Hello! 33, Father-to-be, Lawyer, Looking for ER in 15 years

[B0bL0blaw]

Just wanted to introduce myself, as I'm very happy to have found this community. Of course, I also welcome any feedback on the below.

My wife thinks I'm nuts, but I think we're on target to have the ability to ER by 2030 (we'll be late 40s). And that's what I'm aiming for.

Current status:

• Retirement Accounts: $250k (combined) (90% equities, 10% bonds)
• Taxable brokerage account: $90k (90/10)
• Home: $450k left on mortgage (30/3.5%), $200k equity
• Student loans: $125k (2.5-3.5%)
• Cash: $25k
• Yearly expenses: about $100k
• Yearly savings: about $70k (about $55k to retirement accounts, incl. employer match; about $10-15k to taxable account)

As I mentioned in the title, we're having our first kid soon. That will certainly change our budget a bit, and may bite into the taxable brokerage savings. But, I don't expect it to derail us entirely.

We live in a very HCOL area right now, which is good for our incomes. Long-term, we plan to move to a lower COL area, which should allow us to "downsize" on the home within 5-10 years.

I haven't been in a hurry to pay off my student loans (obviously). But at <3.5% interest I feel okay about that. It's allowed us to save prodigiously, and I think the markets will do better than 3.5% long-term.

Pleased to meet y'all.

 

[2017ish]

Just guessing--the yearly expenses do not include your payroll and income tax bills?

What are plans for childcare? With one, in DC, that will likely erase your current taxable-account savings (subject to picking up a bit from the taxation/deduction side). FWIW, we ended up having me quit practicing for a long time to raise the kids; never planned on that and it extended our working years a bit.

Generally, you are looking pretty good--although who knows what 14 years will bring. At first glance a huge debt load, but at those rates and with (assumedly) a steady job (or two). [have you jumped the partnership hurdle yet if in a firm--or just as likely, you are in Gov/corp. environment. I.e., how stable is the job?]

Edited: Welcome to the Board!

 

[B0bL0blaw]

Correct. Expenses listed are after-tax.


Agreed. Child-care will probably eat up our taxable-account savings for the next several years. In my budget for this coming year, I've still found room for $5k, but that's only because child care won't start until relatively late in the year. 2017 will be a different story.


You never know what surprises, twists and turns life will bring. All we can do is plan. And then tweak the plan. The debt load is emotionally difficult for me at times, but I have faith in math and spreadsheets. The jobs are very stable at this point, after some years of uncertainty.


Thanks for the welcome and the analysis!

 

[Katiek]

Welcome. Who knows what may happen over a 15 year span. Kids, accidents, health issues and other unexpected things (both good and bad) can change our plans. But being conscious of expenses and saving, and living below your means will help prepare you for whatever comes your way. You may FIRE in 15 years, or you may have other plans, but preparing for FIRE now will give you lots of options in the future. You're doing a great job saving - continued good luck!

I look forward to hearing more from you!

 

[DrRoy]

I would do my best to control spending, but do not be so spartan as to never have any fun. Save as much as you can from 10-20% of income. Use recommendations on investing info from the site to guide your portfolio, in order to keep those costs down as much as possible too. Good luck and congrats on starting early.

 

[phil1ben]

Good Luck to you. Just my two cents from someone in the same field. It is very difficult to predict what your income will be. I am about to turn 56 and have been FI for many years. My salary increased many fold between my late 30s and the present. Most of my friends in the same field have had the same experience. Hopefully your income will as well and that is the time to put money away. Fortunately or unfortunately it makes it somewhat difficult to precisely plan. The law opens your career path up to many avenues.

 

[B0bL0blaw]

July 2016 update

I figured I'd post a 6-month update.

Since posting in January, the biggest news is that we've had our child and are adjusting to our new life as parents. So far so good! On the financial side, here is our current status (with the 6-month change in parenthesis):

• Retirement Accounts: $280k (+$30k)
• Taxable brokerage account: $107k (+17k)
• Home: -$445k mortgage (+5k)
• Student loans: -$113k (+12k)
• Cash: $20k (-5k)

We are staying the course. Meanwhile, any feedback is welcomed.

 

[pug_ster]

Good start. But if you want to make it for the long haul, I would think about reducing expenses. 100k a year is a little high and maintaining that lifestyle for ER is simply impossible.

 

[retire2020]

You're doing well Bob! If you've not, open 529 plan for your Kid. I had deposited 25K at birth of my each child and then 250/Month for a while and now 500/Month. Over the time, it piles up and I've enough for my daughter's 6-years College and twin boys will be in the same boat in about six years at 500/Month.
I would also plan to pay house/student loan as soon as possible..I just hate debts!

I had paid my student loans in two years after graduation and after getting a job. Paid off house in about three years...thanks to IT boom for Y2K.

 

[pb4uski]

I feel very differently on both counts.

I would be in absolutely NO hurry to pay off 2.5% to 3.5% debt... pay them as scheduled and invest the difference... especially if student loan interest is deductible in your circumstances.

I'm also not a huge fan of 529s. In our case by the time DD went to college we were making enough to be able to pay for college out of cash flow... but if things had been different we had enough saved in taxable accounts to pay for college. DS has decided that college is not in his plans (so far).... I'm glad that I didn't have a big honking 529 for him. While it is true that you have to pay taxes on taxable account investments, ours are in domestic equities so most income and LTCG got preferential tax rates and taxable account money is free from the strings attached to 529s.

 

[JohnnyBGoode]

+1 on the 529 plan. I started one when each child was very young (2 - daughter now 23 yo and graduated and son 21 yo with one more year to go). Like retire2020 I seeded the account early on and then did $250/month for each child for a while, then bumped to $500/month and then even $750/month. Both kids will graduate debt-free (public universities) and they both were extremely grateful - they saw what a crushing debt burden was doing to their friends.

 

[daylatedollarshort]

I feel very differently on both counts.

I would be in absolutely NO hurry to pay off 2.5% to 3.5% debt... pay them as scheduled and invest the difference... especially if student loan interest is deductible in your circumstances.

I'm also not a huge fan of 529s. In our case by the time DD went to college we were making enough to be able to pay for college out of cash flow... but if things had been different we had enough saved in taxable accounts to pay for college. DS has decided that college is not in his plans (so far).... I'm glad that I didn't have a big honking 529 for him. While it is true that you have to pay taxes on taxable account investments, ours are in domestic equities so most income and LTCG got preferential tax rates and taxable account money is free from the strings attached to 529s.

+1 on both counts. We are in no hurry to pay off low interest loans we have. We also did not do the 529s.

We retired early and had a large portion of our assets in FAFSA exempt asset classes. Both kids went to public schools, had internships or tutor jobs and received financial aid grants plus low interest loans. We covered all their costs except spending money so they have no school debt. We had a couple of small businesses so the value of the businesses and their retirement plans were FAFSA exempt asset classes. We managed our taxable income to receive grants and ACA subsidies while they were in school. We found good info on this topic on the Forbes online site:

Assets & College Aid Eligibility
http://www.forbes.com/sites/troyoni...bility-on-fafsa-and-css-profile/#566c5c2b53bb

 

[B0bL0blaw]

Thanks for the feedback, everyone. To address the points that were raised:

• I agree that $100k is a lot to spend per year, but it's probably not going to be reduced anytime soon. We live in a HCOL city and, while we could make some cuts to our lifestyle, it's just not a sacrifice we're willing to make right now. It's okay with us if it adds a few years to our FI timeline, as we're not in a huge hurry.
• I am also not in a hurry to pay off student loan debt at 2.5-3.5% interest. I just think the market is likely to beat that over the long term, but I understand there is a return risk involved in that decision. FWIW, the student loan interest is not deductible at our income level, but it's still a low-interest debt that I am comfortable with paying down.
• We are funding a 529 account, but I won't list that in our assets because that's our child's money, not ours.

Thanks again for the feedback!

 

[FreeBear]

• I agree that $100k is a lot to spend per year, but it's probably not going to be reduced anytime soon. We live in a HCOL city and, while we could make some cuts to our lifestyle, it's just not a sacrifice we're willing to make right now. It's okay with us if it adds a few years to our FI timeline, as we're not in a huge hurry.

Just curious, why are you dreaming of early retirement??

I retired in my later 40's after about 2 decades of saving; DW saved for longer but at a lower rate. So, I think your late 40's would be a great time to retire! I also started seriously considering an early career exit in my late 20's to early 30's. I'm glad you are thinking about this now in the earlier/middle part of your career. Always need an exit strategy...

Regarding your spending, it's important that you are happy now because the future is inherently uncertain. It is certainly difficult to reduce living standard. As another poster commented, it's likely at your age that your salary will increase. The big trick is to hold your living standard constant or at least increase more slowly than your income.

Recommendations

- Save your raises & bonuses; contain lifestyle creep! This helps when saving, but is a HUGE help since you grow accustomed to a lower lifestyle that will be much easier to support in retirement.

- Learn to use Firecalc or other retirement simulator. It's the most accurate way to determine how much you need to save (total savings needed as well as how much to save yearly). As a gross rule of thumb, you total savings will have to be at least 25 to 33 times your yearly expenses (4% to 3% respectively). A very sobering figure given a 100K burn rate and a hope to retire before 50 yo...

From experience, I know that a 15-20 yr horizon seems like forever when grinding through it and saving. However, in practice, I've found that this is just enough time to get things done; not much time to waste. So you need a yearly savings goals if you want to get out on time. Regarding DW, she may feel more enthusiastic about retirement after another 2 decades, especially if you've socked away some serious $$$.

FB

 

[CaliKid]

As an about 50 year old attorney I would give two recommendations:

1) Focus on keeping lifestyle as simple as possible. It is amazing how lifestyle creep just keeps going up each year until all of a sudden you are spending several hundred thousand a year. I am telling you it is easy to spend as income goes up so fight the temptation if you want to retire young.
2) What's your malpractice liability exposure and exit plan? I didn't see a mention but if a sole practitioner you'll want to buy tail for life which is expensive. If in a firm I would stay an associate if you are going to retire young as there are probably more liability issues if a partner. If you work for the government then you were smarter than me and don't have to worry about this.

 

[Options]

As an about 50 year old attorney I would give two recommendations:

1) Focus on keeping lifestyle as simple as possible. It is amazing how lifestyle creep just keeps going up each year until all of a sudden you are spending several hundred thousand a year. I am telling you it is easy to spend as income goes up so fight the temptation if you want to retire young.
2) What's your malpractice liability exposure and exit plan? I didn't see a mention but if a sole practitioner you'll want to buy tail for life which is expensive. If in a firm I would stay an associate if you are going to retire young as there are probably more liability issues if a partner. If you work for the government then you were smarter than me and don't have to worry about this.

Agree wholeheartedly with suggestion 1. Lifestyle creep, particularly in the professions and in HCOL areas is easy to succumb to and hard to resist because "everyone's doing it". People with their eye on financial independence are smarter than that (i.e., equating things with satisfaction). You stated above you are unwilling to reduce your lifestyle at this time, and while that's somewhat natural for someone in their thirties, the sooner you begin to look at spending through the lens of frugality, the sooner you will gain financial independence. Frugality is the ability to increase overall satisfaction by looking at life differently.

It's been said the two paths to financial independence are either cut spending or increase income. As you are probably aware, the legal profession (like many others) is going through a process of disruption currently. Your income may be stable at this time, but life will change rather dramatically should your job become unstable. Further, children are insanely expensive (costing $250K through the age of 18 last I heard). If you are lucky enough to be in a stable, high paying position currently one of the best things you can do is to increase savings while the good times last (hopefully for a good while).

 

[pug_ster]

Not sure what kind of law firm or what year associate you are, but I work for several firms in biglaw (as a support staff) and I know what kind of attorneys come in. Not sure if it is in your case, the attorneys are paid well, but have to work long hours and many of simple of them simply just get burnt out or forced to leave because they are not producing and things like that. I am just hoping that's not going to be happening in your case. However some of them do end up being successful ended up being a partner and stuff.

 

[B0bL0blaw]

1 year update

Happy New Year!

For those who have offered advice and comments (and my own benefit), I thought I'd post another update, 6 months from my last one and 1 year from the initial post.

Without further ado, here is our current status (with the 6-month change in parenthesis):
Retirement Accounts: $337k (+$57k)
Taxable brokerage account: $113k (+6k)
Home: -$440k mortgage (+5k)
Student loans: -$103k (+10k)
Cash: $33k (+13k)

Thanks for all the replies above. I continue to appreciate and seek the community's advice. A couple of your replies raised the question of whether law firm employment is truly stable. I agree that it's not, which is part of the reason why several years ago I switched from private practice in a large law firm to public service for the federal government. The salary is lower but the job is much more stable. I've been in the government for a couple years now, and I have no imminent plans or desire to go back to private practice. (FYI, I practiced at a large Amlaw 100 law firm for about 5-6 years, as an associate.)

Some other replies raised the question of why am I dreaming of early retirement in the first place. To be honest, I have no idea whether I'll actually pull the trigger on retirement at age 50. But, I know I don't want to be dependent on a wage/salary at that age. If I continue to work, it'll be for the sense of purpose and fulfillment, not just to punch the clock and draw a paycheck.

I think we're on the right track and will continue to stay the course. Setting some lofty goals for 2017. Hoping to hit $400k in retirement accounts and another $140k in brokerage accounts. Aiming to get student debt down to $85k. Will continue to pay off the 3.5% fixed rate mortgage on schedule.

Best wishes for a happy and healthy new year to all!

 

[B0bL0blaw]

1 year update (addendum)

Further to the update above, I also wanted to add that we opened a 529 account for our child, and we are funding that through monthly contributions of $300, plus additional contributions when circumstances allow. Our goal is to cover the cost of an in-state university education, though that goal may adjust as we are still developing our parenting style and plans.

Updated current status (with 6 month change in parenthesis):
Retirement Accounts: $337k (+$57k)
Taxable brokerage account: $113k (+6k)
Home: -$440k mortgage (+5k)
Student loans: -$103k (+10k)
Cash: $33k (+13k)
529: $4k (+$4k)

 

[Katiek]

Thanks for the update, I always like seeing how people progress on their plans. If you're working for the federal govt, you should be on track for a pension which makes FIRE significantly easier, especially since you're also saving significant amounts in your retirement accounts.

 

[B0bL0blaw]

Yes, I have worked for the federal government for the past couple years. The pension will be a nice boost, but it really can at most form one leg of the fabled 3-legged stool of retirement. If you have 30 years of service, you can draw an annuity of 33% of your "high-3" average salary. For me, I'll probably have more like 10-15 years of service and only get 10-15% of my salary. (Plus, if you retire "early" you don't get COLA until you hit the retirement age of 62, so your annuity gets eaten away by inflation.) That's not nothing, of course, but it's not gonna come close to covering my retirement!

 

[Omalley]

We are about 10 years ahead of you on this FIRE journey. Begin to form a plan on funding your expenses from your expected RE date to when you can access other tax-deferred options. You may need significant brokerage assets if you won't have access to an early pension payment or other income stream in your late 40's/early 50's.

I am not sure what state you live in, but you may want to consider pre-paid tuition plans. Our state lets you pre-pay semesters at the current rate, and if the semesters aren't needed later or they attend private/out of state schools you can cash them out at the current tuition rate at that time. Over the last 12 years costs have doubled and it was nice to lock in the 2004 tuition rates.

As for ongoing expenses, try to adjust in small ways that may not be as noticeable. Adjust the thermostat by 1-2 degrees, upgrade to high efficiency lighting, low flow shower heads, stay at Holiday Inn Express instead of Marriott. These small changes can add up and begin reducing the nest egg needed to fund RE.

Omalley

 

[B0bL0blaw]

Hey y'all. I meant to post a 6-month update in July but I must have lost track of time in the summer. Hope everyone had a great summer. Not sure if anyone is following along, but I like posting these for my own benefit as well as to stimulate some discussion hopefully.


Without further ado, here is our status as of July 1 (with the 6-month change from January 1 in parenthesis):
Retirement Accounts: $393k (+$56k)
Taxable brokerage account: $90k (-23k)
Home: -$435k mortgage (+5k)
Student loans: -$54k (+49k)
Cash: $36k (+3k)
529: $10k


The main thing that jumps out is the drop in student loans. One of my variable rate law school loans crept up over 4% interest, so we paid it off. We used some money from a brokerage account, as well as some cash reserves, and just paid it off. I have no qualms about carrying low-interest debt, as long as I'm building wealth, but I'll admit it felt pretty good to pay it off! The remaining student loans are still at 3% so I'm not gonna rush on those for the moment.


Our son turned 1 this summer. Wow -- first year flew by! I've added his 529 account to the report above. We're probably going to try for another kid soon-ish, but nothing to report on that front yet.


Still targeting 2030ish to be fully financially independent. I think we're on track for hitting the mark a little early, maybe 2025-2027, but we've been enjoying a bull market for quite some time, and I don't want to get ahead of myself.


Cheers!

 

[B0bL0blaw]

Happy New Year! Back again for a 6-month update. Here is our status as of Jan 1 2018 (with 6-month change from July 1 in parenthesis):

Retirement Accounts: 465k (+72k)
Brokerage Account: 102k (+7k)
Mortgage Debt: -430k (+5k)
Student Debt: -52k (+2k)
Cash: 53k (+17k)
529: 14k (+4k)

No big changes, just staying the course and enjoying great market returns. I know these can't last forever, but boy is it fun! We have accumulated a little cash for flexibility. Not sure what we're going to do with it yet, but we have a few options. Possibly will pay off final student loans if the interest rates go up (currently at 3.5%). Also may move in the near-term, so the cash gives us a little flexibility to do that.

Otherwise looking forward to 2018 and hoping for a steady and stable year. We may try for a second child soon-ish, but no announcements yet!

Best wishes for a healthy and happy 2018 to all!

 

[B0bL0blaw]

Back again for a 6-month update. Here is our status as of July 1 2018 (with 6-month change in parenthesis):

Retirement Accounts: 505k (+40k)
Brokerage Account: 138k (+36k)
Mortgage Debt: -424k (+6k)
Student Debt: -50k (+2k)
Cash: 35k (-18k)
529: 18k (+4k)

Kid #2 is in the oven. Gonna have to fire up another 529 account. Otherwise, same old same old, staying the course. Staying heavy on equities, with current asset allocation across all accounts as follows:


- domestic equities: 75%
- international equities: 13%
- bonds: 7%
- alternatives: 3%
- unclassified: 2%


I am aiming to gradually increase my bond allocation so that I hit about 50% (domestic equities) / 25% international equities / 25% bonds in about 10 years. That calls for increasing my bond percentage by 2% per year.