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Hi, I'm 34 and wanna retire early :)
Old 11-24-2007, 04:00 PM   #1
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Hi, I'm 34 and wanna retire early :)

this is my first post here.

i'm 34 (and married), and we have a little over 200K now in our combined retirement assets right now (I didn't contribute to my IRA for a couple of years and I regret it now) , so i'd love to learn from you folks how to get on track to my financial independence, hopefully by age 50...
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Old 11-24-2007, 04:19 PM   #2
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Welcome aboard Wilkens. Have you run Firecalc with your expected expenses? (see the link at the bottom of the page) That is a good place to start.
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Old 11-24-2007, 05:16 PM   #3
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this is my first post here.

i'm 34 (and married), and we have a little over 200K now in our combined retirement assets right now (I didn't contribute to my IRA for a couple of years and I regret it now) , so i'd love to learn from you folks how to get on track to my financial independence, hopefully by age 50...
You are contributing to IRAs, that's good. Do you and/or husband have tax-deferred savings plans available through employers? 401k's if private sector, or 403b or 457's, or Thrift Savings Plan (for federal employees), if through public sector? If so, get signed up and start maxing out. Especially 401ks, the employers often make matching contributions up to some amount. Even some public sector employers, if you are lucky, will once in a great while make some match for 403b or 457 contributions.

If you have enough funds after doing all above, make extra payments toward principal balance on your house mortgage.

Or with extra funds, start building a taxable account portfolio.

Most of all, LBYM--live below your means.

Welcome, and fire away with questions whenever the mood strikes.
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Old 11-24-2007, 09:42 PM   #4
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this is my first post here. ...
so i'd love to learn from you folks how to get on track to my financial independence, hopefully by age 50...
Welcome to the forums. Your sentence about getting "on track" actually contains one key to FI: tracking your financial assets.

Many of us use a spreadsheet, both before and after retirement, to keep track of savings and investments. It is a great motivational tool as well.
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Old 11-25-2007, 04:48 PM   #5
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Thanks for all of the responses. This is a great forum, and I definitely have a lot to learn from you guys, if I want to get to where I (and my wife need to be).

Here's the situation.

1. My wife (32 currently) is in a non-profit organization that doesn't have a retirement package, but we do contribute the max of $4000 for her IRA.

2. I am able to max out the $15.5K (on my 401K) and the $4000 for my IRA. I am also able to get about $7500 a year in the company match my firm doles out. So, I'm planning to work at my current position (~160K/salary now) til I'm about 50-52 (if all goes well).

So that gets us to a little over $200K in our retirements assets (currently) of which we're about 85% or so in stocks. It was more than that until the recent hiccup in the market.

3. We have invested in real estate (somewhat successfully I guess). We own 2 properties (one of which we rent out with no mortgage). The place we currently live in as a large mortgage left which I've discussed below. Property is quite expensive where I live.

I've played around with the calculator, and I definitely need to be more careful in terms of tracking my expenses as I've been a little careless there. I will probably need about 60-70K/year in retirement for some of the goals that I want to pursue.

What I am thinking about now is our "escape" fund(s), in order to reach retirement age really early, of which I have next to nothing. These would be the taxable accounts obviously, which could bridge the gap when I'm in my 50's until I reach 65. So what do I do? Do I pay off my expensive mortgage quickly (over 400K left), or do I go aggressively and start putting stuff into taxable mutual funds with the "extra" money in my paycheck?

I have about $10K in my company stock, but feel I need to get rolling in order to have a nice reserve (say 700K outside of retirement), that I can live on til I hit the normal retirement age.

Is this wise to think like this?
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Old 11-25-2007, 05:15 PM   #6
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What I am thinking about now is our "escape" fund(s), in order to reach retirement age really early, of which I have next to nothing. These would be the taxable accounts obviously, which could bridge the gap when I'm in my 50's until I reach 65. So what do I do? Do I pay off my expensive mortgage quickly (over 400K left), or do I go aggressively and start putting stuff into taxable mutual funds with the "extra" money in my paycheck?

I have about $10K in my company stock, but feel I need to get rolling in order to have a nice reserve (say 700K outside of retirement), that I can live on til I hit the normal retirement age.

Is this wise to think like this?
"Thinking about FIRE and how to get there?"--I doubt you will find anyone at this forum who would call that unwise! Fullspeed ahead, I say!

I think you are on the right track. You are maxing out on your tax deferred saving opportunities. You have a mortgage free piece of rental real estate.
You spell out two likely remaining avenues to get closer to FIRE -- pay down your home mortgage or start stashing funds in taxable investment accounts.

Depending on the interest rate on that mortgage, it may make sense to put some portion of your surplus funds to paying it down, and another portion to building your taxable account investments.

I think a steady, continuous course, chipping away at your home mortgage and building thoses taxable accounts, along with continuing to max your tax-deferred accounts, will get you there. Stay the course, don't get discouraged, invest for the longterm, LBYM, be sure your asset allocation is in line with your and DW's risk tolerances, and you will get to FIRE, as sure as the sun sets in the West.

Good luck and may you and DW have sweet dreams of FIRE every night!
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Old 11-25-2007, 09:18 PM   #7
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Do I pay off my expensive mortgage quickly (over 400K left), or do I go aggressively and start putting stuff into taxable mutual funds with the "extra" money in my paycheck?
Well, a few follow-up questions:
1) what is a realistic value of your house if you sold today?
2) what kind of realistic appreciation would you think your house would have over the next 10 years?
3) (perhaps most importantly) what's your mortgage interest rate? I presume that there's no prepayment penalty or some other clause in your mortgage contract that would come into play if you sent in additional money with your monthly payment? How many years left do you have on your mortgage?
4) About how much is your rental worth? The reason for asking is that if it's a 'fair amount' (i.e. more than 100k), then you might want to simply pay off your house as originally scheduled (assuming it's a 6% or less rate), and plow any free cash into equities, since you already have a (presumably) decent allocation to real estate, and probably don't want to tie up additional money in your house if it can perform better in equities.


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Thanks for all of the responses. This is a great forum, and I definitely have a lot to learn from you guys,
Remember - the forum is only good if people ask questions and learn...and we all have lots to learn from each other.
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Old 11-25-2007, 10:00 PM   #8
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Remember - the forum is only good if people ask questions and learn...and we all have lots to learn from each other.
That's for sure.

Also MooreBonds, I like the photo under your name. Can you tell us where that is--do you know? Very scenic.
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Old 11-25-2007, 10:04 PM   #9
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That's for sure.

Also MooreBonds, I like the photo under your name. Can you tell us where that is--do you know? Very scenic.
Thanks. It's one of my 'ideal' scenery views, and was one of the many utterly awesome views I had during a trip to New Zealand in Dec 06/Jan 07. Unforgettable country, and a place I'll definitely be going back to when I'm FIREd (or hopefully sooner).

The specific spot was on the Northwest coast of the South Island, taking a short picture break right after leaving Nelson (on the way to Franz Josef, where I had an amazing experience hiking up the glacier ).
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Old 11-27-2007, 06:01 PM   #10
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Well, a few follow-up questions:
1) what is a realistic value of your house if you sold today?
it's probably worth between $500K to 525K with the subprime fun going on.

Quote:
2) what kind of realistic appreciation would you think your house would have over the next 10 years?
hard to say with this market. my guess is that it'll never hit more than $650K in that time frame, but then again, I'm not sure as real estate is crazy as you all know.



Quote:
3) (perhaps most importantly) what's your mortgage interest rate? I presume that there's no prepayment penalty or some other clause in your mortgage contract that would come into play if you sent in additional money with your monthly payment? How many years left do you have on your mortgage?
6% at 30 years. and I have a little over $400K left. there is no prepayment penalty, and I've thought about paying off this loan entirely if/when I sell my other property which I'm renting out. So I got over 20+ years at this rate even with adding in bi-weekly payments and extra principal.

Quote:
4) About how much is your rental worth? The reason for asking is that if it's a 'fair amount' (i.e. more than 100k), then you might want to simply pay off your house as originally scheduled (assuming it's a 6% or less rate), and plow any free cash into equities, since you already have a (presumably) decent allocation to real estate, and probably don't want to tie up additional money in your house if it can perform better in equities.
My rental (again no mortgage on it now) is worth close to $500K right now. My plan was to sell it within a year or 2, in order to get that full capital gains tax break (if you live a residence you own for 2 out of 5 years), but now with the housing market in a mess, I am not sure if that is the wisest thing to do.

I "was" planning to use the extra money from selling rental to feed/start an "escape fund" in order to get my non tax sheltered investments going and dream about getting out early with $$$ from here.... and continue the scheduled mortgage payments for the property that I still owe the $400K on.
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Old 11-27-2007, 09:44 PM   #11
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My rental (again no mortgage on it now) is worth close to $500K right now. My plan was to sell it within a year or 2, in order to get that full capital gains tax break (if you live a residence you own for 2 out of 5 years), but now with the housing market in a mess, I am not sure if that is the wisest thing to do.

I "was" planning to use the extra money from selling rental to feed/start an "escape fund" in order to get my non tax sheltered investments going and dream about getting out early with $$$ from here.... and continue the scheduled mortgage payments for the property that I still owe the $400K on.
This forum will give you 101 ways to skin a cat, and my thoughts are just one of the many roads to FIRE...but I'd look at how much your rental is bringing in after all expenses, and compare that to how much you'd get by investing that in a decent index or good mutual fund.

You're doing a great thing by looking at the tax ramifications by selling in the next 2 years, and the taxes that you'd save in that would likely be more than any possible price appreciation. But you'd also have to look at what that $475k rental is yielding you right now. Because I'd expect your home to appreciate less than the market, I'd say put that $475 to work for you in equities - if you pay off your house, then you'll only be able to invest your old mortgage payment into equities, and that'll be much more slow than putting your $475k rental gradually into investments over the next year.
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Old 11-28-2007, 08:15 AM   #12
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For your post-tax dollars, if you are not interested in spending lots of time and energy on your investments, I would consider an appropriate target retirement fund such as offered by Vanguard, Fidelity and others.

As to the mortgage prepayment, do a search here for more threads than you'll have time to read. If you have a great interest rate it's easier to decide against pre-paying. If you have a so-so or adjustable rate, it might make sense to pay it down. Individual factors predominate.
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Old 11-28-2007, 08:24 AM   #13
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As to the mortgage prepayment, do a search here for more threads than you'll have time to read.
http://www.early-retirement.org/foru...ney-30644.html
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Old 11-28-2007, 04:16 PM   #14
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My rental (again no mortgage on it now) is worth close to $500K right now. My plan was to sell it within a year or 2, in order to get that full capital gains tax break (if you live a residence you own for 2 out of 5 years), but now with the housing market in a mess, I am not sure if that is the wisest thing to do.

Yikes! A $500,000 single-family rental house?? I've got 8-unit apartments that aren't worth much more than that. In my opinion that's far too expensive a house to be using as rental property. How large is this house?

Another alternative is to do a 1031 tax-free exchange to purchase a multi-unit property and start generating some REAL cashflow to: fund your taxed account, and/or pay off the mortgage on your residence. Of course you may not want to work at it that hard, but it would open up lots of options down the road and give you a huge tax deduction in the short-term. If you want to retire at 50, you may need to crank it up now and sprint hard to the finish line. You didn't mention any kids either, did you? You and your wife could tag team the apartment management, and after ten years who knows, maybe you would have enough excess cashflow to buy another one or a larger complex. At your salary and assets, the possibilities are vast. With a large enough real estate empire the excess cashflow could be enough to fund your FIRE.

Take some risks, set goals, get it done.
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Old 11-28-2007, 06:05 PM   #15
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Yikes! A $500,000 single-family rental house?? I've got 8-unit apartments that aren't worth much more than that. In my opinion that's far too expensive a house to be using as rental property. How large is this house?
It's a 1 bedroom that is less than 700 square feet in New York City.

It is wild that it's worth that much, but that is the crazy housing market that is New York these days. People overpay for mini 400 sq feet studios which is silly, but that's urban living for you.

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You didn't mention any kids either, did you?
No kids as of yet, but we're still working on it in that area.
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Old 11-29-2007, 06:03 AM   #16
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In-freakin-credible! My DD will soon graduate in Economics and wants to live in NYC and work in the investment banking community. How in the world can a single person just starting out make enough money to live there? This just sounds nuts to me.
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Old 11-29-2007, 09:18 AM   #17
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I would analyze the mortgage payoff schedule of the first mortgage compared to a target retirement date.

For example you suggested above

Quote:
6% at 30 years. and I have a little over $400K left. there is no prepayment penalty, and I've thought about paying off this loan entirely if/when I sell my other property which I'm renting out. So I got over 20+ years at this rate even with adding in bi-weekly payments and extra principal.
400k needs to be paid off in X years.

You plan to retire in Y years

if Y>X, no issue, mortgage is paid off without doing anything
if X>Y, consider a few options

1) pay extra on mortgage enough to pay off the year you retire. I would calculate the extra amount per month needed to make X=Y. Microsoft has ammortiztion schedules you can download to figure this out.
http://office.microsoft.com/en-us/te...dule&av=TPL000

2) take the extra money slated to pay off the mortgage and invest in a mutual fund in a taxable account. I would allocate this money slightly different than retirement funds, as it's purpose is to pay off the mortgage the year before you retire. Meaning this might be more bond heavy or stable value oriented. I like PRFPX myself for an account like this, but other people will also suggest index funds or something similar. You need something tax efficient which can beat 6%. I think any 50-50 fund should do this quite well. This account could also double as an emergency fund to some degree.

3) max out mortgage pre-payment. Set aside all extra money to pay off mortgage. Once mortgage is paid off (probable monthly payments of $2400 right now?), the monthly payments could be invested once paid off into a taxable account.

4) consider refinancing 30yr fixed @6% to 15 yr fixed@ 5.5%. Pays off home sooner and aligns to ER better. You can do better than 6% right now. Continue making same payments as you are now, but lower rate helps pay off mortgage sooner.

aside- learn about withdraw option 72(t) to access 401k and IRA money prior to age 59.5. The taxable account is not necessarily needed to bridge from ER to normal retirement age (59.5).

aside-what is the cash flow for the rental unit? It's worth 500k, but do you net cash from this each year after expenses? How much? What do you do with this money now?
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Old 11-29-2007, 12:52 PM   #18
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In-freakin-credible! My DD will soon graduate in Economics and wants to live in NYC and work in the investment banking community. How in the world can a single person just starting out make enough money to live there? This just sounds nuts to me.
It's called commuting... from Jersey or Long Island...
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