30 YO wants to retire at 50...how am i doing?

[jt999]

Great Job

You're off to a great start. I would recommend doing an analysis to see if it is worth doing the pre-tax versus Roth contributions. While having a diversified portfolio can be beneficial, it may not be the most tax-efficient approach given the information you have provided as you will likely be in a lower tax bracket in retirement (of course, socialism is beckoning so who knows for sure). So, you have to weigh - is it worth paying more in taxes now versus being able to put those dollars away and allow to grow for decades in a pre-tax account?

I would not focus to much on it in the near-term but longer-term you will really want to think about planning for those bridge years (51-59 1/2).

I am going through this now as I have ~90% of my assets in pre-tax retirement. I am planning to retire in 4 years and want to build enough assets in a brokerage account to provide ~2K/month in dividends (still have a lot of work to do). To provide a floor, I have a very modest pension that I can draw from beginning at retirement age. I am also looking at potentially buying an annuity (but seems to be complex/confusing) to create another income stream.

Lastly, you should review the 72T provision, which allows you to draw from 401K's early w/o penalties but there are rules and I've read that it may depend on your employer/plan administrator (not sure if anybody can confirm this or not). It would be taxed as ordinary income. I plan to utilize this to provide ~50% of my income to achieve early retirement.

Lastly, I agree with others - $2M is a great target but I would probably target higher - of course, it all depends on your expenses.

 

[Eastfolk]

Thanks for the advice guys

Jt999 - great point about the pre- and post-tax allocation. Right now my total net worth is still weighted towards pretax dollars (approx 65%). My plan to get me through the bridge years (50-59.5) is to have a large enough Roth IRA principal balance for me to draw down on. I believe the only requirement there is to have it in the account for at least 5 years.

Also a part of my 401k contributions are also directed into a Roth 401k. I figure now would be a good time to contribute to a Roth given the temporary lower tax rates due to trump tax law.

 

[Eastfolk]

Meant to update this at the one year mark, but a few months late. Posting an update to my July 2018 stats.

* Age: Both myself and DW are 31 now
* Household income: 220k-ish which doesn't include about $15k annual cash bonus and $15k in equity, both of which can be variable (spouse and I were pretty lucky this year and both received generous bonuses. Total comp for the year was $290k)
* Total current net worth: 416k (146k increase) broken down as follows:
- 32k cash (18k decrease) of which about 15k is in MM fund at 2.0% and the 17k in a FCU at 1.5%
- 203k in 401k (63k increase)
- 95k in vanguard brokerage account (81k increase)
- 45k Roth IRA (19k increase)
- 0k in tIRA (10k decrease, converted tIRA to Roth through backdoor)
- 20k in HSA (9k increase)
- 21k between company’s ESPP and equity grants (2k increase, even though additional shares have vested since last year, my company's stock price took a huge hit and was cut in half)

* 15 year mortgage at 3.125%. 359k left (27k increase). House worth about 540k.
* Starting tracking every expense over the last year. Including mortgage, we are spending $100k annually

Didn't really have any expectations on how much I wanted our net worth to grow, but overall I'm pretty happy with a 146k increase in just 14 months considering the market only increased ~6% in that time. I am really starting to see the power of compounding come into play. I still have about $40k in my investment accounts that's sitting on the sidelines (Vanguard MM) that I will need to throw into the market. Slowly starting to bleed it into index funds, but honestly hoping for a recession so I can dump it all in.

 

[LarryMelman]

It's easy to crow about the growth in your net worth during a bull market. Actually, we've been in zig-zag mode for a while, I mean to say that there hasn't been a long sustained downturn that makes you doubt whether you did the right thing.

I was your age in the late 1990's, with about the same net worth which grew by 30+% a year for several years in a row. Then we had 18 months of zig-zag in 2000-2001, kinda like what we're seeing now. Followed by an 18 month downturn until early 2003 where my net worth fell by perhaps a third, and I lost my job for quite a while. What got me through that period? So that now at 55 I have $3M, a paid-off house, and ready to pull the plug on working? One, I stayed the course, I didn't sell anything. I lived off my emergency funds. Two, I knew my spending was way LBYM before my layoff, so there wasn't much more I could cut.

I'd be curious to know your spending excluding the mortgage. $100K seems high, not knowing anything else about you, not knowing where you live, not knowing how much of that is to your mortgage (where, BTW, I always accounted for the principal part of my payments, including any additional principal paid, as adding to my equity and therefore staying part of my net worth).

I'd suggest you simplify your tracking to just Taxable investments, equity in your home (value minus mortgage balance), and IRA/401K/Roth combined. Makes for a simpler picture.

I took a quick look at the prior comments. You are doing well but you can do better. If you plan to have kids, your spending will go up and your income will go down. You may need to get better control of your spending.

 

[Eastfolk]

It's easy to crow about the growth in your net worth during a bull market. Actually, we've been in zig-zag mode for a while, I mean to say that there hasn't been a long sustained downturn that makes you doubt whether you did the right thing.

I was your age in the late 1990's, with about the same net worth which grew by 30+% a year for several years in a row. Then we had 18 months of zig-zag in 2000-2001, kinda like what we're seeing now. Followed by an 18 month downturn until early 2003 where my net worth fell by perhaps a third, and I lost my job for quite a while. What got me through that period? So that now at 55 I have $3M, a paid-off house, and ready to pull the plug on working? One, I stayed the course, I didn't sell anything. I lived off my emergency funds. Two, I knew my spending was way LBYM before my layoff, so there wasn't much more I could cut.

I'd be curious to know your spending excluding the mortgage. $100K seems high, not knowing anything else about you, not knowing where you live, not knowing how much of that is to your mortgage (where, BTW, I always accounted for the principal part of my payments, including any additional principal paid, as adding to my equity and therefore staying part of my net worth).

I'd suggest you simplify your tracking to just Taxable investments, equity in your home (value minus mortgage balance), and IRA/401K/Roth combined. Makes for a simpler picture.

I took a quick look at the prior comments. You are doing well but you can do better. If you plan to have kids, your spending will go up and your income will go down. You may need to get better control of your spending.

Thanks for the reply Larry. You're right. I started working in 2011 so I've been fortunate to only have experienced an extended bull market. I keep telling myself that if and when a recession comes, that I'll hold steady and continue investing as I am now, but I guess I'll see when that actually happens.

My $100k of annual spend includes $48k a year for mortgage and property taxes. I'm paying exactly $4k/month of which about $2k is for principal, $1k for interest and $1k for taxes. 12.5 years left on the mortgage. I have about $180k of equity in my house but excluding that from my net worth as I don't plan on selling it. And even if we do, we would just end up paying the same for another one.

 

[SnowballCamper]

Hello everyone


* Household income: 210k - 230k, the 20k difference is because DW is working 6 days a week but will likely scale it down to 5 over the next few years when we have kids. This also doesn’t include variable comp (cash bonus and equity) which can vary significantly year over year but generally around 10k conservatively.
* Total current net worth: 270k broken down as follows:
- 50k cash of which about half is in CapitalOne360 MM fund at 1.5% and the other half in a FCU at 1%
- 140k in 401k
- 14k in vanguard brokerage account
- 26k Roth IRA
- 10k in tIRA
- 11k in HSA
- 19k between company’s ESPP and equity grants
* Bought a house last year. 15 year mortgage at 3.125%. 386k left. House worth about 540k.
* Never did a complete budget of our expenses but would estimate around 80k/year.



Not sure if I’m missing anything but wanted to see if anyone had any advice/comments. Appreciate all comments.

At first glance, you've got a big hole that is sucking money somewhere...

220k income minus 80k expenses equals 140k available to save.

140k * 20 years =2.8M

So if your expenses really are 80k, you're way ahead. But I don't see where you're saving anywhere near what you can.

I was very skeptical the first time I did a budget class, as my income was close to yours. The insight I got was not to regulate my spending, but to see where my money was going. It is a good exercise to do for insight to your own spending.

 

[HI Bill]

- 21k between company’s ESPP and equity grants (2k increase, even though additional shares have vested since last year, my company's stock price took a huge hit and was cut in half)

Good job, so far! As far as the ESPP, once the shares are qualified, can you roll them over to your 401(k)? Shares I purchased in my company's ESPP at a 12% discount went way up when the current president was president-elect. I sold them (even non-qualified shares) at a profit and haven't looked back. I also stopped contributing to my company's ESPP, as the shares were too volatile, Wells Fargo held a couple of months of contributions before making the buys, and due to the waiting period for qualification. A 12% discount, along with lack of diversification (Job and ESPP tied to the same company) made this a no-go for me, as I didn't want to watch the stock and try to time the sale point.

 

[Eastfolk]

At first glance, you've got a big hole that is sucking money somewhere...

220k income minus 80k expenses equals 140k available to save.

140k * 20 years =2.8M

So if your expenses really are 80k, you're way ahead. But I don't see where you're saving anywhere near what you can.

I was very skeptical the first time I did a budget class, as my income was close to yours. The insight I got was not to regulate my spending, but to see where my money was going. It is a good exercise to do for insight to your own spending.

Hi Snowball

Not sure if you saw my latest post, but I provided a few updates to my original post. I have been keeping track of my expenses for the last 14 months. My total annual expense is $100k which includes about $48k for mortgage and property taxes. $230k of gross income after taxes (23% effective rate) leaves me with $177k less $100k of expenses is about $77k saved annually.

 

[Eastfolk]

Good job, so far! As far as the ESPP, once the shares are qualified, can you roll them over to your 401(k)? Shares I purchased in my company's ESPP at a 12% discount went way up when the current president was president-elect. I sold them (even non-qualified shares) at a profit and haven't looked back. I also stopped contributing to my company's ESPP, as the shares were too volatile, Wells Fargo held a couple of months of contributions before making the buys, and due to the waiting period for qualification. A 12% discount, along with lack of diversification (Job and ESPP tied to the same company) made this a no-go for me, as I didn't want to watch the stock and try to time the sale point.

Unfortunately, I don't have the ability to roll my ESPP shares into my 401k. I stopped participating in it 2 years ago for the same reason you did (too volatile and I have enough exposure through equity grants). Even though I bought at a 15% discount, I'm still down big time. At this point I only have about 7 thousand in ESPP shares so I'll just let it ride out. It has bounced back a bit in the last 9 months or so.

 

[SnowballCamper]

Hi Snowball

Not sure if you saw my latest post, but I provided a few updates to my original post. I have been keeping track of my expenses for the last 14 months. My total annual expense is $100k which includes about $48k for mortgage and property taxes. $230k of gross income after taxes (23% effective rate) leaves me with $177k less $100k of expenses is about $77k saved annually.

Then you're still in really good shape. Yes, diversify the tax treatment of your investments. Check out https://www.firecalc.com and https://www.i-orp.com/ They are really good tools, but take some time to interpret (depending on your quantitive skills). I summarized my take on how to RE in this post http://www.early-retirement.org/forums/f30/what-to-do-in-order-to-retire-hopefully-early-99570.html and there are some good comments, especially with respect to Insurance and managing life's risks (which I didn't cover very well).

Volatility can be your friend (as long as you can handle the lows, and the volatility you're riding is sufficiently diversified). But if you can't handle the lows, then it's too much and you should use another security.

 

[Eastfolk]

My 2 year update. Changes are compared to July 2019 stats.

* Age: Both myself and DW are 32 now
* Household income: 260k which doesn't include about $20-30k annual cash bonus and $10-15k in equity, both of which can be variable
* Total current net worth: 563k (147k increase) broken down as follows:
- 10k cash (22k decrease)
- 274k in 401k (71k increase)
- 166k in vanguard brokerage account (71k increase)
- 62k Roth IRA (17k increase)
- 29k in HSA (9k increase)
- 22k between company’s ESPP and equity grants (1k increase, even though additional shares have vested since last year, my company's stock price continued to do poorly)

* 15 year mortgage at 3.125%. 336k left (23k increase). House worth about 560k.
* Starting tracking every expense over the last year. Including mortgage, we are spending $100k annually; quite a bit less this year though due to everything that's happening in the world (less travel, less eating out, etc.)

The overall NW increase was consistent with the increase from Year 1 - 2, which I guess is good considering the market is only up slightly during the same period. Was hoping for compounding to play a bigger factor though, but given the markets have recovered so quickly after Covid, i guess i really can't complain. I aggressively added to the Vanguard brokerage account this past year especially during the dip in March/April, which helped a bit. Still have about $30k of un-invested funds. Wish i would have been more aggressive.

 

[Eastfolk]

Posting a 1 year update from my last post. Coincidentally also hit my first major milestone of $1M in investable assets on this exact day. Although my excitement is a bit muted by what I feel is an overvalued market. Still anticipating a significant correction in the near-future but will enjoy the milestone for the time being. Finally starting to feel the magic of compounding interest. Hope the saying goes true that the first million is the hardest.

* Age: Me and DW are both 33
* Household income: 290k which includes a conservative estimate for our annual cash bonuses. Roughly $5-10k in annual equity not included in that amount
* Total current net worth: Just a hair above $1 million broken down as follows:
- 10k cash
- 461k in 401k
- 363k in vanguard brokerage account
- 100k Roth IRA
- 46k in HSA
- 24k in company shares

* $320k 15 year mortgage at 2.375%. If you believe the recent surge in prices, house worth about 650k although I have no plans to sell so not including in my net worth. Also refinanced earlier this year and lowered interest rate by almost an entire percent.
* Annual spend continues to be around $100k annually; was a lot less in 2020 for obvious reasons but expect that number to increase going forward as we introduced a third member to our family in the last year.

 

[Love This Community]

Congratulations!! You guys are well on your way.

 

[MichealKnight]

1st off congratulations on success and accumulation of assets - that's puts you far ahead of many of your peers. I'm 46 now, and also had pretty good fortune early on, I had my first million by 30. I won't talk about investments and 401Ks - as many wiser more experienced people here have done that. I just want to say one thing: Try not to be tempted by a bigger house.

I feel I did most things right. We had nice travels, comfort, some luxuries but saved quite a bit and never went even close to being over our means. Had a 2bed/2bath apartment in the suburbs for years. Then, before kids - got a lovely 4000 sf home for around $510k in 2003. I *loved* that if my business would only break-even - I could pay the mortgage and basic living expenses.

Time passed, had kids, monetized my 1st business and we moved so I could buy a new company. DARNIT - I had visions of big yards, pools, etc. So I paid $1.1mm cash for 660 sf, pool, 2 acres - in a great area and school district.

It's a flippin' money-pit. SOMETHING needs repair all the time. And no repair is cheap. There's 4 A/C units. Our heater-A/C-plumber guy comes and goes without knocking he's been here so much so we kinda feel like we know him. Sure, I forecasted expenses but the lawn/landscaping ALONE is $900 a month.

I so wish I'd stayed in my original strata of house, or even bought something around $800k. The headaches would be less, and the extra cash flow could have been saved, or even blown on more vacations or luxuries or whatever.

So, to a younger person who is on his/her way..........I'd just say, as you family grows, really think hard in case you feel like upgrading your house. I drive by 'regular' houses and just envy those people now . We've been here 7 years, family loves it, DS is special needs and the school is first-rate for that so I'm hoping to hang on for some more years. But - years from now when kid gets his diploma - I'm gonna hug him, and then race right home to list this house for sale

 

[Eastfolk]

1st off congratulations on success and accumulation of assets - that's puts you far ahead of many of your peers. I'm 46 now, and also had pretty good fortune early on, I had my first million by 30. I won't talk about investments and 401Ks - as many wiser more experienced people here have done that. I just want to say one thing: Try not to be tempted by a bigger house.

I feel I did most things right. We had nice travels, comfort, some luxuries but saved quite a bit and never went even close to being over our means. Had a 2bed/2bath apartment in the suburbs for years. Then, before kids - got a lovely 4000 sf home for around $510k in 2003. I *loved* that if my business would only break-even - I could pay the mortgage and basic living expenses.

Time passed, had kids, monetized my 1st business and we moved so I could buy a new company. DARNIT - I had visions of big yards, pools, etc. So I paid $1.1mm cash for 660 sf, pool, 2 acres - in a great area and school district.

It's a flippin' money-pit. SOMETHING needs repair all the time. And no repair is cheap. There's 4 A/C units. Our heater-A/C-plumber guy comes and goes without knocking he's been here so much so we kinda feel like we know him. Sure, I forecasted expenses but the lawn/landscaping ALONE is $900 a month.

I so wish I'd stayed in my original strata of house, or even bought something around $800k. The headaches would be less, and the extra cash flow could have been saved, or even blown on more vacations or luxuries or whatever.

So, to a younger person who is on his/her way..........I'd just say, as you family grows, really think hard in case you feel like upgrading your house. I drive by 'regular' houses and just envy those people now . We've been here 7 years, family loves it, DS is special needs and the school is first-rate for that so I'm hoping to hang on for some more years. But - years from now when kid gets his diploma - I'm gonna hug him, and then race right home to list this house for sale

Appreciate the sound advice. We paid just a tad over half million for our 3200 sf house a few years ago. Growing up in an apartment, I can't imagine ever upgrading to anything bigger/fancier than our current house. But at the same time, our DD was born a few months ago and our school district is below average so that's the only thing I can imagine would necessitate moving to a better district which likely means more expensive housing area. Although if we were to upgrade, we're likely not going to jump up to a million dollar stratosphere. $900/month on lawn care. YIKES!

 

[Life_by_Fire]

Posting a 1 year update from my last post. Coincidentally also hit my first major milestone of $1M in investable assets on this exact day. Although my excitement is a bit muted by what I feel is an overvalued market. Still anticipating a significant correction in the near-future but will enjoy the milestone for the time being.

First I want to say congrats on the huge milestone and your efforts. Also congrats on the baby! I'm just about the same age as you and have 2 kids under 3 years old. They are amazing and a handful but have made our lives so much better. Get ready for the expensive daycares and more!

Now, I quoted your post because I want to point out that since your OP, you have been saying you are hesitant to invest because you believe the market is overvalued. At the time of your original post, the S&P 500 was at ~2,705. Today the S&P500 is at ~4,380. By holding back you have lost all that growth.

Market timing rarely ever pays off. What does work is consistent investment. Studies have shown lump sum investing is the best, but if you prefer to Dollar Cost Average into the market, that is fine. The key is to get that money in the market. With an almost 20 year timeline until you retire, you have lots of time to recover from any recessions that may come. What you won't recover from is high inflation when you hold cash.

Just some things to think about. But again, congrats on all you have achieved! I'm rooting for you.

 

[Eastfolk]

@Life_by_Fire, I completely agree with the old adage that time in the market > timing the market as the last decade has proved. Fortunately, I went against my initial instincts and DCA throughout the last 3 years any excess cash not used to pay bills. In fact, you may even say that I've been a little extreme with plowing money into the market. Only $20k of the $1M of investable assets is not currently in the market. On $100k of annual expenses, that means my EF is only about 2.5 month expenses. That may be on the low side but DW and I have pretty stable jobs so I'm not too concerned. I guess I'm just so focused on maximizing my army of dollars earlier on.

While DW is planning to head back to work after maternity leave expires, we've discussed cutting back her hours or even having her leave the workforce entirely when/if we have a fourth member of the family. So I'm taking the opportunity now to get as much dollars into the market as possible.

 

[someguy]

Congrats on the new family member and joining the two comma club!

If your expenses are currently running $100K/year, wouldn't you need to be targeting $2.5 (4% WR) to $3mm (3% WR) in today's dollars? The house might be paid off, but presumably you have health insurance coverage through an employer now that you won't have until 65?

 

[Eastfolk]

Slightly behind schedule but here's my Year 4 update. Guess I wasn't in too much of a hurry to share this one given the bear market we're experiencing. Our household income increased significantly, however, our net worth didn't quite follow. We dipped below seven figures for a bit and bounced back and now am pretty much right where we were in my last update in July 2021.

* Age: Me and DW are both 34. Little one is just over 1!
* Household income: 350k due to some one-time bonuses that I don't expect to reoccur. Probably closer to $300k in a normal year.
* Total current net worth: Just a hair above $1 million broken down as follows:
- 5k cash
- 453k in 401k
- 406k in vanguard brokerage account
- 100k Roth IRA
- 45k in HSA
- 5k in company shares
- ~220k equity in my house which I'm not including in my NW.

It's honestly been a bit demoralizing to have not made any progress on my NW since last July but I just keep reminding myself to take a step back and see that market returns are still very healthy over my investing career. In the meantime, I've continued to accumulate shares aggressively in hopes this will supercharge my growth in the coming years.

 

[Youngblood]

Slightly behind schedule but here's my Year 4 update. Guess I wasn't in too much of a hurry to share this one given the bear market we're experiencing. Our household income increased significantly, however, our net worth didn't quite follow. We dipped below seven figures for a bit and bounced back and now am pretty much right where we were in my last update in July 2021.

* Age: Me and DW are both 34. Little one is just over 1!
* Household income: 350k due to some one-time bonuses that I don't expect to reoccur. Probably closer to $300k in a normal year.
* Total current net worth: Just a hair above $1 million broken down as follows:
- 5k cash
- 453k in 401k
- 406k in vanguard brokerage account
- 100k Roth IRA
- 45k in HSA
- 5k in company shares
- ~220k equity in my house which I'm not including in my NW.

It's honestly been a bit demoralizing to have not made any progress on my NW since last July but I just keep reminding myself to take a step back and see that market returns are still very healthy over my investing career. In the meantime, I've continued to accumulate shares aggressively in hopes this will supercharge my growth in the coming years.

Yup, you have the right mindset. Keep accumulating shares and buying on a discount. When the market comes back, you will be in very good position.

 

[ERD50]

Yup, you have the right mindset. Keep accumulating shares and buying on a discount. When the market comes back, you will be in very good position.

+1

I know it's not all that comforting, but downturns during the accumulation phase area good thing.

-ERD50

 

[livingalmostlarge]

With kiddo is spending still $80k? That I would think will affect FIRE mostly if you still spend the same before kid and after kids. Darn kids cost more to feed, travel, clothe, etc.

 

[Eastfolk]

With kiddo is spending still $80k? That I would think will affect FIRE mostly if you still spend the same before kid and after kids. Darn kids cost more to feed, travel, clothe, etc.

Good question. I actually have been keeping a very detailed track of our expenses over the last 3 years. Expenses have increased to $100k with my daughter and so I’ve adjusted my FIRE target to $3.3m to accommodate using a 3% SWR. Probably on the conservative side considering my mortgage and interest account for about $30k of that and I only have 12 more years before I pay that off.

 

[Blue65]

Good question. I actually have been keeping a very detailed track of our expenses over the last 3 years. Expenses have increased to $100k with my daughter and so I’ve adjusted my FIRE target to $3.3m to accommodate using a 3% SWR. Probably on the conservative side considering my mortgage and interest account for about $30k of that and I only have 12 more years before I pay that off.

My opinion is that the greatest derailment to any plan are things you don’t really know:
1. Kids that need more financial help than you think for a longer period of time.
2. Home upgrades
3. Vacations
4. Changes to your career that weren’t anticipated.
5. Compromises with spouse on how money is spent and priorities.

 

[Eastfolk]

My opinion is that the greatest derailment to any plan are things you don’t really know:
1. Kids that need more financial help than you think for a longer period of time.
2. Home upgrades
3. Vacations
4. Changes to your career that weren’t anticipated.
5. Compromises with spouse on how money is spent and priorities.

Agree with your list. Hopefully a 3% SWR, which I understand to be more on the conservative end even with an early retirement, should be enough to absorb most if not all of the unknowns. But maybe I need to build in even more cushion to the plan with a 2.5% SWR.