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My situation
Old 05-08-2015, 10:09 PM   #1
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My situation

Hello everyone!

I've been reading this forum on and off and have recently decided to commit myself 100% to ER now that I'm out of school and working full time. Here is my current financial situation:

1. 401k: $8k (will max out to about $24k w/employer contribution in 2015)
2. Roth IRA: $11.5k (maxed out for 2014/2015)
3. HSA $6.7k (maxed out for 2014/2015, $4.7k invested)
4. Brokerage: $10k
5. Savings: $10k (will increase to $15k by the end of 2015)

I make $94k/year and am single. My only major expense is rent which is around $800 month. I plan to max out all my tax-advantaged accounts as long as I can and contribute around $15-20k/yr to my brokerage, which is currently in Vanguard split 70/30 between the total stock market and total int'l mutual funds. I don't plan to own a house anytime soon mostly to make moving out-of-state for work easier if necessary in the future.

The only real thing that gets me down is that I'm 28. I recently finished a PhD in a STEM field and started working half-time last July and full-time last December. I didn't make much as a graduate student, but could have at least contributed $1-2k/year to a Roth IRA starting in 2009 ( !!) had I been smarter. I'm hoping to see salary growth in the next few years, and can probably make an extra $10-15k/yr if I adjunct teach at a university at some point.

I would LOVE to retire by my early 40s, which seems borderline feasible. Does anyone have any suggestions based on this information? Should I just continue to pump as much money into my brokerage account as possible while keeping expenses low? Should I consider branching out into other income-generating fields like real-estate (buying and renting out homes?) Would owning a home be advantageous at some point?

My dream would be to retire and spend most of my time traveling and living in other (and cheaper) countries.

Thanks for all your help, I'm glad to finally be on board!
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Old 05-08-2015, 11:07 PM   #2
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Old 05-09-2015, 06:49 AM   #3
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any student loan debt?
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Old 05-09-2015, 07:00 AM   #4
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When you settle down in one place, it'd be a good thing to buy a house.

My close friend was a CEO at a medium size company, and he's a hard core stock trader in retirement. He was commenting that just about every truly wealthy person he knows has a common thread--being a landlord. He said why not let other people pay for your assets like rental property?

If you made it to a PhD without student debt, more power to you. If you still owe on your education, get rid of it now while you're single. Student loans are a cancer on society.
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Old 05-09-2015, 08:17 AM   #5
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any student loan debt?
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When you settle down in one place, it'd be a good thing to buy a house.

My close friend was a CEO at a medium size company, and he's a hard core stock trader in retirement. He was commenting that just about every truly wealthy person he knows has a common thread--being a landlord. He said why not let other people pay for your assets like rental property?

If you made it to a PhD without student debt, more power to you. If you still owe on your education, get rid of it now while you're single. Student loans are a cancer on society.
Thankfully I do not have any student loan debt and I just finished off paying a car loan.

Honestly if anything graduate school permanently cemented a frugal lifestyle into me, I just can't get myself to live more lavishly then I did when I was making $19k/year.

I've noticed the same thing about very well-off people - tons of them own rental properties and I definitely see why it can be quite lucrative and profitable. I will slowly start learning more about being a landlord, but this would be something for 5+ years out in the future at the very least.
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Old 05-09-2015, 10:08 AM   #6
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Coming from a family who made their way over at least four generations in the "real estate" business, I'd encourage you to carefully consider how you choose to engage it. Aside from REITs, residential landlording offers some of the lowest entry investment opportunities, but has its attendant headaches. Commercial landlording requires a higher buy-in, and has its own attendant headaches. If you're looking for a low-attention investment that lets you travel with abandon, these approaches are probably not it. The fellow I know who's come closest spends a huge sum on each house, buying solid construction and outfitting it with commercial-grade mechanicals, and he has a property manager he can trust. If you decide the residential landlord thing is do-able, you could ease into it by buying a house that you live in, with the objective of setting it up to rent while you buy another to live in. That's how my acquaintance got started...

Limited real-estate partnerships require less engagement, with an attendant lower return, and you have to pick your partners VERY carefully. Personally, I shudder at the thought.

I don't have specific data to substantiate, but it seems to me that the equity markets offer the best opportunities to invest-and-forget, while yielding the highest long-term returns.

On another note, from my direct experience, your personal ability to produce income is the most reliable and manageable asset in producing assets to support retirement. I too have a STEM doctorate, and its opportunities helped me drag my projected retirement posture from "three hots and a cot" to a comfortable lifestyle. Now, for a while after I finished the degree I had a hard time leveraging it into relevant opportunities, but I finally shaped my head around what intrinsic value both the degree and my experience brought to my employment situation in a company that constructively recognized both. So now, I work at a job I really enjoy, make a good salary, and continue to build both a 401k and a pension to the targets I've set for insuring a comfortable ER, a few more years to go.

Don't know your perspective, but folks don't normally complete doctoral work unless they really like their chosen field. You can capitalize on THAT in this world where folks are going to school "for the paper", without really considering that they might have to show prowess in the field. I used to teach graduate software engineering, and I recall a classroom dialogue where I asserted, "When you graduate from this, you're going to compete for jobs against folk like me who Do This At Home For Fun..." Capitalize on that, get a higher salary, so the % match to your 401k contribution is bigger...

And, I'll add my resounding support to acquiring the savings and expense discipline that are the bedrock of perspective here at the forum. Without that, investment strategies by themselves won't get you there...
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Old 05-09-2015, 10:27 AM   #7
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Keep fully funding your HSA no matter what, and try to pay out of pocket with health expenses (keep receipts and claim the money 40 years from now) along with long term investing of the HSA. My Lord you could have a pile of cash sitting in that HSA when you are 65. Your balances alone probably will cause the government to change the laws and confiscate it from you!


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Old 05-09-2015, 11:01 AM   #8
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The OP's situation is startlingly close to my own 27 years ago. Fresh STEM PhD, roughly the same salary (accounting for inflation) and already knowing I wanted to retire young.

What worked best for me was maintaining the grad student mindset and spending level, and as a result saving around 1/3rd of my gross salary every year. Certainly take full advantage of all the tax deferral strategies mentioned, but the big key is high savings and low spending - easy if you never stop living like a graduate student.

I did buy a house 3 years after starting work and in retrospect it's been something of a mixed bag: certainly a good deal now 20+ years on with both growth in the home's value and much lower monthly cost than equivalent rental, but very much a drag on mobility for several years. I ended up switching jobs about 10 years in and the house really constrained my options at the time. It all worked out, but I can't say whether I'd advise my younger self (or the OP) that buying the house was a great idea.

Just remember you're starting with a huge leg up on almost everyone. Live cheap, save hard and you WILL be able to retire young(ish).
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Old 05-09-2015, 11:21 AM   #9
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Keep fully funding your HSA no matter what, and try to pay out of pocket with health expenses (keep receipts and claim the money 40 years from now) along with long term investing of the HSA. My Lord you could have a pile of cash sitting in that HSA when you are 65. Your balances alone probably will cause the government to change the laws and confiscate it from you!


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Thanks for the advice!! That's exactly my plan - max out the HSA and pay for all medical costs out of pocket. Unfortunately, the HSA requires that my annual deductible be "set aside" in a money market before I can invest. The thing is, part of my emergency fund is also set aside (equal to my one-year out-of-pocket limit) - that's what I use to pay medical bills. Everything else is invested according to my overall AA (54% US / 36% Int'l / 10% Bond.)

I'd like to run an HSA scenario by you guys:

From reading these forums and learning about ER, it seems that health care is one of the bigger hassles when it comes to ER. I'd like to retire by 45, which gives me (hopefully) 17 years of contributions. A quick calculation using a 7% rate of return would make the HSA worth about $100k at age 45. If I get a high deductible plan (assume $4k deductible) at age 45, would I be pretty much set with all healthcare costs (except premiums) until hitting medicare? In this scenario I'd only be taking at most 4% out of the HSA per year. Anything I don't take out would keep growing until I hit the age 65.
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Old 05-09-2015, 11:33 AM   #10
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Unfortunately, the HSA requires that my annual deductible be "set aside" in a money market before I can invest. The thing is, part of my emergency fund is also set aside (equal to my one-year out-of-pocket limit) - that's what I use to pay medical bills. Everything else is invested according to my overall AA (54% US / 36% Int'l / 10% Bond.)
Don't forget that you can open up an HSA with any bank/financial institution that offers it. it does NOT have to be connected through your employer and/or health insurance company! Just like you can open up a Traditional/ROTH IRA with any institution that offers it.

The only benefit to using the one with your employer is ***IF**** they offer pre-tax deferrals, in which case you should be avoiding the 7.65% SS/Medicare tax on your contributions. Also, some employers match and/or contribute to your HSA as well, but it's through the account they have set up with whomever the provider is.

My HSA is with HSABank, where you can open up a linked TD Ameritrade investment account. HSABank has 'average' fees, but the almost unlimited investment options that the TD Ameritrade account offers more than offsets the average fees, given a higher account balance.


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Originally Posted by sergio View Post
I'd like to run an HSA scenario by you guys:

From reading these forums and learning about ER, it seems that health care is one of the bigger hassles when it comes to ER. I'd like to retire by 45, which gives me (hopefully) 17 years of contributions. A quick calculation using a 7% rate of return would make the HSA worth about $100k at age 45. If I get a high deductible plan (assume $4k deductible) at age 45, would I be pretty much set with all healthcare costs (except premiums) until hitting medicare? In this scenario I'd only be taking at most 4% out of the HSA per year. Anything I don't take out would keep growing until I hit the age 65.
That's pretty much my plan - I have been maxing out my HSA since they were first created, and it's also had my best investment performance by far out of all of my accounts (current balance about $58k). And yes, you could assume your HSA could pay for your out-of-pocket costs from age 45 to Medicare.

However, if you do want to spend a lot of time traveling, it would be very different for your possible healthcare costs, OOP, coverage, etc. So keep in mind that a policy to cover lots of travel could be priced very differently, and have different constraints. Also, I don't know the IRS's position on healthcare costs incurred in foreign countries - does anyone know if they are specifically allowed/disallowed for HSA reimbursement? (as long as they match the domestic rules on what is allowed/disallowed)

But, overall, your concept is correct that you could grow the HSA to the point of funding all healthcare costs up to a deductible with a 4% withdrawal rate or so f your balance grew that much.
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Old 05-09-2015, 11:36 AM   #11
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The OP's situation is startlingly close to my own 27 years ago. Fresh STEM PhD, roughly the same salary (accounting for inflation) and already knowing I wanted to retire young.

What worked best for me was maintaining the grad student mindset and spending level, and as a result saving around 1/3rd of my gross salary every year. Certainly take full advantage of all the tax deferral strategies mentioned, but the big key is high savings and low spending - easy if you never stop living like a graduate student.

I did buy a house 3 years after starting work and in retrospect it's been something of a mixed bag: certainly a good deal now 20+ years on with both growth in the home's value and much lower monthly cost than equivalent rental, but very much a drag on mobility for several years. I ended up switching jobs about 10 years in and the house really constrained my options at the time. It all worked out, but I can't say whether I'd advise my younger self (or the OP) that buying the house was a great idea.

Just remember you're starting with a huge leg up on almost everyone. Live cheap, save hard and you WILL be able to retire young(ish).
Thanks for the advice! My goal is to save 40-50% of my gross salary for at least a few years. The reason why I'm unsure about the home is that even though I'm in a low/medium COL area that I really like (and I'm close to family), I regularly get contacted by recruiters and friends at other companies (particularly in Silicon Valley) encouraging me to apply. While it's not something I really intend to do at this point, I don't want to complicate things this early in my career by purchasing a home if I somehow get an amazing job offer that requires me to move.
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Old 05-09-2015, 11:48 AM   #12
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If I understand you correctly, about $4000 of your HSA has to be in the money market. All the rest can be invested, correct? Most HSAs I am aware of have to have a minimum such as a $1000 anyways, so the loss isn't huge. But if you are not tethered to that HSA, you should consider doing what MooreBonds said to increase investing amount.
Remember even when you are retired you can still contribute to an HSA and claim the tax deduction provided you are paying any income taxes then. I am in retirement and it really is the only tax deduction I have now, outside of my mortgage deduction.


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Old 05-09-2015, 11:50 AM   #13
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Don't forget that you can open up an HSA with any bank/financial institution that offers it. it does NOT have to be connected through your employer and/or health insurance company! Just like you can open up a Traditional/ROTH IRA with any institution that offers it.

The only benefit to using the one with your employer is ***IF**** they offer pre-tax deferrals, in which case you should be avoiding the 7.65% SS/Medicare tax on your contributions. Also, some employers match and/or contribute to your HSA as well, but it's through the account they have set up with whomever the provider is.

My HSA is with HSABank, where you can open up a linked TD Ameritrade investment account. HSABank has 'average' fees, but the almost unlimited investment options that the TD Ameritrade account offers more than offsets the average fees, given a higher account balance.
Wow, never knew that about HSAs! My employer doesn't match HSA contributions, but does pay all account fees, and the contributions are pretax via payroll which gets around the SS/medicare taxes. The investment choices are so-so, I think my weighted average expense ratio is around 0.68. I'll have to look and see if it's possibly worth switching HSA providers at some point.
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Old 05-09-2015, 11:52 AM   #14
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If I understand you correctly, about $4000 of your HSA has to be in the money market. All the rest can be invested, correct? Most HSAs I am aware of have to have a minimum such as a $1000 anyways, so the loss isn't huge. But if you are not tethered to that HSA, you should consider doing what MooreBonds said to increase investing amount.
Remember even when you are retired you can still contribute to an HSA and claim the tax deduction provided you are paying any income taxes then. I am in retirement and it really is the only tax deduction I have now, outside of my mortgage deduction.


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Sorry I may have been unclear, $2k (my current deductible) needs to be in the money market. I have around $4.7k invested.
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Old 05-09-2015, 12:03 PM   #15
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That amount is pretty standard Sergio. The fact you save on SS tax is a very nice benefit. Most HSAs are not known for outstanding and low cost investment options without tag on fees. But if someone suggests a real nice one you always can transfer your money from one HSA to another each year. But I doubt it would be beneficial to scrape your HSA altogether and lose the SS/Medicare tax break.


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Old 05-09-2015, 12:05 PM   #16
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Wow, never knew that about HSAs! My employer doesn't match HSA contributions, but does pay all account fees, and the contributions are pretax via payroll which gets around the SS/medicare taxes. The investment choices are so-so, I think my weighted average expense ratio is around 0.68. I'll have to look and see if it's possibly worth switching HSA providers at some point.
You are able to transfer funds out of your employer's HSA to another HSA. Especially if they are paying all of the fees, it would make sense to do this, since the employer HSA isn't costing you anything. And ER of 0.68? Would definitely be worth it to switch out as your balance grows.

Also, what happens if you have less than your deductible in your MM with your employer HSA? Do they fine you? Slap you on the wrist? I don't see how they can legally force you to keep that as a minimum, unless they simply fine you. in which case, would your employer pay for the low balance fines?

With HSA Bank, I start out each January with $75 cash balance in my HSA Bank account, and transfer the rest of my annual contribution (made in January) to my investment account. Then, each month, I get dinged like $5.75 in total fees in my bank account (including a low balance fee), and it slowly draws down my HSA Bank account balance. Meanwhile, the same $ in my investments in my investment account are generating far more in cash flow than I would be avoiding in fees if I left the $ in my money market account.
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Old 05-09-2015, 01:21 PM   #17
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You are able to transfer funds out of your employer's HSA to another HSA. Especially if they are paying all of the fees, it would make sense to do this, since the employer HSA isn't costing you anything. And ER of 0.68? Would definitely be worth it to switch out as your balance grows.

Also, what happens if you have less than your deductible in your MM with your employer HSA? Do they fine you? Slap you on the wrist? I don't see how they can legally force you to keep that as a minimum, unless they simply fine you. in which case, would your employer pay for the low balance fines?

With HSA Bank, I start out each January with $75 cash balance in my HSA Bank account, and transfer the rest of my annual contribution (made in January) to my investment account. Then, each month, I get dinged like $5.75 in total fees in my bank account (including a low balance fee), and it slowly draws down my HSA Bank account balance. Meanwhile, the same $ in my investments in my investment account are generating far more in cash flow than I would be avoiding in fees if I left the $ in my money market account.
Sorry, I may have been unclear . My company's HSA provider requires that you have $2k in the MM before being allowed to invest anything. So if for example you have $2k in the MM and $3k in investments, and you take $500 out of the MM to pay for a medical expense, $500 will automatically be transferred from the investments back to the MM so that the MM stays at a minimum of $2k. If you have less than $2k in the MM, there are no fines (as far as I know), but you won't be able to invest any of the money. I will take a serious look at HSABank, I really appreciate your input.
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Old 05-09-2015, 02:27 PM   #18
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My company's HSA provider requires that you have $2k in the MM before being allowed to invest anything. So if for example you have $2k in the MM and $3k in investments, and you take $500 out of the MM to pay for a medical expense, $500 will automatically be transferred from the investments back to the MM so that the MM stays at a minimum of $2k. If you have less than $2k in the MM, there are no fines (as far as I know), but you won't be able to invest any of the money.
Simple solution:
1. Sell all investments in your company's HSA investment account.
2. Transfer all funds to your company's HSA MM account.
3. Open up an HSA at another institution, and transfer all funds from your company's HSA to the other HSA.
4. Once a year (or whenever) transfer funds to the other HSA.

That way, there should be no $2,000 minimum!

Only hang-up might be a transfer out fee assessed by your company's HSA. Which your company may pay?
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Old 05-09-2015, 04:41 PM   #19
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Simple solution:
1. Sell all investments in your company's HSA investment account.
2. Transfer all funds to your company's HSA MM account.
3. Open up an HSA at another institution, and transfer all funds from your company's HSA to the other HSA.
4. Once a year (or whenever) transfer funds to the other HSA.

That way, there should be no $2,000 minimum!

Only hang-up might be a transfer out fee assessed by your company's HSA. Which your company may pay?
Thanks MooreBonds for all the helpful information. I'll call up the HSA guys on Monday and see what they say about transfers. I've seen a few people mention on message boards that their HSA providers did them for free, others mentioned a fee was taken directly out of the transfer, but it was fairly small ($20-30).
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