Las Vegas 31 yr old waiter, FIRE by 40

[retirementguy1]

Hi all, I found this forum after reading Bob Clyatt's Work less, live more. The past few years I have been putting extra money down on the house. After my first year of homeownership I decided I didn't want to give the banks any more money. My mortgage will be paid off by the end of the year. After that I will be investing $4k a month in vanguard index funds.

Assets: 20k liquid
Investments 12k Roth IRA
Home Value $215k with $28k left on the mortgage (my only debt). I bought the home 4 1/2 years ago for $160k.

My income is around $6k per month. I rent out one room for $450 per month (included in the $6k). I have the option to rent out another room and still have a guest bedroom.
My expenses range between $700 per month to $1700 on the high side excluding the mortgage. Right now I'm paying an extra $4k per month on the mortgage. Once I pay off the mortgage I will be living on 16-20% of my income.

I'm not married and I don't have any kids. I don't want any kids.

The disadvantage of my career is that I have already peaked in earnings. It is also very stressful to be a career waiter in Las Vegas. Since there is a lot of age discrimination here so I would like to work three days a week (18 hrs) by the time I'm 37 and fully retire by the time I'm 40.

Based on a modest 8% return (5% real return) I should have around $300k in mostly taxable investment accounts by the time I'm 37. My company 401k has mostly high fee funds and the company match is very low so I'm staying away for now.

Also due to a tip compliance agreement with IRS I only make $22k on paper. Most of my income is tax free and it is completely legit.

Once I hit 40 I will sell the house, $250k should be tax free. I will put everything into my vanguard accounts. I would like to live in a low cost developing nation for most of the year and spend my summers in Utah where my family is from.

I plan on living on less than $20k a year which is more than what I live on now. Insurance costs are the biggest unknown.

Anything I'm missing? Any feedback is welcome.

Thanks,

Dave

[NgineER]

Quote:

Originally Posted by retirementguy1 My company 401k has mostly high fee funds and the company match is very low so I'm staying away for now.

Dave,

IMHO, even if you have a 50% match on 2% contributed (low matching) in your 401k, you are beating the market handily with an immediate 50% return on investment... Even with 1% management fee, you are still making good money. It does not make sense to not accept free money IMHO. Your are locking money up, but once you retire, you can roll over to a low cost tIRA and I assume that you'll need money later in life too, so just let it compound...

[retirementguy1]

I think they will match up to 6% of my salary. The IRS agreement screws me in this regard. I think I put in $3k last year and the company put in a couple hundred bucks and it isn't even fully vested. Once I kick in to full investing mode I will probably start contributing again. I acknowledge it will be good to have the tax shelter for small caps, value funds, and REITs. Till then I will continue to max out the Roth and eventually roll the company 401k into the roth.

[aaronc879]

I see a few potential problems that you should think about. First, I don't think 8%(5% real) is a "modest" return. It's on the high end of what's likely. You'd be taking a big chance to count on that level of return. Even after selling your house you'd only have about $600K at age 40 when you retire fully. Since you're planning to retire so young, the absolute most you should be withdrawing is 3% which would be $18000. That's less than the $20K you plan to spend. International travel is expensive. If you plan to travel to Utah every summer that alone will be a big chunk of your spending. Where will you live for 3 months in Utah. Will you have to pay for housing? Will you have health insurance that covers you in both countries?

Those are just a e few things to think about. I'm not saying it can't be done. Best of luck to you.

[FIGuy]

6k /mo is enough, honestly. More is always better of course, but you're above the level (for you) where early retirement just isn't really possible. Savings rate is what matters in the end and anything past 75% is fantastic. 50% is good. You'll be FI before 40 if you play your cards right. If I was you and didn't like my job (I was a TERRIBLE waiter BTW and was fired twice before I picked another job), I would put in a few more years and then switch to whatever work makes you happier.

How does this IRS deal work now?

[daylatedollarshort]

You might want to look around for some kind of lap top work you could do from anywhere with an Internet connection. Even making $10 a day on mturk would give you an extra $3,650 a year or almost 18% extra over $20K. Using Bing for searching could get you an Amazon gift card each month. Check out some of the forums like flyertalk, fatwallet and slickdeals and sites like fiverr and mturk and you could probably make another $5 - $10K a year just on little stuff you can do from a lap top, even more if you actually had a digital nomad type career like web design or technical writing.

Good luck. I agree 8% is too high to count on, but I know a number of people from online forums that do lap top type work and then travel or live some place like a low overhead, tropical island.

[robnplunder]

You got (young) age and a career you can return to (if RE is not your thing) going for you. I'd suggest that you go aggressive with your mutual fund picks. If stock market cooperatives, you may get more than 8% return and may end up with some cushion. If it doesn't, you can do a few more years and still be retiring in early 40s.

No kids, single, want to leave abroad? Do I detect a theme here?

[heeyy_joe]

If you stay in the USA, unless you are able and willing to have higher taxable income, you'll have to enjoy Medicaid coverage or no coverage if you fall into the "trap" in a State that did not expand Medicaid coverage. Things will probably change a great deal before your ER date. For now you are a "wait-er".

[retirementguy1]

There are a lot of variables in this scenario. No one can predict what future returns will be. The 4% rule and FIRECALC has taken into account a period of 0% real returns in the stock market (1966-1980ish) so why would I take less than 4%? I am planning on following Clyatt's 95% rule. I do recognize that the first ten years of retirement returns has a huge impact on the longevity of the nest egg. My travel expenses are a big concern for me. Even if I can live on $1000 a month in a developing country you need to spend $600-1000 each way. While in Utah I will stay with family or rent a room for around $500 per month.

[daylatedollarshort]

Quote:

Originally Posted by retirementguy1 so why would I take less than 4%?

Because past performance may not be indicative of future results - historically low interest rates, wealth inequality, the Japan stock market experience, CEO pay, stock options, hedge funds, computerized trading, lower dividends, caution from analysts who study these things, $1.2 trillion in student loan debt, unknown unknowns in a 60 year planning horizon, etc.

Life is just much easier when you have more money than you need instead of less.

[retirementguy1]

Quote:

Originally Posted by daylatedollarshort Because past performance may not be indicative of future results - historically low interest rates, wealth inequality, the Japan stock market experience, CEO pay, stock options, hedge funds, computerized trading, lower dividends, caution from analysts who study these things, $1.2 trillion in student loan debt, unknown unknowns in a 60 year planning horizon, etc. Life is just much easier when you have more money than you need instead of less.

If we had to worry about all these things then nobody would retire. Over a long time period we will achieve average results minus expenses. Even if the returns for the stock market are low in the short term it means that they will go up in the future. No one will be able to predict when that will happen.

[retirementguy1]

Quote:

Originally Posted by daylatedollarshort Because past performance may not be indicative of future results - historically low interest rates, wealth inequality, the Japan stock market experience, CEO pay, stock options, hedge funds, computerized trading, lower dividends, caution from analysts who study these things, $1.2 trillion in student loan debt, unknown unknowns in a 60 year planning horizon, etc. Life is just much easier when you have more money than you need instead of less.

All of the risks you mention is why I plan to invest in index funds. I cannot control the factors but when the market goes down I will buy more shares.

Life is just easier when you have more money than you need is just the mantra to One More Year!

[walkinwood]

A choice of a variable withdrawal method is a wise one I think for someone retiring young. We use the 4%/95% rule too, though Bob Clyatt, in this forum, advised me against using the 95% backstop in the early years of ER. The 4% in Clyatt's rule includes fund expenses, which while low for index funds, still need to be accounted for. Try it out in firecalc if you haven't.

Study the 4/95% trend lines in Firecalc for the bad stretches and make sure you'll be able to deal with the drop in withdrawals that come about with an extended market slump. There is a discussion about that somewhere in this forum.

Have you worked long enough to qualify for Social Security?

I believe there are two keys to successful ER (I'm in year 7). One is flexibility. Like others have suggested, stay open to working part time to pad your income if needed - or prepare to cut down your expenses if things are bad. Second is having some headroom in your calculations. Living standards increase all the time (even more so in developing countries) and you don't want to be left too far behind. Inflation is also much higher in developing countries than it is in the US.

You have done your homework. Only you can make the decision on the risk you're willing to take. All the very best to you.

[daylatedollarshort]

Quote:

Originally Posted by retirementguy1 If we had to worry about all these things then nobody would retire. Over a long time period we will achieve average results minus expenses. Even if the returns for the stock market are low in the short term it means that they will go up in the future. No one will be able to predict when that will happen.

No, they just retire with safer income to spending ratios. You don't have a lot of pad in your budget to cut back if things don't go as planned.

But hey, it is your life. Do what you want.

[robnplunder]

Quote:

Originally Posted by retirementguy1 If we had to worry about all these things then nobody would retire. Over a long time period we will achieve average results minus expenses. Even if the returns for the stock market are low in the short term it means that they will go up in the future. No one will be able to predict when that will happen.

True. You must know that this forum have a lot of members who are conservative on WR. But your situation is different. You are young, and have a career you can always go back to if RE does not pan out. If I had one regret, it is not investing aggressively when I was younger. Instead of bond & index funds, I should have gone with index & more aggressive funds for vast majority of my money.

[FUEGO]

Retirementguy1,

Sounds like a low risk plan to me. You can always work a little longer and make more money if you want to beef up your portfolio. $20k or so per year should get you a decent lifestyle in many parts of the developing world, and wouldn't be that hard to live on (as a single person) in lower cost parts of the US (Las Vegas even).

As for the numbers, if you have $300k portfolio and $250k from the house, that will yield $22k per year at 4%. I'd go with that % if you are okay returning to work one day should the portfolio fall short.

I like 8% return (5% real) if you are planning on a mostly stock investment portfolio (80-90%). That's about what I assume for my own investments, and it's a good number based on historical averages.

Health insurance - look into the ACA subsidies available for those with modest incomes. An income of $20k/yr would mean you might only pay a couple thousand per year in HI premiums. And if you're living off of a taxable portfolio, your AGI would be less than $20k, so you might owe as little as a few hundred dollars per year for an ACA policy. But if you are living overseas, you could skip HI except when you are in the US in the summers.

Nice plan overall, and something I would do if I were single (and not married with 3 young kids).

[retirementguy1]

Thanks to all for the comments! Everybody so far has brought up some valid points and concerns.