Salary has accelerated to $425,000

[underwrite]

I am a 45-year-old male with a 41-year-old wife and three kids ages 10, 8 and 5. I have $810,000 in my 401(k), $100,000 at prosper.com, $200,000 invested at Peerstreet.com, and $50,000 at a third crowdfunding site called Fundrise. I think the stock Market is overvalued currently and moved my 401(k) money into more conservative funds in January , within my 401(k).

I am fortunate that my salary has increased significantly the last few years and would expect to make between $350,000 and $450,000 at my job going forward . I think I can save around $175,000 per year for the next seven years. I would like to retire or at least have the option to retire in about seven years.

My goal is to have $3 million between my 401(k) and funds outside it, plus another $250,000 in 529 plans.

I would like to Be able to pull around $120,000 from my investment annually once retired.

Do you think this is a viable plan? Thanks for any comments and suggestions.

 

[joeea]

My goal is to have $3 million between my 401(k) and funds outside it, plus another $250,000 in 529 plans.

I would like to Be able to pull around $120,000 from my investment annually once retired.

Do you think this is a viable plan?

Obviously it all depends on how conservative your investments actually are.

If you meet your portfolio goal, you'll probably have enough to pull close to $120k per year from it, depending on your portfolio returns. But you won't get to $3,250,000 without bigger savings, longer savings, or some risk in your investments. Maybe you'll get really lucky with your crowdfunding investments.

And you haven't included any information about Social Security or pensions - both of which could help assure your goals.

 

[njhowie]

But you won't get to $3,250,000 without bigger savings, longer savings, or some risk in your investments.

I'd contend that the $350k in P2P lending and crowdfunding is quite/too risky.

 

[joeea]

I'd contend that the $350k in P2P lending and crowdfunding is quite/too risky.

I agree. But it's unlikely to become a significant portion of a $3M portfolio.

 

[njhowie]

I agree. But it's unlikely to become a significant portion of a $3M portfolio.

But it is a significant portion of a $1.2M portfolio today.

 

[joeea]

But it is a significant portion of a $1.2M portfolio today.

I'm not sure why that matters. But then I don't know the long-term growth estimates of crowd-funding, nor how much more the OP plans to invest in it.

If only $350k is invested in crowd-funding, and the rest is in a money market account, I'm not sure I see the OP reaching the stated goals.

 

[Dash man]

You didn’t mention anything about debt. Is your mortgage paid off? No credit card or car loan debt? What are your expected expenses going forward? Health coverage?
Personally I wouldn’t touch crowdfunding for investments, but I admit I’m not familiar with them. I like owning stock in growing financially healthy companies and dividend pay companies also financially healthy. My safe money is in CDs, a small amount in I-Bonds and 7 and 10 year treasury notes, some gold and silver, and four homes, two of which provide income.
I think you need at least 70% in the Stock market and timing doesn’t work. There will be ups and downs in the market. Own stocks in strong companies and they’ll bounce back from a downturn. If financial fundamentals change, drop the stock. You’re too young to take too little risk and hope to retire in seven years. Inflation will eat you alive if you invest too conservatively.

 

[ClayMore]

Dude! Rock on! My only advice is lock down the spigot so the kids learn that it’s your money, not their immunity from responsibilities. Also, my experience is getting paid like that can extract a toll on you physically. If your inner voice starts asking if you really want to do this, think it through. I had to throttle down at about 48 when I started thinking that I must be right and shut out some loved ones telling me I was running hot. Best of luck to you and your family.

 

[bingybear]

troll?

 

[Letj]

troll?

Most certainly.

 

[underwrite]

I'd contend that the $350k in P2P lending and crowdfunding is quite/too risky.

Good point. My thought process is the economy will continue to do well so consumer loans will do well. However, rates may increase and therefore stock valuations could go down. Who knows?....could be wrong, but that's what I'm going with for now.

 

[underwrite]

You didn’t mention anything about debt. Is your mortgage paid off? No credit card or car loan debt? What are your expected expenses going forward? Health coverage?
Personally I wouldn’t touch crowdfunding for investments, but I admit I’m not familiar with them. I like owning stock in growing financially healthy companies and dividend pay companies also financially healthy. My safe money is in CDs, a small amount in I-Bonds and 7 and 10 year treasury notes, some gold and silver, and four homes, two of which provide income.
I think you need at least 70% in the Stock market and timing doesn’t work. There will be ups and downs in the market. Own stocks in strong companies and they’ll bounce back from a downturn. If financial fundamentals change, drop the stock. You’re too young to take too little risk and hope to retire in seven years. Inflation will eat you alive if you invest too conservatively.

Thanks for pointing out the additional info. Fortunately, we have paid off all of our debt, including mortgage, cars, credit cards, etc. Guestimate of spending is around $130,000/year. Health coverage is through work. It's a high deductible plan. With 3 young kids, it's not uncommon for us to spend $15,000 - $20,000 per year on healthcare premiums plus the money to meet our deductible. I've never been much of a market timer, but I do think int rates are going to normalize and equity valuations with then normalize too. Guess we'll see. I've generally had the 401k in growth funds for most of my career up until the last month or so. Stocks went down, but have obviously recovered since then.

Part of our issue is that we had kids later in life, so if i were to retire, they'd still be in our house / just starting college. That throws a little wrench is our budget for the first few years if I do retire early.

I didn't mention that we've saved $60k in 529 plans so far.

I'd probably take Social Sec starting at 62.

 

[underwrite]

Dude! Rock on! My only advice is lock down the spigot so the kids learn that it’s your money, not their immunity from responsibilities. Also, my experience is getting paid like that can extract a toll on you physically. If your inner voice starts asking if you really want to do this, think it through. I had to throttle down at about 48 when I started thinking that I must be right and shut out some loved ones telling me I was running hot. Best of luck to you and your family.

Great advice. I need to think through the kid thing a bit more. As far as the job goes, I hear you. Fortunately, it's not much more than 45-50 hours per week, but the stress of making decisions that impact a lot of people does get to me. I kinda miss the old days when I just had to take care of myself. I think that is the main thing that's motivated me to consider early retirement.

 

[slv1]

You mentioned that you felt the market is overvalued. In some ways it is overvalued. However, you pulled your money from your 401K and put it in more conservative investment and then have a bunch of it in crowdfunding.

Crowdfunding would be in the category of some the most risky investments. Essentially you are investing in someones idea that may or many not take up as a startup. Most startups fail.

Wouldn't you risk be lower if you just have kept the money in the market, kept a reasonable asset allocation and ride the wave? Historically stocks have had more good runs than bad.

175K x 10 years = 1750000 add some compounding interest and it may get to 3 million when you add your existing money.

I think you are in good shape but think you may want to rethink your strategy.

 

[njhowie]

Thanks for the clarification on some of the posts. I was going to mention some points brought up in Dash man's reply, but thought it was getting away from what you were asking.

An additional item - be sure that you have sufficient life insurance. As a high-earner, should catastrophe strike, it would likely have a big impact on your family financially. To protect $400k annual salary, I'd normally say to get a policy for $2M-$4M. However, since you indicated that you have paid off your home and have no debts, $1M-$2M with a 20-year policy is probably sufficient. Don't overlook the need for it, or try to save the annual cost - it's not worth the risk.

I can appreciate your view on the stock market being overvalued and your logic for the P2P and alternative investments. However, just keep in mind that the folks you are lending to have chosen to get funding from you because it was an easier and less expensive route than going to a bank (in a period of loose monetary policy and all-time low interest rates), where they would likely face more intense scrutiny and have a higher probability of being denied. Also, when P2P loans go bad, understand that the platform you are investing through does not do much in the way of pursuing the borrower to get your funds back. At the end of the day, my belief is that the additional amount you (might) make on the P2P/crowdfunding on a risk adjusted basis will not be justified.

While the stock market is likely overvalued, there is still a massive chase for yield taking place. I believe those opting for P2P lending exemplify this.

Lastly, I've found that during my peak earning years, though it can be fun sitting down, playing with the numbers, and dreaming about the end game, it's much more important to focus on the near-term - just do what you can day after day to save and invest prudently. When you look to hit targets, invariably it leads to taking more risk in an attempt to juice returns to get (back) on track. Be sure you have sufficient emergency savings, insurance, etc. - having a great defense with a good offense is better than a great offense and a weak defense.

 

[underwrite]

You mentioned that you felt the market is overvalued. In some ways it is overvalued. However, you pulled your money from your 401K and put it in more conservative investment and then have a bunch of it in crowdfunding.

Crowdfunding would be in the category of some the most risky investments. Essentially you are investing in someones idea that may or many not take up as a startup. Most startups fail.

Wouldn't you risk be lower if you just have kept the money in the market, kept a reasonable asset allocation and ride the wave? Historically stocks have had more good runs than bad.

175K x 10 years = 1750000 add some compounding interest and it may get to 3 million when you add your existing money.

I think you are in good shape but think you may want to rethink your strategy.

Thanks for your comments. It will be interesting to see what happens with the market as the debt starts to explode and quantitative easing reverses this summer. There’s always something to worry about, and perhaps I’m overreacting this time. Time will tell and I certainly won’t stay out of the market for too long.

 

[MichaelB]

I am a 45-year-old male with a 41-year-old wife and three kids ages 10, 8 and 5. I have $810,000 in my 401(k), $100,000 at prosper.com, $200,000 invested at Peerstreet.com, and $50,000 at a third crowdfunding site called Fundrise. I think the stock Market is overvalued currently and moved my 401(k) money into more conservative funds in January , within my 401(k).

I am fortunate that my salary has increased significantly the last few years and would expect to make between $350,000 and $450,000 at my job going forward . I think I can save around $175,000 per year for the next seven years. I would like to retire or at least have the option to retire in about seven years.

My goal is to have $3 million between my 401(k) and funds outside it, plus another $250,000 in 529 plans.

I would like to Be able to pull around $120,000 from my investment annually once retired.

Do you think this is a viable plan? Thanks for any comments and suggestions.

Welcome aboard, underwrite. A few comments. If you're considering retiring in 7 years, it would be to your benefit to have a more detailed understanding of your expenses. This post may help http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

You might find taking SS at 62 to be a less than optimal option. Finding a way to push that date into the future could reduce the overall retirement financial risk. Finally, a $3M portfolio should support a $120K spending level, although some here might find it a bit stretched. What I don't see is how you get there with your current portfolio plus 7 years @ 175K without a fair amount of portfolio growth, which you don't feel exists right now. The math seems to lead to 10 years or so, using those numbers. No doubt, though, that you do have the ingredients here for an early retirement. Not an easy thing these days, so congrats.

 

[underwrite]

Thanks for the clarification on some of the posts. I was going to mention some points brought up in Dash man's reply, but thought it was getting away from what you were asking.

An additional item - be sure that you have sufficient life insurance. As a high-earner, should catastrophe strike, it would likely have a big impact on your family financially. To protect $400k annual salary, I'd normally say to get a policy for $2M-$4M. However, since you indicated that you have paid off your home and have no debts, $1M-$2M with a 20-year policy is probably sufficient. Don't overlook the need for it, or try to save the annual cost - it's not worth the risk.

I can appreciate your view on the stock market being overvalued and your logic for the P2P and alternative investments. However, just keep in mind that the folks you are lending to have chosen to get funding from you because it was an easier and less expensive route than going to a bank (in a period of loose monetary policy and all-time low interest rates), where they would likely face more intense scrutiny and have a higher probability of being denied. Also, when P2P loans go bad, understand that the platform you are investing through does not do much in the way of pursuing the borrower to get your funds back. At the end of the day, my belief is that the additional amount you (might) make on the P2P/crowdfunding on a risk adjusted basis will not be justified.

While the stock market is likely overvalued, there is still a massive chase for yield taking place. I believe those opting for P2P lending exemplify this.

Lastly, I've found that during my peak earning years, though it can be fun sitting down, playing with the numbers, and dreaming about the end game, it's much more important to focus on the near-term - just do what you can day after day to save and invest prudently. When you look to hit targets, invariably it leads to taking more risk in an attempt to juice returns to get (back) on track. Be sure you have sufficient emergency savings, insurance, etc. - having a great defense with a good offense is better than a great offense and a weak defense.

I have $1 million in life insurance. Probably slightly less than I should have. I’ll feel good when the 529 plans are better funded. I really like your comments about focusing on the near term. I feel obsessed currently with looking at the long-term targets.

 

[underwrite]

Welcome aboard, underwrite. A few comments. If you're considering retiring in 7 years, it would be to your benefit to have a more detailed understanding of your expenses. This post may help http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

You might find taking SS at 62 to be a less than optimal option. Finding a way to push that date into the future could reduce the overall retirement financial risk. Finally, a $3M portfolio should support a $120K spending level, although some here might find it a bit stretched. What I don't see is how you get there with your current portfolio plus 7 years @ 175K without a fair amount of portfolio growth, which you don't feel exists right now. The math seems to lead to 10 years or so, using those numbers. No doubt, though, that you do have the ingredients here for an early retirement. Not an easy thing these days, so congrats.

Thanks for that information. Yes, I think 10 years is more likely. Another option is go seven years and then get a lower key job for 3 to 5 years. I’ll check out the link you sent.

 

[DROPOUT]

I have nothing to add, but do have a question. I have some money in P2P lending, and PeerStreet has been on my radar for a bit. How's PeerStreet specifically working out for you?

 

[underwrite]

Peerstreet has been great. I like the fact that the loans have collateral and the buyer has to put 25% or more down. I have one loan out of around 25 that’s gone into foreclosure, but with the 25% cushion I highly doubt I’ll lose any principal and also expect to get my interest due. The rate on the loans average around 7%.

You do have to be an accredited investor to participate which I believe means you have to have a net worth of $1 million or more or earn $200 thousand dollars a year or more.

 

[Senator]

You have ~$1M in your accounts, much of it gains not savings. You make $425K, and have made a lot of money prior to that. You only need/spend $120K.

You better start saving. You have not saved much considering your salary.

 

[Lakewood90712]

I think you need A Financial Adviser / Broker . Maybe Ameriprise , Merrill Lynch, or Edward Jones. They will make life easier .

 

[underwrite]

You have ~$1M in your accounts, much of it gains not savings. You make $425K, and have made a lot of money prior to that. You only need/spend $120K.

You better start saving. You have not saved much considering your salary.

I decided to put most of my savings toward eliminating my mortgage. That was from around 2009 - 2013. I paid it off and now have a $450k house that is mortgage free. I’ve had a good salary the last 15 years, but it doubled in 2014 and will plateau now until I retire, get fired, or the company I work for gets bought out.

 

[underwrite]

I think you need A Financial Adviser / Broker . Maybe Ameriprise , Merrill Lynch, or Edward Jones. They will make life easier .

I need to do that. My plan is to use an advisor that charges by fee once my portfolio hits $1.5mm (arbitrary number). I don’t want to use a brokerage firm as I can’t stomach the aum charges.