Best Advice to Those Starting LATE on the FIRE path??

[FinanceDude]

I couldn't find a topic like this on search, so I am wondering.

IMHO, this appears to be where most people are.........I know some of the folks on this very board were in these shoes.

What would be your best 3-5 points to give them?

Here are mine:

1)Construct and FOLLOW a budget
2)Maximize 401K and IRA contributions
3)Drive the same car(s) for 10 years

I guess this is on my mind due to the circumstance of a friend of mine. Makes over $150K a year, but has less than $80K for retirement, and he's 48.......... :P :P

[sheboyganite]

1) If you are married, stay married. Divorce can blindside your retirement plans.
2) Fund your retirement accounts (401(k), 457(b), IRAs, etc.) to the maximum allowed.
3) Understand the difference between what you *need* and what you *want.*
4) Keep your eyes on the prize.

Sheboyganite

[Sam]

Quote:

Originally Posted by FinanceDude I guess this is on my mind due to the circumstance of a friend of mine. Makes over $150K a year, but has less than $80K for retirement, and he's 48.......... :P :P

Did he specifically ask for your advice? Be careful, you might lose a friend.

[MasterBlaster]

I see these types all the time and have given up trying to convert them. Their values are just so different than mine. So while you are "advising" these people just understand that there is no way that they will do what you suggest.

People don't really want your advice. They want you to give them some sympathy for the lousy decisions that they have made.

Unfortunately they can vote, and take their "fair share" from you.

[dex]

Quote:

Originally Posted by FinanceDude I guess this is on my mind due to the circumstance of a friend of mine. Makes over $150K a year, but has less than $80K for retirement, and he's 48.......... :P :P

It would be helpful to know the reason for the lack of retirement funding - was it unforeseen problems - poor health, divorce, drugs, fraud

If your friend made good money throughout his life but just spent then doubt there is much you can do as there is most likely an emotional factor you can not influnce. If it is due to one of the unforeseen problems you have a better chance of helping.

[HelpMeRhonda]

Quote:

Originally Posted by MasterBlaster I see these types all the time and have given up trying to convert them. Their values are just so different than mine. So while you are "advising" these people just understand that there is no way that they will do what you suggest. People don't really want your advice. They want you to give them some sympathy for the lousy decisions that they have made. Unfortunately they can vote, and take their "fair share" from you.

Not sure I completely agree. This board is full of stories of people who at some point saw the light of LBYM.

[Sam]

Quote:

Originally Posted by MasterBlaster Unfortunately they can vote, and take their "fair share" from you.

Huh? Care to elaborate?

[MasterBlaster]

It's called extortion under penalty of law, And in this case it is completely legal.

[Martha]

I think that any advice that shows retirement is possible is good advice. I know too many people who think "why bother to save now, I'll never have enough to retire." Find some way to show that for some pain now there actually will be a reward in the future. Too much hopeless thinking out there. For people who haven't saved a lot, you can talk about John Clements' idea of spending 85% of your assets until age 85, plus collecting social security.

When I actually saw that I might be able to retire early, my spending needs and desires dropped.

Sam, MasterBlaster is talking about taxes.

[simple girl]

This is a very timely question. I've just been asked by a relative for any advice I can give his friend. His friend is 43 and has no savings for retirement.

My advice thus far has consisted of giving a reality check. Showing via calculators how much they need to put away per mo to save, say, $1 mil by age 65. Also the standard reminders that debt with high interest rate (ie. credit card) be paid off first, followed by developing an emergency savings fund (of which he has none).

According to an online calculator, he would save $412,628.68 by age 65 if he puts away $500/mo in a tax-deferred account. That is assuming a 9% return and that he can afford the $500/mo.

I then also continued the reality check to explain the 4% SWR, which would mean they would have ~ $16,500/year to live on (plus whatever SS would potentially be). I advised they may want to work part-time to supplement their income.

Anyways, I have a few other specific questions on this myself, but will start another thread for that.

Now, after reading Martha's advice, I wonder if my "reality check" may have been too pessimistic

[Martha]

I look at these as very individual questions. For example, I talked to someone who makes about $20,000 a year about how to progress to retirement so she can actually retire at 66. She is putting a small amount in a 401k, has a home which she will have paid off by the time she is about 50, then she will take part of the home payment and up her retirement contribution. Between low expenses, a paid off home, social security, and the possibility of a reverse mortgage, I think she can retire.

For the guy who is 43, you have to think a lot about what kind of expenses he is going to have. Also, does he have a good chance at raises over the next 20 years? That will up how much money he can put away. I think that if I hit social security full retirement age, and I had 400,000 saved, I would find a way to make it work. I would probably plan on spending 85% of it in the next 20 years. Even though it would violate the 4% rule.

[FinanceDude]

Quote:

Originally Posted by Sam Did he specifically ask for your advice? Be careful, you might lose a friend.

No........just using him as an example. I am pretty sure he's "too far gone" to do the LBYM thing.........based on the "toys" he has...............

[simple girl]

Quote:

Originally Posted by Martha For the guy who is 43, you have to think a lot about what kind of expenses he is going to have. Also, does he have a good chance at raises over the next 20 years? That will up how much money he can put away. I think that if I hit social security full retirement age, and I had 400,000 saved, I would find a way to make it work. I would probably plan on spending 85% of it in the next 20 years. Even though it would violate the 4% rule.

So, maybe increase the SWR to say 4.3 or 4.4%?

This guy has his own business. He has the opportunity to expand the business in the next year or two. He has children, but it doesn't appear college plans are in their future. The house is paid off.

Here's a big WOW factor for you...he has no health coverage for himself/family. Pays out of pocket. Financial disaster waiting to happen, in a big way. Of course I will be advising him that getting coverage should be the priority, but he's gotta already know that.

[SteveR]

Can one ER if they have nothing at age 40? Yes, it can be done. Been there and done that.

The keys for me were:

Get out of debt that is not deductable.

Stay out of debt.

Pay off all CC bills each month.

Invest in balanced low cost funds.

Take some chances on some individual stocks but not enough that it would prevent you from ERing if you lost it all.

Don't spend raises, bonus etc. or save 90% of them (after tax).

Live below your paycheck and ....

Pay your self first...savings accounts, MM accounts, retirement accounts.

Keep you eye on the target.

Don't save more than you can emotionally afford. If you work at a high stress job with long hours and very little personal satisfaction then a few toys here and there can help keep you in the saddle until you can FIRE.

If the heat gets too great then get out of the kitchen. You might delay FIRE, but you most likely actually live to see ER if you do.

[Sam]

Quote:

Originally Posted by MasterBlaster Unfortunately they can vote, and take their "fair share" from you.

Quote:

Originally Posted by Sam Huh? Care to elaborate?

Quote:

Originally Posted by MasterBlaster It's called extortion under penalty of law, And in this case it is completely legal.

Quote:

Originally Posted by Martha Sam, MasterBlaster is talking about taxes.

Thanks Martha.

Boy, am I thick! MasterBlaster, help me understand your logic.

So, somehow these non-LBYMers are capable of affecting us negatively as far as tax is concerned? It does not make sense to me. It should be the other way around: Because of us (LBYM), they have to pay more tax.

Edit: Correct typos, LYBM!

[FinanceDude]

Quote:

Originally Posted by dex It would be helpful to know the reason for the lack of retirement funding - was it unforeseen problems - poor health, divorce, drugs, fraud If your friend made good money throughout his life but just spent then doubt there is much you can do as there is most likely an emotional factor you can not influnce. If it is due to one of the unforeseen problems you have a better chance of helping.

Never "got around to it"........ :P For some reason, always finds a way to get "let go", even though he's got a lot of talent.

He seems to have gotten a little better, his wife is saving 25% of what she makes...........

[OAG]

[bosco]

Quote:

Originally Posted by Sam MasterBlaster, help me understand your logic. So, somehow these non-LBYMers are capable of affecting us negatively as far as tax is concerned? It does not make sense to me. It should be the other way around: Because of us (LBYM), they have to pay more tax.

I think his point is that if enough people reach retirement age without the means to retire, they'll use political pressure to enact things like

tax on net worth, instead of income
(un)fair tax (so much for your Roth IRAs)
means-testing SS benefits

and other things I haven't thought of.

I think his concerns are valid.

[W2R]

I love this topic! I wish I had known how to do this, but I didn't so I made up my own rules as I went along.

I started late too, at 51 after a rough divorce with nothing but debt remaining (though I also had a steady job). At 58 I am on course to reach ER after a total of ten years, and my method is outlined below. So, I know whereof I speak. I really have no advice for married people (good luck?), but I know how to do this as a single person. Here's my best advice for a single person looking for ER:

1. If you don't have one, get a steady job with a 401K plan. If this job pays less than $40K-$50K (in middle America - - more in expensive locations) you need a moonlighting job as well. Then we start on ER planning.

2. Pay the maximum to your 401K ($15.5K along with over-50 catchup of $5k if it applies to you).

3. After the 401K deductions are made, divide your newly reduced take-home pay into three equal piles. One is housing, one is other expenses, and one is for making progress towards ER.

"PILE#1": HOUSING - -
If you presently spend less than 1/3 of your take-home pay on housing (rent or mortgage), good! You can put the remainder from this pile into either of the other two piles. Your choice.

If you spend more than that on housing now, you have to find cheaper accomodations. If there are none cheaper, then you need to start adding roommates, get a job near cheaper housing and move, or moonlight if you aren't already doing so (so that this pile of money is bigger).

"PILE#2": OTHER EXPENSES - -
Don't forget that along with the usual short term expenses, you will have some large though infrequent expenses that need to be paid out of this, such as a new roof, a root canal, a blown TV, unexpected medical bills. So, try to live like a college student, on a shoestring, and put some aside for these long term expenses.
Don't expect a budget to fit your usual lifestyle. You need to make your lifestyle fit into an appropriate budget in order to keep your expenses down. You need to adopt this budget as the lifestyle you can afford, and you will carry it on into ER.
Healthy food is a priority. Without decent health, you can't earn money.
It's very important to minimize recurring expenses because they really add up.
All your bills (except mortgage/rent), minimum credit card payments, and other expenses come out of this pile. Don't pay bills late or bounce checks; the fees add up.
No further credit card buying or loans are allowed, unless they are paid off each month using this pile.

"PILE#3": MAKING PROGRESS TOWARDS ER - -
This is the fun part. Use this money to:
pay off credit cards (and tear up all but one)
pay off car and household loans early
down payment for a house & getting the house paid off before ER (unless you expect a substantial pension and/or substantial social security). Once the house is paid off, the housing pile is merged into this pile.
emergency fund of 3-6 months salary
(At this point, you owe nothing to anybody, you have no rent or mortgage, you have an emergency fund, and 2/3 of your salary to put towards ER! )
properly allocated investments in Vanguard mutual funds

Keep checking and tweaking your plans, and monitoring your progress. This CAN be done.

[Sam]

Quote:

Originally Posted by bosco I think his point is that if enough people reach retirement age without the means to retire, they'll use political pressure to enact things like tax on net worth, instead of income (un)fair tax (so much for your Roth IRAs) means-testing SS benefits and other things I haven't thought of. I think his concerns are valid.

Thanks Bosco. I agree that the concern is valid. However, there's another side of the story. During their LONG working life, the non-LBYMers, pay a substantial portion of their total income into the system, while the LBYMers find way to avoid taxes. By not spending, LBYMers effectively dodge tax. By spending, the non-LBYMers keep the economy humming. All things taken together, I believe the spenders are bad to themselves, but good for the nation.