45 yrs old | Married | 2 Kids | Is it Time To Quit?

[Ready]

By trying to invest in good companies (stocks) for the last 20 years.
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You have an unusual 401K plan. The plans I’ve participated in all required me to limit my contributions to funds that were preselected by the 401K plan manager. Individual stocks were never an option for me. It’s nice to have that flexibility in your plan.

 

[HawaiiShrimp]

You have an unusual 401K plan. The plans I’ve participated in all required me to limit my contributions to funds that were preselected by the 401K plan manager. Individual stocks were never an option for me. It’s nice to have that flexibility in your plan.

Yea, agree. My company allow us to buy individual stocks. It makes a difference. I can buy whatever I feel have the highest chance to succeed. I didn't have to stuck with pre-defined funds.

 

[Ready]

Yea, agree. My company allow us to buy individual stocks. It makes a difference. I can buy whatever I feel has the highest chance to succeed. I don't want to stuck with pre-defined funds.

Your annual spend of $60K is quite low for someone with your net worth. Granted most of your savings is in pre-tax accounts and you are both young so if you wanted to spend that money you would incur penalties to take it out.

But even still you are setting yourself up to leave a very large inheritance to your heirs if you don’t increase your spending at some point. You are both still young so you have plenty of years to go. But my recommendation would be to either loosen up and spend some more, or accept the fact that you are now working to save money that you will likely never spend yourselves.

 

[ILikeStarTrek]

[Edit: I see other people have just asked the same questions I'm asking here - I didn't see the past few posts until after I posted. It seems you have been investing in individual stocks, which partially answers the question. But I'm still curious - did you really average a 15% return for the past 22 yrs in your 401k?]

1. Age: 45
2. Wife: 41
3. Salaries: $180k (me), $50k (wife)
4. Portfolio (Pre-tax): $7.2M (Stocks)

We, my wife and I, are both max'ing out 401k. That's ~$36k annually
Thank you for your advice. Cheers!

I don't have a lot to add beyond what others have already said. You have done beautifully - AMAZING amount of savings. You should easily be able to retire, financially. Your main challenge will be deciding how you want to spend your time in retirement!

But I have a curiosity question.

You have so much savings, particularly in pre-tax money, that I'm struggling to understand how you accumulated so much money. If you don't mind sharing, can you help me understand this?

You're age 45, so assuming you started investing for retirement right after college, that's an investment time frame of about 22 years.

You also said you have been contributing $36k/yr pre-tax. However, you cannot have been contributing that much the whole time, because the 401k contribution limit was a lot lower in earlier years. E.g. in 2000 (20 yrs ago), the contribution limit was $10,500 instead of $18,000, so your max contribution as a couple was only $21k at that time.

Even if you had been contributing $36k for the past 22 yrs, and assuming a $4k company match taking the total contributions to $40k/yr. - using a compound interest calculator:
Assuming weekly compounding - contributing $40k/yr for 22 yrs, to get to the $7.2M in your pre-tax account means you were getting a 15.2% annual return. That seems impossible. Even with your portfolio of 100% stocks, the past 22 yrs includes the recessions of 2001 and 2008-9.

Using an S&P CAGR calculator online (at moneychimp.com) for the period Jan 1998 to Dec 2019 (22 yrs), it comes up with an average CAGR of 7.6%. Plugging the 7.6% return into the compound interest calculator for 22 yrs, you must have contributed $127k/yr to end up with $7.2M for this time period. That's far more than the $36k annual amount you said you were contributing.

What am I missing? The $7.2M must be something more than a simple 401k account you have been contributing to for the past 22 yrs. Maybe you inherited an IRA?

 

[HawaiiShrimp]

[Edit: I see other people have just asked the same questions I'm asking here - I didn't see the past few posts until after I posted. It seems you have been investing in individual stocks, which partially answers the question. But I'm still curious - did you really average a 15% return for the past 22 yrs in your 401k?]

No problem. I am happy to answer your questions. I don't average 15% annually. Over the years, depend on each stocks, some of them are significantly higher.

You have so much savings, particularly in pre-tax money, that I'm struggling to understand how you accumulated so much money. If you don't mind sharing, can you help me understand this?

Over the years, I invested in different asset classes: Big Oil, Natural gas, mining companies, casino stocks, tech stocks. I got lucky and investment grows. Snowball effects, dividend reinvest, compounding over time etc.

You're age 45, so assuming you started investing for retirement right after college, that's an investment time frame of about 22 years.

I started around year 2000. 20 years or so.

You also said you have been contributing $36k/yr pre-tax. However, you cannot have been contributing that much the whole time, because the 401k contribution limit was a lot lower in earlier years. E.g. in 2000 (20 yrs ago), the contribution limit was $10,500 instead of $18,000, so your max contribution as a couple was only $21k at that time.

I tried to max out my 401k and Roth if I can. I did not max out every year because I need some money to buy my 1st house and rental property along the away.

Even if you had been contributing $36k for the past 22 yrs, and assuming a $4k company match taking the total contributions to $40k/yr. - using a compound interest calculator:
Assuming weekly compounding - contributing $40k/yr for 22 yrs, to get to the $7.2M in your pre-tax account means you were getting a 15.2% annual return. That seems impossible. Even with your portfolio of 100% stocks, the past 22 yrs includes the recessions of 2001 and 2008-9.

What am I missing? The $7.2M must be something more than a simple 401k account you have been contributing to for the past 22 yrs. Maybe you inherited an IRA?

I didn't inherit anything. My parents gave me $2000 for college and ask me to make it works. "It's time to take care yourself" talk.

During my investment journey, I hit several 5 baggers, 6 baggers, even 30 baggers over the years. For example, Facebook, Apple, Nvidia, Tesla, NextEra, Netflix, Google, different oil companies before oil crashes, different gold stocks before it cooled down. Those stocks have significant higher returns than normal index funds. I did not buy options or margin call. I don't believe in day trading, so I just buy and hold.

I was taking significantly higher risk with a fairly concentrated portfolio of a few companies I researched and believed in. I'm not so much into diversification by then. I chased for higher returns when I was young & reckless. Overall, I took some semi-educated risks and it paid off by luck. Fact is, I got lucky an no one gets lucky forever. "Better take some off the table when I'm ahead" mentality kicked in at some point in my investment journey. In the last 5-7 years, I scaled back to index funds and only hold a few individual stocks.

I hope this information helps. Thanks.

 

[HawaiiShrimp]

But my recommendation would be to either loosen up and spend some more, or accept the fact that you are now working to save money that you will likely never spend yourselves.

I totally agree with you on this. We have been frugal all our life. It's almost like we need to train ourselves to feel okay to spend a little. Nowadays, we are more flexible in dining out, order more expensive dishes, etc. For example, I just got my kid an Ipad Air. He will love it when it arrives.

With $2.2M in Taxable account, I intend to use half of that (+ the equity of the CA house) to buy a house in WA. That's my 5 year plan. So, after that, there won't be a lot of buffer left after this major spending. Something I keep in mind constantly.

 

[ocean view]

If you buy your dream house in cash, will you have enough left in taxable to live on until you reach 59.5 and can start pulling from your pre-tax savings?

 

[ckelly78z]

As a family, we stay home and do family things (cooking, baking, in-door exercises, reading a lot), so we want to get a dream house. Sounds cheesy, I know. The area we are interested in WA, house prices are in that range.



Yes, I think so. We are currently living in a modest house in South Cal standard. Typical 2000-2500 sqfts, 2 story, tract home.



No Inheritance here. I like to invest and started in my low 20's. I've been invested in individual stocks and index funds for a while.

It's good to hear how successful you, and your family have been, I also wondered about an inheritance when I saw those figures...good for you !

It's also reassuring to see how well someone with discipline from an early age can accumulate at a still relatively young age.

 

[HawaiiShrimp]

If you buy your dream house in cash, will you have enough left in taxable to live on until you reach 59.5 and can start pulling from your pre-tax savings?

This is my #1 concern about buying a $2M house. It will leave me about $1.2-$1.4 to spend until I reach 55. 10 years. That's about $100k per year. It's tight, but do'able. I certainly hope the Taxable account to increase in the next 3-4 years to "give it more room."


Note:
The Rule of 55 is an IRS provision that allows you to withdraw funds from your 401(k) or 403(b) without a penalty at age 55 or older. E.g. If you leave your job at age 55 or older and want to access your 401(k) funds, the Rule of 55 allows you to do so without penalty.

 

[HawaiiShrimp]

It's good to hear how successful you, and your family have been, I also wondered about an inheritance when I saw those figures...good for you !

It's also reassuring to see how well someone with discipline from an early age can accumulate at a still relatively young age.

Thank you for your kind words. We worked hard and stayed focus on building wealth. It's all about having financial security for the family. I think it is doable to do it, just need to focus, invest wisely, live below your means, and be patient. Thanks again.

 

[rodi]

This is my #1 concern about buying a $2M house. It will leave me about $1.2-$1.4 to spend until I reach 55. 10 years. That's about $100k per year. It's tight, but do'able. I certainly hope the Taxable account to increase in the next 3-4 years to "give it more room."


Note:
The Rule of 55 is an IRS provision that allows you to withdraw funds from your 401(k) or 403(b) without a penalty at age 55 or older. E.g. If you leave your job at age 55 or older and want to access your 401(k) funds, the Rule of 55 allows you to do so without penalty.

The IRS rules *allow* for this, but don't require it. Please check your 401k plan to double check your plan allows it. This also means you must keep your funds with the employers plan, vs rolling it over.

Another option is a 72t withdrawal from an IRA. This allows a yearly equal withdrawal for several years until your are 59.5 or 10 years (I think it's 10 years... could be wrong.) whichever is longer. You should investigate that option if you do not want to keep your funds with your employers 401k plan. Several of our members have used this.

 

[Live Large]

Smart LUCK Great Job!

No problem. I am happy to answer your questions. I don't average 15% annually. Over the years, depend on each stocks, some of them are significantly higher.



Over the years, I invested in different asset classes: Big Oil, Natural gas, mining companies, casino stocks, tech stocks. I got lucky and investment grows. Snowball effects, dividend reinvest, compounding over time etc.



I started around year 2000. 20 years or so.



I tried to max out my 401k and Roth if I can. I did not max out every year because I need some money to buy my 1st house and rental property along the away.



I didn't inherit anything. My parents gave me $2000 for college and ask me to make it works. "It's time to take care yourself" talk.

During my investment journey, I hit several 5 baggers, 6 baggers, even 30 baggers over the years. For example, Facebook, Apple, Nvidia, Tesla, NextEra, Netflix, Google, different oil companies before oil crashes, different gold stocks before it cooled down. Those stocks have significant higher returns than normal index funds. I did not buy options or margin call. I don't believe in day trading, so I just buy and hold.

I was taking significantly higher risk with a fairly concentrated portfolio of a few companies I researched and believed in. I'm not so much into diversification by then. I chased for higher returns when I was young & reckless. Overall, I took some semi-educated risks and it paid off by luck. Fact is, I got lucky an no one gets lucky forever. "Better take some off the table when I'm ahead" mentality kicked in at some point in my investment journey. In the last 5-7 years, I scaled back to index funds and only hold a few individual stocks.

I hope this information helps. Thanks.

You have shared a lot! I think it’s great you hit the investment jackpot ~ I learned in HS social studies in a mock stock contest $1000 buying power. I bought what I knew and understood ~ the Peter Lynch method right? Many on this site may recall his name. Circa 1984 Nike, Coke, McDonald’s that’s about all I remember, oh, I came in 2nd $1200 + 200 gain. Now only if that $1000 was real and I held!!!

Why is this relevant? I once bought 3 of the seven stocks you mentioned considered 2 others but never pulled the trigger! That same year 1984 my HS friend had early generation Apple computer go figure. So in my 20’s 30’s 40’s maxed out my deferred mainly index mutual funds etc. Had discount brokerage since 1993. Individual stocks I had bought and sold ? Apple sold Netflix paid $8sh
sold way too early...lol. FB - $19-21 biggest gain.
So if I had held like you, sure I would’ve had more luck. Looked at Google $80sp Tesla $21sp. I lived in Fremont CA when it was Ford/Numi/now Tesla plant.
South of Fremont “Silicon Valley” aka San Jose CA.
Los Altos is where Netflix was founded.
Worked in San Bruno near Google headquarters.
I was shortsighted, lost on speculation so would never follow the Warren Buffet way but no regrets.
Overall portfolio of investments low 7 figure comfy.

You did it! You were able to crack the code! Held on to the real returns as a layman stock picker! As another saying here, you’ve Won the game...caution
if you keep playing high stakes is the lesson.

I last suited up for my job May of 2016, I was 49.
I floated around not working until the ink dried on my paper work April 2018 so officially retired age 51.
Not easy just quitting but use Nike slogan - Just Do it

This ER site is the best! Candid straightforward no bars held. Do what you want Shrimp! Go and enjoy the rest of your life with family & friends! I’m going to call you “Jumbo” Shrimp . LIVE LARGE!

 

[HawaiiShrimp]

Why is this relevant? I once bought 3 of the seven stocks you mentioned considered 2 others but never pulled the trigger! That same year 1984 my HS friend had early generation Apple computer go figure. So in my 20’s 30’s 40’s maxed out my deferred mainly index mutual funds etc. Had discount brokerage since 1993. Individual stocks I had bought and sold ? Apple sold Netflix paid $8sh
sold way too early...lol. FB - $19-21 biggest gain.
So if I had held like you, sure I would’ve had more luck. Looked at Google $80sp Tesla $21sp. I lived in Fremont CA when it was Ford/Numi/now Tesla plant.

I am a big fan of Peter Lynch, more so than Warren Buffett. I was a believer in Value Investing until I realize I missed out on early Apple, early Netflix and early Amazon gains. "It's not too late to change strategy," I told myself. So I did.

As a result, I am focusing on growth stocks (with 10x potentials) and the rest goes into index funds. The biggest lesson I learn from Peter Lynch's book "One Up on Wall Street" is: Don't sell your winners too early. It works out fine so far. I have a lot to learn. Investment is a journey as it is an art.

Keep on learning and investing. Cheers!

 

[Out-to-Lunch]

The biggest lesson I learn from Peter Lynch's book "One Up on Wall Street" is: Don't sell your winners too early. It works out fine so far. I have a lot to learn. Investment is a journey as it is an art.

Yes, true. Lucky for you that you are not 12-15 years older, and so would have followed this advice through the dot-bomb!

 

[FI_by_2023]

I don’t post too often, but like to read frequently. Congratulations on your success. Saved like a pessimist and invested like an opportunist!

I echo the 72t to pull down qualified dollars for liquidity .... and to manage taxes.

 

[ILikeStarTrek]

This is my #1 concern about buying a $2M house. It will leave me about $1.2-$1.4 to spend until I reach 55. 10 years. That's about $100k per year. It's tight, but do'able. I certainly hope the Taxable account to increase in the next 3-4 years to "give it more room."


Note:
The Rule of 55 is an IRS provision that allows you to withdraw funds from your 401(k) or 403(b) without a penalty at age 55 or older. E.g. If you leave your job at age 55 or older and want to access your 401(k) funds, the Rule of 55 allows you to do so without penalty.

The Rule of 55 does allow you to access 401k funds from the company you leave the year you turn 55 (or older). But you are wanting to retire at age 50 or sooner. So the Rule of 55 would not apply to you (even later when you turn 55).

You can consider a 72t as other posters have suggested. But you have to look carefully at how much you can withdraw using this. Not sure if you can set it up to get as much money as you want.

Another possibility is to *not* pay cash for your house in Washington. Putting 50% down will leave you with an extra $1M in your non-retirement funds. Make the regular payments until you reach age 59.5 so you can access your $7.2M (and growing) retirement funds. Then withdraw enough to pay the house off. You may not want to pull out the entire $1M in one year since it would put you into a high tax bracket, but you could split it into 5-10 yrs of $100k to $200k withdrawals until the house is paid off. But the point is, it will give you a lot more flexibility since you will have much more of your non-retirement funds available for other spending.

If you do decide to get a loan for the house in Washington, just make sure you can qualify for a loan if you are already retired at that point. Believe it or not, even with millions of dollars of net worth, without an income it can be challenging to get a mortgage loan. Talk to a mortgage broker for more details. One way to get around this could be to buy your house in Washington before you quit your job. Even with having to pay 2 mortgage payments for a few months, it may be a lot easier to qualify for a loan this way.

 

[HawaiiShrimp]

Another possibility is to *not* pay cash for your house in Washington. Putting 50% down will leave you with an extra $1M in your non-retirement funds. Make the regular payments until you reach age 59.5 so you can access your $7.2M (and growing) retirement funds. Then withdraw enough to pay the house off. You may not want to pull out the entire $1M in one year since it would put you into a high tax bracket, but you could split it into 5-10 yrs of $100k to $200k withdrawals until the house is paid off. But the point is, it will give you a lot more flexibility since you will have much more of your non-retirement funds available for other spending.

If you do decide to get a loan for the house in Washington, just make sure you can qualify for a loan if you are already retired at that point. Believe it or not, even with millions of dollars of net worth, without an income it can be challenging to get a mortgage loan. Talk to a mortgage broker for more details. One way to get around this could be to buy your house in Washington before you quit your job. Even with having to pay 2 mortgage payments for a few months, it may be a lot easier to qualify for a loan this way.

ILikeStarTrek,
I really appreciate your solid advice. This is exactly what I am looking for. Much appreciated!! -Shrimp

 

[HawaiiShrimp]

Update:

Thanks to the recent investment gains, my portfolio has grown to ~$14.3M. Net worth reached ~$15M. That will allow me and my family to live off the money from our taxable investment account while the 401k and ROTH IRA accounts to continue growing.

By the way, I discussed with my boss, she's okay for me to work from WA if I decide to move there. She supports the idea and she's also thinking about moving to Colorado with her family as well. Looks like the California exile is real.

 

[Dtail]

Update:

Thanks to the recent investment gains, my portfolio has grown to ~$14.3M. Net worth reached ~$15M. That will allow me and my family to live off the money from our taxable investment account while the 401k and ROTH IRA accounts to continue growing.

By the way, I discussed with my boss, she's okay for me to work from WA if I decide to move there. She supports the idea and she's also thinking about moving to Colorado with her family as well. Looks like the California exile is real.

Wasn't your NW 10m just a month ago?
If so, you had investment gains of 5m in one month?

 

[finnski1]

Wasn't your NW 10m just a month ago?
If so, you had investment gains of 5m in one month?

I was wondering the same thing myself. Maybe he has a bunch of Tesla

 

[Aerides]

A 50% NW gain in 30 days is pretty impressive... either a lot of BC or a lot of B something else (sorry OP I could not resist, but congrats!)

 

[street]

^ kind of thinking the same thing. Lol

 

[teej1985]

If your NW swings from $10M to $15M in one month, when do you trim the gains? How much do you lose to taxes? That sounds like a pretty volatile portfolio.

 

[HawaiiShrimp]

Wasn't your NW 10m just a month ago?
If so, you had investment gains of 5m in one month?

Yes, Tesla happened again and my own company stocks also appreciated hugely in the last few months.

 

[HawaiiShrimp]

If your NW swings from $10M to $15M in one month, when do you trim the gains? How much do you lose to taxes? That sounds like a pretty volatile portfolio.

I'm not selling a single share, so no capital gain here. I am not a trader, just a good 'ol long term buy & hold investor.