to continue those hours when the child is young ??

i am not trying to be sexist here but choices in early childhood/early motherhood can have long term consequences and what is a good choice for one mother might be terrible for other .

how would your plans look if DW took off 5 years off work to be a mother .. any cash she earned in the period could be classed as 'windfall income '

cheers and good luck with whatever you decide

 

[Aerides]

Welcome, Eastfolk, you're off to a great early start, and everything seems well on track.

I wouldn't worry (now) about what happens in 20 years. A lot will have to do with your actual expenses, inflation and interest rates. Today, no, no one could put the retirement accounts in a CD and live off them unless they had a huge nest egg and/or teeny expenses. But that's a discussion to start later, not now.

 

[HI Bill]

I figure if I could invest the $2M in a 3% - 5% CD by the time we’re 50, we could live off of the interest.

If you invest everything in a 3-5% CD (say, 4%), you'll just be keeping up with inflation, and 20 years later, your nest egg will have half its original purchasing power, if you're lucky. You'll still need to have a fair % invested in mutual funds (equities) if you want to keep up with inflation AND make distributions. Good luck!

 

[HI Bill]

If your current invested assets yield 7% gains (using the rule of 72), they should double in face value (not inflation-adjusted value) every 10 years, so in 20 years, without adding anything, you could have $270K*2*2=$1,080,000; if you add 20 years of $35K annually, that adds $700K, not including earnings, so your 20-year nest egg should be north of $1.8MM+! With earnings, you might do better, and if you up your contributions, you will do better yet!

 

[stepford]

One more thing to mention is that I’m fortunate in that my parents were frugal throughout their working careers and should be able to cover potential college costs for our kids.

Are those costs of potential college for existing kids or costs of college for potential kids? Minimizing the number of potential kids that turn into actual ones will significantly increase your likelihood of reaching your financial goals.

 

[Eastfolk]

I wished I had the financial and mental headstart you had when I was 30. I probably had all of 30-40K saved and was probably at 6-7% contribution rate for the 401K. If I met my younger self I would knock some financial sense into myself. That said, I ramped up soon after and have a plan to retire at 52 with 2M+ between 401K and non retirement accounts.

The most important part i never really thought about till much later was having enough outside the 401K to bridge you to 59.5. I would say you have huge headstart but be prepared to adjust spending due to kids (daycare is expensive as are many kid activities).

Remember that 2M today is worth $1.2-1.3M in 20 years. So you might want to bump that number up a bit.

Lukeee - thanks for the advice thats a really good point. I've been saving pretty aggressively ever since i started working around 7 years ago and it wasn't really until the last year or two that i also realized that i need something to bridge the gap between 50 and 59.5. This is why i've been trying to allocate a little more of my contributions towards roth accounts. I should have mentioned that my 401k allows me to contribute to both a roth and traditional. Half of my 401k contributions are now going towards roth. Between that and the 11k annually to Roth IRA and also contributions into the Vanguard brokerage account should hopefully get me a sizable balance that will last me during my 50s.

I also agree on the 2M being a little light. Hopefully, by using conservative assumptions, my actual number when i hit 50 will be much higher.

 

[Eastfolk]

will DW be able to continue those hours when the child is young ??

i am not trying to be sexist here but choices in early childhood/early motherhood can have long term consequences and what is a good choice for one mother might be terrible for other .

how would your plans look if DW took off 5 years off work to be a mother .. any cash she earned in the period could be classed as 'windfall income '

cheers and good luck with whatever you decide

if my DW chose to take 5 years off that would definitely hinder our FIRE goals, but that probably won't be the case. We live fairly close to our in-laws who should be able to help with the kids. we've already had some of these discussions and she may cut her work down to 4 days a week instead of her current 6 days, but that shouldn't hinder our progress too much.

 

[Eastfolk]

If you invest everything in a 3-5% CD (say, 4%), you'll just be keeping up with inflation, and 20 years later, your nest egg will have half its original purchasing power, if you're lucky. You'll still need to have a fair % invested in mutual funds (equities) if you want to keep up with inflation AND make distributions. Good luck!

You're right about the inflation piece. The investment in CD's was just a hypothetical scenario. I would more likely than not invest in a balanced portfolio or a more dividend-focused one to combat inflation.

If your current invested assets yield 7% gains (using the rule of 72), they should double in face value (not inflation-adjusted value) every 10 years, so in 20 years, without adding anything, you could have $270K*2*2=$1,080,000; if you add 20 years of $35K annually, that adds $700K, not including earnings, so your 20-year nest egg should be north of $1.8MM+! With earnings, you might do better, and if you up your contributions, you will do better yet!

I hope you're right about this one too. When doing my projections, I always like to be as conservative as possible just in case something significantly adverse happens along the way (huge medical bill, etc.) also, it forces me to save more to compensate

 

[Eastfolk]

Are those costs of potential college for existing kids or costs of college for potential kids? Minimizing the number of potential kids that turn into actual ones will significantly increase your likelihood of reaching your financial goals.

It's the costs of potential kids in the potential that they end up going to college haha. Unfortunately, the DW and I have already discussed and we want two kids. At least, it's not 4 or 5

 

[Oz investor]

if my DW chose to take 5 years off that would definitely hinder our FIRE goals, but that probably won't be the case. We live fairly close to our in-laws who should be able to help with the kids. we've already had some of these discussions and she may cut her work down to 4 days a week instead of her current 6 days, but that shouldn't hinder our progress too much.

maybe i grew up in the wrong neighborhoods , but there were some pretty dysfunctional kids out there ( and i was far from the average happy well adjusted child ) ... and that was when working married mothers were still quite rare

but just something that might need extra flexibility especially if DW is persistently worried/distracted at work or is expected to do extra hours to fill in emergency gaps .

i am very much a plan for the worst , hope for the best type ( and i still get get out by the bizarre twist of fate )

cheers

 

[exnavynuke]

Lukeee - thanks for the advice thats a really good point. I've been saving pretty aggressively ever since i started working around 7 years ago and it wasn't really until the last year or two that i also realized that i need something to bridge the gap between 50 and 59.5. This is why i've been trying to allocate a little more of my contributions towards roth accounts. I should have mentioned that my 401k allows me to contribute to both a roth and traditional. Half of my 401k contributions are now going towards roth. Between that and the 11k annually to Roth IRA and also contributions into the Vanguard brokerage account should hopefully get me a sizable balance that will last me during my 50s.

I also agree on the 2M being a little light. Hopefully, by using conservative assumptions, my actual number when i hit 50 will be much higher.

You may want to take another look at whether Roth is right for you or not. At your current income that's a hefty tax you're paying now and there are multiple ways to access money in retirement accounts before you're 59.5 without incurring penalties etc.... oh, and sometimes the numbers work out that paying the penalty would be a good option.

 

[ivinsfan]

Planning and saving is great and you are on the good track. But, don't wish your life away focusing on ER. It's a nice goal but the years between 30 and 50 can be some of the most fulfilling and happy of your life.

I don't know if your kid comment is tongue in cheek when you say unfortunately you have to have two, I assume by deferring to your wife's wishes. You have no kids yet and already have spent time planning how much Mom will need to work after they arrive. Kids can be a wonderful life changing experience, but they will not just pigeonhole into your plans and arrangements.

Parenthood is a wild rollercoaster ,it will cost you a lot of money and even more time, so be sure to stop and enjoy the ride.Set your money goals, nail down a reasonable lifestyle and ER will follow.

 

[Eastfolk]

You may want to take another look at whether Roth is right for you or not. At your current income that's a hefty tax you're paying now and there are multiple ways to access money in retirement accounts before you're 59.5 without incurring penalties etc.... oh, and sometimes the numbers work out that paying the penalty would be a good option.

That’s a good point but my logic is that it’s hard to predict where my tax rates will be 20 years from now so I’m trying to hedge a bit and diversify my holdings between pre and post tax accounts. I am more heavily weighed towards pretax accounts though. Also I figure with the new tax laws I should try to take advantage of the slightly lower rates until they revert back in 7 years

 

[treeofpain]

There is no replacement for strong income + time + a good plan. Looks like you are on your way.

 

[Travis Bickle]

I was probably very similarly positioned as you at 30 - which was 1992 - and today at 56 I have about 1.3M was in the 401k plus another ~200k outside that and am due to receive lump sum pension of about 1.5M when I decide to go and I’m still gonna wait another year or so. One thing I would say you should do is stay aggressively positioned in your 401k and don’t sweat it during the dips. My 401k was at ~280k at the dip in 2009 and because I kept buying equity during the dip I have quadrupled since then.

 

[Eastfolk]

I was probably very similarly positioned as you at 30 - which was 1992 - and today at 56 I have about 1.3M was in the 401k plus another ~200k outside that and am due to receive lump sum pension of about 1.5M when I decide to go and I’m still gonna wait another year or so. One thing I would say you should do is stay aggressively positioned in your 401k and don’t sweat it during the dips. My 401k was at ~280k at the dip in 2009 and because I kept buying equity during the dip I have quadrupled since then.

Good advice Travis. My plan is to continue maxing out the 401k until retirement. Also have a decent amount of cash that id like to get into the market but feel it’s overvalued at the moment..waiting for the dip. So much for not timing the market

 

[DrRoy]

I think you are off to a good start, but here is a way that I looked at it. I do not believe that a 4% WR is sustainable these days for a long retirement so I used 3%. On a $2 million portfolio, 3% is $60K/yr. Only 2% inflation over 20 years erodes buying power by about 1/3. Even with your house paid off and no kids at home, would you want to live on $40K/yr now? That has to include everything - medical, taxes, replacing cars, . . . . .

 

[Eastfolk]

I think you are off to a good start, but here is a way that I looked at it. I do not believe that a 4% WR is sustainable these days for a long retirement so I used 3%. On a $2 million portfolio, 3% is $60K/yr. Only 2% inflation over 20 years erodes buying power by about 1/3. Even with your house paid off and no kids at home, would you want to live on $40K/yr now? That has to include everything - medical, taxes, replacing cars, . . . . .

Thanks for the input DrRoy...not quite sure I follow though. I’m assuming that I will be able to generate 3-5% in interest off of the $2m in 20 years from now. Considering that some CDs now already offer 3%, it doesn’t seem like a stretch that the same or more would be available in 20 years. In my calculation I would never have to draw on the principle which is what I think you’re alluding to? Also I believe my calculations are pretty conservative (I should have more than $2m and I would probably invest in a more balanced dividend portfolio that would generate more than 3% annual returns). Lastly my wifes job is pretty flexible and she would be able to pick up one or two days a week (which would generate 20-40k) to make up any shortfalls.

 

[DrRoy]

Thanks for the input DrRoy...not quite sure I follow though. I’m assuming that I will be able to generate 3-5% in interest off of the $2m in 20 years from now. Considering that some CDs now already offer 3%, it doesn’t seem like a stretch that the same or more would be available in 20 years. In my calculation I would never have to draw on the principle which is what I think you’re alluding to? Also I believe my calculations are pretty conservative (I should have more than $2m and I would probably invest in a more balanced dividend portfolio that would generate more than 3% annual returns). Lastly my wifes job is pretty flexible and she would be able to pick up one or two days a week (which would generate 20-40k) to make up any shortfalls.

Keep in mind that you will owe full rate income taxes on your fixed income return, and that you also should have some portfolio growth to help you keep up with future inflation too. There is another thread about a WSJ article on the 4% rule that shows 30% failure rates in listed situations. With your current income, I was just thinking that you might get pinched. Good luck.

 

[Eastfolk]

Hasn't quite been a year yet, but wanted to post an update to my July 2018 stats to see how I'm tracking.

* Age: Both myself and DW are 31 now
* Household income: 215k-ish which doesn't include about $15k annual cash bonus and $8k in equity, both of which can be variable
* Total current net worth: 364k (94k increase) broken down as follows:
- 63k cash (13k increase) of which about 40k is in MM fund at 2.0% and the 24k in a FCU at 1.5%
- 193k in 401k (53k increase)
- 41k in vanguard brokerage account (27k increase)
- 34k Roth IRA (8k increase)
- 0k in tIRA (10k decrease, converted tIRA to roth through backdoor)
- 17k in HSA (6k increase)
- 16k between company’s ESPP and equity grants (3k decrease, even though additional shares have vested since July, my company's stock price took a huge hit and was cut in half)

* 15 year mortgage at 3.125%. 367k left (19k increase). House worth about 540k.
* Never did a complete budget of our expenses but would estimate around 80k/year.

Didn't really have any expectations on how much I wanted our net worth to grow, but overall I'm pretty happy with a 94k increase in just 10 months considering the market only increased ~5% in that time.

Pretty bummed about the decrease in value of my company shares, but I guess that's just the way it goes sometimes. Hopefully things turn around.

Lastly, I feel that my cash balance is a bit on the heavier side. I've been waiting for a market correction before I put money in as I believe the market is overvalued at the moment, but I've been saying that for 2 years now. I did put some money in back in December 2018 when the market briefly dipped, but maybe I should have been a bit more aggressive.

 

[HI Bill]

- 16k between company’s ESPP and equity grants (3k decrease, even though additional shares have vested since July, my company's stock price took a huge hit and was cut in half)

Can you sell your ESPP shares? I was buying under my company's ESPP at a 12% discount, but the equity was too volatile, with unlikely long-term growth that would exceed the market's return. So I sold unqualified shares (held less than a year), paid taxes on the gain, and was done. Just like any single stock, there's a lot of risk.

 

[Nick12]

If you don't have kids you may be able to retire in half the time.