Help a noob

[Hope]

I am new on this forum. I hope I can find people to advise me on how I can reach FIRE. Here is my situation:

I am 32 with
Cash: 35k
Real Estate: 240k
Emergency Fund: 45k
Student Loan: -25.8K
Mortgage Debt: -120k
Therefore NW = 174k

Monthly income = 6.6k
Monthly expenses = 3.6k
Monthly savings = 3k

When do you think I can reach FIRE? How much do I need to FIRE?

I am not sure how to invest my cash and future savings. Friends tell me to put 15k per year in 401k, it is my first year working in the US, so I am discovering that possibility. But I also want to have available cash in case I find a good real estate or business opportunities.

Thanks for commenting

 

[travelover]

Welcome. Have you used an online retirement calculator? I find the free one available at Fidelity to be convenient. A calculator should give you a ballpark idea of how much you need to save. Roughly speaking, you need 25 times the annual amount you intend to withdraw annually, before taxes. Naturally you'll need to project inflation to the date when you 'll retire.

As far as investments, make sure that you at least contribute enough to get any employer match in your 401(k). You can also contribute to a Roth IRA and withdraw any investment, penalty free at any time. Earnings need to be left until you are 59 1/2 unless you jump through some hoops.

A Target Retirement fund makes a decent choice if you do not want to get too deeply involved in asset allocation decisions. Since you are saving $36K a year, you'll need to also save in a taxable account. Avoid owning bonds or a managed stock fund in a taxable account. A total stock market index fund works well in a taxable account because it does not generate much capital gains and when you sell, the capital gains are taxed at a lower rate (at least now).

 

[chinaco]

Welcome Hope. There is no simple answer. You will need to educate yourself.

Asking the question is the first step!

I would advise you to better understand your expenses if you ERd. Your current expenses are not adequate. You will drop some expenses and gain some (Health insurance for one). That will help you understand how much money you need to support yourself (and perhaps family) for the remainder of your life.


If I were to take a wild guess. Assuming you are a working stiff and continue done that path. I would say you might be able to prepare yourself by the time you hit 55 if you diligently LBYM, Save and invest properly.

Start with 55 and do some projections.

 

[kombat]

Here's the formula I use.

Your monthly expenses, excluding retirement savings, are $3,600. Let's assume you want to retire at 55. That's 23 years from now, so assuming 3% inflation, you'll need $7,100/month to equal your current monthly expenses, or $85,200/year, after taxes. That works out to roughly $120,000 in pre-tax income. At a 4% SWR, you'd need $3,000,000 in investment assets to generate that much income.

So how to get there from here? You currently have $80,000 in investment assets (the cash and your emergency fund), and you're investing $3,000/month. Assuming you earn an average return of 7%, then by my projections, that will grow to $2.4 million. You'll fall a little short, but I wouldn't worry about it. There are several factors that can change this dramatically:

1. I included your mortgage in your monthly expenses. Most likely, it will be paid off by the time you retire, thus your monthly expenses will actually be less than $7,100.
2. I didn't account for any other sources of income at all. While it's true you can't start collecting Social Security at 55, it will eventually kick in later on, taking some of the pressure off your portfolio.
3. I used a pessimistic rate of return. I like to use 7% in my calculations to allow for some wiggle room, but it's possible the market could in fact outperform this estimate, as it has historically.
4. If you wait 3 more years (to age 58 ), or increase your monthly contributions by 3% per year, you'll get your $3 million.
5. I didn't account for any windfalls. I didn't know if you stood to inherit any additional assets or not.
6. Inflation could grow at less than 3%. This lessens the amount you'd need in order to retire, but it could also spell a drag on your portfolio performance.

Hope this helps.

 

[Hope]

Thank you for all your helpful answers.

My monthly expenses would drop to $1200 per month as I would live rent free outside of the USA. Therefore, according to kombat’s logic I need $1,000,000 to FIRE. Assuming a 7% rate of return on my portfolio and 50K of savings per year (include my 14K year end bonus), I should FIRE at 45 with $1,000,000.

However, I would prefer to invest in Cash Flow generating assets. If I can use the $80K to create a business that would bring me a monthly net cash flow of $1200, I could FIRE immediately. Even if I fail, I could try again and again with my 50K saving per year.

Am I being realistic or am I dreaming?