Started late, started slow, but now starting to get FIRE religion

[Ready2Save]

Hi All! Recently found this forum and wanted to introduce myself. I am 47 and my wife is 50 and we live in the Southeast and both work in corporate accounting type roles. We have 1 little one in elementary school and an awesome mutt rescue dog [FONT=&quot][/FONT]. As the thread title suggests, we got a late start on our careers and spent foolishly during our 20’s and took the better part of our 30’s cleaning that mess up (student loans, credit cards…etc.). We are by no means super savers like so many on these boards, but I would say that we are purposeful and diligent and striking a balance between saving for retirement yet enjoying life too along the way with a few modest vacations a year and eating out probably more than we should…lol.



Here are our numbers (combined accounts) –
$790K – 401Ks and IRAs - We max out contributions each year (including wife’s catch-up) and IRAs all consolidated @ Vanguard.
$32K – Variable annuity with Vanguard – Have been putting $600/mth into annuity vs. taxable investments to save me from myself where it is harder/more expensive to get your hands on it.
$65K – Cash – most of this is in an online acct
$7K/year – Wife will have a small pension (no COLA)
$315K – Home Loan (house is worth $520K) – 30 year @ 3.75%


We recently paid off our 2nd car and down to one loan (the mortgage). Our incomes have recently increased in the last few years and we have some extra money to invest and have been plowing money into 3 things (extra mortgage payments, variable annuity & kids 529 plan). I think I am about 4 years away from having that 529 to a happy spot and once that is fully funded, will divert that monthly nut over to the mortgage.


Goals – we are just starting to wrap our heads around this. We have about 10+ years to go before the kiddo is off to college and I think at that time, my wife would like to downshift into something part-time and at this point, she hasn’t pegged exactly what that might be…doing tax returns, working at Starbucks…ha-ha.. I would like to downshift as well once I hit 60 in 13 years and do something part time to keep the ‘ol brain sharp. Our stretch goal is to have the mortgage paid off by the time kiddo graduates high school and I have run the numbers to see how much extra I need to pay each month and we are currently doing that. I am certain we will downsize some when we are empty nesters and while I haven’t dialed this in exactly, I know we can live very comfortably on $8K/mth after tax if there is no mortgage.
Thanks for taking the time to read and look forward to contributing to this wonderful forum.

 

[Dtail]

Sounds like a plan. Have you run your numbers through Firecalc including potential Social Security?

 

[OldShooter]

Thoughts:

$790K in tax sheltered is a nice number but how is it invested? Probably the conventional wisdom around here would want to see at least 60% equities in total market index funds, with 30%+ international stocks.

A variable annuity might be a costly disciplinarian. Is this really necessary? I don't know as I am not an annuity guy. At least with VG you are probably not getting ripped off on fees.

$65K in cash is a lot of money that is not working for you. Again, a total market index fund should be a good long-term bet and it will throw off minimal taxable income because it does not trade much.

Home; well we've all got to live somewhere. I doubt that very many here consider their homes to be sources of income in retirement or include home equity in an AA calculation.

 

[ER Eddie]

Amen, brother. FIRE without the brimstone. The church of the risen wage slave.

 

[Ready2Save]

Sounds like a plan. Have you run your numbers through Firecalc including potential Social Security?

Hi - I am kicking the tires for the first time with the tool and learning how the different inputs and assumptions work. One quick question - where do most people get a warm fuzzy feeling on the success rate...> 80%, 85%, 90%...etc.? I suppose that is a fairly individual thing, but just curious if there was some collective wisdom from the regular posters on this. Thanks again.

 

[Ready2Save]

Thoughts:

$790K in tax sheltered is a nice number but how is it invested? Probably the conventional wisdom around here would want to see at least 60% equities in total market index funds, with 30%+ international stocks.


I am spot on with this...around 65% equities and about 1/3 in international. Equities also have exposure to mid and small cap, growth and value.


A variable annuity might be a costly disciplinarian. Is this really necessary? I don't know as I am not an annuity guy. At least with VG you are probably not getting ripped off on fees.


You know, this does expose a weakness in that all of our retirement eggs in tax-deferred...hmmm, something to think about.

 

[OldShooter]

Hi - I am kicking the tires for the first time with the tool and learning how the different inputs and assumptions work. One quick question - where do most people get a warm fuzzy feeling on the success rate...> 80%, 85%, 90%...etc.? I suppose that is a fairly individual thing, but just curious if there was some collective wisdom from the regular posters on this. Thanks again.

I am almost certainly an outlier on this, but I would say that anything from 80-100% is essentially the same number. Ditto 0-20%, etc. and it may be charitable to think any model has the ability to predict into as many as five buckets.

It's very nice to get two digit numbers but (a) it is a simulation and (b) it can only be based on history. It cannot predict the future. I guarantee you that there is no such thing as 100% probability of anything financial, regardless what the model thinks.

Google "Taleb's Turkey" if you want to underline my point. For example: Turkey Problem - Nassim Taleb When considering the future, Taleb's "Fooled By Randomness" is a worthwhile read.

 

[Another Reader]

What is the reasoning behind the variable annuity? Those are generally fee-laden products sold by insurance companies to line their pockets, not yours. I'm surprised Vanguard sells those. Who sold this to you - was it someone at Vanguard? Please read the disclosures carefully. You may find a lot of fees and that you don't capture all the upside of the market in the good years.

What about a low-turnover taxable investment account? Yes, you will pay some tax on dividends and the occasional capital gain, but at lower rates. You could annuitize later, if you really wanted to.

Most people here are conservative when they rely largely on their portfolio. High 90's seem typical comfort levels.

 

[Dtail]

Hi - I am kicking the tires for the first time with the tool and learning how the different inputs and assumptions work. One quick question - where do most people get a warm fuzzy feeling on the success rate...> 80%, 85%, 90%...etc.? I suppose that is a fairly individual thing, but just curious if there was some collective wisdom from the regular posters on this. Thanks again.

I see Oldshooters' response on 80-100% being around the same.
I believe that the majority of posters would shoot for 90% and above with Firecalc.
Yes, nothing is guaranteed from a historical basis, but probably good to have some reference of past successes, since these tools are available to us and can help frame a budget.

 

[Ready2Save]

What is the reasoning behind the variable annuity? Those are generally fee-laden products sold by insurance companies to line their pockets, not yours. I'm surprised Vanguard sells those. Who sold this to you - was it someone at Vanguard? Please read the disclosures carefully. You may find a lot of fees and that you don't capture all the upside of the market in the good years.

What about a low-turnover taxable investment account? Yes, you will pay some tax on dividends and the occasional capital gain, but at lower rates. You could annuitize later, if you really wanted to.

Most people here are conservative when they rely largely on their portfolio. High 90's seem typical comfort levels.

I little background on how the variable annuity came to be. My company has a lot of hourly and seasonal type workers and it doesn't take much to get tagged as a highly compensated employee and I cannot defer the normal limit. For many years, the delta between the normal limit and what my company would allow was around $5K/year. So, I wanted to invest "what I could have done" had my plan allowed it and wanted to really treat it as a "hand's off" type of account. So, I didn't want this in a regular brokerage account that would be easy to access and once it got up to a certain amount, we would go, "gee, wouldn't be nice to remodel the kitchen?"...ha.ha. Anyway, that's the story. The annuity wrapper fee isn't that horrible, but totally get the point you are making and I do think I have a blind spot building down the road with all my eggs in the tax deferred bucket. Thanks again for your input!

 

[walkinwood]

You've got the right attitude, in my opinion. Enjoy life while you save. It is easily done, but you'll be living by a different set of standards from most who you encounter daily. Step of the consumption/media treadmill and you may find yourself enjoying life more than you are today - and feeling more fulfilled.


First recommendation - start tracking & categorizing every $ you spend. Don't go overboard with the number of categories, but examine your spending each month/quarter and see where your spending is not giving you the satisfaction you seek.


Educate yourself on low cost, passive investments and stay away from expensive investment vehicles. They make money for the firms and salespeople - not for you. It isn't rocket science - in fact, it is easy once you get started.


Good luck.

 

[Mdlerth]

I keep learning new things here

I am almost certainly an outlier on this, but I would say that anything from 80-100% is essentially the same number. Ditto 0-20%, etc. and it may be charitable to think any model has the ability to predict into as many as five buckets.

It's very nice to get two digit numbers but (a) it is a simulation and (b) it can only be based on history. It cannot predict the future. I guarantee you that there is no such thing as 100% probability of anything financial, regardless what the model thinks.

Perhaps you're not as much of an outlier as you think. I found this poll http://www.early-retirement.org/forums/f28/whats-your-firecalc-success-rate-28679.html (there are some good links in here!) which supports your view. Fewer than half the respondents reported at 100% FIREcalc success. It's from 10 years ago, but some of those posters still hang here from time to time.

I admit to astonishment at this result. My general impression was that this board is overwhelmingly comprised of belt-plus-suspenders folks. I must read too narrow a range of threads, where only the most financially conservative posters dominate.

 

[OldShooter]

Perhaps you're not as much of an outlier as you think. I found this poll http://www.early-retirement.org/forums/f28/whats-your-firecalc-success-rate-28679.html (there are some good links in here!) which supports your view. Fewer than half the respondents reported at 100% FIREcalc success. It's from 10 years ago, but some of those posters still hang here from time to time.

I admit to astonishment at this result. My general impression was that this board is overwhelmingly comprised of belt-plus-suspenders folks. I must read too narrow a range of threads, where only the most financially conservative posters dominate.

Well, my point is a little different than commenting on how conservative the panel here is.

I think that the numbers reported by Firecalc (or any Monte Carlo prediction of this sort) are misleadingly precise. Really, IMO all this type of thing can give is a qualitative judgment. I think that, at best, what it really can give is something like a Magic 8 ball:

Based on History: Looks pretty bad.
Based on History: Not Optimistic.
Based on History: Maybe OK. Maybe not.
Based on History: Yes, probably.
Based on History: Looks pretty good.

Or maybe just three answers. I have no math to justify five and it would take getting data from thousands of dead Firecalc users to get a statistical estimate.

Providing two digit prediction numbers is IMO to pretend a precision that realistically cannot be justified. That was my point to the OP. 80 is probably the same as 90 is probably the same as 100. "Looks pretty good."

 

[Ready2Save]

You've got the right attitude, in my opinion.

Educate yourself on low cost, passive investments and stay away from expensive investment vehicles. They make money for the firms and salespeople - not for you. It isn't rocket science - in fact, it is easy once you get started.


Good luck.

Thanks - I am a big fan of Vanguard and big believer in keeping costs low and diversifying broadly. Definitely have a portion in index, but favorite fund is Wellington...no matter how compelling the argument is against active, I just can't part from my "ol' buddy Wellington"

 

[OldShooter]

... I just can't part from my "ol' buddy Wellington"

Not necessarily a bad thing, but you might enjoy reading about Thaler's "endowment effect." https://en.wikipedia.org/wiki/Endowment_effect

 

[pb4uski]

Quicken has a great retirement planner in the software called Quicken Lifetime Planner... it is very easy to use and very easy to use and very intuitive. Also, it has a What-If capability where you can see the impact of different assumptions or strategies. I suggest that you use that for your plan and then use Quicken to monitor your progress.... as a corporate accounting type (same here) it will be easy peasy for you.

I'm not a huge fan of 529s as you never know what will happen and having a lot of money in a 529 may restrict your flexibility. For example, despite bith DW and I having masters degrees, DS decided against college.... if I had a big slug of money in a 529 it would not have been good. When DD was in college I was in my peak earning years and just paid her college costs from cash flow (in some years my bonus more than covered it).

While if you really need a VA Vanguard is probably best, it seems to me an expensive way to self control. I would invest in taxable accounts in international and domestic equities (preferenced tax rates and foreign tax credit) instead. You can set up a taxable account in a way that makes it hard to access (no or limited linked cash accounts, hide your log in info, or whatever).

Similiarly, I would not be in a hurry to pay off a 3.75% mortgage (mine is 3.375% and no way there are any early payments being made on that).

I worked part-time for many years before retiring... it was a great way to stay in the game but still have a lot of time for fun and personal stuff.

 

[Hermit]

I have retired and all my savings are in tax deferred. It really sucks. I have a pension and SS that puts me in the 22% tax bracket. If I take more than a somewhat small amount out of my deferred savings I will be bumped up into a higher tax bracket and will also be required to pay Midicare "premiums" which can quickly run into thousands of dollars a year on top of the higher tax rates. I would suggest you either use Roth or taxable accounts for some of your retirement dollars. You need to do some homework and probably some spread sheets to figure out how to allocate to these different types of accounts. Some searching on the forum will help.

 

[Oz investor]

Hi All! Recently found this forum and wanted to introduce myself. I am 47 and my wife is 50 and we live in the Southeast and both work in corporate accounting type roles. We have 1 little one in elementary school and an awesome mutt rescue dog [FONT=&quot][/FONT]. As the thread title suggests, we got a late start on our careers and spent foolishly during our 20’s and took the better part of our 30’s cleaning that mess up (student loans, credit cards…etc.). We are by no means super savers like so many on these boards, but I would say that we are purposeful and diligent and striking a balance between saving for retirement yet enjoying life too along the way with a few modest vacations a year and eating out probably more than we should…lol.



Here are our numbers (combined accounts) –
$790K – 401Ks and IRAs - We max out contributions each year (including wife’s catch-up) and IRAs all consolidated @ Vanguard.
$32K – Variable annuity with Vanguard – Have been putting $600/mth into annuity vs. taxable investments to save me from myself where it is harder/more expensive to get your hands on it.
$65K – Cash – most of this is in an online acct
$7K/year – Wife will have a small pension (no COLA)
$315K – Home Loan (house is worth $520K) – 30 year @ 3.75%


We recently paid off our 2nd car and down to one loan (the mortgage). Our incomes have recently increased in the last few years and we have some extra money to invest and have been plowing money into 3 things (extra mortgage payments, variable annuity & kids 529 plan). I think I am about 4 years away from having that 529 to a happy spot and once that is fully funded, will divert that monthly nut over to the mortgage.


Goals – we are just starting to wrap our heads around this. We have about 10+ years to go before the kiddo is off to college and I think at that time, my wife would like to downshift into something part-time and at this point, she hasn’t pegged exactly what that might be…doing tax returns, working at Starbucks…ha-ha.. I would like to downshift as well once I hit 60 in 13 years and do something part time to keep the ‘ol brain sharp. Our stretch goal is to have the mortgage paid off by the time kiddo graduates high school and I have run the numbers to see how much extra I need to pay each month and we are currently doing that. I am certain we will downsize some when we are empty nesters and while I haven’t dialed this in exactly, I know we can live very comfortably on $8K/mth after tax if there is no mortgage.
Thanks for taking the time to read and look forward to contributing to this wonderful forum.

first off ,
10 years is a long time ( if trying to predict your future ) but it is also a short time to get your retirement plan in order ( and robust )

tweaking your portfolio in the later stages will keep your brain very sharp if your plan to fully retire early ( and comfortably )

downsize or rent rooms/house share ??

unless your house has some unattractive features ( too far from all the places you need to go regularly ) is it a better asset to keep for a while .

ill health might make shifting ( again ) mandatory .

where i am , it made financial sense to install a solar array and sell the credits to the power company ( the company offered an interest free loan at the time which the credits paid out rather quickly )

would something like that work for you

cheers

 

[DrRoy]

It is hard to say exactly how you are doing since you did not give any info on the spending side. I would still say though that you are well above average on your progress. You need to be sure that you account for health care, taxes, and some figure for unexpected expenses.

 

[Dtail]

Perhaps you're not as much of an outlier as you think. I found this poll http://www.early-retirement.org/forums/f28/whats-your-firecalc-success-rate-28679.html (there are some good links in here!) which supports your view. Fewer than half the respondents reported at 100% FIREcalc success. It's from 10 years ago, but some of those posters still hang here from time to time.

I admit to astonishment at this result. My general impression was that this board is overwhelmingly comprised of belt-plus-suspenders folks. I must read too narrow a range of threads, where only the most financially conservative posters dominate.

Unless I am reading it wrong, the poll does show 90% of the respondents chose 90% success rate or better. Thus a very high % of folks (who responded to the poll) did show a high success rate even if not 100%.

 

[SpartacusSchmartacus]

you are getting good financial advice here - especially on the forced savings thing, don't do that.
At the sage old age of 62 my advice is on yourself physically. Most of my friends are around my age of course (55-70). Only problem is they are physical bags of shite with medical problems as a result of that.
We can think of many friends that are a lot of fun but they can't travel or they could not keep up with us by any means. Too bad.
Stay in shape, exercise in any way you like. Walk, run, swim, hike, bike ... anything at all. Plenty of youtube fitness segments to find...

bottom line, be able to enjoy your retirement!

 

[HI Bill]

$790K – 401Ks and IRAs - We max out contributions each year (including wife’s catch-up) and IRAs all consolidated @ Vanguard.

I agree with others...contributing to a ROTH IRA would be a good tax hedge for the time when you're taking distributions.

 

[Ready2Save]

Just wanted to take a minute and say thank you for the warm welcome and sage advice - really appreciate it!


pb4uski (and others) - I will look into Quicken and agree there is a ton of value in tracking expenses. I think I am scared to know how much "leakage" I have with eating out...yikes!



Hermit - I hear you and I definitely need to work on my "tax diversification" while I still have some runway to do so.


HNL Bill - we are over the income limit to contribute to a Roth. However, both of our companies are "looking into" adding a Roth 401K option in the future.